IN THE SUPREME COURT OF FLORIDA. RED REEF, INC 4 th DCA Case Number: 4DO D L.T. Case No.: CL (AF) Plaintiff/Petitioner

Transcription

1 IN THE SUPREME COURT OF FLORIDA Case No.: SC RED REEF, INC 4 th DCA Case Number: 4DO D L.T. Case No.: CL (AF) Plaintiff/Petitioner vs. ERNEST WILLIS and SUNDAY WILLIS Defendants/Respondents / PETITIONER S BRIEF ON JURISDICTION ON DISCRETIONARY PROCEEDINGS TO REVIEW DECISIONS OF THE FOURTH DISTRICT COURT OF APPEAL Stephen Rakusin, Esq. Fla. Bar No THE RAKUSIN LAW FIRM, A PROFESSIONAL ASSOCIATION One East Broward Blvd. Wachovia Bank Tower Suite 444 Fort Lauderdale, FL Tel: (954) Fax: (954)

2 TABLE OF CONTENTS Page TABLE OF AUTHORITIES... i STATEMENT OF FACTS AND CASE... 1 ISSUES PRESENTED... SUMMARY OF ARGUMENT... ARGUMENT... 3 CONCLUSION CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE i

3 TABLE OF AUTHORITIES CASES Pages Havoco of America, Ltd. v. Hill,, 4, 8, So. d 1018 (Fla. 001) In re Financial Federated Title and Trust, Inc B.R. 706 ( Bkrtcy. Ct. S.D. Fla. 001), affirmed, 347 F. 3d 880 (11 th Cir. 003) Jones v. Carpenter,, 4, 5, 7, 9 90 Fla. 407, 106 So. 17 (195) Palm Beach Sav. & Loan Ass n v. Fishbein,, 4, So. d 67 (Fla. 1993), quashing, 585 So. d 105 (Fla. 4 th DCA 1991) Willis v. Red Reef, Inc So. d 681 (Fla. 4 th DCA 006) CONSTITUTION AND STATUTES Article X, sect. 4 (a)(1), Fla. Const. 3 ii

4 RULES Fla. R.APP. P (a)()(A)(iv) 10 iii

5 STATEMENT OF THE FACTS AND CASE Petitioner, RED REEF, entered into a lease agreement with Ocean One North, Inc.(hereinafter Ocean One ). Ocean One refused to allow RED REEF to occupy the premises. RED REEF filed an action in county court for specific performance and for damages in RED REEF filed an amended complaint and the case was transferred to Circuit Court. On December 18, 001, the trial court entered an amended final judgment against Ocean One for $ 1,53, RED REEF brought proceedings supplementary to execution against Respondents and Matthew Giacomino (the shareholders, officers and directors of Ocean One) for the fraudulent transfer of corporate assets, alter ego liability and tortious civil conspiracy. Previously, in 1998, Ocean One sold its sole asset, for $3,100,000. It did not receive any of the proceeds for the sale of the realty. Instead, they went to pay sale expenses or were diverted to the individual officers, directors and shareholders of the corporation. No moneys were left for corporate creditors. The Respondents personally received $1,00,000. They used $490,345 of the funds, which they diverted from the corporation, to pay off a mortgage on their homestead. The trial court avoided the transfer of the $1,00,000 to Respondents because it was a fraudulent transfer of funds which should have been retained by 1

