Securities and Exchange Commission v. Schooler et al

Filing 1591

ORDER Granting Remaining #1545 Portion of Receiver's Motion to Resolve Disputed Claims. Signed by Judge Gonzalo P. Curiel on 2/20/18. (dlg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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SECURITIES AND EXCHANGE
COMMISSION,

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ORDER GRANTING REMAINING
PORTION OF RECEIVER'S
MOTION TO RESOLVE DISPUTED
CLAIMS

Plaintiff,

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Case No.: 3:12-cv-02164-GPC-JMA

v.
LOUIS V. SCHOOLER and FIRST
FINANCIAL PLANNING
CORPORATION d/b/a WESTERN
FINANCIAL PLANNING
CORPORATION,

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[ECF No. 1545]

Defendant.

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Before the Court is a portion of the Receiver’s motion that this Court reserved for

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additional proceedings. (ECF No. 1545.) For the reasons explained below, the portion of

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that motion that remains pending is now GRANTED.

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I.

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As indicated in the order issued on May 25, 2016, the Court has approved the

Background

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Receiver’s “one pot approach” and distribution plan, which determined investor claims

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“by the total payment made by each investor to the Receivership Entities, less all

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payments received by each investor from the Receivership Entities.” (ECF No. 1304 at

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31 (approving plan as discussed at Ex. E of ECF No. 1181-1).) As that proposed plan

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stated, “[a]fter all Administrative Claims have been paid in full, all Claimants shall

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receive Cash in an amount equal to such Claimant’s Pro Rata Share of total Cash to be

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distributed to all Allowed Claims.” (ECF No. 1181-1, Ex. E at 3.) Pursuant to that plan,

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the Receiver has conducted a forensic accounting of the funds raised by the Receivership

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Entities and how they were used. (ECF No. 1545-1 at 3.) After the Receiver computed

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each of the approximately 3,400 investors’ claims and submitted to each investor a

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proposed claim amount, 21 investors submitted disputes. (Id. at 4.) The Receiver

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contacted each of those investors individually, and at the time of the instant motion, only

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six investors continued to dispute their claim amounts. (Id.)
On November 2, 2017, the Receiver filed this motion seeking three forms of relief:

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(1) resolution of the six disputed investor claim amounts; (2) approval of the proposed

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allowed claim amounts; and (3) authorization to dissolve the General Partnerships and

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related entities. (ECF No. 1545.) On December 1, 2017, the Securities and Exchange

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Commission (the “SEC”) filed a statement indicating that it did not oppose any portion of

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the Receiver’s motion. (ECF No. 1546.) Before the Court issued a ruling on the motion,

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investors Mary and John Jenkins filed a letter to the Court explaining why they were

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disputing the claim amount determined by the Receiver. (ECF No. 1556.) The Receiver

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filed a memorandum in response to the Jenkinses’s letter on December 8, 2017. (ECF

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No. 1557.)

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On December 11, 2017, the Court issued a ruling granting in part the pending

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motion. (ECF No. 1565.) In that ruling, the Court found good cause to grant the

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Receiver’s request to dissolve and close the General Partnerships and related entities.

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(Id. at 3.) As for the request for approval of the disputed claim amounts, the Court

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explained that it wanted to offer the six investors who were disputing their claim amounts

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a clear opportunity to present their position that the Receiver had miscalculated the

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amount of their claims against the Receivership. (ECF No. 1569.) The Court scheduled

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a hearing for February 9, 2018, at which investors were invited to appear (in person, or
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telephonically) and present such arguments. (Id. at 2.) The Court also set a briefing

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schedule in which it instructed the six investors disputing their claim amounts to “submit

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a letter explaining why he or she (or they) believe that the Receiver’s proposed claim

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amount is incorrect,” which “must be accompanied by evidence supporting the investor’s

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argument.” (Id.) The Court noted that it had received the previously submitted letter

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from the Jenkinses, but also indicated that “[i]f they wish to submit any other

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information, they may do so by the deadline” set forth in that order. (Id.) On December

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18, 2017, the Receiver filed with the Court a proof of service indicating that he had

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served all six investors disputing their claim amounts with a copy of the Court’s order

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setting the briefing schedule and scheduling the hearing. (ECF No. 1570.)
In response to its order setting this briefing schedule, the Court received letters

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from two investors: Sheri Gracelyn (ECF Nos. 1579, 1587) and Joseph F. and Carmen M.

