Continuing from my last post, this post (also excerpted/adapted from my CLE presentation o the Florida Bar Appellate Practice Section) outlines some unique legal issues that arise in foreclosure appeals.  

Attorney’s Fees

Particularly in residential mortgage cases, fee structures in foreclosure appeals can be different from other cases. On both sides of the aisle, flat fee arrangements are much more common than in other types of civil cases, and reduced hourly rate arrangements are also prevalent.

Successful clients also have the opportunity to collect fees from the opposing party. Most mortgages and loan documents include a prevailing party attorney’s fee provision, generally specifying only that the lender can recover its fees. But borrowers can recover their fees as well.

In Nudel v. Flagstar Bank, FSB, 60 So. 3d 1163 (Fla. 4th DCA 2011), the 4th District Court of Appeal held that under §57.105(7), such provisions in mortgages are deemed to provide for attorney’s fees to foreclosure defense counsel as well as plaintiffs’ counsel. And under §59.46, prevailing party fees are deemed to apply to appellate fees for the prevailing party on appeal. However, when cases are remanded for further proceedings (one of two possible results of a reversal, as will be discussed), appellate fees to appellants are generally awarded conditioned on ultimately prevailing in the litigation.

Whether charging a flat fee or hourly fee, lawyers need to be aware that they have the same obligation to justify the reasonableness of their fees. In Raza v. Deutsche Bank Nat’l Trust Co., 100 So. 3d 121 (Fla. 2d DCA 2012), the 2nd DCA cautioned that even when charging a flat fee, counsel cannot establish the reasonableness of its fees without satisfying the requirements of Florida Patient’s Compensation Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985), to show a reasonable number of hours spent at reasonable rates.

Stays Pending Review

As mentioned earlier, we’ve seen many recent published opinions about many aspects of foreclosure litigation. One area where the DCAs have been very quiet, however, is regarding stays pending review in foreclosure cases. In fact, I’m not aware of any new precedent addressing stays pending review in the foreclosure context.

That is surprising. Chief among the concerns of many appellant foreclosure defendants is to retain their property pending the outcome of the appeal. The dearth in case law may be partly attributable to the fact that in many cases, plaintiffs will opt to postpone the sale until after the appeal is resolved, thereby avoiding the complications that can arise if the judgment is reversed after the property is sold to a third party, as well as the possibility that the cloud of the pendency of the appeal will drive down the amount potential buyers are willing to pay for the property. 

When the plaintiff chooses to go ahead with the sale while the appeal is pending, and the defendant seeks a stay, the only guidance comes from older cases addressing stays pending review in foreclosure cases.

Since a foreclosure judgment is not a judgment “solely for the payment of money,” a defendant cannot obtain an automatic stay by posting a bond for the amount of the judgment plus twice the statutory rate of interest under Rule 9.130(b)(1). As a practical matter, most foreclosure defendants would be unable to afford such a bond in any event.

So Rule 9.310(a) governs, making it discretionary with the court based on likelihood of success and likelihood of harm. Courts can also require a bond. But what is the appropriate amount of a bond?

According to the 3rd DCA in Fidelity & Deposit Co. v. Atlantic National Bank, 234 So. 2d 736, 738 (Fla. 3d DCA 1970), it’s not the difference between the market value of the property and the amount of the final judgment. So how should the amount be set?

The best indication may come from the 4th DCA’s decision in Cerrito v. Kovitch, 406 So. 2d 125, 127 (Fla. 4th DCA 1981), in which the court said it could not determine the propriety of the amount of the bond because:

No facts have been brought forward to this Court establishing the present fair market value of the property, the extent of other liens, if any, or waste or other damages which may be occasioned by delay. The trial court, on remand, will necessarily consider each of those factors and perhaps others in determining the amount of bond and conditions to be imposed.

That statement, too, is pretty vague, though. So the law remains unclear as to the appropriate amount of the bond.

Or perhaps it’s more accurate to say that it remains within the discretion of trial court judges. And there is considerable variation among trial judges. Some will grant a stay conditioned on posting a bond equal to what it costs to maintain the property for one year. Others will not grant a stay unless a bond is posted for the full amount of the judgment. Until a new published opinion is issued on this issue, expect the variance to persist. 

Bankruptcy

In the absence of a stay pending appeal, some foreclosure defendants who are appealing the final judgment file for bankruptcy to stop the public sale of their properties. (I wouldn’t deem to judge whether that is proper from a bankruptcy perspective, but it is certainly not uncommon.)

