Summer 2010 • Issue 37, page 1

Sacramento County Superior Court Judge Loren E. McMaster Discusses Key Aspects of Receivership Cases

By Sackett, Scott*

I had the great pleasure of working with Judge Loren E. McMaster in moderating the “Procedural Aspects of Receiverships” educational panel at May’s California Bankruptcy Forum Conference in Monterey.

Procedure can be a pretty dry subject at 4:30 in the afternoon, so I and my co-panelist Robert McWhorter encouraged Judge McMaster to bring his many years of judicial experience and unique speaking style to bear on as many topics as possible. The strategy worked! Judge McMaster provided invaluable information and extremely interesting “takes” on receiverships from his judicial perspective, according to the many persons attending.

As it turns out, this may have been Judge McMaster’s last participation in an informational program as a sitting judge. In an unfortunate loss to the Sacramento County Superior Court, Judge McMaster retired from the bench in June. As we wrapped up the panel discussion in May I realized that I had left no time for questions from the audience. I apologized for this and Judge McMaster’s reply was that it was okay, he liked to leave his audience asking for more. His retirement does just that with respect to local counsel.

This article recaps my interview with Judge McMaster after the panel and rehashes many of the highlights of that panel presentation. But first a few facts about Judge McMaster’s distinguished legal career.

Judge Loren E. McMaster has long been a central figure in judicial receiverships, serving as one of two civil law and motion judges in Sacramento County Superior Court since December 2001.

He was in the first graduating class from the U.C. Davis School of Law, where he was a member of the Law Review. He began his legal career as a deputy attorney general, and thereafter became chief counsel for the California State Employees Association, serving seven years in that post. Judge McMaster was an a.v. rated lawyer and certified appellate specialists. Prior to his appointment to the bench, he was counsel of record in some 60 appellate proceedings that resulted in published appellate opinions of the 150 cases he handled (far exceeding the typical published rate of less than 10%).

These opinions included several landmark California Supreme Court decisions: Coan v. California (1974) 11 Cal. 3d 286; Skelly v. State Personnel Board (1975) 15 Cal. 3d 194; Barber v. State Personnel Board (1976) 18 Cal. 3d 395; and Prof. Engineers in Calif. Gov’t v. Department of Transportation (1997) 15 Cal.4th 543.

Since taking the bench, Judge McMaster has won praise for his handling of difficult, high-profile cases covering issues such as rights under domestic partnership laws, the early release of prisoners, and two campaign finance/fund-raising cases involving Governor Arnold Schwarzenegger and former Lieutenant Governor Cruz Bustamante.

Judge McMaster’s ruling on the domestic partnership issue lead to a rare recall attempt; the recall never gained traction and Judge McMaster emerged with strong backing from the legal community rallying behind the theme that “Judges must remain free to discharge their responsibility to make those decisions that they believe are compelled by the law, notwithstanding that such decisions may anger powerful interest groups”.
In his description of the recall experience Judge McMaster wrote:

“I kept reminding myself of the admonition that we all received at Judicial College: ‘Be long of fuse, and somewhat thick of skin.’ Keeping one’s sense of humor also helps. While sitting down at my computer at home one day, I began to laugh, realizing that I was having a ‘Jeff Foxworthy moment’ You know you are in trouble when you have a directory on the hard drive of your computer entitled ‘recall.’”

The Capitol City Trial Lawyers Association named him Judge of the Year in 2005 and in 2006 he was appointed by the State Bar to be a member of the State Bar task force to improve civility and professionalism in the legal profession. He was named “Judge of the Year” by the Sacramento Bar Association in 2008.

Judge McMaster takes keen pride in the fact that he is a Master of the Bench in the Anthony M. Kennedy Inn of the American Inns of Court – a legal association that promotes excellence and civility in the legal profession.

This organization is loosely modeled on the British Inns of Court, coinciding with Judge McMaster’s interest in the British legal system and politics. He attended the California Judges Association’s Oxford Program series of lectures at Oxford University by professors, barristers (loosely “attorneys”) and judges concerning English law. He can discuss in great detail the English Law traditions that have carried over to our legal system as well as the stark differences between the two.

