Securities and Exchange Commission v. Earle

• Court: District Court, S.D. California
• Decided: January 12, 2024
• Docket: 3:22-cv-01914
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 SECURITIES AND EXCHANGE Case No.: 3:22-cv-01914-H-SBC COMMISSION, 12 ORDER DENYING DEFENDANT Plaintiff, 13 JOSEPH R. EARLE, JR.’S REQUEST v. TO STAY 14 JOSEPH R. EARLE, JR., BARRY D. 15 REAGH, WILLIAM CLAYTON, [Doc. No. 76.] 16 FRANCIS T. DUDLEY, STEVEN E. BRYANT, UPPER STREET 17 MARKETING, INC., and PROJECT 18 GROWTH INTERNATIONAL, INC., 19 Defendants. 20 21 On December 5, 2022, Plaintiff Securities and Exchange Commission (“SEC”) filed 22 a complaint against Defendants Joseph R. Earle, Jr., Barry D. Reagh, William Clayton, 23 Francis T. Dudley, Steven E. Bryant, Upper Street Marketing, Inc., and Project Growth 24 International, Inc. (collectively, “Defendants”). (Doc. No. 1.) On April 24, 2023, the SEC 25 filed a second amended complaint against all Defendants. (Doc. No. 59.) On July 14, 26 2023, Defendant Joseph R. Earle, Jr. (“Defendant Earle, Jr.”) filed a Chapter 7 Bankruptcy 27 Petition in the United States Bankruptcy Court for the Eastern District of Missouri. (See 28 Doc. No. 76.) That same day, Defendant Earle, Jr. filed a suggestion of bankruptcy in the 1 instant action. (Id.) On July 17, 2023, the SEC filed a response to Defendant Earle, Jr.’s 2 suggestion of bankruptcy, noting that to the extent Defendant Earle, Jr. suggests that his 3 notification should operate to stay the proceedings against him in this action, the SEC 4 opposes. (Doc. No. 77.) The Court construes Defendant Earle, Jr.’s suggestion of 5 bankruptcy as a request to stay pursuant to 11 U.S.C. § 362(a). For the reasons explained 6 below, the Court denies Defendant Earle, Jr.’s request to stay. 7 I. DISCUSSION 8 As an initial matter, this Court has jurisdiction to determine whether this proceeding 9 is within the scope of the automatic stay. See Lockyer v. Mirant Corp., 398 F.3d 1098, 10 1106–07 (9th Cir. 2005) (“[A] district court has jurisdiction to decide whether the 11 automatic stay applies to a proceeding pending before it, over which it would otherwise 12 have jurisdiction.”); S.E.C. v. Wolfson, 309 B.R. 612, 617 (D. Utah 2004) (“At the outset, 13 the Court finds that it has jurisdiction to determine its own jurisdiction, as well as to decide 14 whether the automatic stay is applicable to the instant litigation.” (citations omitted)). 15 Section 362 of the Bankruptcy Code provides for the automatic stay of various 16 actions and proceedings against a debtor or his property. 11 U.S.C. § 362(a). However, 17 the Bankruptcy Code exempts several types of actions from the automatic stay, including 18 “the commencement or continuation of an action or proceeding by a governmental 19 unit . . . to enforce such governmental unit’s . . . police and regulatory power.” 11 U.S.C. 20 § 362(b)(4). This exemption is grounded in the premise that “bankruptcy should not be ‘a 21 haven for wrongdoers.’” Lockyer, 398 F.3d at 1107 (quoting Universal Life Church, Inc. 22 v. United States, 128 F.3d 1294, 1297 (9th Cir. 1997)); see also City of New York v. Exxon 23 Corp., 932 F.2d 1020, 1024 (2d Cir. 1991) (explaining that the purpose of the governmental 24 unit exception is to prevent a debtor from “frustrating necessary governmental functions 25 by seeking refuge in bankruptcy court” (citation and internal quotations omitted)). 26 Here, the SEC argues that the action against Defendant Earle, Jr. falls outside of the 27 automatic stay provision of Section 362(a). (Doc. No. 77 at 2–4.) The Court agrees. 28 Although Defendant Earle, Jr. filed a bankruptcy petition in the United States Bankruptcy 1 ||Court for the Eastern District of Missouri, (see Doc. No. 76), the SEC’s action against 2 || Defendant Earle, Jr. is part of an action commenced by a governmental unit enforcing its 3 ||regulatory powers. Accordingly, the regulatory exception of § 362(b)(4) applies, and the 4 ||SEC’s action against Defendant Earle, Jr. is not subject to the automatic stay. See In re 5 || Sherman, 491 F.3d 948, 975 (9th Cir. 2007) (“[T]he SEC was protected against the use of 6 || bankruptcy to avoid the jurisdiction of another court because, under § 362(b)(4), it was not 7 || subject to the automatic stay.’’); S.E.C. v. Earthly Mineral Solutions, Inc., No. 2:07-CV- 8 || 1057-JCM-LRL, 2010 WL 5287523, at *2 (D. Nev. Dec. 17,2010) (“[I]t is well 9 ||established that the regulatory exception of Section 362(b)(4) applies to Commission 10 || enforcement actions.’’). 11 CONCLUSION 12 For the foregoing reasons, the Court denies Defendant Earle, Jr.’s request to stay. 13 Pursuant to 11 U.S.C. § 362(b)(4), the SEC’s action against Defendant Earle, Jr. is exempt 14 || from the automatic stay. 15 IT IS SO ORDERED. 16 | DATED: January 12, 2024 I Juan Ld é kb 17 MARILYN ©. HUFF, Distri ge 18 UNITED STATES DISTRICT COURT 19 20 21 22 23 24 25 26 27 28