Securities and Exchange Commission v. Nadel et al

Filing 1403

Verified MOTION for miscellaneous relief, specifically for Approval of Private Sale of Assets of Quest Energy Management Group, Inc. by Burton W. Wiand. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4)(Perez, Jared)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
v.

Plaintiff,

ARTHUR NADEL,
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
Defendants.

CASE NO.: 8:09-cv-0087-T-33CPT

SCOOP REAL ESTATE, L.P.,
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.,
VICTORY IRA FUND, LTD,
VICTORY FUND, LTD,
VIKING IRA FUND, LLC,
VIKING FUND, LLC, AND
VIKING MANAGEMENT, LLC.
Relief Defendants.

/

RECEIVER’S VERIFIED MOTION FOR APPROVAL OF PRIVATE SALE
OF ASSETS OF QUEST ENERGY MANAGEMENT GROUP, INC.
Burton W. Wiand, as receiver (the “Receiver”) for Quest Energy Management
Group, Inc. (“Quest”), moves the Court for an order, in substantially the form attached as
Exhibit 1, authorizing him to sell certain Quest assets to Archer Petroleum, Ltd. (“Archer”
or the “Purchaser”), free and clear of all claims, liens, and encumbrances. As explained in
Section III below, any existing claims, liens, or encumbrances on Quest or its assets will
transfer to the proceeds of the sale and be resolved through the claims process established in

this action. The Court has previously utilized this procedure in connection with other asset
sales. See Docs. 842, 1151 (granting motion to approve sale and transferring lien to sale
proceeds). As in those matters, the Court’s utilization of a similar procedure here will protect
the interests of all claimants while also allowing the proposed sale to close in a timely
manner.
BACKGROUND
On January 21, 2009, the Securities and Exchange Commission (“SEC”) initiated this
action to prevent the defendants from further defrauding investors in hedge funds the
defendants operated. That same day, the Court entered an order appointing Burton W.
Wiand as Receiver for defendants Scoop Capital, LLC, and Scoop Management, Inc., and
relief defendants Scoop Real Estate, L.P.; Valhalla Investment Partners, L.P.; Valhalla
Management, Inc.; Victory Fund, Ltd.; Victory IRA Fund, Ltd.; Viking IRA Fund, LLC;
Viking Fund, LLC; and Viking Management, LLC. Doc. 8. The Court subsequently granted
several motions to expand the scope of the Receivership to include other entities owned or
controlled by Arthur Nadel (“Nadel”). See generally Docs. 17, 44, 68, 81, 153, 172, 454,
911, 916, 1024.

All of the entities in receivership are collectively referred to as the

“Receivership Entities.” The Court directed the Receiver to, among other things, administer
and manage the business affairs, funds, assets, and any other property of the Receivership
Entities. See, e.g., Doc. 8.
Quest And Its Assets
Quest is an oil and gas exploration and production company based in Texas. Paul
Downey was its Chief Executive Officer, and his son Jeff Downey was its Chief Operating

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Officer (collectively, the “Downeys”). Viking Oil & Gas, LLC (“Viking Oil”) is a Florida
limited liability company formed in January 2006 by Neil and Christopher Moody (the
“Moodys”) to make investments in Quest. The Moodys funded Viking Oil with proceeds
from Nadel’s scheme, and as a result, the Court expanded the Receivership to include Viking
Oil on July 15, 2009. Doc. 153. Between February 2006 and April 2007, through Viking
Oil, the Moodys invested at least $4 million in Quest. As a result, the Receiver filed a motion
to expand the Receivership to include Quest (Doc. 993), and the Court granted that motion
on May 24, 2013 (Doc. 1024). Although Quest is one of the Receivership Entities, the
Receiver has administrated Quest independently, as directed by the Hon. Richard A. Lazzara
(the “Quest Receivership” and the “Quest Estate”).
Since the inception of the Quest Receivership in May 2013, the Receiver has
managed and operated Quest, including its oil and gas leases. The company generates
revenue by selling its production, but that revenue has varied sharply with oil and gas prices,
and it has not historically exceeded Quest’s operating costs by a material margin. As such
and as explained in more detail below, the Receiver has long sought to sell Quest to monetize
its assets for the Quest Estate and eventual distribution to creditors. The Receiver’s efforts,
however, have been complicated by the fraudulent manner in which the Downeys operated
Quest. See, e.g., S.E.C. v. P. Downey et al., Case No. 1:14-cv-185 (N.D. Tex.). 1
1

