Fifth Third Bank v. Q.W.V. Properties, L.L.C.Fifth Third Bank v. Q.W.V. Properties, L.L.C.
Statman, Harris & Eyrich, LLC, Alan J. Statman and Brian T. Giles, 3700 Carew Tower, 441 Vine Street, Cincinnati, Ohio 45202, for plaintiff-appellee
Gregory J. Berberich, Nathaniel Ropes Building, 7815 Cooper Road, Suite G, Cincinnati, Ohio 45202, for defendants, Q.W.V. Properties, Michael Center and Vicki Center
James R. Hartke, 917 Main Street, Suite 400, Cincinnati, Ohio 45202, for defendant-appellant, Central Estate, Starv ‘n Sam Co.
Barron Peck Bennie & Schlemmer, David H. Lefton, 3074 Madison Road, Cincinnati, Ohio 45209, for defendant, Bob Patel
Michael T. Gmoser, Butler County Prosecuting Attorney, Government Services Center, 315 High Street, 11th Floor, Hamilton, Ohio 45011-6057, for defendant, Butler County Treasurer, Nancy Nix
O P I N I O N
HUTZEL, J.
{¶1} Defendants-appellants, Central Estate, L.L.C. and Starv‘n Sam, Inc. (collectively “Central“), appeal the Butler County Court of Common Pleas decision authorizing receiver-appellee, Peter M. Lahni, to sell property at a private sale free and clear of all liens and encumbrances. For the reasons outlined below, we affirm.
{¶2} On July 1, 2005, Q.W.V. Properties, L.L.C. executed a $750,000 mortgage in favor of Fifth Third Bank to purchase a gas station and convenience store located at 7807-7809 Cincinnati-Dayton Road, Butler County, Ohio. The same day, Fifth Third executed three “Standby and Subordination” agreements with Central, the third lienholder, pursuant to which Central could purchase Fifth Third‘s debt if and when Q.W.V. defaulted on the loan.
{¶3} In March 2010, Q.W.V. defaulted on the Fifth Third loan, at which time Fifth Third received a judgment in foreclosure for the amount of $666,527.34, plus interest and costs. On April 2, 2010, the trial court appointed a receiver, Peter M. Lahni (the “Receiver“), to preserve and protect the property. Upon his appointment, the Receiver took possession of the property and quickly discovered numerous issues that severely diminished its value. First, the Receiver discovered the gas station was out of gasoline. Secondly, the liquor licenses attached to the convenience store had been suspended due to $56,000 in unpaid taxes which the Receiver was unable to pay due to lack of funding.1 Third, significant real estate taxes were delinquent, and finally, Duke Energy was threatening to shut off all utilities, which would have forced the subtenant, Dunkin’ Donuts,
{¶4} The Receiver indicated these issues created a pressing need to enter a sales contract in order to prevent the business from completely shutting down. As a result, the Receiver sought the assistance of Harry Eberle, an experienced broker who specialized in the sale of gas stations in Ohio and Kentucky. With Eberle‘s assistance, the Receiver obtained an initial offer for $1,275,000 on April 5, 2010. However, the buyer revoked this offer upon discovering the aforementioned issues. Several days later, in an attempt to “stop the bleeding,” the Receiver entered negotiations with Bhauesh Patel, an investor who owned several other gas stations in the tri-state. On April 8, 2010, Patel offered to purchase the property for $1,175,000.
{¶5} The same day, Patel and the Receiver entered a sales and management agreement, pursuant to which Patel took immediate control of the property. At that time, Patel filled the gasoline tanks and applied for all licenses required by the city, county, and state. However, despite Patel‘s best efforts, additional challenges arose during the pendency of the sale. Specifically, the property‘s neighbor, Emmanuel Anagnostou, blocked the entrance to the complex‘s car wash using a trash dumpster. Anagnostou claimed he owned the portion of the lot containing the car wash and refused to negotiate an easement over the property line. Patel was also forced to cover additional expenses for landscaping and repairs to the parking lot and gasoline tanks.
