Freitag v. Valeiras

1

KRISTA FREITAG, Court-appointed permanent receiver for ANI Development LLC, American National Investments, Inc., and their subsidiaries and affiliates, Plaintiff, v. HORACIO VALEIRAS, Trustee of The Valeiras Family Trust Dated July 20, 2007, and DOES 1 through 10, inclusive, Defendants.

No. 21-cv-1625-LAB-AHG

United States District Court, S.D. California

March 29, 2024

ORDER: 1) GRANTING PLAINTIFF KRISTA FREITAG'S MOTION FOR SUMMARY JUDGMENT, [DKT. 32]; AND 2) DENYING DEFENDANT HORACIO VALEIRAS'S MOTION FOR SUMMARY JUDGMENT, [DKT. 31]

Honorable Larry Alan Burns United States District Judge

Plaintiff Krista Freitag (the “Receiver”), the Court-appointed permanent eceiver for ANI Development, LLC (“ANI Development”); American National nvestments, Inc.; and their subsidiaries and affiliates (collectively, “Receivership Entities”), filed this suit on September 16, 2021, against Defendant Horacio aleiras, trustee of The Valeiras Family Trust dated July 20 2007 (“VFT”), alleging hat the Receiver is entitled to $468,041.03 (the “Profit Amount”) plus prejudgment nterest for an actual and constructive fraudulent transfer under California's Uniform Voidable Transactions Act (“CUVTA”), codified in California Civil Code section 3439, et. seq. (Dkt 1). On April 20, 2023, Valeiras filed a Motion for Summary Judgment on the Receiver's fraudulent transfer claim asserting summary judgment is proper because VFT didn't make an investment into the Ponzi scheme. (Dkt. 31). On the same day, the Receiver also filed a Motion for Summary Judgment or Partial Summary Judgment asserting summary judgment is proper because VFT was an investor in the Ponzi scheme and received fictitious profits.^[1] (Dkt. 32). Each party submitted a response in opposition to the other party's motion, (Dkt. 35, 36), and reply briefs, (Dkt. 37, 38).

The Court having read and considered all materials in support of and in opposition to the motions rules as follows.

I. Background

A. Ponzi Scheme Generally

It's undisputed that Gina Champion-Cain, in connection with the Receivership Entities she controlled, perpetrated a Ponzi scheme from 2012 to 2019 where investor money was solicited to fund loans to liquor license applicants.

(Dkt. 33 at J-1-2). California state law requires liquor license applicants to deposit funds equal to the license purchase price in an escrow account while the application is pending with the state. (Dkt. 1 ¶ 9). Champion-Cain used this regulatory requirement as an alleged investment opportunity. (Id.). She represented to investors that their funds were being loaned to liquor license applicants at a high interest rate to help them meet California's liquor license regulatory requirements (“the ANI Loan Program”). (Id.; Dkt. 33 at J-16). She solicited investors by informing them that Chicago Title Company (“Chicago Title”) was the escrow company. (Dkt. 33 at J-17). In this scheme, ANI Development used Chicago Title as the escrow company for the ANI Loan Program. (Id. at J-3).

These investment opportunities were entirely fictitious, and any profits paid to early investors were financed by newer investors. (Dkt. 1 ¶ 11). On August 28, 2019, the SEC filed a complaint against Champion-Cain and ANI Development for violations of federal securities law. (Id. ¶ 12; Dkt. 32-5 at Ex. 18^[2]; 33 at J-125-26). The very next year, the United States charged Champion-Cain with conspiracy, securities fraud, and conspiracy to commit securities fraud and obstruction of justice. (Dkt. 1 ¶ 15; 32-5 at Ex. 23^[3]; 33 at J-129-30). Champion-Cain agreed to waive indictment and entered into a plea agreement in which she admitted the liquor license loan investment opportunities were part of a fraudulent Ponzi scheme. (Dkt. 1 ¶ 15; 32-5 at Ex. 24^[4]; 33 at J-131-32).

Kim Peterson was an early investor in the ANI Loan Program and founded Kim Funding, LLC (“Kim Funding”) and other entities (collectively, “Peterson Entities”) to help solicit investors to invest in the ANI Loan Program. (Dkt. 33 at J-13, J-18, J-22). The Peterson Entities, including Kim Funding, were insiders in the fraudulent scheme because they were involved at a “more intimate level” than the typical investor. (Id. at J-18; Dkt. 32-5 at Ex. 21, 452, 454^[5]). “The Peterson Entities were explicitly created to raise capital for investment in the liquor license lending scheme.” (Dkt. 32-5 at Ex. 21, 452). Furthermore, Kim Funding was a one percent equity holder and fifty percent voting member of ANI Development. (Dkt. 1 ¶ 10; 32-5 at Ex. 21, 452). As a result of being insiders, those investors solicited by Peterson, and not the Peterson Entities themselves, were found to be the proper claimants because “most of the funds solicited by Peterson were transferred directly to Chicago Title without moving through the Peterson Entities.” (Dkt. 32-5 at Ex. 21, 453-54).

