The latest episode of the AZ Big Podcast with Michael & Amy has officially dropped. Episode 242 features Ryan Anderson, partner at Burch & Cracchiolo, who talks receiverships.
Listen to more of the AZ Big Podcast here.
Transcript:
Michael Gossie
Welcome to the AZ Big Podcast, sponsored by Burch & Cracchiolo. I'm Michael Gossie, editor-in-chief at AZ Big Media, and I'm joined by my co-host, our vice president and publisher, Amy Lindsey. Amy, super excited.Amy Lindsey
Interesting topic.Michael Gossie
Ever since I met this guy for the first time, there's a question I wanted to ask him, and I'm going to save it for last, and I can't wait to hear his response, but I'm really excited to have him here.Amy Lindsey
You're going to put him on mic and ask that question?Michael Gossie
I'm going to ask it.Amy Lindsey
All right.Michael Gossie
I'm super excited to have him back in the studio.Ryan Anderson, partner of Burch & Cracchiolo. Ryan, great to see you again.
Ryan Anderson
Good to see you again.Amy Lindsey
Okay. So, Ryan, start off for our listeners. Tell us a little bit about your practice.Ryan Anderson
Well, my practice in the receivership space is I generally focus on representing the fiduciary receiver in all types of different types of receivership cases. I like to focus, however, on the cases that are government-related. So when a government agency places an entity in receivership, those are the cases I enjoy working on the most.I obviously do receiverships that I would consider to be, like, I would call them private party receiverships. A bank takes over a car wash that's failed. But the more substantial and interesting receiverships are when the government has taken over something that's in trouble.
Amy Lindsey
Can you explain why the government would take over one? Let's start kind of at the very basics. Why would that even happen and would get you involved?Michael Gossie
For dummies like me, can you explain what a receivership is?Ryan Anderson
A receivership is an equitable legal remedy when the court has appointed somebody independent to operate a business that is in some sort of trouble, financial, operational. You know, there are exceptions to the little comments I made about a court taking over, because sometimes you see public entities placed in receivership, like a school district, where there isn't a judge. It's a statutory-based receivership.And so there the Department of Education says, we need a receiver to take over the school district. And so that's when you take over and run the school district, representing that receiver.
Michael Gossie
So what are the situations that come up where a receivership is needed?Ryan Anderson
You generally see them when there is financial issues. You see them when there are operational issues. You also sometimes see them when there is a dispute between the owners of a company, and the company itself is sort of unable, deadlocked in its management.Those are the three main reasons that a receiver is appointed.
Michael Gossie
So who usually brings this to the attention of legal authorities to make it happen?Ryan Anderson
Well, you know, it's not uncommon for when a public entity is looking at a receivership, that there's a long trail of why the school district, for example, is struggling financially. There are reports that are made by the Auditor General's office indicating that there's problems with the school district. When you see it in a private business, it is generally after there's a pretty significant financial problem, right?You're unable to make payments to your alleged investors. You're seeing lawsuits being filed against the entity. And eventually, somebody, usually the government or one of the parties, says to the court that what we need to do is wrest control of this business away from the people who are running it and put it into the hands of a third party neutral.
Michael Gossie
You've developed a pretty successful niche practice here. What attracted you to receiverships when you got out of law school?Ryan Anderson
You know, what attracted me to it was, looking back, it is the strategy of business and real world strategy intermixed with the actual practice of law. But the other, the more truthful answer I think sometimes is you get to be the good guy and solve the problem that people think is unsolvable. That's what I like doing the best.It's a great perspective. Because a lot of times when the cases come to you, it is an impossible situation. Everybody has thrown their hands up and said, this can't be fixed.
And it's like, I enjoy hearing that. It's like, challenge accepted.
Amy Lindsey
Managing chaos.Ryan Anderson
Let's finish this. Let's fix this and finish this. You know, I've had a lot of experience working on Ponzi schemes, financial fraud schemes, and those, we've designed a way to fix those now so that I sort of understand the playbook.The cases that I get more excited about are when, like, the government has decided to take down and take control of a, you know, a assisted living facility. That recently happened in Arizona for the first time. It happened because of the care that was being provided with substandard.
