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Pnc Bank, N.A. v. Presbyterian Retirement Corporation, Inc.

United States District Court, S.D. Alabama, Southern Division

November 13, 2014

PNC BANK, N.A., Plaintiff,


WILLIAM H. STEELE, Chief District Judge.

This matter comes before the Court on plaintiff PNC Bank's Motion for Appointment of Receiver (doc. 3). The Motion has been briefed extensively and is now ripe for disposition.[1]

I. Background Facts.[2]

Defendant Presbyterian Retirement Corporation, Inc. ("Presbyterian") owns and operates Westminster Village, a not-for-profit continuing care retirement community located in Spanish Fort, Alabama.[3] Back in 2005 or thereabouts, Presbyterian borrowed large sums of money from the predecessor in interest of plaintiff, PNC Bank, N.A. On or about January 1, 2014, PNC Bank tendered certain bonds to Presbyterian, thereby accelerating Presbyterian's obligations and triggering a balloon payment in excess of $8 million. Although it had been making regular debt service payments, Presbyterian was unable to satisfy the required balloon payment. Westminster Village was part of the collateral securing those debt obligations, and PNC Bank holds a security interest in that facility pursuant to a December 2005 mortgage granted by Presbyterian.

In early October 2014, with Presbyterian's failure to make payment constituting a default and the parties unwilling or unable to negotiate a business resolution, PNC Bank filed suit against Presbyterian in this District Court. The Complaint pleads four causes of action, including claims sounding in breach of contract (Count One), payment of swap documents (Count Two), appointment of a receiver in equity (Count Three), and appointment of a receiver at law (Count Four). ( See doc. 1.) Contemporaneously with its Complaint, PNC Bank filed a 25-page Motion for Appointment of Receiver (doc. 3), a 16-page supporting Brief (doc. 4), and more than 500 pages of exhibits (doc. 2).[4] In this Motion, PNC Bank asserts that both contractual and equitable considerations justify the requested relief.

On the contractual side, PNC Bank relies on a Mortgage and Security Agreement (the "Mortgage") dated December 1, 2005. ( See North Aff. (doc. 2, Exh. A) at Exh. 20.) In the Mortgage, Presbyterian agreed as follows:

"If an Event of Default exists, the Bondholder, in lieu of or in addition to exercising the power of sale hereinafter given, may proceed by suit for a foreclosure of its lien on and security interest in the Collateral, to sue [Presbyterian] for damages on account of or arising out of said default or breach.... The Bondholder shall be entitled, as a matter or [ sic ] right, upon bill filed or other proper legal proceedings being commenced for the foreclosure of this Mortgage, to the appointment by any competent court or tribunal, without notice to the Mortgagors or any other party, of a receiver of the rents, issues and profits of the Collateral, with power to lease and control the Collateral and with such other powers as may be deemed necessary."

(Mortgage (doc. 2, Exh. A at Exh. 20), § 8.03.) PNC Bank, as the "Bondholder" within the meaning of § 8.03, maintains that it is contractually entitled to appointment of a receiver for Westminster Village, inasmuch as Presbyterian is in default of its bond payment obligations and PNC Bank is exercising its power of sale, having noticed a foreclosure sale for Westminster Village to occur on March 27, 2015 at the main entrance to the Courthouse of the City of Bay Minette, Alabama. ( See doc. 2, Exh. A at Exh. 30 (Notice of Mortgage Foreclosure Sale).)[5]

In addition to this contractual basis for the appointment of a receiver, PNC Bank cites as equitable grounds for such relief the following: (i) PNC Bank's contention that Westminster Village is "diminishing in value" because substandard health care services are being provided, Presbyterian is cash-strapped and therefore unable to operate the facility properly, and "many of the independent cottages are uninhabitable" because Presbyterian has failed to maintain them; (ii) PNC Bank's contention that it lacks an adequate remedy at law because any money judgment against Presbyterian may not be collectable and "a foreclosure without other additional relief would directly impact the residents and patients" of Westminster Village; (iii) PNC Bank's contention that it "will suffer irreparable harm if [Presbyterian] remains in control" of the facility and that Westminster Village residents and patients will likewise be irreparably harmed because of Presbyterian's purported "inability to meet certain standards in the provision of health care services;" (iv) PNC Bank's contention that it is substantially likely to succeed on the merits; and (v) PNC Bank's contention that the public interest favors appointment of a receiver to protect Westminster Village's residents and patients. ( See doc. 4, at 8-16.)

