Indiana Law Review


Appointment of a Receiver Without Notice in Indiana

I. Introduction

A receiver^ is a court-appointed officer whose function is "to
receive and preserve the property or fund in litigation . . ., when it
does not seem reasonable that either party should hold it."^ Although

typically the court appoints a receiver after the adverse party has

had an opportunity to be heard, in certain situations the rights of

the moving party cannot be protected by any means short of obtain-

ing a receivership before notice and hearing.^ The remedy affords

the petitioning party immediate protection from loss or destruction

of assets in the hands of an adverse party." However, if complete

^Receiverships are generally of two types, (1) The preservation type, and (2) the

liquidation type. Usually the moving party seeks a preservation receiver. For example,

during the pendency of a foreclosure action, a receivership is sought to preserve the

subject matter of the foreclosure until the rights of the parties are established at trial.

Generally, a preservation receiver must manage the affairs of an ongoing business.

The liquidation receiver, on the other hand, is typically appointed by the court only

after a legal proceeding for the purpose of liquidating the assets of a failing business,

paying the debts, and distributing anything which remains. Its function is usually

similar to that of the executor of an estate. 2 R. Townsend, Securities and Creditors
Rights 553 (1976). Because the issue of the appointment of a receiver without notice

most often arises in the case of preservation receiverships, all subsequent references

in this note to receivers, unless otherwise indicated, refer to preservation receiver-

ships.

^J. High, Treatise on the Law of Receivers 2 (1876).
^If a person in control of assets has time to waste or improperly apply assets,

there may be little left to preserve. Indiana courts soon after the adoption of the
receivership statute recognized this consideration:

The appointment of a receiver is one of the prerogatives of a court of
equity, exercised in aid of its jurisdiction, in order to enable it to accomplish,

as far as practicable, complete justice between the parties before it. From
the very nature of the power and of the purposes for which it may he invoked,
its efficiency depends on the promptness with which it may he exercised.

Bitting V. Ten Eyck, 85 Ind. 357, 360 (1882) (emphasis added). See also Meyering v.

Petroleum Holdings Inc., 227 Ind. 313, 86 N.E.2d 78 (1949); HA Circus Operating Corp.
V. Silberstein, 215 Ind. 413, 19 N.E.2d 1013 (1939).

*The appointment of a receiver during the pendency of a lawsuit or at the com-

mencement of legal proceedings, as in the case of a receiver appointed without notice,
is for the purpose of preserving the status quo or of protecting the property pending

notice and hearing. Vogel v. Chappell, 211 Ind. 310, 312-13, 6 N.E.2d 953, 955 (1937).

Notwithstanding the potential for a receiver to preserve and protect the assets pend-

ing the final disposition of the legal questions, and aside from the difficulty in having a

receiver appointed with notice, much less without notice, the caveat issued by the
court in Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 79 N.E.2d 399 (1948),

should be kept in mind by all who seek the appointment of a receiver:
[T]he power should be exercised with great caution and never indulged

unless the danger of loss or injury is imminent. "A receivership is not a



426 INDIANA LAW REVIEW [Vol. 12:425

relief is to be accorded the moving party, the rights of the party in
possession must be infringed upon. Due process requires that no
person will be deprived of his property without notice and hearing.^
There are, therefore, two competing considerations: Whether to af-
ford full protection to the moving party at the expense of the rights
of the party in possession or to accord the moving party something
less than full and adequate relief with the risk that justice will be
altogether thwarted.®

The problem is compounded because the Indiana General
Assembly has not provided any legislative guidance in this area,^ ex-
cept to specifically provide for the ex parte appointment of a
receiver.^ The courts, therefore, are left with the task of determin-
ing when notice and hearing may be dispensed with, without

panacea for all business ills. The remedy may be worse than the disease.
Even the suggestion of a receivership, as all know, may cause capital to hide
in its shell."

Id. at 245-46, 79 N.E.2d at 404 (emphasis added) (quoting 16 W. Fletcher. Cyclopedia
OF THE Law of Corporations § 7697, at 90 (repl. ed. 1942)). This portion of the court's
opinion in Indianapolis Dairymen's Co-op. is significant in the discussion of receiver-

ships without notice because: (a) It points out that a party petitioning for a receiver

might be well-advised to consider an alternate course of action because a receiver is by

no means the solution to all business problems, and (b) it suggests an additional reason

for seeking the appointment of a receiver without notice since an unannounced take-

over of the assets may prevent an unexplained "disappearance" of the assets.
. 'E.g., Riverside & Dan River Cotton Mills v. Menefee, 237 U.S. 189, 193 (1915).

^The courts must balance the need to protect the plaintiffs claim to the assets

against the debtor's constitutional and legal rights to his property. The party seeking

the appointment of a receiver clearly bears the burden of proving the need for the

receivership. Corbin v. Thompson, 141 Ind. 128, 129, 40 N.E. 533, 533 (1895). The court

in Corbin held:

The power of the courts to appoint receivers is one of the highest and

most unusual character vested in courts of chancery, and is never exercised

in doubtful or evenly balanced cases; but is exercised only where justice

would in all probability be defeated by withholding it.

Id. at 129, 40 N.E. at 533. Accord, Ziffrin v. Ziffrin, 242 Ind. 351, 358, 179 N.E.2d 276,

279 (1962); Jones v. Becker, 212 Ind. 248, 254, 8 N.E.2d 587, 590 (1937). In addition,

courts generally go a step further and require the moving party to demonstrate a pro-

bability that it will ultimately succeed on the merits. Indianapolis Dairymen's Co-op. v.

Bottema, 226 Ind. 237, 243, 79 N.E.2d 399, 403 (1948); Hawkins v. Aldridge, 211 Ind.

332, 341, 7 N.E.2d 34, 38 (1937).

^The Indiana Legislature enacted the receivership statute in 1881. Act of Apr. 7,

1881, Ch. 38, § 245, 1881 Ind. Acts 240. Except for a minor change in 1911, Indiana

statutory law has remained unchanged for almost the last 100 years. Ind. Code §
34-1-12-1 (1976). Furthermore, the Indiana Code adopted the principles applied by the

equity courts before the formation of the Code. Bitting v. Ten Eyck, 85 Ind. 357, 360

(1882). Accord, State ex rel. Makar v. St. Joseph County Circuit Court, 242 Ind. 339,

347, 179 N.E.2d 285, 289 (1962) (The authority of a court to appoint a receiver exists

only by statute and not at common law.).
«IND. Code § 34-1-12-9 (1976).

i



1979] RECEIVERSHIPS 427

violating the adverse party's constitutional rights.^ Over the years,

the Indiana courts have developed a rather elaborate rule, yet there

is some question whether the courts have gone far enough in protect-

ing the rights of the party in possession. Despite the short-

comings of the court-adopted rule and the resulting constitutional

questions involved in the unannounced seizure of another person's

property, and despite the grave consequences which may befall the
party petitioning for the appointment, parties nevertheless continue

to press for ex parte receiverships because of the need for a prompt

and efficient recovery of endangered property.

The issues which surround the risky practice of having a

receiver appointed before notice is served will be discussed in this

Note.

II. General Procedure for Appointment of a Receiver
With Notice

The discussion of the appointment of a receiver before notice

can be better understood by first considering the procedure for the

appointment of a receiver with notice.

An incredible aspect of the long history^" of the receivership

^In attempting to protect these constitutional rights, three fundamental prin-

ciples guide the courts: (1) "Relief by a receivership is an extraordinary remedy and

radical in nature," Indianapolis Mach. Co. v. Curd, 247 Ind. 657, 662, 221 N.E.2d 340,

343 (1966) (See, e.g., Youngstown Sheet & Tube Co. v. Patterson-Emerson-Comstock, 227
F. Supp. 208, 216 (N.D. Ind. 1963); Lafayette Realty Corp. v. Moller, 247 Ind. 433, 439, 215

N.E.2d 859, 862 (1966); Ziffrin v. Ziffrin, 242 Ind. 351, 358, 179 N.E.2d 276, 278 (1962)];

State ex rel. Makar v. St. Joseph County Circuit Court, 242 Ind. 339, 347, 179 N.E.2d

285, 289-90 (1962)); (2) "such power should only be exercised when it is clear that no
other full and adequate remedy exists whereby justice between the parties may be af-
fected and a wrong prevented," Ziffrin v. Ziffrin, 242 Ind. 351, 358, 179 N.E.2d 276, 278

(1962); and (3) "[s]uch powers are exercised by a court of equity with due care and cau-

tion," Jones V. Becker, 212 Ind. 248, 254, 8 N.E.2d 587, 590 (1937). In considering the

appointment of a receiver without notice, the courts apply these principles to the par-

ty seeking the receiver with great scrutiny. Henderson v. Reynolds, 168 Ind. 522, 526,

81 N.E. 495, 496 (1907).

Generally, in order to allow ex parte relief under these principles, it must appear

that an emergency situation exists and that the delay inherent in giving notice would

cause irreparable harm to the moving party. Lafayette Realty Corp. v. Moller, 237 Ind.
433, 439, 215 N.E.2d 859. 862 (1966); Meyering v. Petroleum Holdings, 227 Ind. 313,

325, 86 N.E.2d 78, 82 (1949); Largura Constr. Co. v. Super-Steel Products Co., 216 Ind.

58, 61, 22 N.E.2d 990, 992 (1939); Bookout v. Foreman, 198 Ind. 543, 546-47, 154 N.E.

387, 388 (1926).

'"The receivership remedy is one of the oldest forms of equitable relief, dating
from the reign of Edward VI in England. 65 Am. Jur. 2d Receivers § 1 (1972). The
remedy was introduced into American jurisprudence with the other equity powers of
early American courts. However, much of the modern law has evolved since the In-
dustrial Revolution, which brought a boom in business and the general economic
growth of the nation. Perhaps this is, in part, the problem associated with receiver-



428 INDIANA LAW REVIEW [Vol. 12:425

remedy is that the Indiana General Assembly has not outlined a
clear procedure for the obtaining of a receiver." Although the

vagueness of the statute enables the courts to exercise a great

degree of discretion and flexibility, the lack of direction with which

practitioners are left persists.

The first step in seeking the appointment of a receiver is to

file a lawsuit^^ and have a summons issued to the defendant, the

adverse party. ^^ The plaintiff usually alleges impropriety on the part

of the person in control of the assets^* and petitions for the appoint-

ment of a receiver.^^ The appointment of a receiver is an ancillary

ships. Courts in the closing years of the twentieth century are still applying legal prin-

ciples developed during the infancy of business in the late 1800's. Indiana law has

followed the same course.

