SQUIRE, SANDERS & DEMPSEY L.L.P.
200 South Biscayne Boulevard Suite 4000
| LEGAL Miami, FL 33131-2398
[LOGO SQUIRE | COUNSEL
OMITTED] SANDERS | WORLDWIDE Office: +1.305.577.7000
Fax: +1.305.577.7001
Exhibit 99.7
May 22, 2007
To Each of the Persons Listed on
Schedule A Attached Hereto
Re: FPL Recovery Funding LLC
Senior Secured Bonds, Series A
Special Florida Counsel - Florida Constitutional Issues
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special Florida counsel to Florida Power & Light Company,
a Florida corporation ("FPL"), and FPL Recovery Funding LLC, a Delaware limited
liability company (the "Issuer"), in connection with the issuance and sale on
the date hereof by the Issuer of $652,000,000 aggregate principal amount of the
Issuer's Senior Secured Bonds, Series A (the "Bonds"). The Bonds are being
issued pursuant to the provisions of the Indenture, dated as of May 22, 2007
(the "Indenture"), between the Issuer and The Bank of New York, as Trustee (the
"Trustee"). Under the Indenture, the Trustee holds, among other things, certain
rights as described below (the "Rights") as collateral security for the payment
of the Bonds.
As described in the Indenture, the Rights consist of "storm-recovery
property" as defined in the Storm-Recovery Act, Section 366.8260, Florida
Statutes (the "Storm-Recovery Act"), which were created in favor of FPL pursuant
to Order No. PSC-06-0464-FOF-EI in Docket No. 060038-EI issued by the Florida
Public Service Commission (the "Commission") on May 30, 2006, as supplemented by
Order No. PSC-06-0626-FOF-EI in Docket No. 060038-EI issued by the Commission on
July 21, 2006 (collectively, the "Financing Order"); and a portion of such
storm-recovery property was assigned to the Issuer pursuant to the provisions of
the Storm-Recovery Property Sale Agreement, dated as of May 22, 2007 (the "Sale
Agreement"), between FPL and the Issuer, in consideration for the payment by the
Issuer to FPL of the proceeds of the sale of the Bonds, net of certain issuance
costs. As described in the Financing Order, the Rights include the right to
impose and receive certain "non-bypassable" charges (the "Charges") and are
"storm-recovery charges" as defined in the Storm-Recovery Act. The Financing
Order provides that the Charges may be periodically trued-up in order to ensure
the expected recovery of amounts sufficient to (i) amortize the Bonds pursuant
to the amortization schedule to be followed in accordance with the provisions of
the Bonds and the Indenture, (ii) pay interest thereon and related fees and
expenses, and (iii) fund and maintain the required reserves for the payment of
the Bonds.
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To Each of the Persons Listed on SQUIRE, SANDERS & DEMPSEY L.L.P.
Schedule A Attached Hereto
May 22, 2007
Page 2
The Financing Order was issued in response to an application for its
issuance that was filed by FPL with the Commission pursuant to the provisions of
the Storm-Recovery Act. FPL filed its Issuance Advice Letter with respect to the
Bonds with the Commission on May 16, 2007, as required by the Financing Order
and the Commission has not issued an order to stop the issuance of the Bonds.
Section 366.8260(11) (the "State Pledge") of the Storm-Recovery Act,
provides:
(11) State pledge.--
(a) For purposes of this subsection, the term "bondholder" means a
person who holds a storm-recovery bond.
(b) The state pledges to and agrees with bondholders, the owners
of the storm-recovery property, and other financing parties
that the state will not:
1. Alter the provisions of this section which make the
storm-recovery charges imposed by a financing order
irrevocable, binding, and nonbypassable charges;
2. Take or permit any action that impairs or would impair
the value of storm-recovery property; or
3. Except as allowed under this section, reduce, alter, or
impair storm-recovery charges that are to be imposed,
collected, and remitted for the benefit of the
bondholders and other financing parties until any and
all principal, interest, premium, financing costs and
other fees, expenses, or charges incurred, and any
contracts to be performed, in connection with the
related storm-recovery bonds have been paid and
performed in full.
Nothing in this paragraph shall preclude limitation or
alteration if full compensation is made by law for the full
protection of the storm-recovery charges collected pursuant
to a financing order and of the holders of storm-recovery
bonds and any assignee or financing party entering into a
contract with the electric utility.
(c) Any person or entity that issues storm-recovery bonds may
include the pledge specified in paragraph (b) in the bonds and
related documentation.
As authorized by the foregoing statutory provision and the Financing
Order, the language of the State Pledge has been included in the Bonds and the
Indenture.
As used herein, "Transaction Documents" means, collectively, the documents
described on Schedule B hereto, and "Transaction" means the transactions
contemplated by the Transaction Documents and the Financing Order.
To Each of the Persons Listed on SQUIRE, SANDERS & DEMPSEY L.L.P.
Schedule A Attached Hereto
May 22, 2007
Page 3
We have made no independent investigation of the facts referred to herein,
and with respect to such facts have relied, for the purpose of rendering this
opinion and, except as otherwise stated herein, exclusively on the statements
contained and matters provided for in the Transaction Documents.
Our clients have requested that we provide you with our reasoned opinion
as to:
1. whether the holders of the Bonds (the "Bondholders") could challenge
successfully under the "contract clause" of the Florida Constitution
(Article I, Section 10 (the "Florida Contract Clause")) the
constitutionality of any legislation passed by the Florida
Legislature (the "Legislature"), any constitutional amendment voted
by the people of Florida or any action of the Commission exercising
legislative powers ("Legislative Action") that limits, alters,
impairs or reduces the value of the Rights or the Charges so as to
cause a substantial impairment, of (x) the terms of the Indenture or
the Bonds or (y) the rights and remedies of the Bondholders (or the
Trustee acting on their behalf) prior to the time that the Bonds are
fully paid and discharged ("Impairs" or an "Impairment");
2. whether preliminary injunctive relief would be available under
Florida law to delay implementation of an Impairment pending final
adjudication of a claim challenging such implementation under the
Florida Contract Clause and, assuming a favorable final adjudication
of such claim, whether relief would be available to prevent
permanently the implementation of the challenged Impairment; and
3. whether a Legislative Action that repeals the State Pledge or
substantially impairs or reduces the value of the Rights or Charges
so as to cause a substantial impairment of (a) the terms of the
Indenture or the Bonds or (b) the rights and remedies of the
Bondholders (or the Trustee acting on their behalf) prior to the
time the Bonds are fully paid and discharged, would constitute a
compensable taking under the "takings clause" of the Florida
Constitution (Article X, Section 6(a) (the "Florida Takings
Clause")).
Our opinions assume that any Legislative Action that prevents payment of
the Bonds or significantly affects the security for the Bonds is Legislative
Action that "substantially limits, alters, impairs or reduces the value" of the
Bonds. We do not offer any opinion as to how a court would determine whether any
specific action would "impair the value of storm-recovery property" or "reduce,
alter, or impair the storm-recovery charges," or what facts would be required to
prevail on those claims.
In rendering the opinions expressed herein, we have also relied, with your
permission, upon the conclusions expressed in the opinion of Sidley Austin LLP
addressed to you as of this date with respect to the "contracts clause" and
"takings clause" of the Constitution of the United States.
CONTRACT CLAUSE
An Impairment could be challenged as an impairment of the obligation of
contract under the Florida Contract Clause. The analysis of whether a
Legislative Action impermissibly impairs a contract involves three basic
questions:
(1) Does a contract exist?
(2) Has there been a substantial impairment?
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(3) Is the impairment a reasonable (and necessary) means to an important
public purpose?
Whether a law establishes contractual obligations on a state or another
governmental body is dependent on the intent of the legislative body, as
evidenced by the language of the law and the circumstances surrounding its
passage. Because the courts view the state as having reserved its authority to
exercise the police power to safeguard public interests, the Florida Contract
Clause is not absolute. A Legislative Action that does impair the obligation of
contracts may nevertheless be constitutional if it is a reasonable and necessary
means to achieve an important public purpose. Although Florida courts tend to
exact a higher degree of scrutiny under the Florida Contract Clause than do
federal courts under the U.S. Contract Clause (Section 10 of Article I, U.S.
Constitution), see infra., both federal and state courts have applied a
balancing test by which the degree of impairment of the contract is weighed
against the public purpose to be achieved by the challenged Legislative Action,
and in so doing the courts weigh the reasonableness and necessity of the
Legislative Action in meeting that objective. Generally, the courts will apply
closer and stricter scrutiny to Legislative Actions impairing contracts where
the state or a governmental body is a party to the contract, such as in public
debt obligations.
The Storm-Recovery Act provides in the State Pledge that "the state
pledges to and agrees with bondholders, the owners of the storm-recovery
property, and other financing parties . . .", evidencing an intent by the state
legislature to enter into a contractual relationship with bondholders, the
owners of the storm-recovery property, and other financing parties. As is the
case with legislation authorizing governmental bonds, the Storm-Recovery Act's
provision for a revenue source is relied upon as a vital part of the contract
with holders of storm-recovery bonds, and a court would likely find that such
authority and ability to provide payment for storm-recovery bonds should be
subjected to the strict scrutiny applied to obligations of governmental bodies.
Nonetheless, the courts will still apply the balancing test and inquire
whether a Legislative Action is a reasonable and necessary means towards an
important public purpose. The result of this inquiry is dependent on the nature
of the Legislative Action subsequently enacted and the circumstances surrounding
its enactment, and therefore, cannot reasonably be predicted.
Courts have considered the foreseeability of the state later adopting
legislation that alters obligations of contract; the more regulated an area is,
the more likely an impairing Legislative Action operating in that area can be
foreseen and will be found reasonable. Because the utility industry is highly
regulated, it is conceivable that a court may find a Legislative Action that
suspends, or otherwise impairs to some degree, the obligations or authority of
electric utilities, their assignees, bondholders, the owners of the
storm-recovery property, and/or other financing parties under the Storm-Recovery
Act and the Indenture as being a reasonable and necessary means to an important
public purpose.
A. Interplay Between Parallel U.S. and Florida Constitutional Doctrine,
The Florida Contract Clause is substantially identical to the Contract
Clause of the U.S. Constitution. Not unexpectedly, the Florida courts have
commonly cited and followed U.S. Supreme Court formulations of Contract Clause
doctrine in cases challenging Legislative Actions under the Florida
Constitution. Indeed, early Florida courts looking at the impairment of contract
issue addressed only the federal constitutional provision or both the federal
and state constitutional provisions simultaneously
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May 22, 2007
Page 5
without any distinction in analysis and with reference to U.S. Supreme Court
cases.(1) Nevertheless, a slight distinction between federal and state contract
clause analysis has evolved with the Florida courts giving a higher degree of
scrutiny to Legislative Actions under the Florida Contract Clause than the
federal courts do under the federal Contract Clause. The Florida Supreme Court
has recognized this interplay as well as the apparent divergence between federal
and Florida contract clause analysis:
We recognize that this Court, when construing a provision of
the Florida Constitution, is not bound to accept as controlling the
United States Supreme Court's interpretation of a parallel provision
of the federal Constitution. Yet such rulings have long been
considered helpful and persuasive, and are obviously entitled to
great weight. With this in mind, we now choose to adopt an approach
to contract clause analysis similar to that of the United States
Supreme Court. That Court's decisions in this area of law convince
us that such an approach is the one most likely to yield results
consonant with the basic purpose of the constitutional prohibition.
