Has The ILSA Land Mine Exploded Yet? A Mid-Summer Update On Recent Federal Cases Interpreting The Interstate Land Sales Full Disclosure Act

It was back in October of 2007 when I asked on this blog whether the federal Interstate Land Sales Full Disclosure Act (ILSA) was a “land mine ready to explode for condo developers.”  (Based on the number of page views, that article remains one of the most popular on this site).  Looking at the number of cases pending in Florida courts invoking ILSA, I predicted at the time that courts would bring some clarity to what has rightly been criticized as a difficult-to-comprehend law.

Nearly 10 months later — with a declining U.S. real estate market having soured into a full-blown crisis — the time is ripe to assess whether the land mine has in fact exploded.  To that end, this article attempts to capture the highlights of the major ILSA decisions handed down by federal courts since April of this year, when I wrote my previous ILSA update on Harvey v. Lake Buena Vista Resort.  My conclusion is that developers as opposed to buyers, have, in general, gotten the more favorable rulings, although it has by no means been a clean sweep for developers.  Many key issues under ILSA remain unresolved, and some recent decisions are in direct conflict with one another, leaving much further judicial work to be done.

One preliminary note: while state courts have concurrent jurisdiction with federal courts over ILSA cases — and many ILSA cases have been decided in Florida state courts, or will be decided — the analysis here is confined to recent federal decisions for two reasons: (1) federal opinions at the trial level are often widely reported, while state opinion are not; and (2) because ILSA is a federal statute, federal decisions are more persuasive in developing the body of interpretation, and therefore the better object of study for assessing how the law is being applied.

The Cases

Dubois v. Home Dynamics Murano, LLC, Case No. 07-61092-CIV-LENARD/GARBER (S.D. Fla. June 17, 2008). This is purely a pro-developer decision regarding the often-invoked exemption from ILSA’s requirements for developers who contractually commit to building the development within two years from the date that the buyer signs the contract.  In the contract at issue in Dubois, the developer qualified the 2-year obligation to build with a host of conditions justifying an extension of the construction deadline: “force majeure . . . weather, labor and material shortages, war, acts of terrorism, civil commotion, and acts of governmental authority, or any other grounds cognizable in Florida contract law as impossibility or frustration of performance.”  While courts have historically found the 2-year exemption to be destroyed where the commitment to build in 2 years is made overly conditional, here the Court ignored all of the conditional language because the contract also had a “severability/savings clause” which essentially allowed the Court to strike any language which it felt ran afoul of ILSA and preserve the rest of the contract — analogous to a kind of “escape hatch” for the developer.

Maguire v. Southern Homes of Palm Beach, 2008 WL 2474657 (S.D. Fla. June 17, 2008). This opinion is also pro-developer and mirrors Dubois in rejecting the notion that listing a number of contractual defenses to the 2-year construction obligation will automatically destroy the 2-year exemption under ILSA (although in this case, unlike Dubois, there was no severability/savings clause).

Kabula v. Southern Homes of Homestead VIII, Inc., 2008 WL 2741154 (S.D. Fla. July 14, 2008). Not everyone agrees with the approach taken in DuboisKabula is a pro-buyer decision where the Court disregarded an ILSA “savings clause” in denying the developer’s attempt to dismiss the complaint.  In the Court’s words, “The Defendant cannot rely on a savings clause to exonerate itself from running afoul of [ILSA] requirements in hypothetically limitless ways.”

Van Hook v. Residences at Coconut Point, LLC, 2008 WL 2740331 (M.D. Fla. July 10, 2008). Similar to Kabula, Van Hook is pro-buyer in its rejection of a savings/severability clause which purported to insulate the developer from liability under ILSA.  Van Hook also contains a long and firmly pro-buyer discussion of the 2-year exemption in which the Court focuses on a short phrase in the contract which qualified the obligation to complete the building on time (i.e., in two years): “subject, however, only to delays caused by matters which are legally recognized as defenses to contract actions in the jurisdiction where the Unit is being constructed.”  The Court reasoned that Florida law provides a large number of possible defenses that developers can use when faced with a breach of contract action. To invoke all such defenses as possible justifiable grounds for missing the 2-year construction deadline(such as, for example, excessive rain or the heart attack of a developer’s principal) is impermissible if the developer wants to get out of ILSA’s disclosure/reporting requirements by offering the buyer what is supposed to be an ironclad promise to build in 2 years.

