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DIANE ANDERSON, trustee of the Diane L. Anderson Revocable Trust, BONNIE BUCKLEY, trustee of the Bonnie K. Buckley IRA, CARL and KIRBY DYESS, trustees of the Dyess Family Trust, PETER KOUBECK, an individual and trustee of Peter L. Koubeck IRA, MICHAEL PETERSON, trustee of the Michael T. Peterson IRA, ED WILSON, an individual, Plaintiffs, v. DAVIS WRIGHT TREMAINE LLP, a Washington limited liability partnership, ROSS MILES, an individual, MAUREEN WILE, an individual, PACIFIC PREMIER BANK, a California chartered bank, RIVERVIEW COMMUNITY BANK, a Washington chartered bank, Defendants.
No. 3:20-cv-01194-AR
United States District Court, D. Oregon
September 5, 2023
FINDINGS AND RECOMMENDATION ON MOTIONS TO DISMISS
FILED UNDER PROTECTIVE ORDER
JEFF ARMISTEAD, United States Magistrate Judge.
Plaintiffs on behalf of themselves and as trustees, seek to represent a class of investors who purchased private real estate securities sold by American Equities Inc. (AEI), American Eagle Mortgage Management LLC (AEMM), defendant Ross Miles and defendant Maureen Wile (collectively, American Equities). Plaintiffs allege that American Equities sold the securities by means of untrue statements and material omissions of material fact. For example, American Equities represented that its securities consisted of “pooled” real estate receivables (the Funds or AEM Funds) that were secured by the underlying real property and that the Funds were responsibly managed. Plaintiffs assert that, instead, the investment money was commingled and misused to hide earlier losses, to pay loans from defendants Riverview Community Bank (Riverview) and Pacific Premier Bank (Pacific Premier) (collectively, the Banks), to pay interest and principal owed to earlier investors, and to pay Miles, Wile, and their family members. Plaintiffs also allege that American Equities improperly transferred the real estate collateral that they were told secured their investments to the Banks to secure American Equities' loans and lines of credit. Eventually the Funds collapsed and AEI and AEMM were placed into court-appointed receivership.
In this action, plaintiffs assert two claims for primary securities liability against Miles and Wile for selling securities by means of untrue statements or omissions of material fact, ORS § 59.115(1)(b) (Claim 1), and for selling securities using fraud or deceit, ORS § 59.135 (Claim 3). Plaintiffs also bring two claims for secondary securities liability against nonseller-defendants Davis Wright Tremaine LLP (DWT), Riverview, and Pacific Premier for participating and materially aiding the sales under ORS § 59.115(3) (Claims 2 & 4). Plaintiffs allege that defendant DWT participated and materially aided the securities sales to plaintiffs and putative class members by drafting the Private Placement Disclosure Documents (PPMs), the offering materials, and the documents necessary for American Equities to complete the securities sales. They also allege that the Banks materially aided the sales by providing loans and lines of credit to Miles, Wile, and American Equities that kept the “Ponzi” scheme afloat for years. Plaintiffs seek damages of $25.3 million.
The Banks - Riverview and Pacific Premier - now move to dismiss all claims against them in the Second Amended Complaint (SAC) for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), for failing to state a claim under Rule 12(b)(6), and alternatively, for a more definite statement under Rule 12(e). (ECF Nos. 65, 72.) As explained below, the court recommends that the motions be denied.
Miles, a real estate developer and investment manager, is the founder and sole owner of AEI. Wile was a principal at AEI and, together with Miles, managed AEI, AEMM, and their affiliate entities. Miles and Wile are domiciled in Washington State. AEI is a Washington corporation with its principal place of business in Vancouver, Washington. AEMM is a Washington limited liability company with its principal place of business in Vancouver, Washington. The AEM Funds are Washington limited liability companies. (Decl. J. Matthew Donohue Supp. Pac. Premier Mot. Dismiss (Donohue Decl.), Ex. 1 at ¶¶ 4-5, Ex. 3 at 7, ECF Nos. 67-1, 67-3; SAC ¶¶ 2-3, 10, 13, 22-23, ECF No. 60.)
Riverview is a Washington chartered bank with its principal place of business in Vancouver, Washington. Riverview has 17 branch offices; 13 are in Washington and four are in Oregon. Miles opened deposit accounts and established a lending relationship in Vancouver, Washington in his personal capacity and on behalf of AEI. The Riverview Vancouver branch issued and managed the lines of credit issued to Miles and AEI from 2001 through 2009. (Decl. Dan Cox ¶¶ 3, 5-8, ECF No. 74.)
