Opinion
IP 02-0599-C-M/S
April 17, 2003
ORDER ON DEFENDANTS' MOTION FOR JUDGMENT ON THE PLEADINGS
This matter is before the Court on defendants', Village Oaks Development Company, LLC ("Village Oaks") and The Bradford Group, Inc. ("Bradford Group") (collectively, "Defendants"), motion for judgment on the pleadings of plaintiffs Jeff and Eva Tomlinson (the "Tomlinsons"). Defendants claim that both of the Tomlinsons' claims against them fail as a matter of law and, thus, should be dismissed. For the reasons set forth herein, Defendants' motion is GRANTED in part and DENIED in part.
I. BACKGROUND
The Tomlinsons originally filed their Complaint in state court, alleging that Defendants violated the Interstate Land Sales Full Disclosure Act ("ILSFDA") and that Defendants violated residential covenants. The Tomlinsons bought a lot and a house in The Village Oaks Subdivision in Hendricks County, Indiana, on March 22, 2000. Complaint ¶ 6. The Tomlinsons bought the lot from Signature Homes, the builder and a non-party. Id. ¶ 7. Defendants were the developer of the subdivision. Id. Prior to purchase, the Tomlinsons had viewed promotional and marketing material for the subdivision, showing Signature Homes as the builder and Village Oaks as developing the lots. Id. at 8. The Tomlinsons received this promotional material through the mail to their residence in West Virginia. Id. The Tomlinsons allege that the promotional material was part of a "common promotional plan" as defined in 15 U.S.C. § 1701(4). Id. ¶ 9. For Count I of their Complaint, the Tomlinsons claim that Defendants violated various sections of ILSFDA, including by failing to register with the Interstate Land Sales Office, failing to provide the Tomlinsons with various notices required by ILSFDA, and failing to provide the Tomlinsons with a printed property report as required by ILSFDA.
Bradford Group is the Managing Member of Village Oaks. Complaint ¶ 4.
When the Tomlinsons purchased the lot and home from Signature Homes they simultaneously received covenants from Village Oaks, entitled "Declaration of Restrictions For Village Oaks, Section 1" ("Declaration of Restrictions"), signed by Bradford Group as the Managing Member of Village Oaks. Id ¶¶ 7, 21-22 Declaration of Restrictions. The Declaration of Restrictions included assurances that the covenants contained therein were for the mutual and beneficial interest of the parties and that the Tomlinsons' property value would be protected. Id. ¶ 23. The Declaration of Restrictions also states that neither the developer nor homeowners' association would be "liable for damages of any kind to any person for failing either to abide by, enforce or carry out" the Declaration of Restrictions except for negligence or unworkmanlike product or services. Declaration of Restrictions, sec. 7(A). The Tomlinsons allege that after purchasing their lot and home, Defendants began allowing the sales of smaller homes with lower prices, and that doing so has lowered the value of the Tomlinsons' property. Complaint ¶¶ 24-25. For Count II of their Complaint, the Tomlinsons allege that the damage to their property value is a breach of the Declaration of Restrictions and a failure of consideration. For both counts of their Complaint, the Tomlinsons request revocation and rescission of their purchase agreement as well as damages. Id. ¶¶ 19, 26.
Defendants argue they are entitled to judgment on Count I of the Complaint because a plaintiff does not have a claim under ILSFDA unless he can demonstrate he purchased the lot from a developer or a developer's agent. Relying on section 7(A) of the Declaration of Restrictions, Defendants argue they are entitled to judgment on Count II of the Complaint because the Declaration of Restrictions specifically prohibits the claim the Tomlinsons have brought.
II. STANDARD
Rule 12(c) of the Rules of Civil Procedure provides that "[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Rule 12(c) permits a party to move for judgment after the parties have filed the complaint and answer. In considering a motion for judgment on the pleadings, courts employ the same standard as that applied to a motion to dismiss under Rule 12(b). See Northern Ind. Gun Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998). "The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits." Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). Thus, the motion will be granted only if it appears beyond a doubt that the plaintiff cannot prove any facts that would support a claim for relief. Northern Ind. Gun Outdoor Shows, Inc., 163 F.3d at 452. In determining whether judgment on the pleadings is proper, the Court accepts as true all facts alleged in the complaint and draws all reasonable inferences from the pleadings in favor of the plaintiff. See Gillman v. Burlington N. Ry. Co., 878 F.2d 1020, 1022 (7th Cir. 1989).
III. DISCUSSION A. INTERSTATE LAND SALES ACT
ILSFDA provides a purchaser of a residential lot with a cause of action against the developer or the developer's agent for violations of ILSFDA's registration and disclosure provisions. 15 U.S.C. § 1709. However, to qualify for ILSFDA protection, a plaintiff must be able to demonstrate that he purchased the lot from a defendant who is a developer or a developer's agent. Gibbes v. Rose Hill Plantation Dev. Co., 794 F. Supp. 1327, 1333 (D.S.C. 1992); Kicken v. Valentine Prod. Credit Ass'n, 628 F. Supp. 1008, 1010 (D.Neb. 1984) (dismissing ILSFDA claim because plaintiffs did not allege they purchased the real estate from defendants). Because the Tomlinsons allege they purchased their lot from Signature Homes, rather than Defendants, the Tomlinsons have no claim against Defendants unless they can demonstrate that Signature Homes sold lots as Defendants' agent.
The Tomlinsons did not allege Signature Homes was Defendants' agent. The Tomlinsons allege that promotional material for Defendants' development was provided by Signature Homes. Complaint ¶ 8. Further, the Tomlinsons allege the lot was marketed pursuant to a "common promotional plan" as defined at 15 U.S.C. § 1701(4). Id. ¶ 9. However, neither of those allegations will support a claim for agency.
