Opinion
No. HHD CV 074032082
March 1, 2010
MEMORANDUM OF DECISION AS TO REQUEST TO SUE UPON A UTILITY RECEIVER'S BOND (#112)
The question before the court is whether a mortgagee bank may seek recovery on a utility receivership bond. The parties have stipulated to the facts set forth in the motion, and the court has taken judicial notice of the file. The plaintiff, Connecticut Natural Gas Corp. (CNG), filed a motion to appoint a utility receiver against the defendants-Hartford, LLC (LLC), on August 8, 2007, pursuant to General Statutes § 16-262f. On August 13, 2007, those parties reached a stipulated agreement, in which LLC stated that it owed CNG an arrearage of $51,650.31 plus fees, for gas service delivered to the rental properties it owns at 175-177 and 178-181 Sigourney Street, Hartford, Connecticut (properties). LLC agreed to pay a portion of its arrearage to CNG in a lump sum and the rest in installments. It further agreed to timely pay CNG for its current gas service charges.
Under the stipulated agreement, Collection Services, LLC of West Haven, Connecticut (receiver), was appointed to serve as a receiver of rents for the properties. The receiver's performance was secured by a bond in the amount of $50,000, issued by the Hartford Fire Insurance Company. Although the receiver was initially "inactive," CNG could activate the receiver without additional notice to LLC, if LLC failed to comply with any portion of the stipulated agreement. Once activated, the receiver would collect rent, use and occupancy or common charges from each of the properties and apply the funds to LLC's current and past gas service bills, current other utility and oil bills, reserve an appropriate amount for plaintiff's allowed costs and the receiver's claimed fees and costs and pay any surplus to LLC, all pursuant to the court order appointing it.
CNG did not immediately activate the receivership. In April or May 2008, however, the receivership was activated. The receiver served until this court ordered it to suspend its duties on April 27, 2009. During this year, the receiver was never able to obtain a rent roll and visited the properties infrequently. Despite knowing that the properties contained at least sixty rental units, it was only able to collect rent directly from three tenants. The receiver may have also collected housing authority rent subsidy payments for some other tenants. In total, the receiver collected $20,492 during its one-year appointment.
Meanwhile, Overlook Management Co. (Overlook) was operating a property management office at the properties. It claimed to be unaware of the receiver's operation.
From June 2008, through April 2009, Overlook collected $252,559.18 in rent payments and $5,310 in Section 8 housing subsidies from sixty-five tenants who lived in the properties. Despite the receiver's statutory obligation to collect rent in place of the owner or manager, the receiver failed to collect most of the rent and did not approach Overlook to notify it that the receiver was entitled to collect the rent. As a result of the receiver's failure to collect rent, LLC's debt to CNG has ballooned to more than $120,000.
On August 13, 2009, New York Community Bank, the intervening mortgagee (Bank) filed a motion seeking the court's permission to sue upon the receiver's bond. The bank made a $3,000,000 loan to LLC secured, in part, by the properties, which was recorded on February 8, 2007. LLC began to default on its mortgage obligations in the summer or early fall of 2008, which resulted in the commencement of several foreclosure actions, the suspension of this utility receivership, and the imposition of a general receivership. These foreclosure actions have been consolidated, and the parties are litigating their respective priorities in that separate action.
The bank contends that because the receiver's nonfeasance has allowed LLC's debt to increase, it has been prejudiced in its ability to be repaid on its loan. Therefore, the bank seeks permission to sue the receiver and recover on the utility receivership bond. The receiver filed an objection to the bank's motion on October 30, 2009, arguing, inter alia, that a mortgagee may not bring an action against a utility receiver. The parties subsequently had oral argument in November 2009.
It is well established that a court appointed receiver may not be sued without the court's consent. Hartford Federal Savings Loan Ass'n. v. Tucker, 196 Conn. 172, 178, 491 A.2d 1084, cert. denied, 474 U.S. 920, 106 S.Ct. 250, 88 L.Ed.2d 258 (1985).
The basis for the bank's motion is a claim that it has an interest in the utility receivership which justifies recourse to the bond securing the proper performance of that receivership. The receiver objects, arguing that it never had a duty to the bank under the terms of the court's receivership order. Whether a mortgagee may seek such recourse against a utility receivership bond appears to be an issue of first impression in Connecticut.
