MEMORANDUM OPINION DENYING DEFENDANT'S MOTION TO
DISMISS
RUDOLPH CONTRERAS UNITED STATES DISTRICT JUDGE.
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 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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