Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-09-01020/USCOURTS-ca4-09-01020-0/pdf.json

Parties Involved:
Anna Marie Bartley
Appellant
Won Gil Choi
Appellant
Edward Crowley
Appellant
KeAe Crowley
Appellant
James F. Dronsfield
Appellant
Hyung Jae Kil

June K. Kil

Hong Y. Kim
Appellant
Soncha Lee
Appellant
Mary Ann Long

Melvin Joseph Long

Sarah Klawitter Marks
Appellant
Merrifield Town Center Limited Partnership
Appellee
Yong Kyo Shin
Appellant
Hanna G. Wang
Appellant

Document Text:

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

MELVIN JOSEPH LONG; MARY ANN 

LONG,

Plaintiffs-Appellants,

and

KEAE CROWLEY; ANNA MARIE

BARTLEY; WON GIL CHOI; HYUNG

JAE KIL; HONG Y. KIM; YONG KYO

SHIN; JUNE K. KIL; SARAH

KLAWITTER MARKS; HANNA G.  No. 08-2371

WANG; SONCHA LEE; EDWARD

CROWLEY; JAMES F. DRONSFIELD,

Plaintiffs,

v.

MERRIFIELD TOWN CENTER LIMITED

PARTNERSHIP, a Virginia limited

partnership,

Defendant-Appellee. 

Appeal: 09-1020 Doc: 32 Filed: 07/13/2010 Pg: 1 of 15
ANNA MARIE BARTLEY; WON GIL 

CHOI; HONG Y. KIM; YONG KYO

SHIN; SARAH KLAWITTER MARKS;

HANNA G. WANG; SONCHA LEE;

KEAE CROWLEY; EDWARD CROWLEY;

JAMES F. DRONSFIELD,

Plaintiffs-Appellants,

and

HYUNG JAE KIL; JUNE K. KIL;  No. 09-1020

MELVIN JOSEPH LONG; MARY ANN

LONG,

Plaintiffs,

v.

MERRIFIELD TOWN CENTER

LIMITED PARTNERSHIP, a Virginia

limited partnership,

Defendant-Appellee. 

Appeals from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Gerald Bruce Lee, District Judge.

(1:08-cv-00145-GBL-JFA)

Argued: May 14, 2010

Decided: July 13, 2010

Before WILKINSON, NIEMEYER, and SHEDD,

Circuit Judges.

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Reversed and remanded by published opinion. Judge

Niemeyer wrote the opinion, in which Judge Wilkinson and

Judge Shedd joined.

COUNSEL

John Connell Altmiller, Jr., PESNER KAWAMOTO CONWAY, PLC, McLean, Virginia, for Appellants. Edward W.

Cameron, CAMERON MCEVOY, PLLC, Fairfax, Virginia,

for Appellee.

OPINION

NIEMEYER, Circuit Judge:

Melvin and Mary Long, along with several other individuals, who signed contracts to purchase eight condominiums in

the 279-unit condominium complex known as Vantage at

Merrifield Town Center in Falls Church, Virginia, commenced these actions against the developer, alleging violations of the Interstate Land Sales Full Disclosure Act

("ILSFDA") (pronounced, perhaps, "ills-fi-da"), 15 U.S.C.

§ 1701 et seq., and seeking to rescind their contracts and

obtain refunds of their deposits.

The developer, Merrifield Town Center Limited Partnership ("Merrifield"), filed a motion to dismiss on the ground

that the sales contracts for units in the Vantage condominium

complex were exempt from ILSFDA’s requirements under

two exemptions that, when combined, covered all 279 units.

Merrifield contended that the sales contracts for 182 of the

lots or units, which promised delivery of condominiums

within two years, were allegedly exempted under ILSFDA’s

"Improved Lot Exemption," which exempts from ILSFDA

sales contracts that obligate the seller to construct the promLONG v. MERRIFIELD 3

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ised condominiums within "a period of two years." See id.

