STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BUSINESS ) REGULATION, DIVISION OF FLORIDA ) LAND SALES AND CONDOMINIUMS, )
)
Petitioner, )
)
vs. ) CASE NO. 82-2848
)
INTERNATIONAL TIME-SHARE )
CONSULTANTS, INC.; DAYTONA ) SANDS BEACH CLUB, INC.; AND ) DAYTONA SANDS, INC. d/b/a THE ) SANDS BEACH CLUB, )
)
Respondents. )
)
RECOMMENDED ORDER
This cause is to be decided upon the existing record by the undersigned duly appointed Hearing Officer. (See procedural Background)
APPEARANCES
For Petitioner: Thomas A. Bell, Esquire Department of Business 725 South Bronough Street Regulation, Division of Tallahassee, Florida 32301 Land Sales and Condominium
For Respondent: David C. Robinson, Esquire,
International Time- for trial withdrew by Order Share Consultants, Inc. entered effective September
10, 1984. All pleadings to be served on:
Donald Bentzoni
1343 Main Street, Suite 201 Sarasota, Florida
For Respondent: No appearance Daytona Sands Beach Club
For Respondent: Lydia M. Valenti, Esquire Daytona Sands Inc. d/b/a 11 East Pine Street
The Sands Beach Club Orlando, Florida 32802
For Respondent: No appearance Daytona Sands Marketing Group
For Respondents: Robert E. Austin, Jr. Stephen K. Smith individually 900 North 14th Street and as general partner Leesburg, Florida 32748 of Smith & Smith
PROCEDURAL BACKGROUND
This action commenced with an August 17, 1982 Notice to Show Cause filed by the Department of Business Regulation, Division of Land Sales and Condominiums (DBR) against three respondents (1) International Time-Share Consultants, Inc. (ITSC) (2) Daytona Sands Beach Club, Inc. (CLUB) and (3) Daytona Sands, Inc. d/b/a The Sands Beach Club (SANDS, INC.). All parties requested formal hearings except Daytona Sands Beach Club, Inc. (CLUB). Nonetheless, the case before the Division of Administrative Bearings was inadvertently styled DOAH Case No. 82- 2848 Department of Business Regulation, Division of Land Sales and Condominiums
v. International Time-Share Consultants, Inc., Daytona Sands Beach Club, Inc. and Daytona Sands Inc. d/b/a The Sands Beach Club. It was assigned to Bearing Officer Steven G. Pfeiffer.
A subsequent DBR Notice to Show Cause was issued May 13, 1983 against Steven K. Smith, individually and as general partner of Smith & Smith, a Kentucky General Partnership. These Respondents elected a formal hearing and the case before the Division of Administrative Bearings was styled DOAH Case No. 83-1942, Department of Business Regulation, Division of Land Sales and Condominiums v. Steven K. Smith, individually and as general partner of Smith & Smith.
Thereafter, both cases were consolidated for hearing by Hearing Officer Marvin E. Chavis. Hearing Officer Chavis heard the case on October 4 and 5, 1983 and concluded on March 19, 1984.
Petitioner called as witnesses Jimmy Townsend, Richard M. Moores, J. W. (Bill) Smith, Jerry C. Rhodes, and Steven K. Smith. Respondent Daytona Sands, Inc. called no witnesses although specific portions of deposition testimony of Donald Bentzoni were published and admitted in evidence. (March 19, 1984 hearing, p. 56; Transcript Vol. III). Respondent International Time-Share Consultants, Inc. called no witnesses. Respondent Smith called Steven K. Smith.
The following joint exhibits were admitted in evidence:
Exhibit 1, Agreement for Deed (May 8, 1981)
Exhibit 2, Assignment of Agreement for Deed (June 24, 1981)
Exhibit 3, Agreement (August 14, 1981)
Exhibit 4, Assignment (August 1981)
Exhibit 5, Conditional Sales Note and Security Agreement (September 17, 1981).
The following exhibits of the Petitioner were admitted: Exhibit 1, 2 cassette tapes dated December
1, 1981 and December 29, 1992.
Exhibit 2, September 17, 1981 Non-disturbance on
Unit 205
Exhibit 4, Deposition of Trudy Showalter (subject to objections) 1/
Exhibit 5, June 17, 1982 Letter
The following exhibits of Respondent Daytona Sands Inc. were admitted:
Exhibit 1, letter regarding hearing improvement (January 26, 1981)
Exhibit 2, letter from J. W. Smith to Richard
M. Moores (December 15, 1981)
Petitioner's Exhibit 3, 7 remaining tapes, were not admitted.
Although DBR filed a Notice to Show Cause against Daytona Sands Marketing Group. Inc. that entity was never served, filed no response, did not request a hearing pursuant to Section 120.57(1), and was not represented at the formal hearing. Daytona Sands Beach Club, Inc. (CLUB) was not represented at the formal hearing. Hearing Officer Chavis reserved ruling on the status of these entities and relegated that ruling to the context of the Recommended Order.
Because the pleadings were not in a posture that placed Use named corporate Presidents of International Time-Share Consultants, Inc. and Daytona Sands Inc. d/b/a The Sands Beach Club on notice, Hearing Officer Chavis resolved that issue by ruling that only the corporations as parties were before him.
After the Petitioner (DBR) rested, the various parties made oral motions to dismiss.
Hearing Officer Chavis reserved ruling on these motions until entry of the Recommended Order.
