Havoco of America, Ltd. v. Hill
2001 Fla. LEXIS 1237, 790 So.2d 1018, 26 Fla. L. Weekly Supp. 416 (2001)
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Rule of Law:
Article X, Section 4 of the Florida Constitution provides a broad homestead exemption that protects a debtor's home from creditors, even if the debtor acquired the homestead using non-exempt funds with the specific intent of hindering, delaying, or defrauding those creditors, as such intent does not constitute one of the three enumerated exceptions to the exemption.
Facts:
- In 1981, Havoco of America, Ltd. (Havoco) filed a lawsuit against Elmer Hill (Hill) claiming damages for fraud, conspiracy, tortious interference with contractual relations, and breach of fiduciary duty related to a coal supply contract with the Tennessee Valley Authority.
- Nine years later, on December 19, 1990, a jury found in favor of Havoco on all claims against Hill and awarded Havoco $15,000,000 in damages.
- The judgment against Hill became enforceable on January 2, 1991.
- On December 30, 1990, just before the judgment became enforceable, Hill, a long-time resident of Tennessee, purchased real property in Destin, Florida (Destin Property) for approximately $650,000 in cash.
- Hill claimed that he intended to make the Destin Property his retirement home.
- On July 22, 1992, Hill filed a voluntary Chapter 7 bankruptcy petition, claiming the Destin Property as exempt homestead under article X, section 4 of the Florida Constitution.
Procedural Posture:
- Havoco of America, Ltd. (Havoco) sued Elmer Hill (Hill) in federal district court (implied from reference to Seventh Circuit appeals) for fraud, conspiracy, and other claims.
- A jury in the federal district court found for Havoco and awarded $15,000,000 in damages against Hill.
- Hill filed a voluntary Chapter 7 bankruptcy petition in federal bankruptcy court.
- Havoco objected in bankruptcy court to Hill's claim that his Destin, Florida property was exempt as a homestead.
- The bankruptcy court overruled Havoco's objections, concluding Havoco had not proven Hill acted with specific intent to defraud creditors when purchasing the property.
- The federal district court reversed the bankruptcy court, finding error in the bankruptcy court's premise that specific intent to defraud could be a ground to deny the homestead exemption, and remanded for a determination of Florida law on converting nonexempt property to exempt property.
- On remand, the bankruptcy court held that Florida law did not prohibit Hill from converting nonexempt assets into a homestead, even with intent to place them beyond creditors' reach, and that Florida's fraudulent conveyance statute did not affect the homestead exemption.
- The federal district court affirmed the bankruptcy court's decision on remand.
- The United States Court of Appeals for the Eleventh Circuit then certified a question of Florida law to the Supreme Court of Florida regarding the homestead exemption.
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Issue:
Does Article X, Section 4 of the Florida Constitution exempt a Florida homestead, where the debtor acquired the homestead using non-exempt funds with the specific intent of hindering, delaying, or defrauding creditors in violation of Florida's fraudulent transfer statutes?
Opinions:
Majority - Shaw
Yes, Article X, Section 4 of the Florida Constitution exempts a Florida homestead, even if the debtor acquired it using non-exempt funds with the specific intent of hindering, delaying, or defrauding creditors. The Florida Supreme Court emphasized that the homestead exemption is to be liberally construed to protect the family home, while its enumerated exceptions must be strictly construed. The Constitution specifies only three exceptions to the homestead exemption: for taxes and assessments, for obligations contracted for the purchase, improvement, or repair of the homestead, or for labor performed on the realty. Intent to defraud creditors is not among these three exceptions, either expressly or by reasonable implication. The court reviewed prior cases, such as Butterworth v. Caggiano and Tramel v. Stewart, which affirmed the strict construction of the exceptions, even in cases of criminal forfeiture or properties acquired through illegal means. The court distinguished its equitable lien jurisprudence (e.g., Palm Beach Savings & Loan Ass'n v. Fishbein, Jones v. Carpenter), explaining that equitable liens have been imposed only where funds obtained through fraud or egregious conduct were used to invest in, purchase, or improve the homestead, thus aligning with or providing subrogation under the existing constitutional exceptions related to purchase or improvement. Mere intent to shield non-exempt assets from creditors by converting them into a homestead does not fall into these categories. Finally, the court concluded that state statutes, such as Florida Statutes §§ 726.105, 222.29, and 222.30, which address fraudulent transfers, cannot alter, contract, or enlarge the constitutionally provided homestead exemption or its exceptions, as the legislature is powerless to affect constitutional rights through statutory enactments.
Dissenting - Anstead
Justice Anstead dissented, but did not provide a written opinion.
Analysis:
This case significantly reinforces the strength and breadth of Florida's homestead exemption, establishing that it serves as an almost absolute protection for debtors, even against claims of fraudulent asset conversion. By strictly construing the constitutional exceptions and refusing to 'judicially create' a fourth exception for fraudulent intent, the Florida Supreme Court affirmed a policy that prioritizes the protection of the family home above the claims of creditors, regardless of the debtor's motives for acquiring the homestead. This ruling creates a powerful incentive for debtors to convert non-exempt assets into homestead property, potentially limiting creditors' recourse and inviting debate on the equitable implications of such a broad protection.
