# Appendix — U. S. Steel Credit Corp. v. American Fletcher Mortgage Co.

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1424%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1981
- **Citation:** 451 U.S. 911

## Text

_—

Qitice: Supreme Court, U.S,
a, tk B&B D

80-1484 FEB 27 1981
No.

ALEXANDER L. STEVAS,

=.

In the
Supreme Court of the Anited States

October Term, 1980

U. S. STEEL CREDIT CORPORATION,
: Petitioner.
vs.

AMERICAN FLETCHER MORTGAGE COMPANY,
INC., AMERICAN FLETCHER NATIONAL BANK
AND TRUST COMPANY, and

AMERICAN FLETCHER CORPORATION,

Respondents.

APPENDIX TO PETITION FOR WRIT OF
CERTIORARI TO THE UNITED STATES COURT
OF APPEALS FOR THE SEVENTH CIRCUIT
(Seventh Circuit Nos. 80-1485, 80-1719)

Wituiuam A. Wick

1000 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
(317) 632-1348

Attorney for Petitioner

Of Counsel For Petitioner:
NicHoias C. NizaMorr

Waite, Ravs, Reis, Wick, & Rrmcner
1000 Merchants Bank Building

11 South Meridian Street |
Indianapolis, Indiana 46204

i
The Scheffer Press, Inc.—(312) 263-6850

CONTENTS OF APPENDIX

Pace No.

1. Court of Appeals Opinion dated 11/3/80 .... 1a-l5a
2. District Court Order of 3/21/80 oou.eeeeese 16a-22a
3. Amendment of 3/21/80 District Court

Re AE I le RC A aN BRON ce I 23a-25a
4. Court of Appeals Judgment Entry dated

eG RRA ee RUS ART AOR ce OF 26a
0. Court of Appeals Order Denying Re-

SPELLS TVS CRE WA Seater 8 ONE mal ee 27a
6. Amended Counterclaim (omitting counts IT,

RE IT Fi ices ciaivinsicansitsspbinnnidesdcynaedeistiaseuinbucen 28a-4la
7. Participation Offerings

ie Se RINE Gulbiphosncschcenissthinnaptiioiclgtinabibbednceniniat 412-43a

i UNE IID, sasiccciscisciceassirccindininersdesctenias 43a-45a
8. Participation Agreement Construction

ey = sasaseariaiicoih tlle nh lntdaoesacdetinini ceiesisanmiyetiidetemesee ni 45a-49a
9. L&D Loan Commitment ...........cccssesscscseeeeeees 0a-52a
10. Construction Loan Commitment ..........ccccce 53a-56a
11. Building Loan Agreement ..........cccccceseseseseees 57a-70a
12. Note for L&D Loan ........: i cunctpabaniabasateacenipipaianaies 71a-72a
13. Note for Construction Loan .........cccccceeseeeees 73a-74a
14. Motion to Dismiss or for Judgment on

Pleadings on Securities Laws Claims ............ 75a-76a
15. U.S. Steel Credit’s Cross-Motion for Sum-

mary Judgment that its Participations were

MII © si csissalatinisateesttinbabditicaghibsnasbsacennsacovishets 77a-78a
16. Affidavit of Nicholas C. Nizamoff .............0.0... 79a-89a
17. Supplemental Affidavit of Stanley J. Mack .... 90a-92a

- je —

APPENDIX

In THE
UNITED STATES COURT OF APPEALS
For The Seventh Cireuit

Nos. 80-1485, 80-1719

AMERICAN FLETCHER MorTGAGE Company, Inc., and
AMERICAN FLetcHER Nationa, Bank Anp Trust

Company,
Plawmtiff s-A ppellees,
vs.

U. S. Srezx Crepir Corporation,
Defendant-Counterclaimant
(Appellant),
vs.

AMERICAN FLeTcHER Mortcace Company, Inc., AMERICAN
FLercHeR Nationa, Bank Anp Trust ComMPANy and

AMERICAN FLETCHER CoRPORATION,
Counterdefendants
(Appellees ).

Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. IP 76-276-C-——-Wittiam E. Sreckter, Judge.

Hearp Sepremser 23, 1980—Derciwep Novemser 3, 1980
Before Cummines and Woon, Circuit Judges, and Camp-
BELL, Senior District Judge.*

* The Honorable William J. Campbell, Senior District
Judge of the Northern District of Illinois, is sitting by
designation.

—

~ Cummines, Circuit Judge. In this diversity case, defen-
dant U.S. Steel Credit Corporation appeals in No. 80-1719
from the district court’s interlocutory orders denying de-
fendant’s motion for partial summary judgment on plain-
tiffs’ amended and supplemental complaint and defen-
dant’s motion for a summary judgment declaring the loan
participations in issue to be ‘‘securities’’ within the mean-
ing of federal and Indiana securities laws, and in No. 80-
1485 from the district court’s final order dismissing the
securities fraud counts of defendant’s amended counter-
claim. We affirm.

l. Introduction

On April 10, 1976, plaintiffs brought this action to re-
cover monies allegedly disbursed on behalf of defendant
U. S. Steel Credit Corporation (Steel) pursuant to cer-
tain loan participation agreements. The facts according
to the amended and supplemental complaint are as follows:

In 1973, the American Fletcher Mortgage Company
(Mortgage Company) agreed to make two loans totaling
$5,820,000 to Justin Development Corporation to acquire
land in Cromwell, Connecticut, and construct residential
condominiums thereon. In the same year the Mortgage
Company entered into participation agreements with de-
fendant Steel, American Fletcher National Bank (Bank)
and American Fletcher Mortgage Investors Trust (Trust).
Those three institutions agreed to supply the funds to
the Mortgage Company for disbursement to the borrower
in shares of 40% by Steel, 10% by the Bank, and 50% by
the Trust. The three participants were to receive payments
of principai and interest from the borrower equal to their
proportionate shares of the loans.

