Great Western Cities, Inc. v. Binstein

• Decision Date: 27 August 1979
• Docket Number: No. 78 C 5044.,78 C 5044.
• Citation: 476 F. Supp. 827
• Parties: GREAT WESTERN CITIES, INC., a California Corporation, Plaintiff, v. Mark P. BINSTEIN, Colorado City Lot Owners and Taxpayers Association, and Robert Pfeil, Defendants.
• Court: U.S. District Court — Northern District of Illinois

476 F. Supp. 827

GREAT WESTERN CITIES, INC., a California Corporation, Plaintiff, v. Mark P. BINSTEIN, Colorado City Lot Owners and Taxpayers Association, and Robert Pfeil, Defendants.

No. 78 C 5044.

United States District Court, N. D. Illinois, E. D.

August 27, 1979.

COPYRIGHT MATERIAL OMITTED

Samuel Skinner and Charles W. Douglas, Sidley & Austin, Chicago, Ill., Cary B. Lerman and Daniel P. Garcia, Munger, Tolles & Rickershauser, Los Angeles, Cal., for plaintiff.

Mark P. Binstein, pro se.

Stephen G. Seliger, Chicago, Ill., for defendants.

ORDER

BUA, District Judge.

This is an action by Great Western Cities, Inc., a California land development corporation, seeking to enjoin allegedly illegal solicitation of litigation against GWC and malicious interference with its contract rights. Before this court are plaintiff's motion for preliminary injunction and defendants' motion to be relieved of the effects of Local Civil Rule 22. This rule bears upon the solicitation of litigants in class action suits.

The remaining defendants in this action are Robert Pfeil and the Colorado City Lot Owners and Taxpayers Association, Inc. This Association is an Illinois not-for-profit corporation composed entirely of allegedly defrauded landowners. Its purpose is to inform persons who purchased land in a GWC development called Colorado City that they are the victims of an alleged interstate land fraud, to advise these owners of the potential for instituting a recovery action against GWC, and to seek membership and membership fees to enable the Association to pursue a recovery against GWC. Robert Pfeil was instrumental in the formation of the association.

Another defendant, Mark P. Binstein, has been removed from this litigation via a consent decree. Plaintiff alleges in its complaint that Mr. Binstein caused the Association to be formed and exerts dominion and control over the actions of the Association. Plaintiff further alleges that the actions of Mr. Binstein in this case are merely part of a long career of wrongful fomentation and solicitation of lawsuits against real estate developers. It is not necessary to consider the merits of these allegations against Mr. Binstein for this court finds that, whatever their prior relationship, the Association is not at the present time dominated and controlled by him. This court is convinced that subsequent to the reorganization of the Association pursuant to court order, (Final Judgment and Consent Decree With Respect to Certain Defendants, People v. Colorado City Lot Owners and Taxpayers Assoc., Inc., No. 78 CH 8291 Cook Cty, Cir. Ct. January 22, 1979), the Association is a bona fide and independent organization, fully dominated and controlled by its members and duly elected officials only.

Mr. Robert Pfeil specifically agreed in that order of the Circuit Court to cease from engaging in the management, operation, or control of the Association. Therefore, it appears that the actions which GWC presently seeks to enjoin are solely the actions of the Association which is composed entirely of individuals who allegedly have been defrauded by GWC.

I. FACTUAL BACKGROUND

In 1967, the plaintiff, Great Western Cities, Inc., acquired 9,600 acres of land in Southern Colorado, which it then subdivided and marketed under the name of "Colorado City" through several wholly-owned subsidiary corporations. These lots were widely advertised and represented to purchasers as prime investments in a fully developed community with a projected population of 50,000 people. Lot purchasers were further led to believe that this community would have sufficient water, sewage, roads and utility service, and that since the lots were appreciating in market value yearly, their resale value would continue to increase.

Approximately 23,000 such lots were purchased from 1967 to the present by people residing in many states throughout the country. Prices for the lots ranged from twenty-five hundred dollars ($2,500.00) to twenty-two thousand dollars ($22,000.00).

Purchasers of these lots claim that instead of an excellent investment in a populous city with roads, water, sewage, and utilities, they wound up with worthless, arid wasteland. There is much evidence to support their claim. At present, there are only approximately 1,200 residents of Colorado City, and property there is not increasing in value but is in fact worth less than its original selling price.

