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United States Fourth Circuit Court of Appeals Rules in Favor of Landowners on Interstate Land Sales Act Issues

Keith and Courtney Nahigian thought they were receiving a great deal back in the summer of 2007 when they purchased property in a Loudoun County community called Creighton Farms. Little did they know it was just the beginning of a five year litigation process that would make new law regarding land sales.

The Nahigians were looking for a good investment opportunity and for a great place to raise a family. Creighton Farms, which held itself out as a "Ritz-Carlton Managed Community" promised to have all the amenities. From golf to a "Ritz kids" day care center, from horse-back riding to a state-of-the art clubhouse, Creighton Farms was to have it all. The Nahigians were promised that Ritz-Carlton was partnered with the developer, Juno-Loudoun, LLC for thirty years. However, in the spring of 2009, Ritz-Carlton picked up and left.

The Nahigians demanded an explanation as to why Ritz-Carlton would leave well short of its thirty year commitment to Creighton Farms. It was only then that they learned that no such commitment existed.

The Nahigians initiated a lawsuit against Juno-Loudoun and Ritz-Carlton for fraud and violations of the Interstate Land Sales Act (ILSA). The Nahigians' position was that Juno-Loudoun and Ritz-Carlton had misrepresented their relationship and had failed to comply with ILSA by excluding from the land purchase contract a notice they could revoke the contract within two years and a "property report" that would have included material information such as what agreements existed between the parties and the financial investment of the parties.

The Honorable James C. Cacheris heard the matter in the United States District Court for the Eastern District of Virginia. In the fall of 2010 Judge Cacheris granted summary judgment in favor of the Nahigians on their ILSA claims. Judge Cacheris held they were entitled to an equitable rescission for the failure to include material information in the property report. The Nahigians' 2007 land purchase contract for $1.674 million was ordered rescinded and the monies returned to the Nahigians. The Nahigians were also awarded interest, costs and attorney's fees.

Juno-Loudoun appealed the decision to the United States Fourth Circuit Court of Appeals. The Nahigians cross-appealed since Judge Cacheris only awarded them pre-judgment interest on the down payment they made for the property, not the amount financed through a BB&T loan. Oral argument was in December of 2011 and the Fourth Circuit entered its opinion on May 1, 2012.

The Fourth Circuit ruled in favor of the Nahigians on all matters. Juno-Loudoun claimed there was a two-year statute of limitations in order for the Nahigians to receive equitable rescission. However, the Fourth Circuit held that 15 U.S.C. § 1711(a)(1) provides a three year statute of limitations. This was a matter of first impression for the Fourth Circuit and they joined the Eleventh Circuit in deciding the three year statute of limitations in § 1711 applies to relief sought under § 1709(a).

Juno-Loudoun also argued they were subject to the "100 lot exemption" and the "sales to builders exemption" as outlined in 15 U.S.C. § 1702. However, the Fourth Circuit ruled those exemptions did not apply because Juno was counting on future sales of lots and the statute of limitations under ILSA begins to run when the contract is signed. The Fourth Circuit relied on the clear language of the statute and thus rejected advisory guidelines from HUD on this issue. The Fourth Circuit joined the Second and Fifth Circuits with this position. See e.g., Nickell v. Beau View of Biloxi, L.L.C., 636 F.3d 752, 757 (5th Cir. 2011) and Bodansky v. Fifth on Park Condo, LLC, 635 F.3d 75, 83 (2d Cir. 2011). The Fourth Circuit also held the violations of ILSA were material and that the Nahigians were entitled to rescission because what they could receive would restore them to where they were prior to entering into the land sales purchase contract.

This was a big victory for the Nahigians. The Fourth Circuit opinion was a homerun. Chap Petersen was the lead partner in this litigation and Jason Zellman was the associate who worked on this case for over three years.

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