Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-56684/USCOURTS-ca9-13-56684-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

---

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ESG CAPITAL PARTNERS,

LP, a Delaware Limited

Partnership and Limited

Partners,

Plaintiff-Appellant,

v.

TROY STRATOS, AKA Ken

Dennis,

Defendant,

and

VENABLE LLP; DAVID

MEYER,

Defendants-Appellees.

No. 13-56684

D.C. No. 

2:13-cv-01639-ODW-SH

OPINION

Appeal from the United States District Court

for the Central District of California

Otis D. Wright II, District Judge, Presiding

Argued and Submitted December 7, 2015

Pasadena, California

Filed July 11, 2016

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 1 of 28
2 ESG CAPITAL PARTNERS V. VENABLE LLP

Before: Harry Pregerson, Dorothy W. Nelson, and

Consuelo M. Callahan, Circuit Judges.

Opinion by Judge Pregerson 

SUMMARY*

Securities

The panel affirmed in part and reversed in part the district

court’s dismissal for failure to state a claim of a securities

fraud action brought by ESG Capital Partners, L.P., a group

of investors formed to purchase pre-Initial Public Offering

Facebook shares.

ESG Capital’s managing agent negotiated the purchase of

shares with an alleged con artist who was represented by

defendant Venable LLP, a law firm. ESG transferred funds

but never received the shares.

Reversing in part, the panel held that ESG Capital’s

federal securities fraud claim under § 10(b) of the Securities

Exchange Act was sufficiently pled under Federal Rule of

Civil Procedure 9(b) and the Private Securities Litigation

Reform Act. The panel held that Venable attorney David

Meyer was the maker of alleged false statements and had a

duty to disclose information to ESG. ESG pled facts that led

to a strong inference of scienter. It also sufficiently pled

reliance.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 2 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 3

The panel held that ESG’s state law fraud claim, which

paralleled the federal securities fraud claim, was sufficiently

pled under Fed. R. Civ. P. 9(b).

The panel held that ESG’s nonfraud claims under

California state law for conversion, unjust enrichment, unfair

competition, aiding and abetting fraud, and conspiracy to

commit fraud were sufficiently pled under Fed. R. Civ. P.

8(a)(2). The panel held that neither the aiding and abetting

fraud claim nor the conspiracy claim was barred by Cal. Civ.

Code § 1714.10’s Agent’s Immunity Rule, which shields an

attorney who merely acted as an agent of a third party that

had a duty to the plaintiff.

Affirming in part, the panel held that ESG’s state law

claim for breach of fiduciary duty, which alleged conduct that

fell within the scope of providing legal services, was barred

by Cal. Civ. Proc. Code § 340.6’s one-year statute of

limitations. The panel reversed the dismissal of ESC’s other

claims and remanded the case to the district court.

COUNSEL

Margaret A. Grignon (argued) and Paula M. Mitchell, Reed

Smith LLP, Los Angeles, California; William C. Nystrom,

Michael Paris, and Jack I. Siegal, Nystrom Beckman & Paris

LLP, Boston, Massachusetts; for Plaintiffs-Appellants.

Kevin S. Rosen (argued), Matthew S. Kahn, and Bradley J.

Hamburger, Gibson, Dunn & Crutcher LLP, Los Angeles,

California, for Defendant-Appellee Venable LLP.

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 3 of 28
4 ESG CAPITAL PARTNERS V. VENABLE LLP

David K. Willingham (argued) and Arwen Johnson, Caldwell

Leslie & Proctor, PC, Los Angeles, California; for

Defendant-Appellee David Meyer.

OPINION

PREGERSON, Circuit Judge:

INTRODUCTION

In this case we are dealing with the sufficiency of

pleadings to survive a Federal Rule of Civil Procedure

12(b)(6) motion to dismiss. We have jurisdiction over this

appeal pursuant to 28 U.S.C. § 1291, and we affirm in part,

reverse in part, and remand.

We conclude that appellant’s federal securities fraud

claim is sufficiently pled under Federal Rule of Civil

Procedure 9(b) and the Private Securities Litigation Reform

Act. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b–5.

Appellant’s state law fraud claim, which parallels the

federal securities fraud claim, is sufficiently pled under

Federal Rule of Civil Procedure 9(b). Appellant’s nonfraud

state law claims for conversion, unjust enrichment, unfair

competition, aiding and abetting fraud, and conspiracy to

commit fraud are sufficiently pled under Federal Rule of

Civil Procedure 8(a)(2). 

Only one of appellant’s state law claims—breach of

fiduciary duty—is barred by Cal. Civ. Proc. Code § 340.6’s

one-year statute of limitations. 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 4 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 5

Neither the aiding and abetting fraud claim nor the

conspiracy to commit fraud claim is barred byCal. Civ. Code

§ 1714.10’s Agent’s Immunity Rule.

BACKGROUND1

ESG Capital Partners, L.P. (“ESG Capital”) was a group

of investors formed to purchase pre-Initial Public Offering

(“pre-IPO”) Facebook shares. Timothy Burns (“managing

agent Burns”) was ESG Capital’s managing agent. Managing

agent Burns negotiated the purchase of pre-IPO Facebook

stock with a man he believed to be “Ken Dennis.” In fact,

“Ken Dennis” was an alias for Troy Stratos, an alleged con

artist. 

