Spring 2008 • Issue 28, page 11

LA Bar Hosts Annual Judicial Update on Receiverships, Injunctions and Attachments

By Rense, Kirk*

More than 50 early risers gathered at 7:00 a.m. on January 31 in the L.A. County’s Central District Court’s Writs and Receivers Department 85 for “Breakfast With the Experts: Injunctions, Receiverships, and Attachment”, an annual program sponsored by the Remedies Section of the Los Angeles County Bar Association.

Prominent issues and statutory changes in these three complex legal areas were the subject of discussion by experts Judge David P.Yaffe (Writs and Receivers Department 86), Judge James Chalfant (who has taken the place of retiring Judge Dzintra Janavs in Department 85), Commissioner Bruce Mitchell (who presides in Department 59 specializing in rents and profits receiverships and condemnation actions among other matters), and Commissioner Victor Greenberg (who presides in Department 66 hearing writs of attachment and possession applications and rents and profit receiverships and additional matters).

Mark L. Share, Esq., a member of DeCastro, West, Chodorow, Glickfeld & Nass, Inc., was moderator.

Increased Foreclosure and Receivership Cases
The downturn in the economy may well result in more receivership actions being brought, the panelists agreed. Judge Yaffe is now seeing suits for judicial foreclosure for the first time in eight or nine years, he said. Commissioner Mitchell added that there is an up-tick in rents and profits receiverships in his court, as well.

The economy has undoubtedly changed, Commissioner Mitchell observed, but the question is how far? The court has been seeing a tremendous number of residential judicial foreclosures, but 99% of these cases are filed to obtain appointment of a receiver and the foreclosures are completed non-judicially. The Commissioner estimates that only two or three of the judicial foreclosure cases he has seen in the last six years actually went to a non-judicial foreclosure. There has been no substantial spillover into commercial property or apartment building foreclosures as yet.

Not every application will be approved, Commissioner Mitchell cautioned. Where monetary defaults have been cured or are being cured it is hard to justify the appointment. This is also the case if there has been only a tax default, where the property is not in danger of foreclosure.

Whether an equitable receivership application should be granted must be evaluated from several perspectives. Judge Yaffe commented that imposing a receivership must be justifiable economically—it must make financial sense. The equitable receivership must generally provide some benefit to both of the parties, not just to the plaintiff. If this is not the case, no receiver will be appointed. Where other remedial alternatives are available, the plaintiff must show that appointing a receiver will do some good for both parties. The exception to this is where a neutral party must be appointed to preserve a closely held partnership or business.

Mandatory Forms and Professional Organizations
The panel stressed that the Judicial Counsel has promulgated four forms to be used for applications for appointment of a receiver and injunctive relief. Use of these forms is mandatory in Department 59, rents and profits receiverships. They also mandate use of a standard receiver workup sheet where real property is involved. Counsel should note that a fidelity bond is required to be posted by rents and profits receivers, usually equal to about one month’s rents (Commissioner Mitchell sets these bonds at 1.5 times the monthly rent).

Judge Chalfant, coming to the department after seven years in civil trial court, cautioned attorneys appearing in his court not to assume that he knows all the specialized law and rules regarding writs and receivers. Judge Chalfant, who will also be taking over Judge Janavs’ CEQA suit calendar, said he is looking forward to the challenge of mastering a new area of the law. He invited counsel to educate him through their thorough legal briefs. He advised that he “runs a tight ship” but keeps an open mind.

Commissioner Mitchell recommended that all in attendance join the LA County Bar Association Remedies Section and the California Receivers Forum to stay current on receivership issues. He said he believes his court will be getting busier, as there seems to be many uncompleted construction jobs.

Bonds, Procedural Issues and Finding a Receiver
Departments 66 and 59 have direct filing and Judge Greenberg and Commissioner Mitchell said never to use the filing windows downstairs. Doing so may result in a denied application because the court will not have had an opportunity to read the filed papers. Litigants should also keep in mind that opposition to an application for a writ of attachment must be filed and served five court days prior to the hearing date.

In response to a question Commissioner Mitchell said that there is no official list of receivers, but commented that the California Receivers Forum has its own listing of very experienced receivers in its the newsletter [i.e. the Receivership News], and that this list is a good place to start a search.
A foreclosure case where a rents and profits receiver is appointed stays in Departments 59 and 66 until all receivership matters are concluded, Commissioner Mitchell said. He usually sets status conference dates seven months out, and doesn’t hesitate to set a trial date if the receivership has not been resolved by that time.

Judge Yaffe cautioned that a receiver’s fidelity bond and a CCP Section 529 preliminary injunction bond are usually requirements of any equity receivership order. Counsel should give thought to the amount of these bonds in advance of the hearing, and be prepared to discuss the appropriate amount of the bond. The operative question will be how much cash and/or assets readily reducible to cash will the receiver have in her or his possession at any given time?

For an injunction bond, the court must assume that the plaintiff will lose on the merits, and set the bond in an amount sufficient to remedy the damages caused the defendant. This can be a complex question, Judge Yaffe emphasized, and counsel should be prepared to discuss it with the court.

Many Health & Safety Code Receiverships
Judge Yaffe and Commissioner Mitchell spoke briefly about Health and Safety Code receiverships – brought under provisions of the Health and Safety Code to remedy substandard housing. Commissioner Mitchell said there are many more Health and Safety Code receivers being brought, and that the critical requirements for such efforts to be successful often are (a) having a budget for the work that must be done and (b) having a source of funds to accomplish the needed work.

Judge Yaffe is also seeing more Health and Safety Code receivership. He stressed that these are not provisional remedies (as are ordinary equitable receiverships), but rather are legislatively created, supported by an independent cause of action for appointment of a receiver under applicable statutes. This appointment of a receiver to undertake remedial work is the ultimate relief the court can grant under such an action. Receivers with experience in rehabilitating properties are needed for these receiverships.

One option for raising the money to do the required work is selling receivers’ certificates, which are secured by the assets of the receivership estate. There are conflicting opinions within the legal community about whether such loans memorialized by receivers’ certificates create super-priority liens. Banks holding a senior security interest on the property in disrepair will usually be the lender to whom a receiver’s certificate will be issued in exchange for new funds (avoiding the issue of lien priority). Another alternative source of funds is the Community Clearing House, Commissioner Mitchell said. It is very important that both the issued receivers’ certificates and a deed of trust reflecting the certificates be properly recorded.