STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS REGULATION, ) DIVISION OF FLORIDA LAND SALES, ) CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 87-4640

) THOMAS O'RORKE, MARION L. BRADFORD,) and SANDY KEY DEVELOPMENT COMPANY, )

as general partners of SANDY KEY ) PROPERTIES, LTD., a Florida Limited) Partnership, )

)

Respondents, )

and )

) SANDY KEY OWNERS ASSOCIATION, INC.,)

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case in Pensacola, Florida, on June 6, 1988, before Jose A. Diez-Arguelles, a Hearing Officer with the Division of Administrative Hearings

APPEARANCES

For Petitioner: Karl M. Scheuerinan, Esguire

Assistant General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

For Respondents: Thurston A. Shell, Esquire

Post Office Box 1831 Pensacola, Florida 32598

For Intervenor: Steven E. Quinnell, Esquire

and Gregory D. Smith, Esquire Post Office Drawer 1832 Pensacola, Florida 32598

BACKGROUND

This proceeding started on September 18, 1987, when Petitioner, Department of Business Regulation, Division of Land Sales, Condominiums and Mobile Homes, issued a Notice to Show Cause alleging that Respondents, Thomas S. O'Rorke, Marion L. Bradford, and Sandy Key Development Company, as general partners of

Sandy Key Properties, Ltd., a Florida Limited Partnership, committed certain violations of Florida law. Respondents timely filed a request for a hearing and Petitioner forwarded the case to the Division of Administrative Hearings for the assignment of a Hearing Officer to conduct the hearing

By Order issued June 2, 1988, Intervenor, Sandy Key Owners Association, Inc.'s, Petition for Leave to Intervene was granted.

At the hearing, Petitioner presented the testimony of Wallace H. Dawson, James F. Shumate, Jr., Norman Moore, Marion L. Bradford, Richard Mazean, Richard Douglas, Larry Smith, Joan Deevey and John Benton, and offered nine exhibits.

Eight exhibits marked Petitioner's exhibits 1-6, 8 and 9 were accepted into evidence. Respondent presented the testimony of Thomas S. O'Rorke and Marion L. Bradford, and offered three exhibits which were accepted into evidence.

After the hearing, the parties filed Proposed Recommended Orders containing proposed findings of fact. The proposed findings of fact are addressed in the Appendix which is attached to this Recommended Order.

FINDINGS OF FACT

1. Sandy Key Properties, Ltd., is the developer of Sandy Key, a condominium (Sandy Key).

   
   

2. Thomas S. O'Rorke and Marion L. Bradford are general partners of Sandy Key Properties, Ltd.

   
   

3. Sandy Key was meant to be a 244 condominium project consisting of four buildings with 61 units each. The condominium project was to be built in four phases, with each phase representing one building.

   
   

4. Only three phases of the condominium project were built, however, consisting of 183 units.

   
   

5. The ninety-second unit was sold on January 19, 1984.

   
   

   Control of the Owners Association

   
   

6. Until September 1, 1984, the Respondents elected a majority of the board of directors of the Sandy Key Owners Association (Association). Up until then the board consisted of three directors: Thomas S. O'Rorke, Marion L. Bradford and Richard Douglas, who was a unit owner and Respondent's employee.

   
   

7. On September 1, 1984, the Association held its annual meeting. At the meeting, the unit owners decided to increase the membership of the board of directors to five. The three sitting directors were reelected and two unit owners were added to the board. The Respondents did not vote their units at the election.

   
   

8. On March 9, 1985, Mr. Douglas was replaced on the board by Bob Jackson. Mr. Douglas no longer worked for Respondents and Mr. Jackson was taking over Mr. Douglas' duties as Respondent's employee. During the time he served on the board, Mr. Douglas followed the orders given by Mr. O'Rorke.

   
   

9. At the annual meeting held on September 14, 1985, the board's membership was increased from five to seven. The five sitting directors were reelected and two more unit owners were added. Respondents voted their units.

10. On March 31, 1986, Mr. Jackson resigned from the board and was replaced by Mr. Douglas.

    
    

11. At the annual meeting held on September 13, 1986, Mr. Bradford stated "that he and Mr. O'Rorke were not nominated to the board by the nominating committee since they automatically become board, members because they are the developers of Sandy Key." Petitioner's Composite Exhibit 1; Minutes of September 13, 1986 meeting. Five unit owners were also elected to the board. Two of the unit owners, Mr. Lassen and Mr. Putnam were also limited partners of Sandy Key Properties, Ltd., and Mr. Putnam was the developer's CPA. Respondents voted their units at the meeting.

    
    

12. At a recall election held on May 2, 1987, Mr. O'Rorke was reelected and six new directors were elected. The six new directors were unrelated to the Respondents.

