Securities and Exchange Commission v. Schooler et al

Filing 1484

ORDER Directing SEC to Weigh in On Receiver's Motion to Confirm E.B.S. Land Company is Included in the Receivership. The SEC shall file a response by the close of business on Wednesday, June 21, 2017. Any opposition to E.B.S. Land Co. bein g included in the Receivership estate shall also be filed by the close of business on Wednesday, June 21, 2017. The Court directs the Clerk to send a copy of this Order to E.B.S. Land Co.'s Principal Executive Office, as listed on the Stateme nt of Information filed with the California Secretary of State; to Schooler's address as listed on the Statement of Information; and to counsel representing Schooler on appeal in the 9th Circuit. Signed by Judge Gonzalo P. Curiel on 6/14/17.(All requested parties served via U.S. Mail Service)(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 Plaintiff, v. 14 LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING 15 CORPORATION d/b/a WESTERN FINANCIAL PLANNING 16 CORPORATION, 17 Case No. 3:12-cv-02164-GPC-JMA ORDER DIRECTING SEC TO WEIGH IN ON RECEIVER’S MOTION TO CONFIRM E.B.S. LAND COMPANY IS INCLUDED IN THE RECEIVERSHIP Defendants. 18 19 20 21 22 23 24 25 26 27 28 854071.01/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. B. The Receivership 15 16 Soon after the complaint was filed, see ECF No.1, the SEC moved for a 17 Temporary Restraining Order (“TRO”) requesting that the Court appoint a 18 temporary receiver over Western and the entities that it controls, see ECF No. 3-1. 19 The Court granted the SEC’s TRO on September 6, 2012, and the TRO extended to 20 EBS Land Co, among other entities. See ECF No. 10 at 6. On October 5, 2012, the 21 Court converted the TRO into a preliminary injunction order. See ECF No. 44. Not long thereafter, the SEC submitted a Proposed Preliminary Injunction 22 23 Order and Order Appointing Thomas C. Hebrank Permanent Receiver. ECF No. 62. 24 That proposed preliminary injunction did not include E.B.S. Land Co. as one of the 25 entities to be subject to receivership. See id. at 11-19. On March 13, 2013, the 26 Court granted the SEC’s proposed preliminary injunction order, which similarly did 27 not include E.B.S. Land Co. in the receivership. See ECF No. 174. 28 854071.01/SD 12cv02164 -1- 1 C. E.B.S. Land Co. 2 E.B.S. Land Co. was incorporated in 1963 by Schooler’s father, Eugene B. 3 Schooler. See Exhibit 5, ECF No. 563-3 (Promotional materials entitled, “About 4 Western”). E.B. Schooler formed EBS Land Co. in order to “invest in undeveloped 5 land throughout the rapidly growing southwest.” Id. According to the Statements 6 of Information filed with the California Secretary of State, Defendant Schooler is 7 the Chief Executive Officer, Secretary, Chief Financial Officer, sole Director, and 8 Agent for Service of Process of EBS. ECF No. 1472-1 at 3. 9 E.B.S. Land Co. was the “Partnership Administrator” of at least one of the 10 Partnership Agreements that governed the GPs. See Partnership Agreement P-40 11 Warhawk Partners, ECF No. 195-3 at 11 (“Louis V. Schooler, Western Financial 12 Planning Corporation, First Financial Planning Corporation, E.B.S. Land Co., and 13 any and all persons or entities receiving compensation of any kind from Louis V. 14 Schooler, Western Financial Corporation, First Financial Planning Corporation, or 15 E.B.S. Land Co. shall be “Non-Voting Partners.”); id. at 13 (“For the purpose of 16 facilitating the efficient and orderly administration of the Partnership’s various 17 clerical, administrative, and organizational needs, the Partnership will enter into a 18 Partnership Administration Agreement with E.B.S. Land Co., a California and 19 Nevada corporation, Louis V. Schooler, President, to serve as “Partnership 20 Administrator.”). 