Melhorn v. Amrep Corporation

• Decision Date: 19 April 1974
• Docket Number: Civ. No. 73-264.
• Parties: William MELHORN et al., Plaintiffs, v. AMREP CORPORATION et al., Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

373 F. Supp. 1378

William MELHORN et al., Plaintiffs, v. AMREP CORPORATION et al., Defendants.

Civ. No. 73-264.

United States District Court, M. D. Pennsylvania.

April 19, 1974.

Thompson J. McCullough, Liverant, Senft & Cohen, York, Pa., for plaintiffs.

Harold S. Stern, Roger W. Van Deusen, Metzenbaum, Gaines, Finley & Stern Co., L. P. A., Cleveland, Ohio, David E. Lehman, McNees, Wallace & Nurick, Harrisburg, Pa., for defendants.

MEMORANDUM OPINION

HERMAN, District Judge.

The defendants' motion for summary judgment requires resolution of the narrow issue of equitable estoppel. Plaintiffs' cause of action is founded upon the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. The defendants have moved for summary judgment on the ground that the statute of limitations bars the action. Plaintiffs, both in oral argument and by briefs, do not dispute that the relevant time limitation had indeed passed.¹ Instead, plaintiffs narrowed the issue further by invoking the doctrine of equitable estoppel.

The substance of the plaintiffs' argument is that the defendant corporations engaged in a pattern of conduct intended to induce the plaintiffs to delay instituting legal action until the statute of limitations expired. The defendant AMREP is a New York corporation engaged in the development and sale of real estate. The defendant M.R.C. Realty Corp., is a Pennsylvania corporate subsidiary of AMREP. Rio Rancho Estates, Inc. is also an AMREP subsidiary, selling realty located near Albuquerque, New Mexico.

The defendants, through M.R.C., solicited buyers in the Middle District of Pennsylvania for lots at Rio Rancho. The named plaintiffs are all married couples who entered into a series of lot purchases. In some cases the parties invested substantial sums of money and bound themselves to costly future monthly installments on the lots.²

According to the plaintiffs' affidavits the defendants solicited the realty purchases through free dinners held locally. There the defendants extolled the lucrative investment opportunities of Rio Rancho Estates. The purchasers were encouraged to buy numerous lots which the defendants allegedly promised would rapidly increase in value by as much as 25% within 18 to 24 months. Part of the fraud were the defendants' alleged promises to sell the plaintiffs' newly acquired land for them at future sales dinners held nationwide. The only promises which apparently proved fulfilled were those binding the plaintiffs to ownership of the land. As the months went by and their lots were not sold to other prospective dinner guests, the plaintiffs became disgruntled. They met together and jointly sought satisfaction from the defendants.

The burden of establishing the applicability of the statute of limitations as an affirmative defense falls to the defendants. Here, however, the plaintiffs have not disputed the claim that the appropriate statute has run, but rather have disputed its applicability. The burden is then on the plaintiffs to show why the doctrine of equitable estoppel should be invoked. Burke v. Gateway Clipper, Inc., 441 F.2d 946, 948 (3d Cir. 1971).

Plaintiffs have urged upon the court the argument that equitable estoppel to bar invoking the statute of limitations is a factual question for the jury. We disagree. There is some implied support for such an analysis, Longo v. Pittsburgh and Lake Erie R. R. Co., 355 F.2d 443 (3d Cir. 1966). However, this circuit has more recently stated:

"The nature of the representations and of the conduct of the defendant are of crucial significance in determining if the plaintiff is to be allowed to invoke this equitable principle of estoppel. This is a question of law to be determined by the court. In a motion for summary judgment the burden is on the plaintiff to present facts . . . which if true would require a court as a matter of law to estop the defendant from asserting the statute of limitations." Burke v. Gateway Clipper, Inc., 441 F.2d, at 948-949 (3d Cir. 1971). See also, George v. Hillman Trans. Co., 340 F.Supp. 296 (W. D.Pa.1972).

Further, the standards which control the application of equitable estoppel are federal. Scarborough v. Atlantic Coast Line Rwy., 190 F.2d 935 (4th Cir. 1951), cited with approval in Glus v. Brooklyn Eastern Terminal, 359 U.S. 231, 235, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959).

