Rochester MSA Building Company v. UMB Bank, N.A., Trustee

U.S. District Court, District of Minnesota January 12, 2022

Trial Court Opinion

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Rochester MSA Building Company, File No. 21-cv-2559 (ECT/ECW)
Rochester Math & Science Academy, and
Rochester Stem Academy Inc.,

Plaintiffs and
Counter-Defendants,
OPINION AND ORDER
v.

UMB Bank, N.A., as trustee,

Defendant and
Counterclaimant.

Colin M. Bruns and Richard G. Jensen, Fabyanske Westra Hart & Thomson, PA,
Minneapolis, MN, for Plaintiffs and Counter-Defendants Rochester MSA Building
Company, Rochester Math & Science Academy, and Rochester Stem Academy Inc.

Ryan T. Murphy, Joseph J. Cassioppi, and Samuel Andre, Fredrikson & Byron, PA,
Minneapolis, MN; and Adrienne K. Walker, Locke Lord LLP, Boston, MA, for Defendant
and Counterclaimant UMB Bank, N.A.

Together, Plaintiffs own and operate two public charter schools and were loaned
more than $15 million in bond proceeds by the City of Rochester, Minnesota, to finance
the improvement and expansion of their facilities. After Plaintiffs defaulted on promises
to maintain minimum levels of cash on hand and income available for debt service, they
entered a forbearance agreement with Defendant UMB Bank, the indenture trustee of the
bonds. In that agreement, Plaintiffs took on new obligations, like more frequent financial
reporting, implementing the recommendations of a business consultant, and retaining an
independent business manager. Plaintiffs also agreed to pay certain fees and expenses
UMB incurred. Plaintiffs filed this lawsuit over the reasonableness of fees that UMB has
tried to collect under the forbearance agreement. UMB has asserted counterclaims,

alleging that Plaintiffs defaulted on their obligations under the forbearance agreement and
underlying bond agreements. UMB has now moved to appoint a general receiver. Because
UMB has not shown its entitlement to the extraordinary remedy of receivership at this early
stage, the motion will be denied.
I1

The Parties. Plaintiffs Rochester Math & Science Academy (“RMSA”) and
Rochester Stem Academy Inc. (“RSTEM”) are Minnesota nonprofit corporations formed
as public charter schools under Minn. Stat. § 124E.06 (collectively, the “Schools”).
Wilkinson Decl. ¶¶ 4–5 [ECF No. 10]. RMSA runs a kindergarten through grade 8 charter
school, id. ¶ 4, and RSTEM runs a grade 9-12 charter school, id. ¶ 5. Plaintiff Rochester

MSA Building Company (“RMSA Building Company”) is a Minnesota non-profit
corporation that owns the facilities where the Schools operate. Id. ¶ 3. UMB is a national
bank with its main office in Kansas City, Missouri. Id. ¶ 2.
Plaintiffs were loaned bond proceeds, and UMB is the current trustee of the bonds
under an indenture of trust. In September 2018, the City of Rochester, Minnesota, issued

two series of bonds under an Indenture of Trust with UMB, as trustee for the bond owners:
(1) $15,555,000 Minnesota Charter School Leases Revenue Bonds, Series 2018A and (2)

1 These facts are drawn from the parties’ submissions and, unless otherwise noted,
have not been disputed.
$305,000 Minnesota Taxable Charter School Leases Revenue Bonds, Series 2018B (the
“Bonds”). See Indenture of Trust [ECF No. 10-1]. The City loaned the Bond proceeds to
RMSA Building Company to “(i) finance the acquisition, renovation, expansion and

equipping” of the facilities where the Schools operate, including a 25,000 square-foot
addition; “(ii) fund a debt service reserve fund; (iii) pay a portion of the interest on the
Bonds; and (iv) pay the costs of issuing the Bonds.” Loan Agreement at 1 [ECF No. 10-2].
The Bonds are secured by and payable from amounts held under the Indenture of Trust; by
payments from RMSA Building Company under the Loan Agreement; by a mortgage lien

on, and a security interest in, essentially all of RMSA Building Company’s assets; and
through assignments of scheduled rent payments by the Schools to RMSA Building
Company that are sufficient to pay the principal and interest on the Bonds. See Mortgage,
Security Agreement & Assignment of Rents, Art. II [ECF No. 10-3] (“Mortgage”); Pledge
& Covenant Agreements §§ 2, 4, 8 [ECF No. 10-5] (“Pledge Agreements”); Lease

Agreements [ECF No. 10-4].
In connection with the Bonds, Plaintiffs took on many financial covenants. Among
them, they agreed to maintain minimum amounts of cash on hand and income available for
debt service. First, RMSA agreed to maintain at least 60 days’ “unrestricted” cash on hand
in its operation fund “through the Fiscal year ending June 30, 2019[,] and each Fiscal Year

thereafter.” Pledge Agreements § 3(G). RSTEM agreed to maintain at least 30 days’ cash
on hand for the fiscal year ending June 30, 2019, and 45 days’ cash on hand for each fiscal
year thereafter. Id. Second, both Schools agreed to use “best efforts to maintain Income
Available for Debt Service of at least 120% of the principal and interest due on the Bonds
and any Additional Bonds in each fiscal year.” Id. at §§ 3(O). The parties agreed that the
Schools’ cash on hand and debt service coverage ratio would be tested at the end of each
fiscal year and that the Schools’ failure to meet the contractual benchmarks could trigger

other obligations. If either School missed its cash-on-hand requirement or maintained
income available for debt service of less than 110% of the principal and interest due on the
Bonds for that fiscal year, the parties agreed that the School
shall retain an Independent Consultant, to review and analyze the reports
required by this Agreement, to inspect the Facilities and the School’s
operation and administration of the School and the Facilities as such
Independent Consultant deems appropriate, and the School shall accept or
adopt the consultant’s recommendations unless they are contrary to State or
federal law.

