Court Opinion

ID: 4201373
Source: CourtListenerOpinion
Date Created: 2017-09-06 15:08:07.45911+00
Date Added: 2024-06-11T07:47:34.467354
License: Public Domain

Third District Court of Appeal
                               State of Florida

                         Opinion filed September 6, 2017.
         Not final until disposition of timely filed motion for rehearing.

                               ________________

                               No. 3D16-2198
                          Lower Tribunal No. 16-3753
                             ________________

                        MVW Management, LLC,
                                    Appellant,

                                        vs.

              Regalia Beach Developers LLC, etc., et al.,
                                    Appellees.

     An Appeal from a non-final order from the Circuit Court for Miami-Dade
County, Michael A. Hanzman, Judge.

    Leon Cosgrove, LLC, and Scott B. Cosgrove and Ellen Ross Belfer;
McDermott Will & Emery LLP, and Marcos D. Jimenez, for appellant.

      Bilzin Sumberg Baena Price & Axelrod, LLP, and Michael N. Kreitzer and
James J. Ward, for appellees.

Before FERNANDEZ, LOGUE, and SCALES, JJ.

     LOGUE, J.
    ON APPELLANT’S MOTION FOR REQUEST FOR ISSUANCE OF
    WRITTEN OPINION, CERTIFICATION, AND CLARIFICATION

      Appellant MVW Management, LLC, has filed a motion for a written

opinion, for certification, and for clarification.   We deny MVW’s request for

certification. We grant the motion for clarification, withdraw the previously issued

opinion, and substitute the following opinion in its stead.

      MVW appeals a nonfinal order denying its claim for advancement of legal

fees and costs from plaintiff Regalia Beach Developers, LLC. For the reasons

stated below, we affirm.

                                    Background

      Regalia Beach Developers, LLC (Regalia), is a single purpose legal entity

that owns the Regalia Beach Condominium. Louis Montello was elected and

serves as manager of Regalia pursuant to the company’s operating agreement.

Montello is also the principal of MVW Management, LLC, a company that Regalia

hired to manage the Regalia Beach Condominium pursuant to a management

agreement between Regalia and MVW.

       Regalia filed an action against Montello and MVW for mismanagement.

Although this case involves first-party litigation, in which one party to a contract

sues another party to the contract, both Montello and MVW sought advancement

of their litigation expenses pursuant to the indemnity provisions of the parties’

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operating and management agreements. The trial court granted Montello

advancement under the operating agreement, but it denied MVW advancement

under both the operating and management agreements. MVW filed this

interlocutory appeal. We have jurisdiction. Fla. R. App. P. 9.130(a)(3)(C)(ii).

                                       Analysis

    I.      MVW is not entitled to advancement under Regalia’s operating
            agreement.

         MVW claims it is entitled to advancement of its litigation expenses based on

Regalia’s operating agreement. We conclude MVW is not entitled to advancement

because MVW does not qualify as a “Covered Person” under the operating

agreement.

         Regalia’s operating agreement includes exculpation and indemnification

provisions that apply to first-party litigation like the litigation here between

Regalia and MVW.1         Further, the “liability, exculpation and indemnification”

section of the contract expressly provides for advancement of litigation expenses.

Specifically, section 13.4 of the operating agreement states the following:

               Expenses. To the fullest extent permitted by applicable
               law, expenses (including legal fees) incurred by a
               Covered Person in defending any claim, demand, action,
               suit or proceeding shall, from time to time, be advanced

1In this regard, Regalia’s operating agreement provides in pertinent part that “[n]o
Covered Person shall be liable to the Company or any other Covered Person for
any loss . . . damage or claim incurred by reason of any act or omission performed
or omitted by such Covered Person in good faith on behalf of the Company.”
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            by the Company prior to the final disposition of such
            claim, demand, action, suit or proceeding upon receipt by
            the Company of an undertaking by or on behalf of the
            Covered Person to repay such amount if it shall be
            determined that the Covered Person is not entitled to be
            indemnified as authorized in Section 13.3 hereof.

