Hillman v. Loga

• Decision Date: 28 September 2012
• Docket Number: No. 11–60868.,11–60868.
• Citation: 697 F.3d 299
• Parties: Bertha Moseley HILLMAN; Toxey G. Collins; Joe Michael Mayo; William Thomas Cottom, Jr.; Numa L. Marquette, Jr.; Gail Marquette; James M. Warner; Constance M. Warner; Michael Ellis; Kelly Ellis; M. Ellis Family Holdings, L.L.C., Plaintiffs–Appellants, v. Emerson P. LOGA, III; Dennis Stieffel; Douglas R. Johnson, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

697 F.3d 299

Bertha Moseley HILLMAN; Toxey G. Collins; Joe Michael Mayo; William Thomas Cottom, Jr.; Numa L. Marquette, Jr.; Gail Marquette; James M. Warner; Constance M. Warner; Michael Ellis; Kelly Ellis; M. Ellis Family Holdings, L.L.C., Plaintiffs–Appellants,

v.Emerson P. LOGA, III; Dennis Stieffel; Douglas R. Johnson, Defendants–Appellees.

No. 11–60868.

United States Court of Appeals,Fifth Circuit.

Sept. 28, 2012.

Bertha Moseley Hillman (argued), Thibodaux, LA, pro se.

Floyd J. Logan, Logan & Purvis, Gulfport, MS, Nicholas Van Wiser (argued), Byrd & Wiser, Biloxi, MS, Defendants–Appellees.

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

Before KING, SMITH and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

Plaintiffs–Appellants appeal the district court's grant of summary judgment in favor of Defendants–Appellees, based on the district court's finding that the 24–month construction obligations in the Purchase Agreements¹ were not illusory and, therefore, the parties' contracts are exempted from the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701, et seq., (“ILSA”).

FACTS AND PROCEEDINGS

Plaintiffs–Appellants (“Purchasers”) each owned condominium units at the Village at Henderson Point (the “Village”) located in Pass Christian, Mississippi. Hurricane Katrina destroyed the condominium complex in August 2005. In early 2007, Purchasers retained Lacote, LLC (“Lacote”) to rebuild the complex in the same location. Lacote was made up of three members, Emerson P. Loga, III (“Loga”) and Dennis Stieffel (“Stieffel”), and Douglas Johnson (“Johnson”).²

In furtherance of the plan to develop and construct the new condominium complex, Lacote acquired the Village property from the Purchasers. The purchase was financed through Trustmark National Bank (“Trustmark”), which received a first position lien on the property and committed to provide construction financing for the project.

Prior to construction, Purchasers executed Purchase Agreements and made deposits with Lacote for the purchase of individual units once the complex was completed. The Purchase Agreements stipulated that construction of the units would be completed within two years of the execution of the Agreements.

Construction began in January 2008, but Lacote did not have adequate funding and stopped construction in June of that year, when the project was only 35% complete.³ Lacote thus obtained a second construction loan from SI Realty Enterprises, Inc. (“SI Realty”) in the amount of $1.5 million. SI Realty secured its loan with a second position lien through a deed of trust against the property.

Trustmark allegedly backed out of its commitment to finance the project and Lacote thereafter could not make its loan payments to SI Realty. SI Realty purchased Trustmark's first lien and foreclosed on the property in January 2009. Lacote filed for, and has been discharged from, bankruptcy.

Purchasers filed the instant lawsuit in May 2010 alleging that Loga, Stieffel, and Johnson, as individual members of Lacote, violated the anti-fraud provisions of the ILSA, 15 U.S.C. § 1703(a)(2).⁴ The parties filed cross-motions for summary judgment and the district court granted summaryjudgment in favor of Loga and Stieffel. The district court concluded that because the Purchase Agreements contain an obligation to complete construction within two years, the sales are exempt from the ILSA's requirements, see 15 U.S.C. § 1702(a)(2), and Loga and Stieffel therefore cannot be held liable under the ILSA.

STANDARD OF REVIEW

This court reviews “a district court's grant of summary judgment de novo, applying the same standards as the district court.” Noble Energy Inc. v. Bituminous Cas. Co., 529 F.3d 642, 645 (5th Cir.2008). Summary judgment is thus proper when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation omitted). “Doubts are to be resolved in favor of the nonmoving party, and any reasonable inferences are to be drawn in favor of that party.” Gowesky v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir.2003).

The district court correctly stated that interpretation of the ILSA is governed by federal law, see Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991), and that state law (in this case, the law of Mississippi) governs the interpretation of the Purchase Agreements. ACS Constr. Co. of Miss. v. CGU, 332 F.3d 885, 888 (5th Cir.2003).