Id. §§ 3(G); see also id. §§ (3)(O) (substantially similar language). Further, either School’s
failure to achieve a debt service coverage ratio of 100% at the end of a fiscal year would
constitute an “Event of Default” that triggered the trustee’s right to “exercise one or more
of the remedies permitted under the Loan Agreement and the Indenture.” Id. §§ 3(O).
UMB’s predecessor trustee hires an independent consultant to study Plaintiffs’
business after concluding that Plaintiffs breached financial covenants. On July 14, 2020,
U.S. Bank2 sent Plaintiffs an Initial Notice of Default declaring that RSTEM had breached
the cash-on-hand covenant and that both RSTEM and RMSA had breached the
income-available-for-debt-service covenants for the fiscal year ending in June 2019. ECF
No. 10-7. Attached to the Notice was a document showing that RSTEM missed its cash-

2 Although UMB is the original and current indenture trustee, it was temporarily
replaced by U.S Bank National Association, N.A. UMB “has recently resumed its role as
indenture trustee.” Wilkinson Decl. ¶ 2 n.1.
on-hand benchmark by nearly $30,000 ($133,803.92/$166,439.92), and that both RMSA
(29%) and RSTEM (103%) missed their debt service coverage ratio. Id. at 9. The Notice
stated that the Schools’ failure to fulfill these financial covenants triggered their obligation

to retain an independent consultant, and that RMSA’s failure to maintain at least 100% of
income was “an automatic Event of Default . . . under the Pledge Agreement, and thereby
also under the Loan Agreement and the Indenture.” Id. at 4–6. The Notice relayed that, at
the direction of the majority bondholder, U.S. Bank had already hired Pathway Learning
Center as an independent consultant to “review and provide recommendations regarding

the 2019 Financial Covenant Defaults and other pertinent matters, in the manner
contemplated in the Pledge Agreements.” Id. at 6. Finally, the Notice enclosed two reports
that Pathway had authored and stated that, going forward, Plaintiffs were required to
provide Pathway “all requisite[] access and information on a timely basis” and use “best
efforts to adopt and implement” Pathway’s recommendations. Id. at 6–7. In its initial

April 2020 report, Pathway raised concerns over the Schools’ operations—including
apparent failures to capture available state funding—and Pathway “describe[d] goal and
strateg[y] recommendations for both operational and academic programs.” Id. at 11–32.
In a July 2020 update, Pathway stated that, “[s]ince March 2020, [Pathway had] supported
both schools and secured over an additional $150k through Erate funds FY school year

2020-2021 with annual residuals of $40k.” Id. at 24. Pathway projected that, “[u]pon
successful implementation of recommendations, strategies[,] and additional grants,
. . . both schools could save and revenues [sic] totaling over $3-5 million in the next 5
years.” Id.
Although Plaintiffs worked in some capacity with Pathway beginning in March
2020, they disputed parts of Pathway’s reports and the Notice of Default. Plaintiffs raised
two “primary objections” in a September 10, 2020 email. ECF No. 10-10 at 2. First,

Plaintiffs noted the trustee had not “asked [them] about hiring” Pathway, as required by
the Bond agreements,3 nor solicited their “input into the scope or work” that Pathway
performed. Id. Second, Plaintiffs asserted that Pathway’s reports contained “incorrect”
findings and that its recommendations carried “unreasonable” and “extraordinary” costs
that “lessen[ed] the likelihood of success at educational and financial levels.” Id. Plaintiffs

pointed out they had “never missed a rent payment” despite unique financial strain caused
by the COVID-19 pandemic. Id. at 2–3. Finally, Plaintiffs noted the Schools had fulfilled
their obligations “with the sole exception of the financial covenants,” which they would
meet “as of July 1, 2020[,] when the [fiscal-year 2020] audit [was] completed.” Id. at 5.
In February 2021, Plaintiffs sent U.S. Bank documents purporting to “confirm[] that all

covenants ha[d] been met” and warranted a “waiver of any default.” ECF No. 10-11 at 1,
3; see ECF No. 10-12 at 42. U.S. Bank responded that “achievement of a covenant
obligation in subsequent years [did] not trigger a waiver of an existing Event of Default”
and that “[t]he Majority Bondholder and Trustee continue[d] to be rightfully concerned
about [Plaintiffs’] failure to implement the recommendations of [Pathway], as [was]

required under the Pledge Agreements[.]” ECF No. 10-11 at 2. Two weeks later, on

3 The parties defined “Independent Consultant” to mean a consultant “selected by
[RMSA Building Company].” Loan Agreement at 5; see also Pledge Agreements §§ 13
(stating that, with limited exception, undefined capitalized terms “shall have the meanings
set forth in the Loan Agreement and the Indenture”).
February 19, U.S. Bank sent Plaintiffs a Notice of Events of Default. ECF No. 10-12. This
Notice reiterated that Plaintiffs’ cash-on-hand and debt service coverage ratios for the 2019
fiscal year constituted an Event of Default, stated that Plaintiffs’ failure to implement all

of Pathway’s recommendations was an additional Event of Default, and directed Plaintiffs
to “use best efforts to adopt and implement” those recommendations within thirty days. Id.
at 3–5.
On June 30, 2021, UMB—having resumed its role as trustee—sent Plaintiffs a
Notice of Acceleration, Demand for Payment, and Reservation of Rights. ECF No. 10-13.

UMB stated that Plaintiffs had still not implemented Pathway’s recommendations and now
claimed that Plaintiffs were “in default of their obligations to provide . . . copies of reports
required under the Pledge Agreements, including without limitation, the quarterly reports
pursuant to Section 3(C) of each Pledge Agreement.” Id. at 3–4. The Notice informed
Plaintiffs that all outstanding principal and interest was accelerated and deemed

“immediately due and payable.” Id. at 4.
On August 9, 2021, the parties entered a Forbearance Agreement that required
Plaintiffs to pay certain fees and expenses. In it, they acknowledged UMB had given notice
that “Events of Default have occurred (or will occur) and are continuing under the Bond
Documents as a result of [Plaintiffs’] failure . . . to comply with certain covenants

contained in the Bond Documents.” Forbearance Agreement at 2 ¶ G [ECF No. 10-14].
The Agreement termed those Events of Default the “Specified Defaults” and identified
them as follows:
(a) Failure to achieve at the end of Fiscal Year 2019 Income
Available for Debt Service for RMSA in an amount equal to at
least 100% of the principal and interest due on the Bonds; and

(b) Failure of RSTEM to maintain at least 30 days unrestricted
Cash on hand for the June 30, 2019 testing date . . . .

