Full opinion text
ROGER D. FOLEY, District Judge. FINDINGS OF FACTS I. PARTIES 1. On March 30, 1977, the Secretary of Labor (Secretary) filed a complaint in the United States District Court, District of Nevada, naming the Southern Nevada Culinary and Bartenders Pension Trust (Pension Trust) as an involuntary plaintiff, certain of the Pension Trust’s trustees as defendants, and Morris A. Shenker (Shenker) and certain companies owned or controlled by him as defendants. On December 14, 1982, the Secretary amended his complaint. The original and amended complaints of the Secretary arise under the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. No. 93-406, 88 Stat. 829, generally codified as amended in 29 U.S.C. secs. 1001-1381 (1976 & Supp. V 1981) and were brought by the Secretary to enjoin acts and practices of the defendants which violate title I of ERISA and to obtain other equitable relief to redress violations and enforce the provisions of that title. The Secretary specifically alleged the following claims: a. The defendant trustees breached their fiduciary obligations with respect to the Pension Trust and its participants and beneficiaries by engaging in imprudent acts by making loans to certain Shenker defendants in violation of ERISA, 29 U.S.C. sec. 1104(a)(1)(B) (1976). b. The defendant trustees breached their fiduciary obligations with respect to the Pension Trust and its participants and beneficiaries by failing to diversify the investments of the Pension Trust so as to minimize the risk of large losses in violation of ERISA, 29 U.S.C. sec. 1104(a)(1)(C) (1976). c. The defendant trustees caused the Pension Trust to engage in transactions which they knew or should have known constituted a direct or indirect lending of money or extension of credit to parties in interest in violation of ERISA, 29 U.S.C. sec. 1106(a)(1)(B) (1976), by causing the Pension Trust to lend money to defendant Sierra Charter Corporation (Sierra) for the benefit of defendants I.J.K. Nevada, Inc. (I.J.K.), Murrieta Hot Springs (Murrieta), and Shenker and by extending credit to Murrieta by classifying and treating delinquent interest owed to the Pension Trust as principal on the loans made to Murrieta. d. Defendants Shenker, I.J.K., Murrieta, Sierra, and S & F Corporation (S & F) knowingly participated in these breaches of fiduciary obligations of the defendant trustees. The Secretary requested that the court order these defendants to make restitution to the Pension Trust of all monies unlawfully received by these defendants or lost by the Pension Trust as a result of their knowing participation and also as a result of their violations of ERISA. Prior to the commencement of the trial in this case, the Secretary, the involuntary plaintiff, and the then trustee defendants, except for Ben Sehmoutey, finally settled all claims between them. The then trustee defendants and the third party defendants, I.R. Ashleman II, Roland C. Davis, Ashleman & Sabbath, and Davis, Cowell & Bowe, likewise settled the claims between them without admitting liability for those claims. The Secretary, the involuntary plaintiff, and these third party defendants also entered into agreements, which were effectuated and memorialized in consent decrees and stipulations, that expressly provided that they shall not constitute an adjudication on the merits of any of the claims thereby finally resolved. The then trustee defendants did not participate as parties in the trial. The evidence at trial discloses that in September of 1976 three new trustees, Richard P. Crane Jr., Harry R. Stang, and Bernard W. Menke, were appointed to the Pension Trust board of trustees. The court notes that these trustees recognized the perilous circumstances of the Pension Trust and took action, including giving of notification of said loan transactions to the Department of Labor, with the object of terminating the Pension Trust relationship with the Shenker defendants. After investigating the actions of Crane, Stang, and Menke as trustees, the Secretary and the involuntary plaintiff entered into an agreement, which dismisses with prejudice the claims previously asserted against them in this action. In addition to bringing the loans referred to herein to the attention of the Department of Labor, Crane, Stang, and Menke sought to investigate the legality of and to remedy the effects of the loans. Accordingly, these findings of fact and conclusions of law shall not be construed as reflecting in any manner on the conduct of Richard P. Crane Jr, Harry R. Stang, and Bernard W. Menke as fiduciaries. At the commencement of trial, S & F Corporation and Palm Development were party defendants and counterclaimants against the Pension Trust. All claims by the Secretary, the involuntary plaintiff, S & F and Palm were finally settled prior to the conclusion of trial. No adjudication of such claims and the defenses thereto is made by the court. The trial of the Secretary’s claims against Morris A. Shenker, I.J.K. Nevada, Inc., Sierra Charter Corp., and Murrieta Hot Springs, with respect to which the following findings of fact and conclusions of law are made, do not involve an adjudication of any of the settled claims and no such adjudication has been made by the court. The following findings and conclusions are not an adjudication on the merits of the settled claims or of the defenses thereto as to the settling parties only, but are of course an adjudication on the merits as to Shenker, Sierra, and I.J.K. 2. The Secretary is a governmental officer authorized by statute to sue on behalf of a pension trust pursuant to ERISA, 29 U.S.C. sec. 1132(a)(2) (1976). 3. The Secretary was sued as a counter-defendant by Shenker and Sierra. They allege that the Secretary failed to properly investigate his claims against Shenker and that the action was merely a vendetta on the part of the Secretary to prevent Shenker corporations from obtaining monies from pension funds. These counterclaims were subsequently dismissed by the court. 4. The Culinary Workers Union Local 226 (Local 226) is a labor union that was comprised of approximately 24,000 members working in Las Vegas, Nevada, during the years 1973 through 1977. The Bartenders Union Local 165 (Local) is a labor union that was comprised of approximately 1400 to 1500 members working in Las Vegas, Nevada during the years 1973 through 1977. Locals 226 and 165 have bargained jointly with employers since before 1963. 5. The Nevada Resort Association (NRA) is an organization of employers, principally casino and hotel employers in Las Vegas, Nevada, which bargains with Locals 226 and 165 on a multiemployer basis. The NRA represents certain hotels and casinos for collective bargaining purposes. The NRA is comprised of two different groups: (1) the strip group, those properties south of Sahara, and (2) the downtown group, those properties on Fremont Street and in the downtown area. Locals 226- and 165 have collectively bargained with the NRA since 1970. 6. Involuntary plaintiff, the Southern Nevada Culinary Workers and Bartenders Pension Trust (Pension Trust), was formally created in December 1971 by the NRA and Locals 226 and 165 for the purpose of implementing a program of pension benefits funded by the contributions from the contributing employers pursuant to collective bargaining agreements. Its principal place of business is Las Vegas, Nevada. 