CMS’s Rule for Nursing Facility Arbitration Agreements Does Not Affect their Validity in the Court

Author: Amy L. Dilday

ArbitrationOn July 18, 2019 the Centers for Medicare & Medicaid Services (CMS) published its final rule setting its requirements for nursing facility arbitration agreements.  The rule, which went into effect on September 16, 2019, permitted binding pre-dispute arbitration agreements but, among other things, require an arbitration agreement to: 1) explicitly grant the resident the right to rescind the agreement within 30 days, and 2) expressly state that the resident is not required to sign an arbitration agreement as a condition for admission or continued care at the facility.

Several nursing facilities sued the CMS in the Western District of Arkansas claiming that the rule violates the Federal Arbitration Act (FAA) by placing requirements on arbitration agreements that are not placed on other contracts.  On April 7, 2020, the district court denied the nursing facilities’ motion for summary judgment and dismissed the case.  In its Opinion and Order, the court held that because the rule does not go to the enforceability of an arbitration agreement, but only to whether the facility is in compliance with CMS requirements, it does not violate the FAA.

In making that determination, the court agreed with CMS’s position that “[A] participating nursing home may choose to enter into a pre-dispute binding arbitration agreement without complying with the procedural requirements laid out in the Final Rule, and if a resident were to sue the nursing home, the facility could seek to compel arbitration pursuant to the agreement and expect a court to enforce the agreement.  At the same time, however, the nursing home would be exposing itself to the possibility of corrective action by CMS for a violation of the facility’s participation agreement.”  This position is also supported by CMS’s comments in the Federal Register that the “final rule does not purport to regulate the enforceability of any arbitration agreement.”  The rule also does not invalidate arbitration agreements that were in place prior to its effective date.

The nursing homes have filed a notice of appeal to the Eighth Circuit Court of Appeals.  Whether or not that appeal will be successful, as for now the Rule is enforceable, and nursing homes that participate in Medicare and Medicaid must revise their agreements to comply.  That said, when an agreement is challenged in the court, its failure to be in compliance with the Rule should not render it unenforceable.  The full rule for binding arbitration agreements may be found at 42 CFR § 483.70(n), https://www.govregs.com/regulations/expand/title42_chapterIV_part483_subpartB_section483.70.

Pennsylvania Supreme Court Declares MCARE’s Seven-Year Statute of Repose Unconstitutional

Author: Amy L. Dilday

ReposeIn an opinion decided late last year, the Supreme Court of Pennsylvania concluded that the seven-year statute of repose in Pennsylvania’s Medical Care Availability and Reduction of Error Act (commonly referred to as the “MCARE Act”) is unconstitutional because it limits access to the courts for certain would-be medical malpractice plaintiffs.  The case, Yanakos v. University of Pittsburgh Medical Center, arose from a liver transplant performed on one of the plaintiffs, Ms. Yanakos, who suffered from a genetic condition that required the transplant.  Her son volunteered to donate a lobe of his liver to his mother.  The plaintiffs alleged that although the son’s liver was tested to determine whether he also suffered from the genetic condition, they were not informed of the results and he was cleared to be a donor.  They further alleged that eleven years after the transplant surgery, they first learned that Ms. Yanakos still suffered from the genetic condition, which they claimed should have been resolved by the transplant.  The plaintiffs claimed that the son’s pre-donation test results indicated he had the genetic condition and was never a viable candidate to donate liver tissue.  Thus, twelve years after the transplant surgery and the allegedly negligent medical clearance of the son’s liver, the plaintiffs initiated a lawsuit.

