United States District Court, S.D. California
REPORT AND RECOMMENDATION RECOMMENDING THE COURT
GRANT RECEIVER’S EX PARTE APPLICATION AND FIND CHICAGO
TITLE COMPANY IN CIVIL CONTEMPT [ECF NO. 15]
HONORABLE ALLISON H. GODDARD UNITED STATES MAGISTRATE JUDGE.
August 28, 2019, the Securities and Exchange Commission
(“SEC”) brought this action against Defendants
ANI Development, LLC (“ANI Development”) and Gina
Champion-Cain and Relief Defendant American National
Investments, Inc. (“ANI Inc.”). ECF No. 1.
According to the Complaint, Defendants violated federal
securities laws by engaging in a fraudulent investment scheme
that involved inducing investors to place funds into escrow
accounts for the purported purpose of supplying short-term,
high-interest loans to borrowers seeking to obtain liquor
licenses from the State of California. Id.
¶¶ 4-6. The SEC alleges that as part of the scheme,
Defendant Champion-Cain provided to investors bogus escrow
agreements between ANI Development and its escrow company,
which falsely indicated that the loaned funds could not be
taken out of the ANI Development escrow account without prior
written consent of the lenders. In reality, the SEC contends,
the true escrow agreements governing the accounts permitted
Defendants to withdraw and use funds at their sole
discretion, which they allegedly did, transferring
significant amounts of the funds to Relief Defendant ANI Inc.
According to the Complaint, although Defendant ANI
Development currently owes investors over $120 million, only
$11 million remains in its escrow account. Id.
Court entered a Preliminary Injunction and Appointment Order
(“Appointment Order”) on September 3, 2019. ECF
No. 6. Among other things, the Court in Section V of the
Appointment Order placed an immediate freeze on all monies
and assets in all accounts at any bank, financial
institution, or brokerage firm, held in the name of, for the
benefit of, or over which account authority is held by
Defendants, Relief Defendant, and/or all of their
subsidiaries and affiliates. Id. at 7. The Court
specifically listed ANI Development’s escrow account,
Account No. XXXX2122, at Chicago Title Insurance Company in
that portion of the Appointment Order. Id. at 9.
Additionally, in Section X of the Appointment Order, the
Court appointed Krista L. Freitag (“the
Receiver”) as permanent receiver of ANI Development and
ANI Inc. as well as their subsidiaries and affiliates, which
entailed granting her:
. . . full powers of an equity receiver, including, but not
limited to, full power over all funds, assets, collateral,
premises (whether owned, leased, occupied, or otherwise
controlled), . . . and other property belonging to, being
managed by or in the possession of or control of Defendant
ANI Development and Relief Defendant [ANI Inc.] and their
subsidiaries and affiliates, and  such receiver is
immediately authorized, empowered and directed . . . to have
access to and to collect and take custody, control,
possession, and charge of all funds, assets, collateral
premises (whether owned, leased, pledged as collateral,
occupied, or otherwise controlled), . . . wherever located,
of or managed by Defendant ANI Development and Relief
Defendant [ANI Inc.] and their subsidiaries and affiliates
(collectively, the “Assets”), with full power to
sue, foreclose, marshal, collect, receive, and take into
possession all such Assets[.]
Id. at 14. Significantly, Section X also expressly
ordered that the Receiver “have control of, and  be
added as the sole authorized signatory for, all accounts of
the entities of receivership, including all accounts at any .
. . escrow agent . . . which has possession, custody or
control of any Assets, or which maintains accounts over which
Defendant ANI Development and Relief Defendant [ANI Inc.] . .
. have signatory authority[.]” Id. at 15.
September 13, 2019, the Receiver filed the Ex Parte
Application (“the Application”) that is presently
before the Court, and which was referred to the undersigned
for a hearing and Report and Recommendation. ECF Nos. 15; 26.
The Receiver asks the Court to issue an Order to Show Cause
why non-party Chicago Title Company (“Chicago
Title”) should not be held in civil contempt due to its
refusal to turn over to the Receiver the $11 million
remaining in ANI Development’s escrow account, in
violation of the Appointment Order. The Court set an
expedited briefing schedule and, once briefing was complete,
held a hearing on the Application on September 25, 2019.
Having considered the arguments presented at the hearing as
well as those contained in the parties’ and
non-parties’ briefing on the Application, the
undersigned recommends that the Court GRANT
the Application and find Chicago Title in civil contempt, for
the reasons explained more fully below.
“have inherent power to enforce compliance with their
lawful orders through civil contempt.” Spallone v.
United States, 493 U.S. 265, 276 (1990). While the
purpose of criminal contempt sanctions is to punish the
contemnor, civil contempt sanctions are instead
“penalties designed to compel future compliance with a
court order, ” and “are considered to be coercive
and avoidable through obedience.” Int’l
Union, United Mine Workers of America v. Bagwell, 512
U.S. 821, 827 (1995).
party moving for a civil contempt order bears the burden of
showing by clear and convincing evidence that the alleged
contemnor violated the Court’s order. United States
v. Ayres, 166 F.3d 991, 994 (9th Cir. 1999) (quoting
In re Dual-Deck Video Cassette Recorder Antitrust
Litig., 10 F.3d 693, 695 (9th Cir. 1993)). A party may
be held in civil contempt for disobeying “a specific
and definite court order by failure to take all reasonable
steps within the party’s power to comply.”
Dual-Deck, 10 F.3d at 695. Even if a party’s
disobedience is in good faith, the Court may find the party
in contempt because contempt “need not be willful, and
there is no good faith exception to the requirement of
obedience to a court order.” Id. (internal
quotations and citation omitted). Nonetheless, “a
person should not be held in contempt if his action appears
to be based on a good faith and reasonable interpretation of
the court’s order.” Id. (internal
quotations, alteration, and citation omitted).
Response to the Receiver’s Application (ECF No. 34),
Chicago Title argues it is not in contempt of the Appointment
Order because there is a good-faith dispute over the
ownership of the funds in ANI Development’s escrow
account. Additionally, Chicago Title makes two affirmative
requests for relief: (1) that the Court direct Chicago Title
to place the funds in trust with the Court until ownership
disputes over the funds are resolved; and (2) that the Court
extend to Chicago Title the protection of the
“prosecution bar” in Section XIII of the
Appointment Order, which prohibits any person seeking legal
or equitable relief from ANI Development, ANI Inc., or their
subsidiaries and affiliates from filing suit against them,
using self-help, or otherwise interfering with the
Receiver’s discharge of her duties as outlined in the
turning to Chicago Title’s affirmative requests to
modify and/or vacate the Appointment Order, I will first
address the question of whether the Receiver has established
by clear and convincing evidence that Chicago Title’s
refusal to turn over the funds in the escrow account
constitutes civil contempt.
Whether Chicago Title ...