City of Miami Beach v. Smith

• Decision Date: 16 May 1977
• Docket Number: No. 74-3258,74-3258
• Parties: CITY OF MIAMI BEACH, Plaintiff, v. W. J. SMITH, Jr., as Managing Trustee of Cameron-Brown Investment Group, et al., Defendants-Appellees, S. P. J., Inc., Wellington Industries, Inc., Jerome H. Elson and Susan Elson, Intervenors-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1370

551 F.2d 1370

CITY OF MIAMI BEACH, Plaintiff, v. W. J. SMITH, Jr., as Managing Trustee of Cameron-Brown Investment Group, et al., Defendants-Appellees S. P. J., Inc., Wellington Industries, Inc., Jerome H. Elson and Susan Elson, Intervenors-Appellants.

No. 74-3258.

United States Court of Appeals Fifth Circuit.

May 16, 1977.

Marion E. Sibley, Robert C. Ward, Miami Beach, Fla., for intervenors-appellants.

Burnett Roth, Miami Beach, Fla., James J. Kenny, Miami, Fla., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before BROWN, Chief Judge, and RIVES and GEE, Circuit Judges.

GEE, Circuit Judge:

By our decision today we hope we conclude, in federal courts at least, a long-standing dispute among business partners, lenders and municipal authorities over a tract of land in Miami Beach. The district court's order authorized withdrawal by Cameron-Brown of a sum exceeding five million dollars deposited in the registry of the court pursuant to a condemnation award. Finding ourselves in agreement with the district court that any remaining dispute should be determined in some proceeding other than this eminent domain action, we affirm.

We will summarize the facts as briefly as possible. In 1967, appellants Jerome and Susan Elson (Elsons) were the sole shareholders of S.P.J., Inc., which in turn owned beachfront property in Miami Beach. The Elsons wished to develop this property and to acquire adjacent tracts for development but were unable to obtain financing. Accordingly, they entered into an agreement with Lee Ratner and Joel S. Ratner (Ratners) which, when consummated and coupled with mesne transactions and further agreements, resulted in the Ratners' purchase of the adjacent tracts and promises to provide financing. The Elsons transferred half of the stock in S.P.J., Inc. to the Ratners and received half of the stock in Wellington Industries, Inc., the Ratners' corporation. Taking title to the adjacent tracts in Wellington's name, the Elsons and Ratners agreed to treat all the tracts which we will call the "Brittany Bay property" as one site. The Elsons and Ratners thus owned equal interests in the two corporations and indirectly in the property itself.

Various other terms of the agreements relating to the readying of the site for construction ¹ were carried out and a mortgage was arranged, the Ratners and the Elsons personally guaranteeing the mortgage. Failure to make payments ² resulted in the institution of foreclosure proceedings, but the property was saved when the Ratners negotiated a new first mortgage with Cameron-Brown in the amount of $1,600,000, personally guaranteed by the Ratners and Jerome Elson. In 1971, however, this mortgage also fell into default, ³ and Cameron-Brown instituted foreclosure proceedings. In January of 1972, foreclosure was ordered by a state court. While the appeals of Wellington and S.P.J. were pending, Cameron-Brown's trustee bought in the property at the foreclosure sale.

On June 8, 1972, an agreement was reached among the Elsons, Cameron-Brown and the two corporations. Pursuant to this agreement Wellington and S.P.J. dismissed their appeals from the foreclosure order, and Susan Elson was given an option to purchase the property from Cameron-Brown for $2,000,000 on or before October 31, 1972. ⁴ Paragraphs 2 and 4.1.a. of the June 8 agreement read, in pertinent part, as follows:

2. CLAIMANTS (S.P.J. and Wellington), OPTIONEE (Mrs. Elson) and ELSONS do hereby covenant and agree that, on and after the effective date of this Agreement, none of them, severally or jointly, will seek to enforce against the trustee any cause of action alleged in said Counterclaim, Crossclaim and Third Party Claim or the motion to intervene (in the state court foreclosure action) or, for that matter, any other cause of action related to or involving, directly or indirectly, the financing heretofore extended by Trustee to claimants with respect to the property.

(4.1.)a. If Optionee shall fail to exercise such privilege of purchase on or before October 31, 1972 . . . Optionee shall thereafter have no further rights to purchase the property hereunder.

