USA v. JHW Greentree Capital, L.P.
ORDER granting movant Weingarten Maya Tropicana, LLC's 78 Motion to Modify the Stay Order. See the attached Memorandum of Decision. Signed by Judge Vanessa L. Bryant on 6/11/14. (Ives, D)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
UNITED STATES OF AMERICA,
JHW GREENTREE CAPITAL, L.P.,
CIVIL ACTION NO.
June 11, 2014
MEMORANDUM OF DECISION GRANTING MOVANT’S EMERGENCY MOTION TO
MODIFY THE STAY [Dkt. 78]
Movant Weingarten Maya Tropicana, LLC (“Weingarten” or “Movant”) was
the lessor of real property to Baja Fresh Westlake Village, Inc., the predecessor in
interest to Fresh Enterprises, LLC (“Fresh”), a wholly owned subsidiary of BF
Acquisition Holdings, LLC, an entity in which JHW Greentree Capital, L.P. (“JHW
Greentree” or “Greentree”) has an equity interest. Currently before the Court is
Weingarten’s Emergency Motion to Modify the Stay imposed in this case. For the
reasons that follow, Movant’s motion is GRANTED.
JHW Greentree is a small business investment company licensed by the
United States Small Business Association (“SBA” or “Receiver”) on or about
September 29, 2004. On February 10, 2012, with the consent of the parties, the
Court entered an Order of Receivership and appointed the SBA as the liquidating
Receiver of JHW Greentree. [Dkt. 9]. The Receiver was appointed “for the
purpose of marshalling and liquidating in an orderly manner all of Greentree’s
assets and satisfying the claims of creditors thereof in the order of priority as
determined by this Court.” [Dkt. 9, Receivership Order ¶1]. Pursuant to
paragraphs 7 and 8 of the Order, all civil litigation involving JHW Greentree, its
present or past officers, directors, managers, or general partners, its Receiver,
and/or its assets has been stayed. JHW Greentree’s assets include a sixty
percent equity interest in the voting class equity of BF Acquisition Holdings, LLC
(“BFAH”), and Greentree also controls BFAH’s board.
Weingarten leased non-residential property in Las Vegas, Nevada (the
“Premises”) to Baja Fresh Westlake Village, Inc. for use as a Baja Fresh
restaurant pursuant to a Lease Contract (“Lease”) dated February 12, 2003. [Dkt.
79, M. to Lift Stay p. 3; dkt. 79-2, Lease pp. 1, 37]. Baja Fresh Westlake Village,
Inc. is the predecessor in interest to Fresh Enterprises, LLC (“Fresh”). [Dkt. 79,
M. to Lift Stay p. 3]. Fresh is a wholly owned subsidiary of BFAH, in which JHW
Greentree holds a sixty percent equity interest. The Receiver asserts that this
restaurant location is franchised and that BFAH has entered into a sublease with
a current franchisee. [Dkt. 81, Receiver’s Opposition, p. 3].
The Lease contained an option to extend the Lease for an additional five
year term at the end of the initial ten year term. Weingarten claims that Fresh
failed to timely1 exercise this option to extend, and thus the Lease term expired
on January 31, 2014. Weingarten notified Fresh of the Lease’s expiration date by
Fresh was required to notify Weingarten of its decision to exercise the option to
extend at least 180 days prior to the Lease’s expiration. [Dkt. 79-6, D. NV Order
Granting MTD, p. 1].
letter on November 8, 2013. [Dkt. 79, M. to Lift Stay p. 3; dkt. 79-3, 11/8/13 letter].
On November 20, 2013, Fresh filed a complaint against Weingarten in Nevada
state court, alleging, among other things, that Weingarten breached the Lease by
refusing to allow an extension of the Lease beyond the initial ten year term, and
seeking declaratory judgment as to Fresh’s rights to the Premises and to exercise
the option to extend the Lease. [Dkt. 79, M. to Lift Stay p. 4; dkt. 79-4, NV
complaint, ecf pp. 8-10]. Weingarten removed the action to the Nevada District
Court. [Dkt. 79-4, Notice of Removal].
