-JC Securities and Exchange Commission v. Bradley L. Ruderman et al, No. 2:2009cv02974 - Document 148 (C.D. Cal. 2011)
Court Description: ORDER GRANTING Petitions For Approval of Settlements and Attorneys Fees 137 , 139 by Judge Otis D Wright, II: the Court APPROVES the Receivers Applications for Settlements with Prabhakar Guniganti; the Gabriel Kaplan Revocable Trust and Gabriel Kap lan as Trustee for the Gabriel Kaplan Revocable Trust; Bosko Djordjevic; and Ryan Wald. As to the Guniganti Settlement, because the October 15, 2011 deadline has passed, the Court modifies this deadline and hereby resets it for January 15, 2012. The Court also finds that the Receiver has met his burden of demonstrating that the proposed attorneys fees and costs are reasonable. Accordingly, the Court APPROVES the Receivers Applications for attorneys fees and costs in the above-referenced matters. (lc)
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-JC Securities and Exchange Commission v. Bradley L. Ruderman et al Doc. 148 O 1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION 11 12 13 14 15 16 17 18 19 Case No. CV 09-02974 ODW (JCx) Securities and Exchange Commission, ) ) ) Plaintiff, ) ) v. ) ) Ruderman, et al., ) ) Defendants. ) ) ________________________________ ) I. Order GRANTING Petitions For Approval of Settlements and Attorneys’ Fees [137, 139] [Filed 08/11/11] INTRODUCTION 20 Pending before the Court are Receiver David Ray’s (the “Receiver”) concurrently- 21 filed Notices of Petition and Petitions for: (1) Instructions and an Order Approving 22 Settlement with Prabhakar Guniganti (“Guniganti”) and Approving Compensation of the 23 Receiver’s Special Litigation Counsel; and (2) Instructions and an Order Approving 24 Settlements with (a) the Gabriel Kaplan Revocable Trust (the “Kaplan Trust”) and 25 Gabriel Kaplan (“Kaplan”) as Trustee for the Gabriel Kaplan Revocable Trust; (b) Bosk 26 Djordjevic (“Djordjevic”), and (c) Ryan Wald (“Wald”), and Approving Compensation 27 of the Receiver’s Special Litigation Counsel. (Dkt. Nos. 137, 139). Plaintiff, Securities 28 and Exchange Commission (the “SEC”), filed a Statement of Non-Opposition to 1 Dockets.Justia.com 1 Receiver’s Petitions for Approval of Specified Settlements and Compensation of Special 2 Litigation Counsel. (Dkt. No. 142.) Having considered the papers filed in support of the 3 instant Petition, the Court deems the matter appropriate for decision without oral 4 argument. Fed. R. Civ. P. 78; L.R. 7-15. The Court finds the Receiver has met his 5 burden of demonstrating the proposed settlements fall within the range of reasonableness 6 and were negotiated in good faith. Accordingly, the Court GRANTS the Receiver’s 7 Petitions for Settlements with Prabhakar Guniganti, the Gabriel Kaplan Revocable Trust 8 and Gabriel Kaplan as Trustee for the Gabriel Kaplan Revocable Trust; Bosko 9 Djordjevic, and Ryan Wald. The Court also finds the Receiver has met his burden of 10 demonstrating that the proposed attorneys’ fees and costs are reasonable. Accordingly, 11 the Court GRANTS the Receiver’s Petitions for attorneys’ fees and costs in the 12 above-referenced matters. 13 II. BACKGROUND 14 On April 28, 2009, the Securities and Exchange Commission filed a Complaint 15 against Bradley Ruderman; Ruderman Capital Management, LLC (“RCM”); Ruderman 16 Capital Partners, LLC (“RCP”); and Ruderman Capital Partners A, LLC (“RCP-A”). 17 (Dkt. No. 1.) The SEC alleged that Ruderman engaged in a scheme to defraud investors 18 by offering investment materials through RCM to secure investments in the hedge funds 19 RCM and RCP-A, which allegedly would never have been repaid. (Id.) 20 On May 7, 2009, the Court entered a permanent injunction and appointed David 21 L. Ray as receiver of RCM, RCP and RCP-A, (Dkt. No. 31), based on the SEC’s request 22 and Defendants’ consent, (Dkt. No. 25). Thereafter, on August 31, 2009, the Court 23 entered default as to Defendants RCM, RCP, and RCP-A for failure to obtain counsel. 24 (Dkt. No. 59.) Additionally, on motion of the Receiver and stipulation of bankruptcy 25 trustee for RCP, the Court (1) terminated the duties of the Receiver as to RCP and (2) 26 required advance approval of acts falling outside of Section IV ¶ C of the May 7, 2009 27 Injunction. (Dkt. No. 31.) Section IV ¶ C permitted investigation and discovery to 28 account for all assets of Defendants. (Dkt. No. 59.) The Court also permitted the Receiver to retain attorneys for purposes of Section IV ¶ C. (Id.) 2 1 On September 9, 2009, the Court entered an Order modifying the Receiver’s duties 2 so as to be consistent with the Receiver’s stipulation with the Trustee. (Dkt. No. 62.) As 3 a result, the Receivership Estate currently consists of RCM and RCP-A only. (Id.) 4 Subsequently, on September 2, 2010, the Court entered an Order permitting the Receiver 5 to retain legal counsel to investigate and pursue all viable claims and avoidance actions 6 of the Receivership Estate, but required the Receiver to obtain additional approval on the 7 terms and conditions for which counsel was to be retained. (Dkt. No. 105 at 2.) 