Third District Court of Appeal
                               State of Florida

                         Opinion filed February 21, 2018.
         Not final until disposition of timely filed motion for rehearing.

                               ________________

                               No. 3D16-1881
                          Lower Tribunal No. 15-9465
                             ________________


                  Liork, LLC and Keren Ben Shimon,
                                   Appellants,

                                        vs.

                      BH 150 Second Avenue, LLC,
                                    Appellee.



      An Appeal from the Circuit Court for Miami-Dade County, Barbara Areces,
Judge.

      Militzok & Levy, P.A. (Hollywood); Richard J. Lee (Hollywood), for
appellants.

     Jonathan A. Heller; Jay M. Levy, for appellee.

Before SUAREZ, SCALES and LUCK, JJ.

     LUCK, J.
      This case is about the enforceability of a subscription agreement between an

investor and the company she invested in. The investor sought a declaratory

judgment that the subscription agreement she signed was unenforceable because

there was a lack of mutuality, and the liquidated damages clause calling for her to

surrender her initial payments was an improper penalty provision. The trial court

granted the investment company’s motion for summary judgment, declaring the

agreement was enforceable. We agree, and affirm.

                   Factual Background and Procedural History

      In 2013, BH 150 Second Avenue, LLC, made an offering seeking accredited1

investors to join in a business venture.     The objective of the venture was to

purchase a commercial building in downtown Miami and convert it into an office

and retail condominium of approximately 100 units. The offering was intended as

an alternative to obtaining institutional or bank financing for the project. The

offering included a proposed operating agreement for the new business and a

subscription agreement to be signed by each investor. Prior to making the offering,

BH 150 contracted with the owners of the building it sought to purchase. The

purchase price was $17.5 million and BH 150 paid a $1.1 million non-refundable

deposit on the contract. The subscription agreement to be signed by the investors

recited the existence of the contract and anticipated the transaction would close on

1An accredited investor was defined as an individual with a net worth exceeding
$1 million, excluding the individual’s primary residence.

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or about November 1, 2013, although it allowed for an extension of one hundred

twenty days if the renovations being performed were not completed in a timely

fashion.

      On August 9, 2013, Keren Ben Shimon executed a subscription agreement

where she agreed to pay $565,000 at execution, $1,130,000 thirty days after

execution, and the remaining $3,955,000 thirty days prior to the noticed closing

date on the purchase of the building.2 Upon completion of the project, Ben Shimon

would be deeded title to four of the building’s condominium units. Ben Shimon

made three payments under the agreement totaling $3,295,000.

      On December 2, 2013, BH 150 notified Ben Shimon and the other investors

that the closing on the purchase of the building was anticipated to occur on January

15, 2014. Ben Shimon was told that in accordance with the terms of her agreement

the final payment of $2,469,154.04 needed to be made on or before December 16,

2013. Ben Shimon was unable to make the payment and asked for additional time.

Ben Shimon was advised that another investor was willing to advance Ben Shimon

the amount required to avoid default, but Ben Shimon did not accept this loan. BH

150 sent a default letter to Ben Shimon on December 19, 2013. Eventually, the

developer of the office building chipped in the money needed to make up for the


2 After she signed the subscription agreement, Ben Shimon assigned her interest in
the subscription to her company, Liork, LLC, although she remained responsible
for performing under the agreement.

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shortfall created by Ben Shimon’s default, and BH 150 closed on the purchase of

the building on February 28, 2014.

      In the wake of the default, Ben Shimon brought this declaratory relief action

seeking to: (1) declare the subscription agreement void for lack of mutuality; (2)

declare the liquidation damages clause unenforceable as a penalty; and (3) obtain a

return of her initial payments BH 150 retained as a result of the default. The

parties filed cross-motions for summary judgment, and after a hearing, the trial

court denied Ben Shimon’s motions and granted BH 150’s motions. Ben Shimon

appeals from the final summary judgment in favor of BH 150.

