95-005920 Florida Land Sales, Condominiums, And Mobile Homes vs. Gupta Realty Corporation Status: Closed Recommended Order on Tuesday, August 13, 1996.

Summary: Respondent commingled funds, did not comply with record requirements, and did not maintain proper records in state. Good cause exists for penalties.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF FLORIDA LAND SALES, )

CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 95-5920

)

GUPTA REALTY CORPORATION, )

a New York Corporation, d/b/a )

River Club in the State of Florida, )

)

Respondent. )

____________________________________)

RECOMMENDED ORDER

Pursuant to notice, Don W. Davis, a duly designated hearing officer of the

Division of Administrative Hearings, held a formal hearing in the above-styled

cause on June 26, 1996, in Daytona Beach, Florida.

APPEARANCES

For Petitioner: Janis Sue Richardson, Esquire

Department of Business and

Professional Regulation

Division of Florida Land Sales,

Condominiums, and Mobile Homes

1940 North Monroe Street

Tallahassee, Florida 32399-1007

For Respondent: Avinash Gupta, Pro Se 1/

Gupta Realty Corporation

River Club Condominium Association

3131 South Ridgewood Avenue

South Daytona Beach, Florida 32119

STATEMENT OF ISSUES

The primary issue to be determined in this cause is whether Respondent

committed violations of Chapter 718, Florida Statutes, and Petitioner's

administrative rules, sufficient to justify the imposition of administrative

sanctions by Respondent.

Secondarily, that issue includes a determination of whether Respondent is a

"developer" as that term is defined by Section 718.103(15), Florida Statutes,

and Rule 61B-15.007, Florida Administrative Code.

If Respondent may be considered a developer, then the issues presented are

whether Respondent's failure to disclose in the 1991, 1992, 1993, and 1994

proposed budgets for the River Club Association, Inc. (the Association), each

reserve account as a separate line item, the estimated useful life, the

estimated replacement cost, and the estimated remaining useful life of each item

for which reserves are maintained, and failure to show separately the current

balance in each reserve account as of the date the proposed budgets were

prepared, violates Rule 61B-22.003(1)(e), Florida Administrative Code; whether

Respondent violated Rules 7D-23.004(2)(d)(1992) [now 61B-22.0052 (1993), Florida

Administrative Code], and Section 718.112(2)(f)2, Florida Statutes, by failing

to include statutory reserves in each budget or to obtain a waiver of reserve

funding for each of the years 1991, 1992, 1993, and 1994; whether Respondent

violated Rule 61B-23.004(1)(a)-(d), Florida Administrative Code [now 61B-

22.006(6)(c), (3)(a)1-4], by failing to provide annual financial reports for the

years ending December 31, 1990, 1991, 1992, and 1993 that disclosed the

beginning balance, the amount of assessments collected and placed in each

reserve account during the period covered by the statement, the amount expended

or removed from the account, and the balance in the account covered by each

financial report; whether Respondent violated Rule 61B-23.004(2), Florida

Administrative Code [now 61B-22.006(5)], by failing to separately show the

assessments and all other income received by the Association from the developer

and from all other unit owners in the financial reports for each of the years

1990, 1991, 1992, and 1993; whether Respondent violated Section 718.112(2)(c),

Florida Statutes, by failing to properly notice an October 29, 1990, board of

administration meeting in which a $3,360.00 special assessment and a doubling of

the monthly maintenance fees were considered and approved; whether Respondent

violated Section 718.111(12)(b), Florida Statutes, by failing to maintain the

required official records of the Association within the State of Florida; and

whether Respondent violated Section 718.111(15), Florida Statutes, by failing to

maintain all funds separately in the Association's name.

PRELIMINARY STATEMENT

On or about December 24, 1992, Petitioner received a complaint charging

Respondent with several violations of Chapter 718, Florida Statutes, and various

administrative rules with regard to Respondent's operation of the Association

and Respondent's failure to properly account for the Association's funds.

On October 23, 1995, Petitioner entered a Notice to Show Cause (Notice)

against Respondent for failure to adhere to the statutes and administrative

rules regarding the budgeting and accounting of Association funds, improperly

noticing an October 1990 board meeting at which the developer-controlled board

determined to double the monthly maintenance fees of the unit owners, removing

Association records outside the State of Florida, and commingling Association

funds with a private bank account.

Respondent filed seven motions at the start of the hearing, two of which

were denied at the hearing.

Respondent's Motion to Place Documentation on Record, which requested the

entry into the record of four documents, was granted in part and denied in part

at the final hearing. A letter dated January 23, 1996 from Keith Petteway of

James Moore & Co. and a letter dated January 24, 1996 from Lawrence G. Walters,

Esquire, documents 1 and 2, were admitted. Admission of other documentation

addressed by this motion was denied.

Ruling was reserved on Respondent's remaining four motions. Those

remaining motions are denied at this time for the following reasons.

