Timber View Properties, Inc v. M&T Property Investments LTD

Filing 38

REPORT AND RECOMMENDATION that 12 MOTION to Intervene be GRANTED. It is FURTHER RECOMMENDED that 34 MOTION to Stay Recommitment Determination and Request for Hearing be DENIED. Objections to R&R due by 7/5/2016. Per GCS Chambers, 26 REPORT AND RECOMMENDATIONS re 12 MOTION to Intervene is terminated as moot. Signed by Magistrate Judge Terence P. Kemp on 6/17/2016. (agm)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Timber View Properties, Inc.,
Plaintiff,

:
:

v.

:
:

M&T Property Investments LTD,
Defendant.

Case No. 2:15-cv-2855
JUDGE GEORGE C. SMITH

:

Magistrate Judge Kemp

:

REPORT AND RECOMMENDATION
On January 29, 2016, the undersigned submitted a report and
recommendation to the District Judge recommending that a motion
to intervene, filed by movant Karry Gemmell, be granted.
Objections were filed.

In part, the objectors (plaintiff Timber

View Properties, Inc. and defendant M&T Property Investments LTD)
raised new arguments in opposition to the motion to intervene and
submitted documents not previously presented to the Court.
Consequently, the case was recommitted to the Magistrate Judge
for consideration of those documents and arguments.

For the

following reasons, the Court adheres to its earlier
recommendation that the motion to intervene be granted.
I.

Introduction

As the Court noted in the prior Report and Recommendation
(Doc. 26),
This case began in this Court as a straightforward
mortgage foreclosure action. Plaintiff Timber View
Properties, Inc., a Florida corporation, obtained, by
assignment from the Citizens Bank of Logan, Ohio,
mortgages on real property located in Hocking County,
Ohio, and owned by Defendant M&T Property Investments
LTD, an Ohio limited liability company. Timber View
seeks to foreclose on the mortgages and have the
property sold at foreclosure sale. In its complaint,
it also requested the appointment of a receiver
pursuant to Ohio Rev. Code §§2735.01 et seq. See Doc.

2.
On the same day the complaint was filed, Timber
View moved for appointment of a receiver. (Doc. 3).
In its motion, it represented that M&T consented to the
appointment of a receiver and it identified a proposed
receiver. The following day, the Court granted the
motion. Its order (Doc. 4) appointed attorney David A.
Skrobot as the receiver. The order, prepared by the
parties, granted Mr. Skrobot plenary power to deal with
the property in question, as described in Ohio Rev.
Code §2735.04. It contained additional provisions,
however, which provided that representatives of M&T,
including Mark Anthony (the principal of M&T) would
have unimpeded access to the property; that the
receiver could contract to have Mr. Anthony become
involved in the management of the property; that the
receiver could “disregard, without prior order of this
Court, any lease” which is (although it does not
explain who makes this determination) “incomplete,
ineffective on its face, not in conformity with the
statute of frauds, and/or legally inoperative as to
third parties due to a failure to properly execute
and/or record the instrument required by law.” (Doc.
5, at 7). The receiver was authorized to treat such
leasehold interests as void and to seek criminal
charges against anyone, including an “occupying
claimant,” who refused a request by the receiver to
leave the property. Id. Further, the order directs
any person who has any documents or records pertaining
to the property or any income associated with the
property or “business activities presently and/or
previously associated with the Receivership Estate” to
turn those records and income over to the receiver.
Id. at 8. Lastly, anyone claiming any interest in the
property was enjoined from “commencing or continuing
any action at law or suit or proceeding in equity to
... enforce any claim and/or right against all or any
part of the property ... or its business operations
.....” Id. at 10.
Unbeknownst to this Court, and not disclosed by either
Timber View or M&T or their counsel, litigation involving this
very property had been ongoing for some time in the Court of
Common Pleas of Hocking County, Ohio.

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A receiver had also been

appointed in that case, and the state court judge had issued a
number of other orders as well.

Because some of the concerns

expressed in the objections relate to the nature and content of
the orders, the Court will recite them here in some detail,
including some of the factual findings made by that court.
II.
A.

The State Court Litigation
The June 18, 2013 Order

As reflected in the prior report and recommendation,
proposed intervenor Karry Gemmell was one of the Plaintiffs in
the state court action (the other plaintiff was Hocking Peaks,
LLC, a company owned by Mr. Gemmell, a company owned by Mr.
Gemmell’s father, and Mark Anthony, who is also the owner of M&T,
the defendant in this case).

