Court Appointed Receivers

Government agencies may seek to appoint a receiver in connection with civil enforcement actions as a result of alleged fraud. The appointment order contains the scope and authority of the receiver’s duties. Typically, the order will provide the receiver with the full “powers and duties of an equity receiver” as well as other specifically enumerated powers and duties. Receivers who are appointed in these cases are not specifically authorized by statute, as they are in the state court. Instead, the appointments are based on the equitable powers of the federal district court to fashion appropriate remedies. Equity receivers appointed by federal courts usually are charged with locating, marshaling, and safeguarding assets for ultimate distribution to investors or consumers and determining whether the business for which the receiver is appointed can be operated legally and profitably.

Case law refers to the federal equity receiver as an “arm of the court” and like the Court, a neutral fiduciary who holds the property subject to the receivership in custodia legis while the ultimate disposition of the property is determined through the parties’ litigation.

The most common federal regulatory receivership arise out of actions filed by the U.S. Securities and Exchange Commission, the Federal Trade Commission and the U.S. Commodity Futures Trading Commission.

SEC v. Hardy, 803 F.2d 1034 (9th Cir. 1986) is one of the key decisions published by the Court of Appeals for the Ninth Circuit which discusses the legal and equitable framework for the receiver’s role in the administration of a federal equity receivership. In that case, the Ninth Circuit identified two key principles applicable in federal equity receiverships:

  • First, a district court’s power to supervise an equity receivership and to determine the appropriate action to be taken in the administration of the receivership is extremely broad…The basis for broad deference to the district court’s supervisory role in equity receiverships arises out of the fact that most receiverships involve multiple parties and complex transactions.
  • Secondly, we have acknowledged that a primary purpose of equity receiverships is to promote orderly and efficient administration of the estate by the district court for the benefit of creditors. [Citations omitted.] Accordingly, we generally uphold reasonable procedures instituted by the district court that serve this purpose. [Citations omitted.]

The following statutes and rules are provided based on their relevance to the receiver’s assertion of jurisdiction over assets and parties and the enforcement of the receivership order against parties and non-parties:

  • Title 28 U.S.C. § 754
  • Title 28 U.S.C. § 1692
  • Federal Rule of Civil Procedure 4(k)
  • Federal Rule of Civil Procedure 714
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