Morgan Stanley Smith Barney LLC v. Johnson

Background

At Morgan Stanley Smith Barney LLC’s request, the court appointed Timothy G. Becker of Lighthouse Management Group, Inc. as receiver over Defendant Christopher Johnson’s property and assets. The receiver examined Johnson’s businesses and other assets and issued a report and recommendation. The receiver’s appointment was later affirmed by the U.S. Court of Appeals for the Eighth Circuit.

Morgan Stanley had sought to hold Johnson in contempt and require him to pay approximately $150,000 for the receiver’s fees and expenses. Before the court considered that request, Johnson filed for bankruptcy protection, causing the court to stay consideration of the contempt motion. The receiver then asked the court to require Morgan Stanley to pay $149,735.40 in fees and costs and to discharge him from the case.

Arguments

Morgan Stanley conceded that the receiver had completed his duties and could be discharged. It opposed paying the fees, arguing that the bankruptcy court should determine the receiver’s claim along with the other claims against Johnson. Morgan Stanley also argued that the requested fee was too high and should be examined, and that it would be unfair to require Morgan Stanley to pay because it might not be reimbursed from Johnson’s bankruptcy estate.

Court’s Analysis

The court explained that receiver expenses generally are charged against receivership funds rather than the party that requested the appointment. But the court also recognized that it has discretion to require the requesting party to pay when the receivership was for that party’s sole benefit and the available funds may be insufficient.

The court found that Morgan Stanley knew, or should have known, that the receiver might not recover enough assets to pay his fees. It noted Morgan Stanley’s history of trying to collect Johnson’s undisputed debt, Johnson’s refusal to pay, Morgan Stanley’s choice not to foreclose on Johnson’s limited-liability-company interests after receiving permission to do so, and the receiver’s role in helping Morgan Stanley pursue a separate fraudulent-conveyance action. The court also found the requested fees and costs reasonable for the work performed in the complex matter. Because the receiver was an officer of the court and Morgan Stanley alone benefited from his work, the court concluded that fairness required Morgan Stanley to pay.

Order

The court granted the receiver’s motion. It discharged the receiver from further duties relating to the case and ordered Morgan Stanley to pay the receiver’s reasonable fees and expenses in the amount of $149,735.40.