      Here, the trial court determined Montello was entitled to advancement

because of his status as manager under Regalia’s operating agreement.2 But that

determination does not mean MVW is also entitled to advancement.

      As noted above, the relevant provisions of the operating agreement apply

only to “Covered Persons,” a defined term. “Covered Person” is defined by the

operating agreement as:

            a Member; any Affiliate of a Member; any Manager; any
            officers, directors, shareholders, partners, employees,
            representatives or agents of a Member, any Affiliate of a
            Member; any employee or agent of the Company or its
            Affiliates; any Tax Matters Representative of the
            Company; or an officer of the Company that is not an
            employee.

      MVW makes two arguments why it qualifies as a “Covered Person.” First,

MVQ argues that it qualifies as a “Manager.” Although MVW is a manager of the

construction, sales, and operations of the condominium under the separate

management agreement, it is not a manager of Regalia under Regalia’s operating

agreement. In fact, Regalia’s operating agreement defines “Manager” as “any

Person as described in Article 6 and elected by the Members in accordance with
2 Regalia did not cross-appeal this determination.

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the provisions of Article 7.” Article 6 of the operating agreement states that “the

Manager may be designated, appointed, elected, removed, or replaced by the vote,

approval, or consent of a Majority Interest of the members, and holds office until a

successor has been elected and qualified or the Manager sooner resigns or is

removed.” Section 6.2, titled “Initial Manager,” states that “[t]he Members hereby

designate Louis R. Montello to serve as Manager for the Company.” And article 7

provides for an annual meeting “for the election of the Manager.” The plain

language of the operating agreement shows that Montello was designated as

“Manager”; MVW was not.

       MVW next argues that it is a “Covered Person” under Regalia’s operating

agreement because it is an agent of the manager, Montello, and therefore qualifies

as “any employee or agent of the Company or its Affiliates.” We do not find this

argument persuasive.

       If the drafters of Regalia’s operating agreement intended to include agents of

the Manager within the definition of “Covered Persons,” they could have done so

explicitly.   But the absence of any reference to the Manager’s agents in the

definition of “Covered Person” leads us to conclude that the drafters did not intend

to give the Manager’s agents the contractual status of “Covered Persons.”

       Moreover, the drafters of Regalia’s operating agreement expressly included

both the terms “Manager” and “Affiliate” in the definition of “Covered Person.”

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These separated terms suggest that the drafters did not intend the term “Manager”

to be a subset of the term “Affiliate.” In other words, if “Manager” were subsumed

within “Affiliate,” there would be no need to separately list “Manager.” MVW’s

interpretation would make the inclusion of the term “Manager” in the definition

redundant and unnecessary, contrary to the basic rule of contract interpretation that

“[c]ourts must ‘construe contracts in such a way as to give reasonable meaning to

all provisions,’ rather than leaving part of the contract useless.” Publix Super

Markets, Inc. v. Wilder Corp. of Delaware, 876 So. 2d 652, 654 (Fla. 2d DCA

2004) (quoting Hardwick Props., Inc. v. Newbern, 711 So. 2d 35, 40 (Fla. 1st DCA

1998)).

         Accordingly, we conclude that MVW does not qualify as a “Covered

Person” under Regalia’s operating agreement, and therefore it is not entitled to

advancement of litigation fees and costs.

   II.      MVW is not entitled to advancement under the management
            agreement.

         MVW also argues that it is entitled to advancement of its litigation expenses

based on the management agreement between MVW and Regalia. Indeed, the

management agreement provides that “[e]xpenses (including attorneys’ fees, court

costs, judgments, fines, amounts paid in settlement and other payments) incurred

by Manager [MVW] . . . shall be paid by Owner [Regalia] in advance of the final

disposition of such action, suit or proceeding.”       Notwithstanding this express
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provision, we conclude that the trial court properly denied MVW’s request for

advancement based on the management agreement because the provision does not

apply to a first-party litigation case like this between the two parties to the contract.

