United States District Court, W.D. Washington
ORDER GRANTING MOTION TO INTERVENE AND MOTION FOR
AUTHORITY TO PURSUE CLAIMS AGAINST ZHOU YAN
L. ROBART United States District Judge.
the court are two motions: (1) the Receiver Michael A.
Grassmueck's (“the Receiver”) motion for
authority to pursue certain claims against Ms. Zhou Yan (MFA
(Dkt. # 512)), and (2) Ms. Zhou's motion to intervene in
this action for the limited purpose of responding to the
Receiver's motion (MTI (Dkt. # 519)). The court has
reviewed the Receiver's motion, all submissions filed in
response to the Receiver's motion (see SEC Resp.
(Dkt. # 518); Zhou Resp. (Dkt. # 520)), Ms. Zhou's
motion, the relevant portions of the record, and the
applicable law. Being fully advised, the court GRANTS the
Receiver's motion and Ms. Zhou's motion as more fully
BACKGROUND & ANALYSIS
Ms. Zhou's Motion to Intervene
court first addresses Ms. Zhou's motion to intervene in
these proceedings for the limited purpose of responding to
the Receiver's motion for authority to bring suit against
her. (See MTI.) No party filed an opposition to Ms.
Zhou's motion. (See generally Dkt.) Indeed, both
the SEC and the Receiver state that they do not oppose Ms.
Zhou's motion to intervene. (See SEC Resp. at 1
n.1 (stating that the SEC does not oppose Ms. Zhou's
intervention for the limited purpose of opposing the
Receiver's motion); Resp. (Dkt. # 525) at 1 n.1
(“The Receiver takes no position on the Motion to
Intervene and . . . assum[es] that the court will consider
[Ms. Zhou's] Opposition.”).) Further, the SEC
expressly consents to Ms. Zhou's limited request pursuant
to Section 21(g) of the Securities Exchange Act of 1934, 15
U.S.C. § 78u(g). (SEC Resp. at 1 n.1.) Accordingly, the
court grants Ms. Zhou's motion to intervene in this
action for the limited purpose of responding to the
Receiver's motion, and the court considers her response
to that motion.
The Receiver's Motion for Authority to Sue
the court considers the Receiver's motion for authority
to pursue certain claims against Ms. Zhou. (See
MFA.) On March 17, 2017, the Receiver filed a motion seeking
the court's authorization to pursue claims against Ms.
Zhou. (Id.) These claims include the fraudulent
transfer of assets, aiding and abetting the breach of a
fiduciary duty, and quieting title in certain assets.
(See id.) The Receiver asserts that these potential
claims arise from Defendant Lobsang Dargey's transfer of
$1.4 million in investor funds from certain Receivership
entities for the purpose of purchasing real property in Ms.
Zhou's name. (See Id. at 1.)
motion, the Receiver outlines the basis for his belief that
substantial facts support his proposed claims against Ms.
Zhou. (See Id. at 1-5, 6-8.) In her response, Ms.
Zhou argues not that the Receiver lacks the authority to
bring suit against her, but rather that the Receiver's
claims “are unsupported and should not be litigated any
further.” (Zhou Resp. at 2; see also Id. at
2-5, 6-13.) The SEC, on the other hand, concludes that the
Receiver's claims against Ms. Zhou “appear both
appropriate and tailored to enhance the receivership
estate.” (SEC Resp. at 2.)
not the appropriate forum in which to resolve the substance
of the Receiver's claims or Ms. Zhou's defenses. The
court has already granted the Receiver the authority to
pursue the claims at issue. In its Order Appointing Receiver,
the court authorized the Receiver to “bring such legal
actions based on law or equity in any state, federal, or
foreign court as the Receiver deem[ed] necessary or
appropriate in discharging his duties as Receiver” and
to “pursue . . . all suits, actions, claims and demands
. . .
may be brought by . . . the Receivership Estates.”
(Order App. Rec. (Dkt. # 88) ¶¶ 7.I, 7.J.) Further,
the court has broad equitable authority to determine the
appropriate action in the administration and supervision of
an equity receivership. See SEC v. Capital Consultants,
LLC, 397 F.3d 733, 738 (9th Cir. 2005). Based on the
representations of the Receiver and the SEC (see MFA
at 1-5, 6-8; SEC Resp. at 2), the court concludes that, in
pursuing the described claims against Ms. Zhou, the Receiver
is acting within his business judgment and within the scope
of the authority this court has previously granted to him.
See Donnell v. Kowell, 533 F.3d 762, 776-777 (9th
Cir. 2007) (finding that while a receiver may not have
standing to bring claims on behalf of investors and creditors
of the estate, a receiver is entitled to bring claims on
behalf of the receivership entities). Thus, the court grants
the Receiver's motion to pursue a lawsuit against Ms.
Zhou as described in his moving papers. The merits of the
Receiver's claims and Ms. Zhou's defenses will be
resolved in the Receiver's anticipated lawsuit and not in
the present action.
court also finds unpersuasive Ms. Zhou's argument that
the Receiver seeks a double recovery. Ms. Zhou asserts that
Mr. Dargey has already repaid the funds at issue under his
plea agreement and related pleadings. (Zhou Resp. at 6.)
Indeed, the final judgment against Mr. Dargey recites that he
“is liable for disgorgement in the amount of $17, 600,
000[.00] . . . together with prejudgment interest . . ., but
. . . this amount shall be deemed satisfied by: (1) [Mr.
Dargey's] relinquishment of all legal and equitable
right, title, and interest in all properties, businesses,
funds and assets currently controlled by the Court Appointed
Receiver in this action . . . and (2) the order of
restitution . . . of the Plea Agreement.” (Consent
Judg. (Dkt. # 507) ¶ IV.) Ms. Zhou argues that the $1.4
million the Receiver seeks in his suit against her is
included within the $17.6 million that the final judgment
against Mr. Dargey states is “deemed satisfied.”
(See id.; see also Zhou Resp. at 6.)
Although the final judgment recites that Mr. Dargey's
obligation to disgorge funds is satisfied by the occurrence
of certain events, there is no evidence that Mr. Dargey
actually made any disgorgement payment to the Receivership or
the various entities that the Receivership controls. Further,
although the final judgment recites that Mr. Dargey's
obligation to disgorge is “deemed satisfied, ”
there is no provision concerning the rights or obligations of
others vis-à-vis the Receivership or its various
entities. To the extent that Ms. Zhou has a valid offset
defense to the Receiver's suit, she will have the
opportunity to raise and fully litigate that defense in the
context of the Receiver's suit. As noted above, this
action is not the appropriate forum to resolve that defense
on the merits. Thus, the court is not persuaded that the
specter of a double recovery warrants denial of the
on the foregoing analysis, the court GRANTS Ms. Zhou's
motion to intervene in this action for the limited purpose of
responding to the Receiver's motion for authority to
bring suit against her (Dkt. # 519). The court also GRANTS