JOINT MOTIONS FOR ORDERS: (1) TERMINATING RECEIVERSHIP ESTATE, DISCHARGING RECEIVER, AND EXONERATING RECEIVER’S BOND; (2) APPROVING RECEIVER’S FINAL REPORT AND ACCOUNT; (3) APPROVING SETTLEMENT AGREEMENT; (4) APPROVING RECEIVER’S CLAIMS REPORT; AND (5) APPROVING RECEIVER’S DISBURSEMENT OF REMAINING RECEIVERSHIP ESTATE FUNDS

Moving Parties: Court Appointed Receiver Theodore Lanes, Plaintiff Universal Bank, and Plaintiff-in-Intervention Grosslight Insurance Inc.

Respondent: Interested Third Party, The Travelers Indemnity Company

POS: Moving OK; Opposing OK; Reply served by regular mail contrary to CCP § 1005(c)

Plaintiff Universal Bank alleges that Defendants requested, and received from Plaintiff, insurance premium financing loans (“IPF Loans”) on behalf of Hamilton Brewart Insurance Agency LLC’s insured, but that in fact, the insureds for whom Plaintiff extended the IPF loans had either obtained financing from other lenders or had paid their insurance premiums in full. The Complaint, filed on 9/27/12, asserts causes of action for:

1. Fraud
2. Negligent Misrepresentation
3. Breach of Contract
4. Breach of Contract
5. Money Had and Received
6. Appointment of Receiver
7. Preliminary Injunction
8. Accounting
9. Constructive Trust

Court-appointed receiver Theodore Lanes (“Receiver”), in his individual capacity and in his capacity as Receiver for Hamilton Brewart Insurance Agency, LLC (“HBIA”), Plaintiff Universal Bank (“Universal”) and Plaintiff-in-Intervention Grosslight Insurance, Inc. (“Grosslight”) move for orders pursuant to California Rules of Court, Rule 3.1184 that: (1)(a) the Settlement Agreement and Stipulation for Entry of Order By and Among Grosslight, HBIA, Lanes and Universal (“Settlement Agreement”) is approved; (1)(b) the Order Vacating Nunc Pro Tunc the February 19, 2013 ex Parte Order Granting Receiver’s Assignment of Customer Accounts and for Order Supplementing the Order Confirming the Appointment of Receiver and Preliminary Injunction, in form and substance as proposed and lodged herewith, shall be entered; and (1)(c) of the remaining funds in the Estate of HBIA in receivership (“Receivership Estate”), the Receiver will distribute $30,000 to Grosslight, as detailed in the Settlement Agreement.

The Receiver also moves for orders pursuant to California Rules of Court, Rule 3.1184 that: (2) The Final Report and Accounting of the Receiver is approved and the Receiver is discharged of his duties; (3) The Receiver’s Final Claims Report (“Claims Report”) is approved; (4) Of the remaining funds in the Receivership Estate, the Receiver will distribute $400,000 to himself and to his counsel Buchalter Nemer, and $410,000 to the creditors of the Receivership Estate; (5) The final fees and expenses of the Receiver, his counsel, agents, professionals and brokers are approved as further provided in this order; (6) The Receiver is authorized to pay any unpaid fees and expenses of the Receivership Estate as provided herein without further order from the Court; (7) All agreements entered into by the Receiver on behalf of the Receivership Estate as set forth in these joint motions are confirmed; (8) The Receiver and his other professionals, at the expense of the Receivership Estate, and subject to the requirements of any outstanding subpoenas from governmental agencies, are authorized to abandon or destroy any and all business records relating to the Receivership or to this action that are in their possession, control or custody, if not claimed by a party entitled thereto, in writing, within thirty (30) days of entry of this Order; (9) The Receiver, his bond, sureties, accountants, attorneys, employees, and agents, and each of them, are fully exonerated from all liability as provided by law in furtherance thereof, and all persons and entitles are enjoined and restrained from commencing or prosecuting any action or proceedings against the Receiver or his professionals on account of debts, claims and obligations of the Receivership or arising out of the administration of the Receivership Estate; (10) The Receiver shall not be liable in any manner for any outstanding obligations and debts of the Receivership Estate, known or unknown, and the Receiver shall not be liable to any person or entity, including taxing authorities, based on the Receiver’s having given notice of the hearing on the Receiver’s Motion to the parties and other persons upon whom such notice of the Receiver’s Motions were served. In addition, the Receiver shall not be liable, either in his individual capacity or representative capacity, for any actions taken as Receiver. Further, the Receiver shall have no obligation to file any tax returns or other documents for HBIA following discharge; (11) Should the Receiver, his agent, professionals, counsel or employees be called as a witness in any future proceeding or be required to respond to a document subpoena in connection with the Receiver’s service in this matter, the requesting party shall pay the subpoenaed person’s then current billing rate for the time that the subpoenaed person spends responding to the subpoena and reimburse all fees and expenses (including reasonable attorneys’ fees) in connection with such discovery response obligations; and (12) This Court reserves exclusive jurisdiction over any claim or claims that may be asserted against the Receiver or his professionals, for their respective services herein and all issues that were part of the subject matter of the Receivership and this Order, or that have arisen or may arise therefrom.