The SEC asserted claims against the Downeys for their violations of the anti-fraud
provisions of the federal securities laws in connection with their activities on behalf of Quest.
On July 25, 2016, the court presiding over the enforcement action entered an order granting
summary judgment in favor of the SEC on its claims against the Downeys. On September
29, 2016, the court granted the SEC’s motion for remedies and entered final judgments as to
all defendants. In addition to entering final judgments, the court also made specific findings
as to the defendants, including that Jeff and Paul Downey (1) “raised $4.9 million from 17

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The Receiver’s Marketing Efforts
The Receiver’s marketing efforts for Quest began with communications with various
individuals with ties to the oil and gas exploration industry to generate referrals of interested
buyers and through communications with potential buyers familiar with Quest.

Those

communications, however, resulted in no meaningful offers. The Receiver sought advice
from various individuals with knowledge of the oil and gas exploration industry to determine
the best way to market Quest for sale. As a result of those efforts, two marketing firms
submitted proposals to the Receiver. After careful consideration, the Receiver determined
that selling Quest through a private sale with the assistance of WhiteHorse Partners, LLC
(“WhiteHorse”) was in the best interests of the Quest Estate, as he believed it would provide
the best opportunity to market Quest to the widest audience for the most value.
WhiteHorse is a boutique advisory firm based in Nashville, Tennessee familiar with
the oil and gas industry. It has marketed and sold (or is currently marketing and in the
process of selling) companies similar to Quest. WhiteHorse presented the Receiver with a
proposed Marketing Engagement Agreement that sought a non-refundable $5,000 retainer
and a 6% commission of the sale price of Quest. The $5,000 retainer will be credited at the
time of closing. On October 28, 2014, the Receiver filed a renewed motion for leave to

investors in a fraudulent offering of securities”; (2) “acted with a high level of scienter,
knowingly deceiving investors about virtually every aspect of the investment”; (3) concealed
the Receiver’s appointment from Quest’s investors; and (4) exhibited “misconduct [that] was
extremely egregious.” S.E.C. v. P. Downey et al., Case No. 1:14-cv-185, order granting
SEC’s motion for summary judgment, Doc. 117 at 2-3 (N.D. Tex. Sept. 29, 1996). The court
ordered the Downeys to disgorge $4.9 million plus $1.1 million in interest and to pay a civil
penalty of $178,156 each. As far as the Receiver is aware, the Downeys have not paid
anything toward the disgorgement or penalty.

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retain WhiteHorse. Doc. 1144. On November 12, 2014, the Court granted the Receiver’s
motion. Doc. 1148. WhiteHorse’s marketing strategy for Quest included:
•

A complete review of the documentation related to Quest’s current and past
operations including its current and past accounting databases so consolidated
financial statements could be prepared;

•

A determination of Quest’s market value;

•

The development of a marketing plan aimed at locating qualified purchasers;

•

The preparation of a marketing memorandum which outlined relevant details
about Quest;

•

The execution of a marketing initiative;

•

The qualification of potential buyers to ensure their financial ability to
conclude a transaction to buy Quest and a review of their prior transactions
and experience with entities such as Quest;

•

Conducting tours of Quest’s properties and speaking with personnel;

•

The analysis of all offers;

•

Assisting with the negotiation of a letter of intent or purchase offer; and

•

Working on closing the sale transaction, including due diligence.

Efforts by WhiteHorse and the Receiver led to multiple inquiries and offers from potential
purchasers, but for various reasons (due diligence, market conditions, the potential
purchaser’s inability to obtain financing, etc.), none of those inquiries resulted in a
transaction – until now.

