CFS-4 II, LLC. v. Phoenix Estates ( 2016 )

J. A09011/16
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P. 65.37
CFS-4 II, LLC, A DELAWARE LLC AND : IN THE SUPERIOR COURT OF
ASSIGNEE OF FIRST NATIONAL BANK : PENNSYLVANIA
OF PENNSYLVANIA :
:
v. :
:
PHOENIX ESTATES, A PENNSYLVANIA :
GENERAL PARTNERSHIP, : No. 1637 MDA 2015
:
Appellant :
Appeal from the Order Entered August 26, 2015,
in the Court of Common Pleas of Luzerne County
Civil Division at No. 2012-3725
BEFORE: FORD ELLIOTT, P.J.E., JENKINS AND PLATT,* JJ.
MEMORANDUM BY FORD ELLIOTT, P.J.E.: FILED AUGUST 29, 2016
Phoenix Estates appeals the order of the Court of Common Pleas of
Luzerne County that granted the motion for appointment of receiver of
CFS-4 II, LLC (“CFS”), and allowed CFS to exercise its right to appoint
NAI Geis Realty Group, Inc. (“NAI”) as receiver.
The facts as recounted by the trial court are as follows:
On March 31, 2008, Phoenix Estates, a
Pennsylvania Limited Partnership, was the owner in
fee of commercial real estate located at East Union
and North Washington Streets, Wilkes-Barre,
Luzerne County, PA, and more particularly described
in Luzerne County Recorder of Deeds Office at
Record Book 2555, page 438. The mortgaged
property is utilized as a parking lot. On March 31,
2008, First National Bank of Pennsylvania (Lender)
made a demand loan (the “Loan”) to Thomas J.
* Retired Senior Judge assigned to the Superior Court.
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Greco (“Greco[”]) in the original principal amount of
$125,000.00 evidenced by a demand Promissory
Note dated March 31, 2008.
On March 31, 2008 Phoenix Estates executed a
commercial guaranty in favor of Lender,
unconditionally guarantying and becoming surety for
Greco’s obligations under the Loan. The subject
Promissory Note was signed on March 31, 2008.
Also, the subject Guaranty Agreement was executed
by Thomas J. Greco on behalf of Phoenix Estates.
On March 31, 2008, Phoenix Estates executed an
open end mortgage and security agreement on the
mortgaged property which was duly recorded in the
Office of the Recorder of Deeds of Luzerne County in
Record Book 3008, Page 84218. Further, Phoenix
Estates executed, made and delivered to Lender an
Assignment of Rents and Leases with respect to the
mortgaged property on April 7, 2008 which was duly
recorded in the Office of the Recorder of Deeds on
April 17, 2008 as Instrument Number 5816436, in
Book 3008, Page 88041.
On March 23, 2012, [Lender] filed a Complaint
in Mortgage Foreclosure against Phoenix Estates,
seeking judgment against Phoenix Estates in the
principal amount of $118,444.50 plus accrued
interest from February 29, 2012 through the date of
distribution of Sheriff’s sale, accruing in the
approximate amount of $20.81 per diem, and
reasonable attorney’s fees and costs.
On June 29, 2012, Phoenix Estates filed an
Answer and New Matter and Counterclaims. Phoenix
denies it is in default under the terms of the
mortgage. On September 29, 2014, [Lender]
assigned all its right, title and interest in and to the
loan and the mortgage, more specifically, [Lender],
to [CFS], recorded in the Office of the Recorder of
Deeds of Luzerne County at Instrument Number
201457427 in Mortgage Book 3014, page 201428 as
well as in the Complaint in Commercial Mortgage
Foreclosure docketed to 3725/2012. Also, [Lender]
assigned the subject Assignment of Rents and
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Leases for the mortgaged property to [CFS] on said
date.
In the event of a default, the Mortgage
provides certain rights and remedies to the Lender,
any one or more of which can be exercised at the
Lender’s option, in addition to any other rights or
remedies provided by law:
....
[“]Appoint Receiver. Lender shall have the
right to have a receiver appointed to take possession
of all or any part of the Property, with the power to
protect and preserve the Property, to operate the
Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the
Property and apply the proceeds, over and above the
cost of the receivership, against the indebtedness.
The receiver may serve without bond if permitted by
law. Lender’s right to the appointment of a receiver
shall exist whether or not the apparent value of the
Property exceeds the indebtedness by a substantial
amount. Employment by Lender shall not disqualify
a person from serving as receiver.”
Prior to the assignment of this mortgage to
[CFS], the last payment that [Lender] received on
this account was dated May 7, 2012. That payment
information is based upon a Loan History Report, a
business record of [Lender], maintained in the
regular course of business, which reflects all
payments made on the account, along with the
corresponding balances, and reflects the amount due
and owing by the Borrower. The entries on the Loan
History are contemporaneously made at or about the
time of the transactions noted. At no time since the
execution of the Assignment of this Mortgage has
Phoenix Estates made any payments of principal and
interest on this account to [CFS].
