802 F.3d 353
2d Cir.2015Background
- Aviral and Sangeeta Rai (the Rais) contracted in 2007 to buy Apartment 8C in The Lucida, developed by WB Imico Lexington Fee, LLC (Imico). Purchase price ~$4.29M; 15% deposit required.
- Imico delivered the ILSA-mandated Property Report and related documents to the Rais’ identified attorney; the Rais say they personally never received it and no signed receipt was produced.
- Rais signed the Purchase Agreement in November 2007; in November 2009 they sought rescission under the Interstate Land Sales Full Disclosure Act (ILSA), claiming (1) failure to furnish the Property Report to them directly (§ 1703(a)(1)(B)), and (2) inadequate lot description in the contract because it omitted a tax lot number (§ 1703(d)(1)). They also challenged the liquidated-damages clause (§ 1703(d)(3)).
- The district court initially granted plaintiffs summary judgment on the tax-lot claim, then vacated that portion after this Court’s Bacolitsas decision; the district court nonetheless held Imico violated § 1703(a)(1)(B) because the Report was not given directly to the Rais and awarded rescission and return of deposit to the Rais.
- On appeal, the Second Circuit (Lynch, J.) reversed the district court on the Property Report issue, affirmed that omission of tax lot number did not violate § 1703(d)(1), and held Imico entitled to retain the 15% deposit and any interest accrued while funds were in escrow.
Issues
| Issue | Rai's Argument | Imico's Argument | Held |
|---|---|---|---|
| Whether ILSA § 1703(a)(1)(B) requires delivery of the Property Report directly to the purchaser (not to purchaser’s attorney) | Requirement is strict: “furnished to the purchaser” means delivery into purchaser’s hands; delivery to counsel is insufficient, so Rais may rescind | Delivery to a purchaser’s designated attorney constitutes furnishing to the purchaser under ordinary agency law and industry practice | Delivery to purchaser’s designated attorney satisfies § 1703(a)(1)(B); district court liability reversed |
| Whether omission of a tax lot number in the purchase agreement makes the lot description deficient under § 1703(d)(1) | Tax lot number is necessary for a description to be "clearly identifiable" and in form acceptable for recording; omission permits rescission | § 1703(d)(1) disclosure goal differs from conveyance formalities; description need not include every conveyancing detail (e.g., tax lot) | Omission of tax lot number does not violate § 1703(d)(1); district court’s earlier grant for plaintiffs vacated/affirmed for Imico |
| Whether ILSA permits retention of interest earned on a purchaser’s 15% deposit when seller keeps the deposit after purchaser default (§ 1703(d)(3)) | If seller may only retain 15% principal, interest should be returned to purchaser | In absence of statutory mandate, common-law rule applies: interest follows the principal and belongs to owner of principal retained | Imico entitled to retain deposit and interest accrued while funds were in escrow |
| Standard of statutory interpretation and agency applicability to ILSA notice provisions | Argues plain text and expressio unius support narrow reading excluding purchaser agents/attorneys | Ambiguity resolved by ordinary agency principles, statutory purpose, regulations, and CFPB view permitting delivery to purchaser’s agent | Court applies agency principles and CFPB's interpretation (Skidmore deference) to conclude delivery to purchaser’s attorney complies with ILSA |
Key Cases Cited
- Bodansky v. Fifth on Park Condo, LLC, 635 F.3d 75 (2d Cir. 2011) (background on ILSA’s application to condominium sales)
- Bacolitsas v. 86th & 3rd Owner, LLC, 702 F.3d 673 (2d Cir. 2012) (§ 1703(d)(1) does not require contract itself to satisfy recordation technicalities; description need not be coextensive with conveyance requirements)
- Lamie v. U.S. Trustee, 540 U.S. 526 (U.S. 2004) (plain-meaning rule in statutory interpretation)
- Barnhart v. Peabody Coal Co., 537 U.S. 149 (U.S. 2003) (limits on expressio unius canon)
- Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012) (use of background legal concepts when statutory language ambiguous)
- Phillips v. Wash. Legal Found., 524 U.S. 156 (U.S. 1998) (principle that interest follows principal)
- Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (U.S. 1980) (interest on deposited funds follows owners of the principal)
- Veal v. Geraci, 23 F.3d 722 (2d Cir. 1994) (attorney-client relationship as agency)