Stauffer v. Orpheus Flow Technologies, LLC

Background

At a January 2025 pretrial conference, the court said it would decide whether to give proposed jury instructions on Job Stauffer’s claim under California Corporate Securities Law section 25401. The parties later filed revised proposed instructions and arguments for and against giving them.

The first amended complaint alleged that Stauffer was a co-founder of Orpheus Flow Technologies, LLC and was promised equity in exchange for his work. His alleged duties included marketing and communications, directing designers, videographers, and contractors, and developing the company’s brand. He alleged that defendants offered him a compensation package consisting of a significant portion of the company’s equity and monthly earned income.

The first amended complaint did not identify the statutory basis of the securities claim. In opposition to summary judgment, Stauffer stated that the claim arose under section 25401. He treated the compensation-package offer as the security covered by that statute.

Court’s Analysis

The court explained that California’s statutory definition of a security is broad but is not applied literally. The key question is whether the transaction falls within the purpose of the securities law. That purpose includes protecting the public from unlawful or fraudulent stock and investment schemes and regulating securities markets.

The court concluded that offers of pay and compensation packages like Stauffer’s do not fall within those concerns. Under the authorities discussed by the court, an agreement to perform personal services for compensation is not a security, even though a sale of an interest in such an agreement might be covered. The court also emphasized that the securities law focuses on a passive investor, while Stauffer alleged that he would actively perform extensive and important work for the company.

The court further stated that Stauffer’s compensation agreement failed the relevant tests by a wide margin because it did not involve the type of passive investment addressed by the securities law.

Disposition

The court ruled that the proposed jury instructions on the securities claim would not be given and dismissed the claim. The order did not state that the dismissal was with or without prejudice.