§ 1702(a)(2). And the sales contracts for the remaining 97

units, which promised delivery of condominiums within three

years, were allegedly exempted under ILSFDA’s "100 Lot

Exemption," which exempts from ILSFDA transactions

involving developments containing fewer than 100 lots that

are not otherwise exempt under the Act. See 15 U.S.C.

§ 1702(b)(1). The plaintiffs responded, arguing that in order

for the 100 Lot Exemption to apply, the remaining 182 units

had to be exempt under the Improved Lot Exemption and that,

in this case, the contracts for the sale of those units did not

satisfy the requirements of § 1702(a)(2) because they did not

obligate Merrifield to deliver the condominiums within two

years from the date that each purchaser signed the purchase

contract.

The district court granted Merrifield’s motion to dismiss

based on the 100 Lot Exemption. But it did so without discussing whether the other sales contracts in the development

were indeed exempt under the Improved Lot Exemption. The

plaintiffs’ appeal challenges Merrifield’s qualification for

both exemptions, as the first is dependent on the second.

We hold that to qualify for the Improved Lot Exemption

under § 1702(a)(2), which provides that a sales contract must

"obligate the seller . . . to erect a [residential, commercial,

condominium, or industrial] building thereon within a period

of two years," the sales contract must obligate the seller to

build and deliver the required structure within two years of

the date that the purchaser signs the contract and incurs obligations, rather than within two years of the date that the seller

signs the contract. Because the sales contracts for the 182

condominiums did not obligate Merrifield to construct the

condominiums within two years of the date that the purchasers signed the contracts and incurred obligations, those contracts were not exempt from regulation under ILSFDA. And

because those 182 sales contracts were not exempt, the 100

Lot Exemption could not be relied on to exempt the remaining

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condominiums because there were more than 100 lots or units

in the development that were not exempt. Accordingly, we

reverse the district court’s order of September 30, 2008,

granting Merrifield’s motion to dismiss and remand for further proceedings.

I

In selling the lots and unbuilt condominium units at the

Vantage condominium complex, Merrifield offered two types

of sales contracts. One type, which covered 97 units, promised construction and delivery of the condominium unit within

36 months of Merrifield’s "ratification" of the sales contract,

and the other type, which covered 182 condominium units,

promised construction and delivery of the condominium unit

within 24 months of Merrifield’s "ratification" of the sales

contract. All of the plaintiffs in this case signed 36-month

contracts during June and July of 2005, and Merrifield ratified

those contracts by signing them from one to three months

later.

Other than the promised delivery date, all of the sales contracts at the Vantage condominium complex were substantially similar. Each contract provided that it "[was] made on

[the date of purchaser’s signing] by and between [purchaser]

and [Merrifield]." Each contract required that the purchaser

provide a deposit at the time the purchaser signed the contract

equal to 5% of the purchase price if the purchaser intended to

occupy the unit, or 10% if the purchaser was an investor who

intended to sell or lease the unit, and a second, larger deposit

within 180 days of the purchaser’s signing. Each contract also

obligated the purchaser to make a written loan application

within seven days "of the date Purchaser signs" the contract

and to obtain approval of the financing within two weeks

"from the date Purchaser signs" the contract. If the purchaser

intended to buy the condominium without obtaining a loan,

the purchaser was obligated to produce documentation within

five days "of the date Purchaser signs," showing its ability to

LONG v. MERRIFIELD 5

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pay. Finally, each contract provided that if the purchaser

"breaches or defaults under this Agreement, the Agreement

Deposit and the Options Deposit will be retained by [Merrifield] as liquidated damages and not as a penalty, in which

event Purchaser and [Merrifield] shall be relieved from further liability hereunder." The default clause also authorized

Merrifield, "[i]n the alternative," to retain the initial deposit

and the options deposit and to pursue such other legal or equitable remedies as it may have.

Each contract anticipated that Merrifield would, at some

later date, "ratif[y]" the sales contract signed by the purchaser

and provided that the contract was not binding on Merrifield

until such ratification. In the case of the eight contracts at

issue in this case, Merrifield ratified the contracts from one to

three months after the purchaser signed them.

