KeyBank N.A. v. Monolith Solar Assocs.
| Decision Date | 10 March 2020 |
| Docket Number | 1:19-CV-1562 |
| Parties | KEYBANK NATIONAL ASSOCIATION, Plaintiff, and CAPITAL COMMUNICATIONS FEDERAL CREDIT UNION, Intervenor, v. MONOLITH SOLAR ASSOCIATES LLC, et al., Defendants. |
| Court | U.S. District Court — Northern District of New York |
APPEARANCES:
THOMPSON, HINE LAW FIRM-NY
Attorneys for Plaintiff
New York, New York 10017
THOMPSON, HINE LAW FIRM-CLEVELAND
Attorneys for Plaintiff
3900 Key Center
127 Public Square
Cleveland, Ohio 44114
THOMPSON HINE LLP
Attorneys for Plaintiff
Austin Landing I
10050 Innovation Drive Suite 400
Miamisburg, Ohio 45342
LIPPES MATHIAS WEXLER & FRIEDMAN LLP
Attorneys for Intervenor Plaintiff
8 Southwoods Boulevard, Suite 207
Albany, New York 12211
STEVEN A. ERBY
Defendant Pro Se
6 Hallenbeck Hill
East Greenbush, New York 12061
NOLAN HELLER KAUFFMAN LLP
Attorneys for Receiver, Daniel Scouler
80 State Street, 11th Floor
Albany, New York 12207
GIRVIN & FERLAZZO, P.C.
BARRY M. KAZAN, ESQ.
CURTIS LEE TUGGLE, ESQ.
JONATHAN S. HAWKINS, ESQ.
JOHN D. RODGERS, ESQ.
JUSTIN A. HELLER, ESQ.
FRANCIS J. BRENNA, ESQ.
JOHN V. HARTZELL, ESQ.
BRIAN D. DEINHART, ESQ.
SALVATORE D. FERLAZZO, ESQ.
MEMORANDUM-DECISION and ORDER
On December 18, 2019, plaintiff KeyBank National Association ("KeyBank" or "plaintiff") filed the present complaint against the many defendants involved in this case. Most of the defendants are power companies in the business of selling solar energy. Among the several defendants, however, is Steven A. Erby ("Erby"), one of the two founders of the power companies.
The amended complaint, the current operative pleading, alleges that the defendants had entered into—and subsequently defaulted on—lease agreements and secured transactions with KeyBank. In total, defendants owe plaintiff somewhere in the neighborhood of $6.1 million. Plaintiff brought a foreclosure action on the leases in the Northern District of New York. Plaintiff also moved for a receiver to be appointed under Federal Rule of Civil Procedure ("Rule") 661 to manage the varied businesses in default until such time as the foreclosure could be completed.
On December 20, 2019, United States Senior District Court Judge Thomas J. McAvoy appointed Daniel Scouler ("Scouler" or "the receiver") as receiver to manage the power companies. The receiver duly took an oath to faithfully perform the duties of a receiver on December 23, 2019. On January 8, 2020, the receiver applied for attorney's fees and reimbursement of expenses. January 14, 2020 added significant complexity to the case when Capital Communications Federal Credit Union ("Capital") was introduced as an intervenor plaintiff under Federal Rule of Civil Procedure 24(a)(2). Then, on January 21, 2020, Senior Judge McAvoy recused himself from this case.
During the second half of January and most of the month of February, Scouler, KeyBank, Capital, and Erby issued a flurry of motions, retractions, and oppositions. On February 27, 2020, this Court approved: (1) the Second Order Modifying the Receivership; (2) the receiver's request for funding; and (3) a joint stipulation allowing a completed foreclosure action in an unrelated state case to proceed. Those orders quieted much of the storm of motion practice because they overruled any pre-existing objections to the receivership order.
Four outstanding issues still require further resolution: (1) Erby's motion to work on the receiver's behalf; (2) Erby's motion for counsel; (3) the motion for a partial lift of the stay in proceedings other than the present action filed by Dealer Services 2.0, doing business as Lotus ("Lotus")2; and (4) Scouler's motions for attorney's fees.
In cases of foreclosure, a receiver may be appointed under a court's equitable powers "to ensure the conservation of the [receivership property] for both the owner's and the mortgagee's benefit . . . ." United States v. Falls Court Props. Co., 2009 WL 1924771, at *4 (N.D.N.Y. July 1, 2009) (). A "[r]eceiver acts only as an agent of th[e] [c]ourt, and his fiduciary duty is to act in the best interests of the receivership property," not in the best interests of any other party. Lawsky v. Condor Capital Corp., 2015 WL 4470332, at *11 (S.D.N.Y. July 21, 2015) (citing Citibank, N.A. v. Nyland (CF8) Ltd., 839 F.2d 93, 98 (2d Cir. 1988)), appeal docketed, No. 15-2362.
