The opinion of the court was delivered by: Honorable Stephen J. Murphy, III
OPINION GRANTING PLAINTIFF'S RENEWED MOTION FOR APPOINTMENT OF A RECEIVER AND FOR A PRELIMINARY INJUNCTION (docket no. 12)
This action involves a real estate contract dispute. On January 28, 2010, Plaintiff Federal National Mortgage Association ("Fannie Mae") filed this diversity action against Defendant Mapletree Investors Limited Partnership ("Mapletree"). In its verified complaint, Fannie Mae asserts two counts against Mapletree: 1) "Enforcement of Mortgage (including Assignment of lease and rents) and for Appointment of Receiver;" and 2) "Preliminary Injunction." Presently before the Court is Fannie Mae's Renewed*fn1 Motion for an appointment of a receiver and for a preliminary injunction. Docket no. 9. Mapletree filed a response to the motion and the Court held a hearing on April 14, 2010. At the hearing, counsel for Mapletree asked the Court to hold off on ruling on the motion because he believed a settlement might be forthcoming, and that an order from the Court might stymie such efforts. The Court agreed not to issue its ruling for one week to allow for any potential settlement activity. It has now been over two weeks since the hearing and the Court has received no indication that the matter has been settled. For the reasons stated below, any further delay in ruling on the motion would harm Fannie Mae's interests. The motion will be granted.
The following facts are undisputed and set forth in Fannie Mae's brief in support of its motion, as well as in its verified complaint. On July 20, 1999, Mapletree entered into a Multifamily Note ("Note"), borrowing approximately $7.7 million from Eichler, Fayne & Associates ("EF&A"). Docket no. 9, Ex. A. Mapletree agreed to repay the amount plus interest, in monthly installments, by August 1, 2009. Id. The Note is secured by a Multifamily Mortgage ("Mortgage") on a multifamily real residential real estate project located in Southfield, Michigan known as the Mapletree Apartments ("Mortgaged Property"). Docket no. 9, Ex. B. The Mortgage includes an assignment of rents and leases pursuant to which Mapletree assigned its interests in all rents and leases concerning the Mortgaged Property to EF&A as additional security for the performance of Mapletree's obligations. Id. at 7-11. Mapletree then received a license to receive all rents, terminable upon default. On July 30, 1999, EF&A assigned the Note and Mortgage to Fannie Mae. Docket no. 9, Ex. C.
Mapletree's failure to pay any amount required by the Note is an "Event of Default" under both the Note and the Mortgage. See docket no. 9, Exs. A at 3 and B at 29. Mapletree is in default of the Note and the Mortgage primarily because it failed to pay the balance of the Note by August 1, 2009, the maturity date. In a letter to Mapletree dated December 7, 2009, Fannie Mae demanded payment of all indebtedness, which as of December 4, 2009, was $6,689,974.21, exclusive of interest and other costs. Docket no. 9, Ex. D. Fannie Mae also advised Mapletree that, according to the terms of the Mortgage, Mapletree's license to collect rents had ended as a result of the default, and that Fannie Mae was entitled to all rents as they became due. Id.
Fannie Mae states in its reply brief that it began the process of foreclosure by advertisement, and that a foreclosure sale was set for April 6, 2010. Pl. Rep. Br. at 4. Fannie Mae filed the instant action in "aid of [ ] foreclosure." Compl. ¶ 22. It is concerned that in light of Mapletree's failure to fulfill its obligations under the Note and Mortgage, Mapletree will continue to neglect the Mortgaged Property while the foreclosure is pending and during the six-month redemption period.
In the instant motion, Fannie Mae seeks: 1) a preliminary injunction against Mapletree barring them from transferring, expending, distributing, concealing, destroying, damaging, or otherwise diminishing the Mortgaged Property until a receiver is appointed, or until Fannie Mae receives possession of the property; 2) an order appointing Dover Realty Advisors, LLC as the receiver of the Mortgaged Property during the foreclosure and redemption period to collect rents and perform other necessary obligations respecting the property; and 3) an order requiring all persons who have possession or control of the Mortgaged Property to yield and deliver possession to the receiver. Pl. Mot. at 3.
The Court will address each of Fannie Mae's requests separately.
