Securities and Exchange Commission v. Bradley L. Ruderman et al, No. 2:2009cv02974 - Document 155 (C.D. Cal. 2013)
Court Description: ORDER GRANTING PETITION FOR APPROVAL OF SETTLEMENT with American Express 153 .Accordingly, the Receiver is hereby authorized to execute any documents and take any actions reasonably necessary to effectuate the terms of the settlement agreement by Judge Otis D Wright, II. (lc). Modified on 1/15/2013 (lc).
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Securities and Exchange Commission v. Bradley L. Ruderman et al Doc. 155 O 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE COMMISSION, 12 13 14 15 16 17 v. Case No. 2:09-cv-02974-ODW(JCx) ORDER GRANTING PETITION FOR APPROVAL OF SETTLEMENT [153] Plaintiff, BRADLEY L. RUDERMAN; RUDERMAN CAPITAL MANAGEMENT, LLC; RUDERMAN CAPITAL PARTNERS, LLC; and RUDERMAN CAPITAL PARTNERS A, LLC, Defendants. 18 I. 19 INTRODUCTION 20 David Ray, as the appointed Receiver for the Ruderman Capital Defendants, 21 petitions the Court to approve a settlement reached with American Express Company 22 and American Express Travel Related Services Company, Inc. (collectively 23 “American Express”). 24 Commission has not submitted an opposition to the Receiver’s petition. Having 25 carefully considered the papers the Receiver filed in support of its Petition, the Court 26 deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; 27 L. R. 7-15. The Court finds the Receiver has met his burden of demonstrating that the 28 proposed settlement falls within the range of reasonableness and was negotiated in (ECF No. 153.) Plaintiff Securities and Exchange Dockets.Justia.com 1 good faith. Accordingly, the Court GRANTS the Receiver’s Petition for Approval of 2 Settlement. II. 3 FACTUAL BACKGROUND 4 On April 28, 2009, the Securities and Exchange Commission filed a Complaint 5 against Bradley Ruderman; Ruderman Capital Management, LLC (“RCM”); 6 Ruderman Capital Partners, LLC (“RCP”); and Ruderman Capital Partners A, LLC 7 (“RCP-A”). (ECF No. 1.) The SEC alleged that Ruderman engaged in a scheme to 8 defraud investors by offering investment materials through RCM to secure 9 investments in the hedge funds RCM and RCP-A, which allegedly would never have 10 been repaid. (Id.) 11 On May 7, 2009, based on the SEC’s request and Defendants’ consent, the 12 Court entered a permanent injunction and appointed David L. Ray as receiver of 13 RCM, RCP, and RCP-A. 14 subsequently entered default as to Defendants RCM, RCP, and RCP-A for failure to 15 obtain counsel. 16 stipulation of bankruptcy trustee for RCP, the Court (1) terminated the duties of the 17 Receiver as to RCP; and (2) required advance approval of acts falling outside of 18 Section IV ¶ C of the May 7, 2009 Injunction. (ECF No. 31.) Section IV ¶ C 19 permitted investigation and discovery to account for all assets of Defendants. (ECF 20 No. 59.) The Court also permitted the Receiver to retain attorneys for purposes of 21 Section IV ¶ C. (Id.) (ECF Nos. 25, 31.) On August 31, 2009, the Court (ECF No. 59.) Additionally, on motion of the Receiver and 22 On September 9, 2009, the Court entered an Order modifying the Receiver’s 23 duties so as to be consistent with the Receiver’s stipulation with the Trustee. (ECF 24 No. 62.) As a result, the Receivership Estate currently consists of RCM and RCP-A 25 only. 26 permitting the Receiver to retain legal counsel to investigate and pursue all viable 27 claims and avoidance actions of the Receivership Estate, but required the Receiver to 28 /// (Id.) Subsequently, on September 2, 2010, the Court entered an Order 2 1 obtain additional approval on the terms and conditions for which counsel was to be 2 retained. (ECF No. 105, at 2.) 3 With respect to American Express, the Receiver asserts that Ruderman used 4 funds obtained from investors held in an RCM account to make payments to 5 American Express on certain outstanding charges incurred primarily for Ruderman’s 6 personal benefit. (Pet. 5.) The Receiver does not contend, however, that American 7 Express had any involvement in Ruderman’s diversion of investor funds, had any 8 knowledge that Ruderman and the entities he controlled were engaged in a Ponzi 9 scheme or any other fraudulent activity, or had knowledge that any transfer American 10 Express received from RCM was related to fraudulent activity. (Id.) Further, 11 American Express contends it “may have provided value to RCM in connection with 12 the charges incurred on the credit card accounts maintained by RCM and on the 13 payments thereon made to American Express.” (Id.) 14 The Receiver, American Express, and the bankruptcy trustee engaged in a 15 collective mediation resulting in a settlement agreement.1 The proposed settlement 16 calls for American Express to pay the Receiver $10,000.00 in full and complete 17 satisfaction of all claims the Receiver and the Receivership Estate have against 18 American Express. III. 19 LEGAL STANDARD 20 Local Rule 66-8 states, “[e]xcept as otherwise ordered by the Court, a receiver 21 shall administer the estate as nearly as possible in accordance with the practice in the 22 administration of estates in bankruptcy.” Accordingly, bankruptcy procedure informs 23 the Court’s approval of the proposed settlements. 24 Procedure 9019 governs compromises and settlements reached in bankruptcy court 25 and provides that a court may approve a compromise or settlement on motion and Federal Rule of Bankruptcy 26 1 27 28 The Receiver notes that the settlement is part of a global settlement including resolution of an adversary proceeding commenced by the trustee in the RCM bankruptcy case against American Express. The bankruptcy trustee is currently seeking approval of his proposed compromise with American Express from the bankruptcy court. 