Securities and Exchange Commission v. Champion-Cain ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 3:19-cv-1628-LAB-AHG COMMISSION, 12 ORDER GRANTING RECEIVER’S Plaintiff, 13 MOTION FOR APPROVAL OF v. SALE OF 737 WINDEMERE COURT 14 PROPERTY GINA CHAMPION-CAIN AND ANI 15 DEVELOPMENT, LLC, 16 Defendants, and [ECF No. 367] 17 18 AMERICAN NATIONAL 19 INVESTMENTS, INC., 20 Relief Defendant. 21 22 23 24 25 26 27 28 1 This matter comes before the Court on the Receiver’s Motion for Approval of Sale 2 of 737 Windemere Court Property (the “Motion”). ECF No. 367. For the reasons that 3 follow, the Court GRANTS the Motion. 4 I. BACKGROUND 5 As described in prior orders, see, e.g., ECF Nos. 54, 162, 163, this is an action 6 brought by the Securities and Exchange Commission (“SEC”) against Defendants ANI 7 Development, LLC (“ANI Development”) and Gina Champion-Cain and Relief Defendant 8 American National Investments, Inc. (“ANI Inc.”), alleging violations of federal securities 9 laws based on a purportedly fraudulent liquor license loan scheme. ECF No. 1. 10 On September 3, 2019, the Court established an equitable receivership and appointed 11 Krista L. Freitag (“Receiver”) as a permanent receiver of ANI Development and ANI Inc., 12 authorizing her to take control over all funds and assets owned, managed, or in the 13 possession or control of the receivership entities. See ECF No. 6 at 14-16 (the 14 “Appointment Order”). In that role, the Receiver acts under the control and direction of the 15 Court to facilitate the “orderly and efficient administration of the estate . . . for the benefit 16 of creditors.” SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). See also Atl. Tr. Co. v. 17 Chapman, 208 U.S. 360, 370 (1908) (explaining that a motion to appoint a receiver to take 18 charge of property is “to the end that the property might be cared for and preserved for all 19 who had or might have an interest in the proceeds of its sale. . . . Immediately upon such 20 appointment and after the qualification of the receiver, the property passed into the custody 21 of the law, and thenceforward its administration was wholly under the control of the court 22 by its officer [], the receiver.”). On December 11, 2019, the presiding judge in this action, 23 Chief Judge Burns, granted the parties’ Joint Motion (ECF No. 156) to give limited consent 24 to the undersigned to hear and directly decide all motions filed in this action to approve 25 sales of receivership assets. ECF No. 160. See also 28 U.S.C. § 636(c); CivLR 72.1(g). All 26 property sale motions are set before the undersigned pursuant to that grant of consent. 27 The Receiver filed the present Motion on June 30, 2020. ECF No. 367. The Receiver 28 seeks Court approval of the proposed sale of a single-family residential property within the 1 receivership estate located at 737 Windemere Court in the Mission Beach neighborhood of 2 San Diego (the “Windemere Court Property” or the “Property”). Id.; see also ECF No. 76- 3 2 at 3 (listing the Windemere Court Property as a vacation home property owned by the 4 estate in the Preliminary Real Estate and Liquor License Asset Schedule filed on 5 October 3, 2019). 6 The same day the Receiver filed the Motion, the Court entered a briefing schedule 7 setting a response deadline of July 14, 2020, a reply deadline of July 21, 2020, and a hearing 8 date of August 3, 2020. ECF No. 369. Further, the Court ordered the Receiver to file a 9 notice of non-receipt of overbids if no overbids were received by the deadline of 10 July 21, 2020 set forth in the proposed publication of notice of the sale of the Property. Id. 11 No opposition to the Motion was filed, and the Receiver filed a notice of non-receipt of 12 qualified overbids on July 22, 2020. ECF No. 399. There being no qualified overbids and 13 no opposition to the Motion, on July 29, 2020, the Court vacated the hearing and took this 14 matter under submission for determination on the papers. ECF No. 404. 15 II. LEGAL STANDARD 16 “[I]t is a recognized principle of law that the district court has broad powers and 17 wide discretion to determine the appropriate relief in an equity receivership.” SEC v. 18 Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978). Where a district court sits in equity, 19 “[u]nless a statute in so many words, or by a necessary and inescapable inference, restricts 20 the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and 21 applied. ‘The great principles of equity, securing complete justice, should not be yielded 22 to light inferences, or doubtful construction.’” Porter v. Warner Holding Co., 328 U.S. 23 395, 398 (1946). 24 “[A] district court’s power to supervise an equity receivership and to determine the 25 appropriate action to be taken in the administration of the receivership is extremely broad.” 