IN THE DISTRICT COURT OF APPEAL THIRD DISTRICT OF FLORIDA

CASE NO: 3D16-1881

Lower Tribunal Case No: 15-009465 CA 01 (23)

Liork, LLC and Keren Ben Shimon, Appellants/Plaintiffs,

v.

BH 150 Second Avenue, LLC,

Appellee/Defendant.

APPELLANTS’ INITIAL BRIEF

RICHARD J. LEE, P.A. MILITZOK & LEVY, P.A. 3230 Stirling Road Suite 1 Hollywood, Florida 33021 305-598-0816 Email: jurist@bellsouth.net Co-Counsel for Appellants

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TABLE OF CONTENTS

TABLE OF CONTENTS....................................................................................... i

TABLE OF CITATIONS....................................................................................... ii

LEGEND................................................................................................................ v

STATEMENT OF THE CASE AND FACTS....................................................... 1 Statement of the case......................................................................................... 1 Statement of the facts........................................................................................ 3

SUMMARY OF THE ARGUMENT COUNT I - VOID CONTRACT............... 8

ARGUMENT COUNT I - VOID CONTRACT.................................................. 10

CONCLUSION COUNT I - VOID CONTRACT............................................... 34

SUMMARY OF THE ARGUMENT COUNT II - PENALTY CLAUSE.......... 34 ARGUMENT COUNT II - PENALTY CLAUSE.............................................. 37 CONCLUSION COUNT II - PENALTY CLAUSE........................................... 49

CERTIFICATE OF SERVICE............................................................................. 50

CERTIFICATE OF COMPLIANCE.................................................................... 50

** APPENDIX FILED AS SEPERATE DOCUMENT **

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TABLE OF CITATIONS

CASES Aiken v. WCI Communities, Inc. 26 So. 3d 691 ( Fla. 2d DCA 2010 ).............................................................. 27

Allington Towers North, Inc. v. Rubin, 400 So. 2d 86 ( Fla. 4 DCA 1981 )......................................................13, 14,15, 18th

Berndt v. Bieberstein 465 So. 2d 1264 ( Fla. 2d DCA 1985 )....................................................................43

Blue Lakes Apartments, Ltd. v. George Gowing, Inc. 464 So. 2d 705( Fla. 4 DCA 1985)..................................................................27th

Citimortgage, Inc. v. Turner 172 So. 3d 502 ( Fla. 1 DCA 2015 )..........................................................10, 37st

Coleman v. B.R. Chamberlain & Sons, Inc. 766 So. 2d 427 ( Fla. 5 DCA 2000 )...............................................................45th

Gilman Yacht Sales, Inc. v. FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 )..........................................................10, 37th

Goldblatt v. C.P. Motion, Inc. 77 So. 3d 798 ( Fla. 3 DCA 2011 )............................................................34, 38rd

Gomez v. Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ).....................................................................................10, 37

Hot Developers, Inc. v. Willow Lake Estates, Inc. 950 So. 2d 537 ( Fla. 4 DCA 2007 )...............................................................43th

Howard Cole & Co. v. Williams 27 So. 2d 352 ( 1946 )......................................................................................12

Hutchison v. Tompkins 259 So. 2d 129 (Fla. 1972 ).............................................................................45

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Jackson v. Shakespeare Foundation, Inc. 108 So. 3d 587 ( Fla. 2013 ).....................................................................10, 37

James v. DuBreuil 385 So. 2d 708 ( Fla. 3d DCA 1980 ).............................................................30

Jenkins v. City Ice & Fuel Co. 160 So. 215 ( 1935 )........................................................................................13

Johnson Enters. Of Jacksonville, Inc. v. FPL Group, Inc. 162 F. 3d 1290 ( 11 Cir. 1998 )....................................................................13 th

Lefemine v. Baron 573 So. 2d 326 ( Fla. 1991 )....................................................................38, 42, 43

McNorton v. Pan Am. Bank of Orlando 387 So. 2d 393 ( Fla. 5 DCA 1980 ).............................................................43th

Miami Coca-Cola Bottling Co. v. Orange-Crush Co. 291 F. 102 (D. Fla. 1923) ,affirmed, 296 F. 693 ( 5 1924)..........................12 th

Murry v. Zynyx Marketing Communications, Inc. 774 So. 2d 714 ( Fla. 3d DCA 2000 ).............................................................20 Office Pavillion S. Fla., Inc. v. ASAL Prods., Inc. 849 So. 2d 367 ( Fla. 4 DCA 2003 ).............................................................12th

Ortiz v. PNC Bank, National Association 188 So. 3d 923 ( Fla. 4 DCA 2016 ).......................................................10, 37th

Pan Am-Am Tobacco Corp. v. Department of Corrections 471 So. 2d 4 ( Fla. 1984 )..............................................................................12

Perez v. Aerospace Academy, Inc. 546 So. 2d 1139 ( Fla. 3d DCA 1989 )..........................................................45

Ponce Development Company v. Espino 449 So. 2d 317 ( Fla. 3d DCA 1984 )...........................................14,19, 20, 22

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Rekal Company, Inc. v. PGT Industries, Inc. 8:13-cv-1433-T-33TGW ( M.D.Fla. 2013).............................................................13 RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995 So. 2d 588 ( Fla. 3d DCA 2008 )..................................................36, 39, 48 Rosenberg v. Lawrence 541 So. 2d 1204 ( Fla. 3d DCA 1988 )............................................................12

Sanchez v. Crandon Wholesale Drug Co. 173 So. 2d 687( Fla. 1965 ).............................................................................14

Scherer v. Laborers International Union of North America 746 F. Supp. 73 ( 1988 )............................................................................30, 31 Schneir v. State 43 So. 3d 135 ( Fla. 3d DCA 2010 )...............................................................30

Slattery v. Wells Fargo Armored Service Corp. 366 So. 2d 157 ( Fla. 3d DCA 1979 ).............................................................30 Weitz Company, LLC v. MCW Acquisition, LLC 116 So. 3d 623 ( Fla. 3 DCA 2013 ) ......................................................10, 37rd

STATUTES

Chapter 86, Florida Statutes............................................................................1, 2, 45

RULES

Rule 9.020( i )( 3 ), Fla. R. App. P............................................................................2 Rule 1.510(g). Fla. R. Civ. P. ...................................................................................8

OTHER

Restatement ( Second ) of Contracts § 75 ........................................................13, 14

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LEGEND

The Appellants may sometimes be jointly referred to herein as “Appellants”,

or individually referred to by their respective names. The Appellee may also

sometimes be referred to herein as the Appellee or by its name.

The symbol “R” shall refer to the Record on Appeal. The symbol “SR” shall

refer to the Supplemental Record on Appeal. The symbol " DSR" shall refer to

Direct Supplemental Record on Appeal. The symbol “App.” shall refer to the

Appendix to the Appellants’ Initial Brief. The symbol “ HT” shall refer to hearing

transcripts. The symbol “DT” shall refer to deposition transcripts.

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STATEMENT OF THE CASE AND OF THE FACTS

Statement of the case.

This is an appeal from two partial summary judgment orders which were

incorporated by reference into a final judgment disposing of all judicial effort in

this case by the lower court except for collateral matters.

On February 18, 2016 the lower court entered a non final order denying the

Appellants’ motion for partial summary judgment as to Count I of the Second

Amended Complaint ( R., vol. 2, pp. 205-277) ( hereinafter “Complaint” ) and

granting the Appellee’s cross motion for partial summary judgment as to Count I

of the Complaint ( “Count I Order” ) ( R., vol. 7, pp. 1036-1037; App. 1 ). Count I

was for a declaratory judgment pursuant to Chapter 86, Florida Statutes,

requesting that the lower court declare the contract between the Appellants and the

Appellee void and unenforceable for lack of consideration at inception, and that

the Appellants’ payments of $3,295,000.00 be returned to them. A motion for

reconsideration as to the Count I Order ( R., vol. 5, pp. 782-796 ), was filed and

denied by the lower court.

On July 11, 2016 the lower court entered another order denying Appellants’

motion for partial summary judgment as to Count II of the Complaint and granting

Appellee’s cross motion for partial summary judgment as to Count II of the

Complaint ( “Count II Order” ) ( R., vol. 7, pp. 1038-1040; App. 2 ). Count II was

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also for a declaratory judgment pursuant to Chapter 86, Florida Statutes,

requesting that the lower court declare a provision of the contract between the

parties pertaining to liquidated damages is an unenforceable penalty clause and

that the plaintiffs’ payments of $3,295,000.00 be returned to them. A motion for

rehearing as to the Count I Order and the Count II Order was filed. ( R. Vol. 7, pp.

995-1025 ).