Respondent's Motion to Accept Guarantee and Dismiss Proceedings is denied

because the document formed a part of prehearing settlement negotiations, was

never authenticated or validated, is not relevant to the issues in this case,

and does not cure any of the violations cited in the Notice to Show Cause.

Section 90.408, Florida Statutes. For the same reason, an "Agreement" document

presented by Respondent is not admissible. Respondent's Motion in Limine, which

requests the dismissal of the case based on a repeal of a rule cited in issues

3 and 4 of the Notice to Show Cause is denied on the grounds that the present

version of the rule and the prior versions are substantively the same.

Respondent had sufficient notice of the nature of the violations to prepare a

defense in this case. For the same reason, Petitioner's oral motion to amend

the Notice to Show Cause to include a citation to the present version of the

rules is granted. Respondent's Motion to Set Aside Proceedings as Respondent

Does Not Qualify as a "Developer" (identified as motion 2) is denied. The

developer status of Respondent is further addressed in the remainder of this

recommended order. Respondent's Motion to Claim Restitution (identified as

motion 6) is treated as a motion for attorney's fees and costs pursuant to

Section 57.111, Florida Statutes, and is denied inasmuch as Respondent has not

prevailed in this matter.

At the final hearing, Petitioner presented the testimony of five witnesses,

two by deposition and three by testimony and entered nineteen exhibits into the

record. Respondent presented the testimony of two witnesses, including himself,

and tendered one exhibit that was not admitted.

The final hearing transcript was filed with the Division of Administrative

Hearings on July 10, 1996. Proposed recommended orders submitted by the parties

have been reviewed and are addressed in the appendix to this recommended order.

FINDINGS OF FACT

1. Petitioner is the Department of Business and Professional Regulation,

Division of Florida Land Sales, Condominiums and Mobile Homes (Division). The

Division is authorized by Section 718.501, Florida Statutes, to enforce and

ensure compliance with the provisions of the Condominium Act and the

administrative rules promulgated by the Division pursuant to Chapter 718,

Florida Statutes. The enforcement powers of the Division relate to the

development, construction, sale, lease, ownership, operation, and management of

residential condominium units. When a complaint is filed with the Division, the

Division is required by Section 718.501(1)(n), Florida Statutes, to investigate

the complaint, inclusive of preparation of an investigative report.

2. Respondent is Gupta Realty Corporation (Respondent), a New York

corporation, registered in the State of Florida to do business in the name of

"River Club."

3. Avinash Gupta and Poornima Gupta are the principals of the Respondent

corporation. Avinash Gupta is the president of Gupta Realty Corporation.

4. Respondent and Avinash and Poornima Gupta own or control forty-six of

forty-eight units in River Club Condominium.

5. Following an investigation conducted by Michael Benz, the Division's

investigator, Respondent was notified by letter from Benz, dated November 8,

1993, that Respondent had violated the statutes and rules subsequently cited in

the Notice to Show Cause and the factual bases supporting Benz's conclusions.

Issue Number 1: Developer Status

6. In February of 1988, Avinash Gupta, a resident of New York, purchased

forty-three of forty-eight units at the River Club Condominium through his

Subchapter, "S" corporation, Gupta Realty Corporation. Poornima Gupta, his

wife, purchased one unit from John Whelton, an individual owner, in March or

April 1994.

7. Avinash Gupta employed Gloria Polinger as an on-site manager to

advertise Respondent's units for lease, show his units to prospective tenants,

execute lease agreements for his units, collect the rents from his tenants, and

arrange for the maintenance of his units. Gloria Polinger also kept the books

on his River Club units, as well as Avinash Gupta's other Florida rental

properties.

8. Respondent is advertising units for lease and has been leasing units

from the date of their initial purchase through the present.

9. River Club Association, Inc. (Association), is a condominium

"association" incorporated in this state. River Club Condominium is located in

South Daytona, Florida.

10. Respondent controlled the Association's board of administration at all

times relevant to the issues raised by the Division's Notice to Show Cause and

these proceedings.

11. Section 718.103(15), Florida Statutes, defines a developer to include

persons "who offer condominium parcels for sale or lease in the ordinary course

of business."

12. Rule 61B-15.007, Florida Administrative Code, defines a developer to

include "successor" developers who sell or lease condominiums in the course of

business.

13. Respondent is a developer within the definition set forth in both

Section 718.103(15), Florida Statutes, and Rule 61B-15.007, Florida

Administrative Code.

Issue Number 2: Budgets - Reserve Disclosures

14. Avinash Gupta and Gloria Polinger prepared the Association's

accounting records. Avinash Gupta budgeted and expended $30,000 a year in the

Association's financial records for the accounting work. As established by

testimony of Avinash Gupta, $30,000 a year was budgeted for accounting services

and "was allocated" over to Gupta Realty Corporation. The year end financial

reports show that the budgeted amount was spent.