Venable LLP is a law firm with nine offices throughout

the country, including Los Angeles. Venable LLP

represented “Dennis” (aka Stratos) in the Facebook deal,

which is the subject of this securities fraud suit. One of the

partners in Venable LLP’s Los Angeles office, David Meyer

(“attorney Meyer”), was “Dennis’s” principal contact at

Venable LLP throughout the Facebook deal. At the time

Venable LLP was representing “Dennis” in the Facebook

deal, Venable LLP, but not attorney Meyer, also represented

Stratos in an unrelated suit for the theft of $7 million. 

Attorney Meyer assisted Stratos in creating Soumaya

Securities, LLC (“Soumaya Securities”)—a company that

Stratos could use to conduct business without detection. 

1 The following facts are taken from ESG Capital’s First Amended

Complaint and are assumed to be true for the purposes of our review of

the district court’s 12(b)(6) dismissals. See In re Daou Sys., Inc., 411 F.3d

1006, 1012 n.1 (9th Cir. 2005). 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 5 of 28
6 ESG CAPITAL PARTNERS V. VENABLE LLP

Attorney Meyer and Stratos named the company Soumaya

Securities after billionaire Carlos Slim’s late wife, Soumaya,

and attorney Meyer told managing agent Burns that “Dennis”

was affiliated with Slim. “Dennis” was not actually affiliated

with Slim. And Soumaya Securities was not authorized to do

business in California, had no bank accounts, and filed no tax

returns. 

Stratos, the alleged con artist, masqueraded as “Ken

Dennis” in connection with all Soumaya Securities

transactions, yet Soumaya Securities’ operating documents,

which attorney Meyer prepared, listed Stratos as Soumaya

Securities’ manager and sole member and “Kenneth Dennis”

as its CEO. Attorney Meyer maintained a client trust account

only for Stratos. As “Dennis,” the CEO of Soumaya

Securities, Stratos negotiated the sale of pre-IPO Facebook

stocks to ESG Capital from March to April 2011. 

Between February and November 2011, attorney Meyer

met with Stratos 25 times in person and spoke to Stratos at

least 100 times on the phone. Managing agent Burns had

questions before confirming the deal and called attorney

Meyer on April 18, 2011, to verify “Dennis’s”

representations. During their phone conversation, attorney

Meyer informed managing agent Burns that “Dennis” was in

contact with Facebook executives and had access to millions

of Facebook shares. Attorney Meyer told managing agent

Burns that “Dennis” “is who he says he is.” In addition,

attorney Meyer assured managing agent Burns that “Dennis”

and Soumaya Securities were Slim’s affiliates, that the sale

was legitimate, that attorneyMeyer represented “Dennis” and

Soumaya Securities in the sale, and that attorney Meyer

would provide deal documentation. ESG Capital pled that,

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 6 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 7

without attorney Meyer’s assurances, ESG Capital would not

have gone through with the deal. 

The day after the April 18 phone call, ESG Capital wired

$2.8 million into Venable LLP’s trust account as a deposit. 

Attorney Meyer called managing agent Burns to confirm

receipt of the funds and that the “deal is on.” That day, the

entire $2.8 million was deposited into Stratos’s personal

client trust fund account, not to any account for Soumaya

Securities. Also that day, attorney Meyer had an all-day

meeting with Stratos at Venable LLP’s offices. ESG Capital

pled that, had managing agent Burns known that the $2.8

million would not be held in trust pending the sale’s

completion, he would not have authorized attorney Meyer to

release it. 

Throughout the negotiations, managing agent Burns

communicated with “Dennis” through Stratos’s

wpacquisitions@gmail.com email address—the same email

address that attorney Meyer used with Stratos. Attorney

Meyer was copied on some of managing agent Burns’s emails

to “Dennis” at the email address that attorney Meyer knew

belonged to Stratos. Venable LLP interacted with Stratos

often while Stratos negotiated his deal with ESG Capital, and

Venable LLP performed various nonlegal tasks for Stratos,

such as purchasing office supplies and car insurance. 

In early May 2011, after ESG Capital had made its $2.8

million deposit, Stratos needed a bank account to deposit the

funds. Stratos had been “black listed” from Citi and Wells

Fargo due to his notoriety, his poor credit, and outstanding

judgments against him. Venable LLP opened a bank account

for Soumaya Securities at Bank of America. In early July

2011, “Dennis” told managing agent Burns that the deal was

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 7 of 28
8 ESG CAPITAL PARTNERS V. VENABLE LLP

imminent and that managing agent Burns needed to wire

Soumaya Securities an additional $7.2 million. Again,

attorney Meyer provided purchase documentation to

managing agent Burns. 

At managing agent Burns’s request, documentation of the

deposit stated that the funds were refundable, “in the event

the pending transaction does not close as a result of the fault

of the seller or the issuer.” Managing agent Burns emailed

confirmation to attorney Meyer and wired the money to

Soumaya Securities’ Bank of America account on July 12,

2011. Later that day, attorney Meyer emailed managing

agent Burns to confirm receipt of the wire transfer, to which

managing agent Burns responded, “Thanks David, Let’s close

a deal now!” Days after the wire transfer, Bank of America

froze the Soumaya Securities account and then closed it on

July 26. Venable LLP arranged to transfer the funds to a

third party but never told ESG Capital. 

In August 2011, “Dennis” told managing agent Burns that

the deal was closing, and that he needed an additional $1.25

million to secure ESG Capital’s shares. To receive this

transfer, attorney Meyer opened a new bank account at UBS. 

