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October 19, 1990


Suzanne B. Conlon, United States District Judge.

The opinion of the court was delivered by: CONLON

This consolidated class action and shareholder derivative suit was brought on behalf of disappointed investors in one or more of five real estate investment trusts and three real estate limited partnerships (collectively, "the Funds"). The Funds were allegedly sponsored by VMS Realty Partners, one of the defendants. The plaintiff class consists of all persons who purchased securities of the Funds during the period from the first public issuance of any securities of the Funds to February 13, 1990 ("the class period"). *fn1" The consolidated complaint breaks the class down into eight subclasses. Each subclass is comprised of investors of a particular Fund. The subclass members sue on behalf of themselves as purchasers of a Fund's securities, and also derivatively, on behalf of the particular Fund. The forty-nine defendants named in the complaint are:

(a) the eight Funds:
(1) VMS Mortgage Investment Fund;
(2) VMS Hotel Investment Fund;
(3) VMS Short Term Income Trust;
(4) VMS Strategic Land Trust;
(5) VMS Strategic Land Fund II;
(6) VMS Mortgage Investors L.P.;
(7) VMS Mortgage Investors L.P. II;
(8) VMS Mortgage Investors L.P. III;
(b) VMS Realty Partners, the alleged sponsor of the Funds and creator of a vast real estate empire;
(c) the four general partners of VMS Realty Partners:
(1) Brewster Realty, Inc. ("Brewster");
(2) Residential Equities, Ltd. ("Residential Equities");
(3) Van Kampen/Morris/Stone, Inc. ("V/M/S");
(4) XCC Investment Corporation ("XCC");
(d) The members of the VMS Realty Partners executive committee:
(1) Robert D. Van Kampen (alleged co-owner of V/M/S and Brewster);
(2) Peter R. Morris (alleged co-owner of V/M/S and Residential Equities);
(3) Joel A. Stone (alleged co-owner of V/M/S and Brewster);
(4) Melvin Howard (officer and director of Xerox Corporation and Xerox Credit Corporation);
(e) real estate appraisers who allegedly issued opinion letters for the Funds' investments:
(1) Marshall & Stevens, Incorporated ("Marshall & Stevens");
(2) Joseph J. Blake & Associates ("Blake");
(f) companies who allegedly acted as guarantor of the Funds:
(1) VMS Mortgage Investors II, Inc.;
(2) VMS Mortgage Investors III, Inc.;
(3) VMS Financial Guarantee, L.P.;
(4) VMS Mortgage Company;
(5) VMS Mortgage Company II;
(g) underwriters and selling agents for the Funds:
(1) VMS Securities, Inc.;
(2) Prudential-Bache Securities;
(h) certain alleged advisors and "controlling persons" of the Funds:
(1) Prudential-Bache Properties;
(2) VMS Realty, Inc.;
(3) VMS Realty Investors;
(i) general partners of the Funds, including:
(1) VMS Mortgage Investors, Inc.;
(2) VMS Financial Services;
(j) Officers, directors, trustees, and/or alleged "controlling persons" of the Funds, including, but not limited to, the following:
(1) Albert Kopin;
(2) Scott Lager;
(3) Walter Auch, Sr.;
(4) Robert Ungerleider;
(5) Leonard Levine;
(6) Norman Gold;
(7) Marvin Sotoloff;
(8) Gerald Nudo;
(9) James Wisner;
(10) David Blalock, Sr.;
(11) Philip Brady;
(12) Robert Wislow;
(13) Gary A. Rosenberg; *fn2"
(14) William Sales;
(15) Xerox Credit Corporation;
(16) Xerox Financial Services;
(17) Xerox Corporation;
(k) Jeffrey J. Park, alleged former officer of VMS Realty Partners and Xerox Financial Services.

 Defendants filed a joint motion to dismiss the consolidated complaint under Fed. R. Civ. P. 9(b) and 12(b)(6). Defendants also assert that the suit is barred by the statute of limitations.