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The Agreement To Sell The Assets To Archer Petroleum, Ltd.
The Receiver has reached an agreement to sell almost all of Quest’s assets, including
its oil and gas leases, to Archer for $1,000,000. 2 The transaction is documented by the Asset
Purchase Agreement attached hereto as Exhibit 2 (the “APA”), but it is expressly contingent
upon the Court’s approval of the proposed sale. Archer has already paid a $100,000 earnest
money deposit to the Receiver, and that money will become nonrefundable once the Court
enters an order approving the sale. See APA § 4.a. & Ex. B. The assets subject to the
agreement are set forth in Sections 1 and 2 of Exhibit A to the APA (the “Assets”). Section
3, on the other hand, excludes certain assets from the transaction, including (1) bank accounts
and financial instruments; (2) the real property located at 64 South Jacobs Street in Albany,
Texas; and (3) any leases not specified in Section 1. See APA Ex. A. The Receiver seeks the
Court’s approval of the APA and the sale generally pursuant to 28 U.S.C. § 2001(b).
The Proposed Private Sale Of The Assets
In receivership actions, private sales of real property or interests therein are governed
by 28 U.S.C. § 2001(b) (“Section 2001(b)”):
After a hearing, of which notice to all interested parties shall be given by
publication or otherwise as the court directs, the court may order the sale of
such realty or interest or any part thereof at private sale for cash or other
consideration and upon such terms and conditions as the court approves, if it
finds that the best interests of the estate will be conserved thereby. Before
confirmation of any private sale, the court shall appoint three disinterested
persons to appraise such property or different groups of three appraisers each
to appraise properties of different classes or situated in different localities. No
private sale shall be confirmed at a price less than two-thirds of the appraised
value. Before confirmation of any private sale, the terms thereof shall be
published in such newspaper or newspapers of general circulation as the court
2

As noted above, pursuant to their Court-approved engagement agreement, WhiteHorse is
entitled to a 6% commission on this amount. The Quest Estate will thus net $940,000.

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directs at least ten days before confirmation. The private sale shall not be
confirmed if a bona fide offer is made, under conditions prescribed by
the court, which guarantees at least a 10 per centum increase over the price
offered in the private sale.
28 U.S.C. § 2001(b). 3 In other words, Section 2001(b) has three primary components:
(1) publishing the proposed sale in a newspaper of general circulation at least ten days before
confirmation of the sale; (2) obtaining three appraisals of the Assets to be sold; and
(3) setting a hearing to approve the sale. Id.
To comply with the first prong of Section 2001(b), the Receiver will publish a notice
of the proposed sale for one day in the Abilene Reporter-News, which is regularly issued and
of general circulation in the district where Quest is located. A copy of the notice is attached
as Exhibit 3. The Receiver will also publish this motion and the notice on his website –
www.nadelreceivership.com.

No less than 10 days after publication of the notice, the

Receiver will inform the Court whether any potential purchaser submitted a “bona fide
offer,” as contemplated by Section 2001(b).
As explained below in Section II, the Receiver asks the Court to grant this motion
without requiring him to obtain three formal appraisals. To ensure the fairness of the sale to
the Quest Estate, the Receiver has obtained an asset valuation from Jordan Taylor
Buckingham, a petroleum engineer – a copy of which is attached hereto as Exhibit 4 (the
“Valuation”). As documented in the Valuation, Mr. Buckingham performed a “decline
3

Section 2001(b) governs because Quest’s most valuable assets are its oil and gas leases,
which are interests in real property. Certain other assets subject to the APA constitute
personal property, but personal property is also sold in accordance with Section 2001(b). See
28 U.S.C. § 2004 (“Any personalty sold under any order or decree of any court of the United
States shall be sold in accordance with section 2001 of this title, unless the court orders
otherwise.”).

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curve analysis on producing leases using historical production data from the TX Railroad
Commission (RRC), historical WTI oil and gas pricing, operations expense data from Quest
EMG, Inc., and known standard operation well costs in RRC District 7B.” Id. at 3. Based on
this analysis, Mr. Buckingham valued the Assets at $964,457.54.

