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Comments on a new receivership case from the California Court of Appeal, Gold v. Gold Realty Company By Davidson, Peter* Because “Ask the Receiver” has not been deluged with questions, I have been asked to comment on a new receivership case from the California Court of Appeal, Gold v. Gold Realty Company, 114 Cal. App. 4th 791, 8 Cal. Rptr. 3d 118 (2003). As most of you know, receivership issues are rarely appealed. When they are, they often do not result in published opinions. It is always of interest, therefore, when a published opinion dealing with receivership issues comes along. While the Gold case is not ground breaking, it does highlight some basic receivership concepts. The litigation which spawned the Gold case is reminiscent of Dicken’s Bleak House; a family battle which, by the time the Court of Appeal ruled, had been going on for ten years. After the death of the family patriarch, one faction of the Gold family sued the other over the management of three of the family’s wholly owned corporations, seeking an involuntary dissolution of the corporations and damages. After trial, the court denied the damage claims but ordered the three corporations were to be dissolved and wound up. Because the parties couldn’t agree on how to manage the corporations during the wind up period, as part of the judgment the court ordered that a three-person board would run the corporations and oversee the dissolution and wind up. One board member was to be selected by each family group and a third, an independent director, was to be jointly chosen, or if that was not possible, appointed by the court. Initially, both sides agreed on a third director to serve for two years. After two years he resigned because of the acrimony between the two warring family factions. The plaintiffs then filed a motion for the appointment of one of five retired jurists as the third director. Retired Associate Justice John Zebrowski was appointed. However, he would only agree to the appointment if the parties stipulated that the appointment was a reference pursuant to C.C.P. §638, clothing him with judicial immunity and the parties agreed not to sue him. He served for over a year until one of the factions objected to his re-election to the board and threatened to sue him if he continued. Because of the election deadlock, the court re-appointed Zebrowski as the third director, but he declined to serve when the defendants would not agree to a stipulation again giving him judicial immunity. The court then appointed another retired justice, Richard Neal, as the director and ordered the parties to obtain director’s liability insurance for him, but none could be found. At this point the court appointed Justice Neal as receiver to wind up the corporations; thereby giving him quasi-judicial immunity. In doing so, the court held that it had inherent equitable power to appoint a receiver on its own motion where essential to accomplish a judicial objective, citing C.C.P. §564(b)(3) and (4). The court felt it was necessary to have a receiver appointed because this was the only method the court could devise to protect whomever was appointed from personal liability. The Court of Appeal affirmed the appointment of the receiver. As indicated, its decision is not groundbreaking but re-confirms a number of receivership concepts, including the following: (1) a receiver can be appointed to carry a judgment into effect or to dispose of property according to a previously entered judgment; (2) Corporations Code §1800 gives the superior court jurisdiction over an action for the involuntary dissolution of a corporation and grants the superior court the power to appoint a receiver to wind up the corporation; (3) a court of equity can change the manner of sale of property in its custody by a receiver appointed by it from that previously prescribed; (4) a receiver is an agent of the court and the property in his or her hands remains under the custody and continuous supervision of the court; (5) the fact that another potential remedy was available, (i.e., the appointment of a third director) did not prevent the court from appointing a receiver. The Court notes “the availability of other remedies does not, in and of itself, preclude the use of a receivership.” The Court notes that while various cases state that a receivership is a drastic remedy that does not mean, in appropriate cases, receivers cannot be appointed even though other remedies exist. The trial court must merely “consider the availability and efficacy of other remedies in determining whether to employ the extraordinary remedy of a receivership”; (6) finally, an order appointing a receiver will be reversed on appeal only there if there is a clear showing of an abuse of discretion. Here, the court noted, given the case’s long history, the aborted attempts to find a provisional director, and the need to provide whomever was appointed with some protection of his or her personal assets, the remedy of receivership was clearly appropriate. The case is also an example of what you should consider, by way of protection, should you be approached to act as a provisional director rather than as a receiver. You should insist that the parties provide you with officer’s and director’s insurance and other protections, such as a stipulation that they will not sue you. If that cannot be obtained, you should seriously consider whether it is beneficial to take the appointment as a provisional director rather than as a receiver. *PETER A. DAVIDSON, an attorney with Rein Evans & Sestanovich LLP located in Los Angeles, is a receiver and an attorney who specializes in representing receivers in state and federal court. |