TERMINATION OF RECEIVERSHIP:

A receivership terminates upon completion of the duties for which the receiver was appointed; or at any time, upon court order. Receivers must prepare, serve and file a “final account and report, a request for discharge, and a request for exoneration of the receiver’s surety.” If the report seeks allowance for compensation to the receiver or attorneys for the receiver, it must state in detail what services were rendered and whether previous allowances have been made. These documents must be served on all parties to the action and to any others whom the receiver knows have a substantial, unsatisfied claim that will be affected by the order or stipulation. (CRC 3.1184.)

Upon approval of the receiver’s report and accounting, the receiver is normally discharged, and the bond exonerated. The order discharging the receiver and settling the account is res judicata as to all claims against the receiver. (Aviation Brake Systems, Ltd. v. Voorhis (1982) 133 Cal.App.3d 230, 234.)

RECEIVER’S LIABILITIES:

Until the receiver renders the final accounting and is discharged, his or her conduct during the receivership may be challenged even if the underlying proceeding is dismissed. (Jun v. Myers (2001) 88 Cal.App.4th 117, 123–124.) Claims against the receiver may be pursued by independent suit or intervention in the underlying proceeding. In either case, however, court approval is required; i.e., the claimant must proceed first by motion to sue or motion to intervene, and whether to permit intervention or allow a separate lawsuit lies within the court’s discretion. (See Jun v. Myers, supra, 88 Cal.App.4th at 124–125 — court erred in denying both intervention and motion for leave to sue receiver by summarily determining claim lacked merit.)

However, a receiver is not personally liable for tort or contract claims arising from the performance of receivership duties. Such claims may be satisfied only from receivership funds. (Chiesur v. Super.Ct. (1946) 76 Cal.App.2d 198, 201–202; see also Medical Develop. Int’l v. California Dept. of Corrections & Rehabilitation (9th Cir. 2009) 585 F3d 1211, 1219—“Actions against the [federal court] receiver are in law actions against the receivership or the funds in the hands of the receiver, and his contracts, malfeasances, negligences, and liabilities are official, and not personal, and judgments against him as a receiver are payable only from the funds in his hands” (brackets added; internal quotes omitted).)

On the other hand, a receiver may be surcharged for failing to pay taxes incurred in running the business of an estate, or for breaching any other fiduciary obligation. (See Stewart v. State of California (1969) 272 Cal.App.2d 345, 348; Vitug v. Griffin (1989) 214 Cal.App.3d 488, 496 — receiver personally liable to potential estate creditors for disbursing receivership assets without notice.) Even if the surety is released, it remains liable on the bond for acts, omissions or causes of action that existed or arose before the release. (CCP § 996.150(a); Vitug v. Griffin, supra, 214 Cal.App.3d at 497.)

OBJECTION BY TRAVELERS INDEMNITY COMPANY:

Interested Third Party The Travelers Indemnity Company (“Travelers”) objects to the Receiver’s claims report and joint motions for orders terminating the Receivership, approving his final report and account, approving the Grosslight settlement, approving the claims report, and approving disbursement of the remaining receivership estate funds.

