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`KATHY BAZOIAN PHELPS (155564)
`kphelps@diamondmccarthy.com
`DIAMOND MCCARTHY LLP
`1999 Avenue of the Stars, Suite 1100
`Los Angeles, California 90067-4402
`Telephone: (310) 651-2997
`
`CHRISTOPHER D. SULLIVAN (148083)
`csullivan@diamondmccarthy.com
`STACEY L. PRATT (124892)
`stacey.pratt@diamondmccarthy.com
`DIAMOND MCCARTHY LLP
`150 California Street, Suite 2200
`San Francisco, CA 94111
`Phone: (415) 692-5200
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`Counsel for Bradley D. Sharp,
`Permanent Receiver
`
`
`Plaintiff,
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`WESTERN DIVISION – LOS ANGELES
` Case No. 2:19−cv−02188−DSF−MRW
`SECURITIES AND EXCHANGE
`COMMISSION,
`Hon. Dale S. Fischer
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`MEMORANDUM OF POINTS AND
`AUTHORITIES IN SUPPORT OF
`MOTION OF RECEIVER FOR:
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` v.
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`DIRECT LENDING INVESTMENTS
`LLC,
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`Defendant.
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`(1) APPROVAL OF CLAIMS
`STIPULATION WITH DLIFF
`JOINT LIQUIDATOR; AND
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`(2) AUTHORITY TO MAKE
`INTERIM DISTRIBUTION TO
`DLIFF
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`Case 2:19-cv-02188-DSF-MRW Document 318-1 Filed 11/20/20 Page 2 of 21 Page ID
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`Date: December 21, 2020
`Time: 1:30 p.m.
`Dept.: Courtroom 7D
`Place: United States District Court
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`Western Division
`350 West 1st Street,
`Los Angeles, CA 90012
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`Case 2:19-cv-02188-DSF-MRW Document 318-1 Filed 11/20/20 Page 3 of 21 Page ID
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`TABLE OF CONTENTS
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`Introduction ..................................................................................................... 1
`I.
`II. Background ...................................................................................................... 2
`III. The Claims Stipulation ................................................................................... 6
`IV. Summary of Distribution Plan ....................................................................... 7
`V.
`The Claims Stipulation is in the Best Interest of the Estate. ....................... 9
`Vi. Notice Of The Hearing On This Motion Should Be Deemed
`Appropriate And Sufficient .......................................................................... 15
`VII. CONCLUSION .............................................................................................. 16
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`TABLE OF AUTHORITIES
`
`Cases
`Bennett v. Williams,
`892 F.2d 822, 824 (9th Cir. 1989) ........................................................................ 11
`Gordon v. Dadante,
`336 F. App’x 540 (6th Cir. 2009) ........................................................................... 9
`In re First Alliance Mortgage Co.,
`269 B.R. 428 (C.D. Cal. 2001) ............................................................................. 15
`In re Thinking Machines Corp.,
`182 B.R. 365 (D. Mass. 1995) .............................................................................. 11
`Janvey v. Alquire,
`No. 3:09-cv-0724, 2014 WL 12654910 at *17 (N.D. Tex. July 30, 2014. .......... 10
`Richie Capital Mgmt., v. Kelley,
`785 F.3d 273 (8th Cir. 2015.) ................................................................................. 9
`SEC v. Hardy,
`803 F.2d 1034 (9th Cir. 1986) ................................................................................ 9
`Sec. & Exch. Comm’n v. Ruderman,
`No. CV 09-02974, 2011 WL 5857452, at *3 (C.D. Cal. Nov. 21, 2011) ...... 10, 12
`Securities and Exchange Commission v. Path America, LLC,
`2016 WL 3865919 *3 (W.D. Wash. July 15, 2016) ....................................... 11, 12
`Southwestern Media, Inc. v. Rau,
`708 F.2d 419 (9th Cir. 1983) ................................................................................ 11
`United States v. Edwards,
`595 F.3d 1004 (9th Cir. 2010) .............................................................................. 10
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`Statues and Rules
`11 U.S.C. § 102(1)(A) ............................................................................................... 16
`F.R. Civ. P. 5 (c) ........................................................................................................ 15
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`ii
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`F.R. Civ. P. 5(a) ......................................................................................................... 15
`Local Civil Rule 66-8 ................................................................................................ 15
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`Statutes and Rules
`Internal Revenue Service Reg. §1.468B-2(k)(2) ......................................................... 3
`Treasury Regulation § 1.468B(1)(c) ............................................................................ 3
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`Case 2:19-cv-02188-DSF-MRW Document 318-1 Filed 11/20/20 Page 6 of 21 Page ID
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`Bradley D. Sharp, the Court-appointed permanent receiver (the “Receiver”)
`for the estate of Direct Lending Investments, LLC (“DLI”), Direct Lending Income
`Fund, L.P., (“DLIF”), Direct Lending Income Feeder Fund, Ltd. (“DLIFF” and
`together with DLIF, the “Feeder Funds”), DLI Capital, Inc., DLI Lending Agent,
`LLC, DLI Assets Bravo LLC, and their successors, subsidiaries and affiliated entities
`(collectively, the “Receivership Entities”) pursuant to the Preliminary Injunction
`Order and Order Appointing Permanent Receiver issued April 1, 2019 (“Receiver
`Order”) (Doc. No. 10), hereby files his Motion for: (1) Approval of Claims
`Stipulation with DLIFF Joint Liquidator, and (2) Authority to Make Interim
`Distribution to DLIFF(the “Motion”).
