Gary McCalla and Dianne McCalla v. E. C. Kenyon Construction Company, etc. , 183 So. 3d 1192 ( 2016 )

IN THE DISTRICT COURT OF APPEAL
FIRST DISTRICT, STATE OF FLORIDA
GARY MCCALLA and DIANNE NOT FINAL UNTIL TIME EXPIRES TO
MCCALLA, FILE MOTION FOR REHEARING AND
DISPOSITION THEREOF IF FILED
Appellants,
CASE NO. 1D14-5225
v.
E. C. KENYON CONSTRUCTION
COMPANY, INC., a dissolved
Florida corporation, DOUGLAS
HERRING, an Individual, and
TIMOTHY YOUNG, an Individual,
Appellees.
_____________________________/
Opinion filed January 15, 2016.
An appeal from the Circuit Court for Duval County.
Jack M. Schemer, Judge.
Peter A. Robertson, Erin Rohan Smith, William Douglas Stanford, Jr., and Randy
R. Cardoza, III of the Robertson Firm, St. Augustine, for Appellants.
S. Grier Wells of GrayRobinson, P.A., Jacksonville and Kristie Hatcher-Bolin,
Lakeland, for Appellees.
BENTON, J.
Gary McCalla asks us to reverse summary final judgment entered in favor of
the contractor who built his house, E.C. Kenyon Construction Company, Inc.
(Kenyon), and two of Kenyon’s principals, Douglas Herring and Timothy Young,
and send the case back. Concluding he is entitled to no less, we reverse and
remand for further proceedings.
In a separate case filed earlier, No. 16-2008-CA-005588, Gary and his wife,
the late Dianne McCalla, sued Kenyon for breach of the construction contract,
breach of express and implied warranties, and violation of the Florida Deceptive
and Unfair Trade Practices Act, and obtained a judgment against Kenyon for
$627,657.48. Kenyon did not plead any offset as an affirmative defense in Case
No. 16-2008-CA-005588. See Felgenhauer v. Bonds, 891 So. 2d 1043, 1045 (Fla.
2d DCA 2004) (“It is well settled in contract actions that set-off is an affirmative
defense that must be pleaded or it is waived.”). Kenyon did not, indeed, defend the
original lawsuit at all.
In the present case, No. 16-2012-CA-004988, the McCallas allege that,
before final judgment was entered against it in Case No. 16-2008-CA-005588,
Kenyon transferred all or most of its assets to Messrs. Herring and Young (who
knew of the McCallas’ pending claims), without receiving reasonably equivalent
value in exchange. The complaint in the present case thus alleged fraudulent
transfers within the meaning of sections 726.105(1) and 726.106, Florida Statutes,
which rendered Kenyon unable to satisfy the McCallas’ judgment against it.
A fraudulent conveyance action is an action by a
creditor against a transferee directed against a particular
transaction, which, if declared fraudulent, is set aside
thus leaving the creditor free to pursue the asset, or it is
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an action against a transferee who has received an asset
by means of a fraudulent conveyance and should be
required to either return the asset or pay for the asset (by
way of a judgment and execution).
Gen. Elec. Co. v. Chuly Int’l, LLC, 118 So. 3d 325, 326 n.1 (Fla. 3d DCA 2013).
“A fraudulent conveyance action is simply another creditors’ remedy.” Yusem v.
S. Fla. Water Mgmt. Dist., 770 So. 2d 746, 749 (Fla. 4th DCA 2000) (“A
fraudulent conveyance action, under section 726.108, is not an action against a
debtor for failure to pay an amount owing from a prior judgment.”).
In the order under review, the trial court concluded the McCallas were “not
proper claimants” under section 726.108, Florida Statutes, “because such statutory
provision does not provide for an award of money damages.” We review this
surprising legal conclusion de novo. See Volusia Cnty. v. Aberdeen at Ormond
Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000). Final orders entering summary
judgment do not entail fact finding. When a defendant moves for summary
judgment, “[t]he function of the court is solely to determine whether the
appropriate record presented in support of summary judgment conclusively shows
that the plaintiff cannot prove the claim alleged as a matter of law.” Hervey v.
Alfonso, 650 So. 2d 644, 646 (Fla. 2d DCA 1995). We apply “‘the de novo
standard of review to determine whether there are genuine issues of material fact
and whether the trial court properly applied the correct rule of law.’” Glaze v.
Worley, 157 So. 3d 552, 553-54 (Fla. 1st DCA 2015) (citation omitted).