Due to a series of disagreements, none of the contracts in

this case went to settlement. Rather, the purchasers commenced these actions under ILSFDA and state law, seeking

rescission and return of their deposits by way of rescission or

damages. Merrifield filed a motion to dismiss the complaints

under Federal Rule of Civil Procedure 12(b)(6), claiming that

the 182 24-month contracts were exempt from ILSFDA’s

requirements under the Improved Lot Exemption, 15 U.S.C.

§ 1702(a)(2), as they obligated Merrifield to construct the

condominiums within two years of Merrifield’s ratification of

the contracts. Because 182 units were exempt, the remaining

97 36-month contracts, which included plaintiffs’ contracts,

were exempt under the 100 Lot Exemption, 15 U.S.C.

§ 1702(b)(1). Merrifield also addressed the plaintiffs’ statelaw claims in its motion to dismiss.

The district court granted Merrifield’s motion, reasoning

that because it was undisputed that Merrifield was selling

only 97 units under the 36-month contracts, the 100 Lot

Exemption applied to them, warranting dismissal of the ILSFDA claims. The district court did not, however, address the

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question of whether the Improved Lot Exemption applied to

the 182 24-month contracts, nor did it discuss the fact that the

condominium complex, when combining the 24-month contracts and the 36-month contracts, contained more than 100

units. The district court also dismissed the state-law claims, a

ruling that the plaintiffs do not appeal.

The plaintiffs filed a timely motion to alter or amend the

district court’s judgment, arguing that the district court had

erred by applying the 100 Lot Exemption without considering

the antecedent question of whether the 24-month contracts

were exempt under the Improved Lot Exemption. They

argued that case law, as well as regulations of the Department

of Housing and Urban Development ("HUD"), provided that

the Improved Lot Exemption requires that a seller be obligated to build the structure within 24 months of when the purchaser signs the sales contract and incurs obligations. The

plaintiffs argued that the 24-month contracts in this case

failed to meet that requirement because they did not require

Merrifield to build and deliver completed condominiums until

two years after it ratified the contracts. Because the 182 24-

month contracts were not exempt, the plaintiffs argued, the

plaintiffs’ 36-month contracts also were not exempt, as the

total number of non-exempt units in the development

exceeded 100.

The district court denied the plaintiffs’ motion to alter or

amend the judgment, and this appeal followed.

II

Because Vantage at Merrifield Town Center was a condominium complex that contained a total number of 279 lots or

units, only if the 182 units sold with 24-month contracts were

exempt under the Improved Lot Exemption of 15 U.S.C.

§ 1702(a)(2) could the 97 units sold with 36-month contracts

be exempt under the 100 Lot Exemption, because only then

would the development contain fewer than 100 otherwise

LONG v. MERRIFIELD 7

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non-exempt units. See 15 U.S.C. § 1702(b)(1) (exempting

"the sale or lease of lots in a subdivision containing fewer

than one hundred lots which are not exempt under

[§ 1702(a)]") (emphasis added)). If, on the other hand, the 24-

month contracts were not exempt under the Improved Lot

Exemption, the 36-month contracts would not be exempt

under the 100 Lot Exemption, as the development would then

contain more than 100 otherwise non-exempt units.

The district court skipped a step in its analysis in determining that the 100 Lot Exemption applied to the 36-month contracts by failing to consider the antecedent question of

whether the Improved Lot Exemption applied to the 24-month

contracts. It failed to recognize that to determine whether the

plaintiffs’ contracts with Merrifield were exempt under the

100 Lot Exemption, it necessarily had to address whether the

24-month contracts were exempt under the Improved Lot

Exemption.

Thus, the issue now presented is whether the 24-month

contracts are exempt as "obligat[ing] the seller or lessor to

erect . . . a building [on the lot] within a period of two years."

