Becherer v. MERRILL LYNCH, PIERCE, FENNER & SMITH
| Decision Date | 13 March 1996 |
| Docket Number | No. 89-CV-72502.,89-CV-72502. |
| Citation | 920 F. Supp. 1345 |
| Court | U.S. District Court — Eastern District of Michigan |
| Parties | Richard C. BECHERER; Lawrence Milton Richard; Robert A. Horvath and Shirley L. Horvath; Henry V. Denolf and Joann L. Denolf, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, Association of Unit Owners of the Registry Hotel at Pelican Bay, Incorporated, Intervenor-Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED; Can-American Corporation; Can-American Realty Corporation; Shelter Seagate Corporation; Garrett G. Carlson; Graham C. Lount; Arni Thorsteinson; Frank Lavin; Martin Cicco; Laventhol & Horvath; Dominion Financial & Investment Corp., a/k/a Trustbank Mortgage Center, Inc.; M.A. Mortenson Company; Winsor-Faricy Architects, Inc.; Midwest Title Guarantee Company of Florida; and Lehill Partners, Limited Partnership, Defendants. |
COPYRIGHT MATERIAL OMITTED
Thomas R. Grady, Grady & Associates, Naples, FL, Bruce E. Gerstein, Garwin, Bronzaft, Gerstein & Fisher, New York City, Eugene A. Spector, Spector & Roseman, P.C., Philadelphia, PA, and Elwood S. Simon, Elwood S. Simon & Associates, Bloomfield Hills, MI, for plaintiffs.
Steve Gaskins, Cosgrove, Flynn, Gaskins & Haskell, Mary Yeager, Faegre & Benson, Sam Kaplan, Kaplan, Strangis & Kaplan, Minneapolis, MN, and Jon B. Gandelot, Gandelot & Dickson, P.C., Detroit, MI, for SSG.
Thomas G. McNeill, Dickinson, Wright, Moon, VanDusen & Freeman, Detroit, MI, for Mortenson.
Jonathan T. Walton, Jr., Clark, Klein & Beaumont, Detroit, MI, for Trustbank.
Sheldon Klein, Dennis K. Egan, Butzel Long, P.C., Detroit, MI, David C. Andrew, Baker, Donelson, Bearman & Caldwell, Washington, DC, for Merrill Lynch.
Melissa Horne, Kerr, Russell and Weber, Detroit, MI, for Winsor/Faricy.
Frank W. Brochert, Plunkett & Cooney, Detroit, MI, for Midwest Title.
Mark T. Boonstra, Miller, Canfield, Paddock & Stone, Detroit, MI and Howard O. Godnick, Schulte Roth & Zabel, New York City, for Registry Hotel Corp.
Susan LaCava, Madison, WI, for Assoc. of Unit Owners.
Sharon M. Woods, Barris, Sott, Denn & Driker, P.L.L.C., Detroit, MI, for Thomas Grady.
OPINION AS TO THE APPLICABILITY OF THE LAND SALES ACT AND THE ISSUE OF VIRTUAL REPRESENTATION
This case commenced nearly seven years ago with the filing of a lengthy complaint (hereinafter "the Class Action Complaint" or "the complaint") alleging that 298 investors, who asked to be designated as a class, suffered financial injury in connection with their purchases of unit interests in a 474-room resort hotel (hereinafter "the Registry Hotel" or "the hotel"). The nature, history, and disposition of these claims are set forth in detail in my opinion, Becherer v. Merrill Lynch, 799 F.Supp. 755 (E.D.Mich.1992) (hereinafter "Becherer I"). Relevant portions of that opinion are summarized here.
In due course, it became apparent that plaintiffs' claims were rooted in: 1) allegations that the developers of the hotel, defendants Shelter Seagate Corporation, Can-American Corporation, Can-American Realty Corporation, and the individual defendants, Garrett G. Carlson, Graham C. Lount, and Arni Thorsteinson (hereinafter, they will be collectively known as "the Shelter Seagate Group" or "SSG"), had breached the contracts of purchase for the unit interests (hereinafter "the Hotel Interest Purchase Contracts")1 and 2) allegations that the selling agent for the hotel interests, defendant Merrill Lynch, Pierce, Fenner & Smith, Inc. (hereinafter "Merrill Lynch"), and SSG defrauded the investors by misrepresenting certain facets of the deal. The contract claims and the fraud claims overlapped considerably in terms of issues. Specifically, the following sets of "twin" issues existed: whether SSG had breached the Hotel Interest Purchase Contracts by failing to comply with requirements for the closing of title, paired with whether SSG and Merrill Lynch had materially misrepresented those requirements; and whether SSG had breached the Hotel Interest Purchase Contracts by failing to purchase furniture, fixtures, and equipment (hereinafter "FFE") for the hotel, together with whether SSG and Merrill Lynch had materially misrepresented to investors that they would purchase FFE items.
After dismissing a claim that SSG and Merrill Lynch defrauded plaintiffs by failing to reveal to investors that a Ritz-Carlton Hotel was being developed in the vicinity of the Registry Hotel, I ordered an expedited trial of the breach of contract issues only. I certified a plaintiff class (hereinafter "the Becherer class") in relation to that trial, consisting of:
all persons and entities who purchased hotel interests in the Registry Hotel pursuant to the February 1, 1984 Private Placement Memorandum, and the supplements thereto, at the October 30, 1986 closing, and/or their successors or assigns, and who were allegedly damaged thereby ... excluding the defendants and their families or affiliates.
