Rolo v. General Development Corp., s. 91-5451
| Citation | 949 F.2d 695 |
| Decision Date | 27 November 1991 |
| Docket Number | Nos. 91-5451,91-5458,s. 91-5451 |
| Parties | Jose ROLO, Rosa Rolo, Dr. William Tenerelli, Appellants, v. GENERAL DEVELOPMENT CORPORATION, GDV Financial, Inc., David F. Brown, Robert F. Ehrling, the Home Insurance Company, the Federal Mortgage Loan Association, the Federal Home Loan Mortgage Association, Carteret Mortgage Corp., the Citizens and Southern National Bank, Southeast Bank, N.A., Citizens and Southern Trust Company (Florida) National Association, Ambase Corporation, Chase Federal Savings & Loan Association, Secor National Bank, Capital Bank, John Does, 1-15, City Investing Company Liquidating Trust, Carteret Bancorp, Inc., Carteret Savings Bank, FA, George T. Scharffenberger, Marshall Manley, Edwin I. Hatch, Eben W. Pyne, Reubin O'D. Askew, Howard L. Clark, Jr., Charles J. Simons, Peter R. Brinckerhoff, Cravath, Swaine, David G. Ormsby, Painewebber Incorporated, Merrill, Lynch, Pierce, Fenner & Smith, Incorporated, the Prudential Insurance Company of America, National Bank of Canada, Citicorp Real Estate, Inc., First National Bank of Boston, Federal National Mortgage Association, Chase Federal Bank, FSB, Secor Bank, FSB, Oxford First Corp., the Oxford Finance Companies, Inc., Stanchart Business Credit, Inc., Harbor Federal Savings and Loan Association, Greyhound Financial Corporation, Lloyds Bank PLC, John Does 1-10. Jose ROLO, Rosa Rolo, Dr. William Tenerelli, Petitioners, v. GENERAL DEVELOPMENT CORPORATION, GDV Financial, Inc., David F. Brown, Robert F. Ehrling, the Home Insurance Company, the Federal Mortgage Loan Association, the Federal Home Loan Mortgage Association, Carteret Mortgage Corp., the Citizens and Southern National Bank, Southeast Bank, N.A., Citizens and Southern Trust Company (Florida) National Association, Ambase Corporation, Chase Federal Savings & Loan Association, Secor National Bank, Capital Bank, John Does, 1-15, Respondents. Honorable Harold A. Ackerman, United States District Judge, Nominal Respondent. |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Herbert I. Deutsch, Roy A. Heimlich (argued), Alfred N. Metz, Deutsch and Frey, New York City, Glenn P. Callahan, Callahan, Delany & O'Brien, Cherry Hill, N.J., for Jose Rolo, Rosa Rolo and William Tenerelli.
Paul M. Dodyk (argued), Cravath, Swaine & Moore, New York City, Matthew P. Boylan, Lowenstein, Sandler, Kohl, Fisher & Boylan, Roseland, N.J., for Ambase Corp. and City Investing Co. Liquidating Trust.
Before STAPLETON, GREENBERG, and ALDISERT, Circuit Judges.
Appellants, Jose and Rosa Rolo and Dr. William Tenerelli ("the Rolos"), seek relief from two orders of the district court. The first order stayed the Rolos's class action damage suit pending bankruptcy and criminal proceedings which involve some of the defendants. The Rolos seek review of this order by direct appeal pursuant to 28 U.S.C. § 1291 or, alternatively, by a petition for a writ of mandamus pursuant to 28 U.S.C. § 1651. The second order, of which the Rolos seek review by direct appeal, stayed the Rolos's application for a preliminary injunction to enjoin two of the defendants from liquidating and distributing their assets in an alleged effort to render themselves judgment proof. The appellees have moved to dismiss the appeal on the ground that this court lacks jurisdiction.
We conclude that this court does not have appellate jurisdiction over the first order and that that order does not constitute the kind of extraordinary action on the part of the district court that would warrant issuance of a writ of mandamus. We hold further that because the district court's second order effectively denied the Rolos's application for a preliminary injunction, that order is appealable under 28 U.S.C. § 1292(a)(1). Finally, we conclude that the district court abused its discretion in refusing to reach the merits of the Rolos's preliminary injunction application. Accordingly, we will vacate the district court's second order and remand this case so that the district court can consider the merits of that application.
The underlying dispute in this case grows out of the affairs of the General Development Corporation ("GDC") and GDV Financial ("GDV"). The present case is but one of a series of related cases involving these two companies.