A Notice of Appeal was filed on August 4, 2016 ( R., vol. 7, pp. 1029-1035;

App. 3 ). However, an order denying the Appellants’ motion for rehearing was not

rendered and filed by the lower court until October 25, 2016. Accordingly,

pursuant to Rule 9.020( i )( 3 ), Fla. R. App. P., this appeal was held in abeyance.

On October 26, 2016, the lower court order denying the motion for rehearing as to

the Count I Order and the Count II Order was filed with this Court along with

Appellants’ Status Report. This Court then took the appeal out of abeyance and

ordered that Appellants’ Initial Brief be filed on or before December 27, 2016.

This Court subsequently determined the Count I Order and the Count II Order

were insufficient to form a final appealable order, and relinquished jurisdiction so

that a proper final judgment could be entered by the lower court. On November 10,

2016 the lower court entered a final judgment incorporating therein the Count I

Order and the Count II Order ( DSR.; App. 4 ).

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Statement of the facts.

In 2013 the Appellee was selling to the general public interests in an office and

retail condominium project with approximately 100 units, located at 150 SE

Second Avenue, Miami, Florida ( “Condominium Property” ).

In 2013 the Appellee and Appellant Keren Ben Shimon ( “Shimon” ) entered

into a form contract that was drafted and prepared by legal counsel for the

Appellee ( “Subscription Agreement” ) ( Exhibit “A” to Complaint; R. vol. 2, pp.

205-277; App. 5 ).

On October 17, 2013 the Subscription Agreement was assigned to Appellant

Liork, LLC ( “ Liork” ) pursuant to an assignment agreement ( Exhibit “B” to

Complaint; App. 6 ). The assignment agreement adds Appellant Liork to the

Subscription Agreement, but does not release Appellant Shimon. Accordingly,

both Shimon and Liork are Plaintiffs and Appellants in this case.

The Subscription Agreement was a bilateral agreement ( a promise for a

promise ), wherein Appellant Shimon promised to pay the Appellee the sum of

$5,650,000.00 plus a percentage share of closing costs, in consideration of the

Appellee’s supposed “promise” to sell units 101,102,103, and 104 of the

Condominium Property to Appellants.

From the time the Subscription Agreement was entered into, to the date it was

terminated by the Appellee, the Appellee never owned the Condominium Property.

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The Appellee alleged in the Subscription Agreement that it had some type of an

arrangement with the third party owner of the Condominium Property to buy it,

but the Subscription Agreement did not state any of the terms. And, the

Appellants were never advised of any of the terms of the alleged third party

arrangement. Moreover, no written third party agreement was ever shown or

given to the Appellants, and no alleged written third party agreement was ever

produced by the Appellee in the lower court proceedings.

The Subscription Agreement was drafted by Appellee’s counsel in such a

way as to create the illusion that the Appellee had promised to buy the

Condominium Property, convert it to condominiums, and then sell units 101, 102,

103, and 104 of the Condominium Property to the Appellants. However, the

Subscription Agreement did not actually contain any binding and enforceable

promises by the Appellee. This is so because the Appellee retained for itself in the

Subscription Agreement the option of declining to purchase the Condominium

Property for any reason or no reason at all, and the Appellee also retained for itself

the option to terminate the Subscription Agreement at any time in Appellee’s sole

discretion.

The Appellants paid to the Appellee three payments totaling $3,295,000.00.

The Subscription Agreement, did not state a date certain as to when the balance of

the purchase price was to be paid, but it provided that the balance of the purchase

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price was to be paid 30 days prior to the date that Appellee “anticipated” and

“expected” it might close on the purchase of the Condominium Property from the

third party seller. Such notice just advised as to what the Appellee “anticipated”

and “expected” it might do in the future, but it did not actually require or bind the

Appellee to do anything. Id est, what the Appellee was imagining it might do in

the future. The Appellee could still decide not to buy the Condominium Property

for any reason or no reason at all, or, choose to terminate the Subscription

Agreement at any time in Appellee’s sole discretion. On the other hand, the

Appellants were required to make the final payment when the Appellee sent

Appellants notice of the anticipated closing date.

Prior to receiving the notice of an anticipated closing date, Appellant Shimon

asked Andres Klein, an agent of the Appellee, if the Appellee knew when

Appellee was going to buy the Condominium Property. Appellant Shimon asked

because there was another property that she wanted to also invest in, and she

wanted to make sure that there would be sufficient funds available when necessary

to pay the balance of the purchase price under the Subscription Agreement.

Appellant Shimon was advised that the Appellee did not know when the closing

would be, giving Appellant Shimon the impression that nothing was going to

happen anytime soon.

Notwithstanding Appellee’s statement that it did not know when the closing

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would be, soon thereafter on December 2, 2013 the Appellee sent a notice to the

Appellants advising that the Appellee “anticipated” and “expected” that it might

close the purchase of the Condominium Property on January 15, 2014, thereby

requiring the Appellants to make a final payment of $2,469,154.04 on or before

December 16, 2013 ( “Anticipated Closing Letter” ) ( Exhibit “C” Complaint;

App. 7 ).

With just two weeks notice, the Appellants were unable to make the

$2,469,154.04 payment by December 16, 2013 and asked Appellee for some

additional time to make the payment. Not only did the Appellee refuse any

additional time to make the payment, but Appellee immediately thereafter sent the

Appellants a default notice on December 19, 2013. ( “Default Letter” ), resulting

in termination of the Subscription Agreement and supposed forfeiture of all three

of Appellants payments totaling $3,295,000.00 as liquidated damages. ( Exhibit

“D” Complaint; App. 8 ).

As it turned out, the Appellee did not close on January 15, 2014. In fact,

the Appellee did not close on the Condominium Property until some six weeks

later on February 28, 2014. This meant that the Appellants should have had until

January 30, 2014, ( 30 days before the February 28, 2014 closing ), to make the

final payment, but Appellee seeing a “gotcha” moment refused to give any

additional time and prematurely defaulted Appellants in the middle of December,

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so it could terminate the Subscription Agreement and keep the Appellants

payments totaling $3,295,000.00.

At the time the Subscription Agreement was terminated and Appellee kept

Appellants $3,295,000.00, the Subscription Agreement was still totally executory

on the part of the Appellee. Not only had the Appellee not purchased the

Condominium Property, but at the time of termination of the Subscription

Agreement, the Appellee still had the right to decline purchasing the

Condominium Property for any reason or for no reason at all, and Appellee still

had the right to terminate the Subscription Agreement at any time in its sole

discretion.

The $3,295,000.00 kept by the Appellee as supposed liquidated damages,

resulted in the Appellants forfeiting an amount in excess of 58% of the purchase

price ( $3,295,000.00 ÷ $5,650,000.00 = 58.3% ).

Further, notwithstanding the Appellees failure to disclose and attempts to

hide from the Appellants and the lower court, it was ultimately determined from

public records and third party depositions, that the Appellee in fact had entered

into a new agreement with a replacement buyer and received payment of

$5,500,000.00 plus a share of closing costs, from the replacement buyer for the

four units the Appellants were to buy before Appellee bought the Condominium

Property on February 28, 2014. This resulted in a windfall profit of

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$3,295,000.00 to the Appellee. In this regard, there is a pending motion before the

lower court pursuant to Rule 1.510(g). Fla. R. Civ. P. for failing to disclose and

affirmatively misrepresenting this fact in affidavits that were filed with respect to

the motions for summary judgment as to both counts I and II.

The Appellee took Appellants’ $3,295,000.00 in exchange for absolutely

nothing. From the date the Appellee and Appellant Shimon signed the

Subscription Agreement to the date the Subscription Agreement was terminated,

the Appellee never had any binding enforceable obligation to do anything, and the

Subscription Agreement was still completely executory on the part of the

Appellee when it was terminated by the Appellee.

SUMMARY OF THE ARGUMENT - COUNT I - VOID CONTRACT

When a bilateral contract ( a promise for a promise ) like the Subscription

Agreement, is not mutually enforceable by its terms, the contract is invalid from

inception due to lack of mutuality of obligation resulting in a failure of

consideration. Such contracts are often referred to as “illusory” contracts since

they give the illusion of a binding promise when none is actually made.

Florida law is clear that when one party retains unto itself the option of

fulfilling or declining to fulfill its obligations under a contract, as is the case of the

Appellee under the Subscription Agreement, there is no valid contract and neither

side may be bound under the contract since there is no mutuality of obligation and

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there is a failure of consideration from inception on the contract. Since the

Appellee’s “promises” in the Subscription Agreement were unenforceable, there

was no consideration given by the Appellee in exchange for the promises made by

the Appellants.

Florida law is also clear that at all times during which an illusory contract

remains a bilateral executory contract, neither side is bound under the contract

because there is no mutuality of obligation while the contract remains executory.

