Securities and Exchange Commission v. Nadel et al

Filing 39

RESPONSE in opposition re #32 MOTION to intervene Receiver's Opposition to Emergency Motion to Modify Order Appointing Receiver filed by Burton W. Wiand. (Nelson, Carl)

Securities and Exchange Commission v. Nadel et al

Doc. 39

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

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

CASE NO.: 8:09-cv-0087-T-26TBM

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 OPPOSITION TO EMERGENCY MOTION TO MODIFY ORDER APPOINTING RECEIVER

Burton W. Wiand, as Receiver, by and through his undersigned counsel, hereby
opposes the Emergency Motion to Modify Order Appointing Receiver and Memorandum of

Law (the "Motion to Modify") filed by General Electric Capital Corporation ("GECC") and

VFS Financing ("VFS") (collectively the "Lenders"). In further support of this Opposition

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the Receiver submits the Affidavit of

Roger Wright Jernigan with exhibits and Declaration of

Receiver Burt W. Wiand, which are being filed contemporaneously with this Opposition.

DISCUSSION

I. Emergency Relief is Improper Since the Receiver has Secured the Aircraft and is Currently Evaluating the Aircraft's Potential Benefit to the Estate Without Any
Prejudice to the Lenders' Rights.

1. The Lenders' request for relief on an emergency basis is not justified under
the record facts. The Lenders filed an unverified motion, without supporting affidavits,

demanding that the Receiver immediately "tum over possession" of the following two
airplanes: (1) a Cessna Model 550, Serial Number 550-096, Registration Number N153TH

(the "Cessna"); and (2) a Lear Jet Model 3IA-131, Registration Number N319SC (the "Lear

Jet") (collectively the "Aircraft"). In addition, the Lenders also seek authority to
immediately take possession of the books, records, maintenance reports, and maintenance
logs and to "liquidate the collateraL." (Motion to Modify, ii 15.)

2. Based on the sworn testimony filed with the Court, the Aircraft and related
documentation are completely secure and being properly maintained (Jernigan Aff., iiii 4-6.)
Moreover, the insurance and maintenance service plan are current. (Jernigan Aff., iiii 6, 11.)
3. The Receiver is currently in the process of evaluating Estate assets, including

the Aircraft, and investigating whether the Secured Lenders have perfected their putative
security interests. (Wiand Dec., ii 6.) The Receiver is also seeking a current appraisal of

the

Aircraft. (Wiand Dec., ii 6.) Specifically, the Receiver is analyzing whether any equity

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exists in the Aircraft and whether the Aircraft are capable of generating revenue which may
ultimately benefit the Estate. (Wiand Dec., ii 6.)

4. The Receiver is considering returning the Lear Jet to charter service through

Fair Wind Air Charters, a premier operation that supplies experienced crew and maintenance.

(Jernigan Aff.,iiii 12-13; Wiand Dec., ii 6.) Preliminary indications suggest that the Lear Jet

is capable of generating sufficient revenue to cover both its fixed and variable costs and
potentially provide additional monies to the Estate. (Jernigan Aff., at ii 13.)
5. Accordingly, it is improper for the Court to consider the Lenders' Motion on

an Emergency basis or to grant the requested relief at this juncture.
II. Even Assuming the Lenders are Allowed to Intervene and the Court Considers

the Lenders' Unsworn, Unsupported Allegations, each of the Lenders' Concerns
are Either Unsupported by the Sworn Facts or Moot.
6. First, the Lenders' alleged concern that the Maintenance Service Plan "Power

by the Hour" is subject to cancellation because the aircraft have not be "flown or engines run

at least every 21 days" is unfounded. (Motion to Modify, ii 14.) In reality, in addition to

flight time, the Aircraft engines are regularly ground run, and measures to reinstate the
Maintenance Service Plan referenced in the Motion to Modify are readily available at a
nominal cost should the Aircraft ever fall out of compliance. (Jernigan Aff., iiii 8-9.)
7. Second, the Lenders cite to their concern that an "air frame maintenance

program called 'Smart Parts' is "subject to being cancelled if the aircraft is not properly
stored and cared for . .." (Motion to Modify, ii 14.) In reality, the Smart Parts Policy

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expired in November 2008 prior to the appointment of the Receiver and was not renewed.
(Jernigan Aff., ii 10.)
8. Although the Lenders are undoubtedly familiar with the charter operator Fair

Wind Air Charter ("Fair Wind") considering the number of aircraft already service with this
charter service in which the Lenders have an interest, the Lenders allege concern that they
have "no idea what maintenance programs are in place of

the 135 charter operator." (Motion

to Modify, ii 14.) In actuality, the Aircraft are not currently available on 135 charter

certificate, so this concern is also moot. (Jernigan Aff.,ii 13.) In addition, any maintenance
necessary to return the Lear Jet to charter certificate can be promptly accomplished at the
Aircraft's current location at a nominal cost. (Jernigan Aff., at iiii 11-13.)

9. More troubling is the Receiver's concern that the Lenders' efforts may be

serving to undermine the Receivership and hindering the Receiver's efforts to market the

Aircraft. Specifically, the Receiver has learned that the Lenders' Motion to Modify has
directly chiled negotiations with a prospective bidder for the Lear Jet from the Receivership

since the bidder believes it may be able to acquire the Aircraft at a lower price from the
Lenders. (Jernigan Affidavit at ii 15.)
10. Lastly, if the Court were to permit the Lenders to take possession of the

Aircraft and the Lenders are subsequently unable to liquidate the Aircraft promptly, the
potential deficiency claim against the Estate could increase significantly. Since Trade Wind

LLC, another Receivership Entity, is a licensed FAA airplane dealer, the Receiver is in a
position to market and sell the Aircraft at a significantly higher price which would reduce

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any deficiency claim for the benefit of all claimants to the Estate. (Jernigan Affidavit at ii14;
Wiand Dec., ii 7.)

