People v. Black, H043360

CourtCalifornia Court of Appeals
Writing for the CourtPremo, J.
Citation8 Cal.App.5th 889,214 Cal.Rptr.3d 402
Parties The PEOPLE, Plaintiff and Appellant, v. Charles Baxter BLACK, Defendant and Respondent.
Docket NumberH043360
Decision Date16 February 2017

8 Cal.App.5th 889
214 Cal.Rptr.3d 402

The PEOPLE, Plaintiff and Appellant,
Charles Baxter BLACK, Defendant and Respondent.


Court of Appeal, Sixth District, California.

Filed February 16, 2017

Counsel for Plaintiff/Appellant, The People: Kamala D. Harris, Attorney General,

214 Cal.Rptr.3d 405

Gerald A. Engler, Chief Assistant Attorney General, Jeffrey M. Laurence, Senior Assistant Attorney General, Laurence K. Sullivan, Supervising Deputy Attorney General, Bridget Billeter, Deputy Attorney General

Counsel for Defendant/Respondent, Charles Baxter Black:Mark A. Garver, 331 Soquel Avenue, Suite 201, Santa Cruz, CA 95062

Premo, J.

8 Cal.App.5th 892

Defendant Charles Baxter Black was charged with five counts of using false statements in the offer or sale of a security (Corp. Code, §§ 25401, 25540, subd. (b) ) after he persuaded an acquaintance, Bronic Knarr, to invest in a real estate development opportunity in Idaho in return for a promissory note, the terms of which were amended and extended several times but never realized. The trial court set aside two of the counts pursuant to Penal Code section 995 based on a determination that the promissory note was not a security. The People appeal the order granting the motion to dismiss those two counts. We find that the promissory notes offered for Knarr's investment in the real estate development scheme were not securities within the meaning of the Corporate Securities Law. Accordingly, Black cannot be held to answer those charges.


A. Terms of the Promissory Notes

The promissory note dated May 17, 2006, was written on "Atherton LLC, a land development company" letterhead and listed Atherton, LLC as "borrower" and Knarr as "lender." The note stated that Atherton, LLC promised to pay $124,456 to Knarr "together with interest thereon which shall be calculated in the following manner:

"(a) In the event the real property located at 177 and 200 North Edgewood Lane, Eagle, Idaho is sold by Borrower, the amount of interest shall be based on the percentage of profits minus expenses Borrower receives from the sale; or

"(b) In the event Borrower develops said real property, Lender shall receive two (2) lots based on the tentative map to be selected by Lender.

"(c) In the event that neither (a) or (b) take place before one year from the making of this note, the principal together with interest at the rate of ten percent (10%) shall become due and payable at the election of Lender."

The note further stated that "Charles Black who is executing this Note has agreed that his separate property shall be bound hereby and that resort may be had to such separate property for the payment and enforcement of this Note." The note was signed only by Black as "managing member" of Atherton, LLC.

8 Cal.App.5th 893

On May 8, 2007, Black and Knarr signed an amendment to the note to reflect that Knarr had increased his investment by $155,474 to $279,920,1 and that Knarr would receive one residential acre, not two lots, under term (b) if the property was developed. The May 2007 amendment also extended the maturity date to August 2008. The parties thereafter extended the maturity date of the note three times, on July 21, 2008, August 15, 2009, and on March 17, 2010, for a final extension until January 17, 2012. Knarr did not provide additional money in connection with the

214 Cal.Rptr.3d 406

second, third, or fourth amendments to the note. All other terms remained unchanged.

B. Factual Background 2

Knarr was a corporate vice president who became acquainted with Black when Black worked as a headhunter. The men had known each other for about six years when, in early 2006, Black called Knarr to introduce him to a real estate opportunity. Black said that he had friends who had done well investing in property in Idaho and asked Knarr to invest in a spot that he had identified for downtown development. Black would manage the investment and hoped for a ten-fold return in a year or less.

Knarr gave Black $124,456 which "was to take care of two residential pieces out of the" development at a rate of $6 a square foot. Black documented the amount in the May 2006 promissory note. Knarr testified that he would not have invested without the third term that promised a 10 percent return if sale or development of the property failed, saying: "I was told that I was the guy who was protected. And that I didn't have anything to worry about because of the way the note was written. All I ever had to do was ask for my money out." The parties modified the note in May 2007 to reflect Knarr's additional investment of $155,474 and extended the maturity date of the note several times, through mid-January 2012. Knarr testified that bureaucratic and other delays "ended up stretching it out." Knarr did not provide additional money in connection with the second, third, or fourth amendments to the note and declined Black's invitation to invest more money. He agreed on cross-examination that the promissory note reflected the possibility that the deal would not go through and Black would be unsuccessful in his effort to purchase or develop the property.

Knarr had "weekly" conversations with Black about the property that continued "way past 2008," and Black provided regular updates about the

8 Cal.App.5th 894

progress of the investment up until the end of April 2012. By that time, Knarr had made inquiries that revealed information inconsistent with what Black had told him about the status of certain height ordinances relevant to the property. Knarr was suffering health problems and "didn't have the confidence" to continue waiting. He asked Black for his money but received no response and ultimately hired a private investigator.

Detective Brian Cleveland of the Santa Cruz Sheriff's Office testified that Atherton, LLC was not a California registered company and that Black also operated under another company name that was not registered in California. Detective Cleveland confirmed that Black had been involved in a deal with the owners, named Karen and Pat Towne, of the property in Eagle, Idaho that was identified in the promissory note. Sometime in 2005, Black had arranged to purchase the property for $8.8 million and had paid the Townes between $250,000 and $300,000 in earnest money to keep them from selling the property in 2006 and 2007. Black also had hired a company to visit the property in 2006 and to assess the city codes and entitlements in connection with developing the land. However, the Townes had not heard from Black since 2008.

Black told Detective Cleveland that his job was to get the property under contract so that it could be developed. Black explained that Knarr had loaned him about

214 Cal.Rptr.3d 407

$270,000, which money he was due to repay, and that he had told Knarr that he had backed off the property while watching the city council on issues like height ordinances, but that he still wanted to make the deal happen.

Detective Cleveland determined from certain bank records for the relevant time frame that the balance in Black's accounts did not contain sufficient funds to repay the amount of money provided by Knarr. Before each of the deposits traced to Knarr, Black's account balance was $84.54, $61.91, and $8.66. Outgoing payments from Black's account during the relevant period included checks written to cash, checks to himself, bill payments, rent payments, and a few checks to a business partner, James Riboir (also referred to in the record as James McGuire).

McGuire was a real estate agent who knew Black from prior dealings. McGuire partnered with Black and they agreed that McGuire would provide the earnest money to the Townes and Black would cover entitlement fees and land surveys, which totaled about $200,000. McGuire told Detective Cleveland that he and Black did not intend to raise the amount needed to purchase the land themselves but were going to find an investor. McGuire invested about $160,000 in the property, though he knew it was a risky deal with potential for losing money.

8 Cal.App.5th 895

A third individual, David Faye, also invested in the Eagle, Idaho property. Faye had given Black $20,000 toward the deal in early 2006 but later was unsuccessful in attempts to follow up with Black about his investment.

C. Procedural History

1. Initial Charges

In August 2013, the Santa Cruz County District Attorney filed a complaint charging Black with three counts of theft by false pretenses (Pen. Code, § 532, subd. (a) ; counts 1-3) and three counts of making false statements in the offer or sale of a security (Corp. Code, §§ 25401, 25540, subd. (b) ; counts 4-6). The complaint also alleged enhancements pertaining to the aggregate value of property taken (Pen. Code, §§ 12022.6,...

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