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MSCI 2006-IQ11 Logan Boulevard Limited Partnership v. Greater Lewistown Shopping Plaza, L.P.

United States District Court, M.D. Pennsylvania

February 6, 2017

MSCI 2006-IQ11 LOGAN BOULEVARD LIMITED PARTNERSHIP a Delaware limited partnership, Plaintiff,
v.
GREATER LEWISTOWN SHOPPING PLAZA, L.P., a Pennsylvania limited partnership, Defendant.

          MEMORANDUM OPINION

          Matthew W. Brann United States District Judge.

         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 Receiver[1] on November 16, 2016 requesting the appointment of a receiver to 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.

         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 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 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 ...

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