Id., Ex. A. UMB agreed, in exchange for Plaintiffs’ commitment to achieve and maintain
numerous “operating milestones,” to “forbear from exercising remedies under the Bond
Documents arising solely by reason of the Specified Defaults.” Id. §§ II, III. Among the
operating milestones, the Schools agreed to “retain Frank Yanez to serve as an interim
business manager” with “exclusive power and duty to manage [their] financial operations.”
Id. § II(a)(i). Plaintiffs also agreed:
to pay all fees and expenses of the Trustee (including, but not
limited to, reasonable fees and expenses of its attorneys,
advisors and other professionals) in connection with the
enforcement or remedies, including negotiation, execution and
enforcement of this Forbearance Agreement upon presentment
thereof to [Plaintiffs] on a current basis in accordance with the
provisions for payment of fees and expenses of the Trustee as
set forth in the Bond Documents; provided, however, that
nothing herein modifies, alters or amends the Trustee’s
respective rights under the Bond Documents to receive
payment of its fees and expenses from other available Trustee
held funds, including the Debt Service Reserve Fund. For the
avoidance of doubt, [Plaintiffs] agree[] to pay the fees and
expenses set forth on Exhibit D on the Effective Date, and the
Trustee and Majority Bondholder’s current fees and expenses
of its professionals within thirty (30) days of presentment
thereof[.]

Id. § II(e). Exhibit D was a U.S. Bank invoice reflecting an outstanding balance of
$290,265.75 for “U.S. Bank Extraordinary Fees (May 2020 - June 2021),” “Legal expenses
of Virtus LLP,” “Legal Expenses of Greenberg Traurig,” “FTI Consulting,” and “Pathway
Learning Center.” Id., Ex. D. The Forbearance Agreement also listed eight categories of
“Forbearance Termination Events” that would cause UMB’s forbearance obligations to
“immediately and automatically terminate” and revive UMB’s “rights and remedies

specified under any of the Bond Documents or under applicable law.” Id. § IV. Upon the
occurrence of a Forbearance Termination Event, Plaintiffs agreed “not to oppose, contest,
or challenge, or to support any other party (directly or indirectly) in opposing, contesting,
or challenging, the appointment of a receiver or other fiduciary to manage the operations
of the Schools and take control over the Collateral.” Id. § IV(b).

Plaintiffs paid the fees in Exhibit D of the Forbearance Agreement but demanded
itemization for subsequent invoices. Plaintiffs paid the $290,265.75 invoice attached to the
Forbearance Agreement. Ellingson Decl. ¶ 21 [ECF No. 20]. On October 12, 2021, UMB
sent Plaintiffs two more invoices for $135,497.00 in fees incurred through June 30, 2021,
and $194,019.31 in fees incurred from July 1 through August 31. Ellingson Decl.

¶¶ 23–24, Ex. B. These fees were for “UMB Bank Fees and Expenses,” “Locke Lord
LLP,” “FTI Consulting,” “Fredrikson & Byron,” and “Morgan Lewis Payment Obligations
pursuant to Forbearance Agreement.” Id. In an email, Plaintiffs requested that the bills be
“broken down by date, hourly rate[,] and task being worked on related to RSTEM/RMSa
[sic].” Id., Ex. C. UMB initially resisted this request, but later provided a one-page

summary containing cursory descriptions of services performed by each vendor. Id.
¶¶ 27–28, Ex. D. On October 29, UMB withdrew $331,632.47 from Plaintiffs’ “reserve
account” to satisfy the October invoices. Id. ¶¶ 29–30.
Plaintiffs filed suit and UMB decided the Forbearance Agreement had terminated.
Plaintiffs commenced this action by filing a summons and complaint against UMB in
Minnesota district court on November 10, 2021. ECF No. 1-1. Plaintiffs served UMB

with an amended summons and complaint on November 18. Not. of Removal ¶¶ 1–2 [ECF
No. 1]; see ECF No. 1-1. In their complaint,4 Plaintiffs seek various declaratory and
injunctive relief. First, Plaintiffs seek declarations that the fees UMB assessed them are
“excessive and unreasonable, and [that] Plaintiffs are not obligated to pay them” and that
“Plaintiffs are not in default of any covenants or obligations under the Forbearance

Agreement or the Transaction Documents.” ECF No. 1-1 at 10 ¶ 49. Second, Plaintiffs
seek an order “compelling [UMB] to provide Plaintiffs with a detailed breakdown of the
fees included in the September 27, 2021 invoices; or, in the alternative, appointing a
Special Master to review the detailed breakdown of fees assessed against Plaintiffs.” Id.
Last, Plaintiffs request an injunction that “prevent[s] [UMB] from taking any adverse

action against Plaintiffs, including without limitation, declaring an Event of Default,
seizing funds from Plaintiffs’ account, appointing a receiver, or foreclosing on the
Mortgage[.]” Id. On November 24, UMB informed Plaintiffs that they were considered
to have defaulted under the Forbearance Agreement, “resulting in the occurrence of several
Forbearance Termination Events.” ECF No. 10-15 at 3. As examples, UMB identified

4 Plaintiffs did not file the amended summons and complaint in state court, although
UMB filed it “on behalf of Plaintiffs” before removal and have included it with their
removal papers. Not. of Removal ¶ 4; ECF No. 1-1 at 47–58. The amended complaint is
identical to the original, save a correction to UMB’s name. Thus, which complaint is
operative has no bearing on the instant motion.
Plaintiffs’ actions in filing this lawsuit, “fail[ure] to comply with their quarterly reporting”
obligations, and failure to grant the interim business manager “sole and exclusive powers
to manage the financial operations of the Schools.” Id. at 4. UMB then removed this

lawsuit based on diversity jurisdiction under

28 U.S.C. § 1332

, Not. of Removal ¶¶ 6–13, 
and has asserted counterclaims, ECF No. 2.  UMB alleges that Plaintiffs defaulted under 
various Bond agreements, including by not implementing Pathway’s recommendations, 
failing to pay the accelerated Bond principal and interest of at least $15,490,000, failing to 
pay fees Plaintiffs were invoiced in connection with the Forbearance Agreement, not 

cooperating with the interim business manager, and filing this lawsuit.  See generally

id.