Weingarten filed a Motion to Dismiss in the Nevada District Court action on
December 19, 2013, which Fresh opposed. [Dkt. 79-5, Weingarten MTD]. On
March 25, 2014, apparently not having been informed of the receivership and the
stay, the Nevada District Court granted Weingarten’s Motion to Dismiss, holding
that Fresh had failed to timely exercise the option to extend pursuant to the Lease
and that no equitable relief was justified.2 [Dkt. 79-6, D. NV Order Granting MTD].
Weingarten asserts that following the Nevada District Court’s ruling, it informed
Fresh that it intended to file an unlawful detainer or summary eviction proceeding
against Fresh in Nevada state court. [Dkt. 79, M. to Lift Stay p. 4]. Weingarten
asserts that Fresh then notified Weingarten for the first time of the existence of
this receivership proceeding and of the stay pursuant to this Court’s receivership
order, and that Fresh threatened to file a notice staying any future action that
Weingarten planned to take to recover the Premises. [Id.]. Fresh has appealed
The Nevada District Court’s Order specifically notes that “Plaintiff [Fresh]
admits that it gave notice of intent to exercise the option to extend two weeks
late,” and that as a result Fresh had requested equitable relief from the court.
[Dkt. 79-6, D. NV Order Granting MTD, p. 3, lines 6-7].
the Nevada District Court’s ruling to the Ninth Circuit Court of Appeals. [Dkt. 81,
Receiver’s Opposition p. 1]. That appeal was pending when the subject motion
was filed. In support of its opposition to the Movant’s motion the Receiver filed a
declaration of Charles Rink, the president and CEO of BFAH, in which Rink avers
that he was informed by an unidentified party and, presumably on the basis of
this undisclosed representation alone, that he believes that the Lease was
extended by Fresh. [Dkt. 81-1, Rink Decl, ¶5]. The Rink declaration tacitly admits
that its declarant has no personal knowledge of whether the Lease was extended
and there is no other evidence on the record tending to undermine the validity of
the Nevada decision. Fresh has not sought a stay of the Nevada District Court’s
decision pending the appeal.
Weingarten asserts that, as a result of Fresh’s failure to timely exercise its
option to extend the Lease and of the Lease’s expiration on January 31, 2014,
Weingarten located a replacement tenant for the Premises, Chipotle Mexican Grill,
Inc., and entered into a ten year lease with Chipotle on December 16, 2013. [Dkt.
79, M. to Lift Stay p. 5; dkt. 79-7, Chipotle lease, p.1]. Weingarten asserts that the
Chipotle lease provides for over $1.44 million in value to Weingarten in the form
of rent and triple-net payments over the initial ten year term of the lease. [Dkt. 79,
M. to Lift Stay p. 5]. Further, Article 52 of the Chipotle lease provides that, if
Weingarten fails to regain exclusive and legal possession of the Premises from
Fresh and so notify Chipotle in writing by April 1, 2014, then Chipotle may
terminate the Chipotle lease upon thirty days prior written notice to Weingarten
between April 1 and April 15, 2014. [Dkt. 79-7, Chipotle lease, p.37, Article 52].
Because of Weingarten’s inability to recapture legal possession of the Premises
from Fresh prior to April 1, 2014, Weingarten requested and Chipotle assented to
a thirty day delay of this April 1 deadline. Pursuant to an amendment to the
Chipotle lease entered into on April 3, 2014, Chipotle may terminate the Chipotle
lease upon thirty days written notice to Weingarten between May 1 and May 15,
2014. [Dkt. 79-8, Amendment to Chipotle lease].
Weingarten argues that if the stay order is not modified to permit it to
proceed against Fresh and regain possession of the Premises, it will be
substantially harmed in that it risks losing Chipotle as a new tenant, and may be
exposed to damages for breaching the Chipotle lease. [Dkt. 79, M. to Lift Stay p.
5]. The Receiver counters that maintaining the stay is in the best interest of the
receivership, at least until the Ninth Circuit resolves Fresh’s appeal of the District
of Nevada’s ruling, and that Weingarten has failed to meet the standard for lifting
the stay. [Dkt. 81, Receiver’s Opposition p. 1].
For the reasons stated below the Court finds that lifting the judicial stay
preserves the status quo, that Weingarten would suffer a substantial injury if not
permitted to proceed, and that Weingarten’s underlying claim is meritorious.
