Florida Community Association Construction Law Blog : Sarasota Construction Lawyer & Attorney : Tannenbaum Scro Law Firm : Florida, Tampa Bay

Most owners hire a general contractor for major repair projects based upon the track record of that contractor on similar projects.  But the reality for most general contractors is that performance varies from job to job.  Although there are a variety of possible causes for this variability, perhaps the most significant is the fact that different project superintendents and subcontractor crews show up to undertake one project versus another.  In essence, although your contract is with the "company", the odds of securing peak performance on your job is highly dependent on the particular superintendent and subcontractor crews who are assigned to your job.

In one job our firm was involved in (after the fact), it was disclosed in the course of discovery that the superintendent involved had been hired by the general contractor a week before the job began and was fired at the conclusion of the job.  In the end, the job in question ended up being the "tryout" with the company for this superintendent, a "tryout" that did not fare well, much to the detriment of the owner.

An owner can leave it to the discretion of the general contractor to assign the project superintendent and subcontractors for their job, hoping that the general contractor will assign their best superintendent and subcontractors.  But there is an option.  As part of the bid process, an owner can require that the bidders provide the resumes of the superintendents on their staff, as well as the subcontractors anticipated to be utilized for the job.  In inquiring of references, the owner can ask the references who the assigned superintendent and subcontractors were for their job.  If the owner wants to be even more in depth, it can inquire about who the crew chiefs were for the subcontractors on the other jobs.

Having vetted the available superintendents and subcontractors, it then becomes possible in the negotiation of the general contract to designate a particular project superintendent and particular subcontractors whom the general contractor must utilize for the performance of the work.  A provision could be added to the effect that if the general contractor due to exigencies outside of its control is required to replace that superintendent or certain subcontractors, the general contractor be obligated to find suitable replacements subject to the approval of the owner.  The result - - the owner has greater assurance that the best team the general contractor has to offer shows up to perform their job.

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On July 1, 2011, a new law took effect in regards to persons who provide mold related services.

The law provides a distinction between persons who provide mold assessment services and mold remediation services.

With the intent to protect the safety and welfare of the public the legislature has determined that persons who provide these services must be regulated by the state.

It is now law, with limited exceptions, that a person may not perform a mold assessment or mold remediation unless the person has among other things received substantial training in water, mold and respiratory protection, possess good moral character and pay a fee.

Because of the potential for a conflict of interest between these two types of services the law now provides several restrictions on providing these types of services. As an example the law states that persons who provide mold assessment services may not within a period of 12 months perform or offer to perform mold remediation on the same structure. The law further states that mold assessors may not accept or offer compensation to or from a mold remediator for the referral of business.

These restrictions are also provided in the reverse such that a mold remediator may not offer or perform assessment services on a property which they have provided remediation services within the last 12 months.  Further, a mold remediator may not offer or accept compensation or reward from a mold assessor for the referral of business.

As far as advertising, a person providing these services may not use the title "certified, registered, licensed or professional assessor or remediator" without complying with the new restrictions on qualification.

Persons who violate provisions of this law potentially face criminal charges for each violation up to and including a third degree felony.

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In 2004, Phillip Coon, the Vice-President of Lending for Coast Bank of Bradenton, and John Miller of American Mortgage Link, a Tampa mortgage brokerage firm, hatched a scheme which they marketed nationwide through 2006 to entice investors to purchase Southwest Florida single-family home flip deals.  Eventually over 600 investors from 40 states signed on to the program.  Coon and Miller recruited small homebuilders, including CCI of St. Petersburg, to provide the lots and build the homes.  Coast Bank was to reap high interest rates on the construction loans and American Mortgage Link earned millions in mortgage brokerage fees and arguably illegal "finder's fees."  The selling points on the deal were no money down (other than the arguably illegal "finder's fees"), no out-of-pocket closing costs and interest payments during the life of the construction loan and the delivery of a home at 90% of appraised value.