`Introduction
`I.
`The Receiver has conducted a thorough evaluation of the pre-Receivership
`activities in this case are set forth in detail in the Report Regarding the Investigation
`of the Receivership Entities’ Business Conduct and Recommendations Regarding
`Distributions dated November 13, 2020 (the “Receiver’s Report”).
`Pursuant to this Court’s Order dated April 9, 2020 [Dkt. No. 251] (the “Bar
`Date Order”), the Receiver has run a thorough claims process and has undertaken a
`review of the claims submitted and the impact of different distribution models on the
`creditor body to assist him in fashioning a distribution plan in this case that is
`equitable under the circumstances. The Bar Date Order required all third-party
`claimants of all Receivership Entities to file claims with the Receiver. However, the
`Bar Date Order does not require intercompany claims between and amount the
`Receivership Entities to have been filed.1 The following classes of Claimants have
`asserted claims against the Receivership Estate: Administrative Claims; Priority
`Claims; the claim of the joint liquidators of DLIFF; DLIF Investors; and Creditor
`Claims. The motion to approve the Distribution Plan has been filed concurrently
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`1 See Bar Date Order ¶ 5.
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`1
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`herewith. The Plan recommends a priority of distributions from the funds in the
`receivership estate to the following classes of claimants in the following priority:
`Administrative Claims (Class 1); Priority Claims (Class 2); DLIFF (Class 3) to be
`shared on a pro rata basis with the claim of DLIF, with the proceeds of the DLIF
`claim to be distributed to DLIF Administrative Claims (Class 4A) and DLIF
`Investors (Class 4B); Unsecured Creditor Claims (Class 5); Indemnity Claims (Class
`6); and Counterparty Claims (Class 7).
`Class 3 consists solely of the claim relating to DLIFF, which is in an official
`liquidation proceeding in the Cayman Islands. The Plan proposes a ratable
`distribution as between the joint liquidators of DLIFF (Class 3), on the one hand, and
`DLIF Administrative Claims (Class 4A) and DLIF Investors (Class 4B), on the other
`hand, based upon the allocation agreed to pursuant to the terms of that certain Claims
`Allowance Stipulation, a copy of which is attached to the Declaration of Bradley
`Sharp as Exhibit “1” (the “Claims Stipulation”).
`This Motion seeks approval of the Claims Stipulation and also seeks authority
`to make an interim distribution to DLIFF in the amount of $ 10 million from the
`collateral of DLIF and DLIFF (“DLIFF Interim Distribution”).2
`II. Background
`The SEC filed a complaint against DLI on March 22, 2019, alleging fraud by
`DLI in violation of various federal securities law, including Sections 206(1) and
`206(s) of the Advisors Act, Section 10(b) of the Exchange Act and Rule 10(b)(6),
`and Section 17(a) of the Securities Act, and Section 207 of the Advisers Act (the
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`2 The amount distributed to DLIFF may be materially higher if the Receiver’s
`Distribution Plan is approved concurrently with this Motion and he is authorized to
`make his proposed interim distribution pursuant to the terms of the Plan. If approval
`of the proposed Plan is delayed or disallowed, the Receiver nevertheless proposes to
`pay from the secured collateral the DLIFF Interim Distribution and to also reserve
`DLIF’s pro rata share of the collateral, or $22,730,414, to ensure that a ratable
`amount of the collateral is preserved for DLIF investors pending approval of the
`Distribution Plan.
