Opinion
C.A. PM-2013-0350 PM-2013-5001
12-18-2020
NICHOLAS E. CAMBIO, Trustee, The Nichola E. Cambio, Roney A. Malafronte, and Vincent A Cambio Trust, Petitioners v. COMMERCE PARK REALTY, LLC; COMMERCE PARK PROPERTIES, LLC; COMMERCE PARK COMMONS, LLC; COMMERCE PARK ASSOCIATES 4, LLC; and CATAPULT REALTY, LLC, Respondents MATTHEW J. MCGOWAN, as and only as Receiver for Commerce Park Realty, LLC, Commerce Park Properties, LLC, Commerce Park Commons, LLC, Commerce Park Associates 4, LLC, and Catapult Realty, LLC, Petitioners v. COMMERCE PARK MANAGEMENT, LLC Respondent
DECISION
TAFT-CARTER, J.
Before this Court for decision is a Motion for Order Requiring Return of Fees brought by Defendants HR2-A Corp. as General Partner of HR2-A Limited Partnership; HR4-A Corp., as General Partner of HR4-A Limited Partnership; MR4A-JV Corp., as General Partner of MR4A-JV Limited Partnership; and Realty Financial Partners' (collectively, the RFP Defendants). The Receiver, Matthew J. McGowan, as Receiver for Commerce Park Realty, LLC, Commerce Park Properties, LLC, Commerce Park Commons, LLC, Commerce Park Associates 4, LLC, and Catapult Realty, LLC, objects. A hearing was held remotely via WebEx on October 28, 2020. This Court exercises jurisdiction pursuant to G.L. 1956 § 8-2-13.
Two other motions and objections were heard on October 28, 2020. Those two motions-the RFP Defendants' Motion for Stay Pending Appeal and the Petitioner's Cross-Motion for Stay Pending Cross-Appeal-as well as a third motion by the Receiver to dismiss Cambio Parties' appeal will be address in a separate decision by this Court.
I
Facts and Travel
From 2013 to present, this Court has issued five "Report Orders," all of which authorized and approved disbursement of various fees requested by Mathew J. McGowan (Receiver) and his special counsel, Pierce Atwood, LLP (Pierce). (RFP Defs.' Mot. for Order Requiring Return of Fees (Mot. to Return Fees) at 2-7.) The first four Report Orders were issued between December of 2013 and October of 2016. Id. at 2. Each of these Report Orders contained a paragraph, which the RFP Defendants refer to as a "Disgorgement Clause," which stated: "Nothing in this Order is or shall be considered to be a final or binding allocation of fees against any creditors, parties, or their collateral in these proceedings." Id. As a result of these first four Report Orders, a total of $1,177,159.48 was disbursed to the Receiver and a total of $416,948.91 was disbursed to Pierce. Id. at 2-3.
The Fifth Report Order was issued on January 4, 2019, and, as a result, on December 23, 2019, $145,000 was disbursed to the Receiver and $70,000 disbursed to Pierce (collectively, the "December 2019 Disbursements"). Id. at 5. The Fifth Report Order contained the "Disgorgement Clause" as well as an additional preceding paragraph stating: "The Receiver is authorized to pay the amounts set forth in this Order as, when and to the extent that funds on hand shall be available with which to do so." Id. at 4.
On November 22, 2019, this Court entered an order entitled "ORDER GRANTING RECEIVER'S MOTION TO SELL PROPERTY FREE AND CLEAR OF LIENS, CLAIMS, AND ENCUMBRANCES (87 Centre of New England Boulevard-"Commercial Condo Building")" (the 87 CNE Order). This Order authorized the sale of certain real estate at 87 Centre of New England Boulevard (87 CNE) in Coventry, Rhode Island. (87 CNE Order ¶ 3.) Paragraph 2 of the 87 CNE Order stated, in pertinent part, that
"the Property shall be sold to the Purchaser, or its designee or assignee, free and clear of all interests, claims, liens and encumbrances, including but not limited to any and all mortgages, statutory liens of the State of Rhode Island and any other municipal authorities or quasi-governmental authorities, with all such interests, claims, mortgages, statutory liens and other liens and encumbrances attaching and being transferred to the proceeds of such sale in the same order of priority as existed prior to the sale."
On June 4, 2020, the RFP Defendants requested a "Cash Ledger" from the Receiver. (Mot. to Return Fees at 6.) The Cash Ledger revealed that the December 2019 Disbursements were made from the proceeds of the sale of 87 CNE. Id. at 7. The RFP Defendants then brought this current motion on September 23, 2020. The Court now renders its decision.
II
Analysis
In their motion, the RFP Defendants ask for three things. First, they request that this Court issue an order directing the Receiver and Pierce to return the December 2019 Disbursements. Id. at 2. Second, the RFP Defendants ask for "disgorgement" of other previously-disbursed fees from the first four Report Orders. Id. at 9. Finally, the RFP Defendants request an injunction stating that "this Court should enjoin any further fee disbursements to Receiver and/or Pierce until further Order of this Court." Id.