"Darby, Need of a New Receivership Statute in Indiana, 4 Ind. L.J. 266 (1929).
Darby's severe criticism of the Indiana receivership statute 50 years ago is still ac-

curate because the statute has not been amended since he wrote: "Our receivership

statute in Indiana is now 47 years old. It is obsolete and insufficient in many respects.
Our circuit and superior court judges are entitled to more aid from the Legislature . . .

than the present statute affords." Id. at 266.

''Winona, Warsaw, Elkhart & South Bend Traction Co. v. Collins, 162 Ind. 693,
694, 69 N.E. 998, 999 (1904).

'^State ex rel Busick v. Ewing, 230 Ind. 188, 190, 102 N.E.2d 370, 371 (1951);

Alexandria Gas Co. v. Irish, 152 Ind. 535, 536, 53 N.E. 762, 763 (1899). In Alexandria

Gas Co. the court held:

The question presented is whether the court hdd jurisdiction to appoint a
receiver without notice, before a summons had been issued on said complaint
against appellant. It is settled law in this State that in an action like this the

court has jurisdiction to appoint a receiver only after the commencement of
an action, and while it is pending. The process must be delivered to the of-

ficer authorized to serve it before the action is deemed commenced.
Id. at 536-37, 53 N.E. at 763 (citations omitted).

'^See, e.g., Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 241-42, 79

N.E.2d 399, 402 (1948) (a derivative action alleging mismangement of the corporation,
including failure to file an annual report, lack of notice of annual meeting, ac-

cumulating excess income without distribution to the members, deducting without

authorization a small fee from milk sold through the co-op, and paying a fee, allegedly

an unnecessary expense, to a corporation in which defendant was beneficially situated).

'^The application for appointment of a receiver must allege one or more statutory

grounds for the relief. Ind. Code § 34-1-12-1 (1976) sets forth seven general conditions

which will justify the appointment of a receiver:

Sec. 1. A receiver may be appointed by the court, or the judge thereof
in vacation, in the following cases:

First. In an action by a vendor to vacate a fraudulent purchase of prop-

erty, or by a creditor to subject any property or fund to his claim.

Second. In actions between partners, or persons jointly interested in

any property or fund.

Third. In all actions when it is shown that the property, fund or rent,
and profits in controversy, is in danger of being lost, removed or materially

injured.

Fourth. In actions by a mortgagee for the foreclosure of a mortgage, and



1979] RECEIVERSHIPS 429

action^^ and envisions the adverse party's possession of property

which, for various reasons, requires protection. ^^ Additionally, the

plaintiff must establish that he has an interest in the property
which is the subject matter of the lawsuit;^^ hence the appointment

of a receiver is an in rem proceeding/^

the sale of the mortgaged property, when it appears that such property is in

danger of being lost, removed or materially injured; or when such property
is not sufficient to discharge the mortgaged debt, to secure the application of

the rents and profits accruing before a sale can be had.

Fifth. When a corporation has been dissolved, or is insolvent, or is in im-
minent danger of insolvency, or has forfeited its corporate rights.

Sixth. To protect or preserve, during the time allowed for redemption,

any real estate or interest therein sold on execution or order of sale, and to

secure to the person entitled thereto the rents and profits thereof.

Seventh. And in such other cases as may be provided by law; or where,
in the discretion of the court, or the judge thereof in vacation, it may be
necessary to secure ample justice to the parties.

^'Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 243, 79 N.E.2d 399, 403

(1948); State ex rel. Busick v. Ewing, 230 Ind. 188, 190, 102 N.E.2d 370, 371 (1951). In

Ewing, the court held:

The petition for the appointment of receiver was filed as a separate ac-
tion, and the appointment of a receiver was the sole relief therein sought by
the plaintiffs. This case comes within the general rule that proceedings for

the appointment of a receiver are ancillary in their nature and must be sup-

ported by a principal action. To confer jurisdiction upon the court in this
case, it is therefore necessary that a principal action be filed to which the

receivership is ancillary.

230 Ind. at 189-90, 102 N.E.2d at 371 (citations omitted). But see Supreme Sitting of
the Order of the Iron Hall v. Baker, 134 Ind. 293, 305, 33 N.E. 1128, 1131 (1893).

"See notes 126-33 infra and accompanying text.

^'According to the court in Steele v. Aspy, 128 Ind. 367, 27 N.E. 739 (1891):

To authorize the interposition of the court by the appointment of a
receiver, it was essential that the appellee should show either a clear legal

right in himself to the property in controversy, or that he had some lien
upon or property right in it, or that it constituted a special fund out of which

he was entitled to satisfaction of his demand. It was essential, to authorize
the exercise of such jurisdiction, for the appellee to show that he had a pres-
ent, existing interest in the property.

128 Ind. at 368, 27 N.E. at 740. See also State ex rel. Busick v. Ewing, 230 Ind. 188,

191, 102 N.E.2d 370, 372 (1951).

''See Hellebush v. Blake, 119 Ind. 349, 350, 21 N.E. 976, 977 (1889); Michigan

Trust Co. V. Probasco, 29 Ind. App. 109, 114-15, 63 N.E. 255, 257 (1902). According to

the court in Hellebush:

We are satisfied that the circuit court did have authority to appoint the
receiver, notwithstanding the fact that the defendant was not a resident of
this State. The property of which the court was asked to take possession
through its receiver was within its jurisdiction, and it had authority to
preserve and dispose of the property, through the medium of a receiver, in
order to prevent its loss or destruction.

119 Ind. at 350-51, 21 N.E. at 977.



430 INDIANA LAW REVIEW [Vol. 12:425

The application for the receiver may be for the appointment of a
receiver pendente lite,^° in which case it may either be with or
without notice, or for the appointment upon the final adjudication of
the issues before the court, in which case notice is not at issue, for

there has already been a full adjudication of the rights of the par-

ties. If the applicant seeks appointment pendente lite with notice,

the statute provides that a receiver "shall not be appointed . . . until

the adverse party shall have appeared; or shall have had reasonable

notice of the application for such appointment . . . ."^^ At the hearing
on the application, the applicant must show that he will very prob-
ably prevail on the merits in the main action against the defend-

ant.^^ The defendant then has the opportunity to refute plaintiffs
allegations but is not required to put forth any evidence since the

burden of proof is upon the plaintiff.^^ If the plaintiff sustains his

burden, then the court will appoint a receiver.

III. Nature of the Problems Associated with Appointment
Without Notice

The problems associated with the appointment of a receiver
with ^ut notice arise because some cases mandate this type of ex-
traordinary relief for the full protection of a moving party's rights,
and the statute provides for appointment without notice, yet the

^""Pending the suit; during the actual progress of a suit; during litigation."

Blacks Law Dictionary 1290 (rev. 4th ed. 1968).
^^Ind. Code § 34-1-12-9 (1976). Another problem which arises under the statute is

that it does not define "reasonable notice"; Indiana courts have taken varying views on

this issue.

^^See, e.g., Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 243, 79

N.E.2d 399, 403 (1948); Hawkins v. Aldridge, 211 Ind. 332, 338, 7 N.E.2d 34, 37 (1937).

But cf. American Reclamation & Ref. Co. v. Klatte, 256 Ind. 566, 573, 270 N.E.2d 872,
876 (1971); Powell v. Powell, 160 Ind. App. 132, 134, 310 N.E.2d 898, 901 (1974) (Both

cases involve the granting of a temporary restraining order without notice.). In Klatte,

the court held that it was not necessary for the moving party to make a case which

would ultimately prevail at the final hearing, "but only that there be shown a set of

facts sufficient to justify further investigation by a court of equity." 256 Ind. at 573,

270 N.E.2d at 876.

'^Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 245, 79 N.E.2d 399, 404

(1948); Stair v. Meissel, 207 Ind. 280, 286, 192 N.E. 453, 455-56 (1934). According to the

court in Indianapolis Dairymen's Co-op.:

Nor does an application for the appointment of a receiver relieve the

plaintiff of the burden of proof on that issue. The defendant is not placed in a

position where it must appear and show cause why a receiver should not be
appointed, for this would be relieving the plaintiff of the burden of proof. In

this case the burden of proof is upon the plaintiff to prove by a fair

preponderance of the evidence that a receiver should be appointed under the

equitable rules in such cases.

226 Ind. at 245, 79 N.E.2d at 404 (citations omitted).



1979] RECEIVERSHIPS 431

United States Constitution demands due process of law.^" Further-
more, the moving party faces grave repercussions if the court
countermands the appointment.^^ Indiana courts, caught between

these competing considerations, must weigh the need for protection

of the complaining party's property interest against the constitu-

tional rights of the party in possession of the property, the prima

facie owner .^^

A. The Need For Extraordinary Relief

At times, situations have arisen which have required the ex-
traordinary relief that only the appointment of a receiver without

notice can provide.

The court in Interstate Refineries, Inc. v. Barry^'' affirmed the
appointment of a receiver without notice where a corporation
organized in Delaware operated oil refineries, oil fields, and gasoline

stations in states other than Delaware. The corporation, heavily in
debt, organized a corporation in Virginia with a name very similar
to that of the Delaware corporation and began secretly transferring

the assets of the Delaware corporation to the Virginia corporation

for the purpose of escaping the claims of the shareholders and

creditors. In addition to the fraudulent transfer of assets, the

Delaware corporation neglected the management of its refineries, oil
fields, and service stations. The creditors and shareholders, upon
discovering defendant's actions, filed suit asking for injunctive relief

and immediately petitioned for the appointment of a receiver with-

out notice. The plaintiffs had to act expeditiously, lest the assets be
put beyond their reach and the business be allowed to drift further

into debt. Only the immediate appointment of a receiver without

notice would protect such interests.^*

^*U.S. Const, amend. XIV, § 1 provides:

No State shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any State deprive any

person of life, liberty, or property, without due process of law; nor deny to any

person within its jurisdiction the equal protection of the laws.

^^See notes 53-55 infra and accompanying text.

'^Albert Johann & Sons Co. v. Berges, 238 Ind. 265, 267, 150 N.E.2d 568, 569
(1958); Hawkins v. Aldridge, 211 Ind. 332, 343, 7 N.E.2d 34, 39 (1937). The court in

Albert Johann & Sons, 238 Ind. at 267, 150 N.E.2d at 569, stating a reoccurring theme,
held, in part: "'[T]he appointment of a receiver ex parte and without notice to take

over one's property or property which is prima facie his is one of the most drastic ac-

tions known to law or equity; ... it should be exercised with extreme caution . . . .' 45
Am. Jur. Receivers §90, p. 81 [(1943)]."

"7 F.2d 548 (8th Cir. 1925).

^*The court of appeals recognized the urgency of the situation: "[I]mmediate ac-

tion is imperative to preserve the property of the corporation and protect the

stockholders from irremediable loss." Id. at 552 (citations omitted).



