COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NO. 68820 : AETNA LIFE INSURANCE COMPANY : : : JOURNAL ENTRY Plaintiff-Appellee : : and -vs- : : OPINION WOODHAWK APARTMENTS LIMITED : PARTNERSHIP : : Defendant-Appellant : : : DATE OF ANNOUNCEMENT OF DECISION: DECEMBER 7, 1995 CHARACTER OF PROCEEDING: Civil appeal from Common Pleas Court Case No. CV-283981 JUDGMENT: Reversed and Remanded. DATE OF JOURNALIZATION: __________________________ APPEARANCES: For Plaintiff-Appellee: For Defendant-Appellant: STEPHEN F. GLADSTONE, ESQ. MARC ALAN SILVERSTEIN, ESQ. MARK A. GAMIN, ESQ. ROBERT S. FAXON, ESQ. LINDA A. STRIEFSKY, ESQ. JONES, DAY, REAVIS & POGUE THOMPSON, HINE & FLORY North Point 3900 Society Center 901 Lakeside Avenue 127 Public Square Cleveland, Ohio 44114 Cleveland, Ohio 44114-1216 APPEARANCES CONTINUED ON NEXT PAGE - 2 - APPEARANCES (CONTINUED): STEPHANIE TUBBS JONES, ESQ. Cuyahoga County Prosecutor JAMES E. O'BRIEN, ESQ. Assistant County Prosecutor WILLIAM J. COYNE, ESQ. Assistant County Prosecutor The Justice Center 1200 Ontario Street Cleveland, Ohio 44113 CARL E. CORMANY, ESQ. BERNARD S. GOLDFARB, ESQ. MARK V. WEBBER, ESQ. GOLDFARB & REZNICK Suite 1800 55 Public Square Cleveland, Ohio 44113 DANIEL B. FRIEDLANDER, ESQ. 17th Floor, National City Center 1900 East 9th Street Cleveland, Ohio 44114 - 3 - KARPINSKI, J.: This case is an appeal from the trial court's orders granting a foreclosure receiver the power to seize the bank accounts and perform audits of the defendant partnership. On appeal, the partnership argued that the trial court erred when it authorized the receiver to seize the partnership bank accounts and conduct a five-year audit of the partnership. For the following reasons, the orders of the trial court are vacated and the cause is remanded. Woodhawk Limited Partnership is a partnership formed for the purpose of constructing the Woodhawk apartment complex in Mayfield Heights, Ohio. To finance the construction of these apartments, plaintiff, Aetna Life, loaned over 13 million dollars to Woodhawk. Woodhawk defaulted on this loan. As of January 1, 1995, Woodhawk owed Aetna life $13,336,227.30. Aetna initiated foreclosure proceedings on January 27, 1995. As part of these foreclosure proceedings, Aetna requested that the trial court appoint a receiver pursuant to R.C.2735.01. Declining to appoint as receiver the person requested by Aetna, the trial court instead appointed Norman Millstein. The trial court also appointed accountants and attorneys for the receiver. On March 13, 1995, the trial court issued a nunc pro tunc order authorizing the receiver's accountants to conduct a five- year audit of Woodhawk. This order stated as follows: It having come to the attention of the Court that the Receiver requires a five-year audit, or such other - 4 - period of time as may concern the plaintiff.[sic] The audit shall concern the business of Woodhawk Apartments Limited Partnership. The plaintiff Aetna Life Insurance Company does not object. IT IS THEREFORE ORDERED 1. Ciuni & Panichi, Inc., Certified Public Accountants, accountants for the Receiver, shall make a five-year audit of the business of Woodhawk Apartments Limited partnership, or such other period of time as may concern the plaintiff, and have complete authority to examine all books, writings, records and documents, including data stored digitally, electronically or magnetically, with respect to the business, assets, profits and monies of that limited partnership; and 2. Zaremba Management Services, Inc. and any other entity having possession of any books, writings, records or documents necessary for use in making such an audit shall make those items available to the accountants for the Receiver, without delay. IT IS FURTHER ORDERED that by virtue of such audit, the Receiver and his counsel may take such action as may be appropriate to enforce this order and may take such further action as may be appropriate, should such audit reveal the need therefor, including, but not limited to, an action in accounting or such other action as may be advisable. On March 14, 1995 the court issued a second nunc pro tunc order authorizing the receiver to seize the bank accounts of the partnership. The order stated as follows: In an order dated January 31, 1995, this court appointed Norman Millstein as Receiver in this action, and Bernard S. Goldfarb and the law firm of Goldfarb & Reznick as counsel for the Receiver, to do all things necessary in order to effectuate the receivership. While this court conferred upon the Receiver the authority to seize bank accounts during pendency of the receivership, and any further order, while not necessary, in order to obviate any doubt, regardless of how unfounded it may be, the court now enters this order nunc pro