REC NEWS Winter’03-FINAL.qxd

1. WB Music Corp v. Royce Int’l Broad Corp., 47 F.4th 944 (9th Cir. 2022)

The Ninth Circuit recently upheld a district court’s refusal to terminate a post-judgment receivership after the defendants deposited sufficient funds to satisfy the judgment. The defendants owned and operated three radio stations in California and Nevada.1 The plaintiffs owned copyrights to certain musical works.2 The plaintiffs discovered the defendants had broadcasted the plaintiffs’ music on the defendants’ radio stations and sued the defendants for violating the Federal Copyright Act, 17 U.S.C. § 101 et. seq.3 After the plaintiffs prevailed on a partial summary judgment motion, the district court awarded the plaintiffs a monetary judgment.4 The district court afforded the defendants ample time to satisfy the judgment, but the defendants repeatedly failed to do so.5 Frustrated with the defendants’ “repeated stonewalling,” the district court appointed a post-judgment receiver to aid the plaintiffs in collecting the judgment.6 The district court empowered the receiver to manage the defendants’ radio stations, assets, business, and affairs as well as to solicit offers for the radio stations.7 To avoid losing the radio stations, the defendants deposited sufficient funds with the district court to satisfy the judgment and requested the district court terminate the receivership.8 Critically though, the defendants sought this remedy even though the receiver had not prepared a final accounting and the receivership benefitted nonparty creditors.9 The district court denied the defendants’ premature motion for two principal reasons – protecting other creditors and ensuring payment of the receiver’s obligations.10

The defendants appealed. The Ninth Circuit agreed with the defendants that a receivership generally should cease “as soon as the legitimate purposes of the receivership have been accomplished.”11 In a post-judgment receivership, the receivership ordinarily terminates once a judgment debtor pays the petitioning creditor’s judgment. The rule, however, is not absolute.12 The Ninth Circuit rejected the defendants’ contention that the district court could not prolong a receivership once the judgment debtor fully satisfied the petitioning creditor’s judgment.13 The Ninth Circuit held that the district court had ample authority, rooted in common law, to prolong the receivership to benefit other creditors.14

II. Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc., 60 Cal. App. 5th 622 (2021)

In Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc. (Medipro), the Second District Court of Appeal reached a different result to WB Music Corporation – it determined that a post-judgment receiver was unwarranted. In Medipro, the plaintiff recovered a money judgment against the defendants.15 The plaintiff thereafter started executing on the judgment; the plaintiff served execution levies on various financial institutions and hospitals and obtained a charging order against membership interests in a limited liability company.16 The plaintiff, however, did not serve any discovery or seek to compel the defendants’ appearance at a judgment debtor’s exam.17 Nevertheless, on the plaintiff’s motion, the trial court appointed a post-judgment receiver to enforce a charging order against one of the judgment debtor’s membership interests in an LLC.18

The defendants appealed the trial court’s appointment.

The Court of Appeal held that two statutes – Code of Civil Procedure section 680.010 and Corporation Code section 17705.03(b)(1) – authorized the trial court to appoint the post-judgment receiver.19 These statutes, however, do not confer unfettered authority on trial courts.20 Because of the special costs imposed by post-judgment receivers, the Court of Appeal determined that a trial court should appoint post- judgment receivers only when necessary, usually after exhausting other less intrusive collection methods.21 Relying on a rich body of cases, the Court of Appeal agreed that a judgment creditor could obtain a post-judgment receiver if the judgment debtor’s conduct necessitates such a receiver.22 The Court of Appeal found no exceptional circumstances justified the trial court’s appointment of a post-judgment receiver.23 After the trial court issued the charging order, the LLC’s financial liquidity decreased due to factors beyond the judgment debtor’s control.24 Although the plaintiff encountered some difficulty in collecting the judgment, the plaintiff had not shown that other methods of enforcing the judgment would fail.25 Thus, the Court of Appeal concluded that the trial court abused its discretion in appointing a post-judgment receiver to take over the judgment debtor’s business.26

