Receivers, Special Fiscal Agents, and Writs of Execution

New Jersey Realty Concepts v. Mavroudis, 435 N.J. Super. 118 (App. Div. 2014).  For over sixty years, it has been the law that “money or other property in the hands of an officer of a court is regarded as being in custodia legis, and in consequence ordinarily cannot be reached by execution in the absence of legislative authority.”  Naglieri v. Trabattoni, 20 N.J. Super. 173, 176 (App. Div. 1952).  In this opinion by Judge Leone, the Appellate Division recognized that, under that principle, funds controlled by a court-appointed receiver are not subject to execution.  The question here was whether the rule was the same where, as in this case, a Special Fiscal Agent (“SFA”) rather than a receiver, is in control of the funds.  The panel concluded that the funds were not in custodia legis and reversed the contrary ruling of the Chancery Division that had quashed a writ of execution and levy.

Though the Chancery Division had discretion in appointing a receiver or SFA, the Chancery Division’s legal conclusion as to the validity of the execution was not entitled to any deference on appeal.  Instead, the de novo standard of review applied.

Issues relating to receivers are not often the subject of published opinions, with some of the few leading cases still dating back to the 1950’s.  Judge Leone provided a useful discussion of the court’s power to appoint a receiver and the reasons that justify such an “extraordinary remedy,” which “can have the effect of injuring the business in its relations with the public and its customers.”  He then noted that “the mere appointment of a receiver operates to place property in custodia legis and automatically prohibits its sale in the absence of the approval of the court.”  Here, however, the Chancery Division had taken “the less drastic action” of appointing the SFA.  SFA’s have “circumscribed powers” to oversee solvent businesses, in an effort to avoid the need for a receiver.

No case had stated that funds held by a special fiscal agent are in custodia legis.  The order appointing the SFA here did not so state.  Nor did the order bear any of the hallmarks that might have established in custodia legis, such as requiring periodic accountings so that the court could “monitor property in the court’s custody,” or court approval for the sale of property.

Moreover, Judge Leone stated, the test for in custodia legis looks at whether enforcement of process by another court would cause “substantial confusion or embarrassment” to the court that appointed the SFA.  Here, the SFA had been appointed because the Mavroudis defendants, who had been the managing agent for the property in which the party seeking to collect funds had installed equipment for which that party sought to be paid, were allegedly misappropriating funds.  For that reason, control was taken from them and given to the SFA, “in order to ensure some protection to the parties from further misappropriation.  Allowing the collection of debt through execution of judgment does not thwart the goal of preventing managerial misappropriation.”

Finally, Judge Leone observed that the panel’s ruling on this issue, and its rejection of an alternative basis for the Chancery Division’s decision, was “consistent with the general policy favoring the enforcement of judgments.”  The creditor had a right to enforce the judgment.  The panel directed that the funds at issue be released to satisfy the judgment.