Opposition Brief — Terre Du Lac Ass'n v. Terre Du Lac, Inc.
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IL E D
MAY 2G 1985
FT. SPANIOL, JR.
No. 87-1742
CLERK
cs”
IN THE
Supreme Court of the United States
OCTOBER TERM, 1987
TERRE Du Lac ASSOCIATION, INC.,
Petitioner,
VS.
TERRE Du LAc, INc., TERRE Du LAc Gotr & COUNTRY
Cus, INc., TERRE DU LAC COUNTRY CLUB ASSOCIATES,
C.1.T. CORPORATION, SENSIBAR ENTERPRISES, INC., Mo-ILL, LTb..,
and JAmMeEs O. Kwon,
Respondents.
RESPONDENTS’ BRIEF IN OPPOSITION
TO PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
Mark G. ARNOLD JOHN W. Rein Il
Huscu, EPPENBERGER, SCHNAPP, GRAHAM & REID
DONOHUE, CORNFELD 135 East Main
& JENKINS Fredericktown, MO 63646
100 North Broadway (314) 783-7212
Suite 1300
St. Louis, MO 63102
(314) 421-4800
Counsel of Record for | Counsel of Record for Terre
C.1.T. Corporation Du Lac, Inc. and James O. Kwon
(Continued inside front cover)
St. Lours baw Printing Co., Inc., 1330S Manchester Road 63131 314-231-4477
MITCHELL S. GOLDGEHN
GREENBERG, KEELE, LUNN & ARONBERG
One IBM Plaza, Suite 4500
Chicago, IL 60611
(312) 828-9600
Counsel of Record for Terre Du Lac Golf & Country
Club, Inc., TDL Country Club Associates,
Sensibar Enterprises, Inc., and Moill, Ltd.
TABLE OF CONTENTS
Page
CO ye Ea l
Reasons Why The Writ Should Be Denied ............ 6
I. The Eighth Circuit’s Holding On The §
1962(c) Claim Conflicts With No Other Deci-
sions, Because There Is No RICO Pattern
And There Is No RICO Enterprise.......... 6
A. The Complaint Does Not Allege A
a 8
B. The Complaint Does Not Allege An
Enterprise Under § 1962(c)............ 9
Il. The Eighth Circuit’s Holding Conflicts With
No Other Decisions, Because The Association
Has Itself Sustained No Injury By Reason Of
Any Alleged RICO Violation .............. 10
A. The Complaint Does Not Allege A
Causal Connection Between The Alleged
Injury And The Alleged Violation of §
CE lay ae EE ey aaa 11
B. The Association’s ‘‘Injury’’ Is Purely
Derivative Of The Alleged Injuries To
ee Mh has wee 00 os 12
Ill. The Doctrine of Res Judicata Bars The
Association’s Claims Against C.I.T. ........ 14
EES EDO Se 16
Appendix: First Amended Complaint ............... A-|
FABLE OF AUTHORITIES
Beautord v. Helmsley, 843 F.2d 103 (2d Cir. 1988)
Beck v. Manufacturer’s Hanover Trust Co., 820 F.2d 464
(2d Cir. 1987), cert. denied, 108 S.Ct. 698 (1988
Carter v. Berger, 777 F.2d 1173 (7th Cir. 1985) ..
Condict v. Condict, 826 F.2d 923 (10th Cir. 1987)
Flip Mortgage Corp. v. McElhone, 841 F.2d 531 (4th
eS errr ee ae
Gilbert v. Prudential-Bache Securities, Inc., 643
F.Supp. 107 (E.D. Pa. 1986) .......
H.J. Inc. v. Northwestern Bell Telephone Co., No.
87-1252, cert. granted, 56 U.S.L.W. 3647 (March
21, 1988)
International Databank, Ltd. v. Zepkin, 812 F.2d 149
(4th Cir. 1987)
Levey v. E. Stewart Mitchell, Inc., 585 F.Supp. 1030
(D. Md. 1984), aff’d mem., 762 F.2d 998 (4th Cir.
1985)
Marshall & Ilsey Trust Co. v. Pate, 819 F.2d 806 (7th
o,f) ore Pree
Montesano v. Seafirst Commercial Corp., 818 F.2d 423
(Sth Cir. 1987)
P.M.F. Services, Inc. v. Grady, 681 F.Supp. 549 (N.D
Ill. 1988)
Rand v. Anaconda-Ericsson, 794 F.2d 843 (2d Cir.),
ert. denied, 107 S.Ct. 579 (1986)
Page
.8,9,10
a
4\
Roeder v. Alpha Industries, Inc., 814 F.2d 22 (Ist Cir
Ae ree 12
Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) .....6,7,11
lrerre Du Lac Association v. Terre Du Lac, Inc., 737
S.W.2d 206 (Mo. App. 1987)......... faa 4,13
lorwest DBC, Inc. v. Dick, 810 F.2d 925 (10th Cir.
> it} eee 8
United States v. Turkette, 452 U.S. 576 (1981)... ...7,9,10
Warren v. Manufacturers National Bank of Detroit, 759
F.2d 542 (6th Cir. 1985) .. e ee 13
Statutes:
18 U.S.C. § 1961 ef seg.... | ny 2
18 U.S.C. § 1962(a) 3,10,11,12,13,14
18 U.S.C. § 1962(c) .3,6,9,10,14
18 U.S.C. § 1964(a) : 4
28 U.S.C. § 1738 . ? 15
ABA Report on Civil RICO (1985)
No. 87-1742
IN THE
Supreme Court of the United States
OcTOBER TERM, 1987
Terre Du Lac ASSOCIATION, IN
Petitioner,
VS.
TerkReE Du Lac, INc., TERRE Du LAC GOLF & COUNTRY
Crus, INc.. Terre Du LAC COUNTRY CLUB ASSOCIATES
.1.T. CORPORATION, SENSIBAR ENTERPRISES, INC., Mo-ILt, L1
and James O. Kwon
C
Respondents.
RESPONDENTS’ BRIEF IN OPPOSITION
TO PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE EIGHTH CIRCUIT
Respondents Terre Du Lac, Inc., Terre Du Lac Golf & Coun-
try Club, Inc., TDL Country Club Associates, C.1.T. Corpora
tion, Sensibar Enterprises, Inc., Moill, Ltd., and James O
Kwon respectfully request that this Court deny the petition for
writ of certiorari seeking review of the Opinion of the United
States Court of Appeals for the Eighth Circuit. That Opinion is
reported at 834 F.2d 148 (1987).
STATEMENT OF THE CASE
This case is one of two pending actions in which plaintiff
—
lerre Du Lac Association (the Association) seeks specific per-
4
formance of promises allegedly made to its members. In Jerre
Du Lac Association, Inc. v. Terre Du Lac, Inc., No.
CV685-1050, currentiy pending in the Circuit Court of Cape
Girardeau County, Missouri, the Association seeks relief on a
theory of breach of contract. In the instant action, the Associa
tion seeks the same relief under ithe Racketeer Influenced and
Corrupt Organizations Act of 1970 (RICO), 18 U.S.C. § 1961 e7
Seq.
[he Parties.
The Association is a Missouri non-profit corporation. All
persons owning lots in the Terre Du Lac subdivision must join
the Association and pay its mandatory assessments. Respon-
dent Terre Du Lac, Inc. (TDL) is a Missouri corporation which
developed the Terre Du Lac project. Respondent James O
Kwon is its president and a principal shareholder. Defendant
Sensibar Enterprises, Inc. (Sensibar) is a corporation which ac-
quired voting control of TDL following TDL’s Chapter 11
reorganization in 1977. On December 30, 1980, Sensibar con-
veyed all of its interest in TDL to others
Respondent C.1.T. Corporation (C.1.T.) is a lending institu-
tion, which has been the principal lender for the project since
1973. TDL Country Club Associates (TDL Associates) is a
Missouri limited partnership that owns and operates the country
club facilities in the Terre Du lac development. Moill Ltd is the
general partner of TDL Associates. Terre du Lac Golf & Coun-
try Club Inc., is an inactive Missouri corporation that owns no
tangible assets.
The Alleged Pattern.
The Association alleges that, as a part of its sales campaign,
IDL misrepresented its intention:
(a) to complete all roads in the subdivision with ar
Ll, le . ; . or ‘ +1 " »*
isphalt surface over a stabilized base
Lad
(b) to convey the amenities and common areas of Terre
Du Lac to the Association, free and clear of liens and
encumbrances; and
(c) to complete the water and sewage disposal systems in
Terre Du Lac.
Complaint € 128(a).' In its pending action in the state court, the
Association seeks to enforce the same alleged promises in con
tract
The 1962(a) Claim.
