Boomer Development, LLC v. National Association of Home Builders of the United States ( 2019 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BOOMER DEVELOPMENT, LLC, et al., :
:
Plaintiffs, : Civil Action No.: 16-2225 (RC)
:
v. : Re Document No.: 54
:
NATIONAL ASSOCIATION OF HOME :
BUILDERS OF THE UNITED STATES, :
:
Defendant. :
MEMORANDUM OPINION
DENYING DEFENDANT’S MOTION TO DISMISS
I. INTRODUCTION
In 2013, the National Association of Home Builders of the United States (“NAHB”)
allegedly joined forces with North Star Finance LLC to offer a unique loan program to NAHB
members. Under the program, members pursuing development projects were offered non-
recourse debt financing of up to ten million dollars at attractive interest rates and with other
favorable terms. But the deal ultimately proved too good to be true. The financing never
materialized, and the program turned out to be a fraudulent investment scheme carried out by
North Star.
Plaintiffs in this case are ten real estate development companies who have filed suit
against NAHB, alleging that misrepresentations made by NAHB officials induced them into
applying to the North Star program and paying large application fees that they never got back.
Presently before the Court is NAHB’s motion to dismiss the claims brought by one of those ten
plaintiffs, Bloomfield Construction, Inc. In previously dismissing Bloomfield’s claims without
prejudice, the Court noted that Bloomfield is different from the other Plaintiffs because it did not
initially hear about the North Star program directly from an NAHB representative. Instead,
Bloomfield learned of NAHB’s alleged misrepresentations through intermediaries. This is not
necessarily fatal, as the Court explained in its prior opinion. But it means that Bloomfield must
plead specific facts that allow the Court to infer that NAHB intended to influence Bloomfield or
other third parties when it made the misrepresentations. According to NAHB, the latest iteration
of the complaint still does not permit such an inference. The Court disagrees, however, and
concludes that Bloomfield’s new allegations are just enough to pass muster. The Court therefore
denies NAHB’s motion.
II. BACKGROUND 1
As the Court has already explained in two prior opinions, this case arises out of an
agreement between NAHB and North Star to offer a financing program for current and
prospective NAHB members. See Boomer Dev. LLC v. Nat’l Ass’n of Home Builders (Boomer
I), 258 F. Supp. 3d 1, 6 (D.D.C. 2017); Boomer Dev. LLC v. Nat’l Ass’n of Home Builders
(Boomer II), 325 F.R.D. 6, 10–11 (D.D.C. 2018). Under this program, members would be
offered non-recourse debt financing of up to ten million dollars with favorable terms and at
interest rates that were at or below available market rates. Second Amended Complaint ¶ 12,
ECF No. 53.
NAHB first announced the North Star program in February 2014 at its annual Home
Builders Show in Las Vegas. Id. ¶ 13. Throughout the show, the program was touted by various
prominent NAHB representatives, including Rick Judson, Chairman of NAHB’s Board of
Directors, and Thomas Vetter, a member of NAHB’s Executive Board. Id. ¶¶ 14–15. Judson,
1
At the motion to dismiss stage, the Court accepts the plaintiff’s factual allegations as
true. See, e.g., United States v. Philip Morris, Inc., 116 F. Supp. 2d 131, 135 (D.D.C. 2000).
2
Vetter, and others told attendees that the North Star program was an “NAHB program” available
only to NAHB members and that those who were interested in applying should provide their
contact information to NAHB personnel. Id. ¶¶ 16–17. They also informed attendees that
NAHB and North Star planned to enter into an “affinity” program under which NAHB would
receive a share of the application fees that loan applicants paid to North Star. Id. ¶ 18.
After the Builders Show, NAHB provided information about the North Star program to
its state and local affiliates and recommended that they refer any interested parties to NAHB for
additional details. Id. ¶ 23. When interested parties contacted NAHB, it would offer information
about the program and explain to them how to apply. Id. ¶ 25. It would also, Plaintiffs allege,
provide certain assurances about the program. Id. According to Plaintiffs, multiple senior
NAHB officers and directors, including Judson and Vetter, told them that NAHB had vetted
North Star and considered both it and the loan program to be sound. Id. ¶¶ 35, 45, 48, 51, 55, 58,
69, 72, 83, 91, 103, 121–23, 148, 153, 162–63, 175, 188. In reliance on these assurances,
Plaintiffs decided to apply for the loan program—and in doing so, paid large application fees to
North Star and an associated firm called Capital Source Funding. Id. ¶¶ 22, 42, 46, 70–71, 81,
86, 88, 105–06, 126, 132, 154–55, 157, 166, 170, 176, 187, 189.