8 A. The Guniganti Action and Proposed Settlement 9 On November 3, 2010, the Court denied the Receiver’s Motion to employ 10 Saltzburg Ray & Weissman LLP (“SRW”) as special litigation counsel on a contingency 11 basis to pursue claims against Guniganti to avoid and recover certain disbursements from 12 RCP-A. (Dkt. No. 118.) On November 9, 2010, the Receiver filed an action against 13 Guniganti on behalf of RCP-A, Ray v. Guniganti, CV 10-08537(the “Guniganti Action”). 14 On December 22, 2010, the Court approved the appointment of Levene, Neale, Bender, 15 Yoo & Brill L.L.P. (the “Levene Firm”) to pursue this action. (Dkt. No. 122.) 16 Guniganti was a long-time investor with Ruderman. At issue in the Guniganti 17 Action were two wire transfers of $1,000,000, each of which Ruderman made to 18 Guniganti during the fall of 2006 in RCP-A’s name. (Mot. at 7.) At that time, Guniganti 19 had not invested money in RCP-A. (Id.). The Receiver argued that these two wire 20 transfers were made pursuant to a Ponzi scheme orchestrated by Ruderman. (Id.) 21 Guniganti answered the Receiver’s complaint and filed a counterclaim against the 22 Receiver. (Id. at 8.) Written discovery was taken by both sides, and the parties took 23 Ruderman’s deposition in a Texas federal prison. (Id.) Prior to mediation, the parties 24 reached the settlement agreement currently before the Court. (Id.) The proposed 25 settlement calls for Guniganti to make a payment to the Receiver that will range from 26 $175,000 to $179,000, depending on how quickly Guniganti makes the payment. (Mot. 27 at 4-5.) If Guniganti has not made the payment by October 15, 2011, it is proposed that 28 the Receiver may enter a stipulated judgment in favor of the receiver in the amount of $250,000. (Mot. at 5.) 3 1 B. The Kaplan Trust Action and Proposed Settlement 2 The Receiver filed a Complaint against the Kaplan Trust and Kaplan on February 3 23, 2011, David L. Ray v. The Gabriel Kaplan Revocable Trust, Case No. CV 11-01613. 4 The Complaint stems from allegations that Ruderman caused $142,000 to be wired from 5 RCP-A’s account to an account in Kaplan’s name. (Mot. at 8.) The Receiver does not 6 contend that Kaplan had any involvement in Ruderman’s diversion of investor funds, or 7 that he had any involvement or knowledge of Ruderman’s Ponzi scheme. (Id. at 8-9.) 8 Instead, the payment related to a series of high-stakes poker games that Ruderman, 9 Kaplan, Djordjevic, and Wald participated in for several years pre-dating the SEC’s 10 complaint against Ruderman. (Id. at 8.) Under the terms of the proposed settlement, 11 Kaplan will pay the Receiver $63,900 in full satisfaction of all claims. 12 C. The Bosko Djordjevic Action and Proposed Settlement 13 The situation involving Djordjevic is largely the same as that of Kaplan. (Id. at 14 10.) However, the Receiver only recently located documentation relating to two 15 payments totaling $127,300 sent to Djordjevic from RCP-A and RCM accounts. (Id.) 16 As such, litigation has not yet commenced against Djordjevic. (Id.) As with Kaplan, the 17 Receiver does not contend that Djordjevic had any involvement in Ruderman’s diversion 18 of investor funds, or that he had any involvement or knowledge of Ruderman’s Ponzi 19 scheme. (Id.) Under the terms of the proposed settlement, Djordjevic will pay the 20 Receiver $57,285 in full satisfaction of all claims. 21 D. 22 The situation involving Wald is almost identical to that of Djordjevic. (Id.) Wald 23 received a check in the amount of $100,000 drawn from an RCM account. (Id.) As with 24 Kaplan and Djordjevic, the Receiver does not contend that Wald had any involvement in 25 Ruderman’s diversion of investor funds, or that he had any involvement or knowledge 26 of Ruderman’s Ponzi scheme. (Id.) Under the terms of the proposed settlement, Kaplan 27 will pay the Receiver $45,000 in full satisfaction of all claims. 