Securities and Exchange Commission v. Schooler et al

Filing 1520

ORDER Approving: 1508 Sale of Silver Springs North Property. (1) The Motion 1508 is Granted; (2) The sale of the Property known as the Silver Springs North property, as described on Exhibit A to the Declaration of Thomas C. Hebrank in support of the Motion ("Property"), by Thomas C. Hebrank, as receiver for North Springs Partners, Rawhide Partners, Highway 50 Partners, and Orange Vista Partners, to Lansing Companies is confirmed and approved; (3) The purchase price of $ 700,000 for the Property is confirmed and approved; and (4) The Receiver is immediately authorized to complete the sale transaction, including executing any and all documents as may be necessary and appropriate to do so. Signed by Judge Gonzalo P. Curiel on 09/20/2017. (ajs)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 SECURITIES AND EXCHANGE COMMISSION, 15 16 17 ORDER APPROVING: Plaintiff, 13 14 Case No.: 3:12-CV-02164-GPC-JMA v. SALE OF SILVER SPRINGS NORTH PROPERTY LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING CORPORATION d/b/a WESTERN FINANCIAL PLANNING CORPORATION, 18 [ECF No. 1508-1] Defendants. 19 20 Before the Court is the Receiver’s Motion for Approval of Sale of Silver Springs 21 North Property (“Motion”). ECF No. 1508. No opposition was filed. Based upon a 22 review of the moving papers and the applicable law, the Court GRANTS the Receiver’s 23 motion. 24 BACKGROUND 25 A. The SEC Enforcement Action 26 On January 21, 2016, the Court granted the SEC’s motion for final judgment 27 against Defendant Louis V. Schooler. ECF No. 1170. The SEC had initiated this civil 28 action against Defendant Schooler and Western Financial Planning Corporation 1 3:12-CV-02164-GPC-JMA 1 (“Western”) four years earlier, on account of their practice of defrauding investors into 2 purchasing unregistered securities. Id. (citing Second Summary Judgment Order, ECF 3 No. 1081). To carry out the scheme, Defendant Western bought undeveloped real estate, 4 with cash or through financing, and simultaneously formed one or more General 5 Partnerships (“GPs”) to own the land. First Summary Judgment Order, ECF No. 1074 at 6 10. Western then sold General Partnership units to investors and sold the undeveloped 7 real estate to the General Partnerships. Id. at 10. In total, Western raised approximately 8 $153 million from almost 3,400 investors through implementing this scheme. Id. 9 B. The Decline of the General Partnership Assets 10 In 2013, the Court-appointed Receiver, Thomas Hebrank, engaged licensed 11 appraisers to value the 23 properties owned by the General Partnerships. ECF No. 203 at 12 2. Those professionals determined that the land was worth $16,328,000 and that the net 13 appraised value (appraised value less outstanding balances on all mortgages) of the 14 properties was $12,860,661. Id. The net appraised value represented just 8.41% of the 15 total funds that the general partners had invested in the land. Id. The Receiver further 16 estimated that, based on the then-current appraised values of the land, the average GP 17 investor would suffer an 88.40% loss if the GP properties were sold in 2013. Id. 18 Three years later, soon after final judgment was entered, the Receiver moved for 19 authority to conduct an Orderly Sale of the General Partnership Properties (“Orderly 20 Sale”). Motion for Orderly Sale, ECF No. 1181-1. In the Motion, the Receiver indicated 21 that the aggregate value in the GP accounts had been steadily decreasing while litigation 22 was ongoing. See id. In September 2012, the Receivership had assets of $6.6 million. 23 Id. at 1. By the end of 2015, the assets had dropped to $3.5 million, and the Receiver had 24 reason to believe that the value of the Receivership would continue to drastically 25 decrease through the end of 2016.1 This decline, he noted, was due to three main factors: 26 27 28 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 2 3:12-CV-02164-GPC-JMA 1 (1) 14 of the 23 properties were not appreciating in value2; (2) the properties were not 2 worth enough to cover the costs of the GPs carrying the properties; and (3) low levels of 3 investor contributions to pay GP administrator fees, tax preparation fees, property taxes, 4 property insurance premiums, and notes owed to Western. See id. at 1-2. In other words, 5 the Receiver concluded, because the money being spent to hold the GP properties was 6 disproportionately high in relation to the value of the GP’s real estate assets, the 7 Receivership was in a steady decline. Id. 8 In order to prevent the value of the Receivership from falling into further decline, 9 the Receiver proposed that the GP properties be sold in accordance with Court-approved 10 orderly sale procedures. Id. The Receiver’s proposal explained that the best way to 11 maximize the value of all of the GP assets for the benefit of all investors, irrespective of 12 any given investors’ direct property interest, was to initiate an orderly sale of the GP 13 properties. Id. The Receiver estimated that the Receivership, after conducting sales of 14 the GP properties, Western’s properties and asset recovery, would be worth $21,804,826. 