UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

COMMUNITY FEDERAL SAVINGS :

BANK, : CIVIL ACTION
:
Plaintiff, : NO. _________
:
v. :
:
C&C ENTITY, L.P., CARDILE :
MUSHROOMS C&M, LCC, :
CARDILE MUSHROOMS, INC., :
D AND C ENTITY, LP, CHARLES :
CARDILE AND DIANE CARDILE, :
:
Defendants. :

PLAINTIFF’S MEMORANDUM IN SUPPORT

OF ITS MOTION TO APPOINT A RECEIVER

Plaintiff, Community Federal Savings Bank ("Lender"), acting by and

through undersigned counsel, respectfully submits this memorandum in support of its

motion for the appointment of a receiver in this commercial mortgage foreclosure

action.

I. INTRODUCTION

This is an action to foreclose commercial mortgages executed by

defendants, defendants, CARDILE MUSHROOMS C&M, LLC, (“C&M”), C&C

ENTITY, L.P. (“C&C”), CARDILE MUSHROOMS, INC. (“CARDILE”), D AND C

ENTITY, LP (“D&C”), CHARLES CARDILE AND DIANE CARDILE

(“Individuals”) (together, "Defendants"), to secure repayment of loans over due in a

total sum exceeding the amount of $15 million. The mortgaged property comprises

commercial sites in Chester County, Pennsylvania (the "Property") engaged in

mushroom farming, processing and distribution. Lender holds and is suing to

foreclose the commercial mortgages and now seeks the appointment of an independent

property receiver to preserve and protect Lender's collateral in view of, inter alia, the

express receivership provisions of the loan documents and the Borrowers’ uncertain

financial standing and potential for diversion of income to pay its principals and family

members.

II. BACKGROUND

a. The Loans and Mortgages

i. The Loan Transaction

Lender made the following three loans to C&C and C&M (“Borrowers”):

• July 30, 2018 loan from Lender to C&C in the principal amount of

$4,840,000.00 (the "Term Loan");

• July 30, 2018 loan from Lender to C&M in the principal amount of

$5,000,000.00 (the "B&I Loan"); and

• April 11, 2019 loan from Lender to C&M in the principal amount of

$5,000,000.00 (the "REAP Loan") (“Term Loan”, B&I Loan” and REAP Loan”

collectively referred to as “LOANS”).

The Loans are evidenced by the loan documents identified on Exhibit “A” to

the Complaint (collectively referred to as “Loan Documents”). Lender is the owner

and holder of all the Loan Documents and possesses all rights set forth in those

documents in favor of the assignee, lender, holder, mortgagee and/or secured party

identified therein.

ii. Mortgages

1. Gap Newport / C&M

 To secure repayment on the Notes identified in the Loan Documents (LOANS),

C&M executed mortgages in favor of Lender with respect to various parcels of real

property located in Chester County (“Gap Newport Mortgages”) at 8872, 8878. 8790

and 8794 Gap Newport Pk, New Garden, PA 19311.

The Gap Newport Mortgages were recorded with the Recorder of Deeds for

Chester County (the "Recorder") as follows:

• Mortgage to secure an original principal indebtedness of $5,400,000.00, and

any other amounts or obligations secured thereby, recorded on 07/30/2018 in

Mortgage Book 9785 page 1453 Dated: 07/19/2018 by C&M to Lender (“C&M

Mortgage”)..

• Mortgage Modification Agreement between C&M and Lender recorded

04/25/2019 in Book 9913 page 2259.

A true copy of the C&M Mortgage is attached hereto and marked as Exhibit “B-1”.

2. Ambrogio / Cardile

To secure repayment on the Notes identified in the Loan Documents, Cardile

executed mortgages in favor of Lender with respect to various parcels of real

property located in Chester County (“Ambrogio Mortgages”) at 433, 435 and 437

Ambrogio Road, New Garden, PA 19311.

The Mortgages were recorded with the Recorder as follows:

• Mortgage to secure an original principal indebtedness of

$10,240,000.00, and any other amounts or obligations secured thereby,

recorded on 08/06/2018 in Mortgage Book 9790-page 1921 Dated: 07/19/2018

by Cardile to Lender (“Cardile Mortgage”).

 • Mortgage Modification Agreement between Cardile and Lender

recorded 04/25/2019 in Book 9913-page 2247.

A true copy of the Cardile Mortgage is attached to the Complaint and marked as

Exhibit “B-2”.

