In this Jan. 30, 2017, file photo, work continues on new housing under construction in St. Louis. (AP Photo/Jeff Roberson)
WASHINGTON (CN) Victims of a fraudulent-investment scheme must amend their claims against the home-building trade group they say promoted the program, a federal judge ruled.
Boomer Development LLC brought the 2016 complaint in Washington with nine other developers against the National Association of Home Builders of the United States, a Nevada trade group.
That same year, a company called North Star Finance LLC settled charges by the Securities Exchange Commission that it defrauded dozens of investors of $5 million in an advance-fee loan scam involving bogus prime bank instruments.
A statement by the SEC notes that North Star solicited many of its investors from the National Association of Home Builders.
Rather than sue North Star itself, which did not admit to any wrongdoing as part of the settlement, the home-building companies sued the association for misrepresentation and other claims.
U.S. District Judge Rudolph Contreras dismissed a fiduciary-duty count altogether on Friday, saying the companies did not have the type of relationship with the trade group that is typically necessary to support such a claim.
Upon consideration of the relationship at issue and the current state of law in Nevada, the court discerns no persuasive reason why nonprofit trade associations should be categorically held to occupy positions of special trust with respect to their members, the 33-page opinion. Indeed, the court has identified no authority in Nevada that contemplates the existence of such a relationship or any authority or line of reasoning indicating that Nevada law is likely to recognize this relationship in the future.
and dismissed two misrepresentation claims with regard to five of the plaintiffs.
Because Contreras dismissed the count without prejudice, however, the plaintiffs can still refile them.
Contreras also dismissed without prejudice the misrepresentation claims of Boomer and four of the other plaintiffs, saying they did not show they relied on specific false statements to join the loan program.
The judge also said that a misrepresentation claim requires the plaintiffs to show that the trade group guaranteed the loan program when it announced it at the trade show in 2014.
Neither the trade group nor Larry Selkowitz, an attorney for the plaintiffs has not responded to a request for comment.
In order to join North Star Financeâ€™s program, the builders allegedly shelled out between $30,000 and $190,000. They say the trade group NAHB took a cut of those fees.
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