“Beware of Pool Contract Arbitration”

Luxury Homes and Estates in Florida

There has been a proliferation of protective strategies employed by various industries in order to safeguard their members. One device has been to adopt an arbitration provision which requires the unwitting customer who signs a contract to participate in binding arbitration with a panel composed of other like-minded industry representatives. For example, used car salesmen, stock brokers and pool contractors have formed their own legal panels to review cases in a binding arbitration arena.

It is true that having arbitrators familiar with the industry can promote efficiencies. However, the appearance of impropriety is also presented.

I recently learned of a pool dispute concerning a local pool contractor. The arbitration clause in the contract required that a panel of three arbitrators be selected from the Florida Swimming Pool Association. The pool of potential arbitrators were composed solely of other local pool contractors.

The facts of the case were quite simple. A pool contract had been signed on November 14, 2003. It was contemplate the pool would be constructed well within a year as the homeowner would be moving into the property in November of 2004. However, a year later the pool was unfinished and the homeowner moved into the residence. In March of 2005(i.e., a full 16 months later), the pool had not been completed. The diamond brite pool surface coating, pool lights, pool filter, pool pumps, child safety fence and heater had not been installed. The owner made continuous demands of the pool contractor to finish its work. However, months went by with no work being performed and the pool contractor simply ignored all phone calls.

The owner had no choice but to hire a substitute pool contractor to finish the work at a substantially higher price.

At the arbitration, the pool contractor conceded that it never installed diamond brite coating or the pool equipment. However, the pool contractor argued that the hurricanes experienced in August and September of 2004 excused its performance.

Moreover, the pool contractor argued that the contractor did not provide for a completion date. In response, the owner argued that the contract certainly assumed a reasonable time for performance and after a year and a half the pool was not completed and the pool contractor abandoned the job.

The panel (composed of three area pool contractors) sided with the pool contractor and awarded the contractor money for work never performed and also ruled that once the contractor received full payment he had no liability for his workmanship or for warranties.

In essence the contractor never performed his contract yet received full payment. Furthermore, the pool contractor escaped any liability for faulty work.

There are two lessons to be learned from this case. First, never sign a contract for pool construction that does not have a date for completion. Second, strike any self serving arbitration provisions especially where the panel will be composed solely of other pool contractors.

As a footnote, the case is on appeal.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“Construction Defects: A Homeowner Cannot File Suit Until Complying With Notice Under 558 Of The Florida Statutes.”

Luxury Homes and Estates in Florida

The housing market has boomed in recent years in Central Florida. New home construction has strained the capacity of local builders, laborers and material suppliers. Litigation concerning faulty design or construction methods respecting homes is likewise on the rise.

To combat the marked increase in court filings, the legislature enacted Chapter 558 as an alternative to resolve construction disputes. Pursuant to the law a dissatisfied homeowner must supply his contractor, design professional, subcontractor or supplier notice of a claim listing all construction defects. The notice must include language as set forth in Section 558.005(2) of the Florida Statutes. The notice must also be delivered by certified mail. Upon receipt of the notice of defects a contractor has thirty (30) days to inspect the property and assess each of the alleged construction defects.

Within forty-five (45) days a contractor must provide a written response. In the response the contractor must address each of the alleged defects by:

(a) Offering to fix problem at no cost to the claimant;

(b) Offering to make a monetary payment to settle the disputed item;
(c) Disputing the claim and stating that it will not fix the problem; or
(d) Deferring to the contractor’s insurance company to determine a monetary offer which the homeowner may subsequently accept or reject.

If the contractor does not respond to the notice the homeowner is free to initiate litigation.

The statutes will not allow any lawsuit or arbitration to go forward without compliance with the notice provisions.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“Statute of Limitations for Building Problems”

Luxury Homes and Estates in Florida

The Florida Legislature has enacted statutes which limit the time that a party may bring a lawsuit to recover damages related to construction. Specifically, 95.11(c) applies to any action founded on the design, planning, or construction of an improvement to real property. The statute requires that any claim for defective construction must be initiated within four (4) years of the date an owner takes actual possession, is issued a certificate of occupancy or the date of the completion of a contract, whichever date last occurs.

However, the statute goes on to state that if there is a “latent defect” the time runs from the date the defect is discovered or should have been discovered.*

Thus, if a problem with the construction of a home or building is discovered four (4) years after the owner takes possession a lawsuit is barred unless the defect can be described as “latent”.

A latent defect is defined as one that is not apparent from the use of one’s ordinary senses.

Latent defects are generally considered to be hidden or concealed defects which are not readily discoverable. Alexander v. Sun Coast Builder, Inc., 837 So.2d 1056.

The determination of whether or not a defect is latent or not is a factual one to be determined on a case by case basis. Caselaw offers some guidance. In Hava Tampa Corporation v. McElvy, 417 So.2d 703, the court held that a roof leak is open and obvious and it did not matter whether the owner knew of the specific cause of the roof leak. Since it was obvious that the roof leaked the owner must initiate his lawsuit within four (4) years otherwise the claim would be barred.