    
    

13. Mr. O'Rorke was President of the Association from March 1983 to September 1985 and from September 1986 to May 1987. For those same periods, Mr. Bradford was Vice-President. From September 1985 to September 1986, Mr. Bradford was President and Mr. O'Rorke was Vice-President.

    
    

14. Throughout the period beginning in 1983 and ending on May 2, 1987, Mr. O'Rorke and Mr. Bradford controlled the Association. Even though the majority of unit owners were allowed to elect the board of directors, Mr. O'Rorke asserted on numerous occasions that the developers were still in control of the Association. This assertion was based on Mr. O'Rorke's belief that the applicable law allowed him to retain control of the Association because he planned to build Phase IV of the project consisting of 61 units.

    
    

15. The nondeveloper unit owners acquiesced in the assertion of control by Respondents until May 2, 1987. Until then, the unit owners believed that Respondents were in control and everyone acted accordingly. Prior to May 2, 1987, Respondents never relinquished control of the Association and the unit owners never accepted control of the Association.

    
    

16. Up to the date of the hearing, Respondents had not delivered to the Association all the items required to be delivered by Section 718.301, Florida Statutes. One of the items Respondents never delivered is the review of the Association's financial records by a Certified Public Accountant required by Section 718.301(4)(c), Florida Statutes, and Rule 7D-23.003, Florida Administrative Code.

    
    

    Guarantee and Assessments

    
    

17. At the hearing, the parties stipulated that the initial "guarantee period" ended on June 30, 1983. The "guarantee period" is that period of time, pursuant to Section 718.116(8)(a)2., Florida Statutes, wherein the developer obligates himself to pay any amount of common expenses which exceeds the assessments for common expenses imposed on other unit owners. In return for the guarantee, the developer does not have to pay assessments on the units it owns.

    
    

18. On June 30, 1983, the Association reserve accounts were underfunded by

    $1,564.05.

    
    

19. After June 30, 1983, Respondents did not pay assessments on developer- owned units as required of other unit owners. At the hearing, the parties

    agreed to stipulate to the amount of assessments Respondent should have paid from June 30, 1983, to December 16, 1986, and to file the stipulation after the hearing. The parties, however, were unable to reach agreement and a stipulation was not filed. The disagreement between the parties is over whether the assessment liability is $91,141.48, as asserted by Respondents, or $93,231.86, as asserted by Petitioner.

    
    

20. From the evidence presented at the hearing, the assessments that should have been paid by Respondents from June 30, 1983, to December 16, 1986 total $91,141.48.

    
    

21. For assessments paid more than ten days late, interest in the amount of 12 percent per annum from the date the assessment was due should also have been paid. Also, assessments not paid within ten days of the date due are subject to a $10 late fee. Petitioner's Exhibit 2, at p.10.

    
    

22. Even though the Respondents did not make assessment payments to the Association in a formal and timely manner, Respondents continued to pay for Association expenses on a sporadic and as needed basis. From the evidence presented, however, one cannot determine the amount of these payments nor how to properly offset them against the assessments that Respondents failed to timely pay and against the interest and late fees that accrue to each unpaid assessment.

    
    

23. As of December 16, 1986, the Association's reserve accounts were underfunded by $26,271.61.

    
    

    Financial Reports, Annual Meetings

    
    

24. The Association did not mail or deliver to all unit owners a financial report for the year 1985 within 60 days following the end of the year.

    
    

25. The Association did not call or hold an annual meeting of unit owners for the year 1983.

    
    

26. The Association did not mail copies of proposed budgets and budget meeting notices, and did not hold budget meetings for the years 1984 and 1985.

    
    

27. The Association failed to maintain its records according to good accounting practices prior to August 1986.

    
    

28. During 1986, the Association imposed and collected a $50 per unit special assessment for shrubbery replacement. This assessment was first approved by the unit owners.

    
    

29. Each unit owner's share of the common elements is 0.52 percent for a two-bedroom unit and 0.6208 1/3 percent for a three-bedroom unit.

    
    

    ISSUE

    
    

    Whether Respondents committed the violations alleged in the Notice to Show Cause.

    CONCLUSIONS OF LAW

    
    

30. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, this proceeding. Section 120.57(1), Florida Statutes.

    
    

31. The Notice to Show Cause issued in this case alleges that Respondents committed nine violations of the provisions of Chapter 718. Pursuant to the Notice to Show Cause, Petitioner seeks to impose civil penalties, to require Respondents to have prepared a turnover financial review by an independent Certified Public Accountant and to require Respondents to pay the Association any funds determined to be developer liability.