The Association alleges that TDL made these promises tn
connection with the sale of every lot sold since 1977. Complaint
€ |28(b). TDL used the proceeds of those sales to pay debt set
vice on its loan to C.1.T., and dividends to Sensibar. Complaint
€€ 130-31. C.1.T. and Sensibar retained those payments. The
Association alleges that this ‘‘investment’’ of the proceeds of
racketeering activity in ‘‘enterprises,’’ to wit, C.I.T. and Sen
sibar, violates 18 U.S.C. § 1962(a). The Association does nos
allege that its ‘‘injury’’ is causally related to this ‘‘investment,’’
as opposed to the alleged pattern of racketeering activity.
The 1962(c) Claim.
The Complaint identifies two ‘“‘enterprises’’ whose affairs
were conducted by the alleged pattern of racketeering activity:
rDL. and an association-in-fact comprised of all defendants.
Complaint © 132. The Complaint does not allege that either
‘‘enterprise’’ has any existence apart from the alleged scheme to
defraud. On the contrary, the Complaint alleges that both the
association-in-fact and TDL allegedly committed fraud on every
prospective purchaser of a lot in Terre Du Lac. Complaint, £
128(b)
Pa ae
The Association’s ‘‘Injury’’ and Proposed Relief.
The Association aileges that it has sustained injury to its
business or property, by reason of the alleged ‘‘racketeering,”’
in three ways:
A. C.I.T. and Sensibar have invested monies paid by
TDL in themselves, rather than investing those
monies in the Ferre du Lac infrastructure.
B. The failure to provide asphalt roads has increased the
Association’s maintenance expenses, because asphalt
roads are less expensive to maintain than gravel
roads.
C. The alleged fraud induced the sale of additional lots,
resulting in greater use of existing roads and common
facilities.
Complaint, ¢ 134-36.
The Association has judicially admitted that it has refused to
accept the conveyance of any roads which are not paved with . |
asphalt. The Association has also admitted that it does not own |
the ‘‘common facilities’’. Terre Du Lac Association v. Terre
Du Lac, Inc., 737 S.W.2d 206, 211 (Mo. App. 1987).
The Association seeks specific performance of the alleged
promises pursuant to 18 U.S.C. § 1964(a). Count XV, Prayer.
The Association has vigorously contended that damages are an
alternative, and less preferred, remedy.
The State Court Litigaiion.
The Association filed its state court action in 1984. The trial
court dismissed for failure to state a cause of action. On appeal,
the Missouri Court of Appeals affirmed in part and reversed in
part. Jerre Du Lac Association v. Terre Du Lac, Inc., supra,
737 S.W.2d at 206. That Court held that, as a third-party
ws
beneficiary, the Association could enforce promises allegedly
made to its members. Thus, the Court allowed the Association
to proceed against TDL, Kwon and Sensibar.
[he Court affirmed the judgment of dismissal in favor of
C.1.T. The sole ground for relief against C.1I.T. was its alleged
Status as a joint venturer with TDL. The Missouri Court of Ap-
peals found, as a matter of law, that C.1.T. was not a joint ven-
turer with TDL.
=
REASONS WHY THE WRIT SHOULD BE DENIED
The Association urges this Court to grant its petition for a
writ of certiorari, primarily because the Court has granted such
a petition in H.J/. Inc. v. Northwestern Bell Telephone Co., No.
87-1252, cert. granted, 56 U.S.L.W. 3647 (March 21, 1988).
Petition for Writ of Certiorari (‘‘Petition’’) at 9-10.
Respondents submit that no Circuit Court of Appeals would
conclude that this Complaint states a cause of action under
RICO. To be sure, the different Circuits might reach that result
via different routes. The resuit, however, would be the same.
The Eighth Circuit’s hol/ding in this case was that the Com-
plaint failed to state a claim on which relief could be granted.
834 F.2d at 148-49. Like the Second, Fourth and Tenth Cir-
cults, the Eighth Circuit found no RICO pattern. Other Cir-
cuits would reach the same result via analysis of the
‘enterprise’? requirement under § 1962(c). All Circuits would
find that the Association had sustained no injury to its business
or property ‘‘by reason of”’ any alleged RICO violation.
Thus, this case presents a singularly poor vehicle to resolve
any disagreement concerning the proper scope of RICO.
Moreover, denial of the Petition would work no manifest in-
justice on the Association. It would merely end federal pro-
ceedings that have been terminally ill since their inception.
There is no reason for this Court to prolong the agony.
I. The Eighth Circuit’s Holding On The § 1962(c) Claim
Conflicts With No Other Decisions, Because There Is No
RICO Pattern And There Is No RICO Enterprise.
In Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), this
Court recognized the ‘‘extraordinary”’ uses of civil RICO and
acknowledged that the staiute has evolved into something
‘“‘quite different’’ from its original purposes. 473 U.S. at S00.
This Court attributed these abuses of civil RICO to its bredth
and ambiguity. 473 U.S. at 500.
ae ces
This Court has also recognized, however, that RICO’s pur-
pose was to eradicate organized crime. United States v.
Turkette, 452 U.S. 576, 588-89 (1981). Congress recognized
that a direct ban on ‘‘organized crime’’ would be constitutional-
ly suspect and difficult to apply. Instead, Congress chose to
define conduct characteristic of organized crime, and to pro-
hibit such conduct:
The reach of the statute beyond traditional mobster and
racketeer activity in comparable ongoing structured
criminal enterprises, was intented to be incidental, and on-
ly to the extent necessary to maiatain the-constitutionality
of a statute aimed primarily at organized crime.
ABA Report on Civil RICO (1985), at 72, quoted in Sedima,
473 U.S. at 526 (Powell, J. dissenting). The civil remedy con-
tained in § 1964(c) must reflect that principal objective. 473
U.S. at 498.
Thus, Sedima requires a determination of whether the con-
duct in question is the type of ongoing criminal activity at which
RICO was aimed. A civil RICO action requires more than a col-
lection of alleged predicate offenses. It requires the structure,
organization and continuity characteristic of organized crime.
As the parallel state proceedings reflect, the instant action does
not involve such conduct.
It is hardly surprising, therefore, that the other Circuits
would agree with the Eighth Circuit’s ultimate conclusion: this
Complaint fails to state a claim. Some Courts would approach
the issue from the standpoint of ‘‘pattern.’’ Others would find
no ‘‘enterprise.’” These semantic differences do not constitute a
conflict in the Circuits warranting review of this case. The Se-
cond Circuit’s latest pronouncement on RICO is illustrative:
Although, except in A/bany, we speak in terms of ‘‘enter-
prise’’ rather than ‘“‘pattern,’’ we nevertheless require con-
linuity in any event and find insufficient evidence of con-
ee
‘inuity in a single criminal episode regardless of how many
fraudulent acts it entails. In other words, a single criminal
episode or scheme does not charge a claim under RICO
because it lacks sufficient continuity to constitute an enter-
prise, even if its fraudulent acts constitute a pattern.
Beauford v. Helmsley, 843 F.2d 103 (2nd Cir. 1988).
A. The Complaint Does Not Allege A RICO Pattern.
| The Eighth Circuit héld that the alleged fraud was part of a
single scheme to market property in Terre du Lac. Absent a
claim that defendants engaged in similar activities elsewhere or
in the past, there is no RICO pattern. 834 F.2d at 149. The
Association acknowledges that this holding accords with prior
Eighth Circuit procedent. Petition at 6.
The Second, Fourth and Tenth Circuits would concur with
this analysis. While both the Fourth and the Tenth Circuits
eschew a ‘‘bright line’’ test, both have used remarkably similar.
language in rejecting civil RICO claims. In /nternational
Databank, Ltd. v. Zepkin, 812 F.2d 149 (4th Cir. 1987), the
Fourth Circuit held:
To allow a ‘“‘pattern of racketeering’”’ to flow from a
single, limited scheme such as this one would undermine
Congress’s intent that RICO serve as a weapon against
ongoing unlawful activities whose scope and persistance
pose a special threat to social well-being.
812 F.2d at 155. Accord, Flip Mortgage Corp. v. McElhone,
841 F.2d 531 (4th Cir. 1988).
In Torwest DBC, Inc. v. Dick, 810 F.2d 925 (10th Cir. 1987),
the Tenth Circuit reached a similar conclusion. The Tenth Cir-
cuit subsequently described the facts in 7orwest as comprising:
only one scheme, one result, one set of participants, one
victim, one method of commission, and thus, no continui-
ty and no pattern of racketeering activity.
—
Condict v. Condict, 826 F.2d 923, 928 (10th Cir. 1987). The
Tenth Circuit found ‘‘no threat of continuing fraudulent activi-
ty,’’ and nothing to suggest that defendants had undertaken or
planned to undertake any other fraudulent activity. 810 F.2d at
929. Hence, there was no pattern.’
Other Circuits might approach the problem differently. In
earlier holdings, the Second Circuit focused primarily on the
question of a § 1962(c) enterprise. E.g. Beck v. Manufacturer’s
Hanover Trust Co., 820 F.2d 46, 51-52 (2nd Cir. 1987), cert.
denied, 108 S.Ct. 698 (1988). In Beauford v. Helmsley, supra,
however, the Second Circuit recognized that the label is less im-
portant than the result. A ‘‘discrete, finite . . . scheme’”’ Is in-
sufficient to state a RICO claim, whether the basis for that rul-
ing is the “‘pattern’’ requirement or the ‘‘enterprise’’ require-
ment.
