• Sequestration and Receivers in Florida Divorces
  • March 18, 2011
  • Law Firm: Luis E. Insignares - Fort Myers Office
  • Many, and possibly most, family-law practitioners may tend to think of receivership as a commercial remedy for troubled companies, not as a possible remedy available in a dissolution-of-marriage or post-dissolution proceeding.  Similarly, sequestration is a term usually associated with juries or with “invoking the rule” regarding keeping witnesses outside the courtroom until they testify.  See, e.g., Kendall v. Kendall, 677 So.2d 48 (Fla. 4th DCA 1996) (trial court did not err in allowing wife’s expert to testify despite attendance at pretrial deposition).  While perhaps little known and less used, both receivership and sequestration may provide counsel for payee spouses with additional enforcement weapons in family-law litigation, and conversely cause unexpected headaches for attorneys representing payor spouses.

     

                It probably does not help matters that “sequestration” in itself includes at least three different, albeit related, enforcement concepts.  Two of these sequestration concepts are limited, by statute or rule, to very specific factual scenarios, while the third concept is a much more amorphous and generally applicable concept.

     

                As to the two more manageable sequestration concepts, the statutory version is found in Section 68.03, Florida Statutes (2009).  This statute originated before the Civil War, and it has not had any substantive amendment for over 40 years.  By its terms, the statute applies only in the specific scenario where one defendant is outside Florida, but another in-state defendant holds property of the absentee defendant, or owes money to the absentee defendant:

     

                (1)       If any action is commenced in chancery against any defendant residing out of this state and any other defendant within the state has in his or her hands effects of, or is otherwise indebted to, the absent defendant and the absentee does not appear in the action and give security to the satisfaction of the court for performing the judgment and on affidavit that the absentee is out of the state, or that on inquiry at the absentee's usual place of abode he or she cannot be found to be served with process, the court may restrain the defendant in this state from paying or conveying or secreting the debts owing by him or her to, or the effects in his or her hands of, the absentee or restrain the absentee from conveying or secreting or removing the property in litigation, or may sequestrate the property which may be necessary to secure plaintiff if he or she prevails, and may order such debts to be paid and effects to be delivered to plaintiff on his or her giving bond with surety for the return thereof.

     

                (2)       The court shall require the plaintiff to give bond with surety to be approved by the clerk, to abide the future orders made for restoring the estate or effects to the absent defendant on his or her appearance in the action. If the plaintiff does not furnish the bond, the effects shall remain under the direction of the court or in the hands of a receiver or otherwise for so long a time and shall be disposed of in such manner as the court deems fit.

     

    (Emphasis supplied).

     

                Since divorce and support suits are indeed “in chancery,” see, § 61.011, Fla. Stat. (2009), the above statute is at least theoretically available in a divorce suit involving an absentee spouse.  However, despite the statute’s long history, only a handful of reported cases are annotated to the statute, which leaves actually applying the statute to a divorce case somewhat problematic.  Although one of the few cases annotated to the statute does involve a divorce scenario, it does very little to elucidate the use of the sequestration statute in a divorce action.  In fact, the statute is not even mentioned in this opinion, nor does the opinion ever state that the payor spouse was absent from Florida.  The discussion of sequestration in the case is limited to the following single paragraph:

     

                We also find no reversible error demonstrated in Case No. 78-1147 except as to that provision of the May 15, 1978 order granting the wife's petition for sequestration of the husband's property. We are unable to determine from the record presented whether it was necessary to sequester all of appellant's property in order to enforce the April 24, 1978 order of temporary relief. Accordingly, on remand the trial court should determine whether sequestration is still necessary and if the court finds it is imperative in order to enforce its orders then the court is requested to make a finding of the approximate value of the property sequestered and to retain under the order of sequestration only so much thereof as the court finds necessary to secure the enforcement of its orders.

     

    Seneca v. Seneca, 382 So.2d 371, 373 (Fla. 4th DCA 1980).