In 1974-1975, the project encountered adverse economic
conditions. Therefore, in March 1975 the Mortgage Com-
pany proposed an increase of the loans to provide neces-
sary funds. By the end of April 1975, the Mortgage Com-
pany’s proposal had been approved by the Bank and the
Trust, but not by Steel, which failed to respond to the
proposal throughout the summer of 1975. Consequently,

== $a

the Mortgage Company was wnable to implement the pro-
posal, and the borrower fell into default on its obligations
to the lenders and its general contractor.

On October 10, 1975, the Mortgage Company, with the
consent of the three participants, entered into a settle-
ment with Justin, its general contractor and the loan
guarantors. Under the settlement, the Mortgage Company
took title to the project and disbursed funds due the
general contractor and various creditors of Justin and
generally released Justin, the general contractor and the
guarantors. At that time, less than 50 of the project’s
units had been completed and the rest were still under
construction. No sales could be closed without the prompt
completion of additional units. After the settlement, Steel
demanded that the Mortgage Company’ purchase its in-
terest at an inflated price.

In conjunction with the settlement and prior thereto,
the Mortgage Company disbursed $734,929.59 from loan
proceeds on behalf of the three participants. Steel has
failed to reimburse the Mortgage Company in the amount
of $293,962.83, its 40% share of the disbursements, which
the Mortgage Company claims to have been due from
Steel as of October 16, 1975. As of February 28, 1978,
the Mortgage Company had expended an additional $400,-
541.73 to preserve the project, and Steel therefore alleged-
ly also owes the Mortgage Company 40% of those ex-
penditures, namely $160,216.69.

In March 1976, the Mortgage Company made a forma]
proposal to Steel to develop the project by constructing
certain condominium units and engaging in an April 1976
marketing program. Steel did not respond to the proposal,
which was approved by the Trust and the Bank, until
after the summer of 1976, by which time the prime con-
struction and selling season had passed, thereby resulting
in a further decline in the project’s value.

In January 1977, Steel gave conditional agreement to
a proposal to list the project for sale ‘‘as is’’ for $1,700,-
000. For the next three months, however, Steel refused

——_

to give its formal consent unless the Mortgage Company,
the Bank and the Trust agreed to waive all claims they
had against Steel. This further delayed disposition of the
project so that the Mortgage Company was unable to
find a buyer even at the $1,700,000 price.

The plaintiffs then proceeded to file their amended and
supplemental complaint. In Count I, the Mortgage Com-
pany sought damages of $454,179.52" (plus additional dam-
age sustained after February 28, 1978) plus interest and
costs for Steel’s alleged breach of its express and implied
obligations under the participation agreements. The Bank,
as a third-party beneficiary and as assignee of the third-
party beneficiary Trust, also requested judgment on this
Count for damages in an unspecified amount.

In Count II, the Mortgage Company sought the same
amount of damages as under Count I plus $1,000,000 pu-
nitive damages for Steel’s alleged interference with the
Mortgage Company’s contractual relationships with the
Bank and Trust. The Bank on the same theory requested
compensatory damages plus $3,000,000 punitive damages.

In Count ITI, the Bank, in its own right and as assignee
of the Trust, requested actual damages plus punitive dam-
ages of $3,000,000 for Steel’s alleged breaches of its du-
ties to the Bank and Trust as co-participants in the finan-
cing of the project.’

On January 8, 1979, Steel filed an amended counter-
claim against plaintiffs and an amended claim against
counterdefendant American Fletcher Corporation (AFC),

‘This sum represents the $293,962.83 due the Mortgage
Company as of October 16, 1975, and the $160,216.69 due
the Mortgage Company as of February 28, 1978. These
amounts reflect Steel’s 40% share of the disbursements
by the Mortgage Company.

*A fourth count, alleging abuse of process, was dis-
missed by stipulation on January 31, 1980 (R. Vol. IT at
382). The fourth count of Steel’s amended counterclaim
also alleged abuse of process and was dismissed by the
same stipulation.

— “ae

the parent corporation of the plaintiffs. In Count I of
this pleading, Steel alleged that on October 1, 1973, the
Mortgage Company forwarded to Steel participation of-
ferings in loans for the acquisition and construction of
the condominium project in Cromwell, Connecticut. In
this pleading Steel described the participation offerings
as securities as defined in Section 3(a)(10) of the Seen-
rities Exchange Act of 1934 (15 U.S.C. § 78(a)(10)) and
in Section 2(1) of the Securities Act of 1933 (15 U.S.C.
§ 77(b)(1)). Steel accepted these ‘‘Security Offerings’’
on October 27, 1973, by executing and sending the Mort-
gage Company two participation agreements. Both par-
ticipation agreements were executed by the Mortgage Com-
pany and dated December 31, 1973.

Steel asserted that its acceptance was conditioned upon
the understanding that the Mortgage Company would not
close the Cromwell loans or call upon Steel to make dis-
bursements until Justin had complied with all conditions
precedent under the loan agreements. According to Steel,
the Mortgage Company closed the loans even though
Justin had not satisfied the conditions precedent. Stee!
claims that it was therefore not bound to advance any
monies on the Cromwell loans and that its advances in
response to the Mortgage Company’s draw requests con-
stituted an investment in securities governed by Section
10b of the Securities Exchange Act (15 U.S.C. 4 78j(b)),
S.E.C. Rule 10b-5 (17 C.F.R. § 240.10(b)-5) and Seetion
17 of the Securities Act (15 U.S.C. § 77q).

Steel further alleged that at the time the participation
agreements were entered into and during the period prior
to mid-June 1975, the Mortgage Company had misrepre-
sented certain material facts and omitted to disclose cer-
tain other facts in violation of Section 10b of the 1934
Act, S.E.C. Rule 10b-5 and Section 17 of the 1933 INUIT 8 5.5. siccanstivessicisesiakaadib neebistiitlnsabpebnninacdgiiile
respectively, of American Fletcher Mortgage Company,
Ine., who as such officers, for and on its behalf, acknowl-
edged the execution of the foregoing instrument.

WITNESS my hand and Notariai Seal.