The more complex problem is what standards the court must use to measure the defendants' conduct. We begin with the maxim of universal applicability in cases of equitable estoppel: "no man may take advantage of his own wrong." Glus, supra, at 232, 79 S.Ct. at 762. The Glus decision involved a federally created cause of action in which the defendant affirmatively misled the plaintiff as to length of the statute of limitations. Although no such allegation exists in the instant case, Glus provides some helpful guidelines. The Court required that the plaintiffs justifiably relied in good faith on the defendant's conduct which caused the plaintiffs to be "lulled into a sense of false security," citing Schroeder v. Young, 161 U.S. 334, 16 S.Ct. 512, 40 L.Ed. 721 (1896).

This circuit's recent decision in Burke, supra, concluded the plaintiff must establish that:

"He was misled by defendant or its agents so that he delayed suit because of (a) an affirmative statement that the statutory period to bring the action was longer than it actually was, or (b) promises to make a better settlement of the claim if plaintiff did not bring suit or (c) comparable representations and conduct." Burke, supra, 441 F.2d at 949.

We find no allegation that the defendants affirmatively duped the plaintiffs as to any relevant statutes of limitations. Likewise, there is no allegation that the defendants offered a settlement or compromise in exchange for plaintiffs' forebearance to bring suit. Indeed, there is no indication that a formal law suit was ever discussed between the parties. Only the third category in Burke appears to have any application to the instant case. The "comparable representations and conduct" by the defendants did involve informal negotiations, although never in exchange for the plaintiffs' forebearance to sue.

This circuit has apparently never defined the type of conduct sufficient to invoke equitable estoppel where there exists neither formal misrepresentation regarding the statute of limitations nor where the plaintiff was expressly induced to withhold suit on the promise of favorable settlement terms.

In view of Burke, supra, this court concludes that the defendants' "conduct or representations," taken as a whole, must "lull" the plaintiff into not timely pursuing his legal rights. Glus, supra; Scarborough, supra. See generally, Conradi v. Boone, 316 F.Supp. 918 (S.D.Iowa 1970). It follows that there cannot be estoppel by inference. Mescall v. W. T. Grant Co., 133 F.2d 209 (7th Cir. 1943). The plaintiff must clearly rely upon the defendant's conduct or representations in forebearing to sue. Robbins v. Esso Shipping Co., 190 F. Supp. 880 (S.D.N.Y.1960); DeLuca v. Atlantic Refining Co., 176 F.2d 421 (2d Cir. 1949); Carr-Consolidated Biscuit Co. v. Moore, 125 F.Supp. 423 (M.D.Pa. 1954). Sitting as a court of equity, it is likewise necessary that the plaintiff's reliance be in good faith. Bergeron v. Mansour, 152 F.2d 27 (1st Cir. 1945); and justifiable. Benson v. Milwaukee Road, 353 F.Supp. 889 (E.D.Wis.1973). Moreover, the plaintiff must be reasonably diligent in seeking out all relevant facts. Hoeflich v. William S. Merrell Co., 288 F.Supp. 659 (E.D.Pa.1968); Bealle v. Nyden's, Inc., 245 F.Supp. 86 (D.Conn.1965).

There appears to be no general requirement that the defendant intend the representations or conduct to induce delay, nor need they constitute actual fraud. Benson, supra; Tillery v. Southern Rwy. Co., 348 F.Supp. 9 (E.D.Tenn. 1971); Moore, supra. It is also widely held that mere negotiations, without more, do not amount to conduct sufficient to invoke equitable estoppel. Sam Finley, Inc. v. Pilcher, Livingston & Wallace, Inc., 314 F.Supp. 654 (S.D.Ga. 1970); Howard University v. Cassell, 75 U.S.App.D.C. 75, 126 F.2d 6 (1941), cert. denied, 316 U.S. 675, 62 S.Ct. 1046, 86 L.Ed. 1749 (1942). In sum, we find persuasive the language in McWaters and Bartlett v. United States for the use and benefit of Wilson, 272 F.2d 291, 296 (10th Cir. 1959), cited with approval in United States v. Reliance Ins. Co., 436 F.2d 1366, 1370 (10th Cir. 1971):

"`Estoppel arises where one, by his conduct, lulls another into a false security, and into a position he would not take only because of such conduct. Estoppel, in the event of a disputed claim, arises where one party by his words, acts, and conduct led the other to believe that it would acknowledge and pay the claim, if, after investigation, the claim were found to be just, but when, after the time for suit had passed, breaks off negotiations and denies liability and refuses to pay. To constitute estoppel there must be deception relied upon by the other to his detriment. . . .'"

The plaintiffs' affidavits and version of the case clearly establish that they were at all times acting in good faith and that they made reasonable efforts to protect their investments, albeit without the much-needed assistance of counsel.

However, the plaintiffs' affidavits fail to even hint at an incident or pattern of conduct...