Hocking Peaks was formed in 2010 to

operate a zipline and other outdoor adventure-type activities,
and it leased the property to do so from M&T - including some of
the property which is the subject of the foreclosure action filed
by Timber View.
It is probably an understatement to say that things did not
go as planned.

In 2012, according to the state court’s factual

findings, Mr. Anthony, without Mr. Gemmell’s knowledge and
consent, opened a new bank account for Hocking Peaks; wrote a
check on that account for $35,000, purportedly representing rent
for the property (although the rent which had accrued to that
point was substantially less); started up a new company which he
named “Hocking Peaks Adventure Park, LLC”; and transferred over
$16,000 from Hocking Peak’s bank account to an account in the
name of the new company.

The trial court found these and other

events to represent a course of self-dealing and a breach of
fiduciary duty on Mr. Anthony’s part, which was damaging Hocking
Peaks’ business, and it granted a preliminary injunction
addressing certain financial aspects of Hocking Peaks’ business.
B.

The April 15, 2014 Order
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By the time the next order was issued, Hocking Peaks
Adventure Park, LLC, had become a defendant in the state court
case, as has Marlin Trace Investments, Ltd., which the trial
court said was another name for M&T.

The trial court made

additional factual findings, including the fact that the zip
lines which had been installed were paid for by way of a draw on
a line of credit taken out by Gem Coatings, a company owned by
Mr. Gemmell, and that as a result of a default on the line of
credit, judgment had been taken against Mr. Gemmell by Chase
Bank.

Also, the parties’ joint business had been operated under

the name of “Hocking Peaks Adventure Park” and that name had
appeared on various documents including advertising materials.
When Mr. Anthony started his new business (Hocking Peaks
Adventure Park, LLC), he did not pay Hocking Peaks for the use of
the name.

Further, he used the same phone number for both

businesses during 2013.
Ten days after the state court issued its preliminary
injunction, Mr. Anthony purported to dissolve Hocking Peaks, LLC.
According to the state court, he also apparently misappropriated
some cash receipts belonging to that business, and used its
business receipts for unrelated expenditures for some of Mr.
Anthony’s other businesses.

The Hocking Peaks business also paid

over $20,000.00 in real property taxes for M&T’s property (again,
some of the property involved in the foreclosure action filed in
this Court) even though, under the parties’ agreement, M&T was to
pay those taxes itself.

Lastly, Mr. Anthony admitted to not

paying payroll or income taxes for Hocking Peaks’ employees.
As a result of these findings, the state court reaffirmed
its earlier conclusions that Mr. Anthony had been engaging in a
course of self-dealing and that the plaintiffs were likely to
prevail in the case.

The state court found that any dissolution

of Hocking Peaks was not done properly, that the operating
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agreement for that company was breached, and that it was required
to extend its orders to Mr. Anthony’s new company, Hocking Peaks
Adventure Park, LLC.

It directed that a single bank account be

used for the Hocking Peaks business, that the funds in that
account be used only for that business, and that neither Mr.
Gemmell or Mr. Anthony be permitted to withdraw any money from
the account without the other’s written consent.
C.

The June 13, 2014 Order

The next order of significance was issued on June 13, 2014.
The motion precipitating that order was the plaintiff’s motion
for the appointment of a receiver over the new company, Hocking
Peaks Adventure Park, LLC.

The trial court, noting that Mr.

Anthony had engaged in “a great deal of self-dealing” and that
his conduct took the case “far outside a simple dispute as to the
management and direction of the businesses at issue,” concluded
that unless a receiver were appointed for the new company, “the
involved businesses would fail and the investments made would be
misappropriated.”

Reg Martin of Martin Management Service was

appointed as receiver, not for Hocking Peaks, LLC, but for
Hocking Peaks Adventure Park, LLC, and A.C. Strip was appointed
as his attorney.
D.

The March 26, 2015 Order

This order was issued based on a request made by the
receiver to borrow funds and re-open the adventure park.

The

court granted that request and, in addition, enjoined both Mr.
Gemmell and Mr. Anthony from interfering with the receiver’s
efforts to reopen and operate the park and also “from entering
the site where the park is located (i.e. property subject to this
foreclosure action) without specific written consent from the
Receiver.”

The receiver was authorized to operate the park for

five years and to pay rent for the premises in the amount of
$500.00 per month.
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E.

The State Court of Appeals Order

Mr. Gemmell has also submitted a copy of an order from the
Fourth District Court of Appeals which was filed on April 4,
See Doc. 33.

2016.

Without going into great detail, that court,

in a 28-page opinion, affirmed the state trial court’s order
appointing a receiver for Hocking Peaks Adventure Park, LTD.
F.

