I love endurance sports, and I work out incessantly. But I don’t watch sports or know much about them. Before hanging out with a group other men, I ask my wife to give me a summary of which local sports teams have recently won a match so I don’t embarrass myself. Results have been mixed. So forgive me if my football analogies are a little off here.

In football, wide receivers have little control over whether they’ll be thrown the ball on any given play. Though they might end up making a big play once the ball is thrown to them, they’re powerless without it in their hands. Even plays that are designed to get them the ball might be impacted by the defense, leaving them high and dry.

Unlike a wide receiver, a court-appointed receiver can exert control over the situation. A receiver is a court-appointed neutral steward of a business. They have independent authority to manage operations, make business decisions, and preserve (or strategically wind down) the business’s assets while litigation grinds forward. In some situations, they’re given limited marching orders from a court, and they must take action that’s within the confines of those orders.

But at other times, they have broad authority to call the shots, including whether to buy or sell company assets, and how to wind down a business.

A recent Pennsylvania Superior Court decision, Toth v. Toth, 324 A.3d 469, offers a detailed look at just how broad authority a receiver can have to protect the assets of a closely held business when feuding co-owners threaten to destroy it from the inside out.

Toth v. Toth: When a family business leads to a family war

Toth concerned a battle over Learning Sciences International, LLC (“LSI”), a company founded by Michael Toth in 2002. The company provides solutions for professional development and performance management in education. Over the years, Michael gave ownership interests in LSI to his brother Bryan, his father Eugene, and his mother Marie. Michael and Bryan each held 50% in voting rights and 25% in ownership rights, while Eugene and Marie held only 25% in ownership rights.

In late 2020, their relationships deteriorated dramatically. By January 2021, Bryan, Eugene, and Marie executed a series of documents that they believed amended LSI’s operating agreement to change the company’s headquarters to Florida, remove Michael as CEO, and strip him of his management role. They based this attempted coup on a technical reading of the voting provisions in the original operating agreement.

There was just one problem. They were wrong.

Michael and his wife Linawati sued them in December 2021 seeking a declaratory judgment and injunctive relief, among other claims. The trial court granted their motion for partial summary judgment, declaring that LSI’s 2012 operating agreement remained in full force and effect and that the 2021 agreement was void and without legal authority. Because only Michael and Bryan held voting interests, and Michael didn’t consent to the 2021 agreement and other related documents, Bryan, Eugene, and Marie’s 2021 documents were dead on arrival.

In April 2022, the trial court ordered dissolution of LSI based in part on the findings of fact and conclusions of law made by an interim custodian, John R. McGinley, Jr., concerning whether Michael, Bryan, Eugene, and Marie were deadlocked in managing LSI’s affairs “and/or whether it [was] reasonably practicable for [them] to carry on the business”—that is, whether the business should continue to function or whether it should be dissolved.

McGinley’s findings were damning: Michael and Bryan were deadlocked on fundamental business decisions, and mediation and settlement had failed. Employee turnover was accelerating. Key business relationships were fracturing. Without the court’s intervention, there would be no company left to litigate over.

The receiver takes the field

In July 2022, the trial court appointed James Chiafullo, a Pittsburgh-based attorney, as a receiver with broad authority to manage LSI’s day-to-day operations while overseeing its dissolution, including paying obligations as they came due, preserving dwindling assets, and operating the business pending further orders from the court. When Chiafullo recommended selling textbooks and contracts for conference rooms at Disneyland, and licensing certain LSI’s proprietary software, the trial court approved those transactions.

Bryan, Eugene, and Marie argued strenuously against Chiafullo’s appointment. They claimed it violated the Superior Court’s own earlier stay of the dissolution order and that there was no emergency justifying the appointment. They also argued that Chiafullo lacked the authority to approve asset sales, challenging the trial court’s conclusions on appeal.

The Superior Court saw it differently and agreed with the trial court that Chiafullo made calculated and prudent business decisions, and did so within the authority the trial court gave him to operate LSI. It also agreed with the trial court that there were several critical factors supporting Chiafullo’s appointment and scope of authority:

Dissension among members

The conflict between Michael and his family members was irreparable. The court noted that there was simply no way to reconcile their interests in preserving LSI while litigation proceeded. Michael, who controlled 50% of the voting power, would immediately resist any action taken by Bryan.

