Filed 11/7/13 Hernandez v. Vasquez CA2/8
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.


              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                 DIVISION EIGHT


ROSA HERNANDEZ et al.,                                               B244533

         Plaintiffs and Appellants,                                  (Los Angeles County
                                                                     Super. Ct. No. BC 474886)
         v.

MICHAEL VASQUEZ et al.,

         Defendants and Respondents.




         APPEAL from a judgment of the Superior Court of Los Angeles County,
Richard E. Rico and Conrad R. Aragon, Judges. Affirmed in part; reversed in part.


         The Dressler Law Group, Thomas W. Dressler; Law Offices of Dennis Hartmann
and Dennis Hartmann for Plaintiffs and Appellants.


         Gordon & Rees, Craig J. Mariam and Matthew G. Kleiner for Defendants and
Respondents.


                                                       ******
       Plaintiffs Rosa Hernandez, Alejandro Hernandez,1 Richard Gutierrez, Frank
Salazar, Paul and Elizabeth Royalty, and Alvin and Carol Tallman filed this action
against Michael Vasquez and Shining Star Resorts, Inc. (Shining Star), for alleged
violations of the Corporate Securities Law of 1968. (Corp. Code, § 25000 et seq.)2 The
trial court sustained a demurrer without leave to amend to two of causes of action on
statute of limitations grounds. The court sustained the demurrer with leave to amend to a
third cause of action. After plaintiffs filed a first amended complaint (FAC), the court
sustained a demurrer without leave to amend to the remaining cause of action. The court
based its order again on the statute of limitations.
       Plaintiffs appeal from the judgment of dismissal entered after the demurrers. We
conclude the causes of action for (1) sale of unqualified securities and (2) unlicensed sale
of securities were, indeed, untimely. On the other hand, the demurrer to the cause of
action for fraudulent sale of securities was improperly sustained, except as to Gutierrez.
We therefore affirm in part and reverse in part.
                               FACTS AND PROCEDURE
       For purpose of a demurrer, we assume the facts alleged in the complaint are true.
(Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877.) Plaintiffs’ complaint
alleged as follows. Vasquez presented to plaintiffs a “low risk” or “no risk” investment
that was a “double your money deal.” Vasquez promised plaintiffs a return of 90 percent
of their money if the investment was “terminated” early. The investment he offered was
an interest in the wealth to be generated by developing certain real property in Nevada
into a golf course and surrounding homes. Vasquez offered plaintiffs two different
investment contracts -- a purchase or receipt agreement and a promissory note. Vasquez
represented himself as president of Shining Star, the entity that was offering the subject


1     The two Hernandez plaintiffs are brother and sister. We refer to them by their first
names to avoid confusion. We do not intend this informality to reflect a lack of respect.
2      Further undesignated statutory references are to the Corporations Code.



                                              2
investment. After meetings and sales pitches with Vasquez, the plaintiffs invested in
Shining Star. The Tallmans paid $100,000 for a Shining Star receipt agreement in
August 2006 and added $40,000 more to their investment in October 2006. The Royaltys
paid $100,000 for a Shining Star purchase agreement in September 2006. Salazar paid
$50,000 in October 2006 for a Shining Star purchase agreement. Alejandro paid
$100,000 for a Shining Star promissory note in February 2007 and $50,000 for a Shining
Star purchase agreement in March 2007. Gutierrez paid $100,000 for a Shining Star
promissory note in February 2007. Rosa paid $50,000 for a Shining Star promissory note
in April 2007.
       In the spring of 2008, Vasquez requested that plaintiffs exchange their promissory
notes and purchase or receipt agreements for shares in Shining Star. Gutierrez exchanged
his promissory note and Alejandro and the Tallmans exchanged their purchase
agreements for shares in May 2008. Plaintiffs alleged Salazar and the Royaltys
exchanged their purchase agreements for shares in 2008, though they do not give a
specific date, other than to say Vasquez requested they make those exchanges in the
spring of 2008. In opposition to the demurrer, plaintiffs stated Salazar and the Royaltys
exchanged their purchase agreements in “mid-2008.” The complaint does not allege
Rosa exchanged her promissory note for shares.
       As it turned out, the investments offered by Vasquez and Shining Star were
without basis. Shining Star never had an interest in the real property in Nevada and the
development never proceeded. On May 28, 2009, Vasquez filed a bankruptcy petition
under chapter 7 of the United States Bankruptcy Code. On August 21, 2009, the
bankruptcy court granted Vasquez a discharge. On August 20, 2009, Gutierrez and his
wife Patricia filed a complaint for nondischargeability against Vasquez in the bankruptcy
court. With some exceptions, a discharge under chapter 7 of the Bankruptcy Code
“discharges the debtor from all debts that arose before the date of the order for relief.”
(11 U.S.C. § 727(b).) Plaintiffs alleged the discharge had “the effect of a permanent
injunction prohibiting the filing or prosecution of this lawsuit.”



