Introduction to the Receivership Remedy
The appointment of a California receiver is a powerful remedy in civil, family law, and criminal actions. In many situations, a receiver is available during the pre-judgment phase of the litigation to operate a business or protect assets. Also, receivers are available to enforce judgments for collection of money. This article will provide a brief overview of the receivership remedy in California state courts with a focus on receivers in civil and family law cases.
As a threshold matter, a receiver is an agent of the court. California Rule of Court 3.1179 defines a receiver as “the agent of the court and not of any party, and as such: (1) is neutral; (2) acts for the benefit of all who may have an interest in the receivership property; and (3) holds assets for the court and not for the plaintiff or the defendant.”
Authority to Appoint a Receiver
Receiverships are a common law remedy, and California’s published case law dealing with receivers dates back to the first years of statehood. See, for example, Adams v. Woods, 8 Cal. 306 (1857). Currently much of the authority for appointment of a receiver has been codified. The majority of rules for receivers are in California Rules of Court sections 3.1175 to 3.1184 and California Code of Civil Procedure sections 564 to 570. Code of Civil Procedure section 564 lists cases in which the appointment of a receiver is authorized in civil cases, including actions between partners or other joint owners, by secured lenders in certain cases, to carry a judgment into effect, in corporate dissolution actions, and the catch-all provision “all other cases were necessary to preserve the property or rights of any party.”
Authority for appointment of a receiver in family law cases is found in Family Code section 290 and case law. Section 290 provides that judgments or orders of the family law court may be enforced “by execution, the appointment of a receiver, or contempt …”
Typical Receivership Cases
Receivers are typically appointed to protect assets during or after the litigation. Importantly, receivership is often described as a “pendente lite” remedy, meaning that the court may appoint a receiver even before it has entered a final judgment. In Quiglino v. Quiglino, 88 Cal.App.3d 542(1979), the court upheld the appointment of a receiver before entering a child support order in order to protect the assets that would eventually be used for child support.
In family law cases, receivers have been appointed to protect marital assets (such as a business or property) that is in danger of being dissipated or removed from the jurisdiction of the court. See, for example, Rosenthal v. Rosenthal, 240 Cal.App.2d 927 (1966), or Venza v. Venza, 94 Cal.App.2d 878 (1949) [receiver appointed to operate a family business], or Alderson v. Alderson, 180 Cal.App.3d 468 (1986) [receiver appointed to possess real property after the husband fell behind on child support payments and quit his job to avoid having his wages garnished].
In civil cases, the courts often appoint a receiver to operate a business or manage real property during a dispute between partners or shareholders, in collection actions between creditors and debtors, or in probate actions between claimants to assets. See, Code of Civil Procedure section 564(b)(1) and 564(b)(5). Also, receivers are often appointed to collect judgments. See, Code of Civil Procedure section 564(b)(3).
Procedure for Appointment of a Receiver
California Rules of Court and case law provide the basic procedural steps required for appointment of a receiver. Although the court may appoint a receiver without a motion and without notice (Venza v. Venza, 94 Cal.App.2d 878 (1949)), the normal method for appointment of a receiver is through a noticed motion made by a party. McCarthy v. Poulson, 173 C.A.3d 1212 (1985). In urgent situations, a receiver may be appointed through an ex parte motion. California Rules of Court 3.1175 to 3.1177 discuss the procedural rules for appointment of a receiver ex parte.
At the hearing for appointment of a receiver, any party may nominate a receiver, although the court has ultimate authority to select the receiver. California Rule of Court 3.1177. A receiver cannot be a party to the action, an attorney in the action, or related to one of the judges of the court. California Code of Civil Procedure section 566. As a practical matter, courts will often appoint a receiver the parties propose, so the party making a motion should be prepared to nominate a qualified person and should include information about the proposed receiver in the moving papers. Normally, this evidence comes in the form of a declaration by the proposed receiver setting forth his qualifications. Most often, the potential receiver is contacted prior to nomination to determine willingness to serve and whether conflicts of interest would prevent his appointment.
Although the parties need to interact with the receiver prior to appointment, California Rule of Court 3.1179(b) prohibits the party seeking the appointment to require that the potential receiver agree in advance to take certain actions during the receivership.
The party making the motion for appointment should submit a proposed order of receivership, which is often a multi-page document setting forth the duties and powers of the receiver. Judicial Council form orders RC-200 and RC 310 contain optional form orders for rents-and-profits receiverships, but those are specialized form orders limited to situations where a receiver is managing real property and collecting rents. Any other situations will require the moving party to prepare a proposed order. It is worth modeling any proposed order on the judicial council form orders because they contain provisions dealing with common and recurring issues in administration of a receivership estate.
A helpful summary of California receivership law and procedure is found in The Rutter Group’s Civil Procedure Before Trial, sections 9:733 to 9:783.
How Are a Reciever’s Fees Calculated & Paid
After being appointed, a receiver is typically paid from funds generated by operation of the receivership, such as by the sale of property or by the operation of a business. McCarthy v. Poulson, 173 Cal.App.3d 1212 (1985). If there are not enough funds in the receivership, the court may require one or more of the parties to pay for the costs of receivership. For this reason, it is important to analyze the need for a receiver and whether the case justifies the added expense of a receivership.
Matthew L. Taylor is a court-appointed receiver and civil litigation attorney based in Rancho Cucamonga, California. He has acted as both a receiver and court-appointed counsel for the receiver since 1995 in Los Angeles, San Bernardino, Riverside, San Diego, Orange County and throughout California.
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