Hester v. Hidden Valley Lakes, Inc., DC 74-41-S.

• Decision Date: 21 October 1975
• Docket Number: No. DC 74-41-S.,DC 74-41-S.
• Citation: 404 F. Supp. 580
• Parties: J. B. HESTER et al., Plaintiffs, v. HIDDEN VALLEY LAKES, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Mississippi

404 F. Supp. 580

J. B. HESTER et al., Plaintiffs, v. HIDDEN VALLEY LAKES, INC., et al., Defendants.

No. DC 74-41-S.

United States District Court, N. D. Mississippi, Delta Division.

October 21, 1975.

Thomas A. Stroud, Memphis, Tenn., H. Kirk Moore, Jr., Senatobia, Miss., for plaintiffs.

William C. Bateman, Jr., Memphis, Tenn., R. M. P. Short, Como, Miss., for defendants.

MEMORANDUM OF DECISION

ORMA R. SMITH, District Judge.

This action is before the court on defendants' motion to dismiss which has been submitted for decision on the pleadings, affidavits, and memoranda and argument of counsel.

The district courts are reluctant to sustain a motion to dismiss on the pleadings. This reluctance has been created by the universal acceptance by the bench and bar of the rule enunciated by the Supreme Court in Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) to the effect that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 355 U.S. at 45, 78 S.Ct. at 102, 2 L.Ed.2d at 84. It is with this rule in mind that the court has given consideration to the motion to dismiss.

The complaint was filed with the clerk on April 24, 1974. Service was not accomplished on defendants until March 11, 1975. These circumstances give rise to a controversy between the parties as to the date upon which any applicable statute of limitations might have been tolled. Plaintiff contends that the date of filing the complaint with the clerk is the applicable date. Defendants argue that plaintiffs were dilatory in obtaining the service of process, resulting in an inordinate delay, and that the proper date for tolling of the statute of limitations is the date upon which service of process was had upon the defendants. Counsel for both parties have supported their contentions with numerous authorities.

The court had this question for decision in the case of Alford v. Whitsel, N.D.Miss., E.D. On June 4, 1971, the court released an opinion, published in 52 F.R.D. 327, in which the court held that federal, rather than state, law controlled the issue of when an action is commenced for the purpose of tolling the applicable statute of limitation. The court further held that, under the clear language of Fed.R.Civ.P. 3, the filing of the complaint with the court is all that is necessary to commence an action. The court is, therefore, of the opinion that any statute of limitations which may apply to the cause of action stated in the complaint was tolled on April 24, 1974, the day upon which the complaint was lodged with the clerk.

Sometime in 1970, defendant Hidden Valley Lakes, Inc., (hereinafter referred to as "Hidden Valley") purchased approximately 270 acres of land in Tate County, Mississippi (hereinafter referred to as the "development"). Defendants undertook to develop the land into resort or recreational home sites by promoting the sale of lots in interstate commerce.

Plaintiff John J. Ronza and his wife purchased one of the lots on September 20, 1970. Plaintiff Maurice R. Bailey and his wife purchased a lot September 7, 1970. Plaintiff J. B. Hester and his wife purchased two lots on April 30, 1971, and a third lot on April 9, 1972.

The recital of the aforementioned dates brings the court to another ground upon which defendants seek dismissal of the complaint. Defendants maintain that plaintiffs must affirmatively plead compliance with the statute of limitations where suit is brought pursuant to a legislative act which creates a new cause of action, one which was unknown to the common law. In the case at bar, the major portion of the complaint is devoted to a claim under the Interstate Land Sales Full Disclosure Act (hereinafter referred to as "the act"), 15 U.S.C. § 1701 et seq. The act's statute of limitations is contained in 15 U.S.C. § 1711.¹

The court does not feel it necessary to decide the question of whether plaintiffs must affirmatively plead compliance with the statute of limitations inasmuch as plaintiffs have filed a motion for leave to amend the complaint which, if granted, will cure this defect alleged by defendants. The court has concluded, that, pursuant to Fed.R.Civ.P. 15(a), leave of court to amend the complaint should be granted.

