Bowen v. Ziasun Technologies, Inc.

• Decision Date: 08 March 2004
• Docket Number: No. D041142,D041142
• Citation: 11 Cal.Rptr.3d 522,116 Cal.App.4th 777
• Court: California Court of Appeals Court of Appeals
• Parties: Scott BOWEN et al., Plaintiffs and Appellants, v. ZIASUN TECHNOLOGIES, INC., Defendant and Respondent.

11 Cal.Rptr.3d 522

116 Cal.App.4th 777

Scott BOWEN et al., Plaintiffs and Appellants, v. ZIASUN TECHNOLOGIES, INC., Defendant and Respondent.

No. D041142

Court of Appeal, Fourth District, Division 1

March 8, 2004

Certified for Partial Publication^*

As Modified on Denial of Rehearing April 7, 2004

James A. Shalvoy, Manhattan Beach, for Plaintiffs and Appellants.

Smith, Chapman & Campbell, John S. Clifford, Tustin, and Stephanie P. Alexander, Carlsbad, for Defendant and Respondent.

NARES, Acting P.J.

This is an appeal from a grant of summary judgment in favor of defendant Ziasun Technologies, Inc. (Ziasun) on two consolidated actions filed by plaintiffs Scott Bowen and Lief Aa. Fredsted (together sometimes, plaintiffs), which alleged that they were defrauded by a "pyramid" or "Ponzi" scheme orchestrated by foreign brokerage houses from which they purchased shares of stock. The court granted summary judgment in favor of Ziasun, finding that there was no legal basis for or evidence to support plaintiffs' claims against Ziasun.

On appeal Bowen and Fredsted assert that the court erred in granting summary judgment when it found that (1) plaintiffs' claims brought under Business & Professions Code section 17200¹ had no application to the securities transactions at issue; (2) plaintiffs failed to provide any admissible evidence that Ziasun made any misrepresentations to plaintiffs and that Ziasun was not an offeror of securities; (3) no evidence supported plaintiffs' conversion and conspiracy claims; and (4) plaintiffs were not entitled to a continuance of the hearing on the summary judgment motion to conduct further discovery. We conclude that the court did not err in granting summary judgment or in denying leave to conduct additional discovery and therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiffs' Allegations

Bowen is a resident of Australia. Fredsted is a resident of Norway. Ziasun is a publicly traded Nevada corporation that formerly had its headquarters in San Diego County.

In February 2001 Bowen filed a complaint in the San Diego Superior Court against Ziasun and others.² Bowen's complaint alleged that Ziasun, acting in concert with others, sold approximately $365,625.50 of its stock and the stock of other publicly traded companies to Bowen by making misstatements and omissions of material fact. Bowen alleged that Ziasun failed to disclose that it was using investors' funds to perpetrate a pyramid or Ponzi scheme and that Ziasun's stock had little or no market value.

Specifically, Bowen alleged that in 1998, he was contacted by defendant Frank Robinson, who held himself out to be a senior consultant at Amber Securities Corporation (Amber), now allegedly known as defendant World Trade Financial Corporation (World Trade), who solicited him to invest in a company called Titan Motorcycles of America, Inc. (Titan). At that time Bowen did not invest.

In June 1999, Robinson contacted him again, soliciting an investment in Ziasun. Robinson stated that Amber had changed its name to Capital Assets, Ltd. (Capital). Based upon Robinson's solicitation, Bowen purchased 1,000 shares of Ziasun stock. However, he was not told that (1) the stock was restricted; (2) the funds he was investing would be used to finance criminal behavior, securities fraud, pornography, false corporate disclosures, and illegal business practices; (3) returns would be paid from new investors' funds; and (4) there was little or no market for the stock.

Thereafter, defendant Robert Mason contacted him and stated that he would now be handling his account on behalf of Capitol, and solicited him to invest in several other companies. Mason introduced him to a Lynn Briggs, who Mason described as being a financial and investment consultant for Capital. Mason told Bowen that Briggs and Capital had a "close association with Ziasun" and other companies, including Chequemate International, Inc. (Chequemate), Loraca International, Inc. (Loraca), Asia4Sale, Inc. (Asia4Sale) and Castpro.com, Inc. (Castpro). Briggs touted Ziasun and the other companies for investment. Briggs told Bowen that no investor had ever lost money with these companies because of Capital's "close association and intimate knowledge" of the companies being recommended. Based upon the misrepresentations made by Robinson, Mason and Briggs, Bowen bought stock in Ziasun, Chequemate, Loraca, Asia4Sale, Castpro and Novamed, Inc, (Novamed), at a total cost of $365,625.50. Bowen alleged Robinson, Mason and Briggs were acting as agents for the companies in which he invested, including Ziasun. Further, Bowen alleged that their actions were taken at the direction of defendant Bryant Cragun, an alleged investment advisor and fundraiser for the companies Bowen invested in, including Ziasun.

