US BANK NATIONAL ASSOCIATION v. SRA AUGUSTA SPE LLC et al

Filing 24

MEMORANDUM OF DECISION granting in part, denying in part 13 Motion for Reconsideration. By MAGISTRATE JUDGE JOHN C. NIVISON. (CWP) Modified on 11/17/2016 to correctly reflect the order action (mlm).

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
U.S. BANK NATIONAL ASSOCIATION, )
)
Plaintiff
)
)
v.
)
)
SRA AUGUSTA SPE, LLC, et al.,
)
)
Defendants
)

1:16-cv-00410-JDL

MEMORANDUM OF DECISION ON MOTION FOR RECONSIDERATION
In this removed action, Plaintiff U.S. Bank, N.A., asserts that Defendants, five special
purpose entities,1 breached a promissory note currently held by Plaintiff by failing to pay the
balance of the note on or before its December 11, 2015, maturity date. The note is secured by a
commercial mortgage trust and security instrument property located at Key Plaza, 286 Water
Street, Augusta, Maine. The matter is before the Court on Defendants’ request for reconsideration
(ECF No. 1-8) of the Maine Superior Court’s order (ECF No. 1-6) appointing a receiver to manage
the property.
Following a review of the motion and related filings, and after consideration of the parties’
arguments, the motion is granted in part. The order of appointment will continue in effect. The

1

The Defendants are SRA Augusta SPE, Paris Augusta SPE, ZAK Augusta SPE, SPC Augusta SPE, and Pendleton
Augusta SPE. Each of the entities is a Delaware limited liability company with a principal place of business in
Hackensack, New Jersey. As alleged in the complaint, Plaintiff is a national banking association with a principal
place of business in Minneapolis, Minnesota. Defendants’ notice of removal states that SRA Augusta SPE has a
member that is a Maine LLC, but that none of the defendants is domiciled in Maine. (Notice of Removal ¶¶ 19, 24.)
While the existence of a Maine LLC member raises a potential concern over the propriety of removal pursuant to 28
U.S.C. § 1441(b)(2), “removal in contravention of the prohibition against removal by an in-forum defendant creates a
procedural defect that is subject to waiver under 28 U.S.C. § 1447(c).” Samaan v. St. Joseph Hosp., 670 F.3d 21, 28
(1st Cir. 2012). The existence of subject matter jurisdiction, based on complete diversity, is otherwise established by
Defendants’ unchallenged assertion that no member is domiciled in Minnesota.

Court, however, will convene a telephonic conference to discuss whether the terms of the order
should be modified.2
Procedural Background
Plaintiff filed suit in Maine Superior Court, Kennebec County, on July 13, 2016. (State
Court Docket3, ECF No. 10-1; see also Verified Complaint, ECF No. 1-3.) With its complaint,
Plaintiff filed a motion for appointment of receiver, a draft order appointing a receiver, and a
request for expedited consideration of the motion. (Expedited Motion to Appoint Receiver, ECF
No. 1-4.) The state docket reflects service on Defendants on July 21, 2016. On July 29, 2016, the
Superior Court granted the motion and signed the draft order. (Order Appointing Receiver, ECF
No. 1-6.)
On August 8, 2016, Defendants filed their answer to the complaint (ECF No. 1-7), and a
combined opposition to the motion for appointment of receiver and motion for reconsideration of
the order appointing receiver (ECF No. 1-8). On August 11, 2016, Defendants filed their notice
of removal (ECF No. 1), in which notice they invoked this Court’s diversity jurisdiction.
Background Facts
This action arises from, inter alia, Plaintiff’s efforts to collect the balance on a promissory
note in the principal sum of 7.2 million dollars, which note Plaintiff currently holds through a

2

A motion to appoint a receiver is a non-dispositive procedural matter over which a magistrate judge may enter an
order under 28 U.S.C. § 636 and Fed. R. Civ. P. 72. See, e.g., Cadena v. A-E Contracting, LLC, No. 3:08-cv-00574,
2013 WL 6178515, at *2 (D. Conn. Nov. 22, 2013); JPMorgan Chase Bank, N.A. v. Heritage Nursing Care, Inc., No.
1:06-cv-04803, 2007 WL 2608827, at *1 (N.D. Ill. Sept. 6, 2007).