Pacific Premier is a California chartered bank with its principal place of business in Irvine, California. In 2018, Pacific Premier acquired Grandpoint Bank and Regents Bank by merger. Regents Bank operated in Vancouver, Washington from 2005 until 2013, when it was acquired by Grandpoint Bank. Miles opened deposit accounts and established a lending relationship with Regents Bank in Vancouver in his personal capacity, and on behalf of AEI and AEMM. The Regents Bank in Vancouver issued and managed the lines of credit to Miles, AEI, and AEMM. All personal interactions between Miles and Pacific Premier or Regents Bank occurred in Vancouver, Washington. In June 2020, Pacific Premier merged with Opus Bank, which had a single location in Portland, Oregon. Prior to the 2020 merger, Pacific Premier did not have any branch locations in Oregon. (Decl. Tami Nesburg ¶¶ 2-7, ECF No. 66.)
DWT, a Washington law firm, has a large office in Portland, Oregon. DWT attorneys working in its Portland office prepared the PPMs and other documents necessary to sell the securities, including: subscription agreements, management agreements, limited liability operating agreements, receivables purchase agreements, promissory notes, and underwriting criteria. DWT attorneys also served as general counsel to American Equities and directed potential investors to American Equities to invest in the AEM Funds. (SAC ¶¶ 11, 12, ECF No. 60.) DWT does not move to dismiss and does not challenge personal jurisdiction.
Miles founded AEI in 1979 and Wile joined the operation in 1984. In the 1980s and 1990s, Miles purchased individual real estate mortgages on properties in Oregon and Washington for resale in the Portland-Vancouver area. Many of the real estate deals that AEI offered were backed by real estate contracts secured by Miles' own real estate developments, including projects in Oregon. This model was described as “one-to-one” ratio investments, where AEI purchased an individual real estate receivable and packaged it for sale to one individual. (Id. ¶¶ 10, 22, 24.)
By 2003, many of AEI's one-to-one investments were generating insufficient returns to satisfy investors. In early 2003, AEI introduced a new investment product called “diversified mortgage funds” or “pools.” The pools were organized as limited liability companies (AEM Funds) that purchased first-position real estate-backed notes from other AEI real estate developments and other real estate contracts, which were grouped into a portfolio specific to each Fund. The AEM Funds sold shares to investors that consisted of long-term note obligations (Notes) issued by each Fund. The Notes had varying maturity terms (one-, seven-, ten-, and 15-year maturities), and the interest rate varied depending on the term, generally from seven to ten percent. Interest was to be paid monthly, and investors had the option to reinvest the monthly interest payment into the principal balance. (Id. ¶¶ 24-26.)
Investors were informed that their money would be held in escrow until a minimum amount was reached, also known as a “part-or-none” offering. The Funds were created as nominally separate entities that were ordered sequentially, and DWT created all offering materials for the Funds. The first DWT PPM for AEM 100 is dated January 15, 2003, and the last DWT PPM for AEM 600 is dated November 5, 2009. Additionally, AEI and DWT created a separate series of Funds designated as concentrating in Mexican Properties (AEM Mexico 100 through AEM Mexico 500), which were available to non-accredited investors. The last date any new investor money was deposited into AEM 600 was December 14, 2017, and investors continued to reinvest their interest in the various AEM Funds into 2019. (Id. ¶¶ 27-29.)
Investors were told that the sums raised by each Fund would be used exclusively to purchase secured real estate “receivables” in the form of land sale contracts, trust deeds, real estate mortgages, and promissory notes secured by the underlying real property. Investors were told that they were the sole owners of the receivables, that they held first-position liens, and that the receivables would be held until maturity. AEI formed the first AEM Fund in 2003 (American Eagle Mortgage 100), and formed the last AEM Fund in 2009 (American Eagle Mortgage 600). (Id. ¶¶ 28, 30-32.) In theory, AEI acted as a loan servicer by collecting mortgage payments from the underlying borrowers and using the payments for the Fund's fees, expenses, and returns promised to the investors. The revenue from each Fund's secured receivables was to be segregated from the revenue of other Funds and from AEI. Investors also were told that their investments were secured by each Fund's right to foreclose on the trust deeds that it held in the underlying real property. (Id. ¶¶ 30.a.v.-vi., 30.b.xi., 30.b.viii., 32.)
In reality, American Equities, Miles, and Wile commingled revenue among the Funds, themselves, and the...
