John Norton And Kristine Norton, Et Al., Apps. V. Graham & Dunn, P.c., Res.

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JOHN NORTON and KRISTINE
NORTON, individually, and derivatively
on behalf of LARCO-BOLIVAR
INVESTMENT, LLC and SHELL LA
PAZ, LLC; NORTHLAND CAPITAL,
LLC, individually, and derivatively on
behalf of NDG-BRYCON, LLC; and
P.R.E. ACQUISITIONS, LLC,
Appellants,
v.
GRAHAM AND DUNN, P.C., a
Washington professional corporation,
Respondent.
No. 72818-1-1
DIVISION ONE
cr-
UNPUBLISHED OPINION
CT<
FILED: April 18,2016
Schindler, J. — John and Kristine Norton, individually and derivatively on behalf
of Larco-Bolivar Investment LLC and Shell La Paz LLC; Northland Capital LLC,
individually and derivatively on behalf of NDG-Brycon LLC; and P.R.E. Acquisitions LLC
(collectively, Norton) appeal summary judgment dismissal of claims against Graham &
Dunn PC as barred by the three-year statute of limitations. 	Because the undisputed
record shows Norton knew or in the exercise of due diligence should have known the
facts to timely file claims against Graham & Dunn alleging violation ofthe Washington

No. 72818-1-1/2
State Securities Act (WSSA), chapter 21.20 RCW; and aiding and abetting fraud, we
affirm.
NDG Investments
John Norton owned a majority interest in Snelson Companies Inc. (Snelson). 	In
early 2000, Norton hired business consultant William Prater "to evaluate my company
and its performance and operations to see if I could improve its efficiency." According
to Norton, Prater worked for Snelson "off and on" until 2006 or 2007.
Jose Luis Nino de Guzman Jr. is a former U.S. Bank employee and Peruvian
national. 	In 2006, de Guzman left U.S. Bank to establish an investment company to
engage in real estate development in Peru, NDG Investment Group LLC (NDG).
Beginning in 2007, Prater worked as a business consultant for de Guzman and NDG.
De Guzman planned to sell membership interests in limited liability companies (LLCs) to
investors and use the money to purchase property for designated real estate projects in
Lima, Peru. 	De Guzman formed Grupo Innova SA to act as the local real estate
developer for NDG in Lima. The investors would receive the net proceeds after the
development projects were sold.
On May 9, 2007, de Guzman and NDG retained the law firm of Graham & Dunn
PC to form LLCs for designated real estate projects in Peru. 	In 2007, Graham & Dunn
formed the first Delaware LLC for Arequipa LLC, a plan to develop a condominium
project in Lima, Peru. 	In December 2007, NDG began selling membership interests in
Arequipa LLC to investors.
In 2008, Prater suggested Norton and his business associates "consider
investing in some of the projects" de Guzman was "putting together." According to

No. 72818-1-1/3
Norton, "Prater provided us with contact information of the appropriate representatives
of NDG, their website and other information to facilitate our review." The NDG website
stated that de Guzman founded NDG and Grupo Innova to develop "high quality
housing, while also providing sustainable opportunities for American investors." The
NDG website also identified Graham & Dunn as one of its "Partners" providing "all NDG
legal work in the US." Norton said that according to the "promotional and investment
materials," investor "returns of approximately 35 to 50% were to be expected and would
be paid when the project was built out and sold, typically in 14 to 18 months."
Norton decided to purchase a membership interest in Larco-Bolivar Investment
LLC (Larco-Bolivar LLC). 	Larco-Bolivar LLC planned to develop a commercial building
in Lima, Peru. 	Norton signed the March 19, 2008 Larco-Bolivar LLC "Limited Liability
Company Agreement" (LLC Agreement). The LLC Agreement states Graham & Dunn
prepared the LLC Agreement and was acting as legal counsel "for the Company only."
The LLC Agreement states the membership interests were not registered under federal
or state securities laws and "[t]he availability of any exemption from registration must be
established by an opinion of counsel."
Federal Law Disclosure and Limitations. The Membership Interests have
not been registered under federal or state securities laws. 	Membership
Interests may not be offered for sale, sold, pledged, or otherwise
transferred unless so registered, or unless an exemption from registration
exists. 	The availability of any exemption from registration must be
established by an opinion of counsel, whose opinion must be satisfactory
to [NDG].
On May 3, Norton wired $200,000 to U.S. Bank "to purchase our membership interest in
Larco-Bolivar."

No. 72818-1-1/4
In spring 2008, Norton and Prater formed an investment company, Northland
Capital LLC (Northland). 	Norton and Prater each owned a 50 percent interest in
Northland. The partners agreed Prater would identify investments, Norton would fund
the investments, and they would "split the profits."
After months of negotiation, on July 2, 2008, Norton sold Snelson for $76.4
million. 	On July 3, Graham & Dunn formed Shell La Paz LLC to develop a commercial
building in Lima, Peru. 	Norton decided to invest in Shell La Paz LLC. 	Norton signed
the July 3, 2008 Shell La Paz LLC Agreement and wired $500,000 to U.S. Bank to
purchase his membership interest in the LLC.
On July 14, 2008, Graham & Dunn formed NDG-Brycon LLC to develop low cost
housing real estate projects in Peru. 	On July 15, Northland wired $500,000 to U.S.
Bank to purchase a 50 percent membership interest in NDG-Brycon LLC resulting in a
"ten percent (10%)" ownership interest in Brycon International.
Graham & Dunn formed four more LLCs for de Guzman and NDG in 2008. On
August 18, Graham & Dunn formed NDG-Brycon 2 LLC "to purchase an interest in
Brycon International for the purpose of developing real estate projects in Peru." 	On
September 2, Graham & Dunn formed Los Alamos Residential LLC "to fund
development of a townhome complex in the Surco district of Lima." On November 5,
Graham & Dunn formed Grau Residential LLC "to fund development of a 42-unit
condominium in the Miraflores district of Lima." 	And on December 18, Graham & Dunn
formed Jorge Chavez LLC "to fund development of a 39-unit condominium in the
Miraflores district of Lima."

No. 72818-1-1/5
Graham & Dunn advised de Guzman and NDG that the LLCs were exempt from
registration under Securities and Exchange Commission (SEC) Rule 506 of Regulation
D if the membership interests were sold only to accredited investors, and a "Form D"
was filed within 15 days after the first sale of securities with a balance sheet or financial
statement by an independent accountant.
P.R.E. Acquisitions LLC
Toward the end of July 2008, Norton, Prater, and de Guzman agreed to form
P.R.E. Acquisitions LLC (P.R.E.) to act as a "land bank" for the NDG and Grupo Innova
real estate development projects.
The concept was that P.R.E. would be given a markup on the land
purchase and the LLCs would be guaranteed a price they could depend
upon for the development and not be exposed to the rapidly raising prices
in the marketplace in Peru. The general expected turnover on each land
investment was 8 to 12 weeks, with no individual PRE investment to be
tied up for more than 6 months.
Graham & Dunn formed P.R.E. as a Washington LLC. The Agreement
designates de Guzman as the manager with responsibility for identifying and purchasing
property that P.R.E. would "hold while the projects were planned by Grupo Innova and
the funds were being raised in the U.S. by NDG." 	Northland owned 90 percent and de
Guzman 10 percent of P.R.E.
Memorandum of Understanding
From the end of July through the beginning of November 2008, Northland wired
approximately $9.8 million from P.R.E. to Grupo Innova in Peru to fund the purchase of
properties for El Derby LLC, Los Alamos Residential LLC, El Incario LLC, and Grau
Residential LLC.

No. 72818-1-1/6
In January 2009, Norton and Prater met with de Guzman in Peru to discuss the
status of the P.R.E. investments. 	De Guzman admitted that without consulting Norton
and Prater, he sold Los Alamos Residential LLC and used the funds to buy other
properties.
[De Guzman] represented (confessed) that he had sold Los Alamos
Residential, LLC to the NDG development LLC and had used those funds
to buy other properties he felt would be advantageous to P.R.E. (Malecon
28th of July, Juan de Arona 1, Juan de Arona 2, Javier Prado, Jorge
Chavez and Casa Grande). 	Mr. de Guzman verbally provided details as
to the properties purchased.
Norton and Prater acknowledged de Guzman "may have had the authority to do what
he did . . . [s]ince he was the manager of P.R.E." but made clear "he did not have the
approval of the primary investor (Northland)," and "expressed our disappointment and
concern over his poor judgment." De Guzman "assured [Norton and Prater] that it
would not happen again."
After returning to the United States, Prater, Norton, and Norton's attorney James
Hadley at Ryan Swanson & Cleveland met with NDG investors and employees Darin
Donaldson and Glenn Fulton on January 22, 2009 to discuss entering into a
memorandum of understanding (MOU) to protect Northland's investment in P.R.E.
Following the meeting, Norton sent an e-mail to Prater with "comments &
suggestions." 	In addition to requiring de Guzman to resign as the manager of P.R.E.,
Norton stated he must forfeit his 10 percent claim to "all PRE transactions (old and new)
as a penalty." 	Norton asked Prater to e-mail him "a copy of the PRE operating
agreement as well as any addendums, including the one changing the Manager and
adding the funding protocols," and to "[k]eep me posted every step of the way." 	Norton
also said his attorney may have other suggestions. 	"[M]y attorney ... is thinking about

