The opinion of the court was delivered by: Richard Seeborg United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS'
MOTION FOR SUMMARY JUDGMENT
Defendants' motion, much like the case, turns on a key question: were plaintiffs' membership investments in the White Sands Estates ("WSE") securities subject to the Securities Act 22 of 1933? Defendants Ed Broda, Aspire Real Estate ("Aspire"), and Pacific West Securities ("PWS") argue the undisputed facts demonstrate that they were not.*fn1 Even assuming the 24 investments were securities, moving defendants insist they were not statutory sellers. Finally, 25 defendants argue the securities would have been exempt from the Act's registration requirement.
For this reason, defendants ask for summary judgment on all claims that assume a violation of the 2 Securities Act. In opposition, plaintiffs demonstrate that material issues of fact remain in dispute, 3 thereby foreclosing summary judgment under any of defendants' three legal theories. Because 4 plaintiffs have introduced no facts, in contrast, to dispute defendants' argument of a lack of 5 connection to the O'Shea Trust or Tom O'Shea, their motion for summary judgment on claims 6 brought by these plaintiffs must be granted. 7
8 law tort claims. As described below, defendants' motion will be granted as to plaintiffs' unfair 9 competition claim, but denied as to the two remaining claims. Defendants' motion was submitted 10 without oral argument, pursuant to Civil Local Rule 7-1(b).
The plaintiff entities constitute overlapping family enterprises. SFRC is a California corporation operated by Kevin and Kate Donahue. Donahue, O'Shea, LLC, is a California limited liability corporation. Kevin Donahue, Kate Donahue and Anne (Donahue) O'Shea comprise its 15 members. The third institutional plaintiff is the O'Shea Trust, managed by Tom O'Shea and his wife, Anne O'Shea. Tom O'Shea is the only individual plaintiff.
According to the First Amended Complaint ("FAC"), moving defendant Ed Broda advised Kevin Donahue of an investment opportunity in White Sands Estates in 2007. Broda, as founder 19 and CEO of companies named Aspire Real Estate and Aspire Investments, acted as an investment 20 adviser to the Donahues for a number of years and placed numerous investments-most of which 21 involved real estate-on their behalf. By the year 2007, Broda and the Aspire companies had 22 affiliated with defendant PWS. It was through PWS that Broda and the Aspire companies sold 23 securities. Broda charachterizes his relationship to PWS as that of an independent contractor. He 24 was required, by agreement, to funnel securities sales exclusively through PWS and to obtain that 25 entity's authorization prior to any sale. Broda was also obligated to inform PWS if he engaged in 26 outside business.
In the alternative, defendants move for partial summary judgment on three of plaintiffs' state
The SFRC plaintiffs aver that, after selling a piece of property in 2007, they became interested in finding a suitable new investment. In particular, they hoped to conduct a "like-kind" 3 exchange, in compliance with Section 1031 of the Internal Revenue Code, to offset some of the tax 4 consequences of the sale. Broda explains that he discussed several securitized investment options 5 with Kevin Donahue. The parties recount what happened next differently. According to Broda, 6 when the plaintiffs voiced a preference for a real estate investment, he referred them to co-defendant 7 and developer Henry Amado. Amado is the founder of Abacus Financial Group and also one of the 8 founding members of White Sands Estates. The White Sands company was formed to acquire and 9 develop an unimproved 42.28 acre parcel of real estate in Kailua-Kona, Hawaii. Amado planned to 10 develop the property, together with Gregory Fish of G.D. Fish & Associates. According to Broda, the referral essentially represented the extent of his involvement.
Plaintiffs tell a different story. They explain that Broda introduced Donahue and his family to Amado's project and advised that they invest in it. Plaintiffs claim Broda told Kevin Donahue the project would be profitable during the development stage and would provide a "coupon" return 15 on investment of 12 percent per annum. At the end of two years, plaintiffs claim he predicted a full return on their investment as well as a constant percentage share in any profits generated by the sale of completed residential units. Plaintiffs also insist Broda assured them of Amado's expertise and 18 skill. They contend they later learned that the WSE project was actually one of his first forays into 19 real estate development. Plaintiffs claim it was their understanding that Broda's recommendation, 20 like the investment advice he had given on prior occasions, was connected to PWS. As evidence of 21 this, Kevin Donahue notes that in an e-mail Broda sent on August 17, 2007 regarding WSE, the 22 legend stated: "Securities [are] offered through Pacific West Securities, Inc., Member NASD/SIPC."
