Stein v. Paradigm Mirsol, LLC

• Decision Date: 07 February 2008
• Docket Number: No. 2:07-cv-71-FtM-29DNF.,2:07-cv-71-FtM-29DNF.
• Citation: 551 F.Supp.2d 1323
• Parties: Alan STEIN, Karen Stein, Plaintiffs, v. PARADIGM MIRSOL, LLC, Defendant.
• Court: U.S. District Court — Middle District of Florida

551 F.Supp.2d 1323

Alan STEIN, Karen Stein, Plaintiffs, v. PARADIGM MIRSOL, LLC, Defendant.

No. 2:07-cv-71-FtM-29DNF.

United States District Court, M.D. Florida, Fort Myers Division.

February 7, 2008.

COPYRIGHT MATERIAL OMITTED

Joseph Stern, Saraga & Lipshy, PA, Delray Beach, FL, for Plaintiffs/Counter Defendants.

John H. Rains, III, Mary M. Clapp, Tampa, FL, for Defendant/Counter Defendant.

Joseph Stern, Saraga & Lipshy, PA, Delray Beach, FL, for Counter Claimants.

Mary M. Clapp, John H. Rains, III, PA, Tampa, FL, for Counter Defendant.

OPINION AND ORDER

JOHN E. STEELE, District Judge.

This matter comes before the Court on the parties' cross-motions for summary judgment (Docs.# 10, # 33). The parties subsequently filed responses in opposition, affidavits, a reply, and supplemental authority. (Docs.## 14, 15, 19, 21, 26, 32, 35.)

The parties agreed in the Joint Pre-Trial Statement that there are no disputed issues of fact. (Doc. # 38, p. 3.) At issue is whether defendant was required to comply with the reporting and disclosure requirements of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. (ILSFDA).

I.

The agreed facts are as follows: On or about March 9, 2005, plaintiffs Alan Stein and Karen Stein (the Steins or plaintiffs) entered into an Agreement for Purchase and Sale of Real Estate (Doc. # 1-2) with defendant Paradigm Mirasol, LLC (Paradigm or defendant) for the purchase of a condominium described as Unit 507, Mirasol I, at Miromar Lakes. On or about April 1, 2005, an addendum was added, and on or about May 18, 2006, a second addendum was added. These documents collectively are referred to as the "Agreement." Pursuant to the Agreement, the Steins paid Paradigm $179,180 in deposits and $26,190 for optional upgrades requested by the Steins. As allowed in the Agreement, $89,590 of this money is being held in escrow by Miromar Title Company; $89,590 of the money was used in the construction of the condominium; and $26,190 of the money was used in purchasing and installing the requested upgrades. In the Second Addendum to the Agreement the Steins agreed that the $26,190 for upgrades was non-refundable and would not be returned for any reason.

On January 16, 2007, the Steins provided written notice to Paradigm that they were terminating the Agreement and demanding the return of their deposits. The Steins asserted that termination was permissible and the return of the deposits was required because Paradigm had not complied with the ILSFDA.

Construction of the condominium was completed within two years of the date of the Agreement. A Certificate of Occupancy was issued on February 7, 2007, and Paradigm provided the Steins with notice of the issuance of the Certificate of Occupancy on February 8, 2007. Paradigm was ready, willing and able to close on the condominium after February 7, 2007, and attempted to schedule a closing date for February 20, 2007. The Steins did not close on the condominium.

II.

Plaintiffs filed a two-count Complaint (Doc. # 1). Count One alleges that defendant violated the ILSFDA; Count Two alleges a state law claim of conversion for failing to return the deposits. Defendant filed a Counterclaim (Doc. # 13) alleging breach of contract for failing to close on the Agreement after issuance of the Certificate of Occupancy.

Paradigm agrees that it did not provide the Steins with a Property Report that met the requirements of 15 U.S.C. § 1707, but asserts that the sale of the condominium was exempt from the provisions of the ILSFDA. The parties agree that if the Agreement is not exempt from the reporting and registration requirements of the ILSFDA, (1) the Steins were entitled to terminate the Agreement on January 16, 2007; and (2) the Steins are entitled to a return of the deposits in the amount of $179,180 (the parties dispute whether the $26,190 for upgrades should be returned). The parties further agree that if the Agreement is exempt from the reporting and registration requirements of ILSFDA, (1) Paradigm has not breached the Agreement, (2) the Steins' failure to close on the condominium is a breach of the Agreement, and (3) Paradigm is entitled to retain the deposits in the amount of $179,180 as liquidated damages, plus the $26,190 as agreed damages for the upgrades.

III.

