Commonwealth Ex Rel. Truscott v. Yiddisher Kultur Farband

116 A.2d 555, 382 Pa. 553, 1955 Pa. LEXIS 435

• Court: Supreme Court of Pennsylvania
• Decided: June 27, 1955
• Docket: Appeal, 79
• Status: Published

Opinions

Opinion by

Mk. Justice Chidsey,

In this quo warranto proceeding the defendant, Yiddisher Kultur Farband, also known as Jewish Culture Association, appeals from an order of Judge Ellenbogen of the Court of Common Pleas of Allegheny County entered on January 25,1955 under which its charter as a nonprofit corporation was revoked and a liquidating trustee appointed to administer its assets.

In the complaint filed on behalf of the Commonwealth, the Attorney General sought only the revocation of the defendant’s charter and he stated at the oral argument and also in his written brief that in his opinion the order of the court should be modified so as to eliminate the court-appointed trustee and to permit the officers of the corporation to liquidate and distribute its assets. It also there developed that such modification of the order was the only matter seriously pressed by the appellant. Following the appeal taken from the order, the hearing judge filed an opinion of some length in support of the order as entered. Under the circumstances the only question for our consideration and determination is whether the decree should be so modified as contended for by both the defendant corporation and the Attorney General.

This is the third time that litigation involving the defendant has reached this Court. The defendant was incorporated as a nonprofit corporation under the Nonprofit Corporation Law of May 5, 1933, P. L. 289. It obtained its charter from the Court of Common Pleas of Allegheny County on May 22, 1944. The application for the charter stated that the purposes for which the corporation was formed were to encourage the study of Jewish literature, arts and cultural pursuits, together with a number of similar objectives. About nine years later Harry Alan Sherman, as attorney for Samuel Louis Sherman and Paul Ginsburg, presented a petition in the court below as of the original term and number at which the charter was granted, praying that the petitioners be permitted to intervene specially as parties. They alleged that the incorporators perpetrated a fraud upon the court by misrepresenting the purposes of the corporation, that “its true and clandestine purpose being the establishment of a Communist formed, controlled and directed ‘front’ for unlawful purposes,” that the existence of the corporation constituted a continuing fraud and that the corporate charter should be revoked. The petition was granted by Judge Ellenbogen. Preliminary objections filed by the Association were overruled but on appeal to this Court (375 Pa. 108) wé sustained the preliminary objections and dismissed the intervenors’ petition, holding that since they were not members of the Association and had no peculiar interest of their own, they possessed no status as interested parties and it was for the Commonwealth and for it alone, acting through the Attorney General, to apply for the issuance of a writ of quo warranto. On December 9, 1953 the Honorable Frank F. Truscott, Attorney General, filed an action in quo warranto against the defendant corporation. Preliminary objections filed thereto raising a question of jurisdiction were overruled and on appeal to this Court the order of the court below was affirmed (378 Pa. 383). The defendant filed an answer denying all of the material allegations of the complaint which in summary averred that defendant’s charter was obtained through perpetration of a fraud upon the court by misrepresentation of the purposes of incorporation, in that the actual purposes were to foster and promote unlawful Communist activities, and that the corporation had continuously engaged in such activities since its incorporation. After two pretrial conferences the case came to trial before Judge Ellenbogen and a jury on January 17, 1955. The defendant was represented in the proceeding by Hymen Schlesinger, and the Commonwealth by Deputy Attorneys General and Harry Alan Sherman, who was appointed as assistant counsel because of his connection with the earlier case.