Accordingly, the stay is lifted.
a. The Stay is Inapplicable to the Movant’s Proposed Action
First and foremost, the Lease in which Fresh claims it possesses an
interest is no longer an asset of the Receivership estate, and thus the stay cannot
apply to Weingarten’s proposed action against Fresh. The Nevada District Court
held that Fresh failed to timely exercise its option to extend the Lease for an
additional five years and thus the right to renew was lost under Nevada law. [Dkt.
79-6, D. NV Order Granting MTD, p. 3]. By failing to timely exercise this option to
extend, Fresh effectively relinquished its interest in the Lease and in the
Premises, and the Lease terminated on January 31, 2014. Thus, Fresh held no
interest in the Premises after January 31, 2014 as it had failed to exercise its right
to maintain an interest in the Premises. Therefore, as Fresh had no interest in the
Premises after January 31, the Receiver likewise can have no interest in the
Premises after this date. Absent an interest in the Premises this Court’s litigation
stay cannot apply to Weingarten’s proposed action to force Fresh from the
Premises, which Premises Fresh is currently unlawfully occupying. In sum, the
expired Lease and the Premises on which Fresh is holding over are not assets
over which this receivership extends and so the stay cannot and does not apply
to the Movant’s proposed action to regain physical possession of the Premises.
b. Factors Favor Lifting the Stay
However, even if the Lease and/or the Premises are current assets of the
receivership estate, Weingarten has met the standard for lifting the litigation stay.
A district court may impose a litigation stay on a non-party to a
receivership as part of its inherent power as a court of equity to fashion effective
relief. S.E.C. v. Byers, 609 F.3d 87, 91 (2d Cir. 2010) (citing S.E.C. v. Wencke, 622
F.2d 1363, 1369 (9th Cir. 1980) (“Wencke I”)).
The purposes of a receivership are varied, but the purpose of
imposing a stay of litigation is clear. A receiver must be given
a chance to do the important job of marshaling and untangling
a company’s assets without being forced into court by every
investor or claimant.
U.S. v. Acorn Tech. Fund, L.P., 429 F.3d 438, 443 (3d Cir. 2005). “Nevertheless, an
appropriate escape valve, which allows potential litigants to petition the court for
permission to sue, is necessary so that litigants are not denied a day in court
during a lengthy stay.” Id.
Courts have found litigation stays in the receivership context to be
enforceable against non-parties. See, e.g., Acorn Tech. Fund, L.P., 429 F.3d at
442 (affirming receivership litigation stay against non-parties); S.E.C. v.
Illarramendi, 3:11CV78 JBA, 2012 WL 234016 (D. Conn. Jan. 25, 2012) (declining to
lift anti-litigation stay to permit non-party to pursue claims in bankruptcy against
When analyzing a motion to lift a litigation stay imposed by a receivership
court, courts utilize a three-part test articulated by the Ninth Circuit in S.E.C. v.
Wencke, 622 F.2d 1363 (9th Cir. 1980) (“Wencke I”) and S.E.C. v. Wencke, 742 F.2d
1230 (9th Cir. 1984) (“Wencke II”), which has been applied by courts in the Second
Circuit.3 See S.E.C. v. Byers, 592 F. Supp. 2d 532, 536 (S.D.N.Y. 2008) aff'd, 609
F.3d 87 (2d Cir. 2010); S.E.C. v. Illarramendi, 3:11CV78 JBA, 2012 WL 5832330 (D.
This test has also been adopted by the Third, Fifth, and Tenth Circuits, as well
as by courts in the Fourth, Sixth, Seventh, and Eighth Circuits. See U.S. v. Acorn
Tech. Fund, L.P., 429 F.3d 438 (3d Cir. 2005); S.E.C. v. Stanford Int'l Bank Ltd., 424
F. App’x 338, 341 (5th Cir. 2011); S.E.C. v. Vescor Capital Corp., 599 F.3d 1189,
1196 (10th Cir. 2010); U.S. v. ESIC Capital, Inc., 685 F. Supp. 483 (D. Md. 1988);
S.E.C. v. One Equity Corp., 2:08-CV-667, 2010 WL 4878993 (S.D. Ohio Nov. 23,
2010); F.T.C. v. 3R Bancorp, 04 C 7177, 2005 WL 497784 (N.D. Ill. Feb. 23, 2005);
U.S. v. Petters, CIV. 08-5348 ADM/JSM, 2012 WL 836866 (D. Minn. Mar. 12, 2012).