Medical malpractice lawsuits are generally governed by a statute of limitations that prohibit a plaintiff from initiating a lawsuit more than a few years after an injury occurs.  Pennsylvania’s medical malpractice statute of limitations is two years, but is modified by a “discovery rule.”  That is, the two years begins to run only after the plaintiff knows or reasonably should know (1) that he or she has been injured, and (2) that the injury was caused by negligence.  The MCARE Act’s seven year statute of repose placed an outside boundary on that time, which bars a plaintiff’s suit altogether—even if he or she does not discover the injury and its cause—within seven years of its occurrence.  Statutes of repose serve to diminish the evidentiary problems that arise when claims are brought after persons involved in the incident have moved on, their memories of what occurred have faded, and records and other evidence is harder to recover. The Pennsylvania legislature also intended the MCARE Act’s statute of repose to assist medical malpractice insurers to control costs by providing a final date on which litigation could be initiated.  However, there are exceptions.  Under the Act, the seven year repose period did not apply to injuries caused when foreign objects were unintentionally left in a patient’s body after surgery or to actions brought on behalf of a child—who would have until he or she reaches the age of twenty to initiate a suit no matter what the child’s age was at the time of the injury.

The Pennsylvania Supreme Court agreed with the plaintiffs’ concern that the statute of repose unconstitutionally limited access to the courts for persons who suffered injury from medical malpractice that was not discovered before the seven year period expired.  The court determined that the seven-year period did not substantially relate to the legislature’s goal of controlling malpractice insurance costs because the existing exceptions (for minors and foreign objects) prevented insurers from knowing a final date on which a malpractice suit could be initiated.  Accordingly, the statute unconstitutionally limited the claims of all others allegedly injured by malpractice.  This result, of course, will open the doors to significantly older malpractice claims and will increase the litigation (at the outset of each case) over whether the date the plaintiff knew or reasonably should have known of his or her injury and that it was caused by negligence in order to trigger the two-year statute of limitations period.

CMS, Arbitration, and Long Term Care Facilities: Round Two

Author: Amy L. Dilday

What is the status of the Centers for Medicare & Medicaid Services (CMS) regulation for arbitration agreements with residents of long term care facilities?  Once again, like it was three years ago, it is on hold.  In 2016, the CMS drafted a major overhaul Round-Twoof its regulations governing nursing homes and assisted living facilities.  Included in the revamped regulations was a prohibition of pre-dispute binding arbitration and specifications for permissible post-dispute agreements to arbitrate.  In October of that year, the American Health Care Association and several nursing homes sued CMS in the Northern District of Mississippi, challenging the agency’s authority to regulate arbitration agreements and asking the court to enjoin the agency from enforcing its pre-dispute arbitration prohibition.  The federal district court granted the plaintiffs’ motion and enjoined enforcement until the case was resolved.  The CMS, therefore, issued a nation-wide instruction for its surveyors to not enforce the prohibition.

Rather than defend the litigation to its conclusion, the CMS decided to reevaluate its position on arbitration agreements.  The results of that reevaluation were published as a final rule this year, on July 18, 2019.  The revised rule, set to go into effect on September 16, permitted pre-dispute arbitration agreements.  It included some of the specifications from the former rule and added new requirements.  Two new provisions require an arbitration agreement to: 1) explicitly grant the resident the right to rescind the agreement within 30 days, and 2) expressly state that the resident is not required to sign an arbitration agreement as a condition for admission or continued care at the facility.

Again, several nursing facilities sued the CMS, this time in the Western District of Arkansas.  As in the prior suit, the nursing home plaintiffs asked the court to enjoin the CMS from enforcing its rule until the court resolved their challenge to the agency’s authority to regulate arbitration agreements.  To avoid another injunction, on September 13, 2019, the CMS agreed with the plaintiffs to voluntarily stay enforcement of the new arbitration rule until December 31, 2019, in exchange for an expedited case management schedule that would allow the court to decide the case by the end of the year.

So, stay tuned.  While current arbitration agreements for long term care facilities remain valid (and the CMS has stated that its rule is to operate only prospectively), it may be wise to take the extra time permitted and review your arbitration agreement to see how it will fare if the court decides the new rule is enforceable.  The full rule for binding arbitration agreements may be found at 42 CFR § 483.70(n), https://www.govregs.com/regulations/expand/title42_chapterIV_part483_subpartB_section483.70.