Thereafter, Bearing Officer Chavis severed the party Daytona Sands Inc. and recused himself from other parties' aspects of the case. Subsequently, he recused himself from consideration of either case and all parties. (Orders herein dated June 1, and June 21, 1984).
Joint Motion for Reconsideration was filed by DBR and SANDS, INC.; DBR moved for an extension of time in which to file proposed findings of fact and conclusions of law, and Steven K. Smith and Smith & Smith moved for a trial de novo. Arguments both oral and in writing on these motions were considered by the undersigned, resulting in the August 16 and September 13, 1984 Orders herein. The results thereof are that Case No. 82-2848 as to all parties (including the reserved issues) shall be resolved by the instant Recommended Order entered by the undersigned, upon review of the existing record, and Steven
Smith and Smith & Smith, the only parties to DOAH Case No. 83-1942, shall be permitted a trial de novo before another DOAH Hearing Officer. A time schedule was established for parties to file memoranda of law and proposed findings of fact and conclusions of law. The attorney of record for ITSC was permitted to withdraw by Order entered September 10, 1984. Due to notice problems, the period for filing memoranda of law and proposed findings of fact, etc. was thereafter extended by Order of October 23, 1904 for International Time-Share Consultants, Inc. (ITSC) until November 12, 1984 but the orders mailed were returned as not forwardable. All submissions have been reviewed and considered and the record reviewed accordingly.
There remain issues to be resolved concerning four Respondents: International Time-Share Consultants, Inc., (ITSC); Daytona Sands Beach Club, Inc. (CLUB); Daytona Sands, Inc. d/b/a The Sands Beach Club (SANDS, INC.); and Daytona Sands Marketing Group (GROUP). Because of the intricate relationship of these corporate entities to each other, the following findings of fact will discuss the parties together. However, the conclusions of law will separately
address the issues concerning each individual Respondent. All submissions have been considered and weighed in light of the record and in preparation of this Recommended Order. When a party's proposed findings of fact were inconsistent with the weight of the credible evidence admitted they were adopted and are reflected in the Recommended Order. To the extent that the findings of fact proposed by a party were not consistent with the weight of the credible evidence, they have been either rejected, or, when possible, modified to conform to the evidence. To the extent proposed findings of fact have not been adopted or are inconsistent with the findings herein, they have been specifically rejected as irrelevant or not supported by the evidence. A ruling on each proposed finding of fact has thereby been made either directly or indirectly except where the proposed finding of fact was cumulative, immaterial, or unnecessary.
FINDINGS OF FACT
Richard M. Moores is President of the Corporation, Daytona Sands, Inc. (SANDS, INC). He has never been a party to these proceedings. SANDS, INC.'s principal asset in 1981 was a forty unit motel which Moores ran on a day to day basis from an office located across the street.
International Time-Share Consultants (ITSC) was, in 1981, a corporation in the business of developing and marketing vacation time-share resorts. Its principals were Donald Bentzoni, Kevin Curran, and Howard Shaw. The principals of ITSC are not parties to these proceedings. A real estate broker, Jimmy Townsend, introduced Moores to Bentzoni, Curran, and Shaw. The principals of ITSC negotiated with Moores for sale of its motel by SANDS, INC. and purchase thereof by ITSC, for conversion by ITSC into a vacation time-share resort.
On May 8, 1981, SANDS, INC., represented by Moores, entered into an Agreement for Deed (Joint Exhibit 1). Briefly, this Agreement for Deed provided for a single sale of the SANDS, INC. (motel real property) by payment of a fixed price of $1,450,000.00 to SANDS, INC. (principal and President Richard M. Moores.) A complicated payment arrangement was devised and drafted by SANDS, INC.'s attorney with the primary purpose of imposing obligations on ITSC for the protection of SANDS, INC. and to insure at least the payment in a timely manner of the minimum amount negotiated.
Twenty-five thousand dollars ($25,000) was to be paid on or before the signing of the Agreement For Deed; fifty thousand dollars ($50,000) was to be paid at the closing; an additional twenty-five thousand dollars ($25,000) was due on or before sixty (60) days from the closing date. [The initial $100,000 in payments] Thereafter,
$950,000 of the remaining balance of the purchase price to bear interest at the rate of 6 percent per annum and to be payable as follows:
$10,000 per month, the first such payment being due on the 90th day from and after the closing date and subsequent payments being due at thirty (30) day intervals thereafter until the $950,000 with interest is paid in full, subject to a thirty
(30) day grace period, or
(2) 25 percent of the gross amount of all cash received monthly . . . from purchasers as down payments at closing on the sale of time-share interests . . . to be developed by Buyer, plus all amounts received each month by the Buyer as developer of the time-sharing project as payments on promissory notes executed by purchasers [the third party installment contract paper] . . . the first such payment being due on the 90th day from and after the closing date, and subsequent payments being due at 30-day intervals thereafter until the $950,000 with interest is paid in full, subject to a 30-day grace period. (Joint Exhibit 1, Provision I).
This translates that SANDS INC. was to be paid either $10,000 per month with the first payment due 90 days after closing or 25 percent of the combination of all cash down payments of third party purchasers and payments received on third party purchasers promissory notes, whichever of the two options was greater.
