Nahigian v. Juno-Loudoun, LLC, s. 10–2198

• Citation: 677 F.3d 579
• Decision Date: 01 May 2012
• Docket Number: 10–2231,Nos. 10–2198,10–2373.,s. 10–2198
• Parties: Keith NAHIGIAN; Courtney Nahigian, Plaintiffs–Appellees, v. JUNO–LOUDOUN, LLC, Defendant–Appellant,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.Keith Nahigian; Courtney Nahigian, Plaintiffs–Appellees, v. Juno–Loudoun, LLC, Defendant–Appellant,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.Keith Nahigian; Courtney Nahigian, Plaintiffs–Appellants, v. Juno–Loudoun, LLC, Defendant–Appellee,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

677 F.3d 579

Keith NAHIGIAN; Courtney Nahigian, Plaintiffs–Appellees,

v.JUNO–LOUDOUN, LLC, Defendant–Appellant,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.Keith Nahigian; Courtney Nahigian, Plaintiffs–Appellees,

v.Juno–Loudoun, LLC, Defendant–Appellant,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.Keith Nahigian; Courtney Nahigian, Plaintiffs–Appellants,

v.Juno–Loudoun, LLC, Defendant–Appellee,andThe Ritz–Carlton Hotel Company, L.L.C., Defendant.

Nos. 10–2198

10–2231

10–2373.

United States Court of Appeals, Fourth Circuit.

Argued: Dec. 8, 2011.Decided: May 1, 2012.

ARGUED: Thomas Robert Folk, Reed Smith, LLP, Falls Church, Virginia, for Juno–Loudoun, LLC. John Chapman Petersen, Surovell Isaacs Petersen & Levy, PLC, Fairfax, Virginia, for Keith Nahigian and Courtney Nahigian. ON BRIEF: Mark E. Shaffer, Reed Smith, LLP, Falls Church, Virginia, for Juno–Loudoun, LLC. Jason Frank Zellman, Surovell Isaacs Petersen & Levy, PLC, Fairfax, Virginia, for Keith Nahigian and Courtney Nahigian.

Before GREGORY, SHEDD, Circuit Judges, and RICHARD M. GERGEL, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed in part, reversed in part by published opinion. Judge GREGORY wrote the opinion, in which Judge GERGEL joined. Judge SHEDD wrote a dissenting opinion.

OPINION

GREGORY, Circuit Judge:

Keith and Courtney Nahigian bought undeveloped land from Juno–Loudoun, LLC (“Juno”) in Loudoun County, Virginia, in 2007. The Nahigians sued Juno in 2009 under the Interstate Land Sales Full Disclosure Act (“ILSFDA”), 15 U.S.C. § 1701, and the district court awarded the Nahigians summary judgment on their rescission claim. Juno appeals the grant of summary judgment, arguing primarily that Juno's development fell under an exception to ILSFDA's requirement that developments with at least 100 lots must file a registration statement and provide a property report to potential purchasers. The Nahigians cross appeal, arguing that they should have been awarded pre-judgment interest on the debt portion of their purchase financing. We affirm the district court's award of rescission, but reverse the district court's failure to award pre-judgment interest.

I.

The Ritz–Carlton Hotel Company, LLC (“Ritz”) and Juno signed agreements in 2004–05 outlining a plan to develop a luxury golf-course community in Loudoun County that would eventually become the Creighton Farms development. An operating agreement signed by both parties covered the management of the golf course and recreational amenities at the development. The agreement had an operating term of 20 years from the opening of the course, with the ability to extend in three ten-year blocks thereafter. Juno retained title to the development land and Ritz acquired no ownership interest. According to the agreement, the residences at the development were “not to be sold under the Ritz–Carlton brand,” and all advertising had to include a disclaimer stating that the development “[was] not owned, developed or sold by the Ritz–Carlton Hotel Company, LLC,” although Ritz trademarks could be used with written consent. J.A. 161.

In June 2006, the Virginia State Corporation Commission issued a certificate of incorporation to The Estates at Creighton Farms Property Owners' Association, Inc. (the “POA”). According to a master declaration filed in Loudoun County, the POA was responsible for the maintenance of common property and other services, including maintenance of landscaping and security monitoring. The master declaration said, “[I]t is anticipated that the Master Association [Juno] will enter into a management contract with Ritz–Carlton Hotel Company, LLC.” J.A. 162. Such an agreement never came to pass.

The lots at the development were marketed to the public in interstate media between 2006 and 2008. Some advertisements, including one read by Mr. Nahigian, called the development a “Ritz–Carlton Managed Community” and included the Ritz trademark despite the lack of a management agreement between Ritz and Juno. J.A. 164–65. The brochure read by Mr. Nahigian also had the following disclosure:

Creighton Farms is not owned, developed or sold by The Ritz–Carlton Hotel Company, LLC. Juno Loudoun, L.L.C. uses the Ritz–Carlton marks under license from The Ritz–Carlton Hotel Company, L.L.C. [sic] Juno Loudoun, LLC is the owner and developer of the project. Developer will enter into an agreement with The Ritz–Carlton Hotel Company (R–CHC) or an affiliate for the management of the golf club and master association.

