Fall 2003 • Issue 11, page 1

Post-Judgment Receiverships Enhance the Collection Process

By Sampson, Bryan*

An often overlooked use for a receivership is after a judgment has been entered. California has several statutes which allow the appointment of a post-judgment receiver to aid in the collection process. For example, a post-judgment receiver may be appointed to:

  1. Carry a judgment into effect;1

  2. Dispose of property according to a judgment or to preserve it pending appeal;2

  3. Obtain the fair and orderly satisfaction of a judgment;3

  4. Foreclose on a judgment debtor’s interest in an alcohol beverage license;4

  5. Aid in the enforcement of a family court's order;5

  6. Enforce a judgment for the possession or sale of property;6

  7. Enforce a judgment against a franchise interest;7

  8. Enforce a judgment against a judgment debtor's partnership interest;8

  9. Preserve the value of property levied upon;9 and

  10. Aid in the enforcement of a limited civil case.10

To create and maintain a post-judgment receivership the applicant and the receiver follow the same rules and procedures as for a pre-judgment receivership with respect to the nomination process, posting of a bond, preparing an initial inventory, making monthly reports, preparing and filing fee applications, bringing applications for representation by counsel and preparing a final account. A post-judgment receiver may be appointed by noticed motion or by ex parte application, with subsequent confirmation hearing on an order to show cause from the court.11

It is important to note that the federal courts have their own rules and procedures which preempt state court rules.12 For example, in state court the receiver's monthly reports are served only on the parties, while in federal court the monthly receiver reports must also be filed with the court. The procedural requirements for a state court receivership have been thoroughly covered by Ms. Edythe Bronston in her three-article series appearing in the Receivership News.13

A post-judgment receiver's duties and powers are similar to those of a pre-judgment receiver in many respects. He or she initially takes control of the judgment debtor's business and assets, prepares an inventory, identifies all assets and liabilities, and then files a preliminary report with the court, serving a copy on all parties. The principal difference is that the post-judgment receiver is then empowered to immediately begin liquidating receivership assets to apply proceeds to pay off the judgment creditor's judgment.

This duty to liquidate a judgment debtor's assets and pay the judgment creditor creates a potential conflict with the traditional duties of a receiver, i.e. to remain neutral and not operate for the benefit of any one party. California Rule of Court 1903. However the California appellate court drew an important distinction in Morand v. Superior Court of City and County of San Francisco (1974) 38 Cal. App. 3d 347, stating that a receiver in a post-judgment action does not work for the court, but solely for the judgment creditor. What the effect of this is on third party creditors, who also have claims against the judgment debtor, is yet to be resolved by case law under the newer California Rules of Court.

Why Use A Post-Judgment Receiver?
There are many reasons for a judgment creditor to employ a post-judgment receiver, rather than undertaking the more usual (and tedious) process of identifying and seizing a debtor's assets on its own. A post-judgment receiver often acts as a forensic accountant, and may quickly investigate, locate and seize a judgment debtor's assets within days of appointment. A judgment creditor standing alone may not be able to attain the same results, even after several months of investigation, subpoenas, levies, seeking and obtaining turnover orders, assignment orders and conducting judgment debtor examinations. A post-judgment receiver can immediately seize and review a judgment debtor's bank accounts, business equipment, financial records, computer data14 and even mail.15 While a judgment creditor's bank records subpoena takes weeks (or months) to elicit a response, a post-judgment receiver can immediately access the debtor's bank records with a copy of the court's order. A post-judgment receiver may use this information to quickly trace and recover hitherto unknown assets of a judgment debtor in other bank accounts. A post-judgment receiver may be able to recover assets located outside of California (or outside of the United States) with a demand letter, while a judgment creditor acting alone would have to follow the sister state or foreign money judgment procedures. The California Court of Appeals has held that it is entirely proper for a creditor or a receiver to utilize these procedures to aid in the collection of a money judgment.16

Special Post-Judgment Receiver Powers
A post-judgment receivership is very helpful where there has been a fraudulent conveyance of assets to avoid the judgment. A receiver may set aside the improper transfer and immediately recover the property17 ,often without filing a new lawsuit. A receiver may also seize control of a judgment debtor's corporation to preserve assets for application to a judgment.18 A receiver may replace corporate board members, if some or all members are judgment debtors.19 Alternatively, a receiver may be used to liquidate a judgment debtor's interest in a non-cooperative general or limited partnership.20

In a recent San Diego County Superior Court case a post-judgment receiver was used to seize control of a Mexican business entity and to sell all of its real property located in Mexico. The receiver, with California court approval, first seized control of all the Mexican entity's shares held by the judgment debtors located in San Diego. Next, the receiver set a board meeting for the Mexican entity, noticing all parties. At the board meeting the receiver fired the judgment debtor board members and installed new board members. Finally, the receiver and the new board members coordinated the sale of the Mexican real property for the benefit of the California court judgment and the judgment creditor.