7. The Dunes Hotel and Casino, Inc. (Dunes) (and its predecessors) has been a member of the NRA since approximately 1970 to date and has employed members of Locals 226 and 165 at all times during those years. 8. Locals 226 and 165 entered into collective bargaining agreements with the NRA for the period of 1970 through 1973, 1973 through 1976, 1976 through 1980, and 1980 through 1984. The Dunes was a party to each of these collective bargaining agreements and made contributions on behalf of its employees to the Pension Trust pursuant to these agreements during those years, including particularly the years 1973 through 1977. 9. The Pension Trust is administered by a board of trustees consisting of three trustees representing management and three representing the unions. The management trustees are appointed by the NRA. The union trustees hold the union offices of secretary and president of the Local 226 and secretary of Local 165. 10. The trustees have exclusive management and control of the Pension Trust and their primary duties are to receive contributions from employers, oversee investment of monies, establish and determine benefits, and make other decisions affecting the Pension Trust. 11. The Pension Trust asserts standing to sue as a plaintiff under the Secretary’s amended complaint pursuant to ERISA, 29 U.S.C. sec. 1132(d)(1) (1976), and seeks certain relief sought by the Secretary. The Pension Trust is designated as an involuntary plaintiff in the amended complaint. 12. The Pension Trust was sued as a counter-defendant by defendants Shenker, Sierra, and S & F. a. Shenker alleges that the Pension Trust breached an agreement known as the Second Addendum by terminating funding to Sierra in April 1977. b. Sierra alleges, first, that the Pension Trust breached the Second Addendum by terminating funding to Sierra in April 1977 and, second, that the Pension Trust and its investment managers mismanaged assets that had been transferred to the Pension Trust from Sierra and Shenker and thereby diminished the fair market value of those assets. c. S & F alleges that the Pension Trust had breached a purported obligation to fully fund four notes and mortgages between Sierra and S & F and thereby damaged S & F. d. The counterclaims filed by Sierra and Shenker against the Pension Trust were dismissed by the court pursuant to the Pension Trust’s motion for directed verdict. e. S & F dismissed its counterclaim with prejudice against the Pension Trust. 13. Upper Avenue Bank was an Illinois banking corporation which formally merged with Lake Shore National Bank in July 1981. Both Upper Avenue Bank’s and Lake Shore National Bank’s principal places of business at all times relevant to this action have been in the State of Illinois. On August 30, 1977, the court approved the appointment of Upper Avenue Bank (U.A.B.) as investment manager of the real estate assets of the Pension Trust. U.A.B. served continuously as investment manager through approximately May 2, 1979, when it formally resigned. 14. Thomas L. Karsten Associates (Karsten) is, and at all relevant times herein was, a corporation organized and existing under the laws of the State of California, and maintaining its offices and place of business in Los Angeles, California. On or about April 19, 1979, the Court approved the substitution of Karsten as investment manager in place of U.A.B. Pursuant to the stipulation and order, Karsten, as investment manager of the Pension Trust, was empowered to exercise the powers, rights, and duties set forth in the stipulation, including the powers, rights and duties of investment managers as defined in ERISA, 29 U.S.C. secs. 1002(38), 1102(c)(3) (1976). 15. Karsten, as investment manager for the Pension Trust, moved to intervene in this action on behalf of the Pension Trust against defendants Sierra, Shenker, and I.J.K. This motion was granted and Karsten filed a complaint in intervention. 16. Karsten amended its complaint in intervention alleging the following on behalf of the Pension Trust: a. breach of loan agreements and guarantees by Sierra and Shenker; b. fraud in connection with loan agreements and guarantees by Sierra and Shenker; c. negligent misrepresentation by Sierra and Shenker; d. a claim for money had and received against Sierra and Shenker; e. a claim for unjust enrichment against Sierra and Shenker; f. a claim to enforce a promissory note against defendant Shenker; g. a claim to enforce a promissory note against I.J.K. and Shenker; and h. a claim for unjust enrichment against I.J.K. and Shenker. On November 28 and 30, 1983, after trial, the jury having heard Karsten’s amended complaint against Sierra and Shenker returned special verdicts in favor of Karsten. On December 1, 1983, the court entered judgment upon the jury verdicts in favor of Karsten and against Sierra in the principal sum of $28,227,304 plus interest, costs, and attorneys’ fees, and against Shenker in the principal sum of $33,939,360 plus interest, costs, and attorneys’ fees. The subject findings of fact, conclusions of law, and judgment on the Secretary’s amended complaint are not intended to affect the Karsten judgment in any way. However, the Pension Trust, which is the beneficiary of Karsten’s and the Secretary’s judgments, shall not have a double recovery against the defendants and may only collect principal and interest on said judgment once, although it may recover the fees and costs of both Karsten and the Pension Trust since it necessarily incurred and paid both in connection with this action. 17. Shenker is a defendant in the actions brought by the Secretary and Karsten and, at all times relevant to this action, was a resident of Nevada or Missouri. Shenker is an attorney who received his law degree in 1932 and formed his own law firm in the same year. He actively practiced law until 1973 or 1974 and since that time has acted as a consultant to his law firm. 18. Sierra is a defendant in the actions brought by the Secretary and Karsten. Sierra is and has been, from its inception, a corporation organized and existing under the laws of the State of Nevada. Sierra is and has been, since 1972, a company involved in real estate development and retail sales of lots. 19. Murrieta is a defendant in the action brought by the Secretary, and is and was at all relevant times a California corporation, with its principal place of business in Riverside County, California. Murrieta was involved in real estate development, the sale of mobile home lots, the sale of condominiums and sites, and the operation of Murrieta Spa and related facilities. A bankruptcy proceeding was filed against Murrieta and on April 9, 1979, Murrieta was adjudicated a bankrupt. At all times since March 1978, Murrieta has remained subject to these bankruptcy proceedings. 20. I.J.K. is a defendant in the actions brought by the Secretary and Karsten, and at all relevant times was a corporation organized and existing under the laws of the State of Nevada. I.J.K. was originally formed to hold stock of the Dunes. 