     

                Given that the sequestration statute does not seem to envision the sort of “necessity” analysis referenced above, and that the opinion mentions neither the statute nor the appellant’s absence from the state, it is quite possible that Seneca did not actually involve the sequestration statute, but rather dealt with more generalized equitable principles regarding sequestration (to be discussed herein later).  Perhaps an over-anxious annotator merely saw the “magic word” “sequestration,” and placed Seneca into the annotations to the statute in error!

     

                There is also a method of sequestration prescribed by rule, rather than statute.  Rule 12.570, Florida Family Law Rules of Procedure, specifically makes Rule 1.570, Florida Rules of Civil Procedure, applicable to family-law proceedings.  The latter rule is entitled “Enforcement of Final Judgments,” and contains the following provision:

     

    (c)             Performance of an Act. If judgment is for the performance of a specific act or contract:

     

                (1)       the judgment shall specify the time within which the act shall be performed. If the act is not performed within the time specified, the party seeking enforcement of the judgment shall make an affidavit that the judgment has not been complied with within the prescribed time and the clerk shall issue a writ of attachment against the delinquent party. The delinquent party shall not be released from the writ of attachment until that party has complied with the judgment and paid all costs accruing because of the failure to perform the act. If the delinquent party cannot be found, the party seeking enforcement of the judgment shall file an affidavit to this effect and the court shall issue a writ of sequestration against the delinquent party's property. The writ of sequestration shall not be dissolved until the delinquent party complies with the judgment;

     

                (2)       the court may hold the disobedient party in contempt; or

     

                (3)       the court may appoint some person, not a party to the action, to perform the act insofar as practicable. The performance of the act by the person appointed shall have the same effect as if performed by the party against whom the judgment was entered.

     

    Fla. R. Civ. P. 1.570(c) (emphasis supplied).

     

                Under the above rule, if a spouse (or ex-spouse) refuses to comply with a court order requiring a specific act to be done, and evades arrest on a writ of bodily attachment, the opposing party can file an affidavit and effectively hold the miscreant party’s property for “ransom,” i.e., compliance with the judgment.  Even if an ex-spouse is evading arrest, it is frequently true that a client may know where he or she is actually located, and thus where most of his or her property may be found.  Denying a recalcitrant party’s access to any of that property would certainly get his or her attention.

     

                As with statutory sequestration, however, it is somewhat unclear exactly how to apply or enforce Rule 1.570(c) in the real world.  Only three reported cases are annotated to the sequestration headnote of Rule 1.570.  Although one of those three cases, Randall v. Randall, 158 Fla. 502, 29 So.2d 238 (1947), does arise in a post-divorce scenario, the case was decided before the adoption of the modern Rules of Civil Procedure and thus does not actually involve application of Rule 1.570(c).  Interestingly, the case involves an out-of-state former spouse scenario arguably more appropriately arising under Section 68.03 or its predecessors, once again demonstrating the rather hazy parameters of sequestration in Florida.  See also, Jenkins v. Jenkins, 326 So.2d 253 (Fla. 4th DCA 1976) [citing Rule 1.570(c) but finding it inapplicable, as court had already held that property to be sequestered had been gifted by husband to wife].

                Finally, there is the issue of whether there still exists a more generally applicable equitable remedy of sequestration, outside the ambit of Section 68.03 or Rule 1.570(c), or other specific statutes or rules inapplicable to this discussion [see, e.g., §§ 697.07, 696.97, Fla. Stat. (2009) (regarding sequestration of rent)].  Although West’s digest system contains a “Sequestration” topic including 21 “key numbers,” only three cases have been “key numbered” under the entire topic in Florida Digest Second (which collects the modern-era cases).  Two of those cases involve the sequestration-of-rent statutes found in Chapter 697, and a third, though citing to Rule 1.570, also involves sequestration of rent.  See, Buckley Towers Condo., Inc. v. Buchwald, 340 So.2d 1206 (Fla. 3d DCA 1976), cert. denied, 348 So.2d 945 (Fla. 1977).