III. County of Sacramento v. Singh, 65 Cal. App. 5th 858 (2021)

In County of Sacramento v. Singh, the Third District Court of Appeal affirmed a trial court’s order approving a receiver’s final account and discharging the receiver.27 The County of Sacramento sued the defendants to abate building and housing code violations at their two properties.28 The trial court appointed a receiver under Health and Safety Code section 17980.7 to take control and rehabilitate the properties.29 While the receiver investigated the properties, the receiver discovered that the properties needed substantial rehabilitation, which the receivership estate could not fund.30 After a fire at one of the properties injured some visitors, the receiver sought the court’s approval to remove the structure.31 Before the trial court decided the receiver’s motion though, the County dismissed the action.32 The trial court approved the receiver’s final report and account, exonerated the receiver’s bond, and wound up the receivership estate.33

The defendants appealed the trial court’s orders on the receivership. The Court of Appeal swiftly rejected the defendants’ appeal. Addressing the trial court’s post- dismissal jurisdiction, the Court of Appeal found the County’s dismissal did not strip the trial court’s jurisdiction to wind up the receivership. “Dismissal of the complaint does not deprive the trial court of jurisdiction to settle the receiver’s account and discharge the receiver.”34 The Court of Appeal also agreed with the trial court that the receiver properly served his final account and report and request for discharge to all known entities with claims against the receivership.35 Lastly, the Court of Appeal concluded that the trial court rightly approved the receiver’s final account and report that detailed the receiver’s activities during the receivership estate.36

IV. Breanne Martin v. Leslie Gladstone, Case No. D080534, 2023 WL 6889015, at*1 (2023)

In Breanne Martin v. Leslie Gladstone, the Second District Court of Appeal reversed a trial court’s judgment dismissing the plaintiff’s state law tort claims against a bankruptcy Chapter 7 trustee. The bankruptcy court authorized the trustee to operate the debtor’s business, accept lease payments, and pay expenses that arose during the ordinary course of business until the trustee sold the estate assets.37 The trustee later sought to abandon one of the debtor’s commercial properties (the Alpine Property) as inconsequential to the estate – the property was underwater and it had “numerous” uncorrected code violations.38 Before the trustee’s abandonment became effective, the plaintiff suffered injuries from an accident at the Alpine Property.39 After the plaintiff sued the trustee, the trustee sought to dismiss the plaintiff’s complaint.40 The trustee contended that the plaintiff’s lawsuit violated the Barton doctrine – a century-old Supreme Court rule from Barton v. Barbour, 104 U.S. 126 (1881) – that required the plaintiff to obtain the bankruptcy court’s consent and bring the suit in the bankruptcy court.41 The trustee also argued her abandonment of the Alpine Property immunized her from Martin’s claims.42 The trial court rejected the trustee’s Barton doctrine defense but accepted the trustee’s immunity defense from her abandonment of the Alpine Property.43 The plaintiff appealed.

Considering the trustee’s abandonment argument first, the Martin Court conceived the key issue as when the abandonment became effective.44 The trustee contended the abandonment should operate retroactively, so the debtors retained the Alpine Property without interruption during their bankruptcy case.45 The Martin court disagreed. Some cases, the Martin Court noted, generally recognize that abandoned property reverts to the debtor from the petition date.46 But that rule is not absolute: “Courts do not blindly give retroactive effect to trustee’s abandonment of bankruptcy estate property in every situation.”47 The Martin Court found no case where “a court at the pleading stage” applied abandonment retroactively to “relieve a trustee of liability for injuries caused by a dangerous condition of estate property.”48 Although abandonment of bankruptcy estate property is a legal fiction, the Martin Court declined it to avoid an unfair result – leaving the plaintiff without a judicial remedy.49