One example: To this day many American judicial robes have a seemingly superfluous loop on the back. This stems from the tradition of the “fee bag” worn by a barrister in which fees for services were placed while the barrister was not looking. Another example Judge McMaster cites: A barrister rarely, if ever, objects to questions posed by the opposing barrister because it is understood that every barrister is a well-trained, ethical professional who would never ask an improper question in judicial proceedings. American trial lawyers have a slightly different outlook.

As we began our interview, Judge McMaster prefaced his comments with his usual disclaimer — “Nothing herein shall be construed as expressing the policy of the Sacramento Superior Court or as a local court rule; the comments are the views of only one judge — me.”

Q: Has the manner in which you use receivers changed since your initial appointment?
A: To start with, prior to my appointment to the bench, I had never been in a situation where a receiver was appointed and during my first years on the bench, I may have appointed receivers in only 3 or 4 cases ... It just wasn’t regularly done. In the past 2 years, given the economy, the number of appointments of receivers has increased dramatically. I have appointed 20 to 30 receivers, the vast majority of whom are in real estate cases. It seems that attorneys today are more educated and experienced in the use of receivers.

Q: Do you ever grant ex parte receivership appointments? What do you consider when determining whether to make such an appointment?
A: The default answer is no. Due process is the main consideration. There can be exceptions, for instance when there is evidence that funds are being rapidly diverted or redirected in a way that they cannot be recovered. The use of contract clauses in which the parties agree to ex-parte receivership appointments do not stand on their own as a reason to grant ex-parte appointments. However, in the presence of other factors such as the diversion of funds they can be a factor used to consider whether due process exists.

Rather than appoint a receiver ex-parte, I will typically start with a temporary restraining order or injunctive relief to protect the proponent of the receivership until the issues can properly be presented by both sides.

I would recommend bringing multiple sets of orders to be used depending upon the decision of the judge. For instance, when trying for a receivership appointment bring an order to have the receiver appointed immediately, and, as alternatives, an order to show cause why a receivership appointment should not be entered, a noticed motion for the appointment of a receiver, a TRO, and an order shortening time for hearing on the application. Just remember to keep the lesser remedies in your briefcase until you know you are not going to prevail on an ex parte application.

Q: What do you look for in the Order Appointing Receiver?
A: I like to see language in the order that is specific and directly related to the facts of the case. Clauses from prior orders that are not applicable or that are over-broad in the duties and powers granted are indicators that the order could use a little more attention.

Q: A number of examples have been raised by practicing receivers in which financial institutions are drafting and controlling the content of the order appointing the receiver and basically telling the receiver to take the order as it is, or pass on the appointment. Have you ever provided input for the order appointing the receiver or required the parties to redraft an order in an effort to maintain the receiver’s neutrality or otherwise?
A: I’ve not knowingly been presented with this situation, however I have concerns over how the receiver could raise this to the judge without being black-balled by the financial institutions that are his proponent. I believe that the receiver should decline an appointment if he believes that the clauses in the order would be contrary to neutrality or detrimental to the estate. I think that the receiver would have to leave it for the sake of his own reputation.

Q: Have you encountered a situation in which the receiver is appointed for little or no fee or for a flat monthly fee under an arrangement where the receiver will be given the listing to sell estate property (and corresponding commission) or a contract to manage the estate property after the receivership? Either seemingly may affect the receiver’s neutrality. How do you view such an arrangement?
A: Again, I have not knowingly seen a case like this. I do not believe that any court would knowingly approve an arrangement like that. Additionally, a flat fee payment arrangement might encourage the receiver to cut corners and would not be in the best interest of the court or the parties.

Q: How do you approach a situation where one party or the other attempts to use the receiver to take advantage in litigation or otherwise compel the receiver to act in a way that is not neutral?
A: A situation like this may call for the allocation of fees to the party that is causing all of the work. This usually tends to stop the problem. I ask the receiver which party is causing the work and allocate accordingly.

Q: How does the Court approach a situation when there are not enough funds to support the requested receivership?
A: The Court cannot make a receiver work for nothing and I would not appoint in that case. The judge should make sure that there are sufficient funds to operate the estate and make payments to creditors. In a situation where the funds are not there, the court will have to play more of a hands-on role. The receiver is a benefit to the court and in this situation their services will be missed.

