Opinion ID: 813901
Heading Depth: 2
Heading Rank: 2

Heading: Whether the Agreement Satisfies ILSA

Text: Although we could, at this juncture, remand to the district court for further proceedings, the parties urge us to rule on whether under 15 U.S.C. § 1703(d)(1) the description of Unit 20A in the Agreement was “in a form acceptable for recording” and whether the Agreement’s liquidated damages clause violates § 1703(d)(3)—issues that were left unresolved below. While generally we decline considering arguments not addressed by the district court, see Singleton v. Wulff, 428 U.S. 106, 120 (1976), this is a prudential rule we apply at our discretion, see Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 418-19 (2d Cir. 2001) (“It follows therefore that we have discretion to consider issues that were raised, briefed, and argued in the District Court, but that were not reached there.”). In determining whether to consider such issues, we rely on a number of factors, including the interests of judicial economy, see Petrosino v. Bell Atl., 385 F.3d 210, 224 (2d Cir. 2004), and whether the unaddressed issues present pure questions of law, see Booking, 254 F.3d at 419. Both factors are satisfied here. Remanding the matter for further consideration would be inefficient because the issues were fully briefed and argued in the district court. In addition, these issues present clear questions of law concerning the proper statutory interpretation of ILSA. We thus turn to the merits of the parties’ arguments.
Plaintiffs advance a novel but ultimately unavailing argument for why the description of Unit 20A in the Agreement failed to satisfy 15 U.S.C. § 1703(d)(1). Relying principally on Congress’ use of the word “form” in the phrase, “in a form acceptable for recording,” Plaintiffs contend that, to comply with § 1703(d)(1), the description of the lot must be set forth in a specific document—a “form”—that is recordable in the relevant jurisdiction. They maintain that, in New York, that “form” is the unit deed (which they identify as New York’s “unit 11 description clause”), and because New York’s Condominium Act mandates that a condominium unit deed contain “the liber, page and date of recording of the declaration,” N.Y. Real Prop. L § 339-o, for a description of the lot to be “in a form acceptable for recording,” the description must include this particular information. Because the draft unit deed attached to the Plan (and incorporated by reference in the Agreement) did not contain this information, Plaintiffs assert that the Agreement failed to comply with 15 U.S.C. § 1703(d)(1). Alternatively, Plaintiffs argue that even if the description of the lot need not contain the information required for recording a unit deed under state law, the description provided in the Agreement was insufficient because it inaccurately described the Brompton and the unit that Plaintiffs agreed to purchase. Defendants counter that Plaintiffs’ construction of § 1703(d)(1) contradicts the statutory language and the applicable regulations and that their challenge to the accuracy of the description provided in the Agreement is without merit. We find Plaintiffs’ arguments to be unpersuasive. They assume that, under § 1703(d)(1), the description of the lot contained in the purchase contract or agreement must be identical to the property specifications contained in the deed ultimately used to convey the unit. Indeed, they posit—without reference to any supporting authority—that New York Real Property Law § 339- o “sets forth [what] a valid condominium unit description [should] include[].” Pls.’ Br. at 34. But nothing in § 1703(d)(1) suggests that Congress intended that the description of the lot mandated under ILSA be coextensive with what is required for conveyance of an individual unit in the relevant jurisdiction. As already discussed, the plain language of § 1703(d)(1) requires only that the description of the lot be “in a form acceptable for recording”—it does not require that the description be “in a form acceptable for recording” as the deed for the lot. ILSA’s origins confirm that Congress was concerned with disclosure, not conveyance. By enacting 12 ILSA, Congress sought to curtail rampant misleading advertising and sale of undeveloped subdivided land by creating a national standard to guarantee full disclosure for the benefit of prospective buyers, not to harmonize local requirements for the conveyance of undeveloped lots. Cf. SEC v. DiBella, 587 F.3d 553, 572 (2d Cir. 2009). Even if the plain language of § 1703(d)(1) did not demonstrate the weakness in Plaintiffs’ argument, their construction of the statute contradicts industry practice as well as other ILSA provisions. The Real Estate Board of New York represents that, as in other jurisdictions, it is common in New York for sponsors to offer units for sale and to enter into purchase agreements for those units prior to the filing of the condominium declaration. Real Estate Bd. of N.Y. Br. at 11. And because a condominium declaration ordinarily cannot be filed until new tax lot numbers are assigned to each unit, which can only occur once construction is complete, see N.Y. Real Prop. L. § 339-p, buyers often will execute purchase agreements before the declaration is recorded, i.e., prior to completion of the development. Plaintiffs’ interpretation would prohibit this common and long-standing practice. If, as Plaintiffs urge, the description of the lot must be in a form acceptable for recording the deed, then a purchase agreement for a unit could be executed only after construction was finished because it is only at that point that the declaration would be recorded, and thus that the “liber, page and date of recording of the declaration”— required for a deed, see N.Y. Real Prop. L. § 339-o—would be obtainable. Nothing in ILSA suggests that Congress intended this outcome. To the contrary, other