WELLS FARGO BANK, N.A. v. LICHTER GATEWAY IV LLC et al

Filing 41

OPINION. Signed by Judge Kevin McNulty on 12/1/17. (DD, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

Civ. No. 17-2036 (KM)(MAH)

WELLS FARGO BANK, NA., as
Trustee for Morgan Stanley Capital
I Inc., Commercial Mortgage Passthrough Certificates, Series 20061Q12,

OPINION

Plaintiff,
V.

LICHTER GATEWAY IV, LLC,
CLAIRE LICHTER, individually and
in her capacity as Executrix of the
ESTATE OF ALFRED LICHTER,
JOSEPH SCHWARTZ, SUZETTE
SCHWARTZ, THE ALFRED LICHTER
2000 FAMILY TRUST, AND
GATEWAY CONCOURSE
ASSOCIATION, INC.,
Defendants.

KEVIN MCNULTY, U.S.D.J.:

The plaintiff, Wells Fargo Bank, N.A., as Trustee for Morgan Stanley
Capital I Inc., Commercial Mortgage Pass-through Certificates, Series 20061Q12 (“Wells Fargo”), brings this action against defendants, Lichter Gateway IV,
LLC (“Lichter Gateway”); Claire Lichter, individually and in her capacity as
Executrix of the Estate of Alfred Lichter, Joseph Schwartz, Suzette Schwartz,
the Alfred Lichter 2000 Family Trust (collectively, “Guarantor”, with Lichter
Gateway and Guarantor being referred to collectively as “Lichter”); and the
Gateway Concourse Association, Inc. (“the Association”).
This is essentially a commercial foreclosure, brought by Wells Fargo as
mortgagee against Lichter Gateway as mortgagor, and other parties as
1

guarantors. Lichter Gateway is currently in default to the tune of nearly $57
million in principal that has come due at maturity.
Wells Fargo moved for the appointment of a receiver to manage the
property during the pendency of this litigation. Its primary concern was waste.
Most pertinently, Lichter Gateway had failed to make required payments to the
Association for the repair and upkeep of common areas in the Gateway
complex, and the Association had responded by placing liens on the property.
That concern, however, has been allayed. State court litigation brought against
Lichter Gateway by the Association was recently settled, and the Association
has agreed to vacate its liens. Although Wells Fargo has other concerns, I do
not find them sufficiently weighty to justify the drastic remedy of a receiver to
manage the property pendente lite.
Wells Fargo has also moved for the appointment of a rent receiver. As to
that request I have a different view. Lichter Gateway has collected rents
pursuant to a revocable license from Wells Fargo. Under the terms of the loan
documents, that license was automatically revoked as a result of Lichter’s
default. Under the circumstances, I find that appointment of a rent receiver
during the pendency of this litigation is appropriate.
Finally, Lichter moves under Federal Rule of Civil Procedure l2(b)(6) to
dismiss part of Count 6 of the complaint for failure to state a claim upon which
relief can be granted. That motion is denied.

2

I.

Background1
Wells Fargo has succeeded to the position of mortgagee of the $61 million

commercial mortgage loan at issue.2 (Cplt.

¶31

21, 26-32) Lichter Gateway is the

current owner of the mortgaged premises, Gateway IV, a commercial building
located at 100 Mulberr Street in Newark, New Jersey. Id.

¶

2-3. The

Association maintains certain common areas in the complex, and assesses
building owners for the cost of doing so. (See Id.

¶31

47-49.)

A. The Loan
On October 24, 2006, Heritage Gateway, LLC (“Heritage”),
Marine One Associates III, LLC (“Marine”), Ridgewood 2000 Associates III, LLC
(“Ridgewood”), JPG Real Estate III, LLC (“JPG”), and Ivy Gateway, LLC (“Ivy”)
executed a Promissory Note evidencing a $61 million loan made by LaSalle
Bank National Association (“LaSalle”) to Heritage, Marine, Ridgewood, JPG, and
Ivy (collectively, the “original borrower”). Id. 3110; ECF no. 1-2, Ex. A. The
maturity date under the Note was November 1, 2016. Id.
B

§

31

15; ECF no. 1-2, Ex.

2.3.2.

Certain items cited repeatedly will be abbreviated as follows:
Complaint, ECF no. 1
Cplt. =
Brief in Support of Plaintiff Wells Fargo’s Motion for Appointment of a
P1. Br. =
Receiver (ECF no. 6-17)
Def. Opp. = Defendant Lichter’s Opposition to Plaintiff Wells Fargo’s Motion for
Appointment of a Receiver (ECE no. 19)
P1. Reply = Reply Brief in Further Support of Plaintiff Wells Fargo’s Motion for
Appointment of a Receiver (ECF no. 23)
Br.=
Brief in Support of Defendant Lichter’s Motion to Dismiss, in part, Count
Def.
Six of the Complaint (ECF no. 17-1)
Plaintiff Wells Fargo’s Opposition to Defendant Lichter’s Motion to
P1. Oppr
Dismiss, in part, Count Six of the Complaint (ECF no. 18)
Def. Reply = Reply Brief in Further Support of Defendant Lichter’s Motion to Dismiss,
in part, Count Six of the Complaint (ECF no. 21)
Def. Letter= Letter from Defendant Lichter in response to the Court’s text order (ECF
no. 39)
Letter from Plaintiff Wells Fargo in response to the Court’s text order
P1. Letter=
(ECF no. 40)
2
Solely for purposes of the Rule 12(b)(6) motion to dismiss, the allegations of the
Complaint are taken as true. See Section IV.A, infra.
3

On or around October 24, 2006, the original borrower entered into a loan
agreement with LaSalle. Id. ¶ 11; ECF no. 1-3, Ex. B. The Note incorporates the
terms of that agreement. See ECF no. 1-2, Ex. A.
A Mortgage and Security Agreement, dated October 25, 2006, was
executed by the original borrower, as mortgagor, to LaSalle, as mortgagee. Id. ¶
16; ECF no. 1-4, Ex. C. An Assignment of Leases and Rents, dated October 25,
2006, was also executed by the original borrower to LaSalle. Id. ¶ 18; ECF no.
1-5, Ex. D.
In December 2006, LaSalle assigned the loan and loan documents3 to
Wells Fargo. Id. ¶ 22. See ECF nos. 1-6, Ex. E; 1-7, Ex. F; 1-8, Ex. 0.
B. Assumption of Loan Documents by Newark 300, LLC
On or about June 12, 2009, Ivy transferred 24% of its initial 40%
ownership interest in Gateway IV to Newark 300, LLC. Id. ¶ 24, Newark 300,
LLC “agreed to become jointly and severally liable as tenants-in-common with
fthe) original borrower under the

.

.

.

loan documents.” Id. See ECF no. 1-9, Ex.

H.
C. Assumption of Loan Documents by Lichter Gateway

On or about January 3, 2011, the original borrower and Newark 300,
LLC transferred Gateway IV to defendant Lichter Gateway. Id. ¶ 26. Defendants
Lichter Gateway, Alfred Lichter, Claire Lichter, Joseph Schwartz, Suzette
Schwartz, and the Alfred Lichter 2000 Family Trust “assumed all obligations
under the Loan Documents and released the original borrower [Newark 300,
LLCI, and Original Guarantor from certain obligations pursuant to the Loan
Documents, subject to the provisions set forth in the Borrower Assumption
Agreement.” Id. Wells Fargo, Lichter Gateway, the original borrower, and
Newark 300, LLC, “as well as Steven Greenberg, Jeffrey Greenberg, and Ivy.
(collectively, the ‘Original Guarantor’)” executed the Borrower Assumption
Agreement, dated January 3, 2011. Id. ¶ 27; ECF no. 1-10, Ex. I. In substance,
Lichter Gateway stepped into the shoes of the borrower.
3

“Loan Documents” refers to the Note, Mortgage, and Assignment of Leases.
4

In connection with Lichter Gateway’s assumption of the Note, Defendants
Alfred Lichter, Claire Lichter, Joseph Schwartz, Suzette Schwartz, and the
Alfred Lichter 2000 Family Trust, executed a Guaranty, dated January 3, 2011.
Id.

¶

27; ECF no. 1-11, Ex. J. In substance, those parties stepped into the

shoes of the guarantor.
13. Lichter Gateway’s Failure to Pay by Maturity Date

Lichter Gateway failed to pay all amounts due to Wells Fargo under the
loan documents on the maturity date of November 1, 2016. Cplt.

¶1

33-34.

According to Wells Fargo, Lichter Gateway is in default of its obligations to
Wells Fargo under the Note and Mortgage. Id.
On January 4, 2017, Wells Fargo sent the Lichter defendants a notice of
maturity default letter, informing them of their default and demanding
payment. Id.

¶

35; ECFno. 1-14, Ex. M. As of March 28, 2017, the date of the

filing of the Complaint, Lichter Gateway had failed to pay all sums due under
the loan documents, including $56,959,629.12 in principal, and therefore was
in default.4 Id.

¶

36-39.

E. The Association’s Filing of Liens against Gateway IV

Lichter Gateway is a party to the “Amended and Restated Grant and
Agreement, by and among the Association, Third Newark Gateway Urban
Renewal Association, Gateway Four Urban Renewal, L.P., Gateway South
Urban Renewal Association, and the Prudential Insurance Company of
America,” dated December 21, 1999 (the “Concourse Agreement”). Id.

