A dark horse, which had never been thought of . . . rushed past the grand stand to sweeping triumph.
Benjamin Disraeli (BritishPrime Minister and Novelist. 1804–1881)
My money’s riding on this dark horse, baby My heart is sayin’ it’s the lucky one And its true color’s gonna shine through someday If we let this Let this dark horse run.
I would like to give a good reason as to my lack of entries for the last few months. Perhaps it was a major case that required all of my attention; or a mental infirmity brought on by excessive holiday debauchery. However, the truth of the matter is that I don’t have a reason. The only mental infirmity I am aware of is being a lawyer (and perhaps a nasty habit of using passive voice) and the fine state of mind that accompanies the same. I believe Christmas vacation wove a spell of sheer laziness on me that has been hard to overcome. With the imminent arrival of spring, I thought it was a good time to dust out the mental cobwebs. There has been a recent ILSA decision out of the State of New York. You can see Beck’s overview of it here. Like a groggy bear just out of hibernation: I could not bring myself to delve into how the timing of a certificate of occupancy would make a project exempt under the 100 lot exemption of ILSA. Especially when the developer seemingly planned to build more than 100 units from inception. In my opinion, it really is more of the same “right result” reasoning that has been prevalent in “certain” courts on this topic, but I digress.
I thought it important to discuss the two dark horses that are currently in full stride. The first is a familiar one in the form of Terra-Adi Intern. Bayshore, LLC v. Georgarious, 20 So. 3d 987 (Fla. 3d DCA 2009) and the follow-up case TRG-Brickell Point NE, Ltd v. Wajsblat, 2010 WL 785854, (Fla. 3d DCA Mar 10, 2010) which you can read here. As you may recall from my last entry, (here) I discussed in some detail about the return of the monies in excess fifteen percent in an ILSA contract. The Terra-Adi court found on summary judgment that the return of these funds was necessary as the purchaser was “unconditionally entitled even if they did not prevail in the litigation.” The brevity of this opinion left a lot of room for lawyering as to the immediate return of the deposit just by filing a simple unverified motion. In South Florida parlance that means a trip to Uniform Motion Calendar “UMC,” a series of ten minute cattle-call hearings at 8:45 A.M. Monday through Thursday of every week. As you might imagine lawyers were chomping at the bit to get a hearing for the return of these monies as soon as possible. Some clients had been waiting for a return of these funds for years after making a demand. The end result was a flood of orders from Florida trial courts ordering the return of the funds. One such order was appealed to the Third District Court of Appeals for a second look at the entire issue, which brings us to the Wajsblat opinion. The court had the opportunity to reconsider the substance of the Terra-Adi opinion, which they did not do. Rather, they took time to clarify the procedural aspect of seeking a return. The Wajsblat court opined:
This is a non-final appeal taken under Florida Rules of Appellate Procedure 9.130(a)(3)(B) and 9.130(a)(3)(C)(ii) from an order entered at a non-evidentiary hearing on the court’s uniform motion calendar, in the nature of a mandatory injunction, see Konover Realty Assocs. Ltd. v. Mladen, 511 So.2d 705, 706 n. 2 (Fla. 3d DCA 1987), or an order of entitlement to immediate possession of property, see Malek v. Bright, 7 So.3d 598 (Fla. 3d DCA 2009). The plaintiffs, two hundred twenty-six in number, are the contract purchasers of one hundred eighty-seven condominium units in three condominium towers in Miami-Dade County. * * * While not conceding lack of entitlement to the fifteen percent, the plaintiffs alleged in their unsworn Motion to Authorize Escrow Agent to Return Deposit Payments in Excess of 15% of the Purchase Price, that “Plaintiffs do not intend to close on their respective units and have either been called to close and have breached or will not close and will be in breach.” * * * There exists no sworn evidence in the record to support the motion. In fact, no defendant had answered the complaint before the order was entered. * * * The court may have been ever so slightly misguided by the fact that the developers admit, except for achieving certainty as to whom to write checks in some instances, [FN1] they have no defense to the action for return of deposit monies in excess of fifteen percent to these plaintiffs. See Terra-Adi Int’l Bayshore, LLC v. Georgarious, 20 So.3d 987, 987 (Fla. 3d DCA 2009) (affirming on summary judgment [FN2] an interlocutory order requiring return of deposits in excess of fifteen percent under identical contract language to that in the contracts before us). However inscrutable the full-court resistance exhibited by these developers to returning the deposit monies in excess of fifteen percent in this case, they are entitled to the due process of the law, meaning a properly supported motion for summary judgment. SeeFla. R. Civ. P. 1.510(c).
