Steinhardt v. Rudolph

• Decision Date: 17 August 1982
• Docket Number: Nos. 80-957,80-2527,s. 80-957
• Citation: 422 So.2d 884
• Parties: Milton F. STEINHARDT and Gladys Goldman, as Trustee, Appellants, v. Milton RUDOLPH and Hilda Rudolph, his wife, et al., Appellees. Milton RUDOLPH and Hilda Rudolph, his wife, et al., Appellants, v. Milton F. STEINHARDT and Gladys Goldman, as Trustee, Appellees.
• Court: Florida District Court of Appeals

Page 884

422 So.2d 884

Milton F. STEINHARDT and Gladys Goldman, as Trustee, Appellants, v. Milton RUDOLPH and Hilda Rudolph, his wife, et al., Appellees.

Milton RUDOLPH and Hilda Rudolph, his wife, et al., Appellants, v. Milton F. STEINHARDT and Gladys Goldman, as Trustee, Appellees.

Nos. 80-957, 80-2527.

District Court of Appeal of Florida Third District.

Aug. 17, 1982.

Rehearing Denied Dec. 28, 1982.

Blackwell, Walker, Gray, Powers, Flick & Hoehl and James C. Blecke, Miami, for Milton F. Steinhardt and Gladys Goldman.

Michael L. Hyman and Andrew D. Kaplan, Miami, for Milton Rudolph and Hilda Rudolph.

Before HUBBART, C.J., and BARKDULL and DANIEL S. PEARSON, JJ.

HUBBART, Chief Judge.

The central issue presented by these consolidated appeals is whether a certain rent escalation clause, tied to the Consumer Price Index and the anticipated eventuality of a dollar devaluation, contained in the 99-year ground lease of condominium property in this case is unenforceable in futuro as being unconscionable under Florida contracts law. We conclude that the trial court was correct, based on this record, in finding that this lease provision was unconscionable and in refusing to enforce same in futuro; we further find no error in the other findings of the trial court attacked on this appeal. The final orders appealed from are, accordingly, affirmed in all respects.

I

The facts relevant to the central issue herein presented are as follows. Between 1965-70, Mr. Milton F. Steinhardt, the defendant-developer in this case, acquired a tract of land located in Dade County, Florida. He proceeded to develop this land by constructing a condominium complex later named Eastern Shores White House Condominium with 119 individual apartment units. As a means of selling these individual units under the condominium form of ownership, Mr. Steinhardt set up a land trust with respect to the land on which the condominium project was built. Mr. Steinhardt named as trustee of the trust his employee, the defendant Gladys Goldman; he named as beneficiaries of the trust himself and several members of his family: Rafael Steinhardt, Esta Steinhardt and Joan Dunphy. It is undisputed that Mr. Steinhardt controlled this land trust and that Gladys Goldman took her orders directly from Mr. Steinhardt.

As a further means of selling the individual condominium units, Mr. Steinhardt, on March 2, 1970, entered into a nominal lease of the land on which the condominium was situated with the nominal trustee of the land, the defendant Gladys Goldman. By the terms of this lease, Gladys Goldman purported to lease this land to Mr. Steinhardt with express provisions therein that Mr. Steinhardt would assign his interest, as lessee of the land, to the individual condominium unit owners upon the sale of said units. Under the terms of the lease, the individual unit owners, as assignees of the nominal lessee, Mr. Steinhardt, were required to pay the cost of extensive insurance, real estate taxes, repair expenses, and all other conceivable expenses arising from the operation of the underlying property; the nominal trustee-lessor Gladys Goldman and the real owner Mr. Steinhardt were not required to assume any responsibility with respect to the expenses, upkeep or management of the land.

The lease further provided for an annual rental rate [$51,480.] to be paid pro rata by the individual condominium unit owners as assignees of the nominal lessee, Mr. Steinhardt. This rental rate, in turn, was subject to a double escalation clause. First, the lease provided that the rental rate would be adjusted upward periodically based on a formula directly tied to the Consumer Price Index; the rental rate, however, could never be reduced downward in the event of a fall in the Consumer Price Index. Second, the lease provided for an Mr. Steinhardt, in turn, sold all of the individual condominium units, together with an assignment of the above-stated ground lease, to each of the 119 condominium unit owners at Eastern Shores White House Condominium and filed the required declaration of condominium on the project. In so doing, it appears that Mr. Steinhardt's salespeople urged the individual unit owners not to engage an attorney to represent them in their respective transactions as they were led to believe that counsel would be provided for them. The unit owners, as a consequence, did not engage counsel on their individual transactions, but were represented, so they thought, by Mr. Rafael Steinhardt, who, unbeknownst to them, was one of the nominal beneficiaries of the land trust which ostensibly benefited from the lease. Mr. Rafael Steinhardt, however, did not, in fact, represent any of the unit owners on their respective closings herein, but instead, represented solely the developer, Milton Steinhardt; indeed, Rafael Steinhardt drew up all the land trust, lease and condominium documents involved in the entire project as counsel for Milton Steinhardt. ²

