When unwritten, misundstood intentions drive a steel wedge between family members
An interesting case in the latest Florida Law Weekly about a family feud over corporate ownership caught my eye — and it includes a few lessons for people going into business with others. The setting is Miami Beach. The cast involves Alex (Arnold) Daoud, former Miami Beach mayor and author of Sins of South Beach: The True Story of Corruption, Violence, Murder, and the Making of Miami Beach, and his daughter, lawyer Kelly Hyman.
The story started in April 2005, when Ms. Hyman formed a corporation to purchase some apartment units in Miami Beach. In the papers filed with the state, Ms. Hyman identified herself as incorporator, a director, and registered agent.
Through the company, Ms. Hyman bought property for $637,500. By signing a personal guaranty, she enabled the corporation to secure a $500,000 loan for it. The rest of the purchase price, however, plus closing costs, were paid by Titan Signs, Inc. — a corporation owned and controlled by her father, Mr. Daoud.
After the purchase, Mr. Daoud moved into one of the units and managed the rentals. He used his trust to cover any shortfall for property expenses that collected rents did not cover.
Based on these facts (and not knowing any history of either of the parties) I thought, Wow — what a good dad! He not only contributes $137,500, but also takes the position of managing the apartments and making sure — out of his own personal funds — that the expenses are covered.
Apparently, however, things were not so sunny in this particular Miami Beach complex.
Ms. Hyman filed a lawsuit against her father to determine the company’s ownership. She argued that she was the corporation’s sole shareholder and Titan Sign’s contribution was either a gift or an advance on her inheritance. This lawsuit eventually resulted in the appeal that made its way into Florida Law Weekly on my desk.
A web search revealed more complexities than I saw in the Third District Court of Appeal’s opinion. In 2014, when the case was in litigation, the Miami Herald published a story that would be apt for an evening drama. Screenwriters, take note.
Lawsuit culminates in a two-day trial
After years of litigation, the trial court in Dade County held a two-day, non-jury trial, after which it rendered a thirteen-page final decree detailing the evidence adduced at trial, extensive findings of fact, and conclusions of law.
During the trial, both father and daughter testified regarding their perception of the corporation’s ownership. Mr. Daoud testified that his intent was that his trust owned all the shares, while Hyman testified that she was the sole owner of all the corporation’s shares.
The Trial Court concluded that Titan Sign’s payment toward acquisition of the Property was not an advancement of Hyman’s inheritance, and that:
- Hyman owns 50% of the corporation;
- Daoud owns 50% of the corporation;
- Both Hyman and Daoud’s shares in the corporation are to be held by Daoud’s trust;
- Daoud is entitled to reside in the Property for the remainder of his life;
- Both Hyman and Daoud’s consent is required in order to sell or further encumber the Property; and
- During his life estate, Daoud is personally responsible both for renting the Property’s apartments and for all expenses related to the Property.
So, after the trial, they kissed and made up, right?
Wrong. Ms. Hyman appealed this final decree, arguing that: (i) the trial court’s factual findings were erroneous, (ii) the trial court erred in granting her dad a life estate to the Property, and (iii) the trial court’s decreed remedy—relating to the corporate stock—was not authorized under Chapter 86 of the Florida Statutes, Florida’s declaratory judgment act.
Much like a trial court case, an appellate process is lengthy, expensive, and time-consuming. You have to draft and submit a detailed appellate brief, which must be intensely researched and edited, and the respondent submits a response brief, and then there is a final reply brief, plus occasional motions. And sometimes oral arguments. Essentially, appealing an order is not a matter of just pressing a button.
Here, however, Ms. Hyman filed her appeal — and lost.
The Second District Court of Appeals expressed what, to Ms. Hyman, must have stung:
First, we note that the trial court provided the precise declaration sought by Hyman in her complaint, to wit: a declaration of the ownership structure of the Corporation. While the result was not what Hyman had hoped for, it can hardly be argued that the trial court did not accomplish the very task for which Hyman employed Florida’s declaratory judgment act.
Basically: Be careful what you wish for. It also explained that, “because the parties had not memorialized the Corporation’s ownership with a written shareholder agreement, articles of incorporation, or a corporate resolution,” the trial court did exactly what it was supposed to do: “adjudicate the Corporation’s ownership structure in light of the parties’ vastly different views of the Corporation’s ownership.”
Florida’s declaratory judgment act gives Florida’s circuit courts jurisdiction “to declare rights, status and other equitable or legal relations,” and authorizes trial courts to declare the existence or nonexistence of any power, privilege or right and make the appropriate factual determinations necessary in order to make such decrees.
Citing to the Florida Supreme Court’s opinion Martinez v. Scanlan, 582 So. 2d 1167 (Fla.1991), the Second District Court of Appeals explained that: “In carrying out the statutorily mandated duties prescribed by Florida’s declaratory judgment act, Florida’s trial courts must be afforded broad, albeit not unbridled, remedial authority.” Hyman v. Daoud, 3D14-2984, 2016 WL 1125826, at *3 (Fla. 3d DCA 2016).
And the moral of the story?
1. Always get your intentions in writing
You never know what can happen in the future. Even if you get into business with your own family members, you may wind up in dispute. In any case, even where you are the best of friends, all hugs and smiles, it’s good to express what each party wants in writing at the very beginning. There may be a material difference of intention that you may not learn about until it is too late.
2. The Court can always determine your intentions for you (but it may not be what you want)
If you did not memorialize your company’s intentions, and you cannot resolve your dispute, you can ultimately ask the court to do it for you. As stated in Hyman, the Circuit Courts have “broad, albeit not unbridled, remedial authority” for situations like this. However, the lawsuit will not be cheap or easy, and you won’t necessarily win. Therefore, sometimes, such as in the case of Ms. Hyman here, be careful what you wish for.
3. If you sue a family member, your relationship may never mend
Litigation is not always not worth it — especially if it is against someone close to you. I have seen many lawsuits between family members and former best friends. Once you get the courts involved, it can inevitably drive a permanent wedge between the parties. In this situation, Ms. Hyman and her father will always be father and daughter, but their lives will be forever changed. It’s a situation most people would never want to be in.
* * *
If you have a dispute between corporate owners that you are unable to resolve, Cynthia Conlin & Associates may be able to advise you of your rights, and whether litigation is right for you. Feel free to call our office at 407-965-5519.