Judge: Daniel S. Murphy, Case: 23STCV29250, Date: 2024-01-29 Tentative Ruling

Case Number: 23STCV29250    Hearing Date: January 29, 2024    Dept: 32

BACKGROUND

            On November 30, 2023, Plaintiff U.S. Bank Trust Company, National Association, as Trustee for Velocity Commercial Capital Loan Trust 2022-5, filed this action against Defendant Los Angeles Hostel, LLC. The complaint asserts causes of action for (1) judicial foreclosure, (2) specific performance, (3) assignment of receiver, (4) enforcement of lender’s right to inspect, and (5) injunctive relief.

            The action concerns an apartment building located in Los Angeles (the Property). The complaint alleges that Defendant entered into a loan agreement with E Mortgage Capital, Inc. (EMC) wherein EMC agreed to loan funds to Defendant to refinance the Property. Defendant allegedly executed a Term Note agreeing to certain repayment obligations. Payment under the Note was secured by the Property and the profits generated therefrom, as evidenced by a Deed of Trust. Subsequently, EMC assigned its rights to the loan to Velocity Commercial Capital, LLC. Velocity then assigned its rights to Plaintiff. This action flows from Defendant’s default on the loan.

            On December 29, 2023, Plaintiff filed an ex parte application for the appointment of a receiver and the issuance of a temporary restraining order. Defendant filed its opposition on January 2, 2024.

LEGAL STANDARD

            “A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge of that court,” in certain defined cases. (Code Civ. Proc., § 564(b).)   

The purpose of a preliminary injunction is to preserve the status quo pending final resolution upon a trial. (See¿Scaringe¿v.¿J.C.C. Enterprises, Inc.¿(1988) 205 Cal.App.3d 1536.) A trial court deciding whether to issue an injunction weighs two interrelated factors—the likelihood the moving party will prevail on the merits at trial and the relative balance of interim harms that are likely to result from the granting or denial of preliminary injunctive relief. (White v. Davis (2003) 30 Cal.4th 528, 554; Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.) “Generally, the ruling on an application for a preliminary injunction rests in the sound discretion of the trial court.” (Cohen, supra, 40 Cal.3d at p. 286.)

DISCUSSION

            Plaintiff filed its application on the basis that “the loan documents, including the deed of trust, expressly provide that a receiver may be appointed on an ex parte basis to take possession of the Property during foreclosure proceedings to collect rents and to protect and maintain the Property for Plaintiffs benefit.” (Mtn. 5:4-12.) “Plaintiff requests that the Court issue an order appointing a receiver over the Property and enjoining Defendant from interfering with Plaintiff’s rights to collect the rents, issues and profits from the Property, and from interfering with the receiver's maintenance of the Property during the pendency of these proceedings.” (Ibid.)  

            However, the Property has been placed into REAP by LAHD, and Defendant is not collecting any rent. Under REAP, if tenants pay any rent, the proceeds go into an escrow account managed by LAHD. A landlord must correct violations and satisfy conditions imposed by LAHD before receiving rent again. Defendant argues that appointing a receiver would be futile and that there is no reason to enjoin Defendant from diverting rent proceeds which it has no access to.

            A trust deed is not binding on the court when it provides that the beneficiary is entitled to the appointment of a receiver upon a default, though it creates a rebuttable evidentiary showing. (Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 602.) In this case, despite the language of the Deed of Trust, Defendant has rebutted the presumption by showing that the appointment of a receiver would be futile. Additionally, Plaintiff has not shown irreparable harm for purposes of a preliminary injunction because there is no indication that Defendant is diverting rent owed to Plaintiff. (See White v. Davis (2003) 30 Cal.4th 528, 554.)

            Plaintiff argues that the requested relief is warranted because the rent proceeds currently being “diverted” to the REAP escrow account will be lost to Plaintiff forever. (Nicholson Decl. ¶¶ 18-19.) But Plaintiff provides no support for its proposition that the Court is authorized to enjoin payment of rent under REAP. Plaintiff provides no support for its proposition that an appointed receiver can immediately begin collecting rent. A property is placed into REAP by the LAHD pursuant to the LA Municipal Code. It is unclear how the Court can override the REAP process and allow Plaintiff to collect rent directly.

Furthermore, the City and LAHD are indispensable parties, and there is no indication that they have been properly served with the application. The City and LAHD must be given an opportunity to respond because the requested relief directly implicates the REAP process.

CONCLUSION

            Plaintiff’s motion for injunctive relief and the appointment of a receiver is DENIED.