Q: I am a receiver in a partnership dispute case.

I have been served with a subpoena issued from a case outside the receivership case, seeking partnership records and emails to and from a defendant in that case. Neither the partnership nor the partners involved in the receivership case are parties in that case. Do I have to comply with the subpoena? There are few liquid assets in the estate and it will be costly to locate and produce the documents.

A: Based on the reasoning in a recent bankruptcy case, from the Central District of California, if the subpoenaing party did not first obtain leave of the receivership court to subpoena you, you likely do

not have to comply.

In the case, In re Egan Avenatti. LLP, 637 B.R. 502 (Bankr. C.D. Cal. 2022), the chapter 7 trustee was served with two subpoenas from Michael Avenatti’s criminal case in the Southern District of New York. They sought the production of various financial records and the trustee’s appearance, and stated the trustee could “not depart the Court without leave thereof, or the United States Attorney.” The trustee had four terabytes of data that would have to be gone through to locate all the subpoenaed records. (As an aside the court notes one terabyte would equal “50,000 trees made into paper and printed”. Id. at 504 fn.3.).

The trustee filed an emergency motion seeking permission, under 11 U.S.C. §363, to use estate property to pay for the time and expense to search for and produce the responding documents. The court denied the trustee’s motion.

The court notes that subpoenas are issued by a court, counsel merely fill them out and serve them on behalf of the issuing court. Id. at 507 fn.6. Because the subpoenas were issued without leave of the bankruptcy court, under the Barton doctrine, Barton v. Barbour, 104 U.S. 126 (1881), the issuing court had no jurisdiction and, hence, the subpoenas were invalid. Barton held that the failure to get prior receivership court permission to sue a receiver, deprived the other court of subject matter jurisdiction. Over the years this requirement has been expanded to cover other court appointed parties and their professionals, including bankruptcy trustees, their counsel and agents. See, In re Crown Vantage, Inc. 421 F.3d 963 (9th Cir. 2005).

The court held that Barton is not limited to simply prohibiting suing a trustee or receiver without court permission, but applies to all legal proceedings, including subpoenas. This is necessary, the court stated, in order not only to protect the court’s in rem jurisdiction over estate property, but to limit needless costs and impact on the estate’s administration. Id. at 508. The court cites In re Circuit City Stores Inc., 557 B.R. 443 (Bankr. E.D. Va. 2016), which also held Barton requires prior court permission to serve a subpoena on a trustee. It held that the purpose of the Barton doctrine is to prevent trustees from being subject to legal proceedings that interfere with their ability to administer the estate and, under Barton, the court serves as a gatekeeper to protect trustees from all outside legal proceedings. Id. at 449-450.

The court noted and rejected an unreported BAP case that held otherwise. In re Media Group, Inc. 2006 Lexis 4842, 2006 WL 6810963 (9th Cir. BAP 2006). It held Media Group was not controlling for a number of reasons. First, being a BAP opinion, it was not binding precedent. (While unstated, it is also an unreported decision.) Second, it held Media Group did not correctly apply Barton, by engaging in too narrow of a reading in light of the 9th Circuit in Crown Vantage, supra. and other courts referencing its application to all legal proceedings. It also felt the BAP applied the wrong standard of review, de novo rather that clear error. The court does not mention that in the sixteen years since Media Group was decided it has only been cited once; in Circuit City, supra. which rejected it. 557 B.R. at 449.

The court’s decision applies with even more force where a subpoena is served on a receiver. Barton, first of all, was a receivership case. Its holding was only much later applied to trustees. More importantly, receivers are the court’s agents and act for the court. Turner v. Superior Court, 72 Cal.App. 3d 804, 819 (1977). A trustee, on the other hand, is an independent contractor, appointed by the United States Trustee, whose office is a component of the Justice Department. Avenatti. 637 B.R. at 509 fn.10. The service of a subpoena on a receiver is akin to serving the court. The receivership court, therefore, has even more incentive than the bankruptcy court to determine how assets under its control, through its agent, are expended and what activities its agent and officer should be undertaking. Further, the requirement of prior court approval is not only consistent with Barton, but also with other acts which require prior court permission because they adversely affect the receivership. For example, receivership property cannot be levied on, garnished or attached without receivership court approval. Robbins v. Bueno, 262 Cal. App. 2d 79 (1968).