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The trial court erred in ruling that section 726.108 does not authorize awards
of money damages. The statute authorizes such awards against both fraudulent
transferor and transferee, jointly and severally. See Hansard Constr. Corp. v. Rite
Aid of Fla., Inc., 783 So. 2d 307, 309 (Fla. 4th DCA 2001) (concluding “that a
plaintiff may recover money damages against the transferor under the so-called
catchall provision, section 726.108(1)(c)(3), of the Uniform Fraudulent Transfer
Act” (boldface omitted)). Section 726.108, Florida Statutes, provides:
(1) In an action for relief against a transfer or
obligation under ss. 726.101-726.112, a creditor, subject
to the limitations in s. 726.109 may obtain:
(a) Avoidance of the transfer or obligation to the
extent necessary to satisfy the creditor’s claim;
(b) An attachment or other provisional remedy
against the asset transferred or other property of the
transferee in accordance with applicable law;
(c) Subject to applicable principles of equity and in
accordance with applicable rules of civil procedure:
1. An injunction against further disposition by the
debtor or a transferee, or both, of the asset transferred or
of other property;
2. Appointment of a receiver to take charge of the
asset transferred or of other property of the transferee; or
3. Any other relief the circumstances may require.
(2) If a creditor has obtained a judgment on a
claim against the debtor, the creditor, if the court so
orders, may levy execution on the asset transferred or its
proceeds.
Section 726.109(2), Florida Statutes, provides that “to the extent a transfer is
voidable in an action by a creditor under s. 726.108(1)(a), the creditor may recover
judgment for the value of the asset transferred, as adjusted under subsection (3), or
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the amount necessary to satisfy the creditor’s claim, whichever is less.” See Myers
v. Brook, 708 So. 2d 607, 610 n.1 (Fla. 2d DCA 1998) (noting that “section
726.109(2)(a), Florida Statutes (1993) permits a money judgment to be entered
against the first transferee of the fraudulently conveyed assets”).
The trial court also ruled that the appellees were “entitled to a setoff of both
the Amerisure Lawsuit credit of $158,558.17 and the undifferentiated Green[e]
Lawsuit settlement of $550,000.00 from the Judgment of $627,657.48. . . . The
total of the settlement amounts of $708,558.17 exceed the Judgment, thereby
extinguishing the underlying obligation for the instant action for fraudulent
transfer.” See generally Cornerstone SMR, Inc. v. Bank of Am., N.A., 163 So. 3d
565, 568 (Fla. 4th DCA 2015) (“Whether the trial court awarded a proper set-off is
a pure question of law reviewed de novo.”).
On March 30, 2012, the McCallas had filed suit against Amerisure Insurance
Company (Amerisure), Kenyon’s certified general liability policy carrier, alleging
Amerisure wrongfully denied coverage intended for their benefit. On October 29,
2012, the McCallas settled with Amerisure for $65,000.00. As part of the
settlement, the McCallas agreed to credit and deduct the sum of $158,558.17 from
the judgment entered in their favor against Kenyon in the original action, Case No.
16-2008-CA-005588. The learned trial judge ruled that this credit or offset should
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inure to the benefit of Messrs. Herring and Young, no less than to Kenyon, and we
have no occasion to revisit that ruling on this appeal.1
The trial court erred, however, in determining the appellees were entitled to
set off the amount the McCallas received in settlement of malpractice claims they
made against Christopher Greene, the first lawyer they retained to represent them
in the original lawsuit against Kenyon, and his employers. The defendants in the
professional malpractice action were never jointly and severally liable for the
damages awarded in the original action against Kenyon. In Case No. 16-2008-CA-
005588, Kenyon was adjudicated guilty of having damaged the McCallas long
before the malpractice defendants ever entered the picture.
On February 9, 2011, before entry of the default judgment against Kenyon,
the McCallas sued Mr. Greene and the two law firms who employed him while he
represented them, alleging professional malpractice.2 In June of 2013, the
1
Mr. McCalla does not challenge the trial court’s determination that the
appellees are entitled to set off $158,558.17 against the judgment entered in Case
No. 16-2008-CA-005588, pursuant to the terms of the settlement in the Amerisure
action.
2
“‘[A] cause of action for legal malpractice has three elements: (1) the
attorney’s employment; (2) the attorney’s neglect of a reasonable duty; and (3) the
attorney’s negligence resulted in and was the proximate cause of loss to the client.’
The third element regarding the loss to the client is not satisfied unless the plaintiff
demonstrates that there is an amount of damages which the client would have
recovered but for the attorney’s negligence.’” Massey v. David, 953 So. 2d 599,
603 (Fla. 1st DCA 2007) (quoting Sure Snap Corp. v Baena, 705 So. 2d 46, 48-49
(Fla. 3d DCA 1997) (emphasis omitted)).
In the malpractice action, McCalla claimed damages as a result of various
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breaches of professional duty, including attorney’s fees and costs paid for no
tangible benefit; loss of the ability to access insurance coverage for most of the
construction damages; loss of the ability to hold Kenyon responsible for the
construction damage not covered by insurance; additional costs and expenses
incurred for unresolved construction problems; and extended loss of use of the
residence occasioned by the increased, unremediated construction damage.
