Opinion
Case No. 2D19-500
07-17-2020
ROST INVESTMENTS, LLC, and Rotor Holdings, Inc., Appellants, v. Paul CAMERON and Janette Wayles Cameron, Appellees.
P. Brandon Perkins of Campbell Conroy & O'Neil, Plantation; and Alexander Brockmeyer of Boyle Leonard & Anderson, P.A., Fort Myers, for Appellants. William Scott Morris of Morris Law Firm, P.A., Cape Coral, for Appellees.
P. Brandon Perkins of Campbell Conroy & O'Neil, Plantation; and Alexander Brockmeyer of Boyle Leonard & Anderson, P.A., Fort Myers, for Appellants.
William Scott Morris of Morris Law Firm, P.A., Cape Coral, for Appellees.
ROTHSTEIN-YOUAKIM, Judge.
Rost Investments, LLC ("Rost"), and Rotor Holdings, Inc. ("Rotor"), appeal the final judgment in favor of Paul and Janette Wayles Cameron on their claims against Rost for unjust enrichment (Count Five of the Third Amended Complaint) and rescission (Count Six) and against Rost on its amended counterclaim for breach of contract. We agree that the trial court abused its discretion in granting rescission and, consequently, erred in concluding that the Camerons were entitled to relief based on a theory of unjust enrichment. See Rawson v. UMLIC VP, L.L.C., 933 So. 2d 1206, 1210 (Fla. 1st DCA 2006) (explaining that abuse of discretion "is the standard applicable to the review of an order deciding the equitable remedy of rescission" (citing Pendleton v. Witcoski, 836 So. 2d 1025 (Fla. 1st DCA 2002) )); see also Winfield Invs., LLC v. Pascal-Gaston Invs., LLC, 254 So. 3d 589, 592 (Fla. 5th DCA 2018) ("Florida courts have held that a plaintiff cannot pursue a quasi-contract claim for unjust enrichment if an express contract exists concerning the same subject matter." (quoting Diamond "S" Dev. Corp. v. Mercantile Bank, 989 So. 2d 696, 697 (Fla. 1st DCA 2008) )). Accordingly, we reverse and remand for entry of judgment in favor of Rost on those counts and for a new trial on Rost's amended counterclaim. The judgment on all other counts is affirmed without comment.
Although those counts did not allege a cause of action against Rotor, the trial court ordered recovery "from Defendants" on those counts in the final judgment. At oral argument, the Camerons conceded the error. Our holding, however, renders the error moot.
Rotor and Rost—which share the same office and two of the same officers, Rostislav Grigorenko and Paul Turovsky—buy "distressed" homes and then rent those homes under a lease-to-own model. This model requires a lessee to enter into two separate contracts at the outset: a lease and an option-to-purchase agreement. Pursuant to the option contract, if the lessee exercises the option to purchase, the lessee is bound by a third contract, an "as-is" purchase agreement. As consideration for the option contract, the lessee pays a sum of money; if the lessee ultimately exercises its option, that sum serves as a down payment on the property. In October 2016, "LTO Real Estate" showed Ms. Cameron several properties that she could lease in the lease-to-own program. Without going inside, she selected the house that is the subject of this suit. Ms. Cameron understood that LTO Real Estate did not yet own the property but was in the process of acquiring it.
Rotor owns the fictitious name "LTO Real Estate," which is the entity with which Ms. Cameron believed she was doing business.
On October 10, 2016, Turovsky had the property inspected, and he received the inspection report the next day ("the October report"). As the trial court found, the report identified "many potential issues with the property and items for repair." At trial, Turovsky testified that he had given Ms. Cameron a copy of the October report. Both of the Camerons denied ever seeing the October report until after they had initiated their lawsuit. Although ultimately finding that the October report had not been disclosed to the Camerons, the court declined to find that the failure to disclose it had been intentional.
At first blush, the trial court's findings concerning disclosure of the October report appear inconsistent. In the final judgment, the court states, "The conflicting testimony of Mr. Turovsky and the [Camerons] makes it unclear to this Court whether or not the [October] report was ever turned over to [the Camerons]." In concluding that Rost was unjustly enriched, however, the court stated, "The retention of these funds are [sic] inequitable due to the defects present in the home that [Rost] had knowledge of and either totally or partially did not disclose to the [Camerons] or adequately ensure were repaired." And in concluding that rescission was appropriate, the court stated, "After considering all of the exhibits and testimony of the parties, it is the Court's determination that [the Camerons] have met their burden to prove that [Rost and Rotor] failed to disclose hidden defects materially affecting the value of the subject property." We reconcile these statements to mean that although the court was unable to resolve the factual dispute based on the testimony standing alone, it was able to do so based on all the evidence and did so in favor of the Camerons.
On October 28, 2016, before any documents were executed and before Rost actually owned the property that Ms. Cameron had selected, the Camerons transferred $30,000 to Rost as consideration for the option contract and to enter the lease-to-own program.
