Los Angeles County Superior Court – Central Civil West

Case Number: BC576608??? Hearing Date: April 28, 2016??? Dept: 310

HARTSHORNE v. METLIFE, INC

DEMURRER TO FIRST AMENDED COMPLAINT

TENTATIVE RULING

Overrule demurrer to 2nd cause of action for violation of securities laws; overrule demurrer to 5th cause of action for financial elder abuse; and sustain, without leave to amend demurrer to 4th cause of action for violation of the UCL

DISCUSSION

I. Background

In these three consolidated cases (Hartshorne v. MetLife, Inc.; Nisenson v. MetLife, Inc.; and Perna v. MetLife, Inc.), Plaintiffs sued Defendants MetLife, Inc., its subsidiaries New England Life Insurance Company (?NELICO?) and New England Securities Corporation (?NES?) (collectively, the ?MetLife Defendants?) and Defendants Tony Russon and Russon Financial Services, Inc. (?the Russon Defendants?). Plaintiffs allege that during the relevant time period, the MetLife Defendants and Russon Defendants authorized a NELICO life agent, Scott Brandt, to engage in a cross-promotion program between MetLife and a real estate company, Diversified Lending Group, Inc. (?DLG?), using DLG promissory notes (?Notes?), as a means to finance insurance premium payments to increase MetLife insurance sales. [First Amended Complaint (?FAC?), ?3.] This MetLife/DLG Program was allegedly approved by MetLife Enterprise supervisors, including Tony Russon, and by the MetLife Enterprise Home Office. [Id.] After being solicited as a prospect in the MetLife/DLG Program, each Plaintiff allegedly invested funds with DLG after being solicited to do so by Scott Brandt, the NELICO agent, and were injured when all or substantially all of those investments were lost when DLG was taken over by the Securities and Exchange Commission (?SEC?) in March 2009 for selling unregistered securities. [Id.]

Based on these allegations and the other allegations more fully set forth in the complaint, Plaintiffs allege claims for negligence, violation of California Securities Laws (Corporations Code ??25401, 25504.1, and 25501), negligence per se, aiding and abetting deceit, financial elder abuse, and unfair competition.

A stay for all purposes was instituted in this case, pending completion of another case, captioned Cantor v. MetLife, Inc., LASC Case No. BC446497. This Court stated that it would keep the stay in place until completion of the Cantor case to avoid inconsistent rulings by different courts. The Cantor case resolved in August 2015 in settlements for the four named Cantor plaintiffs, following the denial by Judge Berle of the plaintiff?s motion for class certification, and denial of the Defendants? motions for summary judgment.

In addition to the three consolidated cases with 37 plaintiffs, there are four (4) other cases that were filed in 2015 with 62 additional plaintiffs, all of which arise from Plaintiffs? investments with DLG through, or in reliance on MetLife agents. In all, there are 7 cases involving 99 Plaintiffs.

The instant Hartshorne, Perna, and Nisenson cases are pending before this Court. The other four cases are Wolf v. MetLife, Inc., LASC Case No. LC102998, filed June 4, 2015; Warner v. MetLife, Inc., LASC Case No. LC103225, filed July 30, 2015; Young v. MetLife, Inc., LASC Case No. LC103247, filed August 5, 2015; and Fraser v. MetLife, Inc., LASC Case No. LC103629, filed December 4, 2015. Wolf, Young, and Warner are pending before Judge Hogue, and Fraser is pending before Hon. Frank Johnson in Department T.

The Court has granted preference to the case of Plaintiff Christine Ramirez. Defendants MetLife, Inc., New England Life Insurance Company, and MetLife Securities, Inc. (collectively, the MetLife Defendants) have demurred to the First Amended Complaint?s allegations pertaining to Plaintiff Ramirez against Defendants ? specifically, the claims for violation of Corporations Code ??25401 and 25504.1 (2nd cause of action); unfair competition (4th cause of action); and financial elder abuse under Welf. & Inst. Code ?15610.30 (5th cause of action).

II. Requests for Judicial Notice

Plaintiff Ramirez requests judicial notice of relevant portions of the January 31, 2012 Reporter?s Transcript of Proceedings in Lawrence J. Cantor v. MetLife, Inc., LASC Case No. BC456412. The request is granted pursuant to Evidence Code ?452(d), as the transcript is a record of the Court in the Cantor litigation, and is subject to judicial notice under this section. The MetLife Defendants have objected to the request for judicial notice to the extent the request seeks judicial notice of the truth of any assertions set forth in the transcript. However, the Court?s order granting judicial notice is limited to the fact that the transcript is a record of the Court.

