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Whether a mortgage with a correct legal description can be foreclosed if the deed to the mortgagor/borrower contained a defective legal description was at issue and Heartwood II. LLLC v. Dori, Case No. 3D1-2576 Fla. 3d DCA, January 11, 2017). The trial court dismissed the lender’s mortgage foreclosure action and reformation action.
Two instruments were involved a deed to Mr. Dori and a mortgage from him to the lender. The deed would make a title underwriter cry. The legal description in the deed to Dori stated as a legal description:
Unit 918, Mirador 1200, a Condominium, together with an undivided interest in the common elements, according to the Declaration of Condominium thereof, as recorded in Official Records Book , Page , of the Public Records of Miami-Dade County.
This Commitment will be endorsed at the time of the recordation of the Declaration of Condominium to complete the legal description.
The unit’s street address was stated.
The same date Dori obtain the deed, he executed the mortgage for unit which is the subject of the foreclosure action. The mortgage contained the proper legal description, including the recording book and page numbers missing from the deed, and including the same street address.
The deed likely was created by copying the legal description from the title commitment which was created before the declaration of condominium was recorded. The court also surmised that the mortgage has the correct legal description because the mortgage was created by the lender.
The lender’s complaint sought to foreclosure the mortgage and to reform the deed’s legal description. Dori answered admitting that he owned the property, and not raising any affirmative defense concerning the deed’s legal description. The lender’s unopposed motion for leave to amend to add the deed’s grantor was denied because the case was set for trial the following month.
The ultimate bottom line was that as Dori acknowledged ownership and there was no dispute that the mortgage contained the proper legal description, the mortgage was valid. The result was that the matter was remanded, not just for further proceedings, but for entry of a judgment of foreclosure. The lender at its option could pursue the reformation action.
Interestingly, the appellate court did not address whether the deed is adequate. Normally, the test is whether the deed provides sufficient identification of the property. In this instance the name of the condominium and the unit was present together with the street address which might have been a sufficient identification of the property; thus, alleviating the need to reform. In the same regard, if the deed was not sufficient, then the foreclosure action should not have been allowed proceed without naming the owner of property.
Michael J. Gelfand
Florida Bar Board Certified Real Estate Attorney
Florida Supreme Court Certified Mediator: Civil Circuit Court & Civil County Court
Immediate Past Chair
Real Property, Probate and Trust Law Section of The Florida Bar
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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
© 2017 Michael J. Gelfand
Michael J. GelfandFlorida Bar Board Certified Real Estate AttorneyFlorida Supreme Court Certified Mediator: Civil Circuit Court & Civil County Court
Michael J. GelfandImmediate Past ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2017 Michael J. Gelfand
Wednesday the Third District Court of Appeals narrowed two significant defenses to enforcement actions, selective enforcement and waiver/estoppel in Laguna Tropical, a Condominium Association, Inc. v. Barnave, Case No. 3D16–1531 (Fla. 3d DCA, January 25, 2017).
At issue was the enforcement of two restrictions. The declaration of condominium prohibited:
A unit owner from altering, modifying or replacing the interior of a unit without the prior consent of the Association’s Board of Directors.
Another provision specifically applicable to flooring captioned “noise” stated:
Unless expressly permitted in writing by the Association, no floor covering shall be installed in the units other than any carpeting or other floor covering installed by the Developer. In any event, each unit owner shall have the duty of causing there to be placed underneath such floor covering, so as to be beneath such floor covering and the concrete slab, generally accepted and approved materials for diminution of noise and sound, so that the flooring shall be adequately soundproof.
(Footnote deleted.) It is unclear whether the noise rule was part of the declaration or adopted pursuant to the declaration because the Court stated that the rule was “under the recorded Declaration of Condominium.”
You know what happened next. The second story unit owner replaced her unit carpeting with laminated flooring. The following year, the decision does not provide better specificity, the resident in the unit below the now laminated floor complained about noise. After an unsuccessful arbitration filing and mediation, the Association sought injunctive “and other” relief against the owner and tenant. After a nonjury trial, the owner prevailed. The Association appealed.
There was an important threshold consideration, the burden of proof. Thus, the court commenced by holding that the unit owner bore the burden of proof for the defense of selective enforcement and the defense of waiver or estoppel. “[T]he Owner assumed of the burden of proof as to each of these issues.”
On the substantive issue, it helps to understand the condominium’s somewhat unusual design. There are 94 units: 11 were only upstairs “units;” 11 were only “downstairs” units; and the remaining 72 units first and second floor units.
This configuration was relevant to the selective enforcement defense because owners of upstairs and downstairs units who installed hard flooring upstairs would presumably not complain about their own flooring. Similarly, hard flooring installed by in a downstairs unit normally would not generate flooring complaining.
Thus, the Court focused on complaints actually made to the Association. The flooring restriction “is plainly intended to avoid noise complaints.” The Association enforced the noise rule when there was a complaint by a downstairs owner. Because there were no complaints that were not acted upon, the apparent existence of hard flooring that did not generate a complaint did not constitute no selective enforcement!
Concerning the waiver or estoppel argument, the court held that the president’s communications to the unit owner could not constitute an alteration of flooring approval. The declaration required written approval by the board of directors, not one of the officers.
The final judgment was reversed and remanded for “enforcement of the flooring restrictions as sought by the Association.”
This decision should assist association enforcement efforts. Procedurally, this reinforces that owners have to prove their defenses. Substantively, when a restriction is intended to protect neighboring owners from nuisances such as noise, it appears that if there is no complaint then the Association’s failure to enforce does not automatically create a selective enforcement defense. While it may be inviting to extend this relaxed concept to all types of restrictions not immediately enforced by the Association, it would appear that this holding may be limited to restrictions protecting others, perhaps not applying to general restrictions that impact the community such appearance restrictions. Finally, though because the owner failed to introduce the actual email communications upon which the waiver/estoppel claim was based if there is a clear approval procedure in the declaration that is not followed, an oral statement in violation of procedure cannot be reasonably relied upon by an owner.
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County CourtMichael J. Gelfand
Real Property, Probate and Trust Law Section
of The Florida Bar
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It Lives! What? The lis pendens statute!
This morning the Fourth District Court of Appeal granted a motion for rehearing in Ober v. Town of Lauderdale By-the-Sea, Case No.: 4D14-4597 (Fla. 4th DCA, January 25, 2017) This decision withdrew the panel’s decision in Ober v. Town of Lauderdale By-the-Sea, 41 FLW D1978, Case No.: 4D14-4597 (Fla. 4th DCA, August 26, 2016), substituting with a new decision arriving at the opposite conclusion, reversing and remanding.
The decision is of significant importance to real estate practitioners because the decision reinstates the vitality of the lis pendens statute.
The Facts.
The appeal arose from a quiet title action following a lengthy, seemingly nondescript foreclosure action with the following chronology:
November 26, 2007 - Bank files Complaint accompanied by a Lis Pendens recorded pursuant to §48.23, Fla. Stat.;
September 22, 2008 - Final Judgment of Foreclosure which expressly retained jurisdiction “to enter further orders that are proper including, without limitation, a deficiency judgment.” (Note: quote obtained from the Record on Appeal, not in decision)
July 13, 2009 through October 27, 2011 - the Town records seven code enforcement liens against the foreclosed property allegedly resulting from post-judgment violations;
September 27, 2012 – Bank is the high bidder at the clerk’s sale and subsequently transfers the property to Ober.
Examining the express language of the lis pendens statute, the statute provides in pertinent part:
[T]he recording of . . . notice of lis pendens . . . constitutes a bar to the enforcement against the property described in the notice of all interests and liens . . . unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens.
Section 48.23(1)(d), Fla. Stat. (2014) (Emphasis in decision). The Court acknowledges that “foreclosures are unlike many civil lawsuits,” and that the lis pendens statute addresses “all interests and liens,”
The court held that the Town’s liens, recorded between the entry of final judgment and the judicial sale were discharged. The holder of a lien arising before a judicial sale must seek to intervene in a pending foreclosure action concerning the property within the statutory thirty day window. The court believes that this holding is consistent with the text in Florida Rules of Civil Procedure form 1.996(a) foreclosing liens.
The court reflects on how we arrived at this point.
The practical problem in this case is the long lag time between the foreclosure judgment and the foreclosure sale. Resolution of the competing interests—of the Town, the lending and title insurance industries, property owners, and buyers at foreclosure sales—is in the province of the legislature.
This is yet one more call to the Legislature to redress the gross inequities creating hardships and problems plaguing the legal system when lenders fail to timely proceed with foreclosures. In this regard, recall that these foreclosures are not delayed just a week, a month, a year, two years or three years. Instead, there are many years of delays.
Perhaps the courts lament to the Legislature may prompt action, being heard better than individual property owners, hardworking families and retirees, who have pleaded for assistance for nearly a decade over the lender delay problem. Perhaps now that another group is hurt, municipalities, there will be action, speeding up the process or alternatively reimbursing associations bearing the burden of protecting the lenders’ security.
A substantive issue of note, the gap of time between the judicial sale and issuance of a certificate of title. Ober did not contest the attachment of liens claimed to have been perfected after the judicial sale. This gap may be significant, particularly concerning the start of a chain of title for examination purposes.
The list of counsel of record includes a significant handful of Section members. This includes Ober counsel’s Manny Farach. The court called out recognition to the Florida Land Title Association’s brief, one of the authors being Marty Solomon.
The opinion’s rationale may sound familiar to readers as it paralleled discussions at Section meetings, and including the Section’s Amicus Brief ably drafted by Kenneth Bell, John Little and Robert Goldman to whom we provide great thanks for their continuing, steadfast and excellent efforts.
The new year includes a reprise, a rehearing decision issued in Jallali v. Knightsbridge Village HOA, Inc.¸ Case No. 4D-15036 (Fla. 4th DCA, January 4, 2017). The decision addresses an association’s ability to file an independent action to foreclose a lien while a mortgage foreclosure action protected by a lis pendens is pending, a very meaty issue, so plenty of analysis.
THE FACTS.
To bring new readers up to speed, and as a quick reminder to those on line last year, the quick sequence of events which spans two separate foreclosure actions, lien and mortgage, and appeals of each:
2007: Parcel owner Jallali’s first mortgagee filed a mortgage foreclosure action including as defendants the owner and the condominium association.
2011: The mortgage foreclosure still pending (surprised?), the Association filed a lien foreclosure naming the owner as a defendant, but not the lender.
2014: A final judgment in the Association’s lien foreclosure action was per curium affirmed. Jallali v. Knightsbridge Village HOA, Inc.¸ 185 So.3d 1251 (Fla. 4th DCA, 2017). It is unclear when the final judgment was entered, but that is not relevant, except that judgment was apparently before the mortgage foreclosure judgment which was also in 2014. Jallali v. Christina Trust, 184 So.3d 559 (Fla. 4th DCA, 2016).
After entry of the mortgage foreclosure judgment, the owner moved to vacate the Association’s final judgment of foreclosure relying upon US Bank Nat’l Ass’n. v. Quadomain Cd’m. Ass’n, 103 So. 3d 1977 (Fla. 4th DCA, 2012). The trial court denied the motion to vacate.
DIGRESSION: QUATOMAIN.
As a quick very short summary, Quadomain addressed an association lien foreclosure based on a lien, both filed after US Bank filed a re-foreclosure action with a supplemental notice of lis pendens. The association named as a defendant lender US Bank, and (surprise!) US Bank did not respond and was defaulted. The trial court denied US Bank’s motion to vacate, the motion asserting that the trial court not having jurisdiction because of the Bank’s lis pendens. Reversing, the Quadomain court held:
the only way to enforce a property interest that is unrecorded at the time the lis pendens is recorded is by timely intervening in the suit creating the lis pendens — all other actions are barred.
* * *
Accordingly, the court in the Association's lien foreclosure action did not have jurisdiction to foreclose the lien. If the Association wanted to recover its unpaid Association fees, it was statutorily required to intervene in the re-foreclosure action as prescribed in section 48.23(1)(d).
(Citations omitted.)
THIS APPEAL.
Back to the appeal of the Association’s lien foreclosure judgment. The original decision was issued in January 27, 2016. A rare successful rehearing resulted in the Association prevailing, affirming the trial court’s order denying the owner’s motion to vacate the final judgment of foreclosure. In this January, 2017, decision the appellate court denies the owner’s motion for rehearing. To allow readers an easy method to follow and observe what was changed from June, attached is a red-line comparison of the June 2016 decision with the January 2017.
JUNE REHEARING.
In the first rehearing decision, June of last year, the appellate court referred to Quadomain’s concluding “jurisdiction” text as “dicta,” and distinguished the decision on the basis that the Association in Jallali was not seeking to foreclose the first mortgagee’s interest. In addition,Quadomain did not address the impact of the Association’s declaration of covenants, a recorded instrument, and that:
Moreover, we note that, in the context of this case, a lis pendens recorded by a mortgage holder serves to protect the mortgage holder from liens unrecorded at the time of the filing.
(Emphasis in original.)
THIS, JANUARY 2017, DECISION.
This decision provides clarity to the June 2016 decision on rehearing by explaining how the lien foreclosure proceeding is not an interest barred by the lis pendens statute. The declaration of condominium which created the lien right was recorded before the lis pendens. The declaration “constitutes a recorded interest and thus takes the case out of the purview of Section 48.23 Fla. Stat.” Thus, because the declaration contained a relation-back provision, the Association was not pursuing an interest that was unrecorded at the time of the notice of lis pendens which would otherwise be barred by the lis pendens if there was no intervention.
ERRATA.
The decision reinforces the cry that “Quadomain is dead” at least to the extent of allowing associations to file an independent action to foreclose during the pendency of a first mortgagee’s foreclosure. This ability is especially important as we have seen that many first mortgage lenders have stalled, whether intentionally or otherwise and an association is stuck between a proverbial “rock and hard place” as it is and does not need to additional issues arise as Quadomain reported.
Manny Farach in a posting to the Real Property Litigation Committee list-serve recognized that two of the three panelists in the decision Jallaliwere panelists in the recent decision of Ober v. Town of Lauderdale by-the-sea, 41 Fla. Law. W. 198, Case No.: 4D-144597 (Fla. 4th DCA, August 24, 2016). The Ober decision held that a town’s code enforcement lien recorded after a final foreclosure judgment, but before the issuance of a certificate of sale, was an enforceable lien against the property pursuant to the lis pendens statute, Section 48-23 Fla. Stat. It is noted that the RPPTL Section has filed a rare amicus brief in the Ober court seeking re-hearing because of the adverse impact of the decision and the apparent improper limitation of the effectiveness of a lis pendens in a foreclosure through only a final judgment, not to the end of the case which ususally is the certificate of title.
There has been a question as to whether the Jallali decision conflicts with Ober. The January 2017 rehearing in Jallali decision identifies that the interest at issue, the declaration was created before the lender’s lis pendens which differentiates Ober where the interest, the town’s claim of lien was not created until it was recoded after the final judgment.
The Jallali determination that the declaration of condominium is a recorded real property interest raises other interesting consequences for the association practitioner. Primary is that the rational would presumably support a lis pendens as of right for in communities recorded covenant enforcement matter. Quite some time ago Tetrault v. Calkins, 79 So. 3d 213 (Fla. 2d DCA, 2012), indicated that a restrictive covenants was not an interest in property sufficient to support a lis pendens without bond, a decision that was criticized, and seemingly challenged by 100 Lincoln Rd SB, LLC v. Daxan 26 (FL), LLC, 180 So. 3d 134 (Fla. 3rd DCA, 2015) (citing §48.23(1)(b)), and now the determination in Jallali.
Of course, there is always the need to “read the documents.” Importantly the declaration language in Jallali apparently contained express relation-back language. Not all declarations have that language. It may be appropriate for associations to review their declaration’s lien language and perhaps suggest amendments, taking careful note not to violate protected first mortgagee rights or run afoul of Fannie Mae underwriting guidelines.
Florida Supreme Court Certified Mediator: Civil Circuit Court & Civil County CourtImmediate Past Chair
Kicking off the year is a decision from Florida’s Third District Court of Appeals addressing when a unit owner’s challenge to a neighbor’s alteration plans was ripe. In Zweig v. Il Villaggio Cd’m. Ass’n., Inc., Case No. 3D16-934 (Fla. 3d DCA, January 4, 2017) Ms. Zweig sought an injunction to prohibit the Association from approving the “vertical unit combination” of two neighboring units. The trial court granted the Association’s motion for summary judgment.
Though the Association allowed the neighboring unit owner to commence structural feasibility testing, the neighboring unit owner did not apply for Association permission to combine the units. As the court commented, an application may not be filed, or if filed the application may not be approved. If an application was not properly approved then there may be sufficient legal remedies to address a harm. Thus, the complaint was “too attenuated.”
Interestingly, the decision does not address the role of Mandatory Pre-Suit Arbitration pursuant to §718.1255. Especially as there is no indication of a motion for a temporary injunction or emergency, there does not appear to be a reason why this dispute was not heard in arbitration.
This decision is of interest as it draws a line for associations that are frequently threatened by parcel owners, in essence requiring the threatening owner to wait until the application process plays out until the end. Presumably, at that point, if construction is imminent, then the threatening owner can seek a temporary injunction.
Florida Supreme Court Certified Mediator: Civil Circuit Court & Civil County CourtMichael J. Gelfand
A straggling brief holding over from last year, this considers a decision addressing a mortgage lender’s ability to retain casualty insurance proceeds and an owners consistency in representations to the lender and insurer were at issue in Alvarez-Mejia v. Bellissimo Prop., LLC, Case NO.: 3D15-1258 (Fla. 3d DCA, December 28, 2016).
The owner’s mortgaged property was damaged by fire. Similar to many mortgages, the owner’s mortgage included a “property insurance” provision that stated:
Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened. . . . If the restoration or repair is not economically feasible or Lender’s security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.
Also similar to many mortgages, the owner’s mortgage also provided that the lender:
shall have the right to hold the insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender’s satisfaction. . . .
The owner’s licensed contractor initially estimated the repairs to be $98,717. In reliance on this estimate the insurer issued checks for $94,162.52, the check payees including the owner and the lender. The lender obtained an appraisal of the exterior of the home at $90,000, less than the repair estimate. The lender asserted that considering the property’s value and the repair estimate, it was not economically feasible to undertake repairs. Alvarez-Mejia then provided a revised repair estimate of $53,117.
In response to the lender continuing to retain the insurance proceeds the owner sued the lender for breach of contract, breach of an implied covenant of good faith and fair dealing, a declaratory judgment, and unjust enrichment. The trial court granted the lender’s motion for summary judgment finding “that it was not economically feasible to repair the property because of the cost to repair was greater than the value of the property.”
The appellate court reversed the summary judgment. The owner’s affidavit submitting the revised repair estimate indicated that the repair was economically feasible. The lender failed to provide an estimate of the property’s value after the requested repairs; thus, the lender did not fulfill the lender’s burden to rebut the owner’s responding assertions.
A vigorous dissent attacked underlying evidentiary issues, and in particular whether the owner properly authenticated the revised affidavit which if not admissible would leave only the original repair estimate which exceeded the home’s value.
This decision highlights what many overlook, a lender’s ability to impound insurance proceeds. The court did not comment upon, but the mortgage provisions purports to allow the lender to not only withhold the proceeds until construction starts, but to withhold the proceeds until after construction. Impounding proceeds may create a cash flow problem for some owners and associations, especially if the owner is unable to have a contractor that will “float” the work until the completion of all work, or obtain and pay for a loan. Impoundment provisions may take on a new significance when counsel negotiates repair contracts for casualty work expected to be paid from insurance proceeds.
The majority decision is silent concerning the practical contradiction between owner’s original repair estimate utilized to obtain insurance proceeds, and the “revised” estimate utilized to justify disbursement from the lender. Does this silence acknowledge a double standard for repair estimates, allowing high estimates to insurers and low estimates for lenders and others. Will looking the other way be allowed when good faith estimates are submitted for issuance of permits and permitting fees? Traditionally, a party cannot offer a witnesses affidavit after a deposition testimony, the affidavit submitted to contradict the testimony. One must wonder what the justification for allowing dueling estimates.
I still have one decision from last year to follow up. An oldie but goodie. More to come.
Transforming a voluntary “recreational and shareable neighborhood association” into a mandatory association restricting use was the subject in Van Loan v. Heather Hills POA, Inc., Case No. 2-D 15-5430 (Fla. 2d DCA, December 30, 2016). Issues raised included the authority to amend recorded covenants and the consequences of an overly broad or otherwise improper recorded instrument.
The background facts reach back literally half a century:
1967: The Heather Hills subdivisions were created, each subdivision restricted by separately recorded plat and restrictive covenants. The covenants reserved the right to amend to the developer or the developer’s successors. No association was mentioned.
1969: The POA was incorporated as a voluntary organization for the “purpose of promoting recreational and charitable interests for those living in Heather Hills.”
2012: The POA amended its articles of incorporation to provide that “the record title holder of all lots [in Heather Hills] shall be members” and changing the corporate purpose to “managing and operating Heather Hills” as “a community intended and operated” as ‘housing for older persons.’” The amended articles of incorporation were filed with the Florida Secretary of State but not apparently recorded.
An “Additional Declaration of Covenants, Conditions[,] and Restrictions” were recorded in the county’s public records which included an “over 55 community” restriction, and stated that the covenants were “applicable and binding upon the lots of all consenting property owners situated in Heather Hills” and also stated that “the owners who consent to and join in this Declaration do hereby impose upon the lots, blocks[,] or parcels of such owners in Heather Hills … and all members of the POA“ the restrictions. (Emphasis in decision).
The plaintiff lot owners brought an action for declaratory relief, quiet title and slander of title, all of which the trial court dismissed.
The appellate court focused on the apparent contradiction in the amended declaration, which stated it applied to those who consented and “all members of the POA.” The court remarked that there is no indication as to which owners consented. The court held that the amended declaration which stated that it would run with the land contained a “ambiguity” and that the amended declaration placed “a cloud on the titles of the Homeowners’ Lots.”
Concerning the authority to amend, the court recited that the original covenants did not mention an association or delegate the right to amend to third parties. Thus:
Because there is no express delegation of authority to the [POA] to amend the restrictive covenants, the restrictive covenants can only be amended by the consent of all the property owners in the subdivision.
Thus, the court held that a cause of action for declaratory relief was sufficiently stated.
The court also held that a quiet title claim was stated, building upon the above holdings that the plaintiff homeowners owned the property in controversy, that a cloud on title exists, that there are facts that give the cloud on title apparent validity, and that the alleged facts show the restriction is invalid.
Concerning the slander of title claim, the dismissed complaint alleged that the POA falsely declared to the public that POA membership was mandatory, posted signs that the community was age restricted and distributed fliers with the same alleged false statement. The homeowners’ claimed they suffered damage by loss of value in the lots and inability to convey clear title without the asserted approval of the POA. The appellate court held that the lack of clarity in the amended covenants “results in the appearance that the homeowners’ lots are subject to the amended restrictive covenants.” Thus, a cause of action for slander of title was stated.
In hindsight, this decision reinforces the need for caution when attempting to create a mandatory association to enforce existing covenants, or to convert a voluntary association with covenants, to a mandatory association. A recorded instrument may slander title leading to damages. The facts also indicate a need to confirm that the person or entity signing the new covenant instrument has the authority to do so, both in terms of a right confirmed by a chain of title and whether the original restrictions permit the substantive changes.
Interestingly, the decision does not indicate and does not address whether a statute of limitations issue was pled. Noting that the amended covenants were recorded in 2012 and that there were three complaints filed, the original complaint, and amended complaint and a second amended complaint, there may have been a relatively short period of time between the recording of the amended covenants and filing of the suit which seemingly would have avoided a statute of limitations defense. Otherwise, if there was a sufficient passage of time, there may have been a valid limitations defense under Harris v. Aberdeen, POA, Inc., 135 So. 3d 365 (Fla. 4 DCA, 2014) as well as Hilton v. Pearson, ___ So. 3d ____ Fla. 1st DCA, 2016; Silver Shells Corp. v St. Maarten at Silver Shells, 169 So. 3d 197 (Fla. 1st DCA, 2015) which under these decisions could have breathed life into the covenants.. Also interesting is the court’s recitation that both plaintiffs and defendant agree that the amended restrictive covenants did not apply to the Plaintiffs/
Many thanks to Mr. Christy, Ms. Hartley and Mr. Holtsberg for providing the decision.
Best wishes for a new year.
This briefly discusses the Supreme Court of Florida’s decision of this morning in Delva v. The Continental Group, Inc., Case No. SC12-2315 (Fla, April 17, 2014), holding that the Florida Civil Rights Act, §760.10(1)(a) Fla. Stat. (2011) prohibits employment discrimination on the basis of pregnancy.
Justice Pariente’s opinion for the Court in which Justices Quince, Canady, Labarga, and Perry concurred (J. Lewis concurred in the result), recites that Delva alleged that she was a front desk manager who worked at a residential property managed by Continental, that Continental discriminated against her on the basis of her pregnancy, and that this conduct was in violation of the Florida Civil Right Act’s prohibition on discrimination on the basis of sex. Thus, as defined by the Court, the:
discrete, single issue in this case is whether the Florida Civil Rights Act, section 760.10, Florida Statute[s], prohibits discrimination in employment on the basis of pregnancy.”
The opinion acknowledges that the Act does not specifically mention “pregnancy.”
The opinion began its analysis remarking that the FCHA is to be liberally interpreted. The opinion proceeded to “embrace” the reasoning of the Supreme Court of Massachusetts:
… that pregnancy is a natural condition unique to women and a “primary characteristic of the female sex.” Id. Indeed, the capacity to become pregnant is one of the most significant and obvious distinctions between the female and male sexes. For this reason, discrimination based on pregnancy is in fact discrimination based on sex because it is discrimination as to a natural condition unique to only one sex and that arises “because of [an] individual’s . . . sex.” § 760.10(1)(a), Fla. Stat.
Thus,
To conclude that the FCRA does not protect women from discrimination based on pregnancy—a primary characteristic of the female sex—would undermine the very protection provided in the FCRA to prevent an employer from discriminating against women because of their sex.
Justice Polston dissented, arguing that the plain meaning of the FCRA’s term “sex” does not include pregnancy as found by the decisions, including a Supreme Court of United States decision finding such before the Federal Act was amended to expressly include “pregnancy.”
There are at least two initial matters of consequence for the Florida community association law practitioner. First is that the FCHR’s definition of an employer is limited, to “any person employing 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year, and any agent of such a person.” §760.02(7) Fla. Stat.
Second, despite the statutory limitation on who is an employer, Florida community association law practitioners will want to consider this decision when an association contracts with a management company which by its size is included within the definition of an “employer.” An increasing number of management company contracts contain hold harmless and/or indemnification provisions for all matters arising out of management, or similar language. Thus, the question may become whether that type of management contract provision would require the community association to indemnify or hold harmless the manager for damages flowing from alleged discriminatory conduct, as well as expenses to defend the claim.
Michael J. GelfandDirector, Real Property DivisionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2014, Michael J. Gelfand
To be or not to be! Is a covenant to be determined by its creation, not by circumstances thereafter?
This, perhaps, sums up Wednesday’s holding by the First District Court of Appeals in CRP II – Miramar, LLC v. The French Quarters Cd’m Owner’s Ass’n (Case No. 1D15-2504 Fla. 1st DCA November 2, 2016.) In short summary, CRP II’s predecessor agreed to construct a swimming pool and other improvements on property owned by the Condominium Association’s predecessor for which the Association’s predecessor agreed to share maintenance costs. The agreement stated it was “deemed to the covenants appurtenant to and to run with the ownership of the [properties] and their respective heirs, successors and assigns” and that the agreement would be assigned to their respective Associations. CRP II acquired the property as the result of a deed in lieu of foreclosure.
When the improvements were not constructed, the Condominium Association sought a declaratory decree the agreement was a covenant running with the land, and in a second count a claim for breach of the agreement. The appellate court wasted no time in affirming the trial court’s granting of a partial summary judgment as to the first count, holding that the agreement was a covenant running with the land binding CRP II. The Association voluntarily dismissed the second count for breach, so damages did not remain an issue.
The court noted quite coarsely that the following issues were irrelevant as to whether the agreement was a covenant running with the land binding the successor at title: frustration of purpose, impracticability, or materially changed circumstances. Perhaps reading between the lines, the court was particularly not enthralled with the argument based upon “the unforgiving marketplace that rules real estate development.”
The decision does not lay out whether the agreement was recorded or the priority of interests. Acknowledging the scarcity of facts in the opinion, this decision may be a warning for those obtaining a deed in lieu of foreclosure because deeds normally do not extinguish intermediate interests such as, perhaps, this covenant. One may consider whether CRP II could foreclose, but that likely depends upon the agreement for the deed in lieu of foreclosure.
© 2016 Michael J. Gelfand
Friday brought clarification and restraint concerning the availability of claims based upon equitable estoppel and the Bert J. Harris, Jr. Private Property Protection Act, §70.001 Fla. Stat. (2011) which is intended to protect a property owner against governmental decisions that inordinately burden an owner of real property. Thus, Bair v. City of Clearwater, Case No. 2d15-1210 (Fla. 2d DCA, August 5, 2016), has potentially broad based application for the propositions that affirmative claims cannot normally be brought an equitable estoppel claim, and that enforcement of pre-May 1, 1995 code provisions may not is the basis for a Bert Harris Act claim.
The facts, lengthy, but important, may lead the reader to read poetic justice on one hand or a “gotcha” on the other. Because the Bairs’ property was located in a flood zone, the City of Clearwater’s Development Code and the Federal Emergency Management Agency’s regulations required that construction of substantial improvements to the existing structure be elevated above the base flood elevation level, undoubtedly a considerable expense, if even feasible.
The key term, “substantial improvements,” was defined by the City and FEMA, as follows:
…modifications or improvements to a structure made during a one-year period that equal or exceed 50 percent of the market value of the structure before the modifications or improvements commenced. Structures are not required to be elevated at or above the base flood elevation level if the modifications or improvements are nonsubstantial.
Note omitted. This definition is similar to many building-oriented requirements,
The Bairs after consultation with City staff submitted a permit application valuing the proposed improvements as not exceeding the 50 percent value. Nine days after work began, including partial demolition, the City issued a stop-work permit. Apparently, something about the demolition led the City to reconsider, and believe that the work would exceed the 50 percent value threshold. Despite communications between the City and the Bairs, and a new permit filing, the City retained the stop-work order, leading the Bairs to sue for relief under the Bert Harris Act and for damages based on equitable estoppel.
The trial court granted the City’s motion to dismiss the Bairs’ equitable estoppel claim and granted the City’s motion for summary judgment of the Bert Harris Act claim. Both orders were affirmed.
The affirmance of the judgment on the Bert Harris claim was proverbially “written in the stars” when the Court determined the Bairs’ burden of proof. The Bert Harris Act, permitting claims against the state and its political subdivisions, was treated as a waiver of sovereign immunity, Waivers of sovereign immunity are strictly construed.
The Act straightforwardly states that there is no cause of action in certain particular circumstances:
… as to the application of any law enacted on or before May 11, 1995, or as to the application of any rule, regulation, or ordinance adopted, or formally noticed for adoption, on or before that date.
§70.001(12). The law follows with a limited exception when an amendment "imposes an inordinate burden apart from the law, rule, regulation, or ordinance being amended.”
Because the City Code provisions were adopted before the specified date and not amended thereafter, the City prevails. The City’s request for information, revisions to plans, and the City’s change in position on the project were not the “application of laws, regulations, and ordinances that sometimes inordinately burden real property.” Similarly, the post-May 11, 1995 change in FEMA regulations do not provide a basis for a Bert Harris Act claim because the FEMA regulations changed, no law, rule, regulation, or ordinance of the State of Florida changed. The Act excludes claims based upon authority delegated from the Federal Government. §70.001(3)(c).
The post-1995 flood insurance map changes required by City Code were not an inordinate burden. Apparently, when the Bairs’ purchased the property, the flood insurance rate map showed that the property was below the 100 year elevation threshold. Thus, the real burden was the 50 percent substantial improvement Code in effect before he Act’s date threshold.
The Bairs’ assertion that the Act only barred application of the law before the May 11, 1995, date was overcome by the “clear” statutory text that pre-May 11, 1995, legislation was grandfathered without regard as to when application of a law, rule, regulation or ordinance was occurred.
Concerning a equitable estoppel, there is a distinction between an offensive claim seeking relief, as opposed to raising the doctrine in an defensive posture, such as pleading in an answer. Equitable estoppel is generally only a defensive doctrine as it is “designed to prevent a loss rather than to aid a party from gaining something.”
Michael J. GelfandImmediate Past ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2016 Michael J. Gelfand
A developer’s pre-transition/turnover release, including idiosyncrasies of drafting, was addressed in last Friday’s Second District Court of Appeal’s decision in Ventana Cd’m. Ass’n., Inc. v. Chancey Design Partnership, Inc., Case No.: 2D15-1803 (Fla. 2nd DCA, August 12, 2016).
Arising from construction claims, the fact situation is a bit complex. Developer Ventana contracted with Hardin Construction and Chancey Design to construct a condominium. To resolve some disputes, the Developer and Hardin entered into a Mediation Settlement Agreement which was stated to be binding upon the parties’ successors, assigns and those holding title under them and providing that Hardin could take action on behalf of the Developer against Chancey Design. The Developer did not assign its claims or its interest in the claims to Hardin in the Mediation Settlement Agreement.
In July 2008, Hardin sued Chancey Design on its right and on behalf of the Developer. During that litigation the condominium project was foreclosed. Apparently, in parallel negotiations the Developer entered into a foreclosure settlement agreement requiring an assignment of its litigation interests to Mercantile Bank; however, the final judgment of foreclosure did not reference the assignment or incorporate the foreclosure settlement agreement. Mercantile Bank’s assignment of the foreclosure judgment to BMR Funding did not reference the assignment of any litigation interests.
In July 2010 the Condominium Association obtained control after turnover. In 2014 the Condominium Association filed the litigation at issue alleging design defects including defects to an “amenities deck.”
The trial court granted Hardin’s motion for summary judgment based on the Association being the Developer’s successor in interest and that the Developer assigned its claims to Hardin, in addition, claims against Chancey were settled and there was a release. The appellate court reversed.
Concerning the Developer’s conduct binding the Association to the Developer’s agreements, the Court initially noted that the Association could have been, but was not, a party to the original litigation between the Developer and Chancey Design. The Court did not address how unit owners could be bound by the Developer’s agreements, but it appeared that the Developer acted only as the Developer, and not on behalf of the Association. Thus, in the current litigation the Association had not “stepped into the shoes” of the Developer nor was enforcing the Developer’s rights.
Of particular interest is what may be referred to as the chain of title for the claims. The court laid out the chain to highlight that there was no assignment, nor a successor in interest between the Developer and Hardin. In the first agreement, the Mediation Settlement Agreement, the Developer retained the right to consent to settlements, and there was no showing that the Developer consented to any settlements beyond the Mediation Settlement Agreement. Further, as frequently occurs in mediation, the Mediation Settlement Agreement was confidential. Thus, the Association was not on notice of the complete contents of the Agreement.
Hardin’s release on behalf of itself and “agents, representatives, beneficiaries, heirs, successors, creditors, assigns and executors” did not include the Developer under the record on appeal. The Mediation Settlement Agreement was not an assignment, instead creating an agency relationship in which, presumably, the Developer would be the principal and Hardin the agent.
The Court also explored the consequence of a settlement agreement not incorporated into a final judgment. After judgment a trial court’s jurisdiction to enforce the final judgment does not include jurisdiction to enforce the non-incorporated settlement agreement. As a corollary, the final judgment does not automatically “carry” the assignment for enforcement purposes.
The court addressed a factual proof issue. A dispute between the parties as to whether claims were “patent” or “latent,” under this record resulted in a material factual dispute also preventing the entry of summary judgment.
Interpreting the release accompanying the Mediation Settlement Agreement, the court began with a significant presumption. Implicitly the court appeared to consider the release ambiguous because the court went beyond the four corners of the release. The court assumes that the release includes claims as contemplated in a contemporaneous document, the Mediation Settlement Agreement. At the time of the Mediation Settlement Agreement and release the Association was in existence and was not a successor to Hardin, nor of the eventual assignee BMR. Thus, the release was not binding on the Association.
Concerning the dispute whether the release included patent and latent defects, the court specifically noted that the release did not include the words “both known and unknown” or “whether now known or unknown” that appear in other releases that had been discussed in appellate decisions. Without the four corners of the release being clear on this point, this dispute is another reason why summary judgment cannot be sustained.
The court, perhaps inadvertently, raises an interesting question, whether a developer may effectively release all association claims to settle a dispute pre-turnover? It is unclear from the opinion whether any units in the condominium were sold before the Mediation Settlement Agreement.
The court implies that the Developer could have brought suit not only on the Developer’s corporate interest, but also as the controlling interest in the Association, on behalf of the Association and thus could have settled claims on behalf of the Association. The court interestingly does not discuss the failure to join the unit owners, by class-action or otherwise. Of course the provisions of Fla.R.Civ.Proc. R. 1.221, providing as a threshold for claims the transition of control, would significantly depreciate the value of a settlement by a developer of association claims.
The liability of Developer directors in settling pre-transition claims and their potential of personal liability may also be a factor. Thus, a developer joinder of Association pre-turnover to a “friendly” construction defect client may in the long run create more problems for a developer; however, there are always risk takers.
This decision is chock-full of lessons for practitioners across the spectrum, developer and association, construction, general litigator and Association council. A key areas are identifying who, what, and when. Agreements must include proper parties, especially represented parties, and address transfers of property, either voluntary at a closing, or as a result of foreclosure
Obviously the crafting of settlement agreements and releases must be carefully considered, particularly as releases continue to be the equivalent of a “red flag” in front of a litigation “bull,” something to be charged at! More seriously, the court did note that the mediation settlement agreement was “a handwritten document….” One must wonder about problems inherent in mediation settlement drafting under the heat of mediation, when settlement agreements are frequently drafted at the end of a tiring day under pressure of the clock. Though many have heard this from me before, it is worth repeating that especially if your claims involve technical details, walk into mediation with a draft settlement agreement and especially a release. While these may be drafts suitable for wishful thinking, drafting in advanced may help avoid errors under pressure.
The court’s detailed examination included a comment that condomaniacs may justifiably question: “the Association, therefore is created at the same time that the condominium is created by virtue the declaration of condominium and documents creating the Association being recorded together.” (Citations and parentheticals deleted). As developer counsel is fully aware, a declaration of condominium must include the association’s corporate name, §718.104(3)(i), and the documents creating the Association, the Articles of Incorporation must have been filed with the Department of State before recording the declaration. Thus, the association as a corporate entity is created before the condominium is created by recording the declaration.
Presumably the Association’s corporate entity does not become the condominium association until the declaration is actually recorded. In addition, if you client is acquiring property as the result of a foreclosure, include assignment items. In a transfer, include assignment items.
The ability to regulate and prohibit “nonresidential uses” was at issue in Bennett v. Walton County Case NO: 1D 14– 2571 (Fla. 1st DCA June 22, 2015). The Bennetts challenged Walton County’s Land Development Code prohibition against nonresidential uses, as being unconstitutional, facially and as applied. The trial court granted the County’s Motion for Summary Judgment, denied the Bennetts’ Motion, and upheld the Code.
The Test. As this was a substantive due process challenge, the “rational basis test” applied which was described as an “equal protection-type test,” in essence:
whether the act has "a reasonable relation to a permissible legislative objective" and is "not . . . `discriminatory, arbitrary or oppressive.'”
Because the Bennetts could not establish that “no set of circumstances exists under which the statute would be valid” the appellate court without much ado held that the facial challenge failed.
As Applied. Concerning the “as applied” challenge, the court first concluded that weddings, barbecues and parties are not necessarily “nonresidential” which may have provide some hope to the challenger, but not for long. The court quickly moved to the crux of the problem, frequency and duration.
The court refused to be drawn into specific threshold or defined formula as to when an event that is appropropriate once (or twice) crosses into the territory of prohibited “nonresidential” use, commenting that:
the Bennetts have essentially introduced a wedding venue business into their Residential Preservation Area neighborhood, attracting renters who might otherwise rent meeting halls, parks, churches, country clubs, or destination-wedding resort locales to stage their big events. The rate and scope of the Lawn's rental usage—up to 30 weddings per year on the Bennetts' lot—isn't typical residential usage as measured by common practice.
This was not a situation of “typical residential usage is measured by common practice.” Thus, the court would not second guess the trial court’s determinations. The language as applied provided sufficient warning.
Concerning whether the Code enforcement was arbitrary, for example because the County refuses to specify how many events triggers enforcement, the court held that:
The County’s aversion to setting a specific maximum number of weddings doesn’t demonstrate arbitrariness.
In fact, the County is not required to set a specific number limit, enforcement threshold, and in the situation was neither arbitrary nor inconsistent with the Code. In this regard, the Court took into account the “expectations” of the Bennett’s neighbors.
The Dissent. Interestingly, the dissent extended twice as long as the majority opinion, taking issue with the “as applied” determination, not disagreeing with the conclusion, but suggesting that the “as applied” substantive due process claim should be determined by the trial court. The dissent is further interesting because it elucidates the extent of the Bennetts’ business which would likely be found to be outrageous in most communities, including events that stretched from Thursday to early Sunday morning, music so loud that photographs in a neighbor’s home moved, attendees pulling breakers on a neighbor’s air-conditioning unit because the compressor was supposedly too loud for speeches to be heard, and urinating under a building. It appears that the dissent in large part was based upon the fact that the subdivision was largely utilized for nonresidential uses. It is questioned how the dissent’s description of the nonresidential uses could justify any conclusion other than that made by the majority.
Commentary. This decision likely will be helpful to the Association practitioner. The Constitutional test is similar, but usually perceived stricter, than the test for enforcement of private covenants. Thus, this decision may be utilized as precedent for upholding the validity of prohibitions.
Going further, the decision may be a precursor to a mechanical application of the Doctrine of Selective Enforcement. This decision may stand for the proposition that allowing an finite event once does not create the estopple that is the foundation of selective enforcement. Where is the drawing line is still in question; but, the majority is inching nearer to a practical “you know it when you see it” test! (with apologies to former Justice Potter Steward in Jacobellis v. Ohio, 378 U.S. 184 (1964).
As communities become more alarmed with owners renting facilities on a daily or weekly basis, Airbnb for example, this decision may also be utilized to support claims that such uses are businesses rather than mere residential rental.
Michael J. GelfandChair, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2015 Michael J. Gelfand
Thursday, the Supreme Court of Florida affirmed the protected status of funds generated by the sale of a homestead. The issue was whether proceeds from the sale of a debtor’s homestead retain their Article X, Section 4 Florida constitutional protection against a writ of garnishment when the funds were divided into multiple accounts, including a brokerage account investing in mutual funds and stocks? JBK Assoc., Inc. v. Sill Bros., Inc., Case No.: SC-977 (Fla. April 28, 2016). In finding that the funds retained their constitutional protected status the Court affirmed JBK Assoc., Inc. v. Sill Bros., Inc. 160 So. 3d 94 (Fla. 4 DCA 2015), which in turn had affirmed the trial court decision.
In short, JBK, a judgment creditor of Sill, served a writ of garnishment upon Wells Fargo. Sill moved to dissolve the writ to protect his deposit accounts at Wells Fargo. As a result of earlier divorce proceedings, the couple’s marital home was sold, and Sill deposited his portion of the proceeds into Wells Fargo accounts, including an investment account.
The Supreme Court began by emphasizing the tradition liberal construction in favor of the homestead declared in Article X, Section 4 of the Florida Constitution exempting homesteads from forced sale. Further, the party objecting to the exemption, normally the judgment creditor, bears the burden “to make a strong showing that the claimant is not entitled to the claim exemption.” (Citations omitted) relying on two Florida Bankruptcy Court decisions.
The Court restated a three part test to protect proceeds from creditors after the sale of a homestead:
(1) there must be a good faith intention, prior to and at the time of the sale, to reinvest the proceeds in another homestead within a reasonable time;
(2) the funds must not be commingled with other monies;
(3) the proceeds must be kept separate and apart and held for the sole purpose of acquiring another home.
(Citations omitted). The Court recognized that allowing funds to be placed into investment accounts serves a practical purpose:
In today’s economic climate, in which traditional bank accounts do not garner any significant amount of interest earnings, we do not believe placing the proceeds from the sale of a homestead in the type of safe investment account at issue here demonstrates an intent so different from reinvestment in a new homestead within a reasonable time as to violate Orange Brevard.
The Court characterized Sills accounts as not being speculative and not turning over constantly.
There is an additional factor, though perhaps not dispositive, was helpful. The accounts were designated as “homestead account.”
So what is the careful debtor to do? When handling homestead proceeds it does bear attention to follow the “Court’s three part requirement” carefully, document the intent to reinvest funds in a new homestead and label the funds as “homestead.”
Michael J. GelfandChairReal Property, Probate and Trust Law Section of The Florida BarAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2016 Michael J. Gelfand
In yet another case from the stacked up in-basket, the Marketable Record Title Act will extinguish an interest in fee held by the State of Florida. http://www.2dca.org/opinions/Opinion_Pages/Opinion_Pages_2015/February/February%2013,%202015/2D14-305.pdf">Department of Transportation v. Mid-Peninsula Realty Inv. Group, LLC, Case No. 2D14-305 (Fla. 2nd DCA, February 13, 2015).
The parcel in question, along a canal, and apparently near one or two roads, was acquired by the DOT through eminent domain proceedings in 1970. Despite the taking, in 1974 the prior owners purported to convey the parcel as part of a larger package to third parties, creating what is known as a “wild deed.” After a series of conveyances based on the wild deed, Mid-Peninsula obtained title in reliance on the wild deed. In the interim DOT maintenance workers in maintenance vehicles traversed the property while maintaining the neighboring canal and a nearby bridge.
At trial, the parties stipulated that the 1974 conveyance upon which Mid-Peninsula based its claim was based upon a wild deed. The trial court found that the work did not constitute “possession” as contemplated by §712.03(3) of a party in possession; and, thus, quieted title in Mid-Peninsula.
The appellate court noted that any purported intention to protect public rights was not contained within MRTA. Instead, MRTA was to be, and the stated purpose was:
shall be liberally construed to effect the legislative purpose of simplifying and facilitating land title transactions by allowing persons to rely on a record title as described in [section] 712.02 subject only to such limitations as appear in [section] 712.03.
(Emphasis in decision and added from statute.). Further the DOT statutory enabling provisions do not trump the Marketable Record Title Act.
Factually, the DOT did not provide “conclusive evidence” that the DOT’s use established possession. The relatively ancient doctrine from Richbourg v. Rose 44 So. 69 (Fla. 1970), that a fee simple owner has “constructive possession” of the owner’s property does not change the result because MRTA was enacted thereafter and would implicitly overrule that decision. Thus, MRTA, §712.03(5) Fla. Stat. (2003) does not apply to fee simple rights-of-way.
Chair-Elect, Real Property, Probate & Trust Law Section
© 2015 Michael J. Gelfand
Yesterday’s decision by Florida’s Third District Court of Appeal may generate a stampede to the courthouses, at least in Districts other than perhaps the Fifth District.
Why the stampede? There has been a re-examination of status of the second mortgage foreclosure filed more than five years after the dismissal of the first foreclosure, originally filed to recover accelerated principal installments, and an end run around the failed res judicata arguments.
The upshot, ironically is that defendant borrowers and associations may have a greater chance of dismissing a second, refiled, mortgage foreclosure action when the original action was dismissed without prejudice, rather than with prejudice! Change is the result of the decision in Deutsche Bank Trust Company Americas v Beauvais, Case No. 3D14-575 (Fla. 3rd DCA, December 17, 2014). The decision affirmed a final summary judgment in favor of a condominium association. The Court defined the issue on appeal as:
Where a lender files a foreclosure action upon a borrower’s default, and expressly exercises its contractual right to accelerate all payments, does an involuntary dismissal of that action without prejudice in and of itself negate, invalidate or otherwise “decelerate” the lender’s acceleration of the payments, thereby permitting a new cause of action to be filed based upon a new and subsequent default?
SPOILER ALERT: The question is answered in the negative! An involuntary dismissal without prejudice of a first filed foreclosure action does not reverse a lender’s acceleration of the debt. A lender’s acceleration triggers the commencement of a statute of limitations countdown. In summary, the Court held that the individual installments which were accelerated as provided by the note were not reinstated or de-accelerated; thus, there were no “new” payments due after acceleration and dismissal of the first foreclosure action; thus, there could not be a new default providing a basis for a second cause of action.
The chronology unfolded as follows:
2006, February 10: Execution of note and mortgage in the amount of $1,440,000.00;
2006, September: Default by borrower of note and mortgage by non-payment (Really? 7 months after creation? One must wonder about the lender’s underwriting practices);
2007, January 23: Filing of initial action to foreclose the mortgage, including lender’s election to accelerate payment seeking a balance of $1,439,926.80;
2010, December 6: Failure of lender to appear at a case management conference resulting in the initial action being dismissed without prejudice;
2011: Condominium Association forecloses its assessment lien and obtains title to the Unit subject to the mortgage;
2012, January 23: End of five year period that commenced after the initial action was filed, including acceleration (Hint: Think Statute of Limitations);
2012, December 18: Filing of second, current foreclosure action which alleged a default on October 1, 2006 and all subsequent payments, seeking the exact same principal amount as the initial, first action.
Summary Judgment was granted on the basis that the statute of limitations barred the second current claim filed more than five years after the initial action was filed.
As an initial matter, the Court held that the statute of limitation commences when a lender exercises an acceleration option. The acceleration occurred pursuant to the note’s terms, not upon a mere default, but upon the lender’s affirmative notice to the debtor of the exercise of the option to accelerate.
The Court then addresses the import of a dismissal without prejudice of the initial action. Because the dismissal was without prejudice there was no determination on the merits of any issue. This conclusion became the springboard to analyze and differentiate the decision in Singleton v Greymar Associates, 882 So.2d. 1004 (Fla. 2004), and the decisions applying Singleton. Singleton’s res judicata rationale was based upon a different record, specifically a dismissal with prejudice which by definition disposed of all issues actually adjudicated and every justiciable issue as well! Thus, Singleton dismissal adjudicated the merits of the defendant borrower’s defenses including the defense that there was no valid default. Thus, the Singleton borrower by “winning” a dismissal with prejudice in the first action meant that the borrower won the issue that there was no default, a determination that came back to haunt in the second case.
Distinguishing the current Deutsche Bank action, the initial foreclosure action’s dismissal without prejudice left the January 2007 accelerated debt unaffected by the dismissal. Because the parties never reinstated the initial installment terms, not “de-accelerating”, led to the holding that the statute of limitations continued to run from the initial acceleration date, January 23, 2007. Because there was no de-acceleration, Deutsche Bank could not sue on any new default without first de-accelerating and reinstating the original installment terms. Simply, because of acceleration there was no new payment due which in turn means there could not be a new default, and therefore no new cause of action.
The court then proceeded to differentiate the case reported in this posting last September and now on review before the Supreme Court of Florida, Bartram v. U.S. Bank Nat. Ass’n. v Bartram 140 So.3d. 1007 (Fla. 5th DCA, 2014), rev. granted (September 11, 2014). The Court disagrees with Bartram’s equating a statute of limitations analysis with a res judicata analysis. In addition to distinguishing Bartram, the court certified conflict with Evergrene Partners, Inc. v CitiBank, NA, 143 So.3. 954, 956 (Fla. 4th DCA 2014).
As to collateral matters, the court reversed that portion of the summary judgment extinguishing the mortgage lien. Differentiating the statute of limitations in §95.11(2)(c) and the statute of repose in §95.281(1)(a), under the statute of repose, the five-year period must appear on the face of the mortgage. The acceleration/de-acceleration efforts do not appear of record. Thus, the Trial Court’s declaration that mortgage was no longer void; quieting title in favor of the Association was reversed.
Particularly with the holding distinguishing other decisions, and an acknowledgment of a conflict between Districts, it appears that there is jurisdiction for review by the Supreme Court of Florida. In the interim while waiting for the Supreme Court’s decision, the Third District’s decision appears to provide a basis to challenge those mortgages with accelerated installments in which the dismissal of an initial foreclosure was without prejudice and the current action was filed five years or more after the acceleration.
Michael J. GelfandChair-Elect, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2014, Michael J. Gelfand
How much diligence is necessary for a constructive service diligence search was at issue in Martins v. The Oaks Master P.O.A., Inc., Case No.: 5d13–3852 (Fla. Fifth DCA, November 14, 2014), a decision vacating a summary final judgment foreclosing a homeowners’ association lien, vacating the judgment sale, vacating a default and quashing service of process. As you may surmise, the search was not diligent enough!
The decision details the plaintiff counsel’s affidavit, noting items including:
Property server visiting the property finding it vacant, search of property appraiser’s office;
Search of “accurant.com;”
Search world wide web for telephone listing;
U.S. Post Office address request;
Department of Corrections;
Search local county inmate records; and,
Clerks website for deed showing the subject property as the address.
Unfortunately for the association plaintiff, it appeared that there was known an address in another county for the owner. Because notice had earlier been sent to that address, failure to seek service at that address was fatal.
Interestingly the court did not comment upon the owner’s assertions that among records to be searched were title records in a county other than in which the property was located, or State motor vehicle records.
Whether Florida’s Department of Environmental Protection may except projects from statutorily mandated coastal construction permitting was at issue in Pope v. Grace, Case No.: 1D13–258 (Fla. 1st DCA, November 8, 2014).
Many of us represent condominium associations and property owners along one coast or another who will have issues coastal construction permitting issues. And, as will occur occasionally neighbor disputes rise to an official level. Here two neighboring property owners disputed with other neighbors whether a dune walkover to the beach required repairs.
In response to the Graces’ dune walkover repair permit application, the DEP noted that an permitting exemption may apply. Apparently, the work at issue was “sistering” a walkover support posts, excavating around existing posts, installing new posts on either side of a deteriorating and bolting them together.
Two exemptions were at issue in 161.053(11)(a) and (b) 2014 as follows:
(11)(a) The coastal construction control requirements defined in subsection (1) and the requirements of the erosion projections in subsection (5) do not apply to any modification, maintenance, or repair of any existing structure within the limits of the existing foundation which does not require, involve, or include any additions to, or repair or modification of, the existing foundation of that structure. [. . .]
(b) Activities seaward of the coastal construction control line which are determined by the department not to cause a measurable interference with the natural functioning of the coastal system are exempt from the requirements of subsection (4).
Instead of finding the two provisions dependent and exclusive, the court held that “(a)” exempts only repairs other than foundation work that underlies an existing structure; however, the language of “(a)” does not show that it is exclusive; thus, “11(b)” allows exemptions for work that do “not cause a measurable interference.… The court noted that it did not believe that the legislature would have required permits for “inconsequential activities…when no measurable environmental harm would result.”
As a potential practice pointer, the court remarked that the applicant’s efforts included obtaining an opinion from a “competent engineer” stating the work would have “no measurable interference with the internal functioning of the coastal system” which not necessarily providing a safe harbor did facilitate review. The court also noted the deference provided to the DEP and interpreting statutes.
“THROW THE BUMS OUT!” may be the short summary of the Third District Court of Appeal’s decision Wednesday in Herbits v. The City of Miami, Case No. 3D15-1039 (Fla. 3d DCA October 26, 2016). The Court summarized the complaint at issue as describing “a moving target that tied up a prime piece of public waterfront for 14 years without moving from paper plans….”
This involves the seemingly never-ending saga of what should be done with Watson Island. Strategically located between Miami and Miami Beach, across Government Cut from the Port of Miami, locals have watched decades of disputes concerning the Island’s future. The current dispute reaches back a decade and a half to a year 2000 request for proposal requiring any use agreement to be at fair market value, and a 2001 City of Miami referendum approving leasing with and minimum guaranteed rent of $2,000,000.
A City 2013 appraisal found that the fair market value of an annual lease was $7,000,000.00. At one point, an assistant city attorney opined that proposed changes to the agreement violated the referendum. One of the developer’s attorneys opined that a reduction in proposed compensation would require a new referendum and a new RFP.
By 2014 no lease had been entered into, no possession had occurred and no rent was being paid. The dispute arrived at the appellate court after the dismissal of the third amended complaint. That complaint challenged the lease effort as illegal.
The crux of the issue was whether the plaintiff/appellants failed to have standing because of a failure to allege a sufficient “special injury,” though there were many other issues raised. One or more of the plaintiffs alleged special injuries as one or more of the following: residing directly across a narrow body of water from Watson Island; living closer to the project than any other city of Miami or Miami Beach resident; increased traffic; impairments to public safety; environmental impacts; improper developer subsidies; loss of public open space; lost or reduced property values; and, other matters that were not further specified.
The upshot for the court on the narrowing window of standing to challenge governmental action is that:
“[T]he Florida Supreme Court has repeatedly held that citizens and taxpayers lack standing to challenge a governmental action unless they demonstrate either a special injury, different from the injuries to other citizens and taxpayers, or unless the claim is based on the violation of a provision of the Constitution that governs the taxing and spending powers.” Solares v. City of Miami, 166 So. 3d 887, 888 (Fla. 3d DCA 2015) (citing Sch. Bd. of Volusia Cty. v. Clayton, 691 So. 2d 1066, 1068 (Fla. 1997); N. Broward Hosp. Dist. v. Fornes, 476 So. 2d 154, 155 (Fla. 1985); Henry L. Doherty & Co. v. Joachim, 200 So. 238, 240 (Fla. 1941); Rickman v. Whitehurst, 74 So. 205, 207 (Fla. 1917)).
As an initial matter, a challenge to the “lease” could not proceed because there was no fully enforceable lease, only an “agreement to agree.”
The appellate court explained an independent rationale. “Proximity to the property” does not satisfy the standing “nexus requirement” for a special injury. This requires that the alleged injury be “specially induced by the unlawful act.” Thus, even if the alleged special injuries were of a different nature than injuries to all other citizens, the alleged illegal conduct, a lease below fair market value did not create the damages alleged.
The court noted that earlier the Third District Court of Appeals decisions providing standing on the grounds of illegal action have been implicitly overruled by the Florida Supreme Court as the court summarized in Solaris, Id.
The wind-up for the court was consideration of the equitable “maxim that for every wrong there is a remedy.” In essence, the taxpayer remedy “should be at the polls and not in the courts.” Perhaps providing some solace, the court remarked that in some regard the plaintiffs/appellants did obtain relief through their actions but the project still has not proceeded.
This decision is important to property owners challenging governmental zoning and building decisions. The entry points into court are waning.
The court appears to draw a fine line between what is to be within a municipality’s legislative decision-making and what are political decisions to be made at the polls. Without saying in so many words, the court walks on a tightrope seeking to avoid becoming a super-legislature. Whether, in effect, rationing access to the courts is the appropriate method, especially when there is illegal alleged conduct by a municipal body, the answer is likely is in the eye of the beholder.
Michael J. GelfandImmediate Past ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
Line drawing, determining how to divide the real boundary of a condominium unit, was the subject of Friday’s decision in Shores of Panama Club, LLC v. Shores of Panama Resort Comm. Assn., Inc., Case No.: 1D-16–0920 (1st DCA, October 28, 2016).
At issue was ownership of the front desk in the Condominium’s lobby. The LLC owned the adjacent commercial office unit, and apparently the Condominium Association owned another unit adjacent to the front desk. By label used by the Court, the LLC must have been operating a club in the Condominium.
The underlying issue was what is the proper test for determining a unit’s boundary when the declaration of condominium is unclear. As a starting point, a declaration of condominium is “more than a mere contract” because a declaration includes covenants and creates and identifies the boundaries of real property parcels which are the individual units. That said, a declaration of condominium, at least in this instance and traditionally, does not include a metes and bounds description of an individual unit’s boundaries; thus, the threshold for interpreting ambiguous legal descriptions through locating natural monuments which prevail over courses and distances, is not applicable.
The declaration of condominium for the Shores of Panama defined a unit in three different ways:
Words. In a phrasing that is not necessarily typical, but found in a number of condominiums, a unit’s parametrical boundaries are generically defined as:
“the vertical planes of the undecorated exterior finish of the exterior walls bounding the unit and the center of any walls between the unit and another unit, in each case extended to intersections with each other and with the upper and lower boundaries.
This is a “general,” but not a “ specific” description.
Numerically. Each unit’s square footage is stated.
Pictorially. “a diagram of the condominiums ground-floor; the diagram indicates the locations of interior walls and also labels each unit by its name.” Interestingly, the Court does not reference the mandatory survey requirement, utilizing a phrase “diagram” which is normally taken to be much less exact than a survey.
As is de rigor when there are multiple definitions of something, there is invariably a conflict, if not a continuing ambiguity.
The appellate court rejected the trial court’s reliance on the survey interpretation standard that courses and distances supersede square footage because the words utilized for parametrical boundaries did not provide courses and distances, there being no stated measurements or angles. The “diagram” was unclear as to whether walls shown were internal or boundary walls.
The “lack of clarity about the parametrical boundaries definition in the diagram of the lobby area,” lead to reliance on the square footage calculation, the numeric analysis. The commercial office unit without the front desk was only 75 feet which contradicted the Declaration’s specific allocation of 395 feet. The parties recognized and acknowledged that the only method that the commercial unit would reach 396 feet was by addition of the front desk area.
The court also relied upon Florida Administrative Code Rule 61B–18.0051 which provides that percentages of common element ownership, if not equal are to be based on “square footage of each unit.” The court did not specify how the declaration allocated; however, the opinion indicates that the unit’s had a pro-rata percentage related to square footage.
The court reversed a summary judgment in favor of the Association, remanding for entry of a summary judgment in favor of the commercial office unit owner.
This decision reinforces the call for clear identification of unit boundaries, including clear survey sketch exhibits. Frequently, especially in older declarations of condominiums, the recorded survey sketches are illegible. Especially with older condominiums, as surveyors and engineers retire, the opportunity for condominium associations to obtain clear survey sketches rapidly erodes. Associations may be urged to seek out the surveyors and engineers now to help avoid more costly disputes in the future.
Developers are not off the hook. While survey sketches in this day and age are usually clearer and more detailed, the sketches are not always so. Developer counsel is urged to reinforce to developers the need for proper survey exhibits.
It is double-down time at the Florida Supreme Court!
Yesterday the Supreme Court issued its long-awaited decision concerning the impact of a lender’s acceleration of a note and mortgage when the lender’s foreclosure suit is later dismissed in Bartram v U.S. Bank National Association, Case No. SC14-1265, (Fla. November 3, 2016).
In short summary of a perhaps complex scenario, if the loan documents provide for acceleration to be effective upon the entry of judgment, if the lender accelerates note installments, and if thereafter the lender’s foreclosure lawsuit is involuntarily dismissed pursuant to Rule 1.420(B), then the 5 year statute of limitations does not bar a second foreclosure suit so long as there is a “new” installment default occurring after the dismissal of the first lawsuit and within five years of filing of the second lawsuit.
The Supreme Court approved the intermediate appellate court’s decision in U. S. Bank National Ass’n v. Bartram, 147 So. 3d 1007 (Fla. 5th DCA, 2014) which was addressed in this author’s Condomania posting on April 24, 2014. The facts leading to the decision are relatively unexceptional and are summarized as follows:
2005, February. Bartram provided a mortgage for $650,000.00.
2006, January. Mortgage in default.
2006, May, Lender files first foreclosure complaint,
2011, May 5, Foreclosure involuntarily dismissed pursuant to Fla.R.Civ.P. Rule 1.420(d).
2012. In a second mortgage foreclosure lawsuit, Bartram files a cross-claim seeking to cancel the mortgage and to quiet title (The decision does not state the date the second lawsuit was filed).
The trial court granted Bartram’s motion for summary judgment cancelling the note and mortgage and releasing plaintiff’s lien against the property.
In response to the Fifth District Court of Appeal’s certified question, the Supreme Court rephrased the question as follows:
DOES ACCELERATION OF PAYMENTS DUE UNDER A RESIDENTIAL NOTE AND MORTGAGE WITH A REINSTATEMENT PROVISION IN A FORECLOSURE ACTION THAT WAS DISMISSED PURSUANT TO RULE 1.420(B), FLORIDA RULES OF CIVIL PROCEDURE, TRIGGER APPLICATION OF THE STATUTE OF LIMITATIONS TO PREVENT A SUBSEQUENT FORECLOSURE ACTION BY THE MORTGAGEE BASED ON PAYMENT DEFAULTS OCCURRING SUBSEQUENT TO DISMISSAL OF THE FIRST FORECLOSURE SUIT?
The Supreme Court answered the question in the negative.
The introductory reference to doubling down refers to the Court’s reinforcement of the holding in Singleton v. Greymar Associates, 882 2d 1004 (Fla. 2014). In particular, acceleration of mortgage installments in a foreclosure does not place future installments at issue when “standard” loan documents are utilized. Critical to the analysis is the unique status of an installment payment secured by a mortgage, and the actual text of the mortgage allowing acceleration.
Singleton addressed the res judicata impact after dismissal upon a subsequent foreclosure suit for the same installments. This decision extends Singleton, to the statute of limitations realm. Thus, dismissal of an initial foreclosure action does not bar a new lawsuit based upon subsequent installment defaults. Each default of an installment creates a new cause of action. Of course, the new defaults must be within the statute of limitations period.
Importantly, the Court analyzed the mortgage’s actual words, quoting extensively from the loan documentation. The Court also relied heavily upon the recently published Deutsche Bank Trust Co. Americas v Beauvais, 198 So. 3d 938 (Fla. 3 DCA 2016). In Beauvais, you will recall that the Third District undertook a close textural analysis of the loan documents. Reading the documents, it was discovered that the acceleration clause is contingent upon the language of the loan documents which should not be a surprise. As in Beauvais, Mr. Bartram’s loan documents provided that acceleration is final only upon the entry of final judgment.
While not highlighting the term “equity”, the Court did undertake an alternative review applying an equity analysis. It would not meet “the ends of justice” to bar Appellant from pursuing a foreclosure after initial dismissal. The Court expressly seeks to put the parties back into the same position they were before the foreclosure was initiated. In the realm of equity, the Court also recognized that although there have been many allegations of unfair bank practices in other lawsuits by other borrowers, this borrower, Bartram, did not raise any such defense in this regard.
Justice Lewis concurred, but strenuously objected to the unbridled extension of Singleton. He also pointed out the discrepancy between the majority opinion and the loan documentation, writing that the documentation reinstatement provisions require the borrower to undertake action as opposed to the majority concluding that reinstatement occurred upon issuance of a dismissal.
This decision should now provide some finality as to the acceleration issue, at least to the extent that “standard” loan documents are utilized, and defaults of individual installments are within the limitations period. Recognizing that there is not a statutory set of forms, parties must remain vigilant as to the contents of the documents, at the drafting, negotiation, execution, breach and enforcement stages. There may be more give and take as acceleration, and especially de-acceleration provisions are negotiated, if there the borrower actually has any negotiating power.
This decision raises a question as to the ultimate purpose and viability of the concept of the statute of limitations. It can always be said that limitations does provide a windfall for a defendant, based solely on the passage of time; however, is it not the exact purpose of a statute of limitations to force a claimant to action so that the courts are not clogged with stale claims and to allow a debtor to move forward without constantly looking over his or her shoulder? The concept literally harkens back to biblical texts encouraging that at some point a debtor is entitled to a clean slate. While it can be said that each installment of a note is properly the basis for a separate claim in the foreclosure context, it is questioned whether the Court intended the very broad implications of its option that limitations should not allow a windfall. This point is raised because that broad implication does not appear justified in other contexts and is counter to the policy of statutes of limitations.
It must be highlighted that the Supreme Court called out the “excellent amici briefs submitted by the Real Property Probate & Law Section of The Florida Bar...”!! Kudos to the Section’s Amicus Committee, especially the primary drafter of the Section’s brief, co-chair John W. Little of West Palm Beach!
Many thanks to Doug Christy, Brian Leebrick and Susan Spurgeon for swiftly identifying and providing the decision.
Best for a great weekend. Remember to vote!
This belatedly reports on a July 18, 2014 decision of the Fifth District Court of Appeal in Southern Owners Ins. Co. v. Cooperative De Seguros Multiples, Case No.: 5D1d–3048 (Fla. 5th DCA, July 18, 2014).
At issue was whether Southern’s insurance policy of insurance issued to the Eastwood Community Association required Southern to provide a defense and indemnify Daisy Eastwood, a member of the Association and the owner of a home within the Community.
A wrongful death action against Daisy Eastwood and Eastwood Community Association asserted that the Association negligently operated a swimming pool and that Daisy Eastwood negligently supervised a seven-year-old who drowned in the swimming pool. Cooperative, Daisy Eastman’s insurer and Daisy Eastman, filed an action against Southern seeking a declaration of Southern’s duty to defend and indemnify Daisy as a member of the Association.
The decision focused on a policy endorsement which limited individual member coverage as follows:
… but only with respect to liability arising out of the ownership, maintenance or repair of that portion of the premises which is not reserved for that member’s exclusive use or occupancy.
In a footnote the court commented on the distinction between a condominium where unit owners have title to the common elements and homeowner associations’ where title in the common areas is often solely held by a homeowners’ association.
Lacking any proof that Daisy Eastwood held an ownership interest in the homeowners’ association’s common area pool, and because Daisy Eastwood’s right to use the pool, while “an indicia of ownership, it does not equate to ownership.” As a result of the lack of proof of ownership, a Summary Judgment in favor of Daisy Eastwood and her insurer was reversed.
The latest pronouncement from the Federal Courts on the Fair Debt Collection Practices Act is a mixed bag. In Miljkovic v. Shafritz and Dinkin, P.A., Case No. 14 – 13715 (11th Cir., June 30, 2015), the 11th Circuit Court of Appeals applied what it construed to be the clear language of the FDCPA. The holding was in favor of the debt collector, however, the Court’s reasoning on the way to the holding, broadly in terms of the FDCPA’s application, bears careful note.