                                              3
       On October 21, 2011, the bankruptcy court approved a stipulation between the
Gutierrezes and Vasquez authorizing the instant lawsuit against Vasquez and modifying
the discharge injunction to permit the filing and prosecution of this lawsuit (bankruptcy
stipulation).3 Specifically, the bankruptcy stipulation stated the plaintiffs in this lawsuit
“shall have the right to commence litigation against the Debtor [Vasquez] in a non-
bankruptcy forum on any claims arising from or related to the Debtor’s pre-petition offers
or sales of securities.” The discharge was “waived to permit the prosecution of any such
claims” and was “further waived to the extent necessary to permit [the plaintiffs] to
recover on their claims, whether or not reduced to judgment, from the proceeds of any
applicable insurance policy.” But the discharge stay “continue[d] in full force and effect
as to any attempt to enforce any liability as a personal obligation of the Debtor or to
enforce any liability from or against any property of Debtor or his Estate other than
insurance policies or proceeds.” The stipulation dismissed the Gutierrezes’ action to
determine dischargeability without prejudice, except if they recovered from applicable
insurance proceeds, in which case their action was to be dismissed with prejudice. They
agreed not to re-file any action to determine dischargeability unless and until they failed
to secure a recovery from insurance proceeds. The bankruptcy court reserved jurisdiction
of any action to determine the dischargeability of Vasquez’s debts.
       Plaintiffs filed the instant lawsuit on December 8, 2011, and alleged causes of
action against Vasquez and Shining Star for sale of unqualified securities, fraudulent sale
of securities, and unlicensed sale of securities under the Corporations Code. Vasquez and
Shining Star demurred to the complaint on the ground that the applicable statutes of
limitations barred all three causes of action. The court sustained the demurrer without
leave to amend on the causes of action for sale of unqualified securities and unlicensed
sale of securities. The court concluded theses causes of action were time-barred under
Corporations Code section 25507 and Code of Civil Procedure section 338, and

3      The bankruptcy stipulation is exhibit A to the complaint.



                                              4
moreover, the bankruptcy discharge injunction did not affect the running of the statute of
limitations. The court further sustained the demurrer with leave to amend on the cause of
action for fraudulent sale of securities. It concluded this cause of action was time-barred
under Corporations Code section 25506, but gave plaintiffs leave to allege new facts
showing they were not on inquiry notice when Vasquez filed his bankruptcy petition.
       Plaintiffs filed their FAC re-alleging the sole remaining cause of action for
fraudulent sale of securities. They alleged they received notice of Vasquez’s bankruptcy
petition but:
       “[n]either the notice nor anything in the bankruptcy court files indicated
       that Mr. Vasquez had been guilty of securities fraud, or that insurance
       existed that might cover Plaintiffs’ losses. The Plaintiffs (except for
       Richard and Patricia Gutierrez) had no notice or knowledge prior to August
       2011 that the sales of securities to them had been accomplished through the
       use of untrue statements, or failures to disclose material facts. The
       Plaintiffs (except for Richard and Patricia Gutierrez) had no notice or
       knowledge of the existence of any insurance potentially applicable to their
       claims prior to August 2011. The Gutierrezes filed a complaint in the
       Bankruptcy Court in August 2009 seeking to determine (a) that defendant
       was indebted to them; and (b) to determine the dischargeability of any debts
       found to be owing them. The Gutierrezes learned through discovery in
       their bankruptcy adversary proceeding that Defendant had committed
       securities fraud and that there was a possibility of insurance. The
       Gutierrezes gained that knowledge and [sic] various times in 2010.
       Commencing in August 2011, the Gutierrezes learned the identity of the
       other Plaintiffs herein and communicated to them the possibility of a claim
       for securities fraud and the possible existence of insurance. After retaining
       counsel and conducting appropriate investigation, this action was filed.”4
       Vasquez and Shining Star again filed a demurrer. In support of their demurrer,
they requested judicial notice of the Gutierrezes’ complaint for nondischargeability filed
on August 20, 2009, in the bankruptcy court. Among other things, the Gutierrezes’



4      Although the above-quoted portion of the FAC refers to both Richard and Patricia
Gutierrez as “plaintiffs,” only Richard was designated a plaintiff in the instant action, as
distinct from the proceedings in the bankruptcy court.



