Opinion ID: 1119218
Heading Depth: 3
Heading Rank: 3

Heading: Brown's Liability Under ULSPA

Text: We must now determine whether the lower court's restitution order can be upheld under ULSPA. AS 34.55.006 provides: It is unlawful for a person, in connection with the offer, sale or purchase of subdivided land directly or indirectly, to knowingly (1) employ a device, scheme or artifice to defraud; (2) make an untrue statement of a material fact or omit a statement of material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (3) engage in an act, practice, or course of business which operates or would operate as a fraud or deceit upon a person. A person who disposes of subdivided land [21] in violation of this section is civilly liable to a purchaser ... unless in the case of an untruth or omission it is proved that the purchaser knew of the untruth or omission or that the person offering or disposing of subdivided land did not know and in the exercise of reasonable care could not have known of the untruth or omission. AS 34.55.030(a). See Stepanov v. Gavrilovich, 594 P.2d 30, 33 (Alaska 1979). With respect to the eighteen individuals who purchased Windsong lots on or after September 21, 1977, the date when ULSPA became applicable to sales of in-state land, Brown does not seriously dispute his liability. The trial court found that Brown knew, prior to developing Windsong, of the facts relating to the flood hazard. Brown does not contest those findings, nor does he contest the trial court's findings that the facts he misrepresented or omitted to mention were material. Since Brown had ample opportunity but failed to show facts which could constitute a defense under AS 34.55.030(a), ordering restitution under ULSPA was proper as to those individuals who purchased their lots on or after September 21, 1977. The vast majority of purchasers on whose behalf restitution was ordered bought their lots prior to this date, however. Liability as to those purchasers under ULSPA, Brown argues, would require impermissible retrospective application of the Act to in-state subdividers. The State contends that because ULSPA is remedial, it can be given retroactive effect. The State further claims that liability as to the pre-September 21, 1977 purchasers can be predicated on conduct by Brown that occurred after that date, thereby avoiding retrospective application of ULSPA. AS 01.10.090 provides that [n]o statute is retrospective unless expressly declared therein. Chapter 138, Sections 1-8, SLA 1977, which added AS 34.55.006 and amended ULSPA to apply to in-state subdividers, contains no such express declaration. Nor does its legislative history indicate that retrospective application was intended. [22] Recently, we observed: We have heretofore closely adhered to the clear mandate expressed in the statutory language. Statutes are not to be applied retroactively unless the language used by the legislature indicates the contrary. City and Borough of Juneau v. Commercial Union Ins. Co., 598 P.2d 957, 958-59 (Alaska 1979); Davenport v. McGinnis, 522 P.2d 1140, 1142 (Alaska 1974); Stephens v. Rogers Constr. Co., 411 P.2d 205, 208 (Alaska 1966). Matanuska Maid, Inc. v. State, 620 P.2d 182, 187 n. 8 (Alaska 1980). In that case we did hold that mere procedural changes which do not affect substantive rights are not immune from retrospective application. Id. at 187. But the broad prohibitory language of AS 34.55.006 can hardly be characterized as bringing about mere procedural changes. Thus, we hold that ULSPA cannot be retrospectively applied to hold Brown liable for conduct predating its application to in-state land sales. [23] We note that this conclusion is in accord with the construction given to the Interstate Land Sales Full Disclosure Act, ULSPA's federal counterpart. See Davis v. Rio Rancho Estates, Inc., 401 F. Supp. 1045, 1048 (S.D.N.Y. 1975). The State alternatively argues that liability for restitution to pre-September 21, 1977 purchasers can be premised on Brown's later lulling activities, which, the State urges, constitute fresh ULSPA violations. Reference is made to the trial court's findings that Brown's letter to all Windsong lot purchasers, sent in January 1978, contained numerous misrepresentations designed to induce purchasers to continue making their property payments. According to the State, these misrepresentations were made in connection with the offer, sale or purchase of subdivided land, thereby triggering liability under AS 34.55.006. The State's argument in large