IN THE SUPREME COURT STATE OF FLORIDA CASE NO. L.T. Case No. 3D08-1466 STUART KALB, TRUSTEE, Petitioner, v. NACK HOLDINGS, LLC, Respondent. BRIEF OF PETITIONER STUART KALB, TRUSTEE ON JURISDICTION Elliot H. Scherker Florida Bar No. 202304 Brigid F. Cech Samole Florida Bar No. 730440 Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telephone: (305) 579-0500 Facsimile: (305) 579-0717 Counsel for Petitioner Stuart Kalb, Trustee
TABLE OF CONTENTS Page TABLE OF CITATIONS... ii STATEMENT OF THE CASE AND FACTS... 1 SUMMARY OF ARGUMENT... 3 ARGUMENT... 4 THE THIRD DISTRICT S CONSTRUCTION OF SECTION 701.04(1), FLORIDA STATUTES (2008), EXPRESSLY AND DIRECTLY CONFLICTS WITH THE SECOND DISTRICT S INTERPRETATION OF THE SAME STATUTE BY CONSTITUTING THE PROVISION AS A SUBSTANTIVE LIMITATION ON PRIVATE CONTRACTUAL RIGHTS, RATHER THAN AS A PROCEDURAL STATUTE THAT CREATES AN OBLIGATION TO EXECUTE AND RECORD A SATISFACTION ONLY UPON A REQUEST FOR AND EXECUTION OF AN ESTOPPEL LETTER.... 4 CONCLUSION... 8 CERTIFICATE OF SERVICE... 9 CERTIFICATE OF COMPLIANCE... 10 i
TABLE OF CITATIONS Page Cases Drake Lumber Co. v. Semple 100 Fla. 1757, 130 So. 577 (1930)... 6 Farkus v. Fla. Land Sales & Dev. Co. 915 So. 2d 688 (Fla. 5th DCA 2005)... 7 Fla. House of Representatives v. Crist 999 So. 2d 601 (Fla. 2008)... 4 Harris v. Gonzalez 789 So. 2d 405 (Fla. 4th DCA 2001)... 5 JP Morgan Chase v. New Millennial, LC 6 So. 3d 681 (Fla. 2d DCA 2009)... 3, 4, 5 School Bd. of Palm Beach County v. Survivors Charter Schools, Inc. 3 So. 3d 1220 (Fla. 2009)... 7 Wachovia Ins. Servs. v. Toomey 994 So. 2d 980 (Fla. 2008)... 7 State Statutes 701.04(1), Fla. Stat. (2008)... passim 701.04, Fla. Stat. (2008)...4, 6 ii
STATEMENT OF THE CASE AND FACTS In October 2002, a foreclosure judgment was entered against ZPO, Inc. (ZPO), after ZPO defaulted on a mortgage loan on two lots located on Collins Avenue in Miami Beach (the Collins Lots). Appendix (hereinafter A ) 1. ZPO was wholly owned by a developer, Mucio Athayde. (A:2). Before the foreclosure sale, the judgment creditor assigned the judgment to Florida Capital, LLC (Florida Capital), and an amended final judgment was thereafter entered, to reflect the assignment. Id. The total judgment debt was $531,305.92, as of June 2003. (A:3). The amended judgment was thereafter assigned to United Funding, LLC (United Funding), in August 2003, leaving United Funding as ZPO s judgment creditor and the lienholder on the Collins Lots. (A:2-3). In September 2003, United Funding loaned $2.6 million to New Florida Holdings, Inc. (NFH), which was also wholly owned by Athayde, ZPO s principal. (A:3). The loan was intended to facilitate Athayde s bankruptcy reorganization of NFH s wholly owned subsidiary, New Florida Properties, Inc. (NFP), which had been in bankruptcy proceedings since 2002. Id. The loan agreement between United Funding and NFH included a pledge by NFH and Athayde to satisfy the existing ZPO, Inc. loan from [Florida Capital], which was assigned to [United Funding], except that the existing mortgage shall not be satisfied of record until [United Funding s] loans have been paid in full, because the Collins Lots are serving as additional collateral for said loans. (A:4). The September 24, 2003 closing statement shows a $550,219.16 charge to the loan for payment on ZPO, Inc. loan, which amount was paid out. (A:5). 1
According to the settlement agent, United Funding s $2.6 million loan was secured by the June 2003 amended final judgment on the Collins Lots, along with other collateral. (A:5-6). United Funding s loan has not been fully repaid. (A:5). Respondent Nack Holdings (Nack) became fee owner of the Collins Lots in 2004. (A:4). Petitioner Stuart Kalb, Trustee (Kalb) took an assignment of United Funding s amended foreclosure judgment in 2007. Id. Their dispute arose when Nack began to question whether the United Funding judgment lien remained in force or had been satisfied. (A:4). The trial court ruled for Kalb, declaring that the August 