Bertha Hillman v. Emerson Loga, III , 697 F.3d 299 ( 2012 )

Case: 11-60868 Document: 00512002639 Page: 1 Date Filed: 09/28/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 28, 2012
No. 11-60868 Lyle W. Cayce
Clerk
BERTHA MOSELEY HILLMAN; TOXEY G. COLLINS; JOE MICHAEL
MAYO; WILLIAM THOMAS COTTOM, JR.; NUMA L. MARQUETTE, JR.;
GAIL MARQUETTE; JAMES M. WARNER; CONSTANCE M. WARNER;
MICHAEL ELLIS; KELLY ELLIS; M. ELLIS FAMILY HOLDINGS, L.L.C.,
Plaintiffs-Appellants
v.
EMERSON P. LOGA, III; DENNIS STIEFFEL; DOUGLAS R. JOHNSON,
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Mississippi
Before KING, SMITH, and HIGGINSON, Circuit Judges.
HIGGINSON, Circuit Judge:
Plaintiffs-Appellants appeal the district court’s grant of summary
judgment in favor of Defendants-Appellees, based on the district court’s finding
that the 24-month construction obligations in the Purchase Agreements1 were
1
The Purchase Agreements that Lacote executed with Plaintiffs-Appellants Bertha
Hillman; Michael Ellis, Kelly Ellis and M. Ellis Family Holdings; Toxey G. Collins; Joe
Michael Mayo; William Thomas Cottom, Jr.; Numa L. Marquette, Jr.; Gail Gilly Marquette;
Constance M. Warner; and James M. Warner contain identical relevant provisions for the
purposes of this dispute and will be collectively referred to as the “Purchase Agreements.”
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not illusory and, therefore, the parties’ contracts are exempted from the
Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701, et seq., (“ILSA”).
FACTS AND PROCEEDINGS
Plaintiffs-Appellants (“Purchasers”) each owned condominium units at the
Village at Henderson Point (the “Village”) located in Pass Christian, Mississippi.
Hurricane Katrina destroyed the condominium complex in August 2005. In
early 2007, Purchasers retained Lacote, LLC (“Lacote”) to rebuild the complex
in the same location. Lacote was made up of three members, Emerson P. Loga,
III (“Loga”) and Dennis Stieffel (“Stieffel”), and Douglas Johnson (“Johnson”).2
In furtherance of the plan to develop and construct the new condominium
complex, Lacote acquired the Village property from the Purchasers. The
purchase was financed through Trustmark National Bank (“Trustmark”), which
received a first position lien on the property and committed to provide
construction financing for the project.
Prior to construction, Purchasers executed Purchase Agreements and
made deposits with Lacote for the purchase of individual units once the complex
was completed. The Purchase Agreements stipulated that construction of the
units would be completed within two years of the execution of the Agreements.
Construction began in January 2008, but Lacote did not have adequate
funding and stopped construction in June of that year, when the project was only
35% complete.3 Lacote thus obtained a second construction loan from SI Realty
Enterprises, Inc. (“SI Realty”) in the amount of $1.5 million. SI Realty secured
its loan with a second position lien through a deed of trust against the property.
2
Although Johnson was named as a defendant in the complaint, he was never served
with process. Plaintiffs-Appellants informed the district court that they had exhausted efforts
to locate Johnson and therefore agreed to dismiss their claims against Johnson without
prejudice.
3
At the expiration of the two-year construction period provided for in the Purchase
Agreements, Lacote still had completed only 35% of construction on the property.
2
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Trustmark allegedly backed out of its commitment to finance the project
and Lacote thereafter could not make its loan payments to SI Realty. SI Realty
purchased Trustmark’s first lien and foreclosed on the property in January 2009.
Lacote filed for, and has been discharged from, bankruptcy.
Purchasers filed the instant lawsuit in May 2010 alleging that Loga,
Stieffel, and Johnson, as individual members of Lacote, violated the anti-fraud
provisions of the ILSA, 15 U.S.C. § 1703(a)(2).4 The parties filed cross-motions
for summary judgment and the district court granted summary judgment in
favor of Loga and Stieffel. The district court concluded that because the
Purchase Agreements contain an obligation to complete construction within two
years, the sales are exempt from the ILSA’s requirements, see 15 U.S.C. §
1702(a)(2), and Loga and Stieffel therefore cannot be held liable under the ILSA.
STANDARD OF REVIEW
This court reviews “a district court’s grant of summary judgment de novo,
applying the same standards as the district court.” Noble Energy Inc. v.