The North Star financing never materialized, however, and Plaintiffs never got their
money back. See id. ¶ 30. According to Plaintiffs’ complaint, “Vetter had a financial interest in
North Star and was being compensated from the fees paid by loan applicants.” Id. ¶ 26. In May
2015, the Securities and Exchange Commission filed a lawsuit against Vetter, North Star Finance
LLC, and others that alleged that the loan program was actually an investment scam. Id. ¶ 30.
With that proceeding ongoing, Plaintiffs focused their attention on NAHB. Plaintiffs now
believe that the numerous assurances NAHB officials made regarding the North Star program
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were all false: NAHB never actually took any reasonable steps to independently confirm the
merits of the North Star program, the qualifications of North Star’s officers, or the accuracy of
North Star’s representations about the program. Id. ¶ 27. In June 2016, Plaintiffs filed this
lawsuit against NAHB, asserting claims of fraudulent misrepresentation, negligent
misrepresentation, breach of fiduciary duties, and fraudulent inducement. Boomer I, 258 F.
Supp. 3d at 7. The Court then dismissed most of Plaintiffs’ claims but granted them leave to
amend. See generally id. After Plaintiffs filed an amended complaint that reasserted their
fraudulent and negligent misrepresentation claims, NAHB filed a second motion to dismiss,
which the Court denied with respect to all of the Plaintiffs except one: Bloomfield Construction,
Inc. See generally Boomer II, 325 F.R.D. 6.
In dismissing both of Bloomfield’s misrepresentation claims, the Court explained that
there were doubts about NAHB’s involvement in misleading Bloomfield, because Bloomfield
had alleged that it had learned about the North Star program, not from NAHB officers directly,
but from a real estate financial adviser that Bloomfield shared with one if its co-Plaintiffs,
Biltmore Development, LLC. See id. at 13. The financial adviser, the first amended complaint
alleged, spoke to Thomas Vetter, who made “certain alleged misrepresentations concerning due
diligence of North Star, and those representations were then conveyed to Bloomfield.” Id. at 14.
That the financial adviser served as an intermediary between NAHB and Bloomfield was “not
necessarily fatal to Bloomfield’s claims,” the Court reasoned, but it meant that Bloomfield had to
plead specific facts that would allow the Court to infer that NAHB intended to influence
Bloomfield or other third parties when it made the misrepresentations. Id. at 14–15. And the
first amended complaint did not plead such facts. It provided “little context in which to
understand the circumstances of the alleged misstatements,” so there was “no basis to infer that
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. . . Vetter intended or reasonably expected his statements [to the financial adviser] to be relayed
to potential North Star applicants.” Id. at 14.
The Court dismissed Bloomfield’s claims without prejudice, though, and said that
“Bloomfield should be given one final chance” to construct an adequate pleading. Id. at 15.
Bloomfield subsequently filed a second amended complaint, which provides a slightly different
recounting of the events. The current version explains that Bloomfield’s financial adviser—Jan
Reese—first learned of the North Star program, not from Vetter or another NAHB
representative, but from David Stollman, a representative of co-Plaintiff Biltmore Development.
Stollman, the second amended complaint alleges, reached out to NAHB in February 2014 “to
inquire about leads for possible construction financing” and was advised that “the person to
contact for the NAHB was Tom Vetter.” Second Amended Complaint, ¶¶ 137, 140. Over the
course of the next few weeks, Stollman and Vetter spoke on the phone a number of times. Id.
¶ 144. During those calls, Vetter told Stollman that he and “legal counsel for the NAHB had
done background checks on the principals of North Star and that the NAHB was satisfied that the
loans were sound and that North Star had closed several loans under a similar program.” Id.
¶ 148.