{¶6} As a result of these issues, the parties agreed to an amended sales contract on June 3, 2010 for the reduced sum of $1,076,929.68. When the Receiver sent the amended contract to Central‘s counsel for review, Central requested to have 60 additional days to gather the funds necessary to match Patel‘s offer.
{¶7} Despite Central‘s request, the Receiver applied for approval to sell the property to Patel “free and clear of all liens and encumbrances,” whereby all interested
{¶8} Following a hearing on June 28, 2010, the trial court granted the Receiver‘s Sale Motion and denied all but Central‘s motion to enforce the Standby and Subordination agreements. The sale closed on July 20, 2010 and the trial court filed its order confirming the sale on August 26, 2010. Using the proceeds of the sale, the Receiver was able to satisfy Fifth Third‘s loan in its entirety and used the remaining proceeds to partially satisfy the second mortgage held by the United States Small Business Administration (“SBA“).2
{¶9} Central timely appeals, raising four assignments of error for review. Because Central‘s first, second, and third assignments of error are interrelated, we will address them together.
Assignment of Error No. 1:
{¶11} “THE TRIAL COURT ERRS TO THE PREJUDICE OF APPELLANTS BY DENYING CENTRAL [sic] OBJECTIONS TO THE SALE OF QWV PROPERTY, WHERE THE RECEIVER ADMITS TO FAILING TO PERFORM HIS DUTIES, VIOLATING CENTRAL‘S LEGAL RIGHTS TO POSSESSION OF PROPERTY, VIOLATING THE COURT ORDER APPOINTING HIM AND FAILING TO ENFORCE CENTRAL‘S CONTRACTUAL LEGAL RIGHTS.”
Assignment of Error No. 2:
{¶13} “THE TRIAL COURT ERRS TO THE PREJUDICE OF APPELLANTS’ [sic] CENTRAL BY DENYING CENTRAL‘S MOTION TO TAKE CONTROL AND
Assignment of Error No. 3:
{¶15} “THE TRIAL COURT ERRS TO THE PREJUDICE OF APPELLANT CENTRAL BY DENYING CENTRAL‘S MOTION TO REMOVE ATTORNEY FOR RECEIVER, GHR LLP, AND RECEIVER LAHNI, DUE TO APPEARANCE OF CONFLICT OF INTEREST. THE RESULT IS THAT CENTRAL IS DENIED THE ENFORCEMENT OF THEIR CONTRACTUAL RIGHTS.”
{¶16} In its first three assignments of error, Central questions the trial court‘s decision to approve the sale in light of the Receiver‘s various activities. We will address each issue in turn.
Standard of Review
{¶17} A trial court has the authority to appoint receivers pursuant to
{¶18} The Ohio Supreme Court has interpreted
{¶19} Under this standard, the trial court had a duty to independently monitor and evaluate the Receiver‘s conduct in relation to the duties the Receiver owed the parties and the assets under their control. See Hummer v. Hummer, Cuyahoga App. No. 96132, 2011-Ohio-3767, ¶18.
{¶20} With these principles in mind, we now address Central‘s claims challenging the Receiver‘s activities and the trial court‘s overall decision.
Balance Sheet
{¶21} First, Central argues the Receiver failed to obtain a balance sheet of Q.W.V.‘s assets and liabilities as required by Loc.R. 4.18(D) of the Court of Common Pleas of Butler County, General Division, which states, in pertinent part, “[w]hen a defendant consents to the appointment of a receiver, there shall be presented to the Court a complete statement of assets and liabilities as of the nearest date obtainable[.]”
{¶22} Pursuant to this rule, Central argues that without a balance sheet, the Receiver was unaware of “who the creditors [were] and was not aware of the legal contractual obligations of Q.W.V. due to Central.” However, our review of the record reveals no such ignorance on the part of the Receiver. In fact, in the Order Appointing the Receiver, the trial court clearly stated the Receiver‘s appointment was “necessary for the
Contractual Rights
{¶23} Second, Central argues the Receiver failed to consider its contractual rights pursuant to agreements with Q.W.V. and Fifth Third. Central argues that in selling the property to Patel, the Receiver ignored Central‘s rights to: (1) take possession of the property upon default pursuant to its mortgage with Q.W.V., and (2) purchase Fifth Third‘s debt under the Standby and Subordination agreements.