The trustee urged the Martin Court to uphold the trial court’s dismissal anyway, claiming the Barton doctrine prohibited the plaintiff’s claims.50 Examining the Barton doctrine, the Martin Court recognized it generally requires a party to obtain leave from the appointing court before pursuing a claim against a receiver or bankruptcy trustee for actions in that party’s official capacity.51 The Martin Court though pointed out that the Barton doctrine is not limitless.52 As the Martin Court explained, Congress enacted legislation (codified at 28 U.S.C. § 959(a)) to circumscribe the Barton doctrine’s reach.53 Section 959(a) allows aggrieved parties to sue “trustees, receivers, or managers of any property” without the appointing court’s consent, for claims regarding “any of their acts or transactions in carrying on business connected with such property.”54 This section preserves the Barton doctrine for an aggrieved party’s claims against a trustee or receiver for actions consistent with preserving and liquidating the estate.55 But if an aggrieved party challenges the trustee’s actions or transactions in carrying on the debtor’s business, the aggrieved party need not obtain the appointing court’s consent for such claims.56 The Martin Court canvassed bankruptcy cases nationwide analyzing § 959(a)’s application to similar claims against bankruptcy trustees.57 Relying on these cases, the Martin Court declined to apply it to Martin’s claims at the pleading stage.58 The plaintiff’s complaint alleged that the trustee “owned, leased, occupied, maintained, or controlled” the Alpine Property as landlord during the relevant period.59 The trustee’s request to operate the debtor’s business and her monthly reports to the bankruptcy court supported this allegation.60 Those documents showed Gladstone was “carrying on an ongoing rental business connected with the premises” when Martin suffered her injuries.61 Thus the Martin court concluded that the plaintiff had sufficiently invoked § 959(a)’s exception to the Barton doctrine.62 The true impact of Martin on California Receivers and whether Martin should be viewed as narrowly tailored to specific circumstances involving bankruptcy trustees (and possibly federal equity receivers) will be the subject of a future article.

Jarrett Osborne-Revis is a Senior Counsel in Buchalter’s Sacramento office and a member of the Firm’s Litigation Practice Group and Insolvency & Financial Group. He regularly represents business entities (including corporations, limited liability companies, limited partnerships, and unincorporated associations), financial institutions, private lenders, and individuals in commercial litigation matters and insolvency proceedings. He is well-versed in receivership law, post-judgment enforcement, and insolvency proceedings.

1 WB Music Corp. v. Royce Int’l Broad Corp., 47 F.4th 944, 947 (9th Cir. 2022).
2 Id.
3 Id.
4 Id. at 947.
5 Id. at 948.
6 Id.
7 Id.
8 Id. at 949.
9 WM Music Corp., 47 F.4th at 949.
10 Id.
11 Id. at 952 (citing 3 Ralph Ewing Clark, Treatise on the Law & Practice of Receivers § 691, at 1271).
12 WM Music Corp., 47 F.4th at 952.
13 Id.
14 Id.
15 Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc., 60 Cal. App. 5th 622, 625 (2021).
16 Id.
17 Id.
18 Id. at 626
19 Id. at 627.
20 Medipro Staffing, LLC, 60 Cal. App. 5th at 627. 21 Id. at 628.
22 Id.
23 Id. at 629.
24 Id. at 629.
25 Id.
26 Id. at 630; accord Single Box, LP v. Del Valle, Case No. 20- 09412 PSG, 2022 U.S. Dist. LEXIS 96161, at *1 (C.D. Cal. April 6, 2022) (declining to appoint a post-judgment receiver where judgment creditor had not shown judgment debtor obstructed the judgment creditor’s efforts to obtain the judgment.
27 County of Sacramento v. Singh, 65 Cal. App. 5th 858, 861 (2021).
28 Id.
29 Id.
30 Id. at 864.
31 Id.
32 County of Sacramento v. Singh, 65 Cal. App. 5th at 864.
33 Id.
34 Id. at 866 (citing Pacific Bank v. Madera Fruit etc. Co., 124 Cal. 525, 526-27 (1899)).
35 County of Sacramento v. Singh, 65 Cal. App. 5th at 866. 36 Id. at 867.

46 Id.
47 Id.
48 Id. at *6. 49 Id.
50 Id. at *13. Because the Martin asserted claims against a bankruptcy trustee, the Martin court applied the Barton doctrine rather than California’s collorary rule under Code of Civil Procedure section 568. Section 568 requires claimants to bring claims against the receiver in the appointing California court and to obtain the court’s consent to bring such claims. See Vitug v. Griffin, 214 Cal. App. 3d 488 (1989).
51 Breanne Martin, 2023 WL 6889015, at *10. 52 Id. at *10.
53 Id.
54 Breanne Martin, 2023 WL 6889015, at *10.
55 Id. at *11 (citing In reVistaCare Group, LLC (In re VistaCare) 678 F.3d 218, 227 (3d Cir. 2012)).
56 Breanne Martin, 2023 WL 6889015, at *11 (citing Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 971-72 (9th Cir. 2005)).
57 Breanne Martin, 2023 WL 6889015, at *11-12. 58 Id. at *13.
59 Id.
60 Id.
61 Id.
62 Id.