Bacolitsas v. 86th & 3rd Owner, LLC

• Decision Date: 19 December 2012
• Docket Number: Docket Nos. 10–4229–cv(L), 10–5230–cv(CON).
• Citation: 702 F.3d 673
• Court: U.S. Court of Appeals — Second Circuit
• Parties: Vasilis BACOLITSAS, Sofia Nikolaidou, Plaintiffs–Counter–Defendants–Appellees, v. 86TH & 3RD OWNER, LLC, Defendant–Counter–Claimant–Appellant, Michael, Levitt & Rubinstein, LLC, Escrow Agent, Defendant–Appellant.

702 F.3d 673

Vasilis BACOLITSAS, Sofia Nikolaidou, Plaintiffs–Counter–Defendants–Appellees,

v.86TH & 3RD OWNER, LLC, Defendant–Counter–Claimant–Appellant,Michael, Levitt & Rubinstein, LLC, Escrow Agent, Defendant–Appellant.

Docket Nos. 10–4229–cv(L), 10–5230–cv(CON).

United States Court of Appeals,

Second Circuit.

Argued: Nov. 2, 2011.

Decided: Dec. 19, 2012.

Jeffrey R. Metz (Adam Leitman Bailey, John M. Desiderio, William J. Geller, Courtney J. Killelea, on the brief), Adam Leitman Bailey, P.C., New York, NY, for Plaintiffs–Counter–Defendants–Appellees.

Mark Walfish (Adrienne B. Koch and Thomas M. Lopez, on the brief), Katsky Korins LLP, New York, NY, for Defendant–Counter–Claimant–Appellant 86th & 3rd Owner, LLC and Defendant–Appellant Michael, Levitt & Rubinstein, LLC.

Li Yu, Assistant United States Attorney (Sarah S. Normand, Assistant United States Attorney, on the brief), for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Amicus Curiae The United States of America.¹

Robert D. Kaplan, Friedman Kaplan Seiler & Adelman LLP, New York, NY, for Amicus Curiae The Real Estate Board of New York.

Before: SACK, HALL, and LOHIER, Circuit Judges.

HALL, Circuit Judge:

This appeal provides us with an opportunity to clarify the requirements of the Interstate Land Sales Full Disclosure Act (“ILSA”), 15 U.S.C. §§ 1701–20, a statute that, while enacted more than forty years ago, has received little attention from the federal courts until recently. In basic terms, ILSA protects individual buyers or lessees who purchase or lease lots in large, uncompleted housing developments, including condominiums, by mandating that developers make certain disclosures. If a developer fails to provide these disclosures, ILSA permits buyers or lessees, under certain circumstances, to revoke their purchase or lease agreements within a designated period from the date of signing. 15 U.S.C. § 1703(d). As one of our sister circuits observed recently, it is this feature of ILSA that has made the statute “an increasingly popular means of channeling buyer's remorse into a legal defense to a breach of contract claim.” Stein v. Paradigm Mirasol, LLC, 586 F.3d 849, 852 (11th Cir.2009).

In the present case, Plaintiffs–Counter–Defendants–Appellees Vasilis Bacolitsas and Sofia Nikolaidou (“Plaintiffs”) sought to avail themselves of § 1703(d)'s terms by bringing suit for revocation of a purchase agreement they executed with Defendant–Counter–Claimant–Appellant 86th & 3rd Owner, LLC and Defendant–Appellant Michael, Levitt & Rubinstein, LLC (“Defendants”) for a luxury condominium unit in New York City, asserting that the agreement failed to comport with ILSA's disclosure requirements. Plaintiffs alleged, inter alia, that the purchase agreement was revocable because it did not contain “a description of the lot which makes such lot clearly identifiable and which is in a form acceptable for recording.” 15 U.S.C. § 1703(d)(1). The district court granted summary judgment to Plaintiffs, concluding that because their purchase agreement was not recordable under state law, it did not comply with § 1703(d)(1) and was therefore subject to revocation. Addressing a question of first impression in this Court, we disagree and hold that § 1703(d)(1) requires the description and not the agreement itself be “in a form acceptable for recording” and that the description at issue in this case satisfies ILSA's requirements. We therefore REVERSE the district court's judgment and REMAND with instructions that the district court enter judgment for Defendants. ²

BACKGROUND

The facts are undisputed. The Brompton Condominium (“Brompton”) is a luxury condominium building located at 86th Street and Third Avenue in Manhattan, New York. Defendant 86th & 3rd Owner, LLC (the “Sponsor”) sells, offers, and advertises units in the Brompton, and Defendant–Appellant Michael, Levitt & Rubinstein, LLC (the “Escrow Agent”) is the Sponsor's escrow agent for all purchases of units in the building. Consistent with its obligations under ILSA, see15 U.S.C. §§ 1704–05; 24 C.F.R. §§ 1710.100, 1710.105–18, the Sponsor previously filed with the United States Department of Housing and Urban Development (“HUD”) a statement of record containing the property report, and, as required by statute, the property report provided all potential purchasers of units, including Plaintiffs, with certain information and warnings about the Brompton.³ In addition, the Sponsor previously filed the condominium offering plan (the “Plan”) with the Office of the New York State Attorney General pursuant to New York General Business Law §§ 352–e— 352–eeee. Attached to the Plan were drafts of a unit deed and the Sponsor's Declaration of Condominium (“Draft Declaration”).⁴ The Plan contained a detailed description of each unit in the Brompton, identifying the dimensions and locations of all rooms and windows, the floor plan, the location of the unit within the building, and the direction the unit faced. The Draft Declaration included a metes and bounds description of the Brompton and indicated, inter alia, the specific tax lots on which the building was to be erected.

