JPMCC 2004-CIBC10 7th St. Office, L.L.C. v. URS Tower, L.L.C.
2013 Ohio 796
Ohio Ct. App.
2013
Check Treatment

JPMCC 2004-CIBC10 7th STREET OFFICE, LLC v. URS TOWER LLC, еt al.

APPEAL NO. C-120294

IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

March 8, 2013

2013-Ohio-796

TRIAL NO. A-1101287

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: March 8, 2013

Porter, Wright, Morris & Arthur LLP, William G. Deas, Walter Reynolds, Tami Hart Kirby and James P. Botti, for Plaintiff-Appellee,

Taft Stettinius & Hollister, LLP, Earl K. Messer and Nicholas J. Pieczonka, for Defendant-Appellant.

Please note: this case has been removed from the accelerated calendar.

Per Curiam.

{1} In this foreclosure action, plaintiff-appеllee JPMCC 2004-CIBC10 7th Street Office, LLC (“Lender“), moved for the appointment of a receiver to manage property encumbered by an open-end mortgage, assignment of leases and rents, and security agreement (the “Mortgage“) that was executed by defendant-appellant URS Tower LLC (“URS Tower“). The trial сourt appointed a receiver, and URS Tower now appeals, raising two assignments of error. We affirm.

Background

{2} According to the amended complaint, in November 2004, URS Tower executed two promissory notes in the principal amounts of $16,500,000 and $1,050,000 (the “Notes“), as well as the Mortgage to secure them. The Mortgage encumbers property located in downtown Cincinnati, Ohio, commonly known as part of the URS Office Tower (the “Property“). Through a series of allonges and assignments, Lender became the holder of all three instruments.

{3} Lender has alleged default on the Notes and the Mortgage and has declared the entire unpaid balance on the Notes immediately payable. Lender seeks to foreclose on the Property to pay that sum which, together with interest and fees, exceeds $19,700,000.

{4} Upon bringing this action, Lender moved for the appointment of a receiver under R.C. 2735.01(B) and (F), which provide:

A receiver may be appointed by the supreme court or a judge thereof, the court of appeals or a judge thereof in his district, the court of common pleas or a judge thereof in his county, or the probate court, in causes pending in such courts respectively, in the following cases:

* * *

(B) In an action by a mortgagee, for the foreclosure of his mortgage and sale of the mortgaged property, when it appears that the mortgaged property is in danger of being lost, removed, or materially injured, or that the condition of the mortgage has not been performed, and the property is probably insufficient tо discharge the mortgage debt;

* * *

(F) In all other cases in which receivers have ‍‌‌‌​​​​‌‌‌​​​​​‌‌‌‌​​‌‌‌​‌​‌​‌‌​​​‌‌​‌​‌‌​​​​‌‌‌‍been appointed by the usages of equity.

{5} In its motion, Lender primarily relied upon Section 3.1(d) of the Mortgage, in which URS Tower had agreed that:

If there shall occur an Event of Default under this Mortgage, then the Property shall be subjeсt to sale and this Mortgage shall be subject to foreclosure, all as provided by law, and Lender may * * * exercise any or all of the following rights, remedies and recourses, either successively or concurrently:

* * *

(d) Appointment of a Receiver. Upon, or at any time prior to or after, initiating the exercise of any power of salе, instituting any judicial foreclosure or instituting any other foreclosure of the liens and security interests provided for herein or any other legal proceedings hereunder, make application to a court of competent jurisdiction for appointment of a receiver for all or any part of the Property, as a matter of strict right and without notice to Borrower and without regard to the adequacy of the Property for the repayment of the Obligations or the solvency of Borrower or any person or persons liable for the payment of the Obligations, and Borrower does hereby irrevocably consent to such appointment, waives any and all notices of and defenses to such appointment and agrees not to oppose any application therefor by Lender * * *. (Emphasis added.)

{6} The case was referred to a magistrate who prepared a decision denying the motion. The magistrate held that the “existence of a provision allowing the appointment of a receiver in a foreclosure action, without a showing of proof required under R.C. 2735.01(B), is not sufficient grounds for the appointment of a receiver.” The magistrate further determined that the appointment of a receiver under R.C. 2735.01(B) and (F) was unwarranted because the Property was not in danger of being lost, Lender had not established that the value of the Property was probably insufficient to cover the debt, and Lender was not in danger of suffering irreparable harm.

{7} Lender objected to the magistrate‘s decision, arguing that Section 3.1(d) of the Mortgage was sufficient authority to appoint a receiver, and that in the alternative, the prerequisites of R.C. 2735.01(B) and (F) had been satisfied. At an evidentiary hearing before the trial court, asset manager James Perillo ‍‌‌‌​​​​‌‌‌​​​​​‌‌‌‌​​‌‌‌​‌​‌​‌‌​​​‌‌​‌​‌‌​​​​‌‌‌‍testified that URS Tower had defaulted on the Notes and the Mоrtgage as of May 2010, and commercial real estate appraiser Eric Gardner estimated that the value of the Property was $9,000,000.

