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State ex rel. Lavender Farms, LLC v. Ashcroft

Court of Appeals of Missouri, Western District, First Division

July 31, 2018

STATE OF MISSOURI, EX REL. LAVENDER FARMS, LLC AND PAUL BENTON WEEKS III, Appellants,
v.
JOHN J. ASHCROFT, MISSOURI SECRETARY OF STATE, AND DAVID M. MINNICK, MISSOURI COMMISSIONER OF SECURITIES, Respondents.

          Appeal from the Circuit Court of Cole County, Missouri The Honorable Jon E. Beetem, Judge

          Before: Thomas H. Newton, Presiding Judge, Alok Ahuja, Judge and Gary D. Witt, Judge

          Gary D. Witt, Judge

         Lavender Farms, LLC and Paul Benton Weeks III (collectively "Lavender Farms") appeal the judgment of the Circuit Court of Cole County, Missouri quashing the court's preliminary writ which stayed an administrative action by the Missouri Secretary of State, securities division ("Securities Division"). Lavender Farms alleges that the circuit court erred in interpreting the statute of repose within the Missouri Securities Act of 2003 ("Securities Act") to allow the administrative action brought by the Securities Division. We affirm.

         Procedural and Factual Background

         In January 2015, the Securities Division brought an administrative enforcement action against Lavender Farms pursuant to section 409.6-604.[1] The Securities Division alleged that beginning in 2009, Lavender Farms violated the Securities Act by selling securities not registered with the Missouri Commissioner of Securities ("Commissioner"), transacting business as unregistered agents, and making misleading and untrue statements to investors ("Administrative Action"). The Division alleged that beginning in 2009 and until 2012, Lavender Farms induced investors to invest significant sums of money with Lavender Farms, "risk-free," with a guaranteed annual return of 50% to 100% on the investment. It is further alleged that the investors' money was commingled with personal and business funds of Lavender Farms and its members and some of it was subsequently used for personal purposes of Lavender Farms' members. After the Securities Division filed its civil enforcement action, Lavender Farms filed its answer asserting, as an affirmative defense, that section 409.5-509(j)(1) and (2) serves as a statute of repose and barred the Administrative Action. Within the Administrative Action, Lavender Farms also filed a Motion to Dismiss and a Motion for Judgment on the Pleadings based on the allegation that the proceeding was time barred by either a one year or a five year statute of repose set out in the statute, as their alleged actions were taken in 2009 and the Administrative Action was not filed until 2015. The Commissioner denied both motions.

         On October 23, 2016, Lavender Farms filed an original proceeding in the Circuit Court of Cole County seeking a Writ of Prohibition. Lavender Farms again argued that the Administrative Action was barred by the statute of repose set forth in section 409.5-509(j). The circuit court issued a Preliminary Order of Prohibition on October 27, 2016, staying the Administrative Action. The Securities Division filed a Motion to Dismiss Lavender Farm's Petition and quash the preliminary writ. The circuit court held a hearing on March 8, 2017. Following the hearing, the circuit court granted the Securities Division's Motion to quash the preliminary writ and denied Lavender Farm's Petition for a Writ of Prohibition. This appeal followed.

         Standard of Review

         "Although denials of writ applications are generally not appealable, when a preliminary writ has been issued by the circuit court, and the preliminary writ is then quashed by the court, the order quashing the writ is generally an appealable final judgment." State ex rel. Rosenberg v. Jarrett, 233 S.W.3d 757, 761 (Mo. App. W.D. 2007). "Because the disposition of the underlying writ request is discretionary, the matter is reviewed on appeal only to determine whether the circuit court abused its discretion in quashing the writ." Id. Where, however, the writ is dependent upon the interpretation of a statute, this Court reviews the statute's meaning de novo. State ex rel. St. Joseph Sch. Dist. v. Mo. Dept. of Elementary and Secondary Educ., 307 S.W.3d 209, 212 (Mo. App. W.D. 2010).

          Analysis

         Lavender Farm's sole point on appeal alleges that the circuit court erred in quashing the preliminary writ and dismissing the Petition because the court erroneously interpreted section 409.5-509(j)(1) and (2). Lavender Farm contends that section 409.5-509(j) imposes a statute of repose[2] that extinguished the claims filed by the Securities Division prior to their filing.

         The Administrative Action asserts claims based on violations of section 409.301, non-registration of securities, section 409.4-402, non-registration of agent and employing a non-registered agent, and section 409.5-501, fraud in connection with an offer or sale of securities.

         Section 409.5-509 governs civil liability for a violation of the ...


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