Securities and Exchange Commission v. Schooler et al
Filing
637
ORDER: (1) Granting # 525 Receiver's Fifth Fee Application; (2) Granting # 526 Allen Matkins' Fifth Fee Application; (3) Granting # 566 Receiver's Sixth Fee Application; (4) Granting # 567 Allen Matkins' Sixth Fee Application; (5) Granting # 568 Duffy's Second Fee Application. Signed by Judge Gonzalo P. Curiel on 8/4/2014. (All non-registered users served via U.S. Mail Service)(srm)
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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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Plaintiff,
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v.
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LOUIS V. SCHOOLER and FIRST
FINANCIAL PLANNING
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Financial Planning Corporation,
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Defendants.
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Case No. 3:12-cv-2164-GPC-JMA
ORDER:
(1) GRANTING RECEIVER’S
FIFTH FEE APPLICATION, (ECF
NO. 525);
(2) GRANTING ALLEN
MATKINS’ FIFTH FEE
APPLICATION, (ECF NO. 526);
(3) GRANTING RECEIVER’S
SIXTH FEE APPLICATION, (ECF
NO. 566);
(4) GRANTING ALLEN
MATKINS’ SIXTH FEE
APPLICATION, (ECF NO. 567);
(5) GRANTING DUFFY’S
SECOND FEE APPLICATION,
(ECF NO. 568)
INTRODUCTION
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Presently before the Court in this SEC enforcement action are the following
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interim fee applications filed by the court-appointed receiver in this matter and his
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professionals:
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1.
Fifth Interim Application for Approval and Payment of Fees and Costs to
3:12-cv-2164-GPC-JMA
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Thomas C. Hebrank, as Receiver (“Receiver’s Fifth Fee Application”).
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(ECF No. 525.) Defendants have opposed the Receiver’s Fifth Fee
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Application, (ECF No. 537), and the Receiver has filed a reply, (ECF No.
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546).
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2.
Fifth Interim Fee Application of Allen Matkins Leck Gamble Mallory &
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Natsis LLP, Counsel to Receiver (“Allen Matkins’ Fifth Fee
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Application”). (ECF No. 526.) Defendants have opposed Allen Matkins’
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Fifth Fee Application, (ECF No. 537), and the Receiver has filed a reply,
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(ECF No. 546).
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3.
Sixth Interim Application for Approval and Payment of Fees and Costs to
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Thomas C. Hebrank, as Receiver (“Receiver’s Sixth Fee Application”).
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(ECF No. 566.) Defendants have opposed the Receiver’s Sixth Fee
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Application, (ECF No. 609), and the Receiver has filed a reply, (ECF No.
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625).
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4.
Sixth Interim Fee Application of Allen Matkins Leck Gamble Mallory &
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Natsis LLP, Counsel to Receiver (“Allen Matkins’ Sixth Fee Application).
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(ECF No. 567.) Defendants have opposed the Receiver’s Sixth Fee
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Application, (ECF No. 609), and the Receiver has filed a reply, (ECF No.
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625).
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5.
Second Interim Application for Approval and Payment of Fees and Costs
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to Duffy, Kruspodin & Company, LLP, as Tax Accountants for Receiver
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(“Duffy’s Second Fee Application”). (ECF No. 568.)
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The SEC has indicated to the Receiver that it does not oppose any of the
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foregoing applications. The Court has considered the foregoing applications and all
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related briefing. The Court finds the foregoing applications suitable for disposition
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without oral argument. See CivLR 7.1.d.1.
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BACKGROUND
In his Fifth and Sixth Fee Applications, the Receiver asserts he has incurred a
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3:12-cv-2164-GPC-JMA
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total of $172,037.80 in fees for work done in the following categories:
Category
General Receivership
Asset Investigation & Recovery
Reporting
Operations & Asset Sales
Claims & Distributions
Legal Matters & Pending Litigation
Total
5th App.
$20,049.75
$53,208.70
$2,079.00
$26,991.00
$0.00
$3,687.75
$106,016.20
6th App.
