MB Fin. Bank, N.A. v. World Fresh Mkt., LLC, Civil No. 2012-92

CourtUnited States District Courts. 3th Circuit. District of the Virgin Islands
Writing for the CourtRUTH MILLER
PartiesMB FINANCIAL BANK, N.A., Plaintiff, v. WORLD FRESH MARKET, LLC, a United States Virgin Islands Limited Liability Company, Defendant.
Decision Date06 March 2013
Docket NumberCivil No. 2012-92

MB FINANCIAL BANK, N.A., Plaintiff,
v.
WORLD FRESH MARKET, LLC, a United States Virgin Islands Limited Liability Company, Defendant.

Civil No. 2012-92

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN

Dated: March 6, 2013


MEMORANDUM OPINION AND ORDER

Before the Court is MB Financial Bank, N.A.'s Motion for the Appointment of a Receiver [DE 8], which World Fresh Market, LLC opposes [DE 17].

I. STATEMENT OF FACTS

This diversity suit is a commercial foreclosure action. MB Financial Bank, N.A. ("MB Financial") is the assignee of the loan and mortgage at issue. Collateral securing the loan includes World Fresh Market, LLC's ("WFM") leasehold interest in four grocery stores located in the Virgin Islands ("the VI Properties"), in addition to real property located in Chicago, Illinois.1 Pl.'s Mem., Ex. H at 2 [DE 9-8] (identifying the collateral securing the loan). On December 3, 2012, MB Financial initiated this action, alleging WFM is in default under the terms and conditions of the loan documents and requesting, inter alia, judgment foreclosing the mortgage.

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II. DISCUSSION

MB Financial seeks the appointment of a receiver2 to collect the rents and profits of the VI Properties pending the outcome of the foreclosure action.3 Virgin Islands courts have recognized two standards governing receivership appointments: (1) the standard set forth in Section 4.3 of the Restatement (Third) of Property: Mortgages ("Restatement"); and (2) the multi-factor equitable test enunciated in the unpublished opinion of National Investors Pension Insurance v. Bayside Resort Inc., 1984 U.S. Dist. LEXIS 24701 (D.V.I. 1984).4 See e.g., First Am. Dev. Group/Carib, LLC v. WestLB AG, 53 V.I. 107 (V.I. Super. Ct. 2010) (discussing both standards); Mortg. Elec. Registration Sys., Inc. v. Patock, 51 V.I. 917, 928 (D.V.I. 2009) (discussing National Investors standard only). While urging the Court to adopt the Restatement standard, MB Financial contends it is nevertheless entitled to the appointment of a receiver regardless of the standard applied.5

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A. The Restatement Standard

Section 4.3 of the Restatement addresses a mortgagee's entitlement to the appointment of a receiver and states in relevant part:

(b) A mortgagee is entitled to the appointment of a receiver to take possession of the real estate if the mortgagor is in default under the mortgage and the mortgage or other agreement contains either a mortgage on the rents or a provision authorizing appointment of a receiver to take possession and collect rents upon mortgagor default.

Restatement (Third) of Property: Mortgages § 4.3(b); accord First Am. Dev. Group/Carib, LLC, 53 V.I. at 121. As Comment b of the Reporters' Notes to the Restatement explains, section 4.3(b) is directed towards mortgages on rental real estate. Thus, under the Restatement, if the mortgage is on rental real estate and contains a provision for the appointment of a receiver, and the borrower is in default, the lender is entitled to a receiver. 6

Given the Virgin Islands courts have not taken the position that the Restatement standard controls, this Court follows the guidance set forth in National Investors, discussed below. See Patock, 51 V.I. at 928 (applying National Investors standard). Nevertheless, even if the Restatement standard controls, its applicability to the instant matter is unclear. Unlike the Chicago properties, some of which are apparently owned by WFM and serve as rental property, filings by the parties suggest that the VI Properties are merely leased by WFM and are used as

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retail grocery stores. Accordingly, it does not appear that WFM is a mortgagor of rental real estate with respect to the VI Properties - a requirement under the Restatement standard.

B. The National Investors Standard

Under the standard enunciated in National Investors, the appointment of a receiver is considered "an equitable remedy of rather drastic nature available at the discretion of the Court." Patock, 51 V.I. at 928 (quoting Nat'l Investors Pension Ins. Co., 1984 U.S. Dist. LEXIS 24701, at *5). Accordingly, a court is not bound by mortgage stipulations providing for an appointment of a receivership upon default of the mortgagor. Nat'l Investors Pension Ins. Co., 1984 U.S. Dist. LEXIS 24701, at *4. The following factors guide the Court in its exercise of discretion: "1) whether the security is adequate to cover the debt, 2) whether the mortgagor is insolvent, 3) whether there exists in the mortgage instrument a pledge of rent and profits to the mortgagee, 4) whether waste has been committed, 5) or whether the security is endangered by nonpayment of taxes." Id. at *6.

1. Adequacy of security to cover defendant's debt

The security in...

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