Securities and Exchange Commission v. Schooler et al

Filing 1652

ORDER Approving #1634 Sale of Washoe IV Property and Authority to Pay Broker's Commission. Signed by Judge Gonzalo P. Curiel on 8/28/18. (dlg)

1
2
3
4
5
6
7

UNITED STATES DISTRICT COURT

8

SOUTHERN DISTRICT OF CALIFORNIA

9
10
11
12
13
14
15
16
17

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

SECURITIES AND EXCHANGE
COMMISSION,

ORDER APPROVING:

Plaintiff,
v.

SALE OF WASHOE IV PROPERTY
AND AUTHORITY TO PAY
BROKER’S COMMISSION

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

[ECF No. 1634]

Defendants.

18
19

Before the Court is the Receiver’s Motion for Approval of Sale of the Washoe IV

20

Property and Authority to Pay Broker’s Commission. ECF No. 1634. No opposition was

21

filed. Based upon a review of the moving papers and the applicable law, the Court

22

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 2016.1 This decline, he noted, was due to three main factors:

25

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 Twentieth
Interim Status Report submitted by the Receiver indicates that the Receivership’s current cash and cash
equivalent balance was $666,113. ECF No. 1505 at 17.
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

In approving the Orderly Sale, the Court addressed and evaluated the concerns

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

expressed by the Receiver, the SEC, and myriad investors, all of whom held differing

2

positions on whether the Orderly Sale would benefit the Receivership estate. See

3

generally ECF Nos. 1181 (Motion for Orderly Sale), 1232 (SEC Response), 1234 (Dillon

4

Investors’ Response), 1235 (Graham Investors’ Response); see also, e.g., ECF Nos. 1240,

5

1242, 1244, 1249-1257 (Letters from Investors). The Court also took into consideration

6

the recommendations of the investors’ experts, as set forth in the Xpera Report. See ECF

7

No. 1304 at 16. The Xpera Report, the Court noted, substantially agreed with the

8

Receiver on how to maximize the value of the Receivership estate and, for the most part,

9

agreed on the appraised value of the various GP properties. Id. As such, the Court

10

directed the Receiver, where feasible, to incorporate the recommendations of the Xpera

11

Report into his ultimate Orderly Sale proposal. Id. at 19.

12

On July 22, 2016, the Receiver moved for permission to engage CBRE, a real

13

estate brokerage firm, as a consultant in order to weigh the pros and the cons of the Xpera

14

Report. ECF No. 1341-1. The Court granted the Receiver’s motion on August 30, 2016.

15

ECF No. 1359. CBRE presented its findings on the GP properties on October 24, 2016.

16

ECF No. 1419 (filed under seal). On November 22, 2016, the Receiver submitted a

17

report evaluating the Xpera Report recommendations. ECF No. 1405. The Court

18

reviewed the Receiver’s report and adopted the recommendations contained therein on

19

December 12, 2016. ECF No. 1423.

20

D. Washoe IV Property

21

The Washoe IV Property (the “Property”) is approximately 116.43 acres of

22

undeveloped land in Washoe County, Nevada. ECF No. 1634-1 at 2. The Property was

23

held outright by four General Partnerships—Rose Vista, Steamboat, Galena Ranch, and

24

Redfield Heights—but it has since been transferred to the Qualified Settlement Fund

25

Trust. Id.

26

In 2013, the Receiver obtained an appraisal of the Property estimating the value to

27

be $375,000. Id. In 2015, another appraisal of the Property estimated its value to be

28

$350,000. Id. In 2016, Xpera Group valued the Property between $582,150 and
4
3:12-CV-02164-GPC-JMA

1

$640,365, with a recommendation that the property be sold “now, as-is.” Id.

