Allen v. NVR, Inc.

[Cite as Allen v. NVR, Inc., 2012-Ohio-6174.]
IN THE COURT OF APPEALS
TWELFTH APPELLATE DISTRICT OF OHIO
BUTLER COUNTY
KRISTA A. ALLEN, et al. :
Plaintiffs-Appellants, : CASE NO. CA2012-02-038
: OPINION
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:
NVR, INC. d.b.a. RYAN HOMES, et al., :
Defendants-Appellees. :
CIVIL APPEAL FROM BUTLER COUNTY COURT OF COMMON PLEAS
Case No. CV2010-06-2748
Kenneth G. Hawley, 810 Sycamore Street, 5th Floor, Cincinnati, Ohio 45202, for plaintiffs-
appellants, Craig & Lisa W. Silverglade and Eric & Stephanie J. Fisbeck
Porter, Wright, Morris & Arthur LLP, Ryan P. Sherman, 41 South High Street, Columbus,
Ohio 43215, for defendant-appellee, NVR, Inc. d.b.a. Ryan Homes
Jack F. Grove, 1251 Nilles Road, Suite 10, Fairfield, Ohio 45014, for defendant-appellee,
Welsh Development Co., Inc.
PIPER, J.
{¶ 1} Plaintiffs-appellants, Krista Allen, Craig and Lisa Silverglade, and Stephanie
and Eric Fisbeck (Homeowners), appeal a decision of the Butler County Court of Common
Pleas, granting summary judgment to defendants-appellees, NVR, Inc. d.b.a. Ryan Homes
(Ryan Homes), and Welsh Development Company, Inc. (Welsh).
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I. Statement of Facts
{¶ 2} In July 2005, Ryan Homes entered into an agreement with Welsh to build
homes in Tall Oaks, a future development within the city of Monroe. According to the terms
of the agreement, Welsh agreed to procure the necessary land, obtain approval from
Monroe, and then develop the lots for future construction. Ryan Homes agreed to purchase
the lots from Welsh on which to build the new homes. The agreement also indicated that
Welsh, as the developer, would construct all improvements and planned amenities. These
planned amenities included a pool, walking trails, fishing ponds, picnic areas, a "tot lot," and
a play/sports field.
{¶ 3} Ryan Homes entered into an agreement with William and Barbara Trimble to
purchase a large tract of farmland as the future site of the Tall Oaks subdivision. Ryan
Homes would later convey its rights under the purchase contract to Welsh, and Welsh
assumed Ryan Homes' obligations to the Trimbles.
{¶ 4} Jeffrey Hayes, Land Development Manager for Welsh, wrote to Monroe and
asked that the Trimble property be rezoned to permit the development and construction of
the Tall Oaks subdivision. Within the request, Hayes indicated that Ryan Homes would be
the exclusive builder for the community. Hayes further indicated Welsh's intent to develop
200 single-family sites and to have approximately 20-25 acres of open space. Monroe's
Planning Commission met to consider Welsh's request, and voted unanimously to move
forward on Welsh's preliminary request regarding the subdivision.
{¶ 5} The Planning Commission met in May 2005 and considered final approval of
the subdivision. Representatives from Welsh and Ryan Homes attended and spoke to the
commission. The representatives offered a planned unit development (PUD), a Ryan Homes
building packet (showing home models and floor plans), as well as documents pertaining to
the homeowners' association. The commission voted unanimously to approve and
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recommend the PUD for Tall Oaks, and subsequently entered into a PUD agreement with
Welsh.
{¶ 6} Within the PUD, Monroe and Welsh agreed that Ryan Homes was the only
approved builder for the subdivision and that no other homebuilder would be permitted to
build within Tall Oaks without first obtaining a PUD amendment from the Monroe Planning
Commission.
{¶ 7} In July 2005, Welsh entered into a Lot Purchase Agreement with Ryan Homes.
Welsh agreed to sell the residential lots to Ryan Homes, and Ryan Homes paid Welsh a
deposit of $592,500 toward the eventual purchase of 200 residential building lots. Also within
the Lot Purchase Agreement, Welsh agreed to build/install the planned amenities, and Ryan
Homes was given the right to review and approve the plans for all amenities. Ryan Homes
agreed to collect $500 from each homeowner to be paid to Welsh as partial reimbursement
of the costs to design and construct amenities to be included in the development.
{¶ 8} Welsh began developing the lots and basic infrastructure of the subdivision,
and Ryan Homes began advertising and promoting lots for sale within Tall Oaks. The
advertising included newspapers such as The Kentucky Enquirer and The Cincinnati
Enquirer, as well as advertisements on the internet and postcards sent through the mails.
{¶ 9} In late 2006 through early 2007, potential homeowners began visiting the Tall
Oaks development. Ryan Homes' sales representatives showed the potential buyers various
model homes and advised the buyers about future plans for the development, including the
amenities. Of these potential buyers, the Homeowners purchased lots and contracted with
Ryan Homes to build houses, entering purchase agreements with Ryan Homes which
included a provision that the amenities, including their very existence, were subject to
change. The contracts also contained several blank spaces to write any additional oral
statements or promises that the buyer wanted incorporated into the contract. Each of the
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contracts in question stated "none" in this section, indicating no further oral representations
had been made to the Homeowners that were not already properly stated in the contract.
