Avatar v. Gundel

Decision

In a 2-1 decision, the majority affirm the trial court’s ruling that the Club membership fees taken purely for profit are not allowed and should be returned. They are also escalating a question to the Florida Supreme Court. The ruling reads:

"We agree [with the trial court]. The legislature set forth the statutory framework and Avatar chose how it wished to design the community including formation of a homeowner’s association."

The majority establish that Avatar's Solivita property meets the definition of a community under chapter 720. It states that homeowner’s associations are legally allowed to assess expenses and pass those costs onto the homeowners. It is a common practice. The fee in question here is a mandatory and 100% for-profit Club membership fee, which is billed separately. The majority argue that Avatar could have chosen to set up the Club as a “true commercial operation” and made membership optional, as they did with their golf course. If they had done that, they could have legally charged a membership fee. The majority explain that as the Club is currently set up, chapter 720 does not allow a fee for profit, only for expenses, and ruled in favor of Gundel.

Much of the written ruling dispelled Avatar’s arguments.

• The homeowners association billed the Club membership fee on behalf of Avatar, not for themselves. Avatar argued that the fee limits imposed by chapter 720 apply only to the association’s budget, not to fees imposed by Avatar. The majority disagree with Avatar’s interpretation of the law. They say this would allow developers to impose unlimited fees, which is the opposite of the purpose behind chapter 720 (to protect the rights of association members).
• Avatar argued even if they were bound by chapter 720, that the membership fee should be considered an expense. It is profit for Avatar, but an expense for the homeowner. The majority note that the contract homeowners sign does define Club expenses, but did not list profit as one of them. They feel that this underscores the distinction between the Club’s for-profit membership fee and the separate, allowable fee for Club expenses. Residents are not challenging the Club expenses, only the for-profit membership fee.
• In the contract Gundel signed, Avatar had included a waiver saying homeowners were not able to take a position that any part of the Club Plan was invalid. Avatar argue this waiver overrides the existing law that homeowners can’t be prevented from suing a developer/homeowner’s association. They believe this means that Gundel is prohibited from suing them. The majority disagree, citing common law. The majority does not agree that a waiver would erase established law, saying “there is no telling what sort of mischief would be allowed” if that was how it worked.
• Avatar argued that even if the Club fee was determined to be illegal, they should not be required to refund homeowners because the Club membership fee was voluntary. The majority disagree, arguing under chapter 720, payments made from a contract agreement are not considered voluntary payments. Even if the payment didn’t originate in a contract agreement, it would not apply because the consequence of non-payment—a lien on the property—is too large to be considered voluntary.

The majority also pointed out that in some arguments by Avatar, they said the rules in chapter 720 did not apply to them, and in others they relied it’s authority over them to support the fee enforcements. Solivita prosecuted all foreclosure proceedings for failure to pay fees, whether they were for expenses or profit, under chapter 720.

In response to Avatar’s argument that ruling in Gundel’s favor could have a ripple effect on homeowner’s associations, they escalated the following question to the Florida Supreme Court: Can a fee include charges to the developer that exceed the actual expenses for the amenities, when the result of non-payment is a lien against the property?

Specially Concurring: Judge Stargel

"I write to address the statutory interpretation analysis in further details s well as the notion set forth by Avatar that the majority’s reading of that statute would force them to operate ‘at cost.’"

Stargel agrees with the dissent that the court should determine the “plain meaning” of the text to make its decision. He did that, using the supremacy-of-text principle, and agrees with the majority’s conclusion.

Stargel used definitions provided by the legislature and two dictionaries to develop an understanding of of the key words for this case: assessments (fees), community, governing documents, expenses.

Stargel argues that, with these understandings, it is clear the legislature intended to limit certain actions by developers. One of the purposes of chapter 720 is to protect association members. This contradicts Avatar’s intent to exclude homeowners from control, while accepting “perpetual profits” even if the facilities no longer existed.

If the Legislature wanted to exclude fees from developers (Avatar) from the limitations in chapter 720, they would have stated that when they wrote the rules. On top of that, developers were mentioned many times throughout chapter 720. If they wanted to focus only on homeowner’s associations, they could have left out any mention developers in the chapter 720.

Avatar’s believed that the legislature could not have intended them to run the facilities “at cost”. Stargel argues that the legislature intended to discourage developers like Avatar from from operating in this way by limiting them to collection of “expenses” and no profits.

Dissent: Judge White

"Appellees invite us to adopt arguments clothed in swatches of the statute stitched together, and ignore the rest of the contextual, structural, and textual fabric of chapter 720. The majority accepts that invitation. I must decline."

White would reverse the lower court’s decision. He believes the appellate court is obligated to determine the plain meaning of the statute, and not stray from that task. He used the “contextual, structural and textual clues” from chapter 720.

White argues the conclusion that the Club membership fee violates Chapter 720 is wrong because it disregards the careful consideration he has give the “contextual, structural and textual clues”. He believes the Club is not a part of the community. He argues that if the legislature wanted to include developers in the budget fee rules, they have used “a” instead of “the” in their wording.

He determined that Avatar was correct when they said chapter 720 did not apply to them, and only applied to the homeowner’s association.

White did not believe it was necessary to consider the “full scope” of the  commercial property exemption. He says the exemption is broad enough to exclude the Club.

He would have reversed the decision and sent it back to the lower court.