Opinion ID: 582548
Heading Depth: 3
Heading Rank: 3

Heading: Expenses of Receivership

Text: 18 Under New York Law, when a foreclosure sale results in a deficiency, the court shall direct that all moneys remaining in the hands of a receiver of the rents and profits appointed in the action, after the payment of the receiver's fees and the expenses of the receivership, be paid to the mortgagee to cover the deficiency. N.Y. RPAPL § 1371(4) (McKinney 1979) (emphasis added). Relying on this language, Nico asserts that the work it performed on the Crown Building constitutes expenses of the receivership, entitled to priority payment ahead of the deficiency. For there to be expenses of the receivership, a court must create a receivership, empowering the receiver to incur expenses of the type for which reimbursement is sought. The appointment of a receiver is discretionary, see N.Y.Civ.Prac.L. & R. § 6401(a) (McKinney 1980), and, under appropriate circumstances, the court may deny the request for a receiver, even if the parties agree to the appointment. Mancuso v. Kambourelis, 72 A.D.2d 636, 637, 421 N.Y.S.2d 130, 131 (3d Dep't 1979); see also 366 Fourth Street Corp. v. Foxfire Enters., 149 A.D.2d 692, 692, 540 N.Y.S.2d 489, 489 (2d Dep't 1989); Clinton Capital Corp. v. One Tiffany Place Developers, Inc., 112 A.D.2d 911, 912, 492 N.Y.S.2d 427, 428 (2d Dep't 1985). As a court-created entity, a receiver has only those powers provided for in the appointment order and may perform only those acts expressly authorized by the appointing court. Daro Indus. v. RAS Enters., 44 N.Y.2d 969, 970, 408 N.Y.S.2d 329, 329, 380 N.E.2d 160 (1978) (citing N.Y.Civ.Prac.L. & R. § 6401(b)). 19 In this action, Nico stakes a claim to a portion of the rents and profits collected by the receivership created by the district court on April 3, 1991, effective as of January 28, 1991. Nico makes this argument even though it ceased performing work on the Crown Building in May 1990, well before the appointment of the receiver, or the effective date of the receivership. Nico cites no New York law, nor have we found any, allowing it to participate in the rents and profits collected by a receiver who neither requested nor approved any of Nico's endeavors. 20 Also fatal to Nico's contention is the limited authority given the receiver by the district court. The receiver's only power was to collect rents and profits from Canadian Land and turn them over to the Special Master. Since the receiver lacked authorization to incur any expenses, much less maintenance and repair costs, he could not enter into an enforceable agreement with Nico. See id. at 970, 408 N.Y.S.2d at 329, 380 N.E.2d 160. Thus, even if the receiver had acted outside his authority and sanctioned the expenses, which he did not, Nico would still have no claim to the receivership funds. 21 Nico alternatively argues that the Special Property Advisor system set up by the district court to assist the court in administering the Crown Building was a receivership in all but name. Nico contends that, in combination, the Special Property Advisor, Canadian Land, and the district court functioned like a receiver, because the Special Property Advisor oversaw management of the property like a receiver, Canadian Land collected the rents and profits and managed the property like a receiver, and all of this was subject to court approval. Therefore, Nico characterizes its work during this period as expenses of that receivership, payable ahead of the deficiency. 22 Nico's argument, while interesting, is not persuasive. The district court had before it a motion to create a receivership in this action, but decided to rely on the Special Property Advisor system already in place from the Philippines action. The Special Property Advisor was not appointed to be a receiver, nor did the system set up around the Special Property Advisor establish some sort of de facto or constructive receivership. Rather, it merely provided the district court with an efficient, effective means to monitor and control the property and Canadian Land's management during the course of the foreclosure action. 23 The district court was not required to appoint a receiver under the circumstances revealed here, and we previously approved the district court's use of the Special Property Advisor system on appeal in the Philippines action. See Republic of Philippines v. New York Land Co., 852 F.2d 33, 36 (2d Cir.1988). We see no reason to do otherwise here. Cf. East New York Savings Bank v. Carlinde Realty Corp., 51 A.D.2d 989, 989, 381 N.Y.S.2d 101, 102 (2d Dep't 1976) (trial court said to have discretion to terminate receivership and substitute defendant to receive all rents in trust, inter alia for the maintenance and operating expenses of the building). In affirming the appointment, we noted that the Special Property Advisor was far less intrusive than a receiver because its role was essentially to monitor the management of the buildings and advise the court. Republic of Philippines, 852 F.2d at 36. The district court, we found, retained the authority generally delegated to receivers because its order require[d] that no payments or transfers be made without court approval. Id. With this regime in place, there was no receivership from which expenses could be generated or paid. Nico's source of payment in this case was the district court itself, not a receiver. Thus, Nico fails to establish an interest in the rents and profits collected during the pendency of this case. 24 Like the district court, we can find no avenue of recovery for Nico in this action. Without a cognizable claim to the rents and profits, Nico has no interest to protect relevant to the underlying litigation. Consequently, the district court did not abuse its discretion by denying Nico's motion to intervene. 25 Finally, we find no basis to award the sanctions sought by Security Pacific against Nico for bringing this appeal.