Therefore, you should respond to the subpoena, objecting that it is invalid because prior permission of the receivership court was not obtained. If the subpoenaing party files a motion for permission to subpoena you, you should ask the court to at least condition such allowance on the party paying the cost of complying with the subpoena, so the estate and its creditors do not bear that burden.

Q: I represent a receiver in a contentious family law receivership.

In order to prevent attorney client and work product information from being disclosed to one of the parties, the receiver does

not want to attach my detailed bills to his monthly reports or to an upcoming interim fee application. I am concerned that not attaching my detailed bills may result in my fees not being allowed. Should I be concerned? Is there a way to protect such sensitive information and still have my fees approved?

A Surprisingly, California law does not generally require detailed time sheets to be attached to fee requests. This, however, is not the case where a statute or rule requires otherwise, or where fees to

be awarded only relate to a portion of a lawsuit, such as a specific claim or defense. In such a case, the fees requested must be shown to relate to the claim, which is best done by showing the hours billed and work performed relate to the claim. For example, in Gregg v. Revelle, 2004 WL 2601780, a cross-defendant won its summary judgment motion and sought attorneys’ fees and costs pursuant to the underlying contract. The evidence in support of the fee claim was a declaration of one of the attorneys setting forth the hours expended on the cross-complaint, the rates charged, and the background of the professionals who rendered services. The attorney stated where time was spent on issues unrelated to

the cross-complaint, the fees were excluded. A detailed bill was not included in order to protect the attorney-client privilege.

When the cross-defendant objected that without detailed time records it and the court could not determine whether the amounts sought were reasonable and properly apportioned to only the cross-complaint, the attorneys supplemented the request with heavily redacted copies of its bills, with many line items only having a few words, such as “research” or “telephone conf.” The trial court awarded all the fees requested and an appeal followed.

Reversing, the appellate court, citing the landmark case of Serrano v. Priest, 20 Cal. 3d. 25 (1977), stated: “…the court’s role in equity is to provide just compensation for the attorney, must be a calculation of the attorney’s services in terms of the time he has expended on the case…[t]he experienced trial judge is the best to judge the value of the professional services rendered in his court.” It then stated: “In applying these principles, our court have constantly found fees may be awarded even in the absence of detailed time sheets.” Id. at *4 (citations omitted). It went on, however, that there are circumstances where more than a declaration of hours performed and a general description of the work is needed. It cited as an example, Bell v.Vista Unified School Dist., 82 Cal. App. 4th 672 (2000), where fees were only awardable on one of the claims brought. In such cases, more detailed information that connects the tasks performed to the claim are needed. However, the court stated that actual billing records are not required so long as there is a general description of the tasks performed, which connects the tasks to the claim. Gregg, supra. at *4.

This general description of what is required for fee requests does not apply to receiverships, however, given the specific receivership Rules of Court. Rule 3.1182, dealing with monthly reports, states: “The receiver must provide monthly reports to the parties…” The reports “must include: (1) a narrative report of events; (2) a financial report; and (3) a statement of the fees paid to the receiver, employees, and professionals showing: (A) itemized services; (B) a breakdown of the services by 1/10 hour increments; (C) If the fees are hourly, the hourly fees…” (emphasis added). Given that the Rule states the report must include not only itemized services, but that they be broken down in 1/10-hour increments, it is clear that the general fee application requirements discussed in Gregg, supra. and the general cases it cites are not applicable.

