Court Finds High Burden for Appointing Receiver Met

On October 23, 2019, Justice Borrok of the New York County Commercial Division issued a decision in Wells Fargo Bank, N.A. v. Andalex Aviation II, LLC, 2019 NY Slip Op. 33165(U), finding that a plaintiff had met the high burden for the appointment of a receiver, explaining:

Finally, the Plaintiff seeks to appoint an independent receiver pursuant to CPLR § 5228 to receive distributions of Allen Silverman's membership interests in the Silverman LLCs. Under CPLR § 5228, the court may appoint a receiver who may be authorized to administer, collect, improve, lease, repair or sell any real or personal property in which the judgment debtor has an interest or to do any other acts designed to satisfy the judgment.

There are three factors that a court will consider when deciding whether appointment of a receiver is justified: (1) alternative remedies available to the creditor, (2) the degree to which receivership will increase the likelihood of satisfaction, and (3) the risk of fraud or insolvency if a receiver is not appointed. Appointment of a receiver is especially appropriate when the property interest involved is intangible, lacks a ready market, and presents nothing that a sheriff can work with at an auction, such as the interest of a psychiatrist/judgment debtor in a professional corporation of which he is a member.

Here, the Plaintiff argues that a receiver is appropriate because Allen Silverman has refused to be deposed due to illness, has not turned over any property to the NYC Sheriff's Office, and there are significant concerns regarding the risk of fraud. The court agrees. Although alternate remedies may be available to the Plaintiff, such as a turnover proceeding, this option does not sufficiently protect the Plaintiff's interests in the interim, in light of prior transfers allegedly made by Allen Silverman. The receivership will also increase the likelihood of satisfaction as a receiver ensures that Allen Silverman's interests in the relevant property is preserved. The record further indicates that there is a risk of fraud absent the appointment of a receiver.

Under these circumstances, appointment of a receiver is appropriate, and especially so because Allen Silverman's membership interests in the Silverman LLCs are intangible and lack a ready market. Accordingly, the Plaintiff's motion to appoint a receiver is granted such that the receiver will receive potential distributions from the Silverman LLCs and the receiver will prevent the sale, pledge, hypothecation, or other voluntary encumbrance of his interest in such companies.

(Internal quotations and citations omitted).

We have substantial experience in helping judgment creditors collect on judgments and search for and attach assets worldwide. This decision discusses one rarely-ordered tool to help a judgment creditor collect on a judgment. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client need help collecting on a judgment.