According to the current complaint, Stollman believed from these calls that NAHB
intended that the North Star information be disseminated to other builders. Id. ¶ 145. So as the
calls were ongoing, Stollman shared what he had learned with Jan Reese, his financial adviser,
who in turn passed the information along to another one of his clients, William Hasey of
Bloomfield. Id. ¶ 147, 152. Upon hearing of the program and Vetter’s assurances, Hasey
arranged for Bloomfield to join NAHB so that it would qualify for the program, and then
submitted a loan application and application payment to North Star. See id. ¶ 152. Hasey would
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not have applied for the program, the complaint alleges, “in the absence of the assurances and
support provided by” Vetter and NAHB. Id. ¶ 155.
NAHB responded to Bloomfield’s second amended complaint by filing another motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6), in which it argues that “Bloomfield’s
allegations remain entirely devoid of any alleged specific misrepresentations made to it by
NAHB” and that those allegations provide no basis to infer that NAHB meant to influence
Bloomfield or other third parties. Def.’s Mem. in Support of Mot. to Dismiss at 9 (“Mot. to
Dismiss”), ECF No. 54-1. NAHB therefore requests that the Court dismiss both of Bloomfield’s
misrepresentation claims again—this time with prejudice.
III. LEGAL STANDARD
A motion to dismiss under Rule 12(b)(6) does not test a plaintiff’s ultimate likelihood of
success on the merits, but instead whether a plaintiff has properly stated a claim. See, e.g.,
Skinner v. Switzer, 562 U.S. 521, 530 (2011). When considering such a motion, the Court
accepts the complaint’s factual allegations as true and construes them liberally in the plaintiff’s
favor. See, e.g., Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). “To survive a motion
to dismiss, [the] complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In other words, the factual
allegations “must be enough to raise a right to relief above the speculative level, on the
assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly,
550 U.S. at 555–56. “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements” are insufficient. Iqbal, 556 U.S. at 678. The Court need not accept legal
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conclusions as true, see id., nor must it presume the veracity of legal conclusions that are
couched as factual allegations. See Twombly, 550 U.S. at 555.
In cases like this one, where a plaintiff asserts a claim involving fraud or negligent
misrepresentation, the complaint must also “state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b); see Jacobson v. Hofgard, 168 F. Supp. 187,
206 (D.D.C. 2016); Jefferson v. Collins, 905 F. Supp. 2d 269, 286 (D.D.C. 2012). Under this
heightened pleading standard, the complaint must “state the time, place and content of the false
misrepresentations, the fact misrepresented and what was retained or given up as a consequence
of the fraud.” United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1256
(D.C. Cir. 2004) (quoting Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1278 (D.C. Cir. 1994));
see also Aston v. Johnson & Johnson, 248 F. Supp. 3d 43, 49 (D.D.C. 2017). And it must
“identify [the] individuals allegedly involved in the fraud.” Martin-Baker Aircraft, 389 F.3d at
1256.
Rule 9(b) does not, however, override Rule 8’s general dictate that the complaint contain
a “short and plain statement of the claim” and that “[e]ach allegation . . . be simple, concise, and
direct.” Fed. R. Civ. P. 8(a)(2), (d)(1); see also United States ex rel. Joseph v. Cannon, 642 F.2d
1373, 1386 (D.C. Cir. 1981). Rule 9(b) merely requires that plaintiffs provide a higher degree of
notice by alleging all of the requisite elements for the cause of action invoked. Alicke v. MCI
Commc’ns Corp., 111 F.3d 909, 912 (D.C. Cir. 1997). Indeed, “the point of Rule 9(b) is to
ensure that there is sufficient substance to the allegations to both afford the defendant the
opportunity to prepare a response and to warrant further judicial process.” United States ex rel.
Heath v. AT & T, Inc., 791 F.3d 112, 125 (D.C. Cir. 2015). The rule “does not inflexibly dictate
adherence to a preordained checklist of ‘must have’ allegations.” Id. Thus, “[c]ourts must not
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rigidly apply the requirements of Rule 9(b), but rather should analyze the Rule on a case by case
basis.” United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186, 193 (D.D.C. 2011).
IV. ANALYSIS
Like the other nine Plaintiffs, Bloomfield asserts two claims in this case. The first is a
claim of fraudulent misrepresentation, which, under D.C. law, requires a plaintiff to allege: “(1)
that a false representation was made, (2) in reference to a material fact, (3) with knowledge of its
falsity, (4) with intent to deceive, and (5) action taken in detrimental reliance upon the
representation.” 2 Sibley v. St. Albans Sch., 134 A.3d 789, 808–09 (D.C. 2016). The second is a
claim of negligent misrepresentation, for which the elements are the same, “except a negligent
misrepresentation claim does not include the state of mind requirements of fraud.” Regan v.
