MSCI 2006-IQ11 Logan Boulevard Limited Partnership v. Greater Lewistown Shopping Plaza, L.P.
Filing
18
MEMORANDUM (Order to follow as separate docket entry) re 11 MOTION to Appoint Receiver. Signed by Honorable Matthew W. Brann on 2/6/2017. (jn)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
MSCI 2006-IQ11 LOGAN
BOULEVARD
LIMITED PARTNERSHIP a
Delaware limited partnership,
:
:
:
:
:
Plaintiff,
:
:
v.
:
:
GREATER LEWISTOWN
:
SHOPPING PLAZA, L.P.,
:
a Pennsylvania limited partnership, :
:
Defendant.
:
Case No. 4:16-CV-2090
(Judge Brann)
MEMORANDUM OPINION
FEBRUARY 6, 2017
I.
BACKGROUND
On October 17, 2016, Plaintiff, MSCI 2006-IQ11 Logan Boulevard Limited
Partnership, a Delaware limited partnership, hereinafter “MSCI” or “lender” filed
commercial mortgage foreclosure action against Defendant, Greater Lewistown
Shopping Plaza, L.P., a Pennsylvania limited partnership, hereinafter “Lewistown
Shopping Plaza” or “borrower.” Plaintiff subsequently filed a Motion to Appoint a
Receiver1 on November 16, 2016 requesting the appointment of a receiver to
1
ECF No. 5.
1
operate and manage the mortgaged property of borrower as it has been in default
on the $10,500,000 mortgage since March 2016.
On November 18, 2016, the Court granted the motion in part and denied it in
part for two reasons. First, and most importantly, because the motion was, at that
juncture, filed ex parte. The Court preferred that the Defendant be provided the
opportunity to be heard, as receivership is an extreme pre-trial remedy. Second,
Plaintiff’s first motion only cited to clauses in the mortgage that permitted
collection of rent and income; it did not cite to portions of the mortgage that also
provided for a receiver to operate and manage the mortgaged property.
My consideration of the renewed receivership motion today is in a different
vein. As of the date of this Order, Defendant has had an opportunity to respond
and brief its opposition to the motion. Moreover, Plaintiff has further cited to
portions of the mortgage that would also allow not only for the collection of rents,
but also for the operation and management of the subject property by the receiver.
“No hearing is necessary where the facts support the appointment of a
receiver,”2 and I find here that they do. Accordingly, and for the reasons that
follow, the motion will be granted in full.
2
United States v. Berk & Berk, 767 F. Supp. 593, 597 (D.N.J. 1991).
2
II.
DISCUSSION
Lewistown Shopping Plaza does not dispute that it defaulted on the balance of
its mortgage at maturity. Instead, it merely argues that “Defendant made diligent
efforts to refinance the balance due and owing under the Loan Documents upon
maturity, because of changes in the lending market, Defendant was unable to close
on new financing prior to maturity.”3
Rule 66 of the Federal Rules of Civil Procedure provides the authority for
federal courts to appoint receivers. Both parties agree that the proper analysis is
that employed by the late Honorable Joseph E. Irenas, writing for the District of
New Jersey, as follows:
In diversity suits, federal law governs the issue of whether a receiver
should be appointed. Maxwell v. Enterprise Wall Paper Mfg. Co., 131
F.2d 400, 402 (3d Cir.1942) (“What form of equitable relief a plaintiff
is to be given by a federal court for infringement of his rights, we
have held to be a matter to be determined by federal law, not state
decisions.”).
Wells Fargo seeks an order appointing a receiver who will collect all
rents and income, as well as operate and manage the property.
When considering whether to appoint a receiver in the context of a
mortgage foreclosure, the following factors guide the Court in its
exercise of discretion: “the property is inadequate security for the
loan; the mortgage contract contains a clause granting the mortgagee
the right to a receiver; the continued default of the mortgagor; the
probability that foreclosure will be delayed in the future; the unstable
3
ECF No. 14 at 4.
3
financial status of the mortgagor; [and] the misuse of project funds by
the mortgagor.” United States v. Berk & Berk, 767 F.Supp. 593, 597
(D.N.J.1991)22; see generally Canada Life Assurance Co. v. Alfred R.
