Fight Fraud Within Exemption: Advocating a Properly Tailored Interpretation of the § 1702 Evasion Clause of the Interstate Land Sales Full Disclosure Act

AuthorStephen A. Hench
PositionJ.D. Candidate, University of Iowa College of Law, 2013
Pages2087-2114
2087
Fight Fraud Within Exemption:
Advocating a Properly Tailored
Interpretation of the § 1702 Evasion
Clause of the Interstate Land Sales Full
Disclosure Act
Stephen A. Hench
ABSTRACT: Under the Interstate Land Sales Full Disclosure Act’s
(“ILSA”) exemption provisions, developers are not exempted from the statute
if they act “for the purpose of eva[ding]” ILSA. Accordingly, the proper
standard to evaluate whether a developer has acted to “eva[de]” ILSA is
critical in exemption determination, and the Eighth and Eleventh Circuits
are split regarding what this standard should be. This Note argues that
other courts should adopt the Eighth Circuit’s standard. Under this
standard, a finding of exemption-denying “evasion” requires a plaintiff to
show that the land developer acted with “fraudulent intent” in obtaining
exemption from ILSA.
I. INTRODUCTION .................................................................................... 2089
II. THE INTERSTATE LAND SALES FULL DISCLOSURE ACT, AND
EXEMPTION AND “EVASION UNDER 15U.S.C. § 1702 ........................ 2090
A. ENACTMENT, HISTORY, BACKGROUND, AND IMPORTANCE ................ 2091
B. COVERAGE AND REGISTRATION REQUIREMENTS ............................... 2092
C. EXEMPTION UNDER 15U.S.C. § 1702 ............................................ 2094
D. “EVASION PROHIBITING § 1702 EXEMPTION .................................. 2095
III. WHEN IS DEVELOPER CONDUCT FOR THE PURPOSE OF EVA[DING]”
THE INTERSTATE LAND SALES FULL DISCLOSURE ACT? ....................... 2096
A. THE EIGHTH CIRCUIT AND THE FRAUDULENT-INTENT TEST ............. 2097
B. THE ELEVENTH CIRCUIT AND THE LEGITIMATE BUSINESS PURPOSE
STANDARD ..................................................................................... 2098
J.D. Candidate, University of Iowa College of Law, 2013; B.A., Vanderbilt University,
2010. I would like to thank the writers and editors of the Iowa Law Review for their work with
this Note, and my parents, for their continued support.
2088 IOWA LAW REVIEW [Vol. 98:2087
IV. COURTS SHOULD ADOPT THE EIGHTH CIRCUITS FRAUDULENT-
INTENT TEST ........................................................................................ 2101
A. PLAIN MEANING ............................................................................. 2102
B. ILSA’S PURPOSE AND CONGRESSIONAL INTENT ................................ 2104
1. Legislative History and Case Law ........................................ 2104
2. The HUD Guidelines ........................................................... 2106
C. POLICY CONSIDERATIONS ................................................................ 2108
1. General Costs ........................................................................ 2108
2. The Real Estate Market and Contract Rescission .............. 2109
3. Concerns of Over- and Underinclusion ............................. 2111
V. CONCLUSION ....................................................................................... 2114

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