                                UNITED STATES DISTRICT COURT
                                FOR THE DISTRICT OF COLUMBIA


New York Community Bank, et al.,


                          Petitioners,
                                                             Miscellaneous Action No. 11-0083 (BAH)
                          v.                                 Judge Beryl A. Howell

Sherman Avenue Associates, LLC, et al.,

                          Respondents.




                                       MEMORANDUM OPINION

        New York Community Bank and trustees Bryn Sherman and John Raftery 1 (hereinafter

the “petitioners”) have filed a petition requesting that five legal entities be placed under

receivership. According to the petitioners, these entities are in default of certain loan

agreements, which are secured by real property in the District of Columbia upon which the

petitioners intend to foreclose. The petitioners have not filed a Complaint containing claims for

breach of contract, seeking foreclosure, or asserting other causes of action. Rather, the

petitioners request appointment of a receiver as a separate form of relief, independent of any

other claim. Appointment of a receiver in this context, however, is not appropriate. The

petitioners’ request to appoint a receiver for the respondent entities is therefore denied, and the

petitioners’ other motions filed in this case, namely their motions to substitute petitioners and for

an expedited hearing, are consequently denied as moot.




1
 The petitioner appointed Bryn Sherman and John Raftery as Substitute Trustees under the Deeds of Trust for the
properties involved in this action. Pet’rs’ Verified Pet. For the Immediate Appointment of Receiver, ECF No. 1, ¶ 1.

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I.      BACKGROUND

        On June 30, 2006, New York Community Bank (hereinafter “the Lender”) entered into

five separate loan agreements with five separate legal entities: Sherman Avenue Associates,

LLC; Patton Arms, LLC; Lincoln Road Associates, LLC; Caesar Arms, LLC; and Pitch

Apartments, Inc. (hereinafter “the respondents”). Pet’rs’ Verified Pet. For the Immediate

Appointment of Receiver, ECF No. 1 (hereinafter “Petition”), ¶¶ 2-6. The loans to the

respondents total, in aggregate, over $17 million. 2 Id. at ¶¶ 11, 22, 34, 46, 58. Each agreement

contained, inter alia, a security agreement, a collateral assignment of leases and rentals, and a

deed of trust, which collectively provided the Lender with various protections, including security

interests in real property located in the District of Columbia, 3 as well as security interests in all

fixtures, chattels, and personal property on these sites; and the assignment of rents and leases. Id.

at ¶¶ 12, 23, 35, 47, 59. Although the respondents are separate legal entities that entered into

separate loan agreements with the Lender, the petitioners state that three of the five respondents

– respondents Sherman Avenue Associates, LLC; Lincoln Road Associates, LLC; and Caesar

Arms, LLC – “are managed by Scott M. Herrick, in his personal capacity, and Tenacity

Fleetwood, LLC.” Id. at ¶¶ 7, 69. Additionally, petitioners allege that all of the respondents,




2
 Specifically, the Lender entered into a loan agreement with Respondent Sherman Avenue Associates, LLC for a
principal amount of $1.615 million; Patton Arms, LLC for a principal amount of $2.46 million; Lincoln Road
Associates, LLC for a principal amount of $4.745 million; Caesar Arms, LLC for a principal amount of $5.64
million; and Pitch Apartments, Inc. for a principal amount of $3.15 million. Petition, ¶¶ 11, 22, 34, 46, 58.
3
  Respondent Sherman Avenue Associates, LLC secured its loan with real property located at 3308/3312 Sherman
Avenue, N.W., Washington, D.C. 20010. Petition, ¶ 13. Respondent Patton Arms, LLC secured its loan with real
property located at 5010 Southern Avenue, S.E.; and 5066/5078 Benning Road, S.E., Washington, D.C. 20019. Id.
at ¶ 24. Respondent Lincoln Road Associates, LLC secured its loan with real property located at 2315/2321 Lincoln
Road, N.E., Washington, D.C. 20002. Id. at ¶ 36. Respondent Caesar Arms, LLC secured its loan with real property
located at 3435 Holmead Place, N.W., Washington, D.C. 20010. Id. at ¶ 48. Respondent Pitch Apartments, Inc.
secured its loan with real property located at 1430 W Street, N.W., Washington, D.C. 20009. Id. at ¶ 60.


