Pearson v. First National Bank

Max H. PEARSON v. FIRST NATIONAL BANK of
DeWitt

95-1084                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered June 24, 1996


1.   Civil procedure -- intervention -- three requirements for
     intervention as matter of right. -- There are three
     requirements that an applicant must meet in order to intervene
     as a matter of right:  (1) he has a recognized interest in the
     subject matter of the primary litigation; (2) his interest
     might be impaired by the disposition of the suit; and (3) his
     interest is not adequately represented by existing parties;
     intervention as a matter of right cannot be denied; however,
     if a party seeking intervention will be left with his right to
     pursue his own independent remedy against the parties in the
     primary proceeding, regardless of the outcome of the pending
     case, then he has no interest that needs protecting by
     intervention of right.

2.   Bankruptcy -- appointment of receivers -- when appointment
     proper. -- The cases in which receivers ordinarily will be
     appointed are confined to those in which it can be established
     to the satisfaction of a court that the appointment of a
     receiver is necessary to save the property from injury or
     threatened loss or destruction, or that the claimants in
     possession are excluding another party from rights which the
     latter has in the land; a receiver is a fiduciary representing
     the court and all parties in interest and an embodiment of the
     creditors standing as an agent for them.
 
3.   Civil procedure -- intervention as matter of right should have
     been allowed -- trial court's order of receivership affected
     appellant's claim. -- Where appellee did not seek receivership
     so it could represent all interested parties, but instead the
     primary purpose of the receivership was to augment appellee's
     own position in the proceedings before the FCC, the appellate
     court concluded that the trial court's order affected
     appellant's claim to the FCC that he was entitled to a radio
     license; appellant should have been allowed to contest the
     appointment of appellee as receiver; the trial court erred in
     refusing to allow appellant to intervene as a matter of right.
     

     Appeal from Arkansas Chancery Court, Southern District;
Russell Rogers, Chancellor; reversed and remanded.
     Hoofman & Pike, P.A., by:  George E. Pike, Jr., for appellant.
     Russell D. Berry, for appellee.

     Bradley D. Jesson, Chief Justice.June 24, 1996   *ADVREP*SC4*







MAX H. PEARSON,
                    APPELLANT,

V.

FIRST NATIONAL BANK OF DEWITT,
                    APPELLEE,





95-1084


APPEAL FROM THE ARKANSAS COUNTY
CHANCERY COURT, SOUTHERN
DISTRICT (E94-53)


HONORABLE RUSSELL ROGERS
CHANCERY JUDGE




REVERSED AND REMANDED.


                BRADLEY D. JESSON, CHIEF JUSTICE

     
     This is an intervention case.  Appellee First National Bank of
DeWitt ("First National"), a secured creditor of a company that
owned and operated a federally licensed radio station, successfully
sought an ex parte order appointing it receiver for purposes of
furthering its claim before the Federal Communications Commission
("FCC") that it was entitled to the radio license.  In this appeal,
appellant Max H. Pearson, who also claims he is entitled to the
license, contends that he should have been allowed to intervene in
the cause of action as a matter of right.  We agree and reverse and
remand.
     On April 5, 1994, First National initiated a receivership
action against Quadras Corporation, which owned and operated KDEW,
an AM/FM radio station in DeWitt.  According to First National's
petition, it was a creditor of Quadras, whose stockholders
personally guaranteed the debt.  The debt was secured by a pledge
of all outstanding common shares.  First National had perfected its
security by taking actual possession of the stock certificates. 
When Quadras defaulted, First National in a separate action sought
and obtained a judgment in Lonoke County Circuit Court against
Quadras and its sole stockholder, Willie R. Harris.  First National
was awarded all outstanding common stock of Quadras.   
     Thereafter, Quadras filed applications with the FCC to sell
and transfer the license to operate the station.  According to
First National, the FCC failed to recognize its interest as
creditor and owner of Quadras's stock, yet indicated that it would
recognize its status if it were appointed receiver.  The bank thus
petitioned for the appointment "to make appropriate appearances
before the FCC for the purpose of preserving assets and licenses in
connection with Quadras and to ultimately liquidate same in an
orderly fashion."  Pearson was not given notice of the proceeding. 
     On April 6, 1994, the day after First National filed its
petition, the trial court entered an ex parte order appointing the
bank as receiver.  The order expressly provided that First National
"is authorized to prepare, execute and file with the Federal
Communications Commission the forms necessary, including FCC form
316, to effect the involuntary transfer of control and assignment
of license and/or construction permits held by Quadras, Inc., to
the receiver, and to undertake any other action with the Federal
Communications Commission as it deems fit and proper."  
     Pearson filed a motion to intervene on June 20, 1994, which is
the subject of the present appeal.  He claimed that, in July of
1993, he had entered into a contract, subject to FCC approval, to
purchase the Quadras license and other property.  Claiming that
First National had a vested interest in the outcome of any
receivership proceeding and that it had obtained the ex parte order
for the exclusive purpose to interfere with his attempt to perfect
an assignment of the radio license, Pearson requested to intervene
for the purpose of setting aside the order.
     In its response to Pearson's motion, First National asserted
that Pearson's contract was void because it had not been authorized
or approved by Quadras officers; rather, it had been signed by
Lucille Harris, the wife of Willie R. Harris, whom the bank
maintained had no authority to act on behalf of the corporation.  
The trial court denied Pearson's motion to intervene.  When Pearson
asked the court to reconsider its ruling, the trial court conducted
a hearing and again denied intervention.  In so ruling, the trial
court reasoned that Pearson had not shown that First National's
appointment as receiver would damage him, and that Pearson's
contract claim could be litigated in a separate action.  It is from
this order denying intervention that Pearson appeals. 
    The rule governing intervention as a matter of right in a civil
case is Arkansas Civil Procedure Rule 24(a).  It reads: 
     (a) Intervention of Right. Upon timely application anyone
     shall be permitted to intervene in an action: (1) when a
     statute of this state confers an unconditional right to
     intervene; or (2) when the applicant claims an interest
     relating to the property or transaction which is the
     subject of the action and he is so situated that the
     disposition of the action may as a practical matter
     impair or impede his ability to protect that interest,
     unless the applicant's interest is adequately represented
     by existing parties. 

