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 CAMINO DEGRAZIA 14 PROPERTY GINA CHAMPION-CAIN AND ANI 15 DEVELOPMENT, LLC, 16 Defendants, and [ECF No. 501] 17 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 November 10, 2020, the Receiver filed the present Motion for Approval of Sale 19 of Camino Degrazia Property (the “Camino Degrazia Motion”). ECF No. 501. The motion 20 concerns one of the residential real properties within the receivership estate, a two- 21 bedroom, two-bathroom condominium located at 7243 Camino Degrazia, Unit 59, San 22 Diego, California 92111 (the “Camino Degrazia Property”). See ECF No. 501-1 at 5; ECF 23 No. 76-2 at 6 (listing the Camino Degrazia Property in the Preliminary Real Estate and 24 Liquor License Asset Schedule filed on October 3, 2019). The Court set a deadline of 25 November 25, 2020, for responses in opposition to the Camino Degrazia Motion. ECF No. 26 502 at 2. No oppositions were filed. 27 Further, bid qualifications from prospective bidders seeking to submit overbids 28 pursuant to the notice and auction process set forth in 28 U.S.C. §§ 2001 and 2002 1 (described in more detail below) were due by November 30, 2020. See ECF No. 2 501-1 at 11. The Receiver filed a Notice of Non-Receipt of Qualified Overbids regarding 3 the Camino Degrazia Motion on December 1, 2020. ECF No. 513. The Court then took the 4 motion under submission on the papers. ECF No. 532. 5 For the reasons explained more fully below, the Court GRANTS the Camino 6 Degrazia Motion. 7 II. LEGAL STANDARD 8 “[I]t is a recognized principle of law that the district court has broad powers and 9 wide discretion to determine the appropriate relief in an equity receivership.” SEC v. 10 Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978). Where a district court sits in equity, 11 “[u]nless a statute in so many words, or by a necessary and inescapable inference, restricts 12 the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and 13 applied. ‘The great principles of equity, securing complete justice, should not be yielded 14 to light inferences, or doubtful construction.’” Porter v. Warner Holding Co., 328 U.S. 15 395, 398 (1946). 16 “[A] district court’s power to supervise an equity receivership and to determine the 17 appropriate action to be taken in the administration of the receivership is extremely broad.” 18 Hardy, 803 F.2d at 1037. As part of this broad discretion, the district court sitting in equity 19 and having custody and control of property “has power to order a sale of the same in its 20 discretion. The power of sale necessarily follows the power to take control of and to 21 preserve property[.]” SEC v. Am. Capital Investments, Inc., 98 F.3d 1133, 1144 (9th Cir. 22 1996), abrogated on other grounds by Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 23 93-94 (1998) (quoting 2 Ralph E. Clark, Treatise on Law & Practice of Receivers § 482 24 (3d ed. 1992)). If the court approves an equitable receiver’s proposed property sale, the 25 sale “does not . . . purport to convey ‘legal’ title, but rather ‘good,’ equitable title enforced 26 by an injunction against suit.” Id. (citing 2 Clark, Treatise on Law & Practice of Receivers, 27 §§ 342, 344, 482(a), 487, 489, 491). 28 1 Pursuant to 28 U.S.C. § 2001(a), realty in the possession of an appointed receiver is 2 subject to a public sale process, “upon such terms and conditions as the court directs.” 3 28 U.S.C. § 2002 further requires that notice be published once a week for at least four 4 weeks prior to the sale in at least one newspaper regularly issued and of general circulation 5 in the county, state, or judicial district where the realty is located.1 These safeguards of 6 notice and opportunity to submit overbids help to ensure that the sale is able to fetch the 7 best price possible, which is consistent with the principle that “a primary purpose of equity 8 receiverships is to promote orderly and efficient administration of the estate by the district 9 court for the benefit of creditors.” Hardy, 803 F.2d at 1038. See also United States v. 10 Grable, 25 F.3d 298, 303 (6th Cir. 1994) (noting that “the intent of” the requirement in 28 11 U.S.C. § 2001 that property be sold in the county in which the land is situated is “to bring 12 a better price at the sale”). 13 III. DISCUSSION 14 A. Background of the Property and Proposed Sale 15 The Camino Degrazia Property was purchased on April 5, 2019, by 2466 1st Avenue 16 LLC, an affiliated receivership entity, for $460,000. ECF No. 501-1 at 5; see also ECF No. 17 6 at 5 (the Court’s Appointment Order, listing 2466 1st Avenue LLC as an entity subject 18 to the equitable receivership). 19 Following her appointment, the Receiver and her staff analyzed the value of the 20 Camino Degrazia Property by reviewing automated valuation scores and a survey of 21 market-comparable properties. ECF No. 501-2 ¶ 3. The Receiver consulted with multiple 22 licensed brokers and ultimately selected Resonate Real Estate (“Broker”) and listed the 23 property for sale at a listing price of $510,000. Id. 24 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 Beginning in April 2020, Broker marketed the Camino Degrazia Property by listing 2 it on the local Multiple Listing Service (“MLS”) and its website. ECF No. 501-1 at 5. It 3 also appeared on Realtor.com, Redfin, Zillow, and Trulia. Id. Due to a lack of interest, the 4 Receiver and Broker agreed to reduce the list price until it reached a range of $450,000 to 5 $475,000. Id. Broker showed the property to dozens of interested parties and complied with 6 the Covid-19 pandemic-related mandate of utilizing 3D marketing and socially-distanced 7 property tours. Id. Ultimately, they received four offers. Id. The Receiver negotiated terms 8 with the prospective buyers and, on October 12, 2020, the Camino Degrazia Property went 9 into escrow with a purchase price of $450,000 and a $5,000 credit to buyer, Dani J. 10 Harrelson (“Buyer”). Id. at 5-6. 