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“upon information and belief, [] have common ownership.” 4 Id. at ¶ 8.

         According to the petitioners, the respondents are in default of their respective loan

agreements “beyond any applicable cure period” and the Lender has therefore accelerated each

respondent’s loan. Id. at ¶¶ 18, 29, 41, 53, 65. Along with attorney’s fees and interest, the

petitioners claim that the respondents owe, in aggregate, over $20 million. 5 Id.

         On February 23, 2011, the petitioners commenced the instant proceeding by filing a

petition, which was denominated by the Clerk as a “miscellaneous” matter, requesting that the

respondents be placed under receivership. 6 The petitioner did not file a Complaint, as specified

under Federal Rule of Civil Procedure 3 (“A civil action is commenced by filing a complaint

with the court.”), delineating causes of action against a party or claims for relief. Rather, the

initiating document for this proceeding was the petition for appointment of a receiver itself.

         On April 4, 2011, the respondents filed an opposition to the petition to appoint a receiver,

arguing, inter alia, that the Lender no longer has standing to seek relief because it “sold and

assigned all of its right, title and interest in, under and to” the loan agreements. Resp’ts’ Mem.

Opp’n Pet., ECF No. 15, at 1. The petitioners did not file a reply in support of their petition to

appoint a receiver, and therefore did not directly respond to this claim. On April 14, 2011,

however, the petitioners filed a Motion for Substitution of Petitioners, stating that the Lender had

assigned its interests under the loan agreements to five entities, and requested that 3308 Sherman
4
 The respondents deny this characterization, but the Court need not evaluate the merits of this claim for present
purposes. Resp’ts’ Mem. Opp’n. Pet., ECF No. 15, at 3-5.
5
 As of February 10, 2011, the petitioners claim that respondent Sherman Avenue, LLC’s outstanding balance is
$1,949,208.89; respondent Patton Arms, LLC’s balance is $2,906,731.20; respondent Lincoln Road Associates,
LLC’s balance is $5,592,848.51; respondent Caesar Arms, LLC’s balance is $ 6,719,056.73; and respondent Pitch
Apartments, Inc.’s balance is $3,714,519.74. Petition, ¶¶ 18, 29, 41, 53, 65.
6
  The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1), which grants federal courts original
jurisdiction of civil actions between citizens of different states where the amount in controversy exceeds $75,000.
The Lender, New York Community Bank, is incorporated and has its principle place of business in New York.
Petitioner trustees Bryn Sherman and John Raftery are alleged to be citizens of Maryland. The respondents are all
alleged to be limited liability companies organized and existing under District of Columbia law. Petition, ¶¶ 2-6.

                                                          3
Avenue, LLC; 1430 W Street, LLC; 3435 Holmead Place, LLC; 5066 Benning Road, LLC; and

2314 Lincoln Road, LLC be substituted as petitioners, and Jason A. Pardo and Russell S. Drazin

be substituted as trustees pursuant to Federal Rule of Civil Procedure 25(c). ECF No. 18. This

motion, and the petitioners’ motion for an expedited hearing, ECF No. 2, are also pending before

the Court, along with the underlying petition to appoint a receiver.

         Having considered the petition to appoint a receiver for the respondents, as well as the

respondents’ opposition, the Court concludes that appointment of a receiver is inappropriate

because there is no underlying cause of action to support the requested relief. The Court

therefore denies the petition to appoint a receiver, and further denies as moot petitioners’ motion

for an expedited hearing. Substitution of the petitioners in this proceeding would not alter the

Court’s ultimate denial of the petition to appoint a receiver, and the Court therefore also denies

as moot the motion to substitute petitioners.