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De Assis (ECF No. 1580). On February 2, 2018, the Receiver submitted a written

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response to these letters. (ECF No. 1588.) On February 9, 2018, the Court held the

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hearing, at which the De Assises appeared in person and investor Jeffrey Compangano

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appeared telephonically. (ECF No. 1590.) Based on the written and oral arguments and

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evidence presented to the Court, and for the reasons explained below, the Court is

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persuaded that claim amounts proposed by the Receiver are correctly calculated, with one

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exception as to investor Jean Dunham.

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II.

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As to each investor who has disputed the Receiver’s proposed claim amount, the

Discussion

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Court below discusses the information provided by the Receiver and any argument or

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evidence offered in response by that investor.

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a. Jean Dunham

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Jean Dunham invested a total of $52,923 in Park Vegas Partners and Reno

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Partners. (ECF No. 1545-2 at 3.) Park Vegas Partners owns one of the three properties

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known as Las Vegas 1, which were sold in 2005 with seller financing provided to buyer,

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after which the Park Vegas investors received distributions from the sale proceeds. (Id.)
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The buyer of the property later defaulted on the loan, and the Park Vegas Partners

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subsequently retook the property via foreclosure. (Id.) As a part of the sale, Mr. Dunham

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received $40,935 in distributions. (Id.) The Receiver calculated Mr. Dunham’s claim

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amount at $11,988, which represented his $52,923 investment minus $40,935 received in

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distributions. (Id.)

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According to the Receiver, Mr. Dunham disputes that he received $40,935 in

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distributions from the Las Vegas 1 sale, “but has provided no documentation indicating

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he received a different amount.” (Id.) Though the Court requested that he submit a letter

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explaining his position with supporting evidence, Mr. Dunham did not submit anything to

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the Court, and he did not appear at the hearing.

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In a signed and sworn declaration, the Receiver states that Western’s accounting

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system—called OPADs—indicates a total distribution to Mr. Dunham in the amount of

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$40,935, which was paid in five separate checks. (Id.) The total of the five checks,

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however, is $40,934. (See id.) Because the Receiver has not indicated there is any

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reason to believe that Mr. Dunham received an additional dollar outside of the five

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referenced checks, the Court concludes that Mr. Dunham received $40,934 in

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distributions, not $40,935. Deducting that amount from Mr. Dunham’s total investment,

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the Court concludes that Mr. Dunham’s correct claim amount is $11,989.

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b. Mark and Gwen Wolf-Iwanowski
The Wolf-Iwanowskis made four investments in Lyons Valley Partners and Silver

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State Partners totaling $68,850, which represented $52,991 in initial investments and

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$15,859 in subsequent capital contributions. (Id. at 3–4.) Silver State Partners owns one

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of the Las Vegas 1 properties, and thus received distributions when those properties were

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sold. (Id. at 4.) The Wolf-Iwanowskis received $23,768 in distributions as a result. (Id.)

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The Receiver calculated the Wold-Iwanowskis’s claim amount at $45,082, representing

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their $68,850 total investment less $23,768 in distributions.

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The Wolf-Iwanowskis argue that they invested $87,541 in capital contributions
rather than the $15,859 suggested by the Receiver. (Id.) They did not send any evidence
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supporting their argument to the Receiver, and neither submitted evidence to this Court

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nor appeared at the hearing. (Id.) They contend, however, that their personal tax forms

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support their position that they made $87,541 in capital contributions. (Id.)

