Rodriguez v. Banco Cent.

• Decision Date: 27 November 1989
• Docket Number: Civ. No. 82-1835 (JAF).
• Citation: 727 F. Supp. 759
• Parties: Raul F. RODRIGUEZ, et al., Plaintiffs, v. BANCO CENTRAL, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

727 F. Supp. 759

Raul F. RODRIGUEZ, et al., Plaintiffs, v. BANCO CENTRAL, et al., Defendants.

Civ. No. 82-1835 (JAF).

United States District Court, D. Puerto Rico.

November 27, 1989.

Francisco M. López Romo and Nilsa M. Calabria Seda, San Juan, P.R., for plaintiffs.

Luis Sánchez-Betances and Ivonne Cruz-Serrano, Sánchez-Betances & Sifre, San Juan, P.R., for Banco Cent. Corp.

Diana Azizi de Arbona, San Juan, P.R., for Raoul Núñez.

Mario Oronoz, Hato Rey, P.R., Diana A. de Arbona, San Juan, P.R., Orlin P. Goble, Hato Rey, P.R., William de la Cruz, Jr., Alberto F. Tellechea, Orlando, Fla., José A. Andreu García, San Juan, P.R., and Vincent

Phillip Nuccio, Tampa, Fla., for defendants.

OPINION AND ORDER

FUSTE, District Judge.

This complex land fraud case involves three related development projects in Florida which we will refer to collectively as the "Sunrise Projects." The numerous plaintiffs are disenchanted purchasers of plots of land in Sunrise Projects. Defendants include the corporate developers and financiers of the projects, as well as individuals associated with these businesses.

The essential allegations may be briefly stated. In the 1970's various individuals and related organizations were engaged in the sale of undeveloped land located in the state of Florida. The organizations include codefendants J.C. Investments, Inc., J.C. Properties, Inc., J.C. Realty, Inc., Floravest Realty, Inc., Floravest International, and Magic Realty (hereafter referred to together as "J.C. Companies"). Moreover, much of the financing for the Sunrise Projects was undertaken by codefendants Banco Central y Economías and Banco de Economías, the predecessors in interest of Banco Central (hereafter referred to together as "Banco de Economías").

Plaintiffs allege that they were induced to purchase their lots, and to continue making installment payments on them, in reasonable reliance on defendants' misrepresentations and unkept promises concerning the condition of the land, its value, and the plans defendants supposedly had to develop it. These misrepresentations allegedly took the form of written and oral statements from salespersons, as well as misleading statements found in defendants' mailed promotional literature. Plaintiffs claim that defendants' representatives led them to believe that the lots were good investments and suitable for homesites — or soon would be due to the development of roads, utilities and recreational facilities that would be undertaken by the defendants on plaintiffs' behalf. In fact, little development has occurred, nor in many cases could it have occurred given prohibitive zoning laws governing the land in question. Today, much of the area remains what it was when plaintiffs made their purchases: a swamp. In addition, plaintiffs allege they were duped into believing that upon completing their payments they would receive clear title to their lots, when in fact the titles were frequently owned by someone else or were heavily encumbered by outstanding mortgages.

Relief is sought under three federal statutes: a) the Interstate Land Sales Full Disclosure Act ("Land Sales Act"), 15 U.S.C. §§ 1701 et seq.; b) section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule 10(b)(5) thereunder, 17 C.F.R. § 240.10b-5; and c) the Organized Crime Control Act ("RICO"), 18 U.S.C. § 1964(c).

The case is submitted on defendants' various motions for summary judgment. For the reasons discussed below, summary judgment is now GRANTED in favor of defendants with respect to claims under the Land Sales Act and the Securities Exchange Act, but DENIED with respect to the civil RICO claims.

I. The Land Sales Act

Plaintiffs first allege that defendants violated subsections 1404(a)(2)(A)-(C) of the Land Sales Act and that defendants are therefore subject to civil liability under section 1410(b)(1) of the same. Subsection 1703(a)(2) reads as follows:

It shall be unlawful for any developer or agent, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce, or of the mails —

* * * * * *

(2) In selling or leasing, or offering to sell or lease, any lot in a subdivision —

(A) to employ any device, scheme, or artifice to defraud, or

(B) to obtain money for property by means of a material misrepresentation with respect to any information included in the statement of record or the property report or with respect to any other information pertinent to the lot or the subdivision and upon which the purchaser relies, or (C) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a purchaser.

