Morgan Stanley Smith Barney LLC et al v. Johnson et al

Filing 91

MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Defendants Motion to Stay Pending Appeal (Docket No. 82) is DENIED. (Written Opinion) Signed by Judge Paul A. Magnuson on 10/26/2018. (JEP)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Morgan Stanley Smith Barney LLC,
and Morgan Stanley Smith Barney
FA Notes Holdings LLC,

Civ. No. 17-1101 (PAM/TNL)

Plaintiffs,
v.

MEMORANDUM AND ORDER

Christopher Johnson,
Defendant.

This matter is before the Court on Defendant’s Motion to Stay Pending Appeal. For
the following reasons, the Motion is denied.
BACKGROUND
This case arises out of Defendant’s failure to satisfy a judgment for Plaintiffs in the
amount of $1,502,000. The full factual background is set forth in the Court’s September
27, 2018, Memorandum and Order, in which the Court granted Plaintiffs’ request to
appoint a receiver and for a charging order. (Docket No. 75.) Defendant filed a Motion to
Stay Pending Appeal on October 2, 2018. (Docket No. 82.)
DISCUSSION
The power to stay proceedings is inherent in the Court’s power to control its docket.
Twin Cities Galleries, LLC v. Media Arts Grp., Inc., 431 F. Supp. 2d 980, 983 (D. Minn.
2006) (Doty, J.). Whether to issue a stay is within the Court’s discretion. Virginian Ry.
Co. v. United States, 272 U.S. 658, 672 (1926). Such a stay “is not a matter of right” and
“[t]he party requesting a stay bears the burden of showing that the circumstances justify

[it].” Nken v. Holder, 556 U.S. 418, 433-34 (2009) (quotation omitted). In determining
whether to grant a stay, the Court can consider “(1) whether the stay applicant has made a
strong

showing

that

[it]

is

likely

to

succeed

on

the

merits;

(2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of
the stay will substantially injure the other parties interested in the proceeding; and
(4) where the public interest lies.” Hilton v. Braunskill, 481 U.S. 770, 776 (1987). A
balance of these factors weighs against granting a stay.
A.

Likelihood of Success
Defendant has not met the first factor, requiring a strong showing that the applicant

is likely to succeed on the merits. Defendant contends that he is likely to succeed because
of this Court’s treatment of the factors found in Aviation Supply Corporation v. R.S.B.I.
Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993). In Aviation Supply, the Eighth Circuit
provided courts with several factors to consider when deciding whether appointment of a
receiver is appropriate:
Although there is no precise formula for determining when a receiver may
be appointed, factors typically warranting appointment are a valid claim by
the party seeking the appointment; the probability that fraudulent conduct
has occurred or will occur to frustrate that claim; imminent danger that
property will be concealed, lost, or diminished in value; inadequacy of legal
remedies; lack of a less drastic equitable remedy; and likelihood that
appointing the receiver will do more good than harm.
Id. at 316-17.
In its Order, this Court found that three of the Aviation Supply factors were clearly
met: (1) Plaintiffs have a valid claim; (2) their attempts to secure payment through
conventional means have been largely unsuccessful; and (3) a receiver would do more good
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than harm. (Docket No. 75 at 5.) Defendant argues he is likely to succeed on appeal
because these factors are inadequate to appoint a receiver. Defendant largely relies on the
absence of the second Aviation Supply factor, “the probability that fraudulent conduct has
occurred or will occur to frustrate that claim.” Aviation Supply, 999 F.2d at 316.
However, while fraudulent conduct is a circumstance that often leads to the appointment
of a receiver, it is but one factor that the Court may consider. See id. at 317 (“It is well
settled that proof of fraud is not required to support a district court’s discretionary decision
to appoint a receiver.”); see also 12C Wright & Miller, Fed. Practice & Procedure § 2983
(discussing situations warranting appointment of a receiver).
Defendant also argues that there is an absence of “imminent danger that property
will be concealed, lost, or diminished in value” and Plaintiff’s legal remedies are not
inadequate. Aviation Supply, 999 F.2d at 316-17. Similarly, Defendant disputes that
Plaintiffs’ “attempts to secure payment through conventional means have been largely
unsuccessful.” (Docket No. 75 at 5.) However, the record reflects that Defendant has not
been forthcoming in discovery and has made very few efforts to pay the judgment.
Additionally, there are unresolved questions regarding assets that should be remitted to
Plaintiffs (see Pls.’ Opp’n Mem. (Docket No. 90) at 8), and Plaintiffs’ attempts to enforce
this judgment through ordinary legal remedies have been largely unsuccessful for more
than a year. These facts show that appointment of a receiver is an appropriate remedy to
resolve these problems, and that the Aviation Supply factors have been adequately
satisfied.

