City of Cincinnati v. PE Alms Hill Realty, LLC

[Cite as Cincinnati v. PE Alms Hills Realty, L.L.C., 2017-Ohio-1569.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
CITY OF CINCINNATI, : APPEAL NO. C-160459
TRIAL NO. A-1500883
Plaintiff, :
vs. : O P I N I O N.
PE ALMS HILL REALTY, LLC, et al., :
Defendants, :
and :
U.S. BANK NATIONAL :
ASSOCIATION, AS TRUSTEE FOR
THE BENEFIT OF THE HOLDERS OF :
COMM 2014-UBS3 MORTGAGE
TRUST COMMERCIAL MORTGAGE :
PASS-THROUGH CERTIFICATES,
:
Defendant/Third-Party
Plaintiff-Appellee, :
vs. :
PE LIMA CLUB WEST REALTY, LLC, :
Third-Party Defendant-Appellant, :
and :
CP CINCINNATI, LLC, et al., :
Third-Party Defendants. :
Civil Appeal From: Hamilton County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: April 28, 2017
OHIO FIRST DISTRICT COURT OF APPEALS
Porter, Wright, Morris & Arthur LLP and Christopher D. Cathey, for
Defendant/Third-Party Plaintiff-Appellee,
Hennis, Rothstein and Ellis LLP and Steven M. Rothstein, for Third-Party
Defendant-Appellant.
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OHIO FIRST DISTRICT COURT OF APPEALS
Z AYAS , Judge.
{¶1} Third-party defendant-appellant PE Lima Club West Realty, LLC,
(“PE Lima”) appeals the judgment of the common pleas court appointing a receiver
in a commercial foreclosure action initiated by third-party plaintiff-appellee U.S.
Bank National Association as Trustee for the Benefit of the Holders of Comm 2014-
UBS3 Mortgage Trust Commercial Mortgage Pass-through Certificates (“Lender”).
We affirm the trial court’s judgment.
Factual and Procedural Posture
{¶2} Plaintiff the city of Cincinnati (“the City”) filed a statutory and common-
law nuisance action against the owners of five multifamily apartment projects that
receive project-based Section 8 housing assistance payments from the United States
Department of Housing and Urban Development (“HUD”). In its third amended
complaint, the City added Lender as a defendant in the nuisance action.
{¶3} Lender filed an answer, cross-claim, counterclaim, and third-party
complaint for foreclosure against the defendants-borrowers of three of the five
nuisance properties, defendants PE Alms Hill Realty, LLC, (“PE Alms”) PE Reids
Valley View Realty, LLC, (“PE Reids”) and PE Shelton Gardens Realty, LLC, (“PE
Shelton)” seeking to foreclose its mortgage on their properties, which are commonly
known as Alms Hill, Reids Valley View, and Shelton Gardens (collectively “the
Hamilton County properties”).
{¶4} In its complaint, Lender alleged that on April 2, 2014, PE Alms, PE
Reids, and PE Shelton (“the Hamilton County defendants”) had executed a
promissory note in the principal sum of $14,310,000 as well as a mortgage to secure
the note. On May, 13, 2014, the Hamilton County defendants had executed and
delivered an amended and restated loan agreement. Through a series of allonges and
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OHIO FIRST DISTRICT COURT OF APPEALS
assignments, Lender became the holder of the amended and restated loan
agreement, the note and mortgage, the assignment of leases and rents, and a UCC
security agreement and fixture filing.
{¶5} Lender alleged that the Hamilton County defendants had defaulted
under numerous provisions of the loan agreement. Lender alleged that these
multiple defaults had caused it to accelerate the maturity of the note and demand
immediate payment in full in November 2015. Lender further asserted that despite
its demand, the note remained unpaid and in default. That default, in turn,
constituted a default under the loan agreement. Lender alleged that the Hamilton
County defendants’ default on the loan agreement and note entitled it to foreclose on
its mortgage on the Hamilton County properties.
{¶6} On December 8, 2015, Lender moved for the appointment of a
receiver over the Hamilton County properties. Lender asserted that it was entitled to
a receiver under R.C. 2735.01(A)(2), because the Hamilton County properties were in
danger of being materially injured, diminished in value or squandered, the
conditions of the mortgage had not been performed, and the Hamilton County
defendants had consented in writing to the appointment of a receiver. Lender
additionally asserted it was entitled to a receiver pursuant to R.C. 2735.01(A)(3),
because it was enforcing a contractual assignment of leases and rents.