It’s Time to Implement Your Medical Marijuana Policy

Author: Amy L. Dilday

downloadWith thirty-three states and the District of Columbia having passed laws legalizing marijuana in some form, it’s time for hospitals, nursing homes, and assisted living facilities to create, finalize, and put their medical marijuana policies into effect. Eleven states have legalized marijuana for medical and recreational use. In twenty-two additional states, marijuana use is limited to treating certain medical conditions, usually delineated as “serious” or “debilitating.” Even though the federal Controlled Substances Act classifies marijuana as an illegal, “Schedule I” drug, health care facilities should have marijuana policies in place to inform their communities of their position and to provide direction for persons who qualify for medical marijuana use.

The need for a marijuana policy is two-fold. First, it is important to address how your organization will handle employees who qualify for medical marijuana use. Safe and competent care of patients and elderly or disabled residents is a primary goal. As such, even if an employee is certified for medical marijuana use, he or she should not be permitted to provide care while intoxicated. Your employee policy should reflect the extent to which your organization permits or prohibits marijuana, or its use, in the workplace. Some state marijuana statutes expressly grant employers the right to maintain drug free workplaces under state or federal law. Other state statutes allow employers to prohibit employees from performing certain duties while under the influence of marijuana. Under these statutes, prohibiting employees from performing those duties is not deemed to be an adverse employment decision, even if it results in financial harm to the employee. Before finalizing your employment policy on medical marijuana, check with the statute in your state and with a lawyer specializing in employment law to ensure that your policy complies with state law and clearly states your facility’s position on marijuana in the workplace.

Second, marijuana policies are important to inform patients and residents, who qualify for medical marijuana use, whether they can use it in your facility. Hospitals, nursing homes, and assisted living facilities are regulated by both state and federal agencies. Although some federal agencies are relaxing their enforcement of the federal ban on the use and possession of marijuana in some circumstances, it remains illegal under federal law. Because federal regulations require health care facilities to be in compliance with federal law, facilities should have the option to “just say no” when qualified patients or residents want to use marijuana on their premises. Nevertheless, some nursing homes and hospitals in marijuana-legal states have implemented policies that permit their patients and residents to use doctor-recommended marijuana while keeping their staff out of the process. Usually these policies rely on state certified medical marijuana caregivers or the patients and residents themselves to handle and administer the marijuana.

Medical marijuana use is gaining acceptance throughout the nation. Whether your facility chooses to permit patients to residents to use it, or chooses to entirely forbid marijuana use on the property, the policy should be clear, in writing, and presented to the patient or resident before admission.

McCumber Daniels Secures First Order Confirming that the Federal Patient Safety and Quality Improvement Act Preempts Florida’s Amendment 7

Author: Amy L. Dilday

On September 5, 2019, McCumber Daniels Buntz Hartig Puig and Ross’s appellate imagesattorney, Amy Dilday, secured a win on behalf of Tampa General Hospital on a motion for summary judgment that pitted Florida’s Amendment 7 against the federal Patient Safety and Quality Improvement Act.  Article X, section 25 of Florida’s Constitution (commonly referred to as Amendment 7) provides broad access for patients to health care providers’ records relating to adverse medical incidents.  The hospital had been served with a broad request for Amendment 7 documents in a state court action.  Some of the documents that were responsive to the request, however, had been reported to the hospital’s Patient Safety Organization (PSO) pursuant to the federal Act.  The Act provides that information submitted to a PSO is confidential and privileged and subjects persons who disclose that information to mandatory fines.  To avoid the mandatory fine, the hospital moved for a protective order on the documents in the state court and Ms. Dilday also spearheaded the action for declaratory relief in the federal district court. 

