Zp No. 54 Ltd. v. Fidelity and Deposit Co., 5D05-322.

CourtUnited States State Supreme Court of Florida
Citation917 So.2d 368
Docket NumberNo. 5D05-322.,5D05-322.
PartiesZP NO. 54 LIMITED PARTNERSHIP, et al., Appellant, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Appellee.
Decision Date30 December 2005

Stephen M. Reams and Robert L. Crewdson of Alston & Bird, LLP, Atlanta, GA and Darryl M. Bloodworth of Dean, Mead, Egerton, Bloodworth, Copouano & Bozarth, P.A., Orlando, for Appellant.

Matthew C. Bothwell and John E. Hilser of Harry R. Blackburn & Associates, P.C., Melbourne, for Appellee.

MONACO, J.

Appellants, ZP No. 54 Limited Partnership, ZP No. 52 Limited Partnership, and ZP No. 56 Limited Partnership, each owned by Jeffrey Zimmer (collectively referred to as "Zimmer"), brought suit against Fidelity and Deposit Company of Maryland for damages arising from a construction performance bond contract, as well as for three alternative torts: aiding and abetting a fraud, gross negligence and negligent misrepresentation. Fidelity and Deposit Company acquired Mountbatten Surety Company (collectively, "Mountbatten"), after the occurrence of the events that gave rise to this suit. Zimmer alleges that Mountbatten's involvement in issuing performance and payment bonds to Arlen Group, Inc. ("Arlen Group"), assisted the Arlen Group in successfully perpetrating a bid-rigging scheme against Zimmer. Although the contract count on the bond remains in effect, the trial court granted a summary judgment on the three tort claims pled by Zimmer. Zimmer appeals the summary judgment. We have jurisdiction pursuant to Rule 9.110(k), Florida Rules of Appellate Procedure.

Zimmer planned to build three shopping centers in the Orlando area, and assigned their employee, Frank Grzandziel, to oversee the contractor bidding process. Through the efforts of Mr. Grzandziel, Zimmer contracted with the Arlen Group to be its general contractor in connection with the construction of the three projects. According to the complaint, Mr. Grzandziel in exchange for substantial kickbacks conspired with the Arlen Group to rig the bidding process in order to inflate the prices of the projects and consequently to pocket large sums of money for themselves. In order to win the contracts for the Zimmer projects, Zimmer alleges that the Arlen Group was required to obtain performance and payment surety bonds. Mountbatten eventually provided the Arlen Group with the bonds, naming Zimmer as the obligee on each bond.

Zimmer contends, more specifically, that its designated representative on the projects, Frank Grzandziel, cooked up the bid-rigging scheme in order to defraud Zimmer. Instead of bidding out the work competitively, Mr. Grandziel is alleged to have negotiated vastly inflated prices on the projects with the Arlen Group in exchange for kickbacks. In point of fact, Mr. Grzandziel eventually pled guilty to wire fraud1 in federal court, and acknowledged his role in the defrauding of Zimmer in an amount not more than two million dollars.

The Grzandziel/Arlen Group scheme began to fall apart when during the prosecution of the work, disputes arose between Zimmer and the contractor, resulting in the Arlen Group's ceasing work on the projects. The projects at that point were at various stages of completion. Zimmer contends creatively that in addition to liability under the terms of the performance bonds issued by Mountbatten, the surety also has tort liability arising out of its underwriting and ultimate decision to issue the bonds.

Zimmer alleges, more particularly, that when Mountbatten issued the bonds, it knew or should have known that the Arlen Group was a sham construction contractor, not licensed in Florida, or any other state for that matter, and not at all bondable. The Arlen Group's activities allegedly left tell-tale "red flags," which should have revealed the fraudulent nature of its business to Mountbatten. According to Zimmer, Mountbatten failed to perform its underwriting investigation in a thorough manner prior to issuing the performance bonds to the general contractor. In the language of legal theory, Zimmer asserts that Mountbatten aided and abetted the fraud perpetrated on Zimmer by issuing the bonds upon which Zimmer relied in awarding the three contracts to the Arlen Group.

In support of its position, Zimmer submitted to the trial court the affidavit of an expert in underwriting, one George Beutner. Mr. Beutner concluded that a reasonable underwriter would not have bonded the Arlen Group. His review of the underwriting files of Mountbatten and the depositions of various employees of Mountbatten and the Arlen Group caused him to opine that Mountbatten was "grossly negligent in its underwriting of Arlen." He concluded, as well, that the underwriting did not meet the standard of care typically employed by surety underwriters, and that several "red flags" should have tipped off Mountbatten to the fraudulent activity afoot. Pointedly, although Mr. Beutner accuses Mountbatten of gross negligence and even reckless behavior in the underwriting, he does not say specifically that Mountbatten had actual knowledge of the fraud.

