No Claim for Breach of Duty Against Court Appointed Receiver

No Claim for Breach of Duty Against Court Appointed Receiver

      In a decision rendered last Friday by the Kentucky Court of Appeals it was held, inter alia, that the owners of a business undergoing dissolution have no claim for breach of fiduciary duty against a court-appointed receiver. Rather, the receiver is an officer of the court and is covered by quasi-judicial immunity. Farmer v Miller, No. 2014-CA-000330-MR (Ky. App. July 15, 2016).

      John Farmer and Dennis Boehm had been the co-owners of a company named Bluegrass Recovery & Towing, LLC. The company was subject to a series of both financial difficulties and disagreements between Farmer and Boehm, leading to several pieces of litigation between them. At one juncture, Farmer and Boehm agreed to the appointment of a receiver, Stephen Miller. Miller was charged to “work with the parties to liquidate the business,”, and both Farmer and Boehm were charged to “cooperate with Mr. Miller so that he can appropriately perform his work.” Slip op. at 4. But then:

Pursuant to the directives of the trial court, Miller took control of the remaining assets of Bluegrass and attempted to assist the parties in finalizing dissolution and liquidation. However, the parties continue to quarrel and did not cooperate with Miller's efforts. Miller ultimately liquidated all of the assets of Bluegrass except the real property encumbered by the National City Bank mortgage. Id.

       After additional litigation, including in connection with the bank's foreclosure on the real property, Farmer filed this lawsuit against Miller alleging negligence, breach of fiduciary duty and breach of contract. Slip op. at 6. Filed against Miller in his individual capacity rather than in his role as the court-appointed receiver:

The Complaint alleged Miller had acted outside the scope of his court-order duties as receiver for Bluegrass, resulting in substantial negative financial implications for Farmer. Specifically, Farmer alleged Miller failed to make regular mortgage payments to National City Bank, real property taxes, insurance and property maintenance expenses although he had sufficient Bluegrass assets from which to do so. Farmer contended these actions resulted in foreclosure, imposition of tax liens, seizure of his personal funds, and reduction in value of the real property. Slip op. at 7.

      In response, Miller filed a motion to dismiss on the basis of quasi-judicial immunity. Farmer responded by asserting that the actions of which he complained were ministerial in nature, and that no immunity should attach for the negligent performance thereof.

      The trial court granted the motion to dismiss, treating it as a motion for summary judgment, and this appeal followed.

       Adopting the reasoning of the trial court, the Court of Appeals found that Miller, as a court-appointed receiver, was entitled to quasi-judicial community. The court held that a receiver is obligated to do only those things that the court has directed them to do, and that efforts such as that of Farmer to impose additional duties, if enforced, “would result in sanctioning an inappropriate expansion of Miller’s duties beyond the trial court’s explicit directives.” Slip op. at 12.