Fidelity Bank v. Key Hotels of Brewton, LLC et al

Filing 10

ORDER denying 6 Motion to Appoint Receiver, with leave to renew motion upon proper notice to defendants. Signed by Chief Judge William H. Steele on 2/2/2015. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
FIDELITY BANK.,

)
)
Plaintiff,
)
)
v.
)
)
KEY HOTELS OF BREWTON, LLC, et al., )
)
Defendants.
)

CIVIL ACTION 15-0031-WS-M

ORDER
This matter comes before the Court on the Motion of Fidelity Bank for Ex Parte
Appointment of Receiver and Request for Expedited Hearing (doc. 6).
I.

Relevant Background.
Plaintiff, Fidelity Bank, commenced this action for enforcement of a loan agreement and

security interest against defendants, Key Hotels of Brewton, LLC and Anand Patel, in this
District Court on January 23, 2015. The pleadings allege that Key Hotels (whose sole member is
Patel) operates a Ramada Hotel (the “Hotel”) in Brewton, Alabama, and that defendants are in
default of certain loan repayment obligations to Fidelity Bank in the amount of $1,885,032.54.
The original Complaint asserted causes of action only for breach of the note and detinue, with
plaintiff seeking a money judgment for defendants’ indebtedness as well as a judgment for
possession of the personal property collateral (e.g., fixtures, equipment, furniture) at the Hotel.
Affidavits of Non-Service (docs. 3 & 4) reflect that plaintiff’s process server attempted
unsuccessfully to serve process on Patel at the Hotel. In particular, those Affidavits state that the
process server visited the Hotel address at 10:35 a.m. on the morning of January 28, 2015 and
observed the following: “Building is closed and under renovation. Serve[r] spoke with
workmen at the site and was told that they probably would not reopen before 6-8 months. They
did not know the whereabouts of Anand Patel.” (Doc. 4.)
On January 30, 2015, Fidelity Bank made a flurry of new filings in this case. For starters,
plaintiff filed a “First Amended Verified Complaint for Appointment of Receiver and Monetary

Relief” (doc. 5) adding a new cause of action for appointment of receiver, purportedly based on
(i) plaintiff’s rights under a Mortgage and Security Agreement executed by defendants; (ii)
plaintiff’s inspection of the Hotel on January 21, 2015 and its observations of the property’s
“dilapidated condition;” and (iii) an “Order of State Fire Marshal to Cease and Desist” Hotel
operations on January 22, 2015 because of uncorrected fire code violations. Along with the
Amended Complaint, Fidelity Bank filed a “Motion for Ex Parte Appointment of Appointment
of Receiver and Request for Expedited Hearing” (doc. 6) and accompanying Brief (doc. 7).
Plaintiff asserts that “[t]he immediate appointment of a receiver is necessary to protect the
interests of Fidelity with respect to its collateral and to protect the welfare of the general public
in that the Property has been declared a fire hazard.” (Doc. 6, ¶ 2.) On that basis, Fidelity Bank
“seek[s] ex parte relief on an emergency basis … [b]ecause of the extraordinary circumstances
which appear to impact not only the protection of Fidelity’s collateral, but also the risk to public
safety.” (Doc. 7, ¶ 6.)
II.

Analysis.
The Court begins with the premise that “[a] district court’s appointment of a receiver …

is an extraordinary equitable remedy.” United States v. Bradley, 644 F.3d 1213, 1310 (11th Cir.
2011) (citation and internal quotation marks omitted).1 “[T]he appointment of a receiver in
equity is not a substantive right; rather, it is an ancillary remedy which does not affect the
ultimate outcome of the action.” National Partnership Inv. Corp. v. National Housing
Development Corp., 153 F.3d 1289, 1291 (11th Cir. 1998); see also Hutchinson v. Fidelity Inv.
Asss’n, 106 F.2d 431, 436 (4th Cir. 1939) (“It should not be forgotten that the appointment of a
receiver is not a matter of right, but one resting in the sound discretion of the court.”) (citation
omitted); Sterling Sav. Bank v. Citadel Development Co., 656 F. Supp.2d 1248, 1258 (D. Or.
2009) (noting that “a party does not have a substantive right to a receiver”). Simply put,
“[r]eceivership is an extraordinary remedy that should be employed with the utmost caution and
is justified only where there is a clear necessity to protect a party’s interest in property, legal and

