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

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1 STATE OF FLORIDA DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS, AND MOBILE HOMES IN RE: PETITION FOR ARBITRATION Harbourtowne at Country Woods Condominium Association, Inc., Petitioner, v. Case No Unit Owners Voting for Recall, Respondent. / SUMMARY FINAL ORDER The association filed its petition in this matter on May 25, The association seeks a final order of the arbitrator affirming the board s decision that declined to certify a recall agreement seeking the recall of Mr. McNamara, a board member and the current president of the association. Mr. McNamara, a subsequent developer, became a board member as a result of the January 2005 election where there were four candidates for four open seats. These individuals became board members without the necessity of counting ballots, as allowed by rule 61B , Fla. Adm. Code. 1 According to the petition, the condominium operated by the petitioner contains 248 units. Respondent Allen, the only owner who voted in favor of recall, purchased most of 1 Given that no election was conducted, the arbitrator does not agree with the association that unit owners other than the developer voted in favor of Mr. McNamara within the meaning of rule 61B , Fla. Adm. Code, which prohibits a developer such as the respondent from voting to recall a board member elected by owners other than the developer. Whether Mr. McNamara was a developer or unit owner representative will be explored in a general sense later in this order. 1

2 the units owned by Mr. McNamara in March, 2005, and in May, 2005, he voted these units in favor of the recall. None of the units owned by Allen are offered for sale; the majority of them are offered for rent and one or more are occupied individually by Allen. On May 11, 2005, the association was served with a written agreement for the recall of director Christopher McNamara along with a copy of a durable limited power of attorney. The board met on May 18, 2005, and determined not to certify the recall agreement. The board questioned the validity of the durable power of attorney purporting to authorize William Allen s son to perform certain actions on behalf of the unit owner including voting Mr. Allen s units. According to the prepared minutes of the board meeting of May 18, 2005: The power of attorney purports to be executed by a power of attorney, however the durable limited power of attorney under s , Florida Statutes which purports to have been signed on April 19, 2005 and faxed on April 19, 2005, was not an original and more importantly, it was not a recorded instrument (as required by s of the Florida Statutes), additionally, the power of attorney does not comply with s of the Florida Statutes or s (2)(b)2 of the Florida Statutes. Mr. Allen is a successor or a subsequent developer who cannot recall a director who was elected by the nondeveloper unit owners. Mr. Allen neither elected nor appointed Mr. McNamara. Mr. McNamara, as a successor or a subsequent developer is entitled to one seat on the board. Mr. Allen was not duly registered as a successor developer notwithstanding the fact that he holds more than seven units for lease within this condominium. The recall agreement was not signed by a majority of the nondeveloper unit owners. Whereas there were only three candidates who qualified for election at the annual meeting of the Association held January 11, 2005, all three candidates became directors without designating Mr. McNamara s position on the board as developer or unit owner. Mr. Allen was not a 2

3 unit owner (or developer) at the time of the annual meeting. Mr. McNamara still holds title to fourteen (14) condominium units which are held for rent and none are for sale. If it is determined that Mr. McNamara holds a developer position on the board, Mr. Allen is prohibited from recalling Mr. McNamara as he did not vote for the election of Mr. McNamara. Similarly, if Mr. McNamara is determined to be an owner representative on the board, Mr. Allen, a subsequent developer is prohibited from recalling an owner representative on the Board of Directors. Mr. Allen owns in excess of 140 units in the Condominium and is either a successor on [sic] a subsequent developer per rule 61B F.A.C. Therefore, Mr. Allen is prohibited by law from recalling Mr. McNamara and the recall should not be certified. An order permitting answer was directed to the respondent on June 2, 2005, and the respondent filed a reply to the petition on June 23, According to the response, Mr. Allen purchased 136 units in the condominium on February 23, 2005, from Mr. McNamara. On the same day, Allen purchased an additional 5 units from another unit owner. As a result of these purchases, Allen owned approximately 141 units out of a total of 248 units, or 57% of the total units in the condominium. After the sale, Mr. McNamara continued to own approximately 14 units in the condominium, the bulk of which he continues to offer for rent. Mr. Allen maintains that prior to the sale from McNamara to Allen, McNamara had advised Allen that immediately subsequent to the closing, McNamara would resign from the board and that Mr. Allen would replace him. 2 However, upon request, McNamara refused to relinquish the board seat, and he was then the subject of the recall effort by Allen. 2 This rendition of the facts is denied by the association, which argues it was improper for the respondent to include this proffer; however, the proffer merely provides background for the dispute and has no bearing on the outcome. If the proffer is accurate, a recall proceeding cannot be used in lieu of a court action to specifically enforce the verbal agreement. 3

