Judge Lynne M. Hobbs, Case Number: 24STCV18817, Date: 2025-03-27 Tentative Ruling

Judge: Lynne M. Hobbs, Case: 24STCV18817, Date: 2025-03-27 Tentative Ruling

Case Number: 24STCV18817 Hearing Date: March 27, 2025 Dept: 61

MRE CONSTRUCTION GROUP, INC. vs NPI DEBT FUND I, LP, et al.

Tentative

Plaintiff 10616 McBroom LLC’s Motion to Appoint Receiver is GRANTED. McBroom is to post an undertaking in the amount of $10,000.00 under Code of Civil Procedure § 529, forthwith.

Plaintiff 10616 McBroom to provide notice.

Analysis:

I. RECEIVER

Code of Civil Procedure § 564 authorizes the court to appoint a receiver in certain circumstances. Guest relies on the following as applicable to her case:

(1) In an action . . . between partners or others jointly owning or interested in any property or fund, on the application of the plaintiff, or of any party whose right to or interest in the property or fund, or the proceeds thereof, is probable, and where it is shown that the property or fund is in danger of being lost, removed, or materially injured.

. . .

(7) In an action of unlawful detainer.

. . .

(9) In all other cases where necessary to preserve the property or rights of any party.

(Code Civ. Proc. § 564, subd. (b)(1), (7), (9).).

Appointment of a receiver is a “drastic remedy,” and injunction is “an extraordinary power.” (McRae v. Superior Court (1963) 221 Cal.App.2d 166, 173.) “The pertinent question on a motion for a receivership is whether the facts alleged in a petitioner's complaint and affidavits establish at least a probability of a joint or common interest in an enterprise which is in danger of loss, removal, or material injury, as required by the statute.” (Maggiora v. Palo Alto Inn, Inc. (1967) 249 Cal.App.2d 706, 712.)

Moving party 10616 McBroom, LLC (McBroom) is plaintiff in the consolidated unlawful detainer case of 10616 McBroom v. MRE Construction Group, LASC Case No. 24NNCV03426, prosecuted against MRE Construction Group, Inc. and Bella Stables, Inc.. MRE is the plaintiff in the lead quiet title case of MRE Construction Group v. NPI Debt Fund, LLP, LASC Case No. 24STCV18817. McBroom seeks a receiver to manage the real property at issue and to collect the rents and revenues therefrom on the grounds that MRE, presently in possession of the property, are engaged in physical and economic waste of the property.

McBroom obtained its interest in the property via a foreclosure sale on July 11, 2024, from the secured lender who had previously sold the property to MRE, secured by a deed of trust. MRE is currently operating the property as a horse boarding facility, apparently via a lease with tenant Bella Stables, Inc. (Ortega Decl. ¶ 3; Lopez Decl. ¶ 7.) McBroom contends that MRE is not keeping the property in good order, including by leaving piles of garbage and debris in locations where it constitutes a fire hazard, (Ortega Decl. ¶ 8.) McBroom also contends that, because of disputes with customers over rent and the conditions of the premises, MRE has ceased maintaining gates and stalls, at times welding them shut, to retaliate against customers who decline to pay rent for their horses. (Ortega Decl. ¶ 8.) McBroom also contends that MRE does not maintain liability, fire, hazard, or operations insurance on the property. (Ibid.) McBroom’s motion is supported by the declaration of Rafael Ortega, managing member of McBroom, as well as the declarations of Ellen Leyda, Katherine Mirabito, Mariah Grinslit, and Nicole Ocariz, who train and board horses on the property, each of whom states that the property is ill-maintained, with little food or water provided to the horses, and with a potential fire exit blocked by tractors.

MRE and Bella Stables in opposition contends that McBroom’s prior ex parte applications for appointment of a receiver were denied by the court in the unlawful detainer action. MRE contends that the first such application was denied on August 6, 2024, and the second of which was denied on November 20, 2024, in which the court stated as follows:

Plaintiff seeks the appointment of a receiver to “manage the Property and collect the rents and revenues while the unlawful detainer action is being litigated.” (Application, p. 4.) Plaintiff contends Defendants who have no interest in the property are collecting rents to which they are not entitled. In support of its motion, Plaintiff argues it is the lawful owner of the property when it obtained ownership after Defendant MRE defaulted on its loan, and the foreclosing beneficiary NPI sold the property to Plaintiff. (Ortega Decl., ¶¶ 4-5.)

As to the issue of Defendant MRE’s commission of waste or damage to the property, Plaintiff McBroom presents evidence that the property or portions thereof are in disrepair or otherwise in need of attention. (See, e.g., Ortega Decl., filed 9/23/24, Exs. E, F, and G; Mirabita Decl., filed 10/1/24, Exs. A, B, C, and D.) These depictions were disputed by Defendant MRE, who provided contrasting evidence and testimony. (See, e.g., Arteaga Decl., filed 9/24/24, Ex. 1.) These contrasting views present a question of fact related to the nature and extent of the disrepair and/or damage. The evidence and testimony, however, falls short of showing disrepair or damage of such magnitude as to constitute an exceptional circumstance warranting the appointment of a receiver. The latter is particularly so where the Court considers that this is an unlawful detainer action. Setting aside any issues related to the relation and consolidation of this matter with the currently pending quiet title action (Case No. 24STCV18817), trial in this UD action is scheduled for December 17, 2024. The less drastic or alternative remedy available is a trial on the merits. Plaintiff McBroom’s remedy is a summary determination of the right of possession at trial. (24NNCV03426 11/20/2024 Order.)