No. 72818-1-1/7
this situation both as my advisor and related to his own interests. 	He may have some
other suggestions. 	If so I will forward."
On January 23, 2009, Norton sent Prater an e-mail about other provisions that
should be included in the MOU. Specifically, requiring de Guzman to transfer financial
authority to Fulton and Donaldson, requiring Graham & Dunn to cooperate with Norton's
attorneys "on a drop-in or ongoing basis," and requiring de Guzman to disclose all
financial and real property assets by January 31, 2009.
On January 23, de Guzman, Donaldson, Norton, and Prater asked Graham &
Dunn attorney Nicolas Drader to draft the MOU. De Guzman agreed to reimburse
P.R.E. for legal expenses.
During the January 23 meeting, de Guzman admitted he used P.R.E. funds to
purchase property in Peru "other than those that Northland Capital had intended to be
purchased." Graham & Dunn attorney Drader acted as counsel for NDG, and Norton's
lawyers at Ryan, Swanson & Cleveland represented Norton and Northland. Drader
testified, in pertinent part:
Graham & Dunn acted as counsel for NDG in connection with this work.
The law firm of Ryan, Swanson & Cleveland acted as counsel for
Northland Capital and Norton. .. . Darin Donaldson at NDG took primary
responsibility for drafting a "Liquidation Plan" to be attached as an exhibit
to the MOU, which would describe the process by which De Guzman's
misuse of P.R.E.'s funds would be remedied.
According to Drader, other provisions were later added to protect Northland and
Norton including confirmation of "the status of ownership of the Peruvian properties" and
requiring NDG "to engage [bilingual accountant] PricewaterhouseCoopers to conduct a

No. 72818-1-1/8
forensic review of the expenditure of P.R.E.'s funds."
The MOU required De Guzman to personally guarantee any losses
incurred as a result of his misuse of P.R.E.'s funds. 	It also required NDG
to pay Northland Capital's expenses associated with De Guzman's misuse
of P.R.E.'s funds, and required De Guzman to forfeit his interest in P.R.E.,
leaving Northland Capital as P.R.E.'s sole member. 	It also required NDG
and De Guzman to use Peruvian counsel to confirm the status of
ownership of the Peruvian properties, and required NDG to engage
PricewaterhouseCoopers to conduct a forensic review of the expenditure
of P.R.E.'s funds. 	Finally, the MOU required that De Guzman's signing
authority over all project-related bank accounts be transferred to
Donaldson and Fulton.
NDG paid Norton $110,000 for his legal fees.
Discovery of the Ponzi Scheme
After entering into the MOU, NDG employees Donaldson and Fulton attempted to
determine the status of the development projects and financing for each of the LLCs.
Donaldson and Fulton provided Prater and Norton with information about the LLC
investments. 	Norton and his lawyers "continued to review information obtained through
cooperation with officers of NDG." According to Norton, he and his attorney "continued
to discover... the inappropriate nature" of de Guzman's business dealings in the
United States and Peru.1
On March 11, 2009, Prater sent Norton an e-mail stating de Guzman admitted to
Fulton that he was "running a financial house of cards" and diverting investor funds.
[Fulton] has confirmed that [de Guzman] has admitted to have been
running a financial house of cards. 	The so called "Mystery Account" has
been used by [de Guzman] to raise money from unsuspecting investors in
a variety of ways. 	Generally he has been concealing limited partnerships
between one investor and NDG with about one year terms and about a
1 Norton testified, in pertinent part:
Mr. Prater and I, along with my legal team at Ryan Swanson &Cleveland, PLLC in
Seattle, continued to review information obtained through cooperation with officers of
NDG and continued to discover, over an extended period of time, the inappropriate
nature of Mr. de Guzman's business in both the U.S. and Peru.
8

No. 72818-1-1/9
50% profit component. [Illegible] [De Guzman] states that the financial
liability to NDG is about $2.5 million and there are a couple of dozen
individuals involved.
[De Guzman] has used these funds in a variety of ways. 	These have
ranged from financing his personal extravagant lifestyle to repaying
investors in previous deals. 	Very sad and I wish it was not true. 	The
number of disclosures from [de Guzman] keep growing and none are
good. 	He has proven himself to be a very accomplished liar and con man.
On April 10, 2009, Lane Powell PC attorney Christopher Wells on behalf of NDG
investor employees Darin Donaldson, Glenn Fulton, and Philip Boos sent a letter to
Graham & Dunn attorney Drader demanding "Grupo Innova/NDG/De Guzman" provide
documents by April 14 including "[t]itle reports on each LLC's real property," bank loan
documentation on construction "described in each LLC's offering memorandum,"
cancelled checks, wire transfer records, and proof of ownership interests in NDG-
Brycon LLC and NDG-Brycon 2 LLC.2 The letter asks NDG to maintain all business
records including electronic documents. 	"Please assist with any requirements to
preserve email on NDG's servers, and tell us what steps NDG has already taken to
preserve records." The letter also states the NDG employees retained Blank Law +
Tech to copy the contents of employee computer hard drives and asks NDG to
"preserve copies of all NDG and related LLC records at Graham and Dunn." The letter
2 The letter identifies the money the NDG employees invested in the LLCs.
1. 	Philip Boos: $25,000 in NDG - Brycon 2, LLC, which is not among the Innova
Affidavit twelve; Mr. Boos' parents, however, have also invested $50,000 in NDG
- Brycon 2, LLC plus another $225,000 in two of the twelve LLCs in the Innova
Affidavit, Ejercito Residential, LLC (Ejercito payout is past due) and Grau
Residential, LLC;
2. 	Glenn Fulton: $50,000 in NDG - Brycon 2, LLC and $25,000 in Los Alamos
Residential, LLC; and Mr. Fulton's parents and grandfather have collectively
invested $540,000 in five of the twelve Innova LLCs, plus $50,000 in NDG-
Brycon 2; and
3. 	Darin Donaldson: $13,000 in Los Alamos Residential, LLC; $60,000 paired with
Matt Pelchat and invested in Ejercito Residential, LLC through Utilis Investment
Group, LLC (Ejercito payout is past due); Mr. Donaldson's mother, brother and
sister-in-law have invested another $100,000, in Los Alamos Residential, LLC
and Grau Residential, LLC.

No. 72818-1-1/10
states the employees plan to report to the investors and "will be meeting with them after
April 21." 	Norton's attorneys, Ryan Swanson &Cleveland attorney Hadley and Roger
D. Mellem, are specifically identified as recipients of the letter.
Steering Committee
After Donaldson, Fulton, and Boos disclosed the fraud to the other NDG
investors, a group of investors formed a "Steering Committee" to recover funds. 	Norton
agreed to join the Steering Committee.
On June 11, 2009, Norton sent an e-mail to his attorney at Ryan Swanson &
Cleveland expressing concerns about the Steering Committee's proposed allocation for
the recovery of assets. 	Norton identifies a number of "Recovery Opportunities" in an
attached "Allocation Worksheet"—"I've also updated the content and the format of the
attached worksheet for your review. 	I know we need to discuss all this more." 	Norton
specifically identifies "Claim Against [U.S. Bank]," "Claim Against [Graham & Dunn],"
"Claim Against [De Guzman] & NDG," and "Claim Against Innova or Ownership of
Innova" as Recovery Opportunities.
Norton participated in the decision to retain Sirianni Youtz Meier & Spoonemore
(Sirianni) to represent the Steering Committee in the effort to recover investment funds.
Norton paid $24,000 as his portion of the fee to retain Sirianni. On July 2, 2009, the
Steering Committee sent an "NDG Recovery - Update" e-mail to the investors and
answered some "common questions" including the status of Norton as an owner of
Northland and P.R.E. 	"Per [Sirianni]: As to Norton, no one is giving up rights, which
means the status quo is preserved. 	Norton could - with or without an agreement - argue
that some of the LLC investors['] money is his."
10

No. 72818-1-1/11
On July 1, NDG employees produced "NDG and LLCs files and records" to
Sirianni. The NDG files included e-mails from Graham & Dunn. On July 8, de Guzman
waived attorney-client privilege and instructed Graham & Dunn to provide all of the
requested documents including e-mails, internal memoranda, and attorney-client
correspondence. 	On July 9, NDG sent Sirianni "CDROMs that were received from
Graham and Dunn." 	On July 17, Graham & Dunn produced copies of additional e-mails
located in the "MS Outlook folders" of individuals at the law firm who worked on "NDG
Investment Group L.L.C. matters."
On August 25, 2009, Sirianni returned the $24,000 retainer to Norton. 	On
September 9, the "Steering Committee for NDG Recovery Efforts" sent a letter to Norton
and his attorneys at Ryan Swanson & Cleveland. The letter states irreconcilable
conflicts of interest preclude proceeding "as a group" but if Norton decides to "file a suit
that parallels ours[,]. .. our respective groups and lawyers will cooperate to the extent
possible to seek and maximize recoveries." The letter states:
September 9, 2009
Ryan, Swanson & Cleveland, PLLC
Mr. Roger D. Mellem
c/o Mr. John Norton
1201 3rd Avenue, Suite 3400
Seattle, WA 98101-3034
Re: 	Mr. John Norton
NDG Recovery Efforts
Dear Mr. Norton,
Due to irreconcilable conflicts of interest that have developed and our
inability to resolve them, we have recognized that we cannot proceed as a
group. The investor group that we represent cannot include Mr. Norton,
Mr. Hadley, and Northland Capital, LLC or affiliated entities. We know that
you are well represented and your attorneys may wish to file a suit that
11