26 Hardy, 803 F.2d at 1037. As part of this broad discretion, the district court sitting in equity 27 and having custody and control of property “has power to order a sale of the same in its 28 discretion. The power of sale necessarily follows the power to take control of and to 1 preserve property[.]” SEC v. Am. Capital Investments, Inc., 98 F.3d 1133, 1144 (9th Cir. 2 1996), abrogated on other grounds by Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 3 93-94 (1998) (quoting 2 Ralph E. Clark, Treatise on Law & Practice of Receivers § 482 4 (3d ed. 1992)). If the court approves an equitable receiver’s proposed property sale, the 5 sale “does not . . . purport to convey ‘legal’ title, but rather ‘good,’ equitable title enforced 6 by an injunction against suit.” Id. (citing 2 Clark, Treatise on Law & Practice of Receivers, 7 §§ 342, 344, 482(a), 487, 489, 491). 8 Pursuant to 28 U.S.C. § 2001(a), realty in the possession of an appointed receiver is 9 subject to a public sale process, “upon such terms and conditions as the court directs.” 28 10 U.S.C. § 2002 further requires that notice be published once a week for at least four weeks 11 prior to the sale in at least one newspaper regularly issued and of general circulation in the 12 county, state, or judicial district where the realty is located.1 These safeguards of notice 13 and opportunity to submit overbids help to ensure that the sale is able to fetch the best price 14 possible, which is consistent with the principle that “a primary purpose of equity 15 receiverships is to promote orderly and efficient administration of the estate by the district 16 court for the benefit of creditors.” Hardy, 803 F.2d at 1038. See also United States v. 17 Grable, 25 F.3d 298, 303 (6th Cir. 1994) (noting that “the intent of” the requirement in 28 18 U.S.C. § 2001 that property be sold in the county in which the land is situated is “to bring 19 a better price at the sale”). 20 III. DISCUSSION 21 A. Background of the Property and Proposed Sale 22 The Windemere Court Property was purchased by ANI Commercial CA I LLC for 23 $625,000 on August 12, 2011. ECF No. 367-1 at 5. Ownership of the Property was 24 transferred to receivership entity Luv Surf LLC in December of 2012, and transferred to 25 26 27 1 28 U.S.C. § 2001 also provides for a private sale process under subsection (b), but the requirements of that subsection are more stringent. The Receiver does not propose a private 28 1 another receivership entity, Windemere Court LLC, in December of 2013. Id. See also ECF 2 No. 6 at 4-6 (the Appointment Order listing these entities as subsidiaries and/or affiliates 3 of Defendants and Relief Defendant). The Property underwent a significant remodel in 4 2017 and is used as a vacation rental property. ECF No. 367-2, Freitag Decl. ¶ 2. 5 Following her appointment, the Receiver and her staff reviewed automated valuation 6 scores for the Windemere Court Property and a survey of market-comparable properties. 7 ECF No. 367-1 at 5. The Receiver also consulted with and interviewed licensed brokers 8 with experience selling residential properties in the Mission Beach area, ultimately 9 selecting Pacific Pines Real Estate (“Broker”) based on Broker’s experience and low listing 10 commission. Id. The Property was originally listed for sale at $1,699,900 on the Multiple 11 Listing Service (“MLS”) on or about September 30, 2019. Id. 12 In addition to listing the Property on the MLS, Broker listed the Windemere Court 13 Property on its website, held multiple open houses, and showed the Property to all 14 interested parties. Id. However, the Property received no offers at the list price. Considering 15 the lack of offers at the list price, as well as the detrimental effect of the COVID-19 16 pandemic on buyers’ interest in hospitality properties generally, the Receiver consulted 17 with Broker and decided to reduce the list price to a range of $1,499,000 to $1,599,000. Id. 18 at 5-6. Due to the COVID-19 pandemic, and in compliance with guidance from the 19 California Association of Realtors, Broker implemented 3D marketing and socially-distant 20 tours of the Property. Id. at 6. Four offers were received, and, following negotiations with 21 the prospective buyers, the Receiver accepted an offer of $1,515,000 from Brent Zambon 22 (“Buyer”). 23 On June 1, 2020, the Receiver and Buyer executed a California Residential Purchase 24 Agreement and Joint Escrow Instructions (“Purchase Agreement”), along with an 25 Addendum (executed two days later on June 3) making court approval of the sale a 26 condition to closing, and providing for the overbid and auction process required by 28 27 U.S.C. § 2001(a). ECF No. 367-3. Buyer has deposited $42,000 into escrow. ECF No. 367- 28 1 at 7. 