In turn, the Receiver asserts three reasons as to why this Court should deny the RFP Defendants' motion. The Receiver's first reason is that, based on a previous decision by this Court, "[t]he RFP Defendants have no collateral in these receivership proceedings." (Receiver's Obj. to Mot. to Return Fees at 2-3.) Second, the Receiver argues that the RFP Defendants' interpretations of the Report Orders and the 87 CNE Order are "illogical and internally irreconcilable." Id. at 2. Finally, the Receiver argues that the current motion is really a disguised request for injunctive relief. Id. at 8.
A
December 2019 Disbursements
The RFP Defendants argue that the December 2019 Disbursements should be returned to the Receivership Estate because these disbursements were made "in contravention to the Fifth Report Order and the 87 CNE Order." (Mot. to Return Fees at 9.) Specifically, they assert that the December 2019 Disbursements are in contravention of the Fifth Report Order because the RFP Defendants interpret Paragraphs 8 and 9 of the Fifth Report Order to mean that the December 2019 Disbursements could only be disbursed if "(a) cash from the proceeds of the RFP Collateral were on hand; and (b) if those cash proceeds were charged with fees pursuant to a Court Order." Id. at 5 (emphasis in original). As to the 87 CNE Order, the RFP Defendants point to Paragraph 2 of that Order and argue that "the RFP Defendants' lien attached to and was transferred to the proceeds of the sale of 87 CNE pursuant to the explicit terms of the [87 CNE] Order." Id. at 6. Thus, according to the RFP Defendants, as those disbursements were made from the proceeds of the sale of 87 CNE, those proceeds are the cash that was supposed to be the "RFP Collateral" and such "collateral" should have never been charged. Id. at 7.
In response, the Receiver argues that the RFP Collateral does not exist because this Court previously ruled that that the RFP Defendants' loans were usurious, and therefore, under the usury statute, those loans are void, along with "any mortgage or other collateral that secure the loans." (Receiver's Obj. to Mot. to Return Fees at 3.) Additionally, the Receiver argues that if the RFP Collateral did exist, it could still be used as fees to the Receiver because the Fifth Order Report does not contain a requirement that the fees and costs cannot come from any purported RFP Collateral. Id. at 5-6.
In June 2019, in a forty-two-page decision, this Court ruled that the RFP Defendants' "Loans" were "usurious and thus void." Commerce Park Realty, LLC v. HR2-A Corp., No. PB-2011-1922, 2019 WL 2579853, at *13 (R.I. Super. June 19, 2019). One of the notes in that case was the "Four Million Dollar Note" which "was secured by mortgage on land in the Centre of New England in Dartmouth, Massachusetts, South Dartmouth, Massachusetts, Warwick, Rhode Island, and Coventry, Rhode Island." Id. at *5. At the time of the decision, no party had moved to challenge the so-called Four Million Dollar Note; however, in an Order dated September 19, 2019, this Court incorporated the June 2019 Decision and declared that "the Four Million Dollar Note is usurious, void, and unenforceable. Any and all mortgages, security interests and other liens of any nature for or securing the Four Million Dollar Note . . . are void." (Sept. 19, 2019 Order ¶ 12.) That case and the related Decision and Order are currently on appeal to the Supreme Court.
The words "South Dartmouth, Massachusetts" were added in an Amended Decision which was filed to correct errors in the original Decision filed on June 19, 2019. See Commerce Park Realty, LLC v. HR2-A Corp., No. PB-2011-1922, 2019 WL 4143240, at *1 (R.I. Super. Aug. 22, 2019).
The whole basis of the RFP Defendants' motion appears to be that the 2019 December Disbursements were charged against the "RFP Collateral" because the RFP Defendants believe their "liens" attached to the proceeds from the 87 CNE Order. (Mot. to Return Fees at 7.) However, based on the June 2019 Decision and the September 19, 2019 Order in PB-2011-1922, the "RFP Collateral" does not exist because it was ruled void by this Court. Specifically, this Court ruled that the RFP Defendants violated G.L. 1956 §§ 6-26-2(a) and 6-26-2(e) (the Usury Statute). Commerce Park Realty LLC, 2019 WL 2579853, at *19. Pursuant to § 6-26-4(a), "[e]very contract made in violation of any of the provisions of § 6-26-2, and every mortgage, pledge, deposit, or assignment made or given as security for the performance of the contract, shall be usurious and void." Thus, because the Four Million Dollar Note, as well as the other RFP Defendants' Loans were found in violation of § 6-26-2, any collateral the RFP Defendants assert they have is void. See § 6-26-4(a).
