Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

HUSTED v. AMREP CORP.

March 17, 1977

Gladys HUSTED, Individually, and on behalf of others similarly situated, Plaintiff,
v.
AMREP CORPORATION et al., Defendants


Lasker, District Judge.


The opinion of the court was delivered by: LASKER

MEMORANDUM

LASKER, District Judge.

 Gladys Husted sues the defendants under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701 et seq. (ILSFDA) and for common law fraud. The defendants move to dismiss the complaint. Eulalie Bryan, plaintiff in 429 F. Supp. 313, also decided today, sues some (but not all) of the defendants named in Husted on similar grounds. She moves to certify the suit as a class action. Each case is brought as a class action, and the classes sought to be represented are overlapping. The cases are related, *fn1" and call for construction of identical or related portions of the Act. Although each case is discussed in a separate opinion, where issues raised in both warrant joint treatment reference to the other may appear.

 I. Background

 On January 20, 1973, Gladys Husted entered into a "Reservation and Purchase Agreement" for the purchase of one halfacre lot in Unit 20 of the Rio Rancho Estates, at a price of $4,880. On April 24, 1973, she entered into a second "Reservation and Purchase Agreement" for the purchase of another half-acre lot in Unit 10 of Rio Rancho Estates, for $5,705. Rio Rancho Estates is a 91,000 acre tract of land in New Mexico, acquired in the 1960s for development and sale to the public. It has been subdivided into residential and commercial lots, which have been sold to thousands of customers throughout the United States and in some foreign countries. The land is sold through real estate brokers and by means of advertisements in newspapers, radio and television, brochures and fliers, letters of solicitation, films and slides, sales visits to prospective customers' homes, and group dinner sales meetings. Some 1600 families are said to have built homes on their lots in Rio Rancho Estates, and various community and business facilities are said to exist there.

 Most purchasers of land in Rio Rancho Estates sign their Purchase and Reservation Agreements without seeing the land they are buying. The broker then forwards the agreement to New Mexico for signature by Rio Rancho Estates, Inc. (one of the defendants). The "Reservation and Purchase Agreement", a standard form contract used in these sales, provides that: the down payment is followed by monthly installments of principal and interest over a period of five to eight years. Legal title does not pass to the customer until all payments under the contract have been made; the purchaser may prepay the remaining amount due at any time without penalty. If the buyer is in default more than sixty days (i.e., misses two or more monthly payments) the seller may send out a notice of default; if full payment is not made within fourteen days after the seller mails the notice, all of the buyer's rights are terminated and the seller retains all payments previously made as liquidated damages.

 The contracts also provide for the following exchange or cancellation rights: (1) the buyer may cancel the contract and receive a full refund of payments if within six months of signing she inspects the property and decides she is unsatisfied; (2) if the buyer of a lot to which water and other utilities have not yet been extended decides she wants to build a home on the lot, the seller will without charge exchange her lot for one in a section to which such utilities have been extended; (3) within five years the buyer may exchange her property for any other lot of equal value located in Rio Rancho Estates. In addition, the contract provides, as is required by federal law, 15 U.S.C. § 1703(b), that the buyer may void the contract if she has not received a "property report" prepared in accordance with federal regulation at or before the signing of the contract, and may revoke the contract within forty-eight hours of signing it if a property report was not provided at least forty-eight hours before the signing. The record does not indicate that Ms. Husted visited Rio Rancho before signing the contract, or within six months thereafter, or that she ever sought to exercise any of the exchange or cancellation rights provided.

 The complaint alleges that the defendant Amrep Corporation and its subsidiary, Rio Rancho Estates, Inc., are the owners and developers of Rio Rancho Estates. ATC Realty Corp. is claimed to be another subsidiary of Amrep, responsible for the sale of land in Rio Rancho Estates. The individual defendants are officers and/or directors of one or more of the corporate defendants.

