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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE 

COMMISSION,

Plaintiff,

v.

SAN FRANCISCO REGIONAL CENTER 

LLC, et al.,

Defendants.

Case No. 17-cv-00223-RS 

ORDER GRANTING MOTION FOR 

AUTHORIZATION TO RETURN

ESCROWED INVESTOR FUNDS, 

MODIFYING INTERVENTION 

ORDER, AND DENYING CROSSMOTIONS RE SALE OF BHD 

WAREHOUSE

The parties are familiar with the factual background and protracted procedural history of 

this action and those matters will not be recounted here. Four motions are presently pending. 

Pursuant to Civil Local Rule 7-1(b), all are suitable for disposition without oral argument, and the 

hearing set for August 16, 2018 is vacated.

1. Motion for authorization to return investors’ capital contributions held in escrow (Dkt.

No. 421)

The Receiver seeks authorization to return the capital investment and subscription fees of 

certain investors held in escrow at the time of her appointment, and to pay the escrow fees 

associated with the transactions. Because the funds in issue were escrowed and never applied to 

any of the EB-5 projects or otherwise commingled with any other investor contributions or other 

monies, returning them to the individual investors presents no issues as to any preference between 

“tracing” and pro-rata distributions. The motion is unopposed. Accordingly, the motion will be 

Case 3:17-cv-00223-RS Document 465 Filed 08/15/18 Page 1 of 8
CASE NO. 17-cv-00223-RS

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granted. The second revised proposed order submitted by the Receiver will be entered separately.

2. Motion to amend intervention order (Dkt. No. 424)

With the consent of the SEC, an order previously entered permitting Jennifer Bronson, 

Clement Chin, and Kevin Shimamoto (“Intervenors”) to intervene in this action “solely for the 

limited purpose of being heard with respect to any motion by the Receiver, or recommendation by 

the Receiver, for a recovery or disposition plan, that relates to any assets or real property owned 

by or in the name of Defendant North America 3PL, LLC or Relief Defendant Berkeley 

Healthcare Dynamics, LLC.” The Receiver and the SEC interpret that order narrowly to allow 

only for Intervenors to oppose the Receiver’s motion seeking authority to list and sell the BHD 

warehouse, and not to bring their own affirmative motion seeking a different disposition of the 

property. Intervenors therefore have expressly requested modification of the intervention order, to 

allow their “cross-motion” to be heard.1

The SEC opposes modification of the order, arguing that Section 21(g) of the Securities 

Exchange Act of 1934 precludes intervention in SEC enforcement actions without the SEC’s 

consent. The applicability of Section 21(g), which on its face applies only to consolidation, is 

unsettled in this circuit. See S.E.C. v. ABS Manager, LLC, No. 13CV319-GPC JMA, 2013 WL 

3752119, at *2–3 (S.D. Cal. July 15, 2013) (describing conflicting rulings from other circuits and 

observing “The Ninth Circuit has yet to rule on this issue directly.”).

Whether SEC consent might be required for intervention in some circumstances, the relief 

Intervenors seek here is warranted. The court is charged with ensuring that disposition of assets in 

the receivership comports with all legal requirements and is equitable. Entertaining the arguments 

and proposals of Intervenors serves that interest. Accordingly, to the extent the existing 

intervention order might not permit Intervenors to bring a motion seeking affirmative relief, they 

 

1 At the hearing on the Receiver’s prior motion seeking authority to list and sell the warehouse, 

Intervenors were advised that any request they had for affirmative relief could not be meaningfully

evaluated absent a motion.

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are hereby authorized to do so. This order is without prejudice, of course, to the SEC’s and the 

Receiver’s arguments that Intervenors should not be permitted to override the disposition 

proposed by the Receiver or that the relief they seek is otherwise unwarranted. 

3. Intervenors’ sale proposal (Dkt. No. 425)

The order on the Receiver’s prior motion seeking to list and sell the warehouse observed:

Here, the property the receiver seeks to sell is owned by BHD, a 

relief defendant, who is not alleged to have engaged in any of the 

fraud at the heart of this action. Intervenors, in turn, are individual 

owners of BHD, who also are not alleged to have engaged in any 

fraud. Intervenors have invested substantial time and effort in the 

20th Street Warehouse and have a legitimate interest in being 

afforded an opportunity to continue developing a business there. 

The Warehouse is real property and therefore, unique, such that 

intervenors cannot be completely compensated merely by receiving 

money for their interest in the warehouse through some later claims 

process.

