Markowitz v. Northeast Land Co.

• Decision Date: 22 June 1990
• Docket Number: No. 89-5701,89-5701
• Parties: Tobye R. MARKOWITZ, Individually and on behalf of all others similarly situated v. NORTHEAST LAND COMPANY. Appeal of Tobye R. MARKOWITZ.
• Court: U.S. Court of Appeals — Third Circuit

Page 100

906 F.2d 100

Tobye R. MARKOWITZ, Individually and on behalf of all others

similarly situated v. NORTHEAST LAND COMPANY.

Appeal of Tobye R. MARKOWITZ.

No. 89-5701.

United States Court of Appeals, Third Circuit.

Argued Jan. 22, 1990.

Decided June 22, 1990.

Clifford Rieders, Robert H. Vesely (Argued), Rieders, Travis, Mussina, Humphrey & Harris, Williamsport, Pa., for appellant.

Mark P. Pazuhanich (Argued), Janet Marsh Shay, Hanna, Young & Upright, Stroudsburg, Pa., for appellee.

Before SLOVITER, HUTCHINSON and COWEN, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

I.

Tobye R. Markowitz (Markowitz) appeals an order of the United States District Court for the Middle District of Pennsylvania granting defendant Northeast Land Company's (Northeast's) motion to dismiss her amended complaint. In the amended complaint, Markowitz claimed that Northeast's contracts for the sale of lots on which it promised to build condominiums for the buyers violated the Interstate Land Sales Full Disclosure Act (Act), 15 U.S.C.A. Secs. 1701-1720 (West 1982 & Supp.1990). The district court held that the sales contract between Markowitz and Northeast required Northeast to complete construction of her condominium unit within two years of the sale date. Sales in which the developer contracts to meet its obligations within two years are exempt from the Act's coverage under 15 U.S.C.A. Sec. 1702(a)(2) (West 1982). As a result, the district court refused to exercise pendent jurisdiction over the remainder of Markowitz's complaint, which asserted only state law claims, dismissed as moot her motion seeking class certification and dismissed her complaint in its entirety.

We do not agree that the contract between Markowitz and Northeast obligated Northeast to complete construction of the condominium within two years of the sale. We will therefore reverse the district court's order holding that she failed to state a claim under the Act, vacate its order dismissing her pendent state law claims, as well as its order dismissing as moot her motion seeking class certification, and remand this matter for further proceedings.

II.

This suit arose out of Markowitz's purchase of residence number 187 of the Midlake on Big Boulder Lake Condominium in Carbon County, Pennsylvania, from Northeast. According to Markowitz's amended complaint, both she and Northeast are Pennsylvania citizens.

Markowitz's suit concerns events that occurred after Northeast completed construction of her unit. In her amended complaint, ¹ Markowitz claims that the heating and cooling system in her condominium unit failed to operate properly; in the summer the temperature was too warm, and in the winter it was too cold. One winter, according to the amended complaint, the heating system shut off, the water pipes froze and the bursting pipes caused water damage to the property. Markowitz claims she was further damaged because the system needed constant repairs and because of loss of use of the premises and loss of rental income.

In her amended complaint, Markowitz claimed she had a federal remedy in the district court for the problem with her heating and cooling system because Northeast had violated the Act. She also asserted several separate state law causes of action and sought certification of her suit as a class action. In her claim under the Act, Markowitz stated that Northeast planned to construct more than twenty-five units. Additionally, Markowitz asserted that, at the time of the sale, unit 187 was yet to be completed. Both of these allegations are required to state a claim under the Act. See 15 U.S.C.A. Sec. 1702(a)(1) (West 1982) (Act does not apply to sale of a lot in a subdivision containing fewer than twenty-five lots); 15 U.S.C.A. Sec. 1702(a)(2) (West 1982) (Act does not apply to the sale of any improved land on which there is a condominium building at the time of sale).

There is a third prerequisite to a claim under the Act, and it is the presence or absence of this third prerequisite that will determine the outcome of this appeal. Among other things, Sec. 1702(a)(2) exempts from the Act's coverage "the sale or lease of land under a contract obligating the seller or lessor to erect [a residential, commercial condominium, or industrial] building thereon within a period of two years...." 15 U.S.C.A. Sec. 1702(a)(2).

