Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 76-276-C -- William E. Steckler, Judge.
Before Cummings and Wood, Circuit Judges, and Campbell, Senior District Judge.*fn*
In this diversity case, defendant U. S. Steel Credit Corporation appeals in No. 80-1719 from the district court's interlocutory orders denying defendant's motion for partial summary judgment on plaintiffs' amended and supplemental complaint and defendant's motion for a summary judgment declaring the loan participations in issue to be "securities" within the meaning 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 counterclaim. We affirm.
On April 10, 1976, plaintiffs brought this action to recover monies allegedly disbursed on behalf of defendant U. S. Steel Credit Corporation (Steel) pursuant to certain 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 defendant 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 principal 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 Company proposed an increase of the loans to provide necessary funds. By the end of April 1975, the Mortgage Company'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, the Mortgage Company was unable to implement the proposal, 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 settlement 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 interest 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 allegedly also owes the Mortgage Company 40% of those expenditures, namely $160,216.69.
In March 1976, the Mortgage Company made a formal 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 construction 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 Company sought damages of $454,179.52*fn1 (plus additional damage 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 punitive 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 III, the Bank, in its own right and as assignee of the Trust, requested actual damages plus punitive damages of $3,000,000 for Steel's alleged breaches of its duties to the Bank and Trust as ...