San Vicente Medical Partners Ltd., In re

• Decision Date: 04 May 1992
• Docket Number: No. 90-55834,90-55834
• Citation: 962 F.2d 1402
• Parties: In re SAN VICENTE MEDICAL PARTNERS LTD., Debtor. SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. AMERICAN PRINCIPALS HOLDING, INC., Defendant. SAN VICENTE MEDICAL PARTNERS, LTD., Debtor-in-Possession-Cross-Claimant-Appellant, v. Ashley S. ORR, Receiver of American Principals Corporation, a California corporation, Receiver-Cross-Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1402

962 F.2d 1402

In re SAN VICENTE MEDICAL PARTNERS LTD., Debtor.

SECURITIES & EXCHANGE COMMISSION, Plaintiff, v. AMERICAN PRINCIPALS HOLDING, INC., Defendant.

SAN VICENTE MEDICAL PARTNERS, LTD., Debtor-in-Possession-Cross-Claimant-Appellant, v. Ashley S. ORR, Receiver of American Principals Corporation,

a California corporation, Receiver-Cross-Defendant-Appellee.

No. 90-55834.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 13, 1991.

Decided May 4, 1992.

Christopher M. Laquer, Jett & Laquer, Pasadena, Cal., for appellant.

Ruben Brooks, Page, Polin, Busch & Boatwright, San Diego, Cal., for appellee.

Appeal from the United States District Court for the Southern District of California.

Before: BEEZER, HALL, and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

OVERVIEW

San Vicente Medical Partners, Ltd. (San Vicente) appeals a district court order awarding administrative fees to Ashley Orr. San Vicente is a limited partnership, and Orr is the receiver for San Vicente's former general partner American Principals Corporation (APC), a subsidiary of American Principals Holding, Inc. (APHI). Orr was appointed by the district court to act as receiver for APHI, its subsidiaries, and the various limited partnerships controlled by the subsidiaries. After a bench trial, the district court concluded that San Vicente was included in the APHI receivership and that Orr was entitled to recover a portion of his expenses from San Vicente. We affirm the judgment of the district court.

BACKGROUND

In 1984, the Securities and Exchange Commission (SEC) initiated an action against APHI alleging securities law violations. APHI was the only named defendant in the SEC action. On June 26, 1984, the district court appointed Ashley Orr receiver for APHI upon application of the SEC. The district court's order stated generally that Orr would be receiver for "all funds, assets, choses in action and other property belonging to, or in the possession or control of, defendant [APHI] and its subsidiaries...."

APHI was a corporation based in San Diego that syndicated investment partnerships. At the time of the SEC action, APHI and its subsidiaries acted as general partner or trustee to eighty-two limited partnerships and trusts. One of the limited partnerships was San Vicente, formed for the purpose of developing, constructing, and operating a medical office building in Los Angeles. San Vicente's general partner was APC, an APHI subsidiary. The district court's receivership order does not specifically name the APHI limited partnerships; however, it is clear that the district court intended to include as part of the receivership all property that was under the control of APHI. At the time of the receivership order, the APHI partnership network was in complete disarray, and there was an urgent need to provide management for the partnerships controlled by APHI.

As receiver, Orr took control of the limited partnerships under the APHI umbrella, and he actively managed and completed the construction of San Vicente's office building. On June 14, 1985, the district court "spun-off" certain limited partnerships, including San Vicente, from the receivership estate. San Vicente Real Estate Corp., consisting of certain San Vicente limited partners, became San Vicente's general partner.

On February 14, 1986, San Vicente filed a Chapter 11 bankruptcy petition in the Southern District of California. Within San Vicente's bankruptcy, Orr filed a claim for administrative expenses incurred as receiver for San Vicente. Subsequently, Orr and San Vicente stipulated that Orr's claim for administrative expenses would be heard and decided by Judge Nielsen, the district court judge who had created the APHI receivership. The matter was first referred to a magistrate, who concluded that Orr was entitled to receivership expenses from San Vicente. San Vicente appealed On June 29, 1989, the district court held a bench trial on Orr's application for receivership costs and expenses. The court first concluded that San Vicente was part of the APHI receivership and was responsible for a share of Orr's expenses. The court noted that most of the limited partnerships had paid shares of the receivership expenses and that allowing San Vicente to avoid unallocated receivership expenses would result in a "disproportionate" and "totally unfair" burden on the other partnerships.

