U.S. Bank National Association v. Georgetown Mobile Estates, LLC et al
Filing
67
MEMORANDUM OPINION AND ORDER: 1. Plaintiff's motion for summary judgment 47 is GRANTED, in part, on the issue of liability. 2. The determination of damages remains pending before the Court. Once that issue is resolved, a final Judgment and Order of Sale will be entered. Signed by Judge Danny C. Reeves on 1/15/2015. (STC)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
(at Lexington)
U.S. BANK NATIONAL
ASSOCIATION, AS TRUSTEE, in Trust
for the Holders of COMM 2013-CCRE8
Mortgage Trust Commercial Mortgage
Pass-Through Certificates, (a/k/a U.S.
Bank National Association as Trustee for
Deutsche Mortgage & Asset Receiving
Corporation, COMM 2013-CCRE8
Mortgage Trust, Commercial Mortgage
Pass-Through Certificates) by and through
Midland Loan Services, a Division of PNC
Bank National Association, its Special
Servicer,
Plaintiff,
V.
GEORGETOWN MOBILE ESTATES,
LLC, a Kentucky limited liability
Company, et al.,
Defendants.
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Civil Action No. 5: 14-170-DCR
MEMORANDUM OPINION AND
ORDER
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Plaintiff U.S. Bank National Association, as Trustee, in Trust for the Holders of
COMM 2013-CCRE8 Mortgage Trust Commercial Mortgage Pass-Through Certificates
(a/k/a U.S. Bank National Association, as Trustee for Deutsche Mortgage & Asset Receiving
Corporation, COMM 2013-CCRE8 Mortgage Trust, Commercial Mortgage Pass-Through
Certificates) by and through Midland Loan Services, a Division of PNC Bank, National
Association, its Special Servicer, moves for summary judgment and an order of sale in this
commercial foreclosure action. [Record No. 47]
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Defendant Georgetown Mobile Estates,
LLC (“GME”) contends that summary judgment is premature and that Plaintiff has failed to
adequately substantiate its claim of default of the loan and damages. [Record No. 50]
Further, Defendant Little Joe’s Mobile Home Sales, Inc. (“Little Joe’s”) (collectively
“Defendants”) argues that Plaintiff may not foreclose on the waste treatment facilities located
on the subject property and owned by Little Joe’s. [Record No. 50] Having considered the
evidence1 submitted by the parties as well as their arguments, the Court will grant partial
summary judgment in favor of Plaintiff on liability. The parties were given 30 days from the
hearing to conduct additional discovery under Fed. R. Civ. P. 56(d) regarding the amount of
damages and file any supplemental briefs related to the issue of damages. That issue will be
addressed by a separate order upon the completion of this additional discovery period.
I.
Cantor Commercial Real Estate Lending, L.P. (“Lender”) made a loan to GME on or
about May 16, 2013, subject to the terms of the loan agreement. [Record No. 1-1] Under the
terms of the loan agreement, the Lender agreed to lend GME a substantial sum:
$10,750,000.00. The loan was secured by real property which is being used and operated as
one or more mobile home parks in Fayette and Scott Counties in Kentucky. A promissory
note was executed on the same day as the loan agreement. [Record No. 1-2] The loan
agreement was assigned to the Plaintiff by the Omnibus Assignment from the Lender to the
Plaintiff. [Record No. 1-1]
To secure repayment of the loan, GME executed a mortgage and security agreement
and an “Assignment of Leases and Rents” (“ALR”) to the Lender. These documents were
1
Daniel Sexton, as Managing Member of Star Lite Development, LLC and Georgetown Mobile Estates East
LLC, which are the members of Defendant GME, filed an affidavit in this matter. [Record No. 21-1] Plaintiff’s
Senior Asset Manager, Paul Martin, also submitted an affidavit on behalf of Plaintiff. [Record No. 10-1]
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recorded on May 17, 2013 in the County Clerk’s Offices in Fayette and Scott Counties.
[Record No. 1-3] The mortgage conveyed a first lien on the property, including certain real
estate described therein, together with all improvements, appurtenances, fixtures, and
equipment, sanitary sewer facilities, leases, rents, issues and profits, and all other property
described in the mortgage. [Record No. 1-3, §1.1] As further security for repayment of the
promissory note and performance of GME’s other obligations under the loan, GME and
Little Joe’s executed and delivered to the Lender an Assignment of Wastewater Facilities
Agreement and Subordination of Fees (“Wastewater Assignment”), dated May 16, 2013.
