Yidi, L.L.C. v. JHB Hotel, L.L.C. , 2017 Ohio 1285 ( 2017 )

[Cite as Yidi, L.L.C. v. JHB Hotel, L.L.C., 2017-Ohio-1285.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 104856
YIDI, L.L.C.
PLAINTIFF-APPELLEE
vs.
JHB HOTEL, L.L.C., ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-15-850496
BEFORE: Keough, A.J., Kilbane, J., and Blackmon, J.
RELEASED AND JOURNALIZED: April 6, 2017
ATTORNEYS FOR APPELLANTS
Jeffery D. Rengel
Thomas R. Lucas
Rengel Law Office
The Rengel Building
421 Jackson Street
Sandusky, Ohio 44870
ATTORNEYS FOR APPELLEE
FOR MARK E. DOTTORE, RECEIVER
Harvey Labovitz
Elizabeth E. Collins
Tim L. Collins
Joseph Gutkoski
Collins & Scanlon, L.L.P.
3300 Terminal Tower
50 Public Square
Cleveland, Ohio 44113
FOR YIDI, L.L.C.
Robert T. Glickman
Robert R. Kracht
Charles A. Nemer
Danielle G. Garson
McCarthy, Lebit, Crystal & Liffman Co.
101 West Prospect Ave., Suite 1800
Cleveland, Ohio 44115
KATHLEEN ANN KEOUGH, A.J.:
{¶1} Defendants-appellants, JHB Hotel L.L.C., 3M Realty L.L.C., 3M
Development L.L.C., and Hickory Court L.L.C. (collectively “appellants”), appeal from
the trial court’s judgment approving the receiver’s motion to sell real property (the “sale
order”). Finding no merit to the appeal, we affirm.
I. Background and Procedural History
{¶2} This case originated in August 2015, when plaintiff-appellee, Yidi, L.L.C.
(“Yidi”), filed a breach of contract and foreclosure action against appellants seeking
repayment for a series of loans guaranteed by three properties located on Euclid Avenue
in Cleveland (the “property”).
{¶3} The trial court, upon Yidi’s request and pursuant to an agreed order,
appointed Mark Dottore as receiver (the “receiver”). The court subsequently granted the
receiver’s unopposed motion to approve (1) the retention of Hanna Commercial and
David Wagner to market the property, and (2) the procedures for the marketing of the
property and the submission of sealed bids on the property.
{¶4} After vetting several potential buyers, the receiver ultimately determined
that a $9.1 million bid from Alto Partners, L.L.C. (“Alto”) was the highest and best offer
for the property. On July 20, 2016, he filed a motion seeking a court order authorizing
him to sell the property to Alto. The court set a hearing on the receiver’s motion for
August 2, 2016. The day before the hearing, appellants filed a “notice of filing
competing offer to purchase receivership property” with the trial court. The offer was
for $9.5 million by SRI, L.L.C., the equity investor in JHB Hotel, L.L.C., the fee simple
title holder to the property. (Thus, the offer was essentially by appellants.)
{¶5} The trial court held the scheduled hearing on August 2, 2016. Wagner, the
receiver, and Michael Sabracos, president of U.S. operations for Alto, testified at the
hearing. The receiver testified that the Alto offer was the highest and best offer for the
property because Alto had submitted documentation demonstrating that it had the
financial ability to purchase the property, had experience in developing similar
commercial properties, and had committed $450,000 in nonrefundable monies if the deal
ultimately did not go forward. He testified that although SRI’s offer was higher, it had
not been submitted in accordance with the sealed bidding procedures and that SRI, unlike
Alto, had not submitted any documentation regarding its financial ability to close on the
transaction and complete the project. Further, SRI’s bid contained a 30-day contingency
and a $100,000 refundable deposit. He admitted, however, that he had not fully vetted
SRI’s offer.
{¶6} After the hearing, on August 4, 2016, the trial court granted the receiver’s
motion and issued the sale order authorizing the receiver to sell the property to Alto. As
part of the sale order, the trial court granted appellants three days to exercise their equity
of redemption. This appeal followed.
