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CRANBERRY HILL CORP. v. SHAFFER

March 4, 1986

CRANBERRY HILL CORPORATION, Plaintiff,
v.
GAIL S. SHAFFER, as New York State, SECRETARY OF STATE, Defendant



The opinion of the court was delivered by: MCCURN

NEAL P. McCURN, D.J.

MEMORANDUM-DECISION AND ORDER

 This action presents a constitutional challenge to Article 9-A of the New York Real Property Law, N.Y. Real Prop. Law §§ 337 et seq. (McKinney 1968 and Supp. 1986), and the regulations promulgated thereunder, 19 N.Y.C.R.R. Part 135. Plaintiff seeks an order declaring Article 9-A invalid under the Commerce Clause, the First Amendment, and the Fourteenth Amendment to the Constitution and enjoining its enforcement. Presently before the court is plaintiff's motion for summary judgment. Because the court finds that Article 9-A and the regulations promulgated thereunder violate the Commerce Clause, the court grants plaintiff's motion.

 BACKGROUND

 Plaintiff Cranberry Hill Corporation is a Pennsylvania corporation with its principal place of business in Pennsylvania It owns and sells lots in the Penn Estates Subdivision located in Analomink, Pennsylvania. The subdivision is approximately eighty miles from New York City. Because of its proximity to New York, plaintiff markets extensively in New York State. According to plaintiff, New York residents have purchased approximately sixty percent of the lots that plaintiff has sold in the subdivision.

 Article 9-A of New York's Real Property Law, N.Y. Real Prop Law §§ 337 et seq., governs the sale and lease of out-of-state subdivision lots. Under Article 9-A subdividers of out-of-state lots must file with the New York Department of State an offering statement containing certain specified information about the lots offered and the subdivider. N.Y. Real Prop. Law §§ 337-a, 337-b. They must also submit all proposed advertising for the State's approval. N.Y. Real Prop. Law § 337-b(3); 19 N.Y.C.R.R. § 135.17 The state charges a filing fee for each offering statement and advertisement. N.Y. Real Prop. Law §§ 337-b(3), 339. Sections 338, 339-b, and 339-c give the Department of State various investigative and enforcement powers. Article 9-A provides criminal sanctions for violations of the act, and the Department of State may seek injunctive relief against an offending subdivider, including a permanent injunction prohibiting the subdivider from marketing its lots to consumers in New York Stat N.Y. Real Prop. Law §§ 338, 339-c(1). The act also contains a revocation provision that gives a purchaser or lessee the right to cancel within ten days any contract with a subdivider which the purchaser or lessee entered into without representation by a attorney. N.Y. Real Prop. Law § 337-c.

 Article 9-A and its regulations apply to subdividers selling or leasing out-of-state lots under any method of sale. It also applies to subdividers selling or leasing instate lots under an installment plan. However, the act does not apply to subdividers who market instate lots by any method other than an installment plan, such as a mortgage or full cash payment. *fn1"

 Plaintiff sells its lots for either full cash consideration or a down payment and purchase money mortgage. Because it is marketing out-of-state subdivision lots in New York, it is subject to Article 9-A. Plaintiff is also subject to the United States Department of Housing and Urban Development's (HUD) regulation under the Interstate Land Sales Act, 15 U.S.C. §§ 1701 et seq. (1983). Like Article 9-A, the Interstate Land Sales Act contains numerous disclosure requirements. Cranberry Hill has made the necessary disclosures mandated by the federal act and has filed its offering statement under Article 9-A.

 On August 9, 1985, the New York Post published an unauthorized article concerning plaintiff's subdivision. The press release stated that skiing and snowmobiling were available to purchasers. In fact, skiing and snowmobiling are not available at the subdivision but are located several miles away. The New York Department of State found the news article misleading and suspended plaintiff's authorization to market its lots in New York State for two months. The State has voluntarily stayed the suspension pending the outcome of this motion.

 On September 30, 1985, plaintiff filed the present complaint against defendant Gail S. Shaffer, New York's Secretary of State The complaint alleges that Article 9-A and the regulations promulgated thereunder unlawfully discriminate against out-of-state subdividers in violation of the Commerce Clause and that the advertising restrictions constitute an impermissible prior restraint on plaintiff's commercial speech in violation of the First Amendment. Plaintiff also alleges that the suspension is arbitrary and violates plaintiff's due process rights. *fn2" Cranberry Hill seeks relief declaring Article 9-A and its regulations null and void and enjoining defendant from enforcing Article 9-A.

 Plaintiff, contending that the Constitutional issues presented in this action can be determined as a matter of law, moves for summary judgment.

 DISCUSSION

 The Commerce Clause gives Congress the power to regulate interstate trade. U.S. Const. art. 1, § 8, cl. 3. *fn3" Its purpose is to prevent commercial parochialism and promote free trade among the states. The Supreme Court has explained:

 It has long been the law that States may not "build up [their] domestic commerce by means of unequal and oppressive burdens upon the industry and business of the States." Guy v. Baltimore, 100 U.S. 434, 443 , 25 L. Ed. 743 (1880). Were it otherwise, "the trade and business of the country [would be] at the mercy of local regulations, having for their object to ...


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