According to Zimmer, the Arlen Group's financial data and information disclosed that it had a negative net worth; had no ongoing construction projects; had no experienced personnel, no equipment and no office; had never performed a project as big as the three Zimmer projects; was not licensed as a general contractor in Florida; had never worked in the Southeast; had never worked for owners other than those that employed Grzandziel; had made up to 70% more profits than market norms; had no intention to capitalize; and had a practice of removing profits and capital from its accounts at the earliest possible occasion. The complaint alleges that a year after Zimmer awarded the first project to the Arlen Group, Zimmer learned the truth about its general contractor. Because the Arlen Group did not complete construction on the projects, Zimmer is purported to have lost approximately $3,000,000 in damages for the delay and cost of completion.

Zimmer originally filed an action against Mountbatten seeking only to recover contract damages on the performance bonds. It later amended the complaint to include its tort claims, and to request punitive damages related to the gross negligence claim. After the pleadings were complete, Mountbatten filed a motion for summary judgment claiming that no genuine issue of material fact existed on the tort claims because Zimmer failed to allege that Mountbatten owed a duty to Zimmer. Mountbatten contends that Zimmer failed to put forth facts sufficient to establish that Mountbatten had the requisite knowledge that Arlen was engaged in fraudulent activity. With respect to the charge of negligent misrepresentation, Mountbatten asserts that Zimmer did not allege any statement of misrepresentation.

The trial court granted a partial final judgment against Zimmer on all of the tort claims. The court said, disturbingly, that there was "insufficient evidence" to establish aiding and abetting, specifically because the evidence failed to establish that Mountbatten had actual knowledge of the fraud alleged or that Mountbatten substantially assisted Arlen in the alleged fraud. The trial court held that "recklessness does not suffice as to the knowledge element of the alleged fraud." Regarding the other two tort claims, the trial court found that Mountbatten did not owe any duty to Zimmer with respect to its underwriting or issuance of bonds, and that the existence of a duty is an element of both negligent misrepresentation and gross negligence. It, thus, concluded that summary judgment was appropriate.

A. The claim for aiding and abetting a fraud.

Zimmer postulates that the material facts before the trial court were sufficient to withstand a summary judgment challenge to its cause of action for aiding and abetting a fraud. We disagree.

A review of the case law suggests that, despite a dearth of authority, aiding and abetting a fraud may well be a valid cause of action in Florida. In Freeman v. First Union Nat'l Bank, 865 So.2d 1272 (Fla. 2004), for example, the Florida Supreme Court responded to a certified question from the United States Court of Appeals for the Eleventh Circuit by holding that Florida's version of the Uniform Fraudulent Transfer Act ("UFTA")2, does not provide a vehicle by which a person could bring a suit against a non-transferee party for damages arising from that party's alleged aiding and abetting of a fraudulent money transfer. In doing so, however, the high court quoted language used by the United States District Court that had considered the case prior to the certification by the Eleventh Circuit to the effect that, "[e]very case cited by Plaintiffs recognizes aiding and abetting common law fraud, or another cause of action, but not an UFTA violation." Id. at 1275. Cf. Freeman v. Dean Witter Reynolds, Inc., 865 So.2d 543, 554 (Fla. 2d DCA 2003) ("[w]hether the specific cause of action for aiding and abetting a fraudulent transfer exists will depend upon the Florida Supreme Court's pending decision in Freeman v. First Union National Bank"). See also Bankfirst v. UBS Paine Webber, Inc., 842 So.2d 155 (Fla. 5th DCA 2003). Similarly, the federal district court in Tew v. Chase Manhattan Bank, N.A., 728 F.Supp. 1551 (S.D.Fla.1990), appears to have recognized the viability of the cause of action by holding that a summary judgment was inappropriate to eliminate a count for aiding and abetting a fraud because of the existence of factual issues to be decided by a jury. Id. at 1568-1569.

Despite our conclusion that aiding and abetting fraud might be a tort in Florida, we also conclude that if such a cause of action does exist, the material facts in the present case are not within its ambit. We come to this conclusion for two reasons, both of which involve an analysis of the elements of the tort.

Virtually all courts that have acknowledged the existence of aiding and abetting a...

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