{¶24} As an initial matter, we note Central was clearly aware that Fifth Third requested the trial court to appoint a receiver following the judgment in foreclosure. In fact, Central submitted a motion requesting additional information on Lahni prior to his appointment as the Receiver. Additionally, in its mortgage with Q.W.V., Central consented to the possibility that a receiver would “enter upon and take and maintain full control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof[.]” Thus, despite an awareness of the pending receivership, Central made no effort to take possession of the property prior to the court‘s decision. Under these circumstances, we reject Central‘s argument that it was deprived of contractual rights with Q.W.V. when Central failed to enforce its rights in a timely manner.
{¶25} Regarding the Standby and Subordination agreements, we note that during the hearing on the Receiver‘s Sale Motion, the Receiver was asked why he was opposed to giving Central an additional 60 days to purchase Fifth Third‘s debt. In response, the Receiver asked: “where has [Central] been since April 2nd? It is now June 28th.”
{¶26} We are similarly unaware of Central‘s whereabouts on April 2, 2010, when
{¶27} We reject Central‘s arguments as they relate to its agreements with Q.W.V. and Fifth Third.
Receiver‘s Bond and Oath
{¶28} Next, Central argues the Receiver “took actions without legal authority to do so in violation of
{¶30} “Before a receiver appointed as provided in section 2735.01 of the Revised Code enters upon his duties, he must be sworn to perform his duties faithfully, and with surety approved by the court, judge, or clerk, execute a bond to such person, and in such sum as the court or judge directs, to the effect that such receiver will faithfully discharge the duties of receiver in the action, and obey the orders of the court therein.”
{¶31} In the case at bar, the trial court set the Receiver‘s bond at $0. While Central takes issue with the Receiver‘s failure to post a bond, it does not present an alternative figure for this court to contemplate. We further note that
{¶32} Central also argues the trial court violated
{¶33} Accordingly, we reject Central‘s arguments as they relate to the Receiver‘s bond and oath.
Miscellaneous Activities; Conflict of Interest
{¶34} Next, Central sets forth three additional arguments challenging the Receiver‘s activities during the pendency of the sale. Central argues the Receiver acted improperly by: (1) failing to oversee Patel‘s finances pursuant to the management agreement; (2) acting as a “liquidator” rather than a receiver; and (3) hiring counsel that previously represented Fifth Third, thereby creating a conflict of interest.
{¶35} Regarding Central‘s first two arguments, we fail to see how the Receiver‘s activities affected Central‘s interest or otherwise influenced the situation at hand. First, Central sets forth no evidence that Patel mismanaged the property‘s finances or how increased oversight would have benefitted the value of the property or, for that matter, Central. Secondly, under the facts and circumstances of this case, it is irrelevant whether we label Lahni as a “receiver” or “liquidator.” Pursuant to
{¶36} Our review of the record indicates the Receiver‘s activities remained subject
{¶37} In its third argument under this subsection, Central argues the Receiver was not impartial to all parties due to a business relationship with employees of Fifth Third and Graydon Head & Ritchey, LLP (“GHR“). In support of its argument, Central cites Butler CP Loc.R. 4.18(A), which states:
{¶38} “A receiver may be appointed by a judge of the Court of Common Pleas as provided in
{¶39} In the case at bar, the Receiver hired Susan Argo from GHR to serve as his counsel. Central argues a conflict of interest exists because Argo represented Fifth Third in prior cases. Central argues a further conflict of interest exists because the Receiver: (1) conducted a liquidation involving Fifth Third in 2001, and (2) belongs to the same trade association as several Fifth Third employees. Based upon this information, Central argues the Receiver acted improperly and the trial court erroneously denied Central‘s request to remove Argo and the Receiver from the case.