3. Church Road / C&C, D&C and Individuals

To secure repayment on the Notes identified in the Loan Documents, C&C,

D&C and Individuals executed mortgages in favor of Lender with respect to three

parcels of real property located in Chester County, Pennsylvania (“Church Road

Mortgages”) located at 540 Church Road, Avondale, PA 19311, Premises A, B and

C.

The Mortgages were recorded with the Recorder as follows:

• Mortgage to secure an original principal indebtedness of

$10,240,000.00, and any other amounts or obligations secured thereby,

recorded on 08/08/2018 in Mortgage Book 9792 page 1137 Dated: 07/19/2018

by C&C to Lender (“C&C Mortgage”).

• Mortgage Modification Agreement between C&C and Lender recorded

04/25/2019 in Book 9913-page 2235.

• Mortgage to secure an original principal indebtedness of

$10,240,000.00, and any other amounts or obligations secured thereby,

recorded on 08/08/2018 in Mortgage Book 9792, page 2314. Dated:

07/19/2018 by D&C to Lender (“D&C Mortgage”).

• Mortgage to secure an original principal indebtedness of

$10,240,000.00, and any other amounts or obligations secured thereby,

 recorded on 08/07/2018 in Mortgage Book 9791 page 1854. Dated:

07/19/2019 by Charles Cardile and Diane Cardile to Lender (“Individuals

Mortgage”).

• Mortgage Modification Agreement between Charles Cardile and

Diane Cardile. and Lender recorded 04/25/2019 in Book 9913-page 2223.

A true copy of the C&C Mortgage is attached to the Complaint and marked as

Exhibit “B-3”. A true copy of the D&C Mortgage is attached to the Complaint and

marked as Exhibit “B-4”. A true copy of the Individuals Mortgage is attached to the

Complaint and marked as Exhibit “B-5”.

b. Property Subject to Mortgages

The Mortgages secure in Borrowers’ real estate, inter alia, obligations owed by

Borrowers to Lender under the Loan Documents. Borrowers are the owners, control or

have an interest in the real property located at 540 Church Road (Premises A, B and

C), Avondale, PA 19311, 8872, 8878, 8790, 8794 Gap Newport Pk, New Garden, PA

19311,8800, 8802, 8810 and 8814 Gap Newport Pk, New Garden, PA 19311and 433,

435, 437 Ambrogio Rd, New Garden, PA 19311 - as more fully described in Exhibits

"B-1" through “B-5” attached to the Complaint inclusive (the "Land") along with

fixtures and improvements thereon.

The Mortgages create first priority liens on and security interests in all of

Borrowers’ right, title and interest in and to the Land, fixtures and the Improvements,

together with all other real and personal property owned by Borrower and described

in the Mortgage (collectively, the "Property").

The Lender also was granted assignments of rents for all of the leases in the
Land. In addition, the Lender has priority perfected security interests in all of the

Borrowers’ personal belongings.

The Lender also has a perfected security interests in all of the personal property

of the Borrowers.

c. Borrowers’ Default and Judgment

Borrowers failed to comply with the conditions of the Loan Documents by,

among other defaults: (i) failing to make the required payments of principal and

interest under each Note; (ii) failing to pay real property taxes as they became due

and owing; and (iii) failing to provide financial documentation as required by the

Loan Documents (the "Defaults"). As a result of the Defaults, Lender had the right to

and did accelerate the amounts due under the Notes, and the Borrowers defaulted in

the payment. As a further result of the Defaults, Lender had the right to and did

obtain a Judgment against the Defendants on December 17, 2019 in the Court of

Common Pleas for the County of Chester, Commonwealth of Pennsylvania ("the

Judgment") as follows:

* Against Cardile Mushrooms, Inc., D&C Entity, L.P., Charles E. Cardile

III, Charles E. Cardile, Jr., Diane Cardile, Michael P. Cardile, Sr. and Matthew S.

Cardile, jointly and severally in the amount of Fourteen Million Three Hundred

Ninety -Eight Thousand Nine Hundred Five Dollars and Sixty -Nine Cents

($14,398,905.69);

* Against Cardile Mushroom C&M, LLC in the amount of Four Million Six

Hundred Seventy -Three Thousand One Hundred Eighty -Seven Dollars and Seventy

Cents ($4,673,187.70);
 * Against C&C Entity, L.P. in the amount of Nine Million Seven Hundred

Twenty - Five Thousand Seven Hundred Seventeen Dollars and Ninety -Nine Cents

($9,725,717.99). A true copy of the judgment was attached to the Complaint and

marked as Exhibit “C”.

d. Forbearance Agreement

In early March 2020, in addition to already being in default under the terms of

the Loan Documents as evidenced by Lender's demand letter dated December 6,

2019, the COVID-19 virus struck the United States leading to widespread business

interruption, including upheaval in the Borrowers' mushroom business.

