U.S. Bank, N.A. v. Courthouse Crossing Acquisitions, L.L.C. , 103 N.E.3d 300 ( 2017 )

[Cite as U.S. Bank, N.A. v. Courthouse Crossing Acquisitions, L.L.C., 2017-Ohio-9232.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
U.S. BANK, N.A. :
Plaintiff-Appellee :
: Appellate Case No. 27331
v. :
: Trial Court Case No. 16-CV-5346
COURTHOUSE CROSSING, :
ACQUISITIONS, LLC, et al. : (Civil Appeal from
Defendants-Appellants : Common Pleas Court)
:
:
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OPINION
Rendered on the 22nd day of December, 2017.
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JAMES P. BOTTI, Atty. Reg. No. 0023051 and JARED M. KLAUS, Atty. Reg. No.
0087780, 41 S. High Street, Suite 3100, Columbus, Ohio 43215
TAMI H. KIRBY, Atty. Reg. No. 0078473, 1 S. Main Street, Suite 1600, Dayton, Ohio
45402
Attorneys for Plaintiff-Appellee
CHARLES PAWLUKIEWICZ, Atty. Reg. No. 11499, ROBERT KRACHT, Atty. Reg.
25574, and NICHOLAS OLESKI, Atty. Reg. No. 0095808, 101 W. Prospect Avenue, Suite
1800, Cleveland, OH 44115
Attorneys for Defendants-Appellants
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HALL, P.J.
{¶ 1} Courthouse Crossing Acquisitions, LLC and Schon C.C. Holding, LLC appeal
from an order of the trial court appointing a receiver in this multi-tenant commercial
property foreclosure action. Finding no error, we affirm.
I. Background
{¶ 2} In 2006, Courthouse and Schon (which we will refer to collectively as
Courthouse, unless otherwise noted) borrowed $12.7 million from Deutsche Bank
Mortgage Capital, LLC. The promissory note matured on March 1, 2016, at which time it
became due and payable in full. Securing the promissory note is an open-ended
mortgage and an assignment of leases and rents on the office and retail building at 10
North Ludlow Street in downtown Dayton. After a string of assignments, U.S. Bank came
to own and hold the note, mortgage, and assignment of leases and rents.
{¶ 3} The maturation date came, and Courthouse failed to pay the roughly $11
million due on the promissory note. In October 2016, U.S. Bank filed a foreclosure action
against Courthouse, seeking foreclosure of the mortgage and to collect rents and other
income. At the same time, U.S. Bank moved for the appointment of a receiver, supporting
its motion with an affidavit from a manager at the loan’s special servicer. A hearing on the
matter of a receiver was scheduled for November 4.
{¶ 4} The day before the hearing, Courthouse filed a motion to dismiss under
Civ.R. 12(B)(1), (4), and (5). Courthouse argued that U.S. Bank was not the holder of the
note and mortgage when it filed the complaint, so it lacks standing to bring this action.
Courthouse also argued that U.S. Bank did not have the capacity to sue in Ohio because
it failed to register as a business trust with the Ohio Secretary of State. Courthouse also
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argued that U.S. Bank had failed to serve Schon and quibbled with the method that it
used to serve Courthouse. Lastly, Courthouse argued generally that service had not been
perfected on Courthouse or Schon.
{¶ 5} The hearing was held on the scheduled date. Although neither Courthouse
nor Schon had been formally served with process, both parties were represented at the
hearing by counsel. Only arguments were presented at the hearing—no additional
evidence. The trial court sustained U.S. Bank’s motion for the appointment of a receiver
and appointed the receiver requested by the bank.
{¶ 6} On November 8, 2016, Courthouse appealed from the order appointing the
receiver.
{¶ 7} On January 9, 2017, the trial court overruled Courthouse’s motion to dismiss.
II. Analysis
{¶ 8} Courthouse assigns four errors to the trial court:
I. The Trial Court Erred as a Matter of Law and Abused Its Discretion
By Appointing a Receiver Before the Court Obtained Jurisdiction Over
Appellants.