It was in the document denominated "Counterclaim, Crossclaim and Third Party Claim" in the foreclosure action that the Elsons and the two corporations first alleged that the Ratners, aided by Cameron-Brown's negligence or deliberate indifference, had schemed to squeeze the Elsons and the corporations out of the property's ownership by refusing to make mortgage and construction payments and then conspired with Cameron-Brown to foreclose on the property without first suing the Ratners as personal guarantors of the mortgage. By paragraph 2 of the June 8 agreement, then, the Elsons and the corporations bartered away their right to pursue these fraud claims or "any other cause of action relating to . . . the financing" in return for Mrs. Elson's option to purchase the property.

Zoning restrictions and the cancellation of a building permit issued by the City of Miami Beach to S.P.J. and Wellington having caused construction and financing problems, paragraph 8 of the June 8 agreement provided for Cameron-Brown's cooperation in litigation to be instituted by the Elsons and the corporations to seek reinstatement of the permit. Such a suit was filed in state court in September of 1972; while it was pending, October 31 came and went with Mrs. Elson failing to exercise her option. On December 29, 1972, partial summary judgment was entered requiring the city to reinstate the permit. The city's appeal from this judgment was dismissed by stipulation of the parties on March 28, 1973, with the city agreeing to leave the building permit in effect and to institute condemnation proceedings against the property. The jury was to assess damages in favor of the property owners limited to the fair market value of the land and certain other costs incurred by the owners in preparing the land for construction.

The city brought condemnation proceedings in state court, naming as a defendant the United States, which claimed an interest in the property. The United States in turn removed the action to federal district court. ⁵ By pre-trial stipulation the parties agreed that the "conflicting claims to the compensation to be made for the taking of the property" were to be determined by the court after the jury trial established the amount of compensation due. The jury awarded $5,216,000 in compensation, and this amount ⁶ was deposited in the registry of the court by the city; after a hearing, the district court found that Cameron-Brown was entitled to the proceeds and ordered their release. Quite understandably, in view of the large sum of money involved, this appeal was taken by S.P.J., Wellington and the Elsons. As grounds for their assertion that Cameron-Brown was not entitled to the proceeds of the award, appellants claim: that they were the beneficial owners of the property on the date of taking; that the Ratners, who allegedly hold legal title, have preempted a corporate opportunity; and that Cameron-Brown was judicially estopped from gainsaying ownership of the property in Wellington and S.P.J.

I. Beneficial Ownership in Parties Other than Cameron-Brown?

At various stages in this litigation appellants have claimed that Cameron-Brown's interest in the Brittany Bay property was a mortgage rather than outright ownership. In Florida, as is often the rule elsewhere, parol evidence is admissible to show that a deed or other instrument which appears absolute on its face was intended only as a mortgage. Grable v. Nunez, 64 So.2d 154, 160 (Fla.1953); Torreyson v. Dutton, 145 Fla. 169, 198 So. 796, 799 (1940). But we believe the district court was justified in refusing to open up the proceedings here to such extrinsic evidence. Beyond peradventure Cameron-Brown held only a mortgage when it first provided financing for the Brittany Bay property, but that mortgage ripened into fee ownership when, as unpaid creditors are wont to do, Cameron-Brown foreclosed, purchasing the Brittany Bay property at the public sale. ⁷ The only document by which Cameron-Brown purported to relinquish to any of the appellants any interest in the property after thus acquiring fee ownership was the June 8, 1972 agreement, which did no more than grant to Mrs. Elson an option to purchase. Even were we to imagine that this option could be construed as reinstituting the mortgage arrangement in some way, it is obvious that Mrs. Elson's "right of redemption" or whatever we would call it was lost on October 31, 1972, when the unexercised option lapsed. We can conceive of no extrinsic evidence which would convince the trial court or this court that the situation was anything other than it appeared to be: Cameron-Brown was, at least after the appeals from the foreclosure were dismissed, the sole owner of the Brittany Bay property; none of appellants had any rights in that property after Mrs. Elson's option expired on October 31, 1972. We believe the district court was correct in holding that from that day forward, including the date of taking under the condemnation order, Cameron-Brown's interest must be considered to have been ownership of the fee rather than a mortgage.

II. Corporate Opportunity?

As we noted earlier, paragraph 2 of the June 8, 1972 agreement precludes appellants from arguing here the "squeeze-out" theory first advanced in the "Counterclaim Crossclaim and Third Party Claim" filed in Cameron-Brown's foreclosure suit. Appellants do, however, raise a claim of seizure of a corporate opportunity which must be considered. This claim arises from someone's close reading of Cameron-Brown's 1973 annual report, in which the Brittany Bay property was listed as one of several items of real estate acquired through foreclosure. The carrying value of the property was listed as of December 31, 1972, as $1,765,299, and as of December 31,...