28 The Ryan Wald Action and Proposed Settlement III. LEGAL STANDARD 4 1 Local Rule 66-8 states, “[e]xcept as otherwise ordered by the Court, a receiver 2 shall administer the estate as nearly as possible in accordance with the practice in the 3 administration of estates in bankruptcy.” Accordingly, bankruptcy procedure informs the 4 Court’s approval of the proposed settlements. Federal Rule of Bankruptcy Procedure 5 9019 governs compromises and settlements reached in bankruptcy court. It provides, 6 “[o]n motion by the trustee and after notice and a hearing, the court may approve a 7 compromise or settlement.” In examining a proposed settlement, the Court must evaluate 8 four factors: 9 10 (a) (b) 11 (c) 12 (d) 13 14 15 16 17 18 19 20 21 [t]he probability of success in the litigation; the difficulties, if any, to be encountered in the matter of collection; the complexity of the litigation, as well as the expense, and the expense, inconvenience and delay necessarily attending it; [and] the paramount interest of creditors, giving proper deference to their reasonable views [regarding the proposed compromise]. United States v. Edwards, 595 F.3d 1004, 1012 (9th Cir. 2010) (quoting In re A&C Properties, 784 F.2d 1377, 1381 (9th Cir. 1986)). “The purpose of a compromise agreement is to allow the trustee and the creditors to avoid the expenses and burdens associated with litigating sharply contested and dubious claims.” Id. In general, compromises are favored in bankruptcy actions. In re Stein, 236 B.R. 34, 37 (D. Or. 1999). Accordingly, the Court generally gives deference to a trustee’s business judgment, In re Pac. Gas and Elec. Co., 304 B.R. 395, 417 (Bankr. N.D. Cal. 2004), and will approve a compromise that falls within the “range of reasonableness.” The Second Circuit has defined “range of reasonableness” as follows: 22 23 24 25 26 27 28 [I]n any case there is a range of reasonableness with respect to a settlement - a range which recognizes the uncertainties of law and fact in any particular case and the concomitant risks and costs necessarily inherent in taking any litigation to completion - and the judge will not be reversed if the appellate court conclude[s] that the settlement lies within that range. Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972), cert. den., 409 U.S. 1039 (1972). Although the Court may not simply “rubber-stamp” the decision to enter into a settlement, it need not conduct an exhaustive investigation, hold a mini-trial on the merits of the claims sought to be compromised, or require that the settlement be the best that 5 1 could possibly be achieved. In re Walsh Const., Inc., 669 F.2d 1325, 1328 (9th Cir. 2 1982). Rather, the Court “need only find that the settlement was negotiated in good faith 3 and is reasonable, fair and equitable.” Pac. Gas, 304 B.R. at 417. IV. 4 DISCUSSION 5 Before turning to its examination of the settlements, the Court notes that the SEC 6 filed a statement of non-opposition to the approval of all the proposed settlements and 7 compensation of special litigation counsel. (Dkt. No. 142.) 8 A. 9 The Court finds that the Receiver has met his burden in demonstrating each factor 10 with respect to the Guniganti Settlement. As to the probability of success on the merits, 11 the Court notes that there are several potential legal defenses that could preclude success 12 on the merits, including statute of limitations defenses, a defense as to whether Guniganti 13 was a “net gainer,” and whether RCP-A was solvent at the time the two wire transfers 14 were made. (Mot. at 11-12.) Thus, as these potential defenses increase the uncertainty 15 of the litigation, this factor weighs heavily in favor of the settlement. As to the difficulty 16 of collection, if the Receiver were to prevail in this litigation with a large recovery, 17 collection could be difficult. (Mot. at 12-13.) Thus, this factor weighs in favor of the 18 settlement. As to the complexity, expense, inconvenience, and delay of litigation, the 19 extensive discovery demostrates this would likely continue to be a heavily contested 20 matter as it moves toward mediation, the summary judgment phase, a potential jury trial, 21 and possible lengthy appeals. (Mot. at 13). Thus, this factor weighs in favor of the 22 settlement. As to the paramount interest of creditors, at least two of four scenarios could 23 result in the Receiver obtaining nothing. A third scenario exists where the judgment 24 would be $75,000 higher. The final scenario could involve a substantially higher 25 judgment, with the concurrent risks of appeal and difficulty in collecting the judgment. 