FOR IMMEDIATE RELEASE:
Miami Gardens HOA Reaches $11 Million Settlement with D.R. Horton, the Largest Residential Real Estate Developer in the U.S., in Lawsuit Stemming from Majorca Isles Bankruptcy
Settlement Brings Trustee One Step Closer to 100% Distribution to Creditors and Provides Much Needed Funds for the Rehabilitation of the Shattered Majorca Isles community
MIAMI (July 11, 2017) – Chapter 11 Bankruptcy Trustee, Barry Mukamal of KapilaMukamal and his trial attorney John Arrastia of Genovese Joblove & Battista, P.A., have reached an $11 million settlement with D.R. Horton, Inc., a New-York Stock Exchange company and the largest residential developer in the U.S., on behalf of the Majorca Isles Master Association, a homeowners association created by D.R. Horton as part of a planned 681-unit community called Majorca Isles located in Miami Gardens, FL. The Bankruptcy Court for the Southern District of Florida approved the settlement agreement on Friday, July 7.
“The Majorca Isles community has been suffering since 2011. Despite the operational improvements made by myself and my team with limited resources, deep scars remain. The settlement completely rights the ship, provides to the homeowners all of the resources to physically restore the community, and establish the necessary reserves ensuring the future viability of the Majorca Isles Master Association,” said Trustee Barry Mukamal, CPA, Co-Managing Partner at KapilaMukamal.
In October 2016, following a three day trial, Mukamal and Arrastia secured a $16.3 million judgment against D.R. Horton, Inc. and its employees for damages, declaratory relief, and a finding that it had violated Florida’s Deceptive and Unfair Trade Practices Act. Specifically, the court found that D.R. Horton and its employees engaged in “immoral, unethical, oppressive, and unscrupulous” trade practices “that offend established public policy for its financial benefit, conspiracy, and breaches of fiduciary duty.”
D.R. Horton later appealed the judgment and the parties ultimately reached the $11 million settlement, bringing the Trustee one step closer to a full distribution to creditors and providing relief to homeowners, many of whom are low to moderate income families.
“The settlement not only paves the way for a 100 percent distribution to all creditors (with interest), but also provides a several million dollar fund for the rehabilitation of the Majorca Isles community,” said Glenn D. Moses, restructuring counsel for the Trustee and a shareholder with Genovese Joblove & Battista, P.A. “Under the reorganization plan set for confirmation next week, the Trustee will satisfy all creditor obligations, conclude the chapter 11 process, and turn over control of the master association to a new board of directors with significant operational funds and reserves.”
During the October trial, testimony showed that D.R. Horton appointed its employees as the board of directors of the Majorca Isles Master Association until that HOA was turned over to the homeowners. During that period, D.R. Horton made no meaningful effort to collect assessments from the unit owners and because it had failed to keep useful financial records, was unable to even identify which units had paid or not. Instead, D.R. Horton diverted the collections from the Master Association to other condominium associations, in a clear breach of the directors’ breaches of duty and loyalty. At the same time, D.R. Horton unilaterally cut promised amenities to the community, simply to cut costs that it had to pay to sustain the association before turnover. D.R. Horton also deceived existing and prospective homeowners by publishing association budgets that materially understated the uncollectable assessments and amount necessary to run the association, in part by relying on mythical and unbuilt units in creating the budgets. Then it created false financial statements that inflated the assets to make the Master Association look solvent, even though it did not have enough money to pay its bills.
Bankruptcy Judge A. Jay Cristol issued a 52- page opinion concluding, “These actions by D.R. Horton can only be classified somewhere between not nice and evil.” Characterizing this as a classic “David v. Goliath” tale, he condemned D.R. Horton’s acts and omissions, and sending a clear message to developers, awarded significant compensatory damages as well as punitive damages alone of $12,500,000 to punish and deter future “unlawful, malicious” conduct. Judge Cristol found “the wrongful conduct was motivated solely by greed for unreasonable financial gain and D.R. Horton, through its agents and employees, knew the conduct was certain to cause injury to the [Homeowners’ Association] and unit owners.”
“The case continues to be a wake-up call for developers because it demonstrates that they are responsible for pre-development turnover. They have an obligation of fairness and transparency to the citizens of Florida and they will be held accountable to that standard,” said Arrastia, a partner at Miami-based law firm Genovese Joblove & Battista. “In this case, corporate greed overshadowed D.R. Horton’s obligations to serve the best interests of the homeowners’ association, the homeowners, and the community.”
D.R. Horton began construction on Majorca Isles in 2005 with plans to build 681 condominium units and single family homes in Miami Gardens. The project was to include two swimming pools, two clubhouses, as well as security. D.R. Horton halted construction during the recession as sales slowed and withdrew the remaining portion of the project. Ultimately, 340 condominium units were constructed in 2009 and 355 units were sold for an average of about $300,000. The homeowners association declared bankruptcy in 2012, shortly after it was turned over by the developers. Mukamal was appointed to oversee and manage the affairs of the association.
About Genovese Joblove & Battista
Genovese Joblove & Battista, P.A. (GJB) was established in 1999 by founding partners John H. Genovese, Michael D. Joblove, and Paul J. Battista. Today, GJB has grown steadily to become a major regional firm with offices in Miami and Fort Lauderdale and an affiliate office in Caracas, serving clients throughout the U.S. GJB attorneys are recognized for their experience representing clients in large and complex litigation in a number of areas, including bankruptcy, insolvency, receiverships, franchises, and general commercial matters, as well as white collar, real estate, employment law, class actions, and securities litigation. The firm and its affiliate, GJB Consulting, also counsel clients in local, state and federal government matters. For more information, visit www.gjb-law.com
KapilaMukamal, LLP provides fiduciary and insolvency services including restructuring, forensic & investigative consulting, litigation support services, expert witness testimony, business valuations and matrimonial forensics. The firm has two locations in South Florida in the SunTrust International Center, One SE 3rd Avenue, Suite 2150 in Miami and 1000 South Federal Highway, Suite 200 in Fort Lauderdale. For more information, visit www.KapilaMukamal.com.