4 The association, in refusing to certify the recall, argues that the durable limited power of attorney is defective because it was not recorded in the public records. Actually, the copy of the durable power of attorney that accompanied the recall ballot was an unrecorded copy, but Mr. Allen later produced a recorded copy of the instrument that shows it had been recorded in the public records on May 9, 2005, shortly before the recall ballots and unrecorded copy was served on the board on May 11, The power of attorney was executed on April 19, The association further argues that McNamara is immune from recall because the association did not designate his seat as a developer or owner seat in the former election. Next, the association argues that Allen lost all rights in the association for his failure to file with the Division as a subsequent developer. 3 Finally, the association argues that rule 61B , Florida Administrative Code, prevents McNamara from being recalled by Allen, and that the association can stop Allen from recalling McNamara and obtaining a seat on the board because McNamara is a developer. The primary question presented is whether a subsequent developer, having acquired most but not all of the units owned by the prior subsequent developer, can step into the shoes of his predecessor in interest and claim the former s seat on the board through recall, under the facts presented. Mr. McNamara became a developer by offering 7 or more units for lease. He then conveyed 136 units to Mr. Allen. When Mr. Allen s units were offered for lease in the ordinary course of business, he became a 3 There is no support in the law for this proposition which is summarily dismissed. 4

5 developer as well. 4 The minutes provided by the association stipulate that McNamara as the developer was entitled to one seat on the board. 5 A subsequent developer may only vote for a majority of the board where his units are offered for sale in the ordinary course of his business. 6 Cail v. Sebastian Harbor Villas Condominium Owners Association, Inc., Arb. Case No , Final Order (August 27, 1996); Rule 61B (7), Florida Administrative Code; The Regency of St. Petersburg, Inc. v. Unit Owners Voting for Recall, Arb. Case No , Final Order (September 4, 1997); Bishop Associates Limited Partnership v. Belkin, Div. Land Sales, 521 So. 2d 158 (Fla. 1st DCA 1988); In re Petition for Declaratory Statement of Palm Beach Hotel Condominium Association, Inc., Case No. 88A-44 (November 14, 1988). A subsequent developer who only offers units for lease in the ordinary course of business is never entitled to vote for a majority of the board 7, as the turnover statute contemplates that at some point, turnover to residential owners must occur as a developer sells out his remaining inventory. Where a developer merely offers units for rent, to allow the renting developer to control the board would give the developer perpetual control of the board where the developer owns a sufficient number of units to control the election. Therefore, it follows that Mr. Allen is a developer and 4 Section (16), Florida Statutes; Rule 61B (1)(b),(2)(a), Florida Administrative Code. 5 While the minutes of the board meeting state that the association considered that McNamara was entitled to one seat on the board due to his developer status, the association s memorandum of law, in contrast, argues that his seat was not designated as a developer seat. The arbitrator rejects this recent characterization as contradictory of the minutes. It appears implicit that one seat was recognized as a developer entitlement. 6 Note that the selling subsequent developer is not entitled to actual control of the board through the election or designation of a majority of board positions, but is only entitled to vote for a majority, with his success made to depend upon the number of units he owns relative to the number of other voting interests participating in the election. 7 The respondent s statement that a leasing developer is entitled to vote for a majority of the board totally misses the mark. 5

