132 F. Supp. 3d 683
D. Maryland2015Background
- LNV (assignee of Bank of Eastern Shore loans via the FDIC) sued Harrison Family Business, LLC (HFB) and guarantors for default on two commercial loans totaling $2.7M secured by deeds of trust on three real properties and a preferred ship mortgage on the vessel "Captain Buddy."
- HFB (a family real-estate holding LLC) allegedly never collected rents from the operating entity (Harrison’s Country Inn & Sport Fishing Center, Inc. — HCI), which uses HFB’s property largely rent-free; HFB had nominal cash and past-due obligations.
- Loan documents and the ship mortgage expressly grant the lender the right to appoint a receiver upon borrower default. HFB has missed many payments and conceded default.
- LNV moved to appoint a receiver for HFB and Captain Buddy and sought injunctive relief to protect rents and prevent interference with a receiver. Defendants opposed. A hearing was held.
- The court found equitable factors supported a receivership for HFB (to protect rental stream and prevent diminution of collateral value) but declined to appoint a receiver for Captain Buddy or to grant the requested preliminary injunctions. Robert J. Kim was appointed receiver for HFB, subject to a proposed order defining his duties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a receiver should be appointed for HFB | Contractual right plus default; imminent danger of diminution of collateral and inability of legal remedies to protect rental stream | Receivership is extraordinary; defendants manage businesses and no less-drastic remedy exists | Receiver appointed for HFB — contractual provision considered but court applied equitable factors and found receivership warranted |
| Whether a receiver should be appointed for Captain Buddy (vessel) | Ship mortgage grants right; receiver needed to secure vessel proceeds and prevent loss | Vessel is collateral only; no evidence of mismanagement or imminent loss; receiver could harm business | Receiver denied for Captain Buddy — no showing of imminent diminution or mismanagement and proposed receiver lacked vessel experience |
| Effect of contractual provision granting lender right to receiver | LNV: parties’ advance consent supports appointment upon default | Defendants: court retains equitable discretion; clause not automatic | Court: contractual consent is a factor but not dispositive; court must weigh equitable factors before appointing a receiver |
| Whether preliminary injunctive relief (beyond receivership) was warranted | LNV: injunctive relief needed to prevent interference and preserve rents for receiver | Defendants: injunction would change status quo and is unnecessary; no evidence of likely obstruction | Injunctive relief denied — court found no demonstrated likelihood of irreparable harm beyond what receivership addresses and no evidence defendants would interfere |
Key Cases Cited
- Gordon v. Washington, 295 U.S. 30 (U.S. 1935) (receivership is an equitable remedy reserved for threatened loss or injury to property)
- Kelleam v. Maryland Cas. Co. of Baltimore, Md., 312 U.S. 377 (U.S. 1941) (receivership available only for clear necessity)
- Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314 (8th Cir. 1993) (lists typical factors justifying appointment of a receiver)
- Lias v. United States, 196 F.2d 90 (4th Cir. 1952) (appointment of a receiver rests in district court's discretion)
- Britton v. Green, 325 F.2d 377 (10th Cir. 1963) (court may appoint receiver where mortgage authorizes it and circumstances warrant)
- D.B. Zwirn Special Opportunities Fund, L.P. v. Tama Broad., Inc., 550 F. Supp. 2d 481 (S.D.N.Y. 2008) (mortgage clause is a factor but courts retain discretion to deny receivership)
- Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7 (U.S. 2008) (four-factor standard for preliminary injunctions)