United States District Court, N.D. Alabama, Northeastern Division
U.S. BANK NATIONAL ASSOCIATION, Plaintiff,
LG-328 HUNTSVILLE, AL, LLC, et al., Defendants.
MEMORANDUM OPINION AND ORDER
K. KALLON, UNITED STATES DISTRICT JUDGE.
case arises out of the default of ten cross-collateralized
commercial loans secured by, among other things, mortgages on
income-producing properties leased to Logan's Roadhouse
and serviced by U.S. Bank National Association, as Trustee,
successor in interest to Bank of America, National
Association, as successor by merger to LaSalle Bank, National
Association, as Trustee for the registered holders of J.P.
Morgan Chase Commercial Mortgage Securities Trust 2007-LDP11,
Commercial Mortgage Pass-Through Certificates, Series
2007-LDP11, acting by and through C-III Asset Management LLC,
solely in its capacity as special servicer (U.S. Bank).
Presently before the court is U.S. Bank's Motion for the
Appointment of Receiver and Injunctive Relief, doc. 5, and an
identical request made in the Complaint, doc. 2, which are
now fully briefed, docs. 6; 31; and 32, and ripe for review.
Upon consideration of the parties' briefs and evidentiary
submissions, both requests are due to be denied.
STANDARD OF REVIEW
receiver is a neutral court officer appointed by the court,
usually to ‘take control, custody, or management of
property that is involved in or is likely to become involved
in litigation for the purpose of . . . undertaking any 
appropriate action.'” Sterling v. Stewart,
158 F.3d 1199, 1201 n.2 (11th Cir. 1998) (quoting 12 Charles
Alan Wright, Arthur R. Miller & Richard L. Marcus,
Federal Practice and Procedure § 2981, at 5
(1973)). In the Eleventh Circuit, it is settled that
“federal law governs the appointment of a receiver by a
federal court exercising diversity jurisdiction.”
Nat'l P'ship Inv. Corp. v. Nat'l Hous. Dev.
Corp., 153 F.3d 1289, 1292 (11th Cir. 1998).
Accordingly, this court looks to Rule 66 of the Federal Rules
of Civil Procedure which provides that “[t]hese rules
govern an action in which the appointment of a receiver is
sought . . . [b]ut the practice in administering an estate by
a receiver . . . must accord with the historical practice in
federal courts or with a local rule.” Fed.R.Civ.P. 66.
the party seeking a receivership over certain property must
“show that he or she has some legally recognized right
in that property that amounts to more than a mere claim
against [the] defendant.” 12 Charles Alan Wright,
Arthur R. Miller & Richard L. Marcus, Federal
Practice and Procedure Civil § 2983 (2d ed. 1997);
see also Piambino v. Bailey, 757 F.2d 1112, 1131
n.46 (11th Cir. 1985). The decision to appoint a receiver is
an equitable one which rests “in the sound discretion
of the court, ” Hutchinson v. Fidelity Investment
Ass'n, 106 F.2d 431, 436 (4th Cir. 1939). While the
inquiry is not governed by rote application of particular
criteria, federal courts consider a number of factors
regarding the propriety of establishing a receivership
including: (1) “the probability that fraudulent conduct
has occurred or will occur;” (2) the validity of the
“claim by the party seeking the appointment;” (3)
whether there is an “imminent danger that property will
be concealed, lost, or diminished in value;” (4) the
“inadequacy of [alternative] legal remedies;” (5)
the “lack of a less drastic equitable remedy;”
and (6) the “likelihood that appointing the receiver
will do more good than harm.” Aviation Supply Corp.
v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316-17 (8th
Cir. 1993); see also IP Co., LLC v. Cellnet Tech.,
Inc., No. 1:06-cv-3048, 2008 WL 11337779, at *1 (N.D.Ga.
Dec. 18, 2008) (Carnes, J.) (applying similar factors); 12
Charles Alan Wright, Arthur R. Miller & Richard L.
Marcus, Federal Practice and Procedure Civil §
2983 (2d ed. 1997.) (listing “fraudulent conduct on the
part of the defendant; the imminent danger of the property
being lost . . . or squandered; the inadequacy of the
available legal remedies; the probability that harm to [the]
plaintiff . . . would be greater than the injury to the
parties opposing appointment; and, in more general terms,
plaintiff's probable success in the action and the
possibility of irreparable injury to [her] interests in the
property” as factors to consider in appointing a
creation of a receivership “is an extraordinary remedy
that should be employed with the utmost caution, ”
Netsphere, Inc. v. Baron, 703 F.3d 296, 305 (5th
Cir. 2012) (citation omitted), but “there is no general
requirement of a hearing in Rule 66, and the court may
approve of the appointment of a receiver without a hearing
where the record discloses sufficient facts to warrant
it.” Citronelle-Mobile Gathering, Inc. v.
Watkins, 934 F.2d 1180, 1189 (11th Cir. 1991).
