Federal Trade Commission v. American Financial Benefits Center et al

Filing 221

ORDER by Magistrate Judge Jacqueline Scott Corley granting 212 Motion for Attorney Fees of Receiver and His Professionals. (ahm, COURT STAFF) (Filed on 3/29/2019)

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Case 4:18-cv-00806-SBA Document 221 Filed 03/29/19 Page 1 of 4 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 FEDERAL TRADE COMMISSION, 8 Plaintiff, 9 v. 10 AMERICAN FINANCIAL BENEFITS CENTER, et al., 11 United States District Court Northern District of California Case No.18-cv-00806-SBA (JSC) 12 Defendants. ORDER RE: APPLICATION OF RECEIVER FOR ORDER APPROVING FEES AND EXPENSES OF THE RECEIVER AND HIS PROFESSIONALS Re: Dkt. No. 212 13 On November 29, 2018, the district court issued an order granting the motion of the 14 15 Federal Trade Commission (“FTC” or “Plaintiff”) for preliminary injunction against Defendants 16 American Financial Benefits Center (“AFBC”) and Financial Education Benefits Center (“FEBC”) 17 (together, “Corporate Defendants”), and Brandon Frere.1 (Dkt. No. 186.)2 The court’s order (“PI 18 Order”) appointed Thomas McNamara as Receiver for the Corporate Defendants, granting him 19 “full powers of an equity receiver.” (Dkt. No. 187 at 6.) The district court subsequently referred 20 all matters arising out of the performance of the Receiver’s duties to the undersigned. (Dkt. No. 21 190.) Now pending before the Court is the Receiver’s first interim application for fees and 22 expenses for the period of November 29, 2018 through January 15, 2019. (Dkt. No. 212.) The 23 application is unopposed. After careful consideration of the Receiver’s application, declarations, 24 and supporting invoices, having had the benefit of oral argument on March 28, 2019, and 25 26 27 28 1 On February 4, 2019, the district court granted a nine-month stay of this action as to Defendant Frere based on the parallel criminal action against him pending in this District. (Dkt. No. 214 at 2 (citing United States v. Frere, Case No. 3:18-mj-71724-SK (N.D. Cal.)).) 2 Record citations are to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of the documents. Case 4:18-cv-00806-SBA Document 221 Filed 03/29/19 Page 2 of 4 1 considering the Federal Trade Commission’s support, the Court GRANTS the application. BACKGROUND 2 3 The PI Order authorizes the Receiver to “[c]hoose, engage, and employ attorneys, 4 accountants, appraisers, and other independent contractors and technical specialists, as the 5 Receiver deems advisable or necessary in the performance of duties and responsibilities under the 6 authority granted by this Order.” (Dkt. No. 187 at 6.) The PI Order further provides for 7 compensation of the Receiver and those hired by him, stating: 8 14 IT IS FURTHER ORDERED that the Receiver and all personnel hired by the Receiver as herein authorized, including, but not limited to, counsel to the Receiver and accountants, are entitled to reasonable compensation for the performance of duties pursuant to this Order, and for the cost of actual out-of-pocket expenses incurred by them, from the Assets now held by, in the possession or control of, or which may be received by the Corporate Defendants. The Receiver shall file with the Court and serve on the parties periodic requests for the payment of such reasonable compensation, with the first such request filed no more than ninety (90) days after the date of entry of this Order. The Receiver shall not increase the hourly rates used as the bases for such fee applications without prior approval of the Court. 15 (Dkt. No. 187 at 12.) Thus, the PI Order allows for payment of “periodic” or interim fees upon the 16 Receiver’s request to the Court. 9 10 United States District Court Northern District of California 11 12 13 17 18 LEGAL STANDARD “As a general rule, the expenses and fees of a receivership are a charge upon the property 19 administered.” Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994) (citing Atl. Trust Co. v. 20 Chapman, 208 U.S. 360, 375-76 (1908)). “These expenses include the fees and expenses incurred 21 by a receiver and professional retained by a receiver to assist in the performance of the receiver’s 22 duties.” SEC v. Nationwide Automated Sys., Inc., No. CV 14-07249 SJO (FFMx), 2018 WL 23 1918622, at *2 (C.D. Cal. Feb. 12, 2018). The court that appoints “the receiver has full power to 24 fix the compensation of such receiver and the compensation of the receiver’s attorney or 25 attorneys.” Drilling & Exploration Corp. v. Webster, 69 F.2d 416, 418 (9th Cir. 1934). 