Wajsblat, 2010 WL 785854 at *1.
The net result is that the appellate court has affirmed its reasoning in Terra-Adi, while setting forth the procedure needed to achieve the return of deposit monies in excess of 15%. The really interesting point is found at footnote three, where the Court states: “Nor was a motion for judgment on the pleadings available to the plaintiffs at this stage of the proceeding. See Fla. R. Civ. P. 1.140(c) (stating such motions may be brought only after the pleadings are closed).” This may present another avenue for recovery. A verified complaint with a motion for judgment on the pleadings could provide a shortcut to reaching the return of the deposit sought. Another recurring problem is that developers are not returning the funds even after the court orders them to do so. Some lawyers have sought contempt of court to remedy the problem. That procedure can be messy and result in even more delay waiting for yet another special set evidentiary hearing. My thoughts on this situation are: get your order, and seek a prejudgment writ of replevin. I have seen courts grant these writs without a secondary hearing. Let the developer or escrow agent explain to the sheriff why the money has not been released. I think that might get the result you are looking for.
I certainly hope you are sitting down for the update on Double AA International Investment Group, Inc. v. Swire Pacific Holdings, Inc., __ F. Supp. 2d __, 2009 WL 4825097 (S.D. Fla. Dec. 15, 2009), our second dark horse. This case to deals with the issue of whether Fla. Stat. Section 718.202, requires establishment of separate escrow accounts when the deposit amount is greater than 10% of the condominium’s purchase price. The Swire Pacific Court concluded that the developer’s failure to create two separate accounts for the purchaser’s escrow funds renders the contract revocable. The developer and the escrow agent, Lawyer’s Title, sought review arguing that the statute of limitations and time for revocation had run out and/or they had fulfilled their statutory duties. Now when you get any dispositive order from a federal court it is nothing less than nerve racking. Now imagine the court issues a forty-four page order along with a final judgment. You can read the order issued March 30, 2010, here. Footnote eighteen provides a good summary of the overarching problem,
The evidence presented at trial shows that Lawyers Title’s accounting practices pertaining to the Plaintiffs’ deposits did not even meet this standard. While Lawyers Title maintained separate accounting records according to client, it did not maintain its records according to purpose. The spreadsheet ledgers and Buyers Transaction Log do not show the purchase price of the unit (an essential factor in determining the appropriate amount of funds assigned to each purpose) nor do they distinguish funds to the reservation deposit, protected deposit or construction deposit.
The Swire Court tracks the entire legislative history of Section 718.202 in exhaustive detail an concludes that the ten percent in escrow should be returned, while the developer must pay back the ten percent already disbursed. The developer is also liable for the Plaintiff’s attorney’s fees as well as those of the escrow agent who sought interpleader. I sincerely believe that a great deal, if not a majority of escrow agents fail to follow 718.202. Make no mistake, this opinion is a firestorm in the making. Not only will purchasers be voiding their contracts as to developers, you can see a war looming between developers and escrow agents. Whose responsibility was it to make certain 718.202 was properly complied with? I can see developers claiming the escrow agent’s negligence resulted in the loss of the deposit monies.
The question to ponder here is, “How long will the dark horse run?” It seems as if the first dark horse might rush past the grand stand to sweeping triumph, although the Florida Supreme Court has yet to speak. As to the second dark horse: I would not be surprised to see the Florida Legislature or an administrative agency turning cartwheels to undo this opinion, as development has historically been a center of Florida’s economy. That is if the Eleventh Circuit does not give it the “Stein” treatment first. Either way, my hat is off to Judge Altonga. Agree or disagree with the opinion: it demonstrates a marked dedication in finding the truth of the law, and most important a great deal of respect for the laws of the State of Florida.
This article, and the comments posted in response, do not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.