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Gladstone Capital Corp v. Spirit of Alaska Broadcasting

October 25, 2010


The opinion of the court was delivered by: Timothy M. Burgess United States District Judge

ORDER re Pending Motions


Before the Court are three related pending motions. The first is a Motion for Approval of Additional Borrowing by Receiver Robert Woodward at Docket 75. That motion seeks leave of this Court for Defendant Spirit of Alaska Broadcasting, Inc. ("SABI") to borrow up to $160,000 in additional funds from Plaintiff Gladstone Capital Corporation ("Gladstone"). The second is a Motion for Approval of Termination of Existing Tenancies and Entry into New Lease by Woodward at Docket 77. The third is a Motion to Compel Receiver, or in the Alternative, to Terminate Receivership at Docket 80 by Wells Fargo Bank, N.A. ("Wells Fargo"), which is a creditor of SABI. All of the motions are opposed, have been fully briefed, and are ripe for decision. Because these motions raise related legal issues, the Court will address all of them in this Order. For the reasons outlined below, Woodward's Motions at Dockets 75 and 77 are GRANTED and Wells Fargo's Motion at Docket 80 is DENIED.


This action was originally brought by Gladstone on July 2, 2010. The suit was brought after SABI defaulted on over $2 million in secured loans from Gladstone.*fn1 The principal relief sought by Gladstone was the appointment of a receiver for SABI and its assets, as provided for in the original loan agreement.*fn2 The Court granted Gladstone's requested relief on July 26, 2010, appointing Woodward as Receiver.*fn3

Wells Fargo holds a secured line of credit to SABI totaling over $37,000, on which SABI has also defaulted.*fn4 The line of credit is secured by property located at 2200 E. Parks Highway in Wasilla, Alaska. Id. SABI has offices located on the property.*fn5 Due to SABI's default, Wells Fargo has entered into foreclosure proceedings against the property and the foreclosure sale is currently scheduled for November 9, 2010.*fn6 The property is not among the receivership assets administered by Woodward. SABI has not made any payments on Wells Fargo's loan since Woodward's appointment as Receiver.

The 2200 E. Parks Highway property which secures Wells Fargo's line of credit is actually owned by Defendant John Klappernich, who is the principal owner of SABI.*fn7 SABI currently pays $7,500 per month in base rent on the property, along with utilities, insurance, and property taxes which average thousands of dollars per month.*fn8 SABI also is party to a month-to-month lease for broadcasting space in Anchorage which costs approximately $3,500 in rent and utilities.*fn9 Woodward's motion at Docket 77 originally sought to terminate both of these leases in favor of a single leased space in Wasilla which would cost approximately $8,000 per month total, although he has since modified that request as the Court will discuss below.

Woodward's request for additional borrowing is premised on the need for operating funds not only to continue business operations, but also to facilitate the move in facilities. Gladstone has expressed its willingness to extend the additional credit so long as Gladstone resumes interest payments on the original loan.*fn10

Woodward has indicated that SABI would be able to meet this condition.*fn11


As noted in Judge Holland's Order at Docket 50, it is Washington receivership law which applies in this case. The Court begins its analysis by pointing out that its power to appoint a receiver and to subsequently supervise the actions of the receiver is an equitable power, "exercised in aid of its jurisdiction, in order to enable it to accomplish, as far as possible, complete justice between the parties before it."*fn12 Therefore, the Court's primary concern is to do justice to those who are currently parties in this litigation.

This concern was reflected in Judge Holland's Order, in which he noted that SABI "is surely worth much more to plaintiff and defendants as a going business than are the separate assets which are subject to foreclosure."*fn13 Thus, Judge Holland appointed a receiver on the basis of R.C.W. § 7.60.025(1)(a), which allows appointment of a receiver when a "party is determined to have a probable right to or interest in property that is a subject of the action" and "its revenue-producing potential is in danger of being lost or materially injured or impaired." The grounds for Wells Fargo's motion to compel or terminate the receivership are basically identical to the grounds for its opposition to Woodward's motion for additional borrowing. Wells Fargo alleges that SABI continues to lose money, and that the receivership therefore does not serve any useful purpose. Wells Fargo also claims that the receivership "violates Alaska public policy" because "an Alaska creditor's rights" cannot be "overridden by another State's laws." In other words, the terms of an receivership governed by Washington state laws cannot affect the legal rights of a creditor whose loans were made under Alaska law.

On a related note, Wells Fargo argues that "Gladstone should not be entitled to preferential treatment by having interest paid on its pre-existing loans while other lenders (like Wells Fargo) are not being paid interest."*fn14 This is why Wells Fargo requests the alternative relief of compelling SABI to resume interest payments to Wells Fargo, on the premise that if interest payments are to be made to any one creditor, they must be made to all creditors.

Plainly, if Wells Fargo's arguments in favor of terminating the receivership are correct, then Woodward's requests for permission to terminate leases and borrow additional funds are moot. In fact, it is impossible to separate the question of whether the receivership should continue from the question of whether SABI should be permitted to borrow additional funds, since SABI is unlikely to be able to continue operations without further credit. In order to rule on the currently pending motions, the Court must answer three questions: 1) Whether continuation of the receivership, along with the resumption of interest payments to Gladstone, violates Alaska law or public policy; 2) Whether the Court should exercise its ...

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