Court Opinion

ID: 987335
Source: CourtListenerOpinion
Date Created: 2013-07-02 22:02:27.064925+00
Date Added: 2024-06-11T12:38:24.188122
License: Public Domain

F 11 FD
                                                                                   COURT OF APPEALS
                                                                                      DIVISION Il

                                                                                  1013 JUN   19 :       31

                                                                                   STS,      r      SWIG 0

                                                                                   BY

      IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                                DIVISION II

VIEWPOINT NORTH STAFFORD LLC, a
          -                                                           No. 43018 5 II
                                                                                - -
Delaware        limited         liability     company,
VIEWPOINT           AT    SHOREWOOD            LLP,   a

Washington          limited     liability   partnership,
ROBERT         S.    ROBERTS         and    ANNE      G.
ROBERTS,

                                     Appellants,

         V.

CB RICHARD ELLIS, INC., a Delaware                                PUBLISHED OPINION
corporation, ARIA ASSET MANAGEMENT
LLC; MICHELLE E. BROCK, JAMES N.
DONNERSTAG, MERRIAH J. HARKINS,
JULIE BROCK HERZOG and DANIEL W.
BROCK,

         JOHANSON, A. .
                   J.
                    C                  Robert and Anne Roberts (the Roberts) sued real estate broker
                                        —

James Donnerstag and his employer, CB Richard Ellis, Inc.,under The Securities Act of
Washington ( Act
             "           ").   The Roberts alleged ( ) Donnerstag made material misrepresentations
                                                   1 that

1
    We refer to both Donnerstag and CB Richard Ellis,Inc. as " Donnerstag"unless noted.
2
    Chapter   21. 0 RCW.
                2
No. 43018 5 II
          - -

and omissions in   selling the Roberts   a   DBSI property interest; ( )that he sold unregistered
                                                                     2

securities as an unregistered securities broker; and ( 3)that CB Richard Ellis, Inc.,as his

employer, incurred liability because it controlled him as a seller under the Act. The trial court
granted Donnerstag summary judgment after concluding that Donnerstag did not sell the DBSI
property to the Roberts. We affirm the trial court's summary judgment in favor of Donnerstag
and CB Richard Ellis because the Roberts failed to show that Donnerstag substantially

contributed to the sale of the property and therefore Donnerstag was not a seller under the Act.

Accordingly, CB Richard Ellis,Inc. did not control a securities seller.
                                                FACTS

       In 2007, the Roberts sold a property and sought to defer their capital gains taxes on that

sale, under section 1031 of the United .States Internal Revenue Code, by purchasing another
property with the sale proceeds. This type of transaction is known as a "1031 exchange." The
Roberts sought Donnerstag's assistance to identify potential replacement properties for the 1031

exchange.

        Donnerstag informed the Roberts about DBSI's tenancy in-
                                                             - common investment program,

and Robert Roberts expressed interest. Donnerstag then e-
                                                        mailed DBSI, stating that the Roberts
were interested in learning about DBSI's investments. -A DBSI sales executive, David Rottman,

worked with the Roberts to find a suitable investment, and the Roberts decided that DBSI North

Stafford had what they sought in an investment property. The Roberts engaged an attorney for

legal advice   about the   potential investment. They also consulted their son, Brad Roberts, an

insurance broker experienced in buying and selling securities with the assistance of securities

3 DBSI, Inc. was a real estate management company.

                                                    2
No. 43018 5 II
          - -

brokers. Believing the information provided by DBSI was sufficiently informative, the Roberts

signed several transactional documents and invested in DBSI North Stafford without further

consulting Donnerstag. After DBSI sold North Stafford to the Roberts, CB Richard Ellis, Inc.

and Donnerstag received a $ 2, 56 fee from the Roberts.
                          7 8

       After DBSI went bankrupt, the Roberts sued Donnerstag and others for violating the Act.

They claimed that Donnerstag, as a seller of the DBSI investment, (1)misrepresented and

omitted material information regarding the sale, 2)
                                                 ( sold an unregistered security, and (3)acted

as an unregistered broker -dealer and salesperson. Donnerstag filed an unsuccessful CR 12( )(
                                                                                       6)b
motion to dismiss.

