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Securities and Exchange Commission v. Champion-Cain

United States District Court, S.D. California

December 11, 2019



          Honorable Allison H. Goddard United States Magistrate Judge

         I. BACKGROUND

         On 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.”), alleging violations of federal securities laws based on a purportedly fraudulent liquor license loan scheme. ECF No. 1. Along with the Complaint, the SEC filed a Joint Motion and Stipulated Request seeking a preliminary injunction, appointment of a permanent Receiver, and other related relief (ECF No. 2), which the Court granted on September 3, 2019. ECF No. 6 (“the Appointment Order”). In the Appointment Order, the Court established an equity receivership, appointing Krista Freitag as Receiver of ANI Development and ANI Inc. and authorizing her to take control over all funds and assets owned, managed, or in the possession or control of the receivership entities. See Id. at 14-16. Relevant here, the Receiver was granted full power over all premises owned, leased, occupied, or otherwise controlled by the receivership entities. Id. at 14.

         On October 3, 2019, the Receiver filed a Motion for Order in Aid of Receivership (ECF No. 76), which included the Receiver's Verified Initial Report. ECF No. 76-1 at 11-24. According to the Initial Report, the receivership encompasses approximately 70 entities, including over 60 real properties and operating businesses at the time of the Receiver's appointment. Id. at 11. Attached to the Report is a Preliminary Real Estate and Liquor License Asset Schedule (ECF No. 76-2), which lists all premises leased or owned by the receivership entities, including a vacation home located at 1617 Thomas Avenue, San Diego CA, 92109.[1]

         After filing the Motion for Order in Aid of Receivership, the Receiver began filing motions seeking Court approval of various real property sales, including the present Motion for Order for Approval of Sale of Real Property Located at 1617 Thomas Avenue and Authority to Pay Broker's Commission (“the 1617 Thomas Motion”), filed on November 4, 2019. ECF No. 100.

         On November 15, 2019, the Presiding Judge in this matter, Chief Judge Larry A. Burns, issued a Minute Order stating in pertinent part:

The Court is inclined to refer certain other matters to Magistrate Judge Allison Goddard to take evidence, if necessary, and to submit to this Court a Report and Recommendation with her findings and recommendations, with regard to the proposed sale and management of properties and assets and the allocation of proceeds from such sales.

         ECF No. 113. Consistent with the Minute Order, on December 5, 2019, Chief Judge Burns formally referred the 1617 Thomas Motion to Judge Goddard, who held a hearing on the Motion the same day.[2] See ECF Nos. 135, 154.

         Then, on December 11, 2019, Chief Judge Burns granted the parties' Joint Motion (ECF No. 156) to give limited consent to the undersigned to decide all motions filed in this action to approve sales of receivership assets. ECF No. 160. Consequently, this Order resolves the Motion directly pursuant to the grant of limited consent rather than serving merely as a report and recommendation to Chief Judge Burns. See 28 U.S.C. § 636(c); CivLR 72.1(g).

         Having reviewed the relevant briefing and considered the testimony at the hearing, the Court GRANTS the Motion, for the reasons explained more fully below.


         “[I]t is a recognized principle of law that the district court has broad powers and wide discretion to determine the appropriate relief in an equity receivership.” SEC v. Lincoln Thrift Ass'n, 577 F.2d 600, 606 (9th Cir. 1978). Where a district court sits in equity, “[u]nless a statute in so many words, or by a necessary and inescapable inference, restricts the court's jurisdiction in equity, the full scope of that jurisdiction is to be recognized and applied. ‘The great principles of equity, securing complete justice, should not be yielded to light inferences, or doubtful construction.'” Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946).

         As part of its wide discretion, the district court sitting in equity and having custody and control of property “has power to order a sale of the same in its discretion. The power of sale necessarily follows the power to take control of and to preserve property[.]” SEC v. Am. Capital Investments, Inc., 98 F.3d 1133, 1144 (9th Cir. 1996), abrogated on other grounds by Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93-94 (1998) (quoting 2 Ralph E. Clark, Treatise on Law & Practice of Receivers § 482 (3d ed. 1992)). If the court approves an equitable receiver's proposed property sale, the sale “does not . . . purport to convey ‘legal' title, but rather ‘good,' equitable title enforced by an injunction against suit.” Id. (citing 2 Clark, Treatise on Law & Practice of Receivers, §§ 342, 344, 482(a), 487, 489, 491).

         Pursuant to 28 U.S.C. § 2001(a), realty in the possession of an appointed receiver is subject to a public sale process, “upon such terms and conditions as the court directs.” 28 U.S.C. § 2002 further requires that notice be published once a week for at least four weeks prior to the sale in at least one newspaper regularly issued and of general circulation in the county, state, or judicial district where the realty is located.[3] These safeguards of notice and opportunity to submit overbids help to ensure that the sale is able to fetch the best price possible, which is consistent with the principle that “a primary purpose of equity receiverships is to promote orderly and efficient administration of the estate by the district court for the benefit of creditors.” SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). See also United States v. Grable, 25 F.3d 298, 303 (6th Cir. 1994) (noting that “the intent of” the requirement in 28 U.S.C. § 2001 that property be sold in the county in which the land is situated is “to bring a better price at the sale”); SEC v. Billion Coupons, Inc., No. CIV. 09-00068 JMSLEK, 2009 WL 2143531, at *3 (D. Haw. July 13, 2009), report and recommendation adopted, No. CIV. 09-00068JMS-LEK, 2009 WL 2365696 (D. Haw. July 29, 2009) (approving a ...

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