Eaton v. Dorchester Development, Inc.

• Decision Date: 29 November 1982
• Docket Number: No. 82-5218,82-5218
• Citation: 692 F.2d 727
• Parties: Donald EATON; Jane Levin; Tema Burke; J. Myron Rosen and Barbara R. Rosen; Joel D. Kulick; Mona Israel, Robert Tavlin, Joanna T. Fenstermacher and James B. Sprague, as Partners of Jay Bee Associates, a Florida General Partnership; and Chambertin Corporation, a Florida corporation, Plaintiffs-Appellants, v. DORCHESTER DEVELOPMENT, INC., a Florida corporation, Defendant-Appellee. Non-Argument Calendar.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 727

692 F.2d 727

Donald EATON; Jane Levin; Tema Burke; J. Myron Rosen and

Barbara R. Rosen; Joel D. Kulick; Mona Israel, Robert

Tavlin, Joanna T. Fenstermacher and James B. Sprague, as

Partners of Jay Bee Associates, a Florida General

Partnership; and Chambertin Corporation, a Florida

corporation, Plaintiffs-Appellants, v. DORCHESTER DEVELOPMENT, INC., a Florida corporation,

Defendant-Appellee.

No. 82-5218

Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

Nov. 29, 1982.

Schwartz & Nash, P.A., H. Hugh McConnell, Miami, Fla., for plaintiffs-appellants.

John Farrell, Robert A. Glassman, Miami, Fla., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before HILL, VANCE and ANDERSON, Circuit Judges.

VANCE, Circuit Judge:

Plaintiffs sued in the district court for the Southern District of Florida seeking rescission of contracts for the purchase from defendants of condominium units in the Dorchester Condominiums in Naples, Florida. ¹ The complaint based jurisdiction on the Interstate Land Sales Full Disclosure Act, 15 U.S.C. Secs. 1701-1720, ² alleging that Dorchester Development violated the Act by entering into the contracts without providing the purchasers with a printed property report as required by section 1703(c) and section 1707. ³

Dorchester Development admitted that it had not provided the property report, but challenged subject matter jurisdiction. Section 1702(b)(1) exempts from the Act's coverage all "subdivisions" containing less than one hundred units. Dorchester Development argued that its condominium contains only eighty-six units. ⁴ The complaint had not alleged facts to show that the Dorchester exceeded one hundred units, though it did assert that the parcels of the Dorchester were "sold and offered for sale to the public as part of a common promotional plan."

Plaintiffs responded that the Dorchester was not exempt from the Act because it was part of a larger "subdivision" ⁵ known as Pelican Bay containing more than one hundred units, being developed as what the Plaintiffs moved to amend their complaint in order to explicitly state the factual basis of jurisdiction. They also requested that the court reserve ruling on the question of jurisdiction until they could use discovery to develop additional jurisdictional facts. Plaintiffs began discovery by noticing for deposition and serving subpoenas duces tecum upon William Higgs, the president of both the Power Corporation and the Dorchester. The subpoenas duces tecum implied that one purpose for the deposition was to establish that the Dorchester was part of a larger subdivision subject to the Act.

                Act terms a "common promotional plan." 6   They contended that defendants had acted in concert with another developer, Power Corporation, to develop the Dorchester as part of a project which included a second condominium, the Grosvenor.  Plaintiffs submitted a promotional brochure in which Power Corporation referred to itself as the "owner/developer/builder" of both the Dorchester and the Grosvenor and stated that the Grosvenor was continuing the "standard of excellence" that Power Corporation had begun several years ago with the Dorchester.  They also submitted a magazine advertisement in which a realtor, Power Realty, Inc., promoted "Power Corporation luxury condominiums" including the Dorchester and the Grosvenor.  Finally, plaintiffs submitted copies of status sheets from the Florida Department of State showing that Power Corporation and the Dorchester had the same president and director and the same registered office
                

The depositions were set for January 5, 1982, but on December 29, 1981 the district court dismissed the suit for lack of subject matter jurisdiction. The court's one-paragraph order stated that because the Dorchester contained less than one hundred units it was exempt from the Act and thus the court was divested of subject matter jurisdiction. The court gave no other reasons for this result and made no explicit findings of fact or law. We reverse.

I

Given the importance of subject matter jurisdiction and the fact that a rule 12(b)(1) motion allows the defendant to attack the truth and sufficiency of the matters alleged as well as the formal sufficiency of the complaint, tricky questions of jurisdictional discovery arise. The issue of discovery of facts supporting or negating the existence of subject matter jurisdiction has resulted in part from the modern deemphasis of fact pleading and the increased reliance on pretrial discovery. Note, The Use of Discovery to Obtain Jurisdictional Facts, 59 Va.L.Rev. 533, 546-47 (1973). Since the pleadings may not reveal whether the court has jurisdiction, some sort of discovery may be necessary. 8 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2009 (1970).

