Judge Gregory Keosian, Case Number: BC027461, Date: 2023-10-09 Tentative Ruling

Successor Receiver Michael L. Wachtell’s Motion for Order Approving Receiver’s Final Report and Account and Terminating Receivership is CONTINUED. Receiver is to provide the court with the amounts it contends are owed from the Receivership fund to previously retained professionals, which remain unpaid.

(CRC Rule 3.1184, subd. (a)(1)–(3).) “If any allowance of compensation for the receiver or for an attorney employed by the receiver is claimed in an account, it must state in detail what services have been performed by the receiver or the attorney and whether previous allowances have been made to the receiver or attorney and the amounts.” (CRC Rule 3.1184, subd. (d).) Although interim fees are subject to approval by the court, the court “retains jurisdiction to award a greater or lesser amount as the full, fair, and final value of the services received.” (CRC Rule 3.1183, subd. (a).)

“[T]he amount of compensation paid to a receiver is within the court's discretion.” (City of Sierra Madre v. SunTrust Mortgage, Inc. (2019) 32 Cal.App.5th 648, 657.)

Receiver Michale L. Wachtell (Receiver) seeks an order approving his final account and report, termination of the receivership and discharge of his responsibilities, approving his final fees and costs, and approving the disposition of the remaining receivership funds.

The history of the receivership fund is as follows, as provided in the declaration of the Receiver himself. Following the initial appointment of the Receiver, most assets otherwise subject to his control were turned over to the custody of the Bankruptcy Trustee overseeing the multiple bankruptcy actions then pending for various entity defendants. (Wachtell Decl. ¶ 8.)[1] The Bankruptcy Trustee paid $50,000 to the Receiver in order to allow the Receiver to pay counsel for an interpleader action then pending in Texas. (Wachtell Decl. ¶ 9.) The Texas interpleader action, filed in May 1991, involved the disposition of approximately $499,000.00 held in a Texas bank account. (Wachtell Decl. ¶ 10.) A settlement agreement reached in that action as of May 1993, provided for Receiver’s receipt of $472,241.01 of the interpleaded funds. (Wachtell Decl. ¶ 11.)

Thus the earliest funds held by the Receivership included the $50,000.00 payment from the bankruptcy trustee and the $472,241.01 in proceeds received from the interpleader settlement. (Wachtell Decl. ¶ 12.) The Receivership thus began with $522,241.01. (Wachtell Decl. Exh. 12.)

Receiver filed an application in November 1993 for leave to pay various professionals from the funds contained in the receivership estate. (Wachtell Decl. ¶ 14.) The application sought payment of an outstanding $236,089.48 in professional fees, leaving $246,910 for continuing services that were expected to be incurred in enforcing the judgment. (Wachtell Decl. ¶ 16.) The application was granted in December 1993. (Wachtell Decl. ¶ 17.)

In December 1993, Receiver disbursed $40,173.05 to the former receiver per the court’s order. (Wachtell Decl. Exh. 12.) Between April 1993 and January 1998, Receiver made $323,957.72 in disbursals from the receivership to pay approved fees and costs and legal fees incurred on behalf of aggrieved shareholders seeking recovery from Defendants in various bankruptcy proceedings. (Wachtell Decl. Exh. 12.) In March 1995, $33,996.88 was disbursed to Price Waterhouse for accounting services. (Wachtell Decl. Exh. 12.) From February 1995 through May 2023, $34,750.00 were paid for renewal of the receiver’s bond. (Wachtell Decl. Exh. 12.) $280 were discharged for bank fees. (Wachtell Decl. Exh. 12.) Finally, over the life of the account, $71,145.67 was earned in interest. (Wachtell Decl. Exh. 12.)

Thus, from the initial deposits of $522,241.01, a total of $433,407.65 in disbursals were made, and $71,145.67 in interest was earned, yielding a current balance in the receivership account of $160,229.03. (Wacthell Decl. Exh. 12.)

Receiver states that after his involvement in the Texas interpleader action, and in the bankruptcy litigation against Defendants David C. Bryant and David C. Knight that prevented them from discharging their debts in bankruptcy, his communication with Plaintiff California Department of Corporations (Plaintiff) was hampered by the health issues of lead counsel Melinda Brun, and the lack of further guidance provided by Plaintiff. (Wachtell Decl. ¶ 26.) In 2001 Receiver was informed that Brun would not be returning from her leave of absence and that a reorganization had occurred at the relevant department, but was given no further guidance. (Wachtell Decl. ¶ 27.) Receiver sent a letter in January 2002 to Plaintiff’s supervising corporations counsel, advising him of his activities and requesting assistance regarding the payment of professionals owed money by the receivership estate. (Wacthell Decl. ¶ 28.) But Plaintiff has no record of a further response. (Ibid.)

In 2014, Receiver checked the court file and observed that the judgment in this matter had not been renewed. (Wacthell Decl. ¶ 30.) After contacting Plaintiff again in 2018, Plaintiff provided a letter in February 2018 stating that they did not oppose the termination of the receivership and the filing of a final report and account. (Wachtell Decl. ¶ 32.)

Receiver contends that neither he nor the former receiver were charged with filing tax returns for any of the individual or corporate defendants. (Wachtell Decl. ¶ 33.) After consulting with an accountant, Dominic LoBuglio, in October 2017, regarding the receivership’s potential tax liabilility, and that Receiver has been filing yearly QSF tax returns from 2016 through the present. (Wachtell Decl. ¶ 34.)

From the receivership account’s current balance of $160,229.03, Receiver seeks the following disbursements. Receiver seeks $46,081.73 in receivership fees now sought from 1993 to July 2023, plus $10,000.00 to cover the expenses in preparing for the hearing on this motion, and to coordinate further payments to former receiver and professionals, and to make final QSF tax return.(Wachtell Decl. Exh. 14..) Receiver also seeks a distribution of $33,367.25 to Dominic LuBuglio for accountant’s fees from January 2017 through the hearing on this motion. (LoBuglio Decl. Exh. A.) All remaining funds are to be distributed to the former receiver and the professionals hired by him, who are still owed money, on a pro rata basis, and funds remaining after that shall be paid to the Knight/Bryant Security Owners Protective Association (SOPA), an organization licensed by Plaintiff to protect the interests of investors in the various entities subject to this lawsuit, which filed a complaint-in-intervention therein. (Proposed Order; Wachtell Decl. ¶ 5.)

Receiver has presented an account of the funds in the receivership account, and the deposits and disbursals made therefrom. He has presented the fees for which he seeks reimbursement for himself, as well as for his accountant Dominic LuBuglio. However, he states that he intends to pay as-yet unpaid professionals from the funds that remain, without providing information about the amounts currently owed to these professionals. (Motion at p. 2.) It is unclear if the $160,229.03 remaining in the receivership account is sufficient to pay both the fees sought by the current Receiver and these unpaid professionals.

Accordingly, the court requests that Receiver provide the amounts currently owed and unpaid to previously retained professionals before it makes any determination concerning the final account and report.

[1] Receiver contends that the records of the former receiver cannot be located, and that the prior expenses of the receivership estate were paid by the Bankruptcy Trustee, which in turn requested a credit. (Wachtell Decl. ¶ 8.)