43 F.3d 1054 (6th Cir. 1995), 93-1049, Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

Docket Nº:Lount; and Arni Thorsteinson, (93-1049),
Citation:43 F.3d 1054
Party Name:, 31 Fed.R.Serv.3d 91, 1995 Fed.App. 9P Richard C. BECHERER; Lawrence Milton Richard; Robert A. Horvath; Shirley L. Horvath; Henry V. Denolf; and Joann L. Denolf, (93-1050/1051/1221), Plaintiffs- Appellants, Cross-Appellees, J. Don Adams, et al., (93-1052/1164), Proposed Intervenors, Appellants, Cross-Appellees, v. MERRILL LYNCH, PIERCE, FENNER & S
Case Date:January 10, 1995
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 1054

43 F.3d 1054 (6th Cir. 1995)

, 31 Fed.R.Serv.3d 91,

1995 Fed.App. 9P

Richard C. BECHERER; Lawrence Milton Richard; Robert A.

Horvath; Shirley L. Horvath; Henry V. Denolf;

and Joann L. Denolf,





J. Don Adams, et al., (93-1052/1164), Proposed Intervenors,

Appellants, Cross-Appellees,



Martin Cicco; Laventhol & Horwath; M.A. Mortenson Co.;

Winsor/Faricy Architects, Inc.; Trustbank Mortgage Center,

Inc., formerly known as Dominion Financial & Investment

Corp.; and Midwest Title Guarantee Company of Florida,


Can-American Corporation; Can-American Realty Corporation;

Shelter Seagate Corporation; Garrett G. Carlson; Graham C.

Lount; and Arni Thorsteinson, (93-1049),

Defendants-Appellees, Cross-Appellants.

Nos. 93-1049 to 93-1052, 93-1164 and 93-1221.

United States Court of Appeals, Sixth Circuit

January 10, 1995

Argued Sept. 26, 1994.

Rehearing and Suggestion for Rehearing En Banc

Denied April 11, 1995.

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[Copyrighted Material Omitted]

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Elwood S. Simon (argued and briefed), John P. Zuccarini (briefed), Bloomfield Hills, MI, Bruce E. Gerstein, Garwin, Bronzaft, Gerstein & Fisher, New York City, and Eugene A. Spector, and Robert M. Roseman, Spector & Roseman, Philadelphia, PA, for plaintiffs.

Michael W. Pettit and Thomas R. Grady (argued and briefed), Naples, FL, for appellant.

Dennis K. Egan (argued), Douglas G. Graham (briefed), Butzel, Long, Gust, Klein & Van Zile, Detroit, MI, David C. Andrew (briefed), Washington, DC, Jon B. Gandelot, Gandelot & Dickson, Detroit, MI, Mary C. Yeager (briefed), Faegre & Benson; Steve Gaskins (argued and briefed), Minneapolis, MN, Stephen F. Wasinger, Raymond W. Henney, Honigman, Miller, Schwartz & Cohn, Detroit, MI, Lawrence A. Hurlburt, Van Benschoten, Hurlburt, Tsiros & Allweil, Saginaw, MI, Thomas G. McNeill, Lawrence G. Campbell, Michael S. Daar, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI, Jeanne M. Forneris, Minneapolis, MN, Robert P. Hurlbert, Chicago, IL, James R. Case, Melissa Horne, Kerr, Russell & Weber; Jonathan T. Walton, Jr. (argued and briefed), Clark, Klein & Beaumont; Lawrence R. Donaldson, Kelly A. Freeman (argued and briefed), Plunkett & Cooney; Charles G. Goedert, Timothy D. Wittlinger, Hill, Lewis, Adams, Goodrich & Tait, Detroit, MI, and Maura D. Corrigan, Robinson & McEwee, Lexington, KY, for defendants.

Susan LaCava (briefed), Madison, WI, for amicus curiae.

Before: KEITH, KENNEDY, and SUHRHEINRICH, Circuit Judges.

KENNEDY, Circuit Judge.

This complicated commercial litigation arises out of the construction and sale of unit interests in a resort hotel. Plaintiffs are investors in the hotel and have filed suit against the hotel's developers, as well as against the broker, the escrow agent, and the financial institution involved in the sale of the hotel. The District Court held a bench trial on one of the contract claims and disposed of the balance of the contract, statutory, and fraud claims by granting several motions to dismiss and motions for summary judgment. The parties now appeal, challenging various aspects of the District Court's procedural and substantive rulings.


We need first to identify the parties involved in this litigation. While plaintiffs are all investors in the hotel, we have before us two groups of plaintiffs. The District Court certified the two groups as a class only as to two contract claims against Shelter Seagate Corporation (hereinafter "SSG"). 1 The named plaintiffs (hereinafter "Becherer plaintiffs") are a group of investors who filed suit in the United States District Court for the Eastern District of Michigan and who sought to have their suit certified as a class action. The group of investors referred to in our case caption as "J. Don Adams, et al." (hereinafter "Florida plaintiffs") contend that, with the exception of the class contract claims, they are not bound by the District Court's decisions and should be able to pursue their own action in Florida state court.

