Centerstate Bank Central Florida, N.A. v. Krause

Citations: 87 So. 3d 25; 2012 WL 1121380; 2012 Fla. App. LEXIS 5295Docket: No. 5D10-4099

Court: District Court of Appeal of Florida; April 5, 2012; Florida; State Appellate Court

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Centerstate Bank Central Florida, N.A. (CSB) appeals a final summary judgment that declared a note and mortgage from Krause Grove Enterprises, LLC (KGE) to CSB void. CSB contends that James A. Krause and Daphney S. Krause lack standing to challenge this validity. The Krauses owned fifteen acres of agricultural property and entered into a joint venture with Michael Ross and Abraham Wilson to develop it, with an understanding they would receive membership in KGE and share in the profits. They deeded the property to KGE without consideration, but KGE's Articles of Organization did not include the Krauses, listing only Ross and Wilson as members. 

Ross and Wilson executed a promissory note and mortgage encumbering part of the property, with KGE adopting resolutions certifying their authority to bind KGE. A year later, Ross executed a replacement loan agreement, subsequently applying for an additional $700,000 loan, again solely binding KGE without the Krauses’ involvement. After discovering the loans, the Krauses filed suit against Ross and KGE for breach of contract and fraud, also recording a lis pendens on the property. KGE defaulted on the loans, prompting CSB to initiate foreclosure proceedings against KGE, including the Krauses due to their recorded lis pendens. 

The Krauses counterclaimed, asserting the Development Loan was void because Ross lacked authority to execute it alone. CSB moved for summary judgment on standing, which the trial court denied, finding the Krauses had standing and granting their summary judgment that declared the Development Loan unenforceable due to Ross’s lack of authority. This appeal follows, with standing issues subject to de novo review.

To establish standing in litigation, a party must show a direct and articulable interest that would be affected by the case's outcome. This interest must be legally cognizable and not merely conjectural or hypothetical. The determination of standing is based on the nature of the asserted interest and is not subject to a universal rule. The Krauses claim that their recorded lis pendens on the Property grants them standing to contest the validity of a Development Loan, but this assertion is rejected. A lis pendens serves to notify third parties of ongoing litigation and protects the interests of the party that recorded it, but does not create substantive rights in the property itself. The Krauses lack an established interest in the Property; their claims may justify the recording of a lis pendens but do not confer standing to contest the mortgage’s validity. Standing to challenge a mortgage typically belongs to the mortgagor or those with interests adversely affected by it, such as junior mortgagees. The Krauses would need to first successfully establish an interest in the Property through their litigation against Mr. Ross and KGE, which is deemed speculative and insufficient for standing. Generally, only corporations or their owners can contest the authority of corporate officers in mortgage execution.

In Liberty Bank, Trust Co. v. Dapremont, the court determined that only a corporation has standing to challenge the unauthorized acts of its agents regarding corporate property. Citing precedents, it emphasized that creditors do not possess the right to contest such acts because fiduciary duties are owed solely to the corporation, not to its creditors. The Krauses, lacking any ownership interest in KGE and thus being strangers to the Development Loan, were found to have no standing to contest the loan's validity or seek recovery of the Property. Consequently, the trial court's summary judgment was reversed, and on remand, judgment shall be entered in favor of CSB. The case also referenced that KGE was entirely owned by Mike Ross, with internal loan documents confirming this ownership through official state records. The dispute between partners Ross and Wilson was acknowledged as a separate issue. Only the Development Loan's validity was at stake in this appeal.