At the time the Subscription Agreement was terminated and Appellee kept all

the Appellants’ payments, the Subscription Agreement was completely executory

as to the Appellee, because the Appellee had not purchased the Condominium

Property and still had the right not to buy the Condominium Property for any

reason or for no reason at all. Also, at the time of termination of the Subscription

Agreement the Appellee still had the right to terminate Appellants’ subscription at

any time in its sole discretion. There can be no question that the Subscription

Agreement was an unenforceable executory agreement at all times from its

inception to the time it was terminated. Thus, there was never a point in time

where the Subscription Agreement was an enforceable agreement, and it was void

at all times from inception to termination and the supposed forfeiture of the

Appellants’ $3,295,000.00.

Accordingly, the Subscription Agreement is void ab initio as a matter of law.

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The Appellee never had any right to keep any of the Appellants’ payments, and the

payments of $3,295,000.00 are the property of Appellants and must be returned to

them.

ARGUMENT - COUNT I - VOID CONTRACT

Standard of review.

An order on a motion for summary judgment is reviewed de novo. Gomez v.

Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ); Weitz Company, LLC v. MCW

Acquisition, LLC, 116 So. 3d 623 ( Fla. 3 DCA 2013 ). Review of an orderrd

interpreting a contract is also de novo. Jackson v. Shakespeare Foundation, Inc.,

108 So. 3d 587 ( Fla. 2013 ); Ortiz v. PNC Bank, National Association, 188 So.

3d 923 ( Fla. 4 DCA 2016 ); Citimortgage, Inc. v. Turner, 172 So. 3d 502 ( Fla.th

1 DCA 2015 ). st

This standard is well explained by the court in Gilman Yacht Sales, Inc. v.

FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 ). The court stated: th

“The interpretation of a written contract is a question of law to be decided by the court. An appellate court is not bound to give thetrial judge’s interpretation or construction of a contract any weighted presumption of correctness. To the contrary, a decision construing a contract is reviewable on appeal under a de novo standard of review, and therefore we are required to consider for ourselves anew the meaning of the disputed contractual language.” ( internal citations omitted )

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Void Contract.

The Subscription Agreement contains provisions whereby the Appellee retained

for itself the option of fulfilling or declining to fulfill, its obligations under the

Subscription Agreement to purchase the Condominium Property, and the

Appellee also retained for itself the right to terminate the Appellants’ subscription

at any time in Appellee’s sole discretion.

In addition, the Subscription Agreement contained provisions whereby the

Appellants could lose all their rights under the Subscription Agreement and forfeit

all their payments, even if the Appellee had not purchased the Condominium

Property and still had the option not to purchase the Condominium Property, and

still had the option to terminate the Appellants’ subscription at any time in

Appellee’s sole discretion. Paragraph 4 of the Subscription Agreement states, in

part, that:

“ Subscriber understands and agrees that this Subscription may be rejected by the Company [ Appellee ] at any time in its sole discretion. ... If the Subscription is rejected, all funds received from the Subscriber will be returned, without interest, by the Company, and, thereafter, this Agreement shall be of no further force or effect. Additionally, if the Company [ Appellee ] accepts the Subscription, but the Company does not purchase the Property for any reason or for no reason at all, all funds received from the Subscriber will be returned, without interest, to Subscriber and this Agreement will be of no further force or effect.” ( emphasis added ).

Appellee never had to perform its “promise” to purchase the Condominium

Property, because Appellee could decide at any time not to purchase the

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Condominium Property “...for any reason or for no reason at all, under the

provisions of paragraph 4 of the Subscription Agreement. Also, the Appellee

could decide”... at any time in it’s sole discretion” to reject the Appellants’

subscription. Id est, terminate the Subscription Agreement.

It is black letter law in Florida that when one party retains unto itself the

option of either fulfilling or declining to fulfill its obligations under a contract, as

is the case with Appellee under the Subscription Agreement, there is no valid

contract and neither side may be bound under the contract since there is no

mutuality of obligation and a failure of consideration.

“It is a fundamental principle of contract law that a promise must be

supported by consideration to be enforceable.” Office Pavillion S. Fla., Inc. v.

ASAL Prods., Inc., 849 So. 2d 367, 370 ( Fla. 4 DCA 2003 ). A contract which isth

not mutually enforceable is an illusory contract. And, “where one party retains to

itself the option of fulfilling or declining to fulfill its obligations under the

contract, there is no valid contract and neither side may be bound”. Rosenberg v.

Lawrence, 541 So. 2d 1204, 1206 ( Fla. 3d DCA 1988 ), Pan Am-Am Tobacco

Corp. v. Department of Corrections, 471 So. 2d 4 ( Fla. 1984 ); Howard Cole &

Co. v. Williams, 27 So. 2d 352 ( 1946 ); Miami Coca-Cola Bottling Co. v.

Orange-Crush Co., 291 F. 102 (D. Fla. 1923) ,affirmed, 296 F. 693 ( 5 Cir. 1924) th

“Under Florida law, when a promise ‘appears on its face to be so insubstantial

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as to impose no obligation at all on the promisor - who says, in effect, ‘ I will if I

want to’ - then that promise may be characterized as an’ illusory promise,’ i.e., ‘a

promise in form but not in substance.” Rekal Company, Inc. v. PGT Industries,

Inc.8:13-cv-1433-T-33TGW ( M.D. Fla. 2013 ), citing Johnson Enters. Of

Jacksonville, Inc. v. FPL Group, Inc., 162 F. 3d 1290, 1311 ( 11 Cir. 1998 );th

Office Pavilion South Florida, Inc. v. Asal Products, Inc., 849 So. 2d 367 ( Fla.

4 DCA 2003 ) citing Johnson Enter. Of Jacksonville, inc. v. FPL Group, Inc.,th

162 F. 3d 1290 ( 11 Cir. 1998 ). th

When a bilateral contract ( a promise for a promise ), such as the one in the

instant case, is not mutually enforceable by its terms, the contract is invalid due to

lack of consideration. “In a contract where the parties exchange promises of

performance, ‘ [I]f either of the promises in the contract is unenforceable then

there is no consideration for the other promise.’ Rekal supra, citing Allington

Towers North, Inc. v. Rubin, 400 So. 2d 86, 87 ( Fla. 4 DCA 1981 ); Jenkins v.th

City Ice & Fuel Co., 160 So. 215 ( 1935 ).

In Office Pavilion South Florida, Inc. v. Asal Products, Inc., 849 So. 2d 367,

370 ( Fla. 4 DCA 2003 ), the Court stated:th

“The Restatement of Contracts illustrates these contract principles. Section 75 acknowledges that ‘a promise which is bargained for is consideration if, but only if, the promised performance would be consideration.’ Restatement ( Second ) of Contracts § 75 ( emphasis added ). However, the Restatement further provides in Section 77, [a] promise or apparent promise is not consideration if by its terms

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the promisor or purported promisor reserves a choice of alternative performances.’ The commentary to this section explains: Words of promise which by their terms make performance entirely optional with the ‘promisor’ do not constitute a promise.... Where the apparent assurance of performance is illusory, it is not consideration for the return promise.” ( emphasis original ) Florida law is also clear that at all times during which an illusory contract

remains a bilateral executory contract, neither side is bound under the contract

since there is no mutuality of obligation while the contract remains executory. “As

long as the contract remain[s] a bilateral executory agreement it [is]

unenforceable...” Ponce Development Company v. Espino, 449 So. 2d 317, 319

( Fla. 3d DCA 1984 ); Sanchez v. Crandon Wholesale Drug Co., 173 So. 2d 687

( Fla. 1965 ).

Allington Towers North, Inc v. Rubin, 400 So. 2d 86 ( Fla. 4 DCA 1981) isth

similar to the instant case in that pursuant to a contract the seller promised to

convey real property to the buyer, and the buyer promised to pay for it. The court

held that the contract was an executory bilateral contract as in the instant case.

However, the contract provided that the buyer had the right to cancel the contract

at any time before closing. The court found that the seller had to convey if the

buyer decided to go forward, but the seller had no corresponding right to enforce a

sale and closing. The court stated “ We cannot envision a clearer case of lack of

mutuality.”

In the instant case the Appellants had to pay for the Condominium Property

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units if the Appellee decided to go forward, but the Appellants had no

corresponding right under the Subscription Agreement to enforce a sale and

closing because the Appellee could decide not to purchase the Condominium

Property for any reason or for no reason at all up to the time of closing. Also, the

Appellee retained the right to terminate Appellants’ subscription at any time in its

sole discretion up to the time of closing. As in Allington, supra, one would be hard

pressed to envision a clearer case of lack of mutuality and failure of consideration

than in the instant case.