II. Law and Analysis
A. Standard of Review
{¶7} We review the trial court’s decision approving the receiver’s sale of real
property for an abuse of discretion. Huntington Bank L.L.C. v. Prospect Park L.L.C., 8th
Dist. Cuyahoga No. 97720, 2012-Ohio-3261, ¶ 5, citing Huntington Natl. Bank v. Motel 4
BAPS, Inc., 191 Ohio App.3d 90, 2010-Ohio-5792, 944 N.E.2d 1210 (8th Dist.); Wells
Fargo Bank, N.A. v. Odita, 10th Dist. Franklin No. 13AP-663, 2014-Ohio-2540, ¶ 15.
An abuse of discretion occurs when a trial court’s decision is unreasonable, arbitrary, or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450 N.E.2d 1140(1983).
B. A Reasonable Time for Redemption
{¶8} Under R.C. 2735.04(D)(7),
[t]he court’s order approving the application by a receiver or first mortgage
holder for authority to sell real property under division (D)(2)(a) of this
section shall establish a reasonable time, but not less than three days, after
the date of the order approving the specific sale or the sale process for the
owner and all other parties possessing an equity of redemption in the real
property to exercise their equity of redemption in the real property or to
have that equity of redemption forever barred. Section 2329.33 of the
Revised Code does not apply to a sale by a receiver under this section.
(Emphasis added.)
{¶9} In their first assignment of error, appellants contend that the trial court abused
its discretion by not offering them a “reasonable time” for redemption under R.C.
2735.04. More specifically, appellants contend that the trial court’s sale order did not set
a reasonable time for redemption because it allowed Alto 90 days to close the transaction
but gave them only three days to redeem. Appellants contend that they should have been
given the same period of time to redeem the property as Alto had to close on the property.
Appellants further contend that because Alto’s purchase agreement allowed it to make
installment payments, the trial court should have given them the same installment
schedule for redemption as Alto had for purchase. Appellants’ arguments are without
merit.
{¶10} Ohio law recognizes that mortgagors have an equitable right of redemption
to pay the debt, interest, and court costs to prevent the sale of the property. Aurora Bank
F.S.B. v.Gordon, 8th Dist. Cuyahoga No. 103138, 2016-Ohio-938, ¶ 24. The equitable
right of redemption is cut off, however, when a decree of foreclosure is issued. Id.,citing Hausman v. Dayton, 73 Ohio St.3d 671, 676, 653 N.E.2d 1190 (1995). Courts will
generally allow a three-day grace period following the decree to allow a mortgagor to
exercise its equitable right to redeem the property. Id.{¶11} Ohio law also provides for a statutory right of redemption that is
independent of the equitable redemption right. Under R.C. 2329.33, a mortgagor, at any
time prior to confirmation of the sale, may redeem the property by depositing the “amount
of the judgment” with all costs in the common pleas court.
{¶12} Importantly, however, Ohio’s receivership statute, which allows a receiver
to sell real property pre-judgment free and clear of all liens, does not provide that
mortgagors be given until confirmation of the sale to exercise their right of redemption.
Rather, under R.C. 2735.04(D)(7), when property is sold by a receiver, the trial court
must set a “reasonable time,” but not less than three days after the sale order, for the
owner and all parties possessing an equity of redemption in the property to exercise their
equity of redemption. R.C. 2735.04(D)(7) specifically provides that “Section 2329.33 of
the Revised Code does not apply to a sale by a receiver under this section.”
{¶13} Appellants argue that “principles of reasonableness and fairness would
dictate that [they] should have the same schedule for redemption” as Alto had to close the
sale. In short, appellants insist that the three-day period for redemption was not
reasonable because it did not allow their equitable right of redemption to continue to be
available until the transaction closed. That is, appellants contend they were entitled to
the same period of redemption as provided in R.C. 2329.33.
{¶14} Appellants’ argument, however, ignores the specific exclusion of R.C.
2735.04(D)(7) that “Section 2329.33 of the Revised Code does not apply to a sale by a
receiver under this section.” This court has found that it is “well settled” that “R.C.
Chapter 2329 does not apply to receivership cases.” Prospect Park L.L.C., 8th Dist.