432 INDIANA LA W REVIEW [Vol. 12:425

In H-A Circus Operating Corp. v. Silberstein,^^ a Missouri court
had appointed a receiver over the assets of a circus corporation and

authorized the appointment of an ancillary receiver in Indiana. The
creditors came to Indiana and petitioned the Indiana court for the
appointment of a receiver without notice on the grounds, inter alia,

that the circus property was presently in Indiana and readily
movable. If the creditors had had to wait until notice was issued and
a hearing was held, the circus would have had an opportunity to
load the property and flee the state. The court, understanding the
predicament, granted the application and appointed a receiver

without notice to protect the property pending an adjudication of

the rights of the parties.^^ The Indiana Supreme Court affirmed the
appointment of the ancillary receiver without notice to protect the

creditor's recovery from the great danger that the circus property

might easily be moved and because the Missouri court had already
made the determination that a receivership was proper.^^

The possibility that the assets may be removed from the court's
jurisdiction is not the only justification for a court to appoint a

receiver without notice. An emergency situation arose under a dif-
ferent set of circumstances in Meyering v. Petroleum Holdings,
Inc.^^ The defendants, all residents of Michigan, owned half interest
in four oil and gas leases in Indiana. The plaintiffs owned the other
half interest. In seeking the appointment of a receiver without

notice, plaintiffs alleged a number of specific facts which made the
appointment of a receiver ex parte necessary: (1) Defendants owed
them $9,000 for expenses in developing the leases; (2) one of the
leases would be forfeited within one week if a well was not drilled
within that time; (3) without the monies owed by defendants, the
plaintiffs did not have sufficient funds to proceed with the drilling;

and (4) on another lease, a competitor's well on an adjoining piece of

property was draining the oil and gas reserves from plaintiffs' and
defendants' lease. If plaintiffs had to wait for the perfection of

notice, irreparable and material injury would occur.^^ The court

^215 Ind. 413, 19 N.E.2d 1013 (1939).

''Id. at 417, 19 N.E.2d at 1014.

^7d Accord, Security Sav. & Loan Ass'n v. Moore, 151 Ind. 174, 175, 50 N.E. 869,
870 (1898).

^=^227 Ind. 313, 86 N.E.2d 78 (1949).
''The court in Rotan v. Cummins, 236 Ind. 394, 140 N.E.2d 505 (1957), commenting

upon Meyering, held, inter alia:

The adverse parties were non-residents and had no agents in this state upon

whom notice or process could be served; service by publication would have
required 51 days, and during that period the failure to drill the said wells

would have resulted in substantial damage to the plaintiff. The inadequacy of

an appointment with notice or of a restraining order in such circumstances is

obvious.

Id at 398-99, 140 N.E.2d at 506-07.



1979] RECEIVERSHIPS 433

cautiously affirmed the ex parte appointment: "We approach a con-
sideration of this case with full realization that upon very few occa-

sions has this court affirmed the appointment of a receiver without

notice."^^

Again the court looked to the property which was the subject
matter of the proceeding in order to determine whether to affirm

the appointment of a receiver without notice. However, unlike In-

terstate Refineries and H-A Circus, in which the fear expressed was
that the assets were being placed beyond the court's jurisdiction,

the danger involved in Petroleum Holdings was physical damage to
the property itself. In both types of emergency situations, the court
affirmed the appointment of a receiver without notice.

As long as there is the possibility that this type of extraor-
dinary relief may be required, the remedy of appointment without
notice of a receiver must remain available. Thus the problem: The
statute provides for appointment of a receiver without notice,^^ and

some fact situations mandate such relief; yet, as will be shown,
serious constitutional questions arise if property which is prima

facie that of the party in possession is taken without notice and

hearing.^®

B. The State Permits Appointment Of A Receiver Without Notice

The statute provides as the general rule that a receiver may not
be appointed until the adverse party has had an opportunity to be

heard. Then, as an exception to the general rule, the statute addi-

tionally permits appointment without notice upon the showing of

sufficient cause:^^ "Receivers shall not be appointed, either in term

or vacation, in any case, until the adverse party shall have appeared,

or shall have had reasonable notice of the application for such ap-

pointment, except upon sufficient cause shown by affidavit."^*

C. The Constitutional Problem

The seizure of another's property without notice or hearing is a
textbook example of violation of due process of law. In the words of
Chief Justice White:

That to condemn without a hearing is repugnant to the
due process clause of the 14th Amendment needs nothing

'*227 Ind. at 321, 86 N.E.2d at 81.

'^ND. Code § 34-1-12-9 (1976).
^See cases cited in note 26 supra.

^'See H-A Circus Operating Corp. v. Silberstein, 215 Ind. at 415-16, 19 N.E.2d at
1014; Hawkins v. Aldridge, 211 Ind. at 343, 7 N.E.2d at 38-39.

^IND. Code § 34-1-12-9 (1976).



434 INDIANA LAW REVIEW [Vol. 12:425

but statement. . . . And that a corporation not more than an
individual is subject to being condemned without a hearing
or may be subjected to judicial power in violation of the fun-
damental principles of due process as recognized in Pen-

noyer v. Neff . . . .^^

The fundamental principles to which Chief Justice White refers are:
(1) Notice to the adverse party, and (2) hearing by a judicial tribunal

before the matter is finally determined/'^

The due process violation involved in the appointment of a
receiver without notice was precisely stated by the Indiana
Supreme Court in State ex rel Makar v. St. Joseph County Circuit
Court:^^ "The appointment of a receiver is an extraordinary
equitable remedy. The action affects one of man's most cherished
and sacred rights guaranteed by the United States Constitution —
the right to be secure in his property. This right is fundamental to

every society in which men are free."*^ Notwithstanding the long
history of the receivership remedy in Indiana, the legislature has
not enacted guidelines to guarantee the constitutional rights of the

parties involved and thus has left the courts on uncertain ground

whenever the issue arises.
In comparison, the temporary restraining order is also an ex-

traordinary equitable remedy^^ and poses a potential constitutional

^'Riverside & Dan River Cotton Mills v. Menefee, 237 U.S. 189, 193-94 (1915).
'°Accord, Town of Walkerton v. New York, Chicago & St. Louis R.R., 215 Ind.

206, 214, 18 N.E.2d 799, 803 (1939); State ex rel Lebanon Discount Corp. v. Superior

Court, 195 Ind. 174, 180, 144 N.E. 747, 749 (1924); Falendar v. Atkins, 186 Ind. 455, 460,

114 N.E. 965, 967 (1917).

^'242 Ind. 339, 179 N.E.2d 285 (1962).

"/d. at 347, 179 N.E.2d at 289 (footnote omitted).

"A temporary restraining order is a preliminary step to the granting of a perma-
nent injunction, Ind. R. Tr. P. 65, and is granted to maintain the status quo until the

final determination on the merits. Powell v. Powell, 160 Ind. App. 132, 134, 310 N.E.2d

898, 901 (1974); State ex rel American Reclamation & Ref. Co. v. Klatte, 256 Ind. 566,
573, 270 N.E.2d 872, 875-76 (1971). As with the appointment of a receiver without
notice, a temporary restraining order will only issue when extreme necessity demands
it. The court in Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 79 N.E.2d 399

(1948), in comparing injunctive relief, of which a temporary restraining order is part,

held:

The power of appointment is a delicate one, and to be exercised with

great circumspection. Indeed, the courts have held repeatedly that the power

to appoint a receiver should be exercised with great care and the utmost cau-

tion and only in case of an emergency, and in a clear case, or in a case of "ex-

treme necessity," where it appears that the appointment is necessary either

to prevent fraud or to save the property from injury or threatened loss, or

destruction, and more especially is this true where the corporation is solvent,

or the defendant corporation is a bank. This is the rule with respect to in-

junctions; it applies a fortiori with respect to the appointment of a receiver.

Id. 245, 79 N.E.2d at 404 (emphasis added) (quoting 16 W. Fletcher. Cyclopedia of



1979] RECEIVERSHIPS 435

problem because of the taking of a person's property without prior

notice, yet the Indiana rules of court specifically impose certain pro-

cedural requirements on the granting of a temporary restraining

order in an effort to satisfy the constitutional demands of due pro-
cess/^ A further restriction is that "[n]o restraining order . . . shall
issue except upon the giving of security by the applicant, in such

sum as the court deems proper . . . ."^^ Thus, the court will only
grant a temporary restraining order, a less severe action than the

appointment of a receiver,*^ for a limited period,''^ and only if the ap-

plicant has posted a bond to indemnify the adverse party in the

event of a wrongful order.

The courts, on the other hand, when considering an application
for the appointment of a receiver without notice, do not have legisla-

tion or court rules to aid in determining what procedure will be con-
stitutionally sufficient/^ The statute requires only that "sufficient
cause" be shown before a court may dispense with the notice
requirement but does not define the term/^ There is no statutory

requirement that the appointment be temporary until notice is given

and a hearing held^° or that the party seeking the appointment

THE Law of Corporations § 7697, at 90-93 (repl. ed. 1942)). Thus, both receivership and
restraining order are issued for comparable reasons and both are considered "extraor-

dinary remedies."

"IND. R. Tr. p. 65(B)(2) requires:

Every temporary restraining order granted without notice shall be in-

dorsed with the date and hour of issuance; shall be filed forthwith in the

clerk's office and entered of record; shall define the injury and state why it is
irreparable and why the order was granted without notice, and shall expire
by its terms within such time after entry, not to exceed ten [10] days ....

*^IND. R. Tr. p. 65(C).

"A temporary restraining order merely preserves the status quo and prevents
the adverse party from taking action as specified in the order. E.g., Powell v. Powell,

160 Ind. App. at 134, 310 N.E.2d at 901. A receiver, on the other hand, dispossesses
the adverse party from the property which is the subject matter of the action and in

some cases assumes control of the business and the day-to-day operations. See
Lafayette Realty Corp. v. Moller, 247 Ind. 433, 438, 215 N.E.2d 859, 861 (1966).

'iND. R. Tr. p. 65(B) provides that the effective period is 10 days

unless within the time so fixed the order, for good cause shown, is extended

for a like period or unless the whereabouts of the party against whom the
order is granted is unknown and cannot be determined by reasonable
diligence or unless the party against whom the order is directed consents
that it may be extended for a longer period.
*'The last clause of Ind. Code § 34-1-12-9 (1976) is the only statutory authority for

the appointment of a receiver without notice. State ex rel Makar v. St. Joseph County
Circuit Court, 242 Ind. at 347, 179 N.E.2d at 289-90.

*'For appointment of a receiver, notice must first be given except upon sufficient
cause shown by affidavit. Ind. Code § 34-1-12-9 (1976).