Any duty of the receiver to the mortgagee bank must arise from its utility receivership. "Section 16-262f permits public service companies to petition for a statutory rent receivership under limited circumstances that are statutorily linked to the § 16-262e(a) prohibition on the termination of utility services. Under § 16-262e(a), service may not be terminated: (1) to a residential dwelling; (2) despite nonpayment of a delinquent account; (3) for service billed directly to the residential building's lessor, owner, agent or manager and (4) when it is impracticable for occupants of the building to receive service in their own name. Unable to terminate service to such a residential dwelling, public service companies are expressly instructed, by § 16-262e(a), to `pursue the remedy provided in section 16-262f.' Under § 16-262f, a public service company may seek appointment of a receiver of the rents upon the `default of the owner, agent, lessor or manager of a residential dwelling who is billed directly . . . for utility service furnished to such building . .' The section requires an immediate judicial order `to show cause why a receiver should not be appointed,' and a prompt hearing, whose `sole purpose . . . shall be to determine whether there is a sum due and owing between the owner, agent, lessor, or manager and the . . . utility.' The summary rent receivership proceedings authorized by § 16-262f constitute, as we have previously recognized, a statutory trade-off for the requirement of continued service imposed by § 16-262e(a)." Southern Connecticut Gas Co. v. Housing Authority, 191 Conn. 514, 518-19, 468 A.2d 574 (1983).
The duties of a utility receiver are defined in General Statutes § 16-262f. Section 16-262f(a)(3) provides: "The receiver appointed by the court shall collect all rents or payments for use and occupancy or common expenses forthcoming from or paid on behalf of the occupants or residents of the building or facility in question in place of the owner, agent, lessor, manager or administrator." Section 16-262f(a)(4) provides in relevant part: "The receiver shall pay the petitioner or other supplier, from such rents or payments for use and occupancy or common expenses for electricity, gas, telephone, water or heating oil supplied on and after the date of his appointment . . ."
It is critical to note that "[t]he statutory proceedings authorized by § 16-262f are sui generis." Connecticut Light Power Co. v. DaSilva, 231 Conn. 441, 446, 650 A.2d 551 (1994). Unlike rent receiverships in mortgage foreclosure proceedings, once a plaintiff presents factual evidence to establish a default in utility payments with respect to a residential property, the plaintiff is entitled to the appointment of a receiver "without having to demonstrate any further equitable right such as a threat of waste or loss." Id. Thus, although the usual purpose of a receivership is to preserve and protect property pending the outcome of litigation, utility receivers have a different role: "not to protect the property but to facilitate the collection of the debt." W. Horton K. Knox, 1 Connecticut Practice Series: Connecticut Superior Court Civil Rules (2009), § 21, p. 939.
The bank cites limited authority for the proposition that it has an interest in the utility receivership. First, the bank cites Harford Federal Savings Loan Ass'n. v. Tucker, 196 Conn. 172, 178, 491 A.2d 1084, cert. denied, 474 U.S. 920, 106 S.Ct. 250, 88 L.Ed.2d 258 (1985), which holds that "[a] receiver is an officer of the court appointed on behalf of all who may establish an interest in the property." (Internal quotation marks omitted.) That case, however, dealt with the appointment of a rent receiver appointed in the course of a foreclosure proceeding. Id., 174-75. Likewise, the bank's reliance on In re Allen-Main Associates Ltd. Partnership, 223 B.R. 632, 634 (D.Conn. 1998), is similarly misplaced because that case dealt with a rent receiver appointed during a foreclosure proceeding.
A court may appoint a rent receiver in the course of a foreclosure proceeding to secure the property against waste or loss. A mortgagee like the bank would be an interested party to a rent receivership obtained in equity because, if the receiver failed in its duties, the mortgagee's interest in the security of the property could be compromised. But a mortgagee bank is not entitled to rely upon the bond for a statutory utility receivership. As the receiver points out, the utility receivership statute, § 16-262f, is a statutory trade-off serving specific parties: tenants of the property, who receive uninterrupted utility service, utility companies, who have a means of recovering payment for providing service to the property, and the landlord owner, who is subject to the receivership. This utility receivership bond secures that arrangement.
The bond here is designed to secure the receiver's performance on behalf of CNG, the utility owed the debt and LLC, the property owner, and not on behalf of the mortgagee bank or any other encumbrancer. The movant lacks an interest in, or claim upon, the utility receiver's performance bond and permission to sue the receiver or upon its bond, is denied.