Wells Fargo Bank, N.A. v. West Jackson Student Housing, LLC
Filing
91
ORDER granting 74 Motion to Terminate Receivership upon Plaintiffs Notice of Foreclosure for the reasons set out in the order; granting 83 Amended Motion to Terminate Receivership re 74 Motion to Terminate Receivership upon Plaintiffs Notice of Foreclosure for the reasons set out in the order. Signed by District Judge Daniel P. Jordan III on November 28, 2012. (SP)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
JACKSON DIVISION
WELLS FARGO BANK, N.A.
PLAINTIFF
v.
CIVIL ACTION NO. 3:11cv226-DPJ-FKB
WEST JACKSON STUDENT HOUSING, LLC
DEFENDANT
ORDER
This matter is before the Court on Plaintiff Wells Fargo Bank N.A.’s Motion to
Terminate Receivership Upon Plaintiff’s Notice of Foreclosure [74] and Plaintiff’s Amended
Motion to Terminate Receivership [83]. Defendant West Jackson Student Housing, LLC, agrees
that the Receivership should be terminated, and the motions will therefore be granted. But the
parties disagree as to how the Receivership Property should be handled following termination of
the Receivership, and the Court will address those issues.
I.
Facts and Procedural History
West Jackson owned and operated student housing near the campus of Jackson State
University. West Jackson was indebted to Wells Fargo and its obligations were secured by a
deed of trust on the student-housing complex and attendant personal property. Wells Fargo filed
this lawsuit alleging that West Jackson failed to fulfill its obligations under various loan
documents between the parties and was therefore in default. To conserve the property pending
litigation, Wells Fargo sought appointment of a receiver pursuant to Federal Rule of Civil
Procedure 66. On July 8, 2011, the Court entered an Order [29] appointing Campus Advantage,
Inc., as Receiver over all of West Jackson’s assets.
Campus Advantage attempted to sell the housing complex but was ultimately unable to
do so. As such, the Substituted Trustee on the Deed of Trust offered the real property subject to
the Deed of Trust for sale at public outcry, and Wells Fargo purchased the property at the
foreclosure sale for $10,000,000. Wells Fargo now asks the Court to terminate the Receivership
and order Receiver to return all Receivership Property—including any cash on hand following
the payment of Receiver’s expenses—to Wells Fargo.
II.
Analysis
West Jackson agrees that the Receivership should be terminated in light of the foreclosure
sale. But West Jackson disagrees with three aspects of Wells Fargo’s proposal regarding
disposition of the Receivership Property: (1) West Jackson asserts that it—not Wells Fargo—is
entitled to the remaining cash on hand following the termination of the Receivership; (2) West
Jackson claims the personal property securing its obligation to Wells Fargo has not been
foreclosed upon and should be returned to it; and (3) West Jackson objects to the breadth of the
proposed release in favor of the Receiver. The Court will address each issue in turn.
A.
Cash on Hand
Wells Fargo contends that it is entitled to whatever cash remains after the fees and
expenses of Receiver are paid because under the Order Appointing Receiver, “income is applied
to Receiver’s fees and expenses, to the operating expenses of the Receivership, and then to
reduce West Jackson’s obligations under the Wells Fargo Documents.” Pl.’s Reply [80] ¶ 8.
Wells Fargo further asserts that, following the foreclosure sale, West Jackson remains indebted
to Wells Fargo in an amount exceeding $6,000,000. Pl.’s Am. Mot. [83] ¶ 15. Any remaining
cash, Wells Fargo argues, should go towards further paying down West Jackson’s debt.
West Jackson counters that any money remaining after Receiver’s expenses are paid
belongs to West Jackson and should therefore be returned to West Jackson. As West Jackson
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points out, “there has been no adjudication of the underlying claims in this case,” and therefore
no ultimate determination of the parties’ rights and liabilities. Def.’s Mem. [87] at 5 (emphasis
in original). As such, West Jackson suggests that giving Wells Fargo all remaining cash at this
time would be premature.
The Court agrees that, at this stage, Wells Fargo has not established its entitlement to all
cash in Receiver’s possession. While the Order Appointing Receiver provided that income from
the property should be used to pay down West Jackson’s debt to Wells Fargo, Wells Fargo’s
entitlement to any specific sum of money has simply not been established at this time. On the
other hand, the Court is sensitive to the fact that the Receivership was established to preserve the
property pending an adjudication on the merits. Therefore, the Court will order Receiver to
deposit any remaining cash on hand into the Court’s registry. Once the parties’ rights have been
established through a trial on the merits, the Court will make the appropriate disposition of the
funds.1
B.
Personal Property
Wells Fargo argues that it is entitled to possession of “all of the Receivership Property,
including all personal Receivership Property” because it holds a perfected lien in all that property
under the Deed of Trust. Pl.’s Am. Mot. [83] ¶ 13. Wells Fargo asks the Court to “hold that
Wells Fargo’s lien on and security interest in and to all of the Personal Property . . . is
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In its response to Wells Fargo’s amended motion, West Jackson asks in the alternative
“that a sum of money be set aside for a litigation budget to allow West Jackson to defend against
Wells Fargo’s Complaint and to prosecute its own Counterclaim.” Def.’s Mem. [87] at 17. West
Jackson does not ask for a specific sum to be set aside, and its request fails to comply with Local
Rule 7(b), which requires any “application for relief or other action by the court” to be “presented
by a motion.” If West Jackson seeks further relief from the Court on this matter, it should make
its request in the form of a motion.