'"In Stair v. Meissel, 207 Ind. 280, 192 N.E. 453 (1934) (the appointment of a
receiver without notice affirmed), the court held: "Our statute does not require that an



436 INDIANA LA W REVIEW [Vol. 12:425

before notice post bond to indemnify the adverse party in the event

of a wrongful appointment.^^ Despite the lack of legislative

assistance, and because the appointment of a receiver without notice

necessarily involves the taking of one's property contrary to the fun-

damental elements of due process,^^ the due process rights of the

adverse party must in some way be safeguarded. Therefore, the
Indiana courts have adopted strict substantive and procedural

requirements designed to protect the constitutional rights of the

adverse party. However, before addressing the question of how In-
diana courts have attempted to protect the constitutional rights of

the dispossessed party, there is one other practical problem which

confronts a party petitioning the court for the appointment of a

receiver without notice. Severe repercussions may result from the
wrongful appointment of a receiver. Apart from the possible con-

stitutional violations involved in the depriving of a person of his

property without notice and hearing, the party moving for the ex
parte receivership faces potential personal liability if the appoint-

ment should later be found to be erroneous. From the perspective of
the practitioner, these repercussions are a more important con-
sideration than the possible constitutional deprivations of the

adverse party. For this reason, in order to fully appreciate what the
courts have done in shaping a workable rule as well as the short-

comings of the rule which had developejl, one must consider the
possible negative consequences of the wrongful appointment.

appointment of a receiver made without notice shall be temporary and continue only
until hearing held pursuant to notice; nor is there any statutory provision for either

setting the appointment aside or confirming it." Id. at 284, 192 N.E. at 455. But cf. In-

dianapolis Mach. Co. V. Curd, 247 Ind. 657, 661, 221 N.E.2d 340, 342-43 (1966) (not-

withstanding the absence of legislative authority, the court held: "[I]t unquestionably is

error for a trial court to appoint a receiver without notice and fix no time whatever

for a prompt notice and hearing.").

^Tagan v. Clark, 238 Ind. 22, 27, 148 N.E.2d 407, 409 (1958). The court, in compar-
ing the remedy of receivership ex parte to relief by injunction or temporary restrain-
ing order held:

Relief by receivership is an extraordinary remedy and is never exercis-

ed if there is an adequate remedy at law or the harm can be prevented by in-
junction or restraining order. In the latter instance a bond affords some pro-

tection against an improvident order made for such equitable relief.
However, in the case of a receivership, the statute does not provide for any

bond indemnifying the injured party in case of an erroneous appointment of a

receiver. Because of the radical nature of the remedy through receivership,
this court does not look with favor upon an appointment without notice.

Id. at 26-27, 148 N.E.2d at 409 (citations omitted).

^^As stated, due process requires notice and hearing before taking a person's prop-

erty. Yet where a receiver is appointed without notice, the party in possession is

dispossessed of his property without either notice or hearing.



1979] RECEIVERSHIPS 437

D. Repercussions from the Wrongful Appointment of a Receiver
Without Notice

Because liability for the wrongful appointment without notice of

a receiver usually depends upon the particular fact situation, the

discussion which follows suggests generally what a moving party
may face if later it is found that he was not entitled to the receiver-
ship and that the adverse party was wrongfully dispossessed of its
property.

Damage for the wrongful appointment of an ex parte receiver-
ship may include damages for: (1) The expenses attibutable to the
appointment, maintenance, and termination of the receivership,^^ (2)
abuse of process and malicious prosecution,^" and (3) defamation of

personal character and business reputation.^^ Additionally, ex-

emplary damages may be awarded in some cases.^^
If a receiver is wrongfully appointed, the moving party can be

made to bear the costs of the receiver as well as expenses
associated with the adverse party's reversal of the order appointing

the receiver." Furthermore, such expenses may not be charged
against the fund of which the receiver has possession.^® Thus, the

^^O'Malley v. Hankins, 209 Ind. 461. 463, 199 N.E. 558, 559 (1936); Brock v. Rudig,

69 Ind. App. 190, 196, 119 N.E. 491, 492 (1918); Noxon Chem. Prods. Co. v. Leckie, 39
F.2d 318, 321 (3d Cir. 1930).

^"65 Am. Jur. 2d Receivers § 132 (1972).

""Cf. Perry v. Columbia Broadcasting Sys., Inc., 499 F.2d 797, 800 (7th Cir. 1974)

(Although the court was not faced with a receivership issue, theoretically the same

principles may apply to the wrongful appointment of a receiver.).

"'Cf. Mowes V. Robbins, 68 Ind. App. 82, 86, 20 N.E. 51, 52 (1918); Citizens' St.
R.R. V. Willoeby, 134 Ind. 563, 569, 33 N.E. 627, 629 (1893) (Neither case involves

receiverships, yet the rules stated in each might be applicable to the wrongful appoint-

ment of a receiver.).

"O'Malley v. Hankins, 209 Ind. 461, 463, 199 N.E. 558, 559 (1936); Noxon Chem.

Prods. Co. V. Leckie, 39 F.2d 318, 321 (3d Cir. 1930).

''The court in O'Malley v. Hankins, 209 Ind. 461, 199 N.E. 558 (1936), a leading In-

diana case on this subject, unequivocally held:

It cannot be questioned that, when a judgment appointing a receiver is

reversed on appeal and vacated upon the ground that there were insufficient

facts established to justify the appointment, neither the defendant nor the

property for which the receiver was appointed can be charged for the ser-

vices of the receiver, or the receiver's attorneys, or the plaintiff's attorneys.

Id. at 463, 199 N.E. at 559. Similarly, the court in Noxon Chem. Prods. Co. v. Leckie,

39 F.2d 318 (3d Cir. 1930), held:

All such compensation, to which the several parties might be entitled, must

be taxed against the plaintiff, whose proceeding it was, and upon whom the
blame for the wrong committed must legally rest. When the court is without
jurisdiction, the cases are unanimous in holding that the court is without

power to make any charge upon the assets or expenses for compensation.
Id. at 321.



438 INDIANA LA W REVIEW [Vol. 12:425

moving party, in addition to being saddled with his own expenses in
pursuing the appointment of the receiver, must also bear the costs
of a receiver's compensation for services rendered, the receiver's

attorney fees, and the adverse party's attorney fees associated with

the vacation of the appointment.

Additionally, the wrongful appointment of a receiver without

notice may subject the moving party to damages for malicious pros-
ecution or abuse of process.^^ An action for malicious prosecution
will lie if the adverse party can establish: (1) The defendant in-
stituted the prosecution, (2) the defendant acted maliciously and

without probable cause, and (3) the prosecution terminated in the

plaintiff's favor .^° An action for abuse of process, on the other hand,
lies for the improper use of process after it has been issued and not

for maliciously causing the process to issue.^^ Thus, if the moving
party maliciously caused process to issue and the appointment to

proceed or if it improperly used the process and appointment after

issuance, the moving party may be liable for these additional
elements of damages.

Also the appointment ex parte of a receiver may subject the
moving party to damages arising out of a defamation action. The

appointment of a receiver may cause disastrous consequences to a
person's individual esteem and his business reputation. Generally,

''Cf. Cassidy v. Cain, 145 Ind. App. 581, 587-88, 251 N.E.2d 852, 856 (1969); Boyd
V. Hodson, 117 Ind. App. 296, 301, 72 N.E.2d 46, 48 (1947) (neither Cassidy nor Boyd in-
volved the appointment of a receiver, yet the rule laid down in each conceivably could
be applied to a wrongful receivership).

'"E.g., Cassidy v. Cain, 145 Ind. App. 581, 587-88, 251 N.E.2d 852, 856 (1969).

«'Brown v. Robertson, 120 Ind. App. 434, 437, 92 N.E.2d 856, 857-58 (1950). The

court in Robertson compared a cause of action for malicious prosecution with that of

abuse of process:

"The distinctive nature of an action for abuse of process, as compared

with an action for malicious prosecution, is that the former lies for the im-

proper use of process after it has been issued, not for maliciously causing

process to issue. Where the matter complained of concerns the issuance of
process, the action is either strictly or by analogy one for malicious prosecu-

tion. In this category are included actions for the malicious institution of

criminal proceedings, the wrongful and malicious procurement of attachment

or other process of seizure, and the institution of bankruptcy proceedings. In

such cases it is, for obvious reasons, generally held that want of probable

cause and the existence of malice in procuring the issuance of the process, as

well as a termination favorable to the plaintiff, are essential to the mainten-

ance of the action. But where the thing complained of is not that issuance of
the process was wrongfully procured, but that, having been issued, it was

willfully perverted, so as to accomplish a result not commanded by it or
lawfully obtainable under it, the action has been denominated by well-

considered cases as one for the abuse of process." 1 Am. Jur., Abuse of Pro-
cess, § 3, p. 176.

Id. at 437-38, 92 N.E.2d at 858.



1979] RECEIVERSHIPS 439

"[u]nder Indiana law ... a statement may be defamatory when it is
such as would tend to hold the plaintiff up to hatred, contempt, or

ridicule, or when it causes him to be shunned or avoided or tends to
injure him in his profession, trade, or calling."^^ Given the proper set

of circumstances, an aggrieved party may be able to make a case for
defamation arising from the wrongful appointment of a receiver.

Finally, if the moving party sought the appointment fraudulently,^^
or with malice or in heedless disregard of the consequences,^^ then it

may also be subject to exemplary damages.
These possible repercussions to the moving party should cause a

person to carefully consider whether or not its predicament

demands such an extraordinary remedy.

IV. How Indiana Courts Guarantee Due Process

A. General Approach

Despite the seemingly inherent violation of due process involved

in the taking of another's property without notice or hearing, the

Indiana courts, in strictly construing the statute and in rigidly ap-
plying to the facts of each case the standard which has evolved over

the years for appointing a receiver without notice, have sought to

safeguard the rights of both the party in possession of the property

and the one seeking possession of it.

An adverse party's rights are protected in two ways: (1) The
statute only permits appointment without notice in exceptional

cases;^^ and (2) the courts strictly construe the statute.^^ This dual

«2Perry v. Columbia Broadcasting Sys., Inc., 499 Y2d 799, 800 (7th Cir. 1974). Ad-
ditionally, according to the court in Prosser v. Callis, 117 Ind. 105, 19 N.E. 735 (1889):

The words need not necessarily impute disgraceful conduct to the plaintiff; it

is sufficient if they render him contemptible or ridiculous. Any written words
are defamatory which impute to the plaintiff that he has been guilty of any

crime, fraud, dishonesty, immorality, vice, or dishonorable conduct, or has

been accused or suspected of any such misconduct, or which suggest that the

plaintiff is suffering from any infectious disorder, or which have a tendency

to injure him in his office, profession, calling, or trade; and so, too, are all

words which hold the plaintiff up to contempt, hatred, scorn, or ridicule, and

which, by thus engendering an evil opinion of him in the minds of right-

thinking men, tend to deprive him of friendly intercourse and society.