No. 72818-1-1/12
parallels ours. We will be obtaining new counsel for our group. We trust
that our respective groups and lawyers will cooperate to the extent
possible to seek and maximize recoveries. 	We are returning your
contribution in full; we are making no deduction for legal fees already
incurred.
Norton and his attorneys did not cooperate with the Steering Committee or seek
to obtain copies of the documents that NDG and Graham & Dunn produced to Sirianni.
Instead, Norton pursued recovery of funds in Peru and filed a lawsuit in the United
States against U.S. Bank, de Guzman, and NDG and a lawsuit against Prater.
Lawsuit against U.S. Bank, De Guzman, and NDG and Lawsuit against Prater
On October 14, 2010, Norton individually and derivatively on behalf of Larco-
Bolivar LLC and Shell La Paz LLC; Northland individually and derivatively on behalf of
NDG-Brycon LLC; and P.R.E. (collectively, Norton) filed a lawsuit against U.S. Bank, de
Guzman, and NDG for breach of fiduciary duty and violation of the Washington State
Securities Act (WSSA), chapter 21.20 RCW. 	Norton alleged de Guzman and NDG
committed fraud, negligent misrepresentation, and breach of contract. 	Norton alleged
claims against U.S. Bank for negligently hiring, retaining, or supervising employees;
unjust enrichment; violation of the Washington Consumer Protection Act, chapter 19.86
RCW; and aiding and abetting fraud, breach of fiduciary duty, and conversion. 	During
discovery, U.S. Bank subpoenaed records Sirianni had obtained on behalf of the
Steering Committee.
In July 2011, the Unites States District Court Western District of Washington
charged de Guzman with multiple counts of wire fraud and money laundering.
On August 15, 2011, Norton and Northland filed a lawsuit against Prater alleging
fraud; negligent misrepresentation; violation of the WSSA; and aiding and abetting
12

No. 72818-1-1/13
fraud, breach of fiduciary duty, and conversion. After Prater filed for bankruptcy, the
court stayed the lawsuit.
The Aggen Lawsuit against Graham & Dunn
On July 23, 2012, more than 80 NDG investors, many of whom were members of
the Steering Committee, filed a lawsuit against Graham & Dunn, Angela Aggen. et al. v.
Graham & Dunn. P.C King County Superior Court Cause No. 12-2-25058-8 SEA (the
Aggen Lawsuit).3
The complaint (the Aggen Complaint) alleged Graham & Dunn violated the
WSSA, "which prohibits fraudulent or deceitful acts in connection with the offer, sale, or
purchase of any security;" aided and abetted NDG in committing fraud and concealing
misrepresentation; aided and abetted breach of fiduciary duty; and engaged in
conspiracy to commit fraud and breach fiduciary duty.
The Aggen Complaint cites the NDG and Graham & Dunn websites in describing
the relationship between Graham & Dunn and NDG.
Because of its extensive work with NDG, Graham & Dunn was described
on NDG's website as one of NDG's "Partners." The NDG website also
indicated that Graham & Dunn "[provides all NDG legal work in the US,"
and featured a photo of a Graham & Dunn attorney with De Guzman.
NDG's sales personnel touted Graham & Dunn's reputation in soliciting
investors, frequently telling investors that Graham & Dunn was NDG's
corporate counsel with respect to its securities offerings.
. . . Graham & Dunn touted its work for NDG on its website as well.
The Graham & Dunn attorney in charge of the NDG relationship described
his work for NDG as assisting "with respect to joint venture arrangements
for the development and sale of various residential and mixed use
condominium projects in Lima, Peru."[4]
3 The complaint states that in February 2012, Graham & Dunn agreed to extend the statute of
limitations to file the Aggen Lawsuit by approximately six months.
4 Alteration in original.
13

No. 72818-1-1/14
The Complaint describes the January 23, 2009 meeting with Norton, Prater,
Donaldson, and de Guzman at the office of Graham & Dunn when de Guzman admitted
he used the funds from P.R.E. to purchase other property and the parties entered into
the MOU.
1. 	The January 23, 2009 meeting at Graham & Dunn's offices.
108. 	In January 2009, certain investors (who were also investors
in P.R.E., and who are not among the Plaintiffs in this case) became
concerned about possible misdirection of funds by De Guzman. A
meeting was held at the offices of Graham & Dunn on January 23, 2009 at
which De Guzman was confronted by a representative of the P.R.E.
investors and by De Guzman's own employees. With a Graham & Dunn
attorney and paralegal in attendance, De Guzman admitted to fraud—
specifically, paying funds belonging to Grau Residential, LLC to P.R.E.
(purportedly to purchase the Grau property from P.R.E.), but then using
those funds for unauthorized purposes. There was no confusion about
what De Guzman was confessing. 	Graham & Dunn's timesheets for
January 23, 2009 expressly acknowledge a "Meeting with Nino De
Guzman .. . regarding mis-use of funds and related issues." At the
conclusion of that meeting, Graham & Dunn prepared a memorandum of
understanding on behalf of De Guzman, personally, that would remove De
Guzman as a member of P.R.E., and would transfer certain NDG
corporate authority from De Guzman to other NDG employees.
109. 	... None of the investors was told that their funds had been
misused, or that NDG, De Guzman, and Graham & Dunn were negotiating
to pay off the P.R.E. investors.
The Aggen Complaint alleged that following an internal investigation, NDG
employees discovered de Guzman and Graham & Dunn "had caused Los Alamos
Residential, LLC to pay more than $655,000.00 to P.R.E. for the purchase of a property
that P.R.E. never owned and never conveyed to Los Alamos Residential, LLC."5
110. 	[T]he three NDG employees who had attended the January
23 meeting at Graham & Dunn's offices became seriously concerned
about De Guzman's misuse of investor funds and took it upon themselves
to conduct a confidential internal investigation of the use of NDG investor
funds. 	Shortly thereafter, those employees ("the Whistleblowers")
5 Emphasis in original.
14

No. 72818-1-1/15
concluded that fraud had occurred, contacted state and federal authorities,
and retained counsel.
111. 	Among other things, the Whistleblowers discovered that De
Guzman and Graham & Dunn had caused Los Alamos Residential, LLC to
pay more than $655,000.00 to P.R.E. for the purchase of a property that
P.R.E. never owned and never conveyed to Los Alamos Residential, LLC.
Indeed, it was a Graham & Dunn attorney—acting well outside the role of
an attorney performing routine professional services—who directed NDG's
Director of Operations to wire those funds to P.R.E., despite the fact that
the Los Alamos project had not yet been fully subscribed and there was
no documentation to support the supposed purchase of the property.
Those funds were never returned, and the investor/members of Los
Alamos Residential, LLC were not told that the funds had been lost.[6]
The Aggen Complaint alleged that in addition to the LLC Agreements, NDG
provided investors with a "Private Placement Memorandum" (PPM) describing the
investment opportunity in the LLC, "the Peruvian real estate market[,] and the proposed
building projects." The Complaint alleged the PPM stated that on advice of counsel,
NDG planned to rely on the SEC exemption of "Section 4(2) and Rule 506 of Regulation
D."
NDG intended to rely upon an exemption from the registration
requirements of the federal securities laws by complying with the
provisions of Section 4(2) and Rule 506 of Regulation D adopted by the
SEC thereunder. 	Indeed, on Graham & Dunn's advice, NDG specifically
represented to investors that "NDG Investment Group offers and sells
investments under exemptions from registration applicable to non-public
offerings. 	No offer or solicitation will be made to any person except in full
compliance with such exemptive provisions."
The Aggen Complaint alleged Graham & Dunn "knew that statement was false."
Both NDG and Graham & Dunn were well aware that not one of NDG's
offerings complied with the exemptive provisions of Regulation D. And
yet, despite knowing that NDG was in continuous violation of the securities
laws throughout 2008, Graham & Dunn continued to form new limited
liability companies for NDG.[7]
6 Emphasis in original.
7 Emphasis in original.
15

