Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_12-cv-02164/USCOURTS-casd-3_12-cv-02164-25/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:0077 Securities Fraud

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

CASE NO. 3:12-cv-2164-GPC-JMA

ORDER:

(1) GRANTING RECEIVER’S

TENTH, ELEVENTH, AND

TWELFTH INTERIM FEE

APPLICATIONS;

[ECF Nos. 1091, 1096, 1126]

(2) GRANTING ALLEN MATKINS’

TENTH, ELEVENTH, AND

TWELFTH INTERIM FEE

APPLICATIONS;

[ECF Nos. 1092, 1097, 1127]

(3) GRANTING DUFFY’S FOURTH

AND FIFTH INTERIM FEE

APPLICATIONS;

[ECF Nos. 1098, 1128]

(4)VACATING HEARING DATES

v.

LOUIS V. SCHOOLER and FIRST

FINANCIAL PLANNING

CORPORATION, dba Western

Financial Planning Corporation,

Defendants.

I. INTRODUCTION

Before the Court are eight fee applications by the court-appointed receiver

Thomas C. Hebrank (the “Receiver”):

1. Tenth Interim Application for Approval and Payment of Fees and Costs

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to Thomas C. Hebrank, as Receiver (“Receiver’s Tenth Interim Fee

Application”), (ECF No. 1091);

2. Eleventh Interim Application for Approval and Payment of Fees and

Costs to Thomas C. Hebrank, as Receiver (“Receiver’s Eleventh Interim

Fee Application”), (ECF No. 1096);

3. Twelfth Interim Application for Approval and Payment of Fees and Costs

to Thomas C. Hebrank, as Receiver (“Receiver’s Twelfth Interim Fee

Application”), (ECF No. 1126);

4. Tenth Interim Fee Application of Allen Matkins Leck Gamble Mallory &

Natsis LLP, Counsel to Receiver (“Allen Matkins’s Tenth Interim Fee

Application”), (ECF No. 1092);

5. Eleventh Interim Fee Application of Allen Matkins Leck Gamble Mallory

& Natsis LLP, Counsel to Receiver (“Allen Matkins’s Eleventh Interim

Fee Application”), (ECF No. 1097);

6. Twelfth Interim Fee Application of Allen Matkins Leck Gamble Mallory

& Natsis LLP, Counsel to Receiver (“Allen Matkins’s Twelfth Interim

Fee Application”), (ECF No. 1127);

7. Fourth Interim Application for Approval and Payment of Fees and Costs

to Duffy Kruspodin & Company, LLP, as Tax Accountants for Receiver

(“Duffy’s Fourth Interim Fee Application”), (ECF No. 1098); and

8. Fifth Interim Application for Approval and Payment of Fees and Costs

to Duffy Kruspodin & Company, LLP, as Tax Accountants for Receiver

(“Duffy’s Fifth Interim Fee Application”), (ECF No. 1128).

Neither the Plaintiff Securities and Exchange Commission (the “SEC”) nor Defendants

have filed any response to the eight fee applications with the Court. The Court finds

these motions suitable for disposition without oral argument pursuant to Civil Local

Rule 7.1(d)(1).

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II. BACKGROUND

A. Receiver

In his Tenth, Eleventh, and Twelfth Interim Fee Applications, the Receiver

asserts he has incurred a total of $302,559.75 in fees for work done in the following

categories:

Category 10th App. 11th App. 12th App. Total

General Receivership $6,682.50 $13,785.75 $7,796.25 $28,264.50

Asset Investigation

& Recovery

$0.00 $0.00 $0.00 $0.00

Reporting $26,894.25 $13,443.75 $10,095.75 $50,433.75

Operations & Asset

Sales

$29,909.25 $92,823.75 $86,341.50 $209,074.50

Claims &

Distributions

$0.00 $0.00 $0.00 $0.00

Legal Matters &

Pending Litigation

$10,935.00 $3,852.00 $0.00 $14,787.00

Total $74,421.00 $123,905.25 $104,233.50 $302,559.75

(ECF No. 1091, at 1–4; ECF No. 1096, at 1–4; ECF No. 1126, at 2–4.)