6 that if an election was held tomorrow, Mr. Allen would not be entitled to vote for a majority of the board. The association designated one board member as a developer position and Mr. Allen along with Mr. McNamara would be entitled to vote for the position. 8 Recall where a developer is present in the condominium is addressed by rule 61B , Florida Administrative Code. According to the rule, where both owners and developers are entitled to representation on the board, only board positions filled by owners may be recalled by owners, and only a developer may recall a developer representative on the board. 9 Also, any vacancies created by such a recall are filled by the class of voting interests entitled to elect the position. The arbitrator has already rejected the association s argument that somehow, unit owners other than the developer elected McNamara, and therefore he is inaccessible for purposes of recall by Mr. Allen. There was no election conducted, no one voted for anyone, and even if there had been an election, Mr. McNamara, as owner of over half of the units at that time, 8 It is incumbent on the association to adopt an election procedure that allows the developer class of owners, not entitled to vote for a majority of the board, to vote for one position separate and apart from the remainder of the owners voting for a majority of the board positions. When both a developer and other unit owners are entitled to representation on the board, the association is required to conduct an election with two separate casting of ballots. Glen Cove Apartments Condominiums Master Association, Inc. v. Unit Owners Voting for Recall, Arb. Case No , Final Order (September 15, 2000). 9 Actually, as suggested by the association, the language of the rule provides that only units owned by the developer shall be counted to recall and replace a board member who was elected by that developer. Rule 61B , Fla. Adm. Code. The rule plainly contemplates that where at any given time there are multiple developers in the same condominium, only the developer that actually elected a board member may vote to recall that member; however visionary the rule may be, it does not anticipate or address the situation presented here and does not consequently support the position of the association in this matter. 6

7 was entirely capable of electing himself to the board without the assistance of supporting owners. Moreover, the minutes of the recall meeting plainly state that Mr. McNamara, as a successor or a subsequent developer, is entitled to one seat on the board. It is obvious from the minutes that the association was acting under advice of counsel at that point and that the association had designated Mr. McNamara s position as a developer entitlement. Therefore, because his seat was designated as a developer seat, unit owners other than the developer are not able to vote to recall Mr. McNamara from the board; only developer interests may vote to recall Mr. McNamara. See, generally, Glen Cove Apartments Condominiums Master Association, Inc. v. Owners Voting for Recall, Arb. Case No , Final Order (September 15, 2000) (subsequent developers offering units for lease in the ordinary course of business may neither vote for a majority of the board nor vote to recall a majority of the board). Certainly, Mr. Allen was free to have negotiated an assignment of rights from Mr. McNamara as part of the bulk sale of the units from McNamara to Allen. The assignment of rights could have specifically included a transfer of Mr. McNamara s right to occupy the board seat gained in the January 2005 election; alternatively, the assignment could have included more generally all rights incidental to Mr. McNamara s 136 units so purchased. However, there is nothing in the record to suggest that such an assignment or other written agreement ever occurred between these individuals. With such an arrangement, Mr. Allen could have effectively stood in the shoes of Mr. McNamara, at least insofar as entitlement to the board seat is concerned. In the absence of such a written agreement, in the estimation of the association there is little support for Allen s position that he automatically ascended to these rights, particularly 7

