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Ninth Circuit Provides Clarity On The Scope Of Receiverships – Copyright



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The US Court of Appeals for the Ninth Circuit affirmed an order
denying the defendants’ motion to discharge a receiver who had
been appointed to aid in the execution of a judgment for violations
of the Copyright Act. WB Music Corp et al. v. Royce
International Broadcasting Corp.
, Case No. 21-55264 (9th Cir.
Aug. 31, 2022) (Tashima, Watford, Friedland,
JJ.)

The receivership in this appeal arises from litigation that
commenced in 2016 in the US District Court for the Central District
of California by a cohort of music publishers for broadcasting the
plaintiffs’ music on radio networks in violation of the
Copyright Act. In 2017, the district court found the defendants
jointly and severally liable for copyright infringement.

A jury awarded the plaintiffs statutory damages totaling
$330,000 and the district court entered a judgment in that amount.
The defendants continuously refused to satisfy the judgment, and
after much litigation, the court entered an amended judgment for an
additional $1.25 million and attorneys’ fees of more than
$900,000.

The defendants’ only assets were their Federal
Communications Commission (FCC) licenses. The district court
ultimately appointed a receiver who was entrusted with “the
power and authority to take charge of and manage [the
defendants’] [r]adio stations’ assets, businesses, and
affairs,” as well as the ability to solicit offers for the
sale of the stations. The court’s order also provided that the
receiver would incur a monthly fee and a commission on the sale of
any of the radio stations.

The defendants moved ex parte for an order to compel
the plaintiffs to accept payment of the amended
judgment—asserting that they were prepared to wire funds in
the amount sufficient to cover the amended judgment and
post-judgment interest—but refused to agree to pay costs
incurred by the plaintiffs’ post-judgment proceedings. Per the
district court’s order, the defendants were to deposit with the
court funds sufficient to satisfy the amended judgment. The order
further provided that the receivership would not terminate unless
the defendants paid all costs incurred post-judgment. The court
entered a second amended judgment approximately four months later,
which included additional unpaid sanctions and fees.

The defendants ultimately deposited the required funds with the
district court; however, the funds were never released to the
plaintiffs. The defendants then filed a motion to terminate the
receivership and enjoin the sale of their radio stations on three
grounds: (1) the receiver did not take an oath as required under
California law; (2) the court lacked the discretion to refuse to
terminate the receivership and (3) the court abused its discretion
in denying the motion. The motion was opposed by the plaintiffs,
who argued that the receivership should not be terminated without
ensuring that the receiver was compensated for his services. The
receiver opposed the motion, arguing that terminating the position
would enable the defendants to “evade a range of
liabilities” as there were still large creditors with
outstanding judgment liens. The district court denied the
defendants’ motion and the defendants appealed.

Agreeing with First Circuit precedent, the Ninth Circuit held
that, even assuming that the defendants satisfied the judgment, it
was within the district court’s discretion to prolong the
receivership. The Court further held that the district court did
not abuse its discretion in denying the defendants’ motion to
terminate the receivership. The district court offered valid
reasons for not terminating the receivership, including protecting
creditors, permitting the receiver to prepare a final accounting,
ensuring that the receiver would be compensated for his time and
seeing to it that obligations incurred during the receivership
would be paid. The Court held that, given the defendants’
history of nonpayment, the district court acted within its broad
discretion.

The Ninth Circuit therefore affirmed the decision of the lower
court, finding that the motion was denied for “legitimate
reasons.” The Court also recognized that, under California
civil procedure, a receivership is ordinarily terminated once the
judgment is satisfied. The Court noted however that this is solely
a “general proposition” that is not absolute and is
subject to “some important exceptions.” The Court listed
several exceptions as to when a district court may prolong a
receivership, including “for the benefit of other
creditors.” Courts must consider the totality of the
circumstances when determining the termination of a receivership,
and the Ninth Circuit found the receivership in question to be
necessary based on the defendants’ history of nonpayment, to
protect creditors, to permit the receiver to prepare a final
accounting, to ensure that the receiver would be compensated and to
confirm payment of all obligations incurred during the
receivership.

This appeal provides jurists with clearer guidance as to the
scope of receivership, including its terms, and expressly grants
district courts broad discretion over determining the length,
purpose and termination of receivership in the Ninth Circuit.

Practice Note: Bankruptcy may be an effective
mechanism to efficiently distribute funds to creditors, prevent
assertion of further claims and provide finality to the
litigation.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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