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California Business Law PRACTITIONER California Business Law PRACTITIONER Volume 25 / Number 2 Spring 2010 Introduction to California Receivership Law Shawn M. Christianson Monique Jewett-Brewster The appointment of a receiver is an often over- Shawn M. Christianson Monique Jewett-Brewster looked but exceedingly useful remedy available under is a shareholder of of MacConaghy & California law. In challenging economic times, familiarity BuchalterNemer, San Barnier, PLC, Sonoma, with receivership is a requirement for any attorney Francisco, where she specializes in insolvency specializes in insolvency, and creditors’ rights. She practicing in the commercial, creditors’ rights, or receiverships, and complex has represented secured financial services fields. litigation, representing and unsecured creditors financial institutions, in both bankruptcy and Definition of “Receiver” insurers, sureties, secured state court proceedings. and unsecured creditors, Her practice includes What (or who) is a “receiver”? Under California law, technology companies, bankruptcy, litigation, receivers and bankruptcy loan and lease workouts, a receiver is a court officer or representative appointed trustees. She received her and various provisional to take over control and management of property that is B.S. magna cum laude from remedies. Ms. Jewett- the subject of litigation before the court, to preserve the Boston College and her Brewster received her property, and ultimately to dispose of it in accordance J.D. from the University of undergraduate degree California, Hastings College from the University with the court’s final judgment. See CCP §564. As of the Law, where she of San Francisco and her set forth in Cal Rules of Ct 3.1179(a), the receiver is was on the editorial board law degree from the a neutral, disinterested agent who acts for the benefit of the Hastings Journal University of Southern of Communications and California Law School. of all who may have an interest in the property for Entertainment Law. which a receiver is requested. The receiver holds assets specifically for the court,not for the plaintiff or defendant in any action. Although there are no specific —continued on page 35 IN THIS ISSUE Introduction to California Receivership Law ................................................................................. 33 by Shawn M. Christianson and Monique Jewett-Brewster Fairness Hearings ............................................................................................................................ 44 by W. Anthony Colbert Social Media and the Law: Here Comes Everybody! .................................................................... 52 by Art Neill ® ceb.com CONTINUING EDUCATION OF THE BAR ■ CALIFORNIA © 2010 by The Regents of the University of California Reprinted from the California Business Law Practitioner published by Continuing Education of the Bar – California. The citation from this article is 25 CEB Cal Bus L Prac (Spring 2010). CALIFORNIA BUSINESS LAW PRACTITIONER Spring 2010 Introduction to California Receivership Law 35 statutory eligibility requirements for receivers, cer- action in appointing or refusing to appoint a receiver tain persons may not serve as a receiver in a given will not be disturbed in the absence of a showing case. Ineligible persons include a party, a party’s that the court has abused its discretion. Alderson v attorney, an interested person, or a relative of the Alderson (1986) 180 CA3d 450, 467, 225 CR 610. judge assigned the action in which the receiver’s The mere fact that the party requesting a receiver’s appointment arose. See CCP §566(a). appointment may have other remedies available to it does not, in and of itself, preclude use of a receiver- ship. City & County of San Francisco v Daley COURT-APPOINTED “NEUTRAL” (1993) 16 CA4th 734, 745, 20 CR2d 256. In such a To preserve neutrality before the court, the re- situation, the court is called on to consider the ceiver may not, without the court’s permission, enter “availability and efficacy” of those other remedies into any contracts that make arrangements, or set in exercising its discretion to grant the “extraordi- forth an understanding about the receiver’s role, nary” remedy of receivership. 16 CA4th at 745. with respect to the subject property following its liquidation or the receivership’s termination. To fur- ther ensure neutrality, the receiver may not enter [W]hen the receivership is commenced into contracts regarding (1) how the receiver will after judgment to carry a judgment into administer the receivership, or how much the re- effect or to preserve certain property ceiver will charge or pay for services related to ad- until the judgment can be executed, the ministration of the receivership property; (2) whom the receiver will hire to assist with administration of receiver’s function is limited to oversight the estate; or (3) what capital expenditures the re- or possession of only the property ceiver will make related to the receivership property. described in the judgment. See Cal Rules of Ct 3.1179(b). TRIAL COURT’S DISCRETION NATURE OF RECEIVERSHIP REMEDY TO