4829-4386-0508.1

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

WBCMT 2003-C9 ISLAND LIVING,

LLC, a Michigan limited liability

company,

Plaintiff,

v.

SWAN CREEK LIMITED PARTNERSHIP, a

Michigan limited partnership,

Defendant.

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No. 2:14-cv-14243

Hon. Lawrence P. Zatkoff

*EXPEDITED CONSIDERATION REQUESTED*

PLAINTIFF’S MOTION FOR APPOINTMENT OF A RECEIVER,

AND FOR PRELIMINARY RELIEF

Plaintiff WBCMT 2003-C9 Island Living, LLC (“Plaintiff”), by its

counsel, Foley & Lardner LLP, moves this Court on an emergency basis pursuant

to Fed. R. Civ. P. 65 and 66, M.C.L. § 600.2926 and M.C.L. § 554.231, for

immediate entry of an order requiring that a receiver be appointed to manage and

control property and proceeds for property owned and managed by Swan Creek

Limited Partnership (“Borrower”). Furthermore, a preliminary injunction should

be issued to protect Plaintiff’s interest in the property and income therefrom.

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.156 Filed 11/04/14 Page 1 of 34
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4829-4386-0508.1

Plaintiff has not provided Borrower with notice of this Motion,

because it believes that advance notice may prejudice its interests. Fed. R. Civ. P.

65(b) authorizes this Court to enter a temporary restraining order, granting the

relief requested herein. Accordingly, Plaintiff requests that this Court enter a

temporary restraining order (“Order”) attached to the Brief as Exhibit 4, which

provides for: (i) the appointment of M. Shapiro Management Company, LLC,

through its authorized agent Mark Kassab as receiver, with all of the powers and

duties prescribed by law and the Order; (ii) protecting Plaintiff’s interest in the

Property and income therefrom from dissipation by Defendants; and (iii)

scheduling a hearing on Plaintiff’s Motion for Preliminary Injunction for

______________, 2014 at _______ a.m./p.m.

In support of its Motion, Plaintiff relies upon its Verified Complaint

filed concurrently herewith and Brief in Support.

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.157 Filed 11/04/14 Page 2 of 34
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4829-4386-0508.1

Dated: November 4, 2014

Respectfully submitted,

FOLEY & LARDNER LLP

/s/ Ann Marie Uetz

Ann Marie Uetz (P48922)

Tamar Dolcourt (P73425)

500 Woodward Ave., Suite 2600

Detroit, Michigan 48226

Telephone (313) 234-7140

Facsimile (313) 234-2800\

auetz@foley.com

tdolcourt@foley.com

Attorneys for Plaintiff

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.158 Filed 11/04/14 Page 3 of 34
4813-5041-8204.4

UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

WBCMT 2003-C9 ISLAND LIVING,

LLC, a Michigan limited liability

company,

Plaintiff,

v.

SWAN CREEK LIMITED PARTNERSHIP, a

Michigan limited partnership,

Defendant.

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)

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)

)

)

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)

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)

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No. 2:14-cv-14243

Hon. Lawrence P. Zatkoff

BRIEF IN SUPPORT OF PLAINTIFF’S EX PARTE MOTION FOR

APPOINTMENT OF RECEIVER AND FOR PRELIMINARY RELIEF

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.159 Filed 11/04/14 Page 4 of 34
4813-5041-8204.4 i

TABLE OF CONTENTS

STATEMENT OF ISSUES PRESENTED............................................................... ii

MOST CONTROLLING AUTHORITY................................................................. iii

I. INTRODUCTION ...........................................................................................1

II. STATEMENT OF FACTS..............................................................................2

A. Background ...........................................................................................3

B. The Mortgage ........................................................................................3

III. The Borrower’s Default Of The Loan Documents........................................10

A. Plaintiff’s Damages .............................................................................12

IV. STANDARD FOR THE APPOINTMENT OF A RECEIVER....................13

V. ARGUMENT.................................................................................................15

A. A Receiver Should Be Appointed Over The Property To

Preserve Plaintiff’s Collateral .............................................................15

i. The Loan Documents Authorize The Appointment

Of A Receiver.................................................................15

ii. The Appointment Of A Receiver Is Expressly

Authorized By Michigan Statute....................................17

iii. The Appointment Of A Receiver Is Authorized By

The Court’s Equitable Powers........................................19

iv. M. Shapiro Management Company, LLC Is Well

Qualified To Act As Receiver Through Its

Authorized Agent Mark Kassab .....................................22

B. An Injunction Is Necessary To Protect The Property .........................23

i. Plaintiff Is Likely To Succeed On The Merits ...............24

ii. Plaintiff Will Suffer Irreparable Harm Without An

Injunction........................................................................24

iii. The Borrower Will Not Be Harmed By An

Injunction........................................................................25

iv. Issuing An Injunction Serves The Public Interest..........25

VI. CONCLUSION..............................................................................................26

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4813-5041-8204.4 ii

STATEMENT OF ISSUES PRESENTED

1. Is Plaintiff entitled to the immediate appointment of a receiver and a

temporary restraining order, and after notice and hearing, an injunction where

Defendant agreed Plaintiff had a strict right to the appointment of a receiver in the

event of default on a mortgage, Defendant has defaulted on and breached the

mortgage, and the relief sought is authorized by the parties’ express agreement and

under the law?

Plaintiff says “Yes.”

