In a significant legal development, the California Court of Appeal has reversed and remanded a case involving allegations of improper licensing practices by a state department. The complaint, filed by George J. Gerro on July 12, 2024, in the Los Angeles County Superior Court, targets Christopher S. Shultz, Commissioner of the California Department of Financial Protection and Innovation.
George J. Gerro's second amended complaint accuses the Department of Financial Protection and Innovation of misinterpreting Financial Code section 22009. According to Gerro, this misinterpretation allowed the department to issue finance lender licenses to entities like BlockFi Lending LLC that took possession of borrowers' collateral—specifically digital assets such as bitcoin—contrary to statutory provisions. The complaint includes two causes of action: one seeking declaratory relief under Government Code section 11350 and another under Code of Civil Procedure section 1060. Gerro asserts that BlockFi's license was both void and improperly issued due to these regulatory oversights.
Judge Mary H. Strobel initially found that Gerro lacked standing to challenge BlockFi’s finance lender license through a writ of mandate and sustained demurrers without leave to amend. Judge Robert S. Draper later upheld this decision regarding the first cause of action but allowed for potential amendments on appeal based on taxpayer standing theories. On appeal, Gerro argued that he should be allowed to amend his complaint to assert taxpayer standing—a theory suggesting that public funds were being used unlawfully due to the department's actions.
Gerro’s allegations are rooted in claims that BlockFi required borrowers to transfer bitcoin as collateral for loans, which it then used for its own purposes without proper accounting—a practice allegedly sanctioned by the Department’s erroneous interpretation of relevant financial codes. He further claimed that BlockFi had liquidated nearly all his pledged bitcoins during a market downturn without providing adequate details about the sale or offering restitution options.
The appellate court concluded that while Gerro lacked standing under the original theories presented, he demonstrated sufficient grounds for amending his complaint based on taxpayer standing principles. This decision effectively reverses previous judgments and remands the case with directions allowing Gerro to file an amended complaint alleging ultra vires actions by the Department—actions beyond their legal authority—in issuing such licenses.
The plaintiffs seek judicial declarations invalidating these licenses and potentially mandating policy changes within the Department regarding future licensing practices. They also aim for restitution related to alleged unlawful seizures and uses of digital assets as loan collateral.
Representing George J. Gerro are attorneys from Gerro & Gerro including George J. Gerro himself and John M. Gerro; representing Christopher S. Shultz is Attorney General Rob Bonta along with Senior Assistant Attorney General Tamar Pachter, Deputy Attorneys General Brian D. Wesley, and Leanna C. Costantini.
This case is presided over by Judges Mary H. Strobel and Robert S. Draper under Case ID B3211138/B3822706 in Los Angeles County Superior Court.