[CFS] maintains that [Phoenix Estates] is in
default on the mortgage and guaranty and note and
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that the Borrower is not paying taxes and payments
of principal or interest on this account. . . .
....
The mortgaged property is a parking lot, in
which users pay monthly to park in the lot. There is
no subsequent mortgage on this property. [CFS]
seeks a receiver to collect rents, market the property
and maximize it. The bank would be responsible for
paying for the receiver. The rents collected would be
applied to the taxes, utilities, and any excess income
on a monthly or quarterly basis would be applied to
the indebtedness to the original . . . mortgage[].
Trial court opinion, 11/25/15 at 1-7.
Following oral argument and the receipt of briefs, the trial court
granted CFS’s motion and allowed it to appoint NAI as receiver. The trial
court reasoned that Phoenix Estates was in default under the terms of the
mortgage because Thomas Greco (“Greco”) had not made any payments on
the loan since the assignment of the mortgage to CFS and had not made a
payment to First National Bank of Pennsylvania since May 7, 2012. The trial
court explained the grant of the motion to allow the appointment of NAI as
receiver:
The contract in place, the mortgage, expressly
provides that in the event of a default of the
mortgage conditions, a receiver may be appointed to
preserve the property. The Guaranty, Mortgage and
Assignment of Rent documents were freely and
voluntarily executed by [Phoenix Estates] in order to
secure the obligation of [Greco] on the Note.
[Phoenix Estates] is not denying [Greco] executed
same, as the General Partner of Phoenix Estates nor
is it arguing the general partnership’s competency or
ability to have executed the collateral documents.
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[CFS] appropriately cited to the case of
Metropolitan Life,[1] in which the court states that
when there is a voluntary assent to the terms and
conditions of the mortgage, it is the obligation of the
court to enforce those terms. [Greco] stopped
paying on the note which is secured by the
mortgage. As such, [Phoenix Estates] as the
guarantor is obligated to satisfy [Greco’s] obligation.
During the time of default[,] [Phoenix Estates]
continues to rent out spaces in the parking lot, and
collect income and no money has been paid to the
bank in breach of the mortgage obligations.
[CFS] requests the appointment of [NAI], a
qualified commercial real estate broker and property
management entity to act as Receiver. This request
comports with the express terms of the Loan
documents which allow said remedy upon [Phoenix
Estates] being in a default status in failing to meet
its obligations to the Lender. Under the overall
circumstances, [Phoenix Estates] cannot justify any
legal basis to defeat [CFS’s] request given that it has
failed to provide any accounting whatsoever, as to
the disposition of monthly rental payments being
made to it . . . .
This Court is not prepared to disturb the terms
of the mortgage. The parties are competent and
they agreed to the very terms. Terms of a mortgage
agreement are binding on the parties. . . . This Court
finds that the terms of the mortgage clearly provide
for the appointment of a receiver in the event of a
default.
Trial court opinion, 11/25/15 at 8-9.
Phoenix Estates raises the following issues for this court’s review:
A. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for the Appointment of a
1
Metropolitan Life Ins. Co. v. Liberty Center Venture, 650 A.2d 887(Pa.Super. 1994).
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Receiver when there has been no judicial
determination that a default has occurred?
B. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for Appointment of a Receiver
when [CFS] has an adequate remedy at law,
the facts, circumstances and equities of the
matter sub judice do not support the
appointment of a receiver, that greater
irreparable damage will result to [Phoenix
Estates] with the appointment of a receiver
and the right to a receiver is not free from
doubt?
C. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for Appointment of a Receiver
when a judge of coordinate jurisdiction entered
an Order granting [Phoenix Estates’] Petition to
Open Judgment based on the Judge’s
determination that [Phoenix Estates] had a
meritorious defense to the claims of default,
the same claims set forth in the mortgage
foreclosure action?
Appellant’s brief at 4.
The trial court’s decision to appoint a receiver will not be reversed
absent a clear abuse of discretion. Metropolitan.
An abuse of discretion is not merely an error of
judgment, but if in reaching a conclusion the law is
overridden or misapplied, or the judgment exercised
is manifestly unreasonable, or the result of partiality,
prejudice, bias or ill-will, as shown by the evidence
or the record, discretion is abused.
Fienke v. Huntington, 111 A.3d 1197, 1200 (Pa.Super. 2015), quoting
Stumpf v. Nye, 950 A.2d 1032, 1036 (Pa.Super. 2008).
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Initially, Phoenix Estates contends that CFS failed to prove that it was
entitled to appointment of a receiver because it did not establish that an
emergency existed, that the right to receivership was free from doubt, that
there had been irreparable damage, that there was no adequate remedy at
law, that the rights of creditors and shareholders would not be interfered
with, and that greater damage would result in the absence of the
appointment of a receiver. These factors appear in cases cited by Phoenix
Estates such as Tate v. Philadelphia Transportation Co., 190 A.2d 316,
321 (Pa. 1963), and McDougal v. Huntington & Broad Top Mountain
Railroad and Coal Co., Inc., 143 A. 574 (Pa. 1928).
