United States District Court, S.D. California
ORDER APPROVING SALE OF RENO PARTNERS' PROPERTY
GONZALO P. CURIEL UNITED STATES DISTRICT JUDGE.
the Court is the Receiver's Motion for Approval of Sale
of Reno Partners' Property (“Motion”). ECF
No. 1443-1. No opposition was filed. Based upon a review of
the moving papers and the applicable law, the Court
TENTATIVELY GRANTS the Receiver's motion.
The SEC Enforcement Action
January 21, 2016, the Court granted the SEC's motion for
final judgment against Defendant Louis V. Schooler. ECF No.
1170. The SEC had initiated this civil action against
Defendant Schooler and Western Financial Planning Corporation
(“Western”) four years earlier, on account of
their practice of defrauding investors into purchasing
unregistered securities. Id. (citing Second Summary
Judgment Order, ECF No. 1081). To carry out the scheme,
Defendant Western bought undeveloped real estate, with cash
or through financing, and simultaneously formed one or more
General Partnerships (“GPs”) to own the land.
First Summary Judgment Order, ECF No. 1074 at 10. Western
then sold General Partnership units to investors and sold the
undeveloped real estate to the General Partnerships.
Id. at 10. In total, Western raised approximately
$153 million from almost 3, 400 investors through
implementing this scheme. Id.
The Decline of the General Partnership Assets
2013, the Court-appointed Receiver, Thomas Hebrank, engaged
licensed appraisers to value the 23 properties owned by the
General Partnerships. ECF No. 203 at 2. Those professionals
determined that the land was worth $16, 328, 000 and that the
net appraised value (appraised value less outstanding
balances on all mortgages) of the properties was $12, 860,
661. Id. The net appraised value represented just
8.41% of the total funds that the general partners had
invested in the land. Id. The Receiver further
estimated that, based on the then-current appraised values of
the land, the average GP investor would suffer an 88.40% loss
if the GP properties were sold in 2013. Id.
years later, soon after final judgment was entered, the
Receiver moved for authority to conduct an Orderly Sale of
the General Partnership Properties (“Orderly
Sale”). Motion for Orderly Sale, ECF No. 1181-1. In the
Motion, the Receiver indicated that the aggregate value in
the GP accounts had been steadily decreasing while litigation
was ongoing. See Id. In September 2012, the
Receivership had assets of $6.6 million. Id. at 1.
By the end of 2015, the assets had dropped to $3.5 million,
and the Receiver had reason to believe that the value of the
Receivership would continue to drastically decrease through
the end of 2016. This decline, he noted, was due to three
main factors: (1) 14 of the 23 properties were not
appreciating in value; (2) the properties were not worth enough
to cover the costs of the GPs carrying the properties; and
(3) low levels of investor contributions to pay GP
administrator fees, tax preparation fees, property taxes,
property insurance premiums, and notes owed to Western.
See Id. at 1-2. In other words, the Receiver
concluded, because the money being spent to hold the GP
properties was disproportionately high in relation to the
value of the GP's real estate assets, the Receivership
was in a steady decline. Id.
order to prevent the value of the Receivership from falling
into further decline, the Receiver proposed that the GP
properties be sold in accordance with Court-approved orderly
sale procedures. Id. The Receiver's proposal
explained that the best way to maximize the value of all of
the GP assets for the benefit of all investors, irrespective
of any given investors' direct property interest, was to
initiate an orderly sale of the GP properties. Id.
The Receiver estimated that the Receivership, after
conducting sales of the GP properties, Western's
properties and asset recovery, would be worth $21, 804, 826.
Id. at 16.
The Receiver's Motion for Orderly Sale
20, 2016, the Court held a hearing on the Receiver's
Motion for Orderly Sale, at which time the Court heard from
the SEC, Defendant, the Receiver, and the
investor-interveners - that is, those investors who were
granted permission under Rule 23 to intervene to oppose the
Receiver's Motion. See ECF No. 1298. A short
time thereafter, on May 25, 2016, the Court approved, in
part, the Receiver's Orderly Sale process. ECF No. 1304.
approving the Orderly Sale, the Court addressed and evaluated
the concerns expressed by the Receiver, the SEC, and myriad
investors, all of whom held differing positions on whether
the Orderly Sale would benefit the Receivership estate.
See generally ECF Nos. 1181 (Motion for Orderly
Sale), 1232 (SEC Response), 1234 (Dillon Investors'
Response), 1235 (Graham Investors' Response); see
also, e.g., ECF Nos. 1240, 1242, 1244, 1249-1257
(Letters from Investors). The Court also took into
consideration the recommendations of the investors'
experts, as set forth in the Xpera Report. See ECF
No. 1304 at 16. The Xpera Report, the Court noted,
substantially agreed with the Receiver on how to maximize the
value of the Receivership estate and, for the most part,
agreed on the appraised value of the various GP properties.
Id. As such, the Court directed the Receiver, where
feasible, to incorporate the recommendations of the Xpera
Report into his ultimate Orderly Sale proposal. Id.
22, 2016, the Receiver moved for permission to engage CBRE, a
real estate brokerage firm, as a consultant in order to weigh
the pros and the cons of the Xpera Report. ECF No. 1341-1.
The Court granted the Receiver's motion on August 30,
2016. ECF No. 1359. CBRE presented its findings on the GP
properties on October 24, 2016. ECF No. 1419 (filed under
seal). On November 22, 2016, the Receiver submitted a report
evaluating the Xpera Report recommendations. ECF No. 1405.
The Court reviewed the Receiver's report and adopted the
recommendations contained therein on December 12, 2016. ECF