The Agreement For Deed does not utilize the statutory term of art, "non-disturbance agreement" but also set out that after the initial one hundred thousand dollars ($100,000) payments were made, SANDS INC. would execute a "covenant not to interfere," as long as sales of time-share units were made out of time-share unit 205 (the old 208-209 motel units). (Joint Exhibit 1, Provision II.)
Specifically, the parties agreed that: At date of closing (as per 1(B) above),
Seller [Daytona Sands, Inc.] shall execute as to motel units 208 and 209 [the new converted unit 205] an "agreement to release upon sale and closing of sale" in a form mutually agreeable to the parties. Said above described "agreement" shall authorize Buyer to make all desired modifications and upgrading of said rooms in order to appropriately convert the model units as desired of the time-share project. The signing of such an agreement as to those motel units shall also authorize Buyer [ITSC] hereunder to begin marketing the time-share unit weeks as to that motel unit subject to the terms of this Agreement after conversion from a motel unit to a time-share unit. (Joint Exhibit 1, pp. 8-9 Provision IV)
Under the Agreement For Deed, sales additionally could be made from units ether than unit 205 (the old 208-209 motel units). SANDS INC. would execute a covenant not to interfere as to those units, provided SANDS INC. first was paid $30,000 as a release price per motel unit and as long as the sales were made in a certain sequence. Specifically,
Seller shall likewise sign such above described "agreement to release upon sale and closing of sales" as to additional motel units (above and beyond 208 and 209) upon payment of a release price of $30,000 per motel unit. The parties agree that the sequence of motel units to be subject to the said "agreement" being signed by Seller upon payment of the $30,000 for each unit shall be in the following order: 104, 105, 212, 114 and 115. The signing of such "agreement" as to additional motel units shall likewise authorize Buyer to convert the motel units as above or begin marketing time-share-unit weeks as to those units. Seller, subject to this above sequence, reserves the right to establish which additional motel units, the agreement to release shall relate to from time to time upon payment of the $30,000 per unit price. In interpreting this release clause, each $30,00 reduction in the principal balance due of $950,000 (under paragraph I (D) above) shall entitle Buyer hereunder to have an additional motel unit (of Seller's choosing) subject to the initial agreed upon sequence by the subject for the next "agreement" . . . (Joint Exhibit 1, p. 9 Provision IV).
Succinctly, the parties SANDS, INC. and ITSC contemplated that upon payment of each $30,000 increment, a new set of 2 motel rooms would be released (in a certain order) to ITSC by SANDS INC. through an "agreement to release upon sale and closing of sales" for ITSC to convert/renovate and sell time- share units out of. Deposits of third party purchasers' money would be used to meet the minimum increments due SANDS INC. or 25 percent of their gross could be optionally used to pay off ITSC's monetary obligations to SANDS INC. sooner.
The Agreement For Deed also permitted ITSC to sell out of non-released units, provided 100 percent of the sale receipts for those units were deposited in escrow:
XVI - To clarify the intent of the parties, Buyer, after closing date, shall have a right to market in escrow the time-share estates or interests of rights to use1 whether or not the "agreement" called for in paragraph IV [which provides for the release of a unit in a scheduled sequence followed by the subsequent execution of a "covenant not to interfere"--the non-disturbance clause] above has been executed as to a motel unit. (Joint Exhibit 1, Paragraph XVI page 13).
On the side, SANDS, INC. (Moores) was to continue to manage the motel as a motel for a management fee paid from the motel profits pending sequential conversion/renovation of the facility into approximately 20 time-share units from its original 40 motel units. Apparently, everyone involved understood that
a "show" or "model unit" would first be sold and then other units would subsequently be converted and marketed sequentially using sales money from previous unit sales.
The project was undercapitalized from the beginning. ITSC had insufficient cash flow to meet its obligations to SANDS, INC. and so ITSC assigned its rights and obligations under the Agreement for Deed (Joint Exhibit
1) to Daytona Sands Beach Club. Neither SANDS, INC. nor Richard Moores were a signatory to the Assignment (Joint Exhibit 2).
Daytona Sands Beach Club (CLUB) is a corporation organized specifically to fund the time-share project. CLUB's original principals were Donald Bentzoni, Kevin Curran, Howard Shaw, Bill Smith, Gladys Carter, Phyllis Cooper, Dennis Taylor, Dennis Showalter, Walter Foster and Jimmy and Ricky Townsend. With the exception of Jimmy and Ricky Townsend who together purchased a single $10,000 share and Bill Smith who pledged some other real property, each club investor contributed $10,000 so that CLUB was able to make the initial payment to SANDS, INC. On June 24, 1981, SANDS, INC. and CLUB closed with payment to SANDS, INC. of the initial $100,000.000 payment. Some CLUB principals changed over a period of time due to buying and selling of shares but at no time was SANDS INC. or Richard Moores an investor in CLUB.
Everyone involved testified that ITSC stayed on as the original marketers for the time-share project pursuant to a contract with CLUB, however there appears to be no witness who has ever seen a formal, written contract between the two entities. Any contract with regard to the sale of real property must be in writing, as must any contract with or between corporate entities, and this one was not. At best, it was, from all the circumstances, an oral de facto contract for personal services of the principals of the ITSC corporation, payable by commission. However, it is also clear from the testimony of Bill Smith that ITSC principals and employees signed on conditional installment sales notes and security agreements with third-party purchasers. Apparently, anyone in CLUB or ITSC signed these contracts. Richard Moores signed none.
