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Receivership Case Analysis

According to the allegation in the petition to intervene, the supplier never knew that it was dealing with a receiver, rather than its original client.

The key question raised by this case is what such a supplier should do if the receivership terminates before he gets paid or is given notice of the receivership.

The fact that the proceedings have terminated, and the receiver discharged, is not necessarily a bar to intervention. Even after an action has ended, a party may intervene upon a showing of justification for not intervening while the action was still pending. C.L. v. Edson, 140 Wis.2d 168, 409 N.W.2d 417, 420 (Ct.App.1987); Sewerage Comm’n. v. DNR, 104 Wis.2d 182, 311 N.W.2d 677, 680 (Ct.App.1981).

It is also arguable that a receiver should be estopped from even objecting to a supplier’s motion to intervene. C.J.S. Receivership sec. 173 (2005) states, “One contracting with the court through the receiver, becomes in effect a party to the receivership proceeding in respect of the court’s future dealings with him and his rights under the contract.”

If this principle were to be adopted in Wisconsin, then a receiver makes a supplier “in effect a party to the receivership proceeding,” merely by contracting with him, and thus, could perhaps be estopped from objecting to the supplier’s participation in the action.

Another avenue is to vacate confirmation and discharge of the receiver. A footnote in the opinion discusses such a possibility briefly.

Footnote 5 states, “Reinhart would have us conclude that receivers appointed under Wis. Stat. sec. 813.16(1), like those governed by Wis. Stat. sec. 128.14, should be required to give notice of the receivership to all who supply goods or services to a business being operated by the receiver. It argues that, because it had no notice of the receivership, it was unable to take timely steps to protect itself, such as terminating food deliveries to the nursing homes or requiring cash pre-payments for all deliveries. If we were to conclude that a supplier of goods to a receiver appointed under sec. 813.16(1) has no right to intervene in the receivership proceeding to advance a claim for payment for goods delivered during the receivership, we might conclude that it would be unfair for a receiver not to give notice that the business was in receivership and that suppliers of goods might not get paid for their deliveries. However, because we conclude that Reinhart has a right to intervene, and that it has done so in a timely fashion, we do not address whether the lack of notice to Reinhart of the receivership constituted actionable fraud or other wrongdoing, as Reinhart asserts.”

The court states it “might conclude” that it would be unfair for receivers not to give notice to suppliers that it is in receivership; there is precedent to support an argument that it is unfair.

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Wisconsin Court System

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CJS Receivership sec. 176 (2005) provides, “So well settled is the rule that a receiver has no authority to deal with or expend the trust property without the authorization or approval of the court, that all persons dealing with a receive are bound to take notice of the extent of, and the limitations on, his authority, and so deal with him at their peril with respect to the liability of the trust estate.”

Implicit in this statement is that the receiver has given notice to the other party that he is acting in a receivership capacity.

Longstanding Wisconsin law recognizes as much. In Delbridge v. Kaukauna Fibre Co., 165 Wis. 435, 162 N.W. 478, 479 (1917), the court wrote, “All parties dealing with a receiver are charged with knowledge of [the receiver’s limitations].” Again, it is implicit that those parties know they are dealing with a receiver.

When a supplier knowingly does business with a receiver, he knows that there may not be enough money to go around, and he may not get paid, and can’t complain if that winds up being the case; if he wants to be guaranteed payment, cash on delivery is his only protection.

That is a fair legal principle only if the supplier has been given notice that he is doing business with a receiver.

– David Ziemer

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David Ziemer can be reached by email.

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