### IN THE UNI TED STAT ES COURT OFAPPEALS FOR THE FIF TH CIRCU IT

No. 11-60868

BERTHA MOSELEY HILLMAN; TOXEY G. COLLINS; JOE MICHAEL MAYO; WILLIAM THOMAS COTTOM, JR.; NUMA L. MARQUETTE, JR.; GAIL MARQUETTE; JAMES M. WARNER; CONSTANCE M. WARNER; MICHAEL ELLIS; KELLY ELLIS; M. ELLIS FAMILY HOLDINGS, L.L.C., Plaintiffs-Appellants

v. EMERSON P. LOGA, III; DENNIS STIEFFEL; DOUGLAS R. JOHNSON, Defendants-Appellees

Appeal from the United States District Court for the Southern District of Mississippi

Before KING, SMITH, and HIGGINSON, Circuit Judges. HIGGINSON, Circuit Judge: Plaintiffs-Appellants appeal the distr i c t court’s grant of summary judgment in favor of Defendants-Appellees, based on the district court’s finding that the 24-month construction o b l igations in the Purchase Agreements were 1 U n i te d S ta te s C o u rt o f A p p ea l s

F i ft h C i rc u i t 

### F I L E D Sep tem ber 2 8, 2 012 Lyle W . Cayce Clerk

The Purch ase Agreem ents that Lacot e execut ed wi th Plain tif fs -Ap pel lants Bert ha 1 Hi llm an; Mic hael Ellis , Ke lly Ellis and M. Ellis Fami ly Ho ldi ngs; Toxey G

. C o l l i n s ; Joe Mic hael M ayo; Wil liam Thomas Cottom , Jr. ; Num a L. M arque tte , Jr. ; Ga il Gi lly Mar quet te; Cons tanc e M. Warne r; a n d J a m e s M. Warne r cont ain ide ntic al rele vant pr ovis ions for the pur pos es of

t his d isp ute and wi ll be coll ect ively ref err ed to as the “Pur chas e Agr eem ents .” Case: 11-60868 Document: 00512002639 Page: 1 Date Filed: 09/28/2012No. 11-60868

not illusory a n d, therefore, the parties’ contracts are exempted from the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701, et seq. , (“ILSA”). FACTS AND PROCEEDINGS Plaintiffs

- Ap p e ll a nt s (“Purch a s e r s”) e ach o w n e d c o n do m i niu m u nit s at the Village at Henderson Point (the “Village”) located in Pass Christian, Mississippi. Hurricane Katrina destr o y e d the condominium complex in August 2005. In early 2007, Purchasers retained Lacote, LLC (“Lacote”) to rebuild the complex in the same location. Lacote was made up of three members, Emerson P. Loga, III (“Loga”) and Dennis Stieffel (“Stieffel”), and Douglas Johnson (“Johnson”). 2 In furtherance of the plan to develop and construct the new condominium complex, Lacote acquired the Village prope r t y from the Purchasers. The purchase was financed through Trustmark National Bank (“Trustmark”), which received a first position li e n on the property and committed to provide construction financing for the project. Prior to c o n s t ruction, Purchasers executed Purchase Agreements and made deposits with Lacote for the purchase of individual units once the complex

w a s c o mpleted. The Purchase Agreements stipulated that construction of t h e units would be completed within two years of the execution of the Agreements. Construction began in January 2008, but Lacote did not have adequate funding and stopped construction in June of that year, when the project was only 35% complete. Lacote thus obtained a second construction loan from SI Realty 3 Enterprises, Inc. (“SI Realty”) in the amount of $1.5 million. SI Realty secured its loan with a second position lien through a deed of trust against the property.

Altho ugh Johns on wa s named as a def enda nt in the comp laint , he wa s never se rved 2 wi th pr oce ss
. Plaint iffs- App ellant s info rm ed the dis tri ct cour t that they had exhaus ted eff ort s to loca te Johns on and ther efo re agree d to dis mi ss thei r clai ms agains t John so n wi thou t pr ejudi ce. At the expir atio n of the tw o-ye ar cons tru cti on per iod pr ovide d for in the Purch ase 3 Agreem ents , Lacot e s tillhadc om ple tedon ly 35 % of cons tru cti on on the pr ope rty. 2 Case: 11-60868 Document: 00512002639 Page: 2 Date Filed: 09/28/2012No. 11-60868