     

                There is some authority for the proposition that a non-statutory/rule remedy of sequestration still exists in Florida family-law cases, based on the courts’ inherent equity powers.  In Serge v. Serge, 276 So.2d 86 (Fla. 4th DCA 1973), numerous points of error were raised regarding various orders entered in a divorce action.  As to one such point, the appellate court indicated that a Florida divorce court has inherent equitable powers to sequester property of a former spouse for the purpose of effectuating the payment of sums that have been reduced to judgment:

     

                Paragraph 5 of the order of 1 November 1971 in effect sequestered the defendant's interest in the motel property to pay attorney's fees and costs arising out of the original divorce action. The trial court had the power as a court of equity to grant this relief inasmuch as the net effect was to enforce an award which had lawfully theretofore been made. See Burkhart v. Circuit Court of Eleventh Judicial Circuit, 1941, 146 Fla. 457, 1 So.2d 872. See also Garland v. Garland, Fla.App.1960, 118 So.2d 52.

    276 So.2d at 88 (emphasis supplied).  Although the appellate court vacated the sale of the motel “if in fact [the sale] has been held,” because it included amounts the former husband was found not to have validly owed, id., the appellate court nevertheless stated that the trial court might “in its discretion provide for another sale, after reasonable notice, to foreclose the lien [for fees and costs awarded] created by Paragraph 5 of the order of 1 November 1971.”  Id. (bracketed material supplied).

     

                Although Serge was decided after the adoption of the modern Florida Rules of Civil Procedure, both cases cited therein predate the adoption of the rules.  Does the equitable remedy of sequestration, resulting in a judicial sale [as opposed to merely holding property under Rule 1.570(c) or Section 68.03], survive the adoption of the rules of civil procedure, as a result of the holding in Serge?  Serge does not expressly so hold, and the practical question exists whether such a remedy would provide any advantage over regular execution on a judgment.  Along similar lines, consider that Rule 1.570 also includes a “money judgment” provision that makes no mention of sequestration, instead stating that “[f]inal process to enforce a judgment solely for the payment of money shall be by execution, writ of garnishment, or other appropriate process or proceedings.”  Fla. R. Civ. P. 1.570(a).  It could be argued that the failure to mention sequestration impliedly extinguishes any right to use it in order to enforce a money judgment, but the counter-argument exists that sequestration constitutes “other appropriate process or proceedings.”

     

                Simply put, Florida law does not answer this conundrum.  Practitioners thus can be assured of the efficacy of a sequestration remedy only within the specific parameters of Rule 1.570(c) and Section 68.03.

     

                This leaves the use of the other remedy mentioned at the outset of this article — receivership.  The usual way a court exercises control over assets that are the subject of litigation is via the appointment of a receiver, who is an officer or agent of the appointing court, and acts for and under the supervision of the court.  See, Lehman v. Trust Co. of America, 57 Fla. 473, 49 So. 502 (1909).  However, as with sequestration, there is not much Florida case law on the ancillary remedy of receivership being used in conjunction with a suit for divorce.  For example, although the "Family Law" article in Florida Jurisprudence Second notes the general availability of receivership to a court of equity, the author cites only one reported Florida divorce case concerning receivership in a divorce context.  See, Ugarte v. Ugarte, 533 So.2d 250 (Fla. 3d DCA 1989) (upholding receiver’s appointment where husband himself had requested same, and appointment was necessary to protect husband’s spouse and children).  There are also examples pre-dating the adoption of the modern rules of civil procedure.  See, e.g., Randall v. Randall, 158 Fla. 502, 29 So.2d 238 (1947) (upholding receivership without posting bond); Clawson v. Clawson, 54 So.2d 161 (Fla. 1951) (reversing order setting up “perpetual” receivership; receivership is not an end in itself, but a means to an end).  A similar encyclopedic treatment is found in the Florida Jurisprudence Second article “Receivers,” in which seven sections are devoted to various “particular circumstances” in which receivers might be appointed.  Six of those sections deal with various specific non-divorce circumstances, but the final “catch-all” section also fails to mention divorce.

     

                That said, Rule 12.620, Florida Family Law Rules of Procedure, does specifically make Rule 1.620, Florida Rules of Civil Procedure, applicable to family-law actions.  The more generally applicable receivership rule states:

     

    (a)             Notice.  The provisions of rule 1.610 as to notice shall apply to applications for the appointment of receivers.

