In May, I wrote about Judge Gonzolo P. Curiel’s decision to grant the defendants’ motion to dismiss federal and state securities law claims in Mueller v. San Diego Entm’t Partners, LLC, 2017 U.S. Dist. LEXIS 77643 (S.D. Cal. May 22, 2017). I pointed out that Judge Curiel had ruled that scienter is required under Corporations Code Section 25401 but had quoted the current text of the statute. Faithful readers will recall that scienter was not required under the former version of the statute (which happened to be the version in effect when the plaintiff purchased securities). Then in 2013, the legislature rewrote Section 25401 to conform to federal Rule 10b-5 which does require scienter. At the time, I pointed out that the legislature had likely made it tougher for plaintiffs to plead and prove securities claims. See California Creates Complete Chaos By Rewriting Anti-Fraud Statute, But “We Are Against Fraud Aren’t We?”. Then in 2015, the legislature returned to the former language of Section 25401 (effective January 1, 2016).
I don’t know whether Judge Curiel, one of his clerks, or the parties read my May blog, but his recent ruling denying the defendants’ motion to dismiss the plaintiff’s first amended complaint corrects the temporal error of his prior ruling:
In 2014 and 2015, when the alleged acts of misrepresentations occurred, California Corporations Code section 25401 tracked the language in Rule 10b-5 and provided that,
It is unlawful for any person, in connection with the offer, sale, or purchase of a security, directly or indirectly, to do any of the following:
(a) Employ a devise, scheme, or artifice to defraud.
(b) Make any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading.
(c) Engage in an act, practice, or course of business that operates or would operate as a fraud or deceit upon another person.Cal. Corp. Code § 25401 (2014 & 2015). Since the 2014 and 2015 version of section 25401 was patterned after Rule 10b-5 which was adopted under the Securities Exchange Act of 1934, and which itself was modeled on § 17a of the Securities Act of 1933, 15 U.S.C. § 77q(a)[5], SEC v. Tambone, 597 F.3d 436, 444 (1st Cir. 2010) (“the drafters of Rule 10b-5 modeled the rule on section 17(a)”), federal cases provide persuasive authority in construing state securities law. See Moreland v. Dep’t of Corp., 194...
