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Plaintiffs Fail In Second Constitutional Challenge To DBO Desist And Refrain Orders

Three years ago, I wrote about a constitutional challenge to a desist and refrain order issued under the California Corporate Securities Law and the California Finance Lenders Law (nka the California Financing Law).  In Shurnas v. Owen, 2016 U.S. Dist. LEXIS 18640 (E.D. Cal. Feb. 16, 2016), Judge Morrison C. England, Jr. ruled that the plaintiffs' First Amendment, Due Process and California Constitution claims were barred by the statute of limitations and he dismissed them without leave to amend.  He also found that the plaintiffs' conclusory allegations failed to state a procedural due process challenge to Corporations Code Section 25532(f) and Financial Code Section 22712, the statutes authorizing the Commissioner to issue desist and refrain orders under the CSL and CFL.  However, Judge England found that the Commissioner failed to demonstrate that amendment of the complaint would be futile.

Following that post, the plaintiffs did file a first amended complaint, but not with any more success.  Judge England ruled that the amended complaint did "little more than reiterate teh same arguments the court already rejected when dismissing the original complaint."  Shurnas v. Owen, 2016 U.S. Dist. LEXIS 157370.  The plaintiffs appeal of Judge England's ruling to the Ninth Circuit Court of Appeals was likewise unavailing.  Shurnas v. Owen, 713 Fed. Appx. 686 (9th Cir. 2018).  In an unpublished opinion, the Court of Appeals held that the plaintiffs' facial constitutional challenge to Corporations Code § 25532 fails because the statute adequately describes the remedies available to a recipient of a desist-and-refrain order, and the state is not required to provide "individualized notice of state-law remedies."  We will have to wait to see whether some other plaintiff will have more success with an "as applied" challenge.

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