15 Id. at 16. 16 C. The Receiver’s Motion for Orderly Sale 17 On May 20, 2016, the Court held a hearing on the Receiver’s Motion for Orderly 18 Sale, at which time the Court heard from the SEC, Defendant, the Receiver, and the 19 investor-interveners — that is, those investors who were granted permission under Rule 20 23 to intervene to oppose the Receiver’s Motion. See ECF No. 1298. A short time 21 thereafter, on May 25, 2016, the Court approved, in part, the Receiver’s Orderly Sale 22 process.3 ECF No. 1304. 23 24 25 26 27 28 Eighteenth Interim Status Report submitted by the Receiver indicates that the 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, was about $400,000 less than their value in 2013, $4,137,000. Id. at 2. 3 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). 3 3:12-CV-02164-GPC-JMA 1 In approving the Orderly Sale, the Court addressed and evaluated the concerns 2 expressed by the Receiver, the SEC, and myriad investors, all of whom held differing 3 positions on whether the Orderly Sale would benefit the Receivership estate. See 4 generally ECF Nos. 1181 (Motion for Orderly Sale), 1232 (SEC Response), 1234 (Dillon 5 Investors’ Response), 1235 (Graham Investors’ Response); see also, e.g., ECF Nos. 1240, 6 1242, 1244, 1249-1257 (Letters from Investors). The Court also took into consideration 7 the recommendations of the investors’ experts, as set forth in the Xpera Report. See ECF 8 No. 1304 at 16. The Xpera Report, the Court noted, substantially agreed with the 9 Receiver on how to maximize the value of the Receivership estate and, for the most part, 10 agreed on the appraised value of the various GP properties. Id. As such, the Court 11 directed the Receiver, where feasible, to incorporate the recommendations of the Xpera 12 Report into his ultimate Orderly Sale proposal. Id. at 19. 13 On July 22, 2016, the Receiver moved for permission to engage CBRE, a real 14 estate brokerage firm, as a consultant in order to weigh the pros and the cons of the Xpera 15 Report. ECF No. 1341-1. The Court granted the Receiver’s motion on August 30, 2016. 16 ECF No. 1359. CBRE presented its findings on the GP properties on October 24, 2016. 17 ECF No. 1419 (filed under seal). On November 22, 2016, the Receiver submitted a 18 report evaluating the Xpera Report recommendations. ECF No. 1405. The Court 19 reviewed the Receiver’s report and adopted the recommendations contained therein on 20 December 12, 2016. ECF No. 1423. 21 D. Silver Springs North 22 The Silver Springs North property is comprised of 90.85 acres of undeveloped land 23 in Lyon County, Nevada. ECF No. 1508-1 at 2. Four of the general partnerships in the 24 Receivership jointly hold the property: the North Springs Partners, the Rawhide Partners, 25 the Highway 50 Partners, and the Orange Vista Partners (collectively the “Silver Springs 26 North partners”). Id. 27 With the Court’s permission, the Receiver appraised the Silver Springs North 28 property, along with the rest of the properties in the Receivership, in 2013. Dkt. No. 4 3:12-CV-02164-GPC-JMA 1 1405, Ex. A. At that time, the appraised value of the Silver Springs North property was 2 $360,000. Id. at 13. By 2015 and according to a broker opinion value, the property’s 3 worth had decreased to $320,000. Id. One year later, in 2016, the Xpera Group valued 4 the Silver Springs North property between $681,375 and $908,500. Id. Later on in 2016, 5 CBRE estimated that the value of the property ranged from $454,250 to $635,950.4 Id. 6 CBRE explained that the Xpera Group’s range was “too high for current 7 conditions in the Silver Springs area.” ECF No. 1419 at 56 (document under seal). The 8 CBRE Report emphasized that only one industrial-zoned parcel had sold in the Silver 9 Springs area over the last two years and that that parcel “involved an improved parcel 10 with a retail store and office.” Id. Accordingly, CBRE recommended that the property 11 be sold within the next two years, id., a recommendation that coincided with the Xpera 12 Group recommendation of a sale within twelve months, ECF No. 1405, Ex. A. CBRE 13 further indicated that the Receiver should market the Silver Springs North parcels at 14 $7,000 per acre, for a total purchase price of $635,950, and expect a sale at around 15 $5,000 per acre, for a total purchase price of $454,250. ECF No. 1419 at 57 (document 16 under seal). In due course, the Receiver recommended that the Court adopt the CBRE 17 recommendation, ECF No. 1405, and the Court approved that recommendation on 18 December 12, 2016, ECF No. 1423. 