Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alsd-1_07-cv-00185/USCOURTS-alsd-1_07-cv-00185-0/pdf.json

Parties Involved:
Steven A. Martino
Plaintiff
Sanibel Development, LLC
Defendant
Richard Taylor
Plaintiff

Document Text:

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

RICHARD TAYLOR, et al., )

 )

Plaintiffs, )

 )

v. ) CIVIL ACTION 07-0185-WS-C

 )

SANIBEL DEVELOPMENT, LLC, )

 )

Defendant. )

ORDER

This matter comes before the Court on defendant’s Motion to Dismiss or, in the

Alternative, Motion for Summary Judgment (doc. 5), and on plaintiffs’ Motion for Extension of

Time for Response to Defendant’s Motion to Dismiss, etc. and Motion for Entry of Scheduling

Order (doc. 7).

I. Background.

On March 9, 2007, plaintiffs, Richard Taylor and Steven A. Martino, filed their

Complaint (doc. 1) in this District Court against defendant, Sanibel Development, LLC, alleging

a single cause of action under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701

et seq. (“ILSFDA” or the “Act”). According to the well-pleaded allegations of the Complaint,

on March 8, 2005 plaintiffs entered into purchase and escrow agreements with Sanibel relating

to plaintiffs’ contemplated purchase of Unit 1106 of a 108-unit condominium project that

Sanibel is developing in Gulf Shores, Alabama. Plaintiffs maintain that the purchase agreement

did not obligate Sanibel to complete construction of the project within two years after execution

of the agreement and that Sanibel failed to comply with the reporting requirements of the

ILSFDA by failing to furnish plaintiffs with a printed property report before execution of the

purchase agreement. (Complaint, ¶¶ 7-11.) The Complaint further alleges that plaintiffs gave

written notice to Sanibel on March 7, 2007 (two days prior to the filing of the Complaint) that

they were revoking the purchase agreement as a result of Sanibel’s failure to provide the

required property report. (Id., ¶ 12.) Plaintiffs complain that Sanibel did not honor such notice

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of revocation, but instead immediately made arrangements to draw on plaintiffs’ letter of credit,

pursuant to which Sanibel, by and through its agent, received payment of $105,800 that plaintiffs

contend rightfully belongs to them. (Id., ¶ 13.)

Based on these allegations, Taylor and Martino now bring a claim against Sanibel

pursuant to the ILSFDA, seeking a ruling that plaintiffs were entitled to revoke the purchase

agreement, that their notice of revocation was effective, that plaintiffs are entitled to recover the

$105,800 in funds drawn on their letter of credit, and that plaintiffs are entitled to recover their

costs and attorney’s fees incurred in prosecuting this action.

On April 3, 2007, Sanibel filed a Motion to Dismiss or, in the Alternative, Motion for

Summary Judgment (doc. 5). In particular, Sanibel contends that this action must be dismissed

pursuant to Rule 12(b)(1), Fed.R.Civ.P., for lack of subject matter jurisdiction because the

ILSFDA cannot confer jurisdiction over plaintiffs’ claims. Alternatively, Sanibel maintains that

it is entitled to summary judgment on the ILSFDA cause of action based on certain averments in

the Affidavit of Samuel G. McKerall which, if accepted as true, would establish that the Act does

not apply. Rather than submitting a direct response to the Motion, plaintiffs instead petitioned

the Court for an indefinite extension pending initial disclosures and discovery to allow them to

explore the veracity of the McKerall Affidavit. Both the defendant’s Motion to Dismiss or for

Summary Judgment and the Plaintiffs’ Motion for Extension are now before the Court.

II. Analysis.

A. Defendant’s Motion to Dismiss for Lack of Jurisdiction.

In considering the various legal questions raised by the parties’ submissions, priority

must be given to Sanibel’s challenge to the jurisdiction of this Court. After all, “[a] federal court

not only has the power but also the obligation at any time to inquire into jurisdiction whenever

the possibility that jurisdiction does not exist arises.” Fitzgerald v. Seaboard Sys. R.R., Inc., 760

F.2d 1249, 1251 (11th Cir. 1985). If, as Sanibel maintains, federal subject matter jurisdiction is

lacking, then this Court is powerless to proceed further and must immediately dismiss the

Complaint without reaching any of the other questions presented by the parties in their respective

Motions. See, e.g., Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1261 (11th Cir. 2000) (when

subject matter jurisdiction is deemed lacking, “the court’s sole remaining act is to dismiss the

case for lack of jurisdiction”); University of South Alabama v. American Tobacco Co., 168 F.3d

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1 To the extent that plaintiffs seek to have consideration of defendant’s Rule

12(b)(1) motion deferred until after the completion of discovery, such a delay would be

inappropriate, given that defendant’s objection goes directly to the power of this Court to hear

this dispute. Subject matter jurisdiction has been challenged now. Under the Morrison and

University of South Alabama line of authorities, it would be improper for this Court to disregard

that threshold legal issue and subject the parties to further proceedings in federal court before

taking up the merits of the jurisdictional challenge.

