Cinnamon Beach Condo Assoc Gets $3.2M in Settlement Agreement

Condo owners are provided details in message from their president. Settlement of the $14M lawsuit will mitigate the uncertainty that has hindered resale of units since March.

Palm Coast, FL – December 10, 2014 – The president of the Cinnamon Beach Condominium Association yesterday released details of the Association’s settlement of a $14M construction defects lawsuit against the condominium developer, Centex/Pulte. The lawsuit has cast a shadow over the resale market for the 275 unit condominium complex.

The eleven condo buildings which overlook the Atlantic Ocean at Cinnamon Beach were completed between 2003 and 2005, during the real estate boom. A popular vacation destination, they are within the Hammock Dunes Community Development District which includes Island Estates, Hammock Dunes, Yacht Harbor Village and Hammock Beach.

GoToby.com has obtained a copy of the president’s latest message. It is reprinted here:

CINNAMON BEACH CONDOMINIUM ASSOCIATION – PRESIDENT'S MESSAGE

December 9, 2014

Dear Fellow Cinnamon Beach Owners:

Centex/Pulte Construction Defect Lawsuit Settled

In the early morning hours of December 5, after a two-day marathon mediation session, your board of directors signed a term sheet that settles our construction defect lawsuit with Centex/Pulte, our developer. Centex had in turn sued its subcontractors and their insurance companies. When the mediation began the morning of December 3, the collective defense had over 30 lawyers and representatives totaling over 110 people in attendance—this was the opposition your Association faced.

This lawsuit was filed in April, 2010 by your board of directors, led extremely ably by CBCOA VP John McCaugherty, and assisted by MAY Management and our attorneys. In the summer of 2012 your board felt that we would settle this case during several negotiation sessions with Centex/Pulte but unfortunately we came to an impasse with them. This led Centex/Pulte to file suit against 17 subcontractors and their respective insurance companies. This significantly complicated the lawsuit and caused a 2+ year delay culminating at the court-required mediation last week. Without your approval in April (over 90% in favor) of the special assessment we would not have been able to continue our pursuit of this case. I thank you all for that vote of support.

The settlement means that there is no longer any need for the trial in Flagler County court which was scheduled for 4 weeks in May, 2015.

Settlement Amount

Pulte/Centex will pay our association $3,200,000 on January 30, 2015, this sum will allow the association to repair all confirmed life safety issues along with several other items.

Legal Fees Savings

In addition to receiving the $3.2 million, the estimated $400,000 of legal fees that you approved in the special assessment vote to take the case, if necessary, from an unsuccessful mediation through the scheduled May, 2015 trial will not be incurred. So, as compared to an award at trial, the mediation settlement is worth $3.6 million to our association (and further, this does not include the savings of the cost of defending our association in the appeal of a trial court award had there been a successful outcome in the trial.)

Special Assessment

Since the board will not receive all invoices from the mediation, our consultants and the attorney until later this month, we will require the special assessment due on January 1st to be paid. We estimate that the special assessment may terminate on February 1, but prior to that determination, the board must perform a final accounting of these costs. Once that accounting is determined, we will terminate the special assessment and will refund any surplus paid into the special assessment fund to our owners.

Savings from Not Using a Contingent Legal Fee Arrangement

A number of Owners asked our Board prior to the April 11 Special Owners Meeting if the lawsuit could proceed from that point on at a lower cost if the law firm were engaged on a contingent fee basis. At that time your board talked to two prominent law firms and made the business decision to proceed at the discounted hourly rate that we had negotiated. We are happy to report that at the $3.2 million settlement level that was reached, the hourly rate fee arrangement resulted in significantly lower legal fees.

Next Steps

Repair of one of the life safety systems issues, the cracked and collapsing stair treads, has been under way for several months and will continue.

As to the many other repair issues that must be addressed, your board’s plan is to engage an architect/engineer to work with us to develop the plan to address each of these issues. Because of the need to carefully develop this plan and because any construction or repair project on existing buildings creates some level of disruption, your board estimates that repairs (other than the continuing stair treads replacement) will take place after the busy summer occupancy period (i.e. after August 15).

Thank You

First, thank you for your support of our association’s lawsuit. Your vote to assess yourselves to pay for legal fees all the way through trial gave your association an appearance of strength which no doubt helped settle this case.

Secondly, I want to again thank John McCaugherty for his efforts on behalf of our association. I have said this before, but it warrants saying again—not only could we have not done it without him, but in my 35 years of experience on many and various boards, he is the finest board member with whom I have worked.

Thanks also to the prior and current board members who gave of their time and loaned us their expertise and to MAY Management who had a bigger job helping us than they signed up for. All did a very good job.

Stay tuned for future developments and communications.

Thank you for the opportunity to serve our beautiful oceanfront community.

Mike Julien

CB condo association president