11. The Lenders' emergency request for relief is nothing more than an attempt to

shortcut the Receivership claims process and jump ahead of other claimants. A creditor's
claim in the Receivership typically recognizes that the Receiver controls, possesses and

manages such property and assets and merely seeks a determination of the validity and
priority of

the creditor's claim upon the final disposition ofthe frozen funds and assets. SEC

v. Homa, 2000 WL 1468726, *3-4 (N.D. IlL. 2000). The fairest and most efficient method of

addressing the Lenders' potential claims in this Receivership, which involves a multitude of

parties and potential claims, is to have the Lenders bring their claim before the Receiver
instead of allowing the Lenders to intervene and take possession of the Aircraft.
III. This Court Has Wide Discretion to Deny the Lenders' Request as Contrary to
Receivership Purposes.
12. It is axiomatic that receivers may be appointed "to effectuate the purposes of

the federal securities laws." SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1105 (2d Cir.
1972). Further, the Court's power to supervise an equity receivership and determine the
appropriate action to be taken in the administration of the receivership is extremely broad.

SEC v. Ellott, 953 F.2d 1560, 1566 (11th Cir. 1992); SEC v. First City Fin. Corp., 890 F.2d

1215, 1230 (D.C. Cir. 1989). The Court's wide discretion derives from the inherent powers
of an equity court to fashion relief. Id. at 1566 (citing SEC v. Safety Fin. Serv., Inc., 674 F.2d

368,372 (5th Cir. 1982)).

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13. Here, the Order Appointing Receiver (Doc. 8) directs the Receiver to

"marshal and safeguard all of the assets of the Defendants and Relief Defendants; and take

whatever actions are necessary for the protection of the investors." (Order at introductory
paragraph.) Further, the Receiver is to "(tJake immediate possession of all property, assets
and estates of every kind of the Defendants and Relief Defendants. . . ." (Order at ii 1.) By

Order entered January 27, 2009 (Doc. 17), the scope of the receivership was expanded to
include Venice Jet Center, LLC (the entity which operates the airport where the Aircraft are
maintained) and Tradewind, LLC (the registered owner of

the Aircraft). (Wiand Dec., iiii 3,
the Defendants or

6.) As observed by this Court, "Title to all property, real or personal. . . of

Relief Defendants and their principals . . . is vested by operation of law in the Receiver."

This necessarily includes the Aircraft at issue. Then, the Receiver is to "(p Jresent to this
Court a report reflecting the existence and value of the assets of the Defendants and Relief
Defendants and of

the extent ofliabilities . . . ." (Order at ii 3.)

14. The Receiver must maintain possession of the Aircraft in order to fulfill his

duties under the Order appointing him, and to ensure an equitable result for all defrauded
investors and other creditors. (Wiand Dec., iiii 6-8.) Considering the magnitude and scope of

the assets at issue, allowing each party with a purported interest in certain property to come
forward and litigate claims individually would severely disrupt the Receivership. (Wi

and

Dec., iiii 6-8.) Allowing movants to take possession of the Aircraft would amount to cherry

picking of assets and an inequitable exercise of a preference, which are not in the best
interest of all investors and creditors and is not warranted by any purported "emergency."

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15. Just as the appointment of a receiver is authorized by the broad equitable

powers of the Court. . . any distribution of assets by such a receiver is to be done equitably

and fairly with similarly situated investors or customers treated similarly. See Ellot, 953
F.2d at 1569. Entitlement to assets under state law is not dispositive of entitlement under
federal equity receivership. United States v. Vanguard Inv. Co., 6 F.3d 22, 226 (4th Cir.

1993). As the Vanguard Court noted, "a district court supervising such a receivership has the

discretionary power to deny these equitable remedies as inimical to receivership purposes
even though they are or might be warranted under controlling law." Id. The orderly

disposition of the assets of the receivership under the Order Appointing Receiver cannot
occur if individual creditors are allowed to intervene on an alleged "emergency" basis-that
is, the entire process wil be subverted by the relief sought by movants.

WHEREFORE, the Receiver respectfully requests that the Court deny the Emergency

Motion to Modify Order Appointing Receiver and for such other relief as the Court deems
just and proper.

CERTIFICATE OF SERVICE
I hereby certify that on February 10, 2009, I electronically filed the foregoing with the Clerk of Court by using the CM/ECF system, which wil send a copy of the document and a notice of electronic filing to the following:
Scott A. Masel, Esquire Securities and Exchange Commission
SOL Brickell Avenue, Suite 1 SOO

Andre J. Zamorano, Esquire Securities and Exchange Commission SO 1 Brickell Avenue, Suite 1800
Miami, FL 33131

Miami, FL 33131

A. Christopher Kasten, II, Esq.
Bush Ross, P.A.

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P.O. Box 3913 Tampa, Florida 33601-3913

sf Carl R. Nelson

Carl R. Nelson, FBN 0280186
cnelson(ifow lerwhi teo com

Gianluca Morello, FBN 034997 gianluca.morello(ifow lerwhite. com Ashley M. Trehan, FBN 0043411 ashley. trehan(ifowlerwhite.com Donald R. Kirk, FBN 105767
dkirk(ifowl erwhi teo com

FOWLER WHITE BOGGS P.A. P.O. Box 1438
Tampa, FL 33601

[phone] Fax No: [phone] Attorneys for the Receiver Burton W. Wiand

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