Donald N. Denson v. J.E. Stack, Jr.

997 F.2d 1356, 1993 U.S. App. LEXIS 20566, 1993 WL 282932

• Court: Court of Appeals for the Eleventh Circuit
• Decided: August 13, 1993
• Docket: 91-3405, 91-3922
• Status: Published

Opinions

BIRCH, Circuit Judge:

This appeal arises from a real estate contract for the sale of timberland in Levy County, Florida. The buyer, appellant-plaintiff Donald N. Denson, appeals the district court’s finding that he breached the contract and, therefore, forfeited his earnest money deposit. Denson also appeals the district court’s award of attorney’s fees and costs to the seller, appellee-defendant J.E. Stack, Jr. We REVERSE the district court’s decision and REMAND for further proceedings.

I. BACKGROUND

A. Facts

On June 30,1990, Denson, as trustee for a group of individuals, signed a contract to purchase approximately 7,500 acres of timberland owned by Stack and known as Devil’s Hammock. Devil’s Hammock is located in Levy County, Florida, and is bisected by the Waccasassa River. The purchase price was $7,000,000 of which a $300,000 earnest money deposit was put into an escrow account. Stack was required to deliver evidence of marketable title in the form of a title insurance commitment from a qualified title insurer. The commitment was to insure Denson for the purchase price. The contract provided that certain title exceptions would be acceptable to Denson and required Den-son to object to any other title defect within five days of receiving the title commitment. If such an objection was made, Stack was required to use diligent efforts during the next 120 days to remove the title defects. If Stack was unable to remove the defects, then Denson had the option of either accepting the title as it was or demanding a refund of the deposit. The closing date was to be on or before September 15, 1989. Unless both Denson and Stack otherwise authorized the bank in writing, the escrow agreement instructed the bank to transfer the $300,000 and accumulated interest to Stack after September .15, 1989. Finally, the contract provided that, in any litigation connected with the contract, the prevailing party was entitled to recover attorney’s fees and costs.

On August 24, 1989, Stack sent Denson a title commitment issued by Stewart Title Guaranty Company (“Stewart Title”). The title commitment contained a number of exceptions, only two of which are relevant to this appeal. Exceptions 18 and 19 stated that the title insurance commitment was:

18. Subject to the inalienable rights of the State of Florida and the United States of America under its control of navigation and commerce as to any portion of the lands described in the commitment which were created by artificial means and/or accretions thereto.

19. Subject to the inalienable rights of the State of Florida and of the United States of America to any portion of land described in the Commitment which are marshland and/or meadowland.

R2-49-15-16. Denson received the title commitment on August 28,1989. On August 30,1989, Denson advised Stack by letter that these sovereignty exceptions were unacceptable.

In a letter dated September 12, 1989, Stack stated that the closing scheduled for September 15, 1989, would not occur until a resolution to the objections was worked out, but that the contract would not be affected despite the lack of a closing by September 15, 1989." On September 15, 1989, Denson and Stack executed an extension of the escrow agreement from September 15, 1989, to September 29, 1989.

In late September, the Florida Department of Natural Resources (“DNR”) advised Stack that its position was that the State of Florida owned all lands lying below the ordinary high water mark of any watercourse that was navigable at the formation of statehood in 1845. The DNR also advised Stack that it had no current position on whether the portion of the Waccasassa River which ran through Devil’s Hammock had been navigable in 1845 and, therefore, could not disclaim ownership of a portion of Devil’s Hammock.

In early October, Stewart Title amended the title commitment by consolidating and restating exceptions 18 and 19. The new sovereignty exception stated that the policy did not insure against:

Any titles or rights asserted by anyone including but not limited to persons, corporations, governments, or other entities, to tide lands or lands comprising the shores or bottoms of navigable rivers, lakes, bays, ocean or gulf, or lands beyond the line of the harbor or bulkhead lines as established or changed by the United States Government or water rights, if any, including rights to marshlands and wetlands.

