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Securities and Exchange Commission v. Schooler

United States District Court, S.D. California

February 20, 2018



          Hon. Gonzalo P. Curiel United States District Judge

         Before the Court is a portion of the Receiver's motion that this Court reserved for additional proceedings. (ECF No. 1545.) For the reasons explained below, the portion of that motion that remains pending is now GRANTED.

         I. Background

         As indicated in the order issued on May 25, 2016, the Court has approved the Receiver's “one pot approach” and distribution plan, which determined investor claims “by the total payment made by each investor to the Receivership Entities, less all payments received by each investor from the Receivership Entities.” (ECF No. 1304 at 31 (approving plan as discussed at Ex. E of ECF No. 1181-1).) As that proposed plan stated, “[a]fter all Administrative Claims have been paid in full, all Claimants shall receive Cash in an amount equal to such Claimant's Pro Rata Share of total Cash to be distributed to all Allowed Claims.” (ECF No. 1181-1, Ex. E at 3.) Pursuant to that plan, the Receiver has conducted a forensic accounting of the funds raised by the Receivership Entities and how they were used. (ECF No. 1545-1 at 3.) After the Receiver computed each of the approximately 3, 400 investors' claims and submitted to each investor a proposed claim amount, 21 investors submitted disputes. (Id. at 4.) The Receiver contacted each of those investors individually, and at the time of the instant motion, only six investors continued to dispute their claim amounts. (Id.)

         On November 2, 2017, the Receiver filed this motion seeking three forms of relief: (1) resolution of the six disputed investor claim amounts; (2) approval of the proposed allowed claim amounts; and (3) authorization to dissolve the General Partnerships and related entities. (ECF No. 1545.) On December 1, 2017, the Securities and Exchange Commission (the “SEC”) filed a statement indicating that it did not oppose any portion of the Receiver's motion. (ECF No. 1546.) Before the Court issued a ruling on the motion, investors Mary and John Jenkins filed a letter to the Court explaining why they were disputing the claim amount determined by the Receiver. (ECF No. 1556.) The Receiver filed a memorandum in response to the Jenkinses's letter on December 8, 2017. (ECF No. 1557.)

         On December 11, 2017, the Court issued a ruling granting in part the pending motion. (ECF No. 1565.) In that ruling, the Court found good cause to grant the Receiver's request to dissolve and close the General Partnerships and related entities. (Id. at 3.) As for the request for approval of the disputed claim amounts, the Court explained that it wanted to offer the six investors who were disputing their claim amounts a clear opportunity to present their position that the Receiver had miscalculated the amount of their claims against the Receivership. (ECF No. 1569.) The Court scheduled a hearing for February 9, 2018, at which investors were invited to appear (in person, or telephonically) and present such arguments. (Id. at 2.) The Court also set a briefing schedule in which it instructed the six investors disputing their claim amounts to “submit a letter explaining why he or she (or they) believe that the Receiver's proposed claim amount is incorrect, ” which “must be accompanied by evidence supporting the investor's argument.” (Id.) The Court noted that it had received the previously submitted letter from the Jenkinses, but also indicated that “[i]f they wish to submit any other information, they may do so by the deadline” set forth in that order. (Id.) On December 18, 2017, the Receiver filed with the Court a proof of service indicating that he had served all six investors disputing their claim amounts with a copy of the Court's order setting the briefing schedule and scheduling the hearing. (ECF No. 1570.)

         In response to its order setting this briefing schedule, the Court received letters from two investors: Sheri Gracelyn (ECF Nos. 1579, 1587) and Joseph F. and Carmen M. De Assis (ECF No. 1580). On February 2, 2018, the Receiver submitted a written response to these letters. (ECF No. 1588.) On February 9, 2018, the Court held the hearing, at which the De Assises appeared in person and investor Jeffrey Compangano appeared telephonically. (ECF No. 1590.) Based on the written and oral arguments and evidence presented to the Court, and for the reasons explained below, the Court is persuaded that claim amounts proposed by the Receiver are correctly calculated, with one exception as to investor Jean Dunham.

         II. Discussion

         As to each investor who has disputed the Receiver's proposed claim amount, the Court below discusses the information provided by the Receiver and any argument or evidence offered in response by that investor.

         a. Jean Dunham

         Jean Dunham invested a total of $52, 923 in Park Vegas Partners and Reno Partners. (ECF No. 1545-2 at 3.) Park Vegas Partners owns one of the three properties known as Las Vegas 1, which were sold in 2005 with seller financing provided to buyer, after which the Park Vegas investors received distributions from the sale proceeds. (Id.) The buyer of the property later defaulted on the loan, and the Park Vegas Partners subsequently retook the property via foreclosure. (Id.) As a part of the sale, Mr. Dunham received $40, 935 in distributions. (Id.) The Receiver calculated Mr. Dunham's claim amount at $11, 988, which represented his $52, 923 investment minus $40, 935 received in distributions. (Id.)

         According to the Receiver, Mr. Dunham disputes that he received $40, 935 in distributions from the Las Vegas 1 sale, “but has provided no documentation indicating he received a different amount.” (Id.) Though the Court requested that he submit a letter explaining his position with supporting evidence, Mr. Dunham did not submit anything to the Court, and he did not appear at the hearing.

         In a signed and sworn declaration, the Receiver states that Western's accounting system-called OPADs-indicates a total distribution to Mr. Dunham in the amount of $40, 935, which was paid in five separate checks. (Id.) The total of the five checks, however, is $40, 934. (See id.) Because the Receiver has not indicated there is any reason to believe that Mr. Dunham received an additional dollar outside of the five referenced checks, the Court concludes that Mr. Dunham received $40, 934 in distributions, not $40, 935. Deducting that amount from Mr. Dunham's total investment, the Court concludes that Mr. Dunham's correct claim amount is $11, 989.

         b. Mark and ...

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