Since the Association does not allege an appropriate enter-
prise under § 1962(c), the other Circuits would affirm the
dismissal on that basis.
B. The Complaint Does Not Allege An Enterprise Under
§ 1962(c).
In United States v. Turkette, supra, 452 U.S. at 583, this
Court held that RICO requires an ‘‘enterprise’’ separate from
the pattern of racketeering activity. The Complaint identifies
two ‘“‘enterprises’” whose affairs were allegedly conducted
through a RICO pattern: TDL and an association in fact com-
prised of all deiendants. Most Circuits would hold this pleading
* The Association’s contention that this ruling restricts RICO relief
to those persons who are themselves repeatedly victimized by separate
schemes is clearly incorrect. A RICO plaintiff need not be injured by
each separate part of the pattern in order to sue for injuries caused by
one part thereot. Marshall & Ilsey Trust Co. v. Pate, 819 F.2d 806,
810 (7th Cir. 1987).
a eee
inadequate, because the ‘“‘enterprises’’ are indistinguishable
from the alleged pattern.
In United States v. Anderson, 626 F.2d 1358 (8th Cir. 1980),
cert. denied, 450 U.S. 912 (1981), the Eighth Circuit anticipated
this Court’s holding in Turkette. Anderson holds that:
The term ‘‘enterprise’’ must signify an association that is
substantially different from the acts which form the ‘‘pat-
tern of racketeering activity.”’
626 F.2d at 1365. Most Circuits concur. Beck v. Manufacturers
Hanover Trust Co., supra, 820 F.2d at 51-52; United States v.
Riccobene, 709 F.2d 214, 222-23 (3rd Cir.), cert. denied, 464
U.S. 849 (1983); Montesano v. Seafirst Commercial Corp., 818
F.2d 423, 427 (Sth Cir. 1987).
The instant Complaint alleges that both the ‘‘association in
fact’? and TDL committed fraud on every prospective purchaser
in an effort to sell lots in Terre Du Lac. Complaint, § 128(b).
Thus, according to the Association, there is no purpose or struc-
ture separable from the alleged pattern. As a result, there is no
“‘enterprise’’ under § 1962(c).
Beauford aileged a fraudulent scheme to sell some 8,286 con-
dominiums via misrepresentations commencing in 1984 and
continuing to the date of the opinion. The ‘‘enterprises’’ were
the developer and an association in fact consisting of all defen-
dants. These allegations are identical to the Association’s
allegations in the instant case. The holding in Beauford,
whether based on ‘“‘pattern’’ or on ‘‘enterprise,’’ is the clearest
proof that the alleged conflict between the Circuits, as applied
to the instant case, is pure semantics.
II. The Eighth Circuit’s Holding Conflicts With No Other
Decisions, Because The Association Has Itself Sustained
No Injury By Reason Of Any Alleged RICO Violation.
The Association claims that the alleged violations of §§
1962(a) and 1962(c) have injured the Association. In fact, the
———
=—it—
Association has sustained vo injury to its business or property
‘by reason of’’ any alleged RICO violation. Its only injuries
are purely derivative of the injuries allegedly sustained by its
members, and for which the Association seeks redress. Every
Circuit to address these issues has concluded that such allega-
tions do not state a claim under RICO.
A. The Complaint Does Not Allege a Causal Connection
Between the Alleged Injury and the Alleged Violation
Of § 1962(a).
In Sedima, this Court held that a RICO plaintiff can recover
only to the extent that he has been injured by the conduct which
constitutes the violation. 473 U.S. at 496. Section 1962(a) mere-
ly prohibits investments of funds received from a pattern of
racketeering activity. The Association’s alleged injury is not
caused by the investment of such funds in any enterprise. Thus,
the conduct which constitutes the violation has not injured the
Association.
Section 1962(a) prohibits neither racketeering activity nor the
receipt of income from it. The section prohibits on/y the invest-
ment of such proceeds in an enterprise. Indeed, § 1962(a) ex-
pressly exempts open market purchases of stock amounting to
less than 1% of the total outstanding shares.
The Association’s claim under § 1962(a) alleges:
A. TDL received the fruits of racketeering activity, in the
form of the purchase price of the lots sold;
B. TDL used those monies to pay debt service to C.I.T.
and dividends to Sensibar;
C. C.1.T. and Sensibar invested that money in “‘‘enter-
prises’? — to wit, themselves; and
D. The diversion of those monies from the Terre du Lac
infrastructure injured the Association.
Complaint, 45 130-31.
Had C.1.T. invested its debt service in General Motors stock,
instead of itself, it would not have violated § 1962(a). Had Sen-
sibar given its TDL dividends to charity, or thrown them to the
winds, it would not have violated § 1962(a). In either circum-
tance, the Association’s alleged injury would remain. Thus,
there is no causal connection between the conduct constituting
the alleged violation and the alleged injury.
While no Circuits have addressed the issue, the language of §
1962(a) is unambiguous on its face. Unsurprisingly, therefore,
most District Courts have endorsed this reasoning. P.M.F. Ser-
vices, Inc. v. Grady, 681 F.Supp. 549, (N.D. Ill. 1988), and
authorities there cited; Gilbert v. Prudential-Bache Securities,
Inc., 643 F.Supp. 107, 109 (E.D. Pa. 1986).
Respondents submit that all Circuits would follow the plain
language of the statute, and this Court’s holding in Sedima, in
rejecting the Association’s claim under § 1962(a).
B. The Association’s ‘‘Injury’’ Is Purely Derivative of
The Alleged Injuries To Its Members.
Even in the context of RICO, the courts have maintained the
distinction between injury to a corporation and injury to its
members. The Association claims that it has suffered injuries
separate from those allegedly sustained by its members. In fact,
its pleadings in this case and in the parallel state proceedings
establish exactly the opposite: its ‘‘injuries’’ are nothing mor¢
than derivative injuries of its members.
Racketeering acts aimed at a corporation may indirectly in-
jure the shareholders, by reducing the value of their investment.
Every Circuit to address the issue, however, has held that
shareholders cannot file a RICO action for injuries sustained by
a corporation. Roeder v. Alpha Industries, Inc., 814 F.2d 22,
31 (Ist Cir. 1987); Rand v. Anaconda-Ericsson, 794 f.2d 843,
849 (2d Cir.), cert. denied, 107 S.Ct. 579 (1986); Levey v. E.
a
Stewart Mitchell, Inc., 585 F.Supp. 1030 (D. Md. 1984), aff'd
mem., 762 F.2d 998 (4th Cir. 1985); Warren v. Manufacturers
National Bank of Detroit, 759 F.2d 542, 544-46 (6th Cir. 1985);
Carter v. Berger, 777 F.2d 1173 (7th Cir. 1985). The same rule
ought logically to apply to a corporation allegedly injured as a
result of injuries to its members.
In this case, the Association c/aims that it has sustained direct
injury to its own business or property. The record reveals other-
wise. First, the relief sought is exclusively on behalf of its
members. The Association seeks specific performance of pro-
mises allegedly made to its members. By redressing injuries of
its members, the Association hopes to receive the derivative
‘
benefit of redressing its own “‘injury.”’
Second the Association has not itself sustained any injury.
Apart from the claims under § 1962(a), the Complaint alleges
two types of injury:
1. The failure to provide asphalt roads has increased the
Association’s maintenance expenses, because asphalt
roads are less expensive to maintain than gravel
roads. The Association has judicially admitted,
however, that it has refused to accept the conveyance
of any roads which are not paved with asphalt. Terre
Du Lac Association v. Terre Du Lac, Inc., 737
S.W.2d 206, 211 (Mo. App. 1987). The Association
cannot have sustained legally cognizable damage in
the form of maintenance costs on roads it has refused
to accept.
2. Ihe alleged fraud procured the sale of additional lots,
resulting in greater use of existing roads and common
facilities. The Association has judicially admitted,
however, that TDL has refused to convey the ‘‘com-
mon facilities’? to the Association. Terre Du Lac
issociation v. Terre Du Lac, Inc., supra, 737 S.W.2d
at 211. As noted, the Association has refused to ac-
pag * ae
cept any roads not paved with asphalt. Thus, greater
use of gravel roads or common facilities neither own-
ed nor maintained by the Association cannot have
caused it any injury.
