Opposition Brief — N & C Properties v. Pritchard

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No. 88-231

JGREPH F. SPANIOL, JR,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1988

N & C Properties; NepDA, INc. OF DESTIN;

AND CHANCELLOR LAND Co., INC.,

Petitioners,

VS.

CHARLES D. PRITCHARD, ef ai.,

Respondents.

On Writ of Certiorari to the

Supreme Court of The United States

BRIEF IN OPPOSITION

TO WRIT OF CERTIORARI

JOHN R. BENN

425 North Court Street

Florence, Alabama 35630

(205) 764-4011

Attorney for Respondents

St. Louis Law Printing Co.,Inc., 13305 Manchester Road 63131 314-231-4477

es

ey

QUESTIONS PRESENTED FOR REVIEW

1. Whether the Interstate Land Sales Full Disclosure Act (IL-

SA) applies to condominium sales.

2. Whether the Alabama state courts correctly denied the ap-

plication of the 100 lot exemption (15 U.S.C. 1702(b)(1)) under

the facts of this case.

ill

TABLE OF CONTENTS

Page

rs Colas res ge euadesdceancdececes i

sks s cekesewdbsekseeedecsas cc's V

Statutory and Regulatory Provisions Involved ........ l

I ok vod ccc scevvccesesceneseess 2

Summary of the Argument ................c0c0cc00. 4

Argument

I. The Interstate Land Sales full Disclosure Act

(ILSA) applies to condominium sales ....... 5

ee IE sobs cc cccedccdsenece 5

B. Statutory Construction ................ Y

C. Federal and State Caselaw.............. 12

II. The Alabama state courts correctly denied the

application of the 100 lot exemption under the

i so obese un eeen bach o0ess 0 13

ES a a a hee 18

iv

Appendix

Statutory Provisions

RS BK. THD 0 ccs ccdnavccecdencetanes

Agency Regulations

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DA CPR 1700.5 CIGST) «wo vase ccaccccccenees

Regulatory Announcements

38 Fed. Reg. 23,866 (1973) .............45-

39 Fed. Reg. 7824 (1974) ............0-20e

A-l

A-l

A-l

A-2

A-3

TABLE OF AUTHORITIES

Page

Amer. Paper Inst. v. Amer. Power Serv. Corp., 461

OR rer re ree Teer re eee 10

Appalachian Inc. v. Olson, 468 So.2d 266, (Fla. App.

ps SL rr ryt Fe re eer re eer 11,13

Berzon v. Oriole Homes Corp., 497 So.2d 670 (Fla.

SG SE ood 4 cee keane eka eee seca 12

Dunaway v. Lewis, 554 P.2d 110 (Okla. Ct. App.

UE chnav5 esc enads PERER as eRe bee caek es 15,16

Eaton v. Dorchester Development, Inc., 692 F.2d 727

CC I A ie ccckceavisscdbubnadaaeweur 12,14,15

EEOC v. Commercial Office Products Co., ____ U.S.

init es EE S's Ra as is Hea 10

EPA v. National Crushed Stone Ass’n., 449 U.S. 64

COREE 8 4s. c.6. cake gah eau wat eked eosateders 10

Finst Dev. Inc. v. Bahaor, 449 So.2d 292 (Fla. App. 3

hs DE a ihn dis 000i ed itenbnancdiecet ae 13

Flint Ridge Dev. Co. v. Scenic Rivers Assn’n of Okla.,

as: CHEE bis doh dheecksceteeeeeneee 5

Grove Towers Inc. v. Lopez, 467 So.2d 358 (Fla. App. 3

WR, TERN v nankcnscnceeddscanadeeeuaeeeuess 13,15

Inversions Romar S.A. v. Jockey Club Phase III Ltd.,

No. 82-0695 CIV JE (S.D. Fla. September 18,

WN nb chs CA e0sae 06s bawends eee 12

K Mart v. Cartier, Inc., U.S. ___, 108 S.Ct.

ne EN ca 5 aw be eds babes kaaeta eens 10

Lorilland Inc. v. Pons, 434 U.S. 575 (1978) ........... 11

vi

Marco Bay Associates v. Vandewalle, 472 So.2d 472

(Pia. Age. 2a. IDES) occcccsccccssvcnccccces 13

N & C Properties v. Pritchard, 525 So.2d 1346 (Ala.

REE oud bo cubededcsaskdeend40sbkeedansuures 3

Mosher v. Southridge Associates, Inc., 552 F.Supp.

SIG CRe A OO Ee aie tdnyscsdeccsasdasatuces 12

Nargiz v. Henlopen Developers, 380 A.2d 1361 (Del.

BOTT vncadddacccscecssdebenosesceveedbiinases §,11,13

Power Reactor Dev. Co. v. International Union of

electricians, 267 U.S. 396 (1961) ................ 10

Schatz v. Jocky Club Phase III Ltd., 604 F.Supp. 537

CRAM: Fels Ge 6 bab beeo0daweeseseesdniednaaes 11,12

Star Island Associates v. Lichter, 473 So.2d 791 (Fla.