The Valuation

demonstrates that the APA’s purchase price is fair to the Quest Estate, even after accounting
for WhiteHorse’s commission.
As also explained below in Section II, the Receiver asks the Court to dispense with
the need for a hearing and to grant this motion on the papers, assuming no party files an
opposition necessitating a hearing and no potential purchaser submits a “bona fide offer”
necessitating a hearing. 4 This will conserve the sale price for the benefit of creditors as
opposed to eroding it through administrative expenses. The Receiver will inform the Court
whether any party has submitted a “bona fide offer” promptly after completing the
publication and notice requirements of Section 2001(b). The Receiver asks that the Court
defer ruling on this motion until the Receiver has filed that notice.
The Quest Claims Process And Claims Against The Assets
In addition to the Court’s approval, the APA is also expressly conditioned on the
transfer of the Assets to Archer free and clear of all claims, liens, and encumbrances. See
APA §§ 2, 9(f). On June 15, 2016, the Receiver filed his Unopposed Motion to (1) Approve
Procedure to Administer Claims and Proof of Claim Form, (2) Establish Deadline for Filing
Proofs of Claim, and (3) Permit Notice by Mail and Publication. See Doc. 1240 (the “Quest
Claims Motion”). The Court granted the motion on June 17, 2016, thus establishing the
4

The Receiver will serve a copy of this motion on counsel for the secured creditors
identified on pages 9-13 and in the certificate of service.

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“Quest Claims Process.” Doc. 1241. Investors and other creditors then submitted 93
claims, which the Receiver reviewed and evaluated.
On March 7, 2019, the Receiver filed his Motion to (1) Approve Determination and
Priority of Claims, (2) Pool Receivership Assets and Liabilities, (3) Approve Plan of
Distribution, and (4) Establish Objection Procedure.

See Doc. 1383 (the “Quest

Determination Motion”). In the Quest Determination Motion, the Receiver recommended
that claims be allowed in full, allowed in part, or denied. As explained below, certain claims
are secured by or otherwise constitute encumbrances on the Assets.
Class 1 Claims From Taxing Authorities
Five taxing authorities in Texas (the “Taxing Authorities”) submitted claims in the
Quest Claims Process:
•

The Brown County Appraisal District filed a proof of claim form with the
Receiver on behalf of Brown County, Texas for unpaid property taxes from
2012 through 2016 in the amount of $34,602.72;

•

The Callahan County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Callahan, Texas for unpaid property taxes
from 2012 through 2016 in the amount of $9,136.84;

•

The Guadalupe County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Guadalupe, Texas for unpaid property
taxes from 2012 through 2016 in the amount of $96.54;

•

The Shackleford County Appraisal District filed a proof of claim form with
the Receiver on behalf of the County of Shackelford, Texas for unpaid
property taxes from 2012 through 2016 in the amount of $284,893.80; and

•

The Denton County Appraisal District filed a proof of claim form with the
Receiver on behalf of the County of Denton, Texas for unpaid property taxes
from 2012 through 2016 in the amount of $12,633.36;

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The Receiver denied the claim from Denton County because it appeared to be related
to a non-Receivership entity, but he assigned the other claims to Class 1 – i.e., the highest
priority. Given the limited assets available to all creditors, the Receiver also recommended
the claims be allowed only in part – i.e., without any entitlement to late fees or penalty
interest. The Taxing Authorities objected to the Receiver’s determination, and the parties
began working through the objection procedure set forth in the Quest Determination Motion.
Counsel for the Taxing Authorities informed the Receiver that the foregoing claim amounts
increased between 2016 and the present to a total of approximately $379,852 due to the
accrual of additional taxes, penalties, and interest. The Receiver has recently agreed to allow
the claims submitted by the Taxing Authorities as Class 1 claims in the total amount of
$300,000, and he has separately moved the Court to approve that agreement. Through this
motion, the Receiver asks the Court to transfer the Taxing Authorities’ liens from Quest’s
Assets to the proceeds of this proposed sale so that the Assets can be sold to the Purchaser
free and clear of all claims, liens, and encumbrances.
Class 2 Claims From Secured Creditors
a. Van Operating Ltd. (“Van Operating”)
Van Operating submitted a claim for $795,201.59 based on a loan Quest assumed in
2007. See Claim No. 6. Specifically, Van Operating loaned Musselman Petroleum and Land
Company and John. E. Musselman (collectively, “Musselman”) $832,000 in 1998, which
loan was secured by certain oil and gas leases and related equipment (the “Musselman
Loan”). On January 1, 2007, Quest assumed the Musselman Loan along with Musselman’s
interests in the secured property.

