(CN) - A resort's claim of a Jack Nicklaus affiliation that wasn't up to par led a couple to invest $1.5 million in the soon foundering property, the 10th Circuit ruled.
Jeffrey and Judee Donner said they purchased a membership in the Jack Nicklaus Golf Club/Mt. Holly, near Beaver in central Utah, which went bankrupt before completion.
Nicklaus and his company, Jack Nicklaus Golf Club LLC, promoted Mt. Holly as a "luxury" haven, featuring a golf course, four alpine lakes, hiking and biking trails, fly fishing, swimming and an equestrian center - and as the world's first private resort with ski-in, ski-out and golf-in, golf-out amenities, according to the complaint.
The club allegedly advertised Mt. Holly in The Wall Street Journal and other publications, and released a glossy brochure with images of the iconic golfer and the Tushar Mountains.
So-called charter membership set buyers back $1.5 million and allowed access to 25 of Nicklaus' courses worldwide, including New Zealand, Argentina, Tuscany and the Bahamas, and a Mt. Holly course-side lot.
The Donners said they paid $400,000 in 2007, and paid the balance days later. The first nine holes of the Nicklaus-designed Mt. Holly course were to open in 2008; the back nine in 2009.
Nicklaus, in a club press release, said he was so "captured" and "impressed" by the resort that he became a "founding charter member."
"When I walked Mt. Holly Club, I was so captured by its potential [that] I thought through all 18 holes," Nicklaus said. "In fact, I have been so impressed with the club and its management team that I became a founding charter member."
The Donners, however, called foul.
"In reality, the development was in default on various loans, the development was embroiled in a lawsuit that sought to bring it to a halt, and [the Mount Holly Course] did not have the requisite permits necessary to begin development," the Donners' complaint, filed in 2011, states.
"Nicklaus and JNGC had knowledge of financial and other problems facing the Jack Nicklaus Golf Club/Mt. Holly and MHC, but failed to disclose that information," they added.
The Donners settled with the developer's parent company in bankruptcy proceedings and sued Nicklaus and JNGC for intentional misrepresentation, negligent misrepresentation, and violation of the Interstate Land Sales Full Disclosure Act.
A district court dismissed the lawsuit for failure to state a valid relief claim and ruled Nicklaus and company were entitled to summary judgment per the Donners' settlement.
The 10th Circuit on Thursday reversed the ruling in part, finding Nicklaus was not a "charter" member but an "honorary" member and did not purchase a $1.5 million membership.
Nicklaus was issued an "honorary founder membership," the ruling states, in return for licensing rights to the Nicklaus brand.
The appeals court did not side with the Donners in total.
The lower court, the 10th Circuit ruled, properly dismissed the couple's Interstate Land Sales Full Disclosure Act and negligent representation claims.
Specifically, the ruling states, the Donners' were entitled to a hypothetical "lot" on the golf course upon its completion rather than an actual tract of land, restricting their Land Sales Full Disclosure Act claim.
"The Donners' claim does not involve a specific portion of land that was identifiable at the time of the alleged misrepresentations. In their opening brief, the Donners argue that they could select their 'lot' 'once the final resort [was] finalized,'" the 37-page complaint states. "This argument is self-defeating: The promise could not involve a specific portion of the land if it could not have been selected until a future event took place (finalization of the plat)."
The appeals court also upheld the dismissal of the Donners' negligent misrepresentation claims.
"Under the economic loss doctrine, the defendants cannot incur liability for negligent misrepresentation because the Donners' claim involves the benefit of their bargain under the charter membership agreement," the ruling states.
Beaver, 200 miles south of Salt Lake City and home to nearly 2,500, is the birthplace of the famously good-natured outlaw Butch Cassidy and of Philo Farnsworth, the inventor of television.