The opinion of the court was delivered by: Haight, District Judge.
MEMORANDUM OPINION AND ORDER
This purported class action alleges federal securities claims
against corporations and individuals involved in the public
sale of interests in a lodge and resort in Stratton, Vermont.
Plaintiffs also assert related state statutory and common law
claims. Certain defendants now move to dismiss the complaint
under Rule 12(b)(6), Fed.R.Civ.P.
The complaint alleges the following:
Plaintiffs Paul Finkel and Paul Magnuson are
residents of New Jersey. Plaintiffs Glenn Yarnis
and Harvey Watkins are residents of New York. They
each purchased units in Phase I at the Stratton
Mountain Village Lodge ("The Lodge"). Defendant
The Stratton Corporation ("Stratton" or
"StratCorp") is a Vermont corporation maintaining
its principal office in Stratton, Vermont.
Defendant Moore & Munger, Inc. is a Delaware
corporation with its principal office in Stamford,
Connecticut and at the pertinent times was the
The purported class consists of purchasers of 91 units of The
Lodge. The class is alleged to include more than 70 individuals
who reside in at least nine states and at least one foreign
country. Judging by the alleged state "Blue Sky" laws
violations, members of the class reside in Vermont,
Connecticut, Florida, Maryland, Massachusetts, Texas, and
Virginia, in addition to New Jersey and New York.
On or after June 21, 1984, defendants or their agents
delivered to plaintiffs and to the class members a Prospectus
offering to sell to potential investors units in Phase I of The
Lodge. The units were offered at initial prices ranging from
$92,500 to $137,800. The Lodge was to be located at Stratton
Mountain, Vermont, which defendants represented to be a winter
and summer resort area including cluster houses and
cooperatives, single family houses and lots, inns, a ski area,
a golf course and other recreational facilities. The complex
included 174 resort condominium lodge units, of which Phase I
comprised 91 units and were offered for sale to the public by
the Prospectus. The packages offered for sale consisted of the
units themselves and a percentage of common elements, including
a fee simple interest in the land upon which the units were to
be situated, coupled with a required management agreement.
Pursuant to that management agreement, Stratton as "Lodge
Agent" would operate the units sold to investors as lodging
accommodations through a contract with its affiliate, Stratton
Restaurant and Lodging Corporation. The coupled package of
lodge unit and management agreement constituted a security
within the meaning of the federal securities laws.
Investors who purchased units deposited with Dowmar, the
dealer/manger, a portion of a required 10% downpayment at the
time they executed a non-binding unit subscription and
management agreement. The terms of the offering provided that:
at any time until investors deposit the
downpayment in full, investors may cancel the
broker's instructions by a notice in writing
without liability to Dealer/Manager or StratCorp,
and upon such cancellation Dealer/Manager shall
promptly return to the Investor all funds and
documents deposited with Dealer/Manager on account
of Investor's intended purchase. However, once
Investor has deposited the downpayment in full and
all 91 units in Phase I have been subscribed, all
Investor cancellation rights terminate.
The final installment of the 10% purchase price downpayment
was to be made within ten days after notice from the
dealer/manager that all 91 units in Phase I were subscribed.
The complaint alleges that between the time of the issuance
of the Prospectus and the date upon which investors would be
asked to deliver the balance of the 10% downpayment, the
defendants issued other written and oral communications to
plaintiffs, the class members and other potential investors
"with the intent that said individuals rely upon said
communications in determining whether or not to purchase units
in Phase I of the Lodge." Complaint, ¶ 32. Based upon the
statements of the defendants contained in the Prospectus "and
in other written and oral communications including those
specified below, plaintiffs consummated purchases of units in
Phase I." ¶ 33.
The Prospectus represented The Lodge was to be built in two
phases, Phase I consisting of 91 units and Phase II consisting
of an additional 83 units. The Prospectus further represented
that The Lodge would be an integral part of a proposed
"integrated and inter-related resort village" called Stratton
Mountain Village which was to include 174 non-residential
condominium lodge units of The Lodge and a conference center
consisting of approximately 16,000 to 18,000 square feet. In
addition to paraphrasing those representations,
the complaint quotes the following language from the
StratCorp Management estimates that it will
commence construction on the first major component
within the proposed Stratton Mountain Village by
April of 1984. In addition, it is planned that
construction on the initial part of the main
parking structure will begin at the same time.
Construction on the other major components will be
based upon the real estate market and the economy.
The StratCorp Management estimates that the
completion of all major components within the
proposed village will occur over the next three to
five years, but no assurance can be given.
Though future development of facilities at
Stratton Mountain is master planned or being
planned for municipal approval, such future
development is neither financed or approved by the
appropriate public authorities, but neither
StratCorp nor any of its affiliates make any
representation or commitment as to the
construction or availability of any recreational,
commercial or other facilities at Stratton
Mountain or Bromley Ski Area beyond those already
in place or under construction, and purchase of a
condominium security offered hereby should not be
made in reliance on any facility not already in
place or under construction at Stratton Mountain
and Bromley. Registrant has no reason to believe
that all necessary consents, permits and approvals
will not be received. The foregoing is set forth
herein not as a promise of future facilities but
rather to inform a prospective Investor of
StratCorp's plans and intentions.