15. The budgets for the Association for 1991, 1992, 1993, and 1994 list

only operational expenses. None of the budgets list reserve items nor do the

budgets include any reserve disclosures.

16. Respondent failed to disclose in the 1991, 1992, 1993, and 1994

proposed budgets for the Association each reserve account as a separate line

item, the estimated useful life, the estimated replacement cost, and the

estimated remaining useful life of each item for which reserves are maintained;

and failed to show separately the current balance in each reserve account as of

the date the proposed budgets were prepared.

Issue Number 3: Reserve Funding

17. The appraisal report prepared for Respondent's purchase of the units

documents that reserves were established at the time of sale and that it was

anticipated that the reserve funds would continue to be funded. As stated in

that document, "reserves for the common area will be calculated for 47 units."

Reserves for replacement were to include such items as "roof covering, air-

conditioning equipment, etc. . . . The reserve items appropriate to the subject

are roof covering, and asphalt paving (topping) for the 47 units." 2/ An

Association reserve fund existed in 1988.

18. The Association's budgets for 1991, 1992, 1993, and 1994 do not

include any listing of reserves.

19. The minutes of Association meetings for 1991, 1992, and 1993 fail to

document that a vote to fund or waive reserves was ever taken.

20. In the letters to the other unit owners following the meetings at

which the budgets were adopted by Respondent, the management acknowledges that

reserves are required and insists that the unit owners increase their monthly

maintenance fees to pay for these reserves. In a November 16, 1993 letter

addressed to the Division's investigator, Respondent admits that reserves were

not funded and states:

The only reserve that we maintain is the

reserve for contingencies and deferred

expenditures, like roof and pavement.

resurfacing and building walls, painting.

We do not maintain any reserve for capital

expenditures with any predictable useful

life or replacement cost. (p. 1). . .The

reserve account was inactive since 1990 as

there was no funding as stated above. It

was immaterial to mention about the inactive

reserve account in the financial statements.

21. The meeting minutes for 1994 shows that Avinash Gupta and Poornima

Gupta voted to waive reserves. These minutes show that a majority of the non-

developer unit owners did not vote to waive reserves.

22. Respondent failed to fully fund statutory reserves, or obtain a waiver

of reserve funding, for each of the years 1991, 1992, 1993, and 1994.

Specifically, Respondent stated in a November 2, 1995 to Division personnel:

[t]here is no need of any reserve as the

amount is insignificant. We pay all our

expenses as they are incurred. As stated

in paragraph 2 above we were paying all our

expenses, contingencies and deferred [sic]

expenditures on a current basis as they are

incurred. The money we set aside in the

reserve account by our own 100 percent

contribution was left in there. We did

not add or take out any money from the

account. Since the account was inactive it

was immaterial to mention about the inactive

reserve account in the financial statements.

Issue Number 4: Financial Report Reserve Disclosures

23. As noted in previous findings above, the appraisal report prepared for

Respondent's purchase of the units established reserves at the time of sale and

it was anticipated that the reserve funds would continue to be funded. An

Association reserve fund existed in 1988. Not only did none of the financial

reports for 1990, 1991, 1992, and 1993 include any listing of reserves, none of

the reports included required reserve disclosures.

24. Respondent failed to provide annual financial reports for the years

ending December 31, 1990, 1991, 1992, and 1993, which disclosed the beginning

balance, the amount of assessments collected and placed in each reserve account

during the period covered by the statement, the amount expended or removed from

the account, and the balance in the account covered by the financial report.

Issue Number 5: Financial Report Income Disclosures

25. Respondent owns or controls forty-six units at River Club Condominium.

Unit owners pay maintenance fees of $90.00 a month per unit.

26. Gloria Polinger kept a ledger of the maintenance fees paid by the non-

developer unit owners, but she did not keep records of the fees paid by the

developer (Respondent).

27. Maintenance fee assessments are recorded as income to an association.

The financial reports for 1990, 1991, 1992, and 1993, do not show any income or

receipts of any kind.

28. Respondent failed to separately show the assessments and all other

income received by the Association from the developer and from all other unit

owners in the financial reports for each of the years 1990, 1991, 1992, and

1993.

Issue Number 6: Notice of Board Meeting

29. A letter to unit owners, dated October 29, 1990, states, in part, as

follows:

Please be advised that the condominium

assessments in the amount of $90.00 per

month have been insufficient to compensate

the Riverclub [sic] Condominium Association

for the common expenses for which each

association member is responsible in equal

proportions. The average actual common

expenses per unit owner have amounted to

$180.00 since February 1, 1988. In addition,

the association is required to assess deferred

maintenance reserves in the amount of $15.00

per month which it has not collected since

February 1, 1988.

This letter shall serve as a formal demand

for a special assessment in the amount of

$3,360.00 which represents the unreimbursed

amount of $105.00 per month x 32 months.

