Opinion
No. X04 CV 04 4000302 S
April 17, 2007
RULING ON MOTION TO APPOINT RECEIVER
The defendant-counterclaimant Magnotta has requested the court to appoint a receiver for the plaintiff corporation pursuant to General Statutes § 33-898. The plaintiff objects, and a hearing was held on March 30, 2007.
The court has considered information credited at the hearing as well as facts garnered through the course of this litigation. The plaintiff's underlying contention is that the defendant, at the time a director, officer and one of two shareholders of the corporation, misappropriated finds and owes them, as well as a variety of punitive damages and interest. The plaintiff claims that the defendant Magnotta resigned from his positions with the corporation shortly after he was caught. Magnotta has claimed that any resignation was ineffective and that the corporation and Bascom individually are liable to him as well, partly because of time, resources and opportunities which Bascom misappropriated from the corporation.
At the hearing specifically devoted to the receivership issue, evidence was introduced to show that Bascom conducted business wit Robert Kuehl and a related company, Sports Mark LLC. There is some dispute as to whether Bascom devoted any substantial amount of BMI, Inc., resources to the projects and whether Bascom worked on other than nights and weekends with Kuehl and Sports Mark. If evidence introduced by Magnotta on the issue were to be fully credited, a finder of fact could find, subject perhaps to various defenses, that Kuehl and/or Sports Mark, and perhaps other entities, ought to be liable to BMI. It is clear that BMI, under its current direction, has no interest in pursuing any claims it may have against entities other than Magnotta.
It is also clear that the potential claims against the other entities have less than startling value. A capital contribution of $7,000 was alleged to have been indirectly and improperly made by BMI. Other allegedly improper payments to Bascom personally, when allegedly they should have been made to BMI, are in the $1,000 to $5,000 range and are hotly contested.
The court is authorized to appoint a receiver pursuant to General Statutes § 33-898. Though this section does not specifically state the standards to be applied, the section refers to the ability to appoint a receiver when the company is involved in a dissolution proceeding. Section 33-896(a), in turn, provides for a cause of action to dissolve a corporation to be brought by a shareholder if the directors "or those in control of a corporation have acted, are acting or will act in a manner that is illegal, oppressive or fraudulent" or if the "corporate assets are being misapplied or wasted." These standards are consistent with the former sections (e.g., §§ 33-115; 33-120) and with case law. See, e.g., Horton v. Hydra Systems International, Inc., 16 Conn.App. 420 (1988); Krall v. Krall, 141 Conn. 325 (1954); Olechny v. Thadeus Kosciuszko Society, 128 Conn. 534 (1942); Shorrock v. Law, 1996 WL 680068 (Karazin, J., 1996).
The power to appoint receivers should be exercised with equitable principles in mind and only sparingly. Horton, supra; Olechny, supra; Masoth v. Central Bus Corp., 104 Conn. 683, 695 (1926). Thus, complete corporate deadlock may require the appointment of a receiver; Krall, supra; as may a need to prevent waste of shareholders' assets. Horton, supra. Where another remedy exists, or where equity does not demand the extreme remedy, the court ought not appoint a receiver. Shorrock, supra; Masoth, supra.
For the following reasons, I do not believe that equity compels the appointment of a receiver in the circumstances of this case. A primary reason is that a receiver would not perform services gratuitously. Parties in this case would be assessed the cost of a receiver, whose sole duty, on the facts presented by the counterclaimant, would be to attempt to collect monies from third parties. Presumably the receiver would have to hire an attorney to accomplish this. It certainly appears that the value of what would be collected would be dwarfed by the cost of collecting it. Equity ought not compel the doing of an economically foolish act.
A related consideration is that the entities who Magnotta thinks should be sued dealt with Bascom, and Magnotta has already brought an action against Bascom to attempt to recover the allegedly misspent and misappropriated assets. Though the action against Bascom and a contemplated action against third parties may not be entirely duplicative, it would appear that most or all of the allegedly wasted assets that are recoverable at all would be recoverable from Bascom. Because of the additional cost of another layer of expense, the appointment of a receiver would seem to be inefficient. The court also has doubts about the success of third party actions at this point.
The corporation at this point is not functioning and many of the rationales supporting the appointment of a receiver do not exist as a result. The only purpose would be to attempt to collect monies due, and the corporation, as currently led, was and is not inclined to pursue those options. The decision may or may not have been justified. But at this point the costs outweigh the benefits, and most of whatever benefit there is can probably be pursued through Bascom. The motion to appoint the receiver (#144) is denied.