Opinion
C. A. PM-2013-0350 PM-2013-5001
07-27-2020
Nicholas E. Cambio, Trustee, The Nicholas 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, Petitioner, v. Commerce Park Management, LLC, Respondent.
For Plaintiff: Richard G. Riendeau, Esq.; Brian Laplante, Esq. For Defendant: Robert D. Wieck, Esq.; William M. Russo, Esq.; David M. D'Agostino, Esq.; Nicholas Gorham, Esq.; Joseph J. Reale, Jr., Esq.; Matthew J. McGowan, Esq.; Elizabeth Lonardo, Esq.
For Plaintiff: Richard G. Riendeau, Esq.; Brian Laplante, Esq.
For Defendant: Robert D. Wieck, Esq.; William M. Russo, Esq.; David M. D'Agostino, Esq.; Nicholas Gorham, Esq.; Joseph J. Reale, Jr., Esq.; Matthew J. McGowan, Esq.; Elizabeth Lonardo, Esq.
DECISION
TAFT-CARTER, J.
Before this Court for decision is the Receiver's Motion to Sell Property Free and Clear of Liens and Encumbrances (the Motion to Sell) and creditors 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) objection to the motion. This Court exercises jurisdiction pursuant to G.L. 1956 § 8-2-13.
I
Facts and Travel
Matthew J. McGowan is the Receiver of Commerce Park Realty, LLC and the other Receivership Entities, which own various developed and undeveloped properties within the Centre of New England (CNE). The CNE is a development complex comprised of over 400 acres in Coventry, West Greenwich, and East Greenwich, Rhode Island. The CNE consists of large-scale retail stores, three nationally franchised hotels, a large assisted living center, smaller retail stores and businesses, restaurants, a 400-unit apartment complex, and fully and partially completed residential condominiums.
Commerce Park Realty, LLC, Commerce Park Properties, LLC, Commerce Park Commons, LLC, Commerce Park Associates 4, LLC, Catapult Realty, LLC, and Commerce Park Management, LLC (collectively, the Receivership Entities).
At issue in this Motion is the Receiver's proposed sale of an approximately two-acre parcel of raw land within the CNE (the Property) located in the Town of West Greenwich. The Property is a portion of a larger 6.93-acre parcel of raw land, identified by the West Greenwich tax assessor as Tax Assessor's Plat 1, Lot 4-3 (the Primary Parcel). The Receiver asks the Court to approve the sale of the Property to HZL, LLC (the Buyer) for $900,000 pursuant to the terms and conditions of the Purchase & Sale Agreement (the P&S Agreement), including that the property be conveyed to the Buyer free and clear of all liens, claims, and encumbrances. (Receiver's Mot. to Sell P&S Agreement, Apr. 14, 2020.)
It is the intention of the Buyer to construct and operate a liquor store and restaurant on the property. The P&S Agreement includes a covenant that the Receiver will not sell any property within the CNE to any buyer who intends to construct or operate a liquor store in the development (the Liquor Store Covenant). (P&S Agreement at 11.)
The Receiver submitted a plan prepared by Crossman Engineering that depicts the layout of the Property and the surrounding area. (Receiver's Mot. to Sell, Ex. A P&S Agreement.) In situating the two-acre Property within the larger Primary Parcel, it was the Receiver's intention to "provide no more frontage on the CNE Boulevard than was actually needed" while assuring that the remaining parcel would be preserved for maximum benefit in future development. (Receiver's Suppl. to Mot. to Sell at 2, June 17, 2020.)
The Receiver filed an initial Motion to Sell on November 26, 2019. On April 29, 2020, the Receiver filed an amended Motion along with a Notice of Hearing and Invitation for Competing Bids. (Notice of Hearing, Apr. 29, 2020.) On June 3, 2020, the Court held a remote hearing via WebEx with respect to the Motion to Sell. Thereafter, on June 17, 2020, the Receiver filed a Supplemental Motion to Sell to address Court inquiries at the hearing. The supplemental materials include information on the proposed administrative subdivision process and potential redrawing of lot lines on the Primary Parcel, which the Receiver states is quicker and more cost effective than standard subdivision.