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Defendants filed the state court docket on August 18, 2016, and the docket sheet includes entries through August 9,
2016. (ECF No. 10-1.) Defendants filed a supplemental declaration regarding the state court docket on August 30,
2016. (ECF No. 17.) In the supplemental declaration, Defendants state that on August 17, 2016, the Superior Court
signed an order vacating its order appointing receiver. (Id. ¶ 4.) Because the case was removed to this Court upon
the filing of the notice of removal on August 11, the Superior Court no longer had jurisdiction when it purported to
vacate its appointment of a receiver, see Hyde Park Partners v. Connolly, 839 F.2d 837, 841 – 42 (1st Cir. 1988), and
therefore the order remains in full force and effect, 28 U.S.C. § 1450.

2

series of allonges.4 The note is secured by a mortgage and security agreement pledging as
collateral the borrowers’ interest in certain real property located at 286 Water Street, Augusta,
Maine, which mortgage and security interest Plaintiff now holds through a series of assignments.
The original instruments were executed on December 1, 2005. (Verified Complaint ¶¶ 7 – 12.)
On or about January 12, 2016, Plaintiff provided Defendants with a notice of default,
acceleration and demand for payment. (Id. ¶ 16.) Plaintiff cites as the basis of the default
Defendants’ failure to tender payment of the outstanding obligation on or before December 11,
2015, the maturity date of the promissory note. (Id. ¶ 9.)
Article III of the mortgage specifies Plaintiff’s remedies in the event of default. In addition
to foreclosure, the remedies include acceleration, entry on the property, and collection of rents and
profits. Subsection 3.1(d) of the remedies provision also authorized the appointment of a receiver.
Upon, or at any time prior or after, initiating the exercise of any power of sale,
instituting any judicial foreclosure … or any other legal proceedings hereunder, ...
[Mortgagee may] make application to a court of competent jurisdiction for
appointment of a receiver for all or any part of the Property, as a matter of strict
right and without notice to Mortgagor and without regard to the adequacy of the
Property for the repayment of the indebtedness secured hereby ..., and Mortgagor
does hereby irrevocably consent to such appointment, waives any and all notices of
and defenses to such appointment and agrees not to oppose any application therefor
by Mortgagee .... Any such receiver shall have all of the usual powers and duties
of receivers in similar cases, including, without limitation, the full power to hold,
develop, rent, lease, manage, maintain, operate and otherwise use or permit the use
of the Property upon such terms and conditions as said receiver may deem to be
prudent and reasonable under the circumstances as more fully set forth in Section
3.3 below. Such receivership shall, at the option of Mortgagee, continue until full
payment of all the indebtedness secured hereby or until title to the Property shall
have passed by foreclosure sale under the Mortgage or deed in lieu of foreclosure.
(Mortgage ¶ 3.1(d).)

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The action also involves a second promissory note and mortgage related to a loan of $250,000.
3

In opposition to the motion for appointment of a receiver, Defendants filed an affidavit of
Peter Hanson (ECF No. 1-8), Defendants’ agent.5 According to Mr. Hanson, Defendants obtained
commitment for new lending and “will close” within 60 days of his August 8, 2016, affidavit.
(Hanson Aff. ¶¶ 4 – 5.) Mr. Hanson suggests that appointment of a receiver could prevent
Defendants from acquiring refinancing, (Id. ¶ 6), and that Plaintiff’s interest in the property is
adequately secured without a receiver because Plaintiff controls all rents and income generated by
the property, and because the monthly rents exceed Defendants’ monthly payment obligation by
almost $100,000. (Id. ¶¶ 9 – 10.) Mr. Hanson further reports that Defendants have been paying
the expenses associated with the property, have adequately maintained the property, have leased
the property to capacity, and have provided to the proposed receiver all necessary record and access
to the property. The proposed receiver is already serving as the property superintendent. (Id. ¶¶
11 – 24.)
In September 2016, Mr. Hanson asserted that refinancing appears likely. (Second Hanson
Aff. ¶¶ 5, 8.) Mr. Hanson states that the existing receivership order will potentially interfere with
closing because it precludes Defendants from pledging the property as collateral through a
mortgage or other security instrument. (Id. ¶ 8.)
In opposition to the motion for reconsideration, Plaintiff filed an affidavit of Jeremy Zinn
(ECF No. 20-1), asset manager for CWCapital Asset Management, the special servicer for
Plaintiff. Mr. Zinn states that Defendants requested funds from Plaintiff on June 27, 2016, for
purposes of paying for repairs of the HVAC system at the property. (Zinn Aff. ¶ 3.) Mr. Zinn
reports that Defendants incurred sizeable bills when the receiver assumed control of the property.
(Id. ¶ 5, Exhibit B, ECF No. 20-3.) Mr. Zinn asserts that Plaintiff advanced funds to pay for HVAC

