Opinion ID: 438944
Heading Depth: 2
Heading Rank: 1

Heading: Summary Procedure.

Text: 18 Tenneco argues that the district court improperly ordered the payment after summary proceedings ancillary to the main action, United States v. Arizona Fuels Corp. Instead, Tenneco argues, the Receiver should have sought to recover the funds by filing a plenary action against Tenneco, with all the procedural trimmings of the Federal Rules. See Fed.R.Civ.P. 66. 19 Rule 66 provides that the Rules apply to actions by or against the Receiver, but does not speak to the procedures that a court is to use in administering a receivership. Rule 66 neither authorizes nor precludes the use of summary proceedings rather than actions under the Rules in circumstances such as the present one. 20 Although precedents are few and far between, the traditional rule is that summary proceedings are appropriate and proper to protect equity receivership assets. Bien v. Robinson, 208 U.S. at 428, 28 S.Ct. at 381; McMullen v. Hurley, 8 Cir., 1923, 291 F. 374, 376; 2 Clark on Receivers Sec. 584 at 954 (3d ed. 1959). See also Republic Supply Co. v. Richfield Oil Co., 59 F.2d at 36 (not reviewing the propriety of the summary procedure because the appellant waived the issue by its general appearance in response to a petition, in a case involving an order to turn over property held as a setoff). A receiver may proceed summarily to recover money belonging to the receivership by petition to the appointing court for an order to show cause against a possessor not a party to the original action. 75 C.J.S. Receivers Secs. 319, 118 n. 57. Receivership courts have the general power to use summary procedure in allowing, disallowing, and subordinating the claims of creditors. 1B J. Moore, Moore's Federal Practice p 0.419[2.-1] at 600 (2d ed. 1983 rev.). 21 Tenneco cites cases holding that, in particular circumstances, a receiver must file a plenary action against a third party who possesses claimed receivership property, rather than invoking summary proceedings ancillary to the main action. 22 This is true when, for example, a receiver asks the court to determine the ultimate merits of the parties' claims to the property. In Dold Packing Co. v. Doermann, 8 Cir., 1923, 293 F. 315, the receiver filed an application and petition attacking the validity of a contract; the district court issued an order to show cause; Dold contested the procedure and lost, then contested the substance and lost. 293 F. at 320-21. The appellate court held that the summary procedure was improper to adjudicate the receiver's contractual claim against a non-party (to the main action) possessor of claimed receivership property. 293 F. at 331. Tenneco, as a non-party asserting a contractual right to setoff, argues that this case is similar. But here the district court did not decide the Receiver's and Tenneco's ultimate rights, i.e., the validity of Tenneco's contractual claims based on Arizona Fuels' alleged December and May deficiencies. Rather, the district court determined who was entitled to interim possession of the funds, under the rule against setoff of pre-receivership debts with receivership assets. 23 Similarly, American Brake Shoe & Foundry Co. v. New York Railways Co., 2 Cir., 1926, 10 F.2d 920, in which a receiver invoked summary proceedings to claim funds held by third party fiduciaries, recited the well settled rule that in such a situation a receiver must bring an ancillary plenary suit, rather than proceeding summarily. 10 F.2d at 921. Again, the present case differs because it did not ultimately resolve adverse claims to property. See McMullen v. Hurley, 291 F. at 376. 24 Moreover, Judge Learned Hand held in American Brake Shoe that summary proceedings were proper where the third person is made a party to the suit or where the third person becomes sufficiently involved in the receivership action, for example by intervening. 10 F.2d at 921. Here, Tenneco was no stranger to the receivership proceedings. As one of Arizona Fuels' two major creditors, Tenneco was specifically named in and served with the June 9 order of appointment [R. 210 at 5]. Tenneco was served with the June 15 order enjoining Arizona Fuels' being put into bankruptcy, and its counsel appeared at the June 15 preliminary injunction hearing. Tenneco did not oppose the appointment or continuation of the receivership [R. 354 at 5]. 25 Because Tenneco had ample notice of and opportunity to contest the Receiver's challenge to the claimed setoffs, there was no denial of due process. See Goss v. Lopez, 1975, 419 U.S. 565, 578-79, 95 S.Ct. 729, 738, 42 L.Ed.2d 725; Mullane v. Central Hanover Trust Co., 1950, 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865. 26 Tenneco argues that the use of summary proceedings improperly assumed that the funds were receivership property. But Tenneco's setoffs themselves presumed that the funds were Arizona Fuels', and thus available for setoff against Arizona Fuels' debts. As of June 9, all that had been Arizona Fuels' became the Receiver's [R. 210 at 1]. 27 Tenneco argues that the funds in its possession were presumptively Tenneco's. But possession is not determinative; summary proceedings are appropriate to determine right to possession, although not ultimate rights to title or ownership. See Bien v. Robinson, supra; McMullen v. Hurley, supra. Tenneco's argument would universally preclude summary proceedings to protect receivership assets from illegitimate but minimally articulate possessors. The authorities reviewed above are contrary. 28 The district court's order determined the Receiver's right to possession of the funds, based on adjudication of the right to setoff, without determining the validity of Tenneco's claims as a creditor of Arizona Fuels. We hold that summary proceedings were appropriate and proper for this purpose. 29