Securities and Exchange Commission v. Champion-Cain

• Court: District Court, S.D. California
• Decided: January 12, 2021
• Docket: 3:19-cv-01628
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 3:19-cv-1628-LAB-AHG COMMISSION, 12 ORDER: Plaintiff, 13 v. (1) GRANTING REQUEST TO 14 APPROVE SALE OF WEST GINA CHAMPION-CAIN AND ANI 15 WASHINGTON PROPERTY TO DEVELOPMENT, LLC, WINNING BIDDER; and 16 Defendants, and 17 (2) GRANTING IN PART AND DENYING IN PART MOTION FOR 18 AMERICAN NATIONAL APPROVAL OF SALE OF WEST 19 INVESTMENTS, INC., WASHINGTON PROPERTY

20 Relief Defendant.

21 [ECF Nos. 520, 559] 22 23 I. BACKGROUND 24 As described in prior orders, see, e.g., ECF Nos. 54, 162, 163, this is an action 25 brought by the Securities and Exchange Commission (“SEC”) against Defendants ANI 26 Development, LLC (“ANI Development”) and Gina Champion-Cain and Relief Defendant 27 American National Investments, Inc. (“ANI Inc.”), alleging violations of federal securities 28 laws based on a purportedly fraudulent liquor license loan scheme. ECF No. 1. 1 On September 3, 2019, the Court established an equitable receivership and appointed 2 Krista L. Freitag (“Receiver”) as a permanent receiver of ANI Development and ANI Inc., 3 authorizing her to take control over all funds and assets owned, managed, or in the 4 possession or control of the receivership entities. See ECF No. 6 at 14-16. In that role, the 5 Receiver acts under the control and direction of the Court to facilitate the “orderly and 6 efficient administration of the estate . . . for the benefit of creditors.” SEC v. Hardy, 803 7 F.2d 1034, 1038 (9th Cir. 1986). See also Atl. Tr. Co. v. Chapman, 208 U.S. 360, 370 8 (1908) (explaining that a motion to appoint a receiver to take charge of property is “to the 9 end that the property might be cared for and preserved for all who had or might have an 10 interest in the proceeds of its sale. . . . Immediately upon such appointment and after the 11 qualification of the receiver, the property passed into the custody of the law, and 12 thenceforward its administration was wholly under the control of the court by its officer [], 13 the receiver.”). On December 11, 2019, the presiding judge in this action, Chief Judge 14 Burns, granted the parties’ Joint Motion (ECF No. 156) to give limited consent to the 15 undersigned to hear and directly decide all motions filed in this action to approve sales of 16 receivership assets. ECF No. 160. See also 28 U.S.C. § 636(c); CivLR 72.1(g). All property 17 sale motions are set before the undersigned pursuant to that grant of consent. 18 On December 2, 2020, the Receiver filed the present Motion for Approval of Sale 19 of West Washington Property (the “West Washington Motion”). ECF No. 520. The motion 20 concerns one of the commercial properties within the receivership estate, a retail shopping 21 center located at 901-905 West Washington Street, San Diego, California 92103 (the “West 22 Washington Property”). See ECF No. 520-1 at 5; ECF No. 76-2 at 5 (listing the West 23 Washington Property in the Preliminary Real Estate and Liquor License Asset Schedule 24 filed on October 3, 2019)1. It consists of three rental units. ECF No. 520-1 at 5. 25 26

27 1 The asset schedule lists the address as “901, 903, 904 W. Washington St., San Diego, 28 1 At the time the motion was filed, the intended buyer of the West Washington 2 Property was Soheil Nakhshab and the intended sale price was $1,650,000. ECF No 520-1 3 at 6. In the motion, the Receiver proposed compliance with 28 U.S.C. §§ 2001 and 2002 4 by publishing notice in the San Diego Union-Tribune once a week for four weeks of a 5 public auction for the property on December 28, 2020. Id. at 11. Potential bidders were 6 invited to qualify for the auction by submitting a signed purchase and sale agreement, an 7 earnest money deposit of $275,000, and proof of funds by December 21, 2020. Id. at 11- 8 12. 9 The Court set a deadline of December 16, 2020, for responses in opposition to the 10 West Washington Motion and ordered the Receiver to file a notice of non-receipt of 11 overbids if no qualified overbids were received by December 21, 2020. ECF No. 502 at 2. 12 No oppositions were filed. However, on December 22, 2020, the Receiver filed a Notice 13 of Receipt of Qualified Overbid, reporting that one qualified overbid was received for the 14 West Washington Property. ECF No. 554. The Receiver, through her broker, obtained the 15 consent of the original buyer and the qualified overbidder to conduct the live auction via 16 videoconference on December 28, 2020. Id. at 2. 