U.S. Bank, Nat'l Ass'n v. CB Settle Inn Ltd. P'ship

• Decision Date: 14 November 2011
• Docket Number: No. 1:11–cv–00039–JEG.,1:11–cv–00039–JEG.
• Citation: 827 F.Supp.2d 993
• Parties: U.S. BANK, NATIONAL ASSOCIATION as Trustee, Successor–in–Interest to Bank of America, N.A., as Trustee, Successor to Wells Fargo Bank, N.A., as Trustee, for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass–Through Certificates, Series 2005–C22, Plaintiff, v. CB SETTLE INN LIMITED PARTNERSHIP, a South Dakota limited partnership; CB Settle Inn, Inc., a South Dakota corporation; Unknown Owners; and Non–Record Claimants, Defendants.
• Court: U.S. District Court — Southern District of Iowa

827 F.Supp.2d 993

U.S. BANK, NATIONAL ASSOCIATION as Trustee, Successor–in–Interest to Bank of America, N.A., as Trustee, Successor to Wells Fargo Bank, N.A., as Trustee, for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass–Through Certificates, Series 2005–C22, Plaintiff,

v.CB SETTLE INN LIMITED PARTNERSHIP, a South Dakota limited partnership; CB Settle Inn, Inc., a South Dakota corporation; Unknown Owners; and Non–Record Claimants, Defendants.

No. 1:11–cv–00039–JEG.

United States District Court,S.D. Iowa,Western Division.

Nov. 14, 2011.

Alison M. Gutierrez, Kathryn E. Jones, Amy Lynn Van Home, Kutak Rock LLP, Omaha, NE, for Plaintiff.

David Martin Newman, Patrick R. Turner, Husch Blackwell LLP, Omaha, NE, for Defendant.

ORDER

JAMES E. GRITZNER, Chief Judge.

This matter comes before the Court on Motion of Plaintiff U.S. Bank, N.A. as Trustee, Successor–in–Interest to Bank of America, N.A., as Trustee, Successor to Wells Fargo Bank, N.A., as Trustee, for the Registered Holders of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass–Through Certificates, Series 2005–C22 (Plaintiff) for Appointment of Receiver. Defendants CB Settle Inn Limited Partnership (CB Settle Inn) and CB Settle Inn, Inc. (collectively, Defendants), resist. The matter is fully submitted and ready for disposition.

I. BACKGROUND

CB Settle Inn, Inc., is the general partner of CB Settle Inn. At all times relevant to this litigation, CB Settle Inn was the owner and record title holder of certain real property known as the Settle Inn and Suites located at 500 30th Avenue, Council Bluffs, Iowa. In 2005, CB Settle Inn and others entered into a loan agreement with Artesia Mortgage Capital Corporation (Artesia). Artesia loaned CB Settle Inn and others $11,345,000.00. In return, CB Settle Inn and others executed a promissory note in that amount plus interest to Artesia. In addition, to secure the loan, CB Settle Inn and others executed and delivered to Artesia several security interests, including a Commercial Mortgage, Security Agreement, Fixture Filing Financing Statement and Assignment of Leases, Rents, Income and Profits (Mortgage) and an Assignment of Leases, Rents, Income and Profits (ALR) (collectively, the Loan Documents). The loan is also secured by real and personal property in Iowa or Nebraska by four other mortgages or deeds of trust. These Loan Documents were eventually assigned and endorsed to Plaintiff. CB Settle Inn defaulted, and Plaintiff sent notices of default and acceleration demand to CB Settle Inn in May and August 2010. On October 1, 2010, CB Settle Inn filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Nebraska. While the bankruptcy case was proceeding, Plaintiff filed the present suit in the Iowa District Court for Pottawattamie County seeking to foreclose on the mortgage and liens and security interests in personal property, leases, and rents. In addition, Plaintiff sought appointment of receiver pursuant to the Loan Documents, specifically the Mortgage and ALR, which provided that CB Settle Inn “irrevocably consents to the appointment of a receiver” and “shall not contest the appointment of receiver” in the event of default. Mortgage, Notice Removal Ex. 3 § 6.03, ECF No. 1–6; ALR, Notice Removal Ex. 4 § 4.3, ECF 1–8. Defendants timely removed the case to this Court on October 17, 2011, invoking diversity jurisdiction, at which point Plaintiff filed the pending motion.

CB Settle Inn is related to nine other entities that own hotels and who have loan documents substantively identical to CB Settle Inn's. Those nine entities filed bankruptcy petitions concurrently with CB Settle Inn's filing. In several of the cases against the related entities, Plaintiff requested an appointment of receiver, which the courts granted.

Currently pending in the bankruptcy proceedings is CB Settle Inn's motion to dismiss or to convert the case to a Chapter 7 proceeding. At the motion hearing on October 28, 2011, counsel informed this Court that CB Settle Inn's bankruptcy motion to dismiss could be decided by November 14, 2011, and thus Plaintiff requested an expedited ruling by this Court in order to ensure that its collateral is protected.