. . .
Our conclusion in Yamaha that "virtually" no impairment is
tolerable necessarily implies that some impairment is tolerable,
although perhaps not so much as would be acceptable under
traditional federal contract clause analysis.
Pomponio v. Claridge of Pompano Condominium, Inc., 378 So. 2d 774, 779-80 (Fla.
1979) (emphasis supplied). In short, because the federal Contract Clause
analysis permeates the state court cases, it is necessary to examine both U.S.
Supreme Court cases addressing the U. S. Contract Clause as well as Florida
cases to understand fully the current state of Contract Clause doctrine in
Florida and its potential application to the Bonds.
B. The Existence of Contractual Relationship
An analysis of a claim under the Contract Clause has three basic
components: (1) whether a contract existed between the parties, (2) whether the
obligations under the contract were substantially impaired and (3) whether the
impairment was reasonable and necessary to meet an important public purpose. See
United States Trust Co. of New York v. New. Jersey, 431 U.S. 1 (1977); General
Motors Corp. v. Romein, 503 U.S. 181 (1992).
A contract may be created from a law authorizing a contract or the
contract itself. Whether a statute constitutes a contractual arrangement between
the state and the other parties that have entered into contracts pursuant to
such a statute depends on whether the legislature intended to create enforceable
contractual rights binding upon the state. In determining legislative intent,
both the language of the statute and the circumstances of the enactment of law
are relevant. National Railroad Passenger Corp. v. Atchison, Topeka and Santa Fe
Railway Co., 470 U.S. 451 (1985); United States Trust Co., 431 at 18 and
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(1) See e.g., State ex rel. Women's Benefit Association v. Port of Palm
Beach District, 164 So. 851, 857 (Fla. 1985) and City of Fort Lauderdale v.
State, 169 So. 584 (Fla. 1936).
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May 22, 2007
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n. 14. In National Railroad, the Court found that neither the language nor the
circumstances surrounding the enactment of the Congressional statute at issue
evidenced an intent to have the United States itself enter a contractual
relationship with the railroad companies claiming impairment, where the statute
outlined the general terms on which Amtrak (expressly characterized in the
statute as a non-governmental corporation) could enter into contracts with
railroad companies, particularly since this was an area of pervasive prior
regulation by Congress and where the statute itself expressly reserved the right
to repeal or amend.(2)
In contrast, the Court in United States Trust Co. found the state's intent
to make a contract was clear from the statutory language, where the statute
itself provided,
The 2 States covenant and agree with each other and the
holders of any affected bonds, ... that so long as any of such bonds
remain outstanding and unpaid and the holders thereof shall not have
given their consent as provided in their contract with the port
authority; ... neither the States nor the port authority nor any
subsidiary corporation ... will apply any of the rentals, tolls,
fares, fees, charges, revenues or reserves, which have been pledged
in whole or in part as security for such bonds, for any railroad
purposes whatsoever other than permitted purposes hereinafter set
forth.
United States Trust Co., 431 U.S. at 9-10, 18. Additionally, the Court pointed
out that the purpose of the covenant was to invoke the protection of the
Contract Clause as security against repeal and to increase the public
marketability of the bonds.
The Storm-Recovery Act authorizing the collection of storm-recovery
charges, the issuance of storm-recovery bonds and the pledge of revenues towards
their payment would appear to be closer to the statute in United States Trust
Co. than the one in National Railroad in terms of creating a contract between
the State and holders of Bonds. Unlike the statute in National Railroad Corp.,
which "expressly reserved" Congress' right to "repeal, alter or amend this Act
at any time" (470 U.S., at 456), the Storm-Recovery Act does not reserve the
Legislature's ability to change the statutory provisions authorizing the
issuance, the security and the source for payment of the Bonds. To the contrary,
in the State Pledge, the State has expressly pledged not to do so unless "full
compensation" is made by law for the "full protection" of the storm-recovery
charges collected pursuant to a financing order and of the holders of
storm-recovery bonds (Storm-Recovery Act, Section 366.8260(11)(b)). Moreover,
the Storm-Recovery Act reveals legislative intent to preserve the authority of
electric utilities, and their assignees, to collect storm-recovery charges and
the pledge of storm-recovery property to payment of their bonds against any
future impairment. Section 366.8260(5)(a)3. of the Storm-Recovery Act provides
in relevant part:
All or any portion of storm-recovery property specified in a
financing order issued to an electric utility may be transferred,
sold, conveyed, or assigned to a successor or assignee, including an
affiliate or affiliates of the electric utility created for the
limited purpose of acquiring, owning, or
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(2) Note that in National Railroad, the statute under attack was a federal
one, and therefore the impairment of contract claim was brought under the due
process clause, since the contract clause applies only to state actions. The
protection of contractual obligations from federal legislation under the due
process clause appears to be less than the protection against state impairment
of contracts under the contract clause. Nevertheless, the first step of
establishing a contract is the same.
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administering storm-recovery property or issuing storm-recovery
bonds under the financing order. All or any portion of
storm-recovery property may be pledged to secure storm-recovery
bonds issued pursuant to the order, amounts payable to financing
parties and counterparties under any ancillary agreements, and other
financing costs (emphasis supplied).
Section 366.8260(5)(a) of the Storm-Recovery Act makes clear the intent of
the Legislature that the revenue contemplated to be created through
storm-recovery charges in all events remain available to support the repayment
of storm-recovery bonds issued in reliance upon such revenue sources. Section
366.8260(5) of the Storm-Recovery Act provides in relevant part:
(a) 1. All storm-recovery property that is specified in a financing
order shall constitute an existing, present property right or
interest therein, notwithstanding that the imposition and collection
of storm-recovery charges depends on the electric utility to which
the order is issued performing its servicing functions relating to
the collection of storm-recovery charges and on future electricity
consumption. Such property shall exist whether or not the revenues
or proceeds arising from the property have been billed, have
accrued, or have been collected and notwithstanding the fact that
the value or amount of the property is dependent on the future
provision of service to customers by the electric utility or its
successors or assignees.
2. storm-recovery property specified in a financing order shall
continue to exist until the storm-recovery bonds issued pursuant to
the order are paid in full and all financing costs and other costs
of the bonds have been recovered in full.
. . .
5. The interest of a transferee, purchaser, acquirer, assignee, or
pledgee in storm-recovery property specified in a financing order
issued to an electric utility, and in the revenue and collections
arising from that property, is not subject to setoff, counterclaim,
surcharge, or defense by the electric utility or any other person or
in connection with the reorganization, bankruptcy, or other
insolvency of the electric utility or any other entity.
6. Any successor to an electric utility, whether pursuant to any
reorganization, bankruptcy, or other insolvency proceeding or
whether pursuant to any merger or acquisition, sale, or other
business combination, or transfer by operation of law, as a result
of electric utility restructuring or otherwise, shall perform and
satisfy all obligations of, and have the same rights under a
financing order as, the electric utility under the financing order
in the same manner and to the same extent as the electric utility,
including collecting and paying to the person entitled to receive
the
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revenues, collections, payments, or proceeds of the storm-recovery
property.
Similar to the New Jersey statute in United States Trust Co., the statute
here, including the State Pledge, explicitly expresses the "intent of the
Legislature" that the committed source of revenues necessary to repay the Bonds
be protected. The statutory language is similar to the New Jersey statute in its
foreseeable effect of inducing reliance by potential investors.
C. The Balancing of Impairment Versus Public Purpose
After establishing the existence of contracts, courts will then inquire
whether a subsequent Legislative Action has operated as a substantial impairment
of a contractual relationship. Allied Structural Steel Co. v. Spannaus, 438 U.S.
234, 244-245 (1978).
The severity of the impairment measures the height of the hurdle the
state legislation must clear. Minimal alteration of contractual
obligations may end the inquiry at its first stage. Severe
impairment, on the other hand, will push the inquiry to a careful
examination of the nature and purpose of the state legislation.
Id. (footnote omitted). If a substantial or severe impairment is found, courts
will apply a balancing test by inquiring whether the state law is reasonable
and is "of a character appropriate to the public purpose justifying [the
legislation's] adoption," and that test is applied not only where the contract
is only between private parties, but also when the state itself or another
governmental entity is a party. United States Trust Co., 431 U.S. at 22;
Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 412 (1983);
Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S. 470, 505
(1987). However, unless the state is itself a contracting party, courts should
"properly defer to legislative judgment as to the necessity and reasonableness
of a particular measure." Id. (quoting United States Trust Co., 431 U.S. at
23). If the Storm-Recovery Act is found by a court to have created a contract
with the State as a party (which we believe to be the case here), a
Legislative Action that operates to impair the Storm-Recovery Act will be
subject to a higher degree of scrutiny as to the necessity and reasonableness
of the impairment, including an examination of whether reasonable alternatives
existed to the impairing Legislative Action and whether it exceeded that which
was reasonably necessary. See United States Trust Co., 431 U.S. at 24-26. If a
court were to conclude, instead, that such undertakings were essentially a
private contract, the court would be more likely to uphold a Legislative
Action as a reasonable and necessary means towards an important public
purpose.
In United States Trust Co., a 4-3 decision, the Court invoked the Contract
Clause to invalidate a New Jersey law which had repealed its statutory covenant
with bondholders of the New York Port Authority, a governmental entity, that
certain funds pledged to the payment of debt service on its bonds would not be
used for mass transit purposes. In so holding, Justice Blackmun's opinion of the
Court announced:
As with laws impairing the obligations of private contracts, an
impairment may be constitutional if it is reasonable and necessary
to serve an important public purpose. In applying this standard,
however, complete deference to a legislative assessment of
reasonableness and necessity is not appropriate because the State's
self-interest is at stake. A governmental entity can
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always find a use for extra money, especially when taxes do not have
to be raised. If a State could reduce its financial obligations
whenever it wanted to spend the money for what it regarded as an
important public purpose, the Contract Clause would provide no
protection at all.
Id., at 25-26 (emphasis supplied).(3) It is important to note here that even
though the governmental entity was a party to the contract and the states by
statute had made the covenant that was being impaired, the Court nevertheless
examined whether there was an important public purpose justifying the degree
of impairment. Although the Court recognized the "admittedly important
purpose" of promoting the use of mass transportation, it found the repeal of
the covenant unnecessary and suggested "less drastic" alternatives to
subsidize the commuter railroads. Additionally, the Court saw further evidence
that the law was unreasonable in the fact that the covenant was specifically
intended to protect the pledged revenue and reserves against the foreseeable
possibility of the Port Authority becoming more involved in deficit incurring
operations of mass transit.
In Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978), the Court
invalidated the retroactive application of a Minnesota law which required
certain employers who terminated their pension plans or operations in the state
to make immediate contributions to the plan for all employees with at least ten
years of service. The Court first found that the statute worked a "severe
impairment" by nullifying express terms of the company's obligations under its
pension plan and imposing a "completely unexpected liability in potentially
disabling amounts." The Court then determined that the statute was not necessary
to meet an important general social problem, as the statute applied to an
extremely narrow class of employers -- those with pension plans who had
terminated operations in the state.(4) Additionally, the statute "did not
operate in an area already subject to state regulation at the time the company's
contractual obligations were originally undertaken, but invaded an area never
before subject to regulation by the State." Allied Structural Steel, 438 U.S. at
250.
