Court Opinion

ID: 9397587
Source: CourtListenerOpinion
Date Created: 2023-05-25 17:07:16.116422+00
Date Added: 2024-06-11T17:19:26.034637
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       MAY 25 2023
                                                                     MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

SOCIAL LIFE NETWORK, INC.,                      No.   22-55774

                Plaintiff-Appellant,            D.C. No.
                                                3:21-cv-00767-L-MDD
 v.

LGH INVESTMENTS, LLC; et al.,                   MEMORANDUM *

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Southern District of California
                   M. James Lorenz, District Judge, Presiding

                       Argued and Submitted May 11, 2023
                            San Francisco, California

Before: S.R. THOMAS, CHRISTEN, and BRESS, Circuit Judges.
Partial Concurrence and Partial Dissent by Judge S.R. THOMAS.

      Social Life Network, Inc. (Social Life) appeals from the district court’s

dismissal under Federal Rule of Civil Procedure 12(b)(6) of Social Life’s complaint

against LGH Investments, LLC, Lucas Hoppel, and J.H. Darbie & Co. (collectively,

“LGH”) concerning Social Life’s April 2019 loan agreement with LGH. We review

the grant of a Rule 12(b)(6) motion de novo. Nguyen v. Endologix, Inc., 962 F.3d

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
405, 413 (9th Cir. 2020). We have jurisdiction under 28 U.S.C. § 1291. We affirm

in part and reverse in part.

      1.     The district court properly concluded that Social Life’s claim under

§ 29(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b), is untimely.

“[W]here, as here, the claim asserted is one implied under a statute that also contains

an express cause of action with its own time limitation, a court should look first to

the statute of origin to ascertain the proper limitations period.” Lampf, Pleva,

Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 359 (1991). For implied

causes of action under the Exchange Act, the proper limitations period is “a 1-year

period after discovery combined with a 3-year period of repose.” Id. at 360 (citing

15 U.S.C. §§ 78i(e), 78r(c)); see also Asdar Grp. v. Pillsbury, Madison & Sutro, 99

F.3d 289, 294 (9th Cir. 1996) (holding that “the one-year/three-year structure

governs” causes of action that are implied under § 10(b) of the Exchange Act). For

the 1-year period, the clock starts to run “when the litigant first knows or with due

diligence should know facts that will form the basis for an action.” Merck & Co. v.

Reynolds, 559 U.S. 633, 646 (2010) (quoting 2 C. Corman, Limitation of Actions

§ 11.1.1, at 134 (1991 & 1993 Supp.)).

      Social Life executed its loan agreement with LGH on April 11, 2019. On this

date, Social Life could have determined with reasonable diligence that LGH was not

a registered securities dealer, which was a matter of public record. Social Life’s

                                          2
Exchange Act claim, brought more than a year later in April 2021, is therefore time-

barred. Contrary to Social Life’s contention, the “continuing violation” doctrine

does not extend the statute of limitations here. Under that doctrine, “when a

defendant’s conduct is part of a continuing practice, an action is timely so long as

the last act evidencing the continuing practice falls within the limitations period.”

Bird v. Dep’t of Hum. Servs., 935 F.3d 738, 746 (9th Cir. 2019) (per curiam) (citation

omitted). Social Life’s Exchange Act claim is not based on LGH repeatedly

exercising its warrant to purchase stock, but on the singular event of LGH allegedly

entering an unlawful contract. Thus, the limitations period began to run in April

2019, and the continuing violations doctrine does not apply.

      2.     The district court erred in concluding that the financing agreement was

exempt from California’s usury laws. California Corporations Code § 25118(b)

provides that the “purchasers or holders” of “[a]ny one or more evidences of

indebtedness . . . shall be exempt from the usury provisions of the California

Constitution if . . . [t]he evidences of indebtedness aggregate at the time of issuance

at least three hundred thousand dollars ($300,000) in original face amount . . . .” The

district court concluded that LGH was exempt under this provision because Social

Life had received several loans from different lenders that, in “aggregate,” exceeded

$300,000 by July 2019, a few months after its agreement with LGH.

      California courts have not resolved whether § 25118(b) aggregates “evidences

                                          3
of indebtedness” across multiple lenders. We thus must predict how California

courts would resolve this question. See, e.g., Ticknor v. Choice Hotels Int’l, Inc.,

265 F.3d 931, 939 (9th Cir. 2001). Because § 25118(b) is a California statute, we

follow California’s rules of statutory interpretation. See Killgore v. SpecPro Pro.