Id. at 107-08, 19 N.E. at 736.

"^C/. Mowes V. Robbins, 68 Ind. App. 82, 86, 120 N.E. 51, 52 (1918) (does not in-
volve the appointment of a receiver, but does state a rule which might find application

in the wrongful appointment of a receiver).

''Cf. Citizens' St. R.R. v. Willoeby, 134 Ind. 563, 569, 33 N.E. 627, 629 (1893) (does

not involve the wrongful appointment of a receiver, but does state a rule which could

easily be applied to the receivership situation given the proper circumstances).

^^Henderson v. Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907).

"Tagan v. Clark, 238 Ind. 22, 26, 148 N.E.2d 407, 409 (1958); State ex rel. Makar

V. St. Joseph County Circuit Court, 242 Ind. 339, 347, 179 N.E.2d 285, 289-90 (1961).



440 INDIANA LAW REVIEW [Vol. 12:425

safeguard is actually a two-tiered protection rather than two
independent methods by which the adverse party's rights are pro-
tected. The significance of the two-tiered standard is that it generally
is more difficult to satisfy a second higher level requirement than a
second requirement of the same degree as the first. The courts are
empowered to act by virtue of the statute which permits appoint-
ment without notice only in exceptional cases^^ and then the courts,
in construing what constitutes an "exceptional case," strictly inter-
pret those words.^^ Thus, as will be shown, the appointment of a

receiver without notice will not often occur.®^

The Indiana statute^" sets forth as the general rule that the
adverse party must have notice and an opportunity to be heard
before the court will appoint a receiver. Appointment without notice
is the exception to the general rule.^^ Thus, the first level of protec-

tion is that a party petitioning for the appointment of a receiver

without notice must demonstrate to the court that the exception
rather than the general rule should apply .^^

«lND. Code § 34-1-12-9 (1976).

''See Henderson v. Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907).

*®There have been very few Indiana cases in which the appointment of a receiver

without notice has been sustained on appeal. Meyering v. Petroleum Holdings, Inc.,

227 Ind. 313, 86 N.E.2d 78 (1949); H-A Circus Operating Corp. v. Silberstein, 215 Ind.

413, 19 N.E.2d 1013 (1939); Stair v. Meissel, 207 Ind. 280, 192 N.E. 453 (1934).

^"IND. Code § 34-1-12-9 (1976).
^^The court in Henderson held: "When such notice can be given it should be

given, unless there is imminent danger of loss, or great damage, or irrevocable injury,

or the greatest emergency, or when by the giving of notice the very purpose of the

appointment of a receiver would be rendered nugatory . . . ." 168 Ind. at 527-28, 81

N.E. at 496 (quoting North Am. Land & Timber Co. v. Watkins, 109 F. 101, 106 (8th
Cir. 1901)).

''See Inter-City Contractors Serv., Inc. v. JoUey, 257 Ind. 593, 595, 277 N.E.2d

158, 160 (1972); Indianapolis Mach. Co. v. Curd, 247 Ind. 657, 662, 221 N.E.2d 340, 343

(1966); Albert Johann & Sons Co. v. Berges, 238 Ind. 265, 267, 150 N.E.2d 568, 569-70
(1957); Environmental Control Syss., Inc. v. Allison, 314 N.E.2d 820, 824 (Ind. Ct. App.

1974).

As a prelude to the discussion which follows, consider what the court in Hender-

son held to be "exceptional cases":

The exceptional cases are when the defendant is beyond the jurisdiction

of the court, or cannot be found, or when some emergency is shown render-
ing interference, before there is time to give notice, necessary to prevent

waste, destruction or loss; or when notice itself will jeopardize the delivery

of the property, over which the receivership is extended in obedience to the

order of the court. It must be a case of imperious necessity, requiring im-

mediate action, and where protection cannot be afforded the plaintiff in any

other way.

168 Ind. at 527, 81 N.E. at 496 (citations omitted). The Henderson holding sets forth in

a broad way the guidelines which courts should follow when considering such a case,

but does not specifically define what must be shown or the degree of certainty re-

quired of such a showing. Neither does the statute aid in determining what is suffi-



1979] RECEIVERSHIPS 441

The second level of the two-tiered approach is that courts are
reluctant to exercise their statutory power.^^ The basis for this
reluctance is that the courts are eminently aware of the constitu-
tional problems^^ involved in the taking of a person's property/^

especially in the case of a receiver without notice where the
receiver takes the property without forewarning. The court in
Fagan v. Clark^^ summarized well the attitude of Indiana courts:

[W]e are not inclined to extend or broaden the privileges of

one who asks for a receiver without notice. On the other
hand, we are inclined to throw all the protection possible
around the aggrieved party who had been deprived of his
property by an ex parte hearing and without notice.^^

Therefore, the courts in strictly construing what is required to
elevate a case to that of an "exceptional" case, provide further pro-

tection for the adverse party's rights.

B. The Development of Indiana Case Law— The Johann Rule

Indiana courts have attempted to relieve the tension created by

the competing considerations of the constitutional guarantee of due

process and the property interests of the party seeking the appoint-

cient cause to support the appointment of a receiver without notice. Wabash Ry. v.
Dykeman, 133 Ind. 56, 32 N.E. 823 (1892).

^^An indication of this reluctance is the general theme with which many courts
preface their opinions — receivership without notice is an extraordinary remedy. The
use of this language demonstrates their hesitancy to invoke such measures. By defini-
tion an "extraordinary" remedy is one not commonly employed. Black's Law Diction-
ary 699 (rev. 4th ed. 1968). Furthermore, only on rare occasions have Indiana courts af-

firmed the appointment of a receiver without notice, evidencing this reluctance. See

H-A Circus Operating Corp. v. Silberstein, 215 Ind. 413, 416, 19 N.E.2d 1013, 1014
(1939). See also Lafayette Realty Corp. v. Moller, 247 Ind. 433, 438-39, 215 N.E.2d 859,

861 (1966); Fagan v. Clark, 238 Ind. 22, 26, 148 N.E.2d 407, 409 (1958); Henderson v.

Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907); Wabash Ry. v. Dykeman, 133 Ind.
56, 65, 32 N.E. 823, 826 (1892); Environmental Control Syss., Inc. v. Allison, 161 Ind.

App. 148, 153, 314 N.E.2d 820, 823 (1974).

^*See State ex rel. Red Dragon Diner, Inc. v. Superior Court, 239 Ind. 384, 158
N.E.2d 164 (1959), wherein the court held:

Notice, giving a defendant opportunity to be informed regarding the nature

of the action and reasonable opportunity to make a defense, is an essential
element of due process. Our statutes which specifically limit the authority of

the court to appoint receivers without notice is in implementation of the

above constitutional guarantee.

Id. at 385-86, 158 N.E.2d at 165 (footnotes omitted).

'^See, e.g., Jones v. Becker, 212 Ind. 248, 254, 8 N.E.2d 587, 590 (1937); Kent Ave.

Grocery Co. v. George Hitz & Co., 187 Ind. 606, 608, 120 N.E. 659, 660 (1918).
^•^38 Ind. 22, 148 N.E.2d 407 (1958).

"M at 31, 148 N.E.2d at 412.



442 INDIANA LAW REVIEW [Vol. 12:425

ment of a receiver without notice. Although one praying for the
extraordinary relief must overcome rather formidable obstacles, a
general disfavor and reluctance on the part of the courts to employ

their statutory authority, as well as a great amount of precedent to
support the courts' denial of the remedy,^^ factual situations have

arisen in the past and no doubt will arise in the future which man-

date appointment without notice. The discussion which follows
precisely details the evolution of the elements of proof which the

party petitioning for appointment without notice will have to satisfy

in order to compel a generally unsympathetic court to grant a

motion for receivership without notice. The analysis not only will
aid a practicing attorney, but more importantly, the analysis will
also indicate how the requirements announced by the courts provide
a great degree of protection for an unwitting party in possession.

As previously demonstrated, Indiana courts have consistently
hesitated to grant a motion for the ex parte appointment of a

receiver; not until the Indiana Supreme Cou t handed down its deci-
sion in Albert Johann & Sons Co. v. Berges,^^ however, did the court
explicitly indicate what a party petitioning for appointment without
notice must establish.®"

The Johann rule is not particularly novel; the holding is signifi-
cant, however, in that for the first time it was possible to analyze a
court's holding in any particular case against an explicit standard, as

well as to measure the standard itself against the constitutional re-

'Tagan v. Clark, 238 Ind. 22, 148 N.E.2d 407 (1958); Rotan v. Cummins, 236 Ind.
394, 140 N.E.2d 505 (1957); Johann v. Johann, 232 Ind. 40, 111 N.E.2d 473 (1953); Sec-
ond Real Estate Invs., Inc. v.- Johann, 232 Ind. 24, 111 N.E.2d 467 (1953). See note 83

infra.

'^38 Ind. 265, 150 N.E.2d 568 (1958).

^The following have been established in Indiana as conditions precedent to

the appointment of a receiver without notice:

1. The complaint must affirmatively show (a) a probability that plain-

tiff will be entitled to judgment; (b) that there not only is cause for the ap-

pointment of a receiver, but that there is sufficient cause for such appoint-

ment without notice; and (c) that plaintiff's rights cannot be protected by a

restraining order or other adequate remedy, and if this is shown, then it

must be further shown that the emergency necessitating the appointment

could not have been anticipated in time to give notice or that waste or loss is

threatened and delay until notice can be given will defeat the object of the

suit.

2. The only evidence which is proper under § 3-2602 [Ind. Code

§ 34-1-12-1 (1976)] to be considered by the trial court must be in the form of

affidavits, which may include or consist of the verified complaint.
3. The facts justifying the relief sought must be shown by the affi-

davits or verified complaint, and mere conclusions of a plaintiff will not suf-

fice.

Id. at 268, 150 N.E.2d at 569-70 (footnotes omitted).



1979] RECEIVERSHIPS 443

quirement of the fourteenth amendment of the United States Con-
stitution.

The Johann rule Consists of a substantive rule which sets forth
the factual setting which must be present and the formal procedural
requirements for an application for the appointment of a receiver

without notice. The discussion which follows first considers the
substantive aspects and then the procedural requirements.

The Johann holding is derived from a compilation of previous
court holdings^^ reversing the appointment of a receiver without

notice. Prior to Johann, when the court reversed the appointment
without notice, it generally focused on one or two reasons why the
appointment in that particular case was not justified.^^ Such pro-
cedure was proper since the plaintiff has the burden of proving
every element of its case.^^ Thus, if the defendant convinced the

court of any fallacy in plaintiff's reasoning then the court properly
reversed the appointment.