Page, Bs TSE soc cccnccscavectescssasveces 12

Udall v. Tallman, 380 U.S. 1 (1965). ..........2e200e. Z)

Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444

1.3 Se reprrrrrrer ry Try rr. 10,11,12

Federal Regulations:

pote, fo, errr rrrrrr rrr y rrr l

rote. Foy, fi SPP errrrrrrrrrrrr rT err rrr ry

rie, § a) fT. errr rrr rere

Co NCD

Oe ID 0.06 600d0 disco daceseutenens

Federal Statutes:

15 U.S.C. §1702(a)(2) as amended by P.L. 95-557,

Sy GE b wk dob bd ceeaes ue bncaeeteesetetises 8

scene eneeneeienensuniiiie

Vii

Other:

re ED 664 b3:460000cdsbecneonesnus 2,8,10

I Ss ictcatoscenassacbacnanns 2

Gs EIU bb bbc cccccadcacdecccdaces 2

ISA Am.Jur. 2d, Condominiums 20 ................. 7

Rohan and Reskin, Condominium Law and Practice

(Matthew Bender 1976) 18A.02................. 7

“Condominium Regulation: Beyond Regulation,’’ 123

pT CE cei insdc cubes batepaupesacs 7

Conf. Rep. No. 1785, 90th Cong., 2d Sess. (1968)... ... 5

Housing and Community Development Amendments

of 1978, Report of the Committee on Banking,

Housing and Urban Affairs, United States (Report

Pe Dheis addds eee se keshsscaeese ime 8

OILSR Exemption Advisory Opinion, No. 1701.1(k)

SE 6 6c pebessapndahanededeess 6

Public Law 95-557, Summary of the Act, Joint Comm-

EE oo pencwascekeasndnseaeawe 8

No. 88-231

IN THE

Supreme Court of the United States

OcTOBER TERM, 1988

N & C Properties; Nepa, Inc. Or Destin;

AND CHANCELLOR LAND Co., INC.,

Petitioners,

Vs.

CHARLES D. PRITCHARD, ef ai.,

Respondents.

On Writ of Certiorari to the

Supreme Court of The United States

BRIEF IN OPPOSITION

TO WRIT OF CERTIORARI

STATUTES AND REGULATIONS INVOLVED

In addition to the provision cited in the Petition for Writ of

Certiorari and Appendix thereto, the following authority is ger-

mane to the resolution of this case:

24 C.F.R. § 1710.1 Definitions

**Lot’’ means any portion, piece, division, unit, or undivided

interest in land located in any state or foreign country if the in-

terest includes the right to the exclusive use of a specific portion

of the land.

pe

24 C.F.R. § 1710.5 Statutory Exemptions From Provisions of

This Chapter

The requirements of the Act do not apply to —

(a) The sale or lease of lots in a subdivision containing

fewer than 25 lots;

(b) The sale or lease of any improved land on which

there is a residential, commercial, condominium, or in-

dustrial building, or the sale or lease of land under a con-

tract obligating the seller or lessor to erect such a building

thereon within a period of two years. In the case of con-

dominium or multiunit construction, a presale clause con-

ditioning the sale of a unit on certain percentage of sales of

other units is permissible if it is legally binding on the par-

ties and it is for a period not to exceed 180 days. However,

the 180-day provision cannot extend the two-year period

for performance. The permissible 180 days is calculated

from the date the first purchaser signs a sales contract in

the project or, if a phased project, from the date the first

purchaser signs the first sales contract in each phase.

Respondents have also set out in the Appendix to this Brief the

pertinent regulatory announcements covering the issues in this

appeal. They are 38 Fed. Reg. 23,866 (1973); 39 Fed. Reg. 7824

(1974); and 44 Fed. Reg. 24,010 (1979).

STATEMENT OF THE CASE

In the interest of brevity, Respondents will not submit a

separate statement of the case. Respondents do wish to clarify

one particular point. In raising the Second Question, Peti-

tioners focus on the application of the ‘‘common promotional

plan’’ aspect of Section 1701(4). The Alabama Supreme Court

in reviewing the trial court decision was essentially reviewing a

factual determination made by a lower court. The Alabama

Supreme Court noted numerous factual aspects of the appellate

record which supported the lower court decision. Among them

were:

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(1) That Neda, Inc., was formed to promote and sell

units in both Phase I and Phase II; (2) The project was

advertised, represented, and marketed as a two-phase pro-

ject consisting of two individual towers adjoining each

other, Phase I containing 55 units and Phase II containing

46 units; and (3) The project was advertised and intended

by the owners to be a two-phase project containing over

100 units. The investors offered the sworn testimony of

Authur Hill, president of Gulf South Corridor Properties,

and Winston Biggs, president of Chancellor Land Com-

pany, Inc., in support of their claim during the hearing on

March 20, 1986. The testimony of both men was that the

development was advertised, represented, and marketed as

a two-phase project containing two towers. The towers

were to be adjacent to one another, sharing a common lob-

by and beach front. Mr. Biggs testified that the Johnsons

were promised the opportunity to trade their Phase I unit

for a nicer unit in Phase II when it was completed.