       After a year of discovery, Donnerstag moved for summary judgment. He argued that the

Roberts' claims under the Act fail because Donnerstag was neither a "seller" nor was CB

Richard Ellis, Inc. a "control person"in the DBSI North Stafford transactiona requirement for
                                                                            —

an action under the Act.

       Donnerstag filed a declaration from a securities law expert who opined that Donnerstag

did not act as a seller,but as a finderone who provided the name and contact informationo a
                                       —

securities seller. The expert added that, in the securities industry, a finder need not register as a

broker -dealer or salesperson and that Donnerstag's finder status was not affected by receipt of a

fee contingent on the consummation of the transaction.

       Donnerstag stated that he had long known Robert Roberts and in 2007 Robert Roberts
mentioned his interest in    a   1031   exchange.       As a result, over several months Donnerstag

identified properties that might interest the Roberts for 1031 exchange purposes. Donnerstag

4
    26 U. . 1031.
       C. §
        S

                                                    3
No. 43018 5 II
          - -

said that he attended   a   seminar for real estate brokers that included information about DBSI's

tenancy in-
        - common program, and because he knew the Roberts' 1031 exchange deadline was

quickly approaching, he felt obliged to inform them of DBSI's program. When Robert Roberts

expressed interest in DBSI, Donnerstag e-
                                        mailed DBSI and provided the Roberts' contact

information. DBSI then worked with the Roberts on the 1031 exchange, and Donnerstag knew

nothing further regarding what DBSI properties the Roberts were considering until'after they had

settled on DBSI North Stafford. Donnerstag declared that the Roberts did not consult him about

the DBSI property nor did they ask him to perform due diligence on the investment on their
behalf.    At the time, Donnerstag did not anticipate that his involvement in the sale would be

construed as a securities transaction.

          Donnerstag's summary judgment motion included various exhibits and Robert Roberts's

deposition. At deposition, Robert Roberts testified that he had worked in real estate for 50 years
and that he did not believe the DBSI sale constituted a securities transaction but, rather, a real

estate transaction. Nor did he consider Donnerstag to be the seller of the property or a seller of

securities   generallyhe considered
                      —                    DBSI to be the seller.   Consistent with Donnerstag's

recollection, Robert Roberts explained that he had asked Donnerstag and other real estate brokers

to identify potential 1031 exchange properties. Donnerstag presented the Roberts with options
but   none   suited them until   they                                - common program. DBSI's
                                        learned about DBSI's tenancy in-

Rottman then contacted them and explained that DBSI was " a great company, it' safe,
                                                                             s

conservative, they've been in business 27, 28 years, and there are a number of properties [the

5 Because this argument is dispositive, we do not include Donnerstag's additional claims.

                                                   M
No. 43018 5 II
          - -

Roberts] could consider investing in." s Papers (CP)at 119. Rottman also provided the
                                     Clerk'
Roberts written materials about DBSI and its properties.

        Robert Roberts evaluated the DBSI North Stafford information, which included a

confidential private placement memorandum explaining the offering's terms and associated
risks. Robert Roberts explained that the Roberts learned nothing from Donnerstag about DBSI

that they did not learn from Rottman. He also testified that he reviewed various DBSI properties
before concluding that DBSI North Stafford was a good fit for their investment purposes.

        According to Robert Roberts, Donnerstag did not refer, investigate, or examine any DBSI

properties for the Roberts. He explained that Donnerstag had no further involvement with the
Roberts from the point of the referral until after the transaction, and neither Donnerstag nor

anyone at CB Richard Ellis,Inc. encouraged the Roberts to invest in DBSI North Stafford.
        Donnerstag also included Anne Roberts's deposition, which echoed that of her husband.

She stated that Donmerstag did not directly provide any information about DBSI North Stafford.