30. One individual unit owner, John Whelton, who sold his unit to Poornima

Gupta in 1994, testified that no notice of an association meeting at which a

budget or increase in maintenance fees was discussed was sent to him prior to

receiving the October 29, 1990 notice. Whelton also stated that he had not

received any budgets for association operational expenses prior to receiving

this notice.

31. Despite Gloria Polinger's testimony that she sent a notice for a 1990

meeting, no notice was ever produced by Respondent, and Polinger's testimony in

this regard is not credited.

32. Meeting notices are official association records and must be kept by

the Association. Absent credible testimony or documentation of such notice, it

is found that Respondent failed to properly notice the October 29, 1990, board

of administration meeting at which a $3,360.00 special assessment and a doubling

of the monthly maintenance fees were considered and approved.

Issue Number 7: Out-of-State Records

33. The River Club Maintenance Account opened by Avinash Gupta has a New

York address.

34. Gloria Polinger testified that certain accounting and tax records were

mailed to Avinash Gupta at his New York address. Avinash Gupta also admitted

that some records were sent to him at his New York address. Records of the bank

account where unit owner maintenance checks were deposited were unavailable to

the Division's investigator during a June 22, 1993 site visit by the

investigator because the records were with Gupta in New York.

35. The testimony of Polinger on this point, and that of Investigator

Benz, establishes that Respondent failed to maintain required official records

of the Association within the State of Florida. Specifically, on or about June

22, 1993, Respondent failed to maintain within the State of Florida, the

Association's bank records, including but not limited to, canceled checks and

monthly account statements for both of the Association's operating and reserve

accounts, as well as tax bills for the Association.

Issue Number 8: Commingling

36. From the beginning of Respondent's control of the Association, unit

owners were directed to pay their condominium assessments to Respondent's Gupta

Realty Corporation account. When the unit owners continued to write their

checks to River Club, Respondent filed a fictitious name affidavit changing its

name to River Club for purposes of doing business in this state.

37. Rent checks from Avinash Gupta's units at River Club and his other

Florida properties were then deposited into the Gupta Realty Corporation

account. The maintenance fees paid by the unit owners of the Association were

also deposited to this same account. Gloria Polinger paid the bills for

maintenance work done on Avinash Gupta's units from this account, paid the

Association's utility bills and maintenance bills from this account, paid her

salary from this account, and paid bills related to Avinash Gupta's other

Florida properties from this same account.

38. Respondent failed to maintain all funds separately in the

Association's name. Specifically, Respondent commingled funds of the River Club

Association, Inc. into a bank account opened in the names of Gloria Polinger and

Poornima Gupta, and commingled funds in its corporate account held in the name

of River Club, the fictitious name under which Gupta Realty Corporation does

business in Florida.

Mitigation

39. Avinash Gupta testified that the Respondent has paid more than its

share of the common expenses, has lost money on its investment, and that the

Division's enforcement action is "frivolous."

40. Avinash Gupta recorded approximately $30,000 in accounting fees on the

annual budgets for the Association. Those funds were "allocated over" to

Respondent, according to Gupta, to pay accounting fees. Gloria Polinger

testified that Avinash Gupta, who is or has been a certified public accountant,

was the Association's accountant.

CONCLUSIONS OF LAW

41. The Division of Administrative Hearings has jurisdiction over this

subject matter and the parties to this action pursuant to Section 120.57(1),

Florida Statutes.

42. The Division is the agency authorized by law to enforce Chapter 718,

Florida Statutes. The Division's interpretation of its regulatory statutes

"will normally be accorded great deference, unless there is clear error or

conflict with the intent of a statute." Sans Souci v. Division of Fla. Land

Sales and Condo., Dep't of Bus. Reg., 421 So. 2d 623, 626 (Fla. 1st DCA 1982);

Bishop Assoc. Ltd. Partnership v. Belkin, 521 So. 2d 158, 163 (Fla. 1st DCA

1988) (deferring to Division's expertise in regulating condominiums).

43. Pursuant to Section 718.501(1)(d), Florida Statutes, the Division is

authorized to pursue enforcement proceedings against any developer, association,

officer, or member of a board of administration. The Division is authorized to

impose civil penalties against a developer, association, officer, or board

member for any violation of Chapter 718, Florida Statutes, or any rule

promulgated thereto.

44. River Club Condominium Association is an "association" as defined by

Section 718.103(2), Florida Statutes.

Issue Number 1: Developer Status

45. The Division maintains that Respondent is a "developer" as that term

is defined by Section 718.103(15), Florida Statutes, and Rule 61B-15.007(1)(b),

(2), Florida Administrative Code.

