NELI International Incorporated v. Premier Restaurant Group, LLC

Background

NELI International Incorporated sued Premier Restaurant Group, LLC; Forever Brands Operating Company, LLC; Cheeburger Operating Company, LLC; Cheeburger VA, LLC; and Anthony Wedo. NELI alleged that it made a $5 million senior secured term loan to Premier in 2017. The related guaranty and security agreements gave NELI a security interest in the company defendants’ assets and provided that NELI could seek appointment of a receiver if Premier defaulted.

The parties later entered into additional agreements extending the loan’s maturity or providing other accommodations. Under a March 12, 2022, loan-extension agreement and side letter, NELI agreed to accept $1.8 million as full payment if it received that amount by July 31, 2022. The payment was not made. The opinion states that the full loan balance became due on August 1, 2022, and that the defendants remained in default. NELI later demanded payment of more than $4.5 million, plus interest and costs.

NELI filed the action and moved for appointment of a temporary receiver. The court had previously denied NELI’s emergency request for a temporary restraining order. After a hearing and later conference, NELI submitted additional financial information and communications concerning the defendants’ position. The defendants did not appear or file an opposition. The court treated the motion as unopposed but stated that their nonappearance did not eliminate the court’s duty to rely on a sufficiently developed record.

Legal standard

The court explained that federal law governs appointment of a receiver in a diversity case. A receiver is a person appointed by a court to take control of property or business assets. Appointment is an extraordinary equitable remedy that should be used cautiously and only when clearly necessary to protect a plaintiff’s interests in property. The remedy is ancillary, meaning it supports the primary relief sought in the lawsuit rather than being an independent substantive right.

The court identified several relevant factors: fraudulent conduct; imminent danger that property will be lost, concealed, damaged, reduced in value, or wasted; whether ordinary legal remedies are inadequate; whether the harm to the plaintiff from denying the receiver would exceed the injury to opposing parties; the plaintiff’s likely success; and the possibility of irreparable injury. The court emphasized that imminent danger of a decline in the property’s value is critical. It also stated that fraud is not required and that a loan provision allowing a receiver after default strongly supports appointment.

Court’s analysis

The court found that NELI had shown the defendants’ default under the loan and the guaranty and security agreements. It treated that default as strong evidence supporting appointment because it indicated a high likelihood that NELI would succeed in the underlying action.

The court also found an imminent danger that the value of the collateral would decline and that NELI would suffer irreparable injury without a receiver. NELI presented financial information showing declining business performance and stated that the number of franchise units had decreased from 40 to 15 since 2019. NELI also asserted that Wedo, who owned and managed the businesses, was unable to manage them because of health problems.

Additional information supported the court’s finding. NELI stated that a former consultant who had collected and analyzed franchisees’ financial performance was no longer providing services. NELI argued that the defendants might therefore be unable to collect royalty fees and franchise fees, which made up much of their revenue. NELI also reported that a franchisee’s proposed sale could not be approved because no one appeared able or willing to perform the necessary task, and that the franchise unit was expected to close.

The court stated that it was not clear whether NELI had shown fraudulent conduct, but repeated that fraud was not a prerequisite. The court also relied on the agreements’ provisions stating that, after default, NELI could seek appointment of a receiver or receiver and manager over the collateral.

Disposition

The court granted NELI’s motion for a temporary receiver and stated that it would enter an order appointing a receiver. The court also granted NELI’s request for a stay of certain actions described in NELI’s proposed order. That proposed stay would restrict specified efforts to interfere with the court’s control over the collateral or the defendant limited liability companies, including certain bankruptcy filings, litigation, and efforts to impose or enforce liens, subject to the exceptions described in the proposed order.

The opinion did not decide NELI’s broader foreclosure claims. It addressed the temporary receivership and related stay requested while those claims remained pending.