¶

47.

Under the Concourse Agreement, defendant Lichter Gateway is obligated to pay
the Association for the Association’s “costs for performing its duties to maintain
and service certain of the concourses and walkways at or near” Gateway IV. Id.
¶j 48-49.
In December 2012, Lichter Gateway “voluntarily ceased payment” of
those cost assessments, thereby defaulting under the Concourse Agreement.

Presumably the default continues; no party has brought to the Court’s attention
that it has been cured.

4

5

¶ 50-5 1. As a result of that default, the Association filed three liens against
Gateway IV. Id. ¶ 52. The first lien was recorded in July 2013, the second in

Id.

June 2015, and the third in March 2016. Id. The Association commenced an
action to compel Lichter Gateway to pay: the assessments in the Superior Court
of New Jersey, Law Division, Essex County. Gateway Concourse Association,
Inc. u. Lichter Gateway IVLLC, ESX-L-001075-16 (the “State Action”).5 Id.

¶ 53.

Wells Fargo asserts that, as a result of Lichter Gateway’s unpaid
assessments, the Association “has ceased maintaining the concourses and
walkways” at or near Gateway IV. Id.

¶ 54. In particular, an escalator and

revolving door which provide access to Gateway IV “are broken and remain
unrepaired.” Id.
conditions

.

.

.

¶ 55. Wells Fargo alleges that, “as a result of deteriorating

a tenant at [Gateway IV] has declared an event of default against

jLichter Gateway] under the terms of its lease.” Id.

¶ 56.

Wells Fargo says that neither Lichter Gateway nor the Association
informed it of the default under the Concourse Agreement or the existence of
the liens. Id.

¶ 57. Rather, from 2013 to 2016, Lichter Gateway submitted

annual operating statements to Wells Fargo which indicated that Lichter

¶ 58. It also provided budgets to Wells

Gateway had paid “association fees.” Id.

Fargo which included as budgeted costs the payment of the Association
assessments. Id. Indeed, Lichter Gateway requested and obtained funds from
Wells Fargo to pay those costs. Id. According to Wells Fargo, Lichter Gateway
“failed or omitted to notify [Wells Fargoj that [it] was voluntarily withholding
payment of the Concourse Assessments,” from which Wells Fargo infers that it
“either misappropriated, misapplied, converted, or failed to use such funds for
the purpose of paying the Concourse Assessments.” Id.

Lichter Gateway and the Association ultimately settled the State Action. See
Section 11, infra.
6

II.

Procedural History

On March 28, 2017, Wells Fargo filed this action. (Cplt., ECF no. 1) The
Complaint asserts six causes of action against Lichter and the Association: (1)
mortgage foreclosure; (2) possession; (3) security interest foreclosure; (4) rent
receiver; (5) breach of promissory note; and (6) breach of guaranty. (Id. ¶j 6988) Attached to the Complaint are thirteen exhibits. (ECF nos. 1-2 to 1-14).
On May 5, 2017, Wells Fargo filed the current motion for appointment of
a receiver. (ECF no. 6) In support, it submitted a brief (P1. Br.), and a
declaration from Michael Nikula, a Servicing Officer of C-Ill Asset Management
LLC, the Special Servicer for Wells Fargo, in support of its motion. (ECF no. 61). Fifteen exhibits were attached to the declaration. (ECF nos. 6-2 to 6-16).
On June 5, 2017, the Association filed an Answer to the Complaint. (ECF
no. 14) On that same date, in lieu of an answer, Lichter filed a motion to
dismiss part of Count Six of the Complaint. (Def. Br.)
On June 19, 2017, Wells Fargo filed a brief in opposition to the motion to
dismiss. (P1. Opp.) Also on that date, Lichter filed its brief in opposition to Wells
Fargo’s motion for appointment of a receiver. (Def. Opp.) In support of that
brief, Lichter submitted a declaration from Abraham Schwartz, the manager at
Lichter & Lichter, L.P., and a declaration from Steven Greenberg, the principal
of Heritage Newark Management Company, the property management company
for Gateway IV. (ECE nos. 19-1, 19-4) The declaration of Abraham Schwartz
attached two exhibits, and the declaration of Steven Greenberg attached five
exhibits. (ECF nos. 19-2 and 19-3; ECF nos. 19-5 to 19-9)
On June 26, 2017, Lichter filed a reply memorandum of law in further
support of its motion to dismiss, in part, Count Six of the Complaint. (Def.
Reply) On that same date, the Association submitted a letter in support of
Wells Fargo’s motion to appoint a receiver, and “in reply to the opposition

.

filed by Lichter.” (ECF no. 22) Attached to the letter are the declaration of David
L. Menzel, Esq., counsel for the Association, and exhibits related to the State
Action. (ECF no. 22-1)
On that same date, Wells Fargo filed a reply brief in further support of its
7

motion for appointment of a receiver. (P1. Reply) It also submitted a “reply
declaration” from Mr. Nikula with an Exhibit (ECF nos. 23-1, 23-2), and a
declaration from James Postell, its proposed receiver (ECF no. 23-3).
Two days later, on June 28, 2017, Lichter filed a letter requesting
permission to respond to the Association’s “untimely and reckless” filing.6 (ECF
no. 24 at 3) It argued that the Association’s letter should be rejected by this
Court pursuant to Local Civil Rule 7.1(d)(7). (ECF no. 24 at 2) The next day,
both the Association and Wells Fargo filed their respective responses. (ECF nos.
25, 26)
On October 19, 2017, I heard oral argument on the motions and reserved
decision; among other things, I was awaiting news on the progress of the State
Action between the Association and Lichter Gateway IV, which was imminently

scheduled for trial. On October 25, 2017, the Association and Lichter Gateway
IV reached a settlement in the State Action. (ECF no. 39 at 1)
Wells Fargo’s position at oral argument and in its briefing heavily relied
on the existence of the Association dispute and the alleged waste resulting from
that dispute. I therefore entered a text order asking each party to submit a
letter describing how the resolution of the State Action would bear on the
pending application for a receiver. (ECF no. 35) Supplemental letters were filed.
(ECF nos. 38 to 40) Lichter’s submission attaches a copy of the settlement
agreement as Exhibit A. (ECF no. 39, Ex. A) Wells Fargo’s submission attaches
a copy of March and October 2017 e-mails between Mr. Nikula and Nanette
Jerlat of Heritage, which is Lichter Gateway’s property management agent.
(ECP no. 40, Ex. A)

Under Local Civil Rule 7. 1(d)(6), “no sur-replies are permitted without
pennission of the Judge or Magistrate Judge to whom the case is assigned.”
Local Rule 7.1(d)(7) states: “[t]he Court may reject any brief or other paper not
filed within the time specified.” Lichter pointed out that the date for responses to Wells
Fargo’s motion for appointment of a receiver was June 19, 2017; however, the
Association filed its response on June 26, 2017. (ECF no. 24 at 1 to 2)
S

8

In Section III, infra, I address Wells Fargo’s motion for appointment of a
receiver, and in Section IV, infra, I address the motion to dismiss part of Count
6 of the complaint.
HI.

Motion to Appoint Receiver
A. Applicable Standard

Federal Rule of Civil Procedure 66 empowers a federal court to appoint a
receiver in a pending litigation.8 The remedy is a drastic one, and the power to
appoint a receiver is one that should be exercised with great caution. “Such an
appointment

.

.

.

should not be made lightly; it is appropriate only in the face of

compelling circumstances and in the absence of a less drastic remedy.” Leone
Indus. a Associated Packaging, Inc., 795 F. Supp. 117, 120 (D.N.J. 1992). See
12 Wright, Miller, Kane & Marcus, Federal Practice and Procedure, § 2983 (2d
ed.) (“The appointment of a receiver is considered to be an extraordinary
remedy that should be employed with the utmost caution and granted only in
cases of clear necessity to protect plaintiffs interests in the property.”) (footnote
omitted); Maxwell a Enter. Wall Paper Mfg. Co., 131 F.2d 400, 403 (3d Cir.
1942) (recognizing that “it has been judicially noted almost innumerable times
that the appointment of a receiver is an extraordinary, a drastic

...

remedy

not to be resorted to if milder measures will give the plaintiff, whether creditor
or shareholder, adequate protection for his rights.”) (internal citations
omitted)

.