1

See also Canada Life Assur. Co. v. LaPeter, 563 F.3d 837, 844 (9th Cir. 2009)
(“Under federal law, appointing a receiver is an extraordinary equitable remedy, which should be
applied with caution.”) (citations and internal quotation marks omitted).

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less drastic equitable remedies are inadequate, and the benefits of receivership outweigh the
burdens on the affected parties.” Netsphere, Inc. v. Baron, 703 F.3d 296, 305 (5th Cir. 2012).2
Not only is Fidelity Bank requesting appointment of a receiver, but it is also requesting
that such relief occur immediately on an ex parte basis, without Key Hotels and Patel being
afforded notice or an opportunity to be heard. As a general proposition, ex parte emergency
motions are disfavored in federal court. See generally Granny Goose Foods, Inc. v. Brotherhood
of Teamsters and Auto Truck Drivers Local No. 70 of Alameda County, 415 U.S. 423, 438-39, 94
S.Ct. 1113, 39 L.Ed.2d 435 (1974) (“our entire jurisprudence runs counter to the notion of court
action taken before reasonable notice and an opportunity to be heard has been granted both sides
of a dispute”). More specifically, it is black-letter law that, in the receivership context, notice
must ordinarily be given before appointment is made. See, e.g., Arkansas Louisiana Gas Co. v.
Kroeger, 303 F.2d 129, 132 (5th Cir. 1962) (“[A]s a general rule a receiver should not be
appointed without notice to the parties to be affected by the receivership.”); Solis v. Matheson,
563 F.3d 425, 438 (9th Cir. 2009) (“In general, a receiver should not be appointed without notice
being given.”). Thus, the extraordinary nature of the receivership remedy is magnified and
compounded when the movant seeks appointment of a receiver without notice to the property
owner. See, e.g., Maxwell v. Enterprise Wall Paper Mfg. Co., 131 F.2d 400, 403 (3rd Cir. 1942)
(“The caution which should surround the appointment of a receiver is heightened when such
appointment is sought peremptorily in a proceeding in which the opposition has neither notice
nor opportunity to be heard.”). As one court has observed, “[t]he appointment of a receiver, ex
parte, and without notice, to take over one’s property is one of the most drastic actions known to
the law or equity.” In re Stanley Station Associates, L.P., 139 B.R. 990, 1004 (Bankr. D. Kan.
1992) (citation omitted).

2

See also Skirvin v. Mesta, 141 F.2d 668, 673 (10th Cir. 1944) (“[T]he power to
appoint a receiver with authority to take custody and control of property and operate it as a going
concern is a delicate one which is jealously safeguarded, and it should be exerted sparingly. A
court should be cautious and circumspect in the exertion of the remedy because perversion or
abuse may work great hardship.”); Varsames v. Palazzolo, 96 F. Supp.2d 361, 365 (S.D.N.Y.
2000) (“The appointment of a receiver is considered an extraordinary remedy and should be
utilized only where clearly necessary to protect an interest by the plaintiff in property where the
rights over that property are in dispute.”).

