Notice of Lis Pendens based on an Unrecorded Document and the “Fair Nexus” Requirement

A notice of lis pendens is only proper where there is a sufficient link between a cause of action and either legal or equitable ownership of a particular property if the cause of action is based on an unrecorded document. This sufficient link has been labeled by the courts as a “fair nexus.” Blue Star Palms, LLC v. LED Trust, LLC, 3D12-1728, 2012 WL 5232954 (Fla. 3d DCA 2012).

In Blue Star Palms, LED Trust, LLC, and Dishi & Flowman, LLC (the “Respondents”), alleged that they had verbally negotiated an agreement with Blue Star Palms, LLC, and Blue Star Briar, LLC (collectively, “Blue Star”) to co-invest in Blue Star’s parent company.  The Blue Star entities would be formed to then purchase 289 condominium units in Broward and Collier Counties from a mortgage foreclosure lender. However, the Respondents were not to have any ownership interest in, or lien over, the condominium units themselves. Furthermore, the negotiations did not culminate into a fully-signed Blue Star incorporation document or operating agreement in a form that all parties agreed was controlling.  The Respondents sued Blue Star for fourteen counts, including breach of the alleged agreements, violations of the Florida LLC statutes, fraud, conspiracy to commit fraud, accounting, and equitable claims for specific performance, declaratory and injunctive relief, and the imposition of a constructive trust or equitable lien..  

Blue Star filed a motion and memorandum seeking dissolution of the lis pendens, which was denied by the trial court.  Florida’s Third District Court of Appeal invalidated the trial court’s order denying the motion to dissolve the lis pendens.

Florida Statute section 48.23(3) of the Florida Statutes states: “When the pending pleading does not show that the action is founded on a duly recorded instrument or on a lien claimed under part I of chapter 713 or when the action no longer affects the subject property, the court shall control and discharge the recorded notice of lis pendens as the court would grant and dissolve injunctions.”  A court must dissolve a lis pendens that is based on an unrecorded document unless the one filing the notice of lis pendens establishes a fair nexus between the legal or equitable ownership of the property and the dispute in the lawsuit.  A fair nexus requires a good faith, viable claim.  If a plaintiff’s claim can be afforded complete relief without reference to title to real property, then a lis pendens cannot be maintained.

The Third District Court of Appeal determined that the claims brought by the Respondents did not have a fair nexus to the ownership interests in the condominium units.  The interests held by the Respondents were membership interests in Blue Star’s parent company, not ownership interests in the condominium units.  Pursuant to the alleged contract, title to the condominium units would have been held by the Blue Star entities, which are two levels removed from the Respondents’ alleged membership interests in Blue Star’s parent company.  Also, the Respondents’ claims seeking a constructive trust and equitable lien were requested to be enforced against the subsidiaries, not the specific condominium units.  Therefore, the claims did not directly affect the subject real estate, and a lis pendens could not be maintained.

If you believe that a notice of lis pendens has been wrongfully filed against your residential or commercial property, call the real estate attorneys at Schecter Law today at (954) 779-7009.