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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 rental condominium located at 4205 Lamont Street #12, San Diego, CA 92109 (“4205 Lamont”). On October 11, 2019, the Receiver filed the present Motion for Approval of Sale of 4205 Lamont and Authority to Pay Broker's Commission. ECF No. 84 (“the 4205 Lamont Motion”). Chief Judge Larry A. Burns referred the 4205 Lamont Motion to the undersigned for a Report and Recommendation, and the Court accordingly set a briefing schedule and hearing on October 16, 2019. ECF No. 86. The Court held the hearing on the 4205 Lamont Motion on December 5, 2019.[1]See ECF Nos. 86, 154. On December 11, 2019, Chief Judge Burns granted the parties' Joint Motion (ECF No. 156) to give limited consent to the undersigned to hear and directly 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).

         Upon review of the relevant briefing and in consideration of 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.[2] 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 receiver's proposed alternative procedure for the sale of real property because the alternative procedure “ha[d] sufficient safeguards in order to solicit the highest price that a willing buyer in an arms-length negotiation will offer while conducting the sales in a timely and cost-efficient manner that will maximize the net sales proceeds.”).


         The sale of 4205 Lamont was well underway prior to the Receiver's appointment in September 2019. Licensed broker Pacific Sotheby's International Realty listed the property for sale on May 14, 2019, and the property went into escrow on August 10, 2019 with a purchase price of $409, 000 from buyer Misty Swetland (“Buyer”). ECF No. 84-1 at 2. Following her appointment and upon learning of the pending sale, the Receiver reviewed automated valuation scores for 4205 Lamont as well as the appraisal Buyer had previously procured that appraised the property at a value of $410, 000, leading her to conclude that the purchase price of $409, 000 is fair and reasonable. Id. Consequently, the Receiver and Buyer executed a First Amendment to Residential Purchase Agreement and Escrow Instructions, which made court approval of the sale a condition to closing and provided for the overbid and auction process required by 28 U.S.C. § 2001(a). Id.; see also ECF No. 84-3 at 26-32.

         On October 11, 2019, the Receiver filed the present Motion seeking approval of the sale and proposing compliance with the overbid and auction process by publishing the following notice in the San Diego Union-Tribune once a week for four weeks:

In the action pending in U.S. District Court for the Southern District of California, Case No. 19-CV-01628-LAB-AHG, Securities and Exchange Commission v. Gina Champion-Cain, et al., notice is hereby given that the court-appointed receiver will conduct a public auction for the real property located at 4205 Lamont Street, #12 in San Diego County, California. Sale is subject to Court confirmation after the auction is held. Minimum bid price is at least $419, 000. The auction will take place on November 7, 2019 at 1:30 p.m. in front of the entrance to the United States Courthouse, 221 W. Broadway, San Diego, California. To be allowed to participate in the auction, prospective purchasers must meet certain bid qualification requirements, including submitted a signed purchase and sale agreement, an earnest money deposit of $29, 550, and proof of funds. All bidders must be qualified by 5:00 p.m. PT on November 5, 2019, by submitting the required materials to the receiver at 401 W. A Street, Suite 1830, San Diego, California, 92101.

         ECF No. 84-1 at 8. For those interested in qualifying as bidders, the notice also provided a phone number and email address ...

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