In contrast, in Energy Reserves Group v. Kansas Power & Light Co., 459
U.S. 400 (1983), the Court unanimously upheld a state natural gas regulation
imposing price controls on intrastate gas against constitutional attack. The
Court found that the regulations were not special interest legislation because
they affected the entire gas industry. Moreover, the regulations dealt with the
important social problem of rapidly rising consumer gas prices due to federal
deregulation. Based on the nature of the industry and the terms of the contract
at issue, the Court concluded that "[p]rice regulation existed and was
foreseeable as the type of law that would alter contract obligations. ... In
short, ERG's reasonable expectations have not been impaired by the Kansas Act."
Energy Reserves Group, 459 U.S. at 416.
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(3) The Florida courts have also recognized the higher standard of review
over laws impacting public contracts. See .g., Chiles v. United Faculty of
Florida, 615 So. 2d 671 (Fla. 1993) ("The legislature has only a very severely
limited authority to change the law to eliminate a contractual obligations it
has itself created.") and Coastal Petroleum Company v. Chiles, 672 So. 2d 571
(1st Dist. Fla. Ct. App. 1996).
(4) The Court noted the contrasting case of Home Building & Loan Ass'n v.
Blaisdell, 290 U.S. 398 (1934), where it upheld a Minnesota law that provided
for extensions of the redemption periods for mortgage foreclosures during the
widespread economic emergency, on the condition that mortgagor pay all or a
reasonable part of the property's income or rental value. The basic test was
"whether the legislation is addressed to a legitimate end and the measures taken
are reasonable and appropriate to that end." Id. At 438. The court found that
the statute did not impair the obligation to pay the debt, but simply changed
the time of payment and that it was narrowly tailored to meet the needs of the
broad economic problem.
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Finally, in Keystone Bituminous Coal Association v. DeBenedictis, 480 U.S.
470 (1987), the Court upheld a state statute that required coal mine operators
to repair or pay for damage to certain structures resulting from their mining
operations. The court found that the statute operated as a "substantial
impairment of a contractual relationship" where it removed surface owners'
waivers, under pre-existing contracts, of damages caused by mining operations.
The record did not disclose any information regarding the importance of the
damage waiver for purposes of determining the severity of impairment. Keystone
Bituminous Coal Association, 480 U.S. at 504, n. 31. Nevertheless, the Court
concluded that the statute "withstands scrutiny even if it is assumed that it
constitutes a total impairment," as the public interest of protecting surface
structures was adequate justification. The Court deferred to the State's
determination that the statute was the most appropriate means for addressing the
problem.
Based on analysis similar to that of the U.S. Supreme Court, the Florida
Supreme Court in Pomponio v. Claridge of Pompano Condominium, 378 So. 2d 774
(Fla. 1979), has adopted a "balancing" approach in analyzing a claim under the
Florida Contract Clause and prohibited the retroactive application of a law that
required the deposit of rent with a court during litigation over condominium
leases. The 99-year lease at issue was executed before enactment of the law and
did not expressly incorporate statutory amendments in the lease terms. The court
stated:
To determine how much impairment is tolerable, we must weigh
the degree to which a party's contract rights are statutorily
impaired against both the source of authority under which the state
purports to alter the contractual relationship and the evil which it
seeks to remedy. Obviously, this becomes a balancing process to
determine whether the nature and extent of the impairment is
constitutionally tolerable in light of the importance of the state's
objective, or whether it unreasonably intrudes into the parties'
bargain to a degree greater than is necessary to achieve that
objective. (Emphasis supplied.)
Id. at 780. The court found that the rent retention provision was an economic
deprivation the landlord had not bargained for, "producing potential erosion
of value (in our persistently inflationary economy)." Additionally, the court
found dubious the policy reason for the statutory provision suggested by
lessees -- to prevent foreclosures for non-payment of rent during litigation.
Finally, the court considered that "the manner in which the police power has
been wielded here is not the least restrictive means possible" and suggested
that the severity of the law would have been mitigated had it allowed
disbursements to lessors upon a showing of personal hardship.
The Florida courts have continued to apply the balancing test since
Pomponio.(5) For example, in Yellow Cab Co. v. Dade County, 412 So. 2d 395 (3rd
Dist. Fla. Ct. App. 1982), a court of appeals, in upholding a county ordinance
that prohibited exclusive taxi-cab service for hotels, found that the interest
of the county in encouraging free competition, providing passenger choice and
improving transportation efficiency far
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(5) However, Florida courts have not always clearly done so. See e.g.,
State of Florida Dept. of Transportation v. Chadbourne, 382 So. 2d. 293 (Fla.
1980) ("Unfortunately, that part of the amendment which attempted to affect
existing contracts flies into the wall of absolute prohibition. The fact that a
law is just and equitable does not authorize its enactment in the face of a
constitutional prohibition. This Court has generally prohibited all forms of
contract impairment.") and State Farm Mutual Automobile Insurance v. Gant, 478
So. 2d 25 (Fla. 1985)
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outweighed the severity of impairment to private contracts giving a taxicab
company exclusive rights to service at five hotels. After identifying "factors
which a court might consider in applying the balancing test" announced in Allied
Structural Steel and cited in Pomponio, the court found the ordinance to be a
reasonable and necessary exercise of police powers:
Regulation of taxi-cabs has been held to be a proper subject
for exercise of police power, . . . and taxicabs have for a long
time, been the subject of regulation by the state . . . Appellants
were not deprived of a means of earning a livelihood or of providing
service at the hotel, but only of the right to provide exclusive
taxicab service at certain hotels. The burden placed on appellants
is not palpably unjust or hostile . . . Further, there is no
evidence, nor is it obvious to us, that the County Commission could
have achieved its stated goal without abrogating the exclusive
agreements.
Id. at 397 (citations omitted).
The Eleventh Circuit in Geary Distributing Company v. All Brand Importers,
Inc., 931. F.2d 1431 (11th Cir. 1991), cert. den. 502 U.S. 1074 (1992), has also
applied the balancing test adopted in Pomponio in finding the retroactive
application of a beer distribution statute to a preexisting contract to be
unconstitutional under the Florida Contract Clause. The distributor had sued the
manufacturer for withholding consent to the assignment of distribution rights to
a third party based on a statute prohibiting the unreasonable withholding of
consent. In a very cursory fashion, the court balanced the competing interests:
Thus, the state's authority for the statute is its inherent
police power to regulate commercial activity within its borders. The
evil the statute seeks to eliminate is unfair business practices by
franchisors that restrict distribution [**14] of malt beverage
products to the public. We conclude that the Supreme Court of
Florida would find the impairment is significantly greater than
necessary.
Id. At 1436.
D. Florida Cases on Governmental Debt Obligations and State Contracts
If the existence of State contractual obligations under the Storm-Recovery
Act were found, courts would find persuasive the following Florida cases on
governmental debt obligations. Most of the Florida cases involving governmental
debt obligations, as discussed below, have occurred in the early part of this
century and are rather absolute in protecting the integrity of public securities
contracts against impairment by subsequent Legislative Actions adversely
affecting their security and debt service payment. They must, however, be viewed
as subject to review under the balancing approach subsequently articulated by
the Florida Supreme Court in Pomponio, supra, and which that Court applied even
when the State itself was party to the impaired contract. Chiles v. United
Faculty of Florida, 615 So. 2d 671 (Fla. 1993); explained in Coastal Petroleum
Company v. Chiles, 672 So. 2d 571 (1st Dist. Fla. Ct. App. 1996).
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In Humphreys v. State ex rel. Palm Beach Co., 145 So. 858 (Fla. 1933), the
Florida Supreme Court affirmed mandamus in enforcing bondholder's rights
according to the original contract under which the Town of Boynton issued bonds.
Subsequently, the Legislature divided Boynton into two, creating a new Town of
Boynton Beach, and attempted to allocate the existing debt of Boynton between
the two towns. The court stated:
But the Constitution of the United States is to the effect
that all laws which may have been passed, since bonds were issued,
purporting to take away taxes necessary to meet the payments pledged
to be made therefrom when the bonds were sold, are, as to affected
security holders, invalid as impairing the obligation of contract.
Id. at 862.
In State ex rel. Women's Benefit Association v. Port of Palm Beach
District, 164 So. 851, 857 (Fla. 1935), the Florida Supreme Court held that a
state constitutional amendment exempting from taxation homestead property of
less than $5,000 was void in so far as it might prohibit the levy, assessment
and collection of taxes on such homesteads for the payment of debt service on
bonds issued prior the adoption of the amendment, unless and until some other
adequate fund were provided to replace the fund lost by the exemption. It was
alleged that the Port of Palm Beach District had defaulted on payment of debt
service and that the exemption would "reduce the amount of tax collections and
thus diminish the security and reduce the value of bonds and coupons... and
impair the obligations of... contracts" contrary to Florida and U.S.
Constitutions. Id. at 853.
The court found impairment under the circumstances:
To "impair" has been defined as meaning to make worse; to
diminish in quantity, value, excellency, or strength; to lessen in
power; to weaken. Whatever legislation lessens the efficacy of the
means of enforcement of the obligation is an impairment. Also if it
tends to postpone or retard the enforcement of the contract, it is
an impairment. See State of Louisiana ex rel. Ranger v. City of New
Orleans, 102 U.S. 203, 26 L.Ed. 132. If the provisions of [the
constitutional amendment] are to be considered as being operative .
. ., then there will be a lessening of the efficacy of the means of
the enforcement of the obligations of the bond contract. These bonds
were issued with the clear legal requirement by a valid enactment of
the Legislature, that all of the then taxable property in the
district should be taxed to provide for the payment of both interest
on, and principal of, the bonds.
Id. at 856 (emphasis in original).
Citing numerous U.S. Supreme Court and Florida cases, the court further
states,
It has been repeatedly held, in fact there is practical
unanimity in the authorities, that subsequent legislation cannot
annul nor diminish, retard or lessen, the efficacy of prior laws
entering into or forming a part of the contracts with bondholders.
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Id. (emphasis supplied; citations omitted). The court found impairment in spite
of the dissent's argument that the amendment still left bondholders with an
adequate remedy in requiring the levy of a sufficient tax on non-exempt property
to meet obligations of the contract and that the property sought to be exempted
represented a small fraction of the taxable property.
Port of Palm Beach District and other Florida cases have also suggested
that impairment of bond contracts would be permissible if an "adequate"
substitute for the lost funds or lost security were provided. In Day v. City of
St. Augustine, 139 So. 880 (Fla. 1932), taxpayers attacked the levy of tolls for
use of a bridge, claiming in part that tolls were not called for to pay off the
bonds used to construct the bridge, since the bonds apparently were general
obligation bonds. In rejecting the taxpayers' contention, the Florida Supreme
Court stated:
When municipal bonds are authorized by appropriate legislative
act and a particular means is provided or authorized to pay them,
the right to change such means of payment and provide a different
mode is necessarily within the legislative power at all times,
subject only to the constitutional inhibition against impairment of
the obligation of contracts by changing the means of payment first
provided for without furnishing an adequate substitute.
Id. at 885.
Similarly, in Duval County v. Jennings, 164 So. 356, 358 (Fla. 1935)
(emphasis supplied), the Florida Supreme Court held:
[T]he continued collections of reasonable tolls and charges
for the benefit of holders of [bridge] bonds . . . is a
contractually secured obligation that cannot be impaired by [a
statute authorizing an election to determine whether bridge should
be toll-free], so long as bonds remain unpaid, unless ultimate
payment of the bonds and interest be actually secured by some
special fund set aside for the sole benefit of the bondholders and
adequate to satisfy their demands without being subordinate to any
prior charges for maintenance, operation, etc., payable out of same
in preference to the bondholders' demands should the bridge be
damaged or destroyed.
