Q: I have seen a number of receivers file motions
purporting to be interim versions of final accounts and reports, seeking
orders approving fees and costs part-way through a receivership. Given
that California Rule of Court 3.1183(a) states that all interim fees are
reviewable and may be adjusted at the hearing on the Final Account and
Report, is there really any point to this practice? Is an order approving
interim fees worth the paper it’s written on?
A: A good question. Up until earlier this year I would have doubted
it. Rule of Court 3.1183(a) states interim fees are just that: interim.
The rule states interim fees are subject to final review and approval by
the court and the court can award a greater or lesser sum at the time the
receiver’s final account and report is heard. However, the court of appeal
in Builders Bank v. Carbon Beach Partners, LLC, 2016 WL 659790
(Cal. Ct. of Appeal, Feb. 18, 2016), focused on subsection (b) of Rule
3.1183, which provides: “Unless good cause is shown, objections to a
receiver’s interim report and accounting must be made within 10 days of
notice of the report and accounting, must be specific, and must be
delivered to the receiver and all parties entitled to service of the
interim report and accounting.” The court stated: “Receiverships are
governed by statute and rules of court.” Id. at *6. It then pointed
out that while the Rules of Court allow parties to object to a receiver’s
interim report and account, no similar provision is contained in Rule
3.1184 dealing with a receiver’s final account and report. “The rules make
no provision for objections to the final account and report, and they do
not provide for discovery or evidentiary hearings.” Id.
In the case, the plaintiff, who sought the receiver’s
appointment and who the receiver wanted to be responsible for the
receiver’s and his attorney’s fees, objected to the receiver’s final
account and report and wanted to take discovery and have an evidentiary
hearing; all of which the receivership court denied. The court of appeal
affirmed, holding that because the plaintiff had not objected to the
receiver’s interim accounts and reports, it could not object to the
receiver’s final account and report because, as indicated, Rule 3.1184
does not provide for such objections or discovery or evidentiary hearings.
Therefore, there may be some value in filing interim accounts
and reports. If the parties do not object, the receiver, when he files his
final account and report, will be able to argue that it is too late for
them to do so and that they waived any objections by not timely objecting
to his or her interim reports. This is a two-edged sword however. If
parties to receiverships read Ask the Receiver, they will now know
they need to carefully review and, if appropriate, object to the
receiver’s interim reports or they may be found to have waived any later
objection. This may, therefore, result in more objections and increased
costs.
One additional important holding from the Builders Beach
case, which highlights the differences between receivership law and
bankruptcy law, was the court’s treatment of the fees incurred by the
receiver and his counsel in defending their fees. The Supreme Court
recently held that fees incurred in defending a trustee’s or
professional’s fee application in a bankruptcy case are not compensable
from the estate. Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158
(2015).
Not so in a receivership. Citing People v. Riverside
University, 35 Cal. App. 3d 572, 586 (1973), the court of appeal
stated: “The cost of defending against an unfounded challenge to a
receiver’s account is regarded as a necessary expense incurred in the
course of his official duties for which he is entitled to reimbursement
out of the estate.” Builders Bank at *3. This includes “payment of the
receiver’s attorney’s fees for defending an action against the receiver,
or for defending an appeal...” Id.
*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a
Beverly Hills Law Firm. His practice includes representing Receivers and
acting as a Receiver in State and Federal Court.