Pugliese v. Pukka Development Part II puts to rest questionable ruling


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Pugliese v. Pukka Dev., Inc., 550 F.3d 1299 

The most recent Pukka decision handed down from the Federal Court of Appeals for the 11th Circuit overturns the previous Pukka decision. The Interstate Land Sales Act (ILSA), a consumer protection statute applicable to subdivision lots and condominiums, includes numerous exemptions used by developers. When the initial Pukka decision ignored those exemptions and allowed buyers to cancel their condo sales contracts and recover $245,600 in deposits, it departed from traditional construction of ILSA. The decision rejected previous cases in Florida and across the country and contradicted the plain language of the statute. Most surprisingly, it opposed the position of the Department of Housing and Urban Development (“HUD”); the very department tasked with enforcing the law and protecting the public.

 

The issue was statutory interpretation. Sec. 1702(a) exempts certain transactions from all parts of ILSA and Sec. 1702(b) exempts other sales from disclosure and registration requirements. Many developers use exemptions under Sec. 1702(b), which includes developments with less than 100 units as was the case here. Sec. 1703(d) allows a buyer to cancel any contract “not exempt under section 1702” if it doesn’t have specific contractual safeguards in it. Those include: 1) a description of the lot suitable for recording; 2) notice to the buyer of default and twenty days to cure the breach; and 3) a limitation on the amount of the buyer’s deposit the developer can keep if the buyer defaults. Without these provisions, the buyer can cancel the contract within two years of signature and receive a full refund of its deposit.

 

Before the Pukka case, people commonly understood that if a sale was exempt under Sec. 1702(b), 1703(d) didn’t apply. The previous Pukka decision, however, held that the reference to 1702 in Sec. 1703(d) merely directed the reader back to that section. Since Sec. 1702(b) didn’t specifically mention 1703, projects with less than 100 lots had to comply with the requirements of 1703(d). Suddenly, most form contracts were subject to the two year cancellation provision.

 

Conversely, in the most recent Pukka decision the Federal Court of Appeals held that sales exempt under Sec. 1702(b) are not subject to the various requirements and two year right of contract cancellation in Sec. 1703(d). The court based its decision on the plain language of the statute and the input of HUD, who forcefully supported the conventional interpretation.

 

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 Carmel & Carmel P.C.

 

The citation for the Pukka decision is:

Pugliese v. Pukka Dev., Inc., 550 F.3d 1299

Please contact Aaron Eidelman at aeidelman@carmel.us if you have any comments or questions in regards to this article.

2009-01-05 09:15:00