The court reasoned that, "under the settled law of this state," the statute
authorizing the bridge bonds, including provisions relating to the collection
and imposition of tolls, became part of the contract security given to
bondholders, and such provisions could not be "subsequently changed or
diminished by the Legislature to the prejudice or likely impairment of the
obligation of contract." Although the bond trustees already had about $327,000,
which was more than sufficient to pay outstanding bonds and interest aggregating
about $122,000, the court also noted that costs for operation and maintenance of
the bridge had a first priority interest in the trust fund.
In a related case the very next year, the Florida Supreme Court found that
a statutory provision authorizing the use of a portion of the same surplus fund
"greatly in excess of the needs for payment" of the outstanding bridge bonds for
the construction of a new bridge did not violate the obligation of the existing
bond contract, "since the toll collections continue and the surplus fund is not
reduced below its primary uses for the . . . bridge bond payments." Flint v.
Duval County, 170 So. 587, 596 (Fla. 1936).
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The court pointed out that the use of "perhaps $225,000" of about $360,000 then
in the fund, with only $71,000 of bonds outstanding and maturing in 1948, would
not "endanger the ultimate sufficiency of the fund to pay the remaining . . .
bonds in 1948 with interest." Id.
In City of Fort Lauderdale v. State ex rel. Elston Bank & Trust Co., 169
So. 584 (Fla. 1936), the court held that the legislature could not release a
city from liability on its debt obligations, even if it imposed liability
therefor on another public entity. The statute here had assigned liability for
city general obligation bonds to a port authority. In affirming mandamus against
the city, the court reasoned:
It is well settled that law affecting the enforcement, as the
authority and ability to provide payment for municipal bonds in
accordance with the terms of the contract under which such bonds
were issued, becomes a vital part of the bonds contract so that
neither the authority nor the ability to perform the contract
undertaken when the bonds were issued may be impaired during the
continuance of the contract by legislation subsequently passed
tending to that end, whether so designed to operate or not. The
degree of impairment is not material.
Where a subsequently passed statute materially alters the
remedies originally afforded municipal bondholders for the
enforcement of their bonds, such legislation is deemed to impair the
obligation of the bondholder's contract, . . . and it therefore will
be disregarded . . . as a law undertaking to unconstitutionally
impair the obligation of contracts in the particular case.
Id. at 587 (citations omitted; emphasis supplied.)
Notwithstanding the rigid application of the Contract Clause in these
earlier Florida cases, after the Florida Supreme Court adopted the balancing
test in Pomponio, that Court has applied the balancing test even to contracts to
which the State itself is a party. Thus, in Chiles v. United Faculty of Florida,
615 So.2d 671 (Fla. 1993), where the Court struck down the State's attempt to
renege on salary contracts with university faculty, the Court acknowledged that
"the legislature must be given some leeway to deal with bona fide emergencies,"
but applied a strict test of reasonableness and necessity under the Contract
Clause by requiring the State to demonstrate that there is no other reasonable
alternative to contract impairment in order to solve the State's fiscal problem.
In this context, the Court cited United States Trust Co. v. New Jersey, 431 U.S.
1 (1977), discussed above.
A similar approach was applied in Coastal Petroleum Co. v. Chiles, 672 So.
2d 571 (1st Dist. Fla. Ct. App. 1996), namely a more strict application of the
balancing test where the State is a contracting party.
E. Unpredictability Under Balancing Test --- General Guides
In applying the above case law to the Storm-Recovery Act, it is apparent
that the outcome of the cases turns on particular facts in the balancing of the
contract rights impaired versus the reasonableness and necessity of an
impairment serving a public purpose, and there are inexplicable inconsistencies
of result among the cases. There is no way to predict or describe the precise
form of a future Legislative Action impairing the Indenture and the Bonds, the
circumstances under which it might be enacted, or the public purpose to be
effectuated thereby. Moreover, the form of and nature of, and any facts
surrounding, any
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litigation that might arise challenging a Legislative Action as an
unconstitutional impairment of contract cannot be predicted. Thus, whether a
court would determine that a future Legislative Action would work a substantial
impairment of the Indenture and the Bonds, and whether such a Legislative Action
would be viewed as a reasonable and necessary means toward an important public
purpose, cannot reasonably be predicted.
Only some general guides to what might be permissible and impermissible
can be discerned from the cases. Obviously, the less severe the impairment, the
greater the likelihood that a court will find the impairing Legislative Action
to be reasonable. If no less drastic means exist to accomplish the public
purpose, the more likely the Legislative Action would be found necessary and
reasonable. See United States Trust Co., 431 U.S. at 29-30. If a statute
affected only a very narrow segment of a population or an industry, a court
might infer that the public purpose was not so important and that the
Legislative Action was unnecessary. See Allied Structural Steel, 438 U.S. at
248. If the Legislative Action operated in a way that was foreseeable at the
time the contract was entered into, such as in an already regulated area, then
the courts will more likely find the impairing Legislative Action to be
reasonable. See Energy Reserves Group, 459 U.S. at 416. However, even if a
Legislative Action worked a severe or "total" impairment, the courts might still
defer to the legislating body's determination of the reasonableness and
necessity of the Legislative Action in light of an important public purpose. See
Keystone Bituminous Coal Association, 480 U.S. at 504.
Thus, for example, a court might uphold a Legislative Action temporarily
suspending or limiting the authority of an electric utility, or its assignees,
to collect storm-recovery charges or other revenues for the purpose of providing
relief to electric utility customers in an emergency situation, such as the
occurrence of an event or a series of events widely creating economic havoc
among customers. The court might reason that the utility industry is already
heavily regulated and that such a Legislative Action would not unreasonably
interfere with the contractual rights of bondholders, the owners of
storm-recovery property or other financing parties. This is not to suggest that
a more severe impairment might not be sustained; rather, that could depend on
the court's view of the urgency and unavoidable necessity of the measures taken
by the legislative body to protect public interests, such as the health, safety
and welfare of the people of the State.
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F. Constitutional Amendment by Voter Initiative.
The Florida Constitution is fundamentally an act of the people of the
State, and is a product of what the people intended. State v. State Board of
Administration, 157 Fla. 360, 367 (Fla. 1946). The Florida Constitution Article
XI Section 1 generally confers the power to propose amendments or revisions of
the Florida Constitution upon the Legislature. However, Article XI Section 3 of
the Florida Constitution grants the people the power to propose the revision or
amendment of any portion or portions of the constitution without the aid of any
legislative enactment. State ex rel. Citizens Proposition for Tax Relief v.
Firestone, 386 So. 2d 561 (Fla. 1980). This power to propose the revision or
amendment of the constitution by initiative may be invoked by filing with the
custodian of state records a petition signed by a number of electors in each of
one-half of the congressional districts of the State, and of the State as a
whole, equal to 8% of the votes cast in each of such districts respectively and
in the State as a whole in the last preceding election in which presidential
electors were chosen. If the requirements are met, this would allow the
amendment to be placed on a Statewide ballot for ratification. An initiative
petition with subsequent passage by the electors could, therefore, effect the
revision or even repeal of the Storm-Recovery Act.
Generally, Florida courts have analyzed a subsequent or antecedent
amendment to the constitution as being an impairment in light of the cases
construing the Federal Constitution Contracts Clause. The lower courts have
consistently reiterated the position taken by the Florida Supreme Court in
Yamaha Parts Distributors Inc. v. Ehrman, 316 So.2d 557 (Fla. 1975) that
"virtually no degree of contract impairment is tolerable in this state." In Lee
County v. Brown, 929 So. 2d 1202, 1208 (Fla. 2nd Dist. Ct. App. 2006), the
district court cited the Florida Supreme Court's decision in Pomponio v.
Claridge of Pompano Condo., Inc., 378 So. 2d 774, 780 (Fla.1979) concluding that
this statement implied that "some impairment is tolerable, although perhaps not
so much as would be acceptable under traditional federal contract clause
analysis."(6)
The case law suggests, therefore, that an amendment to the Florida
Constitution would be subject to an impairment analysis under the Contracts
Clause. Although the Florida Constitution has its own Contracts Clause, Florida
courts generally analyze the Contracts Clause in light of Federal case law. An
amendment to the Florida Constitution would also likely trigger this same
Federal contracts clause analysis.
The Florida Supreme Court in Board of Public Instruction for Bay County v.
State ex rel. Barefoot, 199 So. 760 (Fla.1941), stated that it was well settled
in Florida that "a provision of even the organic law of the state may not be
given such effect that it will impair an obligation existing at time of its
adoption, since a state constitutional provision is a `law' within the meaning
of Federal Constitution prohibiting passage of law impairing the obligation of
contracts." Additionally, in State ex rel. Sovereign
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(6) . To determine just how much impairment is tolerable, the Supreme
Court of Florida has adopted the balancing test articulated by the U.S. Supreme
Court in Allied Structural Steel v. Spannaus, 438 U.S. 234 (1978). This
balancing test weighs the degree of impairment against the source of authority
under which the law is enacted and the "evil" the law is intended to remedy.
Pomponio, 378 So. 2d at 780. See also, Park Benziger & Co., Inc. v. Southern
Wine & Spirits, Inc., 391 So. 2d 681, 683 (Fla. 1980); Sarasota County v.
Andrews, 573 So. 2d 113, 115 (Fla. 2d Dist. Ct. App. 1991); Palm Bay Towers
Corp. v. Brooks, 466 So. 2d 1071, 1075 (Fla. 3d Dist. Ct. App. 1984); Gans v.
Miller Brewing Co., 560 So. 2d 281, 283 (Fla. 4th Dist. Ct. App. 1990).
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Camp, W.O.W. v. Boring, 121 Fla. 781, 795 (1935), the Florida Supreme Court
stated that "[a] state can no more impair the obligation of an antecedent
contract by adopting a Constitution or amending its Constitution than by passing
or amending a statute. See also, State ex rel. Woman's Benefit Association v.
Port of Palm Beach District, 121 Fla. 746, 761 (1935). Likewise in Gray v. Moss,
115 Fla. 701, 710 (1934), the Florida Supreme Court noted that "[p]rohibition of
laws impairing contractual obligations by Federal Constitution applies to the
Constitution, as well as laws, of each state."
The court in Sovereign Camp, W.O.W cited with approval several United
States Supreme Court cases. The Florida Supreme Court stated that it followed
the United States Supreme Court's holdings in finding that the impairment of
contracts may be made through constitutional enactments or amendments as well as
statutory laws.(7)
In Rusiecki v. Jackson-Curtis, 2005 WL 408133 (Fla. 6th Cir. Ct. 2005) a
constitutional amendment via the initiative process was at issue. The plaintiff
argued, among other things, that a constitutional amendment would be a
substantial impairment of a contract and could not be applied retroactively. The
people of the State of Florida proposed the passage of what was known as
Amendment 7, which was placed on the 2004 ballot, and passed by an overwhelming
majority. The proposed amendment provided that patients would have a right to
access any records made or received in the course of business by a health care
facility or provider relating to any adverse medical incident. The court held
that health care providers had a vested substantive statutory right to
non-disclosure of information, because the information was gathered pursuant to
a contract with the Hospital prior to the amendment and should therefore remain
confidential. The court further stated that the statute would only be applied
prospectively. The court in Rusiecki v. Jackson-Curtis, stated that it is
"axiomatic that an amendment to the Constitution is deemed to be prospective
rather than retroactive, unless a contrary intent is clear from the face of the
Amendment." (citing State v. Lavazzoll, 434 So. 2d 321, 323 (Fla. 1983).
