Old Coach Development Corp., Inc. v. Tanzman

• Decision Date: 02 August 1989
• Docket Number: No. 88-5806,88-5806
• Citation: 881 F.2d 1227
• Parties: OLD COACH DEVELOPMENT CORP., INC. and Land's Edge Enterprises, Inc. v. Herbert M. TANZMAN, Myles J. Herbert, Robert Klein, Edward Runner, Joseph Panuccio, Charles E. Plumeri, Tom Colitas, Queen E. James, Daryl G. Bell, James Logan, III, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 1227

881 F.2d 1227

OLD COACH DEVELOPMENT CORP., INC. and Land's Edge Enterprises, Inc. v. Herbert M. TANZMAN, Myles J. Herbert, Robert Klein, Edward Runner, Joseph Panuccio, Charles E. Plumeri, Tom Colitas, Queen E. James, Daryl G. Bell James Logan, III, Appellants.

No. 88-5806.

United States Court of Appeals Third Circuit.

Argued April 17, 1989.

Decided Aug. 2, 1989.

Cary Edwards, Atty. Gen. of New Jersey, Donald R. Belsole, Acting Atty. Gen. of New Jersey, of counsel, James J. Ciancia, Asst. Atty. Gen., on the brief, Jeffrey A. Bartolino (argued), Deputy Atty. Gen., Trenton, N.J., for appellants.

Gage Andretta (argued), Debra Tyukody Mirandi, Brian W. Moore, Kimmelman, Wolff & Samson, P.C., Roseland, N.J., for appellees.

Frederick A. Organ (argued), Paul V. Strawinski, Organ & Strawinski, River Vale, N.J., for amicus curiae, Nat. Ass'n of Real Estate License Law Officials.

Before SEITZ, ^* SLOVITER, and GREENBERG, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

This appeal arises out of a grant of summary judgment in favor of plaintiffs Old Coach Development Corporation (Old Coach) and Land's Edge Enterprises, Inc. (Land's Edge) on their claim that the New Jersey Land Sales Full Disclosure Act, N.J.Stat. Ann. Secs. 45:15-16.3 to 45:15-16.26 (West 1978) (LSFDA) violated the dormant Commerce Clause. The district court declared the LSFDA unconstitutional because it discriminated in its plain effect against interstate commerce, and permanently enjoined its enforcement against plaintiffs. The district court had jurisdiction pursuant to 28 U.S.C. Sec. 1331, and we have jurisdiction over a final order of the district court pursuant to 28 U.S.C. Sec. 1291. Our review of the grant of summary judgment is plenary.

I. Facts and Proceedings

The relevant facts are largely undisputed and are fully set forth in the opinion of the district court. Old Coach Development Corp. v. Tanzman, 692 F.Supp. 424 (D.N.J.1988). We reiterate only those facts necessary to our consideration of this appeal.

Plaintiffs are affiliated Pennsylvania corporations which market unimproved subdivided lots of real estate in Pennsylvania primarily to residents of New Jersey, New York, and Pennsylvania. As part of their promotional plan, plaintiffs placed an advertisement in a New Jersey newspaper offering to sell their lots. As a consequence, the New Jersey Real Estate Commission (Commission), the state agency charged with enforcing the LSFDA, informed plaintiffs that the advertisement violated the LSFDA and related regulations, see N.J.Admin.Code tit. 11 Secs. 11:5-1.1 et seq. Plaintiffs were given the option of complying with the LSFDA's registration and disclosure requirements or stating in future advertisements, "This advertisement is not an offering to New Jersey residents." App. at 59.

Plaintiffs filed suit against members of the Commission (defendants), claiming that the LSFDA and its regulations were invalid under the Commerce Clause because they discriminated against interstate commerce, and under the First Amendment because the regulations included provisions which constituted a prior restraint on commercial speech. The National Association of Real Estate License Law Officials participated in the litigation as an amicus curiae on defendants' behalf.

Defendants agreed to refrain from applying the LSFDA against plaintiffs pending resolution of the litigation. The district court decided for plaintiffs on cross motions for summary judgment, striking down the LSFDA in its entirety as violative of the Commerce Clause, and therefore did not reach the First Amendment issue. In their appeal, defendants contend that the district court erred in finding the LSFDA invalid on its face, and argue that the court should have applied the more deferential balancing test of Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). Alternatively, defendants argue that the district court erred by striking down the entire statute rather than excising the offending portions pursuant to a severability provision in the statute. The parties agreed to a stay of the district court's order pending the resolution of this appeal.

II. Regulatory Framework

We review first the statutory and regulatory framework which the district court examined in reaching its decision. The LSFDA, enacted in 1975, regulates the offer and sale within New Jersey or to New Jersey residents of subdivided land located outside of New Jersey, if such offer and sale is via a common promotional plan. See N.J.Stat.Ann. Sec. 45:15-16.4(f). Subdivided land offered by a "single developer or a group of developers acting in concert" which is "contiguous or is known, designated or advertised as a common unit or by a common name ... shall be presumed ... as being offered ... as part of a common promotional plan." Id.