In the case of Lakes of Meadow Village Homes Condominium v. Arvida, 714 So.2d 1120, the court considered building defects latent where they were discovered only after Hurricane Andrew damaged the building and exposed that the roof truss system lacked adequate bracing. The missing or improperly placed reinforcements on the bracings were concealed from view by the roof itself. The court allowed the lawsuit even though over four (4) years had past since the owner took possession of the building.

An owner upon discovering a defect with his building should immediately initiate an action to avoid the statute of limitations defense.

*In no event will an action be initiated 15 years after the date of actual possession by the owner, date of issuance of a certificate of occupancy, or the date of completion of a contract, whichever date is latest.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“Basic Florida Mechanics Lien Law”

Luxury Homes and Estates in Florida

If you are a homeowner in Florida, you will no doubt have occasion to contract for repairs or improvements to your property. You should know that the Florida lien law provides homeowners certain protections and also provides particular warnings to help homeowners navigate payment of multiple bills often from unknown suppliers, subcontractors and laborers.

Each supplier, subcontractor or in some cases laborers are directed by statute to give homeowners a notice that they have worked on the property. This notice is called “Notice to Owner” and must be delivered within 45 days of the first delivery of material or first work performed on your home. The failure to provide you a Notice to Owner within the time requisites results in the absolute loss of any right to claim a lien against the home.

Do not be alarmed by the receipt of a Notice to Owner from multiple parties, many of whom you do not know. The Notice is provided so that you can police your general contractor and ensure that every party has been paid.

The actual Notice to Owner will provide a warning. To avoid paying twice, homeowners are directed to contact the subcontractor or supplier to ensure that it has been paid prior to disbursement to the general contractor.

The statutes require that a supplier or subcontractor deliver the Notice to Owner by certified mail.

The Notice scheme is set up in such a way that homeowners can merely relax. The homeowner has no obligation to seek out parties who do not provide a Notice to Owner.

Homeowners should keep a log of each Notice to Owner received and require proof of payment from the general contractor before disbursing or require a progress payment affidavit from the contractor as a condition to make payment.

The failure to pay suppliers, subcontractors or the general contractor, may result in a lien placed against the home. A lien is a statutory creature which allows an unpaid lienor to sell the property at the courthouse steps, if necessary, in order to receive payment.

Each supplier or subcontractor must record a Claim of Lien within 90 days of the last date that the supplier, subcontractor or contractor worked at your home. The statutes also require that homeowners be provided a copy of the Claim of Lien, by certified mail, to ensure that the homeowner knows of the outstanding bill prior to disbursing any final payments to the general contractor.

Prior to making any final payment to a general contractor, homeowners should obtain a Final Contractor’s Affidavit wherein the general contractor swears that all subcontractors and suppliers have been paid in full under penalty of criminal law.

Great care should be exercised to make sure every lienor has been paid. Unpaid lienors may file an action to foreclose against the property. The advice of an attorney should be sought to explain the ins and outs of the Mechanics Lien Law and to assist in obtaining appropriate affidavits from the general contractor.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“You Have Obtained a Final Judgment: Now What?”

Luxury Homes and Estates in Florida

The public has a general view that once a judge has rendered his decision and a final judgment is entered the case is over. However, in the event that the plaintiff prevails and is awarded a money judgment or either the plaintiff or defendant prevails and is awarded attorneys fees a second part of the case involving collections is required.

I recently attended a hearing where a plaintiff was acting pro se (without the services of an attorney) and the judge awarded her a final judgment. She looked across the table and asked the defendant when she could expect his check. The defendant leered back across the table and merely laughed.

The plaintiff was extremely confused and frustrated. She left the hearing and I doubt she ever made any collection efforts. The final judgment she received that day was merely a piece of paper suitable for framing.

The collection process can be challenging. Occasionally, a defendant will offer to pay the final judgment or a portion thereof in order to obtain a full release or satisfaction of the final judgment.

However, more often than not, a defendant will refuse to pay. In this circumstance a certified copy of the final judgment should be recorded in each county wherein the defendant may own real property.

Furthermore, a judgment lien certificate should be filed in Tallahassee in accordance with 55.203 of the Florida Statutes. The judgment lien certificate, once filed, will provide notice and establish priority with regard to the debtor’s personal property. The judgment lien certificate is required to be filed before a party may instruct the sheriff to pick up personal property owned by the defendant and have same sold.

The most effective tool in order to collect a judgment is a garnishment to freeze a bank account. A garnishment procedure is invoked by filing the necessary forms with the clerk of the court which identify a bank or third party who may have in its possession monies owed to the defendant. The garnishment procedure is found in Chapter 77 of the Florida Statutes.

Once a garnishment is served upon a bank or third party the monies in the account are frozen pending notice to the defendant and an opportunity to dispute the seizure of funds.

The garnishment procedure is the best way to obtain payment because it is the least expensive method and simplest procedure.

The garnishment procedure is extremely effective in collecting judgments against corporations. The corporation may have several accounts receivable that will be paid in a 30-60 day timeframe. Serving the garnishment upon the customers of a corporation will intercept these monies. A judgment against an individual is more problematic.

