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 REAL PROPERTY 14 LOCATED AT 7940 UNIVERSITY GINA CHAMPION-CAIN AND ANI 15 AVENUE, #9, LA MESA DEVELOPMENT, LLC, 16 Defendants, and 17 [ECF No. 472] 18 AMERICAN NATIONAL 19 INVESTMENTS, INC., 20 Relief Defendant. 21 22 23 I. BACKGROUND 24 As described in prior orders, see, e.g., ECF Nos. 54, 162, 163, this is an action 25 brought by the Securities and Exchange Commission (“SEC”) against Defendants ANI 26 Development, LLC (“ANI Development”) and Gina Champion-Cain and Relief Defendant 27 American National Investments, Inc. (“ANI Inc.”), alleging violations of federal securities 28 laws based on a purportedly fraudulent liquor license loan scheme. ECF No. 1. 1 On September 3, 2019, the Court established an equitable receivership and appointed 2 Krista L. Freitag (“Receiver”) as a permanent receiver of ANI Development and ANI Inc., 3 authorizing her to take control over all funds and assets owned, managed, or in the 4 possession or control of the receivership entities. See ECF No. 6 at 14-16. In that role, the 5 Receiver acts under the control and direction of the Court to facilitate the “orderly and 6 efficient administration of the estate . . . for the benefit of creditors.” SEC v. Hardy, 803 7 F.2d 1034, 1038 (9th Cir. 1986). See also Atl. Tr. Co. v. Chapman, 208 U.S. 360, 370 8 (1908) (explaining that a motion to appoint a receiver to take charge of property is “to the 9 end that the property might be cared for and preserved for all who had or might have an 10 interest in the proceeds of its sale. . . . Immediately upon such appointment and after the 11 qualification of the receiver, the property passed into the custody of the law, and 12 thenceforward its administration was wholly under the control of the court by its officer [], 13 the receiver.”). On December 11, 2019, the presiding judge in this action, Chief Judge 14 Burns, granted the parties’ Joint Motion (ECF No. 156) to give limited consent to the 15 undersigned to hear and directly decide all motions filed in this action to approve sales of 16 receivership assets. ECF No. 160. See also 28 U.S.C. § 636(c); CivLR 72.1(g). All property 17 sale motions are set before the undersigned pursuant to that grant of consent. 18 On October 8, 2020, the Receiver filed the present Motion for Approval of Sale of 19 Real Property Located at 7940 University Avenue, #9, La Mesa (the “University Avenue 20 Motion”). ECF No. 472. The motion concerns one of the residential real properties within 21 the receivership estate, a condominium located at 7940 University Avenue, #9, La Mesa, 22 California (the “University Avenue Property”). See ECF No. 472-1 at 5; ECF No. 76-2 at 23 6 (listing the University Avenue Property in the Preliminary Real Estate and Liquor 24 License Asset Schedule filed on October 3, 2019). 25 On October 9, 2020, the Court entered an order setting a briefing schedule and a 26 November 30, 2020 hearing on the University Avenue Motion. ECF No. 474. The Court 27 set a deadline of October 23, 2020 for responses in opposition to the motion and noted that 28 “[i]f no oppositions are filed by the deadline and the overbid submission deadline has 1 passed with no overbids, the Court may take the motion under submission without oral 2 argument.” Id. at 2. No opposition was filed. Further, bid qualifications from prospective 3 bidders seeking to submit overbids pursuant to the notice and auction process set forth in 4 28 U.S.C. §§ 2001 and 2002 (described in more detail below) were due by 5 November 2, 2020. See ECF No. 472-1 at 11; ECF No. 474 at 2. The Receiver filed a 6 Notice of Non-Receipt of Qualified Overbids regarding the University Avenue Motion on 7 November 3, 2020. ECF No. 495. Accordingly, the Court took the motion under 8 submission on the papers. ECF No. 497. 9 For the reasons explained more fully below, the Court GRANTS the University 10 Avenue Motion. 11 II. LEGAL STANDARD 12 “[I]t is a recognized principle of law that the district court has broad powers and 13 wide discretion to determine the appropriate relief in an equity receivership.” SEC v. 14 Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978). Where a district court sits in equity, 15 “[u]nless a statute in so many words, or by a necessary and inescapable inference, restricts 16 the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and 17 applied. ‘The great principles of equity, securing complete justice, should not be yielded 18 to light inferences, or doubtful construction.’” Porter v. Warner Holding Co., 328 U.S. 19 395, 398 (1946). 