And so that was a first of its ever impression receivership, where the government said, the care that's being provided here is not appropriate. We're going to put an independent person in charge of the care of that location to fix it. And that was the Heritage Village case.
And those are a challenge. You've never had one before. You've got to go in there and figure out how to fix it.
Obviously, there also was some financial problems that were uncovered at the same time. But the real mantra in that case was fix the healthcare that was being provided to these people that are living there.
Amy Lindsey
It had to be rewarding when you're done.Michael Gossie
Plus, it had to be, like, tremendous pressure because you have the care of all these people.Ryan Anderson
It is tremendous pressure. And it also is rewarding.Yeah, it's all of that wrapped up in one. But what's attractive to me is that you get to solve that problem. I mean, you get presented with a problem that other people have said, this is unsolvable and let's solve it.
And we get to use a very transparent procedure, which is a receivership, but also a flexible procedure, which is a receivership. I really enjoy sort of coming up with and helping clients come up with those solutions and then putting them into practice.
Amy Lindsey
So what are some of the unique legal practices and challenges involved when a public entity, like let's say an Arizona school district, enters into receivership?Ryan Anderson
Those are exceedingly challenging because first off, what people don't realize is you don't have a judge. You don't have a court. And so most 99.9% of receiverships, you have a judge. And the judge takes over the business and the judge is the final say on everything. And if someone's not doing what they're supposed to do, you go to the judge and say, judge, this person's not giving us these documents or this person's not cooperating. In a school district receivership or a statutory based receivership, you don't have a judge.And so you've got to work within the system that the school district is in. So you have to do with the politicians and the unions and the school district staff to fix the problem. And that can be challenging.
The good news about those types of cases is that the people who get appointed those receivership cases, those jobs, they are always looking how to fix the problem for the long term. You are re-educating the school on how to avoid the common traps that have placed you into this financial posture. You're working with the legislators and the stakeholders to find solutions to allow the school districts to work their way out of the financial crisis that they're in.
That's what's interesting about them. And those are some of those challenges we have to deal with.
Michael Gossie
We have so many questions for you. But before we get to them, I have to say, at Burch & Cracchiolo, there is nothing artificial about our intelligence. While we wholeheartedly embrace technology and all the ways it can increase productivity, nothing will replace the sound judgment, wise counsel, and the humanity of an attorney who is vested in you, your business, and your family.Burch & Cracchiolo attorneys will be there for you no matter what the need. We are your partner for life. Learn more at bcattorneys.com.
So Ryan, the health care system for Arizona's prisons could be placed into receivership after decades of litigation. That's right. What's going on with that?
Ryan Anderson
It's not a case I'm involved in right now, but one that us in the receivership world are obviously monitoring. And it's pretty clear that after 15 years of litigation, that the federal court has decided that all of the other remedies it has attempted to impose to fix the prison health care system haven't worked. And so we're now moving towards the remedy of a potential receivership.Michael Gossie
So what does that signal about what's going on in that sector?Ryan Anderson
I think what it signals is there's frustration by the court that other methods that the court has employed, including probably injunctions and monitors, those things have not successfully resulted with what the court wants to see. I will say that there has been other prison health care system receiverships across the country. California is an example.There's some others in the middle of the country. So it is not an uncommon final resort, but I do believe it is a final resort for the federal court to say, we want to effectively oversee this operation of the Department of Corrections for the state of Arizona.
Michael Gossie
So you mentioned that California's prison system is under receivership. Is there anything that we can learn from studying what happened in California that can help us in Arizona?Ryan Anderson
Sure. That case has been going on a long time. And I think that there's probably two big lessons you can learn from the California case.I think the first one is the positive report of that the health care has improved, that facilities were upgraded, that staffing problems were resolved, and I think health care outcomes are better. I think critics would talk a lot about how expensive it's been and how long it has been in receivership. And those are real-world problems sometimes when you're dealing with a public entity in receivership.
Having done a number of them in Arizona with respect to school districts and other types of cases, you always have to have an exit plan. You always have to know almost from the first few months, how are we going to end this? Because sometimes these cases can take a life of their own.
