Case 1:09-md LAK Document 588 Filed 01/06/12 Page 1 of 45

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1 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 1 of 45 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x : In re Civil Action 09 MD 2017 (LAK) : LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION : ECF Case This Document Applies To: : State Compensation Insurance Fund v. : Fuld et al., 11 Civ (LAK) : x MEMORANDUM OF LAW IN SUPPORT OF THE INDIVIDUAL DEFENDANTS MOTION TO DISMISS THE AMENDED COMPLAINT DECHERT LLP 1095 Avenue of the Americas New York, New York Tel: (212) Attorneys for Michael L. Ainslie, John F. Akers, Roger S. Berlind, Thomas H. Cruikshank, Marsha Johnson Evans, Sir Christopher Gent, Roland A. Hernandez, Henry Kaufman and John Macomber PETRILLO KLEIN LLP 655 Third Avenue, 22nd Floor New York, New York Tel: (212) Attorneys for Christopher M. O Meara ALLEN & OVERY LLP 1221 Avenue of the Americas New York, New York Tel: (212) Attorneys for Richard S. Fuld, Jr. PROSKAUER ROSE LLP Eleven Times Square New York, New York Tel: (212) Attorneys for Erin M. Callan Dated: January 6, 2012

2 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 2 of 45 TABLE OF CONTENTS TABLE OF AUTHORITIES... iii PRELIMINARY STATEMENT...1 ARGUMENT...2 I. THE SECURITIES ACT CLAIMS SHOULD BE DISMISSED...2 A. The Securities Act Claims Are Time-Barred...3 B. State Fund Relies On Allegations Of False Statements And Omissions Already Dismissed Or Otherwise Not Actionable...4 C. The Section 11 Claim Against Callan Should Be Dismissed...7 D. The Section 12 Claim Fails As A Matter Of Law...8 E. The Section 15 Claim Fails As A Matter Of Law...9 II. THE CALIFORNIA CORPORATIONS CODE CLAIMS SHOULD BE DISMISSED...10 A. The Corporations Code Claims Are Untimely...10 B. The Amended Complaint Does Not State A Claim Under California Corporations Code 25400, (Count VI) The Officer Defendants are not sellers or purchasers within the meaning of Section 25400(d) The amended complaint does not adequately allege that the Officer Defendants wilfully made a false or misleading statement...15 C. The Amended Complaint Does Not State A Claim Under California Corporations Code 25401, (Count VII)...16 D. The Amended Complaint Does Not State A Claim Under California Corporations Code 25504(Count VIII)...16 E. The Amended Complaint Does Not State A Claim Under California Corporations Code (Count IX)...18 i

3 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 3 of 45 III. THE EXCHANGE ACT CLAIMS SHOULD BE DISMISSED...20 A. State Fund s Repo 105-Related Allegations Do Not Plead Scienter...21 B. State Fund s Allegations Related To Valuation Of Commercial Real Estate Assets Do Not Plead Scienter...26 C. State Fund s Liquidity Allegations Do Not Plead Scienter...26 D. State Fund s Stress Test Allegations Do Not Plead Scienter...28 E. State Fund s Allegations Of GAAP Violations Should Be Dismissed...28 F. The Section 20(a) Claim Fails As A Matter Of Law...28 IV. THE COMMON LAW CLAIMS SHOULD BE DISMISSED...29 A. The Amended Complaint Fails To State A Claim For Common Law Fraud (Count XI) The amended complaint does not plead actual reliance The amended complaint does not plead falsity or scienter The holding claims are not actionable...31 B. The Amended Complaint Fails To State A Claim For Aiding And Abetting Fraud (Count XII)...32 C. The Amended Complaint Fails To State A Claim For Negligent Misrepresentation (Count XIII)...33 CONCLUSION...35 ii

4 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 4 of 45 TABLE OF AUTHORITIES CASES Acito v. IMCERA Grp., Inc., 47 F.3d 47 (2d Cir. 1995)...29 Akerman v. Oryx Commc ns, Inc., 810 F.2d 336, 344 (2d Cir. 1987)...9 Allstate Ins. Co. v. Countrywide Fin. Corp., No. 2:11-CV-05236, 2011 WL (C.D. Cal. Oct. 21, 2011)...33 Am. High-Income Trust v. AlliedSignal, 329 F. Supp. 2d 534 (S.D.N.Y. 2004)...16 American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974)...12 Anderson v. Aon Corp., 614 F.3d 361 (7th Cir. 2010)...32 Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 70 Cal. Rptr. 3d 199 (Ct. App. 2007)...16, 20 Austin B. v. Escondido Union Sch. Dist., 57 Cal. Rptr. 3d 454 (Ct. App. 2007)...33 Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct (2009)...12, 22 ATSI Commc ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007)...21 Becker v. McMillin Constr. Co., 277 Cal. Rptr. 491 (Ct. App. 1991)...12 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct (1975)...23 Bowden v. Robinson, 136 Cal. Rptr. 871 (Ct. App. 1977)...15 Cadlo v. Owens-Illinois, Inc., 23 Cal. Rptr. 3d 1 (Ct. App. 2004)...30, 34 iii

5 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 5 of 45 California Amplifier, Inc. v. RLI Ins. Co., 113 Cal. Rptr. 2d 915 (Ct. App. 2001)...15 Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct (1994)...13 Citiline Holdings, Inc. v. istar Fin. Inc., 701 F. Supp. 2d 506 (S.D.N.Y. 2010)...9 Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008)...12 Courtney v. Waring, 237 Cal. Rptr. 233 (Ct. App. 1987)...18 Dodds v. Cigna Sec., Inc., 12 F.3d 346 (2d Cir. 1993)...9 Durham v. Kelly, 810 F.2d 1500 (9th Cir. 1987)...17 ECA v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009)...20, 21 Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (2009)...29 Facebook, Inc. v. MaxBounty, Inc., 274 F.R.D. 279 (N.D. Cal. 2011)...32 Finkel v. Stratton Corp., 962 F.2d 169 (2d Cir. 1992)...3 Fiol v. Doellstedt, 58 Cal. Rptr. 2d 308 (Ct. App. 2d Dist. 1996)...33 Fortaleza v. PNC Fin. Servs. Grp., Inc., 642 F. Supp. 2d 1012 (N.D. Cal. 2009)...32 Gantler v. Stephens, 965 A.2d 695 (Del. 2009)...35 Garcia v. Super. Ct., 50 Cal. 3d 728 (1990)...34 iv