III. Demurrer

The MetLife Defendants have demurred to Plaintiff Ramirez?s claims for violation of securities laws (Corporations Code ??25110, 25401, 25504.1, and 25501) (second cause of action), unfair competition (violation of Business & Professions Code ??17200, et seq.) (fourth cause of action), and financial elder abuse (violation of Welfare & Institutions Code ?15610.30(a)(2) (fifth cause of action.

a. Violation of Corporations Code ??25110, 25401, 25504.1, and 25501

California Corporations Code ?25110 makes it unlawful ?for any person to offer or sell in this state any security in an issuer transaction (other than in a transaction subject to Section 25120), whether or not by or through underwriters, unless such sale has been qualified under Section 25111, 25112 or 25113 (and no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification) or unless such security or transaction is exempted or not subject to qualification under Chapter 1 (commencing with Section 25100) of this part.? Section 25110 further states that ?[t]he offer or sale of such a security in a manner that varies or differs from, exceeds the scope of, or fails to conform with either a material term or material condition of qualification of the offering as set forth in the permit or qualification order, or a material representation as to the manner of offering which is set forth in the application for qualification, shall be an unqualified offer or sale.?

Corporations Code ?25401 states that ?[i]t is unlawful for any person to offer or sell a security in this state, or to buy or offer to buy a security in this state, by means of any written or oral communication that includes an untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in the light of the circumstances under which the statements were made, not misleading.?

Section 25504 provides that ?[e]very person who directly or indirectly controls a person liable under Section 25501 or 25503, every partner in a firm so liable, every principal executive officer or director of a corporation so liable, every person occupying a similar status or performing similar functions, every employee of a person so liable who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the other person who is so liable had no knowledge of or reasonable grounds to believe in the existence of the facts by reason of which the liability is alleged to exist.? Section 25504.1 imposes joint and several liability as to ?[a]ny person who materially assists in any violation of Section 25110?[and] 25401?.?
Finally, Corporations Code ?25501 states:

Any person who violates Section 25401 shall be liable to the person who purchases a security from him or sells a security to him, who may sue either for rescission or for damages (if the plaintiff or the defendant, as the case may be, no longer owns the security), unless the defendant proves that the plaintiff knew the facts concerning the untruth or omission or that the defendant exercised reasonable care and did not know (or if he had exercised reasonable care would not have known) of the untruth or omission. Upon rescission, a purchaser may recover the consideration paid for the security, plus interest at the legal rate, less the amount of any income received on the security, upon tender of the security. Upon rescission, a seller may recover the security, upon tender of the consideration paid for the security plus interest at the legal rate, less the amount of any income received by the defendant on the security.

The MetLife Defendants are all allegedly alter-egos of their common parent, MetLife, and allegedly operate together as a single enterprise. [FAC, ?51.] With respect to the MetLife Defendants, Plaintiff alleges that Defendant NELICO is a subsidiary of MetLife. In turn, Defendant NES (New England Securities) is a wholly-owned subsidiary of NELICO. NES is allegedly the brokerage arm through which MetLife and NELICO sell securities and financial services to customers. [FAC, ?43.]

Plaintiff alleges that Russon FSI, (of whom Defendant Tony Russon was the principal officer, director, and shareholder ? see FAC, ?45) was the corporate managing partner of NELICO. [SAC, ?45.] Plaintiff alleges that Russon FSI was required to monitor the activities of its agents, including Scott Brandt. [FAC, ?46.]

During the relevant period, the MetLife Defendants and the Russon Defendants allegedly authorized a NELICO life agent ? Scott Brandt ? to engage in a cross-promotion program between MetLife and the Diversified Lending Group (?DLG?). [FAC, ?3.] Brandt was allegedly a career agent for Russon FSI, MetLife, and NELICO. By appointing him as a life agent for licensing purposes, NELCO and MetLife allegedly authorized Brandt to ?transact? insurance business on their behalf in the State of California. [FAC, ?59.]Brandt allegedly solicited Plaintiff Ramirez (as well as the other Plaintiffs) to invest funds with DLG, a real estate company which allegedly issued promissory notes to finance insurance premium payments in order to increase MetLife insurance sales. [FAC, ?3.] The MetLife/DLG Program was approved by MetLife Enterprise supervisors, including Tony Russon?the NELICO Managing Partner, NES Registered Principal and head of the MetLife Office of Supervisory Jurisdiction (?OSJ?) for the greater Southern California Region — and by the MetLife Enterprise Home Office. [Id.]

Ultimately, Plaintiff allegedly invested a total of $279,679 in DLG. [FAC, ?33.] Brandt allegedly informed Tony Russon of his NELICO solicitation efforts, efforts which were allegedly approved by Russon on behalf of the MetLife enterprise. [FAC, ?5.] Further, Brandt?s DLG note sales also were allegedly authorized by NES Registered Principals and Enterprise Compliance Officers, Keith Devereaux and Mitch Hesen as a means to increase MetLife insurance sales. [Id.]Brandt was allegedly appointed as a life agent by NELICO and MetLife. [FAC, ?58.]