While the Receiver incurred $302,559.75 in fees, he now seeks only 80% of

those fees, i.e., $242,047.80. (ECF No. 1091 at 1; ECF No. 1096 at 1; ECF No. 1126

at 1.) The Receiver’s Tenth Interim Fee Application coversthe period October 1, 2014,

through December 31, 2014. (ECF No. 1091, at 1.) The Receiver’s Eleventh Interim

Fee Application coversthe period January 1, 2015, through March 31, 2015. (ECF No.

1096, at 1.) The Receiver’s Twelfth Interim Fee Application covers the period April

1, 2015, through June 30, 2015. (ECF No. 1126, at 1.) The Receiver also seeks costs

in the total amount of $3,663.67 ($1,453.21 in Tenth Fee Application, ECF No. 1091,

at 1; $1,265.64 in Eleventh Fee Application, ECF No. 1096 at 1; and $944.82 in

Twelfth Fee Application, ECF No. 1126, at 1), which covers expenses for website

additions, copies, mailings, and postage (ECF No. 1091, Ex. C; ECF No. 1096, Ex. C;

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ECF No. 1126, Ex. C).

B. Allen Matkins

In its Tenth, Eleventh, and Twelfth Interim Fee Applications, Allen Matkins

asserts it incurred $261,619.20 in fees for work done in the following categories:

Category 10th App. 11th App. 12th App. Total

General Receivership $31,977.90 $24,833.25 $2,150.10 $58,961.25

Reporting $36,235.35 $22,385.70 $10,428.75 $69,049.80

Operations & Asset

Sales

$25,128.45 $27,802.80 $15,097.05 $68,028.30

Claims &

Distributions

$370.80 $5,788.35 $1,881.45 $8,040.60

Third Party

Recoveries

$13,733.10 $17,436.15 $24,330.60 $55,499.85

Employment/Fees $695.25 $509.85 $834.30 $2,039.40

Total $108,140.85 $98,756.10 $54,722.25 $261,619.20

(ECF No. 1092, at 1; ECF No. 1097, at 1; ECF No. 1127, at 1.)

While Allen Matkinsincurred $261,619.20, it now seeks only 80% of those fees,

i.e., $209,295.36. (ECF No. 1092, at 1; ECF No. 1097 at 1; ECF No. 1127 at 1.) Allen

Matkins’ Tenth, Eleventh, and Twelfth Interim Fee Applications cover the same period

noted above. (ECF No. 1092, at 1; ECF No. 1097 at 1; ECF No. 1127 at 1.) Allen

Matkins also seeks costs in the total amount of $6,891.73 ($4,459.49 in Tenth Fee

Application, ECF No. 1092, at 1; $2,069.14 in Eleventh Fee Application, ECF No.

1097 at 1; and $363.10 in Twelfth Fee Application, ECF No. 1127, at 1), which covers

expenses for document editing and copying, service fees, reprographics, PACER fees,

shipping, and postage (ECF No. 1092, Ex. A, at 21–22; ECF No. 1097, Ex. A, at

20–21; ECF No. 1127, Ex. A, at 14–15).

C. Duffy

In its Fourth and Fifth Interim Fee Applications, Duffy, the tax accounting firm

retained by the Receiver for work on behalf of Western and related entities, asserts it

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incurred $126,717.88 in fees for work done in the following categories:

Category 4th App. 5th App. Total

General Engagement Services $6,497.55 $11,503.80 $18,001.35

Preparation of 2013 Income Tax

Returns

$16,345.93 $0.00 $16,345.93

IT Consulting $0.00 $4,886.20 $4,886.20

Preparation of 2014 Form 1096 and

1099 Informational Returns and

2014 Income Tax Returns

$0.00 $87,484.40 $87,484.40

Total $22,843.48 $98,756.10 $126,717.88

(ECF No. 1098, at 1; ECF No. 1128, at 1.)

Duffy seeks the entirety of the $126,717.88 in fees that it incurred (ECF No.