21. S & F was a defendant in the action brought by the Secretary and at all times was a corporation organized and existing under the laws of the state of Delaware. S & F is and was a company involved in land sales and the development of real property in the state of New Mexico. Palm Development Corporation (Palm) is and was at all relevant times a wholly-owned subsidiary of S & F. During the course of the trial, the Secretary and S & F entered into a settlement agreement disposing of the Secretary’s claims against S & F. 22. Richard Crane, Bernard Menke, Harry Rugg, Ben Schmoutey, Jack Stafford, Harry Stang, Herbert Tobman and the estate of A1 Bramlet (defendant trustees) were defendants in the action brought by the Secretary: a. Defendant Stafford has served as a union trustee of the Pension Trust from approximately December 1, 1971, and continues to so serve. b. Defendant Schmoutey served as a union trustee of the Pension Trust from approximately December 1, 1971, until June 1981. c. Defendant Crane has served as a management trustee of the Pension Trust from approximately September 1976 and continues to so serve. d. Defendant Rugg served as a management trustee of the Pension Trust from approximately December 1, 1971, until September 1976. e. Defendant Tobman served as a management trustee of the Pension Trust from on or about June or July 1973 until September 1976. f. Defendant Estate of A1 Bramlet is the estate of a deceased union trustee who served in that capacity from approximately December 1, 1971 until he died on or after February 24, 1977. 23. The defendant trustees, with the exception of Ben Schmoutey, entered into settlement agreements on or about January 31, 1983, with all pertinent parties in this action and are no longer parties to the proceedings. Defendant trustee Schmoutey remains a defendant in the Secretary’s action but the Secretary seeks only injunctive relief against him. 24. Leo Lewis was a management trustee of the Pension Trust from approximately December 1, 1971, through his resignation as a trustee on March 26,1973. Lewis voted against making the $2 million loan to Murrieta and his resignation was due to his disagreement with the decision to make this loan. 25. Keith Ashworth was a management trustee of the Pension Trust from on or about December 1, 1971, through his resignation as a trustee on January 2, 1974. Ashworth voted against making the $5 million loan to Murrieta and his resignation was due to his disagreement with the decision to make this loan. 26. Ivan R. Ashleman III became an attorney for the Pension Trust in the Fall of 1975. Ashleman ceased his representation of the Pension Trust in 1979. Ashleman was also sued by various defendant trustees in this action, but these claims were settled with all relevant parties along with the claims against the defendant trustees on or about January 31, 1983. 27. Sidney Wyman was professional gambler who, with his close friend and partner Charles Rich, held a controlling interest in the Dunes commencing in the early 1960’s. He sold his interest in or about 1972, but remained as a consultant through all changes in ownership, including Shenker’s acquisition of the controlling interest in the Dunes, until his death in about 1979. Shenker considered Wyman to be the key man at the Dunes. Wyman was a legal client of Shenker continuously from the early 1930’s to his death. Wyman introduced Shenker to A1 Bramlet, the chairman of the Pension Trust and the man whom Shenker considered responsible for making the loans to Murrieta and Sierra. 28. Charles Rich was a professional gambler who, with his close friend and partner Wyman, held controlling interest in the Dunes commencing in the early 1960’s. He sold his interest in or about 1972, but remained as a consultant through all changes in ownership, including Shenker’s acquisition of the controlling interest in the Dunes, until approximately May 1983. Rich was also a long-time legal client of Shenker. 29. Irvin J. Kahn was involved in real estate development primarily in the state of California. All of Kahn’s business activities, corporations, and business entities were conducted through the Irvin J. Kahn Organization (Kahn Organization), which he solely owned. Kahn also had an ownership interest during 1972 and 1973 in the Dunes through I.J.K. Shenker represented Kahn as a lawyer and introduced him to the Central State, Southeast, and Southwest Areas Pension Fund, from which Kahn’s companies, including Peansquitos, Inc., received more than $150 million in loans. Shenker and Kahn had a history of business relationships together, including their joint stock ownership of Murrieta and I.J.K., until Kahn’s death on September 10, 1973. Shenker acquired 100 percent ownership of Murrieta and I.J.K. in the early part of 1974 through the settlement of Kahn’s Estate. 30. Kenneth Unruh was employed by Kahn from December 1962 through Kahn’s death in September 1973. Unruh acted as controller of the Kahn Organization and eventually became treasurer of the Kahn Organization. After Kahn’s death, Shenker hired Unruh in October 1975 to act solely as Shenker’s personal consultant or “supercontroller” of his enterprises. In January 1976 Unruh began working as a consultant to Shenker and became the president of Sierra and a member of its board of directors in May 1976. From May 1976 up to October 1976 Unruh was compensated both by Shenker and Sierra. 31. Stanley Franklin was president and a director of Sierra from its inception in May 1972 through May 1976, when he terminated his relationship with Sierra. 32. Andrew Stevens, through his company Great Western Properties, was hired as a broker for Sierra in June of 1974. Stevens became vice-president of sales and a member of the board of directors of Sierra at the same time. Stevens’ additional responsibilities included developing a program to sell properties at Murrieta. His relationship with Sierra terminated in June or July 1976. 33. John Pilkington is a lawyer and close friend of Shenker. He clerked for Shenker’s law firm during the summers of 1964 and 1965. In 1972 he began to represent Shenker as an attorney and he formed Sierra in May 1972. From Sierra’s inception up through 1980 or 1981 he served as corporate counsel, a member of the board of directors, and secretary of Sierra. 34. D.W. Falls sold certain assets of his company, Falls Land and Development Corporation (FLDC) to S & F on March 27, 1975. He has served as president and a member of the board of directors of S & F and Palm from March 27, 1975 through the date of his testimony in this case. 35. M & R Investment Company, Inc. (M & R Investment), a Nevada Corporation with its principal place of business in Las Vegas, Nevada, owned and operated the Dunes Hotel and Casino in Las Vegas at all times from January 1, 1975, through March 30, 1977. 36. M & R Corporation (M & R), a Delaware corporation, owned 100 percent of the issued and outstanding shares of voting stock of M & R Investment at all times from January 1, 1975 through March 30, 1977. 37. Continental Connector Corporation (Connector), a New York corporation, owned 100 percent of the issued and outstanding shares of voting stock of M & R at all times from January 1, 1975, through March 30, 1977. 38. At all times from January 1, 1975, through March 30,1977, M & R Investment was an employer of approximately 825 employees who were participants in the Pension Trust. M & R Investment made contributions at the rates of 25 cents to 35 cents per work hour on behalf of these 825 employees to the Pension Trust during this time period. 39. Shenker was chairman of the board of directors of M & R Investment from March 3, 1975, through March 30, 1977. 40. Shenker was a director of Connector from March 3, 1975, through March 30, 1977. 41. Shenker owned 100 percent of the issued and outstanding shares of voting stock of I.J.K. at all times from January 1, 1975, through March 30, 1977. 