tunc to specifically authorize the appointed Receiver and its counsel to seize any accounts previously held in the name of the defendants, including the account held at Society National Bank, Account No. 1029528064 in the name of "Woodhawk Apartments." This order nunc pro tunc is executed to herewith confirm that the authority for such action was vested with the Receiver in the order dated January 31, - 5 - 1995, in order that all persons, partnerships, or entities are satisfied as to the scope such authority. On April 12, 1995, Woodhawk filed a notice of appeal arguing that the trial court erred in issuing these two orders. A. Jurisdiction. Before addressing defendant's two assignments of error, it must first be determined whether this court has jurisdiction to hear this appeal. The Ohio Constitution, Article IV, Section 3(B)(2) limits appellate jurisdiction to review of final orders. Final orders are defined in R.C. 2505.02 as follows: An order that affects a substantial right in an action which in effect determines the action and prevents a judgment, an order that affects a substantial right made in a special proceeding or upon a summary application in an action after judgment, or an order that vacates or sets aside a judgment or grants a new trial is a final order that may be reviewed, affirmed, modified, or reversed, with or without retrial. The Ohio Supreme Court in Polikoff v. Adam (1993), 67 Ohio St.3d 100, recently changed the analysis that determines what is a substantial right made in a "special proceeding." The Polikoff court stated in the syllabus as follows: Orders that are entered in actions that were recognized at common law or in equity and were not specially created by statute are not orders entered in special proceedings pursuant to R.C. 2505.02. (Amato v. Gen. Motors Corp. [1981], 67 Ohio St.2d 253, 21 O.O.3d 158, 423 N.E.2d 452, overruled.) In the case at bar, the order granting extensive powers to the receiver was an order that affects a substantial right made in a special proceeding. The Eleventh District came to the same result in Nozik v. Mentor Lagoons, Inc. (May 6, 1994), Lake App. - 6 - No. 93-L-057, when it held that a trial court order which authorized a receiver to enlarge and operate the business of the corporation and authorized the receiver to operate the business of a subsidiary of the dissolved corporation was a final appealable order. Additionally, it is established law in Ohio that an order of the trial court appointing a receiver is a final appealable order. Castlebrook, Ltd. v. Dayton Properties (1992), 78 Ohio App.3d 340; Jamestown Village Condo v. Market Media (1994), 96 Ohio App.3d 678. See also, State, ex rel. Celebrezze v. Gibbs (1991), 60 Ohio St.3d 69. In the case sub judice, the trial court's nunc pro tunc order of March 13, 1995, did more than clarify the receiver's powers; it specifically broadened the powers available. In the first order the receiver was not given the authority to seize the bank accounts of Woodhawk. In the subsequent order, the receiver was granted substantially greater power to seize the bank accounts of Woodhawk. The trial court, by redefining the ground rules for the receiver, brought back the issue of the original grant of authority. This act by the trial court essentially reappointed the receiver and granted him additional authority. Pursuant to Castlebrook, we find that orders of the trial court are final orders; therefore, we have jurisdiction to entertain this appeal. B. Merits of the Appeal. Woodhawk's three assignments of error, which will be addressed together, state as follows: - 7 - 1. THE TRIAL COURT ERRED BY ENTERING AN EX PARTE, NUNC PRO TUNC ORDER AUTHORIZING AND RATIFYING AFTER-THE- FACT A COURT APPOINTED RECEIVER'S PRIOR SEIZURE OF A BANK ACCOUNT AND FUNDS OF THE BORROWER-DEFENDANT, WHERE THE ACCOUNTING AND FUNDS WERE NOT PROPERTY COVERED BY THE MORTGAGE THAT WAS BEING FORECLOSED. 2. THE ORDER OF MARCH 14, 1995, IS NOT A VALID NUNC PRO TUNC ORDER. 3. THE TRIAL COURT ERRED BY ENTERING AN EX PARTE ORDER AUTHORIZING A BROAD AND UNBRIDLED FIVE-YEAR AUDIT AND OTHER ACTIONS BY THE RECEIVER, THE RECEIVER'S ACCOUNTANT, AND THE RECEIVER'S ATTORNEYS, IN THE ABSENCE OF A HEARING OR ANY SHOWING OF THE NEED FOR THE AUDIT OR ANY DEMONSTRATION OF ITS RELEVANCE TO THE RECEIVER'S STATUTORY POWERS OR THE ISSUES IN THE UNDERLYING MORTGAGE FORECLOSURE ACTION. The Ohio Supreme Court has held that a trial court's decision expanding or limiting a receiver's powers will not be disturbed absent a showing of an abuse of discretion. State, ex rel. Celebrezze v. Gibbs (1991), supra. In R.C. 2735.04, however, Ohio limited the powers of a receiver as follows: Under the control of the court which appointed him, as provided in section 2735.01 of the