SOCEM EERE EEE HEE EEH HERE HERE EEE HEHEHE

Notary Public

This instrument prepared by:

Milton Learner
600 American Fletcher Building
Indianapolis, Indiana 46204

— 67a —

EXHIBIT “A”

A certain piece or parcel of land situated on the wester-
ly side of Willowbrook Road, in the Town of Cromwell,
County of Middlesex and State of Connecticut, more par-
ticularly described on map entitled ‘‘Survey Map Prop-
erty of Justin Development Corp., Cromwell, Conn., Igor
Vechesloff Professional Engineer & Land Surveyor, 51
Lorraine Street, Hartford 5, Connecticut, Scale 1” — 100’,
Date 3/5/69, Revised 10/20/72 and Revised 5/11/73,
Drawing No. 1107,” and bounded and described as follows:

Commencing at a point in the westerly line of Willow-
brook Road at the intersection of the northeasterly corner
of property now or formerly of H. & 8S. Tool Co., and
the southeasterly corner of the premises herein described;
thence running along the northerly boundary line of
property now or formerly of H. & S. Tool Co., South
77°54’35” West 889.06 feet to a point in the northerly
boundary line of Nike Road; thence running along the
northerly boundary line of said Nike Road North 80°13’
25” West 172.48 feet to a point at the intersection of
property now or formerly of Arthur H. Alden III and
Joseph G. Perotti; thence running along the easterly line
of property of Alden and Perotti, North 12°25’17” West
607.94 feet to a point; thence running North 64°31/01”
West 200.00 feet to a point; thence running North 15°00’
00” Kast 739.25 feet to a point; thence North 75°00/00”
West 191.98 feet to a point in the easterly boundary line
of property now or formerly of William F. Harrington,
et al; thence along the easterly boundary line of land of
said Harrington, et al and land of James M. Davidson
North 1°30’00” East 405.60 feet to a point at the inter-
section of land now or formerly of Thomas Kelly; thence
running along the southerly boundary line of land of said
Kelly, South 84°05’00” East 217.35 feet to a point; thence
continuing along the southerly line of land of said Kelly,
South 70°15’32” East 61.19 feet to an iron pin; thence
continuing along the southerly boundary line of said Kelly,

== GGe ....

South 80°20’50” East 853.54 feet to a point, 3.56 feet west
of an iron pin, said point being located in the westerly
boundary line of Willowbrook Road; thence running along
the westerly line of said Willowbrook Road, South 8°57’
01” West 93.125 feet to a point; thence continuing along
the westerly boundary line of said Willowbrook Road
South 0°18’00” East 547.07 feet to a point; thence con-
tinuing along the are of a curve on the westerly boundary
line of said Willowbrook Road, said curve having a cen-
tral angle of 11°03’15” and a radius of 300.00 feet, 154.345
feet to a point; thence continuing along the westerly line
of said Willowbrook Road South 11°21’15” East 347.83
feet to a point; thence continuing along the westerly line
of said Willowbrook Road, South 19°18’02” East 180.99
feet to a point; thence continuing along the said westerly
line of Willowbrook Road, South 21°28’25” East 132.89
feet to a point; thence continuing along the westerly line
of said Willowbrook Road South 25°55’25” East 86.70
feet to the point of beginning.

Containing 41.285 acres.

— 69a —

= . Payacnt Xo. .
‘© the period: August 20, 1973 1.0 —Bobrwaxy ‘ 1974 pinclusiv
ae of Job _ Willowbrook Commons ; Our Zeb Ko.
Crome), Connecticut ' Your Job Ko.
. _-_——————__
P. 0.° Ko. ;
° Route 72 ac Country Squire Road (etic a mes
cation of Work Sheet Ko.
———KL
atractor's Name Jobco, Inc. Contract Price$3,290,000
: (Luap Sum)
atractor’s Address Great Neck, New York Estimated Price $ a
(Unit Sum)
tes Subcontractor/Material Total Earned to/| Retainage | Amounts | Amounts
.aber . Desler Contract Date Prev- to
: + *| dously be Paid
Paid
- | Dwelling Unitsr
1 General Conditions 130,130 | . 55,409. 55,409
2 Building Excavation - 113,725 42,383 |. ; 42,38:
3 Concrete Work __.. 286,489 33,626 ; 33,62€
4 Structural Steel - - 31,209 22,073 i "22,07:
5 Carpentry 1,262,962 35,250 oak ~ 35, 25¢
7 Dampproofing & Caulking 16,196 --0- a -1. Qe
é Kitchen & Lav. Cab. 105,090 -0- | a pee
9 Drywall - [| 322,515 -0- +: =O
10 Painting. é + = 78, 610 -0- -0-
11 °.| Flooring 109,640 -0- : —
12 Hardware & Toilet Acceg. 21,928 -0- “ “o-
13 Windows & $l. Doors 60,235 ~-0- as -0-
14 Fireplaces . 17,379 -0- ; -0-
15 Refrig. ,Range,Dish., : ant
RS Disp. 114,372 -0- , -0-
16 Electrical. me | 158,947 _ =0- 4 -§-
17 Plumbing - 192,535 4,400 . . th ae
18 | HVAC 210,012 -0- |: "0. heh
19 Bond Premium | 23,000 22,638 23,63:
; .
TOTAL . 13,290,000 | 226,779 uh ~ . bale, 77:

I hereby certify that the aforementioned total contract price of
TFepresents the total coms to construre 150 units, es per breakd|

sheet. >
JUSTIN “ee CORP

— 70a --

1S x 17,250 = 258,750

Lso 3,290,000

60 x 21,700 = 1,302,000 .
40 x 22,450 = 698,000
35 x 23,750 = 831,250]

. ry
Nf

Gr

— 7la —
EXHIBIT “D”

NOTE
$2,530,000 DUE: June 1, 1976
Cromwell, Connecticut, .........c.00... , 1973

On or before June 1, 1976, for value received, the un-
dersigned, jointly and severally, promise to pay to the
order of

AMERICAN FLETCHER MORTGAGE COMPANY,
INC.,

At its main office in the City of Indianapolis, Indiana
the principal sum of Two Million Five Hundred Thirty
Thousand and no/100 ($2,530,000.00) Dollars or so much
thereof as is from time to time advanced hereunder, with
interest on the balance of principal remaining unpaid
from time to time at the rate of five per cent (5%) per
annum above the daily “Base Rate” in effect at American
Fletcher National Bank and Trust Company of Indian-
apolis. Indiana until maturity or so long as there is no
uneured default in the payment of any installment of
principal or interest hereunder, and with interest at the
rate of fourteen per cent (14%) per annum, after matur-
ity and while there exists any uncured default hereunder,
until paid, said principal and interest being payable as
follows:

Interest only at stated rate is due and payable on
June 1, 1973 and on first day of each month there-
after including the first day of June, 1976, the entire
balance of principal together with any unpaid inter-
est shall be due and payable on June 1, 1976:

all without relief from valuation or appraisement laws
and with attorney’s fees and costs of collection, author-
ized under applicable law.