Turning then to the question of whether plaintiffs' claims under the act are barred by Section 1711, the court has carefully scrutinized the statutory scheme and has determined that, to an extent, defendants' motion in this regard is well taken.

Three time periods must be considered in order to ascertain whether Section 1711 bars plaintiffs' claims. First, under the "umbrella" limitations period, any lawsuit brought under the act must be filed within three years following the date of the sale of the land.² Plaintiffs concede that, under a literal reading of the statute, only the Hesters have a claim upon which suit was filed prior to the expiration of three years from the date of purchase.³ However, plaintiffs argue for an expanded reading of Section 1711 to the effect that the defendants' failure to furnish plaintiffs with a property report approved by the Department of Housing and Urban Development (HUD) and to file a statement of record with HUD were in the nature of a continuing violation of the act, rendering their contracts with defendant voidable under Section 1703 of the act until the defendants, pursuant to an agreement with HUD in February of 1973, furnished property reports to plaintiffs and offered to repurchase the plaintiffs' lots. Plaintiffs also contend that the offer to repurchase, which was rejected by the plaintiffs should be construed as a new and separate sale to the plaintiffs within the meaning of the act's statute of limitations.

The court is unpersuaded by plaintiffs' arguments. The language of Section 1711 is clear. Congress obviously intended to place an absolute limit on the length of time within which aggrieved parties must sue to enforce their rights under the act. Further, the liberal construction for which plaintiffs argue would not promote stability in titles to land.

Although the contracts between plaintiffs and defendants may have been voidable under Section 1703 until such time as plaintiffs were furnished an approved property report, the court does not feel that the dates upon which the contract became binding upon the parties (February 12 or 13, 1973) can be construed as the date of purchase as contemplated in Section 1711. Had defendants flatly refused to furnish plaintiffs property reports or to file a statement of record, the contracts would have continued to be voidable (unless suit were brought) until September of 1973. At that time, any suit by the Baileys and Ronzas would have been barred by the umbrella statute of limitations. By extending the period during which the defendants would be exposed to the possibility of imposition of liability, plaintiffs' argument would, in effect, penalize the defendants for attempting to bring themselves into compliance with the provisions of the act.

In sum, the court has concluded that the defendants' offer to repurchase and the plaintiffs' subsequent rejection thereof was not a separate purchase in the contemplation of umbrella statute of limitations contained in 15 U.S.C. § 1711. Accordingly, the three-year umbrella statute of limitation bars the claim of the plaintiffs Bailey and Ronza. However, the purchases by the Hesters occurred on April 30, 1971 and April 9, 1972. Since these dates are less than three years prior to the date upon which the complaint was filed, April 24, 1974, the Hesters' action is not barred by the umbrella statute of limitations.

The court's holding concerning the umbrella statute of limitations fails to dispose of the problem of the application of Section 1711 to the facts in the case at bar. The court must proceed to determine whether the Hesters' suit is also timely under the one year statute of limitations applicable to their claims under 15 U.S.C. § 1709(a) or (b) (2).⁴

In their complaint, the Hesters allege that the defendants violated Section 1709(b)(2) by including untrue statements of material facts in the property report ultimately furnished plaintiffs and that the property report failed to state material facts required to be included therein. These allegations relate to representations in the property report as to the costs of maintaining common facilities in the development, the type and size of mobile homes which would be allowed in the development, the maintenance of streets and roads and other matters of that sort. However, it appears that plaintiffs' primary complaint concerning the property report involves the representation in the report that "the land is suitable for septic tanks . . ." Plaintiffs claim that they have discovered that the land is eminently unsuitable for septic tanks and that county officials have consequently required the installation of a costly sewerage system prior to the construction of homes in the development. The complaint contains similar allegations concerning the inclusion of...