2

The Lansing Companies (“Lansing”) contacted the Receiver on several occasions

3

suggesting an interest in the Property. Id. In August 2015, Lansing sent the Receiver a

4

letter of intent to purchase the Property. Id. Ultimately, however, the Receiver’s offer—

5

which had been voted on by the interested General Partnerships and approved by the

6

Court—was declined. Id. at 2–3. In 2016, Lansing contacted the Receiver to propose a

7

joint venture for developing the Property; after consulting with consultant CBRE,

8

however, the Receiver declined the proposal (with approval from the Court). Id. at 3. In

9

2017, Lansing again showed an interest in purchasing the Property, this time for

10

$660,000. Id. After completing an inspection of the Property, however, Lansing chose

11

not to proceed. Id.

12

On December 11, 2017, the Receiver recommended the Property be listed for sale

13

with CBRE, as broker, for $400,000. ECF No. 1564. According to the Receiver, CBRE

14

did not believe that the Property would receive further offers in the Xpera Group

15

valuation range. ECF No. 1634-1 at 3. The Court approved the recommendation, ECF

16

No. 1581, and CBRE (“Broker”) listed and advertised the Property. Id. Ladera

17

Properties, LLC (“Buyer”) made a credible offer for the Property for $325,000, to which

18

the Receiver countered for $360,000. Id. The Buyer countered again at $345,000, and

19

the Receiver re-countered at $350,000; the Buyer then accepted. Id.

20

In accordance with the Court-approved modified Orderly Sale procedures, see

21

generally ECF No. 1309, 1359, the Receiver indicated that it would send notice of the

22

offer to investors. ECF No. 1634-1 at 3. On August 22, 2018, the Receiver notified the

23

Court that no qualified overbids had been received for the Property. ECF No. 1646.

24

E. Conclusion

25

The Court finds that the purchase price of $350,000 is reasonable in light of the

26

fact that this was the exact amount of the 2015 valuation of the Property. In addition,

27

while it is below the Xpera Group’s valuation range, CBRE reached the conclusion, after

28

analyzing the Property, that the Receiver would not receive offers if the Property was
5
3:12-CV-02164-GPC-JMA

1

listed in that range. ECF No. 1651. The Court is also satisfied that the Receiver has

2

complied with the modified Orderly Sale procedures. The Receiver’s notice of the sale

3

adhered to the modified Orderly Sale procedures—which require that notice of the sale

4

be published “in the county, state, or judicial district of the United States wherein the

5

realty is situated,” 28 U.S.C. § 2002 (emphasis added)—by publishing notice in the Reno

6

Journal-Gazette and by providing notice to the investors. Accordingly, and given that no

7

opposition to the present Motion has been filed or raised, and no qualified overbid was

8

received, the Court GRANTS Receiver’s motion for approval of sale.

9

ORDER

10

The Motion for Approval of Sale of the Washoe IV Property and Authority to Pay

11

Broker's Commission filed by Thomas C. Hebrank—the Court-appointed receiver for

12

First Financial Planning Corporation d/b/a Western Financial Planning Corporation

13

("Western"), its subsidiaries, and the General Partnerships listed in Schedule 1 to the

14

Preliminary Injunction Order entered on March 13, 2013—having been reviewed and

15

considered by this Court, the Receiver having notified the Court that no qualified overbid

16

has been received, and for good cause appearing therefore, the Court finds as follows:

17

1.

The Motion is granted;

18

2.

The sale of the Property known as the Washoe IV Property, as described on

19

Exhibit A to the Declaration of Thomas C. Hebrank in support of the Motion, by

20

Thomas C. Hebrank to Ladera Properties, LLC, is confirmed and approved;

21

3.

22

and approved;

23

4.

The purchase price of $350,000 for the Washoe IV Property is confirmed
The Receiver is immediately authorized to complete the sale transaction,

24

including executing any and all documents as may be necessary and appropriate to do so;

25

and

26

5.

Pursuant to the listing agreement with the broker, a commission in the

27

amount of 6% of the gross sales price is approved.

28

//
6
3:12-CV-02164-GPC-JMA

1
2

IT IS SO ORDERED.
Dated: August 28, 2018

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
7
3:12-CV-02164-GPC-JMA