IN RE: Motion for Leave to Sue RECEIVER OF VENUS PLAZA SHOPPING CENTER.

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Court of Appeals of Michigan.

IN RE: Motion for Leave to Sue RECEIVER OF VENUS PLAZA SHOPPING CENTER. RESOLUTION TRUST CORPORATION, as Conservator of First Federal Savings & Loan Association, Plaintiff-Appellee, v. VENUS PLAZA ASSOCIATES, Defendant-Appellant, Andrew Balinski, Receiver, Appellee.

Docket No. 196107.

Decided: February 27, 1998

Before MARKEY, P.J., and BANDSTRA and MARKMAN, JJ. Honigman Miller Schwartz and Cohn by Mark A. Goldsmith and Ann L. Andrews, Detroit, for Adrian J. Balinski. Sommers, Schwartz, Silver & Schwartz, Southfield, and Fakhri W. Yono, Farmington Hills by Carl B. Downing, for Venus Plaza Associates.

Venus Plaza Associates (hereinafter Venus) appeals as of right the order denying its motion for leave to sue a court-appointed receiver.   We affirm.

Resolution Trust Corporation, as conservator of First Federal Savings & Loan Association, held a mortgage note executed by Venus.   Venus had secured the note with a mortgage on and an assignment of rents of the Venus Plaza Shopping Center.   In February 1993, Venus defaulted on the loan, and Resolution Trust Corporation subsequently brought an action to enforce its rights under the loan agreement.   Resolution Trust petitioned the Oakland Circuit Court for the appointment of a receiver over Venus' shopping center, which the court granted.   Under the terms of the order, the receiver was to use his “best efforts” to manage the property in a “first-class manner.”   The receivership continued for approximately two years, during which time the receiver filed monthly reports with the court.   In 1995, the court entered a stipulated order terminating the receivership, and Venus sought leave to sue the receiver for allegedly failing to perform his duties as outlined in the court order.   The court denied the motion, finding that Venus had failed to state meritorious claims against the receiver and that bad faith was a necessary element of a claim against a court-appointed receiver.   We agree with the trial court.

 Receivers may be appointed by circuit courts in the exercise of equitable powers under the authority of M.C.L. § 600.2926;  M.S.A. § 27A.2926. In Michigan, leave of court must be obtained before bringing a lawsuit against a court-appointed receiver.  Citizens' Savings Bank v. Ingham Circuit Judge, 98 Mich. 173, 177, 57 N.W. 121 (1893);  Petition for Appointment of a Receiver for Peoples State Bank, 51 Mich.App. 421, 431-432, 215 N.W.2d 722 (1974).   The grant or denial of leave to sue a receiver is reviewed for an abuse of discretion.  Citizens' Commercial & Savings Bank v. Bay Circuit Judge, 110 Mich. 633, 634, 68 N.W. 649 (1896).

 Venus argues that the trial court erred in requiring it to allege bad faith as a necessary element in a claim against a court-appointed receiver.   Whether the pleaded evidence fails to support a claim becomes a question of law where there is a total failure to prove one or more elements necessary to a cause of action.  Kaminsky v. Hertz Corp., 94 Mich.App. 356, 358, 288 N.W.2d 426 (1979).   A trial court's decision regarding a matter of law is reviewed de novo on appeal.  Brucker v. McKinlay Transport, Inc. (On Remand), 225 Mich.App. 442, 448, 571 N.W.2d 548 (1997).

Venus argues that the case relied upon by the trial court, In re Hudson (William Schuette Co. v. Hudson), 258 Mich. 176, 241 N.W. 868 (1932), does not directly concern the standard of care under which a receiver could be held personally liable.   That case dealt with the issue whether creditors could challenge the receivers' accounts.  Id. at 177, 241 N.W. 868.   Unlike the present case, where Venus has not alleged any bad faith, the creditors in Hudson did allege bad faith on the part of the receivers and sought to hold the receivers personally liable on those grounds.  Id. at 180, 241 N.W. 868.   The Michigan Supreme Court found that although the receivers had made errors in judgment, they had, nevertheless, acted in good faith.  Id. at 181, 241 N.W. 868.   As a result, the Court affirmed the lower court's decision to allow the receivers' accounts over the objection of the creditors.  Id. at 183, 241 N.W. 868.   Two years later, our Supreme Court decided In re Hudson (Morgan Sash & Door Co. v. Hudson), 266 Mich. 274, 253 N.W. 295 (1934) (hereinafter “Hudson ”).  Hudson arose when the creditors sought to remove the receivers and sue one of the receivers for fraud that allegedly occurred within the context of the real estate transaction at issue in Hudson, Id. at 275, 253 N.W. 295.   The Court noted that such litigation was barred by res judicata, having previously determined that the receivers had acted in good faith.  Id. at 275-276, 253 N.W. 295.   Had bad faith not been a required element of the claim against the receiver, the fact that the Court had previously determined that the receivers acted in good faith would not have been dispositive.   Therefore, we find that the holding in Hudson requires an element of bad faith when suing court-appointed receivers for actions taken and events occurring during the receivership.

 Venus also argues that the receiver's standard of care is to be determined solely by the court's order appointing the receiver.   However, the Michigan Supreme Court has stated:

It is urged on the part of the respondent that, as the receiver is an officer of the court, the control of the court over him is plenary, that whatever he does is done under the direction of the court, and that he is bound to observe the order of the court․   It is true that receivers are officers of the court.   It is also true that less discretion is given to passive receivers, whose duty consists simply of taking possession of property, and converting it into money, and distributing it, than is allowed to an active receiver, who is required to manage a going concern․   Such an officer, to be successful, must possess large executive ability, and must be clothed with considerable discretion․   He may do such things, in the ordinary course of business, as to him, in good faith, seem necessary to render the business ․ profitable and successful.  [Morley v. Snow, Circuit Judge, 117 Mich. 246, 250, 75 N.W. 466 (1898).]

The Morley case clearly outlines the standard of care owed by a court-appointed receiver as one of good faith.   Where a receiver is managing a going concern, as in the present case, errors in business judgment are not actionable.  Id. Because Venus' motion did not allege bad faith by the receiver, we find no abuse of discretion in the trial court's denial of Venus' motion.

Affirmed.

PER CURIAM.

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