Generally, in federal diversity actions like this one, federal law governs the
decision of whether a receiver should be appointed. See 12 Wright, Miller, Kane
It provides as follows:
These rules govern an action in which the appointment of a receiver is
sought or a receiver sues or is sued. But 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. An action in
which a receiver has been appointed may be dismissed only by court
order.
“[Tihe party seeking [a receivership] must show that he or she has some legally
recognized right in that property that amounts to more than a mere claim against [the]
defendant.” 12 Wright, Miller, Kane & Marcus, supra, § 2983 (footnote omitted). Here,
Wells Fargo claims an interest in Gateway IV as mortgagee, which is sufficient.
9

& Marcus, supra,

§ 2983 (“Whether a federal court should appoint a receiver in

a diversity action appears to be a question properly determined on the basis of
federal law.”); 13—66 Moore’s Federal Practice—Civil § 66.09 (“Federal law and
federal practice govern the appointment of a federal equity receiver.... [Tjo use
federal law is not inconsistent with the Erie doctrine

...

because the

appointment of a receiver does not directly affect the outcome of the case. By
relief being
definition, the appointment of a receiver is ancillary to the
primanr

sought, so the appointment of a receiver does not directly affect the outcome of
a particular action.”); but see Mintzer v. Arthur L. Wright & Co., Inc., 263 F.2d
823, 825 (3d Cir. 1959) (concluding that federal courts sitting in diversity
should apply state law to the appointment of a receiver).
District courts in the Third Circuit have applied federal law to a motion
to appoint a receiver. See Fimbel u. Fimbel Door Corp., No. CV141915FLWDEA,
2016 WL 1379788, at *2 (D.N.J. Apr. 7, 2016) (identifying cases in the Third
Circuit that have applied federal law when considering the appointment of a
receiver, and applying federal law in its analysis); but see New England Mutual
Life Ins. Co. u. Troy Ventures, Ltd., Civ. No. 94-3299, 1994 WL 705411, at *8
(D.N.J. Dec. 14, 1994) (applying Pennsylvania state law standards).
The parties in this case both cite federal law, and have not identified any
significant difference between state and federal standards.’° Given the weight
of the authority, and the parties’ evident agreement, I will apply federal
standards for the appointment of a receiver. See Section IV.B, infra.
Although all parties submitted affidavits and exhibits, no party sought an
evidentiarv hearing in connection with this motion. While the court may
require live testimony in an appropriate case, an evidentiaiy hearing is not
needed if “the record discloses sufficient facts to warrant appointment of a
receiver.” Leone Indus., 795 F. Supp. at 120 n.6 (citation omitted). I think the
parties’ approach is sound, in that the essential facts may be gleaned from the
Lichter cites state cases in support of its contract-related arguments; however,
it relies on federal law when discussing the factors that should be considered by this
Court when deciding whether to appoint a receiver. (Def. app, at 19, 32 to 33)
10

documents; any disputes that would involve the credibility of witnesses are not
essential to my decision. I therefore decide this motion on the papers, as
supplemented by oral argument.
B. Analysis of Motion to Appoint Receiver

The mortgage loan is in default. Wells Fargo seeks an order appointing a
receiver who will 1) collect all rents and income, and 2) operate and manage the
property. (P1. Br. at 8, 13). As will become clear, I do not think that those two
aspects of Wells Fargo’s motion stand on the same footing.
When evaluating the appointment of a receiver in the context of a
mortgage foreclosure, a district court has “broad discretion in appointing a
receiver... [I]t may consider a host of relevant factors

...

[N]o one factor is

dispositive.tm Wells Fargo Bank, N.A. v. CCC AtL, LLC, 905 F. Supp. 2d 604, 614
(D.N.J. 2012) (quoting Canada Life Assurance Co. v. Alfred R. LaPeter, 563 F.3d
837, 845 (9th Cir. 2009)). Courts have generally considered the following six
factors: (1) whether “the property is inadequate security for the loan”; (2)
whether “the mortgage contract contains a clause granting the mortgagee the
right to a receive?’; (3) “the continued default of the mortgagor”; (4) “the
probability that foreclosure will be delayed in the future”; (5) “the unstable
financial status of the mortgagor”; and (6) “the misuse of project funds by the
mortgagor.” Id. (quoting United States v. Beth & Beth, 767 F.Supp. 593, 597
(D.N.J. 1991)) (footnote omitted). “The presence of a contractual stipulation to
the appointment of a receiver ‘is given considerable weight in the court’s
evaluation of whether a rent receiver should be appointed.’” In re Inv’rs
Warranty of Am., Inc. v. B.W.E. Dev., L.L.C., No. CIV.09-4490, 2010 WL
2557559, at *5 (D.N.J. June 23, 2010J(quoting Barclays Bank, P.L .C. v.
Davidson Ave. Assoc., Ltd., 644 A.2d 685, 687 (N.J. Super. Ct. App. Div. Jul. 8,
1994)).
The appointment of a managing receiver, as opposed to a mere receiver of
rents, is a more drastic remedy that implicates additional concerns. When a
moving party seeks a receiver who will manage and operate the mortgaged

11

property pending foreclosure, courts are particularly cautious in appointing a
receiver, and therefore consider whether the evidence demonstrates “something
more” than just “the doubtful financial standing” of the defendant and the
“inadequacy of the security.” Wells Fargo Bank, N.A., 905 F. Supp. 2d at 614.
Accordingly, additional factors may be considered, including
(1) the danger of waste; (2) delays in foreclosure; (3) the defendant’s
fraudulent conduct; (4) imminent danger that property will be lost,
concealed, injured, diminished in value, or squandered; (5) the
inadequacy of the available legal remedies; (6) the probability that
harm to plaintiff by denial of the appointment would be greater
than the injury to the parties opposing appointment; and (7) the
plaintiffs probable success in the action and the possibility of
irreparable injury to his interests in the property.
Id. at 614—15 (internal quotation marks, brackets, and citation omitted)(quoting
Canada Lzfe Assurance Co., 563 F.3d 837 at 845; Chase Manhattan Bank, N.A.
v. Turabo Shopping Ctr., Inc., 683 F.2d 25, 26—27 (1st Cir.1982)).”
Here, the parties did not address (5) the inadequacy of the available legal
remedies, or (7) Wells Fargo’s probable success in the action and the possibility
of irreparable injury to its interests in Gateway IV. They did, however, address
other relevant factors. I consider them in turn.
1. Mortgage Agreement
Wells Fargo stresses that it is entitled to such relief because under the
mortgage agreement, Lichter “expressly consented to the appointment of a
receiver” in the event of default, “which has indisputably occurred.” (P1. Br. at
9-10).
Particularly in regard to a managing receiver, as opposed to a rent
receiver, Wells Fargo relies on Section 7.1(g) of the mortgage agreement, which

Lichter cites cases from other federal jurisdictions, which have applied different
standards for appointment of a receiver. See FirstMedt Bank, N.A. u. Myrter, No. 2:15cv-333, 2015 U.S. Dist. LEXIS 82642 (W.D. Pa. June 25, 2015); Fidelity Bank v. Key
Hotels ofBrewton, LLC, No. 15-0031-WS-M, 2015 U.s. Dist. LEXIS 48055 (S.D. Ala.
Apr. 13, 2015); Fed. Home Loan Modg. Corp. v. Jenuin Realty Assoc., CV-92-4626
(CPS), 1992 U.S. Dist. LEXIS 19207 (E.D.N.Y. Dec. 14, 1992). The analyses and
holdings from those cases are not binding on this Court. I will focus on the factors
applied by courts in this District.
11

12

provides that in the event of default, as defined by the loan agreement,’2 Wells
Fargo
may
(g) apply for the appointment of a receiver, trustee,
liquidator or conservator of the [Mortgaged Premises], without
notice and without regard for the adequacy of the security for the
[Loan] and without regard for the solvency of Borrower, any
guarantor, indemnitor with respect to the Loan or of any [pjerson
liable for the payment of the jLoan].
.

.

(ECF No. 1-4, Lx. C, §7.1(g))
Lichter, as it must, acknowledges this provision, but urges that it falls
short of “explicit consent” to the appointment of a receiver. Rather, it
authorizes Wells Fargo to “apply for the appointment of a receiver.” (Del Opp.
at 17, 33) (emphasis in original, quoting Mortgage Agreement §7.1(g), supra). I
eschew Lichter’s excessively literal approach, which would reduce this to an
illusory promise (after all, anybody can apply for anything). I do accept,
however, that it falls short of a full, self-executing consent to appointment of a
receiver for any and all purposes upon default. Particularly as to the
appointment of a receiver to operate and manage the property, it is relevant but
not dispositive. Neither, however, is ft Wells Fargo’s only argument from the
wording of the relevant agreements; additional provisions in the assignments of
rents and leases strengthen its hand, at least as to a rent receiver.
Wells Fargo also points out that under the mortgage agreement and the
Assignment of Leases, it possesses equitable title to the income and rents
generated by Gateway IV, because Lichter’s revocable license to collect the
rents has been automatically terminated as a result of its default. Id. at 10 to
11; (ECF. Nos. 6-4, Lx. C, at 4 to 5; 6-5, Lx. D, at 1 to 2)
In that regard, Wells Fargo relies on Section 1.2 of the mortgage
agreement, entitled “ASSIGNMENT OF RENTS.” Section 1.2 provides as follows:
Borrower hereby absolutely and unconditionally assigns to Lender
all of Borrowers right, title and interest in and to all current and
Section 10.1(a) of the loan agreement defines “Event of Default.” (ECF No. 6-3,
Lx. B, at 67-69).
12