The RFP Defendants rely on the Supreme Court's decision in South County Sand & Gravel Co. v. Bituminous Pavers Co., 108 R.I. 239, 274 A.2d 427 (1971), where the Supreme Court held that each of the two receivers had to return a $1,500 fee for contesting validity of security interest in accounts because the secured creditor did not benefit in any way from the receivers' actions. 108 R.I. at 245-46, 274 A.2d at 430-31. Specifically, the Supreme Court stated that "without attempting to differentiate" between various types of fees, expenses, or
"kinds of encumbrances sought to be charged, a judicial rule has evolved which permits receivership expenses to be taxed against encumbered property when the secured creditor or his property has been benefited or otherwise advantaged by the receivership proceedings and then only in proportion to the extent of the benefit or advantage conferred." Id. at 244, 274 A.2d at 430.
While the RFP Defendants may be correct that they have not received a "benefit," the underlying issue is that there is no existing collateral being charged. Therefore, for the reasons stated above, this Court denies the RFP Defendants' Motion for Order Requiring Return of Fees.
B
Disgorgement of First Four Report Orders
Additionally, the RFP Defendants argue that certain amounts that were disbursed from the first four Report Orders are "subject to disgorgement, i.e., those fees will be ordered returned and reimbursed to the Receivership Estate unless a charging Order is entered by this Court." (Mot. to Return Fees at 8.) While it is not abundantly clear, it appears that the RFP Defendants are arguing that the Disgorgement Clauses mean that certain fees from the first four Report Orders should not have been disbursed without a "charging Order" from the Court and that, since those fees were disbursed without such an order, they are subject to "disgorgement." See id. at 2-4, 8. The RFP Defendants state that they have concerns regarding the Receiver's and Pierce's ability to return these certain amounts from the first four Report Orders, considering that the amounts would be $1,046,645 from the Receiver and $416,948.85 from Pierce. Id. at 4, 9. The RFP Defendants assert that if the Receiver and Pierce are unable to return this money, then disgorgement would be an inadequate remedy. Id. at 9. To resolve this, the RFP Defendants suggest that even if the December 2019 Disbursements are not found to be in contravention of the Fifth Report Order and the 87 CNE Order, this Court should nevertheless order the December 2019 Disbursements be returned, because "disgorgement simply does not provide an adequate remedy for the RFP Defendants if their mortgages are validated." Id.
The Receiver believes that the RFP Defendants incorrectly interpret the Fifth Order Report and the 87 CNE Order. The Receiver argues that the RFP Defendants are attempting to "juxtapose the boilerplate language" in the 87 CNE Order onto the Fifth Report Order, coming to the incorrect conclusion that without a "further order" by this Court, the money paid to Receiver and Pierce is not "available" to be paid pursuant to the Fifth Report Order and must be returned to the receivership estate. (Receiver's Obj. to Mot. to Return Fees at 4-5.) The Receiver asserts that the clause containing the "available" language does not mean that a further order is required for funds to be disbursed but rather the reason that the Fifth Order Report states the fees should be paid when "available" is because at the time the Report Order was drafted, the Receiver had very little funds on hand. Id. at 6.
The final two paragraphs of the Fifth Order Report state the following:
"8. The Receiver is authorized to pay the amounts set forth in this Order as, when and to the extent that funds on hand shall be available with which to do so.
"9. Nothing in this Order is or shall be considered to be a final or binding allocation of fees against any creditors, parties, or their collateral in these proceedings."
While the language contained in Paragraph 9 (the "Disgorgement Clause") appears in each of the Report Orders, the language in Paragraph 8 only appears in the Fifth Report Order. The Receiver suggests that the reason for the language in Paragraph 8 is "because at the time that order was entered, the Receiver had very little funds on hand." (Receiver's Obj. to Mot. to Return Fees at 6.) Reading these two paragraphs together, this Court disagrees with the RFP Defendants that "Receiver fees and Pierce fees could be disbursed when and if: (a) cash from the proceeds of the RFP Collateral were on hand; and (b) if those cash proceeds were charged with fees pursuant to Court Order." (Mot. to Return Fees at 5 (emphasis in original).) Further, while the RFP Defendants label language in Paragraph 9 as the "Disgorgement Clause" and have shown calculations of what disbursements are "subject to Disgorgement," the RFP Defendants have not pointed out a reason as to why a further "charging Order" was required. This Court has been issuing these Report Orders since 2013, all of which authorized and approved the disbursement of various fees. This Court does not see a reason to order a total of $1,046,645 from the Receiver and $416,948.85 from Pierce be returned to the Receivership Estate, and therefore will not order disgorgement of the first four Report Orders.
III
Conclusion
Therefore, for the reasons stated herein, this Court denies the RFP Defendants' Motion for Order Requiring Return of Fees. Counsel shall submit an order consistent with this Decision.