Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00835/USCOURTS-caed-2_05-cv-00835-2/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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1

 UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

CUPERTINO NATIONAL BANK AND

TRUST, a part of Greater Bay

Bank N.A., successor in

interest to Cupertino National

Bank and Trust,

NO. CIV. S-05-0835 WBS JFM

Plaintiff,

v. MEMORANDUM AND ORDER

RE: MOTION FOR APPOINTMENT OF

RECEIVER

ROSEVILLE FUEL PLAZA, LLC,

GREATER SACRAMENTO CERTIFIED

DEVELOPMENT CORPORATION;

UNITED STATES SMALL BUSINESS

ADMINISTRATION; and DOES 2

through 200,

Defendants.

----oo0oo---- 

Plaintiff brought this action to foreclose on property

owned by Roseville Fuel Plaza, LLC (“Roseville”) which served as

collateral for a $2.9 million loan. Fearing that defendantdebtor Roseville Fuel Plaza, LLC. (“Roseville”) is depleting and

will continue to deplete the collateral for the loan while the

foreclosure action is pending, plaintiff-lender Cupertino

National Bank and Trust, a part of Greater Bay Bank N.A.,

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Attached as Exhibit 1 to Pl.’s Request for Judicial 1

Notice in Supp. of Pl.’s Mot. for Appointment of Receiver (“Pl.’s

Request for Judicial Notice”).

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successor in interest to Cupertino National Bank and Trust

(“GBBK”), moves this court to exercise its equitable authority to

appoint a receiver to secure GBBK’s interest in Roseville’s

property. The case is before this court because GBBK also seeks

to foreclose an interest in Roseville’s property that was

acquired by defendant United States Small Business Administration

(“SBA”), and because the SBA has removed the case pursuant to 28

U.S.C. § 1444 (granting removal jurisdiction over foreclosure

actions affecting property on which United States has a lien). 

I. Factual and Procedural Background

Roseville operates a commercial fueling and service

station in Roseville, California. (Decl. of Katherine S. Moore

in Supp. of Pl.’s Mot. for Appointment of Receiver (“Moore

Decl.”) ¶ 2). The station consists of two buildings: a service 1

building for truck maintenance and washing, and a commercial

building with a deli and office space. (Id.). 

On or about June 8, 2001, Roseville entered into a

Construction Loan Agreement with GBBK and signed a Promissory

Note obligating Roseville to pay GBBK (then Cupertino National

Bank & Trust) $2,898,000 plus a set amount of interest over a

given period of time. (See Moore Decl. ¶ 3, Ex. A (Construction

Loan Agreement) and B (Promissory Note)). To secure its debt

under the Construction Loan Agreement and Promissory Note,

Roseville entered into a Commercial Security Agreement with GBBK,

granting GBBK a security interest in all of Roseville’s

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inventory, chattel paper, accounts, equipment, fixtures, and

general intangibles (“collateral”). (Id. ¶ 4, Ex. C (Commercial

Security Agreement)). 

On or about April 18, 2002, Roseville and GBBK entered

into a Change in Terms Agreement, amending the payment schedule

set forth in the Promissory Note. (Id. ¶ 6, Ex. E (Change in

Terms Agreement)). Collectively, the Construction Loan

Agreement, the Promissory Note, the Commercial Security

Agreement, and the Change in Terms Agreement are hereinafter

referred to as the “Loan Agreement,” except when individually

referenced in parenthetical citations. 

Under the Loan Agreement, GBBK extended a total loan of

$2,898,000 with an interest rate of 8.25% and a maturity date of

June 5, 2011. (See id., Ex. E (Change in Terms Agreement)). To

secure this debt further, Roseville also entered into a

Construction Trust Deed and Assignment of Rents (collectively

“Deed of Trust”) with GBBK on or about June 8, 2001. (Id. ¶ 8,

Exs. F (Construction Trust Deed) and G (Assignment of Rents)). 

The Deed of Trust conveyed Roseville’s real property at 9077

Foothills Boulevard and 1371 Alberston’s Drive (“the Property”)

to Greater Bay Bancorp as trustee for Cupertino National Bank and

Trust (then a separate bank entity), and is a first priority

lien. (Id. ¶ 9). 