I. Fannie Mae's Request for Appointment of a Receiver
Fannie Mae asks that the Court appoint a receiver to take control of the Mortgaged Property until it is sold in foreclosure and the six-month redemption period expires. A district court enjoys broad equitable powers to appoint a receiver*fn2 over assets disputed in litigation before the court. Liberte Capital Group, LLC v. Capwill, 462 F.3d 543, 551 (6th Cir. 2006). A receiver's role, and the district court's purpose in the appointment, is to safeguard the disputed assets, administer the property as required, and to assist the district court in achieving a final, equitable distribution of the assets, if necessary. Id. The Court will grant Fannie Mae's request and appoint a receiver.
Although the Sixth Circuit itself has not addressed the issue, the weight of authority suggests that appointment of a receiver in a diversity action is controlled by federal law, not state law. See Nat'l P'ship Inv. Corp. v. Nat'l Housing Dev. Corp., 153 F.3d 1289, 1291 (11th Cir. 1998) (citing cases); Fed. Nat. Mortgage Ass'n v. Maple Creek Gardens, LLC, No. 09-14703, 2010 WL 374033, *2 (E.D. Mich. Jan. 25, 2010) (citing Nat'l P'ship Inv. Corp); see also 12 Charles A. Wright, Arthur R. Miller, and Richard L. Marcus, Federal Practice and Procedure § 2983, at 33-35 (2d ed. 1997) ("Whether a federal court should appoint a receiver in a diversity action appears to be a question properly determined on the basis of federal law.");cf. Fed. Home Loan Mortgage Corp. v. Nazar, 100 B.R. 555, 557 (Bankr. D. Kan. 1989) ("When federal agencies lend funds pursuant to authority conferred by federal statute, the agencies' rights also derive from and are protected by federal law.").
The appointment of a receiver is not a matter of right, but rather lies in the discretion of the district court and will be exercised only when necessary to protect the plaintiff's interest in property which is the subject of the action. See Guy v. Citizens Fidelity Bank & Trust Co., 429 F.2d 828, 833-34 (6th Cir. 1970); United States v. Production Plated Plastics, Inc., 61 F.3d 904, *7 (6th Cir. 1995) (table decision). Appointment of a receiver is not an end it itself, but rather a means to reaching some legitimate end. See Kelleam v. Maryland Cas. Co. of Baltimore, 312 U.S. 377, 381 (1941). In this case, Fannie Mae is not simply asking the Court to appoint a receiver. Rather, Fannie Mae seeks to enforce the Note and Mortgage, specifically the provisions which entitle Fannie Mae to collect rents and take possession of the Property upon default. Mapletree has refused to remit the monthly rents and transfer possession, so Fannie Mae brought this action.
There is a split of authority over whether the parties' advance consent to the appointment of a receiver in the mortgage documents is dispositive to the issue of appointment, or whether it is simply one factor among the others that a court must consider. Compare Sterling Sav. Bank v. Citadel Dev. Co., Inc., 656 F. Supp. 2d 1248, 1260 (D. Or. 2009) (citing Watt West Inv. Corp., 755 F. Supp. at 292) (consent of the parties is a factor that commands great weight, but is not dispositive), D.B. Zwirn Special Opportunities Fund, L.P. v. Tama Broad., Inc., 550 F.Supp.2d 481, 491 (S.D.N.Y. 2008) (mere existence of contractual provision does not dispose of the court's inquiry), and Gage v. First Fed. Sav. & Loan Ass'n, 717 F. Supp. 745, 750 (D. Kan. 1989) ("Appointment of a receiver is not automatic because of a clause in the mortgage agreement; the mortgagee must go through the normal legal channels to obtain a receiver."), with Britton v. Green, 325 F.2d 377, 382 (10th Cir. 1963) (holding mortgagee was entitled to appointment of a receiver where parties had agreed in mortgage that mortgagee was entitled to receiver), and Am. Bank and Trust Co. v. Bond Intern. Ltd., No. 06-cv-0317, 2006 WL 2385309, *7 (N.D. Okla. Aug. 17, 2006) ("Appointment of a receiver is appropriate where the parties have contractually agreed to a receivership .... Accordingly, [plaintiff] is entitled to the appointment of a receiver under the bargained-for provisions of the parties' agreements."); cf. Nazar, 100 ...