{¶ 10} After Ryan Homes sold five lots/homes, a real estate market collapse occurred
and no other lots were sold. Ryan Homes contacted Welsh and conveyed its intent to
withdraw from the development agreement, and to stop selling homes in the Tall Oaks
subdivision. Ryan Homes forfeited $577,677 of its deposit to Welsh, and informed the
Homeowners of its decision to withdraw from the further development of Tall Oaks. Welsh
was forced to relinquish the land on which the first phase of Tall Oaks was being constructed,
as well as the still undeveloped portion of land to the original owners, the Trimbles, in lieu of
foreclosure. The planned community went undeveloped and thus, the amenities intended to
accompany the development of Tall Oaks were never built.
{¶ 11} The Homeowners filed suit against Ryan Homes and Welsh, alleging breach of
contract, negligent misrepresentation, fraud in the inducement, violation of the Interstate
Land Sales Full Disclosure Act (ILSA or the Act), and violation of the Ohio Consumer Sales
Practices Act. Each of the Homeowners' claims center on allegations that Ryan Homes and
Welsh were required to unconditionally and without reserve build the amenities. The initial
suit was filed, and then voluntarily dismissed by the Homeowners when Welsh and Ryan
Homes moved for summary judgment. However, the Homeowners subsequently re-filed the
suit, alleging the same causes of action.
{¶ 12} Ryan Homes and Welsh moved for summary judgment after additional
discovery was conducted. The trial court granted summary judgment to Ryan Homes and
Welsh on each of the Homeowners' claims. The Homeowners now appeal the trial court's
decision, but only in regard to the ILSA claim. Before we address the Homeowners' specific
assignments of error, we will address relevant rules of law and set forth the necessary
context within which this appeal will be determined.
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II. Summary Judgment Standard
{¶ 13} This court’s review of a trial court’s ruling on a summary judgment motion is de
novo. Broadnax v. Greene Credit Serv., 118 Ohio App.3d 881, 887 (2nd Dist.1997). Civ.R.
56 sets forth the summary judgment standard and requires that (1) there be no genuine
issues of material fact to be litigated, (2) the moving party is entitled to judgment as a matter
of law, and (3) reasonable minds can come to only one conclusion being adverse to the
nonmoving party. Slowey v. Midland Acres, Inc., 12th Dist. No. CA2007-08-030, 2008-Ohio-
3077, ¶ 8. The moving party has the burden of demonstrating that there is no genuine issue
of material fact. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64 (1978).
{¶ 14} The nonmoving party "may not rest on the mere allegations of his pleading, but
his response, by affidavit or as otherwise provided in Civ.R. 56, must set forth specific facts
showing the existence of a genuine triable issue." Mootispaw v. Eckstein, 76 Ohio St.3d 383,
385 (1996). A dispute of fact can be considered "material” if it affects the outcome of the
litigation. Myers v. Jamar Enterprises, 12th Dist. No. CA2001-06-056, 2001 WL 1567352,*2
(Dec. 10, 2001). A dispute of fact can be considered "genuine" if it is supported by
substantial evidence that exceeds the allegations in the complaint. Id.III. Introduction to the ILSA
{¶ 15} ILSA is an anti-fraud statute that was promulgated in response to increased
fraud in the sale of undeveloped land.
[I]n the late 1960's, Congress conducted hearings to address
concerns about widespread real estate fraud. Purchasers living
in the same state where the land was located or living out of
state were persuaded to buy land they had never seen by
sophisticated sales forces promising that land (which might be
under water or suitable only for grazing purposes) was a good
investment, suitable for homesites and easily resalable. In
response, in 1968, Congress passed the ILSA.
Richard Linquanti, Aspects of the Interstate Land Sales Full Disclosure Act, 44 Real Prop. Tr.
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& Est. L.J. 441 (2009).
{¶ 16} As stated by this court, ILSA is "an antifraud statute utilizing disclosure as its
primary tool, much like the securities laws." Akers v. Classic Properties, Inc., 12th Dist. No.
CA2003-03-035, 2003-Ohio-5436, ¶ 25, quoting Winter v. Hollingsworth Properties, Inc., 777
F.2d 1444, 1447 (11th Cir.1985). The ILSA is similar to the securities fraud statute because
"'the underlying purpose of both (Acts) is that prior to the purchase the buyer must be
informed of facts which would enable a reasonably prudent individual to make an informed
decision about purchasing the security or the property.'" Ackmann v. Merchants Mortg. &
Trust Corp., 645 P.2d 7, 16 (Colo.1982), quoting Paquin v. Four Seasons of Tennessee, Inc.,
519 F.2d 1105, 1109 (5th Cir.1975), certiorari denied, 425 U.S. 972, 96 S.Ct. 2168 (1976).
{¶ 17} The ILSA "imposes detailed disclosure requirements upon land developers to
ensure full disclosure to buyers of relevant facts prior to their decision to purchase real
estate." Akers at ¶ 25, citing Pierce v. Apple Valley, Inc., 597 F.Supp. 1480, 1484 (S.D.Ohio
1984). "The general purpose of the Land Act was, of course, to prohibit and punish fraud in
such land development enterprises * * * and the Act should be interpreted to attain that end.