LaPeter, 563 F.3d 837, 845 (9th Cir.2009) (“the district court has
broad discretion in appointing a receiver, ... it may consider a host of
relevant factors, ... no one factor is dispositive.”).
When the moving party seeks a receiver who will not only collect
rents and profits, but will also manage and operate the mortgaged
property pending foreclosure, federal 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.’ ”
Canada Life Assurance Co., 563 F.3d at 845 (internal citation
omitted); The Chase Manhattan Bank, N.A. v. Turabo Shopping
Center, Inc., 683 F.2d 25, 26 (1st Cir.1982) (internal citation omitted).
The additional factors warranting appointment of a receiver to manage
the property may include: “the danger of waste[;] delays in
foreclosure,” Canada Life Assurance Co., 563 F.3d at 845 (internal
citation and quotation omitted); the defendant's “fraudulent conduct”;
“imminent danger that property [will] be 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 the plaintiff's probable success in the action and the
possibility of irreparable injury to his interests in the property.”
Turabo Shopping Center, Inc., 683 F.2d at 26–27 (internal citation
and quotation omitted); accord Consolidated Rail Corp. v. Fore River
Railway Co., 861 F.2d 322, 326 (1st Cir.1988).
In considering the relevant factors, the Court concludes that Wells
Fargo is entitled to the relief it seeks.
First, Article 11.02(d) of the Loan Agreement specifically provides
that after an “Event of Default”, Wells Fargo may apply for the
appointment of a receiver to manage and operate the property, and
4
that CCC Atlantic “consents, to the extent permitted by applicable
law, to the appointment of a receiver.” (Compl. Ex. A).
Additionally, the Assignment of Lease and Rents, executed along with
the Loan Agreement (Compl. Ex. E, Assignment of Leases and
Rents), gives Wells Fargo the right to all rents upon an Event of
Default. In the Assignment of Leases and Rents, CCC Atlantic
“irrevocably, absolutely and unconditionally” assigned to Capmark
(Wells Fargo's predecessor in interest) “all of [its] right, title and
interest in and to” all leases and rents from the property, which right
the lender then “licensed” back to CCC Atlantic so long as no Event
of Default occurred. (Id., Assignment of Leases and Rents, §§ 1.02,
1.04) But that license was expressly “revocable.” (Id. § 1.02) The
Assignment provides that upon an Event of Default, the license
“terminate[s] automatically, and Lender shall be entitled to receive
and collect the Rents as they become due and payable and exercise all
of [CCC Atlantic's] rights ... under the Leases with respect to the
Rents.” (Id. § 1.04)
The importance of these contractual provisions cannot be
underestimated because they set apart this commercial foreclosure
case from the traditional scenario in which a receiver is sought at
equity and no such contractual provisions exist. Thus, this case is
qualitatively different from cases relied upon by CCC Atlantic which
are stockholder suits seeking appointment of a receiver to manage a
corporation. See, e.g., Roach v. Margulies, 42 N.J.Super. 243, 126
A.2d 45 (App.Div.1956).
This Court agrees that traditionally at equity appointment of a receiver
to manage a corporation is a “drastic action [which should be] avoided
where possible ... if the necessary relief can be accomplished by some
less onerous expedient.” Roach, 42 N.J.Super. at 245, 126 A.2d 45
(quoted at p. 13 of CCC Atlantic's opposition brief). But that general
statement of the law simply does not apply to a case like this where
the parties have agreed ex ante that, in the event of a default, the
lender has the right to all rent payments and to the appointment of a
5
receiver. Under such circumstances, appointment of a receiver is not
such a drastic remedy.4
In the case at bar, the first, and primary, consideration is the text of the
mortgage contract itself. It is well settled that “when the language of a contract is
unambiguous, we must interpret its meaning solely from the contents within its
four corners, consistent with its plainly expressed intent.”5 The mortgage, which
was purchased by Plaintiff, clearly permits receivership. It states, in relevant part:
2. Leases and Rents (a) [] Mortgagor hereby grants and assigns to
Mortgagee the right, at its option, upon revocation of the license
granted herein, to enter upon the Mortgaged Property in person, by
agent or by court-appointed receiver to collect the Rents. Any Rents
collected after the revocation f such license may be applied toward
payment of the Debt in such priority and proportions as Mortgagee in
its sole discretion shall deem proper.