The Loan Agreement contains several provisions making

it a default for Roseville to:

! lease its property without GBBK’s prior written

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NEGATIVE COVENANTS . . . “[Roseville] shall not, 2

without the prior written consent of [GBBK], . . . sell transfer,

mortgage, assign, pledge, lease, grant, a security interest in,

or encumber any of [Roseville’s] assets.” 

(Moore Decl., Ex. A (Construction Loan Agreement) at 6)(emphasis

added).

Transactions Involving Collateral 3

Except for inventory sold or accounts collected in the

ordinary course of [Roseville’s] business, [Roseville]

shall not sell . . . the Collateral. . . . A sale in

the ordinary course of [Roseville’s] business does not

include . . . any bulk sale. . . . Unless waived by

[GBBK], all proceeds from any disposition of the

Collateral (for whatever reason) shall be held in trust

for [GBBK] and shall not be commingled with any other

funds; provided, however, this requirement shall not

constitute consent by [GBBK] to any sale or other

disposition. Upon receipt, [Roseville] shall

immediately deliver any such proceeds to [GBBK].

(Moore Decl., Ex. C (Commercial Security Agreement) at 2)

(emphasis added). 

Violation of this provision constitutes a default

because the Loan Agreement defines a default as “[f]ailure to

comply with or to perform any other term, obligation, covenant or

condition contained in this Agreement. . . .”)(See id. at 3). 

AFFIRMATIVE COVENANTS. [Roseville] covenants and agrees 4

with [GBBK] that, while this Agreement is in effect,

[Roseville] will: . . . [with regards to] Taxes and

Claims [,][pay] and discharge when due all of

[Roseville’s] indebtedness, obligations, and claims

that, if unpaid, might become a lien or charge upon the

Property or improvements; provided, however, that

[Roseville] shall not be required to pay and discharge

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consent;2

! make a sale of any of its collateral other than in

the ordinary course of business or fail to

immediately deliver the proceeds of any sale to

GBBK; 

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! fail to pay property tax obligations; and 4

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any such indebtedness, obligation, or claim so long as

(a) its legality shall be contested in good faith by

appropriate proceedings, (b) the indebtedness,

obligation, or claim does not become a lien . . . and

(c) [Roseville] shall have established on its books

adequate reserves with respect to the amount contested

in accordance with generally accepted accounting

practices. . . .

(Moore Decl., Ex. A (Construction Loan Agreement) at 5-6)

(emphasis added). 

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! fail to maintain a debt coverage ratio defined as

follows: “Net Operating Income divided by

Principal and Interest Expense of 1.50 to 1.00.”

(Moore Decl., Ex. A (Construction Loan Agreement) at 5). 

The Deed of Trust provides that GBBK can declare the

entire loan amount immediately due if Roseville conveys a

leasehold interest in the Property with a term greater than three

years. (Id., Ex. F (Construction Trust Deed) at 3 (Due on Sale -

Consent by Lender)). 

The various documents constituting the Loan Agreement

and Deed of Trust provide that “[f]ailure of [Roseville] to

comply with any term, obligation, covenant, or condition in . . .

any of the [r]elated [d]ocuments” constitutes an event of default

under each document. (See, e.g., Moore Decl., Ex. G (Assigment

of Rents) at 2-3). Upon Roseville’s default, multiple provisions

in the Loan Agreement and the Deed of Trust also purport to give

GBBK the right to have a receiver appointed as a matter of right

and to take possession of the collateral and the Property. (See

id., Ex. A (Construction Loan Agreement) at 8 (granting right to

appointment of receiver upon default); Ex. C (Commercial Security

Agreement) at 4 (“Rights and Remedies on Default - Appoint

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Recevier”); Ex. F (Construction Trust Deed) at 6 (same); Ex. G

(Assignment of Rents) at 3 (same)). 

In February 2003, Roseville failed to make its monthly

loan payment to GBBK. (Burns Reply Decl. ¶ 3). In March 2003,

Kevin Schulze and Gary Schulze, Roseville’s owners, contacted

Roxanne Burns, then a lending manager at GBBK, to discuss a

possible deferment of Roseville’s loan payments because Roseville

was having difficulty meeting its financial burdens. (Id.). At

the time, the Schulzes represented that they were either going to

sell Roseville for $5.2 million or sell its delicatessan/café

operation to a third-party and lease the space to that operator. 

(Id.). Based on that representation, GBBK agreed to defer

Roseville’s loan payment until August 2003. (Id.). When the

deferment period ended, Roseville again defaulted on their

payments. (Id. ¶ 4). 