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405, 410 (11th Cir. 1999) (“once a federal court determines that it is without subject matter

jurisdiction, the court is powerless to continue”). Accordingly, the jurisdictional issue must be

addressed first.1

As grounds for its jurisdictional challenge, Sanibel asserts that the Act does not apply to

the purchase agreement at issue because this transaction falls within a statutory exemption which

excludes from the ILSFDA’s registration and disclosure requirements “the sale or lease of lots in

a subdivision containing fewer than one hundred lots which are not exempt under subsection (a)

of this section.” 15 U.S.C. § 1701(b)(1). According to Sanibel, even though the condominium

development in question consists of 108 units, at least nine of those units are excluded from the

Act’s ambit by an exemption for “the sale or lease of land under a contract obligating the seller

or lessor to erect [a residential, commercial, condominium, or industrial building] thereon within

a period of two years,” 15 U.S.C. § 1702(a)(2), and by an exemption excluding “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.” 15 U.S.C. § 1702(a)(7). Because there are

fewer than 100 nonexempt units at the Sanibel development, defendant argues, the ILSFDA does

not apply to the transaction at issue and cannot be utilized by plaintiffs to revoke the March 2005

purchase agreement.

As evidence that the threshold of 100 nonexempt units is not satisfied here, Sanibel offers

the affidavit of its general counsel, Samuel G. McKerall, who avers that the Sanibel development

includes 108 units, at least nine of which “were sold under contracts obligating Sanibel to erect a

condominium building within a period of two years.” (McKerall Aff., ¶ 4.) The McKerall

Affidavit also includes an averment that at least nine units at that development were never made

available to the public but were instead sold to persons engaged in bona fide land sales

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2 To be sure, the inclusion of a federal question in a complaint does not always

automatically give rise to federal jurisdiction. Indeed, if a federal claim is so insubstantial as to

be frivolous, federal question jurisdiction may not lie. See, e.g., Household Bank v. JFS Group,

320 F.3d 1249, 1254 (11th Cir. 2003) (“The dismissal of a federal-question claim for lack of

subject-matter jurisdiction is justified only if that claim were so attenuated and unsubstantial as

to be absolutely devoid of merit, or frivolous.”) (citations omitted); Southpark Square Ltd. v.

City of Jackson, Miss., 565 F.2d 338, 341-42 (5th Cir. 1977) (federal claim “must be more than

frivolous to support federal question jurisdiction” and can satisfy this threshold only if “there is

any foundation of plausibility to the claim”). Whatever its ultimate merits may or may not be,

plaintiffs’ ILSFDA cause of action is clearly not frivolous; therefore, this limitation to 28 U.S.C.

§ 1331 jurisdiction is inapplicable.

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businesses, rendering those units exempt under § 1702(a)(7). (Id. at ¶ 5.) In reliance on the

McKerall Affidavit, Sanibel argues that the Act is “inapposite to the parties’ dispute and

incapable of vesting this court with jurisdiction.” (Defendant’s Motion (doc. 5), at 1-2.)

The fundamental defect with Sanibel’s position is that it improperly conflates the

threshold question of subject matter jurisdiction with the secondary question of whether

plaintiffs’ asserted federal cause of action has merit. “Ordinarily, the test of federal jurisdiction

is not whether the cause of action is one on which the claimant can recover. Rather, the test is

whether the cause of action alleged is so patently without merit as to justify the court’s dismissal

for want of jurisdiction.” S.E.C. v. Mutual Benefits Corp., 408 F.3d 737, 741 (11th Cir. 2005)

(citations omitted); see also United States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1356-57

(11th Cir. 2006) (federal question jurisdiction is not defeated by possibility that plaintiffs might

not prevail on federal claim on the merits). Simply stated, Sanibel’s contention that plaintiffs’

ILSFDA claim is unfounded goes to the merits of such claim, and not the jurisdiction of this

Court to hear it.2 

In a case such as this, where the federal claim is not insubstantial and frivolous, and

where the jurisdictional challenge is also a challenge to the existence of a federal cause of action,

the proper course of action “is to find that jurisdiction exists and deal with the objection as a

direct attack on the merits of the plaintiff’s case.” Mutual Benefits, 408 F.3d at 742 (citations

omitted). The Court will adhere to this approach; therefore, defendant’s Motion to Dismiss for

want of subject matter jurisdiction, pursuant to Rule 12(b)(1), Fed.R.Civ.P., is denied.

