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Boomer Development, LLC v. National Association of Home Builders of United States

United States District Court, District of Columbia

March 26, 2018

BOOMER DEVELOPMENT, LLC, et al., Plaintiffs,
v.
NATIONAL ASSOCIATION OF HOME BUILDERS OF THE UNITED STATES, Defendant.

          MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART DEFENDANT'S PARTIAL MOTION TO DISMISS AMENDED COMPLAINT [38]; DENYING DEFENDANT'S MOTION TO SEVER CLAIMS AND PARTIES [40]

          RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Beginning 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.[1] 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.

         II. FACTUAL BACKGROUND[2]

         In late 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.

         The 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.

         Following 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.

         The 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.

         On June 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.

         III. ANALYSIS

         A. Partial Motion to Dismiss

         The 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.

         In this 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))).

         In 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.

         Nevertheless, 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 ...


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