SANDS, INC. (Moores) continued to manage the motel units.
Construction for conversion/renovation to time-share units/weeks by CLUB began June 25, 1981, overseen by Bill Smith for a promised 2 percent of the sales. This "promise" was apparently made by Donald Bentzoni but whether the promise was on behalf of ITSC or CLUB is uncertain.
Sales of time-share units/weeks began July 1, 1981.
On August 12 or 13, 1981, Richard Moores accompanied Bill Smith, representing CLUB, to open a Sun Bank account for deposit of purchase moneys and paper from third party purchasers (called "escrow account") and an operating account, (called "special" account) but there is no record evidence that Moores was a signatory on any accounts into which monies from installment checks were placed, nor did he sign checks for operating expenses by ITSC or CLUB. Signatories on the so-called "escrow" account were Bill Smith, Howard Shaw, and Walter Foster. Bill Smith was the only signatory on the "special" account. Thereafter, CLUB used the so-called "escrow" account as a collection account until the grace period in which a third party purchaser might cancel a contract had passed, then transferred money (by 2 of the 3 signatures) to the operating account and Bill Smith alone disbursed therefrom to ITSC and others.
The bank sent a notice to CLUB after every payment made by a third party purchaser. ITSC forwarded some of these payments to the bank and certainly had access to these notices from the bank to CLUB at least until Donald Bentzoni was terminated in November, 1981.
Moores for SANDS, INC. had no access to these notices from the bank. Instead, he received a bank statement which reflected total monies deposited, not the number of installment contracts the bank was holding. CLUB and ITSC provided Moores with copies of each installment sales contract, but no one reported the number of contracts put into the bank account and no one otherwise indicated to Moores the identity of contracts or monies put into the bank account. In the summer and early fall of 1981 Moores had no time-share experience and was actively engaged full-time in running the motel. Because of the initial volume of contracts, numerous cancellations, and sometimes sporadic delivery of the contract copies, Moores piled-up his contract copies as they were delivered and did not maintain a personal day-to-day tally of which weeks or which units were successfully sold and which sales were cancel led within the cancellation period.
Delivery of the contract copies to Moores was usually done by Trudy Showalter, bookkeeper for ITSC up until September 1, 1981, or by Bill Smith, a principal and eventually President of CLUB. Delivery was usually daily to either Moores' office or the front desk outside his inner office, but sometimes less frequently.
There is no record evidence that Moores ever had anything to do with preparing a public offering statement for the time-sharing project as contemplated by both the Agreement for Deed and Section 721.07, F.S. (1981). Nor is there anything in the record to show Moores ever handled the marketing, talked to prospective third party purchasers, or participated in closings with third party purchasers. His participation in the conversion/renovation appears to have been limited to getting cars moved and cleaning up debris, which activities are reasonably attributable to hi's continued management of the motel.
Sales did not meet expectations and internal dissension occurred among the principals of ITSC. Dissent likewise occurred between principals of ITSC and principals of CLUB as early as September, 1981.
Sales not meeting expectations, internal conflict among the principals of ITSC, and problems with operating cash flow resulted as early as August, 1981 in Bill Smith becoming involved on a day to day basis with running the time- share project on behalf of CLUB. In September, Bill Smith became President of CLUB.
When sales began on July 1, 1981, Bentzoni, Curran, and Shaw, the ITSC principals acting as ITSC, the paid marketers on behalf of CLUB, made the initial decision to sell out of all 20 projected units and not just unit 205. Thereafter, when Moores expressed concern, Donald Bentzoni apparently convinced everyone at ITSC and CLUB that Moores had given him oral permission to sell out of all 20 or at least 10 units not paid for by CLUB and not yet formally released by SANDS INC. On the basis of the published portions of Bentzoni's deposition and Bill Smith's testimony, I find this meeting of Moores and Bentzoni never truly occurred.
Not until some time in August, however, did Moores realize that sales out of units other than unit 205 were being made. The undersigned finds this to
be so after considering the evidence as a whole. Moores, although a licensed Florida real estate agent, had no previous time-share experience; every principal of ITSC, as well as Bill Smith (with CLUB) and several other CLUB principals did. Bentzoni was running up expenses and rationalizing it due to criticism from ITSC and CLUB principals. Moores had not been involved in active real estate sales for more than a decade. The time-share concept was very new to Florida and the statutory law had not yet congealed. 2/ Moores was off- premises most of the time, and he depended largely on Jimmy Townsend and Bill Smith to keep him informed.
Moores apparently made the connection that sales were being made out of sequence just before Trudy Showalter left the project on September 1, 1981 because he then asked her how he could check up to be sure sales would not occur out of order and she explained the use of the inventory board posted in ITSC's offices and her desk inventory sheets. However, as Bill Smith explained, the inventory board intentionally indicated more sales than had actually occurred and indicated sales out of units which had not been sold and which were not being sold out of as part of ITSC's calculated marketing technique to stampede potential third party purchasers into buying on the misrepresentation that "all units are nearly sold out," when few unit-weeks had in fact actually had been sold. The undersigned finds Moores could not be expected to rely on the inventory board.