  
UMB seeks various forms of relief, including monetary relief, declaratory relief, and 
appointment of a general receiver.

Id.

 at 31–39.                         
UMB sends another invoice and a breakdown of fees from the October invoices.  On 
December 9, 2021, UMB sent Plaintiffs an additional invoice for $106,185.50 in fees 

incurred from September 1 through November 30, 2021, including for legal services in 
connection with this lawsuit.  Ellingson Decl. ¶¶ 32–33, Ex. E.  On December 17, UMB 
sent Plaintiffs itemized breakdowns of the October invoices.  Bruns Decl. ¶¶ 2–3, Ex. A 
[ECF No. 21].                                                             
UMB moves to appoint a general receiver.  UMB has now moved to appoint a 

general receiver.  ECF No. 6.  Specifically, UMB seeks an order appointing Lighthouse 
Management Group, Inc. and granting it “powers co-extensive with those of a general 
receive[r] under

Minn. Stat. § 576.29

.”  ECF No. 12 at 8.  With its reply brief, UMB has 
submitted new evidence it says warrants receivership, including evidence that RSTEM’s 
net operating income for the fiscal year ending in June 2022, as of November 30, is 
estimated at -$90,802, that RSTEM is “currently estimated to not meet[] the [required] debt 
service coverage ratio” for the current fiscal year, and that the Schools have not fully 

cooperated with the interim business manager or delivered certain audited financial reports 
required under the Bond agreements.  See Suppl. Wilkinson Decl. [ECF No. 26]; Yanez 
Decl. [ECF No. 25]; Yanez Decl., Ex. A [ECF No. 25-1].  Plaintiffs oppose the motion. 
                           II                                        
“[T]he appointment of a receiver in a diversity case is a procedural matter governed 

by federal law and federal equitable principles.”  Morgan Stanley Smith Barney LLC v. 
Johnson,

952 F.3d 978

, 980 (8th Cir. 2020) (quoting Aviation Supply Corp. v. R.S.B.I. 
Aerospace, Inc.,

999 F.2d 314, 316

 (8th Cir. 1993)); see Fed. R. Civ. P. 66.  “The court 
may appoint a receiver as an ancillary, provisional action in connection with a pending 
matter, but ‘a federal court of equity will not appoint a receiver where the appointment is 

not ancillary to some form of final relief [].’”  N.Y. Cmty. Bank v. Sherman Ave. Assocs., 
LLC,

786 F. Supp. 2d 171, 175

 (D.D.C. 2011) (quoting Gordon v. Washington,

295 U.S. 30

, 38–39 (1935)).  “A receiver is an extraordinary equitable remedy that is only justified 
in extreme situations.”  Aviation Supply Corp.,

999 F.2d at 316

.  “The party moving for the 
appointment of a receiver has the burden to establish that such an action is necessary.”  

Midwest Bank v. Goldsmith,

467 F. Supp. 3d 242

, 248 (M.D. Pa. 2020) (citations omitted).  
“Although there is no precise formula for determining when a receiver may be appointed, 
factors typically warranting appointment are                              
[1] a valid claim by the party seeking the appointment;              
[2] the probability that fraudulent conduct has occurred or will occur to 
  frustrate that claim;                                              

[3] imminent danger that property will be concealed, lost, or diminished in 
  value;                                                             

[4] inadequacy of legal remedies;                                    

[5] lack of a less drastic equitable remedy; and                     

[6] likelihood that appointing the receiver will do more good than harm.”   
Aviation Supply Corp., 999 F.2d at 316–17 (citations omitted).            
As an initial matter, the parties here dispute if and how the inclusion of receivership 
as a contractual remedy in the Bond agreements impacts the legal framework governing 
UMB’s motion.  UMB asserts that Plaintiffs have “consented” to appointment and that, 
because the parties contemplated receivership in those agreements, “receivership loses its 
status as an extraordinary remedy.”  Mem. in Supp. at 19 [ECF No. 8].  UMB says that its 
“bargained for” right to receivership is enforceable without resort to the aforementioned 
equitable  factors.

Id.

  at  19–23  (“[Plaintiffs]’  express  contractual  consent  to  the 
appointment of a Receiver should be dispositive[.]”).  Plaintiffs disagree.  In their view, 
they have not defaulted on the Forbearance Agreement or caused a predicate Forbearance 
Termination Event to occur.  Plaintiffs say that to find a Forbearance Termination Event 
did occur, “the Court must first resolve the threshold issue of whether Plaintiffs have an 
obligation to pay the disputed fees.”  Mem. in Opp’n at 14–19 [ECF No. 19].  Plaintiffs 
dispute the various defaults that UMB alleges,

id.

 at 19–25, and assert that UMB’s efforts 
to collect fees without providing an itemization violated Minnesota law,

id.

 at 12–13.5 
“[C]ourts are split as to whether [] advance consent is dispositive or merely a factor 

to  consider  in  the  [receivership]  analysis,”  and  “[t]here  does  not  appear  to  be  any 
controlling law in the Eighth Circuit on this point.”  PNC Bank Nat’l Ass’n v. Lee, No. 
4:13–CV–1482 CAS,

2013 WL 5532693

, at *1 (E.D. Mo. Oct. 7, 2013).  There are, 
however, some discernible trends.  First, courts weighing the effect of a receivership clause 
consider whether it’s genuinely disputed that a default sufficient to trigger the remedy of 

receivership has occurred.  In rare cases, courts have found the absence of such a dispute 
enough to appoint a receiver without resort to equitable factors.  E.g., U.S. Bank, Nat’l 
Ass’n v. C.B. Settle Inn L.P.,

827 F. Supp. 2d 993

, 997–98 (S.D. Iowa 2011).   Other times, 
courts shift the burden to the nonmovant or find that a receivership clause, coupled with 
the absence of a genuine dispute as to default, weighs strongly in favor of receivership.  

