Anatomy of a Case: Kluger Kaplan Sets New Standard for Upholding Residential Real Estate Contract

Case: Diaz v. Kosch, Third District Court of Appeal of The State of Florida

Thanks to the arguments of Kluger Kaplan attorneys, Alan Kluger and Ashley Frankel, along with Scott Kravetz of Duane Morris, the Third District Court of Appeal of The State of Florida recently set a new standard for strictly upholding the provisions of the Florida Bar’s standard contract for real estate home purchases.

AJK High ResolutionBackground:

The case began in 2012 with a real estate transaction gone bad.  Coral Gables homeowners, David and Tiffany Kosch, entered an agreement with Miami attorney, Richard Diaz, to sell their home “as-is” for nearly $2.8 million.  The purchase agreement followed the standard form for a real estate contract established by the Florida Bar.

As part of the purchase agreement the sellers completed a disclosure statement affirming, among other things, that they had no knowledge of improvements constructed in violation of applicable building codes, without necessary permits, or with any open permits not closed with a final inspection to the property or the presence of toxic substances. The prospective buyer deposited $50,000 in escrow for the purchase with a further deposit of $235,000 due when the 10-day right of inspection and right to cancel period expired.

AFrankel232During the 10-day inspection/termination period, the buyer raised concerns regarding unpermitted renovations; however, they did not negotiate an extension of the inspection period or terminate the transaction. On the final day of the right to terminate period, the buyers deposited the additional $235,000 in escrow, per the agreement, but also threatened legal action against the sellers.

Shortly before the closing date on the purchase, the buyers terminated the transaction demanding return of the money deposited in escrow. The buyers also filed a lawsuit against the sellers and brokers asserting claims for breach of contract, conversion, fraud in inducement, fraud in concealment, negligent misrepresentation, and conspiratorial fraud, with a claim for punitive damages asserted as well. The buyers also alleged the property contained radon contamination requiring extensive remediation.

The Ruling:

The litigation over the failed sale was extensive, lasting more than four-and-a-half years during which the buyer filed multiple motions for punitive damages. Ultimately, Judge Eric Hendon of the Circuit Court for Miami-Dade County issued a summary judgement in favor of the sellers, ruling the buyers did not properly exercise their right to terminate in the period allowed by the contract, and so were not entitled to a return of the money held in escrow. Additionally, the judge awarded the sellers attorneys fees in the case. In June 2018, the Third District Court of Appeal affirmed Judge Hendon’s decision.

The court ruled that the allegations in the plaintiffs’ complaint were contradicted by the language in the “As Is” Residential Contract for Sale and Purchase, which included non-reliance provisions. The court further ruled that the buyers could not attempt to get around these provisions by effectively creating a “conditional tender” of the second deposit, which would make the sellers liable for repairs, permitting issues and other circumstances.

Impact:

This was a landmark decision that reinforces the strict, but enforceable provisions in contracts governing residential real estate transactions. It affirms that purchasers and sellers must carefully review and comply with the letter of each provision in the Florida Bar’s standard form.

Parties in a home purchase must adhere to the wording of the “As Is” contract, which states that once a deposit is in escrow, the purchaser cannot change the terms of the agreement, and must either move forward or walk away. Purchasers are not allowed to create a “conditional tender” with a second deposit to reserve their right to purchase but hold the sellers liable for repairs.

Law 360: Ruling Puts Banks On Hook For Fla. Real Estate Back Taxes

Law360

Law360, Miami (October 27, 2017, 8:25 PM EDT) — When a mortgage company loaned money to a Miami buyer in 2007, the lender didn’t know the homeowner would improperly claim a homestead property tax exemption. It wasn’t until seven years later that the county would file a lien for the unpaid taxes, a lien that a Florida appeals court now says applies retroactively and takes priority over the mortgage.

The decision, issued Oct. 18, could cause headaches for lenders and title insurers who will now need to worry about priority liens popping up after closing and applying retroactively.

The biggest issue with the decision is its retroactive nature, which could, depending on the property and how long the homeowner wrongly claimed the exemption, lead to liabilities of hundreds of thousands of dollars, according to Farach. By law, a tax assessor can claim up to 10 years’ worth of back taxes for improper homestead exemptions.

“Florida has always been a first in time, first in right state, with one exception: that government liens are superior,” said Marko Cerenko, a partner at Kluger Kaplan Silverman Katzen & Levine PL. “But this means you can go back in time and prioritize a subsequent lien.”

Read the full story on Law360

Timing is Everything: When Does Registration of a Copyright Occur Under the Copyright Act?

Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, Case No. 0:16-cv-60497-RNS (11th Cir. May 18, 2017)

Copyright Registration

Copyrights are a unique category of intellectual property law in that the Copyright Act does not require official registration with the Register of Copyrights in order to have a valid copyright. However, despite the seemingly voluntary nature of this regime, there are incentives for a copyright holder to apply for registration of his or her copyright – namely that you cannot file a suit for copyright infringement without doing so. The term “registration,” as it is used in the Copyright Act, is interpreted differently by the Circuit Courts and on May 18, 2017, the Eleventh Circuit weighed in on the circuit split and answered an important question in copyright infringement cases: when does registration of a copyright occur?