1098, at 1; ECF No. 1128 at 1.) Duffy also seeks costs in the total amount of

$14,895.24 (ECF No. 1128, at 1), which covers service fees, software costs, and

postage (ECF No. 1127, Ex. D.)

III. LEGAL STANDARD

“[I]f a receiver reasonably and diligently discharges his duties, he is entitled to

fair compensation for his efforts.” Sec. and Exch. Comm’n v. Elliott, 953 F.2d 1560,

1577 (11th Cir. 1992). “The court appointing [a] receiver has full power to fix the

compensation of such receiver and the compensation of the receiver’s attorney or

attorneys.” Drilling & Exploration Corp. v. Webster, 69 F.2d 416, 418 (9th Cir. 1934).

A receiver’s fees must be reasonable. See In re San Vicente Med. Partners Ltd., 962

F.2d 1402, 1409 (9th Cir. 1992).

As set forth in the Court’s prior fee orders, (see, e.g., ECF No. 640), the Court

will assessthe reasonableness ofthe requested fees using the factors enumerated in Sec.

and Exch. Comm’n v. Fifth Avenue Coach Lines, 364 F. Supp. 1220, 1222 (S.D.N.Y.

1973), and In re Alpha Telcom, Inc., 2006 WL 3085616, at *2–3 (D. Or. Oct. 27, 2006).

Those factors include: (1) the complexity of the receiver’s tasks; (2) the fair value of

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the receiver’s time, labor, and skill measured by conservative business standards; (3)

the quality of the work performed, including the results obtained and the benefit to the

receivership estate; (4) the burden the receivership estate may safely be able to bear;

and (5) the Commission’s opposition or acquiescence. See 364 F. Supp. at 1222; 2006

WL 3085616, at *2–3.

IV. DISCUSSION

A. Complexity of Tasks

The Court finds that the tasks performed by the Receiver were moderately

complex. The Receiver undertook the following tasks:

• participating in meetings and conferences with the SEC’s counsel and

legal counsel;

• handling administrative issues, including reviewingmail, email, and other

correspondence to Receivership Entities;

• administering the bank accounts of Receivership Entities;

• reviewing and approving expenditures;

• maintaining and updating the Receiver’s website with case information

and documents;

• responding to investor inquiries and misinformation put out by certain

investors;

• preparing reports on the financial condition of each of the GPs and

purchase offers received for various properties;

• managing and overseeing the GPs’ operations and real property;

• managing and overseeing Western’s operations;

• performing accounting functions of Receivership Entities, including

paying expenses, clearing checks, and ACH entries;

• managing and overseeing tax reporting for Receivership Entities;

• managing and overseeing GP operational bills, loan payments, and cash

management;

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• conducting investor votes and analysis relating to purchase offers

received;

• oppositions and filings related to the operation of the receivership; and

• preparing for and attending depositions related to Defendants’ subpoenas

of the Receiver.

(ECF No. 1091, at 1–4; ECF No. 1096, at 1–4; ECF No. 1126, at 2–4.)

The Court finds that the tasks performed by Allen Matkins during its respective

application period to be somewhat complex. Allen Matkins undertook the following

tasks:

• reviewing pleadings and investor correspondence relating to the GPs and

the receivership;

• responding to Defendants’ discovery requests;

• responding to Defendants’ motion to remove the Receiver and disqualify

Allen Matkins;

• reviewing and advising the Receiver regarding various motions, briefs,

orders, and status reports filed in the case and in the Defendants’ pending

appeals;

• reviewing and advising the Receiver regarding various orders entered in

this case;

• assisting the Receiver in drafting report on the financial condition of each

GP;

• assisting the Receiver in preparing the Tenth and Eleventh Interim

Reports (ECF Nos. 1000, 1065);

• gaining access to Western server from Defendants;

• assisting the Receiver with legal issues relating to the ongoing operations

of Western and the GPs;

• assisting the Receiver in communications with investors, creditors, and

their counsel;

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• analyzing legal issues regarding three pending collection actions; and

• preparing the Receiver’s Eighth, Ninth, and Tenth Interim Fee

Applications and Duffy’s Third Interim Fee Application.