II.      STANDARD

         Federal law governs the appointment of a receiver in cases where jurisdiction is based on

diversity. Canada Life Assur. Co. v. LaPeter, 563 F.3d. 837, 842-43 (9th Cir. 2009) (federal law

governs appointment of a receiver in diversity cases); Nat’l P’ship Inv. Corp. v. Nat’l Hous. Dev.

Corp., 153 F.3d 1289, 1291-92 (11th Cir. 1998) (same); Aviation Supply Corp. v. R.S.B.I.

Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993) (same). Under the Federal Rules of Civil

Procedure, appointment and administration of receiverships “must accord with the historical

practice in federal courts or with a local rule.” FED. R. CIV. P. 66. 7 The Federal Rules provide

courts with no other guidance. See S.E.C. v. Vescor Capital Corp., 599 F.3d 1189, 1194 (10th

7
  Federal Rule of Civil Procedure 66 states: “These rules govern an action in which the appointment of a receiver is
sought or a receiver sues or is sued. But the practice in administering an estate by a receiver or a similar court-
appointed officer must accord with the historical practice in federal courts or with a local rule. An action in which a
receiver has been appointed may be dismissed only by court order.”


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Cir. 2010). The authority to appoint a receiver, however, derives from the district court’s

inherent powers as a court of equity, and therefore the court has “broad powers and wide

discretion” in determining whether a receivership is appropriate. 8 Id. at 1193 (citing S.E.C. v.

Safety Fin. Serv., Inc., 674 F.2d 368, 372-73 (5th Cir.1982) and S.E.C. v. Lincoln Thrift Ass’n,

577 F.2d 600, 609 (9th Cir. 1978)).

         The appointment of a receiver is not a matter of right. It is an “extraordinary equitable

remedy” and should be granted with “caution.” Canada Life Assur. Co., 563 F.3d. at 844

(quoting Aviation Supply Corp., 999 F.2d at 316 (appointment of a receiver only justified in

“extreme situations”)); see also Resolution Trust Corp. v. Fountain Circle Assocs. Ltd. P’ship,

799 F. Supp. 48, 50 (N.D. Ohio 1992) (receivership should be appointed only in “cases of clear

necessity to protect plaintiff’s interests in the property”). The court may appoint a receiver as an

ancillary, provisional action in connection with a pending matter, but “a federal court of equity

will not appoint a receiver where the appointment is not ancillary to some form of final relief [].”

Gordon v. Washington, 295 U.S. 30, 38-39 (1935). This is because appointment of a receiver “is

not an end in itself.” Kelleam v. Maryland Cas. Co. of Baltimore, Md., 312 U.S. 377, 381 (1941)

(“a receivership is only a means to reach some legitimate end sought through the exercise of the

power of a court of equity.”). “[The Supreme Court] has frequently admonished that a federal

court of equity should not appoint a receiver where the appointment is not a remedy auxiliary to

some primary relief which is sought and which equity may appropriately grant.” Id. (internal

quotations and citation omitted); see also Gordon, 295 U.S. at 37 (“[T]here is no occasion for a

8
  Courts consider a number of factors when deciding whether to appoint a receiver, including: the inadequacy of the
security to satisfy the debt; the financial position of the debtor; fraudulent conduct on defendant’s part; inadequacy
of legal remedies; imminent danger of the property being lost, concealed, injured, diminished in value, or
squandered; probability that harm to the moving party by denial of appointment would outweigh injury to parties
opposing appointment; probability of the moving party’s success in the action and the possibility of irreparable
injury to its interest in the property; and whether the moving party’s interests sought to be protected will in fact be
well-served by receivership. Brill & Harrington Invs. v. Vernon Sav. & Loan Ass’n, 787 F. Supp. 250, 253-54
(D.D.C. 1992).