13

future Leases and Rents; it being intended by Borrower that this
assignment constitutes a present, absolute assignment and not an
assignment for additional security only. Nevertheless, subject to
the terms of the Assignment of Leases and Section 7.1(h) of this
Security Instrument, Lender grants to Borrower a revocable license
to collect, receive, use and enjoy the Rents. Borrower shall hold the
Rents, or a portion thereof sufficient to discharge all current sums
due on the Debt, for use in the payment of such sums.
(ECF No. 1-4, Ex. C, §1.2)
Closely related is the Assignment of Leases, in which Lichter
“absolutely and unconditionally” assigned the right to leases and rents of
Gateway IV to Wells Fargo, and granted “[t]he right, at [Wells Fargoj’s
option upon revocation of the license granted herein, to enter upon
[Gateway IVj in person, by agent or by court-appointed receiver, to collect
the Rents.” (ECF No. 1-5, Ex. D, §1.1(c), (N). Under Section 2.1 of that
Assignment, Lichter does not possess title to the rents; it enjoys only a
revocable license from Wells Fargo to “collect, receive, use and enjoy the
Rents, as well as other sums due under the Lease Guaranties.” (ECF No.
1-5, Ex. D, §2.1).
The Assignment of Leases explicitly spells out the consequences of
default. Section 3.1 of that Assignment provides that “[ujpon the
occurrence of an Event of Default, the license granted to Borrower in
Section 2.1 of this Assignment shall automatically be revoked, and
Lender shall immediately be entitled to possession of all Rents and sums
due under any Lease Guaranties, whether or not Lender enters upon or
takes control of the Property.” (ECF No. 1-5, Ex. D, §3.1) Moreover, under
that Section, Lichter also consents and agrees that Wells Fargo may
enter onto the property, eject Lichter, and collect rents:
(Wells Fargoj may, at its option, without waiving such Event of
Default, without regard to the adequacy of the security for the
Debt, either in person or by agent, nominee or attorney, with or
without bringing any action or proceeding, or by a receiver
appointed by a court, dispossess Borrower and its agents and
servants from the Property, without liability for trespass, damages
or otherwise and exclude Borrower and its agents or servants
14

wholly therefrom, and take possession of the Property and all
books, records and accounts relating thereto and have, hold,
manage, lease and operate the Property on such terms and for
such period of time as [Wells Fargoj may deem proper and either
with or without taking possession of the Property in its own name,
demand, sue for or othenvise collect and receive all Rents and
sums due under all Lease Guaranties, including those past due
and unpaid with full power to make from time to time all
alterations, renovations, repairs or replacements thereto or thereof
as [Wells Fargo] may deem proper
Id.
Unlike the mortgage agreement, the assignments of rents and leases have
rents and leases as their primary’ focus. As to the right to receive rents, the
Assignment of Leases is far clearer than Section 7.1(g) of the mortgage
agreement, supra, and it purports to be self-executing on default. According to
Wells Fargo, the Assignment of Leases also authorizes it to enter onto the
property without invoking legal process, and to manage and operate it. Wells
Fargo, however, is not (or at least is not currently) exercising its claimed right
to self-help under that Assignment. Understandably, it seeks the protection of
a court order (as well as the insulation from liability afforded by a third-party
manager). That being the case, however, Wells Fargo must take the bitter with
the sweet; to invoke the powers of the Court and the protection of a Court
order, it must submit to the Court’s equitable discretion, which involves the
weighing of factors other than the wording of the parties’ agreements. The
Court will not order relief merely because Wells Fargo might (at its own risk)
have helped itself to the same.
As recognized in Section 111.3, supra, a contractual stipulation to the
appointment of a receiver “is given considerable weight in the court’s
evaluation of whether a rent receiver should be appointed.’” In re Inurs
Warranty of Am., Inc., 2010 WL at *5 (quoting Barclays, 274 N.J. Super. at
520). However, “it is not the only factor to be examined.

.

.the Court also

considers other equitable factors.” Id. See also Bank of America, N.A. u. B.R.M.
*4 (D.N.J. Dec.
Parkway Ctr., Inc., No. 12-CV-172 (ES), 2012 WL 12906570, at

15

19, 2012).’3 This factor therefore merits, and will receive, weight. As I must,
however, I consider the other equitable factors.

2. Waste
In its initial submissions to the Court, Wells Fargo asserted that a
managing receiver was required because Lichter had placed the mortgaged
premises in jeopardy and committed waste. (P1. Br. at 1, 11 to 13; P1. Reply at 7
to 8) Its complaints centered on Lichter’s alleged failure to pay required
assessments to the Association for the repair and upkeep of common areas in
the Gateway complex. This resulted in the Association’s imposition of liens and
bringing of a state court lawsuit against Lichter Gateway. And that, said Wells
Fargo, detracted from the value and viability of the property.
Lichter was alleged to have (1) failed to make condominium assessments
due to the Association since December 2012; 12) permitted three liens to be
recorded by the Association against the premises, resulting in the
commencement of litigation against Lichter by the Association; and (3) “failed
to repair or cause to be repaired a broken escalator and revolving door”;
thereby creating “waste to [Gateway IV] and [Lichterj’s default under a lease
with at least one tenant at [Gateway IV].”14 (P1. Br. at 1, 11; Nikula Decl.

¶

29,

32, and 33) This dispute between Lichter and the Association lay at the heart of
this motion and occupied the bulk of oral argument.’5 In a real sense, the
Barclays Bank, P.L.C. v. DavidsonAue. Assocs., Ltd., 274 N.J. Super. 519, 520
(App. Div. 1994), and Tucker u. Nabo Constr. Corp., 108 N.J. Eq. 449 (Ch. 1931), cited
by Lichter, are not to the contrary’. Those cases state that a court should not rely
solely on a contractual provision when appointing a receiver, but recognize the general
principle that a court should give considerable weight to such a contractual provision.
14
The reference is to McCarter & English, LLP, a Gateway IV tenant, which served
a letter notice of default, seemingly because of the deteriorating conditions in the
common area. (See Cplt. ¶ 56; Def. Opp. at 10; Schwartz Decl. ¶ 10.) Lichter maintains
that this was the only time a tenant issued a default letter, and that the escalators
have now been repaired and are operable. (Def. Opp. at 10)(citing Schwartz DecI. ¶
10)).
15
As I say, the dispute has been settled. For ease of reference, however, I
summarize the parties’ contentions.
Lichter responded to the allegations of waste as follows. (Def. Opp. at 22) While
recognizing the “unresolved issues” in the common areas, Lichter says the responsible
entity is the Association, which owns, controls, and has failed to maintain the
13

16

dispute between Lichter and the Association was the tail that wagged the dog of
this motion practice between Lichter and Wells Fargo. That is, Wells Fargo’s
application for relief against Lichter was based, in large part, on the
Association’s grievance against Lichter. And the Association, for its part,
initially supported Wells Fargo’s request for a receiver.
At oraJ argument, the parties informed the Court that, in the State court
litigation between Lichter Gateway and the Association, a trial date was
imminent. On or close to that trial date in late October 2017, the matter was
settled.
In the settlement agreement, Lichter Gateway agreed to make a
$561,003.32 payment to the Association by November 1, 2017. (ECF no. 39,
common areas since before Lichter had even acquired the property. Id. at 9 to 13, 22
to 24, 28. It further vigorously asserts that Wells Fargo “has known for years that the
Concourse Association has failed to make repairs to the common areas despite
multiple requests and pleas by Lichter.” Id. at 22. In support of its allegation, Lichter
points to e-mails from November and December 2013 between representatives of Wells
Fargo’s servicer, Berkadia, and Abraham Schwartz, the manager at Lichter & Lichter,
L.P. Id. at 14, 25; Schwartz DecI. ¶ 12-15; ECF 1-2, Lx. 1. According to Uchter,
those e-mthls demonstrate that “Wells Fargo was well aware that Lichter Gateway was
in good faith withholding association payments in an attempt to leverage the
Concourse Association to follow through on its obligations.” Id. at 25. Therefore, this is
not an emergency situation which warrants this Court’s inten’ention by appointment
of a receiver. Id. at 27.
In its reply brief, Wells Fargo asserts that the imposition of the concourse liens
and strained relationships with tenants over common area maintenance jeopardize
Wells Fargo’s security and reduce the value of the building. P1. Reply at 4, 8. The
November —December 2013 emails cited by Lichter, says Wells Fargo, “predate a
number of [Lichter’sj misrepresentations to [Wells Fargo].” Id. at 9. Because of
Lichter’s misrepresentations in 2014 and thereafter, it was not until recently, Wells
Fargo says, that it became aware “of the severity of the problems at Gateway lvi, the
deterioration of the relationships between [Lichter Gateway], tenants, and the
Concourse Association, and the jeopardy in which jLichter Gateway has placed
[Gateway IV].” Id. at 10 (citing Nikula Reply Decl. ¶ 11).
The Association, by the way, disputes that it is the owner of the common areas.
Rather, it says, pursuant to an Amended Grant and Agreement among the owners of
the Gateway properties, there are reciprocal easements by and among the Gateway
owners so that people can travel through the concourse. (ECF no. 22 at 2)(citing Tobia
Cert.) Thus, in the Association’s view, the owners of the buildings in the Gateway
their respective areas of
complex “actually own, subject to the reciprocal easements.
the Concourse.” Id. For present purposes, that would be “Lichter and the owner of
Gateway III.” Id.
.

17

.

