ORDER GRANTING IN PART MOTION FOR STAY AND DENYING REQUEST FOR ORAL ARGUMENT (ECF NOS. 495, 496)
GONZALO P. CURIEL, District Judge.
This is a civil enforcement action initiated by the Securities and Exchange Commission ("Commission"), in which the Commission alleges defendants Louis V. Schooler ("Schooler") and First Financial Planning Corporation d/b/a Western Financial Planning Corporation ("Western") defrauded investors through the sale of unregistered securities tied to interests in real property.
On August 16, 2013, the Court granted in part and denied in part Defendants' Motion to Modify Preliminary Injunction Order, in which Defendants requested that the Court remove the GPs from the receivership estate. (ECF No. 470.) In ordering that the GPs should be removed from the receivership estate, the Court imposed certain conditions on their removal, including the following condition:
[T]he Court first orders a pro rata reduction of Western's equity interests in the GPs according to the properties' current fair market value as set forth in the appraisals obtained by the Receiver. To the extent a GP account has a zero balance or insufficient funds to meet an obligation due within ninety days from the date of the reduction of Western's interests, such interests shall nonetheless be formally liquidated with no payment to Western. Before the GPs are released from the receivership, all of Western's equity interests in the GPs shall be liquidated to ensure that Western will have no future responsibility for any liability incurred by the GPs. Additionally, given the enormous disparity between the purchase prices of the GP properties and the funds Western raised from the GPs, the Court finds it equitable to preclude Western from receiving a share of any proceeds received from any future sale of the GP properties.
("Liquidation Condition") (ECF No. 470 at 25-26.)
The Court thereafter denied Defendants' Motion for Partial Reconsideration of the Order Granting in Part and Denying in Part Defendants' Motion to Modify Preliminary Injunction Order. (ECF Nos. 474, 494.)
Defendants then appealed the Liquidation Condition of the Court's August 16, 2013 Order. (ECF No. 499.)
Before the Court is Defendants' Motion for Stay of Order Pending Appeal, (ECF No. 495), along with Defendants' Request for Oral Argument, (ECF No. 496). The Receiver and the Commission have each filed a response in opposition to the Motion for Stay. (ECF Nos. 509, 510.) The Court finds Defendants' Motion for Stay suitable for disposition without oral argument. See CivLR 7.1.d.1.
The crux of Defendants' Motion for Stay is that, if the Receiver is allowed to proceed with the liquidating Western's interests in the GPs before the Ninth Circuit rules on Defendants' appeal, Western will irreparably harmed without due process. More specifically, Defendants assert Western will be "permanently stripped of at least $11 million of assets and likely millions of dollars of future investment returns before the underlying claims have been tried, " and that "[l]iquidating the equity interests at this time will unalterably change the status quo before the case on the merits can be heard, to the benefit of none of the parties or the investors."
In response, the Receiver argues Defendants' Motion for Stay should be denied because "Western is not being deprived of property or ordered to disgorge assets, " but is instead being required to convert its equity interests into their fair market value in cash as determined by the best evidence available, to wit, the appraisals obtained by the Receiver. The Receiver notes Defendants have offered no evidence supporting their assertion that Western's equity interests "are worth anything remotely close to $11 million."
The Receiver asserts that, just as this Court had the power to order the sale/liquidation of Western's vehicles, gold coins, office furniture and equipment, this Court had the power to order the conversion of Western's equity interests into cash.
The Receiver further contends that imposing a stay that would allow Western to retain its interests in the GPs while releasing the GPs from the receivership "would harm the receivership estate and those with claims to recover from it" because of the responsibility Western would share for liabilities incurred by the GPs.
The Receiver argues "[t]he most important public interest at issue here is preserving and protecting Western's assets for the benefit of those with claims to recover from the estate, " which interest will be put at risk "simply to preserve Defendants' fantasy that [Western's equity interests] are worth anything remotely close to $11 million."
The Receiver finally asserts "[t]he real reason Defendants sought partial reconsideration, filed the appeal, and brought this motion for stay is not to save hopelessly underwater investments." The Receiver contends that, "[s]ince the Court rejected his attempt to have Western removed from the receivership last November, Mr. Schooler (with his team of lawyers and substantial personal resources) has systematically done everything in his power to ensure, regardless of the Court's orders on fee applications, there are no funds available to pay the Receiver and his counsel." The Receiver argues "[t]he Court should see this for what it is - a tactic to ...