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BMO Harris Bank, N.A. v. Truland Systems Corp.

United States District Court, E.D. Virginia, Alexandria Division

July 5, 2017

BMO Harris Bank, N.A., Plaintiff,



         This matter is before the Court on Receiver Raymond A. Yancey's (the “Receiver”) Emergency Motion for Direction and Enforcement of Receiver Order. [Dkt. 82.] For the following reasons, the Court will hold that, pursuant to the terms of the Receivership Order, the Receiver can use the Receivership Property to fund the Arbitration, without BMO interference. The Court will also hold that the Receiver can refuse, based upon his sound business judgment, to provide an interim distribution in the amount of $1.8 million to BMO.

         I. Background

         On July 23, 2014, Truland filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. The Bankruptcy Court subsequently appointed a Chapter 7 Trustee. On September 4, 2014, the Bankruptcy Court issued a Consent Order Granting Emergency Motion for Relief from Stay (“Stay Lift Order”), which had been filed by BMO Harris Bank, N.A. (“BMO”). This Order permitted BMO to take charge of certain property (the “Collateral”) and to seek the appointment of a receiver.

         On September 9, 2014, pursuant to BMO's request, this Court entered a Receivership Order. [Dkt. 9.] The Receivership Order appointed Raymond A. Yancey to take charge of all Receivership Property, which consisted of the Collateral as defined by the Bankruptcy Court's Stay Lift Order. [Id.] That same day, the Receiver, on behalf of R.A. Yancey & Associates, Inc., entered into a Management Agreement with BMO. Mem. in Supp., ¶ 6; see also Management Agreement, Exh. B. The Management Agreement provided that, in the event of any conflict between any of its provisions and a court order, “the latter shall govern.” Management Agreement, ¶ 1.02. Among other things, the Management Agreement provided a mechanism whereby BMO would pay for certain expenditures of the Receiver on behalf of the Receivership Estate, including but not limited to legal fees and expenses.[1] Id., ¶ 2.07.

         Prior to the commencement of these proceedings, in December 2013, an arbitration demand was filed by Balfour Beatty/DPR/Big-D, a Joint Venture (“BDB”), against Truland, among other entities, as a result of Truland's allegedly faulty installation of electrical equipment at a project known as the Utah Data Center (the “Project”). In response to BDB's claims against it, Truland filed an arbitration demand against Cache Valley Electric Company (“Cache Valley”) for contribution and/or indemnification, among other claims. The two arbitrations were then consolidated. Arbitration is scheduled to proceed for seven weeks, beginning June 26, 2017. Mem. in Supp. [Dkt. 83], ¶ 15. Given the length and complexity of the issues involved in Arbitration, the Receiver anticipates that the Receivership Estate's future legal fees will be substantial. Id., ¶ 15.

         Recently, BMO informed the Receiver that it was concerned that it could be obligated to provide funding to the Receivership Estate, pursuant to the terms of the Management Agreement, if Arbitration is unsuccessful. Mem. in Supp., ¶ 18; see also Management Agreement, ¶ 4.02. BMO has taken the position that the Receiver cannot use the cash collateral in the Receivership Property without its consent, and that it does not consent to the use of that collateral to fund the Arbitration. Mem. in Supp., Exh. C at 1. BMO has also requested that the Receiver make an interim distribution to BMO in the amount of $1.8 million, which Receiver asserts would go against his sound business judgment, given the pending Arbitration. Mem. in Supp., ¶ 21; Exh. C. at 2-4. As the result of these disagreements, BMO exercised its option to terminate the Management Agreement. On June 30, 2017, the Management Agreement between the Receiver and BMO will end. Mem. in Supp., ¶ 22. After this date, both parties agree that, other than the provisions in the Management Agreement that survive termination (¶ 3.05), their only remaining obligations to each other can be found in this Court's Receivership Order.[2] Id., ¶ 23.

         On June 23, 2017, the Receiver filed an Emergency Motion for Direction and Enforcement of Receiver Order. [Dkt. 82.] BMO filed its memorandum in opposition on June 28, 2017. [Dkt. 90.] The Receiver replied that same day. [Dkt. 95.] Oral argument was held on June 29, 2017. This motion is now ripe for disposition.

         II. Analysis

         In order to resolve the present dispute between the parties, the Receiver has requested further direction from this Court regarding the enforceability of the Receivership Order as it relates to two issues: (1) the ability of the Receiver to use Receivership Property to fund the pending Arbitration, without interference from BMO; and (2) the ability of the Receiver to use his independent business judgment to refuse to provide any interim distributions to BMO at this time. Mem. in Supp. at 13. The Receiver alleges that, without this Court's intervention, his dispute with BMO threatens to interfere with his ability to fulfill his obligations under the Receivership Order. Id. at 12.

         As noted by the Receiver, he has, at a minimum, all of the powers and duties set forth in the Receivership Order. See, e.g., Liberte Capital Grp., LLC v. Capwill, 99 F. App'x 627, 633 (6th Cir. 2004) (“A receiver has the powers and duties directly stated within a court's order. He also has any implied powers clearly and reasonably necessary to meet his duties.”); First United Bank & Trust v. Square at Falling Run, 2011 WL 1563108, at *8 (E.D. W.Va. Mar. 31, 2011) (citations omitted) (“As an officer of the court, the receiver's powers are coextensive with his order of appointment.”). Thus, the Court will begin its analysis with a discussion of the various powers and duties set forth in its Receivership Order.

         First, the Receivership Order provides broad discretionary powers to the Receiver to “preserve, operate, manage and maximize the value of the Receivership Property.” Receivership Order [Dkt. 9], ¶ 1. For example, as relevant here, Paragraph 4 of the Receivership Order vests the Receiver with “full power in his discretion to employ and discharge and to compensate such attorneys, accountants, appraisers, auctioneers, managers and employees as he may deem appropriate.” Id., ¶ 4 (emphasis added). In addition, Paragraph 7 of the Order specifically provides that:

[T]he Receiver is hereby fully authorized and empowered to institute and prosecute all such claims, actions, suits, insurance matters and the like (except with respect to those claims [not relevant here]) as may be necessary in his judgment for the proper protection of the Receivership Property, and likewise, to defend all claims, actions or suits as may be or may have been instituted against the Receivership Property or against him as Receiver of the Receivership Property, and to settle any of the said claims, actions, lawsuits, insurance matters and the like.

Id., ΒΆ 7 (emphasis added). Other than his discretion, nothing in these provisions, or any other provisions contained in the Receivership Order, qualifies these broad powers. There is no language in the Receivership Order to suggest, for example, that the Receiver must first seek BMO's consent before discharging his duties. Rather, the Receivership Order makes clear that the Receiver has the power to defend Truland, including in actions such as the pending Arbitration, and to employ and compensate ...

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