Wilmington Tr. v. Homes4Families, LLC
| Decision Date | 06 November 2019 |
| Docket Number | Civil Action No. DKC 19-1896 |
| Parties | WILMINGTON TRUST, NATIONAL ASSOCIATION as Trustee for the Benefit of the holders of CoreVest American Finance 2018-2 Trust Mortgage Pass-Through Certificates v. HOMES4FAMILIES, LLC, et al. |
| Court | U.S. District Court — District of Maryland |
Presently pending and ready for resolution in this breach of contract case are the motion for entry of default, (ECF No. 13), and the motion for appointment of receiver, (ECF No. 3), filed by Plaintiff Wilmington Trust, National Association. The issues have been briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion for entry of default will be denied in part and granted in part, and the motion for appointment of receiver will be denied.
On June 27, 2019, Plaintiff Wilmington Trust, National Association ("Plaintiff") filed a complaint against Defendant Homes4Families, LLC ("Defendant Homes4Families"), Defendant MRV Investments, LLC ("Defendant MRV Investments"), and Defendant Northwest Bank ("Defendant Northwest") (collectively, "Defendants"). (ECF No. 1). Plaintiff filed the presently pending motion for appointment of receiver on the same day. (ECF No. 3). Defendants failed to file a timely answer, pleading, or other valid defense to the complaint. (ECF No. 13, at 3 ¶ 9). Defendants also failed to file a timely opposition or other response to the motion for appointment of receiver. (Id. ¶ 10). Plaintiff filed the presently pending motion for entry of default on September 5, 2019. (Id., at 3).
Plaintiff's complaint asserts two claims against Defendant Homes4Families: breach of contract and appointment of receiver.1 (ECF No. 1, at 6-7). The breach of contract claim arises out of a $743,250.00 loan agreement, dated October 18, 2018, evidenced by a promissory note (the "Note") and secured by a deed of trust, assignment of leases and rents, security agreement, and fixture filing (the "Deed of Trust"). (ECF No. 1, at 3-6; ECFNo. 1-1; ECF No. 1-3, ECF No. 1-5). Plaintiff "is the current holder of the Note through a series of [a]llonges endorsing over the Note" and is the current holder of the Deed of Trust through "a series of assignments[.]" (ECF No. 1, at 3; ECF No. 1-2; ECF No. 1-4). The Deed of Trust creates a security interest in all income, including rents, generated by Defendant Homes4Families's "sole assets" - nine Maryland properties (the "Properties").2 (ECF No. 1, at 2-4; ECF No. 1-3, at 3-7). Plaintiff contends that Defendant MRV Investments and Defendant Northwest "have interests recorded in the chain of title of the subject realty, and as such are necessary parties to this litigation."3 (ECF No. 1, at 2).
Defendant Homes4Families owes $7,351.85 monthly to Plaintiff. (ECF No. 1, at 4 ¶ 15). Plaintiff alleges that Defendant Homes4Families "never made a full or timely payment." (Id., at 5 ¶ 16). Defendant Homes4Families "failed to make the first payment. . . when due, and has made no subsequent full, monthly payments." (Id.). Instead, Defendant Homes4Families made only four partial payments: (1) $2,500 on January 14, 2019; (2) $3,000 on March 6, 2019; (3) $1,000 on March 29, 2019; and (4) $3,000 on April 29, 2019." (Id., ¶ 17).
Defendant Homes4Families's "failure to pay is an Event of Default" under the loan agreement "and results in full acceleration of the debt." (ECF No. 1, at 5 ¶ 18; ECF No. 1-5, at 15). Plaintiff "sent a Notice of Default and Acceleration to [Defendant Homes4Families] on March 8, 2019" (the "Default Notice"). (ECF No. 1, at 5 ¶ 19; ECF No. 1-6). The Default Notice instructed Defendant Homes4Families to hold all rents in trust for Plaintiff. (ECF No. 1-6, at 3). The Default Notice also informed Defendant Homes4Families that failure to remit the outstanding balance of the loan may result in Plaintiff pursuing its remedies, including receivership, as assented to by Defendant Homes4Families in the Deed of Trust. (ECF No. 1-6, at 3; ECF No. 1-3, at 17).
Defendant Homes4Families has not cured the default, has not responded to Plaintiff's attempts to communicate regarding thedefault, has not provided any information regarding the status of the Properties, and has not provided an accounting of rents collected. (ECF No. 1, at 5 ¶ 21). Since the default, Defendant Homes4Families "has refused to turn over a rent roll or otherwise account for post-default rental income of $87,900.00, the monthly market value of rent for the collateral properties being $14,650.00." (Id., ¶ 22). Plaintiff calculates that it "is owed no less than $1,108,436.54 on the Note as of June 7, 2019." (Id., ¶ 23).