Similarly, in Lavazzoll, a constitutional amendment was at issue that
mandated conformity of interpretation of the state constitutional exclusionary
rule with the United States Supreme Court's interpretation and whether the
amendment had to be given prospective effect.
The Florida Supreme Court explained that:
[i]t is a well-established rule of construction that in the absence
of clear legislative expression to the contrary, a law is presumed to
operate prospectively.... This rule applies with particular force to those
instances where retrospective operation of the law would impair or destroy
existing rights.... In accordance with the rule applicable to original
acts, it is presumed that provisions added by an amendment affecting
existing rights are intended to operate prospectively also... Nowhere
...on the November ballot is there manifested any intent that the
amendment be applied retroactively. Therefore, the amendment must be given
prospective effect only. Id. at 323 (citations omitted).
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(7) See New Orleans Gaslight Co. v. Louisiana Light & Heat Producing &
Manufacturing Co., 115 U.S. 650 (1885), City of Shreveport v. Cole, 129 U.S. 36
(1889); Edwards v. Kearzey, 96 U.S. 595 (1878).
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Therefore, in light of these cases, a constitutional amendment or revision
would be subject to an impairment clause analysis to the extent such amendment
or revision is applied retroactively to impair existing contractual obligations.
* * *
Based upon the foregoing analysis, and subject to the qualifications and
limitations set forth herein, in our opinion, a reviewing court would conclude
that (a) the State Pledge constitutes a contractual relationship between the
Bondholders and the State, and (b) absent a demonstration by the State that an
Impairment is necessary to further a significant and legitimate public purpose,
the State Pledge provides a basis upon which the Bondholders (or the Trustee
acting on their behalf) could challenge successfully, under the Florida Contract
Clause, the constitutionality of any Legislative Action subsequently passed by
the Legislature, any law voted by the people as a constitutional amendment or
any action of the Commission exercising legislative powers determined by such
court to reduce, alter, or impair the value of the Storm-Recovery Property or
the Storm-Recovery Charges so as to cause an Impairment prior to the time that
the Bonds are fully paid and discharged.
AVAILABILITY OF PRELIMINARY OR TEMPORARY INJUNCTIVE RELIEF
Florida law provides a forum to adjudicate the constitutionality of
Legislative Action. Here, we address specifically the remedies of preliminary
and permanent injunctive relief enjoining state officials from enforcing the
provisions of such Legislative Action. Whether such relief could be obtained
will depend on application of the principles discussed earlier in this opinion,
including a demonstration that (i) such Legislative Action violates the State
Pledge; (ii) the State Pledge is a contract of the State; and (iii) the
Legislative Action was not a legitimate and reasonable exercise of the state's
sovereign powers and reasonable and necessary to serve a legitimate public
purpose.
Whether a preliminary injunction delaying implementation of Legislative
Action being challenged under the Florida Contract Clause as a substantial
impairment could be obtained by Bondholders (or the Trustee acting on their
behalf) pending an adjudication on the merits of such claim will depend on
several considerations. The purpose of an injunction is to preserve an existing
state or condition, and to afford relief against future acts that are against
equity and good conscience. Seaboard Air Line Ry. v. Southern Inv. Co., 53 Fla.
832 (1907). Under Florida law, in order to obtain a temporary or preliminary
injunction, the party seeking the injunction must establish that: (1)
irreparable injury will result if the injunction is not granted; (2) there is no
adequate remedy at law; (3) the party has a clear legal right to the requested
relief; and (4) the public interest will be served by the temporary injunction.
Provident Management Corporation v. City of Treasure Island, 796 So. 2d 481, 485
(Fla. 2001). Florida law affords injunctions that are classified as either
prohibitory or preventive to restrain an act, or mandatory injunctions that
require an affirmative act.
The lower district courts of appeal in Florida enunciate the appropriate
test for injunctions as whether there is: (1) the likelihood of irreparable harm
unless the status quo is maintained; (2) the unavailability of an adequate
remedy at law; (3) substantial likelihood of success on the merits; and (4)
consideration of the public interest. Liberty Financial Mortgage Corporation v.
Clampitt, 667 So. 2d 880 (Fla. 2d Dist. Ct. App. 1996); Smith Barney Shearson,
Inc. v. Berman, 678 So. 2d 376, (Fla. 3d Dist. Ct. App. 1996); Singletary v.
Costello, 665 So. 2d 1099 (Fla. 4th Dist. Ct. App. 1996); Infinity Radio, Inc.
v. Whitby, 780 So. 2d 248 (Fla. 4th Dist. Ct. App. 2001). The status quo to be
preserved is "the last, actual,
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peaceable, non-contested status that preceded the pending controversy."
Lieberman v. Marshall, 236 So. 2d 120, 125 (Fla. 1970). Therefore, an analysis
of the foregoing elements that an applicant must demonstrate for an injunction
are addressed below.
Irreparable harm or injury is of a peculiar nature, so that compensation
in money cannot atone for it. Mullinix v. Mullinix, 182 So. 2d 268 (Fla. 4th
Dist. Ct. App. 1966). The court in Gonzalez v. Benoit, 424 So. 2d 957, 958 (Fla.
3d Dist. Ct. App. 1983) stated that "[i]rreparable injury is an injury of such
nature that it cannot be redressed in a court of law; an injury for which
monetary compensation will not suffice." Irreparable injury in essence means
that an injunction is the only practical mode of enforcement. Corporate
Management Advisors, Inc. v. Boghos, 756 So. 2d 246, 247 (Fla. 5th Dist. Ct.
App. 2000).
Florida law holds that irreparable harm or injury does not exist where the
potential loss is compensable by money damages. Barclays American Mortgage
Corporation v. Holmes, 595 So. 2d 104 (Fla. 5th Dist. Ct. App. 1992). Thus, in
Cajun & Grill of America, Inc. v. Jet Intern. Cuisine, Inc., 646 So. 2d 801
(Fla. 3d Dist. Ct. App. 1994) the court dissolved an injunction where the
plaintiff failed to meet its burden of successfully producing evidence to
substantiate irreparable injury. In this case, the plaintiff entered into a
shareholder's agreement and alleged that after receiving no profits, and
learning that it would be evicted, plaintiff sought damages for conversion,
breach of contract, accounting, and constructive trust.
In Florida, a request for an injunction to prevent a breach of contract is
tantamount to a suit for specific performance, and thus, the courts are more
reluctant to issue injunctions of this type. However, the Supreme Court of
Florida stated that "a mandatory temporary injunction may be issued requiring
specific performance of a contract." Wilson v. Sandstrom, 317 So. 2d 732 (Fla.
1975). These types of injunction cases typically involve contracts calling for
personal services or acts of a special character, or for such services by
persons of eminence or special qualifications. Wilson, 317 So. 2d at 738. Thus
Florida law supports that courts may grant injunctions for contractual
obligations based on the factual determinations in the case.
Moreover, the FLORIDA RULES OF CIVIL PROCEDURE RULE 1.610(1) provide in
pertinent part that:
A temporary injunction may be granted without written or oral notice to
the adverse party only if:
(A) it appears from the specific facts shown by affidavit or
verified pleading that immediate and irreparable injury, loss, or damage
will result to the movant before the adverse party can be heard in
opposition.
Thus, it is well established under Florida law that a plaintiff must show
irreparable injury. Lieberman, 236 So. 2d at 125.
It is the general rule that no injunction of any kind will be issued where
there is an adequate remedy at law. Johnson v. Killian, 157 Fla. 754 (1946). It
is established under Florida law that based on equitable principles, to warrant
the denial of an injunction, the available legal remedy must be plain, certain,
prompt, speedy, sufficient, complete, practical, and efficient in attaining the
ends of justice for the applicant. Citizens & Southern National Bank v. Taylor,
191 So. 2d 866 (Fla. 1st Dist. Ct. App. 1966). See, Zimmerman v. D.C.A. at
Welleby, Inc., 505 So. 2d 1371 (Fla. 4th Dist. Ct. App. 1987).
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Contract rights usually have an adequate remedy at law. In some
circumstances, however, equity will require the enforcement of a contract right
by enjoining violation of the terms thereof. Jack Eckerd Corp. v. 17070 Collins
Ave. Shopping Center, Ltd., 563 So. 2d 103 (Fla. 3d Dist. Ct. App. 1990). There
must, however, be some extraordinary circumstance that warrants this remedy. An
injunction is not generally appropriate in contractual cases absent some special
equity or covenant within the terms of the agreement. Campbell v. Maull, 69 Fla.
102 (1915). Jurisdiction to decree specific performance of a contract is
exercised in two classes of cases: (1) where the contract's subject matter is of
such a special nature that damages, when ascertained upon legal rules, would be
inadequate; (2) or where damages are impracticable in that no real compensation
can be arrived at through an action at law. Northwestern National Insurance
Company v. Greenspun, 330 So. 2d 561 (Fla. 3d Dist. Ct. App. 1976). In
Northwestern, an injunction was reasonable where the plaintiffs alleged that the
insurance company intended to increase its premiums upon its major medical
insurance policies to obtain higher premiums and avoid contracts already
written.
Florida courts have held that an injunction is an "extraordinary remedy,
harsh and drastic," and thus will be granted only cautiously and sparingly.
First National Bank in St. Petersburg v. Ferris, 156 So. 2d 421 (Fla. 2d Dist.
Ct. App. 1963). Thus, an injunction will only be granted where it is clear that
one has sufficient title or interest in the right or property for which
protection is sought. Diamond v. Interstate Trading Corporation, 606 So. 2d 631
(Fla. 3d Dist. Ct. App. 1992). Therefore, for an injunction to lie, the
applicant must have a clear legal right that is free from reasonable doubt.
Register v. Pierce, 530 So. 2d 990 (Fla. 1st Dist. Ct. App. 1988).
The lower courts analyze an injunction in the terms of a substantial
likelihood of success on the merits. A substantial likelihood of success on the
merits is shown if "good reasons for anticipating that result are demonstrated.
It is not enough that a merely colorable claim is advanced." Naegele Outdoor
Advertising Co. v. City of Jacksonville, 659 So. 2d 1046, 1047 (Fla. 1995).
The paramount interests of the public may have some bearing granting
injunctive relief to protect private rights. If relevant, the public interest is
a factor the courts also consider in granting or denying an injunction. Florida
courts have held that public interest concerns arise where it plainly appears
that an injunction "will result in confusion and disorder, and will produce an
injury to the public that outweighs the individual right of the complainant" to
have the relief that individual seeks. Fredericks v. Blake, 382 So. 2d 368 (Fla.
3d Dist. Ct. App. 1980). Where the potential injury to the public outweighs an
individual's rights, an injunction will be denied. (Fla. 2d Dist. Ct. App.
2004).
Thus, to enjoin a violation of a contract, the court may take into
consideration the interests of the public. For example, the court refused to
enjoin a railroad company from breaking a covenant for the running and
maintenance of trains for the public welfare, where the company changed its
route, and the burden would be wholly out of proportion to the benefit which
would have accrued. Taylor v. Florida East Coast Ry. Co., 54 Fla. 635 (1907).
In Florida, the function of preliminary injunctive relief is to preserve
the latest uncontested status quo of the subject matter of the suit pending
trial on the merits. The purpose of an injunction is not to take sides or to
preserve a status quo which existed at some time prior to the controversy.