{¶7} Lender attached to its motion an affidavit of Leah Solomon, the asset
manager of LNR Partners LLC, which is the special servicer of the loan evidenced by
the note held by Lender. Solomon averred that the Hamilton County defendants had
defaulted on the loan agreement and note. The loan agreement contained a
provision that an “Event of Default” under the loan agreement also constituted an
event of default under the note. Solomon averred that the Hamilton County
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OHIO FIRST DISTRICT COURT OF APPEALS
defendants had defaulted by (1) violating Section 8.1(xiii) of the loan agreement by
allowing the filing of a mechanics lien on the Alms Hill property, (2) failing to
comply with Section 8.1(xv) of the loan agreement with respect to management
agreements, (3) failing to comply with the financial reporting requirements of
Section 4.9 of the loan agreement, (4) failing to give prompt notice to Lender of the
filing of the nuisance action by the City and state of Ohio as required by Section 4.7
of the loan agreement, (5) failing to comply with Section 4.5 of the loan agreement,
which requires compliance with all legal requirements to operate their businesses,
(6) failing to comply with Section 4.11.3 of the loan agreement with respect to leases,
(7) failing to comply with Section 4.19 0f the loan agreement to advise Lender of any
defaults, and (9) failing to comply with Section 4.33 of the loan agreement, which
requires compliance with HUD’s housing-assistance-payment-contract covenants.
{¶8} On January 5, 2016, the trial court entered a finding that the
Hamilton County properties securing the loan agreement were “a public nuisance
pursuant to R.C. 3767.41(A)(2)(b) because the buildings were not in good repair
and/or free from health and safety hazards.” The trial court’s finding was based on
evidence that the parties had stipulated to on December 16, 2015, regarding the
criminal activity on the premises and the conditions of the buildings. These
stipulated facts included evidence that “[i]n the last seven months, the City has
issued over 1,800 violations related to the conditions in these buildings that threaten
public health, safety, and welfare.” The trial court additionally found that “[t]he U.S.
Department of Housing and Urban Development (“HUD”) notified PE Alms in April
2015 that the Alms property had failed physical inspection of the property.” Lender
asserted that these findings conclusively proved that the Hamilton County
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OHIO FIRST DISTRICT COURT OF APPEALS
defendants had defaulted under numerous provisions of the loan agreement,
including Sections 4.5, 4.19, and 4.33.
{¶9} Following a hearing on January 29, 2016, the trial court concluded
that the Hamilton County defendants had defaulted on the loan agreement, which
constituted a default on the note. The trial court further found that the Hamilton
County defendants, through the lending documents, had consented in writing to the
appointment of a receiver in the event of a default under the note and loan
agreement. Thus, the Lender was entitled to the appointment of a receiver under
R.C. 2735.01(A)(2). The trial court additionally found that Lender was entitled to a
receiver under R.C. 2735.01(A)(3) based on its enforcement of the contractual
assignment of leases and rents. On February 1, 2016, the trial court appointed a
receiver for the Hamilton County properties.
{¶10} While the trial court was proceeding on Lender’s motion for the
appointment of a receiver with respect to the Hamilton County properties, on
December 28, 2015, Lender filed an amended cross-claim, counterclaim, and third-
party complaint that added PE Lima as a party, and sought foreclosure of Lender’s
mortgage on the Allen County apartment project owned by PE Lima that also secures
the promissory note executed in favor of Lender by PE Lima and the Hamilton
County defendants. The Allen County apartment project, commonly known as Lima
Club West (“Allen County property”), receives project-based Section 8 housing
assistance payments from HUD.
{¶11} On February 26, 2016, Lender moved the trial court to additionally
subject the Allen County property, which was subject to the same amended and
restated loan agreement, note and mortgage, assignment of leases and rents, and
UCC security agreement and fixture filing as the Hamilton County properties, to the
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OHIO FIRST DISTRICT COURT OF APPEALS
February 1, 2016 receivership order. PE Lima, the owner of the Allen County
property, filed a memorandum opposing the motion, which was accompanied by the
affidavit of Eli Kovalenko, a principal in Skyview Property Group, the managing
agent for the Allen County property. Kovalenko averred that the property was in
good repair, there were no outstanding building orders on the property, the “most
current REAC score [from HUD] was 90,” and “the property [wa]s 99% occupied
with rents current.”
