Baum v. Great Western Cities, Inc., of New Mexico, s. 80-1767

Citation703 F.2d 1197
Decision Date09 March 1983
Docket Number80-1773 and 80-1774,80-1771,80-1768,80-1772,Nos. 80-1767,80-1770,80-1769,s. 80-1767
Parties12 Fed. R. Evid. Serv. 1220 Margaret BAUM, Sid Marco, et al., William G. Johnson, et al., Jack Ish, et al., Theodore Keller, et al., Glenn Nelles, et al., Joseph J. Jowers, et al., Charlotte Smith, Plaintiffs-Appellants, v. GREAT WESTERN CITIES, INC., OF NEW MEXICO, a New Mexico corporation; California City Development Company, a California corporation; Great Western United Properties, Inc., a California corporation; and Great Western United Corporation, a Delaware corporation, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)

Harold Breen, Taos, N.M., for plaintiffs-appellants.

Allen M. Katz, Los Angeles, Cal. (Ronald L. Olson, Los Angeles, Cal., with him on briefs), of Munger, Tolles & Rickershauser, Los Angeles, Cal. (Marianne Woodard of Sutin, Thayer & Browne, Albuquerque, N.M., also on briefs), for defendants-appellees.

Before BARRETT, McKAY and SEYMOUR, Circuit Judges.

BARRETT, Circuit Judge.

These consolidated appeals arise from adverse jury verdicts rendered against the seven (7) plaintiffs below, following a three week trial of their actions, consolidated for trial with some 61 other plaintiffs, commenced on or about February 1, 1978. The appeals are taken from the judgments and the district court's denial of plaintiffs' post-trial motions for relief therefrom.

The genesis of plaintiffs'/appellants' (purchasers') complaints is that common law fraud and securities fraud under the Securities Exchange Act of 1934 and rule 10b-5 was practiced upon them by appellee, Great Western Cities, Inc., (Great Western) in the sale of unimproved lots in a real estate development located at Cochiti Lake, New Mexico. Purchasers sought rescission of their contracts and return of all purchase money, with interest, costs and attorney fees and punitive damages. Great Western's defense was that if any of the alleged misrepresentations were made by its sales representatives, they were made without the authorization, approval or knowledge of Great Western; furthermore, that the purchasers executed valid releases to Great Western, for valuable consideration, of any and all claims, including those alleged in the complaint. Thus, Great Western pled that the complaints were barred by principles of release, waiver, and accord and satisfaction. The jury found that the purchasers' claims for relief, with the exception of Baum, were barred by virtue of purchasers' execution of a General Release to Great Western, and that none of the purchasers had established right of recovery based on their common law fraud or securities law fraud claims. We agree. Some detailed recital of background is necessary.

The Property

After the Army Corps of Engineers constructed a flood control dam which created a lake behind and on the Rio Grande River on land owned by the Pueblo de Cochiti, an Indian Tribe, in the 1960's, it was planned that the lake could be used by the public for boating, fishing and other recreational purposes. In 1969, the Cochiti Pueblo entered into a 99-year Master Lease with Great Western's predecessor for a 7,500 acre tract adjacent to the lake. The Master Lease, approved by the Bureau of Indian Affairs, provided that lessee would subdivide the project into residential lots to be offered to the public. The Master Lease required the lessee-developer, now Great Western, to make off-site improvements in the nature of paved streets, sewers, water system, electricity and gas equalling $2.25 million by 1974 and an additional $3 million by 1979. Further expenditure of $2 million was required by 1979 for the commercial area, swimming pool, tennis courts, marina, homes and apartments. The Master Lease did recognize that the plan envisioned converting undeveloped land to a developed community and, because it contemplated a number of years, the parties agreed that the aforesaid improvements need not be constructed ahead of actual need. The improvements were to be funded by an interest-bearing trust fund to which the lot purchasers would contribute. The lot sales commenced in 1970, five years before the dam and lake were completed. Each lot purchaser executed a "sublease agreement" in two documents, each of which, by reference, incorporated the Master Lease. The sublease agreement contained an integration clause reciting that the written agreement contained the entire agreement and that no oral representation could change the terms thereof. Neither the Master Lease nor the sublease agreement contained any promised dates by which the roads, water, utilities, etc., would reach the lots, nor were there any promised dates for improvements such as the golf courses, shopping center, gymnasium, etc.