It is now clear that federal courts have the power to order, at their discretion, the discovery of facts necessary to ascertain their competency to entertain the merits. See Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 n. 13, 98 S.Ct. 2380, 2389 n. 13, 57 L.Ed.2d 253 (1978); Washington v. Norton Manufacturing Co., 588 F.2d 441, 443 (5th Cir.), cert. denied, 442 U.S. 942, 99 S.Ct. 2886, 61 L.Ed.2d 313 (1979); 8 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2009. The problem is the degree to which such discovery is mandatory or discretionary. We have held that such jurisdictional discovery is not entirely discretionary, and this appears to be the better view. ⁷ Similarly, in Blanco v. Carigulf Lines, 632 F.2d 656 (5th Cir. 1980), the district court relied upon pleadings and party affidavits alone in making the subject matter jurisdiction determination. In reversing the former fifth circuit noted that defendants' answers to interrogatories were overdue, id. at 657, 658, and held that plaintiff was entitled to elicit material through discovery before a claim could be dismissed for lack of jurisdiction. See also Chatham Condominium Associations v. Century Village, Inc., 597 F.2d 1002, 1012 (5th Cir. 1979) ("dismissal for lack of subject matter jurisdiction prior to trial, and certainly prior to giving the plaintiff ample opportunity for discovery, should be granted sparingly"); Williamson v. Tucker, 645 F.2d 404, 414 (5th Cir.), cert. denied, 454 U.S. 897, 102 S.Ct. 396, 70 L.Ed.2d 212 (1981) (prior to 12(b)(1) dismissal when jurisdictional facts are in dispute, "the district court must give the plaintiff an opportunity for discovery and for a hearing that is appropriate to the nature of the motion to dismiss. Thus, some courts have refused to grant such a motion before plaintiff has had a chance to discover facts necessary to establish jurisdiction").

In Davis v. Asano Bussan Co., 212 F.2d 558 (5th Cir. 1954), the former fifth circuit held that plaintiff was entitled to discovery of disputed jurisdictional facts. After filing its complaint, plaintiff served defendants with interrogatories seeking detailed information about transactions at issue in the case. When defendants objected to these voluminous interrogatories, plaintiff responded that the information sought was necessary to establish the disputed jurisdictional facts. Id. at 561-62. The trial court withheld action on the interrogatories for a time and then dismissed the case for lack of jurisdiction. The circuit court reversed, holding that the district court should have received the complete information called for by the interrogatories before entering final judgment. Id. at 565.

The district judge dismissed this complaint before plaintiffs had been able to complete any discovery at all. The subpoenas duces tecum served on William Higgs, as president of both the Dorchester and Power Corporation, sought records of both corporations so that the commonality of the two condominium projects could be documented. Plaintiffs sought books of account showing expenditures for advertising and payroll for the development of the Dorchester and the Grosvenor; copies of all advertisements for the Dorchester and/or the Grosvenor; construction loan commitments We hold that the district court's dismissal for lack of subject matter jurisdiction was premature. Plaintiff must be given an opportunity to develop facts sufficient to support a determination on the issue of jurisdiction. As we said in Blanco, "the rules entitle a plaintiff to elicit material through discovery before a claim may be dismissed for lack of jurisdiction." 632 F.2d at 658.

relating to the two condominiums; copies of all filings with the Florida Department of Business Regulation for the Dorchester and the Grosvenor; stock transfer ledgers showing past and present ownership of the Dorchester and the Power Corporation; lists of purchasers and prospective purchasers of units of the Dorchester and the Grosvenor. This material could well reveal facts to reinforce plaintiffs' assertion that the two condominiums were offered in aggregate advertisements, ⁸ that units were sold through common sales offices by salesmen with authority to sell units from either condominium or who would show units from both condominiums to a single purchaser. These factors were considered decisive by the ninth circuit in United States v. Dacus, 634 F.2d 441, 444 (9th Cir. 1980). In Dacus, the court found a "common promotional plan" under section 1701(4) even though the lots were sold from developments with different names. Similarly, the Department of Housing and Urban Development, Office of Interstate Land Sales Registration, in its guidelines for interpreting regulations promulgated by HUD under the Act, set forth several factors considered by HUD in determining whether or not a "common promotional plan" exists. 44 Fed.Reg. 24010, 24011 (1979). The factors included a thread of common ownership; common sales agents; common sales facilities; common advertising; common inventory.

II

We leave the jurisdictional issue for the district...