Kolessar v. SJP: Alabama Supreme Court Bars Trial Courts from Ordering Receivers to Pay Pre‑Receivership Debts Without Respecting Creditor Priorities; Such Orders Are Appealable Injunctions

Introduction

In Kolessar v. SJP Investment Partners, LLC (Ala. Oct. 24, 2025), the Supreme Court of Alabama reversed a circuit court’s “clarification” order that compelled a court‑appointed receiver to pay more than $1 million in pre‑receivership debts from a hotel receivership estate. The appeal was brought by Receiver Jeffrey Kolessar, appointed at the request of Wells Fargo Bank, N.A. (as trustee), after allegations that SJP had defaulted on a $10.71 million commercial mortgage loan secured by the Hotel Indigo in Birmingham and associated revenues and reserves.

The decision addresses two pivotal issues:

Appellate jurisdiction: whether an interlocutory order compelling a receiver to pay pre‑receivership obligations is an appealable “injunction” under Alabama Rule of Appellate Procedure 4(a)(1)(A).
Receivership governance: whether a trial court may require a receiver to pay pre‑receivership debts from the receivership estate without regard to secured creditor priorities or necessity to preserve the estate.

The Court answered both questions in favor of the receiver (and the secured lender), holding that the July 2024 order was appealable as an injunction and that the trial court exceeded its discretion by compelling unconditional payment of pre‑appointment obligations, thereby risking dilution of the receivership estate and interference with vested lien rights.

Summary of the Opinion

The Supreme Court reversed the Jefferson Circuit Court’s July 21, 2024 “clarification” order, which stated that a prior May 14, 2024 order required Receiver Kolessar to pay pre‑receivership expenses of the Hotel. The Court held:

The July 2024 order was the first order that actually required the receiver to pay pre‑receivership claims. It was “injunctive in nature” because it commanded the receiver to take specific action and was therefore immediately appealable under Rule 4(a)(1)(A).
On the merits, the trial court exceeded its discretion by compelling the receiver to pay the owner’s pre‑receivership debts from the receivership estate without regard to creditor priorities or proof of necessity to preserve the estate. Receivership is a preventive, preservative remedy; it cannot be used to reorder lien priorities or force a secured creditor to fund unsecured pre‑receivership debts.
The Court emphasized that the October 2023 receivership order had expressly protected the estate by enjoining utilities and vendors from discontinuing service or collecting pre‑receivership charges from the receiver. That order did not require the receiver to clear the owner’s historical debts.

The case was remanded for proceedings consistent with these principles. A stay previously entered by the circuit court remained in place during the appeal.

Analysis

Precedents Cited and Their Influence

The Court anchored its reasoning in a line of Alabama and persuasive federal authority that collectively establish two propositions: (1) orders commanding specific action are injunctive and immediately appealable, and (2) receivership is a preservative remedy that cannot alter vested lien priorities or compel payments that jeopardize the estate.

Kappa Sigma Fraternity v. Price‑Williams, 40 So. 3d 683 (Ala. 2009): An interlocutory order that commanded payment before final judgment was “injunctive in nature” for Rule 4(a)(1)(A) purposes. Here, the July 2024 order likewise commanded the receiver to pay a category of debts, making it appealable.
Lem Harris Rainwater Family Trust v. Rainwater, 344 So. 3d 331 (Ala. 2021) and Bates v. Stewart, 99 So. 3d 837 (Ala. 2012): Orders requiring parties (including fiduciaries) to undertake or refrain from specific actions are treated as injunctions, supporting immediate appellate review.
City of Orange Beach v. Lamar Cos., 403 So. 3d 832 (Ala. 2024): Refusal to compel specific action equates to denial of an injunction; confirms that appellate attention focuses on the order’s substantive effect.
Southland Quality Homes, Inc. v. Williams, 781 So. 2d 949 (Ala. 2000): Courts look to an order’s substance, not its label. Even though SJP did not proceed under Rule 65, the July 2024 order functioned as an injunction.
Ashurst v. Lehman, Durr & Co., 86 Ala. 370, 5 So. 731 (1889) and C.E. Dev. Co. v. Kitchens, 288 Ala. 660, 264 So. 2d 510 (1972): Receivership is a preventive remedy intended to preserve the subject matter for all interested parties pending adjudication; it neither affects title nor determines rights. These cases underscore that a receiver’s function is preservation—not reallocation of creditor priorities or subsidization of historical debts.
Bridgeport Elec. & Ice Co. v. Bridgeport Land & Improvement Co., 104 Ala. 276, 16 So. 93 (1894): A court may not allow one creditor to seize receivership assets to the detriment of others or to secure advantages contrary to established priorities. This principle squarely applies to SJP’s attempt to elevate unsecured pre‑receivership claims over a secured mortgagee.
65 Am. Jur. 2d Receivers § 72 (2021): Appointment of a receiver does not alter or destroy vested lien rights or the order of existing liens; courts cannot take away such rights without lienholder consent.
Securities & Exchange Comm’n v. Credit Bancorp., Ltd., 297 F.3d 127 (2d Cir. 2002) (persuasive): Orders authorizing receiver distributions that affect creditor priorities are appealable as modifications of injunctive relief. This supports treating the July 2024 order as appealable.