As part of that transaction, Quest entered into an

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“assumption, modification and renewal agreement” with Van Operating (the “Renewal
Note”), pursuant to which the parties stipulated that, as of January 1, 2007, the outstanding
principal balance of the Renewal Note was $832,000, which amount “shall bear interest at
ten percent (10%) per annum.”
On December 29, 2011, Quest and Van Operating entered into a modification and
renewal agreement, pursuant to which the parties stipulated that the outstanding principal
balance of the Renewal Note was $652,005.86. The parties also extended the maturity date
of the Renewal Note to March 31, 2012, and provided that Quest would cause the companies
that purchased its oil and gas production to pay 50% of any future purchase amounts directly
to Van Operating. Paul Downey guaranteed all indebtedness under the Renewal Note.
Between the issuance of the Renewal Note on January 1, 2007, and Quest’s inclusion
in this Receivership on May 24, 2013, Quest paid Van Operating $719,072.60, which
includes total principal payments of $335,385.48 and total interest payments of $383,687.12.
Van Operating thus has already received nearly 87% of the original loan amount. The
Renewal Note’s outstanding principal balance on or shortly before Quest’s inclusion in this
Receivership was $496,614.52.

Van Operating arrived at its claim amount by adding

$89,011.85 in legal fees and $207,157.50 in interest, the recovery of which would not be
equitable under these circumstances. In Exhibit C to the Quest Determination Motion, the
Receiver recommended that Van Operating’s claim be allowed but only in the amount of the
outstanding principal balance of the Renewal Note at the time of the Receiver’s appointment
– i.e., $496,614.52. Van Operating did not object to the Receiver’s determination.

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b.

First National Bank of Albany (“Bank of Albany”)

Bank of Albany submitted a claim for $198,250.14 plus unspecified “interest from
9/12/2013” based on two loans it made to Quest and the Downeys. See Claim No. 5. On
October 13, 2010, Bank of Albany loaned Quest $700,000 (the “2010 Loan”), which was
secured by certain oil and gas leases, personal property, and equipment. The Downeys also
personally guaranteed the 2010 Loan. On February 26, 2013, Bank of Albany and Quest
entered into a “modification, renewal and extension” of the 2010 Loan, pursuant to which the
parties acknowledged that the outstanding principal balance of the loan at the time of the
modification was $213,057.30. The Court expanded this Receivership to include Quest
shortly thereafter – on May 24, 2013, at which time the outstanding principal balance of the
2010 Loan was approximately $151,728. During the life of the 2010 Loan, Quest paid Bank
of Albany approximately $555,739, which includes total principal payments of
approximately $492,247 and total interest payments of approximately $63,492. As explained
in the Quest Determination Motion, the Receiver concluded that the portion of Bank of
Albany’s claim related to the 2010 Loan should be denied. See Doc. 1383 at 16-18.
On April 17, 2006, Bank of Albany loaned $76,000 to Quest, “by and through Jeff
Downey, Vice-President,” for the purchase of certain real property in Shackelford County,
Texas, from which the Downeys operated Quest (the “Office” and the “Office Loan”). See
Claim No. 5. As set forth in Exhibit C to the Quest Determination Motion, the Receiver
concluded that Bank of Albany’s claim with respect to the Office Loan should be allowed in
the amount of $46,522.00, which is the approximate outstanding principal balance of that
loan at the time of the Receiver’s appointment.

