QUESTION:  I have seen a number of receivers file motions purporting to be interim versions of final accounts and reports, seeking orders approving fees and costs part-way through a receivership. Given that California Rule of Court 3.1183(a) states that all interim fees are reviewable and may be adjusted at the hearing on the Final Account and Report, is there really any point to this practice? Is an order approving interim fees worth the paper it’s written on?  

ANSWER:  Up until earlier this year I would have doubted it. Rule of Court 3.1183(a) states interim fees are just that: interim. The rule states interim fees are subject to final review and approval by the court and the court can award a greater or lesser sum at the time the receiver’s final account and report is heard. However, the court of appeal in Builders Bank v. Carbon Beach Partners, LLC, 2016 WL 659790 (Cal. Ct. of Appeal, Feb. 18, 2016), focused on subsection (b) of Rule 3.1183, which provides: “Unless good cause is shown, objections to a receiver’s interim report and accounting must be made within 10 days of notice of the report and accounting, must be specific, and must be delivered to the receiver and all parties entitled to service of the interim report and accounting.” The court stated: “Receiverships are governed by statute and rules of court.” Id. at *6. It then pointed out that while the Rules of Court allow parties to object to a receiver’s interim report and account, no similar provision is contained in Rule 3.1184 dealing with a receiver’s final account and report. “The rules make no provision for objections to the final account and report, and they do not provide for discovery or evidentiary hearings.” Id.

In the case, the plaintiff, who sought the receiver’s appointment and who the receiver wanted to be responsible for the receiver’s and his attorney’s fees, objected to the receiver’s final account and report and wanted to take discovery and have an evidentiary hearing; all of which the receivership court denied. The court of appeal affirmed, holding that because the plaintiff had not objected to the receiver’s interim accounts and reports, it could not object to the receiver’s final account and report because, as indicated, Rule 3.1184 does not provide for such objections or discovery or evidentiary hearings.

Therefore, there may be some value in filing interim accounts and reports. If the parties do not object, the receiver, when he files his final account and report, will be able to argue that it is too late for them to do so and that they waived any objections by not timely objecting to his or her interim reports. This is a two-edged sword however. If parties to receiverships read Ask the Receiver, they will now know they need to carefully review and, if appropriate, object to the receiver’s interim reports or they may be found to have waived any later objection. This may, therefore, result in more objections and increased costs.

One additional important holding from the Builders Beach case, which highlights the differences between receivership law and bankruptcy law, was the court’s treatment of the fees incurred by the receiver and his counsel in defending their fees. The Supreme Court recently held that fees incurred in defending a trustee’s or professional’s fee application in a bankruptcy case are not compensable from the estate. Baker Botts L.L.P. v. ASARCO LLC, 135 S. Ct. 2158 (2015).

Not so in a receivership. Citing People v. Riverside University, 35 Cal. App. 3d 572, 586 (1973), the court of appeal stated: “The cost of defending against an unfounded challenge to a receiver’s account is regarded as a necessary expense incurred in the course of his official duties for which he is entitled to reimbursement out of the estate.” Builders Bank at *3. This includes “payment of the receiver’s attorney’s fees for defending an action against the receiver, or for defending an appeal...” Id.

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. Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP.  His practice includes all aspects of receivership and bankruptcy law.  He also acts as a receiver, conservator and monitor in state and federal court.