Shapiro v. Wilgus
The Supreme Court ruled that a struggling lumber dealer could not shield his business from an impatient creditor by handing it over to a corporation he created just days earlier and then having that corporation ask a federal court for receivers and an injunction against lawsuits.
Because the transfer and the receivership were really one coordinated plan to keep creditors from collecting what they were owed, both were fraudulent as a matter of law, and the creditor was entitled to collect his judgment from the business's assets or get permission to seize them.
“Never is such a remedy available when it is a mere weapon of coercion, a means for the frustration of the public policy of the state or the locality.”
Explaining that receiverships cannot be used to coerce or block legitimate creditor lawsuits.
How it got here: A federal district court denied the creditor's petition to execute on his state-court judgment against receivership assets; the Third Circuit affirmed; the creditor sought Supreme Court review.
The Case in Depth
What happened
Herbert Robinson ran a Philadelphia lumber business he could not pay off on schedule, though he believed he could pay in full if given time. Most creditors agreed to wait, but two, including the petitioner, wanted immediate payment. Robinson transferred all his property to a newly formed Delaware corporation in exchange for stock, then had that corporation sue itself in federal court seeking receivers and an injunction against creditor lawsuits.
The question before the Court
Could a debtor avoid an unwilling creditor's lawsuit by transferring his business to a brand-new corporation and having a federal court appoint receivers to protect it?
Why it matters
Creditors gain protection against a common evasion tactic: debtors cannot dodge collection by quickly incorporating their business and asking a friendly court to install receivers and block lawsuits. The ruling reminds federal courts to scrutinize receiverships requested by debtors and their cooperating creditors rather than approving them as routine business protection.
What changes now
The case is sent back to the district court, which must give the creditor an order allowing him either to be paid his judgment out of the receivership assets or, failing that, to proceed with execution against the property. The ruling settles this particular dispute but also signals that federal courts should closely scrutinize debtor-created receiverships used to block creditor collection efforts.
Concurrences and dissents
How the Justices voted
Majority (1). Justice Cardozo (author).
How the Court got there
The legal reasoning, step by step
- The Court examined whether the conveyance of Robinson's business to the new corporation was fraudulent under the law barring transfers made to hinder or delay creditors, even absent an intent to permanently cheat them.
- It found the conveyance's sole purpose was to move title out of Robinson's name into a form that would let him obtain a receivership unavailable to individual debtors under Pennsylvania law, which only allows receiverships for corporations or partnerships.
- Because the conveyance was fraudulent in law, the Court reasoned the receivership built on top of it could not stand either, since the corporation existed only to be sued and shielded, not to run a legitimate business.
- The Court distinguished ordinary receiverships, where a creditor asks a court to protect a genuinely independent corporate debtor's assets for everyone's benefit, from this arrangement, where the debtor and a cooperating creditor manufactured the corporate defendant specifically to block outside creditors.
- Applying the rule that federal courts must watch such consent receiverships 'with jealous eyes' and reserve them for exemplary motives and good faith, the Court concluded this receivership failed that test because its very aim was to hinder and delay legitimate creditors.
- The Court determined there was no genuine factual dispute requiring further fact-finding, so the creditor was entitled either to payment from the receivership assets or to permission to seize property to satisfy his judgment.