The RFP Defendants object to the Receiver's Motion to Sell. First, the RFP Defendants contend the Court should deny the sale because the Receiver had not adequately described the value and costs of the sale, nor the impact that the sale would have on creditors. They also point out that the Receiver has not addressed the issue of a connecting road. Next, RFP Defendants argue that the Liquor Store Covenant is improper because the Receiver did not provide support for its inclusion and because the covenant could impact the marketability of the remaining parcels as well as the RFP Defendants' mortgages, the validity of which is currently pending before our Supreme Court. Finally, the RFP Defendants object to the Receiver's proposed administrative subdivision, which they contend will sell off the "crown jewel" of the Primary Parcel and negatively impact the remaining property.
The RFP Defendants filed an objection to the Receiver's initial Motion on December 23, 2019. On May 26, 2020, they filed their objection to the Receiver's amended Motion, and on June 23, 2020 they objected to the Receiver's supplemental motion.
II
Standard of Review
In Rhode Island, "[t]he Legislature has granted broad powers of control to enable the court in a receivership proceeding to conserve the interests of all parties involved." Francis v. Buttonwood Realty Co., 765 A.2d 437, 443 (R.I. 2001). Accordingly, whether or not to approve a receiver's sale of assets is discretionary with the Court. Fleet National Bank v. H&D Entertainment, Inc., 96 F.3d 532, 540 (1st Cir. 1996) (reviewing district court approval of receivership sale with abuse of discretion standard).
In reviewing a receiver's motion to sell, the Court will look to see whether "a receiver's sale is fair in terms and result and serves the best interests of the estate." Id. at 540. The Court will consider the "sale price, appreciated value, amount of advertising, and the nature of the assets" when ruling on a motion to sell. Tobias M. Lederberg, Esq., An Overview of Rhode Island Receiverships: Theory and Practice, R.I.B.J. at 9-11, Feb. 1997.
III
Analysis
The Receiver asks this Court to approve the sale of the Property, arguing that it is in the best interests of the receivership estate that the Property is sold to this Buyer for the sum of $900,000, pursuant to the terms of the P&S Agreement. It is axiomatic that a receiver is bound by his fiduciary relationship to the court and to the estate. 1 Ralph Ewing Clarke, A Treatise on the Law and Practice of Receivers § 11(a) (3d ed. 1992). Court-appointed receivers are "vested with the equitable authority to sell property within the receivership . . . when there is no evidence of fraud or improper use of confidential information." Fleet National Bank v. H&D Entertainment, Inc., 926 F.Supp. 226, 239 (D. Mass. 1996), aff'd, 96 F.3d 532 (1st Cir. 1996). The Receiver must exercise the highest fidelity to the estate and ensure the "fair, reasonable, and efficient" liquidation of assets. Securities and Exchange Commission v. Platinum Management (NY) LLC, 16-CV- 6848 (BMC), 2017 WL 5634983, at *2 (E.D.N.Y. 2017). "[A]bsent a showing of a breach of fiduciary duty" such as bad faith, the Court will approve the sale. Fleet National Bank, 926 F.Supp. at 244. Here, there is no evidence on the record of fraud, bad faith, or impropriety. Therefore, the Court will examine whether the sale is commercially reasonable and in the best interests of the estate. 96 F.3d at 540.
A
Administrative Subdivision
The P&S Agreement provides that the Property will be subdivided out of the larger Primary Parcel. (P&S Agreement at 1.) The Receiver plans to submit the Property for administrative subdivision by the Town of West Greenwich, which he states will be faster and less expensive than a standard subdivision. It is the RFP Defendants' position that subdividing the Property will adversely impact the value of the remaining property, because it will be oddly shaped and not have much access to the main frontage road. They contend that the Receiver is selling off the "crown jewel" of the property and there is insufficient information before the Court for it to evaluate the impact this subdivision would have on the Primary Parcel.