It's not uncommon for a well-known, well-operated, well-run receivership to still take a decade.
Amy Lindsey
That was my question. What should be the life of a receivership if all goes well?Ryan Anderson
It's hard to say. For example, I brought up the Heritage Village case. That was less than 18 months.We're into the case, got a new management team in place. That one had a financial situation that required a sale of Heritage Village, and it was done effectively through the court process. So that was about an 18-month case.
You see a Ponzi scheme case, like here is a case called the Densko Investment Company case, where the Corporation Commission took down effectively a Ponzi scheme. That was about a 10-year case. But the good news was in that case, why did it take 10 years?
It's because the receiver in that case had a lot of great litigation claims that ended up resulting in a nearly 60% recovery to the investor victims. When you have a great litigation claim, it can take years sometimes to litigate it. So that's usually what the delay is.
The good news in a receivership that takes a long decade run like that is that the receiver usually within the first year is identifying how much victims are owed and starting to make payments to those victims almost within year one or two. So the victims are getting money every few years from the receiver's activities, but it can take a long time for all those lawsuits to work their way through the system.
Michael Gossie
Okay, so I'm going to ask my question now, Ryan. When I talked to you before, you were talking to us about some of the cases that I just thought they were so fascinating. I'm like, this would make a great TV show.So tell me why a TV show focused on the law practice of a receivership law practice would make compelling television viewing?
Ryan Anderson
It would actually, frankly. I mean, there's a number of us that work in this space across the country, and we joke about it all the time. Because you get those kind of moments in these cases where they would make a great television show or a movie.So someone someday is going to sit down and take a look at some of these cases and write them as a true crime show. Because frankly, I can sit here and we can bring up the CP Direct case, which some people know about locally, which was a penis enlargement pill company that was a fraud. And as a case that ran through the process, that receiver recovered not only, he recovered in excess of 150 extra million dollars at the end of that case.
Michael Gossie
Extra million dollars?Ryan Anderson
Extra million dollars. That is one of the receiverships where he recovered so much money that there was at the end of the case, after all claims were paid, the receiver facilitated delivering that money to the state to build four crime labs across the country. It is those kind of results.Okay, that would be a great reality show, right? Right, it would be. And I have stories that never end.
In that case, there were times when you would open an office drawer and there would be just piles of money in the drawer that you'd have to- That's never happened at my office. It's also another case where I had a client that had $4.2 million in their blue Hyundai on a Friday afternoon looking for a bank to be open so that we could put the money into the bank, count it, and make sure it hit the bank. And so it's one of those challenges where it's like, Ryan, I've got all this money.
I've got to get into a bank. It's Friday at four o'clock. Help me. And so we're getting on the phone- You have nothing else.
Amy Lindsey
You need to start writing a book.Ryan Anderson
Getting on the phone, calling a bank friend, saying, hey, can we pay to keep your branch open all weekend while we count all this money and get into the bank?Michael Gossie
Wow, that's amazing. You must be a really popular dinner guest.Ryan Anderson
I don't know about that. I don't know about that. The other thing that's great is that these stories you get to tell because it's all transparent and public.Everything you're doing, you've written in reports. You're talking to the court about them.
Amy Lindsey
Once something goes into receivership, it is public information at that point in time.Ryan Anderson
It really is. And that's the other great part about it too is that you don't get to misrepresent things to anybody. You don't get to hide the ball.Here's what we found. Here's what we're going to do about it. And a lot of times it's telling a bad actor, this is what we uncovered, that you have misappropriated $5 to $6 million.
And we're coming back for it. Yeah, we're coming back.
Michael Gossie
That's awesome. Great, great, great, great stuff.Amy Lindsey
Yeah, I love it.Michael Gossie
Well, thank you for listening to the AZ Big Podcast with Michael and Amy. For the latest and greatest business, real estate, and lifestyle news, check out the all-new azbigmedia.com. Thank you once again to our sponsors, Burch & Cracchiolo.And thank you so much to Ryan Anderson, partner at Burch & Cracchiolo. Ryan, great stuff. Thank you for joining us, Ryan.
Ryan Anderson
Thanks for having me.