Recent Developments in The Interstate Land Sales Full Disclosure Act: Jankus v. The Edge Investors

PLEASE NOTE:   The opinion cited below was withdrawn by Jankus v. Edge Investors, L.P., — F.Supp.2d —-, 2009 WL 2849064 (S.D.Fla. Aug 31, 2009) (NO. 08-80200-CIV); However, the reasoning of this opinion was adopted by Plaza Court, L.P. v. Baker-Chaput, 2009 WL 1809921, *5+, 34 Fla. L. Weekly D1305, D1305+ (Fla.App. 5 Dist. Jun 26, 2009). The effect of the Plaza Court adoption is discussed at  http://tinyurl.com/lxj2t8.  The Eleventh Circuit states that the forum state is the ultimate arbiter of the two year promise exemption.  The Jankus opinion was withdrawn based upon the two year promise exemption. This occurred after the State of Florida expressly found that the provision involved in Jankus, and others like it, was not exempt from ILSA. 

The Right to Rescind Expands to Three Years under 15 U.S.C. Section 1703(c)

Several years ago the Florida Fourth District Court of Appeal issued the opinion in Engle Homes, Inc. v. Krasna,766 So.2d 311 (Fla. 4th DCA 2000).  The Krasna court dealt with a developer’s violation of 15 USC section 1703(b), by failing to place a seven day right of rescission in the purchase contract. Recently, in Jankus v. Edge Investors, L.P., 2009 U.S. Dist. LEXIS 29110 (S.D. Fla. Apr. 8, 2009), the Federal Court for the Southern District of Florida has applied a Krasna style reasoning to Section 1703(c) of ILSA.  In order to understand the Jankus case, one must look to the history of cases that develop the treatment of rescission under 15 U.S.C. Section 1703(c).

ILSA provides:– 15 U.S.C. section 1703(b): “Any contract or agreement for the sale or lease of a lot not exempt under section 1702 of this title may be revoked at the option of the purchaser or lessee until midnight of the seventh day following the signing of such contract or agreement or until such later time as may be required pursuant to applicable State laws, and such contract or agreement shall clearly provide this right.” (emphasis added).

– 15 U.S.C. section 1703(c): “In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this chapter and the property report has not been given to the purchaser or lessee in advance of his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right.” (emphasis added).

The Krasna court reasoned that the full three years to rescind was available to the purchaser because the contract did not include the notice of the seven day rescission period. As the court explained:

“The Krasnas are asserting a right, i.e., rescission, created under subsection (b) of the Act. The notification of the rescission and return of the deed was done within thirty-one (31) months after the signing of the contract and within sixty (60) days of the Krasnas’ discovery that Engle Homes had violated the Act. Engle Homes also asserts that the Krasnas waived their right to rescind the contract. This assertion is flawed.  Waiver is the relinquishment of a known right and may not occur unless knowledge of that right is express or implied. Independent Fire Ins. Co. v. Arvidson, 604 So. 2d 854 (Fla. 4th DCA 1992). Engle Homes concedes that the right was not expressly stated in the contract. Thus, since the Krasnas did not learn of their right to rescission until 1997, waiver cannot be implied by their acceptance of the deed and living in the house.”

In 2008 the court in Taylor v. Holiday Isle, 561 F. Supp. 2d 1269 (S.D. Ala. 2008) decided that as to 15 USC 1703(c) rescission had to be made in two years, but damages were available for three. The Taylor court criticized the Engle Homes v. Krasna decision in a foot note:

“The only case that plaintiffs cite in support of the proposition that lack of notice of their right of rescission extends or eliminates the § 1703(c) deadline is Engle Homes, Inc. v. Krasna,766 So.2d 311 (Fla. App. 4 Dist. 2000). In Krasna, the court did not examine the statutory language in meaningful detail, but instead held in conclusory terms that the purchasers could not have timely waived their right to rescind the contract because the right of rescission was not expressly stated in the contract, and the purchasers did not learn of that right until 31 months after the fact. Krasna’s reasoning is problematic and ultimately unavailing to plaintiffs for three reasons. First, the doctrine of waiver generally does not apply to a plaintiff’s failure to bring an action within a statutory limitations period; rather, waiver is generally discussed in terms of a defendant’s waiver of a right to invoke the limitations defense. See generally Day v. Crosby, 391 F.3d 1192, 1194 (11th Cir. 2004) (“In an ordinary civil case, a failure to plead the bar of the statute of limitations constitutes a waiver of the defense.”) (citation omitted). Second, Krasna’s determination that the purchasers could not be held accountable for a statutory limitations period of which they were not aware is contrary to well-established law concerning tolling of such periods.  A plaintiff’s lack of knowledge of a limitations deadline is generally not an excuse for his failure to comply with it. See, e.g., Wakefield v. Railroad Retirement Bd., 131 F.3d 967, 970 (11th Cir. 1997) (“Ignorance of the law usually is not a factor that can warrant equitable tolling.”); Whitt v. Stephens County, 529 F.3d 278, 2008 U.S. App. LEXIS 10881, 2008 WL 2122814, *5 n.7 (5th Cir. May 21, 2008) (opining that “neither excusable neglect nor ignorance of the law is sufficient to justify equitable tolling of limitations”)”

The inherent problem with the Taylor decision arises under the plain reading of 15 U.S.C. Section 1711, or the statute of limitations section of ILSA.  Section 1711 provides a three-year statute of limitations — either running from the date the contract was signed, or from the date the discovery of the ILSA violation was made, depending on which right under ILSA is being asserted.  See 15 U.S.C. section 1711.  The two year rescission period does not appear in Section 1711, and as such it is something other than a statute of limitations.  The Jankus court found that the two-year period for the buyer to give notice was a condition precedent to filing, not a statute of limitations.  As such, the developer can waive the two-year notice period, when they fail to give the appropriate notice in the contract as required by Section 1703(c).  Jankus also noted the inadequacy of the damage remedy that the Taylor court espoused.

“Moreover, that the plaintiff may have a theoretical action for damages  under §1709(b) is not a meaningful alternative where he or she is still bound to perform under the contract of purchase. Without the legislatively prescribed rescission remedy under § 1703(c), he or she is left with the difficult task of proving the materiality of the property report disclosure violation and causally related damages under § 1709(b). The corresponding diminished litigation exposure attendant to this revision of the statutory scheme would give developers little incentive to comply with the disclosure requirements mandated under the ILSA. This court is not willing to interfere with the ILSA statutory scheme in this fashion by effectively writing the rescission disclosure requirement out of the statute, essentially what the Holiday Isle court achieved by enforcing §1703(c)’s two year rescission period against a buyer who did not receive the statutorily prescribed notice of it.”  Jankus 2009 U.S. Dist. LEXIS 29110 at *19-20.

Just as Krasna ensured that the seven day notice rights under Section 1703(b) are protected: Jankus ensures that developers must comply with 1703(c) or face rescission within three years.

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.