Seeking Appointment of a Receiver Under Arizona Law
When is it appropriate to seek the appointment of a receiver by an Arizona court?
Arizona law provides a mechanism by which a party can petition the superior court for the appointment of a receiver, wherein a party takes custody of property (including a corporation) in order to, inter alia , dispose of the property in order to benefit multiple secured parties.
Receiverships Pursuant to Arizona Law
A.R.S. § 12-1241 empowers the superior court to appoint receivers. It provides: “The Superior Court or a judge thereof may appoint a receiver to protect a preserve property or the rights or parties therein, even if the action includes no other claim for relief.”
Ariz. R. Civ. P. 66 provides the procedure by which a party can petition the superior court for the appointment of a receiver:
(a) Application; Service; Notice; Restraining Order.
(1) Application, Response, and Hearing. A party seeking the appointment of a receiver must file an application for the receiver's appointment, accompanied by an affidavit attesting to the facts supporting the application. Within 10 days after being served, the adverse party may file a response accompanied by one or more affidavits attesting to facts relevant to the application. Except as provided in Rule 66(a)(3), the court must hold a hearing on the application. At the hearing, it may consider testimony and other evidence presented by the parties.
(2) Service. Service must be made on the adverse party in the same manner that a summons and pleading are served under Rule 4, 4.1 or 4.2, as applicable. The court may not consider an application that has not been served on the adverse party unless:
(A) at least 10 days after filing the application, the applicant files an affidavit showing that all reasonable efforts have been made to serve the adverse party, and that personal service on the party cannot be made within Arizona or by direct service outside of Arizona; or
(B) the applicant shows that substantial cause exists for appointing a receiver before the adverse party is served.
(3) Appointment Without Notice. If a party applies for appointment of a receiver without notice, the court may either grant the application or, if the adverse party is available to be served, order the applicant to serve the adverse party and set a hearing on the application to be held no later than 10 days after the order's entry.
(4) Bond. If the court grants an application for appointment of a receiver without notice, it must require--and the applicant must file--a bond in an amount the court fixes, with such surety as the court approves. The bond must be conditioned to indemnify the adverse party for costs and damages occasioned by the seizure, taking, and detention of the adverse party's property.
(5) Rule 65's Applicability. The court may not consider an application for a receivership under this rule if 65 applies.
(b) Appointment; Oath; Bond; Certificate.
(1) Appointment. Except as stated in this rule, the court may not appoint as receiver a party, an officer or employee of a party, an attorney for a party, or a person interested in the action. The court, however, may appoint as receiver an employee of a party, an officer of a corporate party, or a person otherwise interested in the action, if:
(A) the court finds that the property has been abandoned or that the receiver's duties will consist chiefly of physically preserving the property, collecting rents, or maturing, harvesting, and disposing of crops growing on it;
(B) notice is provided in a manner the court finds adequate; and
(C) no
party objects.
(2) Bond, Oath, and Certificate of Appointment . Before performing the prescribed duties, a receiver must file a bond for the court to approve. The bond must be in the amount set forth in the receiver's order of appointment, and must be conditioned on the receiver faithfully discharging his or her duties in the action and obeying the court's orders. The receiver must make an oath to the same effect, which must be endorsed on the bond. Upon the court's approval of the bond and the receiver making the required oath, the clerk must deliver a certificate of appointment to the receiver. The certificate must contain a description of the property involved in the action.
(c) Powers; Removal and Termination; Governing Law.
(1) Powers. A receiver may commence and defend actions, subject to the court's control and supervision. A receiver may take and keep possession of the property, receive rents, collect debts, and perform such other duties respecting the property as the court orders.
(2) Suspension and Removal. The court may suspend a receiver at any time and may, after providing reasonable notice, remove a receiver and appoint another.