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.161 Filed 11/04/14 Page 6 of 34
4813-5041-8204.4 iii

MOST CONTROLLING AUTHORITY

M.C.L. § 554.231

M.C.L. § 600.2926

Fed. R. Civ. P. 66

Fed. R. Civ. P. 65

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4813-5041-8204.4 1

I. INTRODUCTION

Plaintiff, WBCMT 2003-C9 Island Living, LLC, a Michigan limited liability

company (“Plaintiff”), by its counsel, Foley & Lardner LLP, moves this Court on

an emergency basis pursuant to Fed. R. Civ. P. 65 and 66, M.C.L. § 600.2926

(“Receiver Statute”), and M.C.L. § 554.231 (“Assignment of Rents Statute”) for

immediate entry of a temporary restraining order appointing a receiver to enforce

the covenants under the Mortgage (as defined below) and to manage and control a

mobile home community located at 23379 Island Drive, New Boston, Michigan,

on which Plaintiff holds a mortgage, as well as, a security interest on the Personal

Property (as defined below) located thereon (collectively, the “Property”). Plaintiff

seeks entry of a preliminary injunction for the same relief after notice and a

hearing.

Plaintiff is the mortgagee for the Property. The mortgagor for the Property

is the borrower, Swan Creek Limited Partnership, a Michigan limited partnership

(“Borrower”). The Borrower currently controls and manages the Property and has

agreed in advance that the Plaintiff has a strict right to the appointment of a

receiver under the circumstances present here. In this case, Plaintiff seeks to

enforce the contracting parties’ agreement to the appointment of a receiver; it also

seeks to enforce its right to the appointment of a receiver under statutory and

common law.

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4813-5041-8204.4 2

Here, the loan documents provide Plaintiff with a broad right to the

assignment of rents and profits from the Property upon default. It is indisputable

that the Borrower is in default and the mortgage remains unpaid. The Maturity

Date of the Loan—December 1, 2013—has passed and Borrower is in default on

the Loan in the amount of more than $3,970,657.76. If a receiver is not appointed

to manage the Property, the Borrower will dissipate these funds. If this happens,

then Plaintiff will forever lose its ability to exercise its rights to those revenues

from the Property. The revenues are in imminent danger of being dissipated if they

are not immediately paid to a receiver and emergency relief establishing the

appointment of a receiver is necessary and appropriate in this matter.

In addition, appointment of a receiver is necessary to protect the subject

property from waste and dissipation. Plaintiff has the right to a receiver in

connection with the Borrowers’ breaches of contract, including breaches of the

covenants in the mortgage, in order to preserve and protect the Property. The relief

requested is authorized under federal and Michigan law.

II. STATEMENT OF FACTS

These facts are verified in the Verified Complaint for Enforcement of

Mortgage, Including Assignment of Rents, Appointment of Receiver and Other

Relief (“Verified Complaint”) filed concurrently herewith. Exhibit references,

unless otherwise noted, are to the exhibits attached to the verified complaint.

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4813-5041-8204.4 3

A. Background

On or about November 6, 2003, LaSalle Bank, N.A., a national banking

association (“Original Lender”) made a loan (the “Loan”) to Borrower in the

amount of $4,350,000.00. The Loan is evidenced by a promissory note, secured by

a mortgage. Borrower has defaulted on the Loan, as more fully discussed below.

Importantly and especially relevant to the relief requested here, the Borrower

expressly consented in the mortgage to the ex parte appointment of a receiver by

the court in the event of default. The mortgage states in relevant part as follows:

If an Event of Default occurs and is continuing or if

Lender has accelerated the indebtedness, Lender, upon

application to a court of competent jurisdiction, shall be

entitled as a matter of strict right, without notice, and

without regard to the occupancy and value of any

security for the Indebtedness, without any showing of

fraud or mismanagement on the part of Borrower or any

insolvency of any party bound for its payment, to the

appointment of a receiver...to take possession of and to

operate the Property, and to collect and apply the rents,

issues, profits, and revenues thereof.

Ex. D, §24 (emphasis added).

B. The Mortgage

The Borrower’s indebtedness under the Loan is evidenced by a Promissory

Note dated November 6, 2003 (the “Note”). Exhibit C. To secure repayment of the

indebtedness evidenced by the Note and performance of all covenants and

conditions contained therein, the Borrower also executed a Mortgage dated

November 6, 2003 (the “Mortgage”) that secured repayment of the Note and

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.165 Filed 11/04/14 Page 10 of 34
4813-5041-8204.4 4

encumbers the Property, which was duly recorded in the Office of the Register of

Deeds for the County of Wayne, Michigan on November 12, 2003, as Instrument

Number 203699479, in Liber 39510, Page 1148, and re-recorded February 22,

2004 as Instrument Number 204140869, in Liber 40162, Page 83. Exhibit D.

Borrower also assigned to Original Lender all of Borrower’s right, title, and

interest in and to all rents, issues, and profits that may arise or be had from the

Property, and other property rights, interests, and estates as more particularly set

out in the Mortgage. The Mortgage further states:

Lender shall be entitled to all the rights and remedies

conferred by (MCLA 554.231, et seq., (MCLA 554.211

et seq.) to the extent applicable, and (MCLA 554.81 et

seq.), Upon the occurrence of an Event of Default and

without any action by Lender, Borrower shall have no

further right to collect or otherwise receive such Rents,

which will be the absolute and sole property of Lender

pursuant to those statutes.

Ex. D, § 52(b).