6 the corporation to pay its creditors. Since $490,345, which should have been made available to satisfy Petitioner s claim, went to pay off the Respondents mortgage, the trial court imposed both an equitable lien and a constructive trust on the homestead to the extent of the mortgage payoff. On January 5, 006, the Fourth District Court of Appeal entered a written opinion which upheld the trial court s finding that the Respondents were liable for the fraudulent transfer. However, it vacated the imposition of the equitable lien and constructive trust on the homestead. On February 006, Petitioner filed a Motion for Rehearing, which was denied on March 006. On April 0, 006, Petitioner filed his Notice to Invoke Discretionary Jurisdiction. ISSUES PRESENTED I. Whether the Florida Supreme Court has jurisdiction to review the decision of the Fourth District Court of Appeal, pursuant to Article V, 3(b)(3) of the Florida Constitution, because that decision expressly and directly conflicts with the decisions on the same question of law in: (a) Jones v. Carpenter, 90 Fla. 407, 106 So. 17 (195); (b) Palm Beach Sav. & Loan Ass n Fishbein, 619 So.d 67 (Fla. 1993), quashing, 585 So.d 105 (Fla. 4 th DCA 1991); ( c) Havoco of America, Ltd. v. Hill, 790 So.d 1018 (Fla. 001). II. Whether the Florida Supreme Court may exercise its discretionary jurisdiction and consider the merits of the decision of the Fourth District Court of Appeal.

7 SUMMARY OF ARGUMENT The decision of the Fourth District Court of Appeal, in the instant case, directly and expressly conflicts with prior decisions of the Florida Supreme Court on the same question of law. Pursuant to Fla. R. App. P (a)()(A)(iv), the Florida Supreme Court has jurisdiction to invoke discretionary review of the decision in this matter. ARGUMENT A. THE WILLIS V. RED REEF DECISION In Willis v. Red Reef, Inc., 91 So.d 681 (Fla. 4 th DCA 006), the Fourth District Court of Appeal affirmed the trial court s finding that the WILLISES fraudulently diverted $1,00,000 from Ocean One. It held that the court s finding were supported by competent substantial evidence in light of the fact that both PNR and Red Reef had claims against Ocean One at the time of the transfers. Willis supra at PNR was another creditor of the corporation. No moneys had been reserved by the corporation to pay either claim. In Willis, supra, the Fourth District of Appeal considered the remaining issue of whether the WILLISES lost the homestead protection afforded by article X, section 4(a)(1) of the Florida Constitution by paying off their mortgage with the proceeds from the sale of the Ocean One building. Willis supra at 684. It

8 reversed the trial court s imposition of an equitable lien and constructive trust. The Fourth District Court of Appeal refused to invoke a fourth exception, used by the courts, when a debtor is unjustly enriched by using funds, to which it was not entitled, to acquire or pay off a homestead. The Willis court refused to prevent the homestead from being used as an instrument of fraud upon creditors. In Willis, supra, the Fourth District Court of Appeal erroneously concluded that notwithstanding that the WILLISES fraudulently diverted the proceeds of the sale of the Ocean One Property to their own personal accounts, this is not the fraud or egregious conduct that the supreme court indicated could give rise to an equitable lien on homestead property. Willis supra at 684. The Appellate court has misapprehended the nature of the Respondents conduct by implying or indicating that it does not constitute fraud or egregious (or reprehensible) conduct. Its opinion is in direct conflict with prior decisions of this Court. B. EXPRESS DIRECT CONFLICT WITH OTHER DECISIONS The ruling of the Fourth District Court of Appeal, (1) that the level of conduct does not rise to fraud or reprehensible conduct so as to allow an equitable lien, and () that such a lien does not fall within the three constitutional exceptions (so as to prelude an unjust enrichment equitable lien), expressly and directly conflicts with the following cases on the same question of law:

9 (a) Jones v. Carpenter, 90 Fla. 407, 106 So. 17 (195); (b) Palm Beach Sav.& Loan Ass n Fishbein, 619 So.d 67 (Fla.1993), quashing, 585 So. d 105 (Fla. 4 th DCA 1991); (c) Havoco of America, Ltd. v. Hill, 790 So.d 1018 (Fla. 001). C. EXPRESS CONFLICT WITH JONES V. CARPENTER The Willis opinion decision expressly and directly conflicts with the opinion of this Court in Jones v. Carpenter, 90 Fla. 407, 106 So.17 (195), in which this Court dealt with the same misuse of a corporation which exists in the instant case. The Jones court deemed the conduct sufficiently fraudulent and reprehensible( as was the conduct in the instant case) to give rise to an unjust enrichment equitable lien. In the instant case, all of the shareholders(including Respondents) diverted $3.1 million in moneys which should have been put in the corporation for their personal benefit. Respondents personally diverted $1,00,000 in corporate funds and used a portion of it to pay off the mortgage on their home. In Jones, supra, the president of the corporation took $ in corporate funds to improve his home. In rejecting the homestead exemption defense, in an action brought by the bankruptcy trustee on behalf of the general creditors of the corporation, this Court reasoned that: purely from the standpoint of commercial or business ethics, it would be difficult to state a set of facts constituting more reprehensible conduct, and while this