Venable LLP listed Stratos—and not “Dennis”—as Soumaya

Securities’ “Beneficial Owner” on the UBS account. With

this final transfer, ESG Capital’s payments to Stratos totaled

$11.25 million. 

By December 22, 2011, ESG Capital still had not

received the Facebook shares, and managing agent Burns

threatened “Dennis” and attorney Meyer with legal action if

its funds were not returned. In response, managing agent

Burns received an email from Venable LLP’s counsel,

Stewart Webb, stating that “Venable received no such

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 8 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 9

transfer and has no knowledge of the alleged transfer.” 

Managing agent Burns responded by identifying each of ESG

Capital’s wire transfers made at Venable LLP’s direction,

along with the email address for “Dennis.” Webb replied that

the contact information managing agent Burns provided for

“Dennis” was filed at Venable LLP under the name Troy

Stratos, whom Venable LLP believed to be related to

“Dennis.”2 Webb told managing agent Burns that Venable

LLP did not represent any party in the transactions between

managing agent Burns and Soumaya Securities. Attorney

Meyer was terminated by Venable LLP in 2012. 

After learning that ESG Capital had been defrauded,

managing agent Burns panicked and hid the news from ESG

Capital. ESG Capital claims it did not learn of the alleged

fraud and that their money had been stolen until November

2012.

ESG Capital filed suit against Stratos and Venable LLP

and attorney Meyer on March 6, 2013, alleging eight causes

of action: federal securities fraud, state law fraud, and six

nonfraud state claims for conversion, breach of fiduciary

duty, unjust enrichment, unfair competition, aiding and

abetting fraud, and conspiracy to commit fraud. On May 23,

2013, the United States issued a superseding indictment

against Stratos in connection with the Facebook fraud. On

the defendants’ motion, the district court dismissed ESG

Capital’s complaint without prejudice on June 26, 2013. The

district court then dismissed ESG Capital’s first amended

 

2

 Since the district court’s dismissal of ESG Capital’s complaint, ESG

Capital has obtained a sworn deposition from the actual Kenneth Dennis,

Stratos’s stepbrother, stating, among other things, that Kenneth was in no

way involved in the deal.

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 9 of 28
10 ESG CAPITAL PARTNERS V. VENABLE LLP

complaint (“FAC”) with prejudice on August 15, 2013,

denying leave to amend. 

STANDARD OF REVIEW

Rule 12(b)(6) and 9(b) dismissals are reviewed de novo. 

In re Daou Sys., 411 F.3d at 1013. A complaint must include

facts that “state a claim to relief that is plausible on its face.” 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The court

must accept as true the facts alleged in a well-pleaded

complaint, but mere legal conclusions are not entitled to an

assumption of truth. Id. at 678–79. 

A plaintiff alleging fraud must overcome a heightened

pleading standard under Rule 9(b). “In alleging fraud or

mistake, a party must state with particularity the

circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person’s mind may be

alleged generally.” Fed. R. Civ. P. 9(b). To allege federal

fraud, a plaintiff must also plead scienter with particularity. 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

313 (2007).

Nonfraud claims must survive the minimal notice

pleading requirements of Rule 8(a)(2) and provide a short and

plain statement to survive a motion to dismiss. Fed R. Civ.

P. 8(a)(2). 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 10 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 11

DISCUSSION

I. ESG Capital’s § 10(b) Federal Securities Fraud Claim

To state a federal securities fraud claim, in violation of

§ 10(b), a plaintiff must show: “(1) a material

misrepresentation or omission by the defendant; (2) scienter;

(3) a connection between the misrepresentation or omission

and the purchase or sale of a security; (4) reliance upon the

misrepresentation or omission; (5) economic loss; and (6)

loss causation.” Thompson v. Paul, 547 F.3d 1055, 1061 (9th

Cir. 2008) (quoting Stoneridge Inv. Partners, LLC v.

Scientific-Atlanta, 552 U.S. 148, 157 (2008)). 

Section 10(b) is the general anti-fraud provision of the

Securities Exchange Act of 1934. 15 U.S.C. § 78j(b). Its

requirements operate in conjunction with Securities and

Exchange Commission Rule 10b–5. As this court has

explained,

Section 10(b) of the Exchange Act of 1934,

15 U.S.C. § 78j(b), makes it unlawful “for any

person . . . [t]o use or employ, in connection

with the purchase or sale of any security . . .

any manipulative or deceptive device or

contrivance in contravention of such rules and

regulations as the Commission may

prescribe[.]” SEC Rule 10b–5, promulgated

under the authority of section 10(b), in turn,

provides: 

It shall be unlawful for any person . . . (a) To

employ any device, scheme, or artifice to

defraud, 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 11 of 28
12 ESG CAPITAL PARTNERS V. VENABLE LLP

(b) To make any untrue statement of a

material fact or to omit to state a material fact

necessary in order to make the statements

made, in light of the circumstances under

which they were made, not misleading, or 

(c) To engage in any act, practice, or course of

business which operates or would operate as

a fraud or deceit upon any person, in

connection with the purchase or sale of any

security. 17 C.F.R. § 240.10b–5. 

In re Daou Sys., 411 F.3d at 1014 (alterations in original). 

The 1995 Private Securities Litigation Reform Act

(“PSLRA”) raised the pleading standard for federal securities

fraud claims under § 10(b) of the Securities Exchange Act by

adding that a plaintiff must plead with particularity both

falsity and scienter. 15 U.S.C. § 78u-4(b)(1)–(2). A plaintiff

must “state with particularity both the facts constituting the

alleged violation, and the facts evidencing scienter, i.e., the

defendant’s intention to deceive, manipulate, or defraud.” 

