FIRST INTERIM FEE APPLICATION OF THOMAS A. SEAMAN, COURT-APPOINTED RECEIVER ...

127 Pages·2017·1.53 MB·English

Case 8:16-cv-02257-CJC-DFM Document 103 Filed 08/25/17 Page 1 of 127 Page ID
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1 ALLEN MATKINS LECK GAMBLE
MALLORY & NATSIS LLP
2 DAVID R. ZARO (BAR NO. 124334)
PETER A. GRIFFIN (BAR NO. 306201)
3 865 South Figueroa Street, Suite 2800
Los Angeles, California 90017-2543
4 Phone: [phone]
Fax: [phone]
5 E-Mail: [email protected]
[email protected]
6
ALLEN MATKINS LECK GAMBLE
7 MALLORY & NATSIS LLP
EDWARD G. FATES (BAR NO. 227809)
8 One America Plaza
600 West Broadway, 27th Floor
9 San Diego, California 92101-0903
Phone: [phone]
10 Fax: [phone]
E-Mail: [email protected]
11
Attorneys for Receiver
12 THOMAS A. SEAMAN

13 UNITED STATES DISTRICT COURT
14 CENTRAL DISTRICT OF CALIFORNIA
15 SOUTHERN DIVISION
16 SECURITIES AND EXCHANGE Case No. 8:16-cv-02257-CJC-DFM
COMMISSION,
17 Plaintiff, FIRST INTERIM FEE
APPLICATION OF THOMAS A.
v.
18 SEAMAN, COURT-APPOINTED
EMILIO FRANCISCO; PDC CAPITAL
RECEIVER, FOR PAYMENT OF
GROUP, LLC; CAFFE PRIMO
19 FEES
INTERNATIONAL, INC.; SAL ASSISTED

LIVING, LP; SAL CARMICHAEL, LP; SAL
20 Date: October 2, 2017
CITRUS HEIGHTS, LP; SAL KERN
Time: 1:30 p.m.
CANYON, LP; SAL PHOENIX, LP; SAL
21 Ctrm: 9B, 9th Floor
WESTGATE, LP; SUMMERPLACE AT
Judge: Hon. Cormac J. Carney
SARASOTA, LP; SUMMERPLACE AT
22
CLEARWATER, LP; SUMMERPLACE AT
CORRELL PALMS, LP; TRC TUCSON, LP;
23
CLEAR CURRENTS WEST, LP; CAFFE
PRIMO MANAGEMENT, LP; CAFFE
24
PRIMO MANAGEMENT 102, LP; CAFFE
PRIMO MANAGEMENT 103, LP; CAFFE
25
PRIMO MANAGEMENT 104, LP; CAFFE
PRIMO MANAGEMENT 105, LP; CAFFE
26
PRIMO MANAGEMENT 106, LP; CAFFE
PRIMO MANAGEMENT 107, LP; and
27
CAFFE PRIMO MANAGEMENT 108, LP,
Defendants.
28

LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
856476.01/SD
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1 Thomas A. Seaman ("Receiver"), the Court-appointed receiver for the
2 Defendant entities1 (collectively, "Receivership Entities"), hereby submits this first
3 interim application for approval and payment of fees and reimbursement of
4 expenses ("Application"). This Application covers the period from the Receiver's
5 appointment on January 5, 2017, through April 30, 2017 ("First Application
6 Period"), and seeks interim approval of $297,672.50 in fees and an order
7 authorizing the Receiver to pay, on an interim basis, 90% of the fees incurred or
8 $267,905.25.
9 During the First Application Period, the Receiver and his staff spent
10 1,520.5 hours executing the duties set forth in the Temporary Restraining Order
11 entered on January 5, 2017 ("TRO"); and the subsequent Preliminary Injunction
12