additional escalation of the rental rate in the event the dollar was ever devaluated, said escalation to be in direct proportion to the amount of the devaluation. ¹ A lien against the individual unit owner's apartment was created upon failure to pay this rent when due.

As part of the sales transactions in this case, a complex series of documents were supplied to each of the unit owners in a so-called Blue Book, which included the subject lease document. There is evidence, however, that these documents were supplied to a number of the unit owners either at or after their respective closings. At any rate, the unit owners apparently relied on their "counsel" to protect their interests and, it is asserted, were unaware of the content or meaning of the double escalation clause in the lease as discussed above. This clause, critical to the instant case, has since been enforced to steadily increase the rent paid by the individual unit owners to lease the ground on which the subject condominium is situated.

On March 25, 1975, Eastern Shores White House Association, Inc. filed, on behalf of itself and all of its individual unit owners, as a class, a multi-count complaint against Milton Steinhardt and Gladys Goldman seeking in Count IV to restrain the enforcement of the double escalation clause in the ground lease agreement based on a theory of unconscionability. ³ A second complaint was later filed by Milton and Hilda Rudolph, et al., as individual unit owners, both On January 14, 1980, the cause came on for non-jury trial in the court below on all issues save certain damage claims. At that time, testimony was adduced establishing the above-stated facts. The trial court subsequently entered a final judgment declaring the double rent escalation clause unconscionable and unenforceable from and after February 12, 1980--the date of a post-trial hearing at which the parties preliminarily agreed to enter into a stipulation of settlement. The trial court also entered a subsequent final order finding for the defendants on the remaining two counts of the amended complaint which questioned the title of the landlord in the lease premises and attacked the double escalation clause on grounds as stated above. The defendants Steinhardt and Goldman appeal the former ruling; the plaintiff unit owners appeal the latter ruling.

for themselves individually and as representatives of the class of all condominium unit owners in the Eastern Shores White House Condominium; two counts were set forth in the second complaint, not relevant here, one attacking the double escalation clause ⁴ and the other questioning the landlord's title to the property. Appropriate answers were filed to these complaints, and both causes were, in turn, consolidated for a single disposition and trial.

II

The law in Florida is clear that an unconscionable contract or an unconscionable term therein will not be enforced by a court of equity. "It seems to be established by the authorities that where it is perfectly plain to the court that one party [to a contract] has overreached the other and has gained an unjust and undeserved advantage which it would be inequitable to permit him to enforce, that a court of equity will not hesitate to interfere, even though the victimized parties owe their predicament largely to their own stupidity and carelessness." Peacock Hotel, Inc. v. Shipman, 103 Fla. 633, 138 So. 44, 46 (1931). Stated differently, "[i]f a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result." Restatement (Second) of Contracts § 208 (1979); see also § 672.302, Fla.Stat. (1981). At common law, an unconscionable, and thus unenforceable, contract or term therein was defined as one which "[n]o man in his senses and not one under delusion would make on the one hand, and as no honest and fair man would accept on the other." Hume v. United States, 132 U.S. 406, 411, 10 S.Ct. 134, 33 L.Ed. 393 (1889), quoting from Earl of Chesterfield v. Janssen, 28 Eng.Rep. 82, 100 (1750). In a more modern context, " '[m]ost courts take a 'balancing approach' to the unconscionability question, and to tip the scales in favor of unconscionability, most courts seem to require a certain quantum of procedural plus a certain quantum of substantive unconscionability.' " Kohl v. Bay Colony Club Condominium, Inc., 398 So.2d 865, 868 (Fla. 4th DCA), pet. for review denied, 408 So.2d 1094 (Fla.1981), citing with approval J. White & R. Summers, Uniform Commercial Code 128 (1972). Procedural unconscionability focuses on those factors surrounding the entering of the contract which add up to an absence of meaningful choice on the part of one of the parties to the contract as to the terms therein; substantive unconscionability, on the other hand, focuses directly on those terms...