8 where, as here, McNamara did not sell all his units, but retained title to 14 units. Had Mr. McNamara sold his complete inventory of units to Mr. Allen, Mr. McNamara would have ceased to be a unit owner, and pursuant to the bylaws requiring board members to be unit owners, at the time of the conveyance Mr. McNamara would have instantly ceased to be a board member. 10 This did not occur, and the arbitrator concludes that there is no express written agreement or assignment by which Mr. McNamara agreed to vacate the position in favor of Mr. Allen. Notwithstanding the foregoing conclusion, Mr. Allen argues in the alternative that when he purchased the units, along with the units came Mr. McNamara s voting rights regardless of whether there was a written assignment or not. The association disagrees with this position. However, this situation does create an anomaly. To adopt the association s position, Mr. Allen did not, through the bulk purchase, obtain the right to recall the prior developer s representative, but assuming that Mr. McNamara desired in the future to recall his own representative to the board, Mr. McNamara did not retain enough voting interests to effectively accomplish this. 11 One may ask: where did the entitlement to cast recall votes for the 136 units reside or vest after the bulk transfer of units to Mr. Allen? Certainly Mr. McNamara, who no longer owns these units, may no longer vote his former 136 units for any purpose whatsoever, whether in a general election, a vote to waive reserves, a vote for recall, or any other votes. In a very basic sense, Mr. Allen is correct in asserting that the right to vote these units passed as an 10 See, Rodstein v. Rimini Beach Condominium Association, Inc., Arb. Case No , Second Summary Final Order (June 18, 2002), ruling that once the subsequent developer conveyed title to all his units, his membership in the association ceased, along with his eligibility to serve on the board. The seat was found to be vacant upon the last conveyance. 8

9 appurtenance to those units as set forth in section (2)(d), Florida Statutes. Certainly no one would argue that Mr. Allen may not cast his 136 former-mcnamara votes in a future election (for a minority of the seats), to waive reserves, on special assessments, or other voting purposes. Why, then, can he not cast these votes in favor of recalling the representative of his predecessor in title? There is no good reason for disallowing this, and there are good reasons for allowing it. First, as suggested above, not to allow Mr. Allen to cast recall votes would make Mr. McNamara not subject to recall, which is a conceptual impossibility. The statute requires all board members to serve subject to recall. Secondly, Mr. McNamara occupies the seat because of Mr. McNamara s status as a developer and was awarded a seat due to this factor. Regular unit owners did not designate or elect him and cannot remove him from his post. As a developer seat, it makes sense that when one subsequent developer loses a significant voting block of units through a conveyance to a new developer, the original developer no longer has the same mathematical stake in the operation of the association as the new entrant does. Mr. Allen will now be supplying over half the association s annual budget and Mr. McNamara no longer owns an appreciable interest in the project. Third, the statute provides that the appurtenant right to vote is an incident to ownership of the units, and there is no authority for the proposition that the voting rights appurtenant to the units did not pass with the transfer. Of course they did; they did not stay with Mr. 11 In accordance with rule 61B , Fla. Adm. Code, it would have taken a majority of the nondeveloper voting interests to recall the developer representative, and Mr. McNamara only kept 14 units. 9

10 McNamara. 12 For these reasons, the arbitrator concludes that Mr. Allen had the right to cast his unit votes in favor of the recall of Mr. McNamara. The final association argument to be addressed is whether the durable power of attorney was required to be recorded in order to be effective. There is no doubt but that the instrument was in fact recorded, and was recorded in fact prior to its delivery on the board accompanied by the recall ballots. Thus, while the petition for recall arbitration filed by the association seeks to focus on the recording issue, the real issue becomes whether the recall ballot was rendered ineffective because an unrecorded copy of it was served on the board to begin the recall process. There is no allegation that the unrecorded copy of the power of attorney provided to the board was not a genuine copy of the recorded document. The issue thus becomes whether the board s decision to reject the power of attorney because at the time it believed the instrument to be unrecorded and hence invalid, should be upheld. In fact, the association has not produced a single case or statutory citation requiring that a durable power of attorney be recorded in this context. 13 The original petition for arbitration argues that the power of attorney is required to be recorded by virtue of section (1), Florida Statutes. This statute provides: 12 This is generally consistent with the holdings of those arbitration cases not involving developers, where the arbitrator has held that the sale of a unit after an owner has signed a recall ballot but before service of the ballot on the board renders the ballot ineffective. See, for example, Alexandra Village Condominium Association, Inc. v. Owners in Favor of Recall, Arb. Case Nos ; , Final Order (December 5, 2000); Ashley Arms Condominium Association, Inc. v. Unit Owners Voting for Recall, Arb. Case No , Final Order (October 29, 2004). Compare, Atlantic View Beach Club Condominium Association, Inc. v. Unit Owners Voting for Recall, Arb. Case No , Final Order (November 24, 2003)(a recall ballot signed by an individual under contract to purchase a unit but who has not closed is not a ballot signed by an owner and is invalid). 13 The association as much admits there is no known authority for this proposition and acknowledges that the prior arbitration decisions have accepted powers of attorney in a recall with no evidence of 10