Ex. A

¶ 2) That payment, which Lichter has made, “represent[edj payment of all

outstanding assessments, reserves, and legal fees due as of October 1, 2017.”
Id.; (Del. Letter 1). The Association, in turn, agreed to discharge the liens it
placed on Gateway IV. (ECF no. 39, Ex. A

¶ 17) Furthermore,

[t]he settlement agreement require[d} the Concourse Association to
use the settlement funds primarily to replace or thoroughly
modernize the escalators serving Gateway IV. It also provides for
the Concourse Association and Lichter Gateway IV to work
together to evaluate project proposals and achieve savings. In
addition, the Concourse Association recognizes in the settlement
agreement that there has been deferred maintenance in the
additional
following
the
and
that
area
concourse
responsibility:
repair/maintenance items are within the scope of its
a. Replacement of the stationary doors at the Mulberry Street exit
for the Gateway Ill/Gateway IV Atrium;
b. Replacement of the remaining, original Mulberry Street revolving
door;
c. Replacement of AC.
d. Investigate and repair concourse roof leaks, repair damaged
plaster and painting;
e. Correct tinted glass panels installed in the Atrium after
Hurricane Sandy by either replacing glass panels or applying a
coating to achieve uniform color with original panels;
f. Upgrade ceiling light fixtures between Gateway II and Mulberry’
Street
g. General cleaning, repair, painting and regular program of
maintenance/repair of all areas of the Mulberry Street end of the
concourse.
(Def. Letter at 2 (footnotes omitted); see also ECF no. 39, Ex. A ¶31 4-13.)
Additionally, “any funds remaining after completion of the escalator
replacement/modernization will be utilized for door replacement, and thereafter
for the above listed, remaining repairs. Moreover, the Concourse Association
The Association adds that funds from the settlement “will be utilized primarily
to replace or modernize escalators in the Gateway Ill/Gateway IV Atrium. If there are
funds remaining, they will be applied to other specified repair/maintenance items.”
(ECF no. 38)
16

18

has agreed that such maintenance and repair ‘shall have priority over any
unnecessary or discretionary work within the concourse as a whole.”’ (Def.
Letter at 2) (quoting ECF no. 39, Ex. A

¶ 12).

Lichter now argues, and I agree, that the settlement of the State Action
“weighs against the appointment of a receiver.” (Def. Letter at 1). The claim of
waste is largely moot, and the urgency to which it gave rise is no longer so
pressing. Indeed, Lichter cautions the Court that “[tjhe appointment of an
outsider

.

.

.

receiver would now only stand to delay and deter such progress

and renewed relations.” (DeL Letter at 3). The Association, for its part,
considers the matter closed and no longer supports the motion for a receiver.
See ECF no. 38 (“Because [the Association] no longer has an interest in the
litigation, it no longer takes any position with respect to the pending
application and withdraws the support it previously offered.”)’7
Wells Fargo, however, remains distrustful. A receiver is still necessary, it
says, to ensure that Lichter pays the assessments to the Association so that
the contemplated repairs can be completed. (See P1. Letter.) Still, the settlement
is satisfactory to the Association, which believes that it resolves the issues with
maintenance to the common areas. Wells Fargo’s arguments about what the
future may hold do not persuade me that a managing receiver should be
appointed based on the “waste” factor. Should the fears of Wells Fargo
materialize, the issue may of course be revisited.
3. Misuse of Project Funds/Fraudulent Conduct
According to Wells Fargo, Lichter’s conduct with respect to the
Association assessments went beyond mere nonpayment. Liehter also allegedly
(1) failed to inform Wells Fargo that it had ceased paying the Assessments, and
(2) submitted financial statements to Wells Fargo which misleadingly indicated
otherwise. (P1. Br. at 7 to 8; P1. Reply at 6) According to the Nikula
Declarations, Lichter included the Association fees as expenses in its budgets,
The Association also argues that it should be dismissed from the case. (ECF no.
38) Dismissal, if desired, should be sought formally, not in a letter. If there is consent,
a consent order will suffice.
17

19

and requested funding of such expenses from its cash management accounts.
(P1. Br. at 7—8; Nikula Deci.

¶

35; P1. Reply at 6; Nikula Reply Decl.

¶

10) Wells

Fargo asserts that these actions amount to fraud, or at least misapplication of
project funds. (P1. Reply at 6—7) Lichter responds that Wells Fargo was aware
that it was withholding the Association assessments. See Section III.B.2, supra.
In light of the State Action settlement, this might be viewed as water under the
bridge; to Wells Fargo, however, it is indicative of financial practices that
require monitoring by a receiver. The concern is perhaps overblown, but to an
extent, I agree. Where the property is concededly in default, a borrower
permitted to remain in possession owes the lender a duty of care and candor.
More recently, Wells Fargo has claimed that Lichter Gateway is misusing
other project funds and rents. (P1. Letter at 1) Relying on an e-mail chain
between Mr. Nikula and Ms. Jerlat, Wells Fargo contends that “upon
information and belief,” Lichter Gateway “has failed to provide all of the
released funds” to its management company, Heritage, therefore “leaving a
shortfall so that Heritage cannot cover all of the payments due to the various
contractors, vendors, and operating expenses that the properw incurs each
month.” Id. at 2 (citing P1. Letter, Exh. A) Wells Fargo further maintains that
because the settlement does not address that misuse of funds, Lichter can
“continue to misrepresent” its use of project funds, and the only way to protect
the property is through this Court’s appointment of a receiver. Id.
The evidence submitted by Wells Fargo, however, does not require such a
conclusion. The e-mail chain began on March 2, 2017 when Ms. Jerlat of
Heritage, Lichter Gateway’s property management agent, forwarded an estimate
for replacement of a booster system to Mr. Nikula, a Servicing Officer of C-Ill
Asset Management LLC, the Special Servicer for Wells Fargo. (P1. Letter, Exh. A)
The invoice cited “a total cost of $84,420, payable in installments, with 50%
($42,120) due at the time of order, and the remaining 50% due thereafter.”’8

A copy of the invoice was not provided. I rely on Wells Fargo’s description of it,
which Lichter Gateway does not seem to dispute.
18

20

(P1. Letter at 2 n.3) About seven months later, on October 12, 2017, Ms. Jerlat
sent Mr. Nikula another e-mail, which forwarded the same estimate and asked
Mr. Nikula if he would be funding the replacement “today.” (P1. Letter, Exh. A)
Mr. Nikula responded the same day that “[w]e included the upfront deposit of
$42,120 in March and the remaining $42,120 last month. You received
$316,763 last month which was the operating expenses of $235,961 per
budget and the $42,120 for the remaining booster payment.” (P1. Letter, Exh. A)
Ms. Jerlat answered: “Thanks I will check with Lichter- because they had the
sweep only at 168,337.52[.] Must be an error on their part[.]”(Pl. Letter, Exh. A)
To my mind, this exchange falls well short of establishing any sort of
misrepresentation or fraud.
According to Wells Fargo, “{Lichter Gateway’s] failure to provide all of the
released funds to Heritage, leaving Heritage unable to pay the monthly
expenses it incurs, contradicts jLichter Gateway’s] assertion that it is properly
managing the property and calls into question the relationship between [Lichter
Gateway] and Heritage.” (P1. Letter at 2) In addition to interpreting the e-mails
as support for its position that a receiver is needed to manage Gateway IV,
Wells Fargo also argues that the e-mails demonstrate that a receiver is needed
to collect the rents and apply those rents to the appropriate operating expenses
for Gateway IV because the appointment of a receiver is “[tjhe only way to
protect the property from [Lichter Gateway’sJ misuse of rents.” Id.
This evidence is insufficient to persuade me that a receiver should be
operating the building. Still, Lichter’s revocable license to collect rents has
terminated, and the threshold for appointment of a rent receiver is
correspondingly lowered. I therefore give this evidence some weight in
consideration of appointment of a rent receiver.
4. Unstable financial status, continued default, and adequacy of
property as security
Wells Fargo points out that Gateway IV is an office building with multiple
tenants; that the income generated by the building is critical to its value; and
that its value serves as collateral for the loan. (P1. Br. at 13) Based on the
21

Declaration of Mr. Nikula, it contends that better management would “stabilize
the operations and thereby preserve the greatest amount of value for the
collateral.” Id. Specifically, Wells Fargo stresses that the building has only a
63% current occupancy rate. Annual rental revenues were $8,593,388.00 in
the year 2016, down significantly from $9,732,660 in 2013. Id. at 6; Nikula
Decl. ¶ 27. Meanwhile, as of March 28, 2017, the Note had an outstanding
balance exceeding $56,959,629. Id.; Nikula Decl.

