Stein v. Paradigm Mirasol, LLC, No. 08-10983.

• Decision Date: 30 September 2009
• Docket Number: No. 08-10983.
• Citation: 586 F.3d 849
• Parties: Alan STEIN, Karen Stein, Plaintiffs-Counter-Defendants-Counter-Claimants-Appellees, v. PARADIGM MIRASOL, LLC, a Florida limited liability company, Defendant-Counter-Claimant-Counter-Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

586 F.3d 849

Alan STEIN, Karen Stein, Plaintiffs-Counter-Defendants-Counter-Claimants-Appellees, v. PARADIGM MIRASOL, LLC, a Florida limited liability company, Defendant-Counter-Claimant-Counter-Defendant-Appellant.

No. 08-10983.

United States Court of Appeals, Eleventh Circuit.

September 30, 2009.

Mary M. Clapp, John H. Rains, III, John H. Rains, III, P.A., James E. Felman, Katherine Earle Yanes, Kynes, Markman & Felman, P.A., Tampa, FL, for Defendant.

Joseph Stern, Delray Beach, FL, for Stein.

Appeal from the United States District Court for the Middle District of Florida.

Before TJOFLAT and CARNES, Circuit Judges, and HOOD,^* District Judge.

CARNES, Circuit Judge:

In a market-based economy the price of housing, like other goods, is subject to swings. There was a sharp upward swing in housing prices between late 2000 and the end of 2005, and the resulting bubble was bigger in Florida than it was in most other states. Home prices there rose eighty-two percent in absolute terms during that short period, outstripping the national increase by thirty-one percent. See Gabriel Montes Rojas et al., The Florida Housing Boom, 3 Fla. Focus 1, 2 (2007). All bubbles eventually burst, as this one did. The bigger the bubble, the bigger the pop. The bigger the pop, the bigger the losses. And the bigger the losses, the more likely litigation will ensue. Hence this case.

I.

On March 9, 2005, Alan and Karen Stein signed a contract with Paradigm Mirasol, LLC to purchase for $895,900 a condominium unit in Mirasol I, a six-story condominium building that was being developed in a luxury resort community near Fort Myers, Florida. The Steins made a down payment of $205,370, which included a deposit of $179,180 and an additional payment of $26,190 for upgrades. The contract specified that time was of the essence and that the condominium would be built within two years, although the contract included a force majeure provision that allowed for delays under certain circumstances. The contract also specifically waived the Steins' right to speculative, punitive, and special damages. As a result, if Paradigm breached the contract the remedies available to the Steins were limited; they could choose specific performance or they could get back their deposit with interest and any actual damages.

After the housing bubble burst, the Steins had second thoughts about their decision to purchase the condominium unit. Wanting out of their contract, they seized on to the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq., a federal statute that has become an increasingly popular means of channeling buyer's remorse into a legal defense to a breach of contract claim. On January 16, 2007, just three weeks before the condominium was completed, the Steins gave Paradigm written notice that they were terminating the contract because Paradigm had failed to provide them with a property report as required by the Disclosure Act. The Steins also demanded that Paradigm return all of the $205,370 they had paid. Paradigm refused, contending that the contract between the parties fits within the exemption set out in the Act for "the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years." See 15 U.S.C. § 1702(a)(2).

Paradigm did complete construction of the condominium building and the Stein's unit in two years, as it had contracted to do. On February 8, 2007, twenty-three months after the contract was signed, Paradigm provided the Steins with a notice of issuance of the Certificate of Occupancy. That same day, the Steins filed a complaint in district court, alleging that Paradigm had violated the Disclosure Act and seeking to revoke the contract and to recover damages and attorney's fees.¹ Undeterred, Paradigm attempted to schedule a closing date of February 20, 2007, which would have been within the two-year completion period. The Steins refused to close. Paradigm filed a counterclaim seeking to retain the Steins' deposit as liquidated damages.

The parties agreed that the material facts were undisputed and filed cross-motions for summary judgment. The district court granted summary judgment in favor of the Steins, allowing them to terminate the contract and requiring Paradigm to return all of the money the Steins had paid it. The court held that the contract's force majeure clause fatally undermined Paradigm's obligation to complete construction within two years because the scope of that clause extended beyond events the law would recognize as establishing impossibility of performance. Additionally, the court held that Paradigm could not claim the two-year completion exemption because the contractual provision barring special damages rendered Paradigm's obligation to construct the condominium "illusory." This is Paradigm's appeal.

