Kairos Credit Strategies Operating Partnership v. The Friars National…

Background

Kairos sought emergency relief while pursuing foreclosure on property at 57 East 55th Street, New York, New York. It asked the court to appoint Trigild IVL Group, LLC as receiver to oversee and manage the property. Friars Club, the property’s current occupant, opposed the appointment.

Friars Club had entered into a $9 million mortgage in 2020. After the mortgage was assigned to Kairos in 2021 and amended, Friars Club’s obligations to Kairos totaled $13 million. Kairos alleged multiple defaults. Friars Club conceded that it had missed monthly payments since March 1, 2023, and that judgments—including an approximately $150,000 union judgment—created defaults under the mortgage. Friars Club acknowledged that these defaults triggered a contractual right to seek a receiver.

Kairos also presented evidence, disputed in part by Friars Club, that the property had been effectively abandoned, had suffered damage and deterioration, had experienced water and mold damage, had been subject to unauthorized asset sales or removals, and lacked adequate insurance coverage.

Legal standard

For a preliminary injunction appointing a receiver, the requesting party had to show a likelihood of possible irreparable harm without the requested relief and either a likelihood of success on the merits or serious questions warranting litigation combined with a balance of hardships strongly favoring that party. Federal Rule of Civil Procedure 66 gives federal courts equitable power to appoint a receiver to protect a party’s interests.

The court considered five factors: fraudulent conduct; imminent danger that the property would be lost, concealed, injured, reduced in value, or wasted; inadequacy of other legal remedies; whether denying the appointment would harm Kairos more than appointment would harm opposing parties; and the likelihood of success and irreparable injury.

Court’s analysis

Kairos did not rely on fraud, and the court therefore did not consider that factor. The court found that the remaining factors favored appointing a receiver.

The court found an imminent danger that the property could be injured or lose value. It determined that the property had been largely vacant for months, had no property manager, had no operating phone line, had some basement water damage that led to the water supply being shut off, and had areas that were in disrepair and unclean. The court said it did not need to resolve the parties’ disagreement about the property’s exact physical condition because the lack of adequate insurance alone established imminent danger.

Under the insurance policy, a property vacant for more than 60 consecutive days would not be covered for certain losses, including vandalism, sprinkler leakage, water damage, theft, and attempted theft. The court concluded that the property would very likely be considered vacant because the Friars Club’s customary operations were not occurring there. The court rejected Friars Club’s argument that occasional board meetings prevented the property from being vacant, reasoning that one-off meetings were not enough to establish customary operations. It also found an email from a third-party insurance broker unpersuasive and non-probative because it did not come from the insurer and did not guarantee how the insurer would interpret the policy.

The court also found that other legal remedies were inadequate. Water damage had occurred, and the lack of a property manager increased the risk of accidents and additional damage. Because Friars Club did not dispute that it was insolvent or nearly insolvent, the court found the potential injury irreparable because the property was the only valuable asset against which creditors such as Kairos could realistically recover.

The balance of potential harm also favored Kairos. Kairos faced significant risks from the lack of adequate insurance. Friars Club identified only a vague and speculative risk that a receivership could make it harder to sell the property, even though it had been trying to sell the property for multiple years without success. The court also noted that the mortgage expressly allowed Kairos to seek appointment of a receiver and that Friars Club had irrevocably consented to such an appointment.

Disposition

The court found that Kairos had shown the possibility of irreparable injury and a likelihood of success on the merits under both the preponderance-of-the-evidence standard and the clear-and-convincing-evidence standard. Judge J. Paul Oetken granted Kairos’s Emergency Motion to Appoint Trigild IVL Group, LLC as receiver for the property and directed the Clerk of Court to close the motion’s docket entry.