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Department Of Business Oversight Found Liable For Investors' Attorney Fees

In 2011, the Department of Business Oversight filed a civil action against Investco Management & Development LLC and its promoters alleging various violations of the securities laws in connection with the offer and sale of LLC membership interests.  In 2012, the DBO obtained an interlocutory judgment.  The investors subsequently filed their own civil actions.  Investco and the promoters moved to amend the interlocutory judgment to stay all actions.  The DBO filed a written joinder in support of the motion.  The investors successfully opposed the motion to modify and then obtained an attorney fees against the DBO pursuant to Code of Civil Procedure § 1021.5, which has been described as codifying California's version of the private attorney general doctrine.

Yesterday, the Court of Appeal affirmed the award against the state, finding that Superior Court Judge Ernest H. Goldsmith did not abuse his discretion.  People v. Investco Mgmt. & Dev. Llc, 2018 Cal. App. LEXIS 347.  The Court also rejected the DBO's argument that Corporations Code Section 25530(a) insulated it from liability.  That statute provides:

"No action at law or in equity may be maintained by any party against the commissioner, or a receiver, monitor, conservator, or other designated fiduciary or officer of the court, by reason of their exercising these powers or performing these duties pursuant to the order of, or with the approval of, the superior court." 

The Court of Appeal reasoned that the statute did not apply because the investors did not maintain an action against the DBO.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...