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August 3, 1989


The opinion of the court was delivered by: SMITH

 This complicated piece of litigation is before this Court after the filing by all the defendants of a Motion to Dismiss all counts of the Second Amended Complaint. *fn1" The Second Amended Complaint contains four counts: a RICO claim, and claims for fraud, breach of contract and rescission. For the reasons hereinafter stated we grant, in part, the Motion to Dismiss.

 This action arises out of the development of a condominium project at a ski resort in the Allegheny Mountains of Western Pennsylvania. Plaintiffs purchased condominiums at this project. Subsequently, the plaintiffs discovered they did not get what they thought they had bargained for in purchasing their condominiums. Hence, this suit against the fifteen defendants.

 Plaintiffs purchased their condominiums from Resort Investment Corporation (Resort). *fn2" Resort was the corporation responsible for the construction of the condominium project. Resort's parent corporation, U. S. Capital Corporation, (U.S. Capital) had acquired the land for the project and had been responsible for financing, developing and marketing the condominium. Three other U. S. Capital subsidiaries were involved in this transaction. These subsidiaries were Capital Acceptance Corporation (CAC), U. S. Capital Mortgage Corporation (USCM) and First Capital Finance Corporation (First Capital). Their involvement related to the initial financing and mortgage services for new condominium owners. The six individual defendants also were associated with defendant U. S. Capital and its subsidiaries. *fn3" The remaining four defendants are all associated with Mellon Bank, N.A. *fn4" The Mellon defendants provided construction financing for Resort's construction of the condominium.

 The condominium project was marketed to potential purchasers in several ways. A mail campaign was initiated with the public offering statement and related sales literature being mailed to potential purchasers. 2d Am.Co. para. 64(d)(1). A phone network was established so that sales presentations could be made. Id., para. 64(d)(2). Advertisements describing the condominiums also were placed in widely circulated east coast newspapers. 2d Am.Co. para. 64(d)(3).

 In addition, the condominiums purchased by plaintiffs were in Phase I of a four phase development. 2d Am.Co. para. 63(a). Phase I units would be complemented by further phases which would maintain an appearance consistent with phase I. 2d Am.Co. para. 64(b). Condominiums in phase I also would appreciate in value because future units would exceed the price of those being offered for sale. This would assure purchasers a greater resale value and generate greater rental activity. Id., para. 64(e)(1) and (2). The condominiums in phase I also were supposed to include as amenities an outdoor pool and tennis courts. 2d Am.Co. para. 64(i)(3).

 After the plaintiffs purchased their units, however, the sparkle began to fall from the package. The first phase of the condominium was built, but future phases were abandoned. 2d Am.Co. para. 64(f). Instead, on the same land that phase II would have been built, the U. S. Capital defendants planned to construct a new and different condominium project. This new project would consist of lower priced efficiency units called ski chalets. 2d Am.Co. para. 64(h). These efficiency units allegedly eroded the value of the plaintiff's condominiums in phase I, as well as their potential rental prospects.

 Plaintiffs claim that the defendants' substitution of the lower priced efficiency units for subsequent phases of the condominium development was fraudulent. Plaintiffs' claim is based on the fact that defendants' actions and representations induced plaintiffs to believe that a specific plan existed to regularly increase prices. This plan would prevent future units from being sold at prices below those paid by plaintiffs. 2d Am.Co. para. 64(e)(2). This representation was further buttressed by a sales agent who told plaintiffs that Phase II would be built upon the closing of Phase I. See Plaintiffs' Opposition to Motions to Dismiss, p. 6 n. 2. In addition, plaintiffs note that the amended Public Offering Statement, received by some of the plaintiffs indicated that there were no changes to the condominium project except for the completion date of one of the buildings in Phase I. 2d Am.Co. para. 64(f). Plaintiffs claim that had they known the representations regarding the condominiums were false, they would not have purchased condominium units. 2d Am.Co. para. 64(c).

 Before we reach the merits of defendants' Motions to Dismiss, we note our procedural posture in resolving these issues. Federal Rule of Civil Procedure 12(b) requires that a motion to dismiss be treated as one for summary judgment if matters outside the pleadings are presented to, and not excluded by, the court. Fed.R.Civ.P. 12(b). The parties have extensively briefed the motions and filed numerous exhibits, affidavits, and excerpts from depositions in support of their positions. We, therefore, will treat this motion as one for summary judgment. Accordingly, judgment will be rendered if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).


