Medipro Med. Staffing LLC v. Certified Nursing Registry, Inc.

60 Cal.App.5th 622

274 Cal.Rptr.3d 797

MEDIPRO MEDICAL STAFFING LLC et al., Plaintiffs and Respondents,

v.CERTIFIED NURSING REGISTRY, INC., et al., Defendants and Appellants.

B305910

Court of Appeal, Second District, Division 2, California.

Filed February 4, 2021

Khouri Law Firm, Michael J. Khouri, Irvine, and Michael Tran, Santa Ana, for Defendants and Appellants.

Verus Law Group, Holly Walker, Marina Del Rey, and Mark N. Strom for Plaintiffs and Respondents.

HOFFSTADT, J.

By statute, a trial court has the discretion to appoint a receiver to aid in the collection of a judgment if doing so "is a reasonable method to obtain the fair and orderly satisfaction of the judgment." ( Code Civ. Proc., §§ 564, subd. (b)(3) & (4), 708.620.)¹ Does a trial court abuse that discretion if it appoints a receiver to aid in the collection of a money judgment where the record contains no evidence that the judgment debtors had obfuscated or frustrated the creditor's collection efforts and no evidence that less intrusive collection methods were inadequate or ineffective? We hold it does. Accordingly, we reverse the trial court's order appointing a receiver and its subsidiary injunction obligating the judgment debtors to cooperate with the receiver.

FACTS AND PROCEDURAL BACKGROUND

I. The Underlying Judgment

In July 2017, Medipro Medical Staffing, LLC (Medipro) sued Certified Nursing Registry, Inc. (Certified), which was one of its competitors in the nurse staffing industry, and Certified's founder, Christina Sy (Sy), for a variety of business torts. A jury awarded Medipro $2 million in damages against Certified and $450,000 in damages against Sy. These amounts do not include costs, interest, or the $650,000 damages award against the other two defendants for which Certified and Sy are jointly and severally liable. The trial court entered judgment on March 8, 2019, and we affirm that judgment in a separate opinion filed today. ( Medipro Medical Staffing, LLC v. Certified Nursing Registry, Inc. (Feb. 4, 2021, B294391), 2021 WL 387879 [nonpub. opn.].)

II. Initial Collection Efforts

After filing a writ of execution on April 26, 2019, Medipro thereafter (1) served levies on 10 financial institutions regarding accounts associated with Certified or Sy, (2) served levies on 11 hospitals to whom Certified provided staffing services regarding their accounts payable to Certified, and (3) obtained a charging order against Sy's interest in a limited liability company (LLC) owned by her husband. Medipro did not serve any interrogatories requesting information to aid in the collection of the judgment (§ 708.020), did not place liens on any of Certified's or Sy's property (§ 695.010 et seq.), and did not seek to compel Sy's or her husband's appearance at debtors’ examinations (§ 708.110), although it unsuccessfully tried to serve Sy 25 times and served her husband but had yet to conduct the examination.

For a time, Medipro's collection efforts bore fruit. By September 2019, Medipro had obtained $35,171.77 from the financial institution levies and $374,200.86 from the hospital levies. However, the collections from the hospital levies started to dwindle in August 2019 and stopped altogether in September 2019.

III. Motion for Appointment of Receiver and for Complementary Injunctive Relief

A. Briefing and evidence

On Halloween 2019, Medipro filed a motion with the trial court to obtain (1) an order appointing a receiver authorized to "take possession" of Certified's "funds," "books and records" and to enforce the charging order against Sy's interest in the LLC, and (2) a complementary preliminary injunction requiring Certified and Sy to "giv[e] the receiver access" to "all books and records" of Certified and the LLC. In support of its motion, Medipro submitted the declaration of its attorney, who represented that (1) "Certified is currently conducting its business as usual, and providing staffing" to the hospitals, (2) Certified must be "billing under the name of another entity or person[ ] to circumvent" Medipro's levies because an employee named "Lisa" at one of the hospitals told her that Certified had "canceled" a September 2019 invoice and did not issue any invoices in October 2019, and (3) based on information and belief, the LLC had eight real properties that generated rents but the LLC had not forwarded any distributions to Sy and the attorney "expected that Sy's husband will not comply with the charging order."

Certified and Sy opposed the motion. In support of this opposition, Sy submitted a declaration indicating that Certified's business had "significantly diminished since Medipro began serving levies on the hospitals," causing three of its hospitals to stop business altogether and the remainder to have so few assignments that Certified was no longer sending weekly invoices. Also in support of the opposition, Sy's husband submitted a declaration indicating that the LLC was "financially struggling" and had made "[no] distributions."

