Boomer Development, LLC v. National Association of Home Builders of the United States ( 2018 )

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.: 38, 40
:
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]
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
1
The ten Plaintiffs that have brought this action are Boomer Development, LLC
(“Boomer”), Sierra’s Glen Partners II and Sierra’s Glen Partners V, LP (collectively “Sierra’s
Glen”), Cotswold Homes, LLC and Skywatch Group (collectively “Skywatch”), Davis
Contracting and Development, Inc. (“Davis”), Biltmore Development LLC (“Biltmore”),
Bloomfield Construction, Inc. (“Bloomfield”), Thomas Dostal Developers, Inc. (“Dostal”), and
Concord Development Co., LLC (“Concord”). Am. Compl. ¶¶ 1–8.
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 BACKGROUND2
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.
2
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
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
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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
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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.
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“[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
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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
have’ allegations.” Id.; see also United States ex rel. Head v. Kane Co., 798 F. Supp. 2d 186,
193 (D.D.C. 2011) (Courts “must not rigidly apply the requirements of Rule 9(b), but rather
should analyze the Rule on a case by case basis.”).
The NAHB argues that the claims lodged by Plaintiffs Bloomfield, Boomer, Davis, and
Biltmore should all be dismissed because they have each failed to adequately plead certain
specific factual matters required by Rule 9(b). The Court considers each of those Plaintiff’s
claims in turn and finds that only those claims asserted by Plaintiff Bloomfield fail to meet the
pleading burden imposed by Rule 9(b).
1. Bloomfield
The Court first considers the new allegations by Plaintiff Bloomfield. In this Court’s
prior opinion, the Court found that Bloomfield’s allegations failed to satisfy Rule 9(b)’s
particularity requirement because it failed to allege the time, place, or nature of any supposed
misrepresentations made by NAHB. The Court observed that, although Bloomfield alleged that
it had received certain “information” about North Star, including information that the NAHB had
“done due diligence on the program,” Bloomfield did not allege who provided the information,
where it originated, or when it was provided. Indeed, the Court found that there was significant
question about NAHB’s involvement in those representations at all because Bloomfield had
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alleged that it learned about the program from Plaintiff Biltmore—not NAHB. Bloomfield has
since altered and refined its allegations, providing new and additional details.
According to the Amended Complaint, Bloomfield learned about the North Star program,
not from Biltmore, but from a “real estate financial advisor” who was also “acting in a similar
capacity for Biltmore Development.” Am. Compl. ¶ 135. In order to advise Biltmore and
Bloomfield about the program, the advisor communicated with Tom Vetter at the NAHB. Am.
Compl. ¶ 137. Mr. Vetter allegedly represented to the advisor that he and others at NAHB had
“spent many months working to ensure that the North Star program was legitimate and
trustworthy” and that the program “had been checked out by legal counsel for NAHB.” Am.
Compl. ¶ 138. This, according to the Amended Complaint, was false. See Am. Compl. ¶ 188.
The advisor then conveyed this information to Bloomfield who, based on these representations,
filed a loan application with North Star in March of 2014 along with a payment of $30,000. Am.
Compl. ¶¶ 139, 142. Bloomfield also alleged that “[b]etween March 12, and May 6, 2014 and
thereafter, [Bloomfield], along with [its] advisor, had contacts with Rick Judson, who added
assurances that the North Star program was safe.” Am. Compl. ¶ 144. Bloomfield allegedly
relied on these additional assurances when it decided to submit a second loan application in May
2014 and pay an additional $20,000. Am. Compl. ¶¶ 143, 145.
The NAHB argues that these new allegations still fail to state a claim for fraudulent or
negligent misrepresentation. To start, NAHB argues that the claims must be dismissed because
the initial representations upon which Bloomfield allegedly relied came from the “financial
advisor,” rather than NAHB. See Def.’s Mot. Dismiss at 7–8; Def.’s Reply at 1–2. This is only
half true. While it is correct that Bloomfield allegedly relied on the representations made by the
advisor, the Amended Complaint makes clear that the advisor was merely relaying the
8
misrepresentations made by an NAHB representative, Mr. Vetter. See Am. Compl. ¶¶ 138–39.