Ultimately, the MetLife/DLG Premium Financing Program allegedly generated in excess of $800,000 in insurance premiums paid to the MetLife Enterprise for the purchase of MetLife insurance products utilizing DLG for premium financing. [FAC, ?6.]

Plaintiff alleges that ?[o]n or about February through May 2008, [she] was solicited by Scott Brandt to invest in DLG. Based on her interactions with Brandt, Ms. Ramirez believed DLG to be an approved MetLife product. Ms. Ramirez invested $100,000.00 and $70,000.00 in DLG 12% promissory notes. Her $100,000 check for investment in DLG was personally delivered by Christine Ramirez to the MetLife/ New England offices in April 2008. Her $70,000 check for investment in DLG was personally delivered by Christine Ramirez to the MetLife/ New England offices in May 2008. The source of her funds for her investment included was retirement savings and a Home Equity Line of Credit (?HELOC?) that was secured by deed of trust on her personal residence. At the suggestion of Scott Brandt, she increased her existing HELOC to invest the equity from her personal residence into DLG. Ms. Ramirez further invested her IRA funds into DLG after she was further solicited by Scott Brandt to invest. She invested $108,269.00 of her IRA investment, which was at Hartford, a financial institution. To invest in DLG Ramirez transferred her funds out of her IRA. In August 2008, she invested another $1,500.00 in DLG 12% promissory notes. Her total investment in DLG was $279,769?.? [FAC, ?33.]

Plaintiffs allege that Russon had a long-term business relationship with Bruce Friedman, the owner of DLG. Friedman was president of a mortgage brokerage company known as Lender?s Depot, the predecessor to DLG, and in that capacity brokered a real estate loan for Russon. [FAC, ?88.] At the conclusion of that brokerage transaction, Friedman misappropriated approximately $350,000 in loan proceeds that belonged to Russon. [Id.] When Russon complained, Friedman promised to repay the $350,000. [Id.] On three subsequent occasions Friedman sent a check for $350,000 to Russon, and on each occasion the check bounced based on insufficient funds. [Id.] Thereafter, Friedman delivered a written agreement dated January 24, 2002 to Russon, in which Friedman promised to pay $750,000 to Russon, and further agreed to pay to Russon one-half of his future income until the $750,000.00 was repaid in full. [Id.]

Thereafter, Russon allegedly agreed to promote sales of promissory notes issued by DLG as a form of premium financing to enable prospects to purchase insurance products issued by MetLife. [FAC, ?89.] Russon was acting in the course and scope of his agency as a Managing Partner for NELICO in promoting DLG as a form of premium financing to make additional sales of MetLife insurance products, which generated premium income for both MetLife and NELICO. [Id.]

The FAC describes a December 2004 meeting between Russon, Bruce Friedman (President of DLG), Diane Cano (the president of Applied Equities, Inc., which was a subsidiary of DLG and acted as DLG?s Investment Servicing Division [FAC, ?93]), Brandt, and other MetLife agents and registered representatives. At this ?Wholesalers Meeting,? Russon was allegedly acting in his capacity as a principal, officer, and director of Russon FSI, a Managing Partner of NELICO, a Managing Principal of NES, and as an NEF ?general agent? (as well as in his capacity as Brandt?s superior). [FAC, ?97.] Friedman and Cano allegedly presented the DLG ?premium financing program? at the meeting. [FAC, ?98.] Friedman and Cano allegedly represented that DLG offered two separate investment ?contracts? ? one which paid investors a minimum guaranteed rate of 9%, and the other a minimum guaranteed rate of 12%. [FAC, ??99-100.] At this meeting, Friedman allegedly explained that the payments on the DLG contracts would be used to pay for the premiums on NELICO/MetLife insurance policies, either for existing customers who were NELICO/MetLife insureds, or new customers. [FAC, ?100.] At no time did Russon correct or qualify any of these statements. [FAC, ?101.] This allegedly was intended to encourage Brandt and the other agents at the meeting to solicit, market, place into the stream of commerce or otherwise encourage them to sell DLG to their insurance customers and potential customers as a form of premium financing to generate more sales of MetLife and NELICO insurance products. [Id.]

Various marketing materials were provided by Friedman and Cano at the December 2004 meeting that NELICO agents and NES representatives could utilize in soliciting Plaintiffs and others to participate in the DLG programs. [FAC, ?102.] Plaintiff alleges that the Russon Defendants, acting in the course and scope of their agency as Managing Partner for NELICO and Field Management Registered Principal of NES, encouraged the MetLife and NELICO agents, and NES representatives, including Scott Brandt (who at the time of the December 2004 meeting was both a NES affiliated registered representative and a NELICO career agent), to solicit their existing customers and new customers to purchase the DLG 9% and 12% Notes as a form of premium financing in order to sell additional MetLife and NELICO insurance products. [FAC, ?104.] Again, Russon allegedly supervised the MetLife agents and registered representatives throughout the Southern California region. [FAC, ?81.]

