Judge: Mark H. Epstein, Case: 23SMCV02513, Date: 2023-07-10 Tentative Ruling

Case Number: 23SMCV02513    Hearing Date: July 10, 2023    Dept: R

The motion is GRANTED.

Plaintiff Lone Oak Fund, LLC (“plaintiff”) filed this judicial foreclosure and specific performance action against defendants Lenlib Almont, Inc., Lajjla, Inc., and Maple 430, LLC (collectively “defendants”).  On November 4, 2021, plaintiff agreed to loan defendants $30,000,000.  (Rothstein Decl., ¶5.)  The loan agreement required defendants to make monthly interest payments and to pay the balance when the loan matured.  (Id. at ¶7.)  The loan agreement was secured by a Deed of Trust With Absolute Assignment of Leases and Rent, Security Agreement and Fixture Filing against certain properties that defendants owned and managed in Los Angeles.  (Id. at ¶11.)  The parties entered into various modifications of the loan agreement that extended the maturity date to October 31, 2023, upon defendants’ additional payments as consideration.  (Id. at ¶¶17-20.)  Plaintiff claims that defendants breached the loan agreement and modification on May 1, 2023 and thereafter, when they failed to make the modified monthly loan payments or the extension fee that would have extended the loan maturity date.  (Id. at ¶¶24-25.)  Plaintiff thereafter recorded a Substitution of Trustee and a Notice of Default and Election to Sell Under Deed of Trust against the properties on May 23, 2023.  (Id. at ¶27.)  Despite demands for payment, defendants have failed to pay the amounts owed but still are currently collecting rent from the properties.  (Id. at ¶¶29-30.)  Currently before the court is plaintiff’s unopposed motion for a preliminary injunction.

The court partly granted plaintiff’s ex parte application for a temporary restraining order and preliminary injunction on June 13, 2023.  (6/13/23 MO.)  The court ordered all rents and monies from the properties to be placed in an escrow or other account that would only be accessible via court order or by agreement of the parties, pending resolution of this action.  The court added, however, that defendants could make withdrawals for routine payments (such as utility bills) and the parties should agree on what qualified as a routine payment.  Defendants were ordered not to interfere with the collection of rent monies and to continue managing the property in the future.  However, the court denied plaintiff’s request to appoint a receiver, noting that there is no actual evidence of mismanagement aside from a vague and conclusory statement by declarant Rothstein.  The court observed that it would not appoint a receiver absent some compelling need to do so, at least on an ex parte basis.  The court converted the ex parte application to a noticed hearing and continued the matter to allow defendants, who had not appeared on June 13, time to oppose.

No opposition has been filed.  There is, however, a reply.  The reply reiterates the need for a receiver.  Plaintiff asserts that no drastic circumstances need to be presented here for one to be appointed.  Plaintiff argues that the appointment of a receiver in these circumstances is routine.  It emphasizes that the receiver is the only way for plaintiff’s rights to the rents and incomes from the properties to be protected, as defendants are already presenting hurdles.  Plaintiff points out that defendants have ignored its request for updated rent rolls for purposes of the court’s escrow approach.  Plaintiff states it will update the court on July 10 with respect to defendants’ compliance with the escrow approach and the upcoming July rents.  The court notes that, while an appointment of a receiver is more common in these circumstances than it would be where a business is being taken over, the court is still concerned that it is an expensive remedy and the court will be slow to so appoint absent at least some showing of a need to do so.

“A superior court must evaluate two interrelated factors when ruling on a request for a preliminary injunction: (1) the likelihood that the plaintiff will prevail on the merits at trial and (2) the interim harm that the plaintiff would be likely to sustain if the injunction were denied as compared to the harm the defendant would be likely to suffer if the preliminary injunction were issued.  (Cohen v. Board of Supervisors, supra, 40 Cal.3d at p. 286.)   Weighing these factors lies within the broad discretion of the superior court. (Ibid.)  (Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 749, parallel and internal citations omitted.)