Paragraph 3 of the Subscription Agreement states, in part:

“ The Manager [ Appellee ] shall notify Subscriber [ Appellants ] the anticipated date of Closing (‘Anticipated Closing Date’ ) and Subscriber must pay the full amount of the Subscription Price plus the Closing Costs at least thirty ( 30 ) calendar days before the Anticipated Closing Date. If Subscriber fails to pay the full Subscription Price and the Closing Costs thirty ( 30 ) calendar days before the Anticipated Closing Date, Subscriber shall be in default as per Paragraph 13 of this Agreement.” ( emphasis added )

Paragraph 13 of the Subscription Agreement provides:

“If Subscriber fails to make the payments in the manner and the time as set forth in this Subscription Agreement, Subscriber shall be in default and ALL payments made by Subscriber shall be retained by the Company as liquidated damages and ( not as a penalty ) and the Subscriber shall not be entitled to receive any distributions from the Company and shall lose all rights in the Company. In such case the Company may assign the unit assigned to Subscriber to another member.” (emphasis added )

With respect to paragraph 3 of the Subscription Agreement, on December 2,

2013 the agent of Appellee, Andres Klein, sent the Anticipated Closing Letter to

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Appellants advising that the Appellee anticipated closing the purchase of the

Condominium Property on January 15, 2014, and giving Appellants two weeks to

make full payment of the balance of the Subscription Price plus estimated closing

costs totaling $2,469,154.04 on or before December 16, 2013.

When Appellants received the Anticipated Closing Letter, they advised

Appellee that two weeks was insufficient time to obtain $2,469,154.04, and asked

Appellee for some additional time to pay the balance. Appellee refused to grant

Appellants any extension of time whatsoever, and on December 19, 2013 sent

Appellants the Default Letter advising that Appellants were in default of the

Subscription Agreement for failure to pay the balance of $2,469,154.04 by

December 16, 2013.

The Appellee did not buy the Condominium Property on January 15, 2014 as

anticipated. In fact the Appellee did not buy the Condominium Property until

February 28, 2014, some month and a half later, and some two and a half months

after the Appellants rights under the Subscription Agreement were terminated on

December 16, 2013.

When the Subscription Agreement was terminated, several things allegedly

happened. First, Appellants’ payments were allegedly forfeited to Appellee.

Second, Appellants no longer had any rights under the Subscription Agreement.

Third, Appellee could sell Appellants Condominium Property units to others.

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On December 16, 2013, pursuant to the provisions of paragraph 13 of the

Subscription Agreement, Appellants were automatically in default. There was no

actual requirement under the Subscription Agreement that Appellee send the

Default Letter in order for Appellants to be in default. Appellee sent the Default

Letter to allegedly give “formal” notice to Appellants that they were in default and

that Appellee would exercise any and all rights under the Subscription Agreement.

Though not required under the terms of the Subscription Agreement, the Default

Letter does however memorialize the fact that as far as Appellee was concerned

Appellants’ rights were terminated and payments forfeited under the Subscription

Agreement on December 16, 2013.

Additionally, at the time of the alleged default on December 16, 2013 when

Appellants lost all their interests under the Subscription Agreement, and

supposedly forfeited all their payments, the Subscription Agreement was still

totally executory as to the Appellee, since Appellee had not yet purchased the

Condominium Property, and Appellee still had the option to decline to purchase

the Condominium Property. In this regard, the Appellee was very careful in its

wording in both paragraph 3 the of Subscription Agreement and the Anticipated

Closing Letter, to preclude any assertion that the Appellee had given up it’s option

not to purchase the Condominium Property when it sent notice subscribers to

make their final payments.

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The Appellee did not say anything in the Anticipated Closing Letter that

could conceivably be construed as waiving its right not to buy the Condominium

Property for any reason or for no reason at all. Instead, the Appellee only stated

that it “anticipated” and “expected” a closing on the Condominium Property. If

ever challenged on this issue, all the Appellee needed to have done is cite a

dictionary. “ anticipate” means “to imagine or expect that something will happen”.

Cambridge Dictionary.

So, the Anticipated Closing Letter and the wording of paragraph 3 of the

Subscription were careful not to change anything. The Subscription Agreement

always “anticipated” that the Appellee might buy the Condominium Property,

subject to the Appellee electing not to buy it for any reason or no reason at all.

Accordingly, the Appellee could still at any time right up to the actual closing on

the Condominium Property choose not to buy it for any reason or no reason at all,

and simply return the subscribers deposits. In addition, the Appellee also still had

the option to rejecting the Subscription Agreement at any time in its sole

discretion. This is the same scenario in Allington, supra, wherein the seller could

change its mind right up to the closing, causing the court to note: “ We cannot

envision a clearer case of lack of mutuality.”

Accordingly, the Subscription Agreement was still totally executory as to

Appellee on December 16, 2013, and, as a matter of law, it was not an

-18-

enforceable agreement at the time of the alleged default and termination of

Appellants’ rights, and alleged forfeiture of their $3,295,000.00.

Of particular importance is the fact that the Appellee did not close on January

15, 2014 as stated in the Anticipated Closing Letter. In fact, the Appellee did not

close on the Condominium Property until six weeks later on February 28, 2014.

This meant that the Appellants should have had until January 30, 2014, ( 30 days

before the February 28, 2014 closing ), to make the final payment, but Appellee

refused to give any additional time and prematurely defaulted Appellants in the

middle of December, so it could terminate the Subscription Agreement and keep

the Appellants payments totaling $3,295,000.00.

This Court has allowed a promisor to cure the unenforceable promises it made

at the inception of a contract by full and complete performance of the illusory

promises it made to the promisee. In Ponce Development Company v. Espino, 449,

318-319, So. 2d 317, 319 ( Fla. 3d DCA 1984 ), this Court stated:

“... the construction contract in this case, as drafted by Ponce, lacked mutuality of obligation at its inception in that the promisor’s ( Ponce’s ) duty under the agreement was optional. As long as the contract remained a bilateral executory agreement it was unenforceable against the Espinos [internal citations omitted ]. But when the contract became executed by the promisor’s full performance according to the terms of the contract--except as to transfer of title at closing, which final act was impeded by the promisee--the defect of lack of mutuality of obligation was cured and could not be a defense to enforcement of the contract.” ( emphasis added ).

-19-

Also see Murry v. Zynyx Marketing Communications, Inc., 774 So. 2d 714

( Fla. 3d DCA 2000 ).

In the instant case Appellee chose to preclude any possibility of curing its

illusory promises it had made to Appellants. The Appellee could have given

Appellants additional time to make the final payment until the Appellee had cured

it’s illusory promises by fully performing the Subscription Agreement. Instead of

sending the Appellants the Default Letter and refusing to give them additional

time to make the final payment, Appellee could have followed the holding in

Espino, supra, and given the Appellants the opportunity to close on their four units

once the Appellee had cured its illusory promises by purchasing the

Condominium Property from the third party and tendering delivery of units

101,102,103, and 104 to the Appellants. If the Appellants did not close upon

tender of delivery of their four units, then Appellants may be estopped from

claiming a void illusory contract, because Appellee had cured it’s illusory

promises making it no longer executory on the part of Appellee except for the

transfer at closing, which is such event would have been impeded by the

Appellants. See Espinos, supra.

But that is not at all what happened. To the contrary, the Appellee rather than

continuing the Subscription Agreement, it refused to give the Appellants anymore

time and could not wait to default the Appellants, even though at that time the

-20-

Subscription Agreement was still totally executory as to the Appellee. Greed being

the driving force, the Appellee thought they had a “gotcha” moment where they

could keep the Appellants $3,295,000.00 and sell the four condo units to someone

else. Appellee’s mens rea in this was made clear by Appellee’s failure to disclose

and its affirmative attempt to hide from the lower court and the Appellants the fact

that a replacement buyer had bought the Appellants four units before Appellee

closed on the Condominium Property with the third part seller.

This is particularly egregious in light of the fact that the Appellants should

have had until January 30, 2014 rather than December 16, 2013 to make the

payment because the Appellee chose, for whatever reason, to close the purchase of

the Condominium Property on February 28, 2014 rather than January 15, 2014

which created the premature December 16, 2014 payment due date in the first

place.

Also, relating to estoppel, the Appellee argued to the lower court that

because of various alleged misrepresentations made in the Subscription

Agreement, the Appellants should be equitably estopped from claiming that the

Subscription Agreement is a void contract. Since the so called “promises” made

by the Appellee in the Subscription Agreement were unenforceable by the

Appellants against the Appellee, the Appellee could not be harmed, as a matter of

law, by any misstatements allegedly made by the Appellants in the Subscription

-21-

Agreement. It is axiomatic that the Appellee could not have relied on or have been

harmed when it has made no binding enforceable promise to the Appellants to do

anything. As a matter of law there can be no detrimental reliance by the Appellee,

because the Appellee did not have to do anything, and the Subscription Agreement

was void ab initio in any event.