The state court denied the hospital’s motion for a protective order based on a case it deemed binding from the Florida Supreme Court, Charles v. Southern Baptist Hospital of Florida, Inc., 209 So. 3d 1199 (Fla. 2017).  In Charles, the supreme court held that the hospital’s documents at issue were not protected under the Act and also determined that the Act does not preempt the Florida constitutional right.  Judge Moody, United States District Court Judge, however, agreed that the hospital’s documents were protected under the Act and recognized the Act’s express preemption clause.  He distinguished TGH’s documents from those in Charles because TGH’s documents had been submitted to its PSO.  Accordingly, the court granted the hospital’s motion for summary judgment, declaring that the “documents at issue in the state court action are protected patient safety work product” and that “the federal Patient Safety and Quality Improvement Act preempts Article X, section 25 of the Florida Constitution with respect to these documents.”  The court also enjoined the Secretary of the United States Department of Health and Human Services from enforcing the Act in the state court action by imposing the mandatory penalty against TGH if it must produce the documents.

In this action, McCumber Daniels secured the first order from a federal court that discusses the interaction of Florida’s Amendment 7 and the federal Act.  The order will provide persuasive authority to support health care providers’ requests that the state trial courts recognize and enforce the preemptive intent of the Patient Safety and Quality Improvement Act in the light of broad Amendment 7 requests.

*Amy L. Dilday is a Partner at McCumber Daniels and practices in the firm’s Florida office.  Ms. Dilday is a Florida Bar Board Certified Appellate Attorney who heads the firm’s appellate practice group. She can be reached at 813-287-2822 or adilday@mccumberdaniels.com.

Abuse and Neglect under Florida’s Adult Protective Services Act: Is Medical Negligence Enough?

Author: Amy L. Dilday

Last month, Florida’s First District Court of Appeal brought welcome clarification to health care providers regarding the difference between a medical negligence claim and a claim for abuse or neglect under Florida’s Adult Protective Services Act.  In Specialty Hospital-Gainesville, Inc. v. Barth, Case No. 1D18-511 (July 15, 2019), the court held that allegations of medical negligence could not form the basis for a claim for abuse or neglect of a vulnerable adult under the Act.

audit transactionBecause the Adult Protective Services Act provides the opportunity for successful Plaintiffs to recover attorneys’ fees, medical malpractice plaintiffs often allege a claim for abuse arising from the same facts as their medical negligence claims.  In a lawsuit alleging malpractice against a hospital, the court reversed the damages awarded for abuse under the Act.  It highlighted the difference between medical negligence and the criminal focus of the Act, noting that the Act “refers to ‘perpetrators’ for a reason.”  It reasoned, “This chapter does not intend to criminalize health care providers or anyone else who may fail to report medical negligence.”  Medical negligence claims, the court explained, are “the subject of an entirely different chapter [which] includes extensive procedures, investigations, and protections, including pre-suit investigations.”

While recognizing that the Adult Protective Services Act permits its remedies to be “cumulative” to other legal and administrative remedies, the court concluded that “this sentence cannot be logically interpreted to mean that a claim of medical negligence can be transformed into a claim against a nurse or doctor as a ‘perpetrator’ of abuse, neglect, or exploitation.”  Rather, the court interpreted the additional, cumulative remedies available to be outside of those remedies provided by the medical negligence statutes.

In clarifying the different objectives of the Adult Protective Services Act and Florida’s medical malpractice statutes, the court did not eliminate the possibility that a claim may be brought against a health care provider under the Act.  It stated, “if a nurse or doctor committed a sexual offense against a vulnerable adult or attempted to harm a vulnerable adult,” a claim could be brought under the Act.  But, if “the claim involves medical negligence which requires compliance with the pre-suit procedures and other provisions of [the medical malpractice statutes], the claim cannot be asserted under [the Act].”

