Securities and Exchange Commission v. Champion-Cain

Opinion

1 2 3 4 5 6 7 10 SECURITIES AND EXCHANGE Case No. 3:19-cv-01628-LAB-AHG 12 ORDER: Plaintiff, 13 1) GRANTING EX PARTE v. MOTION FOR LEAVE TO FILE 14 OPPOSITION TO DKT. 798, GINA CHAMPION-CAIN and ANI [Dkt. 808]; 15 DEVELOPMENT, LLC, 16 2) GRANTING IN PART EX Defendants, PARTE APPLICATION TO AMERICAN NATIONAL BRIEFING AND HEARING 18 INVESTMENTS, INC., SCHEDULE [Dkt. 798]; 19 Relief Defendant. 3) APPROVING IN PART NOTICE 20 PLAN; AND

21 4) SETTING HEARING DATE AND BRIEFING SCHEDULE 22

23 The Securities and Exchange Commission brought this action against 24 Defendant ANI Development, LLC and Gina Champion-Cain (“Cain”), the 25 CEO of ANI Development’s parent, Relief Defendant American National 26 Investments, Inc. (collectively, “Defendants”). Through ANI Development, 27 Cain sold fraudulent investment products, misappropriating the funds with the 1 Title Insurance Company (together, “CTC”). 2 The Court appointed Krista Freitag as permanent receiver (the 3 “Receiver”) for ANI Development, American National Investments, and their 4 subsidiaries and affiliates (collectively, the “Receivership Entities”). The 5 Receiver and CTC informed the Court that they intended to file two motions 6 implicating the interests of non-parties.1 The first would seek approval (the 7 “Settlement Approval Motion”) of a settlement (the “Global Settlement”) that 8 would resolve all remaining state court litigation related to the fraudulent 9 scheme that forms the core of this action and result in a bar order enjoining 10 certain interested parties from pursuing state court actions against CTC in 11 connection with that scheme (the “Proposed Bar Order”). And the second 12 would seek approval of the Receiver’s recommendations regarding the 13 treatment of claims against the Receivership Entities and a plan for 14 distributing those Entities’ funds (the “Distribution Plan Motion,” and together 15 with the Settlement Approval Motion, the “Motions”). 16 The Motions would adjudicate the rights of non-parties, raising due 17 process concerns, so the Court ordered the Receiver to propose a plan to 18 give adequate notice and an opportunity to be heard to interested non-parties. 19 Preliminarily, the Court anticipated setting a hearing date on the Motions no 20 sooner than 90 days following approval of a notice plan. 21 The Receiver now has filed a proposed notice plan (the “Notice Plan”) 22 with a shorter proposed briefing and hearing schedule, (Dkt. 797), and CTC 23 responded with a document styled as a joinder in the Notice Plan and an ex 24 parte application to approve the Receiver’s proposed schedule. (Dkt. 798). 25 This latter document (but not the Receiver’s document seeking identical relief) 26 has drawn opposition from CalPrivate Bank, (Dkt. 804), Wakefield Capital, 27 1 LLC, Wakefield Investments, LLC, and 2Budz Holding, LLC, (Dkt. 809), (the 2 “Wakefield Entities,” and collectively with CalPrivate Bank, the “Objectors”). 3 The Wakefield Entities’ application to file that opposition is GRANTED. The 4 Court has reviewed the briefing and finds that the form and manner of the 5 Receiver’s proposed notice comport with due process. But because any 6 objectors may need more time to respond to the two Motions, the Court 7 REJECTS the proposed schedule in favor of the schedule stated below. The 8 Notice Plan is APPROVED IN PART. 10 I. The Manner of Notice Satisfies Due Process 11 Where a movant seeks relief affecting the rights of non-parties—as in 12 any “proceeding which is to be accorded finality”—it must provide notice that 13 is “reasonably calculated, under all the circumstances, to apprise interested 14 parties of the pendency of the action.” Mullane v. Central Hanover Bank & 15 Trust Co., 339 U.S. 306, 314 (1950). The Court has reviewed the Receiver’s 16 proposed notice form, (Dkt. 797-1), and finds that, in providing instructions on 17 how to access the Motions and a clear and accurate description of those 18 Motions and their potential effects on interested parties, the proposed form 19 would provide a reader with sufficient notice. 