Originally, the CLUB investors were supposed to receive a half-percent per month of gross sales in return for their $10,000 investment but cash flow had dried up. Alternatively, each of the investors was given a week out of unit 205, the only released unit. A non-disturbance drawn by someone associated with CLUB was signed by Moores on September, 17 1981. (Petitioner's Exhibit 2) The actions of all concerned are inconsistent with a suggestion that Moores had agreed to allow sales out of other unreleased units for which he had not been paid or a suggestion Moores had agreed to give non-disturbances (or covenants not to interfere) contrary to the provisions of the Agreement for Deed. The initial regulation of time-sharing in Florida was by rules contained in Chapter 2-23, F.A.C., issued on an emergency basis in 1976 by the Florida Attorney General. None of the Respondents, however, was put on notice by the pleadings of any violation of the earlier rules, which, oddly enough, remained in effect until December 29, 1981.
There was a lot of dissatisfaction among CLUB investors with Bentzoni starting in early September. Curran left the project in July or August 1981. Shaw subsequently resigned approximately August 20, 1981, critical of the marketing methods. Following an attempted ouster of Bentzoni at a CLUB shareholders meeting, Bill Smith persuaded Bentzoni to leave as marketer approximately November 10, 1981.
However, in fact, sales were being made out of sequence. Moores had not been paid the release price per unit. By the end of the first three months of sales, neither CLUB nor ITSC had paid Moores the first $10,000 payment due September 24, 1981 under the Agreement For Deed. Moores objected to the sales out of these other units, but Moores, for SANDS INC., had no other leverage besides foreclosure, and foreclosure would have scuttled the entire project.
Over Thanksgiving weekend, Richard Moores, Bill Smith and Jimmy Townsend took a trip by car and listened to a series of instructional tapes on time-sharing. Moores expressed a number of concerns which he had by way of conversation with other people about what was going on with CLUB's time-share project and ITSC's marketing of it. He thereafter spoke to a formal meeting of
CLUB shareholders about these same hearsay concerns. He had heard CLUB and ITSC were employing non-licensed sales persons, failing to pay withholding taxes, failing to obtain the necessary withholding and social security numbers, and selling units out of sequence. Moores admits that at this meeting he told CLUB he wanted veto power over any future marketers they hired. There is no indication CLUB voted him this power or that he ever exercised such a veto.
Moores checked the Agreement for Deed and realized at that point that Provision XVI provided for sales out of non- released units as long as the units were marketed in escrow. There is conflicting testimony in that Moores says Bill Smith told him he had no standing to object and Bill Smith says that Moores orally authorized continued sales out of 10 unreleased units instead of the total 20 claimed by Bentzoni, but the uncontradicted testimony of Moores and Bill Smith was that Bill Smith never told Moores that the monies were not being escrowed even though Bill Smith had a fair knowledge of time-sharing as far back as July 1981 and knew the statute required either that funds be escrowed or in the alternative that a non-disturbance instrument be issued. Even Bill Smith admits that he told Moores sales out of a lot of improper units had cancelled. During the time Bill Smith was president of CLUB, he knew that sales were being made without the requisite non-disturbance clauses being given. During the time he handled the sales on an interim basis, Bill Smith sold thirty (30) to forty
(40) units but did not escrow monies; he did not give non-disturbance instruments; he did not request that Moores give non-disturbance instruments to third party purchasers. There was never a document of equal dignity entered into by SANDS INC. or Richard Moores which would vary the clauses of the Agreement for Deed concerning conditions precedent to be fulfilled by ITSC or its Assignee, CLUB, before non-disturbances would be granted by SANDS, INC.
Bill Smith and perhaps some other unnamed persons participated in sales without being licensed to sell real estate in Florida. Some of these persons may have only been bookkeeping or clerical personnel. It is unclear whether they were employed by the principals of ITSC wearing their ITSC "hat" or their CLUB "hat" or by Bill Smith on behalf of CLUB. On December 15, 1981, Bill Smith wrote Richard Moores assuring him CLUB was in full compliance with all Florida Statutes including real estate sales. (Respondent Moore's Exhibit 2).
Sometime in late 1981 or early 1982, CLUB entered into an agreement (which was back-dated to August 14, 1981, the date of the first sale to a third party purchaser which had not cancelled) with Smith & Smith through Steven K. Smith. (Joint Exhibits 3 and 4) Thereby, CLUB obtained additional cash financing in exchange for third party purchasers' time-share installment contracts, presumably worth a certain retail value of unit weeks. These were contracts from which the Agreement for Deed had contemplated proceeds going to SANDS, INC. unless escrowed in a separate third party purchaser escrow account. The proceeds from all sales from all unreleased units should have been escrowed by CLUB and had not been. CLUB retained some of the cash provided by Smith & Smith and used some of it to pay toward its indebtedness to SANDS INC. under the Agreement for Deed. Neither Moores nor SANDS, INC. were signatories to any agreement between CLUB and Smith & Smith or Stephen K. Smith.
Based upon the testimony of Petitioner's expert accounting witness, Jerry C. Rhodes, no individual escrow accounts for third party purchasers were maintained; no single account or separate books were kept for these monies; no clear records of any income or disbursements from either CLUB's mislabelled "escrow" or "operating" account have been maintained. It is impossible to establish a completed audit trail of the monies taken in by ITSC or CLUB. The
project failed and closed down on February 6, 1982, and third party purchasers did not get their accommodations.
CLUB filed no request for formal hearing pursuant to Section 120.57(1), Florida Statutes, and entered nd appearance before the Division of Administrative Hearings. Indeed, by Order of May 20, 1983, Hearing Officer Pfeiffer denied a Motion to join CLUB in these proceedings.