46. A "developer" is one "who creates a condominium or offers condominium

parcels for sale or lease in the ordinary course of business." Section

718.103(15), Florida Statutes. A "successor developer" is one "who succeeds to

the interests of a developer by sale, lease, assignment, foreclosure of a

mortgage or other transfer and who offers condominium parcels for sale or lease

in the ordinary course of business." Rule 61B-15.007(1)(b), Florida

Administrative Code. Respondent purchased its units in bulk from the creating

developer in February 1988. Respondent employed an on-site manager to advertise

its units for lease in the local newspaper, show units to prospective tenants,

execute leases for the rental of its units, collect the monthly rent checks for

its units, and arrange for the maintenance of its units. Respondent is a

developer. Bishop Assoc. Ltd. Partnership v. Belkin, 521 So. 2d 158 (Fla. 1st

DCA 1988).

47. The Division has jurisdiction over Respondent for the purpose of

enforcing Chapter 718, Florida Statutes.

48. During all times at issue, Respondent controlled the Association.

Respondent is responsible for all violations occurring while it controlled the

Association. Section 718.301(5), Florida Statutes, provides as follows:

If, during the period prior to the time that

the developer relinquishes control of the

association pursuant to subsection (4), any

provision of the Condominium Act or any rule

promulgated thereunder is violated by the

association, the developer is responsible

for such violation and is subject to the

administrative action provided in this chapter

for such violation or violations and is liable

for such violation or violations to third

parties. This subsection is intended to

clarify existing law.

Issue Number 2: Budgets-Reserve Disclosures

49. Rule 61B-22.003(1)(e), Florida Administrative Code, provides that each

condominium association budget shall:

Include a schedule stating each reserve account

for capital expenditures and deferred maintenance

as a separate line item with the following minimum

disclosures:

1. The total estimated useful life of the asset;

2. The estimated remaining useful life of the

asset;

3. The estimated replacement cost or deferred

maintenance expense of the asset;

4. The estimated fund balance as of the begin-

ning of the period for which the budget will be

in effect; and

5. The developer's total funding obligation,

when all units are sold, for each converter

reserve account established pursuant to section

718.618, Florida Statutes, if applicable.

50. Respondent's failure to disclose in the 1991, 1992, 1993, and 1994

proposed budgets for the River Club Association, Inc., each reserve account as a

separate line item, the estimated useful life, the estimated replacement cost,

and the estimated remaining useful life of each item for which reserves are

maintained, and failure to show separately the current balance in each reserve

account as of the date the proposed budgets were prepared, violates Rule 61B-

22.003(1)(e), Florida Administrative Code. Each violation for each year

constitutes a separate violation of the rule.

Issue Number 3: Reserve Funding

51. Section 718.112(2)(f)2, Florida Statutes, provides, in pertinent part,

as follows:

In addition to annual operating expenses, the

budget shall include reserve accounts for

capital expenditures and deferred maintenance.

These accounts shall include, but are not limited

to, roof replacement, building painting, and

pavement resurfacing, regardless of the amount

of deferred maintenance expense or replacement

cost, and for any other item for which the

deferred maintenance expense or replacement

cost exceeds $10,000. . . .This subsection does

not apply to budgets in which the members of an

association have by a majority vote at a duly

called meeting of the association, determined

for a fiscal year to provide no reserves or

reserves less adequate than required by this

subsection. However, prior to turnover of

control of an association by a developer to unit

owners other than a developer pursuant to s.

718.301, the developer may vote to waive the

reserves or reduce the funding of reserves for

the first 2 years of the operation of the

association, after which time reserves may only

be waived or reduced upon the vote of a majority

of all nondeveloper voting interests voting in

person or by limited proxy at a duly called

meeting of the association. If a meeting of

the unit owners has been called to determine to

provide no reserves or reserves less adequate

than required, and such result is not attained

or a quorum is not attained the reserves included

in the budget shall go into effect.

52. Rule 7D-23.004(2)(d), Florida Administrative Code, [now Rule 61B-

22.0052 (1993)] provides that "[r]eserves . . . are common expenses and must be

fully funded unless properly waived or reduced." See also Rule 61B-22.0052,

Florida Administrative Code (1993) ("[r]eserves included in the adopted budget

are common expenses and must be fully funded unless properly waived or

reduced."). The legislature requires condominium associations to maintain

reserves for at least three categories of expenses: roof replacement, pavement

resurfacing, and building painting. Section 718.112(2)(f)2, Florida Statutes.

As noted above, these reserves can only be waived by members other than the

developer. If members other than the developer do not attend a meeting to vote

on reserves, then the reserves in the budget go into effect.

53. Respondent violated Rule 7D-23.004(2)(d)(1992) [now Rule 61B-22.0052

(1993)], Florida Administrative Code, and Section 718.112(2)(f)2, Florida

Statutes, by failing to fully fund statutory reserves, or obtain a waiver of

reserve funding, for each of the years 1991, 1992, 1993, and 1994. Each failure

constitutes a separate violation of those provisions.