3 1 following notice and a hearing. In examining a proposed settlement, the Court must 2 evaluate four factors: 3 (a) [t]he probability of success in the litigation; 4 (b) the difficulties, if any, to be encountered in the matter of collection; 5 (c) 6 the complexity of the litigation, as well as the expense, and the expense, inconvenience and delay necessarily attending it; [and] 7 (d) 8 the paramount interest of creditors, giving proper deference to their reasonable views [regarding the proposed compromise]. 9 10 United States v. Edwards, 595 F.3d 1004, 1012 (9th Cir. 2010) (quoting In re A&C 11 Props., 784 F.2d 1377, 1381 (9th Cir. 1986)). 12 “The purpose of a compromise agreement is to allow the trustee and the 13 creditors to avoid the expenses and burdens associated with litigating sharply 14 contested and dubious claims.” 15 bankruptcy actions. In re Stein, 236 B.R. 34, 37 (D. Or. 1999). Accordingly, the 16 Court generally gives deference to a trustee’s business judgment, In re Pac. Gas & 17 Elec. Co., 304 B.R. 395, 417 (Bankr. N.D. Cal. 2004), and will approve a compromise 18 that falls within the “range of reasonableness.” The Second Circuit has defined “range 19 of reasonableness” as “a range [that] recognizes the uncertainties of law and fact in 20 any particular case and the concomitant risks and costs necessarily inherent in taking 21 any litigation to completion.” Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972). 22 Approval of a compromise will not be disturbed on appeal where the compromise falls 23 within the range of reasonableness. See id. Id. In general, compromises are favored in 24 Although the Court may not simply “rubber-stamp” the decision to enter into a 25 settlement, it need not conduct an exhaustive investigation, hold a mini-trial on the 26 merits of the claims sought to be compromised, or require that the settlement be the 27 best that could possibly be achieved. In re Walsh Const., Inc., 669 F.2d 1325, 1328 28 /// 4 1 (9th Cir. 1982). Rather, the Court “need only find that the settlement was negotiated 2 in good faith and is reasonable, fair and equitable.” Pac. Gas, 304 B.R. at 417. IV. 3 DISCUSSION 4 The Court finds that the Receiver has met his burden in demonstrating each 5 factor with respect to the American Express settlement. As to the probability of 6 success on the merits, the Receiver informs the Court that there are material issues the 7 Receiver cannot state with certainty would be resolved in his favor and that could 8 result in a judgment for American Express. These issues include whether American 9 Express provided value to RCM in connection with the subject transfers, whether 10 RCM was insolvent at the time of the transfers or rendered insolvent as a result of the 11 transfers, and whether the statute of limitations bars the Receiver’s claims. These 12 issues increase the uncertainty of the litigation and therefore weigh in favor of the 13 settlement. 14 Proceeding with the remaining factors, the Court discerns no impediment to the 15 Receiver’s collection of any claim against American Express; thus, this factor weighs 16 against the settlement. As to the complexity, expense, and inconvenience of litigation, 17 the Court finds that the merits complications addressed above tend to increase the 18 complexity and expense of this litigation. Further, as the Receiver notes, “there is 19 little doubt that American Express will appeal any adverse judgment. An appeal 20 would consume a substantial amount of time, and further increase the Receivership 21 Estate’s litigation expenses.” (Pet. 8.) This factor therefore weighs in favor of the 22 settlement. 23 Finally, as to the paramount interests of creditors, the Court finds that the 24 American Express Settlement, together with prior recoveries by the Receiver, gives 25 the Receivership Estate a means of potentially providing a distribution to the 26 unsecured creditors of the estate. The settlement agreement provides a certain benefit 27 to the estate, thereby eliminating any uncertainty and additional costs in obtaining that 28 benefit. In addition, the Receiver notes that the settlement agreement was reached as 5 1 part of a global settlement along with the compromise reached between the RCP 2 bankruptcy trustee in the trustee’s action against American Express, and this global 3 settlement will allow the trustee and the Receiver to complete their outstanding 4 litigation against American Express in both estates. Taking into consideration the 5 expense of litigation, the risks and uncertainty of outcome, and the opportunity for 6 immediate infusion of cash into the Receivership Estate, the Court finds that the 7 paramount interests of creditors are served by the settlement agreement. Thus, this 8 factor weighs in favor of the settlement. 9 10 On balance, the Court finds the settlement agreement reasonable and negotiated in good faith. V. 11 12 CONCLUSION The Court holds that the Receiver has met his burden of demonstrating that the 13 proposed settlement with American Express falls within the range of reasonableness 14 and was negotiated in good faith. The Court therefore APPROVES the Receiver’s 15 proposed settlement with American Express. Accordingly, the Receiver is hereby 16 authorized to execute any documents and take any actions reasonably necessary to 17 effectuate the terms of the settlement agreement. 18 19 IT IS SO ORDERED. 20 21 January 15, 2013 22 23 24 ____________________________________ OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 25 26 27 28 6
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