European Amer. Bank v. Royal Aloha Vacation Club
| Decision Date | 11 January 1989 |
| Docket Number | No. 87 Civ. 2154 (RWS).,87 Civ. 2154 (RWS). |
| Citation | 704 F. Supp. 1233 |
| Parties | EUROPEAN AMERICAN BANK, Plaintiff, v. The ROYAL ALOHA VACATION CLUB, the Royal Aloha Partners, the Aloha Group, Inc., Royal Aloha Associates, Limited, Marina Development Corporation, ITT Commercial Finance Corporation, Southwest Mortgage Service Corporation, and Bobby L. Pringle, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Schulte Roth & Zabel, New York City, for plaintiff European American Bank; Roger B. Mead, Jeffrey K. Cymbler, of counsel.
Fennemore Craig, Phoenix, Ariz., for defendants Royal Aloha Vacation Club, Royal Aloha Partners, Aloha Group, Inc.; John G. Ryan, Ray K. Harris, of counsel.
John E. Collins, Dallas, Tex., for defendant Bobby L. Pringle.
Plaintiff European American Bank ("EAB"), the present holder of certain installment notes, interpleaded pursuant to 28 U.S.C. § 1335 defendants Royal Aloha Vacation Club (the "Club"), the Royal Aloha Partners (the "Partners"), The Aloha Group, Inc. (the "Group"), Royal Aloha Associates, Limited ("RAA"), Marina Development Corporation ("Marina"), ITT Commercial Finance Corporation ("ITT"), Southwest Mortgage Service Corporation ("Southwest"), and Bobby L. Pringle ("Pringle") to determine the present entitlement to the notes worth over $2 million. Upon the trial and all the prior proceedings, in accordance with the following facts and conclusions, judgment will be entered in favor of Club with costs and disbursements. EAB's motion for fees and disbursements also is granted.
The issues here present a case study of the vacation time sharing industry and its attendant problems. At stake are the rights of those claiming interests in the notes members of the public uttered to pay for their membership in Club, which was to provide them with vacation time and space at resort locations. Millions of dollars in cash, debt, and contract obligations were paid over in the course of the events recounted below. Perhaps the paramount consideration underlying the conclusions reached is the desire to protect the integrity of the vacation plan, which seeks to provide the bargained for sun and surcease for Club members.
EAB commenced this action on July 20, 1987 and promptly bonded its performance to hold the notes at issue and their proceeds. On December 29, 1986, Group and Partners sued ITT in the Southern District of New York (Docket No. 86 Civ. 9890 (RWS)), and this case was consolidated with the EAB interpleader action on September 16, 1987. In addition, Group, Partners, Club, and Pringle filed cross claims against ITT in the EAB interpleader action.
Discovery proceeded. Group, Partners, and Club settled their claims against ITT prior to trial. ITT did not assert any claim against the interpleaded property at trial. Pringle, however, asserted by crossclaim rights in the ITT Notes. A motion for a default judgment extinguishing the claims of Southwest and RAA was granted and entered on June 20, 1988.
The action was tried before the court beginning on September 12, 1988 and finally submitted on October 21, 1988.
EAB is a New York banking corporation with its principal place of business in New York. EAB held the installment notes (and their proceeds) at issue as pledged to secure a loan that was repaid August 22, 1986.
Club is a Hawaii nonprofit corporation with its principal place of business in Honolulu, Hawaii. It was formed in 1977 to own and manage vacation time share condominium units for the use of Club's members.
Partners is a Nevada limited partnership with its principal place of business in Palm Springs, California. Group is a Hawaii corporation with its principal place of business in Palm Springs, California. Group and Donald W. Eastvold, Sr. ("Eastvold"), a citizen of California, are the general partners of Partners. Group and Partners were the initial promoters and developers of the plan to offer Club vacation time shares to the public.
Marina is a Nevada corporation with its principal place of business outside New York.
RAA is a Nevada limited partnership with its principal place of business outside New York. Marina and Partners formed RAA in March 1982, with Marina as general partner and Partners a limited partner, intending to take over the duties Group and Partners previously performed. Joe T. Boyd ("Boyd") sought to acquire the rights and obligations of RAA. Marina has not appeared in this action. Boyd is bankrupt.