(ECF No. 1092, at 2–7; ECF No. 1097, at 2–7; ECF No. 1127, at 2–6.)

As to the complexity ofthe tasks performed by the Receiver’s accountant, Duffy,

the Court finds its tasks were moderately complex. Duffy undertook the following

activities:

• communicating with the Receiver about establishing the engagement and

agreeing upon procedures and reporting timelines;

• processing initial receipt of the receivership entities’ books and records;

• formatting and organizing files with the current year data;

• verifying cash receipts and disbursementsfor the year and scanning detail

for reporting accuracy and consistency;

• reviewing the bank reconciliation to the bank statement

• checking balance sheet account balances for assets, loan receivables, and

loan payables for variances compared to prior year; when differences were

noted, detail of change in current year was reviewed to verify correct

application of accounting rules;

• verifying and reconciling "investment in" accounts to the related LLC

books for Western, which included single member LLCs;

• preparation of the 263A calculation with reconciling spreadsheets;

• reviewing input sheets of information entered into Lacerte;

• responding to Defendants’ discovery requests;

• manager level review of the 263A calculation and spreadsheets;

• partner level review of the 263A calculation and spreadsheets;

• partner level verification ofreporting accuracy, formatting, and adherence

to current federal and state partnership tax laws;

• electronic filing of the 2013 corporate returns;

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• installing the 2014 ProSystem fx software on the Duffy server;

• troubleshooting issues with the various software update releases to

facilitate data proforma from 2013 and data stored from prior year that

needed to be updated due to changes to the software;

• working with ProSystem fx support regarding download of release

necessaryto commence tax return preparation and necessary data transfer;

• providing client IT with software and perm key needed to install the

software on the Western server and run their data input for the 2014 tax

returns;

• calculating total Form 1099 costs to be reported based on the Western

report provided;

• verifying accounting fees in comparison to the Western records for 1099

reporting;

• input of the 2014 Form 1099 amounts and verifying other informational

data included on the form;

• reviewing 1099 recipients’ names, addresses, and ID numbers;

• electronic filing of the 1099s for the receivership entities;

• assembly of the 1099 electronic document for the receiver and copies for

each of the recipients;

• reviewing the 2014 capital contributions recorded in the excel sheets and

ensuring ownership units were accurately reflected on the K-1s;

• verifying accuracy of partner names, addresses, ID numbers, and entity

types in ProSystem fx compared to the Western excels;

• reviewing transfers of interest and ensuring transfers were correctly

calculated and reported on the 2014 tax return and K-1s;

• manager level review of the above areas, as well as, overall review of tax

return forms and input;

• manager level verification of reporting accuracy, formatting, and

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adherence to current federal and state corporate tax laws;

• manager level quality control check of information in ProSystem fx

compared to Western database that tracks all partner changes submitted

throughout the year;

• staff and manager communication as needed to answer return

discrepancies or additional information needed to complete the tax return;

• partner level review of the above areas, as well as, overall review of tax

return forms and input;

• finalizing of tax return and accompanying letters and schedules;

• printing tax return copies for each of the receivership entities and for

government filing, and the final K-1 packages;

• assembly and mailing of 8,197 K-1 packages to partners;

• electronic filing of the 2014 partnership returns;

• printing acceptance letters for the tax files to verify successful submittal

and receipt by government agencies; and

• various communications with the Receiver’s staff to answer partner

requests for single K-1s or other questions regarding the 2014 tax returns

and receivership.

(ECF No. 1098, at 2–3; ECF No. 1128, at 2–5.)

The Court has reviewed the time sheets filed in support of the instant fee

applications and finds that, at this time, the tasks were necessary and not over-billed.

B. Fair Value of Time, Labor, and Skill

The Receiver billed his time at $247.50 per hour and the time of those working

for him at $180.00 per hour. (ECF No. 1091, at 1–4; ECF No. 1096, at 1–4; ECF No.