Trustmark allegedly backed out of its commitment to finance the project and Lacote thereafter could not make its loan payments to SI Realty. SI Realty purchased Trustmark’s first lien an d f o r e c l o sed on the property in January 2009. Lacote filed for, and has been discharged from, bankruptcy. Purchasers filed the instant lawsuit in May 2010 alleging th a t Loga, Stieffel, and Johnson, as individual members of Lacote, violated the anti-fraud provisions of the ILSA, 15 U.S.C. § 1703(a)(2). The parties filed cross-motions 4 for summary judgment and the district court granted s u m m ary judgment in favor of Loga and Stieffel. The district court concluded that b e c a use the Purchase Agreements contain an obligation to complete construction within two
years, the sales are exempt from the ILSA’s requirements, see 15 U.S.C. § 1702(a)(2), and Loga and Stieffel therefore cannot be held liable under the ILSA. STANDARD OF REVIEW This court reviews “a district court’s grant of summary judgment de novo , applyin g t h e s a m e standards as the district court.” Noble Energy Inc. v. Bituminous Cas. Co. , 529 F.3d 642, 645 (5th Cir. 2008). Summary judgment is thus proper when “there is no genuine d i s p u t e a s t o any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986) (citation omitted). “Doubts

are to be resolved in favor of the nonmoving part, and any reasonable inferences

are to be drawn in favor of that party.” Gowesky v. Singing River Hosp. Sys. , 321 F.3d 503, 507 (5th Cir. 2003).

App ellant s ass ert that they mus t se ek to im pos e liabil ity unde r the ILSA agains t Loga 4 and Sti eff

el, indi vidual me mbe rs of Lacot e, beca use Lacot e (t he Sell er bound by the Purch ase Agreem ents ) fil ed for and wa s dis char ged in bank rup tcy, leaving App ellant s wi th no availabl e rem edy agains t Lacot e if they we re to pur sue brea ch of cont rac t clai ms
. See 15 U. S. C. §§ 1703, 1709. 3 Case: 11-60868 Document: 00512002639 Page: 3 Date Filed: 09/28/2012No. 11-60868

The district court correctly stated that interpretation of the ILS A is governed by federal law, see Kamen v. Kemper Fin. Servs., Inc. , 500 U.S. 90, 97 (1991), and that sta te law (in this case, the law of Mississippi) governs the interpretation of the Purchase Agr e e m ents. ACS Constr. Co. of Miss. v. CGU , 332 F.3d 885, 888 (5th Cir. 2003). DISCUSSION The di s t r i c t court ruled that the Purchase Agreements are exempt from the ILSA because the language imposing a 24-month construction term requirement brings the agreements within the ILS A’s two-year building exemption. The two-year buil d i n g exemption is found in § 1702(a)(2) of the

5 ILSA and states in relevant part: (a) Sale or lease of lots generally Unless the method of disposition is adopte d f or the purpose of evasion of this chapter, the provisions of this chapter shall not apply to–. . . (2) the sale or lease of any improved land on which there is a residential, commercial, condominium, or industrial b uil di ng, or the sale or lease of land under a contract obligating the seller or lessor to erect such a building thereon within a period of two years . . . . 15 U.S.C. § 1702(a)(2). Each of the Purchase Agreements states in relevant part: COMPLETION DATE AND CONSTRUCTION.
a. Notwithstanding any other provision of this A greement, construction of the Unit shall be completed on or before twenty-four (24) months or l ess from the date of execution of this Purchase Agreement OR a Certificate of Occupancy has b e en issued by the

r e levant building authority, whichever is sooner , p rovi d e d , h o w ev e r , that SE L L E R shall not be responsible for delays caused by circumstances recogniz e d by Mississippi law to constitute i m p o s s ib ility o f performance, such as war, strikes, insurre c ti o n , Ac t s

The ILSA is a cons ume r pr ote cti on st atut e that “w as enac ted as a me asu re ‘to ins ure 5 thata buyer, p riort o p urc has ing cer tain ki nds of real es tat e, is info rm ed of fac ts w hich wi ll enable him to mak e an info rm ed dec isi on about pur chas i n g t h e p r o per ty. ’” Ni cke ll v. Beau Vi ew of Biloxi, L.L. C. , 6 3 6 F .3d 752, 754 (5t h Cir. 2011) (quo ting Law v. Roya l Pal m Beac h Colo ny, Inc. , 578 F.2d98, 99 (5t h Cir

