Q: I was appointed receiver over a manufacturing facility. I operated it for a short time and then obtained court authority to sell it. I netted $1.4 million from the sale. The landlord agreed I could pay it the rent I owed from the net proceeds and is owed $600,000. All good, except I just learned the IRS is owed $1 million. I know receivers can incur personal liability if they pay creditors ahead of owed taxes. Do I have to pay the IRS ahead of my cooperative landlord?

A: No. What is known as the Federal Priority Act (31 U.S.C. §3713) mandates that representatives of insolvent estates, including receivers, who have knowledge of federal government claims have personal liability if they disburse estate assets to anyone ahead of the government. The priority of the government’s claims and this distribution requirement “is almost as old as the Constitution, and is roots reach back even further into the English common law; the Crown exercised a sovereign prerogative to require that debts owed it be paid before the debts owed other creditors.” U.S. v. Moore, 423 U.S. 77, 80 (1975). Despite this centuries old mandate, courts early on ruled that costs of administration take precedence over the government’s priority. Abrams v. U.S., 274 F.2d 8,12 (8th Cir. 1960); Matter of Receivership of Hollingsworth, 386 N.W. 2d 93,97 (Iowa 1986) ( “The government’s priority is subject to proper receivership expenses.”). Indeed, the IRS has conceded this. The Internal Revenue Manual, ¶ 34.4.1.7 (2016), which discusses 31 U.S.C. §3713(a), provides: “Exceptions to 31 U.S.C. § 3713(a) include:…(2) Administrative Expenses. These are expenses incurred to collect and preserve assets…Administrative expenses may be subject to a standard of reasonableness…”

Therefore, you should be safe paying the rent owed to your cooperative landlord (and your fees) ahead of the government’s claim. It would be good practice, however, to tell the IRS what you propose to do and why, to make sure it has no issues and to have the court approve the payment of the administrative expenses, including that the expenses are “reasonable”.

Q: I am a property manager for a receiver who is administrating a large apartment complex. The receiver has directed that I make certain repairs, but not others demanded by some of the tenants. Some of the tenants have threatened to sue me for not making the unauthorized repairs, for what they claim is shoddy work, and for disrupting the quiet enjoyment of their units, because of the authorized work. The receiver has told me not to worry, that I can’t be sued without prior court approval. While that may be true, what happens if the court allows such lawsuits? While I understand the receiver may have immunity, what about me?

A: The receiver is correct, you should not worry. Prior court approval to sue a receiver, known as the Barton Doctrine, Barton v. Barbour, 104 U.S. 126 (1881), has been extended to a receiver’s agents, including a receiver’s property manager. Ariel Preferred Retail Group, LLC et. al. v. CW Capital Asset Management, et. al., 883 F. Supp. 2d 797 (E.D. Mo. 2012); see also, Benta v. Christie’s Inc., 2017 WL 1345218 (D. V. I. 2017) (citing cases where Barton was applied to bar lawsuits against a receiver’s attorneys, investigators, auctioneers, real estate professionals, management companies and an antique company). The Supreme Court in Barton actually said leave of court was needed to sue a receiver for the receiver’s actions “or that of his servants.” Barton, supra. at 137.

Similarly, the immunity given to receivers, who act as agents of the court, has been extended to receivers’ agents for the same reasons. Receivers have been given immunity because they act for the court in carrying out its orders. Courts have held such immunity is required, otherwise litigants might try to circumvent court orders by attacking the court’s agent. “It would make the receiver a lightning rod for harassing litigation aimed at judicial orders. In addition to the unfairness of sparing the judge who gives an order while punishing the receiver who obeys it,…” Kermit Const. Corp. Banco Credito Y Ahorro Onceno, 547 F.2d 1,3 ( 1st Cir. 1976). Courts have also pointed out that absent such immunity “such persons will be reluctant to accept court appointments or provide work product for the Court’s use. Additionally, the threat of civil liability  may affect the manner in which they perform their jobs.” Howard v. Drapkin, 222 Cal. App. 3d 843, 901 (1990). These grounds for receiver immunity apply equally to a receiver’s agent, who is aiding a receiver in carrying out a court’s orders.

In a recent case a receiver was appointed to manage three nursing homes. The receiver hired a management company to operated the nursing homes. After the receiver sold the nursing homes, the buyer sued the management company for conversion, unjust enrichment and gross negligence related to its management of the nursing homes. The court dismissed case, finding the management company shared the receiver’s immunity. “As an agent of the Receiver, Benchmark [the management company] is entitled to quasi-judicial immunity for actions taken in carrying out the court’s order to operate the nursing homes.” Micha US LLC v. Benchmark Healthcare Consultants LLC, 2022 WL 2867183 *4 (E.D. Mich. 2022). The court went on to note: “This limitation of liability is consistent with the general rule that receiver’s and their agents are entitled to quasi-judicial immunity for actions taken within the scope of their authority as officers of the court.” Id. See also, Blacktail Mountain Ranch Co., LLC. v. Jones, 611 Fed. App. 430 (9th Cir. 2015) ( dismissing case against receiver and “receiver’s agents” based on judicial immunity); Smallwood v. U.S., 358 F. Supp. 398 ( E.D. Mo. 1973) (same). Therefore, to quote Bobby McFerrin, “Don’t worry be happy, in every life we have some trouble, but when you worry you make it double.”