10 court has repeatedly held that organic and statutory provisions relating to homestead exemptions should be liberally construed in the interest of the family home, they should not be applied so as to make them an instrument of fraud or imposition upon creditors. Jones supra at 130. See also In re Financial Federated Title Trust, Inc., 73 B.R. 706, (Bkrtcy. Ct. S. D. Fla.001), affirmed, 347 F.3d 880(11th Cir.003). This Court also stated: Appellee, in other words, takes the position that as president of the Jacksonville Bread Company after being fully compensated for his salary($10,000 per annum)and every other legal claim he had against it, he can then fraudulently or surreptitiously extract from its assets the sum of $ in cash and use the same to improve his home, thereby contributing to the bankruptcy of the bread company, to the detriment of innocent creditors, and then claim immunity from repaying the funds or assets so taken by virtue of his homestead exemption. Jones supra at 130 In Willis, supra, the Appellate Court affirmed the trial court s finding that the Respondents wrongful diversion of corporate funds constituted a fraudulent transfer. However, the Willis Court rejected the trial court s conclusion that the funds used to pay off the mortgage were clearly traceable as being the funds the WILLISES directly received in their personal joint account from the sale of the building by Ocean One. Willis supra at 684. It reasoned that Red Reef did not provide the WILLISES with the funds that were used to pay off the mortgage on

11 their homestead. Willis supra at 684. It concluded that the WILLISES did not fraudulently obtain funds from Red Reef to extinguish the mortgage on their homestead. In essence, non-exempt assets may be converted into an exempt homestead even if this is done with an actual intent to hinder, delay, or defraud creditors. Willis supra at 684. Yet, in Jones, supra, this Court found that the equitable lien did not fall within the three enumerated exceptions to the Constitutional Homestead exemption. Even though the lien did not fall within one of the three exceptions, the Jones court effectively engrafted a fourth exception. The Fourth District Court of Appeal decision conflicts with the tracing doctrine as it relates to a Jones equitable lien. In Jones, supra, there was no showing that any general creditor s money went into the president s homestead. He used general corporate funds to pay for improvements. This Court recognized that creditors were equitably subrogated to the rights of the corporation as a result of the wrongful division of corporate funds by its president. It was the corporation s funds that were traced. This Court stated that: Appellant, who steps into the shoes of the bread company, cannot follow said funds or materials into Carpenter s home and recover them, they having been so converted, but he can subject the home to the repayment or restoration of said funds. To hold otherwise would mean the abandonment of a fundamental principle of

12 equity jurisprudence and substituting in lieu thereof a code of business ethics and commercial integrity conceived in the conscience of the embezzler. Jones supra at 130. In Jones, supra, this Court rejected the exemption defense. It reasoned that this case presents an instance of injustice and hardship on creditors that the homestead exemption should not be extended to, and we think appellee must make restitution. Jones supra at 130. Clearly, the decision in the instant case, expressly and directly conflicts with the opinion of this Court in Jones v. Carpenter, 90 Fla.407, 106 So. 17 (195). D. EXPRESS CONFLICT WITH PALM BEACH SAVINGS AND LOAN ASS N v. FISHBEIN The Willis opinion expressly and directly conflicts with Palm Beach Savings and Loan Ass n, v. Fishbein, 619 So. d 67 (Fla.1993), quashing, 585 So. d 105 (Fla.4th DCA 1991), which allowed an equitable lien on equitable subrogation. In applying principles of equitable subrogation, the Florida supreme court found that even the innocent spouse was no worse off than she was before the transaction. This Court reasoned that she is not entitled to a $930,000 windfall. The homestead exemption is intended to be a shield, not a sword. Palm Beach Sav. & Loan, supra at 71. In the instant case, the Fourth District Court of Appeal ignored principles of equitable subrogation and unjust enrichment, in direct conflict