provisions of the statute confirm that Congress was aware of the practice of pre-completion sales and contemplated that the description of a unit required under § 1703(d)(1) may not be adequate for conveyance. For example, ILSA distinguishes explicitly between a “subdivision” and a “lot,” defining the former as “land which . . . is divided or is proposed to be divided into lots . . . for the purpose 13 of sale or lease as part of a common promotional plan.” 15 U.S.C. § 1701(3). The statute also requires that in the statement of record filed with CFPB, the sponsor must include “copies of the deed or other instrument establishing title to the subdivision,” “a legal description of, and a statement of the total area included in, the subdivision,” and “a map showing the division proposed and the dimensions of the lots to be covered by the statement of record and their relation to existing streets and roads.” 15 U.S.C. §§ 1704(a), 1705(2), 1705(8). Two conclusions flow from these provisions. First, that a subdivision is defined as land that “is divided or is proposed to be divided into lots . . . for the purpose of sale” suggests that Congress recognized that the lot a purchaser contracts to buy may or may not exist at the time the contract for sale is executed. And because a lot may merely be “proposed” and not yet in existence at the time the contract is executed, Congress understood that the description of the lot in the purchase agreement may not be in a form acceptable for recording a deed since, by definition, conveyance of the lot would be impossible under such circumstances. Second, that the statement of record must include a “legal description” of the subdivision (i.e., one “made by reference to a government survey, metes and bounds, or lot numbers of a recorded plat,” Black’s Law Dictionary § 18(c) (9th ed. 2009)), but that a lot, on the other hand, can be identified based only on its “dimensions” and its “relation to existing streets and roads,” confirms that Congress understood that an individual lot would not be amenable to the same type or extent of description as the larger subdivision of which it was a part.5 For these reasons, we decline to adopt 5 Because 15 U.S.C. § 1703(d)(1) is unambiguous, we need not rely on the agency’s implementing regulations. See Lopez v. Terrell, 654 F.3d 176, 181 (2d Cir. 2011) (affirming the well-established rule that under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), deference to the agency’s interpretation is warranted only if the statute is ambiguous). That those regulations undermine Plaintiffs’ construction of the statute is nevertheless significant. Among other things, HUD requires that the property report, which the sponsor is required to provide to all potential purchasers, must indicate whether the “plats 14 Plaintiffs’ construction of 15 U.S.C. § 1703(d)(1). By its plain language, the description of the lot need not be equivalent to the type of description required to convey the unit. Having rejected Plaintiffs’ interpretation, we arrive at our ultimate inquiry: whether under 15 U.S.C. § 1703(d)(1) the actual description of the lot provided in the Agreement was in a form acceptable for recording. Defendants urge that the description here satisfied ILSA because the description was sufficiently detailed to be in a form acceptable for recording under New York law. They observe that the Agreement identified the apartment Plaintiffs purchased as Unit 20A; that the Plan attached to the Agreement delineated Unit 20A on the condominium’s floor plans and contained a specific floor plan of that particular unit; and that the unit’s floor plan indicated the dimensions and locations of the rooms and windows, the location of the unit within the building, and the direction the unit faced. Plaintiffs do not argue that this description is covering the lots in th[e] Report [have] been recorded,” 24 C.F.R. § 1710.109(g)(1)(ii), and if they have not, the report must state whether “the description of the lots given in th[e] Report [is] legally adequate for the conveyance of land in the jurisdiction where the subdivision is located,” id. Significantly, if the description is not sufficient for conveyance, the sponsor must “include a statement [in the Report] to the effect that the description of the lots is not legally adequate for the conveyance of the lots and that it will not be until the plat is recorded.” Id. Similar to the statutory language, therefore, HUD’s regulations confirm that the agency, like Congress, understood that the description of a lot in the purchase contract may not—and indeed, need not— be adequate for conveyance of the unit. Here, the Sponsor complied fully with these regulatory requirements. The property report Plaintiffs received stated explicitly: NEITHER THE FLOOR PLANS NOR THE DECLARATION HAVE BEEN SUBMITTED TO THE [REAL PROPERTY ASSESSMENT BUREAU OF THE CITY OF NEW YORK]. UNTIL THE FLOOR PLANS ARE FILED AND THE DECLARATION IS RECORDED THE DESCRIPTION OF THE UNITS IS NOT LEGALLY ADEQUATE FOR THE CONVEYANCE OF THE UNITS. THEREAFTER EACH UNIT WILL BE LEGALLY DESCRIBED BY REFERENCE TO ITS UNIT AND TAX LOT NUMBER AS SET FORTH IN THE RECORDED DECLARATION AND FILED FLOOR PLANS. J.A. 107 (bolding and capitalization in original). 