      The right to be indemnified for litigation expenses and the right to

advancement of litigation expenses are related but different rights. Indemnification

is the right to be paid litigation expenses at the end of a lawsuit, usually based on

meeting several conditions, including successfully defeating a claim or showing

good faith. See, e.g., § 607.0850(3), Fla. Stat. (2016). In contrast, advancement is

the right to immediate, interim relief from the personal out-of-pocket expenses

inevitably involved in the investigations and legal proceedings into which officers

and directors are often drawn.

      Advancement is in the nature of a loan: litigation expenses are paid as

incurred, subject to a statutory or contractual requirement to pay back the advance

if the officer or director’s defense is unsuccessful or other conditions are meet. See,

e.g., § 607.0850(6); In re Adelphia Commc’ns Corp., 323 B.R. 345, 375 (Bankr.

S.D.N.Y. 2005) (describing advancement as “a species of loan . . . to an officer or

director pending later determination of that person’s right to receive and retain

indemnification,” and noting that a “corporation maintains the right to be repaid . .

. if the individual is ultimately shown not to be entitled to indemnification”). It is

well recognized that the rights to indemnification and advancement “encourage

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well-qualified persons to serve as directors and officers of . . . corporations and, in

that capacity, to be willing to commit their corporations, after the exercise of good

faith and care, to risky transactions that promise a lucrative economic return.”

Fasciana v. Elec. Data Sys. Corp., 829 A.2d 160, 170 (Del. Ch. 2003).

      Although indemnity and advancement are separate rights, the right to

advancement in this case is directly tied to the right to indemnification. The

management agreement provides for advancement of litigation expenses only for

defending any proceeding “described in section 5.2(a) above.” Section 5.2(a), the

indemnification provision, states the following:

             Owner agrees to defend, indemnify and hold harmless
             Manager and each of Manager’s members, officers,
             directors, employees and agents (collectively, including
             Manager, the “Manager Indemnified Parties” and each
             individually an “Indemnified Manager Party”), from,
             against and in respect of any and all demands, claims,
             actions or causes of action, losses, liabilities, obligations,
             penalties, damages, assessments, deficiencies, taxes,
             judgments, costs and expenses, including, without
             limitation, interest, penalties and reasonable attorneys’
             fees and expenses incurred by any such Manager
             Indemnified Party in connection with the defense of any
             action, suit or other proceeding (including any
             administrative       proceeding)       (collectively,      the
             “Indemnified Amounts”), as incurred, asserted against,
             imposed upon or paid, incurred or suffered by Manager
             or any Indemnified Manager Party as a result of the
             services performed by Manager pursuant to this
             Agreement provided that Manager or such Manager
             Indemnified Party acted in good faith and in a manner he,
             she or it reasonably believed to be in or not opposed to
             the best interests of Owner with respect to the Project,
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             and, with respect to any criminal action or proceeding,
             had no reasonable cause to believe his, her or its conduct
             was unlawful.

      The language of this indemnification provision does not indicate whether it

was intended to apply to first-party claims like the one Regalia brought against

MVW. This is the fundamental problem with MVW’s argument.

      Generally in Florida, indemnity provisions apply only to third-party claims.

Florida law disfavors contracts that shift the cost of a party’s misconduct from the

perpetrator to the injured party “because they relieve one party of the obligation to

use due care and shift the risk of injury to the party who is probably least equipped

to take the necessary precautions to avoid injury and bear the risk of loss.” Sanislo

v. Give Kids the World, Inc., 157 So. 3d 256, 260 (Fla. 2015).               Indeed,