Other Pertinent Documents

The parties have also submitted copies of other pertinent
documents.

The Court will summarize those which are of

particular relevance to the issues raised by the motion to
intervene.
1.

State Court Receiver’s Reports

Mr. Gemmell has submitted all of the reports which the state
court receiver, Mr. Martin, has filed.

See Doc. 31.

They show

that business operations ceased in June, 2014 due to the absence
of liability insurance for the company and the possibility that
the zip lines were in need of repair.

The receiver expressed

concern, in his first report, that the business did not own the
property on which it was being operated, and he was preparing a
motion which would allow him to use the property pursuant to the
term of the initial lease agreement, which he described as being
“still in place.”

In his third report, the receiver said he was

looking for a third party to purchase the business, an option
that, by the time the fifth report was filed, did not seem to be
viable.

The sixth report, which contemplates re-opening the

park, again refers to the original lease as valid and as a
critical part of the “go forward plan,” along with a court order
that neither of the parties be permitted on the park premises
without consent of the receiver.
The receiver’s seventh report followed the March 26, 2015
order.

It outlined a plan to reopen the park in short order.

The receiver also reported that Mr. Anthony was threatening to
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treat him as a trespasser unless insurance were obtained and had
also sent the receiver threatening emails.

The receiver

suggested a motion to hold Mr. Anthony in contempt might be
needed.

The receiver also proposed that Mr. Anthony’s access be

restricted to an area encompassing his home and access to it, and
he said that he intended “to utilize the remainder of the
property for the park operations.”

In his eighth report, made in

August, 2015 (a month before the foreclosure action was filed),
the receiver reported that the park was still not open due to
delays in obtaining financing and obtaining appropriate liability
insurance.
Another exhibit to Doc. 31 is an affidavit from the state
court receiver dated March 2, 2016.

There, he explains that this

Court’s order appointing its own receiver has prevented the
reopening of the park because Mr. Martin cannot enter the
property under the terms of that order.

Mr. Martin described the

zip line equipment and said it could be removed without damaging
the real estate.

He also said that after the state court order

authorized the rental payments, the first one was rejected by Mr.
Anthony, and no more had been tendered since it was clear they
would not be accepted.

Lastly, he stated that the federal court

receiver, David Skrobot, had hired Mr. Anthony to operate a
business on the property, and that Mr. Skrobot had asked Mr.
Martin to sign an affidavit stating that he had no interest in
the property, something Mr. Martin believed to be inaccurate.

He

did not sign the affidavit.
2.

Other Documents

The parties to this case have also submitted some documents,
primarily as part of their objections to the Report and
Recommendation.

The Court will summarize them as well.

As part of Doc. 27, M&T submitted a copy of the Hocking
Peaks Adventure Park Operating Agreement.
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That agreement states,

in ¶15.9, that “Hocking Peaks Adventure Park will have a 99 year
lease so long as company is engaged in current business.
monthly rate will be 500$.”

The

It also provided an affidavit from

Mr. Anthony (corrected in Doc. 28) which confirms that M&T (not
Marlin Trace, as the initial affidavit said) owned the property
on which the business operated from 2010 to 2012 and that it
leased the property to Hocking Peaks.

Mr. Anthony’s affidavit

also says that Hocking Peaks never made any lease payments and
that notice of termination of the lease was given on March 12,
2013.

He made a number of additional assertions in his initial

affidavit which are not corrected in the second affidavit, but
simply omitted from it.

Finally, M&T attached a copy of Mr.

Gemmell’s motion for a receiver, filed in the state court action,
which states that the lease in question is “null and void.”

That

motion also asked the court to permit the receiver to continue
with the operation of the company, however, which is what the
state court ultimately did.
3.

Mr. Skrobot’s Report

David Skrobot, the receiver appointed by this Court, filed a
preliminary report on February 16, 2016.

He reports that a

preliminary judicial report on the property shows it to be owned
by M&T free and clear of any leasehold interest.

He claims to

have confirmed with Mr. Martin, the state court receiver, that
Mr. Martin’s receivership did not extend to the real property
(something which Mr. Martin’s affidavit takes issue with) and
that Mr. Martin has not tendered any rental payments.

He also

said he had not seen any purported 99-year lease and that the
original lease document was for a term of five years.
that lease is attached to his report.

It does contemplate at

least one five-year renewal.
III.
A.