Such an act should be construed 'not technically and restrictively, but flexibly to effectuate its
remedial purposes.'" McCown v. Heidler, 527 F.2d 204, 207 (10th Cir.1975), quoting SEC v.
Capital Gains Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 285 (1963).
{¶ 18} According to the pertinent section of the ILSA, 15 U.S.C. 1703(a)(2)(A)-(D),
It shall be unlawful for any developer or agent, directly or
indirectly, to make use of any means or instruments of
transportation or communication in interstate commerce, or of
the mails—
(2) with respect to the sale or lease, or offer to sell or lease, any
lot not exempt under section 1702(a) of this title—to employ any
device, scheme, or artifice to defraud;
(B) to obtain money or property by means of any untrue
statement of a material fact, or any omission to state a material
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fact necessary in order to make the statements made (in light of
the circumstances in which they were made and within the
context of the overall offer and sale or lease) not misleading, with
respect to any information pertinent to the lot or subdivision;
(C) to engage in any transaction, practice, or course of business
which operates or would operate as a fraud or deceit upon a
purchaser; or
(D) to represent that roads, sewers, water, gas, or electric
service, or recreational amenities will be provided or completed
by the developer without stipulating in the contract of sale or
lease that such services or amenities will be provided or
completed.
As this section applies only to "developers" or "agents", we must first determine if Ryan
Homes and/or Welsh is a developer or agent within the meaning of the Act.
IV. Ryan Homes and Welsh as Developers
{¶ 19} According to 15 U.S.C. 1701(5), a developer is "any person who, directly or
indirectly, sells or leases, or offers to sell or lease, or advertises for sale or lease any lots in a
subdivision* * *." Subdivision is then defined as "any land which is located in any State or in
a foreign country and is divided or is proposed to be divided into lots, whether contiguous or
not, for the purpose of sale or lease as part of a common promotional plan." 15 U.S.C.
1701(3). A common promotional plan is
A plan, undertaken by a single developer or a group of
developers acting in concert, to offer lots for sale or lease; where
such land is offered for sale by such a developer or group of
developers acting in concert, and such land is contiguous or is
known, designated, or advertised as a common unit or by a
common name, such land shall be presumed, without regard to
the number of lots covered by each individual offering, as being
offered for sale or lease as part of a common promotional plan.
15 U.S.C. 1701(4).
{¶ 20} We find that there are sufficient facts to establish that Ryan Homes and Welsh
are developers as set forth in the Act. The record is clear that Ryan Homes directly, and
Welsh indirectly, offered for sale the lots in the Tall Oaks subdivision. Even though Ryan
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Homes purchased the lots from Welsh before conveying them to the Homeowners, Welsh
indirectly sold the lots because each was held in Welsh's name until Ryan sold the lot to the
purchaser and only then, was the land placed in Ryan Homes' name. The land was divided
into proposed lots, and was offered for sale as part of a common promotional plan in that the
lots were being developed and offered for sale as part of the common unit and name, Tall
Oaks. Therefore, both Ryan Homes and Welsh are developers for the purposes of the Act.
V. Summary Judgment in Favor of Ryan Homes
{¶ 21} Assignment of Error No. 1:
{¶ 22} THE TRIAL COURT ERRED IN GRANTING THE DEFENDANT NVR'S
MOTION FOR SUMMARY JUDGMENT UPON THE PLAINTIFFS' CLAIMS UNDER THE
INTERSTATE LAND SALES FULL DISCLOSURE ACT.
{¶ 23} Homeowners argue in their first assignment of error that the trial court erred in
granting summary judgment to Ryan Homes based on the ILSA.
{¶ 24} The Act makes certain actions by developers illegal when those developers
directly or indirectly "make use of any means or instruments of transportation or
communication in interstate commerce, or of the mails * * *." The record is clear that Ryan
Homes used the mail, telephone, and internet to advertise Tall Oaks. That the Homeowners
were Ohio residents is meaningless within the Act because the fact remains that Ryan
Homes used instruments of communication by way of interstate commerce by choosing to
promote Tall Oaks by mailing post cards and advertising the subdivision on the internet.
Smith v. Myrtle Owner, LLC, 09-CV-1655 KAM VVP, 2010 WL 2539693 (E.D.N.Y. June 16,
2010).
{¶ 25} Having found that Ryan Homes is a developer that used interstate commerce in
promoting the sale of lots in the Tall Oaks subdivision, we continue our analysis to determine
whether there exist any genuine issues of material fact regarding whether Ryan Homes
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violated the ILSA as set forth in 15 U.S.C. 1703(a)(2)(A)-(D) of the Act.
{¶ 26} According to subsections (A)-(C), as quoted above, the Homeowners need to
demonstrate that there are genuine issues of material fact regarding fraud, untrue statements
of material fact, or deceit. However, we find, as the trial court did, that there are no issues of
fact regarding the first three subsections, as Ryan Homes truly intended at the time the
Homeowners purchased their lots that the amenities would be built at some future date. See
Prebil v. Pinehurst, Inc., 638 F.Supp. 1314, 1318 (D.Mont.1986) (holding that the "untrue
statement of material fact must exist at the time of sale to give rise to a violation under the
Act").
