United States District Court, District of Columbia
MEMORANDUM OPINION GRANTING IN PART AND DENYING IN
PART DEFENDANT'S PARTIAL MOTION TO DISMISS AMENDED
COMPLAINT ; DENYING DEFENDANT'S MOTION TO SEVER
CLAIMS AND PARTIES 
RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE.
in 2014, the National Association of Home Builders of the
United States (“NAHB”), allegedly began promoting
a loan program offered by North Star Finance LLC
(“North Star”) to NAHB members and prospective
members. Am. Compl. ¶¶ 12-13, ECF No. 37.
Plaintiffs, who were members or prospective members of NAHB,
allege that they applied to the loan program and paid
application fees to North Star based on assurances from NAHB
representatives that the NAHB had conducted appropriate due
diligence on North Star and that the program was safe and
reputable. Ultimately, however, North Star's
financing never materialized because that program was, in
reality, a fraudulent investment scheme carried out by North
Star. Plaintiffs now allege that the NAHB should be held
responsible for their losses because they claim that the
NAHB's assertions that it had reviewed the program were,
in fact, false. This matter now comes before the Court on two
motions. First, Defendant has filed a partial motion to
dismiss pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure. See generally Def.'s Partial
Mot. to Dismiss Am. Compl. (“Def.'s Mot.
Dismiss”), ECF No. 38. Second, Defendant has moved to
sever the claims and parties of this suit pursuant to Rule
21. Def.'s Mot. Sever Claims and Parties
(“Def.'s Mot. Sever”), ECF No. 40. For the
reasons stated below, the Court grants the motion to dismiss
with respect to Plaintiff Bloomfield, but denies the motion
with respect to the other Plaintiffs. The Court also denies
the motion to sever the claims and parties.
2013 and early 2014, the NAHB entered into an agreement with
North Star to offer a financing program for current and
prospective members of the NAHB. Am. Compl. ¶ 12. Under
the program, members could obtain non-recourse debt financing
for projects up to $10 million at interests rates that were
at or below available market rates and included other
favorable terms. Am. Compl. ¶ 12.
NAHB first announced the North Star program in February 2014
at the NAHB's annual Home Builders Show in Las Vegas,
Nevada. See Am. Compl. ¶¶ 13-14. The
program was introduced at various points throughout the Show
by prominent NAHB representatives. See Am. Compl.
¶ 15. Indeed, among others, the program was touted by
Rick Judson, the Chairman of NAHB's Board of Directors,
and by Thomas Vetter, an NAHB Executive Board Member.
See Am. Compl. ¶ 15. During the presentations,
attendees were told that the program was an NAHB program
available only to NAHB members and that, if they were
interested in applying, they should provide their contact
information to NAHB personnel. See Am. Compl.
¶¶ 16-17. Attendees were also advised that NAHB and
North Star intended to enter into an “affinity”
program whereby the NAHB would receive a share of the
application fees that loan applicants paid to North Star.
See Am. Compl. at ¶ 18.
the conference, the NAHB continued to promote and disseminate
information about the North Star program to its members and
others. The NAHB provided information about the program to
its state and local affiliates and recommended that they
refer any interested persons to NAHB for additional details.
See Am. Compl. ¶ 23. When contacted, the NAHB
provided information about the program, instructed interested
persons on how to contact North Star to apply, and also
provided certain assurances. See Am. Compl. ¶
25. Specifically, Plaintiffs allege that senior NAHB officers
and directors, including Mr. Judson, Mr. Vetter, Rebecca
Froass, a Director for NAHB's Financial Institutions and
Capital Markets, and Richard Krump, legal counsel to NAHB,
variously represented to them that NAHB had vetted North Star
and considered both it and the loan program to be sound.
See Am. Compl. ¶¶ 35, 45, 48, 51, 55, 58,
69, 72, 83, 91, 103, 121-23, 138, 153-54, 174. Nevertheless,
Plaintiffs allege that, despite the NAHB's general
promotion of the North Star program and its assurances
concerning the integrity of the program, the NAHB never in
fact took any reasonable steps to independently confirm the
qualifications of North Star's operators, the accuracy of
North Star's representations about the program, or the
merits of the program generally. Am. Compl. ¶ 27.
Plaintiffs in this case allege that they applied for the
North Star program and paid substantial fees to North Star
and an associated firm, called Capital Source Funding
(“Capital Source”), in reliance on NAHB's
various representations. See Am. Compl. ¶¶
42, 46, 70-71, 81, 86, 88, 105-06, 126, 132, 142-43, 146,
157, 161, 167, 178, 180, 190-91. But the North Star financing
never materialized. See Am. Compl. ¶¶
59-60, 78-79, 94-95, 112-13, 133-34, 148- 49, 171-72, 181-82.
In May 2015, it was revealed that the North Star program was,
in reality, a fraudulent investment scheme when the
Securities and Exchange Commission filed a federal lawsuit
against North Star and others. Am. Compl. ¶ 30.
