PNC Bank, National Association v. Seminary Woods, LLC et al

Filing 153

MEMORANDUM OPINION signed by Senior Judge Charles R. Simpson, III on 3/31/2014, re 22 MOTION to Appoint Receiver filed by PNC Bank, NA. A separate Order will be entered in accordance with this Opinion.cc: Counsel (RLK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE

PNC BANK, NATIONAL ASSOCIATION

v.

PLAINTIFF

CIVIL ACTION NO. 3:13CV297-S

SEMINARY WOODS, LLC, et al.

DEFENDANTS

MEMORANDUM OPINION

This matter is before the court on motion of the plaintiff, PNC Bank, National Association
(“PNC”), for appointment of NTS Development Company as receiver to conduct the necessary and
proper day-to-day business operations, functions, and affairs of Defendants Seminary Woods, LLC
and Seminary Woods Condominiums Council of Co-Owners, Inc. (DN 22, as supplemented) and
to set a hearing on PNC’s motion for appointment of a receiver(DN 133) in this forfeiture action.
A hearing is unnecessary on the motion for appointment of a receiver, as the need for such
appointment is clear. The appointment of a receiver is within the sound discretion of this court.
Liberte Capital Group, LLC v. Capwell, 462 F.3d 543, 551 (6th Cir. 2006):
A district court enjoys broad equitable powers to appoint a receiver over assets
disputed in litigation before the court. The receiver’s role, and the district court’s
purpose in the appointment, is to safeguard the disputed assets, administer the
property as suitable, and to assist the district court in achieving a final, equitable
distribution of the assets if necessary.

Despite Seminary Woods’1vehement opposition that it be left to manage the project on its
own, it has done nothing over these past months to improve its case for avoidance of the
appointment of a receiver. PNC has sought less talk and more action, but has received nothing to
assuage its ever-growing concerns over the state of the project. The business-savvy developer and
manager has failed to provide evidence that significant repair issues have been addressed. It is not
disputed that taxes were delinquent and vendor bills went unpaid. For these reasons, the motion for
a hearing will be denied and the motion for appointment of a receiver will be granted.
In April, 2006, PNC entered into a Construction Loan Agreement with defendant Seminary
Woods, LLC, and various individuals who are personal guarantors of the loan. The loan financed
the development and construction of Seminary Woods Condominiums located at Brownsboro Road
and Seminary Drive in Louisville, Kentucky (referenced herein as “the Project”). PNC holds a
Promissory Note from Seminary Woods which has allegedly been defaulted in the approximate
amount of $19,250,000.00 plus interest. PNC also holds (1) a first Mortgage, (2) Security
Agreement, (3) Fixture Financing Statement, and (4) Assignment of Rents executed by Seminary
Woods to secure the obligations under the Loan Agreement and Note. Various amendments to these
documents were executed and recorded as units were developed and sold.
PNC alleges that the Note matured on September 30, 2011 with the balance remaining
unpaid, constituting an “Event of Default” under the terms of the Mortgage. PNC also alleges that
prior to the maturity date, Seminary Woods failed to make required principal curtailment payments,
also constituting default under the Loan Agreement and Note.
1

The objections to the appointment of a receiver have been filed by Seminary Woods, LLC, Norman Risen, Anna Risen,
Kent Risen, Marc Risen, Linda Risen, Ronald and Jennifer Wise (who have been dismissed from the case), Seminary Woods
Condominium Council of Co-Owners, Inc., Thomas Richards, Carol Richards, Paul Elliot Merenbloom, Carmine Scalzitti, Curtis
Royce, Joyce Royce, and Whittington Realty Partners, LLC who will be referred to herein collectively as “Seminary Woods.”