Even if its expenses had increased, the Association would not
itself have sustained any injury to its business or property. All
persons Owning property in the subdivision must join the
Association. As a non-profit corporation, the Association
makes assessments equal to the cost of providing services to its
members. Thus, any additional expenses caused by the sale of
additional lots are precisely offset by additional income from
those very members. Indeed, the Association pleads as much.
Complaint, ¢ 137.
Respondents acknowledge that the Eighth Circuit rejected a
similar argument in the first appeal. 772 F.2d at 473. That rul-
ing underscores the real nature of the alleged Circuit conflict: it
is purely a matter of semantics. Every Circuit would agree with
the Eighth Circuit’s ultimate holding — this Complaint does not
state a claim. That other Circuits would rely on different
grounds to reach that result is irrelevant.
lll. The Doctrine Of Res Judicata Bars The Association's
Claims Against C.I.T.
The sole pleaded basis for C.1.T.’s liability is its alleged status
as a joint venturer with TDL. In the parallel state proceedings,
the Missouri ce ts have specifically held that, as a matter of
law, C.I.T. is not a joint venturer with TDL. Terre Du La
Association v. Terre Du Lac, Inc., supra, 737 S.W.2d at 216-17.
C.1.T. is not liable under § 1962(a), unless it participated as a
principal in the alleged pattern of racketeering. The Association
makes no such allegation. C.1I.T. is not liable under § 1962(c),
unless it participated in the conduct of an enterprise’s affairs
through a pattern of racketeering activity. Again, the Associa
tion makes no such allegation
<
"s liability is
leged status
Missouri courts have
held that ¢
lo plead a joint venture in debtor-lender,
shared in the losses,
it IS Imperal
to also plead that those parties specifically agreed to share
Because Association’s petition failed to pieac
trial court prope!
l
Association’s
squarely
CONCLUSION
The easy way to dispose of this Petition is to hold it pending a
decision in H.J. The just and proper disposition is immediate
denial of the Petition. A ruling in HJ. is unlikely prior to 1989.
In the meantime, the pendency of this RICO claim has effective-
ly blocked any further efforts to develop Terre du Lac. What
person wouid be willing to buy a lot in Terre du Lac, when the
Association is loudly proclaiming that TDL is a racketeer?
Since no Circuit would find that the Association has stated a
cause of action, there is no just reason for this delay. Thus,
respondents respectfully submit that the Court should deny the
petit for a writ Of certiorari.
Respectfully submitted,
Mark G. Arnold
HUSCH, EPPENBERGER
DONOHUE, CORNFELD &
JENKINS
100 N. Broadway, Suite 1300
St. Louis, MO 63102
(314) 421-4800
Counsel of Record tor C.1.1
Corporation
John W. Reid
SCHNAPP, GRAHAM & REID
135 E. Main
Fredericktown, MO 63645
(314) 783-7212
Counsel of Record tor Terre Du
Inc. and James O. Kw
17
Mitchell S. Goldgehn
GREENBERG, KEELE, LUNN &
ARCNBERG
One IBM Plaza, Suite 4500
Chicago, IL. 60611
(312) 828-9600
Counsel of Record for Terre Du Lac
Golt & Country Club, Inc., TDI
Country Club Associates, Sensibar
Enterprises, Inc. and Moill, Ltd
APPENDIX
Pee ee ee eee Se ee ee
APPENDIX A
UNITED STATES DISTRICT COURT EASTERN DISTRICT
OF MISSOURI EASTERN DIVISION
Cause No. 83-2577-C(3)
Jury Trial Demanded
Terre Du Lac Association, Inc. a not-for-profit corporation,
Plaintiff,
VS.
Terre Du Lac, Inc., Terre Du Lac Utilities Corp., Terre Du Lac
Golf and Country Club, Inc., Terre Du Lac Country Club
Associates, a limited partnership, Cit Corporation, Sensibar
Enterprises, Inc., Moill, Ltd., and James O. Kwon,
Defendants.
FIRST AMENDED COMPLAINT
COMES NOW the plaintiff herein, as of right pursuant to
Rule 15(a) of the Federal Rules of Civil Procedure, and for its
claims against the defendants states as follows:
|. The Parties
1. The Plaintiff, Terre Du Lac Association, Inc. (‘‘Associa-
tion’’) is a Missouri not-for-profit corporation.
2. The plaintiff brings this suit on behalf and for the benefit
of its members who heretofore have purchased lots in the Terre
Du Lac Subdivision Development (‘‘Terre Du Lac’’ or ‘‘Sub-
division’’) ‘rom the defendants, and, as to certain claims
asserted herein, on its own behalf, and/or on behalf of all of its
members.
3. The defendant Terre Du Lac, Inc. (“*‘TDL’’) is a Missouri
corporation doing business in Missouri.
4. The defendant Terre Du Lac Utilities Corp. (‘‘Utilities
Corp.”*) is a Missouri corporation doing business in Missouri.
— =
5. The defendant Terre Du Lac Golf and Country Club, Inc.
(‘Country Club, Inc.’’) is a Missouri corporation doing
business in Missouri.
6. The defendant Terre Du Lac Country Club Associates
(‘‘Country Club Associates’’), claim to be a limited partnership,
and, in any event, is a partnership doing business within the
State of Missouri.
7. Defendant Moill, Ltd., a Missouri corporation, claims to
be the general partner of Country Club Associates, and the
partnership’s other partners, who claim to be limited partners,
are five individuals including individual defendant James O.
Kwon.
8. The Defendant CIT Corporation (‘‘CIT’’) is a corporation
qualified to do business in Illinois and doing business in
Missouri. Although CIT is ostensibly simply the Developer’s
financier it has, as more fully set forth herein, acquired such in-
terests and powers in and over the Developer and has exercised
such influence and control over the Developer’s activities that
it, too, is a developer of Terre Du Lac.
9. The defendant James O. Kwon is president of defendant
TDL, and as such represents and acts for and on behalf of TDL
in the selling and offering for sale of lots within Terre Du Lac,
under the direct or indirect influence and control of Sensibar
Enterprises, Inc. Said defendant on information and belief also
is an officer, director and/or Shareholder of Country Club, Inc.
and Utilities Corp.
10. Defendants, TDL, Utilities Corp., Country Club, Inc.,
Kwon, Country Club Associates (collectively referred to as ‘‘the
Developer’*), were the developers of Terre Du Lac, and they of-
fered and are offering for sale lots in Terre Du Lac by means of
interstate commerce and mail under a common promotional
plan. The sale of lots within Terre Du Lac fall within the ambit
of the Interstate Land Sale for Disclosure Act (the ‘*‘Act’’), 15
— <
U.S.C. §1701 ef seg., and the subdivision was registered under
the Act.
11. Sensibar Enterprises, Inc. is a corporation which, as more
fully set forth herein, has so controlled and directed the ac-
tivities of other corporate defendants herein, except for CIT,
that each must be held to be the a/ter ego of the other.
12. The term ‘‘Developer defendants” as uses herein means
each of the aforementioned defendants, including CIT, which
are jointly and severally liable for the matters hereafter alleged.
Il. Allegations Common to All Counts
13. The development of Terre Du Lac was commenced in
1966 by the Big River Lakes Development Corporation, a
Missouri corporation.
14. The concept for Terre Du Lac was to develop a private
recreational lake-type development located mostly in St. Fran-
cois County and partially in Washington County, Missouri.
15. At a date unknown to plaintiff, but in or about early
1973, the Corporate name was changed from Big Rivers Lake
Development Corporation to Terre Du Lac, Inc., for reasons
unknown to plaintiff, and the original developer corporation
continues to exist and operate as TDL.
16. The Association was organized and incorporated by or
on behalf of the promoters of the Terre Du Lac development,
including TDL.
17. Pursuant to restrictive covenants contained or incor-
porated by reference in the deeds to all lots located in the Terre
Du Lac development, every person who purchases or otherwise
acquires a lot in the Terre Du Lac development is required to be
a member of Plaintiff Association.
18. This restriction applies whether the acquisition is made
directly from the Developer of the Terre Du Lac development or
from a lot owner other than the Developer.
wel alk om
19. At the present time, the Association has approximately
four thousand members, each of whom owns one or more lots
in the Terre Du Lac development.
20. Approximately three thousand four hundred of the
Association’s members purchased their lots from the Developer.
21. Substantially all of the Association’s members acquired
their lots in Terre Du Lac based at least in part upon their
reasonable expectation that the Developer defendants would
complete Terre Du Lac in the manner represented to persons
who purchased lots directly from the Developer.
22. The principal exceptions to the allegations set forth above
in Paragraph 21 are those members of the Association who are
affiliated with the Developer defendants by reason of their
employment by one or more of the Developer Defendants or by
reason of their ownership of interests in one or more of the
Developer Defendants.
23. Approximately 180 members of the Association purchas-
ed their lots in Terre Du Lac from the Developer prior to April,
1969.