At the pretrial conference held on January 3, 1955, counsel for the defendant stated that the corporation would surrender its charter if it were allowed time, suggesting ninety days, in whieh to dispose of its assets and wind up its affairs, and presented a proposed written stipulation in the form of a consent decree to this effect. After considerable discussion, Deputy Attorney General Friedman stated he would submit the stipulation to the Attorney General. During the interval between this pretrial conference and the trial, the Attorney General submitted to counsel for defendant three alternative forms of consent decrees. At the outset of the trial the Deputy Attorney General then in attendance announced that an agreement had been reached with counsel for defendant that the following consent decree be entered: “And now, this day of January, 1955, upon motion of Hymen Schlesinger, attorney for defendant, the parties consenting to this order and upon representation by said attorney for defendant that a resolution authorizing him to proffer the Charter of the above named corporation for revocation was adopted, and said attorney for defendant making such proffer in open court, It is Ordered and Decreed as Follows: 1. That the Charter of the defendant be revoked, effective as hereinafter provided. 2. The corporation is directed to liquidate and to dispose of its assets, real or personal, without liability on the part of any purchaser to see to the application of the purchase money, and to distribute the proceeds of any sale of real or personal property to the persons entitled thereto. 3. The Charter is hereby revoked said revocation to be effective for all purposes forthwith, except ¿or the purpose of disposition of real and personal property held by the corporation, which said disposition shall be completed on or before March 17, 1955, at which time all corporate powers, franchises, rights, privileges and other powers and the rights, privileges and powers of the members and officers thereof which remain after the date of this order solely for the purpose of dissolution in connection with such corporation, shall cease and determine.”

At this point Mr. Sherman, in defiance of the directions of his superior, the Attorney General, objected to the consent decree. The record reveals that throughout the proceedings Mr. Sherman was primarily interested in conducting an inquisition and desired that the trial continue, his ultimate aim being to obtain the identity of all the members of the Association in order to subject them to criminal prosecution. Needless to say, such an objective was entirely foreign to the quo warranto proceeding. As the Attorney General states in his brief: “There is no doubt that knowledge as to the identity of the members of this organization might be of aid in tracking them down and discovering their activities. However, a quo warranto proceeding is not a police investigation, nor is it calculated to furnish the basis for such investigations.”.

Mr. Sherman also, on his own initiative, opposed the consent decree unless a provision was contained therein that a trustee be appointed by the court for the disposition of the corporation’s assets. Apparently in sympathy with Mr. Sherman’s position, the court refused to enter the agreed upon consent decree and ordered counsel for defendant either to surrender the charter unconditionally or to proceed with the trial. In justification of this order the court, upon the preface “If the charges here made under oath by the Attorney General are true . . .”, stated in effect (1) that the organization was a danger to the peace and safety of the Commonwealth and the nation; (2) that the officers of the corporation have perpetrated a gross fraud upon the court; (3) that instead of encouraging the study of Jewish culture, the organization was serving the Communist party; (4) that the judge could not be certain that the officers, whose identity was unknown,¹ would properly administer the assets, but on the contrary there was reason to believe that they would use them to serve the aims and purposes of the Communist party. Following the court’s alternative order, counsel for the defendant requested permission to consult his client concerning this order. The court denied the request and directed that counsel proceed to try the case without further delay. The Deputy Attorney General excepted to the action of the court.

After the case, marked by continuous colloquies between counsel for the defendant and the hearing judge, had been in progress for over a week, counsel fearing that the court’s threat of disciplinary action toward him would militate against his client’s cause, asked for leave to withdraw from the case. Before any action was taken by the court on this motion, counsel requested permission to consult with his client. This request was denied. The motion to withdraw was granted and counsel advised that he was out of the case. When counsel subsequently renewed his request to consult with his client, the court replied, “You have no more client, you are out of the case.”. The court thereupon called the president of the corporation into his chambers, informed him that he had 24 hours within which to secure a lawyer and suggested that it might be to the best interests of the corporation to surrender its charter. After the luncheon recess the president was called to the bar of the court and “reluctantly” agreed to surrender the charter unconditionally as the court insisted, for the reason that he was physically unable to secure counsel and thereby continue with the defense of the case. The surrender was accepted by the court, the jury discharged and shortly thereafter an order was entered, dated January 25, 1955, under the terms of which the court revoked the charter, appointed a liquidating trustee to take charge of the real and personal property and all personal effects of the corporation and to proceed to liquidate and wind up its assets. Thereafter the court informed the trustee that Mr. Sherman and another named attorney would act as his counsel.²

The court below held that its right to appoint a liquidating trustee was clear for any one of four reasons: (1) if the surrender of the charter be considered voluntary, power was granted by the Act of May 5, 1933, P. L. 289, §1001 as amended, 15 PS §2851-1001; (2) the authority was necessary and inherent in the judicial power; (3) if the surrender be considered involuntary, the court was given power under the Act of April 4, 1872, P. L. 46, §1, 15 PS §503, or (4) the Act of April 26, 1893, P. L. 26, §1, 15 PS §521.