Becherer I, 799 F.Supp. at 784, App. C (Order of March 14, 1991). Summary judgment was granted to the class on their FFE contract claim; as a result, the class was awarded approximately $6.7 million in damages. A bench trial was held to resolve the contract claim relating to the closing of title; I found that there was a breach of contract, but that the class had not shown that it was damaged by this breach. It is not disputed that all members of the class are foreclosed from relitigating these contract claims.
After resolving the contractual issues, I proceeded to address various motions to dismiss and for summary judgment in Becherer I. I found that the reasoning which led me to conclude that SSG had failed to comply with the contractual requirements for the closing of title without damage to the class also led to the conclusion that plaintiffs could not prevail on the twin fraud issue. Similarly, I found that the award of some $6.7 million in damages to the class for the FFE contract claim foreclosed the possibility of recovery by plaintiffs for the same injury under a theory of fraud.
I then dismissed plaintiffs' claims arising under the Federal Interstate Land Sales Disclosure Act (hereinafter "the Land Sales Act" or "the Act"), 15 U.S.C. ž 1701, et seq., because I found that the Act was not applicable to the sale of Registry Hotel units. The Land Sales Act prohibits the use of deception by agents and developers with respect to the sale of a lot, but exempts "the sale or lease of land under a contract obligating the seller or lessor to erect a residential, commercial, condominium, or industrial building within a period of two years." Land Sales Act, ž 1702(a)(2). Because I found that SSG agreed to erect the hotel within two years of the date (February 15, 1985) upon which the investors became legally bound to honor their Hotel Interest Purchase Contracts, I concluded that the sale of the units of the Registry Hotel qualified for exemption under ž 1702(a)(2).
In September, 1992, a sub-group of the Becherer class (hereinafter "the Florida plaintiffs") filed suit against Merrill Lynch in Florida state court. Their counsel, Thomas Grady, asserted that my Opinion, Order, and Judgment of August 7, 1992 is not binding upon them except as to the adjudication of the contract claims against SSG. Merrill Lynch reacted by filing a motion to enjoin the Florida state court proceedings with this court, arguing that the Florida plaintiffs were bound by the entirety of my decision of August 7, 1992.
Finding that all of the investors were in privity with the named plaintiffs in the Becherer case (hereinafter "the Becherer plaintiffs"),2 I reasoned that the Florida plaintiffs were barred from bringing suit in state court by the doctrines of res judicata and collateral estoppel. Thus, I granted Merrill Lynch's motion and enjoined the Florida state court proceedings. See Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 809 F.Supp. 1259, 1272 (E.D.Mich.1992) (hereinafter "Becherer II").
Plaintiffs exercised their right to appeal my decision, and in an opinion dated January 10, 1995, the United States Court of Appeals for the Sixth Circuit affirmed the majority of my rulings. See Becherer v. Merrill Lynch, 43 F.3d 1054 (6th Cir.1995) (hereinafter Becherer III). The following two issues were remanded for fuller treatment by me: 1) whether the Land Sales Act applies to plaintiffs' claims and 2) whether the Florida plaintiffs are barred from pursuing claims against Merrill Lynch relating to their investment in the Registry Hotel in Florida state court when the test of "virtual representation," discussed below, is applied.
The Court of Appeals agreed with my finding that the two-year period of ž 1702(a)(2) of the Land Sales Act began to run on February 15, 1985. See Becherer III, 43 F.3d at 1066. However, the Court of Appeals was not satisfied that the sale of hotel units qualified for exemption under ž 1702(a)(2), and directed me to further analyze the issue upon remand.
A question that concerned the Court of Appeals is whether SSG was "obligated," as that term is used in the Land Sales Act, to erect the hotel by February 16, 1987, given that each Hotel Interest Purchase Contract contains a clause which fails to specify damages as a possible remedy for breach.3 Referring to regulations promulgated by the Department of Housing and Urban Development (hereinafter "HUD"), the Court of Appeals determined that the term "obligated," as used in ž 1702(a)(2), must be defined with reference to relevant state contract law. Turning to Florida law, it noted that "the Florida Supreme Court has directly addressed this question and ruled that no contractual `obligation' exists unless the contract provides for the possibility of damages." Becherer III, 43 F.3d at 1067 (citing Samara Dev. Corp. v. Marlow, 556 So.2d 1097, 1101 (Fla.1990)). The Court...
To continue reading
Request your trial
-
Beaver v. Tarsadia Hotels
...by the unit owner, but there is no guarantee that the unit will ever be available to him or her.” Becherer v. Merrill Lynch, Pierce, Fenner & Smith, 920 F.Supp. at 1345, 1355 (E.D.Mich.1996). Lastly, the investor's right to ejects tenants was assigned to the hotel manager and “never truly r......
-
AGIP Petroleum Co. v. Gulf Island Fabrication, Inc.
... ... 1992); Smith v. Penrod Drilling Corp., 960 F.2d 456, 459 (5th ... ...
-
Sun Kyung Ahn v. Merrifield Town Center Ltd.
...S.Ct. 296, 133 L.Ed.2d 203 (1995) and Becherer v. Adams, 516 U.S. 912, 116 S.Ct. 296, 133 L.Ed.2d 203 (1995), on remand to Becherer, 920 F.Supp. 1345 (E.D.Mich. 1996), aff'd in part by Becherer, 127 F.3d 478 (6th Cir.1997) and Becherer, No. 96-1673, 1997 WL 741361 (6th Cir. Dec. 3, 1997), r......
-
Becherer v. Merrill Lynch
...the district court made 67 findings of fact as to the collateral estoppel issue. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 920 F. Supp. 1345, 1357-67 (E.D. Mich. 1996) ("Becherer IV"). The district court also dismissed the Becherer plaintiffs' Land Sales Act claims against Me......