Law Offices of Edythe L. Bronston

PPRJ Newsletter: California Receivers Forum Files Amicus Brief
By Edythe L. Bronston

The California Court of Appeal recently ruled on a matter of great interest to the California receivership body and to those lawyers who practice in that area. The case, Highland Federal Bank v. Andrew J. Davis, et al., Appellate Case No. B 09750 (Superior Court Case No. BC 107784) addresses the extent, if any, of a receiver’s post-discharge liability, after his or her final report and account has been approved upon notice to all creditors and known claimants of the receivership estate.

The case arose in the following context: a rents, issues and profits receiver was appointed in August, 1994. In October, 1994, the plaintiff bank purchased the property at foreclosure sale. Subsequently, the receiver’s final account and report was approved and in October, 1995, the receiver was discharged. In July, 1996, a company which owned and maintained solar energy equipment on the foreclosed property filed an action against the bank for conversion, reasonable value of goods sold and delivered, unjust enrichment, breach of contract, negligence and negligent interference with economic relationship. The gravamen of the complaint was that the bank had retained or destroyed solar energy equipment owned and maintained by the plaintiff on the foreclosed property. On August 2, 1996, almost 10 months after the receiver’s account was approved and the receiver discharged, the bank cross-complained against the receiver, both as a receiver and in his individual capacity, for indemnity and negligence, alleging that any damage to the equipment occurred during the time the receiver had possession and control of the property. In opposition, the receiver argued that the discharge order was res judicata as to all subsequent claims and that any judgment would only be collectible from the now closed receivership estate, which was in possession of the bank. The bank contended that the receiver’s discharge order did not serve as a bar to its claims, because the claims arose and were discovered after the receiver was discharged.

The general rule, of course, precludes the filing of an action against a discharged receiver, absent fraud. No published opinion has, however, explicitly applied this rule to a claim which arose post-discharge, of which the receiver had no knowledge. The Court of appeal found, as a mater of law, that a discharged receiver cannot be sued, except in cases where the discharge was not fraudulently obtained. The court then held that there was no showing of fraud where the receiver had no knowledge of a claim which was raised two months after the receiver’s final account and report was approved and the receiver discharged.

Unfortunately, the case was not certified for publication. The Los Angeles/Orange County Chapter of the California Receivers Forum has filed an amicus brief with the Court of Appeal in the hope of having the opinion certified for publication.