In the District of Columbia, a defendant is not excused from the harm caused by his
misrepresentations simply because the plaintiff did not personally hear the defendant’s
utterances. Rather, the District of Columbia adheres to the general rule that 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. See Nader v. Allegheny Airlines, Inc.,
512 F.2d 527, 547–49 (D.C. Cir.1975), rev’d on other grounds, 423 U.S. 946 (1975) (holding
that plaintiff could recover for fraudulent misrepresentation under D.C. law despite the fact that
he “was not in privity with [defendant], nor was he identified as a person to whom the
misrepresentation was directed” because “he was within an identifiable class of third persons . . .
that [defendant] intended to influence”); Armstrong v. Accrediting Council for Continuing Educ.
& Training, Inc., 961 F. Supp. 305, 309 (D.D.C. 1997) (“[U]nder D.C. law, parties who make
representations to second parties can be liable to third parties who act on these representations if
such reliance is reasonably expected.” (citing Remeikis v. Boss & Phelps, Inc., 419 A.2d 986,
991 (1980))); Mills v. Cosmopolitan Ins. Agency, Inc., 424 A.2d 43, 49 (D.C. 1980) (“[T]he
generally accepted rule . . . [is] that the maker of a fraudulent misrepresentation is liable to those
he intends to influence.” (quoting Nader, 512 F.2d at 547) (alterations in original)); Restatement
(Second) of Torts § 533 (1977) (“The maker of a fraudulent misrepresentation is subject to
liability for pecuniary loss to another who acts in justifiable reliance upon it if the
misrepresentation, although not made directly to the other, is made to a third person and the
maker intends or has reason to expect that its terms will be repeated or its substance
communicated to the other, and that it will influence his conduct in the transaction or type of
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transaction involved.”). Thus, defendants may be held liable, for example, “if plaintiff ‘can
establish that he relied upon . . . [the misrepresentation] to his detriment, and that defendants
intended the misrepresentation to be conveyed to him.’” Mills, 424 A.2d at 49 (quoting Peerless
Mills, Inc. v. American Telephone & Telegraph Co., 527 F.2d 445, 450 (2d Cir. 1975)
(alterations in original).
Although it is not necessarily fatal to Bloomfield’s claims that some or all of the alleged
misrepresentations at issue were relayed to it, the Court finds that Bloomfield’s allegations are
still inadequate. While Bloomfield has added some additional details about how it came to learn
about the North Star program and the nature of the representations that allegedly caused it to
apply for the loans, there is still very little context in which to understand the circumstances of
the alleged misstatements. Indeed, all that is alleged is that Bloomfield’s advisor spoke with Mr.
Vetter, Mr. Vetter made certain alleged misrepresentations concerning due diligence of North
Star, and that those representations were then conveyed to Bloomfield. The Amended Complaint
does not specify when or where Mr. Vetter’s representations were made nor provide any other
context or insight into the interactions between Mr. Vetter and the unnamed advisor. For
example, it 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. Consequently, there is
no basis to infer that the NAHB intended to influence Bloomfield or any other third parties by
making the alleged misrepresentations. Thus, with regard to the initial application to the North
Star program, Bloomfield has failed to allege any claim for fraudulent misrepresentation or
negligent misrepresentation with sufficient particularity.
10
The allegations about the “contacts” with Mr. Judson prior to the second loan application
are similarly deficient. Indeed, the allegations are entirely vague and confusing. The entirety of
Bloomfield’s allegations are that “[b]etween March 12 and May 6, 2014 and thereafter,
[Bloomfield], along with [its] advisor, had contacts with Rick Judson, who added assurances that
the North Star program was safe.” Am. Compl. ¶ 144. From this, many things are unclear.