The parties agree, however, that no plaintiff had any direct contact with PWS to discuss WSE. The 24 plaintiffs also never received any statements or documents relating to WSE from PWS or paid it any 25 funds connected to the project. 26
The parties also agree that Broda arranged a conference call between Amado and Kevin and Kate Donahue on August 18, 2007. About a week earlier, on August 8, 2007, Broda e-mailed them a copy of an Executive Summary and a proposed Operating Agreement. That document described 2 the project and represented that the most recent appraisal projected a value of approximately $19 3 million. It stated that WSE had the property under contract for $9,950,000. Plaintiffs point out that 4 they later learned the $19 million figure was eclipsed by two more recent appraisals. Apparently, 5
Amado received on October 4, 2007 an appraisal conducted in January of that year, valuing the 6 property at between $11 and $15.69 million (depending on the length of a marketing campaign). On 7 October 2, 2007, Amado received an appraisal conducted on September 17, 2007, valuing the 8 property at $11.2 million. Plaintiffs contend they were never made aware-by Amado, by Broda, or 9 by anyone-of these appraisals, despite the fact that WSE did not purchase the property until
Meanwhile, plaintiffs suggest Broda's involvement continued after the initial conference
r investment. Kevin Donahue avers that Broda call, and even after the plaintiffs made thei 13 participated in several conference calls, attended investor meetings, and was involved in efforts to obtain financing to replace a lender who apparently fell through. Plaintiffs claim they believed his 15 continued attention reflected his role as an advisor, but suggest it also had to do with a payment he was set to receive from WSE. For support, they introduce an e-mail sent from Broda to Amado on November 9, 2007, to "formalize" a commission in the amount of five percent of equity raised.
Also via e-mail to Amado, Broda stated that "hopefully [this is] the first of many significant 19 milestones together!" Plaintiffs point out that WSE's general ledger lists an obligation to pay
Aspire $199,948.27. Broda insists he was only ever actually paid $50,000. He characterizes this as 21 a "thank you" gesture for his referral, and acknowledges that WSE owed him, in total, roughly $250,000. Plaintiffs assert that Borda solicited investments from several other individuals and 23 corporations, and that his five percent commission reflects this activity. Broda counters that he only 24 successfully secured funding from one other entity. No defendant knows how many offers Broda or 25 the other defendants actually made.
for $2 million a ten percent undivided interest in the estate pursuant to a Tenants In Common 28
Over the ensuing weeks and months, the Donahues, on behalf of SFRC, agreed to purchase ("TIC") Agreement and a sixteen percent membership interest in White Sands Estates. They did so 2 on October 27, 2007. White Sands Estates aimed to purchase the acreage with the plaintiffs' 3 investment and through funds obtained from a series of loans from other entities. The primary loan 4 was obtained from Kennedy Financing, Inc. for a principal amount of $7,000,000. Kevin Donahue 5 acted on behalf of SFRC as a co-borrower under this loan. The company secured a second loan 6 from another lender called FC Kona, LLC, for $756,000, and a third loan from the seller of the
Kona property in the amount of $500,000. As these funds were still insufficient to cover the asking 8 price, plaintiffs agreed to increase their investment. They suggest that through discussions with
Amado and Broda, they were told that the property had increased in value due to successful 10 regulatory proceedings, that all due diligence was completed, and that the project was "shovel ready." On October 27, the Donahue, O'Shea company purchased a four percent Class A membership interest and an eight percent Class B membership in White Sands Estates for approximately $1 million. White Sands Estates purchased the property on November 15, 2007, for $9,975,000 (plaintiffs insist the true purchase price was approximately $10,495,000). In June of 15 2008, the O'Shea Trust purchased for ...