17 On January 4, 2021, the Receiver filed a Notice of Results of Auction of West 18 Washington Property and Request to Approve Sale to Winning Bidder (“Notice of 19 Results”). ECF No. 559. In the Notice of Results, the Receiver requests that the Court 20 approve the sale of the West Washington Property to the winning bidder, Soheil Nakhshab 21 (“Winning Bidder”), and also approve the sale of the property to the backup bidder, Iman 22 I. Mikhail, as Trustee of the Mikhail Family Trust dated September 30, 2002 (“Backup 23 Bidder”), in the event Winning Bidder does not close the sale for any reason. Id. at 2. 24 Winning Bidder submitted a bid of $1,910,000 for the property, while Backup Bidder 25 submitted the second-highest bid of $1,900,000. Id. at 2-3. Other than approval of the sale 26 to Winning Bidder (and Backup Bidder if the sale falls through) at a new sale price, all 27 other relief requested in the West Washington Motion—including authority to pay the costs 28 of sale from the sale proceeds—remains the same. Id. at 3. 1 Being fully advised and noting the lack of opposition to the West Washington 2 Motion, the Court GRANTS (1) the request to approve the sale of the West Washington 3 Property to Winning Bidder; (2) the request to approve the sale of the West Washington 4 Property to Backup Bidder if Winning Bidder does not close the sale for any reason; and 5 (3) all relief requested in the West Washington Motion, other than the request to approve 6 the sale at the sale price of $1,650,000. That portion of the West Washington Motion is 7 DENIED. 8 II. LEGAL STANDARD 9 “[I]t is a recognized principle of law that the district court has broad powers and 10 wide discretion to determine the appropriate relief in an equity receivership.” SEC v. 11 Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th Cir. 1978). Where a district court sits in equity, 12 “[u]nless a statute in so many words, or by a necessary and inescapable inference, restricts 13 the court’s jurisdiction in equity, the full scope of that jurisdiction is to be recognized and 14 applied. ‘The great principles of equity, securing complete justice, should not be yielded 15 to light inferences, or doubtful construction.’” Porter v. Warner Holding Co., 328 U.S. 16 395, 398 (1946). 17 “[A] district court’s power to supervise an equity receivership and to determine the 18 appropriate action to be taken in the administration of the receivership is extremely broad.” 19 Hardy, 803 F.2d at 1037. As part of this broad discretion, the district court sitting in equity 20 and having custody and control of property “has power to order a sale of the same in its 21 discretion. The power of sale necessarily follows the power to take control of and to 22 preserve property[.]” SEC v. Am. Capital Investments, Inc., 98 F.3d 1133, 1144 (9th Cir. 23 1996), abrogated on other grounds by Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 24 93-94 (1998) (quoting 2 Ralph E. Clark, Treatise on Law & Practice of Receivers § 482 25 (3d ed. 1992)). If the court approves an equitable receiver’s proposed property sale, the 26 sale “does not . . . purport to convey ‘legal’ title, but rather ‘good,’ equitable title enforced 27 by an injunction against suit.” Id. (citing 2 Clark, Treatise on Law & Practice of Receivers, 28 §§ 342, 344, 482(a), 487, 489, 491). 1 Pursuant to 28 U.S.C. § 2001(a), realty in the possession of an appointed receiver is 2 subject to a public sale process, “upon such terms and conditions as the court directs.” 3 28 U.S.C. § 2002 further requires that notice be published once a week for at least four 4 weeks prior to the sale in at least one newspaper regularly issued and of general circulation 5 in the county, state, or judicial district where the realty is located.2 These safeguards of 6 notice and opportunity to submit overbids help to ensure that the sale is able to fetch the 7 best price possible, which is consistent with the principle that “a primary purpose of equity 8 receiverships is to promote orderly and efficient administration of the estate by the district 9 court for the benefit of creditors.” Hardy, 803 F.2d at 1038. See also United States v. 10 Grable, 25 F.3d 298, 303 (6th Cir. 1994) (noting that “the intent of” the requirement in 28 11 U.S.C. § 2001 that property be sold in the county in which the land is situated is “to bring 12 a better price at the sale”). 13 III. DISCUSSION 14 A. Background of the Property and Proposed Sale 15 The West Washington Property was purchased on March 22, 2018, by American 16 National Investments, Inc., a receivership entity, for $2,100,000. ECF No. 520-1 at 5. 