PFW, Inc. v. Residences at Little Nell Dev., LLC

Decision Date16 August 2012
Docket NumberNo. 11CA1656.,11CA1656.
Citation292 P.3d 1094
PartiesPFW, INC., a Texas corporation, Plaintiff–Appellant, v. RESIDENCES AT LITTLE NELL DEVELOPMENT, LLC, a Delaware limited liability company, Defendant–Appellee.
CourtColorado Court of Appeals


Frascona Joiner Goodman and Greenstein, PC, Corey T. Zurbuch, Boulder, Colorado, for PlaintiffAppellant.

Greenberg Traurig, LLP, David H. Goldberg, Jeffrey Lippa, Cuneyt Akay, Denver, Colorado, for DefendantAppellee.

Opinion by Judge TAUBMAN.

¶ 1 In this action to rescind a contract for the purchase of a fractional interest in real estate, plaintiff, PFW, Inc. (PFW), appeals the trial court's judgment in favor of defendant, the Residences at Little Nell Development, LLC (RLND), on its rescission claim arising under the Interstate Land Sales Full Disclosure Act (ILSFDA), 15 U.S.C. §§ 1701 to 1720. PFW also appeals the trial court's order denying its motion to vacate an arbitration award in favor of RLND on other non-ILSFDA claims. We affirm.

I. Background

¶ 2 In 2005, RLND began developing a private residential complex consisting of eight hotel units, eight affordable housing units, three commercial units, and twenty-six condominium units at the base of Aspen Mountain.1 RLND sold one-eighth interests in the condominium units.

¶ 3 By December 2006, a fractional interest 2 in a four-bedroom condominium unit sold for $3 million. Ivan Jack Miller entered into a purchase agreement with RLND for such an interest at this price. He tendered $450,000 in escrow as earnest money. In May 2008, Miller assigned his rights under the purchase agreement to PFW, an entity of which Miller is owner and president.

¶ 4 The construction completion deadline and closing date were scheduled for December 2008. By this time, the price of fractional interests had fallen due to the down-turning economy. Prior to completion of construction of the project, PFW sent RLND a notice of its intent to rescind the purchase agreement based on asserted violations of ILSFDA and breaches of the purchase agreement, and demanded release of its earnest money. PFW then filed suit against RLND asserting eleven claims, including violations of ILSFDA and the Colorado Consumer Protection Act, breach of contract, and fraudulent inducement.

¶ 5 PFW alleged these same claims in arbitration pursuant to the arbitration clause of the purchase agreement. It subsequently moved to stay arbitration, and RLND countered with a motion to compel. Based on the trial court's ruling in other cases involving RLND that non-ILSFDA claims were subject to arbitration, the parties proceeded to a two-day arbitration hearing on these nine claims. The arbitrator found PFW in default under the purchase agreement, and entered interim and final awards in favor of RLND on all counts.

¶ 6 PFW moved to vacate this arbitration award in May 2010. The trial court denied its motion.

¶ 7 Following a two-day hearing, the trial court entered judgment in favor of RLND on the two ILSFDA claims in July 2011.

¶ 8 This appeal followed.

II. ILSFDA Exemption

¶ 9 PFW contends the trial court erred in denying its statutory claim to rescind its purchase of the fractional ownership interest solely because the court held that RLND's condominium project was exempt from ILSFDA's registration and disclosure requirements. Because we conclude that the fractional interests in the project's twenty-six condominium units are not “lots” under the ILSFDA, and were therefore exempt from registration and disclosure requirements, we disagree.

A. Standard of Review

¶ 10 Whether an interest is a “lot” under the ILSFDA requires interpretation of the purchase agreement documents, the statute, and regulations promulgated by the U.S. Department of Housing and Urban Development (HUD). See Giralt v. Vail Vill. Inn Associates, 759 P.2d 801, 806 (Colo.App.1988).

¶ 11 “Where the evidence of agreement consists of documents, the determination of their effect is a matter of law for the court.” Id.

¶ 12 Statutory construction is also a question of law we review de novo. Colorado Dep't of Revenue v. Hibbs, 122 P.3d 999, 1002 (Colo.2005). Because we are interpreting federal statutes and regulations, we employ rules of federal statutory interpretation. Great Plains Nat'l Bank, N.A. v. Mount, 2012 COA 66 ¶ 11, 280 P.3d 670, 672. We look to the plain language of the federal statute, giving words and phrases their plain and ordinary meaning. Id. We also interpret federal regulations to give them affect according to their plain meaning. USA Tax Law Center, Inc. v. Office Warehouse Wholesale, LLC, 160 P.3d 428, 431 (Colo.App.2007).

