Federal Trade Commission v. American Financial Benefits Center et al

Filing 237

ORDER by Magistrate Judge Jacqueline Scott Corley granting 230 Motion for Attorney Fees of Receiver and His Professionals. (ahm, COURT STAFF) (Filed on 2/11/2020)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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FEDERAL TRADE COMMISSION,

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Plaintiff,

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v.

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AMERICAN FINANCIAL BENEFITS
CENTER, et al.,

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United States District Court
Northern District of California

Case No. 18-cv-00806-SBA (JSC)

Defendants.

ORDER RE: SECOND INTERIM
APPLICATION OF RECEIVER FOR
ORDER APPROVING RECEIVER’S
FEES AND EXPENSES
Re: Dkt. No. 230

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On November 29, 2018, the district court issued an order granting the motion of the

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Federal Trade Commission for preliminary injunction against Defendants American Financial

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Benefits Center (“AFBC”) and Financial Education Benefits Center (“FEBC”) (together,

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“Corporate Defendants”), and Brandon Frere.1 (Dkt. No. 186.)2 The court’s order (“PI Order”)

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appointed Thomas McNamara as Receiver for the Corporate Defendants, granting him “full

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powers of an equity receiver.” (Dkt. No. 187 at 6.) The district court subsequently referred all

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matters arising out of the performance of the Receiver’s duties to the undersigned. (Dkt. No. 190.)

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On March 29, 2019, this Court granted the Receiver’s first interim application for fees and

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expenses for the period of November 29, 2018 through January 15, 2019, in the amount of

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$335,213.88. (Dkt. No. 221.) Now before the Court is the Receiver’s second interim application

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for fees and expenses, covering the period of January 16, 2019 through November 30, 2019. (Dkt.

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No. 230.) The application is unopposed. After careful consideration of the Receiver’s application,

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On February 3, 2020, the district court extended a stay of this action based on the parallel
criminal action against Defendant Frere pending in this District. (Dkt. No. 234; see also United
States v. Frere, No. 3:19-cr-00493-SI (N.D. Cal.).)
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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.

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declaration, and supporting exhibits, the Court concludes that oral argument is not necessary and

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therefore VACATES the February 13, 2020 hearing. For the reasons explained below, the Court

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GRANTS the application.
BACKGROUND

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The PI Order authorizes the Receiver to “[c]hoose, engage, and employ attorneys,

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accountants, appraisers, and other independent contractors and technical specialists, as the

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Receiver deems advisable or necessary in the performance of duties and responsibilities under the

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authority granted by this Order.” (Dkt. No. 187 at 6.) The PI Order further provides for

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compensation of the Receiver and those hired by him, stating:

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United States District Court
Northern District of California

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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.

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(Dkt. No. 187 at 12.) Thus, the PI Order allows for payment of “periodic” or interim fees upon the

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Receiver’s request to the Court.

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LEGAL STANDARD
“As a general rule, the expenses and fees of a receivership are a charge upon the property

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administered.” Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994) (citing Atl. Trust Co. v.

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Chapman, 208 U.S. 360, 375-76 (1908)). “These expenses include the fees and expenses incurred

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by a receiver and professional retained by a receiver to assist in the performance of the receiver’s

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duties.” SEC v. Nationwide Automated Sys., Inc., No. CV 14-07249 SJO (FFMx), 2018 WL

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1918622, at *2 (C.D. Cal. Feb. 12, 2018). The court that appoints “the receiver has full power to

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fix the compensation of such receiver and the compensation of the receiver’s attorney or

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attorneys.” Drilling & Exploration Corp. v. Webster, 69 F.2d 416, 418 (9th Cir. 1934).

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Receivers and the professionals who assist them should be “reasonably, but not excessively
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compensated for their efforts to benefit the receivership estate.” SEC v. Small Bus. Capital Corp.,

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No. 12-CV-03237 EJD, 2014 WL 3920320, at *2 (N.D. Cal. Aug. 7, 2014) (internal quotation

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marks and citation omitted). “‘[I]n receivership situations, lawyers should be awarded moderate

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fees and not extravagant ones.’” Id. (quoting SEC v. Byers, 590 F. Supp. 2d 637, 648 (S.D.N.Y.

