TO: Joint Procedure Committee
FROM: Andy Forward
DATE: March 25, 2010
RE: Rule 66, N.D.R.Civ.P., Receivers Appointed by District Courts
At the January meeting, staff was instructed to research Rule 66 to try to figure out the purpose of the rule. Staff researched Rule 66 along with Fed.R.Civ.P. 66 and other states’ rules on receivers.
The only time Rule 66 was amended was in 1980, when the explanatory note was added to the rule. There were no North Dakota cases discussing the purpose of the rule.
Rule 8.1, N.D.R.Ct., also governs receivers. There is no explanatory note to the rule, but it appears the rule was adopted in 1981 according to the minutes of the December 1980 meeting. According to the minutes, it did not appear that the rule was ever amended following its adoption. Prior to Rule 8.1, receivers were governed by former Supplemental Court Rule 17.1. Former Rule 17.1 is identical to current Rule 8.1. I was unable to find any North Dakota cases discussing Rule 8.1 or former Rule 17.1.
Receivers are also discussed in Chapter 32-10 of the North Dakota Century Code. Chapter 32-10 discusses when a receiver can be appointed, who can be a receiver, and the receiver’s powers. The role of a receiver was discussed in Perry Center, Inc. v. Heitkamp, 1998 ND 78, ¶ 19, 576 N.W.2d 505.
A receiver is an officer or arm of the court and acts under the direction and supervision of the court. See N.D.C.C. § 32-10-04. A receiver takes possession of and preserves, pending litigation, and, for the benefit of the party ultimately entitled to it, the fund or property in litigation. See Vorachek v. Citizens State Bank of Lankin, 461 N.W.2d 580, 584 (N.D.1990). As this Court explained in Gilbertson v. Northern Trust Co., 53 N.D. 502, 207 N.W. 42, Syllabus 1 (1925):
“A receiver takes the estate of an insolvent for the benefit of the creditors. He is, in effect, an assignee, and stands in the shoes of the insolvent with exactly the same rights and obligations that the latter had at the moment of insolvency; ...”
Rule 66 is similar to Fed.R.Civ.P. 66. I was unable to find any North Dakota cases citing Fed.R.Civ.P. 66. A recent Ninth Circuit case discussed the use of receivers at the federal level:
Under federal law, appointing a “receiver is an extraordinary equitable remedy,” which should be applied with caution. However, there is “no precise formula for determining when a receiver may be appointed.” Rather, federal courts consider a variety of factors in making this determination, including, for example: (1) “whether [the party] seeking the appointment has a valid claim”; (2) “whether there is fraudulent conduct or the probability of fraudulent conduct,” by the defendant; (3) whether the property is in imminent danger of “being lost, concealed, injured, diminished in value, or squandered”; (4) whether legal remedies are inadequate; (5) whether the harm to plaintiff by denial of the appointment would outweigh injury to the party opposing appointment; (6) “the plaintiff's probable success in the action and the possibility of irreparable injury to plaintiff's interest in the property”; and, (7) “whether [the] plaintiff's interests sought to be protected will in fact be well-served by receivership.”
Canada Life Assur. Co. v. LaPeter, 563 F.3d 837, 844 (9th Cir. 2009) (citations omitted). The factors considered by a federal court are similar to some of the factors listed in N.D.C.C. § 32-10-01.
Minnesota’s rule on receivers is similar to North Dakota’s rule:
An action wherein a receiver has been appointed shall not be dismissed except by order of the court. A foreign receiver shall have capacity to sue in any district court, but the receiver’s rights are subordinate to those of local creditors. The practice in the administration of estates by the court shall be in accordance with Minnesota Statutes, chapter 576 and with the practice heretofore followed in the courts of this state or as provided in rules promulgated by the district courts. In all other respects, the action in which the appointment of a receiver is sought or which is brought by or against a receiver is governed by these rules.
Both Minnesota and North Dakota contain the phrase “receiver’s rights are subordinate to those of local creditors” in its rule. This phrase has its roots in common law.
Strictly, the statutory powers of a foreign assignee or receiver cannot . . . be recognized as having any force or effect here, but, by the comity existing between the states, which is recognized as a part of the common law, effect may be given to titles and powers derived from the laws of another state or country, by the courts of this state, when this can be done without contravening the laws or policy of the state, or interfering with the rights of creditors pursuing their remedies under our laws.
Comstock v. Frederickson, 53 N.W. 713, 714 (Minn. 1892) (citing In re Waite, 2 N. E. 440 (N.Y. 1885)).
Ohio has a fairly simple and straightforward rule on receivers. “An action wherein a receiver has been appointed shall not be dismissed except by order of the court. Receiverships shall be administered in the manner provided by law and as provided by rules of court.” See Ohio Civ.R. 66.
It was also discussed at the January meeting that a receiver may be similar to a master. Rule 53, N.D.R.Civ.P., allows a district court to appoint a master to assemble, sort through, and report on complex evidence in matters involving an accounting. Bauch v. Bauch, 1997 ND 89, ¶ 6, 563 N.W.2d 108. Rule 53 is largely derived from Fed.R.Civ.P. 53. Dakota Grain Systems, Inc. v. Rauser, 435 N.W.2d 205, 207 (N.D. 1989). “It permits a trial judge to appoint someone as a temporary judicial officer to assemble, sort through and report on complex evidence.” Id.
Based on the rules governing masters and receivers, it appears they perform different functions. A receiver can bring and defend actions, take control of property, receive rents, and collect debts. A master can conduct proceedings, make findings, and issue orders on complex issues.
Staff has prepared amendments to Rule 66 based on the federal form and style amendments. The Committee may wish to make further amendments to the rule.
The proposed amendments to Rule 66 are attached along with a copy of the amendments to the federal rule. Also attached are copies of N.D.R.Ct. 8.1 and N.D.C.C. Ch. 32-10.