Moreover, the Appellee cited no case law that would allow estoppel under the

facts of this case. However, Espinos, supra, addresses certain narrow

circumstances in which estoppel is appropriate with respect to illusory contracts.

As stated above, the Appellee did not cure any of it’s illusory promises as to the

Appellants before Appellee terminated the Subscription Agreement. Instead of

immediately terminating the Subscription Agreement, if Appellee had cured it

illusory promises and attempted tender of delivery to the Appellants on or after

February 28, 2014 and Appellants refused to close, then the Appellants might be

estopped from claiming an illusory contract. This would be the only circumstances

in which a one might be estopped from claiming an illusory contract, not because

of an alleged misstatement in a contract that is void ab initio.

The Appellee also argued in the lower court that mutuality of obligation in

the Subscription Agreement is not necessary because there was “other

consideration” for the Subscription Agreement that prevents it from being a void

contract for failure of consideration.

-22-

Appellee erroneously argued that other consideration is the Appellee’s

promise to convert the Condominium Property into an office condo, and to

provide the Appellants with condo units in the converted Condominium Property.

This argument is absurd, because such promises are made illusory by the

provisions of the Subscription Agreement which allow the Appellee to decline to

purchase the Condominium Property in the first place. The Appellee would

obviously have elect to buy the Condominium Building before it could convert it

to an office condo and convey condo units to the Appellants.

Also, the Appellee argued that the Appellee was limited as to when it could

terminate the Subscription Agreement and this was consideration for the

Subscription Agreement. Appellee erroneously argued in the lower court that if

Appellee was going to terminate the Subscription Agreement it had to do so

within 120 days after November 15, 2013. In this regard, the Appellee is

referencing “Recital” paragraph “A” of the Subscription Agreement which states ,

in part:

“It is anticipated that the acquisition of the Property and the conversion to an office condominium will take place on or about November 15, 2013, however, there might be an extension of one hundred twenty ( 120 ) days if the renovations being performed by the current owner to the Property are not completed in a timely manner.” ( emphasis added )

This recital in the Subscription Agreement is obviously and necessarily

-23-

conditioned on the Appellee’s absolute right not to buy the Condominium

Property in the first place as provided for in paragraph 4 of the Subscription

Agreement.

Also, this recital states that it is “anticipated” that the closing would be on or

about November 15, 2013. Accordingly, there is no outside date agreed to

because it merely references an “anticipated” date. Further, there is no provision

in the Subscription Agreement that required the Appellee to return payments

within 120 of the anticipated purchase date, and there is no provision in the

Subscription Agreement that would put the Appellee in breach or default of the

Subscription Agreement if it does not do so. As a matter of fact, there is no

provision of the Subscription Agreement that ever puts the Appellee in breach or

default of the Subscription Agreement for failing to abide any of the terms of the

subscription Agreement.

Additionally, paragraph 4 of the Subscription Agreement allows the Appellee

to terminate Appellants’ subscription at any time in its sole discretion. This

termination right that the Appellee reserved for itself is not limited to a date

certain.

Appellee necessarily conceding that this language in the recital does not

actually state or legally require the Appellee to buy the Condominium Property

within 120 days of November 15, 2013, further argued in the lower court that

-24-

such language should be construed to at least require the Appellee to make a good

faith effort to do so, and that would be other consideration for the Subscription

Agreement.

The language of paragraph 4 of the Subscription Agreement which states the

Appellee can choose not to purchase the Condominium Property for any reason or

for no reason at all, makes it crystal clear that a good faith effort to purchase is

not to be assumed or implied. When the Appellee can decide not to buy the

Condominium Property for any reason or for no reason at all, one cannot

reasonably assume that the Appellee is required to make a good faith effort to buy

the Condominium Property. If the Appellee decided not to buy the Condominium

Property and walk away from the deal, it did not even have to say why. The

language in the Subscription Agreement is the complete opposite of an implied

requirement of a good faith attempt to purchase, it is a disclaimer. Pursuant to the

terms of the Subscription Agreement, the Appellee could opt not to buy the

Condominium Property without giving any reason whatsoever as to why it chose

not to purchase the Condominium Property.

Also, the Appellee argued to the lower court that it promised to give Class A

interests in the Appellee in exchange for Appellants payments, and that this is

other consideration. Again, this promise is directly contingent on the Appellee

electing to buy the Condominium Property which it does not have to do for any

-25-

reason or no reason at all, and is also directly contingent on Appellee not electing

to terminate the Appellants’ Subscription at any time in its sole discretion.

By the unambiguous terms of paragraph 4 of the Subscription Agreement, if

the Appellee chooses to terminate Appellants’ subscription at any time in its sole

discretion, or, if Appellee elects not to buy the Condominium Property for any

reason or no reason at all, the Subscription Agreement terminates and is of no

further force or effect, and with it goes any promise therein to give Class A

interests in Appellee to the Appellants.

All of the above supposed “promises” that the Appellee erroneously argues

are “other consideration” are completely unenforceable and illusory promises.

They are not other consideration as a matter of law.

The Appellee also incorrectly argued to the lower court, that because the

Subscription Agreement provides for refund of the Appellants’ deposits if the

Appellee chose not to buy the Condominium Property for any reason or no reason

at all, or, if the Appellee chose to terminate Appellants’ subscription at any time in

its sole discretion, that qualifies as other consideration.

Assuming arguendo, that the Appellee would have to return payments in

the event it chose not to buy the Condominium Property, or, chose to terminate the

subscription, it still would not be other consideration for the Subscription

Agreement. And, as an aside, there is even a question whether the Appellee

-26-

actually had an obligation to return payments since there is no provision in the

Subscription Agreement that called the Appellee in breach or default under any

circumstances.

The law in Florida is that an agreement to return deposits is not consideration

and does not keep a contract from being unenforceable and void. An agreement to

return the buyers deposit where the seller retains to itself the option of fulfilling

or declining to fulfill its obligations under the contract, does not make the

contract enforceable. Aiken v. WCI Communities, Inc. 26 So. 3d 691 ( Fla. 2d

DCA 2010 ); Blue Lakes Apartments, Ltd. v. George Gowing, Inc. 464 So. 2d

705( Fla. 4 DCA 1985) Sellers obligations are wholly illusory. Clearly, if theth

seller can simply return the deposit and elect not to fulfill its promises under the

contract, then the seller could cancel and walk away from the agreement at any

time “scot-free” and without suffering any cost whatsoever. A promise to return

the deposit is not other consideration as the Appellee erroneously argues.

Accordingly, the fact that paragraph 4 of the Subscription Agreement states

that in the event the Appellee decides not to buy the Property for any reason or

for no reason at all, or decides to reject the subscription at any time in its sole

discretion, the Appellee will return payments without interest, does not make the

Subscription Agreement enforceable. In any event, it is an undisputed fact that the

Appellee did not return any portion of the Appellants payments totaling

-27-

$3,295,000.00.

Citing case law from outside Florida, the Appellee also argued to the lower

court that the Subscription Agreement is not illusory because if Appellee did elect

to buy the Condominium Property it would have to close with the Appellants.

This is not Florida law. No Florida cases, or federal cases applying Florida law,

can be found which support the erroneous argument that the Appellee makes.

However, the point is moot in any event because under the terms of the

Subscription Agreement, the Appellee could leave the Appellants out by simply

electing to terminate the Appellants’ subscription at any time in its sole discretion,

and then elect to purchase the Condominium Property at any time thereafter.

The Appellee put provisions in the Subscription Agreement so that it could

decide not to buy the Condominium Property, return the deposits and walk away

with no liability whatsoever. That is the language from paragraph 4 of the

Subscription Agreement quoted hereinabove. The Appellee also put provisions in

the Subscription Agreement that would allow it buy the Condominium Property

and get rid of the Appellants or some other subscribers by simply terminating their

subscription and returning their deposits, and then enter into a new agreement with

new subscribers, presumably at a higher price. Paragraph 4 of the Subscription

Agreement states, in part, that:

“ Subscriber understands and agrees that this Subscription may be rejected by the Company at any time in its sole discretion. ... If the

-28-

Subscription is rejected, all funds received from the Subscriber will be returned without interest, by the Company, and, thereafter, this

Agreement shall be of no further force or effect." ( emphasis added )

The Appellee made sure that it could do whatever it wanted to do under the

Subscription Agreement and walk away without incurring any liability or

obligation whatsoever except to return deposits. Moreover, it is clear from the

language put in the Subscription Agreement by the Appellee that the Appellee

wanted to retain the ability to get rid of Appellants even after they had made

multiple payments. Thus, Appellee included the language of paragraph 4 “If the

Subscription is rejected, all funds received from the Subscriber will be

returned,...” ( emphasis added ).