The question that is of interest to appellate lawyers is what effect does a debtor’s bankruptcy filing have on the defendant/debtor’s appeal? The answer, in Florida, depends on where the appeal is pending.

After the Bankruptcy Code was revised in the early 80s, the 3rd DCA was the first DCA to weigh in on the issue in Shop in the Grove, Ltd. v. Union Federal Savings & Loan Association of Miami, 425 So. 2d 1138 (Fla. 3d DCA 1982), and held that where the debtor is the appellant, proceeding with the appeal is not affected by the automatic stay of the bankruptcy code, and the appeal proceeds as if bankruptcy had not been filed. The 3rd DCA continues to adhere to Shop in the Grove today.

By contrast, the 1st DCA, in Taylor v. Barnett Bank, N.A., 737 So. 2d 1105, 1105 (Fla. 1st DCA 1998), the 2nd DCA, in Crowe Group, Inc. v. Garner, 691 So. 2d 1089 (Fla. 2d DCA 1993), and the 4th DCA, in Florida Eastern Development Co., Inc. of Hollywood v. Len-Hal Realty, Inc., 636 So. 2d 756 (Fla. 4th DCA 1994), have held that the automatic stay applies to the appeal even when the debtor is the appellant. The 4th DCA had initially adopted the view expressed in the 3rd DCA’s Shop in the Grove decision, but later reversed course based on developments in federal case law on the issue. I’m not aware of a published opinion from the 5th DCA on this issue.

Despite the 20+ year persistence of the intra-district conflict on this issue, the Florida Supreme Court has yet to weigh in to resolve it. So while a defendant’s bankruptcy filing may temporarily delay the public sale of the property, it does not substitute for a stay pending review, because no review can happen while the stay is in place. Except in the 3rd DCA. 

Effect of Reversal

Most stays pending review are obtained by agreement between the plaintiff and defendants. One reason foreclosure plaintiffs may agree to such stays is due to the consequences of the judgment being reversed after the property has been sold and title transferred.

If there is no stay, the sale takes place and the property is sold to a third party, and the judgment is subsequently reversed on appeal, what happens to the property? Here again, we do not have the benefit of a recent published opinion.

In 2013, the legislature enacted §702.036, under which if a final judgment of foreclosure is set aside, property that has been acquired from a third party cannot be returned to the borrower. There is a misconception that this statute resolved the issue by entitling third party buyers to retain the property if the final judgment is reversed.

But by its terms, the statute appears to apply only to requests to set aside a final judgment after “[a]ll applicable appeals periods have run as to the final judgment of foreclosure of the mortgage with no appeals having been taken or any appeals having been finally resolved,” i.e., when a Rule 1.540 motion to set aside a final judgment is brought, not when the judgment is reversed on direct appeal from the final judgment.

So the issue of whether a property purchased by a third party must be returned to the defendant upon reversal of the final judgment remains open. According to some old cases, it appears the property must be returned to the borrower. In a 1941 case, Bridier v. Burns, 4 So. 2d 853 (Fla. 1941), the Florida Supreme Court held that:

When a foreclosure sale is set aside by an order of court for any fatal irregularity, the title acquired by the purchaser is thereby vacated. The law subrogates the purchaser at the void foreclosure sale to all the rights of the mortgagee in the indebtedness and the mortgage securing the payment of the same.

The court further held that the purchaser should be reimbursed for improvements he/she/it may have made to the property in the interim.

In an even older case, Macfarlane v. Macfarland, 50 Fla. 570, 580-81, 39 So. 995, 998 (1905), the Florida Supreme Court held that any “rents and profits” the purchaser made from the property while it was in his/her/its possession should be offset against the amount to be repaid to the purchaser due to the property reverting to the borrower.

But other cases, such as Sundie v. Haren, 253 So. 2d 857, 859 (Fla. 1971), suggest that when a defendant’s property is purchased by a third party and the final judgment is reversed, the third party retains title to the property, with the defendant entitled to receive only monetary compensation. In the absence of recent precedent on this issue, the issue remains open for the time being.

The Florida Supreme Court has acted quickly in response to the Florida Legislature’s June 2011 amendments to Florida’s Probate Code, which include some major departures from existing law.  Because the Code amendments also became effective as soon as the Governor signed them — even applying retroactively to pending cases — the Court immediately adopted a fast-track proposal by the Probate Rules Committee.