. 1978) ).
4 Case: 11-60868 Document: 00512002639 Page: 4 Date Filed: 09/28/2012No. 11-60868

of God, or unanticipated shortage of building materials. This language from the Purchase Agree m e n t s , on its face, obligates the Seller (in this case, Lacote) to complete the building of the Village within 24 months, as contemplated in the exemption articulated in 15 U.S.C. § 1702(a)(2). 6 Appe l l a n t s, however, contend that the 24-month building requirement included in the Purchase Agreements is illusory because Appellants’ abilities to seek damage and specific performance remedies are limited and, therefore, the Purchase Agreements remain subject to the provisions of the ILSA. This court has not yet set forth the exact parameters o f t he two-year exemption under § 1702(a)(2), but the Eleventh Circuit has const r u e d , a s a matter of federal law, the two-year ILSA e x e m ption to be limited to contracts that impose a “legal duty” on the developer to construct a building within two years. See e.g. , Stein

v. Paradigm Mirasol, LLC, 586 F.3d 849, 854 (11th Cir. 2009) (holding that in order to qualify for the ILSA’s two-year exemption, the contract must impose a legal duty on the developer to perform his promise to construct the condominium

w i thin two years). “The nature and extent of the duty a contract im p o s e s , however, is a matter of state contract law.” Id.

Fede ral dis tri ct cour ts have held that co n t r a c t p r o v isi ons wh ich allow for del ays of 6

cons tru cti on com ple tio n beyond the two-year per iod cont em plat ed in 15 U. S. C. § 1702( a)( 2) are acc ept able for p u r p os es of qualif ying for the tw o-ye ar exem pt ion if suc h del ays “ar e legally
rec ognized as def

ens es to cont rac t act ions in the juris dic t ion wh ere the build ing is being
ere cte d. ” Barr

y v. Mi dtow n Mi am i No. 4, LLC, 651 F. Sup p. 2d 1320, 1326- 27 (S .D

. Fla. 2008) (quo ting HU D Gu ide lines ); see Ma guir e v. Souther n Ho me s of Pal m Beac h, LLC, 591 F. Sup p. 2d 1263, 1268 (S .D

. Fla. 2008) ; Mo she r v. Southri dge As soc s. , Inc. , 552 F. Sup p. 1226 (W. D. Pa. 1982) ; see also Sup p. Info. to Part 1710: Gu ide lines for Exemp tio ns Available Und er the ILSA (“ Contr act pr ovis ions wh ich allow for nonp erf orm ance or for del ays on cons tru cti on com ple tio n beyond the tw o-ye ar per iod are acc ept able if suc h pr ovis ions are legally rec ognized as def ens es to cont rac t act ions in the ju r i s d i c t ion wh ere the build ing is being ere cte d. For exam ple , pr ovis ions to allow tim e exten sio ns for event s or occ urr ence s suc h as act s o f G o d , cas ualty los se s or mat eria l sho rta ges are genera lly p erm iss ible. ”)

. The ref ore , as App ellant s conc ede , the language in the Purch ase Agreem ents st atin g , “SELLER sha ll not be res pons ible for del ays caus ed by cir cum st ance s rec ognized by Mis s i s s ipp i law

. . . .” doe s not rend er the 24-m onth
cons tru cti on requ irem ent illus ory. 5 Case: 11-60868 Document: 00512002639 Page: 5 Date Filed: 09/28/2012No. 11-60868

Under Mississippi law, a contract obligation is illusory if the words of the agreement “‘do not purport to put any limitation on the freedom of the alleged promisor, but l e av e his future action subject to his own future will, just as it would have been had he said no words at all.’” Marshall Durbin Food Corp. v. Baker , 909 So. 2d 1267, 1275 (Miss. Ct. App. 2005) (quoting Krebs ex rel. Krebs

v. Strange , 419 So. 2d 178, 182-83. (M i s s
. 1 9 82)). “Such an illusory promise is neither enforceable against the one making it, nor is it o p e r a t iv e as a consideration for a return promise.” Id

. Mississippi law does not provide much guidance on whether creation of a l e g a l obligation requires both damages and also specific performance as available remedies. Notably, the HUD Guidelines, wh i c h d iscuss what constitutes an “obligation” for the purpose of § 1702(a)(2), state that: [C]ontracts that directly or indirectly waive the buyer’s right to specific performance are treated as lacking a realistic obligation to construct. HUD’s position is not that a right to specific performance of construction must be expressed in the contract, but that any such right that purchasers have must not be ne g a t e d

