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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 is unpublished, it should be a warning that under no circumstances should a confirmation hearing be set in excess of ten days after the date of the ex parte order.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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