17 Following her appointment, the Receiver and her staff analyzed the value of the West 18 Washington Property by reviewing automated valuation scores and a survey of market- 19 comparable properties and by consulting with multiple licensed brokers. ECF No. 520-2 20 ¶ 3. It was not clear that a sale would yield a recovery sufficient to cover the mortgage 21 debt, so the Receiver obtained an appraisal of the property. Id. The appraised value of the 22 West Washington property as of December 31, 2019, was $2.1 million. Id. 23 Thereafter, the Receiver received an unsolicited offer for the appraised value of the 24 property, but the deal fell through when the pandemic began. Id. Because the consensus 25

26 27 2 28 U.S.C. § 2001 also provides for a private sale process under subsection (b), but the requirements of that subsection are more stringent. The Receiver does not propose a private 28 1 among the brokers with whom the Receiver consulted was that the pandemic had 2 negatively impacted the property’s value and that sale of the West Washington Property 3 would not yield a recovery for the receivership, the Receiver stipulated to relief from the 4 litigation stay in order to allow the lender, Seattle Funding Group (“SFG”), to foreclose on 5 the property. Id. ¶ 4; ECF No. 379. 6 The Receiver then received an unsolicited offer for an amount that would provide a 7 small recovery for the receivership estate. ECF No. 520-2 ¶ 5. Though this buyer eventually 8 withdrew the offer, Next Wave (“Broker”) approached the Receiver with another interested 9 buyer. Id. The Receiver agreed to list the property with Broker for $1,650,000 and promptly 10 received two offers at the list price. Id. The Receiver negotiated terms with the prospective 11 buyers and, on November 5, 2020, the West Washington Property went into escrow with 12 Buyer Soheil Nakhshab at a purchase price of $1,650,000.3 Id. at 5-6. 13 The Receiver and Buyer executed a California Residential Purchase Agreement and 14 Joint Escrow Instructions (“Purchase Agreement”) making court approval of the sale a 15 condition of closing and providing for the overbid and auction process required by 28 16 U.S.C. §§ 2001 and 2002. ECF No. 520-3. Buyer agreed that the sale would be as-is, 17 removed all contingencies other than Court approval, and deposited $100,000 of earnest 18 money into escrow. Id. at 5. The Purchase Agreement specifies that, after providing written 19 notice of approval during the contingency period, Buyer would deposit an additional 20 $150,000 into escrow. Id. The remainder of the purchase price will be paid in cash. ECF 21 No. 520-1 at 7. 22 /// 23 /// 24 /// 25

26 27 3 SFG originally had scheduled a foreclosure sale for November 30, 2020, but agreed to postpone it to February 2021, once the Receiver executed the sale contract with Buyer and 28 1 B. Proposed Procedures and Distribution 2 In the motion seeking approval of the sale, the Receiver proposed compliance with 3 the overbid and auction process mandated by 28 U.S.C. §§ 2001 and 2002 by publishing 4 the following notice in the San Diego Union-Tribune once a week for four weeks: 5 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 6 Commission v. Gina Champion-Cain, et al., notice is hereby given that the 7 court-appointed receiver will conduct a public auction for the real property located at 901-905 West Washington Street in San Diego County, California. 8 Sale is subject to Court confirmation after the auction is held. Minimum bid 9 price is at least $1,660,000. The auction will take place on December 28, 2020 at 1:30 p.m. in front of the entrance to the United States Courthouse, 221 W. 10 Broadway, San Diego, California or as otherwise determined by the Court. To 11 be allowed to participate in the auction, prospective purchasers must meet certain bid qualification requirements, including submitted a signed purchase 12 and sale agreement, an earnest money deposit of $275,000, and proof of funds. 13 All bidders must be qualified by 5:00 p.m. PT on December 21, 2020, by submitting the required materials to the receiver at 501 West Broadway, Suite 14 290, San Diego, California, 92101. 15 16 ECF No. 520-1 at 11-12. For those interested in qualifying as a bidder, the notice also 17 provided a phone number and email address for the relevant point of contact. Id. at 12. 