Pierce v. Apple Valley, Inc.

• Decision Date: 13 November 1984
• Docket Number: No. C-2-81-741.,C-2-81-741.
• Citation: 597 F. Supp. 1480
• Parties: Samuel R. PIERCE, Jr., Secretary of Housing and Urban Development, Plaintiff, v. APPLE VALLEY, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

597 F. Supp. 1480

Samuel R. PIERCE, Jr., Secretary of Housing and Urban Development, Plaintiff, v. APPLE VALLEY, INC., et al., Defendants.

No. C-2-81-741.

United States District Court, S.D. Ohio, E.D.

November 13, 1984.

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Surell Brady, Mona S. Butler, Civil Div., Dept. of Justice, John P. Kennedy, Peter S. Race, Geoffrey L. Patton, Dept. of Housing and Urban Development, Washington, D.C., Albert R. Ritcher, Asst. U.S. Atty., Columbus, Ohio, for plaintiff.

Alan L. Briggs, Murphy, Young & Smith, Columbus, Ohio, Joseph J. Lyman, Lyman, Kyhus & Rales, Scott C. Whitney, Lyman, Kyhus & Rales, Washington, D.C., for defendants.

OPINION AND ORDER

KINNEARY, District Judge.

This matter comes before the Court to consider the five motions to dismiss this action filed by two defendants, Apple Valley, Inc. and Robert G. Johnson, its President.

Plaintiff, the Secretary of Housing and Urban Development, filed this action against numerous defendants engaged in the construction and sale of real estate in Ohio. Plaintiff contends that the defendants violated the anti-fraud provisions of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et seq., in the promotion and sale of certain properties collectively known as Apple Valley. In his Amended Complaint, plaintiff asserts two counts against the defendants. Count I alleges that the defendants made material misrepresentations in information pertinent to the sale of lots in violation of 15 U.S.C. § 1703(a)(1)(C); obtained money by means of false or misleading statements in violation of 15 U.S.C. § 1703(a)(2)(B); and engaged in practices that operate as a fraud or deceit upon purchasers in violation of 15 U.S.C. § 1703(a)(2)(C). Count II alleges that the defendants has failed to permit purchasers to exercise recission rights that are granted by the Act. 15 U.S.C. § 1703(b), (c), (e). Plaintiff asks for an injunction restraining defendants from violating the Act, and further asks this Court to exercise its equity powers to grant restitution of monies obtained by the defendants in violation of the Act.

The Interstate Land Sales Full Disclosure Act requires persons engaged in certain interstate sales of land to register the offering by filing a statement with the Department of Housing and Urban Development ("HUD"). 15 U.S.C. §§ 1704, 1705. In addition, sellers are required to furnish a property report to prospective purchasers containing information required by the Secretary of HUD. 15 U.S.C. § 1709(a). It is unlawful for any developer to sell any lot in a subdivision unless a statement of record has been filed with HUD. In addition, it is unlawful under the Act for any developer to defraud or deceive any purchaser, or to engage in practices that operate to defraud a purchaser. 15 U.S.C. § 1703(a). The Act grants certain rights to purchasers of lots in subdivisions to rescind the sale to them. 15 U.S.C. § 1703(b), (c).

In the instant case, defendants move to dismiss the complaint on a number of grounds. To a significant degree, these grounds overlap or build upon one another. For this reason, the Court will first consider defendants' motions to dismiss because the Secretary lacks standing to bring this action. Then, in Part II of this Opinion, the Court will consider defendants' motion to dismiss because the plaintiff lacks clean hands. And, in Part III, defendants' remaining three motions to dismiss will be considered.

I.

The defendants submit that the Secretary of Housing and Urban Development lacks standing to bring this action under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et seq. Defendants point out that the Act expressly grants a right of action to enforce its anti-fraud provisions only to a "purchaser or lessee" of a lot in a subdivision, 15 U.S.C. § 1709(a), but does not expressly provide that the Secretary may bring a civil action to enforce the anti-fraud provisions. Therefore, defendants contend, this Court should infer that Congress intended to preclude civil enforcement by the Secretary. Thus, they conclude, counts I(b), I(c) and II of the complaint should be dismissed.

Defendants' phrasing of the issue as one of standing is misleading. Questions of standing arise when a private party seeks to challenge official actions or legislation. The requirement that a litigant demonstrate concrete and particularized injury as a prerequisite to bringing suit to challenge official action is designed to narrow intrusion of the judiciary upon the political branches of the government. These concerns have no relevance when a public agency is bringing an action. Defendants' contentions must be construed to mean that the Act should be interpreted to deny the Secretary the authority to bring the instant action. This is, of course, a matter of legislative intent.

