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In Re Wildes

December 31, 1914

STATE OF NEVADA, EX REL. JOHN SPARKS, ET AL., AS THE STATE BANKING BOARD, PLAINTIFF, V. STATE BANK AND TRUST COMPANY (A CORPORATION), DEFENDANT. IN THE MATTER OF ORDERS FIXING THE COMPENSATION OF F. L. WILDES, RECEIVER, AND THE COMPENSATION OF THE ATTORNEYS FOR THE RECEIVER. STATE OF NEVADA, EX REL. JOHN SPARKS, ET AL., AS THE STATE BANKING BOARD, APPELLANT, V. F. L. WILDES, AS RECEIVER, RESPONDENT.


Appeal from the First Judicial District Court, Ormsby County; Frank P. Langan, Judge.

Geo. B. Thatcher, Attorney-General, and William Forman, for Appellant.

Mack, Green & Heer, for Respondent.

By the Court, Talbot, C. J.:

In this action, which was brought by the board of bank commissioners, the receiver was appointed on May 18, 1908, to wind up the affairs of the State Bank and Trust Company, which had been declared an insolvent and unsafe institution. An order was entered on the 8th day of November, 1912, fixing the receiver's attorneys' fees for services rendered to October, 1912, and an order was entered on the 7th day of March, 1913, allowing the compensation of the receiver up to the first day of August, 1912. On May 8, 1913, the attorney-general, acting for the state as plaintiff, served notice on the defendants, the receiver and his attorneys, that on the 20th day of May he would move to set aside these two orders. This appeal is taken from the orders entered, after hearing, on the 7th day of June, 1913, denying these motions to vacate.

Of the twelve specifications in the motion to annul the order fixing the compensation of the receiver, only the first and the third need be considered, and only the first

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one has been urged in this court as a ground for reversal. They are:

“I. That no notice of the presentation of the petition or notice of motion for order fixing the compensation of the receiver was ever given or served upon the plaintiff herein or upon the attorney-general of the State of Nevada, nor was there any appearance therein on behalf of the plaintiff herein, the State of Nevada.

“III. That the court, upon the hearing of said petition for an order fixing the compensation of said receiver and upon the evidence adduced thereat, found as a matter of fact that the ‘income from the real estate of the bank has practically paid all of the expenses of the receivership. When this real estate came into the hands of the receiver, including the Tonopah and Goldfield banks buildings, it was largely vacant and untenanted. With careful attention and effort these buildings have been filled with paying tenants, and have been made not only self-sustaining, but show a profit equal to, if not greater than, the expenses of the receivership,' when in truth and in fact it is shown on the report of the receiver on file herein that the gross income from all the real estate up to February 18, 1913, is and was $93,452.45, and that the maintenance and expense paid out on behalf of said real estate is and was $62,056.05, exclusive of taxes, leaving a net income from all of said real estate the sum of $31,396.40, from which said net income the taxes paid on said real estate should be deducted, said reports showing that the sum of $12,574.56 has been paid for taxes, but not showing what amount was paid upon the real estate. Whereas it is shown and appears from the report of the receiver on file herein that the total expense of the receivership, exclusive of the expense chargeable to maintenance and expense on real estate, is and was the sum of $145,049.81, leaving a balance of expense of said receivership over and above the net income from said real estate the sum of $114,053.21, and being nearly four times the net amount of the income from said real estate.”

The respondent, receiver, has moved to dismiss the

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appeals upon the ground that the appellant is not an aggrieved or adverse party and has no appealable interest, and upon the ground that they will not lie from an order refusing to set aside another order, and that they can be reviewed only upon direct appeal from the original order.

The point which the attorney-general and associate counsel for the state have urged in this court as a ground for the reversal of the order refusing to vacate the order fixing the compensation of the receiver and the order fixing the compensation of the attorneys for the receiver is that no notice of the motions to fix these compensations was served upon the attorney-general prior to the order of the court fixing them. Was the state, or the attorney-general as its legal representative, entitled to notice of the application to have these compensations fixed; and, if so, was there such notice by personal service or publication as the statute requires? Should the orders be set aside because such notice was not given?