Medipro submitted a reply, which included deposition testimony from a Certified independent contractor stating that she was still providing consulting services to Certified and that Certified had issued her paychecks for those services in September, October and November of 2019.

B. Ruling

After a hearing, the trial court issued its ruling. As a preliminary matter, the court sustained Certified's evidentiary objections and struck Medipro's counsel's statements that Medipro was conducting "business as usual," counsel's hearsay recounting of what "Lisa" said, and counsel's conjecture that Medipro must be billing its hospital clients under another name. The court nevertheless appointed a receiver and issued injunctive relief. Specifically, the court appointed a receiver to "take possession, custody and control" of the "accounts receivable and business accounts," to "enter and gain access to [the o]ffices," to "take possession of all bank accounts," to "collect" "all mail," and to "take possession of all the books and records" of both Certified and the LLC. The court also enjoined Certified and the LLC from interfering with the receiver's performance of his duties.

IV. Appeal

Certified and Sy filed this timely appeal.

DISCUSSION

Certified and Sy argue that the trial court erred (1) in appointing the receiver and issuing the complementary preliminary injunction, and (2) in granting relief beyond what Medipro requested. Because the preliminary injunction issued in this case is merely an adjunct to the appointment of the receiver and because the challenge to the breadth of the receiver's powers presupposes that the appointment was proper, Certified and Sy's appeal presents a threshold question: Did the trial court err in appointing the receiver?

It is undisputed that the trial court had the authority to appoint a receiver to aid in collection of the judgment. By statute, a court "may" appoint a receiver "[a]fter judgment" "pursuant to the Enforcement of Judgments Law" ( § 564, subd. (b)(4) ), and the Enforcement of Judgments Law (§ 680.010 et seq.) empowers a court to appoint a receiver "to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment" ( § 708.620 ). (Accord, Tucker v. Fontes (1945) 70 Cal.App.2d 768, 772, 161 P.2d 697 ( Tucker ) [so noting].) It also is undisputed that the trial court had the authority to appoint a receiver to enforce the charging order as part of Medipro's collection efforts. By statute, a court "may" "[a]ppoint a receiver of the distributions" to a member of a limited liability company if "necessary to effectuate the collection of distributions pursuant to a charging order." ( Corp. Code, § 17705.03, subd. (b)(1).)

What we must decide is whether the trial court in this case properly exercised this authority in the post-judgment collections context. Because trial courts enjoy a "large measure" of discretion, albeit "not an entirely uncontrolled one," in deciding when to exercise their authority to appoint a receiver ( Golden State Glass Corp. v. Superior Court of Los Angeles County (1939) 13 Cal.2d 384, 393, 90 P.2d 75 ( Golden State )), we review the decision to appoint one solely for an abuse of that discretion ( City and County of San Francisco v. Daley (1993) 16 Cal.App.4th 734, 744, 20 Cal.Rptr.2d 256 ( Daley )).

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 ( Golden State , supra , 13 Cal.2d at p. 393, 90 P.2d 75 ), the appointment of a receiver is a very "drastic," "harsh," and costly remedy that is to be "exercised sparingly and with caution." ( Jackson v. Jackson (1967) 253 Cal.App.2d 1026, 1040, 62 Cal.Rptr. 121 ( Jackson ); Golden State , at p. 393, 90 P.2d 75 ; Cohen v. Herbert (1960) 186 Cal.App.2d 488, 495, 8 Cal.Rptr. 922 ( Cohen ); Morand v. Superior Court (1974) 38 Cal.App.3d 347, 351, 113 Cal.Rptr. 281 ( Morand ).) 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.’ " ( Jackson , at pp. 1040-1041, 62 Cal.Rptr. 121 ; Cohen , at p. 495, 8 Cal.Rptr. 922 ; Morand , at p. 351, 113 Cal.Rptr. 281 ; Rogers v. Smith (1946) 76 Cal.App.2d 16, 21, 172 P.2d 365 ; cf. Daley , supra , 16 Cal.App.4th at p. 745, 20 Cal.Rptr.2d 256 ["[T]he availability of other remedies does not, in and of itself, preclude the use of a receivership"]; Gold v. Gold (2003) 114 Cal.App.4th 791, 808, 8 Cal.Rptr.3d 118 [same].)

In light of the sheer number of enforcement mechanisms for collecting money judgments under the Enforcement of Judgments Law (which...