Securities and Exchange Commission v. Schooler et al

Filing 1502

ORDER Denying 1472 Receiver's Motion for Order Confirming E.B.S. Lang Co. is Included Within the Receivership; and Granting Request to Appoint Receiver as Elisor to Reconvey Title from E.B.S. Land Co. to Receivership. Signed by Judge Gonzalo P. Curiel on 8/4/17. (dlg)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 Case No. 3:12-cv-02164-GPC-JMA 11 12 SECURITIES AND EXCHANGE COMMISSION, 13 Plaintiff, 14 v. 15 LOUIS V. SCHOOLER and FIRST 16 FINANCIAL PLANNING CORPORATION d/b/a WESTERN 17 FINANCIAL PLANNING CORPORATION, 18 Defendants. 19 ORDER: (1) DENYING RECEIVER’S MOTION FOR ORDER CONFIRMING E.B.S. LAND CO. IS INCLUDED WITHIN THE RECEIVERSHIP and (2) GRANTING REQUEST TO APPOINT RECEIVER AS ELISOR TO RECONVEY TITLE FROM E.B.S. LAND CO. TO RECEIVERSHIP 20 [ECF No. 1472] 21 22 ---------------------------------------------- 23 24 25 26 27 28 12cv02164 INTRODUCTION 1 2 Before the Court is the Court-appointed receiver’s motion for an order 3 confirming that E.B.S. Land Co. (“E.B.S.”) is included within the Receivership. 4 ECF No. 1472. On June 14, 2017, this Court issued an order directing the SEC to 5 weigh in on the Receiver’s motion. ECF No. 1484. In response, the SEC submitted 6 a memorandum requesting that the Court issue an order confirming that E.B.S. is 7 part of the Receivership or, in the alternative, appointing the Receiver as elisor for 8 purposes of quieting title to property owned by the Receivership and encumbered by 9 E.B.S. ECF No. 1488. For the following reasons, and upon review of the moving 10 papers and applicable law, the Court DENIES the Receiver’s motion for order 11 confirming that E.B.S. is included within the Receivership, but GRANTS Receiver 12 authority, as elisor, to re-convey the title held by E.B.S. to the Receivership estate. BACKGROUND 13 14 A. The SEC Enforcement Action 15 On January 21, 2016, the Court granted the SEC’s motion for final judgment 16 against Defendant Louis V. Schooler. ECF No. 1170. The SEC had initiated this 17 civil action against Defendant Schooler and Western Financial Planning Corporation 18 (“Western”) four years earlier, on account of their practice of defrauding investors 19 into purchasing unregistered securities. Id. (citing Second Summary Judgment 20 Order, ECF No. 1081). To carry out the scheme, Defendant Western bought 21 undeveloped real estate, with cash or through financing, and simultaneously formed 22 one or more General Partnerships (“GPs”) to own the land. First Summary 23 Judgment Order, ECF No. 1074 at 10. Western then sold General Partnership units 24 to investors and sold the undeveloped real estate to the General Partnerships. Id. at 25 10. In total, Western raised approximately $153 million from almost 3,400 26 investors through implementing this scheme. Id. 27 B. The Receivership 28 Soon after the SEC filed its complaint, see ECF No.1, it moved for a 12cv02164 -1- 1 Temporary Restraining Order (“TRO”) requesting that the Court appoint a 2 temporary receiver over Western and the entities that it controlled, see ECF No. 3-1. 3 The Court granted the SEC’s TRO on September 6, 2012. See ECF No. 10 at 6. On 4 October 5, 2012, the Court converted the TRO into a preliminary injunction order. 5 See ECF No. 44. Not long thereafter, the SEC submitted a Proposed Preliminary Injunction 6 7 Order and Order Appointing Thomas C. Hebrank Permanent Receiver. ECF No. 62. 8 On March 13, 2013, the Court approved the order in its entirety. ECF No. 174. The 9 order granted Hebrank the “full powers of an equity receiver” and charged him with 10 “full power” over any “property belonging to, being managed by or in the 11 possession of or control of Western, its subsidiaries, or the entities listed on 12 Schedule 1 . . . .” Id. at 3. Over eighty entities are listed in Schedule 1 and, 13 importantly for present purposes, they include the Reno Partners, the Reno View 14 Partners, and the Reno Vista Partners. See id. at 12-14. EBS Land Co., however, is 15 not included within Schedule 1 and is not otherwise listed as a receivership entity. C. E.B.S. Land Co. 16 17 E.B.S. Land Co. was incorporated in 1963 by Schooler’s father, Eugene B. 18 Schooler. See Exhibit 5, ECF No. 563-3 (Promotional materials entitled, “About 19 Western”). E.B. Schooler formed EBS Land Co. in order to “invest in undeveloped 20 land throughout the rapidly growing southwest.” Id. According to the Statements 21 of Information filed with the California Secretary of State, Defendant Schooler is 22 the Chief Executive Officer, Secretary, Chief Financial Officer, sole Director, and 23 Agent for Service of Process of EBS. ECF No. 1472-1 at 3. 24 E.B.S. Land Co. was the “Partnership Administrator” of at least one of the 25 Partnership Agreements that governed the GPs. See Partnership Agreement P-40 26 Warhawk Partners, ECF No. 195-3 at 11 (“Louis V. Schooler, Western Financial 27 Planning Corporation, First Financial Planning Corporation, E.B.S. Land Co., and 28 any and all persons or entities receiving compensation of any kind from Louis V. -2- 12cv02164 1 Schooler, Western Financial Corporation, First Financial Planning Corporation, or 2 E.B.S. Land Co. shall be “Non-Voting Partners.”); id. at 13 (“For the purpose of 3 facilitating the efficient and orderly administration of the Partnership’s various 4 clerical, administrative, and organizational needs, the Partnership will enter into a 5 Partnership Administration Agreement with E.B.S. Land Co., a California and 6 Nevada corporation, Louis V. Schooler, President, to serve as “Partnership 7 Administrator.”). E.B.S. Land Co. currently holds a Deed of Trust that is clouding title on the 8 9 Reno Vista/Reno View properties, both of which are included within the 10 Receivership. ECF No. 1472-1. The Receiver has informed the Court that until the 11 Deed of Trust is removed, he cannot carry out the Court’s approved sale of the Reno 12 Vista/Reno View properties. Id.; see also ECF No. 1468. 