Of course, the deal in actuality was far from what was represented.  The builders chosen, primarily CCI, were not capable of delivering homes at the pace the deals were being sold.  Building departments in the counties where the homes were supposed to be built often took six months or more at the height of the boom to even issue building permits.  Closing costs and interest carry eroded the loan in progress balances to the point where there was not enough money left to build the homes.  Coon and Miller knew by 2005 that builders like CCI as a result were losing millions on these contracts.  Jesse Battle of CCI admitted in his bankruptcy proceeding that as of January of 2006 his company was over six million dollars in the red.  Yet, Coon and Miller continued to actively and aggressively market these deals and collect huge fees for their companies well into 2006.  Only a small percentage of homes were completed.  Some were left half-finished.  Most borrowers ended up with bare lots with mortgage balances of $80,000 or more.

The other problem with the deals is that the appraisals were "cooked."  Expert testimony in federal court revealed that rather than the homes being priced at 90% of appraised value, they were actually priced at 110% or more of appraised value.  John Miller had secured the services of an appraiser who is currently in line to lose his license who magically produced appraisals at exactly 10% above contract price on each deal.  Consequently, for the few borrowers to whom homes were actually delivered, what they got was a home that was upside down loan to value from the get go.

Of course, Coon and Miller were not satisfied with the huge fees and interest payments the bank and the brokerage company were receiving on these deals (in Coon's case, he was heavily bonused by the bank for the loan volume generated).  So they decided to bump the mortgage brokerage fee on each new loan by a point and split that point between them.  Overall, 1.5 million dollars was skimmed from the loans by them.  The FBI caught wind of the scam and eventually Miller agreed to wear a wire and implicate Coon.  Despite the fraudulent nature of the overall scheme, the feds in charging Miller and Coon focused solely upon the skimmed point.  More astounding to the borrowers from whose mortgages the point was skimmed was the fact that the feds and Coon and Miller agreed in their plea agreements that Coast Bank and not the borrowers was the victim of the skimming scheme.  This despite the skimmed point having been funded from the construction loans which Coast Bank ended up declaring in default and pursuing the borrowers for.  What was convenient for the government in structuring the plea agreements in this manner is that Coast Bank was defunct and thus the government was in line to keep the full 1.5 million dollars being forfeited as part of the plea deal by Coon and Miller.  What was convenient for Coon and Miller is that by pleading to a crime with only one victim (Coast Bank) they escaped the enhanced sentencing guidelines which would have been in place for a crime with multiple victims (ie: the 600 plus borrowers whose loans they looted).

The borrowers learned of the plea deals through a press conference held by the federal prosecutor in Tampa.  Our firm quickly intervened, eventually on behalf of 150 of the borrowers, to establish the borrowers' status as victims of the skimming scheme and to seek restitution of the point skimmed from each of their construction loans.  The district court denied victim status to the borrowers.  This was appealed to the 11th Circuit Court of Appeals.  The 11th Circuit Court of Appeals in In re Stewart, 552 F.3d 1285 (11th Cir. 2008) reversed the district court and declared the borrowers to be victims of the crime entitled to rights under the federal Crime Victims' Rights Act (CVRA).  The district court in the Coon prosecution then held a trial to determine the borrowers' right to restitution of the point skimmed.  The district court a year ago decided against the borrowers.  This was in turn appealed to the 11th Circuit.  On May 25th, the 11th Circuit issued its ruling affirming the district court finding that the borrowers' gripe was with the builders not the bank and thus they were not entitled to restitution.

What is totally ignored in the new opinion is that Coon and Miller solicited CCI and the other builders (not the borrowers who were scattered across the country), conceived and executed the marketing plan to bring customers to the builders, cooked the appraisals to support loans exceeding the value of the properties and continued to have Coast Bank fund these deals well after it was apparent that CCI and the other builders could never perform.

An appeal to the U.S. Supreme Court is not being considered.  However, the borrowers are exploring the possibility of petitioning the U.S. Attorney General to be awarded a portion of the assets being forfeited to the government as part of the plea deal.