18 As previously noted, the Receiver filed a Notice of Receipt of Qualified Overbid 19 Regarding the West Washington Motion on December 22, 2020. ECF No. 554. In the 20 notice, the Receiver informed the Court that, after filing the West Washington Motion, and 21 in addition to publishing the above notice in the San Diego Union-Tribune, she posted 22 notice of the motion on the receivership website (anireceivership.com) and continued to 23 market the property through Broker and notify potential purchasers about the opportunity 24 to submit an overbid. Id. at 2. As a result, she received a qualified overbid. Id. 25 Prior to the live auction via Zoom, Winning Bidder and Backup Bidder were 26 required to qualify as overbidders at the auction by executing form purchase and sale 27 agreements, removing all contingencies, and providing an earnest money deposit. See ECF 28 No. 559, Exs. A, B. Both bidders also agreed that the earnest money deposit was non- 1 refundable to the winning bidder and only will be returned to the backup bidder after the 2 closing for the winning bidder occurs. ECF No. 559-1 at 30, ECF No. 559-2 at 28-29. After 3 the auction, both Winning Bidder and Backup Bidder executed amendments to their 4 respective purchase and sale agreements with the Receiver, which, among other terms, 5 amended the purchase price to correspond with their bids. ECF No. 559-1 at 50-52, ECF 6 No. 559-2 at 49-51 7 The SFG loan has not been paid current, and the Receiver estimates that the payoff 8 amount is approximately $1.442 million. ECF No. 520-1 at 7. Assuming the sale closes in 9 January, the Receiver estimates the property taxes due at closing will be about $32,800. 10 ECF No. 559 at 3 n.1. The costs of sale including escrow, title, and recording fees will be 11 approximately $16,000 and the commission due to Broker under the listing agreement is 12 3% of the sale price, one third of which will be paid to Buyer’s broker. ECF No. 520-1 at 13 7. Based on these costs and estimates, the Receiver expects that the net sale proceeds for 14 the receivership estate will about $363,000.4 Id. 15 C. Court Approval of Procedures and Proposed Sale 16 The Court has reviewed the documents submitted by the Receiver in support of the 17 West Washington Motion, as well as the Notice of Results and request to approve the sale 18 to Winning Bidder (or to Backup Bidder if Winning Bidder does not close the sale for any 19 reason). The Court finds that both the winning bid and the backup bid are fair and 20 reasonable. Though the sale price is less than the purchase price, the Receiver was able to 21 recoup a significant amount of the loss (in comparison to Buyer’s original $1,650,000 22 offer) by soliciting bidders and holding an auction. And, the Receiver’s perseverance saved 23 the property from foreclosure. The Receiver also retained a Broker whose commission is a 24

25 4 The Receiver provided this updated amount in an amended proposed order that took into 26 account the winning bid price, the reduction in sales taxes following the Receiver’s 27 payment of a portion of the taxes in December 2020, and Broker’s adjusted commission (3% of 1,910,000). Depending on whether the sale closes with Winning Bidder or Backup 28 1 very reasonable 3% of Winning Bidder’s sale price. In addition, the Receiver obtained 2 other valuable concessions from both Winning Bidder and Backup Bidder, such as sale of 3 the property “as is,” removal of all contingencies except Court approval, and making the 4 sale subject to the requisite public notice and auction process of 28 U.S.C. §§ 2001 and 5 2002. 6 As for the procedures followed, the Court finds that all of its uniform property sale 7 procedures have been satisfied. See ECF No. 219. The Receiver’s publication of notice 8 seeking qualified overbids in the San Diego Union Tribune, in addition to the solicitation 9 of overbids through the receivership website and continued efforts to market the property, 10 establish that the Receiver fully satisfied the requirements for the public sale procedures 11 set forth in 28 U.S.C. §§ 2001(a) and 2002, which are designed to ensure the best price for 12 real property is obtained. The Court is convinced that the carrying out of the notice and 13 auction process alone suffices to show that the Receiver has secured the best and highest 14 price for the West Washington Property, whether the sale closes either with the winning or 15 backup bidder. The Court thus is satisfied that the intent of the statutory scheme—to ensure 16 that the best and highest possible price is paid for property within the receivership estate— 17 has been fulfilled. 