NOTICE OF PENDENCY OF CLASS ACTION AND SETTLEMENT

Transcription

1 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION In re CALIFORNIA TD INVESTMENTS, LLC, Debtor. In re GOLDEN STATE TD INVESTMENTS LLC, Case No.: 1:07-bk GM; Case No.: 1:07-bk GM; Case No.: 1:07-bk GM; and Case No.: 1:07-bk GM Chapter 11 Adv. Case No.: 1:08-ap GM Debtor. In re QHL HOLDINGS FUND TEN, LLC, Debtor. In re QUALITY HOME LOANS, INC., Debtor. NOTICE OF PENDENCY OF CLASS ACTION AND SETTLEMENT TO ALL PERSONS WHO, AS OF AUGUST 21, 2007, WERE EQUITY MEMBERS OF QHL HOLDINGS, FUND TEN, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY ( FUND TEN ) AND/OR GOLDEN STATE TD INVESTMENTS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY ( GOLDEN STATE ): PLEASE READ THIS ENTIRE NOTICE CAREFULLY. YOUR RIGHTS MAY BE AFFECTED BY A LAWSUIT PENDING IN THIS COURT. THIS NOTICE IS GIVEN PURSUANT TO AN ORDER OF THIS COURT. THIS IS NOT A SOLICITATION FROM A LAWYER. 1. If you are an individual or entity who is or was an equity member of Fund Ten, LLC, a California limited liability company ( Fund Ten ) or Golden State TD Investments, LLC, a California limited liability company ( Golden State ; together with Fund Ten, the Funds ) as of August 21, 2007 (the Petition Date ), a class action lawsuit (the Class Action ) is pending in the United States Bankruptcy Court for the Central District of California (the Court ) that may affect your rights. 1

2 2. The Class Action is entitled Ruth Ann Wunderman-Coooper, and Marc Sobel, individually ( Named Plaintiffs ), and on behalf of the members of the class of investors/members of QHL Holding Fund Ten, LLC and Golden State TD Investments, LLC, a California Limited Liability Company ( Class, and collectively, Plaintiffs ) v. Quality Home Loans, a California corporation, John T. Gaiser, an individual, Kitty Gaiser, an individual, Patrick Weaver, an individual, Chris Powell, an individual, Robert Pohl, an individual, Randy Miller, an individual, Doss Law, a California Professional Corporation, Dennis Doss, an individual, Andrews Kurth LLP, a Professional Limited Liability Partnership, and David Gould, Chapter 11 Trustee, Quality Home Loans, a California Corporation (collectively, Settling Defendants ). The Class Action is pending in the United States Bankruptcy Court, Central District of California, Case No.1:08-ap (the Lawsuit ). 3. In the Lawsuit, Plaintiffs assert claims for (i) breaches of fiduciary duty, (ii) breach of contract and implied covenant of good faith and fair dealing, and, (iii) violations of California Business and Professions Code sections 17153, and Defendants deny all of the allegations. 4. This Notice of Pendency of Class Action and Settlement ( Notice ) is given pursuant to Rule 23 of the Federal Rules of Civil Procedure and Rule 7023 of the Federal Rules of Bankruptcy Procedure to inform you of the proposed settlement of the Lawsuit ( Settlement ) and the hearing ( Settlement Hearing ) to be held by the Court on May 6, 2014 at 10:00 a.m. to consider the fairness, reasonableness and adequacy of the Settlement as set forth in the Agreements (defined below) on file with the Court. The Court may adjourn the Settlement Hearing from time to time and without further notice. Copies of the Settlement Agreements are also available for review at the QHL website: THIS NOTICE ANSWERS QUESTIONS AND PROVIDES INFORMATION ABOUT THE SETTLEMENT AS FOLLOWS: WHY SHOULD I READ THIS NOTICE? WHAT IS THIS LAWSUIT ABOUT? WHY IS PLAINTIFFS COUNSEL RECOMMENDING THIS SETTLEMENT? WHAT ARE THE TERMS OF THE SETTLEMENT? HOW MUCH CAN I EXPECT TO RECEIVE FROM THE SETTLEMENT? DO I HAVE TO PAY ATTORNEYS FEES AND COSTS? WHAT ARE THE PROCEDURES FOR PARTICIPATING IN THE SETTLEMENT? WHERE CAN I FIND ADDITIONAL INFORMATION? WHEN IS THE FINAL HEARING ON THE SETTLEMENT? WHAT IF I DO NOT WISH TO PARTICIPATE IN THE SETTLEMENT? 2

