Bernheimer v. Converse
Headline: Court upholds Minnesota law letting a state receiver levy and enforce assessments on corporate stockholders, including out-of-state holders, to pay an insolvent company’s debts.
Holding: The Court upheld Minnesota’s law allowing a state receiver to order and enforce pro rata assessments against corporate stockholders, including out-of-state holders, to pay a bankrupt corporation’s debts, and affirmed the lower court’s judgment.
- Allows receivers to assess and collect from out-of-state and local stockholders.
- Permits lawsuits against stockholders in other states to recover unpaid assessments.
- Assessment may include collection expenses and is conclusive on amount and necessity.
Summary
Background
A Minnesota manufacturing company went into insolvency and a state court appointed a receiver to collect assets for creditors. The Minnesota legislature had passed an 1899 law allowing a receiver or assignee to order pro rata assessments on all stockholders to cover deficits, and to sue those stockholders — even if they lived outside Minnesota — to collect unpaid assessments. Some stockholders who bought shares before 1899 objected and the dispute reached a federal court in another State.
Reasoning
The central question was whether the 1899 law unlawfully changed the contract-like obligation stockholders assumed when they acquired stock, or otherwise denied them fair legal process. The Court said the constitutional stockholder obligation remained the same and that the legislature may provide stronger remedies to make that obligation effective. The Court held that the assessment process was a legitimate way to liquidate the corporation for creditors, that a receiver could sue in another State when authorized, and that the statute’s assessment rule was conclusive as to the amount and need for assessment while still allowing individual stockholders to raise personal defenses.
Real world impact
The decision means Minnesota receivers may use the 1899 procedure to assess and collect from both local and out-of-state stockholders to pay corporate debts, and may sue elsewhere to enforce unpaid assessments. The ruling affirmed the lower court’s judgment and treats the statute as a valid statewide method for winding up insolvent companies.
Dissents or concurrances
Justice Holmes expressed doubt about the result and regretted the Court did not specify the exact contract the stockholder made, but he did not carry the court with him.
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