United States District Court, S.D. California
THOMAS C. HEBRANK, Federal Equity Receiver, zz Plaintiff,
LINMAR III, LLC, a California limited liability corporation; and Does 1-25, Defendants.
APPROVING RECEIVER'S FINAL ACCOUNT AND REPORT,
EXONERATING RECEIVER'S BOND; APPROVING DISTRIBUTION OF
FUNDS HELD BY POST-JUDGMENT RECEIVER; EXONERATING
POST-JUDGMENT RECEIVER'S BOND; AND DISCHARGING
POST-JUDGMENT RECEIVER. [ECF NO. 80]
GONZALO P. CURIEL UNITED STATES DISTRICT JUDGE.
the Court is the Thomas C. Hebrank's
(“Hebrank” or “Receiver”) motion to
approve the post-judgment receiver's final account and
report; approve distribution of funds held by post-judgment
receiver; exonerate post-judgment receiver's bond; and
discharge post-judgment receiver. ECF No. 80. Counsel for
LinMar III, Philip Dyson (“Dyson”), filed an
opposition on July 18, 2019. ECF No. 82. A reply was filed on
July 26, 2019. ECF No. 83.
Court-appointed James S. Lowe (“Lowe”) as
post-judgment receiver on June 3, 2015. ECF No. 48. Lowe
completed the sale of the LinMar III property on December 31,
2018 and filed his Final Account and Report on March 5, 2019.
ECF No. 74. The instant dispute between the Receiver and
Dyson centers on the distribution of the $43, 450 in funds
remaining in the post-judgment receivership account.
case arises out of a Securities Exchange Commission
(“SEC”) action, SEC v. Schooler et al.,
Case No. 3:12-cv-2164-GPC-JMA (S.D. Cal.), wherein the Court
authorized the Receiver to pursue enforcement of promissory
notes executed by LinMar III, LLC (“LinMar”).
LinMar, while under the control of Louis Schooler, granted a
second deed of trust on the property owned by LinMar
(“LinMar Property”) to Dyson in order to secure
attorney fees. ECF 80-1 at 7; Declaration of Thomas Hebrank
(“Hebrank Decl.”) ¶ 3. The property had a
mortgage on it in favor of Rabobank, and a third deed of
trust in favor of the SEC. Hebrank Decl. ¶ 2.
encountered significant challenges with the LinMar Property,
including issues with property renovations and maintenance.
Declaration of James Lowe (“Lowe Decl.”) ¶
2. On August 12, 2018, Dyson emailed Lowe, asking him to
lower the listing price of the property from $3.9 million to
$3.5 million in order to be realistic given the state of the
real estate market. ECF No. 82 at 1-2; Dyson Ex. 1.
pursued various initial offers on the property, and the
highest offer received was for $3, 550, 000. ECF 80-1 at 8.
If the property had been purchased at $3, 550, 000, there
would have been enough funds to pay Rabobank, Dyson, and the
Receiver in full, with a significant amount left to make a
partial payment to the SEC. ECF No. 80-1 at 8. However, these
initial offers fell through after the prospective purchasers
conducted further review of the property. Id.; Lowe
Decl. ¶ 3.
December 7, 2018, an offer was made to purchase the property
for $3.2 million (“December Offer”). ECF No. 82
at 3. Since the Rabobank mortgage note had matured, and the
prospect of foreclosure was looming, Dyson and Hebrank
decided to accept this December Offer even though $3.2
million would be insufficient to pay all parties in full.
Lowe Decl. ¶ 3. Dyson and Receiver agreed to accept
discounted payments, and the SEC agreed to release its lien
with no payment. Lowe Decl. ¶ 4. Specifically, Dyson
agreed to accept $200, 000 (original amount was $285, 000)
and Receiver agreed to accept $120, 000 (originally amount
was $176, 000). ECF No. 80 at 8; ECF No. 82 at 6-7.
December 17, 2018, Lowe emailed Dyson confirming that Dyson
and Hebrank would accept discounts at thirty and thirty-two
percent, respectively. Dyson Decl., Ex 5. In this same email,
Lowe wrote, “My plan is that the final distribution of
the Receivership funds (after bills are paid and court
approval) will be equally distributed by percentage of total
remaining owed to each of you.” Dyson Decl. Ex. 5.
Dyson claims that he relied on Lowe's December 17 email
in agreeing to discount his trust deed. Dyson Decl. ¶
15. However, on December 19, 2018, Lowe sent another email to
Dyson and the SEC which contained escrow payoff demands for
Dyson and the SEC; Rabobank's demand for their first
trust deed payoff; and, in relevant part, an Estimated
Closing Cash Flow (“ECCF”). Dyson Decl. Ex. 7.
The ECCF includes a breakdown of the property purchase offer
(i.e., $3.2 million) and the distributions to be
allotted, noting $200, 000 will go to to Dyson (with the
adjacent note, “Discounted demand to escrow -30%) and
$120, 000 to Hebrank (with the adjacent note,
“Discounted demand to escrow”). Id.
Below this breakdown of fund distribution is a section titled
“Total Owed” listing amounts for Dyson as $285,
000 and for Hebrank, $176, 000. Id.
relevant part, the ECCF includes a paragraph stating that
“[a]ny funds remaining within the Receivership after
the payment of obligations, will be sent to the SEC in
payment of their demand of remaining funds.”
Id. The ECCF does not state any limits or conditions
about the amount that should go to the SEC.
that same day when Lowe sent the ECCF to Dyson, Dyson
released his lien, and the $200, 000 was sent to Dyson. Lowe
Decl., Ex. B. The sale of the LinMar Property officially
closed on December 31, 2018. Hebrank alleges that Dyson
verbally communicated his assent to the terms of the ECCF to
Lowe, and then confirmed his agreement by signing the release
of his lien and delivering it to escrow in exchange for the
$200, 000 payment from escrow at the sale closing. ECF 80-1
around January 19, 2019, Lowe contacted the Receiver's
staff to inform them that approximately $43, 450 remained in
the post-judgment receivership account. ECF 80-1 at 9. These
funds came primarily from the broker accepting a reduced
commission on the sale, the buyer agreeing to split the
escrow fees and provide a credit for certain remodeling work,
as well as an insurance rebate. ECF 80-1 at 9; Lowe Decl.,
¶ 5. Receiver's counsel contacted the SEC to notify
them about the remaining funds, and counsel for SEC obtained
approval for these funds to be distributed to the victims of
the fraudulent scheme in the related SEC action. Id.
A stipulation to that effect was sent to Dyson via email for
his approval/review on June 5, 2019. Id. On June 13,
2019, Dyson replied claiming his reliance on Lowe's
December 17, 2018 email, and his ...