Securities and Exchange Commission v. Nadel et al

Filing 831

OBJECTION re #825 Unopposed MOTION for miscellaneous relief, specifically to (1) Approve First Interim Distribution, (2) Establish Reserves, and (3) Approve Revisions to Certain Claim DeterminationsUnopposed MOTION for miscellaneous relief, specifically to (1) Approve First Interim Distribution, (2) Establish Reserves, and (3) Approve Revisions to Certain Claim Determinations (LIMITED OBJECTION AND MEMORANDUM OF LAW) by Wells Fargo Bank, N.A. by Wells Fargo Bank, N.A.. (Wirth, Steven)

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

ORAL ARGUMENT
REQUESTED

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

CASE NO.: 8:09-0087-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.
_______________________________________________/
LIMITED OBJECTION AND MEMORANDUM OF LAW OF WELLS FARGO
BANK, N.A. IN OPPOSITION TO RECEIVER’S UNOPPOSED MOTION TO
(1) APPROVE FIRST INTERIM DISTRIBUTION, (2) ESTABLISH RESERVES,
AND (3) APPROVE REVISIONS TO CERTAIN CLAIMS DETERMINATIONS
Wells Fargo Bank, N.A. (“Wells Fargo”),1 a valid secured creditor and party in
interest herein, hereby files this limited objection (the “Objection”) and memorandum of
law in opposition to Receiver’s Unopposed Motion to (1) Approve First Interim

1

Wells Fargo is successor by merger to Wachovia Bank, N.A.

{24181946;4}

Distribution, (2) Establish Reserves, and (3) Approve Revisions to Certain Claims
Determinations (the “Motion”) (Doc. No. 825), and in support thereof, states as follows:
MEMORANDUM OF LAW
A.

If the Motion Does Not Waive or Otherwise Affect Wells Fargo's Secured
Claims on the Real Estate, Wells Fargo Does Not Object to the Motion,
Except Wells Fargo Requests, at Minimum, an Increased Reserve With
Respect to the Rite Aid Property.
The Receiver's Motion seeks to make a first interim distribution of approximately

$25 Million representing an approximately 20% distribution to investors on account of
their allowed claims. The Motion also seeks to establish a 20% reserve for certain of
Wells Fargo's claims secured by real estate held in the receivership estate. Counsel for
the Receiver has advised Wells Fargo that the Motion is not intended to and does not
waive or otherwise affect Wells Fargo's secured claims.

Thus, it is Wells Fargo's

understanding that the Motion does not seek to transfer Well Fargo's liens from the real
estate that secure its claims to the proposed 20% reserved amounts. In other words, it is
Wells Fargo's understanding that the Motion does not seek to replace Wells Fargo's
security interests in the real estate with the security in the proposed reserve account.
If Wells Fargo's understanding is correct, Wells Fargo does not object to the
Motion except as follows: Wells Fargo opposes the Receiver's motion to sell the Rite
Aid property and requests that the property be immediately abandoned to the bank; if the
Receiver proceeds with the sale as planned, this Motion will effectively limit Wells
Fargo's secured claim against the Rite Aid property to $2,420,692.30 ($2,200,000
realized from the sale plus the proposed 20% reserve of $220,692.32) prior to any
determination of whether the claim is allowable or not. As noted in Wells Fargo's prior

{24181946;4}

2

pleadings with the Court, a pre-determination of Wells Fargo's secured claims at this
stage in the proceedings would amount to an unconstitutional taking of Wells Fargo's
property rights without due process. See Doc. Nos. 689, 719, 740 and 762; see also In re
Real Property Located at Jupiter Drive, Salt Lake City, Utah, 2007 U.S. Dist. LEXIS
65276, at *10 (D. Utah June 7, 2007) (“It is well-established that a ‘receiver appointed by
a federal court takes property subject to all liens priorities or privileges existing or
accruing under the laws of the State.’”) (quoting Marshall v. New York, 254 U.S. 380,
385 (1920)); SEC v. Haligiannis, 608 F. Supp. 2d 444, 449 (S.D.N.Y. 2009) (determining
a district court’s equitable authority in a receivership proceeding does not extend to
abrogating fundamental property rights created by state law and protected by due
process) (citing Hedges v. Dixon County, 150 U.S. 182, 192 (1893)).
These fundamental state law property rights require federal receivers such as Mr.
Wiand to manage real estate according to the law of the state where the property is
located. See 28 U.S.C. § 959(b) (noting receiver must manage and operate the property
"in the same manner that the owner or possessor thereof would be bound to do" under
applicable state law). This includes preserving the status quo with the lender – i.e., by
bringing current the regular, monthly principal and interest payments, as well as property
taxes. See SEC v. Madison Real Estate Group, 647 F. Supp. 2d 1271, 1284-85 (D. Utah
2009) (citing Securities & Exchange Commission v. Wencke, 742 F.2d 1230, 1231 (9th
Cir. 1984)). And if the status quo is not preserved and a secured creditor's collateral has
been impaired (such as in this case), additional creditor protections justify lifting the
injunction to allow the secured creditor to exercise its state law rights and remedies (see