No. 72818-1-1/16
The Aggen Complaint cites a number of attorney-client e-mails that were
produced to Sirianni in July 2009 to allege that Graham & Dunn failed to comply with the
SEC exemption. 	Specifically, that "Graham & Dunn was unable to file Form D with the
SEC because NDG was not providing the firm with the required list of investors for each
deal." Nonetheless, despite knowing NDG did not comply with the SEC exemption to
file the Regulation D exemption, the Complaint alleged Graham & Dunn continued to
form LLCs and "do new deals" for NDG throughout 2008.
The Aggen Complaint alleged Graham & Dunn later intentionally filed the Form D
for the LLC projects on March 13, 2009 to take advantage of a change in the law and
conceal the first date of sale. 	"[W]hen it made the state filing on March 13, Graham &
Dunn purposely omitted the date of first sale in an attempt to conceal the fact that the
forms were being filed late."8 The Complaint alleged the "gambit—Le., omitting the date
of first sale from the state regulatory filing in the hope that DFI would not notice—failed
almost immediately," and "[s]hortly after receiving the filing, DFI contacted Graham &
Dunn requesting information regarding the date of first sale for the various deals." The
Complaint alleged that when it became apparent that Graham & Dunn's involvement in
"NDG's fraud throughout 2008 was about to come to light," the attorney e-mailed de
Guzman on April 23 stating," '[l]t remains absolutely critical that the ownership structure
8 The Complaint alleged:
Graham & Dunn filed Form D for the LLC Projects on March 13, 2009—more than 14
months late for the first transaction at issue (Arequipa, LLC) and more than two months
late for the last transaction at issue (Jorge Chavez, LLC). By filing on the last possible
day before the change in federal law was to take effect, Graham & Dunn succeeded in
hiding the date of first sale from the SEC. However, the same was not true of the
corresponding filing with the Washington State Department of Financial Institutions
("DFI"). The applicable Washington State regulation required disclosure of the date of
first sale.
16

No. 72818-1-1/17
for each of your entities is duly evidence [sic] in your files and matches what was
disclosed in your private placement memorandum.' "9
The Aggen Complaint also quotes a portion of a November 14, 2008 e-mail from
Graham & Dunn to NDG that suggests NDG retain an employee to avoid disclosure of
the failure to comply with federal and state securities laws. As quoted in the Aggen
Complaint, the e-mail states:
"As you know, we continue to be in violation of various state and
federal securities laws with respect to most of our deals . . . Although
my instincts tell me that [NDG Vice President for Business Development
Nathan Hoerschelmann] will not take it upon himself to disclose NDG's
failures to the authorities or to NDG's investors, this causes a great deal of
concern. We will, of course, incorporate a confidentiality agreement within
the separation agreement that is being drafted. 	Unfortunately, the
confidentiality agreement will only be worth anything so long as it is
honored — because, as soon as the "cat's out of the bag", our ability to
enforce this agreement really doesn't help us much. 	Because this would
be a HUGE issue for you if these violations were publicly known, you
may want to consider whether it makes sense to maintain Nathan's
employment until the violations can be remedied."[10]
Norton Lawsuit against Graham & Dunn
On April 11, 2013, John and Kristine Norton, individually and derivatively on
behalf of Larco-Bolivar Investment LLC and Shell La Paz LLC; Northland Capital LLC,
individually and derivatively on behalf of NDG-Brycon LLC; and P.R.E. Acquisitions LLC
(collectively, Norton) filed a lawsuit against Graham & Dunn, King County Superior
Court Cause No. 13-2-16205-9 SEA. The lawsuit asserted the same claims against
Graham & Dunn as in the Aggen Complaint—violation of the WSSA; aiding and abetting
NDG and de Guzman in committing fraud, misrepresentation, and breach of fiduciary
9 Alterations in original.
10 Some alteration in original, boldface in original.
17

No. 72818-1-1/18
duty; engaging in a conspiracy to commit fraud; negligent misrepresentation; breach of
fiduciary duty; and professional negligence.
The Norton complaint alleged Graham & Dunn facilitated the "Ponzi scheme" by
forming the LLCs for NDG in 2007 and 2008, breached its duty to "prepare and timely
file Form D" with the SEC," and filed "falsified Form Ds."
Graham & Dunn knew and repeatedly confirmed to NDG that it was aware
of the failure of NDG and Graham & Dunn to file Form Ds for the NDG
LLCs, including the LLCs in which the Nortons invested: 	Larco-Bolivar,
Shell La Paz, and NDG-Brycon.
... Graham & Dunn's omissions, made knowingly and intentionally
by Graham & Dunn, were material violations of the securities laws. 	If
Graham & Dunn had insisted on filing a Form D for any of the Peru
Investment Companies it formed, investors like the Nortons and Northland
would have known that the Peru Investment Companies were all woefully
undersubscribed and thus incapable of funding the developments NDG
promised they would complete.
... In March 2009,... in a desperate attempt to assist Nino de
Guzman, Graham & Dunn furiously filed the missing Form Ds for the
Plaintiff Companies.... Graham & Dunn filed falsified Form Ds one day
before a change in federal law look place. This change required Form Ds
to be filed electronically on March 13, 2009 and thereafter. The electronic
filing would require disclosure of the date of the first sale for each
transaction, something Graham & Dunn and Nino de Guzman wanted
desperately to avoid. 	Graham & Dunn filed the Form Ds on March 12,
2009 in paper form and did not disclose the date of the first sale of each
investment.
. . . Graham & Dunn never filed a Form D for NDG-Brycon. 	In its
required Washington state filings, Graham & Dunn also omitted the date
for the first sale of investments in NDG-Brycon, which caused the
Washington State Department of Financial Institutions to contact Graham
& Dunn and demand that Graham & Dunn file the appropriate
information.!11]
Norton alleged he was "wholly unaware of the underlying facts of this lawsuit until
July 2012" when the Aggen Complaint was filed.
In the July 2012 lawsuits, the plaintiffs explain in depth Graham & Dunn's
role in Nino de Guzman's schemes. 	It was only then that Plaintiffs
11 Emphasis in original.
18

No. 72818-1-1/19
discovered the depths of Graham & Dunn's participation in the NDG and
Nino de Guzman schemes.... [S]ome of the NDG employees
presumably had constant communication with Graham & Dunn, but they
were not fully aware of the collusion between Graham & Dunn and Nino
de Guzman. 	Simply put, Graham & Dunn very effectively concealed its
role in the NDG scheme.
Graham & Dunn asserted as an affirmative defense that the three-year statute of
limitations barred the claims.12
Aggen Lawsuit Summary Judgment Order
On March 12, 2014, Graham & Dunn filed a motion for summary judgment
dismissal of the claims alleged in the Aggen Lawsuit. 	On July 3, 2014, the court
entered a 27-page "Order Granting In Part and Denying In Part Defendant's Motion for
Summary Judgment." The court dismissed the negligence and legal malpractice claim
because the LLC Agreements make clear Graham & Dunn is not acting as the attorney
for the investors. The court also dismissed the conspiracy and aiding and abetting
breach of fiduciary duty claims.
The court denied summary judgment dismissal of the claim against Graham &
Dunn alleging conspiracy to commit fraud or aiding and abetting fraud. 	The court
denied summary judgment dismissal of claims under the WSSA because there were
genuine issues of material fact about whether Graham & Dunn is a "seller."
A reasonable jury could find that the law firm provided business advice on
what rates of return to offer to investors to maximize NDG's profits; drafted
offering memoranda with the representation that the offering was exempt
from registration while knowing of NDG activities that could jeopardize that
exemption; drafted the LLC agreements and subscription agreements
reaffirming the existence of the exemption; . . . advised NDG to pay
Northland money raised from investors in the Los Alamos project after de
Guzman admitted to misusing monies received from Northland; and
12 In November 2013, de Guzman pleaded guilty to the federal charges of wire fraud and money
laundering. At his sentencing on December 5, 2013, the court imposed "Special Conditions of
Supervision" including restitution in the amount of $18,321,209.07 "due immediately."
19

No. 72818-1-1/20
advised NDG employees to continue to solicit investors for the Los
Alamos project to replenish the funds paid out to Northland. 	A reasonable
jury could also find that Graham & Dunn's role was as significant as the
role played by de Guzman or other NDG employees because the law firm
drove the pace of the new LLCs offerings with full knowledge that NDG
was in violation of securities laws on earlier offerings and by advising NDG
employees to hide these violations from investors, the SEC and the DFI.
This evidence, when viewed in the light most favorable to Plaintiffs,
creates a genuine issue of material fact as to whether Graham & Dunn's
actions were a substantial contributive factor in NDG's securities sales.
The court specifically addressed the dispute about whether the failure to file
Form Ds was "a material fact that should have been disclosed by NDG to investors,"
and concluded the "failure to file Form Ds on earlier LLC offerings was a material fact."
The parties dispute whether NDG's failure to file Form Ds was a
material fact that should have been disclosed by NDG to investors.
Graham & Dunn correctly notes that under federal law, the failure to file a
Form D does not automatically lead to the loss of the federal registration
exemption....
The Graham & Dunn securities lawyer, Bart Bartholdt, testified that
he has never allowed a client to sell securities without complying with the
Regulation D time limit. 	Drader advised NDG that having to disclose the
securities violations could lead the DFI to require NDG to return investors'
money to them. 	Drader also allegedly advised NDG employees to hide
the securities law violations from the authorities and investors. 	This
evidence could convince a reasonable jury that NDG's failure to file Form
Ds on earlier LLC offerings was a material fact that could have affected
investor's decisions to buy, sell or hold the securities.
But the court notes Graham & Dunn presented compelling evidence that de
Guzman "duped everyone."
Ultimately, a fact-finder may not find Plaintiffs' witnesses credible.
Graham & Dunn has presented compelling evidence that de Guzman was
so charismatic and his Ponzi scheme so sophisticated that he duped
everyone, including the Graham & Dunn attorneys. 	The jury may also find
that NDG's failure to file the Form Ds and the theoretical loss of a
securities registration exemption were not, in fact, significant risks and the
disclosure of these facts would have had no impact on the Plaintiffs'
decision to buy into the Peruvian LLCs. 	But this Court cannot make that
credibility call on summary judgment.
20