     

                (b)       Report.  Every receiver shall file in the clerk's office a true and complete inventory under oath of the property coming under the receiver's control or possession under the receiver's appointment within 20 days after appointment. Every 3 months unless the court otherwise orders, the receiver shall file in the same office an inventory and account under oath of any additional property or effects which the receiver has discovered or which shall have come to the receiver's hands since appointment, and of the amount remaining in the hands of or invested by the receiver, and of the manner in which the same is secured or invested, stating the balance due from or to the receiver at the time of rendering the last account and the receipts and expenditures since that time. When a receiver neglects to file the inventory and account, the court shall enter an order requiring the receiver to file such inventory and account and to pay out of the receiver's own funds the expenses of the order and the proceedings thereon within not

    more than 20 days after being served with a copy of such order.

     

                (c)       Bond.  The court may grant leave to put the bond of the receiver in suit against the sureties without notice to the sureties of the application for such leave.

     

                The receivership procedural rule lays out what the receiver is to do once appointed, but gives virtually no guidance concerning the requirements for having the receiver appointed in the first instance.  The case law limits the remedy to somewhat narrow circumstances.

                The law is well established that a receiver should be appointed for a corporation only where the exigencies demand it and no other form of protection to the applicants appears.  Papazian v. Kulhanjian, 78 So.2d 85 (Fla. 1955); McAllister Hotel v. Schatzberg, 40 So.2d 201 (Fla. 1949).  In the McAllister case, the court, in reversing an order appointing a receiver, expressed this principle thusly:


    We find that the real question to be determined is:  Was it necessary for the Chancellor to exercise his power of appointment of a Receiver in order to protect the rights of respondents as they are alleged and as ultimately they may be established?  So we may well inquire whether the invocation of any equitable processes short of receivership would have accorded adequate protection to the respondents.  It is observed that there is absence of allegation, or showing, of insolvency on the part of any one or more of the petitioners.  This Court has repeatedly asserted that the power of appointment of a Receiver is a delicate one and should be exercised only in those cases where the exigencies demand it and no other protection to the applicants can be devised by the Court.  Tampa Water Works Co. v. Woods, 97 Fla. 493, 121 So. 789; Mirror Lake Co. v. Kirk Securities Co., 98 Fla. 496, 124 So. 719; Apalachicola Northern R. Co. v. Sommers, 79 Fla. 816, 85 So. 361; Lehman v. Trust Co., 57 Fla. 473, 49 So. 502; 19 C.J.S., Corporations, § 1454, page 1158.  The Chancellor should be exceedingly cautious where, as here, there is no suggestion of insolvency of any of the defendants.  The general rule is that a Corporate Receiver pendente lite will not ordinarily be appointed unless the defendants, or at least the primary offending defendant or defendants, be shown to be insolvent.  However, there are some exceptions.  One of them which is well recognized is that a Receiver may be appointed to wind up the affairs of a corporation or manage and operate its business when actual fraud, or mismanagement amounting to fraud upon the rights of a minority stockholder or creditor which may reasonably portend imminent danger of loss of corporate assets and seriously threaten corporate existence, is clearly established.  The strong arm of Equity should not be extended to the point of interlocutory receivership if it appears that the exercise of any other power or powers inherent in a Court of Equity will provide ample protection to the complaining party.  Mirror Lake Co. v. Kirk, supra; 18 C.J.S., Corporations,§ 528, page 1212, and cases therein cited.  We have held many times that the puissance of a Court of Equity to establish a receivership will not be exercised 'merely because [it] can do no harm.'  Mirror Lake Co. v. Kirk, supra [98 Fla. 493, 124 So. 721]; Apalachicola Northern R. Co. v. Sommers, supra; Lehman v. Trust Co., supra.

