Summer 2003 • Issue 10, page 6

A Primer on Receivers and Receivership in a Nutshell Part II

By Bronston, Edythe*

Part II: Overview of the Appointment Process
(This is the second of a three-part analysis of receivership law and practice. The first installment dealt with the appointment process.
This installment addresses mainstream types of receivers, their powers and factors disqualifying a person for appointment.)

Types of State Court Receiverships
There are many different types of receiverships created in a variety of circumstances to meet a panoply of judicial needs. Here are a few examples, with the applicable California Code of Civil Procedure code sections and seminal cases. A receiver may be appointed:

  • as a rents, issues and profits receiver, appointed under the specific performance provision of a deed of trust or assignment of rents. CCP §564(b)(11); Mines v. Superior Court, 216 Cal. 776 (1932);

  • to take possession of real property, pending judicial foreclosure, where the property is in danger of being lost, removed, or materially injured, or where conditions in the deed of trust or mortgage have not been performed, and the property is probably worth less than the debt it secures. CCP §564(b)(2);

  • in an action by a vendor to vacate a fraudulent purchase of property, or by a creditor to subject any property or fund to the creditor’s claim, or between joint owners of property, where the party’s right or interest is probable and the property or fund is in danger of being lost, removed or materially injured. CCP §564(1);

  • to preserve community property pending completion of a marital dissolution. Family Code §290;

  • to preserve property pending completion of a corporate dissolution. Corporations Code §§ 1801(e), 1803; CCP§§564(b)(5), 565. Upon dissolution, to take charge of the estate and collect the debts and property due and belonging to the corporation , pay the outstanding debts and divide the monies and property remaining among the shareholders;

  • to preserve property pending a partnership or joint venture dissolution. CCP §564(b)(1); Corporations Code §15028;

  • in an unlawful detainer action. CCP §564(b)(7);

  • to enforce a judgment. CCP §§708.610-708.630; 564(b)(3)(4);

  • to dispose of property according to a judgment or to preserve it during the pending of an appeal. CCP §564(b)(4);

  • to collect, expend, and disburse rents during the redemption period following a judicial foreclosure. CCP §§564(b)(4); 729.090(a). Note that during the redemption period, a receiver may be appointed to collect rents, but may not take possession of the real property, as the mortgagor/trustor retains the right to possession until the end of the statutory redemption period;

  • to collect accounts receivable;

  • to enter and inspect real property security to determine the existence of hazardous waste. CCP § 564 (c);

  • at the request of the Office of Statewide Health  Planning & Develop- ment, or the California Attorney General, pursuant to Section 436.222 of the Health and Safety Code;

  • at the request of the Public Utilities Commission pursuant to Section 855 of the Public Utilities Code. CCP §564(b)(8);

  • in an action by a secured lender for specific performance of an assignment of rents provision in a deed of trust, mortgage, or separate assignment. The appointment may be continued after entry of a judgment, if appropriate to protect, operate or maintain real property encumbered by the deed of trust or mortgage or to collect the rents therefrom during the pendency of a nonjudicial foreclosure sale. CCP §564(b)(11);

  • or to take charge of fraudulently transferred property.  Civil Code §3439.07(3)(B); CCP § 564(b)(1).

Equity Receivers are totally different from rents, issues and profits receivers. An equity receiver is generally appointed in connection with an action brought by a state or federal governmental regulatory agency in connection with a statutory enforcement action. The regulatory receiver will take possession of all assets of the defendant company or individual, for the benefit of all parties ultimately shown to have an interest in those assets. This type of receiver can be likened to a bankruptcy trustee, who preserves and generally liquidates a pool of assets.

A very high burden of proof is required of the federal or state regulatory agency to obtain this type of appointment. Creditors of a defendant whose assets become part of the receivership estate are generally stayed by an injunction which is issued by the appointing court as part of the appointing order. The appointing order should be recorded in all counties where real property is located.

Federal Court Receiverships are different than state court receiverships in several ways. A higher burden of proof may be required for appointment of a receiver in federal court. Factors the court will look at include the adequacy of security and the financial position of mortgagor. N.Y. Life v. Watt West Investment, 755 F.Supp. 287 (E.D. Calif. 1991); Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314 (8th Cir. 1993).

Federal law mandates that a receiver appointed in any court of the United States must manage and operate the property placed in his or her possession according to the requirements of the valid laws of the state in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof. 28 U.S.C. §959(b). Note that a federal receiver, unlike a state court-appointed receiver, may be sued without permission of the receivership court with respect to any acts or transactions performed or entered into in carrying on business connected with the receivership property. 28 U.S.C. §959 (a).

Powers of a Receiver
A receiver’s powers are defined by statute, by the appointing order and by subsequent orders of the court on petitions for instruction. Because a receiver’s decisions are backed by the authority of the appointing court, a receiver should be chosen by the court with care, as it is always more difficult to address the effect of acts already concluded. The receiver’s powers may include: bringing and defending actions; investigating and bringing property into the receivership estate; bringing a party before the court for examination; collecting rents; collecting and compromising debts; making transfers; doing any acts as the court may authorize; and selling real or personal property of the receivership estate. CCP §§ 568, 568.5.

Qualifications of a Receiver
The qualifications of a receiver are addressed at CCP §566. A receiver may not be a party, attorney of a party, or person interested in the pending action or related to any judge by consanguinity within the third degree, without written consent of the parties. The receiver must be an individual, not a corporation, and appointment of a receiver is reviewed under an abuse of discretion standard. City and County of San Francisco v. Daley, 16 Cal.App.4th
734, 744 (1993).

*Edythe L. Bronston is a Founding Director and Past President of the California Receivers Forum L.A./Orange County and a Founding Director of the State organization. She is an attorney in Sherman Oaks, California and also acts as a receiver, court-appointed referee, and mediator.