Of course, in order for the receiver to be paying his or her own fees or professionals’ fees, that must be authorized in the order of appointment or a subsequent order. If there is no such authorization, the receiver and professionals can either file motions for interim fees or wait until the end of the receivership and file final fee applications. While the rule relating to interim fee applications is silent on what must be included (Rule 3.1184 (a), it can be inferred that an interim fee request must include the same detail given the detail to included in the monthly reports and the fact that the rule for final fees (Rule 3.1184(d)) also requires the request: “must state in detail what services have been performed.”

Where it is necessary to protect disclosure of sensitive information, because of privilege or otherwise, there are a number of possible ways of doing so. Counsel can try to get the parties to agree to a protective order or stipulation regarding redacting the bills. Counsel can ask the court to allow unredacted bills to be filed under seal or in camera for court review. The receiver and professionals can choose not to seek to be paid on an interim basis for the specific sensitive line items and instead indicate that compensation for those items will be sought at the end of the receivership, when disclosure may no longer matter. Finally, the receiver and professionals can just redact those portions of the bills necessary to protect the confidential or privileged matters. Care in doing so, however, is required. If there is excessive redaction the court may deny the fees requested or parties may object claiming they cannot make “specific” objections as required by Rule 3.1183 (b). In addition, an explanation should be provided why the redactions were necessary and what the redactions generally relate to, so the court understands why the redactions were made. A number of bankruptcy cases have addressed this problem. The court in In re Las Vegas Monorail Co., 458 B.R. 553 (Bankr. D. Nev. 2011), denied portions of interim fee requests because counsel had not disclosed, until the hearing, why the redactions were made, did not try other methods to protect the confidential matters, and overly redacted the bills. One firm redacted 13% of its time, another 6%. The court concluded: “Simply put, the existence of either confidential or privileged information, and the attorney’s duty to protect both, does not excuse or alter the burden that an attorney must satisfy before a court may award fees…” Id. at 559. While, admittedly, bankruptcy rules are different, this same tension exists in receivership cases.

Q: I represent a party in a receivership case.

While the receiver has been in place for over 3 months, she has not served the parties or creditors with any reports. I have written the receiver requesting reports, but she has ignored my requests. What should I do? Can the receiver be sanctioned?

A: Rules of Court 3.1182(a) requires a receiver to provide monthly reports to the parties. It says: must. The receiver is not required to provide reports to creditors, unless the creditor is a lien holder and requests the reports. If the receiver is not complying with the rule, there are a number of actions you can take. Initially, as you have done, you should write the receiver, and his or her attorney if there is one, requesting that he or she comply with the Rule. If the receiver fails to comply, you can ask the court to order the receiver to comply or, alternatively, ask the court to replace the receiver for not complying with the Rules of Court and failing to perform his or her fiduciary duties. You can also object to the receiver’s, and possibly his or her counsel’s, fees. This is what happened in Jeffer, Mangel, Butler & Marmaro v. Southland Land Corp., 2010 WL 892302. There the trial court reduced the receiver’s fees and his attorney’s fees by 15% for failing to file monthly reports as required. The court stated the failure to prepare and serve monthly reports “prevented the parties and creditors from making informed decisions about the conduct of the case.” Id. at *6. Jeffer argued that it was the receiver’s duty to file the monthly reports, so it should not have its fees reduced. While the court agreed that, as a fiduciary who acts for the benefit of all parties interested in the property, the receiver “must account accurately for all money and that a receiver may be surcharged for failure to carry out this duty, an attorney owes a duty to his or her client to advise them of the relevant legal principles in order to facilitate an informed decision…” Id. The court, therefore, upheld the fee reductions. See also, Mission Bank v. Kushwaha, 2020 WL 3526474, where the court denied all fees to a receiver, who served for four months, because the receiver did not prepare and serve monthly reports, as required by the Rules of Court and the order of

appointment, despite demand from the bank’s counsel that he do so.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.