Galstaldi v. Sunvest Communities Usa, LLC

• Citation: 637 F.Supp.2d 1045
• Decision Date: 25 March 2009
• Docket Number: Case No. 08-62076-CIV.
• Parties: Walter GALSTALDI, et al., Plaintiffs, v. SUNVEST COMMUNITIES USA, LLC, a Florida limited liability company; E.W. Sunvest Development, LLC, a Delaware limited liability company; and IMG Academies, LLP, a Florida limited liability partnership, d/b/a IMGA, Defendants.
• Court: U.S. District Court — Southern District of Florida

637 F.Supp.2d 1045

Walter GALSTALDI, et al., Plaintiffs, v. SUNVEST COMMUNITIES USA, LLC, a Florida limited liability company; E.W. Sunvest Development, LLC, a Delaware limited liability company; and IMG Academies, LLP, a Florida limited liability partnership, d/b/a IMGA, Defendants.

Case No. 08-62076-CIV.

United States District Court, S.D. Florida, Miami Division.

March 25, 2009.

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Gail Ann McQuilkin, Harley Shepard Tropin, Kozyak Tropin & Throckmorton, Coral Gables, FL, Chris W. Cantrell, Keith T. Belt, Jr., Belt Law Firm, Birmingham, AL, for Plaintiffs.

Haas A. Hatic, Rebecca Faith Bratter, Richard Wayne Epstein, Greenspoon Marder Hirschfeld Rafkin Ross & Berger, Fort Lauderdale, FL, Gregory J. Trask, Peter W. Homer, Homer & Bonner, P.A., Miami, FL, Andrew M. Genser, Atif Khawaja, Jonathan Putnam, Ryan M. Morettini, Sandra L. Musumeci, Kirkland & Ellis, New York, NY, for Defendants.

ORDER

CECILIA M. ALTONAGA, District Judge.

THIS CAUSE came before the Court on a Motion to Dismiss filed by Defendants, Sunvest Communities USA, LLC ("Sunvest"), E.W. Sunvest Development, LLC ("E.W. Sunvest") (collectively "Sunvest"), and IMG Academies, LLP ("IMG") (collectively, "Defendants") [D.E. 12], on January 20, 2009. The Court has carefully considered the parties' written submissions and applicable law.

I. BACKGROUND¹

This case arises from an allegedly fraudulent scheme in which Plaintiffs purchased pre-converted condominium units in Orlando Florida during 2006 and 2007. (See Complaint ("Compl.") [D.E. 1, Exhibit 1]). Plaintiffs purchased units at the Eaglewood Apartments from an organization known as Cay Clubs International ("Cay Clubs"). (See id. at ¶ 1). Plaintiffs allege they purchased the units based on representations that IMG and Sunvest were partners with Cay Clubs, and the apartment complex would be converted into luxury condominium units, the property developed into a five-star resort, and IMG would develop and manage a sports complex and training facility. (See id. at ¶¶ 189, 227).

Plaintiffs were provided promotional materials by agents of Cay Clubs, stressing the partnership between Cay Clubs and IMG. (See id. at ¶¶ 190-92). On June 1, 2006, Ricky Stokes ("Stokes"), an agent of Cay Clubs, conducted a promotional "webinar" in which he made the following representations, among others:

• We're going to take this property and turn it into an IMG academy.

• IMG Academies is now joined with us, Cay Clubs in Orlando, and they're moving most of their soccer facilities to the Orlando Cay Club and that is going to be one of the biggest drivers that we're going to have with our property in Orlando.

• [The relationship with IMG] drives people to our property, which decreases the vacancy rate, which increases money in your pocket, which improves our exit strategy and says what we're telling you is true.

• IMG alone is going to represent about 50 percent occupancy in the entire project.

• Because IMG Academies becomes part of the complex, needless to say, the property values for the entire area escalate above normal appreciation values.

(Id. at ¶ 190). In another June 1, 2006 webinar, Stokes represented that IMG had agreed to bring all of its soccer training to Orlando, meaning "they have already spoken for—before we've even begun the renovations they've spoken for 60 to 70 percent of the occupancy of this entire project virtually forever." (Id. at ¶ 192).

Plaintiffs received marketing materials from Cay Clubs which included the following representation:

Another joint venture with IMG Academies is Orlando Cay Club. In this joint venture, IMG Academies will be promoting and managing the sports related side, and Cay Clubs will provide a mix of resort amenities that will accommodate and appeal to large groups of sports teams, friends and family stays.

(Id. at ¶ 194) (emphasis in original). Cay Clubs' websites discussed the partnership between Cay Clubs and IMG, including such statements as:

The city of Orlando is host to some of the greatest attractions Florida has to offer. It is also the home of Cay Clubs [sic] newest project, Orlando Cay Club Resort and Academy. With the cities [sic] high concentration of tourists and Cay Clubs [sic] unique partnership with IMG Academies, this project is destined for success. . . .

(Id. at ¶ 198) (emphasis in original). IMG also made public statements on its website discussing a partnership with Cay Clubs, stating that:

Cay Clubs has become IMG Academies' in-house real estate development partner. In this capacity, Cay Clubs will enable IMGA to expand its `community' in terms of programming, accommodations and affiliated sports. In return, IMGA becomes Cay Clubs [sic] internal expert relative to sports straining, education, health and fitness programs, amenities and facilities.