    
    

32. In, order to enforce and ensure compliance with the provisions of Chapter 718, Florida Statutes, the Division of Florida Land Sales, Condominiums and Mobile Home has the authority to investigate potential violations and to institute enforcement proceedings in its own name against any developer or association. Section 718.501, Florida Statutes. When instituting enforcement proceedings in its own came against any developer or association, the Division may issue an order requiring the developer or association to cease and desist from an unlawful practice "and take such affirmative action as to the judgment of the division will carry out the purposes of" Chapter 718. Section 718.501(1)(d)2. The Division may also impose a civil penalty not exceeding

    $5,000.00 for any violation of Chapter 718 or rules promulgated pursuant thereto. Section 718.501(1)(d)4. In addition, the Division "may bring an action in circuit court on behalf of a class of unit owners, lessees, or purchasers or declaratory relief, injunctive relief, or restitution." Section 718.501(1)(d)3, Florida statutes. Thus, while the Division may enter cease and desist orders, take certain affirmative actions, impose civil penalties, and bring actions in circuit court for restitution; it may not, on its own, order restitution. Only a circuit court has jurisdiction to render such an order.

    See Peck Plaza Condominium v. Division of Florida Land Sales and Condominiums, 371 So.2d 152 (Fla. 1st DCA 1979)

    
    

33. Some of the violations with which Respondents are charged are dependent on whether Respondents were in control of the Association at the time of the alleged violations. Therefore, before addressing the specific violations alleged in the Notice to Show Cause, the period of time during which Respondents controlled the Association should be established.

    
    

34. Section 718.301, Florida Statutes, sets forth the mechanism for the transfer of control from the developer to the unit owners other than the developer. That section provides:

    
    

    718.301 Transfer of Association Control.--

    1. . . . Unit owners other than the developer are entitled to elect not less than a

       majority of the members of the board of administration of an association:

       1. Three years after 50 percent of the units that will be operated ultimately by the association have been conveyed to purchasers;

          * * *

    2. Within 60 days after the unit owners other than the developer are entitled to elect a member or members of the board of administration of an association, the

       association shall call, and give not less than 30 days' or more than 40 days' notice of, a meeting of the unit owners to elect the members of the board of administration. The meeting may be called and the notice given by any unit owner if the association fails to do so. Upon election of the first unit owner other than the developer to the board of administration, the developer shall forward to the division the name and mailing address of the unit owner board member.

       * * *

       1. Prior to or not more than 60 days after, the time that unit owners other than

          the developer elect a majority of the members of the board of administration of an association, the developer shall relinquish control of the association, and the unit owners shall accept control. Simultaneously, the developer shall deliver to the association, at the developer's expense, all property of the unit owners and of the association which is held or controlled by the developer, including, but not limited to, the following items, if applicable, as to each condominium operated by the association:

          * * *

          (c) The financial records, including financial statements of the association, and source documents since the incorporation of the association through the date of turnover. The records shall be reviewed by an independent certified public accountant. The minimum report required shall be a review in accordance with generally accepted accounting standards as defined by rule by the Board of Accountancy. The accountant performing the review shall examine to the extent necessary supporting documents and records, including the cash disbursements and related paid invoices to determine if expenditures were for association purposes and the billings, cash receipts, and related records to determine that the developer was charged and paid the proper amounts of assessments.

          * * *

       2. If, during the period prior to the

       time that the developer relinquishes control of the association pursuant to subsection (4), any provision of the Condominium Act or any rule promulgated thereunder is violated by the association, the developer is responsible for such violation and is subject to the administrative action provided in this

       chapter for such violation or violations and is liable for such violation or violations to third parties. This subsection is intended to clarify existing law.

       
       

35. Respondents argue that, since the unit owners other than the developer elected a majority of the board of directors on September 1, 1984, Respondents were not in control after that date. This argument, however, ignores the provisions of Section 718.301 which require the developer to relinquish control and the unit owners to accept control. In this case, Respondents never relinquished control until it was taken from them on May 2, 1987. Therefore, Respondents are responsible for any violations of Chapter 718 committed by the Association prior to May 2, 1987. Section 718.301(5), Florida Statutes.

    
    

36. A discussion of each alleged statutory violation follows.

    
    

    Section 718.115(2)

    
    

37. Section 718.115(2), requires that funds for the payment of common expenses be assessed in accordance with each unit owner's ownership interest in the common elements. Therefore, by assessing and collecting a $50 per unit special assessment when the unit owners do not own equal interests in the common elements, the Association, and therefore Respondents, violated the provisions of Section 718.115(2), Florida Statutes.

    
    

    Section 718.116

    
    

38. Respondents violated the provisions of Sections 718.116(1)(a) and (8)(a), Florida Statutes, because they failed to pay monthly assessments on developer-owned units after the guarantee period expired.

    
    

    Section 718.112(2) (f)

    
    

39. Respondents violated the provisions of Section 718.112(2)(f), and Rule 7D-23.004(2)(d) , Florida Administrative Code, because they failed to fully fund the reserve accounts during the guarantee period. Also, the Association, while it was controlled by Respondents, violated these provisions while it was controlled by Respondents because it failed to fully fund the reserve accounts during the period up to December 16, 1986.