J.A. 164. Mr. Nahigian, however, did not read the disclosure.

Mr. Nahigian made at least 20 visits to the development when considering whether to purchase a lot in Creighton Farms. Before the Nahigians entered into the contract, they asked Juno sales agents questions about the extent of Ritz–Carlton's involvement in the development's amenities—questions about the role of Ritz–Carlton in the development, the ability of Ritz to leave the project, and the amenities that would be offered. Kimberly Fortunato, a Juno employee and sales director, said at her deposition, “[The Nahigians'] concern was primarily could the Ritz–Carlton just walk away. My understanding was they could not.” J.A. 394. Mr. Nahigian, in an affidavit, says that Fortunato declared that Ritz had a binding 30–year commitment to the development. The Nahigians never asked to see any of the agreements between Juno and Ritz, nor did they ask for written confirmation of any such agreements.

The Nahigians entered into a purchase agreement with Juno on June 1, 2007, and thereafter transferred to Juno $1,674,000 toward the sales price of their lot in Creighton Farms. The purchase agreement states that it is the complete agreement between the parties, that prior discussions are merged into its written terms, and that no party relies on any prior marketing materials or statements. It does not state that Ritz would manage Creighton Farms for any specific period of time, although it indicates that a management contract will be entered into with a Ritz affiliate.

Juno did not tell the Nahigians of their rights under ILSFDA, as required by that statute, and Juno failed to provide the Nahigians a property report, also required by that statute.

Ritz, in early 2009, notified Juno of an “event of default” under the golf course operating agreement because Juno failed to make a required payment of $325,000 to Ritz. Ritz, Juno, and M & T Bank entered into a termination agreement on March 6, 2009, ending Ritz's involvement in the project.

On May 27, 2009, the Nahigians filed a state-court suit seeking rescission of the 2007 contract because of Juno's misrepresentations. The case was removed on July 1, 2009, and on August 28, 2009, the Nahigians filed an amended complaint in the Eastern District of Virginia against Ritz and Juno alleging fraud, violations of ILSFDA, and a violation of the Virginia Consumer Protection Act.

The district court awarded summary judgment to the Nahigians on their ILSFDA claims, finding that Juno failed to provide a property report to the purchasers prior to executing the purchase agreement, as required by ILSFDA. The court awarded the Nahigians equitable rescission. (The district court denied the Nahigians' other claims and the claims against Ritz. The Nahigians have subsequently settled with Ritz, and there is no appeal from those rulings.) The district court then awarded the Nahigians $1,674,000—the purchase price—and pre-judgment interest on the Nahigians' equity used to purchase the property. But the court did not award the Appellees interest on the money borrowed to buy the real estate.

Juno appealed the judgment on October 29, 2010, and the Nahigians filed a cross-appeal on December 3, 2010.

II.

Juno challenges the award of equitable rescission. First, Juno argues that the Nahigians' rescission claim was barred by the two-year statute-of-limitations period provided by 15 U.S.C. § 1703(c). Second, Juno claims that the Creighton Farms development was exempt from ILSFDA's requirements. Third, Juno argues that any ILSFDA violation was immaterial. Fourth, it claims that rescission was inappropriate because the status quo ante could not be restored and rescission was inequitable. We review de novo the district court's grant of summary judgment to the Nahigians, giving Juno the benefit of all reasonable inferences that may be drawn from the evidence. See Odom v. S.C. Dept. of Corrections, 349 F.3d 765, 774 (4th Cir.2003). We deal with each of Juno's contentions in order, finding they are without merit.

A.

Juno argues that § 1703(c) is the only subsection governing the right of rescission, and it provides a two-year statute of limitations.¹ Juno claims that it must have notice of the suit for it to be a timely invocation of ILSFDA rights and that it was served on June 2, 2009—one day after the two-year deadline to invoke rescission as a contractual right had passed.

The district court, however, relied on § 1711(a)(1), which provides a three-year statute of limitations for suits. 15 U.S.C. § 1711(a)(1) (“No action shall be maintained under section 1709 of this title with respect to a violation of subsection (a)(1) or (a)(2)(D) of section 1703 of this title more than three years after the date of signing of the contract of sale or lease.”). The district court found that the three-year limitations period from § 1711(a) “governs those circumstances in which a purchaser seeks rescission that is not automatic, but must be supported by proper proof.” Nahigian v. Juno Loudoun, LLC, 684 F.Supp.2d 731, 745–46 (E.D.Va.2010).

This is a matter of first impression for this Circuit.² We hold that the district court was correct in its ruling. In so deciding, we join the Eleventh Circuit. See Gentry v. Harborage Cottages–Stuart, LLLP, 654 F.3d 1247, 1262 (11th Cir.2011).

ILSFDA provides two remedial avenues for aggrieved purchasers seeking rescission for ILSFDA violations: a...