Borrower also executed an Assignment of Leases and Rents, dated

November 6, 2003, which was duly recorded in the Office of the Register of Deeds

for the County of Wayne, Michigan, on November 12, 2003 as Instrument Number

203699494 at Liber 39510, Page 1193 and re-recorded on February 11, 2004 as

Instrument Number 204140929 in Liber 40162, Page 128 (the “Assignment of

Rents”). Exhibit E. Pursuant to the Assignment of Rents, Borrower assigned to

Original Lender all of Borrower’s right, title, and interest in and to all present and

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.166 Filed 11/04/14 Page 11 of 34
4813-5041-8204.4 5

future Leases and Rents, as those terms are defined under the Loan Agreement.

This provision states in relevant part as follows:

The parties intend that this Assignment grants a present,

absolute, and unconditional assignment of the Leases,

Rents, Lease Guaranties, and Bankruptcy Claims,

Proceeds, and Other Rights, and shall immediately upon

execution, give Lender the right to collect the Rents and

other sums due under the Lease Guaranties and to apply

them in payment of the Debt.

Ex. E, § 2.1 (emphasis added).

The Assignment of Rents also provides for the ex parte appointment of a

receiver upon an event of default occurring:

Upon or at any time after the occurrence of default under

this Assignment or an Event of Default (as defined in the

Security Instrument) (each a “Default”), the license

granted to Borrower in Section 2.1 of this Assignment

shall be automatically revoked, and Lender shall

immediately be entitled to possession of all Rents and

sums due under the Lease Guaranties, whether or not

Lender takes control of the Property. In addition, Lender

may, at its option, without waving such Default, without

notice, and without regard to the adequacy of security for

the Debt, either in person or by agent, nominee or

attorney, with or without bringing any action or

proceeding, or by a receiver appointed by a court

(which such appointment of receiver shall, upon

application to a court of competent jurisdiction, be a

matter of strict right without notice), dispossess

Borrower and its agents, and servants from the

Property....

Ex. E, § 3.1 (emphasis added).

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.167 Filed 11/04/14 Page 12 of 34
4813-5041-8204.4 6

The Mortgage also grants a security interest in all machinery, furniture,

furnishings, equipment, computer software and hardware, fixtures, inventory,

materials, supplies and other articles of personal property owned by Borrower or in

which Borrower has an interest, located on the Premises and Improvements, as

those terms are defined in the Mortgage, as well as all leases and rents (the

“Personal Property”). (Ex. D at p. 2.) Such security interest has been perfected by

the Financing Statement between Borrower and Original Lender, as record in the

Wayne County Register of Deeds on November 13, 2003, at Liber 39583, page

366 (the “County Financing Statement”). Continuations of the County Financing

Statement were filed with the Wayne County Register of Deeds on July 9, 2008 at

Liber 42381, Page 1667, and on May 14, 2013 at Liber 50792, page 391. Such

security interest was also perfected by the Financing Statement between Borrower

and Original Lender, as filed with the Michigan Secretary of State (“SOS”) as

Number 2003216023-6 on November 10, 2003 (the “State Financing Statement”).

Continuations of the State Financing Statement were filed with the Michigan SOS

on July 8, 2008 as Instrument Number 2008107754-3, and on May 10, 2013 as

Instrument Number 2013067145-4. Exhibit F.

Original Lender assigned its interest in the Loan and the Loan Documents to

Wells Fargo Bank Minnesota, N.A., as Trustee for the registered holders of

Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage PassCase 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.168 Filed 11/04/14 Page 13 of 34
4813-5041-8204.4 7

Through Certificates, Series 2003-C9 (“Assignee #1”). Original Lender endorsed

the Note to Assignee #1. The Mortgage was assigned pursuant to that certain

Assignment of Mortgage, Security Agreement and Fixture Filing, executed and

effective as of December 23, 2003, recorded December 23, 2004, as Instrument

No. 205011923, in Liber 41896, Page 65, of the Records, as corrected pursuant to

that certain Corrected Assignment of Mortgage, Security Agreement and Fixture

Filing, recorded March 16, 2005, as Instrument No. 205135487, in Liber 42381,

Page 1657, of the Records (the “Mortgage Assignment to Assignee #1”). Original

Lender also assigned the Assignment of Rents to Assignee #1 pursuant to that

certain Assignment of Assignment of Leases and Rents, executed and effective as

of December 23, 2003, recorded December 23, 2004, as Instrument No.

205011913, in Liber 41896, Page 60, of the Records, as corrected pursuant to that

certain Corrected Assignment of Assignment of Leases and Rents, recorded March

16, 2005, as Instrument No. 205135490, in Liber 42381, Page 1662, of the Records

(the “Assignment of Assignment of Rents and Leases to Assignee #1”). Original

Lender further assigned its interest in the County Financing Statement to Assignee

#1 pursuant to a UCC Financing Statement Assignment recorded on December 23,

2004 as Liber 41891, Page 936 of the Records and assigned its interest in the State

Financing Statement pursuant to a UCC Financing Statement Assignment filed

with the Michigan SOS on June 1, 2004 as Document Number 2004110780-5 (the

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“Financing Statement Assignments to Assignee #1”, and collectively with the

Mortgage Assignment to Assignee #1 and Assignment of Assignment of Rents and

Leases to Assignee #1, the “Assignments to Assignee #1”)

The Mortgage was then further assigned by Wells Fargo Bank, N.A.,

successor-by-merger to Wells Fargo Bank Minnesota, N.A., as Trustee for the

registered holders of Wachovia Bank Commercial Mortgage Trust, Commercial

Mortgage Pass-Through Certificates, Series 2003-C9 (“Successor to Assignee

#1”), to U.S. Bank National Association, N.A., as Trustee for the registered holders

of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage PassThrough Certificates, Series 2003-C9 (“Assignee #2”), pursuant to that certain

Assignment of Mortgage and Assignment of Assignment of Leases and Rents,

effective as of March 31, 2009, recorded July 17, 2009, as Instrument No.

