U.S. Bank National Ass'n v. Nesbitt Bellevue Property LLC
866 F. Supp. 2d 247
S.D.N.Y.2012Background
- Plaintiff US Bank seeks appointment of a receiver for eight Embassy Suites collateral hotels in multiple states due to loan defaults.
- Loans totaling about $187.5 million matured February 6, 2011; payments are more than $11 million in arrears; cash management controls funds in a restricted account.
- Hotels are managed by Windsor and face franchise license defaults due to QA score deficiencies, risking substantial diminution of value if not cured.
- Plaintiff contends advances for capital improvements may be required to preserve value; defendants cannot fund the required $4.4 million for initial improvements.
- Evidentiary hearing held May 9, 2012; defendants argue against a receivership under Gordon, contending no ancillary relief beyond the receiver is sought.
- Court previously denied dismissal and determined diversity jurisdiction; this opinion grants the receiver and denies defendants’ motion for judgment as a matter of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a receiver is appropriate in this diversity case to preserve collateral value | Receiver is necessary to prevent irreparable harm and preserve collateral value. | Receivership is improper if not ancillary to final relief and no other relief sought. | Receiver appointed; necessary to preserve collateral and facilitate eventual foreclosure. |
| Whether the plaintiff bears the burden to justify appointment given the loan documents | Burden on plaintiff; consent to appointment in loan documents supports appointment when default exists. | Burden should shift or appointment requires explicit consent to avoid unilateral relief. | Burden remains on plaintiff; however, default and authorization to seek appointment support the relief. |
| Whether the relief sought is ancillary to foreclosure and liquidation of the hotels | Receivership will preserve value and enable foreclosure and sale of the Hotels as collateral. | Receivership cannot be the sole object and should be ancillary to concrete relief. | Yes; receivership is ancillary to anticipated foreclosure and liquidation, and thus proper. |
Key Cases Cited
- Gordon v. Washington, 295 U.S. 30 (1935) (receivership not an end in itself; ancillary to final relief)
- Nyland v. CF8 Ltd., 839 F.2d 93, 839 F.2d 93 (2d Cir. 1988) (receiver appropriate where mortgage authorizes; substantial default)
- D.B. Zwim Special Opportunities Fund, L.P. v. Tama Broadcasting, Inc., 550 F.Supp.2d 481 (S.D.N.Y. 2008) (receivers appointed even without fraud where defaults exist)
- Rosen v. Siegel, 106 F.3d 28 (2d Cir. 1997) (receiverships are extraordinary remedies to protect property)
- Varsames v. Palazzolo, 96 F.Supp.2d 361 (S.D.N.Y. 2000) (factors for need of a receivership in federal practice)