Borrowers requested additional time to develop a business and sale strategy to

allow for repayment of the indebtedness owed to Lender by either a sale of their

businesses and assets, a refinance of existing indebtedness and/or an equity infusion or

a combination of such possible resolutions and have requested that Lender forbear

from enforcing its Judgment or from commencing foreclosure actions on the various

mortgages.

Pursuant to the terms of a Forbearance Agreement dated May 8th, 2020, and

extensions thereof, Lender agreed to Borrowers’ request to forebear up and until

August 15, 2020. A true copy of the Forbearance Agreement was attached to the

Complaint and marked as Exhibit “D”.

By its terms., as modified by the parties, the Forbearance Agreement has

expired. Notwithstanding expiration of the Forbearance Agreement, Borrower has

failed to pay the Debt in full or otherwise cure the ongoing Events of Default.
 III. ARGUMENT

a. Federal Law Governs the Appointment of a Receiver

Rule 66 of the Federal Rules of Civil Procedure governs the appointment of a

receiver in diversity jurisdiction cases. Broad discretion to appoint a receiver and may

consider a host of relevant factors. Fed. R. Civ. P. 66; see also Canada Life Assurance

Co. v. Alfred R. LaPeter, 563 F.3d 837, 845. The federal courts have applied federal

common law in determining whether the appointment of a receiver in a foreclosure

action is appropriate. See Wells Fargo Bank, N A. v. CCC Atlantic, LLC, 905 F.

Supp.2d 604, 611 (D.N.J. 2012) ("In diversity suits, federal law governs the issue of

whether a receiver should be appointed."); National Partnership Inv. Corp. v. National

Housing Dev. Corp., 153 F.3d 1289, 1291 (11th Cir. 1998) (same).

The court may also consider Pennsylvania law in determining whether to

appoint a receiver. See, e.g., Canada Life Assurance Co. v. LaPeter, 563 F.3d 837,

845 (9th Cir. 2009) (holding that "the district court has broad discretion in appointing

a receiver"); 12 Charles Alan Wright et al., Federal Practice and Procedure § 2983

(2d. ed.) (observing that "federal courts are likely to look to state law for guidance" in

the absence of substantial federal precedent under Rule 66).

"No hearing is necessary where the facts support the appointment of a

receiver." J Logan Blvd Ltd Partnership v. Greater Lewistown Shopping Plaza, L.P.,

No. 4:16-CV-2090, 2017 WL 485958, at *1 (M.D. Pa. Feb. 6, 2017), citing United

States v. Berk & Berk, 767 F. Supp. 593, 597 (D.N.J. 1991). As demonstrated below,

the facts clearly support the appointment of a receiver in this case.

b. Application of the Relevant Factors Establishes the Propriety of Appointing

a Receiver in This Case.
 It has often been observed in the context of federal mortgage foreclosure actions

that "there is 'no precise formula for determining when a receiver may be appointed."'

Canada Life, 563 F.3d at 844, quoting Aviation Supply Corp. v. R.S.B.l Aerospace, Inc.,

999 F.2d 314, 316 (8th Cir. 1993). Rather, “federal courts consider a variety of

factors in making this determination." Canada Life, 563 F.3d at 844 (listing seven

factors) (citations omitted); see also Berk & Berk, 767 F. Supp. at 597 (listing additional

and/or alternative factors).

In determining whether to appoint a receiver in the context of a commercial

mortgage foreclosure action, courts have considered whether:

1. The property is inadequate security for the loan;

2. The mortgage contract contains a clause granting the mortgagee the right to a

receiver;

3. The continued default of the mortgagor;

4. The probability that foreclosure will be delayed in the future;

5. The unstable financial status of the mortgagor; and

6. The misuse of funds by the mortgagor.

Id. at *9; see also Iowa Square Realty LLC v. JSMN Shenango Valley Mall, LLC, No. 17-

497, 2018 WL 814745, at *2 (W.D. Pa. Feb. 9, 2018); Wells Fargo Bank, N.A. v. Lichter

Gateway IV, LLC, No. 17-2036, 2017 WL 5957072, at *6 (D.N.J. Dec. 1, 2017); Wells

Fargo Bank, N.A. v. CCC Atlantic, LLC, 905 F. Supp. 2d 604, 614 (D.N.J. 2012) (same).

