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Farr v. Private Advisory Group LLC

United States District Court, W.D. Washington, Seattle

February 24, 2017

JAMES S. FARR, on behalf of himself and all others similarly situated, Plaintiff,
v.
PRIVATE ADVISORY GROUP, LLC, et al., Defendants.

          ORDER

          Honorable Richard A. Jones United States District Judge.

         I. INTRODUCTION

         This matter comes before the Court on Defendants Private Advisory Group, LLC (“PAG”), Douglas Reed Bean, S. Christopher Bean, and Jonathan David Bishop's Motion to Dismiss. Dkt. # 19. For the reasons that follow, the Court GRANTS in part and DENIES in part Defendants' motion.

         II. BACKGROUND

         This is a securities class action. Plaintiff James S. Farr alleges that Defendants participated in and perpetrated a Ponzi scheme involving the sale of securities issued by Aequitas Holdings, LLC or its affiliated entities (“Aequitas”). Dkt. # 4 (“Am. Compl.”).

         Aequitas, which is not named as a defendant in the instant matter, was the central player in the alleged Ponzi scheme. Id. When the scheme collapsed, the Securities Exchange Commission (“SEC”) filed an enforcement action against Aequitas in the U.S. District Court for the District of Oregon. SEC v. Aequitas Mgmt., LLC, No. 16-438-PK, Dkt. # 1.

         On April 14, 2016, the District of Oregon entered an order establishing a receivership over Aequitas' assets. Id., Dkt. # 156. The receivership order imposes a broad “Stay of Litigation” (“Litigation Stay”). Id. at 10. Among other things, the Litigation Stay applies to:

All civil legal proceedings of any nature, including, but not limited to, bankruptcy proceedings, arbitration proceedings, foreclosure actions, default proceedings, or other actions of any nature involving . . . (b) any Receivership Property, wherever located; (c) any of the Receivership Entity . . . (such proceedings are hereinafter referred to as “Ancillary Proceedings”).

Id. “Receivership Entity” is defined by reference to a list of entities that includes Aequitas. Id. at 2, 18. “Receivership Property” is defined to include “monies, funds, securities, credits, effects, goods, chattels, lands, premises, leases, claims, rights and other assets, together with all rents, profits, dividends, interest or other income attributable thereto, of whatever kind, which the Receivership Entity own, possess, have a beneficial interest in, or control directly or indirectly.” Id. at 5. The Litigation Stay further provides that “[a]ll Ancillary Proceedings are stayed in their entirety, and all Courts having any jurisdiction thereof are enjoined from taking or permitting any action until further Order of this Court.” Id. at 10.

         On October 6, 2016, several months following the entry of the Litigation Stay, Farr filed this lawsuit. As alleged in his complaint, Aequitas owns Defendant PAG through a subsidiary. Am. Compl. ¶ 16 (“Aequitas, though a subsidiary, owns an interest in PAG.”); ¶ 4 (“PAG is a registered investment advisor in which Aequitas owns a controlling interest.”); ¶ 26 (“Aequitas had a conflict of interest because it owns a controlling interest in PAG.”); id. (“Aequitas owned a controlling interest in PAG.”).

         Based on the Litigation Stay, Defendants filed the instant motion requesting that the Court dismiss Farr's action under Federal Rule of Civil Procedure 41(b) because he filed it in violation of the Litigation Stay. Dkt. # 19. In the alternative, Farr requests that the Court stay the action until the District of Oregon lifts the Litigation Stay. Id. Farr opposes the motion. Dkt. # 27.

         III. DISCUSSION

         A. Scope of Litigation Stay

         Defendants contend that PAG is “Receivership Property” subject to the District of Oregon's Litigation Stay. Farr contends that it is not because none of the defendants named in this action ...


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