Russon allegedly told Brandt that the Notes were approved by MetLife, and encouraged Brandt to promote DLG. Plaintiff alleges that ?Russon specifically authorized Brandt to sell DLG in his capacity as an appointed NELICO insurance agent, indicating that the DLG Secured Investment Notes were approved products for use in a MetLife Enterprise cross-promotion/cross-selling project that came to be known as the MetLife/DLG Premium Financing Program. At no time during this period was Brandt told that MetLife had not approved the DLG Program or that Brandt could not attempt to solicit the sale of NELICO and MetLife insurance products to be premium financed by cross selling DLG Secured Investment Notes.? [FAC, ?113.]

The MetLife Defendants benefitted, both directly and indirectly, by their agents? effort to solicit prospects to invest in DLG as a form of premium financing. MetLife was paid hundreds of thousands of dollars in premiums by DLG/AEI under the MetLife/DLG premium financing deals that were arranged by Scott Brandt of the sale of DLG products. [FAC, ?91.]

Plaintiffs allege at ?63 as follows:

Apart from MetLife?s alter ego and single enterprise liability, and its vicarious liability to Plaintiffs ?, MetLife is directly responsible for the conduct of Brandt that injured Plaintiffs, and is jointly liable for the damages alleged herein by Plaintiffs. MetLife was paid directly by Diversified Lending Group (?DLG?) on behalf of investors who invested in DLG after being solicited to do so by Brandt as part of the plan to use DLG investments as a form of premium financing for MetLife products. MetLife was also primarily responsible for the overall structure and implementation of the MetLife Enterprise Home Office Compliance Program that Brandt (along with other NELICO agents and NES representatives) relied on to properly review, screen, and approve outside business activities for compliance with applicable laws and regulations, and the MetLife Defendants? company policies and guidelines. [FAC, ?63.]

Further, according to the FAC, ?[a]t all relevant times to this action, both NELICO and NES were subject to oversight and supervision by MetLife and the MetLife Enterprise Home Office Compliance Department and related regional compliance and field managers. The MetLife Enterprise Home Office Compliance Department established a comprehensive supervisory and compliance structure to oversee, control, and guide NELICO and NES supervisors, agents and representatives in their activities including but not limited to the marketing and sale of nonEnterprise investment products such as promissory notes issued by DLG.? [FAC, ?65.]

Paragraph 124 alleges:

The MetLife Defendants knew (or were reckless in not knowing) that Brandt and other NELICO agents and NES representatives and principals who solicited investors to purchase DLG products in the context of ?pitching? the MetLife/DLG premium financing program would be paid a commission by DLG, whether or not the investors ultimately decided to purchase MetLife and/or NELICO insurance products. The MetLife Defendants knew (or were reckless in not knowing) that the DLG promissory notes might be deemed unregistered securities and that NELICO agents, such as Brandt, and NES registered representatives referring DLG customers to Brandt, should be so informed of that fact and instructed to cease any further marketing and sales efforts with respect to DLG promissory notes. The MetLife Defendants (through the Russon Defendants) reached a conscious decision to participate in the tortious activity for the purpose of assisting DLG in performing the sale of unlawful, unregistered securities. The MetLife Defendants (through the Russon Defendants) knew that the promotion of unregistered securities was wrong. The MetLife Defendants? knowledge and active participation was both active and direct, and may also be imputed and vicarious under respondeat superior and agency doctrines. [FAC, ?124 (emphasis added).]

Ultimately, after Plaintiff invested her $279,769, DLG collapsed when DLG was taken over by the Securities and Exchange Commission (?SEC?) in March 2009 for selling unregistered securities. [FAC, ?3.]

According to the MetLife Defendants, MetLife did not sell, or materially assist in the sale, of DLG to Plaintiff, and did not take or receive anything from Plaintiff. [Demurrer at 2:4-5.] Instead, it was Brandt who sold the securities. The MetLife Defendants claim that Brandt was not authorized to sell securities through MetLife?s broker-dealer subsidiary, NES, during the relevant time period (and, in fact, resigned from NES before Plaintiff invested in DLG). [FAC, ??114, 117.] As such, the MetLife Defendants? position is that Brandt was not selling any securities through MetLife at the time Plaintiff invested in DLG, nor was he authorized by MetLife to sell DLG at the time Plaintiff invested. [Demurrer at 2:1-3.]

However, the alleged relationships between the MetLife Defendants, Russon FSI, and Brandt could, if true, impose liability on the MetLife Defendants. As MetLife acknowledges, a person can be either primarily or secondarily liable under the Act. [Demurrer at 3.]