The order raised the question of whether it might be more equitable to dispose of the 

warehouse through a transaction along the lines of that proposed by Intervenors, provided it 

ensured repayment of all EB-5 funds contributed, plus interest, and fair payment to SFRC for its 

interest in BHD. The parties were directed to meet and confer in an attempt to determine whether 

a consensus could be reached as to the dollar amount necessary to ensure such repayment.

While Intervenors now accept the Receiver’s calculation of that dollar amount,2the 

parties’ further negotiations did not result in any agreement as to the disposition of the warehouse, 

with the result that the Receiver and the Intervenors have now presented their respective proposals 

in these cross-motions. In addition to supporting her own proposal, the Receiver (joined by the 

SEC on some points) objects to Intervenors’ proposal on the following grounds.

First, the Receiver contends entertaining Intervenors’ proposal “interferes” with her 

 

2

 Intervenors accept the figure only for purposes of this motion, and reserve the right to challenge 

it in the event their proposal is rejected and they are forced to seek recovery in a claims process.

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“orderly administration of the estate” and represents an attempt to substitute their business 

judgment for hers. The Receiver suggests allowing Intervenors to proceed could “open the flood 

gates” to additional challenges to her administration.

As the Receiver points out, she is charged with administering the property in her 

possession on behalf of the court. See Gaskill v. Gordon, 27 F.3d 248, 251 (7th Cir. 1994) (“[A]n 

equity receiver does not merely inherit an owner’s rights; the receiver is an officer of the court 

entrusted with administration of the property.”) Prior orders in this action have reflected the 

deference the court gives to the Receiver’s business judgment. Ultimate responsibility for 

ensuring disposition of estate assets is equitable, however, remains with the court. Were the court 

to conclude the Intervenors’ proposal represented a more equitable resolution, it would not

represent improper “interference” in the role of the Receiver. Additionally, there is no indication 

that addressing the Intervenors’ concerns is likely to open the “floodgates” to other challenges 

from persons currently lurking on the sidelines. Accordingly, the Receiver’s arguments about 

administration of the estate would not preclude adopting the Intervenors’ proposal.

Similarly, the Receiver has raised several other objections to the Intervenors’ proposal that 

do not stand as insurmountable barriers to adopting their approach. For example, Intervenors have 

offered to ensure the proposal includes an “earnest money” deposit and to adopt a form of a 

purchase and sale agreement acceptable to the Receiver. Intervenors agree that compliance with 

28 U.S.C. § 2001(b) will be necessary.3

Likewise, the Receiver’s complaint that Intervenors lack “standing” to act on behalf of 

BHD is of no consequence. Intervenors do not purport to have authority to control BHD at this 

juncture, and their proposal can only go forward if the court directs the Receiver to adopt that 

course of action. As set out above, Intervenors have properly been given the opportunity to 

present their perspectives to the court, in furtherance of the court’s responsibility to ensure an 

 

3 As the Receiver points out, such compliance will delay the sale, thereby undermining some of 

the advantages the Intervenors’ proposal would otherwise provide. That, however, does not 

automatically render the proposal non-viable.

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overall result that is equitable.

All that said, Intervenors have not shown that their proposal can be adopted at this 

juncture. The real dispute between the Intervenors on the one hand, and the Receiver and the SEC 

on the other hand relates to the proper disposition of the substantial equity in the warehouse 

resulting from its appreciation in value subsequent to its purchase in 2012. In broad terms, 

Intervenors’ proposal would result in that equity being applied to their benefit (after returning a 

substantial portion to SFRC as return on its investment in BHD). The Receiver’s proposal, in 

contrast, would see that equity added to the receivership estate, for later distribution through the 

claims process. The Receiver and the SEC argue that if Intervenors can prove a superior claim to 

those funds during the claims process, they will recover their equity then, otherwise it may prove 

appropriate to distribute the funds on some other basis among those defrauded in the scheme as a 

whole.

Intervenors insist their right to recover the equity is clear as a matter of fact and of law on 

the current record. Eventual recovery through the claims process is inadequate, Intervenors insist, 

because at that point they will have lost any interest in the warehouse itself, which as real 

property, is unique by definition, and which has also been the subject of their personal investment 

of time and energy for several years.

The problem with Intervenors’ position is that the SEC remains the plaintiff in this matter. 

