## Facts

- A commercial lender made five separate real-estate–secured loans to five related borrower entities owning Washington, D.C. properties, with aggregate principal exceeding $17 million.
- Each loan was evidenced by a promissory note and secured by a deed of trust or similar security instrument on real property and related income.
- The lender alleged the borrowers defaulted by failing to make required payments and that the lender intended to foreclose under the loan and security documents.
- The lender asserted concerns about potential fraud or spoliation, including possible diversion or dissipation of rents and other collateral before foreclosure.
- Rather than filing a civil complaint for breach, foreclosure, or damages, the lender filed only a verified petition in a miscellaneous matter seeking immediate appointment of a receiver over each borrower entity.
- The lender relied in part on contractual provisions stating that, upon default, the lender could request judicial appointment of a receiver for the mortgaged property and rents.
- The borrowers opposed, arguing the court lacked authority to appoint a receiver absent a properly commenced civil action and that the record did not justify receivership.

## Issues

1. Whether a federal court may appoint a receiver based solely on a verified petition filed in a miscellaneous matter, without an underlying civil action commenced by complaint.
2. Whether the lender established entitlement to the extraordinary equitable remedy of receivership under Rule 66 and equitable standards, including necessity and lack of adequate alternatives.
3. Whether contractual receivership clauses, standing alone, require or strongly compel appointment of a receiver upon alleged default.

## Decision

- The court denied the verified petition for immediate appointment of a receiver.
- The court held that receivership is not an independent federal cause of action and must be sought as ancillary relief in a properly commenced civil action.
- The court further held that, even assuming it could consider the request, the lender did not show the clear necessity required for appointment of a receiver.
- The motion for an expedited hearing was denied as moot in light of denial of receivership.
- The court disposed of the motion to substitute petitioners in connection with the denial and termination of the proceeding.

## Legal Principles

- A federal receivership is ancillary, provisional equitable relief; it ordinarily exists to preserve property or enforce rights in a pending action, not as a stand-alone proceeding.
- Under Rule 3, a civil action is commenced by filing a complaint; seeking a receiver must be anchored to an underlying claim within such an action.
- Under Rule 66 and equitable practice, receivership is an extraordinary remedy used sparingly and generally only where necessity is clearly shown and less drastic remedies are inadequate.
- Contractual provisions authorizing a lender to seek a receiver upon default do not displace the court’s independent equitable discretion; the moving party must still satisfy traditional equitable requirements.
- Speculative or generalized allegations of fraud, waste, or dissipation, without concrete evidence of imminent harm, are insufficient to justify receivership where ordinary legal remedies remain available.

## Conclusion

The court refused to appoint a receiver because the lender sought receivership as a stand-alone remedy without commencing a civil action by complaint and, in any event, failed to demonstrate the necessity required for this extraordinary equitable relief despite contractual receivership language.


New York Cmty. Bank v. Sherman Ave. Assocs., LLC, 786 F. Supp. 2d 171 (D.D.C. 2011)