Opinion ID: 806559
Heading Depth: 3
Heading Rank: 2

Heading: California Corporations Code Claims

Text: In addition to its federal securities law claims, Anschutz also alleges that the Merrill Defendants violated §§ 25500, 25501, and 25504 of the California Corporations Code. The District Court dismissed these state law claims on the ground that Anschutz failed to allege that it was injured in California or that Merrill Lynch committed any relevant conduct in California. We agree.
California courts have long recognized a presumption against the extraterritorial application of state law. Sullivan v. Oracle Corp., 254 P.3d 237, 248 (Cal. 2011). Like the Supreme Court of California, we therefore presume that the California legislature “did not intend a statute to be ‘operative, with respect to occurrences outside the state, . . . unless such intention is clearly expressed or reasonably to be inferred ‘from the language of the act or from its purpose, subject matter or history.’” Id. (quoting Diamond Multimedia Sys., Inc. v. Superior Court, 968 P.2d 539, 553 (Cal. 1999)). In keeping with that presumption, the California Court of Appeals has held, in a case involving the California Unfair Competition Law, that California statutory remedies are not available “for injuries suffered by nonCalifornia residents, caused by conduct occurring outside of California’s borders, by defendants whose headquarters and principal places of operations are outside of California.” Norwest Mortgage, Inc. v. Superior Court, 85 Cal. Rptr. 2d 18, 25 (Cal. Ct. App. 1999). The same is true with respect to § 25500 of the California Corporations Code, which “creates a civil remedy for buyers or sellers of stock the price of which has been affected by the forms of market manipulation proscribed by section 25400.” Diamond Multimedia Sys., 968 P.2d at 541. As the Supreme Court of California has squarely held, “[s]ection 25500 simply provides a remedy for third parties whose sale or purchase of stock is affected by unlawful conduct in California.” Id. at 546; see id. at 556 (“[S]ection 25400 regulates only manipulative conduct in California.”). 16 In this case, Anschutz is a Kansas corporation with its principal place of business in Denver, Colorado. Its only relevant contacts with California were through its broker, Credit Suisse, which purchased the ARS at issue. Credit Suisse is not a party to this action. Anschutz does not allege any injury, any communication with Merrill, or any conduct by Merrill in California.16 In an effort to cure the deficiencies of the FAC, Anschutz cites a decision from the United States District Court for the Northern District of California involving parallel claims against Deutsche Bank Securities Inc. (“Deutsche Bank”). Anschutz Corp. v. Merrill Lynch & Co., 785 F. Supp. 2d 799 (N.D. Cal. 2011). In that case, the district court concluded that the purchase of shares by Credit Suisse in California provided a sufficient nexus for Anschutz to pursue claims under the California Corporations Code. Id. at 818 n.18 (“The ARS at issue were purchased in California by plaintiff’s agent. That conduct is sufficient to allow plaintiff to bring claims under California’s Corporation Code.”). That assertion, which appears to confuse the requirements of personal jurisdiction with the availability of a state statutory remedy, is contrary to the California Supreme Court’s holding that § 25500 is available where the “sale or purchase of stock is affected by unlawful conduct in California.” Diamond Multimedia Sys., 968 P.2d at 546 (emphasis supplied).17 The alleged unlawful conduct at the crux of this case—Merrill Lynch’s placement of support bids to manipulate the market—is not alleged to have occurred, and did not occur, in California. In the absence of any alleged unlawful conduct in California, Anschutz cannot assert claims against the Merrill Defendants under § 25500 of the California Corporations Code. 16 Anschutz asserts for the first time on appeal (1) that Merrill Lynch disseminated the Offering Memoranda to California; (2) that Merrill Lynch attempted to resell ARS in California; and (3) that the account for which Anschutz purchased its ARS was maintained in California. Because none of these allegations appears in the FAC, we do not consider them here. 17 Anschutz also cites a California securities treatise for the proposition that the “civil liability provisions of Corp. Code Sections 25500 [and] 25501 . . . apply to any purchase or offer to buy ‘in this state’ as well as an offer or sale.” Harold Marsh & Robert Volk, Practice Under the California Securities Laws § 3.08[5] (2011) (footnote omitted). To the extent that proposition conflicts with Diamond Multimedia, we adhere to the latter. 17
Anschutz also alleges that Merrill Lynch violated § 25501 of the California Corporations Code, which provides a remedy for violations of § 25401. Section 25401, in turn, “prohibits misrepresentations in connection with the purchase or sale of securities.” Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 70 Cal. Rptr. 3d 199, 218 (Ct. App. 2007). For all the reasons previously stated, see Discussion at Part A.1 ante, Anschutz has failed to allege any material misrepresentations made by Merrill Lynch in relation to these ARS. Accordingly, Anschutz has no claim under § 25501. See Ins. Underwriters Clearing House v. Natomas Co., 228 Cal. Rptr. 449, 453 (Ct. App. 1986) (“The test of materiality under the California Corporations Code is the same [as under federal law].”).
Finally, Anschutz fails to state a control person liability claim under § 25504 of the California Corporations Code because its underlying California securities law claims fail. See Moss v. Kroner, 129 Cal Rptr. 3d 220, 229 (Ct. App. 2011) (holding that secondary liability under § 25504 may exist “as long as primary liability is stated or established”).