5

Exhibit A to Mr. Hanson’s affidavit indicates that he is Defendants’ president, manager, or trustee.
4

repairs, has allocated funds from rents and profits for ongoing expenses and costs and fees related
to the default, and has applied the remainder of the funds to the amount due under the note. (Id. ¶
10.) Mr. Zinn also reports that prior to instituting this action, Defendants provided Plaintiff with
“virtually no information” regarding a lease extension for the State of Maine or Defendants’
attempts to refinance. (Id. ¶ 14.)
Applicable Standard
The record reflects the Superior Court granted Plaintiff’s motion for appointment based on
a mistaken belief that the motion was unopposed. Indeed, the Superior Court attempted to vacate
its order following receipt of Defendants’ objection. When the Superior Court vacated the order,
however, the matter had been removed to this Court and the Superior Court no longer had
jurisdiction of the matter.6 Under the circumstances, although the pending motion is Defendants’
motion for reconsideration, in assessing the motion, the Court practically must determine whether
the appointment of a receiver is warranted in this case.7
The appointment of a receiver is procedural in nature and, therefore, federal law applies.
See, e.g., Nat’l P’ship Inv. Corp. v. Nat’l Hous. Dev. Corp., 153 F.3d 1289, 1291 – 92 (11th Cir.
1998); Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993) (“The

“Because [28 U.S.C. §] 1446(d) explicitly states that ‘the State court shall proceed no further’ once removal is
effected ... the statute deprives the state court of further jurisdiction over the removed case and ... any postremoval actions taken by the state court in the removed case action are void ab initio.” Ackerman v. Exxon Mobil
Corp., 734 F.3d 237, 249 (4th Cir. 2013); see also Rossello-Gonzalez v. Calderon-Serra, 398 F.3d 1, 9 n.23 (1st Cir.
2004) (state court action following removal is a “nullity”). Pursuant to 28 U.S.C. § 1450, “[w]henever any action is
removed from a State court to a district court of the United States, ... [a]ll injunctions, orders, and other proceedings
had in such action prior to its removal shall remain in full force and effect until dissolved or modified by the district
court.” Section 1450 “preserves the status quo” pending further action by the federal district court. Concordia
Partners, LLC v. Pick, 790 F.3d 277, 279 (1st Cir. 2015).
6

Interlocutory orders remain open pending final judgment and the Court therefore has “wide discretion” to revisit
prior interlocutory rulings. Mumme v. U.S. Dep’t of Labor, 150 F. Supp. 2d 162, 165 (D. Me. 2001); see also Geffon
v. Micrion Corp., 249 F.3d 29, 38 (1st Cir. 2001); Sanchez-Medina v. UNICCO Serv. Co., 265 F.R.D. 29, 32 (D.P.R.
2010).
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5