The Court also noted that the Alabama Uniform Commercial Real Estate Receivership Act (Ala. Code § 6‑6‑780 et seq.) did not apply because the receiver was appointed before January 1, 2025 (§ 6‑6‑807). Thus, common‑law receivership principles governed.

Legal Reasoning

1) Appealability: The July 2024 Order Was an Injunction

The Court rejected SJP’s argument that the receiver’s appeal was untimely on the theory that the May 2024 order already required payment of pre‑appointment debts. The October 2023 order had appointed the receiver and protected the estate by enjoining service discontinuances and collections based on pre‑receivership arrears, but it did not require payment of historical debts. The May 2024 order, by its own terms, merely reiterated the October directives and denied amendment; it did not add any obligation to pay pre‑receivership claims. Only the July 21, 2024 order expressly required payment of pre‑receivership expenses, and by commanding specific action, it was “injunctive in nature” and therefore immediately appealable under Rule 4(a)(1)(A).

The Court emphasized substance over form: it did not matter that SJP had not sought a Rule 65 injunction, nor that the order labeled itself as a “clarification.” Orders directing specific actions, enforceable by contempt and aimed at conferring substantive relief, are treated as injunctions for appellate jurisdiction purposes.

2) Merits: Compelling Unconditional Payment of Pre‑Receivership Debts Was an Abuse of Discretion

The Court reaffirmed bedrock receivership doctrine: receivership preserves property; it is not a vehicle to reorder creditor rights or subsidize a borrower’s historical unsecured debts. Several considerations drove the Court’s conclusion:

Purpose of Receivership: The receiver was appointed to stabilize operations of the Hotel and protect the collateral and cash flow for all stakeholders, including the secured mortgagee. The October 2023 order reflected that goal by blocking service shutoffs or collections for pre‑appointment arrears while the receiver ran the Hotel using current revenues.
Creditor Priority: Wells Fargo held first‑priority security interests (mortgage; assignment of leases and rents; collateral in reserve funds and cash‑management accounts). Forcing the receiver to pay unsecured pre‑receivership debts “without regard to the priority of creditors” would improperly dilute the estate and undermine vested lien rights absent the lienholder’s consent.
Operational Risk: The record showed the Hotel’s revenues were insufficient to satisfy both ongoing operating needs and historical debts. Compelling blanket payment of pre‑appointment claims risked starving the current operations (payroll, taxes, franchise fees, utilities, vendor expenses) and potentially triggering further default or closure—contrary to the receivership’s preservative function.
Necessary vs. Non‑Necessary Payments: The Court left room for the receiver’s discretion to pay certain pre‑receivership items if truly necessary to preserve the estate (for example, specific taxes or utility arrears where payment is essential to continued operations) and if such payments do not impair senior lien rights without consent. But the July order made no such distinctions; it broadly required payment of all pre‑appointment expenses, even SJP’s unrelated legal fees.

In short, the order compelled a reallocation of estate assets to the owner’s unsecured historical creditors at the expense of estate preservation and secured creditor rights. That exceeded the trial court’s discretion under Alabama receivership principles.

Impact

The decision carries significant implications for Alabama receiverships, secured lending, and interim appellate practice:

Receivership Practice: Trial courts should not order blanket payment of pre‑appointment debts from receivership estates. Any payment of pre‑receivership obligations must be justified as necessary to preserve the estate and must respect lien priorities or obtain lienholder consent.
Order Drafting: Parties and courts should draft receivership orders that clearly:
- Authorize the receiver to pay current operating expenses and continue services.
- Enjoin service cutoffs based on pre‑receivership arrears.
- Disclaim liability for pre‑appointment debts, while allowing the receiver discretion to pay narrowly defined, truly necessary pre‑appointment items upon notice to stakeholders or court approval, and without prejudicing senior liens.
- Set transparent information‑sharing protocols between the receiver and owner to avoid disputes.
Secured Lending: Lenders can rely on receivership to preserve collateral without involuntary subordination to unsecured pre‑appointment creditors. Attempts to compel receivers to pay historical debts now face a higher bar and require evidence of necessity and attention to priorities.
Vendors and Trade Creditors: Service providers cannot leverage the receivership to obtain accelerated payment of pre‑appointment invoices. They remain creditors of the owner, not of the receiver, unless the receiver assumes obligations as necessary to preserve the estate with appropriate authority.
Appellate Jurisdiction: Practitioners must recognize that orders commanding receivers to take specific actions—like paying certain categories of debts—are appealable injunctions with short deadlines. Label aside, substance controls.
Transition to UCRERA: Although the Uniform Commercial Real Estate Receivership Act does not apply to appointments before January 1, 2025, its spirit aligns with this ruling: receivership should preserve property and respect lien priorities. This decision provides common‑law guidance that will inform UCRERA practice post‑effective date.

Complex Concepts Simplified

Receivership: A court puts a neutral “caretaker” in charge of property (here, a hotel) to protect and operate it while a lawsuit is pending. The receiver uses current income to keep the property running; the job is to maintain, not to decide ultimate rights.
Pre‑Receivership vs. Post‑Receivership Expenses: Pre‑receivership expenses are the owner’s unpaid bills from before the receiver took over. Post‑receivership expenses arise during the receiver’s management. Receivers generally prioritize current operations; they do not automatically pay old bills unless doing so is essential to keep the property functioning and doesn’t harm senior lienholders.
Secured vs. Unsecured Creditors: Secured creditors (like a mortgagee) have collateral. Unsecured creditors (e.g., vendors) do not. Receivership cannot flip these priorities unless the secured creditor consents or law authorizes it.
Injunction (for appeal purposes): For appellate jurisdiction, an order is treated as an “injunction” if it commands or forbids a party to do something and is enforceable by contempt—regardless of whether the order is formally styled as a Rule 65 injunction.
“Mootness” in the trial court’s order: The circuit court denied SJP’s motion to compel as “moot” only because it had already decided that the receiver must pay pre‑receivership debts. The controversy was not actually over; rather, the court believed it had already granted the relief. The Supreme Court reversed that premise.
Assignment of Leases and Rents; Cash‑Management Accounts; Reserve Funds: These are collateral mechanisms in commercial real estate finance that give a lender direct rights in property income streams and reserve accounts. They often fund operations during receivership but remain subject to lien priorities and loan agreements.
Acceleration: When a borrower defaults, the lender can “accelerate” the loan, making the entire balance immediately due, which can impact remedies like receivership and foreclosure.

Practical Takeaways

Orders compelling receivers to pay pre‑appointment debts are appealable as injunctions; file notices of appeal within the Rule 4(a)(1)(A) timeframe.
Draft receivership orders that:
- Authorize the receiver to use current revenues for ongoing operations (payroll, taxes, utilities, franchise fees, vendors), and debt service as ordered.
- Enjoin discontinuation of services due to pre‑appointment arrears and bar collection from the receiver for pre‑appointment obligations.
- Respect lien priorities and state that pre‑appointment debts will not be paid absent necessity to preserve the estate and without impairing senior liens (or with lienholder consent and court approval).
- Provide an invoice submission and dispute process, regular reporting, and information access protocols.
Receivers should document necessity before paying any pre‑appointment item (e.g., proof that without the payment, service would cease notwithstanding the court’s order; or that the payment is essential to safety, licensing, or continuous operations) and seek lender consent or court approval as appropriate.
Owners should not direct vendors to file liens or otherwise interfere with receivership operations; courts can and will restrain such conduct.
Secured lenders should closely monitor and, where appropriate, fund necessary expenses through permitted accounts (reserves, lockboxes) while preserving their lien positions.

Conclusion

Kolessar v. SJP establishes two critical principles for Alabama receiverships. First, interlocutory orders that compel receivers to take specific actions—here, paying pre‑receivership debts—are appealable as injunctions under Rule 4(a)(1)(A). Second, trial courts exceed their discretion when they require receivers to pay the owner’s pre‑appointment obligations from the receivership estate without regard to creditor priorities or demonstrated necessity to preserve the estate. Receivership remains a preservative remedy, not a backdoor reordering of rights or priorities.

The decision provides clear guidance for trial courts and practitioners: protect the collateral, keep the business operating, respect lien priorities, and confine payment of historical obligations to circumstances where they are truly necessary for preservation and do not prejudice senior creditors. As Alabama transitions to broader application of the Uniform Commercial Real Estate Receivership Act for appointments made after January 1, 2025, these common‑law guardrails will remain highly instructive for crafting sound receivership orders and managing estates responsibly.