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Pursuant to Article II, sec. 2.2(d) of the Mortgage, PNC has the right to seek appointment
of a receiver upon an Event of Default. The Assignment of Rents Article VI, sec. 6.1 also provides
for the appointment of a receiver to collect rents and pay operating expenses upon an Event of
Default. Seminary Woods apparently does not contest that the Note matured on September 30, 2011
and remains unpaid. Rather, it contends that PNC made promises to assist with financing of
condominium sales which it allegedly has not done.
In support of its motion for appointment of a receiver,2 PNC has established that Seminary
Woods has failed to pay ad valorem taxes on the property and that PNC paid taxes and penalties in
2013 and again in 2014. In 2013, the taxes were not paid by Seminary Woods when due by
December 31, 2012.3 To accomplish the payment of the taxes and penalties, and to avoid the accrual
of further penalties beginning on February 1, 2013, PNC consented to the payment of the taxes and
January penalties from sums due to PNC on the sale of Unit 603. DN 22-2. PNC has also
established that it paid $145,726.47 in taxes and penalties on January 31, 2014 to avoid the
imposition of additional penalties on February 1, 2014 for unpaid 2013 taxes and penalties.
Additionally, PNC has provided documentation which identified major structural problems
with the balconies installed on the project. Repair of the defects was estimated to cost $905,000.00.
There has been no evidence offered that the structural problem has been remedied or otherwise
adequately addressed.

2

This motion has, in fact consisted of an original motion and a series of supplemental pleadings providing the court notice
as to the continuing basis for its request for receiver appointment. With the filing of each supplement has come a new, equally
unsuccessful response from Seminary Woods. We evaluate the need for appointment of a receiver based upon the most current and
complete information we have concerning the status of the property and its management.
3

PNC further contends that in keeping with sound business practices, Seminary Woods would have paid the taxes in time
to take advantage of the discount rate.Apparently, PNC was unable to ascertain that the sums necessary for the payment of real estate
taxes was being escrowed, as required.

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Seminary Woods Condominium Council of Co-Owners, Inc (“SWCCC”). was incorporated
for the purpose of ultimately managing the project. The Council was formed in 2005, but was
administratively dissolved by the Kentucky Secretary of State on January 10, 2012. DN 22-12. In
May of 2013, Norman E. Risen filed an affidavit in support of Seminary Woods’ opposition to the
motion for appointment of a receiver indicating that he is a member of Whittington Realty Partners,
LLC, the majority owner of Seminary Woods, LLC, the developer and manager of the project. DN
63-2, ¶¶ 1, 2. He stated that he has “considerable business experience,” having worked in the
insurance business for more than fifty years, and, to the extent there is any diminution in value in
the project, it is not the result of “management practices.” 63-2, ¶¶ 2, 5. He stated that currently,
ten families reside on the premises, and that Seminary Woods keeps up the grounds, maintains the
property, and provides services . DN 63-2, ¶ 3. He stated that he has not taken funds from the
project, but rather has injected additional personal funds. DN 63-2, ¶ 9. He stated that Seminary
Woods has been ready to close on any unit and has never obstructed a closing. DN 63-2, ¶ 10. He
also stated that “for the past three years, Seminary Woods identified and diligently investigated a
condition of the balconies and has recently worked out a solution that is payable by insurance and
that will bring the balconies to a first-rate condition that will match the rest of the building at no cost
to the unit owners or the Plaintiff.” DN 63-2, ¶ 6.
A motion for an order compelling Seminary Woods to permit it access to the property was
necessitated by Seminary Woods’ lack of response to PNC’s requests for access to the property. In
response to the motion to compel, Seminary Woods indicated that it did not object to PNC’s entry
onto the land, provided that the order contained certain of its own “reasonable conditions.” Rather