Tellabs, Inc., 551 U.S. at 313 (internal quotation marks

omitted). The federal standard is thus higher than the Rule

9(b) standard for common law fraud allegations, which

requires that a plaintiff plead with particularity only the

circumstances constituting fraud, while other circumstances,

such as intent, may be stated generally. Fed. R. Civ. P. 9(b);

see also In re Daou Sys., 411 F.3d at 1014–15 (discussing

how the PSLRA raised the pleading standard). 

The court evaluates the complaint as a whole to determine

if the facts give rise to a strong inference of scienter,

considering competing nonfraudulent inferences. Tellabs,

551 U.S. at 322–23. A strong inference is one that is “cogent

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 12 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 13

and at least as compelling as any opposing inference of

nonfraudulent intent.” Id. at 324 (emphasis added). That is,

the fraudulent inference need not be more compelling than its

nonfraudulent alternatives; if two possible inferences—one

fraudulent and the other nonfraudulent—are equally

compelling, a plaintiff has demonstrated a strong inference of

scienter.

According to the district court, ESG Capital failed to

sufficiently plead the first, second, and fourth elements: (1)

material misrepresentation or omission, (2) the defendant’s

scienter, and (4) the plaintiff’s reliance. We find that the

district court erred and that ESG Capital sufficiently pled its

§ 10(b) securities fraud claim.

A. Material Misrepresentations or Omissions

Venable LLP maintains that ESG Capital failed to plead

that attorney Meyer made material misrepresentations or

omissions. To make misrepresentations under § 10(b),

attorney Meyer must be the “maker” of the statements. Janus

Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135,

142–43 (2011). In addition, if an attorney has a duty to

disclose, the attorney is liable for failing to provide truthful,

nonmisleading information. Thompson, 547 F.3d at 1063.

i. Meyer was the Maker of the False Statements

“[T]he maker of a statement is the entity with authority

over the content of the statement and whether and how to

communicate it.” Janus Capital Grp., 564 U.S. at 144. 

Merely preparing or publishing another’s statement does not

make someone the “maker” of the statement, and attribution

to another party generally indicates that the attributed party

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 13 of 28
14 ESG CAPITAL PARTNERS V. VENABLE LLP

is the “maker.” Id. at 142–43. In Janus, the Supreme Court

considered whether an investment fund or its wholly owned

subsidiary of investment advisers was the “maker” of false

statements in its investment prospectus. The investment fund

owned the subsidiary, but the two corporate entities were

legally separate, with separate boards of trustees. Id. at

146–47. The investment fund had a statutory obligation

under the SEC to file an investment prospectus. Id. at 147. 

The Supreme Court held that, although the investment

advisers were significantly involved in preparing the

prospectuses, their assistance was “subject to the ultimate

control” of the investment fund. Id. at 148. The investment

fund was thus the “maker” of the statements in its prospectus. 

Id.

ESG Capital alleged that attorney Meyer made multiple

statements regarding the securities sale. The district court

found that attorney Meyer did not make material

misrepresentations or omissions, since “Meyer simply

communicated Soumaya [Securities’s] understanding of the

deal, not his own.” Attorney Meyer prefaced many of his

emails with: “It is Soumaya’s understanding . . . .” While it

is true that attributing a statement to another party generally

indicates that party as the “maker” of the statement, see id. at

142–43, we are not convinced that such a short, easy preface

could shield a messenger from liability in all circumstances.

Even assuming that this disclaimer was sufficient to

indicate that Soumaya Securities or Stratos was the “maker”

of the statements in attorney Meyer’s emails, attorney Meyer

made other false statements directly to ESG Capital. 

Attorney Meyer told managing agent Burns that “he

represented ‘Ken Dennis’ and Soumaya Securities in

connection with pre-IPO Facebook transactions,” that

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 14 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 15

“Dennis” was affiliated with Slim, and that Dennis “is who he

says he is.” Yet Soumaya Securities was not affiliated with

Slim, contrary to attorney Meyer’s representations, and

“Dennis” was not who he purported to be. 

Attorney Meyer corresponded with Stratos at Stratos’s

wpacquisitions@gmail.com email address —the same email

address that Stratos used as “Ken Dennis” in its

communications with ESG Capital. Attorney Meyer was

copied on emails between ESG Capital and “Dennis” at this

email address, so attorney Meyer must have known that ESG

Capital believed it was communicating with “Ken Dennis”

when it was actually emailing Troy Stratos. Finally, attorney

Meyer told ESG Capital that its $2.8 million deposit would be

released to Soumaya Securities, when in fact it was put into

Stratos’s personal client trust account. 

Unlike the statements in the Janusinvestment prospectus,

which were reasonably attributed to the investment fund,

attorney Meyer made assurances to managing agent Burns on

his own behalf. Attorney Meyer detailed his relationship to

“Dennis” and made personal assurances regarding the

Facebook deal and ESG Capital’s deposit.

Not only did attorney Meyer make false statements to

managing agent Burns, he also made material omissions

when he failed to reveal that there was no Facebook deal; that

Stratos, not Soumaya Securities, was Venable LLP’s client;

and that ESG Capital’s $2.8 million deposit would be

immediately dispersed to Stratos. 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 15 of 28
16 ESG CAPITAL PARTNERS V. VENABLE LLP

ii. Meyer Had a Duty to Disclose to ESG Capital

When attorneys have a duty to disclose information to

third parties, they may be liable for misrepresentations under

§ 10(b). Thompson, 547 F.3d at 1061. In determining

whether an attorney is liable under § 10(b), this court in

Thompson surveyed other circuits’ decisions, finding that

attorneys may have a duty to nonclient third parties. Id. at

1061–63. In our survey of third party duties in Thompson, we

took note of the Sixth Circuit’s decision in Rubin v.

