Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 1 of 11 PageID #: 7909

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1 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 1 of 11 PageID #: 7909 IN THE UNITED STATED DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Civil Action No. 4:11-cv-655 JAMES G. TEMME, and STEWARDSHIP FUND, LP, Defendants. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEYS FEES AND EXPENSES (From July 1, 2014 to December 31, 2014) Keith M. Aurzada as Receiver (the Receiver ) for James G. Temme, Stewardship Fund, LP, and all other entities directly or indirectly controlled by James G. Temme or Stewardship Fund, LP, including but not limited to, Stewardship Advisors, LLC, d/b/a Stewardship Advisors, LP, Stewardship Asset Management Genpar I, LLC, Stewardship Group, LLC, Destiny Fund, LP and Stewardship Management, LP (collectively, the Defendants ), hereby files his Sixth Interim Application to Allow and Pay Receiver s Fees and Expenses and; (2) Attorneys Fees and Expenses and, in support of such, would respectfully show unto the Court as follows: BACKGROUND 1. Prior to the initiation of the above-captioned action by the Securities and Exchange Commission ( Commission ), Defendants raised at least $35,000,000 from various investors seeking to purchase distressed residential mortgage loans and REO properties. In offering and selling the loans and properties, the Defendants represented to investors that the (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 1

2 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 2 of 11 PageID #: 7910 offerings and proceeds would be used to buy properties/mortgages at deeply discounted values, and that the properties/mortgages would be improved to be leased or resold at a profit. 2. As the Receiver has conducted his investigation, it has become apparent that the Defendants means of acquiring properties was to obtain funds from various groups or individuals to invest in limited partnerships in which the general partner would acquire, at a discount, tapes of distressed, non-performing mortgage loans. 3. In the spring of 2011, Defendants scheme collapsed, payments to investors ceased, and lienholders began foreclosure proceedings on the properties acquired and held by the Defendants. Many of the properties are in dilapidated conditions. Moreover, it is difficult to tell from the Defendants records how the properties were acquired, the consideration paid for each of the properties, and the complete transactional history with respect to each property. Moreover, many of the properties were, and remain, delinquent on ad valorem taxes and have been lost to foreclosure. 4. At the time the Receiver was appointed, the Defendants bank accounts contained nearly nothing. As of December 31, 2014, the balance of the Receiver s liquid accounts totaled $1,685, APPLICATION FOR FEES AND EXPENSES OF THE RECEIVER AND HIS ATTORNEYS 5. This Application seeks the approval and payment of fees and reimbursable expenses for the Receiver and Bryan Cave LLP ( BC ) for the time period from July 1, 2014 through December 31, 2014 (the Relevant Period ). 1 Attached hereto as Exhibit B is an accounting report for the applicable period. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 2

3 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 3 of 11 PageID #: During the period covered by this Application, the Receiver has incurred fees and expenses with respect to his activities and those of BC as to these proceedings on a monthly basis as follows: Month Fees Expenses July 2014 $17, $1, August 2014 $16, $ September 2014 $14, $79.94 October 2014 $16, $ November 2014 $10, $ December 2014 $13, $45.37 TOTAL: $89, $1, Exhibit A, which is attached and incorporated for all purposes, conveys the following information for the time period July 1, 2014 through December 31, 2014: (a) the number of hours worked by each attorney and staff member on a particular day; (b) the manner and type of work performed by each attorney and staff member; (c) the customary billing rate for each person rendering service in this matter; (d) the monetary value assigned to each task performed by a given attorney and/or staff member; and (e) each expense item incurred. Each of the invoices attached as Exhibit A reflect aggregate expenses by category during a given month. A summary of the time billed by each task code is also included at the end of the invoices. DESCRIPTION OF RECEIVERSHIP ASSETS 7. As of December 31, 2014, the balance of the Receiver s liquid accounts totaled $1,685,390. This does not reflect other, non-liquid assets of the Receivership Estate, such as (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 3

