Conservatorship

[kon-ser-vey-ter, kuhn-sur-vuh-]

Conservatorship is a legal concept to be found in the law of many states of the United States of America, whereby an entity is established by court order, or in the case of regulated business enterprises, via statutory or regulatory authority, that some property, person or entity be subject to the legal control of another person or entity, known as a conservator. Conservatorship, when referring to government control of private corporations such as Freddie Mac or Fannie Mae, is known as Nationalisation in other parts of the world such as the United Kingdom.

Conservatorship

Many jurisdictions use the term "guardianship" to refer to the same legal principle (in California, conservatorships are for adults and guardianships are for children). A person under conservatorship is a conservatee or protected person; a person under guardianship is a ward. In most states, a court visitor or some other investigatory person or agency must review the facts of the case and submit a report, usually required to be in writing, to the court before the court makes a decision on the request to establish a conservatorship or guardianship. Court visitors are often required to be experts in some appropriate field, such as social work or law. Procedures for conservatorship of an adult are often different from those for minors.

The court may appoint an attorney to represent the proposed conservatee or ward. If the proposed conservatee or ward is unable to have an attorney-client relationship because of some impairment, the court may appoint a guardian-ad-litem (who is often also an attorney). A guardian-ad-litem does not take instruction from the client, but rather tells the court what the guardian-ad-litem thinks is in the best interests of the proposed conservatee or ward, whether or not that is what the proposed conservatee or ward wants.

Procedures for developmentally disabled persons are quite different from other conservatorships, because developmentally disabled persons may retain more control over their personal affairs than other conservatees. For example, a developmentally disabled person may maintain her/his own social and sexual contacts, and/or be able to keep wages from employment.

There has been much national debate about the procedural protections for the conservatee/protected person. In many states, the attorney or guardian ad litem for the protected person or the court visitor, may be picked by the petitioning attorney, rather than by a random process, and may not be truly independent. State law can, but does not always, provide requirements for the actions of the court visitor, attorney and guardian ad litem that are designed to protect the rights of the conservatee/protected person.

Further protections have resulted from summary conservatorships established, without sufficient investigation and opportunity to be heard, in “deprogramming” cases involving certain religious groups. Conservatorships were used by some concerned relatives of members of New Religious Movements (NRMs) to be removed from their religious communities to be deprogrammed. Lawyers for NRMs such as the Unification Church argued that conservatorships should not be issued without the judge seeing the person in question and giving him or her a chance to produce expert testimony opposing the conservatorship. They argued that deprogrammers were abusing the mechanism of conservatorships to justify what would otherwise be called kidnapping and false imprisonment. The ACLU reports that the temporary conservatorships granted in the Unification Church case violated the conservatee's rights to freedom of religion and association, per the finding of the California appeals court on the case.

Legal persons

In the United States, in some states, corporations can be placed under conservatorship, as a less extreme alternative to receivership. Whereas a receiver is expected to terminate the rights of shareholders and managers, a conservator is expected merely to assume those rights, with the prospect that they will be relinquished. Ramsey & Head advise that an insolvent bank should go into receivership rather than conservatorship to guard against false hope and moral hazard.

At the federal government level in the United States, in July 2008, the failing IndyMac Bank was taken into administrative receivership by the Federal Deposit Insurance Corporation (FDIC) and its assets and secured liabilities transferred to a specially-established bridge bank called IndyMac Federal Bank, FSB which was placed into conservatorship, also by the FDIC.

Again, in the U.S. at the federal level, in September 2008, the chief executive officers, and board of directors Fannie Mae and Freddie Mac were dismissed, and the companies were placed into the conservatorship of the Federal Housing Finance Agency (FHFA) via the determination of its director James B. Lockhart III, with the support and financial backing of U.S. Treasury via Treasury secretary Hank Paulson's commitment to keep the corporations solvent. The intervention leading to the conservatorship of these two entities may become the largest in government history, and was justified as necessary step to prevent the damage to the financial system that would have been caused by their failure. Entities like this are considered too big to fail.