Q: A bank obtained a judgment against me, as a result of a
failed business venture. While I have a house, there is no equity above my
homestead exemption. I’ve little else, although the bank’s attorney has
repeatedly accused me of hiding assets and having interests in businesses
and assets owned by my brother and uncle. The bank’s attorney was able to
convince a judge to appoint a receiver “in aid of execution” to help the
bank collect its judgment. I just found out the receiver has diverted all
the mail that is delivered to my house, including not only mail addressed
to me, but also mail addressed to my sick wife and my grown daughter, who
still lives with me. I have complained to the receiver, who admits he
delivered a change of address form to the post office to divert my mail to
him. He said he is only getting my wife’s and daughter’s mail because the
post office diverts all mail addressed to my house to him and does not
segregate it by addressee. Can the receiver divert my mail and the mail of
my non-judgment debtor wife and daughter?
A: No. A receiver only has the right to divert mail if the
receiver is the receiver of an entity or person (very rare) in which case,
because the receiver controls and has the right to possess all of the
entity’s assets, he or she can control the mail. The entity situation is
much like who controls the attorney client privilege. Because the receiver
replaces the board of directors or controlling management, the privilege
is held by the receiver. SEC v. Ryan, 747 F. Supp. 2d 355 (N.D.N.Y.
2010) (Receiver appointed for company stepped into company’s shoes and
became company’s attorney’s “client” entitled to assert or waive
privilege); see also CFTC v. Weintraub, 471 U.S. 343 (1985);
U.S. v. Plache 913 F. 2d 1375, 1381 ( 9th Cir. 1990). The same is true
regarding who controls the entity’s assets, including its mail. A receiver
in aid of execution is not a receiver over the judgment debtor and,
therefore, can’t control its mail. Indeed, in California, a receiver in
aid of execution has no greater powers than the judgment debtor in
executing on or pursuing the judgment debtor’s assets. Morand v.
Superior Court, 38 Cal.App. 3d 347, 350 (1974) (“Upon his appointment
the receiver has no greater rights against others than the judgment
creditor would have.”). As the Court explains: a receiver in aid of
execution “is a creation of statute and not a remedy in equity. The
receiver is not, except in a technical sense, an officer or
instrumentality of the Court, but represents and is an agent of the …
judgment creditor at whose instance he was appointed.” Id., In re Oak
Park Calabasas Condominium Ass’n., 302 B.R. 665, 670 (Bankr. C.D. Cal.
2003) (“the receiver is an agent of the judgment creditor rather than an
officer of the court”). Under California’s enforcement of judgment law,
C.C.P. § 680.010 et seq., a judgment creditor is not given the
power to divert a judgment debtor’s mail. Therefore, a receiver in aid of
execution has no such power.Unfortunately, some plaintiff’s attorneys
(intentionally or ignorantly) sometimes take provisions from SEC
receivership orders or entity receivership orders, which correctly allow a
receiver to divert mail, and put those provisions in receiver in aid of
execution orders and, some judges, either not knowing better or not paying
attention, sign those orders with the improper provisions in them. If a
receiver diverts a judgment creditor’s mail, whether on his own
initiative, or even if his order so permits, the receiver is exposing
himself to criminal and civil liability. Kurns v. Railroad Friction
Products Corp., 132 S. Ct. 1261, 1265 (2012) (“state law is naturally
preempted to the extent of any conflict with a federal statute…”);
Teton Millwork Sales v. Schlossberg, 311 Fed. Appx. 145,150 (10th Cir.
2009) (“there is no immunity if the Court of the receiver acts ‘in the
clear absence of all jurisdiction’” (citing cases)).
It is a federal crime to divert or seize someone’s mail. 18 U.S. Code
§§ 1700 et seq. Section 1702 states, in part,: “Whoever takes any letter …
which has been in any post office … before it has been delivered to the
person to whom it was directed, with design … to pry into the business or
secrets of another or opens … same, shall be fined … or imprisoned not
more than five years, or both.” It is also conversion. Lee v. Hanley, 61,
Cal. App. 4th 1225, 1240 (2015) (“Conversion is the wrongful exercise of
dominion over property of another.”). If this occurs, the judgment debtor
can ask the appointing court for permission to sue the receiver. If the
proposed complaint asks for a jury trial, the court must give the judgment
debtor permission to file suit. Jun v. Myers, 88 Cal. App. 4th 117,
125 (2001).