E.g., Wilmington Tr., Nat’l Ass’n v. Winta Asset Mgmt. LLC, 20-cv-5309 (JGK),

2020 WL 5802365

,  at  *2  (S.D.N.Y.  Sept.  28,  2020)  (collecting  cases).    By  contrast,  when 
receivership is conditioned on an event of default, and the occurrence of such a default is 



5    At oral argument, Plaintiffs for the first time suggested that receivership would 
violate Minn. Stat. § 124E.07 by wresting authority from their board of directors to “decide 
and [be] responsible for policy matters related to operating the [S]chool[s], including 
budgeting, curriculum programming, personnel, and operating procedures.”  Id., subd. 6.  
This argument is not persuasive.  Many statutes, like § 124E.07, require organizations to 
establish a board of directors with certain powers.  This does not mean that appointment of 
a receiver can never be appropriate.                                      
genuinely contested or unclear,6 courts afford less weight to the contract, the burden 
remains on the movant, and some variation of equitable factors control the analysis.  See 
Portland Marche, LLC v. Fed. Nat’l Mortg. Ass’n, No. 3:21-cv-00569-IM,

2021 WL 2827476

,  *3  (D.  Or.  July  7,  2021);  see  also  Cargill  v.  HF  Chlor-Alkali,  LLC,  No. 
16-cv-2506 (DSD/JSM),

2016 WL 4761729

, at *2 (D. Minn. Sept. 12, 2016).  Finally, 
courts have also considered the type of consent given: “consent[] to mere application to 
appoint a receiver” is afforded less weight than “consent[] to appointment of a receiver.”  
Sterling Sav. Bank v. Citadel Dev. Co.,

656 F. Supp. 2d 1248

, 1260–61 (D. Or. 2009). 

Although the parties’ inclusion of a receivership remedy in their agreements is a 
factor that will be afforded some weight, the equitable factors announced in Aviation 
Supply Corp. still apply, and the burden will remain with UMB to show its entitlement on 
balance of those factors.  This is so for two reasons.  First, Plaintiffs did not consent to 
receivership outright.  At most, they agreed to “not [] oppose, contest, or challenge” 

appointment “[u]pon the occurrence of a Forbearance Termination Event.”  Forbearance 
Agreement § IV(b); see also Indenture of Trust § 9.05 (stating that RMSA Building Co. 
“may resist” trustee’s receivership application); Mortgage § 2.5 (stating that, under certain 


6    In this way, courts deciding receivership motions consider the movant’s likelihood 
of success in the underlying action.  The Eighth Circuit has not expressly adopted this 
factor, although other courts have.  See Canada Life Assur. Co. v. LaPeter,

563 F.3d 837, 844

(9th Cir. 2009) (considering movant’s “probable success in the action”). Given the
Eighth Circuit’s consideration of this factor in the context of preliminary injunctions, and
that receivership is a drastic form of preliminary relief, it’s reasonable to conclude that
UMB’s likelihood of success factors in here, at least insofar as deciding the weight given
to the parties’ agreement that receivership was a remedy for the events of default that UMB
alleges.
conditions, UMB would be “entitled to . . . apply to the appropriate court . . . for the
appointment of a receiver”) (emphasis added). Second, in each instance, the parties
conditioned the availability of receivership on some event of default. See Indenture of

Trust § 9.05; Mortgage § 2.5; Forbearance Agreement § IV(b). Plaintiffs do not concede
that a receivership-triggering default event occurred, and, at this early stage, there are
legitimate disputes over each type of default event that UMB asserts. Take them in turn.
First, UMB asserts that Plaintiffs’ actions in “commencing this lawsuit and asserting
claims and defenses,” along with their failure to pay UMB’s fees, constitute Events of

Default under Sections IV(a)(5) and (8) of the Forbearance Agreement. Mem. in Supp. at
16; see Reply Mem. at 12–14 [ECF No. 24]. But whether Plaintiffs’ resistance to the fee
invoices violates the Forbearance Agreement turns on yet-answered questions, such as the
meaning and scope of Section II(e)’s fee provision and whether, as a factual matter, the
fees fall within that provision. If the unpaid fees were not incurred “in connection with the

enforcement or remedies, including the negotiation, execution[,] and enforcement of [the]
Forbearance Agreement,” Forbearance Agreement § II(e), then UMB is not entitled to
them. The upshot would be that Plaintiffs’ actions in disputing the fees—by not paying
them or by filing this action—would not be a Forbearance Termination Event that triggers
UMB’s contractual receivership remedy.7 See Bridgeport Music, Inc. v. Universal Music

7 Relatedly, UMB argues that Plaintiffs’ argument in this lawsuit that they “cured”
earlier defaults of the cash-on-hand and income-available-for-debt-service covenants is a
Forbearance Termination Event. Reply Mem. at 12. Not so. Plainly, the point of
Plaintiffs’ argument is not that they never defaulted; the point is that earlier defaults which
predated the Forbearance Agreement are not ongoing and therefore not a Forbearance
Group, Inc.,

440 F. Supp. 2d 342, 345

(S.D.N.Y. 2006) (“Even if it is ultimately determined
that UMG’s position as to the scope of the mechanical licenses prevails, it would not follow
that Bridgeport has breached the contract for bringing a good faith, if unsuccessful,

copyright infringement action in support of its position. . . . When parties have differing
positions as to the meaning of a contractual term, it cannot be deemed a breach for one
party to sue to enforce its view of the contract.”).
Second, UMB asserts that Plaintiffs have not cooperated with the interim business
manager, Frank Yanez. Yanez attests that the Schools have not implemented a marketing

plan he believes necessary to “maintain and increase current enrollment” and that they did
not “inform[] or consult[]” with him before filing this lawsuit. Yanez Decl. ¶¶ 6, 9. But
the viability of this theory is also unclear. Plaintiffs offer competing testimony that the
Schools have cooperated with Yanez to the “best of their ability” and “frequently
communicate” with him, but that Yanez has “failed” to “keep the Schools involved in

communications.” Ellingson Decl ¶ 37. UMB’s theory also depends on a favorable
construction of the Forbearance Agreement. UMB theorizes that Plaintiffs’ filing of this
lawsuit without Yanez’s approval violates the parties’ agreement that Yanez would
“[m]anage and control the Schools’ cash management systems, including all disbursements
to support the Schools’ operating needs.” Forbearance Agreement. § II(a)(i)(D); see Yanez

Decl. ¶ 9. But this clause seems susceptible of a construction that does not require Yanez’s
approval for filing a lawsuit. More still, the Forbearance Agreement specifies that

Termination Event. See Mem. in Opp’n at 1–2 (“These defaults were demonstrably cured
in early 2020, and Plaintiffs remained in compliance since that time.”).
“termination of the Interim Business Manager” is a Forbearance Termination Event,
suggesting that something short of that—i.e., mere noncooperation—may not be.
Forbearance Agreement § IV(a)(7).