ITT is a Nevada corporation with its principal place of business in St. Louis, Missouri.
Southwest is a Texas corporation with its principal place of business in Texas. Southwest filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Code on April 14, 1984 in the United States Bankruptcy Court for the Northern District of Texas (Dallas Division). On July 29, 1987, the Bankruptcy Court terminated the automatic stay as it pertains to this action. Southwest has appeared in this action but has not made a claim against the interpleaded property.
Pringle is a citizen and resident of Texas. Pringle claims the interpleaded property on the basis of an assignment to him from Boyd, Southwest, and RAA.
In 1977, Eastvold devised a plan to offer the public time share units in Hawaii. Club was formed in Hawaii to hold and administer the vacation units that Club members would occupy. At the beginning, Group and Partners sold Club memberships pursuant to a development agreement with Club.
As Club memberships were sold, Group and Partners customarily received only a portion of the purchase price in cash. The unpaid balance of the purchase price was evidenced by the purchaser's installment note payable to Group or Partners ("Member Note"). Certain of these Member Notes are at issue here.
In 1978, it was determined that Club would separate from Group and, in the words of its president Kenneth Griffin ("Griffin"), "stand alone." The Development Agreement was signed as of January 1, 1979 under which the developer sold Club memberships, received cash and Member Notes for the membership, and acquired real estate interests to be transferred to Club to provide the vacation units that Club members would occupy. An Escrow Agreement initially was entered into with Tellus Financial Services, Inc. ("Tellus"), which provided that the Member Notes would be sent to Tellus and accounts would be set up determining the amounts necessary to service any debt on the properties assigned to Club. The Escrow Agreement sought to insure that facilities would be available to meet Club members' demands and that any debt incurred in connection with the facilities would be funded.
On August 22, 1980, Group and Partners entered into a contract with Club (the "Development Agreement") under which Group and Partners had (a) the right to sell Club memberships and (b) the duty to transfer vacation time share condominium units to Club as memberships were sold.
On August 27, 1980, Group and Partners executed a Security Agreement, Assignment, and Pledge of Notes to Club. This security agreement granted Club a security interest in Member Notes "together with all additions, substitutions, renewals, extensions or proceeds thereof" to secure the obligations of Group and Partners under the Tellus Escrow Agreement "and all renewals, modifications or extensions thereof." As Club memberships were sold, Group and Partners customarily received only a portion of the purchase price in cash. The unpaid balance of the purchase price was evidenced by Member Notes payable to Group or Partners. Approximately 40% of the membership payment was in cash, and this initial down payment was less than the cost of sale, thus requiring a continued development drive.
The Development Agreement provided that "proceeds from those installment notes receivable generated from sales of Club memberships ... shall be assigned and maintained by Group and Partners for the account of the Club" to secure an amount equal to 110% of any encumbrances on the real estate interests transferred to Club. Contemporaneously with the Development Agreement, Club, Group, and Partners entered into an agreement (the "Tellus Escrow Agreement") under which Tellus as escrow agent held and collected the Member Notes assigned to Club and paid encumbrances on Club units to perform Group's and Partners' obligation under the Development Agreement.
On June 1, 1981, Group, Partners, and Club replaced the Tellus Escrow Agreement with an Escrow Agreement under which the Bank of California would act as escrow agent (the "Escrow Agreement"). This Escrow Agreement subsequently was amended by a First Amendment to Escrow Agreement dated August 24, 1982.1 Under the Escrow Agreement, as amended: (a) the Bank of California was to service all Member Notes generated by Club membership sales and (b) Club was assigned a security interest in certain Member Notes to secure payment of encumbrances on the vacation time share condominium units Group and Partners transferred to Club. Paragraphs 10(a), 11(a), 11(b), 13(a), 13(b), 26, 39, 44(a)(i) provide as follows:
To continue reading
Request your trial
-
Mid-Valley Produce Corp. v. 4-XXX Produce Corp., CV 92-0331.
...a constructive trust on trust funds that Alice Melfi received without paying any consideration. See European Amer. Bank v. Royal Aloha Vacation Club, 704 F.Supp. 1233, 1245 (S.D.N.Y. 1989); Majer v. Schmidt, 564 N.Y.S.2d 722, 724, 169 A.D.2d 501 (1st Dep't 1991) ("constructive trust may be ......