Bergman v. Spruce Peak Realty, LLC, Case No. 2:11–cv–128.

CourtUnited States District Courts. 2nd Circuit. District of Vermont
Writing for the CourtWILLIAM K. SESSIONS III
Citation847 F.Supp.2d 653
PartiesMichelle BERGMAN, Jeffrey D. Bergman, David Friend, Steps Away: At Stowe Mountain LLC, Patrick Sullivan, Shelagh Sullivan, Karen Hesse Flatow, Tall Pines LLC, and George Wilson, individually and on behalf of a class of similarly situated persons, Plaintiffs, v. SPRUCE PEAK REALTY, LLC and Stowe Mountain Lodge, LLC, Defendants.
Decision Date20 March 2012
Docket NumberCase No. 2:11–cv–128.

847 F.Supp.2d 653

Michelle BERGMAN, Jeffrey D. Bergman, David Friend, Steps Away: At Stowe Mountain LLC, Patrick Sullivan, Shelagh Sullivan, Karen Hesse Flatow, Tall Pines LLC, and George Wilson, individually and on behalf of a class of similarly situated persons, Plaintiffs,
v.
SPRUCE PEAK REALTY, LLC and Stowe Mountain Lodge, LLC, Defendants.

Case No. 2:11–cv–128.

United States District Court,
D. Vermont.

March 20, 2012.


[847 F.Supp.2d 658]


Russell D. Barr, Esq., Jennifer J. Lajoie, Daniel A. Seff, Barr & Associates, P.C., Stowe, VT, for Plaintiffs.

Jeffrey J. Amato, Esq., Bianca M. Forde, Esq., Adam J. Kaiser, Esq., Dewey & LeBoeuf, LLP, New York, NY, Matthew S. Borick, Marc B. Heath, Downs Rachlin Martin PLLC, Burlington, VT, for Defendants.


MEMORANDUM OPINION and ORDER

WILLIAM K. SESSIONS III, District Judge.

Plaintiffs, owners of interests in residential units in the Stowe Mountain Lodge Condominium (“Condominium”), brought two class action suits against the developers of the Condominium,1 alleging that Defendants have illegally and fraudulently allocated expenses and voting rights in order to favor their commercial units; have illegally charged back to the residential unit owners a substantial portion of the fees that Defendants should be paying; have illegally charged residential units for more than their share of the electricity bill; and have illegally and fraudulently imposed exorbitant charges for so-called shared amenities services. See Class Action Compl., ECF No. 1, Bergman v. Spruce Peak Realty, LLC, No. 2:11–cv–127 (D. Vt. filed May 13, 2011); First Am. Class Action Compl. (“FAC”), ECF No. 23.

Plaintiffs asserted that they were forced to split their claims because the Condominium documents contained inconsistent arbitration clauses. The Declaration of Covenants, Conditions, Easements and Restrictions for the Condominium (“Declaration”) contained a mandatory arbitration clause for all disputes arising under it, except for claims for indemnity or unpaid assessments. Decl. ¶ 12.18, ECF No. 23–1. A covenant referenced in the Declaration, the Shared Amenities and Services Covenant (“SAS Covenant”), contained a permissive arbitration clause, but excluded owners from exercising any rights under it. SAS Covenant ¶ 12.14, ECF No. 23–13.

In Docket No. 2:11–cv–127, in which Plaintiffs brought claims related to the Declaration, Plaintiffs sought and received a stay of proceedings pending arbitration. See Mem. Op. & Order dated Nov. 14, 2011, ECF No. 33. In this docket, in which Plaintiffs bring claims related to the SAS Covenant, Defendants have moved to dismiss Plaintiffs' FAC in its entirety for lack of subject matter jurisdiction, failure to plead fraud with particularity and failure to state a claim. See

[847 F.Supp.2d 659]

Fed.R.Civ.P. 12(b)(1), 12(b)(6), 9(b). For the reasons that follow, the motion, ECF No. 28, is granted in part and denied in part.

Background

The following facts are drawn from the FAC, the Class Action Complaint in Docket No. 2:11–cv–127, and appended documents. The Condominium is a common interest community located on Mount Mansfield in Stowe, Vermont, consisting of residential units, held either in whole or fractional ownership; commercial units, consisting of the Retail Unit, the Spa Unit and the Shared Amenities Unit; 2 and common elements, which are the remaining portions of the Condominium—land, buildings and improvements—other than the residential and commercial units.

The Shared Amenities Unit is divided into an Exclusive Shared Amenities Unit Area that benefits Defendants exclusively (including the conference center, the ballroom, bar and restaurant) and the Shared Amenities Use Areas (including the lobby, the pool, the parking garage, reservation desk area and landscaped outdoor areas). Spruce Peak owns the Shared Amenities Unit. SML owns the Retail Unit, the Spa Unit and unsold residential units.