Conn. Nov. 16, 2012); S.E.C. v. Byers, 08 CIV. 7104 DC, 2012 WL 954254 (S.D.N.Y.
Feb. 28, 2012); S.E.C. v. Illarramendi, 3:11CV78 JBA, 2012 WL 234016 (D. Conn.
Jan. 25, 2012). Pursuant to Wencke II, when determining whether to lift a
litigation stay, a court should consider “(1) whether refusing to lift the stay
genuinely preserves the status quo or whether the moving party will suffer
substantial injury if not permitted to proceed; (2) the time in the course of the
receivership at which the motion for relief from the stay is made; and (3) the merit
of the moving party's underlying claim.” Wencke II, 742 F.2d at 1231; Byers, 592
F. Supp. 2d at 536, aff'd, 609 F.3d 87 (2d Cir. 2010) (citing Wencke II).
“The Wencke test simply requires the district court to balance the interests
of the Receiver and the moving party.” S.E.C. v. Universal Fin., 760 F.2d 1034,
1038 (9th Cir. 1985); Acorn Tech. Fund, L.P., 429 F.3d at 443 (citing same). The
movant bears the burden of proving that the balance of the factors weighs in
favor of lifting the stay. Illarramendi, 2012 WL 5832330, at *2 (citing U.S. v.
Petters, No. 08–5348 ADA/SJM, 2008 WL 5234527, at *3 (D. Minn. Dec. 12, 2008));
Acorn Tech. Fund, L.P., 429 F.3d at 450; S.E.C. v. Stinson, CIV.A. 10-3130, 2012
WL 1994770, at *1 (E.D. Pa. June 4, 2012).
c. Maintenance of Status Quo Versus Injury to the Movant
The first Wencke II factor requires a court to consider “whether refusing to
lift the stay genuinely preserves the status quo or whether the moving party will
suffer substantial injury if not permitted to proceed.” 742 F.2d at 1231. This
factor “essentially balances the interests in preserving the receivership estate
with the interests” of the movant. S.E.C. v. Stanford Int'l Bank Ltd., 424 F. App'x
338, 341 (5th Cir. 2011); Illarramendi, 2012 WL 234016 (same); Schwartzman v.
Rogue Int'l Talent Grp., Inc., CIV.A. 12-5255, 2013 WL 460218 (E.D. Pa. Feb. 7,
2013) (first factor requires court “to balance the Receiver’s interest in maintaining
the status quo with any injury the moving party may suffer if the stay remains in
place”); U.S. v. ESIC Capital, Inc., 675 F. Supp. 1462, 1463 (D. Md. 1987) (court
must assess “the competing interests of the injury to the moving party versus
preserving the status quo”). When considering the preservation of the status
quo, courts should give “appropriately substantial weight to the receiver’s need
to proceed unhindered by litigation, and the very real danger of litigation
expenses diminishing the receivership estate.” Acorn Tech. Fund, L.P., 429 F.3d
Weingarten contends that this factor tips in its favor because maintaining
the stay would cause it substantial harm while lifting the stay would not adversely
affect the status quo. First, Movant argues, the Receiver’s filing of its Unopposed
Motion for Entry of an Order Approving the Receiver’s Recommended Disposition
of Claims, Authorizing Payment of Approved Claims and Establishing Summary
Disposition Proceedings (dkt. no. 62) on January 8, 2014, demonstrates that,
because the Receiver itself is ready to distribute assets and will itself disturb the
status quo, maintaining the stay as to the Movant will not genuinely preserve the
status quo, nor will the Receiver be harmed by a lifting of the stay. [Dkt. 79, M. to
Lift Stay p. 8].
Second, Weingarten asserts that its inability to proceed against Fresh in
Nevada state court to recover possession of the Premises exposes Weingarten to
substantial harm. [Dkt. 79, M. to Lift Stay p. 8]. If the stay is not lifted, the Movant
will be unable to pursue legal proceedings to evict Fresh from the Premises and
thus will be unable to perform under the Chipotle lease, resulting in the loss of
$1.44 million of expected revenue over the ten year life of the lease, as well as
potential liability for breach of the Chipotle lease. [Id.].