13 1 The entities included in the receivership are PDC Capital Group, LLC ("PDC"); Caffe Primo
International, Inc. ("Caffe Primo"); SAL Senior Living, LP ("SAL Senior Living");
14 SAL Carmichael, LP ("SAL Carmichael"); SAL Citrus Heights, LP ("SAL Citrus Heights");
SAL Kern Canyon, LP ("SAL Kern Canyon"); SAL Phoenix, LP ("SAL Phoenix");
15 SAL Westgate, LP ("SAL Westgate"); Summerplace at Sarasota, LP ("Sarasota");
Summerplace at Clearwater, LP ("Clearwater"); Summerplace at Correll Palms, LP ("Correll
16 Palms"); TRC Tucson, LP ("TRC Tucson"); Clear Currents West, LP ("Clear Currents");
Caffe Primo Management, LP ("CPM"); Caffe Primo Management 102, LP ("CPM 102");
17 Caffe Primo Management 103, LP ("CPM 103"); Caffe Primo Management 104, LP
("CPM 104"); Caffe Primo Management 105, LP ("CPM 105"); Caffe Primo
18 Management 106, LP ("CPM 106"); Caffe Primo Management 107, LP ("CPM 107"); Caffe
Primo Management 108, LP ("CPM 108"); and their subsidiaries and affiliates, including but
19 not limited to, Summerplace Management, LLC ("Summerplace Management");
PDC Partners Management, Inc. ("PDC PM"); and FDC Partners Management, Inc.
20 ("FDC PM") (collectively, "Named Entities"); and their subsidiaries and affiliates
Summerplace Management, LLC; PDC Partners Management, Inc.; FDC Partners
21 Management, Inc.; KPF Capital, LLC; FDC Capital Partners, LLC; MSL US Fund I, LLC;
MPoint Land & Development, Inc.; Woodcrest Construction Management, Inc.; Professional
22 Loading Service, LLLP; WDC Capital Group, LLC; WDC Capital Partners, LLC;
KPF Investment Management, Inc.; Meridian Summerplace at Snug Harbor, LLC; Meridian
23 Summerplace at Snug Harbor, LP; Summerplace at Correll Palms, LLC; Summerplace at
Correll Palms, LP; Summerplace at Winter Haven, LLC; Summerplace at Winter Haven, LP;
24 Summerplace at Sun City, LLC; Summerplace at Sun City, LP; Meridian at Sun City, LLC;
Summerplace at Orlando-Summerfield, LLC; Summerplace at Orlando-Summerfield, LP;
25 Summerplace at Kissimmee, LLC; Summerplace at Kissimmee, LP; Summerplace at
Merced, LLC; Summerplace at Merced, LP; SAL-PDC, LLC; SLALMC, LLC; SAL Lincoln
26 Village, IL; Lincoln Village IL, LLC; Lincoln Village IL, LP; Lincoln Village SNF, LLC;
Lincoln Village SNF, LP; FCM Development Group, LLC; ADC Capital Group, LLC;
27 NCDC Capital Partners, LLC; Summerplace at Bonney Lake MC, LLC; Summerplace at
Bonney Lake MC, LP; Summerplace Management, LLC; Summerplace Development, LLC;
28 Defiance Charters, LLC; and Red Sunshine Holdings, Ltd. (collectively, "Affiliated
Entities").
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP

856476.01/SD
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1 Against All Defendants entered on January 23, 2017 ("PI Order"). As set forth in
2 the Receiver's Second Interim Report ("Second Report"), the Receiver had
3 recovered $3,991,414 in gross receipts for the receivership estate as of April 30,
4 2017. By this Application, the Receiver seeks approval of $297,692.50 in fees
5 incurred from the time of the Receiver's appointment through April 30, 2017. The
6 fees were incurred at hourly rates ranging from $60 to $375 per hour and the
7 weighted average hourly rate was $196 per hour. The Receiver seeks approval to
8 pay 90% of this amount, or $267,923.25.
9 I. SCOPE OF RECEIVER'S WORK
10 The Receiver recently filed his Second Interim Report, which provides a
11 detailed accounting and narrative of his activities during the First Application
12 Period. Highlights from the Receiver's Second Report can be summarized as
13 follows:
14  Seized control of company offices;
15  Demanded and collected funds in frozen accounts;
16  Identified several hard money loans taken in the month prior to the
17 Receiver's appointment and recovered the unspent proceeds in the
18 amount of $3.357 million and identified recipients of loan proceeds for
19 future recovery activities;
20  Identified and froze additional bank accounts;
21  Issued subpoenas for missing bank records;
22  Issued subpoenas to escrow holders who received funds from the
23 Receivership Entities;
24  Identified additional subsidiaries and affiliates;
25  Analyzed viability of Caffe Primo restaurants;
26  Attempted to sell Caffe Primo restaurants as a going concern;
27  Investigated status of entitlements on senior living land projects;
28  Applied for extensions and otherwise preserved land entitlements;
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-2-
856476.01/SD
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1  Conducted due diligence on various land holdings;
2  Evaluated and compiled status of EB-5 investors' applications with
3 United States Customs and Immigration Service ("USCIS");
4  Analyzed Receivership Entities accounting records and identified
5 multiple conflicting versions and confirmed illusory and inaccurate
6 financial statements;
7  Analyzed land purchases relative to the amount EB-5 investor funds
8 were charge for the land;
9  Seized control of one yacht;
10  Demanded return of another yacht which was paid to a business partner
11 of the Receivership Entities;
12  Identified Prograde/Professional Loading Service asset, an ammunitions
13 manufacturer which was purchased with the proceeds of land sold in
14 Sarasota, and investigated operations;
15  Met with several parties interested in purchasing land assets;
16  Held several meetings with principals of the Receivership Entities;
17  Analyzed relationships and transfers between and among Defendant
18 entities and affiliated entities; and
19  Took control of numerous affiliated entities and their assets.
20 A. Receivership Accounting - Receipts and Disbursements
21 The Receiver's Second Report provides a profit and loss statement, balance
22 sheet and detailed general ledger as well as a Standardized Fund Accounting
23 Report ("SFAR") for the period ending April 30, 2017. Through April 30, 2017,
24 the Receiver has recovered $3,991,414, which can be summarized as follows:
25 Seized from banks $112,971.85
Unused loan proceeds $3,357,906.23
26
Construction bond $424,000.00
27
Unearned retainers $72,205.41
28
Miscellaneous refunds $4,330.82
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-3-
856476.01/SD
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1 Caffe Primo sale deposit2 $20,000.00
Total $3,991,414.31
2
3 The Receiver has made disbursements of $393,881.14, including
4 $312,708.14 for real property taxes and $58,947.57 for Caffe Primo payroll,
5 operating expenses, and costs to vacate certain leased premises. The Receiver was
6 holding cash in the amount of $3,577,533.17 as of April 30, 2017.
7 II. SUMMARY OF RECEIVER'S FEES
8 Exhibit A provides a summary by timekeeper of the total fees for the First
9 Application Period of $297,672.50, as well as a detailed listing of every task
10 performed by the Receiver or his agents. The fees were incurred by month as
11 follows:
12
January 2017 $119,623.50
13 February 2017 $75,283.50
March 2017 $51,014.00
14
April 2017 $51,751.50
15
Total $297,672.50.
16
17 The total fees as a percentage of the gross receipts were 7.5%. In order to
18 reduce fees, the Receiver delegates work to lower priced employees of his
19 company at rates ranging from $60 to $200 per hour. These employees worked
20 1,186.3 hours at an average hourly rate of $145, bringing the weighted average
21 hourly rate to $196 per hour. Moreover, the Receiver has discounted his normal
22 hourly rate from $400 to $375, which resulted in savings of $8,355 during the First
23 Application Period.
24
25
26
27