{¶ 27} The record is clear that at the time Ryan Homes began advertising Tall Oaks
and sold the lots and homes to the Homeowners, both Ryan Homes and Welsh made plans
to move forward with the amenities once the appropriate number of homes was sold. Ryan
Homes collected the $500 amenity fee from the Homeowners, and there is no indication that
Ryan Homes or Welsh did not plan to build the amenities at the time Ryan Homes sold the
lots to the Homeowners or collected the amenity fee from them. Only when the other 195
lots did not sell did Ryan Homes pull out of the deal, forcing Welsh to not only abandon its
intention to build the amenities but also to return the land to the Trimbles. For this reason,
the Homeowners are no longer pursuing their fraud claims against either Ryan Homes or
Welsh, and there is no indication in the record that there was any fraud, untrue statements,
or deceit as anticipated by the Act.
{¶ 28} The Homeowners must then demonstrate that there are genuine issues of
material fact regarding subsection (D), and whether Ryan Homes represented that the
community amenities would be provided without stipulating or disclosing in the sales contract
its intentions regarding the amenities.
{¶ 29} The record contains the contracts signed by the Homeowners regarding the
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purchase of the lots and the construction of their homes. Within each contract, the following
provision is expressly stated, "[Homeowner] acknowledges that the timing of construction,
location, existence, size, and features of tot lots, trails, community entry features and
monuments, and recreational facilities within the community (collectively the "Facilities"), if
any, are subject to change."
{¶ 30} The contract is not silent as to the amenities; it specifically stipulates that while
the amenities were intended, they were not guaranteed. Therefore, we find that the contract
of sales contains language stipulating the existence of amenities so that that Ryan Homes
did not violate the Act because it addressed the subject of the discussed amenities and
provided disclosure (i.e., that the amenities were not guaranteed).
{¶ 31} The dissent questions the legality of a contract that permits the existence of
planned amenities to be subject to change. In support of finding a genuine issue of material
fact, the dissent incorrectly assumes that the developer must promise in the contract to build
the amenities at any cost and under any set of circumstances in order to satisfy 15 U.S.C.
1703(a)(2)(D). In so reasoning, the dissent relies on the definition of "stipulate" as found in
Webster's Third New International Dictionary as "a condition or requirement of an agreement
or offer; to give a guarantee of." However, the dissent cites no relevant case law or statutory
support for its interpretation of the ILSA to require the developer to include an absolute
guarantee to construct amenities despite any and all circumstances even if such a promise
was never represented to the Homeowners. More importantly, the dissent references no
facts (material or otherwise) to suggest the parties were guaranteed amenities regardless of
the circumstances. In other words, what was "stipulated" (disclosed for purposes of
agreement) in the contract was the parties' understanding. Despite the mutual expectation of
both parties, there are no material facts demonstrating the Homeowners were ever led to
believe community amenities would unconditionally and absolutely be constructed,
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regardless of the circumstances.
{¶ 32} The Tenth Circuit Court of Appeals was asked to determine whether purchasers
of lots in a development had a cause of action pursuant to the ILSA when the developer
failed to construct all amenities the developer represented would be part of the completed
subdivision. Solomon v. Pendaries Properties, Inc., 623 F.2d 602 (10th Dist. 1980). In
Solomon, the court noted that the developers planned and advertised several amenities,
including ponds, swimming pools, a golf course, pro shop, tennis courts, security system, golf
course club house, main lodge with additional facilities, complete water system,
campgrounds, saddle club area, front entrance beautification, and streets built to specific
specifications.
{¶ 33} The court noted that due to a national "depressed economic state" and the
developer's inability to sell additional lots, not all of the amenities had been constructed as
promised. Id. at 603. Nonetheless, the court held that the lot owners did not have a cause of
action within the ILSA because the developer did not misrepresent its intention to complete
the amenities at the time the owner purchased the lots. The court concluded that the version
of the ILSA in place at the time of the purchase did not "confer a cause of action for
representations of future occurrences that the developer in good faith intended, at the time of
sale, to carry out." Id. at 604.
{¶ 34} The Solomon case did not construe 15 U.S.C. 1703(a)(2)(D) because Congress
had not promulgated that section at the time the lots were sold. However, we nonetheless
find the case persuasive because the court analyzed the amendment made to the Act in
1979, which added specific mention of amenities. The court stated its belief that finding no
cause of action for failure to complete amenities as promised comported with the 1979
amendment in which Congress addressed the "problem created when developers become
bankrupt before completing promised amenities." Id. The court reasoned that Congress
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amended ILSA to "provide a contractual basis for relief when roads, utilities, and recreational
amenities are not in fact completed by developers." Id. The court then noted this very
pertinent piece of legislative history.