{¶12} Lender filed a reply memorandum in support of its motion to subject
the Allen County property to the receivership. Lender attached a second Solomon
affidavit and a copy of the transcript from the hearing on Lender’s motion to appoint
a receiver for the Hamilton County properties. In her affidavit, Solomon averred that
the Hamilton County defendants and PE Lima had not turned over to Lender any
revenue generated by the Allen County property, nor had they used the revenues to
pay various legitimate expenses associated with the Allen County property. As a
result, Lender had to make protective advances in excess of $43,000 to keep the
Allen County property insured and to ensure the Allen County treasurer would not
assess interest and penalties against the Allen County property. Lender sought a
receiver to enforce the terms of the Allen County mortgage and to enforce the Allen
County assignment of leases and rents. On April 15, 2016, the trial court granted
Lender’s motion to subject the Allen County property to the February 1, 2016
receivership order.
Analysis
{¶13} The trial court’s order appointing a receiver is a final order from which
an appeal may be prosecuted under R.C. 2505.02(B)(2) because it “affects a
substantial right made in a special proceeding.” See Forest City Invest. Co. v. Haas,
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OHIO FIRST DISTRICT COURT OF APPEALS
110 Ohio St. 188, 143 N.E. 549 (1924), paragraph one of the syllabus; Tessler v. Ayer,
1st Dist. Hamilton Nos. C-940574, C-940632, C-940780 and C-940849, 1995 WL
621316, *4, fn. 3 (Oct. 25, 1995); JPMCC 2004-CIBCIO 7th St. Office, LLC v. URS
Tower LLC, 2013-Ohio-796, 987 N.E.2d 348, ¶ 10 (1st Dist.).
{¶14} Likewise, the appointment of a receiver constitutes a final order
under R.C. 2502.02(B)(4) because it grants relief in a provisional-remedy
proceeding. See In re A.J.S., 120 Ohio St.3d 185, 2008-Ohio-5307, 897 N.E.2d 629,
¶ 20; JPMCC 2004-CIBCIO 7th St. Office, LLC at ¶ 10, citing Community First Bank
& Trust v. Dafoe, 108 Ohio St.3d 472, 2006-Ohio-1503, 844 N.E.2d 825, ¶ 25-26.
Thus, this court has jurisdiction to entertain the merits of PE Lima’s arguments on
appeal.
Appointment of a Receiver
{¶15} In a single assignment of error, PE Lima argues that the trial court
erred by appointing a receiver for the Allen County property.
{¶16} When reviewing a trial court’s order appointing a receiver, appellate
courts employ an abuse-of-discretion standard. See State ex rel. Celebreeze v. Gibbs,
60 Ohio St.3d 69, 73, 573 N.E.2d 62 (1991). “An abuse of discretion is more than an
error of law; rather it suggests that a trial court’s decision is unreasonable, arbitrary,
or unconscionable.” Fifth Third Bank v. Q.W.V. Properties, LLC, 12th Dist. Butler
No. CA 2010-08-245, 2011-Ohio-4341, ¶ 18.
{¶17} Lender moved for the appointment of a receiver pursuant to R.C.
2735.01(A)(2) and (3). R.C. 2735.01(A) provides, in pertinent part, that a receiver
may be appointed by the common pleas court
(2) In an action by a mortgagee for the foreclosure of the mortgagee’s
mortgage and sale of the mortgaged property, when it appears that the
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OHIO FIRST DISTRICT COURT OF APPEALS
mortgaged property is in danger of being lost, removed, materially
injured, diminished in value, or squandered, or that the condition of
the mortgage has not been performed, and either of the following
applies:
(a) The property is probably insufficient to discharge the mortgage
debt.
(b) The mortgagee has consented in writing to the appointment of
a receiver.
(3) To enforce a contractual assignment of rents and leases.
{¶18} PE Lima initially argues that the trial court lacked sufficient evidence
to grant Lender’s motion to appoint the receiver for the Allen County property absent
an evidentiary hearing. But Ohio appellate courts have held that R.C. 2735.01 does
not require a trial court to hold an evidentiary hearing before appointing a receiver,
particularly where the moving party has produced evidence by supporting
documentation and affidavits. See Victory White Metal Co. v. N.P. Motel Sys. Inc.,
7th Dist. Mahoning No. 04 MA 245, 2005-Ohio-2706, ¶ 52-54; Poindexter v.
Grantham, 8th Dist. Cuyahoga No. 95413, 2011-Ohio-2915, ¶ 14; Crawley JV, L.L.C.
v. Wall St. Recycling, L.L.C., 2015-Ohio-1846, 35 N.E.3d 30, ¶ 8 and 12 (8th Dist.).