It is also clear from the provisions of the Subscription Agreement that the

Appellee was not sure how the condo sales would go. Would it be a bust or a

home run? “RECITALS” paragraph “B” states;

“In the event the Company does not receive sufficient capital contributions [ deposits ] to fund acquisition of the Property, the Class B Member, on behalf of the Company, may apply for and obtain a loan from a banking institution or from a third party...”

Accordingly, in the event the sale of condos was a bust, and a loan could not

be obtained or it did not make sense to obtain a loan, then under paragraph 4 the

Appellee could decide not to buy the Condominium Property for any reason or no

reason at all, return deposits and walk away. But what if it was a home run? What

if it became apparent in time that some subscriptions had been sold too cheaply

-29-

and could have commanded higher prices? Paragraph 4 takes care of this

eventuality too. In that event, the Appellee could line up prospective replacement

subscribers at higher prices, and then reject one or more of the previous

subscriptions at any time in its sole discretion, return the deposits, and sign up

new subscribers at better prices. Paragraph 4 allows the Appellee to get rid of

subscribers and still buy the Condominium Property by simply returning their

deposits and walk away.

Appellee also erroneously argued to the lower court that other consideration

for the Subscription Agreement was the pre-existing contract with a third party to

buy the Condominium Property. Florida law is unequivocally clear on this point.

The Appellee’s alleged pre existing duty to buy the Condominium Property is not

and cannot be consideration for the Subscription Agreement as a matter of law.

The Preexisting Duty Rule does not allow a preexisting duty to be consideration

for a new subsequent agreement like the Subscription Agreement. Schneir v.

State, 43 So. 3d 135 ( Fla. 3d DCA 2010 ); James v. DuBreuil, 385 So. 2d 708

( Fla. 3d DCA 1980 ); Slattery v. Wells Fargo Armored Service Corp., 366 So. 2d

157 ( Fla. 3d DCA 1979 ).

However, there is an aberrant federal case in Florida which has recognized a

narrow exception for a pre existing duty to a third party. Scherer v. Laborers

International Union of North America, 746 F. Supp. 73 ( 1988 ). But this

-30-

exception cannot be applicable when there is an illusory promise in the new

agreement relating to the pre existing duty to the third party. The exception for a

pre existing duty to a third party that the federal court followed in Scherer, supra,

is based on the theory that if the promise made in the new agreement [Subscription

Agreement ] affects the promisors [ Appellee ] rights under a pre existing third

party agreement [ agreement to buy Condominium Property from the third party

seller ], then the giving up of rights under the pre existing third party agreement

may be deemed consideration for the new agreement.

So, the theory is if the promises made by the Appellee to the Appellants

somehow changed Appellees obligations to the third party seller in the alleged

third party agreement to purchase the Condominium Property, then that

theoretically might be consideration for the Subscription Agreement. Three

problems however. One, that is not the Preexisting Duty Rule in Florida. Two,

there is absolutely no evidence in the record below as to the terms or conditions of

any alleged third party purchase agreement, or that there even was one. Third,

since the promises made by the Appellee to the Appellants in the Subscription

Agreement were illusory and unenforceable, there was no way, as a matter of law,

that unenforceable promises in the Subscription Agreement could have in anyway

changed any rights that the Appellee may have had in the alleged third party

agreement to buy the Condominium Property.

-31-

In the instant case, since the Appellee retained unto itself the right not to buy

the Condominium Property for any reason or no reason at all, it clearly did not in

any respect forgo or give up any opportunity it had to get out of the contract with

the third party to buy the Condominium Property.

There is absolutely nothing under Florida law that supports Appellee’s

erroneous argument that the preexisting contract somehow is consideration for the

Subscription Agreement. Moreover, although the Appellee made this argument to

the lower court, it chose not to establish that it even had an agreement with a third

party. Appellee chose not to produce the alleged third party agreement in this

case, and the Subscription Agreement does not state any terms or conditions of the

alleged third party agreement.

The Appellee has made every conceivable argument, regardless of how

ludicrous or far fetched, that there is somehow “other consideration” for the

Subscription Agreement. None of the arguments have any merit whatsoever under

Florida law.

Further, Appellee doing whatever it could to avoid liability on count I filed

two improper affidavits as summary judgment evidence. Count I is a claim

alleging an illusory non enforceable bilateral fully integrated written contract. As

such, the lower court was required to construe the Subscription Agreement within

the four corners of the document itself pursuant to the Parol Evidence Rule. The

-32-

lower court was not allowed to consider any extrinsic evidence unless so allowed

by the Parol Evidence Rule. The lower court did not find or declare any latent

ambiguity or other matter that might allow extrinsic evidence to be admitted into

evidence pursuant to the Parol Evidence Rule. In this regard, the two affidavits

submitted by the Appellee as summary judgment evidence were in violation of the

Parol Evidence Rule. One affidavit was from Daniel Serber Esq. , Appellee’s

attorney who drafted the Subscription Agreement. That affidavit was replete with

impermissible factual allegations, as well impermissible interpretation of the

meaning of the Subscription Agreement. The affidavit was largely lawyer

argument disguised as fact, and the statement of factual evidence not permissible

under the Parol Evidence Rule. Likewise, the other affidavit was from Andres

Klein, the agent of Appellee, who basically stated the same things as Serber. The

Serber and Klein affidavits were intended to corroborate each other.

Appellants filed a motion to strike the affidavits, but the lower court denied

the motion on the grounds that had not had yet read them. Subsequently, on

motion for reconsideration the lower court conceded that it had based it’s ruling

denying the Appellants’ motion for summary judgment as to count I and granting

the Appellee’s cross motion on count I, in part on the affidavits on matters that

were excluded by the Parol Evidence Rule. The interpretation of the Subscription

Agreement should be from within the four corners of the document.

-33-

CONCLUSION AS TO COUNT I

The lower court’s order granting summary judgment for Appellee as to Count

I and denying Appellants’ cross motion for summary judgment as to count I is

erroneous and must be reversed, and a judgment must be entered for Appellants

declaring that the Subscription Agreement is unenforceable and void ab initio

because there was no consideration to form a contract from the inception since

Appellee retained unto itself the option not to perform its promises under the

Subscription Agreement and because the Subscription Agreement was totally

executory as to the Appellee at the Subscription Agreement was terminated. And,

further order that the Appellee shall forthwith return to the Appellants their

payments totaling $3,295,000.00, along with pre and post judgment interest.

SUMMARY OF THE ARGUMENT - COUNT II - PENALTY CLAUSE

Assuming arguendo, that the Subscription Agreement is not an unenforceable

void contract, paragraph 13 of the Subscription Agreement which provides for

forfeiture of all Appellants’ payments totaling $3,295,000.00, is in any event an

unenforceable penalty clause. Under Florida law provisions of a contract which

act as a penalty or a deterrent under the guise of liquidated damages, are never

allowed, Goldblatt, infra.

The Florida Supreme Court has held that if damages are readily

ascertainable, or, if the amount to be forfeited is grossly disproportionate to the

-34-

damages that might reasonably be expected to follow from a breach thereby

showing an intention to induce full performance rather than to liquidate damages,

then a supposed liquidated damages clause must be stricken as a penalty clause.

In the instant case, the damages were readily ascertainable and the amounts

to be forfeited were grossly disproportionate to any reasonably expected damages.

Additionally, with respect to an intention to induce full performance rather than to

liquidate damages, in the instant case there is sworn testimony by the Appellee’s

attorney who drafted the Subscription Agreement, that Appellee’s intent was to

induce the Appellants full performance of the Subscription Agreement.

Accordingly, in the instant case not only is there circumstantial evidence of an

intent to induce full performance rather than to liquidate damages as elicited by

the two pronged test set out by the Florida Supreme Court, but there is also direct

sworn testimonial evidence that it was the Appellee’s intent to induce Appellants

to fully perform the Subscription Agreement.

Additionally, the terms of paragraph 13 of the Subscription Agreement

provided that all amounts paid by the Appellants from time to time during the

pendency of the Subscription Agreement were to be forfeited in the event of a

default regardless of what the actual harm was. Therefore, the Appellee could

collect more than the actual damages suffered. Paragraph 13 gave the Appellee

the potential for windfall profits, in that all of the Appellants’ payments were to be

-35-

forfeited regardless of the total amount of such payments, and regardless of how

the total of such payments relate to any reasonably expected damages. Further, the

Appellee was also allowed, pursuant paragraph 13 of the Subscription Agreement,

to sell the Appellants’ four units to replacement buyers without provision for any

credit or set off whatsoever to be given to the Appellants for amounts paid by

replacement buyers.

