On March 31, 2015, the Arizona Court of Appeals held in AEA Federal Credit Union v. Yuma Funding, Inc., that it lacked jurisdiction to hear an appeal from an order declining to set aside an order appointing or releasing a receiver, because such orders are not final or appealable under A.R.S. § 12-2101(A)(5)(b). This means that even if a trial court erroneously appoints a receiver, the Court of Appeals cannot, and will not, review the appointment unless the objecting party timely appeals the appointing order. Even then, because the appointment of a receiver is reviewed on the very demanding “abuse of discretion” standard, the aggrieved party will face a difficult burden obtaining relief from the appellate court.

The Facts

The interesting facts that led to this holding highlight the numerous practical difficulties that often arise in receivership actions.

AEA Federal Credit Union (AEA), a secured lender, made nearly 300 loans to Yuma Funding, Inc. (Yuma Funding). Yuma Funding, in turn, made car loans to individuals. AEA secured its loans to Yuma Funding with liens on the purchased vehicles. Starting in September 2009, Yuma Funding stopped paying AEA, and AEA subsequently filed suit for damages and a receiver.

In the complaint, AEA alleged that: (i) one of the principals of Yuma Funding was attempting to remove or destroy Yuma Funding’s business records, and (ii) even though the loan documents required Yuma Funding to make financial information available to AEA, Yuma Funding had twice denied AEA access to the very business records that were being destroyed.

Based on these allegations, AEA sought, and obtained, an ex parte order appointing a receiver over Yuma Funding. The trial court specifically found that “the opportunity to satisfy the outstanding obligations of [Yuma Funding] owed to [AEA] w[ould] be lost or substantially impaired” if a receiver was not appointed on an expedited basis. The appointing order gave the receiver broad powers to manage the affairs of Yuma Funding and to make payments to AEA after the payment of operating expenses and receiver’s fees. The order became effective on January 25, 2010 when the receiver posted a $100,000 bond.

Although the principals of Yuma Funding appeared and participated in the trial court proceedings, Yuma Funding never obtained counsel, made an appearance or requested a hearing to object to the appointment. Accordingly, the receiver went about his court-ordered tasks and managed the operations of Yuma Funding.

In June 2010, AEA filed a motion to terminate the receivership and to direct the receiver to transfer all of the property in the receiver’s possession to AEA to satisfy Yuma Funding’s debt to AEA. The court granted this motion in July 2010.

Two years later, AEA filed a motion to dismiss to case and release the receiver bond. Yuma Funding, in its first formal appearance in the case, objected and instead requested that the court set aside the order appointing receiver and “restore the status quo ante as it existed in January 2010.” Yuma Funding argued that jurisdictional defects and due process violations required the court to basically unwind the entire case. The trial court denied Yuma Funding’s motion, and released the bond. Yuma Funding appealed this order.

The Appeal

On appeal, AEA argued that the Court of Appeals lacked jurisdiction under A.R.S. § 12-2101(A)(5)(b). This statute authorizes an appeal from an order “[g]ranting or dissolving an injunction, or refusing to grant or dissolve an injunction or appointing a receiver.” (Emphasis added). AEA argued that the statute limits appeals to the order appointing a receiver and nothing else. Yuma Funding countered that the plain language of the statute allowed for an appeal from an order “refusing to grant or dissolve an … [order] appointing the receiver.”

The Court of Appeals agreed with AEA and noted that Yuma Funding’s interpretation would “lead to an illogical result, where only the refusal to grant or dissolve the appointment of a receiver – and not an order of appointment – would be appealable.” Thus, even though Yuma Funding argued that the trial court lacked the jurisdiction to appoint a receiver and abused Yuma Funding’s due process rights by doing so, the Court of Appeals found that it could not review any of the trial court’s rulings. The Court of Appeals found no issue with limiting appeals to the appointing order itself because “[t]he appointment of a receiver sets in motion a series of events that cannot easily be unwound and may have significant effects on relationships and transactions involving non-parties.” Thus, the legislature’s intent to limit appeals to the appointing order (rather than to subsequent orders entered after the receivership begins in earnest) made perfect sense.

Yuma Funding also argued that even if the statute did not authorize an appeal, then the Court of Appeals should nevertheless accept special action jurisdiction given the seriousness of the alleged errors. The Court of Appeals declined, noting that generally the court will not exercise special action jurisdiction where an appeal from an otherwise appealable order is not timely filed.

Conclusion

Since the appointment of a receiver “rests in the sound discretion of the trial court” and is reviewed on an appeal under the very demanding “abuse of discretion” standard, Gravel Res. of Arizona v. Hills, 217 Ariz. 33, 37-8, 170 P.3d 282, 286-7 (Ct. App. 2007), the AEA decision affords the trial court with a great deal of leeway in appointing and directing its receivers. Going forward, AEA makes it clear that parties contesting orders in receivership cases will have a difficult time obtaining relief from the appellate court.