26 (Mot. at 13.) Thus, this factor weighs in favor of the settlement. Overall, the Court finds 27 the settlement reasonable, and therefore, approves it. 28 The Guniganti Proposed Settlement With respect to attorneys’ fees and costs, on December 22, 2010, the Court approved the Receiver’s retention of the Levene Firm on a contingency basis, whereby 6 1 Receiver’s Counsel was entitled to a fee of thirty-three percent of recovery obtained 2 through settlement up to sixty days before any trial. (Dkt. No. 122.) Pursuant to this 3 agreement, the Receiver has requested authorization to pay the Levene Firm either 4 $57,750.00, $58,410.00, or $59,070.00, depending on when Guniganti makes the 5 settlement payment. The Receiver has also requested, with substantiation, costs totaling 6 $9,265.55. (Mot., Exh. D). The Court finds these reasonable and in conformity with the 7 Court’s prior approval, and therefore, approves the fee award and costs. 8 B. The Kaplan, Djordjevic, and Wald Proposed Settlements 9 The Court finds that the Receiver has met his overall burden in demonstrating the 10 reasonableness of the Kaplan, Djordjevic, and Wald settlements. As to the probability 11 of success on the merits, the Court notes that there are several potential legal defenses 12 that could preclude success on the merits in these claims, including the legality of the 13 poker games, whether the Receivership Entities received reasonably equivalent value by 14 virtue of their alter-ego relationship with Ruderman, whether RCP-A was solvent at the 15 time of the transfers, and whether there are statute of limitations issues. (Mot. at 14-15). 16 Thus, as these potential defenses increase the uncertainty of the litigation, this factor 17 weighs heavily in favor of the settlement. As to the difficulty of collection, the Receiver 18 is not aware of any issues that would impede collection, (Mot. at 15), and thus, this factor 19 weighs against the settlements. 20 delay of litigation, the Kaplan Action is on a trial track, and depositions remain to be 21 completed (including the out-of-state deposition of Ruderman). (Id.) In the event the 22 Receiver prevails at trial, the possibility of lengthy appeals would exist. If an appeal is 23 taken, the Receiver could suffer delay and expense in securing a final judgment, or 24 alternatively, Kaplan, Djordjevic, and Wald could prevail. (Id.) Thus, this factor weighs 25 in favor of the settlement. As to the paramount interest of creditors, the proposed 26 settlements represent forty-five percent of the Receiver’s maximum recovery against 27 Kaplan, Djordjevic, and Wald. (Id.) These settlements would represent an immediate 28 infusion of income into the Receivership Estate, and avoid the expenses and uncertainty As to the complexity, expense, inconvenience, and 7 1 of litigation. (Id. at 15-16). Thus, this factor weighs in favor of the settlement. Overall, 2 the Court finds the settlements reasonable, and therefore, approves each settlement. 3 With respect to attorneys’ fees and costs, on December 22, 2010, the Court 4 approved the Receiver’s retention of the Levene Firm on a contingency basis, whereby 5 Receiver’s Counsel was entitled to a fee of thirty-three percent of recovery obtained 6 through settlement up to sixty days before any trial. (Dkt. No. 122). Pursuant to this 7 Order, the Receiver has requested authorization to pay the Levene Firm the sum of 8 $54,841.05 (33% of the total recoveries of $166,185.00 from these three matters). The 9 Receiver has also requested, with substantiation, costs totaling $2,417.62. (Mot., Exh. 10 F.) The Court finds these reasonable and in conformity with the Court’s prior approval, 11 and therefore, approves the fee award and costs. V. 12 CONCLUSION 13 The Court holds that the Receiver has met his burden of demonstrating that the 14 proposed settlements fall within the range of reasonableness and were negotiated in good 15 faith. Accordingly, the Court APPROVES the Receiver’s Applications for Settlements 16 with Prabhakar Guniganti; the Gabriel Kaplan Revocable Trust and Gabriel Kaplan as 17 Trustee for the Gabriel Kaplan Revocable Trust; Bosko Djordjevic; and Ryan Wald. As 18 to the Guniganti Settlement, because the October 15, 2011 deadline has passed, the Court 19 modifies this deadline and hereby resets it for January 15, 2012. The Court also finds that 20 the Receiver has met his burden of demonstrating that the proposed attorneys’ fees and 21 costs are reasonable. Accordingly, the Court APPROVES the Receiver’s Applications 22 for attorneys’ fees and costs in the above-referenced matters. 23 IT IS SO ORDERED. 24 November 21, 2011 25 26 27 __________ _______________ HON. OTIS D. WRIGHT, II UNITED STATES DISTRICT JUDGE 28 8
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