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OLD COACH DEV. CORP. v. TANZMAN

August 26, 1988

OLD COACH DEVELOPMENT CORP., INC. and LAND'S EDGE ENTERPRISES, INC., Plaintiffs,
v.
HERBERT M. TANZMAN, MYLES J. HERBERT, ROBERT KLEIN, EDWARD RUNNER, JOSEPH PANUCCIO, CHARLES E. PLUMERI, TOM COLITAS, and QUEEN E. JAMES, in their capacities as members of the New Jersey Real Estate Commission, DARYL G. BELL, in his capacity as Executive Director of the New Jersey Real Estate Commission, and JAMES LOGAN, III, in his capacity as Supervisor of the Bureau of Subdivided Lands Sales Control within the New Jersey Real Estate Commission, Defendants



The opinion of the court was delivered by: LIFLAND

 The plaintiffs in this action are corporate owners and sellers of subdivided lots of real estate in Pennsylvania. They seek to invalidate the New Jersey Land Sales Full Disclosure Act, N.J. Stat. Ann. §§ 45:15-16.3 et seq. and regulations promulgated under the Act, N.J. Admin. Code §§ 11:5-1.1 et seq., as violative of the Commerce Clause and First and Fourteenth Amendments of the U.S. Constitution, and to enjoin its enforcement against them. Defendants are representatives of the New Jersey Real Estate Commission, the state agency that enforces the act. Both parties have moved for summary judgment. This court holds that the New Jersey Land Sales Full Disclosure Act is unconstitutional under the Commerce Clause, and grants the plaintiffs' motion.

 Background

 The plaintiffs, Old Coach Development Corp., Inc. and Land's Edge Enterprises, Inc. [hereinafter collectively referred to as "Old Coach"], are affiliated corporations incorporated and with their principal place of business in Pennsylvania. Old Coach sells unimproved subdivided lots of real estate located in an area in Northern Pennsylvania known as the "Poconos." These lots are often sold to residents of New Jersey, as the cost of real estate in the Poconos is generally lower than real estate in nearby New Jersey. The lots are also frequently sold to Pennsylvania and New York residents. Accordingly, Old Coach regularly advertises in newspapers in these regions.

 One of these advertisements appeared in the Trenton Times on June 21, 1987. In a letter dated July 17, 1987, the New Jersey Real Estate Commission [hereinafter "Commission"] informed Old Coach that this advertisement appeared to violate the New Jersey Land Sales Full Disclosure Act and its accompanying regulations. Old Coach was given the option to either register with the Commission in accordance with the Act, or state in all future national advertisements, "This advertisement is not an offering to New Jersey residents." Exhibit A to Affidavit of Gerald Gay, President of Old Coach.

 On September 4, 1987, Old Coach filed suit in this court, alleging that the Act was unconstitutional and void under the Commerce Clause and the First and Fourteenth Amendments to the U.S. Constitution, and seeking temporary and permanent relief from enforcement of the Act against Old Coach. Old Coach and the Commission have both moved for summary judgment. The National Association of Real Estate License Law Officials [hereinafter "NARELLO"] has been permitted to appear and participate in the case as an amicus curiae. NARELLO filed a brief supporting the Commission's position. Oral argument has been waived by the parties.

 To resolve the constitutional issues in this case the court must analyze the interplay of three statutory schemes, one federal and two enacted by the New Jersey legislature, establishing registration and other requirements for land developers wishing to sell or lease lots in a common subdivision to New Jersey residents. A brief discussion of these acts is necessary to understand the issues raised by the parties.

 The Interstate Land Sales Full Disclosure Act of 1968, 15 U.S.C. §§ 1701 et seq. [hereinafter "Federal Act"], "is directed at protecting purchasers from abuse by real estate developers through interstate commerce and the use of the mails in the promotion and sale of properties offered as part of a common promotional plan." Nargiz v. Henlopen Developers, 380 A.2d 1361 (Del. 1977). Unless a developer or agent can claim one of the statutory exemptions enumerated in 15 U.S.C. § 1702, he must: (1) file a statement of record with the Secretary of Housing and Urban Development pursuant to 15 U.S.C. §§ 1703(a)(1)(A), 1704, containing the information and documents described in 15 U.S.C. § 1705; (2) furnish a printed property report to the purchaser or lessee prior to any signing or agreement between the parties pursuant to 15 U.S.C. §§ 1703(a)(1)(B), 1707; and (3) refrain from fraudulent or deceptive schemes associated with the sale or lease of the property, or from making misrepresentations regarding the property and its amenities, pursuant to 15 U.S.C. § 1703(a)(1)(C)-(D), (2).

 The enforcement of the Federal Act itself is not at issue in this case. However, 15 U.S.C. § 1708(e) states in relevant part: "Nothing in this chapter may be construed to prevent or limit the authority of any State or local government to enact and enforce with regard to the sale of land any law, ordinance, or code not in conflict with this chapter." In addition, 15 U.S.C. § 1713 states, "The rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity." New Jersey has enacted two relevant statutes subsequent to the Federal Act.

