J. A09010/16
NON-PRECEDENTIAL DECISION – SEE SUPERIOR COURT I.O.P. 65.37
CFS-4 II, LLC, A DELAWARE LLC AND : IN THE SUPERIOR COURT OF
ASSIGNEE OF FIRST NATIONAL BANK : PENNSYLVANIA
OF PENNSYLVANIA :
:
v. :
:
THOMAS GRECO, :
A/K/A THOMAS J. GRECO, : No. 1636 MDA 2015
:
Appellant :
Appeal from the Order Entered August 26, 2015,
in the Court of Common Pleas of Luzerne County
Civil Division at No. 3716 of 2012
BEFORE: FORD ELLIOTT, P.J.E., JENKINS AND PLATT,* JJ.
MEMORANDUM BY FORD ELLIOTT, P.J.E.: FILED AUGUST 29, 2016
Thomas Greco, also known as Thomas J. Greco (“Greco”), appeals the
order of the Court of Common Pleas of Luzerne County that granted the
motion for appointment of receiver of CFS-4 II, LLC (“CFS”) and allowed CFS
to exercise its right to appoint NAI Geis Realty Group, Inc. (“NAI”) as
receiver.
The facts as recounted by the trial court are as follows:
On or about August 15, 2002, [Greco] acquired
a commercial property located at 101-105 N. Main
Street, Wilkes-Barre, Luzerne County,
[Pennsylvania], and more particularly described in
Luzerne County Recorder of Deeds Office at Record
Book 3002, Page 203671. (“Premises”) The
Premises is improved with an office building with
office space leased and partially occupied by the
* Retired Senior Judge assigned to the Superior Court.
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Commonwealth of Pennsylvania. The Premises is
also improved with residential units which appear to
be leased and occupied.
Also, on the aforesaid date, First National Bank
of Pennsylvania (hereinafter “Lender”) made a loan
to [Greco] in the principal amount of $1,600,000.00.
(“Loan”) Said Loan is evidenced by a Promissory
Note dated August 15, 2002, and amended on
October 12, 2007. As collateral for said Loan,
[Greco] executed an Open End construction
Mortgage conveying a security interest in the
Premises to the Lender which was duly recorded in
the Luzerne County Recorder of Deeds Office in
Record Book 3002, Page 203669 (“Mortgage”). Said
Mortgage remains open of record. Also, on
August 15, 2002, [Greco] executed an Assignment of
Rents and Leases with respect to the Premises which
was recorded in the Luzerne County Recorder of
Deeds Office in Record Book 3002, Page 203688.
The Mortgage provides certain rights and
remedies to the Lender, any one or more of which
can be exercised at the Lender’s option in the event
of default, in addition to any other rights or remedies
provided by law. Lender declared a Default under
the Note and commenced this action. The Mortgage
allows the Lender in the event of Default to exercise
the following:
....
[“]Appoint Receiver. Lender shall have the
right to have a receiver appointed to take possession
of all or any part of the Property, with the power to
protect and preserve the Property, to operate the
Property, to operate the Property preceding
foreclosure or sale, and to collect the Rents from the
Property and apply the proceeds, over and above the
cost of the receivership, against the Indebtedness.
The receiver may serve without bond if permitted by
law. Lender’s right to the appointment of a receiver
shall exist whether or not the apparent value of the
Property exceeds the indebtedness by a substantial
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amount. Employment by Lender shall not disqualify
a person from serving as receiver.”
[Greco] contends that there is a subsequent
mortgage on the property dated December 23, 2004,
and recorded on January 10, 2005 in Luzerne County
Recorder of Deeds Office at Record Book 3005,
Page 5963 and that this subsequent mortgage
contains different terms and conditions regarding the
collection of rents.
