Rai v. WB Imico Lexington Fee, LLC

• Decision Date: 21 September 2015
• Docket Number: 14–2120.,Docket Nos. 14–1916
• Citation: 802 F.3d 353
• Parties: Aviral RAI, Sangeeta Rai, Plaintiffs–Counter–Defendants–Appellees–Cross–Appellants, v. WB IMICO LEXINGTON FEE, LLC, Gary Barnett, Defendants–Counter–Claimants–Appellants–Cross Appellees.
• Court: U.S. Court of Appeals — Second Circuit

802 F.3d 353

Aviral RAI, Sangeeta Rai, Plaintiffs–Counter–Defendants–Appellees–Cross–Appellants

v.WB IMICO LEXINGTON FEE, LLC, Gary Barnett, Defendants–Counter–Claimants–Appellants–Cross Appellees.

Docket Nos. 14–1916

14–2120.

United States Court of Appeals, Second Circuit.

Argued: May 4, 2015.

Decided: Sept. 21, 2015.

Lawrence C. Weiner, Wilentz, Goldman & Spitzer, P.A., Woodbridge, NJ, for Plaintiffs–Counter–Defendants–Appellees–Cross–Appellants.

RICHARD H. DOLAN (Thomas A. Kissane, on the brief), Schlam Stone & Dolan LLP, New York, NY, for Defendants–Counter–Claimants–Appellants–Cross–Appellees.

Meredith Fuchs, General Counsel, To–Quyen Truong, Deputy General Counsel, John R. Coleman, Assistant General Counsel, Nandan M. Joshi and Jessica Rank Divine, Litigation Counsel, Consumer Financial Protection Bureau, Washington, D.C., for Amicus Curiae Consumer Financial Protection Bureau.

Before: WALKER, LYNCH, AND LOHIER, Circuit Judges.

Opinion

GERARD E. LYNCH, Circuit Judge:

This appeal requires us to interpret several provisions of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701 et seq. (“ILSA”). ILSA was enacted in 1968 to combat fraudulent practices in the sale of undeveloped subdivided land to vulnerable consumers misled about the value of the land that they were purchasing, often sight unseen. See Bodansky v. Fifth on Park Condo, LLC, 635 F.3d 75, 79 (2d Cir.2011) ; Ronald J. Coffey & James d'A. Welch, Federal Regulation of Land Sales: Full Disclosure Comes Down to Earth, 21 Case W. Res. L.Rev. 5, 6–10 (1969) (“Coffey & Welch, Full Disclosure ”). The Act sought to protect purchasers by adopting extensive disclosure provisions resembling the provisions of the Securities Act of 1933. See Coffey & Welch, Full Disclosure 17–21; see also Flint Ridge Dev. Co. v. Scenic Rivers Ass'n of Okla., 426 U.S. 776, 778, 96 S.Ct. 2430, 49 L.Ed.2d 205 (1976).

Plaintiffs–Counter–Defendants–Appellees–Cross–Appellants Aviral and Sangeeta Rai (“the Rais”) argue that Defendants–Counter–Claimants–Appellants–Cross–Appellees WB Imico Lexington Fee, LLC, a real estate developer, and Gary Barnett, a principal of that company (collectively, “Imico”), failed to comply with two such disclosure provisions in connection with the Rais' attempt to purchase a condominium apartment: § 1703(a)(1)(B), which requires a developer to furnish a purchaser of any non-exempt lot of land with a property report prior to executing any contract to purchase that land, and § 1703(d)(1), which requires that any contract for the purchase of a non-exempt lot of land include “a description of the lot which makes such lot clearly identifiable.” The Rais contend that, as a result of such violations by Imico, ILSA's § 1703(c) entitles them to rescind their contract with Imico to purchase the apartment.¹

The Rais further contend that Imico violated § 1703(d)(1) of ILSA by failing to include the tax lot number of the apartment in the Purchase Agreement. The parties also disagree about the interpretation of § 1703(d)(3) of ILSA, which provides that, in the case of a purchaser's default, a seller is entitled to retain from the purchaser's deposit fifteen percent of the total purchase price of the lot (or the amount of damages incurred by the seller as a result of the default, if greater).

We conclude that: (1) Imico complied with § 1703(a)(1)(B) by providing the property report to the Rais' designated attorney; (2) Imico's description of the lot was sufficient to meet the requirements of § 1703(d)(1) ; and (3) Imico is entitled to any interest that accrued on the Rais' fifteen-percent down payment while the deposit was in escrow. Accordingly, we affirm the judgment of the district court insofar as it held that Imico did not violate § 1703(d)(1), but reverse the judgment insofar as it held that the Rais were entitled to rescind their contract due to Imico's alleged failure to comply with § 1703(a)(1)(B).

BACKGROUND

The facts relevant to this appeal are largely undisputed. In October 2007, the Rais decided to purchase an apartment in a condominium building, called “The Lucida,” then being erected on East 85th Street in Manhattan. Imico was The Lucida's developer and sponsor.

