SUBSEQUENT PURCHASER OF HOME COMPELLED TO ARBITRATION BASED ON COVENANT RUNNING WITH THE LAND

Arbitration provisions are creatures of contract and courts should indulge reasonable presumptions in favor of requiring parties to arbitrate.   Keep this in mind when agreeing to an arbitration provision or trying to navigate around an arbitration provision.

 

An example of a court indulging a reasonable presumption in favor of arbitration can be found in the Second District Court of Appeal’s decision in Hayslip v U.S. Home Corp., Fla. L. Weekly D1798a (Fla. 2d DCA 2019) involving a subsequent purchaser of a home suing the homebuilder for construction defects.

 

The original owner purchased the home from the homebuilder. The home was conveyed with a special warranty deed recorded in the official records. (The deed was executed by the seller, not the original owner as the buyer, per Florida law.) The special warranty deed stated that all covenants and conditions in the deed run with the land including a dispute resolution provision that required mediation as a condition precedent to binding arbitration.

 

The original owner sold the property to the subsequent purchaser.  The subsequent purchaser then sued the homebuilder for construction defects (building code violations).  The homebuilder moved to compel arbitration pursuant to the special warranty deed arguing that since the arbitration provision was a covenant running with the land it would extend to the subsequent purchaser.  The Second District agreed; even though the subsequent purchaser was not a party to the original transaction, since the arbitration provision in the special warranty deed was a covenant running with the land that the subsequent purchaser would have notice of, the subsequent purchaser would be bound by the arbitration provision.

 

Here, it is undisputed that the [subsequent purchasers] were on notice of the original special warranty deed’s covenants and restrictions, and by taking title to and possession of the home, they acquiesced to the arbitration provision.  Further, Florida law does not require that the home buyer sign the warranty deed in order to be bound by it. 

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A real covenant, or covenant running with the land, differs from a merely personal covenant in that the former concerns the property conveyed and the occupation and enjoyment thereof, whereas the latter covenant is collateral or is not immediately concerned with the property granted.

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[T]he performance of the covenant here affects “the occupation and enjoyment” of the home…as it dictates the means by which the [subsequent purchasers]  must seek to rectify building defects related to the home. Not only is the covenant triggered when an apparent defect in the home is realized and the homeowners seek recourse from the builder, but the outcome of the arbitration proceeding necessarily impacts the home as well. Thus, the arbitration provision touches and concerns the property itself. 

Hayslip, supra (internal quotations and citations omitted).

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

EQUITABLE DOCTRINE OF ESTOPPEL CAN DEFEAT ARGUMENT FOUNDED ON LEGAL TECHNICALITY

Arguing a legal technicality, even if one hundred percent right, does not always work, especially when you may have reaped the benefits of the same technicality.  This is because there is a legal doctrine known as estoppel that is based on principles of equity.   

 

Estoppel is an equitable doctrine based on principles of fair play and essential justice and arises when one party lulls another party into a disadvantageous position. Estoppel has been defined as the preclusion of a person from asserting a fact by previous conduct inconsistent therewith, on his own part, or part of those whom he claims.

Pipeline Contractors, Inc. v. Keystone Airpark Authority, 44 Fla. L. Weekly D1762a (Fla. 1stDCA 2019) (internal citations and quotations omitted). 

 

For example, in Pipeline Contractors, a special district (airport authority) hired a contractor to construct new airport facilities.  A payment dispute arose and the contractor sued the airport authority and the airport authority counter-sued the contractor and the contractor’s performance bond surety for construction defects.  Not a lot happened in the case for five-to-six years before the contractor filed a motion for summary judgment that the airport authority was not a proper special district under Florida law and, therefore, did not have the capacity to enter into the underlying contract, sue, or be sued.  In making this argument, the contractor was acknowledging that not only could the airport authority not sue it or its surety, but it also could not sue the airport authority.  Clearly, the contractor was angling for the walk-away.

