Spring 2008 • Issue 28, page 4

Family Court Receivers-Court Officers Appointed to Preserve & Liquidate Properties to Benefit Litigants & The Community

By Rosen, Charles*

“Receiverships in Family Law: Saving the Family Jewels” was the topic of the evening at the February 12 educational presentation sponsored by the Los Angeles / Orange County Chapter of the California Receivers Forum in West Los Angeles. The Seymour Group, commercial and residential real estate sales experts, generously supported the dinner program.

Los Angeles County Superior Court Judge Donna Fields Goldstein sitting in family court anchored an expert panel that explored the many uses of receivers in a family law setting. Cori B. Steinberg, Esq., a partner at Freud and Goldsmith APC specializing in family law, and Thomas Paine Dunlap Esq., a partner at Trope and Trope with a broad practice including appellate advocacy on family law issues, completed the panel.

Edythe Bronston, Esq., a longtime prominent Southern California receiver / financial law attorney chaired and moderated the program, which explored six key topics in a family law receivership context.

Authority to appoint a receiver in a family law context generally flows from California Code of Civil Procedure Section 564 (b)(9), which provides that a receiver may be appointed “In all other cases where necessary to preserve the property or rights of any party,” Mr. Dunlap commented.

“Such an application is made usually where one litigant thinks community property is being lost,” he said. He cautioned that courts consider the appointment of a receiver to be a “drastic” remedy, and will always look for less intrusive ways to deal with the problem.

One possible argument against appointment of a receiver is that less onerous (and less expensive) injunctive relief may be imposed, he said. But there is usually already an injunction in place restraining the parties from selling or transferring assets, an injunction which may already have been violated.

Another argument that may be raised against the appointment of a receiver is that any damage to the community that may be caused by an offending party is not irremediable – that is that it can be remedied with money and that there is enough money in the family estate to pay damages if any community property is wasted or transferred improperly, he stated.

A response to this argument is that the offending spouse is already in violation of her or his fiduciary duties to the other, and the equitable appointment of a receiver is required to stop such violations which will surely continue otherwise.

Mr. Dunlap commented that it may be appropriate to appoint a receiver where a spouse is beyond state boundaries and the immediate jurisdiction of the family law court. In such circumstance it may be that the only way to enforce an existing judgment for spousal or child support is for the court to appoint a receiver to seize and administer assets of the community or of the out-of-state spouse to ensure that future financial support payments are made.

Another less intrusive method of controlling a party may be for the court to appoint an elisor to sign deeds or documents on behalf of the non-cooperative or out-of-state litigant, Mr. Dunlap stated.

Benchmarks (red flags) for the appointment of a receiver, according to Mr. Dunlap, include: (a) is the business in issue a cash business (called the ‘gas station rule’), where assets can easily disappear or not be accounted for; (b) is the person in control of the asset – often a business – competent to operate it; (c) where community assets have been sold to a “straw man” in order to place the assets beyond the reach of the court; (d) or if there is good reason to believe that cash assets are leaving the jurisdiction and the offending spouse is beyond the personal jurisdiction of the court.

Judge Goldstein stressed the paramount importance of the language in the appointing order – which will delineate in detail the duties and authority of the receiver.

The best way of determining how appointing orders should be drafted is for the petitioning party to discuss the content and language of the proposed appointing order in advance with an experienced receiver.

Failure to do so often results in the appointed receiver having to petition the court to correct omissions from the order, an expensive task, Ms. Bronston said.

Judge Goldstein advised the attorneys and receivers in the audience that family law courts mandate the use of pre-printed pleading forms in many areas, including the “Notice of Motion” form when seeking appointment of a receiver or some other equitable relief.

These forms are important — the family law court uses them so extensively in an effort to make the courts accessible to everyone, Judge Goldstein said.

“We have approximately 40% to 50% pro per or pro se litigants; these largely self-explanatory forms give them access to all the court’s services.” Judge Goldstein stated that persons who need family law services can easily obtain these forms and attend frequent self-help seminars conducted by the city, county and state on how to fill them out and use them. The forms also make it easy for the court to quickly assess the problem presented and rule effectively on issues presented.

Judge Goldstein advised counsel to look on the bottom of family law forms to see if they are described as mandatory or only optional. A variety of mandatory forms, both for ex parte and fully-noticed applications, were included in the materials provided to all attending.

Judge Goldstein’s remarks underscored the extraordinary degree of discretion granted family law court judges, necessary for them to deal with the practicalities of the myriad problems presented.

Most or all judges in the Los Angeles Family Court downtown view the appointment of a receiver as a last resort because of the associated expense and intrusion into private affairs of the litigants, Judge Goldstein said.

“Some judges are a little friendlier to the idea than others, and some judges will never appoint a receiver,” she commented. Deciding when to appoint a receiver is a difficult task, she said.

“Our first job is to protect the community assets. Where there is evidence that the community has been diminished or is in imminent danger of being diminished, it is the court’s job to fashion a remedy. If appropriate, a receiver may be appointed either after ex parte or fully-noticed motion, or sua sponte by the court to preserve assets from walking out the door,” she stated.

The standard injunction against dissipation of assets applies to both community property and separate property of the parties, since the judge will not know which is which at the beginning of the case.

“I will always look to see if some remedy less onerous than a receivership can be effective,” she said. A question that may control the court’s deliberations is whether one person is in total control of assets and, if so, whether the other party is capable of taking control of the property.

“My job is to preserve the community estate. The biggest reason why I won’t appoint a receiver is that it is a very expensive remedy. If the party who is not in control of the assets is competent to manage them I’ll flip control of assets from one party to the other before appointing a receiver, if it may solve the problem,” she said.

“I also look to see if the party wasting the community assets has other separate property assets that can be tapped to ensure that the injured party can be made whole. I may ask that party to put up funds and collateral equal to the value of the wasting asset rather than appoint a receiver,” she said.

Judge Goldstein said that she will appoint a receiver to stop a foreclosure, in an effort to give time to a receiver to try to sell the defaulted property to conserve remaining equity. She stated she has enjoined a bank’s foreclosure sale for a period for the same reason.