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As the Receiver argues in his motion, self-prepared personal tax forms are not

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proper evidence of what amount an investor paid into a partnership. (See id.) Moreover,

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the Receiver has offered copies of the Lyons Valley Partners and Silver State Partners

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account histories showing a total of $15,859 in capital contributions received from the

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Wolf-Iwanowskis. (ECF No. 1545-2, Ex. B.)

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Because the Wolf-Iwanowskis did not submit a letter to the Court and did not

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appear at the hearing, the only evidence available to the Court indicates that the Wolf-

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Iwanowskis made a total of no more than $15,859 in capital contributions. That amount,

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plus the $52,991 the Wolf-Iwanowskis made in initial investments, is $68,850, which

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represents the “total payment made” by the Wolf-Iwanowskis into the Receivership.

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Subtracting from that total the Wolf-Iwanowskis’s distribution amount of $23,768, the

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correct claim amount is, as the Receiver suggests, $45,082.

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c. Sheri Gracelyn

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The Receiver proposed to Sheri Gracelyn that her claim amount should be

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$45,000. (ECF No. 1545-1 at 7.) Ms. Gracelyn responded that she “disputes the

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Receiver’s authority to sell GP properties.” (Id.) In response to the Court’s briefing

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schedule, Ms. Gracelyn submitted two letters. The first, dated January 9, 2018, states that

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she has been receiving letters about “selling some investment that I had,” but she still did

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not “know what property we are talking about, or what [she is] expected to do.” (ECF

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No. 1579.) In the second letter, dated January 24, 2018, Ms. Gracelyn wrote that she

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“now understand[s] which property is being liquidated and why, and [she is] in

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agreement to withdraw[ her] protest.” (ECF No. 1587.) In light of Ms. Gracelyn’s

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correspondence, the Court concludes that the Receiver’s proposed amount of $45,000 is

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the correct amount of Ms. Gracelyn’s claim against the Receivership.

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d. John and Mary Jenkins
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John and Mary Jenkins invested a total of $213,102, representing $187,950 in

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initial investments and $25,152 in subsequent capital contributions. (ECF No. 1545-2 at

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5.) One of their investments was $30,000 in exchange for 30,000 units of Park Vegas

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Partners. After the Park Vegas property was sold in 2005 (and later retaken by the Park

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Vegas Partners via foreclosure), the Jenkinses received $60,652 in distributions. (Id.) In

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August and November of 2006, the Jenkinses sold some of their Park Vegas units back to

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Western for $73,095.

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According to the Receiver, the OPADs system reflects that the Jenkinses currently

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hold 19,806.5216 units of Park Vegas. (Id.) That amount, however, does not reflect their

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2006 sale of Park Vegas units to Western. (Id.) The sale is instead only “reflected in the

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comments section.” (Id.) This caused the Receiver to miscalculate the Jenkinses’s claim

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amount. The Receiver also was initially unaware of a payment of $6,425 made from

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Park Vegas to the Jenkinses because it was made to a new named payee, “Mary Jenkins,

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Trustee.” (Id. at 5–6.) Missing this information, the Receiver initially proposed a claim

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amount of $140,082. (Id. at 6.) After discovering the additional distributions from Park

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Vegas, however, the Receiver revised his proposed claim amount to $79,355,

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representing the $213,102 in total investments, less $133,747 in total distributions.