Kamel v. Kenco/the Oaks at Boca Raton, LP, 2008 WL 2245831 (S.D. Fla. May 29, 2008). Like Dubois, this is squarely a pro-developer decision which allowed the developer to retain the 2-year exemption from ILSA, in spite of language in the contract that appeared to make the 2-year obligation to build the development conditional.  According to Kamel, developers ought to be able to retain an exemption from ILSA’s requirements while at the same time availing themselves of a broad doctrine of “impossible” which excuses the performance of a contract under a wide range of circumstances.

Taylor v. Holiday Isle, L.L.C., 2008 WL 2222945 (S.D. Ala. May 30, 2008). This opinion comes from Alabama, which is something of novelty in ILSA case law, as most important opinions have originated from Florida, given the state’s density of real estate development.  At first reading, Taylor appears to be a solidly pro-developer opinion.  The court, after a rather lengthy analysis, rejected the holding of an earlier Florida state appellate opinion, Engle Homes Inc. v. Krasna, 766 So. 2d 311 (Fla. 4th DCA 2000), which had suggested that a claim to revoke a purchase contract for failure to receive a federal Property Report is governed by a 3-year — rather than a 2-year — statute of limitations running from the date the buyer signed the contract.  (For more on the ILSA statute of limitations issue, see my previous article here).  But the opinion also has its pro-buyer moment insofar as it holds that as long as a claim based on the developer’s failure to deliver a Property Report seeks damages (as opposed to merely revocation), the three-year statute of limitations applies.  Going forward, I would expect buyers’ attorneys to avail themselves of this part of Taylor by increasingly asserting damages theories based on the lack of a Property Report, rather than simply asking the Court to revoke or rescind the contract.

Ditthardt v. North Ocean Condos, L.P., 2008 WL 2741114 (S.D. Fla. July 11, 2008). Ditthardt is a pro-developer decision which essentially adopts the holding of Taylor in concluding that a revocation claim under ILSA for failure to provide a Property Report has a 2-year rather than 3-year statute of limitations.  The Court notes that the statute of limitations can only be extended in narrow and extraordinary circumstances — i.e., almost never.

Joveer v. 1800 Club, Ltd., Case No. 1:08-cv-20412-AJ (S.D. Fla. July 24, 2008). An order on a developer’s motion to dismiss, Joveer contains some noteworthy pro-buyer statements regarding both ILSA and Florida law.  With respect to ILSA, Joveer hones in on 15 U.S.C. section 1703(d)(1) — a subject which has received, until Joveer, zero attention in courts to my knowledge.   This provision states that to comply with ILSA, a purchase contract for a real estate lot must contain the following: “a description of the lot which makes such lot clearly identifiable and which is in a form acceptable for recording by the appropriate public official responsible for maintaining land records in the jurisdiction in which the lot is located[.]”  Legal research reveals that there is no case law guidance as to what exactly constitutes a “description of the lot” sufficient for purposes of 15 U.S.C. section 1703(d)(1), and no precedent applying this requirement to condominiums as opposed to other forms of real estate.  But Joveer suggests — for the first time — that a condominium developer might only be able to satisfy this requirement if the declaration of condominium is recorded before a purchase contract for a unit in the condominium is signed.  If the declaration is recorded after the contract is signed, then Joveer strongly suggests that there may be an ILSA compliance problem.

For this article I am greatly indebted to many of my fellow attorneys in the field who took the time to forward me opinions for consideration.  Please continue to do so — e-mail is best.  I am especially interested in seeing state court decisions, including from jurisdictions outside of Florida.  As always, I welcome comments on the blog regarding any of the cases, analysis or other topics which I have addressed on this blog.

By Jared H. Beck, Esq.

This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.

Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium and other real estate purchase agreements. He can be reached at 305-789-0072 or jared@beckandlee.com

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One comment

  1. James Lewis

    Anyone know where I can get a copy of that Joveer v. 1800 Club, Ltd., Case No. 1:08-cv-20412-AJ (S.D. Fla. July 24, 2008 ) case? I am doing some legal research and I don’t have Westlaw or Lexis. Any ideas? Thanks!

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