I read with interest Publisher Bob Mosier's article in the Receivership News (Summer 2016, Issue 58) discussing the Final Account and Report ("FAR") procedure, in particular focusing on service requirements. I believe that the article correctly recites the rules and rationale for expansive notice of the FAR proceeding – what Bob calls the case universe of potential claimants.

The requirement in California Rule of Court 3.1184(c) that notice of the FAR Motion or Stipulation must be provided to all persons known to have a ".substantial, unsatisfied claim." arises from considerations of due process, as explained in Vitug v. Griffin 214 Cal. App. 3d 488 (1989) and other California cases. In the Vitug case, a receiver with actual notice of a claim failed to notify the claimant of the upcoming FAR, despite the Receiver's indisputable knowledge of the claim (the Receiver was actually litigating a lawsuit filed by the claimant against the Receiver). After the disbursement of all assets and exoneration of the bond following the FAR, the Court held that since the claimant had not received notice of the FAR and therefore didn't receive due process, the lawsuit filed against the Receiver could continue unabated.  This holding evolved into the CRC requirement that any claimant known to have a substantial unsatisfied claim must receive notice of the FAR proceeding.

Bob Mosier's article then raises some creative hypotheticals about the potential effects of an Order limiting notice. While such an Order seems unlikely if the Receiver points out to the Court that there are potential claimants, such as taxing authorities, who should get notice, and that the Receiver's practice is to give such notice, we have all learned to expect the unexpected in litigation and in our society at large. Typically, the Judge will support the Receiver's request to give full notice and avoid potential liability. Any Judge who limits notice in the face of opposition thereto by the Receiver, supported by an explanation as to the basis of the Receiver's concern, would be a Judge shockingly hostile to the Receiver's judgment and regular practices. Given the upcoming FAR proceeding at which time that Judge is to determine and approve the compensation of the Receiver and his/her professionals, I strongly doubt that the Receiver would choose to offend the Judge by mounting a challenge on appeal.  Further, since the concept of "known claimants" underlies the Vitug rationale and the applicable CRC quoted above, the Receiver might be short on authority to maintain that a wider service net to "potential but unknown" claimants is justified. It may be that in this rarest of situations (which I have never seen or heard of in 40 years of practice), the Receiver may want to volunteer to provide notice but provide a concomitant discount on fees to assuage the Judge.

Other than the relatively minimal additional expense of expanding the service list, there is really no downside to expansive service to include all potential claimants.  That expense can be minimized by use of a short-form Notice, the practice followed by my firm in cases in which the list of potential creditors is large. Rather than serving all potential creditors with the full motion, which may be large and expensive to mail, we mail out a two page Notice, with proof of service listing the addressees.  This Notice alerts all recipients to the date, time and location of the hearing, the deadline for filing opposition, and the relief sought, including discharge of the receiver and exoneration of the bond. The Notice informs them that they can obtain a full copy of the FAR motion by contacting my office or the Receiver's office. If available, the Notice also provides a link to the Receiver's website, where the recipients can access a copy of the motion. That way, only the parties (and perhaps the known claimants) are served with the full FAR Motion, using a separate proof of service, of course.

Another solution that addresses Mr. Mosier's perhaps late night, potentially tequila-induced ruminations, is to get approval for a  Claims Procedure which should precede the FAR. If there are a large number of claimants and potential priority battles, a Claims Procedure is far better suited than a FAR for resolution of those disputes, for a number of reasons.  First, there can be no logical argument by a party (or the Court) that potential claimants shouldn't receive notice of a Claims Procedure. Second, the very fact that the Claims Procedure precedes the FAR process gives time for the Court to adjudicate the various claims and priorities among approved claimants. Third, assuming that some claimants make claims that are denied, then it goes without saying that those claimants have had their day in Court and do not have a claim for which the receivership estate is responsible. As for the approved claimants, the Court can adjudicate the priorities, such as between tax claims, statutory lien claims, and security interests in assets. This can be a complicated process, and the FAR is not a good setting for resolving all such claims, as well as getting approval of the Final Account.

One final comment:  although the CRC provides for FAR via Stipulation, in my view a Motion is still necessary, so that the notice discussed above can be given to claimants, and an Order can be issued in open court after a hearing. While I do like the parties to stipulate to approval of the FAR, the stipulation is not a substitute for a noticed Motion.

Thank you Bob for raising issues of interest. Any readers who have input on these points are invited to email me, for inclusion of your comments in the Heard in the Halls column in the next issue of this publication.

Sincerely,

Alan M. Mirman