We have articulated three requirements that an applicant must meet
in order to intervene as a matter of right:  (1) that he has a
recognized interest in the subject matter of the primary
litigation; (2) that his interest might be impaired by the
disposition of the suit; and (3) that his interest is not
adequately represented by existing parties.  Billabong Prods., Inc.
v. Orange City Bank, 278 Ark. 206, 644 S.W.2d 594 (1983). See also
Bradford v. Bradford, 52 Ark. App. 81, 915 S.W.2d 723 (1996). 
Intervention as a matter of right cannot be denied.  Schacht v.
Garner, 281 Ark. 45, 661 S.W.2d 361 (1983).  However, we have also
held that, if a party seeking intervention will be left with his
right to pursue his own independent remedy against the parties in
the primary proceeding, regardless of the outcome of the pending
case, then he has no interest that needs protecting by intervention
of right. Billabong Products, Inc. v. Orange City Bank, supra.
     At first glance, it would appear that the trial court's denial
of intervention was correct for the reason that Pearson could have
filed a primary action in state court and was thus not left without
a remedy.  While the receivership proceeding was an ancillary one,
it was nevertheless a significant step that can affect the rights
of the parties. Boeckmann v. Mitchell, 322 Ark. 198, 909 S.W.2d 308
(1995)  In Boeckmann, we recognized the significance of 
appointments of receivers and emphasized that such appointments
should be made with restraint and caution: 
     The power to appoint a receiver is, of course, a harsh
     and dangerous one.  Kory v. Less, 180 Ark. 342, 22 S.W.2d 25 (1929).  "The cases in which receivers ordinarily will
     be appointed are confined to those in which it can be
     established to the satisfaction of a court that the   
     appointment of a receiver is necessary to save the    
     property from injury or threatened loss or destruction,
     or that the claimants in possession are excluding another
     party from rights which the latter has in the land." 
     Saylor v. Hilton, 190 Ky. 200, 226 S.W.2d 1067 (1921). 
 