Bowling v. National Convoy & Trucking Co., 101 Fla. 634 (1931). The latest
uncontested status quo with respect to
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the Bonds prior to the enactment of any challenged Legislative Action would
appear to be the continued effectiveness of the Financing Order and the validity
of the Rights and the Charges. To maintain that status quo and prevail in an
application for a temporary injunction to enjoin State officials from enforcing
a Legislative Action affecting the rights of Bondholders, Bondholders would be
required to prove a probable right of recovery on the merits and probable
injury, that irreparable harm will occur if the injunction is denied and that no
adequate remedy at law exists. Bondholders would be required to show damage,
such that, in the appropriate case, administrative remedies would be of no
avail, that there is no adequate remedy provided and thus, they are not required
to follow that avenue for relief. Southern Bell Telephone and Telegraph Co. v.
Mobile America Corp., Inc., 291 So. 2d 199 (Fla.1974). A plaintiff is not
required to pursue administrative remedies where they are not available and
adequate. Berkowitz v. City of Tamarac, 654 So. 2d 982 (Fla. 4th Dist. Ct. App.
1995). In Florida, it is reasonably well established that a court should not
enjoin administrative action in the absence of fraud or a gross abuse of
discretion. City of Pompano Beach v. Yardarm Restaurant, Inc. 509 So. 2d 1295,
1297 (Fla. 4th Dist. Ct. App. 1987). Whether enactment of an ordinance is
unreasonable or arbitrary depends upon the potential effect of the ordinance on
the safety, health, morals, and general welfare of the community. Id.
A showing that the State or the Commission acted beyond their
constitutional authority would include a probable right of recovery. The
Bondholders would not be required to demonstrate that they would prevail
finally, but only that the constitutional claims were legitimate and that
irreparable harm would occur if the injunction was not issued.
Bondholders would argue that probable irreparable harm and the inadequacy
of any legal remedy are shown by the "possibility" of delayed payments and
threat of default by the Issuer. The Bondholders could argue that payment delays
on the Bonds should be accepted as "irreparable harm," and that Bondholders
would experience greater harm if preliminary injunctive relief were denied than
any other party would suffer if it were granted. If payments on Bonds are
interrupted in whole or in part, ratings will decline and the value of the Bonds
will diminish. Such loss of value could, presumably, not be recovered. In
Florida, for injunctive relief to be proper, harm does not have to have actually
occurred. The remedy is traditionally available for protection from threatened
or potential future injury that is likely to occur. American Bank of Merritt
Island v. First American Bank and Trust, 455 So. 2d 443 (Fla. 5th Dist. Ct. App.
1984). For instance, in Cash v. Surf Club, 436 So. 2d 970 (Fla. 3d Dist. Ct.
App. 1983), certificates were given to proprietary members of the Surf Club
which created a contractual relationship between the Club and the holders. The
certificates vested in these proprietors complete ownership of all property and
franchises of the Club. The Plaintiffs sought to enjoin the Club from its plan
to sell or otherwise dispose of their proprietary certificates and expel them as
members for alleged nonpayment of dues. The court found that there was well
grounded apprehension warranting an injunction and granted injunctive relief.
However, a Florida court could find that a delay in the receipt of
payments until final judgment is not the type of "irreparable harm" which a
preliminary injunction seeks to prevent, absent countervailing circumstances or
some special equity. Generally, in Florida in the absence of some special
equity, the injunctive process is not appropriate in contract cases. Simms v.
Burnette, 55 Fla. 702 (1908). Florida courts issue injunctions involving
contracts primarily pertaining to covenants not to compete. Miller Mechanical,
Inc. v. Ruth, 300 So. 2d 11 (Fla. 1974); Graphic Business Systems, Inc. v.
Rogge, 418 So. 2d 1084, 1086 (Fla. 1982).
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Based upon the foregoing analysis, and subject to the qualifications and
limitations set forth herein, in our opinion, the determination of whether a
preliminary injunction should issue therefore will depend upon the facts before
the court and upon whether, after balancing the equities and considering the
public interest, the Bondholders have demonstrated (a) a probable right of
recovery on the merits, (b) probable injury or harm, (c) that irreparable harm
will occur if the injunction is denied, and (d) that no adequate remedy at law
exists.
AVAILABILITY OF PERMANENT INJUNCTIVE RELIEF
The standard for a permanent injunction is essentially the same as that
for a preliminary injunction, except that a plaintiff seeking relief must show
actual or a substantial likelihood of success on the merits rather than a likely
success on the merits. Bledsoe v. City of Jacksonville Beach, 20 F. Supp. 2d
1317 (M.D. Fla. 1998).
The movant must establish: (1) a substantial likelihood of success on the
merits; (2) that irreparable harm will be suffered unless the injunction issues;
(3) that the threatened injury to the movant outweighs any threatened harm the
injunction may cause the opposing party; and (4) that the injunction, if issued
will not disserve the public interest. Gross v. Barnett Banks, Inc., 934 F.
Supp. 1340 (M.D. Fla. 1995). In Gross, the plaintiffs were part of a class
action that consisted of all persons who financed motor vehicle or boat loans
with the defendants and who were charged for earned insurance premiums.
Subsequent to the court's approval of a settlement agreement, additional
plaintiffs attempted to maintain lawsuits against the defendants. The defendants
moved for an injunction. The court analyzed the elements for establishing an
injunction, and with respect to the harm which defendants would suffer, the
court noted that the defendants would be forced to relitigate claims which they
believed were settled when the court entered its order approving the class
settlement. The court found this harm to be irreparable because the defendants
had already paid out substantial sums of money in order to satisfy the claims.
Permitting members of the class who failed to opt-out of the class to pursue
similar claims would result in additional liability to the defendants which
would ultimately render the settlement reached in the case completely useless.
Thus, the court opined that the defendants would suffer irreparable injury in
that they would forever be barred from enjoying the benefit of the efforts
exerted to settle this case. Stated another way, the plaintiff must allege
"ultimate facts which, if true, would establish irreparable injury, that is,
injury which cannot be cured by money damages." Weekley v. Pace Assembly
Ministries, Inc., 671 So. 2d 220 (Fla. 1st Dist. Ct. App. 1996). In contrast,
the court in Florida Jai Alai, Inc. v. Southern Catering Services, Inc., 388 So.
2d 1076 (Fla. 5th Dist. Ct. App. 1980) held that a permanent injunction was
inappropriate to enjoin one corporation from terminating a concession agreement
entered into with another corporation because of the impropriety of projecting
the judiciary into overseeing the specific performance of the agreement and
where there was no mutuality of remedy.
It is settled Florida law that in the absence of fraud or gross abuse of
discretion, equity will not interfere with or restrain public officers or
agencies in the exercise of power vested in them. Johnson v. McNeill, 151 Fla.
606 (1942). Yet, citizens may seek relief against the arbitrary action of
governmental agencies by bringing one's case "under some acknowledged head of
equity jurisdiction and show what special injury he or she will sustain from
such unauthorized acts distinct from that suffered by every other inhabitant."
Metropolis Pub. Co. v. City of Miami, 100 Fla. 784 (1930). It has been held,
however, that actions seeking to enforce private constitutional rights or
actions seeking to enjoin enforcement of an ordinance enacted without
legislative authority can be enjoined. Retail Clerks Union Local 779 of Miami
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v. Lerner Shops of Florida, 140 Fla. 865 (1939); Safer v. City of Jacksonville,
212 So. 2d 785 (Fla. 1st Dist. Ct. App. 1968).
This "special injury" qualification is not, however, subject to inflexible
application. For example, it has been held that where an act sought to be
restrained is connected with the statutory rights of an elector, a citizen and
taxpayer has standing in equity to seek an injunction. Tacker v. Board of
Commisioners of Polk County, 170 So. 458 (Fla. 1936). In Tacker, where the
county had 27,721 qualified electors on the registration books, a vote on the
proposition of recalling slot machine licensing in the county, the county
commissioners were enjoined from calling the election, since the petition did
not have the necessary 20 percent of qualified electors. It has also been held
in cases which impact the members of the community at large that an injunction
can lie for the misapplication of funds raised by taxation. Id. at 459. In City
of Miami Beach v. Tenney, 150 Fla. 241 (1942), the city adopted a method for
producing the funds to pay for paving by floating a bond issue which was a
general obligation of the city. The city was enjoined because it was without
power to pay for the bond issue by the levy of special assessments. Id. at 258.
The Fifth Circuit has acknowledged that a federal court may enjoin State
officials from enforcing an unconstitutional statute under certain "unusual"
circumstances that require equitable relief. In Let's Help Florida v. McCrary,
621 F.2d 195, 199 (5th Cir. 1980), the court upheld the issuance of an
injunction against enforcement of two statutes limiting political contributions.
The court found the timing of the next election important, which was to be held
in few weeks. Because of the approaching election, plaintiffs would suffer an
irreparable loss of their First Amendment rights if they were barred from making
contributions that they were constitutionally permitted. The court stated that
"[a] federal court may enjoin state officials from enforcing an unconstitutional
statute..." Id. If the court denied equitable relief, the plaintiffs would have
permanently lost the opportunity through their contributions to affect the
outcome of that election. The court ruled that such a situation constituted the
necessary "unusual" circumstances that could justify equitable relief.
Moreover, Florida courts have granted injunctions against enforcement of
unconstitutional statutes. In Sydney v. Pingree, 564 F. Supp. 412 (S.D. Fla.
1982), the plaintiffs sought a mandatory injunction requiring the defendants to
issue a birth certificate with the surname chosen by his parents. The plaintiffs
sought a declaratory judgment that Florida Statute ss. 382.16(5) was
unconstitutional and sought and were awarded an injunction enjoining the
defendants enforcing the statute and enacting similarly unconstitutional
statutes.
As is the case of a temporary injunction, for a permanent injunction to be
issued, in addition to showing the invalidity of the statute, a party seeking a
permanent injunction would need to establish that it has suffered irreparable
injury and has no adequate remedy at law. Typically, this means that mere
monetary damages are not sufficient to rectify the harm and the harm is more
than an isolated instance. The court would additionally address the public
interest, if applicable.
A party seeking such an injunction for an impairment could likely meet the
irreparable injury requirement by obtaining the declaration of the invalidity of
such Legislative Action. Irreparable damage is not a reference to the amount of
damages, but to the difficulty of measuring the amount of damage suffered.
Therefore, an injury will be irreparable where the damage must be estimated by
"conjecture and not by any accurate standard." Sun Elastic Corporation v. O.B.
Industries, 603 So. 2d 516, 518 (Fla. 3d Dist. Ct. App. 1992). The court would
additionally address the public interest, if any.
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A substantial impairment with respect to the payment of Bonds would, it
would seem, constitute irreparable injury of a continuing nature supporting the
grant of permanent injunctive relief. Florida courts have held that an
injunction will lie to enjoin the diversion of public funds for an unauthorized
use, Williams v. Town of Dunnellon, 125 Fla. 114 (1936); and have enjoined the
illegal expenditure of public funds in contravention of a city charter. Robert
G. Lassiter & Co. v. Taylor, 99 Fla. 819 (1930). The threat of diversion of
funds pledged to the Bonds would appear to constitute the existence of
irreparable injury sufficient to support injunctive relief to the extent that
any funds not paid are unlikely to be replaced in the future.