 In deciding a motion to dismiss, the court must accept as true all the well-pleaded factual allegations and inferences reasonably drawn from them. Gomez v. Illinois Bd. of Educ., 811 F.2d 1030, 1039 (7th Cir. 1987). Dismissal is proper if it appears beyond doubt that the plaintiffs could prove no set of facts in support of their claims that would entitle them to the relief requested. Illinois Health Care Assoc. v. Illinois Dep't of Public Health, 879 F.2d 286, 288 (7th Cir. 1989), citing Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 A. VMS Realty Partners

 Defendant VMS Realty Partners is an Illinois general partnership engaged in real estate investment and development. Consolidated Complaint ("Complaint") paras. 6, 13(i). Since 1979, VMS Realty Partners and its affiliates have sponsored approximately 115 real estate investment programs, raising more than $ 2.5 billion from more than 110,000 investors. Complaint para. 25. These programs include the Funds, which make mortgage loans to affiliated entities. Id. VMS Realty Partners is comprised of four corporate general partners: (1) defendant V/M/S, owned by defendants Van Kampen, Morris, and Stone; (2) defendant Brewster, owned by Van Kampen and Stone; (3) defendant Residential Equities, owned by Morris; and (4) defendant XCC, an indirect subsidiary of defendant Xerox Corporation. *fn3" Complaint paras. 13(h, j, k, l, qq, rr, ss). Van Kampen, Morris, and Stone serve on the four-member executive committee of VMS Realty Partners, along with defendant Melvin Howard, who was nominated to the executive committee by Xerox Corporation. Complaint paras. 13(j, k, l, m).

 B. The Funds

 Between November 14, 1984 and October 31, 1988, VMS Realty Partners created and sponsored the eight Funds that are the subject of this litigation. Complaint paras. 6, 13(a-h). Each Fund purported to have a distinct primary purpose. Complaint para. 26.

 VMS Short Term Income Trust ("Income Trust")

 The Income Trust is a real estate investment trust that made interim short-term loans primarily to affiliates of VMS Realty Partners. Complaint paras. 26, 90. The affiliated borrowers used the loans to purchase income-producing properties and to finance other costs associated with these properties until the borrowers could find other investors to finance the properties. Complaint para. 90. The Income Trust's loans were secured by the income-producing properties. Id. Between November 14, 1984 and December 26, 1984, the Income Trust sold its shares through an initial public offering in the principal amount of approximately $ 69 million, at $ 10 per share. Complaint para. 13(a).

 Four purchasers of Income Trust securities represent the plaintiff subclass of Income Trust investors: Lewis D. Rubin; Patrick Reed; Cook Brothers Profit Sharing and Retirement Trust ("Cook Bros. PSR"); and Cook Brothers Money Purchase Pension Trust ("Cook Bros. MPP"). Complaint para. 18(b). The complaint does not allege the dates of purchase for the subclass plaintiffs.

 MILP I was one of three limited partnerships formed to make mortgage loans to affiliated and non-affiliated entities. Complaint para. 26. The loans carried terms of three, five or seven years, and were secured by various types of improved real estate. Id. Between March 1, 1985 and August 7, 1985, MILP I raised approximately $ 75 million at $ 10 per unit during its initial public offering. Complaint para. 13(b). The following plaintiffs purchased units of MILP I and represent the MILP I subclass: Cook Bros. PSR; Cook Bros. MPP; Edward McDaid; Barbara Tepperman. Complaint para. 18(c). The complaint fails to allege these plaintiffs' dates of purchase.

 VMS Hotel Investment Fund ("Hotel Fund")

 The Hotel Fund was formed as a real estate investment trust for the purpose of making mortgage loans secured by hotel and resort properties owned or acquired by affiliates of VMS Realty Partners. Complaint paras. 26, 173. Between July 12, 1985 and January 6, 1986, the Hotel Fund made its initial public offering and raised approximately $ 98 million at $ 20 per unit, each unit consisting of two shares of common stock and one warrant. Complaint para. 13(c). Eight plaintiffs sue on behalf of the subclass of investors in the Hotel Fund. Complaint para. 18(f). Two plaintiffs, Marie Matson and David E. Robbins, purchased their Hotel Fund units during the initial public offering. Complaint paras. 12(v, bb). ...

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