Bankruptcy Court Denies Fees to Receiver
By Edythe L. Bronston
1
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 is unpublished,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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