Schottenstein, Zox & Dunn, 143 F.3d 263 (6th Cir. 1998) (en

banc). In Rubin, an attorney represented a company in

connection with the sale of the company’s debt and stock. 

Thompson, 547 F.3d at 1061–62 (citing Rubin, 143 F.3d at

266–68). The attorney assured a prospective investor that the

company’s stock was “fine,” when the attorney knew that the

company was actually in default on a loan, and the

investment would have constituted further default. Id. The

Sixth Circuit en banc panel held that the attorney had a duty

to the investor, even though the investor was not his client. 

Id.

ApplyingRubin’s logic, this court in Thompson ultimately

articulated the following rule: “An attorney who undertakes

to make representations to prospective purchasers of

securities is under an obligation, imposed by Section 10(b),

to tell the truth about those securities.” Id. at 1063.

Venable LLP argues that Thompson applies only when an

attorney represents the seller of securities. Venable LLP

contends that Facebook was the seller of the pre-IPO

securities while Stratos was merely a middleman. As the

argument goes, since attorney Meyer represented a nonseller,

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 16 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 17

attorney Meyer cannot be liable under the rule articulated in

Thompson. 

Venable LLP’s argument fails for two reasons. First,

Venable LLP mischaracterizes the rule in Thompson, which

explicitly states, “That [the attorney] may have an

attorney–client relationship with the seller of the securities is

irrelevant under Section 10(b).” Id. Second, it is true that

Stratos was not the original seller of the securities, but Stratos

was the seller for ESG Capital’s purposes. ESG Capital dealt

only with Stratos and paid Stratos for the pre-IPO stocks. 

Facebook took no part in the sale between ESG Capital and

Stratos and therefore cannot be considered the seller. What’s

more, taking ESG Capital’s allegations as true—as we must

at the pleading stage—there was no actual seller, certainly not

Facebook. It thus defies logic to shield Venable LLP and

attorney Meyer from liability under the theory that they did

not represent Facebook, whom they consider the true seller,

when they did represent Stratos, who acted as the seller.

B. Scienter

ESG Capital must plead facts that lead to a strong

inference of scienter. Tellabs, 551 U.S. at 322. ESG Capital

can prove scienter by showing deliberate recklessness or

“some degree of intentional or conscious misconduct.” South

Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 782 (9th Cir.

2008) (quoting In re Silicon Graphics Inc. Sec. Litig., 183

F.3d 970, 977 (9th Cir. 1999)).

The district court held that “[n]othing Meyer did for

Stratos or Soumaya [Securities] was inherently suspicious—

and thus does not bespeak his knowledge of the fraud. That

Meyer knew some details of the purported Facebook

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 17 of 28
18 ESG CAPITAL PARTNERS V. VENABLE LLP

transaction, set up several bank accounts for Soumaya

[Securities], facilitated wire transfers from ESG Capital on

behalf of Soumaya [Securities], and disbursed funds to

Stratos fails to demonstrate that Meyer knew there was no

actual deal in the works.” But the district court applied the

scienter pleading standard too stringently; while federal

securities fraud claims require more particularized pleadings,

the standard is not insurmountable. ESG Capital need not

prove its case at the outset. Rather, it has to provide a

narrative of fraud—facts which, if true, substantiate an

explanation at least as plausible as a nonfraudulent

alternative. While no single factual allegation substantiates

an inference of attorney Meyer’s scienter, ESG Capital has

provided a narrative that strongly points to the existence of

scienter.

ESG Capital sufficiently pled facts supporting a strong

inference that attorneyMeyer knew that Stratos was using the

alias “Dennis” and that ESG Capital believed it was

communicating with “Dennis,” not Stratos. Attorney Meyer

emailed Stratos at Stratos’s wpacquisitions@gmail.comemail

address. ESG Capital emailed “Dennis” at this same email

address. Attorney Meyer was copied on emails from ESG

Capital to “Dennis” at that email address. 

ESG Capital also provided facts sufficient to support the

inference that attorney Meyer knew Stratos’s identity and

scheme. Between February and November 2011, attorney

Meyer and Stratos had more than 100 phone conversations

and 25 in-person meetings. ESG Capital pled that attorney

Meyer held an all-day conference with Stratos after ESG

Capital wired its $2.8 million deposit. Attorney Meyer then

consistently authorized payments from Stratos’s client trust

account between April 20, 2011, through July 2011. Venable

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 18 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 19

LLP opened bank accounts for Stratos, since he was “black

listed” and unable to open bank accounts in his own name. 

Venable LLP also performed thousands of dollars’ worth of

nonlegal services for Stratos, such as buying office supplies

and car insurance. Certainly, ESG Capital has pled facts

sufficient to show a cogent and compelling inference of

scienter.