2003 amended foreclosure judgment remained enforceable. (A:1-2). The Third District recognized Kalb s rational argument which was accepted by the trial court based on competent, substantial evidence in the record that the September 2003 loan agreement express[ed] an intention that the amended final judgment (with its lien over ZPO s Collins Lots) was to collateralize the 2003 United Funding-NFH loan, that the parties to that loan agreement are the only witnesses with the right to prove the[ir] less-than-obvious intentions, and that Nack is a stranger to the 2003 loan terms. (A:4-6). But the court invoked Section 701.04(1), Florida Statutes (2008) (upon payment of mortgage, written instrument acknowledging satisfaction shall be executed and recorded), to hold that the loan proceeds were either disbursed or credited to pay or satisfy the amended final judgment in September 2003, such that the foreclosure judgment had been effectively satisfied : As creative and flexible as we may wish to allow contracting parties to be in their agreements, those parties do not have the right to use judgments as another form of mortgage; only the court that issued a 2
judgment may approve what sums are included in, and enforceable under, such an instrument. In this case, no court authorized the inclusion of United Funding s new advances to NFH as a judgment debt. * * * * The concept of both paying and not satisfying of record a judgment lien is a kind of legal cognitive dissonance that cannot be resolved. The intention to contravene a controlling Florida statute, section 701.04(1), will not be given effect. The amended final judgment, having been paid, did not collaterize the post-judgment United Funding loan. (A:6-7). The court accordingly directed the trial court to grant Nack s requested relief from the judgment, determining that the amended final judgment was paid on September 24, 2003, and is therefore cancelled and satisfied of record. (A:8-9). SUMMARY OF ARGUMENT Section 701.04(1), Florida Statutes (2008), properly construed, entitles a mortgagor to request an estoppel letter from a mortgagee or judgment creditor and, upon the issuance of a letter, to pay off the mortgage or other debt. At that point, the mortgagee is obligated to execute and deliver a satisfaction of judgment. The statute creates a rational procedure for clearing title to mortgaged property, but it does not provide a basis for invalidating a private contractual agreement that a mortgagor will not invoke Section 701.04(1) to commence the statutory process. The Third District s opinion, which construes Section 701.04(1) to serve precisely that role, is in express and direct conflict with the Second District s decision in JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA 2009). The Second District correctly construed Section 701.04(1) as creating a 3
duty to execute a satisfaction only upon a request for an estoppel letter and a subsequent payment of the outstanding debt. No rational construction of the entire statute can allow its protections to become a means by which a private contract can be invalidated in part, long after its execution, and by an assignee who would otherwise properly be bound by the agreement. ARGUMENT THE THIRD DISTRICT S CONSTRUCTION OF SECTION 701.04(1), FLORIDA STATUTES (2008), EXPRESSLY AND DIRECTLY CONFLICTS WITH THE SECOND DISTRICT S INTERPRETATION OF THE SAME STATUTE BY CONSTITUTING THE PROVISION AS A SUBSTANTIVE LIMITATION ON PRIVATE CONTRACTUAL RIGHTS, RATHER THAN AS A PROCEDURAL STATUTE THAT CREATES AN OBLIGATION TO EXECUTE AND RECORD A SATISFACTION ONLY UPON A REQUEST FOR AND EXECUTION OF AN ESTOPPEL LETTER. The Third District s invocation of Section 701.04, Fla. Stat. (2008), to invalidate a contractual provision that was undisputedly intended to constitute the amended final judgment, to which Kalb succeeded as an assignee, as partial security for their loan agreement, conflicts with the Second District s interpretation of Section 701.04 in JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA 2009). [A]n agreement that is violative of a provision of a constitution or a valid statute, or an agreement which cannot be performed without violating such a constitutional or statutory provision, is illegal and void. Fla. House of Representatives v. Crist, 999 So. 2d 601, 616 (Fla. 2008) (citation omitted). Thus, a contract establishing a commercial relationship that is banned by the law and public policy will not be enforced by the Florida courts. Harris v. Gonzalez, 789 4
