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DAVIS v. RIO RANCHO ESTATES

July 28, 1975

OLIVE DAVIS, Plaintiff,
v.
RIO RANCHO ESTATES, INC., AMREP CORP., IRVING W. BLUM, HOWARD W. FRIEDMAN, CHESTER CARITY, HENRY L. HOFFMAN, MITCHELL S. ROBERTS, JOHN E. SOMMERHALDER, DANIEL FRIEDMAN and EDWARD B. WINSLOW, Defendants



The opinion of the court was delivered by: BRIEANT

MEMORANDUM AND ORDER

 Brieant, D. J.

 Plaintiff, suing in her own right, and in behalf of a purported class consisting of others similarly situated, *fn1" purchased a 1/2 acre parcel of unimproved land in a residential subdivision known as Rio Rancho Estates near Albuquerque, New Mexico. Defendant Rio Rancho Estates, Inc. ("Rio Rancho"), a division of defendant Amrep Corporation ("Amrep") was the seller, pursuant to an executory instalment sale agreement. The individual defendants are officers or directors of Amrep.

 The Purchase Agreement was signed by plaintiff on November 10, 1968 and accepted by Rio Rancho. The purchase price of a specified parcel, $1,995, was to be paid over a five-year period in instalments of $26 per month, including interest. Plaintiff continues to make these monthly payments, and the agreement provides title will be conveyed to her when the purchase price and interest are paid in full.

 The complaint alleges that the advertising and promotional materials, and offering statement Rio Rancho and Amrep issued in July 1968, upon which plaintiff relied, contained fraudulent material misrepresentations and omissions which induced plaintiff to purchase the property at an artificially inflated price. Contrary to defendant's representations, plaintiff claims (Complaint, P8):

 
"The property is virtually worthless and useless, is desert land, is unreachable by car and is without power, water or other community developments and . . . the pictures of the property were false in that the grass was painted green and pine cones were hung on the trees for purposes of making the property look more attractive."

 Plaintiff alleges defendants' conduct violated the antifraud provisions of the Securities Exchange Act of 1934, as amended [15 U.S.C. § 78j] and Rule 10b-5 promulgated thereunder, and the Interstate Land Sales Full Disclosure Act [15 U.S.C. § 1703(a)] ("Land Sales Act") and in addition, constituted common law fraud.

 On July 11, 1975, this Court heard defendants' motion to dismiss the complaint pursuant to Rule 12(b), F.R.Civ.P., on the grounds that the complaint fails to state a claim upon which relief can be granted and that the Court lacks subject matter jurisdiction. Defendants urge that the securities law claim must be dismissed because the lots they sell are not "securities" within the meaning of the Securities Exchange Act, and that the Land Sales Act claim must be dismissed because the statute was not in effect at the time of the sale to plaintiff. Since there is no federal cause of action, defendants urge that the exercise of pendent jurisdiction over the state claim would be improper, and it also must be dismissed.

 The question presented by this challenge to the sufficiency of the complaint is whether it fails to state a claim upon which relief may be granted, and not whether there is a lack of subject matter jurisdiction. Calhoon v. Harvey, 379 U.S. 134, fn. 9, p. 137, 13 L. Ed. 2d 190, 85 S. Ct. 292 (1964). This Court has subject matter jurisdiction pursuant to 15 U.S.C. § 78aa and 15 U.S.C. § 1709. The complaint adequately alleges subject matter jurisdiction, and [ Bell v. Hood, 327 U.S. 678, 682, 90 L. Ed. 939, 66 S. Ct. 773 (1946)]:

 
"The court must assume jurisdiction to decide whether the allegations state a cause of action on which the court can grant relief . . . .
 
* * *
 
If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction."

 I. The Land Sales Act Claim

 As noted, plaintiff signed the Purchase Agreement on November 10, 1968. The Land Sales Act was enacted on August 1, 1968, but Pub.L. 90-448 provides that:

 
"This title shall take effect upon the expiration of two hundred and seventy days after the ...

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