3 HOW DO I UPDATE MY ADDRESS? PLEASE READ THIS ENTIRE NOTICE CAREFULLY. YOUR RECEIPT OF THIS NOTICE DOES NOT MEAN THAT YOUR ARE A MEMBER OF THE CLASS. IF YOU ARE A MEMBER OF THE CLASS DESCRIBED ABOVE, YOUR RIGHTS MAY BE AFFECTED BY THIS LITIGATION AND THE PROPOSED CLASS SETTLEMENT. WHAT IS THIS LAWSUIT ABOUT? 5. Quality Home Loans, Inc., a California corporation ( QHL ) was organized in From 2001 until August 21, 2007, QHL engaged in the business of originating, purchasing, selling and servicing mortgage loans for the purchase or refinancing of residential properties, particularly to borrowers who failed to meet traditional underwriting criteria. QHL was owned by John and Kitty Gaiser. At various times, its officers and directors included, among others, John Gaiser, Kitty Gaiser, Chris Powell, Robert Pohl, and Randy Miller (the Individual Defendants ). Each of the foregoing are named defendants in the Lawsuit. 6. In or around 2003, QHL organized Fund Ten to engage in business as a mortgage lender for the purpose of making loans to the general public, and to acquire existing loans, all secured by deeds of trust and mortgages on real estate throughout the United States. From the date of Fund Ten s formation through September 2007, QHL served as the manager of Fund Ten. As of August 21, 2007, there were approximately 330 members in Fund 10 with investments of approximately $38,000, In or around 2004, QHL organized California TD Investments, LLC ( Cal TD ) to engage in business as a mortgage lender for the purpose of making loans to the general public, and to acquire existing loans, all secured by deeds of trust and mortgages on real estate throughout the United States. From the date of Cal TD s formation through September 2007, QHL served as the manager of Cal TD. As of August 21, 2007, there were approximately 32 members in Cal TD with investments of approximately $13,400, In or around 2005, QHL organized Golden State to engage in business as a mortgage lender for the purpose of making loans to the general public, and to acquire existing loans, all secured by deeds of trust and mortgages on real estate throughout the United States. From the date of its formation through September 2007, QHL served as the manager of Golden State. As of August 21, 2007, there were approximately 64 members in golden State with investments of approximately $20,000, On August 21, 2007, QHL and each of the other identified entities filed voluntary bankruptcy petitions under the Bankruptcy Code in the Bankruptcy Court. On September 5, 2007, the Office of the United States Trustee appointed an Official Committee of Unsecured Creditors in the QHL Bankruptcy Case. By order of the Bankruptcy Court entered October 31, 2007, David Gould was appointed as the chapter 11 trustee of QHL. 10. Prior to August 21, 2007, QHL was primarily engaged in the business of mortgage loan origination and related operations. QHL also acquired and sold mortgage-backed loans and managed and serviced some trust deed investments for individual investors. QHL 3