In December 2003, Kevin Schulze set up a meeting with

Roxanne Burns, then a lending manager at GBBK, to discuss the

status of Roseville’s business and “also some ideas [Schulze had]

to get [Roseville] the relief [it] needed.” (Req. For Judicial

Notice in Opp’n to Pl.’s Mot. for Appointment of Receiver, Ex. B

(Decl. Of Kevin Schulze (“Mr. Schulze”) in Opp’n to Pl.’s Mot.

for Appointment of Receiver (filed in state court before

removal)) (“Schulze Decl.”) ¶¶ 7, 9; Burns Reply Decl. ¶¶ 1,5). 

Mr. Schulze attended the meeting with his father, Gary Schulze,

and their financial advisor, Ed Ryan. (Schulze Decl. ¶ 7). Mr.

Schulze and his entourage discussed with Ms. Burns their hope

that the bank would allow them to refinance the Deed of Trust. 

The Roseville representatives informed Ms. Burns that they

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intended to split the Property into two separate lots and sell

the portion with the office building and delicatessan. They also

informed her that they were forming a new mobile oil lube

servicing business and requested that GBBK restructure the loan. 

(Burns Reply Decl. ¶ 5). Ms. Burns told the Roseville

representatives that their proposal had merit, but that they

would have to submit a formal request and provide a financial

package to GBBK for GBBK to consider restructuring the loan. 

(Schulze Decl. ¶ 7). Kevin Schulze acknowledges that the parties

“certainly did not reach any agreement at the meeting.” (Id.). 

However, he states that he immediately sent the requested

information to GBBK after the meeting but that by mid-2004, the

bank still had not responded. (Id. ¶¶ 7-8). Ms. Burns states

that Roseville never provided the requested information to GBBK

and again failed to make its monthly payments. (Burns Reply

Decl. ¶ 6).

Ms. Burns later learned that Roseville’s owners had

formed a new entity called Refinery Mobile Division (“Refinery

Mobile”) which had entered into a five-year lease with Roseville

for part of Roseville’s office building and other areas,

effective January 1, 2004 (Id. ¶ 7). 

GBBK treated Roseville’s failure to make loan payments

after December 2003 as a default under the Loan Agreement and

sent a notice of default and demand for payment to Roseville on

March 25, 2004. (Id. ¶ 8). Thereafter, Gary Schulze requested

to meet with GBBK to discuss Roseville’s loan. The meeting was

originally scheduled for May 2004, but GBBK had to cancel the

meeting because Roseville failed to submit the information

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Kevin Schulze refers to this meeting as a May 2004 5

meeting in his declaration. (Schulze Decl. ¶ 9). However,

declarations from others at the meeting confirm that it actually

took place in June. (See, e.g., Moore Decl. ¶ 6). The specific

date of the meeting is immaterial to the resolution of this

motion. 

8

requested by GBBK. (Id. ¶ 9). 

On May 12, 2004, Gary Schulze sent a letter to

Katherine Moore, GBBK’s senior special assets officer, requesting

that GBBK reconsider the commencement of foreclosure proceedings 

and submitting a written proposal to restructure the terms of its

loan. (Moore Reply Decl. ¶ 3). Another meeting was scheduled

for June 3, 2004. (Burns Reply Decl. ¶ 11). In preparation for 5

that meeting, Ms. Moore sent a letter to the Schulzes on May 21,

2004, advising Roseville that GBBK was not in a position to

approve the request outlined in Roseville’s letter without

further information regarding Roseville’s ability to service the

debt after the proposed restructure of the loan and whether

Roseville had a source of funds for covering shortages. (Moore

Reply Decl. ¶ 4). She further advised the Schulzes that they

would need to submit a proposal containing the requested

information at least 48 hours before the June 3, 2004 meeting. 

(Id., Ex. A (May 21, 2004 Letter)). 

After Roseville submitted an inadequate cash flow

analysis, Ms. Moore sent another letter to the Schulzes on June

2, 2004, advising them of GBBK’s concerns with their request and

informing them that the personnel attending the June 3, 2004

meeting had no authority to bind GBBK, and that any proposal

would have to be approved by the appropriate credit authorities

within GBBK. She further informed them that GBBK would not be

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Ms. Burns also recalls that Ed Ryan, the Schulze’s 6

financial adviser, and Larry Cretan of GBBK were there. (Burns

Reply Decl. ¶ 12). 