“indemnification agreements can sometimes produce the same result as an

exculpatory provision by shifting responsibility for the payment of damages back

to the injured party.” Id. at 265. For this reason, and as the trial court properly

cautioned here, the view that general indemnity language automatically includes

indemnity for first-party claims would “permit a garden variety indemnity clause to

be used to exculpate a contracting party from liability to the other party to the

agreement.” Order, Regalia Beach Dev. LLC v. MVW Mgmt. LLC, Case no. 16-

3753 CA 22 (Fla. 11th Cir. June 30, 2016) (Hanzman, J.).

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      Exculpatory clauses are enforceable if, and only if, “the wording [is] so clear

and understandable that an ordinary and knowledgeable person will know what he

or she is contracting away.” Sanislo, 157 So. 3d at 260-61.                   Because

“indemnification agreements can sometimes produce the same result as an

exculpatory provision by shifting responsibility for the payment of damages back

to the injured party,” id. at 265, a similar rule applies in Florida regarding whether

indemnity provisions apply to first-party actions.

      Contracts for direct indemnity will not be inferred; for indemnity to apply

against first-party claims, the indemnification provision must clearly indicate that it

applies to the acts of the other party to the contract. An indemnification provision

that is silent or unclear whether it applies to first-party claims will normally be

interpreted to apply only to third-party claims. For example, a tenant’s agreement

to indemnify the landlord against “any and all claims” does not clearly and

unequivocally express an intent to include claims by the tenant that result

exclusively from the negligence of the landlord. Univ. Plaza Shopping Ctr., Inc. v.

Stewart, 272 So. 2d 507, 511 (Fla. 1973).

      This rule that indemnity provisions are limited to third-party claims unless a

contract clearly and unambiguously shows an intent to extend indemnity to first-

party claims is in accord with the holdings in a majority of the jurisdictions that

have considered similar issues. See generally, NevadaCare, Inc. v. Dep’t of Human

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Servs., 783 N.W.2d 459, 471 (Iowa 2010) (noting that a clause that uses “the terms

‘indemnify’ and ‘hold harmless’ indicates an intent by the parties to protect a party

from claims made by third parties rather than those brought by a party to the

contract” and “a party to a contract cannot use an indemnity clause to shift attorney

fees between the parties unless the language of the clause shows an intent to

clearly and unambiguously shift the fees”); Nova Research, Inc. v. Penske Truck

Leasing Co., 952 A.2d 275, 287 (Md. 2008) (listing several cases applying the rule

that indemnity provision must be interpreted narrowly).

      Here, the indemnification provision in the parties’ management agreement

falls short of expressly stating or indicating that MVW’s right to indemnification

applies to a first-party claim like the one here by Regalia against MVW. A simple

comparison of the language in Regalia’s operating agreement to the language in

the parties’ management agreement resolves any doubt that the management

agreement was not intended to apply to a first-party action. Regalia’s operating

agreement contains unequivocal language indicating that its terms apply to first-

party claims: “No Covered Person shall be liable to the Company or any other

Covered Person for any loss, damage or claim incurred by reason of any act or

omission performed or omitted by such Covered Person . . . .” The management

agreement lacks any such language. If the parties intended the provisions in the

management agreement to extend to first-party claims, they knew how to do so, as

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evidenced by language in Regalia’s operating agreement.           It is difficult to

understand why the parties could have intended the less-explicit language of their

management agreement to extend the same rights as the more-explicit language of

Regalia’s operating agreement.

      MVW argues that the indemnification language in the parties’ management

agreement is virtually identical to language that the Florida Supreme Court held

authorized attorney’s fee indemnification in Wendt v. La Costa Beach Resort

Condo. Ass’n, Inc., 64 So. 3d 1228, 1230 (Fla. 2011). In Wendt, the directors of a

corporation who had been sued by the corporation for breach of fiduciary duty

brought a separate action for indemnification of attorney’s fees and costs under

section 607.0850, Florida Statutes. The trial court dismissed the directors’ lawsuit

and the Fourth District affirmed based on the common law principle that a party is

entitled to indemnification for attorney’s fees and costs only when it had been sued

vicariously or technically for another’s wrongdoing – not for its own.