42. I.J.K. owned approximately 36 percent of the issued and outstanding shares of voting stock of Connector at all times from January 1, 1975 through March 30, 1977. 43. Shenker indirectly owned 40 percent or more of Connector and was thereby the largest and controlling shareholder of Connector (through individual and family holdings and his direct ownership of 100 percent of the voting stock of I.J.K.) at all times from January 1, 1975, through March 30, 1977. 44. Murrieta was a joint venturer with Continental California Corporation (California). This joint venture was in force at all times from January 1, 1975, through March 30, 1977, and provided, in part, that any profits earned by the joint venture would be distributed 50 percent each to Murrieta and California. 45. Connector owned 100 percent of the voting stock of California at all times from January 1, 1975, through March 30, 1977. 46. At all times during the period of about June 1974 through March 30, 1977, Shenker owned 50 percent of the issued and outstanding shares of common stock of Sierra (its only class of voting stock). The remaining 50 percent was equally owned by his son, M. Arthur Shenker, and his daughter, Patricia Ann Shenker. 47. At all times from about April 1974 through March 30, 1977, Shenker owned 100 percent of the issued and outstanding shares of Murrieta’s common stock (Murrieta’s only class of voting stock). 48. Shenker together with his wife and two children was the owner of 100 percent of the issued and outstanding voting stock of S & F at all times from March 27, 1975, through at least March 30, 1977. II. LOAN AGREEMENTS A. The $2 Million Loan to Murrieta 49. On February 9 and March 24, 1973, Shenker, then 50 percent owner of Murrieta, made loan presentations to the trustees of the Pension Trust in which he requested a $2 million loan for Murrieta. 50. During the presentations Shenker said that Murrieta would use the $2 million loan for Murrieta’s business and specifically to develop and sell the part of Murrieta which would be collateral for the Pension Trust’s loan. 51. On March 24, 1973, after the loan presentations by Shenker, the Pension Trust entered into an agreement to loan Murrieta the sum of $2 million (hereinafter referred to as the $2 million loan). 52. In conjunction with the $2 million loan, Murrieta executed a promissory note in favor of the Pension Trust for the principal sum of $2 million, which note provided that interest would be paid monthly for five years from March 26, 1973, at the rate of 8 percent or lVa percent above the prime rate of Manufacturers Hanover Trust Company. The note further provided for monthly payments of $16,730 commencing five years after March 26, 1973, and for the entire unpaid balance together with interest thereon to be due and payable ten years after March 26, 1973. 53. The note further provided that should default be made in any installment of principal or interest, the whole sum of principal and interest could immediately become due and payable at the option of the Pension Trust. 54. Murrieta executed a deed of trust in favor of the Pension Trust on 163 mobile home lots and 46 R-3 lots at Murrieta as security for the $2 million loan. 55. Murrieta represented and warranted in the $2 million loan agreement that the fair market value of the collateral securing the loan exceeded $3 million. 56. Shenker provided the Pension Trust with an appraisal representing that the fair market value of the Pension Trust’s collateral for the $2 million loan was $3,150,000, assuming the collateral was developed and sold within one year of that time. 57. The Pension Trust disbursed $2 million to Murrieta from March 26, 1973, through June 6, 1973. 58. Of the $2 million Murrieta received from the Pension Trust, Murrieta applied $600,000 to partially repay prior loans from the Pipefitters Pension Fund, $400,000 to repay a loan from the Valley Bank to an affiliate, West Loma Development Company, and $200,000 to partially repay a loan from Valley Bank to Murrieta. 59. Murrieta did not apply any of the proceeds from the $2 million loan to develop or sell the Pension Trust’s collateral. 60. As of December 1, 1975, Murrieta had partially developed but not sold any of the Pension Trust's collateral under the $2 million loan agreement. B. The $5 Million Loan to Murrieta 61. On June 8, 1973, Shenker’s wife, Lillian, then president of Murrieta, applied in writing on behalf of Murrieta to the Pension Trust trustees for a $5 million loan. 62. Lillian Shenker’s written loan application represented that the proceeds of the $5 million loan would be used for the further development of Murrieta. 63. On July 23, 1973, Shenker, then 50 percent owner of Murrieta, and his wife, Lillian, made a loan presentation to the Pension Trust trustees in which Shenker requested a $5 million loan for Murrieta. 64. During the presentation Shenker stated that Murrieta would use the $5 million loan for Murrieta’s business and specifically to develop and sell the part of Murrieta which would be collateral for the loan. 65. On July 30, 1973, after the loan presentation by the Shenkers, the Pension Trust entered into an agreement to loan Murrieta $5 million. 66. In conjunction with the $5 million loan, Murrieta executed a promissory note in favor of the Pension Trust in the principal amount of $5 million with interest due monthly at the rate of 9 percent per annum for 5 years commencing August 30, 1973. The note further required Murrieta to make monthly payments, commencing 5 years after the last advancement under the loan, of $44,990 for 5 subsequent years and to pay the entire unpaid balance, together with interest, 10 years from the date of the last advancement. 67. The note provided that should default be made in any installment of principal or interest, the whole sum of principal and interest could become immediately due at the option of the Pension Trust. 68. Murrieta executed a deed of trust in favor of the Pension Trust on approximately 560 acres of undeveloped real property at Murrieta commonly known as the Yoder parcel, which constituted the collateral securing the $5 million loan. 69. Murrieta represented and warranted in the loan agreement that the fair market value of this collateral was in excess of $7,500,000. 70. Shenker submitted an appraisal of the Yoder parcel to the Pension Trust trustees prior to July 30, 1973. The appraisal represented that the Yoder parcel had a fair market value of $7,702,000, assuming the parcel was developed and sold in accordance with a specific plan for mobile home, condominium, R-3, and commercial usage with estimated development and selling costs of $14,390,045. 71. The Pension Trust disbursed $5 million to Murrieta pursuant to the $5 million loan agreement from July 30, 1973, through March 11, 1974. 72. Of the $5 million lent by the Pension Trust, Murrieta applied $1,725,000 to repay a loan from Valley Bank to Charles Rich, $1,525,000 to repay a loan from Valley Bank to Sidney Wyman, and $250,000 to repay a loan from Nevada State Bank to Morris Shenker carried on its books in the name of Sidney Wyman. 73. None of the $5 million lent by the Pension Trust to Murrieta was used to develop or sell the Yoder parcel. 74. As of December 1, 1975, and March 30, 1977, the Yoder parcel was completely undeveloped and unsold. C. The $8 Million Loan to Sierra 75. On May 17 and June 3, 1974, Shenker, then the principal owner of Sierra, together with Stanley Franklin, its president, and Eric Swanson, its controller, made loan presentations to the Pension Trust trustees in which Shenker requested an $8 million loan for Sierra. 