SHEDDF2-FL3, LLC, etc. v. PENTHOUSE SOUTH, LLC, etc.

• Court: District Court of Appeal of Florida
• Decided: November 4, 2020
• Docket: 19-1100
• Status: Published

Opinion

Third District Court of Appeal State of Florida

Opinion filed November 4, 2020. Not final until disposition of timely filed motion for rehearing.

________________

No. 3D19-1100 Lower Tribunal No. 17-25214 ________________

SHEDDF2-FL3, LLC, etc., Appellant,

vs.

Penthouse South, LLC, etc., et al., Appellees.

An Appeal from the Circuit Court for Miami-Dade County, Michael A. Hanzman, Judge.

Law Offices of Paul Morris, P.A., and Paul Morris; and Agentis PLLC, and Christopher B. Spuches, for appellant.

Ross & Girten, and Lauri Waldman Ross and Theresa L. Girten; and Law Office of Irv J. Lamel, and Irv. J. Lamel, for appellees.

Before EMAS, C.J., and HENDON and GORDO, JJ.

HENDON, J. The issue before this Court is, in light of absolutely no evidence of procedural

unconscionability, whether the trial court erred, as a matter of law, by invalidating a

certain provision in the parties’ clear and unambiguous Forbearance and Partial

Settlement Agreement based on the trial court’s determination that the provision was

unconscionable. Based on the following, we conclude that the trial court did err, and

therefore, we reverse the orders under review and remand for further proceedings

consistent with this opinion.

I. Facts and Procedural Background

In 2013, Penthouse South, LLC (“Penthouse South”) and Claudio Rossi

Zampini (“Zampini”), individually, who is Penthouse South’s sole director, obtained

a $3,240,000 loan from TotalBank pledging Unit 2703-S of Bal Harbour North

South Condo as collateral. In August 2016, Penthouse South and Zampini

(collectively, “Borrowers”) executed a forbearance agreement with TotalBank,

admitting they were in default of the loan (“First Forbearance Agreement”).

Thereafter, TotalBank assigned the mortgage and all loan documents, including the

First Forbearance Agreement, to SHEDDF2-FL3, LLC (“Lender”).

In 2017, the Lender initiated an action against the Borrowers, seeking to

foreclose the mortgage and asserting that the Borrowers were in breach of the First

Forbearance Agreement. After the foreclosure action was commenced, the Lender

inspected Unit 2703-S and learned that it had been physically combined with an

2 adjacent unit, Unit 2702-S, which is owned by Parkwest Century, LLC (“Parkwest”),

whose sole director is Zampini.

In July 2018, with all parties being represented by counsel, Penthouse South,

Zampini, and Parkwest (“Obligors”), along with the Lender, entered into (1) a

Mortgage Modification and Spreader Agreement (“Mortgage Spreader”), which

resulted in Unit 2702-S being pledged as additional collateral for the loan, and (2) a

Forbearance and Partial Settlement Agreement (“Second Forbearance Agreement”).

In both the Spreader Agreement and the Second Forbearance Agreement, the

Obligors acknowledged, among other things, that the Borrowers defaulted under the

terms of the loan and breached the First Forbearance Agreement; the Obligors

requested that the Lender enter into the Second Forbearance Agreement; and the

Lender would not have agreed to enter into the Second Forbearance Agreement

unless Parkwest agreed to pledge Unit 2702-S as additional collateral for the loan.

The Second Forbearance Agreement sets forth a schedule of payments,

including payments for property taxes and condominium association assessments,

that were required to be made by specific dates and on a timely basis. As part of the

agreement, Parkwest and Penthouse South agreed to execute warranty deeds for their

respective units, which would be held in escrow by the Lender’s counsel in the event

of a forbearance default, which included the failure to timely make any of the

required payment. Paragraph 13 of the Second Forbearance Agreement sets forth

3 alternative remedies that the Lender, at its sole discretion, may choose in the event

of a monetary default. One of the alternative remedies, which is set forth in

paragraph 13(a), permits the Lender to immediately record the two warranty deeds

held in escrow, without providing the Obligors with notice or an opportunity to cure.