6 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 6 of 45 Global Mins. & Metals Corp. v. Holme, 35 A.D.2d 93, 824 N.Y.S.2d 210 (1st Dep t 2006)...32 Hart v. Internet Wire, Inc., 145 F. Supp. 2d 360 (S.D.N.Y. 2001)...26 Hellum v. Breyer, 123 Cal. Rptr. 3d 803 (Ct. App. 2011)...17 Hudson River Club v. Consol. Edison Co. of N.Y., 275 A.D.2d 218, 712 N.Y.S.2d 104 (1st Dep t 2000)...34 Hutchison v. Deutsche Bank Sec., Inc., 647 F.3d 479 (2d Cir. 2011)...5 In re Alliance Equip. Lease Program Sec. Litig., No. 98-CV-2150, 2002 WL (S.D. Cal. Oct. 15, 2002)...18 In re Chaus Sec. Litig., 801 F. Supp (S.D.N.Y. 1992)...3 In re Gap Stores Sec. Litig, 457 F. Supp (N.D. Cal. 1978)...18 In re Lehman Bros. Sec. & ERISA Litig., 706 F. Supp. 2d 552 (S.D.N.Y. 2010)...5 In re Lehman Bros. Sec. & ERISA Litig., 799 F. Supp. 2d 258 (S.D.N.Y. 2011)... passim In re Parmalat Sec. Litig., 501 F. Supp. 2d 560 (S.D.N.Y. 2007)...29 In re WorldCom, Inc., 377 B.R. 77 (S.D.N.Y. 2007)...17 In re ZZZZ Best Sec. Litig., No , 1994 WL (C.D. Cal. Oct. 26, 1994)...16 Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 95 S. Ct (1975)...12 Kainos Labs. v. Beacon Diagnostics, No. C , 1998 WL (N.D. Cal. Sept. 14, 1998)...17, 19 v

7 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 7 of 45 Kaiser Found. v. Abbott Labs., No. CV , 2009 WL (C.D. Cal. Oct. 8, 2009)...13 Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001)...21 Kamen v. Lindly, 114 Cal. Rptr. 2d 127 (Ct. App. 2001)...13, 14, 16 Kline v, Turner, 105 Cal. Rptr. 2d 699 (Ct. App. 2001)...10 Kramas v. Sec. Gas & Oil Inc., 672 F.2d 766 (9th Cir. 1982)...10 Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 646 N.Y.S.2d 76 (1996)...31 Lovejoy v. AT&T Corp., 111 Cal. Rptr. 2d 711 (Ct. App. 2001)...30 Marketxt Holdings Corp. v. Engel & Reiman, P.C., 693 F. Supp. 2d 387 (S.D.N.Y. 2010)...30, 32, 33 McMahon v. Marsh & McLennan Cos., No. B216003, 2010 WL (Ct. App. June 10, 2010)...14 Menowitz v. Brown, 991 F.2d 36 (2d Cir. 1993)...10 Merck & Co. v. Reynolds, 130 S. Ct (2010)...3 Mirkin v. Wasserman, 858 P.2d 568 (Cal. 1993)...29, 30 Moss v. Kroner, 129 Cal. Rptr. 3d 220 (Ct. App. 2011)...17 N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007)...35 Neilson v. Union Bank of Calif., N.A., 290 F. Supp. 2d 1101 (N.D. Cal. 2003)...34 vi

8 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 8 of 45 Openwave Sys., Inc. v. Fuld, No. CV SI, 2009 WL (N.D. Cal. June 6, 2009)...17 P. Stolz Family P ship L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004)...3 Pinter v. Dahl, 486 U.S. 622, 108 S. Ct (1988)...9 Robinson Helicopter Co., Inc. v. Dana Corp., 102 P.3d 268 (Cal. 2004)...29 SEC v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996)...28 SIPC v. BDO Seidman, L.L.P., 95 N.Y.2d 702, 723 N.Y.S.2d 750 (2001)...29 Self-Insurers Sec. Fund v. Esis, Inc., 251 Cal. Rptr. 693 (Ct. App. 1988)...34 Shenandoah Life Ins. Co. v. Valero Energy Corp., CIV. A. No. 9032, 1988 WL (Del. Ch. June 21, 1988)...35 Sitrick v. Citigroup Global Markets, Inc., No. CV , 2009 WL (C.D. Cal. Apr. 30, 2009)...10 Small v. Fritz Cos., Inc., 30 Cal. 4th 167 (2003)...31 Stichting Pensioenfonds ABP v. Countrywide Fin. Corp., No. 10-CV-7275, 2011 WL (C.D. Cal. Aug. 9, 2011)...11, 12 StorMedia, Inc. v. Superior Court of Santa Clara Cnty., 20 Cal. 4th 449 (1999)...14, 15 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S. Ct (2007)...20, 21 Underhill v. Royal, 769 F.2d 1426 (9th Cir. 1985)...17 Van Dusen v. Barrack, 376 U.S. 612, 84 S. Ct. 805 (1964)...10 vii

