In an important decision for Arizona receivership law, the Arizona Court of Appeals addressed long-standing ambiguity regarding the interplay between A.R.S. § 12-1241 and Rule 66 of the Arizona Rules of Civil Procedure, holding that principles of equity do not constrain the court’s statutory authority to appoint a receiver but instead merely guide the court’s exercise of discretion. Applying this rule, the court in NBD Enterprises, LLC v. Arnold held that the appointment of a receiver over a solvent, ongoing business was a permissible exercise of the trial court’s equitable discretion.This opinion provides valuable clarity on the application of equity to receivership proceedings in Arizona and reinforces the flexibility of receivership as a remedy for commercial disputes.
Case Overview
The dispute arose from allegations by a minority owner (“Owner”) that the majority and managing owner (“Manager”) had misused his authority over their company to siphon funds away from the Owner. The Owner sought appointment of a receiver to protect its interests in the company. After an evidentiary hearing, the trial court found that although the company was solvent and operating, there was a significant risk the Manager had committed fraud and could not be trusted to protect the company’s assets and the Owner’s interests therein. The trial court appointed a receiver over the company, and the Manager appealed.
On appeal, the Manager argued that appointment of a receiver was improper because equity typically permits appointment of a receiver only when “an entity is (1) insolvent or defunct, (2) facing foreclosures or plummeting secured-property values, or (3) unable to continue operating[,]” none of which applied to the company. The Court of Appeals disagreed and affirmed the trial court.
In its ruling, the Court harmonized A.R.S. § 12-1241 (the statutory basis for receiverships), which makes no reference to equity, with Rule 66(c)(4) (the procedural rule governing how the court appoints receivers), which does. In particular, A.R.S. § 12-1241 states that the superior court “may appoint a receiver to protect and preserve property or the rights of parties therein, even if the action includes no other claim for relief.” Rule 66(c)(4), on the other hand, states “If applicable, principles of equity govern all matters relating to the appointment of receivers, their powers, duties and liabilities, and the court’s power.” For years, the differing language between the statute and rule has led to some ambiguity about exactly how equity applies to receiverships, which the Manager used to argue that equity is a limiting principle that constrains the Court’s statutory authority to appoint receivers.
The Court of Appeals held that, as recently noted by the Arizona Supreme Court in a separate case, “equity has no power to change or upset” clearly defined statutory rights, which includes the statutory right under A.R.S § 12-1241 to appoint a receiver to “protect and preserve property or the rights of parties therein.” While Rule 66(c)(4) requires application of equitable principles, the Rule on its face limits its application to situations “[i]f applicable.” In other words, equitable principles remain relevant “in aspects of receiverships where the legislature has not spoken.” NBD Enterprises, at 2. “In short, Rule 66(c)(4) does not constrain the court’s statutory authority, but it requires that equity guide the court’s exercise of its discretion.” Id.
Applied to the facts of the case, the Court disagreed with the Manager’s suggestion that equity prohibits receivership over solvent, operating companies, and held that, given the evidence of the Manger’s fraud and dissipation of assets, a receivership was appropriate to protect and preserve the Owner’s interests in the Company.
Why This Matters
By clarifying that equity under Rule 66 does not limit the Court’s authority, the Court’s decision reinforces the judiciary’s ability to tailor receivership remedies to the unique facts of each case. This is particularly important in disputes involving shareholder conflicts, fiduciary breaches, or mismanagement of business assets, where the business may be solvent but still in need of court-supervised intervention. Moreover, by distinguishing the roles of A.R.S. § 12-1241 and Rule 66, the Court has implicitly broadened litigators’ toolkit by inviting parties to separately argue that appointment of a receiver is appropriate under either statutory or equitable principles.
As Arizona’s business and legal landscapes continue to evolve, this decision ensures that courts retain the flexibility to protect property, resolve disputes, and preserve the integrity of ongoing enterprises.
Michael P. Rolland is a passionate and committed advocate that represents individual and business clients in commercial litigation, Chapter 11 bankruptcies, receiverships, loan workouts, and appeals.