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BRILL & HARRINGTON INVS. v. VERNON S&L ASSN.

March 5, 1992

BRILL & HARRINGTON INVESTMENTS, et al., Plaintiffs,
v.
VERNON SAVINGS AND LOAN ASSOCIATION, et al., Defendants. THE FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Vernon Savings and Loan Association, F.S.A., Counterclaim-Plaintiff, v. BRILL & HARRINGTON INVESTMENTS, et al., Counterclaim-Defendants.



The opinion of the court was delivered by: THOMAS PENFIELD JACKSON

 This case is presently before the Court on the pretrial motion of the defendant Federal Deposit Insurance Corporation (hereinafter "FDIC/Receiver"), as receiver of a defunct lending institution ("Vernon"), to appoint a receiver of plaintiffs' California commercial real estate (the "Property") pending the foreclosure of a mortgage to which the FDIC has succeeded. The motion is opposed by the mortgagors (the plaintiffs here), Brill & Harrington Investments ("B&H") and a successor, Brandin Court Partners ("BCP").

 The underlying dispute arises under a February, 1984, loan transaction in which Vernon agreed to lend B&H up to $ 5,525,000 for the latter's acquisition of the Property, and the construction thereon of a high-technology business park. B&H executed a loan agreement, a promissory note, and the deed of trust by which the Property is encumbered. The loan documents, by their terms, are to be governed and construed in accordance with "the laws of the State of California and with the laws of the United States applicable to transactions within California." Loan Agreement ยง 6.10.

 The transaction provided for a future "Mini-Perm Loan" of $ 5,525,000, to become effective at the end of the "original term" of the loan, by which B&H would refinance the outstanding balance of the acquisition/construction loan at a reduced interest rate. *fn1" The Mini-Perm Loan commitment was conditional: Vernon was obligated to make the loan only if the total amount loaned did not exceed 80 percent of the appraised value of the Property.

 Vernon made the initial loan in 1984, and B&H developed the Property. In 1985 B&H, and Brill and Harrington in their individual capacities, formed BCP, to which all interest in the Property was assigned.

 Subsequently, under circumstances predictably in dispute, the venture encountered financial difficulties. Despite the provisions of the loan agreement requiring the mortgagors to make monthly interest payments, there is evidence that Vernon may have agreed to a modification calling for repayment of the principal amount, plus all accrued interest, in one lump sum at the end of the "original term." Nothing has, however, been repaid to date, of either principal or interest.

 FDIC/Receiver responds that since the value of the Property had dropped sufficiently to cause the loan/value ratio to exceed 80 percent, Vernon was not required to provide further financing in the form of the Mini-Perm Loan. Moreover, it argues, with or without such a loan plaintiffs subsequently defaulted on their continuing obligation to make repayments under the initial loan terms. *fn3"

 Plaintiffs filed the instant lawsuit following their receipt, in August or September of 1991, of the FDIC/Receiver's notice of default and election to sell under the deed of trust. The plaintiffs' complaint (against Vernon and the FDIC as its successor) states counts alleging breach of contract; fraud; negligent misrepresentation; breach of fiduciary duty; intentional interference with economic benefits; and breach of an implied covenant of good faith and fair dealing.

 The FDIC/Receiver subsequently filed an answer and counterclaim, as well as a motion to join, as additional counterclaim defendants, Messrs. Brill, Harrington, and another, in their individual capacities. (Brill and Harrington are general partners of both B&H and BCP.) FDIC/Receiver, as counterclaimant, seeks, inter alia, a foreclosure of the deed of trust, and a deficiency judgment; an accounting; and the imposition of a constructive trust on the Property. It also moved for the appointment of a receiver pendente lite to take possession of the Property for the purpose of preserving and controlling it, and for collecting the income it generates, together with a prayer for preliminary injunctive relief as being necessary to prevent the plaintiffs/counterclaim defendants from "interfering" with the receiver's activities. *fn4"

 FDIC/Receiver has nominated one Susan Uecker as receiver for the Property. On the basis of her declaration, it appears that Ms. Uecker is qualified for the office, having served as a receiver for several other properties in California and, in particular, in the Silicon Valley area where the subject Property is located. Plaintiffs oppose the appointment of a receiver principally on the ground that such an appointment exceeds this Court's power to grant relief. They assert that a receivership is an in rem remedy and that the so-called "local action doctrine" precludes a court from exercising in rem jurisdiction over real property located outside its judicial district or territorial jurisdictional limits.

 The Circuit Court of Appeals for this Circuit has stated, however, in reversing, en banc, the dismissal of a complaint for an injunction respecting defendants' alleged trespasses upon plaintiffs' land in Honduras, that,

 courts often properly issue equitable decrees involving property outside the jurisdiction of the court. Where, as here, the court adjudicating the controversy has personal jurisdiction over the [parties], the extraterritorial nature of the property involved in the litigation is no bar to equitable relief [citing Phelps v. McDonald, 99 U.S. (9 Otto) 298, 25 L. Ed. 473 (1879)]. . . . The local action rule of common law . . . has no bearing on this case.

 Ramirez de Arellano v. Weinberger, 240 App. D.C. 363, 745 F.2d 1500, 1529 (D.C. Cir. 1984), vacated on other grounds, 471 U.S. 1113 (1985). *fn5" In the instant case, this Court has both in personam and subject matter jurisdiction over the parties and this ...


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