15 U.S.C. § 1702(a)(2) (emphasis added). And to resolve that

issue, we must determine when the Improved Lot Exemption’s two-year period begins to run. The plaintiffs argue that

the two-year period during which the developer must erect

and deliver a building begins to run from the time that the

purchasers sign the sales contracts and incur obligations. Merrifield argues that the time period begins to run only when

both parties have signed the contracts.

Because § 1702(a)(2) is ambiguous in this regard, we must

ascertain the interpretation of the statute that best implements

Congress’ intent and gives effect to the statute’s purpose. See

Adler v. Comm’r, 86 F.3d 378, 380-81 (4th Cir. 1996); see

also Food Town Stores, Inc. v. EEOC, 708 F.2d 920, 924 (4th

Cir. 1983) ("A statute must be interpreted to give it the single,

most harmonious, comprehensive meaning possible in light of

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the legislative policy and purpose"); Berry v. Atl. Greyhound

Lines, Inc., 114 F.2d 255, 257-58 (4th Cir. 1940) ("A statute

should . . . be interpreted both as a whole and also in the light

of its general scope, tenor and purpose").

ILSFDA is a remedial statute enacted to prevent interstate

land fraud and to protect unsuspecting and ill-informed investors from buying undesirable land. See Kemp v. Peterson, 940

F.2d 110, 112 (4th Cir. 1991) ("The Act is designed to prevent fraud and deception in the sale of undeveloped land");

Ahn v. Merrifield Center Ltd. P’ship, 584 F. Supp. 2d 848,

853 (E.D. Va. 2008). To this end, the statute requires that

specified disclosures be made prior to a purchaser’s execution

of a sales contract. See Ahn, 584 F. Supp. 2d at 853. See generally Conf. Rep. 90-1785 (1968), as reprinted in 1968

U.S.C.C.A.N. 3053, 3066 (describing purposes of disclosure

requirements as preventing material misrepresentations by

sellers). These disclosure requirements are designed to protect

purchasers by ensuring that "‘prior to purchasing certain types

of real estate, a buyer [is] apprised of the information needed

to insure an informed decision.’" Markowitz v. Ne. Land Co.,

906 F.2d 100, 103 (3d Cir. 1990) (quoting Cost Control Mktg.

& Mgmt., Inc. v. Pierce, 848 F.2d 47, 48 (3d Cir. 1988)).

Congress did not, however, intend that ILSFDA regulate all

sales of real property, and, accordingly, it provided a list of

specific exemptions. See 15 U.S.C. § 1702(a)-(b). Because

ILSFDA is a remedial statute, however, we construe its

exemptions narrowly. See Olsen v. Lake Country, Inc., 955

F.2d 203, 206 (4th Cir. 1991).

The Improved Lot Exemption of § 1702(a)(2) recognizes a

limit to the statute’s protections in circumstances where a purchaser receives assurances that the lot he is purchasing either

already contains a building or structure or will contain one

within 24 months of the purchase date. The guarantee of construction within a reasonably short time obviates some of the

concern that the purchaser may have about being hoodwinked

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into buying an uninhabitable lot or a lot that will not have the

value anticipated by the contract. Construing the Improved

Lot Exemption narrowly will thus best serve ILSFDA’s purposes. Thus, a sales contract, which requires a purchaser

immediately to undertake obligations and pay money to the

seller but permits the seller at its discretion to postpone construction and delivery of the building or structure, would

undermine the purposes of ILSFDA.

In this case, if we were to construe § 1702(a)(2) as Merrifield would have us do—that is, to find that the exemption

applies even if Merrifield’s obligation to build and deliver

condominiums extends to an indefinite date defined by two

years after it elects to ratify the contract—we would be

expanding the exemption to such an extent that the statutory

purposes could be frustrated or entirely defeated. The contract

purchasers would be incurring obligations and expenses on

the date they sign the contract, but the seller’s obligation to

build would extend to an indefinite period determined by

when the seller decides to ratify it. Such a scenario would narrow significantly the scope of transactions protected by ILSFDA, frustrating Congress’ purpose. See Ahn, 584 F. Supp. 2d

at 855 ("To confer on sellers the power to extend the two-year

period by delaying ‘ratification’—perhaps indefinitely—

would allow sellers to engage in an end-run around ILSFDA’s

protections, a result plainly contrary to Congress’s carefully

crafted scheme to protect property purchasers"). Accordingly,

the narrower construction of § 1702(a)(2), as advanced by the

contract purchasers in this case—that the two-year statutory

obligation begins when the purchaser signs the sales contract

—better serves the statute’s purposes.