So. 2d 405, 407-09 (Fla. 4th DCA 2001). The question whether the loan agreement so egregiously violates Section 701.04 turns, in the first instance, on what the statute means and it is on this fundamental point that the Third District s opinion conflicts with the Second District s JP Morgan decision. Section 701.04(1) states: Within 14 days after receipt of the written request of a mortgagor, the holder of a mortgage shall deliver to the mortgagor an estoppel letter setting forth the unpaid balance of the loan secured by the mortgage, including principal, interest, and any other charges properly due under or secured by the mortgage and interest on a per-day basis for the unpaid balance. Whenever the amount of money due on any mortgage, lien, or judgment shall be fully paid to the person or party entitled to the payment thereof, the mortgagee, creditor, or assignee, or the attorney of record in the case of a judgment, to whom such payment shall have been made, shall execute in writing an instrument acknowledging satisfaction of said mortgage, lien, or judgment and have the same acknowledged, or proven, and duly entered of record. 701.04(1), Fla. Stat. (2008). On its face, the statute does not purport to impose any obligation in the absence of a request for an estoppel letter in the first instance, much less provide any basis for invalidating a private contractual arrangement. In JP Morgan, the Second District interpreted Section 701.04(1) as a precondition to a party s right to claim satisfaction of mortgage, the inapplicability of which bars a court from finding a satisfaction. That interpretation is directly contrary to the Third District s application of the statute to create a satisfaction that the parties have expressly disavowed. The plaintiff bank in JP Morgan took an assignment of two mortgages from the original lender, and thereafter sought to foreclose against a subsequent 5
purchaser of the property and the purchaser s lender. 6 So. 3d at 683-84. Although the trial court found that the defendants had diligently inquired about the mortgages and had been advised by the original bank lender that they had been paid in full, the Second District held that the defendants were subject to the original mortgage because the procedures outlined in section 701.04 were not followed in this case. Id. at 686-87. The court explained: The plain effect of the [statute] is to enable the closing agent to timely obtain a satisfaction of mortgage if it remits to the mortgagee the amount set for in an estoppel letter. * * * * [I]t is the debt and not the mere evidence of it which is secured. Drake Lumber Co. v. Semple, 100 Fla. 1757, 130 So. 577, 581 (1930). [I]n the absence of cancelled notes or recorded satisfactions of the two mortgages, the trial court could not legally declare the loans ineffective and unenforceable. To do so deprived JP Morgan of its right to pursue the means and remedies of foreclosure, which are legal attributes of the mortgages it purchased. 6 So. 3d at 688 (emphasis added). Here, as in JP Morgan, there was no request for an estoppel letter and, accordingly, no satisfaction of the foreclosure judgment within the meaning of Section 701.04(1). Yet the Third District converted the statutory shield into a sword to be wielded by a subsequent purchaser, whom the court has freed from an indisputable contractual obligation because that obligation purportedly violates the statute. (A:4-8). The Third District did so by reading Section 701.04(1) s second clause in isolation, that is, divorced from the predicate clause upon which the Second 6