76. During the loan presentation Shenker stated that the bulk of the loan proceeds would be used to develop and sell the real estate which would constitute the collateral securing the loan, although he had previously informed Franklin and Swanson that he intended to use the loan proceeds for his other businesses as well. 77. On June 7, 1974, after the loan presentation by Shenker, the Pension Trust entered into an agreement to loan $8 million to Sierra. 78. In conjunction with the $8 million loan agreement, on June 11, 1974, Sierra executed a promissory note in favor of the Pension Trust in the principal sum of $8 million. 79. The promissory note provided in part that commencing July 11, 1974, Sierra would pay interest monthly at the rate of 1.5 percent above the prime rate but not less than 9 percent nor more than 11 percent. Commencing 5 years after the last disbursement of principal, Sierra was to pay 5 equal annual installments determined by the unpaid principal and interest balance, with all unpaid principal and interest due and payable 10 years after the last disbursement of principal under the loan. 80. The note further provided that should default be made in any installment of principal and interest, and such default remained 30 days after notice, the whole sum of principal and interest could become due and payable at the option of the Pension Trust. 81. Shenker executed the $8 million promissory note as guarantor of Sierra. 82. In conjunction with the $8 million loan agreement, on June 7, 1974, Sierra executed a deed of trust in favor of the Pension Trust covering 352 lots in unit 6 and 1,010 lots in unit 7 of Gardnerville Ranchos at Gardnerville, Nevada, as security for the $8 million loan. 83. The loan agreement provided that the $8 million loan was subject to the condition precedent of the Pension Trust receiving an appraisal of the collateral establishing the fair market value of the collateral to be approximately $14 million. 84. Sierra, prior to the execution of the $8 million loan agreement, submitted appraisals of the 701 lots in unit 6 and the 1,010 lots in unit 7 at Gardnerville. The appraisals represented the total estimated values of unit 6 to be $7,335,700 as of August 20, 1973 and of unit 7 to be $10,-604,400 as of March 25, 1974. These appraisals assumed that all off-site improvements were completed and installed and that adequate water and sewer facilities would be available to all lots. 85. During the period from June 6, 1974, through May 20, 1975, the Pension Trust disbursed $7,450,000 to Sierra pursuant to the $8 million loan agreement. 86. During the period in which sums were disbursed by the Pension Trust to Sierra under the $8 million loan agreement, Sierra advanced at least $1,800,000 to Murrieta, $939,000 to I.J.K., and $800,000 to Sidney Wyman. During this same period 85 to 90 percent of funds of Sierra were provided by the Pension Trust. 87. As of December 1, 1975, and even by March 30, 1977, all off-site improvements at units six and seven were not completed and installed, including adequate water and sewer facilities. D. The First Addendum Loan to Sierra and Interest Moratorium with Murrieta 88. As of December 31, 1974, approximately $92,000 in interest payments were in arrears on the $2 million and $5 million Murrieta loans. From that date to July 31, 1975, this unpaid amount increased to approximately $155,000. 89. As of December 31, 1974, interest payments on the Sierra $8 million loan were in arrears in the amount of $136,000. These interest payments remained in arrears through July 31, 1975, when interest payments on the Sierra $8 million loan were delinquent in the amount of approximately $99,000. 90. By notice dated July 7, 1975, and by order dated July 11, 1975, the Office of Interstate Land Sales Registration of the Department of Housing and Urban Development (HUD) suspended Sierra’s filing and permit to sell lots at Gardnerville Ranchos units 4 and 6, the principal source of Sierra’s lot sales at that time. HUD did not lift the suspension until approximately December 24, 1975. 91. As of about May 1975 Environmental Communities, Inc. (ECI), Sierra’s contractor for units 6 and 7 at Gardnerville, went bankrupt without completing the improvements at units 6 and 7 or at ECI’s other projects, including Big Bear 11 and 12, the Quechan Indian Tribe job and the Santa Fe Railroad. The cost of ECI’s work remaining uncompleted as of its bankruptcy was in excess of $2 million. Argonaut Insurance Company (Argonaut) had issued performance bonds on behalf of ECI for these projects. Sierra and Shenker had agreed to indemnify Argonaut for any losses the latter incurred as a result of ECI’s failure to complete these projects. 92. On June 24, July 1, July 10, and July 14, 1975, Shenker met with various representatives and trustees of the Pension Trust. Shenker informed the trustees that Murrieta could not make monthly interest payments on the $2 million and $5 million loans and required a two-year moratorium on these loans. Shenker further informed the trustees that Sierra required a letter of credit for a bond for power and telephone improvements at Gardnerville units six and seven in the sum of $1,800,000 and additional advances totaling $1,350,000. 93. In these meetings Shenker represented that it was Sierra’s selling season and that Sierra’s lot sales were going well, when actually HUD had suspended Sierra’s lot sales by notice given on July 7, 1975, and by order given on July 11, 1975. Shenker further represented that Sierra was a viable company, that Sierra’s real property could be developed and sold, and that the Pension Trust’s loan to Sierra could thereby be repaid. Shenker represented that Sierra would receive the additional advances totaling $1,350,000 only as sales of lots were occurring, that Sierra would use those additional advances only for its lot sales business, and that Sierra would return $2,800,000 worth of lot paper to the Pension Trust. 94. On July 28, 1975, the Pension Trust trustees, relying on Shenker’s representations and promises, entered into a new loan agreement with Sierra. This agreement is entitled “Addendum to and Modification of Loan Agreement” (First Addendum). 95. The First Addendum provided in part that the Pension Trust would loan Sierra $1,350,000 over and above the $8 million loan and that the Pension Trust would provide Sierra with letters of credit necessary to procure performance bonds for off-site and utility improvements on the lots at units six and seven at Gardnerville. The additional advances to Sierra were to be used by Sierra only for land, improvements, sales, and corporate expenses in accordance with Exhibit “A” to the First Addendum. If the Pension Trust determined that Sierra did not use the additional advances substantially in accordance with Exhibit “A” to the First Addendum, the Pension Trust could, at its sole option, withhold further advances until the default was cured. 96. The First Addendum obligated Sierra to pay interest monthly on the additional advances at the rate of 1.5 percent over prime rate per annum, but not less than 9 percent nor more than 11 percent per annum. Sierra could repay the additional advances by assigning lot paper, totaling the face amount of $3,690,000 during the period of August 1975 through December 1975, or by paying cash. 97. Sierra agreed to guarantee for two years from the first advance under the First Addendum the payment of interest owed by Murrieta to the Pension Trust on the Murrieta $2 million and $5 million loans. 