Under the Johann rule, one element of proof that the plaintiff
must demonstrate by a preponderance of the evidence is that it will
ultimately prevail on the merits.** The rationale for this part of the
rule should be obvious. The courts will only appoint a receiver when
the situation clearly demands such relief®^ and justice between the

«^See, e.g.. Second Real Estate Invs. v. Johann, 232 Ind. 24, 31-32 n.3. 111 N.E.2d

467, 471 n.3 (1953) (quoting 1 R. Clark, A Treatise on the Law and Practice of
Receivers § 82, at 111-12 (2d ed. 1929)) (adopting a rule very similar to that as found in

condition one of the Johann rule):

The statutes of Indiana provide specifically that a receiver can only be
appointed without notice upon sufficient cause shown by affidavit. The

Supreme Court of Indiana lays down three salutary rules governing such ap-
pointment. These rules are substantially covered by the statement of the

author in the beginning of this section, nevertheless they will bear repetition

as stated by the Indiana court as follows:

1. That the property is about to be wasted, destroyed or removed

beyond the jurisdiction.

2. That the issuing of a temporary restraining order or other relief

that may be obtained, will not protect the property until notice can be given.
3. That delay until notice can be given will defeat the object of the

suit.

See also cases cited in note 78 supra.

'^E.g., Hawkins v. Aldridge, 211 Ind. 332, 343, 7 N.E.2d 34, 38 (1937) (stressing the
availability of alternate remedies as the reason for reversing the ex parte appoint-

ment); Bookout V. Foreman, 198 Ind. 543, 546, 154 N.E. 387, 388 (1926) (reversing ap-

pointment because the moving party's failed to demonstrate an emergency situation).

*^The plaintiff has the burden of proving by a preponderance of the evidence that

the appointment of a receiver is necessary. Indianapolis Dairymen's Co-op. v. Bottema,

226 Ind. 237, 245, 79 N.E.2d 399, 404 (1948). See generally note 23 supra.
^See generally note 6 supra.

''E.g., Hawkins v. Aldridge, 211 Ind. 332, 343, 7 N.E.2d 34, 38 (1937).



444 INDIANA LAW REVIEW tVol. 12:425

parties cannot be effectuated in any other way.^^ If the plaintiff can-

not establish that he will ultimately prevail on the merits, the court

will not put itself in the position of being reversed, and furthermore

the court, in balancing the property interests of each party, will not

order a receiver pendente lite to seize the property of the prima

facie owner®^ only to return the property after the case is finally ad-

judicated.

Secondly, not only must the plaintiff establish that appointment
of a receiver with notice is necessary, but also that there are suffi-

cient grounds for dispensing with the need for notice.^* The rationale
for this part of the rule is also straight forward. The moving party
must first satisfy all of the requirements for appointment with
notice and then demonstrate that there exists some additional
reason why notice cannot be given in the particular fact situation.
The appointment without notice to the dispossessed party is ob-
viously a much more drastic action than the appointment of a
receiver after the merits of the case have been fully adjudicated and

after both parties have had an opportunity to present evidence and

argue their cases. Therefore, an appointment without notice re-

quires a higher degree of proof.

Another element of the plaintiffs case is a showing that the

emergency giving rise to a prayer for appointment without notice
cannot be forestalled until notice can be given and a hearing held by

granting a temporary restraining order or other adequate relief.*^

''See, e.g., Hawkins v. Aldridge, 211 Ind. 332, 341, 7 N.E.2d 34, 38 (1937); Bookout

V. Foreman, 198 Ind. 543, 547, 154 N.E. 387, 388 (1926); Goshen Woolen Mills Co. v.

City Nat'l Bank, 150 Ind. 279, 286, 49 N.E. 154, 156 (1898). Theoretically, appointment

of a receiver occurs only when there is no other "full and adequate remedy." Thus, if
any alternate remedies to the appointment of a receiver are applicable to a particular

fact situation, not only should they be used, but they must be used. Henderson v.

Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907).

'''See note 26 supra.

««Hampton v. Massey, 215 Ind. 247, 248, 19 N.E.2d 464, 465 (1939); Ledger Pub-

lishing Co. V. Scott, 193 Ind. 683, 685-86, 141 N.E. 609, 609 (1923). The court in Ledger

Publishing Co. held:

To justify the appointment of a receiver without notice, not only must

one of the statutory causes for the appointment exist, but each of the follow-

ing conditions must be shown, namely, that the property is about to be

wasted or removed beyond the jurisdiction of the court; that delay until

notice can be given will defeat the object of the suit; that the issuing of a

temporary restraining order, or other relief that may be obtained, will not
protect the property until notice can be given.

193 Ind. at 685-86, 141 N.E. at 609.

'^Hawkins v. Aldridge, 211 Ind. 332, 343, 7 N.E.2d 34, 39 (1937); Bookout v.

Foreman, 198 Ind. 543, 546-47, 154 N.E. 387, 388 (1926); Tucker v. Tucker, 194 Ind. 108,

111-12, 142 N.E. 11, 13 (1924).



1979] RECEIVERSHIPS 445

Unless notice will defeat the object of the suit, it must be given.^°

The United States Court of Appeals for the Fifth Circuit held in
Cabanissa v. Reco Mining Co.:^^ "When such notice can be given it
should be given . . . ."^^ The countervailing circumstances which
cause the giving of notice to be impractical are at the very heart of

this Note. This rule announced by Johann is an attempt to outline,
with the greatest specificity, what the moving party must present
to a court in order to entitle him to the appointment of a receiver

without notice.

The courts are most sensitive to a situation in which the ap-
pointment of a receiver without notice is absolutely required to

maintain the status quo until notice can be given. Even where the
facts appear compelling and the wrongdoing by the party in posses-
sion is blatant, a court will not necessarily grant the petition ap-

pointment of a receiver without notice. The circumstances which
precipitated the suit in Johann are a typical situation in which the
facts seem compelling, yet upon close scrutiny the court determined
that an ex parte receivership would not be proper. In Johann the
plaintiff in its verified complaint cited specific acts of impropriety

committed by the corporation's president, including the purchase of

a $6,500 speed boat with corporate funds,^^ the pledge of corporate

stock to secure a personal debt, the doubling of accounts payable

during a period when the case account fell by fifty percent, as well
as the imminent danger of insolvency^"* which plagued the corpora-
tion. Notwithstanding this seemingly compelling set of cir-

cumstances, the supreme court reversed the trial court's appoint-
ment of a receiver without notice. The court held that the petition
failed to demonstrate an emergency which would cause the appoint-
ment of a receiver without notice to be the only remedy whereby
justice between the parties could be served.^^

Another element of the Johann rule is that the emergency which
the petitioner claims exists must not have been reasonably
foreseeable: "It is well settled that a party seeking injunction or the

appointment of a receiver cannot by his own delay or failure to act
promptly create an emergency which will excuse his giving the re-

^Henderson v. Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907) (citing

Cabanissa v. Reco Mining Co., 116 F. 318, 323-24 (5th Cir. 1902)); Chicago & South-
eastern Ry. V. Cason, 133 Ind. 49, 51, 32 N.E. 827, 828 (1892).

^^116 F. 318 (5th Cir. 1902).

'Hd. at 324.

^^The Albert Johann & Sons Corporation was in the business of directing
funerals.

^*Imminent danger of insolvency is a statutory ground for the appointment of a

receiver. Ind. Code § 34-1-12-1(5) (1976).
«^38 Ind. at 270, 150 N.E.2d at 570.



446 INDIANA LA W REVIEW [Vol. 12:425

quired notice to the adverse party ."^^ Again, the rationale for such a
rule is not difficult to understand. To hold otherwise would function
as a disincentive for attorneys to explore alternative means of relief.
Furthermore, the courts of equity have long frowned upon granting
relief to a party who has slumbered on his rights.

The final substantive showing required by Johann is that plain-
tiffs rights cannot be adequately protected by a temporary restrain-
ing order or other remedy .^^ Again, the Johann court merely stated
what had been the rule for several years:^^ The courts simply will
not appoint a receiver without notice except where it is absolutely
necessary to do justice between the parties.^^ If alternate forms of
relief are available and such relief is sufficient to safeguard the
rights of the parties, then the court will deny the application for
receiver without notice in favor of the alternative.*""

^Henderson v. Reynolds, 168 Ind. 522, 529, 81 N.E. 494, 496 (1907).
^'238 Ind. at 267, 150 N.E.2d at 571 . See also Ledger Publishing Co. v. Scott, 193

Ind. 683, 686, 141 N.E. 609, 609 (1923).

''E.g., Hawkins v. Aldridge, 211 Ind. 332, 343, 7 N.E.2d 34, 38 (1937) (citing Kent

Ave. Grocery Co. v. George Hitz & Co., 187 Ind. 606, 608-09, 120 N.E. 659, 660 (1918)):
"[A] receiver will not be appointed without notice when a court, as in this state, has
authority to grant a temporary restraining order without notice, and where the is-

suance of such an order would afford ample protection until notice can be given . . . ."

Similarly, the court in Henderson v. Reynolds, 168 Ind. 522, 81 N.E. 494 (1907), held:

"[A] receiver will not be appointed without notice when a court, as in this State, has
the power to grant a temporary restraining order, without notice, and the same is am-

ple to protect the property until notice is given and the application for a receiver

heard and determined." Id. at 527, 81 N.E. at 496.

''See note 86 supra and accompanying text.

^""A temporary restraining order is the most often utilized alternate form of relief;

see generally Bookout v. Foreman, 198 Ind. 543, 546, 154 N.E. 387, 388 (1926); Tucker

V. Tucker, 194 Ind. 108, 111, 142 N.E. 11, 13 (1924). Other substitute remedies include

attachment and garnishment; see Hawkins v. Aldridge, 211 Ind. 332, 342, 7 N.E.2d 34,

38 (1937). In Hawkins the court held:
Attachment is a remedy at law, available to one seeking a money judg-

ment, where the defendant has threatened to cheat, hinder, or delay his

creditors, or where he is intending to leave the state with intent to defraud

his creditors. Attachment would have provided ample relief. But here, also, a

bond is required to protect the defendant.

In May v. Greenhill et al. (1881) 80 Ind. 124, where the complaint was in
many respects similar to the one under consideration, it was held that the
plaintiff had a full, complete, and ample remedy by attachment or garnish-

ment, and that a receiver should have been appointed ....

The statutory remedy of attachment is a legal remedy, available with-

out notice, upon giving bond, which would furnish all of the protection that

was here sought by a receivership. There is no bond to protect the defend-
ants where a receiver is appointed. The principles here referred to have

been long well settled and repeatedly announced by this court from the

earliest times.