“No one factor is dispositive.” Premier Hotels Group, 2015 WL 404549, at *5 (quoting

Canada Life Assurance Co., 563 F.3d 837 at 845).

Where, as here, "the moving party seeks a receiver who will not only collect rents
and profits, but will also manage and operate the mortgaged property pending

foreclosure," the courts may "consider whether the evidence demonstrates 'something

more' than just 'the doubtful financial standing' of the defendant and the 'inadequacy of

the security." CCC Atlantic, 905 F. Supp.2d at 614, quoting Canada Life, 563 F.3d at

845. This requires the court to consider whether “the evidence demonstrates ‘something

more’ than just ‘the doubtful financial standing’ of the defendant and the ‘inadequacy of

the security,’” such as:

1. The danger of waste;

2. Delays in foreclosure;

3. The defendant’s fraudulent conduct;

4. Imminent danger that property will be lost, concealed, injured, diminished in

value, or squandered;

5. The inadequacy of the available legal remedies;

6. The probability that harm to plaintiff by denial of the appointment would be

greater than the injury to the parties opposing appointment; and

7. The plaintiff’s probable success in the action and the possibility of irreparable

injury to his interests in the property.

Id. An evidentiary hearing is “not needed . . . if the record discloses sufficient facts to

warrant appointment of a receiver.” Lichter Gateway IV, 2017 WL 5957072, at *6.

Although courts have recognized a number of potentially relevant considerations,

the decision to appoint a receiver to manage and operate the mortgaged property focus

particularly upon four factors: (i) the Loan Agreement's provision for the appointment

of a receiver upon default; (ii) the borrower's doubtful financial standing; (iii) the amount
of the debt's exceeding the value of the mortgaged property; and (iv) the borrower's

diversion of income to pay fees to its affiliated management company. CCC Atlantic,

905 F. Supp.2d at 615-616.2 Applying the same factors to the present case establishes the

propriety of appointing a receiver for the Property.

i. Agreement in the Loan Documents

Each of the mortgages provides for the appointment of a receiver by the Lender in

the event of default.

The C&C and C&M Mortgages provide:

Appointment of Receiver. After the happening of any Event of Default and during its
continuance, or upon the commencement of any proceedings to foreclose this Mortgage
or to enforce the specific performance hereof or in aid thereof or upon the
commencement of any other judicial proceeding to enforce any right of Mortgagee,
Mortgagee shall be entitled, as a matter of right, if it shall so elect, without the giving of
notice to any other party and without regard to the adequacy or inadequacy of any
security for the Obligations, forthwith either before or after declaring the unpaid principal
of the Note to be due and payable, to appoint a receiver or receivers in respect of the
Property and/or other Mortgaged Property, and Mortgagor hereby consents to the
appointment of such receiver or receivers. (Exhibit p. 25, Section IV). (Exhibit p. 24,
Section IV).

The Individuals, Cardile and D&C Mortgages provide:

Appointment of Receiver. The Mortgagee may have a receiver of the rents, income,
issues and profits of the Premises without the necessity of proving either the depreciation
or the inadequacy of the value of the security or the insolvency of the Mortgagor or any
Person who may be legally or equitably liable to pay moneys secured hereby, and the
Mortgagor and each such Person waive such proof and consent to the appointment of a
receiver. (Exhibit p. 18, Article III, Section 3.5) (Exhibit p. 18, Article III, Section 3.5)
(Exhibit p. 18, Article III, Section 3.5)

The "[t]he importance of these contractual provisions cannot be underestimated

because they set apart this commercial foreclosure case from the traditional scenario in

which a receiver is sought at equity and no such contractual provisions exist." CCC
Atlantic, 905 F. Supp.2d at 615; accord Citibank, N A. v. Nyland (CF8) Ltd, 839 F.2d 93,

97 (2d Cir. 1988) ("It is entirely appropriate for a mortgage holder to seek the

appointment of a receiver where the mortgage authorizes such appointment, and the

mortgagee has repeatedly defaulted on conditions of the mortgage which constitute one

or more events of default."); Greater Lewistown, 2017 WL 485958, at *4 (appointing

receiver over borrower's opposition where "[i]t is evident . . . that by the plain language

of the mortgage contract, the parties have agreed to a receivership of the subject

property").