Significantly, the mortgage dated
December 23, 2004 provides, with regard to Leases
and Rents, the following:
“Assignments of Leases and Rents. Mortgagor
may collect, receive, enjoy and use the Rents so long
as Mortgagor is not in default. Mortgagor will not
collect in advance any Rents due in future lease
periods, unless Mortgagor first obtains Lenders’
written consent. Upon default, Mortgagor will
receive any Rents in trust for Lender and Mortgagor
will not commingle the Rents with any other funds.
When Lender so directs, Mortgagor will endorse and
deliver any payments of Rents from the Property to
lender. Amounts collected will be applied at Lenders’
discretion to the Secured Debts, the cost of
managing, protecting and preserving the Property,
and other necessary expenses. Mortgagor agrees
that this Security Instrument is immediately effective
between Mortgagor and Lender and effective as to
third parties on the recording Assignment. . .”
The parties agree that a legal determination
must be made as to the applicable mortgage and the
respective language contained therein. Presently,
[CFS] contends that a default has occurred and is
continuing to occur while [Greco] denies that any
event of default has occurred.
On March 23, 2012, Lender initiated a civil
action by filing a Complaint in Mortgage Foreclosure
alleging default under the Mortgage, and seeking
judgment and foreclosure against [Greco] in the
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amount of $1,164,417.63 plus accrued interest from
February 29, 2012 through the date of distribution of
Sheriff’s sale, accruing in the approximate amount of
$224.34 per diem, and reasonable attorney’s fees
and costs. On June 29, 2012 [Greco] filed an
Answer and New Matter denying a default and
asserting various counterclaims and defenses.
On September 29, 2014, Lender assigned all of
its right, title and interest in and to the Loan,
including, but not limited to, the pending commercial
mortgage foreclosure action to [CFS] . . . . Included
in the subject assignment, was the Assignment of
Rents and Leases for the mortgaged property. At no
time since the Assignment of the Loan to [CFS] has
[Greco] made any payments of principal or interest
on this account.
[CFS] maintains that [Greco] is in default of
the mortgage and that [Greco] is not paying taxes
and payments of principal or interest on this
account. [Greco] maintains income from the
Commonwealth of Pennsylvania leases and the
residential tenants is being utilized to pay taxes,
utilities, insurance, maintenance, upkeep, and
managing the property.
Trial court opinion, 11/25/15 at 1-7.
Following oral argument and the receipt of briefs, the trial court
granted CFS’s motion and allowed it to appoint NAI as receiver. The trial
court reasoned that Greco was in default under the terms of the mortgage
because he had not made any payments on the loan since the assignment of
the mortgage to CFS and had not made a payment to First National Bank of
Pennsylvania since July 23, 2012. The trial court explained the grant of the
motion to allow the appointment of NAI as receiver:
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[CFS] requests the appointment of [NAI], a
qualified commercial real estate broker and property
management entity to act as Receiver. This request
comports with the express terms of the Loan
documents which allow said remedy upon [Greco]
being in a default status in failing to meet its
obligation to the Lender. Moreover, under the
overall circumstances, [Greco] cannot justify any
equitable basis to defeat [CFS’s] request given that it
has failed to provide any accounting whatsoever as
to the disposition of monthly rental payments being
made to it by the Commonwealth or any other
residential tenants.
The Junior Mortgage, the 2004 Mortgage,
remains open. It is subordinate to and does not in
any way alter the terms and conditions of the
original mortgage. The original loan still has priority
and the junior loan has not superseded it nor was it
integrated into the mortgage.
This Court is not prepared to disturb the terms
of either mortgage. [Greco] is a competent
individual and agreed to the very terms. Terms of a
mortgage agreement are binding on the parties. . . .
This Court finds that the terms of the mortgage
clearly provide for the appointment of a receiver in
the event of a default.
Trial court opinion, 11/25/15 at 12-13.
Greco raises the following issues for this court’s review:
A. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for the Appointment of a
Receiver when there has been no judicial
determination that a default has occurred?
B. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for Appointment of a Receiver
when [CFS] has an adequate remedy at law,
the facts, circumstances and equities of the
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matter sub judice do not support the
appointment of a receiver, that greater
irreparable damage will result to [Greco] with
the appointment of a receiver and the right to
a receiver is not free from doubt?
C. Whether the Lower Court abused its discretion
and committed an error of law by the granting
of the Motion for Appointment of a Receiver
when a judge of coordinate jurisdiction entered
an Order granting [Greco’s] Petition to Open
Judgment based on the Judge’s determination
that [Greco] had a meritorious defense to the
claims of default, the same claims set forth in
the mortgage foreclosure action?
Appellant’s brief at 4.
The trial court’s decision to appoint a receiver will not be reversed
absent a clear abuse of discretion. Metropolitan Life Ins. Co. v. Liberty
Center Venture, 650 A.2d 887 (Pa.Super. 1994).
An abuse of discretion is not merely an error of
judgment, but if in reaching a conclusion the law is
overridden or misapplied, or the judgment exercised
is manifestly unreasonable, or the result of partiality,
prejudice, bias or ill-will, as shown by the evidence
or the record, discretion is abused.
Fienke v. Huntington, 111 A.3d 1197, 1200 (Pa.Super. 2015), quoting
Stumpf v. Nye, 950 A.2d 1032, 1036 (Pa.Super. 2008).
Initially, Greco contends that CFS failed to prove that it was entitled to
appointment of a receiver because it did not establish that an emergency
existed, that the right to receivership was free from doubt, that there had
been irreparable damage, that there was no adequate remedy at law, that
the rights of creditors and shareholders would not be interfered with, and
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that greater damage would result in the absence of the appointment of a
receiver. These factors appear in cases cited by Greco such as Tate v.
Philadelphia Transp. Co., 190 A.2d 316, 321 (Pa. 1963), and McDougal
v. Huntington & Broad Top Mountain R.R. and Coal Co., Inc., 143 A.
574 (Pa. 1928).
While these cases may set forth conditions under which a receiver may
be appointed, these conditions were not the basis for the trial court’s
determination that a receiver could be appointed. The trial court determined
that CFS could appoint a receiver because the parties contracted for that
possibility in the mortgage document in the event of a default.
The trial court relied on Metropolitan, which Greco also looks to for
support. In Metropolitan, Metropolitan Life Insurance Company (“Metlife”)
and Grant Liberty Development Group Associates (“GLDGA”) created the
Liberty Center Venture (“Liberty”) to own and operate a building complex
with offices and a hotel in downtown Pittsburgh. Metlife owned 60 percent
of Liberty, and GLDGA owned 40 percent. Metlife also loaned Liberty
$67,000,000. Notes were issued with interest payable at the rate of
14½ percent for the offices and 15 percent for the hotel. Metlife’s loan was
secured by a mortgage. The mortgage and the security agreement both
authorized the appointment of a receiver in the event of a default. In
September 1990, Liberty began to make payments at the interest rate of
10 percent instead of the agreed-upon rate. Metlife did not accept the
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payments on the basis that Liberty defaulted on its obligations. On March 8,
1991, Metlife commenced foreclosure proceedings in the Court of Common
Pleas of Allegheny County and also sought the appointment of a receiver.
Liberty asserted that it was not in default because Metlife and GLDGA had
agreed to reduce the interest rate to 10 percent. The Court of Common
Pleas of Allegheny County initially denied the motion without prejudice
because a pending action in federal court centered on the question of
whether Liberty defaulted by paying at a lower rate. The Court of Common
Pleas of Allegheny County ultimately granted the motion for appointment of
a receiver after the United States District Court for the Western District of
Pennsylvania determined that Liberty was in default. Metropolitan, 650
A.2d at 888-889.