209266837, in Liber 48028, Page 970, of the Records (the “Mortgage Assignment

to Assignee #2”). Successor to Assignee #1 also endorsed the Note to Assignee

#2. Successor to Assignee #1 also assigned the Assignment of Rents to Assignee

#2 pursuant to that certain Assignment of Mortgage and Assignment of

Assignment of Leases and Rents, effective as of March 31, 2009, recorded July 17,

2009, as Instrument No. 209266837, in Liber 48028, Page 970, of the Records (the

“Assignment of Assignment of Rents and Leases to Assignee #2”). Successor to

Assignee #1 further assigned its interest in the County Financing Statement to

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.170 Filed 11/04/14 Page 15 of 34
4813-5041-8204.4 9

Assignee #2 pursuant to a UCC Financing Statement Amendment recorded on

October 26, 2009 as Liber 48183, Page 1220 of the Records and its interest in the

State Financing Statement pursuant to a UCC Financing Statement Amendment

filed with the Michigan SOS on October 26, 2009 as Document Number

2009152707-1 (the “Financing Statement Assignments to Assignee #2”, and

collectively with the Mortgage Assignment to Assignee #2 and Assignment of

Assignment of Rents and Leases to Assignee #1, the “Assignments to Assignee

#2”).

Assignee #2 assigned its interest in the Loan and the Loan Documents to

Plaintiff, by endorsing the Note to Plaintiff, and delivering to Plaintiff an

Assignment of Mortgage, dated June 6, 2014 (“Mortgage Assignment to

Plaintiff”); an Assignment of Assignment of Leases and Rents, dated June 6, 2014

(“Assignment of Rents Assignment to Plaintiff”), a UCC Financing Statement

Amendment filed with the Secretary of State in Michigan on July 16, 2014 as

Instrument Number 2014103808-7, and a UCC Financing Statement Amendment

filed with the Wayne County Register of Deeds recorded on July 15, 2014 at Liber

51631, page 1227 (collectively the “UCC Assignments to Plaintiff”), and an

Omnibus Assignment of Loan Documents (“Omnibus Assignment to Plaintiff”

and, collectively, with the Mortgage Assignment to Plaintiff, the Assignment of

Rents Assignment to Plaintiff, the Allonge to Plaintiff, the UCC Assignment to

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.171 Filed 11/04/14 Page 16 of 34
4813-5041-8204.4 10

Plaintiff, the “Assignments to Plaintiff”). The Mortgage Assignment to Plaintiff

was duly recorded in the Office of the Register of Deeds for the County of Wayne,

Michigan on June 19, 2014, as Instrument No. 2014286591, at Liber 51596, Page

71. The Assignment of Rents Assignment to Plaintiff was duly recorded in the

Office of the Register of Deeds for the County of Wayne, Michigan on June 19,

2014, at Liber 51596, Page 82. Group Exhibit G.

Hereinafter, the Mortgage, Note, Assignment of Rents, Financing Statement,

Assignments to Assignee #1, Assignments to Assignee #2, and Assignments to

Plaintiff are referred to collectively, where appropriate, as the “Loan Documents.”

III. The Borrower’s Default Of The Loan Documents

Under the terms of the Note, Borrower agreed to pay the outstanding balance

of the principal sum of this Note and all accrued and unpaid interest thereon on

December 1, 2013 (the “Maturity Date”). Under the terms of the Loan Documents,

an Event of Default occurs if Borrower fails to pay any portion of the Debt, as that

term is defined in the Loan Agreement, on the date it is due. Here, Borrower has

defaulted under the terms and conditions of the Loan Documents by failing to pay

amounts owed under the Note; specifically, by failing to pay the Debt in full on

Maturity Date. Assignee #2, through counsel, provided Borrower notice of this

default via a Notice of Default letter dated January 16, 2014. Exhibit H.

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The unpaid principal balance as of July 1, 2014, is $3,673,323.93 and

interest has accrued on said unpaid principal in the amount of $250,883.95 through

July 1, 2014. The total amount due as principal and interest, along with reserves,

late fees, prepayment penalties and other charges, as of July 1, 2014, is

$3,932,758.92, less certain sporadic partial payments made by Borrower since July

1. Interest continues to accrue on said balance at the rate of $289.77 per day.

Default interest continues to accrue on said balance at the rate of $510.18 per day.

In addition, Borrower is liable for attorneys’ fees and costs in the amount of at

least $75.00.

Pursuant to the Assignment of Rents, Borrower’s license to collect rents has

terminated. The Assignment of Rents states in relevant part:

Upon or at any time after the occurrence of default under

this Assignment or an Event of Default (as defined in the

Security Instrument) (each a “Default”), the license

granted to Borrower in Section 2.1 of this Assignment

shall be automatically revoked, and Lender shall

immediately be entitled to possession of all Rents and

sums due under the Lease Guaranties, whether or not

Lender takes control of the Property. In addition, Lender

may, at its option, without waving such Default, without

notice, and without regard to the adequacy of security for

the Debt, either in person or by agent, nominee or

attorney, with or without bringing any action or

proceeding, or by a receiver appointed by a court

(which such appointment of receiver shall, upon

application to a court of competent jurisdiction, be a

matter of strict right without notice), dispossess

Borrower and its agents, and servants from the

Property....

