Florida CDDs ask court to set limits on residents in bond validation case
Retirees in the central Florida retirement community of Solivita are back in court arguing that their community development districts’ financing plan will cost them too much.
A group of homeowners, represented by residents William Mann, Brenda Taylor, and William Wynn, are challenging the $102 million of bonds that the Poinciana CDD and Poinciana West CDD want to issue in a new bond validation case. The districts encompass the Solivita development.
If the CDDs get their way, the homeowners won’t get to argue some of the reasons they think the law is on their side.
Attorneys for the CDDs said in a June 1 court filing that the “doctrine of issue preclusion” should bar the homeowners from re-litigating issues they believe a Florida judge already settled.
“Issue preclusion should apply in this bond validation proceeding,” the CDD’s said. “The law does not entitle Mann and Taylor to a mulligan.”
In a hearing Tuesday, Polk County Circuit Court Judge Steven Selph is scheduled to hear arguments from the districts and opponents about whether issue preclusion – also known as collateral estoppel – applies to the new bond validation case.
If Selph rules that issue preclusion does not apply, the case could be a do-over for the homeowners.
Polk County Circuit Judge Randall McDonald declined to validate the bonds in September, saying the CDDs had failed to equally allocate special assessments they planned to charge homeowners. Assessments placed on tax bills would be used to pay back the 30-year bonds.
McDonald also disagreed with other arguments made by Mann and Taylor, favoring the position taken by the CDDs in his decision, although the improper assessment schedule was the basis for his ruling.
The CDDs revised the assessment schedule to address McDonald’s ruling, and filed a new complaint for validation in October.
“The unfair and improper apportionment of assessments was the only matter actually adjudicated by the judgment denying the districts’ first validation attempt,” the homeowners’ attorneys argued in a June 1 filing. “The final judgment’s findings about the districts’ public purpose and its compliance with legal requirements were not necessary to the denial of validation and thus were not actually adjudicated.”
There is no statutory basis for issue preclusion based on McDonald’s findings concerning the public purpose and compliance with legal requirements in the prior bond validation judgment denying the districts’ first validation attempt, said the homeowners.
In December 2016, the Poinciana districts filed the first complaint to validate the debt.
The CDDs plan to use $72.9 million of bond proceeds to purchase existing amenities such as pools, parks and restaurants from the developer, Avatar Properties, and its parent AV Homes. Most of those improvements are 15 to 17 years old.
Some $11.2 million of bond proceeds would be used by the developer to build a new wellness center and a small performing arts theater, and $11.4 million would pay for issuance costs and consultant fees.
The districts did not get a fair market appraisal to determine the purchase price for the existing amenities, although 1,578 Solivita homeowners signed a petition requesting an appraisal.
A Florida-certified real estate appraiser hired by the homeowners valued the parcels and existing amenities at $19.25 million.
In the latest court filing, Taylor, Wynn and Mann contend – as they did in the first validation case - that the CDDs and the developer improperly used an income-based approach, as opposed to obtaining a just value from a certified appraiser as required by Florida law, to capitalize 30 years of future club membership fees currently charged by the developer in order to value the amenities in excess of their worth.
Residents must pay the club fee to use the facilities.
Taylor, Wynn and Mann cite the valuation approach used by the CDDs and other objections to the proposed validation, including some that they raised in the previous validation case.
The three contend that the CDDs “refused and failed to obtain an appraisal of the improvements, have failed to perform due diligence to ascertain a fair value for acquisition, construction and reconstruction of the improvements, and are proposing to assess Solivita homeowners within the districts in amounts exceeding the proportionate amount by which the properties will benefit from the improvements.”
The CDD attorneys said some issues should be excluded from the case because they are identical to the first proceeding and have been litigated. The issues were determined to be a “critical and necessary part of the judgment,” and the homeowners had a “full and fair” opportunity to litigate in the prior proceeding.
“All elements for issue preclusion apply to the public purpose of the project, the power of the districts to issue bonds and levy assessments, [the] special benefit, and the valuation” method used for the amenity acquisition, the CDD filing said.
The homeowners countered that they were “denied all discovery” requests they made of AV Homes and were denied the right to examine company witnesses at trial.
“They were denied the opportunity to fully and fairly litigate issues arising from AV’s conduct,” the homeowners said. They appealed the first validation ruling to the Florida Supreme Court to pursue issues that McDonald disagreed with, but the high court dismissed the case as moot after the CDDs filed the second validation complaint.
If Judge Selph rules that issue preclusion applies in the current case, the homeowners still get another shot at pursuing all of their objections to the bond issue.
While the Supreme Court dismissed the first appeal, the justices said “in any future appeal to this court there shall be no issue preclusion, res judicata effect, collateral estoppel, or similar defense as to the issue of the legal validity of the bonds.” In other words, all arguments will be considered.
Taylor, Wynn and Mann also contend that the new bond assessment methodology adopted by the CDDs is flawed.
The trio alleges that the districts approved a methodology based on equivalent residential units receiving a special benefit and “then purported to assess a gross assessment of $1018.18 each year for 30 years…equally on each ERU.”
The districts “omitted 559 ERUs” that allegedly receive a special benefit, and they levied substantial special assessments on two unbuildable parcels, which would not receive a special benefit from the facilities being purchased and constructed, the homeowners said.
“The annual debt assessments on these two [unbuildable] parcels so greatly exceed the actual value of the two parcels that it is unlikely the debt assessments will be paid,” attorneys said. “As the annual debt assessments on these two parcels alone are nearly 8% of the districts’ total annual debt assessments, nonpayment of these two debt assessments alone could jeopardize the districts’ ability to meet their debt service obligations to bondholders.”
The CDDs have not responded in a court filing to the homeowners’ allegations about the new assessments.
After a case management hearing in March, the districts’ attorney, Michael Eckert, told The Bond Buyer in an email that the court’s concern over the assessment allocation in the initial bond validation proceeding has been addressed by the districts for the current proceeding.
“Each platted unit has received an assessment lien for an equal amount,” said Eckert, with Hopping Green & Sams PA.
Martin Kessler, a 94-year-old Solivita resident representing himself, also renewed his objection to the new bond validation case based on his belief that the districts failed to obtain a fair value appraisal for the amenities as required by law.
Kessler said in a June 8 brief that validating the bonds would be illegal, and “that is blindingly obvious.”
Avatar Properties chose the districts as buyer of the amenities with the power to sell bonds after negotiating a contract price, Kessler said, and now “the residents, without any thought of a referendum, will be obliged to pay the price for a contrived benefit…imposed on them, which they have never found themselves wanting in the first place.
“I suggest the word for this second validation is the seller’s bold arrogance, and there’s nothing actionable about arrogance,” Kessler concluded. “The word for the district/buyer may be the tort of misfeasance in office.”