No. 72818-1-1/21
In a separate order, the court granted Graham & Dunn's motion to dismiss "all
claims of Plaintiffs Clarus Investment 9, LLC and Clarus Investment 10, LLC" in the
Aggen Lawsuit as barred by the statute of limitations. 	The court ruled the three-year
statute of limitations governed the "state securities claims, the aiding and abetting
claims and the conspiracy claims," and the Clarus plaintiffs "knew or should have known
of a possible claim against Defendant Graham & Dunn by October 2008."
In September 2014, shortly before the scheduled trial, the Aggen plaintiffs
reached an agreement with Graham & Dunn to settle their claims.
Graham & Dunn Motion for Summary Judgment Dismissal in Norton Lawsuit
On October 9, 2014, Graham & Dunn filed a motion for summary judgment
dismissal of Norton's lawsuit as barred by the three-year statute of limitations. 	Graham
& Dunn asserted the three-year statute of limitations governed the claims alleged in the
April 11,2013 lawsuit.
Graham & Dunn argued the evidence established Norton invested significant
funds in NDG real estate projects; in March 2009, Norton knew de Guzman was
engaged in a Ponzi scheme; in a June 2009 e-mail to the Steering Committee, Norton
identified claims for recovery against Graham & Dunn as well as U.S. Bank; and Norton
had access to the information produced to Sirianni.
Graham & Dunn submitted more than 35 exhibits in support of the motion for
summary judgment including the March 11, 2009 e-mail from Prater to Norton stating de
21

No. 72818-1-1/22
Guzman defrauded investors;13 e-mails from Norton to the Steering Committee; e-mails
showing that in July 2009, the Steering Committee attorney obtained copies of NDG
and Graham & Dunn documents including e-mails, correspondence, memoranda, billing
records, and attorney notes; excerpts from Norton's deposition; and the September 9,
2009 letter from the Steering Committee to Norton offering to cooperate with Norton.
Graham & Dunn also submitted the complaint Norton filed against U.S. Bank, de
Guzman, and NDG; the complaint against Prater; and pleadings showing Norton later
recovered $6 million from an arbitration award he obtained in Peru and $750,000 from
property sold in Peru.
In opposition, Norton submitted a declaration, excerpts from his deposition, and
pleadings from the summary judgment motion in the Aggen Lawsuit.
In his declaration, Norton admits identifying Graham & Dunn as a potential
defendant in a June 2009 e-mail to the Steering Committee.
I included Graham & Dunn in an email to the Steering Committee listing all
potential defendants, and in my statement explaining my role with NDG,
Northland, and P.R.E. to the Peruvian authorities (see Peterson
Declaration Ex. 37), only because there was a possibility that we might
discover the lawyers, and anyone else who conducted business with Nino
de Guzman, had participated in and assisted with Nino de Guzman's
actions.
Norton admits he knew the Steering Committee attorney Sirianni "received some
documents from Graham & Dunn," but states he "never saw the documents sent to
Sirianni." After leaving the Steering Committee in September 2009, he and his legal
13 The March 11, 2009 e-mail states, in pertinent part:
[Fulton] has confirmed that [de Guzman] has admitted to have been running a financial
house of cards. . . . [De Guzman] has used [investor] funds in a variety of ways. These
have ranged from financing his personal extravagant lifestyleto repaying investors in
previous deals. Very sad and I wish it was not true. The number of disclosures from [de
Guzman] keep growing and none are good. He has proven himself to be a very
accomplished liar and con man.
22

No. 72818-1-1/23
team pursued the recovery of assets in Peru and filed lawsuits in the United States
against U.S. Bank, de Guzman, NDG, and Prater.
I continued to focus on the recovery of potential assets in Peru and
entered into negotiations directly with Grupo Innova as a creditor via my
legal teams in Seattle and Lima. 	I also sued Nino de Guzman and U.S.
Bank, Nino de Guzman's former employer, because it allowed,
perpetuated, and profited from Nino de Guzman's laundering of investor
funds and transfers of massive amounts of investor money to his own
personal accounts. 	I also sued Prater for his breaches of his duties to me
as my financial advisor.
Norton argued the fraud and WSSA violation claims against Graham & Dunn did
not accrue until the Aggen Complaint was filed on July 23, 2012. 	Norton asserted
Graham & Dunn did not show he had access to documents implicating Graham & Dunn
before the Aggen Complaint was filed in July 2012. 	Norton claimed he did not know
Graham & Dunn "was an active and willing participant" in the fraud or violated the
WSSA until the plaintiffs filed the Aggen Complaint on July 23, 2012. 	Norton argued he
did not discover evidence of Graham & Dunn's role until the Aggen Complaint disclosed
the contents of the November 14, 2008 e-mail between Graham & Dunn attorney
Drader and de Guzman.
In reply, Graham & Dunn argued there was no evidence Norton exercised due
diligence in obtaining information that formed the basis for the allegations in the Aggen
Complaint including the documents produced to Sirianni and the Steering Committee.
Graham & Dunn asserted the allegations in the Aggen Complaint also showed Norton
could have obtained the same information from NDG employees and the NDG and
Graham & Dunn files, including the November 14, 2008 e-mail that was "later
23

No. 72818-1-1/24
discovered in NDG's files."
For example, Plaintiffs offer no evidence that they sought to obtain the
information gathered by their lawyers, the Sirianni firm. 	Plaintiffs offer no
evidence that they sought to obtain information from the Steering
Committee investors, despite knowing that those investors were gathering
evidence to pursue claims against [Graham & Dunn]. 	Plaintiffs offer no
evidence that they sought to obtain information from NDG or its
employees Glenn Fulton, Darin Donaldson, and Phil Boos. And yet
Plaintiffs sued every other potential defendant listed in Norton's June 11,
2009 email within three years.[14]
In support, Graham & Dunn identified the allegations in the Aggen Complaint that
explicitly rely on documents produced to Sirianni in July 2009. 	The declaration
comparing the Aggen Complaint allegations and the documents produced to Sirianni
states, in pertinent part:
Exhibit 1 	Email dated January 24, 2008 quoted in paragraph 100 (first
bullet point) of the Complaint for Damages dated June 22,
2012 filed in Aggen. et al. v Graham & Dunn. P.C. King
County Superior Court No. 12-2-25058-8 SEA [(the Aggen
Lawsuit)].
Exhibit 2 	Email dated January 28, 2008 quoted in paragraph 100
(second bullet point) of the Complaint for Damages dated
June 22, 2012 filed in [the Aggen Lawsuit].
Exhibit 3 	Email dated April 1, 2008 quoted in paragraph 100 (third
bullet point) of the Complaint for Damages dated June 22,
2012 filed in [the Aggen Lawsuit].
Exhibit 4 	Email dated May 21, 2008 quoted in paragraph 100 (fourth
bullet point) of the Complaint for Damages dated June 22,
2012 filed in [the Aggen Lawsuit].
Exhibit 5 	Email dated July 16, 2008 quoted in paragraph 100 (fifth
bullet point) of the Complaint for Damages dated June 22,
2012 filed in [the Aggen Lawsuit].
Exhibit 6 	Email dated February 9, 2009 attaching the voicemail quoted
in paragraph 114 of the Complaint for Damages dated June
22, 2012 filed in [the Aggen Lawsuit].
14 Footnote omitted.
24

No. 72818-1-1/25
Exhibit 7 	A true and correct copy of the transcript of the voicemail
dated February 9, 2009 quoted in paragraph 114 of the
Complaint for Damages dated June 22, 2012 filed in [the
Aggen Lawsuit].
Exhibit 8 	Email dated March 3, 2009 quoted in paragraph 117 of the
Complaint for Damages dated June 22, 2012 filed in [the
Aggen Lawsuit].
Exhibit 9 	Email dated March 10, 2009 quoted in paragraph 119 of the
Complaint for Damages dated June 22, 2012 filed in [the
Aggen Lawsuit].
Exhibit 10 	Email dated April 23, 2009 quoted in paragraph 127 of the
Complaint for Damages dated June 22, 2012 filed in [the
Aggen Lawsuit],
The court granted the motion to dismiss Norton's lawsuit with prejudice.
Norton Lawsuit Summary Judgment Order
The court ruled Norton's claims were barred by the statute of limitations. The
court concluded Norton knew about the Ponzi scheme in March 2009, knew Graham &
Dunn represented de Guzman and formed the LLCs, and identified Graham & Dunn by
June 2009 "as a possible source of recovery" and did not act with due diligence to
pursue his claims against Graham & Dunn. 	The "Order Granting Defendant's Motion for
Summary Judgment" states, in pertinent part:
[T]he Norton Plaintiffs knew of de Guzman's Ponzi scheme by March
2009, at the latest. 	They knew that Graham & Dunn had represented de
Guzman, the LLCs in which they had invested, and PRE by that date as
well. The Norton Plaintiffs immediately began investigating avenues for
recovering losses, and by June 2009 they had identified Graham &
Dunn as a possible source of recovery. 	They joined the investor steering
committee and contributed money to retain counsel to assist in recovery
efforts against Graham & Dunn. 	By mid-July 2009, the steering
committee's attorney had received a copy of Graham & Dunn files,
including most of the emails between Nick Drader and de Guzman that
formed the basis for securities and fraud claims alleged in the Aggen
complaint. 	Based on the record before this Court, the Norton Plaintiffs
25