15 U.S.C. § 1703(a).

In response to these allegations, two defenses under the Land Sales Act are raised. First, the defendants are united in claiming that plaintiffs' Land Sales Act claims are time-barred. Second, some, but not all, of the defendants argue that they are not "developers" or "agents" within the meaning of subsection 1703(a).

A. The Statute of Limitations.

The Land Sales Act contains its own statute of limitations found at section 1711.¹ As originally enacted,² the exact time limit under section 1711 to some extent depends on which substantive provision of the act the claim is based. For example, actions to enforce a liability for false statements of record and false statements in property reports (not at issue here) must be "brought within one year after discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence." However, actions such as the present one brought under section 1703(a)(2) (quoted above) are time-barred unless "brought within two years after the violation upon which it is based." (Emphasis supplied). Furthermore, in either case, the original section 1711 contains an "umbrella" limitation such that "in no event shall any such action be brought by a purchaser more than three years after the sale or lease to such purchaser." (Emphasis supplied).

What this boils down to here is that each plaintiff must satisfy two tests: first, he must file within two years of the "violations" complained of; second, he must file within three years of the "sale." Only if both tests are met is the action timely.

Taking the first test first, we must decide when a "violation" occurs in order to determine when the two-year time period begins to run. Many courts have held, with regard to subsection 1703(a)(2) actions, that a violation may occur after the signing of the sales contract, especially when it is alleged, as plaintiffs have here, that the defendants engaged in ongoing fraud so as to continue to extract payments on purchase money loans and installment contracts. See Newell v. High Vista, Inc., 479 F.Supp. 97 (M.D.Pa.1979); Fogel v. Sellamerica Ltd., 445 F.Supp. 1269 (S.D.N.Y. 1978); Husted v. Amrep Corp., 429 F.Supp. 298 (S.D.N.Y.1977); Happy Investment Group v. Lakeworld Properties, 396 F.Supp. 175 (N.D.Cal.1975). In such case, the last possible "violation" of the act, or the ending date for a continuing violation, is said to occur on the date of the last payment.

We agree with these cases. Therefore, because this action was filed on August 2, 1982,³ plaintiffs making final payments prior to August 2, 1980 fail the first test, while those making payments on or after this date satisfy the requirement.

The second test, or "umbrella limitation," requires an action to be brought within three years of the date of sale. Again, the crucial issue is one of definition, for the meaning of the word "sale" determines when the three-year period begins to run.

Defendants submit that "sale" in section 1711 refers exclusively to the date of the formation of the purchase contract. If this is correct, then all of the plaintiffs' causes of action under the Land Sales Act are time-barred because all the land sales contracts were signed more than three years prior to the filing of this action. Plaintiffs, however, argue that "sale" may also refer to the passing of the deed of title, and therefore the three-year time period, like the two-year limitation, does not begin running until the last installment payment on the sales contract is made.

The First Circuit has not addressed this question and the reported decisions appear to be split. The majority of these cases support defendants' theory. See Cook v. Deltona Corp., 753 F.2d 1552 (11th Cir. 1985); Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036 (10th Cir.1980); Armbrister v. Roland Intern. Corp., 667 F.Supp. 802 (M.D.Fla.1987). A minority of courts, however, agree with plaintiffs and construe "sale" to include the date the deed is executed or the last installment payment is made. See Hadad v. Deltona Corp., 535 F.Supp. 1364 (D.N.J.1982); Newell v. High Vista, Inc., 479 F.Supp. 97 (M.D.Penn. 1979).

The cases supporting plaintiffs begin by noting that a violation of section 1703(a)(2) may occur years after the signing of a contract, such as when the defendant "obtains money for property by means of material misrepresentation...." 15 U.S.C. § 1703(a)(2)(B). When installment payments are scheduled for many years to come, so the argument goes, acts giving rise to a cause of action (obtaining money by fraud) might occur more than three years after the signing. If "sale" were to mean the signing date in these actions, then the buyer would be foreclosed from filing a claim against behavior apparently contemplated by the statute. Thus, plaintiffs argue it would be ill-fitting to adopt a narrow definition of "sale" in such a case, especially keeping in mind the court's duty to interpret a remedial statute broadly to fulfill its purpose.

Furthermore, cases such as Hadad distinguish between actions where liability is based on violations occurring after signing and those where liability may occur only at the time of signing. The latter type includes false statements or...