appointment of a receiver in a diversity case is a procedural matter governed by federal law and
federal equitable principles.”); Fed. R. Civ. P. 66. 8
This Court has inherent equitable power to appoint a receiver to manage or preserve
property pending judgment. United States v. Quintana-Aguayo, 235 F.3d 682, 686 & n.8 (1st Cir.
2000). “[T]he decision to appoint a receiver … lies within the discretion of the court.” Consol.
Rail Corp. v. Fore River Ry. Co., 861 F.2d 322, 326 (1st Cir. 1988). Some of the factors a court
may consider include whether the defendant is alleged to have engaged in fraudulent conduct,
whether the property is in imminent danger, whether the available legal remedies are adequate,
whether the harm to the plaintiff caused by the denial of the appointment would exceed the harm
to the defendant and others opposed to the appointment, whether the plaintiff is likely to succeed
in the action, whether the plaintiff’s interests in the property might be susceptible to irreparable
injury, and whether the interests of the plaintiff and others sought to be protected will be well
served by the receivership. Id. at 326 – 27.
Discussion
Plaintiff maintains a receiver is warranted based on paragraph 3.1(d) of the mortgage,
which authorizes the appointment of a receiver upon default. (Mem. of Law in Support of Motion
to Appoint Receiver at 3 – 4, ECF No. 1-4; Response in Opposition to Motion for Reconsideration
at 12 – 13, ECF No. 20.) Plaintiff also cites concerns related to ongoing repair and upkeep of the
building and the potential for Defendants to incur liabilities that might compromise Plaintiff’s

In Hanna v. Plumer, 380 U.S. 460 (1965), the Supreme Court advised: “When a situation is covered by one of the
Federal Rules, the question facing the court is a far cry from the typical, relatively unguided Erie choice: the court has
been instructed to apply the Federal Rule, and can refuse to do so only if the Advisory Committee, this Court, and
Congress erred in their prima facie judgment that the Rule in question transgresses neither the terms of the Enabling
Act nor constitutional restrictions.” Id. at 471.

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6

security. (Id. at 13 – 14.) Defendants oppose the appointment of a receiver primarily based on the
cost of a receiver and because a receiver would undermine their efforts to secure new financing.
Not insignificantly, the loan documents authorize the appointment of a receiver in the event
of default. In fact, the mortgagor agreed not to oppose the appointment. While not controlling,
the Law Court’s observation in Fleet Bank of Maine v. Zimelman, 575 A.2d 731 (Me. 1990) is
instructive. In Fleet, the Court wrote: “The Bank contends that since defendants admit that a
default has occurred, the plain meaning of the contract entitles the Bank to the appointment of a
receiver regardless of the underlying cause of the default. We agree with the Bank.” Id. at 733 –
34.
In addition to the terms of the contract, consideration of the other relevant factors militates
in favor of the appointment. A review of the record suggests Plaintiff is likely to prevail in this
action. Plaintiff’s ability to recover the substantial amount owed, therefore, is of particular
concern. Additionally, the risk of harm to the property is legitimate given Defendants’ apparent
financial challenges. In fact, Defendants evidently accrued more than $75,000 in unpaid property
expenses in connection with the property. (Affidavit of Jeremy Zinn, Ex. B, ECF No. 20-3.) The
appointment of a receiver would ensure that Defendants’ financial concerns do not compromise
the value of the property. Moreover, contrary to Defendants’ argument, the Court is unconvinced
that the appointment of a receiver would prevent or materially interfere with the acquisition of
substitute financing. Consistent with a receiver’s obligations to the Court, a receiver would be
expected to assist both parties in maintaining the value of the property as an ongoing concern, and
thus would not interfere with Defendants’ attempt to obtain refinancing.9

In short, the

circumstances of this case warrant the appointment of a receiver.

9

A receiver is an officer of the court and as such does not owe allegiance to either party, but rather acts as a fiduciary
on behalf of both parties. See Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994).
7

Conclusion
Based on the foregoing analysis, Defendants’ motion for reconsideration of order
appointing receiver is denied to the extent Defendants’ request the Court vacate in its entirely the
Superior Court order appointing a receiver. The Court, however, will convene a telephonic
conference to discuss with the parties the terms of the appointment, and whether a modified order
of appointment is appropriate.
NOTICE
Any objections to this Memorandum of Decision shall be filed in accordance with Fed. R.
Civ. P. 72.
/s/ John C. Nivison
U.S. Magistrate Judge
Dated this 17th day of November, 2016.

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