R2-49-18. Despite the amendment, Denson continued to object to the exception because of the State of Florida’s possible claim. Stack, however, advised Denson that the exception was standard and that the closing should occur on October 16, 1989. Denson refused and argued that Stack was unable to convey marketable title.

During November and December, Stack attempted to remove the title defect. Stack hired Lee Mills to determine the high water mark of the Waccasassa River throughout Devil’s Hammock. Mills determined that approximately 212 acres fell below the high water mark. When the DNR was presented with this information, it informed Stack that, if another expert acceptable to the DNR confirmed Mill’s survey, then the DNR would disclaim all land above the ordinary high water mark. Luther Holloway, an expert acceptable to the DNR, was then asked to determine the high water mark. Holloway found that up to 2,500 acres of land, or one-third of Devil’s Hammock, might be under the high water line. Holloway, however, made no determination as to whether the Waccasassa River was navigable in 1845. Thus, the DNR was only willing to disclaim ownership to two-thirds of Devil’s Hammock.

Having failed in his attempt to persuade the DNR to disclaim its putative interest in Devil’s Hammock, Stack informed Denson in late December 1989, that he was considering bringing suit against the State of Florida to quiet title. Stack decided against pursuing this option in January 1990, after he was advised that such a suit might take a number of years and cost over $1,000,000. Stack then approached Stewart Title and requested that it remove the sovereignty exception. Stewart Title offered to remove the exception if Stack would give it an indemnity agreement secured with a $5,000,000 mortgage. Stack rejected the proposal. Stack also contacted other title insurance companies, but no company would insure the title without including a sovereignty claim exception. Finally, Denson and Stack discussed alternative methods of closing on the property. Denson suggested that they close on the entire tract of land, but that the amount due on land below the high water mark be put in escrow in case the State of Florida later asserted a claim to this land. These discussions were fruitless.

In February 1990, the DNR informed Stack and Denson that, after research, its position was that the portion of the Wacca-sassa River running through Devil’s Hammock was navigable in 1845. The DNR, thus, asserted that the State of Florida owned that part of Devil’s Hammock which was below the high water mark of the Wac-casassa River. Coupled with Holloway’s survey results, the DNR was claiming ownership of approximately one-third of Devil’s Hammock. Despite this development, Stack demanded closing on February 20, 1989, and again on March 6, 1990. Denson refused to close and demanded that Stack file suit to remove the title defect.

On March 8, 1990, the bank in control of the escrow account transferred the $300,000 earnest money deposit and accumulated interest from the escrow account to Stack’s personal account. The bank then applied this money to Stack’s other debts owed to the bank. Upon learning of the transfer, Denson demanded that Stack either file suit or return the deposit and interest. Stack refused and this lawsuit followed.

B. Procedure

Denson’s suit against Stack sought specific performance or, alternatively, monetary damages for breach of contract. Denson also sought damages under the civil theft statute. Fla.Stat.Ann. §. 772.11 (West Supp.1990). During trial, Denson withdrew his claim for specific performance.

At the conclusion of a bench trial, the court found that Devil’s Hammock was not encumbered by any claim by the State of Florida because the Waccasassa River was not navigable through Devil’s Hammock, that Stack complied with all conditions imposed upon him by the contract and was prepared to transfer marketable title, and that Denson breached the contract by refusing to close. Stack was awarded the $300,000 and accumulated interest as the liquidated damages for Denson’s breach. The court also found that Stack was not guilty of civil theft because he did not know of, counsel, or authorize the bank’s transfer of the escrow money to his personal account. Finally, the district court held that Stack was entitled to attorney’s fees and costs under both the terms of the contract and the civil theft statute.

A separate hearing was held to determine the amount of Stack’s attorney’s fees and costs. After hearing objections from Den-son, the district court awarded $151,281.70 in attorney’s fees and $2,559.10 in costs. Den-son appeals both the district court’s judgment and award of attorney’s fees and costs.

