Lesson. Upon the entry of an order appointing a receiver, all assets of the entity over which the receiver is appointed become assets of the receivership estate.
Case cite. Steingart v. Musgrave, 221 N.E.3d 725 (Ind. Ct. App. 2023)
Legal issue. Whether the trial court’s order for the turnover of funds allegedly owed to the receiver was erroneous.
Vital facts. An Indiana limited liability company executed five promissory notes in favor of a lender totaling about $10.5 million. The lender later filed suit against the LLC and the owner-members due to the notes being in default. In connection with the suit, the court appointed a receiver over the LLC.
The receiver discovered that, eleven days pre-appointment, one of the member-owners opened a bank account in Minnesota and allegedly deposited nearly $400K of the LLC’s assets into the account. The receiver claimed that the funds were then disbursed without notice to or authorization from the receiver, contrary to the court’s order appointing the receiver. The receiver filed a motion for turnover requesting the court to order the member-owner to return certain of the funds to the LLC.
Procedural history. The trial court ordered the member-owner to turn over about $300K to the receiver within seven days. The member-owner appealed the trial court’s turnover order.
Key rules. In Indiana, a receivership “is an equitable remedy, the purpose of which is to secure and preserve property or assets for the benefit of all interested parties, pending litigation.”
Indiana trial courts control and supervise the property in a receivership, as well as direct and advise the receiver. In the trial court’s discretion, the court can grant the receiver the necessary powers to carry out the duties. Indiana Code 32-30-5-7 “provides a nonexclusive list” of those powers.
Immediately upon appointment and qualification, the entity’s assets become receivership assets until final distribution by the court. “To that end, property in receivership remains under the court’s control and continuous supervision, and it is the duty of the receivership court to protect the property from interference.” It follows that the receivership court “has the power to control all controversies that affect such property.”
The parties, in turn, “have a duty to deliver to the receiver all property in their possession that is included in the court’s order.” Should the parties fail to fulfill such duty, the receiver “has the authority to request the court to act to prevent interference with, or the denial of, his or her possession of the property.”
Holding. The Indiana Court of Appeals affirmed the trial court’s order.
Policy/rationale. The member-owner asserted that the trial court abused its discretion by issuing the turnover order. The member-owner felt the receiver’s concerns of misappropriation were unfounded. The Court of Appeals noted that any money in the Minnesota bank account on the day the receiver was appointed was subject to the receivership order. The LLC was obligated to remit to the receiver all deposit accounts, money and other property listed in the order. The member-owner’s failure to turn over to the receiver the funds in the account as of the day of appointment, or thereafter deposited, was a violation of the receivership order. The Court further found that, as practical matter, the subject turnover order merely was an extension of the original receivership order. Since Indiana gives trial courts “inherent power” to enforce compliance with their receivership orders, the Court of Appeals found no error with the issuance of the turnover order to obtain the assets of the LLC.
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Part of my practice involves representing parties in receivership proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.