II.

This case turns on whether the contract is exempt from the requirements of the Interstate Land Sales Full Disclosure Act. See 15 U.S.C. § 1702(a)(2). If, as the district court concluded, the contract is not exempt, the Steins are entitled to the judgment they received. If the contract is exempt, Paradigm is entitled to a judgment in its favor. With the judgment goes the money the Steins deposited with Paradigm.

The Disclosure Act is a consumer protection statute that "was intended to curb abuses accompanying interstate land sales." Winter v. Hollingsworth Props., Inc., 777 F.2d 1444, 1448 (11th Cir.1985). Although its primary purpose is to "protect purchasers from unscrupulous sales of undeveloped home sites," id. at 1447, it also applies to the sale of developed land, including the sale of condominiums, id. at 1449. The Act "utiliz[es] disclosure as its primary tool" to discourage fraud. Id. at 1447. It requires developers selling or leasing property to provide the purchaser with a property report before the sales contract is signed. See 15 U.S.C. § 1703(a)(1)(B). If the developer fails to provide a property report, the purchaser generally has the right to revoke the contract. Id. § 1703(c). Paradigm did not provide the Steins with the property report.

The Disclosure Act does include a list of exemptions from its requirements. See id. § 1702(a). The one at the center of this case is the exemption that applies to "the sale or lease ... of land under a contract obligating the seller or lessor to erect ... a [condominium] building thereon within a period of two years." Id. § 1702(a)(2). The dispute is over the meaning of the word "obligating." The contract provided that Paradigm would complete construction of the Steins' condominium within two years and Paradigm actually did so. But was the contract one "obligating" Paradigm to do so within the meaning of the exemption provision in § 1702(a)(2) of the Disclosure Act? That is the $64,000 question, or more accurately, the $205,370 question in this case.

Deciding whether the contract in this case fits within the § 1702(a)(2) exemption requires that we look to both federal and state law. Because the Disclosure Act is a federal statute its interpretation is a matter of federal law, Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1369 n. 9 (11th Cir.2005), so we will use principles of statutory interpretation from federal decisions to construe the term "obligating." We must also look to state contract law to see what remedies the Steins would have under the contract if Paradigm had not constructed the condominium within the two-year period specified in the § 1702(a)(2) exemption. See Markowitz v. Ne. Land Co., 906 F.2d 100, 105 (3d Cir.1990). Florida law will inform us about the extent and nature of Paradigm's legally enforceable obligation to fulfill its contractual promise to complete construction within two years.

We begin our federal law analysis by looking to the text of the Disclosure Act. See Harris v. Garner, 216 F.3d 970, 972 (11th Cir.2000) (en banc) ("[C]ourts should always begin the process of legislative interpretation ... with the words of the statutory provision."); United States v. Steele, 147 F.3d 1316, 1318 (11th Cir.1998) ("In construing a statute we must begin ... with the language of the statute itself." (quotation marks omitted)). Although the Act defines some terms, neither the word "obligating" nor its variants "obligate" and "obligated" among them. A term that is undefined in a statute carries its ordinary meaning. Crawford v. Metro. Gov't of Nashville & Davidson County, ___ U.S. ___, 129 S.Ct. 846, 850, 172 L.Ed.2d 650 (2009); Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979).

The ordinary meaning of the word "obligating" is: binding by legal or moral duty. See Merriam-Webster Online Dictionary, http://www.merriam-webster.com (last visited Sept. 30, 2009) (defining "obligate" as "to bind legally or morally" and "obligation" as "something one is bound to do"); American Heritage Dictionary 857 (2d College ed. 1982) (defining "obligate" as "[t]o bind, compel, or constrain by a social, legal, or moral tie"); Oxford English Dictionary Online, http://dictionary. oed.com (draft rev. 2009) (defining "obligate" as "[t]o bind (a person) morally" or "[t]o bind (a person) legally"); Random House Unabridged Dictionary 1336 (2d ed. 1993) (defining "obligate" as "to bind or oblige morally or legally"); see also Black's Law Dictionary 1103 (8th ed.2004) (defining "obligate" as "[t]o bind "by legal or moral duty").² Federal statutes, generally speaking, concern themselves with legal instead of moral duties, and the Disclosure Act is no exception.

Given the context and the ordinary meaning of "obligating," the § 1702(a)(2) exemption applies when a contract imposes a legal duty on the developer to perform his promise to construct the condominium or other building within two years. The nature and extent of the...