BURLINGTON — A federal judge has ordered the Hermitage Club's founder to pay a New York man for damages related to misrepresentations concerning a real estate deal.
The United States District Court for the District of Vermont determined Shaun P. Golden suffered a loss of about $5,458,266 for buying lots near where a private ski resort had been run by the Hermitage until financial issues brought about its shutdown in 2018. Golden claimed to have been misled about the company's health by Hermitage founder Jim Barnes.
Judge Christina Reiss entered a default judgment Friday, citing case law that says a defendant who fails to answer or defend a complaint is "deemed to have admitted all well-pleaded allegations in the complaint pertaining to liability."
The judge used what is known as "the out-of-pocket rule" for determining the damages. That, she wrote citing law, calculates "the difference between the value of what [plaintiff] has received in the transaction and its purchase price or other value given for it[,] and pecuniary loss suffered otherwise as a consequence of [plaintiffs] reliance upon the misrepresentation."
"In this case," she added, "the out-of-pocket rule provides a more readily ascertainable determination of the damages as it does not require speculation as to what Mr. Golden's lots would be worth had they been as Mr. Barnes represented them."
Two Hermitage entities are now in Chapter 7 bankruptcy proceedings in federal court, where properties associated with the companies are expected to be sold. Last year, Berkshire Bank filed a foreclosure complaint against the group for defaulting on more than $17 million in loans and the Vermont Department of Taxes shut down Hermitage establishments for missing tax payments totaling more than $1 million.
In findings of fact and conclusions of law, Reiss said the court held a hearing on Golden's request for default judgement against Barnes on Sept. 4. Golden testified that Barnes had been served with the complaint but had not responded.
Golden told the court in or around 2011, Barnes purchased a ski resort at Haystack Mountain in Wilmington and began to develop a private club with inns, a golf course and homes for members. Golden said he spoke with Barnes about buying five residential real estate lots associated with the club around May 2017, according to the findings.
"Over approximately six months of oral and written discussions, Mr. Barnes made material factual misrepresentations to Mr. Golden regarding the nature of the Hermitage Club's amenities; the status of renovations; the demand for lots; and the need to act quickly because demand exceeded the supply," wrote Reiss.
Barnes provided Golden with two appraisals; one was for Barnes' own home and the other had been part of the club's campus, according to the findings. Reiss said both appraisals came from outside parties and "reflected significant fair market value."
Barnes "further represented to Mr. Golden that the Hermitage Club's improvements were being completed as planned and on schedule, that its growth was robust and enviable, and that it would be an ideal investment opportunity for Mr. Golden," according to the findings. Barnes "represented that a single-family home would be constructed on each of the lots and would include a deed-able admission right to the Hermitage Club,which would provide the owner of the property with an expedited membership to the Hermitage Club, bypassing any waitlist and providing unlimited access to the Hermitage Club's amenities."
Reiss wrote that while Barnes made representations on behalf of Hermitage companies, "there is no evidence that he represented to Mr. Golden that he did not intend to be personally bound by those representations as well."
Golden purchased five undeveloped lots at Stag's Leap Lane for a total of about $2.67 million with closing costs then spent about $3.82 million on construction, according to the findings. Reiss said Barnes was aware of the projects but did not let Golden know of the Hermitage's financial situation.
"At the time of the closing on the lots and thereafter," she wrote, "Barnes failed to disclose to Mr. Golden that the Hermitage Club and [Hermitage Inn Real Estate Holding Company] were facing dire financial circumstances including owing over $214,000 in real property taxes to the town of Wilmington ... owing property taxes to the town of Dover ... defaulting on their obligations to numerous contractors working on site construction and renovations; and making untimely payments for utility bills for Hermitage Club-related properties in the amount of $65,000 owed to Green Mountain Power Company."
Golden "was unaware of the true state of the facts and could not determine the full extent of [Hermitage] debts through the exercise of due diligence," Reiss wrote. Barnes "knew at the time of his representations to Mr. Golden that HIREHCO and the Hermitage Club were either both insolvent or soon would be."
"With the termination of the Hermitage Club and the property in a dilapidated state, deed-able admission rights to the Hermitage Club are virtually worthless," Reiss wrote. "As a result, Mr. Golden's five lots have experienced a significant diminution in fair market value."
Lauren Mason, a certified appraiser in Vermont, told the court that the undeveloped properties are worth about $20,000 each except for one which is $30,000 due to its view, according to the findings. A foundation on another lot, Reiss wrote, "does not increase its fair market value because it would either need to be removed by the lot's purchaser or would require that a purchaser build within its confines, thereby limiting the purchaser's options."
Reach staff writer Chris Mays at email@example.com, at @CMaysBR on Twitter and 802-254-2311, ext. 273.