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The Most Worshipful Grand Lodge of Free and Accepted Masons of State of Arkansas v. DCG/UGOC Equity Fund, LLC

United States District Court, E.D. Arkansas, Western Division

October 19, 2016




         This action arises out of an investment made by The Most Worshipful Grand Lodge of Free and Accepted Masons of the State of Arkansas in a private investment fund called DCG/UGOC Equity Fund, LLC. The Lodge alleges that it was induced by the defendants, through misstatements and omissions of material facts, to purchase securities in the form of limited liability company interests in the Equity Fund. The Court previously dismissed two defendants[1] and three counts from the action, but four counts[2] remain: Count I for securities fraud in violation of section 10b of the Securities Exchange Act; Count IV for securities fraud in violation of Ark. Code Ann. § 23-42-106(a)(1)(B), the Arkansas Securities Act; Count V for common law fraud; and Count VIII, against PageOne Financial, Inc., for breach of fiduciary duty. Document #46 at 31. The Equity Fund and the United Group of Companies, Inc., have filed a motion for summary judgment on the remaining counts against them, arguing that the Lodge's claims against them are barred by the relevant statute of repose and statutes of limitations. Document #65. In response, the Lodge has requested leave to file a second amended complaint. Document #81. For purposes of ruling on the motion for summary judgment, the Court has accepted the second amended complaint as the operative complaint. It does not change the outcome.


         In January of 2010, the Senior Vice President of the United Group, Bryan Harrison, contacted the Lodge's investment advisor, Jeremy Cook. Harrison, as the representative of the Equity Fund and the United Group, began to solicit the Lodge's investment in the Equity Fund, which the United Group packaged and promoted. The Equity Fund invested in real estate, particularly student and senior housing. Edgar R. Page, Chief Executive Officer of New York corporation PageOne Financial, also promoted the Equity Fund to the Lodge. PageOne is an investment advisor registered with the Securities and Exchange Commission.

         Sometime in the first quarter of 2010, Harrison and Page traveled to Little Rock and made a presentation regarding the Equity Fund to the Lodge's Board of Finance. The Lodge initially alleged that this presentation occurred on April 20, 2010, but discovery has disproven that allegation. The second amended complaint now alleges that the presentation occurred on or about March 17, 2010. The exact date remains undetermined, but for summary judgment purposes it is undisputed that the presentation took place in March of 2010. See Document #97 at 2, ¶ 5. Harrison provided the Lodge with a confidential Private Placement Memorandum (PPM) on or before the date of the presentation and, along with Page, made a presentation to the Board about the investment. The PPM and the presentation to the Board are the basis for the alleged misrepresentations and omissions. The Board asked Harrison and Page several questions. The Board asked whether anyone would be paid a commission for the Lodge's investment and was told that no one would be paid a commission. The Board questioned whether there was an affiliation between UGOC and PageOne Financial and was told that there was not. The Board asked whether there were any collection issues with student housing and was told that the Equity Fund was a solid investment, in which no one had lost money in thirty years. The Board also was told that if the Lodge wanted out of the investment, the United Group would find a buyer or its chairman would buy the Lodge's interest. The Board asked when the Lodge could expect distributions and was told that it could expect a four-percent distribution in 2011 and at least six percent per year after 2011. The Lodge contends that these statements were false. The Lodge also contends that Harrison and Page failed to disclose material facts regarding the investment.

         The Lodge ultimately agreed to invest a total of $500, 000 and on April 20, 2010, executed four subscription agreements for the purchase of limited liability company interests in the Equity Fund. Between the presentation to the Board and April 20, 2010, Cook was in frequent communication with Harrison and Page. The second amended complaint alleges that some or all of the representations by Harrison and Page to the Board through April 20, 2010, were false. The only evidence of any specific statement after the presentation to the Board, however, is testimony by Cook stating that on April 20, 2010, Harrison said in a telephone conversation that he had no updated information regarding the Equity Fund.[3]

         John Peterson, Senior Vice President of the United Group, became the Lodge's primary contact person with the Equity Fund after the execution of the agreements. In 2011 the Lodge requested that Peterson provide information about distribution dates. Peterson indicated that the United Group was refinancing the properties in the Equity Fund and that once that process was complete, the Lodge would receive a $60, 000 distribution. Peterson eventually informed the Lodge that the refinancing was complete, but the Lodge never received a distribution.

         In 2012 the Lodge asked Peterson to find a buyer for its interest in the Equity Fund. He responded that the United Group would attempt to find a buyer and reported several offers, but failed to provide the names of any prospective buyers. In 2013 Peterson notified the Lodge that the United Group was working to sell some of its property to the State of New York. In September of that year, Peterson ceased communicating with the Lodge. In early 2015 the Lodge received a statement from T.D. Ameritrade indicating that its investment in the Equity Fund had no value.


         A court should grant summary judgment if the evidence demonstrates that there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine dispute for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party meets that burden, the nonmoving party must come forward with specific facts that establish a genuine dispute of material fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). A genuine dispute of material fact exists only if the evidence is sufficient to allow a reasonable jury to return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The Court must view the evidence in the light most favorable to the nonmoving party and must give that party the benefit of all reasonable inferences that can be drawn from the record. Pedersen v. Bio-Med. Applications of Minn., 775 F.3d 1049, 1053 (8th Cir. 2015). If the nonmoving party fails to present evidence sufficient to establish an essential element of a claim on which that party bears the burden of proof, then the moving party is entitled to judgment as a matter of law. Id.


         A. Rule 10b-5 Securities Fraud.

         The Lodge commenced this action on April 17, 2015. The presentation to the Board by Harrison and Page occurred in March of 2010. The Lodge executed the subscription agreements on April 20, 2010.

         The defendants' motion for summary judgment on the federal securities fraud claims hinges on the application of 28 U.S.C. § 1658(b), which provides that

[A] private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws . . . ...

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