She expressed that they obtained all of the property information from a DBSI property

prospectus.    She added that she did not communicate with Donnerstag about DBSI North
                                                                                 -

Stafford until after the Roberts had invested in it and that the Roberts sued Donnerstag because

the price of the property was misrepresented." CP at 204. She acknowledged, however, that
that   misrepresentation ..   was     contained in the written materials   provided ...   by DBSI,"
                                                                                                  and

Mr. Donnerstag     never   made   a   representation ...   regarding the price of the property." CP at

204 05.
    -      She further admitted that the Roberts had an opportunity to question Rottman before

investing in the property.

                                                       5
No. 43018 5 II
          - -

       Brad Roberts's deposition stated that he had experience buying and selling securities with

the assistance and advice of securities brokers.      He never attempted to contact Donnerstag or

DBSI before his parents invested in DBSI North Stafford, and he acknowledged that after

reviewing the DBSI North Stafford materials, he opined to his parents that the investment

sounded pretty good."CP at 239.

       The Roberts' response argued that their claims should proceed to trial under the Act

because    Donnerstag and   CB   Richard Ellis, Inc. acted   as   a   seller and control person.   They

included   Donnerstag's and Robert Roberts's depositions. Donnerstag stated that he had (1)

never been licensed to sell securities, (2)worked with Robert Roberts for years, and had

communicated with Roberts about 50 times while assisting him in finding a 1031 exchange

property, and (3)developed a good sense of what Roberts sought in an investment. Donnerstag
also recounted the seminar where he learned of DBSI's tenancy in-
                                                              - common program and

recalled that DBSI invited real estate brokers to refer potential investors in exchange for a

referral fee.

        After referring the Roberts to DBSI, Donnerstag spoke with Rottman and DBSPs

Michelle Brock about a referral fee. Then following the DBSI North Stafford sale, the Roberts

paid $ 2, 56. to CB Richard Ellis, Inc. for the referral. Donnerstag received about half of the
     25
     7 8
referral fee.

          Robert Roberts stated that he sued Donnerstag and CB Richard Ellis, Inc. because

Donnerstag represented to the Roberts that DBSI was a "company that had been in business for

27 years with a good track record, and it was a safe, conservative investment, and it had a

guaranteed return, I believe 7 percent." CP at 498. He also said that Donnerstag encouraged

                                                  6
No. 43018 5 II
          - -

them to pursue a 1031 exchange property rather than to pay capital gains taxes on their prior

property sale.

          In granting summary judgment to Donnerstag and CB Richard Ellis,the trial court stated:

          I think that [ Donnerstag] was working with the Roberts to find an investment for
          them to avoid the tax liability. He had offered a couple of different options. They
          were not taken. [ Donnerstag] had gone to the seminar, heard about this DBSI,

          contacted the Roberts, let them know, contacted DBSI. The two came together.
          He got a fee out of it, a pretty substantial fee. I think that everything that was
          done, all the decisions that were made by the Roberts, were made based upon the
          information    provided   to them    by DBSI. I don't find that Mr. Donnerstag or
          CBRE were security sellers. I will grant the motion for summary judgment.

Verbatim Report of Proceedings (Dec. 9, 2011) at 22 23. Because all the Roberts' claims under
                                                    -

the Act required that Donnerstag be a securities seller, the trial court's finding that Donnerstag
was not a     seller   precluded   the   remaining   claims.   The Roberts timely appeal the trial court's

entry of final judgment.

                                                     ANALYSIS

          The Roberts argue that the trial court erred in granting summary judgment to Donnerstag

and CB Richard Ellis, Inc. because the trial court erroneously concluded as a matter of law that

Donnerstag was not a seller and that CB Richard Ellis, Inc. did not therefore control a seller
under the Act. The Roberts argue that because Donnerstag referred them to DBSI and received a

referral fee, Donnerstag should be considered a seller. We disagree and conclude that the trial

court properly granted summary judgment after finding that Donnerstag was not a securities
seller.