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3 That said, of course, the Court recognizes that there is no blanket prohibition on

the granting of summary judgment prior to discovery. See, e.g., Cordoba v. Dillard’s, Inc., 419

F.3d 1169, 1188 (11th Cir. 2005) (stating expectation that district courts will be open to summary

judgment motions filed at early stage of litigation if moving party clearly apprises court that

prompt decision will likely avoid significant unnecessary discovery); Walsh v. Heilmann, 472

F.3d 504, 505 (7th Cir. 2006) (“Summary judgment need not await discovery when the material

facts are undisputed.”). Nonetheless, there are no facts or arguments here suggesting that

consideration of Sanibel’s motion for summary judgment at this early stage will save the parties

unnecessary discovery; to the contrary, the factual predicate of Sanibel’s motion merely

underscores the compelling need for discovery to enable plaintiffs to explore the veracity of

those factual allegations.

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B. Defendant’s Motion for Summary Judgment.

In the alternative to its request for dismissal under Rule 12(b)(1), Sanibel seeks entry of

summary judgment in its favor, based again on its contention that the McKerall Affidavit

demonstrates that plaintiffs cannot prevail on their ILSFDA cause of action, as a matter of law.

By seeking summary judgment at this nascent phase of the case, Sanibel has jumped the

gun. The Eleventh Circuit has opined that “[a]s a general rule summary judgment should not be

granted until the party opposing the motion has had an adequate opportunity to conduct

discovery.” Reflectone, Inc. v. Farrand Optical Co., 862 F.2d 841, 843 (11th Cir. 1989); see also

Jones v. City of Columbus, Ga., 120 F.3d 248, 253 (11th Cir. 1997) (“The law in this circuit is

clear: the party opposing a motion for summary judgment should be permitted an adequate

opportunity to complete discovery prior to consideration of the motion.”); Snook v. Trust Co. of

Georgia Bank of Savannah, N.A., 859 F.2d 865, 870 (11th Cir. 1988) (“The party opposing a

motion for summary judgment has a right to challenge the affidavits and other factual materials

submitted in support of the motion by conducting sufficient discovery so as to enable him to

determine whether he can furnish opposing affidavits.”).3

Here, Taylor and Martino have had no opportunity to test, challenge or investigate the

factual averments of the McKerall Affidavit via the discovery process, inasmuch as the parties

have not yet conducted their Rule 26(f) meeting and the Local Rules of this District Court

generally forbid the commencement of discovery antecedent to such a meeting. See LR 26.1(c). 

Moreover, the facts on which defendant’s Rule 56 request is based lie outside the pleadings and

are likely in defendant’s sole possession, such that plaintiffs have never had a reasonable

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opportunity to explore or controvert them. In light of these circumstances, and the Eleventh

Circuit’s admonition against granting summary judgment motions before the nonmovant has had

an adequate opportunity to conduct discovery, entry of summary judgment in Sanibel’s favor

would be manifestly inappropriate at this time.

III. Conclusion.

For all of the foregoing reasons, it hereby ordered as follows:

1. Defendant’s Motion to Dismiss or, in the Alternative, Motion for Summary

Judgment (doc. 5) is denied; provided, however, that defendant is granted leave

to renew its request for summary judgment at the close of discovery.

2. Plaintiffs’ Motion for Extension of Time for Response to Defendant’s Motion to

Dismiss, Etc. and Motion for Entry of Scheduling Order (doc. 7) is moot. 

Defendant’s Rule 12(b)(1) request having been denied as legally unfounded, and

its Rule 56 request having been denied as premature, plaintiffs no longer have any

need for an extension of time to respond to said motion. Likewise, the Motion for

Entry of Scheduling Order is moot because, in accordance with longstanding

practice in this District Court, such a scheduling order will be entered by

Magistrate Judge Cassady as a matter of course after defendant files its answer in

these proceedings.

3. Sanibel is ordered to file its answer pursuant to Rule 12, Fed.R.Civ.P., on or

before May 14, 2007.

DONE and ORDERED this 4th day of May, 2007.

s/ WILLIAM H. STEELE 

UNITED STATES DISTRICT JUDGE

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