KeyBank NA v. Fleetway Leasing Co

• Court: Court of Appeals for the Third Circuit
• Decided: July 24, 2019
• Docket: 18-2822
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 18-2822 _____________

KEYBANK NATIONAL ASSOCIATION; SANTANDER BANK, N.A.

1ST SOURCE BANK (Intervenor in D.C.)

v.

FLEETWAY LEASING COMPANY; FMC2, LLC; FMC3, LLC; WILLIAM S. STAMPS; ERIC D. STAMPS; CAROLE STAMPS

SANTANDER BANK, N.A. (Intervenor in D.C.)

Santander Bank, N.A., Appellant

____________

On Appeal from the United States District Court for the Eastern District of Pennsylvania (No. 2-18-cv-00667) District Judge: Hon. Paul S. Diamond

Argued: April 2, 2019

Before: CHAGARES, HARDIMAN, and SILER, JR.,* Circuit Judges

(Filed: July 24, 2019)

* The Honorable Eugene E. Siler, Jr., Senior United States Circuit Judge for the Court of Appeals for the Sixth Circuit, sitting by designation. Lawrence J. Gebhardt, Esq. [ARGUED] Michael D. Nord, Esq. Gebhardt & Smith One South Street Suite 2200 Baltimore, MD 21202

Counsel for Appellant Santander Bank, N.A.

Matthew A. Hamermesh, Esq. [ARGUED] William T. Hangley, Esq. Robert A. Wiygul, Esq. Hangley Aronchick Segal Pudlin & Schiller One Logan Square 18th & Cherry Streets, 27th Floor Philadelphia, PA 19103

Counsel for Appellee William T. Hangley, Receiver Pendente Lite

OPINION ___________

CHAGARES, Circuit Judge.

This is an appeal of the District Court’s order appointing a receiver. Santander

Bank objects to the manner, fact, and scope of the appointment. Although we conclude

that the way that the District Court decided to appoint a receiver satisfied due process, we

cannot meaningfully review the appointment without more explanation why a

receivership is needed. So we will vacate the District Court’s order to take effect 90 days

after issuance of this Court’s mandate and remand to the District Court for further

proceedings. On remand the District Court may issue a new receivership order, if it

 This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent.

2 chooses.

I.

We write for the parties and so recount only the facts necessary to our decision.

Fleetway’s business was to buy and then lease cars, mostly to car-rental agencies.

KeyBank and other creditors provided Fleetway loans, secured by the cars. In its verified

complaint, KeyBank alleged that Fleetway breached its loan agreements and fraudulently

induced KeyBank to make more loans. Keybank also requested that Fleetway be placed

under a receivership during the litigation. Santander Bank and 1st Source Bank

intervened soon after the action began. Like KeyBank, 1st Source Bank moved to

appoint a receiver. Santander, however, was opposed to a receivership.

Two weeks after the case was filed, the District Court held a hearing on the

motions to appoint a receiver. It denied those motions “without prejudice to future

resubmission if changed circumstances warrant such appointment.” Joint Appendix

(“JA”) 170. A few weeks later, the case was transferred to another District Court Judge,

who scheduled a preliminary pretrial conference.

At the conference, the court told the parties that it had “gone through these papers

with some interest,” that it had “read carefully . . . the transcript of [the] February

hearing,” and that it was “giving extremely serious thought to . . . staying everything,

appointing a receiver, and seeing whether sanity can be restored to this situation.”

JA 205–06. It explained that it planned to issue a proposed receivership order, “give

everybody [time] to object,” and “hear all objections.” JA 214–15. Then it invited all

parties to be heard on the issue and asked them, one by one, whether they wanted the

3 court to appoint a receiver. Santander “still oppose[d] the appointment of a receiver.”

JA 222. KeyBank had “no objection to the appointment of a receiver.” JA 221. And 1st

Source Bank’s “answer [was] yes.” JA 221.

Later that day, the District Court filed an order that “propose[d] staying this matter

and appointing William Hangley . . . as receiver” and ordered that “the Parties shall file

any substantive objections to the appointment of Mr. Hangley as outlined in this Order,

no later than” four days later. JA 21, 32 (emphases omitted). Santander filed objections.

Although the bank “[did] not object to the appointment of William Hangley as receiver if

a receiver is to be appointed,” Santander “[did] object to the appointment of a receiver

generally and specifically under the terms” proposed. JA 242. Santander also

commented that “[t]he Court’s power to appoint a receiver, sua sponte and not upon the

pending motion of a secured creditor, is an open issue.” JA 250.

The District Court overruled these objections and entered an order appointing the

Receiver. The court noted that “Santander argues that I may not appoint an equity

receiver mea sponte,” but concluded that this argument “ignores that KeyBank and FSB

moved for a receiver in February, and renewed that request before me.” JA 36.

Santander timely appealed.

II.

The District Court had jurisdiction under 28 U.S.C. § 1332. We have appellate

4 jurisdiction under 28 U.S.C. § 1292(a)(2).1 We review the decision to appoint a receiver

for abuse of discretion. Maxwell v. Enter. Wall Paper Mfg. Co., 131 F.2d 400, 403 (3d

Cir. 1942). “We review the District Court’s application of law with regard to the

equitable receivership de novo, and its decisions relating to procedures it will follow in

connection with the receivership proceedings for abuse of discretion.” SEC v. Black, 163

F.3d 188, 195 (3d Cir. 1998).

III.

