Summer 2016 • Issue 58, page 10

The Receiver's Final Account and Report: Who Should Get Notice and Why

By Mosier, Robert*

When a Receiver has completed the administration of a case, the next step generally is to prepare, file and notice the Receiver’s Final Account and Report (“FAR”). The mandates of this procedure are defined in California Rules of Court No. 3.1184 (“CRC 3.1184”). The following discussion will amplify the provisions of CRC 3.1184 as well as compare the provisions with common practices, some of which are not covered by CRC 3.1184, but may be very important to a receiver to bar any future direct or indirect challenge to the administration of the case. Finally, this article will ask a series of related questions for learned counsel to opine.

Let’s start with the provisions of CRC 3.1184. The first provision states that “the FAR can be in the form of a noticed motion or a stipulation. The FAR must be presented to the parties of the Receivership and outline (1) a final account and report, (2) a request for discharge, and (3) a request to exonerate the Receiver’s surety.”

The second provision of CRC 3.1184 states that “no memorandum of points and authorities need be submitted in support of the motion or stipulation served and filed under the first provision unless the Court so orders.” So far, so good – both the first and second provisions of CRC 3.1184 appear straightforward and easy to comprehend, even to the non-lawyer Receiver.

The third provision of CRC 3.1184 states that “the Receiver’s motion or stipulation to approve the Receiver’s FAR must be given 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.” This too is fairly straightforward, except that it tends to vary with the practice of many receivers – the more common practice is to notice the FAR to everyone with whom the Receiver came in contact during the administration of the case. This may include taxing authorities that did not have a direct claim in the case. Collectively, this expanded service list is called the “case universe of potential claimants.” It is this common practice variance that is the focus of this article – both to explore the variance and raise questions where some loopholes may materialize that could leave the Receiver at risk.

For the record, the fourth and final provision of CRC 3.1184 reads that “if the FAR seeks any allowance of compensation for the receiver or an attorney employed by the receiver, it must state in detail what services have been performed by the Receiver or the attorney and whether previous allowances have been made to the Receiver or attorney and in what amount.” As with provisions one and two presented above, this is seemingly straightforward and clear.

A California appellate case Aviation Brake Systems, Ltd. v. Voorhis, 133 Cal. App. 3d 230, 183 Cal. Rptr. 766 (1982), is usually cited for the proposition that the court’s approval of a receiver’s final account and report constitutes res judicata as to all disputes and claims raised and ruled upon at the hearing on the receiver’s motion. In that case, the court sustained a demurrer without leave to amend to a subsequent complaint against a previously discharged receiver on res judicata grounds. The court stated: “We hold the trial court properly sustained the demurrer on the ground of res judicata. We conclude that the matters sought to be litigated in the present action were, could have been, or should have been litigated at the time the receiver's final report and account was approved, and that the court's order in the prior case approving the account, which has become final, may not be collaterally attacked in this proceeding.” Id. at 235.

Key words here are “…were, could have been, or should have been litigated” at the time the receiver’s final account and report were approved. Giving notice of and an opportunity to appear and object at the hearing on the receiver’s motion to approve his final account and report to all potential claimants against the receiver or receivership estate is key. In other words, noticing every person or entity who had any interaction with the case brings any such claims into the class of claims that “…could have been, or should have been…” litigated at said hearing.

By logical implication, Aviation Brake Systems is cited for the proposition that all persons and entities given proper notice of the hearing who fail to timely assert such claims will find any subsequent attempt to assert such claims barred by the principles of res judicata. For this reason, giving notice of the FAR is good and inexpensive insurance for the receiver to sleep well at night (most of the time).

The importance of giving notice to the case universe of potential claimants cannot be understated - claims by taxing authorities, former spouses of defendants, creditors and even class action lawyers can be made often years after discharge. It is an easy step to locate the notice of the Receiver’s FAR and the attached proof of service. This is then sent to the party asserting the claim with an explanation that claims against the former Receivership Estate are barred. Why? Because the claimant failed to respond timely to the Receiver’s FAR that was filed, noticed and approved without any objection from this creditor. This generally stops the creditor from going any further. If the creditor does proceed, a quick motion to dismiss an action with the above explanation is generally bullet proof and brings an end to the creditor’s pursuit of the Receiver and the Receivership estate.

Here are some related “what ifs”:

  • What if one of the parties objects to the Receiver giving broad notice to the case universe of potential claimants? The rationale for such an objection: Let sleeping dogs lie or don’t advertise for claims. Does the court overseeing the case have authority to impose a limitation on who should receive the Receiver’s notice?

  • What if the court rules no notice except as defined in CRC 3.1184 is permitted and a claim is filed after the Receiver’s discharge by a creditor who would have otherwise received notice under the case universe of potential claimants? Is the Receiver potentially liable?

  • What if the court responds to a motion by one of the parties and orders all of the receivership assets transferred out of the Receivership Estate prior to the FAR being heard? If a legitimate claim is presented at the time of the FAR hearing, is the Receiver potentially liable?

  • What if this broad notice application produces a creditor that might have otherwise been silent and now has to be paid (reducing a residual that might go to the parties)? For example, a dormant tax claim that occurred pre-receiver. Two questions: (a) Is the Receiver liable for paying such a claim since he controls all of the assets of the individual or entity that is in receivership; and (b) Could the Receiver be liable for having “shaken the tree” and produced a claim that might not have otherwise come forward?

This author invites a response to the above questions by members of the California Receivers Forum who are invited to write letters to the editor with their feedback.

In the meantime and absent judicial intervention, receivers should seriously consider providing notice to the case universe of potential claimants as insurance and the least expensive way to bar future claims after discharge. Do any of the members of the CRF attorney brain trust disagree with this methodology?

*Robert P. Mosier is a Southern California receiver and trustee and principal of Mosier & Company, Inc., a firm that has specialized in managing and turning around troubled companies for more than 25 years.