Wilmington Trust, National Association v. Winta Asset Management LLC

Background

Wilmington Trust brought claims concerning the defendants’ alleged defaults under a loan agreement. It moved under Federal Rule of Civil Procedure 66 and the loan agreement for appointment of a temporary receiver over the property used as collateral and the rental income generated by that property.

Legal standard

The court explained that appointing a receiver is an extraordinary equitable remedy that should be used cautiously and only when clearly necessary to protect a plaintiff’s interest in property. Relevant considerations include fraudulent conduct, imminent danger that the property will be lost or diminished, the inadequacy of other legal remedies, the balance of potential harm, the plaintiff’s probable success, and the possibility of irreparable injury. The court emphasized that imminent danger of a decrease in the property’s value is a critical factor, but fraudulent conduct is not required.

Court’s analysis

The court found that Wilmington Trust had shown its entitlement to a temporary receiver. The plaintiff demonstrated breaches including a payment default, cash-management default, cessation-of-operations default, borrower financial-reporting default, and guarantor financial-reporting default. The defendants principally did not dispute these defaults, which provided a strong basis for appointment because they showed a high likelihood that Wilmington Trust would succeed on its claims.

The court also found that the elimination of rental income directly impaired the collateral, which included rental income, and constituted more than a mere danger that the property might decrease in value. The defendants argued that a receivership would itself harm the property’s value and stated that they were negotiating a sale requiring the property to be vacant and inspected. They did not provide a letter of intent or other evidence supporting that claim. The court held that a potential sale would not excuse the defaults or offset the continuing injury to the collateral, particularly given uncertainty about when inspection could occur during the COVID-19 travel restrictions.

The loan agreement expressly allowed Wilmington Trust to seek appointment of a receiver after a default. The court stated that this provision did not require automatic appointment, but strongly supported appointment because several defaults had occurred.

Disposition

The court approved Wilmington Trust’s proposed order because it was more complete and better reflected the receiver’s duties in this case. Judge John G. Koeltl granted the motion to appoint a temporary receiver and directed the Clerk to close Docket Number 10.