Analysis

The Prior Recommendation
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A copy of

As the Court stated in the prior Report and Recommendation,
Rule 24(a)(2) states:
On timely motion, the court must permit
anyone to intervene who ... claims an
interest relating to the property or
transaction that is the subject of the
action, and is so situated that disposing of
the action may as a practical matter impair
or impede the movant's ability to protect its
interest, unless existing parties adequately
represent that interest.
Mr. Gemmell’s motion to intervene is clearly timely.
Further, no existing party claims to represent his
interest in this action adequately (they deny that he
has any interest to represent). The crux of the
disagreement here concerns the existence of a legally
protected interest in the property that is the subject
of this foreclosure action.
There is little dispute about the general
principles which govern intervention as of right.
“Federal Rule of Civil Procedure 24, which governs
interventions, is ‘broadly construed in favor of
potential intervenors.’” Gillie v. Law Office of Eric
A. Jones, LLC, 2013 WL 4499955, *1 (S.D. Ohio Aug. 21,
2013), quoting Purnell v. City of Akron, 925 F.2d 941,
950 (6th Cir. 1991). Purnell also makes clear that an
intervenor, even an intervenor as of right, need not
have either the same standing required to initiate a
lawsuit nor a specific legal or equitable interest in
the subject-matter of the case. Id. at 948. The
inquiry as to the interest claimed by the intervenor is
necessarily fact-specific, see id., and “close cases
should be resolved in favor of recognizing an interest
under Rule 24(a)....” Michigan State AFL-CIO v.
Miller, 103 F.3d 1240, 1247 (6th Cir. 1997).
Doc. 26, at 5-6.

The Court concluded that the state court had

recognized a lease interest on the part of Hocking Peaks LLC and
gave the state court receiver certain powers over the real
property in question.

It also concluded that the orders of that

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court and this one were in conflict, that the state court
receiver might well be in violation of a federal court order if
he attempted to exercise the powers granted to him by the state
court, and that all of this might have a substantial impact on
Mr. Gemmell’s interest in the business over which the receiver
had been appointed.

It therefore concluded that under the

“liberal standards to be applied in this circuit,” Doc. 26, at 7,
the motion to intervene should be granted.
B.

The Objections

The objections to that recommendation, from both M&T and
from Timber View, can be stated succinctly.

Those parties assert

that Hocking Peaks, LLC, never had a 99-year lease on the
property; the actual lease expired by its terms on March 29,
2015, which (according to M&T) was before the state court
appointed a receiver (although the record suggests that order
actually went on in June, 2014); that any lease was effectively
terminated for default, which default included Mr. Gemmell’s
action in seeking a receiver; that Mr. Gemmell is judicially
estopped from arguing that there is a valid lease because of the
statement made in his motion to appoint a receiver to the effect
that the lease was null and void; that no receiver was ever
appointed for Hocking Peaks, LLC; that Mr. Gemmell has no legal
interest in the property or in the zip lines; and that he has
adequate remedies to protect any interest he might be asserting
by way of the state court action.

Those parties also argue that

the federal receiver will protect any such interest claimed by
Mr. Gemmell.
C.

The Receiver’s Motion

Interestingly, the receiver has also taken a position with
respect to proceedings to be held on the motion to intervene.

In

a motion filed on May 3, 2016, he moved for a stay of a decision
on the matter pending a hearing to determine the nature, if any,
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of Mr. Gemmell’s interest in the property.

Mr. Gemmell has

opposed that motion, and the receiver recently filed a reply.
D.

Analysis

Despite the arguments presented in the objections, which are
coupled with some additional documents not originally presented
to the Magistrate Judge, the Court remains convinced that
intervention is appropriate in this case.

The reasoning behind

that conclusion can be stated fairly simply.
Again, the primary issue here is whether the proposed
intervenor, Mr. Gemmell, has an interest in this matter which the
current parties do not adequately represent.

Despite the

argument that the federal receiver will protect Mr. Gemmell’s
interest, the record demonstrates that the receiver has taken the
position that Mr. Gemmell has no interest here, and that the
receiver’s powers are at odds with the grant of authority to the
state court receiver who was specifically appointed to guard Mr.
Gemmell’s interest in the business he operated jointly with Mr.
Anthony.

Neither Timber View nor M&T will adequately protect Mr.

Gemmell’s interest; both have actively opposed his intervention,
and M&T’s principal, Mr. Anthony, is actively embroiled in the
state court litigation as an adversary to Mr. Gemmell.

The Court

similarly rejects the notion that Mr. Gemmell can adequately
protect his interests through the state court litigation, since
the conflicting orders relating to the two receivers may well
impair his ability to do so.

Consequently, if it is determined

that Mr. Gemmell has an interest to protect, he is entitled to
intervene.
The receiver has suggested that this Court hold a hearing on
the merits of Mr. Gemmell’s claimed interest.
common practice.