4 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 4 of 11 PageID #: 7912 interests in notes, properties, or potential causes of action. This amount also does not include assets of the Receivership Estate acquired or liquidated by the Receiver after December 31, For example, in January 2015, the Receiver acquired $50,000 from a settlement with American Equity Funding. 8. A substantial portion of the fees and costs incurred by the Receiver during the Relevant Period were necessary for the administration of the Estate or otherwise beyond his control, including review of all proofs of claim filed by investors and formulating an initial plan of distribution. 9. At this time, the Receiver seeks approval of all fees and expenses requested herein on an interim basis with final approval to be determined at the close of the Receivership. The Receiver only seeks reimbursement of 80% of his fees and 100% of his expenses at this time. JOHNSON FACTORS 10. In support of this request for compensation and reimbursement of expenses, the Receiver respectfully directs this Court s attention to those factors generally considered by courts in awarding compensation to professionals for services performed in connection with the administration of a receivership estate. As stated by the Fifth Circuit Court of Appeals in Migis v. Pearle Vision. Inc., 135 F.3d 1041, 1047 (5th Cir. 1998), The calculation of attorneys fees involves a well-established process. First, the court calculates a lodestar fee by multiplying the reasonable number of hours expended on the case by the reasonable hourly rates for the participating lawyers. The court then considers whether the lodestar figure should be adjusted upward or downward depending on the circumstances of the case. In making a lodestar adjustment the court should look at twelve factors, known as the Johnson factors, after Johnson (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 4

5 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 5 of 11 PageID #: 7913 v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). Those factors, as applied to the services rendered in this case by the Receiver and BC, are addressed below. (a) The Time and Labor Required. The Receiver and BC respectfully refer to Exhibit A, which details the involvement of the Receiver and BC s attorneys in this case during the period covered by this Application showing that a total of hours of attorney, Receiver, and paraprofessional time have been expended. The Receiver has endeavored to keep costs and fees down by, when possible, using secretarial assistance by employees who do not bill for their time, and by using paralegal staff who bill at lower rates than the Receiver and his counsel. The Receiver s efforts for the relevant period can be categorized and summarized as follows: (i) The Halo Settlement 11. On August 28, 2013, the Receiver filed a Motion to Approve Settlement Agreement with Halo Companies Inc. ( Halo ) [Dkt. No. 244], in which he sought to resolve potential claims against Halo in exchange for a payment of $250,000. Two groups of investors objected to the proposed settlement with Halo, the Association and the Berg Group. 2 Magistrate Judge Amos L. Mazzant entered a Report and Recommendation approving the settlement agreement with Halo [Dkt. No 290] over the objections of the investor groups. The Association did not further object to the settlement with Halo. 12. The Berg Group, however, continued to object to the Halo Settlement and filed an objection to the Report and Recommendation [Dkt. No. 301], to which the Receiver responded [Dkt. No. 314]. On March 28, 2014, District Judge Ron Clark adopted the Report and 2 The Berg Group includes Bruce Berg, Stuart Cartner, Kevin Doyle, Walter Haydock, Edward Leh, Kevin Murphy, Philip Schantz, DAIS Partners, LP, Singer Bros., LLC, Skeleton Lake, LLC, and Wildcat Lake Partners. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 5

6 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 6 of 11 PageID #: 7914 Recommendation and entered an order approving the settlement with Halo [Dkt. No. 336, 337]. Apparently undeterred, the Berg Group filed a Motion to Reconsider [Dkt. No. 340], which was also denied by District Judge Ron Clark [Dkt. No. 352]. 13. The Receiver and his counsel spent substantial time investigating the allegations of the Berg Group, and compiling evidence and drafting pleadings in support of its decision to enter into the settlement agreement with Halo. As a result, the Receiver has preserved the ability to recovery $250,000 from Halo. (ii) Settlement with Escrow Companies 14. The Receiver, with the assistance of outside counsel Andrew Whitaker, spent substantial time during the Relevant Period investigating potential lawsuits against two escrow companies that conducted business with the Defendants, American Equity Funding, LP ( AEF ) and Madison Settlement Services, LLC ( Madison ). Both AEF and Madison conducted considerable business with the Defendants, including performing escrow services, serving as a broker on sales and acquisitions of assets, and distributing funds to the Defendants and investors. AEF and Madison knew or should have known that the Defendants conduct was fraudulent and reaped ample profits from their business with the Defendants. 15. The Receiver has reached settlement terms with both AEF and Madison. The settlement agreement with AEF will require a $50,000 payment from AEF to the Estate at the time the Court approves the settlement agreement, as well as an additional $50,000 to be paid within one year of the initial payment. The settlement agreement with Madison requires Madison to make a payment of $35,000 to the Estate at the time the Court approves the settlement agreement, as well as four additional payments of $10,000 to be made on March 31, June 30, September 30, and December 31, (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 6