Finally, UMB’s remaining theories—that Plaintiffs have defaulted on their
reporting obligations and not implemented Pathway’s recommendations—are likewise
disputed. Plaintiffs say they have fulfilled all reporting obligations and submitted their
own evidence on this point. Mem. in Opp’n at 23; see Ellingson Decl. ¶¶ 35–36, Ex. F.
Plaintiffs maintain that Pathway was “not properly appointed” and that its

recommendations were “costly, vague, impossible to implement, and/or did not include
specific action items to implement,” but that “the Schools have continued to work with
[UMB] towards Pathway’s recommendations[.]” Ellingson Decl. ¶¶ 15–18. UMB has not
offered evidence or discrete examples of ways the Schools have failed to implement
Pathway’s recommendations.

Against the weight given to the parties’ contemplation of receivership as a
contractual remedy, the remaining factors establish that UMB has not made the
extraordinary showing required for appointment. UMB asserts valid claims to enforce its
rights under the various Bond agreements, a factor that weighs in its favor. UMB does not,
however, claim that fraudulent conduct has occurred or is likely to occur. Mem. in Supp.

at 24 n.4. Critically, UMB also has not shown imminent danger that property will be
concealed, lost, or diminished in value. UMB claims the Schools are mismanaged and
offers concerns over their “financial direction,” Yanez Decl. ¶ 7, but has not offered
evidence that Plaintiffs are diverting or rapidly diminishing assets. Plaintiffs remain under
the supervision of an interim business manager with “exclusive power and duty to manage
the financial operations of the Schools,” Forbearance Agreement § II(a)(i), further
lessoning the chance that property will rapidly diminish. Although UMB contends the

Schools are “insolvent,” this is something of a half-truth. Mem. in Supp. at 24. UMB’s
evidence shows the Schools are insolvent only by assuming that Plaintiffs are in default
and more than $15 million in Bond debt has been accelerated. See Malloy Decl. [ECF No.
11], Ex. A [ECF No. 11-1], Ex. B [ECF No. 11-2]. Meanwhile, UMB does not dispute that
Plaintiffs “have never missed a payment under the [B]onds.” Ellingson Decl. ¶ 4. UMB’s

other imminent-danger evidence is an unaudited financial report showing that, for the fiscal
year beginning in July 2021, RSTEM had a net operating income of -$90,802 through
November 30. ECF No. 25-1 at 29. The report shows that, through November 30, RSTEM
was well short of meeting its debt service coverage ratio for the current fiscal year. Id. at
25. This evidence of recent financial decline over a period of four or five months, however,

does not amount to an “imminent danger” of property being lost. UMB still estimates the
“book value” of the Schools’ assets as high as $23.1 million, and it has a mortgage lien on,
and security interest in, essentially all those assets. See Signal Hill Serv., Inc. v. Macquarie
Bank Ltd., No. CV 11–01539 MMM (JEMx),

2011 WL 13220305

, at *25–26 (C.D. Cal. 
June 29, 2011) (finding no imminent danger when value of collateral appeared sufficient 

to pay the judgment).  Plaintiffs also submitted evidence showing the Schools exceeded 
their cash-on-hand and debt service coverage ratio benchmarks for the two previous fiscal 
years and “continue[] to pay all their debts and apply for all available grants.”  Ellingson 
Decl. ¶ 6, Ex. A.                                                         
For many of the reasons it has not shown an imminent danger of loss, UMB also 
has not shown that it lacks adequate legal remedies or the absence of a less drastic equitable 
remedy.  See Hollywood Healthcare Corp. v. Deltec, Inc., No. 04-cv-1713 (RHK/AJB),

2004 WL 1118610

, at *10 (D. Minn. May 17, 2004) (collateralized party “ha[d] available 
adequate legal remedies—i.e., exercising its rights as a secured party under the Uniform 
Commercial  Code  and  seeking  damages  at  trial”);  Signal  Hill  Serv.,  Inc.,

2011 WL 13220305

, at *28.  The denial of the motion will be without prejudice to UMB filing a 
renewed motion for receivership on a more developed record or upon a material change in 

the Schools’ financial circumstances.  UMB also has less-drastic forms of injunctive relief 
at its disposal, such as a financial accounting or limited receivership.   
Finally, the balance of harms weighs against receivership.  A receiver offers added 
expense  and  diminished  returns  to  the  Schools,  who  continue  paying  for  an  interim 
business manager with “exclusive authority” over their financial operations.  See ECF No. 

25-1 at 30.  Receivership also risks a decrease in student enrollment for the Schools—
meaning reduced state funding—due to confusion or misconception in the community over 
the Schools’ financial well-being.  See ECF No. 10-7 at 11–32 (stating that “[e]nrollment 
modified to average daily membership is the driving factor in the funding” and setting goals 
to increase student enrollment); Yanez Decl. ¶ 6 (stating that the Schools are “struggling 

to maintain sufficient enrollment to meet their projections and maintain their financial 
obligations under the loan documents”).

ORDER

Therefore, based on all the files, records, and proceedings in the above-captioned 
matter, IT IS ORDERED THAT Defendant and Counterclaimant UMB Bank, N.A.’s 

Motion to Appoint a General Receiver [ECF No. 6] is DENIED.               

Dated:  January 12, 2022                  s/ Eric C. Tostrud              
                              Eric C. Tostrud                        
                              United States District Court

Trial Court Opinion

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Rochester MSA Building Company, File No. 21-cv-2559 (ECT/ECW)
Rochester Math & Science Academy, and
Rochester Stem Academy Inc.,

Plaintiffs and
Counter-Defendants,
OPINION AND ORDER
v.

UMB Bank, N.A., as trustee,

Defendant and
Counterclaimant.

