APPEAL from a judgment of the Superior Court of Los Angeles County. Yvonne T. Sanchez, Judge. (Los Angeles County Super. Ct. No. VC053815)
The opinion of the court was delivered by: Zelon, J.
CERTIFIED FOR PUBLICATION
Glenn Moss, Jr. appeals the dismissal of his action against Robert Kroner and Robert E. Kroner Insurance Services, Inc.*fn1 (collectively, the Kroner defendants) after they successfully demurred to his Fourth Amended Complaint and the trial court denied leave to amend. We reverse the judgment, conclude that Moss stated two viable causes of action under the Corporations Code, and remand the matter to the trial court.
FACTUAL AND PROCEDURAL BACKGROUND
For the purposes of reviewing a dismissal after a sustained demurrer, we take all pleaded facts in the complaint as true. (Cobb v. O'Connell (2005) 134 Cal.App.4th 91, 95.) In his Fourth Amended Complaint, Moss alleged that as a result of the solicitations of the Kroner defendants and others, he invested $1,000,000 in a Diversified Lending Group, Inc. (DLG) Secured Investment Note. DLG later was shut down by the Securities and Exchange Commission for running a Ponzi scheme.
Moss did not sue DLG due to a federal court stay preventing it and its president, Bruce Friedman, from being named in lawsuits; nor is he currently suing the person who actually sold him the note, Scott Plamondon, with whom he has previously settled his claims. Instead, he sued the Kroner defendants, who are alleged to have, inter alia, acted as the middle step in Moss's purchase of the note. Robert Kroner and Milton Belfer, both insurance agents, were allegedly principals of the Corporate Planning Group (CPG). In most instances in the Fourth Amended Complaint, Moss treated Kroner and Belfer, their respective insurance companies, and CPG as one entity, which he called "the Belfer/Kroner Defendants."
Moss alleged that CPG and DLG entered into a "strategic alliance" and joint marketing agreement by which CPG would promote DLG investment products and become the gatekeeper of transactions and client/advisor relationships with DLG. As Belfer wrote to DLG's president, "[A]ny business written must go thru [sic] Kroner and me. We are controlling the activity so that your program is properly promoted . . . ." CPG redesigned an investment program for DLG, prepared marketing materials for that program, and then disseminated the materials and discussed DLG, its president, and DLG notes at a "roll out" meeting for that program. Plamondon attended the roll out meeting and later presented to Moss the information he received there from Belfer, Kroner, and CPG. This information included six representations that Moss has claimed to have been false:
* DLG notes had zero risk;
* DLG notes offered guaranteed returns of 9 percent or 12 percent, depending on the program;
* DLG had never missed a payment to an investor;
* DLG invested only in "Income Stream Properties;"
* DLG had been operating for more than 23 years; and
* DLG had more than $550 million in assets under management.
Plamondon conveyed these representations to Moss on May 29, 2008, in the course of pitching the DLG investment. These representations, Moss alleged, were material to his decision to invest in DLG.
Moss asserted that the Kroner defendants acted as gatekeepers for investments in DLG. They marketed DLG investment products and made arrangements with entities such as Plamondon's alleged employer, Highland Insurance, by which Highland agents would encourage investments in DLG, collect applications and funds for those investments, and transmit them to Belfer and Kroner, who would in turn forward those materials to DLG. Belfer and Kroner would then share the commissions they received from DLG with the selling agents.
Kroner and Belfer, Moss claimed, knew or should have known long before Moss invested that something was wrong with DLG investments. The first sign of a problem, according to Moss, was a 2007 communication from NFP Securities to, inter alia, Belfer, in which NFP stated that the DLG notes and Secured Real Estate Fund, either alone or in conjunction with the Secured Premium Financing Program, were securities. In March 2007 Belfer allegedly produced a letter to NFP from an attorney stating that the notes were not securities,*fn2 but NFP found this letter inadequate and declined further involvement in DLG. Later, in April 2008, DLG informed the Belfer and Kroner defendants that: it was being investigated for selling unregistered securities; it had retained legal counsel who advised DLG to stop selling the notes because they were securities; it would most likely be required to rescind the sale of its notes; and that DLG would close down its investment notes program in order for DLG to prepare the necessary documents for the Securities and Exchange Commission.
Moss alleged that instead of discontinuing the investment scheme based on this information, Kroner urged Plamondon to sell with more urgency: "Kroner contacted Plamondon and told him that DLG was going to be closing down its DLG Notes program for a number of months in order for DLG and [its president] to 'register' the DLG Notes, and encouraged Plamondon to sell more DLG Notes to his clients before the offering closed." Kroner continued to process DLG investor applications from Plamondon.
At the end of April 2008, Belfer and Kroner received an email from another company reiterating the view that DLG notes were securities and warning them that selling those notes could constitute the illegal sale of an unregistered security. This message contained an eight-page attachment describing 38 items of concern about DLG, its marketing materials, and inconsistencies that had been identified by the company's ...