                and this court reversed, finding that the magistrate lacked jurisdiction because the parties had not consented to a trial before a magistrate.  In re San Vicente Medical Partners, 865 F.2d 1128, 1130-31 (9th Cir.1989).   The case was then transferred to the district court for a new hearing.  Id. at 1131
                

The district court then concluded that Orr was San Vicente's superseded custodian under the Bankruptcy Code and was therefore entitled to compensation for reasonable expenses. Based on an analysis of Orr's work with San Vicente, the court determined that Orr was entitled to expenses of $307,477.09. ¹ San Vicente appeals this decision.

DISCUSSION

San Vicente argues that it is not legally responsible for any portion of the receivership expenses because it was never part of the APHI receivership. In reviewing this argument, we must consider two issues. First, we must determine whether the district court's original receivership order incorporates the funds and assets of San Vicente. Second, because San Vicente was not a party to the SEC action, we must determine whether the district court had the power to include San Vicente's property in the APHI receivership. In the alternative, San Vicente raises a third issue. Even if San Vicente is responsible for receivership expenses, San Vicente asserts that the district court erred because the receivership expenses are unreasonable. We address these three arguments in turn.

I. The Receivership Order

San Vicente's first argument--that the district court never included its property in the receivership--is easily dismissed. In the proceedings below, the district court found that it had included San Vicente's property in the receivership. Whether the district court included San Vicente's property in the receivership estate is a question of fact, and we review the district court's findings on this issue for clear error. Fed.R.Civ.P. 52(a); Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989) (findings of fact are reviewed under the clearly erroneous standard), cert. denied, 496 U.S. 937, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990).

The district court's June 26, 1984 receivership order provided that Orr would act as receiver for "all funds, assets, choses in action and other property belonging to, or in the possession or control of, defendant [APHI] and its subsidiaries...." The order did not name the APHI controlled limited partnerships generally or San Vicente specifically. However, the receivership did include all assets and property controlled by APHI and its subsidiaries. APC, an APHI subsidiary, controlled San Vicente as its general partner. Therefore, the receivership order incorporates the funds and assets of San Vicente in the APHI receivership estate.

Moreover, it is clear that the district court intended to bring the property of the limited partnerships into the APHI receivership. The individual partnerships managed by APHI and its subsidiaries were burdened with massive administrative, legal, and accounting problems which needed immediate attention. The district court determined that a receiver was necessary to manage not only APHI and its subsidiaries but also the individual partnerships that had been left in a state of complete As the district court explained in its findings of fact and conclusions of law, the record in this case unequivocally demonstrates that San Vicente's property was included in the receivership for administrative purposes and that a fair and proportionate share of the administrative expenses were to be paid from these funds and assets. The district court's findings on this issue are not clearly erroneous; rather, they are well supported by the record. We agree with the district court that San Vicente's property was included in the receivership estate. ²

                disorder.   The court also authorized the receiver to make payments from the funds and assets of the limited partnerships and to incur such expenses "as may be necessary and advisable."
                

II. The District Court's Authority

Generally, federal courts enjoy wide discretion in fashioning relief and protective measures in SEC actions:

The federal courts have inherent equitable authority to issue a variety of "ancillary relief" measures in actions brought by the SEC to enforce the federal securities laws. This circuit has repeatedly approved imposition of a receivership in appropriate circumstances. The power of a district court to impose a receivership or grant other forms of ancillary relief does not in the first instance depend on a statutory grant of power from the securities laws. Rather, the authority derives from the inherent power of a court of equity to fashion effective relief.

SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir.1980) (citations omitted). Thus, a federal court generally has the equitable authority to impose a receivership in an SEC action if the court determines a receivership is necessary.

San Vicente, however, argues that the district court lacked the authority to include San Vicente's property in the receivership. This argument is not without merit. Neither San Vicente nor APC was named as a defendant in the SEC action against APHI, and the proceedings against San Vicente's property in this case raise serious questions concerning the limits of the court's power. First, we must determine whether the district court's assertion of quasi in rem jurisdiction denied San Vicente due process of law. Second, we must decide whether federal law allows receivership expenses to be taken from limited partnership assets...