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Second, Defendant contends that this Court erred by granting the receiver broad
powers over Defendant’s LLC property and assets, such that the receiver will have
“managerial control” over Defendant’s property and the ability to “force a sale.” (Def.’s
Supp. Mem. (Docket No. 84) at 13-14.) Defendant argues that the Court’s Order “might
be interpreted to grant broad powers that conflict with the . . . Minnesota LLC statute.” (Id.
at 14.) The Court granted the receiver no such managerial powers, and any concern that
the language could be construed to grant those powers is mere speculation.
In sum, it was properly within this Court’s discretion to appoint a receiver, and
Defendant’s arguments regarding the Aviation Supply factors are either unpersuasive or
unsupported by the facts of this dispute. Further, his claim that the Court exceeded its
authority by granting the receiver more power than Minnesota law allows is mere
speculation and unsupported by the language of the Order itself. Therefore, Defendant has
failed to make a strong showing that he is likely to succeed on the merits of his appeal.
B.

Injury to the Parties
Defendant has also not established that he will be irreparably injured absent a stay.

He claims that the Court was incorrect when it decided that a receiver would “do more
good than harm” and argues that the receiver will irreparably harm his business and
personal assets. Aviation Supply, 999 F.2d at 317. However, Defendant’s claims of future
injury are speculative. Defendant repeatedly argues that the receiver “might attempt”
several acts outside the scope of the Court’s Order. (Def.’s Supp. Mem. at 15.) This Court
authorized the receiver to: “examine Johnson’s assets . . . . When the examination is
complete, the receiver shall report the results to the Court, and shall make a
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recommendation on the assets’ liquidation to ensure the payment of the amounts Johnson
owes Morgan Stanley.” (Docket No. 75 at 5-6.) Defendant claims the receiver might
collect and liquidate his assets, including his personal assets, and interfere with the
management of his companies. (Def.’s Supp. Mem. at 15.) There is simply no reason to
believe that the receiver will exceed the scope of their authority at this time, and
accordingly, the Defendant has not shown that he will suffer irreparable harm in the
absence of a stay.
Finally, Plaintiffs will suffer injury if a stay is granted because it will further delay
satisfaction of this judgment and potentially harm Plaintiffs’ ability to be repaid. A balance
of the second and third Hilton factors weighs against granting a stay.
C.

Public Policy
Public policy also supports denying a stay. The public interest lies with the swift

resolution of legal claims and judgments. Arbitration is intended to promote this interest
in a timely, cost-saving manner. “Arbitration is supposed to be swift. It will not be swift
if orders to arbitrate are routinely stayed pending appeals from those orders.” Graphic
Commc’ns Union, Chicago Paper Handlers’ & Electrotypers’ Local No. 2 v. Chicago
Tribune Co., 779 F.2d 13, 15 (7th Cir. 1985).
A Financial Industry Regulatory Authority (“FINRA”) arbitration found Defendant
liable for $1,502,000 in damages, and this Court confirmed that award. (Docket No. 19.)
More than a year has passed, and Plaintiffs have collected approximately $3,000 of the
outstanding judgment. (Pls.’ Opp’n. Mem. at 2.) Continuing to delay the payment of the
judgment does not serve the public interest in swiftly resolving debtor/creditor disputes.
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CONCLUSION
Defendant has failed to make a strong showing of a likelihood of success. He has
further failed to show that the interests of the parties or the public support granting a stay.
Accordingly, IT IS HEREBY ORDERED that Defendant’s Motion to Stay Pending
Appeal (Docket No. 82) is DENIED.
Dated: October 26, 2018

s/ Paul A. Magnuson
PAUL A. MAGNUSON
United States District Court Judge

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