Spicer HB, LLC, 134 F. Supp. 3d 21, 38 (D.D.C. 2015).
In its motion to dismiss, NAHB does not appear to take issue with any of these elements
in particular. Instead, NAHB continues to emphasize that “[n]o [mis]representations are alleged
to have been made directly to Bloomfield.” Mot. to Dismiss at 7. And NAHB argues that
Bloomfield’s allegations concerning Thomas Vetter’s allegedly false statements made to David
Stollman—a representative of another Plaintiff, Biltmore Development—are too vague and
imprecise to support misrepresentation claims on behalf of Bloomfield. Id. at 7, 11. As the
Court said in one of its prior opinions in this case, “the maker of material misrepresentations may
be held liable for losses incurred by third parties who reasonably rely on those representations, so
long as the third party falls within an identifiable class of persons that the defendant intended to
influence.” Boomer II, 325 F.R.D. at 14. The question here, then, is whether the second
2
The Court previously determined that D.C. law would govern Plaintiffs’
misrepresentation claims. See Boomer I, 258 F. Supp. 3d at 9–12.
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amended complaint provides context from which one can infer that “Vetter intended or
reasonably expected his statements to be relayed to potential North Star applicants,” such as
Bloomfield. Id.
The Court concludes that the current complaint provides just enough context to allow
such an inference. Critically, Bloomfield has now clarified that Vetter did not make the alleged
misrepresentations directly to Bloomfield’s financial adviser, Jan Reese. Instead, Bloomfield
now claims that Vetter made the false statements to David Stollman, who passed the information
onto Reese, who in turn shared the information with Bloomfield. Admittedly, this narrative adds
another link to the chain of communications—a link that was not present in Bloomfield’s first
amended complaint. But, perhaps counterintuitively, that additional link helps Bloomfield here.
One of the main problems with the first amended complaint was that the Court could not tell
whether Vetter was even marketing the North Star program to a potential applicant when he
made the alleged misrepresentations. That version of the complaint merely provided that Vetter
had some kind of conversation with a mysterious financial advisor, during which he told that
advisor some false things. There was no context from which the Court could infer that Vetter
intended to use that conversation to influence potential North Star applicants like Bloomfield.
See Boomer II, 325 F.R.D. at 14 (“[I]t is not alleged that Mr. Vetter knew that the advisor was
inquiring on behalf of others nor is there any other context from which to infer that Mr. Vetter
intended or reasonably expected his statements to be relayed to potential North Star
applicants.”).
The second amended complaint solves this issue. It now alleges that Vetter was actually
having a conversation with a potential applicant to the loan program—Stollman—when he made
the alleged misrepresentations. According to the current complaint, Stollman reached out to
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Vetter after being referred by another NAHB official, and the two subsequently had multiple
phone calls during which they “discussed the NAHB’s roll out of the program as well as the
North Star company.” Second Amended Complaint ¶ 144. At the time of these conversations,
Stollman was acting on behalf of Biltmore Development, an NAHB member—which it is
reasonable to infer Vetter either knew or should have known. See ¶ 115. Thus, unlike in the first
amended complaint, Bloomfield has now alleged that Vetter was intending to influence at least
one potential North Star applicant when he made the alleged misrepresentations; he at a
minimum wanted to convince Biltmore to apply.
Of course, Bloomfield must do more to survive NAHB’s motion to dismiss; it must plead
allegations sufficient to infer that Vetter expected to influence potential applicants other than
Biltmore. The second amended complaint is adequate in this respect as well. As an initial
matter, the Court is unable to discern any reason why Vetter would have wanted his North Star
sales pitch to be kept a secret. To the contrary, given that the North Star program was designed
solely for NAHB members, one can easily infer that Vetter would want information about the
program to be shared with other members and potential new members. Again, with the previous
version of the complaint, it was unclear whether Vetter was marketing the program at all when
he made the allegedly false statements to the mysterious financial adviser. But now that the
complaint alleges that Vetter was trying to actively sell someone on the program when he made
the statements at issue, it is difficult to see why he would have been opposed to his statements
being shared with other potential applicants. Indeed, taking the allegations in the complaint as
true, Vetter stood to financially benefit if additional applications were submitted, as he “was
being compensated from the fees paid by loan applicants.” Second Amended Complaint ¶ 26.