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Ex. E, § 3.1 (emphasis added).

The Borrower expressly consented in the Mortgage and Assignment of

Rents to the appointment of a receiver upon an Event of Default, which is defined

in the Mortgage to include the failure to pay any amount as and when due under

the Loan Documents. Ex. D, §§ 20(a); 24; Ex. E, § 3.1. In particular, Section 24 of

the Mortgage states, in relevant part, as follows:

If an Event of Default occurs and is continuing or if

Lender has accelerated the indebtedness, Lender, upon

application to a court of competent jurisdiction, shall be

entitled as a matter of strict right, without notice, and

without regard to the occupancy and value of any

security for the Indebtedness, without any showing of

fraud or mismanagement on the part of Borrower or any

insolvency of any party bound for its payment, to the

appointment of a receiver...to take possession of and to

operate the Property, and to collect and apply the rents,

issues, profits, and revenues thereof.

Ex. D, § 24 (emphasis added).

The Borrower has failed to make payments as required by the Loan

Documents and, therefore, is in default of the Note, the Mortgage, and the

Assignment of Rents. Therefore, a receiver should be appointed.

A. Plaintiff’s Damages

Plaintiff has been damaged and is entitled to the appointment of a receiver in

order to preserve and protect the Property. Because the Borrower has failed and

refused to fulfill its obligations under the Note, Mortgage, and Assignment of

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Rents, Plaintiff is concerned that the Borrower will fail to maintain the Property

securing its obligations to Plaintiff. Furthermore, the Property is a mobile home

community. Plaintiff is concerned that Borrower has not and will not maintain the

Property in a state which is appropriate for the residents.

This demonstrates that Plaintiff’s interest in the collateral continues to be

diminished and requires the immediate appointment of a receiver to protect

Plaintiff’s mortgagee interests. Plaintiff will suffer immediate and irreparable loss

unless a receiver is appointed because it cannot otherwise preserve and protect its

collateral and efficiently enforce the Mortgage.

IV. STANDARD FOR THE APPOINTMENT OF A RECEIVER

This Court is authorized to appoint a receiver as requested by Plaintiff under

the parties’ Loan Documents, as well as Fed. R. Civ. P. 66, M.C.L. § 600.2926,

and M.C.L. § 554.231.

Fed. R. Civ. P. 66 provides, in relevant part, that: “[t]hese rules govern an

action in which the appointment of a receiver is sought or a receiver sues or is

sued.”

M.C.L. § 600.2926 provides, in relevant part, that, “[j]udges in the exercise

of their equitable powers, may appoint receivers in all pending cases where

appointment is allowed by law.” See M.C.L. § 600.2926. Michigan courts have

interpreted this statute to mean that appointment of a receiver is not limited to

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cases where appointment is expressly provided by statute (although express

statutory support for a receiver does exist in this case, as described immediately

below), but also includes those cases where the facts and circumstances make

appointment of a receiver an appropriate exercise of the court’s equitable

jurisdiction. Band v. Livonia Assocs., 176 Mich. App. 95, 104; 439 N.W.2d 285

(Mich. App. 1989); see also, McDonald v. McDonald, 351 Mich. 568, 575; 88

N.W.2d 398 (Mich. 1958) (a court of equity has an inherent right to appoint a

receiver in a proper case to implement and enforce its decrees and orders). Such

appointment may be made on an ex parte basis. Livingston v. Southern Sur Co. of

N.Y., 262 Mich. 438; 247 N.W. 712, 713 (Mich. 1933). Under Michigan law, a

receiver may be appointed where necessary to receive and preserve the property of

parties to litigation and, in some cases to control and manage it for the persons or

parties who may ultimately be entitled thereto. Westgate v. Westgate, 294 Mich.

88, 91; 292 N.W. 569 (Mich. 1940).

Michigan’s Assignment of Rents Statute (M.C.L. § 554.231) authorizes the

appointment of a receiver as additional security for the repayment of a mortgage

debt in such cases where there exists an assignments of rents and profits in

mortgaged properties. The Assignment of Rents Statute provides, in relevant part

that, in connection with any mortgage on commercial or industrial property “it

shall be lawful to assign the rents . . . as security in addition to the property . . . .

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Such assignment of rents shall be binding upon such assignor only on the event of

default in the terms and conditions of said mortgage . . . .” See M.C.L. § 554.231.

The Michigan Supreme Court, in Smith v. Mutual Benefit Life Ins. Co., 362 Mich.

114, 125; 106 N.W.2d 515, 520 (Mich. 1960), expressly confirmed that the

Assignment of Rents Statute empowers courts to appoint receivers to collect rents

from mortgaged properties and to apply those rents to the maintenance and

operation of the property:

[W]e think the trial court properly interpreted [the

Assignment of Rents Statute] in holding that he had

authority under it to appoint a receiver to collect the rents

and apply them to the accrued interest, maintenance

costs, insurance, taxes, and the deficiency until the

expiration of the redemption period.

Id. at 125.

Accordingly, there is sufficient authority for the relief Plaintiff seeks in the

instant motion.