                                                         7
No. 43018 5 II
          - -

                               A. Standards of Review and Rules of Law

       We review summary judgment orders de novo. Sheikh v. Choe, 156 Wn. d 441, 447, 128.
                                                                        2
P. d 574 ( 2006).
 3                       Trial courts properly grant summary judgment where the pleadings and

affidavits show there is no genuine issue of material fact and the moving party is entitled to

judgment    as   a   matter of law.   CR     c Questions of fact may be determined on summary
                                           56( ).

judgment as a matter of law only where reasonable minds could reach but one conclusion.
                                                Wn.   App. 687, 692, 929 P. d
                                                                          2       1182 ( 1997). When
Alexander   v.   County of Walla Walla, 84

reviewing a grant of summary judgment, we consider solely the issues and evidence the parties
called to the trial court's attention on motion for summary judgment. RAP 9.2.
                                                                           1

        The Act provides that any person selling securities in violation of the Act is liable to the
person buying the security. RCW 21. 0.A defendant's status as a seller is necessarily a
                                430(
                                   1
                                   2 ).
question of fact. Haberman v. Wash. Pub. Power Supply Sys.,109 Wn.2d 107, 132, 744 P. d
                                                                                    2
1032, 750 P. d 254 (1987).The Act also provides that every person who directly or indirectly
           2
controls a seller who sells a security in violation of the Act is jointly and severally liable with the

seller. RCW 21. 0.
            430(
               3
               2 ).

        Our Supreme Court has outlined a three part test to determine whether a defendant's acts
                                               -
 are a "substantial contributive factor"in the sale of a security, thus making the defendant a seller

under the Act. First, we look at the other factors, aside from the defendant's alleged actions, that
 contributed to the sale and the extent of the effect which they have in producing the sale.

 Haberman, 109 Wn.2d at 131. Second, we look at whether the defendant's conduct has created a
 force or series of forces that are in continuous and active operation up to the time of sale, or

 whether the defendant's conduct has created          a   situation harmless unless acted upon   by other
No. 43018 5 II
          - -

forces for which the defendant is not responsible. Haberman, 109 Wn. d at 131 32. Third, we
                                                                   2          -

consider whether a time lapse occurred between the defendant's conduct toward the sale and the

time of the sale. Haberman, 109 Wn. d at 132. Under this test, the law may impose liability on
                                  2

someone in addition to the immediate seller if the person's participation was a substantial

contributing factor in the violation of the Act. Haberman, 109 Wn. d at 130.
                                                                 2

        This substantial contributive factor test applies only to persons who have the attributes of

a seller. Brin v. Stutzman, 89 Wn. App. 809, 829, 951 P. d 291, review denied, 136 Wn. d 1004
                                                       2                             2

1998).And the absence of any real promotional conduct on the part of a defendant supports the
conclusion that the defendant was not a substantial contributive factor. See Shinn v. Thrust IV,

Inc., Wn. App. 827;851, 786 P. d 285, review denied, 114 Wn. d 1023 (1990).
    56                       2                             2

                                               B. Analysis

        As a threshold matter we note that the Roberts rely on two undisputed facts to support

their claim that Donnerstag was a securities seller: (1)
                                                       Donnerstag introduced them to DBSI and

2)Donnerstag received        a   fee.   Even recognizing that Donnerstag introduced the Roberts to

DBSI and received a fee, we agree with the trial court and conclude as a matter of law that

Donnerstag did not sell the subject property to the Roberts.

        First, applying Haberman, we look to see whether additional factors, other than

Donnerstag's referral, contributed to the DBSI North Stafford sale. See Haberman, 109 Wn. d
                                                                                        2
at 131.   After Donnerstag's referral, DBSI's Rottman promoted his company to the Roberts,

providing that DBSI was a " reat company, it' safe, conservative"that has "been in business 27,
                          g                 s
28   years."CP   at 119.   DBSI, without Donnerstag's knowledge, presented properties —including

DBSI North Staffordto the Roberts for a 1031 exchange. In fact, the Roberts reviewed these
                   —

                                                     9
No. 43018 5 II
          - -

DBSI properties before settling on DBSI North Stafford, and Donnerstag played no role in this
selection process.       Accordingly, a number of other factors beyond Donnerstag's referral

contributed to the Roberts' DBSI North Stafford investment. Therefore, under the first part of

the Haberman test, Donnerstag's referral was not a substantial contributive factor to the sale

under the Act. See Haberman, 109 Wn. d at 131.
                                   2