1 B. Proposed Procedures and Distribution 2 In the motion seeking approval of the sale, the Receiver proposed compliance with 3 the overbid and auction process by publishing the following notice in the San Diego Union- 4 Tribune once a week for four weeks: 5 In the action pending in U.S. District Court for the Southern District of California, Case No. 19-CV-01628-LAB-AHG, Securities and Exchange 6 Commission v. Gina Champion-Cain, et al., notice is hereby given that the 7 court-appointed receiver will conduct a public auction for the real property located at 737 Windemere Court in San Diego County, California. Sale is 8 subject to Court confirmation after the auction is held. Minimum bid price is 9 at least $1,540,000. The auction will take place on July 24, 2020 at 1:30 p.m. in front of the entrance to the United States Courthouse, 221 W. Broadway, 10 San Diego, California or as otherwise determined by the Court. To be allowed 11 to participate in the auction, prospective purchasers must meet certain bid qualification requirements, including submitting a signed purchase and sale 12 agreement, an earnest money deposit of $50,000, and proof of funds. All 13 bidders must be qualified by 5:00 p.m. PT on July 21, 2020, by submitting the required materials to the receiver at 501 West Broadway, Suite 290, San 14 Diego, California, 92101. 15 ECF No. 367-1 at 11. For those interested in qualifying as bidders, the notice also provided 16 a phone number and email address for the relevant point of contact. Id. 17 The above notice was published as proposed. On July 22, 2020 the Receiver filed a 18 Notice of Non-Receipt of Qualified Overbids Regarding Motion for Approval of Sale of 19 737 Windemere Court Property. ECF No. 399. In the Notice, the Receiver informs the 20 Court that, after filing the Windemere Court Motion and in addition to publishing the notice 21 in the San Diego Union-Tribune, she posted notice of the Motion on the receivership 22 website anireceivership.com, and continued to market the property and notify potential 23 purchasers about the opportunity to submit an overbid by July 21, 2020. See id. Despite 24 these efforts, no overbids were submitted by the deadline. Id. Therefore, Brent Zambon is 25 still the intended Buyer. 26 Turning to the Receiver’s proposed distribution of the anticipated sale proceeds, the 27 Windemere Court Property is one of seven properties in the receivership estate that were 28 1 encumbered by a deed of trust in favor of Axos Bank (the “Axos portfolio loan”) at the 2 time the receivership was established. Three of the other properties encumbered by the 3 loan—1617 Thomas Avenue, 805 Brighton Court, and 724 Zanzibar Court—have already 4 been sold following Court approval, leaving only four residential properties within the 5 receivership estate encumbered by the loan. ECF No. 367-1 at 6. See also ECF Nos. 163, 6 226, 319. As explained in previous orders regarding the other properties subject to the Axos 7 loan, the documents governing the loan provide for partial release prices to facilitate the 8 sale of separate properties. Assuming an August 2020 closing with an August 2020 loan 9 payment having been made in the ordinary course, the Receiver’s estimate of the release 10 price for the Windemere Court Property is $1,207,220. Freitag Decl. ¶ 5.2 The Receiver 11 estimates property taxes to be paid from sale proceeds at closing will be between $1,500 12 and $2,500, and that costs of sale including escrow, title and recording fees will be 13 approximately $6,000. Id. The Broker’s fee is $12,000. Id. Notably, Buyer’s broker has 14 agreed to waive its share of the commission, which would have been $37,875, thus 15 resulting in a better reported market sale price of the Windemere Court Property of 16 $1,552,875, which the Receiver expects will help support sale prices for other properties 17 in the vacation rental portfolio. Id. n.1. Based on the above estimates, the Receiver 18 anticipates that the net sale proceeds remaining to be distributed to the receivership estate 19 after closing will be in the range of $285,000 to $290,000. Id. ¶ 5. 20 C. Court Approval of the Proposed Procedures and Sale 21 The Court has reviewed the documents submitted by the Receiver in support of the 22 Windemere Court Property Motion and finds the purchase price of $1,515,000 to be fair 23 and reasonable. This price is more than double the 2011 purchase price of $625,000, which 24 25 2 Prior to the sale of the Zanzibar Court property, the estimated principal balance 26 outstanding for the Axos portfolio loan was $3.07 million. ECF No. 282-1 at 6 n.2. The 27 Zanzibar Court Property was approved for sale at a purchase price of $1,875,000, and a release price of $1,524,704.14 was paid to Axos after closing. See ECF Nos. 319, 349. 28 1 represents a substantial return even taking into account the change in market conditions 2 over nine years and the significant remodel of the property in 2017. Freitag Decl. ¶ 2. 