Beaver v. Tarsadia Hotels

• Decision Date: 16 October 2013
• Docket Number: Case No. 11cv1842 GPC(KSC).
• Citation: 978 F.Supp.2d 1124
• Court: U.S. District Court — Southern District of California
• Parties: Dean BEAVER, et al., Plaintiffs, v. TARSADIA HOTELS, et als., Defendants.

978 F.Supp.2d 1124

Dean BEAVER, et al., Plaintiffs,

v.TARSADIA HOTELS, et als., Defendants.

Case No. 11cv1842 GPC(KSC).

United States District Court, S.D. California.

Oct. 16, 2013.

Donald E. Chomiak, Talisman Law, P.C., Santa Monica, CA, Michael Lawrence Schrag, Tyler R. Meade, Meade & Schrag, LLP, Berkeley, CA, Wendy C. Fostvedt, Fostvedt Legal Group, LLC, Basalt, CO, for Plaintiffs.

Alicia Natalie Vaz, Perry Hughes, Cox Castle and Nicholson, Los Angeles, CA, Frederick H. Kranz, Jr., Cox Castle & Nicholson LLP, Irvine, CA, Daniel M. Benjamin, Chrysta L. Elliott, John J. Rice, Thomas W. McNamara, Ballard Spahr, LLP, San Diego, CA, for Defendants.

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART TARSADIA DEFENDANTS AND DEFENDANT PLAYGROUND DESTINATION'S MOTIONS FOR SUMMARY JUDGMENT

GONZALO P. CURIEL, District Judge.

Plaintiffs Dean Beaver, Laurie Beaver, Steven Adelman, Abram Agachi, Dinesh Gauba, Kevin Kenna and Veronica Kenna (collectively “Plaintiffs”) brought a class action on behalf of themselves and all others similarly situated against developers and agents of the Hard Rock Hotel & Condominium Project (“Hard Rock”). (Dkt. No. 69, TAC.) Plaintiffs commenced this action on behalf of persons who purchased units at the Hard Rock between May 2006 and December 2007 for Defendants' failure to disclose and intentionally concealing Plaintiffs' right to rescind their purchase contracts within two years of the date of signing the contracts.

On May 3, 2013, Plaintiffs filed a motion for summary judgment. (Dkt. No. 81.) Defendants filed oppositions and Plaintiffs replied. (Dkt. Nos. 104, 111.) On May 22, 2013, Defendants 5th Rock, Gregory Casserly, Gaslamp Holdings, LLC, MKP One, LLC, B.U. Patel, Tushar Patel, and Tarsadia Hotels (collectively “Developer Defendants” or “Tarsadia Defendants”) filed a motion for summary judgment. (Dkt. No. 94.) Plaintiffs filed an opposition and Defendants replied. (Dkt. Nos. 103, 112.) On May 31, 2013, Defendant Playground Destination Properties, Inc. (“Playground”) filed a motion for summary judgment. (Dkt. No. 98.) Plaintiffs filed an opposition and Defendants replied. (Dkt. Nos. 107, 115.) On August 28, 2013, the Court held a hearing. (Dkt. No. 120.) Tyler Meade, Esq., Michael Shrag, Esq., Michael Reiser, Esq., and Donald Chomiak, Esq. appeared on behalf of Plaintiffs. Alicia Vaz, Esq., Frederick Kranz, Esq. appeared on behalf of Tarsadia Defendants, and Daniel Benjamin, Esq., and Thomas McNamara, Esq. appeared on behalf of Defendant Playground.

Based on the parties' briefs, supporting documentation, applicable law, and hearing oral argument, the Court DENIES Plaintiffs' motion for summary judgment and GRANTS in part and DENIES in part all Defendants' motions for summary judgment.

Procedural Background

On August 17, 2011, the proposed class action was removed from state court to this Court. (Dkt. No. 1.) On August 24, 2011, Defendants filed motions to dismiss the First Amended Complaint. (Dkt. Nos. 6, 11, 12.) On December 6, 2011, 2011 WL 6098165, District Judge Dana Sabraw granted in part and denied in part Defendants' motion to dismiss and granted Plaintiffs leave to amend. (Dkt. No. 20.) On December 22, 2011, Plaintiffs filed a Second Amended Complaint (“SAC”) alleging violations of the Interstate Land Sales Full Disclosure Act (“ILSA”), violation of California's Subdivided Lands Act, (“SLA”), fraud, negligence and violation of California Business and Professions Code sections 17200 et seq. (Dkt. No. 21.) Defendants again moved to dismiss the SAC on January 5, 2012. (Dkt. Nos. 22, 23.) On May 2, 2012, 2012 WL 1564535, District Judge Dana Sabraw granted in part and denied in part Defendants' motions to dismiss the SAC. (Dkt. No. 34.) In that order, the Court dismissed the second cause of action for violation of California's Subdivided Lands Act with prejudice. ( Id.) The first and third causes of action for violation of ILSA and common law fraud were dismissed with prejudice solely as to Defendant Playground. ( Id. at 18.)