The above allegations under the FAC would not impose primary liability on the MetLife Defendants. ?Section 25501 provides that any person who violates section 25401 ?shall be liable to the person who purchases a security from him …, who may sue either for rescission or for damages ….? (? 25501, emphasis added.) Section 25501 on its face requires privity between the plaintiff and the defendant.? Apollo Capital Fund, LLC v. Roth Capital Partners, LLC (2007) 158 Cal. App. 4th 226, 252-53.

Here, the nature of the allegations are that the MetLife Defendants and the Russon Defendants materially aided DLG and Friedman in DLG?s violation of ?25401, by, inter alia, allowing Friedman and Cano to make presentations to MetLife agents and registered representatives affiliated with Russon FSI on how to solicit prospects to invest in DLG (unqualified/unregistered securities) as a form of premium financing to promote the sale of MetLife insurance products. [FAC, ?178.] The investment product, on the face of the FAC, was not sold by the MetLife Defendants. Under Apollo Capital Fund, it appears there could be no primary liability under the statutory scheme, given there is no direct privity between Plaintiff Ramirez and the MetLife Defendants.

The alternative basis for imposing liability under ?25504 and 25504.1 is through a secondary liability theory. Again, Section 25504.1 imposes joint and several liability as to ?[a]ny person who materially assists in any violation of Section 25110 [and] 25401?.? ?Section 25504 extends secondary liability to certain agents, associates, and affiliates of the primary violator, including persons who control the primary violator as well as broker-dealers and employees of the primary violator who materially aid in the transaction constituting the violation. Arei II Cases (2013) 216 Cal. App. 4th 1004, 1013. According to the MetLife Defendants, secondary liability is not available here, because the FAC does not allege that the MetLife Defendants were agents, associates, or affiliates of the primary violator (here, DLG), and were not broker-dealers or employees of the primary violator which materially aided in the transaction constituting the violation.
However, in Moss v. Kroner (2011) 197 Cal.App.4th 860, the Court of Appeal expounded on the secondary aspect of liability under ??25504 and 25504.1 as follows:
Sections 25504 and 25504.1 demonstrate the Legislature’s choice to expand liability, in limited circumstances, beyond the strict privity, direct buyer and seller liability established in section 25501 to other, secondarily responsible participants in securities fraud. They express the Legislature’s intent to make control persons and employees, broker-dealers and agents who materially aid in the violation, and all people who materially assist in the violation of section 25401 with the intent to deceive or defraud, equally civilly liable?on the hook to the same degree?as the direct and primary violator. Statutes such as sections 25504 and 25504.1 ?specifically impose liability not only on the buyer or seller of a security but on controlling persons, associates, and agents as well as aiders and abettors. These statutes indicate that the Legislature knows how to establish secondary liability when it wants to do so….? [Citation.] Moss v. Kroner (2011) 197 Cal. App. 4th at 878 (emphasis added).
See also California Practice Guide, Corporations, ?5:377.1 (The Rutter Group 2015) (?[e]ven without any relationship to the violator?, a person who ?materially assists? in the violation ?with intent to deceive or defraud is jointly and severally liable?) (citing Corporation Code ??25504.1 and 25403(b). [Corps.C. ? 25504.1; see Corps.C. ? 25403(b)).

