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Lola Bodansky, Michael Schneider, Nicholas Danellis v. Fifth On the Park Condo

March 15, 2011

LOLA BODANSKY, MICHAEL SCHNEIDER, NICHOLAS DANELLIS, DAVID BARSTOW, BRIAN R. SMITH, JOHN MCATEER, G. WILLIAM HUNTER, ROBYN HUNTER, STEVE BERGEN, LYNNE SCHALMAN, POH L. ANG, CAROLINA RODRIGUEZ, LING P. ANG, JKP, LLC, RICHARD D. MEADOW, PLAINTIFFS-APPELLANTS,
v.
FIFTH ON THE PARK CONDO, LLC, EYTAN BENYAMIN, ROBERT EZRAPOUR, DEFENDANTS-APPELLEES. DANIEL ROMERO, JOANN RAGUSA, WILLIAM LEE, SZUYU PAN, KYUNG YEOL SHIN, LORA KAYE, JOHN GAENZLER, SARA MOSCOSO-GAENZLER, ANTHONY ALLICINO, JULIE LIEVRE, DAVID LIEVRE, ZACK FERGUSON-STEGER, PLAINTIFFS-APPELLANTS,
v.
BORDEN EAST RIVER REALTY LLC, DEFENDANT-APPELLEE.*FN1



The opinion of the court was delivered by: Pooler, Circuit Judge:

10-0720-cv(L)& 10-1147-cv

Bodansky et al. v. Fifth on the Park Condo et al. & Romero et al. v. Borden East River Realty LLC

Argued in Tandem: January 10, 2011

POOLER, KATZMANN, and WESLEY, Circuit Judges.

Defendants-Appellees, developers or agents who sold uncompleted condominium units to Plaintiffs-Appellants, claim that those sales are exempt from the disclosure requirements of the Interstate Land Sales Full Disclosure Act ("ILSA"), 15 U.S.C. §§ 1701-20, and therefore the Plaintiffs-Appellants cannot revoke their contracts. In particular, Defendants-Appellees argue that ILSA's 100-lot exemption, id. § 1702(b)(1), is determined as of the date 100 or more nonexempt lots in that subdivision have been or cannot be sold or leased. We disagree. Whether a lot is exempt under the 100-lot exemption is determined as of the time a purchaser or lessee signs a contract to purchase or lease that lot. Accordingly, the district courts' judgments in the tandem appeals are VACATED and the cases are REMANDED to the district courts from which they were appealed.

This case requires us to determine the extent to which a federal consumer protection law, the Interstate Land Sales Full Disclosure Act ("ILSA"), 15 U.S.C. §§ 1701-20, protects individual buyers or lessees who purchase or lease lots in large, uncompleted housing developments. Defendants-Appellees, developers or agents who sold condominium units to Plaintiffs-Appellants, claim that those sales are exempt from the disclosure requirements of ILSA, and therefore the Plaintiffs-Appellants cannot revoke their contracts. In particular, Defendants-Appellees argue that ILSA's 100-lot exemption, id. § 1702(b)(1), is determined as of the date 100 or more nonexempt lots in that subdivision have been or cannot be sold or leased. We disagree. Purchasers and lessees are entitled to know at the time of contract signing, or at a statutorily-defined period thereafter, whether developers must provide them with a property report disclosing information about the lot. Whether a lot is exempt under the 100-lot exemption is determined as of the time a purchaser or lessee signs a contract to purchase or lease that lot. The 100-lot exemption is not determined at an uncertain date in the future when the developer actually sells or leases (or conclusively does not sell or lease) 100 or more nonexempt lots. Accordingly, the district courts' judgments in the tandem appeals are VACATED and the cases are REMANDED to the district courts from which they were appealed.

I.

A.

On April 5, 2007, Appellees Fifth on the Park Condo, LLC, Eytan Benyamin, and Robert Ezrapour (collectively, "Fifth") filed a New York State Offering Plan with the state attorney general, indicating that they intended to offer for sale 160 residential condominium units at 1485 Fifth Avenue in Manhattan, across from Marcus Garvey Park.

From June 2007 to May 2008, the Bodansky plaintiffs*fn2 signed contracts to purchase residential units in Fifth's condominium and paid deposits ranging from $28,085 to $167,520. Before contract signing, Fifth provided the Bodansky plaintiffs with the most recent New York State Offering Plan. Fifth concedes, however, that it did not file a statement of record for the condominium with the U.S. Department of Housing and Development ("HUD"), did not provide the Bodansky plaintiffs with a written property report before contract signing, and did not refer to ILSA or its requirements in the contracts signed by the Bodansky plaintiffs.

Within two years of signing their contracts, the Bodansky plaintiffs sent letters to Fifth, purporting to revoke and rescind their contracts under ILSA and demanding a refund of all money paid to Fifth. Fifth refused to rescind the contracts or return their deposits. The Bodansky plaintiffs then filed lawsuits against Fifth in the United Stated District Court for the Southern District of New York, seeking rescission of their contracts, return of their deposits, interest, and attorneys' fees and costs.

On September 10, 2009, Fifth received a Temporary Certificate of Occupancy (TCO) for its condominium building. As of that date, 90 residential units in Fifth's condominium were subject to a contract of sale or had been sold.