On August 8, 2012, Defendant Playground filed a motion for judgment on the pleadings as to Plaintiffs' section 17200 claim. (Dkt. No. 40.) On September 27, 2012, Plaintiffs filed a motion for leave to amend to file a Third Amended Complaint (“TAC”). (Dkt. No. 43.) On October 12, 2012, the case was transferred to the undersigned judge. (Dkt. No. 52.) On April 17, 2013, 2013 WL 1660632, the Court granted Plaintiffs' motion for leave to file a Third Amended Complaint and denied as moot Defendant Playground Destination's motion for judgment on the pleadings. (Dkt. No. 68.) On April 18, 2013, Plaintiffs filed a Third Amended Complaint (“TAC”). (Dkt. No. 69.)

On March 1, 2013, Plaintiffs filed a motion to certify class and motion for appointment of co-lead class counsel. (Dkt. Nos. 62, 63.) On June 24, 2013, the Court denied Plaintiffs' motion for class certification as premature as the legal issue of whether the Hard Rock Project was subject to ILSA needed to be addressed first. (Dkt. No. 108.)

In the TAC, Plaintiffs allege the same five causes of action as the second amended complaint but adds additional factual allegations. The five causes of action are: 1) violation of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. (“ILSA”); 2) California's Subdivided Lands Act, California Business and Professions Code sections 11000 et seq. (“SLA”); 3) fraud; 4) negligence; and 5) violation of California Business and Professions Code sections 17200 et seq. It should be noted that in the Court's order granting in part and denying in part Defendants' motion to dismiss the Second Amended Complaint, the Court dismissed the second cause of action for violation of the Subdivided Lands Act with prejudice. Moreover, Defendant Playground was dismissed with prejudice from the first and third causes of action for violation of ILSA and common law fraud. (Dkt. No. 34.)

Background

Plaintiffs allege that because Defendants failed to comply with ILSA, they violated ILSA by failing to disclose and intentionally concealed that buyers had an absolute right to rescind their purchase contracts within two years of the date of signing and making affirmative misrepresentations regarding the right to rescind to prevent Plaintiffs from exercising it. Defendants are 5th Rock, LLC (“Seller”), the seller and developer of the Hard Rock; MKP One, LLC (“MKP”), the managing member of 5th Rock and the party that signed these contracts on behalf of 5th Rock; Tarsadia Hotels (“Tarsadia”), an entity 5th Rock retained to assist in the development, and subsequently the operation, and management of the Hotel after opening; Gregory Casserly, the President and member of the Board of Directors of Tarsadia; Tushar Patel, and B.U. Patel, shareholders and members of the Board of Directors of Tarsadia; and Gaslamp Holdings, LLC (“Gaslamp”), an affiliate of 5th Rock that owned the land underlying the Hard Rock. Playground was the real estate broker for the Hard Rock.

Around 2005, Defendants, through 5th Rock, began to develop a mixed-use development to include 420 guestroom commercial condominium units (“Units”) called the “Hard Rock Hotel & Condominium” located at 205 Fifth Avenue in San Diego, California. Starting around May 18, 2006, Plaintiffs and 5th Rock executed a pre-printed, standardized Purchase Contract and Escrow Instructions (“Purchase Contract”) prepared by Defendants for the purchase of one or more Units at the Hard Rock Project. Most closed escrow on their Units in 2007.

Plaintiffs assert that Defendants violated the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et seq. (“ILSA”) by failing to disclose and intentionally concealing Plaintiffs' right to rescind their purchase contracts within two years of the date of signing the Contracts. Under 15 U.S.C. § 1703(d)(2) of the ILSA, a developer is required to include in the buyer default provision of the purchase contract written notice of a 20–day opportunity for the buyer to remedy default or breach of contract. 15 U.S.C. § 1703(d)(2). If a developer does not include the default remedy provision in the contracts, buyers then have an absolute two-year right to rescind. 15 U.S.C. § 1703(d).

Furthermore, ILSA requires a developer to register a project with the U.S. Department of Housing and Urban Development (“HUD”) and to provide buyers with an ILSA property report that discloses facts regarding the sales transaction. 15 U.S.C. § 1703(a)(1)(B). If a developer does not obtain an ILSA property report to be distributed to buyers before they sign the purchase contract (or in the alternative, in California, where a developer fails to provide buyers with an ILSA compliant public report issued by the Department of Real Estate), ILSA imposes a two-year right to rescind from the date of contract for the benefit of the buyers where the right to rescind must be disclosedin the purchase contract. 15 U.S.C. § 1703(c).

Plaintiffs argue that Defendants violated the ILSA by intentionally omitting the statutory notice of right of rescission from the sale documents and making affirmative misrepresentations regarding the right to rescind to prevent Plaintiffs from exercising it. As a result, Plaintiffs were denied their legal right to rescind as the real estate market deteriorated and the economy fell into recession.

Defendants do not dispute that they did not provide an ILSA required property report at the time of the Purchase Contract, did not provide a ILSA compliant public report issued by the DRE, did not include the 20 day opportunity for the buyer to remedy default or breach, and did not include a two year right to rescind in the Purchase Contract. They contend that the Hard Rock Units were not subject to ILSA since the Units were not “lots” under ILSA and were subject to the Improved Lot Exemption.

Plaintiffs move for partial summary judgment on the fifth cause of...