No. 72818-1-1/26
had a significant amount of information about Graham & Dunn's activities
and ample time to analyze this information by at least September 2009,
which was when the steering committee and the Norton Plaintiffs chose to
go their separate ways.
The court concluded that by September 2009, Norton knew or should have
known the facts to support a claim against Graham & Dunn for aiding and abetting fraud
and violation of the WSSA. 	The court concluded the November 14, 2008 e-mail from
Drader to de Guzman "may have provided additional support," but the record
established Norton had "ample evidence on which to base a claim under the WSSA
before July 2012" and "a significant amount of information about Graham & Dunn's
activities and ample time to analyze this information by at least September 2009."
The Court concludes that while this email may have provided
additional support for a securities fraud or aiding and abetting fraud claim,
the Norton Plaintiffs had ample evidence on which to base a claim under
the WSSA before July 2012. .. . Most of this evidence was available to the
Norton Plaintiffs by September 2009. 	Indeed, the facts the Norton
Plaintiffs alleged in Paragraphs 30-40, 42-43, and 47-48, of their complaint
were based on information Graham & Dunn had produced or information
that was publicly available by July 2009.
The court also notes that Norton "provided the Court with no explanation for why,
through reasonable investigation, [he was] unable to access the November 2008 email
on which [he relies]."
For the first time in his motion for reconsideration, Norton argued the court
should equitably toll the statute of limitations. The court denied the motion for
reconsideration.
Norton appeals summary judgment dismissal of the lawsuit against Graham &
Dunn and denial of the motion for reconsideration.
26

No. 72818-1-1/27
Appeal of Summary Judgment Dismissal of the WSSA and Aiding and Abetting Fraud
Claims
Norton contends the court erred in granting summary judgment dismissal of his
claims for violation of the WSSA and aiding and abetting fraud. 	Norton does not dispute
and we agree the three-year statute of limitations applies to these claims against
Graham & Dunn. 	See RCW 21.20.430(4)(b) (securities fraud); RCW 4.16.080(4)
(aiding and abetting fraud).15 	Norton contends there are material issues of fact as to
whether he knew or should have known the facts to support the claims against Graham
& Dunn for violation of the WSSA and aiding and abetting fraud. 	Norton argues he did
not learn the extent of Graham & Dunn's involvement in the scheme until the plaintiffs
filed the Aggen Complaint quoting the November 14, 2008 e-mail.
We review a summary judgment order de novo, engaging in the same inquiry as
the trial court. 	Neighborhood All, of Spokane County v. Spokane County. 172 Wn.2d
702, 715, 261 P.3d 119 (2011). We view all facts and reasonable inferences in the light
most favorable to the nonmoving party. 	Fulton v. Dep't of Soc. & Health Servs., 169
Wn. App. 137, 147, 279 P.3d 500 (2012).
A defendant moving for summary judgment has the initial burden to show the
absence of any genuine issue of material fact. 	Young v. Key Pharm., Inc.. 112 Wn.2d
216, 225, 770 P.2d 182 (1989). 	If the defendant meets this initial showing, the burden
shifts to the plaintiff to set forth specific evidence establishing a genuine issue of
material fact. 	Young. 112 Wn.2d at 225 (citing Celotex Corp. v. Catrett, 477 U.S. 317,
325, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)).
15 Norton also does not dispute the three-year statute of limitations governs breach of fiduciary
duty and professional malpractice, RCW 4.16.080(2); and conspiracy and negligent misrepresentation,
RCW 4.16.080(4).
27

No. 72818-1-1/28
The plaintiff cannot meet its burden by relying on speculation or "mere
allegations, denials, opinions, or conclusory statements" to establish a genuine issue of
material fact. 	Int'l Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co.. 122 Wn. App. 736,
744, 87 P.3d 774 (2004) (citing CR 56(e); Grimwood v. Univ. of Puget Sound. Inc.. 110
Wn.2d 355, 359, 753 P.2d 517 (1988)). While we construe all evidence and reasonable
inferences in the light most favorable to the nonmoving party, if the plaintiff fails to make
a showing sufficient to establish the existence of a material issue of fact, summary
judgment is proper. 	Young. 112 Wn.2d at 225.
The discovery rule operates to prevent the commencement of the running of the
statutory period until the time the claimant knows or should have known the facts giving
rise to his claim. 	Reichelt v. Johns-Manville Corp.. 107 Wn.2d 761, 769, 733 P.2d 530
(1987). 	"A cause of action will accrue on that date even if actual discovery did not occur
until later." Allen v. State. 118 Wn.2d 753, 758, 826 P.2d 200 (1992).16 The discovery
rule does not require knowledge of the existence of a legal cause of action or "smoking
gun" proof of the essential facts. 	Reichelt, 107 Wn.2d at 769; Beard v. King County. 76
Wn. App. 863, 868, 889 P.2d 501 (1995).
The discovery rule delays the start of the statute of limitations period "only until
the time when a plaintiff, through the exercise of due diligence, should have discovered
the basis for the cause of action." Allen, 118 Wn.2d at 758. 	Here, the statute of
limitations began when Norton discovered or should have discovered through the
exercise of due diligence the facts of the fraud or securities fraud and sustained actual
damage as a result. 	Ives v. Ramsden. 142 Wn. App. 369, 384-85, 174 P.3d 1231
(2008); Allen, 118 Wn.2d at 758; Reichelt. 107 Wn.2d at 772.
16 Emphasis in original.
28

No. 72818-1-1/29
"An injured claimant who reasonably suspects that a specific wrongful act has
occurred is on notice that legal action must be taken." Beard, 76 Wn. App. at 868.
" '[W]hen a plaintiff is placed on notice by some appreciable harm occasioned by
another's wrongful conduct, the plaintiff must make further diligent inquiry to ascertain
the scope of the actual harm.'" Clare v. Saberhagen Holdings. Inc.. 129 Wn. App. 599,
603, 123 P.3d 465 (2005) (quoting Green v. A.P.C.. 136 Wn.2d 87, 96, 960 P.2d 912
(1998)); Allen. 118 Wn.2d at 758. " '[0]ne who has notice offacts sufficient to put him
upon inquiry is deemed to have notice of all acts which reasonable inquiry would
disclose.'" Clare, 129 Wn. App. at 60317 (quoting Green. 136 Wn.2d at 96); see also
Hawkes v. Hoffman. 56 Wash. 120, 126, 105 P. 156 (1909).
The plaintiff bears the burden of proof that facts constituting the claim were not
and could not have been discovered by due diligence within the applicable limitations
period. 	Clare. 129 Wn. App. at 603. In applying the discovery rule, we use an objective
standard and consider when a reasonable person in Norton's position exercising due
diligence would have discovered the facts of violation of the WSSA and aiding and
abetting securities fraud. 	See In re Estates of Hibbard. 60 Wn. App. 252, 259, 803 P.2d
1312 (1991). When the plaintiff should have discovered the wrongful act is ordinarily a
question for the trier of fact. 	Ruff v. County of King. 125 Wn.2d 697, 703, 887 P.2d 886
(1995). 	However, where reasonable minds can reach but one conclusion, application of
the discovery rule may be determined as a matter of law. 	Ruff. 125 Wn.2d at 703-04.
Norton filed his lawsuit against Graham & Dunn in April 2013. 	Reasonable minds
can only conclude that by at least September 2009, Norton knew or through the
17 Alteration in original.
29

No. 72818-1-1/30
exercise of due diligence should have known the facts to support a claim against
Graham & Dunn for violation of the WSSA and aiding and abetting fraud.
Norton knew Graham & Dunn drafted the LLC Agreements for the NDG real
estate projects. 	There is no dispute that in late January 2009, de Guzman admitted he
misused P.R.E. funds. 	Graham & Dunn drafted the MOU between Norton, Prater, and
de Guzman in January 2009. 	Norton was represented by his attorneys at Ryan
Swanson & Cleveland.18
There is no dispute Prater informed Norton in a March 11, 2009 e-mail that de
Guzman was engaged in a Ponzi scheme. 	The e-mail states, in pertinent part:
[Fulton] has confirmed that [de Guzman] has admitted to have been
running a financial house of cards. . . . [De Guzman] has used [investor]
funds in a variety of ways. These have ranged from financing his personal
extravagant lifestyle to repaying investors in previous deals. Very sad and
I wish it was not true. The number of disclosures from [de Guzman] keep
18 On January 23, 2009, Norton sent an e-mail concerning the need for additional provisions for
the MOU.
Add clause to require [de Guzman] to transfer all financial authority to [Fulton] and
[Donaldson] and remove his signing authority from all bank and trust accounts, as we
discussed today. Also get written confirmation from all financial institutions and lawyers
when this is accomplished, as appropriate.
Add acceptance of and cooperation with any Northland, Prater and/or Norton auditors
(attorneys, accountants, etc.) either on a drop-in or ongoing basis by [Peruvian attorney]
Rebaza, [PricewaterhouseCoopers], Graham & Dunn, etc. Full disclosure / transparency
required.
In conjunction with item #2, [de Guzman] to provide a current detailed financial statement
listing all personal &financial assets and real property by January 31, 2009 sufficient to
file a lien on his holdings, if and when required. [De Guzman] should disclose any and all
claims on his assets and an affidavit he will not dispose of any asset until this matter is
dealt with.
Add requirement for NDG representative (not [de Guzman]) to provide specified written
status reports (email) on any and all action plans, specifically Exhibit A [Liquidation Plan],
every other day. Any change in the Liquidation Plan should require written notice and
concurrence prior to implementation.
I spoke with Jay Hadley this pm and he is expecting Glenn[ FultonJ's call.
30

