Q: I am a receiver, but not an attorney. During the receivership
some legal matters came up and I used my in-house counsel and an outside
attorney to handle the matters. My order of appointment states I can hire
attorneys, but does not specifically state who. I have filed my final
account and report and the defendant is objecting, stating my attorneys
are not entitled to be paid because there was no court order specifically
authorizing their employment. Was that necessary?
A: Yes. California Rules of Court, Rule 3.1180 states: “A receiver
must not employ an attorney without the approval of the court.” While your
order of appointment authorizes you to employ attorneys, it does not name
the attorneys you were authorized to employ, and that is important. Rule
3.1180 goes on to specifically provide that a receiver’s application to
employ an attorney must be in writing and must state: “(1) the necessity
for employment; (2) the name of the attorney whom the receiver proposes to
employ; and (3) that the attorney is not the attorney for, associated
with, nor employed by an attorney for any party.” Therefore, you can’t get
away with using supposed in-house counsel, if you want to get them paid,
nor can plaintiff’s or defendant’s counsel perform legal work for you.
This rule, regarding specific court approval of a receiver hiring counsel,
is not limited to state court receiverships. It applies equally to federal
court receiverships.In a recent case, SEC v. Platinum Management
(NY) LLC et. al., 2018 WL 4623012 (E.D.N.Y. 2018), a receiver hired a
law firm to represent him. The receiver ended up resigning because of a
dispute with the SEC and a replacement receiver was appointed. The prior
receiver’s attorneys filed a fee application, which was opposed by the SEC
and the new receiver. The court denied all the fees and expenses requested
($459,729.25 in fees and $29,197.86 in expenses). The court held that
while the order of appointment authorized the receiver to retain
professionals to assist him, like the California Rule of Court, the
receiver was required to obtain a specific order authorizing the specific
engagement, which was not done. The district court analogized to
bankruptcy practice, which forbids allowing compensation to professionals
who are not employed by the court. It also explained the underlying
reasons for the rule, which are the same as Rule 3.1180. It discourages
volunteer services and enables the court to review potentially
disqualifying conflicts or relationships. The court also noted that the
attorneys were experienced insolvency attorneys and, therefore, should
have known an employment order was necessary. Therefore, unless your order
of appointment specifically names the attorneys you are authorized to
employ, you need to obtain an order approving your employment of the
attorneys, whether they are in-house or outside, if you want them to be
paid.
*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.
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