In short summary, even in litigation, and even when the audience for communication is other than the consumer, and the communication is specifically directed to the consumer’s attorney, the FDCPA applies to lawyers and law firms regularly engaged in debt collection activity. While the FDCPA, and this decision, may appear to many to not be practical, the Court provides a historical review of the FDCPA’s application, including considering a Congressional amendment occurring after the decision in Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489 (1995), reinforcing the FDCPA’s application to lawyers.
Nevertheless, applied to the facts, the FDCPA was not violated by the filing of a sworn reply in opposition to a defendant debtor’s Motion to Dissolve a Writ of Garnishment even though subsequent discovery led the creditor to withdraw its opposition and allowing the writ to be dissolved! The debtor asserted violations of three different FDCPA sections which the Court considered individually.
A violation of FDCPA §1692d, requires a debt collectors conduct to bring “embarrassment, inconvenience and further expense” generally reflecting “a tone of intimidation” which was not present in the sworn reply. Further, utilizing the courts to merely file an opposing statement does not constitute harassment depression or shame.
Pursuant to FDCPA §1692e, prohibiting deceptive debt practices, the sworn reply did not misrepresent the Writ, erroneously state the amount claimed, or incorrectly identify the debtor, but merely stated the creditor’s legal position. A creditor is not required to accept a debtor’s statement as fact without undertaking an opportunity to confirm the facts. The FDCPA cannot be utilized to prevent a debt collector attorney to present legal argument and invoke remedies even if the strategy was unsuccessful.
Finally, pursuant to 1692f, a “catch-all,” the debtor did not allege fact that the sworn reply was such “that the least sophisticated consumer would or could view Appellee's sworn reply as partial and unjust or as unscrupulous and unethical.”
Chair, Real Property, Probate & Trust Law Section
Not been paid? Of course not! A client would never do that to you.
Not that you are a voyeur, seeking out others embarrassment, but just in case someone you know has a fee collection problem, the recent decision in of the Third District Court of Appeal decision in CK Regalia v. Thornton, Case No. 3D14-2289 (Fla. 3rd DCA, March 11, 2015), may be of interest as it addresses whether a charging lien is ripe for judicial enforcement
The Court recounted that there are few prerequisites for perfecting a charging lien, notice being the paramount.
In this case the charging lien was filed after the law firm was discharged. The former clients sought a determination that the lien was not enforceable. Because the lien was based on a contingency fee agreement, and the underlying claim for which the law firm was originally retained was not resolved, the Court held that without a determination on the trigger of the contingency, the issue of enforceability is “not ripe.” Thus the trial court’s dismissal of the former client’s claim was affirmed.
The United States Department of Justice issued a service animal update entitled “Frequently Asked Questions About Service Animals and the ADA” divided into subject areas, and presenting information in a numbered question and answer format.
As we know, The Americans with Disabilities Act (“ADA”) is one of two Federal enactments significantly impacting property owners. The ADA primarily impacts those providing public accommodations, such as hotels, restaurants, businesses and other properties where the public can walk in. The Fair Housing Act (“FHA”) affects those providing housing accommodations, usually impacting provider such as apartment owners and community associations such as condominium and homeowners’ associations.
While the recent FAQs specifically states that it is to provide guidance for compliance with the ADA, not applying to the FHA, many ADA concepts are similar to FHA concepts; thus, the FAQ may be of significant interest to community associations as well as to others involved in housing accommodations.
The FAQs are divided into a number of distinct areas, with short comments. The FAQ does not appear to have been adopted as a regulation, not being submitted to the rule making process with its due process protections. Thus, the FAQ’s are presumably for guidance, whatever that means!
Here are a few items that may be perceived as highlights.
Definitions.
Q1 - Q3 differentiate between a “service animal” and an “emotional support animal.” A service animal is specifically:
defined as a dog that has been individually trained to work or perform tasks for an individual with a disability. The task(s) performed by the dog must be directly related to the person’s disability.
Q2 outlines what is work or performing tasks.
Interestingly the Q3 denies that a dog whose “mere presence provides comfort” is not is a “service animal” under the ADA, nor are “animals that provide comfort just by being with a person,” deferring in part to regulation by state and local laws. Note the HUD separately addresses emotional support animals under the FHA.
Professional training is not required (Q5); however, the FAQ does warn against Internet certifications that:
These documents do not convey any rights under the ADA and the Department of Justice does not recognize them as proof that the dog is a service animal.
Registration.
While mandatory registration certification of an animal as a service animal is not required, local animal licensing and vaccination requirements that are required for healthy and safety purposes are not superseded by the ADA. Q 17–19. As the ADA approaches accommodations differently than the FHA, this may be different under the FHA.
Breeds.
Breed specific prohibitions are not enforceable. (Q 22 – 24), though providing a recognition, perhaps minimal, to “legitimate safety requirements” for a particular animal.
Control.
A leash may be required, as well as not being disruptive. (Q 27–28). In a hotel environment, a service animal may not be left alone in a hotel room (Q 29) which raises an interesting question of whether a similar requirement would be available in a FHA environment, noting the difference between a service animal and emotional support animal. The ADA also draws a line between allowing service animals on pool decks as opposed to inside swimming pools itself where there are public health rules.
Read up!
The sanctity of proceeds from the sale of a homestead was at issue in Wednesday’s decision issued by the Fourth District Court of Appeals in JBK Associates, Inc. v Sill Bros., Inc., Case No. 4D14-3049 (Fla. 4th DCA, March 11, 2015).
As a result of their divorce, Sill and his wife sold their homestead. His proceeds were deposited into an account entitled “FL Homestead Account” which was organized into three subaccounts, a cash account, and two securities accounts. The security accounts were in mutual funds and unit investment trusts.
JBK, a judgment creditor of Sills, served garnishment writs on Sill’s bank. JBK appeals the trial court’s order granting Sill’s motion to dissolve the writs without prejudice to JBK “if the applicable ‘reasonable time’ standard of Florida law was not met.”
The appellate court held that investment of the homestead proceeds in securities “was not so inconsistent with the purposes of homestead that the funds lost their protected status.” The key is whether the funds could be converted into a real property homestead within a “reasonable time.” Based on the homestead exemption laws being “liberally applied,” with reliance that the securities accounts were not “particularly risky,” and that the funds were “separate and apart” the Homestead status was protected.
The conundrum of how to pay for expenses that have been declared beyond a homeowners’ association’s authority was at the heart of the Second District Court of Appeals recent decision in Fern v. Eagles’ Reserve HOA, Inc., Case No. 2D13-5089 (Fla. 2nd DCA, March 6, 2015).
Ms. Fern challenged an assessment levied by the Homeowners’ Association regarding the maintenance of exteriors. In an earlier appearance, the appellate court issued Klak v. Eagles’ Reserve HOA, 862 So, 2d 947 (Fla. 2nd DCA, 2004), which held that the Association’s repair, and thus assessment authority, was limited regarding exterior walls to the walls’ exterior surfaces, a narrower authority than the Association sought. Shortly thereafter the Association filed a Chapter 11 Bankruptcy Petition. The Bankruptcy Plan permitted the Association to continue its lien collection efforts; however, the Bankruptcy Court decision approving the Plan did not address whether the assessments to be enforced were actually enforceable.
To which Ms. Fern asserted that the assessments for improper expenditures were not enforceable. As a starting point the appellate court provided a mea culpa for the earlier decision’s broad remand without direction, noting that the earlier decision’s author is now Supreme Court of Florida Justice Canady. Then the Court proceeded to differentiate the Ocean Trail v. Mead decision, 657 So.2d 4 (Fla., 1994). The Associations were different, 1) Ocean Trail being a condominium and Eagles’ Reserve being a homeowners’ association; 2) Eagles’ Reserve holding only a “small amount of property”; and, 3) the assessments Eagles’ Reserve levied were not to pay a legal obligation, at least not a judgment that endangered accounts. The Court did comment that contractors who did work were entitled to be paid.
The holding is more procedural than substantive, that the defense that an assessment for an unauthorized expenditure must be adjudicated by the trial court. This decision in and of itself does not provide clear guidance to counsel as to whether such a defense is actually cognizable. The remand to the trial court was for the trial court to determine whether the defense should have been overruled. While the decision could have been clearer, the decision does appear distinguishable from Abbey Park Ass’n. v. Bowen, 508 So. 3d 554 (Fla. 4th DCA, 1987), which has been consistently cited for the proposition that an owner cannot challenge an assessment because the assessment was for an improper expenditure, the differentiation in this case being that the question is who should be assessed for the expenditure not whether the Association was barred from making an assessment.
Is it really a do-over if the first time was not complete?
Yesterday the Fourth District Court of Appeal addressed whether in a mortgage foreclosure context, the dismissal of a condominium association defendant and junior lienholder, as a sanction for the lender’s violation of orders, elevates the association’s lien to a priority higher than the mortgage lien. PNC Bank, N. A. v Inlet Village Cd’m. Ass’n., Inc. Case Nos. 4D15-266 and 4D15-3057 (Fla. 4th DCA November 9, 2016), describes how this condominium association lien priority dispute involved four separate lawsuits.
Lawsuit 1. In 2008, the Bank’s predecessor filed the initial mortgage foreclosure action joining the Condominium Association as a defendant; however, the Association was dismissed with prejudice as a sanction because the Bank’s predecessor failed to comply with pretrial orders. In 2011, this first lawsuit was voluntarily dismissed.
Lawsuit 2. In 2012, a second foreclosure action was filed by the Bank as a successor in interest to the original mortgagee. The Association was again joined as a defendant. The trial court involuntarily dismissed the Association from the second action based on res judicata arising from the first dismissal.
Lawsuit 3. Thereafter, in response to the Bank’s request for an estoppel letter, the Association asserted that unpaid assessments accrued and were due from 2008, totaling $74,279.46. This prompted the Bank to file a third action seeking a declaration that the Bank was entitled to the statutory Safe Harbor provided by §718.116 Fla. Stat. (2015).
An LLC that purchased the Association’s collection rights intervened in the declaratory judgment action and moved to dismiss the action based upon collateral estoppel, arguing that the dismissal in the second foreclosure action resolved the merits of the lien priority. The trial court agreed with the LLC, dismissing the Bank’s declaratory judgement claim with prejudice. The Bank appealed this decision.
Lawsuit 4. Thereafter the LLC filed the fourth action seeking unpaid assessments and interest. The trial court granted final summary judgment against the Bank. The Bank appealed.
If you lost track for score keeping purposes, the Bank appealed from the declaratory judgment (third) action and the LLC’s seeking unpaid Association assessments in the fourth action. The two appeals were consolidated for the opinion.
Initially, the court commented that collateral estoppel is a defense; thus, in the third lawsuit, procedurally the defense should not have been considered at the motion to dismiss stage.
Proceeding concerning priority:
First, an involuntary dismissal does not change priority of recorded instruments, the court apparently limiting this comment to when dismissal is the result of sanctions. Second, collateral estoppel could not apply because the issue of lien priority was never actually litigated. Third, it appears that the Association’s lien was recorded after the mortgage; thus, the lien could not have priority over the mortgage. Interestingly, the records on appeal did not include the recorded claim of lien; thus, the appellate court assumed that the Association’s demand being limited to assessments starting in 2008 meant that if a lien was recorded, the lien was not recorded until after the 2003 mortgage lien recording.
On the above basis the two final judgments were reversed, the declaratory judgment action remanded for further proceedings, and the LLC’s action for damages was remanded for entry of summary judgment in favor of the Bank to obtain the Safe Harbor protection.
This decision sidestepped addressing what is the effect of a dismissal with prejudice of a junior lien holder in a mortgage foreclosure? Normally a dismissal with prejudice prevents a new claim from being filed. How can a lender refile an action dismissed with prejudice? Normally that would be frivolous.
Also interestingly, this decision does not address whether there were new defaults after the dismissal that would justify a new proceeding under Bartrum which likely was not available when this decision was actually drafted. If there is no installment due after the initial dismissal with prejudice, then what is the effect of dismissing with prejudice as a sanction?
Concerning the application of the Safe Harbor, does the remand for entry of judgment in favor of the Bank mean that simply filing a foreclosure action without obtaining a judgment against the association triggers application of the Safe Harbor? Consider, if a dismissal with prejudice does not prevent the Safe Harbor from applying, then immediately after filing a foreclosure action should the lender be able to dismiss the association, perhaps even before service, and still take advantage of the Safe Harbor. At least from this writer's perspective that does not appear rational or logical, being in fact ridiculous.
Many questions remain.
Many thanks to Mr. Christy for promptly providing this decision.
Please note yesterday's decision in Jenkins v. Plaza 3000, Inc., No. 4D12-4326 (Fla. 4th DCA, February 12, 2014).
This decision addresses the burden of proof to collect assessments and interest, the penalty for the failure to fulfill the burden at trial, and liability for attorney's fees. It is a warning to those seeking sums due without proper accounting proofs.
Jenkins owned lots in the a commercial shopping plaza subject to covenants requiring lot owners to pay assessments. Plaza 3000 administers the covenants. Thus, it appears that Plaza 3000 is not a condominium association, and by virtue of the commercial nature of the center, Plaza 3000 is not a statutory Chapter 720 homeowners' association. Over time Jenkins contested whether the Association properly posted assessment payments and calculated interest.
The Association sued for foreclosure of an assessment claim of lien, and for damages. Jenkins' counterclaim for slander of title was dismissed. During the bench trial, the Association's accountant conceded that the Association did not timely post payments or determine the rate of interest that accrued. After a "lengthy" bench trial, the trial court denied foreclosure relief. Award $10,037.00 in damages, the trial court found that Plaza 3000 had:
"not met [its] burden in demonstrating the actual amount due and owing, but the figure of $10,037, which was presented by [appellant's] counsel through cross-examination, is the closer amount."
(emphasis supplied). The trial court denied foreclosure relief.
The appellate court ruled that the counterclaim dismissal was in error because special damages were alleged, specifically the inability to obtain a conventional loan resulting in increased loan costs andan increased interest rate, the loss of a contract to sell the property, the inability to lease, and damaged creditworthiness. The dismissal of other counterclaims because they duplicated affirmative defenses was found to be inappropriate; however, because Jenkins apparently did not argue the issues on appeal that was not a basis for reversal.
Because it appeared that the judgment amount was "most, if not all" of the judgment, and because the rate of interest that was utilized for calculation was in doubt and dispute, the Court reversed the award of damages. Normally, an interest award is a ministerial matter for the trial court, but, because of the status of accounting the trial court could not award interest as a ministerial matter. Because of the failure of proofs, the remand instructions included the deletion of an interest award.
The decision also touches upon other matters without explanation. For example, assessments representing attorney's fees and interest on the fees for the litigation are to be deleted from damages awarded, apparently as mentioned in passing at the beginning of the opinion there was a question of proofs. In addition, to the extent the written judgment conflicted with the oral judgment in which the trial court stated that interest on payments tendered but refused would not be awarded, interest was not to be awarded.
This decision does reinforce the necessity for proper accounting and calculations!
Many thanks to Mr. Christie for his prompt providing of the decision.
This addresses the decision in Dingle v. Dellinger, 37 Fla. L. Weekly D322 (Fla. 5th DCA, February 7, 2014).
This decision is significant for expanding an attorney's liability to non-clients, third parties, for professional liability, what we refer to colloquially as "malpractice". Traditionally, the third party intended beneficiary exception to the rule of privity that was limited to will drafting. For example a attorney drafting a will may be liable to an intended beneficiary who was excluded as a result of not exercising proper care.
The Kyreakakis retained attorney Dellinger to draft a quit claim deed to gift property to the Dingles. After Kyreakakis died his widow challenged the deed, and the deed was found to be invalid. The Dingles sued Dellinger for damages alleging they were intended beneficiaries of Kyreakakis contract with the attorney to draft an enforceable deed to benefit them as the grantee.
The trial court's dismissal of claims at the pleading stage was reversed based on what was described as a "narrow exception to the privity requirement in legal malpractice cases." Public policy issues on both sides of the issue were acknowledged. The elements of a third party beneficiary claim were recounted as: (1) a contract; (2) an intent that the contract primarily and directly benefit the third party; (3) breach of the contract; and (4) resulting damages to the third party. Being expressly named in the contract is not necessary to create a duty to a third party:
A party is an intended beneficiary only if the parties to the contract clearly express, or the contract itself expresses, an intent to primarily and directly benefit the third party or a class of persons to which that party claims to belong.
Generally, an attorney is not liable to third parties in negligence; however, a duty of care is owed to a third party "if the attorney was hired for the purpose of benefitting a third party."
Perhaps seeking to limit the potential expanse of the decision, the Court stated that because a "specific intent to benefit a third party" is necessary, there would be no claim by an adverse party in litigation because an attorney is not hired to benefit an adverse party. In this real estate transaction there was "no adversarial relationship or differing interests to be protected...they were not in conflict." Thus, more akin to a one sided transaction.
As will occur any time a court creates a "narrow exception" many will see analogies where the "narrow exception" should be extended. It is anticipated that there will be many unintended consequences of the Fifth District Court of Appeals' decision.
Many thanks to our peers in the Probate & Trust Division, Deborah Goodall and Mike Dribin, for providing this decision.
FHA Service Animals
The first decision reported, and for which this provides a link, was issued by the Second District Court of Appeal in Fowler v. Paradise Lakes Cd’m Ass’n, Inc. (____ So. 3d. ____, Case No.: 2D13-1444, Fla. 2nd DCA, February 19, 2014.)
The decision addresses the pleading requirements for a Fair Housing Act service animal claim and reinforces the need for the claimant to provide notice of the disability and need of accommodation to an association.
In this extremely short decision, Ms. Fowler, “visually impaired,” leased a condominium unit at Paradise Lakes Condominium which she occupied with Labrador retriever. Apparently, the Association has a restriction on the size of pets. In response to the Association’s notice to the landlord of the violation Ms. Fowler provided some type of documentation regarding the dog to her landlord. The trial court dismissed her claims under the Florida and Federal Fair Housing Acts seeking declaratory relief and monetary damages for failing to state a cause of action.
The appellate court affirmed the dismissal, but remanded. The “bare allegations” justified affirmance; however, the trial court did not have discretion to dismiss the first filed complaint with prejudice and should have permitted an amendment. It appears that the Complaint alleged the tenant provided some proofs to the unit owner, but there was no allegation that any of that information was provided to the Association.
While the decision is not a model of clarity as to the affirmance, the decision may provide a basis to reinforce to an owner the need to provide documentation of a handicap as well as the need for the accommodation.
Michael J. Gelfand\nDirector, Real Property Division\nNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section\n© 2014, Michael J. Gelfand
Parking.
The second decision, addressing how the term of a condominium parking space assignment by a license agreement, was issued by the Third District Court of Appeals in Keane v. The President Cd’m Assn’n, Inc. (____ So. 3d. _____, Case No.: 3D13-746, Fla. 3rd DCA February 19, 2014).
The decision reinforces that a license to use a parking space is revocable at will. This decision differentiated an easement from a license. The Condominium Association provided the unit owner a “Parking Space License,” charging $5,000.00 for the space. The text specifically stated that it was a “License onto BRIAN KEANE, for the use and all rights benefit of the parking space….” Nearly ten years thereafter, the Association sought to revoke the license.
Keane sued seeking a declaratory judgment apparently alleging the wrongful revocation of the license. The parties stipulated that the agreement was a license, not a lease or easement. The trial court granted the Association’s motion for summary judgment.
The appellate court affirmed. “Unlike a lease or an easement, a license is not an interest in real property; it merely gives one the authority to do a particular act on another’s land.” (citations deleted). Therefore, the revocable license was properly revoked. The court noted a “narrow exception” to the rule of revocability when two elements are present, there is permission for a particular purpose and large sums or heavy obligations for permanent improvement were expended. Because there was no substantial sum to improve the parking space the exception was not proved.
Foreclosure Judgments Under Attack
The third decision is yesterday’s decision by the Fourth District Court of Appeal in Cd’m Ass’n of La Mer Estates, Inc. v. The Bank of New York Mellon Corp. (_____ So. 3d. ____, Case No.: 4D13-17 Fla. 4th DCA, February 19, 2014).
This decision will be of interest because it addresses how long a defendant can wait to attack a judgment. This relates to the finality of court proceedings. While somewhat technical, it involves a Florida community association, and assessments! The Court held that a default judgment based upon a complaint that fails to state a cause of action is merely “voidable” not “void;” but, the time to seek relief to vacate a voidable judgment is limited to one year from entry of the judgment.
The facts are somewhat lengthy and may make some cringe. A La Mer Estates Condominium unit was subject to a mortgage in 2006 that went into default in 2008. The Condominium Association obtained a final judgment foreclosing its assessment lien. Before the foreclosure sale at which the Association, being the only bidder, received a certificate of title to the unit, the Bank received an assignment of the mortgage.
The appellate court acknowledged the Association’s concern regarding unpaid maintenance assessments. After the Association obtained title, the Association provided a written offer to the Bank to convey title to the unit to which the Bank failed to respond. Then, the Association sued to quiet title alleging that the Bank had no bona fide interest or claim to the property. A first default final judgment (how many default final judgments could be issued??) in favor of the Association was vacated because of allegations of improper service.
After the Bank was served a second time, the Bank failed to respond. The clerk entered a new, second, default. The Bank was provided another notice and opportunity to be heard, but did appear at the hearing at which a second final default Judgment was entered.
Over one and a half years later the bank moved to vacate pursuant to Fla.R.Civ.P. Rule 1.540(b), asserting that the Complaint failed to state cause of action to quiet title because the Complaint did not allege why the Bank’s claim to an interest in the property was invalid. The Bank also argued that the judgment was “void” and the Rules one year limitation for relief did not apply. The trial court granted the motion to vacate.
The appellate court reversed. Receding from contrary decisions, a judgment based upon a complaint which fails to state a cause of action is “voidable” not “void.” The crux of the differentiation is that a void judgment usually lacks subject matter jurisdiction or service and thus can be challenged at any time. The rationale is that a default admits only the well pled allegations of a complaint, and implicitly a defendant has notice and opportunity to respond; thus, if the complaint is not well pled, the judgment is voidable. A contrary Supreme Court decision was held not to apply because it was decided before Florida’s modern rules of civil procedure.
The decision recites a practical argument in support of applying the one year time period to vacate. If all judgments affecting title to property were void, as opposed to voidable, then the potential for a motion to vacate that judgment would cloud title seemingly forever. Title underwriters would presumable not ensure title with a default final judgment and its chain title.
In arriving at its decision, the Court makes a number of interesting statements. The first, of course, is the recognition of the concern regarding unpaid Condominium Association assessments. The Court refused to certify the issue of great public importance by noting the existence of an expressed conflict. Interestingly also, the Court specified that the second default was entered by the clerk, not the trial court which presumably would have been improper as by that time the Bank had filed a paper in the case; however, that issue may not have been raised or was deemed not material in light of the passage of time from the entry of final judgment.
This addresses yesterday’s decision by the Fourth District Court of Appeal in Noimbie v. Harvey, Case No.: 4D13-2843 (Fla. 4th DCA May 7, 2014).
The issue addressed was whether a county court retained jurisdiction to adjudicate a defendant tenants’ deposit of rental funds in response to an eviction action. In brief summary, it appears that landlord failed to provide an appropriate three and/or seven day notice before filing a residential eviction. As a result, the County Court granted the defendant tenant’s Motion to Dismiss but, over the tenant’s objection, retained jurisdiction to determine the disposition of funds deposited in the Court registry.
Granting a writ of certiorari, the Court noted that the obligation to deposit rent in the Court registry arose as a result of an eviction action. §83.60(2) Fla. Stat. (2011). Once the eviction action was dismissed, the Court lost jurisdiction over the funds otherwise required to have been deposited.
As an increasing number of associations are involved in rentals, either directly as landlords, or indirectly stepping into the shoes of landlords or exercising a right to rents, the disposition of funds deposited in the Court registry by a tenant will be of interest.
This addresses a somewhat lengthy fact situation presented in a decision issued yesterday by Florida’s Third District Court of Appeal, Dirico v. Redland Estates, Inc., Case No.: 3D12-3132 (Fla. Third DCA, May 7, 2014).
At issue was the disposition of $238,000.00 in deposits for a contract to purchase real property with an original price of $3.8 Million, increased to $4.3 Million.
When the buyer refused to close on terms set forth in seller’s proposed closing statement, allocating only a portion of the original deposits to the purchase price, the buyer sued the seller.
Three addenda were involved, best considered because of their length by reading the opinion. The issue for the Court was whether the language was ambiguous allowing the admission of parole evidence.
Of import to all interpreting real property instruments, the Court held that an ambiguity does not exist just because there can be more than one interpretation. Instead, ambiguities are “created only by alternative interpretations that are equally reasonable.” Further, when different language is utilized in the same document, it is assumed that different meanings were intended. The Court also read the contract and its addenda as “a single document.”
As always, it is always easier with 20/20 hindsight after an issue arises to see problems in contract language. There always also is the battle with clients trying to avoid more words when additional words can help explain and avoid disputes!
This e-mail reports the interesting conundrum created by the Second District Court of Appeal’s decision yesterday in Shaw v. Shaw, Case No. 2D14-2384 (Fla. 2dDCA, August 27, 2014).
Immediate attention is drawn to the decision, not just because it is en banc, but because it certifies to the Supreme Court of Florida as a matter necessitating an immediate decision of great public importance whether:
Florida’s ban on same-sex marriage and the prohibition recognizing such marriages unconstitutionally limits various constitutional guarantees including full faith and credit, access to courts, equal protection and the right to travel.
It is noted that the Court does not expressly state the issue certified in the decision, but the issue stated above is the issue identified as presented to the Circuit Court. As has been brought to my attention by Jerry Cope, the Rule 9.125 certification does not specify an issue, but passes on the issues raised in the judgment under appeal.
The posture in which this case has moved is also somewhat unorthodox. The trial court dismissed the appellant’s amended petition for dissolution of her same-sex marriage to the appellee. The trial court’s rationale for dismissal was that Florida did not recognize a marriage between two women. The District Court of Appeal could, as the dissent noted, have ruled upon the issue but the District Court chose to pass this to the Supreme Court.
The decision likely will provide precedent for the other District Courts of Appeal to certify their pending, or to be pending, appeals to the Supreme Court of Florida. The other cases may be necessary for the Supreme Court to have the full menu of issues before the Court. This is particularly so as the Shaw parties do not bring the issue of whether marriages made in Florida are valid.
The Shaw parties, narrowly examined, seem to instead present, in addition to the full faith and credit issue, the ironic issue of whether Florida’s prohibition on same-sex marriage is properly applied to force two same-sex persons to remain married if they were married out-of-state and have a residency in Florida! A comedian, perhaps it was the late Robin Williams, joked why should same-sex couples not be condemned to a life of marriage just like heterosexual couples!
As a further follow up, Thursday the Third District Court of Appeal consolidated the Paredo (see 3rd DCA.PDF attachment) and Huntsman appeals from Miami-Dade and Monroe trial courts, respectfully.
Many thanks to George Karibjanian and for providing a heads up, as well as the update and attachment, and to Gerald Cope for the information on application of Rule 9.125.
Attachment: 3rd-DCA.PDF
Yesterday’s decision in Friscia v. Friscia, Case No. 2D13-412 (August 27, 2014, Fla. 2d DCA), presents an unusual fact situation concerning the application of the constitutional homestead protection against forced sale. Fla. Const. Art. X, Section 4, protecting the homestead of a decedent’s family from a first marriage when the decedent was remarried.
Citing the former RPPTL Section Chair Rohan Kelly, the Court’s analysis begins by defining the timeframe for analysis, that homestead status is determined at the time of the decedent’s death “because a property’s character as homestead dies with the decedent.”
From there, the Court recites that the decedent who was divorced, lived with his second wife. The former wife lived in his and the former wife’s “marital home.” The decedent and former wife entered into a marital settlement agreement containing two salient provisions: one, that the former wife had exclusive use and possession of the marital home until the youngest child graduated high school at which time the property would be sold and the proceeds divided equally, the wife retaining a right to buy out the former husbands interest; and, second, apparently providing “mutual release” provisions concerning “all claims or demands.”
Citing Beltran v. Kalb, 63 So. 3d 783 (Fla. 3d DCA 2011). the District Court of Appeal noted that precedent supported a determination that a former marital home held as tenants-in-common between the former spouses resided in by a daughter supported financially by the former husband still retained a homestead status. A former spouse’s exclusive use and possession does not extinguish the homestead when a child of the decedent continued to reside in the property and received financial support from the decedent. In particular, the owner claiming homestead does not have to reside on the claimed homestead property, just that the decedent’s family reside in the property.
The former wife’s release “from all claims or demands up to the date of execution of this agreement” was not a release of the homestead. Because a decedent holds the homestead right, not the former wife, the former wife’s waiver is not applicable! The court did note that the marital settlement agreement, binding upon “heirs, next of kin, executor and administers” binds the children.
In conclusion, finding that the descendant’s interest was protected homestead, the property is not subject to the probate estate and entitled to protection from creditors, the marital settlement agreement binding the decedent’s heirs.
This reports on Wednesday’s decision by the third District Court of Appeal in Pineda V. Wells Fargo Bank, N.A., Case No.: 3D13–2968 (Fla. 3rd DCA, July 23, 2014), addressing whether an equitable claim for surplus proceeds to pay a superior lien holder whose interest was not foreclosed, supersedes the priority of distribution of surplus funds in §45.032(2) Fla. Stat. (2013).
The facts are straightforward. Wells Fargo filed to foreclose its’ mortgage on the Pineda’s home, Naming the Pineda’s and the holder of a second, inferior mortgage, FBRL.
FBRL filed a cross claim to foreclose FBRL’s second mortgage. The cross-claim proceeded before Wells Fargo’s claim to judgment. At the sale which Nocari was the high bidder and apparently Nocari obtain title.Nocari’s sale payment was approximately $99,500 in excess of the final judgment.Nocari moved to disburse surplus funds pursuant to §45.032(2), alleging that Wells Fargo as the superior lien holder would receive the proceeds. Wells Fargo and the former owners, Pineda’s opposed the motion. Nocari responded that the Pineda’s had obtained a bankruptcy discharge, were no longer liable to Wells Fargo and that disbursing surplus proceeds to the Pinedas would result in a windfall to the Pinedas.
The appellate court reversed the trial court’s granting of Nocari’s motion and remanded with directions that Nocair disburse the surplus funds back in the court registry!
The statutory provisions are clear, providing a rebuttable presumption in favor of the owner of record at the time of the lis pendens is entitled to receive surplus proceeds. The statute provides that surplus proceeds are to be distributed to either “an owner of record” or an assignee, or a “subordinate lien holder.” Nocari was neither. A court sitting in equity does not have authority to overturn the statute’s clear legal provisions.
The enforcement of different types of attorney’s fees claims pursuant to an indemnity was the subject of last Wednesday’s decision in The Fallstaff Group, Inc. v. MPA Brickell Key, LLC, Case No.: 3d13-2183(Fla. 3rd DCA, August 6, 2014.
MPA sold to FBEC real property subject to a Shared Facilities Agreement (“SFA”). The SFA apportioned ad valorem taxes billed by the Tax Collector under a single folio number to a neighboring owner FBEC. As part of the closing to resolve disputes, the parties agreed to the following indemnification provision:
2. Reference is made to certain disputes between [MPA] and Jones Lang LaSalle (“JLL”)1 concerning a certain Shared Facilities Agreement (“the SFA”). [MPA] and Fallstaff have agreed that [MPA] will, at Closing under Jones Lang LaSalle was FBEC’s agent.the Agreement, pay Fallstaff $110,000 (including within the $110,000, $10,000 for gate removal) in full payment of all of [MPA’s] obligations with respect to these disputes (the “S FA Dispute”) and all amounts owed by [MPA] under the SFA through the date of the Closing. In recognition of this fact, Fallstaff hereby agrees to indemnify and hold harmless [MPA] and all of its equity holders, officer, employees, agents and representatives with respect to any liability under or in connection with the SFA (including any liability with respect to legal fees or court costs).
The contract was assigned to Courvoisier and Courvoisier received the $110,000 credit set forth in the letter agreement.
After closing, the parties discovered for the first time that the property appraiser had actually split the properties into two ad valorem numbers. Because FBEC was not aware of the separate bills, FBEC continued to pay the taxes. FBEC sought reimbursement from MPA, MPA paid FBEC $17,000 in settlement.
MPA then sued the buyer for contractual indemnification and unjust enrichment. The appellate court affirmed that MPA was entitled to indemnification under the letter agreement providing for “any liability under or in connection with the SPA (including any liability with respect to legal fees or court costs).” Though the liability did not arise until after the agreement, the dispute was covered under the “broad language” of the indemnification and thus MPA was entitled to the $17,000 MPA paid FBEC.
Concerning attorney’s fees, the court cited the “general rule” that the indemnitee is entitled to recover, as damages reasonable attorney’s fees required to be paid regarding the issue of the indemnification. However, attorney’s fees to establish the right to indemnification are normally not allowable. Thus, MPA would be entitled to recover attorney’s fees expended in its litigation with FBEC; however, MPA would not be entitled to recover its attorney’s fees and obtaining indemnity from Courvoisier.
This decision reinforces the need for parties to read and understand indemnification language, and to understand the subtle distinctions regarding attorney’s fees. Specifically, if there is to be a fee provision for claims between the parties to an indemnification agreement, then that must be stated in the agreement.
In passing, the claim triggering the dispute was for $243,000, including a principal amount of only $17,000.Michael J. GelfandChair-Elect, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2014, Michael J. Gelfand
This reports on the Fourth District Court of Appeals decision of last Wednesday addressing when does an arbitration provision with a waiver of jury trial provision become ambiguous and thus unenforceable
In Barri Builders, Inc. v. Hovstone Prop., Case LLCNo.: 4D14-765 (Fla. 4th DCA, August 6, 2014)the parties’ contract contained a mandatory arbitration provision which provided that
… Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
The arbitration agreement also contained a so-called jury waiver: “IN ALL ACTIONS THE PARTIES WAIVE THE RIGHT TO JURY AND AGREED TO DETERMINATION OF ALL FACTS BY THE COURT”. The trial court held that the so-called jury waiver language and the arbitration clause were contradictory.
On appeal, the Third District applied rules of construction requiring arbitration provision to be read first in context of the entire contract and then, second, in favor of arbitration. Thus, the contract provides that disputes are to be absolved by arbitration. Once resolved, an award may be reduced to judgment, and during this latter proceeding jury trial is waived.
The status of a security interest as a debt under the Florida’s version of the Federal Fair Debt Collection Practices Act, and Florida’s broader reach beyond “debt collectors” were the issues in Gann v. BAC Home Loans Servicing LP, Case No. 2D12–6271 (Fla. 2d DCA, August 15, 2014).
Gann sued BAC for damages, including a claim under the Florida Consumer Collection Practices Act, §559.72(9), Fla. Stat. (2011) asserting that after the parties modified Gann’s mortgage loan, BAC disregarded the modification terms and improperly sent demand letters claiming that Gann had not timely paid her mortgage. The trial court granted BAC’s motion to dismiss based on the defense that BAC was merely seeking to enforce its security agreement, not seeking to enforce a consumer debt.
The appellate court reversed.
On the security interest issue, it appears that a debt, is a debt is a debt. The fact that a debt is secured does not change the character of BAC’s action which was to collect a debt. By demanding payment of an amount, BAC’s demand letters were seeking to collect debt; thus, Gann’s complaint stated a cause of action.
BAC’s raised on appeal an additional issue, that BAC was not a regulated under the Florida Act, apparently because BAC was seeking to collect a debt that BAC owned. The appellate court noted that Florida’s Act is different from the Federal Fair Debt Collection Practices Act. Florida’s Act is not limited to merely “debt collectors” but applies broadly to a “person.”
Thus, because the Florida Act applies to a person collecting a debt, including a person collecting its own debt, the Act applies to BAC.
The lesson from this decision may be that under the broader Florida Act, Florida community associations, as well as their agents, may be liable for engaging in prohibited conduct collecting a debt. This may also encourage associations to carefully consider how collects are undertaken on their behalf, and to consider the import of indemnification provisions with their debt collectors.
This reports on last Wednesday’s decision addressing simultaneous foreclosure and money damage remedies in Hammond v. Kingsley Asset Management, LLC, Case No. 2D13–4425, 2D13–4522 (FLA 2d DCA, August 13, 2014.)
Kingsley sued Hammond and others to foreclose a mortgage on commercial property, including seeking a deficiency judgment, seeking damages on the promissory note which was secured by the mortgage, and seeking to enforce a guarantee. Following a bench trial two judgments were entered, in favor of Kingsley against Hammond for nearly $14 million dollars; however, the foreclosure judgment prohibited the clerk from setting a sale until Kingsley made a written application. The judgment on the promissory note claim included the words “let execution issue.”
In response to Kingsley’s application for a foreclosure sale, a sale occurred and Hammond’s 15% interest in the property was sold to Kingsley for a credit bid of $1100. Kingsley did not seek a deficiency judgment.
Kingsley served a writ of garnishment upon on Kahn. Kahn was Hammond’s ex-husband with whom Hammond was involved in post dissolution disputes arising from their divorce. The trial court denied Hammond’s motion to dissolve Kingsley’s writ of garnishment.
While parallel remedies can be sought, to avoid a double recovery, before executing on the promissory note through the garnishment Kingsley must complete the deficiency judgment process. Differentiating the situation from precedent, once a foreclosure sale occurs the judgment creditor must complete the deficiency process to determine if there is a deficiency after the sale and the amount of the deficiency. This fulfills the requirement “that a party can only recover once on the same debt.”
The moral the story may be that if a judgment creditor believes that there are liquid assets available for execution, it may be appropriate under the circumstances to first pursue execution on those assets before setting a foreclosure sale. Once a foreclosure sale occurs then equity requires a determination of how much of the debt was satisfied by the sale process.
Turnabout may be fair play as surmised from yesterday’s decision in Andrews v. Shipps’s Landing Cd’m. Ass’n., Case No. 2D13-5356 (Fla. 2nd DCA, June 10, 2015). Where to draw the line was at issue.
Responding to the Association’s assertion that an owner did not obtain Association approval before removing his drywall ceiling, the owner filed suit for declaratory and injunctive relief. The owners’ request for approval of unit renovations included many changes, but did not include the ceiling. The decision to remove the ceiling apparently being made after the owner sought approval for the other alterations.
The owner claimed that the work was solely within the owner’s unit and not common elements to be regulated by the Association. While we know that normally the unfinished face of the drywall would be the unit’s boundary, and thus drywall itself would be part of the common elements, the text of the Declaration must be reviewed. Interestingly, the Court did not quote the Declaration. The Court found fault with the Association not rebutting proofs by the unit owner’s engineer and surveyor that the drywall is within the unit, and not a common element.
Thus, summary judgment was not appropriate. The court appeared to go out of its way to disagree with the Association’s assertion that the owner’s argument was “purely academic” and “irrelevant” noting that the Association bore the burden of proof at the summary judgment stage.
Michael J. GelfandChair-Elect, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2015 Michael J. Gelfand
What we think is the law, is not the “be-all and end-all” for the appellate courts, even if the trial courts agree with us. Thus, introduced is Wednesday’s decision by the Fourth District Court of Appeal in Pudlit 2 Joint Venture, LLP v. Westwood Gardens HOA, Inc., Case No. 4D14-1385 (Fla. 4th DCA May 27, 2015).
The Summary.
(Spoiler Alert). The Court extended the holding in Coral Lakes Comm. Ass’n. v. Busey Bank, N.A., 30 So. 3d 579 (Fla. 2nd DCA 2010), to third party purchasers. Specifically, a homeowners’ association’s declaration of covenants providing an assessment dispensation to foreclosing mortgage lenders and their successors is enforceable, superseding contrary liability provisions in §720.3085 Fla. Stat. (2013).
Pudlit purchased two parcels within Westwood Gardens at clerk’s sales following the foreclosure of mortgages. The Association demanded, and Pudlit paid, all Association assessments, accruing while Pudlit held title, and assessments accruing before Pudlit acquired title. The payment was made “under protest and with full reservation of all rights and remedies.” Note that the decision does not characterize the priority of the mortgages, but in context the mortgages had to be first mortgages.
The Declaration of Covenants contained a variation of the now familiar special dispensation for mortgage holders, providing in part:
The lien of the assessments provided for herein shall be superior to all other liens save and except tax liens and mortgage liens, provided said mortgage liens are first liens against the property encumbered thereby (subject only to tax liens). Sale or transfer of any Lot which is subject to a mortgage as herein described, pursuant to a decree of foreclosure thereof, shall extinguish the lien of such assessments as to payments thereof which become due prior to such sale or transfer. No sale or transfer shall relieve such Lot from liability for any assessments thereafter becoming due or from the lien thereof.
(First emphasis added, second emphasis added by Court). In addition, the Declaration of Covenants provided that:
The personal obligation of delinquent assessments shall not pass to his successors in title unless expressly assumed by them.
Of course, nothing in the opinion indicates that Pudlit 2 assumed the liabilities of predecessors.
The Trial Court.
Pudlit sued the Association seeking recovery of the monies paid, asserting first: breach of contract, the Declaration of Covenants; and, for declaratory relief. The trial court granted the Association’s Motion for Summary Judgment, and denied Pudlit’s Motion for Summary Judgment.
The Holding.
Setting the stage, the Court jumped directly to the constitutional issue. Relying upon constitutional prohibitions against the impairment of contracts, Fla. Const., Art. I, § 10; U. S. Const. Art. I, §10, Cl. 1, the Court held that §720.3085, could not impair, or supersede, a pre-existing declaration provision.
Narrowing the issue to the status of a third party purchaser, the Court further held that quoted Declaration language created rights for successors to the mortgage holder, not just the original holder. Taking the next step, citing Coral Lakes, and Ecoventure WGV, Ltd. v. Saint Johns N.W. Residential Ass’n, 56 So. 3d 126 (Fla. 5th DCA 2011), the Court held that Pudlit, as a successor to the mortgage holder, is an intended third-party beneficiary and held vested rights. Thus, the holding that §720.3085 Fla. Stat. (2013), safe harbor’s exclusion for third party purchasers is not enforceable against Pudlit because of the pre-existing dispensation for mortgage holders and mortgage holder successors.
The Sidebar.
Beyond the holding, the decision discussed two lines of analysis that may be of interest. First, is whether §720.3085 Fla. Stat. (2013), is retroactive. To determine the Legislature’s intent the Court focused upon the “Purposes” language of Chapter 720, stating that Chapter 720’s statutes “are not intended to impair such contract rights” that were “effective before the effective date of the Act”, §720.302(2) Fla. Stat. (2013). Thus, the quoted indicated legislative intent that §720.3085, was not to be retroactively applied.
One may question why the Court included this line of argument as a seeming afterthought instead of as the primary rational for the holding, especially when one bedrock of judicial decision making is to avoid constitutional decisions when a statutory or a common law basis is available. The reason may be because this statutory argument likely upon examination is to be found wanting.
Why wanting? The effective date of the first homeowners’ laws was in 1992, over a decade and a half before the predecessor of §720.3085, was adopted in 2007. Interesting, the “History” line at the end of the official publication of §720.302, does not include a reference to a Florida Chapter Law that expressly incorporated the additions to Chapter 720, the incorporation seemingly by the statutory revision commission. This writer has not had time to complete research on this and would stand corrected if there was a substantive law that made the change referenced by the Court.
The second line of analysis was the Association’s assertion that the adoption of §720.3085 implicitly amended the Declaration of Covenants. Relying upon United States v. Forest Hill Gardens East C’dm Ass’n., 990 F. Supp. 2d 1344 (S.D. Fla. 2014), and because the Declaration did not contain language incorporating changes in the law, Kaufman v. Shere, 347 So. 2d 627 (Fla. 3rd DCA 1977), this argument was found wanting. Note that unlike decisions holding that amendments to restrictions properly approved by unit owners could be retroactive in the sense that current owners would have to comply with the amendment, this decision addressed a legislative mandate, a statute.
The Kibitzing.
The impact will be multifold, especially as the “post-recession” clean-up of defaulted mortgages continues.
First, considering that the holding is document dependent, meaning that the Court relied on the specific text of the Declaration restriction, community restrictions, not limited to declarations but all the “governing documents” will be examined to determine if the dispensation actually flows to the successor. Note that most restrictions do not have the specific text quoted above, limiting a successor’s personal liability for assessments.
Second, there will be a new call to amend declarations to remove the dispensations, at least for new mortgage holders; however, practitioners must be careful when drafting. An association will not want to trip over underwriter guidelines by drafting so broad that a community is red-lined out of the financial marketplace, rendering secondary market reliant financing impossible and killing the communities resale market.
The Partisan (Skip if You Dare --- Or it Could be Entertaining).
At some time enough will be enough, perhaps when the next bubble bursts (I will not jinx it with a prediction) there will be the call to amend the laws to limit the extent that mortgage holders mooch off other unit owners to subsidize the expense of protecting mortgage holders’ security. Yes, this may be familiar melody from this old instrument, but most folks seem to agree that lenders should not be, and do not need to be, subsidized by retirees and hardworking owners of units who pay their assessments.
But nothing seems to get done. Perhaps this decision, and particularly if banks emulate Pudlit, then the outrage of owners will move mountains, or perhaps the Legislature.
As for the fear that the underwriters will get mad, it is one thing for isolated communities to challenge the status quo, but do you really think that the underwriters will red-line the entire State of Florida market? Most think not, and would in fact challenge the underwriters to “make my day” and see what would happened in the Legislature and Congress.
“Tolerating views with which one disagrees is a hallmark of civilized society.” Brenner v. Scott, Case No. 4:14-cv-00138-RH-CAS (Hinkle) (N. D. Fla., August 21, 2014).
This pronouncement concluded Judge Hinkle’s review on the merits, issued yesterday which set the tableau for conclusions resulting in what is believed to be the first decision of statewide Florida application that declares unconstitutional Florida’s prohibition on recognizing or allowing same-sex marriages found in Florida’s Constitution, Article I, § 27, and in two statutes §741.212 Fla. Stat. and §741.04(1) Fla. Stat.
The decision’s initial analysis might surprise some. The decision closely follows precedent. Thus, sexual orientation was determined not to be a suspect classification for equal-protection purposes.
Instead the Court focused, repeatedly and forcefully, on precedent that the right to marry is a fundamental right which in turn triggers a strict scrutiny burden on the state. Loving v. Virginia, 388 U.S. 1 (1967). Once that burden is created, as nearly always, the challenged state regulation must fall. Interestingly, indeed, as remarked by the Court, the decision could have ended with the fundamental right finding and judgment for the challengers.
The Court examined the standing of each plaintiff, allowing a recitation of the personal costs to each, of the State’s regulatory scheme. Interestingly, the common thread of many was the inability to obtain insurance or survivor benefits.
One plaintiff, Arlene Goldberg, legally married in New York. Her same-sex spouse died and the Defendant Florida Surgeon General required the death certificate to state “never married.” Plaintiff Goldberg sought to require the Surgeon General to issue a death certificate reflecting the marriage. The Court found that her allegations of financial injury triggered standing; however, the Court proceeded further finding for standing purposes that to have her legally married spouse’s death certificate to state “never married” was “offensive” which was not “trivial” and this also provided a sufficient personal stake for standing.
The Court made mincemeat (not the Court’s words!) of the State’s position. It started by noting that the role of the Courts is to strike down unconstitutional statutes, and that Florida has resorted to the Court for that purpose. Further:
Further, in [U.S. v.] Windsor [133 S.Ct. 2675 (2013)], the Court said—three times—that a state’s interest “in defining and regulating marital relations” is “subject to constitutional guarantees.” 133 S. Ct. at 2691, 2692. In short, it is settled that a state’s marriage provisions must comply with the Fourteenth Amendment and may be struck down when they do not.
The defendants do not explain why, if a state’s laws on marriage are indeed entitled to such deference, the State of Florida is free to ignore the decisions of other equally sovereign states, including New York, Iowa, and Massachusetts.
Thus, the foundation for the Court’s jurisdiction was laid.
The Court proceeded to what was the right being asserted.
The right asserted by the plaintiffs is the right to marry. The Supreme Court has repeatedly recognized that this is a fundamental right.
… the right to marry is fundamental.
The Court rejected the concept that the right to marry was controlled by an adjective, noting that in decisions striking bans on interracial marriage, prisoner marriage, or debtor marriage, the type of description of marriage (interracial, prisoner, and debtor) was not what the earlier courts held was a fundamental right.
… the [United States Supreme] Court has sometimes listed marriage as the very paradigm of a fundamental right.
Few rights are more fundamental.
… the right to marry—to choose one’s own spouse—is just as important to an individual regardless of whom the individual chooses to marry.
(Emphasis in Original). Thus, the Court rejected the State’s argument that the right to marry was limited to the characteristics of the marriage
The Court also rejected the State’s argument that a critical feature of marriage was procreation. There never has been a State procreation requirement for marriage. Further, marriages occur between those that cannot procreate, or choose not to procreate. “In short, the notion that procreation is an essential element of a Florida marriage blinks reality.” Pushing the lack of logic for this argument, the Court may have been signaling that if the argument is pursued that the argument may trigger a Rule 11, Fed.R.Civ.P. analysis, but stating “In another context, might support a finding of pretext. It is the kind of argument that, in another context, might be “accompanied by a suspicion of mendacity.”
The Court summed up was it considered the real thrust of the State’s position when the Court introduced the last avenue of analysis:
Properly analyzed, the ban must stand or fall on the proposition that the state can enforce that moral disapproval without violating the Fourteenth Amendment.
To which the Court responded to itself, “that moral disapproval, standing alone, cannot sustain a provision of this kind.” Thus,
… the defendants must fall back on make-weight arguments that do not withstand analysis. Florida’s same-sex marriage provisions violate the Due Process and Equal Protection Clauses.
In concluding its analysis, the Court stated:
The institution of marriage survived when bans on interracial marriage were struck down, and the institution will survive when bans on same-sex marriage are struck down. Liberty, tolerance, and respect are not zero-sum concepts. Those who enter opposite-sex marriages are harmed not at all when others, including these plaintiffs, are given the liberty to choose their own life partners and are shown the respect that comes with formal marriage. Tolerating views with which one disagrees is a hallmark of civilized society.
Further, “Indeed, the ongoing unconstitutional denial of a fundamental right almost always constitutes irreparable harm.
The Court stayed enforcement pending resolution of three pending state court cases with judgments on appeal, with additional time for the State to appeal, except for ordering the issuance of a corrected death certificate for Ms. Goldberg’s spouse. The bond was minimal.
This decision adds weight to the line of decisions that have similar results. The RPPTL Section has created an ad hoc committee to study issues that are created by this and similar decisions, and to make recommendations to members.
What is “prompt notice,” and the burden to overcome the “rebuttable presumption of prejudice” for failure to provide contractually required notice, in the context of casualty insurance was the heart of Thursday’s unpublished decision in The Yacht Club on the Intracoastal Cd’m. v. Lexington Ins. Co., Case Nos. 13-12486, 13-15581 and 13-15842 (11th Cir., Jan. 8. 2015).
The decision provides the practitioner a summary of Florida law concerning the prompt notice requirement, albeit from a Federal Court which not binding on Florida State Courts and unpublished, though nevertheless the summary may be highly persuasive. The application of an offer of settlement to declaratory judgment actions was also addressed.
The facts may sound familiar and as presented did not bode well for the Condominium Association. I am partial to chronologies, so here it goes:
[Oct. 2005] Hurricane Wilma results in damage to the Condominium, but the Association understood that the repairs would be less than the $100,000 deductible.
March 2006 A special repair assessment was for $150,000. (Interesting, the amount was well in excess of the deductible!). Thereafter an engineer was retained who indicated roof hurricane damage.
2008 Association sues Developer which entered bankruptcy. Association undertakes repairs to damaged areas.
2009 Association retains a public adjuster concerning the damage.
July 27, 2010 Association provides formal notice to Insurer of claims.
Oct. 12, 2101 Association files suit against Insurer for $6,208,910 in damages (the policy limit being only $5,000,000).
2013 Initial appeal reverses District Court dismissal that claim not ripe.
On remand the District Court found that a sworn proof of loss is not a condition precedent to suit under the policy, but nevertheless granted the insurer’s motion for summary judgment, finding as a matter of law that the Association did not provide prompt notice under the policy.
On review the appellate court initially reviewed the issue of timely notice, elucidating a two-step process:
[First,] determine whether the insured provided timely notice.
[Second,] if notice was untimely, prejudice to the insurer is presumed, but that presumption may be rebutted.
The policy’s five year limitations period did not define what is “prompt notice.”
Rather, under Florida law, “prompt,” “as soon as practicable,” “immediate,” or comparable phrases have been interpreted to mean that notice should be given “with reasonable dispatch and within a reasonable time in view of all of the facts and circumstances of the particular case.”
While the determination of timing is ordinarily a question for the trier of fact, not appropriate for summary judgment, “…when facts are undisputed and different inferences cannot reasonably be drawn therefrom, the question is for the court.”
Following from the knowledge of Hurricane damage and the $150,000 special assessment:
These facts alone are sufficient to “lead a reasonable and prudent man to believe that a claim for damages would arise.”
Knowledge of the true extent of damages and whether the deductible would eliminate insurer payment is “not relevant.”
That there may be just a material fact in controversy is also not relevant (remember this is Federal court), the fact which must be proven by the insured must undermine the presumption of prejudice:
The purpose of a provision for notice and proof of loss goes beyond mere causation and is “to enable the insurer to evaluate its rights and liabilities, to afford it an opportunity to make a timely investigation, and to prevent fraud and imposition upon it.”
Here there were post-hurricane, pre-notice additional damage, and repairs which in turn supported the determination as a matter of law the prejudice.
In an ancillary issue regarding the insurer’s entitlement to offer of judgment attorney’s fees, the Court noted the procedural claim, a declaratory judgment, should not mask the ultimate relief sought, money; thus, because the Association’s declaratory judgment claim ultimately sought damages, fees were awardable under §768.79 (2011) provision for fees in cases for civil actions for damages.
Have a great week.
Three appellate court decisions were recently issued of note. The first two follow immediately, and a third addressing interpretation of covenants will be following.
In the first, whether a complaint must be amended when filed in County Court and then transferred to Circuit Court because after filing the damage claim exceeded the county court’s subject matter jurisdiction, was at issue in Wednesday’s decision issued by the Fourth District Court of Appeals in Bogdanoff v. Broken Sound Club, Inc., Case No. 4D13-3124 (Fla. 4th DCA, December 3, 2014).
Apparently during the pendency of the case, the Club’s claim which accrued over time, exceeded the county court’s $15,000 jurisdiction; thus, the county court granted the Club’s motion to transfer from circuit court. The complaint’s jurisdiction allegation was not amended to reflect that the claim exceeded $15,000 and would be within the circuit court’s subject matter jurisdiction. The complaint did allege that amounts would accrue in the future.
Relying upon Fla.R.Civ.P. Rule 1.060(a) that a matter should be transferred when “it should appear” that it is in the wrong court, and noting Fla.R.Civ.P. Rule 1.070(j) provides that when transferring amendments should be required only “as are essential,” the appellate court held that the complaint did not have to be amended when being transferred to circuit court. The complaint’s allegations that dues and fees “would continue to accrue after the filing of the complaint” were sufficient to place the Club member on notice of the amounts demanded.
This decision may be relied upon for the proposition that specific subject matter jurisdiction allegations are no longer necessary if jurisdiction can be realized by reading the entire complaint; however, it likely would remain in good form for an introductory allegation to allege subject matter jurisdiction. In reflection, the decision may be better cited for the proposition that when transferring a claim from county court to circuit court, so long as the transferred complaints allegations include sufficient matters placing the defendant on notice of the total, then the complaint would not have to be amended.
The choice of venue in complex construction litigation was at issue in the Fifth District Court of Appeals decision of Friday in Love’s Window & Door Installation, Inc. v. Acousti Engineering Co. ___ So. 3d ____, 39 Florida Law Weekly D 1963 (Fla. 5th DCA, September 12, 2014.)
To paraphrase Dickens, it was a simpler time… when the litigation began, but while there was consideration of two counties, this was not to be a lengthy tale of two cities. A “condominium community” filed suit against the project’s developer and general contractor in Osceola County. The general contractor sued an installer who in turn brought a “fourth party action” against Love’s Window who apparently was the installer’s subcontractor.
Love’s Window moved to change venue to Volusia County. The subcontract between Love’s Window and the installer, provided for venue in Volusia County. The trial court apparently denied Loves motion to transfer venue to Volusia.
The District Court of Appeal affirmed without delineating a standard of review. Apparently an abuse of discretion standard was applied which created a significant burden on the appellant.
Generally, forum selection clauses are to be enforced. Exceptions to enforcement include “avoiding multiple lawsuits, minimizing judicial labor, reducing the expenses to the parties, and avoiding inconsistent results.” The trial court recognized if the claims between the installer and subcontractor were severed, witnesses in a severed action would still have to testify in the main action, and a claim against the subcontractors principal would still have to remain in Osceola County. These were compelling reasons to justify denial of the motion and refusal to enforce the forum selection clause.
This decision illustrates how a targeted construction claim can expand in many directions, legally as well as literally. Perhaps the trial court and the appellate court recognized that the best way of moving the matter forward and avoiding inconsistent decisions was to keep everyone in the same courtroom.
This reports on last Wednesday’s decision reversing a summary judgment and addressing whether through intermediaries an owner can purchase a mortgage encumbering its property with the intent of foreclosing and extinguishing junior liens. CDC Builders v. Biltmore-Sevilla Debt Investors, LLC, 3rd DCA Case No. 3D13-603 (Fla 3rd DCA, September 17, 2014).
As the issue may foreshadow, the facts are somewhat complex. To start, perhaps inauspiciously, the Court called out the fact that the manager of the inter-related land development (“Developers”) companies was an attorney. One of the Developers hired CDC Builders to construct luxury homes on the property.
When Developers failed to pay CDC, Builders recorded statutory construction liens and filed suit to foreclose the liens. Apparently in the interim, the Developers did not pay SunTrust for the mortgage on the property.
Now it gets creative. The Developers’ attorney structured partial payments to SunTrust, not to reduce the mortgage principal, but to create “junior liens” in an effort to limit the equity available to satisfy CDC’s liens.
Even though SunTrust was not actively marketing the loan, the attorney created a new entity, Biltmore-Sevilla which purchased the mortgage and note from SunTrust. Very interestingly, SunTrust memoed its file that Biltmore-Sevilla bought the loan documents rather than satisfying the mortgage and note.
Now comes the good part. Biltmore-Sevilla then sought to foreclose the mortgage! The foreclosure named CDC as a defendant seeding to extinguish CDC’s contractor lien. The Developers answering Biltmore-Sevilla’s complaint, but did not file any defenses.
Relying on the Third Restatement of Property, Section 6.4 (comment e) (1997), the Court held that:
The law does not permit a person to borrow money from a bank, give the bank a mortgage, incur additional liens and junior mortgages on the property, purchase the mortgage back from the bank, and then foreclose on the mortgage for the primary purpose of eliminating the additional liens and junior mortgages.
The holding was based on the principle that “equity will not apply the principle of subrogation, where to do so would deprive a party of a legal right.” Further, “what investors cannot do indirectly through a single company, investors cannot do indirectly through a network of companies.”
Interestingly, while the Court acknowledged “disagreement or confusion” regarding the basis for the equitable principle, the Court expressly avoided determining the source, merely stating that the principle is “part of Florida law.”
The duty of a property owner, differentiating between an undiscovered trespasser, a discovered trespasser and an invitee, frequently confused concepts, was at the heart of Wednesday’s decision in Nicholson v. Stonybrook Apts., LLC, Case No. 4D12-4462 (Fla. 4th DCA, January 7, 2015).
After the apartment manager and police apparently repeatedly told Nicholson that she was not allowed at the apartments, Nicholson was shot in the leg by a third party in the apartment’s “common area.”
In a case of first impression the appellate court considered “whether negligent security cases are governed under standards of premises liability or ordinary negligence.” In active negligence the property owner does something that results in the traditional lower standard of care of ordinary negligence. In passive negligence where the property owner does nothing the standard of care may be higher, sometimes much higher, and the burden on the claimant may be higher. Differentiating active and passive the Court instructs:
Ordinary negligence involves active negligence – meaning the tort-feaser actually does something to harm the injured party, whereas premises liability involves passive negligence – meaning the tort-feaser’s failure to do something to its property resulted in harm to the injured party. * * * As negligent security actions concern the landowner’s failure to keep the premises safe and secure from foreseeable criminal activity, it follows that they fall under the umbrella of premises liability as opposed to ordinary negligence.
Further, in cases where a landowner is held to standards of ordinary negligence pertaining to a trespasser’s injuries, the injuries have no real relationship to the premises.
Thus, negligent security cases will normally be grounded in premises liability concepts.
With the active v. passive concept explained, the statutory standard of care for two types of trespassers was examined, “discovered” and “undiscovered”:
… [U]ndiscovered trespassers, a person or organization owning or controlling an interest in real property must refrain from intentional misconduct that proximately causes injury to the undiscovered trespasser, but has no duty to warn of dangerous conditions.
… [D]iscovered trespassers, a person or organization owning or controlling an interest in real property must refrain from gross negligence or intentional misconduct that proximately causes injury to the discovered trespasser, and must warn the trespasser of dangerous conditions that are known to the person or organization owning or controlling an interest in real property but that are not readily observable by others.
§ 768.075(3)(b), Fla. Stat. (2013).
So, what does this mean, bottom line? The court summarized as follows:
Put succinctly, in a premises liability case, the only duty a property owner owes to an undiscovered trespasser is to refrain from causing intentional harm, and the only duty it owes to a discovered or “known” trespasser is to refrain from gross negligence/intentional harm and to warn of known conditions that are not readily observable by others.
(Emphasis Added.)
One step further, this decision may result in warnings to communities to in turn warn of known conditions that are not readily observable, such as the so called hidden traps. This may also reinforce the advice to volunteers not to be actively involved in daily operations because active involvement may lead to a determination of active negligence and thus personal liability, rather than passive conduct which at “best” results in association liability. Finally, there are warnings to clients that there still is liability to undiscovered trespassers for intentional conduct.
February brought us a number of decisions that I initially took note, but did not immediate distribute. Thus, this is the first of three initial emails to catch up.
Illustrating the foibles of covenant drafting and interpretation is Bendo v. Silverwoods Comm. Ass’n., Inc., Inc. 40 Florida L. Weekly D358, Case No. 5D14-1086 (Fla. 5th DCA, February 6, 2015),
The Fifth District Court of Appeals took drafted language at face value when addressing whether a homeowners’ association had authority to reject a new landscaping plan undertaken after installation of a drainage field. The plan included “soft aspects” consisting of vegetation, mulch. The plan also included “hard scape” which included a retaining wall. The Association rejected the “soft aspects” because the plan did not include a “grass lawn.”
The covenant in question provided:
No building, fence, wall or other structure shall be commenced, erected or maintained upon the Property, nor shall any exterior addition to or change or alteration therein be made, unless it is in compliance with the zoning code of Orange County, Florida, and other applicable regulations and until the plans and specifications showing the nature, kind, shape, height, materials, and location of the same shall have been submitted to and approved in writing as to harmony of external design and location in relation to surrounding structures and topography by the Board of Directors of the Association, or by the Architectural Review Committee (ARC).
(Emphasis added by Court.) Based on this text the trial court granted judgment for the Association.
The Court’s recalled the traditional equitable principle that covenants are “strictly construed in favor of free and unrestricted use of real property” and “an ambiguous covenant must be construed in favor of the landowner.” (citations omitted.) The Association conceded that the soft changes were not a “building, fence, wall or other structure” as regulated by the text at the beginning of the covenant. Further, the situation did not implicate the covenant’s authority to regulate an “exterior addition to or change or alteration….”
On whether the author meant to address an “exterior addition, change or alteration,” the textual use of “therein” had to be interpreted. The term “therein” did not refer generally to all of the “property,” but instead referred only to the initial phrase of what was regulated “building, fence, wall or other structure.”
The Court concluded that the owner’s interpretation that the Association could not require a lawn is “a reasonable construction of an ambiguous covenant.”
It appears that the moral of the story is to beware of narrowing modifiers in covenants, and draft broad, particularly in homeowners’ association communities.
This reviews Wednesday’s decision concerning the immediate, or retroactive, application of amendments, and the line between arbitrariness and reasonableness, Luani Plaza v. Burton, __ So.3rd ___, Case No.: 3D11-1792 (FLW 3rd DCA, October 8, 2014).
In brief summary of the fact of our general interest, Burton owned to units in a commercial plaza consisting of businesses and professional offices. The plaza is not a condominium but a “common interest community” as described in the Restatement “Third” Of Property Servitudes §6.2 (2000). Apparently Burton applied to the “business owners association” for permission to erect “dormers” on the second floor of his units for storage. Burton asserted that when the Association did not comply with a covenant 30 day approval or disapproval deadline, the Association merely requesting additional information, he was authorized to commence construction which he did. Burton then obtained a “recordable affordable housing restriction declaration” which he intended to utilize to change the use of the second floor from storage to residential affordable housing.
Apparently Burton’s neighbors disagreed with his efforts. The owners adopted an amendment to the Declaration of Covenants prohibiting residential use. The Court noted that the amendment process required in instrument executed by owners holding not less than 4/5ths of the corporation’s voting interests.
The Court disposed of Dr. Burton’s position as being “no merit. Because the issues involved interpretation of covenants, the Court applied a de novo standard of review. Thus, there was no question of fact reviewed regarding Dr. Burton’s assertion that the amendments were arbitrary! Though the Declaration as originally drafted did not prohibit residential use, a review of the 146 other prohibitions indicated a commercial context. Dr. Burton’s application indicating that the modification was for storage not disclosing residential uses buttressed the Court’s opinion.
Concerning retroactive regulation, citing Woodside Village Condo Ass’n v. Jahren, 806 So.2d 453, 461 (Fla. 2002), Burton was on notice of the ability to amend the covenants, particularly in light of the “…long-established character of use….”
This decision reinforces an association’s authority to enact use restrictions generally, and to apply the restrictions to existing uses particularly when the use is out of character with the rest the community. It is interesting that the Court on de novo review did not remand for factual determinations which may facilitate associations seeking summary judgment.
Yesterday, the Second District Court of Appeal reinforced the prohibition on junior lienors foreclosing first mortgages, ever widening, perhaps perilously, the gap concerning the finality of judgments in Wells Fargo Bank v. Rutledge, ___ So.3d ___, Case No.: 2D13-3192 (Fla. 2nd DCA, October 10, 2014).
After Wells Fargo’s foreclosure against the Dias’ parcel apparently stalled, the Harbor Towers Owners Association filed a lien foreclosure action. The Association “erroneously” (how that fact was determined is not reflected in the decision) named Wells Fargo, the first mortgage holder as a junior lien holder defendant. Of course, the Association beat the bank’s foreclosure to court, and the Association obtained a foreclosure judgment resulting in a clerk’s sale at which Rutledge was the high bidder. Rutledge obtained a Certificate of Title.
Rutledge joined the banks foreclosure action and obtained a summary judgment against the bank.
The District Court of Appeal reversed the summary judgment. The superior lien holder was not a proper party to the lien foreclosure action because the bank “was not required to participate in the County Court foreclosure action.” Thus, latches could not apply to Wells Fargo’s failure to respond to the lien foreclosure action summons.
Furthermore, because Rutledge was on constructive notice of the bank’s mortgage foreclosure lis pendens, thus Rutledge was not lured into a disadvantage situation. Therefore Wells Fargo is not estopped from challenging the judgment.
While it does appear logical that a junior lien holder cannot foreclose the interest of a senior lien holder, an observer must ask whether priority is not the purpose of trial court litigation. The language of the decision seems to permit anyone who contests priority to have a proverbial second bite of the apple. The decision may undermine the finality of final judgments in a manner that may come back to haunt the courts as undoubtedly there will be factual situations that beg for similar treatment.
A wild deed serving as a root of title? Wednesday’s decision, ostensibly regarding a boundary line dispute, by the Second Court of Appeal in Lehmann v. Cocoanut Bayou Association, Case No. 2D13-3402 (Fla. 2nd DCA, October 29, 2014), helps flush out Marketable Record Title Act issues involving a complex series of deeds extending back to 1912, concerning a “disputed parcel” and, what was in fact, a wild deed.
Cutting the story short, and noting that the decision is complete with an appendix containing a drawing outlining the many different parcels involved, in 1950, Mr. Thomas created a deed to transfer his interest in the disputed property; however, that deed was not recorded until 1953, the delay not explained in the decision, but the delay being significant.
Of course, on July 9, 1952 (it was alleged, but remember when specific dates are mentioned take note!), during the interregnum between the creation of the Thomas deed and the deed’s recording, the Boyds who were the remote owners of the Thomas property, and who continued to own adjacent property delivered a deed. The Boyd’s' deed, apparently with a meets and bounds description, sought to convey the disputed property to the Association.
Thus, that portion of the Boyd’s deed describing the disputed portion was a “wild deed.”
First, the Court confirmed the strict calculation of time for determining the root of title pursuant to §712.03 (2012), is the date suit was filed.
As the Association’s quiet title action was filed on August 15, 2012, the root of title would be the last recorded transaction at least thirty years earlier, that being the deed before August 15, 2012, the date of filing the complaint. The thirty year period does not start on the day of trial or the day of judgment. Thus, in this case a deed recorded before August 15, 1982 would be required for a root of title.
Second, even though it was a wild deed, the July 9, 1952, Boyd’s’ deed to the Association qualified as the root of title under the Marketable Record Title Act.
However, the recording of Thomas deed in 1953, albeit late, triggered the exception in §712.03(4) (2012). “Estates, interests, claims, or charges arising out of a title transaction which has been recorded subsequent to the effective date of the root of title.” The recording put the Association on notice of the 1953 which then could n not be ignored by the trial court, and prevented the root of title from perfecting title in the Association!