V. ARGUMENT

A. A Receiver Should Be Appointed Over The Property To Preserve

Plaintiff’s Collateral

i. The Loan Documents Authorize The Appointment Of A

Receiver

Upon an event of default (which includes the failure to pay any portion of

Borrower’s indebtedness to Plaintiff as and when due), the Note, Mortgage, and

Assignment of Rents each provide Plaintiff with numerous non-exclusive remedies

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to protect its interest in the Property. Plaintiff may, among other things, apply for

the appointment of a receiver (without notice and without regard to the Borrower’s

solvency), and/or enforce Plaintiff’s interest in the leases and rents from the

Property.

Under the Mortgage, Borrower expressly agreed that Plaintiff has a strict

right to the appointment of a receiver upon an Event of Default. Ex. D, §24. As

demonstrated above, Borrower is clearly in default of the Note and Mortgage by

failing to pay the entire indebtedness on the Maturity Date. Borrower is also in

default of the Assignment of Rents because it has not turned over rents to the

Plaintiff, as required.

When deciding a motion to appoint a receiver filed in another matter, the

Eastern District of Michigan held that a borrower’s agreement to the appointment

of a receiver “is sufficient to conclude that a mortgage holder is entitled to such an

appointment . . . .” Federal Nat’l Mortgage Assoc. v. Maple Creek Gardens, LLC,

2010 WL 374033, E.D. Mich., January 25, 2010 (No. 09-14703) (J. Duggan), at *3

(attached hereto as Exhibit 1).1 Courts have not hesitated to appoint receivers to

protect a mortgagee’s interest in real estate and the income therefrom where the

parties have agreed to the appointment of a receiver should certain conditions arise.

1

See also, Hon. Mark A. Goldsmith, Receiverships in the Real Estate Setting, 28 Mich.

Bus. L.J. 36 at pg. 38 (Summer 2008) (stating under Michigan law where assignment of rents is

invoked the appointment of a receiver is appropriate) (attached hereto as Exhibit 2)

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See Citibank, N.A. v. Nyland Ltd., 839 F.2d 93, 97-98 (2d Cir. 1988) (“It is entirely

appropriate for a mortgage holder to seek the appointment of a receiver where the

mortgage authorizes such appointment, and the mortgagee has repeatedly defaulted

on conditions of the mortgage which constitute one or more events of default.”);

N.Y. Life Ins. Co. v. Watt West Inv. Corp., 755 F. Supp. 287, 292 (E.D. Cal. 1991)

(“The deed of trust specifically provides for the appointment of a temporary

receiver in circumstances such as now exist. There is little hardship in enforcing

the terms of the parties’ bargain.”). Here, Borrower agreed, in both the Mortgage

and the Assignment of Rents that Plaintiff has a strict right to the appointment of a

receiver upon an event of default.

Accordingly, based solely and expressly on the contractual provisions which

authorize the appointment of a receiver under the assignment of rents in favor of

Plaintiff, this Court should appoint a receiver without delay.

ii. The Appointment Of A Receiver Is Expressly Authorized

By Michigan Statute

Michigan law expressly permits the appointment of a receiver. Michigan

courts have recognized the need for the appointment of receivers to protect

property. A judge “in the exercise of their equitable powers, may appoint receivers

in all pending cases where appointment is allowed by law.” M.C.L. § 600.2926.

“The primary purpose of a receiver is to preserve property” and to “protect

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property involved in controversy.” See Cohen v. Cohen, 125 Mich. App. 206, 214;

335 N.W.2d 664 (Mich. App. 1983).

In addition, where (as here) a mortgage provides for an assignment of rents,

Michigan law provides for appointment of a receiver to take possession of the

property, and collect rents. Specifically, the Assignment of Rents Statute provides

that:

[I]n or in connection with any mortgage on commercial

or industrial property other than an apartment building

with less than 6 apartments or any family residence to

secure notes, bonds or other fixed obligations, it shall be

lawful to assign the rents, or any portion thereof, under

any oral or written leases upon the mortgaged property to

the mortgagee, as security in addition to the property

described in such mortgage. Such assignment of rents

shall be binding upon such assignor only in the event of

default in the terms and conditions of said mortgage, and

shall operate against and be binding upon the occupiers

of the premises from the date of filing by the mortgagee

in the office of the register of deeds for the county in

which the property is located of a notice of default in the

terms and conditions of the mortgage and service of a

copy of such notice upon the occupiers of the mortgaged

premises.

M.C.L. § 554.231. This provision specifically permits courts to appoint receivers

to collect rents from mortgaged properties. Smith v. Mutual Benefit Life Ins. Co.,

362 Mich. 114, 125; 106 N.W.2d 515 (Mich. 1960).

Accordingly, based on the Michigan statutes which authorize the

appointment of a receiver under the assignment of rents in favor of Plaintiff, this

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Court should appoint a receiver without delay. Plaintiff is entitled to the

appointment of a receiver to collect income derived from the Property, and use

such to preserve and maintain its collateral. Rents and profits are necessary to

ensure that the Property is maintained and protected. It would be inequitable to

allow the Borrower to collect and divert the income from the Property in further

breach of its obligations.

iii. The Appointment Of A Receiver Is Authorized By The

Court’s Equitable Powers

This case presents the strongest basis for the appointment of a receiver, both

because the Borrower has agreed to the ex parte appointment of a receiver under

these circumstances, and also because the parties agreed to the assignment of rents.