ILSFDA defines a developer's agent as a "person who represents, or acts for or on behalf of, a developer in selling or leasing, or offering to sell or lease, any lots in a subdivision." 15 U.S.C. § 1701(6). An allegation that promotional material came from Signature Homes is not an allegation of an agency relationship. The Complaint plainly alleges that Signature Homes sold the lot directly to the Tomlinsons, not that Signature Homes sold Defendants' lot to the Tomlinsons on behalf of Defendants. Signature Homes' status as a builder in Defendants' development is not sufficient to give Signature Homes the status of an agent. In fact, ILSFDA specifically contemplates that developers will sell lots to builders who will then use the lots for residential construction and resell them, and exempts such sales from ILSFDA's requirements. Id. § 1702(a)(7).
The Tomlinsons argue that, by definition, a "common promotional plan" states a claim for agency. A "common promotional plan" is defined in ILSFDA as:
[A] plan, undertaken by a single developer or a group of developers acting in concert, to offer lots for sale or lease; where such land is offered for sale by such a developer or group of developers acting in concert, and such land is contiguous or is known, designated, or advertised as a common unit or by a common name, such land shall be presumed, without regard to the number of lots covered by each individual offering, as being offered for sale or lease as part of a common promotional plan.
Id. § 1701(4). The Court cannot reconcile the Tomlinsons' allegation of a "common promotional plan" with their allegation that Signature Homes was the builder on a lot within a subdivision for which Village Oaks was the developer.
The relevance of lots sold as part of a "common promotional plan" is that such lots are considered a "subdivision" under ILSFDA. 15 U.S.C. § 1701(3). The meaning of "subdivision" is important because various exemptions to ILSFDA exist for the sale or lease of lots in subdivisions of various sizes. See id. § 1702. Courts that have examined whether a lot was sold as part of a "common promotional plan" do so to determine whether the lot is part of a subdivision large enough to fall within the scope of ILSFDA. See, e.g., Orsi v. Kirkwood, 999 F.2d 86 (4th Cir. 1993); Winter v. Hollingsworth Props., Inc., 777 F.2d 1444 (11th Cir. 1985).
The Tomlinsons argue in their opposition to the motion for judgment on the pleadings that their Complaint alleges Signature Homes was a developer acting in concert with Defendants. Opposition to Motion for Judgment on the Pleadings at 4. This simply is not true; the Tomlinsons have not made those allegations and have, in fact, alleged a much different scenario. The Tomlinsons allege that Signature Homes was the builder and Defendants were the developer. The Court is obligated to accept assertions made in an opposition brief that would make out a claim. See Albiero v. City of Kankakee, 122 F.3d 417, 419 (7th Cir. 1997). However, the Court is not required to accept such allegations that are inconsistent with the pleadings. See Holman v. State of Ind., 211 F.3d 399, 405 (7th Cir. 2000) (stating that while "claims may not be dismissed under Rule 12(b)(6) unless [plaintiffs] cannot prove a claim under any set of facts, those facts must be consistent with the allegations of the complaint." (emphasis in original)).
The Complaint and the documents attached thereto make clear that Signature Homes was a builder, from whom the Tomlinsons purchased their lot, and Defendants were the developer. There is no allegation that Signature Homes sold lots as Defendants' agent. The Tomlinsons could not prove any set of facts consistent with their allegations that would support a claim under ILSFDA. Defendants' motion for judgment on Count I of the Complaint is GRANTED.
B. BREACH OF COVENANTS
Defendants argue that the Declaration of Restrictions specifically precludes the Tomlinsons' claim for damages for breach of contract. The Declaration of Restrictions says:
The Association or any party to whose benefit these Restrictions inure, including the Developer, may proceed at law or in equity to prevent the occurrence or continuation of any violation of these Restrictions, but, except for negligence or unworkman like product or services, neither the Developer nor the Association shall be liable for damages of any kind to any person for failing either to abide by, enforce or carry out any of these Restrictions.
Declaration of Restrictions, sec. 7(A). In response, the Tomlinsons assert that this clause is unconscionable. Although the Tomlinsons failed to allege unconscionability in their Complaint, a plaintiff need not allege all the facts essential to his claim. See Albiero, 122 F.3d at 419. A plaintiff may supplement his complaint with a factual narration in a brief, and if the extra facts support the claim, the complaint must stand. Id. The Tomlinsons' assertion that the exculpatory clause is unconscionable is not necessarily inconsistent with the allegations in their Complaint, and would support a claim for breach of the Declaration of Restrictions.
The Court finds it necessary, however, to address the Tomlinsons' alternative argument, that Count II of their Complaint is not barred because it is a claim for negligence or unworkmanlike products or services, which are not excluded by the Declaration of Restrictions. The Tomlinsons' Complaint clearly states a claim for breach of contract. Count II is titled "Violation of Covenants Cause of Action." The Tomlinsons allege that Defendants' actions "violat[ed] the said covenants of the subdivision" and were "a breach of covenants and contract and/or a failure of consideration." Complaint ¶ 25. These allegations clearly are not claims of negligence or unworkmanlike products or services.
Because the Tomlinsons assert that the exculpatory clause in the Declaration of Restrictions is unconscionable, Defendants' motion for judgment on Count II of the Complaint is DENIED.
IV. CONCLUSION
For the reasons discussed, Defendants' motion for judgment on the pleadings for Count I of the Complaint is GRANTED and Defendants' motion for judgment on the pleadings for Count II of the Complaint is DENIED.