[1] If it be conceded that, as urged on behalf of the receiver, the state, or the plaintiffs in the action, were not entitled to notice of the motion to fix the compensation of the receiver, it must be admitted that some one who is a party to or interested in the action would have to be served, as provided by the statute, with notice of the motion to fix the compensation, or that, if such service of notice was not made, the order was made ex parte.

[2] Notice by publication, not provided for by the statutes, whether the parties or their attorneys are in the state or not, would not be any notice, and consequently the order made upon such notice would be an ex parte order.

[3] The receiver was appointed under the banking act of 1907, which authorized the attorney-general, at the request of the state bank commissioner, to institute an action in the name of the state against any insolvent or unsafe bank, and to have a receiver appointed for the

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purpose of liquidation. At the time the orders fixing the compensation were made, there was no statute authorizing the attorney-general to oppose them, nor providing that he should be served with notice of these motions. The statute at and prior to that time provided that the banking board and attorney-general could bring suit and have insolvent banks placed in the hands of a receiver, who is an arm of the court, and should close the affairs of the institution, but at that time the attorney-general was not authorized to follow, on behalf of the stockholders or the state, the settlement of the bank's affairs.

[4] Under the act of the legislature of March 24, 1913 (Stats. 1913, c. 204), the attorney-general is “authorized and empowered to take such proceedings as he may deem necessary in any action now pending in any court affecting in any way the affairs of the receivership of the said State Bank and Trust Company; also to institute, maintain, and prosecute any action or actions, suit or suits, which he may deem necessary, either civil or criminal, in the name of any proper party plaintiff, or in the name of the State of Nevada, against any party, person, officer or corporation, the subject-matter of which action or actions shall in any manner affect, pertain to or be connected with the affairs of said State Bank and Trust Company or of the receivership thereof.” Prior to the passage of this statute, that officer was not authorized to appear in such actions after the appointment of the receiver. Since its passage he is authorized to appear, in the name of the state, on behalf of the creditors, if the act of the legislature is constitutional and within the police powers of the state.

[5] As often held by this and other courts, the banking business is so essential to the public welfare that laws may be passed for its regulation. Decisions holding that the state has no interest or power to appear after the appointment of a receiver in actions pending for the liquidation of insolvent banks were made in cases where

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there was no statutory provision similar to the one passed at the last session of the legislature authorizing the attorney-general to appear in the action after the appointment of a receiver, and in cases decided before the decisions of the Supreme Court of the United States upholding the bank guaranty laws in Oklahoma, Kansas, and Nebraska. (Noble State Bank v. Haskell, 219 U. S. 112, 31 Sup. Ct. 186, 55 L. Ed. 112, 32 L. R. A. n. s. 1062, Ann. Cas. 1912a, 487; Shallenberger v. First State Bank, 219 U. S. 116, 31 Sup. Ct. 189, 55 L. Ed. 117; Assaria State Bank v. Dolley, 219 U. S. 122, 31 Sup. Ct. 189, 55 L. Ed. 123.) In these decisions, overruling earlier ones of some of the intermediate federal and state courts, the Supreme Court of the United States held that the laws requiring all state banking institutions to contribute to a fund to be handled by a commission or under state authority, and to be applied to the payment of the claims of depositors in insolvent banks, were constitutional.

[6] The sustaining of these laws was in effect a holding that the state, under the police power, may continue to protect the depositors even after the bank has failed, instead of leaving him to hire his own attorneys and to be required to pursue his own methods to protect his interest. It being settled by the Supreme Court of the United States that the state may do this, it follows that the state has control of the banking business under the police power, and that it may authorize its attorney-general or other officer to protect the interests of depositors in defunct banks; and consequently, from the time of the passage of the act of March 24, 1913, the attorney-general was authorized, under the broad powers given him by that statute, to intervene or proceed in the action, whether it be considered for the protection of the depositors or for the benefit of the state.