As previously noted, the court believes that plaintiff has made the requisite showing to its entitlement to rents pursuant to the loan agreements and defendants’ breach.  (Rothstein Decl., ¶¶5-16, 21-29.)  The agreements and deeds of trust make clear that defendants assigned to plaintiff an interest in the rents, revenue, income, and more of the property.  (Id. at ¶¶11-16.)  And the court notes that defendant has not opposed plaintiff’s motion.  The only outstanding issue remains the receiver and whether the court should continue with the alternative approach from the June 13 hearing, or appoint a receiver.

There is statutory authority for the appointment of a receiver in this situation.  “Upon default of the assignor under the obligation secured by the assignment of leases, rents, issues, and profits, the assignee shall be entitled to enforce the assignment in accordance with this section.  On and after the date the assignee takes one or more of the enforcement steps described in this subdivision, the assignee shall be entitled to collect and receive all rents, issues, and profits that have accrued but remain unpaid and uncollected by the assignor or its agent or for the assignor's benefit on that date, and all rents, issues, and profits that accrue on or after the date.  The assignment shall be enforced by one or more of the following: [¶] (1) The appointment of a receiver. [¶] (2) Obtaining possession of the rents, issues, or profits.”  (Civ. Code, § 2938, subd. (c)(1)-(2).)  “A receiver may be appointed by the court in which an action or proceeding is pending, or by a judge of that court, in the following cases: . . . [¶] In 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.  The appointment may be continued after entry of a judgment for specific performance if appropriate to protect, operate, or maintain real property encumbered by a deed of trust or mortgage or to collect rents therefrom while a pending nonjudicial foreclosure under power of sale in a deed of trust or mortgage is being completed.”  (Code Civ. Proc., § 564, subd. (b)(11).)

Plaintiff is also correct that it need not show that the secured properties are insufficient to satisfy the debt.  “The requirements of Code of Civil Procedure section 564 are jurisdictional, and without a showing bringing the receiver within one of the subdivisions of that section the court's order appointing a receiver is void.  (Rondos v. Superior Court (1957) 151 Cal.App.2d 190, 195.)  There was no showing herein at the time of the hearing under subdivision 2 of section 564 that ‘the property is probably insufficient to discharge the mortgage debt.’  (Bank of Woodland v. Stephens (1904) 144 Cal. 659, 660.)  Nevertheless, such a showing is not required where the creditor, as here, seeks to specifically enforce a provision of the mortgage or deed of trust assigning the rents and profits from the security to the creditor upon default or specifically providing for the appointment of a receiver to take possession of the security and collect the rents and profits therefrom.  (Title Guarantee & Trust Co. v. Monson (1938) 11 Cal.2d 621, 625; Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 598-600.)  Although couched in terms of specific performance of a contractual provision, jurisdiction of the court to appoint a receiver under such circumstances is not derived from an agreement between the parties but rather from the omnibus statutory provision contained in subdivision 7 of section 564.”  (Turner v. Superior Court (1977) 72 Cal.App.3d 804, 811, parallel citations omitted.)

That said, where a lesser remedy is sufficient to protect plaintiff, the court would be inclined to avoid the cost and formality of a receiver.  The problem here is that although plaintiff gave defendant notice of the court’s ruling right away, defendant has not done anything to give anyone comfort that a lesser remedy would be sufficient.  It is mid-July.  Yet no money has been turned over to defendant or placed in a secure account.  No accounting has been provided.  While it is true that the actual and formal order did not issue until more recently, defendant’s actions still fail to give the court the level of comfort it needs to assume that the parties will be able to work cooperatively to secure the rents.  Accordingly, the court will inquire whether, as of this hearing date, defendant has taken any action to account for rents received, secure the rents received, or even demonstrate that rents are being collected.  If so, the court will consider leaving the current order in place.  If not, a receiver will be appointed .

The preliminary injunction is therefore GRANTED as prayed (assuming plaintiff has done nothing to ensure that rents are being paid into escrow and properly collected).