Travelers represents that it submitted two priority claims against the receivership estate in this matter. The first claim was for $535,161.94 in premiums collected and held in trust by HBIA as a fiduciary of Travelers pursuant to an agency agreement between Travelers and HBIA. The second was a $79,000 priority administrative claim for post-receivership funds which were paid to HBIA by Travelers’ insured after the Receiver was appointed and which the Receiver improperly paid to a third party rather than to Travelers.

Travelers objects to the Receiver’s characterization of the frozen trust fund account as a general account and objects to the use of the trust funds for any purpose other than to pay claims made by Travelers and other beneficiaries of the trust. The trust funds belong to the carriers for whom they were held in trust, not HBIA. Travelers also objects to the Receiver’s denial of Travelers’ $535,161.94 priority trust fund claim, and the Receiver’s failure to give Travelers’ $79,000 administrative claim priority.

Travelers also objects to the Grosslight settlement on the grounds that the Receiver has misrepresented the terms of the settlement agreement. Moreover, the Receiver has provided no facts, legal authority or analysis as to indicate how this settlement benefits the receivership estate or the creditors of the estate.

Finally, Travelers objects to the Receiver’s final report and accounting on the grounds that it does not meet the minimum requirements set forth in CRC Rule 3.1184(d) or the requirements for the final report and account set forth in the Court’s Order Appointing the Receiver. The court therefore has no way to evaluate whether the receivership provided any benefit to the receivership estate or creditors, or to evaluate the Receiver’s request for discharge, request for additional fees to be paid to himself and his counsel, or his final account.

RECEIVER’S REPLY:

Travelers’ objection should be overruled because: (1) Travelers improperly unilaterally withheld over $123,000 in commission income owed to the Receivership Estate; (2) Travelers has consistently failed to cooperate with the Receiver and to date has still failed to provide sufficient details regarding its claims; and (3) Travelers’self-serving argument regarding use of funds in the “Old Trust” account to resolve this matter lacks merits because the funds in this account were routinely used by HBIA as a general operating account.

Because the proposed settlement is in the best interest of the creditors of the Receivership Estate and because the Receiver and the parties have complied with this Court’s order appointing receiver and applicable Rules of Court, the Court should grant the joint motions and overrule Travelers’ objection.

If the court does not grant the joint motions, the creditors of the Receivership Estate will be severely prejudiced because the remaining funds in the Receivership Estate will be used to litigate the plethora of issues that will be resolved by the proposed settlement.

COURT’S FINDINGS:

It appears that the settlement proposed by the moving parties is as beneficial as possible under the circumstances of this action, both to the Receivership Estate as well as the creditors of the Receivership Estate. If the proposed settlement is not approved, it is highly likely that all remaining funds of the Receivership Estate will be completely exhausted in order to fully litigate Grosslight’s Complaint-in-Intervention and no money will remain for the benefit of any creditor of the Receivership Estate.

While Travelers contends that its claims are subject to priority because the funds were held by HBIA in a fiduciary capacity, it appears that allowing such a claim of priority would result in an inequitable result for the other creditors of the Receivership Estate (since many of the creditors appears to have had the same or similar relationship with HBIA, i.e., an insurance carrier and agent relationship). Further, the Receiver submits evidence that Travelers failed to cooperate with the Receiver in a TIMELY manner and that the account in question was not a true trust account. (Reply, Supp. Receiver’s Decl. ¶¶ 4-5, Exh. 1.)

While Travelers also contends that the Receiver mishandled the $79,000 administrative claim, the Receiver explains that after the funds were paid, the Receiver discovered that the scheme initiated by Derek Brewart and others to “double finance” policies was the basis for Travelers’ $79,000 claim; and that even if the claim for $79,000 is otherwise entitled to preference, it should not be granted preference because Travelers improperly and unilaterally withheld over $123,000 in commission income belonging to the Receivership Estate. (Id., ¶ 7.)

The objection of Travelers is therefore overruled.

The court finds that the Receiver’s Final Report and Account substantially complies with the order appointing Receiver and California Rules of Court. Thus, the motions are granted.

However, it appears that Receiver’s motion regarding future liabilities and obligations of the Receiver, i.e., request nos. 8-12, may not be necessary since a receiver is not personally liable for tort or contract claims arising from the performance of receivership duties.