It is noted that the trial court refused to recognize intermediate deeds between spouses in 1982, because they were “not in good faith” because the deed was apparently undertaken to protect their interest in the disputed area once they became aware of the underlying dispute. The appellate court did not rely on that issue for it its decision, but interestingly did not reject the “good faith” deed concept.
This decision highlights the strict and sometimes unforgiving nature of Marketable Record Title Act, whether addressing a deed being recorded just weeks before the thirty year demarcation, or legitimizing instruments that are wild.
A spouse’s challenge of her own deed because the deed violates Florida’s Constitutional homestead protection against devise was at issue in Wednesday’s decision in Lyons v. Lyons, Case No.:4D13-1793 and 4D13-4211 (Fla. 4th DCA, October 29, 2014)
In 1993, apparently after their children reached the age of maturity, Richard and Norma Lyons quit-claimed their primary residence to Norma. Norma, on the same day, quit-claimed the residence to a Qualified Personal Residence Trust. In 2010, after Richard executed a will acknowledging the Trust, and after Richard’s death, Norma executed a quit-claim deed purportedly conveying the residence to her daughter Valerie and herself. The following year the Lyons’ sons, as trustees of the trust, sought to invalidate the 2010 deed on the basis that Norma did not own the residence when she attempted to convey the residence.
Responding to the sons’ Motion for Summary Judgment, Norma filed an affidavit that it was her and her husband’s intent to leave the residence to her daughter Valerie. The Appellate Court reversed the Trial Court’s Summary Judgment in favor of Norma, Valerie and her attorney.
The court started by noting that Florida’s Constitution, Article 10, §4(c) protects a spouse or minor child. Thus, the children, not being minors, were not protected by the constitutional homestead provision. Norma cannot claim that the Quit-Claim Deed she executed was void ab initio as only the non-owner spouse could rely upon the constitutional homestead provision; thus, Norma did not have standing to assert a homestead right.
Further, the court stated, perhaps as dicta, that Norma cannot challenge her own acts in executing the deed to the trust “as she is not within the class of persons the constitutional provision is designed to protect.” Further stating that it would be “absurd” for the creator of the deed to attack the deed, it is unclear whether the court based its conclusion on equitable principles, waiver, estoppel or otherwise. While the conclusion makes tremendous practical sense, the lack of guidance as to the legal basis may be problematic.
Happy New Year! U.S. Federal District Judge Hinkle leaps into the new year with an Order on the Scope of the Preliminary Injunction, issued yesterday afternoon in Brenner v. Scott (N.D. Fla., Consolidated Case No. 4:14cv107-RH/CAS, January 1, 2015). Yesterday’s Order is attached.
Bottom line: The Order provides an apparent safe harbor for Florida’s Clerks of Court to issue marriage licenses next week to same sex couples.
The Order is interestingly worded, bereft of citation. The Order alludes, not too subtlety, to the historical conflict between Federal Courts and states, or at least some states, concerning the enforcement of Federal trial court orders, perhaps reminding the State of Florida and the State’s actors of the wrong side many states and their officials found themselves (if in nothing else, certainly in the historical retrospective) on the racial civil rights litigation of the 50-‘s-60’s and 70’s.
History records no shortage of instances when state officials defied federal court orders on issues of federal constitutional law. Happily, there are many more instances when responsible officials followed the law, like it or not. Reasonable people can debate whether the ruling in this case was correct and who it binds. There should be no debate, however, on the question whether a clerk of court may follow the ruling, even for marriage-license applicants who are not parties to this case.
Slip at 3.
Substantively, the Order bolsters state-wide impact of the Preliminary Injunction referencing that two State of Florida agencies are parties, the Secretary of the Florida Department of Management Services, and the Florida Surgeon General, and reminding the reader that each was represented by the State Attorney General. Slip at 2. The Order does not reference language in the Preliminary Injunction that expressly addressed state-wide application, but instead references that the holding on Constitutional grounds mandates Clerks to follow the decision.
The founders of this republic adopted a Constitution and a system for its enforcement. When there are disagreements about what the Constitution requires, those who are affected may seek a definitive ruling in court. These plaintiffs did that in this case. The Secretary and Surgeon General—as duly empowered officials of the State of Florida, represented by the Attorney General—joined issue. So did the Clerk. The result was an explicit ruling that Florida’s same-sex marriage ban is unconstitutional.
Slip at 2. Whatever readers may think about the substantives issues addressed by the Order (and underlying Preliminary Injunction decision), the broad geographic expanse to all Clerks statewide may raise questions as to how the Federal Court’s broad jurisdiction, actually captured all the Clerks of Court in each county outside the county of the case, Washington County.
Strangely, at least from this writer’s perspective, especially as the Court must have been anticipating the public interest in this case and the Order, the Order did not reference an earlier Order on Procedures on the Emergency Motion to Clarify dated December 24, 2014, entered in response to the Motion of the Clerk of Court of Washington County, in which the Court quoted from the Preliminary Injunction’s broad scope enjoining not just the State defendants, but also (using somewhat traditional text) “… others in active concert or participation with any of them….” Perhaps to dissuade Clerk’s and other State agencies that would disagree, the Court in the Order not only reminds the reader that appellate courts have not been inclined to overturn trial courts granting relief to same sex couples, generally, but in particular in this case the United States Eleventh Circuit and Supreme Courts denied stay relief (as to the Defendant’s efforts, the Court succinctly summarizes “they lost”! Slip at 2). Further, in a “make my day” moment (my quote, not the Court’s), the Court (tauntingly?) invites other potential plaintiff couples to intervene and to name other State actors and other Clerks as class action defendants and foreshadowing (presumably not intending to step over the line of unjudicial pre-judging) what will be the result of further delay in implementation of the Preliminary Injunction, to “… allow issuance of successive preliminary injunctions, and allow successful plaintiffs to recover costs and attorney’s fees.”) Slip at 3.
For reference, the August mini-brief email with a link to the Preliminary Injunction is also attached.
Beyond the Order, and looking beyond each of our finite cases and issues that arise, I look forward to joining with you in good discussions, even if we do not agree, made in good faith for the betterment of the Committee, the Section, the Bar, our Profession which has allowed us a stature for which we certainly should be thankful and certainly charges us to redouble our good efforts for the citizens of the State.
To all best wishes for a good and healthy new year, and the same is extended to our families, friends, partners/associates, staff and others upon whom we rely (knowing or not) for our many different types of success.
Hinkle's Order to County Clerks
Litigators will take note of the affirmance of an order denying a motion for attorney’s fees. The movant relied upon a trial court’s general retention of jurisdiction rather than filing a motion for fees within thirty days of the entry of judgment as otherwise required by Fla.R.Civ.P. Rule 1.525. Finnegan v. Compton, Case No. 4D13-4213 (Fla. 4th DCA, November 19, 2014).
Quite succinctly the Fourth District Court of Appeals reminds us that there are two paths for complying with Rule 1.525’s requirement that:
[a]ny party seeking a judgment taxing costs, attorneys’ fees, or both shall serve a motion no later than 30 days after filing of the judgment . . . which judgment . . . concludes the action as to that party.”
(Emphasis added). Thus, the court noted that the first path is by “filing” a motion for fees. Please note that the court utilizes the verb “filing” rather than the verb “service“ as provided in the Rule. The court noted the second path is when the court has actually granted attorney’s fees and costs, apparently, but unclearly indicating, that the judgment is for the actual dollar amount, not just entitlement.
It is unfortunate that the court, usually known for its clarity and insightfulness of decisions, has created in this opinion two separate potential areas of uncertainty, filing v. service, and to what extent a judgment is sufficient fulfill the Rule’s mandate. Perhaps a rehearing will correct.
So, it seems that the moral the story is file your motion for attorney’s fees swiftly.
In the second decision reported this morning, the “gamble” taken by a public adjuster who left his company regarding fees was at the heart of last Friday’s decision by the Third District Court of Appeals in Dynamic Public Adjusters, Inc. v. Rodriguez., Case No. 3D13-2868 (Fla. 3rd DCA, November 26, 2014). Condominium associations’ retainer agreement with Dynamic Public Adjusters provided that the associations would pay Dynamic 20% of the gross amount recovered whether by adjustment, mediation, appraisal, arbitration, lawsuit or otherwise, and further provided:
For supplemental or re-opened claims, Public Adjuster’s fee will be calculated only for claim payments for settlement obtained to the work of Public Adjuster after entry into this contract.
At the time of the agreement, Rodriguez was working as a public adjuster for Dynamic regarding the associations’ claims.
After the associations filed suit Rodriguez left Dynamics. Rodriguez and the associations then entered into appraisal agreements providing for Rodriguez to recover 20% of the monies collected on supplemental claims, and, recognizing the first agreement with Dynamic, capped the associations’ total obligations to Dynamic and Rodriguez at 20%.
After trial judgment was entered for Rodriguez, against Dynamic, awarding Rodriguez the entire 20% asserting that the settlement of claims was not as provided by Dynamics retainer agreement, but as a product of the appraisal process which Rodriguez was involved.
The appellate court reversed finding that the agreements were clear. The associations’ fee was capped at 20% and that 20% was regardless of whether the loss was settled or paid as a result of adjustment, mediation, etc. The settlement of supplemental claims was a result of the appraisal process. The Dynamic agreement providing for supplemental or re-opened claim only was meant to address monies paid after the $1.2 million Citizens paid before the agreement.
In sum, Rodriguez assumed the risk of not being paid because he knew of Dynamics 20% entitlement.
A decision issued this morning regarding the “safe harbor” swiftly slid into the stack of decisions for quick review. It is likely that the decision will be read as not a surprise. The decision reinforces that the courts are not suspending traditional rules of statutory interpretation when addressing the safe harbor.
The issue addressed may be summarized as: Whether the statutory safe harbor for “a first mortgagee or its successor or assigns” includes a subsequent assignee, was at the core of today’s decision issued by the Fifth District Court of Appeals Beltway Capital, LLC v. The Greens COA, Inc., Case No. 5D13-3148 (Fla. 5th DCA, December 5, 2014).
The decision reversed an order granting the Association’s post-judgment motion to determine amounts due. Apparently, the original mortgagee was MERS as nominee for a bank. MERS assigned the mortgage to a GMAC entity which subsequently assigned the mortgage to Beltway.
Beltway as the holder of the first mortgage filed a complaint to foreclose, obtained a final judgment of foreclosure which resulted in a foreclosure sale at which Beltway obtained the property. The trial court’s order included the following findings (remember that the plaintiff is Beltway and the defendant is the Association):
2. Section 718.116(1)(b), Florida Statutes, only includes the original lender, the lender's successor, and the lender's assignee as parties qualifying for the narrow liability exception.
3. The Plaintiff, Beltway Capital, LLC, is the assignee of the assignee and does not qualify for the liability exception.
4. The Plaintiff has failed to pay any amounts due, including amounts coming due before and after issuance of the Certificate of Title on or about May 12, 2012.
5. The Plaintiff is subject to the requirements of section 718.116(1)(a), Florida Statutes.
6. The Defendant is entitled to recover reasonable attorney's fees in litigating this action. The court reserves jurisdiction to determine the amount pending an evidentiary proceeding, if necessary.
The trial court limiting the statutory safe harbor to, in essence, “the original lender, the lender’s successor and the lender’s assignee,” impermissibly restricted the statutory text.
Relying on Black’s Law Dictionary, the term “first mortgagee” is “senior to all other mortgages on the same property” which is contrasted with an inferior second mortgage. The first mortgagee is one who holds a first mortgage, regardless as to whether that is the original or lender and holder or a subsequent holder. The term “first” modifies mortgage, not “successor” or “assignees.”
Buttressing its findings, the appellate court reflected on the relationship between a mortgage and note and their respective assignees. Historically, Florida law has held that a mortgage follows the note; thus, an assignment of the note creates by operation of law an assignment of the first mortgage regardless of whether there is a written assignment of the mortgage from the original lender. Apparently, there was no issue, at least reflected in the decision, of Beltway holding the note at the time suit was filed and judgment.
It will be interesting as to how the attorney’s fee claim will play out on remand.
The role of the “rule of law” was evident in Monday’s decision in US Bank Nat. Ass’n. v Farhood, 39 Fla. L. Weekly D2594, Case No. 1D14-0268 (Fla. 1st DCA, December 16, 2014).
In short, a trial court may not invoke its power of equity to elevate an inferior association assessment lien over a mortgage lien that otherwise had priority in a manner that violates legislative enactments governing priority, even in the context of equity.
Acknowledging that trial court’s “frustration” was “certainly understandable,” the First District recited the facts which started with a mortgage foreclosure filed July 15, 2007, which was “slow moving.” The Association’s answer included a counterclaim for foreclosure of the Association’s assessment lien. Interestingly, the decision does not indicate what basis the Association would have for seeking priority over the mortgage, remanding on that issue directing the trial court to follow the general recording “first in time” provisions of §625.11, and the limitations on lien priority in §718.116(5).
Addressing the trial court’s exchanging of mortgage-lien priority as a sanction purportedly as a part of the trial court’s equitable powers to address delays, the Court held that equity cannot be invoked when there is a “full, adequate and complete remedy at law.” Remedies available to the Association included seeking attorney’s fees for “willful and deliberate delay” pursuant to §57.105(2), seeking a dismissal pursuant for lack of prosecution under Fla.R.Civ.P. Rule 1.420, setting the case for trial pursuant to Fla.R.Civ.P. Rule 1.440, and opposing continuances pursuant to Fla.R,J.Admin. Rule 2.545(e).
Further, a trial court cannot utilize equity powers to overrule the common law rule of “first in time is first in right” and the legislative determinations of priority in §625.11 and §718.116(5). In addition, the sanction did not levy a penalty of monies, but determined a material issue without relying upon evidence. And last but not least, the record did not support the trial court’s conclusions.
The decision notes that if the Association actually incurred “undue expense” then the Association should proceed as provided in Section 57.105(2).
It may not be of import, but the decision was joined by two judges of the three judge panel. The third judge concurred apparently without an opinion.
It's been a long road,To get from there to here.It's been a long time,But my time is finally here.And I can feel a change in the wind right now.Nothing's in my way.And they're not gonna hold me down no more.No they're not gonna hold me down.
— Rod Stewart “Faith of the Heart”
Dear Committee Members:
This morning, following last month’s groundbreaking Third District Court of Appeal decision in Deutsche Bank v. Beauvais (reported December 18, 2014 to Condo Mania), is another decision by the Third District Court of Appeal, implicitly reaffirming that the acceleration of a debt starts the statute of limitations which can then bar an untimely claim., Snow v. Wells Fargo Bank, N.A., Case No. 3D14-1547 (Fla. 3rd DCA, January 14, 2015). As reference, recall the Condomania discussion line triggered by the “jellybean” email of April 27, 2014 addressing the U.S. Bank v. Bartram decision of the Fifth DCA.
The chronology leading to the decision is as follows:
May 25, 2007: The Snows execute a note and mortgage on real property, which includes a notice of default and an acceleration provision.
October 1, 2007: The Lender issues a notice of default demanding payment of $6,872.72, which implicitly but is not expressly stated in the opinion, to be one or a few installment payments, but not the entire principal amount. (Parenthetically, one must ask what was the lender doing or how legitimate was the loan that went into default so shortly after the loan’s making; however, that is not directly relevant to this discussion.)
March 12, 2008: Lender files a mortgage foreclosure action, including as allegations:
Plaintiff declares the full amount due under the note and mortgage to be now due.
All conditions precedent to the filing of this action have been performed or have occurred.
June 28, 2011: Lender voluntarily dismissed the foreclosure action without prejudice.
March 5, 2013: Lender filed a second mortgage foreclosure action (a week short of five years after the initial action)
The Court begins its discussion with the statement:
When an acceleration clause is absolute, the entire indebtedness becomes due immediately upon default. Such an acceleration is self-executing, requiring neither notice of default nor some further action to accelerate the debt. Baader v. Walker, 153 So. 2d 51 (Fla. 2d DCA 1963). By contrast, where the acceleration clause is optional (as it is in this case), it is not automatic or self-executing, but requires the lender to exercise this option and to give notice to the borrower that it has done so.
Notably, but this is consistent with the Beauvais decision, and does not lead us down the dark alley of Bartram.
Quite boldly the Third District Court states what many of us have asserted:
A cause of action on an accelerated debt accrues, and the statute of limitation commences, when the lender exercises the acceleration option and notifies the borrower of this exercise.
Thus, the Res Judicata argument which has been used by lenders to avoid dismissals of a second lawsuit appears to be dying a slow death in the Third District. Interestingly, the Third District does not quote the Bartram decision. The Beauvais decision only being raised in a footnote at the very end of the opinion.
Unfortunately for the borrowers, the Snows, the lender’s notices did not accelerate the debt until the mortgage foreclosure was filed. As noted in the chronology, the lender filed a second mortgage action just in the nick of time, whether by happenstance or otherwise, to slide within the five-year statute of limitations period.
So what is the proverbial “moral of the story.” The first is that many associations may be reconsidering challenging lenders when a foreclosure action is filed more than five years after acceleration. This may in turn entail a review of the lender’s notices. Second, as anticipated in the Beauvais Condomania email, we should be prepared for a rush to the courthouse by lenders who seek to avoid the statute of limitations.
My thanks to Mr. Christie for swiftly providing a copy of this morning’s decision. Have a great week.
Michael J. GelfandFlorida Bar Board Certified Real Estate AttorneyFlorida Supreme Court Certified Mediator: Civil Circuit Court & Civil County CourtFellow, American College of Real Estate Attorneys
The end of the year saw a decision addressing whether community development district property is subject to an execution levy, Tern Bay Community Dev. District v. Ryangolf Corp., 40 FLW D 77 (Fla. 2nd DCA, December 31, 2014.)
While the underlying fact situation is interesting, as always the crux of the matter is the holding. In this case the holding is that §190.044 Fla. Stat. exempts a community development district’s property from levy and execution. Thus, the judgment for damage against Tern Bay, a CDD, could not have the words “let execution issue.”
Query: Does this mean that drafters will now be shifting to greater use of CDD’s? Perhaps not, unless there is an issue of paying bills timely which leads to other issues!
Thank you to Mr. Mezer for timely providing this decision.
Yesterday’s decision from Florida’s Second District Court of Appeal in CCM Pathfinder Palm Harbor Management, LLC v. Gendron, Case No.: 2D13-5286 (Fla. 2nd DCA, January 21, 2015) is of interest, not just because the caption extends three pages, and not just because it is a split decision. The decision addresses certain principles regarding statute of limitations and statute of repose in the mortgage foreclosure context in a manner that may not be what you would expect. For the legal voyeurs out there, sorry, but this decision does not address acceleration which has seen a considerable amount of play recently.
Cutting the facts short, and avoiding commentary on what may be less savory circumstances as shown by gaps in the time line:
2005: $29,000,000 condominium conversion loan made to Palm Harbor One LLC, the developer. The note has stated maturity date of November 30, 2006, and was secured by the mortgage. The loan agreement stated that its maturity was “twelve (12) months after the Mortgage recorded,” and was incorporated into the mortgage; however, the mortgage did not include a maturity date.
December 16, 2005: Mortgage recorded; thus, pursuant to the loan agreement, the maturity date of the loan agreement was December 16, 2006.
The trial court dismissed the mortgage foreclosure complaint against six defendants based upon issues of statute of limitations and statute of repose.
Limitations.
The statute of limitations justification for dismissal was swiftly addressed. The mortgage contained “an explicit provision waiving the statute of limitations as a defense to a foreclosure action.” The defendants argued facts beyond the complaint to avoid the waiver provision; however, and on a motion to dismiss the trial court was restricted to the four corners of the complaint.
Of great interest is that as a matter of law a lender may enforce a borrower’s advance waiver of the defense of the statute of limitations. It would appear that there would be a strong public policy against such a waiver; otherwise, what would prevent every agreement from incorporating such a waiver. Thus, this holding may come back to haunt!
Repose.
The appellate court also reversed on the statute of repose basis. Recognizing that a statute of repose pursuant to §95.281(1) (Fla. Stat. 2013) is a substantive provision that prevents the accrual of a claim, as opposed to statute of limitations which cuts off a claim after it occurs, the critical question for the statute of repose is whether the final maturity date is ascertainable from the public record, and if so, then the statute of repose is five years from the date of maturity, and if not, then 20 years from the date of the mortgage.
Interestingly, the court found that there were two distinct obligations secured by the mortgage, the note and the “loan agreement” and implicitly both had to be stated in the record, one is not enough. Though the mortgage identified the note’s maturity date which would trigger the shorter repose date of five years, the court looked to the loan agreement’s maturity date which was not identified in the public records; thus, the court held the twenty-year repose period applies.
While the court’s analysis on the statute of repose may appear understandable on first blush, there are some troubling aspects. First, assuming that the mortgage foreclosure was as the result of the default of payment of money, the court disregards the note’s maturity date, allowing the “loan agreement” to be a separate and independent debt instrument secured by the mortgage. Especially as loan agreements are rarely recorded, and perhaps even more of a rarity to be identified in a mortgage, this would appear to vitiate the shorter five-year statute of repose. Query, if the loan instrument is a separate evidence of a debt is does the note have documentary stamp liability?
Errata.
The Court questions in dicta why there is a longer statute of repose when there is no record notice of the maturity date; however, the Court does not indicate the extent of the Court’s inquiry on that issue. The question arises in this case only because the Court disregarded the note’s limitation which was in the record. Otherwise, to answer the Court’s question, it would appear that the longer repose period recognized that maturity dates were frequently not found in mortgages and the legislature may not have wanted to set artificially short maturity dates, especially long ago when commercial paper had a longer maturity.
“If good fences make good neighbors, what do yard lights make?” Thus begins a lesson of how to interpret an alteration covenant and construe a reviewing board’s authority, contained in Leamer v. White, 40 Fla. L. Weekly D283, Case No. 1D13-4573 (Fla. 1st DCA, January 27, 2015.)
Read and examine the decision, not only for its holding, but for its commentary upon disputes as well as the author’s word choices: the “beatific” locale; “brokering a détente”; one party “capitulated”; and, the concluding wish that the reviewing board is able to “navigate between the Scylla of Restrictive Covenants and the Charybdis of neighbor sensibilities ….”
Factually, the dispute was between neighbors owning “luxury waterfront townhouses” sharing a common wall. One neighbor installed an ornamental lighting system without seeking or obtaining the approval of an architectural review board mandated by a declaration of covenants. The installing owner noted that other lighting systems were installed in the larger community, not the townhome areas, without approval.
It is unclear whether the properties are subject to a statutory homeowners association. The covenants included the following:
(b) Ostentatious Site Features. The construction of ostentatious site features such as topiary, sculpture, free standing fountains in the foreground of townhouses or lighting systems which may be offensive to adjacent neighbors is unacceptable.
(Emphasis by Court) The review board designated by the covenants conditionally approved the lighting installation, but not a complete approval because the board interpreted the covenant as allowing a neighbor to veto an installation and requiring written approval of a neighbor.
Before providing legal analysis the Court’s reinforced the need for restrictions, but on the other hand, perhaps in a longing for a perceived simpler and less combative time stated:
In a world without restrictive covenants, architectural review boards, and a court system, neighboring property owners such as the Leamers and Whites would have to resolve their disputes privately and cooperatively, a timeless and pervasive method by which order informally and sometimes spontaneously arises without resort to legal process. See Robert C. Ellickson, Order Without Law: How Neighbors Settle Disputes 4-6 (1991). But human nature prevails; differences arise that cannot be resolved without an umpire. What one homeowner sees as clear and unambiguous restrictions are viewed as cloudy and equivocal by another, leading to disputes that force courts to interpret them. Florida’s appellate courts have weighed in on covenants affecting vehicle signs, satellite dishes, and even a terra cotta plaque. Yard lights now join this list.
(Footnotes deleted.)
The Court’s analysis, and thus the Court’s instruction to counsel, is to begin with reviewing and interpreting the language of the restrictive covenant. The covenant’s use of the word “ostentatious” is not clear even after the time-tested reference to a dictionary. Two considerations are involved: what are the standards, and who is to be the judge. As the Court noted
ostentatious, like beauty, is often in the eye of the holder, so it helps to know who is tasked with the beholding.
In ruling the Court held that it is “unreasonable” to prohibit any lighting system that “may be offensive to adjacent owners.”
To be clear, the Court’s use of the term “unreasonable” was not whether the restriction was to be tested by a “unreasonableness” standard, but instead the whether the interpretation of the restriction was unreasonable.
The gist of the restriction is that there must be an “exercise of aesthetic judgment.…” As to who makes the judgment, the Court’s interpretation that the covenant’s text is ambiguous triggers application of rules of judicial interpretation. The court mentions the following rules: restraints are not favored and to be strictly construed against in favor of free and unrestricted use of real property; the intent of the parties by their clear terms should be enforced; and, an ambiguity in a covenant would be interpreted against the drafter and enforcer, in this case the reviewing board and the objecting owner.
The Court held that the reviewing board “exercises the discretion to determine whether a lighting system is “ostentatious”….” There is no neighbor veto.
The Court anticipates the pendulum swinging too far and notes that the covenant’s neighboring owners’ are still to be considered, given “significant weight” but not “conclusive or exclusive weight.” One lesson to be considered as a result of the opinion is a limitation on the weight of neighbor input into alteration decisions. Another lesson is the word choices for limitations on alterations.
The strange interplay of subject matter jurisdiction and class actions in the world of condominiums intersected yesterday before the Fourth District Court of Appeal in Juno Walk Cd’m. Ass’n., Inc. v. The North County Co., Case No. 4D12-4090 (Fla. 4th DCA, February 4, 2015).
The decision is long on background, leading to a short holding based on jurisdictional grounds, but tauntingly leaving an interesting class action issue in the background.
A 1996 lawsuit (no typographical error, it was 1996) became a class-action lawsuit of condominium “lot owners” against the developer. A 2002 Final Order retained jurisdiction to enforce the Order. In 2012, a unit owner who apparently opted out of the class-action sought to amend the Final Order on some type of an agreed basis.
As the appellate court noted, Fla.R Civ.P. Rule 1.540, limits the time to move to vacate on the basis of fraud to one year; thus, the 2012 motion to amend the 2002 Final Order was untimely. The trial court did not have jurisdiction to amend the Final Order. The retention of jurisdiction language to “allow enforcing” an order did not permit “modifying” the order.
Of perhaps greater interest is the concept of opting out of the class-action. While the classic Fla.R.Civ.P. Rule 1.220 class-action provides for opt outs, the special condominium class action provided by Fla.R.Civ.P. Rule 1.220 does not include an opt out. The legitimacy of the opt out in the underlying proceedings was not an issue in this decision, but is of interest. As the opt out was not at issue, practitioners should be wary of utilizing this decision to try to legitimize a claim that a unit owner has the right to opt out of a Fla.R.Civ.P. Rule 1.220 class-action, assuming that the underlying class-action was a 1.221 class-action.
The First District Court of Appeals confirmed the bright line test for determining the end of a right of redemption, and that there is no additional time granted by an “equity of redemption.” in Waterview Tower’s Yacht Club – The Ultimate, Owners Ass’n., Inc. v. Givianpour, Case No. 1D14-3478 (Fla. 1st DCA February 5, 2015.).
The decision reversed a trial court’s order granting the property owners’ motion to enforce redemption of property. The timeline is as follows:
The Association refused the tender.
The Court analysis began with the following commentary:
The right of redemption is a valued and protected equitable right of the mortgageor to reclaim his estate in foreclosed property after it has been forfeited, at law, by paying the amount of the debt, interests and costs.
(Citation omitted.) Nevertheless, §45.0315 Fla. Stat. governs which provides, in gross summary, there is no right of redemption except at the later time of either: filing of a certificate of sale; or, the time specified in the judgment.
As such, the rate of redemption was extinguished upon the Clerk’s filing of the Certificate of Sale on April 11, 2014. The owners’ reliance upon “equable concepts of fairness and justice” do not provide the trial court authority to extend the redemption period.
The need to review returns of service for technical statutory compliance was at the heart of Thursday’s Supreme Court of Florida decision in Koster v. Sullivan, Case No. SC 13-159 (Fla., February 5, 2015).
The Court addressed the following certified question of great public importance:
IS A RETURN OF SERVICE, IN ORDER TO BE DEEMED REGULAR ON ITS FACE SUCH THAT THE PARTY SEEKING TO ESTABLISH SERVICE IS ENTITLED TO A PRESUMPTION OF VALID SERVICE, REQUIRED TO EXPRESSLY LIST THE FACTORS DEFINING THE “MANNER OF SERVICE” INDICATED ON THE RETURN THAT ARE OTHERWISE IDENTIFIED IN STATUTES DEFINING SERVICE BUT ARE NOT INCLUDED IN THE FACIAL LANGUAGE OF SECTION 48.21 DEFINING INVALID SERVICE?.
The court answered the question in the negative holding that
…a facially valid return of service is not required to expressly list the faster factors defining the “manner of service” contained in §48.031(1)(a), Florida Statutes (2009) which are not included the requirements of §48.21, Florida Statutes (2009) finding valid return of service.
In answering, the opinion resolved conflicts between the Second District and the Third District, specifically providing that §48.21 identifies what shall be stated on a return of service, and that §48.031 states how service may be made.
The Court noted that service statutes are “strictly construed and enforced” but that strictness does not add additional requirements. A return “regular on its face” is presumed correct. When a return of service is challenged, the burden of proof initially is on the party seeking to enforce the court’s jurisdiction which would normally be the plaintiff. Thus, compliance with the criteria set forth in §48.21, creates a return which is presumed valid and shifts the burden to the party challenging to proof lack of statutory compliance by clear and convincing evidence.
In this situation the return of service was facially correct. The defendant raised an issue as to the criteria of service: whether the location service was the normal place of abode, whether the recipient of service was over 15 years of age, and whether the recipient was informed of the contents being served. Pursuant to §40.21 listing the name of the recipient, identifying her as “sister-in-law/co-resident” was sufficient for substitute service. The Legislature could have required additional information to be stated on the return of service, but the Legislature has not done so.
The Florida Constitutional (Article VII, §6(a)) Homestead Exemption, from real property taxes upon a homestead was explained in Kelly v. Spain, Case No.: 4D14-510 (Fla. 4th DCA, February 25, 2015). Recognizing the broadly stated goal of the exemption, the District Court of Appeal affirmed the final judgment in favor of the property owner, ordering the tax collector to refund taxes collected with penalties which the assessor asserted were a lien against the property.
Factually, the property was held by the widow and her now deceased husband. Unfortunately, the widow wife never filed for a homestead exemption though she permanently maintained her residence at the property. As a result, the tax collect collector asserted that the widow waived her right to claim a homestead.
Reciting the dogma that homestead protections are “to protect the family” and thus the “stability and welfare of the state,” there are three criteria for qualifying for the exemption: (1) the real property is owned by “natural person”; (2) the making or intent to make the real property a permanent residence for the owner or the owner’s family; and, (3) the property is within the size and continuity requirements of the Constitution. Nevertheless, the and despite the ability of counties to authorize the automatic application for a homestead tax exemption, there are triggers for application, such as the sale or transfer of the property, the property is not utilized as a homestead, or the status of the owner changes vis a vis the property §196.011 (9)(a) Fla. Stat. (2011).
Statutory, just as constitutional provisions are not read in the abstract, instead they are read in paai material, construed together, not out of context “to harmonize the statutes and to give effect to the Legislature’s intent.” As a result, the application provisions of §191.011 must be read together with the “Save Our Homes” provisions in §193.155 Fla. Stat., (2011) which provides that there is no change of ownership for homestead exemption when one spouse dies and the other inherits the property.
Where §196.011 does not define change of ownership, §193.155 does by excluding transferees between spouses, including to a surviving spouse, and even if only one of the spouses applied for the exemption. As a result, the “applicant” for an exemption for property held by tenancies by the entirety is both spouses, and the “cease to use” threshold removing the exemption is when both spouses cease to use.
Continuing rustling the catch-up bin, a decision of the Supreme Court of Florida may be perceived as altering the burden of proof and considerably raising the bar for associations and other property owners/operators, especially concerning security.
The Supreme Court defined a plaintiff’s burden of proof in a negligent security claim as “more likely than not” or in other words “proof that the negligence probably caused the plaintiff’s injury,” relying on a 1984 Florida Supreme Court decision which quoted Prosser, Law of Torts §41 (4th Ed. 1971), thus quashing the Fourth District Court of Appeals’ reversal of a judgment in favor of the Plaintiff, and remanding for reinstatement of the jury verdict.Sanders v. ERP Operating, LP, Case No.: SC12-2416 (Fla., February 12, 2015).
The setting was an apartment complex advertised as a “gated” community. The community was bounded by water on approximately seventy percent of its boundary, the remaining boundary consisting of a wall or fence, with a gated front entrance. The complex had a “policy” of reasonable lighting, locks and door peepholes. Each apartment had an alarm system which was resident activated.
The claim was based on the murder of two tenants, shot by an unknown assailant inside the victims’ apartment. At the time of murders, the apartment complex’s front gate was broken for approximately two months before the murderers. There was no sign of forced entry. Items were stolen from the apartment included an engagement ring, cash, credit cards and computer modem.
Three years before the murders there were two criminal incidents. The front gate was broken and perpetrators followed residents onto the premises resulting in an armed robbery, and in a separate matter, an assault. Though the complex’s policy manual recommended that residents be notified when a significant crime occurs. Despite twenty incidents over the last three years, including seven burglaries, two robberies and ten vehicle thefts, no notices of crime were provided to owners.
Despite no identity of the alleged assailants, and no determination of whether the victims voluntarily allowed the assailants into their apartment, the jury found the defendant complex (presumably the owner) forty percent negligence with a verdict of $4,500,000.
The Supreme Court’s analysis highlighted that a jury can draw one inference from direct evidence to support a factual determination of proximate cause. The Court found it significant that the inoperable gate “may have contributed” to the murder. Further, even if a victim voluntarily opened a door for the assailants that did not negate the apartment complex’s breach of duty by allowing the inoperable gate which was intended to limit access to only those authorized. Thus, there was a jury question as to whether the inoperable gate permitted the assailants to enter.
The moral to the story may be that once a security measure has been implemented, then the security measure must be followed or a breach may lead to an inference of a breach of duty creating liability.
What is a general release anyway? It seems that this question, important to association counsel engaging in mediation efforts, as well as litigation counsel serving an offer of settlement, brings forth more claims which is ironic since the process leading to the release was to resolve the claims!
Arising out of an offer of settlement to resolve a dispute over a real estate commission, the Third District Court of Appeal provides direction regarding settlement communications leading to a general release in Russell Post Properties, Inc. v. Leaders Bank, Case No. 3D14-2 (Fla. 3rd DCA, March 11, 2015).
What happened? Leaders Bank propounded an Offer of Settlement to Post pursuant to §768.79(6)(a) Fla. Stat. stating the Offer was to resolve “any and all claims made by or which may have been made by Post against Leaders….”. The Offer required that Post file a dismissal and “shall execute a general release in favor of Leaders.”
The Court recounted that a release in an offer of settlement is a “nonmonetary term” pursuant to Fla.R.Civ.P. Rule 1.442(c)(2)(C) and (D); thus, the terms must be stated “with particularity.” The Court held that an offer is sufficient if it contains a summary of the release which “eliminates any reasonable ambiguity …” and which will “allow the offeree to make an informed decision without needing clarification.” Thus, the proposed offer the fulfilled requirements of the rule. While the “best practice” may provide for the attachment of a proposed release to the offer, the failure to attach the exact release to the offer is not dispositive nor fatal.
The moral to the story, especially to help you avoid continuing litigation as to what you meant when you settled for a general release, is to follow the “best practices” and actually attach the release to the offer. If you are heading to mediation, bring your choice release language with you!
[Yes, I know that the statute and rule have changed over the years, but the Court did not include a year date when citing, so this summary does not reference a year].
When is a solo apropos? This question arises in the issue of whether a covenant may be unilaterally amended was at issue in Fiore v. Hilliker, Case No. 2D14-1872 (Fla. 2nd DCA, March 13, 2015). Should the remote declarant’s intent matter?
The chronology is important. Gleaned from the opinion:
In 1984 Spivey recorded a covenant restricting the use of the subject properties for a term of twenty years (which by my count the covenants would expire in 2004).
In 1985, Spivey sold a portion of the properties to the Sonns, a predecessor in title to appellant Hilliker. As determined in 2002 litigation decided in 2010(!), Spivey’s 1985 deed to the Sonns stated that the conveyance was subject to restrictions, the deed reciting the covenant’s recording information, and the decision enjoining Hilliker from violating the covenants, including the height of hedges (ah, is the source of the dispute how high is a hedge, perhaps).
In 1989 someone, the decision does not identify, sought to extend the covenants for another ten years (that would be, under my count, to 2014),
In 2013, Hilliker sought a declaration as to the covenant’s enforceability and that the extension amendment was not valid. [Why Hilliker could not wait another year until the extension was out of time was not revealed in the Court’s decision; however, maybe Hilliker was concerned about another extension.]
At the end of 2013, the trial court granted summary judgment in favor of Hilliker, holding that the unilaterally amended restrictions do not apply to the property.
The Court reversed and remanded.
As a matter of law the appellate court would not determine validity under this record. The decisions in Greenbriar Cd’m. Apt. v. Koch, 480 So. 2d 131 (Fla. 2nd DCA, 1985), and Angora Enterprises, Inc. v. Cole, 439 So. 2d 832 (Fla., 1983) were distinguished at length, primarily because unlike Koch and Cole, the Court asserted that at issue here was the intent of the parties regarding further amendments.
Interestingly the Court jumped to the original covenant parties’ intent, the current parties disagreeing as to what the original parties contemplated which created an issue of material fact which in turn prevented summary judgment. While this conclusion may appear correct in the abstract, the intent of parties to a contract being the hallmark of interpretation, the Court’s recitation of the parties’ positions indicates that the parties argued original intent solely from the text of the covenants, not from any other evidence of the drafter or original parties’ thoughts.
This opinion may be unfortunate to many. Before allowing parole evidence on intent, the trial court must determine that a document is ambiguous because regardless of the parties’ intent, if a document is not ambiguous, then the court cannot interpret, but instead must enforce the unambiguous language of the text (unless that results in an absurd result which is not mentioned as an issue here).
In passing it this writer notes that to provide guidance to courts and council an appellate court would be expected to quote the covenant text in question. The text is not quoted in this decision.
If there is an ambiguity, then if there is no evidence of intent, after all thirty years is a relatively long time ago, the Court’s approach would appear to disregard the unique characteristics of a covenant which impacts their enforcement. While a covenant is a contract in a matter of speaking, unlike a contract, covenants are normally unilateral documents intended to be enforced well after the declaring party is “gone” (a euphemism for dead, forgetting, missing), and intent has to be divined from the cold record of the document.
Rules of judicial interpretation were created to avoid going back and digging up (making up?) the intent of the drafter(s), or digging up the drafter. Thus, we have rules that if there is an ambiguity, instead of being hung up on a factual inquiry, if the intent cannot be found from the document itself, the covenants are generally interpreted in favor of free use of the property, and other rules of interpretation.
Thus, this decision, though it does not provide a final decision for either party, may be problematic and haunt. The Court approached this as not legal interpretation, but as fact finding of intent. If the intent of the remote grantor is to be sought every time there is an allegedly ambiguous covenant, then each of the cases likely will proceed to trial, instead of in summary proceedings.
Of course, if this fact finding process holds up, then developer counsel will be called even more to explain their “works of art” and as a fact witness, not as a legal expert!!
One wonders if there will be a motion for re-hearing, and how the Court will react.
A decision worthy of thinly sliced deli meat, Barney v. Silver Lakes Acres Prop., 40 Fla. L. Weekly D 364, Case No. 5D14-137 (Fla 5th DCA, February 6, 2015). At issue was how specific is “specific” under the “specific identification” requirement to qualify as an exception from the covenant extinguishment presumption in the Marketable Record Title Act.
To place the decision in context, it may be helpful to first focus on the exception to the Marketable Record Title Act which otherwise seeks to extinguish real property interests:
Such marketable record title shall not affect or extinguish the following rights:
(1) Estates or interests, easements and use restrictions disclosed by and defects inherent in the muniments of title on which said estate is based beginning with the root of title; provided, however, that a general reference in any of such muniments to easements, use restrictions or other interests created prior to the root of title shall not be sufficient to preserve them unless specific identification by reference to book and page of record or by name of recorded plat be made therein to a recorded title transaction which imposed, transferred or continued such easement, use restrictions or other interests; . . . .
§712.03(1) Fla. Stat. (2014) (Emphasis added.) As you read on, particularly the quoted text of the deeds in question, recall the above quoted threshold of specific identification.
With the legal foundation set, the decisions factual foundation is summarized:
1968: Subdivision restrictive covenants recorded
1982: “Amendment One” to the covenants is recorded, adopting the original covenants and including an assessment provision.
The owners of at least seven lots challenged the enforcement of the covenants.
A deed in the chain of title for five lots stated:
SUBJECT TO Restrictive Covenants, reservations and easements of record applicable to Silver Lake Acres.
AND SUBJECT ALSO TO the obligations of the owners of each lot at Silver Lakes Acres to the Silver Lakes Acres Property Owners Association, their successors and assigns, which obligations Grantee assumes and agrees to pay.
A deed for a sixth lot stated the following:
SUBJECT TO restrictive covenants and amendments thereto of record affecting the property;
AND SUBJECT ALSO TO easements of record affecting said property;
AND SUBJECT ALSO TO the obligations of the owners of each lot of Silver Lakes Acres s/d to the Silver Lakes Acres Property Owners Association, their successors and assigns, which said obligations Grantee assumes and agrees to pay.
How did the issue arise? The Barneys and others challenged the Silver Lakes’ covenants, seeking declaratory relief that MRTA extinguished the covenants.
Procedurally, it is unclear whether the trial court’s decision in favor of the Association, declaring that the covenants were not extinguished, was at a summary judgment hearing or after trial. The appellate decision references the “Association’s expert witness” indicating a trial.
Based apparently upon testimony that the deeds’ quoted text was not a mere “general reference” insufficient to trigger the statutory exception to extinguish shipment, but rather the text:
is a specific ratification and assumption of the obligations of the Association; and, therefore, is more than a “general reference.”
The Court’s rationale is that the text leaves “nothing hidden.” In essence, the deed text places the grantees on notice of the covenants.
So what is the impact? On one hand, associations may favor the concept that an exception can be based on notice which likely will save many covenants. On the other hand, this decision may create questions of fact which inject substantial uncertainty into what had been, until now, a rather technical review of a document for the name of a plat, or official book and record statements. If the goal of MRTA is to extinguish and clear titles not in compliance with the text, it is questioned whether the Court’s decision undermines the text and purpose of MRTA. This is said recognizing that there is a continuing debate as to whether a declaration of covenants should be excepted from MRTA altogether, which would be a change, likely justified, of public policy.
As a side note, the challenge of the owner of the seventh lot was based on the covenants obligation to pay monies was without a termination date. Interestingly without addressing whether that is a basis for challenge, the Court noted that the covenants contained a termination date albeit with an automatic extension which was sufficient to overcome the argument that the covenants proposed a perpetual obligation.
P.S. Please take note of the Supreme Court’s recent decision in FDOT v. Clipper Bay, just summarized.
Thursday the Supreme Court of Florida issued a decision interpreting the Marketable Record Title Act (2008), Florida Department of Transportation the Clipper Bay, Inv. LLC, Case No.: SC13-775 (Fla., March 26, 2015), which will likely have impact beyond the issue at hand, State held right-of-ways.
The Court’s result was unanimous; however, one Justice Canady concurred with opinion and Justice Polston concurring in the result without an opinion The decision, jurisdiction for which was based on a conflict between two District Court of Appeal, affirmed in part Clipper Bay Investments, LLC v. State Department of Transportation, 117 So. 3d 7 (Fla. 1st DCA 2013), and quashed in part Florida Department of Transportation v. Dardashti Properties, 605 So. 2d 120 (Fla. 4th DCA 1992),
Before proceeding into the express holding, the concurring opinion objected to an apparent assumption in the majority opinion that may be the most significant import of the decision, expanding the instruments upon which a MRTA exception may be based, and thus, reducing the curative aspect of MRTA. In essence, the issue raised by the concurrence is whether an instrument creating a leasehold in a third party, not a predecessor in interest to the claimant, and not an instrument upon which the claimant is asserting a claim, is a muniment of title upon which an exception can be based. A lease was recorded which recited an earlier grant of an FDOT right-of-way on part of the parcel claimed exempt.
The concurring opinion challenged whether the lease was actually is a muniment upon which an exemption can be based, finding support in the statutory text:
Estates or interests, easements and use restrictions disclosed by and defects inherent in the muniments of title on which said estate is based beginning with the root of title; provided, however, that a general reference in any of such muniments to….
(Emphasis Added) §713.03(1) Fla. Stat. (2008). Though the concurrence did not expressly state the consequences, but the majority allowing an exception predicated upon an instrument not upon which the claimant’s estate is based, allows greater latitude to the claimants. This decision may open the door to a more flexible notice of interest, rather than stricter specific reference test we have grown to follow, if not love. (More on the concept of notice trumping specific identification, and proof issues, will be in my long delayed summary on Barney v. Silver Lakes Acres which should be forthcoming!!)
In further follow up to the concurring opinion, it is unclear from the decision as to whether the right-of-way was defined in the specifically identified Plat; however, quoting Sunshine Villas HOA v. Caruana, 623 So.2d 490 (Fla. 1993), the Court noted that there are two methods of providing specific identification:
(1) by reference to the book and page in the public records where the title transaction that imposed the restriction can be found, or (2) by reference to the name of a recorded plat that imposed the restriction.
Id at 491-92. Thus, the Court appears to hold that a recorded instrument that provides notice of a right-of-way not specifically being identified by recording information (presumably identified in the Plat) is sufficient.
On the holding (Finally!) the Court addressed two distinct issues. First, regardless of how an estate is created, whether in fee, easement or otherwise, to the extent that the interest includes a right-of-way, the entire interest is excepted from extinguishment no matter how created. That the claimed excepted interest in a right-of-way was part of a fee interest, rather than an easement is not relevant.
Second, quoting the plain language of §712.03(5) Fla. Stat. (2008), the use of any part of a parcel excepted from MRTA extinguishment, excepts the entire parcel from extinguishment.
The first decision raises an important procedural issue of trial court jurisdiction during a pending HUD fair housing administrative proceeding, and an implied issue concerning when a pet is not an emotional support animal. This is all in the context of when does a change in circumstances after settlement justify disregarding the agreement’s terms? Illustrating how a “new” handicap status can change circumstances and undermine what was apparently a “done deal” is Wednesday’s decision in State of Florida ex rel Hoffman v. Leisure Village, Inc. of Stuart, Case No. 4D14-220) Fla. 4th DCA April 22, 2015).
Reversing the dismissal of the owner’s fair housing service animal accommodation claim the appellate Court held that a post settlement agreement diagnosis of chronic depression may justify disregarding the owner’s agreement not to obtain “another pet” and to move from the community if she acquired “another pet.” In lawsuit 1 (there were two lawsuits) Leisure Village (it is unclear whether Leisure Village is a community association, apartment, mobile home community or otherwise) and Ms. Hoffman ended their litigation with a settlement agreement allowing Ms. Hoffman to keep her current pet, but prohibiting “another pet” and requiring her to move if she did acquire “another pet.”
Thereafter Ms. Hoffman’s pet dog died and Ms. Hoffman was diagnosed with chronic depression. Ms. Hoffman’s treating psychiatrist recommended an “emotional support dog.” The Association rejected Ms. Hoffman’s request for second “emotional support dog.” Ms. Hoffman obtained what the Court described as “another dog” anyway! Interestingly, the Court did not describe dog number 2, the new dog as a pet, but also did not use the magical words “emotional support dog” or “emotional support animal.”
Leisure Village then sought to enforce the settlement agreement from lawsuit 1 in the trial court which was followed, apparently shortly thereafter, by Ms. Hoffman’s fair housing complaint to HUD. Thereafter, while the complaint to HUD was pending, the trial court ordered Ms. Hoffman to remove her dog. Interestingly, three months thereafter the Florida Commission on Human Relations found cause for the accommodation complaint.
On the issue of whether the trial court’s action in lawsuit 1 constituted collateral estoppel baring Ms. Hoffman’s claims in lawsuit 2, though the Court did not use the formal title of the doctrine, exhaustion administrative remedies, based on the doctrine the Court held that because administrative remedies were not exhausted while the HUD complaint was pending, the trial court in lawsuit 1 did not have subject matter jurisdiction to proceed to enforce the settlement agreement, citing Belletete v. Halford, 886 So. 2d 308, 310 (Fla. 4th DCA 2004). Thus, the trial court order in lawsuit 1, requiring the removal of the dog was premature, and then because that order could not be a basis for collateral estoppel, the dismissal of lawsuit 2 based on lawsuit 1’s enforcement order was improper.
This writer not being familiar with the Court’s broad authority, similar to an automatic stay, attributed to the Belletete decision, you are urged to click on the link and read Belletete. While Belletete does apply the doctrine of exhaustion of administrative remedies, that is in the context of the need to first file a claim the Commission on Human Relations before filing suit. The Belletete decision does not hold that there is an automatic stay, and further, that decision did not hold the failure to exhaust administrative remedies was jurisdictional, rather than merely a condition precedent which as a defense is waived if not timely plead. Notably, the decision which Belletete cites in support of this holding, Ross v. Jim Adams Ford, Inc.,871 So.2d 312, 315 (Fla. 2d DCA 2004), similarly does not link the doctrine to subject matter jurisdiction.
Tanique Lee queried me whether terms used by the Court were significant. Re-reading the opinion you will note the nomenclature used by the Court had the settlement agreement referring to the four (presumably) legged animal as “another pet” which was juxtaposed with the regulatory de rigor of “emotional support dog.” The regulators tell us that it is incorrect to refer to the four legged friend as a pet, even as an “emotional support pet.” Interestingly, the Court did not comment on the difference, but was the settlement agreement doomed because it used the term “dog” and did not use the term “emotional support dog” or “emotional support animal”?
So, as this way too long review ends, the moral to the story is watch out for parallel administrative proceedings, and beware of “pets” and perhaps also “dogs” when trying to nail down future conduct, if in fact an agreement not to bring an animal into a community is enforceable against a post-agreement diagnosis of a handicap. Also, not that your client, if an association, wants to be in front of the Commission, but that may then cause the dismissal of a prematurely filled trial court complaint, and if fees were properly plead, might turn the defendant into a prevailing party entitled to a fee award.
Many thanks to Mr. Christie for providing this decision and to Ms. Lee for her question!
How can a plaintiff with a multiple count claim avoid mediation? What can be done during a stay? The limits were illustrated in Wednesday’s decision in Laquer v. Falcone, Case No. 3D14-1803 (Fla. 3rd DCA, April 22, 2015). In a lender’s action to foreclose Laquer’s equity in a project, Laquer cross-claimed seeking the indemnification from Falcone. Falcone responded by demanding arbitration pursuant to an underlying agreement.
Before arbitration could commence Laquer settled the lender’s foreclosure action resulting in a dismissal of not only the mortgage foreclosure, but also Laquer’s cross-claim for indemnification against Falcone. Laguer asserted that the dismissal of the cross-claim deprived the arbitrator of jurisdiction. Nevertheless, the Arbitrator proceeded, resulting in an award confirmed by the trial court.
The Third District Court held that the trial court’s stay pending arbitration was to allow the parties to resolve their claims; thus the stay did not prevent the cases from being voluntarily dismissed. Once the claim giving rise to arbitration was no longer pending, the right to arbitration ceased.
Again many thanks to Mr. Christie for providing this decision.
In Wednesday’s decision that the appellate court recognized may “pose a significant hardship on municipalities” the Second District Court of Appeals held that “PILOT” a agreement which requires a property owner that is otherwise exempt from ad valorem taxation, to make payments in lieu of taxes to a local government, is not enforceable. AHF-Bay Fund, LLC v. City of Largo, Case No. 2D14-408 (Fla. 2d DCA, April 22, 2015).
In short, AHF-Bay Fund acquired property that was subject to a PILOT agreement with the City of Largo. The PILOT agreement was entered into in exchange for the City’s issuance of tax-exempt bonds funding low-cost housing created by its predecessor. Both AHF and its predecessor were 501(c)3 corporations otherwise exempt from ad valorem taxation.
Holding that tax exemptions are narrowly construed and deemed to be in the public welfare the court reviewed the legislative history of §196.1978 Fla. Stat. confirming the ad valorem tax exemption for not-for-profit 501(c)3 housing providers. Thus, in light of the public policy exemption, the PILOT agreement was a violation of public policy and non-enforceable. Further, Article VII §9(a) Fla. Const. prohibits municipalities from ad valorem taxation except as permitted by statute, and municipalities cannot use agreements to circumvent that taxation prohibition. The PILOT agreement was the equivalent of ad valorem taxation in the manner of the charges levied.
Because of the substantial impact on municipal budgets the court certified to the Florida Supreme Court a question of great public importance:
Do PILOT agreements that require payments equaling the ad valorem taxes that would otherwise be due but for a statutory tax exemption violate §196.1978, Florida Statutes (2000) and Article VII, §9(a) of the Florida Constitution?
Many thanks to Messrs. Brown and Christie for providing this decision.
The lack of a common law remedy for contractors against lenders who cease funding in the face of the contractor’s lien law was at issue in Jax Utilities Management, Inc. v. Hancock Bank, Case No. 1D14-664 (Fla. 1st DCA April 22, 2015). The decision also addressed the statute of limitations applicable to equitable liens.
The dispute arose when contractor Jax contracted with a property owner for a subdivision development. Thereafter, the owner’s lender stopped funding the project. Eventually, Hancock Bank assumed the lender’s assets including a mortgage on the development property and foreclosed taking title to the property.
The court held that §713.3471 Fla. Stat. (2001) precludes common law claims of equitable lien and unjust enrichment against a lender who, when ceasing to provide future advances, provides notice of that decision to a contractor. The statute changed the common law of equitable liens by requiring notice. As result, the statute provides a “comprehensive regulation in this narrow area” which is “repugnant to the common law of the two cannot coexist.” In short, the old common law irreparably conflicts with the new statute. Further supporting the decision that the new statute precludes the common-law remedy is the fact that the legislature did not include any language as it “routinely includes” preserving a common-law remedy.
Contractor Jax asserted that the statute of limitations for its equitable lien claim did not commence until the initiation of the banks foreclosure action. The appellate court held that §95.11(5)(b) Fla. Stat. (2011) by its “plain language” provides a one year statute of limitations for equitable liens from the last furnishing of labor, services or materials, not some other later time.
The oxymoron of the State of Florida’s refusal to recognize an out-of-state same-sex marriage which would have required the third branch of the State, the Judiciary, to force the same-sex couple to continue in their married status, compounded by the presence of a minor child was addressed in Friday’s decision in Brandon- Thomas v. Brandon-Thomas, 40 Fla. L Weekly D971, Case No. 2D14-761 (Fla. 2nd DCA, April 24, 2015).
The Brandon-Thomases were validly married in and pursuant to the laws of Massachusetts. As noted by the Court, the couple could not return to Massachusetts for a divorce apparently because Massachusetts has a one-year residency requirement for a divorce, and prohibits a divorce if a petitioner moved to this state to obtain a divorce! One of the parties’ divorce petition was dismissed by the trial court based upon §741.212, Fla. Stat. (2013), Florida's Defense of Marriage Act.
The per curiam decision, issued by a panel including the Chief Judge of the Second District Court of Appeal, reversed and remanded. The two other judges on the three-judge panel issued separate concurring opinions! Yes, three judges and three opinions, though one was labeled per curium, for the court.
Addressing the parties full faith and credit arguments the decision interestingly cites Judge Harlan’s vindicated dissent in Plessy v. Ferguson, for the proposition that the U.S. Constitution’s Equal Protection Clause “neither knows nor tolerates classes among citizens.” 163 U.S. 537, 559(1896).
Nevertheless, applying the Equal Protection Clause’s substantive due process protection test, the Court determined if a fundamental right was involved, and the Court found none. The decision states “Under Florida law sexual orientation is not a protected class entitled the strictest scrutiny analysis.”
Applying the rational basis test, the Court recalled that the burden of overcoming the threshold is the State of Florida to show the low “any reasonable conceivable state of facts that could provide a rational basis for the classification.” Notably, all three judges held that the State and the party opposing the divorce did not bear their burden.
This is not just a property decision, though the Court commented that the refusal to grant a divorce “… impedes the flow of assets and capital.” The Court acknowledged that a minor child and child custody was involved which triggered a strong public policy to protect children. Furthermore, allowing the courts to hear the divorce case is supported by the parties’ right of access to the courts, though not citing to the Florida’s constitutional provision.
One of the concurring decisions joining the reversal relies upon the right of access to the courts and the public policy regarding minor children as not justifying an exception to the full faith and credit clause, seemingly seeking to avoid the substantive due process issues. The second concurring opinion differentiated divorce from marriage reinforcing the state’s failure to bear its burden.
Until there is a decision by the Supreme Court of Florida or the Supreme Court of the United States there are likely practical issues of how property is to be titled with impacts far beyond two parties’ divorce.
So that you know how to address these issues as they impact your practice, the RPPTL Section Convention in Miami Beach will have a CLE presentation addressing how Florida Law is approaching these issues in the context of real property, probate and trust law. Find out and sign up at: http://www.floridabar.org/FBWEB/CLEReg.nsf/0/9C69CC063DF9210385257E20005D1297?OpenDocument
Though it did not receive full play in the news in light of other pending cases this last week, you will find Wednesday’s decision of the Supreme Court of United States addressing Florida’s Judicial Canon 7C(1) prohibiting a judicial candidate’s in-person solicitation of funds interesting, Williams-Yulee v. Florida Bar, Case No. 13-1499 (US, April 29, 2015).
The 5-4 decision overruled a judicial candidate’s objections to whether the State of Florida had a sufficient interest in restriction political speech in the context of judicial elections. The majority was also split as to whether a strict scrutiny analysis was required. At least one dissenting opinion was, shall we say, emotive.
As we will recall from Con Law I, once strict scrutiny of a constitutional right is triggered, especially involving political speech, the burden on the State to justify content based speech restrictions is nearly impossible. Nevertheless, what worked for the Court were the factual justifications provided by the Supreme Court of Florida which the Court appeared to accept at face value.
The opinion by Chief Justice Roberts attempts to differentiate between the constitutionally suspect overbroad verses under inclusive restrictions, the latter being that if Canons were serious, then the Canons would prohibit communications involving other phases of solicitation such as sending thank you cards. One part of the majority opinion that you may question was the statement:
But in reality, Canon 7C(1) leaves judicial candidates free to discuss an issue with any person at any time.
Slip at 17. As we know, Canon 7A(3)(e)(i) is understood to limit a judicial candidate’s communications regarding matters that are likely to come before the court or make commitments that would draw into question a candidate’s impartiality.
Comparing the different opinion you can observe the difficulty for supporters and opponents to jive elections and elections inherent need for fund-raising with judicial integrity. Thus, while the issue before the Court was relatively narrow, the underlying dispute may morph into whether judges can properly be elected. Some have found it an oxymoron that the public elects judges to ensure impartial and rational decision-making, not influenced by public sentiment! The majority opinion expressly sidesteps this debate. Slip at 21. One wonders whether either side really believes that judicial elections “work,” but at this time they are letting the states experiment, so to say.
Looking at the rest of the Court’s docket, one must wonder whether or not the Court may repeat its concluding analysis, allowing the States to individually choose their course, when deciding the case argued last Tuesday concerning same-sex marriage issues.
The test for extending a lis pendens when the underlying action is not founded on a duly recorded instrument or contractor’s lien was elucidated in last week’s decision in J.B.J. Inv of South Florida, Inc. v. Maslanka, Case No. 5D14 -4009 (Fla. 5th DCA, May 1, 2015). The trial court’s denial of plaintiff/petitioner JBJ’s motion to extend a lis pendens on the defendant/respondents property pursuant to §48.23(2) Fla. Stat. (2013), lead to a petition for writ of certiorari.
As a starting point, the statute in question provides timing for a lis pendens as follows:
A notice of lis pendens is not effectual for any purpose beyond 1 year from the commencement of the action and will expire at that time, unless the relief sought is disclosed by the pending pleading to be founded on a duly recorded instrument or on a lien claimed under part I of chapter 713 against the property involved, except when the court extends the time of expiration on reasonable notice and for good cause. The court may impose such terms for the extension of time as justice requires.
§48.23(2) Fla. Stat (2013). The plaintiff/petitioner sought to reform a mortgage and foreclose, or alternatively to impose and foreclose upon an equitable lien. The underlying claims were based upon an alleged mistake in the mortgage’s legal description.
The appellate court educates practitioners and trial courts concerning the overall goal of a lis pendens, “the jurisdiction, power or control that courts acquire over property involved in a pending suit.” Underlying this, a lis pendens serves two purposes: first, to warn those seeking to acquire interests in property of litigation that could affect title; second, to protect a plaintiff from intervening claims to the property. Thus, a lis pendent protects third parties as well as a plaintiff. The weight of the interest of third, non-parties is not addressed, but adds an extra dynamic to the court’s considerations which could tip the balance in favor of an extension.
The appellate court provided a relatively low bar for extending a lis pendens. There must be “a fair nexus between the apparent legal equitable ownership of the property and the dispute embodied in the lawsuit.” Note carefully that though a lis pendens has been considered to be akin to a temporary to a temporary injunction, unlike the test for a temporary injunction, likelihood of success on the merits is not a criteria to extend a lis pendens. A plaintiff must have only a “good-faith, viable claim.” Substantial evidence supporting the reformation or equitable lien claims would meet the fair nexus test.
In this instance the plaintiff was entitled to a lis pendens. This extension is not only to protect the plaintiff, but also third-parties. Otherwise, the court stated that the denial of a motion to extend would cause “irreparable harm that could not be remedied on appeal.
Protecting a defendant’s interest is the trial court’s statutory authority to impose terms upon an extension. The appellate court remarked on the availability of a bond requirement.
Thus, there are at least a couple of practical issues for both proponents and opponents to consider. Similar to a temporary injunction hearing a movant may find that after spending all of its hearing time on the good-faith nexus issue, a proper bond amount may not have been discussed making further proceedings somewhat futile. On the flipside of course there is the problem of whether a third-party buyer is actually able to obtain a “clean” title insurance commitment once the third-party buyer has knowledge of the litigation, despite the relatively recent efforts to rewrite lis pendens statute to avoid this “knowledge” issue.
After ten years, should a day or two, or three, make a difference? Friday, the Fifth District Court of Appeal in Cypress Fairway Cd’m Ass’n, Inc. v Bergeron Const., Case No. 5D13-4102 (Fla. 5th DCA, May 8, 2015), addressed the statute of repose in §95.11(3)(c) Fla. Stat. (2010), in the context of a condominium conversion defects claim in which all of many defendants settled or were dismissed, and there was one defendant left standing, apparently a design professional.
So, were the other parties right to settle and avoid a decision on the ten year repose issue? Depends on which perspective you are considering; but, yes, three days does makes a difference when suit was not filed until February 2, 2011, and the date construction was completed, at least in a physical sense was January 31, 2001, and the last payment under the contract was made on February 2, 2001. Thus, counting days on fingers, toes and everything else was critical when addressing the ten year repose drop dead date based on the date of contract completion.
The appellate court’s analysis focused on, not too surprisingly, the language of the statute creating the repose period.
An action founded on the design, planning, or construction of an improvement to real property, with the time running from the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest; except that, when the action involves a latent defect, the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence. In any event, the action must be commenced within 10 years after the date of actual possession by the owner, the date of the issuance of a certificate of occupancy, the date of abandonment of construction if not completed, or the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer, whichever date is latest.
§95.11(3)(c) Fla. Stat. (2010). At this point, many readers will be scratching their heads because the text does not state what they may have thought was the trigger date, mistakenly recalling something like completion of the construction.
So what next when a statute does not say what we thought it said? The appellate court reminds us that the starting point for applying judicial rules of statutory interpretation is to first determine if there is an ambiguity. If there is no ambiguity, then the unambiguous language is to be provided its plain and ordinary meaning. Thus, the trial court’s reliance on the statute’s preamble was error when the statute’s text is clear and unambiguous.
“Completion of the contract” was differentiated as from completion of construction.
Completion of the contract means completion of performance by both sides of the contract, not merely performance by the contractor. Had the legislature intended the statute to run from the time the contractor completed performance, it could have simply so stated.
Thus, finishing the physical aspects of construction does not start the repose ten year time-clock. Instead, it appears that completion of all contractual duties, including payment is required.
It is interesting that the appellate court did not cite Clearwater Housing Authority v. Future Capital Holding Corp., 126 So. 3d 410 (Fla. 2nd DCA, 2013) which construed the same repose provision, holding that a surveyor’s failure to timely complete a plat delayed the start of the time period under the” completion of contract language.
Many thanks to Mr. Doug Christie for swiftly providing this decision on Friday, and Marty Schwartz for honorable mention. .
P.S. Did you mark your calendars for the Committee’s June 4 meeting at the Fontainebleau, Miami Beach as part of the RPPTL Annual Convention? If so, also consider the CLE program on Friday morning.
Michael J. GelfandChair-Elect, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
All sing in unison to the tune of “Follow the Yellow Brick Road”
The mortgage follows the note
Follows Follows Follows, the mortgage follows the note
Because, Because Because…..
With apologies to L. Frank Baum.
In a decision apparently deliberately crafted for the purpose of educating the trial courts and the Bar as to how security interests in notes are perfected, Judge Gross, a veteran and highly respected member of the Fourth District Court of Appeal, distinguishes, perhaps once and for all, the subservient role of mortgage assignments, an issue that has plagued those in the foreclosure area.
The setting for this lesson is last Wednesday’s decision in HSBC Bank USA, N.A. v. Perez, Case No. 4D13-3193 (Fla. 4th DCA May 6, 2015), in which two promissory notes were held by two banks, the notes being secured, allegedly, by the same mortgage. Of course, the fraudulent scheme creating the two notes came to light as the each bank sought to foreclose on the same mortgage!
The chronology of events leading to the decision is as follows:
LaSalle Bank was succeeded by U.S. Bank.
The issue turned on which Bank perfected their security interest first, HSBC or LaSalle Bank/ U.S. Bank. After a non-jury trial U.S. Bank prevailed on the basis of Florida’s recording statute for assignments, §701.02 Fla. Stat. (2008), relying on LaSalle Bank obtaining its assignment effective January 2, 2009, first in time in the official record book before HSBC recorded its mortgage assignment on April 24, 2009.
The appellate court first addressed which law governs the perfecting of the liens. §701.02 or Article 9 of Florida’s Uniform Commercial Code based on §679.1091 Fla. Stat. (2008). Notably, the Court did not assume that the lien to be perfected was the mortgage. Article 9 of the UCC applies to an assignment even if the note was originally secured by a real property mortgage:
O borrows $10,000 from M and secures its repayment obligation, evidenced by a promissory note, by granting to M a mortgage on O’s land. [Article 9] does not apply to the creation of the real-property mortgage. However, if M sells the promissory note to X or gives a security interest in the note to secure M’s own obligation to X, [Article 9] applies to the security interest thereby created in favor of X. The security interest in the promissory note is covered by [Article 9] even though the note is secured by a real-property mortgage.
Comment 7 to Article 9. Thus, the court reminds readers that the promissory note is the operative, primary document in the loan transaction, the security interest is but “an incident to the debt” merely providing security for the debt. When a note is transferred even without an assignment of mortgage, the mortgage follows the note.
The Court then remarks that pursuant to the UCC, a note is perfected by taking possession of the note. §679.3131(1) Fla. Stat. (2008). Possession effectively places third parties on notice of the possessor’s interest.
Thus, HSBC by taking possession of one of the promissory notes before LaSalle Bank perfected HSBC’s security interest in that note and thus the mortgage. LaSalle Bank could not perfect an interest in that note as HSBC had possession of the note. LaSalle’s possession of the second note after HSBC had possession of the first note prevented LaSalle from perfecting an interest in the mortgage.
The Court distinguishes any reliance on §701.02. Originally, as created the recording statute did not apply to subsequent assignees of a mortgage. Interestingly, before the recent recession and all the defaults and foreclosures, in 2005, the §701.02, was amended to expressly provide that the statute did not apply to a security interest in a mortgage upon real property, and that the Uniform Commercial Code instead applied. The legislative history indicates that the 2005 amendment was adopted to facilitate “warehousing banks dealing in large volumes of mortgages” (citation omitted).
Without the requirement of recording an assignment the analysis returns to the UCC priority scheme; thus, HSBC’s possession of a note before LaSalle perfects priority in HSBC and trumps LaSalle Bank/U.S. Bank’s claim. This does create a practical difficulty when there is a fraud as to who bears the risk of loss, in this decision it appears that the lender that obtains possession last losses.
This decision reinforces the call of “who has the note?” and that UCC concepts must be considered whenever a promissory note is involved. This also will continue the difficulty that associations experience finding who is the holder of a mortgage because assignments do not necessarily have to be recorded if the mortgage follows the note. Whether the desire to avoid fraud is sufficient, encouragement for lenders to record assignments is another matter. Also will the Clerks seek a statutory amendment to require recording to preserve a revenue source?
The distinction between an affirmative covenant and a restrictive covenant, and the ability to narrowly construe an affirmative covenant so that it is reframed as a restrictive covenant were at the heart of Wednesday decision in Vista Golf, LLC v. Vista Royale Property Owners Association, Inc., Case No. 4D13-3232 (Fla. 4th DCA, May 13, 2015).
A golf course was subject to “protective covenants” including to be “continuously operated as a twenty-seven (27) hole golf course similar to its operation as of the date hereof,” and a unity of title prohibiting a sale other than as a single parcel. After a non-jury trial on the golf course’s claim for declaratory and injunctive relief to nullify or limit the covenants, the trial court invalidated the unity of title and restricted the “operation” requirement to restrict the use of property to be a golf course, invalidating the requirement of an affirmative duty to actually operate a golf course business.
