Sometimes is you open the bottom ball valve (shut off No.1) slowly the valve inside will stick a little.
Turn the bottom ball valve off, wait for a few seconds, then turn it on very fast. Normally you would want to turn all water valves on and off slowly to prevent water hammer. This type of valve, on this type of backflow assembly (a pressure vacuum breaker (PVB)) has to be turned on fast to seal the rubber seat inside the bell. The fast opening of the ball valve will smack the water against the seat and should push the seal closed and stop the water flow.
Don't forget to get your PVB tested.
Let us know what happens,