The LSFDA requires registration with the Commission of any such subdivision before any property may be offered or sold to New Jersey residents. See N.J.Stat.Ann. Secs. 45:15-16.7, 45:15-16.21. Similar to federal securities laws, the registration process requires disclosure of ownership interests, audited financial statements, and condition of the land, encumbrances, and plans for completion of promised improvements. N.J.Stat.Ann. Sec. 45:15-16:10; N.J.Admin.Code tit. 11 Sec. 11:5-1.25(a)(6) & (7). It also requires that a proposed public offering statement be distributed to New Jersey consumers. See N.J.Stat.Ann. Secs. 45:15-16.12. Initial registration fees and annual renewal fees are assessed pursuant to N.J.Stat.Ann. Sec. 45:15-16.8.

In addition to the protections afforded by the registration process, the LSFDA provides purchasers with a one-week period for rescission. N.J.Stat.Ann. 45:15-16.12(d). The LSFDA provides a number of criminal and civil enforcement mechanisms for non-compliance and fraudulent statements, including fines of up to $50,000 and/or one-year imprisonment. See N.J.Stat.Ann. Sec. 45:15-16.22(a).

The LSFDA, however, only regulates sales of land located outside of New Jersey. See N.J.Stat.Ann. Sec. 45:15-16.4(f). In 1978, the state chose to regulate sales of subdivided land located within New Jersey by a separate statutory scheme, the Planned Real Estate Development Full Disclosure Act, N.J.Stat.Ann. Secs. 45:22A-21 to 45:22A-42 (West Supp.1989) (PREDA). Like the LSFDA, the PREDA applies to real estate sold via a common promotional plan, but it is administered by the Division of Housing and Urban Renewal of the State Department of Community Affairs (Department) rather than by the New Jersey Real Estate Commission. See N.J.Stat.Ann. Secs. 45:22A-23(h), 45:22A-24. The PREDA establishes disclosure and public offering requirements substantially similar to those imposed on sellers of out-of-state land by the LSFDA. See N.J.Stat.Ann. Secs. 45:22A-27 & 45:22A-28.

In determining whether the LSFDA discriminated against interstate commerce, the district court examined the LSFDA and the PREDA in tandem. Although the court recognized that comparison of two separate statutory programs was a unique approach in a dormant Commerce Clause case it concluded, and the parties conceded at oral argument, that such a comparison was the only fair way to determine whether New Jersey's regulatory scheme was constitutional. 692 F.Supp. at 434. Despite the substantial structural similarities between the two statutory schemes, the district court identified eight differences between the statutes which tended to make compliance with the LSFDA more expensive for sellers of out-of-state land than compliance with the PREDA was for sellers of in-state land, and concluded that the LSFDA was therefore discriminatory in its " 'overall effect.' " Id. at 430 (quoting Brown-Forman Distillers v. New York Liquor Auth., 476 U.S. 573, 578-79, 106 S.Ct. 2080, 2083-84, 90 L.Ed.2d 552 (1986)).

The eight differences enumerated by the district court are as follows:

(1) The LSFDA provides a possible punishment of imprisonment for up to one year for violations while the PREDA only imposes monetary liability. Compare N.J.Stat.Ann. Sec. 45:15-16.22(a) with N.J.Stat.Ann. Sec. 45:22A-38(a).

(2) The PREDA provides an exemption from all of its terms where the common elements of the subdivision are limited to unimproved, unencumbered open space. See N.J.Stat.Ann. Sec. 45:22A-25(a)(8). The LSFDA provides no such exemption.

(3) The statutory language of the PREDA exempts disposition of fewer than 100 lots, ¹ although developments of condominiums or cooperatives are not exempt. See N.J.Stat.Ann. Sec. 45:22A-25(a)(7). The LSFDA provides no such exemption.

(4) Filing fees under the two statutes are structured differently. The PREDA requires a filing fee of $775 plus $75 per lot with no maximum limit, N.J.Admin.Code tit. 5 Sec. 5:26-2.4(a), while the LSFDA requires an initial fee of $250 plus $1 for every lot in excess of one hundred, up to a maximum of $1,000, N.J.Stat.Ann. 45:15-16.8(a)(1). The LSFDA requires annual renewal fees of $250 per year for subdivisions which originally contained fifty or more lots ($150 per year for subdivisions originally containing less than fifty lots). See N.J.Stat.Ann. 45:15-16.8(a)(2). The PREDA does not require any renewal fees.

(5) The LSFDA requires a seller of out-of-state land to provide a statement from a licensed civil engineer that on-site and off-site measures are adequate to prevent damage to property by reason of flooding, erosion and other natural occurrences which are usual or predictable for the area, N.J.Stat.Ann. Sec. 45:15-16.10(f), while the PREDA contains no such requirement.

(6) Regulations promulgated by the Commission under the LSFDA limit the seller's ability to reimburse travel expenses to prospective buyers to transportation plus three days and two nights board. N.J.Admin.Code tit. 11 Sec. 11:5-1.25(h)(8). The PREDA has no such limitation, and although an unrelated New Jersey regulation does limit...