The Condominium was marketed as a four-star, full-service, high-end resort. The Condominium is managed by the Stowe Mountain Lodge Condominium Owners Association (“SMLCOA”). All unit owners are members of the SMLCOA.

Spruce Peak began marketing the Condominium in 2005, prior to its construction, through a Public Offering Statement (“2005 POS”). The 2005 POS explained that it was a summary description of the Condominium, and that a prospective purchaser should read the entire set of disclosure materials attached to the POS. 2005 POS 2, ECF No. 23–2. The 2005 POS appended as Schedules drafts of the SML Declaration, the Hotel Access and Services Covenant (“HAS Covenant”) and the SMLCOA projected annual operating budget, among other documents.

The 2005 POS provided that the unit owners would share the cost of operating and maintaining the common elements of the Condominium. Id. at 17. The SMLCOA would be governed by a five-member Board of Directors. Id. at 18. The SMLCOA would collect assessments from the unit owners to cover the costs of operation, management and maintenance of the Condominium. Id. at 19. The 2005 POS presented a projected budget for the SMLCOA, but warned that the budget was based upon estimates of costs and expenses, that the budgeted expenses were subject to change, and that there was no guarantee that the SMLCOA would choose to maintain the level of services established by the budget. Id. at 25.

The 2005 POS projected condominium assessment for the first year of operation was $2866 for a studio unit and $11,465 for a three-bedroom unit. Id. In addition, the 2005 POS estimated “Master Association” assessments, constituting condominium common expenses, as $483 for a studio unit, and $2415 for other units. Id. at 26. The 2005 POS also explained that unit owners would be granted access to and use of certain facilities and amenities located in the Hotel Services Unit, and that a Hotel Access and Services Fee would be collected from unit owners, as detailed in the HAS Covenant. Id. at 34–36.

The HAS Covenant covered the use of shared facilities and the allocation of shared facilities expenses. Shared facilities expenses would consist of “maintenance

[847 F.Supp.2d 660]

and operation expenses” and “hotel service expenses.” HAS Covenant ¶ 7.2, ECF No. 23–3. Hotel services were defined as services—such as reception, check-in, reservations, bell staff, valet parking, charging privileges, ski and door attendants, pool, concierge and shuttle services—provided by the Hotel Services Unit owner primarily for the benefit of the “contributing owners,” defined as the owners of the residential units. Id. Exs. C–1, C–2. The hotel services fee would accrue on a nightly basis based on actual usage, and the maintenance and operation fee would be invoiced on a quarterly basis. Id. Ex. C–2. The Hotel Services Unit owner would have complete control over the budget upon which these fees would be calculated, 2005 POS 36, and the residential unit owners would be responsible for the actual shared facilities expenses, if the fees assessed did not cover the actual expenses. HAS Covenant ¶ 7.2.2.

Under the HAS Covenant, a residential unit owner would be assessed $41 per night per bedroom for hotel services when the residential unit owner or a tenant occupied the unit. FAC ¶¶ 97–98.

In June 2005, many residential unit owners signed Purchase and Sale Agreements (“P & S Agreements”) with SPR and paid nonrefundable ten percent deposits. The P & S Agreements contemplated a completion date of June 30, 2007, subject to change. The P & S Agreements referenced the 2005 POS and its schedules, and advised purchasers that they would be responsible for Hotel Access and Services Fees, which “may be increased subject to the limitations set forth in the Condominium Governing Instruments and the [HAS Covenant].” P & S Agreement ¶ 11, ECF No. 23–4. It also advised that those documents were subject to modification and termination in accordance with their terms. Id. ¶ 21(b).

Sometime prior to April 2006, Defendants determined that they could not complete construction by June 2007. As a result they were required by the Interstate Land Sales Full Disclosure Act of 1968 (“ILSA”), 15 U.S.C. §§ 1701–1720 (2006), to provide a Property Report to all potential residential unit purchasers. See id. § 1707. In October 2006, SPR provided a Property Report to all prospective purchasers, including those who had previously signed P & S Agreements. The Property Report included a list of major costs, “subject to change.” Property Report 33, ECF No. 23–10. The estimated amount of the Shared Services Contribution 3 would be $410 annually for a studio unit, and $1000 annually for a three-bedroom unit, based on ten days of owner usage, and would increase with higher use. Id. at 34. The Property Report did not mention that the residential unit owners would be responsible for actual expenses that exceeded the estimate.