C. Reliance

Because the complaint alleges a “causal connection

between the alleged fraud and the securities transaction,”

ESG Capital sufficiently pled reliance. Desai v. Deutsche

Bank Sec. Ltd., 573 F.3d 931, 939 (9th Cir. 2009) (per

curiam). Although negotiations between ESG Capital and

Stratos were underway before attorney Meyer became

involved, ESG Capital had not wired any money to Stratos

prior to attorneyMeyer’s involvement. ESG Capital pled that

after attorneyMeyertold managing agent Burns that the “deal

is on,” ESG Capital wired the $2.8 million deposit. Notably,

this first transfer was made the day after attorney Meyer

assured managing agent Burns that “Dennis” was who he said

he was and that the deal was legitimate. In addition, ESG

Capital pled that it wired $11.25 million to Soumaya

Securities in direct reliance on attorney Meyer’s assurances

and involvement. Since ESG Capital showed that it wired

funds to ESG Capital only after attorney Meyer’s assurances,

it established the causal connection necessary for reliance.

II. ESG Capital’s State Law Fraud Claim

The pleading standard under Rule 9(b) for state law fraud

claims is lower than the federal PSLRA standard, as Rule

9(b) requires particularity only in regard to the circumstances

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 19 of 28
20 ESG CAPITAL PARTNERS V. VENABLE LLP

of fraud, while “[m]alice, intent, knowledge, and other

conditions of a person’s mind” may be pled generally. Fed.

R. Civ. P. 9(b); see also In re Daou Sys., 411 F.3d at 1014–15

(describing how the PSLRA heightened Rule 9(b) fraud

pleading standards for private securities fraud claims). As

discussed, ESG Capital’s pleadings meet the PSLRA

standard. Its complaint necessarily meets the Rule 9(b)

standard as well. 

III. California Civil Procedure Code § 340.6’s OneYear Statute of Limitations

The district court held that ESG Capital’s state law claims

for conversion, breach of fiduciary duty, unjust enrichment,

unfair competition, aiding and abetting fraud, and conspiracy

to commit fraud were barred by the one-year statute of

limitations articulated in California Civil Procedure Code

§ 340.6. Section 340.6 applies to conduct that falls within the

scope of providing legal services. See Cal. Civ. Proc. Code

§ 340.6(a) (“An action against an attorney for a wrongful act

or omission, other than for actual fraud, arising in the

performance of professional services shall be commenced

within one year after the plaintiff discovers, or through the

use of reasonable diligence should have discovered, the facts

constituting the wrongful act or omission.”). In applying

§ 340.6, the district court focused on Venable LLP’s possible

role as an escrow agent holding funds for ESG Capital. It

held that ESG Capital failed to establish an escrow

relationship and therefore did not show that Venable LLP was

acting outside the scope of providing legal services. The

district court found that, because Venable LLP was providing

legal services, the one-year statute of limitations applied and

barred ESG Capital’s state law claims. 

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 20 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 21

The California Supreme Court has explained that § 340.6

does not apply merely because an attorney’s alleged

misconduct “occurs during the period of legal representation

or because the representation brought the parties together and

thus provided the attorney the opportunity to engage in the

misconduct.” Lee v. Hanley, 61 Cal. 4th 1225, 1238 (2015)

(holding that § 340.6 did not bar plaintiff’s fee dispute claim

that attorney refused to return unearned attorney’s fees,

because the claim could also be construed as conversion). 

The court in Lee recognized that attorneys often have the

same obligations as nonattorneys and explained that the

question is “not simply whether a claim alleges misconduct

that entails the violation of a professional obligation. Rather,

the question is whether the claim, in order to succeed,

necessarily depends on proof that an attorney violated a

professional obligation.” Id. 

It is therefore not dispositive that Venable LLP did not act

as escrow agent for ESG Capital or that ESG Capital’s claim

arises from Venable LLP and attorney Meyer’s attorney

relationship to Stratos. The question is whether ESG

Capital’s claims for conversion, breach of fiduciary duty,

unjust enrichment, and unfair competition “necessarily

depend on proof that [Venable LLP and attorney Meyer]

violated a professional obligation in the course of providing

professional services.” Id. at 1239. Only ESG Capital’s

breach of fiduciary duty claim necessarily involves the

violation of a professional obligation and is therefore subject

to the one-year statute of limitations of § 340.6. See

Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App.

4th 1105, 1121–22 (2014), as modified on denial of reh’g

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 21 of 28
22 ESG CAPITAL PARTNERS V. VENABLE LLP

(Feb. 27, 2014).3 ESG Capital’s other claims for conversion,

unjust enrichment, and unfair competition do not so depend.

IV. The Agent’s Immunity Rule

The district court dismissed ESG Capital’s aiding and

abetting and conspiracy to commit fraud claims, holding that

these claims were barred by the Agent’s Immunity Rule.4

The Agent’s Immunity Rule shields an attorney who merely

acted as an agent or employee of a third party when the third

party had a duty to the plaintiff. Cal. Civ. Code § 1714.10. 

The Rule does not shield an attorney who had an independent

legal duty to the plaintiff, or an attorney who went beyond a

professional duty as part of a conspiracy for the attorney’s

financial gain. Cal Civ. Code § 1714.10(c); Rickley v.

Goodfriend, 212 Cal. App. 4th 1136, 1149 (2013), reh’g

denied (Feb. 5, 2013), review denied (Apr. 10, 2013).

ESG Capital’s aiding and abetting fraud and conspiracy

to commit fraud claims satisfy the independent legal duty

exception to the Agent’s Immunity Rule. “It is well

established that an attorney has an independent legal duty to

3

In the alternative, ESG Capital argues that the one-year period did not

begin until November 2012, since Burns initially hid the fact that the

Facebook deal was fraudulent. This argument is not persuasive, however. 

