Opinion ID: 685627
Heading Depth: 1
Heading Rank: 6

Heading: Issues Regarding Miscellaneous Claims

Text: 77
78 The Becherer plaintiffs accuse Merrill Lynch of providing materially false and misleading projections in the PPM. Specifically, they attack the alleged failure to disclose the construction of a nearby Ritz-Carlton hotel and the alleged promise that all FF & E would be purchased, not leased. On November 19, 1990, the District Court granted summary judgment in favor of Merrill Lynch on this claim. 79 The District Court has adequately and correctly addressed all the arguments that the Becherer plaintiffs raise on appeal with respect to the Ritz-Carlton. Accordingly, we affirm the District Court on that issue for the reasons stated in its opinion. Becherer, 799 F.Supp. at 781-84. 80 The District Court did not, however, directly address the Becherer plaintiffs' claims regarding the FF & E projections. A review of the record explains why. The Becherer plaintiffs did not provide any evidence to support this claim until June 25, 1992, in connection with a motion for reconsideration of the court's November 19, 1990 order and a motion for summary judgment on other issues. The affidavits relied upon by the Becherer plaintiffs, both below and on appeal, were not filed with the District Court until the morning of the scheduled hearing on their motions. The District Court refused to consider these affidavits, essentially holding that they were untimely filed. The Becherer plaintiffs have not provided any explanation for the tardy filing. 7 Thus, the District Court did not abuse its discretion in refusing to consider the affidavits. Without that evidence, the Becherer plaintiffs have not fulfilled their burden of proof, and the District Court's grant of summary judgment on this issue was proper. 81
82 The Becherer plaintiffs argue that Merrill Lynch breached its duties as interim escrow agent by allowing that escrow to close without disclosing the following information to investors: 83 1) the minimum subscription level was not met at the time of the interim escrow closing; 84 2) SSG intended to lease FF & E; 85 3) the financial projections provided to investors did not factor in the cost of leasing the FF & E; and 86 4) TMC never provided notice of financing approval to investors. 87 All four allegations can be disposed of easily. First, the District Court found that investors became bound to complete their purchases on February 15, 1985. This finding contains an implicit conclusion that the minimum subscription level was met at the time of the interim escrow closing. The Becherer plaintiffs point to no information that would allow us to find that this conclusion was clearly erroneous. Thus, we will not overturn it on appeal. 88 Second, we have reviewed the District Court's opinions in this case and find no discussion of when Merrill Lynch learned of SSG's intention to lease the disputed FF & E and whether Merrill Lynch thought that intention contravened the contract. Nor have the Becherer plaintiffs pointed to any part of the record to show they raised this argument below. We will not address it for the first time on appeal. Merrill Lynch points to evidence that it reduced its commission so that the project could be completed as promised and that it believed that, with these concessions, SSG could fulfill its end of the contract. 89 We earlier addressed the Becherer plaintiffs' allegations regarding Merrill Lynch's projections and SSG's decision to lease FF & E. We will not repeat that discussion here, except to say the claim has no merit. 90 Finally, the District Court specifically found that plaintiffs waived their right to be notified of financing approval by not objecting to the lack of notice of such approval within a reasonable time period after they received notice of the escrow closing. Becherer, 799 F.Supp. at 789. The Becherer plaintiffs have provided no reasons why this conclusion was in error, and we will thus not overturn it on appeal.