Florida lawyers that represent clients in probate cases would be wise to become familiar with the amended Rules.  To that end, here’s a cheat sheet of the Code amendments and corresponding Probate Rule changes (as well as changes to the Rules that weren’t prompted by legislative action).

Statutory Changes: Reformation.

The Code amendments allow two new types of petitions to reform a will.

The first and most drastic change, codified at Florida Statutes Section 732.615, allows for reformation of a will even if its language is unambiguous, where a petitioner proves through clear and convincing evidence that a provision was premised on a mistake of fact or law and is contrary to the intent of the testator.  Check out Craig Dreyer‘s post on Clark Skatoff‘s Florida Probate, Trust & Estate Blog for a more detailed explanation of this amendment.

The second, codified at Florida Statutes Section 732.616, allows for modification of the terms of a will “to achieve the testator’s tax objectives” so long as doing so “is not contrary to the testator’s probable intent.”    

Corresponding Rule Changes:  Adversary Proceeding Rules apply to reformation cases and cases involving pretermitted shares, but not to fee awards.

Rule 5.025 was amended to make all actions for reformation Adversary Proceedings to which Rule 5.025, and the Florida Rules of Civil Procedure, apply.  Although there were no corresponding statutory changes, this Rule was also amended to require that actions regarding pretermitted shares will now be treated as Adversary Proceedings. 

Rule 5.025(d)(2) was also amended to clarify that in all adversary proceedings, fee and cost awards are governed by the Probate Rules and decisions, not the Rules of Civil Procedure. 

Statutory Changes:  The Fiduciary Exception to the Attorney Client Privilege No Longer Applies.

In Florida, as elsewhere, the fiduciary exception to the attorney-client privilege had allowed beneficiaries of wills and trusts to obtain documents in discovery that reflected legal advice given to their fiduciaries.  That is because any legal advice that a fiduciary obtains has traditionally been considered to have been obtained for the benefit of the persons for whom the person was acting as a fiduciary (e.g., the beneficiaries of a trust when a trustee obtained legal advice regarding administration of the trust.)

But the legislature overruled that common law exception in the newly created Florida Statutes Section 90.5021, which makes communications between an attorney and a fiduciary “privileged and protected from disclosure under s. 90.502 to the same extent as if the client were not acting as a fiduciary.”  At the same time, the legislature amended Florida Statutes Section 733.212(2)(b) to require that Notices of Adminstration include a statement informing beneficiaries that “that the fiduciary lawyer-client privilege in s. 90.5021 applies with respect to the personal representative and any attorney employed by the personal representative.”

[Side note: Is it just me, or does giving this notice seem like a waste of ink?  If the beneficiary has a lawyer, the lawyer should already know that the fiduciary exception has been abolished (especially if he/she reads this blog!) and if the beneficiary does not have a lawyer, how likely is he/she to even know that the fiduciary exception ever existed, much less to understand the implication of its abolishment?]

Corresponding Rule Change:

The only change resulting from these amendments to the Probate Code is a minor change to Rule 5.240, which implements the Notice of Administration requirements of Section 733.212.  Rule 5.240(b)(2) was amended so that, consistent with the amendment to Section 733.212(2)(b), it now requires that Notices of Administration include a statement about the fiduciary’s communications with counsel being privileged.

 

That should cover it.  Note that the Rules amendments may be further revised based on comments submitted to the Court, which were not solicited prior to the changes becoming effective due to their fast track nature, but are being accepted until November 28, 2011.  However, because the statutory amendments aren’t going away, the corresponding Rules changes aren’t likely to be revised much either. 

Statutory changes of this magnitude, especially when made applicable to pending cases, usually result in more than a little confusion and much litigation over issues the legislature never even anticipated.  We can look forward to some interesting probate litigation and a good deal of uncertainty, at least until the appellate courts sort out these amendments.    

Losing at trial hurts. Getting hit with the bill for your adversary’s attorney’s fees makes it hurt ever-so-much more. That’s why fee-shifting under Florida Statutes Section 768.79 — available to parties that make a proposal for settlement under Rule 1.442 — can be such a powerful tool. It’s probably also why lawyers who refuse an offer for settlement – and get burned – fight so hard to avoid the consequences.

Many courts, including the Florida Supreme Court, aren’t too keen on this kind of fee-shifting either. Although common in many foreign legal systems, fee-shifting is an exception to the so-called “American Rule” that each party generally bears its own fees. That – and the fact that Rule 1.442 and Section 768.79 can be used to play “gotcha” – explains the judicial resistance.