This interpretation—that the time within which sellers are

obligated to build runs from the purchaser’s signing and

incurring obligations—also results in a systematic and coherent scheme that fits the precontract protections given by ILSFDA for non-exempt sales. For instance, in non-exempt sales,

a printed property report must be provided to "the purchaser

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or lessee in advance of the signing of any contract or agreement by such purchaser." 15 U.S.C. § 1703(a)(1)(B) (emphasis added). In the event that such disclosures are not made, the

purchaser may revoke the contract within two years of the

date of the purchaser’s signing. See id. § 1703(c). This structure of coverage thus meshes well with the exemption so long

as the exemption is construed narrowly—i.e., such that the

date of the purchaser’s signing and incurring obligations, not

the date when the seller chooses to sign, begins the time

period in which the contract must oblige the seller to build

and deliver a condominium.

Regulations promulgated by HUD also support the interpretation that the date of the purchaser’s signing commences

the period within which the seller must build the promised

structure. They provide, for example, that a seller may include

a "presale clause conditioning the sale of a unit on a certain

percentage of sales of other units . . . if it is legally binding

on the parties and 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

. . . ." 24 C.F.R. § 1710.5 (emphasis added). This provision

recognizes that presale conditions are permissible, but

explains that such conditions become enforceable when the

purchaser signs, even if the seller has not signed, and that they

cannot be used to extend the date for the seller’s performance

beyond two years after the purchaser signs. And, as with

other parts of the statute, this regulation begins the applicable

time period on the date that the purchaser signs. The operation of this regulation is consistent with a more general understanding that the relevant starting point for ILSFDA’s

regulation and exemption of contracts is the date of the purchaser’s signing. This regulation also highlights the importance of the seller’s obligation to construct within two years

of the purchaser’s signing.

In addition, HUD has issued interpretive guidelines that are

specifically applicable to the Improved Lot Exemption of

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§ 1702(a)(2). Its guidelines state, "The two-year period normally begins on the date the purchaser signs the sales contract." Guidelines for Exemptions Available Under the

Interstate Land Sales Full Disclosure Act, 61 Fed. Reg.

13,601, 13,603 (March 27, 1996) (emphasis added). While

these guidelines are not binding, they are entitled to "some

deference" in interpreting the relevant statute. See Reno v.

Koray, 515 U.S. 50, 61 (1995); see also Christensen v. Harris

County, 529 U.S. 576, 587 (2000); Skidmore v. Swift & Co.,

323 U.S. 134, 140 (1944). Merrifield suggests that the use of

the word "normally" in the guidelines implies that the date of

the purchaser’s signing is not a mandatory start date for the

two-year term but simply a commonly understood one. But

this fails to recognize that the guidelines also state, "The contract must not allow nonperformance by the seller at the seller’s discretion. . . . [A]s 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." 61 Fed.

Reg. at 13,603 (emphasis added). Despite the guidelines’ prohibition, the 24-month sales contracts for condominiums at

the Vantage condominium complex afforded Merrifield unfettered discretion to delay its obligation to build. Thus, while

the contracts required purchasers to give deposits at the time

they signed and promptly thereafter to undertake to secure

financing, they did not begin Merrifield’s period of performance until Merrifield chose to ratify the contracts, a date that

fell within its sole discretion.