{¶19} Here, the record reflects that the trial court considered the two
affidavits that Lender had filed in support of its motions for a receiver. Lender had
submitted an affidavit by Solomon in support of its December 8, 2015 motion for a
receivership order for the Hamilton County properties. Lender filed a second
Solomon affidavit in support of its February 26, 2016 motion to subject the Allen
County property to the receivership order. Given these affidavits and the supporting
documentation referenced in the affidavits, we cannot conclude the trial court erred
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OHIO FIRST DISTRICT COURT OF APPEALS
by not holding an evidentiary hearing before adding the Allen County property to the
February 1, 2016 receivership order.
{¶20} PE Lima next challenges the sufficiency of the evidence Lender
presented to support its receivership motion for the Allen County property, but only
with respect to R.C. 2735.01(A)(2). PE Lima argues that Lender failed to put forth any
evidence to show that the conditions in R.C. 2735.01(A)(2) had been met or that it had
consented in writing to the appointment of a receiver, and thus, the trial court erred in
appointing a receiver under that statutory subsection.
{¶21} We need not decide, however, whether the trial court had sufficient
evidence before it to satisfy R.C. 2735.01(A)(2), because the trial court provided
another statutory basis for the appointment of the receiver for the Allen County
property. Here, the trial court additionally determined that Lender was entitled to a
receiver pursuant to R.C. 2735.01(A)(3), which provides for the appointment of a
receiver “[t]o enforce a contractual assignment of rents and leases.”
{¶22} In Sections 1.01(h) and 1.01(s) of the mortgage, PE Lima granted an
absolute assignment of rents and leases to Lender as the holder of the Allen County
mortgage. In Section 1.02 of the mortgage, PE Lima
absolutely and unconditionally assign[ed] to [Lender] all * * * right,
title, and interest in and to all current and future Leases and Rents; it
being intended by [Lender] that this assignment constitutes a present,
absolute assignment and not an assignment for additional security
only. Nevertheless, subject to the terms of the Assignment of Leases, *
* * and Section 7.01(j) of this Mortgage, [Lender] grants to [PE Lima] a
revocable license to collect, receive, use, and enjoy the Rents. [PE
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Lima] shall hold the Rents, or a portion thereof sufficient to discharge
all current sums due on the Debt, for use in the payment of such sums.
{¶23} Section 7.01(j)(iv) of the mortgage, provides that upon “any Event of
Default, [PE Lima] agrees that [Lender] may take such action, without notice or
demand, as it deems advisable to protect and enforce its rights against [PE Lima]
and in and to the Property, including but not limited to” the right to automatically
revoke the “license granted to [PE Lima] under Section 1.02” and to “make, cancel,
enforce, or modify Leases, obtain and evict tenants and demand, sue for, collect, and
receive all Rents of the Property and every part thereof.”
{¶24} PE Lima also entered into a contractual assignment of leases and
rents with Lender. Article 3, Section 3.1 of the Assignment of Leases and Rents
provides that upon
an Event of Default, the license granted to [PE Lima] in Section 2.1 of
this assignment shall automatically be revoked and Lender shall
immediately be entitled to possession of all Rents and all sums due
under any Lease Guaranties, whether or not Lender enters upon or
takes control of the Property. In addition, Lender may, at its option,
without waiving any Event of Default, without regard to the adequacy
of the security for the Obligations, either in person or by agent, * * *
with or without bringing any action or proceeding, or by a receiver
appointed by a court, dispossess [P.E. Lima] and its agents and
servants from the Property * * * and take possession of the Property * *
*.
{¶25} PE Lima does not challenge the trial court’s determination that
Lender was entitled to the appointment of a receiver to enforce its contractual
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OHIO FIRST DISTRICT COURT OF APPEALS
assignment of rents and leases. Based on our review of the record and the law, we
cannot conclude the trial court abused its discretion in appointing a receiver
pursuant to R.C. 2735.01(A)(3). See, e.g., Victor Asset Acquisition LLC v. Woogerd,
5th Dist. Richland Nos. 15-CA-47 and 15-CA-69, 2016-Ohio-1435, ¶ 32-37. We,
therefore, overrule PE Lima’s sole assignment of error and affirm the judgment of
the trial court.
Judgment affirmed.
MOCK, P.J., and CUNNINGHAM, J., concur.
Please note:
The court has recorded its own entry this date.
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