9 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 9 of 45 VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005)...34 Viterbi v. Wasserman, 123 Cal. Rptr. 3d 231 (Ct. App. 2011)...17 Wasco Prods., Inc. v. Southwall Techs., Inc., 435 F.3d 989 (9th Cir. 2006)...3, 12 Wilhelm v. Pray, Price, Williams & Russell, 231 Cal. Rptr. 355 (Ct. App. 1986)...30 STATUTES 15 U.S.C. 77l(a)(2) U.S.C. 77o U.S.C Cal. Corp. Code 25400(d)...14 Cal. Corp. Code , 18 Cal. Corp. Code , 17, 18 Cal. Corp. Code Cal. Corp. Code , 19 Cal. Corp. Code 25506(b)...10 Cal. Corp. Code Fed. R. Civ. P. 9(b)...29 MISCELLANEOUS 1 Harold Marsh Jr. & Robert H. Volk, Practicing Under the California Securities Laws (rev. ed. 2006) A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure 1309 (3d ed. 1998)...4 viii

10 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 10 of 45 Defendants Richard S. Fuld, Jr., Christopher M. O Meara and Erin M. Callan (the Officer Defendants ), along with Michael L. Ainslie, John F. Akers, Roger S. Berlind, Thomas H. Cruikshank, Marsha Johnson Evans, Sir Christopher Gent, Roland A. Hernandez, Henry Kaufman and John Macomber (the Director Defendants, and together with the Officer Defendants, the Individual Defendants ), submit this memorandum of law in support of their motion, under Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995, to dismiss the amended complaint filed by State Compensation Insurance Fund ( State Fund ), a private California workers compensation insurance fund. 1 In addition to the points and authorities set forth in the argument below, the Individual Defendants adopt and incorporate by reference Point II of the memorandum of law submitted by the Bank Defendants in their separately filed motion to dismiss, which establishes that the state law claims are barred by the Securities Litigation Uniform Standards Act of PRELIMINARY STATEMENT Originally filed on May 16, 2011, this case is an individual action consolidated before this Court with the main Equity/Debt securities class action. This suit was filed years after Lehman stockholders on February 22, 2008 first filed a class action over the company s financial disclosure statements, after another class of Lehman securities purchasers filed suit on April 29, 2008 challenging the firm s disclosures relating to its commercial and residential real estate positions and after Lehman filed for Chapter 11 bankruptcy on September 15, With its amended pleading submitted on November 29, 2011, State Fund asserts an array of statutory claims under the Securities Act of 1933, the Securities Exchange Act of 1934 and the California Corporations Code as well as common law claims for fraud, aiding and abetting fraud and negligent misrepresentation. State Fund seeks to recover alleged losses on four sets of 1 References to Plaintiff s Amended Complaint dated November 29, 2011 are shown as Am. Compl.. Unless otherwise noted, all exhibits are attached to the Declaration of Todd S. Fishman

11 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 11 of 45 Lehman medium-term notes purchased over a period of time from November 2004 to January According to the amended complaint, State Fund purchased notes on November 2, 2004, December 16, 2004 and February 10, 2005 (the 2005 Notes ) pursuant to Lehman s May 2001 registration statement. It allegedly purchased a second set of notes on February 6, 2006 (the 2006 Notes ) pursuant to Lehman s May 2005 registration statement. It then allegedly purchased notes on September 24, 2007 (the 2007 Notes ) and on January 25, 2008 (the 2008 Notes ) pursuant to Lehman s May 30, 2006 registration statement. State Fund s claims against the Individual Defendants should be dismissed as a matter of law. 2 Its claims under the Securities Act and the California Corporations Code are barred under applicable statutes of repose and limitations. Its Securities Act and Exchange Act claims cannot survive because they rely on allegations of misstatements and omissions that the Court already has dismissed or are otherwise nonactionable and because the Exchange Act claims fail to cogently plead a strong inference of scienter, among other pleading defects. Its common law claims do not plead basic required elements. 3 ARGUMENT I. THE SECURITIES ACT CLAIMS SHOULD BE DISMISSED State Fund s Securities Act claims against the Individual Defendants, which pertain only to the 2007 and 2008 Notes, are premised on violations of Section 11 (Count III), Section sworn to January 6, 2012, submitted herewith. 2 State Fund s claims against the Director Defendants are limited to the Section 11, Section 12(a)(2) and California Corporations Code and counts. 3 While recognizing that this Court has considered and rejected various arguments as to why the Exchange Act and Securities Act claims should be dismissed in the context of the Equity/Debt action, the Individual Defendants respectfully reassert and incorporate by reference those relevant arguments here in order to preserve all rights going forward. See Defendants Joint Memorandum of Law In Support of Their Motion to Dismiss the Third Amended Class Action Complaint, In re Lehman Bros. Equity/Debt Sec. Litig., Nos. 08 Civ. 5523, 09-MD-2017 (S.D.N.Y. June 4, 2010); Memorandum of Law in Support of 2

12 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 12 of 45 12(a)(2) (Count IV) and Section 15 (Count V). These claims should be dismissed for the principal reason that they are time-barred. A. The Securities Act Claims Are Time-Barred For Section 11 claims, the period of repose begins to run from the date on which the relevant security is first bona fide offered to the public; for Section 12(a)(2) claims, it is the date the security is sold. See 15 U.S.C. 77o; P. Stolz Family P ship L.P. v. Daum, 355 F.3d 92, 99 (2d Cir. 2004); Finkel v. Stratton Corp., 962 F.2d 169, (2d Cir. 1992). Construing State Fund s claims in the light most favorable to it, the latest possible date by which the securities at issue could have been offered to the public or sold -- January 25, 2008, the date of State Fund s latest purchase (Am. Compl. 2-3, 9) -- was more than three years before State Fund filed this action on May 11, Section 13 s three-year statute of repose thus operates as an unqualified bar to State Fund s Securities Act claims. In re Lehman Bros. Sec. & ERISA Litig., 799 F. Supp. 2d 258, 310 (S.D.N.Y. 2011) ( [N]either American Pipe nor any other form of tolling may be invoked to avoid the three year statute of repose set forth in Section 13 of the Securities Act of ) (hereinafter Lehman Equity/Debt Action); accord Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1797 (2010) (describing the comparable five-year limit on Exchange Act claims as an unqualified bar on actions ). Notably, State Fund makes no attempt to plead compliance with either limitations period set forth in Section 13. See Wasco Prods., Inc. v. Southwall Techns., Inc., 435 F.3d 989, 991 (9th Cir. 2006) ( federal courts have repeatedly held that plaintiffs seeking to toll the statute of limitations on various grounds must have included the allegation in their pleadings ); In re Chaus Sec. Litig., 801 F. Supp. 1257, 1265 (S.D.N.Y. 1992) the Director Defendants Motion to Dismiss the Third Amended Complaint, In re Lehman Bros. Equity/Debt Sec. Litig., Nos. 08 Civ. 5523, 09-MD-2017 (S.D.N.Y. June 4, 2010). 4 The pricing supplements for the 2007 and 2008 Notes are submitted as Exhibit 3 (CUSIP 52517P-5X-5) and Exhibit 4 (CUSIP 525M0-BX-9). 3