20 That leaves the question of how to ensure that the notice reaches those 21 interested parties. The Receiver knows the identity of many of them. The 22 Proposed Bar Order would bar the claims of the seven plaintiffs opting out of 23 the Global Settlement with CTC. And the Receiver’s distribution plan would 24 affect every party with a disputed claim in the receivership. The proposal to 25 deliver notice to these parties directly via mail and e-mail is reasonably 26 calculated to apprise them of the Motions. 27 The Receiver’s proposed steps to notify any unknown parties also 1 documents on the longstanding receivership website and email a summary of 2 the same materials, along with a link to the website, to all known investor and 3 creditor email addresses. These steps are reasonably calculated to reach 4 potential claimants against either CTC, as to the Settlement Approval Motion, 5 or the Receivership Entities, as to the Distribution Plan Motion. 6 II. A 60-Day Schedule Wouldn’t Provide Sufficient Opportunity 7 to Respond to Both Motions 8 Notice of a final proceeding “must [also] afford a reasonable time for 9 those interested to make an appearance.” Mullane, 339 U.S. at 314. To 10 address this concern, the Court previously stated that, it was inclined follow 11 the example of Zacarias v. Willis Group Holdings Public Co. Ltd., 2017 WL 12 6442190 (N.D. Tex. 2017), in setting the Motions for a hearing no earlier than 13 90 days after approval of a notice plan “[a]bsent a showing that an earlier date 14 is consistent with due process.” (Dkt. 789). The Receiver and CTC have made 15 such a showing, but they haven’t shown that their proposed 60-day schedule 16 affords enough time to respond to two separate motions. 17 The Court is unaware of direct guidance from the Ninth Circuit 18 concerning what notice is necessary to satisfy due process when the motion 19 seeks to impose a bar order against non-parties or setting a distribution plan 20 for assets of entities in receivership. But in a class action setting, the Ninth 21 Circuit has held that notice sent 31 days prior to an objection deadline and 45 22 days prior to a hearing is sufficient to provide due process before terminating 23 the claims of class members. Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 24 1375 (9th Cir. 1993). The non-party claimants affected by the Motions are 25 sufficiently analogous to absent class members—and likely better-informed 26 about the status of this action than the class member-shareholders in Torrisi— 27 so similar timing for a single motion would satisfy due process here. 1/A party that objects to both would have an unfairly compressed briefing 2 | schedule, so the Court REJECTS the proposed briefing schedule and sets a 3 | different schedule below. 5 The Notice Plan is APPROVED IN PART, and CTIC’s ex parte 6 | application to approve the Receiver’s proposed schedule is GRANTED IN 7 PART. (Dkt. 798). The Court sets the following schedule consistent with that 8 | conclusion: 9 1) The Receiver must revise her proposed notice form, (Dkt. 797-1), 10 and provide notice in the manner she proposes no later than 11 June 10, 2022. She must file an affidavit certifying that she has done 12 so by the same date. 13 2) Any brief in opposition to either of the Motions must be filed on or 14 before July 25, 2022. 15 3) The Receiver and CTC may file one joint reply brief in support of the 16 Settlement Approval Motion on or before August 15, 2022. Absent 17 further order of the Court, that brief must be no longer than 25 pages. 18 4) The Receiver may file one reply brief in support of the Distribution 19 Plan Motion on or before August 15, 2022. Absent further order of 20 the Court, that brief must be no longer than 25 pages. 21 5) Both Motions are set for a hearing on August 29, 2022 at 11:30 a.m. 23 | Dated: June 8, 2022 lau At Bly 24 Hon. Larry A. Burns 95 United States District Judge 26 27 28