$10,629.75
$17,066.25
$4,892.85
$31,675.50
$0.00
$1,757.25
$66,021.60
Total
$30,679.50
$70,274.95
$6,971.85
$58,666.50
$0.00
$5,445.00
$172,037.80
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While the Receiver incurred $172,037.80 in fees, he now seeks only 80% of
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those fees, i.e., $137,630.24. The Receiver’s Fifth Fee Application covers the period
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July 1, 2013, through September 30, 2013. The Receiver’s Sixth Fee Application
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covers the period October 1, 2013, through December 31, 2013. The Receiver reserves
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the right to seek any un-awarded fees in his final fee application. The Receiver also
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seeks costs in the total amount of $1,348.84 ($1,014.91 in Fifth Fee Application plus
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$333.93 in Sixth Fee Application), which covers expenses for website additions,
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copies, and postage/mailing.
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Allen Matkins asserts it incurred $132,878.70 in fees for work done in the
following categories:
Category
General Receivership
Asset Investigation
Reporting
Operations & Asset Sales
Claims & Distributions
Third Party Recoveries
Pending Litigation
Employment/Fees
Total
5th App.
$27,630.90
$178.20
$14,063.85
$9,177.30
$1,603.80
$11,297.25
$3,073.95
$6,682.50
$73,707.75
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6th App.
$8,947.35
$356.40
$8,498.70
$15,547.50
$757.35
$18,737.55
$490.05
$5,836.05
$59,170.95
Total
$36,578.25
$534.60
$22,562.55
$24,724.80
$2,361.15
$30,034.80
$3,564.00
$12,518.55
$132,878.70
3:12-cv-2164-GPC-JMA
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While Allen Matkins incurred $132,878.70, it now seeks only 80% of those fees,
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i.e., $106,302.96. Allen Matkins’ Fifth and Sixth Fee Applications cover the same
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periods noted above. Allen Matkins’ reserves the right to seek any un-awarded fees
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in its final fee application. Allen Matkins also seeks costs in the total amount of
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$1,789.58 ($1,511.50 in Fifth Fee Application plus $278.08 in Sixth Fee Application),
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which covers expenses for document editing and copying, filing fees, service fees,
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audio-conferencing fees, PACER fees, shipping, and postage.
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Duffy, the tax accounting firm retained by the Receiver for work on behalf of
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Western and related entities, seeks $23,844.04 in fees for General Engagement Services
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($2,790.00), Preparation of 2012 Income Tax Returns ($16,583.29), and Representation
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for 2010 IRS Audit ($4,470.75).
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application period January 1, 2013, through December 21, 2013.
DISCUSSION
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Duffy’s Second Fee Application covers the
I.
Legal Standard
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“[I]f a receiver reasonably and diligently discharges his duties, he is entitled to
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fair compensation for his efforts.” SEC v. Elliott, 953 F.2d 1560, 1577 (11th
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Cir.1992). “The court appointing [a] receiver has full power to fix the compensation
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of such receiver and the compensation of the receiver’s attorney or attorneys.” Drilling
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& Exploration Corp. v. Webster, 69 F.2d 416, 418 (9th Cir. 1934). A receiver’s fees
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must be reasonable. See In re San Vicente Med. Partners Ltd., 962 F.2d 1402, 1409
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(9th Cir. 1992).
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As set forth in the Court’s prior fee orders, the Court will assess the
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reasonableness of the requested fees using the factors enumerated in SEC v. Fifth
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Avenue Coach Lines, 364 F. Supp. 1220, 1222 (S.D.N.Y. 1973), and In re Alpha
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Telcom, Inc., 2006 WL 3085616, at *2-3 (D. Or. Oct. 27, 2006). Those factors include:
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(1) the complexity of the receiver’s tasks; (2) the fair value of the receiver’s time, labor,
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and skill measured by conservative business standards; (3) the quality of the work
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performed, including the results obtained and the benefit to the receivership estate; (4)
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3:12-cv-2164-GPC-JMA
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the burden the receivership estate may safely be able to bear; and (5) the Commission’s
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opposition or acquiescence.
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II.
Analysis
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In opposition to the Receiver’s and Allen Matkins’ Fifth and Sixth Fee
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Applications, Defendants argue the Receiver should be required to certify to the Court
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that payments on loans secured by the GP properties are current before the Court
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approves any portion of the Receiver’s and Allen Matkins’ instant fee requests. The
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Court has previously considered and rejected this argument. In any event, since
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December 2013, all loan payments are current.