13 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 13 of 45 (a plaintiff must plead and prove facts demonstrating compliance with limitations periods); 5A Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure 1309 (3d ed. 1998). As a result, State Fund s three claims under the Securities Act against the Individual Defendants should be dismissed. B. State Fund Relies On Allegations Of False Statements And Omissions Already Dismissed Or Otherwise Not Actionable Apart from reasons relating to the statute of repose, many of State Fund s Section 11 claims against the Individual Defendants should be dismissed to the extent that they are duplicative of claims already dismissed by the Court in its July 27, 2011 opinion in the Lehman Equity/Debt Action. In addition, certain alleged omissions sustained by the Court should be dismissed here because State Fund s purchase of the 2007 and 2008 Notes preceded the conduct giving rise to the claims or are otherwise not actionable in the context of this case. First, State Fund alleges that Lehman violated SFAS 140 by its use of Repo 105 transactions, 5 made misleading disclosures relating to its ability to repurchase Repo 105 assets in violation of Item 303 of Regulation S-K, 6 misstated its use of appropriate risk mitigants, 7 misleadingly reported the size and strength of its liquidity pool 8 and violated SFAS 157 by improperly valuing commercial real estate assets. 9 This Court previously ruled those allegations to be nonactionable in the context of class plaintiffs third amended complaint. Lehman Equity/Debt Action, 799 F. Supp. 2d at , 285, , There is no reason to 5 Am. Compl , State Fund also makes the argument that Lehman s Repo 105 transactions had no legitimate business purpose. (Am. Compl. 87.) This argument consumes itself. State Fund affirmatively alleges that Lehman secured short-term financing through its Repo 105 transactions. (Am. Compl. 60.) Am. Compl , Am. Compl. 257, 260, 299. Am. Compl , Am. Compl

14 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 14 of 45 depart from those rulings in this case and, therefore, State Fund s Section 11 claim should be dismissed insofar as its claim is based on those same allegations. Second, the remaining Repo 105 claims fail for securities purchased prior to January 29, 2008, which include the 2007 and 2008 Notes. As this Court previously recognized, the Examiner s Report concluded that a trier of fact could find that [Repo 105] transactions were used to create a materially misleading picture of [Lehman s] financial condition only beginning in late 2007, and therefore it is difficult to see how Repo 105 transactions and the accounting therefore beginning in late 2007 could have affected a decision to purchase Lehman securities before that time. In re Lehman Bros. Sec. & ERISA Litig., 706 F. Supp. 2d 552, 557 n.34 (S.D.N.Y. 2010). While State Fund conclusorily avers that Lehman s public filings were materially misleading as far back as 2002 due to alleged use of Repo 105 transactions (Am. Compl. 99), it inconsistently alleges that only by mid-2007 and into 2008 did rating agencies beg[i]n to place an emphasis on total balance sheet and leverage positions, as opposed to profit and loss statements (Am. Compl. 101). Indeed, passages from the amended complaint, which quote the Examiner s Report, show that Lehman s alleged use of Repo 105 transactions did not become material until the fourth quarter of As a result, State Fund cannot plausibly suggest that Lehman s use of Repo 105 was material until the point in time when Lehman filed its 2007 Form 10-K, on January 29, See Hutchison v. Deutsche Bank Sec., Inc., 647 F.3d 479, 488 (2d Cir. 2011) (holding as immaterial financial disclosure items not the subject of investors fixation ). 10 See, e.g., Am. Compl. 114 (referring to the considerable escalation of its total Repo 105 usage in late 2007 and into 2008 ); 141 ( Lehman did not disclose that it has been using [Repo 105] to manage its balance sheet -- by temporarily removing approximately $50 billion of assets from the balance sheet at the end of the first [and] second quarters of 2008 [and $38.6 billion at the end of fiscal 2007]. ) (third set of brackets included in original). 5

15 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 15 of 45 Third, State Fund alleges that Lehman violated SFAS 107 by failing to disclose the concentration of credit risk in its Alt-A holdings in relevant filings until the time of Lehman s second quarter 2008 Form 10-Q (filed July 10, 2008). (Am. Compl ) The Court rejected similar allegations in the Lehman Equity/Debt Action because there was a failure to allege that, prior to a February 20, from a Lehman employee, Lehman s Alt-A holdings amounted to concentrations of... risk that were significant to Lehman overall, let alone whether Lehman so perceived them. See 799 F. Supp. 2d at The Court ultimately held that those allegations survived a motion to dismiss only for certain offerings made after February 20, See id. Here, State Fund s Section 11 allegations regarding Lehman s concentration of credit risk in its Alt-A holdings cannot be sustained, as State Fund s security purchases preceded February 20, Fourth, State Fund alleges that Lehman violated SFAS 107 by failing to disclose the concentration of credit risk in its commercial real estate holdings in relevant SEC filings until the time of Lehman s second quarter 2008 Form 10-Q (filed July 10, 2008). (See Am. Compl ) In its prior decision, the Court sustained claims regarding Lehman s alleged concentration of credit risk in commercial real estate holdings only with respect to offerings that incorporated Lehman s 2007 Form 10-K. Lehman Equity/Debt Action, 799 F. Supp. 2d at 292. Lehman however filed its 2007 Form 10-K on January 29, 2008, after State Fund s last alleged purchase. Therefore, State Fund s Section 11 claim regarding a concentration of credit risk in Lehman s commercial real estate holdings should be dismissed. Fifth, State Fund asserts that Lehman routinely exceeded VaR limits and thereby alleges that statements in Lehman s K and First Quarter Q about operating within its VaR limits were false. (Am. Compl. 290.) While the Court previously sustained allegations regarding breaches of VaR limits, Lehman Equity/Debt Action, 799 F. Supp. 2d at 6