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`“Complaint”).
`The Receiver was appointed as receiver over the Receivership Entities by
`order entered on April 1, 2019. A qualified settlement fund (“QSF”) was established
`as of the date the Receivership by operation of law pursuant to Internal Revenue
`Service Reg. §1.468B-2(k)(2) on the date of commencement of the Receivership, or
`April 1, 2019, and the Receiver has filed a QSF tax return for the Receivership stub
`period of April 1, 2019 through December 31, 2019, consistent with the provisions of
`Treasury Regulation § 1.468B(1)(c) and based on his understanding that criteria
`mandating the establishment of a QSF were present in the Receivership Case.
`DLIFF, a Cayman Islands exempted company incorporated on June 15 2016,
`is the offshore investment entity that solicited overseas investor funds. Prior to a
`restructuring of the fund structure managed by DLI in October 2016, all domestic
`and foreign investors invested through DLIF, which then invested its funds in DLI
`Assets Bravo LLC (“DLIAB”), and DLI Assets (“DLIA”). In October 2016, DLI
`moved to a two-feeder fund structure with the formation of DLIFF, the offshore
`fund, along with DLIF serving as the onshore fund. DLI Capital acted as the Master
`Fund, through which investor funds raised by DLIF and DLIFF were contributed and
`deployed. DLI formed DLIFF to solicit investments from non-United States
`investors. The funds invested by the Feeder Funds were contributed by DLI Capital
`to its wholly owned subsidiary DLIA, and later to DLIAB, another subsidiary. These
`funds were ultimately loaned to putative third-party borrowers and the third party
`borrowers in turn were generally lenders which made loans or extensions of credit to
`others (the “subsequent loans”).
`The debt capital contributed under the new structure was formalized in two
`Loan and Security Agreements each dated as of October 1, 2016 (“LSA”), one with
`DLIF as lender and one with DLIFF as lender, and with Millennium Trust Company,
`LLC as the custodian for the benefit of each of the lenders. Under each of the LSAs,
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`the Feeder Funds agreed to lend money to DLI Capital as borrower under a revolving
`loan facility. DLI Capital contributed the funds loaned as equity capital to two
`subsidiaries DLI Assets and DLIAB, and those entities made loans to third party
`borrowers (the “subsequent loans” referred to above) generally on a secured basis.
`The LSAs by their terms granted DLIF and DLIFF security interests in the loans and
`equity investments made by DLI Capital. The collateral for the loans under the
`LSAs is described as all the “Collateral Assets” of DLI Capital, including all the
`loans made and collateral received by DLI Capital, along with DLI Capital’s
`ownership interests in any subsidiaries, funds in a control deposit account for the
`deposit of the underlying loan payments received by DLI Capital, and all other assets
`of DLI Capital.
`DLIF and DLIFF also entered into an Intercreditor Agreement dated as of
`September 30, 2016, which provided for the lenders DLIF and DLIFF to have pari
`passu rights in the loans made to DLI Capital. The pari passu rights were stated to
`extend to the notes in favor of DLIF and DLIFF by DLI Capital, the collateral for the
`notes, and all payments and collections or proceeds of enforcement of the loans
`received by either DLIF or DLIFF.
`Shortly after his appointment, the Receiver, on behalf of DLI Capital, passed a
`unanimous written resolution to place DLIFF into voluntary liquidation under the
`applicable laws of the Cayman Islands, subject to court approval which was granted. The
`voluntary liquidators subsequently filed an application by way of a petition in the Grand
`Court of the Cayman Islands (the “Cayman Court”) for the liquidation to continue under
`the supervision of the Cayman Court. On July 25, 2019, the Cayman Court entered a
`Supervision Order converting the voluntary liquidation to an official liquidation, and
`appointing Bradley D. Sharp and Christopher D. Johnson of Chris Johnson Associates
`Ltd. as the Joint Official Liquidators (“JOLs”) of DLIFF.