The majority of the money from the CLUB "escrow" account at Sun Bank went to Daytona Sands Marketing Group, but Daytona Sands Marketing Group filed no response to the Order to Show Cause, did not request a hearing pursuant to Section 120.57(1), Florida Statutes, and was not represented at formal hearing.
CONCLUSIONS OF LAW
INTRODUCTION:
Real estate time-sharing is regulated in Florida by Chapter 721, Florida Statutes, enacted effective July 1, 1981. The statute governs situations in which "use rights" (or ownership of the right to use) are divided by the dimension of time. The time-sharing concept is akin to a lease or license for the use of specific real property for a period commencing on a day certain and ending on a day certain, which period recurs again and again, usually on an annual basis. [Example: Purchaser A "owns" the first two weeks in January for every year, forever.] In the typical situation, there will be intervening periods of non-use and of use (also for specific recurring time segments) by other time-share owners. [Example: Purchasers B-Z each own 2 week segments respectively from the third week in January to the end of December for every year, forever.] Time- share purchasers/owners pay only for the time used without purchasing the physical real property in fee simple. Real estate time- sharing generally provides the purchaser/owner the exclusive right to use and occupy his purchase during the specified time-share period.
International Time-Share Consultants, Inc. (ITSC)
The Motion to Dismiss: Section 721.05, Florida Statutes (1981), provides the following pertinent definitions:
"(5) `Developer' means the person creating the time-sharing plan.
"(9) `Offer to sell,' `offer for sale,'
`offered for sale' or `offer' means solicitation of purchasers the taking of reservations, or any other method whereby a purchaser is offered the opportunity to participate in a time-sharing plan.
"(12) `Seller' means any developer or any other person, or agent or employee thereof, who is offering time-share periods for sale to the public in the ordinary course of business, except a person who has acquired a time-share period for his own occupancy and later offers it for resale."
ITSC originated the concept of converting an old motel into the Daytona Sands time-share project. In this capacity, ITSC would have been a "developer," as defined by Section 721.05, Florida Statutes (1981) but that
statute was not effective for six more days. Initially, ITSC intended to finance the time- share venture itself with funds ITSC was receiving from its independent time-share marketing project elsewhere. After assigning its interest in the Agreement for Deed to CLUB, on June 24, 1981, ITSC entered into an agreement with CLUB to market the time-shares on behalf of CLUB and to receive payment for such marketing involvement from CLUB. Although ITSC's corporate status as a "developer" ceased; it was now a "seller," as defined by Section 721.05(2), Florida Statutes (1981). If there were some direct evidence that ITSC through its principals prepared or filed the public offering statement contemplated by the Agreement for Deed and Section 721.07 Florida Statutes (1981) or even if there were some solid indication Bill Smith was converting/renovating the motel for ITSC instead of directly for CLUB there might be something to tie ITSC in as a "developer" after June 24, 1981. There is not. However, the position of corporate ITSC as a marketer-seller extended from the date sales began, July 1, 1981 at least until November, when CLUB ousted Donald Bentzoni and started searching for a nag marketer. This construction of the continuing corporate involvement of ITSC is supported by the record even though ITSC's principals apparently left the project one at a time over a period of several months. (Curran left in July or August 1981; Shaw left August 20, 1981; Bentzoni was persuaded by Bill Smith to leave about November 10, 1981). Therefore, ITSC's position that the corporation got out of the transaction on June 24, 1981 and hence was not subject to the provisions of Chapter 721, Florida Statutes, which became effective July 1, 1981, is not viable and the ITSC Motion to Dismiss on those grounds is accordingly denied.
Concomitantly, it is also clear that the Petitioner and thus the Division of Administrative Hearings has jurisdiction over the corporate person of ITSC and the subject matter of the charges against it, but that ITSC may be held liable in this proceeding, if at all, only for its actions as a seller" between July 1, 1981 and of November 10, 1981. 4/
The Charges: Having resolved the threshold issue that ITSC was a "seller" subject to regulation by Chapter 721, Florida Statutes (1981), from July 1, 1981 through early November, 1981, the charges against ITSC may be considered in light of the facts found.
ITSC is charged with failing to employ licensed real estate salesmen, brokers, or broker salesmen, pursuant to Chapter 475, as required by Section 721.20, Florida Statutes (1981). While there is some evidence in the record that some employees of the time-share project were unlicensed, there is no clarity whatsoever of who hired them or authorized their activities (CLUB or ITSC) or during what period they were employed or even how many such unlicensed persons were employed. Apparently some employees and CLUB investors sold and were thus "sellers" themselves and some were clerical only an& did not sell; some were paid by ITSC check and some by CLUB check; some were trainees and/or on straight salary (which would take them outside of Chapter 475, F. S.). While it might be possible to bind CLUB by the actions of its agent, ITSC, reverse agency of the superior (CLUB) to the inferior (ITSC) is not recognized in Florida so as to bind ITSC by the actions of its employer CLUB. Therefore, one is forced to conclude that Petitioner has not met its burden of proving against ITSC the charge of failure to employ licensed real estate salesmen.