First, it is unclear whether the “added assurances” that North Star was “safe” were made in a
single misstatement or multiple misstatements that occurred over some period of time. Likewise,
one cannot discern when any alleged misrepresentation may have occurred, given that
Bloomfield only specifies when the “contacts” with Mr. Judson happened and gives an open-
ended time frame of March to May, 2014 “and thereafter.” It is also unclear where or how these
misstatements were communicated to Bloomfield. Indeed, it is not even clear to whom Mr.
Judson made the alleged misrepresentations. Were the misrepresentations made to Bloomfield
directly? To Bloomfield’s advisor? Or both simultaneously? If they were made only to
Bloomfield’s advisor, were those misstatements made under circumstances from which it would
be reasonable to infer that Mr. Judson intended to influence Bloomfield or other third parties?
And did the advisor relay any misstatements to Bloomfield? All this is to say that the allegations
about “contacts” with Mr. Judson cannot form the basis of Bloomfield’s claims because they fall
short of meeting Rule 9(b)’s particularity requirement.
In short, Bloomfield has failed to plead its claims with sufficient particularity and has not
demonstrated a right to relief above a speculative level. For these reasons, the Court will dismiss
Bloomfield’s claims, but will afford one more opportunity to remedy the defects in the
complaint. Where a pleading does not satisfy the heightened requirements of Rule 9(b), the
court should freely grant leave to amend. See Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C.
11
Cir. 1996) (recognizing that courts almost always grant leave to amend to cure deficiencies in
pleading fraud). The Court believes that, while Bloomfield has already had one opportunity to
cure its allegations, Bloomfield should be given one final chance to adequately state its claims.
2. Boomer
The Court next turns to Plaintiff Boomer’s claims. In the prior Complaint, Boomer
alleged that the “manner and timing of the announcement of the North Star Program” at the
NAHB’s 2014 Home Builders Show caused it to “reasonably believe[] that the NAHB had
diligently investigated the North Star program prior to allowing it to be offered at the Show.”
Compl. ¶ 34. The Court held that these allegations were not sufficient to meet Boomer’s
pleading burden because Boomer failed to allege that the NAHB actually made any
misstatements concerning its due diligence of North Star or made any other material
representations upon which Boomer might have reasonably relied. Boomer has attempted to
cure this deficiency by adding additional details. Specifically, Boomer alleges:
The presenters, including Tom Vetter, and Rick Judson, the NAHB Chairman, who
appeared on behalf of the NAHB, told Mr. Hutchison and all of the attendees, that the
North Star loan program was sound; that the NAHB had worked with North Star over
many months to develop the program; and that the program would be of great value to
NAHB members. They added that the program would be a new source of revenue for the
NAHB. Judson indicated that he was fulfilling his earlier promise to secure financial
assistance to builders as the cornerstone of his chairmanship.
Am. Compl. ¶ 35. The NAHB argues that these additional allegations continue to be insufficient
“because it does not identify with specificity the individual ‘who allegedly made each of the
representations.’” Def.’s Mot. Dismiss at 10. The NAHB argues that the Amended Complaint
attributes the statements to “‘the presenters,’ which included Vetter and Judson, but were not
limited to either of those two individuals.” Def.’s Mot. Dismiss at 10. The Court is not
persuaded.
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While it is true that Boomer has not delineated each individual NAHB presenter other
than Mr. Vetter and Mr. Judson, the Court is satisfied 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). To start, Boomer has, at the very least, provided the identities of two NAHB
employees who made the supposed misrepresentations upon which Boomer allegedly relied. To
the extent that there were other “presenters,” Boomer has alleged that they were presenters that
“appeared on behalf of NAHB” at NAHB’s own 2014 Home Builders’ Show. See Am. Compl. ¶
35. Consequently, the Court has no reason to believe that the NAHB will be hampered in its
ability to defend itself. Courts faced with similar circumstances have likewise held that failure to
precisely name an employee is not necessarily fatal to a claim of fraud. See Odom v. Microsoft
Corp., 486 F.3d 541, 554–55 (9th Cir. 2007) (holding that “in the circumstances of a retail
transaction whose full consequences are realized only months later, the employee of the store
need not be named” when there is “no reason to believe that defendants will be hampered in their
defense by [plaintiffs’] inability to name the particular employees”). Thus, Boomer may
continue to pursue its claims.