Cuyahoga No. 97720, 2012-Ohio-3261 at ¶ 1. Were appellants’ argument to prevail, the
statutory language in R.C. 2735.04(D)(7) excluding the application of R.C. Chapter
2329.33 to receivership sales of real property would be rendered meaningless.
{¶15} Despite appellants’ arguments otherwise, the three-day time period for
redemption of the property was a “reasonable time” for them to exercise their equitable
right to redeem. As noted in the sale order, all of the parties were well aware since
shortly after the receiver’s appointment that the receiver intended to sell the property.
Three hundred forty three days elapsed from when the receiver was appointed on
September 2, 2015, until the expiration of the redemption period on August 9, 2016.
Further, the receiver filed his motion seeking authority to sell the property to Alto for $9.1
million on July 20, 2016. Thus, appellants were on notice 20 days prior to the
redemption deadline. It is apparent, therefore, that appellants had adequate notice and
time to redeem the property, even with the three-day redemption period set forth in the
sale order.
{¶16} Appellants also argue that the trial court’s order was not reasonable because
it did not allow them to make installment payments to exercise their equity of redemption
even though Alto’s purchase agreement allowed it to make installment payments.
Redemption rights cannot be applied piecemeal, however. Under the receivership
statute, to exercise the equity of redemption, a mortgagor must pay the receiver
by cashier’s check or other form of immediately available funds an amount
equal to the greater of the following: (i) the sale price at which the real
property was sold; (ii) an amount equal to the total of all liens upon the real
property that were to be canceled as liens upon the real property by virtue of
the sale, including all principal, interest, costs, and other amounts secured
by those liens through the date of payment to the receiver.
{¶17} R.C. 2735.04(D)(8)(a). Thus, to properly exercise its redemption rights, a
mortgagor must pay — in full — either the sale price or the total amount of all liens upon
the property. A mortgagor may not exercise its redemption rights in installment
payments. See Hausman, 73 Ohio St.3d at 676, 653 N.E.2d 1190 (the equity of
redemption “consists of paying the debt, interest, and court costs, to prevent the sale of
the property.”).
{¶18} The trial court’s sale order giving appellants three days to exercise their
equitable right of redemption set a “reasonable time” for redemption. Accordingly, the
first assignment of error is overruled.
C. The Highest and Best Offer
{¶19} In their second assignment of error, appellants contend that the trial court
abused its discretion in approving the sale to Alto for $9.1 million because it ignored
SRI’s purported higher offer of $9.5 million, an offer they contend the receiver
wrongfully refused to fully vet. Appellants’ argument is without merit.
{¶20} The bidding procedure approved by the trial court — and to which
appellants did not object — provided that all offers for the purchase of the property were
to be made on a Property Purchase and Sale Agreement (“PPSA”), signed by the offeror,
and delivered to the receiver no later than 5 p.m. on April 20, 2016. The deadline was
later extended by the court at the receiver’s request to May 26, 2016. The bidding
procedures further provided that “[t]he receiver shall have the sole right, in his sole and
absolute discretion, to accept or reject any signed PPSA, and the acceptance or rejection
of any offer shall be in the sole and absolute discretion of the receiver.” Likewise, the
procedures established that the receiver and his agents had the “sole discretion” to
review any offer, seek additional information regarding the offer, and reject any offer if
the offer was not in the best interest of the receivership estate.
{¶21} Appellants’ argument that the trial court erred in rejecting their bid because
the receiver did not fully vet their offer is essentially an argument that the receiver erred
in exercising his discretion under the established bidding procedures. But appellants
raised no objection whatsoever in the trial court to the bidding procedures, or to the fact
that the receiver would have sole discretion to accept or reject any offers for the property.
Accordingly, appellants have waived any argument on appeal that the receiver should
have accepted, or at a minimum more fully vetted, their untimely offer. Milling Away
L.L.C. v. UGP Props. L.L.C., 8th Dist. Cuyahoga No. 95751, 2011-Ohio-1103, ¶ 12 (“It is
well settled that a party who fails to raise an argument in the court below waives his or
her right to raise it on appeal.”)