The per curium decision affirmed the trial court’s conclusion. There was no issue framed for appeal as to whether the trial court correctly invalidated the affirmative covenant to operate the golf course; thus, that issue was affirmed. On the nullification issue, the “trial court essentially interpreted” the covenant as a restrictive covenant as “the narrowest possible construction consistent with its purpose.”
As for the unity of title, under “the unique facts of this case” the appellate court would not overturn the trial court’s decision.
Yesterday’s decision by the Supreme Court of Florida may provide a reason for your clients not to seek coverage with Citizens Property Insurance. The Court addressed issue of:
Whether the Florida Legislature intended Citizens Property Insurance Corporation, a state-created entity that provides property insurance, to be liable for statutory first-party bad faith claims as an exception to its statutory immunity from suit.
Citizens Property Insurance Corp. v. Perdido Sun Cd’m Ass’n, Inc., Case No. SC14-185 (Fla., May 14, 2015). The Court exercised its conflict jurisdiction arising from the First District Court of Appeal in Perdido Sun Condominium Ass’n v. Citizens Property Insurance Corp., 129 So. 3d 1210 (Fla. 1st DCA 2014), which held that the “willful tort” statutory exception to Citizens’ immunity applied to statutory first-party bad faith claims. The First District certified conflict with the Fifth District Court of Appeal’s Citizens Property Insurance Corp. v. Garfinkel, 25 So. 3d 62 (Fla. 5th DCA 2009), disapproved on other grounds, Citizens Property Insurance Corp. v. San Perdido Ass’n, 104 So. 3d 344 (Fla. 2012), which held that Citizens is statutorily immune, leading the First District to certify the following question:
WHETHER THE IMMUNITY OF CITIZENS PROPERTY INSURANCE CORPORATION, AS PROVIDED IN SECTION 627.351(6)(s), FLORIDA STATUTES, SHIELDS THE CORPORATION FROM SUIT UNDER THE CAUSE OF ACTION CREATED BY SECTION 624.155(1)(b), FLORIDA STATUTES[,] FOR NOT ATTEMPTING IN GOOD FAITH TO SETTLE CLAIMS?
The question was answered in the “affirmative”, quashing the First District’s decision in Perdido Sun and approving the Fifth District’s decision in Garfinkel.
The Supreme Court went to great lengths, repeatedly stressing the rules of statutory interpretation. The analysis starts with the statute’s actual language with the goal of “legislative intent, which is the polestar that guides the court in statutory construction.” In this quest, the Court compared and contrasted the general text of the bad faith statute, §624.155(1) Fla. Stat. (2009), and the special Citizens Immunity statute in §627.351(6)(s)1 Fla. Stat. (2009). The Association asserted that one of the five exceptions to sovereign immunity, for “any willful tort,” should include bad-faith claims.
The Court recognized that bad-faith claims were not specifically excepted in the Citizen’s immunity statute. Further, bad-faith claims are “a creature of statute” not of common-law origin. The Court did backpedal for a moment, recognizing that under certain circumstances the facts may justify a bad-faith claim in tort; however, the Association’s claim was not based in tort but statute.
Counsel may want to review the list of exceptions in the statute finding surprises a the protections Citizens enjoys.
Yesterday the Supreme Court of the United States started its annual June tidal wave of decisions, racing to the summer adjournment. Not seeking to be presumptuous as to the role of community associations in American jurisprudence, the decision in Bank of America, N.A. v. Caulkett, Case No. 13-1421 (June 1, 2015), substantially impacts community Association governance in Florida and throughout the nation.
In quick summary, the Court held that a debtor in a Chapter 7 Bankruptcy proceeding may not void a junior mortgage pursuant to 11 U.S.C. §506(d), even when the debt owed on a senior mortgage exceeds the present value of the property subject to the mortgage lien.
In two consolidated cases from the United States Court of Appeals for the Eleventh Circuit, Bank of America held a junior mortgage on each of the debtors’ homes. The senior, presumably first mortgage, on each of the debtors’ homes had a balance that exceeded that home’s fair market value. The Bankruptcy Courts permitted each debtor to “strip off” an inferior mortgage lien because the property was “underwater” particularly as to the inferior mortgages liens held by Bank of America. The Eleventh Circuit affirmed. In Re Toledo-Cardona, 556 Fed. Appx. 911 (2014) and In Re Caulkett, 566 Fed. Appx. 879 (2014).
Justice Thomas authored a decision for a unanimous court, save for a footnote reference to be discussed infra. The analysis begins with a quote of the Statute:
To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.
(Emphasis supplied by Court). The analysis then shifted to the definition of what is “allowed” which the court summarizes as:
If no interested party objects or if in the case of an objection, the Bankruptcy Court determines that the claim should be allowed under the Code.
See 11 U.S.C. §502(a-b). Returning back to what is “secured,” the Court quotes the Code as follows:
[a]n allowed claim of a creditor secured by a lien on property . . . is a secured claim to the extent of the value of such creditor’s interest in . . . such property,” and “an unsecured claim to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed claim.”
§506(a)(1) (Emphasis supplied by Court). Thus, when there is no equity, the Court adopting the vernacular “underwater,” a claim was not considered secured.
While underwater situations would seem to permit the stripping of inferior liens, the Court was stuck with precedent, Dewsnup v. Timm, 502 U.S. 410 (1992) in which the Court apparently assumed that the term ‘secure” was ambiguous and held that a claim “allowed” pursuant to §502 which had otherwise perfected a lien with recourse against the debtors property, was not subject to §506(d)’s authority to strip the lien. The Court summarizes the Dewsnup holding as:
… a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim. Under this definition, §506(d)’s function is reduced to “voiding a lien whenever a claim secured by the lien itself has not been allowed.” Id., at 416.
Thus, seemingly restricted by precedent alone, the Court in this case reversed the Eleventh Circuit and held that the junior mortgage lien could not be stripped off.
The caution flag must fly. Why? First, the decision repeats, stressing that the Bank did not raise the issue of whether Dewsnup should be overruled. Second, the Court in the alluded to footnote assembled a string sight of Dewsnup criticism. The why is answered for this writer as apparently requesting the next litigant to challenge Dewsnup directly.
The footnote was of such significance that Justices Kennedy, Breyer and Sotmayor, joinder in the unanimous decision excepted pointedly this footnote.
The implications will be broad for debtors and inferior lien holders. Though the decision involves a mortgage lien, the decision’s rationale does not appear to differentiate other liens and should be extended to other inferior lien such as assessment liens. This does not impact, directly, other Bankruptcy proceedings, such as under Chapters 11 or 13.
How does this change Association counsel practices? Likely very little because frequently unit owner’s do not retain their property in a Chapter 7 proceeding because the first mortgage lender is frequently out there waiting to foreclose. Because this decision reverses In Re Toledo-Cardona, 556 Fed. Appx. 911 (2014) and In Re Caulkett, 566 Fed. Appx. 879 (2014) there may be a basis for junior lien holders to return to court’s to seek reconsideration of decision stripping off their liens. This becomes a practical balancing act based upon whether the amount of the lien and perhaps more importantly the ability to collect on the lien justifies the expense of further proceedings.
Wednesday the Second District Court of Appeals defined the parameters for granting an objection to a foreclosure sale in U.S. Bank Nat. Ass’n. v. Rios, Case No. 2D 14-4898 (Fla. 2nd DCA, June 10, 2015). The decision narrows sustainable objections to those matters arising from the sale, not collateral matters, and outlines the burden of proving a settlement.
To place the dispute in context, the reported chronology is as follows:
February 7, 2013: U.S. Bank obtained a judgment of foreclosure against Rios, the judgment “expressly noted the existence of the sinkhole on the property.”
June 3, 2013: Foreclosure sale at which third party Colfin purchased the property;
June 3, 2013 [same day] An unknown person recorded an engineer’s sinkhole report regarding testing occurring in August 2010; and,
June 14, 2013: The Clerk issued a Certificate of Title to Colfin.
October 3, 2013: Colfin Motion to Set Aside and Rescind Foreclosure Sale Based upon Fraud, Misrepresentation, Non-Disclosure and Failure to Timely Comply with Florida Statute § 627.7073.
The trial court granted the Colfin’s objections to the sale based on an alleged stipulation that the bank would not object to the sale and the failure to report the sinkhole report pursuant to §627.7073(2)(a) Fla. Stat. (2010), was fraud. The bank appealed, including an assertion that there was no agreement not to object.
Perhaps of greatest general importance to the practitioner, the appellate court reaffirmed that the purchaser at a judicial sale “is generally subject to the rule of caveat emptor” rejecting the seeming trend away from disclosures. The court does not discuss this concept in detail, but the trend likely does not apply because there is not a traditional seller, the clerk issuing the certificate of title is undertaking a ministerial function and is not in a position to investigate and disclose. As for the lenders ability to enter and disclose, that issue did not have to be reached as the final judgment for some reason including notice of the sinkhole and Colfin’s due diligence should have revealed the issue.
One must wonder who recorded and why the sinkhole report was recorded as it was; but alas, that trail was not developed in the opinion and the reader will be kept wondering.
Perhaps of specific importance in the context of objections, a motion objecting to a sale must be based upon conduct concerning the sale. Conduct outside the parameters of the sale, such as the existence of the sinkhole, does not infect the sale proceedings and is not proper basis for objection to the sale.
Further, the alleged fraud, based upon failure to record the report pursuant to §627.7073, was misplaced. The duty to record the sinkhole report arises only after payment of a claim.
Reinforcing the holding, the court without invoking the term “public policy,” cautioned that Colfin’s grounds would open the proverbial flood gates (my term, not the court’s) to challenges whenever a buyer could allege that the condition of the property was not as expected.
The court also expended considerable text providing direction to the trial courts and practitioners concerning what are enforceable stipulations, at least in this context. First and foremost, the party seeking to enforce the stipulation bears the burden of proving a “clear and unequivocal” settlement. If the agreement is on substantive issues, such as not to pursue a claim, then the proponent must show that the opposing party authorized its attorney to enter into the agreement. If the stipulation is procedural, such as not to oppose a motion as asserted here, then the stipulation must be proved to the level of being clear and unambiguous.
Wednesday, the test for admission of a bank’s payment history pursuant to §90.803(6) Fla. Stat. (2014), was laid out in SAS v. Federal National Mortgage Association, Case No. 2D14-1003 (Fla. 2nd DCA June 10, 2015). The trial court’s judgment in favor of the borrower assertion of a lack of proof of damages after remand and an evidentiary hearing was reversed. This decision may assist the practitioner proving amounts due after changes in management, and conversely adversely impact an association’s efforts to oppose a lender’s judgment efforts.
The decision reinforces the latest trend regarding admission of a former server’s records as a business record. The witness seeking to authenticate the records to be admissible evidence does not have to have personal knowledge of the predecessor servicers accounting practices. Relying on WAMCO XXVII, LTD v. Integrated Electronical Environments, Inc., 903 So. 2d 230 (Fla. 2nd DCA 2005), the basic predicate is that the witness must testify as to:
Thus, this decision will likely be relied upon significantly by lenders seeking to induce foreclosure judgments.
Catching up on one that almost got buried is the Memorandum Opinion In Re: Metzler, Case No. 8:12-bk-16792-MGW Chapter 13 and In Re: Patel, Case No. 8:13-bk-09736-MGW Chapter 7 (Bankr. M.D. Fla. May 15, 2015) which will be of interest as lienholders, whether lenders or associations, grapple with what the Court acknowledged the consolidated cases presented, a novel question as to the meaning of the “surrender” of real property, and then whether surrendering is inconsistent with actively opposing a state court foreclosure action thereafter. \n
In the end, conduct that was deemed inconsistent with the concept of surrender led to what were likely unanticipated and severe consequences for the debtors. But that gets ahead of the issue. The two debtors in their separate cases were presented to the reader:\n
Patel. In the Chapter 7 case, Debtor Patel believing that she quit-claimed her interest in the subject real property to her ex-husband, and believing that she did not own the property, did not include the real property in her schedules or her statement of intention to retain or surrender the property. Unbeknownst to Patel, her attorney defended the state court foreclosure action against the property on behalf of Patel and her daughter. This defense lead lender U.S. Bank to move the Bankruptcy Court to re-open the bankruptcy case. \n
Metzler. In the Chapter 13 case, Debtor Metzler’s Plan proposed to surrender her homestead. After the Court confirmed Metzler’s Third Amended Plan, Wells Fargo sought to complete its foreclosure action against the homestead; however, Metzler defended the action asserting that the surrender only was to “make the collateral available to the creditor by dissolving the automatic stay.” In response, Wells Fargo moved the Bankruptcy Court to revoke its confirmation order. \n
In Chapter 7 a debtor has only three options concerning secured property: a) redeeming the property; b) reaffirming the debt the property secures; or, c) surrendering the property. A Chapter 7 debtor must file a statement of intention if redemption is selected generally within thirty days after the first date for the meeting of creditors. An 11th Circuit Court of Appeals holding was recalled, that a debtor cannot retain collateral unless the debtor redeems or reaffirms the dead it secures. In re Plummer,\n\t 513 B.R. 135, 141 (Bankr. M.D. Fla. 2014)\n\t (citing Taylor v. AGE Fed. Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir. 1993) and In re Pratt, 462 F.3d 14, 19 (1st Cir. 2006)).\n
Chapter 13 requirements are similar. However, instead of filing a statement of intention the debtor must file a plan of reorganization as to how the secured property is to be treated: secure creditors consent to the plan, cram down, or surrender. Referencing Judge Jenneman’s observation in In Re: Plummer, 513 B.R. 135, 142 (Bankr. M.D. Fla. 2014) “surrender” is not a defined term in the Bankruptcy Code. \n
Agreeing with a First Circuit Court of Appeals, Congress likely utilized the word “surrender” instead of “deliver” to avoid requiring a debtor to physically transfer collateral to a secured creditor, but means more than simply dissolving the automatic stay to make the property “available.” In Re: Pratt, 462 F 3d 14, 18-19 (1st Cir. 2006). The First Circuit’s analysis was followed by the Fourth Circuit, citing Collier on bankruptcy. In Re: White, 47 F 3d 199, 205 (Fla. 4th Circuit 2007).\n
Thus, “surrender” is not merely dissolving the automatic stay allowing a “ride through” where the debtor could retain possession by staying current on a secured obligation without reaffirming or redeeming the secured debt. A “ride through” is impermissible because it would provide a debtor a “head start” advantage vis-à-vis a secured creditor, not just a “fresh start,” and would negate other §521 bankruptcy options. In Re: Taylor, 3 F.3d 1512, 1215-16 (11th Cir. 1993).\n
In conclusion, surrendering and making the real property available to a secured creditor includes the debtor:\n
… refraining from taking any overt act that impedes a secure creditors’ ability to foreclose its interest in secured property.
In a very unstated note, in the last footnote to be specific, the Court informs the reader of the the severe consequences of seeking to ride through. Debtor Metzler’s confirmation was revoked. Patel will be required to surrender the property, perhaps being treated differently than Metzler because Patel was apparently under a good-faith mistake that she no longer owned property and was not aware of her attorney’s conduct.\n
Thus, this decision will be of considerable assistance to the secured creditor’s counsel, especially to association’s whether the association is the plaintiff or a junior lienholder in the first’s mortgage foreclosure. This will allow matters to proceed to judgment much faster. Associations will have to adjust their expectations as to timing.\n
Michael J. GelfandChair-Elect, Real Property, Probate & Trust Law SectionNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2015 Michael J. Gelfand\n
This contains hyperlinks to three decisions of the United States Supreme Court, one of this morning and two of yesterday, that are newsworthy now, and likely will have long term impacts which also is a likely understatement.
Yesterday’s decisions in King v. Burwell and Texas v. Inclusive Communities turn not on constitutional principles, but instead statutory interpretation, the bread and butter of our practices and the decisions’ reasoning parallel many of our reasoned opinions and discussions.
The decision in Obergefell Et Al. V. Hodges, is the same-sex marriage decision. The court re-affirms that marriage is a fundamental right protected by the Fourteenth Amendment’s equal protection provisions. This provides a brief summary of the holdings in the 5-4 decision.
it is a personal choice
it supports a two-person union unlike any other in its importance to the committed individuals,
it safeguards children and families and thus draws meaning from related rights of childrearing, procreation, and education.
is a keystone of the Nation’s social order.
The marriage laws at issue are in essence unequal: Same-sex couple sari denied benefits afforded opposite-sex couples and are barred from exercising a fundamental right. Especially against a long history of disapproval of their relationships, this denial works a grave and continuing harm, serving to disrespect and subordinate gays and lesbians.
Thus, the Fourteenth Amendment requires a State:
to license a marriage between two people of the same sex and
to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out-of-State.
Please read the opinions. I may have commentary on how the Texas decision impacts the real property world.
This briefly reports on yesterday’s decision issued by the Florida Supreme Court addressing whether a default judgment is void when the complaint upon which the judgment is based fails to state a cause of action. The decision in The Bank of New York Mellon v. Condominium Association of Association of La Mer Estates, Inc., Case No. SC 14 – 1049 (Fla, September 17, 2015), is of interest not only to those involved in foreclosures, but also in litigation generally.
The facts are somewhat lengthy and may make some cringe as noted in my initial posting regarding the matter, the Fourth District Court of Appeal’s decision posted to the Condomania listserve on February 20th, 2014. A La Mer Estates Condominium unit was subject to a mortgage created in 2006, that went into default in 2008. The Condominium Association filed an action to foreclose its assessment lien. After the Association obtained a final judgment, but before a foreclosure sale, the Bank received an assignment of the mortgage encumbering the unit. Thereafter, the Association being the only bidder at the foreclosure sale received a certificate of title to the unit.
The Association filed suit against the Bank to quiet title when the Bank failed to respond to the Association’s letters regarding unpaid maintenance assessments. After the Bank failed to respond to the Summons and Complaint in the Association’s quiet title lawsuit a default was entered against the Bank, and then the Bank successfully obtained an order vacating the default, this being the first default.
The Bank then continued to be non-responsive, resulting in a second default and judgment against the Bank. A year and a half after the second default and entry of final judgment the Bank moved to vacate pursuant to Fla.R.Civ.P Rule 1.540(b) on the basis that the Complaint failed to state a cause of action. After the trial court granted the Bank’s motion to vacate, the Fourth District Court of Appeal reversed.
As initial matter, the Supreme Court held that a default judgment based on a complaint that fails to state a cause of action is voidable, not void. The court based its holding first on the policy of finality of judgments, and in particular that Rule 1.540(b) provides relief from judgment under limited circumstances. The second basis for reversal “failure to state a cause of action” is a defense to a claim which must be pled and is waived if not pled.
The Supreme Court noted that the default judgment cannot be collaterally attacked a year and a half later. The bank had ample opportunity to respond but did not do so.
Interestingly, the Supreme Court’s rationale regarding the finality of judgments follows the concerns raised on Condominia after the District Court of Appeal’s decision if there were to be a contrary holding. Regarding the difference between void and voidable, that is significant. A void judgment has no legal force and effect and can be challenged at any time. A voidable judgment requires action by the judgment debtor to cure the cloud or the impact of the judgment. Counsel should also note that this decision does not in any manner justify or encourage the practice of seeking to foreclose on a superior lienor which in light of recent decisions is problematic at best, and may trigger sanctions.
Thursday the Supreme Court of Florida issued a decision declaring unconstitutional the general attorney’s fee provision in Florida’s Workers’ Compensation Act which may have far reaching implications for businesses and organizations of all types.
Specifically, the Court held that §440.34 Fla. Stat. (2009), creating an irrefutable presumption that prevents consideration of the reasonableness of the statutory fee award is unconstitutional, violating due process protections in Article I, Section 9 of the Florida Constitution and the 14th Amendment, Section 1 of the United States Constitution. Castellanos v. Next Door Co., Case No. SC13-2082 (Fla., April 28, 2016). Jurisdiction was as a result of a certified question of great public importance. Castellanos v. Next Door Co., 124 So. 3d 392 (1st DCA 2013).
The Supreme Court rephrased the certified question as follows:
WHETHER THE AWARD OF ATTORNEY’S FEES IN THIS CASE IS ADEQUATE, AND CONSISTENT WITH THE ACCESS TO COURTS, DUE PROCESS, EQUAL PROTECTION, AND OTHER REQUIREMENTS OF THE FLORIDA AND FEDERAL CONSTITUTIONS.
In brief, Castellanos prevailed in his workers’ compensation claim. The statutory sliding scale attorney’s fee scheme allowed an attorney’s fee of only $1.53 per hour for over 100 hours of time the Judge of Compensation Claims found reasonable. The statute prohibited challenging the dollar amount.
The Supreme Court found that although the workers’ compensation law was enacted to provide quick and efficient delivery of benefits to an injured worker, and the legislature continues this purpose:
… in reality, the workers’ compensation system has become increasingly complex to the detriment of the claimant, who depends on the assistance of a competent attorney to navigate the thicket.
Further, the court commented that engaging competent counsel discourages a carrier from unnecessarily resisting claims. The irrebuttable presumption applies to every case; thus, an “as applied” challenge is not appropriate, and a facial challenge was recognized.
Because a reasonable attorney’s fee is a “key feature” of the statutory scene, the certified question was answered in the negative, the First District Court of Appeal’s decision upholding the “patently unreasonable” award was reversed, and the case remanded for entry of a reasonable attorneys fee.
Judge Lewis had a concurring opinion in which he commented:
Now the workers’ compensation program has emasculated the attorney fee provision to the extent that a mandatory fee schedule creates an irrebuttable presumption with regard to attorney fees that eliminates any consideration of whether the attorney fee is adequate for workers to actually obtain competent counsel in these cases.
Judges Polston and Kennedy dissented, asserting that the legislative policy to find a reasonable relationship between fees and recovery was not unconstitutional, noting that attorney’s fees awards are unusual in American jurisprudence. Judge Polston’s separate dissent concentrated on the inappropriateness of a facial constitutional attack.
Michael J. GelfandChairReal Property, Probate and Trust Law Section of The Florida BarNote: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2016 Michael J. Gelfand
The Fourth District Court of Appeals Wednesday doubled down on Quadomain in Jallali v. Knightsbridge Village HOA, Inc., Case No. 4D 15– 036 (FLW 4th DCA January 27, 2016).
In what otherwise was a seemingly garden-variety hopscotch by an Association lien foreclosure over a delayed mortgage foreclosure the Fourth District Court of Appeal held that the trial court in which there was a earlier filed mortgage foreclosure had exclusive jurisdiction over the subject property, barring a second trial court to exercise jurisdiction for a later filed, second, Association lien foreclosure action.
The timeline should be familiar to most; however, note that the Association had two lien foreclosure actions:
2006: Association recorded a lis pendens for its first lien foreclosure action.
February 2007: Final Judgment in Association lien foreclosure action.
May 2007: Mortgage foreclosure action with lis pendens filed.
March 2008: Association’s Final Judgment in first foreclosure action satisfied.
2011: Association files its second lien foreclosure action.
2012: Association’s second lien foreclosure action reaches Judgment (affirmed in a table decision July 31, 2014).
2015: Jallali and her successor-in-interest moves to vacate the Association’s second judgment.
Of course little of this would have been necessary if the bank had promptly foreclosed! But such is not like in Condomania!!
The appelleate court’s per curium analysis was based upon U.S. Bank National Ass’n v. Quadomain Condominium Ass’n, 103 S3d 977 (FLW 4th DCA 2012), and section 48.23 Fla. Stat. (2015). Based upon the statute creating a bar to the enforcement of interest unrecorded at the time of a notice, the court quoted extensively from Quadomain as follows:
… the only way to enforce a property interest that is unrecorded at the time the lis pendens is recorded is by timely intervening in the suit creating the lis pendens—all other actions are barred. Giffen Indus. of Jacksonville, Inc. v. Se. Assocs., Inc., 357 So. 2d 217, 219 (Fla. 1st DCA 1978) (attempt to enforce mechanic's lien recorded after lis pendens notice was filed was barred by section 48.23); Baron v. Aiello, 319 So. 2d 198, 200 (Fla. 3d DCA 1975) (holding that judgment lien holder's attempt to foreclose its lien came too late when it was filed after the first mortgagor recorded a lis pendens ). Therefore, the court presiding over the action which created the lis pendens has exclusive jurisdiction to adjudicate any encumbrance or interest in the subject property from the date the lis pendens is recorded to the date it enters final judgment. See Seligman [v. N. Am. Mortg. Co.], 781 So.2d [1159] at 1163 [Fla. 4th DCA 2011)] (court which adjudicated foreclosure of mortgage obtained after a lis pendens for the property was properly recorded in a marital dissolution action did not have jurisdiction because the (sic) “the court in the dissolution proceeding had jurisdiction over the property until final judgment”).
Accordingly, the court in the Association’s lien foreclosure action did not have jurisdiction to foreclose the lien. If the Association wanted to recover its unpaid Association fees, it was statutorily required to intervene in the re-foreclosure action as prescribed in section 48.23(1)(d).
103 So. 3d 979–80 (emphasis added to original appearing in Jallali decision.)
In summary, the appellate court held that once the 2007 mortgage foreclosure was filed that the trial court assigned to handle that mortgage foreclosure had “exclusive jurisdiction to foreclose.” As a result, the Order Denying the Motion to Vacate Final Judgment of Foreclosure was reversed.
In an up swinging market, this decision may not have much practical impact. This will impact titles based upon lien foreclosure actions obtained in a suit independently filed after a mortgage foreclosure action. Presumably most lien foreclosure titles have been or will be foreclosed by a superior mortgage lender; however, that may not be the case, especially with those mortgages seemingly abandoned by lenders.
Please juxtapose this decision with Bonafide Properties, as Trustee v. Wells Fargo Bank N.A., as Trustee, 41 F.L.W. D 158 (Fla. 2d DCA 2016). Not quoting Quadomain,Bonafide follows a similar line of thought, holding that a purchaser of property subject to a pending lien foreclosure action in which a lis pendens has been filed is normally not entitled to intervene in the pending foreclosure action. In particular, please read Judge Altenberndt’s concurring opinion regarding the timing problems created by delayed mortgage foreclosure actions and the varied interests that are damaged including the homeowners’ association as well as the public through unpaid taxes.
There are some procedural issues that might be of interest to the legal geeks. First, this apparently is not the first decision in which the appellate court reversed a judgment for the Association. It appears that pending appeal the trial court amended its judgment, usually a no-no. Jallali v. Knightsbridge Village HOA, 152 So.3d 808 (Fla. 4th DCA, 2014). Second, if the mortgage foreclosure lis pendens divesting jurisdiction was filed in 2007, should not the statute in effect at that time be applied, an earlier version before the 2009 amendments? §48.23 Fla. Stat. (2007).
Dear Colleagues
Florida community associations verses “vacation rental” owners. The battle is now joined!
Hot off the presses, the first appellate court decision between these dueling interests was issued Friday morning!
The decision, exceedingly narrow, is still instructive. Santa Monica Beach P.O.A. v. Acord, Case No. 1D16-4782, (Fla. 1st DCA, April 28, 2017), addressed a “VRBO” short term home rental. Vacation Rentals By Owner is somewhat similar to AirBnB, at least in terms of the use of a property. Among the distinctions is the relationship between the owner and internet company and very significantly how money is handled between them.
The facts are short and sweet. The Acords listed homes (plural) on the VRBO website and proceeded to rent. The Association, and, interestingly, its board of directors, sought a declaratory judgment that the Acords’ “short term rentals” violated the Santa Monica Beach subdivision restrictive covenants which stated:
Said land shall be used only for residential purposes, and not more than one detached single family dwelling house and the usual outhouses thereof, such as garage, servants' house and the like, shall be allowed to occupy any residential lot as platted at any one time; nor shall any building on said land be used as a hospital, tenement house, sanitarium, charitable institution, or for business or manufacturing purposes nor as a dance hall or other place of public assemblage.
(Emphasis added by the Court.). The Association asserted that the Acords advertised transient facilities, obtained transient rental licenses in the name “Acord Rental,” and had to collect and remit state sales and local bed taxes. The trial court granted a motion to dismiss with prejudice finding that the rental use was residential, not a business.
The First District Court of Appeal helpfully started its analysis by framing the novel Florida issue:
… whether short-term vacation rentals violate restrictive covenants requiring property to be used only for residential purposes and prohibiting its use for business purposes….
Focusing upon the restrictive covenant’s limited text, the Court identified the threshold as the actual use, not the duration of the rental, and implicitly not examining advertising or organization.
Citing with agreement other decisions, the Court reasoned that a rental, even rentals for a profit, in-and-of-itself, does not transform a home’s use from residential to either business or commercial. The Acords’ tenants were eating and sleeping in the homes and that use is residential. Apparently there was no allegation of a business use by the occupant tenants. Thus, the Court distinguished other decisions which found improper uses based upon the frequency of use and types of uses, as well as the difference in covenants, and affirmed the trial court’s dismissal.
Dicta addressed drafting a short term rental restriction. Based upon the premise that leasing restrictions
…are not favored and to be strictly construed in favor of the free and unrestricted use of real property…
(citations omitted), the Court stated that an “explicit prohibition” was necessary, a restriction would not be implied. (Emphasis in original). Further dicta encouraged “explicit language” where a “question is common and predictable.”
The decision did not address why the individual directors were plaintiffs. Are they now liable as parcel owners for attorney’s fees? The decision did not state the actual duration of the rentals, a day, a week, or otherwise. The decision did not indicate any outward adverse manifestations of the rentals. These matters likely were not relevant in the context of a claim focused on a narrow restriction.
Looking forward, where do associations go from here? The starting point if short term rentals are to be prohibited, the covenants should be restricted. A mere “no business use” limitation is not sufficient. Simply stated, if you desire to prohibit something, then have a covenant that addresses text the issue.
If the covenants are perhaps too brief, then consider amending to add a short term limitation. Consider other covenant tools that would serve a community’s valid goals which tools may include limitations on who can own, how many can own, registration of guests and vehicles. Perhaps limits on what can be advertised in conjunction with other restrictions.
What can associations do in the interim? Surrendering is not an option when there are blights and disturbances. Concentrate on a rental’s negative impacts. If there is too much noise, blight, lack of maintenance, trash, improper parking, or other annoyances, then focus on those manifestations and how they may trigger other use restriction violations.
Consider recommending other avenues of assistance. Are municipal or county codes violated? Call code enforcement! Is there a significant disturbance of the public welfare and peace, or endangerment of minors or others? Call law enforcement! Are taxes properly remitted? Call the Tax Assessor! Is the property shown as homestead? There may be grounds for the Property Appraiser to re-evaluate the Parcel Card!
More formal tools are available: fining, pre-suit mediation/arbitration and court. The tenant may be far away, but no tenant wants to receive formal demands while on vacation.
Of course, each tool or option requires a careful examination of the situation.
Kudos to: Condominium and Planned Development Committee Chair Sklar for the Court’s call out to his February Florida Bar Journal Article: Bill and RPPTL Legislative Co-Chair Steve Mezer for their discussion Friday afternoon at Stetson Law School; and, to Committee Vice-Chair Ken Direktor for coordinating a very practical CLE Friday covering many new topics which you can access through www.RPPTL.org.
Friday the Fifth District Court of Appeal addressed in a condominium association harassment and nuisance context pre-publication restraints as penalty for contempt in Fox v. Hamptons at Metrowest Cd’m. Ass’n., Inc., Case No. 16-1822 (Fla 5th DCA, July 21, 2017).
In sum, the decision does not extend “Constitutional free speech” rights to condominium unit owners to injure associations or association volunteers. The decision does not address an association’s authority, if included in a covenant, to restrict speech.
The Association’s injunction claim alleged that Mr. Fox, a resident of the Hamptons at MetroWest:
…engaged in a continuous course of conduct designed and carried out for the purpose of harassing, intimidating, and threatening other residents, the Association, and its representatives.
The parties settled resulting in a Final Judgment ordering the parties to comply with the settlement agreement and retaining jurisdiction to enforce. The terms of the agreement were not recited in the opinion.
Thereafter, the trial court granted the Association’s Motion for Contempt. Instead of simply enforcing the settlement agreement, the trial court’s civil contempt order entered penalties apparently beyond what was agreed and beyond what was incorporated in the final judgment.
The trial court’s expansive order required Fox to:
· Stop posting, circulating, and publishing any pictures or personal information about current or future residents, board members, management, employees or personnel of the management company, vendors of the Hamptons, or any other management company of the Hamptons on any website, blog, or social media.
· Take down such information currently on any of his websites or blogs.
· As punishment, not start any new blogs, websites or social media websites related to the Hamptons or the Association.
Fox appealed.
Despite first impressions by many readers, the decision was not a loss for the Association as the decision affirmed without comment enforcement of the settlement agreement’s terms. Only penalties not included in the settlement agreement were reversed. The appellate court seemingly could stopped there, the reversal on the excessive portion of the Judgment merely on procedural grounds.
But the appellate court continued, detouring to State and Federal constitutional “Freedom of Speech,” Amend. I, U.S. Const.; Art. I, § 4, Fla. Const., and further citing to decisions that court crafted injunctions are subject to freedom of speech constraints, Alexander v. United States, 509 U.S. 544, 550 (1993). Near v. Minnesota ex rel. Olson, 283 U. S. 697, 712 (1931) (“…suppression is accomplished by enjoining publication….”). The court explained there are boundaries demarcating constitutional protection, including “obscenity, defamation, fraud, incitement, true threats, and speech integral to criminal conduct”, but a speaker’s “public criticism of his business practices” is protected from prior restraint, including judicial injunctions. The court remarked that businesses and associations are not powerless to respond, and do not just have to take it. Instead, if there is damage the civil or criminal proceedings are the remedy.
[a] free society prefers to punish the few who abuse rights of speech after they break the law than to throttle them and all others beforehand.
Citations omitted.
The opinion is less than a direct First Amendment decision. The determination that the trial court’s penalties went beyond the settlement agreement, and no less affirming the penalties for violating the agreement, would lead one to conclude that the remainder of the opinion was pure dicta. This is especially as courts are usually directed to avoid constitutional issues unless necessary.
Perhaps reinforcing the nature of the dicta, Quail Creek P.O.A., Inc. v. Hunter, 538 So.2d 1288 (Fla. 2nd DCA 1989), was not cited. Note that the Quail Creek decision reversing a summary judgment invalidating a “For Sale” sign restriction was also limited:
…very simply hold that neither the recording of the protective covenant in the public records, nor the possible enforcement of the covenant in the courts of the state, constitutes sufficient "state action" to render the parties' purely private contracts relating to the ownership of real property unconstitutional.
The Quail Creek court expressly sidestepped whether there was state action.
There have been at least two so-called “flag case” decisions from Florida’s Federal District Courts. Many readers have focused on one, Gerber v. Longboat Harbour North Condominium, 724 F. Supp. 884 (MD Florida, 1989), in which one could conclude that the District Court was annoyed (the writer’s wording) that the case was pursued after the Florida Legislature granted flag display rights, albeit after the initial alleged violation. In turn this may have provoked the Court:
This Court cannot agree with its conclusion that judicial enforcement of racially restrictive covenants is state action and judicial enforcement of covenants which restrict one's right to patriotic speech is not state action. Enforcement of private agreements by the judicial branch of government is state action for purposes of the Fourteenth Amendment, as the Highest Court in the land declared it to be in Shelley; it cannot be said that the terms of the agreement either increase or decrease the extent to which government is involved. It is an exercise in sophistry to posit that courts act as the state when enforcing racially restrictive covenants but not when giving effect to other provisions of the same covenant.
Id. at 886-887. The District Court doubled down on re-consideration, vacating the summary judgment referenced above, except reaffirming the state action holding. Gerber v. Longboat Harbour North Condominium, Inc., 757 F. Supp. 1339 (M.D. Fla. 1991).
Another Federal District Court took the opposite stance, Murphree v. Tides Cd’m. at Sweetwater, Case No. 3:13-cv-713-J-34MCR (M.D. Fla. 2014), and rejected that enforcement of a flag covenant amounted to state action in the condominium context. Murphree cited to Loren v. Sasser, 309 F. 3d 1296, 1303 (11th Cir. 2002) which included a “For Sale” sign covenant dispute and held that private enforcement of a private covenant was not state action sufficient to invoke the remedies of The Civil Rights Act, 42 U.S.C. § 1983, and commented that Shelley v. Kraemer, 334 U.S. 1, 19-20, 68 S.Ct. 836, 845, 92 L.Ed. 1161 (1948), has not been extended beyond race discrimination contexts. Id. at 1303. Interestingly, Loren did not cite to Gerber.
Noting that this issue has not been addressed by the United Stated Eleventh Circuit, nor the United States Supreme Court, there have been significant questions whether the Gerber decision on the politically charged flag waiving issue would survive further review. This is perhaps a more interesting question in the post-Citizens United era in which the First Amendment is seen as more protective.
Florida appellate courts have not cited Gerber with enthusiasm. Gerber was been distinguished in Latera v. Isle Mission Bay Homeowners, 655 So. 2d 144 (Fla. 4th DCA, 1995), (No constitutional right to satellite dish.).
Pre-dating many of these decisions is White Egret Condominium, Inc. v. Franklin, 379 So. 2d 346 (Fla. 1979), which held that when found in a condominium
age limitations and restrictions may be enforced if reasonably related to a lawful objective and not applied in an arbitrary or discriminatory manner.
Interestingly, the decision reinforced basic covenant law citing Hidden Harbor Estates, Inc. v. Norman, 309 So.2d 180, 181-82 (Fla. 4th DCA 1975) and did not address the state action component as part of an equal protection analysis which would appear to be different from a freedom of speech analysis. The one citation that did not involve a state actor was a California decision that did not address the U.S. Constitution.
Past ChairReal Property, Probate and Trust Law Section of The Florida BarFlorida Bar Board Certified Real Estate AttorneyFlorida Supreme Court Certified Mediator:Civil Circuit Court & Civil County CourtFellow, American College of Real Estate Attorneys
Fore!
Just as a golfer warns of a pending shot, yesterday the Fourth District Court of Appeal warned golf course and other Florida property owners to beware when seeking to dissolve covenants based on “changed circumstances” such as unprofitability, addressing the threshold for cancelling a covenant, the application of the Doctrine of Unreasonable Restraints on Alienation to an automatically renewing covenant, and when does the statute of limitations run on a claim to cancel a covenant. Victorville West LP v. The Inverrary Ass’n Inc., Case No. 4D16-2266 (4th DCA August 23, 2017)
THE ISSUE & POSTURE.
Though the Victorville opinion addressed three distinct matters, the court defined the issue, what likely for many is the main issue, as:
Whether a property owner may cancel a restrictive covenant when that covenant has become financially onerous.
Following a non-jury trial, Victorville’s claim was found to be time-barred, that the covenant remained beneficial to the surrounding community, and the covenant would not be vacated.
In 1971, the Inverrary golf course was encumbered by a restrictive covenant requiring the course to “be used solely for recreational purposes.…” Perhaps with wishful thinking, the covenant limited the club roster, if there were 1,500 golf memberships, then non-Inverrary residents could not be admitted as members. The covenant was binding for twenty-five years, followed by ten year successive renewals, unless amended, modified or terminated by the owners of two-thirds of the land.
In 2006, Victorville purchased the golf course “SUBJECT TO… all covenants… listed in the Public Records of Broward County, Florida.” [Recall in twenty-twenty hindsight that 2006 was an auspicious year to purchase Southeast Florida real property.] Membership “significantly” dropped after the purchase.
The Inverrary Association refused to cooperate with Victorville’s request for a vote to change the covenant. In perhaps a classic South Florida response, community members:
Indicated they like the golf course, even if they did not have a membership, because it provided a tranquil view, prevented overcrowding, and preserved the nature of the community.
It appears the community wanted the golf course, but did not want to pay for it!
COURT’S ANALYSIS.
Cancellation.
The appellate court’s test to cancel the restrictive covenant is summarized as:
See Essenson v. Polo Assocs., 688 So. 2d 981, 984 (Fla. 2nd DCA 1997). Reciting the trial court’s factual findings, the covenant continues to benefit the dominant estate which was the residential properties. This benefit was preserving the character the community including the pleasant view.
Despite Victorville’s argument, the covenant’s text did not show an intent for the course to be profitable. Citing Essenson, cancellation should not occur just to accommodate the best or most profitable use of property. The trial court’s decision on this issue was affirmed.
Restraint on Alienation.
The covenant was not an invalid restraint on alienation. The covenant’s duration was not perpetual because of the ability to terminate by the two-thirds vote. Further, there is no restriction on “the type of alienation precluded” or “the size of the class precluded from taking.” The trial court’s decision on this issue was affirmed.
A claim begins to run when the action may be brought. The claim was not present when the covenant was created, or upon Victorville’s purchase, clarifying the court’s holding in Harris v. Aberdeen POA, 135 So. 3d 365, 368 (Fla. 4th DCA 2014). Not until “a substantial change in circumstances” occurred would the action accrue and the statute of limitations start to run. The trial court’s statute of limitations holding was reversed; however, that did not provide effective relief to Victorville in light of the affirmances on the first two issues.
CONCLUSION.
Cancellation hung on the specific text of the covenant. The covenant was not conditioned on profitability. Instead, the condition for termination was an owner vote. Without expressly saying, the District Court of Appeal would not re-wrtie the covenant to save an investor from what ultimately became a bad deal.
Reinforcing this conclusion is the Court’s determination that “nothing in the covenant shows that its intent is for the golf course to be a profitable enterprise.” That may be so, but assuming that the golf course was a for-profit effort, this quote may cause consternation regarding what some would say is an “obvious” assumption. The Court may be signaling that if it is important, then write it down.
The decision, also without expressly saying, shifted the focus from the servient estate, the restricted party, to those the covenant was intended to benefit, the “dominant estate,” in this case the residential owners. The dominant estate just wanted their view and ambiance.
In the long run, communities are experiencing their golf courses shuttering and literally becoming brown fields. Whatever the desire on ambiance, in the midst of all this, whatever are your prejudices for or against owners, developers and golf courses, there is the ultimate question of how does a golf course remain green and manicured if there are not enough paying members/players funding maintenance. Covenants with strict provisions may force owner operators and their lenders to depreciate the valuation of their investments or close, and perhaps deed the property to their lender. Of course, if there are covenants in the drafting stage, it is anticipated that the fine print will become more friendly to operators. Finally, it is noted that in many golf course communities the covenants have terminated by the passage of time and what happens to the green space shifts to a zoning forum, a largely political matter for county or municipal governing boards.
Remember all eagles, no bogeys.
Michael J. GelfandPast ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!
The strict enforcement of conditions precedent to a derivative action in a condominium association context was addressed in Collado v. Baroukh, Case No:. 4D 16-2075 (Fla. 4th DCA, August 30, 2017). In remanding the Court commented upon the circumstances for when a fiduciary duty exists and when an election claim is moot.
As with many other disputes, this matter began, at least as reported by the Court, when a condominium unit owner demanded Association records pursuant to §607.07401(2) Fla. Stat. (2016). The Association denied access because the Association was not a Chapter 607 corporation. The owner then corrected the demand on October 7, 2015, by citing §617.07401 Fla. Stat. (2015). To the second demand the Association responded that “it would consider appointing an independent committee to investigate the owners’ allegations at the next Board of Directors meeting.” On December 14, 2015, the owner filed a complaint pursuant to Section 617.07401. The trial court dismissed the verified claim complaint without leave to amend.
The appellate court held that as a not-for-profit corporation the owners’ October 7, 2015, letter was a new demand triggering the statute’s 90 day waiting period. Further the verified complaint failed to allege that the demand was refused or ignored, or that the waiting period would cause irreparable harm. Thus, failure to comply with the statutory requirements required dismissal, in addition to convoluted pleading without detail which apparently violated Fla. R. Civ. P. Rule 1.420(b).
The Court did note that leave to amend should not be prematurely denied; thus, the case was remanded to allow for an amended complaint. In doing so the court noted that a claim for breach of fiduciary duty against the Association was improper because there is no fiduciary duty citing Tower House Cd’m, Inc. v. Millman, 475 So. 2d 674, 676 (Fla. 1985). Similarly claims against certain directors individually would have to be dismissed as the court held that they may be liable only “in the representative capacity for breach of fiduciary duty as officers and directors” citing Section 617.0834 Fla. Stat. (2016). Apparently, the complaint did not allege any office-holding status.
A challenge to the including directors on a ballot due to term limits was declared moot because the election occurred; however, the eligibility of directors may still be challenged.
The moral to this story may be the consequences of over-litigating. The opinion does not explain why a records request turned into a derivative action. The court did not take the opportunity to educate the parties as to the mandatory arbitration provisions; however, if the plaintiff was determined to bring this as a breach of duty damages tort claim, then the plaintiff lives with the result.
Past Chair
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys
Is your firm’s email system and the firm’s docket monitoring procedures a trap for your clients and you? This is not a “condo case” but it should grab your attention.
A firm’s email system configuration and the firm’s court docket monitoring process lead the First District Court of Appeal to affirm the denial of a motion for relief of judgment. The opinion in the Emerald Coast Utilities Authority v. Bear Marcus Pointe, LLC, ___ So. 3d ___, 42 Fla. L Weekly D 1753, (Fla. 1st DCA, August 10, 2017), may become a case study for attorneys and their firms’ administrators.
In gross summary, Bear Marcus Pointe’s motion for attorney’s fees, was heard in January 2013. Over a year later, no order had been entered. In the interim Bear Marcus Pointe’s counsel assigned a paralegal to check the Court’s website every three weeks to confirm whether any orders were entered. In response to Bear Marcus Pointe’s attorneys request for a joint motion for a case management, conference, the Authority’s attorney “categorically refused to join such a motion.”
Shortly before a status conference was to occur, an order was entered awarding attorney’s fees. The Authority’s asserted that its law firm did not receive the order and was not aware of the order until Bear Marcus Pointe began execution efforts.
The opinion recited a cascade of expert testimony at trial regarding the processes necessary for an effective email system. This includes:
Not being configured to drop and permanently delete emails perceived to be spam without alerting the recipient of the deletion;
Online backup system; and,
Email logs.
Pursuant to Fla. R. Civ. P. Rule 1.540(b), the Court focused on whether there was excusable neglect. No mistake was apparent because there is no proof that the emailed order from the Court was intentionally deleted. Instead, the Court found that the Authority’s law firm’s server was deliberately configured in such a way that it could delete legitimate emails as spam without notifying the recipient, despite Odom & Barlow being warned against this configuration.
Further the law firm was warned against the configuration, and the law firm rejected recommendations for a third-party vendor and online backup system.” Thus,
Based on this testimony, the trial court could conclude that [law firm] made a conscious decision to use a defective email system without any safeguards or oversight in order to save money. Such a decision cannot constitute excusable neglect.
Citation deleted. The court also made specifically commented that the law firm could have undertaken, as its opposing counsel did, a check of the website on a regular basis.
This decision may raise the bar for those who have not been technologically astute. The appellate court took cognizance of the lack of a properly configured email system, including appropriate spam filters and backups. In addition, the court implicitly recognized the ease of taking advantage of the court’s online services.
Moving forward, it may appear now that when counsel is waiting for an order or for an event that presents a type of “drop dead” deadline, that the appropriate court’s docket be regularly checked. As a practical matter, it may also behoove attorneys to cooperate on docket review.
One may also wonder why the trial court just did not accept at face value counsel’s representations as potentially within the trial court’s discretion and instead embarked on what must have been a long hearing.
Whether a Chapter 11 plan may modify a mortgage upon the Debtors’ principal residence which contains leaseholds was at issue in In Re: Hock, Case No: 14-32157-BKC-PGH, Chapter 11, US BKY, SD Fla., August 15, 2017. (Unfortunately, I do not have a non-copyrighted link, thought I understand it is on Westlaw.) The Debtors’ historical Delray Beach property included a main house in the front which was the Debtors’ residence, and a carriage house in the back which included three units. Two of the units were leased continually since the debtors purchased the property over 10 years earlier. The third unit was vacated after seven years of occupancy by a single tenant.
US Bank held a first mortgage that originally contained a primary residency which was deleted by a “1-4 Family Rider.” Legacy Bank held a second mortgage.
The Debtors moved to value the property, to determine the secured status of Legacy Bank’s second mortgage, and to modify the rights of both lenders. Hock asserted that the mortgages exceeded the value of the property rendering at least a portion of Legacy Bank’s claim as unsecured.
The Court’s analysis turned upon the Bankruptcy Code requirement that in Chapter 11 a plan may
… modify the rights of holders of secured claims, other than a claim secured only by security interest in real property that is the debtor’s principal residence.
11 U.S.C. §1123(b)(5) (Emphasis applied by Court). If the Code is unambiguous the Court should not undertake further interpretation; thus, the Court determined no ambiguity. The term “secured only” modifies the term “security interest” not modifying “real property.”
The term “debtor’s principal residence” is not exclusively the debtor’s principal residence, but may be a residence that includes incidental nonresidential property. As a result, the Code section 1123(b)(5) does not allow Debtors to modify US Bank’s first mortgage because US Bank’s claim is secured only by a security interest in real property that is debtor’s principal residence. Legacy Bank’s second mortgage may be solely unsecured for which another evidentiary hearing would have to be scheduled.
The Court generously acknowledged that this issue has not been addressed by the U.S. 11th Circuit, and that different conclusions have been reached between Florida Districts, and even between judges within the Southern District of Florida. Perhaps the Court is foreshadowing that this matter will or should be addressed by a District Court and then the 11th Circuit!
Hear Ye, Hear Ye! If you are used to traditional methods of communication wise up quickly, or get out of the way before your client, and you, personally, have a very bad experience.
Doubling down on last month’s stern e-mail technology lesson to attorneys on Friday the First District Court of Appeal denied appellant’s motion for rehearing, rehearing, and for certification in Emerald Coast Utilities Authority v. Bear Marcus Pointe, LLC, Case No. 1D15-5714 (Fla. 1st DCA, October 6, 2017).
Instead, a substitute opinion went far beyond a tweak here and there. Adding pages to its original opinion, the court reinforced its directive that counsel’s e-mail systems must be designed to do more than just deliver most email, and do more than implying that attorneys need to know how their messages are handled if they have a shot at claiming a failure amounts to excusable neglect. Two duties of care were projected.
Counsel has a duty to have sufficient procedures and protocols in place to ensure timely notice of appealable orders. This includes use of an email spam filter with adequate safeguards and independent monitoring of the court’s electronic docket. In cases where rendition of an appealable order has been delayed for a significant period of time, it might also include the filing of a joint motion for a case management conference to ensure that the order has not slipped through the cracks. Odom & Barlow made no effort to do any of these things, reflecting an overall pattern of inaction and disengagement.
One duty involves the need to have a properly working e-mail system. The second duty described is for an attorney to move the court’s docket when there is no apparent reason for delay.
Driving home that this is not a new issue, a five year old Alabama decision was used seemingly to flog the technologically inept:
An inability to manage an office e-mail system to properly receive notices of filing does not qualify as excusable neglect.
Crocker v. Child Dev. Sch., Inc., No. 3:10-CV-759-WKW, 2011 WL 4501560, at *5 (M.D. Ala. Sept. 29, 2011). Nailing down the message, citing to the Southern District of New York:
The fact is that all sorts of things go awry in the electronic universe in which we now live, and lawyers are obliged to protect their clients’ interests even if that requires something more than blind reliance on the proper and timely transmission, receipt and filing of computer generated electronic mail. Thus, even if one were to characterize as excusable the error attributed to the IT staff, the lawyer’s failure to check the docket sheet, knowing that he had a motion pending before the magistrate judge and that an adverse recommendation would have to be objected to within fourteen days of its entry, was not.
Pinks v. M & T Bank Corp., No. 13 Civ. 1730(LAK), 2014 WL 2608084, at *1 (S.D.N.Y. June 5, 2014).
The message seems to be: no more reliance on the same methods of snail mail, not to say that waiting for the town crier to bring you news is definitely passé. Further, perhaps to ensure catching your attention, old methods maybe below the standard of care.
The concept of an attorney pushing the trial court’s docket is new, at least in print. Each of us has recounted the year waiting for a judgment or order, and being hesitant to make another call to the judicial assistant out of concern of creating a fear of retribution. While not absolutely mandating a duty to call out the judge, respectfully of course with a proper motion, the substitute opinion places pressure on the Bar’s rules committees to set a process that will inevitably become a standard of care.
In essence, the District Court announces that the time for pussyfooting around the electronic age has ended. If you are participating in the legal system you literally must be up to speed and connected!
In other words, the unsupported assertion that my spam folder ate my important e-mail will no longer fly! The courts want the technological equivalent of the chewed document, and perhaps proof that not only did you feed the monster recently, but fed it well!
The original decision can be found at: Emerald Coast Utilities Authority v. Bear Marcus Pointe, LLC, ___ So. 3d ___, 42 Fla. L Weekly D 1753, (Fla. 1st DCA, August 10, 2017).
Many thanks to Susan Spurgeon for providing the decision on rehearing promptly. [Obviously she has been monitoring her email!]
______________________________________
Wednesday the First District Court of Appeals addressed whether the remainder of a leasehold upon which a condominium was declared is to be included in the condominium’s units’ ad valorem tax valuation. In Beach Club Towers H.O.A. v. Jones, Case No. 1D15-5886 (Fla. 1st DCA, October 11, 2107), the property owner/leasehold remainder holder was a county which created special circumstances, and further, the decision justified a second look see for commentary concerning whether a condominium may be declared upon a leasehold.
Short and sweet background: Beach Club Towers is a condominium located in Escambia County. The United States conveyed the land to Escambia County with a condition that the County retain legal title. After a number of leases and subleases the Condominium developer obtained a sublease and declared the Condominium which included “an undivided leasehold interest in the underlying land.” The master lease provides for renewal “for an additional ninety-nine (99) years, terms and conditions to be renegotiated at such time.”
Focusing on “who owns the land” the opinion swiftly shifted to the concept of “equitable ownership” of the leasehold as described in the First District Court of Appeal’s earlier decision in Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA, 2011) approved in Accardo v Brown, 139 So. 3d 848 (Fla. 2014).
The Supreme Court held that, because the leases in the land were “perpetually renewable,” the condominium owners owned a equitable title to the land and were liable to pay ad valorem property taxes. Id. at 856.
Slip at 4. The Court held that Accardo was inapplicable because in Accardo “the primary hallmarks of equitable ownership” were different. In Accardo the lease could be renewed upon nominal consideration “or to otherwise exercise perpetual “domination over the property.” In this instance, the lack of an automatic renewal distinguished the potential perpetual domination.
Onto the Condominium Act issues, the Court rejected the County’s assertion that the land underlying a condominium must be declared as part of the Condominium, apparently meaning the fee simple interest. The County relied upon Section 718.104(4)(s)(c) Fla. Stat., which the Court noted requires a statement of the underlying property submitted to condominium ownership. Instead, the Court relied upon Section 718.104(1) Fla. Stat. which it noted expressly acknowledges the creation of a condominium upon a leasehold.
Further, the Court commented that the Condominium Act does not change the exempt treatment of property. Section 718.120(1) Fla. Stat., only requires that each condominium parcel must be assessed separately from other parcels. Essentially, the underlying fee does not have to be included in the units valuation if a leasehold.
In reviewing the opinion, of critical significance is the fee owner being a county. Generally county land is exempt from ad valorem taxation. There are a number of condominium and homewowners’ communities that are declared on land owned by and leased from a political subdivision that would otherwise be exempt from ad valorem taxation. Note however the critical provisions of a lease which may provide the functional equivalent of taxation. Where a leasehold is owned by a person or private entity, then one may see that the landlord includes in the lease a requirement that the tenant pay ad valorem taxes as a pass through.
There was a vigorous dissent; however, the dissent was primarily based upon whether there was equitable ownership. The dissent seemingly assuming that the renegotiation text mandated the renewal, an assumption that the majority opinion rejected.
A couple of matters of interest. First, of course, is the reminder that a name does not dictate the type of ownership. The “homeowners association” name still requires a review of the governing documents because, as the opinion reported, the property was a condominium. Second, is the import of a requirement to negotiate an extension of time and how does that obligate the parties. This decision assumes that such a duty does not mean that the parties must renew which may raise secondary issues.
Past ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2017 Michael J. Gelfand
Florida Bar Board Certified Real Estate AttorneyFlorida Supreme Court Certified Mediator:Civil Circuit Court & Civil County CourtFellow, American College of Real Estate Attorneys
P Please consider the environment before printing this e-mail
When is an appurtenance not an appurtenance? That was the issue in last week’s decision in Silver Beach Towers POA, Inc. v. Silver Beach Inv. of Destin, LC, Case No.: 1D16-4555 (Fla. 1st DCA, October 18, 2017), involving whether a club membership defined by a developer as an “appurtenance” was an appurtenance that the Condominium Act prohibited from being separated from a unit.
Silver Beach Investments developed condominiums with two condominium Associations and the POA serving as the “Master Association.” The Master Association declaration provided that the condominium Associations were the Master Association’s members. Individual unit owners were defined as “Owners.”
The dispute focused upon the Club at Silver Shell’s which was located approximately a mile from the community. The Master Declaration provided that owners were non-equity members in the Club, that members could not terminate club membership except as part of a transfer to another owner and that “member in the Club shall be pertinent to the Unit upon which is based.”
Nevertheless, the Club’s facilities could be “available to the general public.” The Club was authorized to terminate an owner’s membership without notice, and in its discretion could unilaterally change Club dues and fees which were required to be collected by the Master Association.
In 2008 “turnover” was “completed” including transfer of title to common properties for the Master Association. In 2010 the Master Association’s Board of Directors amended the Declaration deleting the Club mandatory membership and fees and due provisions. In 2012 the developer and Club sued the Master and two condominium Association’s seeking to recover the unpaid dues and fees as well as declaring the Amendment invalid. The trail court granted the developer and Club’s Motion for Summary Judgement declaring that as appurtenances to the condominium units §718.110(4) prohibited the amendments as materially modifying or affecting appurtenances to a unit without the votes of all unit owners and reserving jurisdiction to determine issues of amounts due.
The appellate court first focused on what is an appurtenance. “A thing may be ‘appurtenance’ or annexed as something else, without qualifying as an ‘appurtenance to the unit’,” citing to Thiess the Island House Ass’n., Inc., 311 So. 2d 142, n.1 (Fla 2nd DCA, 1975). But, here the Club membership was:
“The lack of any indica of ownership by Club members for…” appears fatal to the developers’ effort to not just label but treat Club membership as a Condominium Act defined “appurtenance” to a unit.
Second, the appellate court held that the Condominium Act does completely prohibit separating appurtenances without unanimous unit owner consent. The court quoted §718.110(4)’s preface “Unless otherwise provided in the declaration as originally recorded….” The Master Declaration did provide for amendment by the Members. Thus, the members being the condominiums’ Associations could proceed. The court also swiftly disposed of the developers’ assertion that it was entitled to personal notice of the Board of Directors meeting as the By-Laws only required personal notice to the Directors, and that posting was sufficient to provide notice to others.
The remand to the trial court included directions for a determination of damages to the Club for fees and dues accruing before the amendments affective date.
There are many lessons from this decision:
This decision re-enforces the need to look beyond labels. While “appurtenances” may seem sacrosanct, whether the label meets statutory pre-requisites may have to be considered.
Note also that statutory protections for appurtenances is subject to the declaration’s original amendment provisions. Note in particular in homeowners’ association communities many declarations do not have an express prohibition on changes to voting rights or assessment percentages; thus the “unless otherwise provided in the governing documents…” text in §720.306(1)(b-c), may allow the members to undertake significant changes. Developer counsel, consider this when drafting your next set of governing documents.
When reviewing the Club (or developer!) retained rights concerning Club membership shown by the above bullet points, there may be a lesson to developers regarding what could colloquially be referred to as “over-writing” covenants. How many times have we seen a contract or covenant that is so over-reaching that the terms become unenforceable. Remember the saying “pigs get fat and hogs get slaughtered!”
The decision does not address whether the developer declared the Master Association to be subject to the Condominium Act. It is interesting that the developer invoked the condominium act, usually a fate worse than death for developers, to defend its treatment the Club memberships as an appurtenance. If the project was marketed as a condominium and the prospectus was reviewed by the Division of Condominiums, it would be interesting to know whether the Division issued a deficiency notice concerning the retention of Club rights and effort to label memberships as an appurtenance.
Potentially increasing lender risks and thus the cost of financing, the Third District Court of Appeals clarified to the chagrin of many lenders the consequences of an improper homestead real property tax exemption in Miami-Dade County v. Lansdowne Mtg, LLC, Case No.: 3D 16-1046 (fla. 3rd DCA, October 18, 2017).
When dealing with priority of claims, the chronology is frequently important:
· September 2007: Lansdowne’s mortgage was executed and recorded;
· January 2014: County tax lien recorded as a result of a determination of improper homestead benefits; and,
· May 2015: Lansdowne files a mortgage foreclosure action including the county as a defendant.
The trial court granted the Lansdowne’s Motion for Summary Judgement pursuant to the priority of lien recording statute, §695.01(1) Fla. Stat. (2015).
The appellate courts analysis recognized the priority provided by the recording statute but noted exceptions, one being:
[a]ll taxes imposed pursuant to the State Constitution and laws of this state
shall be a first lien, superior to all other liens, on any property against which the
taxes have been assessed . . . .” See City of Palm Bay, 114 So. 3d at 928.
§197.122(1) Fla. Stat. (2015). The court differentiated the statutory authority for the “priority” of the lien, as opposed to the authority for when a lien “attaches” to real property. Thus, the court rejected the lender’s assertion that the statutory exemption structure does not subordinate the tax lien to the previously provided mortgage. The attachment statute prevails:
The lien herein provided shall not attach to the property until the
notice of tax lien is filed among the public records of the county
where the property is located. Prior to the filing of such notice of lien,
any purchaser for value of the subject property shall take free and
clear of such lien. Such lien when filed shall attach to any property
which is identified in the notice of lien and is owned by the person
who illegally or improperly received the homestead exemption. . . .
§196.161(3) Fla. Stat. (2015) (emphasis added).
Thus, there appears to be a race to the courthouse between the taxing authorities and others. This decision likely will encourage buyers and lenders of property for which a homestead tax exemption is claimed to undertake a minimum review of the basis for claiming the exemption. Title insurance may also be of added importance to provide protection to the lender/purchaser.
A couple of extra considerations: In light of the above quote that the “purchaser” takes free and clear, how the court will treat a lis pendens? Please note that this only address the homestead tax exemption, not the devise or creditor claim homestead provisions.
Whether a voluntary grantee is entitled to recognition of its grantor’s mortgage foreclosure “safe harbor” was at issue in last week’s decision in Villas of Windmill Point II POA, Inc. v. Nationstar Mortgage, LLC, Case No.: 4D16-2128 (Fla. 4th DCA October 25, 2017). The decision affirmed a final summary judgement, subject to remand to correct a calculation error.
Nationstar, as agent of Fannie Mae, sued the POA, seeking compliance with the Safe Harbor provisions of §720.3085(2)(c) Fla. Stat. (2011), declaratory relief and damages.
A brief derogation of title is appropriate:
· Fanny Mae held a mortgage on the property.
· CitiMortgage became the holder of the first mortgage.
· CitiMortgage foreclosed, including the borrower and the Association as defendants.
· CitiMortgage obtained a foreclosure judgment leading to a sale resulting in CitiMortgage taking title.
Thereafter CitiMortgage deeded the property to Fanny Mae.
Reciting the HOA Act’s “safe harbor” provisions:
Notwithstanding anything to the contrary contained in this section, the liability of a first mortgagee, or its successor or assignee as a subsequent holder of the first mortgage who acquires title to a parcel by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title, shall be the lesser of….
§720.3085(2)(c) (2011) (emphasis in decision), the court held that:
Here, although Fannie Mae was not “a first mortgagee, or its successor or assignee as a subsequent holder of the first mortgage who acquire[d] title to a parcel by foreclosure or by deed in lieu of foreclosure”1 under section 720.3085(2)(c), Fannie Mae does indirectly benefit from the safe harbor provision because, under section 720.3085(2)(b), it is jointly and severally liable with the prior parcel owner, CitiMortgage, for all unpaid assessments due up to the time of transfer of title, and CitiMortgage did qualify for the safe harbor provision.
(Emphasis in decision.)
In other words, the Association cannot pull the safe harbor out from under the subsequent grantee.
This decision re-enforces the prevailing view of Association counsel and in doing so helps avoid what otherwise would be unnecessary and costly disputes for Associations. It is noted because of the similarity in language that it is likely that this decision will also be applicable to condominium Associations pursuant to 718.116. The court appeared be very carefully outlining the transfer of title perhaps indicating that the court was not going to re-evaluate the safe harbor requirement that the holder of the mortgage take title.
Perversely, could sales disclosures protect the developer, not the buyer? Really, does anyone actually read that all stuff? Apparently not, if “stuff” means condominium sales disclosures. Monday’s decision by the the First District Court of Appeal in Arlington Pebble Creek, LLC v. Campus Edge Cd’m Ass’n, Inc., Case No.: 1D16-1347 (Fla. 1st DCA, November 6, 2017), involving claims of construction defects in a condominium conversion might make you think twice about the value, purpose, and who hides behind the disclosures.
Fraudulent misrepresentation and negligent misrepresentation claims were filed by the Condominium Association against Arlington Property. Arlington Property purchased apartments and created Arlington Pebble Creek to covert the apartments in to a condominium.
Jumping to the end, the appellate court reversed a final judgment based upon a jury verdict. The opinion does not state the judgment amounts, but this writer has been informed that there was a compensatory damage verdict of over $3,000,000, and two separate, independent punitive damage awards each in the amount of $250,000! The reversal was with directions to enter judgment in favor of the appellants/defendants below developer entities!!
What happened? Following transition/turnover, the Association discovered that the Condominium suffered extensive water intrusion damage to common areas. The repair work required a doubling of Association assessments levied upon unit owners.
Fraud or misrepresentation apparently became an issue when the developer entities dueling engineering reports were obtained and compared. The Condominium “Roth” Act conversion engineering report estimated the Condominium’s remaining lifespan at thirty-five to forty-five years, evaluating the structure’s functional soundness as “Good (localized deterioration).” Corresponding, the conversion disclosure budget listed less than $10,000 for building repairs.
As an apparent smoking gun, was Arlington Properties separate “property condition assessment” which it obtained near the time it acquired the apartment building, but not filed with the state or published to others. This report identified moisture intrusion and estimated structure/building estimate repair costs of $290,200.
The Association proceeded on claims of fraudulent misrepresentation and negligent misrepresentation made to the Association. The Appellate Court appeared to have no problem recognizing that there was a false statement of material fact and that the false statement was made knowingly, or that the developer entities should have known that the statement was false.
Nevertheless, the Appellate Court held that the Association did not prove two critical elements: intent to induce; and, injury. This was in spite of the testimony of the current president who owned a unit before turnover.
The catalyst for the Appellate Court was no proof of Association reliance on the false statements in the building report, whether in the turnover Association’s preparation of the budget or otherwise. The Association’s property manager at turnover provided testimony that he did not see the conversion report with the false statement. Further, in terms of damages, the increased assessments occurred without reliance on the misrepresentations.
How could no damages flow from the false statement, especially one concerning moisture intrusion in a Florida condominium? The answer likely lies in two areas: who has actually been damaged; and who relied on the misrepresentations. The Appellate Court noted (fn. 2) the Association acknowledgement that the claim was of misrepresentations to the Association, not unit owners.
The court further noted (fn.3) that the “the existence of a fraudulent statement does not in itself establish reliance on that statement.” While certainly providing a formula to reduce claims, this truism flies in the face of the purpose of the conversion report and the offering statement. The key likely is that reliance would be in the hand and mind of the buyer, now unit owner, not the Association.
How could unit owners have proceeded in a cost-effective manner? Even with the ease of pleading a Fla.R.Civ.P Rule 1.221 class action, there is still the historical reticence of Florida Courts to allow a class action for a fraud claim because of the reliance element of a fraud claim. Would the damaged areas be a subject for converter reserves? Perhaps not, but the opinion did not reach that issue.
One must wonder how did the Association obtain the previously undisclosed engineering report? Good sleuthing? Problem is what to do with the information once it is at hand?
One would presume that there was outrage when the dueling reports were compared. But what to do if the buyers merely used the disclosure statements to prop up the rear of a sofa, or hold down shelves in the rear of a closet? Do we paraphrase Benjamin Franklin, and others “for want of a nail … the horse…battle…war was lost? Now should we proclaim: For want of reading the offering circular, there was no reliance, with no reliance there could be no damages, for no damages, no judgment.
The practical lesson may be to encourage developers to throw everything into the disclosure because who actually reads it? And if there is a claim afterwards, it was disclosed!! Actually, many developer counsels appear to have been suggesting that the risk of losing a sale is well worth the cover from claims provided by a broad disclosure.
So consider what is the purpose of the disclosure?
In In closing, whether we observe Veterans Day by closing our offices or otherwise, take a moment with your families, friends and colleagues to recall those who sacrificed in uniform for our country’s ideals. Recall also the foundations of those ideals including an independent judiciary, and especially what propelled much of early voluntary immigration, seeking to flee the English Civil Wars and the civil strife between wars, based not only upon religious persecution, but also the Crown’s wrongful prosecution and punishment to coerce compliance, a special kind of treachery that our country’s leaders have eschewed for centuries. It is up to you to pass on the traditions of liberty, freedom and democracy, and the independent judiciary necessary to sustain the traditions!
Have a great holiday weekend.
Note: This article is not legal advice. The decision addressed may not be final, and may be subject to further review. Statements and comments made are not those of The Florida Bar or the RPPTL Section.
Clarity of a judicial doctrine appeared paramount in yesterday’s decision from the District Court of Appeal, Fourth District, in Anfriany v. Deutsche Bank National Bank Co., Case No. 4D 16-4182 (Fla. 4th DCA, December 6, 2017).
The doctrine addressed is judicial estoppel, a defensive tool that arises not from statute or the rules of civil procedure, but common law. The doctrine of judicial estoppel generally seeks to ensure that the legitimacy of court decisions is not undermined by a party winning in a first case which then seeks to win in a second case by taking a diametrically opposite position. The rule can be said to keep the parties honest when appearing before different judges.