II. The Trial Court Erred as a Matter of Law When It Found That
Appellee Has an Interest in the Subject Note and Mortgage.
III. The Trial Court Erred as a Matter of Law in Finding that Appellee
Has Capacity to Sue in an Ohio [Court] as It Failed to Register with the Ohio
Secretary of State.
IV. The Trial Court Erred as a Matter of Law and Abused Its
Discretion When It Appointed a Receiver Without Clear and Convincing
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Evidence of the Need for One.
A. Dispositive defenses
{¶ 9} The issues raised in the first three assignments of error do not concern the
receivership proceeding, but rather the main foreclosure action. The first assignment of
error argues that the trial court lacked personal jurisdiction over Courthouse and Schon
because neither had yet been served with process when the court appointed the receiver.
The second assignment of error argues that U.S. Bank lacks standing. And the third
assignment of error argues that even if U.S. Bank has standing, it lacks the capacity to
sue in Ohio because it is a business trust governed by R.C. Chapter 1746 and failed to
comply with that chapter’s registration requirements. These are dispositive defenses to
the main action. Because these issues do not concern the receivership proceeding, they
are not properly before us.
{¶ 10} The appointment of a receiver is an ancillary proceeding. Community First
Bank & Trust v. Dafoe, 108 Ohio St.3d 472, 2006-Ohio-1503, 844 N.E.2d 825, ¶ 26. It is
a “separate procedure[] tied to a main action, acting in furtherance of the main action, but
with [its] own li[fe].” Id. See also State v. Muncie, 91 Ohio St.3d 440, 449, 746 N.E.2d
1092 (2001) (saying that the appointment of a receiver “aids the principal proceeding—
the underlying litigation—for the receiver conserves the interests of litigants with respect
to property that is in the custody of the court during the course of that principal litigation”).
Indeed, the order that Courthouse appeals here only appoints a receiver and authorizes
the receiver to take certain actions. The issues raised in the first three assignments of
error—jurisdiction, service, standing, capacity to sue—do not directly concern either the
receiver’s appointment or the scope of his powers. Rather, as we said, the issues concern
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dispositive defenses to the main foreclosure action.
{¶ 11} But dispositive defenses to the main action are not properly asserted in a
receivership proceeding, or any other ancillary proceeding. The proper place for these
types of defenses is in a motion to dismiss, which is where Courthouse in fact raised
them. But the denial of a motion to dismiss is not immediately appealable. Polikoff v.
Adam, 67 Ohio St.3d 100, 103, 616 N.E.2d 213 (1993). If we were to review these
dispositive defenses in this appeal of an order in an ancillary proceeding, we would be
creating a shortcut to appellate review of issues that would otherwise have to wait for
review until after a final judgment is entered.
{¶ 12} We see no good reason to create such a shortcut. “A denial of a motion to
dismiss is not a final appealable order because the party can seek a remedy on appeal
after a final judgment is entered.” Cantie v. Hillside Plaza, 8th Dist. Cuyahoga No. 99850,
2014-Ohio-822, ¶ 24. See also Haskins v. Haskins, 104 Ohio App.3d 58, 61, 660 N.E.2d
1260 (2d Dist.1995) (saying that “[g]enerally, an order denying a motion to dismiss is not
a final order because the reasons for which the dismissal was sought continue
undisturbed to the final judgment, permitting prosecution of the error, if any, on the final
judgment”), citing Polikoff. Concerning jurisdiction, the Ohio Supreme Court has said that
“[p]arties that believe an Ohio court has wrongly asserted jurisdiction over them have a
right of appeal.” Natl. City Commercial Capital Corp. v. AAAA At Your Serv., Inc., 114
Ohio St.3d 82, 2007-Ohio-2942, 868 N.E.2d 663, ¶ 10, citing State ex rel. Pearson v.