This Note is secured hy a Real Estate Mortgage of
even date herewith executed, acknowledged and delivered
by the Makers hereof to the Payee and secured by Real

— 72a —

Estate located in Middlesex County, Connecticut. Upon
failure to pay the principal or interest, or any installment
of principal or interest of this Note when due, or upon
failure to comply with any of the terms. provisions and
conditions of the Mortgage securing the payment hereof,
all of the indebtedness then unpaid shall, at the option
of the holder hereof, become immediately due and col-
leetible without notice.

The Makers and endorsers severally waive present-
ment for payment, protest, notice of protest and notice
of non-payment of this Note.

The Makers shall have the privilege of prepaying the
indebtedness evidenced hereby only with the written con-
sent of the holder. Delay in exere sing any of the holder’s
rights or options hereunder shall not constitute a waiver
thereof, and waiver of any right or option shall not con-
stitute a waiver of the right to exercise the same in the
event of any subsequent default. Makers and endorsers
hereof hereby jointly and severally consent to the exten-
sion of time for the payment of this Note or any install-
ment hereof, any modification hereof, release from li-
ability of any maker, endorser, guarantor, or any other
person or entity at any time liable for the payment here-
of, and the modification or release of any collateral at
any time held as security of this Note, without notice
and without affecting the liability of any maker or en-
dorser.

Time is of the essence of this Note. This is an acquisi-
tion/development loan for a business purpose; multiple
advances will be made hereunder, interest shall acerue
from the date of each such advance.

JUSTIN DEVELOPMENT CORP.,
A Corporation

SS

Its Secretary/Treasurer

— 73a —

EXHIBIT “D”
NOTE
$3,290,000.00 EERE Seneca ore , 1977
Cromwell, Connecticut,...0......ccccccseeeee —
2 Sn . 1977, for value received,

the undersigned, jointly and severally, promise to pay
to the order of

AMERICAN FLETCHER MORTGAGE COMPANY.,
INC.,

at its main office in the City of Indianapolis, Indiana, the
principal sum of Three Million Two Hundred Ninety
Thousand and no/100 Dollars ($3,290,000.00) or so much
thereof as is from time to time advanced hereunder, with
interest on the balance of principal remaining unpaid
from time to time at the rate of four per cent (4%) per
annum above the daily “Base Rate” in effect at Ameri-
can Fletcher National Bank and Trust Company of In-
dianapolis, Indiana until maturity or so long as there
is no uncured default in the payment of any installment
of principal or interest hereunder, and with interest at
the rate of fifteen per cent (15%) per annum, after matur-
ity and while there exists any uncured default hereunder,
until paid, said principal and interest being payable as
follows :

Interest only at stated rate is due and payable on
iictianitiannnaiiocaienda , 1974, and on the first day of each
month thereafter, including the first day of ...0.......
ssseeeeen LOTT, the entire balance of principal together
with any unpaid interest shall be due and payable
WY si ccisacersseentenieenens , 1977;

all without relief from valuation or appraisement laws
and with attorney’s fees and costs of collection, author-
ized under applicable law.

This Note is secured by a Real Estate Mortgage of
even date herewith, executed, acknowledged and delivered

— 74a —

by the Makers hereof to the Payee and secured by Real
Estate located in Middlesex County, Connecticut. Upon
failure to pay the principal or interest, or any install-
ment of principal or interest of this Note when due, or
upon failure to comply with any of the terms, provisions
and conditions of the Mortgage securing the payment
hereof, all of the incebtedness then unpaid shall, at the
option of the holder hereof, become immediately due and
collectible without notice.

The Makers and endorsers severally waive present-
ment, protest, notice of protest and notice of non-pay-
ment of this Note.

The Makers shall have the privilege of prepaying the
indebtedness evidenced hereby only with the written con-
sent of the holder. Delay in exercising any of the holder’s
rights or opinions hereunder shall not constitute a waiver
thereof, and waiver of any right or option shall not
constitute a waiver of the right to exercise the same in
the event of any subsequent default. Makers and endorsers
hereof hereby jointly and severally consent to the ex-
tension of time for the payment of this Note or any in-
stallment hereof, any modification hereof, release from
liability of any maker, endorser, guarantor, or any other
person or entity at any time liable for the payment here-
of, and the modification or release of any collateral at
any time held as security of this Note, without notice
and without affecting the liability of any maker or en-
dorser.

Time is of the essence of this Note. This is a con-
struction loan for a business purpose; multiple advances
will be made hereunder, interest shall acerue from the
date of each such advance.

JUSTIN DEVELOPMENT CORP.

Its Secretary

—_ te—

Unrrep Srares District Court
SovtHern Disrricr Or InNpiuwa
InptiANaApoLtts Drvtstox

AMERICAN FLETCHER MorTGAGE Company, Iye., and
AMERICAN FLETCHER Nationan BANK axp Trust CoMPANY,
Plaintiffs.
vs.
U. S. Sreex Creprr Corporation,
Defendant and Counterelaimant.

vs.

American FietcHer Morteace Company, Inc...
AMERICAN FLetTcHEerR Nationa, BANK AND Trust? CoMPANY,
AND AMERICAN FLETCHER CorPoraTIoN,

Counterdefendants.