Ryan T. Murphy, Joseph J. Cassioppi, and Samuel Andre, Fredrikson & Byron, PA,
Minneapolis, MN; and Adrienne K. Walker, Locke Lord LLP, Boston, MA, for Defendant
and Counterclaimant UMB Bank, N.A.

two series of bonds under an Indenture of Trust with UMB, as trustee for the bond owners:
(1) $15,555,000 Minnesota Charter School Leases Revenue Bonds, Series 2018A and (2)

required under the Pledge Agreements[.]” ECF No. 10-11 at 2. Two weeks later, on

(b) Failure of RSTEM to maintain at least 30 days unrestricted
Cash on hand for the June 30, 2019 testing date . . . .

lawsuit based on diversity jurisdiction under

28 U.S.C. § 1332

, Not. of Removal ¶¶ 6–13, 
and has asserted counterclaims, ECF No. 2.  UMB alleges that Plaintiffs defaulted under 
various Bond agreements, including by not implementing Pathway’s recommendations, 
failing to pay the accelerated Bond principal and interest of at least $15,490,000, failing to 
pay fees Plaintiffs were invoiced in connection with the Forbearance Agreement, not 

cooperating with the interim business manager, and filing this lawsuit.  See generally

id.

  
UMB seeks various forms of relief, including monetary relief, declaratory relief, and 
appointment of a general receiver.

Id.

 at 31–39.                         
UMB sends another invoice and a breakdown of fees from the October invoices.  On 
December 9, 2021, UMB sent Plaintiffs an additional invoice for $106,185.50 in fees 

incurred from September 1 through November 30, 2021, including for legal services in 
connection with this lawsuit.  Ellingson Decl. ¶¶ 32–33, Ex. E.  On December 17, UMB 
sent Plaintiffs itemized breakdowns of the October invoices.  Bruns Decl. ¶¶ 2–3, Ex. A 
[ECF No. 21].                                                             
UMB moves to appoint a general receiver.  UMB has now moved to appoint a 

general receiver.  ECF No. 6.  Specifically, UMB seeks an order appointing Lighthouse 
Management Group, Inc. and granting it “powers co-extensive with those of a general 
receive[r] under

Minn. Stat. § 576.29

.”  ECF No. 12 at 8.  With its reply brief, UMB has 
submitted new evidence it says warrants receivership, including evidence that RSTEM’s 
net operating income for the fiscal year ending in June 2022, as of November 30, is 
estimated at -$90,802, that RSTEM is “currently estimated to not meet[] the [required] debt 
service coverage ratio” for the current fiscal year, and that the Schools have not fully 

cooperated with the interim business manager or delivered certain audited financial reports 
required under the Bond agreements.  See Suppl. Wilkinson Decl. [ECF No. 26]; Yanez 
Decl. [ECF No. 25]; Yanez Decl., Ex. A [ECF No. 25-1].  Plaintiffs oppose the motion. 
                           II                                        
“[T]he appointment of a receiver in a diversity case is a procedural matter governed 

by federal law and federal equitable principles.”  Morgan Stanley Smith Barney LLC v. 
Johnson,

952 F.3d 978

, 980 (8th Cir. 2020) (quoting Aviation Supply Corp. v. R.S.B.I. 
Aerospace, Inc.,

999 F.2d 314, 316

 (8th Cir. 1993)); see Fed. R. Civ. P. 66.  “The court 
may appoint a receiver as an ancillary, provisional action in connection with a pending 
matter, but ‘a federal court of equity will not appoint a receiver where the appointment is 

not ancillary to some form of final relief [].’”  N.Y. Cmty. Bank v. Sherman Ave. Assocs., 
LLC,

786 F. Supp. 2d 171, 175

 (D.D.C. 2011) (quoting Gordon v. Washington,

295 U.S. 30

, 38–39 (1935)).  “A receiver is an extraordinary equitable remedy that is only justified 
in extreme situations.”  Aviation Supply Corp.,

999 F.2d at 316

.  “The party moving for the 
appointment of a receiver has the burden to establish that such an action is necessary.”  

Midwest Bank v. Goldsmith,

467 F. Supp. 3d 242

, 248 (M.D. Pa. 2020) (citations omitted).  
“Although there is no precise formula for determining when a receiver may be appointed, 
factors typically warranting appointment are                              
[1] a valid claim by the party seeking the appointment;              
[2] the probability that fraudulent conduct has occurred or will occur to 
  frustrate that claim;                                              

[3] imminent danger that property will be concealed, lost, or diminished in 
  value;                                                             

[4] inadequacy of legal remedies;                                    

[5] lack of a less drastic equitable remedy; and                     

[6] likelihood that appointing the receiver will do more good than harm.”   
Aviation Supply Corp., 999 F.2d at 316–17 (citations omitted).            
As an initial matter, the parties here dispute if and how the inclusion of receivership 
as a contractual remedy in the Bond agreements impacts the legal framework governing 
UMB’s motion.  UMB asserts that Plaintiffs have “consented” to appointment and that, 
because the parties contemplated receivership in those agreements, “receivership loses its 
status as an extraordinary remedy.”  Mem. in Supp. at 19 [ECF No. 8].  UMB says that its 
“bargained for” right to receivership is enforceable without resort to the aforementioned 
equitable  factors.

Id.

  at  19–23  (“[Plaintiffs]’  express  contractual  consent  to  the 
appointment of a Receiver should be dispositive[.]”).  Plaintiffs disagree.  In their view, 
they have not defaulted on the Forbearance Agreement or caused a predicate Forbearance 
Termination Event to occur.  Plaintiffs say that to find a Forbearance Termination Event 
did occur, “the Court must first resolve the threshold issue of whether Plaintiffs have an 
obligation to pay the disputed fees.”  Mem. in Opp’n at 14–19 [ECF No. 19].  Plaintiffs 
dispute the various defaults that UMB alleges,

id.

 at 19–25, and assert that UMB’s efforts 
to collect fees without providing an itemization violated Minnesota law,

id.

 at 12–13.5 
“[C]ourts are split as to whether [] advance consent is dispositive or merely a factor 

to  consider  in  the  [receivership]  analysis,”  and  “[t]here  does  not  appear  to  be  any 
controlling law in the Eighth Circuit on this point.”  PNC Bank Nat’l Ass’n v. Lee, No. 
4:13–CV–1482 CAS,

2013 WL 5532693

, at *1 (E.D. Mo. Oct. 7, 2013).  There are, 
however, some discernible trends.  First, courts weighing the effect of a receivership clause 
consider whether it’s genuinely disputed that a default sufficient to trigger the remedy of 

receivership has occurred.  In rare cases, courts have found the absence of such a dispute 
enough to appoint a receiver without resort to equitable factors.  E.g., U.S. Bank, Nat’l 
Ass’n v. C.B. Settle Inn L.P.,

827 F. Supp. 2d 993

, 997–98 (S.D. Iowa 2011).   Other times, 
courts shift the burden to the nonmovant or find that a receivership clause, coupled with 
the absence of a genuine dispute as to default, weighs strongly in favor of receivership.  

