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HADAD v. DELTONA CORP.

April 13, 1982

Joseph HADAD and Sylvia Hadad, Plaintiffs,
v.
The DELTONA CORPORATION, a Florida Corp., Defendant



The opinion of the court was delivered by: DEBEVOISE

On July 1, 1980 plaintiffs, Joseph Hadad and Sylvia Hadad, citizens of New Jersey, instituted this action against The Deltona Corporation, a Florida corporation, charging that plaintiffs suffered injury by reason of Deltona's violation of the Interstate Land Sales Full Disclosure Act, 15 U.S.C. § 1701, et seq. (Count I), breach of contract (Count II), and fraudulent misrepresentations (Count III). The action arises out of a sale of Florida real estate.

On January 24, 1976 plaintiffs and Deltona entered into two contracts pursuant to which plaintiffs agreed to buy and Deltona agreed to sell two contiguous parcels of real estate located in Marin County, Florida. Plaintiffs were given a Florida Public Offering Statement prepared by Deltona. Payment was to be made in installments over a period of three years. The contracts provided that within 90 days following the final payment Deltona would deliver to plaintiffs warranty deeds, paved streets abutting the property, a central water system, and a policy of title insurance.

 The contracts also provided that Deltona was to retain title until all promised improvements had been completed and payment had been made in full, and that if plaintiffs failed to comply with the terms of the contracts Deltona had the right to cancel them and retain all monies paid as liquidated damages. Finally, the contracts stated that the purchase was governed by the laws of Florida, that if Deltona was unable to meet any of its obligations under the contracts it would return all monies paid, with interest, thus releasing both parties from any further obligations, and that the contracts constituted the entire agreement, there being no other representations except those made therein and in Deltona's advertisements.

 Defendant moved for summary judgment on the complaint, asserting that Count I is barred by the Interstate Land Sales Full Disclosure Act statute of limitations, that Florida law applicable in this case limits recovery on Counts II and III to a return of the money paid plus interest and costs of investigating title, that neither Florida law nor the Interstate Land Sales Full Disclosure Act permit recovery of punitive damages, and that proceedings taken by the Florida Division of Land Sales and Condominiums precludes this Court from exercising jurisdiction over the action.

 At the hearing on defendant's motion I ruled that the Florida proceedings do not preclude this Court from exercising jurisdiction; I reserved decision on the questions whether Count I is barred by the statute of limitations contained in the Interstate Land Sales Full Disclosure Act and whether the Act permits recovery of punitive damages; and I asked for further briefing and argument of the other questions raised by the motion.

 This opinion disposes of the two questions on which decision was reserved.

 Original Statute of Limitations

 The Interstate Land Sales Full Disclosure Act (the "Original Act") was enacted in 1968. 15 U.S.C. § 1701, et seq. It contains anti-fraud provisions. It also contains registration and disclosure requirements for developers involved in nonexempt land transactions. The "Statement of Record" which such a developer must file must set forth information necessary for the protection of purchasers. In addition, the developer must deliver to each purchaser a "property report" containing specified information.

 The anti-fraud provisions of the Original Act are set forth in § 1703(a)(2). The registration and disclosure requirements of the Original Act are set forth in § 1703(a)(1) and § 1703(b).

 Civil liabilities and remedies for violation of the Original Act are created in § 1709. Section 1709(a) provides that where a statement of record contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein a purchaser may sue the developer. Section 1709(b) provides that a developer or his agent may be sued by a purchaser (1) for a sale in violation of § 1703, and (2) for a sale by means of a property report which contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein.

 The Original Act contained a statute of limitations, § 1711, which was geared to the claims created in § 1709. It limited actions to enforce a liability created by § 1709(a) (false statements of record) and § 1709(b)(2) (false statements in property reports) to actions "brought within one year after discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence". It limited actions to enforce a liability created under § 1709(b)(1) (a sale in violation of § 1703) to actions "brought within two years after the violation upon which it is based". Further, § 1711 provided that "(i)n no event shall any such action be brought by a purchaser more than three years after the sale or lease to such purchaser".

 The statute of limitations and other provisions of the Original Act were amended in 1979 (the "Amended Act"), effective on the effective date of regulations implementing such amendments, but in no case later than six months after December 21, 1979, i.e., June 21, 1980 (less than two weeks before the complaint was filed in this action). Deltona asserts that the statute of limitations contained in the Original Act is applicable and that it bars this action. Deltona argues that § 1711 prohibits any action instituted more than three years after the sale to the purchaser, that the contract of sale in the present case was executed on January 24, 1976, and that suit was instituted on July 1, 1980, more than three years after the sale. Plaintiffs assert that the Amended Act has retroactive effect and therefore is controlling, but that, in any event, neither the Original Act nor the Amended Act bars their claims.

 In order to determine whether plaintiffs' claims are barred by the Original Act, the nature of their claims must be analyzed. As recited above, the contract of sale obligated Deltona to deliver to plaintiffs within 90 days following the final payment a warranty deed, paved streets abutting the property, a central water system, and a policy of title insurance. Plaintiffs charge that at and prior to the execution of the contracts Deltona affirmatively represented that the property would be developed and conveyed on schedule although it knew it had not obtained governmental approvals required to develop the land, it was behind schedule on thousands of other contracts, and otherwise was aware that it could not perform as required by the contracts, all for the purpose of inducing plaintiffs to sign the contracts. Plaintiffs allege that they relied on these misrepresentations and concealments.

 These allegations, if true, give plaintiffs a right of action under § 1709(b) (1) of the Original Act (which incorporates by reference § 1703 of the Original Act): (i) on account of Deltona's employment of a device, scheme or artifice to defraud (s 1703(a)(2)(A)); (ii) on account of Deltona's obtaining money by means of a material misrepresentation with respect to any information included in the property report or with respect to any other information pertinent to the lots (s 1703(a)(2)(B)); and (iii) on account of ...


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