WEST PALM BEACH — The Florida Fourth District Court of Appeal has reversed a lower court’s ruling to grant a new trial in a dispute between Shadowbrook at Vero LLC and Transcapital Bank.
According to the appeals court's July 26 decision, the dispute stems from a real estate transaction in which Shadowbook and its owner John Naimi purchased 123 condominium units from Transcapital Bank. The previous owner of the units had defaulted on its loans. As part of the deal, Shadowbrook agreed to take on the previous owner's $10.9 million in loans.
Transcapital also loaned Shadowbrook an additional $700,000. Under the agreement, Shadowbrook could use $150,000 of the $700,000 for renovations. Naimi also gave Transcapital a $1 million guaranty and Naimi's other company, DJS Enterprises, paid the bank an $8,500 appraisal fee.
Shadowbrook then began renovating the units, but ran out of money. Transcapital loaned Naimi an additional $400,000, but he later defaulted on the loans.
Before Transcapital could sue him over the default, Naimi filed a suit against Transcapital, accusing the bank of fraud, conversion, civil theft and breach of fiduciary duty.
Naimi claimed that Transcapital "misled" him about the the properties' value and alleged that no appraisal was done, despite being charged an $8,500 appraisal fee.
Transcapital, however, filed a counterclaim to recover the $1 million guaranty and foreclose on the loans.
At the end of a multi-week trial, a jury found that Transcapital committed fraud, conversion and civil theft. Naimi, however, had allegedly released the fraud claim.
The jury also found that Transcapital did not breach its fiduciary duty and ruled in favor of the bank's counterclaim.
After the trial, Transcapital requested a directed verdict, arguing that property values are "opinions," negating the fraud claim. The bank also argued that there was no evidence to support that it had committed civil theft or conversion.
The plaintiffs requested a new trial, arguing that the trial court “had erred in allowing the jury to make a finding that the plaintiffs released their fraud claim.”
The court rejected the defendants' arguments and granted the new trial, prompting Transcapital to appeal.
The appeals court, however, sided with Transcapital, ruling that "although Naimi had the opportunity to inspect all units before the closing, he inspected only a handful, some of which he noted were in 'horrible condition' and unlivable, while others were just 'okay.'”
The appellate court said Naimi presented no evidence of any criminal intent by the defendants.
"We reverse the trial court’s order granting the plaintiffs’ motion for new trial on the plaintiffs’ fraud count and combined conversion and civil theft count," the appeals court said in its decision. "We remand for entry of a directed verdict and final judgment in the defendants’ favor on both counts. We also remand for entry of final judgment in Transcapital’s favor on Transcapital’s counterclaim against Naimi for breach of his guaranty."
Though the trial court did not issue a judgment on Transcapital's foreclosure claims, the appellate court said it expects the trial court to rule in the bank's favor.
"We would expect that, consistent with our conclusions, the trial court will enter final judgment in Transcapital’s favor on Transcapital’s foreclosure counterclaims against Shadowbrook and Naimi," the appellate court said in its decision.