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Tencza v. Tag Court Square, LLC

United States District Court, Second Circuit

June 6, 2013

DARIUS TENCZA and MARINA TENCZA, Plaintiffs,
v.
TAG COURT SQUARE, LLC, Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

Darius and Marina Tencza (collectively, "the Tenczas") bring this suit against condominium developer/sponsor TAG Court Square, LLC ("TAG") under the Interstate Land Sales Full Disclosure Act ("ILSA"[1]), 15 U.S.C. §§ 1701 et seq. The Tenczas seek to revoke their purchase of a condominium unit pursuant to ILSA, because, they allege, TAG failed to file a statement of record with the Secretary of Housing and Urban Development ("HUD")[2] and to provide a statutorily-required property report. The parties have cross-moved for summary judgment.

For the reasons that follow, the Tenczas' motion for partial summary judgment as to liability is granted, and TAG's motion for summary judgment is denied.

I. Background

A. ILSA

Congress enacted ILSA in 1968 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 (1976). To achieve this goal, ILSA imposes certain disclosure requirements on developments. Relevant here, ILSA "requires developers to submit a statement of record' to HUD, and wait until such statement is in effect'... before selling or leasing any nonexempt lot." Bodansky v. Fifth on Park Condo, LLC, 635 F.3d 75, 81 (2d Cir. 2011) (citing 15 U.S.C. § 1703(a)(1)(A)). With respect to nonexempt lots, ILSA also makes it unlawful to sell or lease any lot where a property report has not been provided to the purchaser before he or she has signed an agreement. 15 U.S.C. § 1703(a)(1)(B). The statement of record and property report must include, among other information, a legal description of the subdivision, a statement of the condition of title to the land, copies of the deed, and information about the developer, including financial statements. Id. §§ 1705, 1707.

Certain types of sales are exempted from ILSA's disclosure requirements. The single exemption relevant here is the so-called "Improved-Lot Exemption, " which excuses from compliance with ILSA "the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial building." Id. § 1702(a)(2).

Congress provided that if a developer sells or leases a nonexempt lot in violation of this disclosure provision, "such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing." Id. § 1703(c). The Tenczas seek to enforce that right pursuant to § 1709(b), which provides a cause of action at law or in equity to the purchaser against the seller or lessor.

B. Facts[3]

The Tenczas are residents of New York City. Pl. 56.1 ¶ 1. TAG is a Delaware limited liability company. Pl. 56.1 ¶ 2.

The property at issue in this case is the Arris Lofts Condominium (the "Condominium"), located at 27-28 Thomas Avenue, Queens, New York. Pl. 56.1 ¶ 5. TAG is the sponsor of the Condominium and of its conversion from industrial use, pursuant to an offering plan and amendments filed with the New York Law Department (the "Offering Plan"). Pl. 56.1 ¶ 6; Def. 56.1 ¶ 1. The Condominium consists of 237 residential units, 17 work studies, and 102 storage bins, all of which (save one residential unit) were offered for sale under the Offering Plan. Pl. 56.1 ¶¶ 8-9.

It is undisputed that TAG did not file a statement of record for the Condominium with HUD. Pl. 56.1 ¶¶ 18, 55.

During a two-to-three month period in 2007, the Tenczas visited the Condominium three or four times. Def. 56.1 ¶ 8. In May 2007, the Tenczas and TAG entered into a purchase agreement ("the Purchase Agreement") for Unit 800 (the "Unit") of the Condominium. Pl. 56.1 ¶ 19; Def. 56.1 ¶ 28. Under the Purchase Agreement, the Tenczas were to pay $2, 995, 000 for Unit 800, with $299, 500 due at the signing. Pl. 56.1 ¶¶ 25-26; Def. 56.1 ¶ 32.

On May 8, 2007, pursuant to a rider to the Purchase Agreement, the parties agreed to make certain modifications to the Unit. See Fleiss Decl. Ex. 8 (the "Rider"). Although the parties disagree on the various facts of the negotiations that led to the Rider, see Pl. 56.1 ¶ 28; Def. 56.1 ¶ 33, the Rider itself is clear. It expressly amends and modifies the Purchase Agreement. It reaffirms the purchase price of $2, 995, 000 and provides for modifications to the floor plan. Specifically "[a]t Purchaser's request, Sponsor has agreed to deliver the Unit at closing without constructing the wall separating the Living/Dining Room/Kitchen and Bedroom 3." Rider 2. This had the effect of creating a three-bedroom unit, whereas the original plan envisioned a four-bedroom unit. In addition, the Rider provides for a credit of $140, 000 to be "credited to the Purchaser as an adjustment at the closing of title to the Unit." Id.

The parties dispute various events that occurred between May 2007 and April 2008. It is undisputed, however, that, during that period, construction on the Unit continued and that the Tenczas visited the Unit a number of times. Def. 56.1 ¶¶ 35-36; Tencza Dep. 46-49. Also undisputed is that (1) on or about June 19, 2007, the Tenczas received a title report for Unit 800, Def. 56.5 ¶ 34; and (2) on or about January 25, 2008, during a visit to the Unit, the Tenczas inspected the Unit and identified items of "punch list" work they claimed still needed to be done, Def. 56.1 ¶ 42.