211 Ind. at 342, 7 N.E.2d at 38-39.

The reader should, however, note that there are repercussions from wrongful use

of these remedies. See Bick v. Long, 15 Ind. App. 503, 505, 44 N.E. 555, 556 (1896).



1979] RECEIVERSHIPS 447

The procedural aspects of the Johann rule as they relate to the
form and sufficiency of the pleadings have also evolved from cases

prior to Johann.^^^ Like the requisite substantive elements, the form

and sufficiency of the pleadings reflect the court's awareness of the

constitutional problems in the dispossession of an individual of prop-

erty without notice and hearing. The discussion which follows con-
siders the way in which the procedural elements of the rule attempt
to guarantee the constitutional rights of the party in possession.

Condition two of the rule^°^ reflects the statutory mandate of
"sufficient cause shown by affidavit" and requires that all evidence
submitted to the court be in the form of affidavit or verified com-

plaint.^"^ Like the first condition of the rule, the second condition is

not a unique interpretation, but rather a long held requirement of

the procedure for obtaining the appointment of a receiver without

notice. ^"^ The importance of this rule is two-fold. First, such pro-
cedure enables the supreme court to review the precise evidence
upon which the trial court determined that the appointment without
notice was proper. ^°^ The transcript of the trial court proceedings in
and of itself is insufficient because in an ex parte proceeding the

adverse party is not present to challenge the testimony of the mov-
ing party. ^''^ The courts therefore will only consider evidence in the
form of verified complaints and affidavits based upon personal belief

'"'E.g., Second Real Estate Invs., Inc. v. Johann, 232 Ind. 24, 29, 111 N.E.2d 467,

470 (1953); Hampton v. Massey, 215 Ind. 247, 248, 19 N.E.2d 464, 464 (1939); Hizer v.
Hizer, 201 Ind. 406, 414, 169 N.E. 47, 50 (1929).

'"^See note 80 supra.

i°^lND. Code § 34-1-12-9 (1976).
'"'Mannos v. Bishop-Babcock-Becker Co., 181 Ind. 343, 104 N.E. 579 (1914), wherein

the court explained:

This court, in actions at law, cannot weigh evidence, oral or written. ... In

equity causes, it will not determine where the preponderance lies in conflict-

ing oral testimony. . . . But in such cases, where the evidence is wholly docu-

mentary or written, it weighs the evidence adduced. . . . The appointment of

a receiver is purely of equitable cognizance.

Id. at 345-46, 104 N.E. at 580 (citations omitted).

Furthermore, according to the court in Rotan v. Cummins, 236 Ind. 394, 140

N.E.2d 505 (1957): "This court has never questioned or deviated from the proposition

that a receiver without notice can not be appointed unless the moving party shows by

verified complaint or affidavit that neither the ordinary procedure for appointment,

which requires notice to be given . . . ." Id. at 397, 140 N.E.2d at 506 (citations omitted)

(emphasis added).

^"^Appeals from the appointment of a receiver with or without notice are made
directly to the Indiana Supreme Court. Ind. Code § 34-1-12-10 (1976).

'""See Indiana Merchants' Protective Ass'n v. Little, 202 Ind. 193, 195, 172 N.E.

905, 906 (1930); Mannos v. Bishop-Babcock-Becker Co., 181 Ind. 343, 345. 104 N.E. 579,

580 (1914).



448 INDIANA LA W REVIEW [Vol. 12:425

as vehicles for introducing all of the relevant facts into evidence/"^

Thus, for the purpose of reviewing the propriety of a trial court's

ruling, the exact facts which generated the decision must be
preserved.

Aside from the interests of the supreme court in having a
precise record for appeal, such a record serves the related purpose

of informing the adverse party of the grounds for the confiscation of

its property: "Thus the adverse party may know the exact facts
upon which the judge acted in appointing a receiver in his absence

and wrestling from him the control of his property without a hear-

ing or an opportunity for such hearing . . . ."'^°® The courts place
great emphasis on the form of the pleadings and will not relax the

requirement of a verified complaint or affidavit.^^^

The final element of the Johann rule is that the affidavits or
verified complaint must be based on personal knowledge, in positive
terms,"" and stated as facts rather than conclusions."^ The unsup-
ported statement that directors could commit certain wrongful acts
has been held insufficient cause for dispensing with notice; instead a

verified statement was required that the adverse party "had done
or attempted or threatened to do" the wrongful acts."^ Furthermore,

the mere apprehension or fears of the moving party are insufficient

^"'Second Real Estate Invs. v. Johann, 232 Ind. 24, 30, 111 N.E.2d 467, 470 (1953);

Indiana Merchants' Protective Ass'n v. Little, 202 Ind. 193, 196, 172 N.E. 905, 906

(1930).

Additionally, according to the court in Sullivan Elec. Light & Power Co. v. Blue,
142 Ind. 407, 41 N.E. 805 (1895):

Without such facts being spread upon the record on appeal to a higher court

from such an interlocutory order allowed by another section of the same

statute, the appeal might prove to be fruitless and unavailing. So that we
must look to the facts stated on paper, at the time the application . . . was

made, exclusively to find the cause, if any there was, to justify the appoint-

ment without notice.

Id. at 417, 41 N.E. at 808.

lo^Environmental Control Syss., Inc. v. Allison, 314 N.E.2d 820, 823 (Ind. Ct. App.

1974).

'"^Hizer v. Hizer, 201 Ind. 406, 414, 169 N.E. 47, 50 (1929); Environmental Control

Syss., Inc. v. Allison, 314 N.E.2d 820, 823 (Ind. Ct. App. 1974).

'^"Ledger Publishing Co. v. Scott, 193 Ind. 683, 685, 141 N.E. 609, 609 (1923);

Mannos v. Bishop-Babcock-Becker Co., 181 Ind. 343, 347, 104 N.E. 579, 580 (1914);
Henderson v. Reynolds, 168 Ind. 522, 524, 81 N.E. 494, 495 (1907).

•"Inter-City Contractors Serv., Inc. v. Jolley, 257 Ind. 593, 277 N.E.2d 158 (1972);

Meek v. Steele, 368 N.E.2d 257, 258 (Ind. Ct. App. 1977).
"''Welfare Loan Soc'y of Anderson v. Seward, 193 Ind. 541, 542, 141 N.E. 221, 221

(1923). See also Environmental Control Syss., Inc. v. Allison, 314 N.E.2d 820 (Ind. Ct.

App. 1974) (citing Indianapolis Mach. v. Curd, 247 Ind. 657, 664, 221 N.E.2d 340, 345

(1966)), wherein the court held:

Property may not be taken from persons acting as legally appointed trustees,
arbitrarily and without notice, unless it is clearly first shown by facts

specifically alleged (not conclusions) that they threaten to and that they plan



1979] RECEIVERSHIPS 449

grounds for the appointment of a receiver without notice. ^^^ An af-
fidavit sworn "to the best of knowledge and belief has uniformly
been held inadequate. ^^'^ For the reasons which follow, the
phraseology is too equivocal to safeguard the constitutional rights of

the adverse party. The court is left without means of determining
which part of the affidavit is based on belief and which part on the
knowledge of the affiant."^ An affiant's belief may be based upon
hearsay evidence which he, in good faith, believes to be true,^^^ but
where a prima facie owner is about to be dispossessed of his proper-
ty, the courts require more than good faith. ^^^ The strict re-
quirements outlined in Johann strive toward that goal, for if a court
knew that the moving party's position and allegation were absolute-
ly correct the prima facie owner would not, in fact, be entitled to
the property and therefore his constitutional rights would not be
violated by taking the property from him.

Not only do the courts require a great degree of certainty in the

correctness of the affiant's statements, but furthermore, the affiant

must state its position in terms of evidentiary facts, rather than con-

clusions. ^^^ An analogous situation is the factual showing required of
an affiant before a court in a criminal proceeding will issue a search

warrant."^ The courts in such cases also strictly apply the rule^^° in

to, unless restrained and stopped, dissipate, conceal or embezzle such assets

before notice can he given.

314 N.E.2d at 824.

•^^Hizer v. Hizer, 201 Ind. 406, 414, 169 N.E. 47, 50 (1929); Spurgeon v. Rhodes, 167

Ind. 1, 7, 78 N.E. 228, 230 (1906).

"'Ledger Publishing Co. v. Scott, 193 Ind. 683, 685, 141 N.E. 609, 609 (1923);

Mannos v. Bishop-Babcock-Becker Co., 181 Ind. 343, 347, 104 N.E. 579, 580 (1914).
"^Henderson v. Reynolds, 168 Ind. 522, 525, 81 N.E. 494, 495 (1907).

"«/d. at 525-26, 81 N.E. at 496 (citing City of Atchison v. Bartholow, 4 Kan. 124,

139-40 (1866)).

"'The court in Indianapolis Mach. v. Curd, 247 Ind. 657, 221 N.E. 340 (1966), held:

Receivers may not be appointed without notice merely because a party
"believes" that there is danger of loss of assets or merely because parties

holding the assets "could" dissipate them or conceal them. The mere

possibility or potentiality of doing injury or violating the law cannot be made
the basis alone for equitable interference by a court. If such were the law,

every person and every business would be subject to being taken over by a

court, and even a court and a judge has such possibility and "could" violate

the law.

Id. at 665, 221 N.E.2d at 345.

"'State ex rel. Red Dragon Diner v. Superior Court, 239 Ind. 384, 386-87, 158
N.E.2d 164, 165-66 (1959).

'''E.g., Gwinn v. State, 201 Ind. 420, 423, 166 N.E. 769, 770 (1929); Wallace v.

State, 199 Ind. 317, 326, 157 N.E. 657, 660 (1927). The Wallace court held: "The af-

fidavit or the statement under oath or affirmation, in support of probable cause, must

bear the countenance of truth, which is so infallible that either an action for damages,

or a criminal charge of perjury may be legally predicated thereon, if such statement is
untrue." Id. at 326, 157 N.E. at 660.

'^'E.g., Wallace v. State, 199 Ind. 317, 157 N.E. 657 (1927) wherein the court held:



450 INDIANA LAW REVIEW [Vol. 12:425

order to protect the constitutional rights of the person to be searched.

The appointment of a receiver without notice conceptually repre-
sents a more serious intrusion upon the constitutional rights of the
party in possession than does granting of a search warrant/^^

As in the case of the issuance of a search warrant, the court
when considering the appointment of a receiver without notice
demands specific facts from which it can determine whether or not
appointment is justified. The court in Inter-City Contractors v.
Jolley^^^ reversed the ex parte appointment of a receiver on the

grounds that the verified complaint was deficient. ^^^ The concern of
the court was the correctness of the appointment of a receiver
without notice. In order to guarantee the constitutional rights of the

party in possession, courts rely upon their own discretion in deter-
mining the justifiability of appointment in any particular case,^^* and

therefore, independently review the facts.