26 Receivers and the professionals who assist them should be “reasonably, but not excessively 27 compensated for their efforts to benefit the receivership estate.” SEC v. Small Bus. Capital Corp., 28 Case No. 12-CV-03237 EJD, 2014 WL 3920320, at *2 (N.D. Cal. Aug. 7, 2014) (internal 2 Case 4:18-cv-00806-SBA Document 221 Filed 03/29/19 Page 3 of 4 1 quotation marks and citation omitted). “‘[I]n receivership situations, lawyers should be awarded 2 moderate fees and not extravagant ones.’” Id. (quoting SEC v. Byers, 590 F. Supp. 2d 637, 648 3 (S.D.N.Y. 2008)). Thus, “[t]he Receivership and any professionals assisting the Receiver should 4 charge a reduced rate to reflect the public interest involved in preserving funds held in the 5 receivership estate.” Id. (citing Byers, 590 F. Supp. 2d at 646-47). 6 In determining the amount of a fee award, courts should consider the “‘economy of 7 administration, the burden that the estate may be able to bear, the amount of time required, 8 although not necessarily expended, and the overall value of the services provided to the estate.’” 9 Id. (quoting In re Imperial “400” Nat., Inc., 432 F.2d 232, 237 (3rd Cir. 1970)). DISCUSSION 10 United States District Court Northern District of California 11 The Receiver requests the following compensation: (1) “$107,473.50 fees and $5,366.03 12 expenses of the Receiver and staff to be paid to Thomas W. McNamara dba Regulatory 13 Resolutions”; (2) “$206,920.50 fees and $8,623.70 expenses of the Receiver’s counsel, 14 McNamara Smith LLP”; (3) “$5,206.25 fees and $1,623.90 expenses of the Receiver’s computer 15 forensic expert, Hadron Computer Forensics & Investigations.” (Dkt. No. 212 at 2.) In total, the 16 Receiver requests $335,213.88 in his first interim application. 17 The Receiver submits declarations in support of his application detailing the work 18 performed and fees and expenses incurred by the Receiver and his staff, his counsel, and his 19 computer forensic consultant. (See Dkt. Nos. 212-1 & 220.) The Receiver also submits exhibits 20 consisting of a “receipts and disbursements summary” and invoices from Regulatory Resolutions, 21 McNamara Smith LLP, and Hadron Computer Forensics & Investigations. (See Dkt. No. 212-1, 22 Exhs. 1-4.) The invoices are sufficiently detailed, and the services rendered were necessary to 23 administer the receivership. Further, the Receiver attests that the fees he incurred and those 24 incurred by his Deputy Receiver reflect a discounted hourly rate, (see Dkt. No. 212-1 at ¶¶ 5a-b), 25 and that the hourly rates and fees of his counsel at McNamara Smith LLP reflect a similar 26 discount, (see Dkt. No. 220 at ¶¶ 5-6). 27 28 According to the Receiver, “[t]he receivership bank account has a current balance of $575,945.93” as of February 1, 2019. (Dkt. No. 212-1 at ¶ 4.) The Receiver attests that he does 3 Case 4:18-cv-00806-SBA Document 221 Filed 03/29/19 Page 4 of 4 1 “not anticipate additional significant fees or expenses” going forward, and “[a]bsent a material 2 development,” both his fees and his attorneys’ fees “will continue to taper down.” (Dkt. No. 220 3 at ¶¶ 8, 11.) The approximate fees and expenses incurred outside the time frame covered by this 4 application support the Receiver’s assertions. (See id. at ¶¶ 7, 9 (stating that for the two and one- 5 half month period not included in this application (January 16, 2019 to March 28, 2019), the total 6 “current unbilled fees and expenses for” both the Receiver and his staff, and his counsel 7 McNamara Smith are approximately $64,000 in fees and $8,000 in expenses).) 8 9 10 In sum, the Court is satisfied that the requested fees and expenses “reasonably, but not excessively” compensate the Receiver and his professionals “for their efforts to benefit the receivership estate.” See Small Bus. Capital Corp., 2014 WL 3920320, at *2. United States District Court Northern District of California 11 CONCLUSION 12 The Court grants the Receiver’s first interim application for fees and expenses in the 13 14 15 amount of $335,213.88. IT IS SO ORDERED. Dated: March 29, 2019 16 17 JACQUELINE SCOTT CORLEY United States Magistrate Judge 18 19 20 21 22 23 24 25 26 27 28 4

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