The bill would also require that whenever a developer represents
orally or in writing that roads, sewers (including septic systems),
water or electric service, or recreational amenities will be
provided or completed by the developer, the contract of sale or
lease must stipulate that such services or amenities will be
provided or completed. This provision was intended to assure
that when developers or their sales agents make seductive
promises through oral or written representations or
advertisements to induce individuals to buy land, the individuals
have a contractual basis for assuring the services or amenities
are completed within a reasonable time. It provides a statutory
basis for suit if the contract fails to reflect the representations that
were made.
Id. at 605, quoting H.R.Rep. No. 96-154, 96th Cong., 1st Sess. 36, reprinted in (1979)
U.S.Code Cong. & Admin.News, 2317, 2351-52. (Emphasis added.)
{¶ 35} Given the overall purpose of the Act to provide adequate facts in order to
ensure that the purchaser can make an informed decision, and Congress' intention that a
developer include in the contract any representations made regarding amenities, the
inclusion of an express contract clause regarding amenities in the purchase contract
demonstrates that Ryan Homes has not violated the Act.
{¶ 36} There is no dispute that the Homeowners were told of the amenities before they
purchased lots and contracted to construct homes. However, there is also no dispute that
the Homeowners' contracts expressly state that the amenities, even their existence, were
subject to change. This contract term was reasonable given the circumstances of subdivision
development because the amenities were attendant to the subdivision development, not any
one homeowner.
{¶ 37} Ryan Homes, once unable to sell and construct 195 additional homes, was
forced to withdraw from the development deal with Welsh, and Welsh was forced to return
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the undeveloped land to the Trimbles. This is not the case where Welsh and Ryan Homes
sold 200 lots, then walked away from Tall Oaks with their respective profits without first
constructing the amenities as planned for the community. Here, construction and
maintenance of a community swimming pool, tot lots, and walking trails became infeasible by
the sale of only five lots, rather than 200. Nowhere does the evidence suggest that Ryan
Homes could have developed the community had it chosen to.
{¶ 38} Regardless of the eventual outcome, the fact remains that at the time of sale,
the parties to the contracts knew, understood, and agreed that the amenities, including their
existence, were subject to change.1 Unlike purchasers being told that swampland for sale in
Florida would be a wonderful home sight, when exactly the opposite is true, the Homeowners
here expressly agreed that despite intentions and plans, the amenities may not exist.
Moreover, the Homeowners were given the opportunity to include any promises or
representations that they believed were material to the contract. None of the Homeowners
expressed a desire for the inclusion of a guarantee that the community amenities were to be
provided regardless of the circumstances. Unlike the dissent, we cannot imply an oral
representation so as to demand its later inclusion into a written contract.
{¶ 39} We are left with the express contract term entered into by the Homeowners,
2
stipulating that the amenities would be constructed, but were subject to change. It is the Act
that required inclusion in the contract of an understanding regarding the amenities.
Regarding the dissent's proposition that the contract was "illusory" because of this provision,
1. The dissent emphasizes "at the time the contracts were entered into," yet, at that particular time, the parties to
the contracts expounded upon and solidified their knowledge, understanding, and agreements.
2. The trial court properly relied on the Parol Evidence Rule to exclude alleged oral representations that were not
expressed in the contract. See Meade v. Kurlas, 12th Dist. No. CA2010-08-216, 2011-Ohio-1720, ¶ 15 (finding
that "a written contract must be construed and interpreted from its four corners without consideration of parol
evidence, i.e., evidence that would contradict or vary the terms of the contract. The parol evidence rule bars the
use of extrinsic evidence to contradict the terms of a written contract intended to be the final and complete
expression of the contracting parties' agreement").
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we note that the Homeowners do not premise their claim on illusory contracts. Moreover, the
Homeowners have abandoned all contract and fraud claims on appeal, pursuing their
assignments of error solely upon alleged statutory violations.
{¶ 40} As previously stated, the Act must be treated with flexibility to effectuate its
purposes, mainly to require disclosure from land developers so that purchasers would be
reasonably well-informed before purchasing land. Homeowners had all purchased homes on
previous occasions, and according to the record, were educated and sophisticated
individuals who entered into their respective contracts fully aware of the provisions within.
The contract stipulating the intention to construct the community amenities did not do so
unconditionally or without the possibility of change. With the absence of any supporting
material facts, it is unreasonable to determine that Homeowners were promised a guarantee
of amenities. Similarly, despite best intentions, there was no promise or guarantee the
subdivision would be filled to its planned capacity. Yet it cannot be said Homeowners went
forward with their lot purchase and home construction without full disclosure and knowledge.
With the circumstances at hand, the Act has not been violated.
{¶ 41} Having found that Ryan Homes did not violate the ILSA, we need not discuss
the other exemptions or exclusions that may apply to Ryan as stated within the Act. We find
that there are no genuine issues of material fact to be litigated so that Ryan Homes is entitled
to judgment as a matter of law. Homeowners' first assignment of error is overruled.
VI. Summary Judgment in Favor of Welsh
{¶ 42} Assignment of Error No. 2:
{¶ 43} THE TRIAL COURT ERRED IN GRANTING THE DEFENDANT WELSH'S
MOTION FOR SUMMARY JUDGMENT UPON THE PLAINTIFFS' CLAIMS UNDER THE
INTERSTATE LAND SALES FULL DISCLOSURE ACT.