At some time prior to May 2008, Plaintiffs received from the Sponsor the property report and the Plan for the Brompton. In May 2008, Plaintiffs entered into an agreement (the “Agreement”) with Defendants to purchase Unit 20A in the Brompton for $3.4 million. At the time Plaintiffs executed the Agreement, the Brompton was under construction; the building was not finished until January 2009. The Agreement incorporated by reference the Plan as well as the Draft Declaration. Under the Agreement's terms, Plaintiffs were to pay $340,000 upon signing, another $340,000 by November 2008 or on the date of closing, whichever was earlier, and the balance of the price at closing. The Agreement indicated that these two $340,000 sums constituted the deposit. In the event of Plaintiffs' default, Section 12(b) of the Agreement stated that the Sponsor could cancel the Agreement and, “as its sole remedy, shall have the right, subject to the provision of Section 12(d) below, to retain, as and for liquidated damages, the Deposit and any interest earned on the Deposit.” Section 12(d) of the Agreement provided:

Notwithstanding the foregoing, if and only to the extent that the sale of the Residential Units is not exempt from the provisions of [ILSA], the amount of the Deposit to be retained by Sponsor upon Purchaser's failure to cure a default ... will be the greater of (i) fifteen (15%) percent of the Purchase Price (excluding any interest owed) or (ii) the amount of damages incurred by Sponsor due to the default....

Section 31 specifically prohibited Plaintiffs from recording the Agreement.

In December 2008, the parties amended the Agreement to permit the second $340,000 deposit to be paid in two separate installments of $170,000. Plaintiffs paid the first installment but failed to pay the second. In aggregate, therefore, Plaintiffs paid $510,000 as a deposit, or 15% of the purchase price. In March 2009, the Sponsor notified Plaintiffs by letter that it was exercising its right to cancel the Agreement and to retain the $510,000 deposit, which the Sponsor demanded be released by the Escrow Agent. Plaintiffs objected and challenged the Sponsor's cancellation with the Office of the New York Attorney General. SeeN.Y. Comp.Codes R. & Regs. tit. 13, § 20.3( o )(3)(viii)(a). In January 2010, the Attorney General issued a decision finding that Plaintiffs had defaulted on the Agreement and that the Sponsor was entitled to the release of Plaintiffs' $510,000 deposit. That same month, the Escrow Agent released the deposit to the Sponsor. In July 2009, however—four months after the Sponsor had informed Plaintiffs of its cancellation of the Agreement—Plaintiffs had notified the Sponsor that they were revoking the Agreement pursuant to ILSA. Plaintiffs asserted that the Agreement (1) failed to provide an adequate description of the property in violation of 15 U.S.C. § 1703(d)(1), and (2) contained an invalid liquidated damages clause in violation of 15 U.S.C. § 1703(d)(3). Defendants rejected Plaintiffs' purported revocation.

In August 2009, Plaintiffs brought the present action seeking both a declaration that they had validly revoked the Agreement pursuant to 15 U.S.C. § 1703(d) and also an award of $510,000 in money damages, the amount paid as a deposit. Following discovery both parties moved for summary judgment. In October 2010, the district court entered judgment for Plaintiffs, holding that they were entitled to revoke the Agreement. The court reached this conclusion on grounds not explicitly advanced by the parties. Relying exclusively on the language of § 1703(d), the court held that “[r]ead in context, the statute requires that the description [of the lot] be included in a document that is in a form capable of being recorded,” and because here, Plaintiffs' Agreement for the purchase of Unit 20A in the Brompton was not recordable under New York law, the court concluded that the Agreement was subject to revocation under ILSA. Defendants appealed.

DISCUSSION

We review a grant of summary judgment de novo and will affirm “only where, construing all the evidence in the light most favorable to the non-movant and drawing all reasonable inferences in that party's favor, there is no genuine [dispute] as to any material fact and the movant is entitled to judgment as a matter of law.” McBride v. BIC Consumer Prods. Mfg. Co., 583 F.3d 92, 96 (2d Cir.2009) (internal quotation marks and alteration omitted); seeFed.R.Civ.P. 56(a).

Although Plaintiffs prevailed below, they do not expend considerable effort defending the lower court's interpretation of 15 U.S.C. § 1703(d), which, as already noted, did not rest on any argument squarely advanced by Plaintiffs. Instead, Plaintiffs reiterate the same points they raised below—namely, that the Agreement is...