The Receiver determined that subdivision of the Property was necessary because sale of the Primary Parcel was not feasible. He submits to the Court that administrative subdivision will save the estate considerable time and expenses. After thoughtful consideration, the Court is satisfied that the Receiver explored all reasonable options in concluding that administrative subdivision is an appropriate vehicle to procure the sale. An administrative subdivision involves re-division of existing lots, which "yields no additional lots for development, and involves no creation or extension of streets." G.L. 1956 § 45-23-32(2). Applications for administrative subdivision are subject to review by administrative officers and must comply with local zoning regulations. See § 45-23-37(a); West v. McDonald, 18 A.3d 526, 529 n.7 (R.I. 2011) (administrative officers may reassign applications for administrative subdivision as application for minor subdivision subject to more stringent approval process). The proposed administrative subdivision therefore must conform to the West Greenwich subdivision and zoning ordinances and will be reviewed by local zoning officials. (Town of West Greenwich Land Development & Subdivision Regulations § III(C).) The RFP Defendants have only speculated as to the adverse impact subdivision would have on the remaining property.
In their May 25, 2020 objection, the RFP Defendants questioned the presence of a road in the plan that the Receiver submitted as an exhibit to the P&S Agreement. The Receiver resolved this argument by informing the Court that the exhibit was meant to demonstrate potential use of the remaining undeveloped property and does not reflect any plans to construct a roadway or any buildings on the surrounding property. (Receiver's Suppl. to Mot. to Sell at 3-4.)
The RFP Defendants also object that the tax assessor's map does not comport with the Receiver's description of the lots relating to frontage on the CNE Boulevard. However, their reliance on the tax assessor map is misguided. Tax assessors' maps are intended for property valuation for tax purposes and are not accepted for purposes of regulating land use. Sanfilippo v. Board of Review of Town of Middletown, 96 R.I. 17, 20, 188 A.2d 464, 466 (1963). In Sanfilippo, our Supreme Court held that tax assessors' plats were not conclusive in distinguishing separate lots for zoning purposes because they were intended as a '"convenience to tax assessors in performing the duties of their office."' Id. (quoting Raposa v. Guay, 84 R.I. 436, 443, 125 A.2d 113, 117 (1956)). Tax assessor's maps thus provide no real information as to zoning and subdivision, and a discrepancy between the two descriptions is insufficient reason for this Court to decline the present Motion to Sell. See PPUC Pennsylvania Public Utility Commission v. Gangi, 874 F.3d 33, 39 (1st Cir. 2017) (approving receivership sale "[i]n the absence of reliable evidence indicating that the sale was unfair" and "over [creditor's] unsupported objections.").
B
Efforts to Sell Entire Parcel
The Court is satisfied that the Receiver exercised his business judgment in concluding that he could not sell the Primary Parcel. When reviewing a motion to sell, the Court may rely on the business judgment of the Receiver. Gangi, 874 F.3d at 39 (district court appropriately relied on business judgment of experienced receiver); Wells Fargo Bank, National Association, By And Through Hudson Americas LLC v. Beacon Street Hospitality Corp., CIVIL ACTION NO. 12-10445-WGY, 2013 WL 12324286, at *2 (D. Mass. 2013) (receiver is officer and representative of court and thus court will place considerable reliance on receiver's business judgment) (citing Alexander v. Hillman, 296 U.S. 222, 237-38 (1935)). Here, the Receiver correctly noted that the CNE development is in the advance stages of maturity, with many exclusivities and other prohibited uses that make it difficult for the Receiver to find buyers. Moreover, the nature of the property is raw, undeveloped land, which also limits potential buyers. See Fleet Nat'l Bank, 96 F.3d at 541 (court should not hastily disqualify buyers in receivership sale where "the universe of serious buyers is likely to be small.").