A prospectus covering the development was, however,

prepared by the developers, and it was admitted into

evidence at the March 20 hearing. It was denominated

‘*East Pass Towers Condominium Declaration,’’ with the

cover depicting twin towers on the Destin coast. Phase I of

the development was to be completed by June 1, 1992. The

maximum number of units in the development was to be

101 ‘‘if, in the sole discretion of the developer, Phase II is

built.’”” The prospectus also said, ‘‘The developer has

reserved the right to construct additional apartment

buildings . . . as part of this condominium at any time

prior to June 1, 2002... . The Additional units to be con-

structed will be 46 in number and would be contained in an

additional apartment building.’’ Advertising brouchures

admitted into evidence at the hearing also depicted twin

towers jointed by a common lobby.

N & C Properties v. Pritchard, 525 So.2d 1346, 1349 (Ala.

1988).

a

SUMMARY OF ARGUMENT

1. This case involves the interpretation of the term ‘“‘lots’’ as

defined within the Interstate Land Sales Full Disclosure Act (IL-

SA). From the inception of this legislation in 1968, the

legislative history clearly evidenced an intent that ILSA apply to

the sales of condominium units. The legislative history was con-

sistent with both the statutory interpretation given to this term

by the agency charged with the statute’s enforcement as well as

Congressional acceptance of the coverage of condominiums

when the statute was amended several years later implementing

an exception to the regulatory scheme. The decision of the

Alabama Supreme Court to apply the statute to the sale of con-

dominium units was also consistent with a chorus of federal and

state decisions confirming this result. Against this background

the Petition lacks the substantial federal question necessary to

justify review by this Court.

The fact that the Alabama Supreme Court reviewed a lower

court application of the ‘‘common promotional plan’’ does not

yield the conclusion that the decision was ‘‘inconsistent’’ with

the other authorities. The Alabama Supreme Court was not er-

roneous in its conclusion that this was a factual issue. The Ap-

pellate Record amply documented the factual conclusion that

the condominium project was part of a ‘“‘common promotional

plan’’. Unlike petitioners’ portrayal, there is a complete

absence of any conflict involving a substantial federal question.

This Court should deny the requested writ.

——

ARGUMENT

I. The Interstate Land Sales Full Disclosure Act

(ILSA) applies to condominium sales.

It is now well-settled that the Interstate Land Sales Full

Disclosure Act applies to the sale of condominium units. This

conclusion is aptly drawn from the legislative history of the Act,

the statutory construction applied by agency charged with ad-

ministering its provisions, as well as Congressional acceptance

of this result, and both federal and state caselaw. With the ex-

ception of a single federal district court decision, which was

reversed on appeal, all courts have applied the Act to the sale of

condominium units.

A. Legislative Hisiory

The Interstate Land Sales Full Disclosure Act (ILSA) was

originally enacted as part of the Housing and Urban Develop-

ment Act of 1968. The disclosure aspects of this legislation was

designed to prevent false and deceptive practices in the in-

terstate sale of tracts of land by requiring developers to disclose

information needed by potential buyers to evaluate their pur-

chases. Flint Ridge Dev. Co. v. Scenic Rivers Ass’n of Okla.,

426 U.S. 776, 778 (1976). The legislation was principally

directed at protecting purchases from abuse by real estate

developers involved in interstate commerce who used the mails

in the promotions and sales of their projects. Nargiz v.

Henlopen Developers, 380 A.2d 1361, 1362 (Del. 1977). The

legislative history of the Act indicates that Congress was con-

_ cerned with the sale of a multiple, undeveloped lots pursuant to

a common promotional plan. Conf.Rep. No. 1785, 90th Cong.,

2nd Sess. (1968), reprinted in 1968 U.S. Code Cong. and Ad.

News 3053, 3066. In essence, ILSA is an antifraud statute that

utilizes the requirement of disclosure as its primary tool.

The key term in the statutory scheme is ‘‘lot’’. The ILSA is

triggered when there is a proposed sale of a non-exempt “‘lot’’.

deuthaes

This term is not defined in the legislation. The Secretary of

Housing and Urban Development (HUD) has by regulation

defined ‘‘lot’’ as ‘‘any portion, piece, division, unit, or undivid-

ed interest in land located in any state or foreign country if the

interest includes the right to the exclusive use of a specific por-

tion of the land.’’ 24 CFR §1710.1 (1987).

Almost from the outset of passage of the ILSA there were

questions raised as to whether the Act applied to condominium

developments.' In 1972, the Office of Interstate Land Saies

Registration issued an Asvisory Opinion which noted:

We agree that the key term is ‘“‘lots’’ in determining

whether the sale of a condominium unit can be equated

with the sale of a lot in the subdivision within the meaning

of the Act. We do not, however, agree that the concepts

and characteristics of a lot and a condominium unit are

mutually exclusive and that, therefore, a ‘“‘unit’’ in a con-

dominium cannot be considered a ‘‘lot’’.

OILSR Exemption Advisory Opinion, No. 1701.1(k) at p. 5

(August 20, 1972). Shortly after issuing the Advisory Opinion,

the Secretary of Housing and Urban Development responded to

builders’ concerns about the application of ILSA to con-

dominiums.

The application of the Act to condominiums has been con-

‘sistent OILSR policy since the issue was first raised in

1969. The bases for this position are that condominiums

carry the indicia of and in fact are real estate, whether or

not the units therein have been constructed. A con-

dominium is accordingly viewed by OILSR as equivalent

to a subdivision, each unit being a lot. Adverse comment,

particularly from buitders, asserts that condominiums are

'The office of Interstate Land Sales Registration (OILSR) is the

organization designated by the Secretary of Housing and Urban

Development to administer the Act. See 15 U.S.C. §1715 (a)(1982).

