Assembly Bill No. 2167

CHAPTER 575 

An act to amend Section 1029.8 of the Code of Civil Procedure, and to amend Section 25506 of, and to add Section 25501.5 to, the Corporations Code, relating to securities. 

[Approved by Governor September 18, 2004. Filed with Secretary of State September 18, 2004.] 

LEGISLATIVE COUNSEL'S DIGEST 

AB 2167, Correa. Securities: Corporate Liability. 

The Corporation Securities Law of 1968 prohibits a broker-dealer from effecting a transaction in, or inducing or attempting to induce the purchase or sale of, any security in this state without a certificate from the Commissioner of Corporations authorizing the person to act in that capacity. Under existing law, an unlicensed person who caused injury as a result of engaging in specified activities for which a license is required is liable for treble the amount of assessed damages. 

This bill would authorize a person who purchases a security from or sells a security to a broker dealer without a certificate to bring an action for rescission of the sale or purchase, or for specified damages, and would authorize the court to award reasonable attorney's fees and costs to a plaintiff. The bill would extend the application of treble damages to these actions. 

The Corporate Securities Act of 1968 makes it unlawful for a person to engage in certain fraudulent practices and prohibited acts. Existing state law authorizes a civil action against a person who willfully violates these provisions, which must be brought within 4 years of the violation or within one year after the plaintiff's discovery of the violation, whichever comes first. 

This bill would, for proceedings that commence on or after January 1, 2005, extend the time that a plaintiff has to file a civil-action to within 5 years after the violation or within 2 years of the plaintiff's discovery of the violation, whichever comes first. 

The people of the State of California do enact as follows: 

SECTION 1. Section 1029.8 of the Code of Civil Procedure is amended to read: 

(a) Any unlicensed person who causes injury or damage to another person as a result of providing goods or performing services for which a license is required under Division 2 (commencing with Section 500) or any initiative act referred to therein, Division 3 (commencing with Section 5000), or Chapter 2 (commencing with Section 18600) or Chapter 3 (commencing with Section 19000) of Division 8, of the Business and Professions Code, or Chapter 2 (commencing with Section 25210) or Chapter 3 (commencing with Section 25230) of Part 3 of Division I of Title 4 of the Corporations Code, shall be liable to the injured person for treble the amount of damages assessed in a civil action in any court having proper jurisdiction. The court may, in its discretion, award all costs and attorney's fees to the injured person if that person prevails in the action. 

(b) This section shall not be construed to confer an additional cause of action or to affect or limit any other remedy, including, but not limited to, a claim for exemplary damages. 

(c) The additional damages provided for in subdivision (a) shall not exceed ten thousand dollars ($10,000). 

(d) For the purposes of this section, the term "unlicensed person" shall not apply to any of the following: 

(1) Any person, partnership, corporation, or other entity providing goods or services under the good faith belief that they are properly licensed and acting within the proper scope of that licensure. 

(2) Any person, partnership, corporation, or other entity whose license has expired for nonpayment of license renewal fees, but who is eligible to renew that license without the necessity of applying and qualifying for an original license. 

(3) Any person, partnership, or corporation licensed under Chapter 6 (commencing with Section 2700) or Chapter 6.5 (commencing with Section 2840) of the Business and Professions Code, who provides professional nursing services under an existing license, if the action arises from a claim that the licensee exceeded the scope of practice authorized by his or her license. 

(e) This section shall not apply to any action for unfair trade practices brought against an unlicensed person under Chapter 4 (commencing with Section 170003 of Part 2 of Division 7 of the Business and Professions Code, by a person who holds a license that is required, or closely related to the license that is required, to engage in those activities performed by the unlicensed person. 

SECTION 2. Section 25501.5 is added to the Corporations Code, to read: 

(a) (1) A person who purchases a security from or sells a security to a broker-dealer that is required to be licensed and has not, at the time of the sale or purchase, applied for and secured from the commissioner a certificate under Part 3 (commencing with Section 25200), that is in effect at the time of the sale or purchase authorizing that broker-dealer to act in that capacity, may bring an action for rescission of the sale or purchase or, if the plaintiff or the defendant no longer owns the security, for damages. 

(2) Upon rescission and tender of the security, 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. 

(3) Upon rescission and tender of the consideration paid for the security plus interest at the legal rate, a seller may recover the security plus the amount of any income received by the defendant on the security. 

(4) Damages recoverable under, this section by a purchaser shall be an amount equal to the difference between the following: 

(A) The price at which the security was bought plus interest at the legal rate from the date of purchase. 

(B) The value of the security at the time it was disposed of by the plaintiff plus the amount of any income received on the security by the plaintiff. 

(5) Damages recoverable under this section by a seller shall be an amount equal to the difference between the following: 

(A) The value of the security at the time of the filing of the complaint plus the amount of any income received by the defendant on the security. 

(B) The price at which the security was sold plus interest at the legal rate from the date of sale. 

(6) A tender of a security or of consideration paid for a security plus interest pursuant to this section may be made at any time before entry of judgment. 

(b) The court, in its discretion, may award reasonable attorney's fees and costs to a prevailing plaintiff under this section. 

SECTION 3. Section 25506 of the Corporations Code is amended to read: 

(a) For proceedings commencing before January 1, 2005, no action shall be maintained to enforce any liability created under Section 22500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of four years after the act or transaction constituting the violation or the expiration of one year after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire. 

(b) For proceedings commencing on or after January 1, 2005, no action shall be maintained to enforce any liability created under Section 25500, 25501, or 25502 (or Section 25504 or Section 25504.1 insofar as they related to those sections) unless brought before the expiration of five years after the act or transaction constituting the violation or the expiration of two years after the discovery by the plaintiff of the facts constituting the violation, whichever shall first expire. 

SECTION 4. It is the intent of the Legislature that the remedies provided by this act are cumulative and that they shall not be construed as restricting any remedy that is otherwise available.

 

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