91 As part of their complaint, the Becherer plaintiffs raised a claim under the Land Sales Act, 15 U.S.C. Sec. 1701 et seq. This statute makes it unlawful for any developer or agent to defraud or deceive a purchaser with respect to the sale of a non-exempt lot. The initial dispute in this case is whether the hotel units marketed by Merrill Lynch are exempt from the requirements of the Act. 92 The Act provides an exemption for, among other things, 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. Sec. 1702(a)(2). The District Court found that the two-year period started running on February 15, 1985, with the closing of the interim escrow account, as it was only then that the parties became legally bound under the Unit Sale Agreements. Because the plain language of the Unit Sale Agreements required SSG to erect the hotel within two years of that date, the District Court found that this transaction was exempt from the terms of the Land Sales Act. 93 On appeal, the Becherer plaintiffs argue that this conclusion was in error. According to them, the two-year time period began running from when the first investor signed a Unit Sales Agreement in February 1984. To support this interpretation, they refer to a HUD regulation, 24 C.F.R. Sec. 1710.5(b), discussing exemptions from the Land Sales Act. 94 This argument cannot succeed. First, there is substantial doubt about whether this regulation applies to the present transaction. The language on which the Becherer plaintiffs rely was added as part of an August 6, 1984 amendment. It is not clear whether this amendment is retroactive. Second, even if the amended regulation applies, it speaks of presale clauses that are legally binding. As the District Court found, none of the parties to the present transaction became legally bound until the closing of the interim escrow account on February 15, 1985. 95 Although the District Court reached the correct result on the two year question, it incorrectly thought that the analysis stopped there. It is not enough to find that the contract requires completion of the hotel in two years. Under the terms of the statute, the contract must obligate the developer to complete construction in two years. According to the Becherer plaintiffs, SSG was not obligated to build the hotel, as the Unit Sale Agreements contain a clause limiting possible remedies for a breach by excluding the possibility of damages. 96 While the statute does not elaborate on the meaning of obligation, the regulations do. In the Code of Federal Regulations, HUD discusses possible contractual limitations on buyers' remedies: 97 HUD's interpretation of what constitutes a two-year obligation to construct a building relies on general principles of contract law in deciding whether or not the seller has, in fact, an obligation to erect a building within two years. Provisions for purchaser financing and remedies clauses are matters to be decided by the parties to the contract under the laws of the jurisdiction in which the construction project is located. 98 However, the contract must not allow nonperformance by the seller at the seller's discretion. Contracts that permit the seller to breach virtually at will are viewed as unenforceable because the construction obligation is not an obligation in reality. 99 . . . . . 100 24 C.F.R. Pt. 1710, App. A, subpt. IV(b). As part of this subsection, HUD also notes that state law may affect the outcome of various cases under this statute: 101 Because of the variations in applicable contract law among the states and the many different provisions that are used by sellers in construction contracts, HUD may condition its advisory opinions under this exemption on representations by local counsel as to the current status of state law on the relevant issues. For example, in the Florida case of Dorchester Development, Inc. v. Tema Burk, Schwartz & Nash, 439 So.2d 1032 [Fla.Ct.App.1983], the court held that there must be an unconditional commitment to complete the condominium units within two years and that the remedies available to the purchaser must not be limited. Although the opinion's language was broad, it is HUD's position that the court's concern regarding limitations on remedies was confined to the right to specific performance. However, developers, especially those in Florida, should be aware of this decision and how it may be treated by higher Florida courts, as well as courts in other jurisdictions. 102 Id. It is thus apparent that the meaning of obligation is tied to the relevant state contract law. 103 As we have stated before, Florida provides the relevant state law for interpreting the contract at issue. Since the promulgation of the above-quoted regulations, the Florida Supreme Court has directly addressed this question and ruled that no contractual obligation exists unless the contract provides for the possibility of damages. Samara Dev. Corp. v. Marlow, 556 So.2d 1097, 1101 (Fla.1990). A contract that provides only for the possibility of rescission or specific performance is not sufficient. Id. 104 In the case at bar, section 8 of the Unit Sale Agreement provides: 105 Seller shall be in default hereunder if Seller fails to close the sale pursuant to Section 5 within two years after the date this Agreement becomes binding on Purchaser.... Purchaser's remedy against Seller for Seller's default hereunder shall be either to obtain a refund of all deposits made pursuant hereto ... or to seek specific performance of this Agreement, at the Purchaser's election. 106 U.S.A. Sec. 8 (emphasis added). Thus, it would appear that the express language of the contract does not allow for the possibility of damages. Neither the parties nor the District Court, however, have provided us with any guidance as to whether Florida law would read a damages remedy into such a contract. In other words, if specific performance is impossible and is the primary contractual remedy, will Florida nevertheless award damages to the injured party? Because the parties have not focused on this question, they have supplied us with no guidance, and we are reluctant to address it. Accordingly, we remand this issue to the District Court. 107 In addition, this exemption is not the only one available. Merrill Lynch also argues that the Land Sales Act does not apply to the instant transaction because the hotel interests are not lots under the Act, as investors do not have exclusive use of their units. We decline to reach this argument as it is not entirely clear just what plaintiffs were purchasing. We believe the issue should be addressed in the first instance by the District Court upon remand.