Cause No. IP 76-276-C

MOTION TO DISMISS OR FOR
JUDGMENT ON THE PLEADINGS AS TO
SECURITIES LAWS CLAIMS

Counterdefendants American Fleteher Mortgage Com-
pany, Ine., American Fletcher National Bank And Trust
Company and American Fletcher Corporation hereby move
the Court for judgment on the pleadings dismissing
Counts *, V, VI, VII and VIII of ‘‘U.S. Steel Credit Cor-
poration’s Amended Counterclaim And Amended Claim
Against Counter-Defendant,”’ filed January 8, 1979, and
Counts IX, X and XI of the ‘‘Seecond Amendment To
Amended Counterclaim And Amended Claim Of U.S. Stee!
Credit Corporation’’ submitted February 9, 1979, with
leave to file granted Steel on April 10, 1979. Each such
count purports to assert violations by the counterdefen-
dants of the federal (Counts I and V through VIII) or
state (Counts IX through XI) securities laws.

The reason for the motion is that as a matter of law,
the participation by U.S. Steel Credit Corporation

— ae

(‘‘Steel’’) in loans to Justin Development Corporation
did not constitute the purchase or sale of a ‘‘security’’
within the meaning of the federal or state securities laws.
Because no ‘‘security’’ is involved, Steel’s securities
claims must be dismissed.

The insufficiency of Steel’s securities law claims is clear
from the face of Steel’s pleadings, including the exhibits
thereto. To the extent the Court may rely upon matters
outside the pleadings, counterdefendants request that this
motion be treated as a motion for summary judgment
pursuant to Rules 12(b) and (c) and Rule 56 of the Fed-
eral Rules of Civil Procedure.

A brief in support of this motion is submitted herewith.
Respectfully submitted,

/s/ Theodore R. Boehm
/s/ James H. Ham, III
Attorneys for the plaintiffs

and counterdefendants American
Fletcher Mortgage Company, Inc.,
American Fletcher National Bank
And Trust Company and American
Fletcher Corporation

THEODORE R. BOEHM
JAMES H. HAM, III
BAKER & DANIELS

810 Fletcher Trust Building
Indianapolis, Indiana 46204
(317) 636-4535

— 77a —

EXHIBIT “C”

Unitep States Districr Court
SouTHERN District Or INpIANA
INDIANAPOLIS Division

AMERICAN FLETCHER MortTGAGE Company, Inc.,
AMERICAN FLETCHER NatTionaL BANK AND TRUST CoMPANY,
Plaintiffs,
VS.

U. S. Srert Creprr Corporation,
Defendant and Counterclaimant,

VS.

American FLetcHer Mortcacr Company, INnc.,
AMERICAN FLercHer NationaL BANK AND TRUST CoMPANYy,
AND AMERICAN FLETCHER Corporation,

Counterdefendants.

Cause No. IP 76-276-C

U. S. STEEL CREDIT CORPORATION’S CROSS-

MOTION FOR SUMMARY JUDGMENT THAT ITS

PATICIPATIONS WERE “SECURITIES”? UNDER
FEDERAL AND STATE SECURITIES ACT

U. S. Steel Credit Corporation (‘‘USSO’’), by counsel,
pursuant to Rule 56 of the Federal Rules of Civil Pro-
cedure, hereby moves the Court for Summary Judgment,
declaring that its ‘‘participations’’, acquired from Ameri-
can Fletcher Mortgage Company (‘‘AFMC’’) in connec-
tion with the Cromwell, Connecticut, condominium loans
were ‘‘securities’’ within the meaning of the Federal and
State of Indiana Securities Acts.

The grounds of this Motion are that there is no genuine
issue of material fact in respect of the status of such
participations as ‘‘securities’’ and that USSC is entitled
to summary judgment on this issue, raised in its counter-
claim herein, as a matter of law.

— 78a —

In support of this Motion, USSC files herewith a Brief,
setting forth the applicable Counts of its Counterclaim,
as amended, in which such ‘‘securities’’ issues are raised
against the Counter-Defendants, as well as the applicable
principles of law and ruling authorities.

In further support of this Motion, USSC files herewith
the Affidavit of Nicholas C. Nizamoff, one of USSC’s
counsel, verifying the citations of deposition testimony
referred to in the accompanying Brief.

/s/ William A. Wick
Attorney for U. S. Steel Credit Corporation

Of Counsel for U. S. Steel Credit Corporation:
WHITE, RAUB, REIS, WICK & RIEGNER
1000 Merchants Bank Building

11 South Meridian Street

Indianapolis, IN 46204

(317) 632-1348

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Motion
was this 22nd day of February, 1980, served upon Theo-
dore R. Boehm, Esq. and James H. Ham, III, Baker &
Daniels, 810 Fletcher Trust Building, Indianapolis, In-
diana 46204, by depositing a copy of same in the United
States mail, postage prepaid.

/s/ William A. Wick

— 79a —

Unitep States Districr Court
SouTHeERN District Or INDIANA
INDIANAPOLIS Division

American FLyercHer Mortcace Company, Inc., and
American FLercHer NATIONAL Bank ANv Trust Company,
Plaintiffs,
Vs.

U. S. Sree, Crepir Corporation,
Defendant and Counterclaimant,

VS.
American FLrrcurer Morrcace Company, Inc.,
AMERICAN FLETCHER NATIONAL BANK AND Trust Company,
AND AMERICAN FLETCHER CorPORATION,
Counterdefendants.

Cause No. IP 76-276-C

AFFIDAVIT OF NICHOLAS C. NIZAMOFF

STATE OF INDIANA )
) SS:
COUNTY OF MARION )

Before me, a Notary Public in and for the aforesaid
county and state, personally appeared Nicholas C. {Niza-
moff, who being first duly sworn upon his oath, deposes
and says:

1. Affiant is one of the counsel for U. S. Steel Credit
Corporation, Defendant and Counterclaimant in the
above-entitled action.

2. As such counsel, affiant personally participated in
the taking of the depositions, referred to below, and can
verify that the deposition testimony, referred to in U. S.
Steel Credit Corporation’s accompanying Brief faithfully
reports the deposition testimony set forth in affiant’s copy
of the transcript of such testimony.