15 inadequate, nor do they challenge Defendants’ assertion that if set forth in an appropriate instrument, the description could be recorded. Rather, Plaintiffs’ sole contention is that the description in the Agreement is inaccurate, and for that reason, fails to satisfy § 1703(d)(1). We disagree. Plaintiffs rely on an inconsistency between the Draft Declaration incorporated by reference in the Agreement and the actual declaration filed by the Sponsor in February 2009. They note, in particular, that the former stated that parcel one of the proposed Brompton condominium—which was erected on three existing parcels of real property—would occupy only the “volume of space . . . which lies above the horizontal plane having elevation 90.52 feet” above ground level, whereas the latter indicated that the Brompton would occupy all of the space in that parcel that lay above and below that same horizontal plane. J.A. 165, 179-83. Although our review of the record confirms this inconsistency, it is immaterial. At most, the variance Plaintiffs identify is a clerical error. Indeed, other documents included in the Plan make clear that the Brompton would occupy all of the space in the parcel in question. Moreover, satisfaction of § 1703(d)(1) turns on the adequacy of the description of the individual lot, not the subdivision as a whole. Because Plaintiffs’ twentieth floor apartment was not part of the groundlevel area omitted from the description of the Brompton provided in the Draft Declaration, any misidentification of the building had no effect on the description of Plaintiffs’ unit. In the absence of any tenable argument suggesting otherwise, we conclude that the description of the lot in the Agreement was in a form acceptable for recording, thus complying with 15 U.S.C. § 1703(d)(1). Indeed, Plaintiffs altogether fail to identify any material information omitted from the description provided by the Sponsor in the Agreement that, by their account, would have made the description otherwise unacceptable for recording. In this respect, 16 therefore, we emphasize again that the Agreement contained a copy of the Draft Declaration. And while that document was not yet recorded at the time the Agreement was executed, because construction of the Brompton was ongoing, the Draft Declaration contained all of the descriptive information required under state law to create the condominium.6 See N.Y. Real Prop. L. § 339- n. For this reason, the description provided to Plaintiffs in the Agreement was undoubtedly “in a form acceptable for recording,” because as the record demonstrates, it was that description that was ultimately recorded. Plaintiffs’ claim for revocation of the Agreement under § 1703(d)(1) is thus unavailing.
Alternatively, Plaintiffs assert that the Agreement is revocable under ILSA because the liquidated damages clause violates 15 U.S.C. § 1703(d)(3). That section provides that a contract for the sale or lease of a lot can be revoked within two years of the signing date if the contract 6 Under New York law, a condominium declaration must contain, inter alia: 2. Description of the land on which the building and improvements are or are to be located. 3. Description of the building, including the location of the building by reference to fixed monuments or tax map parcel data, stating the number of stories, basements and cellars, the number of units and the principal materials of which it is or is to be constructed. 4. The unit designation of each unit, and a statement of its location, approximate area, number of rooms in residential areas, and common element to which it has immediate access, and any other data necessary for its proper identification. 5. Description of the common elements and a statement of the common interest of each unit owner. N.Y. Real Prop. L § 339-n. Here, the Draft Declaration, which was incorporated by reference in the Agreement, contained all of this required information. 17 fails to indicate that in the event of the purchaser’s default or breach, the seller can retain only the greater of (a) 15% of the purchase price of the lot, excluding interest owed, or (b) the damages incurred by the seller for the purchaser’s default. 15 U.S.C. § 1703(d)(3). Here, section 12(b) of the Agreement stated that if Plaintiffs defaulted, the Sponsor could elect to cancel the Agreement and “as its sole remedy, shall have the right, subject to the provision of Section 12(d) below, to retain, as and for liquidated damages, the Deposit.” J.A. 74 (emphasis added). Section 3.1 of the Agreement provided that the “Deposit” consisted of the two initial payments of $340,000, totaling $680,000, or 20% of the purchase price. Section 12(d) of the Agreement—which, as indicated, was referenced explicitly in Section 12(b)—clarified: Notwithstanding the foregoing, if and only to the extent that the sale of the Residential Units is not exempt from the provisions of the Interstate Land Sales Full Disclosure Act, the amount of the Deposit to be retained by Sponsor upon Purchaser’s [default] . . . will be the greater of (i) fifteen percent (15%) of the Purchase Price (excluding any interest owed) or (ii) the amount of damages incurred by Sponsor due to the default. Without question, therefore, section 12(d) of the Agreement made clear that, to the extent the Agreement was subject to ILSA, in the event of Plaintiffs’ default the amount the Sponsor could retain as liquidated damages was 15% of the purchase price or actual damages incurred, whichever was greater. Plaintiffs concede, as they must, that in light of section 12(d), the Agreement was consistent with 15 U.S.C. § 1703(d)(3). They assert, nonetheless, that the “deceptive” phraseology of sections 12(b) and 12(d) of the Agreement failed to apprise them of their rights, thus violating ILSA. We reject this argument as unfounded. The language of the contract is clear: insofar as ILSA applies, the liquidated damages for Plaintiffs’ breach shall be capped at the greater of 15% of the total purchase price or actual damages as a result of the default. Even 18 if we had any doubt on this point (and we do not), Plaintiffs’ argument is, in the end, purely academic. Under the 2008 amendment to the Agreement, the second $340,000 installment, comprising the second half of the deposit, was divided into two payments of $170,000, of which Plaintiffs paid only the first. Their actual deposit, therefore, was $510,000—namely, 15% of the purchase price—and the Defendants have not sought damages in excess of that amount.