The same goes for NAHB, which, under the supposed “affinity” program, was to receive a share
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of the application fees. Id. ¶ 18. And anyone who wanted to apply would need to become an
NAHB member if they were not already one, so NAHB would also potentially receive increased
membership dues. See id. ¶ 17. Thus, based on the nature of the conversations described in the
second amended complaint, it is reasonable to infer that NAHB and Vetter wanted Stollman to
share the North Star information with other prospective applicants—prospective applicants like
Bloomfield.
If that were not enough, though, the current complaint also alleges that “[b]ased on his
interactions with Mr. Vetter, Mr. Stollman believes that Mr. Vetter and the NAHB intended that
the North Star information be disseminated in this manner.” Id. ¶ 146. This is no legal
conclusion that the Court may simply discard when considering a motion to dismiss. It is an
allegation of fact—one that can be probed and tested during discovery and at trial. And taking
the allegation as true, that Stollman understood the tenor of his conversations with Vetter to
mean he should share the North Star information with other prospective applicants would be
valuable evidence in showing that Vetter reasonably expected to influence third parties like
Bloomfield.
Finally, unlike the previous versions of the complaint, Bloomfield’s allegations in the
present iteration of the complaint satisfy Rule 9(b)’s particularity requirement by “stat[ing] the
time, place and content of the false misrepresentations.” Martin-Baker Aircraft Co., 389 F.3d at
1256 (quoting Kowal, 16 F.3d at 1278). The complaint now makes clear that Vetter’s alleged
false statements were made in phone calls with Stollman that began between February 20 and
February 27, 2014 and “continued into the early weeks of March 2014.” Second Amended
Complaint ¶ 144. The statements were then relayed to Bloomfield, through Jan Reese, “between
February 24, 2014 and March 17, 2014.” Id. ¶ 152. The Court previously held that time ranges
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similar to these were sufficient for Biltmore to survive a motion to dismiss. See Boomer II, 325
F.R.D. at 17. There is no reason to treat Bloomfield any differently. 3
The same rationale applies to the content of Vetter’s false statements. The Court already
okayed Biltmore’s allegation that Vetter said that “he and others at NAHB had spent months
tailoring the North Star program to the needs of NAHB members and that the NAHB had
performed background checks on North Star and were satisfied that the loan program was sound
and that North Star had closed several loans under a similar program.” Id. Bloomfield now
alleges that these exact statements were relayed to it. See Second Amended Complaint ¶ 148.
Just as the Court held with respect to Biltmore, then, Bloomfield’s allegations now afford
“NAHB an adequate opportunity to prepare a defense.” Boomer II, 325 F.R.D. at 17. The Court
therefore concludes that Bloomfield has properly stated a claim for both fraudulent
misrepresentation and negligent misrepresentation. 4
3
NAHB appears to suggest that the time ranges asserted by Biltmore may be inconsistent
with those now asserted by Bloomfield. See Mot. to Dismiss at 8–9. But this argument seems to
be based on an apparent typo in the complaint. In the section of the complaint containing
Biltmore’s factual allegations, one paragraph states that Stollman spoke to Vetter “prior to
February 7, 2014.” Second Amended Complaint ¶ 119. However, when this paragraph is read in
the context of the surrounding allegations, it becomes clear that the paragraph should read “prior
to February 27, 2014.” See id. ¶ 116 (“On or about February 20, 2014, Mr. Stollman received an
email with three attachments from the local HBA, along with contact information for Tom
Vetter.”); id. ¶ 126 (“Biltmore filed its first loan application with North Star on February 27,
2014 . . . .”).
4
Like the other nine Plaintiffs, Bloomfield has asserted only one count of fraudulent
misrepresentation and one count of negligent misrepresentation. Because the Court here
concludes that Bloomfield’s allegations with respect to its first North Star application are, on
their own, sufficient to support each of those claims, the Court need not address Bloomfield’s
allegations with respect to its second North Star application for purposes of NAHB’s motion to
dismiss.
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V. CONCLUSION
For the foregoing reasons, NAHB’s motion to dismiss is DENIED. An order consistent
with this Memorandum Opinion is separately and contemporaneously issued.
Dated: February 14, 2019 RUDOLPH CONTRERAS
United States District Judge
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