In addition, Parkwest and Penthouse South consented to the entry of a writ of

possession in the Lender’s favor. The Second Forbearance Agreement also provided

that, in the event of a default, Parkwest and Penthouse South shall be deemed to have

waived and released any redemption rights under the loan documents, the Spreader

Agreement, and/or Florida law. After the parties executed the Spreader Agreement

and the Second Forbearance Agreement, as permitted by the Second Forbearance

Agreement, the Lender filed a second amended complaint adding Parkwest as a

defendant, alleging the additional facts relating to the two agreements, and asserting

a mortgage foreclosure count against the Obligors.

It is undisputed that the Obligors failed to make payments due on December

31, 2018, including failing to bring current all property taxes and condominium

association fees due on the two units (over $700,000). Based on this monetary

forbearance default, on January 9, 2019, as permitted in the Second Forbearance

Agreement, the Lender recorded the two warranty deeds.

On January 23, 2019, Penthouse South filed a Motion to Enjoin Plaintiff

Recording Deed or Transferring Property, and to Require Acceptance of Payment

4 (“Motion to Enjoin”), asserting it was now ready, willing, and able to make all the

payments that were due on December 31, 2018, which funds were in an attorney’s

trust account, but the Lender had refused to accept the funds. Penthouse South

argued, among other things, that the Second Forbearance Agreement is

unconscionable given the substantial equity in the properties (several millions of

dollars), and that the trial court has the authority to relieve Penthouse South from

such a forfeiture. The motion sought to enjoin the recording of the warranty deeds,

and if recorded, to cancel the deeds, and to allow the Obligors to make the payments

that were due on December 31, 2018.1

Following a non-evidentiary hearing, the trial court reserved ruling and

ordered the Lender not to encumber or transfer the properties. In addition, the trial

court advised the Obligors’ counsel that if his clients were to have any prospect of

securing relief from the trial court, they must tender all amounts due under the loan.

The trial court ordered the Lender to provide an estoppel letter. As ordered, the

Lender provided an estoppel letter indicating that more than $5,000,000 was due

under the loan.

At an evidentiary hearing, the only witness called by the Obligors was an

attorney who represented a lender that would be providing new financing to the

1 As stated earlier, the Lender had already recorded the two deeds when Penthouse South filed its Motion to Enjoin.

5 Obligors. The attorney testified there was $5.5 million in escrow, and that those

funds would be utilized to pay off the Lender. Further, the delay in funding this new

loan was due to title issues—the units were in the Lender’s name. The trial court

reserved ruling on the Motion to Enjoin and ordered the parties to mediate.

After the parties reached an impasse at mediation, the Lender filed a notice of

voluntary dismissal of the foreclosure count, stating that it had elected, as its default

remedy under the Second Forbearance Agreement, to record the warranty deeds in

lieu of foreclosure, rendering the foreclosure count moot. In addition, the Lenders

filed a motion to enforce the Second Forbearance Agreement and for the trial court

to reserve jurisdiction to enforce the Lender’s rights under the agreement.

Following additional briefing from the parties, on May 11, 2019, the trial court

entered the order under review, stating, in part, as follows:

Why [the Obligors] would assent to such absurd and oppressive terms is difficult to fathom. But despite that assent this is one of those extremely rare cases where the Court will grant equitable relief and require that [the Lender] accept full payment of its debt together with default interest, penalties, costs and attorney’s fees.

In its order, the trial court (1) granted the Motion to Enjoin, declaring the remedy in

paragraph 13(a) invalid and unenforceable; (2) ordered the Lender to accept the

amount of $5,272,354 together with interest at the default rate, and for the Borrowers

to make the payment within 20 days to the Lender’s counsel’s trust account; (3)

ordered the Lender to reconvey Unit 2702-S to Parkwest and Unit 2703-S to

6 Penthouse South; (4) ordered the Lender to pay all taxes and association fees that

were included in the $5,272,354; and (5) denied the Lender’s motion to enforce the

Second Forbearance Agreement. Thereafter, the trial court amended this order to

provide that once the Lender’s counsel receives the funds from the Obligors, the

Obligors’ counsel may then submit a proposed order in which the trial court deems

the two warranty deeds void ab initio.