The setting once again was a mortgage foreclosure action that seemingly went awry.
In short background,
2008: The Bank files its foreclosure action against the Anfrianys which was voluntarily dismissed without prejudice at an unstated time.
May 2011: Anfrianys’ bankruptcy counsel moves to tax attorney’s fees and costs against the Bank.
May 2012: The trial court grants the Anfrianys’ motion for entitlement to attorney’s fees and costs, reserving the determination of the amount if the parties could not agree.
May 2013: The Anfrianys’ bankruptcy counsel, not foreclosure counsel, files a voluntary Chapter 11 petition for relief; however, neither the petition’s statements nor schedules list any contingency claim assets, either when originally filed or when amended.
2014: The Anfrianys’ reorganization plan was confirmed, the Appellate Court remarking that Anfriany’s debts were not discharged.
October 2015: The Anfrianys move to determine the amount of attorney’s fees and costs in the state court foreclosure action.
September 2016: The Bank’s moves to vacate the fee entitlement order granted in May 2012, arguing that judicial estoppel barred Anfrianys’ claim for attorney’s fees and costs because the Anfrianys’ failed to disclose in the bankruptcy proceeding the entitlement to attorney’s fees and costs as a contingent unliquidated asset and thus “misled ‘the bankruptcy court and creditors to believe that he had fewer assets from which he could pay his creditors.’”
In granting the motion to vacate the entitlement order the trial court relied upon a federal court decision, In re. Coastal Plains, Inc., 179 F.3d 197 (5th Cir. 1999).
In reversing, the appellate court remarked, without a comparison of analyzed the difference between federal and Florida approaches to judicial estoppel.
Traditionally, judicial estoppel has required a mutuality of the parties and that the movant or claimant in the second claim is taking an inconsistent position that was successfully maintained in a first claim. Citing Blumberg v. USAA Cas. Ins. Co., 790 So. 2d 1061, 1066 (Fla. 2001), the court noted that in addition to the traditional factors:
… the position assumed in the former trial must have been successfully maintained. In proceedings terminating in a judgment, the positions must be clearly inconsistent, the parties must be the same and the same questions must be involved. So, the party claiming the estoppel must have been misled and have changed his position; and an estoppel is not raised by conduct of one party to a suit, unless by reason thereof the other party has been so placed as to make it to act in reliance upon it unjust to him to allow that first party to subsequently change his position. There can be no estoppel where both parties are equally in possession of all the facts pertaining to the matter relied on as an estoppel; where the conduct relied on to create the estoppel was caused by the act of the party claiming the estoppel, or where the positions taken involved solely a question of law.
(Citations omitted, italics in decision, additional emphasis added. ) (Blumberg, 790 So. 2d at 1066)
The Court explained that the “prejudice” requirement would be that which “would drive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.” Citing Grau v. Provident Life & Acc. Ins. Co., 899 So. 2d 396, 400 (Fla. 4th DCA 2005). Applied to the current case, the Court recounted two elements relying on Blumberg:
“[t]here can be no estoppel where both parties are equally in possession of all the facts pertaining to the matter relied on as an estoppel.”
As a second requirement, there must be an “unfair advantage” or an “unfair detriment” on the “opposing party.”
In overview, in this time when frequently there are knee-jerk responses to court opinions, seeking to classify text as pro-debtor or pro-creditor, or otherwise, this decision appears to be a classic effort to provide guidance to trial courts and litigators. Thus, this decision should be a handy tool for the litigator. The decision interestingly implicitly draws comparisons to the doctrine of res judicata. The decision also declined to address whether the real party in interest was not the defendant owner or the owner’s attorney who may obtain the funds.
It is noted that the same Court simultaneously issued an opinion from Judge Gross which makes for very interesting reading, not because it necessarily outlines new legal doctrines, but because the Court reinforces in a context the Court described as “the underlying mortgage was passed around like the flu, giving rise to a complexity of ownership that frustrated the appellee’s attempts to demonstrate standing at trial,” the duty of a foreclosing bank to prove that it is the holder or holds a right to foreclosing note. Supria v. Goshen Mtg., LLC, Case No. 4D16-4356 (Fla. 4th DCA, December 6, 2017).
A dissent occasionally rises to become law, and the author vindicated; however, usually that occurs decades later. Turnaround was evident in Wednesday’s decision by the Fourth District Court of Appeal in Calendar v. Stonebridge Gardens Section III Cd’m Ass’n, Inc., Case No. 4d 16-3393 (Fla. 4th DCA, December 13, 2017).
The issue in Calendar was whether when disbursing surplus sale proceeds a Florida condominium association that has not recorded a claim of lien has priority over the immediately former unit owner. The holding may have significant implications far beyond the tax sale context.
The court focused on the following Condominium Act language:
(5)(a) The association has a lien on each condominium parcel to secure the payment of assessments. . . . [T]he lien is effective from and shall relate back to the recording of the original declaration of condominium . . . . However, as to first mortgages of record, the lien is effective from and after recording of a claim of lien in the public records of the county in which the condominium parcel is located.
§718.116(5)(a) Fla. Stat. (2016). The juxtaposition of the last sentence lead the court to hold that “recording a claim of lien is not an absolute prerequisite to the enforcement of a lien for unpaid assessments.” The court commented that recording may only be of significance when the association’s assessment lien and a mortgage lien are contesting for priority.
In holding, the court sided with Judge Shepherd’s dissent in Aventura Management, LLC v. Spiaggia Ocean Cd’m Ass’n, 105 So. 3rd 637 (Fla. 3rd DCA, 2013). Readers of these missives may recall Judge Shepherd’s plaintive plea in response to the Aventura mortgage foreclosuire holding asking “What happens to the [association’s] lien?” Id. at 640. Judge Shepherd concluded:
. . . [I]t is apparent the fundamental purpose of the Legislature in promulgating section 718.116 was to assist condominium associations to be made whole in the collection of past due assessments, while at the same time not unduly impairing the value of collateral held by first mortgagees. In furtherance of this design, the Legislature has given condominium associations a statutory lien on each condominium unit over which it has jurisdiction, to secure payment of assessments without the necessity of filing a claim of lien in the public records, with the single exception of first mortgagees, where record notice is required. § 718.116(5)(a).
Id at 640. Thus, the condominium association without recording a lien had a lien in priority to the former’s owner claim, the lien
This decision raises a number of interesting questions for the practitioner and clients.
The majority opinion . . . . first concludes, correctly in my view, that [the] Condominium Association’s statutory lien, afforded by section 718.116(5)(a), Florida Statutes (2008), “survives the foreclosure.” Maj. Op. at 5; see also Lassiter v. Kaufman, 581 So. 2d 147, 148 (Fla. 1991); Contos v. Lipsky, 433 So. 2d 1242, 1245-46 (Fla. 3d DCA 1983). . . .
Thus, we are still faced with the “conundrum” of if there is a lien that survives foreclosure, then what is the value of that lien particularly in light of Villas of Windmill Point II POA, Inc. v. Nationstar Mortgage, LLC, Case No.: 4D16-2128 (Fla. 4th DCA October 25, 2017), limiting the assessment liability of the lender’s grantee.
Among the end of years decisions was one highlighting an association’s potential liability for the alleged wrongful conduct of the association’s manager, Ice v. The Cosmopolitan Residences on South Beach, A Condominium Association, Inc. Case No. 14-3999,42 Fla. Law L Weekly D 2604 (Fla. 3rd DCA, December 13, 2017).
Ice obtained title to a condominium unit as a result of the Condominium Association’s assessment lien foreclosure sale. His title was subject to a pending mortgage foreclosure action. Upon his being “surprised” at the lender’s 24-hour notice and writ of possession being posted on his door, Ice sought to remove some of his possessions, but was unable to secure storage for all.
From this point, what occurred apparently was greatly disputed. As this matter was an appeal from the granting of a motion to dismiss, the Court addressed Ice’s allegations which included the following:
Ice also alleged that he never received any of his property. The court dismissed Ice’s Complaint with prejudice.
The dismissal of Ice’s conversion count was reversed. The Complaint alleged the Association’s intentional control over Ice’s property with an intent to possess some or all of Ice’s property. The alleged “quid pro quo” for Ice to turnover certain items in return for access was without a legal right. The property retained in the storage unit was never abandoned and for which Ice made demands and undertook to recover.
The Association’s defense based on the Landlord Tenant Act was not applicable because the situation did not involving the rental of a dwelling unit. Further, the exculpation provisions of §83.62(2) Fla. Stat. (2012), applies to the sheriff, landlord and landlord’s agent, not including the Association or it’s manager.
As the wave of the great recessions foreclosures may have crested, numerous writs of possession continue which have led to sheriffs removing and depositing property. Most associations do not want to see any person’s property deposited on the street in front of the condominium or a home. If an association allows the property to remain within the condominium or common area, then the association likely would want to take care not to violate the (former) owner’s right to possess his or her property. In this regard, association managers should be careful not to deprive owners of their rights or be seen to inappropriately bargain.
The dismissal as to the count seeking the breach of bailee’s duty was affirmed because the Association was not alleged to have obtained “independent, temporary, exclusive possession of the property from Mr. Ice.” The intervening efforts of the Deputy Sheriff appeared to prevent this claim from reaching fruition.
What is to be learned? Plan in advance. If a writ of possession is to be enforced, then associations should consider where would be best for property to be moved, of course in conjunction with law enforcement. Association’s should likely avoid taking possession or control. Personnel likely should be instructed not to bargain for the property.
© 2018 Michael J. Gelfand
Continuing the end of year clean up, when faced with three different covenant provisions addressing the same issue, how would a court proverbially “split the baby” was addressed in Waverly 1 and 2, LLC v. Waverly at Las Olas Condominium Association, Inc., Case No. 4D16-2866, 42 Fla. L. Weekly D2569 (Fla. 4th DCA December 6, 2017).
Appellant, the Waverly LLC, owned two commercial units at the “mixed use” Condominium. The Waverly LLC apparently removed two $18,000.00 canary palm trees which were “appurtenant” to the owner’s condominium units. The Declaration provided in pertinent part as follows:
9.1 … no unit owner shall cause or allow any improvement or changes to… any landscaping… without first obtaining the written consent of the Board….
9.3 Anything to the contrary notwithstanding, the foregoing restrictions of this section 9 shall not apply to Developer owned Units or Commercial Units…. Additionally, each commercial unit owner shall have the right, without consent or approval of the Association, the Board of Directors or other Unit Owners, to make alterations….
17.4 The foregoing shall specifically not apply to the Owners or the Commercial Units specifically the Owner of Commercial Units expressly permitted….
After a non-jury trial the trial court found that the landscaping was a Common Element and that the commercial unit owners were required to obtain written consent before altering landscaping appurtenant to their unit.
The Court recited what we may commonly refer to as “judicial rules of interpretation” First priority is the intent of the parties which should be “discerned from within the ‘four corners of the document,’” quoting Emerald Pointe POA v. Commercial Const., 978 So. 2d 873, 877 (Fla. 4th DCA 2008). In addition, interpreted language must be “read in conjunction with the other provisions….” Royal Oak Landing HOA v. Pelletier, 620 So. 2d 786, 788 (4th DCA 1993). Finally, quoting again from Emerald Pointe “Where contractual terms are clear and unambiguous, the court is bound by the plain meaning of those terms.” 978 So. 2d at 877.
Thus, the “Notwithstanding” language of Article 9.3 governs, and the judgment reversed with directions on remind to enter judgment in favor of the owner!
This decision is helpful to the practitioner in re-enforcing the rules of judicial interpretation. Of further significance to the Association practitioner was the court’s commentary on the “rule of adverse construction.” This rule is invoked “where a contract is ambiguous, it will be interpreted against the drafter.” This is to be a “rule of last resort”, applied only if the party’s intent cannot be “conclusively determined.” citing again to Emerald Pointe at 878 n.1.
As we draft covenants, either originally as developer’s counsel or amendments as association counsel, this decision reminds of the potential problem of utilizing the “notwithstanding” language and taking to help ensure that the end result is clear, albeit recognizing that the true test may be decades latter and with absolute clarity of 20-20 hindsight.
Happy drafting!
Wednesday morning the Fourth District Court of Appeal issued what may be the year’s first real “condominium case” CSC ServiceWorks, Inc. v. Boca Bayou Cd’m Ass’n, Inc. case no. 4d 12-0974 (Fla. 4th DCA, March 7, 2018). Or at least it addressed a condominium situation.
The dispute harkens back to old English common law concepts which is especially appropriate as today over seventy of our peers are scheduled to sit for the Condominium and Planned Development Board Certification Exam which is based upon fundamental real property concepts!
The battleground may be familiar, a condominium’s laundry rooms. The warriors just as familiar, the “old” laundry machine company, the “new” laundry machine company, and the condominium association.
Boiled down to essentials, CSC ServiceWorks lease of the condominium’s laundry rooms contained a right of first refusal apparently for a new lease which survived for one year beyond the lease expiration. After a lease renewal period CSC continued to occupy the laundry rooms, paying the condominium association rent on a month to month basis for nearly two years.
Apparently because of owner complaints the Association began a bidding process for a new lease in which CSC participated. Commercial Laundry was selected to be the new lessee and sought CSC to remove CSC’s machines. CSC promised to schedule machine removal, but did not do so. After not responding to a second request for removal, CSC responded to a third advising that there would be scheduling, but again without follow up. Instead, a month after the initial request to remove the machines CSC asserted that CSC would exercise its right of first refusal.
In light of CSC’s refusal to remove its machines, the Association allowed Commercial to disconnect CSC’s laundry machines. CSC’s machines were left in the laundry rooms. Though CSC was never denied access to the laundry rooms when CSC refused to remove its machines the Association demanded removal and provided notice of intent to commence a tenant eviction action. CSC then removed its machines.
CSC filed numerous claims including an unlawful detainer claim that was severed and proceeded to jury trial. The jury rendered a verdict in the Association’s favor.
The appellate court affirmed in large part relying upon the unlawful detainer statute:
No person who enters without consent in a peaceable, easy and open manner into any lands or tenements shall hold them afterwards against the consent of the party entitled to possession.
§82.02(1) Fla. Stat. (2017). The court identified three elements for the cause of action:
(1) plaintiff was in peaceful possession of the property;
(2) plaintiff was ousted of actual possession of the property; and
(3) defendant withheld possession of the property from plaintiff without consent or legal process.
Quoting from Floro v. Parker, 205 So. 2d 363, 367 (Fla. 2d DCA 1967).
It appears from the opinion that as a matter of law that an ouster is not the simple act of disconnecting CSC’s laundry machines and moving the machines to an opposite side of the laundry rooms, but within the leased premises, remaining open to the tenant. CDC’s claimed right to maintain the connections was controlled by the lease which was not at issue in the unlawful detainer proceeding. The court further elaborated that the unlawful detainer action was “about actual physical dispossession of real property, not constructive or useful disposition.”
This decision reminds practitioners that it sometimes it bears looking beyond the Condominium or Homeowners’ Association Acts, and even beyond your client’s contract for remedies and relief, in this case, the common law incorporated into Florida Statutes Chapter 82. It is also of interest in this matter that the machines were disconnected after the lease expired and possession was on a month to month basis. There is also the Court’s legnthly recitation of the requests for removal and CSC’s apparent lack of follow through. Of course, would you really want a jury trial?
Good luck to the Certification Exam takers.
Have a great rest of the week.
P.S. I have some notes on decisions issued since the beginning of the year that will shortly be forthcoming.
What may be the first reported Florida appellate court decision applying the Homeowners’ Association Act’s SLAPP suit prohibition, §720.304 Fla. Stat. (2015), appeared recently in Two Islands Dev. Corp v. Clarke, Case No. 3D 16-388 (Fla. 3rd DCA, January 24, 2018).
Described as the fifth of a “series of cases” the facts were a bit long compared to the HOA law impact.
Setting: Miami-Dade County. A road from “Williams Island” connects by a bridge to the “South Island” and the road continues across another bridge to the “North Island”.
Appellants/Plaintiffs: Sought to develop on the North Island a 16 story two tower condominium.
Appellees/Defendants: Owners of single family residential homes on the South Island
Complaint. North Island development entities five count complaint against the South Island homeowners included claims for breach of covenant, specific performance and breach of duty of good faith and fair dealing alleging the South Island homeowners allegedly “have taken steps to protest or otherwise interfere with the development.” Wrongful conduct allegedly included “instituting lawsuits, lobbying city officials, and interfering and preventing a settlement of a settlement of a separate lawsuit creating delays and additional expenses and lost sales.”
Trial Court Disposition. Motions to dismiss an amended complaint were granted, including dismissing the three causes of action identified above because the defendants did not sign the covenants, the defendants are not parties and are not bound by the covenants, and “the litigation privilege and anti-SLAPP statute (§720.304, Fla. Stat. (2015)” applied to the claims asserted in the amended complaint.
Appellate Holding: Following a detailed analysis, the Appellate Court held that “South Island defendants were not parties or signatories” to the covenants and thus were not bound by the covenants. The South Island Homeowners Association apparently was a party to the covenants but that did not bind the individual owners, especially as the owners’ lots were excluded from the covenant.
The Appellate Court after announcing its affirmance of the trial courts dismissal on substantive grounds, noted at footnote 10 that an alternative ground of dismissal, the anti-SLAPP statute, was also an appropriate basis for dismissal.
It appears unfortunate that the Appellate Court did not provide additional detail regarding the anti-SLAPP factors. One might surmise from the summary nature of footnote 10 that that the Complaint’s allegations based upon the filing of a lawsuit and lobbying public officials lead as a matter of law to a SLAPP dismissal.
The relatively lengthy decision touched upon many areas that may also be of interest to litigators including: between an oral decision and entry of a written order, a Plaintiff may squeeze in a voluntary dismissal divesting the trial court of jurisdiction to enter the order which was the basis for reversing the trial court’s dismissal of the voluntary dismissed counts; and, the broad scope of the litigation privilege, protecting statements made in pleadings related to the litigation.Dear
Have a great day, and may the year be one of good health and peace.
Abracadabra! With a flick of the hand the admission of business records was simplified, at least within the jurisdiction of the Second District Court of Appeal following Jackson v. Household Finance Corp III, 43 Fla. L Weekly D261 (Fla. 2nd DCA, January 31, 2018). This decision likely will ease concerns within the First and Second Districts when planning how to lay a foundation for admission of records when management or administrators change, such as management companies or loan servicers.
While the mere incantation of statutory “magical words” will now pave the way for consideration of records in the Second District, the Court avoided comment on the policy implications which eventually must be addressed by the Florida Supreme Court because Jackson creates a conflict between with the Fourth District Court of Appeal.
HFC sought to introduce lender transaction records in a mortgage foreclosure action. HFC’s witness’s testimony mimicked word for word the regularly conducted business activities exception to the hearsay rule, §90.803(6) Fla. Stat. (2014). HFC’s witness did not explain how the witness obtained personal knowledge of record keeping systems. The trial court admitted the records.
Affirming, the Appellate Court set out a two part test for admission. Reviewing precedent, first, a proponent’s burden of proof for the admissions of a business record may be laid with the “magical words” reciting the text of the statutory exception of the hearsay rule. Once that predicate is established, then, second, if there is an objection to admission of the record the burden of proof shifts to the opponent to undermine the witness’s credibility. An example of an opponent’s strategy may be by demonstrating that the witness was unqualified by inadequate personal knowledge or otherwise.
The Jackson Court relied in part on Nordyne, Inc. v. Fla. Mobile Home Supply, Inc., 625 So. 2d 1283, 1288 (Fla. 1st DCA 1993). Nordyne recounted the testimony of the records custodian which when compared to the statutory hearsay exception, appears to track the statute’s text; thus, the testimony satisfied the statutory requirements and that court reasoned, should have been admitted. Therefore, though the term “magical words” was not utilized in Nordyne, that is apparently sufficient in the jurisdiction of the First District Court of Appeal. It is noted that the Second District doubled down on Jackson recently in Knight v. GTE Federal Credit Union, case no. 2D16-3241 (Fla. 2nd DCA, February 14, 2018).
The Jackson Court sought to distinguish and certified conflict with Maslak v. Wells Fargo Bank, N.A., vg190 So. 3d 656 (Fla. 4th DCA 2016), which in turn relied upon Sanchez v. Suntrust Bank, 179 So.3d 538 (Fla. 4th DCA, 2015). Thus, the Jackson decision will likely not have state wide application, especially within the jurisdiction of the Fourth District. Trial courts within the First District will likely follow Nordyne.
As a practical matter, this statute reinforces the teaching that proponents offering to introduce business records should have the hearsay exception statute ready to recite the magical words (not abracadabra!). Also, the Court reminds litigants of what may be overlooked, that business records may be admitted by a “certification or declaration,” without a live witness, so long as notice of an opportunity for inspection in advance is provided pursuant to §90.803(6)(c) and §90.902(11).
In conclusion, it appears that the broad approach for admissibility of business records that began with Glarum v. LaSalle Nat’l. Ass’n. 83 So.3rd 780 (Fla. 4th DCA 2011), continues. As to whether this trend stays true to the policy of ensuring genuineness and authenticity is a question apparently for another time.
We await word from the Supremes!
The benefit of living on the edge was apparent, so to say, in Pelican Creek Homeowners, LLC v. Pulverenti, Case No.5D16-4046 (Fla. 5th DCA February 2, 2018).
In this case, the edge was platted property. Specifically the issues involved: Who owns real property dedicated in a plat to a county for street and easement purposes after the county relinquishes its dedicated rights? Are there special considerations when the dedicated area is just inside a plat’s boundary?
The HOA and some owners of lots within a plat sued to require removal of the Pulverentis’ dock and boathouse allegedly constructed on the Plaintiff owners’ property. The trial court facing dueling motions for summary judgment denied the Plaintiff owners’ motion, but granted the Pulverentis’ motion.
In brief review of the facts, a plat created in 1960 included Plaintiff owners’ lots, and dedicated to Brevard County a ten-foot drainage easement area along the north side of a canal on the plat’s “margin” which was just inside the plat’s boundary. In 1980, the County relinquished its right to the easement area. The dock and boathouse were constructed on this easement area in 2006. The Pulverentis apparently own property adjoining, but not within, the northern boundary of the plat.
Initially the appellate court differentiated between dedications created by statute and dedications by common law. The Court’s explanation is summarized as:
Here, the 1960 plat dedication does not refer to the statute or an intent to transfer; thus, there was no statutory dedication and title remained in the dedicator at the time of the dedication.
Pursuant to §177.085 Fla. Stat. (2016), codifying the common law rule, the transfer of property subject to a plat with a reservation for streets and easements creates a presumption that the abutting lot owners own to the center of the road or easement. Though the statute allows an exception when the dedicator files suit to reserve title, the dedicator did not timely do so.
When the dedicated area is not located between two lots, such as when the dedication is to an area within and bordering the edge of a plat, the “margin,” common sense dictates that the one adjoining lot within the plat retains ownership of the dedicated area, not just to the centerline.
Why? The Court recognized that a line must be drawn to avoid the impossibility of a parcel of land not having an owner upon relinquishment of the dedication. Two bases for their holding appear to be:
· A lot outside the plat should not enjoy half of the easement area because the lot outside the plat did not share a common grantor.
· A lot within the plat would enjoy the greatest benefit because the area adjoins the lots and would provide, in this instance, drainage for future maintenance.
Here because the Plaintiff owners’ lots are the closest to the easement area which is on the edge of a plat, the owners can be said to be the only property owners that contributed to the creation of the easement area. Also, when the County vacated the dedication, public policy supports the Plaintiff owners owning what appears to be an extension of their lots into the easement area, the easement area not being carved from the Pulverentis’ lot. As a result, the trial court’s summary judgment was reversed and remanded. Note that the Court’s textural description of the property indicates that a canal separates the Plaintiffs’ lots and the easement area, a distance that did not apparently impact the Court’s reasoning, but which might have an impact under other circumstances.
This decision is of interest to the practitioner as it contains a thorough explanation of the difference between common law and statutory dedications as well as differentiating tracts that bound a plat.
One question raised by the opinion’s choice of words is the difference between “revoking,” “abandoning” or “vacating” a dedication? The opinion utilizes these terms apparently interchangeably.
As is increasingly common, would the result have changed if the property adjoining the plat was owned by a common grantor/dedicator of the first plat? Developers of planned communities frequently plat one portion at a time, and adjoining plats will be created by a common grantor. As the opinion appears in part to rest upon the assumption that there is not a common grantor, the result could change under this scenario.
Though perhaps not at issue in this matter, but occurring in other developments are irregularly drawn lots, not perfect rectangles. When a lot line meets a dedicated area at a non-perpendicular angle, how should a lot’s property line extend in that dedicated area.
Further, while it would have been helpful, it apparently was not necessary for the Court to reach the question of what is the effect of a plat’s purported dedication to a non-public, private entity, such as a homeowners’ association.
Yesterday, the death knell may have been delivered to the mandatory non-binding pre-suit arbitration requirement for a condominium unit owner claims against that owner’s condominium association. The exclusion from mandatory arbitration of a “dispute” including an alleged “breach of fiduciary duty” was addressed in Palisades Owners’ Association, Inc. v. Browning, Case No. 1D17-2129 (Fla. 1st DCA, March 15, 2018),
Reinforcing that bad facts make bad law, as recited in the opinion two Association directors who are unit owners installed a permanent boat lift at the end of the condominium’s boat dock for those two owners’ “exclusive use” without obtaining approval of the unit owners. After unit owner Browning complained, the Association’s Board of Directors, including one of the two directors that installed the lift, voted to amend the “by-laws” to allow “temporary personal boat docks.” The opinion recites that a common element alteration requires super-majority unit owner approval.
Without demanding or undertaking mandatory pre-suit non-binding arbitration pursuant to §718.1255 Fla. Stat., Browning filed a complaint in circuit court. The opinion without indicating all the claims, stated that the complaint “included claims of breach of fiduciary duty by the Association….” The Association’s Motion to Dismiss predicated on the statutory arbitration requirement was denied by the trial court.
The Appellate Court in briefest part, perhaps setting the foundation for a re-hearing, recited that the statutory definition of a “dispute” which triggers mandatory arbitration, excludes “breaches of fiduciary duty”, citing to §718.1255(1) Fla. Stat. (2016). The Court rationalized that:
Browning’s complaint alleges a breach of fiduciary duty by the Association through the action of two of its board members, conflicts of interest, and violations of the Association’s by-laws. As our review is limited to the four corners of the complaint, all well-pleaded allegations must be accepted as true. Gomez v. Fradin, 41 So. 3d 1068, 1070 (Fla. 4th DCA 2010).
Thus, utilizing a binocular view of the recitation of a few seemingly “magical words” from the statute, the trial court’s denial of the Motion to Dismiss for failing to seek mandatory pre-suit non-binding arbitration was affirmed.
It is respectfully submitted that a unit owner’s mere incantation of the four words “breach of fiduciary duty” in a complaint against the owner’s condominium association fails to take into account the statute’s plain language and intent, and further is based upon misperceptions of underlying legal theories.
Starting with the statutory duty to arbitrate, the opinion paraphrased the arbitration statute, apparently overlooking the express predicate for an exclusion from the definition of “dispute,” three significant words. Compare the Court’s recitation of the exclusion to the actual statutory text. The Court’s paraphrase is as follows:
However, the Legislature specifically excluded from the statutory definition of “dispute” several categories of more complex disagreements between unit owners and condominium associations including title claims, interpretation or enforcement of a warranty, fee assessments, evictions, breaches of fiduciary duty, and claims for damages for failure to maintain common areas. § 718.1255(1), Fla. Stat. (2016).
(Emphasis added by Court). Next, compare the above to the actual text of the exclusion:
“Dispute” does not include any disagreement that primarily involves: title to any unit or common element; the interpretation or enforcement of any warranty; the levy of a fee or assessment, or the collection of an assessment levied against a party; the eviction or other removal of a tenant from a unit; alleged breaches of fiduciary duty by one or more directors; or claims for damages to a unit based upon the alleged failure of the association to maintain the common elements or condominium property.
(emphasis added). While the opinion properly states that a statute must be given its plain and obvious meaning when clear and unambiguous, in this circumstance the paraphrasing deleted critical language. The deleted words appear intended to prevent removing from a trial court what otherwise would be a “dispute” subject to mandatory pre-suit non-binding arbitration.
The opinion’s lack of specific identification of the claims and of any discussion of their interrelationship, critical in light of the “primarily involves” statutory text, led this writer to the rare delving into the record for information outside of the opinion. For example, the opinion does not state whether the plaintiff unit owner sought damages or equitable injunctive relief. A review of the Bay County Clerk's docket reveals a Complaint that has but one count entitled “Count I – Injunctive Relief//Specific Performance as to Defendant Palisades Condominium Association [sic.].” The prayer for relief demands:
… any and all immediate and permanent injunctive relief/specific performance to do the allegation in this complaint [sic], plus damages recoverable under law, plus interest and costs and attorneys’ fees together with any all other relief deemed just and appropriate.
Beyond the title of the sole count in the Complaint misnaming the defendant Association and being identified as “Count I” when there is no second count, the single count contains contradictory allegations if the claim is primarily to seek damages for breach of fiduciary duty:
As such, pleading claims in equity for injunctive relief would appear to bar a simultaneous claim in the same count for an action at law for damages! It must be stressed that this is not the situation where the Complaint pleads relief in different counts where alternatively may be alleged, more of which is below.
In addition, the opinion appears to take for granted that as a matter of law there are “claims of breach of fiduciary duty against a condominium association….” The Condominium Act clearly states in plain language:
The officers and directors of the association have a fiduciary relationship to the owners.
§718.111(1)(a) Fla. Stat. (2017) and (2016) (emphasis agdded).
Notably, the opinion does not site to the statute quoted above or the decision in Collado v. Baroukh __So.3d __, Case no. 4D16-2075, Fla. 4th DCA August 30, 2017 (Mandate Issued), which conclusively held:
Count one improperly alleged the association breached a fiduciary duty to its unit owners even though as a corporate entity, it does not have a duty to its unit owners. See § 718.111(1), Fla. Stat. (2016) (only officers and directors of a corporate entity have a fiduciary duty, not the corporate entity).
(emphasis added.) Thus, alleging a breach of fiduciary duty by the association does not create a cause of action.
If there was to be a claim for breach of fiduciary duty, then the Complaint would have to comply with the pleading requirements of Perlow v. Goldberg, 700 So. 2d 148 (Fla. 3rd DCA, 1997). While not excusing the conduct as alleged, in order to properly plead a count for breach of fiduciary duty, the Complaint would have to name as defendants the directors whom allegedly breached their duty which the Complaint does not.
Portions of the opinion indicate that there may be some misunderstandings that lead to the result, in addition to the paraphrasing of the arbitration statute. The opinion refers to the “by-laws” regarding amendments concerning common element use rights; however, the Complaint while mentioning the “By-laws” apparently once in the allegations (Complaint Paragraph 8), other references are to the Declaration of Condominium or to Rules. The By-laws at least in the form attached to the Complaint as Exhibit B do not include restrictions on use or changes to common elements or amendments for changes to the common elements.
If this opinion stands it is feared that the opinion would provide a condominium unit owner a unilateral trap door to escape from the Condominium Act’s mandatory non-binding pre-suit arbitration requirement by just incanting the magical words “breach of fiduciary duty” regardless of whether an actual claim was alleged or if it was just a tangential rather than primary focus of a claim. In this case, a decision the issues revolve around use and limitations on change, the vote by one director with a potential conflict of interest and not named as a defendant appears tangential, and not primary to the claim.
You can see how this decision could gut the “mandatory” requirements of the statute because one would expect every unit owner bringing a claim would assert that the failure to follow the “governing documents” would be a breach of fiduciary duty if there was no “primary” involvement. Because a unit owner normally does not owe a fiduciary duty to the owner’s association, this would make the trap door swing in only one direction, relegating only condominium associations to the arbitration program, again, clearly contrary to the legislative intent.
No matter what one may think of the arbitration program as it creaks away a shadow of its former self, this end run around the program’s jurisdiction is not a suitable or efficient method of attacking the process.
Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section. Decisions may not be final.
This Wednesday the Third District Court of Appeal, addressing Rule 1.221 community association class action standing, significantly limited the authority of a community association to serve as owners’ class representative, in an apparent departure from the Florida Supreme Court’s precedent.
In Central Carillon Beach Cd’m Ass’n, Inc. v. Garcia, Case Nos. 3D17-1198 & 3D17-1197 (Fla. 3rd DCA, March 21, 2018), two condominium associations, Central Carillon Beach, administering 140 units, and 2201 Collins Avenue, administering 180 units, each filed for their respective unit owners a single joint ad valorem tax petition challenge to Miami-Dade County’s Value Adjustment Board (VAB). As the appellate opinion recognized, the statute governing the VAB petition process expressly provides criteria for a condominium association to file a joint petition, §194.011(3)(e) Fla. Sta. (2016). The associations prevailed before the VAB, obtaining approximately 20% and approximately 40% reductions, respectively. Note that association standing before the VAB was not at issue in the decision.
The Property Appraiser appealed the VAB reductions in circuit court, filing numerous lawsuits, one for each condominium unit, each lawsuit naming as defendants the individual owners of the subject condominium unit. The trial court denied the Associations’ Motion to Dismiss and Motion for Certification which sought to allow the Associations to serve as owners’ class representative. The Associations appealed.
The appellate court’s analysis focused initially on the definition of “taxpayer.” Unlike the above referenced statute applying to non-litigation VAB proceedings, the “taxpayer” party in litigation is “the person or other legal entity in whose name property is assessed….” §192.001(13) Fla. Stat. (2016).
Shifting to the Condominium Act’s grant of authority, the court commented that there was only one reference to an association’s class representative standing to defend an action. An association “may defend actions in eminent domain or bring inverse condemnation actions” §718.111(3) Fla. Stat. (2016).
Contrasting the two statutes, the court leaned to the more “precise” provision for tax appeals which requires a taxpayer to be named as a party, away from what implicitly were more general application provisions in the Condominium Act providing for defensive class action standing in reference to only eminent domain and inverse condemnation actions.
Moving to the community association class action rule, Florida Rule of Civil Procedure Rule 1.221, the court dismissed the Rule’s independent efficacy as the Rule “essentially repeats” the Condominium Act’s provisions. “Again, the oblique examples and categories within Rule 1.221 must yield to the precise legislative directive in §194.181(2).” Thus, the court held that because “the associations simply do not pay the taxes in question” each individual unit taxpayer shall be the defendant in the litigation contesting that unit’s tax. The court did recognize that a class representative would bring judicial efficiencies, but that did not trump the statutory and rule provisions.
The court’s approach is surprising considering the history and policy of Rule 1.221. The Florida Supreme Court created the rule because that Court held that the Florida Legislature did not have authority to create procedures for class action standing. See Avila South Condominium Ass'n, Inc. v. Kappa Corp., 347 So. 2d 599 (Fla. 1977). Thus, the Third District appears to be breaking with Supreme Court’s Avila South precedent. Further, not addressing the purpose of a class representative, is not a class representative just place holder in name alone? Unit owners are identifiable and are bound by any judgment in which a class representative was a defendant.
Additionally, relegating Rule 1.221 to a seemingly subordinate status to statute, the court’s partial quote, listing some, but not all claims listed as allowing class action representation, seemingly overlooks the crux of the Rule. The Rule’s text is expansive, not limited, authorizing association class action representation “…concerning matters of common interest to the members, including, but limited to:….” (emphasis added). The Rule was deliberately drafted in a broad fashion, the delineation of six categories of claims not meant to be exclusive, but to be merely examples.
The court did distinguish the taxation litigation standing issue on appeal from other situations where an association is a defendant class representative. Perhaps seeking to narrow the decision’s application, for example, the court noted that contractor lien foreclosure actions do not have the same statutory party requirements as tax litigation.
Many thanks to Mr. Christy for immediately providing a copy of the decision.
Best for the weekend.
Yesterday, the Fourth District Court of Appeal strictly construed the basis for appealing an award in voluntary arbitration in a short decision. Bloom v. Ironhorse Property Owners Association, Inc., Case No.: 4D17-1985 (Fla. 4 DCA, April 11, 2018). A community association was involved; however, that may be only by happenstance.
Specifically, concerning voluntary binding arbitration, §44.104 Fla. Stat. (2016), narrowly limits the basis for a trial court to reject an award. If the issue on appeal does not fit into one of the delineated items, then, as the court quoted from the statute: No further review shall be permitted unless a constitutional issue is raised.
Please note that the cited statute and the holding do not apply to mandatory pre-suit arbitration conducted by the Division of Condominiums. The decision does not elaborate on the underlying dispute, but by the terminology utilized, it is apparent that the parties voluntarily choose the arbitration route.
In the first of two interesting appellate opinions yesterday, it was held that a trial court has no discretion regarding the ministerial award of interest awarded to a condominium association seeking to collect delinquent assessments. First Equitable Realty III Ltd. v. Grandview Palace Cd’m. Ass’n., Inc., Case No.: 3D17-669 (Fla 3rd DCA, April 11, 2018).
As a result of the Association’s lawsuit against a developer, the Association recovered a judgment for unpaid assessments. The declaration of condominium provided that interest accrues at the maximum rate permitted by law. The trial court reduced the interest claim to approximately $14,000.00, about one-third of the Association’s calculation. The Court determining that “the Association was responsible for protected litigation” and the Association “failed to mitigate its damages.”
Reversing, the appellate court relied on §718.116(3) Fla. Stat. (2017), which provides a default assessment interest rate of 18% per year if the declaration of condominium fails to provide a different rate. The court held that the statute is “clear and ambiguous.” Thus, the court would not reinterpret the statute. Therefore, the trial court had no discretion to vary from the Declaration’s rate of interest.
The opinion is unclear as to the underlying facts the trial court relied upon when reducing interest. Apparently, the trial court was less than impressed with the proceedings. Whether that impression was justified or not is unknown.
This decision likely is of assistance to condominium associations where a trial court may not understand the dynamics with the need to litigate when delinquent assessments are not paid. It is also likely that the holding will apply to homeowners’ associations because the Homeowners’ Association Act provisions in §720.3085 Fla. Stat. (2017) are substantially similar to the Condominium Act provisions cited above. As a practical matter counsel likely will need to exercise some awareness of courtroom dynamics and the potential need to educate a trial before a trial court may seek to “take it out on you” by silently punishing through a reduction in attorney’s fees.”
A condominium association’s completion of an alteration project does not moot a challenge to the special assessment funding the project as determined the day before yesterday by Florida’s Fourth District Court of Appeal in Smulders v. Thirty-Three Sixty Cd’m Ass’n, Inc., Case No. 4D17-1138 (Fla. 4th DCA, April 25, 2018).
The Condominium Association approved a $350,000.00 special assessment to maintain and renovate lobbies. Two unit owners sought injunctive and declaratory relief claiming that the Association violated the Declaration of Condominium. After the Association commenced the project the owners sought a temporary injunction which was denied. The owners in “a prudent act,” paid the assessment. By the time each of the parties’ summary judgment motions were heard, the project was completed and the owners of all the Condominium’s units having paid their share of the special assessment.
At the hearing on the parties’ summary judgment, the court questioned whether there was anything to enjoin noting that “it’s over.” The trial court granted the Association’s Motion for Summary Judgment.
Reversing, the appellate court stated that the mootness finding “is contrary to the system of self-government created by the Condominium Act. Section 718.303(1).”
Nothing is more central to condominium governance than the manner in which a board raises money from unit owners and then spends it. Given the glacial pace of litigation, a board would almost always be able to pass a special assessment, collect it, and spend it on a project before a challenge to the assessment came to trial. If the spending of an assessment always rendered moot a challenge to its legality, then the self-governance contemplated by the Condominium Act would be severely undermined; a board would have little check on its handling of money.
The owners’ claim for reimbursement of the assessment remained if a violation of the Declaration is proven, presumably as part of the declaratory judgment count. Further, if the owners prevail, the owners are entitled to the pro rata amount of assessments funding the litigation and their attorneys’ fees pursuant to §718.303(1) Fla. Stat. (2017).
The decision provides a practical reinforcement that there does not necessarily have to be a race to court before work is completed, at least as to monetary remedies. Presumably, the concept that completed work does not moot a challenge to the authority to undertake work would equally apply to a challenge by an association against an owner’s alteration. Interestingly, the appellate court outlined monetary remedies being available pointedly not disagreeing with the trial court’s determination that an injunction to reinstate the lobby before the work was inappropriate. When a case is moot, the opinion provides guidance on the method of disposition which should be a dismissal, not final judgment.
Concerning assessment payments, the appellate court provides support to two significant strategy issues. First, noting that payment of assessments while in the dispute is normally “prudent” to avoid an assessment lien foreclosure action. Second, that there is no Condominium Act provision allowing for the deposit of disputed funds in the court registry, unlike the provision for deposit of rents in the Landlord Tenant Act §83.60(2) Fla. Stat. (2017). (In this regard, the same lack of authority appears to apply to the Homeowners’ Association Act)
It is interesting to note that this opinion was issued almost ten years after an opinion by the same author in D & T Properties v. Marina Grande Association, 985 So.2d 43 Fla. 4th DCA (2008) in which Judge Gross’ opinion held in part that “… like electricity, internet access is becoming a necessity of modern life.” Id. at 50, rejecting a buyer’s challenge to a developer’s addition of internet service as part of a “multimedia” package was a material alteration or modification of an offering allowing a buyer to cancel a contract.
Yesterday morning the Fourth District Court of Appeal clarified two important concepts for practitioners: who is a “prevailing party,” particularly in a multi-count complaint context; and, when injunctive relief is appropriate, even though money may compensate for past damages?
THE ISSUES
Coconut Key HOA, Inc. v. Gonzalez, Case Nos. 4D17-739 & 17-1749 (Fla. 4th DCA May 9th, 2018), involved an appeal and a cross-appeal. Gonzalez, a homeowner, sued asserting that the homeowners’ association failed to “properly manage the surface water management system” as required by the “governing documents” and including what the appellate court stated were assertions regarding the HOA Act. Count one sought a money judgment for damages allegedly resulting from the flooding of her property. Count two sought injunctive relief relating to the homeowners’ association’s alleged management failures, including failing to address alterations.
Three distinct trial court decisions provided the foundations for the issues on appeal.
INJUNCTIVE RELIEF
Reciting the standard of appellate review as being discretionary, the appellate court cited three elements forming the statutory basis for legal and equitable relief in §720.305(1):
As to the first element, the jury found a violation of the governing documents. Addressing the second element, evidence existed that flooding could only be resolved if the Association acted. For the third element, past and future damages were differentiated. While compensatory damages were potentially available, they would only address past damage and only an injunction would prevent future harm. Nevertheless, the potential of damages for future diminished property value did not negate the lack of an inadequate remedy at law.
ATTORNEYS’ FEES
Rejecting the “no money judgment, no fees” approach to prevailing party attorneys’ fees, the appellate court focused upon the “prevailing party” language in §720.305(1).
Generally, the standard of review of an entitlement to attorney’s fees is an abuse of discretion; however, where the denial of entitlement was based not on a factual determination, but on the trial court’s interpretation of a legal issue, specifically a “prevailing party” designation, a de novo standard of review applies. The trial court is subject to reversal if the decision is not supported by “logic and justification for the result and founded on substantial, competent evidence.” As a corollary, the court recounted that when a “prevailing party” fee statute applies, reasonable attorneys’ fees must be awarded to the party that “won on the significant issues.” The trial court’s focusing on damages, or the lack thereof, was in error.
In a learning moment on the way to the holding, the appellate court reminded counsel that when a court must interpret the meaning of a legal term that is not otherwise defined by contract or statute, the court will often follow the definition contained in Black’s Law Dictionary. Corresponding to this point, Black’s is quoted as defining “prevailing party” as “[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded.” Black’s Law Dictionary 1154 (8th ed., 2004) (emphasis in quotation added from original).
Applying Black's “prevailing party” definition, the appellate court held that:
COSTS
Regarding court costs, the trial court has no discretion but to award costs to the “prevailing party.” More on what should have been a straightforward matter is below.
CONCLUSION
Concluding, the trial court’s decision granting the injunction was affirmed and the decision denying attorneys’ fees and costs was reversed and remanded for an award not only for the injunction claim but also for the damages claim.
MORE THOUGHTS FOR THE PRACTITIONER
While the decision provides helpful explanations, there are some areas that may leave you with contradictory impressions and concerns.
At first glance, Wednesday’s decision by the Fourth District Court of Appeals was a seemingly pedestrian alteration dispute over the authority of a condominium association’s board of directors to alter the condominium’s common elements; however, a further reading reveals an interesting, if not concerning, commentary on how to interpret terms in a declaration of condominium which should relegate a substantial portion of the decision to being considered dicta.
Further, the decision includes helpful guidance as to interpretation, generally, and specifically, the term “general-terms cannon.”
Posture.
In Lenzi v. The Regency Tower Ass’n, Inc., Case No. 4D17-2507 (Fla. 4th DCA June 20, 2018), Regency Tower Condominium unit owner Lenzi objected to the authorization by the Condominium Association’s board of directors of a lobby renovation swapping Carrara marble for ceramic tile without an owner vote. Apparently, the attributes of marble must have been paramount because Lenzi pursued his dispute. An adverse condominium mandatory pre-suit arbitration decision led to the trial court, and then to the District Court of Appeal.
Background.
The dispute hinged on whether the Regency Tower’s Declaration of Condominium’s use of the word “alterations” includes alterations encompassed within the Condominium Act’s use of the term “material alterations” in §718.113(2)(a) Fla. Stat. (2015). This provision stated in pertinent part:
If the declaration as originally recorded or as amended under the procedures provided therein does not specify the procedure for approval of material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions.
The Declaration of Condominium’s Article titled “Right of Association to Alter and Improve Property and Assessment Therefor,” stated that the board of directors had approval authority for “such alterations or improvements to the COMMON PROPERTY.” Mr. Lenzi asserted that the marble to tile swap was a material alteration for which the Condominium Act which required a 75% unit owner vote pursuant to §718.113(2)(a), because the Declaration did not contain the term "material alteration", instead granting the board the sole authority to approve "alterations", without further definition or qualifier.
Alteration.
It is recognized that an “alteration” has been defined very broadly, including “"To vary; change; or make different…” which lead over three decades ago to a sweeping definition of a “material alteration”:
We hold that as applied to buildings the term "material alteration or addition" means to palpably or perceptively vary or change the form, shape, elements or specifications of a building from its original design or plan, or existing condition, in such a manner as to appreciably affect or influence its function, use, or appearance.
Sterling Village v. Breitenbach, 251 So.2d 685, 687 (Fla. 4th DCA, 1971).
In light of Sterling Village and its progeny should an affirmance of the trial court’s hold in favor of the Association that a unit owner vote was not necessary have been a swift and foregone conclusion? Under the rules of interpretation that have guided the courts, in the absence of a finding of an ambiguity there is no need for a court to interpret the meaning of a disputed provision. The analysis normally stops with a court stating the plain meaning of the words.
In this matter, the Regency Tower Declaration utilizes the term “alterations.” The Condominium Act’s adding the adjective “material” does not change the target noun “alteration.” The adjective “material,” by definition a modifier, creates a subset of all “alterations.” Thus, a “material alteration” is still an “alteration.”
Thus, the Condominium Act’s use of “material alteration” in §718.1130(2)(a) does not create an ambiguity. The Act’s use of the term “material alteration” does not change the fact that a “material alteration” is still a type of “alteration.”
Dicta.
While the Court could have simply concluded its opinion with a finding that the term "alterations" contained in the Declaration is unambiguous, and therefore not subject to interpretation, the Court continued its analysis. Perhaps the Court desired to provide a fuller explanation so as to not just shut out the unit owner with a PCA. However, the extended explanation by the Court of its rationale seems to upset decades of decisions addressing judicial interpretation, including: thou shall not interpret if not ambiguous!
Nevertheless, continuing in what appears to be dicta the Court cites to two decisions interpreting contracts in the divorce arena for the proposition that a court is to seek “a reasonable interpretation of the text of the entire agreement to accomplish its stated meaning and purpose.” This broad swath of “reasonableness” creates two concerns. First, reading text in context is a standard touchstone of covenant analysis; however, a court still must return to settled precedent requiring no interpretation unless an ambiguity exists.
Second, there is the potential creation of confusion as to whether covenants are subject to a test of “reasonableness” or rather in application the test of “clear and unambiguous.” “Reasonableness” may be appear de rigor when construing contracts of money and services, or identifying procedures. On the other hand, substantive property restrictions in covenants have traditionally been subject to a stricter test of “clear and unambiguous” as a threshold to enforceability.
Thus, the Regency Tower’s Declaration provision in question, how to approve an alteration, addresses procedures, specifically the process to approve an alteration. This provision does not address restrictions on an owner’s use of real property; thus while the threshold for enforcement may be reasonableness, this memo proposes that reasonableness is not the threshold for enforcement of a covenant imposing a use restriction. Thus, when at issue was a narrow procedure, and at that a clear procedure. hopefully the decision’s broad statement regarding the interpretation of a declaration’s terms, will be recognized as dicta, not in itself create an ambiguity!
Additional Drafting Principles.
Finally, for trial courts and practitioners, the decision reinforces the value of a good dictionary and the presumption created by use of a general term. While quoting from Black’s Law Dictionary the decision continues:
terms should be given their plain and unambiguous meaning as to be understood by the “man-on-the-street”
words of common usage should be construed in their plain and ordinary sense.
The decision also explains the “general-terms cannon” as follows:
The “general-terms canon” posits that “[w]ithout some indication to the contrary, general words (like all words, general or not) are to be accorded their full and fair scope [and] are not to be arbitrarily limited.”
[T]he presumed point of using general words is to produce general coverage—not to leave room for courts to recognize ad hoc exceptions . . . in the end, general words are general words, and they must be given general effect.
Florida Bar Board Certified:
Real Estate Attorney
Condominium & Planned Development Law
What is good for the goose is good for the gander. Turnabout is fair play?
Wednesday’s decision by the Florida’s Second District Court of Appeal seems, at least to those who compare appellate decisions, to allow aphorisms to run wild.
Green Emerald Homes, LLC v. Residential Credit Opportunities Trust, Case No. 2D17-4410 (Fla. 2nd DCA June 27, 2018), may be known not only for its substantive holding that the lender could not enforce a mortgage’s sequestration and assignment of rents against a third-party acquirer of title subject to the mortgage, but also the logic leading to the holding, that plain statutory and contract language must be followed, and not subjected an interpretation analysis.
The facts are straightforward.
· 2008: Borrowers execute a promissory note and mortgage to CTX Mortgage which contained an assignment of rents. The Mortgage was recorded.
· June 2014: Junior lien holder Homeowners’ Association forecloses, resulting in a Clerk’s sale and Green Emerald Homes obtaining a Certificate of Title.
· September 2014: Residential Credit was assigned the Note and Mortgage.
· October 2014: Residential Credit files a foreclosure action, including Green Emerald Homes as a defendant.
· April 2017: Residential Credit moves to sequester earnings, revenues, rents, issues, profits and incomes based upon §697.07 Fla. Stat. (2017), and the Mortgage’s sequestration terms.
The trial court’s order on appeal granting the motion to sequester, required Green Emerald to file a copy of rental agreements to which it was a party for the year 2017, and to deposit in Residential Credit attorney’s trust account rents collected from March 2017 forward. Renters were required to pay into the trust account rents not previously paid.
The Appellate Court quoted §697.07 in large part, including the provisions stating the statute is binding upon the “mortgagor.”
The appellate court began its analysis with a foundation premise, that the purchaser of real property at a junior lien holder’s foreclosure sale did not become the mortgagor or borrower. Instead, the third-party purchaser becomes the “owner of the property subject to the superior interest and lien and posed by the recorded mortgage.” (Citations omitted). Thus, Green Emerald, not a party to the mortgage and note, was not obligated to perform pursuant to those documents. Further, otherwise Green Emerald was not an assignee.
Analyzing the duty created by the statute, the statute’s language does not bind third party owners. The statute places an obligation upon a “mortgagor.” Similarly, the Mortgage’s sequestration provisions bind the “borrower.” Green Emerald did not become the “mortgagor” or “borrower” by virtue of purchasing at the foreclosure sale, it was neither a “mortgagor” or “borrower”.
The Appellate Court does not interpret the mortgage or the statute’s text because courts do not have authority to vary the “plainly written” language of the mortgage and statute. Thus, applying the seemingly tried and true rules of judicial interpretation, at the first stop, if a statute or document is not ambiguous, there is no ambiguity to interpret! Applying the mortgage binding the “borrower” and in the statute binding the “mortgagor,” neither the Mortgage or the statute limits the third-party purchaser subject to the Mortgage.
The Court notes that the decision does not address whether the assignment of rents provision would apply to leases executed by the mortgagor/borrowers which may have been assumed by Green Emerald Homes. That issue of assumption of leases apparently was not raised in the the motion.
Moving forward, this decision will find a warm welcome from most third-party purchasers at foreclosure sales, and those purchasing property without assuming an otherwise binding mortgage. This would include Florida community associations that take title and rent property until the seemingly unending foreclosure action is completed. The decision readily acknowledges that the holding may result in longer foreclosure processes, implying that third party purchasers have a financial incentive to avoid a swift determination, but the court is bound by words as “plainly written.”
Of course, an observer may conclude that if lenders were interested in swift resolutions, then sequestration is near the end of the list of processes anticipated to speed litigation. Interestingly, the decision does not state the date of the alleged mortgage default, but the timeline reflects nearly three years passing from the filing of the foreclosure action before the sequestration of rents was sought. One would anticipate that in three years a summary judgement could be heard, if the lender had its proverbial “ducks lined up.”
One may also anticipate that lenders will seek to change the law and similarly amend mortgage documents; however, these changes would likely not impact existing mortgages.
As for the introduction’s reference to aphorisms, readers may recall the holdings that when a borrow prevails in a foreclosure because the lender cannot prove up the note, then the borrower cannot obtain prevailing party attorney’s fees because if there is no note, then there is no agreement providing for fee. The courts have strictly construed who is the “borrower” or the “mortgagor” and though the lender lost the case, the lender did not pay the borrower’s fees. See e.g. Sabido v. The Bank of New York Mellon, _____ So. 3d _____, 43 Fla. L. Weekly D 296 (Fla. 4th DCA, February 7, 2018); Nationstar Mortgage LLC v. Glass, _____ So. 3d _____, 42 Fla. L. Weekly D 815 (Fla. 4th DCA, April 12, 2017).
This decision similarly applies the plain text as to who is the “borrower” or “lender” but the result denies the lender relief. Thus, pick your aphorism: “What is good for the goose is good for the gander” or “Turnabout is fair play?” Or come up with your own.
As we head into the Independence Day holiday, please take a moment during celebrations to remind family and friends of the freedoms fought for on many types of battlegrounds over the past two and a half centuries. Relate how lawyers crafted the Declaration of Independence, and the Federal Constitution. Communicate that it is the duty of each citizen to educate themselves as to the issues of the day, to challenge what is false, what is not right, and to vote.
Do not just talk about our freedoms, but help all to be able to exercise these freedoms.
Have a great holiday. Turn off the \phone. Get some rest.
Many thanks to appellant’s counsel Brennan Grogan, and to Doug Christy, each for swiftly providing the decision.
The only thing necessary for the triumph of evil is for good men to do nothing.
- Edmund Burke
Time is money. Thus, recent seemingly conflicting appellate court decisions as to when interest starts to accrue may impact counsel’s approach.
Thursday the Fourth District Court of Appeal addressed whether a trial court has discretion to award pre-judgment interest in Sterling Village of Palm Beach Lakes Cd’m. Ass’n., Inc. v. Lacroze, Case No.: 4D-17-1385 (Fla. 4th DCA, July 5, 2018).
Astute followers will recall that just weeks ago the Third District Court of Appeal addressed a similar issue in First Equitable Realty III Ltd. V. The Grandview Palace Cd’m. Ass’n., Inc. Case No.: 3D-17-669 (Fla. 3d DCA, April 11, 2018), rehearing denied June 25, 2018.
Analysis of the two decisions indicates a conflict among the Districts.
In Sterling Village, Lacroze, successfully bid for a Sterling Village Condominium unit at a foreclosure sale and obtained title to that unit. A dispute over the Association’s demand for assessments resulted in Lacroze filing an action for an accounting, injunctive relief and damages. The Association counter-claimed seeking damages for unpaid assessments, later adding a count to foreclose a claim of lien.
Following a non-jury trial, the trial court held that owner Lacroze “shall take nothing from the action.” The trial court found owner Lacroze owed the Association money damages, plus pre-judgment interest from the date of the claim of lien’s recording, not from the date money was delinquent and due. While the opinion mentions that jurisdiction was reserved for the injunction claim, the opinion is silent as to the disposition of the foreclosure claim.
Affirming that interest did not have to be awarded from the date of the delinquency, the appellate court held that the trial court in this case had discretion to find that pre-judgment interest should commence from the date the owner received the Association’s default notice. Reciting that interest is to make a claimant whole, and the “general rule that prejudgment interest should run from the date of the loss…”, the appellate court cited to Broward County v. Finlayson, 555 So. 2d 1211 (Fla. 1990), for the proposition that interest could be withheld based on considerations of “fairness.”
When a trial court determines it would be inequitable under the circumstances to award prejudgment interest prior to a party’s notice of the default, the trial court has the discretion to find that prejudgment interest should run from the date the party received notice of the default and not the date of the default. Cuillo v. McCoy, 810 So. 2d 1061, 1064-65 (Fla. 4th DCA 2002).
Thus, “equity” may be perceived to be a basis for shortening the time from which interest accrues.
Interestingly, the decision does not cite to a specific date for when interest accrues, and its holding seems to refer to two different dates. The court’s analysis refers to the date that a notice of default is provided. That date is normally different from the date of recording of the claim of lien which is the date from which interest was allowed to accrue. The factual deference to the trial court may be explained by the lack of a record on appeal; but, is nevertheless not explained.
Especially as the Sterling Village decision appears to contradict the Third District’s First Equity decision, it may be helpful to understand the precedent upon with the appellate court relied. Both decisions appear to provide narrow distinguishing facts that would not appear to invite broad extension. The Broward County limitation on interest was predicated on the parties first negotiating in good faith on a distinct issue, workweek pay, and apparently only after extensive negotiations was a separate overtime claim raised; the Supreme Court invoked the fairness analysis for interest on the not negotiated overtime claim. In Cuillo, the claim was against an indemnitor which had no notice of the primary debtor’s underlying default. Thus, the two citations’ situations would have appeared to have been clearly distinguishable from the Sterling Village situation.
For practitioners this decision may raise uncertainties. Initially, what is the test for limiting interest, particularly what factors or threshold trigger the equitable or fairness withholding of interest? Then, if interest is to be partially withheld, then what date should interest begin to accrue, recognizing that there is usually a difference between the date of default notice and the date of recording a claim of lien.
Concerning the first, threshold issue, whether equity may reduce or bar interest, there is the recent holding by the Third District Court of Appeal in First Equitable Realty that a trial court did not have discretion to reduce interest recoverable pursuant to statute. While First Equitable could be stated to be distinguishable because it addressed the rate of interest, not when it accrues, that appears to be a distinction without a purpose.
In fairness to the Sterling Village court, the First Equitable conflict may not have been raised by the parties. In Sterling Village the Fourth District affirmed over the Association’s objection, most of the trial court’s holdings because a transcript was not provided! Further, it appears from the appellate court’s docket that briefing was completed only two days before the First Equitable decision was published which normally would have been too short of time for even counsel to have been appraised of First Equitable, and there was no notice of supplemental authority to bring the First Equitable decision to the appellate court’s attention.
Interestingly, First Equitable relies upon a Fourth District decision holding that the trial court lacked discretion to reduce an interest award based upon equitable considerations because equity cannot override a statutory mandate for an interest award. Oreal v. Steven Kwartin, P.A., 189 So. 3d 964, 966-67, (Fla. 4th DCA 2016).
Concerning the second issue, the date from which interest was allowed to accrue, there might be confusion. The court’s use of the date of recording of the lien does not normally relate to the date of a default notice, and the decision does not explain the differentiation. As the claimant was a condominium association normally the association would have provided a statutory notice of intent to lien which in turn would have been at least forty-five days before the recording of the lien. Again, this issue may be a mystery because there was not trial transcript as part of the record on appeal.
Florida Bar Board Certified Attorney:
Real Estate Law
Affirming an $850,000 fee judgment in a residential real estate contract dispute, a guaranteed attention grabber, introduced a trail blazing decision outlining real estate transaction does and don’ts. .” Diaz v. Kosch, Case Nos. 3D17-1498 & 3D17-1621 (Fla. 3rd DCA June 13, 2018).
Identifying the Buyers as “attorneys with substantial experience with real estate transactions and title matters” pulls transactional attorneys and litigation counsel into the well written opinion which graciously, and correctly, comments on one of the RPPTL Section’s outstanding products, painstakingly reviewed and updated continuously:
“The “as is” residential real estate contract developed jointly by the Florida Realtors and The Florida Bar reflects a middle-of-the-road form intended to reduce the legal fees that could be incurred if purchase contracts started from scratch for each transaction. The form reflects a wealth of experience with both successful and failed transactions among professional realtors and real estate attorneys.”
Thus, the Third District Court of Appeal recently affirmed a final summary judgment, arising from a $2.850 million residential real estate contract, ending the Buyers’ fraud and other claims in “a bitter and ‘no hold’ lawsuit against the sellers.” Diaz v. Kosch, Case Nos. 3D17-1498 & 3D17-1621 (Fla. 3rd DCA June 13, 2018).
The short form chronology is:
March 2012. Sellers list their residence for sale. Sellers’ “Owners Property Disclosure Statement” “prominently discloses” that the information is “to the best of Owner’s knowledge,” disclaims any “warranty” and warns that “it is not a substitute for any inspections or warranties.” The Disclosure covers sixteen different areas, marked “no” as to any permitting or toxic substance issues. A buyer is “encouraged to thoroughly inspect” the property, and repeats the Owners’ disclaimers.
Spring 2012. Buyers walk through the property.
September 2012. Utilizing The Florida Realtors and The Florida Bar’s “As Is Residential Contract for Sale and Purchase” the parties contracted for a $2,850,000.00 sale with an initial $50,000.00 deposit and a $235,000.00 additional deposit to be paid at the end of the ten day right of inspection period. The Contract’s “standard” provision’s addressed integration, modification, radon gas, permits and seller disclosures, together with a ten day right of inspection and the Buyers right to terminate by the end of that period.
Apparently, on day nine of the ten day inspection period, Buyers notified their broker of potential permitting issues. The following day, day ten of the ten day inspection period, the Buyers, e-mailing “for settlement purposes only,” accused the Sellers of “active misrepresentations” claimed “diminished value” and threatening “legal fees and litigation with the facts present here could easily be in the hundreds of thousands of dollars and of course during the litigation, the property will not be marketable” which the appellate court parenthetically, if not tongue in cheek, remarked that the Buyer’s communication was “presciently, as it turned out.”
The Buyers made the second deposit stating it was “with full rights reserved.” A week and a half later Buyers e-mailed a Notice of Termination, not claiming a seller breach nor inability to procure financing. The sellers confirmed that they imposed no conditions on release of the deposit however, it appears that the Buyer’s broker required a release!
October 2012, a Buyer which the court referred to as “litigation attorney Richard Diaz” listed four issues: Significant amount of unpermitted work; presence of mold and radon gas requiring significant remediation; As Is contract does not protect a seller from fraud; and, a broker’s obligation “to inform any prospective buyer everything you know.” In response, Sellers confirmed no claim to the deposit.
Two weeks thereafter Buyers sued Sellers. Eventually proceeding on their fourth amended complaint, after significant discovery, and Buyers’ depositions the court granted summary judgment for brokers and the sellers and awarded $850,000.00 in attorney’s fees and costs.
The appellate court ruled that contract paragraph 12(c) regarding inspections, was “unambiguous.”
Right to terminate without penalty. At the end of the inspection, a buyer has two choices: Either a written notice of cancellation before expiration triggering an immediate return of the deposit to the buyer; or, the contract goes hard requiring the buyers’ second deposit. The contract does not provide a “conditional tender” of the additional deposit.
The court helpfully explains that the contract creates “a path to closing the transaction.” After the inspection period is completed, there is: a walk through the day before closing; and, between the inspection period and closing seller has a duty to provide certain documents and information. The duty to provide documents is not triggered until after the inspection period is over. Buyers right to cancel is not an “open-ended extension” to investigate records or documents, especially light of the contract’s “time is of the essence” provision. Nevertheless, the appellate court goes out of its way to note that the Sellers paid over $32,000.00 to “permitting consultants” to assist with these issues, including meeting with the Buyers.
The court also laid out a path for extending the inspection/cancelation time period. Unremarkably, the extension period could have been extended by the parties’ written agreement. The court also remarks that there could be an extension of the inspection/cancellation period by the buyer “furnish additional consideration beyond that required by the existing agreement. [To this commentator it is certainly understandable that additional consideration should support an agreement, it is unclear how the decision leaps from additional consideration, in and of itself, without an agreement to an inspection period extension. Particularly because there was no mention in the decision of actual additional consideration this language may be considered dicta].
Radon: Beginning with the State statutory radon gas disclosure, and then that the Buyers were “experienced real estate attorneys familiar with radon tests” the decision markedly states the Buyers did not undertake testing during the inspection period, could have inspected, and did not establish that radon or the permitting matters were not observable.
Waiver: Waiver was not deemed to be an issue because “following accusations of fraud,” the accuser may not “justifiably rely” on the representations of the accused, and substantive negotiations aimed at resolving the dispute.” Citations deleted.
Claim to the Deposit: Anticipatory repudiation excused the Sellers from scheduling a closing or even demonstrating the traditional “ready, willing, and able to close.”
The appellate court summed up the Buyers’ efforts as seeking “to avoid losing the Property to a backup buyer, while simultaneously attempting to preserve a claim to reduction in the purchase price.” Buyers’ conduct just “exacerbated” the situation when they launched the bitter, no holds barred lawsuit.
The “moral” to this “story” may be first, at the negotiation stage, not to “reinvent” the “wheel”. The praise heaped upon the AS IS contract form, quoted at the top, could embarrass its drafters except that they deserve significant praise for their volunteer efforts, literally consuming hundreds of hours each year seeking to anticipate intricate issues to protect Florida’s citizens and investors. Proclaiming the text unambiguous, at least in the circumstances provided, transactional counsel will likely be looking to the Contract’s language. Noting the copyright on the form, please always provide recognition to the drafters!
The decision provides significant guidance regarding conduct surrounding the inspection period. Especially in the face of “bullies,” the decision will seem heaven sent. On the other hand, when a buyer keeps pushing the envelope, this will assist buyer counsel’s efforts to educate a buyer/client that limitations will be enforced and that the threats of expensive litigation likely will not be availing. For litigation counsel this decision will be handy to oppose claims if not in a motion to dismiss, then at the summary judgment level, including fraud claims.
Certainly, this decision will remind everyone of the adage attributed to President Abraham Lincoln. “Honest Abe”, known because of his reputation epitomizing professionalism, remains a hallmark standard for all attorneys. His applicable adage in this circumstance, of course, is “an attorney who represents himself has a fool for a client.” Enough said.
Knowing which version of the “AS IS” contract was utilized would assist practitioners to no end. We would know if the contract form text is the same as what might be in front of us. Though not stated in the opinion, it appears from the Miami-Dade Clerk’s docket that the contact attached to the complaint is the 2012 revision, bearing “Rev 8/10©2010 Florida Realtors and The Florida Bar.”
Many thanks to Fred Jones for bringing the decision to my attention immediately (delays in reporting of course mine) and to Marty Schwartz for also reminding. Kudos of course belong to Fred Jones and the committee members and other chairs, reviewing contract provisions selflessly to assist practitioners.
Resolving a conflict among the districts concerning which forum has jurisdiction for a mortgage foreclosure deficiency judgment was at issue in Dyck-O’Neal, Inc. v. Lanham, 17 Fla. L. Weekly S278, Case No. SC17-975 (Fla. July 5, 2018).
A mortgage foreclosure judgment expressly reserved jurisdiction concerning a deficiency. A deficiency was not sought in the same forum. Instead, Dyck-O’Neal, the assignee of the mortgage and note, filed a separate legal action against the borrower seeking a deficiency judgment. The trial court granted judgment for the borrower but based solely on the validity of an assignment of the mortgage and note. The First District Court of Appeal quashed the trial court’s judgment concluding that the foreclosure court, not the court where the money claim was newly filed, had jurisdiction pursuant to §702.06, Fla. Stat. (2014).
The issue framed by the Supreme Court was:
… Whether a complainant may pursue a separate action at law to recover a deficiency judgment when the foreclosure court reserved jurisdiction in its final judgment to adjudicate the deficiency claim.
The Court began its analysis with a review of the statute:
In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound discretion of the court . . . . The complainant shall also have the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.
§702.06, Fla. Stat. (2014) (Emphasis added by Court).
The Supreme Court held that the language “plainly allows,” indicating that the language was clear and unambiguous, that:
the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.
A separate action is prohibited only when the court handling the foreclosure action has actually granted or denied a deficiency claim.
In quashing the First District’s decision, the Court agreed with decisions from the other four districts:
Garcia v. Dyck-O’Neal, Inc., 178 So. 3d 433 (Fla. 3d DCA 2015);
Dyck-O’Neal, Inc. v. Hendrick, 200 So. 3d 181 (Fla. 5th DCA 2016);
Gdovin v. Dyck-O’Neal, Inc., 198 So. 3d 986 (Fla. 2d DCA 2016); and,
Dyck-O’Neal, Inc. v. McKenna, 198 So. 3d 1038 (Fla. 4th DCA 2016).
The decision provides a number of important lessons for practitioners. First, the Court remarked on the First District Court of Appeal’s reliance on an earlier decision which in turn relied on an earlier version of the statute. The 2013 amendments to the statute included the italicized language quoted above. Thus, relying on a prior court decision for statutory interpretation may require determining whether and how the statute has changed over time.
