Court Opinion

ID: 4164322
Source: CourtListenerOpinion
Date Created: 2017-04-28 14:13:46.935106+00
Date Added: 2024-06-11T14:22:05.156706
License: Public Domain

[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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                     OHIO FIRST DISTRICT COURT OF APPEALS

       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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