 

Beware, Lienholders: Amendments to Florida Tax Deed Sales Statute Passes House and Senate

Author: Starlett M. Massey

New tax deed sale legislation is on the horizon with substantial implications for lienholders.  House Bill 1383 was ordered enrolled on March 9, 2018, after unanimously passing both the House and Senate.  HB 1383 proposes amendments to § 197.582, Fla. Stat., that will have the effect of barring claims to surplus tax deed sale funds if certain procedures are not followed.  If the proposed bill becomes law, lienholders will have a hard and fast 120 days from the date of the county clerk’s notice of tax deed sale surplus funds to file a written claim with the clerk for the surplus proceeds.  If a lienholder fails to file a claim on or before the close of business on the 120th day following the date of the mailed notice, the claim will be barred and they will receive no distribution of the surplus funds.  Failure to timely file a claim will constitute a complete waiver of interest in the funds and forever bar all claims to the surplus funds.  The foregoing provisions will apply to all claims, except a claim by a property owner.

pexels-photo-461077.jpegThe proposed amendments also set forth the required form the clerk must use to provide notice of surplus funds.  Among other requirements, the clerk’s notice must include a form for making a claim.  The amendments also establish the form required to file a claim and how a claim must be filed with the clerk.  The amendments authorize mailing a claim using the U.S. Postal Service, delivering a claim in person or using a commercial delivery service, or sending a claim by fax or email if authorized by the clerk.  The filing date would be the date postmarked if mailed, date of delivery if delivered, or date of receipt by the clerk if faxed or emailed.

If Governor Scott approves HB 1383, the proposed amendments will become effective July 1, 2018 and apply to tax deed applications filed on or after October 1, 2018.  The bill text in entirety can be found here: https://www.flsenate.gov/Session/Bill/2018/1383/BillText/er/PDF

Mildred Dukes v. Suncoast Credit Union: Potential for Uniformity on Discharge of Mortgage Loan Debt in Chapter 13 Bankruptcy Cases in the Eleventh Circuit

Author: Starlett M. Massey

As a general rule, 11 U.S.C. § 1328 (“Section 1328”) states that a debtor is discharged of all debts that are either (i) provided for by the plan or (ii) disallowed.  Section 1328 establishes a few exceptions to discharge, one of which pertains to certain long-term debts that mature after the final plan payment, including a mortgage that matures after completion of a plan (“Long-term Mortgage”).  Section 1328(a)(1) excludes from discharge debts that are “provided for under section 1322(b)(5),” the Bankruptcy Code provision which allows debtors to cure any default and maintain regular payments on both unsecured and secured claims that mature after the final plan payment.  Thus, Section 1328 explicitly states Long-term Mortgages that are provided for by a Chapter 13 plan are not discharged.  Put another way, if a debtor is curing arrearages and maintaining payments on a Long-term Mortgage through a Chapter 13 plan, the exception clearly applies and the debt is not discharged.

However, Section 1328 does not explicitly address situations where a Long-term Mortgage is paid outside a Chapter 13 plan and left unaffected.  Additionally, Section 1328 does not provide an exception from discharge for a mortgage that matures prior to the final plan payment (“Short-term Mortgage”).  The general rule of discharge, thus, applies to a Short-term Mortgage: the debt is discharged if it is either provided for by the plan or disallowed.

As a result, bankruptcy courts have reached varied decisions regarding when certain mortgage loans are discharged, based on the interpretation of “provided for by the plan.”  The United States Supreme Court discussed the meaning of “provided for by the plan” as used by Section 1322(b)(5) in a different context in the case of Rake v. Wade.[1]  The Rake Court stated, “[t]he most natural reading of the phrase to ‘provid[e] for by the plan’ is to ‘make a provision for’ or ‘stipulate to’ something in a plan.”[2]