Revised Code, a receiver may bring and defend actions in his own name as receiver, take and keep possession of property, receive rents, collect, compound for, and compromise demands, make transfers, and generally do such acts respecting the property as the court authorizes. Nowhere does the statute expressly authorize a seizure of a bank account or a sweeping five-year audit. The powers listed in R.C. 2735.04 are generally concerned with the maintenance of the property; they are not unbridled equitable powers over the property. In a mortgage foreclosure, the powers of a receiver are limited. In Castlebrook, supra, the court noted the - 8 - difference between a general receiver and the more limited foreclosure receiver. The court stated as follows: The receiver in a mortgage foreclosure action does not have the all-encompassing powers of a general receiver of all property of the debtor, but is instead limited to taking those actions "with respect to" the property covered by the mortgage that is being foreclosed. Castlebrook, at 348. This statement of the law is consistent with the general rule as to the limited nature of foreclosure receivers. A receivership in a foreclosure suit is limited and special. The rents and profits are impounded for the benefit of a particular mortgagee, to be applied upon the debt in the event of deficiency. [Citations omitted.] The corporation retains its other property, if it has any, unaffected in its power of disposition by the decree of sequestration. Duparquet Huot & Moneuse Co. v. Evans (1935), 297 U.S. 216, 221. Finally, in Ohio, a receiver is entitled to rents and profits collected only after the receiver takes possession. Norwood Savings Bank v. Romer (Mar. 28, 1932), 43 Ohio App. 224. In the case at bar, the trial court's order ratifying the receiver's seizure of the bank account was in error for three reasons: (1) the funds in the bank account were not covered by the mortgage and thus not within the reach of the receiver, (2) the receiver was not entitled to funds acquired prior to the filing of foreclosure proceedings, and (3) the actions of the receiver exceeded the powers available to foreclosure receivers. By seizing the bank account, the receiver took control over funds not secured by the mortgage. Nowhere in the mortgage is the bank account listed as property secured by the mortgage. - 9 - Pursuant to Castlebrook, only property specifically secured by the mortgage is within the reach of the receiver. Second, the bank account seized by the receiver contained money collected prior to the foreclosure, money such as capital contributions, prior rent collections, and security deposits. Under Norwood, the receiver is entitled to rents and profits acquired only after the initiation of foreclosure proceedings. Third, the purpose of a receivership is to conserve property pending an ultimate disposition of it by the court. By seizing the bank account, the receiver caused checks recently drawn on that account to bounce. These checks were for the payment of general operating expenses. The receiver had no authority, directly or indirectly, to dishonor checks issued for reasonable and ordinary operating expenses. The precipitous nature of the seizure and the subsequent failure to honor those checks were, at the least, actions inconsistent with the receiver's duty to protect the property. For all these reasons, the trial court erred by ratifying the receiver's seizure of the bank account. The final issue to be resolved is whether the trial court erred when it authorized the receiver to conduct a five-year audit of Woodhawk. As stated earlier, the purpose of the foreclosure receiver is generally that of conservation. Requiring an expensive five-year audit cannot be an efficient use of Woodhawk's already dwindling resources. Moreover, currently on the books were audits already performed by Deloitte & Touche. No evidence was given to justify an additional audit. - 10 - Accordingly, the trial court erred by issuing the nunc pro tunc order authorizing the five-year audit. Judgment reversed and remanded. - 11 - This cause is reversed and remanded. It is, therefore, ordered that appellant recover of appellee their costs herein taxed. It is ordered that a special mandate be sent to said court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. PORTER, P.J., and CORRIGAN*, J., CONCUR. DIANE KARPINSKI JUDGE *Judge John V. Corrigan, Retired, of the Eighth Appellate District, sitting by assignment. N.B. This entry is made pursuant to the third sentence of Rule 22(D), Ohio Rules of Appellate Procedure. This is an announcement of decision (see Rule 26). Ten (10) days from the date hereof, this document will be stamped to indicate journalization, at which time it will become the judgment and .