Article

Note: Twenty Buyers of pre-construction condominium units on the Gulf of Mexico elected to pay a required earnest money deposit assuring that they would close the purchase when the unit was available for occupancy by providing a letter of credit for 20% of the purchase price in favor of Developer. The contract provided that the purchase agreement was null if the unit was not completed within two years of the contract date. When Developer declared Buyers in default and drew on the standbys, Buyers initiated arbitration proceedings as required by the purchase contract. The arbitrator concluded that the term "unit" in the agreement included the dwelling unit and the common areas which were not timely completed and gave an award in favor of 17 or the Buyers.

The 17 Buyers filed this action to confirm the arbitration award and the losing Buyers filed a motion to vacate the award. The court granted 17 buyer's motions, denied that of two of the losing Buyers, granted that of one losing Buyer, and denied Developer's motion to deny confirmation or to vacate the award. Developer then challenged the denial of its motions to deny or modify the arbitral award and its grant of the motion of the one losing Buyer. The United States District Court for the Southern District of Alabama, Southern Division, Steele, J., denied Defendant's motion to alter or amend the Court's prior rulings.

The Judge ruled that Developers failed to demonstrate sufficient grounds for reversing its rulings. Developer/Beneficiary argued that there was no rational basis for the arbitration award. The Judge, however, stated that "[t]"here was evidence that [Developer/Beneficiary] called [Buyers'] letter of credit, and the arbitrator found that [Buyers] had not been in default so as to justify the call. There was thus more than enough evidence on which the arbitrator could have relied to conclude that and [Developer/Beneficiary] wrongfully called the letter of credit."

The Judge also rejected Developer's arguments that it was not afforded sufficient time to brief its case, noting that Developer filed a 15 page motion which set forth its argument. As to the losing Buyer who appealed, the Judge declined to reverse his prior ruling vacating the arbitration award. While noting that the arbitrator had ruled that this Buyer's unit was completed within the two year contract deadline, the Judge observed that "the parties had put in issue only who was entitled to the proceeds of the [Buyers'] letters of credit, and [this Buyer's] letter of credit had expired, so that there were no proceeds to award. Since the parties had asked the arbitrator to decide only who would get the proceeds of the letters of credit, he had no authority to require [this Buyer] to pay [US$114,600] out of his own pocket...."

Comment:

This technical decision is chiefly of interest because the arbitrator's conclusion that the term "unit" in the agreement included the common areas was directly contrary to the decision of the U.S. District Court for the Southern District of Alabama, Steele, J., in Murray v. Holiday Isle, LLC, 620 F.Supp.2d 1302 (S.D.Ala. 2009), also noted in this volume. That court concluded that the term only meant the dwelling units and not the common areas.

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