Strategically, the legislative change allows, if not begs for, forum shopping. After all, why would a deficiency claimant go through the exercise of drafting a new complaint, incurring filing fees and service fees, starting from scratch, as opposed to merely proceeding with a deficiency. The proofs would be similar. One exception, of course, would be if the foreclosure action was a purely in rem proceeding without obtaining personal jurisdiction over the borrowers; however, in that instance a foreclosure judgment would presumably not reserve jurisdiction for a deficiency.
In the condominium context it is noted that for quite some time the courts recognized that the Condominium Act provided a separate independent basis for a money damage claim. Maya Marca Cd’m Apts., Inc. v. O’Rourke, 669 So.2d 1089 (Fla. 4th DCA 1996).
Last week the First District Court of Appeal acknowledged the Lanham reversal in apparently similar case, Dyck-O’Neal, Inc. v. Stermilli, Case No. 1D17-3396 (Fla. 1st DCA, August 3, 2018).
A unit owner’s claim for damages suffered by a condominium association must comply with the derivative action procedure in the Florida Not for Profit Corporation Act, §617.07401, Fla. Stat., however, in seeking to reinforce a bright line test, the First District Court of Appeal may have blurred that line in the context of equitable actions in Iezzi Family LP v. Edgewater Beach Owners Ass’n., Inc., Case No. 1D16-5878 (Fla. 1st DCA August 1, 2018). Compliance with derivative action notice, independent investigation and court fact finding requirements can add substantial complexity, time, and expense to what an owner may consider is a routine straight forward claim.
The decision did not identify the underlying facts or even the claims in the owner’s 27 count complaint seeking legal and equitable relief against the Condominium Association and seven current or former officers and directors, perhaps because of the unit owner’s critical “acknowledgment” that his 27-count complaint fit within the description of a derivative action!
The court emphasized that the description of a derivative claim encompasses claims “existing in the corporation, the injury sustained … is basically the same as the injury sustained by others…” citing Leppert v. Lakebreeze HOA Inc., 500 So.2d 252 (Fla. 1st DCA 1986) (emphasis in original).
Proceeding with the owner’s concession acknowledgement, the appellate court addressed whether the Condominium Act’s private cause of action in §718.303(1), Fla. Stat. conflicts with the Not for Profit Corporate Act’s derivative action procedures. The court noted that neither statute has been substantially amended since 1976 which explains why the decision does not identify a particular year for the statutes cited.
The court began its analysis reminding that statutory interpretation begins with reading “related statutory provisions in harmony with one another….” Thus, the court held that the two statutes do not conflict.
The threshold for which statute applies turns upon the basis of the claim. If the one owner plaintiff’s claim is “… not distinct from any other unit owner, and seeks legal damages for its exclusive benefit…” then that claim would be a derivative action. The court appeared to distinguish a derivative action seek damages for a loss suffered by all owners from a claim based on a loss suffered just by an individual owner.
The courts approach to legal claims for damages may be well understood. After all, it would not seem “right” for one owner to sue for damages that were incurred, or damages that are the right of, all owners while the suing owner kept all the funds.
The court’s discussion strove to differentiate a claim for equitable relief as opposed to a claim for legal money damages. This is an important distinction because equity has traditionally allowed injunctive relief to address common element issues. For example, consider a claim for injunctive relief to repair a roof or wall, or to address an improper alteration.
The court cited three decisions from other District Courts of Appeal allowing the owner of one unit to seek equitable relief concerning common elements. Unfortunately, these favorable citations, though including parenthetical notes, did not explain why one unit owner would have a claim for equitable relief regarding common elements that all owners own, as differentiated from an owner’s claim for legal damages from a claim seeking equitable relief.
By contrasting the legal and equitable actions, it appears that the court was concerned with an individual unit owner seeking money for legal damages suffered by all owners, but still desired to allow one owner to seek equitable relief against an association for failing to comply with common element maintenance duties. In the later equitable claim, repairs to the roof or wall would not inure to the single claimant, but would benefit all owners indivisibly. Further that claims would not bar another owner from seeking relief.
Unfortunately, the decision may have created more issues by its focus on “legal” verses “equitable” claims, especially in the context of a breach of fiduciary duty claim for damages. While a claim for damages may be assumed by many to be a legal claim, a fiduciary duty claim has been seen as different. It is an “ambiguous expression”, and “…whether the action will lie at law, in equity, or both depends on the nature of the breach and the remedy sought.” King Mountain Cd’m. Ass’n., Inc. v. Gundlach, 425 So. 2d 569, 571 (Fla. 4th DCA 1982).
The court sought to differentiate a more traditional carveout for a unit owner seeking legal damages in Rogers & Fords Const. Corp. v. Carlandia Corp., 626 So.2d 1350, 1354 (Fla. 1993). In Carlandia one unit owner was able to claim damages for construction defects to common elements; however, other unit owners’ rights must be protected. The Iezzy court appears to conclude that the 2009 enactment of the Not for Profit Corp. Act Derivative Action statue “resolves the representation issues discussed in Rogers.” It is suggested that the court’s write off of Rogers may be too quick, at least to the extent that a unit owner seeks damages only that the unit owner incurred; thought it is recognized that usually all unit owners would be an indispensable party.
Touching on representative claims, the court largely sidesteps a closely related concept, the community association as class action representative provisions of Fla.R.Civ.P Rule 1.221. While the Rule is procedural, a question may be asked: does standing mandate compliance with the statutory derivative action substantive requirements in the class action context for a unit owner bringing a claim held by all owners? Perhaps because the claims were not brought as a derivative action, the court believed it did not have to reach the issue.
In conclusion, legal claims for money damages not differentiated from the same claim held by all unit owners requires a derivative action. An equitable claim seeking injunctive relief that does not award one unit owner relief to the exclusion of other owners may be able to be filed. The distinction is between claims benefiting just the plaintiff owner and claims that would ostensibly benefit the association and all owners
“Having your cake and eating it too!” This may be a fair reference to Wednesday’s decision from the Third District Court of Appeal in Gonzalez v. Federal National Mortgage Ass’n, Case No. 3D17-1246 (Fla. 3rd DCA, August 1, 2018).
First, the critical facts in very short summary. The Borrowers defaulted on their mortgage and note in April 2007. The lender’s initial mortgage foreclosure complaint was dismissed for, as the court noted, a reason not clear in the record.
On June 12, 2013 a new mortgage foreclosure was filed alleging borrowers’ default from June 1, 2007, and that the plaintiff was exercising its right to accelerate all amounts due. A bench trial resulted in a judgment of foreclosure including apparently monies due more than five years before the filing of the “new” 2013 complaint.
The Third District cited Bartram v. US Bank Nat. Ass’n, 211 So.3d 1009 (Fla. 2016), for the:
The right to file a subsequent foreclosure action – and to seek acceleration of all sums due under the note – so long as the foreclosure action was based on a subsequent default, and the statute of limitations had not run on that particular default.
Id. at 1021 (Emphasis added by court). Thus, the Third District relied on Bartram to allow a lender to recover judgment for “old” installments that otherwise would be extinguished by the statute of limitations merely by filing a complaint accelerating all installments of the debt and alleging a default within the limitations period!
The Third District acknowledged conflict with the Fifth District’s recent decision in Velden v. Nationstar Mortgage, LLC, 234 So.3d 850 (Fla. 5th DCA 2018). Thus, the stage is set for the Supreme Court to rule, undoubtedly after three of the Bartram judges rotate off the Supreme Court at the beginning of next year.
Recognizing that Supreme Court review may be lengthy, and that there may also be similar appeals on the dockets of other DCAs, we are apparently going to enter an area of great uncertainty on this issue.
While we wait for the Supreme Court to address the conflict, it likely is worth re-reading Bartram. The Third District’s interpretation is questioned. Strangely, the Third District did not quote the certified question of great public importance as rephrased by the Supreme Court:
Does acceleration of payments due under a residential note and mortgage with a reinstatement provision in a foreclosure action that was dismissed pursuant to Rule 1.420(B), Florida Rules of Civil Procedure, trigger application of the statute of limitation to prevent a subsequent foreclosure action by the mortgagee based on payment defaults occurring subsequent to dismissal of the first foreclosure suit?
Bartram, 211 So.3d at 1012 (Emphasis added). As the Bartram court laid out the facts, the initial mortgage foreclosure action was dismissed on May 5, 2011. Id. at 1014.
The issue in Bartram was simply, in essence, the right to deaccelerate and proceed anew as if acceleration had never occurred in the first place. The Supreme Court allowing a lender to “seek acceleration of all sums due” did not appear to provide any green flag that to “seek” would mean all defenses are waived merely because the magical wand of acceleration passed over the case.
The Gonzalez decision is anticipated to lead to absurd results. Consider a lender failing to file an action to enforce a note with installment payments and an acceleration provision until more than five years after the initial installment default. If there was a suit just for that initial payment, the statute of limitations would presumably bar that claim. Was it the intent of Gonzalez that all a lender would have to do to breathe life into an installment payment extinguished because of a limitations period, would be to accelerate, no matter how long after the default. This would have the practical effect of erasing a statute of limitations application until only five years after the last installment payment was due.
In addition, the Gonzalez decision appears to turn on its head the rational of Bartram, that under the mortgage text acceleration does not occur until judgment is entered. The Third District’s rational could be read to mean that when a lender accelerates all defenses are extinguished! The Gonzalez court does not quote from the mortgage and note acceleration provisions however, if the Gonzalez’ terms are similar to the Bartram terms, then acceleration and the rights that flow from it cannot occur until the entry of judgment which would not retroactively breathe life into installments extinguished five years before the complaint was even filed.
As the time for re-hearing rapidly comes to a close we will see if a motion is filed.
Last Wednesday, the Third District Court of Appeal sitting on en banc resolved a conflict between itself and the other four District Courts of Appeal, holding that rescission of a contract based on a unilateral mistake does not require inducement as an element of proof. DePrince v. Starboard Cruise Services, Inc., Case No. 3D16-1149 (Fla. 3rd DCA, August 1, 2018).
Boiling the facts down to the essence, cruise ship passenger DePrince visited the ship’s jewelry store operated by Starboard and inquired for a fifteen to twenty carat loose diamond. After the store communicated with its land-based vendor, the store provided DePrince and his partner Crawford whom was a certified gemologist, pricing of $235,000.00 to $245,000.00. The salesperson did not realize that the vendor’s quote was per-carat, not total; however, Crawford the gemologist checked with DePrince’s sister whom warned “that something was not right because the price for a diamond of that size should be in the millions and recommended not buying the diamond.” Nevertheless, DePrince bought the diamond using his American Express card. Shortly thereafter when Starboard realized its mistake it reversed the credit card charges to cancel the transaction.
DePrince sued to enforce the sale contract. Starboard defended on the basis of unilateral mistake. After two trials and two appeals the Third District Court of Appeal sat en banc on the issue of what are the elements of unilateral mistake. Procedurally, the en banc court commented that it is not bound by the District’s precedent but is “allowed to take a fresh look”. The court would be bound by Supreme Court precedent to which it cited Maryland Cas. Co. v. Krasnek, 174 So.2d 514, 542 (Fla. 1965), which held that a contract may be rescinded based upon unilateral mistake.
The en banc court found three reasons to recede from its earlier precedent requiring inducement as an element:
1. Inducement is inconsistent with Krasnek. Supporting citations in Krasnek were to contracts rescinded based on unilateral mistake without inducement. Perhaps more important, the facts recited in Krasnek did not include inducement; thus, inducement could not have been a basis for the decision.
2. The Supreme Court’s most recent discussion of the unilateral mistake test in In re Standard Jury Instructions – Contract & Bus. Cases, 116 So.3d 284, 323-24 (Fla. 2013) included instruction that did not include inducement, citing an earlier Third District decision, Penn Nat'l Mut. Cas. Ins. Co. v. Anderson, 445 So.2d 612, 613 (Fla. 3d DCA 1984).
3. The other four District Courts Appeal interpreted Krasnek to be consistent with the lack of an inducement element.
Moving forward, the court held that the three elements for setting aside a contract on the basis of unilateral mistake of material fact are
:
1. The mistake was not the result of an inexcusable act of due care;
2. Denial of release from the contract would be inequitable; and,
3. The other party to the contract has not so changed its position and reliance on the contract that rescission would be unconscionable.
The court also favorably quoted from Anderson recognizing that when there is a mistake there is undoubtedly some negligence; however, that does not always mean that there is a “inexcusable act of due care.”
Thus, the en banc panel vacated the panel opinion in the case, DePrince v. Starboard Cruise Servs, Inc., 43 Fla. L. Weekly D171 (3rd DCA January 17, 2018), and related cases were receded from, judgment for Starboard being affirmed.
This decision will undoubtedly increase the use of the defense of rescission for a unilateral mistake, particularly in the Third District. By aligning itself with the other districts, the Third District appears to remove the potential of the Florida Supreme Court exercising conflict jurisdiction to revisit the Krasnek decision. There is always the potential of certification of great public importance; however, with all five Districts aligned providing greater certainty in this area of the law, the need for certification would seem to be reduced.
Of course, after reading the decision it is hard to repress the temptation to recite “don’t leave home without it.”
Best wishes for a great week.
On the table Wednesday was whether the 60 day mandatory pre-suit notice and opportunity to cure mandated by § 558.003 and § 558.004(1)(a) Fla. Stat. 2014 extends the Statute of Repose ten year deadline for filing a claim for a latent construction defect. The decision was Gindel v. Syntax Homes (Case No. 4D17-2149, September 12, 2018).
The timeline is straightforward:
Reversing, the appellate court stated that the ten year Statute of Repose provided by §95.11(3)(c), Fla. Stat. (2014) began to run from the date of closing.
The key for the court was what is an “action.” The court quickly determined that their was no one size fits all definition. The reason is that different laws had different statutory definitions for “action”!
Chapter 558 continues to include the 60 day pre-suit notice of defect requirement, prohibiting the filing of a “action” “without first complying with the requirements of this chapter.” §558.004(1)(a), Fla. Stat. (2014).
The court held that the definition of “action” in the two chapters must be kept separate. The Statute of Repose definition of “action” in Chapter 95 is broader than the definition in Chapter 558, §95.11(3)(c)’s definition includes a “proceeding.” The “action” defined in Chapter 558 may not commence before the notice. Because an “action” cannot be filed before the notice, the notice is in essence a “proceeding” initiated as defined in Chapter 95 and thus is a “action” for the purpose of the Chapter 95 Statute of Repose.
As an independent basis for reversal, perhaps as dicta, the court commented that prohibiting the filing of an action until the pre-suit notice is provided which would have the effect of barring the claim would constitute an unconstitutional impairment to access of the courts.
The court distinguished Busch v. Lennar Homes, LLC, 219 So.3d 93, 96n.2 (Fla. 5th DCA 2017) which noted that tolling the Statute of Repose to allow time for a pre-suit notice was not an unconstitutional bar of access to the counts because of the stay right. Instead, the Gindel court stated that because the pre-suit notice requirement is mandatory, the developer should not be allowed to utilize the stay “as a sword against the homeowners” who “should not be penalized for rightly complying with the mandates of the [pre-suit notice] statute.”
The decision has the practical effect of extending the Statute of Repose for the Chapter 558 pre-suit notice period. The impact of the court’s pronouncement that the pre-suit notice period is mandatory, barring an early filed claim, may have no practical consequence as the statute expressly anticipates the potential for an early filed claim by authorizing a stay of litigation, though the stay is worded in response to an offer, § 558.004(7), which leads back to the stay discussion in Busch. Of course, if a defendant could show some prejudice by an earlier filing then that might create another story.
There is an interesting interplay between what statute should apply. The court applied without comment the 2014 statutes, the law in effect at the time the lawsuit was filed, not the statute in effect at the time of the sale when the defect apparently occurred. The earlier Statute of Repose provided for a fifteen year bar date. § 95.11(3)(c). It is noted that Fla. Laws 2006-145, Section 3) shortening the fifteen year Statute of Repose to ten years, stating that it would apply with a one year phase-in to all litigation commenced after July 1, 2006.
The Third District Court of Appeal issued its mandate in Dimitri v. Commercial Center of Miami Master Association, Inc., Case No. 3D16-2549 (Fla. 3rd DCA, August 8, 2018).
The passage of time since the decision’s issuance may allow for calmer analysis, and perhaps to reduce the initial alarm spawned by the slip opinion’s publication.
As one initial consideration, the decision is not likely to impact the status of “master” condominium associations created after 1991.
Reversing thirty years of precedent, the status of many “Jungle Den” condominium “master associations” created before January 1, 1992, See Fla. Laws 1991-103 Sec 1 (PDF Volume 751/1084) is up in the air as a result of the Third District Court of Appeal’s decision. The appellate court addressed whether the Condominium Act’s 1991 amendment to §718.103(2), expanding the definition of “association” applies to a “master” association created before the January 1, 1992 effective date of the amendment, and whether a pre-1992 association that does not operate condominium property can be a condominium association even if the association is composed of only condominium unit owners.
No material fact appeared to be in controversy. The Association is described as a “master association for a group of buildings, each with its own sub-association.” The decision recited that the Association was “formed” in 1982 “under” a recorded “Declaration of Covenants, Restrictions and Easements for the Commercial Center of Miami.” The Articles of Incorporation stated that the Association was a “corporation not-for-profit under Chapter 617.” Appellant “Dimitri owned six commercial condominium units located in one of the sub-associations.” The Association apparently does not govern or administer condominium property.
The dispute was triggered by what likely was first presented as a rather pedestrian conflict. The Association rejected Dimitri’s March 2015, request to inspect specific Association official records. Dimitri’s request was stated to be pursuant to the Condominium Association Act’s Official Records process in §718.111(12), Fla. Stat. (2014). After the denial, Dimitri sought declaratory and injunctive relief, including a declaration that the master association was subject to the Condominium Act. The trial court granted the Association’s motion for summary judgment.
No Retroactive Application of Definition
A substantial portion of the appellate court’s discussion focuses upon whether the amended statutory definition has retroactive application. The appellate court found that the 1991 amendment to the Condominium Act expanded the definition of an “association” to include:
in addition to any entity responsible for the operation of common elements owned in undivided shares by unit owners, any entity which operates or maintains other real property in which unit owners have use rights, where membership in the entity is composed exclusively of unit owners or their elected or appointed representatives and is a required condition of unit ownership.
§718.103(2), Fla. Stat. (1992 Supp.); Fla. Laws 1991-103 §1 (PDF Volume 751/1084). The court reasoned that because the 1991 Law did not expressly provide for retroactive application and, perhaps more persuasive for the court, the Law expressly stated as an effective date that it “shall take effect January 1, 1992,” there was no clear expression of a legislative desire for retroactivity. Thus, the court held that the new definition of “association” in §718.103(2) Fla. Stat. (1991) did not apply retroactively.
1982 Definition Not Applicable
Continuing, the appellate court addressed whether the 1982 version of the Condominium Act applied to the Association, 1982 being the association’s year of incorporation. The court focused on the statutory “association” definition which was limited to “operation of the condominium,” which in term was “a term of art.” Thus, because the Association does not solely administer condominium property the court determined that §718.103(15), Fla. Stat. (1981) does not apply.
The Dimitri court supported its focus solely on the administration of “condominium property,” by citation to the Florida Supreme Court’s decision of Siegel v. Div. of Fla. Land Sales, 479 So.2d 112 (Fla 1985). The Dimitri decision stated that “the Florida Supreme Court did not find the test [constituency and function] to be persuasive or helpful in Siegel” remarking that the Third District’s use of those tests, at 453 So. 2d 414 (Fla. 3rd DCA 1984), was overturned by the Florida Supreme Court.
In addition, the Dimitri court derided the constituency and function tests as being “administrative interpretations” from the Department of Business and Regulation. Because the language of the statute, presumably §718.103(2) Fla. Stat. (1982), was plain and unambiguous an agency interpretation would not be utilized.
Precedent Crumbler?
In the wake of Dimitri’s issuance, many commented that the opinion is, to say the least, inconsistent with Downey v. Jungle Den Villas Rec. Ass’n., Inc., 525 So. 2d 438 (Fla 5th DCA 1988). Long before the 1991 amendment to the Act, Jungle Den adopted the “constituency” test and the “function” test to determine whether a “master” type association is to be considered a condominium association.
The constituency test asked “whether the recreation association's "membership is comprised of only condominium unit owners, and only condominium unit owners have rights in the property administered by the Association”
The function test asked whether the association maintains or operates condominium property.
Id. at 440-441. The Jungle Den court was concerned that consumers would be left unprotected by crafty drafting undermining the legislative intent behind the Condominium Act.
The legislative intent of the requirement in section 718.110(4) of unanimous approval of any material alteration or modification of the appurtenances to a condominium unit should not be vulnerable to circumvention by the simple act of setting up an ostensibly independent corporation empowered to perform some of the functions of a condominium association but without the unit owner protection provided by chapter 718, Florida Statutes.
Id. at 441. (Footnote omitted.) It should go without saying that Jungle Den, predating the 1991 amendments to the Condominium Act, did not base its reasoning upon the 1991 amendments.
Jungle Den owed its conclusion to what the Fifth District Court of Appeal saw was a practical application of the Act. In essence, a developer’s labeling of a project should not take precedence over what actually was the status of the Towers of Quayside Association. The Dimitri court should have been well aware of Jungle Den’s rational because the Dimitri opinion begins with a reference to Jungle Den. In perhaps irony, the Fifth District recognizes that the issue is one that “has vexed” the courts!
Dimitri’s reliance on the Florida Supreme Court’s decision in Siegel appears misguided because Siegel’s facts showed that the association there could not meet either the constituency test or the function test. In Siegel, non-condominium unit owners and non-condominium property could be subject to the association. Thus, the Florida Supreme Court’s statement of legislative intent with facts which could have not created a “Jungle Den condominium” was purely dicta.
The Dimitri court’s choice of phrases likely will not reassure readers. A condominium association is not created pursuant to Chapter 718 or the other community association laws. The distinction being that a condominium association is created by the corporate acts and governed by Chapter 718.
Concerning the statutory amendment’s effective date of the 1992, it is questioned whether that is legislative guidance because all bills now have effective dates which state when they can be enforced, not consistently stating whether there is retroactive impact.
Stepping back a bit further for analysis, the Dimiti court’s confusion may be foreshadowed by the court’s terminology. For example, the court stated that the association “was formed” “under the recorded declaration of covenants…” not the articles of incorporation. A condominium association is not created pursuant to Chapter 718 or the other community association laws. The distinction being that a condominium association is created by the corporate acts and governed by Chapter 718. Furthermore, the decision speaks of Dimitri owning units in “one of the sub-association.” This is as opposed to being a member of a sub-association or owning a unit in a condominium.
This decision is certainly going to reverberate in many ways, first directly as to the administration of the master associations. It will be interesting also what becomes of the definition of a “master association.” Second, in terms of statutory retroactive impair analysis will there now be an evaluation of whether the statute is procedural or provides remedies, or just rely on the effective date?
Finally, stepping way back, this decision is a reminder that a seemingly minor situation, a request for records, can have astounding implications. But why was this dispute about access to records not mediated or arbitrated?
Whether obtaining a governmental developmental order and talking about proceedings triggers an association’s alteration approval process was at issue in Holiday Isles Improvement Ass’n, Inc. v. Destin Parcel 160, Case No. 1D17-2090, August 30, 2018).
Apparently, the Association was entitled to enforce covenants requiring building plans to be approved for work “commenced, erected or maintained.” Destin Parcel 160’s predecessor in title had “produced some construction plans and obtained a development order.”, and Destin Parcel “talked publicly about proceeding.” Destin Parcel’s refused to submit plans to the Association, at least in part asserting that plans were not finalized and no building permits had issued.
When Destin Parcel refused to provide plans in response to the Association’s demand, the Association sought declaratory and injunctive relief. The trail court granted Destin Parcel a summary judgment.
The appellate court held that the Association’s demand to review the plans was “premature.” When the trigger for obtaining approval is couched in terms of “commenced, erected or maintained”, it is unreasonable to interpret that language to require submission of plans that are either incomplete, non-final, or when the owner has not made a final decision to proceed.
Short and sweet, the decision may give pause to drafters of restrictions. Thresholds for action are desired to clearly set forth the threshold for submission. For example, seeking an alteration approval upon erection or maintaining would appear to be somewhat late, the key being approval before any work commences.
Swiss cheese like apertures underlay the recent decision in Sterling Breeze Owners’ Ass’n, Inc. v. New Sterling Resorts, LLC, Case No. 1D17-1553 (September 5, 2018).
Sterling Breeze’s developer declared and constructed a 22-story condominium, including 145 residential units. The Declaration expressly excluded four ground-floor “Associated Commercial Parcels” referred to as “ACPs” to which the developer retained fee simple ownership. Attached to the Declaration was an “Associated Commercial Parcels Easement and Reservation” between the Association and developer which specified that the ACP’s “would be used for commercial purposes in the building” and the ACP’s owner would maintain the interior and be responsible for ACP’s expenses including utilities.
Six years after the Declaration was recorded the Association sued to nullify the Reservation asserting that the ACPs were “airspace” not able to be privately owned separate from the condominium, seeking declaratory relief, quiet title and unjust enrichment for the expenses of utilities and maintenance. The trial court granted New Sterling, the ACP owner, summary judgment on the declaratory relief and quiet title claims, and after a bench trail awarded unjust enrichment damages of $332,752.93 to the Association.
The Appellate Court began its analysis with the Condominium Act’s definition of “land” as including “airspace” above the surface and
if so defined in the declaration, the term “land” may mean all or any portion of the airspace….”
§718.103(18) Fla. Stat. Thus, the Condominium Act contemplates that a declaration of condominium may exclude certain portions of airspace from the condominium.
The appellate court reversed the quasi-contract unjust enrichment award. The ACP Agreement attached to the Declaration created express obligations from the ACPs owner to the Association for the expenses sought. When a contract addresses the exact issue, a quasi-contract claim cannot proceed.
It is assumed, but interestingly the court does not expressly state, that the statute relied upon is the 2008 version which has the same language as the current version. Also interesting, the court cites for the proposition that “common law yields when it is inconsistent with state law” the Florida Supreme Court’s decision in Maronda Homes, Inc. of Fla. v. Lakeview Reserve HOA, Inc. 127 So. 2d 1258, 1268 (Fla. 2013), even though the Florida Legislature rejected the substantive holding regarding implied warranties for common area construction essential to habitability,. Fla. Laws Chapter 2012-161 Section 3, Maronda at 1271.
Those with interest in the right to buy thin air should read up on Marty Schwartz’s informative “It’s Up In The Air: Air Rights in Modern Development, 89 Fla. Bar. J. No. 4 at page 42 (April 2015), as well as §193.0237 Fla. Stat. (2018) allowing for separate parcel tax identification numbers, and thus taxation, for air parcels, which was drafted in large part by Burt Bruton and Marty.
The Third District Court of Appeal addressed receivers, generally in the condominium context, and specifically applying §718.116(6)(c), Fla. Stat. (2009), the Condominium Act’s assessment provisions in Federal National Mortgage Association v. JKM Services, LLC, Case No. 3D17-370 (Fla. 3d DCA October 3, 2018).
The background set in the midst of the Great Recession, should be familiar. Assessments for 90% of The Cedar Woods Homes Condominium’s 165 units were delinquent. A majority of the delinquent units were in foreclosure. Doing the math, that equals at least 75 of the 165 units. You would not be surprised to read that the lenders were “slow to prosecute” the foreclosures.
being protected by the “Safe Harbor Statute”, § 718.116(1)(b) (2014).
In 2009 the Association initiated a new legal proceeding in circuit court, not part of a pending matter or foreclosure, by filing an emergency petition for a receiver “to preserve and protect the condominium property.” The Association alleged that the Association appeared to be insolvent, and utility services would soon be terminated. The basis for a receiver was the above quoted statute which provided:
If the unit is rented or leased during the pendency of the foreclosure action, the association is entitled to the appointment of a receiver to collect the rent. The expenses of the receiver shall be paid by the party which does not prevail in the foreclosure action.
§718.116(6)(c) Fla. Stat. (2009). Neither the owner nor the mortgagee of any effected unit was joined in the proceeding when filed, the only parties being the Association and the Receiver. The trial court 2010 order granting the appointment of a receiver did not attach property descriptions of the units in question or place lenders on notice of the receivership.
Four years later, in 2014 a dispute arose when FNMA sought estoppel certificates from the Condominium Association for amounts due for three units FNMA obtained title following foreclosures. The Receiver’s response did not state an amount consistent with the “Safe Harbor Statute: §718.116(1)(b) Fla. Stat. (2014). but instead, the Receiver sought for the Association multiple years of past due assessments, Receiver fees, and attorney’s fees for the receiver’s attorneys.
In 2016, after negotiations did not resolve the dispute, FNMA moved to intervene in the receivership case, to terminate the receivership, to determine amounts due pursuant to the Safe Harbor Statute, and to compel an accounting. The trial court denied the motion based on FNMA’s delay in seeking relief, that the units were subject to the receivership, that the FNMA accepted the benefits of the receiver’s work, and that the “receiver amounts” were payable by the FNMA in addition to assessments.
The appellate court first held that FNMA was entitled to intervene pursuant to Fla.R.Civ.P. Rule 1.230. FNMA merely taking title by virtue of a foreclosure sale does not moot its motion to intervene. Intervention should have been granted because FNMA had a direct interest in the three units subject to the receivership, and the Receiver claimed assessments due and a lien against the units. The appellate court notes that intervention is not being sought in foreclosure litigation, perhaps distinguishing from other precedent.
The appellate court then held that the receivership orders were not valid against FNMA. The court interpreting the Condominium Act’s assessment receiver statute, remarked that the statute is to be “… read in context….” The assessment receiver statute has at least two trigger conditions: First, when there is a pending foreclosure of the condominium association’s lien for assessments; and, Second, when the receiver is to collect rent from the tenant occupying the unit in foreclosure. §718.116(6)(c) Fla. Stat. (2009).
The appellate court held that the Condominium Act’s assessment receiver statute is not triggered by a mortgage foreclosure proceeding or in post receiver appointment proceedings.
The receiver’s claims for compensation attorneys’ fees and costs are not enforceable against FNMA as the foreclosing mortgage lender. Building the foundation for the priority for claims, priority is governed by §28.222 (recording register), §695.11 (recording sequences) and, §695.01 (recording requirements).
Applying this foundation, FNMA’s mortgage liens, recorded in 2006 before the filing of the emergency petition for receiver, had priority over the Association’s liens except for the Safe Harbor Statute amounts and amounts accruing after FNMA’s Certificate of Title. Pursuant to the assessment receiver statute, the receiver’s claims are payable by the non-prevailing party. FNMA was not a party to the receivership claim and did not have an obligation to pay the receiver.
In this regard, the court noted that FNMA’s assessment liability was “clear,” limited to the Safe Harbor amount: “FNMA’s entitlement to the limitation as a loan purchaser and assignee of a final judgment of foreclosure obtained by a servicer on FNMA’s behalf is equally well-settled.”
The appellate court, perhaps seeking to soften its holding, concluded that there may be third parties who are liable, perhaps presuming that would be the unit owners who being foreclosed upon are more likely than not to be judgment proof. Nevertheless, “Due proceed required notice to the foreclosing first mortgagees before they could be taxed, after the fact, with receivership expenses for services they never sought or authorized.”
While the Association’s receivership effort was framed as “innovative and responsive to a crisis”, a lawsuit with no defendant or respondent did not involve the “traditional adversarial array of parties”; “As a result, the Receiver essentially became little more than an officious intermeddler vis-à-vis the foreclosing mortgage lenders….” In essence, “the Receiver served as a court-authorized property manager for certain units and also acted as an eviction and collection agency for the Association.”
The appellate court, recognizing that the receivership was sought and appointed only pursuant to the assessment receivership statute took the opportunity to identify that:
Florida common law provides substantial authority for the appointment of a receiver to take custody of real property and embroiled in litigation in order to preserve and protect the property as the rights of the parties are determined. See, e.g., Metro-Dade Invs. Co. v. Granada Lakes Villas Condo., Inc., 74 So 3d 593 (Fla. 2d DCA 2011) see also Fla. R. Civ. P. 1.620.
Thus, the trial court under common law could have appointed a receiver for the units apparently independently of the assessment receivership statute. Furthermore, in a common law receivership to protect and preserve property the trial court has “considerable discretion in determining who shall pay the costs and expenses of receiverships” allowing receivership fees to be taxed as costs though where there are no assets, a separate action may have to be instituted to recover the costs.
This decision likely brings to a close the short lived and discredited “blanket receiver” concept. See Saga Bay Gardens Cd’m Ass’n, Inc. v. For the Appointment of Blanket Receiver, 127 So. 3d 800 (Fla. 3d DCA 2013). The decision appears carefully crafted to avoid the impression that lien assessment foreclosure receivers are only theoretical. The appellate court noted the many ways in which the Cedar Woods receivership proceedings here did not comport with the assessment foreclosure statute upon which the Association’s petition was based. There is no limitation provided by the court on the assessment receiver statute’s use in a lien foreclosure proceeding where there is adversarial proceeding, and the unit owner which is party entitled to rent and may be liable for expenses, is a party.
Interestingly, but for the estoppel letter request seeking monies far in excess of the Safe Harbor, the receivership might not have been disturbed, at least by these proceedings. It is unclear from the opinion how the holding impacts the receiver’s past efforts, but would certainly appear to limit the receiver’s prospective efforts. Though not apparently an issue these proceedings and thus not necessary for the court to address is who pays the receiver.
Many thanks to Shawn Brown and Mark Grant for swiftly providing a copy of the decision to my attention. Best for the coming week.
A decision addressing when interest accrues, originally issued on July 5, was significantly changed on re-hearing. In a condominium association lien foreclosure action the appellate court originally held that interest would be calculated from the date of the claim of lien.
In Sterling Villages of Palm Beach Lakes Cd’m Ass’n, Inc. v. Lacroze, Case No. 4D17-1385 (Fla. 4th DCA September 12, 2018), the Fourth District Court of Appeal granted a motion for re-hearing and withdrew its July 5, 2018, opinion. On re-hearing the court held that “prejudgment interest should be calculated from the date when unpaid assessments became due. The court relied on First Equitable Realty III, Ltd. V. The Grandview Palace Cd’m Ass’n, Inc., 246 So. 3d 445 (Fla. 3d DCA 2018), the decision upon which our earlier commentary was based. Many thanks to the appellate court for recognizing the need for re-hearing.
When do the fees paid to a public adjuster exceed the Insurance Adjuster Law maximum in §626.854(11)(b) Fla. Stat. (2014), and whether that excess will invalidate the public adjuster’s employment agreement were at issue in Gables Ins. Recovery, Inc. v. Citizens Prop. Ins. Corp., Case Nos. 3D15-2320 & 3D16-87 (Fla. 3d DCA September 20, 2018). The Insurance Adjuster Law regulates insurance adjuster contracts, including prohibiting a public adjuster from obtaining more than twenty percent of the payments made on an insurance claim.
The contract terms were critical to the appellate court’s analysis. Homeowner Matusow and homeowner Difilippi, sought to recover water damage losses for their individual homes. In separate transactions with separate contracts each homeowner contracted with Gables Ins. Recovery, Inc., a public adjuster.
Homeowner Matusow contracted with Gables “to appraise, advise and assist” her claim, including hiring professional services of “appraisers, estimators, engineers and other experts reasonably needed….” after settlement efforts were unsuccessful. Matusow assigned Gables her entire claim, and also entered into a “Professional Services Engagement Agreement” which included an authorization for “filing of the claim in court.” Gables was entitled to recover attorney’s fees and costs in addition to the twenty percent recovery. The trial court granted Citizens a summary judgment based upon the statutory maximum payment, and related Florida Administrative Code Rule 69B-220.201(4)(d).
Homeowner Difilippi provided Gables a similar assignment and Professional Services Engagement Agreement, except that Gables was entitled to only ten percent of insurance proceeds recovered, but added fees and costs. The trial court granted Citizens’ motion for summary judgment similar to Matusow.
As a predicate, the appellate court discussed that the statute broadly defines “public adjuster” as including “negotiating for or effecting the settlement….” The homeowners’ agreements included as recovery efforts the filing of a lawsuit. Thus, filing of a lawsuit was just one part of the public adjuster’s efforts. The exception to the maximum fee for attorneys could not be utilized by Gables in light of Gables’ sworn statements and license was it that was a public adjuster, not asserting that it was an attorney. The court did not examine who would ultimately receiver the payment, for example the attorneys would receive some of all of the fees.
The Matusow agreements provided for payment to the public adjuster for attorney’s fees and costs in excess of the twenty percent payment on the face of the agreements; thus, the payments exceeded the statutory cap. As a result, the appellate court affirmed the summary judgment, holding that the assignment of claims to Gables Recovery was not valid, and without a valid agreement, Gables had no basis to bring a suit against Citizens.
The Difilippi agreements did not on their face indicate a fee greater than twenty percent. Thus, the appellate court remanded for a determination by the trial court to determine whether the the twenty percent cap would be exceeded.
A detailed dissent argued that the attorney’s fees would be paid to the attorneys, not the public adjusters, and that the statute while barring an excess fee did not state that an agreement with an excess fee would be invalid.
This decision cuts both ways for community associations. This decision, despite its seeming harshness should reinforce the maximum amount that associations must pay a public adjuster if one is retained. On the other hand, if litigation is anticipated, the agreements likely be carefully drafted to clarify how the claimant’s attorney is paid, whether through the public adjuster or directly from the client to the adjuster. This differentiation may have its greatest impact on smaller claims, perhaps resulting in unit owners relying more on their associations to pursue claims.
On a broader perspective the invalidation of the agreement may bring more attention to the decision. The majority and dissent vigorously argued this issue. It was unclear if the agreements had a severability provision. The dissent’s citations to preserve contracts may bear further review.
Many thanks to Doug Christy for providing the decision.
Shazam or Frankenstein! When does claim on a covenant enforcement claim morph into a statutory claim? And, is there a back door to escape the strangle hold of unconstitutional impairment of contract defenses?
The First District Court of Appeal recently ruled that a de facto statutory claim may be created out of a covenant claim trigging entitlement to a prevailing attorney’s fee in Holiday Isle Improvement Ass’n., Inc. v. Destin Parcel 160, LLC, Case No. 1D17-5241 (Fla 1st DCA, October 15, 2018).
The attorney’s fee award at issue followed the covenant enforcement matter posted on September 17, 2018 in Holiday Isle Improvement Ass’n., Inc. v. Destin Parcel 160, LLC Case No. 1D17-2090 (August 30, 2018). The Association sought to require a developer to seek approval for construction plans. Because the covenant’s threshold for seeking approval was not met, that work was “commenced, erected or maintained,” the Association’s demand was premature and the summary judgment for the developer was affirmed.
The developer sought and was awarded attorney’s fee and costs, spawning this appeal.
Apparently the Association’s complaint alleged a violation of the covenant, expressly sought to declaratory relief pursuant to Chapter 86, Florida Statutes, the Declaratory Judgment Act, but apparently did not expressly state a claim pursuant to §720.305(1) Fla. Stat. (2013).
Fee Statute.
The appellate court held that the Association’s complaint was “a defacto action” pursuant to §702.305(1) because the Complaint sought the enforcement of the Association’s covenants. The appellate court explained that the statutes text provided that when a covenant claim seeks “redress” a prevailing party fee award would follow.
Setting out the exact manner in which the court emphasized the text assists in understanding the court’s holding, if not its rationale:
Each member and . . . and each association, are governed by, and must comply with, this chapter, the governing documents of the community, and the rules of the association. Actions at law or in equity . . . to redress alleged failure or refusal to comply with these provisions may be brought by the association . . . against:
(b) A member;
The prevailing party in any such litigation is entitled to recover reasonable attorney fees and costs ....
(Emphasis in Opinion, not in original).
This holding introduces a new concept, at least to community association litigation, the “de facto action.” In retrospect, and reading the fee statute strictly, the holding’s “de facto” creation may not have been necessary. It is suggested that the court could have simply held that the statute’s plain text applied to not only claims expressly pleading a statutory claim, but the statute also applied to a common law claim seeking redress of a breach of a covenant for which the last phrase in the above quote would provide a prevailing party fee basis. This suggestion is also consistent with the jurisprudence that attorney’s fees statutes are generally strictly construed as they are a derogation of the common law. See Willis Shaw Express, Inc. v. Hilyer Sod, Inc., 849 So. 2d 276, 278 (Fla 2003).
The opinion does state whether a statutory fees basis was alleged. This seems to be a strange omission, because if the statutory basis was pled, then the statute would have been implicated providing not just an implied or de facto basis, but an express, de jure basis.
Retroactive.
The court also held that the statute, adopted after the creation of the covenants, was not an unconstitutional retroactive impairment of contract. First, the court rationalized that the statute was applied only prospectively, the cause of action accruing after the statute became effective. Second, the covenants provided that remedies shall be “cumulative of all the remedies now or hereinafter provided by law,” thus, the covenants allowed remedies as of the time remedies were sought.
For the practitioner, the first rationale appears to fly in the face of earlier decisions holding that a right to attorney’s fee is a substantive right, and provision impacts substantive rights and cannot be retroactively applied. Interesting, the citation for the second half of the court’s rationale appears to contradict the first portion. Commodore Plaza at Century 21 Condominium Ass'n, Inc. v. Cohen, 378 So.2d 307 (Fla. App., 1979).
The second rationale is actually more compelling, the covenant’s own text stating: “the remedies herein stated shall be construed as cumulative of all other remedies now or hereafter provided by law” (emphasis added by court). Thus, especially if the claim for fees is made as special damages, not just as ancillary relief, this second rationale may be on firmer ground.
While the “cumulative of all other remedies” text is far from universal, the phrase does appear in a number of Declarations; thus, as always, a close reading of the text is de rigor!
Fin.
Best of wishes for a peaceful holiday period.
Paraphrasing Gertrude Stein’s a rose is a rose is a rose, Thursday the Supreme Court of Florida issued a fractured decision on whether a friend and friend in Law Offices of Herssein and Herssein, P.A. v. United Services Automobile Ass’n, Case No. SC17-1848 (Fla. November 15, 2018).
During a breach of contract action, the Herssein law firm moved to disqualify the trial court judge based in part on the judge’s personal “Facebook” page showing opposing counsel as a “friend”. The intermediate appellate court held that a Facebook friendship standing alone does not create a traditional “friend” denied the petition. Law Offices of Herssein & Herssein, P.A. v. United Services Automobile Ass’n, 229 So. 3d 408 (Fla. 3d DCA 2017). The Third District acknowledged that the Fourth District Court of Appeal required recusal when a trial judge was a Facebook friend with the prosecutor in the case before the trial judge, the Fourth District relying on a 2009 judicial ethics advisory committee opinion, Fla. JEAC Op.2009-20 (Nov. 17, 2009). Domville v. State, 103 So.3d 184 (Fla. 4th DCA 2012),
The Supreme Court began its analysis reciting the threshold for recusal grounded in Fla.R.J. Admin. 2.330, and case law threshold of whether “a reasonable prudent person in fear of not receiving a fair and impartial trial” and “the fear must be objectively reasonable.” The court differentiated a “traditional” friendship, utilizing dictionary definitions including characteristics of affection, esteem, respect, trust or intimacy, and recognized there is a “spectrum” of relationships and friendships. Traditionally, the “mere existence of a friendship between a judge and an attorney appearing before the judge, without more, does not reasonably convey to others the impression of an inherently close or intimate relationship. No reasonably prudent person would fear that she could not receive a fair and impartial trial based solely on the fact that a judge and an attorney before the judge are friends of an indeterminate nature.”
Tackling the new issues of technology created by Facebook, the court discussed that a Facebook friend is but a person who is “digitally connected, and is not the ‘functional equivalent of a traditional ‘friendship’” and may mean a relationships somewhere on the broad spectrum “from greatest intimacy to casual acquaintance.” The friending process “provides no significant information about the nature of any relationship between Facebook “friends’”.
In short, the mere fact that a Facebook “friendship” exists provides no significant information about the nature of any relationship between the Facebook “friends.” Therefore, the mere existence of a Facebook “friendship” between a judge and an attorney appearing before the judge, without more, does not reasonably convey to others the impression of an inherently close or intimate relationship. No reasonably prudent person would fear that she could not receive a fair and impartial trial based solely on the fact that a judge and an attorney appearing before the judge are Facebook “friends” with a relationship of an indeterminate nature.
Thus, the Third District’s decision in Herssein was approved, rejecting the writ of prohibition, and the Supreme Court disapproved the Fourth District’s decision in Domville.
Justice Labarga concurred but “strongly urged judges not to participate in Facebook.”
Justice Pariente issued a strong dissent highlighting the requirement of confidence in a judge’s ability to appear neutral, noting that Facebook offers an option of “following” that is different from being a “friend,” stating “public trust and the impartiality and fairness of the judicial system is of upmost importance, this court should air on the side of caution.”
Perhaps it was the trial court analogizing the owners’ personal trainer to be like “a call girl sitting at a clubhouse bar” that peaked the appellate court’s attention, but if so, Wednesday the Fourth District Court of Appeals built upon that phrase to provide a valuable primer for classifying those who enter private property, to address regulation of personal service providers using common area, and to provide a reprise for the threshold for rulemaking in Charterhouse Assoc, Ltd., Inc. v. Valencia Reserve HOA, Inc., Case No. 4D17-2640 (Fla. 4th DCA November 28, 2018).
Property owner Charterhouse authorized the Browns to reside in Charterhouse’s property, and to exercise Charterhouse’s ownership rights within the Valencia Reserve association. The Homeowners Association’s property includes a fitness center which a “Declaration” (presumably a declaration of covenants) states is for the:
private use and enjoyment of the declarant, the Association, and the owners, and their family members, guests, invitees and tenants, but only in accordance with this Declaration.
(Emphasis added.) The Declaration also provides owners a non-exclusive easement in Association property.
The Association asserting it was acting pursuant to the Declaration’s authority to “provide owners with service [and] amenities” contracted with a third party to be the “exclusive provider of fitness services in the Association’s fitness center.” As a result of the contract, the Association enacted a rule prohibiting private trainers, instructors, physical therapists and massage therapists from working in the fitness center.
Relying upon the new rule, the Association prohibited the Browns from working with their personal trainer in the Association’s fitness center.
Charterhouse and the Browns filed an action against the Association seeking declaratory relief, injunctive relief and damages. The trial court granted the Association a partial summary judgment based on the rule.
What is an Invitee?
The appellate court seized upon the Declaration’s easement in favor of owners and “invitees.” The analysis began with a survey of the common law classifying those entering private property because there has been a shift in how the courts have defined an invitee, differentiating a licensee and a trespasser.
The “Economic Benefit Test” was originally utilized to define a person who provided a mutual economic benefit to the inviter and the invitee.
The shift was to the “invitation test” where the occupier of property allows the entrant to be used by visitors, either expressly or by reasonably implied invitation.
[T]he invitation test bases “invitation” on the fact that the occupier by his arrangement of the premises or other conduct has led the entrant to believe that the premises were intended to be used by visitors for the purpose which this entrant was pursuing, and that such use was not only acquiesced in by the owner or possessor, but that it was in accordance with the intention and design with which the way or place was adopted or prepared.
(Citations deleted.)
Applying this updated “invitation test,” the appellate court held that the Declaration specifically authorized invitees to use the fitness center. When an HOA property owner invites someone to the fitness center for companionship or personalized guidance, that property is used for a recreational purpose. Here the trainer was not seeking business from other residents nor was at the fitness center without the Browns. Thus the “economic benefit test” utilized by the trial court was improper.
Rule Making.
With that foundation, the appellate court examined the Association’s rule making process. Pulling out the well-worn favorite language of Beachwood Villas Cd’m. v. Poor, 448 So. 2d 1143 (Fla. 4th DCA 1984), the court held that the rule excluding a personal trainer who was an invitee contravened an express provision of the Declaration contrary to Beachwood, at 1145; thus, the Association did not have authority to adopt the rule. The Association’s intent could not save the rule.
Conclusion.
As survey, this decision is a valuable primer, assisting practitioners counseling association clients as to the limits of their authority to address invitees. In a different context, premises liability, the decision may have the unanticipated, but likely positive, consequence of clarifying the differentiation between a licensee, invitee and trespasser. Note of course, that the decision does not address the status of the holder of a written license or that other variation, an easement holder.
The decision will assist the practitioner when addressing an association which relies on its good faith regulatory efforts. The court summarily rejected intent as a factor when determining rule making authority.
Have a great weekend!
The pitfalls of substitute service were reinforced Wednesday, yet again resulting in a void judgment, unwinding an association’s lien foreclosure action, the resulting sale, and the certificate of title!
In Benavente v. Ocean Village POA, Inc., Case No. 4D18-1819 (Fla. 4th DCA November 28, 2018), the dispute arose in the context of a homeowners’ association’s assessment lien foreclosure action. The Association provided statutory pre-suit foreclosure notices to the homeowners at three addresses, one being the property in Ft. Pierce being foreclosed upon, and the two others in Key Biscayne. One of the owners signed a Certified Mail Return Receipt for the mailing to one of the Key Biscayne addresses.
You likely have anticipated what occurred next. The Association attempted to serve the owners only at the Ft. Pierce address, not either of the Key Biscayne addressed, including not the address where the Certified Mail Receipt was signed. The Association not being able to serve at the Ft. Pierce address still did not seek service at either of the Key Biscayne addresses.
Instead, the Association filed an affidavit for service by publication including the following:
4. That Affiant has made a diligent search, an honest and conscientious effort and inquiry and good faith efforts on information available to located [the Homeowners] by use of:
a. Process servers/investigators,
b. Computerized legal research and people trackers,
c. Skip traces, and
d. DBPR license searches.
5. That the residences of [the Homeowners] is unknown and attempts to track down [the Homeowners] at other known addresses reasonably available to Plaintiff have been unsuccessful.
When there was no response to publication a default final judgment of foreclosure was entered resulting in clerk’s sale and a certificate of title being issued to a third party.
The owners moved to vacate the certificate of title, certificate of sale, judgment, and defaults, and to quash service. The owners asserted that the Association knew the owner’s primary residence was in Key Biscayne, that the Association knew the Ft. Pierce property was only a rental property and that the Association had the owners’ email address. The trial court denied the Motion to Vacate and Quash.
The appellate court found that the “foreclosure” was void as a matter of law. First, the Affidavit “was facially defective,” relying on Martins v. The Oaks Master POA, Inc. 159 So. 3d 142, 145-46 (Fla. 5th DCA 2014), which held that the failure of an affidavit for service by publication to disclose alternative addresses created a fatal defect. Second, the failure to pursue the owner’s physical address shown on the signed Certified Mail receipt, or to utilize the owner’s email address known to the association, reflected the failure to conduct a diligent search.
The detail laid out in the opinion obviously cannot be ignored, undoubtedly intended to shout out to practitioners a loud reminder of the need to conduct a proper diligent search, and document the diligent search before seeking publication. This reminder is reinforced by the holding that an affidavit which is insufficient on its face results in a judgment that is void, not just voidable. The distinction being that a void judgment can be attacked at any time. Of course, this opinion is yet another similar decision in the community association area, demonstrating that association counsel cannot ignore the details of service.
The opinion also can serve as a tool to remind association clients to properly transmit owner location information to counsel. This includes not only alternative physical addresses, but also email addresses.
Question 1: In context of the Fair Credit laws: What vetting should occur before using an email address that is in an association’s file, but may not be confirmed to be just for the owner? Beware of a potential unintended trap.
Question 2: How would a third party be on notice the affidavit was facially defective? For example, a title examiner or homebuyer would not necessarily be on notice from the face of the affidavit that the plaintiff failed to list all known addresses. Title risks are apparent.
In passing, it is assumed that the association is a homeowners’ association. There is an inconsistency in the decision’s citation using “Ocean Village Property Owners” and the decision’s introductory paragraph which refers to “Ocean Village Homeowner’s Association.”
Of interest to appellate court geeks is the per curiam” signature. It has appeared that there has been an increase of per curiam opinions from the Third District Court of Appeal, including matters that were not particularly controversial. It is questioned what in particular regarding this opinion prompted the Fourth DCA to issue this opinion under a per curiam signature.
Wednesday, the latest salvo in the short term leasing wars was issued. City of Miami v. Airbnb, Inc., Case No. 3D17-1213 (Fla. 3d DCA, December 5, 2018).
Airbnb and property owners sued the City of Miami for declaratory and injunctive relief claiming that the city’s “vacation rental ban” was by preempted by state law and the city’s enforcement was retaliatory. Airbnb asserted that the city’s code was preempted by § 509.032(7)(b) Fla. Stat. (2016). Further, that comments made at a city commission meeting stating that the city was “now on notice” of those who spoke out” was retaliatory.
The appellate court found that there were a number of issues raised within the preemption argument. First, preemption would not bar enforcement of the code because it was undisputed that the code was “identical in its material provisions” to the code existing before the statute’s adoption. The statute specifically stated that it “does not apply to any local law, ordinance or regulation adopted on or before June 1, 2011.”
On the other hand, the city’s “zoning interpretation” adopted in 2015, after the statute, is subject to preemption. The Interpretation sought to address the codes definition of the term “residential” as “land use functions predominately of permanent housing.” Because “predominately” is not “exclusive” then, significantly, “a mere incidental use for a short-term or vacation rental may not violate” the code. Thus, if the interpretation seeks to ban all short-term rentals or otherwise extends the impact of the code, the interpretations would be preempted and not enforceable. In this regard, the codes terms, prohibiting “bed and breakfasts,” “inn,” and “hotel” does not in and of itself prohibit short term rentals of a home, particularly because the codes definition of “lodging” is restrictive including that it be furnished with a minimum of 200 square feet the court recognized that under the circumstances, and in light of the limited record, a case by case fact intensive trial court inquiry may be required.
Separately, the injunction prohibiting name and address submission from speakers and requiring speakers to be notified they can speak unanonymously was vacated. Assuming that the requirements were “chilling” free speech, the injunction was overbroad. The appellate court held that there was a legitimate governmental interest at public hearings to have names and addresses and able to call speakers to speak, determine whether a speaker is a resident who would be impacted. The court also made a sweeping statement that “most public meetings do not offer the opportunity for governmental misuse of enforcement priorities….” Nevertheless, on remand a more narrowly tailored injunction might be appropriate.
A strong concurring and descending opinion would have remanded the overbroad vacation rental injunction for modification.
This decision reinforces the need for many associations to amend their restrictions to utilize specific language addressing Airbnb type arrangements if the community desires limitations. It is of interest that Airbnb’s co-plaintiffs are referred to as “renting” their properties. Apparently the label of “license” was abandoned, at least for these proceedings. Implicit in the decision is that leasing for a non-commercial use, such as a tourist lodging, falls within a residential use which would trigger the requirement under many covenants for an amendment if the short-term rentals are to be regulated.
Whether a homeowners’ association that permits a violation of restrictive covenants is liable for damages in tort was at issue in Wednesday’s decision by the Fourth District Court of Appeal in Seminole Lakes HOA, Inc. v. Esnard, Case No. 4D18-15 (Fla. 4th DCA December 19, 2018).
Faced with a “severe parking problem”, the Association permitted on street parking despite restrictive covenants requiring otherwise. The municipal code prohibited on street parking that interferes with the flow of traffic. Allowing on street parking occasionally prohibited two cars from traveling between car parked on both sides of the street.
Esnards, driving on a street that had cars parked on both sides stopped for some time to allow an approaching car to pass because only one car could travel between the parked cars. The stop was not a sudden or an emergency stop. The Esnards vehicle was rear-ended, totaling the car and causing damages to Mr. Esnard.
The Esnards sued the driver colliding from the rear, and the Association. The Association’s motion for directed verdict was denied. A jury verdict was in favor of the Esnards, apportioning risk between the other driver and the Association.
The appellate court recognized that proximate causation is normally an issue for the trier of fact to determine; however, whether there is an intervening cause causing injury is for the trial court to determine. Addressing what legal harm is “proximate” for this analysis:
If prudent human foresight would lead one to expect that similar harm is likely to be substantially caused by the specific act or omission in question. McCain v. Fla. Power Corp., 593 So. 2d 500, 503 (Fla. 1992).
The court also sited to another two-car collision situation where it was held that:
That the defendant’s conduct of permitting the parking condition was not a proximate cause of the plaintiff’s injury because it merely furnished the occasion for the plaintiff’s own negligence in stepping into oncoming traffic, noting that the plaintiff “chose [] to walk the shoulder of the road rather than the sidewalk on the other side of the same street.” Pope v. Cruise Boat Co., Inc., 380 So. 2d 1151, 1152-53 (Fla. 3d DCA 1980).
The appellate court continued its analysis relying on the “common experience that Florida drivers frequently encounter slow or stopped traffic which in turn requires the approaching driver to maintain a safe distance.”
As a result, the negligence of the approaching driver that rear-ended the Esnards “was not reasonably foreseeable.” The Associations failure to enforce the parking restrictions was not the proximate cause of injuries.
This decision indicates that an association’s failure to enforce its restrictions, and perhaps affirmatively allowing a breach to occur, does not strip the association of its legal defenses to a tort claim. Nevertheless, when considering foreseeability the purpose of the restriction is likely to be key. If the restriction was purely for aesthetics then lack of foreseeability may very well provide a substantial defense. Alternatively, if the covenant was in place to help ensure safe driving, then that would be another issue.
Thus, this decision should not be taken as carte blanche for associations to avoid enforcement of restrictions. Notably, this decision did not overrule or address decisions dealing with other tort situations, such as associations allowing bad dogs in a no dog community and the dogs then attack children. Also, particularly in the parking context and narrow streets, associations should consider before relaxing parking restrictions the ability of emergency vehicles to accessing streets.
Requiring 100% of a condominium’s 106 unit owners to agree anything might be anticipated to doom the effort, and ultimately require judicial cleanup. Thus, ending up in appellate court may not be a surprise for the participants awaiting Wednesday’s decision in All Seasons Cd’m. Ann’n., Inc. v. Patrician Hotel, LLC, Case No. 3D17–132 & 3D17–130 (Fla. 3d DCA, April 24, 2019).
Lessons for the real estate transaction practitioner and the association practitioner are interspersed in the opinion. The dispute arose out of the Condominium Association’s board of directors’ approval of a Master Sales Agreement to sell the 106 unit Condominium, subject to consents from all unit owners or court approval to close. The Agreement included a “time of the essence” provision, a 60-day closing deadline and the following “proxy”:
Seller proxies his vote, and this document shall serve as such proxy, to the Board to vote in favor of any and all resolutions deemed necessary by the Board under the existing Declaration or By-Laws of the Association to consummate the Master Purchase Agreement, the sale of the Real Property, the plan of termination, or to commence and prosecute any legal action necessary to accomplish these matters.
When the buyer’s representative Nemni sought a 60-day extension, the Association’s president emailed a favorable response:
I indicated to Mr. Nemni that the Board after informal discussion decided [to] grant the 60 [day] extension and accept the amendment to closing date but we need to wait until next week to hold a board meeting to make it official.
Fifty-six days after the Agreement deadline for obtaining consents, the board of directors meet to unanimously approve five 60-day sale deadlines.
Approximately six months thereafter, the buyer agreed to transfer its interest in the Agreement. One month later the Association wrote that the Association would not exercise the last time extension, and terminating the contract because the Association could not obtain 100% of the owners approval.
The buyer’s assignee filed an action for specific performance in January 2012, accompanied by a lis pendens. Four and a half years later, in July 2016, the trial court entered findings of fact and conclusions of law in favor of the buyer assignee including specific performance relief and retaining jurisdiction to award damages.
The Appellate Court’s analysis begins with the recitation of two critical real property concepts. First, that specific performance is equitable in nature and requires that:
1) the plaintiff is clearly entitled to it,
2) there is no adequate remedy at law, and
3) the judge believes that justice requires it.
Clear entitlement in a specific performance context requires that:
… it must appear from the writing constituting the contract that the obligations of the parties with respect to [the] conditions of the contract and actions to be taken by the parties are clear, definite and certain.
Citations omitted. In other words, when seeking to enforce a contract to sell real property, the statute of frauds applies which requires a writing containing the essential terms of sale signed by the party against whom relief is sought.
Regarding the assertion that the board of directors had actual or apparent authority to agree to the extensions of time, the Court recited the elements of apparent authority:
(1) acknowledgment by the principal that the agent will act for him,
(2) the agent’s acceptance of the undertaking, and
(3) control by the principal over the actions of the agent.”
An apparent authority analysis must focus not on the subject of understanding of a recipient, but on the actions of the principle.
Concerning board of directors’ actual authority, while supplemental unit owner agreements consenting to the Master Sales Agreement provided the board of directors’ authority to vote for matters “deemed necessary to consummate the transaction,” that authority was limited and does not provide authority to take “any action” such as to amend contract provisions.
The Court took a further step noting that the contract language does not create a general power of attorney. A power of attorney must be “strictly construed” to “only grant those powers which are specified.”
Applying the statute of frauds, the Court noted that the Agreement’s language provided that the failure to obtain contracts within 60 days led to termination on its own terms, and that associations at board of directors meeting 56 days after the deadline could not revive a contract that had expired. The Agreement’s requirements that amendments be in writing does not allow oral modifications of the closing date.
Moving from broad real property law concepts to narrower Condominium Act requirements, the Appellate Court recited the Condominium Act’s prohibition of general proxy uses. A limited proxy form must substantially follow the form adopted by the Division. §718.112(2)(b), Fla. Stat. (2010), which form is DBPR Form CO6000-7. Thus, the contract language was found
In no way does the one-sentence proxy language of Paragraph 9(f), nor any other provision of the Supplemental Contract or Master Purchase Agreement, bear any resemblance or similarity to the sample proxy form adopted by the Division….
The assertion that the Condominium Act should not apply to the proxy text because the dispute involves the sale of the condominium building was rejected out of hand. In this discussion, the Court further noted that the board of directors may not vote by email.
This decision provides many lessons for real estate practitioners generally and in particular community association practitioners. In the community association arena, the decision addresses board of directors decision-making functions. By focusing upon mandatory procedures rejecting “informal” procedures in favor of decisions at an actual board of directors’ meeting, the court implicitly refused to allow an informal effort to bind the Association, and that decisions must be on a timely basis.
Reinforcing process, the Court expressly appears to be the first Florida appellate court interpreting the provisions of §718.112(2)(c), Fla. Stat. (2018) (2016) that the board of directors may not vote by email. The court also reinforces the limited proxy requirements of the Condominium Act. Though the subject matter of the proxy may not have been a typical unit owner vote, the general proxy prohibition was applied. Furthermore, associations must be in substantial compliance with the Division’s proxy form. Notably the Court did not state that the proxy must include the Division form’s exact language, perhaps allowing some flexibility.
For the general practitioner, whether in real estate transactions or contracts generally, the Court’s directions regarding authority, actual and apparent, are important, especially considering the different agents that an association may have and how an association may clothe an agent, particularly a manager or officer, in authority and the consequences of that authority. In this regard, there is the question of what type of responsibility does that agent have to the Association, and the importance of insurance and indemnity protections.
There is also the implicit warning that a contract whose deadline has passed cannot be extended by action after that deadline. In particular concerning real estate contracts, the statute of frauds must be considered.
One must wonder the impact of this dispute on the Condominium and its owner by the lis pendens and the litigation that is now into its seventh year!
© 2019 Michael J. Gelfand
Harkening back to the rejection of the “separate but equal” discussion from Brown v. Board of Education, 347 US 483 (1954), Monday’s decision in Curto v. A Country Place Cd’m. Ass’n., Inc., Case No.: 18-1212 (3d Cir. April 22, 2019), applied the Federal Fair Housing Act to restrictions on the times women may use a condominium pool.
The Condominium is 55+ “age restricted” with a pool funded by members’ monthly maintenance fees. After pool renovations in 2011, the pool reopened with certain hours of use designated for only male or only female swimmers. The time restriction was to accommodate religious beliefs of “modesty” where members of one sex should not see the other sex in a state of undress. In 2016 the Association increased the number of sex segregated hours on a weekly basis to: 31.75 hours as “men’s swim”; 34.25 hours as “women’s swim”; and, 25 hours plus Saturday without restriction. Most weekdays after 4 pm and all weekdays after 6:45 pm were restricted only for men’s swim.
Challengers to the same sex swimming hours restriction included: a married couple, the wife suffering debilitating strokes and sought pool therapy with her husband; and, a woman who sought to swim with her family. The trial court granted summary judgment for the Association stating that the “gender segregated schedule applies to men and women equally.”
The Circuit Court of Appeals commenced with reciting the Fair Housing Act, Section 42 USC §3604(b), prohibiting certain housing discrimination, including discrimination on the basis of sex.
The pool time restriction discriminates by limiting use at different times based on sex. Significance was placed on restrictions on evening hours when women returning home from working during the day generally were not permitted to use the pool. The Court rejected a defense based on lack of Association malice when there was a showing a disparate impact. The Court focused on the “explicit terms of the discrimination.”
The Association apparently sought on appeal to justify the pool time restriction on religious grounds pursuant to the Religious Freedom Restoration Act (“RFRA”), 42 USC §2000(bb) et. seq., but also apparently did not raise that defense to the trial court. The Court noted that even if the RFRA was raised, the Association would not have standing to raise religious grounds as a defense because the Association does not have a religious purpose. Also, apparently the record did not have adequate evidence of religious beliefs.
The Appellate Court reversed and remanded for entry of judgment in favor of the Plaintiffs.
In our heterogeneous country, founded upon immigration literally for over centuries, from literally every “corner” of the globe, and with Emma Lazarus’ immortal words of The New Colossus etched into the tablet held by the Statue of Liberty, we will have more communities with residents that have differing religious observances. Thus, disagreements regarding common area uses based on religious observances are likely to increase.
Association counsel may need to inquire beyond the facts as presented, especially with the lurking issue of “disparate impact” undermining restrictions that may appear justified on their face, but which have an impact that crosses the line into unlawful discrimination.
By the way, this is not the first time appellate courts addressed use of condominium common elements for religious purposes. Neuman v. Grandview at Emerald Hills, Inc., 861 So. 2d 494 (Fla. 4th DCA, 2003), affirmed a condominium association’s prohibition of religious services because of the potential of conflicts between religious groups.
It is not exactly George Washington cutting down a cherry tree, there is no issue of telling a lie, and it is not “a Federal case” but cutting your neighbor’s tree roots can still prompt a lawsuit with multiple appeals!
Clearing out drafts of new decision reviews, but never posted, this conveys a review concering one of the last Florida appellate decisions of 2018. On the final day of the year, the First District Court of Appeal reaffirmed the duty, or lack thereof, of a land owner for landscaping encroaching on a neighbor’s property. Balzer v. Ryan Case No. 1D18-3182 (Fla. 1st DCA December 31, 2018).
In this “second tier certiorari proceeding,” a county court was the trial court, and the first appellate stop was a circuit court. Balzer, the trial court plaintiff, petitioned for a second level, or second tier, of appeal, to the First District Court of Appeal.
Balzer’s property bordered Ryan’s property. Balzer asserted that the Ryan’s contractor cut the roots of Balzer’s tree. Apparently, Balzer’s tree roots crossed Balzer’s lot’s boundary line into Ryan’s lot. Ryan removed the roots because the roots damaged Ryan’s sewer line. Though cutting the roots did not kill the tree, Balzer asserted that the root cutting undermined his tree’s structural intergrity and increased the risk that the tree could fall on Balzer’s house; thus, Balzer then had the tree removed.
The county/trial court entered judgment for Balzer, but only for a portion of her expenses. Both parties appealed to the circuit court which reversed the judgment and remanded for a dismissal with prejudice of the Balzer’s claims.
Substantively, the District Court of Appeal restated Florida’s common law on landscaping that crosses a boundary line:
Under Florida law, it is well-established that an owner of a healthy tree is not liable to an adjoining property owner for damage caused by encroaching tree branches or roots, but the adjoining property owner “is privileged to trim back, at [his] own expense, any encroaching tree roots or branches . . . which has grown onto his property.” Gallo v. Heller, 512 So. 2d 215, 216 (Fla. 3d DCA 1987); see also Scott v. McCarty, 41 So. 3d 989 (Fla. 4th DCA 2010) (noting that Gallo reflects the predominate view around the country) (citing Encroachment of Trees, Shrubbery, or Other Vegetation Across Boundary Line, 65 A.L.R. 4th 603 (1988)).
This holding is based in practically, it is more efficient for a property owner to cut encroaching landscaping rather than forcing that owner to first obtain a judicial order, citing Michalson v. Nutting, 275 Mass. 232, 175 N.E. 490, 491 (1931). In other words:
it was wiser to leave the individual to protect himself than to subject the other to the annoyance of actions at law which would likely be innumerable.
Scott v. McCarty, 41 So. 3d 989 (Fla. 4th DCA, 2010).
On the issue of whether the alleged damage resulting from the neighbor’s self-help is actionable, the significance of the appeal being second tier appeal became apparent. Second-tier certiorari review is “extremely limited” to whether the first-tier appeal decision violated established law. Reviewing precedent, the First District Court of Appeal found no controlling precedent; thus, the circuit court’s first-tier decision finding no liability would stand. In so holding, the Court noted that the issue of whether self-help must be exercised reasonably has resulted in conflicting decisions around the country.
The First District Court distinguished decisions awarding damages occurring within a foreseeable zone of injury, most notably McCain v. Florida Power Corp., 593 So.2d 500 (Fla. 1992). The Court reasoned that the lack of a duty was not because of an absence of a zone of foreseeability, but instead because Ryan “undisputedly had a right to cut, and a rule imposing liability for causing any damage to the tree in these circumstances would effectively eviscerate that right.” (Footnote omitted).
In conclusion, the District Court held that the circuit court in its first=tier appellate capacity did not violate controlling precedent; thus, the petition for writ of certiorari was denied.
