Gentry v. Cottages–stuart

• Decision Date: 07 September 2011
• Docket Number: Nos. 09–13253,09–14636.,s. 09–13253
• Citation: 23 Fla. L. Weekly Fed. C 373,654 F.3d 1247
• Parties: James D. GENTRY, Donald J. Hunt, R. Scott Stone, Jr., Patricia Stone, Plaintiffs–Appellees,v.HARBORAGE COTTAGES–STUART, LLLP, a Florida limited liability limited partnership, Northside Marina Venture, LLC, a Florida limited liability company, Defendants–Appellants.James D. Gentry, Donald J. Hunt, Plaintiffs–Appellees,R. Scott Stone, Jr., Patricia Stone, Consolidated–Plaintiffs–Appellees,v.Harborage Cottages–Stuart, LLLP, a Florida limited liability limited partnership, Defendant–Appellant,Northside Marina Venture, LLC, a Florida limited liability company, Defendant–Consolidated–Defendant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

654 F.3d 1247

23 Fla. L. Weekly Fed. C 373

James D. GENTRY, Donald J. Hunt, R. Scott Stone, Jr., Patricia Stone, Plaintiffs–Appellees,

v.HARBORAGE COTTAGES–STUART, LLLP, a Florida limited liability limited partnership, Northside Marina Venture, LLC, a Florida limited liability company, Defendants–Appellants.James D. Gentry, Donald J. Hunt, Plaintiffs–Appellees,R. Scott Stone, Jr., Patricia Stone, Consolidated–Plaintiffs–Appellees,

v.Harborage Cottages–Stuart, LLLP, a Florida limited liability limited partnership, Defendant–Appellant,Northside Marina Venture, LLC, a Florida limited liability company, Defendant–Consolidated–Defendant–Appellant.

Nos. 09–13253

09–14636.

United States Court of Appeals, Eleventh Circuit.

Sept. 7, 2011.

Elliot H. Scherker, Brigid F. Cech Samole, Greenberg Traurig, P.A., Stephen James Binhak, The Law Office of Stephen James Binhak, P.L.L.C., Miami, FL, Brooke R. Hardy, Greenberg Traurig, P.A., Atlanta, GA, for Appellants.Edward George Guedes, Weiss Serota Helfman Pastoriza Cole & Boniske, P.L., Coral Gables, FL, for Appellees.Appeals from the United States District Court for the Southern District of Florida.Before PRYOR and COX, Circuit Judges, and PANNELL, District Judge. ^*COX, Circuit Judge:

Several purchasers of condominium units sued developer Harborage Cottages–Stuart, LLLP (“Harborage”), alleging that Harborage violated the Interstate Land Sales Full Disclosure Act (“ILSFDA”), 15 U.S.C. § 1701, et seq., and several Florida statutes. The district court granted summary judgment in favor of the purchasers. Central to this appeal is the court's conclusion that Harborage violated 15 U.S.C. § 1703(a)(1)(B) by failing to provide the purchasers with a property report prior to their signing the purchase agreements. In finding that Harborage violated § 1703(a)(1)(B), the court rejected Harborage's contention that the purchasers' condominium units were exempt from the requirements of the ILSFDA. The court rejected this contention, finding that Harborage structured the sale of the condominium units “for the purpose of evasion” of the ILSFDA, and therefore Harborage was not entitled to an exemption under 15 U.S.C. § 1702. The court ordered the return of the purchasers' deposits as damages for the ILSFDA violation, and awarded the purchasers attorneys' fees and costs.

We agree with the district court that Harborage is not entitled to an exemption under 15 U.S.C. § 1702. Thus, we affirm the court's grant of summary judgment in favor of the purchasers on their claim that Harborage violated § 1703(a)(1)(B) by failing to provide a property report. And, we affirm the court's award of damages, attorneys' fees, and costs.

I. BACKGROUND & PROCEDURAL HISTORY

A. Factual Background

Harborage develops and sells luxury condominiums. It developed the Harborage Yacht Condominiums (“Harborage Condominiums”), a nine-building development on the St. Lucie River in Stuart, Florida. In May 2005, Plaintiffs R. Scott Stone, Jr. and Patricia Stone (“the Stones”) contracted to purchase a unit in the Westport building of the Harborage Condominiums for $430,000, and put down an $86,000 deposit. The following month, Plaintiffs James D. Gentry and Donald J. Hunt (“Gentry–Hunt”) contracted to purchase a unit in the St. Martin building of the Harborage Condominiums for $350,000, and put down a $70,000 deposit. We refer to the Stones and Gentry–Hunt collectively as “Plaintiffs.”

The Harborage Condominiums had not been built at the time the Plaintiffs entered into these contracts. The Harborage project included 126 units. Thirty-six units were covered by contracts that obligated Harborage to complete construction within two years. The other ninety units, including the units purchased by Plaintiffs, were sold under contracts that did not contain the two-year construction provision.

Harborage used an artist's rendering of the Harborage Condominiums, known as a Site Plan, to market the project. The Site Plan shows the location of each condominium building, the Yacht Club and marina, and several areas that are marked for future development. One of the areas marked for future development is located at the project's southernmost edge, near the St. Martin building. Though not depicted on the Site Plan, two commercial buildings are located in this future development area next to the St. Martin building. The Site Plan includes a disclaimer: “All renderings are artist's conception and are subject to change, without notice at the developer's sole discretion. Renderings used for representative purposes only.” (Dkt. 1–1 at 23–24.)