Two schools of thought have developed with regard to whether Long-term and Short-term Mortgages are discharged in Chapter 13 based on the Rake Court’s interpretation. For purposes of this discussion, they are referred to as the Broad View and the Narrow View.  The broader interpretation holds that a mere reference to a claim, even just a statement that the claim will be paid directly by the debtor outside the plan, amounts to the claim being “provided for by the plan.”  This view holds that a claim is discharged if it is merely referenced by a plan, unless one of the exceptions to discharge listed in Section 1328(a) applies (the “Broad View”).  According to the Broad View, if a Chapter 13 plan states a Short-term Mortgage will be paid outside the plan, the debt is still “provided for by the plan” and subject to discharge.[3]  Under the logic of this view, a Long-term Mortgage paid outside the plan would be considered “provided for by the plan.”  One might think, under this logic, the claim would then fall under the exception from discharge of Section 1328.  That is, if the claim is considered provided for under the plan, then it would also be considered provided for under section 1322(b)(5).  However, at least one court, has held a Long-term Mortgage that is paid outside the plan and left unaffected is not “provided for under section 1322(b)(5),” and, thus, is not excepted from discharge under Section 1328(a)(1).[4]  Under the Broad View, if a mortgage does not fall under the exception and is paid outside the plan, it would be discharged.  The curious result is that a mortgage would only be non-dischargeable if a debtor is curing arrearages.  If a debtor is current on a mortgage and merely continues to pay the regular payments, the debt would be discharged upon completion of a plan.

The other school of thought, a more narrow interpretation of “provided for by the plan,” holds that a claim that is paid directly by the debtor outside the plan is not considered “provided for by the plan,” and is, thus, not discharged (the “Narrow View”).  According to the Narrow View, if a Chapter 13 plan states a Short-term or Long-term Mortgage will be paid outside the plan, the debt is not “provided for by the plan” and will not be discharged.  With regard to a Long-term Mortgage, the exception to discharge would also not apply because the debt would not be considered “provided for under 1322(b)(5).”

Fortunately, it is likely that 11th Circuit law will soon be settled on the issue.  In the case of In re Dukes, 9:09-BK-02778-FMD, 2015 WL 3825978 (Bankr. M.D. Fla. June 18, 2015), a Middle District of Florida Bankruptcy Court adopted the Narrow View, holding that a claim paid outside of a plan is not “provided for by the plan,” and, consequently, not subject to discharge.  The debtor appealed, and the United States District Court for the Middle District of Florida affirmed the Bankruptcy Court’s decision adopting the narrow interpretation of “provided for by the plan.”  In re Dukes, 2:15-CV-420-FTM-99, 2016 WL 5390948 (M.D. Fla. Sept. 27, 2016).  The debtor again appealed, commencing the case of Mildred Dukes v. Suncoast Credit Union, 16-16513, which is currently pending in the United States Court of Appeals for the Eleventh Circuit.  Oral argument was held on September 19, 2017.  Thus, in short time there will be uniform 11th Circuit law on the issue of whether a claim paid outside a Chapter 13 plan is considered “provided for by the plan” if the plan states that the debtor will pay the claim outside the plan.

In the event the Eleventh Circuit adopts the Narrow View, controlling law will hold that mortgages paid outside a Chapter 13 plan are not discharged because they are not “provided for by the plan.”   In sum, the Eleventh Circuit’s adoption of the Narrow View would be akin to the reaffirmation of all Long-term Mortgages where the collateral is not surrendered and the reaffirmation of all Short-term Mortgages that are paid outside the plan.

[1] 508 U.S. 464, 473 (1993).

[2] Id.

[3] See, In re Rogers, 494 B.R. 664, 667 (Bankr. E.D.N.C. 2013).

[4] In re Cramer, 477 B.R. 736, 738 (Bankr. E.D. Wis. 2012).

 

Supreme Court of Florida lets the Fourth District Court of Appeal’s Ober Decision Stand

By: Amy L. Dilday & Starlett M. Massey

On September 6, 2017, the Supreme Court of Florida entered an opinion declining to accept jurisdiction and denying the Town of Lauderdale-By-The-Sea’s Petition for the supreme court to review the Fourth District Court of Appeal’s opinion on rehearing, which it released in Ober v. Town of Lauderdale-By-The-Sea. Because the supreme court also ordered that it would not consider a Motion for Rehearing on its declination, the Court left the Fourth District Court’s final decision to be the controlling law in Florida on whether liens on property that are recorded between the entry of the final foreclosure judgment and the date of the foreclosure sale survive after the sale. For now.