Issue Number 4: Financial Report Reserve Disclosures

54. Respondent violated Rule 61B-23.004(1)(a)-(d) [now 61B-22.006(c),

(3)(a)1-4], Florida Administrative Code, by failing to provide annual financial

reports for the years ending December 31, 1990, 1991, 1992, and 1993, which

disclosed the beginning balance, the amount of assessments collected and placed

in each reserve account during the period covered by the statement, the amount

expended or removed from the account, and the balance in the account covered by

the financial report. Each violation for each year constitutes a separate

violation of the rule.

55. Rule 61B-23.004(1)(a)-(d),Florida Administrative Code, 3/ requires

the financial statements to contain the following disclosures "regardless of

whether reserves have been waived" for the period covered by the statement:

(a) Each reserve account shall be identified,

and each such account shall appear as a line item;

(b) As to each reserve account, the beginning

balance and the amount of assessments collected

and placed in that account during the period

covered by the statement shall be shown;

(c) As to each reserve account, the amount

expended or removed from that account shall be

shown, including but not limited to transfers to

other association accounts; and

(d) As to each reserve account, the balance

in that account at the end of the period covered

by the financial report shall be shown.

56. Respondent failed to include the required disclosures in any of the

financial reports. The financial reports are no more than a listing of the

operational expenses of the Association broken down into three categories:

estimated, actual, and variance (the difference between the estimated and

actual). The financial reports do not disclose the income from the monthly

maintenance fees paid by the unit owners and the developer (Respondent) into the

Association's account. The financial reports do not include any of the required

reserve disclosures. It is impossible for other unit owners to determine the

financial health of their association based only upon a sketchy itemization of

an association's operational expenses. This is even more troublesome when it is

considered that this Association's expenses have been "separated" out by

Respondent and Polinger, the manager, from all the other expenses paid from a

single account used to pay all of Respondent's bills for all of Respondent's

Florida properties.

57. The Association has lien rights against each unit for the failure to

fully pay assessments when they are due and owing. Section 718.116, Florida

Statutes. To allow a developer to take full control of an association's

financial accounts, confuse an association's finances with its other holdings,

and fail to disclose an association's financial activity within those accounts,

places the other unit owners at the mercy of the developer, who controls the

association and, thus, controls the lien rights on each owner's unit. The

statute and rules regarding the disclosure of an association's accounts must be

strictly adhered to by the Association in this instance and the controlling

developer in order to protect every owner's interest. On the other side of the

coin, a developer who has fully complied with the accounting procedures, is

protected when a unit owner fails to pay his or her proportionate share of

expenses. The developer then has a clear right to protect its investment by

foreclosing on the unit. Furthermore, the developer can clearly show any

overpayment of assessments and place the overpayment against any liability found

to be due from it for the common expenses at the time of turnover of control.

58. The developer-controlled board is still obligated to properly propose

and adopt annual budgets that cover an association's expenses, provided that a

developer-controlled "board shall not impose an assessment for any year greater

than 115 percent of the prior fiscal or calendar year's assessment without

approval of a majority of all the voting interests." Section 718.112(2)(e),

Florida Statutes.

59. Without adequate financial reports, it is impossible to determine who

is liable for common expenses and in what amount. Respondent claims to have

provided the only funding for a reserve account that by Respondent's own

admission is "inactive." This does not excuse Respondent from complying with

the statute and rule regarding the proper preparation of financial reports.

60. Respondent budgeted approximately $30,000 in salary for preparation of

the Association's accounting records, which includes the subject financial

reports. 4/ That money was subsequently paid over to Respondent. There was

sufficient funds budgeted to have a certified public accountant familiar with

the preparation of condominium financial reports and budgets to do so.

Respondent has failed to show any mitigating circumstances that would allow him

to avoid the clear statutory and rule directives for preparation of the

Association's financial reports.

Issue Number 5: Financial Report Income Disclosures

61. Respondent violated rule 61B-23.004(2) [now 61B- 22.006(5)], Florida

Administrative Code, by failing to separately show the assessments and all other

income received by the Association from the developer from all other unit owners

in the financial reports for each of the years 1990, 1991, 1992, and 1993. Rule

61B-23.004(2), Florida Administrative Code, 5/ provides as follows:

The annual financial report of actual receipts

and expenditures required by Section 718.111(13),

Florida Statutes, shall show separately assess-

ments and all other income received by the

association from the developer and from all

other unit owners.

Each year constitutes a separate violation of the rule.

62. The financial reports only show certain operational expenses and do

not include any statement of Association income. The monthly assessments paid

by the unit owners other than the developer are not shown, nor are any

assessments paid by the developer (Respondent) shown. These reports only tell

half the financial story for the Association. These reports make it appear that

the Association has only expenses and no income to meet those expenses.

Respondent claims that it has paid all of the Association's expenses as they

come due. It is not possible to verify this from the financial reports. It has

also been established that the other unit owners have consistently and timely

paid their share of the common expenses. The Respondent, who owns or controls

forty-six of forty-eight units, is responsible for paying the assessments on

those units. Payment of those assessments are the Respondent's share of the

common expenses. Accurate financial reports would show such income. Respondent

has not offered any valid mitigation for its failure to prepare adequate

financial reports.

