McKnew v. Wilson (In re Wilson)

1

In re: DAVID A. WILSON, Debtor.

THOMAS I. MCKNEW, IV, et al., Plaintiffs, v. DAVID A. WILSON, Defendant.

No. 2:12-bk-16195-RK

Adv. No. 2:12-ap-01317-RK

United States Bankruptcy Court, C.D. California, Los Angeles Division

September 13, 2022

NOT FOR PUBLICATION

Chapter 7

ORDER DENYING MOTION FOR APPOINTMENT OF RECEIVER AND TEMPORARY RESTRAINING ORDER REGARDING REAL PROPERTY LOCATED AT 24352 SANTA CLARA AVENUE, DANA POINT, CA 92629

Robert Kwan United States Bankruptcy Judge

Los Angeles, CA 90012 This adversary proceeding came on for hearing on September 13, 2022 before the undersigned United States Bankruptcy Judge on Judgment Creditor Thomas I McKnew, IV's Motion for Appointment of Receiver and Temporary Restraining Order Regarding Real Property Located at 24352 Santa Clara Avenue Dana Point, CA 92629 (Docket No. 699). Michael Wallin, of the law firm of Wallin & Russell, LLP, appeared for Movant Thomas I. McKnew, IV. Roger B. Frederickson, of the law firm of Frederickson Hamilton, LLP, appeared for Respondent and Interested Party Beata Wilson. Christopher A. Dias, Attorney at Law, appeared for Respondent David A. Wilson, Debtor.

Having considered the moving and opposing papers and the oral arguments of the parties, the court denies the motion without prejudice for the reasons stated in the court's tentative ruling posted on the court's website before the hearing (copy of text of the tentative ruling is attached hereto) and for the reasons stated on the record at the hearing.

IT IS SO ORDERED.

ATTACHMENT - TENTATIVE RULING

Updated tentative ruling as of 9/9/22.

Regarding judgment creditors' motion for appointment of a receiver and temporary restraining order, the court must first address whether it has jurisdiction to appoint a receiver as 11 U.S.C. § 105(b) states: "Notwithstanding subsection (a) of this section, a court may not appoint a receiver in a case under this title." No party raised this jurisdictional question, but the court must examine its jurisdiction on its own. This court has recently held by Judge Wallace that based on the plain language of 11 U.S.C § 105(b), it does not have jurisdiction to appoint a receiver not just for the entire bankruptcy case, but any portion of the bankruptcy case, including adversary proceedings. In re Halvorsen, 607 B.R. 680 (Bankr. C.D. Cal. 2019) (Wallace, J.). However, the weight of authority construes 11 U.S.C. § 105(b) differently and holds that its language "a case under this title" applies to the entire bankruptcy case only as opposed to adversary proceedings. In re Memorial Estates, Inc., 797 F.2d 516 (7th Cir. 1986); Craig v. McCarty Ranch Trust (In Cassidy Land & Cattle Co.), 836 F.2d 1130 (8th Cir. 1988); In re Kellogg-Taxe, No. 2:12-bk-51208-RN, 2014 WL 1329822 (Bankr. C.D. Cal. Mar. 28, 2014) (Neiter, J.); 2 Levin and Sommer, Collier on Bankruptcy, ¶ 105.06 (online edition 2022) (observing the legislative history of the 1978 Bankruptcy Code for Section 105(b) was not to allow circumvention of established procedures for administering a bankruptcy estate through appointment of trustees by appointing receivers). Although the court is inclined to follow the weight of authority on this issue, the court felt it necessary to raise the issue since it is jurisdictional, and the parties should have the opportunity to address this jurisdictional issue.

The court is tentatively inclined to hold that it has jurisdiction under applicable state law to entertain a claim for relief to appoint a receiver to enforce the judgment under California Code of Civil Procedure §§ 564(b)(4) and 708.620 and Federal Rule of Civil Procedure 69(a), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7069.

However, the recent opinion of the California Court of Appeal in Medipro Medical Staffing LLC v. Certified Nursing Registry, Inc., 60 Cal.App.5th 622, 628 (2021) regarding appointment of receiver to enforce a money judgment is instructive: "Because the appointment of a receiver transfers property-or, in this case, a business-'out of the hands of its owners' and into the hands of a receiver, the appointment of a receiver is a very 'drastic,' 'harsh,' and costly remedy that is to be 'exercised sparingly and with caution.'" Id., citing inter alia, Golden State Glass Corp. v. Superior Court, 13 Cal.2d 384, 393 (1939).

The court in Medipro Staffing also stated: "Due to the 'extraordinary' nature of this remedy and the special costs it imposes, courts are strongly discouraged-although not strictly prohibited-from appointing a receiver unless the more intrusive oversight of a receiver is a 'necessity' because other, less intrusive remedies are either 'inadequate or unavailable.'" Id. (citation omitted). The court further stated: "In light of the sheer number of enforcement mechanisms for collecting money judgments under the Enforcement of Judgments Law (which range from levies to liens to wage garnishment (§§ 695.010 et seq., 697.010 et seq., 699.010 et seq., 699.510 et seq., 706.020 et seq.); . . . appointment of a receiver is rarely a 'necessity' and, as a consequence, 'may not ordinarily be used for the enforcement of a simple money judgment.'" Id., citing inter alia, White v. White, 130 Cal. 597, 599, 62 P. 1062 (1900). Moreover, the court stated: "Instead, the appointment of a receiver to enforce a money judgment is reserved for 'exceptional' circumstances where the judgment creditor's conduct makes a receiver necessary-and hence 'proper.' This occurs when the judgment debtor has frustrated the judgment creditor's collection efforts through obfuscation or through otherwise contumacious conduct that has rendered feckless the panoply of less intrusive mechanisms for enforcing a money judgment." Id., citing inter alia, Bruton v. Tearle, 7 Cal.2d 48, 52, 59 P.2d 953 (1936) (debtor "entered into a conspiracy" with his employer to arrange wage payments in a manner that "defeat[ed] the collection" of judgment; receiver appropriate); City and County of San Francisco v. Daley, 16 Cal.App.4th 734, 744 (1993) (debtors transferred title of property "to avoid responsibility" and "thumb[ ] their noses" at creditor's inspection efforts; receiver appropriate).

"[S]ince a receivership is an equitable remedy, the equitable considerations in an injunction proceeding apply-i.e., there must be a showing of irreparable injury and inadequacy of other remedies." Edmon and Karnow, Rutter Group California Practice Guide: Civil Procedure Before Trial, ¶ 9:759 (online edition, June 2022 update), citing Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp., 116 Cal.App.2d 869, 872, 254 P.2d 599, 602 (1953).

As to the merits of the motion, the motion implicates the ownership rights...