Kamel v. Kenco/The Oaks at Boca Raton LP

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
OCT 16, 2008
No. 08-13692 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 07-80905-CV-KAM
JESSICA KAMEL,
LANCE KAMEL,
Plaintiffs-Appellants,
versus
KENCO/THE OAKS AT BOCA RATON LP,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(October 16, 2008)
Before BIRCH, HULL and PRYOR, Circuit Judges.
PER CURIAM:
Jessica and Lance Kamel (“Kamels”) appeal an order by the district court
granting a motion to dismiss their complaint by the appellee, Kenco/The Oaks at
Boca Raton LP (“Kenco”). Because the Kamels’ complaint does not adequately
provide the grounds of their entitlement for relief, we AFFIRM.
I. BACKGROUND
In October 2005, the Kamels signed a contract with Kenco in which the
Kamels agreed to purchase property in a subdivision of The Oaks at Boca Raton
and Kenco agreed to build their home on it. The contract specified that Kenco was
to complete construction of the residence within “one year and 11 months” of the
date of the agreement. R1-1, Exh. A at 1-3. Kenco failed to complete the required
construction within the designated time period and the Kamels attempted to revoke
the contract, demanding a return of their $160,500 deposit. R1-1, Exh. A at 9.
Kenco did not comply and the Kamels responded by filing a complaint with the
district court.
In their complaint, the Kamels alleged that Kenco was subject to the
requirements of the Interstate Land Sales Full Disclosure Act (“ILSA”), 15 U.S.C.
§ 1701 (2007). According to the Kamels, the ILSA required Kenco to provide
them with a printed property report in advance of the signing of the contract. R1-1
at 7-9. Because this did not occur, the Kamels filed their six-count complaint with
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three counts brought under federal law and three brought under state law.1 Kenco
replied with a motion to dismiss, alleging that the contract between the parties was
exempt from the ILSA’s coverage. As such, Kenco urged the district court to
dismiss Counts II, III and IV as a matter of law as well as the remaining state law
claims for lack of subject matter jurisdiction.
The Kamels’ appeal turns on whether their contract with Kenco is exempt
from the ILSA’s coverage. We address that question now.
II. DISCUSSION
We review the district court’s grant of a motion to dismiss de novo. Rivell
v. Private Health Care Sys., Inc., 520 F.3d 1308, 1309 (11th Cir. 2008) (per
curiam). “The allegations in the complaint are taken as true and construed in the
light most favorable to the plaintiffs. However, the complaint’s factual allegations
must be enough to raise a right to relief above the speculative level. The Supreme
Court’s most recent formulation of the pleading specificity standard [in Bell
Atlantic Corp. v. Twombly, __ U.S. __, 127 S. Ct. 1955 (2007)] is that stating such
a claim requires a complaint with enough factual matter (taken as true) to suggest
the required element.” Id. (internal quotations and citations omitted).
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Two of the federal law claims (Counts II and III) were treated together by the district
court as asserting a single cause of action under the ILSA. The remaining federal law claim was
a prayer for declaratory judgment that the contract was illegal.
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We have described the ILSA as “an antifraud statute utilizing disclosure as
its primary tool” with the principal purpose of “protect[ing] purchasers from
unscrupulous sales of undeveloped home sites.” Winter v. Hollingsworth
Properties, Inc., 777 F.2d 1444, 1447 (11th Cir. 1985). One of the requirements
that the ILSA imposes upon developers making use of interstate commerce to sell
or lease a property is the obligation to provide the prospective buyer with a
property report containing certain prescribed information. See 15 U.S.C. §
1703(a)(1)(B). The property report must be furnished to the buyer before the
contract is signed or else the buyer retains the right to revoke the contract for a
two-year period following the execution of the contract. Id. § 1703(c). However,
the property report requirement does not apply to those sales exempted from the
ILSA under § 1702(a)(2) of the Act.
Section 1702(a)(2) of the ILSA reads as follows:
§ 1702. Exemptions
(a) Sale or lease of lots generally. Unless the method of disposition is
adopted for the purpose of evasion of this title, the provision of this
title 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). At issue in this case is whether the contract between the
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Kamels and Kenco actually obligated Kenco to build the residence, as argued by
Kenco, or whether the obligation to build was illusory, as argued by the Kamels. If
the obligation was illusory, then the § 1702(a)(2) exemption does not apply, Kenco
is bound by the ILSA, the Kamels have a right to revoke and the district court erred
in granting Kenco’s motion to dismiss. Conversely, if the obligation was real,
Kenco prevails.
Because the ILSA is a federal statute, federal law governs its interpretation.
Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 176, 63 S. Ct. 172, 174
(1942). State contract law, however, is the ultimate arbiter of whether a contract
actually “obligates” a seller to erect a building within two years. See Markowitz v.
Northeast Land Co., 906 F.2d 100, 105 (3d. Cir. 1990); see also Guidelines for
Exemptions Available Under the Interstate Land Sales Full Disclosure Act, 61 Fed.
Reg. 13596, 13603 (Mar. 27, 1996) [hereinafter, Guidelines]. First, we consider
the federal interpretation of the relevant ILSA language.