16 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 16 of , that ruling cannot apply in this case as State Fund s last alleged purchase occurred before the purportedly actionable statements were made as part of the 2007 Form 10-K and first quarter 2008 Form 10-Q. C. The Section 11 Claim Against Callan Should Be Dismissed State Fund s claims, which span alleged purchases over the course of more than three years, ignore the fact that Callan was Lehman s CFO for a mere seven months. Prior to assuming the role of Lehman s CFO on December 1, 2007, Callan was not a member of Lehman s Executive Committee or its senior management team, and had spent many years as a successful investment banker at Lehman. (Am. Compl. 15.) Twelve (12) days after Callan became CFO, Lehman announced its financial results for the fourth quarter and full year ending November 30, The December 13, 2007 press release announcing those results was attached to Lehman s Form 8-K, which Callan signed as the CFO at that time. She also spoke briefly at the end of a conference call that day primarily about expectations for the next year since she had not been in the CFO position during the periods covered by the press release. It was not until after State Fund s final alleged purchase on January 25, 2008 that Callan signed Lehman s 2007 Form 10-K (filed January 29, 2008) and Lehman s first quarter 2008 Form 10-Q (filed on April 8, 2008), which was the first and only 10-Q Callan signed reporting Lehman s financial results for a period during her actual tenure as CFO. (Am. Compl. 134.) State Fund alleges claims based on five purchases that occurred before Callan became CFO (the Pre-Callan CFO Purchases ) (Am. Compl. 9), but fails to allege any statements by Callan, or identify any document she signed, upon which it relied in purchasing (or holding) Lehman securities before she became CFO. Consistent with the Court s decision in the Lehman Equity/Debt Action, Callan is not liable under Section 11 (or any other theory) for the Pre-Callan CFO Purchases, and such claims should be dismissed. 7

17 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 17 of 45 State Fund also alleges claims based on its final purchase on January 25, 2008, four days prior to the filing of the K on January 29, The only filing signed by Callan that State Fund alleges was incorporated into the 2006 registration statement before its January 25, 2008 purchase is the December 13, 2007 Form 8-K attaching Lehman s press release. State Fund fails to allege any specific misstatement in the press release, let alone any misstatement specifically attributable to Callan. Rather, the only allegations State Fund makes with respect to a misstatement in a Lehman 8-K is to vaguely assert: (i) that Lehman s Form 8-Ks issued just before each of State Fund s purchases in 2004, 2005, 2006 and contained similar misleading statements and omissions (Am. Compl. 353); and (ii) that Lehman pre-announced its financial results in various press releases, each of which failed to disclose the existence of Repo 105 transactions; the reality that certain repurchase transactions were treated as sales; and/or the temporary and material effect that these transactions had on Lehman s net leverage. (Am. Compl. 115(d).) But, by nature, a press release is intended to be a brief discussion of information in summary fashion. Vague allegations of information omitted from a press release, without alleging any obligation to include such information, and without identifying why such omissions render the summary press release misleading, do not satisfy Rule 9(b) requirements (and do not form a basis for a strong inference of scienter). State Fund s complete failure to allege any misstatement with respect to Repo 105 attributable to Callan prior to State Fund s purchases renders fatal any claim against her. D. The Section 12 Claim Fails As A Matter Of Law Section 12(a)(2) provides that [a]ny person who... offers or sells a security... by means of a prospectus or oral communication, which includes an untrue statement of a material fact... shall be liable... to the person purchasing... from him U.S.C. 77l(a)(2). A plaintiff has standing to bring a Section 12 claim only against a statutory seller from which 8

18 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 18 of 45 it purchased a security. Lehman Equity/Debt Action, 799 F. Supp. 2d at 310 (citing Akerman v. Oryx Commc ns, Inc., 810 F.2d 336, 344 (2d Cir. 1987)). In Pinter v. Dahl, the Supreme Court defined seller for purposes of the Securities Act, holding that the statute contemplates a buyer-seller relationship not unlike traditional contractual privity. 486 U.S. 622, 642, 108 S. Ct. 2063, 2076 (1988). A statutory seller is one who, in a public offering, either transferred title to the purchaser or successfully solicited the transfer for financial gain. Lehman Equity/Debt Action, 799 F. Supp. 2d at 310. State Fund s Section 12 claim should be dismissed because, in addition to being timebarred, there is no allegation that it purchased securities directly from any Individual Defendant. (See Am. Compl ) No Individual Defendant passed title to State Fund in exchange for value. As alleged, none of the Individual Defendants had a role in the solicitation or selling process related to the 2007 or 2008 Notes State Fund purchased. See Citiline Holdings, Inc. v. istar Fin. Inc., 701 F. Supp. 2d 506, 512 (S.D.N.Y. 2010) ( [e]very Court of Appeals to have considered the issue... has held that an individual s signing a registration statement does not itself suffice as solicitation under Section 12(a)(2) ). As a result, the Individual Defendants are not statutory sellers under Section 12 and cannot be held liable under that provision. E. The Section 15 Claim Fails As A Matter Of Law Absent primary liability under Section 11 or 12(a)(2), there can be no control person liability under Section 15 of the Securities Act. Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 n.1 (2d Cir. 1993). Because the amended complaint fails to establish primary liability, the Section 15 claims should be dismissed against the Officer Defendants In addition, and to the extent germane to the Court s analysis of State Fund s Section 15 and Section 20 claims, the Officer Defendants incorporate by reference their argument concerning the sufficiency of the control allegations set forth in Point IV of the Memorandum of Law in Support of the 9