11 The Receiver and Buyer executed a California Residential Purchase Agreement and 12 Joint Escrow Instructions (“Purchase Agreement”), along with an Addendum making court 13 approval of the sale a condition of closing and providing for the overbid and auction 14 process required by 28 U.S.C. §§ 2001 and 2002. ECF No. 501-3. Buyer agreed that the 15 sale would be as-is, removed all contingencies other than Court approval, and deposited 16 $8,750 into escrow. Id. at 3. Buyer intends to finance the property with a Veteran’s 17 Administration loan. 18 B. Proposed Procedures and Distribution 19 In the motion seeking approval of the sale, the Receiver proposed compliance with 20 the overbid and auction process mandated by 28 U.S.C. §§ 2001 and 2002 by publishing 21 the following notice in the San Diego Union-Tribune once a week for four weeks: 22 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 23 Commission v. Gina Champion-Cain, et al., notice is hereby given that the 24 court-appointed receiver will conduct a public auction for the real property located at 7243 Camino Degrazia in San Diego County, California. Sale is 25 subject to Court confirmation after the auction is held. Minimum bid price is 26 at least $455,000. The auction will take place on December 4, 2020 at 1:30 p.m. in front of the entrance to the United States Courthouse, 221 W. 27 Broadway, San Diego, California or as otherwise determined by the Court. To 28 be allowed to participate in the auction, prospective purchasers must meet 1 certain bid qualification requirements, including submitted a signed purchase and sale agreement, an earnest money deposit of $9,625, and proof of funds. 2 All bidders must be qualified by 5:00 p.m. PT on November 30, 2020, by 3 submitting the required materials to the receiver at 501 West Broadway, Suite 290, San Diego, California, 92101. 4 5 ECF No. 501-1 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 Camino Degrazia Motion on December 1, 2020. ECF No. 513. In 9 the Notice, the Receiver informs the Court that, after filing the Camino Degrazia Motion, 10 and in addition to publishing the above notice in the San Diego Union-Tribune as proposed, 11 she posted notice of the Motion on the receivership website (anireceivership.com) and 12 continued to market the property through Broker and notify potential purchasers about the 13 opportunity to submit an overbid by November 30, 2020. Id. at 2. No overbids were 14 submitted by the deadline. Id. Therefore, Dani J. Harrelson remains the intended Buyer. 15 The Camino Degrazia Property was one of four properties in the receivership estate 16 encumbered by a deed of trust in favor of Seattle Funding Group (the “SFG loan”). ECF 17 No. 501-1 at 6. With the sale of the Bella Pacific property and the anticipated closing of 18 the 7940 University Avenue property (the sale of which the Court previously approved 19 (ECF No. 508)), the balance of the SFG loan will be reduced to about $393,650. Id. For 20 the Camino Degrazia Property, the lender has agreed to a release price of 85% of the sale 21 price ($382,500). Id. Assuming the University Avenue and Camino Degrazia properties 22 close as expected, only $11,150 will remain due to SFG on the remaining receivership asset 23 encumbered by the loan. Id. 24 The Receiver estimates that, if the sale closes in December (after 25 December 10, 2020), there will be a small credit to the seller at closing for property taxes. 26 Id. The costs of sale including escrow, title, and recording fees will be approximately 27 $2,250 and the commission due to Broker under the listing agreement is 4% of the sale 28 price, or $18,000, which amount will be split with Buyer’s broker. Id. 1 Based on these costs and estimates, the Receiver expects that the net sale proceeds 2 for the receivership estate will be in the range of $37,000 to $42,000. Id. 3 C. Court Approval of Procedures and Proposed Sale 4 The Court has reviewed the documents submitted by the Receiver in support of the 5 Camino Degrazia Motion, including the Purchase Agreement, and finds the purchase price 6 of $450,000 to be fair and reasonable. Though the sale price (taking into account the $5,000 7 credit) is $15,000 less than what the property was purchased for just over a year ago, the 8 Court cannot find fault with Broker’s efforts to market the property. Broker listed the 9 Camino Degrazia Property well above the purchase price, but the property did not garner 10 any buyer interest at that price point. ECF No. 501-1 at 5. Broker further marketed the 11 property on multiple platforms for six months, coordinated dozens of showings, and finally 12 obtained four offers once the price was reduced to a range that sparked buyer interest. Id. 13 Likewise, the Receiver appears to have negotiated terms effectively and obtained other 14 valuable concessions, such as sale of the property “as is with all faults,” removal of all 15 contingencies except Court approval, and making the sale subject to the requisite public 16 notice and auction process of 28 U.S.C. §§ 2001 and 2002. See ECF No. 501-3 at 14-20. 