                                             5
complaint alleged Vasquez’s debt to them was nondischargeable because it was incurred
through fraud (11 U.S.C. § 523(a)(2)). They alleged Vasquez’s representations were
untrue in that he had no way of knowing whether they would double their money and he
did not disclose the risks involved, including that he needed to make a nonrefundable
payment of $600,000 for an option to purchase the property in question.
       The court granted the request for judicial notice and sustained the demurrer to the
FAC without leave to amend. It held plaintiffs’ cause of action was time-barred under
the two-year statute of limitations provided for in section 25506. The court found
Vasquez’s bankruptcy filing put plaintiffs on inquiry notice that Vasquez’s
representations the investments were “no risk,” would double plaintiffs’ money, and the
development project was financially healthy were false. It held the new allegations in the
FAC only indicated plaintiffs were not on actual notice of securities fraud upon receiving
notice of the bankruptcy filing, but the allegations “d[id] not alter the fact that [they] were
on inquiry notice.” The court entered a judgment of dismissal for Vasquez and Shining
Star. Plaintiffs filed a timely notice of appeal.
                                STANDARD OF REVIEW
       We review the complaint de novo to determine whether it states facts sufficient to
constitute a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “We treat the
demurrer as admitting all material facts properly pleaded, but not contentions, deductions
or conclusions of fact or law. [Citation.] We also consider matters which may be
judicially noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) We do not accept the
allegations of the complaint as true if they are contradicted by matters judicially
noticeable. (Tucker v. Pacific Bell Mobile Services (2012) 208 Cal.App.4th 201, 210.)
       When the court sustains the demurrer without leave to amend, we determine
whether there is a reasonable possibility the plaintiff can cure the defect by amendment.
(Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) If the plaintiff can cure the defect, the trial
court has abused its discretion and we reverse. (Ibid.) If not, there has been no abuse of
discretion and we affirm. (Ibid.)



                                               6
                                       DISCUSSION
1. The Cause of Action for Sale of Unqualified Securities Was Untimely
       Vasquez and Shining Star contend the cause of action for sale of unqualified
securities was barred by the two-year statute of limitations provided by section 25507.
We agree.
       “Sections 25110, 25120 and 25130 make it unlawful to offer or sell any security
without qualifying the security or transaction, unless it is exempt under” other sections of
the code. (Bowden v. Robinson (1977) 67 Cal.App.3d 705, 711.) The pertinent cause of
action alleged violations under these sections. The plaintiffs brought the cause of action
pursuant to section 25503, which imposes liability for violating sections 25110, 25120,
and 25130 and authorizes plaintiffs to seek return of the consideration paid for the
securities. (§ 25503; Bowden v. Robinson, supra, at p. 711.)
       Section 25507 provides the statute of limitations for actions under section 25503.
It provides: “No action shall be maintained to enforce any liability created under Section
25503 . . . unless brought before the expiration of two years after the violation upon
which it is based or the expiration of one year after the discovery by the plaintiff of the
facts constituting such violation, whichever shall first expire.” (§ 25507, subd. (a).) As
the plain language of the statute demonstrates, the statute of limitations for sale of
unqualified securities shall be no longer than two years. (Friedman, Cal. Practice Guide:
Corporations (The Rutter Group 2013) ¶ 5:380, p. 5-136 (rev. # 1, 2012) [“A relatively
short statute of limitations applies to actions for qualification violations: Any such action
must be commenced within 1 year after discovery of the facts constituting the violation,
and in no event later than 2 years after such violation.”].)
       Here, the pertinent cause of action alleged all of the investments offered in Shining
Star were securities within the meaning of the California Corporate Securities Law of
1968 (§ 25000 et seq.). The sale of these alleged unqualified securities occurred from
August 2006 to April 2007, when the complaint alleged the plaintiffs purchased their
interests in the Shining Star project. The two-year statute of limitations for all plaintiffs
expired by April 2009. Their cause of action was therefore time barred even before