 

The contractor and its performance bond surety’s argument was based on a technicality in the law, that being that the airport authority was formed only by a city when it needed to be formed by Florida’s Legislature.  (The airport authority was not properly formed under the law.). Due to this improper formation, the airport authority could not legally enter into the construction contract, could not sue the contractor or the surety, and the contractor could not sue it.

 

The trial court, as affirmed by the appellate court, did not buy the contractor’s argument based on the equitable doctrine of estoppel.  Putting aside that the contractor waited many years after it initiated the lawsuit to raise this argument, the contractor reaped the benefit of the technicality as it received payment for construction improvements it performed for the airport authority (regardless of whether it was improperly formed under Florida law).

 

“Here [contractor] treated [the airport authority] as if it were a properly organized entity with no issues of capacity for most of the parties’ relationship.  [Contractor] performed (at least in part), accepted payment on the contract, and engaged in years-long litigation with [the airport authority].  Only after all that did [contractor] assert any issues of capacity.  Because they accepted the benefits of the contract through payment from [the airport authority], [contractor and its surety] were properly estopped from raising the argument that the contract was void in an attempt to avoid the burdens of the contract embodied by [the airport authority’s] claims against them.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

ATTORNEY’S FEES FOR LITIGATING THE AMOUNT OF ATTORNEY’S FEES

Attorney’s fees’ provisions are common in construction contracts.  They are an important provision if you want to create a contractual entitlement to recover your attorney’s fees in the event there is a contractual dispute.  Presuming you prevail on the significant issues of your dispute and are entitled to attorney’s fees, there is an evidentiary hearing as to the reasonableness of attorney’s fees — both as to the reasonableness of the hours expended and of the hourly rates.   Generally, the attorney’s fees incurred in litigating the amount of attorney’s fees is not recoverable.  This is oftentimes referred to as “fees on fees.”  With that said, such fees on fees can be recoverable if the contractual provision is drafted broad enough to allow the prevailing party to recover reasonable attorney’s fees including fees incurred in litigating the reasonable amount of fees.   If you want to recover fees on fees, you will want to include this language in your construction contract.  For more information on this issue, please check this article.   

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

INTERPRETING THE LANGUAGE IN AN INSURANCE POLICY

Lawsuits by an insured against an insurer that include a claim for declaratory relief are common when an insurer denies coverage.   The insured will argue that there are ambiguities in the policy.  One argument may pertain to the use or definition of a term (or language) in the policy that is not defined in the policy. Another argument may pertain to an exclusion or limitation in the policy that ultimately renders insurance coverage illusory.  

 

 

[I]n construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning and operative effect.  When the language of an insurance policy is clear and unambiguous, a court must interpret it according to its plain meaning, giving effect to the policy as it was written.  A policy term is not ambiguous simply because it is complex or requires analysis. 

Arguelles v. Citizens Property Insurance Corp., 44 Fla. L. Weekly D1726a (Fla. 3d DCA 2019) (internal quotations and citations omitted).

 

When a term in an insurance policy is not defined in the policy (and there is an argument that there is an ambiguity), a court may look to dictionary definitionsId. (looking to dictionary definition of the term “reside” which was not a defined term in the policy).  This is because a dictionary definition contains a common acceptance of the meaning of the word.  Id.  

 

If a limitation or exclusion completely swallows up an insuring provision, then there is an argument that coverage is illusoryId. citing Warwick Corp. v. Turetsky, 227 So.3d 621, 625 (Fla. 4thDCA 2017).   “When limitations or exclusions [in the policy] completely contradict the insuring provisions, insurance coverage becomes illusory.”  Purrelli v. State Farm Fire and Cas. Co., 698 So.2d 618 (Fla. 2d DCA 1997). 

 

It is important to work with counsel when dealing with an insurance coverage dispute.  Counsel will help you maximize insurance coverage based on the facts and the law.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.