Erby asks to be able to work for the receiver in a limited capacity and to collect signatures that he argues will benefit the receivership property. That decision rests with Scouler, and at this time there is no reason to meddle in his administration of his charge. As part of the Second Order Modifying the Receivership, the receiver was bound to act as necessary for the "protection, possession, control, management[,] and operation of the [r]eceivership [p]roperty during the pendency of this receivership[.]" Second Order Modifying the Receivership, p. 5.
Of course, Scouler is an agent of the Court, and could be ordered to employ Erby as he requests. However, this Court is neither inclined nor, candidly, equipped to micromanage the receivership property to the degree that Erby's request would entail. See SEC v. EquityBuild, Inc., 2019 WL 1953117, at *4 (N.D. Ill. May 2, 2019) (). The receiver is bound by a fiduciary duty to manage the property as he thinks best for all parties. Should he decide that Erby's return to work would benefit the receivership, he is entitled to make that call. But hewill not be forced into a decision contrary to his judgment absent a concrete showing of a violation of the active receivership order. Id. Therefore, Erby's request must be denied.
"There is no legal right to counsel in civil cases." Snyder v. N.Y. State Educ. Dep't, 486 F. App'x 176, 180 (2d Cir. 2012) (summary order) (citing Hodge v. Police Officers, 802 F.2d 58, 60 (2d Cir. 1986)). Under 28 U.S.C. § 1915(e), however, a court may nevertheless request that an attorney represent a person "unable to afford counsel."
A party unable to afford counsel must nevertheless satisfy the threshold requirement that his position is "likely to be of substance." Hodge, 802 F.2d at 61. If he has done so, the court should then consider: (1) "the indigent's ability to investigate the crucial facts"; (2) whether conflicting evidence implicating the need for cross-examination will be of particular importance to the case; (3) "the indigent's ability to present the case"; (4) "the complexity of the legal issues"; and (5) any special reason to think that appointing counsel would be more likely to lead to a just determination. Id. at 61-62.
Erby requests to use a portion of the profits generated by his proposed return to work at the receiver's direction to pay for him to attain counsel. Because the foundational request for his return to work has been denied, it follows that he cannot attain counsel with nonexistent funds. Furthermore, even if he had been allowed to return to work, the receivership property is now in the custody of the receiver, and by extension is to be preserved for the benefit of all parties. See SEC v. Stanford Int'l Bank, Ltd., 927 F.3d 830, 840 (5th Cir. 2019) (). Disbursing receivership funds to Erby wouldimproperly benefit him at all other parties' expense. Thus, his request to draw funds for representation from the receivership fund must also be denied.
However, at a later point in this litigation, particularly in advance of a dispositive motion or trial, Erby may move for counsel to be appointed for him provided that he can prove that he is indigent and that his defenses against KeyBank's claims are meritorious. Hodge, 802 F.2d at 61. Should he meet that threshold test, the merits of appointing counsel for him will be considered. Id. at 61-62. Until then, there is precious little for Erby to do, as no motion is now pending. His time would be best spent considering what defenses, if any, he may have to the various foreclosure actions at stake and contemplating what discovery he may seek from KeyBank to further those defenses.
A district court possesses the equitable power to order a stay preventing non-parties from initiating or continuing litigation against an entity in a receivership. S.E.C. v. Byers, 609 F.3d 87, 91 (2d Cir. 2010) (); Liberte Capital Grp., LLC v. Capwill, 462 F.3d 543, 552 (6th Cir. 2006) (). This power is "effective against all persons, of all proceedings against the receivership entities" and "rests as much on [the court's] control over the property placed in receivership as on its jurisdiction over the parties" to the underlying claim. Byers, 609 F.3d at 91. After all, "if a district court could not control the receivership assets, the receiver would be unable to protect those assets." Id. (citing SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980)).
As for determining whether to lift a stay once imposed, there are two potential tests at play. First, as Scouler notes,3 courts in this Circuit have overwhelmingly employed the three-pronged test used by the Ninth Circuit in SEC v. Wencke, 742 F.2d 1230, 1231 (9th Cir. 1984), to consider whether to lift litigative stays in the SEC receivership context. See, e.g...
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