When I wrote last week about Americana Development, Inc. v. Ebius Trading & Distributing Co., the Business Court had entered a TRO against the Defendants prohibiting them from disposing of the intellectual property of Defendant Ebius Trading and using the proceeds to pay off debts which had been personally guaranteed by its officers and principals.
This week, the court followed up with an Order granting a Preliminary Injunction prohibiting the same conduct, and it has also appointed a Receiver to handle the disposition of the assets of the Defendants.
If you are not familiar with the concept of receivership, North Carolina allows for the appointment of a receiver "when a corporation becomes insolvent or suspends its ordinary business for want of funds, or is in imminent danger of insolvency. . . ." N.C. Gen. Stat. §1-507.1. It is often referred to as the state law equivalent of bankruptcy.
You might be wondering why injunctive relief wasn’t sufficient in this case. Judge Jolly expressed concern about the willingness of the individuals associated with the corporations to promptly liquidate the intellectual property of the entities. He said that:
the value of the intellectual property has a finite shelf life. Federal courts have long recognized that the appointment of a receiver (or interim trustee in bankruptcy) may be necessary to promptly liquidate assets when the assets are ‘liable to deteriorate in price and value.’
Op. ¶28 (quoting Collier on Bankruptcy ¶2002.02).
He granted the Receiver broad powers, literally running from a to z in the Court’s Order.
The only one that I blinked at was its ruling that the person appointed as the Receiver (a lawyer in a law firm) would be entitled to the "customary hourly rates" for him and other members of his firm. Order at 17. That may be excessive unless the Receiver or members of his firm end up performing services "beyond the ordinary routine of a receivership," as the receivership statute says that:
the court shall allow a reasonable compensation to the receiver for his services, not to exceed five percent upon receipts and disbursements, and the costs and expenses of administration of his trust and of the proceedings in said court, to be first paid out of said assets. The court is authorized and empowered to allow counsel fees to an attorney serving as a receiver (in addition to the commissions allowed him as receiver as herein provided) where such attorney in behalf of the receivership renders professional services, as an attorney, which are beyond the ordinary routine of a receivership and of a type which would reasonably justify the retention of legal counsel by any such receiver not himself licensed to practice law.
If you are thinking that this receivership remedy sounds attractive and is easy to obtain, you are wrong. Judge Jolly stated at the outset of his opinion that "receivership is a ‘harsh’ remedy and ‘should be utilized only with "attendant caution and circumspection."’ He also said that "a receivership is appropriate ‘only where there is no other safe or expedient remedy.’" Op. ¶24.
In the circumstances of this case, where the principals of the corporations were "engaged in fraud and gross misconduct in the management" of those corporations (Order ¶26), the appointment of a Receiver was deemed appropriate.
Don’t forget that this outstanding result was obtained by my Brooks Pierce colleague Clint Morse.