Parties (typically plaintiffs) may request the appointment of a receiver in cases involving disputes over corporate assets or interests in real estate. But the appointment of a receiver may have unexpected consequences for the party seeking appointment.
The receiver is an 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 any party. (California Rules of Court, rule 3.1179, subd. (a).) A receiver is obligated to preserve and manage the property during the course of the receivership. (Title Ins. & Trust Co. v. Calif. Etc. Co. (1911) 159 Cal. 484, 492.) A receiver can be quite expensive. The receiver is entitled to hire counsel, accountants, and other professionals required for the receiver to carry out the receiver’s duties. Generally speaking, the receiver’s fee is often paid by the receivership estate. In other words, the assets held by the receiver are used to pay the receiver and those hired to assist the receiver.
That all sounds good, except that the Fourth District Court of Appeal recently held that a trial court may require a party, rather than the receivership estate, to pay the receiver’s fee, even long after the issuance of the final accounting order.
In Southern California Sunbelt Developers, Inc. v. Banyan Limited Partnership (2017) 8 Cal.App.5th 910, the Court held that while the final accounting order is an appealable order, “the final accounting represents a definitive determination only as to the matters presented therein,” i.e., whether the receiver exceeded his or her authority, caused injury to others, or acted negligently in operating the receivership estate. However, the Court held that the final accounting is not the final time the parties can question who is ultimately responsible for the court-appointed receiver’s fees. The Court reasoned that the issue is not an integral part of the receiver’s final accounting. And there are many factors a trial court should consider when determining whether the obligation to pay for the receivership should be the estate or be shifted to one or more of the parties.
Some of the factors the Court discussed include whether plaintiff or defendant most benefited from the receivership, whether the defendant acquiesced in the receivership, whether the property of a defendant was taken from his or her possession by the appointment of a receiver against his consent under an erroneous order which the defendant successfully resisted, whether it would manifestly be inequitable and unjust to throw upon the defendant or his property the burden of the litigation instituted by the plaintiff without right or reason, and whether the parties who procured the appointment of a receiver have any interest in the subject matter of the suit.
So, before asking the court for a receivership, parties should not assume that the assets of the receivership estate will necessarily be used to pay for the receivership. When weighing the benefits and burdens of a receivership, parties should consider the possibility that a party may have to pay out-of-pocket for the receiver’s fees.