The Receiver, on the other hand, argues that should the stay be lifted,
BFAH and its subsidiaries would be irreparably harmed; the franchisee would
lose its profitable location to a competitor before the Ninth Circuit will be able to
hear Fresh’s appeal of the District of Nevada’s decision, thus rendering the
appeal moot. [Dkt. 81, Receiver’s Opposition p. 6]. Further, imposition of the
stay and its retention, the Receiver argues, has allowed BFAH and its
subsidiaries to “rebuild the brands and slowly recover and settle its cases with
its creditors, to the benefit of the JHW receivership estate.” [Id.]. Moreover, the
Receiver asserts (1) that Weingarten has brought on any alleged harm itself, (2)
that BFAH “is current in its payments [on the Premises] and unilaterally has
offered to pay more for the premises, per square footage, where [sic] they to
remain on the premises for the same term as [Chipotle],” and (3) that there is
nothing indicating that Weingarten cannot amend the terms of the Chipotle lease
a second time. [Id. at 6-7]. These factors, the Receiver asserts, show that
Weingarten will suffer no irrevocable injury should the stay remain in place.
The Court concludes that Weingarten has met its burden of demonstrating
that its potential injury is sufficiently substantial to override the Receiver’s
interest in maintaining the status quo. First, the Court agrees that the Receiver’s
interest in maintaining the status quo at this juncture is low, given that the
Receiver itself has moved to disturb the status quo by establishing summary
disposition proceedings and authorizing payment of claims, and given that this
Court is in the process of ruling on this motion and establishing summary
disposition proceedings. Moreover, although the Receiver has asserted through
the declaration of Charles Rink that “BF collects substantial royalties from the
franchisee of this restaurant that are part of the revenue stream making up the
assets of the company” and that “BF would be detrimentally affected by the loss
of this revenue stream if this location were lost to a competitor,” neither Mr. Rink
nor the Receiver has quantified either the profits from this location as a
percentage of profits from all locations or the magnitude of loss that BFAH would
incur if the stay were lifted. Thus the Receiver has presented no facts from which
the Court could determine the materiality of lifting the stay. [Dkt. 81-1, Rink Decl.
Second, Weingarten has clearly demonstrated that it stands to lose the
benefits of the Chipotle lease if it is not permitted to regain physical possession
of the Premises from Fresh, which may result in a ten year loss of $1.44 million in
expected revenue, plus any monetary liability that may occur for breach of the
Chipotle lease. Fresh’s argument that it has, at some point prior to the filing of its
opposition motion, offered to pay more to remain on the Premises than
Weingarten could collect from Chipotle is irrelevant, as is its argument that the
Movant has brought upon itself any harm that may occur. The District of Nevada
decision held that Fresh failed to timely exercise its option to extend the Lease
and the Lease expired on January 31, 2014. Weingarten thus had the right to
expect Fresh to relinquish the premises by that date and had every right to enter
into a lease with a tenant to occupy and possess the Premises upon Fresh’s
election not to extend.
Fresh’s unilateral offer to pay more for the Premises than will Chipotle
does not negate the harm to Weingarten if it loses the Chipotle lease, especially
given that the Receiver has made no attempt to clarify when it made the offer of
increased payment to Weingarten, whether that offer still stands, the terms of that
offer, or what monetary damages Weingarten would still incur for breaching the
Chipotle lease and maintaining the Lease with Fresh. Finally, the amount of the
lease payments is not the only factor in valuing a lease. The creditworthiness of
the lessee is a significant factor as well. The fact that the Fresh Lease subjects
Weingarten to a stay makes the Chipotle lease inherently more valuable even at a
The argument that Weingarten could amend the Chipotle lease because it
has done so in the past is unsupported and undermined by the facts, as the
Receiver has offered no evidence whatsoever that amendment would be possible
or that Chipotle would consent to wait an indefinite period of time – until the Ninth
Circuit rules on Fresh’s appeal – to take possession of the Premises. Indeed,
Chipotle’s negotiation of a one month extension of the termination provision is
indicative of its unwillingness to wait indefinitely.
