IN THE SUPREME COURT OF FLORIDA CASE NO. SC10- L.T. No. 3D09-591 GLK, L.P., a Washington limited partnership, and EMANUEL ORGANEK, vs. Petitioners, FOUR SEASONS HOTELS LIMITED, a Canadian corporation, and TERREMARK BRICKELL II, LTD., a Florida limited partnership, Respondents. On discretionary conflict review of a decision of the Third District Court of Appeal PETITIONERS BRIEF ON JURISDICTION MICHAEL P. HAMAWAY MOMBACH, BOYLE & HARDIN, P.A. Broward Financial Centre, Ste. 1950 500 East Broward Boulevard Fort Lauderdale, Florida 33394 (954) 467-2200 BEVERLY A. POHL LINDA SPAULDING-WHITE BROAD AND CASSEL One Financial Plaza, Ste. 2700 Fort Lauderdale, FL 33394 (954) 764-7060 Counsel for Petitioners
TABLE OF CONTENTS Page TABLE OF AUTHORITIES... ii STATEMENT OF THE CASE AND FACTS...1 SUMMARY OF ARGUMENT...4 ARGUMENT...6 THE DECISION BELOW CONFLICTS WITH DECISIONS HOLDING THAT WHAT CONSTITUTES A SECURITY, AND WHEN A PLAINTIFF SHOULD HAVE KNOWN OF THE FACTS GIVING RISE TO A CH. 517 SECURITIES NON-REGISTRATION CLAIM, ARE QUESTIONS OF FACT PRECLUDING DISMISSAL ON THE PLEADINGS ON STATUTE OF LIMITATIONS GROUNDS CONCLUSION... 10 CERTIFICATE OF SERVICE... 12 CERTIFICATE OF COMPLIANCE... 12 APPENDIX... App. 1-7 Oct. 14, 2009 Decision of the Third DCA 1-6 Dec. 18, 2009 Order denying motion for rehearing / rehearing en banc, or certification.7 i
TABLE OF AUTHORITIES CASES Page Cohen v. Cooper, 20 So. 3d 453 (Fla. 4th DCA 2009)...9 Farag v. Nat l Databank Subscriptions, Inc., 448 So. 2d 1098 (Fla. 2d DCA 1984)... 4-5, 7-9 McCullough v. Leede Oil & Gas, Inc., 617 F. Supp. 384 (W.D. Okla. 1985)... 3, 5 SEC v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L.Ed.2d 1244 (1946)...8 Williams v. Bear Stearns & Co., 725 So. 2d 397 (Fla. 5th DA 1998)... 4, 6, 7, 9 CONSTITUTIONAL PROVISIONS, STATUTES, AND RULES Art. V, 3(b)(3), Fla. Const.... 4, 6 15 U.S.C. 77b(a)(1);...2 15 U.S.C. 77m...4 Ch. 78-435, 5, 11, Laws of Fla.... 10 Ch. 517, Fla. Stat.... passim 95.11(4)(e), Fla. Stat.... passim 517.021(21)(q), Fla. Stat...2 R. 9.030(a)(2)(A)(iv), Fla.R.App.P.... 4, 6 R. 9.210, Fla.R.App.P.... 12 ii
STATEMENT OF THE CASE AND FACTS This case seeks discretionary review of a decision of the Third District Court of Appeal, which affirmed the trial court s dismissal of Petitioners Amended Complaint. The District Court found that the delayed discovery doctrine did not apply to a securities non-registration claim under Chapter 517, Florida Statutes (the Florida Securities and Investor Protection Act) and that the claim was barred by the applicable statute of limitations, despite its broad delayed discovery provision. Section 95.11(4)(e), Florida Statutes, provides a two-year limitations period for [a]n action founded upon a violation of any provision of chapter 517, with the period running from the time the facts giving rise to the cause of action were discovered or should have been discovered with the exercise of due diligence.... (emphasis supplied). Without factual development, but based on the attachments to the complaint, the Third District concluded that [w]ith the exercise of due diligence appellants could have discovered the alleged securities violations at the time of the transaction and/or within the two-year statute of limitations. (Appendix, p. 5) (emphasis supplied). 1 GLK and Organek sought rehearing, rehearing en banc, and/or certification of a question of great public importance, arguing that the 1 We note that the statutory language is should have, while the court below used a could have standard. 1
delayed discovery doctrine applied to the claim at issue, and that the allegations of the Amended Complaint presented questions of fact that precluded dismissal. The motion was denied (Appendix, p. 7), and Petitioners timely sought discretionary review. Petitioners GLK and Emanuel Organek [collectively GLK ] sued Respondents Four Seasons Hotels Limited and Brickell II, Ltd., seeking rescission of contracts for the purchase of seven residential hotel condominium units, and damages, alleging that the contracts, which guaranteed a certain amount of rental income, were investment contracts, and therefore securities requiring certain disclosures and registration by the sellers. 2 Sellers of securities are required to register the purchase agreements, to secure a permit or license to sell, and to provide buyers with a prospectus. The documents provided at closing did not provide proof of licensure or registration or any exemption from the registration requirement, so upon learning that the sales could have been securities GLK sued under Chapter 2 These contracts are thus unlike the routine purchase and sale of a condominium, which ordinarily does not provide for a guaranteed rate of income. An investment contract is a security, see 15 U.S.C. 77b(a)(1); 517.021(21)(q), Fla. Stat., but neither Florida nor federal securities statutes defines investment contract. Respondents conceded that the transactions in this case constituted a security, but only for purposes of the motion to dismiss. 2