                               Standard of Review

      Where, as here, based on undisputed facts, the trial court grants one party’s

cross-motion for summary judgment on a declaratory judgment action, our review

is de novo. Lee Cty. Elec. Coop., Inc. v. City of Cape Coral, 

, 127

(Fla. 2d DCA 2014) (“In the declaratory judgment proceeding, the City and LCEC

filed cross-motions for summary judgment. The circuit court determined that the

facts were undisputed, and it ruled in the City’s favor based on the franchise

agreement between the parties and on section 337.403(1), Florida Statutes (2005).

Our review of the summary judgment is de novo.”).

                                     Discussion




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      Ben Shimon contends the trial court erred in granting summary judgment for

BH 150 because (1) the subscription agreement lacked mutuality of obligations;

and (2) it had an unenforceable penalty clause. We will address each issue

separately.

      1. Lack of mutuality.

      Ben Shimon claims the subscription agreement is void for lack of mutuality

because BH 150 retained two rights which in essence allowed it to perform or not

at its sole discretion. The two retained rights are contained in the following

language from the subscription agreement:

      Subscriber understands and agrees that this Subscription may be
      rejected by the Company 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 accepts the Subscription, but the Company does not
      purchase the Property for any reason or 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. . .
      .

Ben Shimon reads this language as authorizing BH 150 to terminate her

subscription at any time and, more importantly, to back out from the purchase of

the building for any reason, thus rendering its promises under the agreement

completely illusory. Ben Shimon correctly argues that a bilateral contract where

one party retains the right to fulfill or decline to fulfill its contractual obligation is

unenforceable because it is based on an illusory promise. See, e.g., Flagship Resort


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Dev. Corp. v. Interval Int’l, Inc., 

, 921 (Fla. 3d DCA 2010) (“[I]n a

bilateral contract a promise that permits the promisor to fulfill or decline to fulfill

its contractual obligations at its option is not binding on the promisor and renders

the promise incapable of enforcement by the promisee.”). This rule, however,

applies to bilateral contracts where one party promises to perform a specific action

directly in exchange for the other party performing another specific action, like a

sale and purchase agreement. That is not the type of agreement at issue in this

case.

        Ben Shimon entered into an agreement subscribing to a business venture, not

a direct purchase and sale agreement to acquire title to certain condominium units.

Ben Shimon, a sophisticated investor, was to receive an interest in the venture,

after being apprised of the risk factors involved in the business. In fact, in

connection with her subscription, Ben Shimon was provided with a document

listing twenty-three separate risks associated with the venture, including:

        The Subscriber has been cautioned that an investment in the Company
        is speculative and involves significant risks, and that it is probably not
        possible to foresee and describe all of the business, economic and
        financial risks factors which may affect the Company. The Subscriber
        acknowledges that he has been advised to seek independent
        professional advice in order to carefully analyze the risks and merits
        of an investment in the Company.

Subscriptions capitalized the business venture which entailed acquisition of an

office building and remodeling and converting it into a condominium. In lieu of



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return of their cash investment and any profit earned by the venture, the investors

were to receive title to condominium units.

      Like any investor in an uncertain business enterprise, the subscribers

assumed the risk that for whatever reason, including the inability to acquire title to

the property, the enterprise may fail and the investment may be lost. This fact

distinguishes the cases cited by Ben Shimon in support of her lack of mutuality

argument. For example, Ben Shimon cites to Office Pavilion South Florida, Inc. v.

Asal Products, Inc., 

(Fla. 4th DCA 2003), a case involving a

dispute between an office goods supplier and a manufacturer of office chairs – a

direct seller to buyer transaction, and Allington Towers North, Inc. v. Rubin, 

(Fla. 4th DCA 1981), involving a garden variety purchase and sale

contract to convey title to real estate. Unlike these cases, BH 150 promised and

delivered to all subscribers, including Ben Shimon, the right to participate in the

business venture. Ultimately, the business was successful and those members who

fully performed their side of the bargain were rewarded with title to condominium

units as a return on their investment. Ben Shimon was not so rewarded only

because she did not perform as required under the agreement.

