Greenspoon Marder attorneys John Pelzer and Victor Kline helped reverse a $7.3 million judgment against an insurer held liable for a derailed real estate venture.

The Fort Lauderdale pair represented surety bond provider Lexon Insurance Co., which wrote two contracts guaranteeing payout if Priority Developers Inc. failed to complete site improvements for a Cape Coral subdivision.

Priority Developers had an obligation to create roads, sewer systems and other infrastructure as part of its agreement with the municipality that green-lighted the Village at Entrada. It started work on the residential project in 2005, but became a casualty of the housing market collapse and struggling to find continued financing before seeking bankruptcy protection and losing the project to foreclosure.

“It was a very common story,” said Pelzer, a Greenspoon Marder shareholder and appellate lawyer. “It was a development that was started in the go-go days of the mid-2000s and hit the brick wall of the recession.”

The city stopped performing site inspections by 2006 and the general contractor stopped work the following year—both citing nonpayment by Priority Developers.

The city contacted Lexon Insurance in 2010 to make a claim under Priority's $7.7 million surety bond in order to complete the project. Pelzer said Lexon requested routine paperwork to document Priority's default, but Cape Coral staff never responded. He said the city did not pursue the bond at that time but instead seemed to focus on securing another developer to complete the subdivision.

In March 2012, a new developer, Coco of Cape Coral LLC, purchased the project for $6.2 million—seven months before the city filed suit against Lexon for breach of contract and declaratory relief. It first joined the suit as an indispensable party but later became plaintiff after the city assigned it the claim.

Coco prevailed at trial, winning $7.3 million in compensatory damages and a companion ruling for $1.2 million in prejudgment interest.

The reversal also spares Lenox from liability for attorneys fees and other potential statutory claims.

Pelzer and Kline raised several issues on appeal, including one that unraveled Coco's victory without the court needing to weigh others. They argued Cape Coral had to bring suit within the five-year statute of limitations, triggered when the city closed its file on the project and marked the permit closed. That starting point created a deadline of Sept. 8, 2012.

The city didn't file suit until October 2012.

“It's one of those where near-misses don't count,” Pelzer said.

The parties disagreed on whether the clock started running the day Cape Coral filed its resolution to sue the insure, the day Lexon formally denied the bond claim, or when the land-use permit expired.

Opposing counsel, Edmond Koester of Coleman Yovanovich & Koester in Naples, is gearing for an appeal.

“Coco is seeking rehearing and to take the case to the Florida Supreme Court,” Koester said. “Coco believes that the city of Cape Coral timely filed the lawsuit, in part, because the development ordinance was not yet breached. The time for performing the work had not yet passed, the original developer filed for Chapter 11 reorganization, and Lexon had not denied the claim.”

Greenspoon Marder

Greenspoon Marder attorneys John Pelzer and Victor Kline helped reverse a $7.3 million judgment against an insurer held liable for a derailed real estate venture.

The Fort Lauderdale pair represented surety bond provider Lexon Insurance Co., which wrote two contracts guaranteeing payout if Priority Developers Inc. failed to complete site improvements for a Cape Coral subdivision.

Priority Developers had an obligation to create roads, sewer systems and other infrastructure as part of its agreement with the municipality that green-lighted the Village at Entrada. It started work on the residential project in 2005, but became a casualty of the housing market collapse and struggling to find continued financing before seeking bankruptcy protection and losing the project to foreclosure.

“It was a very common story,” said Pelzer, a Greenspoon Marder shareholder and appellate lawyer. “It was a development that was started in the go-go days of the mid-2000s and hit the brick wall of the recession.”

The city stopped performing site inspections by 2006 and the general contractor stopped work the following year—both citing nonpayment by Priority Developers.

The city contacted Lexon Insurance in 2010 to make a claim under Priority's $7.7 million surety bond in order to complete the project. Pelzer said Lexon requested routine paperwork to document Priority's default, but Cape Coral staff never responded. He said the city did not pursue the bond at that time but instead seemed to focus on securing another developer to complete the subdivision.

In March 2012, a new developer, Coco of Cape Coral LLC, purchased the project for $6.2 million—seven months before the city filed suit against Lexon for breach of contract and declaratory relief. It first joined the suit as an indispensable party but later became plaintiff after the city assigned it the claim.

Coco prevailed at trial, winning $7.3 million in compensatory damages and a companion ruling for $1.2 million in prejudgment interest.

The reversal also spares Lenox from liability for attorneys fees and other potential statutory claims.

Pelzer and Kline raised several issues on appeal, including one that unraveled Coco's victory without the court needing to weigh others. They argued Cape Coral had to bring suit within the five-year statute of limitations, triggered when the city closed its file on the project and marked the permit closed. That starting point created a deadline of Sept. 8, 2012.

The city didn't file suit until October 2012.

“It's one of those where near-misses don't count,” Pelzer said.

The parties disagreed on whether the clock started running the day Cape Coral filed its resolution to sue the insure, the day Lexon formally denied the bond claim, or when the land-use permit expired.

Opposing counsel, Edmond Koester of Coleman Yovanovich & Koester in Naples, is gearing for an appeal.

“Coco is seeking rehearing and to take the case to the Florida Supreme Court,” Koester said. “Coco believes that the city of Cape Coral timely filed the lawsuit, in part, because the development ordinance was not yet breached. The time for performing the work had not yet passed, the original developer filed for Chapter 11 reorganization, and Lexon had not denied the claim.”