Discovery and investigation in this case uncovered that the Appellee realized

a windfall profit of $3,295,000.00 by keeping the Appellants payments because

Appellee had a replacement buyer for the four units Appellants were going to buy.

This Court has held that such a result is unacceptable and unenforceable as it

constitutes an award that is disproportionate to actual harm, operates as a penalty,

and is unconscionable under the circumstances.

In RKR Motors, Inc., infra, this Court held; “The prime factor in

determining whether such sum is a penalty or a forfeiture is whether the sum

named is just compensation for damages resulting from the breach.”

( emphasis original ).

Based on Florida law and the undisputed facts of this case, paragraph 13 of

the Subscription Agreement is an improper penalty clause.

-36-

ARGUMENT - COUNT II- PENALTY CLAUSE

Standard of review.

An order on a motion for summary judgment is reviewed de novo. Gomez v.

Timberoof Roofing Co., Inc. 4D14-4685 ( 2016 ); Weitz Company, LLC v. MCW

Acquisition, LLC, 116 So. 3d 623 ( Fla. 3 DCA 2013 ). rd

Review of an order interpreting a contract is also de novo. Jackson v.

Shakespeare Foundation, Inc., 108 So. 3d 587 ( Fla. 2013 ); Ortiz v. PNC Bank,

National Association, 188 So. 3d 923 ( Fla. 4 DCA 2016 ); Citimortgage, Inc. v.th

Turner, 172 So. 3d 502 ( Fla. 1 DCA 2015 ). st

This standard was well explained by the court in Gilman Yacht Sales, Inc. v.

FNB Investments, Inc. 766 So. 2d 294 ( Fla. 4 DCA 2000 ). The court stated:th

“The interpretation of a written contract is a question of law to be decided by the court. An appellate court is not bound to give the trial judge’s interpretation or construction of a contract any weighted presumption of correctness. To the contrary, a decision construing a contract is reviewable on appeal under a de novo standard of review, and therefore we are required to consider for ourselves anew the meaning of the disputed contractual language.” ( internal citations omitted )

Penalty clause.

Paragraph 13 of the Subscription Agreement operates as a penalty clause

although disguised as a liquidated damages clause. Paragraph 13 provides:

-37-

“If Subscriber fails to make the payments in the manner and the time as set forth in this Subscription Agreement, Subscriber shall be in default and ALL PAYMENTS made by Subscriber shall be retained by the Company as liquidated damages and ( not as a penalty ) and the Subscriber shall not be entitled to receive any distributions from the Company and shall lose all rights in the Company. In such case the Company may assign the unit assigned to Subscriber to another member.” (emphasis added ). Under Florida law provisions of a contract which act as a penalty or deterrent, are never allowed. Goldblatt v. C.P. Motion, Inc. 77 So. 3d 798, 801 ( Fla. 3 DCA 2011 ). rd

In Lefemine v. Baron, 573 So. 2d 326 ( Fla. 1991 ), the Florida Supreme Court held: “...this Court established the test as to when a liquidated damages provision will be upheld and not stricken as a penalty clause. First, the damages consequent upon a breach must not be readily ascertainable. Second, the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach as to show that the parties could have intended only to induce full performance, rather than to liquidate their damages.”

The damages consequent on a breach were readily ascertainable.

In “RECITALS” paragraph “A” of the Subscription Agreement it states that

the Appellee entered into an agreement with a third party to buy the Condominium

Property before it entered into the Subscription Agreement with the Appellants.

Moreover, the Subscription Agreement provides that the Condominium Property

units 101,102,103,and 104 were being sold to the Appellants for an aggregate

-38-

price of $5,650,000.00, plus a percentage share of closing costs.

Accordingly, at the time the Appellee entered into the Subscription Agreement

with the Appellants, the Appellee knew the purchase price it was to pay the third

party seller for the Condominium Property, and Appellee also knew how much the

Appellants were going to pay Appellee for the four units they were buying.

Since both the cost of the Condominium Property and the selling price of the

four units were known to the Appellee at the time the Subscription Agreement was

entered into, the damages were readily ascertainable at the time the Subscription

Agreement was entered into. To-wit; the lost profit on the sale of units101,102,

103, and 104 of the Condominium Property.

In RKR Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995

So. 2d 588 ( Fla. 3d DCA 2008 ), this Court found the argument that precise

damages were not readily ascertainable not to be persuasive, because preciseness

is not the legal standard. Rather damages must be readily ascertainable, and they

must compensate for actual damages resulting from the breach, and that a more

formulaic approach for calculating damages such as one for lost profit should have

been used.

The Appellee attempted to avoid the fact that the damages were readily

ascertainable by erroneously arguing in the lower court that there were

hypothetical and speculative other damages that could have been sustained

-39-

besides its lost profit on the four units being sold to the Appellants, and Appellee

argued that those damages were not readily ascertainable.

The Appellee made several specious arguments in this regard in the lower

court. Appellee argued that if 100% of the subscribers for all the units in the

Condominium Property did not make all of their respective payments when due,

the whole project could fall apart based on the way Appellee had structured the

deal, and that the Appellee could also lose a deposit it made to the third party

seller of the Condominium Property.

The Appellee attempts to hold each and every subscriber in the Condominium

Property responsible for all possible damages as to the whole project if any one of

the many subscribers failed to make a single payment when due. Such an

argument is ludicrous in the extreme.

Moreover, there is nothing in the form Subscription Agreement that would in

any way put the Appellants, or other subscribers, on notice as to any of these

hypothetical and speculative damages that the Appellee wants to hold them

responsible for.

There is absolutely no mention in the Subscription Agreement as to how the

Appellee structured the deal, and there is no mention of any of the terms and

conditions between the Appellee and the third party seller of the Condominium

Property. There was no way that the Appellants could have reasonably anticipated

-40-

or expected any damages except for possible lost profit on the four units they

were to purchase. And as far as lost profit on the four units is concerned, only the

Appellee would know what that would be, since the Appellee was the only one

who knew how much they were paying for the Condominium Property.

Additionally, the Appellee never told the Appellants anything that would

result in the Appellants knowing about any of the speculative and hypothetical

damages that the Appellee argues. In this regard, the summary judgment affidavit

of Appellant Shimon ( “Shimon affidavit” ) was corroborated by the deposition

testimony of Andres Klein a Manager and agent of Appellee.

The Shimon Affidavit stated: that she was never told about any of the terms

or conditions of the alleged agreement that Appellee supposedly had with a third

party to buy the Condominium Property; and, she was never told what the capital

contributions referred to in the Subscription Agreement were going to be used for;

and, she was never told that if every subscriber for all the units in the

Condominium Property did not make all their payments timely, that the Appellee

might not be able to buy the Condominium Property. Appellee’s Manager Andres

Klein, testified that he is the one who met with Appellant Shimon to sell her the

four units and he stated in his deposition testimony that he never told her any of

the things mentioned in Appellant Shimon’s affidavit . Andres Klein said he did

not think it was necessary to tell her such things.

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If the Appellee’s argument is given any credence whatsoever, then damages

would never be readily ascertainable according to the Appellee’s argument. There

could always be theoretical and speculative other damages, and they clearly would

never be readily ascertainable if one party never told the other party as to what

the damages might be under a potential or theoretical worst case scenario.

In the instant case, the damages if the Appellants did not close were readily

ascertainable at the time the Subscription Agreement was entered into, making

paragraph 13 of the Subscription Agreement an unenforceable penalty clause

pursuant to the holding in Lefemine, supra.

The sum forfeited was grossly disproportionate to reasonably expected damages.

The Florida Supreme Court in Lefemine, supra, is clear that the sum

stipulated to be forfeited must not be grossly disproportionate to damages that

might reasonably be expected to follow from a breach that shows the parties

intended to induce full performance, rather than to liquidate damages.

For the reasons stated hereinabove, it is clear that the Appellants had no

knowledge of, and could not have reasonably expected any of the theoretical and

hypothetical damages the Appellee argues. The only damages that could be

reasonably expected was loss of a profit on the four units the Appellants were

going to purchase.

In the instant case the forfeited amount exceeds 58% of the purchase price.

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When a supposed liquidated damages amount exceeds 10% of the purchase price,

it is suspect as being a penalty to induce performance rather than a bona fide

attempt to liquidate damages. Also, amounts of 50% or more of the purchase price

almost always are held to be penalty clauses. Berndt v. Bieberstein, 465 So. 2d

1264 ( Fla. 2d DCA 1985 ) disallowing alleged liquidated damages of over 55% of

the purchase price. Retaining 50% of the purchase price paid as a deposit was

shocking to the court. McNorton v. Pan Am. Bank of Orlando, 387 So. 2d 393

( Fla. 5 DCA 1980 ). Also see, Hot Developers, Inc. v. Willow Lake Estates, Inc.,th

950 So. 2d 537 ( Fla. 4 DCA 2007 ) for a review by the court of various caseth

findings as to the percentage range for liquidated damages versus a penalty.

