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DONOVAN v. ROBBINS

July 12, 1984

RAYMOND J. DONOVAN, SECRETARY OF LABOR, PLAINTIFF,
v.
LORAN W. ROBBINS, ET AL., DEFENDANTS. AND RAYMOND J. DONOVAN, SECRETARY OF LABOR, PLAINTIFF, V. ALLEN M. DORFMAN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Bua, District Judge.

ORDER

I. HISTORY

This case first was heard in this Court pursuant to an action by the Secretary of Labor (the Secretary) filed December 29, 1982 styled Donovan v. Dorfman. With the filing of the case the Secretary filed a motion for a finding that case 82 C 7951 was related to case 78 C 4075*fn1 pursuant to Local Rule 2.31. On that same day the Secretary also made an application for an ex parte temporary restraining order in cases 78 C 4075 and 82 C 7951. As the designated emergency judge, this court heard the ex parte application and granted the injunctive relief requested by the Secretary.*fn2 The terms of the order imposed a receivership on the property and assets of Allen M. Dorfman, Amalgamated Insurance Agency Systems, Inc., Federal Computer Systems, Inc., Health Plan Consultants Service, Inc., and Prescription Plan, Inc. This emergency relief was sought by the Secretary to prevent the cessation of claims processing by Amalgamated for the Fund because of a fear that Dorfman would liquidate or flee the country with his assets as a result of a recent criminal conviction.*fn3 The law firm of Scariano, Kula & Associates, Ltd. was appointed as receiver.

On the following day, December 30, 1982, the defendants in 82 C 7951 were granted a hearing before this Court at which they moved to dissolve the receivership and deny the other injunctive relief granted in the temporary restraining order. After argument of counsel, this court denied the defendants' motion. At the hearing Kevin M. Forde was appointed as the receiver's attorney. A status hearing was set for January 3, 1983 before Judge Flaum.

At the January 3 status hearing the defendants again moved for dissolution of the restraining order. Judge Flaum determined that the matter should proceed on the Secretary's motion for preliminary injunction which had been filed on December 29, 1982.

The hearing on the Secretary's motion for preliminary injunction began on the morning of January 4, 1983, and continued for four full days. During the hearing over one hundred exhibits were submitted and seven witnesses testified. Judge Flaum then extended the temporary restraining order until January 18, 1983. On January 18, Judge Flaum denied the Secretary's motion for a preliminary injunction and determined that the restraining order was no longer required, 558 F. Supp. 319. To effect a smooth transition the receivership was continued until January 21, 1983.

II.

Defendants Amalgamated and Dorfman challenge the allocation of receivership fees and expenses to Amalgamated, asserting that as Amalgamated was not benefitted by the receivership, it should not have to bear the costs involved. Other arguments advanced by the defendants are that the Court did not have the authority to grant the relief requested, and that the receivership was the result of a bad faith action by the Secretary of Labor which would require the Department of Labor to bear the costs.

As a general rule, the expenses and costs of a receivership are charged to the property or fund administered. Atlantic Trust Co. v. Chapman, 208 U.S. 360 at 375-6, 28 S.Ct. 406 at 411, 52 L.Ed. 528 (1908). It is up to the discretion of the court appointing the receiver as to who shall be charged with the costs of the receivership. Bowersock Mills & Power Co. v. Joyce, 101 F.2d 1000 at 1003 (8th Cir. 1939). Under Illinois law, the fees and expenses of a receiver incurred in administering a property are properly chargeable against the owner of the property. In re Spicewood Assoc., 445 F. Supp. 564 at 570 (N.D.Ill. 1977). If the plaintiff's claim is unjust or unlawful, however, it is inequitable to charge the defendant with the expenses of a receivership wrongfully imposed on it. Feldman v. Illinois Pawners Assoc., 279 Ill. App. 476 (1925).

Defendants Amalgamated and Dorfman claim that the Secretary of Labor misled this Court as to the necessity of the restraining order and the receivership as part of a general pattern of harassment of Mr. Dorfman, et al., and that the ex parte hearing unjustly imposed the costs of the receivership on Amalgamated. Although the defendants were not present at the December 29, 1982 hearing which resulted in the restraining order, the defendants were heard on December 30, 1982. After due deliberation on defendants' motion to dissolve the temporary restraining order, this Court allowed the order to stand. Judge Marshall, presiding in Allen M. Dorfman's criminal case, thought the risk of flight by Mr. Dorfman to be so great that he required the posting of a substantial bond. This Court agreed that there was a real risk that Mr. Dorfman would flee rather than face incarceration. The concern of the Secretary of Labor was that prior to fleeing Mr. Dorfman would loot the assets of Amalgamated, leaving that company unable to process the claims submitted by the beneficiaries of the Fund. The second concern was that if the Fund stopped monthly payments to Amalgamated, Amalgamated would cease processing claims. Each of those possibilities was determined by this Court to represent potential irreparable harm to the Fund and beneficiaries of the Fund. In order to avoid the possibility of that irreparable harm, the Court granted the Secretary of Labor's motion for a temporary restraining order, leaving the question of whether or not a preliminary injunction should be issued for a determination by Judge Flaum. The granting of this relief is clearly within the sound discretion of this Court. Atlantic Trust Co. v. Chapman, 208 U.S. 360 at 370, 28 S.Ct. 406 at 408, 52 L.Ed. 528 (1908). The fact that Judge Flaum, at a later date, declined to extend the temporary restraining order and to grant a preliminary injunction does not mean that the action taken by this Court was not warranted at the time.*fn4

Judge Flaum, in reaching his decision, had the benefit of over 100 exhibits and extensive testimony during four days of hearings. He was also able to rely on the reports of the receiver in his decision. In ruling that the appointment of the temporary receiver was no longer necessary, Judge Flaum found that, based on the extensive evidence presented, irreparable harm to the Fund participants and beneficiaries was not imminent. He decided that, having posted a substantial bond, and given the ownership interests of many of Mr. Dorfman's relatives in Amalgamated and related companies, it was unlikely Mr. Dorfman would take any drastic actions. Relying on the assurances of Amalgamated's counsel, Judge Flaum also concluded that Amalgamated would not stop processing claims if it did not receive a monthly payment from the Fund.

The changed conditions from December 29, 1982 to January 18, 1983, extensive testimony and numerous exhibits, and the interim reports of the receiver, all allowed Judge Flaum to determine that the continuation of the receivership was no longer necessary, and that a preliminary injunction was not required. Nothing presented in the four-day hearing before Judge Flaum, or in the subsequent appeals of his order, showed that the Secretary of Labor or the Central States Fund acted maliciously, in bad faith, or without a reasonable belief in their application for a temporary restraining order or for a preliminary injunction. On the contrary, the Secretary presented evidence of well-grounded fears that Amalgamated would cease processing benefit payments for members of the Fund. It was the assurances of Amalgamated that it would not do so, which were substantiated in an extensive hearing, that led to cessation of the need for a receiver.*fn5 The receiver having been appointed on a good faith application upon a showing of a probability of irreparable harm, this Court will follow ...


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