24. Approximately 2,400 members of the Association pur-
chased their lots in Terre Du Lac from the Developer between
April, 1969 and October, 1977.
25. Approximately 600 members of the Association purchas-
ed their lots in Terre Du Lac from the Developer between
November, 1977 and November, 1980.
26. Approximately 300 members of the Association purchas-
ed their lots in Terre Du Lac from the Developer between
November, 1980 and the present.
27. The purposes and powers of the Association are fully set
forth in its Articles of Incorporation and By-Laws, the most
relevant provisions of which provide respectively as follows:
a < o
Article 2
(a)
Purposes
The purposes for which this Corporation is organized are the
ownership, operation, management and maintenance of various
areas and facilities lying within the land development known as
Terre Du Lac in St. Francois and Washington Counties, State
of Missouri, which may be hereafter transferred, deeded, or
otherwise conveyed to the Association by the Big River Lakes
Development Corporation, Inc., or their successors and assigns.
Such areas and facilities shall be exclusively reserved for the
common use and enjoyment of lot owners of said land develop-
ment.
And further, to undertake the performance, of and to carry
out the acts and duties incident to the administration of the
operation and management of the areas commonly used by
members of this Association, and to own, operate, maintain or
otherwise deal with such property, whether real or personal, as
may be necessary or convenient in the administration, protec-
tion and promotion of the general welfare of the members of
this Association.
Article 3
Powers
The powers of the Association shall include and be governed
by the following provisions:
The Association shall have all of the common law © ad
statutory powers of a corporation not for profit conferred upon
it by the Statutes of the State of Missouri, together with all of
the powers reasonably necessary to implement the purposes of
this Association,
BY-LAWS
OF
TERRE DU LAC ASSOCIATION, INC.
Section 1
Identity
rhese are the By-Laws of the Terre Du Lac Association,
Inc., a Missouri Corporation, not for profit.
This Association has been corporately organized for the
purpose of acquiring, owning, managing, maintaining,
and operating common areas and facilities in the land
development of the Big River Lakes Development Cor-
poration, Inc., a Missouri corporation, known as Terre Du
Lac situated in St. Francois and Washington Counties in
the State of Missour1.
The common areas and facilities may be transferred,
deeded or otherwise conveyed to the Association by the Big
River Lakes Development Corporation, Inc. at such time
and under such conditions as may by prescribed by the Big
River Lakes Development Corporation, Inc.
Section 5
Membership; Members’ Meetings; Voting and Proxies
The qualification of members, the manner of their ad-
mission to membership, the termination of such member-
ship and voting by members shall be as follows:
A. The owners of all parcels of real property in the land
development known as Terre Du Lac shall be members of
the Association, and no other persons or entities shall be
entitled to membership. In the event of more than one per-
son holding such interest in any parcel, all such persons
pay ee, pa
shall be members, and the vote representing such parcel
shall be exercised as agreed by such owners but in no event
shall said owners be entitled to cast more than one vote
respecting such parcel.
B. Membership shall be established by the acquisition of
ownership of fee title to or fee interest in a parcel of real
estate in said Terre Du Lac land development, whether by
contract for deed, conveyance, devise, judicial decree or
otherwise, subject to approval for membership in the Terre
Du Lac Association. The new owner designated in such
deed or other instrument shail thereupon become a
member of the Association, and the membership of the
prior owner, if any, as to the parcel designated shall be ter-
minated.
Section 6
Board of Directors
The Board of Directors shall consist of six (6) members
of the Association and one (1) appointee of the Big River
Lakes Development Corporation, Inc. Said appointee
shall receive no renumeration for his services on the Board
of Directors. -
Section 13
Road Maintenance
[he Association shall maintain all roadways after per-
manent surfacing thereof by Big River Lakes Development
Corporation, Inc.
28. In late 1973 CIT became involved in the development, at
which time TDL executed a blanket Deed of Trust to CIT cover-
ing all the then unsold lots within Terre Du Lac and the
emenities in the development, including, without limitation, the
— A-8 —
golf courses and lakes and improvements thereto. CIT has been
the principal finacier and lender for the development project
ever since.
29. Continuing thereafter, TDL has routinely assigned
pledged or otherwise hypothecated to CIT all contracts for sale
between TDL and individual purchasers of lots and homesites at
Terre Du Lac.
30. Early in the relationship between TDL and CIT, in order
to protect C'T’s financial interests and provide for control by
CIT over the actions and operations of the Developer (including
TDL and its affiliated entities), the parties entered into an agree-
ment in which CIT agreed to continue to finance the
Developer’s operation in Terre Du Lac and CIT was given a
right to share in the pofits of TDL and a mutual right to control
the operations of TDL, thus establishing a joint venture in law.
31. Since at least 1975, CIT has exercised substantial control
over the operations of TDL and the sale of lots within Terre Du
Lac, far exceeding the scope of normal financing practices.
32. Since at least 1978, CIT has dictated to its controlled
borrower corporations involved in Terre Du Lac a dividend
policy which allows CIT to approve and/or suggest cash
distributions that materially affect the financial statements of
the Developer.
33. Prior hereto and continuing at present, defendant CI1
exercised and is exercising such control and domination over t]
De elope: defendant that the defendants in aw must be deer
joint or co-venturers one with another
liable lOr ybliga IONS \
34. In 1975, TDI
—
tion of the issued and outstanding stock of TDL and directly or
indirectly, controlling interests in Country Club, Inc., Country
Club Associates and Utilities Corp. This acquisition was com-
pleted on a date which is presently unknown to the Association,
but which, on information and belief, was not later than
November, 1977.
36. Sensibar thereupon selected and installed Defendant
Kwon as the president and chief operating officer of TDL.
37. Since that time, Sensibar has directly or indirectly con-
trolled and influenced the activities of TDL (subject to the
limitations directly and indirectly imposed by CIT), and the
other corporate defendants other than CIT.
38. Because the Association has not been made privy to the
transactions and dealings between and among Sensibar and the
other Developer defendants, the exact particulars of Sensibar’s
exercise of dominion and control and/or influence over TDL
and the other Developer defendants (other than CIT) are not
known to the Association or, to the Association’s knowledge, to
any of its members except those of its members who are af-
filiated with one or more of the Developer defendants and who
will not share such information with the Association.
39. From and after the time at which Sensibar acquired
shares of TDL, however, Sensibar was held out to the Associa-
tion and the public generally, including the persons who are
now members of the Association, both by Sensibar itself and by
[DL as the controlling force behind TDL.
40. Sensibar and TDL actively sought to induce the public to
deal with TDL and, in particular, to acquire property in the
Terre Du Lac development in reliance upon Sensibar’s reputa-
{ Tt} rrrmit . ’ ’ rr ’ ; y? >
: [his was accomplished, in part, through written promo-
example of which is annexed hereto and in-
— A-10 —
42. Subsequent to Sensibar’s acquisition of its controlling in-
terest in TDL, on a date which is presently unknown to the
Association, Sensibar is believed to have transferred its interest
in TDL to certain persons who are officers and shareholders of
Sensibar.
43. Notwithstanding a believed transfer of shares from Sen-
sibar to its officers and shareholders, the relationship between
Sensibar and TDL continued to be exploited for the purpose o!
promoting the sale of lots in the Terre Du Lac development
after the transfer of ownership was affected, as, for example, in
the promotional advertisement, a copy of which 1s annexed
hereto as Exhibit 2.
44. Due to the intimate relationship between Sensibar and the
holders of TDL stock, Sensibar must be deemed to have known
of and approved and acquiesced in this ongoing exploitation o
the relationship between Sensibar and TDL.
45. On information and belief, defendants TDL, Country
Club, Inc., Country Club Associates, and Utilities Corp. were
and still are all under common ownership and control principly
of defendants Sensibar and Kwon.
46. Pursuant to the Interstate Land Sales Act, 15 U.S.¢
$1701 ef seq., the defendants were required to provide to each
original purchaser in the development a HUD Property Report
prepared and issued by the defendants.
47. Defendants TDL, Country Club, Inc., Country Club
Associates, Sensibar, and Utilities Corp. were and still are under
common directorship and control.
48. Through the HUD Property Reports and oral representa
ons of the defendants, it was continuously represented to pu
iasers of lots within Terre Du Lac that Utilities Corp. wa
Ter nce
! CiAaNnCC cA;
— A-ll
49. Through HUD Property Reports and oral representa
tions of the defendants, it was continuously represented to pur-
chasers of lots within Terre Du Lac that Country Club, Inc.,
and since sometime in 1983 Country Club Associates, were
responsibie for maintenance of the Terre Du Lac Country Club
facilities until they are transferred to the Association.
$0. Utilities Corp., Country Club, Inc. and Country Club
Associates were held out by TDL and held themselves out to the
Association and the public generally as affiliated and under the
control of TDI
: 8,
51. At least prior to September 22, 1981, in each HUD Pro-
perty Report issued to purchasers of property within Terre Du
lac. statements that all roads would be built with an asphalt
surface as building growth progressed were included.