3. Davis
Plaintiff Davis’s restated claims likewise withstand scrutiny. Previously, Davis alleged
that it would not have applied for a loan from the North Star program in the absence of the
“assurances,” “assistance,” and “support” provided by NAHB. Compl. ¶¶ 75, 94. The Court
held that Davis’s generalized allegations did not satisfy Rule 9’s pleading standard because
Davis does not allege the time or place of any misrepresentation or in any way describe the
nature of the “assurances,” “assistance,” and “support” that NAHB allegedly provided. See
13
Mem. Op. at 22 (citing Carter v. Bank of Am., N.A., 888 F. Supp. 2d 1, 14 (D.D.C. 2012)).
Davis has since tried to cure these defects. Davis now alleges that, after first learning of the
program in March 2014, it reached out to Mr. Vetter to learn more about the program and
communicated with him over both email and telephone. See Am. Compl. ¶¶ 98, 102. According
to the Amended Complaint, “[d]uring these communications, usually by phone, Mr. Vetter
related to Mr. Davis that the NAHB had worked with North Star for the past year to develop the
program; that the program was sound; that North Star would not risk its license by cheating any
applicants; and repeatedly assured Mr. Davis that it was ‘an NAHB program’ that could be
trusted.” Am. Compl. ¶ 103.
The NAHB argues that the new allegations are still deficient because “Davis is
intentionally vague as to when these alleged contacts occurred” and because Davis “does not
allege that any of Vetter’s alleged representations in fact occurred before Davis submitted its
loan application and payment to North Star.” Def.’s Mot. Dismiss at 12. While Davis has not
provided any specific dates on which it communicated with Mr. Vetter, construing the
allegations liberally, it appears that there were multiple conversations between March 2014,
when Davis learned about the program, and April 14, 2014, when Davis applied for the North
Star Program. See Am. Compl. ¶¶ 97, 102–03, 105–06. Indeed, Davis claims that the
communications occurred “after learning of the North Star program” and that Davis “would not
have applied for loans from the North Star program in the absence of the assurances and
assistance provided by Mr. Vetter . . . .” Am. Compl. ¶¶ 102, 106. Thus, it is reasonable to infer
that the communications Davis identified in the Amended Complaint occurred sometime
between March and April 2014. Because Davis has identified the nature of the alleged
representations, identified the individual responsible for those representations, that the
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communications occurred over email and telephone, and has identified—albeit implicitly—a
short period of time over which the multiple communications allegedly occurred, the Court is
convinced that Davis has provided adequate notice of the specifics of its fraud claims to allow
NAHB to prepare its defense. See Daisley v. Riggs Bank, N.A., 372 F. Supp. 2d 61, 79 (D.D.C.
2005) (When a “complaint includes the subject matter of the alleged misrepresentation, identifies
which defendant allegedly made the misrepresentation, and attributes the misrepresentation to a
particular period of time,” plaintiff has pled “sufficient information, as contemplated by Rule
9(b), to give defendants ‘adequate notice of the specifics’ of [Plaintiff]’s fraud claim.”); United
States ex rel. Folliard v. CDW Tech. Servs., Inc., 722 F. Supp. 2d 20, 31–32 (D.D.C. 2010)
(alleging fraud over a period of time is permissible when the “time span of the scheme is not
open-ended, and it give[s] the [defendant] sufficient information to allow for preparation of a
response.”) (internal quotes and citations omitted). Consequently, the Court finds that dismissal
of Davis’s claims is unwarranted.
4. Biltmore
Finally, the Court considers the new allegations concerning Plaintiff Biltmore.
