Lintz v. Carey Manor Ltd.

• Decision Date: 13 May 1985
• Docket Number: 83-0980-R,83-0991-R,83-0082-R,83-0996-R.,83-0080-R,83-0081-R,83-0993-R,Civ. A. No. 83-0079-R
• Citation: 613 F. Supp. 543
• Parties: David I. LINTZ, M.D., et al., Plaintiffs, v. CAREY MANOR LIMITED, et al., Defendants, and Dr. John FARRELL, et al., Plaintiffs, v. CAREY MANOR LIMITED, et al., Defendants. Morris SHAFMAN, et al., Plaintiffs, v. MARK PARTNERS 1980-A, et al., Defendants, and Vicki JAY, et al., Plaintiffs, v. MARK PARTNERS 1980-A, et al., Defendants. Myron BRIN, et al., Plaintiffs, v. TIMBERIDGE ASSOCIATES LIMITED, et al., Defendants, and Mr. and Mrs. Guy DEMASCOLO, et al., Plaintiffs, v. TIMBERIDGE ASSOCIATES LIMITED, et al., Defendants. Anthony J. MONTICELLO, Plaintiff, v. GULF PARTNERS LIMITED, et al., Defendants, and Klaus LAMPMANN, et al., Plaintiffs, v. GULF PARTNERS LIMITED, et al., Defendants.
• Court: U.S. District Court — Western District of Virginia

613 F. Supp. 543

David I. LINTZ, M.D., et al., Plaintiffs, v.CAREY MANOR LIMITED, et al., Defendants, andDr. John FARRELL, et al., Plaintiffs, v.CAREY MANOR LIMITED, et al., Defendants.

Morris SHAFMAN, et al., Plaintiffs, v.MARK PARTNERS 1980-A, et al., Defendants, andVicki JAY, et al., Plaintiffs, v.MARK PARTNERS 1980-A, et al., Defendants.

Myron BRIN, et al., Plaintiffs, v.TIMBERIDGE ASSOCIATES LIMITED, et al., Defendants, andMr. and Mrs. Guy DEMASCOLO, et al., Plaintiffs, v.TIMBERIDGE ASSOCIATES LIMITED, et al., Defendants.

Anthony J. MONTICELLO, Plaintiff, v.GULF PARTNERS LIMITED, et al., Defendants, andKlaus LAMPMANN, et al., Plaintiffs, v.GULF PARTNERS LIMITED, et al., Defendants.

Civ. A. Nos. 83-0079-R, 83-0993-R; 83-0080-R, 83-0991-R; 83-0081-R, 83-0980-R; 83-0082-R, 83-0996-R.

United States District Court, W.D. Virginia, Roanoke Division.

May 13, 1985.

Douglas W. Davis, Jack E. McClard, Gregory G. Little and Ann T. Burks, Hunton & Williams, Richmond, Va., for plaintiffs.

Daniel S. Brown, Brian R. Jones, Woods, Rogers & Hazelgrove, Roanoke, Va., for Gregory Harrell and Graham Larmer.

William R. Rakes, Karen W. McCutcheon, W. David Paxton, Gentry, Locke, Rakes & Moore, Roanoke, Va., for W.F. Mason, Jr.

AMENDED MEMORANDUM OPINION

KISER, District Judge.

Defendants Harrell and Larmer, individually and as partners in the firm of Faine, Harrell, Larmer & Co.(the "Accountants") and Defendant Mason have moved for partial summary judgment on those allegations in the amended complaints premised on the local securities laws (Blue Sky laws) of Virginia, New Jersey and Florida.The Defendants set forth numerous grounds in support of their motion, but their primary claim is that under traditional conflicts of law principles, the Blue Sky laws of New Jersey or Florida should apply to this case instead of the Virginia Securities Act.The Defendants go on to analyze the New Jersey and Florida Acts, and argue why summary judgment is appropriate under those statutes.Because of this Court's resolution of the conflicts issue, it will not be necessary to examine Defendants' claims under the New Jersey and Florida laws.

I.Factual Background

The Mark Companies of America, Inc.("Mark Companies") is an investment development company specializing in the development of real estate properties utilizing HUD insured mortgages.Mark Companies, through its numerous affiliates, offered and sold limited partnership interests in apartment projects that were to be financed by HUD insured mortgages.Units in each partnership were offered to potential investors via a lengthy private placement memorandum ("PPM").The consideration paid for each partnership unit in each limited partnership consisted of a cash payment and the signing of a series of four annual interest-bearing notes.The Plaintiffs in these four consolidated cases invested as limited partners in the following partnerships.

Mark Partners1980-A ("Mark Partners") is a Virginia limited partnership formed to acquire and hold limited partnership interests in two local limited partnerships: (1)Bridlewood, Ltd., a South Carolina limited partnership, formed to develop, own, and operate the Bridlewood apartment complex, which was to be built in Mount Pleasant, South Carolina; and (2)Cinnamon Ridge, Ltd., a North Carolina limited partnership formed to develop, own and operate the Cinnamon Ridge apartment complex, which was to be built in Asheville, North Carolina.Mark Partners closed on December 12, 1980.By letter dated December 29, 1981, the investors in Mark Partners were notified that Mark Partners had recently acquired interests in Mark Real Estate Fund Limited III ("Fund III") and IV ("Fund IV") and Cordoba Management Limited III ("Cordoba III") and IV ("Cordoba IV").

