Chandler v. Peketz

Background

A federal court in Minnesota appointed a receiver for the Diamond Motor Parts Company and ordered a 100% assessment on the corporation’s shares to enforce Minnesota’s rule that shareholders can be liable for the company’s debts. The Minnesota order was affirmed on appeal. The receiver later sued a man who lived in Colorado and was alleged to be a shareholder. The Colorado courts dismissed the suit, saying the Minnesota court had not obtained proper personal control over that out-of-state shareholder because he had not been personally served there.

Reasoning

The key question was whether the Minnesota assessment order was binding on a shareholder who was not personally sued in Minnesota. The Court explained that Minnesota’s court acquired authority when the receiver properly filed the petition and mailed notice to stockholders, including the Colorado resident. The Court said procedural mistakes or adjournments did not strip the Minnesota court of authority. Those kinds of errors can be corrected on appeal but do not allow a separate court to collaterally attack the assessment’s validity. The opinion also noted a shareholder may later raise personal defenses (for example, that he is not a shareholder or has offsetting claims), but no such defense was raised in the Colorado case.

Real world impact

The decision requires Colorado courts to give effect to the Minnesota receivership assessment and sends the case back for further proceedings consistent with that rule. It makes it harder for out-of-state shareholders to avoid state-ordered corporate assessments by pointing to technical procedural flaws in the original proceeding. Shareholders still may assert individual defenses when enforcement is sought.