B. Procedural History

The Stones and Gentry–Hunt filed separate lawsuits against Harborage, and the district court consolidated them.¹ As pertinent to this appeal, Gentry–Hunt and the Stones both allege that Harborage violated the ILSFDA in two main ways. They allege that Harborage violated 15 U.S.C. § 1703(a)(1)(B) and (c) by failing to provide a required property report. And, they allege that Harborage violated 15 U.S.C. § 1703(a)(2) by making material misrepresentations in the Site Plan.

Gentry–Hunt and the Stones also allege several state law claims against Harborage. Both Gentry–Hunt and the Stones allege that Harborage violated Fla. Stat. § 501.204(1) by making false representations in the Site Plan. Gentry–Hunt, but not the Stones, also filed a claim alleging that Harborage violated Fla. Stat. § 718.506 by publishing false and misleading information in the Site Plan. All parties filed motions for summary judgment.

1. Exemptions Under 15 U.S.C. § 1702(a)(2) and (b)(1)

In Harborage's summary judgment motion, it conceded that it did not provide a property report to the Plaintiffs as required by 15 U.S.C. § 1703(a)(1)(B) and (c). Harborage argued, however, that it did not have to provide the report because 15 U.S.C. § 1702(a)(2) and (b)(1) exempted Plaintiffs' units from the requirements of the ILSFDA. Section 1702(a)(2) exempts properties upon which a contract obligates the seller to erect a building within two years. See 15 U.S.C. § 1702(a)(2). Harborage argued that thirty-six of the 126 units were exempt under § 1702(a)(2) because the purchase agreements covering those units obligated Harborage to complete construction within two years. Section 1702(b)(1) exempts subdivisions containing fewer than one hundred units which are not exempt under § 1702(a)(2). See 15 U.S.C. § 1702(b)(1). Harborage argued that the ninety units not exempt under § 1702(a)(2), including the units purchased by Plaintiffs, were exempt under § 1702(b)(1).

The district court concluded that Harborage failed to establish entitlement to the exemptions afforded by 15 U.S.C. § 1702(a)(2) and (b)(1). The court determined that, in order to invoke these exemptions, Harborage was obligated to establish that its method of selling the condominium units was not adopted for the sole purpose of evading the ILSFDA's protections. The district court's analysis centered on whether Harborage's use of two different purchase agreements, which largely exempted Harborage from the ILSFDA's requirements, was adopted for the purpose of evading the ILSFDA's requirements. Gentry v. Harborage Cottages–Stuart, LLLP, 602 F.Supp.2d 1239, 1246–50 (S.D.Fla.2009). The district court noted that this circuit has no clear definition of what constitutes “evasion” for the purposes of § 1702, but concluded that Harborage had failed to prove that two different sales contracts were not used for the purpose of evading the ILSFDA. Therefore, the court held Harborage was not entitled to invoke the ILSFDA's exemptions. Id. at 1250–51.

In so ruling, the district court placed the burden on Harborage, the developer/seller, to produce “factual evidence demonstrating that the method of disposition has some bona fide, real world objective that manifests a legitimate business purpose.” Id. at 1248. Applying that standard, the district court held that, while “[i]t is not inconceivable that there could be some legitimate business reason” for Harborage to use two different purchase agreements, Harborage could not avail itself of § 1702(b)(1)'s ninety-nine lot exemption because “no legitimate business purpose is evident” from the record. Id. at 1249. Because Harborage failed to meet its burden of showing that the § 1702 exemptions apply in this case, and because Harborage conceded it did not provide a property report as required by 15 U.S.C. § 1703(a)(1)(B) and (c), the district court granted summary judgment to Plaintiffs on this claim.

2. Florida Condominium Act, Fla. Stat. § 718.506

In Gentry–Hunt's summary judgment motion, they contended that Harborage violated Fla. Stat. § 718.506 by publishing false and misleading information in the Site Plan. They argued that the Site Plan presented an untrue statement of material fact because it misled purchasers to believe that an area marked “Future Development” was vacant land when, in fact, it contained an operating business and a storage facility. The district court granted summary judgment in favor of Gentry–Hunt on this § 718.506 claim. The court also granted summary judgment in favor of the Stones under § 718.506 even though the Stones never asserted such a claim in their complaint.

3. ILSFDA, 15 U.S.C. § 1703(a)(2) and the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.204(1)

The court granted summary judgment to Plaintiffs on their claims asserted under the ILSFDA anti-fraud provision, 15 U.S.C. § 1703(a)(2), and their claim asserted under Fla. Stat. § 501.204(1). Plaintiffs concede, however, that they did not seek summary judgment on these claims.

4. Damages

After determining that Harborage violated 15 U.S.C. § 1703(a)(1)(B) and (c) by failing to provide a property report, the court referred the issue of damages to a magistrate judge. For the violations of the ILSFDA under 15 U.S.C. § 1703(a)(1)(B) and (c), the court awarded Plaintiffs the return of their deposits as equitable relief under 15...