Fees, Fees, Fees-Who Pays the Fees? By Rense, Kirk* Recent Unpublished California Court of Appeals Decisions
Illustrate Receivership Fee Problems and Pitfalls Must
the Party Seeking the Receiver’s Appointment Pay Any Shortfall? On appeal counsel for the party seeking the appointment argued that their client hadn’t really agreed to pay any shortfall – they (the counsel) had just recited to the trial court what they believed the law to be. Appellant’s counsel also argued that fees should be paid from potential future business revenues or by taxing the underlying real property not owned by the business (owned by a principal of the business entity). Finally they trotted out the U.S. Supreme Court decision Atlantic Trust Co. v. Chapman (1908) 208 U.S. 360 for the proposition that “no such liability [i.e. for paying a receiver fee shortfall] could arise from the simple fact that it was on plaintiff’s motion that a receiver was appointed….” The appellate court affirmed the trial court. It first cited language familiar (and comforting) to every receiver: “’Courts generally are vested with large discretion in determining who shall pay the cost and expenses of receivership.’” (Baldwin v. Baldwin (1947) 82 Cal.App.2d 851, 856.) “As a general proposition the costs of a receivership are primarily a charge upon the property in the receiver’s possession and are to be paid out of said property. However, this is not an invariable rule. In many cases a direct liability is imposed upon the parties to the action, or upon some of them, for the remuneration of the receiver.” (Andrade v. Andrade (1932) 216 Cal. 108, 110; [citation omitted] “’This may result from the irregularity of the appointment, or from the insufficiency of the fund, or out of the agreement between the parties.’” (Ephraim v. Pacific Bank (1900) 129 Cal. 589, 592.)” The appellate court held that requiring fees to be paid from future business revenues “could seriously impact its ability to continue as a going concern” and distinguished Atlantic Trust Co. v. Chapman on the basis that there had been no discussion of payment of fees in the Atlantic case, unlike the case at bar, where there was an express agreement by the party seeking appointment to be responsible for any shortfall. The lesson? Although things turned out well for this receiver, this controversy (and its attendant uncertainties) could have been avoided by a careful receiver who made sure that responsibility for paying receivership fee shortfalls was addressed and allocated in the appointing order. Receiver, Heal Thyself The receiver ultimately realized that there were two distinct receiverships, began maintaining separate accountings for each, and ultimately sought (and obtained) authority to place the medical corporation in bankruptcy. The receiver ultimately asked the court, among other things, to tax payment of some receivership fees incurred in one case to the other entity in receivership, and also asked that the individuals / principals of both be made personally liable for payment of fees. The trial court refused these requests, and the appellate court confirmed. Although the discussion is lengthy, two issues were highlighted. The first was the receiver’s failure to seek clarification of apparent ambiguity in the appointing order and the second was his continuing administration of the insolvent professional corporation (taking interim fees from the other entity). The appellate court stated:
The second error concerned the receiver’s failure to disclose operating losses. The appellate court agreed with the trial court that the receiver did not act in an appropriate manner when, rather than seek instructions, he continued to provide services to the professional corporation despite knowing the entity had insufficient assets to pay his fees without seeking instruction. The appellate court stated:
The lesson? Clarify and disclose, clarify and disclose. Receiver or Referee? Does it Matter? In a receivership case the receiver remains in charge of the property until discharged by the court regardless of a dismissal of the action by the parties (the appellate court reasoned); dismissal of an action does not discharge the receiver from accountability to the trial court, nor does it deprive the trial court of jurisdiction to settle the receiver’s account (citing to Pacific Bank v. Madera Fruit & Land Co. (1899) 124 Cal. 525, 525-527). But there is no such rule allowing post-judgment recovery of referee fees, the court held. The referee was , not entrusted with control of property (as is a receiver). Dismissal of the case divested the trial court of all jurisdiction and any orders entered after dismissal were void. The lesson? Pay close attention, and never assume. –Ed. |