98. The Pension Trust also entered into an agreement with Murrieta on July 28, 1975, whereby the Pension Trust agreed that Murrieta would have a two-year moratorium on interest payments on the Murrieta $2 million and $5 million loans, provided that Sierra performed its obligation under the First Addendum to pay this interest as guarantor on behalf of Murrieta. 99. During the period of August 4, 1975, through December 1, 1975, the Pension Trust disbursed $1,350,000 to Sierra under the First Addendum. 100. On July 24, July 29, and November 18,1975, the Pension Trust executed letters of credit on behalf of Sierra pursuant to the First Addendum totaling $1,595,228 to Continental Telephone and Argonaut. 101. Orí or about August 4, 1975, the Pension Trust made its first advance to Sierra under the First Addendum in the amount of $225,000. Sierra disbursed approximately $163,000 of this advance for purposes other than those stated in Exhibit “A” to the First Addendum, including a loan of approximately $108,000 to John Pilkington for his personal purchase of Home Savings stock. 102. During the period of disbursements under the First Addendum, the lot paper assigned by Sierra to the Pension Trust only increased from $925,285 to $1,113,000 — that is, only about $188,000. Sierra had projected and represented that it would assign lot paper worth $3,690,000. 103. During the months of June through November 1975, Sierra failed to pay monthly interest due the Pension Trust under the $8 million and First Addendum loans. As of December 1, 1975, this interest totaled $346,578. The Pension Trust notified Sierra and Shenker by letters dated September 30 and November 4, 1975 of Sierra’s delinquency and requested prompt payment. 104. During the months of March through November 1975, Murrieta and Sierra (as Murrieta’s guarantor under the First Addendum) failed to pay monthly interest due under the $2 million and $5 million loans. As of December 1, 1975, this interest totaled $363,125. The Pension Trust notified Sierra and Shenker by letters dated September 30 and November 4, 1975, of Sierra’s delinquency and requested prompt payment. 105. As of April 30, 1975, Sierra had a cumulative loss of $4,073,231 and a net capital deficiency of $4,016,531. 106. As of June 30, 1974, Murrieta had a cumulative loss of $12,504,657 and a net capital deficiency of $13,919,907. 107. As of November 15, 1974, Murrieta’s auditors had concluded that Murrieta’s ability to continue as a going concern was dependent upon its ability to pay its liabilities as they became due, to obtain adequate financing, to sell its real estate at substantial profits, and to substantially improve the operating results of the Murrieta Spa, the outcome of which could not then be determined. 108. As of September 4, 1975, Sierra’s auditors had concluded that Sierra’s ability to continue as a going concern was dependent upon future developments including its ability to pay its liabilities as they became due, to obtain adequate financing and an effective HUD registration, and to sell its real estate at substantial profits, the outcome of which could not then be determined. E. The Second Addendum 1. Negotiations 109. During the months of October and November 1975, Ken Unruh and Shenker, on behalf of Shenker, Sierra, and Murrieta, and I.R. Ashleman, on behalf of the Pension Trust, negotiated a proposed new loan agreement between the Pension Trust, Sierra, and Murrieta to be guaranteed by Shenker (the sole owner of Murrieta and the owner with his son and daughter of Sierra). 110. During the negotiations Andrew Stevens, Sierra’s vice president and sales manager, and Stanley Franklin, Sierra’s president, prepared and presented to the Pension Trust’s representatives projections of future lot sales by Sierra at Gardnerville units six, seven, eight, and nine. Sierra’s projections forecasted that during the three year term for the new loan agreement Sierra and Murrieta would sell 4,670 lots and generate additional lot paper with a face amount of $29,699,000. 111. Stevens and Franklin represented to Pension Trust representatives that Sierra’s sales projections were reasonable and attainable. 112. In at least two material respects, the sales projections of Sierra were false and misleading. First, Sierra and Murrieta misrepresented the number of lots they had available to sell: instead of 4,670 lots, they had only 3,622 lots. The actual lots available for sale were comprised of the following: Murrieta had 211 lots. Gardnerville unit six had 701 lots, approximately 600 of which were already sold in the fall of 1975. Unit seven had 1,010 lots. Sierra estimated that units eight and nine would yield 1,700 lots, but at the time of the sales projections, these units were undeveloped and their subdivision plans were unapproved by Douglas County. Sierra’s projections for the remaining 1,059 lots depended upon trading Genoa Peak to the Bureau of Land Management (BLM) for developable land adjacent to units eight and nine. No agreement existed with the BLM to make this exchange. Second, the sales rate projected by Sierra was substantially higher than Sierra had ever achieved. 113. Prior to December 1, 1975, I.R. Ashleman gave Ken Unruh, Shenker’s consultant, copies of the Pension Trust’s financial statements which revealed that the then outstanding loans to Murrieta and Sierra comprised more than 50 percent of the Pension Trust’s assets. 114. Prior to December 1, 1975, Shenker participated in or was knowledgeable about the bargaining sessions between the Nevada Resort Association and Culinary Workers Local 226 and Bartenders Local 165 during which the employer’s contribution rates to the Pension Trust were discussed. 115. As of December 1, 1975, the Pension Trust because of Murrieta’s and Sierra’s delinquencies in making interest payments, was legally entitled to declare all principal and interest due on the $2 million, $5 million, $8 million, and the First Addendum loans, to foreclose on the collateral securing these loans, to sue Murrieta and Sierra for any deficiencies, and to sue Shenker as guarantor for Sierra’s deficiency- 116. As of December 1, 1975, Sierra could not have continued its lot sales business at Gardnerville without substantial new financing. 117. As of December 1, 1975, the Pension Trust had no preexisting legal obligation to loan any more money to either Sierra or Murrieta. 118. As of July 28 and December 1, 1975, the Pension Trust trustees knew that Shenker was a part-owner of the Dunes, the Dunes was a contributing employer to the Pension Trust, and Shenker would benefit from the First and Second Addenda. 119. As of July 28 and December 1, 1975, the Pension Trust trustees had not obtained: (a) independent appraisals of any of the collateral securing the $2 million, $5 million, $8 million, First Addendum, or Second Addendum loans; (b) an independent feasibility study by a qualified expert to determine whether Sierra’s and Murrieta’s net income from the lot sales programs contemplated by the Second Addendum would be sufficient to repay all principal and interest on the loans thereunder; and (c) an independently audited financial statement of the guarantor of the $8 million and Second Addendum loans. 