United States District Court, E.D. Pennsylvania
MEMORANDUM
Paul
S. Diamond, J.
The
Third Circuit has remanded this matter so that I may
determine whether again to appoint William T. Hangley as
Receiver pendente lite or let Mr. Hangley's
existing appointment expire. (See Order, KeyBank
Nat'l Ass'n v. Fleetway, No. 18-2822 (3d Cir.
Sept. 13, 2018).) One creditor makes baseless, ill-considered
objections, which I will overrule.
I.
PROCEDURAL HISTORY
On
February 14, 2018, Secured Creditor KeyBank filed a Complaint
against Fleetway Leasing Company and FMC3, LLC (a related
entity), alleging malfeasance by the Stamps family
(Fleetway's owners), and seeking recovery of monies owed,
appointment of a receiver, and relief from the Fleetway
Entities' fraudulent misrepresentations that induced
KeyBank to extend credit. (Doc. No. 1.) Contractually,
KeyBank had the “right to have a receiver
appointed” if Fleetway defaulted on its credit
agreements. (Commercial Security Agreement, Ex. E to Amended
Complaint, Doc. No. 32-1.)
Two
additional creditor banks-Santander and 1st
Source-subsequently intervened. (Doc. Nos. 7, 11, 18.) 1st
Source then filed its own Complaint against Fleetway, FMC2,
Inc. (another Fleetway entity), and William, Carole, and Eric
Stamps. (Doc. No. 21.)
In
February and April 2018, Santander and KeyBank filed separate
Confession of Judgment Complaints against the Stampses for
amounts due under the guaranties that William, Carole, and
Eric Stamps had given in connection with loans to the
Fleetway Entities. (Compl., Doc. No. 1, Civ. No. 18-1303;
Compl., Doc. No. 1, Civ. No. 18-1559; Compl., Doc. No. 1,
Civ. No. 18-1560.) Judgments by Confession were subsequently
entered against the Stampses in amounts ranging from $7 to
$10 million. (Doc. No. 3, Civ. No. 18-1303; Doc. No. 8, Civ.
No. 18-1559; Doc. No. 8, Civ. No. 18-1560.)
On
February 15, 2018, KeyBank asked Judge McHugh (to whom this
matter was then assigned) to appoint a receiver.
(See Motion for Appointment of Receiver, Doc. No.
3.) In addition to Fleetway's default, KeyBank noted the
company's financial distress and alleged ongoing
mismanagement of the vehicles that served as the Banks'
collateral. (Doc. No. 3.)
On
February 27, 2018, Judge McHugh held a hearing attended by
Fleetway's Secured Creditors: KeyBank, Santander, TD
Bank, PNC, and 1st Source. (See Feb. 27, 2018
Hr'g Tr., Doc. No. 24.) The Banks alleged that the
Stampses were self-dealing, misrepresenting Fleetway's
finances, and paying “favored” unsecured
creditors over the Banks, which were contractually entitled
to be paid first. KeyBank told Judge McHugh: “we've
got a number of different banks here, with different
interests, all at the same-or much of the same collateral
that, clearly and admittedly, is not going to cover all of
the outstanding debt.” (Id. at 20.) KeyBank
thus asked Judge McHugh to appoint a receiver:
“somebody who's overarching, reporting to the
Court, and also beholden to everybody, and not reporting up
to the principals of the defendants.” (Id. at
20- 21.) 1st Source was similarly concerned:
“[T]here's $35 million that are owed, in the
aggregate, to these secured lenders. And pats on the back and
notions of, you know, we'll take care of you, simply
won't suffice.” (Id. at 37.)
Fleetway
responded that it had hired a new manager: “with the
outside folks in place, who are running a much cleaner ship
and much more effective ship, ” Fleetway was “in
a much better position to maximize value.”
(Id. at 22.) Fleetway nonetheless acknowledged that
questions remained respecting commingling and distributing
funds, and that the main concern was “how do we keep
this moving forward, so that everyone can get paid as much as
possible.” (Id. at 33-35.)
This
assurance notwithstanding, the Banks feared that Fleetway
would continue to favor one creditor over another. (See
id. at 43 (“I was told that 1st Source was not
going to be paid at the end of December, and I was told that
Santander was not going to be paid at the end of December,
but that PNC and that TD were going to be paid. And that
turned out to be the case, we did not receive
payment.”).)
