Cruze v. Hudler

267 P. 3d 176 (2011)

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Nature of the Case

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Facts

Ps owned development property in Oregon and listed that property for sale. Hudler (D) contacted Jay about purchasing some of the property. Hudler (D) described a real estate development business that he and Markley (D) owned. Hudler represented that he was an experienced and successful real estate developer and that Markley (D) was an 'experienced lawyer.' Hudler (D) said Ds had a portfolio of successful projects in Nevada, Oregon, and California. P sent his real estate agent to Reno to see the real estate projects. Ds showed the showed him eight real estate projects. The agent was impressed. P then met with D's at Hudler's (D) office. Hudler (D) explained that Markley (D), his partner, was an owner of one of the biggest law firms in Portland. Hudler (D) also told P about other successful projects including a development with Robert Praegitzer, a businessman P respected. Markley (D) heard everything Hudler (D) said as he was sitting in the same room. Hudler (D) visited Ps several more times and convinced Ps to form a joint venture with Bridgeport Communities, LLC, owned by Ds, to develop Ps' Oregon property. Bridgeport and Ps formed four separate limited liability companies. In total Ps loaned or made capital contributions of over $3.6 million to the various companies. Ps eventually discovered that Ds were running a fraudulent 'Ponzi-like scheme' whereby Ds operated businesses without profit, commingled funds of related companies, and raised new funds to repay earlier investors and hide the lack of profits. Companies owned by Ds were shuffling money among themselves. Ps’ investments and loans were to be used in part to pay off another jilted investor who had threatened to call the police. Ps were not told that their investment was needed, in part, to pay off other failed schemes. On the day that Ps invested $147,100 was transferred to pay off another investor. Ps also discovered a laundry list of misrepresentations which included (1) that Robert Praegitzer, was not a current investor as the relationship had already been severed; (2) that Ds owned or were in the process of acquiring certain properties in Reno that they had never owned or had been forced to sell; (3) that Ds had contributed not $1,026,298 but $430,000 to one of the entities; (4) that Ps' loan of more than $3 million to Covenant would be secured by a first priority trust deed on 40 acres of the Keystone Property; and (5) that Hudler (D) and his wife had a net worth in excess of $30 million, as shown on a financial statement that Hudler (D) faxed to Ps. Ds moved to dismiss and the court held that as to Markley (D) in that Markley (D) was not the speaker of any statement relating to development experience, ownership of property, or plans for future developments in either Nevada or Oregon. It held that Markley's (D) only contact with any of the fraud claims relates to his drafting of the Covenant Partners Restated Operating Agreement. The uncontroverted evidence establishes Markley (D) received the figure in question from others and acted as a scrivener as to that number. The court ruled that there was no evidence that Markley (D) himself made any misrepresentations. Ps appealed.