It seems doubtful that Bondholders (or the Trustee acting on their behalf)
could obtain adequate money damages from the State or its officials. That
damages are difficult to measure in the case of repeal of a statutory pledge of
revenues to a bond issue is noted in U.S. Trust Co. v. New Jersey, 431 U.S. 1
(1977), in its discussion of the substantial nature of the impairment. The Court
described the difficulty of evaluating the impact of the repeal of the covenant
upon the market price of the bonds. After establishing that it could not
ascertain with certainty that fluctuations in market price were caused by the
repeal of the covenant and noting that the bonds' rating had not changed, the
Court determined that "no one can be sure precisely how much financial loss the
bondholders suffered." U.S. Trust Co., 431 U.S. 1 at 1516.
Based upon the foregoing analysis, and subject to the qualifications and
limitations set forth herein, in our opinion, a reviewing court in a properly
prepared and presented case should conclude that temporary or permanent
injunctive relief is available under Florida law to prevent implementation of
Legislative Action passed hereafter and determined by such court to cause an
Impairment of the Bonds or rights of the Bondholders that is in violation of the
Florida Contract Clause (based on the application of the principles discussed
hereinbefore). We note, however, that the decision to grant preliminary
injunctive relief will be in the discretion of the court requested to take such
action.
TAKINGS CLAUSE
You have further requested that we provide you with a opinion whether a
reviewing court would hold that the State would be required to pay just
compensation to Bondholders if the State's repeal or amendment of the
Storm-Recovery Act or taking of any other Legislative Action in contravention of
the State Pledge constituted a permanent appropriation of a substantial property
interest of the Bondholders in the Storm-Recovery Property and deprived the
Bondholders of their reasonable expectation arising from their investments in
the Bonds.
Article X, Section 6(a) of the Florida Constitution provides that: "[n]o
private property shall be taken except for a public purpose and with full
compensation therefor paid to each owner or secured by deposit in the registry
of the court and available to the owner." The Supreme Court of Florida has
interpreted a taking to occur when a regulation denies substantially all
economically beneficial or productive use of the property.(8) Such test is not
construed to assume an owner's use of his property to earn a profit or to
produce income, rather that the owner will be able to make some use of the
property that can be economically executed. State Department of Environmental
Protection v. Burgess, 772 So. 2d 540 (Fla. 1st Dist. Ct. App. 2000).
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(8) Tampa-Hillsborough County Expressway Auth. v. A.G.W. S. Corp., 640 So.
2d 54 (Fla. 1994).
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Florida courts consistently look to the United States Supreme Court
decisions in interpreting the Florida Takings Clause. For example, in City of
St. Petersburg v. Bowen, 675 So. 2d 626 (Fla. 2d Dist. Ct. App. 1996), the court
acknowledged the U.S. Supreme Court's analysis in First English Evangelical
Lutheran Church v. County of Los Angeles, 482 U.S. 304 (1987) that "[a] taking
occurs where regulation denies substantially all economically beneficial or
productive use of land." In Vatalaro v. Department of Environmental Regulation,
601 So. 2d 1223, 1228 (Fla. 5th Dist. Ct. App. 1992), this court as well as many
other U.S. and Florida courts cite the landmark case, Penn Central
Transportation Company v. City of New York, 438 U.S. 104, 124 (1978) in its
analysis of the takings jurisprudence. Under Penn Central, once a court
determines that the rights constitute "property" for purposes of the Takings
Clause, it should then examine whether the state action constitutes a
compensatory taking. Courts will generally make an ad hoc factual determination
of takings allegations based on an examination of (i) the character of the
government action; (ii) the economic impact of the regulation; and (iii) the
extent to which the regulation interfered with distinct investment backed
expectations.
Although Florida courts have provided some guidance for determining
whether a taking has occurred, this determination rests on a factual inquiry
that must be made on case-by-case basis. There is no set formula in Florida for
determining whether economic injury caused by state action is compensable
taking. Vatalaro v. Department of Environmental Regulation, 601 So. 2d 1223
(Fla. 5th Dist. Ct. App. 1992). Whether a right is private property subject to a
taking is a factual situation that must be judicially determined on an
individual basis.(9) Sarasota Welfare Home, Inc. v. City of Sarasota, 666 So. 2d
171,173 (Fla. 2d Dist. Ct. App. 1995). The court stated in Gardens Country Club,
Inc. v. Palm Beach County, 712 So. 2d 398 (Fla. 4th Dist. Ct. App. 1998) that
the factual inquiry as to whether regulation amounted to a taking included
analysis of (1) the economic impact of regulation on claimant and (2) the extent
to which regulation has interfered with reasonable investment-backed
expectations.(10) The United States Supreme Court stated in Eastern Enterprises
v. Apel, 524 U.S. 498 (1998) that "the process for evaluating a regulation's
constitutionality involves an examination of the `justice and fairness' of the
governmental action. That inquiry, by its nature, does not lend itself to any
set formula, ... and the determination ...require[s] that economic injuries
caused by public action [must] be compensated by the government, ...[and] is
essentially ad hoc and fact intensive."
In Graham v. Estuary Properties, Inc., 399 So.2d 1374, 1380 (Fla. 1981),
the Supreme Court of Florida held that the denial of a permit to destroy 1800
acres of black mangroves, leaving the owner with 2800 acres and reducing by half
the number of housing units the owner intended to build, was not a taking, but
was instead a valid exercise of police power preventing a public harm. In Graham
the Supreme Court of Florida listed factors to be considered in deciding whether
a taking has occurred:
1. Whether there is a physical invasion of the property;
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(9) See, Pinellas County v. Brown, 450 So. 2d 240, 242 (Fla 2d Dist. Ct.
App. 1984).
(10) See also, Florida Game and Fresh Water Fish Comm'n v. Flotilla, Inc.,
636 So. 2d 761 (Fla. 2d Dist. Ct. App. 1994) in which the court stated it must
consider: (1) whether there is physical invasion of property; (2) whether
regulation precludes all economically reasonable use of property; (3) whether
regulation confers public benefit or prevents public harm; (4) whether
regulation promotes health, safety, welfare or morals of public; (5) whether
regulation is arbitrarily and capriciously applied; and (6) extent to which
regulation curtails investment-backed expectations.
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2. The degree to which there is a diminution in value of the property.
Or stated another way, whether the regulation precludes all
economically reasonable use of the property;
3. Whether the regulation confers a public benefit or prevents a public
harm;
4. Whether the regulation promotes the health, safety, welfare, or
morals of the public;
5. Whether the regulation is arbitrarily and capriciously applied; and
6. The extent to which the regulation curtails investment-backed
expectations.(11)
In order to determine whether a state or governmental action results in a
compensable taking under the Florida Takings Clause, therefore, a court must
first determine if there is a compensable interest or right in the property for
purposes of the Florida Takings Clause. The term "property" includes the entire
group of rights inhering in a citizen's ownership. At least one Florida court
has referred to the United States Supreme Court's interpretation of the Fifth
Amendment's Takings Clause for guidance on this issue. For example, in City of
St. Petersburg v. Bowen, 675 So. 2d 626 (Fla. 2d Dist. Ct. App. 1996), the court
acknowledges the term "property" as characterized in Penn Central Transportation
Co. v. NYC, 438 U.S. 104 (1978) stating that "Penn Central informs that the term
`property' is not the physical thing; rather it is the group of rights inherent
in the citizen's relationship to the physical thing, such as the right to
possess, use, and dispose of one's land."
Florida cases support that "property" includes leaseholds, easements, and
similar rights in land, personal property and intangible and incorporeal rights
such as franchises and other contracts with the state or its subdivisions.(12)
The Supreme Court of Florida in Dade County v. General Waterworks Corp., 267 So.
2d 633 (Fla. 1972) stated that "property, in a legal sense, consists in the
domination which is rightfully and lawfully obtained over a material thing, with
the right to its use, enjoyment and disposition." (citing United Contractors,
Inc. v. United Construction Corp., 187 So. 2d 695 (Fla. 2d Dist. Ct. App.
1966)). Additionally, the court in Pinellas County v. Brown, 450 So. 2d 240
(Fla. 2d Dist. Ct. App. 1984), acknowledged that the definition of "property"
was sufficiently broad to extend to intangible corporeal rights, such as
contractual obligations and leasehold interest.
The court in Golf Club of Plantation, Inc. v. City of Plantation, 717
So.2d 166 (Fla. 4th Dist. Ct. App. 1998) referencing the Supreme Court analysis
of the issue of a taking held that a land use regulation is not a taking if (1)
it substantially advances a legitimate state interest, and (2) it does not deny
an owner economically viable use of his land. The court further delineated the
factual criteria to consider when determining whether "taking" through land use
regulation has occurred as whether (1) there was a denial of economically viable
use of the property; (2) the owner had distinct investment-backed expectations;
and (3) it was an interest vested in the owner, as a matter of state property
law. Whether or not expectations are considered reasonable will depend on
whether the property owner had notice in advance
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(11) Graham, So.2d at 1380.
(12) Pondella Hall For Hire, Inc. v. Lamar, 866 So. 2d 719 (Fla. 5th Dist.
Ct. App. 2004) (stating that it is generally true that leasehold interests are
considered property subject to a takings claim).
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of his investment decision that the governmental regulations which are alleged
to constitute the taking had been or would be enacted. (citing Lucas v. South
Carolina Coastal Council, 505 U.S. 1003 (1992)).
In Vatalaro (citing Penn Central), the court assessed whether the economic
impact of the taking rises to the level of serious economic harm and whether the
government action interferes with reasonable investment-backed expectations. A
reasonable investment-backed expectation must be more than a "mere unilateral
expectation or an abstract." Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449
U.S. 155, 161 (1980).
The court in O'Connor Development Corporation v. State Department of
Transportation, 533 So. 2d 800 (Fla. 1st Dist. Ct. App. 1988) held that
government action barring the issuance of a development permit to a private
property owner may constitute a taking if the action deprives the developer of a
"substantial portion" of the beneficial use of the property. Unless the State
can show that the owner had no reasonable expectation of the proposed use when
he or she acquired the property, the owner must be compensated for the denial of
that use. City of St. Petersburg v. Bowen, 675 So. 2d 626 (Fla. 2d Dist. Ct.
App. 1996).
The Florida Constitution's full compensation guarantee is to ensure that
an owner is adequately and fairly compensated. Full compensation means payment
for that which the owner was deprived. Meyers v. City of Daytona Beach, 158 Fla.
859, 30 So. 2d 354 (1947). The Florida Supreme Court has consistently held that
"the constitutional provision for full compensation requires that the courts
determine the value of the property by taking into account all the facts and
circumstances that bear a reasonable relationship to the loss occasioned the
owner by virtue of the taking." Florida East Coast Ry. Co. v. Martin County, 171
So. 2d 873 (Fla. 1965); Behm v. Division of Administration, Department of
Transportation, 383 So. 2d 216 (Fla. 1980).
The Supreme Court of Florida stated in Joint Ventures, Inc. v. Department
of Transportation, 563 So. 2d 622, 624 (Fla. 1990) that "[g]enerally, the state
must pay when it confiscates private property for common use ...Second, the
state must pay when it regulates private property under its police power in such
a manner that the regulation effectively deprives the owner of the economically
viable use of that property, thereby unfairly imposing the burden of providing
for the public welfare upon the affected owner."
Therefore, "full compensation" within the meaning of the Florida
Constitution simply means that "the taking of property, is determined by
reference to the state of affairs that would have existed absent any
condemnation proceeding whatever, that is, had the owners retained ownership."
Florida Department of Revenue v. Orange County, 620 So. 2d 991 (Fla. 1993).