— 80a —

3. The deposition of Stanley John Mack was initially
taken on behalf of American Fletcher Mortgage Company
on the 7th, 8th and 9th days of March, 1978, in Indian-
apolis.

4. Mr. Mack testified that he had been employed by
U. S. Steel Credit Corporation since January, 1970, with
the title of Assistant Treasurer and Assistant Secretary
(Mack dep. p. 9).

d. After testifying that 90 to 95% of the Credit Cor-
poration’s financing involved real estate construction loans
(Mack dep. p. 22) and being asked if transactions in-
volving millions of dollars were at stake, Mr. Mack an-
swered as follows:

‘Yes. I wonder if I could clarify. When we talked
of real estate loans, the Credit Corporation does not
as a practice lead a loan. We are a participating lend-
er. We buy participations from other lead lenders.”

6. Asked at a later point what types of loans were
involved, Mr. Mack testified (p. 25) :

‘“‘But there is no set percentage of a type of loan
that we’re seeking to participate in.

We’re currently involved in hotel financing, shopping
centers, condominiums, small industrial warehouses.
I guess that is pretty much it.’’

7. Asked if the Credit Corporation had any written
‘guidelines for suitable investments,’’ Mr. Mack answered
**No’’, but he said that the Credit Corporation did have
rules of thumb, as follows:

‘We stay in short term investments, interim-type
loans. Generally loans that are restricted to the con-
struction.’? (Mack dep. p. 87)

8. He then added (p. 87):

‘*We do not want to be, as I indicated, a lead lender.
We do want to have the lead retain a substantial part
of the loan.’’

— 8la —

9. Asked whether USSC raised money for its invest-
ments with a line of credit, Mr. Mack responded (p. 11):

“Usually we raise our money through commercial
paper. We do have a line of credit, but commercial
paper normally has been our source for funds.”

10. Affiant also participated in the deposition of Wil-
liam H. Lang, taken on behalf of the Plaintiff in Tampa,
Florida, on January 8, 1980.

11. Mr. Lang testified that in 1973 he was either Pres-
ident or Chairman of U. S. Steel Credit Corporation
(Lang dep. p. 5) and that he is presently retired (Lang
dep. pp. 5-6).

12. At a later point in his deposition, in response to
a question as to the reason for the Credit Corporation’s
interest in having the lead bank retain a share of the
loan, Mr. Lang responded:

“A lead lender’s responsibility is a principal reliance
upon which an investor, such as a credit corporation,
would be basing: its decision.”

13. Affiant also participated in the deposition of W.
Bruce Thomas, taken in Pittshurgh on January 17, 1980.

14. Mr. Thomas testified that in 1973 he was Pres-
ident of U. S. Steel Credit Corporation and remained in
that position until mid-1975 (Thomas dep. p. 3). He also
held and still holds positions with U.S. Steel Credit
Corporation’s parent, United States Steel Corporation.

15. On the subject of U. S. Steel Credit Corporation’s
reliance upon the lead bank, Mr. Thomas testified:

“No. Our method always was to rely on the local
bank for the administration. They were in the com-
munity, they knew the people. It was customers of
theirs. They were on site. They had an organization
designed to do that. We never staffed this organiza-
tion [USSC] to do the sort of thing you were talking

— 82a —

about. We relied on the lender, originator of the
loan, to do that work.’’

16. Asked what the lead lender was expected to do
if it identified a problem in connection with the loan, Mr.
Thomas testified :

“Well, I think we felt they had an obligation to ad-
vise us at the earliest opportunity that there were
problems in the loan.” (Thomas dep. p. 25)

17. Thereafter the questions and answers of Mr.
Thomas continued as follows:

“Q. And having done that, what then are you or
they supposed to do?

A. They would continue to handle the administra-
tion of it. We would, even at that point, have no
role in it except to start worrying I guess, about
our loan.

Q. Did you feel that it was up to them to attempt
to make some sort of a recommendation to you, and
if there were other participants, them as well, as to
what to do about the situation?

A. Yeah. Well, they would in the normal course
have to develop a recommendation. We typically were
a minor investor in the total loan, so they had a
bigger stake or they or other investors together had
a bigger stake than we did. And it was the bank’s
responsibility to develop a recommendation and make
it to us.

Q. It is fair to say that part of your basic approach
to these participations was to take essentially a mi-
nority position and rely in significant part on the
fact that the leading bank had its own money in the
project and, therefore, would presumably do what it
thought was best?

A. Well, it had its own money, it had its reputa-
tion, it had a group that were in the business of ad-
ministering these types of loans. And we did, you
know, we had these investments all over the coun-
try.” (Thomas dep. pp. 25-26).

— 88a —

18. On the subject of reliance upon the lead bank, Mr.
Mack gave the following testimony:

“Q. Now generally, what do you consider in review-
ing the proposal and determining whether to rece
ommend it?

A. I guess the first thing is who is offering it to
us. And what we might know about them, the bank
or the mortgage company or mortgage banker.

Q. Generally whether the—

A. Are they competent so far as we know at the
time.

Q. What do yeu do to form a judgment as to
whether they are or not competent?

A. The vast majority have a relationshiy with U.S.
Steel. A commercial relationship with U.S. Steel.

And this is the biggest source of proposals to us,
these banks. And these banks have mortgage com-
panies or mortgage departments. And in one way
or another, they become aware of the services of
the credit corporation.

And we then become acquainted with that particu-
lar department, mortgage department or mortgage
subsidiary, as the case may be. The credit corpora-
tion, see.

We would be reluctant to do business with just
some strange bank that we had no knowledge about.

So as I indicated, the first is with whom are we
doing business? Where is the proposal coming from?’’
(Mack dep. pp. 43-44).

19. Further testifying on USSC’s reliance on the lead
bank, Mr. Mack gave the following answers to the follow-
ing questions:

“*Q. You just assume that the architect is competent?
A. Well, we do more than that. We assume that
the lead lender has made an analysis of it.