. For example, a contract that provides for a refund or a damage action as the buyer’s sole remedy would not be acceptable. Supp. Info. to Part 1710: Guidelines for Exemptions Available Under the ILSA (hereafter, “HUD Gdl. Supp. to Pt. 1710”). This court has stated that while the 7 HUD Guidelines “are entitled to a degree of deference, we consider them only to the ‘extent that those interpretations h av e th e p o w e r to persuade[.]’” Nickell , 636 F.3d at 755 (quoting Christensen v. Harris Cnty. , 529 U.S. 576, 587 (2000)) (internal quotation marks o m itt e d)

. Th e H UD Guidelines are unambiguous, and

no federal court has held to the contrary, that an obligation for the purpose of § 1702(a)(2) means that the availability of a specific performance remedy cannot be negated. Co m

p a re HUD Gdl. Supp. to Pt. 1710 with, e.g., Ndeh v. Midtown

This d ocum ent is availabl e a t 7 ht tp ://p ort al. hud. gov/hud por tal/ HU D? sr c=/p rogr am_off ices /ho usi ng/r mr a/i ls/ils exem p. 6 Case: 11-60868 Document: 00512002639 Page: 6 Date Filed: 09/28/2012No. 11-60868

Alexandria, L.L.C. , 300 F. App’x 203, 206–08 (4th Cir. 2008) (indicating that specific performance must be available) ; Maguire , 591 F. Su p p
. 2d at 1269–70 (same); Pellegrino v

. Koeckritz Dev. of Boca Raton, LLC, No. 08-cv-80164, 2008 WL 6128748, at *3 (S.D. Fla. July 10, 2008) ( s a m e )

. Ultimately, however, we 8 need not address whether a specific performance remedy nece s s a r i l y need be available in order to create a legal obligation because, as explain e d below, we find that the language of the Purchase Agreements did not negate Purchasers’s abilities to seek damage and specific performance remedies. Alt hough the district court’s Memorandum and Opinion and Order cites five provisio n s o f the Purchase Agreements that the district court considers relevan t t o t h e question of whether the obligation to build within two years is illusory, Appellants limit their argument t o o nly two of these provisions. The first of these provisions is the “Default” provision, found under Section 14 of the Purchase Agreements. The language in the “Default” p rovision, “PURCHASER 9 shall be entitled to the refund of his downpayment as well as any other monies he may have advanced SELLER” in the event of Seller’s default for any reason, does not specifica lly limit Appellants’ available remedies under the Purchase Agreements. Instead, the language “shall be entitled to” gives Purchasers the

Mo reo ver, the Purch ase Agreem ents are real es tat e cont rac ts and Mis sis sip pi cour ts 8

cons ide r “s pec ifi c per for man ce as a ‘pa rti cular ly app rop riat e rem edy’ in mat ter s per taini ng to a br eachof

a reales tat e c ontr act , beca use of reales tat e’s uni que natur e.” Ho uston v. W il li s , 24 S o.3 d 412, 418(Mis s. Ct

. App

. 2009) ( cit atio n o mi tte d)

. The “ De faul t” pr ovis ion st ates , in rele vant par t: 9 b. If for a n y r eas on cons umm atio n of this tra nsa cti on is pr event ed aft er acc ept ance of this Agreem ent by SELLER’S d e faul t here unde r, the PURCH ASER sha ll b e enti tle d to the ref und of his dow n paym ent as we ll as any othe r mo nies he may have advanc ed SELLER

. N o tw iths tand ing the for egoing, to the exten t that any of PURCH ASER’S advanc ed mo nies has gone into cons tru cti on of i m p r o v e m e n t s d e v e l o pm ent on the pr ope rty, PURCH ASER’S claimfor re tur n of suc h por tio n of the dow n payme nt sha ll be sub ord inate to the lien( s) of the cons tru cti on lend er’ s dee d( s) of tru st and sha ll be the fullr es pons ibili ty of the SELLER t o m ak e t he app rop riat e r efu nd.

