Federal Court Sides With Second DCA In Privity Split

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In Moss v. Kroner, 197 Cal. App. 4th 860 (2011), the Second District Court of Appeal found that rescission was available to a plaintiff under Corporations Code Section 25504 even though the plaintiff was not in privity with the defendant. Section 25504 imposes liability on specified persons who are in “control” of persons who are liable under Section 25501 (creating the remedies of rescission or damages for violations of Section 25401 (false statements)) and Section 25502 (remedies for failure to qualify). Notably, the Fourth District Court of Appeal had reached the opposite conclusion in Viterbi v. Wasserman, 191 Cal. App. 4th 927 (2011). See Second DCA Takes Issue With Fourth DCA Over Privity.

In a ruling issued last month, U.S. District Court Judge Phyllis J. Hamilton cited both Moss and Viterbi and concluded that Moss “appeared to be the better-reasoned decision”. Jackson v. Fischer, 2013 U.S. Dist. LEXIS 36327 (N.D. Cal. March 15, 2013). The context, however, is important. Judge Hamilton cited these two cases in considering a claim under Section 25501.5 – a statute not at issue in either Moss or Viterbi. Section 25501.5 provides a remedy of rescission or damages to any person “who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not, at the time of the sale or purchase, applied for and secured from the commissioner a certificate . . . authorizing that broker-dealer to act in that capacity . . .”. See Section 25501.5 – “A Riddle, Wrapped In A Mystery, Inside An Enigma”, What Do It [§ 25501.5] Mean? and Section 25501.5 – What Do It Mean?

 

Topics:  Broker-Dealer, Privity of Contract, Rescission

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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