         Second, we consider whether Donnerstag's conduct created a continuous and active

operation up to the time of sale, or whether Donnerstag's conduct created a harmless situation

unless acted on by others for whom Donnerstag was not responsible. See Haberman, 109 Wn. d
                                                                                       2

at 131 32. Here, Donnerstag's referral does not demonstrate that he engaged in a continuous or
       -

active   operation   up to the time of sale.     Rather, his referral created a harmless situation until

acted    on   by DBSI,   over   whom Donnerstag had        no   responsibility. He learned of the DBSI

tenancy in-
         - common program, determined that the Roberts might be interested in it, and then

provided      the Roberts' contact information to DBSI.         After connecting DBSI and the Roberts,

Donnerstag played      no   role in the Roberts' DBSI North Stafford investment. Robert Roberts

acknowledged that Donnerstag did not identify DBSI North Stafford as a potential investment,

nor did he encourage the - oberts to invest in it. In fact, Robert Roberts explained that he did not
                         R

6
    Additional factors unrelated to Donnerstag contributed to the Roberts' DBSI investment.
Before investing in DBSI North Stafford, the Roberts had to qualify as accredited investors and
receive lender -approval, both of which occurred without Donnerstag's assistance or knowledge.
The Roberts conducted due diligence on DBSI North Stafford and signed a due diligence
completion acknowledgment, again, without Donnerstag's involvement. The Roberts consulted
legal counsel about the investment. Robert Roberts even conceded that were it not for Rottman's
involvement in providing information about potential investments, Michelle Brock's providing
documents to finalize the transaction, and Aria Asset Management's involvement, the Roberts
would not have invested in DBSI North Stafford. Finally, tax law, not Donnerstag, dictated the
Roberts' deadline for                                               to   satisfy   their 1031   exchange.   26
                            purchasing   a   replacement property
C. §
U. . 1031.
 S

                                                      10
No. 43018 5 II
          - -

even   consider Donnerstag to be         a   seller of DBSI North Stafford.      Accordingly, the second

Haberman factor also demonstrates that Donnerstag's conduct was not a substantial contributing

factor to the sale. See Haberman, 109 Wn. d at 131 32.
                                        2          -

            Third, we . consider how much time elapsed between Donnerstag's referral, his last

contact with the Roberts before the transaction, and the DBSI North Stafford purchase to

demonstrate that Donnerstag's conduct was not a substantial contributing factor in the Roberts'

purchase.      See   Haberman, 109 Wn. d
                                     2          at 132.    Donnerstag referred the Roberts to DBSI in a

March 31, 2008 e mail. Robert Roberts acknowledged that following the referral, Donnerstag
                 -

had    no    participation    in the transaction.   The Roberts submitted to DBSI the final purchase

agreement and tenancy in-
                      - common agreement for the property on April 14, at least two weeks
later. During these two weeks, the Roberts identified and settled on the DBSI North Stafford
investment without           Donnerstag's knowledge, advice,     or   input. Accordingly, this time lapse

between Donnerstag's referral and the sale also fails to show that Donnerstag's conduct was a
substantial contributive factor in the Roberts' investment. See Haberman, 109 Wn. d at 132.
                                                                                2

            In sum, Donnerstag's mere referral of the Roberts to DBSI does not amount to a

substantial contributive factor in the Roberts' DBSI North Stafford investment; nor did it amount

to real promotional conduct. Because Donnerstag was not a substantial contributive factor in the
DBSI North Stafford sale, the trial court properly concluded that he was not a seller under the

Act. Consequently, CB Richard Ellis, Inc. necessarily did not control a seller under the Act, and
the Roberts' claim against CB Richard Ellis, Inc. also fails.

                                                          11
No.43018 5 II
         - -

      We affirm.

                                                    J.
                                                     C
                                                      j ,
                                          Johanson, A. .
We concur:

         J

                Quinn-
                     Brintnall, J.

                                     12