Winter 2003 • Issue 12, page 4

New Year's New Requirements for Undertakings and Final Reports

By Pasternak, David*

The California Judicial Council has adopted two statewide rule changes pertaining to receivership practice, effective January 1, 2004.

Newly adopted California Rule of Court 1902.5 requires that the applicant for appointment of a receiver at either the noticed or ex parte hearing propose and state the reasons for a specific amount for the undertaking (i.e., bond) to be required from the applicant and the receiver. The Rule states that other parties also may propose and state the reasons for the specific amounts of such undertakings at the same time.

California Rule of Court 1908, concerned with the receiver’s final account and report, has been significantly amended. Rule 1908(a) now requires a receiver to present a final account and report by either noticed motion or stipulation of all parties, and requires that the final report include requests for discharge and for exoneration of the receiver’s surety.

New Rule 1908(b) specifies that a receiver’s final account and report is one of the few motions that may be filed without any supporting memorandum of points and authorities, unless the court orders otherwise.

The most significant change is newly adopted Rule 1908(c) which requires the receiver to give notice of the final report and account, whether brought by either noticed motion or stipulation, “to every person or entity known to the receiver to have a substantial, unsatisfied claim that will be affected by the order or stipulation, whether or not the person or entity is a party to the action or has appeared in it.”

As originally proposed, newly adopted Rule 1908(c) would have had a draconian effect on receivers by requiring receivers to give such notice to every person or entity who might have any claim against the receivership. It now requires such notice only to persons who have “substantial, unsatisfied” claims. While the term “substantial” is undefined, it is expected that it will vary from case to case. In some cases, a $100 claim may be substantial, while in a case involving larger dollar amounts or greater numbers of unsatisfied claimants, a claim of less than $1,000 might not be substantial. While this lack of specificity could be a cause of concern for some receivers, it is preferable to a fixed dollar amount that would be applicable to all cases and could result in the necessity to notify thousands of people with claims in insubstantial amounts in some receivership cases.

Rule 1908(c) as originally proposed also did not include the limiting language “known to the receiver.” Without that language, the notice requirement could have opened a Pandora’s box for potential receiver reliability because a receiver could have been held liable for a subsequent claim from a previously unknown receivership claimant who, understandably, was not notified of the receiver’s final report and account.

As adopted, Rule 1908(c) will not change the practice of experienced receivers, who already give notice of their final report and account to all persons or entities known to the receiver to have substantial, unsatisfied claims in order to eliminate potential future liability to such persons. Now all California receivers have specific statutory responsibility to do so, and should thoroughly review their files to identify all such persons and entities before making service of their final accounts and reports.

*MR. PASTERNAK, a member of Pasternak, Pasternak & Patton, a Century City law firm, is a founding Co-Chair of the L.A./Orange County chapter of the California Receivers Forum. Mr. Pasternak is the Forum’s Legislative Co-Chair and one of the four attorney members of the California Judicial Council. He serves as a receiver, provisional director and partition referee, and represents the same as counsel.