B. Valeiras's Involvement

i. 2014 HAV Agreement

In late 2014, Peterson and Champion-Cain each spoke with Valeiras about how to become a potential investor and how the ANI Loan Program functioned. (Dkt. 33 at J-14-15). Peterson represented to Valeiras that he and his company, Kim Funding, were investors in the ANI Loan Program. (Id. at J-19). Valeiras formed a limited partnership called HAV in 2013, and entered into an agreement with Peterson in December 2014 (the “2014 HAV Agreement”). (Id. at J-6-8, J-28, J-32; Dkt. 31-6), The 2014 HAV Agreement provided Kim Funding financing up to $2,000,000 that would be “used to fund escrow accounts of applicants seeking to obtain approvals of transfers of licenses from the California Department of Alcohol Beverage Control.” (Dkt. 31-6 at 1). It stated that Kim Funding was affiliated with ANI Development, and that Chicago Title would accept the proceeds of each loaned amount. (Id.). As a result of the 2014 HAV Agreement, HAV became an investor in the ANI Loan Program, and by February 2016 it increased its investment to $6,000,000 and the standardized investment return rate was 15.6% for liquor license loans that successfully closed and ten percent for loans that were unsuccessful. (Dkt. 33 at J-33-36). Peterson and Valeiras disputed over the interest rate, so Valeiras decided, on HAV's behalf, to withdraw from the ANI Loan Program in September 2017; however, HAV didn't received back its funds and purported returns until June 2018. (Id. at J-89, J-92).

ii. 2016 VFT Agreement

In February 2016, Peterson asked Valeiras about a “bridge loan.” (Id. at J-37). Valeiras decided that VFT would make the loan because any loan to Kim Funding would have to be from a source other than HAV, which was already fully invested based on its risk tolerance. (Id. at J-39-42). For the additional investment, Peterson proposed the initial concept to Valeiras:

What I was thinking was that you do say $2 million like we have done before (Same Loan Request and Escrow documents provided), with the understanding that within 60-90 days you get taken out of those Escrows, at which time, you get your money back and interest and assign to whomever I identify, your position in those Escrows. That way, you are secured much like you are already with the $6 Million.

(Id. at J-44; Dkt. 31-7 at 1). Valeiras responded with a counteroffer: “I was rethinking structure. Since I have to pay interest on my [home equity] loan every month, maybe it makes sense to make this a loan to Kim Funding, secured on something, that pays interest monthly at 15% per year on outstanding balances.” (Dkt. 33 at J-45; 31-8 at 1). In February 2016, VFT agreed to make the loan, and the following month the parties entered into an agreement (the “2016 VFT Agreement”), which was a modified version of the 2014 HAV Agreement. (Dkt. 33 at J-48-50, J-54; see also Dkt. 31-10). The 2016 VFT Agreement provided Kim Funding financing up to $2,000,000 that would be “used to fund escrow accounts of applicants seeking to obtain approvals of transfers of licenses from the California Department of Alcohol Beverage Control.” (Dkt. 31-11 at 1^[6]; accord Dkt. 33 at J-57, J-65). The 2016 VFT Agreement stated that Kim Funding was affiliated with ANI Development, and that Chicago Title would accept the proceeds of each loaned amount. (Dkt. 31-11 at 1; 33 at J-55-58).

The two parties officially terminated the 2016 VFT Agreement on November 7, 2017. (Dkt. 33 at J-94). However, between March 7, 2016, and July 12, 2017, VFT made five transfers of money to Chicago Title, totaling $3,300,000. (Id. at J-74-75). Between April 8, 2016, and November 8, 2017, VFT received twenty-one transfers of money from Kim Funding, totaling $468,041.03. (Id. at J-78-79). Between September 29, 2016, and November 10, 2017, VFT received eight transfers of money from Chicago Title, totaling $3,300,000. (Id. at J-76-77).

iii. 2019 HAV Agreement

In December 2018, Peterson approached Valeiras to rejoin as an investor or enter into another bridge loan. (Id. at J-95-96). HAV declined to come back as an investor, but Valeiras agreed to do another bridge loan on behalf of HAV for $3,000,000 for ninety days at fifteen percent. (Id. at J-95-97). Valeiras declined the opportunity for another bridge loan on VFT's behalf. (Id. at J-97). Kim Funding repaid the bridge loan from HAV in April 2019. (Id. at J-98). Two months later, HAV entered into another agreement for a bridge loan (the “2019 HAV Agreement”), but this time for $6,000,000 at thirteen percent.^[7] (Id. at J-99-102, J-107, J-110; see also Dkt. 31-19^[8]). The 2019 HAV Agreement provided Kim Funding financing up to $6,000,000 that would be “used to fund escrow accounts of applicants seeking to obtain approvals of transfers of licenses from the California Department of Alcohol Beverage Control.” (Dkt. 31-19 at 1; accord Dkt. 33 at J-101-03). The 2019 HAV Agreement...