{24181946;4}

3

SEC v. Madison Real Estate Group, 647 F. Supp. 2d at 1284-85; Orix Credit Alliance,
Inc. v. Delta Resources, Inc. (In re Delta Resources, Inc.), 54 F.3d 722, 729 (11th Cir.
1995) (". . . a creditor may obtain relief from the stay (1) for cause, including the lack of
adequate protection of the creditor's interest in the collateral.") (citation omitted)); or
requiring a receiver to abandon the property. See SEC v. Madison Real Estate Group,
647 F. Supp. 2d at 1278-84 ("If the value of the property is less than the loan amount . . .
the disadvantages of keeping the property in the Receivership outweigh the
advantages."); In re Kent, 411 B.R. 743, 751 (Bankr. M.D. Fla. 2009) (determining that if
the sale of an asset will not generate funds for investors or unsecured creditors,
abandonment is the proper course) (quoting In re Rambo, 297 B.R. 418, 433 (Bankr. E.D.
Pa. 2003)).
Thus, if the Receiver intends to proceed with the sale over Wells Fargo's
objection, Wells Fargo requests that, at minimum, the reserve for its secured claim
against the Rite Aid property be increased to $1,246,601.20, which is the difference
between the $2,200,000 the Receiver has indicated would be realized from the sale and
the amount of Wells Fargo's claim ($3,303,461.60) as of April 25, 2012, plus twelve
months of interest at a per diem rate of $397.61. Notwithstanding, if the Court
determines that the sale may proceed despite there being no equity in the property for
distribution to investors, the Court should allow Wells Fargo to credit bid its entire
secured claim in connection with any sale of the Rite Aid property. See, e.g., River Road
Partners, LLC v. Amalgamated Bank (In re River Road Partners, LLC), 651 F.3d 642,
652-53 (7th Cir. 2011) (noting secured creditor has absolute right to credit bid its claim in

{24181946;4}

4

connection with sale of its collateral; finding it dubious that a plan based on a “free and
clear” asset sale that did not provide lenders the right to credit bid could ever be
considered by any court “fair and equitable.”); In re SunCruz Casinos, LLC, 298 B.R.
833, 839 (Bankr. S.D. Fla. 2003) (same); In re Midway Investments, Ltd., 187 B.R. 382,
390-91 (Bankr. S.D. Fla. 1995) (same).
B.

To the Extent the Motion Seeks to Affect or Replace Wells Fargo's Secured
Claims on the Real Estate by Establishing a Reserve Account, the Motion is
Inappropriate and Should be Denied.
In the unlikely event the Motion seeks to transfer Wells Fargo's liens to the

proposed 20% reserved amounts and extinguish Wells Fargo' secured liens on the
properties, the Receiver's Motion then ignores fundamental creditor protections and
improperly limits Wells Fargo's recovery as a secured creditor. Through the guise of
establishing a capped claims reserve of 20% of Wells Fargo's current claim amounts, the
Receiver would be unjustifiably seeking to reclassify Wells Fargo's secured claims to, at
best, Class 1 Claims on par with the claims of investors. The Receiver would also be
seeking to inappropriately cap Wells Fargo's secured claims at 20% of their current claim
amounts (regardless of the ultimate outcome of any pending motion or litigation
regarding Wells Fargo's secured claims).
The Receiver does not offer an explanation for this action or state this purpose
directly in the Motion. Instead, the Receiver simply lists Wells Fargo's secured claims as
four of twenty-seven claims he intends to include as part of his capped claims reserve.2

2

Wells Fargo also has a fifth secured claim against real property located in Evergreen, Colorado.
However, because the property is under contract for sale for $735,000, significantly higher than the amount
owed to Wells Fargo ($402,786.02), no reserves have been sought by the Receiver and he has previously

{24181946;4}

5

Wells Fargo has security interests in various parcels of property in Florida and North
Carolina. The Receiver has asserted that these liens should be invalidated based upon
alleged misconduct by Wells Fargo. Until those issues are resolved, Wells Fargo retains
valid secured liens on those properties.

As noted throughout Wells Fargo's prior

pleadings with the Court, state law property rights are such fundamental rights that the
reclassification or impairment of secured claims require, at minimum, proper notice and
the filing of a lawsuit. See, e.g., SLW Capital LLC v. Mansaray-Ruffin (In re MansarayRuffin), 530 F.3d 230, 232 (3d Cir. 2008) (determining lawsuit required to invalidate lien;
lien remains intact despite creditor's failure to file claim or object to confirmation of plan
which provided claim was unsecured). The Receiver cannot simply reclassify Wells
Fargo's secured claims (and deny it the full cash recovery to which these claims, once
allowed, are entitled) through a motion requesting the establishment of a capped claims
reserve. Should that be the true motive behind the Receiver's Motion, the Court should
not countenance the Receiver's attempt to "end run" these creditor protections.
Accordingly, unless these infringements of Wells Fargo's rights are remedied (or
clarified), the Motion should be denied.

indicated that claim would be paid in full upon the sale of the property. See Doc. Nos. 775, n.1 and 825-2,
p. 5.

{24181946;4}

6

CONCLUSION
WHEREFORE, for the foregoing reasons, Wells Fargo respectfully requests that
the Court deny the Motion to the extent it seeks to impair Wells Fargo's rights to receive
the full recovery on its secured claims to which it is entitled and to grant such other and
further relief as it deems just and proper.
DATED this 2nd day of May, 2012 in Tampa, Florida.
Respectfully submitted,
AKERMAN SENTERFITT

/s/Steven R. Wirth
L. Joseph Shaheen, Jr.
Florida Bar No.: 212385
Email: [e-mail]
Steven R. Wirth
Florida Bar No.: 170380
Email: [e-mail]
Jason L. Margolin
Florida Bar No. 69881
401 East Jackson Street, Suite 1700
Tampa, Florida 33602
Telephone: [phone]
Facsimile: [phone]
Counsel for Wells Fargo, N.A.

{24181946;4}

7

CERTIFICATE OF SERVICE
I hereby certify that on May 2, 2012, I electronically filed the foregoing with the
Clerk of the Court by using the CM/ECF system.

/s/Steven R. Wirth
Attorney

{24181946;4}

8