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foreclosed.” Id. ¶ 22. West Jackson counters that the Court cannot “hold” that Wells Fargo
foreclosed on its interest in the personal property because Wells Fargo, in fact, has done no such
thing.
There is no question that the Deed of Trust granted Wells Fargo a security interest in
West Jackson’s personal property. Specifically, Wells Fargo has a security interest in
[a]ll fixtures, machinery, equipment and other personal property of every kind,
description and nature whatsoever, now or hereafter located in or upon or affixed
to the land described above or the improvements located thereon, or any part
thereof, or now or hereafter used or to be used in connection with any present or
future operation thereof or construction thereon, and now owned or hereafter
acquired by the Grantor, together with any renewals, replacements or additions of
or to any of the above or substitutions therefor; it being understood and agreed
that all such fixtures, machinery, apparatus, equipment and other personal
property are a part of and are declared to be a portion of the security for the
indebtedness hereby secured, whether physically attached to such improvements
or not.
Deed of Trust [12] at 349.
Though Wells Fargo could have included all the property subject to the Deed of Trust in
its foreclosure sale, the Notice of Foreclosure and Substituted Trustee’s Deed show that Wells
Fargo sold only the real property at foreclosure. Notice of Foreclosure [82] Ex. A, Substituted
Trustee’s Deed. Thus, to the extent Wells Fargo contends that it has foreclosed upon the
personal property, it is plain that Wells Fargo has not done so. See Estate of Walters v. Freeman,
904 So. 2d 1140, 1142 (Miss. Ct. App. 2004) (“It is clear to this Court that the Trustee did in fact
foreclose on the real property subject to the deed of trust . . . . [and i]t is equally clear . . . that the
Trustee did not repossess or attempt to include in the foreclosure sale the equipment which also
served as security for the promissory note.”).
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But once Wells Fargo purchased the real property at the foreclosure sale, it became the
owner of the real property and came into possession thereof. At that time, Wells Fargo
necessarily also came into possession of the secured personal property appurtenant to the real
property. Nothing suggests that Wells Fargo’s repossession of the personal property as a result
of its purchase of the real property involved a “breach of the peace,” and Wells Fargo therefore
rightfully repossessed the personal property when it became the owner of the real property. Miss.
Code Ann. § 75-9-609 (permitting a secured party to “take possession of the collateral” in the
event of default so long as it does so “without breach of the peace”). Thus, although Wells Fargo
did not “foreclose” on the personal property, it effectively repossessed the personal property
under section 75-9-609 of the Mississippi Code when it purchased the real property. Wells Fargo
is therefore entitled to possession of the personal property.
One issue regarding personal property remains. West Jackson asserts that Wells Fargo is
under no circumstances entitled to its intellectual property, asserting that “its intellectual property
was [never] pledged to Wells Fargo.”2 Def.’s Resp. [87] at 13. But West Jackson’s argument
relies on a strained reading of the Deed of Trust, under which West Jackson pledged “[a]ll . . .
personal property of every kind, description and nature whatsoever . . . now or hereafter used or
to be used in connection with any present or future operation” of the real property. Deed of Trust
[12] at 349. Contrary to West Jackson’s interpretation, the Deed of Trust is not limited to
“personal property located in, upon or affixed to the land” but also includes any personal
property “used . . . in connection with any present or future operation” of the real property.
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Wells Fargo explains that the intellectual property at issue includes “[a]ll trade names,
intellectual property rights, web site domains (including the URL www.palisades-jsu.com), and
web site content related to the Complex . . . .” Pl.’s Am. Mot. [83] ¶ 21.
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Def.’s Resp. [87] at 14; Deed of Trust [12] at 349. Under Mississippi law, as a “general
intangible,” intellectual property qualifies as personal property, and the intellectual property at
issue is used “in connect with” the operation of the real property. Miss. Code Ann. § 75-9-102
cmt. 5(d) (“‘General intangible’ is the residual category of personal property, including . . .
various categories of intellectual property . . . .”); Deed of Trust [12] at 349. Thus, West
Jackson’s intellectual property was among the personal property pledged in the Deed of Trust.3
As such, it was among the personal property Wells Fargo came into possession of when it
purchased the real property at the foreclosure sale, and Wells Fargo is entitled to retain
possession thereof under Mississippi law.
C.
Release
Finally, West Jackson takes issue with the breadth of Wells Fargo’s proposed release in
favor of Receiver. Specifically, West Jackson objects to the release of “unknown” or “hidden”
claims—especially given the 15 days Plaintiff suggests for review of Receiver’s Final
Report—and of claims that existed before Receivership was established.
