2016-00202624-CU-SL

MyECheck, Inc. vs. Kenneth Maciora

Nature of Proceeding: Hearing on Demurrer to First Cause of Action

Filed By: Maciora, Kenneth

Defendant in pro per Maciora’s demurrer to the Third Amended Complaint (“3AC”) is OVERRULED, as follows.

Maciora failed to comply with CRC Rule 3.1110(b)(3).

Overview

This case presents a multi-party business dispute. In the 3AC, plaintiff MyECheck, Inc. (“MEC”) alleges its former CEO, defendant Zalunardo, falsified an employment agreement purportedly entitling him to MEC shares and that he purported to transfer these shares to Maciora in 2015 and 2016, paying de minimis consideration because he knew the shares were fake. MEC further alleges Maciora and others maintain that a draft proposal to issue MEC shares to certain employees, which was never ratified, legitimizes the transfers to Maciora. It is further alleged that Maciora wrongfully obtained and disseminated MEC’s confidential information in violation of a non-disclosure agreement and in an attempt to extort money and stock from MEC and its officers. According to MEC, Maciora has also harassed MEC’s shareholders, employees, auditors, business partners and investors to disrupt operations and to extort money but ultimately causing MEC shares to lose significant value and disrupting important business relationships.

The 3AC contains a number of causes of action against Maciora and others for securities fraud in violation of Corporations Code §25400(d), breach of contract, intentional interference with prospective economic advantage/contractual relations,

and violation of B&P Code §17200 et seq.

The 3AC is virtually unchanged from the Second Amended Complaint (“2AC”), with one notable exception. Paragraph 55 of the first cause of action for securities fraud has been revised as a result of Maciora’s prior demurrer to the 2AC being sustained as to this cause of action on the ground it failed to allege (1) Maciora’s misrepresentations to the stock transfer agent were made with the intent to induce others to buy or sell MEC’s stock and (2) Maciora was then engaged in the purchase or sale of MEC’s stock (i.e., “market activity”) as well as the court’s permitting the addition of facts establishing that such conduct occurred “in this state,” as required by Corporations Code §25400(d). The remainder of Maciora’s demurrer to the 2AC was overruled.

Moving Papers. Maciora again demurs to the first cause of action on the grounds that

(1) it fails to establish Maciora was engaged in “market activity” at the time he made the false statements, (2) it fails to demonstrate the statements were made with the intent to induce others to purchase or sell the securities, and (3) MEC lacks the legal standing to seek the relief provided in §25400(d).

Opposition. MEC opposes, arguing that the 3AC now adequately alleges in Paragraph 55 not only that Maciora was engaged in “market activity” at the time he made the false statements but also that his statements were made with the contemporaneous intent to induce others to purchase or sell the securities. The opposition adds that Maciora can no longer assert MEC’s lack of standing since his prior demurrer on this ground was overruled, precluding him from re-arguing this claim here. Finally, MEC requests monetary sanctions of at least $2,250 against Maciora pursuant to the Code of Civil Procedure §128.5 because this demurrer was brought in bad faith, is frivolous and/or was intended solely to cause unnecessary delay.

Analysis

The demurrer based on MEC’s purported “lack of standing” to pursue the first cause of action for securities fraud is overruled. First, Maciora specifically advanced this same argument in his earlier demurrer to the 2AC (see, Maciora Dem. to 2AC, p.13:23-p.14:9) and that demurrer was ultimately overruled except as to the specific elements of intent and “market activity.” Second, even if the current lack of standing claim could somehow be distinguished from that which Maciora asserted previously, Code of Civil Procedure §430.41(b) prohibits a party from demurring to amended pleading “on grounds that could have been raised by demurrer to the earlier version of the [pleading]” and contrary to Maciora’s suggestion, the court finds that 3AC’s first cause of action is not “substantially different” from earlier version but rather is essentially identical to the earlier version. Maciora’s characterization has plainly contradicted by MEC’s express allegations and therefore, the demurrer based on MEC’s alleged lack of standing must be overruled for at least two separate reasons.

With respect to Maciora’s remaining arguments about the elements of “market activity” and intent to induce others to purchase or sell the securities, the court holds that the 3AC now adequately pleads both elements. In particular, Paragraph 55 of the 3AC now alleges in pertinent part (with the new additions underlined for emphasis):

55. In offering to buy, sell, transfer, convey and issue the above-referenced fraudulent MEC stock, Defendants, and each of them, have engaged in and committed securities fraud by seeking to profit from multiple transactions

involving invalid and unauthorized shares, and depositing said unauthorized shares in the marketplace for public trade. MEC alleges Defendants violated Corporations Code section 2[5]400, subdivision (d) because they made false and misleading statements to the transfer agent and prospective buyers of MEC stock, while engaged in market activity (i.e., seeking to purchase and/or sell shares of MEC’s stock), regarding the authenticity of said MEC stock. Defendants made said false statements with the contemporaneous intent to induce others to buy the unauthorized shares of MEC stock. Defendants made these false statements while in the state of California and/or directed said false statements to MEC’s business partners and investors in the state of California. Further, MEC’s business partners ultimately received Maciora’s false statements regarding the authenticity of MEC stock. Specifically, these statements were untrue by virtue of the omission of material facts, including without limitation, the fact that the subject 100M shares of MEC stock was never authorized by the Company and was obtained and transferred fraudulently. Both times Zalunardo has purportedly sold is stock to Maciora, all Defendants knew or should have known the stock was fraudulent. On the various occasions when the Defendants herein have sought to have the fraudulent stock issued by the transfer agent, SST, the Defendants knew or should have known the stock was fraudulent. …

Although these new allegations could certainly have included greater factual detail, they are in this court’s view sufficient to cure the deficiencies noted in the ruling on earlier Maciora’s demurrer to the 2AC and consequently, the present demurrer to the first cause of action will now be overruled.

Disposition

For the reasons explained above, Maciora’s demurrer to the first cause of action of the 3AC is hereby overruled.

If not already done, Maciora may file and serve an answer to the 3AC no later than 4/13/2018.

The court declines to impose sanctions against Maciora pursuant to the Code of Civil Procedure §128.5 since the present demurrer cannot be fairly characterized as being brought in bad faith, completely without merit and/or solely intended to cause unnecessary delay.