[Record No. 1-6] Earlier, on May 8, 2013, Little Joe’s and GME entered into an agreement,
entitled “Wastewater Facilities Agreement,” regarding the operation, licensing and payment
for waste water/treatment facilities located on the subject property, which treated the
wastewater for the tenants’ homes located on the property. [Record No. 1-6, pp. 11–15] The
Wastewater Assignment allowed, inter alia, GME to assign the Facilities Agreement to the
Lender and for Little Joe’s to subordinate its interests to the Lender. [See Record No. 1-6,
pp. 2–9]
Further, GME granted the Plaintiff a security interested in certain collateral described
in the mortgage, specifically, the fixtures, equipment, personal property and other property
constituting the property at issue. [Record No. 1-3, p. 7, ¶1.3] The collateral was secured
through financing statements under the Uniform Commercial Code (“UCC”).
The
Defendants do not contest the existence of, or their agreement to, any of these loan
documents.
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II.
Summary judgment is appropriate when there are no genuine disputes regarding any
material facts and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986); Chao v. Hall Holding Co.,
285 F.3d 415, 424 (6th Cir. 2002). A dispute over a material fact is not “genuine” unless a
reasonable jury could return a verdict for the nonmoving party. That is, the determination
must be “whether the evidence presents a sufficient disagreement to require submission to a
jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 251–52 (1986); see Harrison v. Ash, 539 F.3d 510, 516
(6th Cir. 2008). In deciding whether to grant summary judgment, the Court views all the
facts and inferences drawn from the evidence in the light most favorable to the nonmoving
party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
III.
Because GME admits that it has defaulted on certain provisions of the loan, the
Plaintiff is entitled to partial summary judgment on the issue of liability. First, GME
defaulted by failing to make one or more payments of principal and interest when due as
required by the loan documents. [See Record No. 10-2, p. 4, ¶ 6; Record No. 10-6; Record
1-1, p. 79, §8.1.1(a)(i)] GME admits it was behind by approximately two regular monthly
payments as of May 27, 2014, and was less than one payment behind on or about March 25,
2014. [Record No. 21-1, p. 5, ¶ 12] In its Answer, GME also admitted that it was behind on
several payments at different times. [Record No. 32, pp. 4-5, ¶ 20] The Plaintiff notified
GME of the late payments or defaults between September 2013 and February, 2014, but
GME did not cure the deficiencies. [See Record No. 10-2, p. 4, ¶ 6] Consequently, the
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Plaintiff accelerated the promissory note, declared the balance of the loan to be immediately
due and payable, and demanded that all rents be paid to Plaintiff. [Record No. 1, p. 8, ¶ 20;
Record No. 1-10]
In addition to the defaults based on late or deficient payments on the loan, GME
violated other provisions of the loan agreement which constitute default under its terms.2
GME did not turn over the rents to the Plaintiff as required by the mortgage. [Record No. 15, pp. 3-4, §3.1; Record No. 10-2, p. 7, ¶ 9; Record No. 21-1, p. 6, ¶ 18] GME admits that it
also failed to meet the terms of the loan documents by failing to renew and timely pay the
fees for the sewer facilities permits issued by the Kentucky Department for Environmental
Protection as required by the loan agreement. [Record No. 1-1, p. 51, ¶ 5.1.1(b); Record No.
10-2, p. 5, ¶ 10; Record No. 21-1, p. 2, ¶¶ 5, 16; Record No. 32, p. 5, ¶ 21; Record No. 1-1,
p. 81, § 8.1.1(a)(xvi)] Further, there were additional liens, such as Sam Ward Plumbing
LLC’s mechanic’s lien, which was filed in Scott County on December 30, 2013. This
constitutes another violation of the terms of the loan documents. [Record No. 1-1, p. 79, §
8.1.1(a)(iv)] GME admitted that the debt was owed and that the lien had been filed, although
Daniel Sexton, GME’s Manager, denied any knowledge of the debt prior to the lien’s filing.