[7] Although the state had given him no authority to so appear at the time the orders fixing the compensations were made, he became authorized, under the general terms of this statute, to move to vacate these orders because they had been made ex parte and the service of

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the receiver had not been terminated or his accounts closed.

The powers of the attorney-general may be likened in principle to the authority conferred upon a stockholder who directs his attorney to bring a suit and have the affairs of a private corporation thrown into the hands of a receiver, and did not at first authorize the attorney to proceed further, but who later, and after the compensation of the receiver had been fixed, authorized the attorney to take some proceeding to reduce the amount of compensation allowed the receiver. The litigant, as well as the state in this case, would be a party to and be interested in the proceeding all the time, but, during the period intervening between the appointment of the receiver and the fixing of the compensation, the attorney would not be authorized to act for the litigant.

In the opinion overruling the motion to vacate, it is said: “I cannot take the position that no notice of the hearing of the petition to fix receiver's and attorney fees was necessary. Nor do I adhere to the statement of counsel that when the court declared the State Bank and Trust Company as a bank unsafe to continue business and issued an injunction preventing it from carrying on any further business, the state and its attorney-general had no longer anything to do with the liquidation of the bank and had no interest therein. I am of the opinion, however, when the final judgment placing the bank in liquidation and appointing a receiver was made, that the state no longer had such an interest in the proceedings of liquidation as would entitle it or its attorney-general to personal and written notice of all or any proceedings taking place in the course of the liquidation. It is conceded by Mr. Thatcher, the attorney-general, and Mr. Forman, representing the state, that notice by publication of the hearing of both petitions in the Carson City News was had, and that such notices were ordered by the court to be published. By said notices the times and places of the hearings of the petitions were fixed and all persons interested therein directed to appear and make their

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objections, if any they had, to the granting of the petitions. On the hearings, of which the state, in my judgment, had due notice, the state was not represented—did not appear—and in my opinion is not in a position to complain of want of notice.”

From this it is apparent that the learned district judge, proceeding with the utmost good faith, regarded the published notice as effective.

[8] But the publication for ten days in the newspaper of notice of motion to fix compensation is not a service and could not cut off or affect the right of any party in interest unless such publication was authorized by statute. If each judge could legislate or determine regarding the kind of notice required, one judge might deem ten days, another thirty days, or another one day, sufficient publication, and litigants who are not served personally, or in some other method provided by statute, of which they are required to take notice, might be deprived of their rights unawares. The decisions are uniform holding that there must be a strict compliance with statutory provisions relating to constructive service. Under our practice these apply to both law and equity cases.

[9] The fact that it may be difficult to serve over 4,000 depositors except by a single publication cannot alter the law or avoid the necessity of service in accordance with the statute, any more than in a case where the defendants are so very numerous and it would be attempted to serve them by publication of summons when this statute does not warrant such service on parties residing within the state. Relief from such a situation might be sought only under the code provision that, where the parties are numerous, one or more may sue or defend for all. There are many cases relating to the settlement of estates of deceased persons, and to other matters, in which provision is made for service of notice by publication.

[10] With no statute authorizing notice by publication regarding the fixing of the compensation of a receiver, and applying the general provisions of the practice act relating to service of notice, it is found that they provide

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only for service by personal delivery, by leaving a copy, and by mail and telegraph in certain cases. (Rev. Laws, secs. 5367-5370.) Hence the publication did not cut off the rights of or prevent the state or depositors or parties in interest from having a hearing and asserting their rights, or from instituting proceedings to have the orders fixing compensation vacated, so that they might have an opportunity to appear, present evidence, and show that the compensation allowed or claimed was excessive.