In our opinion the Act of May 5, 1933 has no application to the instant case. The Act provides for the voluntary dissolution of a nonprofit corporation and outlines with particularity the procedure to be followed thereunder. Section 1001 of the Act provides that a petition, signed and verified by at least two duly authorized officers of the corporation, under seal, shall be filed with the court setting forth, inter alia, the time and place of the meeting at which the resolution authorizing the institution of voluntary proceedings was adopted and the vote thereon; an inventory of all the real and personal property of the corporation; a statement of all the liens and encumbrances upon the corporate property and the names and addresses of all existing members. The record does not show and the court made no attempt to ascertain whether any of these statutory prerequisites were complied with by the defendant corporation. Counsel for defendant had set forth in his proposed consent decree and in the agreed upon decree which, the court refused, that a resolution had been passed authorizing him to thus proffer the charter of the corporation. Despite this representation, the surrender ultimately acquiesced in by' the president of the corporation differed substantially and materially from what was purportedly resolved by the members, and for all that appears it was accepted by the court on the president’s authority alone. It is significant that prior to the selection of a jury, counsel for defendant requested the Court to allow him time to have a meeting called of the officers and members so that they might consider the court’s order of unconditional surrender. As previously indicated, this request was denied and counsel was directed to try the case without further delay. When the Deputy Attorney General questioned the manner in which the charter was being surrendered, the court replied, “I’m not worried about that.”. In Sherman v. Yiddisher Kultur Farband, 375 Pa. 108, 111, 99 A. 2d 868, this Court said: “All corporations, whether for profit or nonprofit, are creatures of statute, which prescribes not only how they shall be formed but how they shall be dissolved: . . .”. Moreover, the action of quo warranto being an adversary proceeding, it was not converted into a voluntary dissolution by the surrender of the charter under the circumstances here present. The record discloses that the charter was surrendered reluctantly by Mr. Gordon, the president of the corporation, at the court’s insistence, for the reason that he was physically unable to procure counsel within the 24-hour period allotted to him by the court.

The case of Milasinovich v. The Serbian Progressive Club, Inc., 369 Pa. 26, 84 A. 2d 571, cited by the lower court to sustain the proposition that it had inherent power to appoint a receiver is equally inapposite. In that case five alleged members of the nonprofit corporation there involved brought an action in equity to restrain the officers of the corporation from diverting the assets of the corporation toward subversive uses. We there held in affirming the lower court’s action appointing a receiver pendente lite that a court of equity has power to appoint a receiver in order to prevent corporate assets from being wasted or used for unlawful purposes. The above principle, which is universally recognized in a proper case in equity, must be distinguished from the present proceeding which is an action of quo warranto. This Court has held that since the functions of a receiver have no relation to the exercise of a franchise which is the sole question raised upon a quo warranto, no authority exists for his appointment in such proceedings unless it is found in express statutory provision: Commonwealth v. Order of Vesta. Kennedy’s Appeals., 156 Pa. 531, 534, 27 A. 14; Fraternal Guardians’ Assigned Estate. Tull’s Appeal, 159 Pa. 603, 28 A. 479.