Issue Number 6: Notice of Board Meeting

63. Respondent violated Section 718.112(2)(c), Florida Statutes, by

failing to properly notice a board of administration meeting, held on or about

October 29, 1990, at which a $3,360.00 special assessment and a doubling of the

monthly maintenance fees were considered and approved. Section 718.112(c),

Florida Statutes, provides in pertinent part as follows:

[W]ritten notice of any meeting at which

nonemergency special assessments . . .will

be considered shall be mailed or delivered

to the unit owners and posted conspicuously

on the condominium property not less than 14

days prior to the meeting. Evidence of

compliance with this 14-day notice shall be

made by an affidavit executed by the person

providing the notice and filed among the

official records of the association.

64. A copy of the meeting notice at which the special assessment was

passed is required to be kept by the Association. Section 718.111(12)(a)6,

Florida Statutes. Absence of the notice in the official records is presumptive

proof that no notice was ever mailed or delivered to the unit owners. Section

90.803(7), Florida Statutes. Neither Avinash Gupta nor his on-site manager

Gloria Polinger could explain its absence. Whelton testified that notice of the

October 1990 meeting was never sent to him. The Department's investigator

testified that the notice was not in the Association's files. Avinash Gupta has

failed to provide a copy of the notice. Therefore, the fact that no notice was

sent is established.

65. This was a very important meeting to the unit owners other than the

developer. Respondent decided that the monthly assessment being paid by the

other unit owners was not enough to cover the Association's expenses.

Respondent, along with its on-site manager, decided to increase the monthly

expenses from $90 a month to $195 per month. This was done without notice to

the other unit owners that an increase in monthly maintenance fees was being

considered. Further, this unilateral action was taken without any valid

accounting being given for the Association's reserve accounts and income.

Respondent has not offered any valid mitigation for its failure to properly

notice an association meeting at which it unilaterally decided to more than

double the other unit owners' monthly assessments. 6/

Issue Number 7: Out-of-State Records

66. Respondent violated Section 718.111(12)(b), Florida Statutes, by

failing to maintain the required official records of the Association within the

State of Florida. Specifically, on or about June 22, 1993, Respondent failed to

maintain within the State of Florida, the Association bank records, including

the monthly account statements for the River Club bank account containing the

Association's reserve funds, and certain tax bills. Section 718.111(12)(b),

Florida Statutes, provides that "[t]he official records of the association shall

be maintained within the state." The purpose of this statute is to ensure that

unit owners have access to an association's books and records. This is not

possible if an association's books and records are taken out of the state. The

statute is mandatory, not discretionary.

Issue Number 8: Commingling

67. Respondent violated Section 718.111(15), Florida Statutes, by failing

to maintain all funds separately in the Association's name. Specifically,

Respondent commingled funds of the River Club Association, Inc., into a bank

account opened in the names of Gloria Polinger and Poornima Gupta, and

commingled funds in its corporate account held in the name of River Club, which

is the fictitious name under which Gupta Realty Corporation does business in

Florida. Section 718.111(15), Florida Statutes, provides, in pertinent part, as

follows:

All funds shall be maintained separately

in the association's name. Reserve and

operating funds of the association shall

not be commingled.

68. This is perhaps the most serious of the violations listed. Respondent

ran its real estate investments, including the units it owned at River Club

Condominium, as though these properties were all rental properties and a part of

its private corporate holdings, without any regard for River Club's status as a

condominium. The Association's funds were lumped together with Respondent's

funds for its other properties. The rent checks from Respondent's River Club

units were deposited to this account. The monthly assessments paid by the other

unit owners were deposited to this account. Respondent's manager paid the

expenses for its other Florida properties from the same account used to pay the

Association's expenses. The manager paid the maintenance expenses on

Respondent's River Club rental units from this same account.

69. Clearly, the purpose of the statute prohibiting commingling of

association funds with any other funds is to keep an association's books and

accounts unmuddied by the accounts of other entities. Maintenance of separate

association accounts is mandatory, not discretionary. Respondent has clearly

committed this violation.

70. There is significant potential harm in allowing violations of this

statutory prohibition, such as an association's not having access to its funds

if the developer's accounts were frozen, e.g. death of account holder, or

succession in board leadership, inability to track accounts for unit owners, and

diversion of unit owner funds for non-association purposes by the developer.

Respondent has not offered any adequate mitigation for this violation.