In August 1989, the Rolos filed an action in the United States District Court for the District of New Jersey, alleging that GDC and GDV had engaged in a fraudulent marketing scheme to sell certain real estate lots in violation of several federal civil and criminal statutes. See Rolo v. General Development Corp., Civ. Action No. 89-3373 (D.N.J.1989) ("Rolo I "). In April 1990, GDC and GDV filed bankruptcy petitions in the United States Bankruptcy Court for the Southern District of Florida. Shortly thereafter, the district court administratively terminated Rolo I.
The Rolos filed the present action ("Rolo II ") in November 1990. As in Rolo I, the Rolos allege in this suit that the defendants participated in a fraudulent marketing scheme in violation of several federal criminal and civil statutes. 1 Rolo II differs from Rolo I, however, in three respects. First, unlike Rolo I, Rolo II is a class action brought on behalf of the North Port Out-of-State Lot Owners Association ("NPA"), a group comprised of more than 5,000 individuals who purchased property from GDC and its agents. Second, in addition to GDC and GDV, Rolo II 's defendants include two former GDC executives, David Brown and Robert Ehrling; two companies related to GDC, Ambase Corporation ("Ambase") and City Investment Company Liquidating Trust ("City Investment"); and various financial lending institutions which purchased mortgages from GDV on the secondary market. The Rolos contend that these additional defendants knew or should have known of the fraudulent schemes perpetrated by GDC and failed to take adequate steps to expose or end them. Third, although the Rolos listed GDC and GDV as defendants in this suit, they did not serve either company with a copy of the summons or complaint. The Rolos subsequently asserted before the district court their intention "to delete all references to GDC and GDV as defendants." Rolo, et al. v. General Dev. Corp., Civ. Action No. 90-4420, slip op. at 15 (D.N.J. filed April 26, 1990) (emphasis in the original). Accordingly, like the district court, we will treat neither GDC nor GDV as defendants in this action.
As noted, GDC and GDV filed bankruptcy petitions shortly after the initiation of Rolo I and prior to Rolo II. Approximately two weeks after the Rolos filed this class action they filed with the bankruptcy court a proof of claim on behalf of all NPA members. The Rolos stated as the bases of their claim the allegations set forth in the Rolo II complaint, which they attached to their proof of claim. They further estimated that the combined claims of NPA members exceeded $400,000,000.
At a subsequent hearing before the district court, the Rolos informed the court of their intention "to pursue an adversarial proceeding in Bankruptcy Court during which they [would] seek to reorder the priority of claim distribution." Slip op. at 15. The district court also learned that "at the appropriate time GDC intend[ed] to object to the [Rolos's] proof of claim on both procedural and substantive grounds." Id. at 15-16. At the time of the district court's decision, neither proceeding had occurred.
In March 1990, a grand jury in the United States District Court for the Southern District of Florida returned an indictment against GDC, GDV, and GDC executives, David Brown and Robert Ehrling, for violations of 18 U.S.C. § 1341 (1988) and related federal statutes. The indictment alleged that the defendants had engaged in a fraudulent scheme to sell houses to unsuspecting consumers at prices well in excess of their fair market value. Pursuant to a plea agreement reached between the government, GDC, and GDV, GDC pleaded guilty to one count of conspiracy to commit mail fraud in return for the dismissal of the remaining counts against GDC and GDV.
As an additional condition of the plea arrangement, GDC agreed to enter into a consent decree which requires GDC to pay up to $160,000,000 in restitution to customers who purchased GDC homes between January 1, 1983 and January 1, 1990. The restitution program is to be "implemented through and, if necessary, limited by the bankruptcy reorganization plan." Slip op. at 17. Its purpose is to "provide qualified GDC home buyers with the difference between the purchase price of their house and its fair market value at the time it was acquired." Id. A consultant for the bankruptcy court concluded, however, that the program's beneficiaries could expect to recover no more than 37 percent of this figure. Id.
Pursuant to the consent decree, a purchaser's participation in the restitution program bars her from bringing any federal or state claim she may have against GDC, its parents, subsidiaries, or affiliates. Additionally, participants waive any right they may have to sue any of the present or former officers, directors, agents, or employees of these entities, including David Brown and Robert Ehrling. Participation in the program, however, does not waive or extinguish any claim a purchaser may have against a financial institution which acquired the homeowner's GDV mortgage. Nor does it prejudice any claim a buyer may have under a director or officer indemnification policy.
One month after GDC and GDV entered their plea agreement, the grand jury returned a superseding indictment against Brown and Ehrling and two additional GDC officers. Like the original indictment, this one charged the defendants with engaging in a fraudulent scheme to sell homes at prices well above their fair market value in violation...
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