Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

BACKGROUND 

The Receiver was appointed by this Court on November 2, 2018, and authorized to take complete and exclusive control and possession of all the assets, personal property, operations and interests, (the “Assets”) of Avalon by the Sea AC, LLC (“Avalon”), New Vista Behavioral Health, LLC, LLMS Acquisition Holdings, LLC (“LLMS Holdings”), Infinity Malibu, LLC, Infinity Malibu IOP, LLC, and Infinity in the Valley, LLC.  

Pursuant to the order appointing the receiver (the “Appointment Order”), the Receiver was charged with, among other things, managing the Assets, making payments to Plaintiff Colorado Bankers Life Insurance Company (“CBL”), assessing LLMS Holdings’ claims against third parties and prosecuting those claims accordingly, and selling some or all of the Assets.  

Avalon operated a behavioral rehabilitation facility that offered two treatment programs to patients suffering from mental illness and addiction disorders. The Grand House treated mental health disorders, and The Cottage treated substance abuse disorders. While efforts to sell the business were difficult, with numerous failed transactions over the last three years, the sale of the assets to Benjamin Deutsch was completed on June 16, 2024, in accordance with this Court’s order approving the sale. The sale price was $1.5 million, plus the return of the security deposits paid by the Receiver or his predecessors.  

Since the closing of the asset sale, the Receiver has reconciled funds owing to and from the purchaser of the assets with revenue and expenses after the sale, and prepared a preliminary Final Account. The accounting covers the period from July 1, 2024 to the present (the “Reporting Period”) and for the duration of the receivership.  The Receiver is holding cash in the amount of $1,275,170, net of a reserve for potential future liabilities of the estate.  

The only remaining work to be done is to wait for the purchaser to receive its licenses from DSS and DHCS, at which time the Receiver can be relieved of his duties as Receiver. Accordingly, the Receiver is seeking to distribute the excess cash in the receivership estate to the senior secured creditor (CBL) in accordance with the Appointment Order, and address any claims of third parties in anticipation of the submission of a final accounting and request for discharge.  

The Receiver proposes to turn over $1,275,170 to CBL in accordance with the Appointment Order. The turnover is also consistent with CBL’s secured interest in the receivership Assets, including the sale proceeds. The Receiver proposes to establish a closing reserve of $194,450 to fund the Receiver’s fees and his counsel’s fees incurred after September 30, 2024, the cost of preparing the 2024 and 2025 financial statements and income tax returns, and potential unknown liabilities of the receivership.   

The Receiver has procured tail coverage for Employment Practices Liability and Directors & Officers insurance, which coverages are on a “claims made” basis. All other risks are covered by occurence based policies in place during the receivership. However, if, hypothetically, lawsuits are filed within the three-year statute of limitations, the receivership could be liable for deductibles owing under these policies. (The Receiver is not aware of any such potential claims or lawsuits at this time.)  Therefore, the Receiver has also set aside $100,000 for deductibles that could be payable if lawsuits are filed between now and June 16, 2027.  

Any unused portion of the closing reserve would be turned over to CBL and secured lender after expiration of the statute limitations. Assuming no litigation is filed the Receiver anticipates being able to distribute an additional $125,000 to CBL.  

The Receiver also seeks approval of the payment of his and his counsel’s fees.  The Receiver gave notice of his intention to pay professional fees in twenty days absent objections.  No objections were made, and the Receiver and his counsel will have been paid $2,082,066.70 and $945,262.30 respectively over the nearly six-year duration of the receivership. The Receiver’s fees as percentage of gross receipts were 3.5%.  

At the time of the Receiver’s Appointment, Avalon and other Receivership Entities were indebted to third parties on various unsecured claims. In addition to the unsecured debts, the Receiver became aware of certain lawsuits and claims that been filed against Avalon as well as its predecessors. The Receiver disputes the validity of most if not all of these claims.  The Appointment Order provided that claims against the receivership were stayed pending the outcome of the Receiver’s sale of Assets and the conclusion of the receivership.  As a practical matter, this was done so that the Receiver could determine whether there would be funds available to pay any of the unsecured claims, if such claims existed.  Based on the Receiver’s accounting, there will be no funds available to pay the claims of unsecured creditors because there are insufficient funds to pay the secured creditor in full.  

DISCUSSION 

The Court’s administration of the instant receivership rests in its sole, sound discretion to be exercised with due regard to the unique facts of this particular case.  (Alhambra-Shumway Mines, Inc. v. Alhambra Gold Mine Corp. (1953) 116 Cal. App. 2nd 869, 873.)  As an extension of the Court’s authority, the Receiver “has, under the control of the court, the power to . . . take and keep possession of property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the Court may authorize.”  (Code Civ. Proc., § 568.)  

“In a civil action, a receiver is an agent and officer of the court, and property in the receiver’s hands is under the control and continuous supervision of the court. . . . The receiver is but a hand of the court, to aid it in preserving and managing the property involved in the suit.” (People v. Stark (2005) 131 Cal. App. 4th 184, 204.)  Accordingly, “it is well settled that a trial court has broad discretion in its directions and approvals given to a receiver in respect to management of the property.”  (Hillman v. Stults (1968) 263 Cal. App. 2nd 848, 876.)  

The Court concludes that the requests by the Receiver are reasonable and within the Court’s broad discretion to authorize and approve.  Given that the Receiver has determined, in his reasonable business judgment, that his requests are in accordance with his obligations under the Appointment Order, the Court exercises its broad discretion to grant the relief requested herein by the receiver. 

The preliminary distribution to CBL is approved.  The Appointment Order provides that following the closing of the sale of the Assets, the Receiver may use the sale proceeds from the sale of the Assets to pay CBL on account of its secured lien.  (Appointment Order Section 4.d., p. 18.)  

Further, the payment of the Receiver and its counsel’s fees is also approved.  The Receiver has concluded the vast majority of its obligations under the Appointment Order with great success. Operations have generated significant revenue, and the Receiver was able to ultimately find a buyer for the Assets of the receivership estate.  “Receivers are entitled to compensation for their own services and services of their attorneys.” (City of Chula Vista vs. Gutierrez (2012) 207 Cal. App. 4th 681, 685.)  In accordance with the procedures set forth in the Appointment Order regarding the payment of the Receiver and professionals, notice has been provided to all interested parties of the Receiver’s and counsel’s requests for payment of their fees and costs. No objections have been received.  In light of the Receiver’s performance and the lack of any objections by the interested parties, the Court approves the payment of fees and costs to the Receiver and his counsel. 

Finally, the Court approves the establishment of a reserve.  The Receiver proposes to establish a closing reserve of $194,450 to fund the Receiver’s fees and his counsel’s fees incurred after September 30, 2024, the cost of preparing the 2024 and 2025 financial statements and income tax returns, and potential unknown liabilities of the receivership.  The Receiver also proposes to set aside $100,000 for deductibles that could be payable if lawsuits are filed between now and June 16, 2027.  

CONCLUSION 

Based on the foregoing, the Court GRANTS Receiver’s motion to (1) approve preliminary final account & report, (2) authorize Receiver to distribute funds to secured creditor and establish reserve, and (3) approve notice of intention to pay fees and final approval of interim fees.  The Court will sign the Proposed Order. 

 

IT IS SO ORDERED. 

 

DATED:  December 5, 2024 ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court