Interestingly, though the decision invokes the language of “privilege” the Court, again perhaps because of the second-tier review, may have felt constrained from carving a duty constrained by a “privilege” in concept similar to the qualified privilege found in the tort of defamation. Without engaging in crystal-balling the future, a reader could anticipate a decision on first tier review resulting in a qualified privilege, allowing a presumption of no liability which then could be overcome by a claimant’s proof of bad faith or unreasonableness.
Thus, it may be premature to counsel neighbors to run willy-nilly with chain saws to their property line. While the District Court of Appeal affirms the “right to cut” in language that could be seen as absolute, the second-tier review leaves open whether cutting must be reasonable. Thus, a property owner suffering an encroachment may be well served by addressing encroachments with reasonable care, especially if the cutting is anticipated to endanger a neighbor’s landscaping. Particularly if there is not an emergency an owner likely would be counseled not only as to legal duties, but also practical implications including the usual desire to avoid a dispute, whether it makes sense to first notify the neighbor that encroaches and provide that neighbor a reasonable opportunity to remove the encroachment.
Landscaping within with the boundary of a Florida 0community association may lead to a different result. Why? In many communities, lot use, and frequently specifically landscaping, is subject to numerous maintenance covenant and statutory duties which would supersede the common law precedent cited in Balzer. Covenants and statutes also contain dispute resolution processes.
Michael J. GelfandPast ChairReal Property, Probate and Trust Law Section of The Florida BarClick www.RPPTL.com for Breaking NewsAbout Florida’s Largest Substantive Law Section!Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section© 2019 Michael J. Gelfand
The difficulty of a member of a Florida not for profit community association corporation to prosecute a claim on behalf of the community association was illustrated in a recent decision by the Third District Court of Appeal in Cornfeld v. Plaza of the Americas Club, Inc., Case No. 3D18-270 (Fla. 3D DCA May 1, 2019).
Cornfeld owned a unit within the Plaza of the Americas Condominium. Cornfeld was also the owner/manager of the Cornfeld Group which owned a resort across the street from the Condominium. The Cornfeld Group which leased a Plaza of the America’s condominium parcel for resort parking.
Cornfeld sued the Association and the Association’s directors alleging breach of fiduciary duty to the unit owners, and seeking injunctive relief, asserting:
· The Club wrongfully refused to accept an offer of $2.5 million to purchase the property;
· The Club refused to assert a claim against a neighboring business, RK Centers, for failing to repair a sewer main causing damage to the Club.
Cornfeld brought his claim as a shareholder derivative action pursuant to § 617.07401 Fla. Stat. (2016).
Pursuant to the derivative action statute, the trial court had three options for determining whether the claim is in the best interest of the corporation as a predicate for the claim to proceed:
1. Majority vote of independent directors at a Board meeting;
2. Majority vote of a committee of two or more independent directors appointed by a majority vote at a Board meeting; or
3. Appointment of one or more independent persons appointed by the court upon motion by the corporation.
The Association chose the latter, the independent investigation option, without objection from Cornfeld.
The investigator, after a significant time investigating, over five months and reviewing thousands of documents filed a report recommending that the lawsuit be dismissed because:
· Cornfeld does not actually represent the unit owners because of his personal motivations which are contrary to the Club’s members interests;
· Directors decisions were reasonable, guided by legal advice and protected by the business judgment rule; and,
· That the litigation was barred because Cornfeld failed to serve a statutory pre-suit demand.
The trial court adopted the investigator’s filings and dismissed the case with prejudice.
Cornfeld did not challenge the independence of the investigator, but did assert that the dismissal should not have occurred because there were material issues of disputed fact concerning the reasonableness and good faith of the investigation.
The trial court accepted the investigator’s findings, including that personal interest guided Cornfeld, and that following the attorney’s conservative advice did not show any requisite basis for a derivative action. An essential element of a derivative claim, either fraud illegality oppression or bad faith by the corporation or officers was not pled or proven. Further, the trial court’s reliance on the business judgment rule produced no error. Thus, the trial court’s dismissal was affirmed.
Community associations may see more derivative actions in light of Iezzi Family L.P. v. Edgewater Beach Owners Ass’n., Inc., 254 So. 3d 584 – Fla 1st DCA, 2018). Procedurally, a plaintiff will have to address statutory prerequisites, including notice and investigation, and the expense of both. Substantively, a plaintiff must consider with what the Iezzi Court referred to in the condominium (and presumably homeowners’) context as “the association has broad powers and duties, including all of those set forth in chapter 617, unless otherwise noted.” Id. at 585. In addition, if a claim is against an individual director, then also the high threshold for claims against directors stated in Sonny Boy, LLC v. Asnani, 876 So. 2d 25, 27 (5th DCA 2004) and Perlow v. Goldberg, 700 So.2d 148 (Fla. 3d DCA 1997). Further, the Cornfeld decision brings to the surface the potential disqualifier of a plaintiff’s personal motivations that may be contrary to the interests of the other Association members, motivations that may be just under, if boiling on on the surface of many disputes.
In passing, a reader of the decision may have scratched her or his head at the Court’s apparently unfortunate references: to the Association that “owns and operates” the condominium complex; and, to the action being brought pursuant to “section 617.0740” which is not that correct statute. Perhaps on a rehearing, the Court may correct these references.
Michael J. GelfandFlorida Bar Board Certified Real Estate AttorneyFlorida Supreme Court Certified Mediator:Civil Circuit Court & Civil County CourtFellow, American College of Real Estate Attorneys
Contracts for the sale and purchase of Florida real estate impact nearly all of us, whether our firms are engaged in transaction representation, or whether our clients are otherwise impacted by transactions. Recently Florida’s Fourth District Court of Appeal addressed whether a buyer is entitled to recover her sales contract deposit when the buyer waived the contract’s financing/loan approval contingency, and a subsequent appraisal did not meet either the contract’s Loan Approval specifications or the lender’s requirements. The Court’s determination that a “deemed” Loan Approval is a “legal fiction” may result in caution by buyers, and their counsel!
At the center of Florida Inv. Group 100, LLC v. Lafont, Case No. 4D18-2075 44 Fla. L. Weekly D 1063 (Fla. 4th DCA April 24, 2019), was an ““AS IS” Residential Contract for the Sale and Purchase.” The sales price was $620,000.00. The buyer’s deposit was $62,000.00.
The Contract’s financing contingency included a “Loan Approval” within 30 days of a mortgage for $465,000.00, at a fixed rate of interest for a 30 year term. The Contract defined the term “Loan Approval” as “approval of a loan meeting the Financing terms.” Options flowing from the definition included:
The Contract further provided an appraisal condition:
The issue was joined whether the appraisal condition could be invoked to terminate the contract and return the buyer’s deposit when the buyer did not obtain Loan Approval as defined in the contract, and the buyer did not provide written notice of no Loan Approval to the seller.
Instead of the buyer obtaining the Loan Approval as defined or providing termination notice, after the Loan Approval deadline the buyer obtained a conditional loan approval for $495,000.00 mortgage, not $465,000.00 as provided in the Contact, and for 12 months interest only, not the 30 year fixed. Thereafter the lender obtained an appraisal determining the market value at $485,000.00 which was $135,000.00 less than the purchase price. The lender refused to fund because the appraisal amount was below the contract loan approval amount and the financing maximum 80% loan to value ratio.
The court’s analysis starts with reciting “standard” contract interpretation rules: not to read words in isolation but to give the entire contract a reasonable reading; and, to interpret a contract based on the contract’s definitions.
Because “Loan Approval” was defined by the Contract, the Court would not vary the contract’s definition: $495,000.00, 30-year fixed interest rate. The Contract’s definition meant that buyer’s different mortgage terms was not a “Loan Approval.”
Focusing on the appraisal contingency’s text “… insufficient to meet terms of the Loan Approval”, the Court held that without financing that equaled the defined Loan Approval terms, then the appraisal contingency cannot be triggered to refund the deposit.
Stepping back, what is the role of the Contract’s language if notice of a failure to obtain Loan Approval is not received? The Contract states:
Loan Approval shall be deemed waived, in which event this Contract will continue as if Loan Approval had been obtained
The Court rationalizes that the appraisal was for a mortgage that had different terms than the mortgage required by the Contract. The “deemed waived” text is held to be a “legal fiction.” Without a loan having been obtained, there are no loan terms to be considered for Loan Approval.
There have been comments that the LaFont decision eviscerates the FR/BAR contract forms financing contingency. In response, it is suggested that the contract forms bear up well, that this decision impacts a specific set of circumstances, when a buyer proceeds without financing that meets the contract’s Loan Approval provision. A buyer might well consider the Lafont decision to render the Contract’s “deemed waived” language as meaningless unless the Loan Approval meets the exact terms of the financing contingency. The decision does not indicate whether the buyer made a conscious assumption of risk to proceed with the contract without the contract defined Loan Approval financing.
Moving forward, this decision highlights the importance of drafting contract terms to fulfill anticipated needs. A buyer may not be able to rely, at least on the terms of the contract as stated, on a Loan Approval appraisal requirement when the proposed loan does not meets that contracts terms. In essence, the failure to obtain a loan approval as defined in the contract renders the “Loan Approval provisions a nullity, not able to be relied upon, at least in reference to an appraisal condition.
If a loan appraisal condition is sought, as occurs frequently, and is sought to apply when the appraisal is for a loan that may have different terms from the defined Loan Approval, then the attorney drafting the contract may want to alter the “form” terms, including perhaps stating a minimum/maximum or range of numbers for the terms. At the same time the drafter(s) must be cognizant that a contract without sufficiently specific material terms may not be enforceable. The chair of the RPPTL Residential Real Estate and Industry Liaison Committee, Salome Zikakis noted that the FAR/BAR Comprehensive Rider “F. Appraisal Contingency” may be a vehicle to start to address this issue. There is also the separate matter of whether a loan “commitment” is actually an effective commitment to loan as provided in the contract.
Michael J. Gelfand Past Chair Real Property, Probate and Trust Law Section of The Florida Bar Click www.RPPTL.com for Breaking News About Florida’s Largest Substantive Law Section! Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section © 2019 Michael J. Gelfand
Michael J. Gelfand Florida Bar Board Certified Real Estate Attorney Florida Supreme Court Certified Mediator:Civil Circuit Court & Civil County Court Fellow, American College of Real Estate Attorneys
Will builders and developers be able to sidestep the courts when faced with a homeowner’s construction defects claim?
Last Wednesday, in a case of first impression the Second District Court of Appeal held that a builder’s deed to a home purchaser requiring arbitration of construction defect claims was enforceable against a subsequent grantee in Hayslip v. U.S. Home Corp., Case No. 2D17-4372 (Fla. 2d DCA July 10, 2019).
The court certified the following question as one of great public importance:
Does a mandatory arbitration provision contained within a residential warranty deed conveying residential property from home builder to original purchaser run with the land such that it is binding on subsequent purchasers where the intended nature of the provision is clear and the party against whom enforcement is sought was on notice of the provision?
As discussed below, it appears that the decision disregards that the very nature of the underlying claim indicates that the provision does not restrict use, the well-established test for a real property covenant.
Facts
In 2007, U.S. Homes sold a newly built home to the Kennisons, conveyed by a special warranty deed (the "original deed") which was properly executed by a U.S. Homes’ representative but not signed by the Kennisons. The original deed which was timely recorded, included language providing that:
All covenants, conditions and restrictions contained in the deed are equitable servitudes, perpetual and run with the land.
In 2010, the Hayslips purchased the home from the Kennisons. The 2010 deed was not signed by the Hayslips and does not contain any express provision requiring arbitration but does provide that the conveyance is subject to "easements, restrictions, reservations and limitations, if any.”
In 2017, the Hayslips sued U.S. Homes alleging damages sustained as a result of an improper stucco system in violation of the Florida Building Codes Act. U.S. Homes moved to stay and compel arbitration based on the language of the original deed to the Kennisons. Following a hearing, a general magistrate said he concluded that the arbitration provision in the original deed is a covenant running with the land and binding on the Hayslips, who were properly noticed of the condition. The circuit court adopted the magistrate's report and recommendations. The Hayslips appealed.
The appellate court affirmed the trial court’s non-final order. The decision began its analysis reciting the incantation that “courts are required to indulge every reasonable presumption in favor of arbitration, recognizing it as a favored means of dispute resolution (citations omitted).”
Rejecting the Hayslips' claim that no valid arbitration agreement exists because the Kennisons did not sign the original deed, the court held that neither the Federal Arbitration Act nor the Florida Arbitration Code requires an arbitration agreement to be signed to be enforceable. Instead, conduct can supply the intent necessary to be bound by an arbitration agreement. Seeking intent, Florida law does not require a home buyer to sign a warranty deed to be bound by the deed; thus, the Kennisons acquiesced to the arbitration provision by:
As a result, a valid arbitration agreement existed between the Kennisons and U.S. Homes!
The court next addressed whether the arbitration language in the recorded deed was a real property covenant running with the land and enforceable against a subsequent purchaser with notice, such as the Kennisons, or whether the arbitration language was a personal covenant that did not run with the land and did not bind the Kennisons. The court recited the three-pronged test for an enforceable covenant running with the land as:
Although the court acknowledged that no Florida appellate court has considered whether an arbitration provision contained in a deed touches and concerns the land such that it is binding on subsequent purchasers, the court relied on decisions restricting the use of property, including leases providing an exclusive right of a use or a prohibition of a use.
The court found that the performance of the covenant to arbitrate affects the “occupation and enjoyment” of the home because the covenant dictates the means by which the Hayslips must seek to rectify building defects related to the home.
The appellate court, focusing solely on arbitration as a procedure for a remedy, appears to have disregarded whether there was a restriction on use. The court then appeared to equate a traditional covenant issue, a lease restriction on “use” claim, with U.S. Homes’ new “covenant” for defense of a money damage claim, a questionable leap as the claims brought by the Hayslips are not claims to restrict U.S. Homes’ use but are purely for damages.
This writer comments that historically, Florida courts started with the presumption that restrictive covenants are not only to be narrowly construed, but that they must restrict the use of the land. Although in the community association context, a declaration of covenants may provide for damage remedies as equitable servitudes, claims for declaration violations are distinguishable because damages would be for breach of a use restriction contained in the declaration.
While the Hayslips claim involves construction improvements to real estate, the claim does not involve the Hayslips’ use of the real property, or any use of the property. The benefited party to the deed provision, U.S. Homes, is not seeking to enforce a use restriction. Thus, a real property analysis would seemingly conclude that U.S. Homes’ deed provision does not touch the land, but instead provides merely a personal benefit. Reinforcing this is that the claim for construction defects as it relates to the property is solely for damages based on the statutory building code with statewide application, not based on a violation of a restriction on the Hayslips specific property, nor for injunctive or other equitable relief concerning the specific property.
Rather than follow that traditional analysis in the absence of Florida law directly on point, the court relied heavily instead on decisions from several other state and federal courts, mostly trial courts, that have found that similar arbitration provisions like the one in this case were real property covenants that touch and concern the land.
Although it is too early to know whether the Florida Supreme Court will accept jurisdiction to decide the certified question, and if so, then how the Florida Supreme Court may rephrase the question, the decision has potentially wide-ranging effect. It is noted that the Florida Supreme Court is not the same forum that it was last year, and that the Court’s outlook may be more sympathetic to alternate dispute resolution processes.
While many construction contracting parties mutually seek arbitration, those are typically personal covenants, “contracts,” not covenants running with the land.
The court's decision may encourage builders and developers, as well as other grantors, to include deed provisions requiring binding arbitration for construction defect claims and perhaps other claims. As a drafting consideration, U.S. Homes apparently sought to avoid precedent that a consumer real estate purchase of a single parcel is not interstate commerce, by including in the deed express text stating that the transaction was interstate commerce which the court accepted at face value.
The decision also serves as a warning to counsel for buyers to review not only the proposed transaction deed, but also deeds in the chain of title for provisions which may be legally binding on their clients. The case also highlights the risks to residential buyers not represented by counsel at closing, as well as the time of contract.
The appellate court’s decision could be said to further undermine the institutional role of the courts. The courts, created by the founding fathers as an independent branch of government to resolve disputes in public forum with rules of procedure and evidence to level the playing field (with due regard to Winston Churchill, far from perfect, but far better than the supposed alternatives), creating precedent through appellate review to guide the public in their future activities. The judicial process reinforce legitimacy in decision making, even for those suffering “adverse decisions.”
Many thanks to Messrs. Christy and Brown for promptly providing notice of the decision, and to Ms. Tamela Eady for her drafting assistance (all errors and over/understatements being mine, absolutely).
Have a great week. Hope to see all at the Legislative Update meetings next week at The Breakers’.
The battle is joined! The prize is whether pursuant to § 718.116(n)(a), Fla. Stat. (2017) a current condominium unit owner is jointly and severally liable for delinquent assessments accruing during the ownership of a remote owner. The result is far from certain because yesterday an express conflict between two District Courts of Appeal was declared in Coastal Creek Cd’m Ass’n., Inc. v. FLA Trust Services LLC, Case No. 1D18-1457 (Fla. 1st DCA, July 16, 2019).
FACTS
The Levraeas were the original owners of a Coastal Creek Condominium unit that was foreclosed by a bank. Homes HQ LLC was the successful bidder and obtained a certificate of title to the unit on June 13, 2016. On July 26, 2016, Homes HQ quit claimed the unit to FLA Trust, the present owner. Thus the ownership sequence was:
Levraeas → Homes HQ → FLA Trust
For purposes of this Memo, the Levraeas would be the “remote” owners as their ownership is separate from the current owner by a least one intervening owner.
In December 2016, the Condominium Association recorded its claim of lien, followed in 2017 with an action for lien foreclosure and damages. The Condominium Association asserted that FLA Trust failed to pay assessments due since August 15, 2015, a time period that included three distinct unit owners: FLA Trust, Homes HQ, and the Levraeas.
APPELLATE COURT HOLDING AND ANALYSIS
Both the Condominium Association and FLA Trust moved for summary judgment, each asserting a different interpretation of the Condominium Act’s joint and several liability provisions in § 718.116(n)(a) (2017). As a foundation for analysis, the court recited general rules of statutory construction, including:
· If the statute is clear and ambiguous, rules of construction are not applied, and the plain and obvious meaning holds.
· Give effect to all parts of the statute.
· Avoid rendering a part of the statute meaningless.
· Read all parts of the statute together for consistency.
· Do not construe to modify express terms or reasonable and obvious implications, avoiding unreasonable results or clearly results contrary to legislative intent.
· Amendments enacted shortly after controversies as to the interpretation of the original act arise may be considered useful guidance for the original intent.
The court then recited the 2017 statute adding emphasis:
A unit owner, regardless of how his or her title has been acquired, including by purchase at a foreclosure sale or by deed in lieu of foreclosure, is liable for all assessments which come due while he or she is the unit owner. Additionally, a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title. This liability is without prejudice to any right the owner may have to recover from the previous owner the amounts paid by the owner. For the purposes of this paragraph, the term “previous owner” does not include an association that acquires title to a delinquent property through foreclosure or by deed in lieu of foreclosure. A present unit owner's liability for unpaid assessments is limited to any unpaid assessments that accrued before the association acquired title to the delinquent property through foreclosure or by deed in lieu of foreclosure.
The court defined the issue as:
…whether, pursuant to section 718.116(1)(a), the present owner of a condominium unit is jointly and severally liable with the previous owner for unpaid assessments that came due during the ownership of both the previous owner and the original owner (as contended by the Association) or only for unpaid assessments that came due during the ownership of the previous owner (as argued by FLA Trust and found by the trial court).
The court’s analysis began with differentiating Aventura Mgmt., LLC v. Spiaggia Ocean Condo. Ass'n., Inc., 105 So. 3d 690 (Fla. 3d DCA 2014). The court noted that post Aventura the statute was amended to add the last two sentences, and that Aventura addressed an intervening owner that was the collecting condominium association with joint and several obligations, a factor not present in the instant case.
The court focusing on the phrase “previous owner” explained and held that:
The phrase “the previous owner” pertains to the person with whom the present owner has joint and several liability, not to the period of ownership during which the present owner is liable for unpaid assessments—the latter of which is at issue. Reliance on the phrase “the previous owner” is also unpersuasive because the previous owner is jointly and severally liable with the original owner, and the use of the singular definite article does not foreclose the reasonable interpretation that the previous owner’s liability for assessments unpaid by the original owner flows to the present owner. The phrase “all unpaid assessments that came due up to the time of transfer of title” is more on point and lends further support for that interpretation. If the Legislature intended to limit the present owner’s joint and several liability to unpaid assessments that came due during the previous owner’s ownership, it could have simply said, “a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due during the previous owner’s ownership.”
The court reinforced its analysis by proverbially refocusing, zooming out from the one sentence to avoid an isolated too narrow approach, and viewing the whole statute. Including in this focus the 2014 amendment is said to further the court’s conclusion. The court explains the purpose of the 2014 amendment as it:
essentially skips the period of the association’s ownership and absolves the present owner of liability for assessments unpaid during that time while maintaining the present owner’s liability for assessments unpaid during the original owner’s ownership.
Thus, the current owner is liable for unpaid assessments due during the remote ownership but not for assessments accruing during the time the Condominium Association owned the unit.
In conclusion, the statute as a whole was held to have “unambiguous” intent. Reversing the trial court’s summary judgment, conflict was certified with the Third Districts decisions in Spiaggia and related cases.
COMMENTARY
While the deluge of foreclosures of condominium units has receded significantly, and with that a corresponding reduction in condominium associations taking title to foreclosed units, the frequency of disputes over assessments accruing during a remote ownership has decreased to a trickle, if that. Nevertheless, many “see smoke” over the horizon and are bracing themselves for a new wave of defaults and foreclosures.
Regardless of one’s personal thoughts on the issue, to provide certainty, it is hoped that the Florida Supreme Court will swiftly resolve the issue with finality. There is always the potential of yet another “clarification” by the Legislature.
Addressing substantive rights, the decision did not indicate if the declaration of condominium had “Kaufman language” and whether there was a constitutional impairment of contract concern.
In the interim what does a practitioner do? If located in the Third or the First Appellate Districts, then the decision from your District’s court is binding. As for the rest of the State…. If amending community covenants, perhaps add this to the list of items.
Many thanks to Mr. Christy, Mr. Brown and Ms. Schwinn for promptly providing notice of the decision.
Yesterday the Fourth District Court of Appeal applied the business judgment rule in the context of an HOA’s approval of an alteration to an owner’s lot in Miller v. Homeland POA, Inc., Case No. 4D18-1647, (Fla. 4th DCA July 31, 2019).
Homeland community lot owner Miller sued Llano and the Association asserting that the Association did not properly enforce the Association’s architectural review requirements concerning lot owner Llano’s new garage, including height and roof type. Llano obtained approval for a new garage. After completion the Association discovered that the garage differed from the approved plans and required Llano to submit new plans. Relying upon statements of compliance from Llano’s engineering and construction firm and from the Association’s counsel, the Association approved the garage as constructed.
Relying upon Hollywood Towers Condo Cd’m Ass’n, Inc. v. Hampton, 40 So. 3d 784, 787 (Fla. 4th DCA 2010), the business judgment rule may be utilized to “evaluate the management discussions of property associations and to avoid to second guessing those decisions.” The two point Hollywood Towers business judgment rule test applied in this case is:
1) Whether the association had the contractual or statutory authority to perform the relevant acts; and,
2) If so, whether the board acted reasonably.
Courts provide deference to action that is reasonable, not arbitrary capricious or in bad faith.
Reasonableness is a question of fact. Normally reasonableness is an issue for trial; however, the summary judgment was nevertheless affirmed. It appears that Llano did not offer evidence of supporting his allegations of improper influence. Miller’s allegations that there were “cut deals” or “improper influence” were conclusory and not sufficient. Thus, as a matter of law the Association’s exercise of its business judgment including reliance on the engineer, contractor and Association counsel was held to be reasonable.
Furthermore, when analyzing the exercise of business judgment, the court is to view the circumstances at the time of the decision, not at the time of litigation years later. A “long after the fact challenge… through the use of an expert who simply expressed a different opinion cannot upend the Board’s decision to approve….”
This decision will likely be of assistance to the practitioner. First, is the general holding allowing for application of the business judgment rule. Second, for the litigator noting that while exercise of the business judgment rule is a question of fact, that does not mandate a trial when there is sufficient evidence supporting the board of directors’ decision making process. The holding shifted the burden to the property owner to show factual instances or unreasonableness once the Association provided a rational for the Association’s decision.
There is a procedural caution in this multi-party dispute. The judgment was in favor of the neighboring owner; thus, as the court noted, the Association was not a real party to the appeal.
Many thanks to Dan Kaskel and Doug Christy for swiftly providing the decision.
Good seeing everyone at the meeting last week!
The Third District Court of Appeal addressed assessment related issues in Weisser Realty Group, Inc. v. Porto Vita POA, Inc., Case No. 3D18-1634, July 24, 2019.
The court recites many facts, some of which may appear unusual, starting with Weisser Realty purchasing “Commercial Unit 1” “in Porto Via North Association.”
The unit was subject to the appellee Association’s “1995 Declaration of Condominium.” The decision recites that the Association operates “the master community association subject to the Declaration and collects all of the maintenance and special assessments for the Association.” The Declaration defines “assessable unit” as:
Concept of Assessable Units. For purposes hereof, an “Assessable Unit” shall mean (i) each residential condominium unit and commercial unit (i.e., having an active business-related function) subject to the condominium declaration . . .
(Emphasis in decision).
The decision does not state from whom Weisser Realty purchased the unit; however, there was a “addendum contract with the Association providing that Weisser Realty agreed to pay the maintenance assessments,” and which stated:
6. Buyer agrees to pay maintenance assessments, currently $3,654.40 per quarter (if required by [Association]), and adjusted from time to time, to Porto Vita Property Owner’s Association, Inc. (the "Master Association") for maintenance of common areas and any other expenses incident to the operation of the common areas governed by the Master Association from the date of closing forward. Such payments shall begin on the date of Closing.
Of course, the dispute arose when Weisser failed to pay assessments. In March 2013, the Association recorded its assessment lien. In January 2016, the Association filed its lien foreclosure complaint.
Weisser Realty designated as its corporate representative for a deposition the Weiser’s secretary/ bookkeeper/officer manager who was informed the day of the deposition of her deposition. She admitted that she was unfamiliar with the lawsuit details and was not qualified to be a corporate representative. Nevertheless, she stated that the reason for non-payment was that Weisser Realty’s president told her not to pay.
After Weisser Realty’s numerous continuances including: a week before the hearing a motion to continue; three days before the hearing a motion to amend and compel; two days before the hearing Michael Weisser’s affidavit was filed, contradicting the corporate representative’s deposition stating that there were no active business functions, and that the association’s president “reassured him that he would not have to pay assessments.”
Though not expressly stated, it appears that there was an issue of whether the Association provided the notices of intent to lien and to foreclose to the proper address. The address in the purchase documents and addendum was the unit’s address. Thus, there was no dispute that notice to the unit was sent to the proper address.
The unit was assessable. It was “disingenuous” for Weisser Realty to assert that the use as a “storage room” removed the unit from the definition of an assessable unit as quoted above.
Weiser’s “purchase and addendum documents” were not ambiguous. The “if required” language in the addendum quoted above was explained by the Association’s current president as referring to adjustments that might be required to the assessment schedule. In response on this issue, Weisser’s affidavit was conclusory, speculative, and otherwise with hearsay; thus, not admissible and could not challenge the association’s affidavit.
The trial court’s denial of another continuance, was “within its discretion to grant summary judgment where the filings filed mere days prior to a noticed summary judgment hearing appeared to be intended to delay the proceedings.”
Laches would not bar entry of the summary judgment. Laches requires that the defendant had no knowledge that the plaintiff would assert rights. In this situation Weisser Realty was fully aware of its assessment obligations and the lien. Further, in a lien foreclosure action a delay of the foreclosure normally is to a defendant’s benefit, not amounting to legal prejudice.
This decision raises many different issues that may leave you scratching your head in wonderment.
Is the Association a condominium or a non-condominium association? The name, as a “property owners’ association,” we know is not a dispositive label. The decision reflects a “1995 Declaration of Condominium” which would appear to be dispositive that it is a condominium association. Was the correct name of the condominium stated which included “Association?”
If the association is a condominium association, then the decision does not explain whether there was an issue regarding the delay of over one year between recording the claim of lien and filing suit. Normally under § 718.116, Fla. Stat. (2013), a claim of lien is valid for only one year.
Then there is a question of a “assessable unit.” If the association is a condominium association that was declared in 1995, then are some condominium units not assessable?
Weiser asserted its reliance on the former president’s “statement that reassured him” that assessments did not have to be paid. The court held that Weisser Realty did not provide sufficient evidence to overcome the association’s denials. Notably, the court did not conclusively hold that reliance on a president’s statement which would contradict, presumably, the declaration of condominium may not be relied upon.
The decision seems to turn on the contents of the “addendum.” The decision does not explain why a condominium association would need an addendum to enforce assessment rights that normally whould be clearly stated in the declaration of condominium.
While associations and most owners might cheer the decision for coming to the right conclusion, the rational of the decision leaves one wondering as to why the appellate court did not simply focus on the Condominium Act and (crossing one’s fingers) language in the declaration clearly providing for assessment liability, and it being unreasonable for a buyer to rely upon an association statement contradicting the declaration and Condominium Act’s assessment provisions. The facts as laid out also reinforces the need to properly select a corporate representative for deposition. Associations also must be cautious creating agreements addressing issues governed by a declaration.
Yesterday, the Fourth District Court of Appeal in Valencia Reserve H.O.A., Inc. v. Boynton Beach Associates XIX, LLC, Case No. 4D18-1320 (Fla. 4th DCA, August 28, 2019), addressed whether the Homeowners’ Association Act’s “fair and reasonable” limitation on developer agreement and the Act’s developer deficit funding guarantee requirements, prohibit the developer from utilizing a “working fund contribution” to pay the developer budget deficit guarantee.
In arriving at its holding, the court may have undermined the statutory “fair and reasonable” developer contracting requirement.
BACKGROUND.
The Declaration of Covenants, Restrictions and Easements for the Valencia Reserve community required each lot purchaser from the developer to pay the Homeowners’ Association a “working fund contribution.” The Declaration stated that the payment which was not an advance of an Individual Lot Assessment, but stated that the payment could offset Operating Expenses during the Guarantee Period and thereafter.
The developer opted to deficit fund and to utilize purchaser working fund contributions to pay down the deficit.
THE HOLDINGS.
Addressing the HOA Act’s “fair and reasonable” limitation on developer agreements in Section 720.309(1), Florida Statutes (2018), lot purchasers were on notice of the recorded declaration provisions, including the developer’s ability to apply working fund contributions to the deficit. The court held that by purchasing their property, the purchasers “expressly agreed to these terms.” Thus, the owners could not contest that the declaration provisions recorded before purchase were other than fair and reasonable in addition to their agreement.
The court continued, differentiating the limitation of use capital contribution in Sections 720.308(6) and 720.308(4)(b), Florida Statutes (2018). “Working fund contributions” were held not budgeted for “designated capital contributions.” The court buttresses its analysis apparently by reference to the declaration differentiation in terminology, “working fund” versus “capital contributions.” Working funds contributions were deemed by the declaration to be “regular periodic assessments” at least when determining funds available to offset the developer’s deficit funding, and treated as “the first regular periodic assessment due as an upfront lump sum payment.” Apparently a “capital contribution” is something else!
MUSINGS.
Courts frequently looked beyond labels to help ensure that public policy was fulfilled. Is the policy of requiring, in essence, a segregation of capital contributions, undermined by developer labeling? Perhaps we should expect the end of capital contribution funds in the homeowners’ context.
This decision may also prompt developers to change the label of capital contributions to “working fund” with an explanation of use buried in the declaration. Further, and perhaps more significant, will developers merely attach abusive contracts to the declaration if by simple attachment there is at least constructive notice and thus acceptance of the contract.
As someone once said, dump everything into the declaration! Buyers rarely read the declaration, and publication in the declaration provides the developer disclosure!!
Florida’s Fourth District Court of Appeal addressed a subrogation claim arising from the flood lawsuits following water flowing from an upstairs unit into a downstairs unit, in Universal Prop. & Caus. Ins. v. Loftus, Case No. 4D-2192 (Fla. 4th DCA, August 7, 2019).
In one of the first decisions applying Section 718.111(11)(j) Fla. Stat. (2014), the primary focus was not who pays what, but who is entitled to bring a lawsuit to enforce the statutory allocation of risk, or whether the statute allowed a “private cause of action.” In doing so, the court reminds that common law subrogation claims remain viable.
On the road to a conclusion, the appellate court frequently stopped, providing holdings concerning the allocation of risk, a/k/a who pays for what repairs and replacements. These holdings may or may not be expected, but they will be of assistance in charting statutory territory.
Universal insured the downstairs unit which allegedly was damaged because of the negligence of the upstairs tenants. After making a payment for the downstairs owners’ loss, Universal as their subrogee sued for the amount Universal paid plus the downstairs unit owners’ deductible. There were two claims: 1) against the tenants for negligence; and, 2) against the landlord/owners pursuant to Section 718.111(11)(j) Fla. Stat. (2014) for vicarious liability for their tenants’ negligence. Interestingly, the decision does not recite what was the alleged negligent act, the cause of the leak.
TRIAL COURT DECISION.
The trial court granted a final summary judgment on Count II’s vicarious liability claim in favor of the landlord/owners finding that the Statute did not provide a private cause of action.
THE APPELLATE HOLDINGS.
The first level of appellate analysis was whether the legislature intended to allow a private cause of action for a breach of the Statute. The creation of a statutory duty to benefit a class of individuals is not dispositive as to legislative intent to allow a private cause of action.
The appellate court examined the statutory text to divine legislative intent. Summarizing Section 718.111(11)(j) Fla. Stat. (2014), the court held that the paragraph:
simply defines when repair and replacement costs for property damaged by an insurable event are to be paid by the condominium association as a common expense and when they are the responsibility of the unit owner. As noted above, Section 718.111(11)(j) essentially creates a general rule that all damage in excess of an association’s property insurance coverage are a common expense of the Association.
The creation of the statutory duties was held not to demonstrate legislative intent for a private cause of action.
Explaining the Statute’s application, generally repair and replacement expenses that are the Association’s responsibility, when expenses are not paid by insurance, the expenses are common expenses.
The Statute continues in two subparagraphs creating exceptions shifting to a unit owner responsibility for repair and replacement expenses. Subparagraph 1 applies to expenses not paid by insurance proceeds and caused by intentional or negligent conduct or failure to comply with the declaration or rules. Subparagraph 2 extends the exception to property of other owners and property that unit owners must insure.
Returning to the question of whether there is a private cause of action, viewing the Statute as a whole the text was not superfluous, but providing a remedy, albeit without a private cause of action. When a unit owner is responsible for repair and reconstruction expenses, the Association’s remedy is to enforce those expenses as an assessment against that responsible unit owner pursuant to §718.111(11)(g) Fla. Stat. (2014).
Continuing, the court further held that the Statute does not provide a general right of subrogation for all damages. Instead, the at fault owners’ liability is limited to the amounts not paid by insurance proceeds. The statute’s language “without right of the subrogation rights of the insurer” only preserved Universal’s preexisting subrogation rights.
In conclusion the trial court decision was affirmed. While ruling against the insurer on the statutory vicarious liability claim the court stressed that the decision does not impact the insurer’s right to bring a subrogation claim for common law negligence.
BEYOND.
This decision will significantly limit not only statutory subrogation claims; but, also statutory claims between owners alleging a breach of the Condominium Act’s statutory duty for an owner to pay for a loss. While the decision may be perceived to significantly limit an upstairs owner’s liability, that limitation may be overstated because the common law negligence claim apparently survives, including the right to subrogate that claim.
Question, if the declaration contained text allowing a subrogation claim would that survive a defense of inconsistency with the Condominium Act? Note that the factual scenario may occur in a townhouse attached parcel loss where water or other substance (fire?) moves horizontally. Would a claim based on a breach of an owner’s duty, as is contained in a number of declarations, support an independent claim?
Interestingly, the court did not address the Condominium Act’s broad private cause of action provisions in Section 718.303(1). It is not known if that Statute was raised, or if the claim of vicarious as opposed to direct liability impacted the analysis.
Practitioners may have observed a seemingly significant increase in insurer subrogation claims. Some may conclude that the business model of one or more insurers includes aggressively pursuing these claims. Thus, it may behoove associations, condominium and homeowners’ associations, to review unit/parcel owners’ duty to insure and allocation of risk. Perhaps timely as Dorian bears down!
Highlighting the hidden dangers in lengthy covenant enforcement provisions, the Fifth District Court of Appeal addressed the interplay between a covenant’s alternate dispute resolution requirement and the Homeowners’ Association Act’s mandatory pre-suit mediation procedures in § 720.311 Fla. Stat. (2015), in Guan v. Ellingsworth Residential Community Ass’n, Inc., Case No. 5D18-3633 (Fla. 5th DCA, August 23, 2019).
BACKGROUND
In short, Guan modified her landscaping but did not obtain the Homeowners’ Association’s approval for the modifications.
The community’s Declaration contained a “Claim And Dispute Resolution/Legal Actions” provision:
ARTICLE XII
CLAIM AND DISPUTE RESOLUTION/LEGAL ACTIONS
It is intended that all disputes and claims regarding alleged defects (“Alleged Defects”) in any Improvements on any Lot or Common Area will be resolved amicably, without the necessity of time-consuming and costly litigation. Accordingly, all Developers (including Declarant), the Association, the Board, and all Owners shall be bound by the following claim resolution procedures.
. . . .
Section 12.3. Legal Actions. All legal actions initiated by a Claimant shall be brought in accordance with and subject to Section 11.4 [re: Approval of Litigation] and Section 12.4 of this Declaration. . . .
Section 12.4. Alternative Dispute Resolution. Any dispute or claim between or among . . . (c) the Association and any Owner, regarding any controversy or claim between the parties, including any claim based on contract, tort, or statute, arising out of or relating to (i) the rights or duties of the parties under this Declaration . . . (collectively a "Dispute"), shall be subject first to negotiation, then mediation, and then arbitration as set forth in this Section 12.4 prior to any party to the Dispute instituting litigation with regard to the Dispute.
Section 12.4.1. Negotiation. Each party to a Dispute shall make every reasonable effort to meet in person and confer for the purpose of resolving a Dispute by good faith negotiation. . . .
Section 12.4.2. Mediation. If the parties cannot resolve their Dispute pursuant to the procedures described in Subsection 12.4.1 above within such time period as may be agreed upon by such parties . . . , the party instituting the Dispute (the “Disputing Party”) shall have thirty (30) days after the termination of negotiations within which to submit the Dispute to mediation . . . .
Section 12.4.3. Final and Binding Arbitration. If the parties cannot resolve their Dispute pursuant to the procedures described in Subsection 12.4.2 above, the Disputing Party shall have thirty (30) days following termination of mediation proceedings (as determined by the mediator) to submit the Dispute to final and binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as modified or as otherwise provided in this Section 12.4. If the Disputing Party does not submit the Dispute to arbitration within thirty days after termination of mediation proceedings, the Disputing Party shall be deemed to have waived any claims related to the Dispute and all other parties to the Dispute shall be released and discharged from any and all liability to the Disputing Party on account of such Dispute; provided, nothing herein shall release or discharge such party or parties from any liability to a person or entity not a party to the foregoing proceedings. . . . Subject to the limitations imposed in this Section 12.4, the arbitrator shall have the authority to try all issues, whether of fact or law.
(Emphasis added).
PROCEEDINGS BELOW
After a compliance demand, the parties negotiations were unsuccessful. Mediation resulted in an impasse. The Association then proceeded to court instead of binding arbitration. The trial court held that the Association could proceed with its litigation claim.
THE DECISION
The appellate court reversed the trial court. The Declaration was “clear” requiring the Association “to arbitrate the dispute within thirty days after termination of mediation.” The Homeowners’ Association Act’s post mediation procedures do not mandate proceeding to court, but allows in addition to proceeding in court, to proceed with binding arbitration or non-binding arbitration. §720.311(2)(c), Fla. Stat. (2015). Thus, by proceeding to court rather than arbitration as required by the Declaration, the Association, pursuant to the Declaration, waived its right to pursue the Association’s claim.
KIBITZING
The holding relied up on a very unusual covenant, in its length and contents concerning alternative dispute resolution processes. The key appears to be the Declaration’s express waiver “deemed to have waived any claims.” Though the holding may be limited in applicability because of the Declaration’s extensive and limiting language, the decision provides a warning to those seeking to enforce restrictions, perhaps extending beyond covenant claims, of not so obvious penalties!
What of staying litigation to proceed with arbitration? We are aware that if a claim subject to mandatory arbitration is brought outside of the Condominium Act and the HOA Act’s ADR provisions, then the court generally stays the proceedings pursuant to § 682.03(6) Fla. Stat. (2019). If the statutory stay was raised, then it appears that the Declaration’s waiver text may bar a stay.
Is the Declaration’s language taken as a whole as clear as the appellate court asserts? Notably, the introductory paragraph of the ADR article speaks of application to “alleged defects,” then mandating claims over such alleged defects to follow the ADR procedures that followed. Only in Section 12.4 does the text expand to include other claims which creates an inconsistency with the introductory language. In this situation, should the inconsistency bar enforcement of the provision?
Separately, the ADR language is also somewhat problematic, requiring “every reasonable effort to meet” and to negotiate “by good faith.” It would appear that a defendant would highlight this language asserting a lack of reasonableness or good faith efforts that would then require a court to consider how and what occurred in negotiations and mediation, which normally is a prohibited area for court consideration.
Conflict is joined on debt collection! Wednesday, Florida’s First District Court of Appeal certified conflict with the Fifth District Court of Appeal, holding that condominium assessments are consumer debts under the Florida Consumer Collection Practices Act (“FCCPA”), §§ 559.55 - .785, Fla. Stat., such that a consumer may seek civil remedies for violations of the FCCPA, in Kelly v. Duggan, Case No. 1D17-3618 (Fla. 1st DCA, October 23, 2019).
THE SETTING.
For background, for those unaware of the FCCPA, and the contrast with the Federal Fair Debt Collection Practices Act (“FFDCP”), 15 U.S.C. § 1692, consider perusing the Fair Debt sections of “Condominium and Homeowners’ Association Liens, Foreclosures, and Bankruptcy”, Chapter 16 in Florida Condominium and Homeowners’ Association Law.
Kelly sued Duggan, the president of the Chez Sois Condominium Association, asserting that Duggan: locked Kelly out of a storage unit; made public derogatory comments about Kelly; disclosed information about Kelly’s reputation to a vendor; and, failed to provide Kelly notice of a board meeting where his common area privileges were considered and suspended. The trial court dismissed Kelly’s claim citing to Bryan v. Clayton, 698 So. 2d 1136 (Fla. 5th DCA 1997).
The appellate court noted that Kelly filed a separate lawsuit against the Association’s counsel in Federal District Court alleging a violation of the Federal Fair Debt Collection Practices Act based on the same facts which survived a motion to dismiss. The decision does not mention that whether the Association was a defendant in either suit.
HOLDING.
The appellate court’s analysis began with deconstructing the Bryan decision. Bryan held that the FCCPA’s definition of “consumer debt” was ambiguous. After Bryan, the purchase of a home has been held to be a consumer transaction, and the Kelly decision cites to a number of Federal decisions which though not binding on Florida courts, are persuasive. Of import is the United States 11th Circuit Court of Appeals decision in Agrelo v. Affinity Mgmt. Servs., LLC, 841 F.3d 944, 950 (11th Cir. 2016), and the First District Court of Appeal’s precedent that an extension of credit is not a prerequisite for a “consumer debt” under the FCCPA.
The Kelly holding that condominium assessments are consumer debts under the FCCPA such that a consumer may seek civil remedies for violations thereof is grounded in the conclusion that:
A condominium assessment arises from a transaction to purchase property – a condominium. See § 718.1256, Fla. Stat. (2017) (classifying condominiums as residential property).
Further the court observed that “the owner incurred the obligation to pay during the purchase transaction,” characterized as a contractual obligation triggering treatment as a “consumer debt” under the FCCPA as “consensual home-purchase transaction.” The court described the sequence as:
The maintenance assessment obligation arises from a governing contract. The central question is whether a contractual obligation to pay maintenance assessments creates a “debt” under the FCCPA. We answer the question in the affirmative. The assessments are grounded in the consensual home-purchase transaction. When a home buyer must contractually agree to pay homeowners’ or maintenance assessments as a prerequisite to purchase, that home buyer takes on “debts” for those assessments under the FCCPA. By entering into the contract or governing documents, homeowners agree that a failure to comply with assessment requirements could result in a fine that would be deemed an individual assessment. Thus, the obligation to pay an assessment for a claimed breach of the contract arose out of an underlying consumer transaction.
Thus, the court certified conflict with Bryan, reversed the dismissal and remanded.
Recognizing that the decision that creates an inter-district conflict, the decision’s rational and statements do raise an eyebrow, at the least.
Many appellate decisions have sought to discern the meaning of a “debt” under the Federal Act, and the court’s attraction to many of the more recent federal cases is understood, nevertheless, the decision’s analysis and use of terminology may be seen as undermining holding. The decision’s recitation of facts does not tie the alleged wrongdoing of the president to the collection of a debt. Also, the “purchase transaction” creating the predicate was not with the Association to whom the debt is apparently due.
As to their being an “agreement” to pay assessments, while a declaration has been referred to as being akin to a contract, a declaration is not a contract because there is no agreement, the declaration being a unilateral document. That is why a declaration is normally referred to as a covenant, not a contract. In practice, the reason a declaration is recorded is to avoid the need for any type of agreement or even acknowledgement by a buyer/grantee, the benefit of the covenant running with the land is that the recorded covenant automatically binds the buyer/grantee by operation of law without acceptance or even acknowledgement by the buyer/grantee.
The decision’s reference to the obligation that could result in a “fine that would be deemed an individual assessment” appears not to follow in a claim for delinquent maintenance assessments unless that assessment arose as a result of something other than non-payment of an annual or special assessment. Of course, if this is a Florida condominium association, then a fine is not an assessment which is secured by a lien, but instead is a personal monetary obligation. Interestingly, the decision does not explain the origination of the debt.
The decision creates an awkwardness in note 1’s reference to the condominium association as a “Homeowners’ Association,” using a different name than used in the opinion caption and body. Also, the decision refers to the purchase transaction as purchasing “a condominium” as opposed to a unit or parcel. Further, while the analysis in context relates to consumer issues, the decision’s rational imprecisely first categorizes condominium assessments as a “debt” under the FCCPA, and only then discusses consumer enforcement when it would appear that the consumer context is necessary to find a FCCPA “debt.”
Looking forward, this decision reinforces the care that an association and its officers, directors and managers must take. While they may be excluded from claims under the Federal Act, they are not necessarily excluded from claims under the Florida Act. Volunteers thinking that they are doing the “right thing” by exercising self-help, may only be subjecting themselves to liability, personal liability!
Wednesday, the Fourth District Court of Appeal addressed whether a defendant condominium unit owner who sells his unit during assessment collection litigation which is dismissed for lack of prosecution, has standing to seek prevailing party attorney’s fees. The decision is Tison v. Clairmont Cdm F Ass’n, Inc, Case No. 4D19-117 (Fla. 4th DCA, November 6, 2019).
THE FACTS
In December 2015, the Condominium Association filed suit to enforce assessments seeking to foreclose its lien and for money damages against the defendants who owned the condominium unit, and recorded a lis pendens. The defendants’ Answer and Amended Answer pled a fee entitlement.
In March 2017, the defendants sold the unit to a third party. Over a year later the trial court dismissed the Association’s action for lack of prosecution triggering Tison’s motion for attorney’s fees pursuant to § 718.303(1), and the Declaration’s provision. Both similarly provided for attorney’s fees to the prevailing party in a claim alleging a unit owner’s failure to comply with the Act and the Declaration.
THE OPINION
The appellate court examined the definition of “unit owner.” The Condominium Act definition included “a record owner of legal title to a condominium parcel.” § 718.103(28) Fla. Stat. (2015). The Declaration similarly defined the term as “owner of a condominium parcel.”
The court quickly concluded that the dismissal for lack of prosecution resulted in Tison prevailing because “the Association received none of the relief it sought in the complaint.”
Zeroing in on timing considerations, at what time does the right to seek fees affix. The court first recited precedent:
“It is settled law that legal rights accrue and are fixed, not when an action is brought to enforce them, but rather when ‘the last element necessary to constitute the cause of action occurs.’” Serna v. Arde Apparel, Inc., 657 So. 2d 966, 966 (Fla. 3d DCA 1995) (citation omitted). Accordingly, “the right to recover attorney’s fees ancillary to another particular underlying cause of action always accrues at the time the other, underlying, cause of action accrues.” L. Ross, Inc. v. R.W. Roberts Constr. Co., 466 So. 2d 1096, 1098 (Fla. 5th DCA 1985), approved, 481 So. 2d 484 (Fla. 1986). Stated another way, the “substantive rights and obligations as to attorney’s fees in particular types of litigation vest and accrue as of the time the underlying cause of action accrues.” Id.
Thus, what this writer would describe as a “contingent entitlement” is triggered when the underlying cause of action arose, not when the motion for fees was filed. That time in this case occurred when the cause of action for delinquent assessments accrued.
Neither the Declaration nor the Condominium Act provisions required unit ownership at the time the motion for fees was filed. Instead, generally summarized, the two provisions allowed prevailing party attorney’s fees in litigation regarding an owner’s alleged failure to comply with Declaration or Act provisions.
Thus, the defendants transfer of the unit during the litigation was not fatal to Tison’s fee claim. What mattered was that Tison owned the unit at the time the cause of action accrued which creating at that time a “vested” right to attorney’s fees if he prevailed.
The decision reminds counsel, whether representing associations or otherwise, to properly document plead dismissals to avoid prevailing party attorney’s fees claims.
The relatively short option immediately raises a question of “how did this happen?” The opinion states “the Association received none of the relief it sought in the complaint.” Think about how was the unit sold without the Association being paid, and if not paid, why the Association allowed the lawsuit to be dismissed, especially as Fla.R.Civ.Pro. 1.420(e) would have required notice to the Association’s counsel and an opportunity to file almost any piece of paper to avoid dismissal. The seemingly long period of time the case was pending before seeking summary judgment is also intriguing.
Note that the opinion does not indicate any abdication of the notice pleading requirement for fees, or the need to timely file a motion for fees pursuant to Fla.R.Civ.Pro. 1.525.
Note that these comments referred to the unit owner’s “standing.” Interesting the court did not use that term. In fact, the “entitlement” is in essence standing to pursue a claim, though ancillary to the main claim. Is the logical extension of the opinion that ownership is not required at the time suit is filed to have standing to pursue a claim? It would seem that injunctive relief would be barred, but for damages? Note also that the determination of when did the claim accrue parallels similar analyses in the statute of limitations context of when does a claim accrue to start running of the statute.
The opinion taking for granted the mandatory nature of the prevailing party fee provisions in the Act the Declaration may be helpful for associations, and owners!
In further musing, the opinion references multiple defendant owners; however, only Tison, one defendant, is listed as the appellant and referenced as the movant. Why did the other unit owner defendants not seek attorney’s fees, or alternatively, if they did, why not join the appeal?
Never argue with a naked lady? Lady Godiva may be recalled by the appellant’s name, but punishment for a perceived transgression was a serious issue in Wednesday’s decision, Naked Lady Ranch, Inc. v. Wycoki, Case No. 4D18-2868 (Fla. 4th DCA November 20, 2019), which addressed suspension and termination of voluntary association ownership.
Wycoki voluntarily joined the Naked Lady Ranch, Inc. (“NLRI”), a not-for-profit corporation providing roads and aircraft runways in an aviation community of fifty residences on parcels of no less than five acres. NLRI membership requires ownership of land within the community. Wycoki’s membership application stated that membership could be suspended for “actions [that] violate the trust of acceptable airport operations” and further, that “commercial operations are not permitted.” The NLRIs “governing documents” did not have written disciplinary procedures.
Wycoki paid a private pilot to fly Wycoki’s airplane out of NLRI’s airport early in the morning once or twice a week transporting Wycoki and coworkers. The coworkers were paid for the time flying.
After NLRI provided Wycoki a notice of intent to suspend Wycoki, the suspension meeting was attended by Wycoki’s counsel, and included opening statements, evidence and cross examination. After Wycoki’s membership was suspended for conducting commercial activities he was provided an additional notice permitting additional evidence, and provided a warning that continued violations would result in termination of membership. Wycoki continued the flights resulting in a board of director’s meeting terminating his membership. Wycoki still continued to fly out of NLRI’s facilities after termination of his membership.
NLRI filed suit for declaratory and injunctive relief, and for nuisance. After a bench trial, final judgment was entered for Wycoki because the governing documents did not contain a suspension or termination procedure, and there were insufficient proofs of a nuisance or commercial operations.
The appellate court reaffirmed the “rule of judicial deference” in which courts ordinarily will not intervene in the internal affairs of voluntary organizations. This includes discipline imposed by voluntary clubs even when the clubs are “tied to homeownership.”
Pursuant to this rule of judicial deference, the issues before the trial court should have been narrowly limited to:
(1) whether the Board complied with its own governing documents; and
(2) whether the defendant was suspended and terminated pursuant to a procedure that was fair and reasonable and carried out in good faith. See § 617.0607(1), Fla. Stat. (2015).
In this regard the NLRI’s By-Laws provided a broad grant of corporate powers. The Corporation Not For Profit Act in turn provides that the NLRI could suspend or terminate a membership with a:
procedure that is fair and reasonable and carried out in good faith. See § 617.0607(1), Fla. Stat. (2015); § 617.0601(7), Fla. Stat. (2015)
Wycoki’s assertion that he satisfied the conditions of membership was contrary to Wycoki’s membership application. Concerning the suspension and termination procedures, the requirements of § 617.0607(1) Fla. Stat. do not require notice or hearing. Thus, as a matter of law NLRI’s procedure was fair and reasonable and carried out in good faith.
The trial court’s judgment was reversed, the matter remanded for entry of judgment in favor of NLRI.
This decision will be important to voluntary associations, especially non-mandatory clubs and those association that have ancillary purposes, such as in this case, airport facilities, when not a Chapter 720 “statutory” association. It appears from the decision that NLRI owned or had the rights for the airport facilities. Interestingly, the decision refers to a stipulation that the “declaration” does not run with the land as a covenant. Differentiating this from a statutory homeowners’ association, there is no mention of mandatory membership nor of assessments that are enforced by a lien.
Procedurally, there are two significant and related holdings. First, is the determination that the suspension/termination procedure, not written in an agreement, was sufficient as a matter of law. In this situation there was notice, argument by counsel, witnesses including cross examination.
Second, normally, determinations of “good faith” are matters of fact for which a trial is required because good faith involves an evaluation of intent. In this instance the court held that “good faith” was determined as a matter of law which may allow a dispute to be resolved by summary judgment, not requiring a trial. Nevertheless, in suspension/termination proceedings the demeanor and approach of the board or committee will likely still be important.
The third time may be the charm to provide guidance as to whether an interest in a cooperative apartment is homestead protected from the stated creditor claims. The Third District Court of Appeals certified conflict in Walters v. Agency for Health Care Administration, Case No. 3D18-1505 (Fla. 3d DCA, December 4, 2019).
The Background.
Walters, the decedent’s daughter and sole heir, petitioned to declare the decedent’s cooperative corporation/association stock as homestead property and to have that property distributed to her free of Estate creditor claims. The Agency for Health Care Administration (“AHCA”) claimed an $81,276.76 debt from the Estate and objected to homestead protection.
The trial court denied the heir’s homestead petition relying upon In re Wartles’ Estate, 357 So.2d 708 and Phillips v. Hirshon, 958 So.2d 425 (Fla. 3d DCA 2007), that a cooperative apartment “owner” is not really an owner of an interest in real estate, but is the owner of a share of stock.
The Opinion.
Placing the situation in context, the appellate court outlined the Florida Constitution’s three different types of homestead protection: taxation; from sale by creditors; and, alienation or devise/descent. The manner of classification of the homestead right was critical, Walters asserting a homestead exemption from a forced sale. The AHCA asserting that Walters’ claim involved the alienation and descent provision. The distinction is critical because of the Florida Supreme Court’s precedent in Wartles followed by the Third District in Phillips that held that a cooperative interest, based on ownership of stock or membership in a corporation, provided a homestead exemption for taxation, but not for any other purpose.
The protection from alienation and devise relies upon there being a fee simple interest in land to which the appellate court cited to Art. X, § 4 Fla. Const.; § 732.401, Fla. Stat. (2017). Acknowledging that post Wartles the Florida Legislature revised the Cooperative Act to avoid the distinction created by stock ownership, the Third District felt bound to follow the precedent in Phillips v. Hirshon because Phillips certified the issue to the Florida Supreme Court. The Florida Supreme Court discharged the certified question, not providing guidance.
Thus, the appellate court held that the issue here is not a forced sale, but of the ability to devise and for descent; thus, the court is bound by the precedent of Wartles and Phillips v. Hirshon, in spite of conflicts with Geraci v. Sunstar EMS, 93 So.3d 384 (Fla. 2d DCA 2012).
The appellate court certified the following as a question of great public importance:
DOES THE FLORIDA SUPREME COURT’S DECISION IN RE ESTATE OF WARTELS V. WARTELS, 357 So.2d 708 (Fla. 1978), HAVE CONTINUING VITALITY IN LIGHT OF THE ADOPTION BY THE FLORIDA LEGISLATURE OF THE COOPERATIVE ACT, CHAPTER 76-222, LAWS OF FLORIDA?
The appellate court noted that the question was the same as certified in Phillips v Hirshon.
Kibitzing.
This decision highlights for the practitioner the need to differentiate the different types of Florida Constitutional homestead protection. The three are confused on a regular basis.
Focusing on ownership rights, the court contrasts the interest created in a cooperative situation which is different from a condominium. Unlike a condominium where a grantee normally receives a real property interest, in a cooperative an “owner” is not an owner, but is a corporate member frequently receiving a share of stock which is normally considered tangible and personal property; thus, not normally be entitled to constitutional homestead protection regarding devise and descent.
HB 623 revives an effort from last year to amend §719.103(25) to define an “An interest in a [cooperative] unit is an interest in real property. That would seeming solve the issue. With a new companion bill, SB 1154, this Bill may become law!
Stepping back, consider the juxtaposition of the Third District’s view of precedent with the recent view of the Florida and United States Supreme Courts. The Third District heeding closely to precedent even with the strong public policy arguments of protecting one’s home, raised by the seemingly inescapable conclusion that Wartles was overruled by change in the law.
Many thanks to Shawn Brown for immediately providing the decision.
Best for the Holiday season!
The Fourth District Court of Appeals recently addressed when does receipt equal delivery which then triggers a deadline in The Allegro at Boynton Beach, LLC v. Pearson, Fla. 4th DCA Case No. 4D18-3387 (Fla. 4th DCA November 27, 2019).
BACKGROUND: The ROFR
Allegro acquired the right of first refusal (“ROFR”) to purchase property adjacent to its senior housing community. The ROFR required the seller to deliver a copy of a third-party purchase contract to Allegro, and Allegro had 10 days after receipt of the contract to provide notice to the seller of Allegro’s election to purchase the property on the same terms and conditions.
The contract also provides that notices shall be delivered by “mail, personal delivery or electronic media” and that “[a]ny notice, document or item delivered to or received by an attorney . . . representing a party will be as effective as if delivered to or by that party.” Further, “[i]f for any reason . . . Seller fails, refuses or neglects to perform this Contract, [Allegro] may choose to receive a return of [Allegro’s] deposit. . . or to seek specific performance. . . .”
FIRST CONTRACT/FIRST LAWSUIT
In September 2013, the seller obtained a contract to sell for $2.5 million. Allegro elected to purchase the property pursuant to the ROFR. A year later Allegro terminated the contract and demanded return of its earnest money. Litigation regarding the termination was settled.
SECOND CONTRACT/SECOND LAWSUIT
In May 2015 the seller obtained a second contract for $3.75 million Allegro demanded a copy of the contract pursuant to the ROFR; however, the seller refused claiming that the ROFR terminated upon Allegro’s termination of the first contract. This lawsuit was filed by Allegro seeking damages for breach of contract, declaratory relief, injunctive relief including seeking a copy of the contract, and specific performance.
In the second lawsuit, the second buyer moved to intervene.
KEY FACT: Allegro through its counsel received a copy of the second contract when the second buyer’s motion to intervene was served upon counsel and attached the second contract.
FIRST APPEAL
The trial court ruled on a number of summary judgments which resulted in a separate, first appeal, in which the Court of Appeal stated:
When an owner enters into a contract for sale, a pre-existing right of first refusal is “converted into an irrevocable option to purchase.” Vorpe v. Key Island, Inc., 374 So. 2d 1035, 1037 (Fla. 2d DCA 1979); see 1 Williston on Contracts, §§ 5:15, 5:16, 5:18 (4th ed. May 2017). Once a holder’s right of first refusal ripens into an option, the option is not affected by termination of the underlying contract. Vorpe, 374 So. 2d at 1037; see also King v. Hall, 306 So. 2d 171, 173 (Fla. 1st DCA 1975).
Allegro at Boynton Beach, LLC v. Pearson 227 So. 3d 1288, 1289-91 (Fla. 4th DCA 2017). On remand Allegro sought specific performance and the seller sought a summary judgment on the injunctive relief and specific performance claims.
THE ANALYSIS/SECOND APPEAL
The substantive issue in this second appeal turned on whether Allegro counsel’s receipt of the second contract through discovery constituted delivery which in turn triggered Allegro’s right to accept the second contract’s terms. The appellate court discussed the concept of locus poenitentiae which is grossly defined as returning to the position before acceptance, or in other words rejecting a prior acceptance.
The appellate court rejected the concept that delivery through the buyer’s attorney’s court filing did not constitute delivery under the ROFR. The court did not accept that delivery of the second contract required an intent to deliver. In this regard, the court refused the attempted analogy to delivery of a deed or negotiable instrument, both of which were distinguished from the delivery of the ROFR contract because “delivery is essential to the existence of the instrument as a legal obligation.”
The appellate court also addressed whether the seller’s refusal to deliver the contract constituted anticipatory repudiation. While the refusal would appear to fall squarely within the defense of anticipatory breach, the doctrine does not apply to a unilateral contract.
The appellate court further explained that after an ROFR is created, when the seller and contract buyer entered into a contract, the ROFR “was converted into an option.” An option contract is nothing more than a unilateral contract that does not ripen into a bilateral contract until the “option holder manifests to the owner a desire to purchase the property….” Thus, the doctrine of anticipatory repudiation does not apply.
This decision is valuable for the association practitioner addressing delivery generally, as well as what triggers the exercise of a right of first refusal.
Though the court extensively quoted the ROFR’s delivery requirements, the analysis did not refer to those provisions. The notice provisions are somewhat broad, not stating that delivery must be by the seller, and providing that notice is not only effective upon receipt, but that notice may be upon a party’s attorney. One must question why the court did not merely rely upon the seemingly unambiguous contract language to determine notice occurred.
The concept of intent seems to be lurking under the court’s analysis; however, interestingly court does not discuss intent beyond a passing quote and citation. In any event, it appears that the concept of intent is not a criteria for delivery at least under these circumstances. One must note the vigorous, to put it mildly, dissent by Judge Warner as to whether involuntary delivery constitutes delivery.
Best for a peaceful and healthy holiday!
Ringing in the New Year, a decision addressed whether a former parcel owner has standing to contest an association assessment. In Real Estate Solutions Home Sellers, LLC v. Viera East Golf Course District Association, Inc., Case No. 5D18-3569 (Fla. 5th DCA, January 3, 2020), the association sought over $19,000.00 from Real Estate Solutions (“RESHS”). RESHS purchased at a foreclosure auction a home subject to a declaration of covenants administered by the Association.
RESHS brought a declaratory relief action against the Association based in part upon the Declaration. The Declaration provided that after a judicial foreclosure of a first mortgage, the lien for assessments is extinguished, and when a first mortgagee obtains title its purchaser, successor and assigns “shall not be liable for the share of the Common Expenses or Assessments… which became due prior to the acquisition.”
After filing suit RESHS sold the property. In response to the Association’s motion to dismiss asserting mootness, the trial court dismissed the complaint.
The appellate court reviewed the purpose of a declaratory judgment action which is to, in part, address at an “actual controversy.” Because “the Association’s theory of liability, [RESHS’s] potential liability for the unpaid assessments did not end with its sale of the Property” the trial court’s dismissal was reversed. The sale did not end the Association’s issue of assessment liability.
Best to all for a great new year!
© 2020 Michael J. Gelfand
Whether a condominium association’s requirement for owner approval of litigation was triggered, and who has standing to enforce the owner approval requirement was at issue in last week’s decision in De Soleil South Beach Residential Condominium Association, Inc. v. De Soleil South Beach Association, Inc., Case No. 3D18-1423 (Fla. 3d DCA, January 15, 2020).
THE PLAYERS
THE COMPLAINT
The Condominium Association asserted that the Individual Developer and Corporate Developer structured the Master Association and the Condominium Association’s documents, including a recent amendment to the Master Association documents, to grant the Master Association authority to directly levy and collect assessments from Condominium Association members.
The Declaration of Condominium requires approval of 3/4 of all residential Condominium unit owners to approve payment or contracting for legal fees for a lawsuit other than for “the collection of assessments.”
The Condominium Association raised two issues for review, both circling the Declaration’s condition precedent of an owner vote.
Substantively, the appellate court focused on the meaning of the Declaration’s use of the term “collection.” Without a definition in the Declaration, the court relied upon a dictionary to provide common usage:
To gather together; to bring scattered things (assets, accounts, articles of property) into one mass or fund; to assemble.
Citing Black’s Law Dictionary (4th Ed. 1969). The Condominium Association’s lawsuit does not seek to gather or obtain funds, but instead merely seeks a declaration as to the “power to collect” which the court distinguished from the act of actually collecting. Thus, because collecting was not at issue, the exception to unit owner vote requirement did not apply.
Next, the Condominium Association asserted that the Master Association lacked standing to raise the vote requirement because the Master Association was not an Association member and not a party to the Declaration of Condominium. The court agreed, the Master Association did not have standing to challenge the vote requirement.
Separately concerning standing, the Corporate Developer as a Condominium unit owner had standing to raise the approval requirement. The Condominium Association conceded the Individual Developer had the same standing as the Corporate Developer; thus, summary judgment was affirmed for both.
As how to address the failure to obtain a vote, the court noted that whether in this circumstance to grant a stay as opposed to a dismissal is within the trial court’s discretion and no abuse of discretion was found.
This decision is of interest in the realm of standing, right for declaratory relief and interpretation as well as ADR compliance. The court’s reliance on the Master Association not being a party to the Declaration of Condominium and thus without standing appears appropriate. It is interesting that the approval requirement is a corporate procedure, yet the court did not rely on § 617.0304 Fla. Sta. in that, in essence, the Master Association was raising an ultra vires act, a challenge to which is reserved only for members or members’ representatives.
In parsing the exceptions to the vote requirement, the court narrowly construed the provision as applying to claims only actually involving the gathering assessments, not the power to assess or the power to collect. Though the holding is averse to the Condominium Association in this case, in the long run this narrow construction of the limitation on claims may bode well for Associations because frequently the drafters of these provisions, usually developers, do so to restrain association claims.
In addressing a stay, the court does not foreclose a stay but leaves it solely within the trial court’s discretion, applying the higher “abuse of discretion” role. It is questioned though why a stay would appropriate unless the Association could prove that compliance was occurring which would seem to be difficult if no vote of the unit owners had actually occurred, and further with the Corporate Developer owning 12 of 80 units, the ability of the Condominium Association to obtain a 3/4 vote would appear, as a practical matter, slim.
So we begin the new year…..
Thursday the Supreme Court of Florida issued a decision with two opinions responding to the Governor’s request in Advisory Opinion to the Governor Re: Implementation of Amendment 4, the Voting Restoration Amendment, Case No. SC-19-1341 (Fla. January 16, 2020).
The opinions, the per curiam and the Justice Labarga’s concurring/dissent, are circulated not to apprise you of the decision which presumably you have read in other media, nor to address the substantive issue of voting rights, nor even to consider the correct interpretation of the Constitutional Amendment.
Instead, the opinions are circulated to frame what will affect our clients, the decision-making processes which if adhered to will impact future decisions, including in our areas practice which are far from the substantive issue in the matter before the Court. The DCA’s and trial courts will presumably follow the Supreme Court’s lead.
Thus, this email provides a “heads up” as to the Court’s approach, perhaps more important now in light of a seeming trend in Florida Supreme Court decisions receding from precedent. For example consider including the decisions at the end of the year, especially December 19, 2019 opinions.
Consider the Justices’ battle between the opinions over application of “supremacy-of-text principle,” the majority and the dissent disagreeing as to the principle’s meaning, including whether the principle is strong or flawed, and whether the principle has been consistently applied.
As you focus upon the majority opinion’s parallel to statutory construction and you may reflect how this Court’s “supremacy-of-text principle” approach may narrow interpretation of statutes that our clients utilize, perhaps leading to new interpretations that seem on the surface logical from words plucked from a statute, but perhaps yes, or perhaps not, intended by the drafter(s) or the Legislators that voted for the statute. It appears that the touchstone of intent of the drafter, or in the case constitutional amendments, intent of the people, is actually not to be considered if the words are not ambiguous.
This has been a battle waged in other courts for a bit of time. It now is here, as the Court expressly acknowledges. It is interesting that the Justices are using the Amendment 4 debate to roll out their thoughts. As a collateral consideration, will supremacy of text marginalize the golden parachute of statutory interpretation, refusing strict a reading that would lead to a ridiculous or absurd result?
On the substance of the decision, it is noted that the opinion’s differences on this point do not lead the writers to different conclusions on the merits, the decision is unanimous as the dissent actually concurs, 5-0. Only five Justices participated as there are two vacancies on the Court.