Liquidating Assets
Once the assets are located and seized, a post-judgment receiver can assist in their sale.21 The costs of a receiver's sale of property are often substantially less than the sheriff's costs of sale. A receiver may seize, advertise and sell the judgment debtor's property at the location of the seized business, avoiding the sheriff's practice of moving the property to a secure storage facility and selling it at the next scheduled auction date.22 The moving and storage costs alone may make a sheriff's sale twice as costly as that of a post-judgment receiver. A post-judgment receiver also has more flexibility then the sheriff in directly contacting potential buyers, showing the assets to be sold and taking other steps to generate interest in the auction. The sheriff publishes notice of the sale, but typically does no more. A receiver can even conduct the sale in the courtroom, to immediately confirm the sale and transfer title. A sheriff only transfers title by a sheriff's deed or certificate, without the benefit of court approval.

Terminating a Post-Judgment Receivership
A post-judgment receiver must provide a final report and account and obtain a court order to close the estate, just as for a pre-judgment receivership.23 In addition, the court may sua sponte discharge the receiver at any time. A post-judgment receiver's discharge order become final upon entry, allowing a disputing party to file an appropriate appeal.24

The receivership is terminated should the judgement debtor file for bankruptcy during the term of the receivership (except as necessary to preserve estate assets). Further, a receiver is deemed a custodian under bankruptcy law and as such is required to deliver all estate property to the trustee (or debtor in possession) in the bankruptcy case. The receiver/custodian may then apply to the bankruptcy court for reimbursement of receiver costs and fees by noticed motion.25 Obviously a post-judgment receiver operating for the benefit of a judgment creditor should liquidate assets and either pay or transfer assets to the judgment creditor as quickly as possible in order to avoid having to cede the seized assets to a bankruptcy trustee.

To sum up, post-judgment receiverships to aid in collection are often overlooked by judgment creditors. The legal process, which is the same as for obtaining appointment of a pre-judgment receiver, is already well known by receivers. The benefits can be tremendous.

BRYAN D. SAMPSON is a principal of Sampson & Associates in San Diego. He has specialized in judgment enforcement including post-judgment receiverships for the last 14 years in state courts, federal courts and in international matters.
 

1 California Code of Civil Procedure §564(b)(3).
2 California Code of Civil Procedure §564(b)(4).
3 California Code of Civil Procedure §708.620.
4 California Code of Civil Procedure §708.630.
5 California Family Code §290.
6 California Code of Civil Procedure §564(b)(4).
7 California Code of Civil Procedure §708.920(b).
8 California Corporation Code §’15522(1) and 16504(a); Evans v. Galardi (1979) 93 Cal. App. 3d 291, 293-294.
9 California Code of Civil Procedure §699.070 and §564(b)(9).
10 California Code of Civil Procedure §86(a)(8).
11 California Code of Civil Procedure §564, et seq. and California Rule of Court 1900, et seq.
12 F.R.C.P. 66; United States District Courts: Central District of California, Local Civil Rule 66-1; Eastern District of California, Civil Local Rule 66-232; Northern District of California, Civil Local Rule 66-1; Southern District of California, Civil Local Rule 66.1.
13 Edythe L. Bronston, Receivership News, Issue 9, p. 1 (Spring 2003); Edythe L. Bronston, Receivership News, Issue 10, p. 6 (Summer 2003); and Edythe L. Bronston, Receivership News, Issue 11, p. 4 (Fall 2003).
14 California Code of Civil Procedure §568.
15 In re Crabtree (E.D. Tenn. 1984) 37 Bankr. 426; DMM Issue 53, January 1, 1998, at 6.3; and John Evarts Tracy, Corporate Foreclosures, Receiverships and Reorganizations §160 (Callaghan 1929).
16 Olsan v. Comora (1977) 73 Cal. App.3d 642, 646-647.
17 Burrows v. Jorgensen (1958) 158 Cal. App. 2d 644, 647-652.
18 Crocker National Bank v. O’Donnell (1981) 115 Cal. App. 3d 264.
19 Merlino v. Fresno Macaroni Manufacturing Company (1944) 64 Cal. App. 2d 462, 466-467.
20 Crocker Nat. Bank v. Perroton (1989) 208 Cal. App. 3d 1.
21 California Code of Civil Procedure §568.5.
22 California Code of Civil Procedure §701.520, et seq.
23 California Rule of Court 1908.
24 Aviation Brake Systems, Ltd. v. Voorhis (1982) 133 Cal. App. 3d 230, 232.
25 11 U.S.C. §543.