 In March, 1975 the Federal Trade Commission (FTC) publicly announced its issuance of a complaint against Amrep and its subsidiaries charging business practices in violation of 15 U.S.C. § 45 in the sale of land in Rio Rancho Estates, among which were: the form of contract being used; sales techniques in which people were induced to sales meetings by offers of free gifts or information which did not disclose the true purpose of the meetings; and the making of misrepresentations concerning the condition and value of the land. (Ex. I, Defendants' Motion to Dismiss) The FTC proceeding was temporarily suspended until resolution of criminal charges against the three corporate and several of the individual defendants named in these complaints, brought by a federal grand jury on October 28, 1975. *fn2" Ms. Husted filed her civil complaint on January 19, 1976. She claims that the defendants used high pressure sales techniques wrongfully to induce herself and other purchasers to buy land in Rio Rancho Estates at prices well over their actual market value and in so doing made various misrepresentations and misleading statements concerning, inter alia the investment value of the land; its potential resale market; the availability of water and other utilities to the lots; the exchange privilege provided by the contract; Rio Rancho's relationship to the City of Albuquerque.

 II. The Interstate Land Sales Full Disclosure Act (ILSFDA)

 The passage of the ILFSDA as Title XIV of the Housing and Urban Development Act of 1968 was prompted by revelations of substantial "abuse in the sale of undeveloped land by promoters" in hearings held before the Senate Special Committee on Aging in 1964, and by its Securities Subcommittee in 1966-67. The Committee found that state law was inadequate to protect purchasers in interstate sales and federal enforcement mechanisms failed to provide any retroactive relief to innocent purchasers who may have lost "their entire life savings" by investing in shaky land deals. Report of the Committee on Banking and Currency, U.S. Senate to Accompany S3497, Housing and Urban Development Act of 1968, Sen.Rep.No.1123, 90th Cong.2d Sess., at 109. Modelled in large part on the Securities Act of 1933, the legislation was intended to

 
"give the purchaser [of land] such information necessary to make his own determination of the quality of what is being sold . . . the seller of undeveloped land covered by this title would be required to inform the purchaser not only of the desirable but also of any undesirable aspects." Id. at 110.

 In broad outlines, the Act requires developers of nonexempt land *fn3" to file with the Secretary of Housing and Urban Development (HUD) a "statement of record," which includes information on various subjects required by statute, and any other information required by the Secretary as necessary to protect potential purchasers. 15 U.S.C. §§ 1704, 1705. Nonexempt land may not be sold until the statement of record becomes effective, and the Secretary has power to suspend the effective dates of statements of records if it appears "on its face incomplete or inaccurate in any material respect." 15 U.S.C. § 1706(b). The Act expressly provides, however, that "[the] fact that a statement of record with respect to a subdivision has been filed or is in effect shall not be deemed a finding by the Secretary that the statement of record is true and accurate on its face, or be held to mean the Secretary has in any way passed upon the merits of, or given approval to, such subdivision." 15 U.S.C. § 1716.

 Developers are also required to prepare a "property report" containing any information in the statement of record, or any other information, which the Secretary "may by rules or regulation require as being necessary or appropriate in the public interest or for the protection of purchasers." 15 U.S.C. § 1707(a). The statement of record is available for public viewing under regulations prescribed by the Secretary; a property report must be furnished every prospective purchaser before she signs any land sales contract. 15 U.S.C. § 1703(a)(1), (b).

 Section 1709 of the Act establishes a civil cause of action in the federal district court by purchasers of land against developers or their agents who fail to comply with its requirements. Section 1703, incorporated by reference in § 1709(b)(1), further defines prohibited acts. Claims under §§ 1709(a) and 1709(b)(2) are essentially for misstatements or omissions in the reports required to be filed with HUD or delivered to the purchaser, whereas claims under § 1709(b)(1) for violation of § 1703 encompass a broader range of fraudulent behavior.

 A developer may be sued for violating § 1709(a) whenever a statement of record contained "an untrue statement of a material fact or omitted to state a material fact required to be stated therein," and the purchaser brought land during the time the statement remained uncorrected. Suit under § 1709(b)(2) is authorized against a developer, or his agent, who "sells or leases a lot . . . by means of a property report which contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein." These provisions depart from the familiar language of § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77 l, on which they were modelled, which prohibits omissions of material facts "necessary in order to make the statements, in light of the circumstances under which they were made, not ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.