Why Privity Matters
Published date | 16 May 2022 |
Subject Matter | Corporate/Commercial Law, Corporate and Company Law, Contracts and Commercial Law, Securities |
Law Firm | Allen Matkins Leck Gamble Mallory & Natsis LLP |
Author | Mr Keith P. Bishop |
In 2011, I posed the following question: Is Privity Required Or Not Required Under Section 25500? Section 25500 of the California Corporations Code provides the remedy for violations of Section 25400 which declares unlawful a variety of manipulative actions involving securities. See also More On Privity And Section 25500.
A recent ruling by Judge Maxine M. Chesney illustrates why privity is important when bringing suit under the California Corporate Securities Law. Baltequera Inc. v. Bell-Carter Foods, LLC, 2022 U.S. Dist. LEXIS 81054.
The case was brought by three plaintiffs - Baltequera, Dcoop and Olives Way. Only Baltequera signed the agreement to purchase membership interests. Dcoop and Olives Way allegedly supplied Baltequera with the funds to make the purchase. The plaintiffs alleged, among other things, violations of both Section 25400 and Section 25401, which declares unlawful untrue statements or omissions of material facts in the purchase or sale of securities. In ruling on the defendants' motion to dismiss, Judge Chesney explained:
With respect to ' 25401, the Court agrees. In particular, although, as plaintiffs point out, the Corporate Securities Act is "modeled" after provisions of federal securities statutes, seePeople v. Simon, 9 Cal. 4th 493, 509-10 (1995),the California Supreme Court has expressly held a private cause of action for a violation of ' 25401 can only be brought by a person in "privity of contract" with the defendant, seeMirkin v. Wasserman, 5 Cal. 4th 1082, 1104 (1993). As...
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