4 funded its loan originations through its own operating funds and additional funding obtained through various arrangements with third party warehouse lenders, and entities such as Fund Ten, Golden State and Cal TD. 11. In May 2007, QHL and Pacificor, LLC, a Delaware limited liability company ("Pacificor"), appeared to enter into a term sheet which provided a vehicle for Pacificor to finance QHL's business operations and an option to purchase stock in QHL. Thereafter, QHL, the Funds, Cal TD and Pacificor allegedly entered into various agreements which purported to set up various rights and responsibilities between the parties 12. After the filing of the QHL bankruptcy, various disputes existed as between and among QHL, the Funds, Cal TD and Pacificor as to who was the legal or beneficial owner of the cash held by QHL and the Funds; and, whether all or a portion of such cash was subject to or encumbered by the claims and liens asserted by Pacificor. 13. On or about February 1, 2008, Marc Forman and Marc Sobel, on behalf of themselves and the Class, filed a Class Action Complaint initiating the Lawsuit, Adversary Case No.1:08-ap-01026, in the QHL bankruptcy case. Through the initial Class Action Complaint, the Plaintiffs asserted various claims against QHL, certain of the former officers and directors of QHL, Fund Ten, Golden State, the Pacificor Defendants and Andrews Kurth. By order of the Bankruptcy Court dated February 16, 2010, Ruth Ann Wunderman-Cooper was substituted for Marc Forman as a lead plaintiff in the Class Action. On or about May 17, 2011, Plaintiffs filed the Revised Fourth Amended Complaint. 14. On or around November 11, 2008, QHL, the Funds, Pacificor and various individual defendants entered into a Global Settlement Agreement and a Partial Class Settlement Agreement, (the Prior Settlement Agreements ) which settlement agreements were approved by the bankruptcy court on or about March 5, Pursuant to the terms and conditions of the Prior Settlement Agreements, the Class received certain monetary benefits and an assignment of certain litigation claims allegedly owned by QHL and Cal TD. 15. On or about December 8, 2008, John Keller filed a complaint in the Los Angeles Superior Court, initiating an action against, among others, John Gaiser in his capacity as an officer and director of QHL. 16. On or about June 18, 2010, the Bankruptcy Court Judge in the Class Action granted Andrews Kurth s Motion for Judgment on the Pleadings, dismissing all claims against Andrews Kurth, which decision was subsequently confirmed by the United States District Court. That decision is final. 17. On or about August 19, 2010, the Plaintiffs filed a complaint initiating an action in the name of Cal TD as the assignees of the claims of Cal TD captioned, Ruth Ann Wunderman-Cooper, et al. v. Quality Home Loans, Inc., et al., pending in the Bankruptcy Court, Adversary Case No. 1:10-ap ( Cal TD Action ), asserting among other things, claims against John Gaiser and other officers and directors of QHL, for breach of fiduciary duty. 18. On or about August 19, 2010, the Funds filed a complaint in the Los Angeles Superior Court, initiating an action against John and Kitty Gaiser for breach of fiduciary duty, 4

5 among other claims for relief (the Funds Action ). On October 26, 2010, John and Kitty Gaiser filed a notice of removal, removing the Funds Action from the Superior Court to the Bankruptcy Court. The Funds Action is now pending before the Bankruptcy Court. 19. On or about August 20, 2010, Gary Fasola and certain other individuals who were excluded from the participating in the Class Action, filed a complaint in the Los Angeles Superior Court, against certain officers of QHL for breach of fiduciary duty, among other claims, (the Fasola Action ). 20. Mediations were held before several judges over the course of three years. The mediations required an immense amount of discovery for purposes of preparation and analysis. 21. On July 20 and 21, 2011, Named Plaintiffs, on the one hand, and Defendants, QHL by and through David Gould, individually and in his capacities as Trustee or Estate Representative of QHL, John Gaiser, Kitty Gaiser, Chris Powell, Robert Pohl, and Randy Miller, and certain QHL insurers, Greenwich, RSUI and Lloyds Professional Liability Insurer (the Settling Parties ) participated in a mediation with a neutral mediator, Justice John Zebrowski (Ret.). The mediation resulted in the Settling Parties agreeing to compromise certain disputes and other matters on the terms and conditions set forth in this Notice and in the QHL Master Settlement Agreement. 22. Plaintiffs have independently arrived at the terms of an agreement to fully and finally resolve the claims asserted in the Lawsuit against the Doss Defendants, which settlement is the subject of a separate settlement agreement. The settlements referenced herein are subject to Court approval. In addition, the Plaintiffs, the Funds and the Fasola Plaintiffs engaged in a binding settlement proceeding with Justice John Zebrowski (Ret.) that resulted in the Judge s decision as to how the settlement proceeds should be divided as between the Class and the Funds. 23. QHL, the Funds and the individual officer and director defendants are insureds under various insurance policies issued by various insurers as more fully described in the Settlement Agreement. Each of the insurers has retained the right to deny coverage, although the insurers are funding this settlement. Importantly, all of the policies are wasting policies in which the costs of defense are paid out of the total amount of insurance available, thus reducing the amount available for settlement of any claims potentially covered under the policies. One of the insurers, RSUI, has commenced an action in the Bankruptcy Court contending it does not have any coverage liability requesting the Bankruptcy Court to make a determination of its legal responsibilities concerning its policy. WHY IS COUNSEL RECOMMENDING THE SETTLEMENT? 24. Prior to reaching an agreement to settle the claims asserted in the Lawsuit and Cal TD Action (collectively, Lawsuits ) on the terms and conditions described herein and as set forth in the Settlement Agreements, counsel for the Plaintiffs conducted an extensive investigation relating to the events and transactions alleged in the Lawsuits. Counsel for the Plaintiffs analyzed the facts and researched the applicable law with respect to the claims of the 5