Lack of Meeting Facilities. The Lodge will have no
facilities for meeting or conference business until
the Conference Center is built nearby. No assurance
can be given that the conference center ever will
be built and certainly, at present, financing for
such center is not available. However, StratCorp
will not commence the sale and construction of
Phase II until assurance can be given that the
Conference Center will be completed at
approximately the same time as Phrase II is
completed. Group and Conference business is
necessary in a resort to maintain and increase
occupancies in off seasons when tourist business is
low. Stratton Mountain Inn has certain meeting
facilities and The Lodge may derive "overflow"
business from the Inn, though no assurance can be
given that this business will be significant.
Laventhol & Horwath considered this lack of meeting
and conference facilities in projecting occupancy
and room rates in their market study of Phase I.
The Prospectus also contained a summary of a "Market Study
with Financial Projections" dated March 23, 1984, prepared for
Stratton by the accounting firm of Laventhol & Horwath. The
Market Study was based in part on Stratton's representations
that it "presently has plans for the further development of the
mountain" which included "a conference center facility." The
Market Study recited that its purpose was to determine the
viability of the proposed Conference Center and Village Lodge
Components of the proposed Stratton Mountain Village. The
summary of the Market Study recites the conclusion of Laventhol
& Horwath that: "On the basis of our study of the New England
ski resort conference market, we believe there is sufficient
demand to support the development of a conference center
facility on Stratton Mountain in Stratton, Vermont." The study
also set forth financial projections demonstrating the
substantial impact of the conference center upon income and
cash flow to investors in The Lodge.
On or about October 24, 1984 Dowmar mailed to plaintiffs and
the other class members a letter which the complaint quotes in
We are happy to announce that the First Phase of
the Village Lodge Condominium-Hotel has been full
subscribed. Sales began on the 91 unit hotel on
the 22nd day of June and have now been completed.
Per terms of the Purchase Agreement, the balance
of the 10 percent downpayment requirement is now
due and payable in full.
We have enclosed an account status form showing
the amount you have paid to date and the balance
due to complete your 10 percent escrow payment.
Please return the W-9 Form for the bank along with
your remittance within 10 days.
For your perusal, we have enclosed the latest
Stratton News Release to help keep you abreast of
the many exciting events here at Stratton.
The complaint also quotes portions of the "Stratton News
Release" forwarded with the Dowmar letter. It was dated October
11, 1984 and stated in part:
STRATTON MOUNTAIN, VT., — For years the thought of
building a village at the base of Stratton seemed
to be only a dream. Now, as construction of the
first phase of the $60 Million complex nears
completion, that dream has become a reality.
Essentially the Village has four components
— a residential area, a commercial center, a
conference center and parking facility. And, with
Stratton becoming the new home of the Volvo
International Tennis Tournament, the Village will
take on another exciting dimension — a new
mountainside tennis stadium.
The scope of this undertaking is greater than
anything Stratton has ever done before, and, said
Stratton President, Lovick Suddath, `When each
component of the Village is completed, few other
resorts will have anything that will compare. And,
we feel that the addition of the Volvo Tournament
will enhance the Village even more.'
Since ground was broken in June, work on the first
stages of the Stratton Mountain Village has
progressed quickly and preparations are already
under way for the next phase of construction. When
completed within three years, the new 22-Acre
complex will enhance Stratton's position as one of
the country's premiere year-round resorts.
Also scheduled next year is the completion of the
Village's residential areas. During the summer of
1986 the Village Hall, a 500-person conference
center will be added to help make Stratton one of
New Englands top meeting and convention sites.
Plaintiffs and class members relied upon the statements
contained in the Dowmar letter and the news release in deciding
whether to complete their 10% downpayment or to exercise their
right of cancellation. They characterize the statements quoted
from those documents as containing "material information which
removed uncertainties in the Prospectus concerning the
intentions and plans of Stratton with respect to the
development of the Conference Center and other facilities at
Stratton Mountain." ¶ 40. The statements made by defendants in
the Dowmar letter and the news release were knowingly false in
that at the time they were made defendants did not plan to add
a "village hall, a 500 person Conference Center in the summer
of 1986;" nor did they expect Stratton to become a "top meeting
and convention site;" the Stratton Mountain Village complex was
not planned to be completed within three years as represented
by defendants; and Stratton was not nor was it planned by
defendants to be a "year-round resort." ¶ 41.
Turning again to the Prospectus, the complaint quotes this
While the Investors have the opportunity to
inspect the outline plans and specifications which
are described herein, Investors will not have the
opportunity to review the final plans and
specifications or to inspect the Lodge prior to
becoming bound to purchase Units. The outline
plans and specifications contained in this
Prospectus, however, contains sufficiently [sic]
less detail than the final plans and
specifications will contain. ...