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bound by any agreement, unless GBBK’s credit committee approved

the terms and GBBK executed written documentation of an

agreement. (Id. ¶ 5, Ex. B (June 2, 2004 Letter to Schulzes)).

At the June 3, 2004 meeting were the Schulzes, a member

of Roseville named Robert Nurisso, Ms. Burns, Ms. Moore, and GBBK

service manager Anthony Pare, and Ms. Moore. (Id. ¶ 9). During 6

the course of the meeting, those present discussed Roseville’s

business struggles and the strategies Roseville was employing to

overcome them. The parties’ representatives discussed in detail

a proposal to lease Roseville’s fuel operation to an outfit

called Toms Sierra Company, dba Sierra Energy (“Toms Sierra”). 

Kevin Schulze declares that Ms. Burns told him that she thought

his idea of leasing the fuel operation to Toms Sierra was a “very

good one.” (Id. ¶ 10). According to Kevin Schulze, “[no] bank

representative expressed even a hint of disapproval about the

idea.” (Id.). Ms. Burns acknowledges that she said the idea

“appeared to have merit,” but that GBBK would need to see the

financial statements and documents before it could decide whether

to approve the lease. (Burns Reply Decl. ¶ 12). After Gary

Schulze stated that he was not going to “put another penny into

the business,” the meeting ended. (Id.).

The next day, on June 4, 2004, GBBK received an e-mail

from Kevin Schulze stating that Roseville would make its loan

payments and provide GBBK with financial statements and

documentation. (Moore Reply Decl. ¶ 7). Kevin Schulze also made

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another proposal to bring Roseville’s loan current. (Id.). 

Thereafter, Roseville provided some financial documentation to

GBBK, but did not provide enough information for GBBK to consider

the proposal. (Id.). 

On June 29, 2004, Roseville’s people sent another email

to GBBK regarding the release of a lien on its fuel inventory,

which was referenced in the proposed lease between Roseville and

Toms Sierra and confirmed they would provide a copy of the

proposed lease. (Id. ¶ 9). On July 23, 2004, Ms. Moore received

a copy of the lease that contained finalized terms. (Id. ¶ 10,

Ex. D (Card Lock Facility Lease Agreement)). It was apparent

from the lease that it had taken effect on July 1, 2004. (Id.).

Pursuant to the lease, Roseville transferred its

fueling business to Toms Sierra for $250,000, with a $25,000

deposit made at the commencement of the lease and the remaining

$225,000 financed through a five-year promissory note. Roseville

leased the property used to operate the commercial gas station to

Toms Sierra for five years, and sold all of its fuel inventory to

Toms Sierra. (Id.). GBBK never gave its consent for this lease. 

(Id. ¶ 11). 

 On June 30, 2004, Ms. Moore sent the Schulzes a letter

instructing Roseville to deposit the proceeds from the lease of

Roseville’s fueling business and the sale of its fuel inventory

into a collateral account until GBBK either consented to the

lease or the lease was rescinded. Roseville deposited

approximately $4,350 into the account but subsequently refused to

deposit the balance of the sale proceeds. (Id. ¶ 12; Moore

Decl., Ex. H (June 30, 2004 Letter)). 

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On August 19, 2004, Roseville sent GBBK a letter with

an attached cash flow projection. (Moore Reply Decl. ¶ 13; Moore

Decl., Ex. I (August 19, 2004 Letter)). This projection took

into account the cash Roseville expected to receive based on a

proposed restructuring of a loan and a sale of the

delicatessen/office building that never occurred. (Moore Reply

Decl. ¶ 13). 

On October 11, 2004, Roseville’s then counsel, John J.

Meissner, Jr., responded to Ms. Moore’s letter with his own

letter on October 11, 2004. In that letter, Mr. Meissner

acknowledged Roseville’s transfers to, among others, Refinery

Mobile and Toms Sierra, but argued that his client “received

verbal encouragement from the bank to take [the subject]

actions.” (Moore Decl., Ex. J (October 11, 2004 Letter)). 

However, Ms. Moore declares that she had many discussions

regarding how Roseville could cure the transfers GBBK considers

to be defaults, but that Roseville has failed to meet the

conditions offered by GBBK. (Id. ¶ 14). 