In early November, Rost took title to the property. On November 21, 2016, Ms. Cameron signed the lease agreement and option contract. Both documents indicated an effective date of October 28, 2016. When Ms. Cameron signed the contracts, she also filled out an intake sheet. The intake sheet set forth certain repairs that the parties agreed LTO Real Estate would perform and provided: "Property Objectives and Program Questions: to complete house – move in ready[;] [no] hot [water] in showers, low pressure hot water[;] exchange/replace refrigerator, need 2 remote controls for garage." At trial, the Camerons also testified that they had been promised stainless steel appliances but only received black appliances.
About a week after Ms. Cameron signed the paperwork, the Camerons had the house inspected and received a report identifying multiple latent defects. The Camerons sent Rost a letter indicating that they were rescinding the contracts. Rost did not respond favorably to the letter. Shortly after that, the Camerons filed their initial complaint seeking rescission of the three contracts on the ground that "[t]he property has many defects of which [Rost] knew or should have known but failed to disclose to the [Camerons]."
Interestingly, the letter sought rescission not based on the results of the inspection that the Camerons had conducted but on the basis that Ms. Cameron had lacked mental capacity to enter into the contracts and that Rost had represented that it had owned the property on October 28 although it had not.
Thereafter, the Camerons continued to live in the house for approximately thirteen months without paying rent. As the litigation progressed, they learned about the October report and ultimately amended their complaint to add a claim for, among other things, unjust enrichment based on Rost's failure to disclose the results of that report.
The Camerons' attorney represented that he had advised the Camerons not to pay rent to prevent waiver of the right to rescission by ratifying the contract.
The Camerons also alleged claims of deceptive and unfair trade practices, fraud, civil conspiracy, and negligent misrepresentation, but the trial court concluded that they had failed to carry their burdens of proof with respect to those claims.
The trial court found in favor of the Camerons on the rescission and unjust enrichment counts. In ordering rescission, the court found that the Camerons had
relied on LTO's representations that the items for repair and/or replacement listed on the intake sheet admitted into evidence[ ] would be done. ... Although the contract was "As Is[,"] [Ms. Cameron] testified that it was represented the intake items would be done and she was promised new stainless steel appliances but did not get them receiving black used appliances instead. [Ms. Cameron] further testified that without the agreed repairs and replacements, she would not have entered into the contract.
The court therefore concluded that rescission was appropriate because Rost had failed to complete the repairs that it had agreed to complete pursuant to the intake sheet. The court also concluded "that [the Camerons] have met their burden to prove that [Rost and Rotor] failed to disclose hidden defects materially affecting the value of the subject property and fail[ed]to make adequate repairs to said property," presumably referring to the defects identified in the October report and implicitly concluding that Rost had a legal duty to disclose those defects. Despite finding that the Camerons had not established that Rost had intentionally failed to disclose the October report, the court characterized Rost's failure to complete "the repairs" as "deceit" warranting rescission. Because the court concluded that rescission was warranted, Rost was precluded from arguing its amended counterclaim that there had been a breach of contract, and the court entered judgment against Rost on the amended counterclaim.
As to the unjust enrichment count, the trial court found that Rost's retention of the $30,000 that the Camerons had transferred in exchange for the option to purchase the property was "inequitable due to the defects present in the home that [Rost] had knowledge of and either totally or partially did not disclose to the [Camerons] or adequately ensure were repaired." The court therefore concluded that the Camerons had established the elements of unjust enrichment and were entitled to return of the $30,000.
Rescission is an equitable remedy with the purpose of " ‘restor[ing] the former status’ of the parties" by "undo[ing] the original transaction." Billian v. Mobil Corp., 710 So. 2d 984, 990 (Fla. 4th DCA 1998) (quoting Willis v. Fowler, 102 Fla. 35, 136 So. 358, 369 (1931) ). "[A] party who voluntarily executes a document ... is bound by its terms in the absence of coercion, duress, fraud in the inducement or some other independent ground justifying rescission." Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Benton, 467 So. 2d 311, 312 (Fla. 5th DCA 1985).
The trial court ordered rescission based on Rost's
fail[ure] to disclose hidden defects materially affecting the value of the subject property and failing to make adequate repairs to said property .... There is no doubt [Rost] knew of the issues surrounding the home and prepared to rectify some of them as evidenced by the intake form and [Rost's] unbelievable testimony that [it] "investigated" some of what the report revealed.
The court's decision, therefore, was apparently based on a determination that Rost was obligated both to make the repairs specifically identified on the intake sheet and to at least disclose, if not repair, the defects identified in the October report. Rost's failure to do either of those did not warrant rescission.
