Can A Receiver Take Over Out-of-State Assets With A California Appointment Order?

QUESTION: I am a receiver for a partnership. While most of the partnership assets are in California, I have discovered the partnership owns a storage facility in Nevada and mining equipment in Arizona. Can I take over and operate the storage facility and/or seize and sell the mining equipment based on my California order of appointment or do I need to do something special?

ANSWER: The “something special” you need to do will depend on whether you were appointed by the superior court or the district court. If you are state court receiver, your authority over the business activity and property of the entity in receivership is confined to the territorial boundaries of the court appointing you. Therefore, if you were appointed in California by a state court, your powers are limited to the confines of California. You have no right to take possession of assets outside of California or to operate a business outside of California. This was decided long ago by the United States Supreme Court in Booth v. Clark, 17 How. 322, 328 (1854). That decision has been adopted by the courts in California and elsewhere. See Ward v. Pacific Mutual Life Ins. Co., 135 Cal. 235, 237 (1901); Melvin v. Carl, 118 Cal.App. 249, 251 (1931) (“a receiver appointed by a court of a sister state has no authority over California property.”); First Nat. Bank v. Robinson, 107 F.2d 50, 54 (10th Cir. 1939) (“The power of an equity receiver is coextensive only with that of the territorial jurisdiction of the court appointing him. Such a receiver has no extra territorial jurisdiction or power of official action.”).

In order to obtain possession of the assets outside of California or to operate a business outside of California, you would have to go to the particular state where the business or assets are located and commence an action to have an ancillary receiver appointed. An ancillary receivership is established by filing an action in the state court where the assets or business is located, asking the court, in an exercise of what is known as comity, to appoint an ancillary receiver in aid of the primary receivership. Often, the court will appoint the primary receiver as the ancillary receiver, in order to avoid duplication of costs. However, that is not a requirement, and the court is free to appoint whomever it deems appropriate. The normal requirement that an independent action exist, to which the appointment of a receiver is simply a remedy, is generally dispensed with where the application for the appointment of the ancillary receiver shows that it is being brought to aid the primary receivership in a foreign jurisdiction. Bodge v. Skinner Packing Co., 115 Neb. 41. (1926). The ancillary receiver still acts as a receiver and reports to the court that appointed him or her. This is true even if it is the same receiver as the primary receiver. As a result, courts often require the ancillary receiver to deal with any claims to the assets in the ancillary receivership by creditors in that jurisdiction prior to transmitting any funds or assets to the primary receivership.

If you are appointed by the district court, the rules are different. 28 U.S.C. § 754 provides that in order for a receiver to be vested with jurisdiction and control over receivership property outside the district in which the receiver was appointed, the receiver is required to: “[W]ithin ten days of the entry of his order of appointment, file copies of the complaint and such order of appointment in the district court for each district in which the property is located. The failure to file such copies in any district shall divest the receiver of jurisdiction and control over all such property in that district.”

Therefore, if you are a federal receiver and you want to obtain control over property in another judicial district (not just another state) or to sue in another judicial district, you need to have filed your order of appointment and the complaint in that district. While the statute is quite clear that failure to file the order and complaint deprives the receiver of jurisdiction and control over the property outside the district of his appointment, courts have created an escape procedure if that is not done. A receiver may not know what assets exist outside the district of his or her appointment or what claims he or she may have to assets outside the district within ten (10) days of appointment. Therefore, a number of courts have indicated that if the receiver obtains an order “reappointing” the receiver he or she can file the reappointment order and the complaint in the foreign judicial district and satisfy the requirements of § 754. SEC v. Vision Commc’ns, Inc., 74 F.3d 287, 291-92 (D.C. Cir. 1996) (“On remand the court, the court may reappoint the receiver and start the ten-day clock of §754 ticking once again.”). While many courts have approved this escape hatch when the ten day period is not met, one has to wonder how the Supreme Court would deal with it given its tendency to strictly construe statutes. Section 754 appears clear on its face that the order of appointment and complaint have to be filed within ten days of the order of appointment and that failure to do so divests the receiver of jurisdiction and control over the property outside the district of his or her appointment. Congress easily could have said that the order and complaint had to be filed with ten days of the entry of the order of appointment or “reappointment” or some other date, but did not.