19 On December 13, 2016, the Receiver received an unsolicited letter of intent from 20 Lansing Companies (“Lansing”) to purchase the Silver Springs North Property for 21 $500,000. ECF No. 1508. The Receiver was familiar with Lansing as the company had 22 expressed interest in the Silver Springs North property on a number of previous 23 occasions. Id. at 1507-08. Given the Xpera and CBRE valuations and in light of the fact 24 25 26 27 28 4 The Court observes that the Receiver misstates the CBRE valuation range in the Motion. The Motion states that the CBRE valuation for the Silver Springs North property ranges from $688,600 to $964,040. ECF No. 1508-1 at 2. Yet according to the Receiver’s Report and Recommendation, that range was for the Silver Springs South property, not the Silver Springs North property. ECF No. 1405, Ex.A (emphasis added). Accordingly, the Court’s analysis will defer to the valuation range for the Silver Springs North property as recorded in the Receiver’s Report and Recommendation. 5 3:12-CV-02164-GPC-JMA 1 that no broker was involved in the purchase offer, the Receiver deemed Lansing’s offer to 2 be credible. Id. The Receiver countered Lansing’s offer at $700,000 and Lansing 3 accepted. Id. The parties subsequently entered a purchase and sale agreement and on 4 August 18, 2017, Lansing removed all contingencies. Id. 5 In accordance with the Court-approved modified Orderly Sale procedures, see 6 generally ECF No. 1309, 1359, the Receiver sent notice of Lansing’s initial offer of 7 $500,000 to investors, but the Receiver did not receive any substantive response 8 regarding the offer. ECF No. 1508-1. After executing the purchase and sale agreement, 9 the Receiver laid out a timeline for the submission of qualified overbids pursuant to the 10 modified Orderly Sale procedures. Id. On September 20, 2017, the Receiver notified the 11 Court that no qualified overbids had been received for the Silver Springs North property. 12 ECF No. 1518. 13 E. Conclusion 14 The Court finds that the purchase price of $700,000 is reasonable in light of the 15 Xpera Group and CBRE evaluations. The purchase price falls within the range provided 16 by the Xpera Group ($681,375 – $908,500) and is above the range provided by CBRE 17 ($454,250 – $635,950). Further counseling in favor of the reasonableness of this amount 18 is the fact that no broker commission is due. Because Lansing made an offer on the 19 property before the Receiver took action to list it, no brokerage fee needs to be paid. This 20 will result in additional savings for the Receivership estate. Accordingly, the Court 21 concludes that the purchase price is reasonable and in the best interests of the 22 Receivership estate. 23 The Court is also satisfied that the Receiver has complied with the modified 24 Orderly Sale procedures. The Receiver’s notice of the sale adhered to the modified 25 Orderly Sale procedures, which require that notice of the sale be published “in the 26 county, state, or judicial district of the United States wherein the realty is situated,” 28 27 U.S.C. § 2002 (emphasis added), by publishing notice in the Reno Journal-Gazette and 28 by providing notice to the investors. Accordingly, and given that no opposition to the 6 3:12-CV-02164-GPC-JMA 1 present Motion has been filed, or raised, and that no qualified overbid was received, the 2 Court GRANTS Receiver’s motion for approval of sale (ECF No. 1508-1). 3 ORDER 4 The Receiver's Motion for Approval of Sale of Silver Springs North Property 5 (“Motion”) of Thomas C. Hebrank (“Receiver”), the Court-appointed receiver for First 6 Financial Planning Corporation d/b/a Western Financial Planning Corporation 7 ("Western"), its subsidiaries and the General Partnerships listed in Schedule 1 to the 8 Preliminary Injunction Order entered on March 13, 2013 (collectively, “Receivership 9 Entities”), having been reviewed and considered by this Court, the Receiver having 10 notified the Court that no qualified overbids were received (ECF No. 1518), and for good 11 cause appearing therefore, the Court finds as follows: 12 1. The Motion is granted; 13 2. The sale of the Property known as the Silver Springs North property, as 14 described on Exhibit A to the Declaration of Thomas C. Hebrank in support of the 15 Motion (“Property”), by Thomas C. Hebrank, as receiver for North Springs Partners, 16 Rawhide Partners, Highway 50 Partners, and Orange Vista Partners, to Lansing 17 Companies is confirmed and approved; 18 19 20 21 3. The purchase price of $700,000 for the Property is confirmed and approved; 4. The Receiver is immediately authorized to complete the sale transaction, and including executing any and all documents as may be necessary and appropriate to do so. 22 23 Dated: September 20, 2017 24 25 26 27 28 7 3:12-CV-02164-GPC-JMA

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