Liberty appealed to this court. One of the issues Liberty raised
concerned whether the Court of Common Pleas of Allegheny County erred
when it granted the motion to appoint a receiver. Id. at 889. This court
affirmed after it determined that the parties contractually agreed in the
mortgage that a receiver could be appointed in the event of a default. Id. at
890. This court explained:
Under Pennsylvania law, “parties have the right to
make their own contract, and it is not the function of
a court to rewrite it or to give it a construction in
conflict with the accepted and plain meaning of the
language used.” . . . . “It is, . . ., clear that the
terms of the mortgage contract cannot be altered or
impaired by either the legislature or the courts, and
this applies to the remedies, or specific provision for
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its enforcement as well as to the obligation to pay
the bonded indebtedness.” . . .
Id. at 889 (citations omitted).
Here, Greco argues that there was no finding of default and the matter
of the alleged default was still pending in an action regarding confession of
judgment and other related cases. However, in his answer to the motion for
appointment of a receiver, Greco admitted that he had not made any
payments since the assignment of the mortgage to CFS in September 2014.
The trial court noted this fact and also noted that failure to make payments
under the mortgage constituted a default. The trial court also noted that
under the mortgage a remedy for default was appointment of a receiver.
This court cannot agree with Greco’s argument. The trial court did not
abuse its discretion when it found that Greco was in default and that CFS
was entitled to the appointment of a receiver.
Greco next contends that because a court of coordinate jurisdiction
granted Greco’s petition to open judgment based on the court’s
determination that Greco had a meritorious defense to the claims of default
and confession of judgment in another proceeding involving a promissory
note, the trial court abused its discretion when it found Greco was in default
and granted the motion to appoint a receiver.
Generally, the coordinate jurisdiction rule commands
that upon transfer of a matter between trial judges
of coordinate jurisdiction, a transferee trial judge
may not alter resolution of a legal question
previously decided by a transferor trial judge. . . .
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More simply stated, judges of coordinate jurisdiction
should not overrule each other’s decisions. . . .
Zane v. Friends Hospital, 836 A.2d 25, 29 (Pa. 2003) (citations omitted.)
Nothing in the record indicates that the trial court overruled a prior
decision of a court of coordinate jurisdiction that Greco did not default on the
terms of the mortgage. Although the record before this court is less than
clear, it appears that First National Bank of Pennsylvania filed a complaint in
confession of judgment and asserted that Greco was in default under a
promissory note for $1,600,000 because Greco defaulted on other
obligations owed to the bank, defaulted on obligations owed to third parties,
and failed to provide financial information to the bank. The promissory note
contained a confession of judgment clause. Greco petitioned to open and/or
strike the judgment entered by confession, asserted that he was not in
default, and asserted various defenses. On April 23, 2013, the Honorable
Fred A. Pierantoni, III, of the Court of Common Pleas of Luzerne County
granted Greco’s petition.
Greco’s reliance on this order is misplaced. The order opening a
confessed judgment was issued in relation to a promissory note. The trial
court’s order granting the motion for appointment of a receiver was based
on express language contained in a different financial instrument, the
mortgage, which authorized the appointment of a receiver in the event of a
default. Further, in the present matter, Greco admitted that he had not
made any payments on the mortgage since the assignment to CFS, a clear
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default. The trial court did not abuse its discretion with respect to the
coordinate jurisdiction rule.
Next, Greco continues to ignore the express language of the mortgage
which authorizes the appointment of a receiver in the event of default and
ignores that the trial court found that Greco was in default for failure to
make payments. Greco argues that the second mortgage, the Open-End
Mortgage, dated December 23, 2004, did not contain the language regarding
the appointment of a receiver and the language in the more recent mortgage
should control.
The trial court addressed this issue: “The Junior Mortgage, the 2004
Mortgage, remains open. It is subordinate to and does not in any way alter
the terms and conditions of the original mortgage. The original loan still has
priority and the junior loan has not superseded it nor was it integrated into
the mortgage.” (Trial court opinion, 11/25/15 at 12.) A review of the
Open-End Mortgage in the record confirms the trial court’s conclusion. The
trial court did not abuse its discretion.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/29/2016
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