* Viewpoint-north Stafford Llc, Et Al., Appellants V. Cb Richard Ellis, Inc., Et Al., Respondents

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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
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
corporation, ARIA ASSET MANAGEMENT
LLC; MICHELLE E. BROCK, JAMES N.
DONNERSTAG, MERRIAH J. HARKINS,
JULIE BROCK HERZOG and DANIEL W.
BROCK,
No. 43018 -5 -	II
PUBLISHED OPINION
JOHANSON, A.C.	J. —	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 (1)that Donnerstag made material misrepresentations
1
We refer to both Donnerstag and CB Richard Ellis,Inc. as " Donnerstag"unless noted.
2
Chapter 21.20 RCW.
 	 	 	 	 	 	 	 	 	 	 	 	 	

No. 43018 -5 -	II
and omissions in selling the Roberts a DBSI property interest; (2)that he sold unregistered
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.
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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 $72,856 fee from the Roberts.
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(b)(	6)
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 transaction —	a 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 finder —	one 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.S.	C. §	1031.
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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 generally —	he 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 learned about DBSI's tenancy -in-common program. DBSI's
Rottman then contacted them and explained that DBSI was " a great company, it's safe,
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."Clerk's Papers (CP)at 119. Rottman also provided the
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.
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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 $72,856.	25 to CB Richard Ellis, Inc. for the referral. Donnerstag received about half of the
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.
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No. 43018 -5 -	II
A. Standards of Review and Rules of Law
We review summary judgment orders de novo. Sheikh v. Choe, 156 Wn.2d 441, 447, 128.
P.3d 574 (2006). 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 56(c).Questions of fact may be determined on summary
judgment as a matter of law only where reasonable minds could reach but one conclusion.
Alexander v. County of Walla Walla, 84 Wn. App. 687, 692, 929 P.2d 1182 (1997). When
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 9.12.
The Act provides that any person selling securities in violation of the Act is liable to the
person buying the security. RCW 21.	20.	430(1).	A defendant's status as a seller is necessarily a
question of fact. Haberman v. Wash. Pub. Power Supply Sys.,109 Wn.2d 107, 132, 744 P.2d
1032, 750 P.2d 254 (1987).The Act also provides that every person who directly or indirectly
controls a seller who sells a security in violation of the Act is jointly and severally liable with the
seller. RCW 21.	20.	430(3).
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.2d at 131 -32. Third, we
consider whether a time lapse occurred between the defendant's conduct toward the sale and the
time of the sale. Haberman, 109 Wn.2d at 132. Under this test, the law may impose liability on
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.2d at 130.
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.2d 291, review denied, 136 Wn.2d 1004
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.,56 Wn. App. 827;851, 786 P.2d 285, review denied, 114 Wn.2d 1023 (1990).
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.2d
at 131. After Donnerstag's referral, DBSI's Rottman promoted his company to the Roberts,
providing that DBSI was a "great company, it's safe, conservative"that has "been in business 27,
28 years."CP at 119. DBSI, without Donnerstag's knowledge, presented properties —including
DBSI North Stafford —	to 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.2d at 131.
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.2d
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 -Roberts to invest in it. In fact, Robert Roberts explained that he did not
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 purchasing a replacement property to satisfy their 1031 exchange. 26
U.S.	C. §	1031.
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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.2d at 131 -32.
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.2d 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.2d at 132.
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.
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No. 43018-5-II

We affirm.

We concur: /

cnet Buntnall T. /

i

12