Irreconcilable Differences: The Stein v. Paradigm Court Divorces Itself From Precedent on the Interstate Land Sales Full Disclosure Act

 

 Quædam iura non scripta, sed omnibus scriptis certiora sunt.

“Some laws are not written, but are more decisive than any written law.”

• Seneca the Elder, Controversiae , Bk. 1, ch. 1, sect. 14; translation from Norman T. Pratt Seneca’s Drama (Chapel Hill: University of North Carolina Press, 1983) p. 140.

We must not make a scarecrow of the law,
Setting it up to fear the birds of prey,
And let it keep one shape, till custom make it
Their perch and not their terror.

• William Shakespeare, Measure for Measure (c. 1604), Act II, scene i.

In Stein v. Paradigm Mirasol, LLC, __ F.3d __, 2009 WL 3110819 (11th Cir. Sept. 30, 2009), the Eleventh Circuit rendered a decision that managed to ignore their own precedent set in Kamel v. Kenco/The Oaks At Boca Raton LP, 2008 U.S. App. LEXIS 21762 (11th Cir. Oct. 16, 2008) as well as the resulting state law decisions of Florida: Home Devco/Tivoli Isles LLC v. Silver — So.3d —-, 2009 WL 3018146 (Fla. 4 DCA Sept. 23, 2009); Plaza Court, L.P. v. Baker-Chaput, — So.3d —-, 34 Fla. L. Weekly D1305, 2009 WL 1809921 (Fla. 5th DCA June 26, 2009).  For a well reasoned exploration of the policy and implications that arise from the Stein decision, you should read Jared Beck’s blog on the issue here.  I am just a “nuts and bolts” type of guy, and true to my nature the Stein decision made me think of my college days. No, I am not referring to the first thing that popped into your mind. (Whatever that might have been.)  I was thinking of Dr. Anthony Beavers and my semester of logic class as required by my minor in pre-law. Dr. Beavers would tell you that I was much better in his Greek philosophy than in his logic course. I could always see the correct beginning and result for a proof, but often times I found myself sorely wanting in expressing the steps to arrive at the conclusion.  However, he did manage to teach me one thing that I remember quite well after all these years.  It is an elegant and simple proof known as a hypothetical syllogism which is just a fancy name for the proposition that states: if one implies another, and that other implies a third, then the first implies the third.  Represented in proof form it looks like this: P → Q. Q → R. Therefore, P → R. If you placed facts in such a proof it would look like this:

If I do not wake up, then I cannot go to work.

If I cannot go to work, then I will not get paid.

Therefore, if I do not wake up, then I will not get paid.

Now that your eyes have glazed over, and I have burned my reader attention credits: let me get to the point. There have been four cases, as mentioned above that defined the two-year completion exemption (15 U.S.C. Sec. 1702(a)(2)) for the State of Florida.  For starters, let’s examine the case of Kamel v. Kenco/The Oaks At Boca Raton LP, 2008 U.S. App. LEXIS 21762 (11th Cir. Oct. 16, 2008).  The purchaser lost in the Kamel case, but the opinion yielded a very important guideline for the interpretation of the two-year completion exemption.

Because the ILSA is a federal statute, federal law governs its interpretation. Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 176, 63 S.Ct. 172, 174, 87 L.Ed. 165 (1942). State contract law, however, is the ultimate arbiter of whether a contract actually “obligates” a seller to erect a building within two years. See Markowitz v. Northeast Land Co., 906 F.2d 100, 105 (3d Cir.1990); see also Guidelines for Exemptions Available Under the Interstate Land Sales Full Disclosure Act, 61 Fed.Reg. 13596, 13603 (Mar. 27, 1996) [hereinafter, Guidelines].  

Kamel, at *4.

As you can see, the Eleventh Circuit Court of Appeals made it plain that the “obligation” to complete in two years was a matter of state contract law, with the state acting as the ultimate arbiter of the same. Further, the Eleventh Circuit has been consistent on its position in following state law:  “[a] federal court applying state law is bound to adhere to decisions of the state’s intermediate appellate courts absent some persuasive indication that the state’s highest court would decide the issue otherwise.” See Galindo v. ARI Mut. Ins. Co., 203 F.3d 771, 775 (11th Cir.2000) (stating that “[a]bsent a decision by the highest state court or persuasive indication that it would decide the issue differently, federal courts follow decisions of intermediate appellate courts in applying state law”);Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678, 690 (11th Cir.1983) (noting that a “federal court applying state law is bound to adhere to decisions of the state’s intermediate appellate courts absent some persuasive indication that the state’s highest court would decide the issue otherwise”); McMahan v. Toto, 311 F.3d 1077, 1080 (11th Cir.2002) (noting that the fact that a federal court may decide the issue differently is not a “persuasive indication that the Florida Supreme Court would agree with us and not with one of its own intermediate appellate courts, which presumably knows more about Florida law” and rescinding portions of a prior decision that applied the Florida offer of judgment statute in a manner contrary to a subsequent decision by a Florida intermediate appellate court); Meier ex rel. Meier v. Sun Int’l Hotels, Ltd., 288 F.3d 1264, 1271 (11th Cir.2002) (reversing district court interpretation of the Florida long arm statute that rejected the decision of a Florida intermediate appellate court where the district court indicated that “[b]ecause it is not a decision of the Florida Supreme Court, [the appellate court decision] does not constitute binding authority” on the issue of Florida law); King v. Guardian Life Ins. Co., 686 F.2d 894, 898 (11th Cir.1982) (following Georgia intermediate appellate court interpretation of state statute as it pertains to policy lapse and noting rule that “[in] the absence of a decision from the state’s highest court, we must adhere to the decisions of the state’s intermediate appellate courts unless there is some persuasive indication that the state’s highest court would decide the issue otherwise” (internal quotation marks and citation omitted)).  Therefore, if the state intermediate appellate courts ruled  on the two year “obligation” it would be binding precedent on the Eleventh Circuit. Correct? Here is my less than credible attempt at the hypothetical syllogism:

If the Stein court reviews the “obligation” under Sec. 1702(a)(2) then as a federal court they must follow state contract law.

If a federal court must follow state contract law, then the Plaza Court and Home Devco opinions are controlling.

Therefore, if the Stein court reviews the “obligation” under Sec. 1702(a)(2), then the Plaza Court and Home Devco opinions are controlling.

What is perhaps most incredible in this situation is that not one, but two intermediate state appellate courts specifically agreed with the lower court’s reasoning on the 1702(a)(2) “obligation” in Stein v. Paradigm Mirasol. Both of these decisions of the intermediate appellate courts were issued prior to the Eleventh Circuit’s opinion in Stein. This is really just a long-winded way of saying that the Stein opinion defies logic. However, just as with any logical proof, the conclusion is not as important as the methodology employed to reach that conclusion.

In the Plaza case the Court opined:

Judge Hurley discussed the competing points of view and concluded, in line with a series of opinions ^FN3 by Judge Steele, in the Middle District of Florida, that the test is impossibility of performance under Florida law. Jankus, 619 F.Supp.2d at 1339-41. We agree with Judges Steele and Hurley that the question is whether Plaza’s contractual provisions are recognized within Florida’s doctrine of impossibility.

FN3. Disimone v. LDG South II, LLC, 2009 WL 210711 (M.D.Fla. Jan.28, 2009); Van Hook v. The Residences at Coconut Point, LLC, 2008 WL 2740331 (M.D.Fla. July 10, 2008); Stein v. Paradigm Mirsol, LLC, 551 F.Supp.2d 1323 (M.D.Fla.2008).

Plaza Court, 2009 WL 1809921 at *7-8. (emphasis added.)

In Home Devco/Tivoli Isles LLC v. Silver — So.3d —-, 2009 WL 3018146 (Fla. 4 DCA Sept. 23, 2009) the court discussed the lower court’s ruling in Stein in some detail:

In Stein, the closest case to ours factually, the court framed the issue as whether the clause “so undermines the two-year requirement that it renders the provision illusory.” Stein, 551 F.Supp.2d at 1330. In finding the provision illusory, the court addressed issues at the heart of the current appeal:
The provision in the Agreement provides that the two year period is extended “for any delay caused by acts of God, weather conditions, restrictions imposed by any governmental agency, labor strikes, material shortages or other delays beyond the control of the Seller….” * * * The other exclusions, however, are broad enough to seriously undermine the obligation to complete the condominium within two years. This provision does not limit the permissible delays to those justifiable under an impossibility of performance, but allows exclusions for far less compelling reasons, culminating in the catchall “other delays beyond the control of the Seller.” In the Agreement in this case, none of the exclusions are required to satisfy impossibility standards, and the catchall “other delays beyond the control of the Seller” is certainly broad enough to allow the Seller to excuse completion on a wide variety of events. The Court concludes that the provision in the Agreement extending the completion period for delays not qualifying under Florida’s impossibility of performance principles renders the obligation to complete the condominium within two years illusory. Therefore the Agreement is not exempt from the ILSFDA because it does not “obligate” completion of the condominium within two years.

Home Devco, 2009 WL 3018146 at *6-7. (emphasis added.)

When you read Stein v. Paradigm Mirasol, LLC, __ F.3d __, 2009 WL 3110819 (11th Cir. Sept. 30, 2009), you will notice that the Court does not address whether or not the Supreme Court of Florida would agree with two of the Florida intermediate appellate courts.  In fact, you won’t see a mention of either the Plaza Court case or the Home Devco case anywhere in the Eleventh Circuit’s opinion in Stein v. Paradigm Mirasol, LLC. It seems rather odd that the Kamel court tells us that we must look to state law, and yet the Stein court fails to mention two cases that are directly on point. Perhaps there is some unwritten law at work here.  A law where “what goes up, must come down” and buyer’s remorse, constitute a complete defense to federal statutes. This “unwritten” law seems to be prevalent in the recent Federal decisions on ILSA.  Seneca would be proud. To the state courts of Florida: The only thing you are the arbiter of is a dry husk erected in a barren field. A place where the passager hawks take their rest on the migration south, to where the prey is now both plentiful and easy.

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