18 Based on these considerations, and noting the lack of any opposition to the West 19 Washington Motion, the Court finds the Receiver has established that the proposed sale of 20 the West Washington Property and proposed distribution of the sale proceeds, whether the 21 sale closes with Winning Bidder or Backup Bidder, are consistent with principles of equity 22 and the goal of a receivership to ensure the orderly and efficient administration of the estate 23 for the benefit of creditors. See Hardy, 803 F.2d at 1038. 24 IV. CONCLUSION 25 Having considered the Receiver’s Motion for Approval of Sale of West Washington 26 Property (ECF No. 520) and the Receiver’s Notice of Results of Auction of West 27 Washington Property and Request to Approve Sale to Winning Bidder (ECF No. 559), the 28 Court GRANTS IN PART and DENIES IN PART the West Washington Motion (ECF 1 No. 520). Specifically, the Court GRANTS all relief requested therein, other than approval 2 of the sale to Buyer at the former purchase price. That portion of the West Washington 3 Motion is DENIED. The Court GRANTS the Receiver’s request to approve the sale of the 4 West Washington Property to Winning Bidder at the winning bid price of $1,910,000. If 5 Winning Bidder does not close the sale for any reason, the Court further APPROVES the 6 sale of the West Washington Property to Backup Bidder at the sale price of $1,900,000. 7 Accordingly, it is ORDERED as follows: 8 (1) The sale of the retail shopping center located at 901-905 West Washington 9 Street, San Diego, California 92103, as described in Exhibit A to the Receiver’s Notice of 10 Results (ECF No. 559), by Krista L. Freitag, as receiver, to Soheil Nakhshab is confirmed 11 and approved; 12 (2) The purchase price of $1,910,000, to be paid by Winning Bidder for the West 13 Washington Property, is confirmed and approved; 14 (3) If and only if Winning Bidder does not close the sale for any reason, the sale 15 of the retail shopping center located at 901-905 West Washington Street, San Diego, 16 California 92103, as described in Exhibit B to the Receiver’s Notice of Results (ECF No. 17 559), by Krista L. Freitag, as receiver, to Iman I. Mikhail, as Trustee of the Mikhail Family 18 Trust dated September 30, 2002, at a purchase price of $1,900,000, is confirmed and 19 approved; 20 (4) The Receiver is authorized to pay the amount necessary to pay off the 21 mortgage on the West Washington Property to the lender, Seattle Funding Group, which 22 amount is estimated to be $1,442,000 (with the exact amount to be determined at closing); 23 (5) The Receiver is authorized to pay broker Next Wave a commission of 3% of 24 the winning bid price or backup bid price (one third of which will be paid to Winning 25 Bidder’s broker, or Backup Bidder’s broker, if applicable), as provided for in their separate 26 listing agreement; 27 28 1 (6) The Receiver is authorized to pay the property taxes due from the seller at 2 closing, which amount is estimated to $32,800 (with the exact amount to be determined at 3 || closing); 4 (7) |The Receiver is authorized to pay the costs of sale, including title, escrow, and 5 ||recording costs, due from the seller at closing, which amount is estimated to be $16,000 6 || (with the exact amount to be determined at closing); 7 (8) After the aforementioned estimated amounts are paid out of escrow, the net 8 proceeds, which are anticipated to be in the range of $352,000 to $363,000 (with the 9 exact amount to be determined at closing), shall be paid to the receivership estate;° and 10 (9) The Receiver is immediately authorized to complete the sale transaction, 11 |/including executing any and all documents as may be necessary and appropriate to do so. 12 (10) If the sale of the West Washington Property ultimately closes with Backup 13 || Bidder, the Receiver is authorized to complete the sale transaction with Backup Bidder, 14 including executing any and all documents as may be necessary and appropriate to do so. 15 (11) After closing, the Receiver shall provide a full accounting of sale costs, 16 || property taxes paid, and the amount ultimately returned to the receivership estate from the 17 || sale proceeds. 18 IT IS SO ORDERED. 19 ||Dated: January 12, 2021 00 _ Siow. Xion Honorable Allison H. Goddard 21 United States Magistrate Judge 22 23 24 || 26 || Because the Court understands that numerous contingencies (e.g., whether the sale closes 27 || with Winning Bidder or Backup Bidder, the amount of property taxes owed, etc.) may 28 affect the net sale proceeds of this particular sale, the Court approves the distribution of the net sale proceeds to the receivership estate even if the final amount is outside of this range. 1]