Gulf Partners, Ltd.("Gulf"), is a Mississippi limited partnership formed to develop, own and operate the Whispering Oaks apartment complex, which was to be built in Biloxi, Mississippi.Gulf closed on December 22, 1980.By letter dated December 22, and 29, 1981, investors in Gulf were notified that Gulf had purchased limited partnership interests in Mark Real Estate Fund V ("Fund V") and Cordoba Management Limited V ("Cordoba V").

Timberidge Associates, Ltd.("Timberidge") is a West Virginia limited partnership formed to develop, own and operate the Timberidge II apartment complex, which was to be built in Beckley, West Virginia.Timberidge closed on November 30, 1981.By letter dated January 18, 1982, investors in Timberidge were notified that Timberidge had purchased 26 units of interest in each of two other partnerships, Mark Real Estate Fund Limited VIII ("Fund VIII") and Cordoba Management Limited VIII ("Cordoba VIII").

Carey Manor Limited("Carey Manor") is a Virginia limited partnership formed to construct and own the Carey Manor apartment complex, which was to be built in Indianapolis, Indiana.Colonial Management Limited("Colonial") is a Virginia limited partnership purportedly formed to provide all services necessary to the development, financing and operation of the Carey Manor apartment complex.Carey Manor and Colonial together closed in the Fall of 1981.

It was represented to all investors that the limited partnerships would offer immediate tax shelter benefits, and eventually the projects would appreciate in value and could be sold for a profit.Affiliates of the Mark Companies were to be involved in the development, construction and management of the projects.These affiliates were paid substantial fees from the proceeds of the syndication.Mark Companies, the general partners, and the affiliates were wholly-owned by Joseph Griggs, III, and Larry J. Forth.

The Mark Partners, Gulf and Timberidge PPMs identified Faine, Harrell, Larmer & Co. as the accountants for these partnerships, and the Carey Manor/Colonial PPM identified Faine, Larmer & Co. as the accountants for the partnership.Each PPM represented that the firm had reviewed the financial projections contained in the PPMs and would prepare all audited statements for the partnership and all construction cost certifications for HUD.At all relevant times, DefendantsGraham C. Larmer and Gregory V. Harrell were general partners of Faine, Harrell, Larmer & Co.At all relevant times, Larmer was a general partner of Faine, Larmer & Co. Hereinafter the two accounting firms will be referred to as "the Accountants".¹

As of January, 1983, construction had not begun on any of the projects.The project sites had not been acquired in Timberidge and Carey Manor, and in Mark Partners one of the two sites had not been acquired.Moreover, the application for HUD insurance on each of the projects in question had expired.Certain Plaintiffs, pursuant to rescission provisions in the applicable partnership agreements and PPMs, requested the repurchase of their interests in the limited partnerships.These requests were ignored.

Plaintiffs initially filed suit on February 15, 1983.In their complaints, as subsequently amended, the Plaintiffs alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Act("RICO"), the Virginia Securities Act, the New Jersey Real Estate Syndication Offering Law and Uniform Securities Law of New Jersey, the Florida Securities Act,Pennsylvania Securities Act of 1972, Virginia common law, conspiracy, aiding and abetting and professional malpractice.

On January 5, 1984, this Court consolidated eight of the original cases into four pairs, each involving a single limited partnership.Other new cases involving different limited partnerships have been consolidated for discovery purposes only.A total of eighteen lawsuits are currently pending in this Court.²The four consolidated cases were scheduled to be tried, alternatively, on March 25, 1985.All claims against Defendant Griggs have been severed because he has filed under Chapter 7 of the Bankruptcy Act.Default judgments have been entered against certain corporate Defendants, and others have not been active in the suit.

The only remaining active Defendants are the Accountants and W.F. Mason, who served as the attorney to the Mark Companies.On February 20, 1985, the Accountants filed a Motion for Partial Summary Judgment on those counts in the eight consolidated actions which allege liability under the state security laws ("Blue Sky" laws) of Virginia, New Jersey and Florida.Mason joined in this motion.³

II.Issue Presented

In their supporting Brief, the Accountants explained that the purpose behind their motion was to eliminate attorneys' fees as a potential item of damages.As of March 25, 1985, the principle amount of recovery sought by the Plaintiffs in the first four cases was $1,179,200.They also sought $255,857 in statutory interest (at 6%), $72,299 in expenses and $1,251,833 in attorneys' fees.

The various federal claims asserted by the Plaintiffs do not allow a recovery of attorneys' fees.⁴Interest, attorneys' fees and expenses are sought under the Virginia Securities Act,Va.Code § 13.1-522(a), which allows a purchaser of securities sold in violation of the Act to recover the "consideration paid for such security, together with interest thereon at the rate of 6% per annum, costs, and reasonable attorneys' fees ..."⁵

The Defendants allege that the Plaintiffs' claim for attorneys' fees is the major barrier to settlement of these suits.The Plaintiffs dispute this claim, and contend that reasonable settlement proposals have been made by the Plaintiffs at each stage of the litigation.Regardless of the past history of this case, it is obvious that the potential exposure of the Defendants is substantially higher when the claim for attorneys' fees is considered.

The Virginia Securities Act is patterned after an early version of the Uniform Securities Act.The civil liability provisions of Va.Code § 13.1-522 provide primary liability to those who "sell" a...