Frankenmuth Mut. Ins. Co. v. Magaha

• Decision Date: 21 September 2000
• Docket Number: No. SC96384.,SC96384.
• Parties: FRANKENMUTH MUTUAL INSURANCE COMPANY, etc., Appellant, v. Ernie Lee MAGAHA, etc., et al., Appellees.
• Court: Florida Supreme Court

769 So.2d 1012

FRANKENMUTH MUTUAL INSURANCE COMPANY, etc., Appellant, v. Ernie Lee MAGAHA, etc., et al., Appellees.

No. SC96384.

Supreme Court of Florida.

September 21, 2000.

J. Lofton Westmoreland and William R. Mitchell of Moore, Hill, Westmoreland, Hook & Bolton, P.A., Pensacola, for Appellant.

Paula G. Drummond, Pensacola, Florida, on behalf of Appellee Ernie Lee Magaha; and David G. Tucker, Janet Lander, and James M. Messer, Pensacola, Florida, on behalf of Appellee Escambia County, Florida, for Appellees.

Carole Sanzeri, Senior Assistant County Attorney, Pinellas County Attorney's Office, Clearwater, Florida, for the Florida Association of County Attorneys, Inc., Amicus Curiae.

LEWIS, J.

We have for review two questions of Florida law certified by the United States Court of Appeals for the Eleventh Circuit as determinative of a cause pending before that court and for which there is no controlling precedent. Specifically, the Eleventh Circuit has certified the following questions to this Court:

(1) UNDER FLA. STAT. § 125.031, WHICH REQUIRES APPROVAL OF THE BOARD OF COUNTY COMMISSIONERS FOR CERTAIN LEASE-PURCHASE AGREEMENTS, CAN A COUNTY BE HELD TO HAVE APPROVED A CONTRACT ABSENT FORMAL RESOLUTION AND BASED SOLELY ON ACTS AND OMISSIONS OF THE COUNTY COMMISSION? IF SO, WHAT STANDARD GUIDES THE CONSIDERATION OF WHETHER A COUNTY COMMISSION HAS "APPROVED" A CONTRACT OR AGREEMENT?

(2) IF THE LEASE-PURCHASE AGREEMENT HAS BEEN APPROVED, DOES THE NON-SUBSTITUTION CLAUSE IN THE LEASE-PURCHASE AGREEMENT THAT PROVIDES FOR A PENALTY UPON NON-APPROPRIATION AND EXPLICITLY DISCLAIMS USE OF REVENUES FROM AD VALOREM TAXATION VIOLATE ARTICLE VII, § 12, OF THE FLORIDA CONSTITUTION?

Frankenmuth Mutual Insurance Co. v. Magaha, No. 98-2962, slip op. at 10 (11th Cir. Aug. 25, 1999). We have jurisdiction. See art. V, § 3(b)(6), Fla. Const. As more fully explained below, we answer the first certified question in the affirmative and determine that a board of county commissioners may approve a lease-purchase agreement under section 125.031, Florida Statutes (1999), even absent formal resolution, if such board is not required by local ordinance or charter to take action by formal resolution, as is the status of the local charter here. Further, we outline a three-prong test to guide courts in determining whether an approval without formal resolution has occurred. Finally, we also answer the second certified question in the affirmative, as rephrased below, and determine that the nonsubstitution clause implicates article VII, section 12 of the Florida Constitution, notwithstanding the attempted disclaimer.

I. FACTS AND PROCEDURAL HISTORY

On September 6, 1995, Frankenmuth Mutual Insurance Company (Frankenmuth) filed a two-count complaint in the United States District Court for the Northern District of Florida, Pensacola Division, against both Escambia County, Florida, and Ernie Lee Magaha (Magaha), the Clerk of the Circuit Court for Escambia County. Frankenmuth sought declaratory relief in Count I of the complaint and injunctive relief in Count II. All three parties moved for summary judgment after participating in discovery, and the federal district court set forth the following facts in considering the parties' motions:

In May 1992 Escambia County Comptroller Joe Flowers signed a master lease agreement with Unisys Leasing Corporation ("Unisys"), under schedule 01 of which, Flowers agreed to lease-purchase a Unisys Model A-11 mainframe computer.[¹] The schedule called for seven annual payments totaling $2,353,814.1 In July 1993, the parties signed a second schedule agreeing to add a Unisys imaging system for eight annual payments totaling $1,164,635.2 In May 1994, the parties signed a third schedule adding further equipment and restructuring the finance arrangement for schedule 01. This third schedule called for eight annual payments totaling $3,541,908.3

Note 1: Six payments of $304,112 and one payment of $529,142.

Note 2: One payment of $200,000, two payments of $120,000, three payments of $134,964, and a final payment of $319,743.

Note 3: One payment of $200,000, six payments of $419,008 and a final payment of $827,860.