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Defendants also argue the Receiver’s and Allen Matkins’ instant fee requests are
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unreasonable because: (1) “[t]here is not great complexity of problems faced, and the
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benefit to the receivership estate is nonexistent”; (2) “the Receiver’s continued
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existence is highly detrimental”; and (3) “the Receiver’s work ‘merits an incomplete
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grade.’”
Defendants do not oppose Duffy’s Second Fee Application, and the SEC does
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not oppose any of the instant fee applications.
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A.
Complexity of Tasks
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The Court finds the tasks the Receiver performed during the Fifth and Sixth Fee
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Application periods were somewhat complex. The Receiver undertook the following
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tasks:
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reviewing entity financial statements and accountings;
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analyzing assets and liabilities, including entity receivables and payables,
investments, and related party transactions;
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receivables and other assets;
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securing receivership assets, including recovery of the LinMar entities’
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finalizing a forensic accounting review to determine the sources and use
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of funds for the Receivership Entities (including review of approximately
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10,000 deposits totaling $249 million, almost 16,000 disbursements from
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576 bank statements totaling over $253 million, and 300 transfers
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between Western bank accounts totaling $124 million);
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preparing interim reports to the Court;
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managing and overseeing the GPs’ operations and real estate properties;
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managing and overseeing Western’s business;
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performing accounting functions of the Receivership Entities, including
paying expenses, clearing checks, and ACH entries;
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managing and overseeing tax reporting for all Receivership Entities;
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managing and overseeing pending litigation involving the Receivership
Entities;
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participating in meetings and conferences with the SEC and legal counsel;
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handling general administrative matters, including reviewing mail, emails,
and other correspondence;
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administering bank accounts;
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maintaining and updating the Receiver’s website with case information
and documents; and
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relocating Western’s operations and establishing a new work place for the
remaining Western employee.
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The Court finds the tasks that Allen Matkins performed during the Fifth and
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Sixth Fee Application periods to be moderately complex. Allen Matkins undertook the
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following tasks:
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Motion to Modify the Preliminary Injunction Order;
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assisting the Receiver in preparing the information packed ordered by the
Court on August 16, 2013;
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preparing and attending the July 26, 2013 hearing on Defendants’ May
29, 2013 Motion to Modify the Preliminary Injunction Order;
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assisting the Receiver in preparing sur-reply to Defendants’ May 29, 2013
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assisting the Receiver in responding to Defendants’ August 28, 2013
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3:12-cv-2164-GPC-JMA
Motion for Partial Reconsideration;
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September 26, 2013 Motion for Stay;
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communicating with the Receiver regarding a storage unit maintained by
Western;
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assisting the Receiver in analyzing issues related to Defendants’
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assisting the Receiver in preparing his June 20, 2013 Valuation Report
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and in preparing a response to Defendants’ opposition to the Valuation
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Report;
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assisting the Receiver in preparing interim reports to the Court;
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assisting the Receiver in preparing Part Two of his Forensic Accounting
Report;
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assisting the Receiver by preparing and filing his July 23, 2013 Ex Parte
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Motion for Authority to (A) Sell Office Furniture and Equipment and (B)
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Establish a New Work Place;
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communicating with Defendants’ counsel regarding the status of GP
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mortgage payments, the anticipated release of the GPs from the
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receivership, the relocation of the partnership administrators, access to
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electronic data relating to GP operations, and the auction of office
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furniture and equipment;
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preparing a document retention policy for Western;
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communicating with investors and their counsel, both directly and via the
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receivership website, regarding the receivership, claims, distributions, and
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related issues;
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pursuing claims against the LinMar Borrowers on Western’s behalf,
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including preparing and filing complaints against three entities, engaging
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in settlement discussions, and advising the Receiver on potential
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professional liability claims against Western’s pre-receivership counsel;
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assisting the Receiver in preparing status reports in the several pending
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lawsuits and FINRA arbitrations of which some Receivership Entities are
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parties; and
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As to the complexity of the tasks performed by the Receiver’s accountant, Duffy,
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the Court finds its tasks were moderately complex. Duffy undertook the following
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activities:
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responding to Defendants’ objections to previous fee applications.
communicating and meeting with Receiver about establishing the
engagement for services, timing, status, and special circumstances;
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processing the initial receipt of books and records;
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formatting and organizing files with current year data;
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verifying cash receipts and disbursements and scanning detail for
reporting accuracy and consistency;
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checking balance sheet account balances for assets, loan receivables, and
loan payables for variances compared to prior year;
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verifying and reconciling ‘investment in’ accounts;
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preparing the 263A calculation with reconciling spreadsheets;
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reviewing input sheets of information entered into Lacerte;
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manager level reviews;
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partner level reviews;
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finalizing, printing, and electronically filing tax returns and
accompanying letters and schedules; and
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representing receivership entity Real Asset Locators, Inc.’s in IRS audit
of 2010 tax return.