II. DISCUSSION

A. Breach of Contract

The contract for the sale of Devil’s Hammock required Stack to convey marketable title to Denson. Denson claims that the threatened claim by the State of Florida to all land lying below the ordinary high water mark of rivers that were navigable in 1845 renders Stack’s title to Devil’s Hammock unmarketable. Stack contends that the district court properly found that the his title was unencumbered by any claim of the State of Florida. We review the district court’s factual finding for clear error, while independently evaluating its legal conclusions. Wheeler v. City of Pleasant Grove, 896 F.2d 1347, 1360 (11th Cir.1990) (per curiam).

In Florida, title is marketable if it is:

such as to make it reasonably certain that it will not be called in question in the future so as to subject the purchaser to the hazard of litigation.... It must be, as is sometimes said, a title which can be sold to a reasonable purchaser or mortgaged to a person of reasonable prudence, and which is not subject to such a doubt or cloud as will affect its market value.

Adams v. Whittle, 135 So. 152, 155 (Fla.1931); Chafetz v. Price, 385 So.2d 104, 106 (Fla.Dist.Ct.App.1980). The Florida Supreme Court has stated that it is an “uncon-troverted legal proposition” that the State of Florida “received title to all lands beneath navigable waters, up to the ordinary high water mark, as an incident of sovereignty, when it became a state in 1845.” Coastal Petroleum Co. v. American Cyanamid Co., 492 So.2d 339, 342 (Fla.1986), cert. denied, 479 U.S. 1065, 107 S.Ct. 950, 93 L.Ed.2d 999 (1987); see Marine One, Inc. v. Manatee County, 898 F.2d 1490, 1492 (11th Cir.1990). The Coastal Petroleum decision formed the basis for Denson’s objection to the sovereignty exception in the title insurance commitment. If the Waccasassa River was navigable in 1845 through Devil’s Hammock, the State of Florida would own all land lying below the ordinary high water mark of the river.

When presented with the title insurance commitment, Denson objected, contending that the title to Devil’s Hammock was not marketable. Consequently, Stack had 120 days to remove the defect from the title. Without conceding that the sovereignty exception rendered his title unmarketable, Stack approached the DNR and attempted to have them disclaim any ownership to the portion of the Waccasassa River running through Devil’s Hammock. The DNR refused and stated that they held no position on whether the Waccasassa River was navigable in 1845. The DNR, however, did state that if the Waccasassa River was navigable in 1845, then it was their position that the State of Florida owned all land lying below the ordinary high water mark. By early February, 1990, the DNR’s position changed. In a letter to Denson, the DNR stated that the Waccasassa River was navigable in 1845 throughout Levy County, the county in which Devil’s Hammock was located, and, therefore, Florida owned all land lying below the river’s ordinary high water mark. This position combined with the survey results of Holloway, the DNR approved expert, meant that the State of Florida was claiming ownership to nearly one-third of Devil’s Hammock.

The impact of Florida’s claim was significant. Stewart Title was unwilling to remove the sovereignty exception from the title commitment unless Stack gave the company an indemnity agreement secured with a $5,000,-000 mortgage. Additionally, no other title insurance company contacted by Stack would insure the title to Devil’s Hammock without the sovereignty exception.

Despite this evidence, the district court held that Stack possessed marketable title to Devil’s Hammock. The district court, however, realized that its decision was not binding on the State of Florida because the State of Florida was free to pursue its claim at some future date. Based upon all of these factors, we conclude that the district court clearly erred in finding that Stack possessed marketable title to Devil’s Hammock. It was not reasonably certain that the title to Devil’s Hammock transferred by Stack would be free from future claims. In fact, any purchaser of Devil’s Hammock would be faced with Florida’s claim for nearly one-third of the tract. According to Stack’s own counsel, a lawsuit resulting from this claim would last years and cost over $1,000,000. Although the contract provided that Denson would accept title subject to certain exceptions, none of the exceptions included Florida’s claim of ownership of nearly one-third of the property. Therefore, Stack was not in a position to convey marketable title. It appears to this court that the district court, in focusing on Florida’s putative claim, lost sight of the determinative issue in the case which was whether Stack could convey marketable title to Denson¹.