 In 1975, the New Jersey legislature enacted the first of these, the Land Sales Full Disclosure Act, N.J. Stat. Ann. §§ 45:15-16.3 et seq. [hereinafter "Interstate Act"]. The Interstate Act applies only to common promotional plans to be sold to New Jersey residents where the subdivided lands are "located outside of the State of New Jersey." N.J. Stat. Ann. § 45:15-16.4(f). In many respects the Interstate Act operates in the same manner as the Federal Act. Unless the seller of an out-of-state subdivision can claim an exemption from the Interstate Act as enumerated in N.J. Stat. Ann. § 45:15-16.6, he must register a statement of record with the New Jersey Real Estate Commission before the lots can be offered or sold. N.J. Stat. Ann. § 45:15-16.21. Like the Federal Act, the Interstate Act has requirements governing the contents of the statement of record and documents that must accompany it, N.J. Stat. Ann. § 45:15-16.10, and of the filing fees to be paid in order to register the subdivision, N.J. Stat. Ann. § 45:15-16.8. The Commission is empowered to review applications for registration, hold hearings and promulgate orders and other relief in the event of noncompliance, investigate, and enforce the Interstate Act. As with the Federal Act, a person violating the Interstate Act can face civil and criminal liability.

 However, it is undisputed that the Interstate Act has broader requirements than the Federal Act, as authorized by the Federal Act. The Commission states in its brief that "while the New Jersey Legislature has generally molded its statutory scheme after the Federal Act, it has gone further in several areas in order to afford its citizens greater protection from the evils associated with interstate land sale schemes." Defendants' Brief in Opposition to Plaintiffs' Motion for Preliminary Relief and Summary Judgment and in Support of Defendants' Cross-Motion for Summary Judgment [hereinafter "Defendants' Brief"], at 11.

 In 1978, the New Jersey legislature passed the third statute of importance to this case, the Planned Real Estate Development Full Disclosure Act, N.J. Stat. Ann §§ 45:22A-21 et seq. [hereinafter "Intrastate Act"]. Regulations promulgated thereunder are set forth at N.J. Admin. Code §§ 5:26-1.1 et seq. The Intrastate Act applies only to lands located "situated in this State." N.J. Stat. Ann. § 45: 22A-39. The purpose of the Intrastate Act is similar to the Interstate Act, and both Acts subject sellers of subdivisions of land to registration requirements, public offering statement requirements, and penalties.

 Two important distinctions between the Intrastate Act and the Interstate Act form the basis for this suit. First, the Intrastate Act applies to lands located within New Jersey, while the Interstate Act applies to lands located outside New Jersey. Second, the procedures, disclosure requirements, and penalties set forth in the Intrastate Act are not the same as in the Interstate Act. This court's decision to grant plaintiff's motion for summary judgment is based on the following differences between the Intrastate and Interstate Acts:

 (1) -- There is a difference in the criminal penalties that can be imposed upon persons violating the Acts. A jail term can be imposed under the Interstate Act, but not under the Intrastate Act. The maximum penalty under the Intrastate Act is a fine of $ 50,000 per violation, but this is of course not as severe a punishment as a jail term. Compare N.J. Stat. Ann. § 45:15-16.22 with N.J. Stat. Ann § 45:22A-38.

 (2) -- There is a difference as to whether offers or dispositions of unimproved, unencumbered open space are exempt. The Intrastate Act provides for such an exemption, N.J. Stat. Ann. § 45:22A-25(a)(8), while the Interstate Act does not.

 (3) -- There is a difference as to whether offers or dispositions of fewer than 100 lots can be exempt. Under the Intrastate Act there is such an exemption, N.J. Stat.Ann. § 45:22A-25(a)(7). Under the Interstate Act there is not. The Commission in its brief argues that it can choose not to enforce the Interstate Act in its discretion because of the "small amount involved or the limited character of the offering," Defendants' Brief at 14, and also argues that the Intrastate Act's 100-lot exemption might not apply to Old Coach even if it were a seller of in-state land. *fn1" It is clear, however, that unless a favorable interpretation of the 100-lot exemption is made by the enforces of the Intrastate Act, the 100-lot exemption applies under the Intrastate Act only. Neither the Commission nor NARELLO cite any authority for the proposition that the possibility of lenient enforcement of the Interstate Act, coupled with aggressive enforcement of the Intrastate Act, eliminates this disparity between the Acts.

 (4) -- There is a difference in the amount of filing fees and annual fees thereafter that are imposed when a seller applies for registration. Under the Intrastate Act, there is no annual fee, and the initial filing fee is "$ 500 plus $ 35 per lot, parcel, unit, or interest contained in the application. . . ." N.J. Stat. Ann § 45:22A-27(e). Under the Interstate Act, however, there is an initial fee of "$ 250 for subdivisions containing fewer than 100 lots, parcels, units, or interest, plus $ 1.00 for each lot, parcel, unit or interest in excess of 100 with a maximum fee of $ 1000," and there is also an annual fee $ 150 per year for subdivisions with fewer than 50 lots, and $ 250 per year otherwise. N.J. Stat. Ann. § 45:15-16.8. Whether a given developer pays more or less under the Interstate Act will depend on the fortuitous circumstances of the number of lots developed or the duration of its development and sales efforts. It would be highly unlikely for a developer of in-state land to pay the same fees as a developer of out-of-state land having the same number of lots.

 (5) -- There is a difference as to whether a statement from a licensed civil engineer describing the property in question is required. Under the Interstate Act, there is such a requirement. N.J.Stat.Ann § 45:15-16.10(f). The Intrastate Act has no such requirement. The cost of ...


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