Furthermore, the Receiver "engaged in substantial marketing efforts" to advertise and sell the entire Primary Parcel to no avail. In re Pacific Cargo Services, LLC, Nos. 6:13-mc-00369-AA, 3:13-cv-01978-AA, 2014 WL 2041821, at *1 (D. Or. 2014) (seller's extensive advertising contributed to finding that sale of business at auction was legitimate and in good faith). He engaged the experienced commercial brokerage firm of Hayes & Sherry, seeking to market and sell the remaining undeveloped property at the CNE. The entire parcel was listed on the Hayes & Sherry website since October 2019. (Receiver's Suppl. to Mot. to Sell at 7-8.) Despite these efforts in advertising and marketing, the Receiver has not been successful in finding a buyer of the Primary Parcel. Therefore, the Receiver is reasonable in concluding that sale of the larger parcel is not feasible.
C
Restrictive Covenant
The RFP Defendants object to the Liquor Store Covenant included in the P&S Agreement, which states that the Receiver shall not "sell any property within the CNE development to any buyer who intends to erect a liquor store on such property, nor shall he enter into a leasing arrangement with any party who intends to operate a liquor store in such development." (P&S Agreement at 11.) The Court finds that the Liquor Store Covenant is a reasonable sales condition. Whether or not a covenant is reasonable "is ultimately a question of law to be determined by the court." Durapin, Inc. v. American Products, Inc., 559 A.2d 1051, 1053 (R.I. 1989) (citing Chapman & Drake v. Harrington, 545 A.2d 645, 647 (Me. 1988)). This Court will enforce a restrictive covenant where it "is reasonable in light of the circumstances surrounding the agreement and does not extend beyond what is apparently necessary to protect its beneficiaries." Iggy's Doughboys, Inc. v. Giroux, 729 A.2d 701, 706 (R.I. 1999).
The RFP Defendants contend that the Liquor Store Covenant is unnecessary, would adversely impact future marketability of the remaining property, and could restrict their mortgages on the Primary Parcel. However, the Liquor Store Covenant here is sufficiently narrow, as it relates to a specific retail establishment selling a discrete product. In Iggy's Doughboys, our Supreme Court upheld a restrictive covenant that allowed a restaurant to bar the neighboring business from operating a take-out window. 729 A.2d at 706. As in that case, the Liquor Store Covenant is "limited [in] scope" in that it pertains only to a specific type of business operation. Id. Any adverse impact the covenant would have on the remaining property's marketability is likely to be minimal. Our Supreme Court has also recognized the "strong . . . public policy of supporting the right of property owners to create and enforce covenants affecting their property." Martellini v. Little Angels Day Care, Inc., 847 A.2d 838, 845 (R.I. 2004) (neighbors could enforce restrictive covenant against daycare, limiting use of property to single-family residential homes, despite public policy favoring operation of daycare homes). The RFP Defendants failed to provide the Court with any data or specifics as to how the Liquor Store Covenant would adversely impact the remaining property, and without this evidence the argument is speculative. Thus, the Court finds that the covenant is reasonable and sufficiently narrow in light of the circumstances surrounding the sale.
After considering the sale price, advertisement, nature of the Property, the P&S Agreement, and the Receiver's supplemental materials with respect to the proposed administrative subdivision, the Court concludes that the sale is "commercially reasonable" and "in the best interests of the estate." Beacon Street Hospitality Corp., 2013 WL 12324286, at *1; see also Fleet National Bank, 926 F.Supp. at 245.
IV
Conclusion
The terms of the Receiver's proposed sale to the Buyer, including the price, proposed subdivision, and Liquor Store Covenant, are reasonable and in the best interests of the estate. Therefore, this Court grants the Receiver's petition to sell the Subject Parcel for $900,000, subject to competing bids, to HZL, LLC or its nominee, pursuant to the terms and conditions of P&S Agreement and the Amendment to the P&S Agreement, free and clear of all interests, claims, liens and encumbrances.
Counsel shall prepare the appropriate order for entry.