                                              7
Vasquez filed for bankruptcy in May 2009 and long before they filed their complaint,
which was on December 8, 2011.
       Even if we assume the exchange by some plaintiffs of their original investment
contracts constituted a new “sale” for which Vasquez and Shining Star could be liable,
the cause of action was time barred. The plaintiffs exchanged their original investment
contracts for shares in either April 2008, May 2008, or some other time in “mid-2008.”5
The statute of limitations expired for every plaintiff by mid-2010, well before they filed
the complaint. As against Shining Star, this cause of action was clearly untimely.
       Still, as against Vasquez, plaintiffs argue the cause of action is timely because the
statute commenced running in 2008 (when the exchange for Shining Star shares
occurred) and tolling for bankruptcy stays factored in.6 We are not persuaded.
       Code of Civil Procedure section 356 provides “[w]hen the commencement of an
action is stayed by injunction or statutory prohibition, the time of the continuance of the
injunction or prohibition is not part of the time limited for the commencement of the
action.” This section thus tolls the statute of limitations when an injunction or statutory
prohibition is in effect. A bankruptcy stay may constitute a statutory prohibition -- that
is, a tolling event -- under Code of Civil Procedure section 356. (Schumacher v.
Worcester (1997) 55 Cal.App.4th 376, 380.)
       Such is the case with an automatic stay under title 11 United States Code section
362. When a debtor files a petition for bankruptcy, an automatic stay comes into effect.
(11 U.S.C. § 362.) The automatic stay prevents “the commencement or continuation . . .



5     We will hold plaintiffs to the statement in their opposition below that the Royaltys
and Salazar exchanged their original investment contracts in mid-2008. On review, we
“may, and shall, take judicial notice of admissions in plaintiff’s opposition to the
demurrer. (Evid. Code, § 452, subd. (d).)” (Rodas v. Spiegel (2001) 87 Cal.App.4th 513,
518.)
6     Plaintiffs have not argued on appeal that protection under the bankruptcy stays
should extend to Shining Star.



                                              8
of a judicial, administrative, or other action or proceeding against the debtor . . . to
recover a claim against the debtor that arose before the commencement of” the
bankruptcy case. (§ 362, subd. (a)(1).) The automatic stay terminates when the debtor
obtains a discharge. (Id., subd. (c)(2)(C).) Vasquez filed for bankruptcy on May 28,
2009. According to the complaint, the bankruptcy court granted him a discharge on
August 21, 2009, but according to the bankruptcy court docket, which Vasquez and
Shining Star submitted with a request for judicial notice, the court granted the discharge
on September 22, 2009. Using the September date for the discharge, the automatic stay
was in effect and tolled the statute of limitations for 117 days, or nearly four months.
Even if one adds four months to mid-2010 -- the latest possible expiration date for the
statute of limitations without any tolling -- the cause of action was untimely filed in
December 2011.
       Plaintiffs contend an even longer tolling period applied due to the so-called
“discharge injunction” under title 11 United States Code section 524, which they contend
is identical to the automatic stay statute (11 U.S.C. § 362). This is not an accurate
reading and application of the discharge injunction statute. Title 11 United States Code
section 524 enjoins creditors from collecting on debts after a discharge in a bankruptcy
proceeding. (In re Beeney (Bankr. 9th Cir. 1992) 142 B.R. 360, 362.) Section 524 states
a discharge “operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset any such debt as
a personal liability of the debtor . . . .” (11 U.S.C. § 524(a)(2), italics added.) Except in
circumstances not relevant here, “discharge of a debt of the debtor does not affect the
liability of any other entity on, or the property of any other entity for, such debt.” (Id.
§ 524(e).) Section 524 “makes clear that this injunction applies only to the debtor’s
personal liability and does not inhibit collection efforts against other entities.” (In re
Beeney, supra, at p. 362.) Accordingly, the discharge injunction does not enjoin a suit
against a debtor when “the purpose of the action is to collect from a collateral source,
such as insurance . . . and the plaintiff makes it clear that it is not naming the debtor as a
party for anything other than formal reasons . . . .” (In re Munoz (Bankr. 9th Cir. 2002)