$2. Within the aforesaid HUD Property Reports ihe defen-
dants also represented that they would complete the sewage
disposal system and the water system within Terre Du Lac.
$3. During the course of sales at the Subdivision, representa-
tions were made by defendants and their agents to original pur-
chasers that all amenities within Terre Du Lac would be
transferred to the Association free and clear of all encum
brances, as growth of the Subdivision progressed.
$4. In advertisements continuously issued by the Developer
defendants, including but not limited to the advertisement
vhich was distribuied and comraenced at least as early as April,
1981, a copy of which is annexed hereto as Exhibit 2, represen-
tations were made by the defendants that they would surface all
‘oads within Terre Du Lac with a permanent asphalt surface
over a stabilized base. Furthermore, oral representations were
made by defendants that the roads, water system and sewage
disposal system would all be completed by the defendants.
$5. Since at least 1966, the Developer of Terre Du Lac has
employed a stail ol individuals whose employment respon
— A-l2 —
sibilities included the obligation to act as sales representatives
tor the purpose of selling lots in Terre Du Lac.
56. At least since the time at which Sensibar first acquired its
controlling interest in TDL, the staff has operated under the
direct supervision and control of Defendant Kwon, and thereby
under the direct influence and control of Sensibar.
$7. On behalf of the Developers, and acting under instruc-
tions trom the Developers, including Defendants Kwon, TDL
and Sensibar, al! of the members of this staff who were
employed as sales representatives routinely and as a matter of
practice made the following representations to prospective pur-
chasers of lots in Terre Du Lac, including the present Associa-
tion members: (1) that all roads within Terre Du Lac would be
surfaced with a permanent asphalt surface; (2) that the water
and sewage disposal systems would be completed by the defen-
dants.
58. Additionally, it was from time to time represented by the
sales representatives to prospective purchasers of lots, including
certain persons now members of the Association, that the
amenities within Terre Du Lac would be transferred to the
Association free and clear of all liens and encumbrances, and
that all amenities, including the Country Club facilities.
‘9. Members of the Association and the Association itself
have suffered substantial harm by the defendants’ refusals to
fulfill their promises and obligations as hereinafter set forth.
The Association is entitled to pursue these claims for itself and
on behalf of its members.
Ill. Jurisdiction
60. The Court has jurisdiction of this case pursuant to 28
U.S.C. $1331, 15 U.S.C. §26, 15 U.S.C. §1701 er seg., 18
U.S.C. §§1964, 1965, and, with respect to certain Counts herein
contained, pursuant to the principles of pendent jurisdiction.
a Mek
IV. Causes of Action
1. Count I
61. The allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
62. The Developer defendants, with respect to the sale and
offer to sell of lots within Terre Du Lac did employ a device,
scheme, and artifice to defraud purchasers by making represen-
tations that all roads within the Subdivision would be completed
with a permanent asphalt surface over a stabilized base, that the
water and sewage disposal system would be completed by the
Developer defendants and service continuously provided to pur-
chasers, that the amenities within Terre Du Lac would be
transferred to the Association free and clear of all liens and en-
cumbrances, and that all members of the Association could use
all the emenities, including the Country Club facilities, when in ~
fact the Developer defendants (a) had no intention of so com-
pleting the roads and water and sewage disposal systems,
transferring all the amenities to the Association, or permitting
all members to use the Country Club facilities, (b) with the ex-
ceptions of CIT and Sensibar, had no capacity to so complete
the roads and water and sewage sidposal system, and (c) knew
or should have known that the roads and water and sewage
disposal system would not be completed by the Developer, that
the amenities would not be transferred, and that members
would not be permitted to use the Country Club facilities, all of
which is in violation of 15 U.S.C. §1703(a)(2)(A).
63. In aid of this scheme to defraud, Defendants TDL and
KWON were responsible for employing and supervising the
sales force, approved the advertising/marketing program
employed, and instructed the sales force to make the various
alleged representations; defendant Sensibar, as more fully set
out in paragraphs 35-44, inclusive, exercised dominion and con-
trol over TDL and KWON so that the doctrine of alter ego is ap-
plicable; Defendant CIT, as more fully set out in paragraphs
sat MEA
28-33, was in such 4 position that it was a joint venturer of
TDL.
64. Utilities Corp. was aware and did acquiesce in the
representations made to purchasers of lots in Terre Du Lac
regarding the completion of the water and sewage disposal
systems, when in fact it (a) had no intention of so completing
the water and sewage disposal system; (b) had no capacity to so
complete the water and sewage disposal systems, and (c) knew
or should have known that the water and sewage disposal
systems would not be completed by the Developer.
65. Country Club, Inc. and Country Club Associates were
aware and did acquiesce in the representations made to pur-
chasers of lots in Terre Du Lac regarding the right of every
member of the Association to use the Country Club facilities
and the promise to transfer the Country Club facilities to the
Association, when in fact they (a) had no intention of comply-
ing with such representations and promises; (b) had no capacity
to comply with such representations and promises; and (c) knew
or should have known that members of the Association would
not be permitted to use the Country Club facilities and the
Country Club facilities would not be transferred to the Associa-
tion.
66. The Developer continually represented to and assured the
Association and members of the Association that the roads
within Terre Du Lac would be completed wih an asphalt sur-
face by the Developer, that the water and sewage disposal
system would be completed by the Developer, that the amenities
would be transferred to the Association, and that all members
would be permitted to use the Country Club facilities.
67. In making these representations, the Developer establish-
ed and represented to the Association and its members a
timetable for fulfilling these representations which was
calculated to conceal the Developer’s true intentions until points
in time which were distant in time from the points at which the
representations were made.
— A-15 —
68. The purpose of this timetable was to enable the
Developer to aviod and frustrate the claims of the Association
and its members arising from these representations.
69. The Association and members of the Association
reasonably relied on the Developer’s conduct and representa-
tions in forebearing suit to enforce their rights, and thus defen-
dants are equitably estopped from asserting the statute of
limitations as to any member of the Association pursuant to 15
U.S.C. $1711 _
WHEREFORE, plaintiff prays for judgment against the
Developers, their joint adventurer CIT, and James Kwon as
their agent and prays pursuant to 15 U.S.C. §1709(a) for
specific performance of the representations made and pursuant
to 15 U.S.C. §1709(c) for an award of prejudgment interest, at-
torneys’ fees, litigation expenses and costs and for such other
and further relief as the Court deems meet and proper in the
premises.
COUNT Il
70. All allegations and contentions hereinabove are hereby
realleged and incorporated fully herein by reference.
71. The defendants, with respect to the sale and offer to sell
of lots within Terre Du Lac, did represent to members of the
Association who purchased lots that the roads, sewers, water
system, and other amenities would be provided and completed
by the Developer and transferred to the Association and that
members of the Association could use all amenities, including
the Country Club facilities, without expressly stipulating in the
contracts of sale entered into between the defendants and pur-
chasers during 1980 and 1981, that such services and amenities
would be provided, all of which is in violation of 15 U.S.C.
$1703(a)(2)(D).
WHEREFORE, plaintiff prays for judgment against the
Developer, its joint venturer CIT, and James O. Kwon and pur-
— |
suant to 15 U.S.C. §$1709{a) prays for specific performance of
the representations made and pursuant to 15 U.S.C. §$1709%(c)
prays for an award of court costs, and reasonable amounts for
attorney’s fees, independent appraiser’s fees and travel to and
from the lots and such further relief as this court deems proper.
COUNT Ill
72. All allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
73. All HUD Property Reports issued by the defendants
prior to the Property Report dated September 22, 1981 contain-
ed the untrue statement of material fact that all roads would be
completed with an asphalt surface and that the water and
sewage disposal systems would be completed by the Developer,
and all Hud Reports prior to April.1, 1983 contained the untrue
statement of material fact that all members of the Association
could use all amenities, including the Country Club facilities, all
of which is in violation of 15 U.S.C. §1703(a)(2)(C).
WHEREFORE, plaintiff prays for judgment against the
Developers and their joint venturer CIT, and James O. Kwon as
their agent and pursuant to 15 U.S.C. §1709(a) prays for
specific performance of the representations made and pursuant
to 15 U.S.C. §1709(c) prays for an award of pre-judgment in-
terest, attorney’s fees, litigation and costs and for such other
and further relief as the Court deems meet and proper in the
premises.
COUNT IV
74. All allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
75. Through all the above actions of the defendants, they
ave engaged and are engaging in transactions, a practice and
course of business which operated and continues to operate as a
fraud and deceit upon purchasers of lots within Terre Du Lac,
all of which is in violation of 15 U.S.C. §$1703(a)(2)(C).