Background

In this case, Fourth Estate Public Benefit Corporation, an organization that produces online journalism, brought suit against Wall-Street.com, LLC for copyright infringement. Fourth Estate licenses articles to different websites, but retains the copyrights to those articles. Fourth Estate licensed articles to Wall-Street.com and, pursuant to their licensing agreement, Wall-Street.com was required to remove all content produced by Fourth Estate when the relationship ended; however, Wall-Street.com continued to display the articles after termination of the relationship.

Consequently, Fourth Estate filed a complaint against Wall-Street.com and its owner. Fourth Estate’s Complaint, in an attempt to comply with the pleading requirements for copyright infringement, alleged that “applications to register [the] articles with the Register of Copyrights” had been filed, but pled no facts regarding the Register of Copyrights’ actions on the application. In response, Wall-Street.com filed a motion to dismiss arguing that under the Copyright Act a suit for infringement can only be brought after the Register of Copyrights approves or denies the application to register. As further discussed below, this prompted the Eleventh Circuit to finally address the question that currently splits the circuits: whether registration of a copyright occurs upon the filing of an application or after the Register of Copyrights approves or denies registration of the copyright?

Ruling

In its analysis, the Eleventh Circuit sets forth the two approaches to “registration” under the Copyright Act: (1) the “registration” approach, which “requires a copyright owner to plead that the Register of Copyrights has acted on the application – either by approving or denying it – before a copyright owner can file an infringement action,” and (2) the “application” approach, which “requires a copyright owner to plead that he has filed ‘the deposit, application, and fee required for registration’ before filing a suit for infringement.” Fourth Estate Public Benefit Corporation v. Wall-Street.Com, LLC et al., Docket No. 0:16-cv-60497-RNS at p. 5.

The Eleventh Circuit held that, under the clear language of the Copyright Act, the registration approach is correct – a decision that aligns with the minority approach.[1] In reaching its decision, the Court relied heavily on the statutory language in the Copyright Act. For example, the Court cited to §410(a) of the Copyright Act, which states that “[R]egistration of [a] copyright . . . has [not] been made in accordance with” the Act until the Register “register[s] the claim.” Additionally, the Eleventh found that the Act’s use of the phrase “after examination” in discussing registration indicated that registration occurs subsequent to, and not instantaneously with, the filing of the application.[2] Further, the Eleventh Circuit cited §410(b) to further bolster its analysis, as this section acknowledges that the Register of Copyrights has the power to “refuse registration” if the application does not meet copyrightable standards. Clearly, “if registration occurred as soon as an application was filed, then the Register of Copyrights would have no power to ‘refuse registration.’” Fourth Estate Public Benefit Corporation v. Wall-Street.Com, LLC et al., Docket No. 0:16-cv-60497-RNS at p. 8.

Moreover, Fourth Estate argued that the three-year statute of limitations for infringement suits, established by §507(b) of the Copyright Act, supported the application approach. The Court rejected this argument finding that the Copyright Act’s statutory plan is to encourage early registration, and thus, the three-year statute of limitations and the registration approach taken together align with this statutory scheme. The Court further stated that the statute of limitations functions as an incentive for early registration because the potential of losing the right to protect your copyright against infringement “encourages an owner to register his copyright soon after he obtains the copyright and before infringement occurs.[3]Fourth Estate Public Benefit Corporation v. Wall-Street.Com, LLC et al., Docket No. 0:16-cv-60497-RNS at p. 10.

Impact

This decision clarifies the pleading standard for copyright infringement in the Eleventh Circuit. After this decision, in order to state a claim for copyright infringement a copyright holder must allege that the Register of Copyrights has approved or denied the application for registration. Additionally, as suggested by the Court’s interpretation of the Act’s statutory scheme, this decision has the potential to prevent copyright holders from sleeping on their rights and motivate prompt registration. However, since the Eleventh Circuit took the minority approach, copyright holders and attorneys practicing in this field should continue to follow this issue as it is likely that Fourth Estate will petition for a writ of certiorari in the Supreme Court.

 

[1] The Eleventh Circuit followed the Tenth Circuit’s registration approach, whereas the Ninth, Fifth, and Eighth Circuits have all elected to follow the more lenient application approach.

[2] Section 410(a) of the Act states “When, after examination, the Register of Copyrights determines that, in accordance with the provisions of this title, the material deposited constitutes copyrightable subject matter and that the other legal and formal requirements of this title have been met, the Register shall register the claim and issue to the applicant a certificate of registration under the deal of the Copyright Office.” 17 U.S.C. §410(a) (emphasis added).

[3] The Court also cited to other provisions in the Copyright Act that reflect a statutory scheme encouraging prompt registration. See e.g., 17 U.S.C. §410(c) (stating that registration made “before or within five years after first publication of the work” will be “prima facie evidence of the validity of the copyright.”)

 

Micayla MancusoMicayla Mancuso is an associate at Kluger Kaplan, focusing on general and complex commercial litigation. Before joining Kluger Kaplan as a full time associate, she served as a summer associate at the firm. Prior to this, she served as an extern for the City of Boston Law Department and served as a judicial intern in the Boston Municipal Court for Judge Debra A. DelVecchio. She also served as an intern for the Federal Public Defender for the Southern District of Florida.