[Record No. 32, p. 5, ¶22; Record No. 21-1, pp. 5–6, ¶15]
Thus, in addition to the late and insufficient payments of the loan principal and
interest which alone are sufficient to breach the terms of the loan and allow Plaintiff to
2
A lawsuit, Rebecca Feasby v. Georgetown Mobile Estates, 14-CI-3509, filed in Fayette Circuit
Court on September 16, 2014, suggests that GME had granted an interest in the rent payments for certain
lots to another third-party in 2009. [Record No. 52-2] If true, this would demonstrate yet another
violation of the loan documents, as GME had asserted in the loan agreement that it was not a party to any
agreement that would adversely affect GME or the property, and it was not in default on any agreement to
which it was a party. [Record No. 1-1, p. 44, ¶¶ 4.1.5, 4.1.6]
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accelerate payment, the Plaintiff has demonstrated that GME was in violation of several
other material requirements of the loan. Upon a breach of any agreement or covenant of the
mortgage or the other loan documents, the Plaintiff is entitled to enforce the mortgage and to
have the property sold to pay towards the amounts due. [Record No. 1-3, pp. 12-13, ¶ 7.1;
Record No. 1-1, p. 81, § 8.1.2; Record No. 1-5, pp. 5-6, § 3.1] Based on GME’s admissions
in the pleadings and other filings, as well as during oral arguments at the hearing, there are
no material issues of fact which preclude summary judgment on the issue of liability in this
matter.
The Court also concludes that Little Joe’s interest does not bar summary judgment.
Little Joe’s claims to own the sanitary sewer facilities located on the property of GME
covered by the loan.
It argues that the Wastewater Assignment only assigns and
subordinates Little Joe’s rights under the Facilities Agreement, and any lien rights or claims
for payment of fees under the Agreement, and makes those claims (by Little Joe’s) inferior to
the Plaintiff’s lien. Thus, Little Joe’s claims that an ownership interest in the wastewater
treatment facilities was not given to GME or Plaintiff.3
A plain reading of the documents involved in the transaction disposes of Little Joe’s
argument.
In the Wastewater Assignment, Little Joe’s agreed that “[t]he Facilities
Agreement and any and all liens, rights and interests . . . owed, claimed or held by [Little
Joe’s] in and to the Property are, and shall be in all respects, subordinate and inferior to the
liens and security interests created, or to be created for the benefit of Lender, and securing
the Obligations under the Loan Agreement and the other Loan Documents . . . .” [Record
3
Daniel Sexton signed the Facilities Agreement and Wastewater Assignment in his capacities as
Little Joe’s President and as GME’s Manager. Mr. Sexton also signed the mortgage and other loan
documents on behalf of GME as its Manager.
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No. 1-6, p. 3, ¶ 2] Thus, the subordination of Little Joe’s ownership interest was not made
by virtue of the assignment of the separate Facilities Agreement, but was expressly made and
granted through the Wastewater Assignment itself. Property is defined in the Wastewater
Assignment by reference to the loan agreement. [Record No. 1-6, p. 2] The loan agreement
refers to the “parcel of real property, the Improvements thereon . . . as more particularly
described in the granting clause of the Security Instrument . . .” [Record No. 1-1, p. 24] The
loan agreement also defines “Improvements” by reference to the Security Instrument.
[Record 1-1, p. 16] The mortgage provides an extensive definition. [Record No. 1-3, pp. 34, § 1.1] As it relates to Little Joe’s, “Property” is defined to include Land, Improvements,
Easements, and Fixtures — specifically mentioning “sanitary sewer facilities.” [Id.] Further,
“Property” includes “a security interest in the portion of the Property which is or may be
subject to the provisions of the Uniform Commercial Code which are applicable to secured
transactions; it being understood and agreed that the Improvements and Fixtures are part and
parcel of the Land” that was mortgaged. [Record No. 1-3, p. 6] Thus, to the extent that
Little Joe’s has an ownership interest in the wastewater facilities, it is subordinate to
Plaintiff’s interest as a matter of law.
IV.
Based on the foregoing analysis and discussion, it is hereby
ORDERED as follows:
1.
Plaintiff’s motion for summary judgment [Record No. 47] is GRANTED, in
part, on the issue of liability.
2.
The determination of damages remains pending before the Court. Once that
issue is resolved, a final Judgment and Order of Sale will be entered.
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This 15th day of January, 2015.
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