Q: How important are monthly operating reports from your perspective? Do you prefer that a receiver be required to produce them? Do you typically review them? What do you look for in operating reports?
A: Not all receiverships are created equally but I find monthly operating reports to be valuable. They help to keep a judge informed, especially in an atypical case or where the receiver is having difficulty with one or more of the parties. When there is no requirement to file monthly operating reports with the court, I like to receive courtesy copies. I don’t throw them away and I do read them. I have a box that I keep them in for access later if needed. I especially look to the operating reports for details regarding the justification of fees. If the receiver’s fees seem extraordinary, the operating reports can provide an explanation and justification.

Q: Is it appropriate for the receiver to represent himself pro per? When is it appropriate for a receiver to have representation or petition to hire legal counsel? Have you ever denied an application for appointment of counsel?
A: I believe that the receiver has a role beyond “the character of the estate” as has been ruled in other courts. I believe that the receiver is an agent of the court and as such can appear in some situations without an attorney. For example, a petition for instructions does not necessarily require an attorney.

Many receiverships do not require that the receiver hire legal counsel. It depends upon the complexity and anticipated litigation in the case. I cannot recall a situation where I have denied the appointment of counsel, but I can recall a case in which I allowed the receiver to retain three attorneys. The complexity of the legal work in the case required the services of three different specialists with specific areas of expertise.

Q: Do you allow ex parte communications between the receiver and the court? Under what circumstances, if any, would ex-parte communications be appropriate?
A: Generally no, but it is not formulaic. Based upon the receiver being an agent of the court, if there is something that urgently needs to be brought to the attention of the court, it shouldn’t wait. The receiver still has to comply with ex parte rules and serve all parties. There are some instances, depending on what the parties are doing, or if the receiver is involved in litigation, or if there is an emergency, in which the receiver could come in without prejudice, of course.

Q: What is the best way for a receiver to ensure that his fees will be approved by the Court?
A: This goes back to the operating reports and detail regarding the fees. If the fees seem high I will look for an explanation as to why in the operating reports. It is important that the receiver provide enough detail in those reports to explain the fees that have been generated. When, on its face, the fees seem excessive, I want details. The receiver needs to demonstrate that “ X and Y were doing this … and I had to respond”. This type of detail also helps with the allocation of fees if one side’s conduct is causing a great deal of work.

Q: Do you permit or encourage your receivers to seek to promote settlement between the parties?
A: Definitely.

Q: Anyone who has had an opportunity to visit your chambers knows from the memorabilia on your walls that you are a tremendous sports fan and, in particular, a die-hard San Francisco 49ers fan. What is your greatest sports recollection in your years of following the 49ers?
A: Well of course there was “the catch”. Dallas was the dominant team of the 1970s and had a history of knocking the 49ers out of the playoffs. They lead over the 49rs 27 to 21 with 58 seconds left in the game. Montana brought the 49ers back in an 89 yard drive culminating with a leaping fingertip catch by Dwight Clark in the end-zone to win the game. This was the start of a long 49ers winning streak including 4 Superbowl wins in the 1980s.

Another moment – another game that comes to mind is the 1957 championship game between Detroit and the 49ers in which Detroit came back from a 24 to 7 half time deficit and beat the 49ers 58 to 27. I remember it as a disappointing loss, but it stands out to me because years later at a luncheon I was seated next to Gene Cronan, a former UOP star and participant in that game on the Detroit side. We discussed the game and I learned the inside story of Detroit’s victory. The game was played at Kezar Stadium and in those days the team’s locker rooms were located next to each other. The walls were thin and during half time, the Detroit players could hear the 49ers whooping it up next door This premature celebration inspired Detroit to go out in the 2nd half and win the game.

*Scott Sackett is the President and Founder of Fiduciary Management Technologies, Inc. (FMT). Scott serves as a court appointed receiver and dispersing agent. FMT provides case, claims, and estate management and accounting software to receivers, bankruptcy trustees, dispersing agents, and professional fiduciaries.