108 Included in the Becherer plaintiffs' complaint were numerous claims against TMC, the financial institution responsible for approving investors for loans. The District Court dismissed all these claims, as it found they were barred by the D'Oench Duhme doctrine. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The District Court has adequately and correctly addressed all the arguments raised by the Becherer plaintiffs on appeal of this issue. Accordingly, we affirm the District Court for the reasons stated in its opinion. Becherer, 799 F.Supp. at 772-75.
109 The Becherer plaintiffs filed their original complaint on August 21, 1989. Between that date and December 17, 1990, the parties actively pursued this litigation, taking depositions and filing numerous motions seeking both discovery and dismissal of various claims. On December 17, 1990, the District Court issued an order requiring the Becherer plaintiffs to file an amended complaint, but limited the amendment to possible breach of contract claims against the defendants. 8 110 On February 1, 1991, the Becherer plaintiffs filed their amended complaint. This complaint, however, was not limited to breach of contract actions against the then-existing defendants. Rather, the Becherer plaintiffs added a new party, Midwest, and raised breach of contract actions against Midwest for its part in the premature sale closing. On April 3, 1991, Midwest filed a motion to be dismissed as a misjoined party. 111 Due to various delays apparently connected with the proposed settlement proceedings, the District Court did not rule on this motion until August 7, 1992. On that date, as part of an omnibus opinion and order, the District Court granted Midwest's motion to dismiss, stating: 112 Plaintiff class 9 added Midwest to their amended complaint in violation of FRCP 15(a); without leave of this court as required by FRCP 21; and in contravention to my January 7, 1991 Order. Furthermore, they knew as early as April, 1991 that Midwest objected to being added as a defendant, yet took no corrective action until May, 1992. At this stage of the litigation it would simply be unjust to add Midwest as a defendant. This case is nearly three years old, and the paperwork submitted thus far has surely decimated a small forest. Nothing suggests the claim against Midwest is newly discovered; indeed, an escrow closing is a normal part of any real estate transaction. Last, the claims against Midwest, if any remain viable after this Opinion, are discrete and severable. 113 Becherer, 799 F.Supp. at 775. The District Court dismissed the claim without prejudice. 114 The Becherer plaintiffs argue that this decision was in error. In support of this argument, they first contend that, under Fed.R.Civ.P. 15(a), they are allowed to amend as a matter of course as to defendants who have not yet filed a responsive pleading. According to the Becherer plaintiffs, as of February 1, 1991, Midwest had not filed a responsive pleading, so the Becherer plaintiffs could add them without prior court permission. 115 This argument is specious. Midwest was not a party to the suit before the Becherer plaintiffs filed their amended complaint. If we accept this interpretation of Rule 15(a), a plaintiff could always add a new party, at any point in the litigation, without court permission. 116 The Becherer plaintiffs also attempt to refute the rest of the District Court's reasons by arguing that they did not unduly delay in responding to Midwest's motion to dismiss, that adding Midwest did not prejudice Midwest, and that the joinder served judicial economy. The Becherer plaintiffs argue that Midwest was present at almost all proceedings after it was joined as a party, and thus would not have been prejudiced. 117 We first note, as did the District Court, that the Becherer plaintiffs joined Midwest as a party without seeking prior court permission, as is required under either Rules 15(a) or 21. If they had been denied such permission, we would review the denial for an abuse of discretion. Thus, it logically follows that we use the same standard in reviewing the district judge's decision to dismiss Midwest. 118 We find that the District Court did not abuse its discretion. The claims against Midwest are related to, but easily divisible from, the claims against the other defendants. The District Court also explicitly found that allowing the Becherer plaintiffs to add Midwest would be prejudicial to Midwest. As the Ninth Circuit has stated, [a]mending a complaint to add a party poses an especially acute threat of prejudice to the entering party. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir.1987). Accordingly, the major objective of courts faced with this situation should be to avoid prejudice to the party to be added. Id. 119 The Becherer plaintiffs argue that Midwest would not be prejudiced because its attorneys attended almost every proceeding after it was added. This is not, however, the proper inquiry. Instead, our focus should be on the degree to which Midwest took an active role in the litigation and whether its attorneys were simply observers or whether they actually invested substantial amounts of time in preparing Midwest's case. Simply acting as an observer and monitor would not have prepared Midwest to jump into complicated commercial litigation at this late stage in the proceedings. The District Court was in the best position to make this determination, and it found that Midwest would be prejudiced if it were not dismissed. The Becherer plaintiffs have presented us with no reason to conclude that this was an abuse of discretion.