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Bank of Albany filed a motion with the Court regarding the Receiver’s determination
(Doc. 1387), which the Receiver construed as an objection. Pursuant to the Court’s order on
the motion (Doc. 1397), the Receiver began attempts to resolve the objection through the
Quest Claims Process. Based on those negotiations, the Receiver has agreed to transfer the
Office to Bank of Albany in full satisfaction of its claim with respect to both the 2010 Loan
and the Office Loan. To accomplish this, the Receiver has separately moved the Court to
abandon the Office and to lift the stay restraining interference with Receivership assets as to
the bank, so it can foreclose on the Office. Through this motion, the Receiver asks the Court
to transfer Bank of Albany’s liens from Quest’s Assets to the Office so that the Assets can be
sold to the Purchaser free and clear of all claims, liens, and encumbrances. 5
Class 3 and Other Unsecured Creditors
Although the Downeys fraudulently represented to investors in Quest that their
investments were “secured,” “senior,” or “preferred,” the Receiver has not been able to
identify any such valid security interests. Claimants with unsecured claims submitted five
objections to the Receiver’s determination of their claims. See Doc. 1395. The Receiver
resolved one of those objections (Claim No. 72).

Claimants abandoned three other

objections during the Court-approved resolution process set forth on the Quest Determination
Motion (Claim Nos. 73, 75, 79). As such, only one claim objection remains for resolution
(Claim No. 17). The Receiver will separately move the Court to overrule that objection, but
this issue does not need to be resolved before the Court grants this motion.

5

Archer is not purchasing the Office, but the Receiver’s settlement of Bank of Albany’s
claim and objection resolves its liens against both the Office and the oil and gas leases.

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It is possible and perhaps likely that the Receiver will not have sufficient funds to
make a distribution to Class 3 and other unsecured creditors after the payment of
administrative expenses and Class 1 and 2 claims. If the Court grants this motion and the
sale of the Assets to Archer closes successfully, the Receiver will calculate and propose a
plan of distribution once he is in possession of all available funds.
MEMORANDUM OF LAW
I.

THE COURT HAS BROAD POWERS OVER THIS RECEIVERSHIP’S
ADMINISTRATION
The Court’s power to supervise an equity receivership and to determine the

appropriate actions to be taken in the administration of the receivership is extremely broad.
S.E.C. v. Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992); S.E.C. v. Hardy, 803 F.2d 1034, 1038
(9th Cir. 1986). The Court’s wide discretion derives from the inherent powers of an equity
court to fashion relief. Elliott, 953 F.2d at 1566; S.E.C. v. Safety Finance Service, Inc., 674
F.2d 368, 372 (5th Cir. 1982). A court imposing a receivership assumes custody and control
of all assets and property of the receivership, and it has broad equitable authority to issue all
orders necessary for the proper administration of the receivership estate. See S.E.C. v. Credit
Bancorp Ltd., 290 F.3d 80, 82-83 (2d Cir. 2002); S.E.C. v. Wencke, 622 F.2d 1363, 1370 (9th
Cir. 1980). The court may enter such orders as may be appropriate and necessary for a
receiver to fulfill his duty to preserve and maintain the property and funds within the
receivership estate. See, e.g., Official Comm. Of Unsecured Creditors of Worldcom, Inc. v.
S.E.C., 467 F.3d 73, 81 (2d Cir. 2006). The goal of a receiver charged with liquidating assets
is to obtain the best value available under the circumstances. Fleet Nat’l Bank v. H & D
Entertainment, Inc., 926 F. Supp. 226, 239-40 (D. Mass. 1996) (citations omitted). Further,

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the paramount goal in any proposed sale of property of the estate is to maximize the proceeds
received by the estate. See, e.g., Four B. Corp. v. Food Barn Stores, Inc., 107 F.3d 558, 56465 (8th Cir. 1997).
Any action taken by a district court in the exercise of its discretion is subject to great
deference by appellate courts. See United States v. Branch Coal, 390 F. 2d 7, 10 (3d Cir. 1969).
Such discretion is especially important considering that one of the ultimate purposes of a
receiver’s appointment is to provide a method of gathering, preserving, and ultimately liquidating
assets to return funds to creditors. See S.E.C. v. Safety Fin. Serv., Inc., 674 F.2d 368, 372 (5th
Cir. 1982) (court overseeing equity receivership enjoys “wide discretionary power” related to its
“concern for orderly administration”) (citations omitted).

II.

THE COURT HAS THE AUTHORITY TO WAIVE THE PORTIONS OF
SECTION 2001(b) REGARDING THREE APPRAISALS AND A HEARING
A.