(3) Termination. Any party may move to terminate a receivership. Unless the parties stipulate otherwise, the court must hold a hearing on the motion no sooner than 10 days after the motion's service. In scheduling the hearing, the court may order the receiver to file and serve a final account and report, and may require any objecting party to file and serve written objections. At the hearing, the court may take evidence as is appropriate and may enter orders as are just concerning the receivership's termination, including orders regarding the receiver's fees and costs.
(4) Equitable Principles Govern. If applicable, principles of equity govern all matters relating to the appointment of receivers, their powers, duties and liabilities, and the court's power.
(d) Dismissal. An action in which the court has appointed a receiver may not be dismissed except by court order.
The Comments to Ariz. R. Civ. P. 66 note that a 2017 amendment to the Rule made
it mandatory that a request for a receivership be brought in a separate
application and accompanied by a supporting affidavit. Previously, applying for
a receiver could have been brought as a separate cause of action in a complaint.
Receiverships in Action
There is limited case law in Arizona with respect to the process of applying for a receivership. However, Gravel Resources of Ariz. v. Hills , 217 Ariz. 33, 170 P.3d 282 (App. 2007) provides relevant insight. Gravel involved the creation of a general partnership (“Gravel”) by Andrew S. Jackson and A. Wayne Hills. 217 Ariz. at 35, 170 P.3d at 284. Hills was also a general partner in the Salt River Pima-Maricopa County Indian Community (“SRSR”). Id. SRSR leased land from Gravel for the purpose of mining. Id. Subsequently, SRSR bought Hills’ interest in SRS and made him the general partner. Id. Hill was eventually placed on administrative leave and then fired. Id.
A dispute arose between Gravel and SRSR with respect to royalty payments owed to SRSR under the lease. Id. SRSR sued Gravel, Jackson, and Hills; counterclaims and cross-claims were brought in response. Id. SRSR and Hills then entered into a settlement agreement. Id. at 36, 170 P.3d at 285. Hills later moved for permission to assert a cross-claim against Jackson for judicial resolution of Gravel and the appointment of a receiver. Id. The receiver request was granted. Id. Gravel contested the appointment of the receivership to wind up Gravel’s affairs. Id.
According to the Court, the appointment of a receiver falls to the discretion of the trial court. Id. at 37, 170 P.3d at 286 (citing D&S Farms v. Producers Cotton Oil Co. , 16 Ariz.App. 180, 182, 492 P.2d 429, 431 (1972)). Furthermore, Arizona courts have held that
“[i]t is universally held that when a partnership is dissolved and the partnership affairs are to be wound up, if it appears that the best method of protecting the partnership assets until they may be finally divided is to place them in the hands of a receiver, under the jurisdiction of the court, this may be done.” Ackel v. Ackel , 57 Ariz. 14, 22–23, 110 P.2d 238, 242 (1941).
In Gravel , the trial court found that a receivership was appropriate because there were “diametrically opposed interests” in winding up Gravel’s affairs. 217 Ariz. at 37, 170 P.3d at 286. In addition, no one party, as they were equal partners, had a right to wind up the affairs without the input of the other. Id. As a result, a neutral receiver was appropriate so each parties’ interest were appropriately recognized. Id. at 37–38, 170 P.3d at 286–87.
In addition, with respect to the powers of a receiver, the receiver stands in the shoes of the owner upon appointment. See O’Flaherty v. Belgum , 115 Cal.App.4th 1044, 9 Cal.Rptr.3d 286 (2004). Moreover, the receiver may settle any claim or potential claim a corporation may have. See Fugazy Travel Bureau , Inc. v. State , 188 So.2d 842, 844 (Fla.App. 1966) (receiver may settle claims and compromise actions).
Conclusion
The appointment of a receiver to oversee property is a unique remedy afforded under Arizona law. Parties applying for the appointment of a receiver need be conscious of the procedural steps in the application process, outlined herein. Among other considerations, a judge contemplating appointing a receiver is guided by equitable principles. If a receiver is ultimately appointed, they generally have broad powers that are outlined by the appointing judge.