Previously, this Court found that Biltmore had failed to allege any misrepresentations that the
NAHB made prior to Biltmore applying for the North Star program or submitting payment.
Mem. Op. at 25. Thus, the Court found that Biltmore had not adequately alleged the element of
reliance and that Biltmore’s claims must be dismissed. Mem. Op. at 25. Biltmore has sought to
cure this deficiency by adding allegations concerning statements that Mr. Vetter allegedly made
to Biltmore prior to Biltmore’s submission of its loan application to North Star. The NAHB
argues, however, that these allegations are still insufficient because they neither identify the
15
place where the representations were made or otherwise allege that the statements were made via
telephone or email. See Def.’s Mot. Dismiss at 12–13.
Although the Amended Complaint does not specify where the alleged misrepresentations
were made or otherwise specify the means through which they were communicated, the Court is
not persuaded that this lack of detail renders Biltmore’s claim insufficient for purposes of Rule
9(b). See Towers Fin. Corp. v. Solomon, 126 F.R.D. 531, 535 (N.D. Ill. 1989) (“While plaintiffs
do not set forth the place where the fraud allegedly transpired, the absence of the location of the
fraud does not necessarily render plaintiffs’ fraud claim insufficient for purposes of Rule 9(b)”
because “[t]he claim must be viewed as a whole.”); Stith v. Thorne, No. 06-cv-00240, 2006 WL
5444366, at *13 (E.D. Va. Oct. 30, 2006) (holding that fraud allegations were sufficiently
particular for purposes of Rule 9(b) even though “the Complaint [did] not allege the place of the
misrepresentations”). According to the Amended Complaint, between February 20, 2014 and
February 27, 2014, Biltmore “contacted Mr. Vetter” and inquired about the legitimacy of the
North Star Program. Am. Compl. ¶¶ 119–120. Mr. Vetter allegedly responded 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. Am. Compl. 121–22. He emphasized further that the “NAHB had checked North Star
out.” Am. Compl. ¶ 123. In reality, according to the Amended Complaint, no such review was
ever performed. Am. Compl. ¶ 188. Under the circumstances, the Court is satisfied that the
Amended Complaint affords the NAHB an adequate opportunity to prepare a defense to the
allegations despite the absence of any allegation concerning the place or means of
communication and thus will not dismiss Biltmore’s claims.
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* * *
For the reasons stated above, the Court will grant NAHB’s motion to dismiss with respect
to Plaintiff Bloomfield, but will deny the motion with respect to Plaintiffs Boomer, Davis, and
Biltmore. The Court will allow Plaintiff Bloomfield one final opportunity to adequately plead its
claims. See Firestone v. Firestone, 76, F.3d 1205, 1209 (D.C. Cir. 1996) (“Failure to plead fraud
with particularity . . . does not support a dismissal with prejudice. To the contrary, leave to
amend is ‘almost always’ allowed to cure deficiencies in pleading fraud.”).
B. Motion to Sever
The Court next considers NAHB’s motion to sever. While misjoinder of claims is not
grounds for dismissal of an action, Rule 21 of the Federal Rules of Civil Procedure authorizes
courts to sever parties or claims that have been misjoined. See Fed. R. Civ. P. 21. “Although the
court must exercise its discretion in deciding whether to sever under Rule 21, ‘it is well-settled
that parties are misjoined when the preconditions of permissive joinder set forth in Rule 20(a)
have not been satisfied.’” Disparte v. Corp. Exec. Bd., 223 F.R.D. 7, 12 (D.D.C. 2004) (quoting
Puricelli v. CNA Ins. Co., 185 F.R.D. 139, 142 (N.D.N.Y. 1999) (citations omitted)).