Roseville’s owners have repeatedly told Ms. Moore that

Roseville has struggled financially from the inception of its

operations and that it has a negative monthly cash flow for which

its owners contribute funds to make up the shortfall. (Moore

Decl. ¶ 18, see also id., Ex. I (August 19, 2004 Letter) ¶ 11). 

Ms. Moore also believes that, based on her review of

Placer County’s online property tax bill search feature,

Roseville owes approximately $105,000 in property taxes on the

subject Property. (Id. ¶ 16). Kevin Schulze states that all of

Roseville’s property taxes were paid after he lawfully contested

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Defendant SBA contends that this motion is moot because 7

“even if this Court were to grant [GBBK’s] motion and appoint a

receiver, before the receiver could accept his appointment, there

will be no property left for the receiver to administer.” (See

Response of the United States to Mot. to Appoint a Receiver at 1-

2). SBA represents that it has received notice that GBBK has

scheduled a nonjudicial sale of the real estate at issue for July

12, 2005, at 10:00 a.m., the morning after the hearing on this

motion. (Id. at 1). However, both plaintiff’s and defendants’

counsel represented at oral argument that the nonjudicial sale

may not go through. Therefore, the appointment of a receiver is

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a reassessment. (See July 11, 2005 Declaration of Kevin Schulze

in Opp’n to Pl.’s Motion for Appointment of Receiver (“Schulze

July Decl.”) ¶ 3). The Loan Agreement allows Roseville to

withold taxes while lawfully contesting a reassessment so long as

Roseville maintains adequate reserves with respect to the amount

contested as allowed by the Loan Agreement. (See Moore Decl.,

Ex. A (Construction Loan Agreement) at 5-6 (allowing Roseville to

contest taxes)). 

As of June 16, 2005, the amount outstanding on the loan

that is the crux of this case is approximately $3,180,963. 

(Moore Reply Decl. ¶ 14). 

GBBK filed this action to, among other things,

judicially foreclose on the Property and appoint a receiver to

take possession of the Property and collect the rents therefrom,

and to collect any other payments, income, and revenue from the

collateral. 

In the instant motion, GBBK requests only that the

court appoint a receiver over the subject Property, and nominates

J. Benjamin McGrew to act as that receiver. Defendant SBA filed

a late opposition that does not address the substance of

plaintiff’s motion. Defendant Roseville does not dispute that 7

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Mr. McGrew could appropriately serve as a receiver, but argues

that it would be inequitable to appoint any receiver in this

matter because there has been no monetary default, and because

any default was orally approved by GBBK representatives. 

Roseville also requests a 30-day continuance of the motion to

allow Roseville to complete “take-out financing” to pay off

GBBK’s loan. 

II. Discussion

Federal Rule of Civil Procedure 66 (“Rule 66”) and

federal case law govern the appointment of a receiver in federal

court, and not state law. New York Life Ins. Co. v. Watt West

Investment Corp., 755 F. Supp. 287, 288-94 (E.D. Cal. 1991). 

Rule 66 provides that:

The practice in the administration of estates by

receivers . . . appointed by the court shall be in

accordance with the practice heretofore followed in the

courts of the United States or as provided in rules

promulgated by the district courts.

Fed. R. Civ. P. 66. 

Ninth Circuit case law establishes that “[r]eceivership

is an equitable remedy and [that] a receiver will be appointed

when the most speedy and perfect administration of justice and

the rights of the parties interested in the property will be best

secured by such action.” View Crest Garden Apartments, Inc. v.

United States, 281 F.2d 844, 849 (9th Cir. 1960)(citation and

internal quotation marks omitted). In this district, the Local

Rules do not speak to the factors courts should consider in

determining whether to appoint a receiver. See Local Rule 66-

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232(addressing only procedures for bringing motions for

appointment of receiver but not what factors courts are to

consider in deciding such motions). However, in New York Life,

this court noted several factors courts use to determine whether

to appoint a receiver:

(1) fraudulent conduct on defendant’s part;

(2) imminent danger of the property being lost, 

concealed, injured, diminished in value, or squandered;

(3) inadequacy of legal remedies;

(4) probability that harm to plaintiff by denial of

appointment would outweigh injury to parties opposing

appointment;

(5) plaintiff’s probable success in the action and the

possibility of irreparable injury to plaintiff’s

interest in the property; and 

(6) whether plaintiff’s interests sought to be

protected will in fact be well-served by receivership.

