Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_04-cv-02037/USCOURTS-casd-3_04-cv-02037-8/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

CASE NO. 04-CV-2037 W (LSP)

ORDER (1) GRANTING

MOTION TO INTERVENE (2)

APPROVING SETTLEMENT

BETWEEN OPTION ONE

MORTGAGE CORPORATION

AND RECEIVER AND (2)

MODIFYING APPLICABLE

STAYS [DOC. NO. 492]

v.

LEARN WATERHOUSE, INC.,

RANDALL T. TREADWELL, RICK

D. SLUDER, LARRY C. SATURDAY,

and ARNULFO M. ACOSTA,

Defendants.

Pending before the Court is Option One Mortgage Corporation’s (“Option

One”) motion for an order (1) permitting intervention, (2) approving the settlement

agreement between Option One and the Receiver, and (3) modifying certain

applicable stays (the “Motion”). The Court decides the matter on the papers

submitted and without oral argument pursuant to Civil Local Rule 7.1(d.1). For the

reasons addressed below, the Court GRANTS the Motion (Doc. No. 492).

Case 3:04-cv-02037-W-DHB Document 503 Filed 05/28/08 Page 1 of 5
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I. FACTUAL BACKGROUND

On October 12, 2004, the Securities and Exchange Commission filed this

lawsuit for violation of the federal securities laws. The lawsuit involves an alleged

ongoing “prime bank” Ponzi scheme perpetrated by Learn Waterhouse, Inc. (“LWI”).

On the same day the lawsuit was filed, this Court issued a temporary

restraining order freezing all assets related to, among others, LWI and defendant

Randall T. Treadwell (the “Freeze Order”), and appointing Thomas F. Lennon as the

temporary receiver for LWI and its subsidiaries and affiliates. On November 1, 2004,

the Court issued a preliminary injunction order that continued in effect the terms of

the TRO, and converted the Receiver’s appointment to that of a permanent

receiver.

Before the Freeze Order was issued, on September 13, 2004, defendant

Treadwell executed an adjustable rate note in the principal sum of $500,000 (the

“Note”). (Banner Decl., ¶4, Ex. A.) The Note is secured by certain real property

commonly known as 501 Herb River Drive, Savannah, Georgia (the “Real

Property”). (Id., ¶4.) In connection with the Note, Treadwell also executed a first

priority security interest in the Real Property in the form of a security deed (the

“Security Deed”) that secures performance of the Note (the “Treadwell Obligation”). 

(Id. ¶4, Ex. C.) Option One is the assignee of the Security Deed and holder of the

Note under an assignment. (Banner Decl., ¶5, Ex. D.) 

According to the Motion, the Treadwell Obligation is in default, and the value

of the obligation now exceeds the value of the Real Properly. Specifically, the

Treadwell Obligation exceeds $489,000 (Banner Decl., ¶6), whereas the value of the

Real Property (as of September 13, 2007) is between $450,000 and $475,000, with

the most likely value closer $450,000 (Adams, Decl., ¶5.) 

Meanwhile, the Receiver demanded that Option One disgorge approximately

$7,544.59 allegedly received after entry of the Freeze Order from a LWI-related bank

account as payment in connection with the Treadwell Obligation. Then in March

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2008, the Receiver and Option One settled the dispute. The Settlement Agreement

is conditioned on, among other things, the Court’s approval and modification of all

stays to allow Option One to foreclose on the Real Property. Option One, therefore,

seeks to intervene in this lawsuit in order to obtain the Court’s approval of the

Settlement Agreement and a modification of the stays. 

II. DISCUSSION

Rule 24(a)(2) permits anyone to intervene who is “so situated that the

disposition of the action may as a practical matter impair or impede the applicant’s

ability to protect that interest, unless the applicant’s interest is adequately

represented by existing parties.” Fed. R. Civ. P. 24(a)(2). The Ninth Circuit applies

a four-prong test when weighing a Rule 24(a)(2) intervention motion:

(1) the application for intervention must be timely; (2) the applicant

must have a ‘significant protectable’ interest relating to the property or

transaction that is the subject of the action; (3) the applicant must be so

situated that the disposition of the action may, as a practical matter,

impair or impede the applicant’s ability to protect that interest; and (4)

the applicant’s interest must not be adequately represented by the

existing parties in the lawsuit.

Southwest Center for Biological Diversity v. Berg, 268 F.3d 810, 817-18 (9th Cir.

2001). The Rule 24(a)(2) inquiry is flexible, and allows for a practical analysis of the

facts and circumstances of each case. Donnelly v. Glickman, 159 F.3d 405, 409 (9th

Cir. 1998). In evaluating the motion, the court accepts as true the allegations and

evidence in support of the motion. Berg, 268 F.3d at 819–820. Additionally, in

applying the standard, courts should broadly construe the rule in the proposed

intervenor’s favor. U.S. v. City of Los Angeles, 288 F.3d 391, 397-98 (9th Cir.

2002). 

Option One has satisfied the requirements for intervention. Option One has a

significant protectable interest relating to the Real Property that is being impeded by

the litigation. Additionally, Option One’s interest is not being adequately

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The only “opposition” to the Motion was filed by defendant Treadwell. The

opposition, however, sought only appointment of counsel; it did not set forth any facts, law or

argument in support of an opposition to Option One’s request to intervene, for approval of the

settlement or for modification of the applicable stays. 

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represented, and the motion to intervene is timely. Accordingly, the Court grants

the motion to intervene.

Additionally, having considered the Settlement Agreement, as well as Option

One’s Motion and all papers submitted in support thereof, including the declaration

of the Receiver, the Court finds that the settlement is in the best interests of the

receivership estate, and is fair and reasonable. The Treadwell Obligation exceeds

the Real Property’s current value, and thus there is no equity in the Real Property for

the receivership estate. And under the terms of the Settlement Agreement, Option

One has agreed to pay the Receiver an amount equal to the “Receiver Demand”

(Lennon Decl., Ex. A, ¶B.5), defined as “not less than $7,544.5 which Option One

allegedly received after entry of the Freeze Order. . . ” (Id., ¶A.9). Accordingly, the

Court approves the Settlement Agreement.1

 

III. CONCLUSION & ORDER

For the foregoing reasons, the Court GRANTS the Motion and ORDERS as

follows:

1. Option One is permitted to intervene for the purpose of bringing this

Motion.

2. The settlement agreement between Option One and the Receiver,

which is attached to the Receiver’s declaration as Exhibit A, is

approved.

3. The preliminary injunction order entered on November 1, 2004, the

Order Granting Defendant Randall T. Treadwell’s Motion to Stay

entered on November 17, 2005, and any other applicable stays ordered

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in this case are hereby modified to allow Option One to take all

appropriate steps to foreclose on its security interest in certain real

property commonly known as 501 Herb River Drive, Savannah,

Georgia.

In light of the foregoing, Option One is DISMISSED from any further

proceedings in this case.

IT IS SO ORDERED.

DATED: May 28, 2008

Hon. Thomas J. Whelan

United States District Judge

Case 3:04-cv-02037-W-DHB Document 503 Filed 05/28/08 Page 5 of 5