Moore, 48 Ohio St.3d 37, 38, 548 N.E.2d 945 (1990) (“Absent a patent and unambiguous
lack of jurisdiction, a court having general jurisdiction of the subject matter of an action
has authority to determine its own jurisdiction. A party challenging the court’s jurisdiction
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has an adequate remedy at law via appeal from the court’s holding that it has
jurisdiction.”). We have precluded the immediate appeal of a motion challenging a trial
court’s jurisdiction, because “the issue sought to be raised on appeal can, as a practical
matter, await determination until an appeal following the final disposition of the case in
the trial court.” Lonigro v. Lonigro, 55 Ohio App.3d 30, 31, 561 N.E.2d 573 (2d Dist.1989).
The Eighth District has done the same, concluding that “[t]he rule that the denial of a
motion to dismiss is not a final order applies with equal force to motions that challenge
the subject matter jurisdiction of a court.” Matteo v. Principe, 8th Dist. Cuyahoga No.
92894, 2010-Ohio-1204, ¶ 21, citing id.{¶ 13} Here, Courthouse raised the issues of standing, jurisdiction, service, and
capacity in their motion to dismiss—which the trial court has now overruled. These issues
can be resolved in other appeals between these parties, to the extent raised therein.
{¶ 14} The first, second, and third assignments of error are overruled.
B. The appointment of a receiver
{¶ 15} The fourth assignment of error challenges the appointment of a receiver.
“The decision to appoint a receiver is within the trial court’s sound discretion. * * * Absent
an abuse of discretion, an appellate court will not reverse a decision on whether to appoint
a receiver.” U.S. Bank, N.A. v. 2900 Presidential Drive LLC, 2d Dist. Greene No. 2013
CA 60, 2014-Ohio-1121, ¶ 12.
{¶ 16} The trial court’s discretion, though, is limited by the applicable statute. R.C.
2735.01 governs the appointment of receivers and relevantly provides that a receiver may
be appointed in these cases:
(2) In an action by a mortgagee, for the foreclosure of the mortgagee's
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mortgage and sale of the mortgaged property, when it appears that the
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:
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(b) The mortgagor has consented in writing to the appointment of a
receiver.
(3) To enforce a contractual assignment of rents and leases;
R.C. 2735.01(A). And “the movant must demonstrate the need for a receiver by clear and
convincing evidence.” (Citation omitted.) U.S. Bank at ¶ 11.
{¶ 17} U.S. Bank argues that it is entitled to the appointment of a receiver because
Courthouse is in default of the mortgage and, in the mortgage, they contend, Courthouse
consented to the appointment of a receiver. U.S. Bank also argues that a receiver should
be appointed because Courthouse has collected, but failed to turn over, rents and profits
and has failed to pay real estate taxes and assessments.
{¶ 18} U.S. Bank supports its motion for a receiver with an affidavit from Dmitry
Sulsky, an Asset Manager of LNR Partners, LLC, which is the special servicer of the loan
and the attorney-in-fact for U.S. Bank. Sulsky states that his responsibilities include
oversight of loan servicing and that he has personal knowledge of the books and records
of LNR Partners and U.S. Bank as to the loan at issue here. Sulsky states that U.S. Bank
is the owner and holder of the promissory note, mortgage, and assignment of rents
executed by Courthouse. By its terms, the note matured on March 1, 2016, and required
full payment at that time. Courthouse defaulted by failing to pay. Sulsky says that they
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also defaulted by failing to pay real estate taxes and assessments, requiring U.S. Bank
(or its predecessor in interest) to pay them. Courthouse also defaulted, says Sulsky, by
collecting but not turning over rents and profits. Sulsky states that “[a] receiver is
necessary to preserve and protect the Project [the real estate and associated personal
property] during the pendency of this case, and particularly, to collect the Rents from the
Project so that they are not dissipated during the pendency of the case.” As of July 1,
2016, says the affidavit, Courthouse owes a little over $11.6 million in all. Sulsky also
authenticates the copies of the promissory note, mortgage, and assignment of rents
attached to the complaint.
