Judge: Curtis A. Kin, Case: 23STCV16300, Date: 2024-02-13 Tentative Ruling

Case Number: 23STCV16300    Hearing Date: February 13, 2024    Dept: 82

MOTION FOR APPOINTMENT OF RECEIVER AND FOR PRELIMINARY INJUNCTION

Date:               2/13/24 (1:30 PM)

Case:                           Axos Bank v. 7040 Van Nuys Partnership, LLC et al. (23STCV16300)

TENTATIVE RULING:

Plaintiff Axos Bank’s UNOPPOSED Motion for Appointment of Receiver and for Preliminary Injunction is GRANTED.

Pursuant to CCP § 564(b)(9) and (b)(11), plaintiff Axos Bank (“Lender”) seeks the appointment of a receiver with respect to real property improved with a senior assisted living and memory care facility (“Property”). The Property is owned by defendant 7040 Van Nuys Partnership, LLC (“Borrower”). The receiver would operate the Property and collect rents, as well as market and sell the Property.

Under CCP § 564(b), a receiver may be appointed by the court in which an action is pending “where necessary to preserve the property or rights of any party.” (CCP § 564(b)(9).) Additionally, a court may appoint a receiver “[i]n an action by a secured lender for specific performance of an assignment of rents provision in a deed of trust, mortgage, or separate assignment document.” (CCP § 564(b)(11).)

On September 25, 2019, Lender and Borrower entered into a Business Loan Agreement. (Constantine Decl. ¶ 3 & Ex. 1 [“Loan Agreement”].) On the same date, Borrower executed a Promissory Note in favor of Lender. (Constantine Decl. ¶ 3 & Ex. 2 [“Note”].)

Under the Loan Agreement and Note, Lender loaned $25 million to Borrower. (Loan Agreement at 5 [definition of “Loan”], § 2.1; Note § 1.10.) Payment of the loan was guaranteed by defendants Jing Ning and Abraham Iny (collectively, “Guarantors”). (Constantine Decl. ¶ 3(c) & Ex. 5.) The Loan was secured by a Deed of Trust, which encumbered the Property. (Constantine Decl. ¶ 3(a) & Ex. 3 at § 1.1(a) [“Deed of Trust”].) Lender perfected its security interest by filing a UCC financing statement. (Constantine Decl. ¶ 3(d) & Ex. 6.)

Borrower agreed to pay all payments due on the extended maturity date of March 31, 2022. (Constantine Decl. ¶ 7; Loan Agreement §§ 2.4(b), 5.2; Note §§ 1.6, 1.12, 3.7.1.) Borrower also agreed to pay taxes, levies, and liens imposed on it and its properties. (Constantine Decl. ¶ 7; Loan Agreement § 5.10; Deed of Trust § 4.11.) Borrower defaulted on the loan by failing to satisfy these payment obligations. (Constantine Decl. ¶ 7; Loan Agreement § 10.1(a); Note § 3.7.1; Deed of Trust § 6.1(a).) On April 29, 2022, Lender provided notice of the default and opportunity to cure the default within 15 days to Borrower and Guarantors. (Constantine Decl. ¶ 9 & Ex. 7; Loan Agreement § 10.1(b); Note §§ 3.7.2, 3.15; Deed of Trust §§ 6.1(c), 7.4.) Borrower failed to repay the loan. (Constantine Decl. ¶ 10.) As of December 27, 2023, the unpaid balance of the loan is $34,014,837.58. (Ibid.)

The Deed of Trust provides for appointment of a receiver in the event of default. (Deed of Trust §§ 2.3(b), 6.2(a), 6.2(b), 6.4 [Borrower “irrevocably consents to” and “waives notice of any application” for receiver].) To collect rents and profits from the Property, the receiver may “[e]nter into possession of the Property,” take and possess books and records therein, and “assume control with respect to, and to pay all expenses incurred in connection with, the development, operation, maintenance, repair or restoration of the Property.” (Deed of Trust §§ 1.1(k), 2.3(b); see also §§ 6.2(a) [providing that receiver may “do any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Property”], 6.4.) The receiver may also sell the Property, upon which the powers of the receiver shall cease. (Deed of Trust §§ 6.2(a), 6.4.)

“[A]lthough a trust deed’s recital that upon default the beneficiary shall be entitled to the appointment of a receiver is not binding upon the courts, such a recital nevertheless has some evidentiary weight.” (Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 602.) “Ascribing to the recital such evidentiary weight, it reasonably follows that it presents a prima facie, but rebuttable, evidentiary showing of the beneficiary’s entitlement to appointment of a receiver.” (Ibid.) Here, defendants have not filed any opposition, thereby failing to rebut Lender’s entitlement to a receiver under the Deed of Trust.

A receiver should not be appointed unless absolutely essential, because no other remedy will suffice. (City & County of San Francisco v. Daley (1993) 16 Cal.App.4th 734, 745.) This is so because the appointment of a receiver is recognized as a drastic, time consuming, expensive, and potentially unjust remedy to be used as a final resort. (See Weil & Brown, Civ. Proc. Before Trial § 9:743 et seq.; see also Alhambra-Shumway Mines v. Alhambra Gold Mine Corp. (1953) 116 Cal.App.2d 869, 873.) “The appointment of a receiver is a drastic remedy and is one which should not be invoked unless there is an actual or threatened cessation or diminution of the business.” (In re Jamison Steel Corp. (1958) 158 Cal.App.2d 27, 35.)

Since the loan matured, Borrower has been operating the Property at a loss, with an average monthly loss of $72,584 based on financial statements available to Lender. (Constantine Decl. ¶ 13 & Ex. 9.) The Property’s occupancy has been 43.2% based on available monthly occupancy reporting. (Constantine Decl. ¶ 13 & Ex. 9.) Because Borrower and Guarantors are operating the Property at a loss, with no indication that occupancy and revenue may increase, Lender has made a sufficient showing that the Property is in danger of dissipation, such that a receiver is necessary to preserve Lender’s collateral.

Lender nominates Thomas Seaman as the receiver. Seaman is qualified to serve as receiver. (See Seaman Decl. ¶¶ 2-10 & Exh. A.) Defendants have not opposed the nomination.

Receiver must file an undertaking. (CCP § 567(b); Rule of Court 3.1178.) Lender proposes a receiver undertaking of $10,000. (CCP § 567(b).) That amount appears reasonable.

Lender also seeks a preliminary injunction ordering defendants to turn over the Property and related items and restraining and enjoining Borrower and Guarantors Jing Ning and Abraham Iny from interfering with the duties of the Receiver. (Proposed Order at 4-5; Attachment 30 at §§ 30.24-30.26.) The proposed injunctive relief is appropriate.

Lender must file an undertaking in support of the preliminary injunction. (CCP § 529.) Lender proposes a $10,000 undertaking for the preliminary injunction. That amount appears reasonable.

The motion is GRANTED. The Court will sign the proposed order lodged on February 7, 2024.