No. 72818-1-1/31
growing and none are good. 	He has proven himself to be a very
accomplished liar and con man.
The record shows that after entering into the MOU and receiving the March 11,
2009 e-mail from Prater, Norton and his attorneys "continued to review Information
obtained through cooperation with officers of NDG." Norton testified that he and his
attorneys "continued to discover, over an extended period of time, the inappropriate
nature of Mr. de Guzman's business dealings in both the U.S. and Peru."
After joining the Steering Committee, Norton sent an e-mail in June 2009 that
identifies claims against Graham & Dunn and U.S. Bank.
The monies already returned to the US have to be claimed against the US
defendants and Innova should be held accountable for the money they
retained and used. 	In turn the "Innova" monies returned from Peru to the
US should be added to the US claim against [de Guzmanl/NDG/[Graham
& Dunnl and US Bank, as those funds were mishandled/misused "after"
thev returned to the US.t19!
In a statement Norton prepared in August 2010, he describes his participation in
the Steering Committee and states the Steering Committee "investigation and recovery
effort" focused primarily on U.S. Bank and Graham & Dunn.
I had originally invested in a U.S. recovery investor fund that was put
together by the Steering Committee to finance an investigation and
recovery effort, primarily focused on the responsibility of U.S. Bank and
NDG's attorneys Graham & Dunn, a law firm in Seattle.1201
19 Emphasis added.
20 In his declaration in opposition to summary judgment, Norton explains:
I included Graham & Dunn in an email to the Steering Committee listing all potential
defendants, and in my statement explaining my role with NDG, Northland, and P.R.E. to
the Peruvian authorities .. . only because there was a possibility that we might discover
the lawyers, and anyone else who conducted business with Nino de Guzman, had
participated in and assisted with Nino de Guzman's actions.
31

No. 72818-1-1/32
There is no dispute that in July 2009, the attorney representing the Steering
Committee obtained documents including e-mails between NDG and Graham & Dunn
that show Graham & Dunn did not comply with the securities law exemption and the
requirement to file a Form D throughout 2008.
Under state and federal securities law, the seller must file a Form D within 15
days of the first sale of a security. 	17 C.F.R. § 230.503(a)(1); WAC 460-44A-503(1).
The record shows securities forms are public documents and the DFI database allows
"the public ... to determine whether or not any filings have been made on behalf of an
issuer."
The e-mails show that despite knowing NDG was not in compliance with
securities regulations during 2008 and into 2009 and knowing there were accounting
discrepancies, Graham & Dunn continued to form additional LLCs for NDG.
For example, in a May 21, 2008 e-mail from Graham & Dunn attorney Drader to
NDG Vice President Nathan Hoerschelmann, Drader states NDG is "in violation of your
obligations under the securities laws."
Again, it is critical we get these [membership] rosters and signature pages
in a timely manner, but Idon't believe we have received hardly any of
them back.
504, 505 and 506 are the Sections of Regulation D under which certain
parties are able to claim an exemption from "registration". We are typically
exempt under 506. 	Notwithstanding the exemption from "registration" we
are still required to file a Form D in each of our offerings with both the SEC
and each of the States in which we sell securities — and this Form D is
required to be filed within 15 days ofthe day you first accept money. 	Due
to lack of receipt of info from NDG, however, Graham & Dunn has not
been able to make these filings. 	Thus, you are in violation of your
obligations under the securities laws.
32

No. 72818-1-1/33
In a July 16, 2008 e-mail to de Guzman, Graham & Dunn attorney Drader
reiterates the failure to comply with "Blue Sky filings" is "a major issue."
As you know, your Blue Sky filings are not being processed in a timely
manner because NDG has not been timely providing us the list of the
members in order to get the filings processed. 	These filings need to be
made within 10 days of the day you first receive any money but very few
have been made at all due to our lack of info. Sorry to be so blunt, but as
I've said before, this is a major issue.
In a transcribed February 9, 2009 voicemail message from NDG Director of
Operations Donaldson to Graham & Dunn attorney Drader, Donaldson says he is
"concerned ... the numbers aren't adding up" and it "looks like [de Guzman] may have
taken more money than we were supposed to for NDG-Brycon."
Hey Nick [Drader], Darin Donaldson here .... I wanted to let you
know I sent you an email with regards to the documentation Itruly do
have, uhm, for NDG-Brycon. ... I have yet to hear or get any confirmation
on the true membership roster for NDG-Brycon, LLC since that, uh, was
an entity that only [de Guzman] had involvement on. 	Uhm, just so you
know, I did not include [de Guzman] on my last response because I was
addressing concerns, uhm, regarding the lack of, uh, communication that I
have from him. 	I did not want to kind of throw him under the bus with you
. . . but, uh, I'm just, uhm, a little concerned regarding this stuff and the
fact that I'm thrown in the middle of all of this when I really had no
involvement on the initial fundraising or documenting of, of NDG-Brycon.
Uhm I'm, I'm only a scribe in this and I truly want there to be a record of
that because, uh, I'm not sure what's going on here, but the numbers
aren't adding up. It looks like [de Guzman] may have taken more money
than we were supposed to for NDG-Brycon, or uhm, maybe I just have
documentation that, uhm, doesn't accurately reflect the dollar amounts
invested.
The documents show Drader was aware that there was a $1.85 million shortfall
for the Arequipa LLC that involved "a Peruvian developer that is not part of the
33

No. 72818-1-1/34
Arequipa, LLC." 	In a March 3, 2009 e-mail to NDG employee Fulton, Drader states that
the $1.85 million was provided by a Peruvian developer.
[De Guzman] confirmed on the phone that the [accounting] is correct. 	The
$1.85MM gap was provided by a Peruvian developer that is not part of the
Arequipa, LLC. 	Instead, they are getting development fees out of the deal
as a third party contractor. 	Per [de Guzman], this has been documented
in a Peruvian contract.
The April 23, 2009 e-mail from Graham & Dunn to Fulton, Donaldson, and de
Guzman states DFI requested Graham & Dunn "provide them with the date of first sale
and a Uniform Consent to Service of Process in connection with the Reg D filings filed
in Washington." Graham & Dunn asked Fulton to "sign each consent" on behalf of
NDG.
We have been requested by the Department of Financial institutions to
provide them with the date of first sale and a Uniform Consent to Service
of Process in connection with the Reg D filings filed in Washington. 	In
connection therewith, we prepared a Uniform Consent to Service of
Process ("Form U-2") for each of the following entities:
Shell La Paz LLC
Los Alamos Residential, LLC
Grau Residential, LLC
El Golf Residential, LLC
Jorge Chavez, LLC
Arequipa, LLC
Del Solar Residential, LLC
NDG-Brycon, LLC
NDG-Brycon2, LLC
Ejercito Residential, LLC
Larco-Bolivar Investment, LLC
Residencial Casuarinas, LLC
Please sign each consent on behalf of NDG Investment Group L.L.C., as
Executive Vice President - Peru Projects, and return the originals to us at
your earliest convenience.
In another e-mail dated April 23, 2009 from Drader to de Guzman and Fulton,
Drader states NDG "significantly missed the filing deadlines" for the LLCs.
34

No. 72818-1-1/35
NDG significantly missed the filing deadlines for each of the below filings.
As a reminder, Graham & Dunn had repeatedly advised that the Form D
filings had to be done within 15 days of the date that you first accepted
money for each of these transactions.
Shell La Paz LLC
Los Alamos Residential, LLC
Grau Residential, LLC
El Golf Residential, LLC
Jorge Chavez, LLC
Arequipa, LLC
Del Solar Residential, LLC
NDG-Brycon, LLC
NDG-Brycon2, LLC
Ejercito Residential, LLC
Larco-Bolivar Investment, LLC
Residencial Casuarinas, LLC.
Drader advises de Guzman and Fulton that the State "may require NDG to go back to
each of your investors on the below transactions and offer to rescind the offering (i.e.
refund their money)," but suggests "a wait-and-see approach."
At this point, we are almost certain the State of Washington (Dept of
Financial institutions) will come back with a response as to how NDG
might be penalized for this. As one of the "worst case scenario"
possibilities, the State may require NDG to go back to each of your
investors on the below transactions and offer to rescind the offering (i.e.
refund their money). As I'm sure you don't currently have the capital to do
that, we would need to try to negotiate with the State for an alternative
resolution. 	However, rather than focus on the worst-case scenario, we
should probably take a wait-and-see approach to see how the state will
respond.[21]
Drader then states, "In the meantime, it remains absolutely critical that the ownership
structure for each of your entities is duly evidence in your files and matches what was
disclosed in your private placement memorandum."
21 Emphasis in original.
35