¶ 25. It follows, says Wells

Fargo, that “the present realizable value of the Mortgaged Premises” is
insufficient to secure repayment in full of the sums due to Wells Fargo. (P1. Br.
at 1; see also P1. Reply at 5.)
Lichter responds that Mr. Nikula provided no adequate foundation for
the assertions in his declaration. Id. at 31. Moreover, Lichter points out that
the alleged decrease in rental revenues “represents a revenue decrease of less
than twelve percent,” which it does not regard as drastic. Id.
In reply, Wells Fargo submitted a second declaration of Mr. Nikula
stating that “he is personally familiar with the Loan, Mortgage, Borrower, and
Mortgaged Premises and competent to testify regarding its financial status.” (P1.
Reply at 6 n.5) See Nikula Reply Decl., ECF no. 23-1. Wells Fargo adds that it
“obtained an appraisal from Colliers International dated December 23, 2016
with an ‘as-is’ value for the property of $31 million, and an appraisal from CB
Richard Ellis dated January 4, 2017 with an ‘as-is’ value for the property of
$30 million.” (P1. Letter at 3) Given that the valuations “indicate[j a shortfall in
excess of $25 million”, Wells Fargo asserts that its security is in jeopardy. Id. In
essence, it argues that considering the alleged waste, see Section IlI.B.2, supra,
Lichter Gateway’s continued default, and the inadequacy of the properW as
security, there is an “imminent danger that property will be lost, concealed,
injured, diminished in value, or squandered.” Wells Fargo Bank, 905 F. Supp.
2d at 614 (internal quotation marks omitted).
That the value of the property is inadequate to secure the loan is a
common feature of foreclosure actions; without more, it does not necessarily

22

require appointment of a receiver. Over the years, Lichter of course possessed
every’ economic incentive to locate high quality tenants and maximize the
property’s cash flow. The real question is whether the property would produce
significantly more income in the hands of a third-party manager, justifying the
cost and disruption of a managing receivership.
As to that issue, Wells Fargo’s presentation is not specific. The
occupancy rate of the building, it suggests, is too low. It does not, however,
identify specific managerial failings to suggest that Lichter Gateway’s
management practices are to blame.
Nor does Wells Fargo state specifically what it would do differently. The
proposed receiver, James Postell, has submitted a declaration (ECF no. 23-3)
that establishes his credentials and experience. As to a plan or strategy,
however, he says little beyond stating that he will “work diligently to stabilize
and maintain the Mortgaged Premises.” (Id.

¶

14) For its own part, Wells Fargo

offers conclusions, not specifics. See P1. Br. 13 (“The appointment of a
receiver., with an expertise in distressed properties such as the subject office
building, would stabilize the operations and thereby preserve the greatest
amount of value for the collateral securing the Loan.”); P1. Reply 11 (“Unless a
receiver is appointed, there is a serious risk that existing management will
cause loss of additional tenants and the further decline in value of [Gateway
IV).”) While appointment of a managing receiver might not do any harm, I am
not persuaded that it would necessarily do any good, either. Under such
circumstances, the appointment of a managing receiver would not be prudent.
See generally U.S. Bank Nat’l Ass ‘

ii.

Brookside St. Ives, LLC, No. CV 12-055 19,

2012 WL 12897101, at *2 (E.D. Pa. Dec. 11, 2012) (denying motion for a
receiver and noting that “[p]laintiff has not identified any specific management
failures by Defendants, nor ha[sl

[iti

articulated how a receiver would manage

the property differently than Defendants have... Presently, it appears that
appointing a receiver would only make it more difficult for the property to
generate sufficient revenue to cover its expenses and debts...).

23

5. Probability that foreclosure will be delayed
In its reply brief, Wells Fargo offers the additional argument that this
Court should consider a borrower’s effort to delay a foreclosure. (P1. Reply at 8)
(citing Cornerstone Realty Partners, Inc. u. Rabolli, No. CV1573Y3ESJAD, 2017
WL 1243142, at *4 (D.N.J. Mar. 17, 2017)). Lichter, it says, requested multiple
extensions of time to respond to the motion for a receivership, and “rather than
filing an answer to the Complaint, the Lichter Defendants filed a partial motion
to dismiss a portion of only one claim, leaving all six existing counts
unanswered, effectively delaying [Wells Fargo’s ability to pursue its claims.” Id.
Lichter also allegedly sought to delay the State Action. Id. at 8 to 9 (citing
Menzel DecI. ¶ 2-5). Wells Fargo concludes that “such tactics suggest that this
foreclosure action will likely be further delayed and warrant appoint of a
Receiver.” Id. at 9.
This case was filed on March 28, 2017; it is not brand new, but neither is
it old. The State Action, however “delayed,” has now been settled. The filing of a
motion to dismiss is not a dilatory tactic per se. That is especially true under
the practice of our District, which is ordinarily to require that discovery go
forward while motions to dismiss are pending. Indeed, a Joint Discovery Plan
(ECF no. 32) was filed by the parties on September 20, 2017, pursuant to the
order of Magistrate Judge Michael A. Hammer. Judge Hammer has issued a
pretrial scheduling order providing that fact discovery is to conclude by May
21, 2018 (ECF no. 33, ¶2)—not a punishing schedule, but a reasonably brisk
one. Even assuming that Lichter hoped to delay the progress of the case with a
partial motion to dismiss—and I make no such finding—that hope would have
been a vain one.
Accordingly, the delay factor does not move me either way at this point in
the case.
6. The probability that the harm to Wells Fargo by denial of the
appointment would be greater than the injury to Lichter
Lichter contends that appointment of a receiver would do more harm to
Lichter Gateway than good to Wells Fargo. (Def. app, at 32) According to
24

Lichter, Wells Fargo “likely faces no damages due to the experience, expertise,
and effectiveness of the current property manager in place,” while Lichter, on
the other hand, would endure the “badge of dishonor” of a receivership. Id.
That “badge of dishonor”, Lichter says, would likely reduce Gateway IV’s value,
to the disadvantage of both Lichter and Wells Fargo. Id. at 3, 32.
Wells Fargo responds that there is no “legitimate concern” that a receiver
would cause harm; rather, a receiver would “stabilize the property”, “preserve
the value”, and “mend relationships with tenants and (the Associationl.” (P1.
Reply 2, 9, 12-13)
As I recognized in my consideration of the waste factor, given the recent
settlement of the State Action, the appointment of a receiver does not hold out
the same potential for good, and it might well cause harm. See Section llI.B.2,

supra. Neither party’s argument, however, rises much above the level of
speculation. I am therefore unmoved by the balance-of-harms factor.
7. Weighing of factors
As stated above, I have weighed the factors that seem most pertinent to
the situation.
As to the appointment of a receiver to take over the management and
operation of the Gateway IV building, I remain unconvinced by the current
record. The mortgage agreement grants only the right to apply for the
appointment of a receiver, subject to the court’s equitable discretion; although
the assignments of rents and leases contain broader self-help language, they
relate primarily to rents and leases, and Wells Fargo in any event has not
resorted to self-help, preferring the protection of a Court order. The central
contention of waste on which the motion was based, arising from the
withholding of Concourse assessments owed to the Association, has been
resolved. The withholding of the Concourse assessments was seemingly
conducted in a less-than-transparent manner, raising some concerns, but
these and other allegations of misapplication of funds do not rise to the
necessary level. The inadequacy of security, while a relevant factor, does not
persuade, because there is no persuasive, factually-based showing that a
25

managing receiver has a plan for, e.g., improving occupancy rates. I do not see
persuasive evidence that this matter is being unduly delayed, and the claim of
delay in the State Action is moot. Finally, although certain claims of harm have
plausibility, the balance of harms does not really point one way or the other.
As to appointment of a rent receiver, however, the balance favors Wells
Fargo. The underlying loan documents grant Lichter Gateway only a revocable
license to collect income and rents, which is automatically terminated by
default. Wells Fargo’s entitlement, then, does not depend on waste as such.
The withholding of Concourse assessments, it seems, was not presented to
Wells Fargo in a forthright manner (although Lichter Gateway claims that Wells
Fargo had reason to know); that raises some concerns about the candor owed
by a borrower in possession of the collateral in a default situation. I do not
find, however, that Wells Fargo has established fraud. As to the inadequacy of
security and delay, the balance is no different, but these factors have less
weight as to a rent receiver. As to the balance of harms, I see that appointment
of a rent receiver only presents much less potential for disruption. Indeed,
Lichter Gateway itself asserts that Wells Fargo “already exercises control of the
cash flow payments and distributions from the rental income generated by
Gateway IV” through a lockbox system. (Def. Opp. at 29-30). That raises a
question as to why Wells Fargo, even if entitled to a rent receiver, wants one,
but I will not second-guess its calculation of its interests.
A question remains as to the scope of the rent receiver’s authority with
respect to receipts and disbursements. That should be addressed by the parties
in connection with the submission of a proposed order, preferably on consent.
See Conclusion, infra.
IV.

Motion to Dismiss Count 6 in Part

In addition to the motion for appointment of a receiver, I have before me
the Guarantor’s9 Rule 12(b)(6) motion to dismiss part of Count 6 of the

“Guarantor” is defined collectively to refer to the Alfred Lichter 2000 Family
Trust, Claire Lichter, Joseph Schwartz, and Suzette Schwartz. (Cplt. ¶ 6). Although the
19

26

complaint for failure to state a claim. The Guarantor seeks to dismiss this
claim of breach of guaranty “to the extent it is made pursuant to the ‘voluntary
lien’ provision of Article I, Section 1.2(ii)C of the Guaranty (and, by
incorporation, the corresponding provisions of the Loan Agreement, Article Xl,
Section 11.22 (v)(B)(iii)).” (Def. Br. at 7) At issue is whether the Guarantor is at
risk for full, or only partial, recourse liability. For the reasons stated herein, the
motion to dismiss will be denied.
A. Applicable Standard
1. Rule 12(b)(6) standard
Fed. R. Civ. P. 12(b)(6) provides for the dismissal of a complaint, in whole
or in part, if it fails to state a claim upon which relief can be granted. The
moving party bears the burden of showing that no claim has been stated.
Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a motion
to dismiss, a court must take all allegations in the complaint as true and view
them in the light most favorable to the plaintiff. See Warth v. Seldin, 422 U.S.
490, 501 (1975); Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140

F.3d 478, 483 (3d Cir. 1998); see also Phillips v. County of Allegheny, 515 F.3d
224, 231 (3d Cir. 2008) (“reasonable inferences” principle not undermined by
later Supreme Court Twombly case, infra).
Fed. R. Civ. P. 8(a) does not require that a complaint contain detailed
factual allegations. Nevertheless, “a plaintiffs obligation to provide the
‘grounds’ of his ‘entitlement to relief requires more than labels and
conclusions, and formulaic recitation of the elements of a cause of action will
not do.” Bell AtI. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the factual
allegations must be sufficient to raise a plaintiffs right to relief above a
speculative level, such that it is “plausible on its face.” See id. at 570; see also
Umland a PLANCO Fin. Seru., Inc., 542 F.3d 59, 64 (3d Cir. 2008). A claim has
“facial plausibility when the plaintiff pleads factual content that allows the

motion is brought by the Lichter defendants generally, it is more natural to treat the
Guarantor as the movant, and for purposes of this section of the Opinion I do so.
27

court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft u. Iqbal, 556 U.S. 662, 678 (2009)(citing
Twombly, 550 U.S. at 556). While “[t]he plausibility standard is not akin to a
it asks for more than a sheer possibility.” Iqbal, 556
‘probability requirement’
...