The complaint stated causes of action for unfair, unlawful and deceptive business practices under section 17200, common law fraud, securities fraud, injunctive relief, conversion and conspiracy.

In August 2001 Fredsted filed an action in the San Diego County Superior Court against Ziasun, as well as other individuals and one corporation (see fn. 2, ante). Similar to Bowen's complaint, Fredsted alleged that Ziasun, acting in concert with other individuals and entities, induced him to buy $108,840.10 worth of stock by making misstatements and omissions of fact. However, Fredsted did not allege that he ever purchased any Ziasun stock. Fredsted's complaint mirrored Bowen's in its allegations of a pyramid or Ponzi scheme and stated the same causes of action, with the exception of alleging contact with different individual agents who solicited his investment, and some different companies in which he invested.

Fredsted's complaint alleged that in January 2000 he was contacted by defendant Richard Swatman. Swatman told him that he was a broker and portfolio advisor with Capital and solicited his investment in Chequemate. He purchased 250 shares based upon the representations of Swatman.

Shortly after the initial purchase, he was advised of an increase in the price of Chequemate and was solicited by Swatman to purchase additional shares. After he agreed to buy the additional shares, Swatman told him that the stock was restricted and could not be sold for one year. Fredsted also alleged that he was not advised that (1) funds invested by him would be used by the defendants to finance activities involving criminal behavior, securities fraud, pornography, false corporate disclosures, and illegal business practices; (2) returns on his investment would be made from new investors' funds, i.e., a pyramid or Ponzi scheme; and (3) that little or no market existed for the Chequemate stock.

According to Fredsted, shortly after he opened his account with Capital defendant James Howard contacted him and advised him that he would now be his account manger, and solicited him to invest in Asia4Sale, Castpro, RealestateFederation.com (REF) and Broadcast International (Broadcast). Howard arranged a meeting between himself and Briggs, who Howard represented to be a consultant for Capital and as having a "close association" with the companies being touted. At the meeting, Briggs touted the stock of several companies and represented that he was closely affiliated with Broadcast. Between January and December 2000, based upon the misrepresentations of Swatman, Howard and Briggs, Fredsted invested $108,840.10 in the stock of Broadcast, Chequemate, REF, Asia4Sale, and Castpro. Fredsted further alleged that their actions were taken at the direction of defendant Cragun, who allegedly was an investment advisor and fundraiser for the companies in which he invested, and Ziasun as well.

The court thereafter consolidated Bowen's and Fredsted's actions.

B. Summary Judgment Motion

1. Ziasun's moving papers

In July 2002, Ziasun brought a motion for summary judgment or, alternatively, for summary adjudication of issues. Ziasun argued that the first through third causes of action brought under section 17200 were without merit because that statute did not apply to securities transactions. Ziasun argued that the fourth cause of action for fraud failed as Bowen and Fredsted could not show any facts demonstrating that plaintiffs had purchased Ziasun stock or that Ziasun defrauded them. Ziasun argued that the fifth cause of action for securities fraud was without merit because (1) there were no facts showing that it violated the law on securities fraud; and (2) Ziasun was not a seller or offeror of securities. Ziasun asserted that the sixth cause of action for injunctive relief failed as there was no viable cause of action to support this remedy. Ziasun asserted that the seventh cause of action for conversion was without merit as there was no identifiable sum of money that it was unlawfully interfering with. Finally, Ziasun argued that the eighth cause of action for conspiracy was without merit as there was no evidence that Ziasun conspired with anyone else to commit any wrongdoing.

In support of the motions, Ziasun submitted the declaration of D. Scott Elder, the vice president of INVESTools, Inc., the successor merger company of Ziasun. According to Elder, Fredsted was never a shareholder of Ziasun, and Ziasun never had any direct dealings with either plaintiff. Elder also stated that Ziasun was never the parent company of Asia4Sale and never exercised any control over that company. Ziasun had no part in any alleged scheme against plaintiffs and, to Elder's knowledge, no Ziasun employees ever engaged in any insider trading. According to Elder, Ziasun never converted anything belonging to plaintiffs and never directed any communication to plaintiffs. Elder also denied that Ziasun was engaged in any conspiracy with any other defendants to deprive plaintiffs of money or property.

According to Elder, defendant Cragun resigned from Ziasun as a consultant in 1998 and never held a position with Ziasun as an officer,...