Alpinieri v. TGG Mgmt. Co.

• Decision Date: 05 May 2014
• Docket Number: D064327
• Court: California Court of Appeals Court of Appeals
• Parties: LOUIS ALPINIERI, Plaintiff and Appellant, v. TGG MANAGEMENT COMPANY, INC. et al., Defendants and Respondents.

LOUIS ALPINIERI, Plaintiff and Appellant, v. TGG MANAGEMENT COMPANY, INC. et al., Defendants and Respondents.

D064327

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

Filed: May 5, 2014

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 37-2012-00059181-

CU-SL-NC)

APPEAL from a judgment of the Superior Court of San Diego County, Robert P. Dahlquist, Judge. Affirmed.

Weintraub Law Group and Richard A. Weintraub, Amber L. Condron for the Plaintiff and Appellant.

Duckor Spradling Metzger & Wynne and Scott L. Metzger, William P. Keith for Defendants and Respondents.

Plaintiff and appellant Louis Alpinieri appeals from a judgment in favor of defendants and respondents TGG Management Company, Inc., Matthew Garrett and Trever Acers (collectively TGG) entered after the trial court sustained with leave to amend a demurrer to Alpinieri's complaint for damages under Corporations Code¹ section 25501.5, and Alpinieri elected to stand on his pleading. Alpinieri asks us to hold based on this court's decision in Viterbi v. Wasserman (2011) 191 Cal.App.4th 927 (Viterbi) and principles of statutory interpretation that defendants, who are alleged to be unlicensed broker-dealers, are "sellers" of securities within the meaning of section 25501.5 even if they did not actually hold and transfer title to the securities to Alpinieri. We conclude under section 25501.5's ordinary meaning, defendants' liability for damages requires that Alpinieri plead and prove privity of contract. Because Alpinieri's complaint reveals he did not purchase the securities from TGG, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

In setting out the background facts, we accept as true the properly pleaded and material allegations of Alpinieri's operative first amended complaint. (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 866; Carter v. Prime Healthcare Paradise Valley LLC (2011) 198 Cal.App.4th 396, 401.)

In April 2009, TGG, an unlicensed broker-dealer, approached Alpinieri and began soliciting him via phone, email and in person regarding an investment opportunity in MachineTek, LLC (MachineTek). In June 2009, TGG gave Alpinieri a written proposalfor TGG to provide a corporation, Imeriti, Inc., business acquisition advisory services. In part, TGG proposed it "will advise the Company [Imeriti, Inc.] and make recommendations but will not make decisions on behalf of the Company."² In July 2009, Alpinieri signed a letter of intent to invest. TGG eventually persuaded Alpinieri to invest $400,000 in "preferred membership units" of MachineTek, and in August 2009, Alpinieri and his son entered into a subscription agreement with MachineTek. Alpinieri's son invested $200,000 in MachineTek, making Alpinieri and his son's total investment $600,000. TGG assisted in the negotiation and preparation of both the July 2009 letter of intent and the August 2009 subscription agreement, and advised Alpinieri how much money he should invest. Alpinieri incurred $36,520 in legal fees, and paid TGG a $28,000 commission in connection with the investment.

Alpinieri never received any distributions or return, and the MachineTek securities are essentially worthless. As of the end of 2012, Alpinieri had sold his MachineTek units to his son.

Alpinieri and his son filed a complaint against TGG asserting causes of action for damages from the sale of securities under section 25501.5 of the Corporate Securities Law of 1968 (§ 25000 et seq.; the Act), rescission and negligent misrepresentation. Alpinieri attached as exhibits to the complaint his June 2009 agreement with TGG, theJuly 2009 letter of intent, and the August 2009 subscription agreement. The subscription agreement states in part: "Subject to the terms and conditions of this Agreement, Subscribers [Alpinieri and his son] agree to purchase from Company [MachineTek], and Company agrees to sell and issue to Subscribers, 300 preferred membership units in Company . . . ."

TGG demurred to the complaint. In part it argued plaintiffs failed to state a cause of action under section 25501.5 because TGG did not directly sell securities to plaintiffs; that the plain language of the statute—providing a cause of action for a person "who purchases a security from" an unlicensed broker-dealer—required plaintiffs to prove strict privity between buyer and seller.