U.S. at 678 (2009).
The Court in considering a Rule l2(bfl6) motion is confined to the
allegations of the complaint, with certain exceptions:
“Although phrased in relatively strict terms, we have declined to
interpret this rule narrowly. In deciding motions under Rule
12(b)(6), courts may consider ‘document[sJ integral to or explicitly
relied upon in the complaint,’ In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original), or
any ‘undisputedly authentic document that a defendant attaches
as an exhibit to a motion to dismiss if the plaintiffs claims are
based on the document,’ PBGC v. White Consol. Indus., 998 F.2d
1192, 1196 (3d Cir. 1993).”
In re Asbestos Products Liability Litigation (No. VI), 822 F.3d 125, 134 n.7 (3d
Cir. 2016). See also Schmidt u. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)
(“However, an exception to the general rule is that a ‘document integral to or
explicitly relied upon in the complaint’ may be considered ‘without converting
the motion to dismiss into one for summary judgment.”’) (quoting In re
Burlington Coat Factory, 114 F.3d at 1426); Pension Ben. Guar. Corp. v. White
Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
Consideration of extrinsic documents on 12(b)(6) motion
2.
Both sides have attached a number of extrinsic documents to their
submissions. Most seem to be relevant to the motion for appointment of a
receiver. To some extent, however, they may also be intended for consideration
in connection with the motion to dismiss. I therefore review the standards for
consideration of extrinsic documents on a Rule l2(b)(6) motion.
The Court in considering a Rule 12(b)(6) motion is generally confined to
the allegations of the complaint. That principle has some exceptions:
“Although phrased in relatively strict terms, we have declined to
interpret this rule narrowly. In deciding motions under Rule
28

12(b)(6), courts may consider “document[s] integral to or explicitly
relied upon in the complaint,” In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original), or
any “undisputedly authentic document that a defendant attaches
as an exhibit to a motion to dismiss if the plaintiffs claims are
based on the document,” PBGC v. White ConsoL Indus., 998 F.2d
1192, 1196 (3d Cir. 1993).”
In re Asbestos Products Liability Litigation (No. VI), 822 F.3d 125, 134 n.7 (3d
Cir. 2016). See also Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)

(“However, an exception to the general rule is that a ‘document integral to or
explicitly relied upon in the complaint’ may be considered ‘without converting
the motion to dismiss into one for summary judgment.’ “)(quoting In re
Burlington Coat Factory, 114 F.3d at 1426); Pension Ben. Guar. Corp. v. White
Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). “The rationale
underlying this exception is that the primary problem raised by looking to
documents outside the complaint—lack of notice to the plaintiff—is dissipated
‘{wjhere plaintiff has actual notice

...

and has relied upon these documents in

framing the complaint.”’ In re Burlington, 114 F.3d at 1426 (quoting Watterson
v. Page, 987 F.2d 1, 3—4 (1st Cir. 1993)(quoting Corteclndus., Inc. v. Sum
Holding L.P., 949 F.2d 42, 48 (2nd Cir. 1991)). A court may also, without
exceeding the bounds of Rule 12(b)(6), consider matters appropriate for judicial
notice, such as the existence of a prior court ruling. See S. Cross Overseas
Agencies, Inc. v. Wah Kwong Shipping Grp. Ltd., 181 F.3d 410, 426-27 (3d Cir.
1999); see generally Fed. R. Evid. 201.20
Wells Fargo attached copies of relevant loan documents to the Complaint
as Exhibits A through M. These are obviously integral to the allegations, and
may be considered on a motion to dismiss the complaint. The remaining
exhibits were submitted in support of or in opposition to Wells Fargo’s motion

Where extrinsic documents are not properly considered on a Rule 12(b)(6)
motion, a district court has the option, upon proper notice, to convert the motion to
one for summary judgment. See FED. R. Civ. P. 12(d). I do not opt to do so here.
20

29

to appoint a receiver. (See ECF nos. 6, 19, 22, 23.) They will not be considered
on the motion to dismiss.
B. Analysis of Rule 12(b)(b) Motion
1. Relevant allegations of the Complaint

The Complaint alleges that Section 11.22 of the Loan Agreement and
Section 1.2 of the Guaranty address “Partial Recourse Triggers” and “Full
Recourse Triggers.” (Cplt.

¶

42-44, 46). The Complaint describes “Partial

Recourse Triggers” as follows:
Lender may enforce the liability and obligation of Borrower, by
money judgment or otherwise, to the extent of any loss damage,
cost, expense, liability, claim, or other obligations incurred by
Lender (including attorneys’ fees and costs reasonably incurred)
arising out of or in connection with certain events[.]
It describes “Full Recourse Triggers” as encompassing the situation in which
“the Loan is fully recourse to the Borrower in the event of certain events
enumerated in the Loan Agreement.” Id. ¶ 42. Those “certain events” are
referred to as “Recourse Events.”
The Complaint alleges the occurrence of specified Recourse Events, which
trigger both partial and full recourse liability. (Cplt. ¶j 58—60). It also alleges
that the same Recourse Events constitute defaults by the Borrower, Lichter
Gateway, under the Loan Agreement. (Id. ¶ 2, 59; see also id. ¶J 42—62)
(alleging “Borrower’s and Guarantor’s Recourse Liability”).
Specifically, Wells Fargo alleges that during the years in which Lichter
Gateway “voluntarily withheld payment of the Concourse Assessments,” Lichter
Gateway engaged in eight “Recourse Events.” (Id.

¶

58) Allegedly, Lichter

Gateway
a. submitted to tWells Fargo] annual operating statements reflecting
that [it] incurred annual operating expenses by paying “association
fees” in the amounts of $111,093 in 2013, $113,904 in 2014,
$113,904 in 2015, and $116,196 in 2016;
b. failed or omitted to notify [Wells Fargo] that Lit] was u’oluntarily
withholding payment of the Concourse Assessments;

30

c. provided budgets to [Wells Fargo] showing the Concourse
Assessments as budgeted co[s]ts and expenses associated with
[Gateway IVJ that [Lichter Gateway] intended to pay;
d. requested the release of funds from [Wells Fargo] to cover the
budgeted costs of the Concourse Assessments;
e. obtained the funds from [Wells Fargo] for such budgeted costs;
f.

either misappropriated, misapplied, converted, or failed to use
such funds for the purpose of paying the Concourse Assessments;

g. permitted the Concourse Liens to be filed against [Gateway IV]; and
h. permitted waste of [Gateway IV] to occur by virtue of the
deteriorating conditions, including the broken escalators and
revolving doors, and damaged relationships with tenants.
(Id.

¶ 58 (emphasis added); see also id. ¶j 50-52 (alleging that Lichter Gateway

“voluntarily ceased payment of certain Concourse Assessments,” thereby
causing the Association to file three liens against the property.)
As a result of those events, Lichter Gateway has allegedly defaulted
under Section 11.22 of the Loan Agreement, and Guarantor has allegedly
defaulted under the Guaranty. Id.

¶ 59. Wells Fargo claims that Lichter

Gateway and the Guarantor “are liable for the full amount of the Indebtedness2’
as a result of:
a. the fraud, willful misconduct or intentional material
misrepresentations in connection with the Recourse Events; and
b. [Lichter Gateway]’s failure to obtain [Wells Fargo]’s prior consent to
the voluntary Concourse Liens encumbering [Gateway IVI and the
Recourse Events.”
14.

¶ 60 (emphasis added). It also alleges that:
[Lichter Gateway] and Guarantor are liable for any loss, damage,
cost, expense, liability, claim or other obligation in connection
with:

“Indebtedness” refers to “all sums due under the Loan Documents.” (Cplt. ¶ 37)
“Loan Documents” refers to the “Original Loan Documents, together with the Newark
Borrower Assumption Agreement, Borrower Assumption Agreement, Guaranty,
Delaware UCC and County UCC.” 14. ¶ 41.

21

31

a. waste of the Mortgaged Premises resulting from the Recourse
Events; and
b.
Id.

¶

of Rents

the misapplication, misappropriation or conversion
associated with the Recourse Events.
61.
2. Relevant contractual provisions

Here are the contractual provisions cited as relevant to the issues of
voluntary liens, full recourse liability, and partial recourse liability:
Loan Agreement

i.