In the text of her amended complaint, Markowitz said nothing about the time Northeast had to complete its contract, but she did attach and incorporate the agreement of sale between her and Northeast. Seizing on language in the agreement, Northeast moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Markowitz's amended complaint for failure to state a claim under the Act.

The district court held that under the language of the agreement "Northeast Land Company was obligated to complete construction of the plaintiff's condominium unit within two years." As a result, it dismissed Markowitz's claim that Northeast had violated the Act when it installed a faulty heating and cooling system.

Because there was no basis for federal jurisdiction other than Markowitz's allegations under the Act, the district court refused to exercise pendent jurisdiction over her state law claims and dismissed them without prejudice. Finally, it denied as moot Markowitz's request for class certification.

Markowitz filed this timely appeal. In it, she asserts that the district court erred in holding that Northeast was obligated to erect her condominium within two years of the sale date and was thus exempt from the Act under 15 U.S.C.A. Sec. 1702(a)(2). If we reinstate her claim under the Act, she also asks us to direct the district court to reconsider its refusal to exercise pendent jurisdiction over her state law claims.

III.

We have appellate jurisdiction pursuant to 28 U.S.C.A. Sec. 1291 (West Supp.1990) over the district court's final order dismissing Markowitz's complaint. Markowitz sought to invoke the district court's jurisdiction pursuant to 28 U.S.C.A. Sec. 1331 (West Supp.1990).

Since this appeal involves the dismissal of a complaint under Rule 12(b)(6) for failure to state a claim, our scope of review is plenary. We accept as true the facts alleged in the complaint and all reasonable inferences that can be drawn from them. Dismissal under Rule 12(b)(6) for failure to state a claim is limited to those instances where it is certain that no relief could be granted under any set of facts that could be proved. See Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988). We review the district court's dismissal of Markowitz's pendent state law claims for abuse of discretion. See Cooley v. Pennsylvania Hous. Fin. Agency, 830 F.2d 469, 471 (3d Cir.1987).

IV.

In Cost Control Mktg. & Management, Inc. v. Pierce, 848 F.2d 47, 48 (3d Cir.1988) (per curiam), this Court stated that "[t]he Interstate Land Sales Full Disclosure Act, 15 U.S.C.A. Secs. 1701-1720, as its title suggests, was enacted to insure that, prior to purchasing certain types of real estate, a buyer would be apprised of the information needed to insure an informed decision." As the Eleventh Circuit has written, the Act "is an antifraud statute utilizing disclosure as its primary tool, much like the securities laws." Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444, 1447 (11th Cir.1985).

Markowitz argues on appeal that Northeast is not exempt under the Act because her purchase agreement fails to include an unconditional commitment to complete construction of the condominium within two years. See Brief for Appellant at 8. As a result, she maintains that the district court erred in holding that Sec. 1702(a)(2) excluded the agreement from coverage under the Act.

That section of the statute states, in relevant part:

(a) 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.A. Sec. 1702(a)(2).

Markowitz and Northeast made their contract on August 31, 1985. See Appellant's Appendix (App.) at A25. We agree with the other circuits that have examined the issue that for purposes of the Act the sale occurs when the purchaser signs the sale agreement and incurs an obligation. See Yeomans v. Le Triomphe Partnership, 884 F.2d 847, 849 (5th Cir.1989); Hollingsworth Properties, 777 F.2d at 1449; Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036, 1043-44 (10th Cir.1980). Settlement under the agreement was scheduled for October 31, 1985, see App. at A26, but did not take place until July 25, 1986, see id. at A7, p 6.

Although the contract scheduled settlement within two years of the sale and, though delayed, settlement did in fact occur within that time, Markowitz maintains that the agreement did not obligate Northeast to erect her condominium within two years of the sale. She bases this argument on a provision of the contract limiting her remedies for breach. She says that her sole remedy against Northeast if it failed to settle on the agreed date was the return of her deposit plus interest. She points to paragraph 7(d) of the sale agreement, which states:

Buyer's sole remedy against Seller ... in the event that Seller has not substantially completed the Property, as evidenced by the items required [in another portion of the agreement], on or before the date of settlement hereunder, shall be the termination of this Agreement in accordance with the terms of this paragraph 7 and the return of the Deposit, together with all interest earned thereon. In [this] event, Seller's liabilities to Buyer shall be so limited.

Id. at A27. ²

Congress has given the Secretary for Housing and Urban Development (Secretary) "[t]he...