FORT LAUDERDALE BUSINESS LITIGATION: SHAREHOLDER DERIVATIVE LAWSUIT AND RECEIVER

In a derivative shareholder action where corporate waste is alleged, it might be prudent to ask the court to appoint a receiver to take control of the corporation. Tampa Waterworks Co. v. Wood, 121 So. 789 (Fla. 1929) (holding that a shareholder can request a court of equity to appoint a receiver to manage the affairs of a corporation). A “receiver” is a neutral person appointed by a court to protect and preserve property during litigation. See Knickerbocker Trust Co. v. Green Bay Phosphate Co., 56 So. 699 (Fla. 1911). A court exercises its powers to appoint a receiver with great circumspection. “A receiver may be appointed to wind up affairs of a corporation or manage and operate its business when actual fraud, or mismanagement amounting to fraud upon the right of a minority stockholder or creditor which [may] reasonably portend imminent danger of loss of corporate assets and seriously threaten corporate existence, is clearly established.” McAllister Hotel v. Schatzberg, 40 So. 2d 201 (Fla. 1929). Peter Mavrick is a Fort Lauderdale business litigation attorney. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The authority of a receiver is determined by the court. The court should allocate the receiver’s authority by describing the authority parameters in its order appointing the receiver. However, the trial court cannot provide the receiver overly broad authority to act on behalf of the corporation. See MB Plaza, LLC v. Wells Fargo Bank, Nat’l Ass’n, 72 So. 3d 205 (Fla. 2d DCA 2011) (stating that trial court granted too broad of authority to receiver, including authority to market and sell commercial property in foreclosure proceeding). A court should limit a receiver’s authority to the necessary issue at hand.

It is not uncommon for a court to confer the receiver with authority to manage the affairs of the corporation. The receiver can therefore market and sell the corporation’s property under certain circumstances. While “[a] sale by a receiver is ordinarily improper, . . . there are instances in which a sale by a receiver is expedient and proper.” Fugazy Travel Bureau, Inc. v. State by Dickinson, 188 So. 2d 842 (Fla. 4th DCA 1966). Sales commenced by a receiver are permitted when “the character of the property or the surrounding circumstances are such as to render a sale necessary for the adequate protection of the rights of the parties.” A sale should be closely watched by the court, and will only be approved if the sale is for at least the reasonable value of the property. For example, in Bailey v. Treasure, 462 So. 2d 537 (Fla. 4th DCA 1985), the court refused to approve of the sale of orange groves where the receiver did not present evidence of the reasonableness of the price.

A receiver can also file lawsuits and settle claims on behalf of the corporation, with court approval. Freeman v. Dean Witter Reynolds, Inc., 865 So. 2d 543 (Fla. 2d DCA 2003) (“It is axiomatic that . . . a receiver obtained the rights of action and remedies that were possessed by the person or corporation in receivership.”).

Requesting the court to appoint a receiver can be an important option in a shareholder derivative suit where fraud or corporate waste is alleged. If granted, the receiver can have a significant impact on corporate control because he or she will predominantly control the corporation to the likely exclusion of all others.

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.