Section 11.22 of the Loan Agreement defines “Partial Recourse
Triggers.”(Cplt. ¶ 43); (ECFno. 1-3, Compi. Ex. B, Art. Xl,

§

11.22 at 79-80).

The Loan Agreement states, in part:
[t]he provisions of this Section shall not, however.
(g) constitute a waiver of the right of Lender to enforce the liability
and obligation of Borrower, by money judgment or otherwise, to the
extent of any loss, damage, cost, expense, liability, claim or other
obligation incurred by Lender (including attorneys’ fees and costs
or in connection with the
reasonably incurred) arising
following:
of

out

(i)

waste

the Property;

of

(ii) the breach of any representation, warranty, covenant or
the Environmental Indemnity
indemnification
concerning

Mortgage
and

thereto

(iii)

the

Default

(iv)

removal
or

Borrower
damage

Event

of

or

amounts

(A)

hazardous

of

Lender

the

substances
respect

with

document;

or

disposal

of Default;

any

received

of

in

to

any

or

the

misappropriation
proceeds

the

(C)

paid
(B)

Property,

connection

Property,

of

portion

Property

after

a

and

insurance

destruction

of the

laws,

indemnification

misapplication,

the

portion

either

in

environmental

any

and

asbestos

in

or

in

provision

with

any

the

Rents

32

or
by

conversion

reason

any

of

Awards

Condemnation

or

other

funds

or

of

by
loss,

any

other

all

or

a

of Borrower

(ECF no. 1-3, Compi. Ex. B, Art. XI,

§

11.22 at 79-80)(emphasis added).

It then defines “Full Recourse Triggers”, and states as follows:
Notwithstanding anything to the contrary in this Agreement, the
(B) the Debt shall be fully
Note or any of the Loan Documents.
recourse to Borrower in the event that: (i) there has been at any
material
intentional
or
willful
misconduct
fraud,
time
misrepresentation by Borrower or any Guarantor in connection
with the Loan, (ii) the first full monthly payment of interest under
the Note is not paid when due; (iii) Bon-ower fails to obtain Lender’s
prior consent to any subordinate financing or other voluntary Lien
encumbering the Property.
.

(Cplt.

c

.

44); (ECFno. 1-3, Compl. Ex. B, Art. XI,

§

11.22 at8O)(emphasis

added).
The Loan Agreement defines “Lien” as
any mortgage, deed of trust, lien, pledge, hypothecation,
assignment, security interest, or any other encumbrance, charge
or transfer of, on or affecting the Property or any portion thereof or
Borrower, or any interest therein, including, without limitation,
any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement, and
and
other similar liens
materialmen’s and
mechanic’s,
encumbrances.
(ECF no. 1-3, Compl. Ex. B, Art. I,
ii.

§

1.1 at 7).

Guaranty

Under Article I, Section 1.1 of the Guaranty, the Guarantor
“‘irrevocably and unconditionally guarantees to (Wells Fargo} and its
successors and assigns the payment and performance of the Guaranteed
Obligations as and when the same shall be due and payable.

.

.“‘

(Cplt.

¶

45)

(quoting ECF no. 1-11, Compl. Ex. J, Art. I, §1.1) (emphasis added). The
Guarantor “irrevocably and unconditionally

.

.

agrees that it is liable for the

Guaranteed Obligations as a primary obligor.” Id. (emphasis added).
The definition of the term “Guaranteed Obligations” addresses “Partial
Recourse Triggers” and “Full Recourse Triggers.” (Cplt.
“Partial Recourse Triggers” are defined thus:

33

¶

46)

the obligations or liabilities of Borrower to Lender for any loss,
damage, cost, expense, liability, claim or other obligation incurred by
Lender (including attorneys’ fees and costs reasonably incurred)
arising out of or in connection with the following:
(a) waste of the Property;
(b) the breach of any representation, warranty, covenant or
indemnification provision in the Environmental Indemnity
or in the Mortgage concerning environmental laws,
any
and
asbestos
and
substances
hazardous
thereto in either
indemnification of Lender with respect
document;
(c) the removal or disposal of any portion of the Property after
a Default or Event of Default; or
(d) the misapplication, misappropriation or conversion by
Borrower of (A) any insurance proceeds paid by reason of
any loss, damage or destruction to the Property, (B) any
Awards or other amounts received in connection with the
Condemnation of all or a portion of the Property, or (C) any
Rents or other funds of Borrower.
(ECF no. 1-il, Compl. Ex. J, Art. 1, §l.2)(emphasis added).
“Full Recourse Triggers” are defined thus:
Notwithstanding anything to the contrary in any of the Loan
(ii) Guarantor shall be liable for the full amount of
Documents.
the Debt in the event that (A) there has been at any time fraud,
willful misconduct or intentional material misrepresentation by
Borrower or any Guarantor in connection with the Loan; (B) the
first full monthly payment of interest on the Note is not paid when
due; (C) Borrower fails to obtain Lender’s prior written consent to
any subordinate financing or other voluntary lien encumbering the
Property as may be required by the Loan Agreement; (D) Borrower
fails to obtain Lender’s prior written consent to any assignment,
transfer, or conveyance of the Property or any interest therein as
required by the Loan Agreement or the Mortgage.
.

.

(ECF no. 1-11, Compl. Ex. J, Art. I, §1.2) (emphasis added); see also ECF no. 111, Compl. Ex. J, Art. 4, §4.4) (addressing “liens subordinate”).)
3. Discussion
The Guarantor maintains that the Complaint fails to allege a claim for
full recourse liability, because such a claim requires the borrower’s placement
34

of a “voluntary lien” on the property. The third-party liens here it says, were
placed by the Association, and were not “voluntanr” from the point of view of
Lichter Gateway or the Guarantor. (Def. Br. at 9) Moreover, it says, “Wells
Fargo’s Complaint has not alleged any facts indicating that Lichter Defendants
have affirmatively applied for, filed, or given an encumbrance in connection
with any form of ‘subordinate financing’ to the Concourse Association or any
other entity.” Id. at 6. Lichter therefore urges this Court to partially dismiss
Count Six with prejudice. Id. at 1, 4. Wells Fargo responds (1) that it has
adequately pled a claim for breach of Guaranty, and (2) that the voluntariness,
or not, of the Concourse Association liens is an issue of fact that cannot be
resolved on a motion to dismiss. (P1. Opp. at 1-2, 6-9) The Guarantor’s
arguments, it says, are matters to be pled and proven in defense, not grounds
for dismissal of the claim. Id. at 8.
I find that Count 6 adequately pleads a claim under Article I, Section
1.2(ii)(C) of the Guaranty. At this early stage in the litigation, it is premature to
consider the precise scope of Guarantor liability, assuming there is any at all.
The liens, moreover, have now been removed as part of the settlement of the
State litigation, a fact outside the pleadings that may or may not bear on the
applicability of this provision. Nor does it usefully streamline this litigation to
engage in “what-ifs” in relation to one of the alternative sub-theories on which
the Count 6 breach-of-guaranty claim might be based. It is true, as I have
pointed out before, that there are “cases where contractual language
unambiguously rules out a claim of breach, and a motion to dismiss may
confidently be granted.” Blackbenij Ltd. v. POS Wireless LLC, No. 15-1070 (KM),
2016 Wi. 1313161, at *4 (D.N.J. Apr. 4, 2016). This is not such a case. The
meaning of “voluntary lien” and its application to the facts of this case pose
questions of interpretation and fact. The Guaranty does not expressly define
“voluntary lien” and it does not directly address the role of the borrower’s fault
in causing a third party to place liens (subsequently removed, according to the
parties) on a mortgaged property. The meaning of “voluntary lien” in this

35

context is not so clear and unambiguous as to permit resolution as a matter of
law on a motion to dismiss.
I will therefore deny the motion to dismiss Count 6 in part without
prejudice to renewal of these contentions on summary judgment. See Kaufman
u. Provident Life and Cas. Ins. Co., 828 F. Supp. 275, 282 (D.N.J. 1992), affd,
993 F.2d 877 (3d Cir. 1993) (resolving issues of contract construction on
summan’ judgment).
V.

Conclusion

For the reasons set forth above, Wells Fargo’s motion (ECF no. 6) to
appoint a receiver is GRANTED IN PART AND DENIED IN PART. A receiver of
rents will be appointed; a receiver for the operation and management of the
building will not be appointed. Lichter’s motion (ECF no. 17) to dismiss Count
6, in part, pursuant to Federal Rule of Civil Procedure l2(b)(6) is also DENIED.
The Court will enter an order to that effect.
Because the partial grant of the motion was probably not anticipated,
and because the dividing line between a rent receiver and a managing receiver
is not clearly delineated in the current proposed order, Wells Fargo shall
submit a revised proposed order focused on the appointment of a receiver of
rents. The factual recitals in the current proposed order shall be omitted.
A consent order would of course be preferred. If that is not feasible, Wells
Fargo shall have 7 days to submit its proposed order, and defendants shall
have an additional 7 days to file any objections to the wording of that proposed
order. Each party may support its submission with a letter memorandum not
to exceed three pages, which shall not reargue the merits. In light of the history
of briefing on these motions, the Court states explicitly that replies will not be
entertained.
Date: December 1, 2017

KEVIN

36