Lastly, the injury to the Movant if the stay is not lifted is imminent. Article
52 and the amendment to the Chipotle lease provide that if Weingarten fails to
regain exclusive and legal possession of the Premises from Fresh and so notify
Chipotle in writing by May 1, 2014, then Chipotle may terminate the Chipotle lease
upon thirty days prior written notice to Weingarten between May 1 and May 15,
2014. Thus, maintaining the litigation stay as to Weingarten will trigger (and has
already triggered) this clause of the Chipotle lease and is likely to cause imminent
injury, as May 1, the date by which Weingarten must regain the Premises from
Fresh, has passed.
For the foregoing reasons, the Court concludes that Weingarten has met its
burden of demonstrating substantial harm. This harm outweighs the Receiver’s
interest in maintaining the status quo, which it has requested and this Court
intends to imminently alter. Therefore, the first Wencke II factor favors the
The second Wencke II factor requires courts to analyze the time in a
receivership in which a motion to lift a litigation stay is made. There is no “clear
cut-off date after which a stay should be presumptively lifted.” Acorn Tech. Fund,
L.P., 429 F.3d at 450. The timing factor is fact-specific and “based on the number
of entities, the complexity of the scheme, and any number of other factors.”
Stanford Int'l Bank Ltd., 424 F. App’x at 341; see also S.E.C. v. Vescor Capital
Corp., 599 F.3d 1189, 1197 (10th Cir. 2010) (“the timing factor is case-specific”).
The Ninth Circuit explained in Wencke I that,
[w]here the motion for relief from the stay is made soon after
the receiver has assumed control over the estate, the
receiver's need to organize and understand the entities under
his control may weigh more heavily than the merits of the
party's claim. As the receivership progresses, however, it may
become less plausible for the receiver to contend that he
needs more time to explore the affairs of the entities. The
merits of the moving party's claim may then loom larger in the
Wencke I, 622 F.2d at 1373-74. Drawing from the Ninth Circuit’s precedent, the
Third Circuit has similarly concluded that
[f]ar into a receivership, if a litigant demonstrates that harm
will result from not being able to pursue a colorably
meritorious claim, we do not see why a receiver should
continue to be protected from suit. On the other hand, very
early in a receivership even the most meritorious claims might
fail to justify lifting a stay given the possible disruption of the
Acorn Tech. Fund, L.P., 429 F.3d at 443-44.
Generally, courts are reluctant to lift litigation stays early in a receivership
where lifting a stay would disrupt the receiver’s duty to organize and understand
its assets. See S.E.C. v. Byers, 592 F. Supp. 2d 532, 537 (S.D.N.Y. 2008) aff'd, 609
F.3d 87 (2d Cir. 2010) (in SEC receivership action, where receiver had “only just
begun to investigate the full extent of the fraudulent scheme,” timing factor
weighed in favor of receiver as “permitting some investors to file involuntary
bankruptcy petitions would hinder the Receiver's investigation”); S.E.C. v.
Illarramendi, 3:11CV78 JBA, 2012 WL 234016 (D. Conn. Jan. 25, 2012) (timing
factor weighed in favor of receiver where receivership was six months old at time
of movant’s motion, receiver had just begun its voluminous investigation, and the
bar date for claims against the receivership entities had just passed); Stanford
Int'l Bank Ltd., 424 F. App'x at 341-42 (affirming district court’s conclusion that
timing factor weighed in favor of receiver and its interest in marshaling and
conserving the estate where receivership had been in place for one year,
underlying Ponzi scheme was complex and intricate, involving many entities and
billions of dollars, satellite litigation instigated by receiver on behalf of estate was
just beginning); Belsome v. Rex Venture Grp., LLC, 3:12CV800, 2013 WL 6860303
(W.D.N.C. Dec. 30, 2013) (finding that timing factor weighed in favor of receiver in
Securities Exchange Commission receivership where receiver was “engaged in
intensive investigation and analysis, reconstructing the financials of [the entity],
analyzing large volumes of documents, liquidating the company's assets, and
preparing for the filing of clawback actions”); F.T.C. v. 3R Bancorp, 04 C 7177,
2005 WL 497784 (N.D. Ill. Feb. 23, 2005) (timing factor favored receiver where
receiver had “had little more than three months to begin to unravel the
labyrinthine entanglements” involved in a far-reaching telemarketing scam); ESIC
Capital, Inc., 675 F. Supp. at 1464 (timing factor favored receiver where
receivership was two years old, receiver needed more time to analyze matters,
and where lifting stay would vitiate orderly administration of estate).