First, the intake sheet noted only that there was no hot water in the showers, that there was low hot water pressure, that the refrigerator needed to be exchanged or replaced, and that the Camerons needed two remote controls for the garage. As explained in AVVA-BC, LLC v. Amiel, 25 So. 3d 7, 11 (Fla. 3d DCA 2009) :
While an agreement may be rescinded for fraud relating to an existing fact, as a general rule, rescission will not be granted "for failure to perform a covenant or promise to do an act in the future, unless the covenant breached is a dependent one." Steak House, Inc. v. Barnett, 65 So. 2d 736, 737 (Fla. 1953). "A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted." Id. at 738.
Notwithstanding the trial court's finding that the Camerons would not have entered into the contract if Rost had not agreed to the repairs on the intake sheet, we cannot see how replacing the refrigerator, supplying two garage remote controls, and even repairing the hot water were so essential to the bargain that Rost's failure to attend to them destroyed the contracts. Indeed, the Camerons' letter of rescission, sent to Rost eight days after they moved into the property, did not refer at all to Rost's failure to make the repairs on the intake sheet or any other repairs. Moreover, as the trial court noted, "rescission is an equitable remedy which is only available if the [Camerons] have no remedy at law," see Collier v. Boney, 525 So. 2d 971, 972 (Fla. 1st DCA 1988) ("[A] fundamental requirement necessary for rescission of a contract is that the moving party has no adequate remedy at law." (citing Crown Ice Machine Leasing Co. v. Sam Senter Farms, Inc., 174 So. 2d 614 (Fla. 2d DCA 1965) )), and, as Rost argues, the failure to make the agreed-upon repairs and to replace the refrigerator could have been brought as a breach-of-contract action remedied with money damages.
Rescission also was not warranted based on Rost's failure to disclose the defects identified in the October report. In Johnson v. Davis, 480 So. 2d 625, 629 (Fla. 1985), the supreme court held "that where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer." The Camerons argue that due to the nature of their lease-to-own contracts, they effectively were in a buyer-seller relationship with Rost and deserve Johnson's protections. We cannot agree. As Rost argues, the Camerons had only an option to buy, which they never exercised. Therefore, no duty to disclose had arisen under Johnson.
The trial court's order did not explicitly cite Johnson, but the court's conclusion that the Camerons were entitled to rescission because they had "met their burden to prove that [Rost and Rotor] failed to disclose hidden defects materially affecting the value of the subject property " (emphasis added), coupled with its refusal to find that Rost had intentionally failed to disclose the October report, convinces us that it was at least in part relying on Johnson. See Billian, 710 So. 2d at 988 ("Unlike the cause of action for fraudulent misrepresentation, a non-disclosure case under Johnson does not focus on the seller's state of mind motivating the non-disclosure.").
Although the Camerons argue that rescission is nonetheless warranted based on Rost's fraudulent nondisclosure or intentional concealment of the October report, the trial court expressly found that the Camerons had failed to prove that Rost had intentionally failed to disclose the October report. Consequently, we reverse the judgment as to Count Six.
Because we reverse as to the rescission, we also reverse the judgment against Rost on its amended counterclaim. The trial court entered the judgment solely because Rost's breach-of-contract claim could not proceed on contracts that had been rescinded. On remand, the court shall permit that claim to go forward.
Finally, we reverse the judgment on Count Five, which alleged that Rost was unjustly enriched by the Camerons' payment of $30,000 for the option to purchase the property. To establish unjust enrichment, the Camerons had to establish that they had conferred a benefit on Rost, that Rost had appreciated the benefit, and that Rost had accepted and retained the benefit "under circumstances that [made] it inequitable for [it] to retain [the benefit] without paying the value thereof." See Jackson-Jester v. Aziz, 48 So. 3d 88, 90 (Fla. 2d DCA 2010) (quoting Swindell v. Crowson, 712 So. 2d 1162, 1163 (Fla. 2d DCA 1998) ). Rost argues that if the rescission is reversed, the unjust enrichment claim fails as a matter of law because the Camerons paid $30,000 in exchange for the option to purchase the property pursuant to an express contract between the parties. Rost is correct. See Winfield Invs., LLC, 254 So. 3d at 592.
The Camerons argue that Rost failed to preserve an "express contract" argument by failing to raise the argument in its amended motion for rehearing. We disagree. As Rost notes, it pled the existence of an express contract as an affirmative defense to the Camerons' claim of unjust enrichment, and in its amended motion for rehearing, Rost argued that rehearing of the rescission ruling would also entitle it to rehearing or a new trial on the unjust enrichment claim because the rescission ruling "informed [the Court's] ruling on the Unjust Enrichment claim."
Accordingly, we reverse and remand for entry of judgment in favor of Rost on Counts Five and Six of the Third Amended Complaint and for a new trial on Rost's amended counterclaim. In all other respects, the judgment is affirmed.
Affirmed in part; reversed in part; remanded with instructions.
LUCAS and SMITH, JJ., Concur.