Securities and Exchange Commission v. Schooler et al

Filing 1537

ORDER Granting #1515 Sale of Washoe V Property. Signed by Judge Gonzalo P. Curiel on 10/19/17. (dlg)

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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 18 ORDER APPROVING: Plaintiff, 13 14 Case No.: 3:12-CV-02164-GPC-JMA v. SALE OF WASHOE V PROPERTY LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING CORPORATION d/b/a WESTERN FINANCIAL PLANNING CORPORATION, [ECF No. 1515] Defendants. 19 20 Before the Court is the Receiver’s Motion for Approval of Sale of Washoe V 21 Property. ECF No. 1515. No opposition was filed. Based upon a review of the moving 22 papers and the applicable law, the Court GRANTS the Receiver’s motion. 23 BACKGROUND 24 A. The SEC Enforcement Action 25 On January 21, 2016, the Court granted the SEC’s motion for final judgment 26 against Defendant Louis V. Schooler. ECF No. 1170. The SEC had initiated this civil 27 action against Defendant Schooler and Western Financial Planning Corporation 28 (“Western”) four years earlier, on account of their practice of defrauding investors into 1 3:12-CV-02164-GPC-JMA 1 purchasing unregistered securities. Id. (citing Second Summary Judgment Order, ECF 2 No. 1081). To carry out the scheme, Defendant Western bought undeveloped real estate, 3 with cash or through financing, and simultaneously formed one or more General 4 Partnerships (“GPs”) to own the land. First Summary Judgment Order, ECF No. 1074 at 5 10. Western then sold General Partnership units to investors and sold the undeveloped 6 real estate to the General Partnerships. Id. at 10. In total, Western raised approximately 7 $153 million from almost 3,400 investors through implementing this scheme. Id. 8 B. The Decline of the General Partnership Assets 9 In 2013, the Court-appointed Receiver, Thomas Hebrank, engaged licensed 10 appraisers to value the 23 properties owned by the General Partnerships. ECF No. 203 at 11 2. Those professionals determined that the land was worth $16,328,000 and that the net 12 appraised value (appraised value less outstanding balances on all mortgages) of the 13 properties was $12,860,661. Id. The net appraised value represented just 8.41% of the 14 total funds that the general partners had invested in the land. Id. The Receiver further 15 estimated that, based on the then-current appraised values of the land, the average GP 16 investor would suffer an 88.40% loss if the GP properties were sold in 2013. Id. 17 Three years later, soon after final judgment was entered, the Receiver moved for 18 authority to conduct an Orderly Sale of the General Partnership Properties (“Orderly 19 Sale”). Motion for Orderly Sale, ECF No. 1181-1. In the Motion, the Receiver indicated 20 that the aggregate value in the GP accounts had been steadily decreasing while litigation 21 was ongoing. See id. In September 2012, the Receivership had assets of $6.6 million. 22 Id. at 1. By the end of 2015, the assets had dropped to $3.5 million, and the Receiver had 23 reason to believe that the value of the Receivership would continue to drastically 24 decrease through the end of 2016. This decline, he noted, was due to three main factors: 25 (1) 14 of the 23 properties were not appreciating in value1; (2) the properties were not 26 27 28 1 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. 2 3:12-CV-02164-GPC-JMA 1 worth enough to cover the costs of the GPs carrying the properties; and (3) low levels of 2 investor contributions to pay GP administrator fees, tax preparation fees, property taxes, 3 property insurance premiums, and notes owed to Western. See id. at 1-2. In other words, 4 the Receiver concluded, because the money being spent to hold the GP properties was 5 disproportionately high in relation to the value of the GP’s real estate assets, the 6 Receivership was in a steady decline. Id. 7 In order to prevent the value of the Receivership from falling into further decline, 8 the Receiver proposed that the GP properties be sold in accordance with Court-approved 9 orderly sale procedures. Id. The Receiver’s proposal explained that the best way to 10 maximize the value of all of the GP assets for the benefit of all investors, irrespective of 11 any given investors’ direct property interest, was to initiate an orderly sale of the GP 12 properties. Id. The Receiver estimated that the Receivership, after conducting sales of 13 the GP properties, Western’s properties and asset recovery, would be worth $21,804,826. 14 Id. at 16. 15 C. The Receiver’s Motion for Orderly Sale 16 On May 20, 2016, the Court held a hearing on the Receiver’s Motion for Orderly 17 Sale, at which time the Court heard from the SEC, Defendant, the Receiver, and the 18 investor-interveners — that is, those investors who were granted permission under Rule 19 23 to intervene to oppose the Receiver’s Motion. See ECF No. 1298. A short time 20 thereafter, on May 25, 2016, the Court approved, in part, the Receiver’s Orderly Sale 21 process.2 ECF No. 1304. 22 In approving the Orderly Sale, the Court addressed and evaluated the concerns 23 expressed by the Receiver, the SEC, and myriad investors, all of whom held differing 24 positions on whether the Orderly Sale would benefit the Receivership estate. See 25 26 2 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). 