Crestmark v. Simon Automotive, LLC et al

Filing 21

OPINION AND ORDER denying 6 Plaintiff's Motion to Appoint Receiver.. Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
______________________________________________________________________
CRESTMARK,
Plaintiff,
v.
FIRST WESTERN TRUST BANK,

Case No. 20-11396

Intervenor Plaintiff,
v.
SIMON AUTOMOTIVE, LLC,
et al.,
Defendants.
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OPINION AND ORDER DENYING PLAINTIFF’S MOTION TO APPOINT RECEIVER
Plaintiff Crestmark brings this action for breach of contract against all
Defendants, and seeks to foreclose security interests in the assets of Defendants Simon
Automotive, LLC (“S. Auto”) and Simonxpress Pizza, LLC (“S. Pizza”) and to appoint a
receiver over Defendants S. Auto and S. Pizza. (ECF No. 1, PageID.10-14.) Intervenor
First Western Trust Bank joined this lawsuit to protect alleged security interests in
Defendants S. Pizza, Simon’s Enterprise Inc. (“SEI”), and Fawzi Simons’ assets. (ECF
Nos. 12, 18.)
Plaintiff moves to appoint a receiver over the businesses of Defendants S. Auto
and S. Pizza. (ECF No. 6.) Defendants and Intervenor have filed responses. (ECF Nos.
17, 20.) The court has reviewed the record and does not find a hearing to be necessary.
E.D. Mich. L.R. 7.1(f)(2). Plaintiff’s motion will be denied.

Federal Rule of Civil Procedure 66 allows for the appointment of receivers in
conformity with traditional rules of equity. Liberte Capital Group, LLC v. Capwill, 462
F.3d 543, 551 (6th Cir. 2006); 12 Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 2981 (3d ed. 2020). Rule 66 provides “the practice in
administering an estate by a receiver or a similar court-appointed officer must accord
with the historical practice in federal courts or with a local rule.” Fed. R. Civ. P. 66.
“A district court enjoys broad equitable powers to appoint a receiver over assets
disputed in litigation before the court.” Liberte Capital Group, 462 F.3d at 551. “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.” Id. Receivers are
appointed only in exceptional circumstances. “A receivership is an ‘extraordinary
remedy’ that a court should employ with the ‘utmost caution’ and grant ‘only in cases of
clear necessity to protect plaintiff's interests in the property.’” Pension Ben. Guar. Corp.
v. Evans Tempcon, Inc., 630 F. App’x 410, 414 (6th Cir. 2015) (quoting Wright & Miller,
supra, § 2983). In making this determination, district courts carefully weigh factors such
as “the existence of a valid claim by the moving party; the probability that fraudulent
conduct has occurred or will occur to frustrate the claim; imminent danger that property
will be lost, concealed, or diminished in value; inadequacy of legal remedies; lack of a
less drastic equitable remedy; and the likelihood that appointment of a receiver will do
more harm than good.” Meyer Jewelry Co. v. Meyer Holdings, Inc., 906 F. Supp. 428,
432 (E.D. Mich. 1995) (Gadola, J.); see also 65 Am. Jur. 2d Receivers § 20 (2020). In

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sum, a decision to appoint a receiver at the beginning of a case should be made with
exceptional caution.
Plaintiff first argues that its contracts with Defendants S. Auto and S. Pizza allow
Plaintiff to appoint a receiver in the event of default. (ECF No. 6, PageID.199-200.)
According to Plaintiff, it is entitled to a receiver “without contest from Defendants”
because Defendants S. Auto and S. Pizza breached the agreement by not providing
financial reporting and failing to appoint a consultant. (Id., PageID.195-96, 200.)
Defendants respond with detailed arguments disputing whether Defendants S. Auto and
S. Pizza are in default at all. (ECF No. 17, PageID.553-57.) Specifically, Defendants
state that they have not fallen behind in their payments and debate whether they
breached the agreement for other reasons. (Id., PageID.547, 553-57.) They also assert
that Plaintiff has waived its contractual rights and that performance was impossible in
light of the outbreak of the Coronavirus Disease (“COVID-19”). (Id., PageID.554-56.)
Baring factual disputes, determination of whether Defendants breached their
contracts with Plaintiff is a question of law, to be decided through processes laid out in
the Federal Rules of Civil Procedure. See Golden v. Kelsey-Hayes Co., 73 F.3d 648,
659 (6th Cir. 1996) (describing breach of a contract as a definitional “legal issue”). The
parties must engage in discovery, and Plaintiff can move for summary judgment at the
appropriate time. See Fed. R. Civ. P. 56(a). At that point, the court can decide if the
terms of the parties’ contract are unambiguous as a matter of law, if Defendants S. Auto
and S. Pizza breached their agreements, and whether there exists any factual dispute
to be decided by a trier of fact. See Solo v. United Parcel Serv. Co., 819 F.3d 788, 794
(6th Cir. 2016) (citation removed) (“When the language [of a contract] is clear and