517, Florida Statutes, alleging that the contracts were unregistered securities sold by unlicensed sellers, and seeking the statutory remedies of rescission and damages. GLK brought suit in 2008, more than two years after the closings on the units, but within the five-year statute of repose and within two years of learning, through an article in the Wall Street Journal, that such condominium contracts could be considered securities requiring licensure and registration. The Amended Complaint specifically alleged the date of that discovery, and also alleged concealment and material misrepresentations by the sellers. The trial court found the claim time barred, and the District Court affirmed, finding that GLK had actual notice in 2004 of the facts forming the basis of their claim.... (Appendix, p. 5). 3 In addition, and contrary to the plain language of section 95.11(4)(e), Florida Statutes, the Third District concluded that the delayed discovery doctrine is inapplicable in a Chapter 517 securities non-registration case. (Appendix, p. 6). 4 3 The District Court did not explain how the documents attached to the Amended Complaint established that the sale was a security, and if so, whether it was exempt from registration, whether or not the sellers had not registered the sale, whether or not the sellers were unlicensed to sell securities, or whether or not a prospectus had been prepared. 4 The District Court cited McCullough v. Leede Oil & Gas, Inc., 617 F. Supp. 384 (W.D. Okla. 1985), which involved a federal securities nonregistration claim, and a federal statute that did not contain the delayed 3
SUMMARY OF ARGUMENT This Court has jurisdiction to review the decision of the Third District Court of Appeal, because it expressly and directly conflicts with decisions of two other district courts of appeal. See art. V, 3(b)(3), Fla. Const.; FLA.R.APP.P. 9.030(a)(2)(A)(iv). The decision below failed to accept Petitioners allegations of delayed discovery and concealment of their securities non-registration claim as true, contrary to the Fifth District s decision in Williams v. Bear Stearns & Co., 725 So. 2d 397 (Fla. 5th DA 1998), holding that the allegation of the date of discovery must be accepted as true for pleading purposes. The Third District s conclusion that the delayed discovery doctrine, while embodied in section 95.11(4)(e), is inapplicable to securities non-registration claims, also conflicts with the Second District s decision in Farag v. National Databank Subscriptions, Inc., 448 So. 2d 1098 (Fla. 2d DCA 1984), which found that what constitutes a security the threshold question in this case presents a question of fact and should not be resolved on the pleadings. By concluding discovery provision found in section 95.11(4)(e), Florida Statutes. See 617 F. Supp. 385-387. The federal statute of limitations for non-registration claims provides that such claims must be brought within one year after the violation upon which it is based, which courts construe as the date of sale. See 15 U.S.C. 77m. 4
that Petitioners could have known all the facts giving rise to their securities non-registration claim within two years of the closing, despite allegations of delayed discovery and concealment, the Third District invaded the province of the fact-finder, contrary to Farag. This case is important, warranting this Court s exercise of its discretionary jurisdiction, because, relying on McCullough v. Leede Oil & Gas, Inc., 617 F. Supp. 384 (W.D. Okla. 1985), the Third District failed to appreciate the distinction between Florida law and federal law on the question of the statute of limitations in a securities non-registration case. The decision below thus writes the delayed discovery provision out of section 95.11(4)(e), and conflicts with other districts finding that securities cases are riddled with questions of fact precluding dismissal on the pleadings: i.e., what constitutes a security, and when should a plaintiff have known of all the facts giving rise to a securities non-registration / nonlicensure claim? This Court should grant review to resolve the conflict, to clarify that section 95.11(4)(e) applies to securities non-registration claims under Florida law, and to disapprove the decision below. 5