755 F. Supp. at 292. In weighing these factors, the court must

give special consideration to the adequacy of the security and

the financial position of the debtor. Id. 

Under California law, a contractual consent to the

appointment of a receiver upon default gives a party a near

absolute right to the appointment of a receiver upon default. 

Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230, 1242

(9th Cir. 1994)(addressing power of court to appoint receiver

pursuant to Cal. Civ. Proc. Code § 564 and California case law). 

Under federal law, however, such contractual provisions are not

dispositive, though they are given great weight in considering

the balance of hardships between the subject parties. See New

York Life, 755 F. Supp. at 293(finding “little hardship in

enforcing the terms of the parties’ bargain.”). 

A. Roseville Has Defaulted on the Loan Agreement

GBBK contends that Roseville has defaulted on the Loan

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Agreement by (1) leasing property to Refinery Mobile and Toms

Sierra without GBBK’s written consent; (2) selling all of its

fuel inventory to Toms Sierra and failing to pay GBBK the

proceeds from the fuel sale to Toms Sierra; (3) failing to

maintain the debt coverage ratio required under the Loan

Agreement; and (4) failing to pay property taxes.

1. Leasing Property to Refinery Mobile and Toms

Sierra

The Loan Agreement clearly prohibits Roseville from

leasing any of its assets. (Moore Decl., Ex. A (Construction

Loan Agreement) at 6(“Negative Covenants - Indebtedness and

Liens”)). Roseville does not dispute that it leased the property

to both Refinery Mobile and Toms Sierra. (See id., Ex. J

(October 11, 2004 Letter from Roseville’s counsel)). Therefore,

the leases constitute defaults.

2. Selling Fuel Inventory to Toms Sierra

The Loan Agreement provides that Roseville shall not

make any sale of any of its collateral outside the ordinary

course of its business, and that, should such a sale occur,

Roseville must immediately deliver the proceeds from the sale to

GBBK. (Id., Ex. C (Commercial Security Agreement) at 2). 

Roseville does not dispute that it sold its fuel inventory to

Toms Sierra. (See Moore Reply Decl. ¶ 10, Ex. D (Card Lock

Facility Lease Agreement); see also Moore Decl., Ex. J (October

11, 2004 Letter from Roseville’s counsel)(admitting this)). Nor

has it argued that such sale was in the ordinary course of

business. The sale thus constitutes a default.

Roseville’s failure to turn over immediately to GBBK

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the proceeds from the fuel sale to Toms Sierra is also wrongful. 

In fact, in his August 19, 2004 letter to Ms. Moore, Kevin

Schulze admits that Roseville does not intend to ever deliver the

proceeds from the sale to GBBK. The letter states in pertinent

part:

[I]t was Roseville Fuel Plaza’s intent to submit the

payment [for the sale] to [GBBK] for deposit into a

collateral account. However, upon further review, it

is our feeling that if additional collateral and an

additional guarantor are being provided, this should

more than compensate [sic] the collateral that the

lender feels is being lost.

 

(Moore Decl., Ex. I (August 19, 2004 Letter) at 1). Roseville’s

effort to unilaterally waive the Loan Agreement provision

requiring them to turn over the sale proceeds to GBBK is

unavailing. This, too, is a default. 

3. Failure to Maintain Required Debt Coverage Ratio

The Loan Agreement provides that Roseville must

maintain a debt coverage ratio of 1.50 to 1.00. This is defined

as “Net Operating Income divided by Principal and Interest

Expense.” (Id., Ex. A (Construction Loan Agreement) at 5). GBBK

does not expound on why it believes there has been a default

under this clause, and Roseville does not specifically address

the issue. However, Roseville does admit that “[its] business

has struggled financially from day one. Two years and four

months have gone by and we are still operating at a net monthly

loss.” (Id., Ex. I (August 19, 2004 Letter) at 11)(emphasis

added). If Roseville has been operating at a net monthly loss,

then its net operating income divided by principal expense could

not have been positive, much less 1.50 to 1.00. Therefore,

Roseville has defaulted on this part of the Loan Agreement.

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4. Failure to Pay Property Taxes

The Loan Agreement provides that Roseville must pay all

of its taxes and other obligations when due, except that it

“shall not be required to pay and discharge any such

indebtedness, obligation or claim so long as . . .its legality

shall be contested in good faith by appropriate proceedings.” 