17 The proposed total commission of 4% of the gross sales price, to be split by Broker and the 18 broker for the Buyer, is within the low to average range of industry standards and, thus, 19 acceptable to the Court. And, importantly, the sale of the Camino Degrazia Property brings 20 the receivership estate very close to paying off the SFG loan in full, which will reduce the 21 ongoing monthly expenses of the receivership estate and thus aid the Receiver in ultimately 22 creating a better return for all creditors. 23 As for the procedures followed, the Court finds that all of its uniform property sale 24 procedures have been satisfied. See ECF No. 219. The Receiver’s publication of notice 25 seeking qualified overbids in the San Diego Union-Tribune, in addition to the solicitation 26 of overbids through the receivership website and continued efforts to market the property, 27 establish that the Receiver satisfied the public sale and auction procedures set forth in 28 28 U.S.C. §§ 2001 and 2002, which are designed to ensure that the best purchase price for 1 realty within the receivership is obtained. Upon review of the factual history and the 2 Purchase Agreement itself, the Court finds that the Receiver negotiated the best deal for 3 the receivership estate and verified Buyer’s ability to complete the transaction. Further, the 4 Receiver provided the Court with a detailed breakdown of the proposed distributions from 5 the sale proceeds, as required. The Court thus is satisfied that the intent of the statutory 6 scheme—to ensure that the best and highest possible price is paid for property within the 7 receivership estate—has been fulfilled. 8 Based on these considerations, and noting in particular the lack of any opposition 9 to the Camino Degrazia Motion, the Court finds the Receiver has sufficiently established 10 that the proposed sale of the Camino Degrazia Property and proposed distribution of the 11 sale proceeds are consistent with principles of equity and the goal of a receivership to 12 ensure the orderly and efficient administration of the estate for the benefit of creditors. See 13 Hardy, 803 F.2d at 1038. 14 IV. CONCLUSION 15 Having considered the Receiver’s Motion for Approval of Sale of 7243 Camino 16 Degrazia Property (ECF No. 501) on its merits and noting that there is no opposition 17 thereto, the Court GRANTS the Motion, and APPROVES the proposed sale of the 18 condominium located at 7243 Camino Degrazia, Unit 59, San Diego, California 92111 to 19 Buyer Dani J. Harrelson, as described in the Purchase Agreement attached as Exhibit A to 20 the Declaration of the Receiver (ECF No. 501-3). The purchase price of $450,000, with a 21 $5,000 buyer credit, for the Camino Degrazia Property is confirmed and approved. 22 The Court ORDERS the proceeds of the sale to be distributed from escrow at the 23 close of sale as follows: 24 (1) The Receiver shall pay lender Seattle Funding Group the amount necessary to 25 have the Deed of Trust on the Property in favor of Seattle Funding Group reconveyed and 26 released from the Property, which amount is estimated to be approximately $382,500 to 27 $387,500 (with the exact amount to be determined at closing); 28 1 (2) The Receiver shall pay the property taxes due from the seller at closing, if any 2 (with the exact amount to be determined at closing); 3 (3) The Receiver shall pay broker Resonate Real Estate a commission of $18,000 4 ||(4% of the sale price), which amount will be split with Buyer’s broker in a fashion 5 || consistent with the listing agreement and the description in the Camino Degrazia Motion; 6 (4) The Receiver shall pay the seller’s share of the costs of sale, including escrow, 7 || title, and recording fees, which are anticipated to be approximately $2,250; and 8 (5) The Receiver is immediately authorized to complete the sale transaction, 9 ||including executing any and all documents as may be necessary and appropriate to do so, 10 || with the remaining sale proceeds—which are estimated to be in the range of $37,000 to 11 $42,0007 (with the exact amount to be determined at closing)—going to the receivership 12 || estate. 13 IT IS FURTHER ORDERED that after closing, the Receiver shall provide a full 14 accounting of sale costs, property tax credits received and/or property taxes paid, the 15 || precise release price paid to Seattle Funding Group, and the amount ultimately returned to 16 || the receivership estate from the sale proceeds. 17 IT IS SO ORDERED. 18 ||Dated: December 11, 2020 19 _ Siow. Xion Honorable Allison H. Goddard 20 United States Magistrate Judge 21 22 23 24 || 26 Because the Court understands that numerous contingencies (e.g., the interest due on the 27 ||loans, the amount of property taxes owed, etc.) may affect the net sale proceeds of this 28 particular sale, the Court approves the distribution of the net sale proceeds to the receivership estate even if the final amount is outside of this range.