ITSC is charged with misrepresenting fact or creating a false or misleading impression regarding the time-share plan in violation of Section 721.11(2)(a), F. S. (1981), by leading purchasers to believe their accommodations would be available to them when in fact they were not. Clearly, any number of misrepresentations were made, first to mislead and induce third parties to purchase, and second to mislead and induce third Parties into
purchasing specific units which at the time of purchase had yet to be converted/renovated. Unfortunately, absolutely no evidence from any third party purchaser was introduced by Petitioner as to what "impression" he had formed of when his accommodations would be available or who or what entity made misrepresentations to him. Certainly, however, it is clear that the accommodations were never available to any third party purchaser due to the collapse of the project's financing. Consequently, on balance, Petitioner has proved against ITSC the charge of misrepresentation pursuant to Section 721.11(2)(a), Florida Statutes.
ITSC is charged-with failing to place 50 percent of the funds received from purchasers in an escrow account, pursuant to Section 721.08(3), Florida Statutes (1981). Section 721.08(3), provides as follows:
"Each escrow agent shall maintain separate books and records for each time-sharing plan and shall maintain such books and records in accordance with good accounting practices."
This subsection normally applies to escrow agents defined in Section 721.08(1)(b) with whom sellers, (in this case ITSC and CLUB), under certain specified conditions, are required to place funds received from third party purchases. Instead of using the Sun Bank accounts already established by CLUB or establishing a true escrow account on behalf of third party purchasers and thereafter letting the bank act as escrow agent, ITSC acted as escrow agent for CLUB and later CLUB acted as its own escrow agent. ITSC and CLUB apparently commingled many types of funds. In this capacity, both thereby violated Section 721.08(3), Florida Statutes (1981), but ITSC's involvement ended in early November, 1981, before the bulk of sales by Bill Smith for CLUB. With this mitigation, the failure to escrow an account charge has been proved against ITSC.
Daytona Sands Beach Club, Inc. (CLUB):
Upon a review of the entire record and upon the foregoing findings of facts, CLUB has never been a party to these proceedings and is therefore not before the Division of Administrative Hearings pursuant to Section 120.57(1).
Daytona Sands, Inc. d/b/a The Sands Beach Club (SANDS, INC.)
The Motion to Dismiss: By its Motion to Dismiss, SANDS, INC., argues that by the very nature of an Agreement for Deed, SANDS, INC. was in the position of a mortgagee and that all its acts and the acts of its President, Moores, on its behalf constitute only the normal acts of a mortgagee protecting its security interest. Its position is well taken as to the charges but is not jurisdictional. The Motion to Dismiss is denied. The Petitioner and thus the Division of Administrative Hearings has jurisdiction over SANDS, INC. and the subject matter of the charges against it.
The Charges: SANDS, INC. entered into the Agreement for Deed with ITSC for ITSC's scheme of development and marketing. The posture of SANDS, INC. in this matter is simply that of a former owner or transferee who sold the motel pursuant to an Agreement for Deed to an entity which failed to successfully develop and market a time-share resort. The status of SANDS, INC., under the Agreement for Deed is that of a mortgagee, Hoffman v. Semet, 316 So. 2d 649 (Fla. 4th DCA 1975); Section 697.01, Florida Statutes. A mortgagee has no
fiduciary duty to ensure monies are escrowed or that a non-disturbance is provided by ITSC or its successor, CLUB, to third party purchasers.
Petitioner's argument apparently recognizes the exempt status of a mortgagee, but the essence of Petitioner's case against SANDS, INC. is based on the premise that its President, Richard Moores' activities on behalf of SANDS, INC. after July 1, 1981 make him as much a "seller" as those engaged in the day- to- day time-share sales operation and that these activities fall into six categories.
Specifically, Petitioner has charged and argues in its Memorandum of Law in lieu of proposed findings of fact and conclusions of law, that the following "passive" actions of Moores transformed SANDS, INC. into a "seller" within the statutory definition:
Participating in the operation of the time-sharing plan through veto power over subsequent marketers.
Requiring termination of a marketer.
Allowing sales to continue without statutorily required nondisturbance clauses despite knowledge of the necessity for an lack of existence of same.
Allowing sales to continue despite knowledge of unlicensed salespersons.
Allowing transfer of sales contracts to a third party in a manner in violation of 721.17, Florida Statutes (1981).
Allowing transfer of unit weeks to a third party in a manner in violation of Section 721.12, Florida Statutes (1981).
One does not have to pierce the corporate veil very far to determine that President Moores acted at all times as an authorized agent for SANDS, INC. and, to all intents and purposes, was SANDS, INC., but with that qualification, did he do anything that classified him as a "seller" pursuant to Section 721.05(12)? He did not.
Admittedly, Moores operated as a concerned holder of a security interest. In light of case law, his demand for veto power over future marketers, even if exercised, would not have merged Moores or SANDS, INC. with ITSC or CLUB, "sellers" under the Act, Sheedy v. Vista Properties, Inc. 410 So. 2d 561 ( Fla. 4th DCA 1982); Armetta v. Clevetrust Realty Investors, 359 So. 2d
540 (Fla. 4th DCA 1978), cert. denied, 366 So. 2d 879 (Fla. 1978). Rice v. First Federal Savings & Loan Association, 207 So. 2d 22 (Fla. 2d DCA 1968), cert. denied, 212 So. 2d 879 (Fla. 1968), but we do not have to reach that issue since a veto was never granted or exercised. The first charge is therefore not proven against SANDS, INC.
Petitioner only established ouster of Bentzoni by CLUB due to general dissatisfaction. That Moores also was dissatisfied, and vocally so, does not merge Moores or SANDS, INC. with anyone else who might qualify as "sellers" under the Act. The second charge is therefore not proven.