As the district court noted, the Department of Housing and Urban
Development (“HUD”) has provided some guidance as to the meaning of the word
“obligate.” The Guidelines provide that contract “clauses may not alter the
obligation of the seller to build” and that the contract “must not allow
nonperformance by the seller at the seller’s discretion.” 61 Fed. Reg. at 13603. In
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addition, the Guidelines state that “as a general rule delay or nonperformance must
be based on grounds cognizable in contract law such as impossibility or frustration
and on events which are beyond the seller’s reasonable control.” Id. Examples
include “provisions to allow time extensions for events or occurrences such as acts
of God, casualty losses or material shortages.” Id. Although the Guidelines are to
be given “great deference,” Winter, 777 F.2d at 1448, the Guidelines themselves
point to state contract law in the jurisdiction in which the building in question is
being erected as the ultimate authority on the issue. See 61 Fed. Reg. at 13603
(“Contract provisions which allow for nonperformance or for delays of
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.”). Because Florida law indisputably governs
in this case, we now consider the “obligation” language as interpreted under
Florida contract law.
The Florida Supreme Court addressed the ILSA’s exemption language in
Samara Development Corp. v. Marlow, 556 So. 2d 1097 (Fla. 1990). In Samara,
the state supreme court held that “in order for the developer to be ‘obligated’ to
complete the building within two years, the obligation must be unrestricted and the
contract must not limit the purchaser’s right to seek specific performance or
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damages.” Id. at 1100. Although Samara almost exclusively deals with
impermissible limitations on buyers’ remedies which are not at issue in this case,
Florida courts have also consistently recognized the doctrine of impossibility of
performance as a valid basis to excuse performance under the ILSA’s two-year
obligation-to-construct exemption.
In Florida, as the district court noted, the doctrine of impossibility “refers to
those factual situations, too numerous to catalog, where the purposes, for which the
contract was made, have, on one side, become impossible to perform.” Crown Ice
Machine Leasing Co., v. Sam Senter Farms, Inc., 174 So. 2d 614, 617 (Fla. Dist.
Ct. App. 1965). However, “where performance of a contract becomes impossible
after it is executed, or if knowledge of the facts making performance impossible
were available to the promisor [prior to the execution of the contract],” the defense
of impossibility is not available. Shore Inv. Co. v. Hotel Trinidad, Inc., 29 So. 2d
696, 697 (Fla. 1947). Foreseeability is a critical determinant in assessing the
availability of the defense. Under Florida law, the application of the defense of
impossibility of performance is ultimately a fact-specific inquiry and is not
confined to a rigid set of factual conditions. See, e.g., Home Design Center-Joint
Venture v. County Appliances of Naples, Inc., 563 So. 2d 767, 769 (Fla. Dist. Ct.
App. 1990); Crown Ice Machine Leasing Co., 174 So. 2d at 617.
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Paragraph 7 of the purchase agreement between the Kamels and Kenco reads
as follows:
Seller does, however, agree to substantially complete
construction of the Home in the manner specified in this Agreement
by a date no later than one (1) year and eleven (11) months from the
date Buyer and Seller execute this Agreement, subject however, to
delays caused by Buyer or acts of God, the unavailability of materials,
strikes, other labor problems, governmental orders, or other events
which would support a defense based upon impossibility of
p erformance for reasons beyond the Seller’s control.
R1-1, Exh. A at 3. Because the impossibility of performance defense is well
established under Florida law, we conclude that the obligation entered into by
Kenco pursuant to paragraph 7 of the purchase agreement is unrestricted. The
inclusion of the clause “or other events which would support a defense based upon
impossibility of performance” modifies the preceding list of specific items. The
district court correctly concluded that the only condition that Kenco placed on its
ability to complete construction was impossibility.
The Kamels urge us to construe the clause as an additional exception in a list
of exceptions, thereby undercutting any notion that the contract was “unrestricted.”
For example, the Kamels argue that an act of God always gives rise to an
impossibility of performance defense under Florida law. Therefore, any argument
that the contract is merely citing factual circumstances that could give rise to the
defense of impossibility of performance is disingenuous. We are unpersuaded.
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Paragraph 7 provides a nonexhaustive sampling of factual conditions which might
provide the basis for an impossibility of performance defense. That defense is
available to Kenco regardless of what the contract provides. If Kenco were to raise
the defense, a court would have to make a factual inquiry into its basis and
determine whether an impossibility defense was warranted. As the district court
correctly noted, the contractual language does not condition Kenco’s obligation nor
does it expand any remedy that Kenco would not otherwise have at law.
The district court granted Kenco’s motion to dismiss both the Kamels’
federal and state law claims. We conclude that the district court did not err in
granting Kenco’s motion to dismiss the Kamels’ federal claims. We extend our
conclusion to the court’s decision regarding the Kamels’ state law claims. It is
well settled in our circuit that “if ... federal claims are dismissed prior to trial,
[United Mine Workers v.] Gibbs [383 U.S. 715, 86 S. Ct. 1130 (1966)] strongly
encourages or even requires dismissal of the state claims.” L.A. Draper & Son v.
Wheelabrator-Frye, Inc., 735 F.2d 414, 428 (11th Cir. 1984).
III. CONCLUSION
The Kamels appeal an order by the district court granting a motion to
dismiss their complaint. We conclude that Kenco’s obligation to build was
unrestricted and that the contract between the Kamels and Kenco was exempted
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from the ILSA’s coverage. Accordingly, we AFFIRM the judgment of the district
court.
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