20 “[A] district court’s power to supervise an equity receivership and to determine the 21 appropriate action to be taken in the administration of the receivership is extremely broad.” 22 Hardy, 803 F.2d at 1037. As part of this broad discretion, the district court sitting in equity 23 and having custody and control of property “has power to order a sale of the same in its 24 discretion. The power of sale necessarily follows the power to take control of and to 25 preserve property[.]” SEC v. Am. Capital Investments, Inc., 98 F.3d 1133, 1144 (9th Cir. 26 1996), abrogated on other grounds by Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 27 93-94 (1998) (quoting 2 Ralph E. Clark, Treatise on Law & Practice of Receivers § 482 28 (3d ed. 1992)). If the court approves an equitable receiver’s proposed property sale, the 1 sale “does not . . . purport to convey ‘legal’ title, but rather ‘good,’ equitable title enforced 2 by an injunction against suit.” Id. (citing 2 Clark, Treatise on Law & Practice of Receivers, 3 §§ 342, 344, 482(a), 487, 489, 491). 4 Pursuant to 28 U.S.C. § 2001(a), realty in the possession of an appointed receiver is 5 subject to a public sale process, “upon such terms and conditions as the court directs.” 6 28 U.S.C. § 2002 further requires that notice be published once a week for at least four 7 weeks prior to the sale in at least one newspaper regularly issued and of general circulation 8 in the county, state, or judicial district where the realty is located.1 These safeguards of 9 notice and opportunity to submit overbids help to ensure that the sale is able to fetch the 10 best price possible, which is consistent with the principle that “a primary purpose of equity 11 receiverships is to promote orderly and efficient administration of the estate by the district 12 court for the benefit of creditors.” Hardy, 803 F.2d at 1038. See also United States v. 13 Grable, 25 F.3d 298, 303 (6th Cir. 1994) (noting that “the intent of” the requirement in 14 28 U.S.C. § 2001 that property be sold in the county in which the land is situated is “to 15 bring a better price at the sale”). 16 III. DISCUSSION 17 A. Background of the Property and Proposed Sale 18 The University Avenue Property was purchased on April 25, 2018, by 2466 1st 19 Avenue LLC (an affiliated receivership entity) for $325,000. ECF No. 472-1 at 5; see also 20 ECF No. 6 at 4 (the Court’s Appointment Order, listing 2466 1st Avenue LLC as an entity 21 subject to the equitable receivership). 22 Following her appointment, the Receiver and her staff analyzed the value of the 23 University Avenue Property by reviewing automated valuation scores and a survey of 24 market-comparable properties. ECF No. 472-2 ¶ 3. The Receiver consulted with multiple 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 licensed brokers and ultimately selected Coldwell Banker West (“Broker”) and listed the 2 property for sale at a listing price of $340,000. Id. 3 Beginning in August 2020, Broker marketed the University Avenue Property by 4 listing it on all of the major real estate platforms, including on the Multiple Listing Service 5 (“MLS”), Zillow, Redfin, and Realtor.com. ECF No. 472-1 at 5. These advertising efforts 6 resulted in twenty-three buyer showings within the first week. Id. Three prospective buyers 7 made offers, and Broker sent multiple counteroffers. Id. The Receiver ultimately accepted 8 an offer from Henry J. Tran and Crystal Q. Tran (“Buyers”) for $351,000. Id. Broker 9 represented that this is the highest sale price in the condominium complex. Id. at 5-6. 10 The Receiver and Buyers executed a California Residential Purchase Agreement and 11 Joint Escrow Instructions (“Purchase Agreement”), along with an Addendum making court 12 approval of the sale a condition of closing and providing for the overbid and auction 13 process required by 28 U.S.C. §§ 2001 and 2002. ECF No. 472-3. Buyers paid an initial 14 deposit of $5,000 and will finance the remainder with a loan from the Veteran’s 15 Administration. Id. at 3, 13. Buyers agreed that the sale would be as-is and expressly 16 removed all contingencies other than Court approval. Id. at 14, 19 ¶ 6.11. 