Po,

equivalent to houses and the sale of houses was not intend-

ed to be covered by the act. However, the right to con-

dominium space is a form of ownership, not a structural

description. This condominium concept is employed as an

ownership form for completely horizontal developments

and even for campgrounds. Congress recognized the need

to exempt professional builders from the Act and provided

an appropriate exemption. (15 U.S.C. 1702[(a)(2)]). Fora

condominium unit sale to be exempted from the Act, it

must accordingly qualify for exemption; i.e., either it must

be completed before it is sold, or it must be sold under a

contract obligating the seller to erect the unit within two

years from the date the purchaser signs the contract of

sale.

38 Fed. Reg. 23,866 (1973). Less than one year later the ffice

of Interstate Land Sales Registration issued an announc*;nent

emphasizing the application of ILSA to sales of condominium

units:

The Office of Interstate Land Sales Registration (OILSR)

offers guidelines in re-emphasizing attention to the ap-

plicability of the federal land sales registration laws to the

offer and sale of condominiums and other structures. The

Preamble to OILSR regulations published on September 4,

1973 (38 FR 23866 et seq.) points out that condominiums

are covered by the Act in that a condominium is equivalent

to a subdivision, each unit being a lot.

39. Fed. Reg. 7824. The OILSR pronouncements, applying IL-

SA to condominium sales, has become the accepted view. See

1SA AmJur 2d, Condominiums 20; Rohan and Reskin, Con-

dominium Law and Practice (Matthew Bender 1976) 18A.02;

*“‘Condominium Regulation: Beyond Regulation,’’ 123 U. of

Pa.L.Rev. 639, 660.

In 1978, Congress considered amendments to ILSA which are

historically important in constructing the statute. At that time,

i

ee

the Act only exempted sales of improved land on which there

was a residential, commercial, or industrial building or where

the seller was obligated to complete such a structure within two

years. Congress amended this provision to explicitly exempt

condominium sales under the same situations, thus inserting the

word ‘‘condominium’’ in the only place in the Act.? 15 U.S.C.

§1702(a)(2) as amended by P.L. 95-557, 907(a)(1). The accom-

panying Senate Committee Report observed:

~=——,

Section 715(b)(1) of the bill would amend Section

1403(a)(2) [now §1702(a)(2)] of the act to provide an ex-

emption for the sale or lease of any improved land on

which there is a condominium or on which a condominium

is to be built within two years. Section 1403(a)(2) presently

provides an exemption for land on which there is or will be

built within 2 years, a residential, commercial, or industrial

building. Present HUD regulations do not provide an ex-

emption for condominiums.

Housing and Community Development Amendments of 1978,

Report of the Committee on Banking, Housing and Urban Af-

fairs, United States Senate (Report No. 95-871, at page 97.) The

Conference Committee also noted:

The Interstate Land Sales Full Disclosure Act is amend-

ed to broaden the exemptions to include sale or lease of

land on which there is a condominium building on or

which a condominium building is to be built within two

years.

Public Law 95-557, Summary of the Act, Joint Explanatory

Statement of Managers of the Committee of Conference at page

80. The formal regulations implementing this amendment suc-

cinctly state:

? The term ‘‘condominium’’ refers to a form of real estate owner-

ship, rather than to any particular type of structure. See 38 Fed. Reg.

23,866 (1973)

UU

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. In the case of con-

dominium or multi-unit construction, a presale clause con-

ditioning the sale of a unit on a certain percentage of sales

of other units is permissible if it is legally binding on the

parties and it is for a period not to exceed 180 days.

However, the 180-day provision cannot extend the two-

year period for performance. The permissible 180 days is

calculated from the date the first purchaser signs a sales

contract in the project or, if a phased project, from the

date the first purchaser signs the first sales contract in each

phase.

24 CFR §1710.5(b) (1987).

Consistently, since the adoption of ILSA in 1969, both Con-

gress and the administrative agency charged with enforcing the

law have acknowledged that condominium sales fall within the

Statutory scheme of the statute.

B. Statetory Construction.

The task before the court in considering the Petition is made

relatively easy in this instance. Not only does the legislative

history of ILSA provide an adequate foundation for concluding

that the statutory term ‘“‘lots’’ includes interests in con-

dominium units, simple rules of statutory construction also dic-

tate this conclusion.

When confronted with a problem of statutory interpretation,

the Court has indicated a ‘‘great deference to the interpretation

given the statute by the officers or agency charged with its ad-

ministration.’’ Udall v. Tallman, 380 U.S. 1, 16 (1965). This

precept of statutory construction is especially applicable when

the administrative interpretation ‘‘includes a contemporaneous

ee

construction of a statute by the men charged with the respon-

sibility of setting its machinery in motion; of making the part

work efficiently and smoothly while they are yet untried and

new.’’ Power Reactor Dev. Co. v. International Union of Elec-

tricians, 267 U.S. 396, 408 (1961). If the statutory provision is

silent or ambiguous with respect to a specific issue addressed by

a valid regulation, the reviewing coutt must give deference to

the agency’s interpretation unless it conflicts with the statute’s

plain meaning. K Mart Corp. v. Cartier, Inc., __ U.S. ___.,

108 S.Ct. 1811 (1988); EEOC v. Commercial Office Products,

Co., ___U.S. ___., 108 S.Ct. 1666 (1988). Stated otherwise,

the construction placed upon the term “‘lots’’ by OILSR does

not have to be the only reasonable one, or the one that would

have been made in a judicial proceeding. The Court only needs

to conclude that the administrative agency has made ‘“‘a

reasonable interpretation of the relevant provisions.’’ Amer.