“The purpose of Rule 20 is to promote trial convenience and expedite the final resolution
of disputes, thereby preventing multiple lawsuits, extra expense to the parties, and loss of time to
the court as well as the litigants appearing before it.” M.K. v. Tenet, 216 F.R.D. 133, 137
(D.D.C. 2002). Rule 20(a)(1) provides that Plaintiffs may join together in one action if they seek
relief “with respect to or arising out of the same transaction, occurrence, or series of transactions
or occurrences” and “any question of law or fact common to all plaintiffs will arise in the
action.” Fed. R. Civ. P. 20(a)(1). However, even if these requirements are satisfied, a court may
still decide, in the exercise of its sound discretion, to sever the claims. See M.K., 216 F.R.D. at
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137. Indeed, claims may still be severed “upon a sufficient showing of prejudice to the
defendant, delay, or potential for jury confusion.” Alexander v. Edgewood Management Corp.,
321 F.R.D. 460, 464 (citing Montgomery v. STG Int’l, Inc., 532 F. Supp. 2d 29, 35 (D.D.C.
2008); see also Davidson v. D.C., 736 F. Supp. 2d 115, 120 (D.D.C. 2010); Disparte, 223 F.R.D.
at 12; Brereton v. Comms. Satellite Corp., 116 F.R.D. 162, 163 (D.D.C. 1987) (“Rule 21 must
also be read in conjunction with Fed. R. Civ. P. 42(b), which allows the Court to sever claims in
order to avoid prejudice to any party.”).
The NAHB’s main argument is that Plaintiffs’ claims should be severed because they do
not arise from the same transaction, occurrence, or series of transactions and occurrences. See
Def.’s Mot. Sever at 5–7. In this Circuit, the term “transaction or occurrences” is “interpreted
broadly to permit all reasonably related claims for relief by or against different parties to be tried
in a single proceeding.” In re Vitamins Antitrust Litig., No. MISC 99-197 (TFH), 2000 WL
1475705, at *18 (D.D.C. May 9, 2000) (quotations omitted). This logical relationship test is a
flexible one because “the impulse is toward entertaining the broadest possible scope of action
consistent with fairness to the parties; joinder of claims, parties and remedies is strongly
encouraged.” Disparte, 223 F.R.D. at 10 (quoting United Mine Workers of Am. v. Gibbs, 383
U.S. 715, 724 (1966)). Under this logical relationship test, Courts “consistently deny motions to
sever where [the] plaintiffs allege that [the] defendants have engaged in a common scheme or
pattern of behavior.” In re Vitamins Antitrust Litig., 2000 WL 1475705, at *17 (D.D.C. 2000)
(citing Brereton v. Communications Satellite Corp., 116 F.R.D. 162, 164 (D.D.C. 1987)).
In this case, the Court easily concludes that Plaintiffs’ claims arise from the same series
of transactions and occurrences. There is a rather obvious logical relationship between
Plaintiffs’ claims: all of the Plaintiffs allege that they were defrauded by North Star because
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NAHB representatives falsely assured them that the program was safe and that the NAHB had
conducted an appropriate level of due diligence on the company and the program. This is
precisely the type of “common scheme or pattern of behavior” that courts frequently find
satisfies the logical relationship test. See Green v. Beer, No. 06-4156, 2009 WL 3401256, at *7
(S.D.N.Y. Oct. 22, 2009) (holding plaintiffs’ claims were “logically related and satisf[ied] the
‘same transaction or occurrence’ requirement where “the statements and representations made to
all Plaintiff groups were ‘substantively similar’” and the scheme was “promoted with the
assistance of various representatives who—intentionally or unwittingly—conveyed information
that Plaintiffs now claim was fraudulent”); McAfee v. Francis, No. 11-0821, 2012 WL 762118,
at *4 (N.D. Cal. Mar. 6, 2012) (“Plaintiffs’ claims of negligent misrepresentation (and of fraud,
should they adequately re-allege a claim for fraud in an amended complaint) are grounded in the
common scheme alleged to be [Defendant’s] Ponzi scheme, and therefore arise from the same
series of transactions or occurrences.”); Doe XX v. Boy Scouts of Am., No. 17-0184, 2017 WL
5591592, at *2 (D. Idaho Nov. 20, 2017) (“Plaintiffs here each allege that [Defendants] knew sex
abuse occurred in Scouting generally and that they knew that the perpetrators who abused the
Plaintiffs had previously abused other boys; that Defendants chose not to disclose these facts to
the scouts or their parents; that Defendants instead represented that scouting was safe and that
scouts should trust their scout leaders; and that Plaintiffs were abused by scout leaders, had
joined scout troops, and had relied on Defendants’ alleged misrepresentations in deciding to join.