However, even in cases not involving assignments of rents and profits, or where

the parties have not contracted for the appointment of a receiver, this Court has the

authority to appoint a receiver pursuant to Fed. R. Civ. P. 66. In Meyer Jewelry

Co. v. Meyer Holdings, Inc., 906 F. Supp. 428 (E.D. Mich. 1995), a Michigan

federal court adopted a six factor test for the appointment of a receiver:

[F]actors typically influencing the district court’s

exercise of discretion include: (i) the existence of a valid

claim by the moving party; (ii) the probability that

fraudulent conduct has occurred or will occur to frustrate

the claim; (iii) imminent danger that property will be lost,

concealed, or diminished in value; (iv) inadequacy of

legal remedies; (v) lack of a less drastic equitable

remedy; and (vi) the likelihood that appointment of a

receiver will do more harm than good.

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Id. at 432, citing Aviation Supply Corp. v. RSBI Aerospace, Inc., 999 F. 2d 314,

316-17 (8th Cir. 1993).

Federal courts contemplating the appointment of a receiver have considered

a number of factors, but have found the adequacy of the security and the financial

position of the mortgagor to be most important. See N.Y. Life, 755 F. Supp. at 292.

Thus, receivers are commonly appointed in situations involving a secured creditor

with an interest in real property who is in the process of foreclosing on a mortgage

and/or when the creditor needs assistance collecting rent from and otherwise

protecting mortgaged properties from waste and neglect. See Res. Tr. Corp. v.

Bayside Developers, 43 F.3d 1230, 1242 (9th Cir. 1995) (receiver properly

appointed where secured creditor sought receiver to “conserve and manage”

property); Citibank, 839 F.2d at 97-98; Fed. Home Loan Mort. Corp. v. Tsinos,

854 F. Supp. 113, 116 (E.D.N.Y. 1994); Res. Tr. Corp. v. Fountain Circle

Associates LTD Partnership, 799 F. Supp. 48, 52 (N.D. Ohio 1992) (receiver

appointed to collect rents pending foreclosure).

Many federal district courts have held that “[c]reditors in real propert[ies]

have a well-established interest in the propert[ies] sufficient to support the

appointment of a receiver.” Brill & Harrington Invs. v. Vernon Sav. & Loan

Assocs., 787 F. Supp. 250, 253-54 (D.D.C. 1992). See also N.Y. Life, 755 F. Supp.

at 292-93. Moreover, federal district courts have found that appointing a receiver

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4813-5041-8204.4 21

to manage commercial real estate during a foreclosure action is an appropriate –

not drastic – remedy. United States v. Berk & Berk, 767 F. Supp. 593, 598 (D.N.J.

1991).

As set forth above, the Borrower has defaulted on its obligations under the

terms of the Loan in numerous ways, including by failing to pay the full principal

balance of the Loan and any outstanding interest due under the Note on the

Maturity Date. Given this breach of the Loan Documents, the equities clearly

favor appointment of a receiver. The appointment is an appropriate remedy for at

least six reasons. First, Plaintiff has a valid claim (the Mortgage provides for the

appointment of a receiver upon default) and very valuable interests in the Property

and the income generated by the Property. Such interests require protection.

Second, the Borrower’s defaults under the Loan Documents are substantial and

egregious, and evidence a deliberate attempt to deprive Plaintiff of the income

from the Property to which Plaintiff is entitled and which the Borrower is

contractually bound to turn over to Plaintiff. Third, the Borrower’s defaults

demonstrate an inability or refusal to pay the debt evidenced by the Note and a

disregard for the other covenants of the Loan Documents. Indeed, even though the

Loan Documents provide that upon an event of default the Borrower’s license to

receive and apply income was automatically revoked, it is anticipated that without

the appointment of a receiver the Borrower will continue to retain certain income

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4813-5041-8204.4 22

from the Property without using the income to protect and safeguard Plaintiff’s

interests. Fourth, the Property is a mobile home community. Given the

Borrower’s defaults, Plaintiff is justifiably concerned that the Property is not being

adequately managed and maintained by Borrower for the community. Such failure

diminishes the value of the Property and impacts the well-being of the residents.

Fifth, the appointment of a receiver is the only appropriate equitable remedy.

Sixth, there is no risk that the appointment of a receiver will do more harm than

good. Plaintiff holds a superior interest in the title to the Property and a receiver

would not interfere in any way with any party’s rights. In this case there is no

harm to the Borrower in the appointment of a receiver. There is little hardship in

enforcing the terms of the parties’ bargain. Maple Creek Gardens, LLC, supra at

*3.

Consequently, it is necessary for this Court to appoint a receiver to avoid

irreparable harm and waste to the Property and harm to Plaintiff’s interest in the

Property.

iv. M. Shapiro Management Company, LLC Is Well Qualified

To Act As Receiver Through Its Authorized Agent Mark

Kassab

M. Shapiro Management Company, LLC (“M. Shapiro”), through its

authorized agent Mark Kassab, is qualified to act as a receiver in this case. M.

Shapiro has acted as a receiver for numerous distressed properties throughout the

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4813-5041-8204.4 23

nation, including many in Michigan. Therefore, M. Shapiro, through its authorized

agent Mark Kassab, is uniquely qualified to handle a case involving the issues

presented here. For the Court’s convenience, information about M. Shapiro is

attached hereto as Exhibit 3.

