Morgan Stanley Smith Barney LLC v. Johnson

Background

The matter concerned Defendant Christopher Johnson’s Motion to Stay Pending Appeal. Plaintiffs had obtained a $1,502,000 judgment against Johnson through Financial Industry Regulatory Authority (FINRA) arbitration, and the court had confirmed that award. In an earlier order, the court granted Plaintiffs’ request to appoint a receiver and issue a charging order. Johnson filed the motion to stay on October 2, 2018.

A stay would have paused proceedings while the appeal proceeded. The party requesting a stay had the burden to justify it. The court considered four factors: whether Johnson showed a strong likelihood of success on appeal, whether he would suffer irreparable harm without a stay, whether a stay would substantially injure Plaintiffs, and where the public interest lay.

Likelihood of Success

The court found that Johnson had not made the required strong showing that he was likely to succeed on appeal. Johnson argued that the court had improperly applied factors used to decide whether appointing a receiver is appropriate. Those factors include whether the claimant has a valid claim, whether fraudulent conduct may frustrate the claim, whether property faces imminent danger, whether ordinary legal remedies are inadequate, whether a less drastic remedy is available, and whether a receiver would do more good than harm.

The court explained that proof of fraud is not required to appoint a receiver and that fraud is only one factor. It found that Plaintiffs had a valid claim, that their efforts to obtain payment through ordinary means had largely failed, and that a receiver would do more good than harm. The court also relied on Johnson’s lack of cooperation in discovery, his limited efforts to pay the judgment, unresolved questions about assets that should be remitted to Plaintiffs, and the failure of ordinary enforcement efforts for more than a year.

Johnson also argued that the receiver had been given overly broad powers over his limited liability company property and assets, including possible managerial control or authority to force a sale. The court rejected that argument, stating that it had granted no such managerial powers and that concerns about a broader interpretation were speculative.

Injury to the Parties

The court also found that Johnson had not shown irreparable harm without a stay. Johnson claimed that the receiver might collect and liquidate his assets, including personal assets, or interfere with management of his companies. The court characterized these claimed injuries as speculative and found no reason at that time to believe the receiver would exceed the authority granted in the earlier order. That authority allowed the receiver to examine Johnson’s assets, report the results to the court, and recommend liquidation of assets to ensure payment of the amounts Johnson owed Morgan Stanley.

The court determined that Plaintiffs would be harmed by a stay because it would further delay satisfaction of the judgment and could impair their ability to be repaid.

Public Interest and Disposition

The court concluded that the public interest also supported denying a stay because legal claims and judgments should be resolved promptly. It noted that arbitration is intended to provide a timely, cost-saving process and that more than a year had passed since the FINRA arbitration award while Plaintiffs had collected only approximately $3,000.

Judge Paul A. Magnuson ordered that Defendant’s Motion to Stay Pending Appeal, Docket No. 82, was DENIED.