Securities And Exchange Commission v. Goldfarb et al

Filing 112

ORDER RE MOTION TO APPROVE SALE OF RECEIVERSHIP'S INTEREST IN MAGNA REAL ESTATE MANAGEMENT, LLC [re 93 MOTION Approval of Sale of Interest in MREM filed by Lawrence R. Goldfarb, Baystar Capital Management, LLC]. Signed by Judge William Alsup on 8/7/2013. (whasec, COURT STAFF) (Filed on 8/7/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

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No. C 11-00938 WHA

v.

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LAWRENCE R. GOLDFARB and
BAYSTAR CAPITAL MANAGEMENT,
LLC,

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ORDER RE MOTION
TO APPROVE SALE
OF RECEIVERSHIP’S
INTEREST IN MAGNA REAL
ESTATE MANAGEMENT, LLC

Defendants.

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/

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The receiver contends that the only way to liquidate defendants’ LRG REV interest in

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Magna Real Estate Management, LLC (MREM), is to sell that interest to MREM’s other owners,

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Jeff Koblick and Richard Hall, for a below-market price. According to the parties, as MREM

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owners, Koblick and Hall have control over the sale of the underlying real estate assets in MRE

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and the sale of LRG REV’s assets in MREM (See Cotton Decl. ¶ 6; Opp. at 3; Cotton Decl.

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Exh. C, § 7.1). The operating agreement therefore gives MREM owners control over the

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marketability of the asset to any other buyer. Koblick and Hall have now negotiated with the

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receiver to buy the asset at $3.7 million below its valued price (Cotton Decl. ¶¶15, 22–25).

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In Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 372 (1992), the

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California Supreme Court found that the “covenant of good faith finds particular application in

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situations where one party is invested with discretionary power affecting the rights of another.

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Such power must be exercised in good faith.” The receiver must address why the MREM

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managers should not be required to exercise their discretion in good faith, rather than receiving

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an arguably disproportionate windfall (to the detriment of defendants) which the parties could

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not have foreseen. The receiver shall submit briefing by MONDAY, AUGUST 12 AT NOON.

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Defendants may respond to this by WEDNESDAY, AUGUST 14 AT NOON.

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IT IS SO ORDERED.

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Dated: August 7, 2013.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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