Bituminous Cas. Co., 529 F.3d 642, 645 (5th Cir. 2008). Summary judgment is
thus proper when “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “Where
the record taken as a whole could not lead a rational trier of fact to find for the
non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted). “Doubts
are to be resolved in favor of the nonmoving part, and any reasonable inferences
are to be drawn in favor of that party.” Gowesky v. Singing River Hosp. Sys., 321
F.3d 503, 507 (5th Cir. 2003).
4
Appellants assert that they must seek to impose liability under the ILSA against Loga
and Stieffel, individual members of Lacote, because Lacote (the Seller bound by the Purchase
Agreements) filed for and was discharged in bankruptcy, leaving Appellants with no available
remedy against Lacote if they were to pursue breach of contract claims. See 15 U.S.C. §§ 1703,
1709.
3
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The district court correctly stated that interpretation of the ILSA is
governed by federal law, see Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97
(1991), and that state law (in this case, the law of Mississippi) governs the
interpretation of the Purchase Agreements. ACS Constr. Co. of Miss. v. CGU,
332 F.3d 885, 888 (5th Cir. 2003).
DISCUSSION
The district court ruled that the Purchase Agreements are exempt from
the ILSA because the language imposing a 24-month construction term
requirement brings the agreements within the ILSA’s two-year building
exemption.5 The two-year building exemption is found in § 1702(a)(2) of the
ILSA and states in relevant part:
(a) Sale or lease of lots generally
Unless the method of disposition is adopted for the purpose of
evasion of this chapter, the provisions of this chapter shall not apply
to–. . .
(2) the sale or lease of any improved land on which there is a
residential, commercial, condominium, or industrial building, or the
sale or lease of land under a contract obligating the seller or lessor
to erect such a building thereon within a period of two years . . . .
15 U.S.C. § 1702(a)(2). Each of the Purchase Agreements states in relevant part:
COMPLETION DATE AND CONSTRUCTION.
a. Notwithstanding any other provision of this Agreement,
construction of the Unit shall be completed on or before twenty-four
(24) months or less from the date of execution of this Purchase
Agreement OR a Certificate of Occupancy has been issued by the
relevant building authority, whichever is sooner, provided, however,
that SELLER shall not be responsible for delays caused by
circumstances recognized by Mississippi law to constitute
impossibility of performance, such as war, strikes, insurrection, Acts
5
The ILSA is a consumer protection statute that “was enacted as a measure ‘to insure
that a buyer, prior to purchasing certain kinds of real estate, is informed of facts which will
enable him to make an informed decision about purchasing the property.’” Nickell v. Beau
View of Biloxi, L.L.C., 636 F.3d 752, 754 (5th Cir. 2011) (quoting Law v. Royal Palm Beach
Colony, Inc., 578 F.2d 98, 99 (5th Cir. 1978)).
4
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of God, or unanticipated shortage of building materials.
This language from the Purchase Agreements, on its face, obligates the Seller
(in this case, Lacote) to complete the building of the Village within 24 months,
as contemplated in the exemption articulated in 15 U.S.C. § 1702(a)(2).6
Appellants, however, contend that the 24-month building requirement
included in the Purchase Agreements is illusory because Appellants’ abilities to
seek damage and specific performance remedies are limited and, therefore, the
Purchase Agreements remain subject to the provisions of the ILSA. This court
has not yet set forth the exact parameters of the two-year exemption under §
1702(a)(2), but the Eleventh Circuit has construed, as a matter of federal law,
the two-year ILSA exemption to be limited to contracts that impose a “legal
duty” on the developer to construct a building within two years. See e.g., Stein
v. Paradigm Mirasol, LLC, 586 F.3d 849, 854 (11th Cir. 2009) (holding that in
order to qualify for the ILSA’s two-year exemption, the contract must impose a
legal duty on the developer to perform his promise to construct the condominium
within two years). “The nature and extent of the duty a contract imposes,
however, is a matter of state contract law.” Id.6
Federal district courts have held that contract provisions which allow for delays of
construction completion beyond the two-year period contemplated in 15 U.S.C. § 1702(a)(2) are
acceptable for purposes of qualifying for the two-year exemption if such delays “are legally
recognized as defenses to contract actions in the jurisdiction where the building is being
erected.” Barry v. Midtown Miami No. 4, LLC, 651 F. Supp. 2d 1320, 1326-27 (S.D. Fla. 2008)
(quoting HUD Guidelines); see Maguire v. Southern Homes of Palm Beach, LLC, 591 F. Supp.