With respect to an intention to induce full performance rather than to

liquidate damages, in the instant case there is sworn testimony by the Appellee’s

attorney who drafted the Subscription Agreement, that Appellee’s intent was to

induce the Appellants full performance of the Subscription Agreement.

( DT Daniel Serber, Esq. , SR. 9, pp. 1256-1524; App. 9 ). So, in addition to the

circumstantial evidence from the two pronged test created by the Florida Supreme

Court in Lefemine, supra, there is the direct evidence of the intent to induce full

performance by the attorney who drafted the Subscription Agreement.

Additionally, Paragraph 13 of the Subscription Agreement calls for the forfeiture

of all payments made by the Appellants and therefore the forfeiture amount, by

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definition, cannot in any respect relate to reasonably expected damages. Pursuant

to the provisions of paragraph 13 of the Subscription Agreement the amount to be

forfeited could vary from -0- to $5,650,000.00, because it arbitrarily depends on

the total of all payments made at time of default.

The Subscription Agreement required the Appellants to pay a larger and

larger amount of the purchase price as time passed even though the Subscription

Agreement remained totally executory on the part of the Appellee, and required no

action or obligation whatsoever on the part of the Appellee as more and more

payments were required to be made. As more payments were made, they all

became subject to potential forfeiture under paragraph 13, and the more motivated

the Appellants would become to fully perform the Subscription Agreement, or

said another way, the more of a deterrent it became for the Appellants not to fully

perform the Subscription Agreement. Such a provision is an illegal penalty to

coerce and induce full performance.

Such a supposed “liquidated damages” formula has absolutely no relationship

whatsoever to any reasonably expected actual damages, but it is simply a method

of inducing full performance. This point is brought into sharp focus by the fact

that the Appellants made an extra payment of $1,600,000.00 on November 11,

2013 which was not due under the Subscription Agreement until the final payment

was due. Had the early payment not been made by the Appellants on November

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11, 2013, then at the time of the alleged default on December 16, 2013 the

liquidated damage amount under paragraph 13 would have been $1,695,000.00

instead of $3,295,000.00. This is so, because had the early payment not been made

the total of the prior payments paid under the Subscription Agreement would have

been $1,695,000.00 and not $3,295,000.00.

The liquidated damages amount is unconscionable under the circumstances.

Assuming arguendo, that paragraph 13 is otherwise enforceable, this Court,

as well as others, have held that equity will relieve against its enforcement when

the liquidated damages amount is unconscionable under the circumstances. RKR

Motors, Inc. v. Associated Uniform Rental & Linen Supply, Inc. 995 So. 2d 588

( Fla. 3d DCA 2008 ); Hutchison v. Tompkins, 259 So. 2d 129 (Fla. 1972 );

Coleman v. B.R. Chamberlain & Sons, Inc., 766 So. 2d 427 ( Fla. 5 DCA 2000 );th

Perez v. Aerospace Academy, Inc., 546 So. 2d 1139( Fla. 3d DCA 1989 ).

The Appellants’ claims in this case were brought in law and equity pursuant

to Chapter 86, Florida Statutes. Accordingly, equitable relief is proper and

appropriate in this case. Notwithstanding that the Appellee attempted to hide

material facts from the lower court, Appellants and Appellants’ counsel, such

hidden facts were ultimately discovered and are in the record.

In this regard, the Appellee and its counsel caused two affidavits to be filed in

support of and in opposition to the cross motions for summary judgment filed by

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the parties as to counts I and II. One affidavit was from Daniel Serber, Esq. the

attorney for the Appellee who drafted and prepared the Subscription Agreement

and handled all legal matters pertaining to the Condominium Property project .

The second affidavit was from Andres Klein, an agent of the Appellee. The

following statement is in paragraph 31 of both the Serber and the Klein affidavits:

“ The closing of the Property acquisition occurred on February 28, 2014, using funds received from all the Subscribers, plus additional funding secured by the Class B Member to complete the shortfall created by Plaintiff’s default.”

Upon investigation, Appellants filed and served a request that the lower

court take judicial notice of certain documents filed in the public records of

Miami-Dade County, Florida by the Clerk of Courts. ( R. vol. 4, pp. 581-684 ).

Based on the documents filed and served for which the lower court was required to

take judicial notice, several important facts were determined.

First, the deed into the Appellee for the Condominium Property was

recorded February 28, 2014 and corroborates part of the statement in paragraph 31

of the Serber Affidavit and the Klein Affidavit that; “The closing of the Property

acquisition occurred on February 28, 2014...” Based on the documentary tax

paid, as certified on the deed by the Clerk of Courts, Appellee paid the third party

seller $23,750,000.00 for the Condominium Property. Since the Appellee

represents that it had previously paid a $1,100,000.00 deposit to the third party

seller, and since the Subscribers paid all closing costs in addition to the purchase

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price of their respective units, the Appellee needed $22,650,000.00 to pay the

purchase for the Condominium Property on February 28, 2014.

Secondly, on March 3, 2014, Appellee recorded the deeds whereby Appellee

conveyed to the various subscribers their respective units in the Condominium

Property ( including the replacement buyer for the Appellants’ units 101,102,103,

and 104 ), for an aggregate sales price, exclusive of the additional amounts paid by

the subscribers for closing costs, of $32,029,625.00. Again the sales price was

determined from the documentary tax amounts paid as certified on the deeds by

the Clerk of Courts. This means that the Appellee had $9,379,625.00 more than it

needed to close on the purchase of the Condominium Property. And, if you add to

that the $3,295,000.00 that the Appellee kept and did not give back to the

Appellants, then the Appellee had $35,324,625.00, which is $12,674,625.00 more

than it needed to purchase the Condominium Property.

Third, the replacement buyer for units 101,102,103, and 104 which were the

units the Appellants were going to buy, paid the Appellee $5,500,000.00 for those

four units, with that purchase price being determined from the documentary tax

shown as paid on the deed to the replacement buyer as certified by the Clerk of

Courts. This resulted in a windfall profit to the Appellee of $3,295,000.00 on the

sale of 101,102,103, and 104. That is, Appellants $3,295,000.00 that Appellee

wrongfully kept. Despite the efforts by the Appellee to conceal the facts, the

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record is clear that not only did the Appellee not have any actual damages in the

instant case, but Appellee realized a windfall profit.

In RKR Motors, Inc., supra, this Court stated; “The prime factor in

determining whether such sum is a penalty or a forfeiture is whether the sum

named is just compensation for damages resulting from the breach.”

( emphasis original ).

There is nothing just and proper about the Appellee keeping the Appellants

$3,295,000.00 under the facts and circumstances of this case. And, it is submitted

that the Appellee completely understood that it was improper and unjust for it to

keep the Appellants money, and that is why Appelleedid not disclose and

attempted to conceal the fact that the Appellee had a replacement buyer who had

paid Appellee in full before the Appellee ever purchased the Condominium

Property.

CONCLUSION AS TO COUNT II

The lower court’s order granting summary judgment for Appellee as to Count

II and denying Appellants’ cross motion for summary judgment as to count II is

erroneous and must be reversed, and a judgment entered for Appellants declaring

that paragraph 13 of the Subscription Agreement is unenforceable as a penalty

clause because damages were readily ascertainable, and because the amount

forfeited in excess of 58% of the purchase price shows, along with other evidence,

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that the intent was to induce full performance of the Subscription Agreement

rather than to liquidate damages, and because forfeiture of Appellants

$3,295,000.00 is unconscionable under the facts and circumstances of this case.

And, further order that the Appellee shall forthwith return to the Appellants their

payments totaling $3,295,000.00, along with pre and post judgment interest.

Respectfully submitted, RICHARD J. LEE, P.A. 3230 Stirling Road Suite 1 Hollywood, Florida 33021 305-598-0816 Email: jurist@bellsouth.net Co-Counsel for Appellants

By: Richard J. Lee SS/ FBN 230162

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing was served viaemail on this 27th day of December, 2016 to: Jonathan A. Heller, P.A.,jonathan@hellerlaw.com, albert@hellerlaw.com, snoal@hellerlaw.com; and to JayM. Levy, P.A., jay@jaylevylaw.com; wendy@jaylevylaw.com.

Richard J. Lee SS/ RICHARD J. LEE

CERTIFICATE OF COMPLIANCE

I HEREBY CERTIFY that this Initial Brief is prepares in Times New Roman 14 -point font.

Richard J. Lee SS/ RICHARD J. LEE

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