Moss v. Kroner
197 Cal. App. 4th 860
Cal. Ct. App.2011Background
- Moss invested $1 million in a DLG note marketed as a security by Plamondon with Kroner Belfer and CPG involved in the marketing and sale process.
- DLG was later shut down by the SEC for operating a Ponzi scheme; Moss did not sue DLG or its president due to stay and previous settlements, but sued the Kroner defendants as alleged middlemen and gatekeepers.
- Moss alleged six misrepresentations about DLG notes, including guarantees of returns and security, were conveyed to Moss through Plamondon with information from Belfer, Kroner, and CPG.
- Kroner and Belfer allegedly shared commissions with selling agents and acted as dual agents for DLG and Moss in soliciting and processing the investment.
- Moss claimed the Kroner defendants knew or should have known the notes were securities and not properly registered, yet continued to facilitate sales.
- The trial court sustained demurrers to Moss’s first two causes of action, dismissing the Kroner defendants; Moss appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Secondary liability under 25110 | Kroner defendants materially aided sale, promoter of DLG securities, thus liable under 25504/25504.1. | Demurrer proper; Kroner defendants not control persons or agents liable under §25110. | Yes; first cause of action viable against Kroner under §25504 and §25504.1. |
| Liability for misrepresentation under 25401 via 25504/25504.1 | Kroner acted as secondary liable actor for 25401 through aiding and intent to deceive/defraud. | Privity and lack of direct sale defense; secondary liability not stated. | Yes; second cause of action viable against Kroner under §25401 with §25504/25504.1. |
Key Cases Cited
- Apollo Capital Fund LLC v. Roth Capital Partners, LLC, 158 Cal.App.4th 226 (Cal. App. 4th Dist. 2007) (secondary liability for aiding in violation; intentional deception standard)
- Cobb v. O'Connell, 134 Cal.App.4th 91 (Cal. App. 2d Dist. 2005) (standard of review for demurrers; pleading sufficiency)
- SEC v. Seaboard Corp., 677 F.2d 1289 (9th Cir. 1982) (recognizes broad secondary liability; privity concerns)
- Bains v. Moores, 172 Cal.App.4th 445 (Cal. App. 4th Dist. 2009) (privity considerations; scope of §25504 liability)
- Murphy v. Kenneth Cole Productions, Inc., 40 Cal.4th 1094 (Cal. 2007) (secondary liability; interpretation of §25504/25504.1)
- Viterbi v. Wasserman, 191 Cal.App.4th 927 (Cal. App. 4th Dist. 2011) (remedial privity limits under rescission vs. damages; impact on secondary liability)