Requested Relief

71. The Division is authorized by Section 718.501(1)(d)2, Florida

Statutes, to take such affirmative action as necessary to "carry out the

purposes of" the Condominium Act, Chapter 718, Florida Statutes. Specifically,

the Division seeks compliance by Respondent with the statutes and rules

governing a developer's control of a condominium association, inclusive of

Respondent's calling an election for a board of directors to effect a turnover

of control of the board to non-developer unit owners and the performance of an

audit of the Association's accounts for the time Respondent controlled the

Association to the present. Such an audit must be done by an independent

certified public accountant and comply with the accounting requirements of

Section 718.301, Florida Statutes, 7/ and Rule 61B-22.0062, Florida

Administrative Code. See Bishop Assoc. Ltd. Partnership v. Belkin, 521 So. 2d

158 (Fla. 1st DCA 1988) (upholding the Division's requiring successor developer

that was leasing its units to turnover control to unit owners other than the

developer as comporting with the statutory scheme set out in Section 718.301,

Florida Statutes).

72. Once a proper audit has been completed, the Division seeks to require

Respondent to pay to the Association funds sufficient to cover any liability

found to be due from the developer to the Association.

73. Finally, the Division is seeking a penalty of $43,000 for the

violations listed. The maximum penalty that could be assessed by the Division

is $5,000 per violation. Section 718.501(1)(d)4, Florida Statutes. Respondent

has a minimum of nineteen violations. The Division is entitled to seek a total

of $95,000 in penalties from Respondent.

RECOMMENDATION

Based upon the findings of fact and the conclusions of law, it is,

RECOMMENDED:

That a final order be entered requiring:

a.) Respondent to immediately begin complying with Chapter 718, Florida

Statutes, and applicable administrative rules, specifically, to immediately

unbundle the association's funds from its corporate funds and establish the

required accounts in the name of River Club Association, Inc.;

b.) Respondent to have an audit of the association accounts performed by

an independent certified public accountant in accordance with the statutes and

rules;

c.) Hold an election for directors to the board of the association within

60 days;

d.) Imposition of a penalty of $43,000 upon Respondent, payable to the

Division of Florida Land Sales, Condominiums, and Mobile Homes Trust Fund within

30 days of the rendition of a final order in this case, upon terms and

conditions to be determined by the Division.

DONE and ENTERED this 13th day of August, 1996, in Tallahassee, Leon

County, Florida.

___________________________________

DON W. DAVIS, Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone] SUNCOM 278-9675

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of August, 1996.

ENDNOTES

1/ On May 21, 1996, Robert Riggio, Esquire, on behalf of Respondent, and

Petitioner's counsel participated in a telephone conference hearing to discuss a

continuance of the formal hearing to allow the Respondent time to conclude a

settlement agreement. Mr. Riggio did not appear at the final hearing.

2/ Based upon his observed demeanor at final hearing, Avinash Gupta's testimony

that he did not see the appraisal report until after closing on his purchase at

$1.8 million dollars is not credited. Further, the report indicates that he was

placed on notice that reserves were being funded for this condominium.

3/ This Rule was repealed November 14, 1995; it was renumbered and re-adopted

as part of Rule 61B-22.006(3)(a)1-4 as applied to this case by Rule 61B-

22.006(6)(c), Florida Administrative Code.

4/ Note that Section 718.112(2)(a), Florida Statutes provides that officers and

directors are to serve without compensation unless the bylaws provide otherwise.

This was not an issue raised by the Notice.

5/ This Rule was repealed in November 1995; the substantive requirements of

this rule were readopted and incorporated as Rule 61B-22.006(5), Florida

Administrative Code.

6/ Note that Section 718.112(2)(e), Florida Statutes, requires a board that has

the authority to adopt a proposed budget to properly notice and call a special

unit owner meeting to consider a budget that increases assessments by 115

percent over the prior year.

7/ Respondent is not holding its units for sale, but for lease, so the

exemption for a developer who is offering its units for sale, does not apply.

APPENDIX

In accordance with provisions of Section 120.59, Florida Statutes, the following

rulings are made on the proposed findings of fact submitted on behalf of the

parties.

Petitioner's Proposed Findings of Fact

(all paragraph's of Petitioner's proposed factual findings were numbered

beginning with 18 and continuing through 62.)

18.-30. Accepted, not verbatim.

31. Last sentence rejected as conclusion of law. Remainder accepted.

32.-36. Accepted, though not necessarily verbatim.

37. Last sentence rejected as conclusion of law, remainder accepted.

38.-39. Accepted, though not necessarily verbatim.

40. Last sentence rejected as conclusion of law, remainder accepted.

41.-44. Accepted.

45. Last sentence rejected as conclusion of law, remainder accepted.

46.-59. Accepted.

60.-62. Rejected, subordinate to HO findings or argumentative.

Respondent's Proposed Findings of Fact

1.-3. Accepted.

4.-9. Rejected, subordinate to HO findings.

10. Rejected, unnecessary to result reached.

11. Rejected, subordinate to HO findings or argumentative.

COPIES FURNISHED:

Janis Sue Richardson, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1030

Avinash Gupta

Gupta Realty Corporation

River Club Condominium Association

3131 South Ridgewood Avenue

South Daytona Beach, Florida 32119

W. James Norred, Acting Director

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1030

Lynda L. Goodgame, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1030

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the final order in this case.