Using Recievers to Collect Judgments Against Intellectual Property Assets

more+
less-

QUESTION: I have been asked to be a receiver to help collect a judgment. The judgment debtor has intellectual property assets. Plaintiff’s counsel has asked me how hard it will be to get me appointed and if I would be able to sell the judgment debtor’s intellectual property to satisfy the judgment. What should I tell her?

ANSWER: The statutory showing to get a receiver in aid of execution appointed is often high, but it should not be. The problem, in most cases, is the reluctance of many judges to appoint receivers to enforce judgments because of the perceived costs and the unfortunate language used by the State Legislature in amending the statute regarding appointment of postjudgment receivers in 1982. Indeed, the 1982 amendment was intended to make it easier to get post-judgment receivers appointed, but it appears to have had the opposite effect.

Code of Civil Procedure §708.620 states the circumstances under which the appointment of a receiver in aid of execution is appropriate. “The court may appoint a receiver to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of the receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment.” The 1982 amendment to the statute eliminated a former prerequisite of showing that a writ of execution had been returned unsatisfied or that the judgment creditor refused to apply property in satisfaction of the judgment. When the statute was amended the Legislature, for some reason, also added the language that the court should consider the “interests of both the judgment creditor and the judgment debtor”. One has to wonder what the legislators were thinking. When would it ever be in the judgment debtor’s interests to have a receiver appointed to help collect a judgment that the judgment debtor refused to pay? The concept is so odd that the Rutter Guide on Enforcing Judgments and Debts simply leaves this requirement out of its discussion of the statute, focusing instead on the requirement that the appointment is a “reasonable method to obtain the fair and orderly satisfaction of the judgment”.

The strongest argument to use in seeking appointment of a receiver in aid of execution is that the judgment debtor has assets that could be liquidated to satisfy the judgment, in whole or in part, but that those assets cannot be reached by a writ of execution. Indeed, the Legislative Committee Comments to C.C.P. §720.620 state: “A receiver may be appointed where writ of execution would not reach certain property and other remedies appear inadequate”. The primary examples are an alcoholic beverage license — because C.C.P. §708.630 provides the appointment of a receiver is the only method to apply a judgment debtor’s interests in such a license to the satisfaction of a judgment — and intellectual property, such as patents, trademarks, copyrights and (more recently) websites and domain names, because no method of levy exists for general intangibles such as intellectual property.

The order appointing the receiver should specifically provide that the intellectual property (spell-it-out: patents, trademarks, domain names, etc.) are vested in the receiver, who is authorized and directed to take control of and sell the intellectual property to satisfy the judgment. Once appointed, there are various methods of selling intellectual property. Beside contacting others in the judgment debtor’s industry to see it they might be interested in the assets, there are many websites that can be used to sell such assets such as Ebay and www.bankruptcysales.nabt.com (used by bankruptcy trustees to sell assets). A number of websites specialize in holding on-line auctions specifically for intellectual property. For example, www.afternic.com and www.sedo.com. specialize in sale of domain names. For patents try www.freepatentauction.com. There are many more on the web. You may want to seek instructions from the court as to the method you intend use to sell the intellectual property so that all parties have notice of what you intend to do. In addition, if possible, you may want to have the sale subject to court confirmation where overbids may be permitted so as to maximize the value of the assets you are selling.

Another advantage of using a receiver in aid of execution is that the receiver’s fees and costs can be added to the judgment, so the judgment debtor ends up paying for them. C.C.P. §685.070(a)(5).