The SEC has asserted a claim, yet to be adjudicated, that relief defendant BHD “received investor 

money or property that was obtained in violation of the federal securities laws,” that it has “no 

legitimate claim to such money or property or the fruits derived therefrom,” and that it must 

“disgorge all ill-gotten gains, according to proof, plus prejudgment interest thereon.” The 

“property” that BHD allegedly “obtained in violation of the federal securities law” and to which it 

purportedly has “no legitimate claim” includes the warehouse. Intervenors’ protestations to the 

contrary notwithstanding, this is not a claim that can be disposed of by adopting their proposal 

without the consent of the SEC.

The prior order questioned whether the Receiver would have legitimate grounds to reject a 

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proposal that ensured all investor funds were returned with interest, and SFRC was adequately 

compensated. Whether or not the SEC can ultimately prove that it is entitled to disgorgement of 

more than would be provided by the Intervenors’ proposal, it and the Receiver have shown that 

Intervenors should not be permitted to short-circuit that adjudication, absent a consensus among 

all involved. While there is now no dispute as to the amount of funds directly contributed to the 

warehouse that must be returned, proper disposition of additional equity has not been resolved, 

and cannot be in the context of this motion.4 The Intervenors’ motion for an order directing 

implementation of their proposal is denied.

4. The Receiver’s proposal (Dkt. No 409)

The prior order observed that Intervenors “have a legitimate interest in being afforded an 

opportunity to continue developing a business” at the warehouse. The Receiver’s proposal to list 

the warehouse for public sale would necessarily divest Intervenors of their interest in the unique 

real property upon consummation of the sale, even assuming they will later prevail in the claims 

process and recover the full amount of the equity they claim is rightfully theirs.5 At some point, 

however, the Intervenors’ interests may have to yield to the necessity of ensuring the operating 

expenses of the warehouse do not continue to drain value from the receivership estate.

The prior order noted that in limited circumstances, a receiver may liquidate assets in the 

receivership estate. Indeed, orders approving such actions by the Receiver have previously issued 

in this action, where not contested by other stake holders. Neither the Receiver nor the SEC, 

however, has made an adequate showing that under the current state of affairs the court should 

 

4 The Receiver further contends that certain promissory notes executed by NA3PL, LLC were 

guaranteed by BHD and potentially impact distribution of any sale proceeds from the warehouse. 

Intervenors dispute the validity of the notes and the guaranties. They appear to acknowledge 

reluctantly that factual issues regarding the notes and the guaranties may need to be resolved.

5

 Intervenors have no direct legal ownership interest in the real property, of course. At most, they 

have ownership in BHD, which, in turn, holds at least legal title to the warehouse.

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exercise discretion to permit the Receiver to liquidate the real property. The Ninth Circuit has 

made clear the ordinary rule is that a receiver should not be authorized to liquidate assets. 

Although a liquidation order was not reversed in Sec. & Exch. Comm’n v. Lincoln Thrift Ass’n, 

577 F.2d 600 (9th Cir. 1978), the court explained:

Our decision is to a large extent controlled by the consideration that 

the liquidation proceedings were in an advanced stage before appeal 

was brought to this Court. We do not, therefore, view this case as a 

precedent for approving receivership liquidations under the 

supervision of the district court rather than under the jurisdiction of 

the court in bankruptcy. If the issue arises in future cases, the district 

court should, at an early stage in the liquidation, set forth in express 

terms the justification for retaining its equity jurisdiction, indicating 

why the exercise of its jurisdiction is preferable to a liquidation in 

bankruptcy court.

577 F.2d at 609, see also Los Angeles Tr. Deed & Mortg. Exch. v. Sec. & Exch. Comm’n, 285 F.2d 

162, 182 (9th Cir. 1960) (reversing portion of an order directing a receiver to liquidate one 

defendant).

The presumption against receiver liquidations applies even where the affected parties are 

charged with wrongdoing. Here, neither BHD nor Intervenors are charged with any securities law 

violation, which only provides a further reason to conclude liquidation by the Receiver is not an 

appropriate vehicle for resolving the status of the warehouse prejudgment at this juncture, and may 

never be. Accordingly the Receiver’s motion is denied.

Obviously the warehouse currently continues to bleed money, so some solution must be 

reached in the relatively near future. The SEC, Intervenors, and the Receiver shall submit a joint 

status report 30 days from the date of this order.

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IT IS SO ORDERED.

Dated: August 15, 2018

______________________________________

RICHARD SEEBORG

United States District Judge

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