The ownership and possession of the assets of a corporation dissolved upon proceedings of quo warranto was originally defined by the Act of April 4, 1872, supra, which provided that “Whenever any corporation, incorporated under the laws of this commonwealth, shall have been dissolved by judgment of ouster, upon proceedings of quo warranto in any court of competent jurisdiction, all the estate, both real and personal, of which such corporation [is] in any way seized or possessed, shall pass to and vest in the persons who at the time of such dissolution are the officers of such corporation, in trust to hold the same for the benefit of the stockholders and creditors of the corporation.”. This Court, construing the above Act in Commonwealth v. Vesta, supra, held that the Act on its face clearly revealed that the regular and ordinary course of the administration of the assets is by the officers of the corporation as trustees and that there was no jurisdiction in the court of common pleas to appoint a receiver on motion of the Commonwealth in quo warranto proceedings. This principle was reiterated and followed in Fraternal Guardians’ Assigned Estate, supra.

The courts of common pleas were initially empowered to appoint a receiver in quo warranto proceedings by the Act of April 26, 1893, supra.³ This enactment provided that “Whenever any corporation incorporated under the laws of this commonwealth shall be dissolved by judgment of ouster upon proceedings by quo warranto in any court of competent jurisdiction, the said court, or in vacation any one of the law judges thereof, shall have power to appoint a receiver, who shall have all the powers of a receiver appointed by a court of chancery, to take possession of all the estate, both real and personal, thereof, and make distribution of the assets among the persons entitled to receive the same according to law. The powers of such receiver may continue as long as the court deems necessary for said purposes, and he shall be held to supersede an assignee of the corporation in possession.”. By virtue of this statute and this statute alone the court below had the authority to appoint a liquidating trustee and the only remaining question is whether that power was properly exercised in this case.

As a general rule the appointment of a receiver is a matter within the discretion of the court below, and its action will not be disturbed unless there is a clear abuse of sound judicial discretion: McDougall et al. v. Huntingdon and Broadtop R. & C. Co., 294 Pa. 108, 143 A. 574; Franklin National Bank et al. v. Kennerly Coal & Coke Co., 300 Pa. 479, 150 A. 902. Judicial discretion, however, is governed by legal principles applicable to the situation. If in reaching a conclusion the law is departed from or misapplied or the judgment exercised is manifestly unreasonable as shown by the evidence or the record, discretion is then abused and it is the duty of the appellate court to correct the error: Echon, Admrx. v. Pennsylvania Railroad Company, 365 Pa. 529, 76 A. 2d 175; Maxwell v. Enterprise Wall Paper Mfg. Co. et al., 131 F. 2d 400. As was stated in Philadelphia County Grand Jury Investigation Case, 347 Pa. 316 at p. 326, 32 A. 2d 199: “Judicial discretion requires action in conformity with law upon the facts and circumstances before the court after hearing and due consideration. In Osborn v. U. S. Bank, 9 Wheat. 738, 866, Chief Justice Marshall said: ‘Judicial power, as contradistinguished from the power of the laws, has no existence. Courts are the mere instruments of the law, and can will nothing. When they are said to exercise a discretion, it is a mere legal discretion, a discretion to be exercised in discerning the course prescribed by law; and, when that is discerned, it is the duty of the Court to follow it. Judicial power is never exercised for the purpose of giving effect to the will of the Judge; always for the purpose of giving effect to the will of the Legislature; or, in other words, to the will of the law.’ . . .”.

In this proceeding the sole purpose of the Attorney General was to procure the revocation of a charter of a nonprofit corporation. The prayer of the complaint sought the following relief: that “. . . it be adjudged that the defendant corporation has forfeited its charter, franchises and privileges, and that it has no longer power to exercise any corporate rights or privileges whatever, and that its officers and members be forbidden to act under its said incorporation or to do, or to claim to do, any acts, matters or things thereunder; and that the said defendant corporation, and its officers and members, be henceforth altogether excluded from all rights, privileges and franchises, and that the charter of the aforesaid corporation be declared forfeit.”. No party in interest asked for or desired a receiver. Mr. Sherman was not an “interested party” in contemplation of law. He was appointed by the Attorney General and was therefore subordinate to his superior’s orders and directions. These he unwarrantedly exceeded in attempting to conduct a blanket investigation criminal in character. This is manifest from his statements and conduct throughout the proceeding. To cite only one illustrative instance, he stated to the court that “On November 27, 1953, in a long letter addressed to the Attorney General of Pennsylvania, I was beseeching his entry to a quo warranto proceeding; but I was asking for more than just a revocation of a charter, and I listed a lot of the evidence we have in our possession for the purpose of bringing in the official administrative law agent of the Commonwealth. ... I wrote to him November 27, 1953, and concluded with this paragraph — that is one of the concluding paragraphs: ‘In this situation mere quo warranto proceedings instituted in the name of the Attorney General would doubtless result in judgment by default, declaring the charter forfeit. I am certain, therefore, that a broader aspect would justify presentment to a grand jury, with undoubted beneficial consequences to the city and the nation.’ ”.

