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| November 24, 2008 |
By: John Pacenti |
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he 100 or so lawyers, accountants and bankers at Miami’s Bankers Club seemed to be a congenial assembly of professionals, but in reality, the gathering represented another sign that the economic storm is far from dissipating.
Receivership manual for the Florida judiciary
Most were there to learn how to become court-appointed receivers.
The attorneys hope to become an arm of the court, taking over troubled companies rocked by federal or state litigation, recouping investments from elaborate Ponzi schemes or bailing out condo developments in the dismal housing market.
By the looks of the Tuesday night turnout, the receivership business is expected to be good — very good.
Attorneys, accountants and others appointed as receivers are paid court-approved fees.
For some businesses, a receivership can be a good alternative to filing for bankruptcy, said Miami attorney and forensic accountant Lewis B. Freeman, who served on the panel along with Harley Tropin, a founding partner at Kozyak Tropin & Throckmorton in Coral Gables, and Miami-Dade Circuit Judge Jose M. Rodriguez.
In both federal and state court, a court-appointed receiver takes over the custodial duties of a property or business. In litigation, the receiver stands in the place of the defendants, making all the decisions. A receiver can be appointed to a financially distressed company, a fraudulent business to wind down its operations or a business failing in its duties to provide a crucial public service or as provided by contract or law.
“It’s definitely a sign of the times. Everybody wants to be a receiver,” Freeman said. “Bankruptcy has gotten too expensive, and the best alternatives for business who are in trouble are receiverships.”
Ed Davis, a certified fraud examiner and shareholder of the Miami law firm Astigarraga Davis, said he was surprised at the turnout.
“There was a good mixture in the room,” he said. “There were receivers, lawyers, accountants, workout specialists and even bankers looking for clients.”
Davis, who is working on receiverships in the Caribbean and Latin America, said oftentimes there are assets in domestic receiverships to be retrieved overseas that complicate matters.
Fort Lauderdale solo practitioner Mark Tepper said the seminar got him thinking about how he could serve as a receiver in these stressed economic times. Tepper, who often represents ripped-off investors, said lawyers who take on a receivership better have their plates clear.
“If you get a receivership on Monday, they [the judges] expected to see action by Monday afternoon,” he said.
The forum turned into a primer on receivership.
“The key part in any receivership is getting your arms around it,” Freeman said. “It’s sort of like a love affair. In the first week or the first two weeks, you make love an awful lot. You work hard. As it winds down, you might spend less time on it.”
Rodriguez urged those appointed as receivers to surround themselves with business experts.
“You are going to have to come in and take over the business and run it for a time until the case is over,” he said. “There are many reasons why I would appoint a receiver, but the main reason why I would appoint a receiver is to make sure the assets are not dissipated.”
Rodriguez said a receivership, for example, is a good way to keep a condominium complex afloat when a developer or large stakeholder goes under.
He gave an example of a foreclosure he is handling in which the owner of a number of units isn’t paying the mortgages, causing the condo association to dissolve and the property to fall into disarray.
“You can appoint a receiver in that situation who can go in there and be the condo association,” Rodriguez said. “Collect the dues from all the unit owners not paying and get the property up and started so it’s not going to waste.”
But receivership can be much more complicated.
One of Tropin’s more celebrated cases was Premium Sales, a North Miami Beach factoring company that ran an elaborate Ponzi scheme paying old investors with money from new investors.
In bigger cases and ones where criminal charges are likely, Tropin suggested creating a document depository before the FBI or other investigative agencies confiscate important records.
“That’s going to be important to the U.S. attorney. That’s going to be important to the investors who bring lawsuits. That’s going to be important to your lawyers who bring your lawsuits,” he said. “There is also somewhat of a delicate dance that goes on with the U.S. attorney’s office. Their appropriate sole mission in life is to bring justice as they see it and get things done. But you have to run your company, and you have to bring your lawsuits, and sometimes there is a little bit of a tension there.”
Another conflict can occur when defendants believe they have attorney-client privilege once a receiver is appointed. Not so, Tropin said.
“I stand in the shoes of the company. Therefore, I own the privilege,” he said. “The former owners, the individuals, will often argue that they own the attorney-client privilege, and they will want to protect their records because some of them are pretty damning, and you will get into a fight with those people.”
Generally, Tropin said the receiver wins that battle and gets to keep the documents.
Freeman said he has had some peculiar receiverships. Unique Gems International involved an alleged $90 million Ponzi scheme with as many as 11,000 victims, mostly in South Florida. At one point, Freeman traveled to a Liechtenstein bank to retrieve $24 million.
“We were very fortunate, and sometimes your prayers are answered,” he said in an interview after the seminar. “We were able to get the victims, the creditors, more than 33 cents on the dollar. That’s highly unusual.”
Even stranger was a West Palm Beach divorce centered on a consignment shop chain that supposedly gave a percentage of its profits to a charity for Vietnam veterans. The husband claimed the stores made $5 million, the wife said they made $1 million, and tax returns said $500,000.
“That was an unusual one,” Freeman said. “The best thing done as the receiver there is we had gone to the Vietnam veterans and the contract was up, and we suggested they put a clause in for their firm that there had to be an audit.”
The charity’s income rose 7 percent the next year, he said.
John Pacenti can be reached at john.pacenti@incisivemedia.com or at (305) 347-6638.
Harley Tropin photo by A.M. Holt |
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