Can a Receiver Keep Fees If the Underlying Judgement is Reversed on Appeal?

Question: I have been appointed receiver to collect a judgment. The judgment is on appeal. I am concerned that if the judgment is reversed my fees might be in jeopardy. Am I entitled to keep the fees I have been paid even if the underlying judgment is reversed?

Answer: You should be o.k., so long as the court which appointed you had jurisdiction to do so. In a recent bankruptcy case, In Re Patrick Cox, 2017 W.L. 1058263 (Bankr. S. D. Texas 2017), the State of Texas obtained a $46 million judgment against the debtor in state court prior to the debtor filing bankruptcy. The state court appointed a receiver for all the debtor’s non-exempt assets. The receiver collected $830,756 from the debtor’s assets, disbursed $186,736 for his and his law firm’s fees and reimbursed his law firm for $32,502 in expenses. Once the debtor filed bankruptcy, the receiver turned over the remaining funds. Subsequently, the Texas Court of Appeal reversed the trial court. The debtor then sued the receiver contending that the state court judgment against the debtor was void ab initio and that, by reason of its reversal, the funds paid to the receiver and his law firm should be returned to the debtor on equitable grounds or because they were avoidable as fraudulent transfers. Bankruptcy Court ruled in favor of the receiver. The court held the focus is not in whether the trial judge’s specific act was proper or whether the judgment was proper or improper, but whether the trial court had jurisdiction to appoint the receiver. Because the bankruptcy court found the trial court had jurisdiction to enter the judgment and order the appointment of a receiver, the receiver shared in the appointing court’s judicial immunity and the receiver could not be sued, as long as the receiver’s actions were taken in good faith and within the scope of the authority granted to the receiver, citing Davis v. Bayless, 70 F.3d 367 (5th Cir. 1995).

Therefore, your fees should be safe so long as the court appointing you had jurisdiction to do so. Further, you would have the fallback position that the judgment creditor, who sought your appointment, should be responsible for your fees if, for some reason, you had to return them to the former judgment debtor, since the judgment creditor is the party who sought your appointment. See Ephraim v. Pacific Bank, 129 Cal. 589 (1900); Baldwin v. Baldwin, 82 Cal.App. 2d 851 (1947).

 

This blog is intended to discuss current trends in receivership law and practice.  It should not be construed as representing advice on specific, individual legal matters, but rather as an overview of the subject discussed. Your questions and comments are always welcome. Please do not hesitate to contact me at pdavidson@ecjlaw.com or (310) 281-6363 to further discuss this blog or to answer any questions.