Santander argues that (A) the manner of appointment violated due process, (B) the

appointment was an abuse of discretion, and (C) the Receiver has unlawful authority. To

the limited extent that the due process claim was preserved, there was no violation. But

we conclude that the District Court gave insufficient reasons why it was appointing a

receiver. With that conclusion, we do not reach the challenge to the Receiver’s authority.

A.

Before the District Court, Santander never raised the procedural deficiencies on

which it now mainly relies: that it did not expect to address receivership at the pretrial

conference, that the time to file objections was too short, and that it did not get to put on

evidence showing a receiver was unnecessary. Santander never asked the District Court

to delay considering appointing a receiver, never asked for more time to object, and never

asked for an evidentiary hearing. The District Court had no notice that Santander

1 The Receiver disputes whether we have appellate jurisdiction over Santander’s challenge to particular powers of the Receiver. Since we do not reach that challenge, we do not need to resolve that question.

5 harbored these concerns and, unsurprisingly, never addressed them. These arguments are

forfeited. See, e.g., United States v. Joseph, 730 F.3d 336, 341 (3d Cir. 2013).

The only argument related to due process for which the District Court was even

arguably “put on notice as to the substance of the issue” was Santander’s complaint that

the District Court appointed a receiver sua sponte. Nelson v. Adams USA, Inc., 529 U.S.

460, 469 (2000). But, as the District Court explained, it did not do so sua sponte. The

court asked each party specifically whether it wanted a receiver, and, at a minimum, 1st

Source Bank said yes. So the premise of Santander’s argument is belied by the record.

And, anyway, Santander cites no authority for the proposition that appointing a receiver

sua sponte violates due process. The authority instead appears to be to the contrary. See,

e.g., Elk Fork Oil & Gas Co. v. Foster, 99 F. 495, 497–99 (4th Cir. 1900) (affirming the

appointment of a receiver sua sponte); see also 1 Ralph Ewing Clark, A Treatise on the

Law and Practice of Receivers § 94 (3d ed. 1959) (hereinafter “Clark on Receivers”)

(noting that “a receiver may [be] and sometimes is appointed on the court’s own motion

or suo motu without application by either party”). We therefore reject Santander’s due

process argument.

B.

Santander next argues that appointing a receiver was an abuse of discretion.2 The

discretion to appoint a receiver “is governed by legal principles applicable to the situation

and if we deem them to have been departed from, it is our duty to correct the error.”

2 The Receiver argues that Santander waived or forfeited this issue, too, but Santander did “object to the appointment of a receiver generally.” JA 242.

6 Maxwell, 131 F.2d at 403. But here, the District Court insufficiently articulated the legal

principles and factual bases that justified imposing a receivership. For example, the court

did not consider whether “milder measures will give the plaintiff . . . adequate protection

for his rights,” id.; whether “legal remedies . . . appear to be inadequate”; whether there

continued to be “fraud or imminent danger of the property being lost, injured, diminished

in value, or squandered”; or whether there had been “a showing that the harm accruing to

plaintiff by denial clearly overbalanced the harm to defendant upon granting the

appointment,” Mintzer v. Arthur L. Wright & Co., 263 F.2d 823, 825–26 (3d Cir. 1959).3

We do not require rote review of these principles or preclude consideration of others.

See, e.g., Can. Life Assurance Co. v. LaPeter, 563 F.3d 837, 845 (9th Cir. 2009).

“Meaningful appellate review of the exercise of discretion,” however, “requires

consideration of the basis on which the trial court acted.” Gurmankin v. Costanzo, 626

F.2d 1115, 1119 (3d Cir. 1980). Particularly since “the appointment of a receiver is an

extraordinary, a drastic and . . . an ‘heroic’ remedy,” Maxwell, 131 F.2d at 403, more

explanation of the principles and proof motivating the court’s exercise of discretion is

required. See also, e.g., 1 Clark on Receivers § 58 (explaining why “[t]he appointment of

a receiver is more drastic than the issuing of an injunction”).

3 The Receiver argues that Mintzer is “simply irrelevant” because it applied Pennsylvania law. Receiver Br. 31. “In this case, however, we do not think that there is any difference between the principles determining the appointment of receivers as enunciated by Pennsylvania courts and those found in the federal decisions . . . .” Maxwell, 131 F.2d at 402–03 (footnote omitted); see, e.g., Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316–17 (8th Cir. 1993) (applying similar principles); Chase Manhattan Bank, N.A. v. Turabo Shopping Ctr., Inc., 683 F.2d 25, 26–27 (1st Cir. 1982) (same).

7 C.

With that conclusion, we do not reach Santander’s objections to the Receiver’s

authority, except to observe that whether a receiver may charge expenses against

collateral that he does not benefit, or sell collateral free of security interests without likely

creating equity, are among the legal principles applicable to the situation that the District

Court might consider and expound upon. See, e.g., Monroe Cty. Bank v. Dreher, 88 F.2d

288, 288–89 (3d Cir. 1937); MacGregor v. Johnson-Cowdin-Emmerich, 31 F.2d 270, 272

(2d Cir. 1929); 2 Clark on Receivers §§ 500, 638–39; 4 Clark on Receivers § 976.

IV.

For these reasons, we will vacate the District Court’s order appointing a receiver

to take effect 90 days from the issuance of this Court’s mandate and remand to the

District Court for further proceedings. On remand, the District Court may issue a new

receivership order after whatever proceedings it deems appropriate (which Santander or

others may then appeal); or it may not, and the receivership will end in accordance with

the opinion of this Court; or it may take any other action that it deems appropriate. This

Court’s mandate shall issue forthwith.