Courts on a number of occasions have stated the specific facts
required in order to justify the appointment of a receiver without

notice. ^^^ Such facts include a showing that delay resulting from

notice would defeat the object of the suit^^^ and that a temporary

restraining order or other alternate relief would be inadequate. ^^^

Additionally, the moving party must demonstrate to the court either
that the party in possession: (1) Is about to waste or misappropriate

the assets;^^* (2) is insolvent;^^^ (3) is incapable of managing the

"Statutes which relate to search and seizure must be strictly construed in favor of the

constitutional right of the people." Id. at 327, 157 N.E. at 660.

^"Where a receiver is appointed without notice, the receiver enters the adverse

party's business unannounced and literally takes away all control of it from him. A
search warrant, on the other hand, only authorizes the search and seizure of par-

ticularly described articles. Marron v. United States, 275 U.S. 192 (1927). Thus, the ap-

pointment of a receiver without notice is the more drastic action.
^^257 Ind. 593, 277 N.E.2d 158 (1972).

^^^The court held:

These conclusions are not supported by specific statements of facts sufficient

to authorize the appointment of a receiver without notice under the authority

of the above cited cases. The complaint of the appellee [party moving for ap-

pointment] does nothing more than allege conclusions which may or may not
be supported by evidentiary facts.

Id. at 596-97, 277 N.E.2d at 160.

^"Meek v. Steele, 368 N.E.2d 257, 258 (Ind. Ct. App. 1977).
'''E.g, Ledger Publishing Co. v. Scott, 193 Ind. 683, 685, 141 N.E. 609, 609 (1923).

'^'Id. at 685, 141 N.E. at 609.

'^'Id. at 686, 141 N.E. at 609.

^''^Bookout V. Foreman, 198 Ind. 543, 547, 154 N.E. 387, 388 (1926); Henderson v.

Reynolds, 168 Ind. 522, 527, 81 N.E. 494, 496 (1907); Mead v. Burk, 156 Ind. 577, 580, 60

N.E. 338, 340 (1901); Chicago & S.E. Ry. v. Cason, 133 Ind. 49, 51, 32 N.E. 827, 828

(1892).

^^In the application for the appointment of a receiver to take over the assets of a

corporation, insolvency is one of two statutory grounds. Although some courts have



1979] RECEIVERSHIPS 451

assets;^^" (4) is without a right to the property;^^^ (5) is about to com-

mit or has already committed a fraud upon the creditors or other

parties petitioning for the appointment of the receiver;^^^ or (6) is

about to remove the assets from the jurisdiction of the court.^^^ In

short there must be a showing of irreparable, unforeseeable injury

to the moving party, if the receiver is not appointed.
^^"^

The petitioning party not only must allege these facts as conclu-

sions, but, based upon personal belief, swear to the facts which sup-

port such conclusions. If the moving party is able to demonstrate by

a fair preponderance of the evidence that it will ultimately prevail

on the merits when the case is finally adjudicated and the court is
convinced that no other adequate remedy exists, then the court

may, within the bounds of the constitutional guarantee of due pro-

cess, appoint a receiver without notice to the adverse party. The

statute requires sufficient cause to be shown before the notice re-

held that insolvency is not a required condition precedent to the appointment of a

receiver without notice, Mead v. Burk, 156 Ind. 577, 581, 60 N.E. 338, 340 (1901), as a
practical matter the absence of such an allegation makes the legal remedy appear
available and thus defeats the application. See Mannos v. Bishop-Babcock-Becker Co.,
181 Ind. 343, 348, 104 N.E. 579, 581 (1914); Goshen Woolen-Mills v. City Nat'l Bank, 150

Ind. 279, 285, 49 N.E. 154, 156 (1898).

i^^Lafayette Realty Corp. v. Moller, 247 Ind. 433, 438, 215 N.E.2d 859, 862 (1966).

But see North Am. Land & Timber Co. v. Watkins, 109 F. 101, 105 (5th Cir. 1901)
wherein the court considered the mismanagement issue:

Even where the management of the majority appears to be unwise and in-
jurious, equity will not interfere if such management be not dishonest or
ultra vires, but will require the complaining stockholder to seek relief within

the corporation. When the management is not shown to be fraudulent or
dishonest, and when it is a matter of opinion whether it is wise or unwise,
advantageous, or disadvantageous, if the acts complained of be intra vires,

there is no authority for equity to interfere. To do so would be to place con-
trol indirectly in the hands of the minority whenever interference removes
from control the officers selected by the majority.

Id. at 105. See Indianapolis Dairymen's Co-op. v. Bottema, 226 Ind. 237, 247, 79 N.E.2d

401, 402 (1948). See also 2 R. TowNSEND. Securities and Creditors Rights 553 (1976).
^^^Mead v. Burk, 156 Ind. 577, 580, 60 N.E. 338, 339-40 (1901).

"^The application for the appointment of a receiver is an in rem proceeding;
therefore, the moving party must have an interest in the property which is the subject
matter of the action. See Mead v. Burk, 156 Ind. 577, 580, 60 N.E. 338, 339 (1901). See
also 2 R. TowNSEND. Securities and Creditor's Rights 556 (1976).

^^^Bookout V. Foreman, 198 Ind. 543, 546, 154 N.E. 387, 388 (1926), Chicago & S.E.
Ry. V. Cason, 133 Ind. 49, 51, 32 N.E. 827, 828 (1892). See 2 R. Townsend. Securities
AND Creditors Rights 555 (1976), for a listing of many additional grounds to justify
the appointment of a receiver. See also Henderson v. Reynolds, 168 Ind. 522, 527-28, 81

N.E. 494, 495 (1907).

^^Lafayette Realty Corp. v. Moller, 247 Ind. 433, 439, 215 N.E.2d 859, 862 (1966);

Meyering v. Petroleum Holdings, 227 Ind. 313, 325, 86 N.E.2d 78, 82 (1949); Largura
Constr. Co. v. Super-Steel Prods. Co., 216 Ind. 58, 61, 22 N.E.2d 990, 992 (1939);

Bookout V. Foreman, 198 Ind. 543, 546-47, 154 N.E. 387, 388 (1926).

h



452 INDIANA LAW REVIEW [Vol. 12:425

quirement can be obviated. The statute, however, does not define
sufficient cause/^^

The court in Johann for the first time compiled all of the condi-
tions and requisite showings that Indiana courts, for years, had in-

dependently demanded, into a single cohesive rule. Again, the unique-

ness of the Johann holding is not the elements of the holding, but
rather that all of the elements were gathered together in a concise,
logical order.

C. The Development Of Indiana Case Law Since
The Johann Decision

The cases which followed Johann either explicitly or implicitly
applied the Johann rule without significant modification. The In-
diana Supreme Court, in Indianapolis Machinery Co. v. Curd,^^^ con-
sidered two additional elements to be satisfied before a court should
appoint a receiver without notice: (1) An ex parte receivership
should be temporary until notice and hearing,^^^ and (2) the moving
party should post a surety bond as in the case of a temporary

restraining order.^^«

The court did not, however, reverse the appointment of an ex
parte receiver on those grounds.^^^ Nor did the court state the
elements in the form of a general rule.^*° Furthermore, the court

decisions since Indianapolis Machinery have not made these
elements part of the Johann rule.^^^

There is no reason for the courts not to require the same
guarantees of protection in the appointment of a receiver without

notice as required for the granting of a temporary restraining order

^^^Henderson v. Reynolds, 168 Ind. 522. 526, 81 N.E. 494, 496 (1907); Wabash Ry. v.
Dykeman, 133 Ind. 56, 65, 32 N.E. 823, 826 (1892).

»^«247 Ind. 657, 221 N.E.2d 340 (1966).

'^U± at 660, 221 N.E.2d at 342.

'''Id. at 667, 221 N.E.2d at 346.

'^'Id. at 668, 221 N.E.2d at 346.

^*°Instead, the court in dicta suggested:

The failure . . . , to require a bond under the circumstances, is a factor which

weighs in the consideration of the propriety of the appointment without

notice. The posting of a bond by the appellees could have minimized and

reduced the severity of any likely injury to the appellants upon the appoint-

ment of a receiver, and such a fact cannot be eliminated in the consideration

of the drastic remedy asked by the appellees for the appointment of a

receiver without a notice and hearing.

Id. at 667, 221 N.E.2d at 346. Thus, although the court does not require the posting of

a bond, whether or not a bond is posted does weigh in the court's determination.

'''See, e.g., Meek v. Steele, 368 N.E.2d 257 (Ind. 1977); Inter-City Contractors
Serv., Inc. v. Jolley, 257 Ind. 593, 277 N.E.2d 158 (1972); Environmental Control Syss.

V. Allison, 314 N.E.2d 820 (Ind. Ct. App. 1974).



1979] RECEIVERSHIPS 453

before notice. Although the effectiveness and expedient nature of

the remedy would not in any way be impaired, and the moving par-
ty could still effect protection of the assets, yet the adverse party's

rights would be greatly enhanced. The appointment would still be of
an extraordinary nature and require satisfaction of the Johann con-

ditions, but the chance of violating the constitutional rights of

dispossessed parties would be greatly reduced.

V. Conclusion

The appointment of a state court receiver in Indiana is an
anomaly. The statute specifically provides for the appointment of a
receiver, and in certain limited situations justice between the par-

ties can be served in no other way. Yet historically Indiana courts

have only rarely affirmed an ex parte appointment. Furthermore,

when compared to other extraordinary remedies such as a tem-
porary restraining order there arises a serious question as to

whether the Johann decision goes far enough in protecting the
rights of the adverse party.

This leaves the practitioner in a predicament. Even if a factual
situation arises which appears to fall within the allowable

parameters for appointment without notice, he should carefully con-

sider the alternatives even if such alternatives do not accord his

client a full measure of relief. If a practitioner must seek the ap-
pointment of a receiver without notice, he is well advised to ask for

a receiver to temporarily take control of the assets until notice can

be given and a hearing held.^*^ In any event, the practitioner should
scrupulously avoid the dangers inherent in the appointment of a

receiver without notice.

Steven M. Kirsh

'"Fagan v. Clark, 238 Ind. 22, 148 N.E.2d 407 (1958) wherein the court suggested:

The better practice, where the trial court finds it necessary to appoint a
receiver without notice, is to provide in its order that the appointment

should continue only so long as is necessary to give notice of a hearing to all

interested parties. A prompt date for a hearing should be fixed and all in-
terested parties should be given their day in court.

Id at 31, 148 N.E.2d at 411.