                                                           5
court of equity to appoint a receiver of property of which it is asked to make no further

disposition.”).

III.    DISCUSSION

       The petitioners allege that the respondents failed to make their loan payments, failed to

turn over rents, and are in default of their respective loan agreements, which entitles the Lender

to foreclose on the properties that serve as collateral for the loans. Petition, ¶ 74. Pending

foreclosure of these properties, the petitioner seeks to appoint a receiver for the respondents “to

protect the assets and rights of the Lender against the actions of the Respondents to prevent

spoliation and fraud, and to manage and preserve real estate that the Respondents have pledged

to the Lender.” Id. at ¶ 73. Moreover, according to the petitioners, the loan agreements between

the Lender and the respondents contain a provision authorizing the appointment of a receiver to

“collect rents and to administer the collateral pending a sale of the Lender’s collateral.” Id. at ¶

76.

       Despite the petitioners’ claims that the respondents are in default of their loan

agreements, the petitioners have not filed a breach of contract action or otherwise moved to

foreclose on the properties securing the loan agreements. The petitioners state that “the Lender

intends to foreclose” on the deeds of trust executed along with each loan agreement, but the

Lender has not done so. Id. at ¶ 71. (emphasis added). Rather, the Court is presented only with

the petitioners’ request for appointment of a receiver, which stands independent of any other

claim and is sought as the sole and primary relief.

       Given the procedural posture of the petitioners’ request, the Court must deny the

petitioners’ request to appoint a receiver. Appointment of a receiver is an ancillary equitable

remedy that can be granted only in connection with a pending case or other cause of action. See



                                                  6
Kelleam, 312 U.S. at 381 (“a federal court of equity should not appoint a receiver where the

appointment is not a remedy auxiliary to some primary relief which is sought . . . .”). Indeed, the

petitioners rely on Brill & Harrington Investments v. Vernon Savings & Loan Association, 787 F.

Supp. 250 (D.D.C. 1992), as authority for appointment of a receiver but seemingly ignore the

salient point that the “borrower in that case filed a lawsuit,” which was the basis for the court’s

appointment of a receiver. Pet’rs’ Mem. Supp. Pet., at 4 (emphasis added). The petitioners do

not assert a cause of action; indeed the Court cannot even refer to this proceeding as a “case”

because the petitioners have not filed a Complaint. 9 See FED. R. CIV. P. 3. The allegations may

be true that the respondents are in default of their loan agreements, that a receivership is

necessary to prevent spoilage, and that the respondents consented to the appointment of a

receiver in their respective loan agreements. The Court does not reach the merits of these

arguments, however, because the Court will not appoint a receiver, regardless of the justification,

when it is sought as the primary form of relief.

         The Court denies the petitioners’ request to appoint a receiver for the respondent entities

and consequently denies as moot the petitioners’ motion for an expedited hearing on the matter.

The Court further denies as moot the petitioners’ motion to substitute petitioners. Substitution of

petitioners would not alter the procedural posture of the petition before the Court, which

necessitates denial of the requested relief. The decision to grant or deny the request to substitute

petitioners is therefore inconsequential to the ultimate disposition of the case.

IV.      CONCLUSION

         For the foregoing reasons, the petition to appoint a receiver is denied and the petitioners’

motion for an expedited hearing is denied as moot. The petitioners’ motion to substitute

9
 Even if the Court construed the petition as a Complaint, the petitioners assert no cause of action or claim for relief
aside from the appointment of a receiver for the respondent entities. See Gordon, 295 U.S. at 38 (“[A] federal court
of equity will not appoint a receiver where the appointment is not ancillary to some form of final relief [].”).

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petitioners is also denied as moot. An Order consistent with this Memorandum Opinion will be

entered.


DATED: MAY 17, 2011
                                                          /s/   Beryl A. Howell____
                                                         BERYL A. HOWELL
                                                         United States District Judge




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