The Seventh Circuit recently affirmed the District Court’s trial verdict in favor of some Trump-controlled entities in a consumer fraud suit filed by a purchaser of some Trump Tower condominium units.
In Goldberg v. 401 North Wabash Investor, LLC, 2014 WL 2579939 (7th Cir. 2014), an eighty-something real estate investor sued on a bait-and-switch theory after a condominium developer unilaterally removed certain hotel facilities from the project’s common elements before the closing.
She sued for consumer fraud, breach of contract, violation of the Illinois Condominium Property Act and filed another count under Illinois securities law. After a trial, a jury returned a verdict in the seller’s favor and in a later bench trial, the court found for the seller on the plaintiff’s breach of contract and Condominium Act claims. The plaintiff appealed.
The Seventh Circuit upheld the jury’s verdict for the seller on the plaintiff’s consumer fraud count. The plaintiff’s case centered on the seller’s removal of certain hotel facilities from the common elements pursuant to a “change clause” in the underlying sale documents.
The sale documents’ change clause gave the seller complete discretion to modify any condominium documents.
When the seller removed the hotel facilities (food and beverage operations, meeting rooms and certain health club use), the plaintiff sought return of the approx. $500K in earnest money she paid. The seller said no and plaintiff sued.
Consumer Fraud: Bait-and-Switch
Plaintiff’s consumer fraud claim alleged classic bait-and-switch: where a seller promotes a specific product knowing that he won’t sell it. Instead, the customer shows up, the seller tells him the product is sold out and the seller pulls a “switch” – he tries to get the unwitting consumer to pay a higher price for a different product.
The Court found that the jury could properly find there was no bait-and-switch. The condominium sale documents clearly allowed the seller to make changes to the condo common elements at its sole discretion.
So, by the seller telegraphing to a buyer (like plaintiff) that it had an unqualified right to modify the common elements, there was no bait-and-switch. The plaintiff, an experienced real estate investor, was essentially on notice that the seller could amend the declaration at any time.
Breach of Contract – Why No Jury?
On the plaintiff’s breach of contract count, the Seventh Circuit agreed with the District Court that plaintiff wasn’t entitled to a jury trial. The Court looked beyond the cause of action’s title and instead viewed its substance.
Plaintiff’s contract claim really sought rescission – she wanted her half a million in earnest money back. Since rescission is an equitable remedy, a jury trial isn’t allowed. (*5). The fact that the plaintiff sought monetary interest didn’t convert her claim from an equitable one to an action at law (for money damages).
Take-away: This case is post-worthy for both its current events and celebrity quotient. Aside from that, the case serves as a good illustration of a time-honored consumer fraud theory (bait and switch) adapted to a modern-day complex real estate contractual setting.
Goldberg also provides a dramatic example of a court looking beyond a cause of action’s label (breach of contract) and discerning the substantive relief sought (rescission) by a party to determine whether a given claim is legal (and triable to a jury) or equitable (no jury trial) in nature.