MRE contends that its subtenant, Bella Stables Inc., has continued to provide services to its boarders and maintain the property in good repair, despite McBroom’s efforts to direct payments from the boarders directly to itself. Lopez Decl. ¶¶ 6–17.) MRE argues that the evidence relied upon by McBroom in the present motion is no different from the evidence it presented in support of its prior application, denied as provided above, and which is insufficient to show that the property at issue is in danger of being lost, removed, or materially injured, as required to obtain a receiver under Code of Civil Procedure § 564, subd. (b0(1). (Opposition at pp. 10–11.) MRE argues that because officers of MRE reside on the property at issue, there is little reason to believe that they have or would engage in waste. (Opposition at pp. 10–11.) And questions as to how MRE manage evictions of boarders from the property, it argues, is of no concern to McBroom, because the horse-boarding contracts are between Bella Stables and the tenants. (Opposition at pp. 11–12.) MRE does not dispute that it has not purchased insurance for the property, but argues that McBroom may do so if it chooses. (Opposition at p. 12.) MRE also argues that any appointment of a receiver pursuant to the pendency of an unlawful detainer matter would work as a de facto eviction of MRE from the premises. (Opposition at pp. 12–13, citing Telegraph Ave. Corp. v. Raentsch (1928) 205 Cal. 93, 100.) Finally, MRE objects that McBroom has not offered an undertaking for a receivership, which MRE proposes should be $500,000.00. (Opposition at p. 15.)

McBroom has demonstrated good cause for the appointment of a receiver here. Although a drastic remedy, a receiver is necessary here to ensure that the property is maintained in safe condition pending trial and to avoid further disputes concerning the payment of rent on the property, both of which may be linked. Although McBroom’s prior application for an appointment of a receiver was previously denied in the unlawful detainer proceeding, that court’s denial was expressly premised on the speedily approaching date of trial then set for that summary unlawful detainer case. (See 24NNCV03426 11/20/2024 Order.) That case has since been consolidated into an ordinary civil action at MRE’s request, and no trial has yet been set, meaning the court and parties now face a far longer time-horizon of potential waste, recrimination, and liability.

The evidence as to the state of the property is in conflict, but McBroom’s showing of waste is more compelling than MRE’s showing to the contrary. McBroom’s motion is supported not just by the declaration of its managing member but by those of boarders using the property, who testify to the poor conditions thereon, including lack of water or food for the horses, unsafe stalls or riding grounds, and in some cases the deliberate destruction of stalls in retaliation for boarders failing to pay rent. (See Supp. Mirabito Decl. ¶¶ 2–5; Supp. Keur Decl. ¶¶ 2–7.) The evidence suggests ample grounds for disputes and potentially liability involving the property, and yet MRE concedes that it does not maintain insurance. (Opposition at p. 12.) And although MRE contends that this would not prevent McBroom from obtaining insurance on its own, McBroom presents evidence that MRE’s failure to obtain insurance potentially excludes coverage from any insurance it could obtain for itself. (See Langer Decl. ¶ 4.)

Additionally, the contention that the appointment of a receiver would act as an eviction of those officers of MRE or Bella who reside on the premises need not be the case, as the receiver’s powers may be limited to prevent interference with that portion of the property used as a residential dwelling, as McBroom concedes in reply. (Reply at pp. 2–3.)

MRE requests the imposition of an undertaking pursuant to the entry of any injunction in connection with the appointment of the receiver under Code of Civil Procedure § 529 and CRC Rule 3.1178, and asks that this undertaking be in the amount of $500,000,00, to match that amount to be paid by MRE in the order of December 11, 2024, granting its motion for consolidation. (Opposition at p. 15.) But this $500,000 amount bears no evident relation to the damages potentially to be suffered by the appointment of the receiver to manage the property and collect the associated rents, which to be distributed to the party entitled thereto upon a judicial determination thereof. McBroom in reply asks that the request for an undertaking be denied, or else set at the amount of $10,000.00. (Reply at p. 7.) This amount more closely tracks the potential damages to be suffered, taking the totality of the circumstances into view.

MRE finally argues that if a receiver is appointed, they should pay Bella Stables for its boarding services. (Opposition at p. 16.) But MRE elsewhere indicates that Bella Stables was not paid by MRE, but operated its business pursuant to a lease. (Lpez Decl. ¶ 7.) The court at present lacks sufficient basis to dictate the terms upon which the receiver is to honor Bella Stables’ lease or renumerate it for the services it provides to boarders.

Accordingly, the motion to appoint a receiver is GRANTED. McBroom is to post an undertaking in the amount of $10,000.00 under Code of Civil Procedure § 529.