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`On August 22, 2019, the JOLs sent a notice to the creditors and shareholders of
`DLIFF of a meeting of creditors and contributories. Creditors wishing to attend the
`meeting were asked to submit a proof of debt form to the JOLs in advance of the
`meeting. All claims against and interests in DLIFF are to be pursued directly in the
`Cayman Islands liquidation proceedings, in accordance with the laws of the Cayman
`Islands, including without limitation, Order 16 of the Companies Winding Up
`Rules 2018 and the Companies Law (2020 Revision) applicable to liquidation
`proceedings in that jurisdiction.
`The Receiver, in his capacity as U.S. Joint Official Liquidator in the Cayman
`Proceeding, and the Cayman JOL, Christopher D. Johnson (the “Cayman JOL”), agreed
`to a conflict resolution protocol (the “Protocol”) that was submitted to the Cayman Court
`and was approved by that court on July 16, 2020. This Court subsequently also
`approved the Protocol. (Doc No. 293). The Protocol addressed potential conflict that
`might arise between the two proceedings, including allocation of the claim amounts as
`between DLIFF and DLIF. The Claims Stipulation was negotiated pursuant to the
`Protocol. The Receiver acted on behalf of DLIF in negotiating the Claims Stipulation;
`the Cayman JOL acted on behalf of DLIFF.
`Since approval of the Protocol, the Receiver and Mr. Johnson have negotiated the
`Claims Stipulation for which the Receiver seeks approval through this Motion. The
`primary purpose of the Claims Stipulation is to fix the relative allocation of proceeds to
`be paid under the Distribution Plan between Class 3 and Class 4. As contemplated by
`the Protocol, Mr. Johnson negotiated the terms of the Claim Stipulation on behalf of
`DLIFF (Class 3) and the Receiver negotiated on behalf of DLIF (Class 4).
`In addition to fixing claims as between Class 3 and Class 4, the Claims Stipulation
`requests authority for the Receiver to make an interim distribution of $10 million to the
`JOLs of DLIFF. The Receiver makes this request to ensure that the claims
`administration process that is running in parallel for DLIFF in the Cayman Islands is not
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`disrupted if there is delay or litigation over the distribution methodology proposed by the
`Receiver for creditors and investors of DLIF (as discussed elsewhere, a proposed Rising
`Tide methodology). Based upon the cash the Receiver currently holds (approximately
`$200 million) and the relative allocation as between Class 3 and Class 4 (31% and 69%
`respectively), the amount of the interim distribution is sufficiently small that it will not
`under any scenario prejudice the rights of Class 4, regardless of the ultimate method of
`distribution approved by this Court. The Receiver proposes to reserve a matching pro
`rata amount Class 4 (the “DLIF Reserve”). Both the DLIFF Interim Distribution and the
`DLIF Reserve would be paid from the collateral of DLIF and DLIFF so no other rights
`of any creditor would be impaired.3
`III. The Claims Stipulation
`The Claims Stipulation provides, in relevant part, that:
`1. DLIF’s net investment of cash into the Master Fund is $359,589,934
`(the "DLIF Claim") and DLIFF’s net investment of cash into the Master
`Fund is $158,197,708 (the "DLIFF Claim").
`2. The funds distributed to DLIFF pursuant to the Claims Stipulation and
`the Distribution Plan (the “DLIFF Distribution”) shall be distributed to
`the JOLs and shall be held by the JOLs for administration and
`distribution in the Cayman Liquidation in accordance with the laws of
`the Cayman Islands.
`3. DLIFF’s creditors and stakeholders shall not be allowed duplicate
`claims in the Receivership Case and shall not receive a distribution
`directly in the Receivership Case.
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`3 The Receiver presently holds approximately $200 million of cash on hand and all of
`those funds, with the exception of $6,262,500 derived from $5,870,161 of cash on
`hand at the date of the Receivership, $119,127 from office sublease rents, $94,979
`from sale of office assets, $77,048 from interest income, $81,135 from vendor
`refunds and $20,050 from employee salary reimbursements, are the collateral of
`DLIFF and DLIF.
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`the U.S.
`investors and creditors of
`the
`4. Claims allowance for
`Receivership Entities will be made in accordance with U.S. law, and
`shall not be paid from the DLIFF Distribution.
`5. The Receiver shall make the DLIFF Interim Distribution in the amount
`of $10 million upon Court approval of the Claims Stipulation;
`6. Except for the provision regarding the Interim Distribution, the
`remainder of the provisions of the Claims Stipulation is contingent upon
`approval of the Receiver’s proposed Distribution Plan.