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Disputing the original proposed amount, the Jenkinses directed the Receiver to

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discuss the matter with their accountant. The Receiver’s staff discussed the matter with

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the Jenkinses’s accountant, and after reviewing the Receiver’s information, “the

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Jenkins[es] have apparently abandoned their dispute regarding distributions they received

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from Park Vegas.” (Id.) While the Jenkinses submitted a letter to the Court, dated

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November 30, 2017, they did not appear at the February 9 hearing. In their letter, the

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Jenkinses do not dispute that they sold the units of Park Vegas to Western; rather, they

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explain that they reinvested $70,000 of the distributions they received into Lahontant

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Partners and Cactus Ridge Partners. (ECF No. 1556.) As the Receiver explains,

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however, “the Jenkins have already been given credit for these [re]investments in the

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proposed allowed amount of their claim.” (ECF No. 1557.) The $187,790 “total initial
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investment” discussed above includes the $70,000 invested in Lahontan Partners and

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Cactus Ridge Partners. (Id.)

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The Jenkinses have offered no evidence in response to the Receiver’s argument

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that the reinvestment they discuss in their letter is included in their investment amount.

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As a result, the Court must conclude that the Receiver’s proposed claim amount for the

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Jenkinses in the amount of $79,355 is correct.

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e. Jeffrey Compangano
Jeffrey Compangano invested a total of $160,000, $35,000 of which was made into
P-40 Warhawk Partners. (ECF No. 1545-2 at 8.) It does not appear that Mr.

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Compangano has received any distributions from the Receivership. The Receiver

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therefore proposed a claim amount of $160,000. Mr. Compangano disputes this amount

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by arguing that he made a $40,000 investment into P-40 Warhawk Partners rather than

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$35,000. (Id.) The Receiver’s staff contacted Mr. Compangano and informed him that

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the “OPADs system, tax returns, and investor K-1s for P-40 Warhawk all reflect an

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investment of $35,000.” (Id.) Mr. Campangano has not offered any evidence to the

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Receiver or the Court supporting his position. He did appear at the February 9 hearing,

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but did not offer any evidence in support of his position. In the absence of such evidence,

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the Court concludes that the Receiver’s proposed claim amount of $160,000 is correct.

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f. Joseph and Carmen De Assis
Joseph and Carmen De Assis together invested a total of $54,911, which consisted

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of $50,087 in initial investments and $4,824 in subsequent capital contributions. (Id.)

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One of these investments included $20,000 in Production Partners, which owns one of

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the Las Vegas 1 properties that was sold in 2005. (Id. at 8–9.) The De Assises received

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$17,766 in distributions as a result. (Id. at 9.) The Receiver proposed a claim amount of

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$37,145, which represented the $54,911 in total investments minus $17,766 in

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distributions. (Id.)

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The De Assises disputed the Receiver’s claim amount, and argued that the capital

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account stated on their K-1 tax statements should be the proper amount. (Id.) In a letter
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to the Court, dated January 11, 2018, the De Assises echo this argument and offer copies

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of their K-1 tax forms from years 2006, 2007, 2008, 2010, 2011, 2012, 2013, and 2014.

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(ECF No. 1580.) The De Assises also appeared at the February 9 hearing to offer this

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argument. As discussed during the hearing, and argued by the Receiver, the K-1 tax

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forms offered by the De Assises would not show any distribution they received from the

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General Partnerships. (See ECF No. 1545-2 at 9.) In the absence of any other evidence

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suggesting that the De Assises did not receive such distributions, the Court concludes that

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the Receiver’s proposed claim amount of $37,145 is correct.

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III.

Conclusion

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For the reasons discussed above, the Court resolves the six disputed claims

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discussed in the Receiver’s motion by approving the claim amounts as indicated below:

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



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

Jean Dunham: $11,989
Mark and Gwen Wolf-Iwanowski: $45,082
Sheri Gracelyn: $45,000
John and Mary Jenkins: $79,355
Jeffrey Compangano: $160,000
Joseph and Carmen De Assis: $37,145

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Accordingly, the Court APPROVES the allowed claim amounts proposed by the

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Receiver in Exhibit A of his motion (ECF No. 1545-2 at Ex. A), with the exception that

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investor Jean Dunham’s claim amount should be $11,989, not $11,988.

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IT IS SO ORDERED.
Dated: February 20, 2018

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