The opinion of the court was delivered by: Denise Cote, District Judge
This dispute arises out of the efforts of the plaintiffs, purchasers of units in a condominium development in New York City, to rescind their purchase agreements based on alleged violations of the registration and disclosure requirements of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701-1720 (2009) ("ILSA" or the "Act"). The developer and its managing members, defendants here, claim that the condominium qualifies for certain exemptions under the Act. The interpretation of the Act, specifically the applicability of the exemptions invoked by defendants, is a matter of first impression in this circuit. For the following reasons, the condominium development is exempt from the Act's registration and disclosure requirements. Plaintiffs' claims are therefore dismissed and judgment is entered in favor of defendants.
The following facts are undisputed. Defendant Fifth On The Park Condo, LLC ("Fifth"), is the sponsor of a new condominium development known as Fifth on the Park Condominium (the "Condominium") located at 1485 Fifth Avenue, New York, New York. Defendants Eytan Benyanin and Robert Ezrapour (the "individual defendants," and collectively with Fifth, the "defendants") are the managing members of Fifth Equities, LLC, the managing member of Fifth. On April 5, 2007, a New York State Offering Plan (the "Offering Plan") was filed with the New York State Attorney General's Office on behalf of the Condominium which indicated that the Condominium would consist of 160 residential units.*fn1
Sales of units in the Condominium began in or around 2007. Plaintiffs Lola Bodansky ("Bodansky"), Steve Bergen ("Bergen"), and Lynne Schalman ("Schalman") (collectively, the "plaintiffs") are purchasers of units in the Condominium. On June 15, 2007, Bergen and Schalman signed a contract to purchase Unit 11F in the Condominium for $999,999 and paid a deposit of $49,999. On November 16, 2007, Bodansky signed a contract to purchase Unit 18/19B in the Condominium for $1,430,400 and paid a deposit of $143,000. Prior to executing their contracts to purchase units in the Condominium, plaintiffs were provided a copy of the Offering Plan, including all amendments that were in effect on the date that they signed their contracts.
In early 2009, the plaintiffs began to explore ways to get out of their contracts. By letter dated April 29, 2009, Bodansky sent a letter notifying Fifth that she intended to rescind her purchase agreement due to Fifth's violation of the registration and disclosure requirements of ILSA. Bergen and Schalman sent a similar notice to Fifth on June 2, 2009.
Plaintiffs claimed that since Fifth did not provide them with a written property report for the Condominium prior to signing purchase agreements, as required for all non-exempt units in a condominium covered by the Act, they were entitled to rescission of their purchase agreements and return of their deposits. It is not disputed that plaintiffs gave defendants timely notice of their intent to rescind their purchase agreements pursuant to the Act.
Defendants first learned of ILSA in January 2009. Defendants concede that they did not file a statement of record for the Condominium with the federal Department of Housing and Urban Development ("HUD"), provide plaintiffs with a written property report prior to execution of their purchase agreements, or include any reference to ILSA or its requirements in the purchase agreements signed by plaintiffs. Defendants refused to rescind plaintiffs' contracts or to return their deposits. On May 18, Bodansky filed a complaint seeking rescission of her contract, return of her deposit, accrued interest, and attorneys' fees and costs pursuant to ILSA, 15 U.S.C. § 1709. Bergen and Schalman filed a similar complaint on July 20.*fn2
On May 26, 2009, defendants received notice that HUD was conducting an investigation into whether the Condominium complied with ILSA's registration and disclosure requirements. On August 18, defendants responded to the HUD inquiry indicating that only ninety residential units in the Condominium were either subject to a contract for sale or had been sold at that time.*fn3 The August 18 letter further indicated that defendants would not enter into any more contracts for the sale of additional units in the Condominium prior to the issuance of a temporary certificate of occupancy ("TCO") for all units in the building.*fn4 Based on these contentions, defendants represented to HUD that the Condominium is exempt from ILSA's registration and disclosure requirements pursuant to 15 U.S.C. §§ 1702(b)(1) and 1702(a)(2). Between defendants' response to HUD on August 18, and the issuance of a TCO for the entire Condominium on September 10, defendants did not enter into any contracts to sell additional units in the Condominium. HUD has not notified the defendants that it has made any determination regarding Fifth's compliance with the Act.
A bench trial was scheduled for January 26, 2010. The parties filed their pretrial submissions on December 18, 2009. Each party filed a responsive memorandum of law on January 15, 2010. At a final pretrial conference held on January 22, the parties stipulated that the matter could be decided based on their written submissions. This Opinion constitutes the Court's findings of fact and conclusions of law.
This dispute hinges on the interpretation of ILSA, specifically the exemptions invoked by defendants. The parties agree that Fifth is subject to certain of the Act's provisions, but disagree as to whether Fifth is exempt from the Act's registration and disclosure requirements.
ILSA was enacted as part of the Housing and Urban Development Act of 1968, Pub. L. No. 90-448, Title XIV, 82 Stat. 590 (1968), and was extensively amended in 1979. See Pub. L. No. 96-153, Title IV, 93 Stat. 1122 (1979). The Act was "designed to prevent false and deceptive practices in the sale of unimproved tracts of land by requiring developers to disclose information needed by potential buyers." Flint Ridge Dev. Co. v. Scenic Rivers Ass'n of Okla., 426 U.S. 776, 778 (1978). The Act makes it unlawful for a developer of a covered "subdivision"*fn5 to "make use of any means or instruments of transportation or communication in interstate commerce, or of the mails . . . to sell or lease any lot unless a statement of record with respect to such lot is in effect . . . [and] a printed property report . . . has been furnished to the purchaser or lessee in advance of the signing of any contract or agreement by such purchaser or lessee." 15 U.S.C. § 1703(a)(1); see also 24 C.F.R. § 1710.3.*fn6
The printed property report, which is a condensed version of the statement of record filed with HUD, is prepared by the developer. It contains extensive information concerning the title of the land; the terms and conditions for disposing of lots; the conditions of the subdivision, including access, noise, safety, sewage, utilities, proximity to municipalities, and the nature of the developer's proposed improvements; various other specified data; and such additional matters "as the Secretary [of HUD] may require as being reasonably necessary or appropriate for the protection of purchasers." See 15 U.S.C. §§ 1705, 1707. Unless an exemption applies, the developer must provide the property report to the purchaser prior to executing the purchase agreement. Id. § 1703(a)(1)(B). If the developer fails to do so, the purchaser has the option of revoking her contract within two years from the date of ...