 The plaintiffs' RICO claim avers violations of section 1962(a), (c)&(d). 18 U.S.C. § 1962(a), (c)&(d). We will address each subsection seriatim. Moreover, each subsection will be addressed separately with regard to the U.S. Capital defendants and Mellon defendants.

 A. § 1962(a) and the U. S. Capital defendants.

 Subsection (a) of section 1962 provides:

 18 U.S.C. § 1962(a). Hence, to assert a cause of action pursuant to § 1962(a), plaintiffs must allege each of the following elements: (1) a person; (2) receipt of income derived from; (3) a pattern of racketeering activity; and (4) said person used or invested the income; (5) in an enterprise engaged in or affecting interstate commerce.

 Plaintiffs allege each of these elements in a conclusory fashion in their Second Amended Complaint. Paragraph 81 states

Each of the defendants derived income directly or indirectly from the aforementioned pattern of racketeering activity. Such income was used and invested directly and indirectly by the defendants in the operation of BKS & CC, RDC, U.S. Capital, Capital Acceptance Corporation, Mellon Financial Services Corporations No. 7, 11 and 1 and Mellon Bank, N.A. each of which was an enterprise engaged in and the activities of which, affected interstate commerce. . . .

 2d Am.Co. para. 81. The U. S. Capital defendants contend, however, that as a matter of law the plaintiffs are unable to show either a "pattern" or "racketeering activity." U. S. Capital also asserts that plaintiffs do not have standing to bring this civil action.

 Before we reach the issue of standing, we address whether there is a "pattern" of "racketeering activity." Plaintiffs submit that the racketeering activity consisted of mail, wire and securities fraud, 2d Am.Co. para. 78, 79, all of which are included in section 1961's definition of "racketeering activity." 18 U. S. C. § 1961(1)(B) and (C). We address only the allegation of fraud in the sale of securities. *fn5"

 U. S. Capital contends that plaintiffs are unable to establish fraud in the sale of securities. First, U. S. Capital argues condominium units are not securities. Second, U. S. Capital submits plaintiffs cannot prove justifiable reliance because the alleged oral misrepresentations are contradicted by written statements in the public offering statements and sales agreement. We are unpersuaded by either argument.

 First, we address whether the condominiums purchased by plaintiffs can be considered securities. Plaintiffs allege that the condominiums are investment contracts. 2d Am.Co. para. 64(d)(6). Investment contracts are included in the definition of security as established in 15 U.S.C. § 77(b), but the term itself is undefined. The Supreme Court defined the term "investment contract" in SEC v. Howey Co., 328 U.S. 293, 90 L. Ed. 1244, 66 S. Ct. 1100 (1946). The Court stated that

an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. . . .

 328 U. S. at 298-99.

 The Howey definition was applied in conjunction with Securities and Exchange Commission regulations in Mosher v. Southridge Assoc., Inc., 552 F. Supp. 1231 (W.D.Pa. 1982), to determine whether the sale of condominium units could be deemed investment contracts. In that case, Judge Weber concluded that a condominium must be sold with certain collateral agreements in order to constitute an investment contract. The subject matter of the collateral agreements, as set forth in the regulations, must pertain to (1) either a rental arrangement producing economic benefits to the purchaser derived from a manager or promoter of the units; (2) participation in a rental pool arrangement; or (3) a rental arrangement whereby the purchaser must hold his unit available for rental for a portion of the year and said rentals are arranged by an exclusive agent. 552 F. Supp. at 1233 (citation omitted). Since the condominiums were not sold with the collateral agreements, Judge Weber found the condominiums failed to constitute investment contracts.

 In the instant case, the plaintiffs allege that there was an exclusive rental agreement by which the purchasers would pay a portion of their rents to U. S. Capital. 2d Am.Co. para. 64(d)(6). Plaintiffs also allege that a major hotel chain had been retained to handle rentals through an 800 number. 2d Am.Co. para. 64(e)(4). These allegations are sufficient to indicate that the condominiums may have been offered *fn6" with a rental arrangement whereby the purchasers would benefit economically from the managerial efforts of another. Since this meets the Howey criteria for an investment contract we conclude that the condominiums may be securities. Next, we address whether or not there was fraud in the sale of securities.