17 B. Proposed Procedures and Distribution 18 In the motion seeking approval of the sale, the Receiver proposed compliance with 19 the overbid and auction process mandated by 28 U.S.C. §§ 2001 and 2002 by publishing 20 the following notice in the San Diego Union-Tribune once a week for four weeks: 21 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 22 Commission v. Gina Champion-Cain, et al., notice is hereby given that the 23 court-appointed receiver will conduct a public auction for the real property located at 7940 University Avenue, #9 in San Diego County, California. Sale 24 is subject to Court confirmation after the auction is held. Minimum bid price 25 is at least $356,000. The auction will take place on November 6, 2020 at 2:30 p.m. in front of the entrance to the United States Courthouse, 221 W. 26 Broadway, San Diego, California or as otherwise determined by the Court. To 27 be allowed to participate in the auction, prospective purchasers must meet certain bid qualification requirements, including submitted a signed purchase 28 1 and sale agreement, an earnest money deposit of $5,500, and proof of funds. All bidders must be qualified by 5:00 p.m. PT on November 2, 2020, by 2 submitting the required materials to the receiver at 501 West Broadway, Suite 3 290, San Diego, California, 92101. 4 5 ECF No. 472-1 at 11. For those interested in qualifying as bidders, the notice also provided 6 a phone number and email address for the relevant point of contact. Id. 7 As previously noted, the Receiver filed a Notice of Non-Receipt of Qualified 8 Overbids Regarding the University Avenue Motion on November 3, 2020. ECF No. 495. 9 In the Notice, the Receiver informs the Court that, after filing the University Avenue 10 Motion, and in addition to publishing the above notice in the San Diego Union-Tribune as 11 proposed, she posted notice of the motion on the receivership website 12 (anireceivership.com) and continued to market the property through Broker and notify 13 potential purchasers about the opportunity to submit an overbid by November 2, 2020. Id. 14 at 2. No overbids were submitted by the deadline. Id. Therefore, Henry J. Tran and Crystal 15 Q. Tran remain the intended buyers. 16 The University Avenue Property is one of four properties in the receivership estate 17 encumbered by a deed of trust in favor of Seattle Funding Group (the “SFG loan”). ECF 18 No. 472-1 at 6. The estimated principal balance outstanding for the interest-only SFG loan 19 at the time the Receiver filed the University Avenue Motion was $1.1 million. Id. On 20 October 16, 2020, the Court approved the sale of one of these properties—the Bella Pacific 21 Property (ECF No. 481)—and the Receiver applied $408,000 of the net sale proceeds to 22 pay down the principal balance of the SFG loan (ECF No. 501-1 at 6 n.1). With regard to 23 the University Avenue Property, SFG has agreed to extend the maturity date of the loan to 24 March 1, 2021, and to a release price of 85% of the sale price of this property, or $298,350. 25 ECF No. 472-1 at 6. Taking into account subsequently accrued interest, the Receiver 26 estimates the total amount paid to SFG at closing will be between $302,000 and $305,000. 27 Id. 28 /// 1 Turning to the proposed distribution of the $351,000, the Receiver anticipates a net 2 gain for the receivership estate. She first intends to use the proceeds of the sale of the 3 University Avenue Property to pay the release price. Id. Based on the assumption that the 4 sale will close after December 10, 2020 (it may, in fact, close before then), the Receiver 5 estimates that a few hundred dollars of property taxes will be credited to the seller. Id. The 6 Receiver also anticipates that costs of sale including escrow, title, and recording fees will 7 be approximately $1,750. Id. Broker’s commission pursuant to the listing agreement is 8 $14,040 (4% of the sales price) and will be split with Buyers’ broker. Id. Based on these 9 estimates, the Receiver expects that the net sale proceeds for the receivership estate will be 10 in the range of $30,000 to $33,000. ECF No. 472-2 ¶ 5. 11 C. Court Approval of Procedures and Proposed Sale 12 The Court has reviewed the documents submitted by the Receiver in support of the 13 University Avenue Motion, including the Purchase Agreement, and finds the purchase 14 price of $351,000 to be fair and reasonable. This price exceeds the April 2018 purchase 15 price of the property by $26,000 and is the highest sale price in the condominium complex 16 in which it is located. The Receiver, through Broker, received three offers for the property 17 and made counteroffers. In addition, the Receiver obtained other valuable concessions, 18 such as sale of the property “as is,” removal of all contingencies except Court approval, 19 and making the sale subject to the requisite public notice and auction process of 28 U.S.C. 20 §§ 2001 and 2002. See ECF No. 472-3 at 15-20. Additionally, the proposed total 21 commission of 4% of the gross sale price, to be split by Broker and the broker for Buyers, 22 is within the lower range of industry standards. And, importantly, the sale of the University 23 Avenue Property brings the receivership estate closer to paying off the SFG loan in full, 24 which will reduce the ongoing monthly expenses of the receivership estate and thus aid the 25 Receiver in ultimately creating a better return for all creditors. 