Flowers signed each of these agreements as "Escambia County Comptroller." Although he warranted in paragraph 20 of the master lease that he had obtained a resolution of the "governing body" of the jurisdiction authorizing him to execute the lease, in fact, Flowers neither requested nor obtained the permission of the Escambia County Board of County Commissioners ("the Board" or "the County Commission") before signing the agreement.

The master lease contains a number of provisions relevant to this dispute. Paragraph 21 includes a "non-appropriation clause," which provides the lease will terminate in any given year if the "legislative body or funding authority" fails to appropriate funds to make the lease payments. The same paragraph also contains a "non-substitution clause," providing that, in the event of non-appropriation, Flowers agrees not to purchase or rent any substitute computer equipment for the balance of the appropriation period and the one following it. Finally, an addendum clarifies that nothing in the lease shall be construed to constitute a pledge of ad valorem taxes and that, in the event of default, the Lessor has no right to compel the County Commission to appropriate funds to make the lease payments.

The agreement continued without incident for several years after it was executed. Flowers used the equipment for a variety of municipal functions, including county payroll and central data processing services for the County Commission as well as the Road, Mass Transit and Solid Waste Departments. (Ken Gardner Depo. 23-24). In 1992 Unisys sold and assigned the lease to Chicorp Financial Services, Inc. Chicorp, in turn, sold it to Frankenmuth Mutual Insurance Company ("Frankenmuth")—the current owner of the lease and the plaintiff in this case.

Although the County Commission and Flowers both regarded the Comptroller to be a fee officer4 rather than a budget officer, the evidence shows Flowers submitted his budget to the County Commission each year setting forth the fees he anticipated collecting, the expenses he anticipated incurring and any anticipated shortfall between the two. Each year Flowers requested [that] the County Commission appropriate funds to cover the shortfall, which for fiscal years ending 1992, 1993 and 1994, amounted to roughly half the Comptroller's total budget. In each of those years, Flowers listed, respectively, $301,563, $304,561[²] and $304,113 as a budget expense titled "Debt Service—Computer." Each year, the Board appropriated Flowers' requested funds without question.[³]

Note 4: Under Florida law, "fee officers" are ones "assigned specialized functions within county government and whose budgets are established independently of the local governing body, even though said budgets may be reported to the local governing body or may be composed of funds either generally or specifically available to a local governing authority involved." § 218.31(8), Fla. Stat. (1993).

The County Commission had no direct knowledge of the Unisys computer equipment, however, until it began discussing implementing its own computer network system in 1993. By letter dated August 3, 1993 Flowers wrote to the Board's chairperson explaining his office already had a central data processing system and that the Board should adjust its plans to integrate that system. At a June 28, 1994 meeting the County Commission voted to amend its technology plan to make use of the Comptroller's computer equipment.

In late 1994, Flowers became the subject of considerable controversy when Escambia County lost millions of dollars in bad derivative investments made by Flowers' office. The political uproar led to a grand jury investigation and, eventually, a four-count indictment charging Flowers with malfeasance. Count Four specifically charged Flowers with malfeasance for entering into the Unisys lease in violation of Florida law. Flowers pled no contest and resigned from office.

Thereafter, on August 1, 1995, the Florida Legislature abolished the Office of Escambia County Comptroller by repealing the Special Act that had created it. See Ch. 95-529, Laws of Fla. As a result, Escambia County's elected Clerk of the Circuit Court, Ernie Lee Magaha, became responsible for the constitutional duties formerly held by the Office of Comptroller.5 In the aftermath of these events, Magaha and the County Commission obtained and reviewed, for the first time, the Unisys master lease and schedules signed by Flowers. After investigation and discussion, the County Commission determined the Unisys equipment was too old, too big, too expensive and too ineffective to serve the County's needs. The County Commission therefore advised Frankenmuth it would not make the 1995 schedule 02 and schedule 03 payments of, respectively, $120,000 and $419,000. The Commission further advised Frankenmuth it considered the lease void and unenforceable due to Flowers' failure to obtain approval before signing it.

Note 5: In most Florida counties, the Clerk of the Circuit Court serves a dual function: he or she manages the circuit and county court system and serves as "ex officio clerk of the board of county commissioners, auditor, recorder and custodian of all county funds." See Fla. Const. art. VIII, § 1(d). The Florida Constitution also provides, however, that individual counties may choose to divide the Clerk's duties between two county officers, one managing the courts and the other serving as custodian of county funds. Fla. Const. art. V, § 16. In 1972, Escambia County chose to divide the duties between two elected officers: a Clerk of the Circuit Court and a Comptroller. See Ch. 73-455, Laws of Fla. When the Legislature abolished that Act, the duties of the Comptroller reverted to the Clerk of Court.

Consequently, in September 1995,

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