19 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 19 of 45 II. THE CALIFORNIA CORPORATIONS CODE CLAIMS SHOULD BE DISMISSED State Fund s California Corporations Code claims, which pertain only to the 2007 and 2008 Notes, set out violations under Sections and (Count VI), Sections and (Count VII), Section (Count VIII) and Section (Count IX). Even if these claims were not barred by SLUSA, 12 those claims should be dismissed because they are untimely and otherwise defective. A. The Corporations Code Claims Are Untimely The limitations periods contained in Section of the California Corporations Code govern State Fund s claims. 13 Section requires, in relevant part, that an action be brought before the expiration of two years after the discovery by the plaintiff of the facts constituting the violation. Cal. Corp. Code 25506(b); see also Sitrick v. Citigroup Global Markets, Inc., No. CV , 2009 WL , at *12 (C.D. Cal. Apr. 30, 2009). For the Corporations Code, inquiry notice applies. See Kramas v. Security Gas & Oil Inc., 672 F.2d 766, 770 (9th Cir. 1982); Sitrick, 2009 WL , at *12. California courts interpret discovery in this context to mean not when the plaintiff became aware of the specific wrong alleged, but when the plaintiff suspected that an injury was caused by wrongdoing. Kline v, Turner, 105 Cal. Rptr. 2d 699, 702 (Ct. App. 2001); Sitrick, 2009 WL , at *12. Under California law, a plaintiff need not be aware of every fact that it ultimately relies upon in its pleading before the statute begins to Individual Defendants Motion To Dismiss the Consolidated First Amended Complaint, Vallejo Sanitation and Flood Control District v. Fuld, No. 09 MD 2017 (S.D.N.Y. filed Jan. 6, 2012). 12 See Point II of the Bank Defendants Memorandum of Law in Support of Their Motion to Dismiss State Fund s Amended Complaint. 13 Where, as here, an action transferred under 28 U.S.C involves issues of state law, the transferee court applies the choice of law and statute of limitations rules of the state in which the action was filed. Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993) (citing Van Dusen v. Barrack, 376 U.S. 612, 84 S. Ct. 805 (1964)). At this juncture, the Court need not determine the choice of law question with 10

20 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 20 of 45 run. Stichting Pensioenfonds ABP v. Countrywide Fin. Corp., No. 10-CV-7275, 2011 WL , at *12 (C.D. Cal. Aug. 9, 2011). Here, the filing of the securities holder suits in February and April 2008, coupled with the Lehman bankruptcy filing in September 2008, objectively placed State Fund on notice of the purported deficiencies in Lehman s financial disclosure statements. Specifically, on February 22, 2008, a putative class of Lehman securities holders brought suit alleging that the company did not quantify the true extent of its exposure to losses incurred from trading in sub-prime backed mortgage derivatives, collateralized debt obligations (CDOs) or mortgage backed security originations for which it was responsible. 14 Thereafter, on April 29, 2008, a putative class of Lehman securities holders filed a complaint charging that the company downplay[ed] the risks associated with owning [] CDOs and related securities and the nature and true extent of the Company s exposure to subprime related assets and financial positions. 15 The April 2008 complaint also averred that Lehman had materially overvalued its positions in commercial and subprime mortgages and in securities tied to those mortgages, had inadequate reserves for its mortgage and credit related exposure, had not prepared its financial statements in accordance with GAAP and lacked adequate internal and financial controls. A class notice, under the Private Securities Litigation Reform Act, was published on April 30, Still, State Fund waited more than two-and-a-half years to file this action. As a result, State Fund s claims under the California Corporations Code are barred under the two-year respect to State Fund s common law claims, as analyzed in Point IV, because the law of New York and California do not materially conflict. 14 Ex. 5: Complaint for Breach of Fiduciary Duty, Reese v. O Meara, No. 08 C 1119 (N.D. Ill. Feb. 22, 2008). 15 Ex. 6: Class Action Complaint, Southeastern Pennsylvania Transp. Auth. v. Lehman Brothers Holdings Inc. et al., No. 08 Civ (N.D. Ill. Apr. 29, 2008). 16 Ex

21 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 21 of 45 limitations period set out in Section Stichting, 2011 WL , at *12 (dismissing California Corporations Code and other state law claims because the widespread public press coverage combined with the filing of shareholder suits... were enough to alert a reasonable person to wrongdoing in Countrywide s loan origination business ). There is no credible argument that class action 17 or other form of tolling applies to the California Corporations Code claims. Foremost, as a matter of pleading, absent from the amended complaint are any averments that the two-year limitations period for the California Corporations Code claims has been tolled. See Wasco Prod, 435 F.3d at 991. State Funds fails to identify the point in time when its Corporations Code claims accrued and then to point to any prior lawsuit on which it relies to toll its claims in order to support its entitlement to relief. See Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). Secondly, as a substantive matter, California courts do not permit a plaintiff to apply a theory of cross-jurisdictional tolling where, under the American Pipe rule, the plaintiff claims to have relied on a prior class action filed in another jurisdiction. Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1025 (9th Cir. 2008). Therefore, the filing of the Lehman Equity/Debt Action did not toll the limitations period for State Fund s California Corporation Code claims. Moreover, even if the Court were to consider class action tolling under American Pipe, State Fund cannot benefit from that toll. California courts are clear that such a toll pertains only where the individual action and the class action were based on the same type of claim and the same subject matter. Becker v. McMillin Constr. Co., 277 Cal. Rptr. 491, 497 (Ct. App. 1991); accord Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 467, 95 S. Ct. 1716, 1723 (1975) ( the tolling effect given to the timely prior filings in American Pipe... depended heavily on the 17 See American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). 12

