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HSBC Bank USA, N.A. v. Dara Petroleum, Inc.

United States District Court, E.D. California

May 2, 2014

HSBC BANK USA, N.A., as Indenture Trustee for the benefit of the Noteholders and the Certificateholders of Business Loan Express Business Loan Trust 2005-A, Plaintiff,
DARA PETROLEUM, INC., dba WATT AVENUE EXXON, a California Corporation; SARBJIT S. KANG, an individual; NARGES EGHTESADI, an individual; UNITED STATES SMALL BUSINESS ADMINISTRATION, a United States government agency; and DOES 1 through 20, inclusive, Defendants, AND RELATED CROSSCLAIMS AND COUNTER-CLAIMS


WILLIAM B. SHUBB, District Judge.

Plaintiff HSBC Bank USA, N.A. brought this action against defendant Dara Petroleum, Inc. ("Dara"), and several other defendants arising out of Dara's default on a commercial loan made by plaintiff's predecessor and secured by real property located at 3499 El Camino Avenue, Sacramento, California ("the property"). On January 30, 2013, the court entered an amended judgment of $985, 776.75 plus interest and costs against Dara, ordered that the property be sold at a foreclosure sale, and directed that the proceeds of that sale be used to satisfy the judgment. (Docket No. 109.) Plaintiff now moves to appoint Kevin Singer as a post-judgment receiver pursuant to Federal Rule of Civil Procedure 66 and for a preliminary injunction in aid of receivership.[1]

I. Appointment of Receiver

Although "Rule 66 governs the appointment of a receiver in federal court, " the appointment of a post-judgment receiver is also subject to Rule 69(a), which governs the enforcement of judgments. Office Depot, Inc. v. Zuccarini , 596 F.3d 696, 701 (9th Cir. 2010). Rule 69(a) provides that proceedings "in aid of judgment or execution... must accord with the procedure of the state where the court is located." Fed.R.Civ.P. 69(a); see also Zuccarini , 596 F.3d at 700 ("We have previously noted that state law has been applied under Rule 69(a) to... appointment of receivers, ' when such actions are undertaken in aid of executing on a judgment." (citations omitted)).

California permits courts to "appoint a receiver... to enforce a judgment for possession or sale of property." Cal. Civ. Proc. Code § 712.060. "The court may appoint a receiver to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and the judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment." Id . § 708.620. The Ninth Circuit has cautioned, however, that receivership is an "extraordinary equitable remedy" and "should be applied with caution." Canada Life Assurance Co. v. LaPeter , 563 F.3d 837, 844 (9th Cir. 2009). While there is "no precise formula" that determines when a court should appoint a receiver, courts have identified several factors that guide this determination, including:

(1) [W]hether the party seeking the appointment has a valid claim; (2) whether there is fraudulent conduct or the probability of fraudulent conduct by the defendant; (3) whether the property is in imminent danger of being lost, concealed, injured, diminished in value, or squandered; (4) whether legal remedies are inadequate; (5) whether the harm to plaintiff by denial of the appointment would outweigh injury to the party opposing appointment; (6) the plaintiff's probable success in the action and the possibility of irreparable injury to plaintiff's interest in the property; and (7) whether the plaintiff's interests sought to be protected will in fact be well-served by receivership.

Id. (citations, alterations, and internal quotation marks omitted); accord N.Y. Life Ins. Co. v. Watt W. Inv. Corp. , 755 F.Supp. 287, 292 (E.D. Cal. 1991) (Levi, J.). "Most important among the factors are the adequacy of the security and the financial position of the mortgagor." N.Y. Life , 755 F.Supp. at 292.

New York Life is instructive. There, the plaintiff made a loan to the defendant that was secured by commercial real estate. Id. at 288. When the defendants defaulted, the plaintiff accelerated the amount due on the loan, sued the defendants, and moved to appoint a receiver. Id. at 289. The court found that the defendants were of "doubtful" financial strength and were "experiencing financial difficulties." Id. at 292. The court also found that the value of the property was less than the debt owed to the plaintiff, that rents from the property were being diverted from the repayment of the loan, that a major tenant was likely to depart, and that the value of the property was likely to diminish as a result of the defendants' mismanagement. Id. at 292-93. In light of these considerations, the court appointed a receiver. Id. at 293.

The facts here are even more extreme than those in New York Life. In February 2010, shortly after plaintiff initiated this foreclosure action, Dara leased the property, which is operated as a gas station, to Parjmit Singh. (See Dameron Decl. Ex. 1 (Docket No. 110-1).) Dara then sold the fuel tanks, pipes, dispensers, and inventory to Singh in August of that year. (See Dameron Decl. Ex. 2 (Docket No. 110-1).) In 2012, after the court initially entered judgment against Dara and ordered that the property be sold at a foreclosure sale, Dara conveyed its remaining interest in the property to Stars Holding Company. (See Dameron Decl. Ex. 3 (Docket No. 110-1).) Dara did not inform plaintiff of any of these transactions until after the court entered judgment. (See Dameron Decl. ¶ 7.) Although plaintiff has attempted to collect monthly rent from Singh, as authorized under the Deed of Trust securing plaintiff's loan to Dara, Singh has missed approximately half of the rent payments.[2] (See Dameron Decl. ¶ 9; Dameron Decl. Ex. 4 (Docket No. 110-1).)