Finally, and most immediately important, Merrifield sought

an advisory opinion from HUD, under 24 C.F.R. § 1710.17,

as to whether the Improved Lot Exemption and the 100 Lot

Exemption would apply to exempt both the 24-month and 36-

month contracts in this case. HUD responded by letter dated

November 3, 2005, and advised Merrifield that the Improved

Lot Exemption would apply to the 24-month contracts and, as

a result, the 100 Lot Exemption would apply to the 36-month

contracts. But the letter was explicitly predicated on HUD’s

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understanding that construction of the condominiums would

take place "within two years from the date the purchaser

signs the Condominium Purchase Contract," not within two

years of ratification, as the contracts actually provided.

(Emphasis added). Therefore, rather than indicating that the

Improved Lot Exemption should apply to Merrifield’s 24-

month contracts, the HUD opinion actually indicates that it

should not apply.

Notwithstanding the statute, regulations, and guidelines,

Merrifield advances several contract-based arguments as to

why the Improved Lot Exemption’s two-year period begins to

run only upon the date that both parties have signed the contract. First, it argues that the Virginia statute of frauds, which

provides that no contract for the sale of real property exists

until the contract is written and signed by the parties, requires

a conclusion that no contract existed until both parties signed.

It reasons, therefore, that § 1702(a)(2)’s two-year period for

constructing condominiums must begin when it ratifies the

contracts. The statute of frauds, however, requires a writing

and signature only "by the party to be charged." Va. Code.

Ann. § 11-2. Thus, in this case, the sales contracts became

binding against the purchasers upon the purchasers’ signing.

In the same vein, Merrifield also argues that when the purchasers signed the sales contracts, they were merely offering

to enter into a contract—an offer that could be accepted or

rejected by Merrifield. It asserts that the provisions for deposits and financing were simply components of the offer. But

this argument fails to recognize the import of the deposit and

financing terms. The contracts provided that upon signing,

each purchaser had to pay Merrifield an initial deposit and,

within a short period, a second deposit, regardless of when

Merrifield ratified the contract. The purchasers were also

required, within a few days of signing, to obtain financing,

again regardless of when Merrifield ratified the contract.

Finally, the contract contained default provisions under which

the purchasers could lose some deposits as liquidated damLONG v. MERRIFIELD 13

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ages, again before Merrifield ratified the contract. Moreover,

at a more general level, the contract’s use of the term "ratification" by Merrifield implied Merrifield’s validation of an

agreement that had already been reached.

Finally, in support of its position, Merrifield relies on the

Sixth Circuit’s decision in Becherer v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 43 F.3d 1054, 1066-67 (6th Cir. 1995),

which it describes as holding that the two-year period must be

measured from the time the contract was executed by both

parties. Instead, however, the Sixth Circuit held that

§ 1702(a)(2)’s two-year period began running on the date an

interim escrow account was closed, "as it was only then that

the parties became legally bound" under the contract. The

Becherer court thus did not face a factual circumstance like

the one in this case, where the obligations of the purchasers

were created before the seller’s period for performance commenced. See id. at 1066. Indeed, consistent with the conclusion that we reach in this case, the Sixth Circuit recognized,

in dictum, that the HUD regulations provide that "‘the contract must not allow nonperformance by the seller at the seller’s discretion.’" Id. at 1067 (quoting 24 C.F.R. Pt. 1710,

App. A. subpt. IV(b)).

III

In sum, we conclude that the Improved Lot Exemption of

15 U.S.C. § 1702(a)(2) requires that a sales contract, to be

exempt, must oblige the seller to build and deliver the promised building within two years after the purchaser signs the

contract and incurs obligations. Because the 24-month sales

contracts in this case did not require Merrifield to construct

and deliver the subject condominiums within two years of

when the purchasers signed the contracts and incurred obligations, but rather obligated it to complete the construction

within two years of when it, in its discretion, chose to ratify

the contracts, the contracts were not exempt under

§ 1702(a)(2). With this conclusion, the 100 Lot Exemption

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also could not have applied to the plaintiffs’ contracts because

there were more than 100 non-exempt units. See 15 U.S.C.

§ 1702(b)(1).

Accordingly, we reverse the district court’s order dismissing the plaintiffs’ ILSFDA claims and remand for further proceedings.

REVERSED AND REMANDED

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