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Bartholomew v. Northampton National Bank of Easton

decided: August 24, 1978.

RICHARD T. BARTHOLOMEW AND GRACE M. BARTHOLOMEW, HIS WIFE, ROBERT CHAMBERLAIN AND SHEILA CHAMBERLAIN, HIS WIFE, JAMES T. DOEHNE, HARRY T. FRIEBEL AND GERALDINE FRIEBEL, HIS WIFE, ROBERT HUTNICH AND GLADYS HUTNICH, HIS WIFE, ROBERT KIRK AND RUTH KIRK, HIS WIFE, CONRAD MEIER AND MARY LOU MEIER, HIS WIFE, GEORGE W. STORIN AND ANN STORIN, HIS WIFE, WILLIAM A. THORPE AND MARGARET THORPE, HIS WIFE, STANLEY VAN DUSEN AND LOWETA VAN DUSEN, HIS WIFE, ROBERT VAN DUSEN, SUING ON BEHALF OF THEMSELVES AND ALL OTHER SIMILARLY SITUATED, APPELLANTS,
v.
NORTHAMPTON NATIONAL BANK OF EASTON, EASTON, PENNSYLVANIA, MERCHANTS NATIONAL BANK OF ALLENTOWN, ALLENTOWN, PENNSYLVANIA, AMERICAN BANK AND TRUST COMPANY OF READING, READING, PENNSYLVANIA, NATIONAL REALTY INVESTMENT CORP., NEWFOUNDLAND, PENNSYLVANIA AND POCONOS SKYLAND DEVELOPMENT COMPANY, INC., NEWFOUNDLAND, PENNSYLVANIA, INDIVIDUALLY, AND TRADING AS CASTLE KRESS L & L EQUITIES, INC., NEWFOUNDLAND, PENNSYLVANIA, INDIVIDUALLY, AND TRADING AS RAVEN HILL FOREST, WAYNE E. MATTHEWS, BOX 162, ALEXANDRIA BAY, NEW YORK 13607, LLOYD R. DICKINSON AND LEILA M. DICKINSON, HIS WIFE, BOX 233, NEWFOUNDLAND, PENNSYLVANIA 18445 AND WILLIAM E. BROCK, III., DEFENDANTS, V. DREHER TOWNSHIP, WAYNE COUNTY, PA. 18445, G. LEONARD GREEN, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY AS TOWNSHIP SUPERVISOR, R.D. #1, NEWFOUNDLAND, PENNSYLVANIA 18445, BURTON H. GILPIN, INDIVIDUALLY AND IN HIS OFFICIAL CAPACITY AS TOWNSHIP SUPERVISOR, R.D. #1, NEWFOUNDLAND, PENNSYLVANIA 18445, THIRD PARTY DEFENDANTS.



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 74-2948)

Before Hunter and Weis, Circuit Judges, and Gerry, District Judge.*fn*

Author: Hunter

In this case plaintiffs, lot purchasers in a land development in the Pocono Mountains region of Pennsylvania, alleged that defendants in this appeal*fn1 violated provisions of the Interstate Land Sales Full Disclosure Act (Land Sales Act),*fn2 Consumer Credit Protection Act (Truth in Lending Act),*fn3 the National Bank Act*fn4 and state usury law.*fn5 On motion by the defendants, banks involved in the financing of the project and the land sales, as well as William Brock, sole shareholder of the corporate limited partner of the land developer, the district court dismissed certain of plaintiffs' claims pursuant to F.R.Civ.P. 12(b)(6) and granted summary judgment as to the rest. We affirm the district court's orders.

Plaintiffs are purchasers of unimproved lots in an unsuccessful recreational development known as Sherwood Forest in Wayne County, Pennsylvania. The development included two separately owned parcels. One was owned by Castle Kress, a limited partnership, which promoted the project and sold the lots in question. The second parcel was owned by another limited partnership, Raven Hill Forest, which hired Castle Kress to promote and sell lots as part of the Sherwood Forest development.

Castle Kress was composed of one general partner, National Realty and Investors Corp., a Pennsylvania corporation, and one limited partner, Poconos Skyland Development Company, Inc., a District of Columbia corporation. National Realty was solely owned and operated by Wayne Matthews, the driving force behind the development. Poconos Skyland, in turn, was solely owned by former United States Senator William Brock, who had owned the first tract of land in the development prior to the limited partnership agreement.

Most of the sales of land in the development were effected on an installment credit basis. Buyers from Castle Kress would make a down payment and sign an installment purchase agreement for the balance of the purchase price. Castle Kress assigned the instruments, pursuant to prearranged financing agreements, to one of the three bank defendants: Northampton National Bank of Easton, Pennsylvania, American Bank & Trust Company of Reading, Pennsylvania, or Merchants National Bank of Allentown, Pennsylvania. Further, the Northampton National Bank advanced funds to Castle Kress for development at the project site and held a mortgage, as a construction lender, on at least part of the project.

The Sherwood Forest development failed to mature. Township officials allegedly opposed the project, refusing to grant building permits, failing to approve plat maps, and not allowing the installation of proposed sewer and drainage systems. Further, the Administrator of Interstate Land Sales of the United States Department of Housing and Urban Development effectively halted further sales in Sherwood Forest on December 17, 1973, by administratively suspending the effectiveness of disclosure documents filed by Castle Kress under the Land Sales Act.

Additionally, in the midst of the development's difficulties, Castle Kress, its general partner National Realty, and National Realty's sole shareholder Matthews all suffered financial collapse and withdrew from the project. Northampton National Bank foreclosed its mortgage on the unsold portions of the project. All three defendant banks confessed judgment on the installment agreements executed by the plaintiff land purchasers.

THE LAND SALES ACT COUNTS

The plaintiffs' claims against the banks and Brock involved misrepresentations and omissions in the "Statement of Record" and "Property Report" filed by Castle Kress under the Land Sales Act, as well as other statements made to lot purchasers.*fn6 In the complaint, the lot purchasers alleged that these defendants were "indirect sellers" within the meaning of the Act and that they were liable as aiders and abettors of the primary wrongdoers, including Castle Kress and Matthews. The complaint alleged that the defendants knowingly participated in the fraudulent scheme, were engaged in the planning of the project, and financially profited from their participation in the development of Sherwood Forest.

The district court held that the Land Sales Act, by its language, limited the class of persons against whom liability can be imposed to "developers" or "agents of developers". Finding that none of the defendants could be so characterized, the court entered summary judgment for all defendants on these counts.

The Land Sales Act provides for regulation of the sales of real estate lots in subdivisions by requiring disclosure of certain information about the property. Disclosure statements must be filed with the Department of Housing and Urban Development (the Statement of Record) and be provided to potential purchasers of the property (Property Reports). 15 U.S.C. ยงยง 1704, 1707.

Section 1709 of the Act*fn7 provides a private right of action for purchasers of lots against developers and agents of developers with respect to untrue statements and omissions of material facts in both the filed statement of record and the property report provided to the purchaser, as well as for violation of section 1703, the general antifraud provision of the Act. Section 1703 of the Act provides:

(a) It shall be unlawful for any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce, or of the mails

(1) to sell or lease any lot in any subdivision unless a statement of record with respect to such lot is in effect in accordance with section 1706 of this title and a printed property report, meeting the requirements of section 1707 of this title, is furnished to the purchaser in advance of the ...


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