Presbyterian opposes the Motion for Appointment of Receiver on both legal and equitable grounds, challenging the facts and law on which PNC Bank purports to rely. ( See doc. 18.) Also opposing the Motion is intervenor-defendant Infirmary Health System, Inc. ("Infirmary Health"), citing not only legal and equitable considerations similar to those identified by Presbyterian, but also alleged breaches of an Intercreditor Agreement between PNC Bank and Infirmary Health. In its filings, Infirmary Health maintains that back in 1998, it entered into an agreement whereby it guaranteed that Presbyterian would repay certain loan obligations (distinct from the PNC Bank loans/bonds). At that time, Presbyterian promised to reimburse Infirmary Health for sums paid out under the guaranty, and granted Infirmary Health a mortgage and security interest in Westminster Village and other collateral. According to Infirmary Health, Presbyterian defaulted on its bond obligations, prompting Infirmary Health to pay out more than $13 million under the guaranty agreement; however, Presbyterian has been unable to reimburse those funds. Thus, Infirmary Health is a secured creditor of Presbyterian and a mortgagee on the very property (Westminster Village) for which PNC Bank seeks appointment of a receiver on this property. Infirmary Health (which was granted leave to intervene as a party defendant via Order (doc. 33) entered on November 4, 2014) expresses strident opposition to the appointment of a receiver in this case on a variety of grounds. Among other reasons, Infirmary Health contends that the Motion should be denied because its lien on the property is senior to PNC Bank's, and that PNC Bank's conduct in this action violates the Intercreditor Agreement signed by Infirmary Health and PNC Bank's predecessor back in December 2005.[6]

II. Analysis.

A. Legal Standard.

PNC Bank's Motion for Appointment of Receiver presents a question of federal law. Indeed, it is well settled that, in a diversity action pending in federal district court, federal law governs requests for appointment of receivers. National Partnership Inv. Corp. v. National Housing Development Corp., 153 F.3d 1289, 1291-92 (11th Cir. 1998) ("We therefore hold that federal law governs the appointment of a receiver by a federal court exercising diversity jurisdiction."); see also Canada Life Assur. Co. v. LaPeter, 563 F.3d 837, 843 (9th Cir. 2009) ("we join the Eleventh and Eighth Circuits in holding that federal law governs the issue of whether to appoint a receiver in a diversity action"); Waag v. Hamm, 10 F.Supp.2d 1191, 1193 (D. Colo. 1998) ("Whether a federal court should appoint a receiver in a diversity action presents a question resolved by federal law."). As such, the Court looks to Rule 66 of the Federal Rules of Civil Procedure, which provides as follows: "These rules govern an action in which the appointment of a receiver is sought.... But the practice in administering an estate by a receiver... must accord with the historical practice in federal courts or with a local rule." Rule 66, Fed.R.Civ.P. A substantial body of federal case authorities is helpful in fleshing out the "historical practice" that governs PNC Bank's Motion.

The Eleventh Circuit has opined that "[a] district court's appointment of a receiver... is an extraordinary equitable remedy." United States v. Bradley, 644 F.3d 1213, 1310 (11th Cir. 2011) (citation and internal quotation marks omitted).[7] "[T]he appointment of a receiver in equity is not a substantive right; rather, it is an ancillary remedy which does not affect the ultimate outcome of the action." National Partnership, 153 F.3d at 1291; see also Hutchinson v. Fidelity Inv. Asss'n, 106 F.2d 431, 436 (4th Cir. 1938) ("It should not be forgotten that the appointment of a receiver is not a matter of right, but one resting in the sound discretion of the court.") (citation omitted); Sterling Sav. Bank v. Citadel Development Co., 656 F.Supp.2d 1248, 1258 (D. Or. 2009) (noting that "a party does not have a substantive right to a receiver"). In short, "[r]eceivership is an extraordinary remedy that should be employed with the utmost caution and is justified only where there is a clear necessity to protect a party's interest in property, legal and less drastic equitable ...

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