Recently the Florida Supreme Court on March 31st issued their opinion in Cohn v. Grand Condominium[1] holding that a condominium declaration is immune to future statutory changes that the legislature enacts unless the condominium document states that it is subject to the Condominium Act “as amended from time to time.” Unfortunately, press reports of the Cohn decision grossly oversimplifies the case.
The United States Constitution, which is the supreme law of the land, has a provision that states that no state legislature can pass any law impairing an obligation of contract.[2] This was evidently put into the United States Constitution to remedy the previously widespread problem of state legislatures passing private lease bills negating certain contracts, promissory notes and mortgages.[3] When Florida adopted their latest version of the State Constitution in 1968, the drafters of the Florida Constitution thought it was important to restrict the state legislature’s power to impair contracts by putting in not just one reference, but two separate references in the state Constitution to restrict the Florida legislature’s power with respect to statutorily amending contracts.[4]
Although the text of the Constitutions are rather clear, the case law is not. On a federal level, until 1933,[5] the case law was unanimous in striking down any state statute that impaired any obligation of a contract. In 1933, however, the United States Supreme Court diverged from established precedent and started holding that certain statutes were not impairments of contracts but rather expressions of the State’s power to police certain activities.[6] From 1933 to 1983 the United States Supreme Court and the rest of the federal judiciary were wrestling with the implications until the United States Supreme Court announced a three part test:[7]
First, does the state regulation substantially impair a contractual relationship?
Second, does the state have a significant and legitimate purpose behind the statute, such as the remedying of the broad and general social or economic problem?
Third, is the law reasonable and appropriate for its intended purpose?
This is currently the test of whether a law is an impairment of contract or an exercise of police power under federal law today.
Florida jurisprudence followed a similar, albeit belated, tract as the federal judiciary[8]; until 1979 the Florida Supreme Court in every case held that the Florida Legislature could not impair an obligation of contract and struck down every statute as unconstitutional that purported to do so. In 1979 the Florida Supreme Court announced that it would adopt the more flexible federal judiciary interpretation.[9]
The 1979 Florida Supreme Court announcement is important to an understanding of the Cohn case the case was first appealed to the 3rd District Court of Appeals.[10] The 3rd DCA’s exhaustive review of the various tests under the Contract Clause to see if there was an impairment of contract by the Florida Legislature enacting amendments to 718. One important fact to keep in mind is that the Declaration of Condominium in this case said that it was subject to Fla. Stat. 718 as it existed on the date of the recording of the Declaration. The amendment complained of, namely, Fla. Stat. 718.404, would have provided a substantial change to the association’s board of directors that did not solve any legitimate police power of the state. Therefore, the 3rd District Court of Appeals ruled in favor of the condominium stated that the Florida Legislature’s subsequent amendments to Fla. Stat. 718 should not constitutionally be applied to the Grand Condominium.
When the case reached the Florida Supreme Court, the Florida Supreme Court’s decision was rather short in affirming the 3rd District Court of Appeals. In short, the Florida Supreme Court merely stated that subsequent amendments to Fla. Stat. 718 as the rules being applied in this particular was an unconstitutional impairment of contract. Although it cited the 1979 prior Florida Supreme Court case that set forth the beginning of the tests, the Florida Supreme Court in the Cohn case did not explicitly engage in any of the tests.
One of the big questions going forward is how does the Cohn case apply, and the answer is it depends on how the current case is read. One way to read the Cohn case is a categorical blanket statement that no impairment of contract will be tolerated in Florida. This is certainly the view expressed by some, including most of the newspaper reports. There is, however, an alternative view, namely that the Florida Supreme Court did not reverse its post-1979 jurisprudence, instead relying on the 3rd District Court of Appeals’ opinion to do the analysis.
The latter interpretation does have a strong basis. First, traditionally when a court overturns prior case law it does so explicitly. In the instant case, Florida’s Supreme Court did not do so. Second, when a higher court disagrees with a lower court’s analysis or decides on a separate basis or rationale, the higher court normally highlights its disagreement with the lower court. In Cohn the Florida Supreme Court did not. Third, given the current ideological make up of the Florida Supreme Court, it is unlikely that the unanimous court would have returned to a pre-1979 jurisprudence.
Another large question is how is this case supposed to be read with regard to other areas of Florida jurisprudence. For example, Fla. Stat. 617.0102 states that corporations not for profit in the State of Florida by virtue of their formation agree to be subject to future changes to the Florida not-for-profit corporation statute. There is some indication that the Florida legislature’s staff that at some time in the past in the Florida legislature considered and intended that changes to Fla. Stat. 718 and 720 with respect to corporate issues be incorporated into the Florida not-for-profit corporation statute, although such language did not appear in the text of the statute, but instead only in the legislative staff committee reports. The second example is that the Florida Supreme Court has not interpreted statutes that it altered vested rights, but it would apply only to remedies[11]
[1] ____ So. 2d ____, 2011 WL 1158938, 36 Fla. L. Weekly 5129 (2011)
[2] Article 1, Section 10 of the United States Constitution contains the following provision: “No state shall enter into any Treaty, Alliance, or Confederation; grant letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post factor Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
[3] James Ely, The Guardian of Every Other Right (Oxford Univ. Press, 1998)
[4] Article 1, SECTION 10. Prohibited laws.—No bill of attainder, ex post facto law or law impairing the obligation of contracts shall be passed.
Article 3, SECTION 11. Prohibited Special Laws.—
(a) There shall be no special law or general law of local application pertaining to….
(9) creation, enforcement, extension or impairment of liens based on private contracts, or fixing of interest rates on private contracts;
[5] Fletcher v. Peck, 10 US 87 (1810); Dartmouth College v. Woodward, 17 U.S. 518 (1819).
[6] Home Building and Loan Association v. Blaisdell, 290 U.S. 398 (1934)
[7] Energy Reserves Group v. Kansas Power & Light, 459 U.S. 400 (1983)
[8] Yamaha Parts Distributors, Inc. v. Ehrman, 316 So.2d 359 (1975); Hardware Mutual Casualty Company v. Carlton, 9 So.2nd 359 (1942); Coral Lakes v. Bussey Bank, 30 So.3d 579 (2nd DCA 2010)
[9] Pomponio v. Claridge of Pompano Condominiums, 378 So.2d 774 (Fla. 1975)
[10] 26 So.3d 8 (2009)
[11] See Metropolitan Dade County v. Chase Federal Housing Corporation, 737 So. 2d 494 (Fla. 1999).
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