{8} In November 2011, the trial court sustained Lender‘s objections to the magistrate‘s decision, observing that “Defendant contractually agreed to the appointment of а receiver in the mortgage documents at issue in this matter,” and ordering that “the Magistrate‘s Decision is not adopted by this court.” The court also ordered that “Plaintiff shall be entitled to the appointment of a receiver over the property at issue in this matter pursuant to a further order of this Court and that thе matter is remanded to the Magistrate to make a decision respecting that appointment and the powers to be granted said receiver.” In April 2012, the court granted Lender‘s motion and appointed a receiver. This appeal followed.

Propriety of Receivership

{9} In its first assignment of error, URS Tower argues that the trial сourt erred in appointing a receiver. Before we address the merits of this assigned error, however, we turn first to Lender‘s assertion that URS Tower has waived review of this issue by not appealing from the trial court‘s November 2011 decision indicating that Lender was “entitled to the appointment of a receiver.” Lender maintains that this decision was a final appealable order under R.C. 2505.02(B), and therefore, that URS Tower had only 30 days to appeal under App.R. 4(A) to avoid waiving review of the eventual appointment. See , ¶ 8; , ¶ 12.

{10} It is widely recognized that an order appointing a receiver is a final order under R.C. 2505.02(B)(2) because it “affects a substantial right made in a special proceeding.” See, e.g., , ¶ 6 (8th Dist.); ; ; see also , syllabus. The Ohio Supreme Court has further suggested that such an order is final under R.C. 2505.02(B)(4) because it grants relief in a provisional-remedy proceeding. See , ¶ 25-26; , ¶ 7, citing .

{11} Under either theory of finality, however, we cannot say that the November 2011 decision was a final appealable order. The decision nеither affected a substantial right nor granted relief in a provisional-remedy proceeding because the court simply sustained Lender‘s objections to the magistrate‘s decision and declined to adopt that decision; the court did not separately rule on Lender‘s motion until April 2012 when it actually aрpointed a receiver. See Civ.R. 53(D)(4)(e) (“A court that adopts, rejects, or modifies a magistrate‘s decision shall also enter a judgment or interim order.“); see also , ¶ 15 (“But as this court determined in the first appeal, the trial court‘s judgment was not a final appealable order because the trial court ‘simрly sustained in part appellant‘s objections to the magistrate‘s report[,] [t]here was no independent judgment, no express adoption of any of the magistrate‘s findings, and no clear pronouncement of the judgment as required by Civ.R. 53(D)(4)(e).‘“), quoting , ¶ 60. Moreover, the court qualified its decision, noting that Lender was entitled to the appointment of a receiver only “pursuant to further order of this Court.” This demonstrates that the court was contemplating further action before appointing a receiver, which indeed occurred. See , ¶ 17-18 (“In general, when an order does not contemplate further action and no other related issues remаin pending, the order normally constitutes a final ‍‌‌‌​​​​‌‌‌​​​​​‌‌‌‌​​‌‌‌​‌​‌​‌‌​​​‌‌​‌​‌‌​​​​‌‌‌‍appealable order.“). Accordingly, URS Tower has not waived review of the appointment of the receiver by not appealing from the November 2011 decision.

{12} We, therefore, turn to the merits of this issue. URS Tower argues that the trial court abused its discretion in relying solely on Section 3.1(d) of the Mortgage without considering the equities of this case. URS Tower primarily relies on our previous statements that a “trial court should exercise its power of equitable appointment of a receiver only where the failure to do so would place the petitiоning party in danger of suffering an irreparable loss or injury,” and that “[b]ecause the appointment of a receiver is such an extraordinary and potentially harsh remedy, the party requesting the receivership must show by clear and convincing evidence that the appointment is necessary for the preservation of the complainant‘s rights.” , *13-14 (Oct. 25, 1995), citing and .

{13} Despite this broad language, however, Ohio courts have recognized in other foreclosure actions that the requirements of R.C. 2735.01, including those read into the statute by the judiciary, may be effectively waived. For instance, the Sixth Appellate Distriсt affirmed the appointment of a receiver even though the trial court had refused to hear evidence concerning the value of the encumbered property and other “equitable defenses” because the mortgage “allow[ed] the trial court, in the event of default, to appоint a receiver ‘upon application of the Mortgagee or at any time thereafter, * * * without notice to the Mortgagor * * * and without regard to the solvency or insolvency at the time of such application of any Person then liable for the payment of any of the Secured Obligations, [and] without regard to the then value of the Premises * * * .‘” , ¶ 57 (6th Dist.). The appeals court held that because an event of default had occurred, the parties had “waived the right to a determination of the value of the property.”