The Lender filed a motion for rehearing and reconsideration. Thereafter, the

Lender filed its notice of appeal, but requested that the appeal be held in abeyance,

pending disposition of its motion for rehearing and/or reconsideration.

The Lender filed a motion for stay pending appeal in the lower tribunal. The

trial court denied the Lender’s motion, but granted the following alternative relief to

the Lender: (a) pending appeal, the two properties cannot be transferred, sold, or

encumbered; and (b) if the defendants seek to lease the properties, the Lender would

have to approve, and if the parties cannot agree, the trial court will then determine if

the units can be leased.

After the funds were sent to the Lender’s counsel, the trial court entered an

order denying the Lender’s motion for rehearing and/or reconsideration, and an order

voiding the deeds ab initio, satisfying the May 2013 mortgage, cancelling the May

2013 note, and discharging the lis pendens. The Lender amended its notice of appeal

to include the order denying its motion for rehearing and/or reconsideration.

7 II. ANALYSIS

A. Should the Lender’s Appeal be Dismissed?

Prior to addressing the primary issue raised by the Lender, the Obligors have

argued in their answer brief that the Lender’s appeal should be dismissed based on

the Lender’s voluntary acceptance of the benefit of the trial court’s order—over $5.2

million, which included default interest, attorney’s fees, and interest on attorney’s

fees. The Obligors cite, in part, to McMullen v. Fort Pierce Financing &

Construction Co., 146 So. 567, 568 (Fla. 1933), for the proposition that “[i]t is a

well-settled doctrine that, where a party recovering a judgment or decree accepts the

benefits thereof, voluntarily and knowing the facts, he is estopped to afterwards seek

a reversal of such judgment or decree on writ of error or appeal.”

The Obligors’ reliance on this general rule is misplaced. First, the order was

clearly not in the Lender’s favor as the trial court refused to enforce the unambiguous

terms of the Second Forbearance Agreement based on unconscionability. Second,

the acceptance of the over $5.2 million was not voluntary. The trial court ordered

the Lender to accept the payment. Thereafter, the Lender moved to stay the order

pending appeal, but the trial court denied the motion to stay, and instead, granted

alternative relief to the Lender pending resolution of the appeal, such as prohibiting

the properties from being transferred or encumbered. Thus, the acceptance was not

voluntary, but was imposed by the trial court.

8 III. Unconscionability

The Lender contends that, in light of absolutely no evidence of procedural

unconscionability, the trial court erred by invalidating paragraph 13(a) of the Second

Forbearance Agreement. Based on our de novo review, we agree. See Nat’l Fin.

Servs., LLC v. Mahan, 19 So. 3d 1134, 1136 (Fla. 3d DCA 2009), abrogated on

other grounds by Basulto v. Hialeah Auto., 114 So. 3d 1145 (Fla. 2014) (applying

de novo standard of review when addressing the trial court’s invalidation of language

in agreement based on procedural unconscionability); Powertel, Inc. v. Bexley, 743

So. 2d 570, 573 (Fla. 1st DCA 1999) (holding that a trial court’s determination that

a contract is unconscionable is “reviewable by the de novo standard”); Belcher v.

Kier, 558 So. 2d 1039, 1040 (Fla. 2d DCA 1990) (stating that “the determination of

unconscionability is a matter of law”); Garrett v. Janiewski, 480 So. 2d 1324, 1327

(Fla. 4th DCA 1985) (holding that “the question of unconscionability is one of law

for the court”).

“[S]ettlements are highly favored and will be enforced whenever possible.”

BAC Int’l Credit Corp. v. Macia, 626 So. 2d 1037, 1038 (Fla. 3d DCA 1993)

(quoting Robbie v. City of Miami, 469 So. 2d 1384, 1385 (Fla. 1985)). However, a

trial court can refuse to enforce a contract, such as a settlement agreement, based on

unconscionability, Steinhardt v. Rudolph, 422 So. 2d 884 (Fla. 3d DCA 1982), with

9 the burden being on the party seeking to invalidate the contract. See Meeting

Makers, Inc. v. Am. Airlines, Inc., 513 So. 2d 700, 701 (Fla. 3d DCA 1987).