As ESG Capital’s managing partner, Burns’s knowledge is imputed to

ESG Capital. ESG Capital thus acquired sufficient notice to start the

limitations period in December 2011, when Burns threatened Meyer with

legal action on December 22, after it had not received any Facebook

shares. 

4

In applying the Agent’s Immunity Rule, the district court relied on its

finding that Venable LLP was not acting as an escrow agent. While

Venable LLP’s acting as escrow agent would be sufficient to establish a

duty for this claim, it is not necessary. See Lee, 61 Cal. 4th at 1238.

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 22 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 23

refrain from defrauding nonclients.” Rickley, 212 Cal. App.

4th at 1151. Moreover, attorney Meyer had an independent

legal duty to ESG Capital when he accepted and disbursed

ESG Capital’s funds. Id. at 1156–57 (holding that attorneys

had an independent legal duty to a third party when they held

their clients’ funds in a trust account, to be dispersed to their

clients and third parties). As a result, ESG Capital’s aiding

and abetting and conspiracy to commit fraud claims are not

barred by the Agent’s Immunity Rule.5

V. ESG Capital’s State Law Claims

The district court did not discuss the merits of ESG

Capital’s state law claims, finding that they were either timebarred or precluded by the Agent’s Immunity Rule. Because

we find, at this stage, that only ESG Capital’s breach of

fiduciary duty claim is barred by § 340.6 and that the Agent’s

Immunity Rule does not apply to ESG Capital’s aiding and

abetting and conspiracy claims, we address whether ESG

Capital sufficiently pled its state law claims for conversion,

5 ESG Capital must show an independent legal duty to avoid application

of the Agent’s Immunity Rule; yet it must show absence of a professional

obligation to avoid § 340.6’s statute of limitations. Because the parties

have not addressed this issue and the issue cannot be resolved on the face

of the complaint, we leave it to be considered by the district court on

remand if necessary after discovery. See Von Saher v. Norton Simon

Museum of Art at Pasadena, 592 F.3d 954, 969 (9th Cir. 2010) (“A claim

may be dismissed under Rule 12(b)(6) on the ground that it is barred by

the applicable statute of limitations only when the running of the statute

is apparent on the face of the complaint.”) (internal quotation marks

omitted); Lee, 61 Cal. 4th at 1240 (finding dismissal under the Agent’s

Immunity Rule inappropriate because, without factual development, it

could not be said that a claim “necessarily depend[ed] on proof that [the

defendant] violated a professional obligation”).

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 23 of 28
24 ESG CAPITAL PARTNERS V. VENABLE LLP

unjust enrichment, unfair competition, aiding and abetting

fraud, and conspiracy to commit fraud.

Conversion. To allege conversion, a plaintiff must show:

(1) it possessed property, (2) the defendant disposed of the

property in a manner inconsistent with the plaintiff’s property

rights, and (3) damages. Lee, 61 Cal. 4th at 1240. A specific

sum of money may constitute property for a conversion

action. Id. Here, ESG Capital sufficiently alleged that it

transferred funds to attorney Meyer and Venable LLP, who

placed those funds into a client trust account for the purpose

of ESG Capital’s stock purchase.

Furthermore, an unauthorized transfer of funds is

sufficient to constitute disposal of a plaintiff’s funds in a

manner inconsistent with the plaintiff’s rights. See Virtanen

v. O’Connell, 140 Cal. App. 4th 688, 707–08 (2006). ESG

Capital satisfied the disposal element when it alleged that

attorney Meyer placed its funds into an unauthorized client

trust account and issued checks to Stratos and Venable LLP

using those funds without ESG Capital’s knowledge or

permission. ESG Capital has pled $2.8 million in damages,

as the value of the property at the time of the conversion. 

ESG Capital thus sufficiently pled its conversion claim.

Unjust Enrichment. Some California courts allow a

plaintiff to state a cause of action for unjust enrichment, while

others have maintained that California has no such cause of

action. Compare Prakashpalan, 223 Cal. App. 4th at 1132

(allowing plaintiffs to state a cause of action for unjust

enrichment) with Durell v. Sharp Healthcare, 183 Cal. App.

4th 1350, 1370 (2010) (“There is no cause of action in

California for unjust enrichment.”) (internal quotation marks

and citation omitted). While California case law appears

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 24 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 25

unsettled on the availability of such a cause of action, this

Circuit has construed the common law to allow an unjust

enrichment cause of action through quasi-contract. See

Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 762 (9th

Cir. 2015) (“When a plaintiff alleges unjust enrichment, a

court may ‘construe the cause of action as a quasi-contract

claim seeking restitution.’”) (quoting Rutherford Holdings,

LLC v. Plaza Del Rey, 223 Cal. App. 4th 221, 231 (2014)). 

We therefore allow the cause of action, as we believe it states

a claim for relief as an independent cause of action or as a

quasi-contract claim for restitution.

To allege unjust enrichment as an independent cause of

action, a plaintiff must show that the defendant received and

unjustly retained a benefit at the plaintiff’s expense. 

Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726 (2000). 

ESG Capital alleged that attorney Meyer and Venable LLP

(1) received $2.8 million from ESG Capital, (2) promised to

hold the deposit in a client trust account for Soumaya

Securities, (3) promised that those funds would be refundable,

(4) actually placed those funds in a client trust account for

Stratos, and (5) paid themselves $350,000 with those funds. 