26 As for the procedures followed, the Court finds that all of its uniform property sale 27 procedures have been satisfied. See ECF No. 219. The Receiver’s publication of notice 28 seeking qualified overbids in the San Diego Union-Tribune, in addition to the solicitation 1 of overbids through the receivership website and continued efforts to market the property, 2 establish that the Receiver satisfied the public sale and auction procedures set forth in 3 28 U.S.C. §§ 2001 and 2002, which are designed to ensure that the best purchase price for 4 realty within the receivership is obtained. Upon review of the factual history and the 5 Purchase Agreement itself, the Court finds that the Receiver negotiated the best deal for 6 the receivership estate and verified Buyers’ ability to complete the transaction. Further, the 7 Receiver provided the Court with a detailed breakdown of the proposed distributions from 8 the sale proceeds, as required. The Court thus is satisfied that the intent of the statutory 9 scheme—to ensure that the best and highest possible price is paid for property within the 10 receivership estate—has been fulfilled. 11 Based on these considerations, and noting in particular the lack of any opposition to 12 the University Avenue Motion, the Court finds the Receiver has established sufficiently 13 that the proposed sale of the University Avenue Property and proposed distribution of the 14 sale proceeds are consistent with principles of equity and the goal of a receivership to 15 ensure the orderly and efficient administration of the estate for the benefit of creditors. See 16 Hardy, 803 F.2d at 1038. 17 IV. CONCLUSION 18 Having considered the Receiver’s Motion for Approval of Sale of Real Property 19 Located at 7940 University Avenue, #9, La Mesa (ECF No. 472) on its merits and noting 20 that there is no opposition thereto, the Court GRANTS the Motion and APPROVES the 21 proposed sale of the condominium located at 7940 University Avenue, #9, La Mesa, 22 California to Buyers Henry J. Tran and Crystal Q. Tran, as described in the Purchase 23 Agreement attached as Exhibit A to the Declaration of the Receiver (ECF No. 472-3). The 24 purchase price of $351,000 for the University Avenue Property is confirmed and approved. 25 /// 26 /// 27 /// 28 /// 1 The Court further ORDERS the proceeds of the sale to be distributed from escrow 2 at the close of sale as follows: 3 (1) The Receiver shall pay lender Seattle Funding Group the release price for the 4 property, plus accrued interest on the loan, which amount is estimated to be approximately 5 $302,000 to 305,000 (with the exact amount to be determined at closing); 6 (2) The Receiver shall pay the property taxes due from the seller at closing, if any 7 (with the exact amount to be determined at closing); 8 (3) The Receiver is authorized to pay broker Coldwell Banker West a commission 9 of 4% of the sales price, or $14,040, which amount will be split with Buyers’ broker in a 10 fashion consistent with the listing agreement and the description in the University Avenue 11 Motion; 12 (4) The Receiver shall pay the seller’s share of the costs of sale, including escrow, 13 title, and recording fees, which are anticipated to be approximately $1,750; and 14 (5) The Receiver is immediately authorized to complete the sale transaction, 15 including executing any and all documents as may be necessary and appropriate to do so, 16 with the remaining sale proceeds—which are estimated to be in the range of $302,000 to 17 $305,0002 (with the exact amount to be determined at closing)—going to the receivership 18 estate. 19 /// 20 /// 21 /// 22 /// 23 /// 24 25 26 2 Because the Court understands that numerous contingencies (e.g., the amount of interest 27 accrued on the loan before closing, the amount of property taxes owed, etc.) may affect the net sale proceeds of this particular sale, the Court approves the distribution of the net sale 28 1 IT IS FURTHER ORDERED that after closing, the Receiver shall provide a full 2 ||accounting of sale costs, property tax credits received and/or property taxes paid, the 3 || precise release price paid to Seattle Funding Group, and the amount ultimately returned to 4 receivership estate from the sale proceeds. 5 IT IS SO ORDERED. 6 || Dated: November 13, 2020 JpwornH. Xho Honorable Allison H. Goddard 8 United States Magistrate Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10