At the same time SPR provided an amendment to each purchaser's P & S Agreement, which among other things replaced the terms “Hotel Access Unit Owner” with “Shared Amenities Unit Owner;” “Hotel Access and Services Covenant” with “Shared Amenities and Services Covenant (“SAS Covenant”);” and “Hotel Access and Services Fee” with “Shared Amenities and Services Contribution.” P & S Amendment, ECF No. 23–8. Purchasers who had signed P & S Agreements in 2005 were given the option of agreeing to the amendments or canceling their P & S Agreements. Id.; ECF No. 23–9.

[847 F.Supp.2d 661]

In June 2007 all purchasers who had not cancelled their agreements paid an additional ten percent deposit.

On January 30, 2008, SML, as the successor to Spruce Peak, prepared a revised Public Offering Statement (“2008 POS”). The 2008 POS appended a revised SAS Covenant and a revised projected annual operating budget as schedules. See 2008 POS, ECF No. 23–11; SAS Covenant; Draft Operating Budget, ECF No. 35–1. On February 18, 2008, SML sent purchasers who had signed a P & S Agreement and placed a deposit on a Condominium unit a letter enclosing...

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13 practice notes
  • Gingras v. Joel Rosette, Ted Whitford, Tim Mcinerney, Think Fin., Inc., Case No. 5:15-cv-101
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • May 18, 2016
    ...Fin. Auth., 764 F.3d 210, 213 (2d Cir. 2014) (addressing jurisdiction prior to arbitrability); Bergman v. Spruce Peak Realty, LLC, 847 F. Supp. 2d 653 (D. Vt. 2012) (noting that, "[o]rdinarily, subject matter jurisdiction must 'be established as a threshold matter'" (quoting Steel Co. v. Ci......
  • Eisen v. Venulum Ltd., 1:16–CV–00461 EAW
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Western District of New York
    • March 27, 2017
    ...of a contract may be avoided as unconscionable if they are procedurally or substantively unfair." Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 666 (D. Vt. 2012) (citing Val Preda Leasing, Inc. v. Rodriguez, 149 Vt. 129, 540 A.2d 648, 651 (1987) ). "Unconscionability may be based u......
  • Citibank N.A. v. City of Burlington, Case No. 2:11–CV–214.
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • September 13, 2013
    ...facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.’ ” Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 674 (D.Vt.2012) (quoting S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 634 (2d Cir.1996)). The allegation that a party ......
  • Cohen v. Subaru of Am., Inc., 1:20-cv-08442-JHR-AMD
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • March 10, 2022
    ...Court's research did not identify a duty to disclose requirement for omission-based VCFA claim. See Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 671-73 (D. Vt. 2012) (discussing disclosure duty under common-law fraudulent omission claim but not VCFA claim). A conflict therefore ex......
  • Request a trial to view additional results
13 cases
  • Gingras v. Joel Rosette, Ted Whitford, Tim Mcinerney, Think Fin., Inc., Case No. 5:15-cv-101
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • May 18, 2016
    ...Fin. Auth., 764 F.3d 210, 213 (2d Cir. 2014) (addressing jurisdiction prior to arbitrability); Bergman v. Spruce Peak Realty, LLC, 847 F. Supp. 2d 653 (D. Vt. 2012) (noting that, "[o]rdinarily, subject matter jurisdiction must 'be established as a threshold matter'" (quoting Steel Co. v. Ci......
  • Eisen v. Venulum Ltd., 1:16–CV–00461 EAW
    • United States
    • United States District Courts. 2nd Circuit. United States District Court of Western District of New York
    • March 27, 2017
    ...of a contract may be avoided as unconscionable if they are procedurally or substantively unfair." Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 666 (D. Vt. 2012) (citing Val Preda Leasing, Inc. v. Rodriguez, 149 Vt. 129, 540 A.2d 648, 651 (1987) ). "Unconscionability may be based u......
  • Citibank N.A. v. City of Burlington, Case No. 2:11–CV–214.
    • United States
    • United States District Courts. 2nd Circuit. District of Vermont
    • September 13, 2013
    ...facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.’ ” Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 674 (D.Vt.2012) (quoting S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629, 634 (2d Cir.1996)). The allegation that a party ......
  • Cohen v. Subaru of Am., Inc., 1:20-cv-08442-JHR-AMD
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • March 10, 2022
    ...Court's research did not identify a duty to disclose requirement for omission-based VCFA claim. See Bergman v. Spruce Peak Realty, LLC, 847 F.Supp.2d 653, 671-73 (D. Vt. 2012) (discussing disclosure duty under common-law fraudulent omission claim but not VCFA claim). A conflict therefore ex......
  • Request a trial to view additional results

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