{¶40} In reviewing a trial court‘s decision to disqualify a party‘s counsel, we continue to apply the abuse of discretion standard. See 155 N. High, Ltd. v. Cincinnati Ins. Co., 72 Ohio St.3d 423, 426, 1995-Ohio-85. We are mindful that disqualification constitutes a “drastic measure which courts should hesitate to impose except when absolutely necessary[,]” in large part because it deprives a client of the counsel of his
{¶41} “An attorney should not be disqualified solely upon an allegation of a conflict of interest; even where the requested disqualification is based upon ethical considerations, the moving party still must demonstrate that disqualification is necessary.” (Emphasis sic.) Creggin Group, Ltd. v. Crown Diversified Industries Corp. (1996), 113 Ohio App.3d 853, 858. Even if an attorney‘s continued representation would violate one of the Canons of the Code of Professional Responsibility, counsel should not be disqualified unless the attorney‘s conduct poses a significant risk of tainting the proceedings. Id.
{¶42} In the case at bar, the trial court was not convinced that the proceedings would be tainted by any potential conflict of interest. After reviewing the record, we find the trial court did not abuse its discretion in denying Central‘s motion to remove Argo and the Receiver from the case. In his prior affiliation with Fifth Third, the Receiver unequivocally acted in his separate capacity as a liquidator, not a receiver, in a bankruptcy action. Further, upon entering her appearance on behalf of the Receiver, Argo clearly indicated she previously represented Fifth Third in “matters unrelated to these proceedings.” (Emphasis added.) Guided by these facts, we find Argo‘s conduct did not pose a significant risk of tainting the proceedings, therefore Central did not demonstrate it was necessary to remove Argo and the Receiver from the case.
{¶43} Accordingly, we reject Central‘s arguments relating to alleged conflicts of interest.
Summary
{¶44} Having addressed Central‘s claims, we find the trial court fulfilled its duty to evaluate the Receiver‘s conduct in relation to his duties to the interested parties. See Hummer, 2011-Ohio-3767 at ¶18. Cf. Thayer v. Diver, Lucas App. No. L-07-1415, 2009-
{¶45} Accordingly, we find the trial court did not abuse its discretion in approving the sale of the property to Patel.
{¶46} Central‘s first, second, and third assignments of error are overruled.
Assignment of Error No. 4:
{¶48} “THE TRIAL COURT ERRS TO THE PREJUDICE OF APPELLANTS’ [sic] CENTRAL BY DENYING CENTRAL‘S MOTION OBJECTING TO RECEIVER‘S REPORT DATED 7-1-10. IN THE FINAL ACCOUNTING OF THE RECEIVERSHIP THERE IS A MANAGEMENT CONTRACT ENTERED BY THE RECEIVER ON APRIL 8, 2010 WITH PATEL. THE ACCOUNTING FILED BY THE RECEIVER ON JULY 1, 2010 DID NOT SHOW ANY ACCOUNTING FOR THE TRANSACTIONS OR REPORTS ON THIS MANAGEMENT CONTRACT.”
{¶50} In support of its argument, Central cites Butler CP Loc.R. 4.18(L), which states:
{¶51} “A receiver who, upon application is permitted to operate a business as a going concern, shall at the expiration of each thirty-day (30) period following appointment, or at such other interval as the court may upon motion order, file a statement of operation, showing a balance sheet for the period, and operating statement of income and expenditures, etc., or a list of cash receipts and disbursements with the necessary accruals to make a comprehensive statement of profit and loss for the period, with an inventory or estimated inventory. In the same report, receiver shall set forth any unusual or peculiar conditions existing in the business then or during receiver‘s operation, together with a list of expenses of operation, current interest accrued on loans during the period, depreciation on buildings, machinery and equipment during the same time.”
{¶52} In overruling Central‘s objections to the Receiver‘s report, the trial court found Central failed to show the Receiver‘s report violated generally accepted accounting principles (“GAAP“) or how the absence of the management agreement impacted the
{¶53} Accordingly, Central‘s fourth assignment of error is overruled.
{¶54} Judgment affirmed.
POWELL, P.J., and RINGLAND, J., concur.