II. DISCUSSIONA. Sufficiency of Service of Process

As an initial matter, Defendants argue they were never properly served. Plaintiff has filed returns of service claiming to have served Kristy Snethen (Ms. Snethen) on behalf of CB Settle Inn and Deb Twiss (Ms. Twiss) on behalf of CB Settle Inn, Inc. Defendants argue that service on CB Settle Inn, Inc., has not been accomplished because David Graf, registered agent for CB Settle Inn, Inc., has not been served. Defendants also argue that service upon CB Settle Inn through Ms. Snethen was insufficient because (1) Ms. Snethen is an employee of Crown Group and (2) Ms. Snethen's authority is limited and not sufficient to qualify her to accept service.

Pursuant to Iowa Rule of Civil Procedure 1.305(6),¹ limited partnerships and corporations may be served “by serving any present or acting last known officer thereof, or any general or managing agent, or any agent or person now authorized by appointment or by law to receive service of original notice, or on the general partner of a partnership.” Iowa R. Civ. P. 1.305(6). “[The Iowa Supreme Court] has long accorded return-of-service affidavits presumptive validity, noting they are impeachable only upon clear and convincing proof of falsity.” Gutierrez v. Wal–Mart Stores, Inc., 638 N.W.2d 702, 705 (Iowa 2002) (citing Iowa R. Civ. P. 1.308, (formerly Rule 59(a)), which requires that “Iowa officers may make unsworn returns of original notices served by them, as follows: Any sheriff or deputy sheriff, as to service in that officer's own or a contiguous county; any other peace officer, bailiff, or marshal, as to service in that officer's own territorial jurisdiction. The court shall take judicial notice of such signatures. All other returns ... shall be proved by the affidavit of the person making the service....”); see also Curtis v. NID PTY, Ltd., 248 F.Supp.2d 836, 839 (S.D.Iowa 2003) (holding that the plaintiff raised a rebuttable presumption of valid service by providing proof of service on an assistant of the defendant).

Plaintiff filed a return of service which shows that Plaintiff served Ms. Twiss as representative of CB Settle Inn, Inc. The return of service includes the sworn statement of the process server, Donna Hansen. Although Defendants imply in their brief that Plaintiff needed to serve registered agent David Graf, the Court finds that service on Ms. Twiss was adequate to effectuate service on CB Settle Inn, Inc., as service on a registered agent is just one of several ways to effectuate service under Iowa Rule 1.305(6). The affidavit returned states that Ms. Twiss was served as a manager or agent of CB Settle Inn, Inc. In its Reply in Support of Plaintiff's Motion for Appointment of Receiver, Plaintiff asserts that Ms. Twiss identified herself as an officer of CB Settle Inn, Inc. Defendants do not dispute this. The Court is satisfied that Plaintiff satisfied Iowa's rules of procedure and effectuated service on CB Settle Inn, Inc., by serving Ms. Twiss.

Next, Defendants argue that service on Ms. Snethen does not constitute service on CB Settle Inn because Ms. Snethen is a low level employee of Crown Group. However, Plaintiff argues that Ms. Snethen “identified herself to process server as the general manager of CB Settle Inn's hotel at the registered office for CB Settle Inn in Iowa.” Pl.'s Reply Supp. Appointment Receiver 2, ECF No. 20. Even if Ms. Snethen was a lower level employee, “Iowa courts have recognized employees who perform some managerial responsibilities are deemed authorized to receive service.” Curtis, 248 F.Supp.2d at 838. Without any evidence offered to support their claim that Ms. Snethen is not qualified to accept service except for references in their brief about what Ms. Snethen cannot do, the Court cannot find that Ms. Snethen was not authorized to accept service based on her rank. Moreover, evidence submitted by Defendants states that “Crown Group operates as the hotel management company for [CB Settle Inn]” and that “Crown Group is primarily responsible for [CB Settle Inn's] day to day operations, bookkeeping, and accounting” Decl. Deb Twiss 1–2, ECF No. 14–2, apparently cloaking Crown Group with authority as CB Settle Inn's agent for running its hotel operations. Additionally, because CB Settle Inn, Inc., is the general partner of CB Settle Inn, proper service upon CB Settle Inn, Inc., would constitute service upon CB Settle Inn.

Furthermore, the record demonstrates that Ms. Twiss and/or Ms. Snethen apprised the appropriate persons of service since Defendants were able to timely remove the case, participate in a status conference, and argue their positions at a hearing on the pending motion. The Court is thus assured that any defect in service has not prevented Defendants from adequately protecting their legal interests.

On this record, the Court finds that service was effectuated on CB Settle Inn, Inc., and CB Settle Inn.

B. Compliance with Local Rules

Defendants argue that Plaintiff's failure to comply with Local Rule 7(b)(3) in its Motion for Appointment of Receiver constitutes waiver of the issue. This argument is without merit. Local Rule 7(b)(3) provides that “a motion must contain citations to all statutes or rules under which the motion is being made.” Plaintiff incorporated by reference its Brief in Support of its Motion for Appointment of Receiver, and the brief contained numerous citations to federal statutes and federal case law. Therefore, Plaintiff complied with Local Rule 7(b)(3).

Furthermore, Defendants misread the holding of McCabe v. Macaulay, No. 05–CV–73–LRR, 2008 WL 2980013 (N.D.Iowa Aug. 1,...