Receiver Litigation—Through the Looking Glass, Smoke-Filled Rooms, or Wild West?

On April 23, 2020, the ABA Section of Litigation Professional Liability Committee presented a telephonic roundtable, “Receiver Litigation—Through the Looking Glass, Smoke-Filled Rooms, or Wild West?”

The Roundtable was organized by Accountants’ Liability Subcommittee cochairs Nicole Reid, the managing partner and owner of Reid Legal Solutions in Mt. Dora, FL, and Ed Marod, an experienced commercial litigator and member of the American College of Trial Lawyers, who is a shareholder at Gunster Yoakley & Stewart, P.A. in West Palm Beach, FL. Marod served as moderator. The panelists were: Linda Coberly, managing partner and chair of appellate and critical motions practice, Winston & Strawn LLP, Chicago, IL; Eduardo Espinosa, partner, fraud and recovery, Akerman LLP, Dallas, TX; Amir Isaiah, partner, Genovese Joblove & Battista, P.A., in Miami, FL; and Michael Napoli, partner, fraud and recovery, Akerman LLP, Dallas, TX. The panel discussed a number of matters of interest including:

• Except in the state of Washington, there are no comprehensive sets of rules that govern the conduct of receivers, but, instead, their conduct is generally controlled by the regulatory statutes pursuant to which they are appointed and more particularly by the order of appointment.

• Receiver litigation is conducted according to the rules of civil procedure and under the rules of evidence of the court in which the litigation is brought, just like any other litigation.

• When a federally appointed receiver plays his or her cards right under 28 U.S.C. § 754 and related statutes, the receiver can commence litigation anywhere in the United States that assets of the entity in receivership can be found.

• Receivers are appointed to protect the interests of creditors, and for the benefit of creditors; they actually stand in the shoes of the debtor entity and are charged with gathering its assets to distribute to the entity’s creditors and, generally, cannot bring claims in the name of creditors. But you need to read the order appointing the receiver carefully, as it could contain a number of provisions that would expand the receiver’s powers—for example, giving the receiver standing to pursue causes of action on behalf of creditors of the entity in receivership or extending the applicable statute of limitations.

• Receivers can increase the recoveries for the creditors by cooperating with the creditors, possibly through independent class-action counsel, or possibly by taking absolute assignments of claims of creditors and prosecuting them for the benefit of all. This can raise due-process and fairness concerns for defense counsel in those cases where the receiver is prosecuting numerous individual claims of creditors in one action but is reluctant to prove up each claim individually. It can be more difficult to bind a receiver to an arbitration provision when the claim asserted is one acquired from a nonsignatory creditor.

• Receivers can be forced into arbitration of claims against defendants whose contracts with the entity in receivership require it.

• The defense of in pari delicto, or related defenses relating to causation or damages might be available against a receiver in an action in tort against a professional, depending on the applicable law and the facts of the case.

• It is critical to completely and accurately analyze the choice-of-law issues so that you can make your plans based on the right legal principles.

• If handled right, a receiver can get a settlement approved where the facts justifying the confidentiality are sufficient to overcome the public’s right of access to court information (but this will depend on the skill of the receiver and counsel for the receiver as well as the attitudes of the local courts).

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