6 parties to the Lawsuits and the potential defenses thereto. Plaintiffs Counsel also retained a forensic accountant to examine the books and records of the various entities. 25. Based upon the investigation and review of counsel for the Plaintiffs, counsel for the Plaintiffs and the Plaintiffs believe that the claims and causes of action asserted in the Lawsuits are likely to be successful. However, Plaintiffs and Plaintiffs' Counsel recognize and acknowledge the expense, length and difficulty of continued proceedings necessary to prosecute the Lawsuits against the Settling Defendants through trial, appeals and/or potential further court proceedings. Plaintiffs and Plaintiffs' Counsel also have taken into account the risk of any litigation, especially complex cases such as the Lawsuits, as well as the difficulties and delays inherent in such litigation. Plaintiffs and Plaintiffs' Counsel also are mindful of the inherent problems of proof under, and possible defenses to, the claims and causes of action raised in the Lawsuits. Plaintiffs' Counsel believes that the settlements set forth in the Settlement Agreements confer substantial benefits upon the Plaintiffs. 26. Class counsel is also recommending the settlement because the only source of funds to pay the Class is the remaining proceeds of the insurance policies. Those policies are being depleted by the litigation costs, including the costs of the Settling Defendants attorneys. At least $7 Million in defense costs have already been incurred. Plaintiffs counsel believes that if this case were litigated through trial the balance of the amount of insurance coverage would be used to pay costs of defense, and if judgment were obtained, there would be no money available to satisfy the judgment obtained. WHAT ARE THE TERMS OF THE SETTLEMENT? 27. In exchange for the releases set forth in the Settlement Agreement, the Settling Defendants and Settling Insurance Carriers are funding an aggregate settlement account valued at approximately $10,750,000. Of this total, approximately $5,750,000 will be in cash. The Settling Defendants will also assign and transfer all right, title and interest in any Assigned Claims that they possess to the Class. These claims against other insurance policies are valued at $5 Million and may result in further cash distributions. 28. From the cash proceeds of approximately $5,750,000 Million, the Funds shall receive $620,000, including monies for repayment of a loan previously made to Cal TD. The balance of the settlement recovery will be distributed among the members of Fund Ten, Golden State and Cal TD (collectively the Investment Funds ), pro-rata as to each individual members principal investment as set forth on the books and records of each of the Investment Funds exclusive of any membership interest held by John Gaiser or Kitty Gaiser. The distribution will be made among all members of the Investment Funds, save and except to the officers and or directors of QHL, who shall not be entitled to any distribution. In addition to any payment as a Class member, the two Class representatives, Ruth Ann Wunderman-Coooper and Marc Sobel, will seek incentive payments of $50,000 each as recompense for their time and efforts in the Lawsuits; such payment is subject to approval by the Court at the final Settlement Hearing. 6

7 HOW MUCH CAN I EXPECT TO RECEIVE 29. It is not possible to know exactly how much any Class member will receive at this time. However, as noted, each Class member will receive a pro rata share of all amounts in the settlement fund based upon the principal amount invested. DO I HAVE TO PAY ATTORNEYS FEES AND COSTS? 30. You do not have to pay any fees or costs directly. Class counsel agreed to represent the Class on a contingent basis at the rate of 30% of the recovery up to $10 Million. Subject to Court approval at the Settlement Hearing, this amount will be paid from the settlement funds, along with approved costs. WHAT ARE THE PROCEDURES FOR PARTICIPATING IN THE SETTLEMENT? 31. If you fall within the definition of Class as set forth above, and if you choose to remain in the Class, then you should maintain or secure any records you have reflecting your membership in the Class and/or your entitlement to relief. You may be required as a condition of participating in any recovery (through this or future settlement or trial) to present documentation with respect to your membership in the Class and your entitlement to relief, including but not limited to evidence and documentation reflecting: your interest in the Funds; the date upon which you became a member in the Funds; the amount of your investment in the Funds; and any payments received by you from the Funds. In addition, you may be asked to establish that you are not an insider as that term is defined in Title 11 of the United States Code. 32. If you choose to remain in the Class, then your rights in the Class Action vis a vis the Settling Defendants only will be subject to the terms of the Settlement Agreements and you will be entitled to the benefits of the Settlement Agreements, including any recoveries that may result therefrom. WHAT IF I DO NOT WISH TO PARTICIPATE? 33. If you believe you are a Class member and want to exclude yourself ( opt out ) from the Settlement Class, then you must send written notice of your decision to opt out by first class mail, postage prepaid, postmarked on or before April 15, 2014, to the Claims Administrator, CMA, at the following address: QHL Class Litigation c/o CMA, 40 East Verdugo Avenue, Burbank CA Your request for exclusion must clearly state your name (and the name in which you hold your interest in the Funds), your current address, and the fact that you want to be excluded from the Settlement Class. You do not need to state your reason for wanting to be excluded. Your exclusion request must be signed by you or someone authorized to sign on your behalf. If you exclude yourself, you will not receive any benefits from the Settlement and you will not be bound by the court orders on the Settlement. 7

