Securities and Exchange Commission v. Schooler et al

Filing 1699

ORDER Approving #1675 Sale of Freetrade/Suntec/VIA 188 Property and Authority to Pay Broker's Commission. Signed by Judge Gonzalo P. Curiel on 1/28/19. (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 APPROVING:

Plaintiff,

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

v.

SALE OF
FREETRADE/SUNTEC/VIA 188
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. 1675]

Defendants.

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

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Freetrade/Suntex/Via 188 Property and Authority to Pay Broker’s Commission. ECF No.

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1675. No opposition was filed. Based upon a review of the moving papers and the

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applicable law, the Court GRANTS the Receiver’s motion.

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BACKGROUND

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A. The SEC Enforcement Action

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On January 21, 2016, the Court granted the SEC’s motion for final judgment

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against Defendant Louis V. Schooler. ECF No. 1170. The SEC had initiated this civil

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action against Defendant Schooler and Western Financial Planning Corporation
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(“Western”) four years earlier, on account of their practice of defrauding investors into

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purchasing unregistered securities. Id. (citing Second Summary Judgment Order, ECF

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No. 1081). To carry out the scheme, Defendant Western bought undeveloped real estate,

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with cash or through financing, and simultaneously formed one or more General

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Partnerships (“GPs”) to own the land. First Summary Judgment Order, ECF No. 1074 at

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10. Western then sold General Partnership units to investors and sold the undeveloped

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real estate to the General Partnerships. Id. at 10. In total, Western raised approximately

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$153 million from almost 3,400 investors through implementing this scheme. Id.

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B. The Decline of the General Partnership Assets

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In 2013, the Court-appointed Receiver, Thomas Hebrank, engaged licensed

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appraisers to value the 23 properties owned by the General Partnerships. ECF No. 203 at

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2. Those professionals determined that the land was worth $16,328,000 and that the net

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appraised value (appraised value less outstanding balances on all mortgages) of the

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properties was $12,860,661. Id. The net appraised value represented just 8.41% of the

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total funds that the general partners had invested in the land. Id. The Receiver further

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estimated that, based on the then-current appraised values of the land, the average GP

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investor would suffer an 88.40% loss if the GP properties were sold in 2013. Id.

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Three years later, soon after final judgment was entered, the Receiver moved for

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authority to conduct an Orderly Sale of the General Partnership Properties (“Orderly

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Sale”). Motion for Orderly Sale, ECF No. 1181-1. In the Motion, the Receiver indicated

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that the aggregate value in the GP accounts had been steadily decreasing while litigation

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was ongoing. See id. In September 2012, the Receivership had assets of $6.6 million.

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Id. at 1. By the end of 2015, the assets had dropped to $3.5 million, and the Receiver had

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reason to believe that the value of the Receivership would continue to drastically

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decrease through the end of 2016.1 This decline, he noted, was due to three main factors:

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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
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(1) 14 of the 23 properties were not appreciating in value2; (2) the properties were not

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worth enough to cover the costs of the GPs carrying the properties; and (3) low levels of

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investor contributions to pay GP administrator fees, tax preparation fees, property taxes,

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property insurance premiums, and notes owed to Western. See id. at 1-2. In other words,

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the Receiver concluded, because the money being spent to hold the GP properties was

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disproportionately high in relation to the value of the GP’s real estate assets, the

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Receivership was in a steady decline. Id.

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In order to prevent the value of the Receivership from falling into further decline,

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the Receiver proposed that the GP properties be sold in accordance with Court-approved

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orderly sale procedures. Id. The Receiver’s proposal explained that the best way to

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maximize the value of all of the GP assets for the benefit of all investors, irrespective of

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any given investors’ direct property interest, was to initiate an orderly sale of the GP

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properties. Id. The Receiver estimated that the Receivership, after conducting sales of

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the GP properties, Western’s properties and asset recovery, would be worth $21,804,826.

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Id. at 16.

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C. The Receiver’s Motion for Orderly Sale

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On May 20, 2016, the Court held a hearing on the Receiver’s Motion for Orderly

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Sale, at which time the Court heard from the SEC, Defendant, the Receiver, and the

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investor-interveners — that is, those investors who were granted permission under Rule

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23 to intervene to oppose the Receiver’s Motion. See ECF No. 1298. A short time

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thereafter, on May 25, 2016, the Court approved, in part, the Receiver’s Orderly Sale

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process.3 ECF No. 1304.