3 Further, although the sale price is $184,900 below the original list price of $1,699,900, the 4 Receiver (in consultation with Broker) only decided to drop the list price after several 5 months passed with no offers, and in well-reasoned consideration of the impact of the 6 COVID-19 pandemic on the vacation rental property market. Id. ¶ 4. Notably, the price is 7 nearly at the precise midpoint between the high and low market value estimations of the 8 Property in the Preliminary Real Estate and Liquor License Asset Schedule filed in October 9 2019, reflecting an estimated market value based on four brokers’ valuations long before 10 the COVID-19 pandemic hit. See ECF No. 76-2 at 3. Additionally, the Receiver has 11 established in the Motion that Broker diligently marketed and advertised the Property since 12 it was first listed on September 30, 2019. The Court is thus persuaded that the initial lack 13 of offers was due to a too-high listing price, rather than lack of effort or a rushed agreement. 14 Moreover, the Receiver’s publication of notice seeking qualified overbids in the San 15 Diego Union-Tribune, in addition to the solicitation of overbids through the receivership 16 website and continued efforts to market the property, establish that the Receiver fully 17 satisfied the requirements for the public sale procedures set forth in 28 U.S.C. §§ 2001(a) 18 and 2002 designed to ensure the best price is obtained. Therefore, upon review of the 19 factual history and the Purchase Agreement itself, the Court finds the Purchase Agreement 20 was negotiated at arm’s-length and, further, that the Receiver implemented sufficient 21 safeguards by way of the notice and overbid process to garner the highest possible price 22 for the property. Finally, as explained above, Buyer’s broker’s agreement to waive its 23 $37,875 share of the commission is expected to benefit the receivership as a whole, by 24 resulting in a higher reported market sale price of the Windemere Court Property that will 25 support sale prices for other properties in the estate’s vacation rental portfolio. The Court 26 is thus satisfied that the intent of the statutory scheme—to ensure that the best and highest 27 possible price is paid for property within the receivership estate—has been fulfilled. 28 \\ 1 IV. CONCLUSION 2 Based on the foregoing considerations, and noting in particular the lack of any 3 express opposition to the Motion, the Court finds the Receiver has sufficiently established 4 that the proposed sale of the Windemere Court Property and proposed distribution of the 5 sale proceeds are consistent with principles of equity and the goal of a receivership to 6 ensure the orderly and efficient administration of the estate for the benefit of creditors. See 7 Hardy, 803 F.2d at 1038. 8 Accordingly, the Court GRANTS the Receiver’s Motion for Approval of Sale of 9 737 Windemere Court Property (ECF No. 367), and APPROVES the proposed sale of the 10 real property located at 737 Windemere Court, San Diego, California, as described in 11 Exhibit A to the Declaration of Krista L. Freitag in support of the Motion (ECF No. 367- 12 3), by Krista L. Freitag, as Receiver, to Buyer Brent Zambon. The purchase price of 13 $1,515,000 for the Windemere Court Property is confirmed and approved. 14 The Court further ORDERS the proceeds of the sale to be distributed from escrow 15 at the close of sale as follows: 16 1. The Receiver is authorized to pay broker Pacific Pines Real Estate a 17 commission of $12,000; 18 2. The Receiver is authorized to pay Axos Bank the amount necessary to pay 19 off the mortgage on the Property, which is estimated to be approximately $1,207,220 20 (with the exact amount to be determined at closing); 21 3. The Receiver is authorized to pay the property taxes due from the seller at 22 closing, which amount is estimated to be in the range of $1,500 to $2,500 (with the exact 23 amount to be determined at closing); 24 4. The Receiver is authorized to pay costs of sale, including escrow, title and 25 recording fees, which are estimated to be approximately $6,000 (with the exact amounts 26 to be determined at closing); 27 5. After the aforementioned estimated amounts (with the exact amounts to be 28 determined at closing) are paid out of escrow, the net sale proceeds, which are estimated 1 ||to be in the range of $285,000 to $290,000 (with the exact amount to be determined at 2 ||closing), shall be paid to the receivership estate; and 3 6. The Receiver is immediately authorized to complete the sale transaction, 4 ||including executing any and all documents as may be necessary and appropriate to do so. 5 IT IS FURTHER ORDERED that after closing, the Receiver shall provide a full 6 || accounting of sale costs, property taxes paid, the precise release price paid to Axos Bank, 7 the amount ultimately returned to the receivership estate from the sale proceeds. 8 IT IS SO ORDERED. 9 10 || Dated: August 21, 2020 _Abiomt. Xl Honorable Allison H. Goddard 12 United States Magistrate Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10