Paper Inst. v. Amer. Power Serv. Corp., 461 U.S. 402, 423

(1983) (empahsis in original). See also EPA vy. National

Crushea Stone Ass’n., 449 U.S. 04, 04 (1980).

The legislative history of ILSA clearly indicates that OILSR,

the federal body charged with administering the Act, has coni-

sistently maintained that condominium sales fall within the

Statutory provisions.’ See 38 F d. Red. 23, 866 (1973); 39 Fed.

Reg. 7824 (1974). Nothing cor.:ained within the Petition urges

that this was not a reasonable interpretation. The Eleventh Cir-

cuit in Winter v. Hollingsworth Properties, Inc., 777 F.2d 1444

(11th Cir. 1985) confirmed this aspect of ILSA by noting:

It is reasonable to conclude as HUD did, that the term

“‘lot’’ was used to refer generally to interests in realty. The

legislative history supports this construction, employing

the terms “‘lot,”’ “‘land,’’ and ‘’real estate’’ in discussing

the Act. This construction is also reasonable in terms of

the purpose of the statute. A fraudulent out-of-state sale

“~

* The existence of a consistently held agency view interpreting a

Statute is an important consideration. See /mmigration & Naturaliza-

tion Service v. Cardoza-Fonseca, _____ U.S.

(1987).

, 107 S.Ct. 1207

of land is not rendered any less fraudulent if the con-

dominium form of ownership is utilized.

Id. at 1448. See also Schatz v. Jockey Club Phase III, Ltd., 604

F.Supp. 537, 540-41 (S.D. Fla. 1985); Nargiz v. Henlopen

Developers, 380 A.2d 1361, 1364 (Del. 1977); Appalachain, Inc.

v. Olson, 468 So.2d 266, 268 (Fla. App. 2 Dist. 1985). The Peti-

tion is noteworthy in its silence as to the statutory construction

placed on the ILSA by the OILSR.

The conclusion that the sale of condominium units falls

within the parameters of ILSA is also confirmed by analyzing

the impact of the 1978 amendments. The 1978 amendments

sought to specifically exclude condominiums that would be con-

structed within two years. Congress obviously would not

specifiacally exempt this class of condominium projects if the

Act did not in the first instance apply to condominiums as

“‘lots’’. This conclusion is bolstered by the realization that

Congress is presumed to be aware of an administrative inter-

pretation of a statute when it legislates modifications.

Lorilland, Inc. v. Pons, 434 U.S. 575, 580 (1978). The amend-

ment enacted by Congress apparently constituted an implied

recognition of the ILSA coverage to condominium sales. The

Eleventh Circuit reached this conclusion by recognizing:

The obvious conclusion to be drawn from this history is

. that Congress was aware of HUD’s interpretation that the

| Act covered condominium sales and acted to exempt such

sales where the building is existing or must, by contract, be

completed within two years. If the ILSA did no include

the sale of condominiums within its scope, it would be

senseless to provide for exclusion of such sales under

prescribed conditions. We therefore conclude that Con-

gress was aware of, and approved of, HUD’s construction

of the Act and hold that the ILSA is applicable to the sale

of condominiums.

Winter, 777 F.2d 1444, 1449 (1985). The Petition while

recognizing the historical sequence of Congressional action of-

fers no explanation for a contrary interpretation. Following the

iii

oe te a -

argument of Petitioners, the 1978 amendment would liave been

superfluous. The Court should avoid am interpretation that

leads ‘0 this result.

C. Federal and State Caselaw

The Petitions’s weakest argument involves its attempt to

justify a substantial federal question under Section 1257 in view

of the existing federal and state caselaw. The Petition claims

that ‘‘a majority of the courts’’ have found ILSA to apply to

condominium is a misnomer. With the exception of one federal

district court case, which was reversed on appeal, every federal

and state decision has upheld the application of ILSA to con-

dominium sales.

The Eleventh Circuit is the only federal appellate court to

discuss this issue. In Eaton v. Dorchester Development, Inc.,

692 F.2d 727 (11th Cir. 1982) the panel in reviewing a dismissal

order assumed, without discussion, that ILSA applied to con-

dominium sales. Later, in Winter v. Hollingsworth Properties,

Inc., 777 F.2d 1444 (11th Cir. 1985) - the principal federal

authority relied upon by both the trial and appellate courts in

Alabama - a different panel specifically held LISA applicable to

the sale of condominiums. Thus, the Eleventh Circuit reversed

the only reported decision to hold that ILSA did not apply to

condominium sales. The decisions of all federal district courts

also confirm the application of ILSA to condominium dales. (1)

Schatz v. Jockey Club Phase Ill, Lid., 604 F.Supp. 537 (S.D.