The fact that the DNR’s final position was not known until February 1990, is inconsequential. The initial title commitment contained a sovereignty exception. By the fall of 1989, both parties were aware that this exception encompassed the possibility of a claim to a portion of Devil’s Hammock by the State of Florida. The DNR’s February letter merely clarified the fact that Stack could not convey marketable title at the end of the 120-day period.

Denson had two options when Stack was unable to produce marketable title after the 120-day period. First, he could accept title as it then existed. Second, he could have demanded a refund of all monies paid. There was no time constraint placed on the exercise of these options. The district court found that Denson did not demand a refund of his deposit in compliance with the terms of the contract.

The general Florida rule is that when a contract does not expressly fix the time for performance of its terms, the law will imply a reasonable time. Greenwood v. Rotfort, 158 Fla. 197, 28 So.2d 825, 831 (1946); Fleming v. Burbach Radio, Inc., 377 So.2d 723, 724 (Fla.Dist.Ct.App.1979). Throughout the fall of 1989, Denson and Stack attempted to resolve Denson’s objections to the sovereignty exception. These attempts continued into January and February 1990, after the expiration of the 120-day period. After learning that the bank had transferred the $300,000 earnest money with interest from the escrow account to Stack’s personal account, Denson immediately objected and requested that Stack either return the money or file a suit to quiet title against the State of Florida. After Stack refused to file suit, Denson requested the return of the $300,000 and interest.

The district court’s finding that Denson did not act to recover the deposit in a timely manner is clearly erroneous. Denson acted to recover his deposit within a reasonable period. Both parties attempted to find a solution to the sovereignty exception even after the 120-day period. Denson should not be penalized for failing to immediately demand the return of the earnest money when both parties were acting in good faith to close the transaction. Therefore, Denson is entitled to the return of the $300,000 and interest.

In summary, the district court improperly concluded that Stack possessed marketable title to Devil’s Hammock and that Denson did not timely demand a refund of the earnest money deposit. Because Stack could not convey marketable title, Denson had the right either to take the title with the defect or to demand the return of his deposit. Den-son demanded the return of the deposit after further attempts between Denson and Stack to close the deal were unsuccessful and when it became clear that any additional efforts would be futile. Because this demand was made within a reasonable time period, Stack was required to return the $300,000 and accumulated interest.

B. Attorney’s Fees and Costs

The contract provided that the prevailing party in any litigation arising out of the contract was entitled to recover reasonable attorney’s fees and costs. Likewise, the Florida civil theft statute, the basis for Count III of Denson’s complaint, provided that a defendant is entitled to reasonable attorney’s fees and costs if the claim against him is without substantial factual or legal support. Fla.Stat.Ann. § 772.11. In addition to finding that Denson breached the contract, the district court also found that Stack did not violate the civil theft statute because he did not know of, counsel or authorize the bank’s transfer of the earnest money from the escrow account to his personal account. The district court then awarded attorney’s fees and costs to Stack under the terms of the contract and the civil theft statute.

As noted above, Stack was not in a position to convey marketable title after the 120-day period. Denson then complied with the terms of the contract by demanding return of the earnest money within a reasonable time. Because Denson is entitled to the return of the $300,000 deposit with interest, he is the prevailing party under the contract in this suit.

Stack’s contention that Denson’s withdrawal of the specific performance claim during trial makes Stack a prevailing party under the contract is without merit. The terms of the contract make it clear that only one party may be the “prevailing” party. The Florida courts have also held that this type of contract allows only one party to prevail. Reinhart v. Miller, 548 So.2d 1176, 1177 (Fla.Dist.Ct.App.1989). Likewise, a plaintiff who obtains a judgment on one count of a multi-count claim is the prevailing party. Bill Rivers Trailers, Inc. v. Miller, 489 So.2d 1139, 1142 (Fla.Dist.Ct.App.1986) (per curiam). We, therefore, reverse the district court’s award of attorney’s fees and costs under the contract and remand to the district court to determine the amount of attorney’s fees and costs to which Denson is entitled and to award same.