The ILSFDA is an anti-fraud statute that uses disclosure as its primary tool to protect purchasers from unscrupulous sales of undeveloped home sites. Winter v. Hoilingsworth Props., Inc., 777 F.2d 1444, 1446-47 (11th Cir.1985). Section 1703(a) makes it unlawful to sell "any lot not exempt under section 1702" unless the seller complies with the provisions of the ILSFDA, including disclosure of a Property Report prior to the purchaser signing a contract. Selling a condominium unit falls within the definition of selling a "lot" within the meaning of the ILSFDA. Winter, 111 F.2d at 1449. The sale of a condominium will be exempt from the ILSFDA, however, if the sale is "under a contract obligating the seller ... to erect [a condominium] thereon within a period of two years." Section 1702(a)(2).¹ The parties dispute whether the Agreement constitutes a contract "obligating" the seller to erect a condominium on the lot within two years.²

The interpretation of a federal statute, particularly a statute with nationwide application, is governed by federal law. See, e.g., In re Prudential of Fla. Leasing, Inc., 478 F.3d 1291, 1298 (11th Cir.2007); Reed v. Heil Co., 206 F.3d 1055, 1059 (11th Cir.2000). Additionally, state law governing contract interpretation and enforcement will impact whether a given contract "obligates" the seller to build the condominium. While the Court looks to Florida law as to the effect of the Agreement, state law does not control the interpretation of the ILSFDA. Harvey v. Lake Buena Vista Resort, LLC, 6:07-cv-1641-Orl-DAB, 2008 WL 254131, *3 n. 2 (M.D.Fla.2008).

While the ILSFDA defines some terms, 15 U.S.C. § 1701, and regulations under the statute define other terms, 24 C.F.R. § 1710.1 (2007), neither defines "obligating" or "obligates." In 1979 the Secretary published an interpretive rule entitled "Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act," 44 Fed.Reg. 24010 (1979). This was superceded by another version in 1984, 49 Fed.Reg. 31375 (1984), but this was removed on March 27, 1996, as part of a streamlining process. 61 Fed.Reg. 13596 (1996). The information was moved to the HUD website, where it is now available as "Supplemental Information to Part 1710: Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act." wvw.hud.gov/offices/hsg/sfh/ ils/ilsexemp.cfm.

The Guidelines state that it is intended to clarify HUD polices and positions with regard to the statutory exemptions, and that it is an interpretive rule and not a substantive regulation. 61 Fed. Reg. 13596, 13601 (1996). As an interpretive agency rule, the Guidelines are entitled to some deference. Reno v. Koray, 515 U.S. 50, 59, 115 S.Ct. 2021, 132 L.Ed.2d 46 (1995). In pertinent part, these Guidelines now provide:

HUD's interpretation of what constitutes an obligation to construct a building relies on general principles of contract law. Provisions for ... remedies clauses are matters to be decided by the parties to the contract under the laws of the jurisdiction in which the construction project is located. However, such clauses may not alter the obligation of the seller to build....

The contract must not allow nonperformance by the seller at the seller's discretion. Contracts that permit the seller to breach virtually at will are viewed as unenforceable because the construction obligation is not an obligation in reality. Thus, for example, a clause that provides for a refund of the buyer's deposit if the seller is unable to close for reasons normally within the seller's control is not acceptable for use under this exemption. Similarly, contracts that directly or indirectly waive the buyer's right to specific performance are treated as lacking a realistic obligation to construct. HUD's position is not that a right to specific performance of construction must be expressed in the contract, but that any such right that purchasers have must not be negated. For example, a contract that provides for a refund or a damage action as the buyer's sole remedy would not be acceptable.

Contract provisions which allow for nonperformance or for delays of construction completion beyond the two-year period are acceptable if such provisions are legally recognized as defenses to contract actions in the jurisdiction where the building is being erected. For example, provisions to allow time extensions for events or occurrences such as acts of God, casualty losses or material shortages are generally permissible....

Although the factual circumstances upon which nonperformance of a delay in performance is based may vary from transaction to transaction, as a general rule delay or nonperformance must be based on grounds cognizable in contract law such as impossibility or frustration and on events which are beyond the seller's reasonable control.

The Court concludes that a contract "obligates" the completion of a condominium within two years when that commitment to do so is real and not illusory. Another court has referred to this concept as a time commitment that "unequivocally requires" timely construction, or as a "true obligation" or an "unwavering obligation." Fortunato v. Windjammer Homebuilders, Inc., 8:04-cv-165-T-26MSS, 2006 WL 208777, *3 (M.D.Fla.2006) (J. Lazzara). To "obligate" the timely completion does not require that the contract be unconditional, so long as the condition(s) does not render the apparent obligation illusory. A two-year completion provision is not required to be an unconditional guarantee which imposes strict liability for noncompliance. Atteberry v. Maumelle Co., 60 F.3d 415, 420 (8th Cir.1995) ("It is immediately...