Securities – Offeror status – MUSA

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Where a complaint has been filed including a count alleging a violation of the Massachusetts Uniform Securities Act, that count must be dismissed because the allegations only establish that the defendants may have caused a sale of securities by a third party, so they cannot be liable as offerors, nor can the defendants be liable as agents who materially aided in the sale of securities.

“Commonwealth Real Estate Holdings, LLC (Commonwealth), Lewis Capital Fund, LLC (Lewis Capital) and Henry R. Lewis (Lewis and together Plaintiffs) filed suit against Anderson Tax LLC (Anderson) and James E. Goode (Goode and together Defendants) alleging professional malpractice (Count I), breach of fiduciary duty (Count II), violation of G.L.c. 93A (Count III), violation of section 10(b) of the Securities Exchange Act (Count IV), and violation of the Massachusetts Uniform Securities Act (Count V). Now before me is Defendants’ Renewed Motion to Dismiss Counts I-III and V of the Complaint. …

“In or around 2014, Goode introduced Lewis to Stone Harbour Capital, LLC (Stone Harbour), a real estate investment firm in Stamford, Connecticut that was also a client of Anderson. Goode advised and urged Lewis to invest in three real estate projects managed by Stone Harbour. …

“Plaintiffs allege that Defendants engaged in malpractice both in the provision of investment advice (in connection with the Roadrunner rollup and the Dana Street Loans) and in their tax preparation and accounting work. …

“To the extent the claim is based on Defendants’ alleged tax preparation /accounting malpractice, it fails to meet the Rule 12 (b)(6) standard. …

“The same is not true, however, insofar as the malpractice claim is based on Goode’s investment assistance in connection with the Roadrunner rollup. … I conclude that this portion of the claim survives. …

“The Massachusetts Uniform Securities Act (MUSA or the Act), G.L.c. 110A, §410, ‘creates criminal and civil liability for securities-related infractions.’ Welch v. Barach, 84 Mass. App. Ct. 113, 119 (2013). The Act imposes liability on any person who ‘offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact.’ G.L.c. 110A, §410(a)(2). It also imposes liability upon any person ‘who directly or indirectly controls’ a seller that violates §410(a), and upon any ‘agent who materially aids in’ such a sale. G.L.c. 110A, §410(b).

“Plaintiffs assert that it can maintain a claim against Defendants because they were offerors of Stone Harbour’s securities, either directly or indirectly controlled Stone Harbour, or were agents who materially aided in the sale of its securities. …

“… The above allegations merely indicate that Goode recommended that Plaintiffs buy the security, not that he actually offered them for purposes of MUSA liability. Thus, because the allegations only establish that Defendants may have caused the sale, Defendants cannot be liable as offerors.

“Defendants likewise cannot be liable as persons who directly or indirectly control Stone Harbour. …

“Finally, the allegations do not plausibly suggest that Defendants were agents who materially aided in the sale of Stone Harbour securities. … Here, Plaintiffs have failed to put forward any allegations that Defendants represented Stone Harbour and that they consented to its control. Indeed, the only reasonable inference that one can draw from the allegations was that Goode was acting as an agent for Plaintiffs in connection with Stone Harbour.

“Accordingly, the MUSA claim must be dismissed. …

“For the foregoing reasons, the Motion is allowed as to Count V in its entirety and Counts I and II to the extent it is based on the Dana Street Loans and /or Defendants’ tax preparation/accounting work. The motion is otherwise denied.”

Commonwealth Real Estate Holdings, LLC, et al. v. Anderson Tax LLC, et al. (Lawyers Weekly No. 09-109-24) (22 pages) (Squires-Lee, J.) (Suffolk Superior Court) (Civil Action No. 2284CV02243-BLS2) (September 2024).

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