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Michigan Court of Appeals Interprets Process for Receivership Appointments

June 16, 2016

Michigan Court Rule 2.622 (the “Receivership Rule”) governs the appointment of receivers. The Receivership Rule was amended in 2014 to provide more explicit guidance on what courts and attorneys should consider when nominating a receiver. Specifically, the 2014 amendments addressed concerns that trial courts were disregarding qualified nominations made by the parties to the litigation in favor of judicial discretion in appointing a disinterested party to maintain the receivership estate. Pursuant to the 2014 amendments to the Receivership Rule, a judge must defer to the parties’ choice of a receiver unless the judge determines that a different receiver should be appointed and states the rationale for this determination after considering the several factors laid out in the Receivership Rule.

The Michigan Court of Appeals recently interpreted the amended Receivership Rule in Casa Bella Landscaping, LLC v. Lee and held that the trial court erred when it appointed its own choice of receiver instead of the plaintiff’s qualified nominee, even where there had been no objection by the defendant. In reaching its decision, the Court of Appeals concluded that the trial court must first find that the nominated receiver was not qualified to serve as a receiver or should not be appointed for some other reason articulated with specificity and supported by record evidence. Because the trial court made no findings that the plaintiff’s nominee for receiver was not qualified, did not refer to any of the factors for qualification set forth in the Receivership Rule (e.g., relevant receivership knowledge), and did not state its rationale for its alternative selection, the Court of Appeals determined that the trial court did not comply with the Receivership Rule. As a result of the Court of Appeals’ decision, the plaintiff was able to put forward a new receivership candidate of its choosing.

Going forward, if a party to litigation desires that a particular receiver candidate be appointed, they must be ready to explain in detail how and why that candidate is best suited for the appointment. Furthermore, if there is opposition to a judge’s appointment of a particular receiver, the reasons for opposition should be articulated on the record, together with the rationale for choosing an alternative nominee. For example, it may be advisable to demonstrate the nominated receiver’s qualifications through affidavits, resumes, marketing materials, and testimony at the receivership hearing.

For more information about strategies for appointing a receiver, please contact the author of this alert, Daniel Schairbaum (313-568-5352, dschairbaum@dykema.com), Laura Weingartner (313-568-5417, lweingartner@dykema.com), Adam Fishkind (248-203-0749, afishkind@dykema.com), or your Dykema relationship attorney.

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