Utah Law Developments, 0817 UTBJ, Vol. 30, No. 4. 13

AuthorDavid E. Leta, J.

Utah Law Developments, Utah Becomes First State to Enact the Uniform Commercial Real Estate Receivership Act

Vol. 30 No. 4 Pg. 13

Utah Bar Journal

August, 2017

July, 2017

David E. Leta, J.

Introduction

On March 25, 2017, Utah became the first state to enact the Uniform Commercial Real Estate Receivership Act (UCRERA), which was drafted by the National Conference of Commissioners on Uniform State Laws (the Conference) and adopted by the Conference at its annual meeting in July 2015. The Utah Uniform Commercial Real Estate Receivership Act (the Utah Act) mirrors UCRERA and applies to all commercial real property receiverships that are filed in the Utah district courts on and after May 9, 2017. The Utah Act is found at Utah Code Section 78B-21-101, et seq.

Background

Prior to the Utah Act, all state court receivership proceedings were governed by Utah Rule of Civil Procedure 66. Rule 66 is very short, and there are only a smattering of cases interpreting it. Several important questions governing receivers and receivership proceedings are not addressed in either Rule 66 or in the underlying cases. For instance, the rule states that, absent consent of all parties, a receiver cannot be “a party or attorney to the action” and must be “impartial and disinterested as to all parties and the subject matter of the action.” Does this mean that a proposed receiver is disqualified because he or she also is serving as a receiver in another pending case involving one of the parties, even if the other pending case involves different assets and different counter-parties? Is a receiver disqualified if he or she owns a bank account at a financial institution that is a party to the action? Can a receiver appointed under Rule 66 be an entity? The Rule implies that the receiver must be a “person,” but that word is undefined. What bond, if any, must be posted by a receiver? The rule makes a bond discretionary with the court and, if the court does require a bond, Rule 66 incorporates Utah Rule of Civil Procedure 64 in setting the amount. Rule 64, however, also is discretionary and is designed for situations where one of the parties is seeking to stay implementation of a provisional remedy under Rules 64A–E and 69A–C. In fact, Rule 64 does not even mention Rule 66. Can a receiver sell receivership property, and, if so, is such a sale free and clear of liens? Rule 66 allows a receiver to “make transfers” and to “take other action as the court may authorize,” but it does not address the impact of such transfers on affected constituents. Under the rule, a receiver can act, under the direction of the court, to “bring and defend actions…, seize property, to collect, pay and compromise debts…[and] invest funds,” but does this grant allow the receiver, even with court authority, to adopt or reject executory contracts? What type of notice regarding the receivership, the appointment of the receiver, or the proposed actions of the receiver must be given to parties-in-interest? Rule 66 is silent on this question. How, if at all, can parties-in-interest file claims against the receivership and participate in distributions? Again, Rule 66 is silent. Can a receiver hire professionals to assist him or her in performing duties, and, if so, how is the professional’s compensation determined? Not surprisingly, Rule 66 again is silent.

As a result of the uncertainties with Rule 66, courts and moving parties in receivership cases typically have drafted expansive receiver appointment orders that speak like operating agreements. Even here, however, there was no consistency from one case to another, from one court to another, or even between judges in the same court. In essence, prior to the Utah Act, every receivership case was an island in an archipelago, with each island governed by its own, unique receivership order. And, in every such case, there were lingering questions about whether such broad appointment orders could override other state laws governing lien rights, debt collection remedies, and foreclosure procedures.

The situation in Utah was not unique. As the Conference recognized when it appointed a special committee to draft UCRERA, [u]nfortunately, very few states have comprehensive statutory guidance regarding the appointment and powers of receivers for commercial real estate. In the vast majority of states, receivers are appointed pursuant to a court’s general equitable power to appoint a receiver, with minimal statutory guidance either expressly confirming or limiting the power of a receiver. A small handful of states (including California, Indiana, Nebraska, New Mexico, Ohio, Oklahoma, and South Dakota) provide a moderate amount of statutory guidance…. Only two states – Washington and Minnesota – provide a comprehensive statutory codification of the laws governing the appointment and powers of receivers and receivership procedures. Likewise, to date, no uniform law addresses the appointment and powers of real estate receivers in a comprehensive fashion.…As a result, there is variation from state to state with regard to the laws governing appointment and powers of receivers. Furthermore, because most states have such minimal statutory guidance, there is even variation from one county, district, parish, or municipal subdivision to the next within a state, as individual judges might have disparate perspectives on the circumstances in which a receivership constitutes an appropriate remedy.

Uniform Commercial Real Estate Receivership Act, Prefatory Note at 2 (2015), available at http://www.leg.state.nv.us/ Session/79th2017/Exhibits/Assembly/CPP/ACPP371F.pdf.

Accordingly, the Conference embarked on a four-year effort to craft a uniform statute, UCRERA. UCRERA has now been adopted by Utah. It also is being considered by other state legislative bodies, including those in Nevada, Oklahoma, and Maryland.

Summary of Key Statutory Provisions in the Utah Act

What follows is a summary of the Utah Act’s key provisions. Practitioners are urged to read the statute carefully for a more comprehensive understanding of the legislation.

Definitions: Utah Code Section 78B-21-102

For the most part, the definitions in the Utah Act are helpful but not remarkable. In general, these definitions are similar to the definitions for like terms in the Bankruptcy Code, 11 U.S.C. § 101, and in the Utah Uniform Commercial Code, Utah Code sections 70A-1a-201, 70A-2-103 through -106, & 70-9a-102. There are some differences, however. For instance, the definition of “affiliate” is much broader than that found in 11 U.S.C. § 101(2). Some defined terms, such as “companion,” “executory contract,” “owner,”...

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