United States District Court, W.D. Washington, Seattle
ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT RE PLAINTIFF's SECURITIES FRAUD CLAIMS
JOHN C. COUGHENOUR, District Judge.
This matter comes before the Court on Defendants' Motion for Summary Judgment (Dkt. No. 51). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby DENIES the Motion for the reasons explained herein.
Plaintiff Somerset Communications Group, LLC ("Somerset") sues Defendants Wall to Wall Advertising, Inc. ("W2W"), Donald and Andrea MacCord, Shannon and Tracey Doyle, and S.D. Doyle, Ltd. for securities fraud in connection with Somerset's purchase of shares of Fourpoints Holding, LLC ("Fourpoints"). (Amended Complaint, Dkt. No. 24.) Donald MacCord ("MacCord") was the sole shareholder and President of W2W, and the Chief Executive Officer of Fourpoints. ( Id. at ¶ 1.3.) Shannon Doyle ("Doyle") was the Chief Financial Officer of Fourpoints. ( Id. at ¶ 1.4.) Fourpoints was formed by W2W, Lubin Outdoor, LLC ("Lubin"), and Fourpoints Investors ("FP Investors") for the purpose of holding and operating Fourpoints Communications, LLC, a company that built and operated digital billboards on Native American Trust Properties. ( Id. at ¶ 3.2-3.3.) Plaintiff alleges that Fourpoints was initially funded through a $5.5 million capital investment by FP Investors (a/k/a DH Capital), a $1.5 million investment by W2W (a/k/a MacCord Partners), and a $1.1 million investment by Lubin, with the promise of an additional $6.5 million investment from FP Investors. ( Id. at ¶ 3.4.) Under Fourpoints' operating agreement, the consent of all manager members (which included FP Investors and Lubin) was required prior to the sale of any units of stock. ( Id. at ¶ 3.52.)
According to Plaintiff, in May or June of 2009, MacCord approached William Moore, a social acquaintance, with an offer to purchase a five percent stake in Fourpoints for $2 million, from W2W (who would assign its shares). ( Id. at ¶ 3.17.) The Amended Complaint states that over the next six months, MacCord and Doyle aggressively courted Moore to purchase the stock. During this time, MacCord and Doyle made numerous statements to Moore and sent him five different documents between June 2009 and February 2010 detailing, inter alia, Fourpoints' business plans, existing signs, the investment opportunity, 2009 operational results and projections, and year-end actual operational results. ( Id. at ¶¶ 3.19; 3.30; 3.41; 3.44; 3.54.) Each of these documents, Plaintiff alleges, indicated that Fourpoints had a steady income stream and plans for aggressive expansion. ( Id. at 3.31; 3.45.) Specifically, these documents allegedly indicated, as late as autumn 2009, that Fourpoints had significant and ongoing revenue from two signs in California (the "Pala Signs"), and that FP Investors would be investing an additional $6 million. ( Id. at ¶¶ 3.12; 3.28; 3.41; 3.45.) According to the Amended Complaint, neither of these statements was true: the Pala signs were either "terminated" or "turned off" due to local land use regulations before or in June 2009 ( id. at ¶ 3.11) and by late July 2009, Fourpoints was insolvent and FP Investors had indicated that no more investment funds would be forthcoming ( id. at ¶ 3.12; 3.13). Plaintiff alleges that MacCord and Doyle failed to mention in any communication that Fourpoints was functionally insolvent, falsely stated revenue figures, and concealed that FP Investors had retracted their investment commitment. ( Id. at ¶¶ 3.49.)
Allegedly lacking knowledge of Fourpoints' true condition, in November 2009, Moore formed Somerset as an entity through which to purchase shares of Fourpoints from W2W. ( Id. at ¶ 3.50.) Plaintiff states that in the preceding month, MacCord and Doyle had stated that MacCord wished to sell W2W's shares of Fourpoints to Somerset in order to generate capital for three lucrative investment ventures. ( Id. at ¶ 3:47.) In reality, the Amended Complaint maintains, MacCord and Doyle sought and ultimately used Somerset's investment to keep Fourpoints afloat despite its then-undisclosed financial troubles. ( Id. at ¶ 3.48.) Between December 2009 and August 2010, Somerset made nineteen purchases of Fourpoints stock from W2W, investing $2, 028, 000 in return for a 757.16 units of common stock. ( Id. at ¶ 3.57.)
The Amended Complaint states that MacCord and Doyle informed Somerset that the other managing partners, Lubin and FP Investors, had consented to each individual sale of shares, as was required by Fourpoints' operating agreement. ( Id. ) However, the Amended Complaint alleges that in reality, neither of these two partners was informed of the sale, and either MacCord or Doyle forged the consent forms for several of the sales. ( Id at ¶3:53.) MacCord and Doyle then allegedly used Somerset's investment not to fund new ventures, as had been promised, but rather to pay Fourpoints' operating expenses and interest on the loan from FP Investors, all without informing Somerset. ( Id. at ¶ 3.55.) Somerset allegedly did not learn of Fourpoints' financial troubles until Somerset was informed that MacCord had been dismissed by Fourpoints' other shareholders in November 2010. ( Id. at ¶ 3.73.) Around this time, Somerset was also informed by Fourpoints and FP Investors that FP Investors had not consented to any of W2W's assignments/sales of Fourpoints units to Somerset, that the consent forms had been forged, and that Fourpoints believed Somerset to have no membership interest in the company. ( Id. at ¶ 3.74; 3.75.)
Somerset brought six claims for securities fraud under federal law (Section 10b of the Securities Exchange Act of 1934/Rule 10b-5) and state law (Washington Securities Act) arising from the misrepresentations and omissions MacCord and Doyle allegedly made before and during the period in which Somerset invested in Fourpoints. (Amended Complaint, Dkt. No. 24, § IV.) Specifically, Somerset brings Cause of Action One, alleging that Defendants falsely represented Fourpoints' assets and revenues, especially regarding the "Pala Indian Tribe deal" ( id. at ¶ 4.3); Cause of Action Two, alleging that Defendants fraudulently omitted the fact that Fourpoints was "essentially insolvent" on repeated occasions ( id. at ¶ 4.10); Cause of Action Three, alleging that Defendants misrepresented the percentage of Fourpoints shares that Somerset was obtaining ( id. at ¶ 4.16); Cause of Action Four, alleging that Defendants fraudulently omitted Lubin's reduction of its interest in Fourpoints and sale of its common units to MacCord and W2W at a price much lower (forty percent) than the price W2W was then offering to Somerset ( id. at ¶ 4.22); Cause of Action Five, alleging that Defendants fraudulently omitted Fourpoints' forbearance agreement deferring its interest payment to FP Investors ( id. at ¶ 4.28); and Cause of Action Six, alleging that Defendants forged FP Investors' and Lubin's signatures on consent forms for the assignment/sale of units to Somerset ( id. at ¶ 4.34).
Before the Court is Defendants' Motion for Summary Judgment re Plaintiff's Securities Fraud Claims (Dkt. No. 51). For the following reasons, the Court finds that Defendants are not entitled to judgment as a matter of law at this stage, and denies Defendants' Motion.
A. Legal Standards
1. Federal Securities Fraud Claims
To ultimately prove its Rule 10b-5 securities fraud claims, Somerset must establish (1) a material misrepresentation or omission by Defendants; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance on the misrepresentation or omission; (5) economic loss; and (6) loss causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-342 (2005). Information is material when there is a "substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as ...