(Id. at ¶ 205) (emphasis in original).

IMG promoted the Cay Club Resort and Academy through its real estate office, stating An Academy Realty sales agent will provide the utmost professional expertise in not only advertising your unit in the marketing mediums our corporate office has deemed most effective, but, more importantly, in receiving top dollar for the value of your unit within the Orlando Cay Club Resort and Academy.

(Id. at ¶ 206). IMG representatives conducted tours of the IMGA Bradenton facility for prospective buyers of units in the Orlando Cay Club Resort and Academy in which IMG spoke directly about its partnership with Cay Clubs and Cay Clubs' designation as its exclusive real estate developer and partner. (See id. at ¶ 207).

Cay Clubs represented to Plaintiffs it was partnered with Sunvest through such means as a marketing brochure that stated, "The developer is Sunvest. Their department that does rehab resort projects at the wholesale level is Cay Clubs . . . Sunvest is the largest resort developer in the country." (Id. at ¶ 216). Due diligence materials also stated, "The cay clubs companies have a strategic joint venture relationship with Sunvest Resort communities who [sic] is Florida's largest developer of residential and conversations [sic], logging over a billion dollars in annual sales." (Id. at ¶ 217) (emphasis in original).

Sunvest represented that it was involved in the project with Cay Clubs and IMG. Sunvest published and distributed a newsletter that addressed its strategic alliance with Cay Clubs and IMG Academies. (See id. at ¶ 220). In an SEC filing, Sunvest noted joint venture projects with Cay Clubs. (See id. at ¶ 221).

Each Plaintiff entered into a Purchase and Sale Agreement ("PSA")with an entity known as DC720JV, LLC, a subsidiary of Cay Clubs. (See id. at ¶ 230). After the execution of the Purchase and Sale Agreements, but prior to closing, Sunvest would sell the units to DC720JV, LLC. (See id.). DC720JV, LLC would then sell the units to individual buyers at prices higher than the prices it had paid to Sunvest. (See id.). Sunvest directly participated in the marketing and sale of units through its real estate brokers and agents. (See id. at ¶ 222).

Prior to the purchase of the units, Plaintiffs were provided sample appraisals of the units. (See id. at ¶ 234). The appraisals were typically $100,000 higher than the purchase prices agreed to by the Plaintiffs. (See id.). For example, on October 9, 2006, an appraiser appraised a Plaintiff's unit at $510,000; that Plaintiff purchased the unit for approximately $400,000. (See id.). The unit was recently appraised at $90,000. (See id.).

Plaintiffs each executed "leaseback" agreements at closing, in which they agreed to lease the property back to Cay Clubs for two years. (See id. at ¶ 237). The purpose of the leaseback was to allow Plaintiffs an income stream to maintain the condominiums while Cay Clubs developed the property. (See id.). Plaintiffs were to receive the leaseback funds 45 days after closing. (See id.). The leaseback funds were not escrowed and were not paid to Plaintiffs, or only minimally paid. (See id. at ¶ 238). Many units leased back to Cay Clubs were subleased by Sunvest to third party renters, and Sunvest retained the rent proceeds. (See id. at ¶ 239).

The PSAs entered into between Plaintiffs and DC720JV, LLC contained disclaimers concerning earlier representations about the property. (See id. at ¶ 242). The Purchase and Sale Agreements contained materially different terms from the oral representations made to the Plaintiffs. (See id.). Among the disclaimers and acknowledgments contained in the PSAs are such statements as:

ORAL REPRESENTATIONS CANNOT BE RELIED UPON AS CORRECTLY STATING THE

REPRESENTATIONS OF THE DEVELOPER (SELLER). FOR CORRECT REPRESENTATIONS, REFERENCE SHOULD BE MADE TO THIS CONTRACT (AGREEMENT) AND THE DOCUMENTS REQUIRED BY SECTION 718.503, FLORIDA STATUTES, TO BE FURNISHED BY A DEVELOPER TO A BUYER OR LESSEE.

(PSA, Exhibit A to Declaration of Peter W. Homer [D.E. 12-2], at 1) (bold text in original). Additional material provisions state;

1. Purchase and Sale. Buyer agrees to buy and Seller agrees to sell to Buyer (on the terms and conditions set forth below) Unit No. ____ Building ____ (if applicable) (the "Unit") of Orlando Academy Cay Club I, a Condominium (the "Condominium"), located in Orange County, Florida (the "County"), Florida, together with those certain fixtures, equipment, and appliances contained in the Unit (the "Personalty") and all appurtenances thereto as the same are contained and defined in the Declaration of Condominium for Orlando Academy Cay Club I, a Condominium as recorded or to be recorded in the Public Records of Orange County (as amended from time to time, the "Declaration") (the Unit, Personalty and appurtenances are hereinafter referred to collectively as the "Property"). . . .

(Id. at ¶ 1).

3. Legally Binding Agreement. THIS AGREEMENT IS A LEGALLY BINDING CONTRACT. IF NOT FULLY UNDERSTOOD, PLEASE SEEK COMPETENT LEGAL ADVICE. NO WARRANTIES OR REPRESENTATIONS, OTHER THAN THOSE...