2013 Ohio 1983
Ohio Ct. App.2013Background
- U.S. Bank filed foreclosure against Gotham King and related entities on a $135 million note secured by a mortgage on nine Class A office buildings.
- Gotham assigned leases and rents to Lehman, and Lehman later assigned interests down to U.S. Bank.
- U.S. Bank sought and obtained a receivership to operate the Property during foreclosure, arguing the loan documents entitled it to a receiver with broad powers.
- The trial court issued a receivership order granting the receiver pre-judgment power of sale and authority to enter into, modify, or terminate leases without Gotham's notice or court approval, subject to noteholder approval and other conditions.
- The order authorized Advances for property preservation as receivership expenses, secured by the mortgage, and deemed reimbursable to U.S. Bank as obligations of Gotham under the loan documents.
- Gotham challenged the order, arguing it violated Ohio law by granting excessive powers, bypassing notice/hearings, and improperly delegating supervisory duties to U.S. Bank; Gotham waived some rights by contract.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the receiver's scope exceeded Ohio law | Gotham assigned rents; lender rights control property operations. | Receiver powers should be limited by statute and court supervision. | No abuse; powers fall within loan documents and foreclosure framework. |
| Whether notice/hearing was required before appointment of the receiver | Gotham waived notice by contract and default consent. | Due process requires notice and a hearing before dispossession. | No reversible error; Gotham waived rights and hearing was not required. |
| Whether the receiver could lease or modify leases without court approval | Lease control vested in lender via assignment of rents and licenses. | Court approval and notice are required for long-term leases. | Authorized; lender rights and licenses permitted leasing without additional court approval. |
| Whether the receiver could incur and be reimbursed for preservation expenses | Advancements for preservation are authorized as administrative expenses secured by the loan. | Advancements must be limited and subject to court oversight. | Authorized; advancements limited to preservation and secured by the loan documents. |
| Whether the pre-judgment power of sale violated due process | Pre-judgment sale powers were subject to court approval and review. | Pre-judgment sale bypasses due process protections. | Not violated; court retained control by requiring subsequent court-approved sales. |
Key Cases Cited
- Mfr.'s Life Ins. Co. v. Patterson, 51 Ohio App.3d 99 (8th Dist.1988) (notice generally required for appointment; waiver possible by contract)
- Real Estate Capital Corp. v. Thunder Corp., 31 Ohio Misc. 169 (C.P.1972) (appointment of receiver requires evidence unless statute allows otherwise)
- Am. Savs. Bank Co. v. Union Trust Co., 124 Ohio St. 126 (1931) (court may enlarge receiver powers to serve estate interests)
- In re Gourmet Servs., Inc., 142 B.R. 216 (Bankr.S.D.Ohio 1992) (receivership aims to conserve property pending disposition)
- Huntington Natl. Bank v. Motel 4 BAPS, Inc., 191 Ohio App.3d 90 (8th Dist.2010) (recognizes scope of receivership and court oversight)
- INF Ent., Inc. v. Donnellon, 133 Ohio App.3d 787 (1st Dist.1999) (receiver as agent of court; court controls powers)