As to its first complaint, West Jackson seeks 30 days to review the Final Report and
asserts that “[t]here is no reason this Receiver (or any receiver) should receive a discharge if it
breached its duties and concealed such from the Court and parties.” Def.’s Resp. [79] ¶ 24.
West Jackson provides no authority for excluding “hidden” or “unknown” claims. The Court
shares concern about the implication of the word “hidden,” but releases typically cover claims
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This conclusion is bolstered by the specific inclusion of “trademarks, service marks,
trade names, [and] intellectual property rights,” in the definition of Receivership Property in the
Order Appointing Receiver. Order [29] ¶ B.
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that are “unknown,” so that language will be included. And West Jackson will be given 30 days
to object to the Final Report.
On the second issue, West Jackson contends that in the Order Appointing Receiver, the
Court “specifically preserved to West Jackson any claims it had against Campus Advantage, Inc.
prior to institution of Receivership.” Def.’s Mem. [87] at 15. The Court does not agree with
West Jackson’s interpretation of the Order Appointing Receiver; the section apparently relied
upon by West Jackson simply prohibits Receiver from controlling “any claims, causes of action,
or proceedings . . . Borrower now has or shall have in the future against Plaintiff and/or Campus
Advantage, Inc. (collectively the ‘Excluded Litigation’).” Order [29] ¶ D(xii). Nevertheless, the
Court sees no reason to include in the release any claims West Jackson may have against Campus
Advantage that predate the institution of Receivership, so those claims will be expressly
excluded from the release.
III.
Conclusion
The Court has considered all the parties’ arguments. Those not addressed would not have
changed the outcome. For the foregoing reasons, Wells Fargo’s Motion to Terminate
Receivership Upon Plaintiff’s Notice of Foreclosure [74] and Amended Motion to Terminate
Receivership [83] are granted, and
It is hereby ORDERED, ADJUDGED and DECREED:
1.
The Receivership established by the Appointment Order and Receiver’s authority
to manage, operate, and control Receivership Property are hereby terminated, subject to
Receiver’s duty to wind up the affairs of the Receivership estate as provided herein.
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2.
With the exception of cash in the possession of Receiver related to Receivership,
if any, Receiver’s right to possession of Receivership Property is hereby terminated, and
Receiver is hereby relieved of any further obligation with respect to Receivership Property, save
and except for the activities as described herein. Receiver shall turn over possession and control
of Receivership Property to Plaintiff, except that any cash in the possession of Receiver shall be
disposed of in accordance with paragraph six below.
3.
Receiver shall file the Final Report described in the Motion within forty-five (45)
days of the entry of this Order and shall serve a copy of the Final Report on counsel for Plaintiff
and counsel for Defendant.
4.
If no objection to the Final Report is filed with the Court within thirty (30) days of
the filing of such Final Report, then, without further order, the Final Report shall be deemed
approved, and Receiver shall be fully and forever released and discharged from any and all
liability as Receiver of Receivership Property. Said release and discharge shall include any and
all claims, cross-claims, counterclaims, causes, damages, and actions of every kind and character,
and all suits, costs, damages, expenses, compensation, and liabilities of every kind, character, and
description, whether direct or indirect, known or unknown, in law or in equity, that anyone has or
will have against Receiver and/or any of Receiver’s agents, representatives, officers, attorneys,
professionals, employees, or contractors, on account of, arising, or resulting from, or in any
manner incidental to, the Receivership, Receivership Property, Receiver’s possession and/or use
of Receivership Property, the administration of the Receivership estate, and/or any acts or
omissions of Receiver. Provided, however, that this release shall not include any claims, causes
of action, or proceedings Defendant had against Receiver on or before July 8, 2011.
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5.
Any rents and/or other revenues from the operation of Receivership Property
actually received by Wells Fargo or Receiver prior to the Foreclosure, which are attributable to
any period after the last day of the calendar month in which the Foreclosure occurred, shall be
delivered to Plaintiff as the purchaser at the foreclosure sale. Any rents and/or other revenues
from the operation of Receivership Property actually received by Plaintiff or Receiver after the
Foreclosure, whether attributable to any period before or after the Closing, shall be retained by or
delivered to Plaintiff, as applicable.
6.
Except as provided in paragraph five above, any cash in possession of Receiver
related to the Receivership, including revenues from the operation of Receivership Property, at
the time this Order is entered shall be applied against the unpaid fees and expenses of
Receivership estate. Receiver shall then deposit any funds remaining following that
disbursement into the registry of the Court pending resolution of this litigation. Upon such final
distribution, Receiver shall close all bank accounts maintained by Receiver in connection with
the Receivership.
7.
The termination and discharge of Receiver shall not dispose of the remaining
causes of action asserted by the parties. The stay imposed by paragraph U of the Appointment
Order is hereby lifted, and Defendant’s responsive pleading to the operative complaint shall be
due twenty-one (21) days after the entry of this Order.
SO ORDERED AND ADJUDGED this the 28th day of November, 2012.
s/ Daniel P. Jordan III
UNITED STATES DISTRICT JUDGE
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