SSG is the entity responsible for the development, construction, and operation of the hotel. SSG is affiliated with Can-American Corporation and Can-American Realty Corporation. All three corporations are owned by Garrett Carlson, Graham Lount, and Arni Thorsteinson.

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Merrill Lynch, Pierce, Fenner & Smith, Inc. acted as the exclusive selling agents for the hotel interests. TrustBank Mortgage Center, Inc. (hereinafter "TMC"), formerly known as Dominion Financial & Investment Corporation, approved potential investors and provided financing for some of the investors. TMC is now in receivership and is operated by the Resolution Trust Corporation. Midwest Title Guarantee Company of Florida (hereinafter "Midwest") acted as agent for the closing escrow account.


SSG incorporated in December 1983 for the purpose of developing and constructing The Registry Hotel, a nonresidential, luxury condominium resort complex at Pelican Bay in Naples, Florida. SSG raised money to finance the hotel by selling interests in the hotel through a private placement. Between February 1984 and April 1985, investors entered into contracts with SSG for the purchase of hotel units. Each hotel unit cost between $179,500 and $278,000 and included a fully furnished hotel room or suite, a percentage interest in the hotel's common areas, and a percentage interest in the hotel's future profits. The investors appointed SSG as their agent, authorizing it to rent hotel units, collect pool revenues, pay operating expenses, and distribute cash dividends to the investors at regular intervals.

Merrill Lynch acted as the exclusive selling agent for the hotel interests and provided potential investors with a Private Placement Memorandum (hereinafter "PPM"), which described the offering in detail. The purchase agreement between SSG and each investor is set forth in a document entitled "Unit Sale Agreement," and in other documents incorporated by reference therein. To "subscribe" for a hotel interest, each prospective investor submitted to Merrill Lynch an executed Unit Sale Agreement, a ten percent down payment, and various documents related to financing the balance of the purchase price. Merrill Lynch held the Unit Sale Agreements and the down payments in an interim escrow account, pending the fulfillment of certain conditions. According to the terms of the offering, Merrill Lynch was to turn the contents of the interim escrow account over to Midwest only after these conditions were satisfied. Midwest was to then place the documents in the closing escrow account until the closing of the sale.

Investors were free to cancel their purchase agreements until two conditions were fulfilled: 2 Merrill Lynch received subscriptions for all units and TMC approved each investor for financing. It took eight and one-half months to obtain subscriptions for all the interests and another three and one-half months for TMC to approve investors' mortgage applications. In these latter three and one-half months, some investors withdrew and were replaced.

The interim escrow account closed on February 15, 1985, at which time the investors became obligated to complete their purchases. Consequently, under the terms of the contract, SSG had until February 15, 1987 to substantially complete the hotel and close the sale. Because SSG elected to close the sale on October 31, 1986, the District Court found that SSG waived whatever time remained in the two-year completion period and obligated itself to deliver a substantially complete hotel by the closing date, October 31, 1986. The District Court also found that SSG did not fulfill its requirements, as the hotel was not substantially complete at the time of closing.

The procedural history of the case, as well as additional pertinent facts, will be discussed where appropriate.


Issues Regarding Pretrial Procedure

A. Discovery

In their factual and procedural history section, the Becherer plaintiffs drop a footnote to comment that the District Court denied them the opportunity to take discovery of Laventhol & Horwath, the accounting firm retained by SSG. This issue was not, however, raised in either the statement of issues or the argument sections of their brief. Thus, it

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has not been properly raised before this Court, and we will not address it. See United States v. Lanier, 33 F.3d 639 (6th Cir.1994).

B. Requirement that Plaintiffs Replead Fraud Claims as

Breach of Contract Claims

The District Court, acting pursuant to its powers under Fed.R.Civ.P. 16, 3 held an initial status conference on April 23, 1990. The Becherer plaintiffs challenge two actions arising out of that conference. First, they allege that the District Court violated their substantive rights by forcing them to forego valid fraud claims and to replead their claims under a breach of contract theory. This allegation is patently meritless. The District Court did not require that the Becherer plaintiffs forego their fraud claims. Indeed, a review of the District Court's opinion shows that the court addressed both the breach of contract and the fraud claims. Because the Becherer plaintiffs continued to pursue their fraud claims after amending their complaint, we cannot see how they suffered any prejudice.

At the pretrial conference, the court also categorized all of the Becherer plaintiffs' claims into three areas of fraud:

1) whether the offering materials fraudulently omitted the true identity and competitive impact of a proposed Ritz-Carlton...

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