District relied to construe the statute. Indeed, the Third District s quotation of the statute omits the first clause entirely. (A:6). The statute must, of course, be construed as a whole. E.g., School Bd. of Palm Beach County v. Survivors Charter Schools, Inc., 3 So. 3d 1220, 1223 (Fla. 2009) ( [b]asic to our examination of statutes is the elementary principle of statutory construction that significance and effect must be given to every word, phrase, sentence, and part of the statute if possible, and words in a statute should not be construed as mere surplusage ) (citations and internal quotations omitted). That is how the Second District read Section 701.04(1), but the Third District s construction depends entirely on treating the statute s first sentence as surplusage, which the courts cannot do. Section 701.04(1) could have been invoked by the mortgagor at the time of the loan agreement in 2003, but ZPO expressly agreed to the contrary, i.e., that the mortgage would remain unsatisfied until United Funding s loan was repaid. (A:3). Under JP Morgan, ZPO was fully entitled to do so, in that the statutory obligation to execute a satisfaction only comes into existence upon the mortgagor s request for an estoppel letter and subsequent payment of the outstanding debt. Nack, as assignee, was bound by its predecessor s agreements. E.g., Farkus v. Fla. Land Sales & Dev. Co., 915 So. 2d 688, 689 (Fla. 5th DCA 2005) ( an assignee succeeds to his assignor s rights under the assignment of a contract and takes it with all the burdens to which it is subject in the hands of the assignor ) (citation omitted). Just as ZPO could not disavow the loan agreement with United Funding, Nack cannot rewrite the agreement to alter the parties indisputably established intent. See Wachovia Ins. Servs. v. Toomey, 994 So. 2d 980, 986 (Fla. 2008) 7
(reaffirming deeply rooted principle of Florida law that the intent of the parties controls interpretations of their releases ). The express and direct conflict between the Third District s opinion and JP Morgan warrants discretionary review. The Third District itself recognized that Kalb s position is a rational argument, and that the trial court s acceptance of that argument would ordinarily [be] affirm[ed] because of the competent substantial evidence in the record to support the interpretation of the loan agreement upon which Kalb relied. (A:4-5). It is only the Third District s conflict-laden application of Section 701.04(1) that interceded between the parties intentions and the enforcement of their agreement, again a stranger to that agreement who has now been allowed to invalidate a key provision thereof. It is an act of judicial rarity to invalidate a contract as violative of constitutional or statutory law, and here that power has been exercised without regard to legislative intent or governing statutory-construction principles. CONCLUSION Based on the foregoing, Kalb requests the Court to grant discretionary review. 8
Respectfully submitted, Elliot H. Scherker Florida Bar No. 202304 Brigid F. Cech Samole Florida Bar No. 730440 Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telephone: (305) 579-0500 Facsimile: (305) 579-0717 Counsel for Stuart Kalb, Trustee By: Elliot H. Scherker CERTIFICATE OF SERVICE I certify that a copy of this brief was mailed on August, 2009 to: Robert H. Cooper 2999 N.E. 191 Street, Suite 704 Aventura, Florida 33180-3116 Raoul G. Cantero, III White & Case, LLP 200 South Biscayne Boulevard Suite 4900 Miami, Florida 33131-2352 Martin A. Feigenbaum P.O. Box 545960 Surfside, Florida 33154 Elliot H. Scherker 9
CERTIFICATE OF COMPLIANCE I hereby certify that this brief was prepared in Times New Roman, 14-point font, in compliance with Rule 9.210(a)(2) of the Florida Rules of Appellate Procedure. Elliot H. Scherker MIA SCHERKERE180,754,124v1 8-11-09 10