Conversely, a lift of the stay is more palatable later in a receivership’s
lifetime, after the receiver has had sufficient time to conduct its duties. See
Wencke II, 742 F.2d at 1232 (district court abused its discretion in refusing to lift
stay preventing commencement of suits against receivership where receiver was
ready to distribute assets of the estate, receivership had been in existence for
over seven years with no new material facts having been discovered for at least
six years, and disgorgement order had been entered requiring transfer of shares
to receiver for benefit of public shareholders); S.E.C. v. Provident Royalties,
L.L.C., 3:09-CV-1238-L, 2011 WL 2678840 (N.D. Tex. July 7, 2011) (timing factor
weighed heavily in favor of lifting stay where receivership was almost two years
old, receiver had marshaled almost all receivership assets and had proposed a
plan of distribution); SEC v. Private Equity Mgmt. Grp., LLC, CV 09-2901 PSG EX,
2010 WL 4794701 (C.D. Cal. Nov. 18, 2010) (second factor cut against receiver
where receivership was well over one year old and receiver had progressed
sufficiently in the effort to organize and understand the entities under his control,
as evidenced by regular status reports to the court).
Weingarten argues that the stay should be lifted because the receivership
has been in place for more than twenty-six months, and the Receiver has filed
both a status report (extolling the successes of the receivership) and its
disposition motion. [Dkt. 79, M. to Lift Stay p. 9]. The Receiver counters that the
stay should not be lifted because the Receiver, by way of its disposition motion,
has “merely informed the Court by its Motion … that the Receiver has compiled
the creditor pool and has determined their priority of payments as funds permit,”
but “has not stated that it is in the position of distributing all of the assets of the
estate as not all have been liquidated.” [Dkt. 81, Receiver’s Opposition pp.6-7].
Here, the receivership has been in place since February 9, 2012, more than
twenty-eight months. On January 8, 2014, the Receiver filed a Motion for Entry of
an Order Approving the Receiver’s Recommended Disposition of Claims,
Authorizing Payment of Approved Claims and Establishing Summary Disposition
Proceedings (dkt. no. 62), which requests that the Court grant Greentree
“authority to make immediate payment” to two claimants, and this Court will
enter an order establishing summary disposition proceedings shortly. However,
the Receiver will, at some undefined point in the future, liquidate Greentree’s
assets and wind down the Receivership estate. This receivership is thus at a
midpoint; the Receiver has progressed in the effort to organize, understand, and
marshal the entities under its control but has not yet liquidated the assets.
Weingarten, however, has demonstrated that harm will result from not being able
to pursue its claim against Fresh, and the Receiver has progressed far enough in
its duties that this Court is comfortable that the timing factor weighs in favor of
the Movant. See, e.g., S.E.C. v. Provident Royalties, L.L.C., 3:09-CV-1238-L, 2011
WL 2678840 (N.D. Tex. July 7, 2011) (timing factor weighed heavily in favor of
lifting stay where receivership was almost two years old, receiver had marshaled
almost all receivership assets and had proposed a plan of distribution).
e. Merit of the Movant’s Underlying Claim
The third consideration the Court must make is the merit of the Movant’s
underlying claim. “A district court need only determine whether the party has
colorable claims to assert which justify lifting the receivership stay.” Acorn
Tech., 429 F.3d at 449. The more meritorious a movant’s underlying claim, the
more heavily this factor will weigh in the movant’s favor. See, e.g., Wencke I, 622
F.2d at 1373 (“Where the claim is unlikely to succeed (and the receiver therefore
likely to prevail), there may be less reason to require the receiver to defend the
action now rather than defer its resolution”).