Alone
among the Secured Creditors, Santander objected to the
appointment of a receiver, arguing that this would be an
unnecessary expense on its collateral. (Id. at 36-38
(“[I]f a receiver was appointed for all the creditors,
at this point, that's going to be on my client's
back.”).)
On
March 9, 2018, Judge McHugh denied KeyBank's request for
the appointment of a receiver without prejudice, accepting
Fleetway's contention that with its new manager, the
Company might work through its difficulties. (Doc. No. 19.)
On
April 23, 2018, all the cases related to Fleetway and the
Stampses' indebtedness were reassigned to me. (Doc. No.
41; Doc. No. 7, Civ. No. 18-1559; Doc. No. 7, Civ. No.
18-1560.) On May 7, 2018, I consolidated the related cases
before me. (Doc. No. 42.)
On May
15, 2018, I ordered the Parties to file weekly status reports
regarding their ongoing global settlement discussions. (Doc.
No. 54.) I scheduled a July 23, 2018 preliminary pre-trial
conference with all the Parties. (Doc. No. 69.)
The
Decision to Appoint a Receiver
Unfortunately,
Fleetway's prediction of great improvements was grossly
inaccurate: by late July, the situation was near-chaotic.
(See July 23, 2018 Hr'g Tr. 3-5, Doc. No. 98;
Receivership Order 2-3, Doc. No. 96.) The consolidated
litigation comprised some seventeen claims and cross-claims,
with three Confessed Judgments totaling approximately $18
million, and five creditor-banks competing to recover
dwindling assets. (July 23, 2018 Hr'g Tr. 3; Receivership
Order 2-3.) In proceeding separately against the same
delinquent customers, the Banks made it inevitable that one
Bank could recover only to the detriment of another. The
“global settlement discussions” showed little
promise and no sign of resolution. (See July 23,
2018 Hr'g Tr. 23-35; Doc. Nos. 59, 60, 62, 64, 70, 75,
79, 80, 82-84.) Throughout, the Parties had propounded
extensive, redundant discovery, ostensibly intended to ferret
out assets (but, in fact, likely to generate only counsel
fees). (See July 23, 2018 Hr'g Tr. 23;
Receivership Order 2-3; Joint 26(f) Report.)
Accordingly,
at the July 23 conference, I shared my concerns, stating that
I did not “understand what Fleetway is doing with the
money it's recovering and how it prioritizes whom it
pays.” (July 23, 2018 Hr'g Tr. 4.) I was concerned
that the litigation cauldron created by the Secured Creditors
would benefit only creditors' counsel. (See id.
at 6 (“I just don't see how any of this gets
resolved with anybody making out except the people who bill
hourly. . . . [I]t's the clients who are supposed to
benefit here, and I don't see how they benefit from this
ongoing blood bath.”).)
Accordingly,
I told the Parties that I was “giving extremely serious
thought” to “staying everything, appointing a
receiver, and seeing whether sanity can be restored to th[e]
situation.” (Id. at 4.) I informed the Parties
that I “ha[d] no desire for Fleetway to go out of
business, ” and that appointing a receiver would not be
“a way of ending Fleetway's existence, ” but
a way to manage the Banks' competing claims.
(Id. at 13.) I thus indicated that if I were to
appoint a receiver, he or she “would be someone who
understands litigation and how to resolve it-not someone who
understands how to lease cars.” (Id. at 4.) I
stressed that “I w[ould] hear all objections.”
(Id. at 13.)
The
Banks seemed to favor my proposal. 1st Source's counsel
stated, “I think the Court hit the nail on the
head.” (Id. at 9.) Co-counsel stated,
“As you've outlined your thoughts, I think that is
by far the best path forward.” (Id. at 34.)
1st Source thus requested the appointment of a receiver.
(Id. at 19.) KeyBank, of course, also had “no
objection to the appointment of a receiver.”
(Id.)
Santander
initially opposed the Receiver's appointment.
(Id. at 20.) After some discussion, however, its
counsel indicated that the Bank was “[l]ess”
opposed to the appointment, and then stated that the Bank
“wouldn't oppose the initial appointment of a
receiver.” (Id. at 20, 22.)