Risk of waste and asset dissipation

LSI was hemorrhaging value. Without neutral management, critical intellectual property was at risk. Key employees were leaving. Business contracts were evaporating. The company was drifting toward de facto dissolution even while the appeal stayed the formal dissolution order.

Competing visions of management

Michael had allegedly begun taking steps to form a competing company, making business decisions that benefited his new venture rather than LSI. Whether or not intentional, LSI was being starved of resources and attention. In the Superior Court’s view, a neutral party was essential to ensure the company’s assets were preserved—not liquidated to benefit one side or the other.

The court emphasized that allowing either Michael or Bryan to manage LSI during the appeal would only guarantee further divisiveness and conflict. Thus, appointing Chiafullo was the logical solution.

The court in Toth pushes the envelope on receivers’ powers and responsibilities

It’s not uncommon for a Pennsylvania court to appoint a receiver to manage a company’s affairs when a company and its assets are likely to be mismanaged or wasted, such as when there are significant allegations of fraud or other financial shenanigans, or disputes among owners.

But what’s notable about the Toth case is how the trial court used receivers. Appointing McGinley, Jr., to determine whether LSI could operate in a reasonably practical way for the purpose of determining whether it should be dissolved was unusual—frankly, I’ve never seen anything like that.

However, appointing Chiafullo and giving him approval to sell off or license LSI’s assets as it was being dissolved is even more unusual. I doubt most business owners and judges would agree that a receiver’s responsibility to “manage” a business includes the authority to sell or license significant assets while dissolving the business.

Given the responsibilities and duties the Toth court gave McGinley, Jr., and Chiafullo, Pennsylvania business owners should expect that if push came to shove in a dispute with a co-owner over their business, a Pennsylvania court could appoint a receiver and task them with doing one or more of the following.

Preserving asset value

As in Toth, receivers can assume operational control to prevent reputational harm, low employee morale, waste, dissipation, or strategic underperformance of company assets. This is particularly valuable in situations like in Toth where co-owners have competing incentives or where one owner might benefit from the company’s decline or demise.

Keeping options open

Rather than immediately liquidating a business, receivers can continue operating the business, maintaining customer relationships, meeting contractual obligations, and, overall, keeping the company viable. This preserves optionality so co-owners and courts can later decide whether to pursue a dissolution, sale, or restructuring from a position of strength rather than desperation.

Generating liquidity and revenue

In Toth, Chiafullo made the controversial but ultimately sound decision to license LSI’s proprietary software to Michael’s new company, generating revenue while the company remained largely inactive. This preserved capital for all stakeholders during the uncertain period during the appeal process.

Overseeing contested transactions

When co-owners disagree about major business decisions, such as whether to take on debt, pursue new contracts, or sell assets, a receiver can make these decisions neutrally with court oversight and approval, free from the bad blood or conflicts of interest that paralyze co-owner decision-making.

Facilitating buyouts and reorganizations

Receivers can manage the process of one co-owner buying out another, ensuring fair valuation, neutral transaction oversight, and compliance with court-ordered restructuring plans.

Managing financial misconduct and fraud prevention

When fraud or self-dealing allegations arise, a receiver can provide neutral oversight of the company’s finances, organize records, and investigate irregularities while preventing one potentially culpable co-owner from controlling bank accounts or destroying evidence.

Resolving creditor, customer, and third-party disputes

A receiver can resolve lawsuits or disputes the company faces with creditors, customers, or tenants—settling claims in the company’s best interest rather than leaving them contested while co-owners bicker about settlement strategy. This prevents additional liability from accumulating during litigation.

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In football, receivers react—they’re never in control. But the Pa. Superior Court in Toth has put business owners on notice that Pennsylvania courts may allow their receivers to run plays, including a “hail mary.”

When business owners are deadlocked with their co-owners, they shouldn’t be surprised when a court appoints a receiver to do more than simply keep the business operating. Courts may authorize a receiver to step into the shoes of the co-owners to make “bet the company” decisions that could increase the value of the business—or destroy it.