2d 1263, 1268 (S.D. Fla. 2008); Mosher v. Southridge Assocs., Inc., 552 F. Supp. 1226 (W.D.Pa.
1982); see also Supp. Info. to Part 1710: Guidelines for Exemptions Available Under the ILSA
(“Contract provisions which allow for nonperformance or for delays on construction completion
beyond the two-year period are acceptable if such provisions are legally recognized as defenses
to contract actions in the jurisdiction where the building is being erected. For example,
provisions to allow time extensions for events or occurrences such as acts of God, casualty
losses or material shortages are generally permissible.”). Therefore, as Appellants concede,
the language in the Purchase Agreements stating, “SELLER shall not be responsible for delays
caused by circumstances recognized by Mississippi law . . . .” does not render the 24-month
construction requirement illusory.
5
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Under Mississippi law, a contract obligation is illusory if the words of the
agreement “‘do not purport to put any limitation on the freedom of the alleged
promisor, but leave his future action subject to his own future will, just as it
would have been had he said no words at all.’” Marshall Durbin Food Corp. v.
Baker, 909 So. 2d 1267, 1275 (Miss. Ct. App. 2005) (quoting Krebs ex rel. Krebs
v. Strange, 419 So. 2d 178, 182-83. (Miss. 1982)). “Such an illusory promise is
neither enforceable against the one making it, nor is it operative as a
consideration for a return promise.” Id.Mississippi law does not provide much guidance on whether creation of a
legal obligation requires both damages and also specific performance as
available remedies. Notably, the HUD Guidelines, which discuss what
constitutes an “obligation” for the purpose of § 1702(a)(2), state that:
[C]ontracts that directly or indirectly waive the buyer’s right to
specific performance are treated as lacking a realistic obligation to
construct. HUD’s position is not that a right to specific performance
of construction must be expressed in the contract, but that any such
right that purchasers have must not be negated. For example, a
contract that provides for a refund or a damage action as the buyer’s
sole remedy would not be acceptable.
Supp. Info. to Part 1710: Guidelines for Exemptions Available Under the ILSA
(hereafter, “HUD Gdl. Supp. to Pt. 1710”).7 This court has stated that while the
HUD Guidelines “are entitled to a degree of deference, we consider them only to
the ‘extent that those interpretations have the power to persuade[.]’” Nickell, 636
F.3d at 755 (quoting Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000))
(internal quotation marks omitted). The HUD Guidelines are unambiguous, and
no federal court has held to the contrary, that an obligation for the purpose of §
1702(a)(2) means that the availability of a specific performance remedy cannot
be negated. Compare HUD Gdl. Supp. to Pt. 1710 with, e.g., Ndeh v. Midtown
7
This document is available at
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/ils/ilsexemp.
6
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Alexandria, L.L.C., 300 F. App’x 203, 206–08 (4th Cir. 2008) (indicating that
specific performance must be available); Maguire, 591 F. Supp. 2d at 1269–70
(same); Pellegrino v. Koeckritz Dev. of Boca Raton, LLC, No. 08-cv-80164, 2008
WL 6128748, at *3 (S.D. Fla. July 10, 2008) (same).8 Ultimately, however, we
need not address whether a specific performance remedy necessarily need be
available in order to create a legal obligation because, as explained below, we
find that the language of the Purchase Agreements did not negate Purchasers’s
abilities to seek damage and specific performance remedies.
Although the district court’s Memorandum and Opinion and Order cites
five provisions of the Purchase Agreements that the district court considers
relevant to the question of whether the obligation to build within two years is
illusory, Appellants limit their argument to only two of these provisions. The
first of these provisions is the “Default” provision, found under Section 14 of the
Purchase Agreements.9 The language in the “Default” provision, “PURCHASER
shall be entitled to the refund of his downpayment as well as any other monies
he may have advanced SELLER” in the event of Seller’s default for any reason,
does not specifically limit Appellants’ available remedies under the Purchase
Agreements. Instead, the language “shall be entitled to” gives Purchasers the
8
Moreover, the Purchase Agreements are real estate contracts and Mississippi courts
consider “specific performance as a ‘particularly appropriate remedy’ in matters pertaining to
a breach of a real estate contract, because of real estate’s unique nature.” Houston v. Willis,
24 So.3d 412, 418 (Miss. Ct. App. 2009) (citation omitted).
9
The “Default” provision states, in relevant part:
b. If for any reason consummation of this transaction is prevented after
acceptance of this Agreement by SELLER’S default hereunder, the
PURCHASER shall be entitled to the refund of his down payment as well as
any other monies he may have advanced SELLER. Notwithstanding the
foregoing, to the extent that any of PURCHASER’S advanced monies has gone
into construction of improvements development on the property,
PURCHASER’S claim for return of such portion of the down payment shall be
subordinate to the lien(s) of the construction lender’s deed(s) of trust and shall
be the full responsibility of the SELLER to make the appropriate refund.