2. Terms 120. On December 1, 1975, the Pension Trust’s trustees entered into a new loan agreement with Sierra, Murrieta, and Shenker (as guarantor) entitled “Second Addendum to and Modification of Loan Agreement of June 7, 1974 and First Addendum to and Modification of July 28, 1975” (Second Addendum). Exhibit “A” to the Second Addendum, which sets forth Sierra’s estimated cash requirements and sales projections, is an integral part of the Second Addendum. 121. The Second Addendum provided in part that rather than declare all principal and interest due and owing on the delinquent $2 million and $5 million loans to Murrieta and the $8 million and First Addendum loans to Sierra, which totaled $16,-507,682.96 on December 1, 1975, the prior loans were renewed and the delinquent interest was reclassified as principal. 122. The Second Addendum further provided that the Pension Trust agreed to lend Sierra monies in monthly advances up to an additional $16,571,000 over three years, in addition to the $16,507,682.96 which Murrieta and Sierra then owed to the Pension Trust, so long as Sierra’s sales projections set forth in Exhibit “A” to the Second Addendum were attained and Sierra complied with its other obligations under the Second Addendum, Exhibit “A,” and the prior loan agreements. 123. Of the $16,571,000 in additional lending projected by Exhibit “A” to the Second Addendum, approximately $8,400,-000 was to be paid for Sierra’s sales and commission expenses, $3,100,000 for improvements to Sierra’s real property, $1,800,000 for Sierra’s general and administrative costs, $2,800,000 for its existing indebtedness and $500,000 for taxes and assessments on its real property. 124. Sierra agreed in the Second Addendum that to the extent determined feasible by the parties it would develop a sales marketing and development program for 211 lots of Murrieta which constituted the collateral for the $2 million loan. 125. Under the Second Addendum the Pension Trust agreed to make additional loan advances up to $1,358,000 to Sierra for the purpose of financing the marketing and development program for the 211 lots securing the $2 million loan. 126. The sales projections of Sierra set forth in Exhibit “A” to the Second Addendum projected that during the three year term of the Second Addendum Sierra and Murrieta would sell a total of 4,670 net lots for $32,966,000 of which $29,699,000 would be net third party lot sales contracts (lot paper) assigned to the Pension Trust. Sierra was projected to assign net lot paper to the Pension Trust having the face amount of $7,853,000 during year one, $9,188,000 during year two, and $9,188,000 during year three. Murrieta was projected to assign net lot paper having the face amount of $3,470,000 to the Pension Trust in year one. With $1,113,000 worth of previously assigned lot paper, Exhibit “A” to the Second Addendum projected that the Pension Trust would receive a total face amount of $30,812,000 in net lot paper by the end of the three year term of the Second Addendum. 127. The parties to the Second Addendum contemplated that the sale of lots and the assignment of lot paper by Sierra and Murrieta to the Pension Trust would be the principal method of repaying the Pension Trust’s loans. 128. The Second Addendum provided and the parties thereto understood that the Pension Trust could discontinue loaning monies to Sierra any time during the three year term that Sierra failed to attain the sales projections stated in Exhibit “A.” 129. The Second Addendum provided that all sums, whether principal, interest, or other fees due and owing by Sierra as of December 1, 1975, were to be computed as principal and to draw interest at the rate of 11 percent per annum. 130. The Second Addendum provided that interest on the recomputed amount due by Sierra as of December 1, 1975, and on future advances under the Second Addendum would be due monthly at the rate of 11 percent per annum, but any such interest that thereafter became due and was unpaid would bear interest as principal at the rate of 11 percent per annum thereafter. 131. The Second Addendum provided that the sums previously due the Pension Trust by Murrieta would bear interest at the rate of 10 percent per annum which interest would remain due and payable monthly. 132. The Second Addendum provided that Sierra would furnish a complete financial statement prepared in accordance with generally accepted accounting principles with a report of an independent CPA thereon within 120 days of the end of each fiscal year. 133. The Second Addendum provided that Sierra would furnish a quarterly financial report within 60 days after the end of each quarter. 134. Sierra agreed that the Second Addendum constituted a pledge of all its equity in all assets then held or thereafter acquired as further security for the Pension Trust’s loans. 135. Sierra agreed under the Second Addendum to guarantee repayment of all principal and interest owed by Murrieta under the $2 million and $5 million loans. 136. Shenker agreed under the Second Addendum to guarantee repayment of all funds previously advanced to Sierra, all additional funds to be advanced to Sierra for any purpose under the terms of the Second Addendum, and interest thereon at 11 percent per annum. 137. The Second Addendum provided that Sierra was to repay the sums lent to it in accordance with the repayment provisions of the $8 million loan agreement and the First and Second Addenda loan agreements, which provided for the payment of interest monthly with principal due in five equal consecutive annual installments commencing five years after the last principal advance under the $8 million loan. 138. From July 28,1975, through March 30, 1977, the parties, as a matter of practice under both the First and Second Addenda agreed to treat all lot paper assigned by Sierra to the Pension Trust as collateral rather than partial repayment of the loans. 139. Exhibit “A” to the Second Addendum projected that a face amount of $30,-812,000 in net lot paper would be assigned by Sierra and Murrieta to the Pension Trust by the end of the three year term. This amount was approximately $2,200,000 less than the principal sum of the amount owed by Murrieta and Sierra as of December 1, 1975, $16,507,682,96, plus the additional sums to be lent under the Second Addendum, $16,571,000, which totaled $33,-078,682.96. The projected lot paper, which was the principal means of repaying the loans under the Second Addendum, therefore would not be sufficient to fully repay the principal lent under the Second Addendum and the prior loans renewed thereby to Murrieta and Sierra. The projected lot paper would not repay any of the interest which would accrue on those loans during the 3 year term of the Second Addendum and the 15 subsequent years in which cash payments would be made on the lot paper assigned by Sierra and Murrieta. 140. Assuming that the Second Addendum was fully and timely performed by the Pension Trust and Sierra, with every lot being sold as scheduled by Exhibit “A” with no defaults nor delinquent payments on lot sales contracts, the balance owing to the Pension Trust of $16,528,886 as of December 1, 1975, would have increased to $30,949,416 as of September 1, 1993, the month of the last collection of lot paper. The representatives of Sierra, Murrieta, and Shenker did not notify any representative or trustee of the Pension Trust of this result prior to the execution of the Second Addendum on December 1, 1975. 