3 3:12-CV-02164-GPC-JMA 1 generally ECF Nos. 1181 (Motion for Orderly Sale), 1232 (SEC Response), 1234 (Dillon 2 Investors’ Response), 1235 (Graham Investors’ Response); see also, e.g., ECF Nos. 1240, 3 1242, 1244, 1249-1257 (Letters from Investors). The Court also took into consideration 4 the recommendations of the investors’ experts, as set forth in the Xpera Report. See ECF 5 No. 1304 at 16. The Xpera Report, the Court noted, substantially agreed with the 6 Receiver on how to maximize the value of the Receivership estate and, for the most part, 7 agreed on the appraised value of the various GP properties. Id. As such, the Court 8 directed the Receiver, where feasible, to incorporate the recommendations of the Xpera 9 Report into his ultimate Orderly Sale proposal. Id. at 19. 10 On July 22, 2016, the Receiver moved for permission to engage CBRE, a real 11 estate brokerage firm, as a consultant in order to weigh the pros and the cons of the Xpera 12 Report. ECF No. 1341-1. The Court granted the Receiver’s motion on August 30, 2016. 13 ECF No. 1359. CBRE presented its findings on the GP properties on October 24, 2016. 14 ECF No. 1419 (filed under seal). On November 22, 2016, the Receiver submitted a 15 report evaluating the Xpera Report recommendations. ECF No. 1405. The Court 16 reviewed the Receiver’s report and adopted the recommendations contained therein on 17 December 12, 2016. ECF No. 1423. 18 D. Washoe V Property 19 The Washoe V Property (the “Property”)—approximately 177.45 acres of 20 undeveloped land in Washoe County, Navada—is held by two general partners included 21 in the receivership: Pyramid Highway 177 Partners and Frontage 177 Partners. ECF No. 22 1515-1 at 2. The Property is owned outright by the Park Vegas Partners. Id. The 23 Property is approximately 8.04 acres of undeveloped land. Id. 24 In 2013, after receiving authorization from the Court, Receiver obtained an 25 appraisal of the Property at $180,000. ECF No. 1405, Ex. A at 13. Again with the 26 Court’s approval, the Receiver obtained another appraisal in 2015 that estimated the 27 value at $240,000. Id. The Xpera Group valued the property in early 2016 to be between 28 $594,000 and $630,000, and recommended that the Property be “sold now ‘as is.’” Id. 4 3:12-CV-02164-GPC-JMA 1 In January and August 2015, the Lansing Companies (“Lansing”) sent letters of 2 intent to purchase the Property. ECF No. 1515-1 at 2. The Receiver declined those 3 offers. Id. Lansing contacted the Receiver in 2016 and proposed to enter into a joint 4 venture to develop the property, and with authorization from the Court, the Receiver had 5 CBRE analyze the proposal. Id. at 3. CBRE recommended that the proposal be declined, 6 and the Receiver agreed; the Court accepted that recommendation. Id. 7 In December 2016, Lansing sent the Receiver an unsolicited letter of intent to 8 purchase the property for $600,000. Id. In accordance with the Court-approved modified 9 Orderly Sale procedures, see generally ECF No. 1309, 1359, the Receiver sent notice of 10 the offer to investors, and no substantive responses were received. Id. at 3. The Receiver 11 countered Lansing’s offer at $640,000, and Lansing accepted, subject to any overbids and 12 this Court’s approval. Id. Receiver and Lansing executed a Purchase and Sale 13 Agreement, and on September 6, 2017, Lansing removed all contingencies other than this 14 Court’s approval. Id. 15 16 On October 12, 2017, the Receiver notified the Court that no qualified overbids had been received for the Property. ECF No. 1532. 17 E. Conclusion 18 The Court finds that the purchase price of $640,000 is reasonable in light of the 19 fact that this price exceeds Xpera’s valuation estimate range. Further counseling in favor 20 of the reasonableness of this amount is the fact that no broker commission is due. 21 The Court is also satisfied that the Receiver has complied with the modified 22 Orderly Sale procedures. The Receiver’s notice of the sale adhered to the modified 23 Orderly Sale procedures—which require that notice of the sale be published “in the 24 county, state, or judicial district of the United States wherein the realty is situated,” 28 25 U.S.C. § 2002 (emphasis added)—by publishing notice in the Reno Journal-Gazette, and 26 by providing notice to the investors. Accordingly, and given that no opposition to the 27 present Motion has been filed, or raised, and that no qualified overbid was received, the 28 Court GRANTS Receiver’s motion for approval of sale (ECF No. 1515). 5 3:12-CV-02164-GPC-JMA 1 ORDER 2 The Motion for Approval of Sale of Washoe V Property filed by Thomas C. 3 Hebrank—the Court-appointed receiver for First Financial Planning Corporation d/b/a 4 Western Financial Planning Corporation ("Western"), its subsidiaries and the General 5 Partnerships listed in Schedule 1 to the Preliminary Injunction Order entered on 6 March 13, 2013 (collectively, "Receivership Entities")—having been reviewed and 7 considered by this Court, the Receiver having notified the Court that no qualified 8 overbids have been received, and for good cause appearing therefore, the Court finds as 9 follows: 10 1. The Motion is granted; 11 2. The sale of the Property known as the Washoe V Property, as described on 12 Exhibit A to the Declaration of Thomas C. Hebrank in support of the Motion by 13 Thomas C. Hebrank, as receiver for Pyramid Highway 177 Partners and Frontage 177 14 Partners, to the Lansing Companies is confirmed and approved; 15 3. 16 approved; and 17 4. 18 19 The purchase price of $640,000 for the Washoe V Property is confirmed and 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. IT IS SO ORDERED. 20 21 Dated: October 19, 2017 22 23 24 25 26 27 28 6 3:12-CV-02164-GPC-JMA

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