ARGUMENT THE DECISION BELOW CONFLICTS WITH DECISIONS HOLDING THAT WHAT CONSTITUTES A SECURITY, AND WHEN A PLAINTIFF SHOULD HAVE KNOWN OF THE FACTS GIVING RISE TO A CH. 517 SECURITIES NON-REGISTRATION CLAIM, ARE QUESTIONS OF FACT PRECLUDING DISMISSAL ON THE PLEADINGS ON STATUTE OF LIMITATIONS GROUNDS This Court has jurisdiction to review a decision of a district court that is in express and direct conflict with a decision of another district court of appeal or of this Court. See art. V, 3(b)(3), Fla. Const.; FLA.R.APP.P. 9.030(a)(2)(A)(iv). The Third District s decision in this case disregarded Petitioners allegations of delayed discovery and concealment in the Amended Complaint, and concluded as a matter of fact and law that the Petitioners could have discovered the facts giving rise to their claim based upon the documents available to them in 2004. That decision conflicts with decisions of two other district courts, which found that a plaintiff s allegations of delayed discovery must be taken as true on a motion to dismiss, and that securities non-registration cases present complex factual questions not suitable for resolution on the pleadings. Williams v. Bear Stearns & Co., 725 So. 2d 397 (Fla. 5th DA 1998) (a Florida Securities Act case), held that a plaintiff s claims as to the date of 6
discovery must be taken as true in ruling on a motion to dismiss based on the statute of limitations. Id. at 401 (footnote omitted). The Third District decision conflicts with that decision, because Petitioners alleged that it was a 2008 newspaper article that prompted them to examine whether the 2004 condominium purchase and sale transactions could constitute a security, whether the sellers were licensed, and whether the securities were registered, but the Third District found that Petitioners could have discovered those facts sooner simply by examining the closing documents. The Third District s disregard of Petitioners allegation of delayed discovery expressly and directly conflicts with Williams v. Bear Stearns, 725 So. 2d 397. The decision below also conflicts with Farag v. National Databank Subscriptions, Inc., 448 So. 2d 1098 (Fla. 2d DCA 1984), which reversed a judgment on the pleadings in a case alleging that the plaintiffs investments in a charitable contribution program constituted a security, and that the sellers had not complied with securities registration requirements. The Second District found that the threshold issue whether the contracts at issue were securities under Florida and federal law should not have been decided in a judgment on the pleadings. Noting that a security is not always an easily recognized creature, Farag held that resolution of this issue was inappropriate without greater factual exploration. 448 So. 2d at 1101 (citing 7
SEC v. W.J. Howey Co., 328 U.S. 293, 66 S. Ct. 1100, 90 L.Ed.2d 1244 (1946)). We agree with our sister courts that the question of whether a particular investment constitutes a security depends on the facts and circumstances of each individual case. Id., 448 So. 2d at 1101 (citing cases). Thus, in Farag, material questions of fact on that threshold issue precluded judgment on the pleadings. Id. The Third District s decision in this case conflicts with Farag, by failing to recognize that securities registration claims present questions of fact that require factual development (including whether a security existed, whether the sellers were licensed, and whether they complied with registration requirements for the sale), precluding dismissal on the pleadings. This Court should accept review in this case, because the Third District disregarded or seriously misapplied section 95.11(4)(e), Florida Statutes, which contains an explicit delayed discovery provision for any Chapter 517 claim, by concluding that Petitioners securities non-registration and non-licensure claims were discernible simply by reviewing the closing documents. Because recognizing a security is not always easy, see Farag, supra, 448 So. 2d at 1100-1101, when a plaintiff should have known of the facts giving rise to his claim is a question of fact that cannot be properly 8