Defendants' argument that the Secretary lacks authority is without merit. The Act provides:

Whenever it shall appear to the Secretary that any person is engaged or about to engage in any acts or practices which constitute or will constitute a violation of the provisions of this chapter, ... he may, in his discretion bring an action in any district court of the United States ... to enjoin such acts or practices, and, upon a proper showing, a permanent or temporary injunction or restraining order shall be granted without bond.

15 U.S.C. § 1714(a). The plain language of this provision is that the Secretary can seek injunctive relief for any violation of the Act, including the anti-fraud provisions. When the language of the statute is unambiguous, there is no need to resort to the legislative history to construe it. See e.g., United States v. Oregon, 366 U.S. 643, 648, 81 S.Ct. 1278, 1280, 6 L.Ed.2d 575 (1961). Even if it were relevant, the sections of the legislative history cited by the defendants fall far short of the showing necessary to overcome the literal language of the statute itself.

Defendants' suggestion that § 1714(a) was intended only to apply injunctive actions by the Secretary concerning false statements contained in registration statements under 15 U.S.C. § 1704 and property reports under 15 U.S.C. § 1707 is unpersuasive. The Secretary will have by implication whatever authority is necessary to implement the purposes of the Act. As interpreted by the Courts, a central purpose of the Act is to ensure full disclosure to consumers of relevant facts prior to their decision to purchase a subdivision lot. Law v. Royal Palm Beach Colony, Inc., 578 F.2d 98, 99 (5th Cir.1978). In addition, "(t)he general purpose" of the Act is "to prohibit and punish fraud" in the land sale industry. McCown v. Heidler, 527 F.2d 204, 207 (10th Cir.1975). The Act should be liberally construed to effectuate these remedial purposes.¹ Id. at 207. The dual purposes of full disclosure and prevention of fraud would be advanced by allowing the Secretary to bring civil actions to enforce the anti-fraud provisions. Since construing § 1714(a) restrictively would not advance the purposes Congress sought to achieve, this Court declines to do so. Although there appears to be no court decision directly on point, the Court has examined the decisions interpreting the Secretary's powers under the Act and finds no indication of restrictive interpretation. Lynn v. Biderman, 536 F.2d 820 (9th Cir.), cert. denied 429 U.S. 920, 97 S.Ct. 316, 50 L.Ed.2d 287 (1976); Cumberland Capital Corp. v. Harris, 490 F.Supp. 551, 559-560 (M.D.Tenn.1977).

Defendants' motion to dismiss counts I(b), I(c) and II of the complaint because the Secretary lacks to authority to bring this action is DENIED.

II.

The defendants also contend that the complaint should be dismissed because the government's lack of clean hands bars it from seeking equitable relief. In general, defendants allege that the government has engaged in misconduct of various descriptions during its investigation preceding this litigation, during the administrative settlement process, and during the litigation itself. During the investigative phase, according to defendants, the plaintiff violated its own investigative regulations; violated the legal rights of the defendants; violated the Federal Reports Act, 44 U.S.C. § 3509; and colluded with a disgruntled former employee whom the defendants label a "known malcontent." Each of these instances of alleged misconduct is related to plaintiff's use of a questionnaire that was sent to purchasers of lots in Apple Valley. During the administrative phase, according to defendants, the plaintiff extorted a settlement which it subsequently violated, and intentionally misrepresented the results of its investigation in order to initiate litigation. Finally, during the civil litigation phase of this controversy, the plaintiff is alleged to have violated the Paperwork Reduction Act of 1980, 44 U.S.C. § 3507(a), and to have attempted to extort an unconscionable settlement by threatening to send out more questionnaires to purchasers of lots in Apple Valley.

If the complaint is to be dismissed because of unclean hands, the defendants must first show that the plaintiff engaged in acts or conduct that would amount to unclean hands if the plaintiff were an ordinary litigant. Unclean hands is an affirmative defense, and the burden is upon the party asserting it. Fed.R.Civ.P. 8(c); 2A Moore's Federal Practice ¶ 8.27(3). However, the government is not an ordinary litigant. Consequently, even where the elements of the ordinary defense can be made out, it must further appear that the defense should be allowed against the government in the circumstances of the particular case. This second step presents a question of law for the Court.

As the doctrine is applied in ordinary litigation, unclean hands on the part of a plaintiff will bar equitable relief only if the plaintiff has engaged in bad faith or unconscionable conduct that relates to the subject matter of the action and is directed at ...