Of course, another district court of appeal could issue an opinion that conflicts with the Fourth District’s decision or the legislature could revise section 48.23, Florida Statutes (the statute governing lis pendens). But unless and until that happens, a foreclosure sale will operate to discharge not only liens on property that were recorded after the lis pendens and before the final foreclosure judgment, but also those that were recorded between the foreclosure judgment and the foreclosure sale.

Throughout the convoluted history of the Ober decision, lenders and practitioners had cause for concern as they watched the dispute unfold. On August 24, 2016, the Fourth District Court released its original Ober opinion, in which it held that a lis pendens expires on the date that a court enters the final foreclosure judgment. Under that holding, liens recorded after the final judgment remained enforceable against the property after the foreclosure sale. This judicial construction of section 48.23 was contrary to the prevalent industry understanding and practice where a lis pendens protects the property from liens recorded between the date the lis pendens was recorded through the date of the foreclosure sale—unless the lienholder intervened in the foreclosure litigation.

In Mr. Ober’s case, the foreclosure sale occurred four years after the entry of the foreclosure judgment, and the Town had recorded seven liens for code violations in those four years. Thus, as soon as Mr. Ober bought the property at the sale, the property was encumbered by the Town’s liens for an amount that exceeded the property’s value. When Ober filed a suit to quiet title, the Town countered with a claim for foreclosure. The trial court granted summary judgment in favor of the Town, and on appeal, the Fourth District’s original opinion affirmed the judgment.

Mr. Ober filed a motion for rehearing, asking the Fourth District to reconsider its original decision and to certify a question of great public importance to the supreme court. By the time the appellate court considered the motion for rehearing, several amicus (“friend of the court”) briefs had been filed, including briefs from other Florida cities (in favor of the Town’s position), briefs from several Florida Bar practice sections (some writing in favor of the Town’s position; some in favor of Ober’s position), and other industry associations (in favor of Ober’s position).

The Fourth District Court granted Mr. Ober’s motion, withdrew its original opinion, and on January 25, 2017, released an opinion in which it held that a foreclosure sale discharges all lower-priority liens against a property, whether they were recorded before or after the final foreclosure judgment. With the intent of seeking supreme court review and after the revised opinion was released, the Town asked the Fourth District Court to certify a question of great public importance—a request that the court granted. The court certified the following question:

WHETHER, PURSUANT TO SECTION 48.23(1)(D), FLORIDA STATUTES, THE FILING OF A NOTICE OF LIS PENDENS AT THE COMMENCEMENT OF A BANK’S FORECLOSURE ACTION PREVENTS A LOCAL GOVERNMENT FROM EXERCISING AUTHORITY GRANTED TO IT BY CHAPTER 162, FLORIDA STATUTES, TO ENFORCE CODE VIOLATIONS EXISTING ON THE FORECLOSED PROPERTY AFTER FINAL FORECLOSURE JUDGMENT AND BEFORE JUDICIAL SALE, WHERE THE LOCAL GOVERNMENT’S INTEREST OR LIEN ON THE PROPERTY ARISES AFTER FINAL JUDGMENT AND DID NOT EXIST WITHIN THIRTY (30) DAYS AFTER THE RECORDING OF THE NOTICE OF LIS PENDENS.

Once the Fourth District Court released its certified question, the Town filed its Notice of Intent to Seek the Jurisdiction of the Supreme Court. Both parties filed briefs on the supreme court’s jurisdiction (the Court must determine whether to accept jurisdiction before it permits the parties to file briefs on the merits of the case), and several of the amicus parties filed notices that they intended to participate in the supreme court proceedings. The supreme court’s September 6, 2017 declination to exercise its jurisdiction, to answer the certified question, or to consider the case, however, left the Fourth District Court of Appeal’s Ober decision, released on rehearing, as the controlling law on this issue.