On April 16, 2008, the New York City Department of Buildings issued a temporary certificate of occupancy ("TCO") for the entire Condominium, including Unit 800. As of this date, the parties agree that the Unit was physically habitable and ready for occupancy. Soloway Decl. Ex. N; Def. 56.1 ¶¶ 43, 45-46. The following day, the Tenczas were notified by email of the TCO. Soloway Decl. Ex. Q; Def. 56.1 ¶ 48.

On April 28, 2008, the Tenczas and TAG entered into an agreement. It states that "as a condition of the closing, Unit Owner requested and Sponsor performed certain punch list work, " but that "there remain a few items from the Punch List Work which have not been completed in the Unit as of the date hereof." See Fleiss Decl. Ex. 11 (the "Punch-List Agreement"); Def. 56.1 ¶ 55. TAG agreed to complete the remaining punch-list work in a timely manner. See Punch-List Agreement ¶ 1. In return, the Tenczas agreed to the following "as-is" clause:

Unit Owner (i) accepts the Unit in its "as is" condition on the date hereof and (ii) Unit Owner hereby releases and forever discharges Sponsor and its successors and/or assigns, from all manner of actions, causes of action, suits, debts, dues, sums of money, damages, claims and demands whatsoever in law or equity, which Unit Owner, its successors and assigns ever had, now have, or may have, now or hereafter upon or by reason of any matter arising from or out of the Punch List Work (other than the Surviving Punch List Work).

Id. ¶ 2. The Punch-List Agreement, dated April 28, 2008, recites that "the closing of title to the Unit has occurred as of the date of this Agreement." Punch-List Agreement 1. Notwithstanding this provision, the parties (as discussed infra pp. 13-15) dispute when the closing on Unit 800 occurred. Pl. 56.1 ¶ 35.

Approximately nine months later, in or around the end of 2008 and the beginning of 2009, the Tenczas moved into the Unit. Tencza Dep. 76-77; Def. 56.1 ¶ 63.

After moving into the Unit, the Tenczas made some changes to it, although, as discussed below, see infra pp. 22-23, the parties dispute the precise nature and characterization of these changes. The Tenczas admit that they (1) had the walls painted and the windows tinted, (2) hung window treatments, (3) added pavers on the terrace, and (4) installed electrical outlets and lighting fixtures, a sound system, an alarm system, and an unattached "island" in the kitchen. Pl. 56.1 ¶ 37; Def. 56.1 ¶ 64. TAG does not dispute these facts, but adds that the pavers added by the Tenczas were installed on areas of the terrace and roof space that had already been completed by TAG, and that the kitchen island, although unattached, is so large as to be immovable without mechanical assistance. Pl. 56.1 ¶ 37; Def. 56.1 ¶¶ 65-66.

On April 23, 2009, the Tenczas, via their lawyer, sent a letter to TAG stating that they were exercising their right to revoke the Purchase Agreement under §§ 1703(c) and (e) of ILSA. Fleiss Decl. Ex. 10; Pl. 56.1 ¶ 38. The letter stated that upon receipt of the purchase price of the condominium, plus closing costs, apportionments, and accrued interest, the Tenczas would tender the deed and convey the Unit back to TAG. Fleiss Decl. Ex 10. The record does not reflect whether TAG responded to this letter, only that it is undisputed that "TAG refused to acknowledge or honor the Tenczas' revocation." Pl. 56.1 ¶ 39.

On May 6, 2010, the Tenczas filed their Complaint in this action. Dkt. 1 ("Compl."). Their single cause of action is based on ILSA. The Tenczas ask the Court to "revoke[e] and rescind[] the Purchase Agreement and award[] Plaintiffs the amount of $2, 880, 000 with interests, costs, and attorney's fees." Compl. ¶¶ 32-37.

Separately, on May 25, 2010, the Tenczas, along with other unit owners in the Condominium, filed suit in state court against TAG and others (the " Trice litigation"). See Fleiss Decl. Ex. 26. The Trice plaintiffs alleged breach of contract, fraud, negligence, and unjust enrichment, and sought $20 million in money damages. This lawsuit is relevant here solely insofar as TAG has asserted an affirmative defense of waiver, see Ans. ¶ 85, in which it argues that the Tenczas' participation in the Trice litigation is inconsistent with this action and estops them from seeking revocation. On December 19, 2012, an amended summons and second amended complaint were filed in the Trice litigation, which list "The Board of Managers of the Arris Lofts Condominium" as the plaintiff, rather than the individual unit owners. Fleiss Decl. Ex. 27. The Tenczas are no longer listed as plaintiffs.

The Tenczas continue to reside in the Unit. Pl. 56.1 ¶ ...


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