Florida residents appeal narrow ruling in Poinciana CDD bond validation case

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BRADENTON, Fla. – Residents of the Solivita planned retirement communities in central Florida filed two appeals of a judge’s decision in a bond validation case in an effort to widen the scope of the ruling.

Polk County Circuit Judge Randall McDonald ruled against validating bonds that their community development districts planned to issue, but his narrow Sept. 1 ruling in the case dismissed most of the residents' arguments against the validation. It is the arguments the judge dismissed that prompted the residents' appeal.

McDonald found that the CDDs failed to evenly apportion special assessments they planned to place on homeowners’ tax bills to pay debt service on up to $102 million of tax exempt bonds.

The supervisors for both CDDs voted Sept. 20 not to appeal the final judgment in the bond validation case, said attorney Michael Eckert, with the law firm Hopping Green & Sams PA.

“Instead, the districts intend to consider a revised assessment methodology to address the concerns noted by the trial court and then decide how to proceed in relation to the amenity transaction,” he said. “The trial court’s stated concern with the assessment methodology can be easily remedied through such a revision.”

The residents' appeals, to be heard by the Florida Supreme Court, have yet to be scheduled.

The CDDs planned to use $73.7 million of bond proceeds to purchase amenities such as pools and parks from the developer, Avatar Properties Inc., and its parent AV Homes. Another $11.2 million of proceeds would be used to build a new wellness center and a performing arts center.

“While the Poinciana Community Development District and Poinciana West Community Development District continue to believe the [assessment] methodology was proper, the districts understand and appreciate the concerns expressed by the trial court,” Eckert said.

The residents in one appeal, led by defendants Brenda Taylor and William Mann, believe the purchase price for the existing amenities is inflated, and disagree with the methodology used to devise the amount paid to the developer.

They claim the methodology approved by the CDD supervisors, which is based on an income approach, would improperly capitalize fees that the developer would have collected over the next 30 years.

Those mandatory monthly fees, which the developer calls the club plan, are charged to residents for use of the amenities. CDD supervisors planned to eliminate the club fees once the bonds are issued, although residents would still pay assessments on the bonds.

McDonald’s ruling denying the validation did not rely on the residents’ argument about valuation of the amenities, nor did it address the legality of the club plan, Solivita resident Norm Gundel told CDD supervisors at their Sept. 20 meeting, which is posted on YouTube.

Gundel is one of three plaintiffs in a separate class-action lawsuit contending that AV Homes’ club plan violates Florida’s Homeowners' Association Act and the Deceptive and Unfair Trade Practices Act.

“If the club plan’s illegal you do not need to pay AV Homes $73 million or any amount to end the club membership fee; the court will end it for you and possibly make AV Homes reimburse residents for past fees,” Gundel told supervisors. “You should know if the club fee is legal.”

Daniel Fleming, a shareholder at Gray Robinson and lead attorney in the class-action litigation for AV Homes and Avatar Properties, said he had no comment concerning the bond validation appeal.

Fleming said a response and counterclaim to the class-action lawsuit was filed Friday, and the developer “looks forward to bringing these issues before the judge.”

In the class-action suit, Avatar contends that the named residents in the suit – Gundel, William Mann, and Brenda Taylor – breached their contracts with the developer, which they signed when they purchased homes in Solivita agreeing to mandatory membership in the club plan and the payment of dues.

“Counter-defendants have breached the terms of their contractual agreements with [Avatar] by actively and vocally contesting the validity and enforceability of: (1) the mandatory nature of the membership in the club; (2) the club dues and membership fees; and (3) [Avatar’s] right to sell the club facilities at its sole discretion,” the filing said.

Avatar is also charging the residents with breach of affirmative covenant and tortious interference with contractual relations. The counterclaim seeks a declaratory judgment that Avatar is not subject to Florida’s Homeowners’ Association Act, and damages.

Eckert told The Bond Buyer in an email Tuesday that he has told the CDD supervisors that the bonds cannot be marketed while the class-action suit is pending.

“Consequently, the trial court in the class-action case will likely need to issue a legal opinion concerning the legality of the club plan before the district will be able to market and sell bonds,” he said.

While the residents have not filed briefs stating their reasons for appealing the bond validation ruling, McDonald rejected their arguments during trial July 18-21 that the 17 existing amenities being purchased are overvalued.

The CDD supervisors have inked a deal to pay the developer $73.7 million based on the income valuation approach capitalizing the club plan fee over the next 30 years.

The residents hired Urban Economics Inc., a state certified real estate appraiser that found the market value of the amenities to be $19.25 million.

The judge presiding over the validation concluded that the income approach to valuing the amenities was not arbitrary or capricious. He also said that the legality of the club plan was collateral to the bond validation, and declined to rule on the issue.

Martin Kessler, a 93-year-old resident of Solivita, filed a separate notice of appeal of the bond validation ruling.

Kessler, who could not immediately be reached for comment on his appeal, previously said that he may not have lost the case before McDonald because the bonds were not validated, but he did not win, either.

“By that I mean the judge did not agree with my arguments on a particular section of Chapter 190,” he said, referring to the Florida law that governs community development districts.

Kessler had argued that his interpretation of Chapter 190 required the Poinciana CDD and similar districts to perform a “just value” analysis of any real estate or property to be purchased from a contractor, engineer or any person.

The CDDs argued that the “fair value” clause of Chapter 190 had no bearing on the case.

During the CDD meeting on Sept. 20, Tony Iorio, representing AV Homes, said that he thought the new amenities to be constructed with bond proceeds could have been completed or near completion if the legal challenges had not been filed.

“First of all, we are aware and disappointed the bonds weren’t validated based on a technicality,” he told the supervisors. “However, we look forward to working with the board to complete this transaction. We believe the judge provided a clear path for validating the bonds.”

Although the districts voted not to pursue their own appeal of the judge’s ruling rejecting validation, Eckert said the supervisors continue to disagree with arguments made by the residents “and will be actively engaged in the appellate process.”

Appeals of Florida bond validation cases go directly to the state Supreme Court, a process instituted because the court recognized the timing sensitivity associated with the bond marketing process.

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