These allegations are sufficient to show that attorney Meyer

and Venable LLP received and unjustly retained $350,000 at

ESG Capital’s expense. Alternatively, ESG Capital’s

allegation of fraud resulting in the defendants’ unjust

enrichment sufficiently states a claim under quasi-contract. 

See Astiana, 783 F.3d at 762.

Unfair Business Practices. To allege unfair business

practices, ESG Capital must show that attorney Meyer and

Venable LLP’s business practices were unfair, unlawful, or

fraudulent. Cal. Bus. & Prof. Code § 17200, et seq. A

fraudulent business practice is one likely to deceive the

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 25 of 28
26 ESG CAPITAL PARTNERS V. VENABLE LLP

public. See Prakashpalan, 223 Cal. App. 4th at 1134

(allowing plaintiffs to state a cause of action for unfair

business practices when theyalleged that attorney-defendants

stole client funds and violated their duty of confidentiality). 

A business practice is unfair when it “significantly threatens

or harms competition.” Id. at 1133 (quoting Cel-Tech

Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal 4th

163, 187 (1999)). ESG Capital sufficiently pled fraudulent or

unfair competition when it alleged that attorney Meyer and

Venable LLP: (1) assisted Stratos to “use[] ESG Capital’s

funds as his personal piggybank,” (2) placed ESG Capital’s

funds into an unauthorized client trust account, and (3) issued

checks to themselves using ESG Capital’s funds without ESG

Capital’s knowledge or permission. 

Aiding and Abetting Fraud. To allege aiding and

abetting, a plaintiff must show that the defendant knowingly:

(1) substantially assisted or encouraged another to breach a

duty, or (2) substantially assisted another’s tort through an

independently tortious act. See Casey v. United States Bank

Nat’l Ass’n, 127 Cal. App. 4th 1138, 1144 (2005). Notably,

both avenues require actual knowledge; however, as

previously discussed, ESG Capital has sufficiently pled

knowledge for the purposes of its common law fraud claim. 

Since it alleged that attorney Meyer knew Stratos’s real

identity and helped him create Soumaya Securities as part of

the fraudulent Facebook deal, ESG Capital has pled actual

knowledge of fraud and substantial assistance for its aiding

and abetting fraud claim.

Conspiracy to Commit Fraud. To allege a conspiracy

to commit fraud, a plaintiff must show: (1) the formation and

operation of the conspiracy, (2) wrongful conduct in

furtherance of the conspiracy, and (3) damages arising from

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 26 of 28
ESG CAPITAL PARTNERS V. VENABLE LLP 27

the wrongful conduct. Kidron v. Movie Acquisition Corp., 40

Cal. App. 4th 1571, 1581 (1995). As with aiding and

abetting, conspiracy involves actual knowledge of the plan. 

Id. ESG Capital alleged formation of the conspiracy by

showing that attorney Meyer helped create Soumaya

Securities, knowing it was unaffiliated with Slim and was

instead an empty shell unable to conduct business. As with

aiding and abetting, ESG Capital satisfied the wrongful

conduct element through its allegations of attorney Meyer’s

participation in creating Soumaya Securities, vouching for

“Dennis,” accepting and dispersing ESG Capital’s deposit,

and facilitating the fraudulent deal. As previouslymentioned,

ESG Capital has pled $2.8 million in damages. ESG Capital

has sufficiently pled conspiracy. 

VI. The Doctrine of In Pari Delicto Does Not Apply

The district court did not address Venable LLP’s

alternative theory of dismissal under the In Pari Delicto

doctrine. Under the In Pari Delicto doctrine, “a plaintiff who

has participated in wrongdoing cannot recover when he

suffers injury as a result of the wrongdoing.” First

Beverages, Inc. of Las Vegas v. Royal Crown Cola Co., 612

F.2d 1164, 1172 (9th Cir. 1980). Managing agent Burns,

ESG Capital’s sole managing partner, pled guilty to stealing

funds from another investment fund: ESG Capital Capital

Partners II, LLP. (Apparently, managing agent Burns gives

all of his partnerships the same name, Executive Services

Group.) Taking ESG Capital’s pleadings as true, it appears

that managing agent Burns’s guilt is wholly unrelated to the

plaintiffs in this case. Although managing agent Burns did

spend investor money, it was not the same investors or money

at issue here; managing agent Burns did not participate in the

wrongdoing alleged here but defrauded a different group of

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 27 of 28
28 ESG CAPITAL PARTNERS V. VENABLE LLP

investors with respect to a separate and unrelated investment

fund. Consequently, Venable LLP and attorney Meyer

cannot successfully assert an In Pari Delicto defense.

CONCLUSION

ESG Capital sufficiently pled its federal fraud claim; it

therefore also sufficiently pled its parallel state fraud claim. 

Only one of ESG Capital’s state nonfraud claims, breach of

fiduciary duty, is barred by § 340.6’s one-year statute of

limitations. Its aiding and abetting and conspiracy claims are

not barred by the Agent’s Immunity Rule. ESG Capital

sufficiently pled its state law claims for conversion, unjust

enrichment, unfair business practices, aiding and abetting

fraud, and conspiracy to commit fraud.

We therefore affirm the district court’s dismissal of ESG

Capital’s breach of fiduciary duty claim as time-barred and

reverse the district court’s dismissal of all other claims under

Rules 12(b)(6) and 9(b). 

AFFIRMED in part, REVERSED in part, and

REMANDED.

 Case: 13-56684, 07/11/2016, ID: 10044903, DktEntry: 51-1, Page 28 of 28