Oh yes, this vanilla brief-brief does not mean that this writer does not have thoughts on the substantive issue, but as the creator of Condominia and especially sharing concerns as to Condomania’s future, those substantive thoughts are for another time, off line!
Whether the failure to exactly follow legislative strikeout underline format, was addressed, albeit in another context by the Supreme Court of Florida on Thursday in Advisory Opinion to the Attorney General re: Citizen Requirement to Vote in Florida Elections, Case No. SE19-1165 (Fla. January 16, 2020). This decision is not arising from the Amendment 4 Voting restoration amendment approved earlier. This decision addresses a proposed amendment that has not been placed on a ballot.
As summarized by the court laid out somewhat in length because context seems to be everything for this matter:
The full text of the proposed amendment, which would amend article VI, section 2 of the Florida Constitution, provides:
ARTICLE VI. Section 2. Electors.
Every citizen Only a citizen of the United States who is at least eighteen years of age and who is a permanent resident of the state, if registered as provided by law, shall be an elector of the county where registered. 1
The ballot title for the proposed amendment is: “Citizenship Requirement to Vote in Florida Elections.” And the ballot summary states:
This amendment provides that only United States Citizens who are at least eighteen years of age, a permanent resident of Florida, and registered to vote, as provided by law, shall be qualified to vote in a Florida Election.
[Footnote] 1. The proposed amendment contains a de minimis drafting error in that the proposed amendment either inadvertently strikes or inadvertently neglects to underline the word “citizen.” The text of the proposed amendment should have been drafted in relevant part either as “Every Only a citizen of the United States” or as “Every citizen Only a citizen of the United States.” Because it is abundantly clear that the word “citizen” is not being permanently stricken from article VI, section 2, we conclude that there is no reasonable probability of any voter confusion and that this scrivener’s error is not a basis for invalidating the proposed amendment.
The problem facing the Court is described in the above quoted Footnote 1. The word “citizen was either not properly underlined, or should not have been struck out.
In its approach, the Court does state what is the standard of review, merely calling the situation “a de minimis drafting error.” The Court also concludes that the situation is “abundantly clear.” Thus, the Court saves the overall text, engraphing an interpretation that allows the text to stand as a proposed amendment.
The impact on practitioners may not be realized until years after an amendment is drafted when you happen upon a recorded certificate which inadvertently has dropped a word that was in the original text.
The Court’s lack of stating a standard for review may be problematic, because unlike constitutional amendments where there is no statutory requirement for strickout underline formating, the Condominium Act in § 718.110(b) and the Homeowners’ Association Act in 720.306(1)(f) contain express underline/strikeout “legislative amendment” text requirements. Both statutes are also immediately followed by a savings clause for “non-material errors or omissions or “an immaterial error or omission.”
This may allow drafters to sleep a little bit better.
For later thought, does this decision exhibit the supremacy of text doctrine?
Continued best for the new year.
A whole lot is going on concerning transfers! The Florida’s Fourth District Court of Appeal laid down a strict construction test, and took a whack at unreasonable transfer fees in Cool Spaze, LLC v. Boca View Condominium Association, Inc., Case No. 4D18-2446 (Fla. 4th DCA January 22, 2020).
Shefet bought a unit in Boca View Condominium. He transferred the unit to his limited liability company, Cool Spaze, LLC. Cool Spaze, LLC submitted two lease applications for Association approval.
The Declaration of Condominium includes the following:
Maintenance of the Community Interests. In order to maintain a community of congenial residents who are financially responsible and thus protect the value of the units, the transfer of units by any owner other than the [d]eveloper shall be subject to the provisions hereinafter set forth as long as the Condominium exists.
It shall be necessary for the [b]oard of [d]irectors of the [a]ssociation, or its duly authorized officers, agent[s] or committee to approve in writing all leases, subleases, or other occupation of a Unit before lease, sublease or occupation shall be valid and effective . . . .
. . .
The [b]oard of [d]irectors of the [a]ssociation shall be responsible for interpreting the provisions hereof and of any of the Exhibits attached hereto. Such interpretation shall be binding upon all parties unless wholly unreasonable. An opinion of counsel that any interpretation adopted by the [a]ssociation is not unreasonable shall conclusively establish the validity of such interpretation.
(Emphasis supplied by court.) In addition, the Association’s Articles of Incorporation provided:
All persons owning a vested present interest in fee title to any of the Units in [the association] . . . shall be members.
[I]n the event a unit is owned by a legal entity other than a natural person, the officer, director or other official so designated by such legal entity shall exercise its membership rights.
The Association denied the lease applications, requiring that the unit’s title be transferred back to Shefet as an individual.
Cool Spaze filed suit seeking: injunctive relief concerning the Association’s regulation of sales and title; declaratory relief concerning whether the Association could require approval of a sale or transfer of title; and, damages for slander of title when the manager allegedly told a realtor that the application could not be processed because there was a “problem with title to the unit.”
The trial court granted Cool Spaze’s motion for partial summary judgment finding that $200.00 lease processing fee was unreasonable but denied another portion of the motion finding that Cool Spaze was required to comply with the Association’s reasonable requests.
The appellate court began by identifying the standard for interpreting a declaration of condominium. The declaration “must be strictly construed” citing Cali v. Meadowbrook Lakes View Condo. “B”, Inc., 59 So. 3d 363, 367 (Fla. 4th DCA 2011). Despite strict construction boundaries, the court did tip a proverbial hat to traditional efforts to seek the intent of the document, with the court’s citation to Cali requiring that
“‘[i]t is fundamental that . . . the intention of the parties . . . be determined from examination of the whole contract and not from the separate phrases or paragraphs.”’
Continuing, the appellate court found that the Declaration did not authorize approval of transfers, holding that the Declaration “does not use the term unit transfer, title transfer, or sale.” The court differentiated different types of transfers citing to Webster v. Ocean Reef Cmty. Ass’n, 994 So. 2d 367, 370 (Fla. 3d DCA 2008), in which a gift transfer was differentiated from a sale, purchase or lease. Thus, all summary judgments against Cool Spaze were reversed and the matter remanded.
This decision may be notable for a multitude of reasons. First, is the strong test for interpreting a declaration, “strictly construed.” Will this test complement precedent that allowed what this writer refers to as judicial rules of interpretation, providing that only when there is an inability to resolve an ambiguity, rule in favor of the free use of property?
Second, flowing from strict construction of the Declaration, regulation of “leases” is not to be construed as the regulation of other transfers. The decision reminds that transfers do not come in plain vanilla or plain chocolate, but there are many varieties of flavors including gifts and transfers between related entities for less than fair market value. Drafters may need broad language if the intent is to effectively regulate the many varieties of transfers.
Third, there is the continuing issue over reasonable transfer fees, or as the saying goes: pigs get fat, hogs get slaughtered. The court in a footnote affirmed the trial court’s order that a $200.00 transfer fee was unreasonable, allowing a $100.00 fee based upon the Declaration’s language which stated that “such fee shall not exceed one-hundred dollars ($100.000).” Interestingly the court did not rely upon § 718.112(2)(i) Fla. Stat. and the limit on transfer fees at $100.00.
Further, though the opinion is unclear as to exactly how the slander of title issues were disposed by the trial court, it does appear that the trial court granted the Association’s motion for a partial summary judgment because the manager’s statement of a title issue was not slanderous but instead true, in essence that the Association was not going to approve the application unless the unit transfer was approved. In reversing summary judgment it may appear that while a manager’s statement as to the intent of an association may be true, if the statement is based upon a false premise, here perhaps the implication that the Association had the right to approve a unit transfer, then that may be actionable!
Purists among us may be put out by the court’s writing of the intent of the parties, plural parties, when the Declaration is a unilateral document, there being only one party, if there is a party to a unilateral document, when the Declaration is created.
Fellow, American College of Real Estate Lawyers
Gelfand & Arpe, P.A.
"Assisting Communities to Efficiently Reach Goals"
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Whether a contact buyer has standing to challenge the exercise of a right of first refusal (“ROFR”), and the status of the original purchase contract after the ROFR is exercised, were at issue in Acquisition Trust Company, LLC v. Laurel Pinebrook, LLC, 2d DCA Case No.: 2D18-4979 (Fla 2d DCA April 1, 2020).
Laurel’s lease of space within a commercial plaza to Publix included a ROFR to purchase the plaza. After Acquisition Trust provided a “non binding letter of intent” to Laurel with a purchase price and “key terms” Laurel provided notice of the letter to Publix. Thereafter, Laurel contracted to sell the shopping plaza to Acquisition Trust, subject to Publix’s RFOR. Publix provided notice to Laurel that it was exercising the ROFR “upon the same business terms and conditions contained in the letter of intent”. Laurel terminated the contract with Acquisition Trust based on Publix’ exercise of the ROFR. Laurel sold the plaza to Publix for the same price Acquisition Trust offered, but different due diligence and closing terms.
Acquisition Trust sued Laurel, Publix and Publix’s assignee seeking to rescind the sale alleging that their conduct was inequitable and fraudulent. The trial court granted Publix’s and Laurel’s motions for summary judgment.
The appellate court’s analysis began with the manner of exercising the RFOR. Quoting Castelli v. Castelli, 159 So. 3rd 271, 274 (Fla 4th DCA 2015), the exercise of a RFOR does not have to be “a point – by – point” recitation of the material terms of the third parties’ contract. Thus, Publix “simply notifying” Laurel of the exercise of its RFOR was sufficient, particularly as Publix’s notification did not seek to change the Acquisition Trust’s contract.
Rejecting the “inequitable” and “fraudulent” accusations, “once a right of first refusal is exercised, the owner and the lessee are free to modify the terms of the agreement and the third party does not have standing to object.” Specifically, once the ROFR is exercised, Acquisition Trust, as the contract buyer, had its contract right to the property “extinguished.” The selling owner, Laurel, and the holder of the ROFR, Publix, were free to modify their agreement.
A dissent focused on the ultimate contract that closed, arguing that because Publix’s terms did not match Acquisition Trust’s terms, the contract buyer had standing to challenge the closing.
Though associations exercising and ROFR are few and far between the handing of an ROFR can have significant consequences. The ability of the seller and ROFR holder to “change the deal” may open the potential of collusion; however, in the marketplace changing the deal should result in equivalent or better terms for the selling owner, recognizing that there normally would be little if any incentive for the selling owner to change the deal. The holding that a ROFR holder does not have standing may simplify the situation for the proverbial “last parties standing,” the selling owner and ROFR holder.
As a side note, the majority opinion discussed on an “association oldie”, Backus v. Smith, 364 So. 2nd 786 (Fla 1st DCA, 1978). Many community association practitioners have cited Backus for the holding that a contract purchaser lacks of standing to challenge a condominium association’s alleged failure to properly exercise a ROFR. The court here noted that Backus allowed the contract buyers standing against the seller based on particular pursuant to the terms of the original contract.
Many thanks to Mr. Christie for also timely providing the decision.
Whether a condominium unit owner may waive the statutory mandatory pre-suit arbitration requirement in § 718.1255 Fla. Stat. (2015), by inconsistent conduct was at the center of Wednesday’s decision in CWELT – 2008 Series 1045 LLC v. Park Gardens Ass’n, Inc., Case No. 3D19-1341 (Fla 3d DCA, April 29, 2020).
In 2015, Condominium unit owner CWELT filed a complaint attacking the Condominium Association’s new restrictions on leasing.
In March 2018, the Association filed a counter claim seeking to enforce the amendment which was at issue in the Complaint. The trial court denied CWELT’s motion to dismiss the counterclaim.
The appellate court recited the statute’s language justifying the mandatory pre-suit arbitration program, emphasizing protection for the unit owner, and including judicial economy and the cost of litigation. Nevertheless, CWELT’s litigating a dispute regarding the same amendment terms for three years waived the unit owner’s ability to mandate compliance with mandatory pre-suit arbitration. The court rejected the assertion that the duty to comply with mandatory pre-suit arbitration was “revived” by filing the counter claim three years after the Complaint. In closing, the court noted from Sterling Condo Ass’n, Inc. v. Herrera, 697 So. 2d 703, 704 (Fla. 3d DCA 1997). “The intent of the statute would not be furthered by compelling arbitration and would, in fact, be contrary to the statutes stated intent.”
Please consider that in the context of “normal” common law arbitration provisions found in a contracts and other statutory arbitration requirements that are not gate keepers to litigation, the appellate court’s decision would be understandable. However, under § 718.1255 the holding appears contrary to Neate v. Cypress Club Cd’m, Inc., 718 So. 2d 390 (Fla. 4 DCA 1998) which affirmed the dismissal of a trial court action which was not preceded by mandatory pre-suit arbitration. Perhaps confusion continues as result of the Neate court’s utilization of the phrase “condition precedent,” when by mandating dismissal at the initial pleading stage the Neate court treated the statute as jurisdictional.
We will see how the other District Courts of Appeal address this matter.
Thank you Mr. Christy for the prompt notice of the decision!
Enforcing a covenant which association counsel allegedly knew was extinguished by the Marketable Record Title Act was the subject of two nearly identical decisions, Rhonda Hollander P.A. v. Adrien, Case No. 3D19-1651 (Fla. 3d DCA, April 8, 2020), and Rhonda Hollander, P.A. v. Fortunado, Case No.: 3D19-1652 (Fla. 3d DCA, April 8, 2020). In each of these two very short, two paragraph decisions the appellate court denied a petition for a writ of certiorari seeking to quash a denial of the law firm’s motion to dismiss the plaintiff/respondents fourth amended complaint. Apparently, the law firm asserted a litigation privilege which the trial court did not accept.
The plaintiff’s below alleged a Florida Consumer Collection Practices Act claim against a lawyer and law firm for sending “threatening collection letters” when the senders allegedly had “actual knowledge” that pursuant to the Marketable Record Title Act the Declaration was “expired and unenforceable.”
In each matter the petition was denied, the appellate court holding that the litigation privilege does not apply in these circumstances.
The appellate court appears to have concluded that the statutory Consumer Collection Practices Act prohibitions in Section 559.72 Fla. Stat. (2014), prevail over the litigation privilege. The statutory debtor protections were apparently triggered by the alleged “actual knowledge” of unenforceability.
Interestingly, it appears that the appellate court did not have an issue with the litigation privilege applying to the mandatory pre-suit “notice of intent” demand letters, apparently accepting that the litigation privilege otherwise would extend to certain pre-suit communications that were intertwined with the complaint. That approach appears to have been the direction taken in other recent decisions.
Many thanks to Mr. Christie for also promptly providing the decisions last month!
Wednesday, the Third District Court of Appeal addressed whether the Condominium Act requires approval of repairs that are also alterations, and whether approval must occur before the work, in Bailey v. Shelborne Ocean Beach Hotel Cd’m. Ass’n., Inc. Case Nos.: 3D17-0559 and 3D17-0767 (Fla 3d DCA July 15, 2020). Not to start with a spoiler, but for those that believe that the Tiffany Plaza line of decisions addressed this issue, those decisions did not.
The Condominium Association financed two major construction projects over a four-year period with seven special assessments totaling over $30 million, initially approved by the Association’s board of directors, not the members. Only after the work was completed did seventy-five percent of the unit owners vote to approve.
TRIAL COURT
The Appellants, Condominium unit owners sued the Association and the individual directors alleging violations of the approval requirements for “material alterations or substantial additions to common elements….” contained in § 718.113(2)(a) Fla. Stat. (2017), and against the directors alleging breach of fiduciary duty claim for violating the Condominium Act. At the summary judgment hearing the trial court reviewed multiple binders of the construction details. The Association conceded that two items, pool paver repairs and reinforcement under townhomes, were not necessary repairs. The trial court granted summary judgment that all work except for the pool pavers and reinforcements, were necessary repairs and maintenance, and that the owners approved or ratified the work thereafter.
APPELLATE COURT ANALYSIS
Two separate issues were presented. First, whether the Condominium Act in Section 718.113(2)(a) Fla. Stat. (2017) requires unit owner approval for a material alteration or substantial addition that is a necessary repair? Second, Whether the unit owner approval for a material alteration or a substantial addition required by Condominium Act Section 718.113(2)(a) Fla. Stat. (2017) must occur before the alteration or addition. As to what is a substantial change or material addition, it was noted that reliance was placed upon the classic “palpably or perceptibly vary or change the form, shape, elements or specifications” threshold of Sterling Village Condo, Inc. v. Breitenbach, 2511 So. 2d 685, 687 (Fla 4 DCA 1971).
Whether Approval is Required.
The court began with an analysis of Section 718.113(2)(a) which was “clear” as it prohibited material alterations or substantial additions to condominium common elements with three exceptions:
(1) “[e]xcept as otherwise provided in this section [718.113]”;
(2) “except in a manner provided in the declaration as originally recorded or as amended under the procedures provided therein”; or
(3) “[i]f the declaration . . . does not specify the procedure for approval of material alterations or substantial additions, 75 percent of the total voting interests of the association must approve the alterations or additions.”
The sub-section begins:
““except as otherwise provided in this Section,” there shall be no material alterations or substantial additions to the common elements….”
(Emphasis added by court). Thus, as invited by the first line of sub-section (2)(a), there is an express exception to the prohibition of material alterations and substantial additions without owner approval. The first subsection of the statute beings “maintenance of the common elements is the responsibility of the association.” Section 718.113(1) Fla. Stat. (2017). Thus, because another sub-section requires the Association to be responsible for maintenance of the common elements, that sub-section creates an exception to the requirements in Section 718.113(2)(a).
Timing.
As to when a material alteration or substantial addition must be approved, the court again found that the statute is “clear.” “It would lead to an absurd result and defeat the statute’s general prohibition of material alterations or substantial additions” to allow post work approval or ratification. If approval was not required before the work, there would never be a violation of the statue “because approval could always be pending.”
Fiduciary Duty.
Because almost all of the repairs were necessary, the Association had authority for those, and there was no breach of a fiduciary duty. Concerning the two items that were not necessarily repairs or maintenance, the owners failed to provide any evidence that the items were either “unnecessary or unreasonable.”
KIBITZING.
Was not the repair v. approval dispute resolved in the 1980’s? Before jumping to an answer, take another look at the trifecta of decisions. Ralph v. Envoy Point Condo. Ass’n, Inc., 455 So. 2d 454, 455 (Fla. 2d DCA 1984); Cottrell v. Thornton, 449 So. 2d 1291 (Fla. 2d DCA 1984); Tiffany Plaza Condo. Ass’n, Inc. v. Spencer, 416 So. 2d 823 (Fla. 2d DCA 1982); and, George v. Beach Club Villas Condominium Association, 833 So. 2d 816 (Fla. 3d DCA 2002). Each of these three decisions was founded upon the particular declarations’ text, not the Condominium Act. Tiffany Plaza did quote the Condominium Act; however, the decision did not rely upon the Condominium Act’s text. Beach Club did quote the Act; however, the holding that replacing wooden roof mansards with terracotta shingles was a material alteration was a factual determination.
The decision reinforces the rule of statutory interpretation that when considering a statutory provision, even when seemingly clear, the entire statute must be considered, as well as the chapter the statute is located.
The court leaves associations in a quandary. What to do when the work is done, contractors must be paid, and an owner correctly challenges the work as a material alteration or substantial change occuring without an advance owner vote? While an association is no not able to approve after the fact, how are the contractors paid? The Florida Supreme Court has provided a proverbial “safety valve,” allowing a special assessment to pay for a judgment whose execution endangered association assets, even though the ultimate expense was ultra vires. Ocean Trail Unit Owners Ass’n., Inc. v. Mead, 650 So. 2d 4 (Fla 1994). Nevertheless, it appears wasteful to require a condominium association to be sued and subject to execution before a special assessment for work would be valid.
This morning the Fifth District Court of Appeal addressed mandatory arbitration jurisdiction for a contest of a plan of termination, and the pitfalls of not watching the calendar, in Cornerstone 417 LLC v. Cornerstone Condominium Association, Inc. Case No. 5D19-1621 (Fla 5 DCA, July 24, 2020). Beyond the holdings, there are many considerations, addressed at the end.
Unit owner Oreo acquired 91% of the Cornerstone Commercial Condominium’s units which allowed Oreo to elect the Condominium Association’s board of directors that approved a plan to terminate the Condominium. The termination plan provided for the Association to determine the fair market value of the unit owner Cornerstone 417 unit which would be paid to that unit owner. The Condominium was terminated, and the unit owner received compensation as provided in the plan.
ARBITRATION
Unit owner Cornerstone 417 petitioned for mandatory nonbinding arbitration before the Department of Business and Professional Regulation. The DBPR dismissed the petition as being “untimely and procedurally flawed.”
The unit owner sued the Condominium Association and Oreo asserting claims for:
The Association and Oreo moved to dismiss for failing to petition for mandatory nonbinding arbitration pursuant to Section 718.1255 Fla. Stat. (2019) within 90 days of the plan’s recording. The motion was granted, the trial court dismissing the complaint.
The first issue on appeal was whether claims for damages for unjust enrichment and breach of fiduciary duty, and the related declaratory judgment claim, were outside of arbitration’s jurisdiction. The appellate court referred to the “plain language” of Section 718.117(16) Fla. Stat. (2019), which requires:
[a] unit owner or lienor may contest a plan of termination by initiating a petition for mandatory nonbinding arbitration pursuant to s. 718.1255, Florida Statutes, within ninety days after the date the plan is recorded.
Despite the language being “plain” the statute “must be read in conjunction” with the arbitration statute which provides that a “dispute” is “any disagreement between two or more parties that involves a plan of termination.” Section 718.1255(1)(c), (4)(a) Fla. Stat.
The analysis for jurisdiction is not “how the plaintiff frames the claim,” but the “gravamen” or actual relief sought. The complaint challenged the value of the unit. Valuation was a dispute regarding the “fairness and reasonableness of the apportionment of the proceeds” which falls within the parameters of 718.117(16) Fla. Stat. (2019). Thus, the claims were within the jurisdiction of arbitration. To allow the claims to proceed directly to court would render the mandatory nonbinding arbitration requirement “meaningless.” Furthermore, the court noted that the unit owner recognized the jurisdiction of arbitration by filing its petition, though doing so untimely!
Regarding whether arbitration had jurisdiction to grant relief composed of damages, the statute “specifically provides”:
[i]f the arbitrator determines that the apportionment of sales proceeds is not fair and reasonable, the arbitrator may void the plan or may modify the plan to apportion the proceeds in a fair and reasonable manner pursuant to this section based upon the proceedings and order the modified plan of termination to be implemented.
(Emphasis added by court). Thus, had the challenging unit owner participated in mandatory nonbinding arbitration and been successful in its claim that the proceeds were not fair and reasonable, then the arbitrator would have been able to grant the exact relief sought, more compensation. Accordingly, arbitration had authority to grant the relief sought.
Now, because the Termination Plan was uncontested and carried out, Cornerstone seeks “damages,” rather than a greater apportionment of proceeds, but it is nevertheless seeking the money it claims that it was owed as compensation for its unit.
Thus, if the dispute was brought to arbitration, then in arbitration compensation could have been adjusted. Proceeding in court and seeking damages is the same as challenging apportionment.
The appellate court firmly directs unit owners to contest valuation in arbitration as an issue of the apportionment of proceeds. It may be that the unit owner’s fatal flaw was in the timing of filing its arbitration petition, apparently more than ninety days after the recording of a plan of termination. It is unclear what “procedural flaws” would have caused a petition to be dismissed; however we know of that many are tripped up on the notice and opportunity to cure requirement.
Query I: If an owner contests the overall valuation, rather than the apportionment of proceeds, and sought greater money, would that be more than a dispute over apportionment? Consider the difference between seeking a larger slice of the pie verses seeking a larger pie and from the larger pie the same proportional slice!
Query II: Are Division arbitrators trained sufficiently to evaluate damage claims considering that the lack of ability to evaluate was the basis for restricting jurisdiction?
Outside of the termination realm this decision may encourage greater consideration as to whether an issue actually seeks the type of non-monetary relief that traditionally has been within an arbitrator’s authority, as opposed to merely being labeled as a claim for damages which arbitrators have generally rejected, including the issue of breach of fiduciary duty.
The concept of breach of fiduciary duty is also of interest. The appellate court does not address whether the Condominium Association or Oreo as the 91% owner had a fiduciary duty to the unit owner. We have seen recently courts reaffirming that a condominium association does not have a fiduciary duty to the unit owners, at least pursuant to the Condominium Act whose text refers to directors owning a fiduciary duty in Section 718.111(1)(a). Presumably, that was not an issue raised by the parties below and not a basis for the trial court’s ruling; thus, there was no requirement for the appellate court to address that issue.
The decision’s terminology is of interest. The court writes in large part of “jurisdiction” of arbitration or arbitrators, and the switches to “authority”. The decision also seems to treat arbitrators and arbitration interchangeably.
Almost last on my list is the caption, the Condominium Association was sued “As Termination Trustee.” Again, not an issue apparently raised by the parties or the court, but should a 1.221 class action have been required, particularly if one unit owner’s piece of the pie was larger, then other owners’ slices would be smaller; however, a termination trustee does holds property and owes duties, Section 718.117(13) and (14). and thus may be a proper party.
Finally, consider whether the Condominium Association set a world record for shortest time from adopting a termination plan to trial! Why ask? The 2019 statute is cited which would not have been in effect until July 1, 2019. Yes, the termination statute has not changed since 2017, but would not the parties and the courts cited to the law in effect at the time of plan adoption, if not an earlier statute citation? This of course helps avoids the seeming boogeyman of most termination disputes, whether application of the current termination statute is an unconstitutional retroactive impairment of contract.
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The gauntlet has been thrown down! Is Jacobi dead? Has the wrong gauntlet been thrown? Should the concept of “consent” and novation apply to recorded covenants running with the land?
Whether acquiring title to a condominium unit constitutes a novation which in turn allows the Section 57.105(7) prevailing party attorney’s fees provision to be incorporated in a pre-1988 recreation area lease, and the continued viability of Jakobi v. Kings Creek was addressed yesterday by the Fourth District Court of Appeal in C.V.P. Community Center, Inc. v. McCormick 105, LLC, Case No. 4D19-1515 (Fla. 4th DCA August 5, 2020).
Century Village of Pembroke Pines Condominium was developed in 1984. McCormick 105, LLC is an institutional mortgagee and the purchaser of a unit at the Condominium. McCormick obtained title to a unit in the Condominium as a result of a foreclosure. C.V.P., the holder of a long term Lease on the Condominium’s recreational facilities, demanded that McCormick pay Lease rental amounts due befor the unit was transferred to McCormick.
Trial Court.
McCormick sued for declaratory relief, breach of contract, and rent abatement. The trial court held that the C.V.P.’s demand as landlord for rents was contrary to the Lease. Both parties sought attorney’s fees. C.V.P.’s motion for fees based on the Lease’s one-sided fee provision in favor of the landlord was denied. McCormick sought prevailing party attorney’s fees, costs and expert fees pursuant to the Lease, asserting that Section 57.105(7) modified the Lease’s one sided attorney’s fee provision in favor of the landlord into a prevailing party fee provision. The trial court awared McCormick $141,475.15.
The Appellate Court first focused on the statute’s express limitation “this subsection applies to any contract entered into on or after October 1, 1988.” This limitation prohibits the statute’s application to the 1984 Lease.
To avoid the statute’s limitation, McCormick asserted that its acquisition of the certificate of title after the foreclosure created new obligations and thus a novation of the Lease, citing Jakobi v. Kings Creek Village Townhouse Association, Inc., 665 So. 2d 325 (Fla. 3d DCA 1995).
The Appellate Court rejected reliance on Jakobi, initially distinguishing, and then disagreeing with Jakobi. In Jakobi the unit owner prevailed in a dispute over a screen enclosure and sought to apply Section 57.105(7) to the Association By-Laws’s one-sided attorney’s fee provision I favor of the Association. The Jacobi Court held that the owner taking title with record notice of the declaration’s duty to pay assessments assumed that duty which fulfilled the consent element for a novation, citing to Sans Souci v. Division of Florida Land Sales & Condominium, 448 So. 2d 1116, 1121 (Fla. 1st DCA 1984).
The appellate court implied that Jakobi misinterpreted Sans Souci and proceeded to “disagree with the reasoning with Jakobi.” In Sans Souci novation required consent to substitute a new agreement for the old agreement, and that consent was not shown in Sans Souci. “In our view, there is no mutual ascent to a new contract; instead, the owner agreed to be bound by the terms of the old contract.” Thus, McCormick’s acceptance of title did not assume a new owner’s obligation to pay rent that became due before the certificate of title was issues. In fact, the Lease provided otherwise concerning those earlier rents,
In concluding the opinion reinforced that a trial court’s post-judgment order denying a motion for attorney’s fees is a final appealable order. As a result, C.V.P.’s appeal, apparently filed more than thirty days after the order of denial, was untimely; thus, C.V.P.’s appeal of the order denying attorney’s fees was dismissed.
Where do we go from here in terms of consent and recorded covenants. This issue impacts far beyond condominium associations and the obligation to pay rent and assessments.
Disagreement with Jakobi has been brewing for a long time, being treated by many as a seeming outlier. Nevertheless, the Fifth District Court of Appeal in a little cited decision aligned with Jakobi in Holiday Square Owners Ass’n. Inc. v. Tsetsenis v. 820 So. 2d 450 (Fla. 5th DCA 2002). Note that Holiday Square did not undertake the next level of analysis of Judge Warner in this case, C.V.P., examining Jakobi’s underlying support.
Has Jakobi distracted the courts from the true nature of recorded covenants. As the other District Courts of Appeal have not undertaken the same analysis as Judge Warner, her opinion may be helpful for those seeking to challenge Jakobi while sticking with the concept of consent and novation. Still, this opinion in C.V.P., while recognizing that the Lease, looking backward, did not provide for payment of the former owner’s rents and thus McCormick did not agree to pay those rents, did not address looking forward at rents due in the future and the acceptance of the obligation to pay those rents. That perhaps implied consent to pay future rents, similar to Jakobi’s duty to pay future assessments, hangs up the analysis.
Query: Is the effort to shoehorn the concept of “consent” an academic effort akin to shoving a size 12 foot in a size 5 shoe, or the proverbial round peg in a square hole. In the context of covenants running with the land that are recorded is the contract concept of novation actually applicable?
In our “real world” of real estate the acquirer of title does not “consent” to be bound by the covenants. The purpose of the recording laws is to do away with consent to the recorded covenant. Further, an acquirer does not need to have actual knowledge of a recorded covenant to be bound. The acquirer’s duties and obligations are set by the recorded covenants, regardless of whether the acquirer agrees or not, has knowledge or not. See Section 695.01(1) Fla. Stat. (2019). Superimposing consent to enforce a covenant running with the land that is recorded adds a burden of proof that is not only unnecessary, but undermines the entire concept of record notice.
Beyond commentary, consider the practical implications of Jacobi. Should each parcel in a community be governed by a different set of restrictions for each parcel, dependent only on the date title was acquired. While we have certain amendments, condominium leasing restrictions and HOA restrictions, dependent on whether an owner obtained title or expressly consented, those thresholds were legislative mandated in Sections 718.110 and 720.306, and notably for a novation analysis the legislature allowed and exception, that consent is a factor.
The opinion did not address the constitutional retroactive impairment of contract analysis. It would appear that the constitutional issue would not have reached because the statute expressly rejects retroactive application; thus, no legislative impairment. Consider also if a novation is required to apply new statutory changes, that would shift the traditional analysis to whether the new statutory provisions are procedural or providing a remedy then there is no impairment, as opposed to impacting the substantive rights.
So, are we left with a split among the Districts. By providing an alternative basis for the holding, the appellate court may have sought to avoid conflict certification to the Florida Supreme Court. Nevertheless, is there an issue of great public importance that would lead to the Florida Supreme Court? Is this the case to bring the issue to the Court, especially considering the Court’s recent rejection of stare decisis in State v. Poole?
See you at the upcoming committee meetings.
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Did you feel the first wave of reverberations? It may have been the impact of the felling of legal “edifices” following the Third District Court of Appeal’s opinion last week in IconBrickell Cd’m. No. Three Ass’n v. New Media Consulting, LLC., Case No. 3D19-0521 (Fla. 3rd DCA, October 7, 2020),
The opinion addressed whether a “hotel condominium” may have minimum common elements.
The “Edifice.”
New Media Consulting owned a residential unit in IconBrickell Condominium. No. Three. The Condominium, one of three “edifices” in a multi-condominium project “developed” in 2008. The Condominium includes hundreds of residential units, some commercial units, and a hotel unit which was the W Miami Hotel.
The opinion turned on the interplay between the Condominium Act and the Declaration of Condominium. In 2009 the Declaration of Condominium was recorded submitting the property as follows:
to the condominium form of ownership and use in the manner provided for in the Florida Condominium Act as it exists on the date hereof and as it may be hereafter renumbered
The developer made no effort to hide the minimum nature of the Condominium’s common elements:
The Condominium has been established in such a manner to minimize the Common Elements. Most components which are typical “common elements” of a condominium have instead been designated herein as part of the Shared Facilities of the Hotel Unit, including, without limitation, all property and installations required for the furnishing of utilities and other services to more than one Unit or to the Common Elements, if any
The Condominium’s common elements were defined as “limited to property not included in the units”, and
(1) “[a]n easement of support in every portion of a Unit which contributes to the support of the Building;” and,
(2) “the surface water management system.”
The Declaration further differentiated property not within the units, as “Shared Facilities”:
any and all structural components of the Improvements, . . . balconies, terraces and/or facades attached or affixed thereto . . . ; all utility, mechanical, electrical, telephonic, telephone switchboard, Life Safety Systems, telecommunications, plumbing and other systems, including, without limitation, all wires, conduits, pipes, ducts, transformers, cables and other apparatus used in the delivery of the utility, mechanical, telephonic, telecommunications, electrical, plumbing, Life Safety Systems and/or other services or systems; . . . all elevator shafts, elevator cabs, elevator cables and/or systems and/or equipment used in the operation of the elevators [traversing] the Condominium Property; and all trash rooms, trash chutes (if any) and any and all trash collection and/or disposal systems. In addition, the Shared Facilities include the following areas . . . the main hotel lobby and the residential lobby.
Shared Facilities were owned and controlled by the owner of the Hotel. Residential unit owners were “emburden[ed]” with the expense of the Shared Facilities to be paid to the Hotel owner; however, the Hotel owner “remains unencumbered by certain statutory provisions regulating Condominium Association assessments.”
In The Trial Court.
In 2018 New Media sought a determination whether the designation of the “statutorily circumscribed common elements and shared facilities” violated the Condominium Act. The trial court granted New Media a summary judgment.
The appellate court started by restating traditional fundamental precepts, though first declaring that pertinent provisions of the Condominium Act are “clear and unambiguous.” Then, as to the status of a condominium:
A condominium is created by statute and “all provisions of a condominium declaration must confirm to the Act, “and to the extent they conflict therewith, the statute must prevail.” Winkelman v. Toll, 661 So. 2d 102, 105 (Fla 4th DCA, 1995).
Further,
Every condominium created and existing in this state shall be subject to the provisions of this Chapter
Section 718.102, Fla. Stat.. In addition,
A provision of this Chapter may not be waived if the waiver would adversely affect the rights of the unit owners or the purpose of the provision.
Section 718.303(2), Fla. Stat.
The court proceeded to address a required component of a condominium, common elements, through a series of statutory quotes. The Condominium Association is “responsible for the operation of common elements.” Section 718.103(2), Fla. Stat. Reciting Section 718.108 Fla. Stat. the Condominium’s common elements must include easements for utilities and support as well as property and station required for furnishings of utilities.
Characterizing the Declaration as “intrepidly mirroring the words of the Act” the Court held that the Declaration’s effect was:
This recharacterization, and the resultant expropriation of undivided common ownership, indubitably contravenes the edict of the Act. See 718.107, Fla. Stat.
Though perhaps some may see this as a broad stroke, the court stated that the discussion was limited to statutory required common elements:
In closing, we decline to embrace the broader proposition that the transfer of ownership and control of any amenities traditionally designated as common elements violates the spirit, if not the letter, of the law.
The court seems to have pulled back from a literal requirement that all the facilities that are shared must be kept as common elements.
Literally, a note at the very end of the opinion affirmed that the trial court’s requirement that the Association “reform” the Declaration, somehow differentiating this from “reformation” because the trial court “merely directed the Association to “reform” the Declaration to comply with Florida law.” The trial court cited to a dictionary definition of “reform” which essentially is to “improve” or “put into a better form.”
Kibbitzing.
Where do we begin?
The big picture? If shifting shared facility expenses to residential owners violates the Act, where does that place similarly declared hotel condominiums? Those on the drawing board? What is the threshold?
Before jumping to the big picture, the opinion’s predicates will be of long-term value to the practitioner. First, the Court reaffirms that a declaration of condominium must be in compliance with the Condominium Act. Second, the Court invokes the Act’s non-waiver provision to protect unit owners, citing to Section 718.303(2), reinforcing the importance of compliance with the Act. Quoting the anti-waiver text, the court reinforces the Legislature’s concern that allowing a waiver would invite contracts and declarations’ small type to strip hard fought for rights, gutting the statutory protections.
On to the big show!
For many hotel unit owners in condominiums with minimum common elements, and their developers, the opinion will be problematic, to say the least. The minimal common element approach is now disrupted, at a minimum, if not prohibited unless there is contrary treatment en banc, a decision from another District Court of Appeal, or from the Florida Supreme Court.
Significant questions remain, for new projects in terms of planning, and for existing condominiums associations considering how to “fix” the situation. The big questions that first appear are:
What is the threshold as to what extent “Shared Facilities” can be stripped out of a condominium; and,
To what extent may the residential owners be saddled with the Shared Facilities expenses.
Put another way, at what point is shifting the burden of Shared Facilities too much? It seems clear that merely designating as common elements Section 718.108 Fla. Stat. components, for utilities and support as well as property and station required for furnishings of utilities, are just a floor upon which other components must be added.
The opinion does not explain what components must be designated as common elements. Declaring at the start that the Act’s provisions are “clear and unambiguous” may allow a swift analysis, up front; however, side stepping a statutory analysis may be more problematic because the decision does not provide guidance to the trial courts or practitioners. Did the Court realize the difficulty of the task and proverbially punted, hoping that the parties as the groping in legal darkness will both seek to settle rather risk post-judgment proceedings and another appeal?
It appears those components necessary for the condominium’s intended operation must be designated as common elements. The opinion’s Condominium Act quotations indicate that those components for which the members pay is a start; however, in practice we have seen that there are many components which unit owners pay to maintain but are appropriate for “master association” administration; thus, the criteria of payment may not be sufficient.
Perhaps those items that are integral to the condominium’s operation but not shared with others is the threshold. The “integral” adjective may not be objective enough for many. A glance at the trial court’s judgment provides some additional guidance, but what is not stated in the appellate opinion does not provide guidance to other courts.
Consider whether there should be a type of quid pro quo, allowing owners some say in the administration of Shared Facilities? But sharing decision making would seemingly undercut the apparent reason to strip out Shared Facilities in the first place, to allow the hotel unit owner to control decision making. But, what about the Act’s anti-waiver requirements.
How will the IconBrickell No. Three situation be rectified? How to “reform” what is there? Would that be a Rule 1.221 class action or is a statutory derivative action required? The opinion drops the problem back onto the parties to solve ala Towerhouse Cd;’m. v. Millman, 475 So. 2d 674 (Fla. 1985), and test the extent of reformation of a unilateral instrument allowed by Providence Square v. Biancardi. Keep in mind Ocean Trail v. Mead’s practical approach of how to pay for improper expenditures. Proceeding to an extreme, would equity support a type of termination because the Hotel owner’s expectations were not met; however, the situation was of the developer’s making and termination would likely place the residential owners at an even greater disadvantage.
For condominium associations and unit owners, the question now may be whether to challenge the Declaration. Many hotel condominiums’ declarations contain similar if not the exact text as quoted in this opinion.
Concerning timing, the facts stated in the opinion seemingly would have shown a potential limitations issue, barring claims because of the passage of time, specifically that the Declaration was recorded nine years before suit was filed. Nevertheless, the opinion does not address bar issues, either the statute of limitations, especially post-Harris v. Aberdeen P.O.A., 135 So. 3d 365 (Fla. 4th DCA 2014), nor the three-year statute of repose in Section 718.111(10) Fla. Stat. Nevertheless, newer associations may want to ensure that if they raise a challenge that it occurs within statutes of limitation and repose.
Concerning remedies, potentially complicating the next phase is who are the parties to the litigation. The opinion does not state whether the Hotel owner was a party, or whether the residential owners were parties. Would both otherwise be thought of as indispensable parties?
Was the claim brought as a Rule 1.221 class action, or a derivative action? If not, what binds the individual owners? If there is a change in common elements or manner of dividing common expenses, then are mortgage holders are indispensable parties? Not to construct a slippery slope, but if there are adverse impacts, then will there be impacts on marketability leading to title insurance claims? Will just the disclosure of the situation impact marketability?
Moving a bit further afield from legal to practical lessons, the opinion does not indicate what triggered the claim. For the legal voyeurs, a peak at the trial court judgment indicates that the Hotel owner sought a special assessment of over $727.000 for shared facilities expenses. Perhaps another instance of when one person pushes too hard, unanticipated consequences occur (e.g. litigation), upturning all.
In conclusion, the opinion’s analysis of Shared Facilities, shifting expenses and authority, illuminates the conundrum created by stripping out Shared Facilities. The court appears to be trying to hold that stripping out is contrary to the underlying philosophy of the Condominium Act, which was created to ensure that all owners, especially residential owners, have the ability to control their destiny. Particularly as the Act is remedial in nature does this undermine the concept of a hotel condominium? Recognizing that the hotel condominium concept may at its heart be but a method of financing a development, with there be a new financing tool?
Monitoring continuing status, whether a motion for re-hearing, en banc or certification was filled, the docket can be viewed at:
http://onlinedocketsdca.flcourts.org/DCAResults/CaseByYear?CaseYear=2019&CaseNumber=521&Court=3
None were docketed at time of writing.
A shout out to our own, Condominium and Planned Development Committee chair Professo r Sklar who is cited, not just once, but twice, explaining the origins of the condominium concept!
Thank you to Jeff Rembaum for swiftly providing the opinion and the lower court’s summary judgment.
A single day can make all the difference! And if you believe the doctrine of substantial compliance applies to everyone equally, take note of the recent decision in The Cove & Deerfield Beach, LLC v. R Fast, Inc., 45 FLW D2640, Case No.: 4D20-1782, (Fla. 4th DCA, November 25, 2020).
Trial Court Proceedings.
The Cove, landlord of a commercial building, sought to evict the tenant. The county court vacated a default and transferred the case to the circuit court. The circuit court granted the tenants motion to determine rent and required the tenant to pay rent in the court registry on the first day of each month.
Apparently for one month the tenant did not pay on the first of the month; however, on that due date the court was closed due to the COVID-19 pandemic. A second time rent was not received by the court registry on the first day of the month the tenant had mailed the check two days before the due date. The clerk deposited the check into the court registry the day after the due date. The circuit court denied the landlord’s second motion for default.
The Appellate Decision.
The appellate court granted the landlord’s petition for a writ of mandamus requiring the circuit court to enter a default and issue a writ of possession. At least in the landlord-tenant environment, the trial court does not have discretion to deny a motion for default when rent has not been paid into the court registry pursuant to court order.
Though the appellate court recognized that “the result is harsh,” the court remarked there are no equitable exceptions and the tenant’s reasons for non payment including the Florida Supreme Court’s administrative order of an emergency health condition and that the court registry is not an essential and critical proceeding, do not provide a reason for failing to make payment. The courthouse was open on the date the payment was due. Therefore, on remand the landlord is entitled to a default and possession; however, the landlord was not entitled to disbursement of funds.
Kibbitizing.
This decision follows a line of decisions in the mortgage foreclosure context in which “substantial compliance” with notice prerequisites was allowed to shave a day or two, or more. Albeit this was usually when the borrower had not made payments, at all. In the landlord tenant context a stricter approach appears to prevail.
This decision is also notable because the mailbox rule apparently did not apply. A word to drafters of orders to perhaps distinguish between filing and otherwise. The exact language of the deposit order is not quoted; however, the decision alludes to a “pay” requirement for which the mailbox rule presumably would not apply.
Though the pandemic was raised by the defendant tenant as an excuse for late payment, apparently there was no proof of delay by the pandemic, the burden of proof being upon the tenant, including the burden of showing a delay on the part of the clerk to docket.
It was good seeing so many Committee members at last week’s meeting.
Best and good health to all.
How long is too long? The one-year statute of limitations for seeking a deficiency was at issue in Accardi v. Regions Bank, Case No.: 4D20-0662, 45 Fla. L Weekly D2740 (Fla. 4th DCA, December 9, 2020). At the end are some teasers for a few other opinions.
August 2015. Final Judgment of Foreclosure retaining jurisdiction for a deficiency judgment.
December 3, 2015. Certificate of Sale reflecting the Bank’s high bid of $300.
April 2016. Certificate of Title issued to the Bank.
February 21, 2017. Bank sells the property.
September 2018. Trial court grants Bank’s motion to tax attorney’s fees.
March 12, 2019. Bank moves for deficiency judgment in the foreclosure action.
February 2020. Trial court grants a deficiency judgment, rejecting a statute of limitations defense based on Section 95.11(5)(h) Fla. Stat. (2018).
The Appeal.
The trial court’s deficiency judgment was reversed. The crux of the appeal was whether a motion for deficiency judgment filed post-judgment in the mortgage foreclosure lawsuit constitutes an “action to enforce a claim of a deficiency” regulated by Section 95.11(5)(h) Fla. Stat. (2018), which states in part:
Actions other than for recovery of real property shall be commenced as follows:
(5) Within one year.—
(h) An action to enforce a claim of a deficiency related to a note secured by a mortgage against a residential property that is a one-family to four-family dwelling unit. The limitations period shall commence on the day after the certificate is issued by the clerk of court or the day after the mortgagee accepts a deed in lieu of foreclosure.
The court then sought to determine the definition of an “action” in Chapter 95 also provides:
A civil action or proceeding, called “action” in this chapter . . . shall be barred unless begun within the time prescribed in this chapter or, if a different time is prescribed elsewhere in these statutes, within the time prescribed elsewhere.
Section 95.011 Fla. Stat. (2018). (Emphasis by court).
Reciting that a statute which is clear and unambiguous does not need interpretation, but that “plain and ordinary meaning should control”, the court nevertheless proceeded to review a number of decisions regarding the meaning the statute.
Concerning what is an “action,” Recognizing that discovery as “post-judgment collection mechanisms are extensions of the original cause of action,” the appellate court further focused on the term “proceeding” which is apparently far broader than the term “action” following Burshan v. National Union Fire Ins., 806 So. 2d 835, 842-43 (Fla. 4th DCA) (2001). (Citation omitted).
Carving out an exception to the “general rule,” a deficiency proceeding has its own statute of limitations, apparently differentiating normal post-judgment collection and enforcement matters. Falling back on practicality, the decision concludes that to not apply the statute of limitations to motions for deficiency “would effectively gut the application of the statute.…”
Thus, the time to seek a deficiency was triggered by the certificate of title in April 2016 and the Bank’s motion in 2019 was untimely.
Finally, the court noted the statute’s plain reference to the “certificate is issued” does not defined which certificate. Rejecting the alternative that it refers to a certificate of sale, the “less than” precise language is assumed to refer to the certificate of title paralleling statutes’ the deed in lieu of foreclosure alternative.
This may be the first decision interpreting the deficiency of the statue of limitations.
Readers of advance sheets may have noticed an increasing trend of language that a statute is “clear and unambiguous” but still undertaking an interpretive analysis. Slapping the “clear and unambiguous” label is disconcerting if not decidedly unhelpful for trial courts and practitioners, especially as unanticipated fact situations will likely create further ambiguities when the statute is applied.
It is unclear as to what caused the Bank to delay, not only in moving for the deficiency judgment, but also in the two and a half years between the certificate of title and the Bank moving for post judgment attorney’s fees.
Appellate practitioners, note that this case moved swiftly through the system, as least when the opinion has a not low case number: 4D20-0662.
Concluding, the proverbial “moral of the story” is if you have a deficiency, then file your motion. There does not appear be a downside to filing swiftly after the issuance of a certificate of title, though being careful of the one year lack of prosecution time pursuant to Rule 1.420(e).
Practitioners may be interested in a couple of other decisions issued the same week:
Restoration Construction, LLC v. Safepoint Ins, Case No.: 4D19-3790, 45 Fla. L. Weekly D2732(Fla. 4th DCA, December 9, 2020) reversing a summary judgment in favor of an insurer holding that the insurer’s five day delay in initially inspecting a property damage claim plus twelve days to send professional inspectors raised a question of fact whether the insurer suffered prejudice by the insureds not reporting the claim for five days.
RJ Reynolds Tobacco Co. v. Kaplan, Case No.: 4D18-2880, 45 Fla. L. Weekly D2728 (Fla. 4th DCA, December 9, 2020 holding that argument referring to tobacco companies and same reference as the movie Schinder’s List and 1984, is improper, though apparently relying upon the discretion of trial court judges, but strongly reminding trail court judges of the availability of indirect civil contempt monetary sanctions for repeated violations of rulings concerning improper argument to a jury.
Walker v. State, Case No. 4D 19-3289, 45 Fla. L. Weekly D 2726 (Fla. 4th DCA December 9, 2020), holding that an expert may opinion on cell phone tracking data admissible under Daubert, broadly stating “it would be unrealistic and unworkable to expect any expert, who uses a technology with a computer component, to be able to testify as to the workings of the algorithm that is part of its software or every technical that is part of the underlying system.”
Best for a grand, healthy and sane new year!
Many events in January have distracted from recent appellate decisions.
The Florida Supreme Court continued its upset of precedent on the last day of 2020. The burden on the movant for summary judgment was significantly reduced in Wilsonart LLC v. Lopez, 46 Fla. L. Weekly S2, Case No. SC19-1336 (Fla. December 31, 2020), and a corresponding order amending Florida Rule of Civil Procedure 1.510, In Re: Amendments to Florida Rule of Civil Procedure 1.510 Case No. SC20-1490 (Fla. December 31, 2020) which includes the amended rule.
Many may remember the intermediate appellate court decision addressing whether video evidence could overcome conflicting testimony for a summary judgment. See Lopez v. Wilsonart, 275 So. 3d 831 (Fla 5th DCA, 2019).
In what might seem to be an extraordinary short decision given the decision’s anticipated consequences the Florida Supreme Court, recognizing that the instant dispute could have been narrowly addressed by creating a presumption regarding video evidence, instead utilized the decision as a platform to change the summary judgment rule in conjunction with the simultaneously issued Rule change.
In its sua sponte effort, the Court adopts the “federal summary judgment standard” from three United States Supreme Court decisions addressing Rule 56 of the Federal Rules of Civil Procedure:
Celotex Corp. v. Catrett, 477 U.S. 317 (1986);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)
The primary justification appears to be a belief by the court that the significant difference between the threshold for granting a directed verdict and a summary judgment is contradictory.
The new Florida threshold is that a movant must show an absence of evidence as opposed to disproving or negating any issue of fact.
Justice Labarga dissented on the change of the rule explaining that under the federal summary judgment standard invades the province of the jury and weighs evidence. He concludes:
I strongly dissent to the majority's conclusion that this case warrants reconsideration of Florida's summary judgment standard, and further, to the majority's decision to prospectively amend Florida Rule of Civil Procedure 1.510 and adopt the federal summary judgment standard.
Practical impact? Experiences from the federal court indicate that obtaining a summary judgment will be easier, the threshold reduced. The focus shifts from whether the movant has disproven all adverse facts to one of whether there is evidence. Particularly as the Rule starts to be applied there will likely be issues how certain is an allegation. Undoubtedly, it will be years before the appellate courts address and sort out the practical thresholds.
Interestingly, the Court does not explain that the posture of the two different motions, directed verdict and summary judgment, is quite different. At the directed verdict stage a litigant is in trial and there is no further opportunity to develop a case whereas a motion for summary judgment short stops that process.
The Rule order includes an opportunity to file comments to the rule; however, the efficacy of challenging comments is questioned given the manner of the Court taking up the issue and its decision.
© 2021 Michael J. Gelfand
Remember “NO STANDING = NO ATTORNEY’S FEES”? Well, it no longer stands!
In another of its decisions on the last day of 2020, the Florida Supreme Court weighed in on the issue of an award to a defendant borrower of reciprocal attorney’s fees when a foreclosure action is dismissed for lack of standing. Page v. Deutsche Bank Trust Co., 49 Fla. L. Weekly S3, Case No. SC19-1137 (Fla December 31, 2020).
The Florida Supreme Court addressed a conflict between the First and Second District Courts of Appeal created by the Deutsche Bank Trust v. Page, 274 So. 3d 1116 (Fla 4th DCA 2019). The context is a mortgage foreclosure action in which the plaintiff lender failed to prove standing existed at the start of the litigation. The borrower here, as in the other cases, sought attorney’s fees pursuant to the statutory bilateral application of a contract’s unilateral fee provision:
If a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney's fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. This subsection applies to any contract entered into on or after October 1, 1988.
Section 57.105(7) Fla. Stat. (2019).
The conflict turned upon the District Courts of Appeals’ consideration of whether a contract existed. The Second and Fifth District Courts of Appeal identified in their conflict decisions that a contract existed, but the plaintiff lender failed to prove the contractual relationship existed at the time the litigation commenced. The Fourth District Court of Appeal in its en banc decision unanimously focused on the posture at the time the action was initiated.
The Florida Supreme Court focused on the meaning of the statutory text, without stating it was clear and unambiguous, but not reciting any rules of interpretation. Applying the statute, first, in Page there was no dispute that there was a contract, apparently referring to the note secured by the mortgage, just that the contract did not exist at the initiation of the lawsuit. Second, the statute requires a prevailing party and Page, the defendant borrower, prevailed by successfully defending the action based on the contact.
The Court rejected an alternative theory barring attorney’s fee recovery, judicial estoppel. The Court reasoned that Page only contested the plaintiff lender’s authority at the time the complaint was filed, not that there was never a contract or that after the complaint was filed did the plaintiff not have authority to enforce.
Concluding, the Court rejected the concept that the trial court did not have subject matter jurisdiction, it being asserted that by not having standing the trial court did not have subject matter jurisdiction to award fees after the dismissal. The court reasoned that “…if standing is waivable, then standing is obviously not a ‘component of subject matter jurisdiction.’”
While this decision may be cheered by borrowers’ counsel and lamented by lenders’ counsel, the underlying rational raises a significant question as to where the Court may be heading. Primary among these is whether this decision is a stalking horse for removing the requirement of standing at the beginning of litigation. Though decision is silent on this point; given the Court’s history in the last year or so overturning precedent, this decision’s rational may open the door, whether intentionally or otherwise, to a further challenges to standing.
Whether the litigation privilege bars a claim against counsel seeking to enforce an association assessment was at issue at Moise v. Ola Cd’m. Ass’n., Inc., Case No. 3D20-143 (Fla 4th DCA, January 20, 2021).
The decision recited that an attorney signed an association assessment claim of lien as the association’s “attorney and agent.” For his law firm he filed a lien foreclosure action on behalf of the Association against Moise and Law and Administration Services LLC (“LAS”).
Moise counterclaimed against the Association and the attorney, and Moise crossclaimed against LAS asserting that the Association assigned to LAS the Association’s assessment rights, including the right to file suit, that Essig was aware of the agreement, and that awareness included the attorney filing suit on behalf of the Association against LAS for breaching of that agreement.
Moise’s claims included the filing of false documents in violation of Section 817.535 Fla. Stat. and violations of the Florida Consumer Collection Protection Act, Section 559.72(9) Fla. Stat. Essig obtained a dismissal of those two counts on the basis of litigation privilege.
The District Court of Appeal reversed on those two counts holding that the litigation privilege does not apply when it was alleged that the attorney had actual knowledge of an agreement assigning the Association’s right in the assessments, and thus there was no basis to file a claim of lien or the underlying lawsuit, citing to the recent related decisions in Rhonda Hollander, P.A. v. Fortunato, 45 Fla. L. Weekly D825 (Fla. 3d DCA Apr. 8, 2020), and Rhonda Hollander, P.A. v. Adrien, 45 Fla. L. Weekly D825 (Fla. 3d DCA Apr. 8, 2020) (RPPTL.org posting 5/3/2020)
Apart from the privilege issue, if your association client assigned its right to collect and did not retain corresponding rights to enforce, then what authority is there to file a lawsuit, especially if you are seeking to enforce that agreement?
Interestingly there was no issue over the Association’s right to assign the debt. One must wonder if the Association’s assignee LAS was not performing as alleged or whether there was a cash flow crunch militating towards the Association seeking to collect the assessments. This may be another consideration for an association contemplating an assignment of rights.
The CDC’s Order declaring a national moratorium on residential evictions was just declared unconstitutional by a U.S. District Court in Terkel v. C.D.C., Case No. No. 6:20-cv-00564 (E.D. Texas, February 25, 2021).
The Issue.
The trial court phrased the issue as:
whether a nationwide moratorium on evicting specified tenants is within the limited powers that our Constitution grants to the federal government, namely, its authority to legislate as necessary and proper to regulate commerce among the several States.
The trial court pointedly commented that the Federal Government’s position was not reliant upon the current pandemic, but was asserted to be available at any time, “open-ended.”
The Record
The parties agreed that as a facial challenge to the constitutionality of a law this was a pure question of law, no issue of fact, no discovery necessary.
The Analysis
The decision quickly drew a distinction between a state’s authority to regulate residential foreclosures which is not addressed in the order, as opposed to the Federal Article I power to regulate commerce. The Federal Government did not assert Article II executive authority.
The Government asserted only one prong of the commerce clause in support, “activities having a substantial relation to interstate commerce”. The court looked to a four part test:
(1) the economic character of the intrastate activity;
(2) whether the regulation contains a “jurisdictional element” that may “establish whether the enactment is in pursuance of Congress’ regulation of interstate commerce”;
(3) any congressional findings regarding the effect of the regulated activity on commerce among the States; and
(4) attenuation in the link between the regulated intra-state activity and commerce among the States.
United States v. Morrison, 529 U.S. 598, 609-13 (2000).
Applying the test, the court looked at substantial effects of the activity sought to be regulated, evictions in state court, and found that:
the regulated activity is not the production or use of a commodity that is traded in an interstate market. Rather, the challenged order regulates property rights in buildings—specifically, whether an owner may regain possession of property from an inhabitant. 86 Fed. Reg. at 8,021 (defining “eviction” as any action “to remove or cause the removal of a covered person from a residential property”). Real estate is inherently local. Residential buildings do not move across state lines. And eviction is fundamentally the vindication of the property owner’s possessory interest.
Concerning Federal jurisdiction the court questioned whether evictions created an effect on interstate commerce, remarking that there were no Congressional findings. Further, though a quarantine may prevent interstate commerce, the C.D.C. order was not a quarantine.
The court took care to distinguishing the ability regulate leasing.
In short, the criminalization of court eviction proceedings to enforce a property right of possession, a first for the Federal Government, invaded an area traditionally regulated by the states. This unique, first time for this type of regulation, created doubt, if not a presumption that it was inappropriate.
The court concludes its analysis with “Although the COVID-19 pandemic persists, so does the Constitution.”
Relief.
Based on representations by the Government that it would “respect the declaratory judgment”, apparently anticipating a recission of the C.D.C. order, the court did not enter an injunction; but, invited the Plaintiff’s to seek that relief “should defend-ants threaten to depart from the declaratory judgment.”
Kibitzing .
As a reminder, though this is from a U.S. District Court located in Texas, a U.S. District Court has national wide injunction authority. The Federal Government may seek a stay pending appeal, if an appeal is sought.
Recognizing that the C.D.C. has had only one business day to react as the time this mini-brief is posted, the C.D.C. website link to the moratorium order does not show a rescission of the moratorium or any action in regard to the court’s Order. Thus, it is uncertain whether there will be an appeal or a stay. https://www.cdc.gov/coronavirus/2019-ncov/covid-eviction-declaration.html Likely landlords will be getting ready, but waiting to file for evictions until the C.D.C.’s next step. Certainly after the anticipated recission there will be a flood of filings which will have many impacts to be discussed later.
Though this Order is from a trial court, and precedential value, especially in Florida would be limited, it is interesting that the court found that evictions are not “economic activity” in the interstate commerce realm.
Best for a safe and healthy weekend.
A significant change in mortgage loan underwriting will have an IMMEDIATE impact on Florida condominium associations, not just in the transfer approval process, but on budgeting, including reserves, and on long term maintenance plans!
For those whose family have a holiday tradition of a ceremonial rerun of It’s a Wonderful Life, who would have thought that a banker would come to rescue?
Ok, that might be overstating it.
Effective lender oversight of Florida residential condominium projects has been the subject of discussion, perhaps if a roundabout method to prod owners to accept the need to undertake, and fund work. Let us hope that the methodology will not proverbially kill the messenger.
In any event, Freddie Mac, affectionately known named as the Federal Home Loan Mortgage Corporation, on Thursday issued a Bulletin 21-38 with the captivating title “Temporary Condominium and Cooperative Project Requirements and Topic 5600 Reorganization.” Freddie, as friends call it, expressly promulgated these regulations as a result of Surfside/CTS, and apply to all condominiums with five units or more even if the condominium is otherwise exempt from review.
Before describing the highlights, a few cautions. The action is not a Florida decision, but is on a national level. Of course, Freddie does not buy all mortgages, but it has an impact far beyond its immense purview.
Associations should be prepared to address questions and provide information responses IMMEDIATELY! Why? Contracts are now written for closings on and after February 28, 2022, that’s not even 75 days off. More on that magical date below. Think about it, even though there are many contracts with shorter closing times, as time marches forward, more and more, and inevitably by the end of January, a mere month away, all contracts will be after that date!
A few of he highlights may compel Florida condominium associations to effectively plan long term maintenance needs because waiting until it is needed may cut off Freddie Mac mortgage financing!
Devil is always in the details, so here are the definitions which are relatively broad
Term
Definition
Critical Repairs
Repairs and replacements that significantly impact the safety, soundness, structural integrity or habitability of the project's building(s) and/or that impact unit values, financial viability or marketability of the project. These repairs and replacements include:
Material Deficiencies
Unresolved problems that cannot reasonably be addressed by normal operation or routine maintenance and which include:
Significant Deferred Maintenance
The postponement of normal maintenance, which cannot reasonably be resolved by normal operations or routine maintenance and which may result in any of the following:
These definitions may cause pain! Let us see the fights begin over whether something is a routine repair or a critical repair, and requirements to complete the form.
There is more. Interestingly, Bulletin highlights “reminders” of the need for reserves, the basic 10% requirement and the detail for reserve studies to crawl under the 10%. Think that they are signaling and increased review or audit process to ensure requirements? Yes, that may finally push many to “fuggetaboutit” when thinking about waiving reserves.
Here are the links
To Regulation material:
https://guide.freddiemac.com/app/guide/bulletin/2021-38?utm_source=eloqua&utm_medium=email&utm_campaign=2021-12-15_POLICY_Guide-Policy
To the new Condominium Questionnaire:
https://sf.freddiemac.com/content/_assets/resources/pdf/forms/condo_questionnaire_form_full.pdf
Start planning! Happy Holidays!!
We must criticize without wounding and debate without dehumanizing our opponents. Fight for the things that you care about, but do it in a way that will lead others to join you.
- Ruth Bader Ginsburg
This morning the Florida Supreme Court issued its opinion in Hayslip v. U.S. Home Corp., Case No. SC19-1371 (Fla., January 27, 2022). The appeal followed certification of a case of great public importance, Hayslip v. U.S. Home Corp., 276 So. 3d 109 (Fla. 2d DCA 2019). Commentary on the lower, District Court’s, decision is found at the 7/16/2019 posting at http://www.rpptl.org/DrawNews.aspx?Action=NewDecisions&PageID=13
The Court revised the certified question to read:
DOES A DEED COVENANT REQUIRING THE ARBITRATION OF ANY DISPUTE ARISING FROM A CONSTRUCTION DEFECT RUN WITH THE LAND, SUCH THAT IT IS BINDING UPON A SUBSEQUENT PURCHASER OF THE REAL ESTATE WHO WAS NOT A PARTY TO THE DEED?
A unanimous Court answered “YES,” affirming the District Court of Appeal’s decision.
Recognizing that covenants are either real, running with the land, or personal, not running with the land, the Court relied on the parties agreement as to the three part test for determining a real property covenant found in Winn-Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So. 2d 261, 265 (Fla. 4th DCA 2007).
(1) the existence of a covenant that touches and involves the land;
(2) an intention that the covenant run with the land; and
(3) notice of the restriction on the part of the party against whom enforcement is sought.
In a short decision, the opinion determined that:
The performance of the covenant in the present case affects the occupation and enjoyment of the home, as it dictates the means by which the Hayslips must seek to rectify building defects related to the home.
The impact on the home occurs when the defect is “realized” and “recourse” is sought, as well as when an arbitration decision is issued.
As to the whether there was an agreement to arbitrate, the intent to be bound was shown in the developer’s deed to first purchaser. The Hayslips, though remote grantees, were bound by notice provided by recording the deed.
Moving forward! The Court was not inclined to re-examine what constitutes a covenant running with the land. It remains somewhat broad.
As for the future, particularly the binding impact on remote grantees may encourage a proliferation of restrictions of all types, in instruments of all flavors. We will undoubtedly see these similar covenants, if not more restrictive, in developer deeds. See, for example, the recent decision in Lennar Homes, LLC, v. Martinique at the Oasis Neighborhood Association, Inc., Case No. 3D20-1732. (Fla. 3rd DCA, December 27, 2021). This writer has not commented in this column on the Martinique decision, but please read the decision as it may be interpreted as gutting in large part the purpose behind the public policy against homeowners’ associations filing suit against developers See §720.3075(1)(b), Fla. Stat.
Do not bet on the Legislature amending the Homeowners’ Association Act to address in the same manner as the Condominium Act’s anti-waiver provisions in §718.303(2) Fla. Stat.
In the interim, title searches likely will be more complex, and in thirty years, there may be a deluge of MRTA evaluations, unless this decision compels a revision of §712.01(6), Fla. Stat. to provide a root of title earlier than 30 years! Do not bet on that one either. In any event, a slightly shorter period would likely not assist in most defect claims because of statutes of limitation and repose.
© 2022 Michael J. Gelfand
The Supreme Court of Florida issued a rule changes Friday that deserves immediate attention of litigators.
First, effective immediately, meaning it will apply to cases that litigation in progress Rule of Civil Procedure 1.530(a) and Family Law Rule 12.530(a) are amended to add:
“To preserve for appeal a challenge to the sufficiency of a trial court’s findings in the final judgment, a party must raise that issue in a motion for rehearing under this rule.”
The Court’s Commentary explains:
“The amendment to subdivision (a) does not address or affect, by negative implication, any other instance in which a motion for rehearing is or might be necessary to preserve an issue for appellate review.”
The opinion did not address what types of final judgments are targeted, but final summary judgments come to mind.
These rule changes were not generated with Bar input, either from rules committees or from the Board of Governors. Thus, if members desire to comment to the Court, a 75 day comment window, expiring November 8, 2022, was created.
Here is a link to the opinion with the rule change as an appendix.
https://www.floridasupremecourt.org/pre_opinion_content_download/846193
Second, in a separate decision, the Court announced changes to Florida Rules of Civil Procedure 1.530 (Motions for New Trial and Rehearing; Amendments of Judgments) and 1.535 (Remittitur and Additur), providing that the timing for a motion for n new trial or to alter or to amend a judgment must be filed not later than: 15 days after the date of filing of the judgment.
https://www.floridasupremecourt.org/pre_opinion_content_download/846191
These changes for this later rule are effective October 1, 2022, at 12:01 a.m.
United States District Court Judge Winsor yesterday issued an Order Denying Preliminary Injunction Motion in Shen v. Simpson. concerning Fla. Stat. §§ 692.201-.204, including the “Purchase of agricultural land by foreign principals prohibited.” The Order is based in large part on US Supreme Court equal protection decisions that are 100 years old or more. That is not a typo. A copy is attached.
Though initially finding that at least some of the Plaintiffs had standing, the District Court found that the Plaintiffs did not have a substantial likelihood of prevailing on the merits.
The Court determined the US Supreme Court “never suggested that all state alienage classifications are inherently invalid or suspect”, relying in part on a C.J. Berger 1977 dissent.
Relying on a series of 1923 USSCT decisions, which in turn relied on a 1879 decision, the District Court determined that that “states could deny aliens ownership interests in land within their respective borders absent an arbitrary or unreasonable basis. “ You may recall from law school that once a reasonableness test, rather than strict scrutiny is applied to an equal protection analysis, the state wins.
In further analysis, the Court determined that the law applies to where an alien is domiciled, “facially neutral as to race and national origin.” The Court differentiated prior USSCt equal protection decisions finding discrimination because none expressly addressed land ownership or expressly the 1923 decision. These post war decisions found discrimination in commercial fishing, exclusion from welfare benefits, discriminating against aliens seeking law licenses, engineering licenses, financial education assistance, or certain public employment.
Concerning discriminatory animus, the Court presumed the Legislature acted in good faith, and did not see evidence of disproportionate impact. Further:
…statements from the Governor or Legislators, none evinces racial animus or any intent to discriminate based on race or where someone was born. Nor do they show any intent to discriminate against Chinese citizens “because of” their Chinese citizenship.
Similarly, the FHA attack failed because:
Florida’s law does not make any classification based on “race, color, religion, sex, familial status, or national origin.” It instead classifies based on alienage, citizenship, and lawful-permanent-resident status—none of which are covered by the FHA.
Limiting myself to two comments. First, while the law addresses domicile, the law restricts on the relationship to a "foreign country of concern" the criteria of which is mostly based on national origin. Second, There seems to be a deaf ear as to the comments made on the campaign trails.
Many thanks to Larry Sellers of Tallahassee providing an early heads up that the decision was docketed.
Stay out of the heat, at least the hot and humid heat.