The Practice Guide notes that ?[t]o be liable as an ?aider and abettor,? defendant must have materially assisted in the actual securities law violation. I.e., in the case of misrepresentation liability under ? 25503, plaintiff must show how defendant assisted in the act of selling or offering to sell securities by means of false and misleading statements (or omissions). ?Such assistance may take the form of aiding in the preparation of offering documents relied upon by investors, communicating misrepresentations directly to investors, or otherwise playing a material, facilitating role in the act of selling or attempting to sell the securities by means of misrepresentations or omissions of material fact.? Defendant’s role in a part of the scheme that did not involve misrepresentation in the offer and sale is inadequate to establish liability.? California Practice Guide, Corporations, ?5:409.1 (The Rutter Group 2015) (citing Arei II Cases, supra, 216 Cal.App.4th at 1014-1015).
Thus, Moss seems to make clear that a person or entity may face secondary liability if the person or entity ?materially assists? in the violation of ?25041 with the intent to deceive or defraud, or had ?aided and abetted? in the deception. Here, the FAC alleges that Russon was an officer or managing agent of the MetLife Defendants. [See FAC, ?82 (?As a NELICO Managing Partner in the MetLife Enterprise, Russon held an executive position high in the insurance distribution function of the MetLife Enterprise. Russon was, at all relevant times, a general managing agent for the MetLife Defendants, and his duties included supervisory, control, and reporting duties and responsibilities[.]?)] Again, Russon allegedly was acting at the behest of the MetLife Defendants at all relevant times in his capacity as a managing agent and/or as their employee. Russon?s action in conducting the December 2004 Wholesalers Meeting, in particular, and the alleged fraudulent marketing tools referenced at that meeting, could be construed as aiding and abetting the alleged fraud of the promissory note sales by Friedman and DLG. The other allegations referenced above
Further, as it relates to the MetLife Defendants, Plaintiff alleges that ?MetLife Defendants received compensation from the sale of MetLife products sold in connection with DLG Notes used as premium financing for MetLife products. Friedman also caused DLG to purchase a $10,000,000.00 life insurance policy from MetLife, and Russon received additional compensation for materially assisting Friedman and DLG in selling unregistered securities by receipt of commissions from MetLife from the premiums paid by DLG on that large policy of life insurance on the life of Friedman.? [FAC, ?181.] Again, ?124 (excerpted above) is particularly applicable to the MetLife Defendants? alleged liability.
These allegations sufficiently set forth a basis for the notion that MetLife materially aided Friedman and DLG in perpetuating the sale of the DLG promissory notes (unregistered securities) as a vehicle for increasing MetLife premium sales, by and through the acts of its alleged agents or employees, Russon and Brandt. Under the secondary liability aspects of the statutory scheme, this is all that is required to state a claim.
Importantly, ??the courts should not … seek to absolve the defendant from liability on highly technical requirements of form in pleading. Pleading facts in ordinary and concise language is as permissible in fraud cases as in any others, and liberal construction of the pleading is as much a duty of the court in these as in other cases.? [Citations]? [Citation.] Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, supra, 158 Cal. App. 4th at 242. Of course, the allegations will be subject to discovery (including the agency allegations); the Court?s only role at this time is to determine whether a valid claim has been stated. For these reasons, Plaintiff Ramirez has stated a valid claim for secondary liability under the statutory scheme, and the demurrer to the second cause of action for violation of securities laws is overruled.
The MetLife Defendants claim that Brandt was a registered representative of Lighthouse Capital Corporation, a company unaffiliated with MetLife, when he solicited Plaintiff?s DLG investment. They seek judicial notice of Brandt?s BrokerCheck report to show that Brandt, in fact, was unaffiliated with MetLife when he solicited the investment. However, this is not a proper subject of judicial notice under Evidence Code ?452(h), and the case cited by the MetLife Defendants ? Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137 does not hold as much.
b. Violation of the UCL

The MetLife Defendants demur to the claim for violation of the Unfair Competition Law (?UCL?). First, the MetLife Defendants contend that Plaintiff fails to allege facts entitling her to either injunctive relief or restitutionary disgorgement. With respect to the injunctive relief component of the UCL claim injunctive relief would not be available to remedy a past harm. Haley v. Casa Del Rey Homeowners Assn. (2007) 153 Cal.App.4th 863, 873.

As to the restitution component, the MetLife Defendants argue that because Plaintiff alleges she paid money to DLG, not to MetLife, and fails to allege that MetLife received any pecuniary gain as a result of Plaintiff?s DLG transactions. [Opposition at 11:17-19 (citing Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 455).]

The court in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134 referenced the definition of ?restitution? set forth in Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116 – an order “?compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.?” Korea Supply at 1144-145 (citing Kraus, 23 Cal.4th at pp. 126-127.)) (Emphasis added.) The Court further noted that ?[u]nder the UCL, an individual may recover profits unfairly obtained to the extent that these profits represent monies given to the defendant or benefits in which the plaintiff has an ownership interest.? Id. at 1148 (emphasis added). In other words, ?[t]he object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.? Id. In other words, ?restitution under the UCL ? ?is confined to restoration of any interest in ?money or property, real or personal, which may have been acquired by means of such unfair competition.? … A restitution order against a defendant thus requires both that money or property have been lost by a plaintiff, on the one hand, and that it have been acquired by a defendant, on the other.? [Citation.]? Hambrick v. Healthcare Partners Med. Grp., Inc. (2015) 238 Cal. App. 4th 124, 156, 189, reh’g denied (June 17, 2015), review denied (Sept. 30, 2015) (citing Zhang v. Superior Court (2013) 57 Cal.4th 364, 371).
Here, there is no allegation that Plaintiff paid money to the MetLife Defendants. What Plaintiff seeks from the MetLife Defendants is not restitution; it is a measure of damages. As such, the demurrer to the UCL claim is well-taken, and is sustained, without leave to amend.

The MetLife Defendants also demur to the UCL claim on grounds that such a claim cannot be predicated on securities transactions, pursuant to Bowen v. Ziasun Tech., Inc. (2004) 116 Cal.App.4th 777, 786. Given the view that neither injunctive relief nor restitution is available, the Court need not address this argument. For completeness, however, the Court will do so.