13 with the decision and opinion of this Court in Palm Beach Sav. & Loan Ass n v. Fishbein, 619 So.d 67 (Fla. 1993), quashing, 585 So. d 105 ( Fla.4th DCA 1991). E. EXPRESS CONFLICT WITH HAVOCO OF AMERICA, LTD. v. HILL The Willis case expressly and directly conflicts with Havoco ofamerica, Ltd. v. Hill, 790 So.d 1018 ( Fla.001), as it relates to the imposition of an equitable lien or constructive trust on homestead, when fraud or reprehensible conduct exists, and fraudulently obtained monies can be traced into the homestead or are used to pay off homestead obligations. In Havoco, supra, this Court recognized that the court has invoked equitable principles to reach beyond the literal language of the exceptions when funds, obtained through fraud or egregious conduct, were used to invest in a homestead. Havoco, supra at 108. In Havoco, supra, this Court defined equitable subrogation as subrogation that arises by operation of law or by implication in equity to prevent fraud or injustice. Havoco, supra at 105. Under equitable subrogation principles, the inquiry is not into whether Petitioner owned the funds. Instead, it is whether the Respondents fraudulently obtained the funds though fraudulent or reprehensible conduct which were actually used to pay off the mortgage, and could be traced.

14 In Havoco, supra, this Court did not overrule Jones v. Carpenter, 90 Fla. 407, 106 So.17 (195). Instead, it actually reaffirmed the Jones equitable lien as an exception to the Constitutional Homestead Exemption. The Havoco court cited to Jones for the proposition that most of those cases involve equitable liens that were imposed where proceeds from fraud or reprehensible conduct were used to invest in, purchase, or improve the homestead. Havoco, supra at 107. The ruling of the Fourth District Court of Appeal expressly and directly conflicts with this Court s opinion and decision in Havoco of America, Ltd. v. Hill, 790 So.d 1018 (Fla.001). CONCLUSION The decision of the Fourth District Court of Appeal expressly and directly conflicts with prior decisions of the Florida supreme court, on the same question of law. Under Fla. R. App. P (a)()(A)(iv), this Court has jurisdiction to resolve these conflicts. This Court should accept jurisdiction to resolve the conflict which results from the decision of the Fourth District Court of Appeal in this case, which expressly and directly conflicts with decisions of this Court. Respectfully submitted, THE RAKUSIN LAW FIRM, A PROFESSIONAL ASSOCIATION One East Broward Blvd. Wachovia Bank Tower

15 Suite 444 Fort Lauderdale, FL Tel: (954) Fax: (954) By: Stephen Rakusin, Esq. Fla. Bar No CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of this Jurisdictional Brief has been furnished via facsimile and U.S. Mail to David J Maher, Esq. Harke & Clasby, L.L.P., Counsel for Respondents, 155 South Miami Avenue, Suite 600, Miami, Florida 33130, on this day of April, 006. By: Stephen Rakusin

16 CERTIFICATE OF COMPLIANCE I HEREBY CERTIFY that the undersigned has fully complied with Florida Rules of Appellate Procedure, Rule 9.10 (a) (), setting forth the font requirements for preparing computer generated briefs, as well as Administrative Order AO04-84 regarding Mandatory Submission of Electronic Copies of Documents, dated September 13, 004. By: Stephen Rakusin W:\ Red Reef\Appeal\IN THE SUPREME COURT OF FLORIDACase No.wpd