The Court Should Approve The Sale Based On The Valuation

Section 2001(b) contemplates that a Receiver will obtain three appraisals in
connection with a private sale of real property or interests therein, but the Court has the
equitable authority under the principles discussed above to waive strict compliance with that
provision. The Receiver asks the Court to do so here for six independent reasons. First, the
Valuation attached as Exhibit 4 is detailed, comprehensive, and more than adequate to
support the reasonableness of the purchase price set forth in the APA. Second, valuations of
operating businesses are expensive and obtaining two more would only increase
administrative costs and fees. Third, Quest’s assets are extremely limited and could be
insufficient to afford any distribution to Class 3 investor claimants. Fourth, the Receiver and
WhiteHorse have marketed Quest and/or its assets for several years, and the Receiver has not

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been able to consummate a transaction at a higher price. Fifth, the Receiver was negotiating
with other potential purchasers earlier this year, and their offers were substantially lower than
the purchase price set forth in the APA. And sixth, Section 2001(b) contains a mechanism
for interested parties to submit a higher bid following the Receiver’s publication of the terms
of this sale, and the use of the Valuation in place of three appraisals will not materially
impair the purpose of that mechanism.
The Court has previously either waived or determined the Receiver substantially
complied with the appraisal provisions in Section 2001(b) under similar circumstances. See, e.g.,
Docs 1368 & 1370 (finding substantial compliance based on “an opinion of value letter” from a
land specialist); 1300 & 1301 (same based on a single appraisal); 1229 & 1230 (same); 1150 &
1151 (same); 1109 & 1110 (finding substantial compliance regarding the Receiver’s sale of the
assets of Tradewind, LLC – an operating business – based on a single valuation); 1074 & 1075
(waiving requirements of Section 2001(b) and requiring no appraisals of assets belonging to
Respiro, Inc. – a medical device company – due to limited value). The Court’s waiver or
modification of Section 2001(b) is also consistent with decisions from other courts considering
these issues. See, e.g., S.E.C. v. Kirkland, 2009 WL 1439087, at *3 (M.D. Fla. May 22, 2009)
(recommending approval of sale based on one appraisal); S.E.C. v. Billion Coupons, Inc., 2009

WL 2143531, *3 (D. Hawaii 2009) (authorizing sale without obtaining any appraisals given
sufficient safeguards).
B.

If No Other Purchaser Submits A Bona Fide Offer, The Court Should
Approve The Sale Without A Hearing

The Receiver also asks the Court to dispense with the need for a hearing and to grant
this motion on the papers, assuming no party files an opposition necessitating a hearing and

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no potential purchaser submits a “bona fide offer” necessitating a hearing.

This will

conserve the sale price for the benefit of creditors as opposed to eroding it through
administrative expenses.

The Receiver will inform the Court whether any party has

submitted a “bona fide offer” promptly after completing the publication and notice
requirements of Section 2001(b). All (or almost all) of the Receiver’s motions to approve the
private sale of personal or real property in this action have been decided on the papers. For
example, when the Receiver sold the assets of Tradewind, LLC, the Court found that the
Receiver “had not received any bona fide offer as described in 28 U.S.C. § 2001(b) [and] …
in lieu of a hearing on the [m]otion, the filing of the [m]otion in the Court’s public docket
and its publication on the Receivership’s website and in the Newnan Times Herald provided
sufficient notice and opportunity for any party to be heard in accordance with 28 U.S.C.
§ 2001(b).” Doc. 1110. The Receiver asks that the Court defer ruling on this motion until
the Receiver has filed the notice of receipt (or not) of any bona fide offer pursuant to Section
2001(b).
III.

THE COURT HAS THE AUTHORITY TO TRANSFER THE ASSETS TO
ARCHER FREE AND CLEAR OF ALL CLAIMS, LIENS, AND
ENCUMBRANCES
The APA is contingent upon the Receiver’s ability to transfer the Assets to the

Purchaser free and clear of all claims, liens, and encumbrances, including those filed in the
Quest Claims Process. See APA §§ 2, 9(f). That contingency is necessary because the value
of the claims against Quest is far greater than the value of Quest’s assets due to the
Downey’s fraud. No commercially-reasonable purchaser would agree to acquire Quest or its
assets subject to its extensive liabilities.

