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

United States District Court, District of Columbia

February 14, 2019

BOOMER DEVELOPMENT, LLC, et al., Plaintiffs,




         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 nonrecourse 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, 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 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 . . . 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 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. ...

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