Defendants, a collection of limited liability corporations
based in Alabama, and seven other states, obtained ten
individual loans from Natixis Real Estate Capital, Inc.
(Natixis) in April 2007. Doc. 6 at 2-3. The loans were
secured by, among other things, mortgages on ten
income-producing properties leased by the Defendants to
Logan's Roadhouse, a restaurant chain. Id. at 2.
The properties were also subject to Deposit Account
Agreements, which require the direct submission of rental
payments “to a lockbox under the exclusive control of
Plaintiff.” Doc. 31 at 9; see also Docs. 6 at
5, 18; 1-20 at 2-5.
three months after executing the original loan agreements,
the Defendants entered into a Note Splitter and Modification
Agreement with Natixis. Doc. 1 at 14. This agreement split
the principal amount of each of the original notes in half
and divided that amount evenly between two new notes, the
“A-1 Note” and the “A-2 Note.”
Id. at 14-15. The split notes remained secured by
the previously executed loan documents, but the note tiers
were combined and transferred into two separate trusts for
securitization pursuant to an intercreditor agreement between
Natixis and two other entities. Id. at 15-17; Doc. 6
at 6-8. The intercreditor agreement provides that the A-1
noteholder maintains “exclusive custody of and record
title under the Mortgages” and generally makes all the
decisions necessary to administer and service the loans, but
that the split notes are of equal priority and received
payments and recoveries are distributed evenly between the
A-1 and the A-2 noteholders. Doc. 1 at 16, 18-19. The split
notes are cross-defaulted and cross-collateralized
effectively functioning as a single lien placed across all
the properties as security for both the A-1 and A-2 notes.
Id. at 19; Doc. 6 at 9. In other words, a default
under any of the split notes or mortgages constitutes a
default under all of the split notes and mortgages. Docs. 6
at 9; 1 at 19-20. A failure to satisfy the full amount due
under the loan documents on the maturity date constitutes a
default. Doc. 1 at 20; see also Doc. 1-1 at 68.
after the loans matured, U.S. Bank sent a letter to each
Defendant notifying them that they were in default and
demanding immediate payment of all amounts due and owing.
Doc. 1 at 20; see also Doc. 1-29 at 2-5. To date,
those amounts remain unpaid. Doc. 1 at 21. The loan documents
provide that, in the event of a default, U.S. Bank may seek
the appointment of a receiver to administer the properties.
Id. at 21-22; see also Doc. 1-12 at 9. In
light of this provision, U.S. Bank has filed a motion
requesting the appointment of a receiver and additional
injunctive relief to enable the receiver to function
effectively. Docs. 6 at 10-11; 1 at 24-30.
on its contention that the loan documents provide an express
right to the appointment of a receiver in the event of a
default, U.S. Bank argues that it is contractually entitled
to a court-appointed receiver. Setting aside whether such an
agreement is even enforceable,  the court notes that the loan
documents do not indicate that the Defendants ever consented
to the automatic appointment of a receiver. Rather, the loan
documents provide only that U.S. Bank may “apply for
the appointment of a receiver . . . without notice and
without regard for the adequacy of the security for the
Debt.” Doc. 6 at 14; see also Doc. 1-12 at 9.
In other words, contrary to U.S. Bank's initial
contention in this matter, the relevant contractual language
does not reflect the existence of an affirmative right to a
receiver as a remedy for default. Thus, the court turns to
the equitable principles traditionally governing the
appointment of a receiver is not automatic . . . [and is a]
remedy [that] should be . . . granted only when clearly
necessary to protect plaintiff's interests in the
property.” Citibank, N.A. v. Nyland (CF8)
Ltd., 839 F.2d 93, 97 (2d Cir. 1988). To obtain this
relief, U.S. Bank has the burden of demonstrating the
necessity of a receiver to preserve its rights in the subject
property. See, e.g., Sterling Sav. Bank v.
Citadel Dev. Co., 656 F.Supp.2d 1248, 1262 (D. Or.2009).
In that respect, the court notes that many of the factors
traditionally governing the appointment of a receiver are not
in dispute. For example, the Defendants do not contest that
they are in default, or that U.S. Bank is virtually certain
to prevail on the merits of its breach of contract claim.
Doc. 31 at 3, 12. Similarly, there is no question that, as a
creditor with a security interest in real property, U.S. Bank
“[has] an interest in the property . . . that may
provide a basis for convincing the court to appoint a
receiver.” Baron, 703 F.3d at 306 (citation
other hand, U.S. Bank does not allege that fraud has occurred
or that it is likely to occur. This factor weighs strongly
against the appointment of a receiver as it has a direct
bearing on the touchstone of the receivership inquiry-
whether the appointment is “clearly necessary to
protect plaintiff's interests in the property.”
Nyland, 839 F.2d at 97; Gordon v.
Washington, 295 U.S. 30, 37 (1935) (noting that the ...