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Kaufman v. 53 Duncan Investors, L.P.

368 N.J. Super. 501, 847 A.2d 35 (App. Div. 2004)

RECEIVERS—There is a distinction between the powers of a custodial rent receiver and those of a statutory receiver, such that the rent receiver may be reimbursed for reasonable attorneys fees paid by it even if the hiring was not first approved by a court.

A company was appointed to act as rent receiver for various mortgagees of multiple condominium units. Because of the condominium association’s poor financial condition, the company assumed the role of the association’s property manager. After serving as rent receiver for eleven years, the rent receiver moved to be discharged and compensated for its work and expenses and to be reimbursed for its attorneys’ fees. It claimed that those fees were below prevailing rates, and that the mortgagees benefitted by those low rates. It submitted a supporting attorney’s certification. The application was opposed by a mortgagee who, following foreclosure, took title to most of the units. It argued that the receiver was not entitled to be reimbursed for attorneys’ fees because the court had not approved engaging the attorneys. The Chancery judge agreed, and the company was denied its request for counsel fees.

In rejecting the application, the lower court applied an “absolute rule,” forbidding the rent receiver’s compensation for the fees of attorneys whose employment were never approved by the court. The Appellate Division rejected using the “absolute rule” under Court R. 4:53-3 and R. 4:53-5 because it applied to statutory receivers, custodial receivers, and other trustees for distressed business associations, but not to rent receivers. It first noted the difference between “equity receiverships” and rent receiverships. Equity receivers are imposed for the safeguarding or liquidation of corporations and partnerships; rent receivers are imposed for the protection of a mortgagee. Furthermore, the authority to appoint a rent receiver is contractual, and its purpose is to protect the mortgagee’s interests by imposing a court-supervised entity to collect the rents and pay expenses pending the ultimate disposition of the mortgaged premises. Custodial receivers and statutory receivers have different underpinnings. Custodial receivers are a product of the court’s inherent equity jurisdiction, and the position of a statutory receiver is purely statutory. Custodial receivers are appointed to maintain the status quo for a definite period of time, usually during the pendency of litigation. A statutory receiver is used to liquidate a corporation, even beyond the length of an underlying lawsuit.

The Court held that R. 4:53 only applies to custodial and liquidation receivers for troubled business entities, and not ro rent receivers. Furthermore, the Rule does not expressly prohibit compensation for services rendered prior to a court’s approving employment of counsel. On the other hand, even though R. 4:53 does not apply to rent receivers, the Court did not suggest that an appointing court does not possess authority to govern the actions of its appointed rent receiver. For example, if a rent receiver hired an attorney without the court’s approval and it is later discovered that the attorney would not have been appointed because of a conflict of interest, compensation would be unwarranted. Also by example, if the appointment did not serve any valid purpose, it would also be inequitable to allow compensation. Absent such circumstances, there is no reason to for a court to refuse to consider the reasonableness or necessity of the fees generated before the attorney’s hiring was approved by the Court.

Therefore, the Appellate Division remanded the matter for the lower court to rule on the extent to which the attorneys’ fees were reasonable or necessary in the fulfillment of the rent receiver’s obligations.

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