Dara has also failed to pay taxes on the property. In 2012, Dara was delinquent on over $31, 000 in back property taxes. (July 30, 2012 Kravitz Decl. Ex. 1 (Docket No. 84-1).) Because that tax delinquency operates as a lien on the property, the court concluded in an earlier Order that "[p]laintiff's interest in the property is... threatened by Dara's failure to fully pay its property taxes by the agreed upon date." (Sept. 12, 2012 Order at 5:4-6 (Docket No. 92).) Although Dara negotiated a payment plan with the City of Sacramento, it has evidently not paid off the tax delinquency, which has ballooned to $49, 371.14. (See Ramsaur Decl. ¶ 5; Ramsaur Decl. Ex. A (Docket No. 110-2).)

Between the delinquent property taxes, Singh's failure to pay rent, and Dara's unauthorized conveyance of the property, defendants' conduct threatens an orderly foreclosure sale and presents an "imminent danger that the property may be diminished in value." New York Life , 755 F.Supp. at 292-93. Plaintiff estimates that a foreclosure sale could take up to 120 days, during which time there is a significant risk that Singh would fail to pay rent, continue to mismanage the property, and ultimately reduce its sale value. (See Dameron Decl. ¶ 10.) Defendants' repeated failure to make payments also suggests that they may not have the financial means to pay a deficiency judgment in the event the property sells for less than $985, 776.75 and that plaintiff would be irreparably harmed as a result of a diminished sale price. See DuFour v. Be LLC, Civ. No. 09-3770 CRB, 2009 WL 4730897, at *3 (N.D. Cal. Dec. 7, 2009) (finding that the plaintiff was likely to suffer irreparable harm when the defendant "appear[ed] to be bankrupt" and "will be far less likely to be able to satisfy a judgment a few months down the road").

The remaining factors also militate in favor of receivership. Plaintiff has already prevailed on the merits, thereby demonstrating that it has a "valid claim." LaPeter , 563 F.3d at 844. The proposed receiver, Kevin Singer, has over nineteen years of property and retail management experience, has been appointed as a receiver on twelve occasions, and has been involved in over two hundred receiverships. (See Singer Decl. ¶ 3 (Docket No. 110-3).) And while defendants contend that the receivership will harm them by imposing unnecessary costs, appointment of a receiver is likely to benefit defendants because it will improve the property value and thereby reduce the amount of any deficiency judgment against defendants.

Accordingly, because plaintiff has shown that "the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment, " Cal. Civ. Proc. Code § 708.620, the court will appoint Kevin Singer as a post-judgment receiver.

II. Preliminary Injunction in Aid of Receivership

"A court has the power to issue a preliminary injunction to prevent a defendant from dissipating assets in order to preserve the possibility of equitable remedies." Republic of the Philippines v. Marcos , 862 F.2d 1355, 1364 (9th Cir. 1988); see also, e.g., Joe Hand Promotions v. Saddeldin, Civ. No. 1:09-2197 AWI GSA, 2011 WL 1806919, at *3 (E.D. Cal. May 10, 2011) (appointing receiver to sell defendant's alcoholic beverage licenses and enjoining defendant from the "sale, transfer, or other disposition" thereof). A plaintiff seeking a preliminary injunction must establish that: (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction is in the public interest. Winter v. NRDC, Inc. , 555 U.S. 7, 20 (2008).

While injunctive relief is an "extraordinary remedy, " id. at 22, a preliminary injunction in aid of receivership is no more extraordinary than the appointment of a receiver itself. See Police & Fire Dep't Sys. of City of Detroit v. Orchard Park, LLC, Civ. No. 08-5316 PJH, 2009 WL 481266, at *5 (N.D. Cal. Feb. 24, 2009). Such an injunction "simply makes explicit that which is implicit in the judicial act of appointment itself; namely, that the receiver possess[es] and is entitled to exercise all powers, and perform all duties and responsibilities necessary to accomplish the tasks of the receivership without interference from [defendants] or any other third party." Id.

As explained above, plaintiff has satisfied the first three prongs of this inquiry: it has already obtained a favorable judgment, has established a likelihood that it will suffer irreparable harm as a result of defendants' mismanagement of the property, and has demonstrated that appointment of a receiver would further the interests of all parties in the action. To the extent that an injunction would further the aims of the receivership, plaintiff has demonstrated that it will serve the public interest insofar as it will facilitate the transfer of the property to a new owner and increase the likelihood that the United States Small Business Administration will recover the money owed to it under the terms of the judgment. See Orchard Park, 2009 WL 481266, at *5 (finding that the public interest was served by preventing interference with the receiver). Accordingly, the court will grant plaintiff's motion for a preliminary injunction in aid of receivership.

IT IS THEREFORE ORDERED that plaintiff's motion to appoint a post-judgment receiver and for a preliminary injunction in aid of ...

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