Wilmington Trust, National Association v. Winta Asset Management LLC et al
Filing
41
MEMORANDUM OPINION AND ORDER re: 10 MOTION to Appoint Temporary Receiver filed by Wilmington Trust, National Association. Both parties have submitted their preferred version of the order appointing a temporary receiver. The plainti ff's version is more complete and a better reflection of the duties a receiver in this case and therefore the Court approves the plaintiff's proposal. The motion to appoint a temporary receiver is granted. The Clerk is directed to close Dkt. No. 10. SO ORDERED. (Signed by Judge John G. Koeltl on 9/28/2020) (mml)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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WILMINGTON TRUST, NATIONAL
ASSOCIATION,
Plaintiff,
- against -
20-cv-5309 (JGK)
MEMORANDUM OPINION AND
ORDER
WINTA ASSET MANAGEMENT LLC ET AL.,
Defendants.
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JOHN G. KOELTL, District Judge:
The plaintiff brought a series of claims related to the
defendants’ alleged default on a loan agreement. The plaintiff
moved for the appointment of a temporary receiver of the
property that was used as collateral on the loan along with the
rental income generated by the property. The plaintiff argues
that in addition to its entitlement to the appointment under
Rule 66 of Federal Rules of Civil Procedure, the appointment is
proper because it is expressly contemplated by the loan
agreement.
A federal court has the power in equity to appoint a
receiver in order to protect a party's interest in the property.
See Fed. R. Civ. P. 66. “The appointment of a receiver is
considered to be an extraordinary remedy [that] should be
employed cautiously and granted only when clearly necessary to
protect plaintiff's interests in the property.” Citibank, N.A.
v. Nyland (CF8), Ltd., 839 F.2d 93, 97 (2d Cir. 1988). The
factors relevant to establishing the need for a receivership
are: “[f]raudulent conduct on the part of defendant; the
imminent danger of the property being lost, concealed, injured,
diminished in value, or squandered; the inadequacy of the
available legal remedies; the probability that harm to plaintiff
by denial of the appointment would be greater than the injury to
the parties opposing appointment; and, in more general terms,
plaintiff's probable success in the action and the possibility
of irreparable injury to his interests in the property.” United
States Bank Nat'l Ass'n v. Nesbitt Bellevue Prop. LLC, 866 F.
Supp. 2d 247, 250 (S.D.N.Y. 2012). “[T]he existence of any
imminent danger of the diminution of the value of the propert[y]
. . . is a critical factor in the analysis of whether to appoint
a receiver.” Id. Fraudulent conduct, on the other hand, is not a
prerequisite. See D.B. Zwirn Special Opportunities Fund, L.P. v.
Tama Broad., Inc., 550 F. Supp. 2d 481, 491 (S.D.N.Y. 2008)
(appointing a receiver without any evidence of fraud); United
States v. Trusty Capital, Inc., No. 06-CV-8170 (KMK), 2007 WL
44015, at *8 (S.D.N.Y. Jan. 5, 2007) (same).
The plaintiff here has shown its entitlement to the
appointment of a temporary receiver. The plaintiff demonstrated
that there were breaches of the loan agreement including the
payment default, the cash management default, the cessation of
operations default, the borrower financial reporting default,
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and the guarantor financial reporting default. Compl., Ex. A ¶¶
28–53. These defaults, principally undisputed by the defendants,
are a strong basis for an appointment of a receiver because they
show a high likelihood of success on the merits. Furthermore,
the elimination of rental income is a direct impairment of the
plaintiff’s collateral that, in part, consists of the rental
income from the property. This impairment is above and beyond a
mere “danger of diminution of the property,” that the plaintiffs
are required to show. Nesbitt Bellevue, 866 F. Supp. 2d at 250.
The defendants’ chief argument is that the appointment of
the receiver would itself impair the value of the property. The
defendants claim that they are currently negotiating a sale of
the building, subject to the delivery of the property vacant and
a final inspection. Che Decl., Dkt. No. 23, ¶ 6. Such inspection
has not been possible due to the travel restrictions in place
because of COVID-19. Id. ¶ 7. However, the defendants fail to
produce a letter of intent or any other evidence for this claim.
At any rate, even under normal conditions, a pending sale would
not excuse the defendants’ defaults or offset the ongoing injury
to the plaintiff’s collateral. In the current global
circumstances when it is unclear when, for example, the
potential buyer may be able to inspect the property, the
prospect of a sale provides cold comfort to the plaintiff.
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In addition to a strong basis for the appointment, the loan
agreement provides that the plaintiff may apply for the
appointment of a receiver in the event of default. Callejas
Decl., Dkt. No. 12-3 at 12. While the provision does not mean
the court should automatically appoint a receiver, “[g]iven that
it is undisputed that several events of default had occurred . .
. this provision strongly supports the appointment of a
receiver.” Citibank, 839 F.2d at 97. Accord D.B. Zwirn, 550 F.
Supp. 2d at 491; Nesbitt Bellevue, 866 F. Supp. 2d at 250.
Both parties have submitted their preferred version of the
order appointing a temporary receiver. The plaintiff’s version
is more complete and a better reflection of the duties a
receiver in this case and therefore the Court approves the
plaintiff’s proposal.
The motion to appoint a temporary receiver is granted. The
Clerk is directed to close Dkt. No. 10.
SO ORDERED.
Dated:
New York, New York
September 28, 2020
__
_/s/ John G. Koeltl________
John G. Koeltl
United States District Judge
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