Believing they were defrauded by GWC, many thousands of these lot purchasers sought relief in a variety of ways. One potential avenue of recovery is through the efforts of the Colorado City Lot Owners and Taxpayers Association, Inc.

The purpose of the Colorado City Lot Owners and Taxpayers Association is to enlist the cooperation of many lot owners, particularly those in the Chicago area, in bringing a joint lawsuit against the developers of Colorado City. The genesis of the Association occurred when two Chicago area lot purchasers, James Goebel and Myron Lucyshyn, made contact with Mark Binstein, a land fraud investigator at the suggestion of Robert Pfeil.

Mr. Pfeil, who had similar problems with a land development only thirty miles from Colorado City, knew of the work of Mark Binstein through his involvement in the Pueblo West Association. Pueblo West was an earlier Association organized by Mr. Binstein to solicit individuals to sue a different land development company. The United States District Court for the Southern District of Indiana has enjoined Mark Binstein from further solicitation there and ordered him to pay $43,000 for lot owners' attorneys' fees after a finding that he misused and misappropriated over $190,000 of funds of the Pueblo West Association. Mr. Binstein has also agreed in a Wisconsin court proceeding to refrain from certain solicitation activities in connection with Pueblo West. Mr. Pfeil testified in behalf of Mark Binstein in Indiana and tried to help him raise money to pay that fine.

Everyone involved in the formation of the Colorado City Association, Goebel, Luchshyn, Binstein, Pfeil, and Attorney Gerald Flynn, attempted to avoid the legal pitfalls of the Pueblo West Association. Defendants contend that Goebel and Lucyshyn organized the Association and that Binstein was merely an employee hired to investigate the Colorado City situation and give reports at five membership meetings which took place at a Holiday Inn near Chicago.

Plaintiff contends that Goebel and Lucyshyn were mere fronts who did not contribute or play an active role in establishing the Association. It alleges that Pfeil and Binstein created, controlled, dominated and financed the Association and that its independence was a sham. It cites a $30,000 financial contribution of Pfeil and Binstein and a wide range of personal services allegedly performed by Binstein in forming the Association. It claims that Binstein made the initial investigation of Colorado City, formulated the membership plan, drafted notices of meetings, membership and voting forms, and a membership fee solicitation letter, met with attorneys who might represent the lot owners against GWC, and rented rooms at the Holiday Inn for membership meetings.

Mark Binstein spoke to over 1,000 Colorado City lot owners at these Holiday Inn meetings. He presented a research report on Colorado City, told them they had been defrauded by GWC, and urged them to join in a lawsuit against GWC through membership in the Association. Membership in the Association cost a minimum of $400 and was limited to people who had not previously settled with GWC and were therefore eligible to sue. Membership fees would be used to initiate lawsuits against GWC for fraud. It appears that presently, approximately 1,200 Chicago area residents who have joined the Association intend to bring an action against GWC in this district court.

These activities caused the Illinois Attorney General to file an action against the Association and its organizers at about the same time as the present action was filed by GWC. People v. Colorado City Lot Owners and Taxpayers Assoc., Inc., No. 78 CH 8291 Cook Cty. Cir. Ct.. The Attorney General sought to investigate the conduct of the Association in order to protect the interests of Illinois consumers. On January 22, 1979, a consent decree was entered and approved by the Circuit Court in the state action. It set forth the terms and provisions by which the Association may complete its membership, retain attorneys, accountants and others, and file suit on behalf of participating Colorado City lot owners. This decree contains certain lot owner safeguards such as the requirement to make full disclosure and submit monthly reports to the Illinois Attorney General containing all receipts and disbursements.

This action in federal district court was brought on December 19, 1978, by GWC to enjoin defendants Mark Binstein, Robert Pfeil and the Association from soliciting litigation against GWC and from interfering with the business and contractual relationships between GWC and its customers. This court issued temporary restraining orders in favor of GWC against all defendants. The TRO against the Association was vacated in January of 1979, but in May an order was entered which remains in effect at the present time. That order restrains the Association from collecting fees or soliciting Colorado City lot purchasers who are not presently members of the Association.

A final judgment and consent decree with respect to defendant Mark Binstein was entered and approved by this court on March 9, 1979. Essentially, that decree enjoins Mr. Binstein from interfering with the business and contractual relationships between GWC and lot purchasers, from soliciting litigation against GWC, and from handling any money received from lot purchasers to join in legal proceedings against GWC. There are also provisions by which GWC and this court can monitor Binstein's compliance with the terms of the consent decree.

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