28 2 This was returned to the prospective purchaser after April 30, 2017, as will be reflected in
the Receiver's Third Interim Report.
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-4-
856476.01/SD
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1 III. SUMMARY OF CHARGES BY TASK
2 The following summarizes the charges listed in Exhibit A by category of
3 fees:
4 Accounting & Reporting 143.1 $11,070.00
Forensic accounting 30.8 $2,268.00
5
36.9 $5,061.50
Investor relations
6
4.8 $792.00
Manage Business
7 Land use and development 23.0 $4,600.00
598.5 $104,184.50
8 Project Management
334.2 $125,325.00
Receiver
9
188.0 $13,434.00
Receivership Administration
10
107.4 $21,480.00
Research Files
11 Sell Property/Liquidate Assets 16.8 $2,313.00
Takeover Property 37.0 $7,144.50
12
1,520.5 $297,672.50
Total
13
14 Accounting and Reporting
15 This cost category collects cost of accounting for receipts and disbursements
16 of the receivership estate. For the First Application Period, 143.1 hours were spent
17 on these tasks for a total of $11,070. The average hourly rate was $77.
18 Forensic Accounting
19 This cost category collects the cost of forensic accounting of the
20 Receivership Entities' pre-receivership activities. For the First Application Period,
21 30.8 hours were spent on these tasks for a total of $2,268. The average hourly rate
22 was $74.
23 Investor relations
24 The costs include responding to investor inquiries and maintaining the
25 receivership website. For the First Application Period, 36.9 hours were spent on
26 these tasks for a total of $5,061.50. The average hourly rate was $137.
27
28
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-5-
856476.01/SD
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1 Manage Business
2 The Caffe Primo restaurants could not be operated and the costs for
3 managing businesses is therefore low. For the First Application Period, 4.8 hours
4 were spent on these tasks for a total of $792. The average hourly rate was $165.
5 Project Management
6 In total, 598.5 hours were expended managing the affairs of the receivership
7 estate for a total of $104,184.50 which equates to $174 per hour. The vast
8 majority of tasks performed managing the affairs of the receivership estate are
9 collected in this category. This work includes identifying and asserting control
10 over assets, tracing and recovery of funds in bank accounts, freezing and seizing
11 additional accounts, researching financial transactions, recovering funds and
12 unused loan proceeds, assisting EB-5 investors with USCIS requests for
13 information, taking possession of books and records, taking possession and
14 managing digital books and records, closing Caffe Primo restaurants, performing
15 due diligence and evaluation of real property assets, and administering secured and
16 unsecured creditor inquiries, among other tasks.
17 Receiver
18 This category is only used by the Receiver and includes work to manage the
19 myriad requirements of the receivership estate. During this First Application
20 Period, the primary areas of focus were the initial seizure of the Receivership
21 Entities, identifying and marshalling assets, investigating the nature of the
22 enterprise and its assets, reporting to the Court, dealing with Defendant Emilio
23 Francisco and interested parties, and developing a plan for the receivership estate.
24 The Receiver spent 334.2 hours, or approximately 48% of his time in the First
25 Application Period on these tasks. At his hourly rate of $375, the total amount is
26 $125,325.
27
28
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-6-
856476.01/SD
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1 Receivership Administration
2 The work is primarily comprised of document preservation and
3 organization, and review of incoming mail, which provides invaluable clues to
4 locating assets and other matters requiring the attention of the Receiver. This
5 category consumed 188.0 hours for a total of $13,434, or $71 per hour.
6 Research Files
7 This category includes investigative work in reviewing accounting and other
8 business records to locate assets and understand the business operations. The
9 hours worked were 107.4 for a total of $21,480, or $200 per hour.
10 Takeover Property
11 This category covers the cost of the seizure of the Receivership Entities
12 including the company premises, bank accounts, and real property assets as
13 discussed above. For the First Application Period, 37 hours were spent on these
14 tasks for a total of $7,144.50. The average hourly rate was $193.
15 IV. STANDARDIZED FUND ACCOUNTING REPORT
16 Attached hereto as Exhibit B is a Standardized Fund Accounting Report
17 reflecting the receipts and disbursements for the First Application Period.
18 V. THE FEES AND COSTS ARE REASONABLE
19 AND SHOULD BE ALLOWED
20 "As a general rule, the expenses and fees of a receivership are a charge upon
21 the property administered." Gaskill v. Gordon, 27 F. 3d 248, 251 (7th Cir. 1994).
22 These expenses include the fees and expenses of this Receiver and his
23 professionals, including Allen Matkins. Decisions regarding the timing and
24 amount of an award of fees and costs to the Receiver and his Professionals are
25 committed to the sound discretion of the Court. See SEC v. Elliot, 953 F. 2d 1560,
26 1577 (11th Cir. 1992) (rev'd in part on other grounds, 998 F.2d 922 (11th Cir.
27 1993)).
28
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-7-
856476.01/SD
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1 In allowing fees, a court should consider "the time, labor and skill required,
2 but not necessarily that actually expended, in the proper performance of the duties
3 imposed by the court upon the receiver[], the fair value of such time, labor and
4 skill measured by conservative business standards, the degree of activity, integrity
5 and dispatch with which the work is conducted and the result obtained." United
6 States v. Code Prods. Corp., 362 F. 2d 669, 673 (3d Cir. 1966) (internal quotation
7 marks omitted). In practical terms, receiver and professional compensation thus
8 ultimately rests upon the result of an equitable, multi-factor balancing test
9 involving the "economy of administration, the burden that the estate may be able
10 to bear, the amount of time required, although not necessarily expended, and the
11 overall value of the services to the estate." In re Imperial 400 Nat'l, Inc., 432 F. 2d
12 232, 237 (3d Cir. 1970). Regardless of how this balancing test is formulated, no
13 single factor is determinative and "a reasonable fee is based [upon] all
14 circumstances surrounding the receivership." SEC v. W.L. Moody & Co., Bankers
15 (Unincorporated), 374 F. Supp. 465, 480 (S.D. Tex. 1974).
16 As a preliminary matter, the TRO and PI Order confer on the Receiver
17 substantial duties and powers, including to conduct such investigation and
18 discovery as is necessary to locate and account for all receivership assets, take
19 such action as is necessary and appropriate to assume control over and preserve
20 receivership assets, and employ attorneys and others to investigate and, where
21 appropriate, institute, pursue, and prosecute all claims and causes of action of
22 whatever kind and nature. See TRO, Part IX; PI Order, Part IX.
23 The Receiver believes the rates and total fees charged are reasonable in view
24 of the challenges and circumstances encountered and respectfully requests an order
25 approving the total fees submitted in the amount of $297,672.50 and ordering an
26 interim payment of 80% of the fees incurred, or $267,905.25, from funds held by
27 the Receiver. Payment of the proposed 10% holdback will be sought at the
28 conclusion of the receivership.
LAW OFFICES
Allen Matkins Leck Gamble
Mallory & Natsis LLP
-8-
856476.01/SD
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