[11] If there had been a law directing notice by publication, and notice had been published in accordance therewith, it would then become more important to consider whether the state, or any party to the action, might proceed to have the order fixing compensation vacated under section 5084 of the Revised Laws, which provides that, when there has not been personal service upon the defendant, the court may allow him or his legal representative, on such terms as may be just, at any time within six months after the rendition of any judgment, to answer to the merits, or under district court rule 45, which provides:

“No judgment, order, or other judicial act or proceeding, shall be vacated, amended, modified, or corrected by the court or judge rendering, making, or ordering the same, unless the party desiring such vacation, amendment, modification, or correction shall give notice to the adverse party of a motion therefor, within six months after such judgment was rendered, order made, or action or proceeding taken.”

Under the decisions, this rule relating to a matter of practice has the force of a statute. The motions to vacate were made within six months from the time of the fixing of the compensations.

From final orders made upon proper service there may be no relief obtainable except by appearance and answer or by appeal, but statutory and court rule provisions for vacating ex parte orders, made without notice and for setting aside default judgments, from which there is no appeal, are fair and equitable, because they allow the

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party aggrieved to defend. He should not be deprived of the opportunity to appear and defend and to appeal. If the orders fixing compensation had been made after proper notice, they could be regarded as final and subject to attack only by appeal, unless possibly upon a showing of inadvertence and merits.

The case is different from the ordinary one in which only individual litigants are concerned over some matter of private interest, not only because it comes under the police power of the state, which may supervise the banking business because so essential to the public welfare, and legislate for the protection of depositors before and after the bank has failed, not only that the public generally may have more confidence in dealing with and in placing their money in banking institutions because they may have assurance of protection against bank failures, and of being further protected if the bank does fail, but because the receiver in this case, appointed to serve the creditors or stockholders of the defunct institution, to act on their behalf, at their expense, is an arm of the court which, as well as this tribunal under its supervisory power, is duty bound to safeguard the rights of all who seek justice at its portals. Consequently the efforts of the attorney-general, in accordance with the statute, to reduce any excessive compensation allowed, are not inhibited by the constitution.

[12] Regarding the third ground specified in the notice of motion to set aside the orders fixing the compensations, whether the accounts of the receiver or the petition asking to have the compensation fixed showed misstatements which would support these assertions and show on the record that the court had been misled, and by mistake had stated that the amounts derived and handled by the receiver were largely in excess of the amounts actually received by him from the income from real estate, so that it would appear as a matter of record that a mistake had been made in fixing the compensation, which should be corrected upon motion or by the court on its own volition,

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so that any party in interest moving to have it corrected could appeal from an order refusing to vacate the order fixing the compensation, because, as generally held, mistakes apparent in the record should be corrected with or without motion, is not shown, because the accounts are not made a part of the record on appeal.

The orders of the district court are reversed.

McCarran, J., concurring:

I concur in the judgment. The judgment entered by the court below, in the first instance, appointing a receiver was a final judgment entered on behalf of the state and in favor of the state in an action in which the state was plaintiff. (State v. Wildes, 34 Nev. 94, 116 Pac. 595.) The receiver was the creature of the judgment. In fact, the receivership was the judgment itself. The state, through the exercise of its police power, had the right, and it was its duty, to have this judgment entered pursuant to the statute of 1907 (Stats. 1907, c. 119) and to have this receivership created.

The receivership, being the very essence of the judgment, and being that which was sought for by the state, acting in pursuance of its legislative declaration, was the thing in which the state was most vitally interested, not pecuniarily, but rather by reason of its police powers, exercised in furtherance of public welfare, and especially that great phase of public welfare having to do with the commercial life and banking business incident thereto.

Any motion made in the district court subsequent to the final order creating the receivership, the effect of which would be to destroy or discharge the receivership, would be one in which the state, as plaintiff in the action, would be entitled to notice, because the object of the statute, in the first instance, and the object of the litigation in so far as the state was concerned, was primarily to prevent the insolvent institution from further ...


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