7 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 7 of 11 PageID #: Through the Receiver s efforts, the settlement agreements were finalized during the Relevant Period and the Receiver sought and acquired Court approval of the settlement agreements. (iii) Evaluation of Proofs of Claim 17. In addition to efforts to secure and liquidate assets of the Estate, the Receiver and his counsel spent substantial time during the Relevant Period evaluating the proofs of claim filed by investors in the Defendants. In total 172 proofs of claim have been filed by individuals and entities that invested in the Defendants. The Receiver and his counsel have reviewed each claim to evaluate whether it has been properly documented and determine the extent to which it should be allowed and evaluate potential objections thereto. The Receiver is in the process of notifying investors whether their claims are properly documented, whether more documentation is needed, and the extent to which his initial review indicates that the claim is objectionable. 18. The Receiver and his counsel have also spent substantial time evaluating and drafting an initial plan of distribution. The plan of distribution will provide investors with notice of the treatment of classes of investors and provide an opportunity for them to object to their potential treatment. (iv) Interim Distribution 19. On December 30, 2014, the Receiver filed his Motion for Approval of Interim Distribution Plan and Entry of Claims Bar Date [Dkt. No. 361], which was approved by the Court on February 2, 2015 [Dkt. No. 366]. The Interim Distribution Plan provides the date by which investors in the Defendants must file a proof of claim in order to participate in a distribution from the Receivership Estate (the Bar Date ). The Bar Date was March 5, 2015 and notice of the Bar Date has been posted on the Receivership website (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 7

8 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 8 of 11 PageID #: 7916 ( since February 3, The Interim Distribution Plan also provides that the Receiver will begin notifying investors of any objection to their claim thirty (30) days after the Bar Date (April 6, 2015). The Receiver is in the process of completing the review and analysis of investor claims and will begin providing objections on April 6, Most objections by the Receiver will be based solely on the need for additional documents from the investor and are not substantive objections to the investors claims. As a result, the Receiver anticipates that nearly all objections to investor claims will be resolved without litigation or the need for intervention from the Court. Thirty (30) days after objections are sent to investors, the Receiver will file a report with the Court detailing the total number and dollar amount of the allowed claims. 21. The Receiver will make an interim distribution of 80% of all Distributable Funds on a pro rata basis based on the allowed claims report filed with the Court. (v) Administration of the Estate 22. The Receiver and his staff also spent substantial time each week administering the Estate. On a daily basis, the Receiver receives mail addressed to the Defendants regarding assets that the Defendants own, service, previously owned, or previously serviced. This includes municipal ordinance violation notices, tax notices, foreclosures notices, utility bills, lawsuits related to the property, requests for information, and other similar notices and mail. The Receiver s staff must open, identify, catalogue, and (when appropriate) respond to such mail. 23. The Receiver and his staff also respond to daily phone calls and s from parties affected by the Defendants and Receivership. Such inquiries often involve inaccurate or incomplete title documents, misappropriated escrow payments, overdue ad valorem taxes or threats of foreclosure, transfers of servicing rights, and the sale of mortgages and promissory (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 8