11 Section Conveyances to be recorded. (1) No conveyance, transfer or mortgage of real property, or of any interest therein, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law; nor shall any such instrument made or executed by virtue of any power of attorney be good or effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice unless the power of attorney be recorded before the accruing of the right of such creditor or subsequent purchaser. The statute above provides that deeds are not effective against purchasers and creditors without notice unless they are recorded, and that any such deed or instrument made by virtue of a power of attorney is not effective unless the power of attorney is also recorded. This is a notice provision that comes into play when real property is conveyed or mortgaged. There is no allegation that the instant recall has involved a conveyance of real property, or that the association occupies the status of a creditor or subsequent purchaser. This statute does not require that the power of attorney be recorded for recall purposes. The fact that the law requires that these instruments be recorded for some purposes, for example, for a deed to be deemed effective as against purchasers without notice, says nothing as to whether the instruments must be recorded for other unrelated purposes such as recall. The power of attorney itself is entitled DURABLE LIMITED POWER OF ATTORNEY UNDER SECTION , FLORIDA STATUTES. Section (1), Florida Statutes, requires that a durable power of attorney must be in writing, must be recordation, but reasons that since the instrument deals with ownership of real property, it should be 11

12 executed with the same formalities required for the conveyance of real property The statute does not require recordation in the public records; it speaks instead to the manner of execution of the instrument. Statutes may require that powers of attorney for particular purposes be recorded. In the absence of such a statutory requirement, the validity of a power of attorney is not affected by a neglect to have the instrument recorded. 3 Am. Jur. 2d Agency, s. 25. In short, the association has failed to show that in the context of a recall, the power of attorney must be recorded. Therefore, the arbitrator concludes that the law does not require that the instrument be recorded in order to be effective in a recall effort. The respondent provided the association with a copy of the instrument along with its recall ballot, thus evidencing the legal authority of Marc Allen to act on behalf of his father in signing the recall ballot. There is nothing more that the law requires. WHEREFORE, based on the foregoing, the arbitrator hereby certifies the recall of Mr. McNamara. As of the date of issuance of this order, Mr. McNamara shall step down from his board seat, and Mr. Allen shall immediately take the place of Mr. McNamara for the remainder of the term. Mr. McNamara shall immediately deliver any records or association property to the remaining board members. 14 required to be recorded. 14 Petitioner s late-filed motion (July 15, 2005) to disqualify counsel is denied. Mr. Tankel has not filed a notice of appearance in this matter and cannot be disqualified, and insufficient grounds exist here to disquality Mr. Ellis. The motion to strike respondent s supplemental memorandum of law, filed one day late, is also denied. The memorandum does not include arguments not already contained in respondent s reply to the petition, and hence no prejudice has resulted. Also, any arguments not specifically addressed in this final order are deemed rejected. 12

13 DONE AND ORDERED this 22nd day of July, 2005, at Tallahassee, Leon County, Florida. Karl M. Scheuerman, Arbitrator Department of Business and Professional Regulation Arbitration Section Northwood Centre 1940 North Monroe Street Tallahassee, Florida Certificate of Service I hereby certify that a true and correct copy of the foregoing final order has been sent by U.S. Mail to the following persons on this 22nd day of July, 2004: Steve H. Mezer, Esquire Bush Ross, P.A. P.O. Box 3913 Tampa, Florida Jonathan J. Ellis, Esquire Shumaker Loop & Kendrick, LLP P.O. Box Tampa, Florida Karl M. Scheuerman, Arbitrator 13

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