While these cases may set forth conditions under which a receiver may
be appointed, this was not the basis for the trial court’s determination that a
receiver could be appointed in this case. The trial court determined that CFS
could appoint a receiver because the parties contracted for that possibility in
the mortgage document in the event of a default.
The trial court relied on Metropolitan, which Phoenix Estates also
looks to for support. In Metropolitan, Metropolitan Life Insurance
Company (“Metlife”) and Grant Liberty Development Group Associates
(“GLDGA”) created the Liberty Center Venture (“Liberty”) to own and
operate a building complex with offices and a hotel in downtown Pittsburgh.
Metlife owned 60 percent of Liberty, and GLDGA owned 40 percent. Metlife
also loaned Liberty $67,000,000. Notes were issued with interest payable at
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the rate of 14½ percent for the offices and 15 percent for the hotel.
Metlife’s loan was secured by a mortgage. The mortgage and the security
agreement both authorized the appointment of a receiver in the event of a
default. In September 1990, Liberty began to make payments at the
interest rate of 10 percent instead of the agreed-upon rate. Metlife did not
accept the payments on the basis that Liberty defaulted on its obligations.
On March 8, 1991, Metlife commenced foreclosure proceedings in the Court
of Common Pleas of Allegheny County and also sought the appointment of a
receiver. Liberty asserted that it was not in default because Metlife and
GLDGA had agreed to reduce the interest rate to 10 percent. The Court of
Common Pleas of Allegheny County initially denied the motion without
prejudice because a pending action in federal court centered on the question
of whether Liberty defaulted by paying at a lower rate. The Court of
Common Pleas of Allegheny County ultimately granted the motion for
appointment of a receiver after the United States District Court for the
Western District of Pennsylvania determined that Liberty was in default.
Metropolitan, 650 A.2d at 888-889.
Liberty appealed to this court. One of the issues Liberty raised
concerned whether the Court of Common Pleas of Allegheny County erred
when it granted the motion to appoint a receiver. Id. at 889. This court
affirmed after it determined that the parties contractually agreed in the
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mortgage that a receiver could be appointed in the event of a default. Id. at
890. This court explained:
Under Pennsylvania law, “parties have the right to
make their own contract, and it is not the function of
a court to rewrite it or to give it a construction in
conflict with the accepted and plain meaning of the
language used.” . . . . “It is, . . ., clear that the
terms of the mortgage contract cannot be altered or
impaired by either the legislature or the courts, and
this applies to the remedies, or specific provision for
its enforcement as well as to the obligation to pay
the bonded indebtedness.” . . .
Id. at 889 (citations omitted).
Here, Phoenix Estates argues that there was no finding of default and
the matter of the alleged default was still pending in an action regarding the
confession of judgment matter and other related cases. However, in its
answer to the motion for appointment of a receiver, Phoenix Estates
admitted that no payments have been made since the assignment of the
mortgage to CFS in September 2014. The trial court noted this fact and also
stated that, prior to the assignment, First National Bank of Pennsylvania had
not received a payment since May 2012. (See Exhibit A to Plaintiff’s Motion
for Appointment of a Receiver, June 29, 2015.) The trial court also
explained that failure to make payments constituted a default under the
mortgage. The trial court also noted that under the mortgage a remedy for
default was appointment of a receiver. This court cannot agree with Phoenix
Estates’ argument. The trial court did not abuse its discretion when it found
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that Phoenix Estates and/or Greco were in default and that CFS was entitled
to the appointment of a receiver.
Phoenix Estates next contends that because a court of coordinate
jurisdiction granted its petition to open judgment after First National Bank of
Pennsylvania confessed judgment on the demand promissory note, the trial
court abused its discretion when it found that Phoenix Estates was in default
and granted the motion to appoint a receiver here.
Generally, the coordinate jurisdiction rule commands
that upon transfer of a matter between trial judges
of coordinate jurisdiction, a transferee trial judge
may not alter resolution of a legal question
previously decided by a transferor trial judge. . . .
More simply stated, judges of coordinate jurisdiction
should not overrule each other’s decisions. . . .
Zane v. Friends Hospital, 836 A.2d 25, 29 (Pa. 2003) (citations omitted).
Nothing in the record indicates that the trial court overruled a prior
decision that indicated that Phoenix Estates and/or Greco did not default on
the terms of the mortgage. While it appears that the parties have been
involved in a great deal of litigation, the record before this court does not
establish an abuse of discretion by the trial court concerning the coordinate
jurisdiction rule.2
Order affirmed.
2
Finally, Phoenix Estates again argues that CFS failed to establish the
factors necessary to warrant the appointment of a receiver without
acknowledging that the parties contracted for the appointment of a receiver
in the event of default if First National Bank of Pennsylvania and,
subsequently, CFS, chose to employ that remedy.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/29/2016
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