In Florida, the holding of one of the five district courts of appeal is not controlling over any other district court. For that reason, any of the other four district courts may decide this issue as the Fourth District did in its first opinion—and create conflicting law in the state. If that were to happen, the resulting conflict would give the supreme court an additional reason to accept jurisdiction: to resolve the conflicting opinions. Or, more likely, the legislature could act in the interim to amend section 48.23 to clarify its meaning. Either of these possibilities may change the law on this issue. But unless and until they do, Ober still controls and a notice of lis pendens continues to provide the standard protections expected by lenders and practitioners.

Much Ado Over Nothing? Ober v. Town of Lauderdale-By-The-Sea

Author: Starlett M. Massey, Partner at McCumber Daniels

In a most welcome 180 degree turnabout, the Fourth District Court of Appeal withdrew its earlier opinion in Ober v. Town of Lauderdale-By-The-Sea and issued a new opinion on Wednesday.  Last August, the Court held that a lien that exists or arises after the entry of final judgment of foreclosure attaches to the property and is not discharged upon the foreclosure sale.  The Court determined the Florida lis pendens statute, section 48.23(1)(d), only serves to discharge liens that exist or arise prior to entry of final judgment, unless, of course, appropriate steps are taken to protect those interests.

gavel

This decision sent shock waves through the mortgage and real property cosmos, prompting many attorneys to describe the Court’s interpretation of the lis pendens statute as an “evisceration.”  The decision also prompted Mr. Ober to file a motion for rehearing.  The Court’s opinion on rehearing no longer eviscerates, but instead invigorates, the lis pendens law.  The Court’s recent opinion interprets section 48.23(1)(d) to provide that a foreclosure sale discharges all liens, recorded both before the final judgment and after, unless the lienor intervenes in the foreclosure action within thirty days after the lis pendens is recorded – no matter how long the delay between the final judgment and the foreclosure sale.  The alternate hardline rule established by the Court’s withdrawn opinion could not be in starker contrast.

Also in stark contrast is the manner in which the Court addresses Form 1.996(a) of the Florida Rules of Civil Procedure in its two opinions.  Form 1.996(a) provides a sample foreclosure judgment, with the following provision:

On filing the certificate of sale, defendant(s) and all persons claiming under or against defendant(s) since the filing of the notice of lis pendens shall be foreclosed of all estate or claim in the property . . ., except as to claims or rights under chapter 718 or chapter 720, Florida Statutes, if any.

In its earlier opinion, the Court describes Form 1.996(a) as an apparent “misstatement of the law.”  However, in its opinion granting Ober’s motion for rehearing, the Court states the form, “reflects the common understanding of the operation of the lis pendens statute.”  The Court then cites to Hancock Advert., Inc. v. Dep’t of Transp., 549 So. 2d 1086 (Fla. 3d 1989), which holds, in pertinent part, that a court may consider practical statutory construction that has been adopted by the relevant industry when engaged in matters of statutory interpretation.  The Ober Court then notes that Form 1.996(a) was first adopted in 1971 and has been subject to continuous review and revision by the Florida Supreme Court since that date, most recently in January 2016.  The Florida Supreme Court’s recent decision not to revise this language, particularly given the pending dispute over the issue, was likely a significant factor guiding the Ober Court’s decision to withdraw its earlier opinion and grant the motion for rehearing (though the latest revision does predate the August 2016 opinion).  It also may predict the outcome of any higher appellate review of the Ober opinion.

A statute prone to such disparate interpretations on appeal is likely to be revisited by the Florida Legislature sooner rather than later, and Florida Supreme Court review is still possible.  A challenge to this opinion via a notice invoking Florida Supreme Court jurisdiction must be filed by February 24, 2017. Thus, while we certainly hope the latest outcome sticks, Ober might not be over quite yet.

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