The remaining four charges fall in the category of "allowing" ITSC or CLUB to do something. The only "allowing" seems to have occurred in Moores delaying foreclosure where he was entitled to do so in hopes the mortgagor
(CLUB) could work things out. Had SANDS, INC. granted non-disturbance agreements before being paid by CLUB (and perhaps before even CLUB was paid in full by third-party purchasers), SANDS, INC. would have abandoned its security interest, totally clouded title for all concerned and possibly have actually acquiesced in CLUB's wrongful business practices. Moores did not do this. He further entered into no document (certainly no document of equal dignity) to abandon any of SANDS, INC.'s rights under the Agreement for Deed. "Allowing," as charged, covers purely passive acts which, if such "allowing" even took place, 6/ is not sufficient in light of the great weight of evidence and foregoing findings of fact to the contrary that Moores did not participate in sales to third party purchasers in any way to merge SANDS, INC. with any other entity, Chotka v. Fidelo Grouth Investors, 383 So. 2d 1169 (Fla. 2d DCA 1980); Armetta v. Clevetrust Realty Investors, supra, First Wisconsin National Bank v. Roose, 348 So. 2d 610 (Fla. 4th DCA 1977); Dunson v. Stockton Whatley, Davis & Co., 346 So. 2d 603 (Fla. 1st DCA 1977); Rice v. First Federal Savings & Loan Association, supra. Therefore charges 3-6 are not proven against Sands, Inc.
Daytona Sands Marketing Group Inc.: Upon a review of the entire record and upon the foregoing findings of facts, GROUP is not a party to these proceedings and is therefore not before the Division of Administrative Hearings pursuant to Section 120.57(1).
Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Business Regulation enter a Final Order which:
Imposes civil penalties of $10,000 upon International Time-Share Consultants, Inc., a corporation, for the misrepresentation charge and $10,000 for the failure to escrow and account for all monies during its period of involvement charge.
Determines all principals of International Time-Share, Inc., are not parties to these formal proceedings pursuant to Section 120.57(1), F.S.
Dismisses all charges against Daytona Sands, Inc. a corporation, and determines Richard Moores individually is not a party to these proceedings.
Determines Daytona Sands Beach Club is not a party to these formal proceedings pursuant to Section 120.57(1), F.S.
Determines Daytona Sands Marketing Group is not a party to these formal proceedings pursuant to Section 120.57(1), F.S.
DONE and ORDERED this 22nd day of February, 1985, in Tallahassee, Florida.
ELLA JANE P. DAVIS
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904)488-9675
FILED with the Clerk of the Division of Administrative Hearings this 22nd day of February, 1985.
ENDNOTES
1/ These objections were ruled on in Hearing Officer Chavis' Order of June 1, 1984.
2/ All the administrative charges against all Respondents were based on alleged violations of Chapter 721, Florida Statutes (Effective, July 1, 1981).
3/ Principals of ITSC were also principals of CLUB, and may individually have continued as "developers" and "sellers" under the statute which became effective on July 1, 1981. However, Petitioner affirmatively waived proceeding against any of the corporate officers in their individual capacities.
4/ In arriving at this conclusion of law, I have not overlooked Petitioner's Memorandum of Law setting forth that initial state regulation of time-sharing occurred in rules contained in Chapter 2-23 of the Florida Administrative Code which rules were issued on an emergency basis in 1976 by the Florida Attorney General. However, Petitioner has not introduced the content of these rules in evidence, has not charged any Respondent under them (see footnote 2), and has not argued them as applicable to any Respondent and consequently no basis exists by which they may be applied to the instant case. Furthermore, as Chapter 721, Florida Statutes (1981), is clearly quasi-penal and substantive in nature, it may not be applied retroactively against any Respondent.
5/ There appear to be no cases directly on point for time-share resorts under Chapter 721, Florida Statutes (1981). Therefore, some cases cited reach the stated conclusions for purposes of Chapter 711, F.S. (1976) [now Chapter 718,
F.S. (1983), i.e. condominiums] and Chapter 440, F.S. (1981), i.e. workers' compensation.
6/ Pursuant to the foregoing findings of fact, it has not been established with certainty who employed unlicensed sales persons and it has been established that within two weeks of voicing his concerns, Moores was assured in writing that everyone was within statutory compliance.
COPIES FURNISHED:
Thomas A. Bell, Esquire 725 South Bronough Street Tallahassee, Florida 32301
Donald Bentzoni Suite 201
1343 Main Street Sarasota, Florida
Lydia M. Valenti, Esquire
11 East Pine Street Orlando, Florida 32802
David C. Robinson, Esquire
326 1/2 South Beach Street Suite 8
Daytona Beach, Florida 32015
Richard B. Burroughs, Jr. Secretary
Department of Business Regulation The Johns Building
725 South Bronough Street Tallahassee, Florida 32301
Robert E. Austin, Jr. 900 North 14th Street Leesburg, Florida 32748
| Issue Date | Proceedings |
|---|---|
| Jul. 18, 1985 | Final Order filed. |
| Feb. 22, 1985 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jul. 17, 1985 | Agency Final Order | |
| Feb. 22, 1985 | Recommended Order | Impose $10,000 penalty for misrepresentation and $10,000 for failure to escrow. Dismiss charges against others. |