{¶ 44} The Homeowners argue in their second assignment of error that the trial court
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erred in granting summary judgment in favor of Welsh.
{¶ 45} There is no dispute in the record that the Homeowners did not enter into a
contract with Welsh. Instead, the Homeowners assert that Welsh is implicated because
Ryan Homes and Welsh have been "intertwined and working in concert from the very outset
to the ultimate demise of this subdivision." However, the Act provides that only developers,
or their agents, who use means of interstate commerce are subject to 15 U.S.C.
1703(a)(2)(A)-(D).
{¶ 46} While we have previously found there are sufficient facts to establish that Ryan
Homes and Welsh are developers within the confines of the Act, the record indicates that the
only developer to use means of interstate commerce to sell the lots or offer them for sale was
Ryan Homes. Welsh did not engage in the same type of conduct that Ryan Homes did in
order to promote, market, and sell Tall Oaks subdivision. Its only communication with the
eventual Homeowners was once they purchased lots and contracted with Ryan Homes to
construct homes, and this communication was specific to the development and control of the
homeowners association.
{¶ 47} Moreover, Welsh is not subject to the Act because 15 U.S.C. 1702(a)(7) states
that the ILSA does not apply to the "sale or lease of lots to any person who acquires such
lots for the purpose of engaging in the business of constructing residential, commercial, or
industrial buildings or for the purpose of resale or lease of such lots to persons engaged in
such business * * *." Welsh purchased the Trimble land, and then divided and developed the
lots to be sold to Ryan Homes. There was never privity of contract or any transaction
between Welsh and the Homeowners, and Welsh's only involvement was to sell the land to
Ryan Homes, which was engaged in the business of constructing residences on the
developed lots. The Homeowners concede as much, but argue that Welsh should be held to
the ISLA standards because of the relationship it shared with Ryan Homes.
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{¶ 48} As previously discussed, Ryan Homes was a developer that communicated by
means of interstate commerce, so that according to the ILSA, Welsh could still be subject to
the Act if it was acting as Ryan Homes' agent. 15 U.S.C. 1703(a). According to 15 U.S.C.
1701(6), an agent is "any person who represents, or acts for or on behalf of, a developer in
selling or leasing, or offering to sell or lease, any lot or lots in a subdivision * * *." Therefore,
if Welsh were acting for or on behalf of Ryan Homes in selling or offering to sell the lots, then
it would be subject to the Act. However, we find there are no facts establishing an agency
relationship between Welsh and Ryan Homes within the meaning of the Act.
{¶ 49} The record indicates that Ryan Homes and Welsh had two disparate and very
distinct roles in the planning, development, marketing, and construction of the Tall Oaks
subdivision. We are not in any way indicating that Ryan Homes and Welsh were not both
interested in the success of the subdivision or that they did not share common goals.
However, such does not rise to the level of acting on behalf of or representing each other.
{¶ 50} The record indicates that Welsh was at all times the developer of the Trimble
land, and that its involvement in Tall Oaks was to divide and develop the land into lots.
Welsh would then sell the developed lots to Ryan Homes, which in turn, would sell the lots
and construct homes on them. Welsh did not represent or act on behalf of Ryan Homes
when offering to sell the lots because the lots were only sold to Ryan Homes as the exclusive
homebuilder. Neither did Welsh represent or act on behalf of Ryan Homes when Ryan
Homes marketed, promoted, and advertised the Tall Oaks subdivision to possible
purchasers. Again, the only time the Homeowners had any interaction with Welsh was after
they purchased the lots and homes, and began to pay homeowners association fees to
maintain the entrance signage and associated landscaping.
{¶ 51} The ILSA limits application to developers or their agents who use means of
interstate commerce to sell or offer to sell lots. Welsh neither used means of interstate
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commerce nor was an agent of Ryan Homes, and as such, does not fall under the purview of
the Act. As such, the trial court properly granted summary judgment to Welsh, and the
Homeowners' second assignment of error is overruled.
{¶ 52} Judgment affirmed.
S. POWELL, P.J., concurs.
RINGLAND, J., dissents.
RINGLAND, J., dissenting.
{¶ 53} While I agree with the majority's determinations regarding the first three
antifraud provisions of the ILSA in relation to Ryan Homes and its determinations regarding
Welsh, I must dissent from the majority's conclusion that Ryan Homes is entitled to judgment
as a matter of law as to the fourth antifraud provision found within 15 U.S.C. 1703(a)(2)(D).
{¶ 54} As indicated by the majority, 15 U.S.C. 1703(a)(2)(D) prohibits a developer from
representing that "recreational amenities will be provided or completed by the developer
without stipulating in the contract of sale or lease that such services or amenities will be
provided or completed." Nevertheless, the majority goes on to conclude that stating in a
contract that the existence of any promised amenities is "subject to change" is the same as
3
stipulating that those amenities will be provided or completed. It appears that one great
divide between the majority and myself turns on the definition and application of the word
"stipulating."
{¶ 55} It is a settled principle that words in an act or statute shall be given their plain
3. As indicated by the majority, the purchase contracts in this case each contain a provision which states:
[Homeowner] acknowledges that the timing of construction, location, existence, size, and
features of tot lots, trails, community entry features and monuments, and recreational
facilities within the community (collectively the "facilities"), if any, are subject to change.