part centers on the Act's definition of offer. [24] AS 34.55.044(2) defines that term as including every inducement, solicitation or attempt to encourage a person to acquire an interest in land, if undertaken for gain or profit. The State reasons that Brown's lulling activities were inducements or attempts to get purchasers to acquire further interests in land. We think it would be straining the language of the Act to hold that post-sale conduct designed to induce the continuation of payments constitutes an offer as that term is defined above. The continuation of payments under the land sales contracts involved here did not result in the acquisition by purchasers of further interests in land. Legal title to the property vested in the purchasers at the time the contracts were signed. [25] The State's reliance on Husted v. Amrep. Corp., 429 F. Supp. 298 (S.D.N.Y. 1977) is misplaced. That case involved the question whether a violation of the antifraud provisions of the federal Interstate Land Sales Full Disclosure Act could occur after the sale of land so that the plaintiff's claim would not be barred by the applicable statute of limitations. The court held that such a violation could occur, but emphasized that unlike S.E.C. Rule 10b-5, upon which the section at issue was in part modelled, the Act did not require that the violation occur in connection with the sale. Id. at 307. See also Fogel v. Sellamerica, Ltd., 445 F. Supp. 1269, 1274-75 (S.D.N.Y. 1978). AS 34.55.006, like the S.E.C. Rule, requires that the conduct complained of occur in connection with the sale. This is not to say that fraudulent post-sale conduct could never constitute a violation of AS 34.55.006. If such conduct in fact occurred in connection with the offer, sale or purchase of subdivided land, then it would be actionable. Our review of federal decisions construing the scope of the in connection with requirement of S.E.C. Rule 10b-5 suggests that activity post-dating the time that the initial contract to purchase is signed is not necessarily immune from liability. For example, in Goodman v. Epstein, 582 F.2d 388 (7th Cir.1978), cert. denied, 440 U.S. 939, 99 S.Ct. 1289, 59 L.Ed.2d 499 (1979), the court noted that the crucial fact ... is whether an investment decision remains to be made by the party from whom disclosure is withheld, and not upon when the agreement to purchase or sell was executed. Id. at 413; see also Issen v. GSC Enterprises, Inc., 508 F. Supp. 1278, 1286-87 (N.D.Ill. 1981). Goodman involved a limited partnership agreement in which the plaintiff limited partners were in an on-going relationship with the defendant general partners. 582 F.2d at 412. From time to time, the limited partners were called upon to make additional capital contributions based upon the partnership's performance. Although the conduct complained of occurred after the partnership agreement was signed, the court held that later nondisclosure of material facts by the general partners to induce continued payment of capital contributions by the limited partners was actionable under Rule 10b-5. However, the court was careful to distinguish the situation where ... the investment decision was completed at the time the parties entered into the agreement, the contract being, in effect, a one-shot deal. No continuing relationship was contemplated. All that was left undone was the ministerial exchange of money for the stock. Id. at 412. In such an instance, the fraudulent conduct must occur at or before the time when the parties to the transaction are committed to one another. Id., quoting Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir.1972). See also Clinton Hudson & Sons, v. Lehigh Valley Cooperative Farms, Inc., 73 F.R.D. 420, 425 (E.D. Pa.), aff'd mem., 586 F.2d 834 (3d Cir.1977). Applying these principles to the instant case, we conclude that Brown's post-sale lulling conduct directed at pre-September 21, 1977 purchasers was not in connection with the sales to such purchasers. Brown's relationship with these purchasers was in effect, a `one-shot deal,' Goodman, 582 F.2d at 412, rather than one involving a series of `investment decisions.' Id. at 413. The parties were committed at the time the contracts were executed and the continued payments required thereunder involved nothing more than a means of effectuating the ministerial exchange of the money for the land. Id. at 412. Accordingly, Brown's liability, if any, to pre-September 21, 1977 Windsong lot purchasers cannot be predicated on violations of ULSPA.