1126, at 2–4.) Allen Matkins billed its time at $315.00– $648.00 per hour, with much

of the work being billed at $463.50. (ECF No. 1092, Ex. A; ECF No. 1097, Ex. A; ECF

No. 1127, Ex. A.) Duffy billed its time at $146.37–$199.92 per hour. (ECF No. 1098,

at 2–3; ECF No. 1128, at 2–5.)

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These rates reflect a ten percent discount from the Receiver’s, Allen Matkins’, and

Duffy’s ordinary rates. (ECF Nos. 1091, 1092, 1096, 1097, 1098, 1126, 1127, 1128,

at 2.)

The Court continues to find, as it has in previous fee orders, that the rates

charged by the Receiver, Allen Matkins, and Duffy are comparable to rates charged in

this geographic area and therefore represent a fair value of the time, labor, and skill

provided.

C. Quality of Work Performed

The Court finds the quality of work performed by the Receiver and his counsel

to be above average. The Receiver and his professionals continue to keep the

Receivership Entities afloat, which—for Western—is a challenging task given that its

main source of income (i.e., selling GP interests) has ceased since implementation of

the action. Without assistance from Defendants, the Receiver and his professionals

have ultimately been able to meet Western’s many obligations, including payments on

the loans secured by GP properties. This benefits the entire receivership estate.

Moreover, the Receiver and his counsel have complied with the Court’s orders and

have made every effort to protect investors’ interests in the GP properties during the

pendency of this litigation.

The Court finds the quality of work performed by Duffy to be satisfactory. The

Court has received no complaint that Duffy’s tax preparation activities are deficient in

any way.

D. Receivership Estate’s Ability to Bear Burden of Fees

Given the Receiver’s assurance that approved fees and costs will be paid from

Western’s assets above and beyond cash necessary to make payments on loans secured

by GP properties, the Receiver’s acknowledgment that approved fees and costs may

have to be paid in installments as funds become available, and the Receiver’s efforts

to collect on Western’s receivables, the Court finds the receivership estate has

sufficient ability to bear the instant fee requests.

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E. Commission’s Opposition or Acquiescence

The Receiver indicatesthat the SEC does not oppose any of the fee applications.

(ECF No. 1091, at 5–6; ECF No. 1092, at 9; ECF No. 1096, at 5; ECF No. 1097, at 9;

ECF No. 1098, at 5; ECF No. 1126, at 5; ECF No. 1127, at 8; ECF No. 1128, at 8.)

Considering the above five factors together, and considering that “[i]nterim fees

are generally allowed at less than the full amount,” Alpha Telcom, 2006 WL 3085616,

at *2–3, the Court awards fees and costs as set forth in the following table:

Applicant Fees

Allowed

% of Fees

Incurred1

Costs Allowed % of Costs

Incurred

Receiver $242,047.80 80% $3,663.67 100%

Allen Matkins $209,295.36 80% $6,891.73 100%

Duffy $126,717.88 100% $14,895.24 100%

V. CONCLUSION AND ORDER

After a review of the parties’ submissions, the record in this matter, and the

applicable law, and for the foregoing reasons, IT IS HEREBY ORDERED that:

1. The Receiver’s Tenth, Eleventh, and Twelfth Interim Fee Applications,

(ECF Nos. 1091, 1096, 1126), are GRANTED; 

2. Allen Matkins’ Tenth, Eleventh, and Twelfth Interim Fee Applications,

(ECF Nos. 1092, 1097, 1127), are GRANTED;

3. Duffy’s Fourth and Fifth Interim Fee Applications, (ECF Nos. 1098,

1128), are GRANTED;

4. The awarded fees shall be paid from Western’s assets above and beyond

cash necessary to make payments on loans secured by GP properties; and

4. The hearings set for September 25, 2015; and October 30, 2015; are

VACATED.

IT IS SO ORDERED.

The Court includes the percentage of fees incurred rather than a percentage of 1

the feesrequested, given that the Receiver and Allen Matkinsrequest only a percentage

of their actual fees.

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DATED: September 15, 2015

HON. GONZALO P. CURIEL

United States District Judge

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