Pennsylvania law is equally clear that a receiver may properly be appointed

.where, as here, "the terms of the mortgage clearly provide for the appointment of a

receiver in the event of a default." Metropolitan Life Ins. Co. v. Liberty Ctr. Venture, 650

A.2d 887, 891 (Pa. Super. Ct. 1994); accord City Nat'! Bank v. 728 Market Street, No.

4490, 2012 Phila. Ct. Com. Pl. LEXIS 73, at *13 (Phila. Ct. Com. Pl. Feb. 21, 2012)

(appointing receiver where loan documents contained receivership provision because

"[b]ased on the loan agreement, Defendant's default under the loan entitles [Plaintiff] to

the appointment of a receiver"). Accordingly, as in CCC Atlantic and Greater Lewistown,

this factor supports the appointment of a receiver to operate and manage the Property.

ii. Borrowers’ financial Standing is Doubtful

It is equally apparent that Borrowers are of doubtful financial standing.

Borrowers have been p[provided ample opportunity to establish their financial

wherewithal to meet their obligations to the Lender but they have failed to do so. . . .

[additional facts needed here]

See e.g., Federal Nat'! Mortgage Ass'n v. Maple Creek Gardens, LLC, 09-14703, 2010

WL 374033 (E.D. Mich. Jan. 25, 2010) (appointing a receiver because borrower's

"failures to surrender to [lender] the monthly rents and to pay its monthly installments

under the Note demonstrate that [borrower] itself is in a poor financial condition.").

iii. Debt Exceeding the Value of the Mortgaged Property

.[additional facts needed here]

iv. Borrower is Believed to be Diverting Income

The court in CCC Atlantic found it material that the borrower was "improperly

diverting income generated by the property by using that income to pay management fees

ahead of the amounts due under the Loan Documents." 905 F. Supp.2d at 616. Borrowers

here appear to be guilty of the same diversion. The Borrowers are paying other creditors

ahead of its priority secured creditor. [additional facts needed here]

"the evidence establishes the 'danger of substantial waste and risk of loss' from the

improper diversion of income." 905 F. Supp.2d at 616, citing Canada Life, 563 F.3d at

845 (observing that "income from the [mortgaged property] was being diverted and not

applied to servicing the debt encumbering [the property] and the real estate taxes on it").

v. Oher factors
c.

IV. PROPOSED RECEIVER

Lender proposes the appointment of Charles N. Persing of Bederson LLP as

receiver in this case for efficient preservation and disposition of the collateral.. A

copy of Mr. Persing’s affidavit is attached hereto and marked as Exhibit .

 Mr. Persing is experienced in serving as a court appointed receiver in federal

court.

Mr. Persing and his firm is not be “an affiliate of a party to the receivership

case and does not otherwise have an interest materially adverse to any party, to the

receivership estate, or any creditor.

Mr. Persing is qualified to serve in the role, has experience in operating various

businesses and a demonstrated capability to assume responsibility for the

management and related disposition of the business' assets. Although Mr. Persing

never worked in the mushroom industry specifically, he is well qualified to preserve

and monetize the business' assets. Mr. Persing is proposed to maximize the recovery

and minimize loss on the loans and to operate the business until it can be sold and the

collateral liquidated.

V. CONCLUSION

The application of the relevant federal and Pennsylvania factors that the Court

may consider in determining whether to appoint a receiver weighs heavily in favor of

granting Lender’s motion. As demonstrated above, the Loan Documents expressly

provide for the appointment of a receiver in the present circumstances, and the

balance of the equities decisively favors Lender. The appointment of a receiver here

is an appropriate and narrowly tailored remedy that is necessary to ensure the

protection of Lender's interest in the Property and the rents and profits therefrom and

to prevent the potential dissipation of Lender's collateral during the pendency of these
proceedings. Accordingly, Lender respectfully submits that the Court should

exercise its discretion under Rule 66 of the Federal Rules of Civil Procedure and

enter the proposed Order being filed with this motion.

Dated: September , 2020

__________________________________
Gary F. Seitz, (PA ID No. 52865)

GELLERT SCALI BUSENKELL & BROWN

LLC
1628 JFK Blvd, Ste 1901
Philadelphia, PA 19103
(215) 238-0010
gseitz@gsbblaw.com

Counsel for Plaintiff

Community Federal Savings
Bank