Given
this consensus, later that day, I proposed “staying
[the litigation] and appointing William Hangley” as
receiver. (Doc. No. 86, at 2.) Mr. Hangley is a vastly
experienced, accomplished lawyer and litigator. I outlined
the Receiver's anticipated powers, instructed Mr. Hangley
to “file an affidavit disclosing whether there is any
reason he may be disqualified from acting as Receiver,
” and again gave the Parties opportunity to object to
his appointment. (Id. at 12.) To my surprise, only
Santander-contradicting its July 23 statement-objected to the
appointment of any receiver. (Doc. No. 90.) Santander stated
that it “does not object to the appointment of William
Hangley as receiver if a receiver is to be appointed, ”
and did not question Mr. Hangley's qualifications.
(Id. at 2.) Similarly, Santander did not object to
the appointment of a receiver for the benefit of 1st Source
and KeyBank. Rather, Santander favored the foreclosure
provisions of its loan agreements with Fleetway, stressed
“its preference to control its collateral, ” and
sought to be excluded from the Receivership. (Id. at
12.) KeyBank responded that such exclusion from the proposed
receivership was not feasible because “Santander's
collateral [was] intermingled with the collateral of other
parties”; the Receiver's efforts would inevitably
benefit all Secured Creditors. (Doc. No. 91-1, at 5.)
Santander did not reply.
After
considering the sole objection and the Parties'
submissions, on July 31, 2018, I appointed William T. Hangley
as Receiver pendente lite for the Fleetway Entities.
(Receivership Order 2-3, 7.) I stayed all claims pending
before me, including execution of the Confessed Judgments and
the Stampses' Petitions to Strike, until Fleetway's
finances improved under the Receiver. (Id.)
Third
Circuit Review
On
August 14, 2018, Santander filed an interlocutory appeal of
my Receivership Order, challenging Mr. Hangley's
appointment. (Doc. No. 100.) The Circuit Court denied
Santander's “Expedited Motions” to stay the
Receivership's continued operation and to disqualify the
receiver from defending the appeal. (See Order,
KeyBank Nat'l Ass'n v. Fleetway, No. 18-2822
(3d Cir. Sept. 13, 2018).) In its merits briefing and
argument, Santander never acknowledged its July 23 statement
that it “would not oppose in the initial appointment of
a receiver, ” or its acceptance of Mr. Hangley's
qualifications. (See July 23, 2018 Hr'g Tr., at
22.) Rather, the Bank argued for the first time that the
appointment violated Santander's due process rights, and
that it would be less expensive for Santander to recover from
the Fleetway Estate without a receiver's assistance.
(Appellant's Br. 20-22, 34, KeyBank Nat'l
Ass'n, No. 18-2822 (3d Cir. Sept. 12, 2018).)
On July
24, 2019, the Third Circuit ruled that Santander had waived
its due process claim and remanded the case to me for further
proceedings, with instructions either to reappoint Mr.
Hangley with a statement of reasons for the reappointment or
take any other action I deemed appropriate. KeyBank
Nat'l Ass'n v. Fleetway Leasing Co., No.
18-2822, 2019 WL 3318214 (3d Cir. July 24, 2019). If I did
not reappoint Mr. Hangley, the Receivership would end as of
October 22, 2019. Id.
Proceedings
on Remand
On July
29, 2019, I ordered all interested Parties to state whether
they objected to Mr. Hangley's continued service as
Receiver. (Doc. No. 248.) 1st Source, KeyBank, and TD agreed
that the Receivership was appropriate, although they were
concerned about costs. (Doc. Nos. 254, 255, 259.) Santander,
PNC, and the Stampses questioned the Receivership's
benefits, given its cost. (Doc. Nos. 252, 256, 258.)
In
light of the Banks' cost-efficiency objections, on August
2, 2019, the Receiver asked each Bank to produce legal
expense data that would reveal, inter alia, each
Bank's asset recovery costs before Mr. Hangley's
appointment, their likely costs if Mr. Hangley not been
appointed, and costs incurred resisting the Receivership.
(Receiver's Aug. 2, 2019 Letter, Ex. A to Doc. No. ...