This article is part of Vail Law's open-source Litigation and Legal Risk Management Checklist. Connect with me on LinkedIn.
A receiver is a court-appointed, neutral, third-party manager who takes over the day-to-day operations of a business often during the pendency of litigation, or while the business is being dissolved or wound-up. In some states, the standard for appointment of a receiver is defined by statute, while in others such as Wyoming it is “within the discretion of the trial court, controlled by the circumstances of each case.” Weisbrod v. Ely, 767 P.2d 171, 174 (Wyo. 1989) (citing Barrett v. Green River & Rock Springs Live Stock Co., 205 P. 742 (Wyo. 1922)).
Generally, a receiver must be compensated, though by which party can be an issue of dispute. In fact, the Eighty-Second Rule of Equity states: “the compensation to be allowed to every master in chancery for his services in any particular case shall be fixed by the circuit court in its discretion, having regard to all the circumstances thereof.” See Finance Committee of Pennsylvania v. Warren, 82 F. 525 (C.C.A.III. 1897).
In many cases, it may be necessary or advisable to seek a Temporary Restraining Order (TRO) or Preliminary Injunction to appoint the receiver immediately in order to have any beneficial effect. Interestingly, even when a motion requesting appointment of a receiver is denied, the court may order the target of receivership to provide similarly open and regular accounting of the business to the moving party. See, e.g., International Distress Signals, Inc. v. McDowell, 519 P.2d 224, 227 (Wyo. 1974).
Where to petition a court to appoint a receiver can also present an interesting challenge in today’s business environment where many companies are incorporated in Delaware, Florida, Nevada, or Wyoming (states with particularly flexible and business-friendly corporate and LLC statutes). When it comes to out-of-state corporations (or other business entities), the general rule is that “courts will not take jurisdiction of the internal affairs of a foreign corporation, courts of a state other than the state of incorporation are, as a rule, held to have no jurisdiction to appoint a receiver.” Kirby Royalties, Inc. v. Texaco Inc., 458 P.2d 101, 103 (Wyo. 1969). However, state courts do generally have jurisdiction to appoint a receiver with powers limited to the assets and properties of a foreign corporation within that state. Id. at 104 (citing Clark v. Williard, 292 U.S. 112 (U.S. 1934) (Cardozo, J.).
This article is part of Vail Law's open-source Litigation and Legal Risk Management Checklist.
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