Purchasers acquired their lots between 1970 and 1974. They were provided with property reports each year. Those reports did not promise specific dates for any improvements, but they did state that the improvements would be provided as the need exists.

The FTC Settlement

Prior to the filing of the instant complaints and the consolidated trial thereon, the Federal Trade Commission (FTC) charged that Great Western, and other associates, had violated the Federal Trade Commission Act by misrepresenting certain matters in the sales or sublease of lands or lots, including those involved in the Cochiti Lake development. The FTC issued an original cease and desist order on October 20, 1972, pursuant to 15 U.S.C.A. Sec. 45(b) ordering Great Western to cease and desist from certain practices in the advertising and/or offering for sale of real estate in Cochiti Lake, New Mexico, and elsewhere. The FTC charges included allegations that Great Western, among other things, misrepresented to purchasers: that the land was a good investment because it was certain to increase in value; the nature and intent of the developments; its policy concerning the resale of the land purchased; and the amount of water available. Further, the FTC charged that Great Western failed to make certain required affirmative disclosures in its advertising.

Following detailed FTC compliance investigations, the FTC determined that rather than seeking exclusive civil penalties of Great Western and others, it would seek penalties and consumer redress relief remedies authorized pursuant to 1975 amendments to the Federal Trade Commission Act, codified at 15 U.S.C.A. at Secs. 45(a)(1), 56(a)(1) and 57(b) (Supp.1982) 1 and attendant affirmative action relative thereto. A negotiated settlement between FTC and Great Western, et al., resulted in a Consent Judgment entered January 27, 1977, in the United States District Court for the Central District of California. The Consent Judgment imposed a civil penalty of $50,000 on Great Western and it further required Great Western to make specified pro-rata payments to its purchasers at three projects, including Cochiti Lake, and to expend specified capital improvements at the projects. The Consent Judgment entered by the California court specifically provided that all purchasers who accepted the pro-rata payments would, in accord with the General Release attached thereto, waive any and all claims against Great Western. The Consent Judgment also provided that Great Western offer each of its lot purchasers the right to arbitrate claims of fraud or misrepresentation at Great Western's expense should any of them determine not to accept the pro-rata payment and execute a general release.

In accord with the Consent Judgment, Great Western mailed a cover letter, accompanied by a refund check and a General Release to each purchaser. The refund checks and General Release were accepted/endorsed and executed by each of the appellants. The cover letter advised that the enclosures should be read carefully. The back portion of the refund check stated that, by endorsement, the recipient would release all claims against Great Western. Furthermore, in bold print, this warning was written: "Important--This is a Release--Read it." The General Release advised each purchaser that acceptance of the check would constitute a release and, again in bold type, stated: "If you do not want to be bound by the terms of this General Release, do not endorse or cash the payment check you have received."

Purchasers' Actions

The complaints filed by purchasers alleged that untrue statements of material fact were made by Great Western when they purchased the lots at the Cochiti Lake development, including assurance of an abundance of water, installation of sewer lines, paved streets, and acquisition of water rights to meet all water needs. In addition, omissions of material facts were alleged, including failure to assure sufficient funds to construct recreational facilities, water rights, paved streets, water lines or sewer facilities. Specific representations which purchasers alleged to be untrue included representations that: the purchase of the subleasehold lots would be an investment which would increase in value; Great Western would build four major recreation areas in the development by 1976, together with miles of riding trails, a golf center with both a nine hole (2,250 yard) and 18-hole golf course, a putting green, pro shop, golf pro, etc., an arts and crafts building, a gymnasium with basketball court, workout rooms for gymnastics and boxing, indoor swimming pool, boxing, steam and sauna room, a 1,650 seat outdoor amphitheater, two major commercial centers, a major chain motel-hotel with shopping plaza and a major tackle and boating supply store at the marina. [R., Vol. V, pp. 2095-2098]. Based upon the above and other alleged representations made by Great Western, purchasers contended that Great Western held out that there existed a large resale market for the subleasehold interests and that Great Western would establish a resale department to assist the Cochiti Lake purchasers in the resale of their investments prior to...

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