Finkel v. Stratton Corp.
| Citation | 754 F. Supp. 318 |
| Decision Date | 03 January 1991 |
| Docket Number | No. 88 Civ. 3779 (CSH).,88 Civ. 3779 (CSH). |
| Parties | Paul FINKEL, Paul Magnuson, Glenn Yarnis, Harvey Watkins, individually and as Representatives of all Persons similarly situated, Plaintiffs, v. The STRATTON CORPORATION, a Vermont Corporation; Moore & Munger, Inc., a Delaware Corporation; Stig Albertsson; Lovick Suddath; David A. Rosow; Sherman T. Van Esselstyn; Victor C. Braun, Jr.; Henry L. Levkoff; Wayne G. Granquist; Robert H. Kelso; Dowmar Securities, Inc., a New York Corporation, Defendants. |
| Court | U.S. District Court — Southern District of New York |
COPYRIGHT MATERIAL OMITTED
Shanley & Fisher, P.C. (Charles A. Reid, III, Daniel M. Curzio, of counsel), New York City, for plaintiffs.
Cadwalader, Wickersham & Taft (Richard J. Weiner, Gregory S. Mertz, of counsel), New York City, for defendants The Stratton Corp., Moore & Munger, Inc. and the individual defendants.
Jeremy Dworkin, South Londonderry, Vt.
George Brooks, Montpelier, Vt.
This purported class action alleges federal securities claims against corporations and individuals involved in the public sale of interests in a lodge and resort in Stratton, Vermont. Plaintiffs also assert related state statutory and common law claims. Certain defendants now move to dismiss the complaint under Rule 12(b)(6), Fed.R. Civ.P.
The complaint alleges the following:
Plaintiffs Paul Finkel and Paul Magnuson are residents of New Jersey. Plaintiffs Glenn Yarnis and Harvey Watkins are residents of New York. They each purchased units in Phase I at the Stratton Mountain Village Lodge ("The Lodge"). Defendant The Stratton Corporation ("Stratton" or "StratCorp") is a Vermont corporation maintaining its principal office in Stratton, Vermont. Defendant Moore & Munger, Inc. is a Delaware corporation with its principal office in Stamford, Connecticut and at the pertinent times was the corporate parent and owner of all outstanding shares of Stratton. Defendant Dowmar Securities, Inc. ("Dowmar"), a New York corporation, is a registered securities broker/dealer. The individual defendants were at the pertinent times officers or directors of Stratton.
The purported class consists of purchasers of 91 units of The Lodge. The class is alleged to include more than 70 individuals who reside in at least nine states and at least one foreign country. Judging by the alleged state "Blue Sky" laws violations, members of the class reside in Vermont, Connecticut, Florida, Maryland, Massachusetts, Texas, and Virginia, in addition to New Jersey and New York.
On or after June 21, 1984, defendants or their agents delivered to plaintiffs and to the class members a Prospectus offering to sell to potential investors units in Phase I of The Lodge. The units were offered at initial prices ranging from $92,500 to $137,800. The Lodge was to be located at Stratton Mountain, Vermont, which defendants represented to be a winter and summer resort area including cluster houses and cooperatives, single family houses and lots, inns, a ski area, a golf course and other recreational facilities. The complex included 174 resort condominium lodge units, of which Phase I comprised 91 units and were offered for sale to the public by the Prospectus. The packages offered for sale consisted of the units themselves and a percentage of common elements, including a fee simple interest in the land upon which the units were to be situated, coupled with a required management agreement. Pursuant to that management agreement, Stratton as "Lodge Agent" would operate the units sold to investors as lodging accommodations through a contract with its affiliate, Stratton Restaurant and Lodging Corporation. The coupled package of lodge unit and management agreement constituted a security within the meaning of the federal securities laws.
Investors who purchased units deposited with Dowmar, the dealer/manger, a portion of a required 10% downpayment at the time they executed a non-binding unit subscription and management agreement. The terms of the offering provided that:
at any time until investors deposit the downpayment in full, investors may cancel the broker's instructions by a notice in writing without liability to Dealer/Manager or StratCorp, and upon such cancellation Dealer/Manager shall promptly return to the Investor all funds and documents deposited with Dealer/Manager on account of Investor's intended purchase. However, once Investor has deposited the downpayment in full and all 91 units in Phase I have been subscribed, all Investor cancellation rights terminate.
The final installment of the 10% purchase price downpayment was to be made within ten days after notice from the dealer/manager that all 91 units in Phase I were subscribed.
The complaint alleges that between the time of the issuance of the Prospectus and the date upon which investors would be asked to deliver the balance of the 10% downpayment, the defendants issued other written and oral communications to plaintiffs, the class members and other potential investors "with the intent that said individuals rely upon said communications in determining whether or not to purchase units in Phase I of the Lodge." Complaint, ¶ 32. Based upon the statements of the defendants contained in the Prospectus "and in other written and oral communications including those specified below, plaintiffs consummated purchases of units in Phase I." ¶ 33.
The Prospectus represented The Lodge was to be built in two phases, Phase I consisting of 91 units and Phase II consisting of an additional 83 units. The Prospectus further represented that The Lodge would be an integral part of a proposed "integrated and inter-related resort village" called Stratton Mountain Village which was to include 174 non-residential condominium lodge units of The Lodge and a conference center consisting of approximately 16,000 to 18,000 square feet. In addition to paraphrasing those representations, the complaint quotes the following language from the Prospectus:
The Prospectus also contained a summary of a "Market Study with Financial Projections" dated March 23, 1984, prepared for Stratton by the accounting firm of Laventhol & Horwath. The Market Study was based in part on Stratton's representations that it "presently has plans for the further development of the mountain" which included "a conference center facility." The Market Study recited that its purpose was to determine the viability of the proposed Conference Center and Village Lodge Components of the proposed Stratton Mountain Village. The summary of the Market Study recites the conclusion of Laventhol & Horwath that: "On the basis of our study of the New England ski resort conference market, we believe there is sufficient demand to support the development of a conference center facility on Stratton Mountain in Stratton, Vermont." The study also set forth financial projections demonstrating the substantial impact of the conference center upon income and cash flow to investors in The Lodge.
The complaint alleges that the initial offering took place "in or about July of 1984." ¶ 38. Between that time and the time when investors were called upon to complete their 10% down payment (upon notification by Dowmar that all 91 units of Phase I had been sold), there was increasing uncertainty concerning the potential tax benefits of investments in The Lodge and the effect that proposed tax reform legislation might have. These factors...
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