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Securities and Exchange Commission v. Torchia

United States District Court, N.D. Georgia, Atlanta Division

March 1, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
JAMES A. TORCHIA, CREDIT NATION CAPITAL, LLC, CREDIT NATION ACCEPTANCE, LLC, CREDIT NATION AUTO SALES, LLC, AMERICAN MOTOR CREDIT, LLC, and SPAGHETTI JUNCTION, LLC, Defendants.

          OPINION AND ORDER

          WILLIAM S. DUFFEY, JR. UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on Defendant James A. Torchia's Emergency Motion for Preliminary and Permanent Injunction [345] (“Emergency Motion”).

         I. BACKGROUND[1]

         A. Facts

         On May 10, 2016, Receiver Al Hill (“Receiver”) filed a motion requesting “an Order permitting him to sell certain assets of CNC and AMC at his discretion and at the best available price.” ([90] at 2). He sought the Court's approval to retain the firm Wm. Page & Associates, Inc. (“Wm. Page”) to manage, market, and sell the life insurance policies for a fee for less than the operating costs of Credit Nation Capital. (Id. at 3). The Receiver represented that Wm. Page's management responsibilities included marketing and selling life insurance policies to interested third-parties with the cooperation and approval of the Receiver. (Id.). On May 11, 2016, the Court granted the Receiver's motion and granted the Receiver's request to retain Wm. Page to manage, market, and sell the life insurance policies. ([95] at 6).

         The Receiver retained Wm. Page, and he also retained TrackLife, LLC (“TrackLife”), a company affiliated with Wm. Page, to monitor insurance premium due dates and policy maturities and to determine market values of specific policies when requested. Beginning in early May, 2016, the Receiver's staff began marketing the Sneider policy (policy no. ending in -2626) (the “Policy”) for potential sale by sending out information about the Policy and the insured. The Receiver represents that TrackLife and Wm. Page were not asked to market the Policy and have never marketed any of the Receivership's policies. On June 1, 2016, the Receiver also sent the Policy to TrackLife and asked for a valuation. On June 9, 2016, TrackLife determined that the Policy was worth between $500, 000 and $900, 000. The Receiver represents that the valuation was for the Receiver's internal use and was not part of the package sent to potential bidders.

         Sometime in early June, an employee of TrackLife disclosed that an Irish company called Redbird was affiliated with TrackLife, and asked whether Redbird could be allowed to bid. The Receiver determined that allowing Redbird to bid, if it wished to do so, would be appropriate because the Receiver sought as many bids as possible to get the maximum amount for the sale of the policy. The Receiver's staff sent the same information to Redbird that was provided to all other potential bidders, and it was the same information previously given to TrackLife for its valuation of the Policy. No bidder received any information regarding the identity or the bid of any other potential buyer. TrackLife and Page were not privy to the identity of any potential buyers other than Redbird and did not have access to their bids.

         Three potential buyers submitted bids for the Policy, with Redbird submitting the highest bid at $1, 000, 000. After all initial bids were received, the Receiver dealt directly with the principal of Redbird to negotiate the final terms of the offer and sale of the Policy. Redbird paid $1, 000, 000 for the Policy. An entity called Lifeline signed the purchase agreement as representative of Redbird, and Redbird authorized Lifeline to “act on behalf of Purchaser with respect to written directions to Seller from Purchaser under this Agreement.”

         The Receiver dealt with Redbird on one other occasion, when Redbird submitted a bid to purchase another policy. On that occasion, Redbird did not submit the highest bid and did not purchase the policy.

         B. Procedural History

         On February 14, 2017, Mr. Torchia filed his Emergency Motion, [2] seeking an injunction preventing the Receiver from using Wm. Page, TrackLife, and William Scott Page-Wm. Page's principal-to provide any services to the Receiver including, but not limited to, managing, marketing, and selling the life insurance policies of the Receivership Estate. ([379.1] at 13-14). Mr. Torchia contends that Mr. Page, individually and through his corporate Lifeline entities, had a significant financial incentive to sell the Policy to Redbird for less than fair market value. He claims that Mr. Page had an undisclosed financial interest in Lifeline, and that two men, Mr. Lauck and Mr. Covington, serve as directors of both Redbird and Lifeline. Mr. Torchia claims that, prior to the sale of the Policy, the Receiver failed to conduct adequate due diligence about the financial relationships between Page, Lifeline, and Redbird.

         The Receiver argues that Mr. Torchia's motion is based on speculation, and that Redbird acquired the policy only because it offered more money than two other unrelated bidders. He argues Mr. Torchia fails to show a substantial likelihood of success on the merits. The Receiver also represents that he does not intend to employ TrackLife in the future to market any policies, and thus Mr. Torchia cannot show irreparable harm. He argues the balance of the equities disfavors an injunction, because the cost of obtaining a new service to monitor the policies on behalf of the Receivership would be prohibitively expensive and potentially impossible at this late stage. The Receiver also argues that Mr. Torchia's Emergency Motion is frivolous, and requests an opportunity to submit evidence of the fees incurred by the Receivership in responding to the Motion.

         II. DISCUSSION

         A. Le ...


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