Under similar circumstances, the Court has

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previously transferred the pertinent claims, liens, and encumbrances from the assets the
Receiver sought to sell to the proceeds of the sale for subsequent resolution through
additional proceedings. See, e.g., Docs. 823 & 842 (regarding a lien by a secured creditor
against property in North Carolina), 1229 & 1230 (transferring title free and clear despite
federal tax lien); 1150 & 1151 (same regarding a different secured creditor and North
Carolina property). These orders involved secured (or purportedly secured) encumbrances
on the subject assets by lenders and a taxing authority, and as a result, they are substantively
identical to this matter and the encumbrances described above in the background section.
The relief sought in this motion falls squarely within the Court’s powers and is in the
best interests of Quest and its creditors. That relief is also consistent with precedent, which
establishes that a court of equity – like this one in these proceedings – may authorize the sale
of property free and clear of all claims, liens, and encumbrances. See, e.g., Miners’ Bank of
Wilkes-Barre v. Acker, 66 F.2d 850, 853 (3d Cir. 1933); People’s-Pittsburgh Trust Co. v.
Hirsch, 65 F.2d 972, 973 (3d Cir. 1933). In part, a court has this authority because when a
court of competent jurisdiction takes possession of property through its officers – like this
Court has done with Quest through the Receiver – it has jurisdiction and authority to
determine all questions about title, possession, and control of the property. Isaacs v. Hobbs
Tie & Timber Co., 282 U.S. 734, 737-38 (1931).
Importantly, the Receiver is not asking the Court to extinguish, overrule, or otherwise
impair any creditor’s claim. He is only asking the Court to shift the creditors’ claims from
the Assets to the sale proceeds. This will allow the Receiver to sell the Assets and eliminate

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ongoing maintenance costs and market risk. The creditors’ claims can then be addressed
through the Quest Claims Process, if necessary.
CONCLUSION
The Receiver moves the Court for entry of an order (in substantially the form of the
proposed order attached as Exhibit 1) to sell the Quest Assets to Archer, free and clear of all
claims, liens, and encumbrances in accordance with the terms and conditions set forth above
and in the APA.
CERTIFICATE UNDER LOCAL RULE 3.01(g)
Undersigned counsel for the Receiver has conferred with counsel for the SEC and is
authorized to represent to the Court that the SEC does not oppose the relief requested in this
motion. Counsel for the Receiver has not conferred with any of the 93 claimants that
submitted claims in the Quest Claims Process, including the Class 1 and Class 2 creditors
described in this motion, but as explained in footnote 4, the Receiver is serving this motion
on counsel for those Class 1 and Class 2 creditors.
VERIFICATION OF RECEIVER
I, Burton W. Wiand, Court-Appointed Receiver in the above-styled matter, hereby
certify that the information contained in this motion is true and correct to the best of my
knowledge and belief.
s/ Burton W. Wiand
Burton W. Wiand, Court-Appointed Receiver

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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on July 24, 2019, I filed the foregoing with the Clerk of
the Court by using the CM/ECF system. I also served a copy of the foregoing via email and
U.S. Mail on the following counsel for Class 1 and Class 2 creditors:
Tara LeDay
McCreary Veselka Bragg & Allen P.C.
700 Jeffrey Way, #100
Round Rock, TX 78665
Counsel for the Taxing Authorities
Raymond J. Rotella
Kosto & Rotella P.A.
619 E Washington Street
Orlando, FL 32802
Counsel for Bank of Albany
Gregory M. Wilkes
Norton Rose Fulbright US LLP
2200 Ross Avenue
Suite 3600
Dallas, TX 75201-7932
Counsel for Van Operating
Stephanie C. Lieb
Trenam, Kemker
101 E. Kennedy Blvd.
Suite 2700
Tampa, FL 33602
Counsel for Van Operating
s/Jared J. Perez
Jared J. Perez, FBN 0085192
[e-mail]
WIAND GUERRA KING P.A.
5505 W. Gray Street
Tampa, FL 33609
Tel: [phone]
Fax: [phone]
Attorney for the Receiver

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