                                               9
287 B.R. 546, 550; see Forsyth v. Jones (1997) 57 Cal.App.4th 776, 781 [“Since section
524(a)[] voids only those judgments determining the debtor to be personally liable,
‘. . . the statutory language, on its face, does not preclude the determination of the
debtor’s liability upon which the damages would be owed by another party, such as the
debtor’s liability insurer.’”].)
       Because the discharge injunction “permits an action against a discharged debtor to
fix the liability of the debtor’s insurers” (Forsyth v. Jones, supra, 57 Cal.App.4th at
p. 782; In re Beeney, supra, 142 B.R. at pp. 362-363), it was not a “statutory prohibition”
against this lawsuit and therefore not a tolling event under Code of Civil Procedure
section 356. The bankruptcy stipulation attached to the complaint states plaintiffs are
pursuing this action to recover “from the proceeds of any applicable insurance policy”
and not “to enforce any liability as a personal obligation of” Vasquez. While the
stipulation expressly conveys plaintiffs’ intention to fix the liability of Vasquez’s
insurers, the stipulation was unnecessary for plaintiffs to proceed in this manner. The
stipulation merely reiterates what title 11 United States Code section 524 already states.
Indeed, to the extent it purported to alter the terms of the discharge injunction, it could
not have lawfully done so. Section 524 definitively sets forth the terms of the discharge
injunction, and they are not capable of modification by a court. (In re Munoz, supra, 287
B.R. at p. 553.) The stipulation was, in effect, an idle act. Plaintiffs’ contention that they
could not have commenced this action until after the stipulation allowed it is wrong.
       Moreover, their contention that the discharge injunction is identical to the
automatic stay, which temporarily enjoined this lawsuit, is wrong. The language of the
discharge injunction statute differs from the automatic stay statute in material respects.
The provisions of the automatic stay enjoin actions “against the debtor,” as opposed to
the more narrow provisions of the discharge injunction, which enjoin actions only for “a
personal liability of the debtor.” (11 U.S.C. §§ 362(a)(1), 524(a)(2); In re Munoz, supra,
287 B.R. at p. 554, fn. 8 [“It warrants clarification and emphasis that the § 362 automatic
stay is broader than the discharge injunction (because § 362 does not contain such
limiting concepts as ‘personal liability of the debtor’) . . . .”].) The provisions of the

                                              10
automatic stay also fail to state that the stay “does not affect the liability of any other
entity” for the debtor’s debt, as the discharge injunction so states. (11 U.S.C. § 524(e).)
The presence of these limiting concepts in the discharge injunction make all the
difference. They are exactly what take lawsuits like this -- those initiated simply to fix
the liability of the debtor’s insurer -- outside the scope of the discharge injunction.
       In short, plaintiffs’ cause of action for sale of unqualified securities was time
barred. This deficiency is not curable by amendment. The court did not err in sustaining
the demurrer to this cause of action without leave to amend.
2. The Cause of Action for Unlicensed Sale of Securities Was Also Untimely
       Section 25501.5 creates a cause of action to rescind a purchase of securities when
the broker-dealer who sold the securities was unlicensed at the time of the purchase. (§
25501.5, subd. (a)(1).) The parties agreed below that the three-year statute of limitations
for “[a]n action upon a liability created by statute” applied to this cause of action. (Code
Civ. Proc., § 338, subd. (a).)
       For the sake of argument, we will again assume the 2008 transactions constituted
an unlicensed “sale.” This cause of action was time barred, even using this later date
rather than the original purchase dates for the investment contracts in 2006 and 2007. As
against Shining Star, the three-year statute of limitations expired in mid-2011 without any
tolling. When one adds approximately four months for the tolling attributable to the
automatic bankruptcy stay, the statute of limitations expired around October 2011 as
against Vasquez. And as we have explained in part 1 of the Discussion, the discharge
injunction did not contribute additional tolling. Accordingly, the December 2011
complaint was untimely as to this cause of action.
3. Vasquez and Shining Star Failed to Establish the Securities Fraud Cause of Action
Was Untimely, Except as to Gutierrez
       Section 25401 makes it unlawful for a person to offer or sell a security by means
of a false statement of material fact or omission of material fact. Section 25501 creates a
cause of action for violating section 25401. The statute of limitations for this cause of
action expires on the earlier of: (1) “five years after the act or transaction constituting the