Fla. 1985); Inversions Romar, S.A. v. Jockey Club Phase 111,

Lid., No. 82-0695 CIV-JE (S.D. Fla. September 18, 1984);

Mosher v. Southridge Associates, Inc., 552 F.Supp. 1226

(W.D.Pa. 1982)(applying two year exemption).

Petitioners also can find little solace in state caselaw. Every

reported decision has upheld the application of ILSA to the sale

of condominium units. Berzon v. Oriole Homes Corp., 497

So.2d 670 (Fla.App. 4 Dist. 1986); Star Island Associates v.

Lichter, 473 So.2nd 791 (Fla.App. 2nd Dist. 1985); Marco Bay

BERNER TRA

|

Associates v. Vandewalle, 472 So.2d 472 (Fla. App. 2 Dist.

1985); Appalachian, Inc. v. Olson, 468 So.2d 266 (Fla.App. 2

Dist. 1985); Grove Towers, Inc. v. Lopez, 467 So.2d 358

(Fla.App. 3 Dist.), rev. denied, 480 So.2d 1294 (Fla. 1985); Finst

Dev., Inc. v. Bahaor, 449 So.2d 292 \Fla.App. 3 Dist. 1984);

Nargiz v. Henlopen Developers, 380 A.2d 1361 (Del. 1977).

The decision of the Alabama Supreme Court being challeng-

ed by this Petition is in accord with not only the federal caselaw

for the Circuit but also every other appellate decision to discuss

this question.

The Petition’s contention that jurisdiction in this case is

necessary is a most untennable one. There is a complete absence

of any substantial federal question. The decision of the

Alabama Supreme Court is consistent with the legislative

history of the Act as well as supportable by tenets of statutory

construction. Further, the Petition is unable to cite a single

federal or state decision which is contrary authority to the legal

conclusion reached by the Alabama Supreme Court. The pre-

sent Petition does not raise a substantial federal question.

Il. The Alabama state courts correctly denied the applica-

tion of the 100 lot exemption under the facts of this case.

The basic argument advanced on behalf of Petitioners, while

presented under the guise of a ‘‘conflict of decisions,’’ is in

) reality only a dispute over how the factual situations in three

separate cases were resolved. An examination of the decision of

the Alabama Supreme Court demonstrates that there is the

absence of any real conflict that would be subject to review by

this Court. The “‘sheeps clothing”’ blanketing this issue is readi-

ly discernable when the cases cited are examined.

te te ee

The basic foundation of Petitioners’ assertion includes the

application of the ‘*common promotional plan’”’ as set forth in

Section 1701(4).

a” oe

{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 promotion plan.’’

15 U.S.C. 1701(4) (emphasis added). The Alabama Supreme

Court was not the first appellate case to review the application

of this provision. In addition to the decision of the Alabama

Supreme Court, the “‘common promotion plan’’ has been ap-

plied in three reported decisions.

The Eleventh Circuit briefly addressed the ‘‘common promo-

tion plan’’ in Eaton v. Dorchester Development, Inc., 692 F.2d

727 (11th Cir. 1982). Judge Vance in authoring the Panel’s deci-

sion acknowledged the application of Section 1701(4) to the

facts of the complaint when he noted:

[Plaintiffs] contended that Defendants had acted in con-

cert with another developer, Power Corporation, to

develop the Dorchester as part of a project which included

a second condominium, the Grosvenor.

Plaintiffs submitted a promotional brochure in which

Power Corporaticn referred to itself as the

**owner/developer/builder’’ of both the Dorchester and

the Grosvenor and stated that the Grosvenor was continu-

ing the “‘standard of excellence’’ that Power Corporation

had begun several years ago with the Dorchester. They

also submitted a magazine advertisement in which a

realtor, Power Realty, Inc., promoted ‘‘Power Corpora-

tion Luxury Condominiums’’, including the Dorchester

and the Grosvenor. Finally, plaintiffs submitted copies of

Status sheets from the Florida Department of State show-

ae aaa STS

—

ing that Power Corporation and the Dorchester had the

same president and director and the same registered office.

Id. at 729. The Panel confirmed that based upon the allegations

of the complaint, a cause of action was stated under the ‘‘com-

mon promotion plan’’ and that defendants were not exempted

solely because part of the project only involved eighty-six units.

The Alabama Supreme Court cited Eaton in authoring its affir-

mance. 525 So.2d 1346, 1349-50.

A similar conclusion based upon the facts of the case was

reached in Grove Towers, Inc. v. Lopez, 467 So.2d 358 (Fla.

App. 3 Dist. 1985). In this case, the court confirmed the ap-

plication of the ‘‘common promotional plan’’ to a proposed

project totalling 108 units in the condominium documents while

only 98 units were ‘‘intended.’’ /d. at 361. Again, Grove

Towers indicated that individual facts of that case were being

reviewed. Nothing contained in the decision of the Alabama

Supreme Court decision could even be remotely characterized as

‘‘inconsistent’’ with this opinion. Petition at p. 23.

The guise of Petitioners’ assertion is further revealed in an ex-

amination of Dunaway v. Lewis, 554 P.2d 110 (Okla. Ct.App.