Appellees plausibly assert that damages sought in Case No. 16-2008-CA-
005588 may overlap with damages sought in the malpractice case. See generally,
e.g., Osheroff v. Rauch Weaver Millsaps & Co., 882 So. 2d 503, 506 (Fla. 4th
DCA 2004) (“[W]hile the damages recoverable by each cause of action [may be]
overlapping, they are not necessarily co-extensive.”). In a footnote in the answer
brief, they argue: “While the McCallas insist their settlement in the Professional
Negligence Case included attorney’s fees paid by or owed to them, the General
Release contained no allocation of the settlement sums. As such, the
undifferentiated settlement cannot be apportioned among various elements of
damages as they now claim. Nauman v. Eason, 572 So. 2d 982 (Fla. 1st DCA
1990).” (This is the extent of their argument on this “point.”)
We acknowledge the rule, applicable in a case (unlike the present case)
where offset is appropriate, that the contemporaneous intent of settling parties as
expressed in the settlement agreement, should be given effect and
that, in the absence of allocation by the settling parties at
the time of settlement, the entire settlement should [be]
offset against the damages awarded by the jury.
Nauman, 572 So. 2d at 983. See Dionese v. City of West Palm Beach, 500 So. 2d
1347 (Fla. 1987); see also Devlin v. McMannis, 231 So. 2d 194, 196 (Fla. 1970)
(“[T]here may be occasions where a settlement is effected so as to fail to preserve
or otherwise differentiate settlement sums pertaining to the damages distinctive
and peculiar to the underlying causes of action. Under such circumstances,
subsequent verdicts entered against another joint tort-feasor on the same causes of
action may indeed occasion the necessity of offsetting against the total sum of the
verdicts the total amount of the prior settlement. However, we need not explore
such possibility under the present set of facts.”).
By carving out the claims against the fraudulent transfer defendants in the
present case, however, the settling parties allocated the entire settlement proceeds
to counts not recovered on in Case No. 16-2008-CA-005588, and not, therefore,
the subject of the fraudulent transfer case. See Moody v. Lawnwood Med. Ctr.,
Inc., 125 So. 3d 246, 249 (Fla. 4th DCA 2013) (holding settlement agreements
with two defendants did not release a third defendant because “‘the intention of the
parties must be determined from examination of the whole contract’” and the
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McCallas settled their malpractice action for $550,000, an amount they assert they
expended some $300,000 to obtain. As part of the settlement agreement, the
McCallas discharged Mr. Greene and both law firms from liability for all claims in
law and equity. But they reserved the right to pursue any claims they had or might
have against any entity not a party to the settlement agreement, including
specifically claims against Kenyon, Mr. Herring, and Mr. Young in the pending
fraudulent transfer case.
It is a gross oversimplification at best to say, as was said in Blasland, Bouck
& Lee, Inc. v. City of N. Miami, 283 F.3d 1286, 1295 (11th Cir. 2002), that “the
purpose of a setoff is to prevent a party from recovering twice for the same
damages.” See Gouty v. Schnepel, 795 So. 2d 959, 966 (Fla. 2001) (denying setoff
where settling defendant was exonerated as joint tortfeasor even though doing so
permitted the plaintiff to recover in the aggregate more than the jury awarded). In
keeping with the majority view, as Justice Grimes explained in Wells v.
Tallahassee Memorial Regional Medical Center, Inc., 659 So. 2d 249, 251 (Fla.
1995), Florida law holds that settlement dollars paid “by one tortfeasor should only
extinguish that tortfeasor’s liability and have no effect on another tortfeasor’s
liability” in the absence of joint and several liability.
settlement agreements “‘specifically reserve[d] all rights to pursue their claims
against’” the third defendant) (citations omitted)).
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While Case No. 16-2008-CA-005588 sounded in contract, joint and several
liability is still key. See Osheroff v. Rauch Weaver Millsaps & Co., 882 So. 2d
503, 506 (Fla. 4th DCA 2004). “Florida law regarding setoffs is found in sections
46.015(2), 768.041(2), and 768.31(5), Florida Statutes (1997).” D’Angelo v.
Fitzmaurice, 863 So. 2d 311, 314 (Fla. 2003) (footnotes omitted). Pertinent here is
section 46.015(2), which provides:
At trial, if any person shows the court that the
plaintiff, or his or her legal representative, has delivered a
written release or covenant not to sue to any person in
partial satisfaction of the damages sued for, the court
shall set off this amount from the amount of any
judgment to which the plaintiff would be otherwise
entitled at the time of rendering judgment.