                                              11
violation,” or (2) “two years after the discovery by the plaintiff of the facts constituting
the violation.” (§ 25506, subd. (b).) Actual notice of the facts will trigger the statute, but
inquiry notice is also sufficient. (Deveny v. Entropin, Inc. (2006) 139 Cal.App.4th 408,
423 (Deveny.)
       Vasquez and Shining Star carried the burden of proving the statute of limitations
barred this cause of action. (Ladd v. Warner Bros. Entertainment, Inc. (2010) 184
Cal.App.4th 1298, 1310.) They argue the two-year statute of limitations applied and
commenced running when plaintiffs received notice of Vasquez’s bankruptcy petition.
They contend the bankruptcy petition put plaintiffs on inquiry notice of their cause of
action for securities fraud. The trial court agreed with Vasquez and Shining Star. It
determined the cause of action was untimely because plaintiffs filed the complaint more
than two years after May 28, 2009 (the date Vasquez filed for bankruptcy).
       Under the circumstances of this case, inquiry notice was not an appropriate ground
on which to sustain the demurrer. “Inquiry notice arises in a securities action when
circumstances suggest to an investor of ordinary intelligence the possibility that he has
been defrauded.” (Deveny, supra, 139 Cal.App.4th at p. 428.) Inquiry notice is “‘often
called “storm warnings” in the securities context.’” (Ibid.) “Storm warnings may be
found whenever there are ‘“any financial, legal, or other data, such as public disclosures
in the media about the financial condition of the corporation”’ that would tend to alert a
reasonable person to the likelihood of fraud.” (Ibid.) “[O]nce placed on inquiry notice
by storm warnings, an investor must perform a reasonable investigation into the
possibility of fraud. [Citation.] An investor who fails to fulfill this duty of inquiry will
be charged with the knowledge of what an investor in the exercise of reasonable diligence
would have discovered concerning the fraud, and this knowledge is imputed as of the
date a diligent investigation would have turned up evidence sufficient to establish a cause
of action.” (Ibid.) “[W]hen the facts are susceptible to opposing inferences, whether ‘a
party has notice of “circumstances sufficient to put a prudent man upon inquiry as to a
particular fact,” and whether “by prosecuting such inquiry, he might have learned such
fact” (Civ. Code, § 19), are themselves questions of fact to be determined by the jury or

                                              12
the trial court.’” (Hobart v. Hobart Estate Co. (1945) 26 Cal.2d 412, 440.) Additionally,
whether plaintiffs have exercised reasonable diligence in their inquiry “‘“is a question of
fact for the court or jury to decide.”’” (April Enterprises, Inc. v. KTTV (1983) 147
Cal.App.3d 805, 833.)
       In brief, inquiry notice is replete with questions of fact and is generally an issue
for ultimate determination by the trier of fact. Indeed, these principles are illustrated by
Deveny, the very case Vasquez and Shining Star cite for the proposition that inquiry
notice is sufficient to commence the limitations period. In Deveny, the plaintiffs brought
a securities fraud cause of action under the Corporations Code, and the trial court granted
the defendants’ summary judgment motion on statute of limitations grounds. (Deveny,
supra, 139 Cal.App.4th at p. 419.) While the Court of Appeal held inquiry notice was
sufficient to trigger the statute of limitations, it reversed the judgment because the
defendants’ evidence did not demonstrate the plaintiffs had inquiry notice as a matter of
law. Rather, the evidence presented a disputed issue of material fact precluding summary
judgment. (Id. at p. 430.)
       This is not to say that inquiry notice may never be established as a matter of law.
It may be, such as when the underlying facts are undisputed and subject to only one
reasonable inference. (E.g., Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112 [“While
resolution of the statute of limitations issue is normally a question of fact, where the
uncontradicted facts established through discovery are susceptible of only one legitimate
inference, summary judgment is proper.”].) We are not persuaded this is one of those
cases, however. Vasquez and Shining Star assert the issue may be decided in their favor
as a matter of law, citing Helfand v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th
869, 898-899 (Helfand), and In re Gregory (9th Cir. 1983) 705 F.2d 1118, 1123
(Gregory).7 Neither case assists them.