322 Ark. at 203, citing Chapin v. Stuckey, 286 Ark. 359, 692 S.W.2d 609 (1985).  In Talbot v. Jansen, 294 Ark. 537, 744 S.W.2d 723
(1988), we described a receiver as a "fiduciary representing the
court and all parties in interest" and an "embodiment of the
creditors standing as an agent for them." (Emphasis added.)
     In this case, First National did not seek receivership so it
could represent all interested parties.  To the contrary, as First
National suggests in its complaint, the primary purpose of the
receivership was to augment its own position in the proceedings
before the FCC, as the FCC indicated it would only recognize the
bank's status if it were so appointed.  While First National
suggests that Pearson is not entitled to the license because his
contract with Quadras is void, this is not the issue before us.  In
the final analysis, the FCC makes radio license determinations, as
the Commission is the entity charged with safeguarding the public
interest in granting such licenses.  Radio Station WOW v. Johnson,
326 U.S. 120 (1945).  
     The significance of the appointment in this case is thus
demonstrated in the trial court's order authorizing First National
to prepare, execute, and file with the FCC the necessary forms to
effect the voluntary transfer of the radio license to the receiver,
First National.  When examining the scope of the trial court's
order, we must conclude that it affected Pearson's claim to the FCC
that he is entitled to the radio license.  See Beavers v. Espinoza,
803 P.2d 1111 (N.M.App. 1990)(appellate court concluded that the
trial court's order setting aside conveyance of radio station
license due to lack of notice of probate proceedings enhanced the
FCC's power and responsibility by allowing interested parties,
including plaintiff and defendants, an opportunity to assert any
arguments regarding the assignment of the radio license.)    
     We cannot overlook the fact that First National had itself
appointed receiver even though it has an interest in the matter, an
appointment which was in apparent violation of Ark. Code Ann.  16-
17-207 (1987).  Basic fairness dictates that Pearson be allowed to
contest the appointment of First National as receiver under these
circumstances.  Because we conclude that the trial court's order of
receivership affected Pearson's claim, we hold that the trial court
erred in refusing to allow Pearson to intervene as a matter of
right.   
     Reversed and remanded.
     Newbern, Corbin, and Roaf, JJ., dissent.  ASSOCIATE JUSTICE DAVID NEWBERN 6/24/96   *ADVREP*SC4-A*


MAX H. PEARSON                     95-1084
                                   Opinion Delivered:
          Appellant

     v.                            

FIRST NATIONAL BANK OF DEWITT      

          Appellee                 Dissenting Opinion




     The sole issue in this appeal is whether the Trial Court erred
in denying the petition of Max H. Pearson to intervene in the
action of the First National Bank of DeWitt seeking to be declared
a receiver.
     Intervention as a matter of right is governed by Ark. R. Civ.
P. 24(a).  The rule requires a party seeking to intervene as a
matter of right to show that "disposition of the action may as a
practical matter impair or impede his ability to protect [his]
interest."  There has been no such showing in this case, so we
should not reverse the Trial Court's order which denied Mr.
Pearson's petition.
     We have no record of that which has occurred with respect to
the Quadras, Inc., license before the Federal Communications
Commission.  We do, however, have before us the allegations of the
Bank that it owns the Quadras stock and thus its assets, and that
the FCC has declined to recognize the Bank's interest in the
license owned by Quadras, Inc., unless the Bank becomes a
"receiver."  Mr. Pearson does not dispute any of those allegations.
     Mr. Pearson's argument is stated in his brief before this
Court as follows: 

     But FNB admitted in its pleading that the FCC had refused to
     recognize FNB's application for transfer of the license as a
     creditor and stockholder, but would recognize FNB's
     application if it was a receiver.
          Thus, Max Pearson's rights are effectively terminated
     since, without the receivership, FNB cannot proceed before the
     FCC and if FNB is permitted to act as receiver, it will
     naturally act in its own self interest, and declare Max
     Pearson's contract with Quadras, Inc., void.  [Emphasis
     supplied.]

Allowing the Bank to be a receiver will not terminate Mr. Pearson's
rights.  It will only put before the FCC another party who also has
a claim to the license.  There is no evidence the FCC will do
anything, if both parties' claims are before it, until the merits
of the issues of the corporate ownership and the validity of the
contract between Mr. Pearson and the corporation have been
litigated elsewhere.
     Mr. Pearson does not say how his rights before the FCC may be
affected other than that he would have a competitor.  If there is
to be any effect upon his interest in the license or if, in the
language of Rule 24(a), his ability to protect his interest is to
be impeded or impaired, that will come about as a result of
whatever the weaknesses of his own case before the FCC may be, and
not because another party is present to expose them.  
     Mr. Pearson argues that if the Bank is allowed to be the
receiver it will "declare Max Pearson's contract with Quadras,
Inc., void."  While that might well occur, Mr. Pearson has cited no
authority whatever indicating such a declaration would affect his
interest in the license.  He either has such an interest or does
not, and that issue will not be decided by a declaration by the
Bank but will have to be decided in a court or before the FCC, the
latter probably after litigation.
     While the majority's inability to resist going beyond the
intervention issue and commenting on the merits with respect to the
legality of the receivership by referring to Ark. Code Ann.  16-
17-207 (1987) is understandable, it is improper.  Again, the sole
issue before us is the propriety of the refusal of the Trial Court
to permit Mr. Pearson to intervene in the receivership proceeding
and not the propriety of the order granting the receivership.  He
has failed to demonstrate that the receivership will affect his
claim of an interest in the license, so the Trial Court's decision
should be affirmed.
     I respectfully dissent.  
     Corbin and Roaf, JJ., join.