22 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 22 of 45 fact that those filings involved exactly the same cause of action subsequently asserted ); Kaiser Found. v. Abbott Labs., No. CV , 2009 WL , at *7 n.7 (C.D. Cal. Oct. 8, 2009). Here, the California Corporations Code claims are too distinct to allow for class action or other tolling. The class plaintiffs in the Lehman Equity/Debt Action brought claims only under the federal securities laws, not under any state law including the California Corporations Code. In addition, the Corporations Code claims do not track any of the federal securities claims filed against the Individual Defendants. For example, Sections and are expressly modeled on Section 9 of the Exchange Act, while Sections and mirror Section 12(a)(2) of the Securities Act, Kamen v. Lindly, 114 Cal. Rptr. 2d 127, (Ct. App. 2001). But neither of those federal claims was brought against the Individual Defendants. See Lehman Equity/Debt Action, 799 F. Supp. 2d 258. Similarly, Section seeks to impose civil liability for aiding and abetting. Settled law, however, holds that such conduct does not give rise to a private right of action under the federal securities laws. See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, , 114 S. Ct. 1439, 1448 (1994). The tolling of State Fund s otherwise untimely claims is not warranted in this case. As a result, because State Fund filed its claims more than two years after Lehman s bankruptcy, because State Fund did not plead circumstances justifying a tolling period, because California courts do not apply cross-jurisdictional tolling and because American Pipe tolling does not apply to distinct claims not asserted in the prior class action, State Fund s claims for violations of the California Corporations Code should be dismissed. B. The Amended Complaint Does Not State A Claim Under California Corporations Code 25400, (Count VI) State Fund alleges that the Officer Defendants are liable under Sections 25400(d) and because they purportedly made or caused to be made misrepresentations or misleading 13

23 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 23 of 45 omissions with intent to induce State Fund, and other market participants, to purchase, invest or other acquire the 2007 and 2008 Notes. (Am. Compl. 530, 532.) State Fund cannot state a claim under those Sections. 1. The Officer Defendants are not sellers or purchasers within the meaning of Section 25400(d) To be liable under Section 25400(d), a defendant must have been a buyer or seller of, or one who offered to buy or sell, the subject security. See Cal. Corp. Code 25400(d) (providing that it is unlawful for a person selling or offering for sale or purchasing or offering to purchase the security, to make, for the purpose of inducing the purchase or sale of such security by others, any statement which was... false or misleading... ) (emphasis added). Because State Fund has not alleged that any of the Officer Defendants bought, sold, offered to buy or offered to sell the 2007 and 2008 Notes at any time, the Officer Defendants cannot be liable under the statute for any damages relating to State Fund s sale of notes. As the California Supreme Court has stated, Subdivision (d) of section makes the proscribed conduct unlawful only if committed by a person selling or offering for sale or purchasing or offering to purchase a security. StorMedia, Inc. v. Superior Court of Santa Clara Cnty., 20 Cal. 4th 449, 459 (1999). The language of the Code makes clear that in order to be liable, not only must a defendant be a seller of some security, he must be a seller of the particular type of security bought or sold by the plaintiff. See McMahon v. Marsh & McLennan Cos., No. B216003, 2010 WL , at *13 (Cal. Ct. App. June 10, 2010) (the term such security as used in Section 25400(d) means the security in question, not all conceivable securities; that is, such appears to be a specific situational word, rather than a general or allinclusive word. ). Therefore, if a defendant did not buy or sell the specific security at issue, it cannot be liable under this Section. See Kamen, 114 Cal. Rptr. 2d at 133 ( Subdivision (d) 14

24 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 24 of 45 expressly requires that the defendant be either a broker-dealer or other person selling or offering for sale or purchasing or offering to purchase the security. ); StorMedia, 20 Cal. 4th at 461 n.13 ( The unlawful conduct [prohibited under Section 25400(d)] is the making of false and misleading statements for the purpose of inducing the purchase or sale of a security which the defendant is selling, offering to sell, purchasing, or offering to purchase. ). State Fund seeks to recover for purported injuries stemming from its purchases of the 2007 and 2008 Notes. (See Am. Compl. 532.) State Fund does not -- and cannot -- allege, however, that the individual Officer Defendants sold or bought, or offered to sell or buy, the Notes. Instead, the only remote attempt State Fund makes to meet Section 25400(d) s market participant requirement is to allege that Fuld and O Meara received insider trading proceeds purportedly (though not actually alleged) through sales of Lehman securities. (Am. Compl ) State Fund makes no such allegations as to Callan. Even if State Fund s allegations of insider trading proceeds adequately alleged a sale of Lehman securities by Fuld and O Meara -- and they do not -- State Fund s complete failure to allege the securities sold were the same Lehman Notes purchased by State Fund precludes a claim under Section 25400(d). 2. The amended complaint does not adequately allege that the Officer Defendants willfully made a false or misleading statement As discussed in greater detail below at Point III, the amended complaint fails to plead sufficiently that any of the Officer Defendants willfully made false or misleading statements or omitted material information for the purpose of inducing State Fund to buy the 2007 and 2008 Notes. See Bowden v. Robinson, 136 Cal. Rptr. 871, (Ct. App. 1977) (holding private action under Section limited to intentional misrepresentations proscribed under Section 25400); California Amplifier, Inc. v. RLI Ins. Co., 113 Cal. Rptr. 2d 915, (Ct. App. 2001) (holding Section requires specific intent ). 15