Servs., LLC, 51 F.4th 973, 983 (9th Cir. 2022). We thus “first look to the plain

meaning of the statutory language, then to its legislative history and finally to the

reasonableness of a proposed construction.” MacIsaac v. Waste Mgmt. Collection

& Recycling, Inc., 36 Cal. Rptr. 3d 650, 655 (Ct. App. 2005) (citation omitted).

      We conclude that the most logical and internally consistent interpretation of

§ 25118(b), and the one most consonant with the statutory text, is that § 25118(b)

exempts borrowers from usury protections when their “evidences of indebtedness”

with a single lender aggregate to $300,000 “at the time of issuance.” Nothing in

§ 25118(b) indicates that the provision “aggregate[s]” evidences of indebtedness

from transactions with different lenders. Cf. Agapitov v. Lerner, 133 Cal. Rptr. 2d

837, 843 (Ct. App. 2003) (“[T]he constitutional usury provision protecting

borrowers should be read broadly, and exemptions should be read strictly.”).

      LGH’s contrary interpretation is not only less supported by the statutory text,

but also poses other problems. An interpretation of “aggregate” that includes loans

from other lenders would lead to the unusual result of loans initially subject to the

usury laws becoming retroactively exempt from those laws when the borrower later

                                         4
acquires more than $300,000 in cumulative debt. In addition, basing § 25118(b)’s

exemption on aggregate loans from all lenders would pose practical hurdles for

lenders seeking to ascertain whether a high-interest loan is subject to California’s

usury laws.     When § 25118 requires lenders to consider information about

borrowers, it does so explicitly. See Cal. Corp. Code § 25118(a) (requiring lenders

to evaluate the assets of borrowers based on their “most recent financial

statements”). The absence of any guidance in § 25118(b) as to borrowers sharing

financial information or how loans should be aggregated across multiple lenders

suggests that the aggregation rule in § 25118(b) does not extend beyond a single

lender.

      Because we think the text sufficiently supports Social Life, LGH’s proffered

legislative history is unnecessary to our decision. But we note that in explaining

both how § 25118(b) applies to a “transaction” and how it is based on a New York

statute that does the same, the legislative history more probably supports Social

Life’s position.1

      LGH fairly responds that Social Life is a sophisticated outfit and that the usury

1
  We decline Social Life’s request to certify this issue to the California Supreme
Court because it is sufficiently clear that § 25118(b) does not call for the aggregation
of loans across multiple lenders. We note that because LGH made only one loan,
we need not consider whether the statute requires aggregation of multiple loans by
the same lender. Social Life’s Request for Judicial Notice (Dkt. No. 15) is
GRANTED.

                                           5
laws are supposed to exempt from their protections those companies that “by reason

of their own business and financial experience or that of their professional advisers,

could reasonably be assumed to have the capacity to protect their own interests in

connection with the transaction.” Cal. Corp. Code § 25118(f)(2). But to implement

this statutory purpose, California has enacted the specific rules in § 25118(b), which

do not exempt LGH’s loan. The specific provisions of the statute, and not the

broader statutory purpose, must govern. Spotlight on Coastal Corruption v. Kinsey,

271 Cal. Rptr. 3d 867, 881 (Ct. App. 2020) (“Particular provisions of law ordinarily

prevail over more general provisions.”).

         Because LGH’s loan did not exceed $300,000, it is not exempted from

California’s usury laws under § 25118(b). Importantly, this does not mean that

LGH’s loan to Social Life was, in fact, usurious. Although LGH asks that we affirm

the district court on this alternative ground, this issue is properly left to the district

court in the first instance.

         AFFIRMED IN PART, REVERSED IN PART, and REMANDED. 2

2
    The parties shall bear their own costs on appeal.

                                            6
                                                                             FILED
                                                                              MAY 25 2023
Social Life Network, Inc. v. LGH Investments, LLC; No. 22-55774
                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

S.R. THOMAS, Circuit Judge, concurring in part and dissenting in part:

       I agree that the district court properly concluded that Social Life’s claim

under § 29(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc(b), is

untimely. However, I would hold that the district court also properly concluded

that the financing agreement was exempt from California’s usury laws, for the

reasons given by the district court. Therefore, I concur in part and respectfully

dissent in part.