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unambiguous, its meaning is a question of law . . . if the language is unclear or
susceptible to multiple meanings, interpretation becomes a question of fact.”). The court
will not short-cut the traditional process of civil litigation and render a contested legal
ruling, touching on the ultimate merits, at an initial stage of the case.
Plaintiff does not present evidence that Defendants have taken any action or
developed a plan to conceal the relevant assets or engage in fraudulent transfers so as
to prevent Plaintiff from enforcing contract rights. 1 Beyond assertions that Defendants S.
Auto and S. Pizza breached the contracts, a disputed legal claim, there is no
substantive indication that Defendants S. Auto and S. Pizza seek to undermine a
potential adverse court judgment. Plaintiff has not demonstrated that the normal legal
processes of debt collection and contract enforcement, or other equitable remedies, are
so inadequate that receivership is necessary. See, e.g., In re Trudel, 477 Mich. 1202,
1203 (2006) (denying appointment of a receiver under traditional rules of equity
considering the petitioner did not demonstrate “all less intrusive means . . . were
ineffective”); see Wright & Miller, supra, § 2983 (Federal courts can look to state law for
guidance on receivership motions). Depriving Defendants S. Auto and S. Pizza of the
authority to “take, hold, and operate [their businesses], to negotiate [their] sale . . . to a
third party[,] and to file a voluntary bankruptcy,” as Plaintiff describes the responsibilities
of a receiver, appear at this time to do more harm to Defendants’ property rights than
aid Plaintiff’s asserted right to collection, which may or may not be valid. (ECF No. 6,
PageID.203.)

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Plaintiff alleges in its complaint, without citation or evidentiary support, that
Defendant Simon “has admitted to using all of the [Defendant] entities as his own
personal checkbook.” (ECF No. 1, PageID.10, ¶ 35.)
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Plaintiff argues that the State of Arizona imposed a tax lien on Defendant S.
Pizza and that Defendants S. Auto and S. Pizza have failed to pay their debts in the
past. (Id., PageID.202.) Nonetheless, that Defendants have other creditors and have
previously failed to meet obligations does not mean Defendants are acting in a
fraudulent manner or intend to illegally transfer assets to avoid payment. Furthermore,
Plaintiff was aware Defendants S. Auto and S. Pizza were behind on prior payments
and yet entered into the contracts at issue (called “Forbearance Agreements”) in order
to agreeably manage its relationships with Defendants without entering defaults. (Id.,
PageID.193-94.)
Intervenor adds that if the court were to appoint a receiver over Defendants S.
Auto and S. Pizza, it should also appoint a receiver over Defendant SEI, in which
Intervenor allegedly holds a security interest. (ECF No. 20, PageID.612.) According to
Intervenor, it issued loans to Defendant S. Pizza, which are in default in part due to
failure to make payment. (Id., PageID.606-07.) Intervenor does not present evidence
clearly demonstrating the existence of fraud or inadequacy of legal and other equitable
remedies. As described above, simply presenting evidence of other creditors and a
failure to meet obligations is not itself extraordinary and does not, in the court’s opinion,
warrant the appointment of a receiver before discovery has begun. If Intervenor proves
Defendants breached a contract, Intervenor can enforce its rights through normal legal
processes.
Appointment of a receiver is not justified at this time, and Plaintiff’s motion will be
denied. See Meyer Jewelry Co., 906 F. Supp. at 432; Am. Jur. 2d, supra. Accordingly,

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IT IS ORDERED that Plaintiff’s “Motion to Appoint Receiver” (ECF No. 6) is
DENIED.
s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE

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Dated: October 2, 2020
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, October 2, 2020, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]
S:\Cleland\Cleland\JUDGE'S DESK\C2 ORDERS\20-11396.CRESTMARK.MotiontoAppointReceiver.RMK.RHC.2.docx

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