B. An Injunction Is Necessary To Protect The Property

The Sixth Circuit has identified four factors for courts to consider in

deciding whether to issue a preliminary injunction: (1) the plaintiff’s likelihood of

success on the merits; (2) whether the plaintiff will suffer irreparable harm without

the injunction; (3) the balance of the hardships to the defendant and the plaintiff;

and (4) the impact of the injunction on the public interest. Golden v. Kelsey-Hayes

Co., 73 F.3d 649 (6th Cir. 1996). None of these four factors are “prerequisites that

must be met,” but are considerations for the trial court to balance. In re DeLorean

Motor Co., 755 F.2d 1223, 1229 (6th Cir. 1985). Here, the factors weigh heavily

in Plaintiff’s favor and the Court should enter a preliminary injunction.

Plaintiff has not provided the Borrower with advance notice of this Motion

because Plaintiff firmly and reasonably believes that such notice would result in

the Borrower further breaching its obligations under the Loan Documents by

hiding or dissipating said proceeds to the detriment of Plaintiff. Fed. R. Civ. P.

65(b)(1) authorizes this Court to enter a temporary restraining order without notice,

granting the relief requested herein. Accordingly, Plaintiff requests that this Court

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4813-5041-8204.4 24

enter a temporary restraining order (“Order”) in the form attached hereto and set a

hearing on Plaintiff’s Motion for Preliminary Injunction to occur within the next

14 days.

i. Plaintiff Is Likely To Succeed On The Merits

The Borrower has demonstrated an unwillingness and/or inability to meet its

obligations under the Loan Documents. As demonstrated above, and in Plaintiff’s

Verified Complaint, the Borrower is clearly in default of the Loan Documents by

its failure to pay the indebtedness in full on the Maturity Date. Furthermore, under

the Loan Documents, the Borrower agreed that its right to collect rents and income

generated by the Property ended upon an event of default and that such rents and

income would be turned over to Plaintiff. The Borrower has failed to honor that

obligation. Even more significantly, the Borrower has consented to the relief

requested, i.e. the appointment of a receiver. Accordingly, Plaintiff is likely to

succeed on the merits of its claims in this case.

ii. Plaintiff Will Suffer Irreparable Harm Without An

Injunction

Plaintiff will suffer immediate and irreparable injury to its interests in the

Property and the income generated therefrom without the entry of a preliminary

injunction. Plaintiff is in jeopardy of losing its ability to ensure that it is repaid for

money loaned to the Borrower. Given the Borrower’s unwillingness and/or

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4813-5041-8204.4 25

inability to meet its obligations under the Loan Documents, Plaintiff will suffer

irreparable injury absent injunctive relief.

Moreover, injunctive relief is necessary to prevent damage and waste to the

Property. “[S]ince land is considered to be unique, its loss or threatened loss is

considered to be irreparable injury.” Roghan v. Block, 590 F. Supp. 150, 152

(W.D. Mich. 1984). An injunction is necessary to prevent the Borrower from

diverting or spending revenue from the Property and dissipating the value of

Plaintiff’s collateral. Accordingly, because the Property is unique and the

threatened harm to the Property is imminent, injunctive relief should be granted.

iii. The Borrower Will Not Be Harmed By An Injunction

Granting an injunction will not cause any harm to the Borrower. Due to its

indisputable defaults, the Borrower no longer has the right to manage the Property,

and the receiver will protect the interests of all parties with an interest in or who

are affected by the Property. Moreover, the Borrower’s license to receive and

apply income from the Property automatically ended upon its default. Therefore,

the Borrower will not be harmed by an injunction.

iv. Issuing An Injunction Serves The Public Interest

The public interest is served by compelling parties to honor their agreements

and by avoiding harm or waste to commercial property. There is no public interest

served in allowing the Borrower to default and further avoid its contractual

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4813-5041-8204.4 26

obligations. Furthermore, the interests of the residents who live at the Property

will be served by an injunction, as well as the appointment of a receiver

experienced in the management of distressed properties.

VI. CONCLUSION

For the foregoing reasons, Plaintiff is entitled to appointment of a receiver.

Plaintiff is specifically entitled to appointment of a receiver over the Property

pursuant to the express terms of the Mortgage, M.C.L. § 600.2926, M.C.L. §

554.23 and Fed. R. Civ. P. 66. The Borrower’s undisputed defaults justify this

Court’s exercise of its equitable powers for the appointment of a receiver to take

possession of the Property and prevent Plaintiff’s collateral from being subjected to

irreparable harm.

WHEREFORE, Plaintiff respectfully requests that this Court enter the Order

attached hereto as Exhibit 4 which provides for: (i) the appointment of M. Shapiro

Management Company, LLC, through its authorized agent Mark Kassab, as

receiver, with all of the powers and duties prescribed by law and the Order; (ii)

protecting Plaintiff’s interest in the Property and income therefrom from

dissipation by Defendants; and (iii) scheduling a hearing on Plaintiff’s Motion for

Preliminary Injunction for __________________, 2014 at _______ a.m./p.m.

Case 2:14-cv-14243-MFL-MJH ECF No. 2, PageID.188 Filed 11/04/14 Page 33 of 34
4813-5041-8204.4 27

Dated: November 4, 2014

Respectfully submitted,

FOLEY & LARDNER, LLP

/s/ Ann Marie Uetz

Ann Marie Uetz (P48922)

Tamar Dolcourt (P73425)

500 Woodward Ave., Suite 2600

Detroit, Michigan 48226

Telephone (313) 234-7140

Facsimile (313) 234-2800\

auetz@foley.com

tdolcourt@foley.com

Attorneys for Plaintiff

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