{¶ 19} Courthouse dismisses the affidavit, saying that it “largely regurgitates the
same wording and phrasing from Appellee’s Complaint.” Such an affidavit, they argue, is
insufficient to establish the need for a receiver. We disagree.
{¶ 20} The evidence is sufficient to justify the appointment of a receiver under R.C.
2735.01(A)(2). Sulsky’s affidavit establishes that the mortgaged property “is in danger of
being lost, removed, materially injured, diminished in value, or squandered,” R.C.
2735.01(A)(2), and that Courthouse defaulted on the mortgage. R.C. 2735.01(A)(2)(b)
provides that a receiver is appropriate when “[t]he mortgagor has consented in writing to
the appointment of a receiver.” Section 13.1(d) of the mortgage provides that in the event
of default the mortgagee may “[a]pply to a court for appointment of a receiver, trustee,
liquidator or conservator of the Mortgaged Property without notice to Mortgagor.”
Courthouse argues that all they agreed to here was ex parte application for the
appointment of a receiver, not appointment. But we are of the opinion that this is a
distinction without a difference. By agreeing to ex parte application, Courthouse
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effectively consented to the appointment of a receiver. The evidence is also sufficient to
justify the appointment of a receiver under R.C. 2735.01(A)(3), “[t]o enforce a contractual
assignment of rents and leases.” Sulsky’s affidavit establishes that Courthouse collected
rents but failed to turn them over.
{¶ 21} In these circumstances, we believe that the appointment of a receiver is
reasonable, and we have held so before. In U.S. Bank, N.A. v. 2900 Presidential Drive
LLC, 2014-Ohio-1121, the bank in the foreclosure action supported its motion for a
receiver with an affidavit from the loan’s special servicer. The affidavit stated that the
borrowers had defaulted on their note and mortgage by failing to pay and had defaulted
by failing to turn over rents. The affidavit authenticated the loan documents attached to
the complaint. In the mortgage, the borrowers agreed to the appointment of a receiver
upon default. We held that the trial court did not abuse its discretion by appointing a
receiver. We note too that the Eighth District has held that a trial court properly appointed
a receiver over mortgaged property where the defaulting borrower had only failed to pay
real-estate taxes. Bankers Natl. Life Ins. Co. v. 514 Prospect Ave. Co., 8th Dist. Cuyahoga
No. 41220, 1980 WL 354922 (Jun. 26, 1980).
{¶ 22} Courthouse also argues that the trial court erred by relying on a local rule
rather than the receivership statute, R.C. 2735.01. In its oral ruling at the hearing, the trial
court cited Mont. Co. C.P.R. 2.29(B), which governs the appointment of receivers in a
real-estate foreclosure in Montgomery County common pleas courts. But in its written
appointment order, the court cites R.C. 2735.01, though it does not identify the section
under which it made the appointment. Citing the local rule or not identifying a particular
statutory section does not render the appointment an abuse of discretion. Because we
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have found that U.S. Bank presented sufficient evidence justifying a receiver’s
appointment, there is no reason to disturb the trial court’s appointment. Compare
Whitaker v. Paru Selvam, L.L.C., 2d Dist. Montgomery No. 26555, 2015-Ohio-3166, ¶ 33
(affirming the appointment of a receiver based on the evidence even though the
trial court did not cite a subsection of the receivership statute); State ex rel. Petro v. Gold,
166 Ohio App.3d 371, 2006-Ohio-943, 850 N.E.2d 1218 (10th Dist.) (affirming the
appointment of a receiver based on the evidence, where the trial court found that the
receivership statute supported the appointment of a receiver but did not identify an
applicable subsection).
{¶ 23} The fourth assignment of error is overruled.
III. Conclusion
{¶ 24} We have overruled each of the assignments of error presented. The trial
court’s order appointing a receiver is therefore affirmed.
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DONOVAN, J. and WELBAUM, J., concur.
Copies mailed to:
James Botti
Jared M. Klaus
Tami Kirby
Charles Pawlukiewicz
Robert Kracht
Nicholas Oleski
Michele Phipps
Hon. Timothy N. O’Connell