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than provide the unfettered access at PNC’s request which is required by the terms of the Mortgage,
Section 1.10, Seminary Woods’ response essentially continued its effective denial of that access.
PNC required an updated appraisal in 2013, but one was not provided. PNC required proof
of insurance, after being notified in September 2013 that the insurance on the project would lapse
on January 10, 2014, which proof was not provided.
PNC permitted the 2012 real estate taxes and penalties and certain past due vendor payables
to be paid out of the proceeds of the sale of a unit (Unit #603) rather than to PNC on Seminary
Woods’ outstanding obligation. Seminary Woods apparently, unauthorized, paid a portion of its
monthly expenses out of those proceeds.
Seminary Woods’ statements addressing the grounds for appointment of a receiver are
completely non-responsive. In its most recent responses to PNC’s still unaddressed and unabated
concerns, Seminary Woods stated as follows:
1. “[T]he [2013] taxes are not delinquent, and will not be such until after April 15, 2014.”
DN 124, filed January 17, 2014.
Seminary Woods did not state that it had escrowed the necessary sums to pay the taxes, it
did not pay the taxes by December 31, 2013, and did not state that it intended to pay the taxes and
penalties by January 31, 2014. It did not pay the taxes and penalties by January 31, 2014. To date
it has not reimbursed nor offered to reimburse PNC for the payment made on January 31, 2014.
2. “Since the last filing, PNC has not requested a status or update concerning the balcony
work.” DN 124.
Seminary Woods has not filed any documentation concerning any work done to repair the
balconies. The point simply remains unaddressed. PNC’s motion for an order compelling entry

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onto the property was necessitated by Seminary Woods’ non-responsiveness to the initial requests.
Even its response to the motion to compel was conditional. Norman Risen continues to claim that
the property is well-managed and maintained. However, this statement is non-responsive to the
issue.
3. “Seminary Woods has supported, and continues to support the project through member
contributions.” DN 141, filed March 6, 2014. The taxes have gone unpaid by Seminary Woods for
two years. The $905,000.00 worth of repairs remain unmade, as far as PNC and this court have been
informed. The Council has been dissolved. In 2013, various past-due vendor bills and 2012 taxes
were paid out of the proceeds of a unit sale, as Seminary Woods was apparently not taking care of
these matters otherwise. The one matter that was apparently resolved to the satisfaction of PNC was
the matter of the impending lapse of insurance coverage. Seminary Woods provided a certificate
of liability insurance with its March 6, 2014 response to PNC’s motion for a hearing. DN 141-1.
Despite various arguments that it was coerced into signing, Seminary Woods’ obligation on
the note remains unpaid. PNC has the power to ensure that the property’s value is maintained and
that the project is properly managed. Seminary Woods, in the person of Norman Risen as manager,
or otherwise, has failed to satisfy the concerns regarding diminishment of the property’s value.
Further, the truth of Seminary Woods’ statement that it remains ready and willing to close
on any unit contract was belied by the cancellation of the closing permitted by PNC on Unit #404
scheduled for March 21, 2014, wherein PNC was advised that the sale was “not closing tomorrow.
There [was] an issue with one of the partners on the selling side.” DN 146, Ex. D. PNC has
indicated that Seminary Woods has not disclosed the reason for the cancelled closing. In its
articulation of the need for the appointment of a receiver, PNC suggests that evidence of the

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financial uncertainty of the project warrants the intervention of a receiver to preserve the property,
citing, among other cases, Brill & Harrington Investment v. Vernon Savings and Loan Assoc., 787
F. Supp. 250, 253-54 (D.D.C. 1992)(two factors to consider include (1) whether the property
securing the debt is sufficient to satisfy the same, and (2) whether the financial condition of the
debtor is stable or precarious). The amount in principal owed on the note well exceeds the most
recent appraisal of the property in 2012 of $11.5 million. PNC has credibly argued that Seminary
Woods’ financial situation appears precarious and uncertain going forward.
For these reasons, the court determines, in its discretion, that the appointment of a receiver
is warranted to insure proper management and preservation of the property pending the outcome of
this action.

The court will therefore grant the motion by separate order, appointing NTS

Development Company to act as receiver in this matter.4

IT IS SO ORDERED.

March 31, 2014

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4

The court rejects Seminary Woods’ objection to the appointment of NTS as receiver as unfounded on the record before
the court. The court will require a bond, as is customary.

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