      A careful reading of the subscription agreement as a whole also negates Ben

Shimon’s contention that BH 150 reserved to itself the ability to cancel her

subscription at any time at its sole discretion. The language of the agreement Ben



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Shimon relies on is found in paragraph 4, entitled “Acceptance of Subscription.”

The first sentence of that paragraph uses the word “reject,” rather than “terminate.”

The sentence is immediately followed by an explanation of what should occur

either upon acceptance or rejection of the subscription. Acceptance will be

evidenced by a return of the fully signed subscription agreement to the investor,

while a refund of any funds received from the investor will follow a rejection. The

provision thus refers to BH 150’s right to accept or reject Ben Shimon’s request to

join the business venture. It does not, as Ben Shimon asserts, give BH 150 the

unfettered right to terminate Ben Shimon’s subscription after her membership in

the venture was accepted. The undisputed record shows that BH 150 signed and

provided the signed subscription agreement to Ben Shimon, thereby obligating

itself to perform under the contract. From this point forward, BH 150 had the right

to terminate Ben Shimon’s subscription only on grounds expressly stated in the

agreement, including failure to pay the full amount of the subscription once the

investor received notice of the closing date.

      When considering the agreement as a whole, the parties agreed to mutual

promises – Ben Shimon agreed to pay a certain amount of money, and in

exchange, was to receive an interest in the business venture. Thus, the trial court

correctly refused to void the subscription agreement on the ground that it lacked

consideration.



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        2. Penalty clause.

        Ben Shimon contends the liquidated damages provision of the subscription

agreement should be stricken because it constitutes an impermissible penalty

clause. The Florida Supreme Court has adopted this “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.” Lefemine v. Baron, 

, 328 (Fla. 1991)

Again, when properly considered as an agreement to subscribe to a business

venture to acquire and convert a building into condominiums, rather than the mere

purchase of condominium units, the liquidated damages meets both prongs of this

test.

        As to the not-readily-ascertainable prong, the Florida Supreme Court has

explained that because of fluctuations in the real estate market, damages for the

loss of a real estate opportunity cannot be readily ascertained at the time the

contract is signed such that it would defeat a liquidated damages clause. See

Hutchison v. Tompkins, 

, 132 (Fla. 1972) (“The land sale market in

Florida fluctuates from year to year and season to season, and it is generally



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impossible to say at the time a contract for sale is drawn what vendor’s loss (if

any) will be should the contract be breached by purchaser’s failure to close.

Accordingly . . . we conclude that the damages which the parties could expect as a

result of a breach were not readily ascertainable as of the time the contract was

drawn up . . . .”); Bradley v. Sanchez, 

, 222 (Fla. 3d DCA 2006)

(“The Florida Supreme Court has ruled that liquidated damages are appropriate

damages in a contract for sale of real estate in Florida, and they are not to be

considered a penalty. Such damages are not readily ascertainable as of the time the

contract is drawn.” (quotation omitted)). So it was for the subscription agreement

in this case, which contemplated an investment in an office building that BH 150

was buying.

      As to the grossly-disproportionate prong, Ben Shimon’s failure to pay her

share of money due for closing jeopardized the entire investment opportunity, not

just the purchase of the four units earmarked for Ben Shimon. Her $3,295,000

damages amount is measured against the potential loss of the investment – the

office building – which was in excess of $22 million. The approximate 14.97

percent of liquidated damages to the total purchase price of the office building was

not grossly disproportionate. See, e.g., Johnson v. Wortzel, 

(Fla. 3d

DCA 1987) (18.2%); Dade Nat’l Dev. Corp. v. Southeast Inv. of Palm Beach Cty.,

(Fla. 4th DCA 1985) (18%); Hooper v. Breneman¸417 So. 2d 315



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(Fla. 5th DCA 1982) (13.3%).

                                    Conclusion

      In conclusion, the subscription agreement was neither unenforceable because

of lack of mutuality of obligations, nor for an impermissible penalty clause.

Accordingly, we agree with the trial court’s interpretation of the parties’ agreement

and affirm the judgment entered below.

      Affirmed.




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