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2008)). Thus, “[t]he Receivership and any professionals assisting the Receiver should charge a

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reduced rate to reflect the public interest involved in preserving funds held in the receivership

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estate.” Id. (citing Byers, 590 F. Supp. 2d at 646-47).

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In determining the amount of a fee award, courts should consider the “‘economy of

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administration, the burden that the estate may be able to bear, the amount of time required,
although not necessarily expended, and the overall value of the services provided to the estate.’”

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United States District Court
Northern District of California

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Id. (quoting In re Imperial “400” Nat., Inc., 432 F.2d 232, 237 (3rd Cir. 1970)).
DISCUSSION

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The Receiver requests the following compensation: (1) “43,690.00 fees and $6,718.47

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expenses of the Receiver and staff to be paid to TWM Receiverships Inc. dba Regulatory

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Resolutions”; (2) “$54,197.00 fees and $3,493.58 expenses of the Receiver’s counsel, McNamara

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Smith LLP”; (3) “$14,110.00 fees and $13.90 expenses of the Receiver’s insurance coverage

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counsel, Franklin Soto LLP; and (4) “$1,050.00 fees and $160.00 expenses of the Receiver’s IT

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consultant, The Computer Admin.” (Dkt. No. 230 at 2.) In total, the Receiver requests

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$123,432.95 in his second interim application.
The Receiver submits a declaration in support of his application detailing the work

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performed and fees and expenses incurred by the Receiver and his staff, his regular counsel and

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insurance coverage counsel, and his IT consultant. (Dkt. No. 230-1 at 2-4.) The Receiver also

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submits invoices from Regulatory Resolutions, McNamara Smith LLP, Franklin Soto LLP, and

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The Computer Admin for the time period at issue. (Dkt. No. 230-2, Exs. 1-4.) The invoices are

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sufficiently detailed, and the services rendered were necessary to administer the receivership.3

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The Receiver’s invoice from Regulatory Resolutions includes one entry for $150.00 that falls
within the time period of the first interim application for fees—January 11, 2019. (See Dkt. No.
230-2, Ex. 1 at 4.) The Receiver’s invoice also includes a disbursement of $108.41 for “Out-oftown travel: Meals for receivership team” on December 4, 2018. (See id. at 10.) Similarly, the
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The Receiver attests that the fees he incurred reflect a discounted rate, (see Dkt. No. 230-1 at ¶

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4a), and although he does not attest that fees for counsel McNamara Smith LLP reflect a similar

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discount, the hourly rates for attorneys Mr. Bhandari, Mr. Chang, Ms. Gordon, and paralegal Ms.

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Carroll remain unchanged since the Receiver’s first interim application. (Compare Dkt. No. 220

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at ¶ 5 with Dkt. 230-1 at ¶ 7.) The Receiver’s supplemental declaration in support of the first

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interim application attested that those attorneys’ fees represented a discounted rate. (Dkt. No. 220

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at ¶ 5.)

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The Receiver submitted a Status Report on January 9, 2020, summarizing the receivership
activities and providing updated information regarding the receivership bank account. (Dkt. No.

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232.) The Status Report includes a “Receipts and Disbursements Summary” for the account that

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United States District Court
Northern District of California

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itemizes the total receipts and disbursements from February 1, 2019 through January 9, 2020 and

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indicates that the receivership bank account had a balance of $384,236.66 as of January 9, 2020.

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(Dkt. No. 232-1, Ex. 1 at 2.) Thus, the Receiver’s current request for fees and expenses

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constitutes roughly one third of the account balance.

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In sum, the Court is satisfied that the requested fees and expenses “reasonably, but not

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excessively” compensate the Receiver and his professionals “for their efforts to benefit the

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receivership estate.” See Small Bus. Capital Corp., 2014 WL 3920320, at *2.
CONCLUSION

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The Court grants the Receiver’s second interim application for fees and expenses in the
amount of $123,432.95.
IT IS SO ORDERED.
Dated: February 11, 2020

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JACQUELINE SCOTT CORLEY
United States Magistrate Judge

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invoice from McNamara Smith includes a billing entry for January 7, 2019 for $35.00. (See id.,
Ex. 2 at 16.) None of those entries appeared in the first interim application for benefits. (See
generally Dkt. No. 212-2.) Thus, Receiver is not requesting fees and expenses that were already
paid.
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