APPOINT RECEIVER Receivership is often considered an “extraordi- nary” remedy, and some California courts have de- In California, the appointment of a receiver rests clined to appoint a receiver when an alternative in large measure in the discretion of the trial court remedy, such as an injunction, writ of attachment, or to which the application is made. See generally Bar- issuance of a lis pendens, may serve to protect what- ber v Lewis & Kaufman, Inc. (1954) 125 CA2d 95, ever rights the parties assert in the property that is 99, 269 P2d 929 (trial courts have “wide and broad the subject of the litigation. See, e.g., A.G. Col Co. v discretion” in appointment of receivers); Alhambra- Superior Court (1925) 196 C 604, 614, 238 P 926 Shumway Mines, Inc. v Alhambra Gold Mine Corp. (reversing trial court’s ex parte order of receivership (1953) 116 CA2d 869, 873, 254 P2d 599. Only a for corporation because parties’ rights could be fully court with jurisdiction over the proceedings at issue protected by injunction and other remedies). See has the discretion to appoint a receiver. See Mines v also Golden State Glass Corp. v Superior Court Superior Court (1932) 216 C 776, 778, 16 P2d 732 (1939) 13 C2d 384, 393, 90 P2d 75 (due to the (consent of parties is insufficient to confer court “drastic” nature of receivership, court’s discretion to with jurisdiction to appoint receiver). appoint receiver “is not an entirely uncontrolled When the evidence is conflicting or the propriety one,” and ordinarily, if there is any less severe rem- of the requested appointment on uncontradicted evi- edy available to adequately protect parties’ rights, “a dence is doubtful, the court’s sound discretion to court should not take property out of the hands of its appoint a receiver should be exercised on a review owners”); Elson v Nyhan (1941) 45 CA2d 1, 5, 113 of all of the facts. Moore v Oberg (1943) 61 CA2d P2d 474 (noting that “[r]eceivers are often legal 216, 221, 142 P2d 443 (trial judge’s discretion is so luxuries, frequently representing an extravagant cost “broad” that order to appoint receiver should not be to a losing litigant. When it appears that no reasona- reversed even if order is based on facts concerning bly certain benefit will result to one litigant, and a which reasonable minds might differ with respect to distinct disadvantage will result to another, courts need for receivership). should weigh carefully the propriety of appointing a Because the appointment of a receiver rests receiver.”). largely in the discretion of the trial court, the court’s 36 Introduction to California Receivership Law Spring 2010 CALIFORNIA BUSINESS LAW PRACTITIONER DEFINING PROPERTY one’s appointment. Receivership is both a prejudg- OF RECEIVERSHIP ESTATE ment and postjudgment collection remedy and is typically sought in these situations. Parties to con- Code of Civil Procedure §564 confers the supe- tentious partnership or corporate dissolutions also rior court with jurisdiction to appoint a receiver. See may consider seeking a receiver. John H. Spohn Co. v Bender (1937) 18 CA2d 447, The most common circumstances in which a re- 450, 64 P2d 152. Notably, however, the court does ceiver’s appointment is sought are (1) when a lender not have jurisdiction over property that is not the requests a “rents, issues and profits” receiver fol- subject of the litigation before it. The court’s power lowing a borrower’s default under a real estate loan, to authorize a receiver to take possession of certain or (2) when it is intended to ensure the orderly collateral or run a company’s business operations is winding down of a business following a party’s in- therefore limited to authorizing action against prop- ability, unwillingness, or unsuitability to continue erty of the receivership estate. Steinberg v Goldstein the business operations. Broadly speaking, these two (1954) 129 CA2d 682, 686, 278 P2d 22. Moreover, scenarios reflect the most common types of receiv- when the receivership is commenced after judgment ers appointed in California: (1) rents and profits re- to carry a judgment into effect or to preserve certain ceivers and (2) equity receivers. Each type is dis- property until the judgment can be executed, the cussed further below. receiver’s function is limited to oversight or posses- sion of only the property described in the judgment. The broadest California statute addressing the Kreling v Kreling (1897) 118 C 421, 423, 50 P 549. appointment of receivers is CCP §564, which spe- Regardless, the extent of the property subject to a cifically provides that when an action or proceeding receivership is a question that the court appointing is pending, California superior courts may appoint the receiver has the power and jurisdiction to deter- receivers in the following circumstances: mine. Only the court with jurisdiction over the in- • In an action (1) by a vendor to vacate a fraudu- stant case has the authority to determine whether lent purchase of property; (2) by a creditor to any particular property is or is not involved in the subject any property or fund to the creditor’s action and the receivership proceeding.
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