 U. S. Capital contends that plaintiffs cannot prove fraud in the sale of securities because the plaintiffs did not justifiably rely upon the alleged misrepresentations. U. S. Capital submits that justifiable reliance is absent because the public offering documents state that future phases "need not be built." Appendix to Defendants' Motion to Dismiss. 2d Am. Co., Exhibit 1 (hereinafter Defendants' Appendix). In addition, the sales agreement and offering documents provide that information not included in the public offering statement should not be relied on. Id., Exhibit 3.

 U. S. Capital bases its argument on the Tenth Circuit's decision in Zobrist v. Coal-X, Inc., 708 F.2d 1511 (10th Cir.1983). The plaintiffs in Zobrist had purchased an interest in a coal venture which they had been told was a "sure thing" and had "no risks." A written memorandum serving as a prospectus directly contradicted these oral assurances and specifically expressed the risks attendant to the investment. When the venture appeared to fail the plaintiffs filed suit claiming misrepresentation in the sale of securities. The Court charged the plaintiffs with constructive knowledge of the full and fair disclosures in the memorandum. It then concluded, after considering several other factors, that the plaintiffs' reliance on the "no risk" representation was not justified.

 U. S. Capital argues that Zobrist stands for the premise that a plaintiff cannot rely upon oral misrepresentations if the misrepresentations conflict with a written document received by the plaintiffs. We do not construe Zobrist as broadly as U. S. Capital would urge. The imputation of the information contained in the memorandum in Zobrist was due to the fact that the written memorandum expressly contradicted and directly refuted the oral representations. Even then, the imputed knowledge alone did not negate the plaintiffs' reliance. Rather, the plaintiffs' imputed knowledge in conjunction with the fact that the plaintiff was a sophisticated investor, together with the fact that the fraud was not concealed but openly provided to the plaintiffs, collectively provided the bases for the court to hold that the plaintiffs' reliance was unjustified.

 In reaching its decision in Zobrist, the court followed its own "view that while the full and fair disclosure of information in the . . . Memorandum is a relevant factor which favors the defendants here, such disclosure is not determinative . . ." of whether reliance was justified. 708 F.2d at 1517. Similarly, although the contents of the public offering statement and the sales agreement are relevant in the instant case, the contents are not determinative of whether plaintiffs' reliance was justified. The oral representations do not directly conflict with the written documents. In fact, it is quite possible for both statements to be true at the same time. *fn7" Moreover, the instant action does not present plaintiffs as highly sophisticated investors.

 Lastly, there remains the possibility that U. S. Capital concealed its fraud. Plaintiffs assert that inquiries regarding the existence of a new lower priced condominium project were flatly denied. Plaintiffs' Brf., p.9, n. 5. The public offering statement for the lower priced condominium unit also was allegedly delayed in release, thereby placing it in circulation only after plaintiffs had purchased their units. These facts are subject to a reasonable inference that U. S. Capital did not want plaintiffs to be aware of this new lower priced condominium project. For these reasons, we decline to find as a matter of law that plaintiffs did not justifiably rely upon the alleged misrepresentations. This will be a question for the finder of fact. *fn8"

 In conclusion, with regard to U. S. Capital's arguments that plaintiffs have failed to allege racketeering activity, we find that plaintiffs have demonstrated that a genuine issue of fact exists regarding whether there was fraud in the sale of securities. Judgment cannot be entered solely on this argument.

 Moreover, judgment cannot be entered for U. S. Capital on the basis that plaintiffs have failed to allege a "pattern" of racketeering activity. Several factors must be considered to determine if there is a "pattern" of racketeering activity. Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36 (3rd Cir.1987). These include: "the number of unlawful acts, the length of time over which the acts were committed, the similarity of the acts, the number of victims, the number of perpetrators and the character of unlawful activity." Id. at 39. In the instant case, the alleged misrepresentations were made to the plaintiffs, the purchasers of thirty-three condominium units in all. The misrepresentations were similar in nature and made over several months' time in late 1982 and early 1983. These facts are sufficient to create an issue of fact regarding a pattern of activity. See Barticheck, 832 F.2d at 36; Saporito v. Combustion Engineering, Inc., 843 F.2d 666 (3rd Cir.1988).

 Since we have determined that issues of fact exist regarding the elements of a pattern of racketeering activity, we go on to address whether plaintiffs have standing to assert their RICO claim pursuant ...

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