(Id., Ex. A (Construction Loan Agreement) at 6). GBBK contends

that Roseville has been delinquent in paying its property taxes. 

(Id. ¶ 16). However, Roseville has produced sufficient evidence

to establish that all of Roseville’s property taxes were paid

after it lawfully contested a reassessment. (Schulze July Decl.

¶ 3). Therefore, the court does not find that Roseville has

defaulted on this portion of the Loan Agreement.

5. Roseville’s Faults Are Not Excusable

Roseville ignores the default based on its failure to

maintain the proper debt coverage ratio, but denies the other

defaults because they are nonmonetary and because the subject

transfers and sale were orally approved by GBBK’s

representatives. (Def.’s Mem. in Opp’n to Pl.’s Mot. for

Appointment of Receiver (“Def.’s Opp’n”) at 2). Neither argument

is persuasive.

A default does not have to be monetary in order to be a

default; in fact, a nonmonetary default can be a material breach

of a contract. See, e.g., In re Qintex Entm’t, Inc., 950 F.2d

1492 (9th Cir. 1991)(finding nonmonetary default to be material

breach although agreement did not specifically cover nonmonetary

default). Further, the Loan Agreement does not require a

monetary default before GBBK gains the right to have a receiver

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appointed. The Loan Agreement requires “the occurrence of any

Event of Default.” (See, e.g., Moore Decl., Ex. G (Assignment of

Rents) at 3). Requiring a monetary default would render GBBK

powerless to enforce several provisions of the Loan Agreement set

out in plain, unambiguous terms that were deliberately included

in that Agreement to enable Roseville to secure an almost $3

million loan. 

Nor did GBBK’s representatives orally approve the

transfers and sale constituting defaults under the Loan

Agreement. Ms. Burns never approved Roseville’s lease to

Refinery Mobile. Though Ms. Burns acknowledges that she informed

the Schulzes that the proposed transfer had merit, she states

that Roseville never provided the information GBBK needed to

process a formal request. (Burns Reply Decl. ¶ 6). Even if

Roseville did provide the information, GBBK never obtained

written consent for the transfer as required by the Loan

Agreement. (Id. ¶ 7; see also Moore Decl. Ex. A (Construction

Laon Agreement)(forbidding transfers of collateral without prior

written consent) at 6). 

Roseville did not obtain prior written consent for the

transfer and sale to Toms Sierra, either. Roseville contends

that its representatives were entitled to go forward with the

transfer and sale because Ms. Burns told them at the June 3, 2004

meeting that the idea to lease Roseville’s fuel operation to Toms

Sierra was “a very good one,” and because “[n]o bank

representative experessed even a hint of disapproval about the

idea.” (Schulze Decl. ¶ 10). However, this characterization of

the events is misleading.

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Before the June 3, 2004 meeting, Ms. Moore informed the

Schulzes that the personnel attending the meeting did not have

authority to bind GBBK and that any proposal would have to be

approved by the appropriate credit authorities within GBBK. She

also informed them that GBBK would not be bound by any agreement,

unless GBBK’s credit committee approved the terms and GBBK

executed written documentation. (Moore Reply Decl. ¶ 5, Ex. B

(June 2, 2004 Letter to Schulzes)). At the meeting, Ms. Burns

reiterated that GBBK would need to see some financial statements

and documents before it could decide whether to approve the

lease. (Burns Reply Decl. ¶ 12). Afterwards, Gary Schulze ended

the meeting by declaring that he was not going to “put another

penny into the [Roseville’s] business.” (Id.). 

Only by taking a few isolated statements out of context

could one infer that Ms. Moore gave Roseville oral approval to go

ahead with a lease to Toms Sierra. Nor is there any record that

the parties even discussed any sale of fuel inventory to Toms

Sierra. Therefore, contrary to Roseville’s contentions, Ms.

Moore never orally waived the Loan Agreement provision

specifically requiring Roseville to obtain GBBK’s written consent

before transferring any collateral. (Moore Decl., Ex. A (Loan

Construction Agreement) at 6)(forbidding transfers of collateral

without GBBK’s prior written consent).

B. Appointment of a Recevier is Appropriate

Roseville cites numerous cases to argue that the

appointment of a receiver is “drastic,” and “a remedy of last

resort.” (Def.’s Opp’n at 2-3)(citing Ferguson v. Tabah, 288

F.2d 665, 674 (2d Cir. 1961); Minzter v. Arthur L. Wright & Co.,

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263 F.2d 823, 824 (3d Cir. 1959); Connolly v. Gishwiller, 162

F.2d 428, 435 (7th Cir. 1947); Bracco v. Lackner, 462 F. Supp.