On January 22, 2010, plaintiffs Bergen, Bodansky, and Schalman stipulated with Fifth that their claims could be resolved in a bench trial on their written submissions. Pending resolution of that lawsuit, the district court (Cote, J.) stayed the cases against Fifth that the other Bodansky plaintiffs brought in the Southern District of New York.

On January 29, 2010, the district court held that Fifth is exempt from ILSA's registration and disclosure requirements. Specifically, the district court found that because Fifth had sold fewer than 100 residential units before Fifth received a TCO, the remaining units qualified for ILSA's improved-lot exemption, and thus the Bodansky plaintiffs' units qualified for ILSA's 100-lot exemption. Therefore, the district court concluded that Fifth did not violate ILSA by failing to provide the Bodansky plaintiffs with a property report before they signed their purchase agreements. The district court specifically rejected the argument that ILSA's 100-lot exemption is determined as of the date a contract is signed to purchase or lease a lot. The district court then dismissed Bodansky, Bergen, and Schalman's claims and entered judgment for Fifth. After issuing Orders to Show Cause why the cases brought by the other Bodansky plaintiffs should not be dismissed, the district court dismissed those cases as well, citing its Bodansky decision. The Bodansky plaintiffs timely appealed to this Court, arguing that the units they purchased were not exempt from ILSA's registration and disclosure requirements at the time of their purchase.

B.

On September 11, 2007, Borden East River Realty LLC ("Borden") filed a New York State Offering plan with the state attorney general, indicating that it sought to sell 132 residential units, 26 roof terrace units, and 25 parking space units. Borden sought to sell condominium units in Hunters Point Condominium in Long Island City, New York. The Hunters Point project was promoted together with a similarly-named project, Hunters View Condominium, sponsored by 11/49 Condominium. On the same day the Hunters Point offering plan was filed, 11/49 Condominium filed a New York State Offering Plan for Hunters View with the state attorney general, indicating that it sought to sell 73 residential units,*fn3 15 roof terrace units, and 37 parking space units.

From October 2007 to November 2008, the Romero plaintiffs*fn4 signed agreements to purchase uncompleted condominium units in Hunters Point and paid deposits ranging from $49,462 to $96,530. Borden does not dispute that neither it nor 11/49 Condominium filed a statement of record with HUD for Hunters Point or Hunters View. Nor does Borden dispute that it did not provide the Romero plaintiffs with written property reports before contract signing and did not refer to ILSA or its requirements in the contract signed by the Romero plaintiffs. Within two years of signing their contracts, the Romero plaintiffs notified Borden that they intended to rescind their contracts, alleging that Borden violated ILSA's disclosure requirements. Borden refused to rescind the Romero plaintiffs' contracts or return their deposits. The Romero plaintiffs then sued Borden in the United States District Court for the Eastern District of New York.

On February 17, 2009, Borden received a Temporary Certificate of Occupancy (TCO) for Hunters Point. At that time, 57 units were unsold and 75 had been sold, including one on the day Borden received the TCO. On March 12, 2009, 11/49 Condominium received a TCO for Hunters View. At that time, 47 units were unsold, two units were combined into a single unit, and 25 units had been sold, including one to a purchaser who purportedly acquired it to resell or lease.

On May 14, 2009, the district court (Ross, J.) ordered all pending ILSA matters against Borden to be referred to her. In January 2010, the parties filed cross-motions for summary judgment.

On July 15, 2009, HUD issued an advisory opinion finding the Hunters Point project was not exempt under the Act because its parking units and rooftop units were "lots" under ILSA. Two days later, on July 17, HUD issued another advisory opinion that did not include parking units and rooftop units in the calculation and determined that Hunters Point was exempt under ILSA. HUD did not explain its reasoning or the disparity between the advisory opinions.

On March 12, 2010, the district court decided the parties' cross-motions for summary judgment. First, relying in part on Judge Cote's opinion, the district court rejected the Romero plaintiffs' argument that the 100-lot exemption is determined at the time of contract signing for a lot. Rather, the district court held that a developer qualifies for the 100-lot exemption until it sells or leases 100 nonexempt lots. After aggregating the number of nonexempt units sold or leased as part of a common promotional plan at Hunters Point and Hunters View, the district court found that those projects had sold or leased only 98 nonexempt units by the time they received TCOs. The district court found that the units not yet sold or leased at the time Hunters Point and Hunters View received TCOs qualified for ILSA's improved-lot exemption. Thus, the district court held that both projects were exempt from ILSA's registration and disclosure requirements and granted Borden's motion for summary judgment. The Romero plaintiffs timely appealed.

C.

Fifth and Borden do not dispute that (1) they did not provide Plaintiffs-Appellants with printed property reports in advance of signing; and (2) the condominium units purchased by Plaintiffs-Appellants are "lots" in a "subdivision" under ILSA. Nor do Fifth and Borden challenge the timeliness of Plaintiffs-Appellants' notices of revocation. Rather, the parties principally dispute whether ILSA's 100-lot exemption applies to the condominium lots at issue. Plaintiffs-Appellants argue that the exemption is determined as of the time of contract signing, and argue that at those times, Fifth and Borden's projects contained 100 or more nonexempt lots. Fifth and Borden seek to uphold the district courts' judgments, arguing that the 100-lot exemption applies until a developer in fact sells or leases 100 or more nonexempt lots.

II.

...


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