13 14 DISCUSSION The Court has broad discretion to appoint an equity receiver in SEC 15 enforcement actions and to impose a receivership over those entities affected by the 16 fraud. See SEC v. Wencke, 622 F.2d 1363, 1369-70 (9th Cir. 1980). In an exercise 17 of such discretion, this Court granted the SEC’s proposed preliminary injunction and 18 order appointing a permanent receiver on March 13, 2013. Through that March 13 19 Order, the Court enjoined Defendants from continuing their fraudulent scheme and 20 moreover granted Hebrank receivership powers over “Western, its subsidiaries, and 21 the entities listed on Schedule 1,” which include the Reno View Partners and the 22 Reno Vista Partners. 23 The Reno View Partners and Reno Vista Partners own the Reno Vista/Reno 24 View properties. On April 12, 2017, the Court approved the sale of the Reno 25 Vista/Reno View properties for the benefit of those investors defrauded by 26 Defendants Schooler and Western. ECF No. 1468. The Receiver, however, has 27 been unable to close the sale of those properties because a Deed of Trust held by 28 E.B.S. Land Co. is clouding their title. ECF No. 1472 at 2. -3- 12cv02164 1 “The power of a district court to impose a receivership or grant other forms of 2 ancillary relief does not in the first instance depend on a statutory grant of power 3 from the securities laws. Rather, the authority derives from the inherent power of a 4 court of equity to fashion effective relief.” SEC v. Wencke, 622 F.2d 1363, 1369 5 (9th Cir. 1980). A district court, therefore, has broad authority to supervise 6 receiverships and to carry out reasonable procedures for the purpose of conducting 7 “an orderly and efficient administration of the receivership for the benefit of 8 creditors.” See CFTC v. Topworth Int’l, Ltd., 205 F.3d 1107, 1115 (9th Cir. 1999). The SEC has pointed out that California courts employ elisors to enforce 9 10 judgments for sales of real property. ECF No. 1488 at 4. “[C]onsistent with its 11 common legal meaning, and elisor is a person appointed by the court to perform 12 functions like the execution of a deed or document.” Blueberry Prop., LLC v. 13 Chow, 230 Cal. App. 4th 1017, 1020 (2014). “A court typically appoints an elisor to 14 sign documents on behalf of a recalcitrant party in order to effectuate its judgments 15 or orders, where the party refuses to execute such documents.” Id. (citing to Rayan 16 v. Dykeman, 224 Cal. App. 3d 1629, 1635 n.2 (1990)). Federal courts charged with 17 administering receiverships have appointed elisors for the purpose of enforcing their 18 orders and conveying interests in real property. See SEC v. BIC Real Estate Dev. 19 Corp., 2017 WL 2619111, *9-10 (E.D. Cal. June 16, 2017) (appointing receiver as 20 elisor for purposes of restoring real interest in property included within receivership 21 and permitting sale of property). 22 This Court’s March 13, 2013 Order appointing Hebrank as Receiver 23 ordered that: defendant Western, its subsidiaries, and the entities listed on Schedule 1, 24 and their officers, agents, servants, employees and attorneys, and any 25 other persons who are in custody, possession or control of any assets, collateral books, record, papers or other property of or managed by the 26 entities in receivership, shall forthwith give access to and control of such 27 property to the permanent receiver. 28 -4- 12cv02164 1 ECF No. 174 at 6. Currently, however, E.B.S. Land Co., which is wholly managed 2 by Defendant Schooler, maintains possession and control of the Reno Vista and 3 Reno View properties through the Deed of Trust it holds over the land. 4 Accordingly, and pursuant to the Court’s equitable power to carry out reasonable 5 procedures to justly and efficiently administer the receivership estate and to enforce 6 its orders, the Court appoints the receiver as elisor for the purpose of re-conveying 7 the E.B.S. Deed of Trust. Restoring interest in these properties to the Receivership 8 will allow the Receiver to gain the access and control that is required by the Court’s 9 preliminary injunction order and will, moreover, allow the Receiver to sell the Reno 10 View and Reno Vista properties pursuant to this Court’s approval of sale. CONCLUSION 11 12 The Court DENIES the Receiver’s request to confirm that E.B.S. Land Co. is 13 included within the Receivership, ECF No. 1472, but nonetheless GRANTS the 14 Receiver authority, as elisor, to re-convey the Deed of Trust held by E.B.S. Land 15 Co. for the purpose of selling the Reno View and Reno Vista properties for the 16 benefit of all investors. 17 18 19 IT IS SO ORDERED. Dated: August 4, 2017 20 21 22 23 24 25 26 27 28 -5- 12cv02164

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