1976) - the other case which Petitioners allege is ‘‘inconsistent”’

with the decision of the Alabama Supreme Court. In Dunaway,

the Court of Appeals of Oklahoma reviewed a jury verdict in

favor of the defendant. At trial, plaintiff had claimed the ex-

eistence of a ‘’common promotional plan.’’ The jury found in

favor of the defendant on this issue. The appellate court aptly

noted:

on inl eee i

In the case at bar the defendant produced evidence that

Lakeside North Second was not a part of the same promo-

tional plan as Lakeside North. Although his evidence that

the developments were not contiguous and were created at

different times are not necessarily persuasive, the disparate

forms of advertising used by the defendant create a valid

question of fact whether Lakeside North Second was or

was not a part of a common promotional plan with

Lakeside North. The fact was properly reserved for the

jury.

Id. at 112. Dunaway, was another authority relied upon by the

Alabama Supreme Court in rendering its opinion. 525 S.2d at

1349-50.

Quite apart from being ‘‘inconsistent’’ with these authorities,

the Alabama Supreme Court in reviewing a trial court factual

determination, affirmed the lower disposition noting that the

relevant statutory provisions were correctly applied. The Court

cited at length the factual record that support the determination

of a ‘‘commonal promotional plan.’’ As noted by Justice

Almon:

The investors’ argument below and on appeal is that the

developers offered to sell units in Phase I and Phase II as a

common plan to development. In support of their argu-

ment, the point to the following factors: (1) That Neda,

Inc., was formed to promote and sell units in both Phase |

and Phase II; (2) The project was advertised, represented,

and marketed as a two-phase project consisting of two in-

dividual towers adjoining each other, Phase I containing

55 units and Phase II containing 46 units; and (3) The pro-

ject was advertised and intended by the owners to be a two-

phase project containing over 100 units. The investors of-

fered the sworn testimony of Arthur Hill, president of

Gulf South Corridor Properties, and Winston Biggs, presi-

dent of Chancellor Land Company, Inc., in support of

their claim during the hearing on March 20, 1986. The

testimony of both men was that the development was

advertised, represented, and marketed as 2 two-phase pro-

ject containing two towers. The towers were to be adjacent

to one another sharing a common lobby and beach front.

Mr. Biggs testified that the Johnsons were promised the

Opportunity to trade their Phase I unit for a nicer unit in

so

Phase II when it was completed. He also testified, and it

was undisputed by the appellants, that none of the pur-

chasers in this suit was presented with a prospectus prior to

the execution of their preconstruction purchase

agreements.

A prospectus covering the development was, however,

prepared by the developers, and it was admitted into

evidence at the March 20 hearing. It was denominated

‘‘Rast Pass Towers Condominium Declaration,’’ with the

cover depicting twin towers on the Destin coast. Phase I of

the development was to be completed by June 1, 1992. The

maximum number of units in the development was to be

101 ‘‘if, in the sole discretion of the developer, Phase II is

built.”’ The prospectus also said, ‘‘The developer has

reserved the right to construct additional apartment

buildings... as part of this condominium at any time prior

to June 1, 2002.... The additional units to be constructed

will be 46 in number and would be contained in an addi-

tional apartment building.’’ Advertising brochures admit-

ted into evidence at the hearing also depicted twin towers

joined by a common lobby.

Id. at 1348-49.

Without question, the Alabama Supreme Court correctly ap-

plied prevailing standards of review under Alabama law to what

was in all respects a factual determination. There is dubious

merit to Petitioners’ assertion that the Alabama Supreme Court

decision was ‘‘inconsistent’’ with Dunaway or Grove Towers.

Any alleged conflict giving rise to claim for jurisdiction before

this Court is at best illusory. There is no real cenflict on the ap-

plication of law or fact between the underlying facts of this case

and how the trial court resolved them or between the authority

of the Alabama Supreme Court and any other decision cited by

Petitioners. The Court should deny the writ of certiorari.

~~ oe

CONCLUSION

In light of the foregoing, it is clear that:

1. The legislative history of Interstate Land Sales Full

Disclosure Act applies to the sale of condominium units.

2. Precepts of statutory construction confirm that the In-

terstate Land Sales Full Disclosure Act applies to the sale

of condominium units.

3. Except for one case which was reversed on appeal, all

report °d decisions, both federal and state, have held that

the Interstate Land Sales Full Disclosure Act applies to the

sale of condominium units.

4. There is an absence of any substantial federal question as

to whether the Interstate Land Sales Full Disclosure Act

applies to the sale of condominium units.

5. There is nothing in a review of the caselaw, applying the

common promotional plan to indicate that the decision of

the Alabama Supreme Court conflicts with other

authorities.

WHEREFORE, Respondents urge this Court to deny the re-

quested Writ of Certiorari.

DONE AND DATED this 19th day of August, 1988.

John R. Benn

425 North Court Street

Florence, Alabama 35630

Attorney for Respondents

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APPENDIX

STATUTORY PROVISIONS

15 U.S.C. 1702(a)

(a) Unless the method of disposition is adopted for the purpose

of evasion of this chapter, the provisions of this chapter shall

not apply —

(1) the sale or lease of lots in a subdivision containing less

than twenty-five lots;

(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 lesser to erect such a building

thereon within a period of two years.