— At? —
WHEREFORE, plaintiff prays for judgment against the
Developers, their joint venturer CIT, and James O. Kwon as
their agent and pursuant to 15 U.S.C. §1709(a) prays for
specific performance of the representations made and pursuant
to 15 U.S.C. §1709(c) prays for an award of pre-judgment in-
terest, attorney’s fees, litigation expenses and costs and for such
other and further relief as this Court deems meet and proper in
the premises.
COUNT V
76. A\lll allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
77. The Defendants did, to obtain money and to induce pur-
chasers of lots to continue to make payment on their notes,
make untrue statements of material fact in HUD Property
Reports, in advertisements, and in face-to-face conversations.
78. Such untrue statements regarded the completion of raods
with a stabilized base and a permanent asphalt surface and pro-
per completion of the water and sewage disposal systems within
Terre Du Lac by the Developer, the right to use all amenities,
and the transfer of all amenities to the Association, all of which
is in violation of 15 U.S.C. §1703(a)(2)(D).
WHEREFORE, plaintiff prays for judgment against the
defendants and pursuant to 15 U.S.C. §1709(a) prays for
specifi- performance of the representations made and pursuant
to 15 U.S.C. §1709(c) prays for an award of pre-judgment in-
terest, attorney’s fees, litigation expenses and costs and for such
other and further relief as this Court deems meets and proper in
the premises.
COUNT VI
79. All allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
— 18 —
80. CIT, exercising substantial and dominant control over
the Developers, actively participated in and aided the advance-
ment of the violations of the Act, 15 U.S.C. $1703, as alleged in
Counts I-V, to the extent that CIT is liable for aiding and abet-
ting the Developers in violating the Act.
WHEREFORE, plaintiff prays for judgment against CIT and
pursuant to 15 U.S.C. §1709(a) prays for specific performance
of the representations made and pursuant to §1709(c) prays for
an award of pre-judgment interest, attorney’s fees, litigation ex-
penses and costs and for such other and further relief as the
Court deems meet and proper in the premises.
COUNT VII
81. All allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
82. The members of the Association entered into contracts of
sale with the defendants to purchase lots in Terre Du Lac.
83. Incorporated by reference and law into each contract of
sale was the HUD Property Reports issued by the defendants,
and the promises to complete all roads within Terre Du Lac with
a stabilized bese and a permanent asphalt surface, to properly
complete the water and sewage disposal systems within Terre Du
Lac, and to permit all members use of all amenities, including
the Country Club facilities.
84. The Developer now refuses to complete the roads, water
system, and sewage disposal system in breach of the contracts of
sale, and refuses to permit all members of the Association to use
all amenities, including the Country Club facilities, and plaintiff
and its members are entitled to an order of specific performance
requiring compliance with the aforesaid contractual obligations.
WHEREFORE, plaintiff prays for judgment against the
Developers, their joint venturer CIT, and James Kwon as their
agent declaring that said contracts of sale have been breached
A-19
and granting specific performance to place a stabilized base and
permanent asphalt surface or all roads within Terre Du Lac, to
complete the water and sewage disposal systems, and to permit
all members of the Association whose lots were purchased from
the Developer prior to April 1, 1983 to use all amenities in the
development, including the Country Club facilities, for plain-
tiff’s costs herein expended, and for such other and further
relief as the Court deems meet and proper in the premises.
COUNT VIII
85. All allegations and contentions contained hereinabove
are hereby realleged and incorporated fully herein by reference.
86. That the defendants contrary to their representations,
knew and have known (a) that they could or would not complete
the water and sewage disposal systems and asphalt all roads
within Terre Du Lac; (b) that they could or would not transfer
all completed amenities to the Association; and (c) that they
could or would not permit all members of the Association who
purchased lots prior to April 1, 1983 to use all amenities in the
development, including the Country Club facilities.
87. Acting in reasonable reliance upon the representations
made by the defendants, members of the Association entered in-
to contracts of sale to purchase lots within Terre Du Lac.
88. Neither the Developer nor any other person has fulfilled
the promises made to plaintiff's member-purchasers in regard to
the completion of roads and the water and sewage disposal
systems within Terre Du Lac, the transfer of amenities, or the
free use of the amenities.
89. By reason of the foregoing acts and practices, the defen-
dants have breached their contractual obligations and engaged
in willful fraud and misrepresentations and deceit upon
members of the Association who purchased lots from the defen-
dants.
COUNT \I
WHEREFORE, plaintift
COUNT Xll
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— A-26 —
members of the Association, members’ families and their in-
vited guests may use all the recreational facilities, including the
Country Club facilities within Terre Du Lac, were included.
117 Defendants are no longer permitting members of the
Association to use the Country Club facilities unless they
become members of the Country Club and pay membership
fees.
118. On information and belief, defendants are participating
with others in a plan intended to force lot owners to contribute
thousands of dollars each to buy-in to a ‘‘membership’”’ gran-
ting them aright to use the Country Club and related facilities, a
right the lot owners already have in law, and said actions are
wrongful and constitute an actionable breach of the Developers
promises and contracts.
119. Developers’ false representations concerning Terre Du
Lac Golf and Country Club membership rights and subsequent
intentional wrongful action in instituting an annual membership
fee has proximately caused damage to plaintiff and its members
in the amount of the aggregate annual membership fees assessed
at Terre Du Lac.
WHEREFORE, plaintiff prays judgment against all defen-
dants, jointly and severally, in the amount of the aggregate an-
nual membership fees at Terre Du Lac for the calendar year
1984, for a declaratory judgment that all such membership fees
in subsequent years not be assessed or collected by Terre Du Lac
Golf and Country Club, Inc. or any present or future owner of
the Country Club facilities because of the misrepresentations of
the defendants, for its costs herein expended, and for such other
and further relief as the Court deems meet and proper in the
premises.
COUNT XV
120. The allegations and contentions hereinabove set forth
are realleged and expressly incorporated herein by reference.
— A-27 —
121. Defendants TDL, Utilities Corp., Country Club, Inc.,
Country Club Associates, CIT and Kwon have associated
themselves with one another for the common purposes of
marketing and facilitating the marketing of lots located in the
Terre Du Lac subdivision and of operating the Terre Du Lac
subdivision development, its amenities and utilities, all for their
collective and mutual profit.
122. As such, these defendants have created an enterprise
(hereinafter referred to as the ‘‘Development’’) within the
meaning of Section 1961(4) of Title 18 of the United States
Code, 18 U.S.C. § 1961(4).
123. The Development is engaged in interstate commerce in
that, among other things, the Development promotes the sale,
and, through one of its members, TDL, actually sells parcels of
real estate located in the State of Missouri to persons who are
not residents of that state.
124. Additionally, the Development is engaged in activities
affecting interstate commerce at least in that, using the means
and instrumentalities of interstate commerce, the Development,
through its members, transmits (or heretofore transmitted) pro-
motional materials and property pertaining to the Terre Du Lac
subdivision.
125. Each of the corporations and partnerships named as
defendants herein is a separate ‘‘enterprise’’ within the meaning
of Section 1961(4) of Title 18 of the United States Code, 18
U.S.C. §1961(4).
126. Each of the corporations and partnerships named as
defendants herein is engaged in interstate commerce or is engag-
ed in activities affecting interstate commerce.
127. Defendant Kwon is directly or indirectly associated
through employment or ownership of an interest in each of the
entities identified above as ‘‘enterprises’’ other than Defendant
CYT.
—
128. During the ten-year period preceding December 1, 1983,
Defendants TDL and Kwon, with the advice, knowledge, con-
sent and active assistance of Sensibar, conceived of and engaged
in a pattern of racketeering activity which consisted of, among
other things:
(a) Commencing in or about 1977, and continuing until at
least September 22, 1981, the Defendants TDL, Kwon and Sen-
sibar conceived of and implemented a scheme to obtain monies
from prospective purchasers of lots in Terre Du Lac by means
of false or fraudulent pretenses, representations or promises,
which included, but were not limited to, false representations
and promises that the Developer would complete all roads in the
Terre Du Lac subdivision with an asphalt surface on a stabilized
base, would complete the sewage disposal and water systems of
the Terre Du Lac subdivision, would transfer the amenities of
Terre Du Lac to the Association, that an attribute of member-
ship in the Association was that use of the facilities owned,
maintained and operated by Country Club, Inc. and Country
Club Associates would be available without further membership
charges, and that the services and facilities of Utilities would be
available only for a hook-up charge and a usage fee;
(b) In furtherance of the scheme, the defendants and, in par-
ticular, Defendants TDL and Kwon (under the supervision and
control of Sensibar), by themselves and through the sales staff
employed by and controlled by TDL and Kwon, respectively,
did continuously represent to each person who was a prospec-
tive purchaser from TDL of a lot in the Terre Du Lac subdivi-
sion the matters set forth above, when in fact TDL, Kwon and
the other Developer defendants knew these representations to
be false and had neither the intention to fulfill these representa-
tions nor, in the case of the defendants other than Sensibar and
CIT, the capacity to fullfill these promises and representations.