7 Case: 11-60868 Document: 00512002639 Page: 7 Date Filed: 09/28/2012No. 11-60868

option to seek a refund remedy. Mississippi law emphasizes the importance of 1 0 specific language to negate a party’s ability to sue for spe c i f i c performance or d a mages, see Osborne v. Bullins , 549 So. 2d 1337, 1339 (Miss. 1989), and this Purchase Agreement language offering a refund option to Purchasers does not prevent them from seeking damages or specific performance. The second provision relied upon b y Ap p ellants in arguing that the Purchase Agreements limited their ability to seek a rem e d y is the “Down P a y m e nt” provision, found in Section 3 of the Purchase Agreements, whic h states in relevant part:

a
. C O NV E YA N C E O F U N D I V I D E D I N T E R E S T T O P URCHASER : As partial consideration for monies advanced t o SELLER by PURCHASER via down payments and/or Reservation Deposits (all of whi ch are being considered partial payments in furtherance of this Agreement), after S eller acquires subject real property upon which the Village on the Beach condominium regime will be built, Seller will c onvey to Purchaser his predetermined undivided interest in the common ar e a s i n the condominium development which Purchaser will hold subject to any and all loans under which the property as a whole ma y b e c ollateralized. All p a r t i es acknowledge that, if for any reason, this Purchase Agreement should not be consummated by a Sale/Purchase closing within the time contemplated by this Agreement, Lacote, LLC will refund all m o n ies (payments) deposited by Purchaser wherein Purchaser will relinquish and convey t h eir undivided interest in subject property to Seller. Appellants contend, “[t]his clause requires Purchasers to relinquish and convey their undivided interest in the Village property to Se l l e r in lieu of specific performance and limit[s] Purchasers’ alleged remedies to refund of deposits.” We agree that the “will refund” and “will relinquish” language mandates the fulfillment of such require m e n ts by the parties in the event that the

This availabi l i t y o f t h i s opt ion is fur ther sup por ted by the language late r in the 1 0 pr ovis ion se tti ng for th that the Purch ase r’s “cl aim for ret urn of

. . . the dow n paym ent

. . . sha ll be the fullr es pons ibili ty of the SELLER t o m ak e t he app rop riat e r efu nd. ” 8 Case: 11-60868 Document: 00512002639 Page: 8 Date Filed: 09/28/2012No. 11-60868

Purchase Agreement is not “consummated by a Sale/ P u r c h ase closing

. . . .” However, the “Down Payment” provision discusses conveying to the Purchaser “his predetermined undivided interest in the common areas in the condominium development” in the sentence immediately preceding the sentence requiring that, “Purchaser will relinquish and convey their undivided interest in subject property to Seller.” Therefore, the “undiv i ded interest in subject property” logic a l l y refers to the “undivided interest in the common areas” that are the subject of this particular “Down Payme n t” p rovision. Appellants present no

reason why “undivided inter est in subject property” should instead be interpreted as referring to Purchasers’ interest in t h e i r s p ecific, bargained for condominium units. More im p o r t a n t ly, nothing in the “Down Payment” provision specifically negates Appellants’ right to pursue damages or specific performance, and, as we previously described, Mississippi law looks to specific language negating a party’s ability to sue for damages or specific performance. See Osborne , 549 So. 2d at 1339. Finally, Appellants argue that the Purchase Agreements are illusory because their interest in the property was subordinate to third parties and Loga and Stieffel never had the capital to return Appellants’ d e posits. We do not dispute that this was a bad deal for Appellants. However, even if the likelihood of Purchasers’s getting certain remedies was less likely under this Agreement

a n d t he particular circumstances surrounding it, the terms of the Purchase Agreements did not nullify Lacote’s obligation to build by negating Appellants’ ability to sue for remedies. The reason that Appellants now have no available practical relief is not a deceivable duty, a contractual defec t which allowed Lacote to cease construction without legal consequence; the obstacle to recovery, instead, has been Lacote’s insolvency. 1 1

For the sam e reas on, Ap p e l lants ’ argum ent that Lacot e’s obligat ion to cons tru ct 1 1 wi thin 24 months wa s illus ory beca use “Lac ote had no cap ital inves tm ent, no cons tru cti on loan 9 Case: 11-60868 Document: 00512002639 Page: 9 Date Filed: 09/28/2012No. 11-60868 CONCLUSION For the reasons discussed above, we AFFIRM the district court’s grant of summary judgment in favor of Defendants-Appellees Loga and Stieffel.

and no p e r f

orm ance bond for a tw enty- fou r mi llion dol lar pr oject ,” ther eby mak ing it “im pos sib le” for Lacot e and App ellant s to com ple te cons tru cti on of the Village w i t h i n 24
mo nths of

s igning the Purch ase Agre em ents , is unavaili ng. 10 Case: 11-60868 Document: 00512002639 Page: 10 Date Filed: 09/28/2012