Winter 2006 • Issue 20, page 5

Seminar on Receiver's, Provisional Directors & Special Masters draws 50 in Downtown LA

By Mirman, Alan*

How to choose the optimal equitable remedy for a given corporate or partnership dispute – appointment of a receiver, of a provisional director or of a special master – was the subject of a special luncheon seminar produced by the CBF’s Los Angeles/Orange County Chapter in downtown Los Angeles on November 14, 2005.

More than 50 attorneys and receivers attended the program, which examined the comparative benefits and detriments of each type of quasi-judicial officer in a given setting. David J. Pasternak, Esq. of Pasternak, Pasternak & Patton moderated the panel, squeezing a great deal of material into the hour-long program.

The distinguished panel included: The Honorable Anthony J. Mohr, Los Angeles Superior Court Judge; Cynthia Cohen, Esq. of Paul, Hastings, Janofsky & Walker; and Michael Wachtell, Esq. of Buchalter Nemer, which also hosted the program in its new Los Angeles offices.
Points stressed and program highlights included:

  • Mr. Pasternak stressed the importance of a case-by-case evaluation of which of these remedies (or other provisional remedy) will most likely lead to the desired litigation outcome, given the particular facts and economics of each case.

  • The panel noted that the receivership remedy enjoys a major benefit in the degree of judicial immunity conferred upon the appointed person by statute. Provisional directors do not have the benefit of such statutory immunity. Another unique aspect of the receivership remedy noted is the right of the receiver to seize assets (if such right is included in the appointing order). Should a party block or interfere with a receiver who is carrying out her or his duties set out in the appointing order, the receiver’s remedy is to seek special instructions from the appointing Judge. The receiver can recommend a contempt citation be brought against the offending person or entity.

  • A less intrusive equitable remedy appropriate in some circumstances is the appointment of a special master. Instead of directing the special master to take control of the property or business in dispute or affected by the litigation, the order appointing a special master may charge him or her to investigate certain issues, and then report the findings to the court.

  • Judge Mohr pointed out that receivership is considered a drastic remedy, and that the probable costs of a receivership must be carefully evaluated and considered before an appointment is made. He said that he often explores whether a less drastic remedy would be appropriate or effective when appointment of a receiver is sought by a litigant. Michael Wachtell commented that one potential alternative, an injunction proceeding, is too time-consuming, complex, and expensive.

  • The panel said that the statutory scheme governing resolution of corporate disputes or dissolutions does not expressly apply where the entity involved is a limited liability corporation. The panelists noted that there are no cases on point, and that a counsel’s best approach would be to argue by analogy that the procedures appropriate for resolving corporate disputes, dissolution or liquidation should also apply to LLC’s.

  • Michael Wachtell said that if maintaining control over real property, a business or other personal property during litigation is the court’s goal, then receivership may be the best approach – regardless of the desires of the warring factions. A receiver controls the checkbook, and puts an immediate halt to any wasting of the corporate assets.

  • David Pasternak made the point that an equity receiver or a provisional director must always comply with laws related to the operation of the affected company (timely payment of taxes, complying with all labor laws, etc.), a burden not normally encountered in performing the duties of a special master.

  • It was asked whether an order appointing a receiver over a corporation and setting the receiver’s duties can expressly deny that corporate defendant the right to file a bankruptcy petition. A roundabout solution suggested was that the proposed order be written to provide that the receiver will possess all the powers of the corporate board. This would allow the receiver to block such an attempted filing since, under applicable Ninth Circuit law, a bankruptcy petition cannot be filed without the corporate board’s (in this case, the receiver’s) authorization.

This was just one of many issues raised that merited significant discussion, but which could not be explored because of time constraints. The program, described as excellent by the attendees, may be the first of a series of lunchtime programs in downtown Los Angeles tailored to meet the information needs of interested litigators, receivers, and other members of the receivership professional community.. n

*ALAN M. MIRMAN, a partner in the Calabasas law firm of Horgan, Rosen, Beckham & Coren, LLP, and specializes in creditor’s rights, provisional remedies, and related fields