Q. You assume that the lead lender has done things
like look at it from a structural point of view?

a= 84a

A. Has had his cost people and his engineering
people review those plans and specs, yes.

Q. You think that lead lenders review them from
an engineering point of view?

A. Yes. I know they do in some cases, depending
on the type of structure.’ (Mack dep. p. 48)

20. Further on the role of a leader, Mr. Mack gave
the following testimony in response to the following
questions:

**Q. What do you understand the role of the lead
lender to be in that kind of arrangement in general?
A. The role of the lead lender would be to originate
the loan.

Aud usually this is one of his customers, people
that he has done or developers that he has done
business with and knows.

He would obtain the information necessary for
him to make a determination whether or not he
wanted to make the loan. He would negotiate the
terms and conditions and the rate. He would develop
the information about the borrower, about the project.
Do the analysis. Go through the necessary steps in
review of legal documents. Make sure that the project
had the necessary approvals, zoning and environmen-
tal. He would review the cost.

And if the project was substantially enough, he
would have his analysis review the builder’s estimated
cost. He would have his people review the budget.
He might have his engineers review the drawings
and specifications.

And then once he had developed all this informa-
tion and was seeking a participant, he would discuss
generally the outline of what he proposed to do.

And once the participant agreed to participate with
them and executed the agreement and the project
got underway, he would administer that project. He
would send his people out to inspect the progress.
He would send his people out to inspect the progress.

— 85a —

He would require, again depending on the size of the
project, certification from the inspecting architect or
inspecting engineer.

The proper certification from the general contrac-
tor, from the developer. He would monitor the dis-
persements [sic]. He should inspect the project again,
depending on its size how frequently, and determine
if the moneys were going into what they were sup-
posed to go into. That the dollars and materials
were going into place.

And determine as he went along through his en-
gineering people or cost analysts that there were
sufficient funds left in the loan to complete.

And if there were not, if any problems arose, he
would get in touch with the participants and indicate
what they were. And attempt to resolve those prob-
lems, whatever they might be. And carry the project
through to conclusion.

If the project got into trouble, he would handle the
necessary negotiations in attempting to solve that
with the borrower or other parties that might be
involved, guarantors or whatever, with the concur-
rence of the participants, checking with them, getting
their input.

If a foreclosure became, or however you attain
title of a property, to take it over, complete it or
do whatever is necessary to liquidate that asset and
pay off everybody that was involved in it.’’ (Mack
dep. pp. 79-81)

21. In connection with the building loan agreement,
Mack also testified that USSC relied upon AFMC to see
that it was properly closed and executed (Mack dep. p.
279):

‘‘But I was also relying on American Fletcher to
execute the document properly. And I had a fairly
decent idea as to what would be in that building loan
agreement from the previous building loan agree-
ments.’’

— 86a —

22. Mr. Mack further testified to his reliance upon
advice of Mr. Trepinski of AFMC, concerning the per-
sonnel of Justin Development Company, the developer-
borrower (Mack dep. p. 304):

**But I seem to remember a conversation concerning
the principals. And they appeared to have the mix
of backgrounds that looked good.

They had a knowledgeable, experienced developer.
They had an experienced mortgage man who handled
their financing of permanent mortgage. Then they
had an experienced architect and a reliable, reputable
general contractor.

So the various requirements or expertise seemed
to be present among that group.”’

23. The deposition of James T. Trepinski was taken
in Cleveland, Ohio on behalf of U.S. Steel Credit Cor-
poration on July 20, 1977.

24. Mr. Trepinski testified that he had been a vice
president of Toledo Home Mortgage Company, which was
acquired by AFMC in August, 1969 (Trepinski dep. p.
32). He then became vice-president in charge of loan
production for the Ohio division of AFMC (p. 33). He
was then promoted to senior vice-president of AFMC
and moved to Indianapolis (p. 34).

25. Questioned as to the procedures followed by AFMC
in originating, processing and servicing a construction
loan, Mr. Trepinski testified (Trepinski dep. pp. 50-51):

“‘The Loan Originating Department would entertain
the construction loan request from a client, would
consider that request, review it, underwrite it, recom-
mend it to AFMC’s loan committee; upon approval
would turn the situation over to the Legal Depart-
ment for an orderly closing.

The Legal Department would manage that closing
and would supervise that construction loan through
its completion and also supervise, if appropriate, the
delivery of that loan to a permanent investor.”

— 87a —

26. As to the origination of loans by AFMC, Mr. Tre-
pinski testified to the following information, which AFMC
would seek from the prospective borrower as a basis for
evaluating the loan (Trepinski p. 52):

‘‘That information would include everything involved
with the project itself. By that I’m talking about
such things as appraisals, contracts, surveys, archi-
tectural works, drawings, contractor bonding capabil-
ity, market study reports, demographic material and
all of the types of information concerning the bor-
rowing in entity, whatever it might be.’’

27. As to evaluation of the information supplied to
AFMC by the prospective borrower, Mr. Trepinski testi-
fied that ‘‘the preliminary evaluation would be made by
that loan officer’’ (p. 53). The loan officer, he said, did
the ‘preliminary screening and underwriting of the pro-
posed deal’’ (p. 54), then prepared a ‘‘summary analysis’’
(p. 55). Mr. Trepinski went on to testify that he would
examine the summary analysis and decide whether to
take the next step of submitting it to the Loan Committee

(p. 55).

28. As to the information which AFMC would expect
to have in hand before submission of the prospective loan
to its Loan Committee, Mr. Trepinski testified that it
would include the following (pp. 57-58):

‘Included with that, but not necessarily only these
items, a full appraisal, full and complete analysis of
the market in the event of being an income type prop-
erty, an analysis of leases, survey information, com-
plete construction costs, proposal data on proposed
contractors, data on the borrowing entity and _ its
worth, time frame schedules for construction; if
appropriate, information on sales capability or leasing
capability, to name some of the major items,’’

29. Trepinski also testified concerning plans and spe-
cifications (dep. p. 62):

—- 88a, —

“‘Plans and specifications would be required to be
reviewed by the loan officer, compared to the general
proposal, delieverd to the Legal Department also for
for review.”’