AGENCY REGULATIONS

24 C.F.R. §1710.1 Definitions

**Lot’’ means any portion, piece, division, unit, or undivided in-

terest in land located in any state or foreign country if the in-

terest includes the right to the exclusive use of a specific portion

of the land.

24 C.F.R. §1710.5 Statutory Exemptions From Provisions of

This Chapter

The requirements of the Act do not apply to—

(a) The sale or lease of lots in a subdivision containing fewer

than 25 lots;

(b) 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. In the case of condominium or multiunit construction, a

— ss

presale clause conditioning the sale of a unit on a certain percen-

tage of sales of other units is permissible if it is legally binding

on the parties and it is for a period not to exceed 180 days.

However, the 180-day provision cannot extend the two-year

period for performance. The permissible 180 days is calculated

from the date the first purchaser signs a sales contract in the

project or, if a phased project, from the date the first purchaser

signs the first sales contract in each phase.

REGULATORY ANNOUNCEMENTS

Land Registration, Formal Procedures and Advertising Sales

Practices, and Posting of Notices of Suspension, 38 Fed. Reg.

23,866 (1973)

Considerable comment was received with respect to the propos-

ed definition of lot. Essentially, comments complained that

OILSR is seeking to regulate everything from securities to coun-

try club memberships. Since in this range of coverage con-

dominiums were mentioned most frequently, OILSR policy on

condominium coverage is set forth herein.

The application of the Act to condominiums has been consistent

OILSR policy since the issue was first raised in 1969. The bases

for this position are that condominiums carry the indicia of and

in fact are real estate, whether or not the units therein have been

constructed. A condominium is accordingly viewed by OILSR

as equivalent to a subdivision, each unit being a lot. Adverse

comment, particularly from builders, asserts that con-

dominiums are equivalent to houses and the sale of houses was

not intended to be covered by the Act. However, the right to

condominium space is a form of ownership, not a structural

description. This condominium concept is employed as an

ownership form for completely horizontal developments and

even for campgrounds. Congress recognized the need to exempt

professional builders from the Act and provided an appropriate

exemption (15 U.S.C. §1702(3)). For a condominium unit sale

—_—* po

to be exempted from the Act, it must accordingly qualify for ex-

emption; i.e., either it must be completed before it is sold, or it

must be sold under a contract obligating the seller to erect the

unit within two years from the date the purchaser signs the con-

tract of sale. For the purposes of the exemption cited,

‘‘buildings comprises the dwelling unit and all utilities or

systems necessary to support normal occupancy. Additionally,

if a condominium dwelling unit is merely incidental to the com-

mon facilities (as in the case of recreational developments) all

common facilities must be completed within the two-year period

to qualify for the exemption since frequently vacation sites are

sold without assurances that such facilities will be completed.

With respect to condominiums intended as primary residences

in metropolitan areas, registration typically is unnecessary since

most professional builders would qualify for the exemption in-

asmuch as they are able to deliver a completed unit to a pur-

chaser within two years after the contract of sale has been sign-

ed.

Further, the legislative history of the Act has been cited as not

authorizing coverage of condominiums. However, there is

negligible legislative history on the present Act and that

legislative history with respect to predecessor bills is unclear on

this subject. It is OILSR’s position that the amended definition

of lot merely codifies OILSR’s longstanding position on con-

dominiums and is a valid exercise of the Secretary’s regulatory

authority under the Act to implement the provisions thereof.

Condominium and Other Construction Contracts, 39 Fed. Reg.

7824 (1974)

The Office of Interstate Land Sales Registration (OILSR) offers

guidelines in re-emphasising attention to the applicability of the

federal land sales registration laws to the offer and sale of con-

dominiums and other structures. The Preamble to OILSR

regulations published on September 4, 1973 (38 FR 23866 et

seq.) points out that condominiums are covered by the Act in

—

that a condominium is equivalent to a subdivision, each unit be-

ing a lot.

George K. Bernstein, Administrator of the Office, reports that

many condominium developers and trade associations have in-

quired concerning coverage of condominium developments in

light of section 1403(a)(3) of the Interstate Land Sales Full

Disclosure Act. (Act). That section exempts from registration

sales of existing buildings and sales of land under contracts

obligating seilers to erect buildings on the land within two years.

Guidelines for Exemptions Available Under the Interstate Land

Sales Full Disclosure Act, 44 Fed. Reg. 24012 (1979)

(c) Improved Lots. — (Section 1403(a)(3) (15 U.S.C. 1702(a)(3)

and 24 CFR 1710.10(c)).

This Section exempts: (1) the sale or lease of any improved land

on which there is a residential, commercial, condominium, or

industrial building or (2) the sale or lease of land under a con-

tract obligating the seller to erect such a building on the lot

within a period of two years.

For a building or unit to be considered complete, it must be

physically habitable and usable for the purpose for which it was

purchased. A residential structure, for example, must be ready

for occupancy and have all necessary and customary utilities ex-

tended to it before it can be considered complete.

If you (the developer or seller) are relying on this exemption and

the residential, commercial, condominium or industrial building

is not complete, the contract must specifically obligate you, the

seller, to complete such a building within two years, otherwise

the sale is not exempt. The two year period begins on the date

the purchaser signs the contract. The use of a contract that

obligates the buyer to build within two years would not exempt

the sale.