    
    

    Section 718.111(13)

    
    

40. The Association, while it was controlled by Respondents, violated Section 718.111(13), Florida Statutes, because it failed to mail or personally deliver to each unit owner a financial report for the year 1985 within 60 days following the end of the year.

    
    

    Section 718.112(2)(d)

    
    

41. Respondents violated Section 718.112(2)(d), Florida Statutes, because they failed to hold an annual meeting of the unit owners in 1983.

    
    

    Section 718.112(2) (e)

    
    

42. The Association, while it was controlled by Respondents, violated Section 718.112(2)(e), Florida Statutes, because it failed to mail budget meeting notices and copies of the proposed budgets for 1984 and 1985.

    Section 718.111(12)(a) 11.

    
    

43. The Association, while it was controlled by Respondents, violated Section 718.111(12)(a)11., Florida Statutes, because it failed to maintain its records according to good accounting practices.

    
    

    Section 718.112(2)(f)

    
    

44. No competent evidence was presented to support a violation of Section 718.112(2)(f), Florida Statutes.

    
    

    Section 718.301

    
    

45. Respondents violated Section 718.301, Florida Statutes, because they failed to provide a "turnover review" to the Association.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that:

1. Respondents be fined $100 for violating Section 718.115(2), Florida Statutes;

   
   

2. Respondents be fined $2,500 for violating Section 718.116, Florida Statutes;

   
   

3. Respondents be fined $1,000 for violating Section 718.112(2)(f) , Florida Statutes;

   
   

4. Respondents be fined $1,000 for violating Section 718.111(13) , Florida Statutes;

   
   

5. Respondents be fined $500 for violating Section 718.112(2)(d) , Florida Statutes;

   
   

6. Respondents be fined $1,000 for the violations of Section 718.112(2)(e) Florida Statutes;

   
   

7. Respondents be fined $500 for violating Section 718.111(12)(,a)11., Florida Statutes;

   
   

8. Respondents be fined $2,500 for violating Section 718.301, Florida Statutes; and

   
   

9. Respondents be ordered to have prepared the review of financial records required by Section 718.301(4)(c), Florida Statutes.

DONE and ENTERED this 15th day of March, 1989, in Tallahassee, Leon County, Florida.

JOSE A. DIEZ-ARGUELLES

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550 904/488-9675

Filed with the Clerk of the Division of Administrative Hearings this 15th day of March 1989.

APPENDIX

Rulings on Petitioner's Proposed Findings of Fact 1-4. Accepted.

5-6. Rejected as recitation of testimony.

1. Not a finding of fact.

2. Accepted.

9-11. Not a finding of fact.

1. Accepted.

2. Accepted, except portions that are argument. Also, some of these proposed facts are subordinate to facts found.

3. Accepted generally.

4. Not a finding of fact. 16-19. Accepted generally.

1. Not a finding of fact.

2. Accepted generally.

3. Accepted.

23-32. Accepted generally; subordinate to facts found.

Rulings on Respondents Proposed Findings of Fact

1. Rejected as not supported by the weight of the evidence.

2. First sentence accepted. Second and third sentences rejected. While the evidence establishes that Respondents paid some amounts, it cannot be determined what amounts were paid for association expenses.

3. First sentence accepted, except as to phrase that unit owners had control. Second sentence rejected.

4. Rejected.

5. Accepted.

6. First sentence accepted. Second sentence rejected.

7. Accepted.

8. Rejected.

9. First sentence accepted. Second sentence rejected; the turnover review would help Respondents establish any offsets they may be entitled to.

10. Accepted.

Rulings on Intervenor's Proposed Findings of Fact

1-2. Accepted.

3. Not a finding of fact. 4-5. Accepted generally.

6-7. Rejected as argument.

8. Accepted.

9-11. Not a finding of fact. 12-13. Accepted.

14. Argument.

15-16. Accepted generally.

17-19. Not a finding of fact.

20. Accepted.

21-23. Not a finding of fact.

24 Accepted.

1. Accepted but subordinate to facts found.

2. First sentence is not a finding of fact. Second sentence accepted. 27-34. Not findings of fact.

35-37. Accepted but subordinate to facts found.

COPIES FURNISHED:

Karl M. Scheuerman, Esquire Assistant General Counsel Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1007

Thurston A. Shell, Esquire Post Office Box 1831 Pensacola, Florida 3259

Steven E. Quinnell, Esquire and Gregory D. Smith, Esquire Post Office Drawer 1832 Pensacola, Florida 32598

E. James Kearney, Director

Division of Florida Land Sales, Condominiums and Mobile Homes

725 South Bronough Street Tallahassee, Florida 32399-1007

Van B. Poole, Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000

Docket for Case No: 87-004640

Orders for Case No: 87-004640