In Basulto, the Florida Supreme Court stated that “[u]nconscionability is a

common law doctrine that courts have used to prevent the enforcement of contractual

provisions that are overreaches by one party to gain ‘an unjust and undeserved

advantage which it would be inequitable to permit him to enforce.’” Basulto, 141

So. 3d at 1157 (quoting Steinhardt. 422 So. 2d at 889) (quoting Peacock Hotel, Inc.

v. Shipman, 138 So. 44, 46 (Fla. 1931)). 2 The Basulto Court explained that

“[u]nconscionability has generally been recognized to include an absence of

meaningful choice on the part of one of the parties together with contract terms

which are unreasonably favorable to the other party.” Basulto, 141 So. 3d at 1157

(quoting Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir.

1965) (emphasis added in Basulto)).

To prevail in claiming that a contract or a contractual provision is

unconscionable, a party must establish both procedural unconscionability and

substantive unconscionability. Basulto, 141 So. 3d at 1158; Hobby Lobby Stores,

Inc. v. Cole, 287 So. 3d 1272, 1275 (Fla. 5th DCA 2020). The absence of meaningful

choice is referred to as procedural unconscionability, “which relates to the manner

in which the contract was entered.” Basulto, 141 So. 3d at 1157 (quoting Powertel,

2 Peacock Hotel involved a suit to foreclose a purchase-money mortgage.

10 743 So. 2d at 574). Substantive unconscionability pertains to the reasonableness of

the terms of the contract, and therefore, “focuses on the agreement itself.” Basulto,

141 So. 3d at 1157-58 (quoting Powertel, 743 So. 2d at 574). Although the party

challenging the contract must establish both procedural and substantive

unconscionability, both do not have to be present to the same degree. Basulto, 141

So. 3d at 1158-59. Instead, a “sliding scale” approach is utilized when both are

present to some degree, and “the more substantively oppressive the contract term,

the less evidence of procedural unconscionability is required to come to the

conclusion that the term is unenforceable, and vice versa.” Id. at 1159. Under the

“sliding scale” approach, “a balancing approach is employed allowing one prong to

outweigh another provided that there is at least a modicum of the weaker prong.”

Id. (quoting VoiceStream Wireless Corp. v. U.S. Commnc’ns, Inc., 912 So. 2d 34,

39 (Fla. 4th DCA 2005)) (emphasis added).

In the instant case, the record demonstrates, and the Obligors’ counsel

properly conceded at oral argument, that there was absolutely no evidence of

procedural unconscionability. Zampini, who is one of the Obligors and the sole

director of the other two obligors (Parkwest and Penthouse South), did not testify at

the evidentiary hearing. The Lender’s representative’s testimony indicates that there

was no absence of meaningful choice by any of the parties when entering into the

Second Forbearance Agreement. Further, the parties were represented by counsel

11 when they entered into the clear and unambiguous Second Forbearance Agreement.

As such, we conclude that, because there was absolutely no evidence of procedural

unconscionability, the Obligors’ claim of unconscionability fails as a matter of law.

See Kendall Imports, LLC v. Diaz, 215 So. 3d 95, 110 (Fla. 3d DCA 2017) (holding

that because the party challenging the contract based on unconscionability failed to

establish “any degree of procedural unconscionability,” the contract was not

unconscionable). Thus, we do not need to address whether the Second Forbearance

Agreement is substantively unconscionable. See id. Accordingly, we reverse the

orders under review and remand for further proceedings. On remand, the trial court

is instructed to order (1) Parkwest and Penthouse South to execute warranty deeds

transferring their respective units to the Lender, free and clear of any and all

encumbrances; and (2) the Lender to return all funds received from the Obligors as

a result of the orders under review, less any funds that must be utilized to ensure that

the properties are transferred to the Lender free and clear of any encumbrances.

As we have reversed the orders under review, we do not need to address the

remaining alternative argument raised by the Lender.

Reversed and remanded.