Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04203/USCOURTS-cand-3_06-cv-04203-2/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 42:1983 Civil Rights Act

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CONSOLIDATED MANAGEMENT GROUP,

LCC, ET AL.,

Plaintiffs,

 v.

PRESTON DuFAUCHARD, ET AL., 

Defendants. /

No. C 06-04203 JSW

NOTICE OF TENTATIVE

RULING AND QUESTIONS

TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD, PLEASE TAKE

NOTICE OF THE FOLLOWING TENTATIVE RULING AND QUESTIONS FOR THE

HEARING SCHEDULED ON SEPTEMBER 8, 2006 AT 9:00 A.M.:

The Court has reviewed the parties’ papers and, thus, does not wish to hear the parties

reargue matters addressed in those pleadings. If the parties intend to rely on authorities not

cited in their briefs, they are ORDERED to notify the Court and opposing counsel of these

authorities reasonably in advance of the hearing and to make copies available at the hearing. If

the parties submit such additional authorities, they are ORDERED to submit the citations to the

authorities only, without argument or additional briefing. Cf. N.D. Civil Local Rule 7-3(d). 

The parties will be given the opportunity at oral argument to explain their reliance on such

authority.

The Court tentatively DENIES Plaintiffs’ motion for a preliminary injunction and

tentatively GRANTS Defendants’ motion to dismiss.

Case 3:06-cv-04203-JSW Document 32 Filed 09/07/06 Page 1 of 3
United States District Court

For the Northern District of California

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The parties shall have 20 minutes to address the following questions:

1. Defendants argue that the proper mechanism for appeal of the decision of the

Administrative Law Judge would be to the California Superior Court, which would have

jurisdiction to rule on the question of whether the California Department of

Corporations’ administrative action is preempted by federal law. 

a. Although an option under California Government Code §11523, why is

the state court route more appropriate than a federal case? What

authority do Defendants have to support the contention that until state

appellate remedies are exhausted, plaintiffs are barred from making a

federal claim?

b. Are Plaintiffs now time-barred from filing a state appeal?

c. Considering the fact that there are no ongoing state court proceedings, is

abstention appropriate here?

2. The National Securities Markets Improvement Act of 1996 (“NSMIA”) exempts from

registration requirements any “transactions by an issuer not involving a public offering.” 

15 U.S.C. § 77d(2). The scope of the exemption provides that state regulations do not

apply to a security that “is a covered security.” 15 U.S.C. § 77r(a)(1)(A). A security is

a covered security with respect to a transaction that is exempt from registration by virtue

of not involving a public offering. 15 U.S.C. § 77r(b)(4)(D). California’s Corporations

Code tracks the same language and states that any offer or sale of a security with respect

to a transaction that is exempt from registration under the Securities Act is not subject to

other state registration requirements, provided the issuer submits certain forms and pay a

notice filing fee. Cal. Gov’t Code § 25102.1(d). 

a. If Plaintiffs’ transactions involved a public offering and therefore cannot

be considered a covered security, how do Plaintiffs contend that they are

exempted from California law? Without Plaintiffs demonstrating that a

security offering is exempt (or, at least, pleading those facts), how can the

Court reach the issue of preemption?

b. How does the mere filing of a form (which specifically provides that the

issuer has and will continue to comply with the conditions for the

exemption) create the presumption of exemption from state law? (See

McNaul Declaration, Ex. 1, Form D Notice at p. 6, ¶ E.4.) Does

Regulation D exemption occur upon filing the form or upon compliance

with its terms?

c. Is the burden of proving exemption from California law on the party

claiming such exemption? (See California Corporations Code § 25163.)

3. Is the issue of whether Plaintiffs’ offerings involved securities res judicata as a result of

the Administrative Law Judge’s ruling?

4. Plaintiffs argue that they have suffered irreparable harm by being subject to the

enforcement of Regulation D restrictions by the state regulatory body instead of the

Securities and Exchange Commission. What specific harm was suffered as a result of

the Commissioner’s scrutiny and requirement that Plaintiffs conform with applicable

regulations?

Case 3:06-cv-04203-JSW Document 32 Filed 09/07/06 Page 2 of 3
United States District Court

For the Northern District of California

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5. Do the parties have anything further they wish to address?

IT IS SO ORDERED.

Dated: September 7, 2006 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

Case 3:06-cv-04203-JSW Document 32 Filed 09/07/06 Page 3 of 3