Receivers are usually appointed by the court after a party to a pending lawsuit, or a lawsuit about to be filed, requests that the receiver be appointed. Typically, the receiver is appointed to take control over property that is involved in the underlying litigation and the party seeking the appointment of the receiver must have an interest in the underlying property (e.g., lien holder, mortgage holder, secured creditor, judgment holder). A receiver’s appointment is ancillary to that underlying litigation.
The receiver has complete jurisdiction over property located within the jurisdiction in which he is appointed. If the estate has real or personal property in other jurisdictions the receiver can obtain “complete jurisdiction” over that property by filing a copy of the complaint and the order of appointment within 10 days of his appointment in the district court in which the property is located. If the receiver does not make the necessary filings in a timely fashion most courts allow the receiver to cure this defect by filing within 10 days after entry of an order confirming the original appointment.
The receivership court sits as a court in equity and is reviewed based on the abuse of discretion standard. The district court has broad powers and wide discretion to determine the relief in an equity receivership. Because of this, in addition ot the above referenced statutory powers of receivers, there is a substantial amount of federal common law surrounding receiverships and the equitable powers, which a receiver holds.
The case law surrounding receiverships clearly and repeatedly demonstrates that the receiver’s powers in operating the estate are extraordinary and virtually only limited by the district court judge’s concept of equity. Some key receivership powers include:
- In appropriate circumstances a receiver may sell receivership property free of liens of third parties.
- The court appointing a receiver may enjoin actions against the receivership estate to assist in the efficient administration of the receivership estate (similar to an automatic stay).
- The receiver may sue defendants from all over the country (and in foreign countries) in the court where the receivership action is pending.
- A receiver has to sue on behalf of entities which participated in the fraud once the entity is no longer under the spell of the “evil zombie” (i.e. the individual who ran the fraud)
An action wherein a receiver has been appointed shall not be dismissed except by order of the court. The practice in the administration of estates by receivers or by other similar officers appointed by the court shall be in accordance with the practice heretofore followed in the courts of the United States or as provided in rules promulgated by the district courts. In all other respects the action in which the appointment of a receiver is sought or which is brought by or against a receiver is governed by these rules.
(a) Trustees, receivers or managers of any property, including debtors in possession, may be sued without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property. Such actions shall be subject to the general equity power of such court so far as the same may be necessary to the ends of justice, but this shall not deprive a litigant of his right to trial by jury.
(b) Except as provided in section 1166 of title 11, a trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.
A receiver appointed in any civil action or proceeding involving property, real, personal or mixed, situated in different districts shall upon giving bond as required by the court, be vested with complete jurisdiction and control of all such property with the right to take possession thereof.
Such receiver shall, within ten days after 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 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.