On Appeal from the United States District Court for the Western District of Pennsylvania. D.C. Civ. Nos. 88-147; 88-426; 88-427; 88-2542; 88-2543; 88-2544; 88-2560; 88-2561; 88-2562; 88-2705; 88-2706; 88-2702; 88-339; 89-1188; 89-1201; 89-1202; 89-1203; 90-796
Before: Becker and Greenberg, Circuit Judges, and Robinson, District Judge*fn*
GREENBERG, Circuit Judge.
These cases, consolidated on appeal, arise in the aftermath of purchases of condominium units in Phase I of a development known as the Blue Knob Ski and Country Club in Bedford County, Pennsylvania (Development).*fn1 Some of the purchasers of these units contend, inter alia, that they were fraudulently induced into buying these units based on misrepresentations made to them by sales persons of Resort Investment Corporation (now known as Resort Development Corporation). These purchasers appeal from judgments and orders in two separate district court cases, both of which involved Mellon Bank. While there were other purchasers in the Development not involved in this litigation, as a matter of convenience we will refer to the appellants as the purchasers.*fn2 Mellon has a twofold involvement in these disputes. First, pursuant to a Commitment Letter of August 12, 1982, in which it agreed to lend Resort slightly over $3 million, it made loans for use in the acquisition of the land and the construction of part of the Development. Second, Mellon became the indenture trustee for bonds secured at least in part by the notes and mortgages used to purchase the Phase I condominium units.
In the first case, Bhatla v. Resort Development Corp., No. 92-3417 (Bhatla), 990 F.2d 780,, the purchasers sued Resort, Mellon, and certain other entities and individuals we describe below for losses suffered as a result of the alleged fraud. In the second case, Mellon Bank, N.A. v. Pasqualis-Politi, No. 92-3555 (Mellon Bank), Mellon sued some of the purchasers, seeking judgments on the notes and foreclosures on the mortgages used to finance their purchases of the condominium units. We have consolidated the cases on appeal because they involve related factual and legal issues.
In the early 1980s, Resort sought to build a condominium development on a 32-acre parcel of land in the Allegheny Mountains of Western Pennsylvania. The initial Public Offering Statement, dated November 25, 1981, stated that the Development would be built in four phases. Phase I was to consist of 96 units, 72 two-bedroom units and 24 one-bedroom units. Phase II was to consist of 54 two-bedroom units. The make-up of the other two phases is not relevant to these appeals. The purchasers all acquired units in Phase I.
According to the purchasers, in marketing the Development, Resort's sales persons made several material misrepresentations, the principal ones being (1) that Phase II would be built even though the initial Public Offering Statement stated that Phase II "Need Not Be Built" and (2) that the developer had arranged for a major hotel chain to handle the rentals of the units. Furthermore, Resort's sales persons allegedly told prospective purchasers that each phase of the development would be marketed at higher prices than the earlier phases, thereby enhancing the investment value to Phase I purchasers by enabling them to get in on the ground floor.
Because sales in Phase I were slower than expected, construction did not begin until the summer of 1982, when enough purchase agreements were signed to trigger the financing provision in the Mellon loan. This delay led to the division of Phase I into Phase IA and Phase IB, which was accomplished by an amendment, dated November 16, 1982, to the Public Offering Statement. Significantly, from the purchasers' point of view, the amended statement made no mention of any change in plans for Phase II, though it continued to indicate that Phase II "Need Not Be Built." The amended statement, which was mailed to prospective purchasers, stated that they had 15 days from its receipt to cancel their purchase agreements. The purchasers settled on their purchases between December 4, 1982, and February 15, 1983.
According to the purchasers, prior to the mailing of the amended public offering statement, Resort knew that Phase II as described in the initial public offering statement would not be built. The purchasers assert that Resort had decided instead to build 72 efficiency-style units to be known as the Blue Knob Ski and Country Club Resort Conference Centre. The construction of these lower-priced units allegedly eroded the value of the Phase I units. The purchasers maintain that had they ...