8 WHAT IF I OBJECT TO THE SETTLEMENT? 35. Any settlement Class member that does not opt out may appear at the Settlement Hearing and be heard on any of the foregoing matters; a Class member may also appear through counsel of their choice. However, no such person shall be heard unless his, her or its objection is made in writing and is filed, together with proof of membership in the settlement Class and copies of all other papers and briefs to be submitted by him, her or it to the Court, including any evidence or list of witnesses to be presented at the Settlement Hearing, with the Court and postmarked no later than April 15, 2014, and showing due proof of service on the following parties: Plaintiffs counsel: Larry W. Gabriel Daniel J. Mulligan Jenkins Mulligan & Gabriel, LLP Oxnard Street, Suite 500 Woodland Hills, CA and Robyn B. Sokol Ezra Brutzkus Gubner LLP Oxnard Street, Suite 500 Woodland Hills, CA Counsel for Quality Home Loans, Inc. Charles E. Weir Jason D. Strabo McDermott Will & Emery LLP 2049 Century Park East, 38th Floor Los Angeles, CA Counsel for John T. Gaiser and Kitty Gaiser Steven M. Goldsobel Law Office of Steven M. Goldsobel 1900 Avenue of the Stars, Ste 1800 Los Angeles, CA Counsel for QHL Holdings, Fund 10, LLC and Golden State TD Investments, LLC Alan I. Nahmias Mirman, Bubman & Nahmias LLP Burbank Boulevard, Suite 360 Woodland Hills, California

9 Counsel for Robert Pohl Mark Stapke Michelman & Robinson, LLP Ventura Boulevard, 5th Floor Encino, CA Counsel for Randy Miller Douglas R. Irvine Lewis Brisbois Bisgaard & Smith LLP 221 North Figueroa Street, Suite 1200 Los Angeles, CA Counsel for Chris Powell Bret G. Anderson Ferguson Case Orr Paterson LLP 1050 S. Kimball Road Ventura, CA Unless otherwise ordered by the Court, any Class member who does not make his, her or its objection in the manner provided shall be deemed to have waived all objections to the foregoing matters. HOW DO I UPDATE MY ADDRESS? 37. If you change your address, or if this Notice was not mailed to your correct address, then please immediately provide your correct address to the Class Administrator, CMA, at the following address: QHL Class Litigation c/o Charles Klaus, 40 East Verdugo Avenue, Burbank CA If the attorneys representing the Class do not have your correct address, then you may not receive notice of important developments in the Class Action. WHEN IS THE HEARING ON THE SETTLEMENT? 38. The hearing to consider approval of the Settlement is on May 6, 2014 at 10:00 a.m.. You may appear but are not required to do so. WHERE CAN I FIND ADDITIONAL INFORMATION? 39. The pleadings and other records in this litigation may be examined and copied at the office of the Court Clerk, U.S. Bankruptcy Courthouse, Burbank Boulevard, Woodland Hills, California 91367, between the hours of 10:00 a.m. and 4:00 p.m., Mondays through Fridays except Court holidays. The pleadings and records are also available on line through the Court s PACER web service and have been posted on the QHL website, 9

10 40. If you have questions about this litigation that are not addressed in this Notice or by reviewing the documents on file with the Court, you may direct them in writing to the following counsel for Plaintiffs: Larry W. Gabriel Jenkins Mulligan & Gabriel, LLP Oxnard Street, Suite 500 Woodland Hills, CA and Robyn Sokol Ezra Brutzkus Gubner LLP Oxnard Street, Suite 500 Woodland Hills, CA PLEASE DO NOT TELEPHONE, SEND INQUIRIES TO, OR OTHERWISE DIRECTLY CONTACT THE COURT REGARDING THIS NOTICE 10