{¶22} Moreover, it was not unreasonable for the receiver to not fully vet an offer
that was submitted contrary to the established bidding procedure, after the conclusion of
the bidding process, and only one day before the hearing on the receiver’s motion to
approve the sale. Per the bidding procedures, bids were to be submitted on a PPSA to the
receiver by May 26, 2016. The bidding procedures also made clear that bidding was
complete once the receiver sought approval of a sale, which occurred on July 20, 2016.
Appellants’ bid was submitted on August 1, 2016, in a pleading filed with the trial court
entitled “notice of filing of competing offer to purchase receivership property and
objection to receiver’s pending motion to sell.” Thus, appellants’ assertion that “the only
reason” their bid was noncompliant was because they did not submit evidence of funding
with their original bid is not accurate. Appellants’ bid was totally noncompliant with the
established bidding procedures and, therefore, the receiver did not err in not fully vetting
the bid.
{¶23} Likewise, the trial court did not abuse its discretion in approving the sale to
Alto. As a result of appellants’ failure to comply with the established bidding
procedures, the trial court was left with Alto’s $9.1 million offer. The testimony at the
hearing regarding approval of the sale to Alto confirmed that it was indeed the highest
and best offer for the property.
{¶24} Wagner testified regarding the offer that “it was the highest monetary offer
that we had on the table with the tightest terms for us to approve.” He testified further
that Alto had the capacity “not just to acquire the property, but actually to execute and
complete the project.”
{¶25} The receiver testified that the Alto offer was the highest and best offer
“[b]ecause it’s a nonrefundable deposit. There’s timeliness. And the other offers, they
either wanted the deposit back or there [were] several other contingencies in any of the
other offers.” He testified that based both on his experience as a receiver and with the
property at issue, he believed the Alto offer was the highest and best offer for the
property.
{¶26} Our review of the record demonstrates that appellants were given numerous
opportunities during the receivership proceedings to secure financing for the property, but
never finalized any offer. During the hearing, the receiver acknowledged that he had
spent three weeks vetting Alto’s bid, but testified that taking additional time to vet
appellant’s offer would not change his decision to sell to Alto, because appellants had
repeatedly demonstrated they did not have financing capability. On cross-examination
by appellants’ counsel, the receiver testified that appellants’ last-minute offer,
unsupported by a demonstrated ability to actually close the transaction, was typical of
what had repeatedly happened in the case:
[E]very time we get in position to sell the property, your client seems to
come up with a new person who is going to give them money.
***
This is typical of what’s been happening in this case where your client
keeps coming in at the last minute, coming up with some sort of, I’ll have
financing tomorrow. Albeit the last one we had was — let me answer
your question — the last one we had, we needed 30 days. I believe he got
more than 30 days. Then he came in, got another 10 days. Yet we’re still
sitting here with no financing from your client.
{¶27} When asked whether he had any objection to giving additional time to vet
appellants’ offer, the receiver stated, “I think it’s going to put us down the same road
we’ve been down three times already in this case, quite frankly. That’s my opinion and
I’m the receiver.”
{¶28} A receiver is appointed for the benefit of all the creditors of the property
subject to receivership. Motel 4 BAPS, Inc., 191 Ohio App.3d 90, 2010-Ohio-5792, at ¶
8. Appellants’ $9.5 million dollar offer would obviously be of no value to the creditors
if they could not actually close on the property. As the receiver testified at the hearing,
“Why would I sell a piece of property that I know somebody couldn’t finance?” In light
of appellants’ repeated failures to redeem the property after being afforded numerous
opportunities to do so, it is apparent that by approving Alto’s $9.1 million offer, the trial
court approved the sale of the property to a buyer who could actually pay the full
purchase price and develop the property. Accordingly, the receiver did not abuse his
discretion in seeking approval to sell the property to Alto for $9.1 million, and the trial
court did not abuse its discretion in approving the sale.
{¶29} The second assignment of error is overruled.
{¶30} Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
KATHLEEN ANN KEOUGH, ADMINISTRATIVE JUDGE
MARY EILEEN KILBANE, J., and
PATRICIA ANN BLACKMON, J., CONCUR.