The Rais identified their attorney on the transaction, John Lewin, to Imico. On October 29, 2007, a legal assistant working for Imico hand-delivered to Lewin a packet of documents including the property report required by § 1703(a)(1)(B) (the “Property Report” or “Report”) and the condominium's Offering Plan. The packet was accompanied by a cover letter, which asked Lewin to review the enclosed documents with the Rais and to return a receipt, signed by the Rais, acknowledging their receipt of the documents. The receipt included a notice that Imico was required to provide purchasers with the Property Report before entering into any contract, and that the Rais' signatures would indicate their acknowledgment that they had received a copy of the Property Report. No signed copy of that receipt has been produced. Although the Rais do not dispute that their attorney received the Property Report, they allege that they themselves never saw or received a copy.

On November 12, 2007, the Rais entered into a contract with Imico (the “Purchase Agreement”) to purchase Apartment 8C in The Lucida for a price of $4,287,466. The Purchase Agreement required the Rais to make a down payment of fifteen percent of the total purchase price of the apartment, or $643,119.90. The Agreement included the following notice:

IF YOU DID NOT RECEIVE A PROPERTY REPORT PREPARED PURSUANT TO THE REGULATIONS OF THE OFFICE OF INTERSTATE

LAND SALES REGULATION, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, IN ADVANCE OF YOUR SIGNING THE CONTRACT OR AGREEMENT, THE CONTRACT OR AGREEMENT MAY BE CANCELED AT YOUR OPTION FOR TWO YEARS FROM THE DATE OF SIGNING.

Joint App'x 39.

On November 9, 2009, after construction on The Lucida was completed, the Rais' new attorney, Alan Wasserman, sent a letter to Imico informing it that the Rais had not received the Property Report and were exercising their right to rescind the Purchase Agreement. The letter also requested the return of the Rais' down payment plus all accrued interest.

Disputing the Rais' claim that they were entitled to rescind the Purchase Agreement, Imico proceeded to set a date scheduled for the closing on Apartment 8C. The Rais did not attend the closing. On July 16, 2010, Imico informed the Rais by letter that they were terminating the Purchase Agreement for default, and that the Rais' default entitled Imico to retain their deposit and any accrued interest.

PROCEDURAL HISTORY

On November 18, 2009, the Rais filed suit, alleging that Imico had violated ILSA's § 1703(a)(1)(B) by failing to furnish the Property Report to them in advance of the execution of the Purchase Agreement, and arguing that such failure entitled the Rais to “rescission and revocation of the Purchase Agreement, return of the deposits pursuant to 15 U.S.C. § 1703(e) and other damages.” Joint App'x 22. The Rais also sought attorneys' fees, costs, and pre- and post-judgment interest.

The Rais subsequently amended their complaint to include two additional counts—also brought in separate actions by other purchasers of apartments in The Lucida—that Imico had violated §§ 1703(d)(1) and 1703(d)(3) of ILSA by, respectively, (1) failing to provide an adequate description of the unit in the Purchase Agreement by omitting a tax lot number, and (2) including in the Purchase Agreement a liquidated damages clause that did not comply with § 1703(d)(3). Imico counterclaimed for breach of contract.

On March 19, 2012, in a decision addressing the Rais' claims along with those of the other Lucida plaintiffs, the district court granted summary judgment to all plaintiffs on the ground that Imico had violated ILSA § 1703(d)(1) by not providing tax lot numbers in the plaintiffs' purchase agreements. Accordingly, the court denied summary judgment to Imico on their breach of contract counterclaim and held that plaintiffs were entitled to rescind their purchase agreements and recover their deposits. Because the court granted summary judgment on that claim, it declined to reach the Rais' claims under § 1703(a)(1)(B), regarding the Property Report, and § 1703(d)(3), regarding the liquidated damages provision in the Purchase Agreement.

Subsequently, this Court issued a decision interpreting § 1703(d)(1) of ILSA. See Bacolitsas v. 86th & 3rd Owner, LLC, 702 F.3d 673 (2d Cir.2012). In light of that decision, on February 8, 2013, Imico moved the district court to vacate its previous order, arguing that Bacolitsas foreclosed plaintiffs' claim that failure to include tax lot numbers in the purchase agreements rendered their “description[s] of the lot[s]” deficient under § 1703(d)(1). The district court agreed and therefore vacated its award of summary judgment to all plaintiffs on their claims based on that provision. The court also held that Bacolitsas similarly foreclosed plaintiffs' argument that the Agreement's liquidated damages provision violated § 1703(d)(3). Having held that Imico had complied with §§ 1703(d)(1) and 1703(d)(3) of ILSA, the court granted summary judgment to Imico on its breach of contract counterclaims against nearly all the plaintiffs and held that Imico was entitled to retain those plaintiffs' deposits, less any interest earned in escrow.

As to the Rais, however, the district court again concluded that Imico had violated ILSA. Now having to reach the Rais' claim under § 1703(a)(1)(B), the district court held that Imico's failure to furnish the Property Report directly to the Rais prior to executing the Purchase Agreement violated that provision. The Rais, the court held, were therefore still entitled to rescission of the Purchase Agreement and the return of their deposit.

On May 12, 2014, the district court denied the Rais' motion for attorneys' fees and costs but granted them pre-judgment interest on their deposit at the...