This is an important question when the receivership estate does not have sufficient funds
In most state court receivership cases, the order appointing the receiver includes the procedures for the compensation of the receiver and reimbursement of his or her expenses, including the fees and expenses of professionals retained by the receiver. A recent case decided by the Eighth District Court of Appeals of Ohio on November 8, 2012, Dyczkiewycz v. Tremont Ridge Phase 1 Ltd., 2012-Ohio 5173, highlights certain uncertainties in Ohio’s receivership laws in situations where (i) the order appointing receiver does not specifically obligate one or more creditor parties to pay the allowed fees and expenses of a receiver, and (ii) the receivership estate does not have sufficient funds to pay the receiver’s fees and expenses in full after payment of secured obligations.
Ohio Revised Code section 2333.27 provides (in pertinent part) that the judge, in proceedings to execute upon a judgment, shall allow receivers such compensation as is allowed for like services in other cases, to be taxed as costs in the case. The statute also provides that the court shall enforce their collection from such parties as ought to pay them.
In addition, the Ohio Supreme Court has held that:
“[P]arties who invoke the jurisdiction and process of a court for the appointment of a receiver by sufficient allegations and showing of necessity therefor, resulting in such appointment, do not become personally liable for the compensation of the receiver and the expenses of administration of an insolvent concern, in the absence of special circumstances calling for the application of equitable principles creating such liability. Such debts and expenses are ordinarily payable out of the corpus of the property.” Richey v. Brett, 112 Ohio St. 582, 148 N.E. 92 (1925), syllabus. Thus, parties who invoke the appointment of a receiver may become personally liable for the compensation of the receiver and the expenses of administration only when “special circumstances” are present. See, Sec. Dollar Bank v. Yamaha Corp. of Am., 11th Dist. No. 98-T-0059, 1999 Ohio App. LEXIS 2945 (June 25, 1999).
"Special circumstances" can arise when there has been an irregular or unauthorized appointment of a receiver, or where a party has received benefits from the receivership in excess of the amount required to be paid, or where an action has unjustly been maintained without right. See, Richey v. Brett, 112 Ohio St at 587.
In the Dyczkiewycz case, the trial court ordered the plaintiff who moved for the appointment of the receiver to pay the allowed fees and expenses of the receiver. The trial court, however, did not articulate or find that any “special circumstances” existed to warrant such payment. Consequently, the Eighth District Court of Appeals ruled that the trial court abused its discretion in ordering the plaintiff to pay the full amount of the receiver’s fees and expenses and remanded the case back to the trial court to order the receiver’s fees to be split equally between the parties.
The ruling in the Dyczkiewycz case highlights the need for the order appointing receiver to specifically include provisions determining who is responsible for paying the allowed fees and expenses of the receiver. If the order appointing receiver fails to obligate one or more parties to pay such allowed fees and expenses, a receiver risks not getting paid.
McDonald Hopkins' team of business restructuring, commercial litigation, and real estate attorneys have significant receivership experience and are regularly called upon to provide counsel to receivers, lenders and other parties in receivership proceedings.
For more information, please contact:
Scott N. Opincar 216.348.5753
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