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By Edythe L. Bronston1
In a recent unreported Memorandum of Decision, a bankruptcy judge
in the Northern District of California denied payment of the fees
and expenses of a receiver who possessed certain property, later
deemed property of a Chapter 11 estate, for eight days. In In
re William A. Saks, a state court Receiver had been appointed
ex parte on November 1, 1999, with a confirmation hearing set for
November 15, 1999. This violated California Rule of Court 351(a),
which provides that the return date for a confirmation hearing may
not be later than ten days after the date of the appointing order.
On November 9, Saks filed a Chapter 11 petition, after which a
motion was made to allow the Receiver to remain in possession of
the estate’s assets under 11 U.S.C. § 543(d). After denial of this
motion, the Receiver then argued in the bankruptcy court that he
was entitled to fees and expenses of about $11,000.00 for the
eight days he was in possession, pursuant to 11 U.S.C. §
543(c)(2). Both the Debtor and the Creditors’ Committee objected,
on the grounds that the fees were unreasonable and that the order
appointing the Receiver was void.
Judge Alan
Jaroslovsky addressed the drastic nature of a receivership remedy
and, particularly, an ex parte appointment. He stated, quoting
Turner v. Superior Court, 72 Cal.App.3d 804 (1977), that “the
remedy is so drastic that thestringent procedural requirements
must be satisfied.” He further stated that a return date is
jurisdictional and if set for a date beyond that which is
authorized by the statute, the order is void. Because the void
order appointing the Receiver was an absolute nullity, the
Receiver was held to never have had any authority to take
possession of Saks’ property. It then followed that, since a
federal court is not required to extend full faith and credit to a
void order, the bankruptcy court was not obligated to honor or to
award fees based on the order. In denying the Receiver’s motion
for compensation, Judge Jaroslovsky stated: “If, as Taylor argues,
he is innocent of any part in procuring the void order, then the
obligation to compensate him may rest upon those who sought and
procured his appointment.”While this Memorandum of Decision (2000
WL 420663 [Bankr. N.D. Cal.]) is unpublished, it should be a
warning that under no circumstances should a confirmation hearing
be set in excess of ten days after the date of the ex parte order.
Note, however, that pursuant to Rule 351(d) of the California
Rules of Court, the adverse parties are entitled to one
continuance to enable them to oppose the confirmation.
1 Edythe L.
Bronston is an attorney and Founding Director of the Californa
Receivers Forum, practicing in Sherman Oaks, CA, in the area of
provisional remedies, business and real estate litigation.
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