Defendant Homes4Families's untimely answer asserts that it "is not a signatory to the note[]" and that "[t]he note [bears] a forged signature[.]" (ECF No. 14, at 3 ¶ 16). Defendant Homes4Families suggests that it knows the identity of the third party that purportedly forged the signature. (Id., at 7 ¶ 38). Despite Defendant Homes4Families's contention that a third party forged its manager's signature on the promissory note, Defendant Homes4Families denies that it "never made a full payment[]" and denies that it made only four, partial payments. (Id., at 4 ¶ 25-26). Despite these denials, Defendant Homes4Families admits it failed to cure the default. (Id., at 5 ¶ 30).
Under Fed.R.Civ.P 55(a), "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit orotherwise, the clerk must enter the party's default." Generally, "[a] defendant must serve an answer. . . within 21 days after being served with the summons and complaint[.]" Fed.R.Civ.P. 12(a).
The summons and complaint were served upon Defendant Homes4Families on July 30, 2019. (ECF No. 8). On August 27, 2019, the court ordered Plaintiff to "file and serve [on Defendants] a motion for entry of default by the Clerk[.]" (ECF No. 10). On September 5, 2019, Plaintiff filed the presently pending motion for entry of default. (ECF No. 13). In the motion, Plaintiff contends that the time for Defendant Homes4Families to plead or otherwise defend expired no later than September 3, 2019.4 (ECF No. 13, at 3 ¶ 8). On November 1,2019, Defendant Homes4Families filed an untimely answer. (ECF No. 14). In its answer, Defendant Homes4Families vaguely challenges Plaintiff's service. (Id., at 6 ¶ 37). Although Defendant Homes4Families did not seek leave to file its untimely answer, Plaintiff's motion for entry of default against Defendant Homes4Families will be denied at this time because there is a "strong policy that cases be decided on their merits[]" within the United States Court of Appeals for the Fourth Circuit. United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993).
The record indicates that the summons and complaint were properly served upon Defendant MRV Investments and Defendant Northwest, that the time for each Defendant to plead or otherwise defend expired, and that each Defendant has failed to plead or otherwise defend as directed in the summons and as provided by the Federal Rules of Civil Procedure.5 Therefore,upon Plaintiff's request and pursuant to Fed.R.Civ.P. 55, the clerk will be directed to enter the defaults for want of answer or other defense by Defendant MRV Investments and Defendant Northwest.
A "district court has within its equity power the authority to appoint receivers and to administer receiverships." Gilchrist v. Gen. Elec. Capital Corp., 262 F.3d 295, 302 (4th Cir. 2001). The Federal Rules of Civil Procedure "govern an action in which the appointment of a receiver is sought[.]" Fed.R.Civ.P. 66. "The appointment of a receiver by a federal court may be sought by any person. . . having an interest in property that a statute or one of the general principles of equity authorizes the court to protect by this remedy." Wright & Miller, § 2983. "[T]he appointment of a receiver is not a matter of right, but one resting in the sound discretion of the court." Hutchinson v. Fidelity Inv. Ass'n, 106 F.2d 431, 436 (4th Cir. 1939). "The appointment of a receiver is. . . an extraordinary remedy that should be employed with the utmost caution and granted only in cases of clear necessity to protect plaintiff's interests in the property." Id. "A receiver. . . may be appointed for the limited purpose of safeguarding disputed assets." First United Bank & Trust v. Square atFalling Run, LLC, No. 11-cv-31-IMK, 2011 WL 1563027, at *3 (N.D.W.Va. April 25, 2011).
"Neither the Supreme Court [of the United States] nor the Fourth Circuit has provided a concrete list of factors for courts to weigh in considering whether to appoint a receiver." LNV Corp. v. Harrison Family Bus., LLC, 132 F.Supp.3d 683, 689 (D.Md. 2015). However, Judge Hollander recently outlined the "variety of factors" considered by other courts, including the United States Courts of Appeal for the Fifth, Eighth, and Ninth Circuits. LNV Corp., 132 F.Supp.3d at 689-90. The factors articulated by each of the courts are either identical or substantially similar. Id. Wright & Miller, § 2983, provides a summary:
Factors that courts have considered relevant to establishing the requisite need for a receivership include the following: fraudulent conduct on the part of defendant; the imminent danger of the property being lost, concealed, injured, diminished in value, or squandered; the inadequacy of the available legal remedies; the probability that harm to plaintiff by denial of the appointment would be greater than the injury to the parties opposing appointment; and, in more general terms, plaintiff's probable success in the action and the possibility of irreparable injury to his interests in the property.
"Courts also look to the inadequacy of security to satisfy the debt and the financial position of...
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