An individual may be “the head of household” which severely restricts the percentage of the paycheck that can be garnished. Moreover, if the individual earns less than an established threshold, no garnishment can be obtained.

A plaintiff is also restricted as to the assets that are available to pay the judgment. For example, a judgment against a husband will not encumber assets, bank accounts or personal property owned by husband and wife. A judgment against one spouse generally does not encumber marital property.

A plaintiff’s efforts to obtain payment are often stymied by bankruptcy, homestead exemptions, head of household exemptions, marital asset exemptions as well as competing claims of other creditors.

A party would be wise to investigate the assets of a target prior to initiating litigation in order to assess the opportunities for collection. Otherwise you too could receive a paper judgment with no monetary value.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“Liability of Successor Corporation/De Facto Merger”

Luxury Homes and Estates in Florida

A corporation deep in debt often will try to eliminate liability by merely incorporating under a different name. In many circumstances the law will allow creditors of the defunct corporation to recover from the new corporation.

Generally, Florida law does not impose the liabilities of a predecessor corporation on a successor corporation unless:

1. The successor expressly or impliedly assumes obligations of the predecessor;
2. The transaction is a de facto merger;
3. The successor is a mere continuation of the predecessor; or
4. The transaction is a fraudulent effort to avoid the liabilities of the predecessor.
The case of Laboratory Corporation of America v. Professional Recovery Network ETC provides an excellent review of this area of law. In that case, a company owned exclusively by one shareholder, officer and director ran up a sizable debt in the amount of $500,000. Once the creditor demanded payment the owner discarded the corporation. He started a new corporate entity wherein he remained the sole shareholder, officer and director. The new entity engaged in the same business, had the same customers, the same employees and same telephone, fax numbers, accounting system and computerized database as the prior corporation.

The court made short shrift of this obvious effort to defraud creditors.

In determining whether or not a new corporate entity is part of a fraudulent scheme to avoid liabilities the court adopts several tests.

First, the court will examine whether or not reasonable value has been paid for assets that are transferred to the new corporation.

Second, the court will examine whether a de facto merger occurred wherein one corporation was merely absorbed by another (i.e. there is a continuity of the selling corporation evidenced by such things as the same management, personnel, assets, location, stockholders, customers, employees and location of operations).

By adopting these simple tests the court determines whether fraudulent intent exists to avoid payment to creditors.

Abandoning one corporation on Friday and starting a new corporation continuing the same business on the following Monday will most likely be determined a sham. Creditors should not be discouraged by such transparent maneuverings.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.

“Embezzlement: An Employee Will Not Get Off The Hook By Asserting The 5th Amendment Privilege Against Self-Incrimination”

Luxury Homes and Estates in Florida

I am often confronted with a dismayed employer who has realized that a trusted employee has stolen and embezzled substantial sums of money. The employer then is faced with the civil action filed against the employer in order to recover the stolen monies. Correspondingly, the employer often approaches the criminal authorities to have an action brought for theft.

Once the civil action is initiated a deposition of the employee shortly follows. The employee, represented by counsel, will often invoke the 5th Amendment privilege against self-incrimination. The privilege against self-incrimination is available to all parties in a civil action and is designed to prevent a party from admitting facts which would lead to a criminal conviction. However, the employee has done himself no favor in the civil action.

Florida courts recognize that once a party in a civil case invokes the 5th Amendment, the opposing party is entitled to an inference that the answer would have been a negative and against that party’s interest. Fraser v. Security & Investment Corp., 615 So.2d 841, 841-42 (Fla. 4th DCA 1993). Further, a party’s silence to questions will allow the court and jury to draw a negative inference. McCreery v. Fernandez, 882 So.2d 498 (Fla. 4th DCA 2004). Thus, an employee faced with a civil action may invoke the 5th Amendment or merely remain silent. In either even, the plaintiff’s counsel may utilize the response to build its case.

On the other hand, the court oftentimes will merely abate the civil action until the criminal action is completed in order to avoid prejudice to a defendant. However, the court is constrained to only abate an action as long as there is a defined time limit to the completion of the criminal action. The plaintiff, employer, seeking redress for the stolen monies will not be held up indefinitely. Thus, refusing to answer questions of the 5th Amendment will not provide a safe harbor to the thief in a civil action.

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Houston Short grew up in the Central Florida area, and continues to reside in Orlando with his family. He provides representation in arbitration actions for the American Arbitration Association and engages in alternative dispute resolutions including mediation both binding and non-binding arbitration, and settlement negotiations. He is an active member of the American Arbitration Association Panel Review Committee, the Orange County Bar Association, and the Florida Bar. He graduated from Florida State University in 1984 with a bachelors of science degree (cum laude) and received his juris doctor from the University of Florida in 1987 (with honors). Houston co-authored, "The Constitutionality of the Legislatures Mandate to Sever Counterclaims in Mortgage Foreclosure Action," the Real Property, Probate and Trust Law Section, The Florida Bar.