21 E.B.S. Land Co. currently holds a Deed of Trust that is clouding title on the 22 Reno Vista/Reno View properties, both of which are subject to the receivership. 23 ECF No. 1472-1. The Receiver has informed the Court that until the Deed of Trust 24 is removed, Receiver cannot carry out the Court’s approved sale of the Reno 25 Vista/Reno View properties. Id.; see also ECF No. 1468. DISCUSSION 26 27 Receiver seeks an order confirming that E.B.S. Land Co. is included in the 28 receivership so that Receiver can accept a reconveyance of the E.B.S. Deed of Trust. 854071.01/SD -2- 12cv02164 1 ECF No. 1472-1. A reconveyance executed by the Receiver is the only way to clear 2 the E.B.S. Deed of Trust from the Reno Vista/Reno View property in time for the 3 approved sale to close. Id. Accordingly, and in light of the fact that Defendant 4 Schooler is either dead or missing, the Receiver seeks the aforementioned order to 5 allow the sale to close. Id. 6 The Court has broad discretion to appoint an equity receiver in Commission 7 enforcement actions and to impose a receivership over those entities affected by the 8 fraud. See SEC v. Wencke, 622 F.2d 1363, 1369-70 (9th Cir. 1980). The Court 9 exercised such discretion on March 13, 2013 when it granted the SEC’s preliminary 10 injunction order. The Court’s March 13, 2013 Order, however, did not extend to 11 E.B.S. Land Co., as that corporate entity was not included in the SEC’s proposed 12 preliminary injunction order. The Court moreover notes that the preliminary 13 injunction order granted receivership powers only over “Western, its subsidiaries, 14 and the entities listed on Schedule 1,” and that E.B.S. Land Co. does not meet any of 15 those criteria. See ECF No. 174 at 4. 16 These facts notwithstanding, the Court also recognizes that E.B.S. Land Co. is 17 a corporation wholly owned and operated by Defendant Schooler. The most recent 18 Statement of Information filed with the California Secretary of State lists Louis V. 19 Schooler as the agent for service of process and as the CEO, Secretary, CFO, 20 President, and sole corporate officer, of E.B.S. Land Co. Moreover and more 21 importantly, the Court also recognizes that the E.B.S. Deed of Trust is clouding title 22 on the Reno Vista/Reno View properties, which are the proper subjects of the 23 Court’s jurisdiction pursuant to the receivership. See ECF No. 174. 24 In light of these competing concerns, the Court DIRECTS the SEC to weigh 25 in on whether E.B.S. Land Co. is rightly considered to be included within the 26 receivership estate or whether it is nonetheless proper for this court to exercise in 27 personam jurisdiction over E.B.S. Land Co. given that the Court has in rem 28 jurisdiction over the Reno Vista/Reno View properties. The SEC shall file a 854071.01/SD -3- 12cv02164 1 response by the close of business on Wednesday, June 21, 2017. Any opposition 2 to E.B.S. Land Co. being included in the Receivership estate shall also be filed by 3 the close of business on Wednesday, June 21, 2017. The Court DIRECTS the 4 Clerk to send a copy of this Order to E.B.S. Land Co.’s Principal Executive Office, 5 as listed on the Statement of Information filed with the California Secretary of State; 6 to Schooler’s address as listed on the Statement of Information; and to counsel 7 representing Schooler on appeal in the 9th Circuit. 8 IT IS SO ORDERED. 9 10 Dated: June 14, 2017 11 12 13 14 15 CC: EBS Land Co. 16 249 S Highway 101, STE. 508 17 Solana Beach, CA 92075 18 19 Louis V. Schooler 20 629 Circle Drive 21 Solana Beach, CA 92075 22 23 Bryan C. Vess, Esq. 24 402 West Broadway, 29th Floor 25 San Diego, CA 92101 26 27 28 854071.01/SD -4- 12cv02164

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