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The Court has reviewed the time sheets filed in support of the instant fee
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applications and finds that, at this time, the tasks were necessary and not over-billed.
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B.
Fair Value of Time, Labor, & Skill
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The Receiver billed his time at $247.50 per hour and the time of those working
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for him at $157.50 - $211.50 per hour. Allen Matkins billed its time at $297 - $616.50
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per hour, with most of the work being billed at $445.50 per hour. The Receiver’s
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accounting firm, Duffy, billed its time at $36.00 - $337.50 per hour, with most of the
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work being billed at $337.50 per hour. These rates reflect a ten percent discount from
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the Receiver’s, Allen Matkins’, and Duffy’s ordinary rates.
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The Court continues to find, as it has in previous fee orders, that the rates
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charged by the Receiver, Allen Matkins, and Duffy are comparable to rates charged in
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this geographic area and therefore represent a fair value of the time, labor, & skill
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provided.
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C.
Quality of Work Performed
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The Court finds the quality of work performed by the Receiver and his counsel
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to be above average. The Receiver and his professionals continue to keep the
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Receivership Entities afloat, which—for Western—is a challenging task given that its
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main source of income (i.e., selling GP interests) has ceased since implementation of
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the action. Without assistance from Defendants, the Receiver and his professionals
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have ultimately been able to meet Western’s many obligations, including payments on
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the loans secured by GP properties. This benefits the entire receivership estate.
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Moreover, the Receiver and his counsel have complied with the Court’s orders and
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have made every effort to protect investors’ interests in the GP properties during the
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pendency of this litigation.
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The Court finds the quality of work performed by Duffy to be satisfactory. The
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Court has received no complaint that Duffy’s tax preparation activities were deficient
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in anyway.
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D.
Receivership Estate’s Ability to Bear Burden of Fees
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Given the Receiver’s assurance that approved fees and costs will be paid from
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Western’s assets above and beyond cash necessary to make payments on loans secured
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by GP properties, the Receiver’s acknowledgment that approved fees and costs may
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have to be paid in installments as funds become available, and the Receiver’s efforts
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to collect on Western’s receivables, the Court finds the receivership estate has
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sufficient ability to bear the instant fee requests.
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E.
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The Court accepts the Receiver’s representations that the SEC does not oppose
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Commission’s Opposition or Acquiescence
any of the instant fee applications.
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Considering the above five factors together, and considering that “[i]nterim fees
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are generally allowed at less than the full amount,” Alpha Telcom, 2006 WL 3085616,
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at *2-3, the Court awards fees and costs as set forth in the following table:
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Applicant
Fees
% of Fees
Receiver
Allen Matkins
Duffy
Allowed
$137,630.24
$106,302.96
$23,844.04
Incurred1
80%
80 %
100%
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% of Costs
$1,348.84
$1,789.58
n/a
Incurred
100 %
100 %
n/a
CONCLUSION AND ORDER
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Costs Allowed
After a review of the parties’ submissions, the record in this matter, and the
applicable law, and for the foregoing reasons, IT IS HEREBY ORDERED that:
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1.
The Receiver’s Fifth Fee Application, (ECF No. 525), is GRANTED;
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2.
Allen Matkins’ Fifth Fee Application, (ECF No. 526), is GRANTED;
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3.
The Receiver’s Sixth Fee Application, (ECF No. 566), is GRANTED;
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4.
Allen Matkins’ Sixth Fee Application, (ECF No. 567), is GRANTED;
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5.
Duffy’s Second Fee Application, (ECF No. 568), is GRANTED; and
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6.
The awarded fees shall be paid from Western’s assets above and beyond
cash necessary to make payments on loans secured by GP properties.
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DATED: August 4, 2014
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HON. GONZALO P. CURIEL
United States District Judge
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The Court includes the percentage of fees incurred rather than a percentage of the fees
requested, given that the Receiver and Allen Matkins request only a percentage of their actual fees.
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