The district judge in the Miller prosecution has stated that he would follow the lead of the 11th Circuit in the Coon matter in determining the course of the borrowers' restitution claims in the Miller prosecution.  As a consequence, the 11th Circuit's decision in the Coon case for all intents and purposes forecloses the borrowers' restitution claims in the Miller prosecution too.

Sentencing of Phil Coon and John Miller will now be set.  The borrowers are entitled to a say at the sentencing hearings.  They intend to argue for the maximum sentences for Coon and Miller.

Contact us if you would like copies of either of the opinions issued by the 11th Circuit.

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In Florida, under the "economic loss rule", a party is precluded from suing a party with whom it has contracted for negligence absent personal injury or property damage.  One exception carved out by the Florida Supreme Court has been for the negligence of "professionals", although the court did not specifically define what a "professional" is.  In the construction context, there has been no doubt that architects and engineers are "professionals."  Claims against them are not subject to the economic loss rule.  But what about land surveyors?

The issue of whether land surveyors are "professionals" excluded from the economic loss rule was decided by the Florida Fourth District Court of Appeal in Estate of Joanne Rocks v. McLaughlin Engineering Company, 49 So. 2d 823 (Fla. 4th DCA 2010).   They are.  In deciding this, the appellate court cited state statutes referring to land surveyors as professionals and relied in addition on the following attributes:

1.    surveyors are engaged by clients to perform a skilled service solely under their control and competence;

2.    the service performed by a surveyor is one requiring special education, training, experience and skill;

3.    the typical client is not competent to perform surveying personally nor direct that it be performed in a particular way; and

4.    the client/surveyor contract gives the client no power of direction and leaves performance up to the skill and expertise of the surveyor.
 

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Florida Statute 489.128 provides that contracts entered into by an unlicensed contractor are not enforceable by the unlicensed contractor. Importantly, this statute was amended in 2009 to clarify that the term "unlicensed" means the failure to secure a state license (as opposed to a local license). Florida Statute 489.532(1)(a) further clarifies that if a state license is not required for a scope of work to be performed under a contract, the individual performing the work is not considered unlicensed.

Three recent appellate decisions addressed the application of F.S. 489.128.

In MGM Construction Services Coro. v. Travelers, 36 Fla. L. Weekly D462a, (3d DCA 2011), the trial court denied relief to a stucco sub-contractor who liened a project for non-payment. The trial court dismissed the sub-contractor's suit on the basis that the sub-contractor could not enforce its contract with the general contractor because it did not possess a specialty contractor's license as required by county ordinance. The appellate court ruled that F.S. 489.128 did not render the contract unenforceable because there was no state licensing requirement for stucco sub-contractors. The appellate court then looked at whether the trial court could nonetheless deny contract enforcement because of the lack of the county license. The county ordinance in question did not render contracts unenforceable if licensing was not secured. Despite this, the appellate court determined that the trial court on remand could still rule the contract unenforceable, but had to weigh public policy concerns against possible inequities in reaching its determination.

In Earth Trade, Inc. v. T & G Corporation, 42 So.3d 929 (Fla. 5th DCA 2010), a site contractor without the required state license performed site work for a parking garage. The work was defective and the general contractor sued the site contractor for breach of contract. The general contractor prevailed at trial. On appeal, the site contractor and its surety contended that the general contractor could not enforce the contract because it knew that the site contractor was unlicensed. The appellate court rejected this argument citing the clear language of F.S. 489.128 rendering a contract by an unlicensed contractor unenforceable only where the unlicensed contractor is attempting to enforce the contract.

Finally, in MMII, Inc. v. Silvester, 42 So.2d 876 (Fla. 4th DCA 2010), the trial court rejected a breach of contract claim by a seller/installer of audio entertainment systems on the basis that the seller/installer did not have a state general contractor nor state electrical sub-contractor license. The appellate court reversed, finding that electrical work was only incidental to the installation of audio entertainment systems and thus the installation of such systems did not require a state license.

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