`The Claims Stipulation provides resolution and certainty as to the allocation of
`funds as between DLIF and DLIFF.
`IV. Summary of Distribution Plan
`The Receiver has filed concurrently herewith, a Motion to Approve Distribution
`Plan, which requests approval of his proposed Distribution Plan. The Distribution Plan
`does NOT seek relief relative to the claimants or shareholders of DLIFF. 4
` In summary, the Receiver’s Distribution Plan divides the classes of claimants
`into the following general categories for the following priority treatment:
`Class 1:
`Administrative Professional Fees and Claims: To be paid in
`full up to the Allowed Amount of the Claims.
`Priority Tax and Wage Claims: To be paid in full up to the
`Allowed Amount of the Claims.
`DLIFF’s Claim pursuant to the Claims Stipulation: To
`share the funds remaining after payment of Classes 1 and 2,
`to be split on a pro rata basis with Class 4 DLIF Investor
`Claims pursuant to the Claims Stipulation.
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`Class 2:
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`Class 3:
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`4 Any investors who originally invested in DLIF and later transferred their account to
`DLIFF are deemed DLIFF claimants and are not to receive any distributions pursuant
`to this Distribution Plan.
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`7
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`Class 4A: DLIF Administrative Claims: Will be paid up to the full
`amount of such Allowed DLIF Administrative Claims from
`distributions made in respect of the DLIF Claim under the
`Claims Stipulation.
`Class 4B: DLIF Investor Claims: Except for proceeds of DLIF
`Avoidance Actions which shall be distributed solely to
`Class 4A and 4B, to share the funds remaining after
`payment of Classes 1, 2, and 4A to be split on a pro rata
`basis with the Class 3 DLIFF Claim pursuant to the Claims
`Stipulation. Distribution to Class 4 Investors shall be made
`pursuant to the Rising Tide methodology.
`Class 5: Allowed Unsecured Creditors: To receive distribution only
`upon payment in full of Classes 1, 2, 3 and 4.
`Allowed Indemnity Claims: To receive distribution only
`upon payment in full of Classes 1, 2, 3, and 4, and to be
`paid pro rata with Classes 5 and 7.
`Allowed Counterparty Claims: Allowed Counter-Party
`Claims: To receive distribution only upon payment in full
`of Classes 1, 2, 3, and 4, and to be paid pro rata with
`Classes 5 and 6.
`Class 3 consists only of the DLIFF claim as set forth in the DLIFF Claims
`Stipulation. Distribution on account of Class 3 shall be made only after Classes 1 and
`2 have been paid in full or sufficient reserves are held to ensure payment in full to
`Classes 1 and 2. Distributions in respect of DLIFF’s Claim will be paid to the JOLs.
`Any funds paid to the JOLS shall be distributed by the JOLs in the Cayman
`proceeding pursuant to Cayman law.
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`Class 6:
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`Class 7:
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`8
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`

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`Class 4, which will share pro rata with Class 3 based upon the allocation set
`forth in the Claims Stipulation, consists of the Investors in DLIF who hold Allowed
`Claims. Distribution on account of Class 4 shall be made only after Classes 1 and 2
`have been paid in full. The DLIF Investors will be treated as a single class because
`they are similarly situated in that the funds of the DLIF Investors were commingled
`in various transactions and entities.
`V. The Claims Stipulation is in the Best Interest of the Estate.
`The Receiver believes in his business judgment that the proposed Claims
`Stipulation is fair, reasonable, and in the best interests of the Receivership estate. The
`Claims Stipulation provides for the allowance of the claims of DLIF and DLIFF
`pursuant to the terms of the LSA. The dollar amount of the claims are based on the
`net amount that DLIFF and DLIF, respectively, invested into the Master Fund. The
`LSA by its terms granted DLIFF and DLIF security interests in the loans and equity
`investments made by DLI Capital.
`The principal purpose of a receivership is to marshal the estate’s assets for the
`benefit of aggrieved investors and other creditors of the receivership entity. See SEC
`v. Hardy, 803 F.2d 1034, 1058 (9th Cir. 1986). Receivership courts, like bankruptcy
`courts, have discretion to approve settlements of disputed claims to receivership
`assets. See e.g., Richie Capital Mgmt., v. Kelley, 785 F.3d 273, 278 (8th Cir. 2015.)
