Sun Kyung Ahn v. Merrifield Town Center Ltd.

• Decision Date: 27 October 2008
• Docket Number: Case No. 1:08cv73.
• Citation: 584 F.Supp.2d 848
• Parties: SUN KYUNG AHN, et al., Plaintiffs, v. MERRIFIELD TOWN CENTER LIMITED PARTNERSHIP, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

584 F.Supp.2d 848

SUN KYUNG AHN, et al., Plaintiffs, v. MERRIFIELD TOWN CENTER LIMITED PARTNERSHIP, Defendant.

Case No. 1:08cv73.

United States District Court, E.D. Virginia, Alexandria Division.

October 27, 2008.

Alexander Laufer, Eisenhower Laufer & Tarby P.C., Fairfax, VA, for Plaintiffs.

Edward W. Cameron, John Patrick Sherry, Odin Feldman & Pittleman P.C., Fairfax, VA, for Defendant.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

In this federal question suit, plaintiffs, purchasers of condominiums, sue the seller for rescission and damages pursuant to the Interstate Land Sales Full Disclosure Act ("ILSFDA"), 15 U.S.C. § 1701 et seq., and various pendent state claims. Seller seeks dismissal, inter alia, of the ILSFDA claim on the ground that the seller's contractual promises to build the condominiums within two years of the date seller "ratified" the sales contracts exempts the transactions from ILSFDA.

At issue on summary judgment¹ with respect to the ILSFDA claim is whether the Act's exemption for land sales contracts containing promises to complete building within two years applies here where the sales contracts provide that building must occur within two years of "ratification" of the contracts, defined as the date the seller signs the contracts, even though the purchasers signed the contracts and incurred obligations at a much earlier date. Put differently, the question is whether ILSFDA's two-year building exemption requires the two-year period to commence when a purchaser signs a sales contract and incurs obligations, or at some later date when a seller elects to sign or ratify the contract.

For the reasons that follow, the contracts at issue here are not exempt from ILSFDA's reporting and disclosure requirements.

I.²

Plaintiffs are twenty-nine individuals, all residents of Virginia, who contracted to purchase condominium units from defendant Merrifield Town Center Limited Partnership ("Merrifield"), a Virginia limited partnership. In 2005, Merrifield began planning development of the Vantage Condominiums at Merrifield Town Center in Falls Church, Virginia. To promote interest in the project, Merrifield hosted an open house and preview party in May 2005 for approximately 3500 potential buyers. Sales of the units commenced on June 2 and 3, 2005, and the entire project sold out by mid-July.

Merrifield used two contract forms, titled "Unit Purchase Agreements" ("UPAs") to sell its units: (i) one UPA form that required Merrifield to complete construction within 36 months of "ratification," defined in the UPA as the date Merrifield signed the UPA; and (ii) a second UPA form that obligated Merrifield to complete construction within 24 months of "ratification," also defined in the UPA as the date Merrifield signed the UPA. Only the second UPA form is at issue here, as all plaintiffs in this case signed 24-month UPAs in June or July 2005.

The UPAs signed by each plaintiff, as purchaser, required delivery of an "Initial Agreement Deposit" to Merrifield "upon Purchaser's execution of [the] Agreement," or in other words, the date each purchaser signed a UPA. UPA ¶ 2. The required deposit was either 5% of the purchase price in the event a purchaser intended to occupy the unit, or 10% of the purchase price in the event a purchaser was an investor who intended to sell or lease the unit, not occupy it.³ The UPAs required payment to the seller of a second deposit within 180 days of the date each purchaser signed a UPA. Failure to deliver the second deposit within the 180-day period triggered the UPAs' default provision, which provided that Merrifield could retain a purchaser's initial deposit in the event of purchaser default. Moreover, according to the terms of the UPAs, Merrifield was to hold each purchaser's deposits in a segregated escrow account pursuant to Va.Code § 55-79.95.⁴ There is no claim by Merrifield that plaintiffs did not comply with these requirements; each plaintiff paid both deposits as required by the sales contracts.

The two deposit requirements were not the only obligations incurred by plaintiffs at the time they signed the UPAs in issue; additionally, plaintiffs, at the time they signed the UPAs, assumed two further obligations: (i) to make a written loan application to a lender within seven days of the date each purchaser signed a UPA, and (ii) to obtain financing approval and submit documentation of that approval within two weeks of the date each purchaser signed a UPA.⁵ In the event a purchaser failed to comply with these loan application requirements, Merrifield could terminate the contract and refund to the purchaser any deposits already made. The UPAs also provided that a purchaser could, within ten days of receiving the "Public Offering Statement" required by the Virginia Condominium Act, Va.Code §§ 55-79.39 et seq., cancel the contract and obtain a refund of the initial deposit without penalty. If a purchaser chose not to exercise this right to cancel, the contract was to "remain in full force and effect." UPA ¶ 11(b).

