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Keybank National Association v. Fleetway Leasing Co.

United States District Court, E.D. Pennsylvania

October 11, 2019

KEYBANK NATIONAL ASSOCIATION, et al., Plaintiffs,
v.
FLEETWAY LEASING COMPANY, et al., Defendants, AND 1ST SOURCE BANK, Intervenor Plaintiff, AND SANTANDER BANK, Intervenor Defendant.

          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. ...


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