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and ordinary meaning unless the legislative intent indicates otherwise. Devere v. Miami
University Bd. of Trustees, 12th Dist. No. CA86-05-065, 1986 WL 6763, * 3 (June 10, 1986);
Taniguichi v. Kan Pacific Saipan, Ltd., ___ U.S. ___, 132 S.Ct. 1997 (2012). The definition
of "stipulate" (the verb form of the Act's present participle, "stipulating") is "to specify as a
condition or requirement of an agreement or offer; to give a guarantee of." Webster's Third
New International Dictionary (1993) 2245. Thus, based upon the ordinary meaning of
"stipulate," 15 U.S.C. 1703(a)(2)(D) should be read as follows: With respect to the sale or
lease of a lot, a developer is prohibited from representing that "recreational amenities will be
provided or completed by the developer without [specifying as a condition or requirement] in
the contract of sale or lease that such * * * amenities will be provided or completed."
{¶ 56} It is clear that there is limited case law on this issue, as is evidenced by the
majority's reliance on a case which addresses a previous version of the ILSA that did not
4
contain 15 U.S.C. 1703(a)(2)(D). See also Venezia v. 12th & Div. Properties, LLC, 685 F.
4. {¶a} The 1968 version of the ILSA applicable to the Solomon case contained the following version of 15
U.S.C. 1703:
{¶b} (a) It shall be unlawful for any developer or agent, directly or indirectly, to make use of
any means or instruments of transportation or communication in interstate commerce,
or of the mails
{¶c} (1) to sell or lease any lot in any subdivision unless a statement of record with respect
to such lot is in effect in accordance with section 1407 (1706) of this title and a printed
property report, meeting the requirements of section 1408 (1707) of this title, is
furnished to the purchaser in advance of the signing of any contract or agreement for
sale or lease by the purchaser; and
{¶d} (2) in selling or leasing, or offering to sell or lease, any lot in a subdivision
{¶e} (A) to employ any device, scheme, or artifice to defraud, or
{¶f} (B) to obtain money or property by means of a material misrepresentation with respect
to any information included in the statement of record or the property report or with
respect to any other information pertinent to the lot or the subdivision and upon which
the purchaser relies, or
{¶g} (C) to engage in any transaction, practice, or course of business which operates or
would operate as a fraud or deceit upon a purchaser.
Pub. L. No. 90–448, Title XIV, 82 Stat. 476, 590 (1968).
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Supp.2d 752, 756 (M.D.Tenn.2010) ("This Court's research reveals a surprising dearth of
case law construing the [ILSA]"). Nevertheless, relevant secondary sources indicate that 15
U.S.C. 1703(a)(2)(D) should be read to require developers to provide or complete the
amenities they promised. Feldman, The Interstate Land Sales Full Disclosure Act: An
Overview, 38 Colo. Law. 93 (2009) ("[T]o satisfy the anti-fraud provision of the Act, the
contract must contain express language that discloses to purchasers which utilities and
recreational amenities the developer agrees to complete"); Linquanti, Aspects of the
Interstate Land Sales Full Disclosure Act, 44 Real Prop. Tr. & Est. L.J. 441 (2009) ("Section
1703(a)(2) says that the developer cannot * * * represent that utilities, roads, and amenities
will be provided without contractually committing to their construction").
{¶ 57} Even the language relied upon by the majority leans towards the finding that a
contract must require that promised amenities will be provided or completed:
The bill would also require that whenever a developer represents
orally or in writing that * * * recreational amenities will be
provided or completed by the developer, the contract of sale or
lease must stipulate that such services or amenities will be
provided or completed. This provision was intended to assure
that when developers or their sales agents make seductive
promises through oral or written representations or
advertisements to induce individuals to buy land, the individuals
have a contractual basis for assuring the services or amenities
are completed within a reasonable time. It provides a statutory
basis for suit if the contract fails to reflect the representations that
were made.
(Emphasis added.) Solomon, 623 F.2d at 605, quoting H.R.Rep. No. 96-154, 96th Cong., 1st
Sess. 36, reprinted in (1979) U.S.Code Cong. & Admin.News, pp. 2317, 2351-52. As clearly
stated, the purpose in adding 15 U.S.C. 1703(a)(2)(D) to the ILSA is to allow an individual
who has been promised amenities to have a contractual basis for assuring that amenities are
completed. The purpose is not to allow a contract provision that states promised amenities
may or may not ever be completed.