We next consider the award of attorney’s fees and costs under the civil theft statute. The civil theft statute, Fla.Stat.Ann. § 772.11, provides a civil remedy for violations of the criminal theft statute, Fla.Stat. Ann. §§ 812.012-812.037 (West Supp.1990). The criminal theft statute states:

(1) A person is guilty of theft if he knowingly obtains or uses, or endeavors to obtain or to use, the property of another with intent to, either temporarily or permanently:

(a) Deprive the other person of a right to the property or a benefit therefrom.

(b) Appropriate the property to his own use or to the use of any person not entitled thereto.

Id. at § 812.014.

Under the terms of the civil statute, the district court was required to find that Denson’s claim was without substantial factual or legal support before awarding attorney’s fees and costs to Stack. Id. at § 772.-11. We review the district court’s findings for clear error. Under Florida law, a conversion occurs in violation of the criminal theft statute when a person who has a right to possession of property demands its return, and the property is not relinquished. Senfeld v. Bank of Nova Scotia Trust Co., 450 So.2d 1157, 1161 (Fla.Dist.Ct.App.1984); see Rosenthal Toyota, Inc. v. Thorpe, 824 F.2d 897, 901 (11th Cir.1987). In this case, the bank acted independently in transferring funds from the escrow account to Stack’s personal account and then applying the money to Stack’s other debts. Although Stack was made aware of this transfer by Denson, he refused to return the deposit money back to the escrow account or to Denson. As noted above, Stack was not entitled to keep the deposit and interest.

Under these circumstances, the district court’s finding that Stack was entitled to attorney’s fees and costs under the civil theft statute is clearly erroneous. Even though Denson was not victorious in his civil theft claim, there was substantial factual and legal support for it. Therefore, we reverse the district court’s award of attorney’s fees and costs.

III. CONCLUSION

The district court improperly concluded that Stack was in a position to convey marketable title to Denson and that Denson did not request the return of the earnest money deposit in a timely manner. Denson is, therefore, entitled to the return of the deposit and accumulated interest. The award of attorney’s fees and costs to Stack under the contract is reversed because Denson is the prevailing party. We remand .to the district court to determine Denson’s attorney’s fees and costs and to enter judgment for same. Finally, the district court improperly awarded attorney’s fees and costs to Stack under the civil theft statute. We REVERSE the district court’s judgment and award of attorney’s fees and costs and REMAND for further proceedings.

1 . The dissent focuses on the district court’s determination that the Waccasassa River was not navigable through Devil’s Hollow and, therefore, that Stack possessed marketable title. If the district court was ruling in a quiet title action between Stack and the State of Florida, we might agree with its conclusion. Instead, it was called upon to determine whether Stack was in a position to convey marketable title at the time of closing. The proper frame of reference is what information the parties had at the time of closing. As noted above, title is marketable if it is not subject to a doubt or cloud that affects its value or if it is reasonably certain that it will not be called into question in the future. Based on the information available to the parties at closing, including the two letters from the State of Florida, the survey of the state approved expert, the unwillingness of the title company to withdraw the exception without a $5,000,000 indemnity, and $1,000,000 estimated cost of a lawsuit against the state, the value of the property was clearly impaired, and there was no reasonable certainty that Florida would not challenge the title. Moreover, in such litigation the issue gratuitously resolved by the district court in this case would not be binding on Florida since it was not party to this litigation. Common sense suggests that this purchaser did not contract to buy a million dollar lawsuit when he offered a purchase price for the land conditioned upon conveyance of marketable title. The dissent and the district court have focused on the wrong issue.