      The Supreme Court reversed. It held that section 607.0850 authorizes

indemnification of attorney’s fees and costs to a director sued in first-party

litigation by his or her corporation and remanded for consideration on the merits.

In so holding, the Court noted that subsection (2) expressly authorizes indemnity

for attorney’s fees in any proceeding “by or in the right of the corporation to

procure a judgment in its favor.” Id. at 1230. The Court compared this language

                                        12
to subsection (1), which expressly prohibits indemnity for liability in “an action by,

or in the right of, the corporation.” Id.

      Contrary to MVW’s argument, therefore, the language in the parties’

management agreement is not virtually identical to the language in section

607.0850. In fact, the management agreement lacks the crucial, express language

providing for indemnity of litigation expenses in any proceeding “by or in the right

of the corporation to procure a judgment in its favor,” which is the basis of the

holding in Wendt. Wendt, therefore, does not support MVW’s argument. Far from

supporting MVW’s position, we believe the statute discussed in Wendt indicates

that the public policy of Florida is to require that the inclusion or exclusion of first-

party actions in indemnity provisions be expressly stated or otherwise made clear

and unambiguous as was done in section 607.0850.3

      MVW also relies on this court’s decision in Adweiss LLLP v. Daum, 208
So. 3d 760, 761 (Fla. 3d DCA 2016). While the underlying facts in Adweiss

concern the advancement of attorney’s fees in a first-party dispute involving an

indemnification provision virtually identical to the one in the parties’ management

agreement here, Adweiss is not persuasive in this case for two reasons.

3 We understand MVW makes its argument by analogy. Section 607.0850 applies
to corporations. MVW is a limited liability company and would be governed by
section 605.0408.
                                            13
      First, this court in Adweiss interpreted Delaware law while the instant case

is governed by Florida law. And second, this court in Adweiss did not adjudicate

the question of whether an indemnification provision applied to a first-party action.

It has long been the law of Florida that “[n]o decision is authority on any question

not raised and considered, although it may be involved in the facts of the case.”

State ex rel. Helseth v. Du Bose, 128 So. 4, 6 (Fla. 1930). For example, in

Speedway SuperAmerica, LLC v. Tropic Enterprises., Inc., 966 So. 2d 1, 3 (Fla. 2d

DCA 2007), the Second District held that a trial court erred by treating a judicial

decision as binding on an issue that was not raised, argued, or analyzed. The

Second District reasoned that the decision could not be precedent on a particular

issue because “[t]hat issue was not presented to the court, and it was not decided

by the court.” Id.; See also Twyman v. Roell, 166 So. 215, 217 (Fla. 1936) (“To

be of value as a precedent, the questions raised by the pleadings and adjudicated in

the case cited as a precedent must be [o]n point with those presented in the case at

bar.”); Rey v. Philip Morris, Inc., 75 So. 3d 378, 381 (Fla. 3d DCA 2011) (“No

Florida appellate decision is authority on any question not raised and considered,

although it may be involved in the facts of the case.” (quotation omitted)).

       The actual holding of Adweiss was that, under Delaware law, the inclusion

of the word “defend” in an indemnification provision specifying that the Company

shall “indemnify, defend and hold harmless” even without reference to

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advancement, entitled the manager to advancement of his litigation expenses. That

was the issue briefed by the parties and decided by this Court. In Adweiss, no

party argued that such an indemnification provision applied to only third-party

claims; the opinion has no discussion on that point; and this Court made no express

holding on that point. Accordingly, Adweiss does not govern our decision in this

case.

                                   Conclusion

        The trial court correctly held that MVW is not entitled to advancement of

legal fees in this first-party action brought against MVW by Regalia. MVW is not

entitled to advancement under Regalia’s operating agreement because it does not

qualify as a “Covered Person” under the contract.       And because the parties’

managing agreement does not explicitly extend its indemnification provision to

first-party actions, we reject MVW’s argument that it is entitled to advancement of

fees under that contract. Accordingly, we affirm.

        Affirmed.

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