However, even meritorious claims may not tip the scales in favor of lifting a
litigation stay where the first and second prongs of the Wencke II inquiry favor
the receiver. See, e.g., Acorn Tech. Fund, L.P., 429 F.3d at 449 (upholding denial
of stay where, although movants’ proposed claims against receiver had merit and
thus third prong of Wencke II test was satisfied, but movants failed on the timing
factor, and did not meet first prong because litigation could have resulted in
movants’ ability “to withdraw funds from the receivership estate before the
receiver [was] ready to distribute funds to all creditors,” and substantial injury
could not derive from movants’ desire to have “the first bite at the apple.”);
Universal Fin., 760 F.2d at 1039 (upholding denial of lift of stay where movants
had meritorious claim but where “havoc … would ensue if the stay were lifted at
this time”); Med Resorts Int'l, Inc., 199 F.R.D. at 609 (stay not lifted where,
although movants’ claim was meritorious, timing factor did not favor movants
and movants had not articulated injury other than general delay in enforcing their
Here, the Nevada District Court has granted Weingarten’s motion to
dismiss Fresh’s claims and the action against it and has ruled that Fresh failed to
timely exercise its option to extend the Lease under Nevada law, thus abandoning
the lease effective January 31, 2014. Fresh’s appeal of the District Court’s
decision does not alter the current law of the case and thus does not establish
that the merits of Weingarten’s claims are unsettled. On the contrary, the District
Court of Nevada decision, which dismissed the action in full, is a final decision
and is reviewable by an appellate court only. See 28 U.S.C. § 1291 (“The courts of
appeals … shall have jurisdiction of appeals from all final decisions of the district
courts of the United States…”); Chasser v. Achille Lauro Lines, 844 F.2d 50 (2d
Cir. 1988) aff'd sub nom. Lauro Lines s.r.l. v. Chasser, 490 U.S. 495 (1989) (a
district court’s denial of a motion to dismiss, which leaves a controversy
pending, is not a final decision and is not appealable). Thus this Court has no
authority to alter the final judgment of another district court. The decision of the
Nevada court is res judicata as it is a final judgment of the issues sought to be
raised here, namely whether Fresh timely extended the Lease, and issues which
could have been raised in the Nevada litigation, namely the pendency of the stay.
See Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (“the doctrine of res
judicata, or claim preclusion, provides that a final judgment on the merits of an
action precludes the parties or their privies from relitigating issues that were or
could have been raised in that action.”). Further, the Receiver could have sought
transfer of the Nevada case to this Court, but again chose not to act. A party
cannot rest on its laurels, wait to see how one court rules, and then raise the
same issue in a second court when the ruling is not to its liking.
This factor clearly tips in the Movant’s favor. Fresh elected to institute an
action against Weingarten in Nevada,4 and by so doing took the risk of receiving
an unfavorable determination from the court. It is patently unfair to allow the
The Court must note that the Receiver’s assertion that it was explicitly allowed
to bring the action against Weingarten by order of this Court is false. The
Receiver has asserted that “[t]his Court’s stay was lifted so that BF could initiate
any affirmative actions without further Order of this Court by Order entered
September 20, 2012 (Docket No. 22).” [Dkt. 81, Receiver’s Opposition, p. 3 n. 1].
However, as Weingarten astutely points out, this Court’s September 20, 2012
Order provided for a lifting of the stay without further Court Order for “Claims and
causes of action against current and former lessees, sub-lessees, their
guarantors and related parties arising out of, resulting from or relating to breach
of leases and/or sub-leases.” [Dkt. 22, September 20, 2012 Order Lifting Stay for
a Limited Purpose, pp. 1-2]. Weingarten is not a lessee or sub-lessee of Fresh or
BFAH, and thus this litigation stay was not lifted as to Fresh’s action against
Receiver to withhold the existence of the stay and, only after it has lost, use the
receivership stay in this case to prevent Weingarten from enforcing its rights
pursuant to the Nevada District Court’s valid and legally binding determination
that Fresh had failed to timely extend and thus possessed no interest in the
The Court concludes that the Lease and the Premises to which the Nevada
District Court found that Fresh was not entitled are not assets of the Receivership
estate, and thus the stay cannot apply to Weingarten’s proposed action against
Fresh. The Court further concludes that even if the Lease and the Premises are
receivership assets, Weingarten has met its burden of establishing that the harm
it would suffer, the advanced stage of the receivership, and the superior merit of
its position weigh in favor of lifting the stay to allow Weingarten to pursue an
action to recover its property. For the foregoing reasons, the Movant’s
Emergency Motion to Modify the Stay Order is GRANTED.
IT IS SO ORDERED.
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: June 11, 2014
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