7      These are the same cases on which the trial court relied in its ruling.



                                             13
       Gregory was an appeal from a bankruptcy court judgment in which an unsecured
creditor was dissatisfied because the debtor’s confirmed plan provided for zero payment
on the creditor’s claim. (Gregory, supra, 705 F.2d at p. 1119.) The creditor contended
the notice sent to creditors prior to the plan confirmation hearing did not meet
constitutional due process standards because the notice did not contain a copy of the
proposed plan, and the portion of the notice describing how the plan would deal with the
creditor’s claim was ambiguous. (Id. at p. 1122.) The court held the notice was not
“constitutionally inadequate.” (Id. at p. 1123.) The notice gave the creditor enough
information that it could have obtained a copy of the plan to determine precisely how the
plan proposed to deal with the creditor’s claim. (Ibid.) In this context, the court
explained: “When the holder of a large, unsecured claim . . . receives any notice from the
bankruptcy court that its debtor has initiated bankruptcy proceedings, it is under
constructive or inquiry notice that its claim may be affected, and it ignores the
proceedings to which the notice refers at its peril. ‘Whatever is notice enough to excite
attention and put the party on his guard and call for inquiry, is notice of everything to
which such inquiry may have led. When a person has sufficient information to lead him
to a fact, he shall be deemed to be conversant of it.’” (Ibid.) The court’s holding relating
to due process standards and the rights of creditors is of no moment in this case. Gregory
had nothing to do with inquiry notice as it relates to the statute of limitations, and it
certainly did not hold notice of a bankruptcy proceeding puts creditors on inquiry notice
as a matter of law of all fraud causes of action against the debtor.
       Helfand cited to Gregory. The pertinent question in Helfand was whether a
particular notice of motion was sufficient to alert certain individuals that “their personal
interests were at stake” in the motion and they should, therefore, attend the hearing on the
motion. (Helfand, supra, 10 Cal.App.4th at p. 898.) The question was part of an
overarching analysis to determine whether the privies of these individuals were barred
from litigating matters by the doctrine of res judicata. (Id. at p. 897.) After examining
and quoting from Gregory, among other authorities, the court held the notice of motion
was insufficient to notify the individuals their personal interests were at stake. (Id. at pp.

                                              14
898-900.) The circumstances of this case and its holding are far removed from the issues
here.
        At this stage of the proceedings, and on the facts alleged in the complaint, we may
not decide inquiry notice as a matter of law. The determination requires the resolution of
questions of fact. For example, was the bankruptcy notice a sufficient storm warning to
alert a reasonable person to the likelihood of fraud? What did plaintiffs do to investigate
this storm warning, if anything? What would a reasonable person have done to
investigate? When would a reasonable person, exercising reasonable diligence in his or
her investigation, have discovered the alleged fraud?
        Whereas the demurrer could not be sustained on inquiry notice grounds, actual
notice is a different matter. Judicially noticed material demonstrated at least Gutierrez
had actual notice of Vasquez’s alleged fraud by August 2009. The Gutierrezes’
complaint for nondischargeability filed on August 20, 2009, in the bankruptcy court
alleged Vasquez’s debt to them was not dischargeable because the debt was incurred
through fraud. Thus, by August 20, 2009, Gutierrez knew the facts constituting his fraud
cause of action, and the statute of limitations commenced running. The automatic stay
was in effect from August 20 until the discharge on September 22, 2009, tolling the
statute of limitations for 33 days. With 33 days of tolling, the two-year statute of
limitations expired on September 22, 2011. Gutierrez’s cause of action for securities
fraud was untimely.
        There is no indication in the pleadings the other plaintiffs had actual notice around
the same time as Gutierrez. According to the FAC, Gutierrez did not contact the other
plaintiffs and “communicate[] to them the possibility of a claim for securities fraud” until
August 2011. Plaintiffs filed the complaint in a timely manner four months later.
                                      DISPOSITION
        The judgment is affirmed in part and reversed in part. The trial court shall vacate
its order sustaining the demurrer to the FAC for fraudulent sale of securities and enter a
new order sustaining the demurrer as to Gutierrez’s fraud cause of action but overruling
the demurrer as to the remaining plaintiffs’ fraud cause of action. The order sustaining

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the demurrer to the causes of action for sale of unqualified securities and unlicensed sale
of securities shall stand. Each party to bear their own costs on appeal.




                                                 FLIER, J.
WE CONCUR:




       BIGELOW, P. J.




       GRIMES, J.




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