*****
10. Remedies.
(a) Upon the occurrence of any Event of Default, Mortgagee may take
such action, without notice or demand, as it deems advisable to
protect and enforce its rights against Mortgagor and in and to the
Mortgaged Property, by Mortgagee itself or otherwise, including
the following actions, each of which may be pursued concurrently
or otherwise, at such time and in such order as Mortgagee may
determine, in its sole discretion, without imparting or otherwise
affecting the other rights and remedies of Mortgagee:
i. declare the entire Debt to be immediately due and payable;
4
Wells Fargo Bank, N.A. v. CCC Atl., LLC, 905 F. Supp. 2d 604, 610–16 (D.N.J.
2012).
5
Seven Springs Farm, Inc. v. Croker, 748 A.2d 740, 744 (Pa. Super. Ct. 2000),
aff'd, 569 Pa. 202, 801 A.2d 1212 (2002) (internal citations omitted).
6
ii.
iii.
iv.
v.
vi.
vii.
viii.
institute a proceeding or proceedings, judicial or nonjudicial,
to the extent permitted by law, by advertisement or
otherwise, for the complete foreclosure of this Mortgage, in
which case the Mortgaged Property may be sold for cash or
upon credit in one or more parcels or in several interests or
portions and in any order or manner;
with or without entry, to the extent permitted and pursuant to
the procedures provided by applicable law, instate
proceedings for the partial foreclosure of this Mortgage for
the portion of the Debt then due and payable, subject to the
continuing lien of this Mortgage for the balance of the Debt
not then due;
sell for cash or upon credit the Mortgaged Property and all
estate, claim, demand, right title and interest of the
Mortgagor therein and rights of redemption thereof,
pursuant to the power of sale, to the extent permitted by law,
or otherwise, at one or more sales, as an entirety or in
parcels, at such time and place, upon such terms and after
such notice thereof as may be required by law;
institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or
agreement contained herein or in any other Loan Document;
recover judgment on the Note either before, during or after
any proceeding for the enforcement of this Mortgage;
apply for the appointment of a trustee, receiver, liquidator or
conservator of the Mortgaged Property, without notice and
without regard for the adequacy of the security for the Debt
and without regard for the solvency of the Mortgagor or of
any Person liable for the payment of the Debt;
enforce Mortgagee’s interest in the Leases and Rents and
enter into or upon the Mortgaged Property, either personally
or by its agents, nominees or attorneys and dispossess
Mortgagor and its agents and employees therefrom, and
Mortgagee may (A) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with the
Mortgaged Property and conduct the business thereat; (B)
complete any construction on the Mortgaged Property in
such manner and form as Mortgagee deems advisable; (C)
make alterations, additions, renewals, replacements and
improvements to or on the Mortgaged Property; (D) exercise
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ix.
x.
all rights and powers of Mortgagor with respect to the
Mortgaged Property, whether in the name of Mortgagor or
otherwise, including the right to make, cancel, enforce or
modify Leases, obtain and evict tenants, and demand, sue
for, collect and receive Rents; and € apply the receipts from
the Mortgaged Property to the payment of the Debt, after
deducting therefrom all expenses (including reasonable
attorney’s fees and disbursements) incurred in connection
with the aforesaid operations and all amounts necessary to
pay the Taxes, insurance and other charges in connection
with the Mortgaged Property, as well as just and reasonable
compensation for the services of Mortgagee, and its counsel,
agents and employees;
require Mortgagor to pay monthly in advance to Mortgagee,
or any receiver appointed to collect the Rents, the fair and
reasonable rental value for the use and occupation of any
portion of the Mortgaged Property occupied by mortgagor,
and require Mortgagor to vacate and surrender possession of
the Mortgaged Property to Mortgagee or to such receiver,
and, in default thereof, evict Mortgagor by summary
proceedings or otherwise; or
pursue such other rights and remedies as may be available at
law or in equity or under the UCC< including the right to
receive and/or establish a lock box for all Rents and
proceeds from the Intangibles and any other receivable or
rights to payments of Mortgagor relating to the Mortgaged
Property. 6
It is evident from the cited text that by the plain language of the mortgage
contract, the parties have agreed to a receivership of the subject property, in
accordance with the proposed Order submitted by MSCI. The “terms of a
mortgage agreement are binding on the parties.”7 “Great as are the equity
ECF No. 11-5 at 6-9.