resolved on a motion to dismiss. 5 Moreover, the allegations of concealment and delayed discovery, which the Fifth District has said must be taken as true, Williams v. Bear Stearns, should not have been rejected by the Third District absent any discussion of how the closing documents alone could have sufficed to put Petitioners on notice of all facts giving rise to a securities non-registration claim. A lay person would have no reason to suspect that a condominium purchase could be the sale of a security. And whether and when Petitioners should have known ( 95.11(4)(e)) is a question of fact that the Third District should not have resolved. The decision sought to be reviewed effectively exempts Chapter 517 securities non-registration / non-licensure claims from the explicit delayed discovery provisions of section 95.11(4)(e), contrary to the Second District s decision in Farag, and contrary to the plain language of the statute. Respectfully, we submit that the decision below was wrongly decided and deprives litigants of delayed discovery rights long guaranteed them by the Legislature. 6 By deciding that Petitioners could have discovered their 5 Indeed, delayed discovery is recognized as a fact question in other contexts as well. See generally Cohen v. Cooper, 20 So. 3d 453, 456 (Fla. 4th DCA 2009) (delayed discovery question in a medical malpractice case was a fact question that should have been submitted to a jury) (citing cases). 6 When the Florida Securities Act was enacted in 1978, the Florida Legislature specifically amended the statute of limitations for securities 9
claim earlier, the Third District has decided, as a matter of law, what due diligence under the statute requires: henceforth, every purchaser of an investment contract must investigate the seller s compliance with securities laws, even if nothing puts the purchaser on notice that securities licensure and registration requirements pertain to the transaction, and even if the seller conceals relevant facts. Such an unwarranted legal requirement fails to give effect to the text of section 95.11(4)(e), Florida Statutes, improperly denies aggrieved persons redress for violations of Chapter 517 by pretermitting claims filed within the statute of repose, and allows courts to invade the province of the jury. This Court should grant review to resolve the conflicts noted herein, and to disapprove the decision below. CONCLUSION The decision below hobbles section 95.11(4)(e) in a manner never intended by the Legislature, effectively depriving litigants of its delayed discovery provision a factual inquiry. Thus, for the foregoing reasons, the Court should grant review based on express and direct conflict, and disapprove the decision of the Third District Court of Appeal. cases to include a delayed discovery provision, contrary to federal law. See Chapter 78-435, 5, Laws of Fla. (repealing section 517.21), and 11 (adding subsection (4)(e) to section 95.11). 10
Respectfully submitted, BEVERLY A. POHL Florida Bar No. 907250 LINDA SPAULDING WHITE Florida Bar No. 501824 BROAD AND CASSEL 100 S.E. Third Ave., Ste. 2700 Fort Lauderdale, Florida 33394 Ph: 954.764.7060 Fax: 954.713.0962 bpohl@broadandcassel.com lwhite@broadandcassel.com and MICHAEL P. HAMAWAY Florida Bar No. 0081302 MOMBACH, BOYLE & HARDIN, P.A. Broward Financial Centre, Suite 1950 500 East Broward Boulevard Fort Lauderdale, Florida 33394 Ph: (954) 467-2200 Fax: (954) 467-2210 mhamaway@mbhlawyer.com Counsel for Petitioners GLK, L.P. and Emanuel Organek 11
CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing Brief on Jurisdiction has been furnished to counsel listed below, by U.S. Mail this 15th day of January, 2010: HINDA KLEIN LAWRENCE S. GORDON CONROY, SIMBERG, GANON, KREVANS, ABEL, LURVEY, MORROW & SCHEFER, P.A. 3440 Hollywood Blvd., 2nd Floor Hollywood, FL 33021 Ph: (954) 961-1400 Fax: (954) 518-8648 lgordon@conroysimberg.com hklein@conroysimberg.com Counsel for Appellees / Respondents CERTIFICATE OF COMPLIANCE I HEREBY CERTIFY that this Brief is in compliance with FLA.R.APP.P. 9.210, and is prepared in Times New Roman 14 point font. BEVERLY A. POHL 4813-8102-6309.4 43028/0001 BAP 12