Your client just won a significant monetary judgment against an individual. The defendant has no insurance available to satisfy the judgment and settlement negotiations failed long ago. The defendant owns a variety of illiquid, but valuable assets including several homes, investment properties, vehicles, and bank accounts. While a sheriff’s sale may be your first instinct, don’t overlook the benefits of a receiver.
Levying on the execution is not always the best option. Auctioning a defendant’s personal property through a sheriff’s sale can be cumbersome. Storage and sheriff’s fees can be expensive and substantially reduce the amount available to satisfy a judgment.
Sheriff’s sales limit a bidder’s ability to conduct due diligence, which results in auctioned real and personal property being sold at a fraction of its fair market value, if it is sold at all.
With regard to real property, potential buyers are dissuaded from sheriff’s sales because of the owner’s right of redemption. G.L.c. 236, §33 provides defendant debtors one year to “redeem” or buy back property sold at a sheriff’s sale, which deters bidders who prefer clear title to the asset. “Generally, no one other than the creditor…will appear at an auction sale resulting from a creditor’s levy on real estate.” 48 Mass. Prac. Collection Law, §9.61 (4th edition)
And, while credit bidding (where creditors can use moneys they are owed to bid on and buy the auctioned property) is permitted, some creditors may not want to take title to such assets because of tenant, environmental, financial, zoning or other issues.
Appointing a receiver instead can maximize the value of a variety of assets, including personal property and real estate. While a receiver typically acts on behalf of all creditors and not just the party who moved for her appointment, parties can provide feedback to the receiver during the liquidation process and/or seek court intervention, if necessary, to protect their interest.
The real advantage is that the receiver takes complete control over the defendant’s assets and is granted broad discretion in liquidating them to pay off creditors. (This is akin to a bankruptcy trustee’s role in an involuntary bankruptcy, but unlike bankruptcy, multiple creditors are not necessary to get a receiver appointed.)
A receiver has the ability to investigate and review the debtor’s financial records. She can look for and retrieve assets that a debtor may have tried to conceal from creditors. She even directs the U.S. Postal Service to send debtor’s mail to her.
A receiver can retain brokers, auctioneers, and other consultants to advise and assist in properly marketing and selling defendant’s assets. She decides the right time to sell the defendant’s assets and the selling price.
Bidders can, in turn, conduct due diligence on assets for sale. The sale by the receiver extinguishes an owner’s right of redemption, which increases interest in the property and the purchase price.
The Superior Court has power in equity to appoint a receiver. G.L. 214, §1; 48 Mass. Prac. Collection Law, §13:14 (4th edition) While it is not common, receivers may be appointed against individuals to satisfy judgments.
See Wax v. Monks, 327 Mass. 1, 1 (1951), noting receivers were appointed where the plaintiff was “a judgment creditor of the defendant” and that the defendant had no money to pay creditors except for funds coming from the commonwealth’s eminent domain seizure of property that the defendant owned; Sommer v. Maharaj, 451 Mass. 615, (2008), noting trial judge had ordered appointment of a receiver to “collect, receive and take possession and charge of all [the] assets” of the individual defendant with “the purpose of securing assets for the enforcement of the judgment”; Bell Atl. Yellow Pages Co. v. U.S. Auto Exch. Grp. Ltd., 77 Mass. App. Ct. 1106, *2 (2010) (unpub.), noting “the equitable power of the trial judge to appoint the receiver over [the defendant] personally, has been employed in similar circumstances to assist in collecting a judgment against a recalcitrant defendant.”
The appointment of a receiver is typically supported by the egregious conduct of a defendant. In Sommer, the court appointed a receiver to take control of a judgment debtor’s and his wife’s assets after the debtor did not appear for deposition or produce documents, interfered with discovery efforts, failed to purge contempt and surrender for arrest and later failed to pay his judgment. See Sommer v. Maharaj, 65 Mass. App. Ct. 6557 (2006), aff’d, 451 Mass. 615 (2008).
In a more recent Superior Court case, Kelley v. Kelley, Mass. Super. Ct., C.A. No. 1083CV01153 (Plymouth County 2014), the defendant was similarly defiant.
After a $10 million judgment entered against him, the defendant failed to produce post-judgment discovery and then testified falsely under oath. As a result of these acts, the court held him in contempt twice.
Then, in violation of a court order prohibiting him from dissipating, transferring and encumbering assets, the defendant dissolved a company, conveyed property owned by the company to himself, granted 25-year leases to himself and his bookkeeper in case “things went sour” and recorded a homestead on the property.
In the third post-judgment contempt finding, the court (Gaziano, J.) wrote, “it is clear that the defendant understands his obligations and believes that he, for some reason, does not have to comply with court orders.”
The plaintiffs in Kelley moved to appoint a receiver – not once, but three times. Twice, the court declined. In his decision allowing the plaintiffs’ motion, Judge Robert J. Kane wrote that the defendant’s “repeated, substantial and clear violations, as well as the reliable allegations in [another] pending contempt complaint provide ample basis…to appoint a receiver to prevent further chicanery regarding the defendant’s assets.” He added, “[t]his court will not countenance defendant’s apparent belief that he is free to disregard court orders to avoid paying the judgment.”
Courts are hesitant to grant the extraordinary relief of appointing a receiver… especially over an individual. But if the judgment debtor has engaged in repeated misconduct like the defendants in Sommer and Kelley, attorneys collecting a judgment should consider this option.
In some cases, a receiver has more power than a sheriff to maximize and leverage liquidation efforts to satisfy an outstanding judgment. And, as the Kelley plaintiffs learned, creditors should not give up if at first their motion fails.
If the circumstances warrant, and especially if there is new misconduct, they should move again. It may be that for that creditor, as for the Kelley plaintiffs, the third time is the charm.
Kristin M. Knuuttila is a victim rights trial lawyer at Prince, Lobel & Tye LLP. She represents survivors of child sexual abuse and victims of sexual assault. Knuuttila represented the plaintiffs in the Kelley case, referenced in this article, who secured a $10 million judgment against their father in Plymouth County. She serves as a pro bono attorney for the Victim Rights Law Center and sits on the board for Massachusetts Citizens for Children.