On signing the UPAs, the purchasers also made several representations reflected in the UPAs' various provisions, including that (i) "purchaser is contracting to purchase the property solely from [Merrifield] and not any affiliate of [Merrifield]," UPA ¶ 38; (ii) purchaser "waive[s] trial by jury in any action ... with respect to any matter whatsoever relating in any way to this agreement," UPA ¶ 36; (iii) purchaser "acknowledges receipt of a copy of the Public Offering Statement [required under Virginia law] for the [condominium," UPA ¶ 11; and (iv) purchaser either intends or does not intend to occupy the unit as a full-time residence. Finally, the first sentence of each UPA states, "This Condominium Unit Purchase Agreement ... is made on _____, 200_, by and between" each purchaser and Merrifield. UPA at 1. In each UPA, the typed-in date matches each plaintiff's signing date.

Despite the obligations incurred by the purchasers upon signing, the UPAs' final paragraph also stated, in bold, capitalized letters:

Purchaser and [Merrifield] acknowledge that this agreement as signed by Purchaser or [Merrifield] alone does not constitute ratification of this agreement. This agreement shall not be binding upon [Merrifield] until executed by [Merrifield].

UPA ¶ 39. This ratification provision is important because the UPAs also provided that Merrifield's obligation to build within two years—the obligation at issue for the ILSFDA question presented—began on the date that Merrifield ratified each UPA. Specifically, the UPAs provided, "[Merrifield] acknowledges an absolute obligation to deliver the Unit no later than twenty-four (24) months from the date this Agreement is ratified." UPA ¶ 21(a). Finally, the UPAs provided that Merrifield's obligation to deliver the finished condominium units within 24 months was "absolute," except for "reasons outside of Declarant's control or as a result of the action or inaction of a third party whose actions are necessary to the performance of Declarant's obligations." Id.

As matters turned out, Merrifield did not ratify these UPAs at the time the purchasers signed them. For a variety of reasons, including difficulties during Summer 2005 in obtaining permit approval for construction, Merrifield intentionally delayed ratifying the 24-month UPAs by an average of 88 days.⁶ Michael Collier, Merrifield's corporate designee pursuant to Rule 30(b)(6), Fed.R.Civ.P., acknowledged that Merrifield consciously chose to delay ratification "until [Merrifield] got some comfort level and certainty as to when [it was] going to get [its] site permits so [it] could proceed with construction." Pl. Supp. Mem., Ex. 16 at 21, 1. 19-22.

In June 2006, Merrifield's development of the condominiums suffered more setbacks, including soil and environmental problems, weather delays, and delayed permit approvals. Accordingly, Merrifield sent plaintiffs an "amendment," in which plaintiffs could choose color schemes and other options for their condominiums. The amendment also stated, "The Agreement Ratification Date, as defined in the Agreement, is hereby amended to be the date of the execution by both parties of this Amendment." Pl. Am. Compl., Ex. 2 at 1. Most plaintiffs signed this amendment, and those who declined to do so were sent a letter which stated that mere receipt of the amendment signaled the purchaser's acknowledgment and acceptance of its terms. Accordingly, the amendment purported to extend the date by which Merrifield had to deliver the completed condominiums to June 2008, approximately 36 months after plaintiffs signed their UPAs, paid deposits, and obtained loans.

On January 25, 2008, several months before the extended settlement date, plaintiffs filed the complaint in this action, alleging that Merrifield failed to comply with the requirements of ILSFDA, including, inter alia, registration of the Vantage condominium development project with the U.S. Department of Housing and Urban Development ("HUD") and submission of various disclosures to plaintiffs at the time of purchase. Merrifield does not contend that it complied with the ILSFDA registration and disclosure provisions; rather, Merrifield argues that its contracts, by obligating Merrifield to build within two years of the extended ratification date, were exempt from ILSFDA. Plaintiffs also set forth several state law claims, including breach of contract, a cause of action under the Virginia Condominium Act, Va.Code § 55-79.39 et seq., and a state claim for rescission. Merrifield moved to dismiss. This motion, now appropriately treated as a motion for summary judgment, has been fully briefed and argued and is now ripe for disposition.⁷

II.

The sole question addressed here⁸ is whether the UPAs Merrifield presented to plaintiffs, then signed by plaintiffs, and later ratified by Merrifield, qualify for ILSFDA's two-year building exemption. If so, then Merrifield is entitled to...