     

    40 So.2d at 202-03.

                To warrant the appointment of a receiver to manage the affairs of a corporation the party seeking such relief must demonstrate a clear legal right to the property in controversy.  See, Decumbe v. Smith, 196 So. 9, 143 Fla. 5 (1940); Mirror Lake Co. v. Kirk Securities Corp., 98 Fla. 946, 124 So. 719, (1929).  A receiver should not be appointed unless there is strong reason to believe that the party asking for such relief will prevail at the final hearing on the merits.  See, Carolina Portland Cement Co. v. Baumgartner, 99 Fla. 987, 128 So. 241 (1930).

                Under the forgoing principles, a party seeking to have a receiver appointed in a divorce case should allege that she or he will likely prevail on the merits, that the relief requested is absolutely necessary for the protection of the requesting party’s rights, and that she or he has a clear legal right to the property in controversy.

                As a practical matter, the probable reason for the dearth  of Florida receivership law in a divorce context is that the divorce statutes expressly provide a similar remedy.  There are several Florida cases that hold that “status quo” injunctions in marital cases are acceptable, based upon Section 61.11, Florida Statutes, relating to attempts to dissipate assets.  For example, in Sandstrom v. Sandstrom, 565 So.2d 914 (Fla. 4th DCA 1990), the Fourth DCA held that Section 61.11 was a sufficient basis for an injunction regardless of whether a spouse attempts to dissipate assets before or after judgment.  Nevertheless, Rule 1.610, Florida Rules of Civil Procedure, must still be complied with.  Gooding v. Gooding, 602 So.2d 615 (Fla. 4th DCA 1992).  Thus, a probability of dissipation must be shown.  See e.g., Leonard v. Leonard, 678 So.2d 497 (Fla. 5th DCA 1996) (court did not abuse its discretion in finding that there was danger of dissipation of marital funds or in entering injunction to preserve status quo where in years preceding separation, wife had revoked trust that had controlled moneys for preceding six years, emptied parties' joint safe deposit box of all documents relating to lottery winnings and trust documents, denied husband access to those documents, and denied that husband had claim to future proceeds).

                In Sandstrom, supra, the wife alleged that the husband had conveyed an interest in marital assets to his girlfriend, and that he had sold marital assets or was about to sell them.  These allegations were held sufficient to comply with Rule 1.610(c), as the wife also alleged irreparable harm to her right to seek equitable distribution.  However, the husband was held to be entitled to a hearing in order to determine which of his assets should be subjected to the injunction, although it was noted that the court could require other remedies to secure the award.

                In Gooding v. Gooding, supra, the wife alleged that cash was disappearing from her husband's family business, i.e., husband was writing corporate checks to himself that did not appear in  his personal accounts.  The wife also alleged that husband had previously transferred corporate funds to his own accounts and had excluded her (a shareholder) from participating in corporate affairs.  The precise status of the stock had not yet been determined.  In holding that an injunction should have issued, the court cited Section 61.11, Florida Statutes, and stated:

                In the instant case, appellant asserts that she has been irreparably harmed by appellee's previous improper transfers of their company's funds to his own personal account, and she argues that she will be further harmed unless an injunction is issued.  Appellant testified that she reviewed some of the corporation's financial records, and she found approximately $22,800 worth of checks that appellee already has written to himself.  Those funds were not put into the parties' joint personal account, nor does appellant know what happened to that money.

                Under the circumstances present in this case, we hold that it was an abuse of discretion not to grant a temporary injunction to maintain the status quo pending a determination by the court as to the extent of the entitlement of appellant to a share of the corporate and miscellaneous assets of the parties.  Therefore, we reverse.

     

    602 So.2d at 616.  See also, P.T.S. Trading Corp. v. Habie, 673 So.2d 498 (Fla. 4th DCA 1996); Leonard v. Leonard, 678 So.2d 497 (Fla. 5th DCA 1996).

                As the foregoing illustrates, both sequestration and receivership are traditional equitable remedies that may be resorted to in divorce litigation, as both are expressly referenced in the Florida Family Law Rules of Procedure.  While these remedies may be limited to somewhat narrow factual circumstances, or, as in the case of receivership, be considered an equitable “last resort,” difficult cases call for creative lawyering, so these remedies should not be overlooked.