That is not a

“In evaluating the motion to intervene, the

district court must accept as true the non-conclusory allegations
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of the motion and cross-complaint.”

Lake Inv'rs. Dev. Grp. v.

Egidi Dev. Grp., 715 F.2d 1256, 1258 (7th Cir. 1983) Further,
“[a]n interest that is otherwise sufficient under Rule 24(a)(2)
does not become insufficient because the court deems the claim to
be legally or factually weak.”

Brennan v. N.Y.C. Bd. of Educ.,

260 F.3d 123, 130 (2d Cir. 2001).

Although a good deal of

information outside the proposed intervenor complaint has been
submitted, the vast majority of it consists of orders of the
state court, and not traditional evidentiary materials.

The

record is sufficient to permit the Court to determine whether Mr.
Gemmell has alleged an interest of the type which supports
intervention.
As to that question, “[w]hether an applicant for
intervention demonstrates sufficient interest in an action is a
practical, threshold inquiry.
interest need be established.”
973, 976 (9th Cir. 1993).
intervention.

No specific legal or equitable
Greene v. United States, 996 F.2d

Equitable interests alone may support

Cf. Reliastar Life Ins. Co. v. MKP Investments,

565 Fed.Appx. 369, 373 (6th Cir. Apr. 29, 2014).

Mr. Gemmell

clearly has an equitable interest here, apart from any
determination as to whether the lease executed pursuant to the
Hocking Peaks operating agreement remains valid.

That conclusion

flows from the actions taken by the state court.
First, the state court necessarily concluded that Mr.
Gemmell has an interest in Hocking Peaks Adventure Park, LLC.
That interest arises from his investment in Hocking Peaks,
coupled with the judge’s finding that assets of that entity were
used to fund Hocking Peaks Adventure Park.

If that interest did

not exist, there would have been no basis upon which to appoint a
receiver over Hocking Peaks Adventure Park at Mr. Gemmell’s
request.
Second, the state court also necessarily concluded that
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Hocking Peaks Adventure Park had a right to conduct business on
the property.

Again, it is clear from the order appointing the

receiver that the receiver was given that authority, and that the
state court judge was exercising some measure of control over the
property, for the benefit of Hocking Peaks Adventure Park and Mr.
Gemmell, by limiting Mr. Anthony’s access to it.

If M&T, which

is Mr. Anthony’s company, had unfettered title to and use of the
property, the state court could not have made such an order.
Whether that order was based on the theory that the payments
which Mr. Anthony made to himself were sufficient to keep the
lease in place, or some theory of estoppel, is not important;
what is important is that the state court clearly perceived that
Mr. Gemmell, the plaintiff and movant there, had, through the
tracing of assets into Hocking Peak Adventure Park, a legally
protectable interest in the operation of the business on the same
property which is subject to the foreclosure action here and the
order appointing a federal receiver over that property.

That

satisfies the “practical” inquiry required under Rule 24 and
justifies Mr. Gemmell’s intervention.

Whether Mr. Gemmell will

ultimately succeed in demonstrating that his interest should have
some priority in these foreclosure proceedings, or that it
justifies modification of the order appointing the federal
receiver, are questions for another day.

Given his claimed

interest, however, he should be permitted to raise those
arguments here.
IV.

Recommendation

For these reasons, it is recommended that the motion to
intervene (Doc. 12) be granted and that the intervenor be
directed to submit an intervenor complaint within fourteen days
of the Court’s order, should this Report and Recommendation be
adopted.

It is further recommended that the receiver’s request

to stay recommitment and for an evidentiary hearing (Doc. 34) be
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denied.
V.

Procedure on Objections

If any party objects to this Report and Recommendation, that
party may, within fourteen days of the date of this Report, file
and serve on all parties written objections to those specific
proposed findings or recommendations to which objection is made,
together with supporting authority for the objection(s).

A judge

of this Court shall make a de novo determination of those
portions of the report or specified proposed findings or
recommendations to which objection is made.

Upon proper

objections, a judge of this Court may accept, reject, or modify,
in whole or in part, the findings or recommendations made herein,
may receive further evidence or may recommit this matter to the
magistrate judge with instructions.

28 U.S.C. §636(b)(1).

The parties are specifically advised that failure to object
to the Report and Recommendation will result in a waiver of the
right to have the district judge review the Report and
Recommendation de novo, and also operates as a waiver of the
right to appeal the decision of the District Court adopting the
Report and Recommendation.

See Thomas v. Arn, 474 U.S. 140

(1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).

/s/ Terence P. Kemp
United States Magistrate Judge

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