30. Trepinski also testified that AFMC would require
the borrower to submit a breakdown of his estimated
construction costs, the purpose being (dep. 71):

“to evaluate the overall cost of the project and loan
amount, resultant loan amount to determine whether
or not such request was reasonable.’’

31. In the case of new borrowers, with whom AFMC
had had no prior experience, Trepinski testified that
(dep. p. 76):

‘‘AFMC would require not only the financial informa-
tion submitted by the proposed borrower, but would
also undertake to conduct his own investigation of
that proposed borrower’s tinancial condition.’

32. Mr. Trepinski went on to testify that after ap-
proval by the Loan Committee of the prospective loan,
the Loan Origination Department would prepare a par-
ticipating offering (Trepinski dep. p. 171). At a later
point in his deposition, Mr. Trepinski identified the par-
ticular participation offerings, which were submitted to
U.S. Steel Credit Corporation in connection with the
Cromwell loan, copies of which, designated as deposition
exhibits 73 and 74, are attached to this Affidavit. (dep.
p. 280, 281).

33. Tr. Trepinski also testified to other information,
which customarily would have been submitted to a pro-
posed participant, as follows (dep. pp. ........ ):

**Q. What other material would have been supplied
to the participating lender?

A. The type of material that we discussed yesterday.
Q. The surveys and plats and appraisals and...
A. Yes. That’s right.

=

Would cost breakdowns have been supplied?
Normally, ves.

Would feasibility studies have been supplied?

It could well be, yes.

Would financial statements of the principals in-
volved be supplied?

A. Yes; yes.’’

34. As to the particular documentation, which was
supplied to USSC, AFMC Requests for Admissions and
USSC’s Responses thereto, as filed in this action, show
the receipt by USSC in 1973 of such documents as the
following: an Appraisal (Ex. 1001), a Marketing and
Feasibility Report (Ex. 1002) and LA&D Loan Cost
Breakdown (Ex. 1003), Puntillo (contractor’s president)
financial data (Exs. 1011, 1012), financial data on prin-
cipal officers of the Developer Justin Development Cor-
poration (Exs. 1013-1031), financial statements of Devel-
oper and Contractor (Exs. 1032, 1033, 1034).

35. And further affiant saith nought.

/s/ Nicholas C. Nizamoff
Nicholas C. Nizamoff

erere

Subscribed and sworn to before me, a Notary Public
in and for the above said County and State, this 22 day
of February, 1980.

/s/ Brenda L. Jackson
Notary Public
/s/ Brenda L. Jackson
(Printed)

My commission expires:
8-13-82

County of residence:
Marion

— 90a —

UNITED STATES DISTRICT COURT
Southern District of Indiana
Indianapolis Division

AMERICAN FLETCHER MORTGAGE COMPANY,
INC, and
AMERICAN FLETCHER NATIONAL BANK AND
TRUST COMPANY,
Plaintiffs,
Vs.

U.S. STEEL CREDIT CORPORATION,
Defendant and Counterclaimant,

VS.

AMERICAN FLETCHER MORTGAGE COMPANY,
INC.
AMERICAN FLETCHER NATIONAL BANK AND
TRUST COMPANY, and
AMERICAN FLETCHER CORPORATION,
Counter-Defendants.

Cause No. IP 76-276-C

SUPPLEMENTAL AFFIDAVIT OF STANLEY
J. MACK

State of Florida )
SS:
County of Dade _ )

Stanley J. Mack, being first duly sworn upon his oath,
deposes and says:

1. Affiant is and has been since 1973, as well as prior
thereto, Assistant Treasurer and Assistant Secretary of
U. 8. Steel Credit Corporation (‘‘USSC’’). Affiant was
personally involved on behalf of his employer with the
acquisition by USSC of participations in connection with
an Acquisition and Development Loan (‘‘A & D Loan’’)
and a Construction Loan, made by American Fletcher
Mortgage Company (‘‘AFMC’’) to Justin Development

— 9la —

Corporation to finance a major condominium construc-
tion project in the Town of Cromwell, Connecticut. Affiant
has been active on behalf of USSC during the entire
period of its involvement with the Cromwell project and
has personally participated in virtually all dealings with
AFMC in connection with such project.

2. Copies of the executed participation agreements are
hereto attached and made a part hereof as ‘‘Exhibit A”’
and ‘‘Exhibit B’’, respectively.

3. USSC has never construed the participation agree-
ments as assigning to it any interest in the unpaid in-
debtedness of Justin Development Corporation, or the
security therefor, as distinguished from amounts received
by AFMC in repayment of such indebtedness, or realized
from foreclosure or sale of the security, and USSC has
never interpreted the participation agreements as con-
ferring upon it any rights against the borrower, Justin
Development Corporation, whatsoever.

4. At no time has AFMC, or any officer or employee
of AFMC, given any indication to Affiant, by word or
deed, of any belief on the part of AFMC or its represen-
tatives that the attached participations conferred upon
USSC any right in the unpaid indebtedness, or the
security therefor, or any rights against Justin, the bor-
rower, whatsoever.

5. At no time has affiant received any indication from
the borrower, Justin Development Corporation, or any
representative of the borrower, of any belief on Justin’s
part that USSC had any rights or claims against Justin.

6. Proof that AFMC and Justin Development Cor-
poration regarded USSC as having no interest in the
unpaid indebtedness, or security therefor, is established
by the settlement between those two parties (as well as
the contractor, Jobeo, Inc.), made on October 10, 1975.
When that settlement, which included the release of all
claims against Justin and Jobco, Ine. and Jobco’s Bonding
Company, was consummated, USSC was not required or

— 92a —

invited to execute any of such releases, and in fact was
not even furnished with copies of the executed settlement
documents or releases prior to the commencement of
this litigation.

7. And further affiant saith nought.

/s/ Stanley J. Mack
Stanley J. Mack

State of Florida )
) SS:
County of Dade _ )

Sworn to before me and subscribed in my presence this
6th day of March, 1980.
/s/ Marjorie D. Bailey
Notary Public

My Commission Expires:
12/25/82

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1424%3A2. Public record. Not legal advice.