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:
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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);
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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);
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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);
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to preserve community property pending completion of a marital
dissolution. Family Code §290;
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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;
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to preserve property pending a partnership or joint venture dissolution. CCP §564(b)(1); Corporations Code §15028;
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in an unlawful detainer action. CCP §564(b)(7);
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to enforce a judgment. CCP §§708.610-708.630; 564(b)(3)(4);
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to dispose of property according to a judgment or to preserve it during
the pending of an appeal. CCP §564(b)(4);
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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;
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to collect accounts receivable;
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to enter and inspect real property security to determine the existence
of hazardous waste. CCP § 564 (c);
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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;
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at the request of the Public Utilities Commission pursuant to Section
855 of the Public Utilities Code. CCP §564(b)(8);
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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);
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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.
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