E.g., Wilmington Tr., Nat’l Ass’n v. Winta Asset Mgmt. LLC, 20-cv-5309 (JGK),

2020 WL 5802365

,  at  *2  (S.D.N.Y.  Sept.  28,  2020)  (collecting  cases).    By  contrast,  when 
receivership is conditioned on an event of default, and the occurrence of such a default is 



5    At oral argument, Plaintiffs for the first time suggested that receivership would 
violate Minn. Stat. § 124E.07 by wresting authority from their board of directors to “decide 
and [be] responsible for policy matters related to operating the [S]chool[s], including 
budgeting, curriculum programming, personnel, and operating procedures.”  Id., subd. 6.  
This argument is not persuasive.  Many statutes, like § 124E.07, require organizations to 
establish a board of directors with certain powers.  This does not mean that appointment of 
a receiver can never be appropriate.                                      
genuinely contested or unclear,6 courts afford less weight to the contract, the burden 
remains on the movant, and some variation of equitable factors control the analysis.  See 
Portland Marche, LLC v. Fed. Nat’l Mortg. Ass’n, No. 3:21-cv-00569-IM,

2021 WL 2827476

,  *3  (D.  Or.  July  7,  2021);  see  also  Cargill  v.  HF  Chlor-Alkali,  LLC,  No. 
16-cv-2506 (DSD/JSM),

2016 WL 4761729

, at *2 (D. Minn. Sept. 12, 2016).  Finally, 
courts have also considered the type of consent given: “consent[] to mere application to 
appoint a receiver” is afforded less weight than “consent[] to appointment of a receiver.”  
Sterling Sav. Bank v. Citadel Dev. Co.,

656 F. Supp. 2d 1248

, 1260–61 (D. Or. 2009). 

Although the parties’ inclusion of a receivership remedy in their agreements is a 
factor that will be afforded some weight, the equitable factors announced in Aviation 
Supply Corp. still apply, and the burden will remain with UMB to show its entitlement on 
balance of those factors.  This is so for two reasons.  First, Plaintiffs did not consent to 
receivership outright.  At most, they agreed to “not [] oppose, contest, or challenge” 

appointment “[u]pon the occurrence of a Forbearance Termination Event.”  Forbearance 
Agreement § IV(b); see also Indenture of Trust § 9.05 (stating that RMSA Building Co. 
“may resist” trustee’s receivership application); Mortgage § 2.5 (stating that, under certain 


6    In this way, courts deciding receivership motions consider the movant’s likelihood 
of success in the underlying action.  The Eighth Circuit has not expressly adopted this 
factor, although other courts have.  See Canada Life Assur. Co. v. LaPeter,

563 F.3d 837, 844

440 F. Supp. 2d 342, 345

Decl. ¶ 9. But this clause seems susceptible of a construction that does not require Yanez’s
approval for filing a lawsuit. More still, the Forbearance Agreement specifies that

2011 WL 13220305

, at *25–26 (C.D. Cal. 
June 29, 2011) (finding no imminent danger when value of collateral appeared sufficient 

to pay the judgment).  Plaintiffs also submitted evidence showing the Schools exceeded 
their cash-on-hand and debt service coverage ratio benchmarks for the two previous fiscal 
years and “continue[] to pay all their debts and apply for all available grants.”  Ellingson 
Decl. ¶ 6, Ex. A.                                                         
For many of the reasons it has not shown an imminent danger of loss, UMB also 
has not shown that it lacks adequate legal remedies or the absence of a less drastic equitable 
remedy.  See Hollywood Healthcare Corp. v. Deltec, Inc., No. 04-cv-1713 (RHK/AJB),

2004 WL 1118610

, at *10 (D. Minn. May 17, 2004) (collateralized party “ha[d] available 
adequate legal remedies—i.e., exercising its rights as a secured party under the Uniform 
Commercial  Code  and  seeking  damages  at  trial”);  Signal  Hill  Serv.,  Inc.,

2011 WL 13220305

, at *28.  The denial of the motion will be without prejudice to UMB filing a 
renewed motion for receivership on a more developed record or upon a material change in 

the Schools’ financial circumstances.  UMB also has less-drastic forms of injunctive relief 
at its disposal, such as a financial accounting or limited receivership.   
Finally, the balance of harms weighs against receivership.  A receiver offers added 
expense  and  diminished  returns  to  the  Schools,  who  continue  paying  for  an  interim 
business manager with “exclusive authority” over their financial operations.  See ECF No. 

25-1 at 30.  Receivership also risks a decrease in student enrollment for the Schools—
meaning reduced state funding—due to confusion or misconception in the community over 
the Schools’ financial well-being.  See ECF No. 10-7 at 11–32 (stating that “[e]nrollment 
modified to average daily membership is the driving factor in the funding” and setting goals 
to increase student enrollment); Yanez Decl. ¶ 6 (stating that the Schools are “struggling 

to maintain sufficient enrollment to meet their projections and maintain their financial 
obligations under the loan documents”).

ORDER

Therefore, based on all the files, records, and proceedings in the above-captioned 
matter, IT IS ORDERED THAT Defendant and Counterclaimant UMB Bank, N.A.’s 

Motion to Appoint a General Receiver [ECF No. 6] is DENIED.               

Dated:  January 12, 2022                  s/ Eric C. Tostrud              
                              Eric C. Tostrud                        
                              United States District Court

Reference

Status: Unknown