{14} Similarly, the Ninth Appellate District affirmed the appointment of a receiver because the mortgagor had agreed in the mortgage that

upon the commencement of any action to foreclose this mortgage or any other lien upon said premises, whether instituted by [the mortgagee] or any other party, or at any other time during the pendency of such action, [the mortgagee] shall have the immediate right to the appointment of a receiver, and the Court may at once, and without notice to [the mortgagor] or any other party claiming under him, appoint a receiver * * *.

, *3, *8 (Sept. 13, 1995). The appellate court recognized that because R.C. 2735.01 is a procеdural, as opposed to a substantive, statute, “if the parties to a mortgage contracted to allow the mortgagee to foreclose upon the occasion of the mortgagor‘s default without regard to the ability of the property to discharge the mortgage debt, then such contraсtual agreement was enforceable.” , citing . See also , ¶ 20 (holding that the trial court did not abuse its discretion in appointing a receiver because the borrowers had consented to such appointment upon default under the note); , ¶ 13 (“Here, plaintiffs presented evidence that Prospect Park had consented to the appointment of a receiver upon the incidence ‍‌‌‌​​​​‌‌‌​​​​​‌‌‌‌​​‌‌‌​‌​‌​‌‌​​​‌‌​‌​‌‌​​​​‌‌‌‍of default. Under such circumstances, a trial court does not abuse its discretion in appointing a receiver.“).

{15} We, too, have recognized that parties may contractually waive the pre-aрpointment notice requirement that the Ohio Supreme Court recognized in , paragraph two of the syllabus. (“Although courts have imposed a requirement that notice be given prior to the appointment of a receiver pursuant to R.C. 2735.01(B), the pre-appointment notice requirement was not, in this instance, transgressed when such notice may be and was waived by Triskett under the mortgage.“), citing .

{16} Following these cases, we cannot say that the trial court abused its discretion in appointing a receiver in this instance. Under Section 3.1(d) of the Mortgage, URS Tower agreed that upon an event of default, Lender could “make application tо a court of competent jurisdiction for appointment of a receiver for all or any part of the Property, as a matter of strict right and without notice to [URS Tower] and without regard to the adequacy of the Property for the repayment of the Obligations * * * .” Although the court did not expressly find that аn event of default had occurred, we presume that the court implicitly did so, given the competent, credible evidence of default presented by Lender. See, e.g., , ¶ 40 (“In the absence of evidence to the contrary, a court of appeals will presume that the lower court has applied the correct legal standard.“); , ¶ 13. For instance, asset manager James Perillo testified before the trial court that URS Tower had defaulted on the Notes and the Mortgage as of May 2010. Moreover, nothing in the record suggests that the trial court felt compelled to appoint a receiver in the absence of default.

{17} The first assignment of error is, therefore, overruled.

Power of Sale Free and Clear of All Liens

{18} In its second assignment of error, URS Tower argues that the trial court erred in empowering the receiver to sell the Property free and clear of all liens, thereby violating URS Tower‘s right of redemption. Lender counters that this issue is not ripe for our review because the court also ordered that the receiver “must file a motion herein setting forth the essential terms of any proposed sales, serve it upon all parties having an interest in the Property, and obtain this Court‘s approval prior to consummating any such transaction.”

{19} “In order to be justiciable, a controversy must be ripe for review.” , ¶ 26. “A claim is not ripe for our consideration if it rests on contingent future events that may not occur as anticipated or may never occur at all.” , ¶ 4 (10th Dist.), citing .

{20} The Tenth Appellate District addressed this very issue in . In affirming the trial court‘s appointment оf a receiver, the appellate court declined to review a provision in the appointment order that authorized the receiver “to advertise and list the Property for sale and at [the lender‘s] subsequent election and upon ‍‌‌‌​​​​‌‌‌​​​​​‌‌‌‌​​‌‌‌​‌​‌​‌‌​​​‌‌​‌​‌‌​​​​‌‌‌‍the Court‘s approval, to sell the Property free аnd clear of all liens.” . The court held that, given the contingent nature of that provision, the issue of whether the trial court had erred in granting that authority was not yet ripe for review. The appellate court explained that the borrowers’ arguments “effectively turn[ed] on an assertion that the receivеr might propose a sale of the property, that the trial court might approve the proposed sale, and that the conditions of such sale might violate [the borrowers‘] rights of redemption and the procedures required under the foreclosure statute.” (Emphasis sic.) .

{21} We adopt this reasoning, and find it applicable in this case. The second assignment of error is, therefore, not ripe for our review at this time. Accordingly, the judgment of the trial court is affirmed.

Judgment affirmed.

HILDEBRANDT, P.J., DINKELACKER and FISCHER, JJ.

Please note:

The court has recorded its own entry this date.

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