Securities and Exchange Commission v. Schooler et al

Filing 1449

ORDER 1430 Approving Sale of Honey Springs Property and Authorizing Receiver to Pay Broker's Commission. Signed by Judge Gonzalo P. Curiel on 3/20/17. (dlg)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 SECURITIES AND EXCHANGE 11 COMMISSION, 12 13 Case No. 3:12-cv-02164-GPC-JMA Plaintiff, v. 14 LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING 15 CORPORATION d/b/a WESTERN FINANCIAL PLANNING 16 CORPORATION, 17 Defendants. ORDER APPROVING: SALE OF HONEY SPRINGS PROPERTY AND AUTHORIZING RECEIVER TO PAY BROKER'S COMMISSION [ECF No. 1430] 18 19 20 21 22 Before the Court is the Receiver’s Motion for Approval of Sale of Honey 23 Springs Property and Authority to Pay Broker’s Commissions (“Motion”). ECF No. 24 1430. No opposition was filed. Based upon a review of the moving papers and the 25 applicable law, the Court GRANTS the Receiver’s motion. 26 //// 27 //// 28 850100.01/SD 12cv02164 BACKGROUND 1 2 A. The SEC Enforcement Action 3 On January 21, 2016, the Court granted the SEC’s motion for final judgment 4 against Defendant Louis V. Schooler. ECF No. 1170. The SEC had initiated this 5 civil action against Defendant Schooler and Western Financial Planning Corporation 6 (“Western”) four years earlier, on account of their practice of defrauding investors 7 into purchasing unregistered securities. Id. (citing Second Summary Judgment 8 Order, ECF No. 1081). To carry out the scheme, Defendant Western bought 9 undeveloped real estate, with cash or through financing, and simultaneously formed 10 one or more General Partnerships (“GPs”) to own the land. First Summary 11 Judgment Order, ECF No. 1074 at 10. Western then sold General Partnership units 12 to investors and sold the undeveloped real estate to the General Partnerships. Id. at 13 10. In total, Western raised approximately $153 million from almost 3,400 14 investors through implementing this scheme. Id. 15 B. The Decline of the General Partnership Assets 16 In 2013, the Court-appointed Receiver, Thomas Hebrank, engaged licensed 17 appraisers to value the 23 properties owned by the General Partnerships. ECF No. 18 203 at 2. Those professionals determined that the land was worth $16,328,000 and 19 that the net appraised value (appraised value less outstanding balances on all 20 mortgages) of the properties was $12,860,661. Id. The net appraised value 21 represented just 8.41% of the total funds that the general partners had invested in the 22 land. Id. The Receiver further estimated that, based on the then-current appraised 23 values of the land, the average GP investor would suffer an 88.40% loss if the GP 24 properties were sold in 2013. Id. 25 Three years later, soon after final judgment was entered, the Receiver moved 26 for authority to conduct an Orderly Sale of the General Partnership Properties 27 (“Orderly Sale”). Motion for Orderly Sale, ECF No. 1181-1. In the Motion, the 28 Receiver indicated that the aggregate value in the GP accounts had been steadily 850100.01/SD -2- 12cv02164 1 decreasing while litigation was ongoing. See id. In September 2012, the 2 Receivership had assets of $6.6 million. Id. at 1. By the end of 2015, the assets had 3 dropped to $3.5 million, and the Receiver had reason to believe that the value of the 4 Receivership would continue to drastically decrease through the end of 2016.1 This 5 decline, he noted, was due to three main factors: (1) 14 of the 23 properties were not 6 appreciating in value2; (2) the properties were not worth enough to cover the costs of 7 the GPs carrying the properties; and (3) low levels of investor contributions to pay 8 GP administrator fees, tax preparation fees, property taxes, property insurance 9 premiums, and notes owed to Western. See id. at 1-2. In other words, the Receiver 10 concluded, because the money being spent to hold the GP properties was 11 disproportionately high in relation to the value of the GP’s real estate assets, the 12 Receivership was in a steady decline. Id. In order to prevent the value of the Receivership from falling into further 13 14 decline, the Receiver proposed that the GP properties be sold in accordance with 15 Court-approved orderly sale procedures. Id. The Receiver’s proposal explained that 16 the best way to maximize the value of all of the GP assets for the benefit of all 17 investors, irrespective of any given investors’ direct property interest, was to initiate 18 an orderly sale of the GP properties. Id. The Receiver estimated that the 19 Receivership, after conducting sales of the GP properties, Western’s properties and 20 asset recovery, would be worth $21,804,826. Id. at 16. 21 C. The Receiver’s Motion for Orderly Sale 22 On May 20, 2016, the Court held a hearing on the Receiver’s Motion for 23 Orderly Sale, at which time the Court heard from the SEC, Defendant, the Receiver, 24 and the investor-interveners — that is, those investors who were granted permission 25 1 The Receiver provided the Court with projections that the Receivership would further decline to $1.8 million by the end of 2016. Indeed, the Receiver’s projection has since proved to be accurate. The Eighteenth Interim Status Report submitted by the Receiver indicates that the 27 Receivership’s current cash balance is $1,546,447. ECF No. 1441 at 20. 2 By way of example, the Receiver notes that the value of these 14 properties in 2016, $3,732,815, 28 was about $400,000 less than their value in 2013, $4,137,000. Id. at 2. 