141. Assuming that Sierra continued to sell the lots projected by Exhibit “A” in accordance with its prior sales history, and further assuming that the Pension Trust funded Sierra during the nine year period which would have been necessary in the total amount of $21,800,000, the balance owing to the Pension Trust would have increased to $121,934,097 as of March 1, 1999, the month of the last collection of lot paper. The representatives of Sierra, Murrieta, and Shenker did not notify any representative or trustee of the Pension Trust of this result prior to the execution of the Second Addendum on December 1, 1975. III. DISBURSEMENT AND APPLICATION OF ASSETS UNDER THE SECOND ADDENDUM 142. During the period from December 1, 1975, through March 30, 1977, the period of the Second Addendum, the Pension Trust made advances to Sierra totaling $9,130,000. A. Uses by Murrieta 143. Of the $9,130,000 advanced by the Pension Trust pursuant to the Second Addendum, approximately $1,300,000 was disbursed by Sierra to or on behalf of Murrieta, which was solely owned by Shenker. 144. Sierra used most of the $1,300,000 disbursed to or on behalf of Murrieta to conduct a sales program to sell the 209 lots securing the $2 million loan to residents of Mexico. The sales commission which Murrieta paid up front to the brokers substantially exceeded the down payment received from the purported purchasers, thereby causing a significant out-of-pocket cash drain from the Pension Trust through Sierra to the brokers. Although sales contracts were executed for all 209 Murrieta lots during 1976, every alleged purchaser except one had defaulted as of March 30, 1977, thereby rendering the lot paper worthless. Murrieta therefore failed to meet the Exhibit “A” projection that it would assign a face amount of $3,470,000 in net lot paper during the first year of the Second Addendum. B. Uses by S & F 145. Of the $9,130,000 advanced by the Pension Trust to Sierra under the Second Addendum, approximately $1,300,000 was disbursed by Sierra to S & F and its subsidiary, Palm, from March 1976 to March 1977. 146. On March 27, 1975, S & F, a shell company with no substantial assets and owned solely by Shenker and his family, purchased various assets of the financially ailing real estate development company known as Falls Land and Development Corporation (FLDC). The assets acquired by S & F included properties at Elephant Butte, Lakeshore Highlands, and Meadow Lakes, all in New Mexico, and third party lot sales contracts with a face amount of approximately $5,200,000. S & F assumed obligations in excess of $1 million including the construction of certain improvements on the property acquired. In connection with the purchase Shenker guaranteed a promissory note of S & F in the sum of $300,000 in favor of The First National Bank of Albuquerque. 147. On March 27, 1975, Palm, a shell company with no substantial assets and wholly owned by S & F, purchased approximately 960 acres at Volcano Cliffs near Albuquerque for $1,100,000 payable in 20 quarterly installments of $55,000 plus interest. FLDC had lost Volcano Cliffs by foreclosure in November 1974. Palm executed a promissory note for the $1,100,000 purchase in favor of The First National Bank of Albuquerque, which was secured by a first mortgage on Volcano Cliffs and by Shenker’s personal guarantee. 148. In early 1975, in the course of the purchase of the assets of PLDC by S & F and Palm, Shenker had promised D.W. Falls, FLDC’s owner, that Shenker would provide sufficient funds for S & F and Palm to develop the properties being acquired and thereby repay S & F’s $1.5 million note in favor of Falls. 149. On March 27, 1975, S & F assigned $4 million worth of lot sales contracts it had purchased from FLDC to Mission Hills, another company controlled by Shenker, for $2 million cash. In March, April, and May 1975, Shenker caused approximately $1.25 million of this cash to be disbursed to Murrieta, Sierra, and himself. This cash disbursal jeopardized the business existence of S & F and Palm. 150. By late 1975 and early 1976, S & F and Palm, without further financing, would have had to cease their business operations. 151. S & F and Palm used the $1,300,-000 in Pension Trust assets advanced by Sierra to make payments on the loans Shenker had guaranteed and to operate their respective businesses. 152. As of March 30, 1977, Shenker had failed to personally make any payments to the First National Bank of Albuquerque on the S & F or Palm loans. The principal amounts of these loans were $300,000 and $1,100,000. C. Uses by Seaview 153. Of the $9,130,000 advanced by the Pension Trust to Sierra under the Second Addendum, approximately $421,000 was disbursed by Sierra to or on behalf of its subsidiary, Seaview Village, Inc. (Seaview). 154. By September 1976, Sierra acquired 100 percent of the stock of Seaview for $3,000 plus the assumption of approximately $800,000 in promissory notes owed by Seaview. The principal assets of Sea-view were a 530-acre parcel near Lincoln City, Oregon, known as Timbershore and a water company with approximately 300 customers. 155. The approximately $421,000 in Pension Trust assets disbursed by Sierra to Seaview was generally used by Seaview to make note payments and for administrative and construction costs. D. Uses by Sierra 156. Of the $9,130,000 advanced by the Pension Trust to Sierra under the Second Addendum, the remaining approximately $6 million was applied by Sierra in connection with its own corporate business. IV. SIERRA’S MATERIAL FAILURES TO PERFORM THE SECOND ADDENDUM 157. During the Second Addendum period Sierra failed to fully pay any of the 16 monthly interest payments due the Pension Trust. As of March 30, 1977, Sierra owed at least $2,058,155 in cumulative interest to the Pension Trust. 158. During the Second Addendum period, Sierra substantially failed to meet the lot sales projections in Exhibit “A” during the 16 months of the Second Addendum. 159. Only one revision of the sales projections set forth in Exhibit “A” was prepared by Sierra. This revision projected the sales from units six and seven at Gardnerville for the period of July 1, 1976 through June 30, 1977. 160. Sierra substantially failed to meet the sales projections set forth in the single revision to Exhibit “A” during every month from July 1976 through March 1977. 161. As of March 30, 1977, Exhibit “A” projected that Sierra and Murrieta would have assigned to the Pension Trust lot paper having a total face amount of $17,027,-000. Sierra had actually assigned, a total face amount of only $1,419,497 in lot paper to the Pension Trust as of that date. 162. As of March 30, 1977, Sierra had failed to complete the off-site improvements on units six and seven at Gardner-ville as projected in Exhibit “A” to the Second Addendum. On March 24, 1977, Ken Unruh, the president of Sierra, informed the trustees of the Pension Trust that the estimated cost to complete the remaining improvements at Gardnerville units six and seven was $5,640,951. 163. Exhibit “A” to the Second Addendum had scheduled the construction of the sewer intercepter line, which was a precondition to the issuance of building permits on units six and seven at Gardnerville, for early 1977. On March 24, 1977, Unruh informed the trustees of the Pension Trust that the sewer intercepter line would be completed no earlier than February of 1978 and possibly as late as the fall of 1978. Unruh added th