Thus, Rule 1.442 in its current form contains very precise requirements for what must be included in a settlement proposal. Under longstanding precedent, specificity is required as to each of the required elements, and any ambiguity can nullify fee-shifting.

Proposals to settle the claims or liabilities of multiple parties, known as “joint proposals”, have proven particularly troublesome. Subsections (c)(3) and (c)(4) of Rule 1.442 specify how the Rule applies to such proposals:

3) A proposal may be made by or to any party or parties and by or to any combination of parties properly identified in the proposal. A joint proposal shall state the amount and terms attributable to each party.

(4) Notwithstanding subdivision (c)(3), when a party is alleged to be solely vicariously, constructively, derivatively, or technically liable, whether by operation of law or by contract, a joint proposal made by or served on such a party need not state the apportionment or contribution as to that party. Acceptance by any party shall be without prejudice to rights of contribution or indemnity.

Do Florida Supreme Court Decisions Make Joint Proposals Impossible?

The Florida Supreme Court has addressed these subsections in a series of cases since the current form of the Rule was adopted in 1996. It has concluded that a settlement offer made by or to multiple parties must always specify the amount attributable to each party, so that each party can individually decide whether to accept or reject the offer.

In a 2005 case, Lamb v. Matetzschk, 906 So. 2d 1037, the Court held that even in vicarious liability cases (to which subsection (c)(4) applies), a plaintiff’s offer to multiple defendants must still specify the amount attributable to each defendant. Then last year, in Attorneys’ Title Insurance Fund, Inc. v. Gorka, 36 So. 3d 646 (Fla. 2010), the Court held that a joint proposal from a defendant to multiple plaintiffs must allow each plaintiff to individually decide whether to settle.  So a proposal can’t condition the settlement of one plaintiff’s claims on the other’s agreement to settle as well.

In the wake of these cases, the 1st DCA recently wondered aloud [in Schantz v. Sekine, 60 So. 3d 444 (Fla. 1st DCA 2011)] whether a joint proposal to multiple plaintiffs can ever satisfy Rule 1.442. Agreeing with Justice Polston’s suggestion in his Gorka dissent, the Court lamented that the decision’s practical effect was to excise joint proposals from Rule 1.442 entirely.

Can A Proposal Release Claims Against Multiple Parties Without Being a Joint Proposal?

But pending word from the Florida Supreme Court (which is likely within the next year), there’s at least one context in which claims against multiple parties can be released in a single settlement proposal.  Relying on 2009 decisions of the 3rd and 4th DCAs, the Fifth District recently held in Andrews v. Frey, No. 5D10-2068 (released on July 29, 2011), that if one defendant is only alleged to be vicariously liable for the acts of a primary defendant, a settlement proposal by the primary defendant can provide for the release of the vicarious defendant as well.

Of course the 5th DCA didn’t characterize the proposal as a “joint proposal.”  Indeed, the court framed the dispositive issue as whether in that particular context, the proposal made by a single defendant, but requiring the release of a second defendant, is a “joint proposal” under Rule 1.442. The 5th DCA found that it was not, so the offering party was entitled to collect attorney’s fees after the trial resulted in a verdict of less than the amount offered in the settlement proposal. But since it wasn’t a “joint proposal,” the vicariously liable party, who would also have been released under the proposal, was not entitled to attorney’s fees.

Will the Supreme Court Embrace Individual Proposals That Release Multiple Parties?

Despite the holding in Andrews, fee-shifting based on these multi-party release, individually offered, settlement proposals may not survive for very long.  Andrews itself may end up in the Florida Supreme Court, as the 5th DCA certified  the question of whether a proposal made by one party that requires a release of claims against multiple parties is in fact a “joint proposal” under Rule 1.442(c)(3).

And the same question is included among three certified to the Florida Supreme Court by the 11th Circuit in Auto-Owners Insurance Co. v. Southeast Floating Docks, Inc., 632 F.3d 1195 (11th Cir. 2011), which the Court has set for oral argument on October 4, 2011. With 3 certified questions at issue, it’s possible that the Court may not reach the question that the 5th DCA was concerned with.  It’s also possible that the Court will reframe the certified questions.

And, of course, it’s possible that the Court will answer the question, but will be fine with imposing attorney’s fees on parties that refuse an individual proposal that requires a release of multiple parties. I wouldn’t count on it, though.