¶ 13 In our review, we defer to a federal agency's regulations if they are within the agency's statutory authority, so long as they are reasonable. Koch Industries, Inc. v. United States, 603 F.3d 816, 821 (10th Cir.2010); Giralt, 759 P.2d at 805.

B. Legal Framework

¶ 14 The underlying purpose of the ILSFDA is to ensure that, prior to purchasing real estate, a buyer is informed of facts which will enable him or her to make an informed decision. Law v. Royal Palm Beach Colony, Inc., 578 F.2d 98, 99 (5th Cir.1978). To this end, the ILSFDA imposes certain requirements on developers who sell or lease lots in a subdivision. 15 U.S.C. §§ 1703 to 1707. If these requirements are not met, a purchaser has a right of rescission under 15 U.S.C. § 1703. See also15 U.S.C. § 1709 (right to sue).

¶ 15 However, the ILSFDA exempts from its requirements certain types of real estate. 15 U.S.C. § 1702. As relevant here, the ILSFDA's registration and disclosure requirements do not apply to “the sale or lease of lots in a subdivision containing fewer than one hundred lots.” 15 U.S.C. § 1702(b)(1). The statute does not define the term “lot.”

¶ 16 In HUD's implementing regulations of the ILSFDA, see 24 C.F.R. pts. 1710 to 1730, “lot” is defined as:

any portion, piece, division, unit, or undivided interest in land located in any State or foreign country, if the interest includes the right to the exclusive use of a specific portion of the land.

24 C.F.R. § 1710.1(b).

¶ 17 Additionally, HUD has promulgated interpretive rules concerning the exemptions. See Supplemental Information to Part 1710: Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act, 61 Fed. Reg. 13596–01 (1996).

¶ 18 The Guidelines, Part II(d), further provide:

[The term “lot”] applies to the sale of a condominium or cooperative unit or a campsite as well as a traditional lot.

If the purchaser of an undivided interest or a membership has exclusive repeated use or possession of a specific designated lot even for a portion of the year, a lot, as defined by the regulations, exists. For purposes of definition, if the purchaser has been assigned a specific lot on a recurring basis for a defined period of time and could eject another person during the time he has the right to use that lot, then the purchaser has an exclusive use.

Although this interpretive rule does not “set absolute standards,” HUD's guidance on the meaning of its regulations is helpful. See Giralt, 759 P.2d at 808 (relying on HUD's application of the term “lot” to a condominium).

¶ 19 The parties do not dispute, and we concur, that HUD's interpretation of the term “lot” and its Guidelines are reasonable. Therefore, we defer to them. See id. at 805–06.

C. Analysis

¶ 20 According to PFW's purchase agreement with RLND, PFW purchased an “undivided [one-eighth] fee simple ownership interest as a tenant in common” in a four-bedroom “fractional ownership unit.” The purchase agreement incorporates by reference the Declaration of Condominium for the Residences at Little Nell (Declaration).

¶ 21 As relevant here, the Declaration provides:

Each purchaser of a Fractional Interest will own a one-eighth ... undivided interest in a specific Fractional Ownership Unit The Fractional Ownership Plan requires that each Owner of a Fractional interest participate in a priority based rotating priority reservation system that will guarantee the Owner a maximum of four ... weeks of “Planned Vacation Weeks” per Club year—[two in the winter and two in the summer], each reserved in accordance with the Rotating Priority Reservation System/Reservation Priority Chart.

¶ 22 The Declaration further states that a fractional interest owner “may occupy a different Fractional Ownership Unit within his or her designated Unit Type [three-bedroom or four-bedroom] each time the Owner Visits the Project.”

¶ 23 The Fractional Ownership Reservation Policies and Procedures (Reservation Policies), in turn, describe the rotating priority reservation system that is designed to equitably allocate planned vacation weeks and available fractional ownership units to all the fractional owners. It defines a “planned vacation week” as “the basic entitlement” of an owner of a fractional interest to use and occupy a designated unit type for four weeks each year.3

¶ 24 As discussed, the condominium project consists of twenty-six condominium units, each divided into eight fractional interests. PFW contends that these 208 interests constitute “lots” under ILSFDA. The trial court disagreed based on its finding that “no right of exclusive possession attaches to ... ownership” of these fractional interests. Therefore, it concluded, the condominium project, including the condominium units, eight hotel units, and eight affordable housing units, contains fewer than one hundred lots and is exempt under section 1702(b)(1).

¶ 25 PFW contends that the trial court's conclusion is erroneous because, like traditional condominiums, the fractional ownership interests in the RLND condominium units possess indicia of real estate. We disagree.

¶ 26 The Secretary of HUD has treated condominiums as lots under the ILSFDA even though they are not undeveloped plots of land because they carry indicia of real estate. 38 Fed. Reg. 23,866 (1973); Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444, 1447 (11th Cir.1985) ...

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