The remedy for failure to qualify the sale of a security is either rescission or damages.  Cal. Corp. Code § 25503.  Thus, one typically expects to see investors alleging a failure to qualify as grounds for returning their investments.  In a recent case, however, investors argued that a failure to qualify justified not returning their investments to the issuer.

This odd turnabout arose when an issuer's officer returned investments in an issuer after an uninsured loss.  When the issuer subsequently became defunct, it sued the officer and investor for, among other things, conversion.  The investors argued that they were entitled to the return of their money because the offering had not been qualified.  The issuer claimed that the offering was exempt under California's limited offering exemption, Corporations Code Section 25102(f).  The investors asserted that Section 25102(f) was not available because their offering must be integrated with two prior offerings.

In an unpublished opinion, the Court of Appeal rejected the investors' defense.  Rockroller, LLC v. Koljonen, Cal. Ct. of Appeal Case No. D062504 (March 30, 2015).  The case doesn't shed much legal light on the question of integration of offerings, but it does offer an interesting and unusual twist on the offensive and defensive uses of Corporations Code Section 25503.

The Court of Appeal also rejected the investors' claim that the trial court had erred in allowing a jury to decide whether Section 25102(f) exempted the offering from qualification.  Citing several criminal cases, the Court stated "It is well settled, however, that the issue is a factual one for the jury."

Note that as an unpublished opinion, Rule 8.1115(a) of the California Rules of Court prohibits courts and parties from citing or relying on it.