7
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option to seek a refund remedy.10 Mississippi law emphasizes the importance of
specific language to negate a party’s ability to sue for specific performance or
damages, see Osborne v. Bullins, 549 So. 2d 1337, 1339 (Miss. 1989), and this
Purchase Agreement language offering a refund option to Purchasers does not
prevent them from seeking damages or specific performance.
The second provision relied upon by Appellants in arguing that the
Purchase Agreements limited their ability to seek a remedy is the “Down
Payment” provision, found in Section 3 of the Purchase Agreements, which
states in relevant part:
a. CONVEYANCE OF UNDIVIDED INTEREST TO
PURCHASER: As partial consideration for monies advanced to
SELLER by PURCHASER via down payments and/or Reservation
Deposits (all of which are being considered partial payments in
furtherance of this Agreement), after Seller acquires subject real
property upon which the Village on the Beach condominium regime
will be built, Seller will convey to Purchaser his predetermined
undivided interest in the common areas in the condominium
development which Purchaser will hold subject to any and all loans
under which the property as a whole may be collateralized. All
parties acknowledge that, if for any reason, this Purchase
Agreement should not be consummated by a Sale/Purchase closing
within the time contemplated by this Agreement, Lacote, LLC will
refund all monies (payments) deposited by Purchaser wherein
Purchaser will relinquish and convey their undivided interest in
subject property to Seller.
Appellants contend, “[t]his clause requires Purchasers to relinquish and convey
their undivided interest in the Village property to Seller in lieu of specific
performance and limit[s] Purchasers’ alleged remedies to refund of deposits.”
We agree that the “will refund” and “will relinquish” language mandates
the fulfillment of such requirements by the parties in the event that the
10
This availability of this option is further supported by the language later in the
provision setting forth that the Purchaser’s “claim for return of . . . the down payment . . . shall
be the full responsibility of the SELLER to make the appropriate refund.”
8
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Purchase Agreement is not “consummated by a Sale/Purchase closing . . . .”
However, the “Down Payment” provision discusses conveying to the Purchaser
“his predetermined undivided interest in the common areas in the condominium
development” in the sentence immediately preceding the sentence requiring
that, “Purchaser will relinquish and convey their undivided interest in subject
property to Seller.” Therefore, the “undivided interest in subject property”
logically refers to the “undivided interest in the common areas” that are the
subject of this particular “Down Payment” provision. Appellants present no
reason why “undivided interest in subject property” should instead be
interpreted as referring to Purchasers’ interest in their specific, bargained for
condominium units. More importantly, nothing in the “Down Payment”
provision specifically negates Appellants’ right to pursue damages or specific
performance, and, as we previously described, Mississippi law looks to specific
language negating a party’s ability to sue for damages or specific performance.
See Osborne, 549 So. 2d at 1339.
Finally, Appellants argue that the Purchase Agreements are illusory
because their interest in the property was subordinate to third parties and Loga
and Stieffel never had the capital to return Appellants’ deposits. We do not
dispute that this was a bad deal for Appellants. However, even if the likelihood
of Purchasers’s getting certain remedies was less likely under this Agreement
and the particular circumstances surrounding it, the terms of the Purchase
Agreements did not nullify Lacote’s obligation to build by negating Appellants’
ability to sue for remedies. The reason that Appellants now have no available
practical relief is not a deceivable duty, a contractual defect which allowed
Lacote to cease construction without legal consequence; the obstacle to recovery,
instead, has been Lacote’s insolvency.11
11
For the same reason, Appellants’ argument that Lacote’s obligation to construct
within 24 months was illusory because “Lacote had no capital investment, no construction loan
9
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CONCLUSION
For the reasons discussed above, we AFFIRM the district court’s grant of
summary judgment in favor of Defendants-Appellees Loga and Stieffel.
and no performance bond for a twenty-four million dollar project,” thereby making it
“impossible” for Lacote and Appellants to complete construction of the Village within 24
months of signing the Purchase Agreements, is unavailing.
10