Bowen specifically held that ?17200 does not apply to securities transactions. Bowen, 116 Cal.App.4th at 788. In so holding, Bowen noted that the intent of the legislature in enacting ?17200 was the same as the intent of the Hawaiian legislature in enacting its consumer protection law: ??to protect consumers from unethical business practices resulting in relatively small commercial injuries.?? Bowen at 788 (citing Spinner Corp. v. Princeville Development Corp. (9th Cir. 1988) 849 F.2d 388, 391).

Plaintiff contends that Bowen is inapposite, and cites Overstock.com, Inc. v. Gradient Analytics (2007) 151 Cal.App.4th 688. There, the Court of Appeal noted that Bowen?s ?holding that securities transactions are not covered under the UCL bars lawsuits based on deceptive conduct in the sale and purchase of securities, nothing more.? Id. at 715. According to Plaintiff, the fact she does not allege that MetLife directly sold the DLG notes, but merely assisted in the sale of the DLG notes, means the UCL claim is not barred.

However, this is really a distinction without a difference. The gravamen of the instant FAC is based on the underlying deceptive conduct in the sale and purchase of the DLG notes. Plaintiff cannot circumvent what is a clear prohibition on UCL claims based on securities transactions through her aiding and abetting theory.

For these alternative reasons, the demurrer to the UCL claim is also well-taken and is sustained, without leave to amend.

c. Elder Abuse

California Welfare and Institutions Code (?Welf. & Inst. C.?) ?15610.30(a) expresses the basic broad definition of financial abuse that occurs when a person or entity does any of the following:
? takes, secretes, appropriates, obtains or retains, any interest in real or personal property, for a wrongful use, or with intent to defraud or both;
OR
? assists in doing any of the above described acts;
OR

does any of the above described acts through ?undue influence? as defined in Welf. & Inst.C. ? 15610.70. Balistok, Russell: Elder Abuse Litigation, ?8:2 (2015) (citing Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 174; Bonfigli v. Strachan (2011) 192 Cal.App.4th 1302, 1316).

Section 15610.30(b) ?provides that a person or entity ?shall be deemed to have taken, secreted, appropriated, obtained, or retained property for a wrongful use if, among other things, the person or entity ? knew or should have known that this conduct is likely to be harmful to the elder or dependent adult[.]? Balistok, Russell: Elder Abuse Litigation, ?8:2 (2015) (citing Welf. & Inst. C. ?15610.30(b) (emphasis added by Balistok).

Further, ?15610.30(c) ?clarifies the words, ?takes, secretes, appropriates, obtains, or retains? when the elder or dependent adult is deprived of any property right. In other words, whatever the real or personal property interest?be it title to real property or possessory interest in jewelry?if the elder or dependent adult is deprived of it, the conduct of the defendant is actionable. Subsection (c) goes on to explain that the act of taking, secreting, etc., can occur by any means, including by agreement, a ?donative transfer, or testamentary bequest, regardless of whether the property is held directly or by a representative of an elder or dependent adult.?? Balistok, Russell: Elder Abuse Litigation, ?8:2 (2015) (citing Welf. & Inst. C. ?15610.30(c)).

According to the MetLife Defendants, the ?hallmark? of a financial elder abuse claim is ??some indicia of fraudulent or otherwise improper activity underlying the wrongful receipt of property.?? [Demurrer at 12:15-17 (citing O?Brien v. Continental Cas. Co., Cse No. 5:13-cv-01287-EJD, 2013 WL 4396761 at *5).] Here, though, the MetLife Defendants claim that the elder abuse claim fails because Plaintiff does not allege that MetLife took any money or property from her, or assisted Friedman or DLG in taking any property from her.

Instead, the MetLife Defendants say that Plaintiff paid DLG ? not the MetLife Defendants. As such, there can be no liability under ?15610.30(a)(1). ?15610.30(a)(1) is not a basis for liability under the allegations of the FAC, because (as discussed supra) the Plaintiff?s property was allegedly taken, secreted, appropriated, obtained/retained by DLG.

The question is whether Plaintiff has stated a claim under ?15610.30(a)(2), which prohibits assisting a person or entity from taking, secreting, appropriating, obtaining, or retaining an elder?s property for a wrongful use or an intent to defraud. Here, the elder abuse claim incorporates the prior allegations in the FAC, and add further allegations. Plaintiff alleges that the Russon Defendants (acting in their capacities as Corporate Managing Partner for NELICO and Registered Principal for NES between December 2004 and March 2009) aided, abetted, and assisted DLG and Friedman in taking, appropriating, and retaining retirement savings from the Elder Abuse Plaintiffs for a wrongful use or with the intent to defraud or both by:

a. Directing Scott Brandt, in his capacity as a NES registered representative and in his capacity as a career agent for NELICO, to participate with other agents and to participate registered representatives affiliated with the MetLife Enterprise in marketing DLG promissory notes to prospects over the age of 65 as a form of premium financing to enable those prospects to purchase MetLife long term care insurance or NELICO life insurance for estate planning purposes; and

b. By permitting Cano acting in her capacity as a registered representative of NES between 2004 and June of 2006 and Cano and AEI acting in their capacities as NELICO agents between 2004 and 2009 to aid, abet and assist Friedman and DLG by acting as the ?investment servicing division? of DLG by maintaining an office at DLG?s office and by receiving completed applications to invest in DLG notes from prospects solicited by Brandt to invest in DLG, and then preparing spreadsheets with the information supplied by Brandt, establishing procedures at AEI to pay premiums to MetLife on behalf of the prospects who purchased a MetLife or NELICO insurance policy utilizing DLG as a source of premium financing, and having AEI act as the servicing agent to make scheduled premium payments to MetLife and NELICO . [FAC, ?240(a), (b).]

According to the FAC, the ?MetLife Defendants (acting through the Russon Defendants) and the Russon Defendants, make a conscious decision to participate in the wrongful activity of promoting unregistered/unqualified securities (the DLG Notes) as a form of premium financing of MetLife products. Moreover, MetLife Defendants made a conscious decision to participate in the promotion of DLG as a form of premium financing by ratifying the acts of the Russon Defendants and the MetLife Defendants? agents who had been promoting premium financing.? [FAC, ?242.]

Moreover, the MetLife Defendants allegedly ?authorized and ratified the wrongful conduct of the Russon Defendants acting in their capacity as Managing Corporate Partner for NELICO and Registered Principal for NES by receiving Brandt?s 2005, 2006, 2007, and 2008 OBA reports, which disclosed Brandt was marketing DLG promissory notes, all of which OBA Reports had been approved by the Russon Defendants, not informing Brandt or the Russon Defendants that Brandt was not authorized, as a NELICO Career Agent, to market DLG promissory notes as a form of premium financing, and continuing to accept premium payments from DLG and AEI on insurance policies sold by Brandt to the Elder Abuse Plaintiffs, with knowledge that AEI was continuing to make the scheduled premium payments on those policies as the investment servicing division of DLG.? [FAC, ?243.]

Further, MetLife allegedly ratified the wrongful conduct ?by failing to prevent the Russon Defendants and MetLife Defendants? agents from promoting DLG as a form of premium financing, despite knowledge of the DLG program.? [FAC, ?244.]

The NEF Defendants? underwriting department referred the application for life insurance (disclosing that premiums would be financed by DLG) to the MetLife Defendants? fraud department (in particular, to Jean Philipp, a senior Fraud Investigator for MetLife). [FAC, ?245.] Ms. Philipp allegedly reviewed the file, and forwarded the findings to her supervisor, Thomas Luckey, in a long and detailed email. [Id.] Luckey was a managing agent and top MetLife executive overseeing fraud investigations in the United States. [Id.] Luckey and Philipp also jointly oversaw MetLife?s investigation of improper sales programs. [Id.] Philipp wrote to Luckey about ?serious concerns? and ?serious red flags? in the DLG ?guaranted investment? program and Friedman?s background. [Id.]

However, Luckey allegedly failed to investigate or even respond to Philipp?s email. [FAC, ?246.] He acknowledged receiving the email and sending an email to Don Kaplan, another MetLife executive, about the DLG program which was ?peddling? a guaranteed investment. [Id.] The FAC alleges that the MetLife Defendants knew or should have known that the wrongful conduct was directed to one or more senior citizens or disabled persons and their conduct caused one or more senior citizens or disabled persons to suffer loss or encumbrance of a primary residence, principal employment, or source of income; substantial loss of property set aside for retirement, or for personal or family care and maintenance; or substantial loss of payments received under a pension or retirement plan or a government benefits program, or assets essential to the health or welfare of the senior citizen or disabled person. [FAC, ?248.]

Again, both Brandt and Russon allegedly knew of Plaintiff?s investments in DLG. As discussed supra, Plaintiff has sufficiently alleged that Russon and Brandt were either employees or agents of the MetLife Defendants, and for purposes of the pleading, their knowledge of the DLG promissory note scheme is imputed to the MetLife Defendants.

these allegations, coupled with the other allegations referenced supra (and as incorporated into the elder abuse cause of action) could be read to allege a basis for the MetLife Defendants? alleged assistance in taking, secreting, appropriating, obtaining, or retaining Plaintiff Ramirez?s property for a wrongful use or an intent to defraud under ?15610.30(a)(2). Assuming the allegations in the FAC are true (as the Court must), and without assessing the merits of the claim, Plaintiff has alleged a basis for financial elder abuse. The demurrer to this claim is overruled.