129. In furtherance of the scheme, the defendants utilized the
mails in at least the following respects, each of which constitutes
— A-29 —
a separate violation of 18 U.S.C. §1341 on each occasion it was
done by the defendants:
(a) Defendant TDL, directly or through its agents and/or at-
torneys, transmitted through the United States Mails copies of
drafts of each HUD Property Report prepared by TDL for
review by the appropriate federal authorities;
(b) Defendant TDL, directly or through its agents and/or at-
torneys, transmitted through the United States Mails the final
version of each HUD Property Report issued respecting the
Terre Du Lac subdivision to the appropriate federal authorities
for the purpose of filing or facilitating the filing of the reports
with such authorities;
(c) TDL transmitted through the United States Mails to
potential purchasers of lots in the Terre Du Lac subdivision pro-
motional materials, some of which included the false and
misleading statements concerning the Developer’s intentions to
construct an asphalt surfaced road system in the Terre Du Lac
subdivision and complete the sewage disposal and water systems
in the development, including, but noi limited to, the materials
annexed hereto as Exhibits 1 and 2;
(d) TDL and CIT received through the United States Mails
checks from victims of their scheme representing payments on
contracts for deeds to lots in the Terre Du Lac subdivision, or
payments or indebtedness secured by lots in the Terre Du Lac
subdivision, which checks TDL and CIT deposited with banks
that, in turn, utilized the United States Mails to collect thereon.
130. TDL and Sensibar invested the proceeds of the aforesaid
pattern of racketeering activity — /.e.., the proceeds of the sales
of lots in the Terre Du Lac subdivision — in themselves and, to
a lesser extent, in the Development, TDL using such proceeds to
satisfy certain of its outstanding obligations to CIT and to pay
dividends to Sensibar, and Sensibar using such proceeds as it
receives from TDL in furtherance of its usual business, all in
violation of 18 U.S.C. §1962(a).
on A =
131. CIT has received the proceeds of the aforesaid pattern
of racketeering activity — /.e., the proceeds of the sale of lots in
the Terre Du Lac subdivision development and the interest on
the indebtedness arising out of such sales — and invested it in its
own operations, all in violation of 18 U.S.C. §1962(a).
132. Additionally, Sensibar, TDL and Kwon have, by reason
of the foregoing, conducted the affairs of the Development and
TDL through the aforesaid pattern of racketeering activity, all
in violation of 18 U.S.C. §1962(c).
133. TDL, through its owners, officers, directors and pro-
moters, caused the Plaintiff Association to be so organized that
the Association has a legal obligation to its members (the
owners of lots in Terre Du Lac) to maintain, upon proper com-
pletion, the roads located in the Terre Du Lac subdivision.
134. The cost to the Plaintiff Association of maintaining the
roads in the Terre Du Lac subdivision has been and will be
materially increased absent relief herein as prayed because of
the substantially greater cost of maintaining roads without
asphalt pavement over the cost of maintaining roads which have
been properly constructed with paved asphalt surfaces over a
stabilized base.
135. The Plaintiff Association has been materially damaged
in its business and property by the violations of 18 U.S.C.
§1962(a) set forth above in that, among other things, by in-
vesting the proceeds of the Defendants’ racketeering activity in
TDL, Sensibar and CIT, these funds have been diverted from
investment in the infrastructure of the Terre Du Lac subdivi-
sion, including its roads, sewage and water systems, and
emenities, all to the damage of the Association and it members.
136. The Plaintiff Association has been damaged in its
business and property by the violation of 18 U.S.C. §1962(c)
described above in that, among other things, the defendants, by
conducting the affairs of the Development, TDL and CIT
sy iach ell
— A-31 —
through a pattern of racketeering activity, have succeeded in
selling substantially more lots in the Terre Du Lac subdivision
than would otherwise have been the case, resulting in an in-
crease in the quantity of roads in Terre Du Lac which are in
regular use, and in a commensurate increase in the usage of the
facilities, including the roads, which the Association is obliged
to maintain (once completed) all of which has resulted and will
result in further increases in the Association’s costs of fulfilling
its legal obligations.
137. The members of the Association have been individually
damaged in their properties by reason of the aforesaid viola-
tions of 18 U.S.C. §1962(a) and (c), in that, among other mat-
ters:
(a) They are subject to and have already been subjected to
levies by the Association made for purposes of repairing and
maintaining the common facilities, including the roads, located
in the Terre Du Lac subdivision;
(b) They have been induced to pay excessive prices for their
property located in the Terre Du Lac subdivision;
(c) The value of their properties located within Terre Du Lac
has been diminished, or has not appreciated as it otherwise
would have;
(d) They have been deprived of their right to use the
amnenities of Terre Du Lac and of the use of paved roads in
Terre Du Lac; and
(e) They have been subjected to charges for utility services
over and above those to which, but for the violations, they
would have been subjected.
WHEREFORE, the Association prays that this Court enter
its Order pursuant to 18 U.S.C. §1964(a) compelling the defen-
dants to complete the road, water and sewage systems of Terre
Du Lac, Inc., (b) impressing upon the defendants’ interests in
— A-32 —
any and all property directly or indirectly related to the Terre
Du Lac subdivision, including, but not limited to, the land and
improvements thereon located within the subdivision and the
notes, contracts for deed, or other obligations held by the
defendants arising out of the sale of lots in the Terre Du Lac
subdivisions, a constructive trust for the benefit of the Associa-
tion and its members, (c) compelling defendants to divest
themselves of any and all continuing ownership interest which
they have, directly or indirectly, in any real or personal proper-
ty, including improvements thereto, located within the Terre Du
Lac subdivision by transferring the same to the Association free
and clear of all liens and encumrances, and (d) for such other
and further relief as this Court deems meet and proper under
the circumstances.
COUNT XVI
138. All allegations and contentions hereinabove are hereby
realleged and incorporated fully herein by reference.
139. The defendants have a monopolistice control over the
membership rights to the Terre Du Lac Golf and Country Club.
140. The initiation fee for a family golf membership is and
has been substantial since 1977, and is currently $3,000.00.
141. The initiation fee is non-refundable and allegedly non-
transferable and according to the HUD Property Reports do
not run with the land acquired by a purchaser.
142. The present practice of the defendants is to waive the in-
itiation fee in respect to any purchaser whose lot is purchased
from the defendants. However, any purchaser within the Sub-
division whose lot is purchased from someone other than the
defendants must pay the initiation fee to obtain a family golf
membership.
143. Such conduct on the part of defendants has a substantial
effect on the competition for sales of lots within Terre Du Lac
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— A-33 —
and is a tie-in arrangement, which is a per se violation of $1 of
the Sherman Act.
144. Such conduct on the part of the defendants harms all
members of the Association as well as the Association itself,
which is a property owner in its own right, insofar as affecting
their ability to competitively resell their lots.
145. On information and belief, defendants, unless restrain-
ed, will continue with their tie-in arrangement regarding the sale
of lots within Terre Du Lac and membership right in the Terre
Du Lac Golf and Country Club, thereby precluding Association
members from obtaining the fair market value for sale of their
lots, and the Association is entitled to injunctive relief from
defendants’ continuation of their tie-in arrangement.
WHEREFORE, plaintiff prays for judgment against the
defendants and pursuant to 15 U.S.C. §26, prays for injuctive
relief against the continued practice.
Respectfully submitted,
/s/ James G. Martin
Robert H. Brownlee
Kenton E. Knickmeyer
James G. Martin
THOMPSON & MITCHELL
One Mercantile Center
Suite 3400
St. Louis, Missouri 63131
(314) 231-7676
Attorneys for Plaintiff
Terre Du Lac Assoc., Inc.
PLAINTIFF DEMANDS TRIAL
BY JURY
—
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a copy of the foregoing
was mailed, postage prepaid to William J. Garmisa, Esq.,
Greenberg, Keele, Lunn & Aronberg, One IBM Plaza, Suite
4500, Chicago, Illinois 60611; Donald L. James, Esq., Brown,
James & Rabbitt, P.C., 705 Olive, Suite 1100, St. Louis,
Missouri 63101; John W. Reid, II, Esq., Schnapp, Graham &
Reid, 135 East Main, Fredericktown, Missouri 63645; Robert
A. Chasnow, Esq., Ingersoll & Block, 1401 Sixteenth Street
N.W., Washington, D.C. 20036; Richard S. Brownlee, III,
Esq., Hendren & Andrae, 235 East High Street, P.O. Box 1069,
Jefferson City, Missouri 65102; Joseph P. Conran, Esq.,
Husch, Eppenberger, Donohue, Elson & Cornfeld, 100 North
Broadway, St. Louis, Missouri 63102 on this 6th day of March,
1984.
/s/ James G. Martin
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.