21, 2016, Plaintiffs commenced this suit against the NAHB in
the Pennsylvania Court of Common Pleas, alleging, among other
things, claims for fraudulent misrepresentation and negligent
misrepresentation. The NAHB subsequently removed the action
to the United States District Court for the Middle District
of Pennsylvania and filed a motion to dismiss the claims
pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure. The case was later transferred to this Court and
this Court then dismissed the claims of several Plaintiffs,
but granted them leave to amend. On July 28, 2017, Plaintiffs
filed an Amended Complaint in which they reasserted their
misrepresentation claims. The NAHB has now filed a motion to
dismiss the claims asserted by Plaintiffs Bloomfield, Boomer,
Davis, and Biltmore under Rule 12(b)(6). In addition, the
NAHB requests that this Court sever the claims of all
Plaintiffs and have them each proceed in separate actions.
Partial Motion to Dismiss
Court first addresses NAHB's partial motion to dismiss.
The Federal Rules of Civil Procedure require that a complaint
contain “a short and plain statement of the
claim” in order to give the defendant fair notice of
the claim and the grounds upon which it rests. Fed.R.Civ.P.
8(a)(2); accord Erickson v. Pardus, 551 U.S. 89, 93
(2007) (per curiam). A motion to dismiss under Rule
12(b)(6) does not test a plaintiff's ultimate likelihood
of success on the merits; rather, it tests whether a
plaintiff has properly stated a claim. See Scheuer v.
Rhodes, 416 U.S. 232, 236 (1974), abrogated on other
grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982). A
court considering such a motion presumes that the
complaint's factual allegations are true and construes
them liberally in the plaintiff's favor. See, e.g.,
United States v. Philip Morris, Inc., 116 F.Supp.2d 131,
135 (D.D.C. 2000). Nevertheless, “[t]o survive a motion
to dismiss, a 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)). This means
that a plaintiff's 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 (citations omitted).
“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, ” are
therefore insufficient to withstand a motion to dismiss.
Iqbal, 556 U.S. at 678. A court need not accept a
plaintiff's legal conclusions as true, see id.,
nor must a court presume the veracity of the legal
conclusions that are couched as factual allegations. See
Twombly, 550 U.S. at 555.
case, each of the Plaintiffs asserts two claims. First
Plaintiffs assert common law claims of fraudulent
misrepresentation. See Am. Compl. ¶¶
183-191. To establish a claim for fraudulent
misrepresentation under District of Columbia law, a plaintiff
must 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.”
Sibley v. St. Albans Sch., 134 A.3d 789, 808-09
(D.C. 2016) (citation omitted). Second, Plaintiffs allege
negligent misrepresentation claims. See Am. Compl.
¶¶ 192-196. “[T]he elements of a negligent
misrepresentation claim are the same as those of a fraudulent
misrepresentation claim, 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). Because each of the Plaintiffs'
claims involves fraud, they must all satisfy the heightened
pleading burden of Rule 9(b). See Jacobson v.
Hofgard, 168 F.Supp.3d 187, 206 (D.D.C. 2016)
(“[L]ike claims for fraudulent misrepresentation, Rule
9(b)'s particularity requirements apply to claims for
negligent misrepresentation.” (citing Jefferson v.
Collins, 905 F.Supp.2d 269, 286 (D.D.C. 2012))).
cases involving fraud, Rule 9(b) requires that a complaint
“state with particularity the circumstances
constituting fraud or mistake.” Fed.R.Civ.P. 9(b);
see, e.g., Jefferson v. Collins, 905 F.Supp.2d 269,
282 (D.D.C. 2012); 3D Global Solutions, Inc. v. MVM,
Inc., 552 F.Supp.2d 1, 7-9 (D.D.C. 2008); Anderson
v. USAA Cas. Ins. Co., 221 F.R.D. 250, 254 (D.D.C.
2004). The D.C. Circuit has generally advised that this
requires a complaint to “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) (internal quotation marks omitted)
(quoting Kowal v. MCI Commc'ns Corp., 16 F.3d
1271, 1278 (D.C. Cir. 1994)). In addition, a plaintiff must
ordinarily “identify individuals allegedly involved in
the fraud.” United States ex rel. Williams,
389 F.3d at 1256.
Rule 9(b)'s particularity requirement does not abrogate
Rule 8's general requirements that a pleading contain a
“short and plain statement of the claim, ” and
that each averment be “simple, concise, and
direct.” United States ex rel. Joseph v.
Cannon, 642 F.2d 1373, 1386 (D.C. Cir. 1981). Rule 9(b)
simply requires the pleader to provide a higher degree of
notice by adequately 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).
The Court must remain cognizant that “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).
Accordingly, “Rule 9(b) does not inflexibly dictate
adherence to a preordained checklist of ‘must ...