26 850100.01/SD -3- 12cv02164 1 under Rule 23 to intervene to oppose the Receiver’s Motion. See ECF No. 1298. A 2 short time thereafter, on May 25, 2016, the Court approved, in part, the Receiver’s 3 Orderly Sale process.3 ECF No. 1304. In approving the Orderly Sale, the Court addressed and evaluated the 4 5 concerns expressed by the Receiver, the SEC, and myriad investors, all of whom 6 held differing positions on whether the Orderly Sale would benefit the Receivership 7 estate. See generally ECF Nos. 1181 (Motion for Orderly Sale), 1232 (SEC 8 Response), 1234 (Dillon Investors’ Response), 1235 (Graham Investors’ Response); 9 see also, e.g., ECF Nos. 1240, 1242, 1244, 1249-1257 (Letters from Investors). The 10 Court also took into consideration the recommendations of the investors’ experts, as 11 set forth in the Xpera Report. See ECF No. 1304 at 16. The Xpera Report, the 12 Court noted, substantially agreed with the Receiver on how to maximize the value of 13 the Receivership estate and, for the most part, agreed on the appraised value of the 14 various GP properties. Id. As such, the Court directed the Receiver, where feasible, 15 to incorporate the recommendations of the Xpera Report into his ultimate sale 16 Orderly Sale proposal. Id. at 19. On July 22, 2016, the Receiver moved for permission to engage CBRE, a real 17 18 estate brokerage firm, as a consultant in order to weigh the pros and the cons of the 19 Xpera Report. ECF No. 1341-1. The Court granted the Receiver’s motion on 20 August 30, 2016. ECF No. 1359. CBRE presented its findings on the GP properties 21 on October 24, 2016. ECF No. 1419 (filed under seal). On November 22, 2016, the 22 Receiver submitted a report evaluating the Xpera Report recommendations. ECF 23 No. 1405. The Court reviewed the Receiver’s report and adopted the 24 recommendations contained therein on December 12, 2016. ECF No. 1423. //// 25 26 3 27 28 The Court directed the Receiver to file a Modified Orderly Sale Process that incorporated the public sale process consistent with the requirement of 28 U.S.C. § 2001. ECF No. 1304. The Receiver filed a modified proposal on June 8, 2016 (ECF No. 1309) and the Court approved the modified proposal on August 30, 2016 (ECF No. 1359). 850100.01/SD -4- 12cv02164 1 D. Honey Springs Property 2 The Receiver valued the Honey Springs property at $68,667 in 2013. ECF 3 No. 1405, Ex. A at 9. In 2015, the Broker Opinion Value (BOV) of the property 4 was $243,094. Id. Although the Xpera Report did not value the Honey Springs 5 property standing alone, it did value the property as one of three parcels, and the 6 value that Xpera ascribed to all three properties corresponds to the Receiver’s 7 appraisal of all three properties.4 In October 2016, the Receiver received an offer from Felipi and Ofelia 8 9 Aguilar to purchase the Honey Springs property for $225,000. ECF No. 1430-1 at 10 2. In accordance with the Court-approved modified Orderly Sale procedures, see 11 generally ECF No. 1309, 1359, the Receiver sent notice of the offer to investors, 12 consulted with a broker, and made a counter-offer of $250,000. ECF No. 1430-1 at 13 2. The putative purchasers countered at $240,000 and the Receiver accepted. Id. 14 After executing a purchase agreement, the Receiver laid out a timeline for the 15 submission of qualified overbids pursuant to the modified Orderly Sale procedures. 16 Id. at 3. On February 7, 2017, Receiver notified the Court that no qualified overbids 17 had been received for the Honey Springs property. ECF No. 1442. 18 E. Conclusion 19 The Court is satisfied that the Receiver has complied with the modified 20 Orderly Sale procedures. The Court further observes that the purchase price of 21 $240,000 is reasonable in light of the Receiver’s 2015 appraisal of the Honey 22 Springs property and the Xpera Report. Accordingly, and given that no opposition 23 to the Motion has been filed and that no qualified overbid was received, the Court 24 GRANTS Receiver’s motion. 25 26 27 28 4 The Xpera Report valued the Honey Springs property, along with the Bratton View and Valley Vista properties, between $629,878 (a low valuation) and $944,816 (a high valuation). ECF No. 1405, Ex. A at 9. The Receiver’s appraisal of Honey Springs, together with Bratton View and Valley Vista, totaled $756,548, placing the Receiver’s appraisal within the range proposed by Xpera. See id. 850100.01/SD -5- 12cv02164 ORDER 1 2 The Receiver's Motion for Approval of Sale of Honey Springs Property and 3 Authority to Pay Broker's Commission of Thomas C. Hebrank ("Receiver"), the 4 Court-appointed receiver for First Financial Planning Corporation d/b/a Western 5 Financial Planning Corporation ("Western"), its subsidiaries and the General 6 Partnerships listed in Schedule 1 to the Preliminary Injunction Order entered on 7 March 13, 2013 (collectively, "Receivership Entities"), having been reviewed and 8 considered by this Court, the Receiver having notified the Court that no qualified 9 overbids were received (ECF No. 1442), and for good cause appearing therefore, the 10 Court finds as follows: 11 1. The Motion is granted; 12 2. The sale of the Property known as the Honey Springs property, as 13 described on Exhibit A in the Receiver's Motion ("Property"), by Thomas C. 14 Hebrank, as receiver for Honey Springs Partners, to Felipi and Ofelia Aguilar is 15 confirmed and approved; 16 3. The purchase price of $240,000.00 for the Property is confirmed and 17 approved; 18 4. The Receiver is immediately authorized to complete the sale 19 transaction, including executing any and all documents as may be necessary and 20 appropriate to do so; and 21 5. The Receiver is authorized to immediately pay, upon closing of the 22 sale, a commission of 6% of the final purchase price to broker Real Estate Results. IT IS SO ORDERED. 23 24 25 Dated: March 20, 2017 26 27 28 850100.01/SD -6- 12cv02164

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