. . . These connections are sufficient to show that Plaintiffs’ claims are logically related and arise
from a similar factual background.”); M.K. v. Tenet, 216 F.R.D. at 142 (concluding that “the
alleged repeated pattern of obstruction of counsel . . . is ‘logically related’ as ‘a series of
transactions or occurrences’ that establishes an overall pattern of policies and practices”). Thus,
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the Court concludes that Plaintiffs’ claims arise from the same series of transactions and
occurrences for purposes of Rule 20(a)(1).
The NAHB also argues that Plaintiffs fail to satisfy the second prong of the permissive
joinder test because their claims do not raise common issues of fact or law. Def.’s Mot. Sever at
7–8. But Rule 20(a) “requires only that there be some common question of law or fact as to all
of the plaintiffs’ claims, not that all legal and factual issues be common to all the plaintiffs.”
Disparte, 223 F.R.D. at 11 (citing Mosley, 497 F.2d at 1334). In this case, there is a common
question of fact that flows directly from the common nature of the alleged misrepresentations.
That is, there is a common question concerning the level and extent of NAHB’s due diligence of
North Star and its loan program. This factual issue bears on the truth or falsity of the alleged
representations, which is of course a central part of each claim asserted by Plaintiffs.
Consequently, the Court finds that Plaintiffs have satisfied Rule 20(a)(1)’s requirements for
permissible joinder of claims.
NAHB makes one final argument: it argues that Plaintiffs’ claims should be severed to
avoid prejudice to NAHB. Def.’s Mot. Sever at 9. NAHB contends that, because the
circumstances underlying the claims of each Plaintiff is different and those differences will bear
on the validity of those claims, that there is “a strong likelihood of jury confusion and
comingling of the alleged misrepresentations” if the Plaintiffs are permitted to collectively
present evidence against NAHB. If this case were to be tried by a jury, this would perhaps
constitute a substantial risk of prejudice. See Grayson v. K-Mart Corp., 849 F. Supp. 785, 790–
91 (N.D. Ga. 1994). However, Plaintiffs have not requested a jury trial. Thus, the risk of
prejudice is greatly diminished, as this Court is perfectly capable of determining the facts with
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respect to each Plaintiff and holding each of them to their burdens of proof.3 Thus, NAHB has
failed to show that any prejudice outweighs the policy goals of permissive joinder, which
“promote[s] trial convenience and expedite[s] the resolution of lawsuits.” 4 Puricelli, 185 F.R.D.
at 142. For these reasons, the Court will deny Defendant’s motion to sever the Plaintiffs’ claims.
IV. CONCLUSION
For the foregoing reasons, Defendant’s Partial Motion to Dismiss Amended Complaint
(ECF No. 38) is GRANTED IN PART AND DENIED IN PART and Defendant’s Motion to
Sever Claims and Parties (ECF No. 40) is DENIED. An order consistent with this
Memorandum Opinion is separately and contemporaneously issued.
Dated: March 26, 2018 RUDOLPH CONTRERAS
United States District Judge
3
In its reply, NAHB acknowledges that “the risk of confusion to the factfinder, in this
case the Court, is low . . . .” Def.’s Reply Supp. Mot. Sever at 7.
4
NAHB weakly argues, contrary to conventional wisdom, that severance of claims would
somehow streamline discovery and aid judicial economy, despite conceding the need for
“overlapping discovery.” Def.’s Mot. Sever at 10. The Court is not persuaded by NAHB’s
argument and has no reason to believe that separating this matter into eight separate proceedings
would be in anyway more expeditious than a single action.
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