(Emphasis supplied.) With respect to section 46.015(2) and the other provisions,
our supreme court has said: “Each of these statutes presupposes the existence of
multiple defendants jointly and severally liable for the same damages.” D’Angelo,
863 So. 2d at 314.
The allegedly malpracticing lawyers who settled with the McCallas were not
jointly and severally liable with Kenyon, the construction company whose
defalcations required that lawyers undertake the McCallas’ representation to begin
with. This is significant for the reasons explained in Wells:
In rejecting the argument that the plaintiff will receive an
impermissible double recovery if the total amount paid in
settlement is not set off, the court in Neil[ v. Kavena, 176
Ariz. 93, 859 P.2d 203 (Ct. App. 1993)] pointed out:
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The single-recovery rule, which
historically permitted defendants a credit for
amounts paid in settlement by other
defendants to prevent a plaintiff's excess
recovery, was adopted when courts could
not allocate liability among defendants; a
settling defendant could only offer to pay for
a plaintiff's entire, indivisible injury. Now,
the respective shares of the liability of
multiple defendants can be determined. Each
defendant may settle his portion and such
settlement neither affects the amount of
harm caused by the remaining defendants
nor the liability. The settling defendant
simply has paid an agreed amount to “buy
his peace” and the non-settling defendant
has no right to complain that the settling
defendant paid too much.
176 Ariz. at 97, 859 P.2d at 207 (citations omitted). The
court also rejected the suggestion that the plaintiff will
receive a “windfall” if the total amount paid in settlement
is not set off:
Settlement dollars are not synonymous
with damages but merely a contractual
estimate of the settling tortfeasor’s liability;
they include not only damages but also the
value of avoiding the risk and expense of
trial. Given these components of a
settlement, “there is no conceptual
inconsistency in allowing a plaintiff to
recover more from a settlement or partial
settlement than he could receive as
damages.”
Id. at 96, 859 P.2d at 206 (citations omitted) (quoting
Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 431-32
(Tex.1984)).
659 So. 2d at 252. Here the two actions, Case No. 16-2008-CA-005588 against
Kenyon and the malpractice claim against Mr. Greene and others, simply were not,
10
as the appellees contend, “two separate lawsuits filed to recover the very same
damages.”
Nor does the present case raise the spectre of exposure on the part of
Kenyon, Mr. Herring, or Mr. Young to double liability. Thus far, indeed, they
have not paid a penny toward satisfying the judgment against Kenyon. Again,
moreover, the Florida Supreme Court has rejected the argument that a potential
windfall, without more, requires a setoff. See Gouty, 795 So. 2d at 964 (“In other
words, as long as a defendant does not pay more than his or her percentage of fault,
that defendant is not entitled to contribution from another tortfeasor or entitled to a
setoff from a settling defendant. However, if the defendant is required to pay
damages on the basis of joint and several liability, that defendant’s rights of
contribution and setoff remain unchanged.”).
In the legal malpractice settlement agreement, moreover, the McCallas
specifically retained “any rights that they may have against any entity that [was]
not a party” to the settlement. The appellate courts in Florida have recognized the
“‘deeply rooted principle of Florida law that the intent of the parties controls
interpretations of their releases.’” Rosen v. Fla. Ins. Guar. Ass’n, 802 So. 2d 291,
295 (Fla. 2001) (quoting Auto-Owners Ins. Co. v. St. Paul Fire & Marine Ins. Co.,
547 So. 2d 148, 150 (Fla. 2d DCA 1989)); see also Steil v. Fla. Physicians’ Ins.
Reciprocal, 448 So. 2d 589, 591 (Fla. 2d DCA 1984) (“Clearly, the intent . . . was
11
not to release the carrier.”). The present case brings to mind our supreme court’s
decision in Stephen Bodzo Realty, Inc. v. Willits International Corp., 428 So. 2d
225, 227 (Fla. 1983), where a written agreement had released one of two joint and
several obligors but not the other. The Willits court said3 that “[t]o allow these
respondents to escape this obligation by relying on a document executed by others
who had no intention of releasing them is the epitome of manifest injustice.” Id. at
227.
Reversed and remanded.
MAKAR and WINOKUR, JJ., CONCUR.
3
Justice Ehrlich elaborated:
Before June 1980, Florida was one of the very few states
that still adhered to the early common law that the release
of one joint and several obligor releases all others. 66
Am.Jur.2d Release § 35 (1973). The harsh effects of the
rule become obvious when the facts of the instant case
are examined. There is no dispute in this lawsuit over the
fact that respondents Licron Corporation and Siemens
owe petitioners the sum of $197,000. It is also undisputed
that none of the parties to this agreement intended that
Licron Corporation and Siemens be released from their
obligation. To allow these respondents to escape this
obligation by relying on a document executed by others
who had no intention of releasing them is the epitome of
manifest injustice.
Stephen Bodzo Realty, Inc. v. Willits International Corp., 428 So. 2d 225, 227
(Fla. 1983).
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