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That is not to say, however, that ex parte appointment of a receiver is never permissible.
To the contrary, “the power to make an ex parte appointment is properly exercised when the
receivership is required by some urgent necessity.” Arkansas Louisiana Gas, 303 F.2d at 132
(citations omitted).3 This “urgent necessity” exception is narrowly circumscribed. The party
seeking appointment of a receiver without notice must show that a bona fide emergency exists,
or that the opposing party has absconded or concealed itself, or that the giving of notice would
itself invite imminent loss or destruction of the subject property. See, e.g., Marion Mortg. Co. v.
Edmunds, 64 F.2d 248, 251 (5th Cir. 1933) (“Even a temporary appointment ought never to be
made without notice unless notice is impracticable because the person proceeded against is … in
hiding, or there is imminent danger clearly shown of loss or destruction or concealment of
property and protection cannot be afforded by a restraining order or in any other way.”) (citations
omitted); Federal Home Loan Mortg. Corp. v. Tully Village Edge Apartments, 1997 WL 10975,
*1 (N.D.N.Y. Jan. 2, 1997) (“A party seeking ex parte appointment of a receiver must also
demonstrate that exigent circumstances exist justifying the appointment on an ex parte basis,”
such as disappearance of the adverse party, a bona fide emergency situation, or likelihood that
notice would result in loss or destruction of critical evidence or property). A fundamental lesson
to be drawn from these authorities is that “counsel in these receivership matters should be
extremely careful to avoid the appearance of overzealousness to secure the exercise [of] control,
and should give notice of all proceedings … to all persons interested, wherever it is at all
possible. Only extreme emergency should excuse failure to do so.” First Nat’l Bank v. Stewart
Fruit Co., 17 F.2d 621, 623 (N.D. Cal. 1927).
No “extreme emergency” or “urgent necessity” that might justify ex parte appointment of
a receiver for the Ramada Hotel in Brewton, Alabama, has been shown to exist. Plaintiff’s three
arguments to the contrary are unpersuasive. First, Fidelity Bank contends that there is a “serious
threat to … the condition of the collateral” (doc. 7, ¶ 9) because the Hotel “has been declared a
3

See also Maxwell, 131 F.2d at 403 (“In the case of ‘actual emergency’ it may be
done.”); Tennessee Pub. Co. v. Carpenter, 100 F.2d 728, 731-32 (6th Cir. 1938) (“It is of course
the general rule that appointments of receivers are not made ex parte and without notice. … [In
such circumstances,] receivership must be justified by the existence of actual emergency.”);
Argonaut Ins. Co. v. Halvanon Ins. Co., 545 F. Supp. 21, 25 (S.D.N.Y. 1981) (“While it is clear
that a receiver may be appointed upon ex parte application when an emergency exists, ordinarily
the court will require notice of the application to all parties affected.”).

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fire hazard” and “the physical structure of the Property is quickly deteriorating due to the poor
condition of the roof” (doc. 6, ¶ 2). But plaintiff points to no evidence that the Hotel is in
imminent danger of either burning to the ground or sustaining material additional structural
damage during the relatively short time period needed to afford defendants notice and a
reasonable opportunity to be heard in response to the request for appointment of a receiver.
Plaintiff’s own exhibits confirm that the purported “fire hazard” conditions at the Hotel are not
new, but were first documented by the Fire Marshal more than six months ago. (See doc. 5, at
96-104.) As for the structural condition of the Hotel, plaintiff’s own filings show that, as of
January 28, 2015, defendants had “workmen” performing “renovation” at the Hotel property.
(Doc. 4.) The fact that the owners of the Hotel presently have a work crew on site performing
renovations appears to conflict with Fidelity Bank’s rhetoric of “manifest danger of loss,
destruction or material injury” to the Hotel absent immediate ex parte appointment of a receiver
to take over the Hotel. (Doc. 7, ¶ 11.)
Second, Fidelity Bank’s numerous references to “public safety” and the need to “protect
the welfare of the general public” ring hollow. Again, plaintiff’s own evidence confirms that the
Hotel “is closed.” (Doc. 4.) It is far from obvious how the “fire hazard” status of an unoccupied
commercial building undergoing renovations might pose a substantial threat to public safety that
rises to the level of “extreme emergency” or “urgent necessity” warranting ex parte appointment
of a receiver on an emergency basis.
Third, Fidelity Bank speculates that defendant Anand Patel “may have abandoned the
premises in the wake of the Cease and Desist Order.” (Doc. 7, ¶ 9.) Plaintiff identifies no
evidence that might lend credence to such conjecture. The presence of a work crew performing
renovations at the Hotel on January 28, 2015 strongly suggests that Patel and Key Hotels have
not abandoned the property (since presumably they are the ones who hired, pay, and direct the
work crew). Further, the process server’s statement that the workers “did not know the
whereabouts of Anand Patel” is far too vague to justify the vast leap of logic that Patel must have
absconded, gone into hiding, fled the jurisdiction, or otherwise taken steps to abandon the Hotel
or frustrate notice and service of process. In short, plaintiff’s showing is wholly inadequate to