Metro. Life Ins. Co. v. Liberty Ctr. Venture, 650 A.2d 887, 891 (Pa. Super. Ct.
1994).
6
7
8
powers of the court, it is yet to be suggested that included in these powers is
the power to nullify or impair a legal contract solemnly and intelligently
entered into between competent parties.”8 “The importance of these
contractual provisions cannot be underestimated because they set apart this
commercial foreclosure case from the traditional scenario in which a
receiver is sought at equity and no such contractual provisions exist.”9
Another factor that favors appointment of a receiver here is Plaintiff’s
likelihood of success on the merits. MSCI is likely to succeed in the
underlying foreclosure action, as Defendant did not dispute that it is in
default, as noted previously.
Finally, “the financial position of the debtor”10 is a relevant factor and
has been implicitly admitted by Defendant in its brief. It wrote: “Defendant
made diligent efforts to refinance the balance due and owing under the Loan
Documents upon maturity, because of changes in the lending market,
Defendant was unable to close on new financing prior to maturity.”11
Defendant has acknowledged that it is currently unable to pay the balance
that matured approximately ten months ago.
Id.
Wells Fargo Bank, N.A., 905 F. Supp. 2d at 615.
10
Manufacturers & Traders Trust Co. v. Minuteman Spill Response, Inc., 999 F.
Supp. 2d 805, 825 (W.D. Pa. 2013).
11
ECF No. 14 at 4.
8
9
9
Although Lewistown Shopping Plaza opposes the appointment, its
arguments are unpersuasive. In other cases, courts have declined to appoint
a receiver where receivership was not contemplated in the Loan Agreement
itself;12 where assets other than the mortgaged property were available for
the lender to seize;13 where genuine issues of material fact exist regarding
the alleged default;14 and where the borrower had been making some
payments under the loan.15 None of these arguments have been advanced
here.
The Court holds that both the mortgage itself, and equity, support the
grant of Plaintiff’s motion for the appointment of a receiver.
III.
CONCLUSION
“Because a receiver “unquestionably interfere[s]” with an individual's right to
otherwise control his or her property, a district court should appoint a receiver
only “in cases of necessity, and when the plaintiff clearly and satisfactorily shows
that an emergency exists and the receiver is needed to protect the property interests
U.S. Bank Nat. Ass'n v. Lighthouse Whitehall Commons, LLC, No. 11-CV-05054,
2012 WL 4473232, at *13 (E.D. Pa. Sept. 28, 2012) (discussing a prior opinion
denying appointment of a receiver).
13
Manufacturers & Traders Trust Co. v. Minuteman Spill Response, Inc., 999 F.
Supp. 2d 805, 816 (W.D. Pa. 2013).
14
Wells Fargo Bank, N.A. v. Premier Hotels Grp., LLC, No. 3:14-CV-56, 2015 WL
404549, at *9 (M.D. Pa. Jan. 29, 2015) (Mariani, J.)
15
Comerica Bank v. State Petroleum Distributors, Inc., No. 3:08-CV-678, 2008
WL 2550553, at *5 (M.D. Pa. June 2, 2008) (Kosik, J.).
12
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of the plaintiff.”16 As discussed above, I find that appointment of a receiver in this
matter is appropriate. In sum, the Defendant previously agreed by contract to the
appointment of a receiver, the Defendant has admitted default on the mortgage,
and the Defendant has admitted it has been unable to obtain financing to attempt to
cure its default.
Plaintiff’s Renewed Motion to Appoint a Receiver will be
granted. ECF No. 11.
A separate Order appointing the receiver will issue.
BY THE COURT:
s/ Matthew W. Brann
Matthew W. Brann
United States District Judge
16
Manufacturers & Traders Trust Co., 999 F. Supp. 2d at 816.
11
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