Obviously the Attorney General appreciated the fact that full compliance with Mr. Sherman’s request would necessitate additional proceedings before other appropriate tribunals. By instituting the quo warranto action he demonstrated that his immediate concern was the revocation of defendant’s charter. Mr. Sherman’s actions at the trial indicate that he was laboring under the misapprehension that the criminal and civil aspects of this case could both be tried in the present proceeding. Unfortunately the court seemed to be of the same opinion. Although the trial judge on several occasions stated to Mr. Sherman that remarks made by him were irrelevant, in the long run he permitted him to indulge in violent diatribes accusing members of the defendant Association of subversive activities, which unquestionably would have required the grant of a new trial if the case had gone to the jury and resulted in a verdict against the defendant. As we stated in Schlesinger Petition, 367 Pa. 476, 483, 81 A. 2d 316: “It need hardly be stated that this Court is as opposed to communism in all its manifestations as the respondent Judge who instituted these contempt proceedings. But it is our sacred duty to uphold the Constitutions and laws of our Country and State and their provisions as to due process of law. What the Judge has done, in his zeal against communism, is to adopt the detestable method employed by communists themselves in arbitrary and unjudicial proceedings contrary to all our cherished traditions of law and legal procedure.”.

Although there is statutory power under the Act of 1893 for the appointment of a receiver upon a judgment of ouster in a quo warranto proceeding, the court palpably abused its discretion in the instant case by entering an order which not only exceeded the prayer of the complaint but presumed to determine a matter entirely extraneous to the issue. The relief afforded by a decree must conform to the case as made out by the pleadings and should be consistent with the relief prayed for: Luther v. Luther, 216 Pa. 1, 64 A. 868. See also Bowman v. Gum, Incorporated et al., 321 Pa. 516, 525, 184 A. 258; White et al. v. Chester Municipal Authority et al., 349 Pa. 118, 36 A. 2d 455. The appointment of a receiver is the exception, not the rule, and ordinarily is not to he made unless some interested party, normally a shareholder or creditor, or as in this case the Attorney General, asks for it and shows that the administration of the corporation’s assets under the control and supervision of the court is necessary. In the instant case it is clear that the court did not appoint the liquidating trustee and designate counsel for him in order to protect the members of the Association against waste or dissipation of the assets of the corporation following its dissolution. On the contrary, the unwarranted imposition on the corporate assets of liability for the trustee’s compensation and counsel fees amounted to an expropriation of private property by judicial fiat on the assumption that the members of the corporation, or some of them, are Communists or Communist sympathizers. Whatever their criminal culpability may be, they are nonetheless entitled to the constitutional guarantee that they shall not be deprived of their property without due process of law.

The order of the court below appointing a liquidating trustee is vacated and the judgment of ouster is affirmed.

Mr. Justice Bell did not participate in the consideration or decision of this case.

1 It is to be noted that Herman Gordon, tbe president of tbe corporation, who, as sncb, executed tbe answer filed to tbe complaint, was present at the pretrial conference and also appeared and testified at tbe trial.

2 It is stated in the Commonwealth’s brief that “. . . Upon learning these facts, the Attorney General [Honorable Herbert B. Cohen, who succeeded Mr. Truscott] dismissed Harry Alan Sherman from the case.”.

3 An enlightening comment on this Act is found at p. 536 of Commonwealth v. Vesta, supra.