Alpinieri filed a first amended complaint omitting his son as a plaintiff and asserting a single cause of action for "damages resulting from the sale of securities" under section 25501.5. Alpinieri alleged TGG "sold securities in the form of membership units" and he invested in MachineTek as a result of TGG's "solicitation and sales tactics . . . ." He alleged that at the time of his investment, TGG and its principals were not registered broker-dealers but nevertheless "were acting as broker dealers and effecting transactions within the meaning of . . . [section] 25004 . . . ."³ Alpinieri allegedthat as a result of TGG's violation of section 25501.5, he suffered damages in the amount of $464,520 plus interest. The first amended complaint attached the same exhibits including the August 2009 subscription agreement.

TGG again demurred to the first amended complaint, arguing that any ambiguity in the complaint's allegations as to the seller were resolved by the description of the transaction in the subscription agreement, which made clear the seller was MachineTek, not TGG. It also argued Alpinieri had failed to allege damages with reasonable precision and particularity by omitting the purchase and sale price of the securities.

In opposition, Alpinieri argued TGG's interpretation of section 25501.5 was illogical; that ambiguity existed as to the true meaning of the statute and thus its interpretation required some analysis of legislative history. He argued section 25401 recognized that a broker-dealer was an owner's agent, and legislative analysis of section 25501.5 showed that the definition of a broker-dealer did not include "any person insofar as he buys or sells securities for his own account." In part, Alpinieri argued that other than in limited circumstances such as an initial public offering, a broker-dealer acts as an agent of a securities issuer and never owns the security before selling it to the eventualshareholder, thus as a practical matter if TGG's interpretation were followed, unlicensed brokers would never be held liable under the statute.

TGG replied that Alpinieri had not remedied his inability to plead privity. It asserted section 25501.5's text was not ambiguous but in harmony with the rest of the Act, thus there was no need to go beyond the plain language of section 25501.5, which imposed liability using the same phrase " 'purchases . . . from' " or " 'sells . . . to' " that had been long held to require strict privity in connection with section 25501. TGG argued the Act's definition of broker-dealer and the legislative history, though irrelevant to interpretation, did not support Alpinieri's arguments. It also pointed out that other provisions of the Act (§§ 25504, 25504.1) expressly impose liability on actors beyond direct buyers and sellers, but no comparable provision does so for section 25501.5.

The trial court sustained the demurrer, ruling Alpinieri's first amended complaint did not allege he purchased a security from or sold a security to an unlicensed broker-dealer, and thus did not state a cause of action under section 25501.5. It gave Alpinieri leave to amend, however, finding it reasonable that he could state some cognizable claim against TGG. Alpinieri thereafter elected not to file a second amended complaint. He timely appealed from the ensuing judgment of dismissal.

DISCUSSION

I. Standard of Review

On review of an order sustaining a demurrer, we independently review the trial court's ruling and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense. (McCall v. PacifiCare of Cal.,Inc. (2001) 25 Cal.4th 412, 415; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We take as true the complaint's properly pleaded and implied factual allegations, but not mere contentions or assertions contradicted by judicially noticeable facts. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)

"Where, as here, the ' "plaintiff is given the opportunity to amend his . . . complaint and elects not to do so, strict construction of the complaint is required and it must be presumed that the plaintiff has stated as strong a case as he . . . can." ' " (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 792, quoting Reynolds v. Bement (2005) 36 Cal.4th 1075, 1091, abrogated on other grounds in Martinez v. Combs (2010) 49 Cal.4th 35, 66; see also Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 408.) "However, '[t]he issue of leave to amend is always open on appeal, even if not raised by the plaintiff. [Citation.]' [Citation.] '[L]eave to amend is properly granted where resolution of the legal issues does not foreclose the possibility that the plaintiff may supply necessary factual allegations.' [Citation.] 'The plaintiff has the burden of proving that an amendment would cure the defect.' " (Moncada, at p. 792, quoting City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 746 & Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.)

When a ruling on a demurrer is based on an interpretation of statutory provisions, we likewise review those issues de novo. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311; People ex rel. Lockyer v. Shamrock Foods Co. ...