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{¶ 58} In this case, the purchase contracts between the Homeowners and Ryan
Homes did not "reflect the representations that were made." Rather, the contracts state that
the existence of any recreational amenities is "subject to change" and, thus, may never
occur. This "subject to change" provision, read as a whole, creates an unfettered
discretionary release of obligations on behalf of Ryan Homes, where the developer is under
no obligation to justify a failure to complete these amenities or even to provide them. As
written and interpreted by the majority, Ryan Homes is under no obligation to satisfy the
representations it previously made and, in essence, creates an illusory contractual provision.5
{¶ 59} This is not to say that I find the contract to actually be illusory. As the majority
points out, the Homeowners never brought such a claim and abandoned their contract and
fraud claims on appeal. Rather, my point is that the purchase contracts drafted by Ryan
Homes promise nothing concerning any amenities, similar to that of an illusory contract. The
deliberate lack of any promise in the "subject to change" provision calls into question the
enforceability of such a provision, as well as the motivation and intent of Ryan Homes in
drafting the provision. By Ryan Homes' drafting of the contract so that it has the unlimited
right to determine whether amenities will exist, there is a suggestion that Ryan Homes
intended to evade application of 15 U.S.C. 1703(a)(2)(D) altogether. This suggested intent,
in and of itself, may be a question of fact warranting a reversal of the trial court's decision.
{¶ 60} While I appreciate, as the majority points out, that this is not a case where Ryan
Homes and Welsh simply walked away from Tall Oaks but, instead, left due to a downturn in
the economic state of the nation, this fact has no relevancy to the application of the Act. The
clear facts of the case indicate that, at the time the purchase contracts were entered into,
5. "[A] contract is illusory only when by its terms the promisor retains an unlimited right to determine the nature
or extent of his performance; the unlimited right, in effect, destroys his promise and thus makes it merely
illusory." Domestic Linen Supply & Laundry Co. v. Kenwood Dealer Group, Inc., 109 Ohio App.3d 312, 316 (12th
Dist.), citing Century 21 Am. Landmark, Inc. v. McIntyre, 68 Ohio App.2d 126, 129-130 (1st Dist.1980).
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well before the economic downturn, Ryan Homes made representations that recreational
amenities would be constructed in Tall Oaks while contracting that it had an unlimited right to
determine when, where, what, and if amenities would be provided. Thus, regardless of the
reason why Ryan Homes abandoned the subdivision, at the time the contracts were entered
into, Ryan Homes had already violated 15 U.S.C. 1703(a)(2)(D).
{¶ 61} The majority's interpretation of 15 U.S.C. 1703(a)(2)(D) is too narrow a
construction of the ILSA. The majority is attempting to realign the current use and application
of the Act with the original 1968 intent of Congress. It is true that the original intent of the
ILSA was to be a shield for swindled purchasers who had "zero interest in owning
uninhabitable swampland" rather than "remorseful purchasers of multi-million dollar
condominiums" or homes in unfinished subdivisions. Einav, Read Between the Lines: Why
Recent ILSA Litigation is Bad for Business and Contravenes Congressional Intent, 33
Cardozo L. Rev. 2139, 2158-59 (June 2012). However, case law dictates that the terms of
the ILSA must "be applied liberally in favor of broad coverage" with exemptions being
construed "narrowly, in order to further the statute's purpose of consumer protection."
Venezia, 685 F. Supp. 2d at 756; Pigott v. Sanibel Development, LLC, 576 F.Supp.2d 1258,
1268 (S.D.Ala.2008); N & C Properties v. Windham, 582 So.2d 1044, 1048 (Ala.1991); Olsen
v. Lake Country, Inc., 955 F.2d 203, 205 (4th Cir.1991); Nahigian v. Juno Loudoun, LLC, 684
F.Supp.2d 731, 743 (E.D.Va.2010).
{¶ 62} Although it is clear that the application of the ILSA has strayed from the initial
intent of Congress, it is not for the courts to redefine words (i.e., stipulating) in order to realign
the use of a statute with its 40-year-old intent. Rather, it is up to Congress to alter the
language of the ILSA if it desires that the Act be construed more narrowly. Until that time, it
is the realm of the judiciary to apply the Act as it is written. See Einav, 33 Cardozo L. Rev. at
2164.
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{¶ 63} In light of the foregoing, and based on the facts and circumstances of this case,
as well as the overarching requirement to broadly construe the language of the ILSA, I
disagree with the majority's finding that the "subject to change" portion of the purchase
contracts satisfies 15 U.S.C. 1703(a)(2)(D) and entitles Ryan Homes to judgment as a matter
of law. I would find that Ryan Homes is not entitled to judgment pursuant to 15 U.S.C.
6
1703(a)(2)(D) and, further, determine that no exemptions apply to Ryan Homes in this case.
I would then reverse and remand the case for proceedings on the issue of 15 U.S.C.
1703(a)(2)(D) only as to Ryan Homes. In the remaining aspects of the majority's opinion, I
concur.
6. Ryan Homes argues that it is exempt from the ILSA under two sections, 15 U.S.C. 1702(a)(1) and (2). 15
U.S.C. 1702(a)(1) in not applicable, as Ryan Homes and Welsh were developers under a common promotional
plan to develop 200 residential lots. 15 U.S.C. 1702(a)(2) is not applicable because Ryan Homes' obligation to
complete construction of the homes in two years is made illusory by the purchase contract's limitation of the
remedies the Homeowners can seek. See Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir.2009);
Samara Development Corp. v. Marlow, 556 So.2d 1097 (Fla.1990); Guidelines for Exemptions under the
Interstate Land Sales Full Disclosure Act, 49 Fed.Reg. 31375, 31376 (1984).
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