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Interim Status Report submitted by the Receiver indicates that the Receivership’s current cash and cash
equivalent balance is $666,113. ECF No. 1505 at 17.
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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.
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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).
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In approving the Orderly Sale, the Court addressed and evaluated the concerns

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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December 12, 2016. ECF No. 1423.

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D. Freetrade/Suntex/Via 188 Property

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The Freetrade/Suntex/Via 188 Property (the “Property”) is a parcel of undeveloped

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land located in the Tecate area of San Diego County and known as the Tecate properties.

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ECF No. 1675-1 at 2. The property is owned by Freetrade Partners, Suntec Partners, and

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Via 188 Partners, each of which held an undivided 33.33% interest in the Property.

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

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be $317,000. Id. at 2. In 2015, the Receiver obtained a broker opinion of value for the

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Property, which was estimated at $181,000. Id. In 2016, Xpera Group valued the
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Property between $346,084 to $519,126; however the valuation based on the Property

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being held for an indefinite period under San Diego County finalizes the development

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plan in the area. Id. With the Court’s approval, the Receiver listed and marketed the

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Property in May 2016 for $260,000. Id. at 3. In January 2017, the Receiver received an

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all cash offer to purchase the Property for $250,000 but after the motion for approval of

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the sale was filed, the buyer declined to move forward with the transaction. Id. No other

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offers for the Property were received for many months so in consultation with Broker,

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Receiver gradually reduced the price to generate more interest until it reached $149,000.

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Id.

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An offer of $149,000 was received by D. Jean Becker Osbourne and Michael

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James Osbourne. Id. In accordance with the Court-approved modified Orderly Sale

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procedures, see generally ECF Nos. 1309, 1359, the Receiver sent notice of the offer to

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investors. ECF No. 1675-1 at 3. The Receiver and Buyer executed a Vacant Land

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Purchase Agreement and Joint Escrow Instructions, which is subject to a qualified

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overbid and this Court’s approval. Id. at 4. Buyer removed all contingencies—besides

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Court approval—on November 15, 2018. Id. On January 18, 2018, the Receiver notified

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the Court that no qualified overbids had been received for the Property. ECF No. 1688.

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E. Conclusion

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The Court finds that the purchase price of $149,000 is reasonable in light of the

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fact that it is in line with the 2015 value estimate for the Property, the Property has been

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thoroughly marketed over the past 31 months and $149,000 is the best offer received with

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the exception of the sale that did not go through in 2017. The Court is also satisfied that

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the Receiver has complied with the modified Orderly Sale procedures. The Receiver’s

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

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notice of the sale be published “in the county, state, or judicial district of the United

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

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notice in the San Diego Union-Tribune and by providing notice to the investors.

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Accordingly, and given that no opposition to the present Motion has been filed or raised,
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and no qualified overbid was received, the Court GRANTS Receiver’s motion for

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approval of sale.

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ORDER

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The Motion for Approval of Sale of the Freetrade/Suntex/Via 188 Property and

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Authority to Pay Broker's Commission filed by Thomas C. Hebrank—the Court-

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appointed receiver for First Financial Planning Corporation d/b/a Western Financial

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Planning Corporation ("Western"), its subsidiaries, and the General Partnerships listed in

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Schedule 1 to the Preliminary Injunction Order entered on March 13, 2013—having been

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reviewed and considered by this Court, the Receiver having notified the Court that no

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qualified overbid has been received, and for good cause appearing therefore, the Court

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finds as follows:

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1.

The Motion is granted;

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2.

The sale of the Property known as the Freetrade/Suntex/Via 188 Property, as

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described on Exhibit A to the Declaration of Thomas C. Hebrank in support of the

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Motion, by Thomas C. Hebrank to , is confirmed and approved;

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3.

The purchase price of $149,000 for the Freetrade/Suntex/Via 188 Property

is confirmed and approved;

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4.

The Receiver is immediately authorized to complete the sale transaction,

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

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and

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5.

Because a broker is representing the buyer, and pursuant to the Court-

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approved listing agreement, a commission in the amount of 9% of the final purchase

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price is approved.

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IT IS SO ORDERED.
Dated: January 28, 2019

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3:12-CV-02164-GPC-JMA