436, 456 (N.D. Cal. 1978)). None of these cases involve

situations where the contract explicitly gives the right to have

a receiver appointed in the event of a default. Cases where the

contract specifically provides for the appointment of a receiver

are marked by considerably different language. See New York

Life, 755 F. Supp. at 293(noting that deed of trust specifically

provided for appointment of receiver and stating “[t]here is

little hardship in enforcing the terms of the parties’ bargain.”;

Okura & Co. v. Careau Group, 783 F. Supp. 482, 499 (C.D. Cal.

1991)(appointing receiver as provided for in deed of trust

without any discussion beyond “appointment of receiver [sic] . .

. is necessary to protect the plaintiff’s interest in the

interim.”). 

Properly understood, the case law thus holds that

appointment of a receiver is not a drastic remedy in a situation

like this one, where the borrower has defaulted on the Loan

Agreement in several ways and the agreement explicitly provides

for the appointment of a receiver in the event of default. 

However, this is not the only factor that weighs in favor of the

appointment of a receiver.

The two factors most important to the analysis, the

adequacy of the security and the financial position of the

debtor, also weigh in favor of appointing a receiver. See New

York Life, 755 F. Supp. at 292(finding these factors to be most

important). Roseville contends that the security is adequate

because various appraisals establish that the Property is worth

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substantially more than Roseville’s debt, such that the Property

has a $500,000 equity cushion. However, Roseville has shown a

propensity to transfer its interests and collateral without

obtaining GBBK’s consent. Roseville’s alleged “equity cushion”

does not prevent Roseville from transferring any more collateral. 

Nor has Roseville disputed that its financial strength is

doubtful or that it is in danger of becoming insolvent. In its

papers, Roseville evasively answers GBBK’s charge that its owners

have to infuse nonobligatory amounts of cash into the business

each month to keep it going, glibly stating that the charge “may

or may not be true.” (Def.’s Mem. of P. & A. in Opp’n to Pl.’s

Mot. for Appointment of Receiver at 4). Roseville’s own cash

flow projection through July 2005 showed a negative monthly cash

flow. (Moore Reply Decl. ¶ 13). Roseville has also admitted

that its business “has struggled from day one.” (Moore Decl.,

Ex. I (August 19, 2004 Letter) at 11). Under the circumstances,

Roseville appears to be in a precarious financial position.

Virtually all the factors generally considered when

deciding whether to appoint a receiver suggest that one should be

appointed in this case: (1) GBBK has not shown outright fraud on

Roseville’s part; but (2) there appears to be an imminent danger

that the Property may be lost through additional wrongful

transfers; (3) legal remedies would be inadequate to compensate

GBBK should Roseville become insolvent; (4) the balance of

hardships tips in GBBK’s favor because the parties contracted for

this remedy, see New York Life, 755 F. Supp. at 293; (5) GBBK is

almost certain to prevail on the merits of its foreclosure action

because Roseville has defaulted; and (6) the appointment of a

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receiver will serve to protect the collateral from wrongful

dissipation while hopefully improving Roseville’s business under

new management.

Just as in New York Life, “[t]his is a straightforward

foreclosure action on secured property.” Id., 755 F. Supp. at

293. The appointment of a receiver is necessary to prevent

further dissipation of secured collateral, and entirely

appropriate for this situation. GBBK’s suggested receiver, J.

Benjamin McGrew, is highly qualified to serve as receiver, and

Roseville has not come forward with any reason not to appoint him

to this position. Therefore, the court will appoint Mr. McGrew

as receiver. However, because counsel for all parties agreed at

oral argument that a 20-day stay of such order would be

appropriate to allow Roseville to attempt to refinance the loan,

the court will grant the stay. 

IT IS THEREFORE ORDERED that plaintiff’s motion to

appoint J. Benjamin McGrew as a receiver over the subject

property be, and the same hereby is, GRANTED.

IT IS FURTHER ORDERED that the above order appointing a

receiver be, and the same hereby is, STAYED FOR 20 DAYS from the

date of this order AND that during such stay, the receiver shall

do no work and incur no fees or expenses in his capacity as

receiver. 

DATED: July 12, 2005

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