The fact that the receiver’s order may purport to give the receiver the
authority to divert a judgment debtor’s mail does not protect the
receiver, because a Superior Court does not have the power to act in
violation of federal law and, as indicated, there is no provision in
California law allowing a judgment creditor or receiver to take a judgment
debtor’s mail. Any such provision is invalid and does not protect the
receiver. The case against the receiver is even stronger, in the facts you
posit, since even if the receiver had the right to divert your mail, he
clearly had no right to possession of your wife’s or daughter’s mail. Once
the receiver was put on notice that was happening, and he continued, he
became liable for diverting their mail and they too can sue for
conversion, after getting leave to do so. Indeed, leave to sue might not
be necessary. In Teton Millwork Sales, supra. A receiver appointed in a
divorce case, in West Virginia, who was authorized to collect assets the
husband held an ownership interest in, went to Wyoming and seized the mail
and assets of a corporation of which the husband was a 25% shareholder.
The corporation sued the receiver in Wyoming state court. The receiver
removed the lawsuit to federal court and filed a motion to dismiss,
arguing that under the Barton doctrine, he could not be sued without prior
permission of the court which appointed him. The district court granted
the receiver motion, but the 10th Circuit reversed. It held that because
the receiver’s acts were alleged to be “ultra vires,” prior permission to
sue was not required. It cited language from the Barton decision which
states: “if, by mistake or wrongfully, the receiver takes possession of
property belonging to another; such person may bring suit therefore
against him personally as a matter of right; for in such case the receiver
would be acting “ultra vires.” Id. at 148 citing Barton v. Barbor,
104 U.S. 126, 134 (1881). The court held, taking the corporation’s mail
and assets, when the husband only had a 25% interest, and the corporate
veil had not been pierced, was improper and ultra vires. It also held the
receiver had no authority to act in Wyoming, because he never commenced
ancillary proceedings there. As a result, the corporation, which was not a
party to the divorce proceeding, could sue the receiver without obtaining
prior court approval. Accord, In re DMVV Marine, LLC, 509 B.R. 497,
506 (Bankr. E. D. Pa. 2014) (“The classic application of the ‘ultra vires’
exception is the case of an action against a receiver who seizes or
otherwise attempts to administer property that is not receivership
property, but that actually belongs to a third party.”).
The issue of mail rerouting has come up in a few bankruptcy cases.
However, the rights and powers of a bankruptcy trustee, especially in
Chapter 7, are different for those of a receiver, and vastly different
from a receiver in aid of execution. Unlike a receiver in aid of
execution, a bankruptcy trustee is empowered to “collect and reduce to
money the property of the estate” 11 U.S.C. § 704(a)(1). Property of the
estate is defined extremely broadly and includes, with certain exceptions,
“all interests of the debtor and the debtor’s spouse in community property
as of the commencement of the case …” 11 U.S.C. §541(a)(2). A debtor is
required to cooperate with the trustee and to surrender to the trustee all
property of the estate, including documents, records and papers relating
to property of the estate 11 U.S.C. § 521. Even with these statutory
rights and powers, a trustee is not permitted to simply redirect debtor’s
mail. In In re Benny, 29 B.R. 754 (N.D. Cal. 1984), a trustee
redirected the debtor’s mail by submitting a change of address to the post
office. The district court held this was improper. “However, a trustee’s
right to receive the mail does not necessarily include the right to
redirect the bankrupt’s mail–both business and personal, or either–without
notice to the bankrupt and opportunity to object. Section 542(e), supra,
appears to recognize that books, records and papers–including, assumedly,
mail–may contain private or privileged matter whose disclosure should not
be unnecessarily mandated and therefore provides for judicial oversight of
the production. … We should not lightly infer that a trustee may
legitimately circumvent the salutary requirements of section 542(e) by an
expedient which is nowhere explicitly authorized by law, particularly when
such an inference runs counter to fundamental principles long cherished by
the citizenry.” Id. at 761.
The court not only cited the mail tampering provisions, supra,
but also held the redirection practice threatens “significant privacy
interests as recognized under both state and federal law,” Id. at
764, including, the First and Fourth Amendments and the privacy provisions
of the California constitution. Cal. Court Art. I, §1. It concluded that
if a trustee wanted to redirect a debtor’s mail he or she was required to
provide advance notice to the debtor and an opportunity to object. It
further held that if the debtor objected, a neutral third party or worker
should be appointed to review the mail, segregate privileged and personal
mail, and determine what mail the trustee should be entitled to.
Accord, In re Crabtree; 37 B.R. 426 (Bankr. E.D. Tenn. 1984), where
the trustee gave the debtor notice and an opportunity to object to the
trustee redirecting the mail by filing a complaint for turnover pursuant
to 11 U.S.C. § 521 and § 542(e). The court held that in order to safeguard
the debtor’s constitutional rights, a disinterested third party had to be
appointed to review and distribute the mail.
*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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