`There are no “federal rules [that] prescribe a particular standard for approving
`settlements in the context of an equity receivership; instead a district court has wide
`discretion to determine what relief is appropriate.” Gordon v. Dadante, 336 F. App’x
`540, 549 (6th Cir. 2009). Nonetheless, in this Circuit, the Court must consider the
`following factors in examining a proposed settlement: the probability of success in
`the litigation; the difficulties, if any, to be encountered in the matter of collection;
`the complexity and expense of the litigation; and the paramount interests of creditors,
`giving proper deference to their reasonable views regarding the proposed
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`compromise. Sec. & Exch. Comm’n v. Ruderman, No. CV 09-02974, 2011 WL
`5857452, at *3 (C.D. Cal. Nov. 21, 2011).) “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 could possibly be
`achieved.” Id.
`This Court is instructed by Local Rule 66-8 to look to bankruptcy courts for
`guidance in the receivership context (L.R. 66-8). The Ninth Circuit has held that
`“[b]efore approving a settlement agreement, the bankruptcy court is charged with
`considering the ‘fairness, reasonableness, and adequacy’ of the agreement.” United
`States v. Edwards, 595 F.3d 1004, 1012 (9th Cir. 2010) (citations omitted.) Because
`compromises are favored in bankruptcy actions, courts generally give deference to a
`trustee’s business judgment and approve settlements negotiated in good faith and
`which are “reasonable, fair, and equitable.” Ruderman, 2011 WL 585752, at *3, see
`L.R. 66-8. This is consistent with the goal of both receiverships and liquidation
`bankruptcy actions: the preservation and fair distribution of the liquidated assets.
`Janvey v. Alquire, No. 3:09-cv-0724, 2014 WL 12654910 at *17 (N.D. Tex. July 30,
`2014.)
`The proposed settlement at issue was negotiated in good faith and is
`“reasonable, fair, and equitable.” The Receiver negotiated the Claims Stipulation in
`his capacity as Receiver with the Cayman JOL in arms length negotiations. While the
`Receiver is also one of the JOLs, he did not engage in negotiations on behalf of
`DLIFF and the negotiations took place pursuant to the Protocol.
`In the Receiver’s business judgment, entering into the Claims Stipulation is a
`reasonable settlement and resolution of the allocation of the available funds in the
`Receivership Estate as between DLIF and DLIFF. The proposed settlement resolves
`any disputes relating to allocation as between the two Feeder Funds and provides
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`MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RECEIVER FOR:
`(1) APPROVAL OF CLAIMS STIPULATION WITH DLIFF JOINT LIQUIDATOR; AND
`(2) AUTHORITY TO MAKE INTERIM DISTRIBUTION TO DLIFF
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`certainty as to the priority of distributions. The stipulation further allows the DLIFF
`funds to be distributed to non-U.S. investors that invested through DLIFF pursuant to
`Cayman law through the Cayman liquidation proceeding. Certain material aspects of
`the Claims Stipulation are contingent upon approval of the Receiver’s Distribution
`Plan which proposes a certain priority of payments to the claimants in the case. The
`Distribution Plan proposes to pay all Administrative and Priority Claims in full prior
`to distribution to DLIFF and DLIF (other than Administrative Claims directly
`attributable to either DLIFF or DLIF as determined by the Receiver in his
`discretion). The Plan further proposes that DLIFF and DLIF will be paid in full prior
`to any payment to Creditor Claimants. The Receiver believes that such distribution is
`fair and equitable in this case, as set forth in his motion to approve the Distribution
`Plan.
`In matters of estate administration, courts are deferential to the business
`judgment of bankruptcy trustee, receivers, and similar estate custodians. See, e.g.,
`Bennett v. Williams, 892 F.2d 822, 824 (9th Cir. 1989) (“[W]e are deferential to the
`business management decisions of a bankruptcy trustee”); Southwestern Media, Inc.
`v. Rau, 708 F.2d 419, 425 (9th Cir. 1983) (“The decision concerning the form of
`[estate administration] rested with the business judgment of the trustee”); In re
`Thinking Machines Corp., 182 B.R. 365, 368 (D. Mass. 1995), rev’d on other
`grounds at 67 F.3d 1021 (1st Cir. 1995) (“The application of the business judgment
`rule and the high degree of deference usually afforded purely economic decisions of
`trustee, makes court refusal unlikely”). Citing the Bennett and Southwestern
`decisions of the Ninth Circuit and the deference courts provide t