9 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 9 of 11 PageID #: 7917 notes to other entities. These inquiries often require considerable time to resolve because, as previously noted, the Defendants business records are incomplete or non-existent. (b) The Novelty and Difficulty of the Questions. Many of the tasks reflected in Exhibit A involved factual and legal questions that were of substantial complexity. Moreover, the Defendants complete lack of systematic record keeping and failure to complete basic paperwork has substantially hindered the Receiver s efforts. (c) The Skill Requisite to Perform the Service. The Receiver believes that the services performed in this case have required individuals possessing considerable experience in asset seizure, tracing and liquidation. The Receiver and BC have considerable experience in such areas and have consulted additional resources where necessary. (d) The Preclusion of Other Employment Due to Acceptance of the Case. The Receiver and BC have not declined any representation solely because of their services as Receiver and counsel for the Receiver. (e) The Customary Fee. The hourly rates sought herein are commensurate with, or lower than, the rates charged by other practitioners of similar experience levels in the Eastern District of Texas and actually reflect a discount from the standard rates charged by the Receiver and his counsel. During the course of these proceedings, both lawyers and paralegals have performed services on behalf of the Receiver with respect to these proceedings. The timekeepers who have performed services for the Receiver, and their status at BC, are indicated in Exhibit A and in the chart below. BC Attorney Profiles of lawyers who have performed services for the Receiver are available at Finally, part of the Receiver s work in this case has been to catalogue thousands of entries concerning the investors, payments, and receipts. Where possible, non-billable BC staff has been used to complete those duties. (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 9

10 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 10 of 11 PageID #: 7918 (f) Whether the Fee is Fixed or Contingent. The Receiver s and BC s fees are fixed insofar as monies exist by way of Receivership Assets from which to pay such fees. Payment of such fees, however, is subject to Court approval. (g) Time Limitations Imposed by the Client or Other Circumstances. The time requirements during the period covered by this Application have been substantial. (h) The Experience, Reputation and Ability of the Attorneys. BC has several attorneys who specialize exclusively in the practice of civil trial law. The practice of those attorneys regularly includes the representation of bankruptcy trustees and receivers. The reputation of BC s attorneys is recognized and respected in their community in Texas. (i) The Undesirability of the Case. The representation of the Receiver incident to this case has not been undesirable. (j) The Nature and Length of the Professional Relationship with the Client. BC did not represent the Receiver in these proceedings prior to being retained in these proceedings. (k) Award in Similar Cases. BC believes that the fees requested in this case are less than or equal to those which have been awarded in similar cases in this District. WHEREFORE, the Receiver respectfully requests that the Court allow the requested compensation for professional services and expenses rendered by the Receiver and his legal counsel, and authorize the Receiver to pay BC $73,786.65, representing $71, (80% of $89,799.40) in interim fees and $1, (100% of $1,947.13) in interim expenses for the time period from July 1, 2014 through December 31, (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 10

11 Case 4:11-cv ALM Document 372 Filed 04/08/15 Page 11 of 11 PageID #: 7919 Dated: April 8, 2015 Respectfully submitted: //s// Keith Miles Aurzada Keith Miles Aurzada, Receiver 2200 Ross Avenue, Suite 3300 Dallas, Texas Telephone: Facsimile: CERTIFICATE OF CONFERENCE I hereby certify that, in accordance with the Billing Instructions for Receivers in Civil Actions Commenced by the U.S. Securities and Exchange Commission, I delivered the invoices attached to the foregoing and the Standardized Fund Accounting Report as Exhibits A and B respectively to David B. Reece, counsel for the Commission. Additionally, my counsel has discussed the relief requested with David B. Reece, and has been advised that the Commission does not object to the relief requested. Therefore this matter is present to the Court for determination. //s// Keith Miles Aurzada Keith Miles Aurzada, Receiver CERTIFICATE OF SERVICE I certify that on April 8, 2015, I served a true and correct copy of the foregoing pleading by electronic mail through the Court s CM/ECF system to all parties consenting to service through same, including to counsel for the SEC, the Defendants, and all others consenting to service through same. Moreover, the foregoing will be uploaded to //s// Keith Miles Aurzada Keith Miles Aurzada (1) RECEIVER S FEES AND EXPENSES; AND (2) ATTORNEY S FEES AND EXPENSES Page 11