25 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 25 of 45 C. The Amended Complaint Does Not State A Claim Under California Corporations Code 25401, (Count VII) State Fund s claim for relief under California Corporation Code and fails as a matter of law. First, California courts have recognized that Section is modeled on Section 12 of the Securities Act. See Kamen, 114 Cal. Rptr. at 204; 1 Harold Marsh Jr. & Robert H. Volk, Practicing Under the California Securities Laws 14.03[1], [3]a, [4]a, at to (rev. ed. 2006). Thus, the arguments at Point I.D above that support dismissal of State Fund s claim under Section 12(a)(2) are equally applicable here. Second, State Fund s claim under Sections and also fails because those sections require direct privity between a defendant and a plaintiff (i.e., the defendant must have sold the actual securities at issue directly to the plaintiff). See Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 70 Cal. Rptr. 3d 199, (Ct. App. 2007); Am. High-Income Trust v. Allied Signal, 329 F. Supp. 2d 534, 548 (S.D.N.Y. 2004) (dismissing Section claim against director defendants because plaintiffs did not allege they purchased securities directly from them) (citing In re ZZZZ Best Sec. Litig., No , 1994 WL (C.D. Cal. Oct. 26, 1994)); see also 1 Marsh & Volk [b], [c]. The amended complaint contains no allegations that State Fund purchased the relevant notes directly from any Individual Defendant, but instead repeatedly claims that the notes were sold by and purchased from Lehman. (See, e.g., Am. Compl. 344.) Consequently, the Individual Defendants cannot be held liable under Sections and and the claim based thereon against them should be dismissed. D. The Amended Complaint Does Not State A Claim Under California Corporations Code (Count VIII) State Fund s claim for relief under California Corporation Code fails for at least four reasons. First, if State Fund continues to hold any of the securities at issue, it is not entitled as a matter of law to the only available remedy under Section Section only 16

26 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 26 of 45 permits the remedy of rescission when a plaintiff still holds the security at issue. Cal. Corp. Code The amended complaint only makes a vague reference that State Fund later sold the 2007 and 2008 Notes. (Am. Compl. 514.) State Fund does not allege when it actually sold the Notes or whether such sales disposed of its entire holding of the Notes. Because the Officer Defendants are not in contractual privity with State Fund, the remedy of rescission would be unavailable against them and a claim under Section must fail if plaintiff continues to hold any of the securities at issue. See Viterbi v. Wasserman, 123 Cal. Rptr. 3d 231 (Ct. App. 2011). 18 Second, State Fund has not alleged sufficient control by the Officer Defendants over a primary violator to subject any of them to vicarious liability under Section [T]he control person statute under California law [Section 25504] is substantially the same as the federal statute [Section 15 of the Securities Act]. Kainos Labs. v. Beacon Diagnostics, No. C , 1998 WL , at *13 (N.D. Cal. Sept. 14, 1998). Accordingly, courts have interpreted Section in a manner consistent with Section 15 of the Securities Act and Section 20(a) of the Exchange Act, requiring the same allegations of day-to-day operational control of a primary violator. Id.; see also Underhill v. Royal, 769 F.2d 1426, 1433 (9th Cir. 1985); Durham v. Kelly, 810 F.2d 1500, 1505 (9th Cir. 1987); In re WorldCom, Inc., 377 B.R. 77, 104 (S.D.N.Y. 2007). 19 State Fund has not alleged sufficient control to state a claim under Section But see Moss v. Kroner, 129 Cal. Rptr. 3d 220, (Ct. App. 2011). In Moss, a separate court of appeal refused to follow Viterbi and California and federal precedents similarly holding that rescissionary remedies are only available under the securities laws from those with whom the plaintiff is in privity. Moss is wrongly decided in that it did not cite any California or federal authority that permitted rescission where parties were not in privity, but rather divined that the legislature must have meant to provide such a remedy when it provided for secondary liability under Sections and Id. at 231. Notably, the defendants in Moss did not make an appearance before the court of appeal to argue their position, and thus that court did not have the benefit of their argument. Id. at While Openwave Sys, Inc. v. Fuld, No. CV SI, 2009 WL , at *7 (N.D. Cal. June 6, 2009), and Hellum v. Breyer, 123 Cal. Rptr. 3d 803, 805 (Ct. App. 2011), held that allegations of 17

27 Case 1:09-md LAK Document 588 Filed 01/06/12 Page 27 of 45 Third, even if allegations of control were not required, Section provides that only a corporation s principal executive officer is liable based on his or her officer status. Cal. Corp. Code (emphasis added). Accordingly, O Meara and Callan cannot be liable under Section 25504, because neither of them served as a principal executive officer. See, e.g., In re Gap Stores Sec. Litig, 457 F. Supp. 1135, 1146 (N.D. Cal. 1978) (holding that vice president of distribution and executive committee member of Gap was not a principal executive officer and thus does not come within the coverage of [ 25504] ). Finally, the Section claim cannot be sustained because State Fund has not adequately pled a primary violation of Section by Lehman. Liability under requires a primary violation of In re Alliance Equip. Lease Program Sec. Litig., No. 98-CV-2150, 2002 WL , at *11 (S.D. Cal. Oct. 15, 2002). Section 25501, in turn, provides for civil liability for violations of Section 25401, which prohibits material false statements or omissions in connection with the offer or sale of a security in California. See Cal. Corp. Code 25401, As discussed in Point I.B, to the extent State Fund has not pled an actionable false statement or omission made in connection with the 2007 and 2008 Notes, its Section claim must fail as well. E. The Amended Complaint Does Not State A Claim Under California Corporations Code (Count IX) For its ninth claim for relief, State Fund asserts a claim for vicarious liability against the Officer Defendants under California Corporations Code , which provides for aiderand-abettor civil liability with respect to violations of certain provisions of the California control are not required against principal executive officer and directors under Section 25504, those courts rejected the longstanding line of precedent analogizing Section to its federal analog and instead erroneously relied on the interpretation of a similarly worded provision in a completely separate section of the California Corporations Code, the Franchise Investment Law, which has nothing to do with the securities or claims at issue here. See Courtney v. Waring, 237 Cal. Rptr. 233 (Ct. App. 1987); Cal. Corp. Code