DISCUSSION

The district court ruled that the Purchase Agreements are exempt from the ILSA because the language imposing a 24–month construction term requirement brings the agreements within the ILSA's two-year building exemption.⁵ The two-year building exemption is found in § 1702(a)(2) of the ILSA and states in relevant part:

(a) Sale or lease of lots generally

Unless the method of disposition is adopted for the purpose of evasion of this chapter, the provisions of this chapter shall not apply to—...

(2) the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years ....

15 U.S.C. § 1702(a)(2). Each of the Purchase Agreements states in relevant part:

COMPLETION DATE AND CONSTRUCTION.

a. Notwithstanding any other provision of this Agreement, construction of the Unit shall be completed on or before twenty-four (24) months or less from the date of execution of this Purchase Agreement OR a Certificate of Occupancy has been issued by the relevant building authority, whichever is sooner, provided, however, that SELLER shall not be responsible for delays caused by circumstances recognized by Mississippi law to constitute impossibility of performance, such as war, strikes, insurrection, Acts of God, or unanticipated shortage of building materials.

This language from the Purchase Agreements, on its face, obligates the Seller (in this case, Lacote) to complete the building of the Village within 24 months, as contemplated in the exemption articulated in 15 U.S.C. § 1702(a)(2).⁶

Appellants, however, contend that the 24–month building requirement included in the Purchase Agreements is illusory because Appellants' abilities to seek damage and specific performance remedies are limited and, therefore, the Purchase Agreements remain subject to the provisions of the ILSA. This court has not yet set forth the exact parameters of the two-year exemption under § 1702(a)(2), but the Eleventh Circuit has construed, as a matter of federal law, the two-year ILSA exemption to be limited to contracts that impose a “legal duty” on the developer to construct a building within two years. See e.g., Stein v. Paradigm Mirasol, LLC, 586 F.3d 849, 854 (11th Cir.2009) (holding that in order to qualify for the ILSA's two-year exemption, the contract must impose a legal duty on the developer to perform his promise to construct the condominium within two years). “The nature and extent of the duty a contract imposes, however, is a matter of state contract law.” Id.

Under Mississippi law, a contract obligation is illusory if the words of the agreement “ ‘do not purport to put any limitation on the freedom of the alleged promisor, but leave his future action subject to his own future will, just as it would have been had he said no words at all.’ ” Marshall Durbin Food Corp. v. Baker, 909 So.2d 1267, 1275 (Miss.Ct.App.2005) (quoting Krebs ex rel. Krebs v. Strange, 419 So.2d 178, 182–83 (Miss.1982)). “Such an illusory promise is neither enforceable against the one making it, nor is it operative as a consideration for a return promise.” Id.

Mississippi law does not provide much guidance on whether creation of a legal obligation requires both damages and also specific performance as available remedies. Notably, the HUD Guidelines, which discuss what constitutes an “obligation” for the purpose of § 1702(a)(2), state that:

[C]ontracts that directly or indirectly waive the buyer's right to specific performance are treated as lacking a realistic obligation to construct. HUD's position is not that a right to specific performance of construction must be expressed in the contract, but that any such right that purchasers have must not be negated. For example, a contract that provides for a refund or a damage action as the buyer's sole remedy would not be acceptable.

Supp. Info. to Part 1710: Guidelines for Exemptions Available Under the ILSA (hereafter, “HUD Gdl. Supp. to Pt. 1710”).⁷ This court has stated that while the HUD Guidelines “are entitled to a degree of deference, we consider them only to the ‘extent that those interpretations have the power to persuade[.]’ ” Nickell, 636 F.3d at 755 (quoting Christensen v. Harris Cnty., 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000)) (internal quotation marks omitted). The HUD Guidelines are unambiguous, and no federal court has held to the contrary, that an obligation for the purpose of § 1702(a)(2) means that the availability of a specific performance remedy cannot be negated. Compare HUD Gdl. Supp. to Pt. 1710 with, e.g., Ndeh v. Midtown Alexandria, L.L.C., 300 Fed.Appx. 203, 206–08 (4th Cir.2008) (indicating that specific performance must be available); Maguire, 591 F.Supp.2d at 1269–70 (same); Pellegrino v. Koeckritz Dev. of Boca Raton, LLC, No. 08–cv–80164, 2008 WL 6128748, at *3 (S.D.Fla. July 10, 2008) (same).⁸ Ultimately, however, we need not address whether a specific performance remedy necessarily need be available in order to create a legal obligation because, as explained below, we find...