No. 72818-1-1/36
In an April 27, 2009 e-mail from Fulton's attorney at Lane Powell to Drader, the
attorney seeks clarification about the steps taken to comply with the SEC exemption.
We are in receipt of an email dated April 23, 2009 from . .. your office, to
Glenn Fulton, with copies to Jose Nino de Guzman, Darin Donaldson and
yourself. . . .
Prior to counseling our client regarding [Graham & Dunn]'s request, we
want to be sure that we understand your position on these items. 	Please
advise whether it is your counsel to NDG that it must provide this
information to state regulators at this time. 	Please also advise as to
whether similar information was provided to state regulators at the time of
the consummation of securities offerings for the LLCs. 	In our experience,
the Form U-2 is most commonly provided to state regulators at the time of
filing a Form D. Was the Form D filed with respect to securities offerings
by the LLCs within the 15-day period required under state law? 	If not,
when was it filed? 	Also, please advise as to why the Form U-2 was not
filed at the time of the initial Form D filing.
In response, Drader concedes the Form Ds did not "disclos[e] the date when securities
were first sold." The April 27, 2009 e-mail from Drader to the attorney at Lane Powell
states, in pertinent part:
NDG was aware that they were required to file a Form D for each private
placement within 15 days of the first sale of securities, but they did not
meet the deadline. 	The information required for filing the various Form Ds
was received by Graham & Dunn in February / March of 2009, and the
Form Ds / U-2s were filed at that time without disclosing the date when
securities were first sold.
In a May 12, 2009 e-mail to Drader, the Lane Powell attorney states the NDG
employees will not comply with the request to submit a Form U-2.
We represent Glenn Fulton, Darin Donaldson and Phil Boos. We have
received a copy of your request to Mr. Fulton that he execute Forms U-2
Consent to Service of Process, provide dates of the first sales of securities
in connection with certain prior securities offerings, and provide
information regarding an outstanding subscription agreement for an
offering by NDG-Brycon, LLC.
Given the substantial uncertainty which now exists regarding the status of
prior private placements of securities in NDG-sponsored offerings, please
36

No. 72818-1-1/37
be advised that our client is not currently in a position to comply with your
request. 	Should you feel that a response to the Washington Department
of Financial Institutions is appropriate, we recommend that you obtain any
necessary authorizations or signatures from Mr. Jose Nino de Guzman.
The first time Graham & Dunn filed Form D for the NDG LLCs was on March 31,
2009, more than 14 months after forming Arequipa LLC and more than 2 months after
forming the last LLC, Jorge Chavez LLC. The documents produced to Sirianni and the
Steering Committee show the attempt of Graham & Dunn to exploit a loophole in federal
law in March 2009 that would have allowed de Guzman to hide violations of securities
laws. 	When NDG Vice President Fulton asks Drader for an extension on revising the
LLC Agreement for Arequipa LLC "because there are quite a few mistakes for folks to
digest here and several new contracts to execute," Drader responds it is "not possible to
extend .... The date is due to federal legislation."
Although Norton identified claims against Graham & Dunn in June 2009 and in
September 2009, the Steering Committee expressly offered to cooperate with Norton
and his attorneys in pursuing litigation. Norton never made any effort to obtain the
documents from the Steering Committee or pursue claims against Graham & Dunn.
Instead, Norton and his legal team successfully pursued recovery efforts in Peru, and in
the United States, Norton filed a lawsuit against U.S. Bank, de Guzman, and NDG in
2010 and filed a lawsuit against Prater in 2011.
Nonetheless, Norton argues that because there is no evidence he "saw the
documents sent to Sirianni," he had no reason to believe Graham & Dunn violated the
WSSA or aided and abetted the Ponzi scheme.
I never saw the documents sent to Sirianni, and never had direct
communication with him outside the initial interview. 	I have never heard
from any source that Sirianni's investigation uncovered information which
37

No. 72818-1-1/38
would have altered my impression at the time that Graham & Dunn were
acting appropriately to correct Nino de Guzman's mismanagement. 	I had
no reason to believe Sirianni had any knowledge regarding Graham &
Dunn's wrongdoing, and no such wrongdoing was conveyed to me from
Sirianni.
Contrary to Norton's assertion that the discovery rule tolls the statute of
limitations because he did not actually see the documents produced to Sirianni, the
discovery rule requires him to use due diligence to discover the basis for his cause of
action. 	Reichelt, 107 Wn.2d at 772. A cause of action accrues when a plaintiff, through
the exercise of due diligence, knows or should have known the relevant facts. 	Allen,
118 Wn.2d at 758. 	The undisputed record shows Norton knew in March 2009 that he
had lost more than $9 million in a Ponzi scheme and in June 2009, Norton identified
claims against Graham & Dunn.
Next, Norton claims he did not discover Graham & Dunn violated the WSSA or
aided and abetted the Ponzi scheme until the plaintiffs filed the Aggen Complaint in July
2012. 	Norton relies heavily on the excerpts from a November 14, 2008 e-mail quoted in
the Aggen Complaint to argue there is a genuine issue of material fact as to whether he
knew or should have known the factual basis for the WSSA and aiding and abetting
fraud claims against Graham & Dunn. Norton asserts the e-mail was "the piece of
evidence that demonstrated Graham & Dunn's active participation in the Ponzi scheme
and its cover up."22 We agree with the trial court that while the Graham & Dunn e-mail
provides additional evidence, the undisputed record establishes Norton knew or through
the exercise of due diligence should have known facts to support claims against
22 (Emphasis in original.) Norton did not submita copy of the November 2008 e-mail. Graham &
Dunn contends the record shows "[a] number of other emails between Graham & Dunn and NDG relating
to the late Form D filings—including the November 14, 2008 email Norton makes so much of—were in the
NDG employees' computer hard drives preserved by Blank Law + Tech."
38

No. 72818-1-1/39
Graham & Dunn for violation of the WSSA and aiding and abetting fraud by September
2009. 	The record shows that instead of pursuing claims against Graham & Dunn,
Norton filed lawsuits against U.S. Bank and Prater and pursued recovery in Peru that
resulted in obtaining $6 million in arbitration.
In addition, as the trial court correctly notes, Norton provided "no explanation for
why, through reasonable investigation, [he was] unable to access the November 2008
email on which [he relies]."
The case Norton relies on, Price v. State. 96 Wn. App. 604, 980 P.2d 302 (1999),
is distinguishable. 	In Price, parents sued the Department of Social and Health Services
(DSHS) for failing to disclose critical information about their adopted child. 	Price, 96
Wn. App. at 610-11. After repeated inquiries, DSHS provided the complete file to the
parents 14 years after the adoption. 	Price, 96 Wn. App. at 607-10. The file revealed
information that would have affected the parents' decision to adopt. 	Price, 96 Wn. App.
at 610-11. 	DSHS moved for summary judgment arguing the parents knew or should
have known DSHS failed to provide all of the child's records and the parents' continued
inquiries showed they suspected DSHS of wrongdoing. 	Price, 96 Wn. App. at 611-12.
The court dismissed the lawsuit against DSHS as barred by the statute of limitations.
Price, 96 Wn. App. at 612. 	We reversed. 	Price, 96 Wn. App. at 619. 	We concluded the
complete file provided critical evidence of proximate cause. 	Price. 96 Wn. App. at 616-
17. 	Here, unlike in Price and contrary to Norton's assertion, the November 14, 2008 e-
mail is not the critical piece of evidence necessary to assert claims against Graham &
Dunn for violation of the WSSA and aiding and abetting fraud.
39

No. 72818-1-1/40
Denial of Motion for Reconsideration
As an alternative and separate ground for reversal, Norton argues equitable
tolling warrants tolling of the statute of limitations and the court erred in denying his
motion for reconsideration.
"Motions for reconsideration are addressed to the sound discretion of the trial
court and a reviewing court will not reverse a trial court's ruling absent a showing of
manifest abuse of discretion." Wilcox v. Lexington Eye Inst., 130 Wn. App. 234, 241,
122 P.3d 729 (2005). 	"A trial court abuses discretion when its decision is based on
untenable grounds or reasons." Wilcox, 130 Wn. App. at 241.
Washington courts "allow[ ] equitable tolling when justice requires." 	Millav v.
Cam, 135 Wn.2d 193, 206, 955 P.2d 791 (1998). 	"[E]quitable tolling is appropriate
when consistent with both the purpose of the statute providing the cause of action and
the purpose of the statute of limitations." 	Millav. 135 Wn.2d at 206. A court may apply
equitable tolling when there is "bad faith, deception, or false assurances by the
defendant and the exercise of diligence by the plaintiff." 	Millav. 135 Wn.2d at 206.
Because Norton did not exercise due diligence, the court did not abuse its
discretion in denying Norton's motion for reconsideration. See Douchette v. Bethel Sch.
Dist. No. 403, 117 Wn.2d 805, 812-13, 818 P.2d 1362 (1991) (declining to equitably toll
a statute of limitations where the plaintiff "had ample opportunity and time to pursue"
claims).
40

No. 72818-1-1/41
We affirm summary judgment dismissal of the lawsuit against Graham & Dunn as
barred by the statute of limitations.
WE CONCUR:
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41