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support a finding of “urgent necessity” for ex parte litigation of the Motion to Appoint Receiver
on a theory that it is impracticable to furnish notice to defendants.4
III.

Conclusion.
In sum, Fidelity Bank has not demonstrated the existence of exigent circumstances, an

extreme emergency, or an urgent necessity that might justify hearing its motion for appointment
of a receiver to take control of defendants’ property without notice to defendants. Accordingly,
the Motion of Fidelity Bank for Ex Parte Appointment of Receiver and Request for Expedited
Hearing (doc. 6) is denied, with leave to renew such motion upon proper notice to defendants.
Any such renewed motion will be taken under submission promptly, albeit only after affording
all parties a fair and reasonable opportunity to be heard.
DONE and ORDERED this 2nd day of February, 2015.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
4

A fourth argument to which Fidelity Bank’s filings allude (without developing) is
that plaintiff is somehow entitled to ex parte consideration of its Motion because the relevant
Mortgage and Security Agreement includes a provision in which defendants agreed that Fidelity
Bank was “entitled to the appointment of a receiver …, without notice, to take possession of and
protect the Mortgaged Property.” (Doc. 7, ¶ 5.) Insofar as Fidelity Bank intended to advance
such an argument, it is unavailing. Again, appointment of a receiver is an inherently equitable
remedy committed to the trial court’s discretion. See, e.g., Waag v. Hamm, 10 F. Supp.2d 1191,
1193 (D. Colo. 1998) (“receivership is not a positive right,” but “is an extraordinary equitable
remedy that lies in the discretion of the court, justifiable only in extreme situations”); Midwest
Sav. Ass’n v. Riversbend Associates Partnership, 724 F. Supp. 661, 662 (D. Minn. 1989) (“the
appointment of a receiver is not a matter of positive right but rather lies in the discretion of the
court”). A contractual provision is properly considered in the receivership analysis, but it does
not supplant the equitable framework established by federal law governing appointment of a
receiver. See generally Fortress Credit Corp. v. Alarm One, Inc., 511 F. Supp.2d 367, 371
(S.D.N.Y. 2007) (“the court’s power to appoint a receiver is discretionary in nature and[,]
consequently, courts may deny receivership applications regardless of a specific contract
provision for such”) (citations and internal marks omitted); Federal Home Loan Mortg. Corp. v.
Spark Tarrytown, Inc., 813 F. Supp. 234, 235 (S.D.N.Y. 1993) (“contractual, regulatory, or
statutory authority for a receivership, whether on notice or on an ex parte basis, while necessary
to such a grant, is not sufficient”); Wells Fargo Bank, N.A. v. Tri-5 Realty Management, Inc.,
2009 WL 2392034, *1 (N.D.N.Y. Aug. 3, 2009) (denying ex parte application for appointment
of receiver even though mortgage agreement specifically allowed for ex parte appointment,
where plaintiff failed to “demonstrate sufficient grounds for the appointment of a receiver on an
ex parte basis”). Plaintiff has not argued, much less demonstrated, otherwise.

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