Primarily the case law in Florida deals with real property rights.
However, the United States Supreme Court has held that property not constituting
real property or tangible personal property may nevertheless be entitled to the
protections afforded by the Takings Clause. Ruckelshaus v. Monsanto Co., 467
U.S. 986, 1003-04 (1984).(13) An independent source, however, such as state law
or existing rules, and not the United States Constitution, must create the
protected property right. In Ruckelshaus, the Court
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(13) Bd. of Regents v. Roth, 408 U.S. 564, 577 (1972).
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determined that trade secrets, which are cognizable under state law, constitute
property rights for purposes of the Takings Clause because a trade secret can be
assigned, form the res of a trust, and pass to a trustee in bankruptcy.
Ruckelshaus, 467 U.S. at 1003. Additionally, in Duquesne Light Co. v. Barasch,
488 U.S. 299, 308 (1989), the Supreme Court recognized that a utility's right to
a fair return on investment is a property right for purposes of the Takings
Clause. A Florida court would likely undertake a similar analysis of, and reach
a similar conclusion regarding, the rights under the Storm-Recovery Act in
determining whether they constitute "property" for purposes of the Florida
Constitution.
In United States Trust Co. of N.Y. v. N.J., 431 U.S. 1 (1977), the Supreme
Court recognized that "contract rights are a form of property and as such may be
taken for a public purpose provided that just compensation is paid."(14) The
Supreme Court stated that states are free to exercise their power of eminent
domain to abrogate constitutional rights upon payment of just compensation.(15)
However, at least one court has noted that the government's interference with
contractual rights does not necessarily constitute a taking of property if the
contract deals with a subject matter within the control of Congress. See
Greenbriar v. U. S., 193 F.3d 1348, 1356 (Fed. Cir. 1999).
A court's response to a Takings Clause challenge will be affected by the
nature of the Impairment action which could include, but is not limited to
legislation that: (i) repeals or alters the State Pledge; (ii) prevents the
imposition of the Charges, (iii) revises the regulatory basis for establishing
utility rates in such a way that adversely impacts the collection of the
Charges; (iv) diverts the Rights from payment of the Bonds to other public
purposes; or (v) adversely affects the assets that generated the Charges.
Section 366.8260(5)(a) provides that storm-recovery property "shall
constitute an existing, present property right or interest therein,
notwithstanding that the imposition and collection of storm-recovery charges
depends on the electric utility to which the order is issued performing its
servicing functions relating to the collection of storm-recovery charges and on
future electricity consumption." Even though the statute characterizes the
storm-recovery property as a present property right, in order to determine that
State action will constitute a compensable taking, a court must determine that
the Rights, and the pledge of the Rights to payment of the Bonds provided for
under the Storm-Recovery Act, in the Financing Order and in the Indenture are
property of the type protected by the Florida Takings Clause.
Although we could find no cases directly addressing these issues, the
Bondholders would have a strong argument based on the United States Supreme
Court's decision in U.S. Trust Co. v. New Jersey, 431 U.S. 1 (1977), that the
Bondholders' rights are "property" warranting the protections afforded by the
Federal Takings Clause. In U.S. Trust Co, a legislative covenant, similar to a
State Pledge, was made to Port Authority bondholders by the New Jersey
legislature, pledging that the revenues supporting the subject Port Authority
bonds would not be diverted for unauthorized purposes. The New Jersey
Legislature later repealed the covenant, and the United States Supreme Court
found the repeal to impair the contract rights of the bondholders. In dicta, the
Supreme Court indicated that "[c]ontract rights are a form of property" that, if
taken, would require the payment of just compensation.
- ----------
(14) United States Trust Co. of N.Y. v. N.J., 431 U.S. 1 (1977).
(15) Id.
To Each of the Persons Listed on SQUIRE, SANDERS & DEMPSEY L.L.P.
Schedule A Attached Hereto
May 22, 2007
Page 29
It is well established under Florida and Federal law that investment
backed expectations can be property for the purposes of the takings analysis.
Therefore, although many factors will have an impact on the market price of the
Bonds, arguably, the maintenance of the market price of the Bonds could be a
reasonable investment-backed expectation. Legislative Action that prevents the
Bonds from being paid, therefore, would likely support a takings claim. Such
Legislative Action would clearly interfere with Bondholders' reasonable
investment-backed expectations, since timely payment of the Bonds is the primary
expectation of the Bondholders. Additionally, the State Pledge itself may form
the basis for reasonable investment-backed expectations. The United States
Supreme Court has held that a government guarantee of confidentiality could form
the basis for such an expectation. See Ruckelshaus, 467 U.S. at 1011. The
Bondholders would likely argue that they would not have invested in the Bonds in
the absence of the State's undertaking contained in the State Pledge and,
therefore, that the State Pledge created reasonable investment-backed
expectations. It is reasonable and logical that Bondholders who have invested
their funds in the Bonds expect that the Bonds will be paid and that, based on
the State Pledge, the State will not impair the State Pledge so as to endanger
or imperil their investment.
A court would reasonably conclude, therefore, that Legislative Action
constitutes a compensable taking under the Florida Takings Clause if it
determines that the Legislative Action: (i) is an intentional action by the
Legislature or the Commission, (ii) effects a regulatory taking of the Rights,
and (iii) is for public use. Specifically, a Florida court would reasonably
conclude that the repeal or amendment of the Storm-Recovery Act or taking of any
other action in contravention of the State Pledge would constitute a permanent
appropriation of a substantial property interest of the Bondholders requiring
full compensation. To determine whether a compensable taking had occurred, the
court would consider applying principles developed in the land use context to an
analysis of the rights of the Bondholders. Those principles would require an
analysis of whether the State action denied the Bondholders all economically
beneficial or productive use of the rights, such as, preventing the use of the
Rights to pay the Bonds.
Based upon the foregoing analysis, and subject to the qualifications and
limitations set forth herein, in our opinion, under the Florida Takings Clause,
a reviewing court would hold that the State would be required to pay just
compensation to Bondholders if the State's repeal or amendment of the
Storm-Recovery Act or taking of any other action in contravention of the State
Pledge (a) constituted a permanent appropriation of a substantial property
interest of the Bondholders in the Storm-Recovery Property or denied all
economically productive use of the Storm-Recovery Property; (b) destroyed the
Storm-Recovery Property; or (c) substantially reduced, altered or impaired the
value of the Storm-Recovery Property so as to unduly interfere with the
reasonable expectations of the Bondholders arising from their investments in the
Bonds.
In determining what is an undue interference, a court would consider the
nature of the governmental action and weigh the public purpose served thereby
against the degree to which it interferes with the legitimate property interests
and distinct investment-backed expectations of the Bondholders. Moreover, there
can be no assurance that any such award of just compensation would be sufficient
to pay the full amount of principal of and interest on the Bonds.
* * *
To Each of the Persons Listed on SQUIRE, SANDERS & DEMPSEY L.L.P.
Schedule A Attached Hereto
May 22, 2007
Page 30
All of the opinions set forth above are limited to the specific issues
addressed, are given as of the date hereof, are limited in all respects to laws
and facts existing on the date of this letter, and are based on the reasonable
exercise of legal judgment. Due to the absence of controlling judicial
precedent, our analysis is necessarily a reasoned application of judicial
decisions involving similar or analogous circumstances. These opinions are
specifically limited to the laws of the State of Florida. We note that there are
no reported controlling judicial precedents of which we are aware directly on
point and that judicial analysis of issues relating to the Florida Contract
Clause and the Florida Takings Clause has typically proceeded on a case-by-case
basis and that the court's determination, in most instances, is usually strongly
influenced by the facts and circumstances of the particular case. Moreover, the
authorities we have examined contain certain cases and authorities that are
arguably inconsistent with our conclusions expressed herein. These cases and
authorities are, in our opinion, distinguishable in the context of the
application of the Florida Contract Clause and the Florida Takings Clause. We do
not undertake to advise you of any changes in the opinions expressed herein from
matters that might hereafter arise or be brought to our attention.
None of the foregoing opinions is intended to be a guaranty as to what a
particular court would actually hold; rather, each opinion is only an expression
of our belief as to the decision a court of competent jurisdiction ought to
reach if the issues were properly prepared and presented to it and the court
follows what we believe to be the applicable legal principles under existing
judicial precedent. There can be no assurance that a repeal of or amendment to
the Storm-Recovery Act will not be sought or adopted or that any action by the
State of Florida, the voters of the State of Florida or the Commission may not
occur, any of which might constitute a violation of the State Pledge. We cannot
predict the facts and circumstances that will be present in the future and may
be relevant. Consequently, there can be no assurance that a court will follow
our reasoning or reach the conclusions we believe current judicial precedent
supports. Furthermore, the outcome of any litigation cannot be predicted with
any degree of certainty.
In the event of any Florida legislation, voter initiative or act of the
Commission that adversely impacts the rights of the Bondholders, costly and
time-consuming litigation might ensue, adversely affecting, at least
temporarily, the price and liquidity of the Bonds. Moreover, the application of
equitable principles (including the availability of injunctive relief or the
issuance of a stay pending appeal) is subject to the discretion of the court
asked to apply them.
It is understood that the Rights may be subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting creditors' rights generally
heretofore or hereafter enacted to the extent applicable and that their
enforcement may also be subject to the exercise of judicial discretion in
appropriate cases.
This opinion is given solely for your benefit in connection with the
issuance of the Bonds and may not be furnished to or relied upon by any other
person or for any other purpose without our prior written consent. We hereby
consent to the filing of this letter as an exhibit to the Registration Statement
and to all references to our firm included in or made a part of the Registration
Statement. In giving the foregoing consents, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the related rules and regulations of the Securities and
Exchange Commission.
Very truly yours,
/s/ Squire, Sanders & Dempsey L.L.P.
------------------------------------
SQUIRE, SANDERS & DEMPSEY L.L.P.
JEM/JIM/CAG/RDJ
SCHEDULE A
ADDRESSEES
Florida Power & Light Company
700 Universe Boulevard
Juno Beach, Florida 33408
FPL Recovery Funding LLC
700 Universe Boulevard
Juno Beach, Florida 33408
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Standard & Poor's Rating Services,
a division of The McGraw-Hill Companies, Inc.
55 Water Street
New York, New York 10041
Fitch Ratings
One State Street Plaza
New York, New York 10004
SCHEDULE B
TRANSACTION DOCUMENTS
1. Indenture, dated as of May 22, 2007 (the "Indenture"), between the FPL
Recovery Funding LLC, a Delaware limited liability company (the "Issuer")
and The Bank of New York, as Trustee (the "Trustee"), providing for the
issuance and sale on the date hereof by the Issuer of $652,000,000
aggregate principal amount of the Issuer's Storm-Recovery Bonds, Series A
(the "Bonds").
2. Storm-Recovery Property Sale Agreement, dated as of May 22, 2007 (the
"Sale Agreement"), between Florida Power & Light Company, a Florida
corporation ("FPL") and the Issuer.
3. Bill of Sale, dated as of May 22, 2007 (the "Bill of Sale"), from FPL in
favor of the Issuer;
4. Issuance Advice Letter, and Initial True-Up Adjustment Letter, dated May
16, 2007 (the "Issuance Advice Letter"), from FPL to the Commission; and
5. UCC-1 Financing Statement, naming FPL, as assignor, and the Issuer, as
assignee, filed in the Florida Secured Transactions Registry (the "FPL
Series A Storm-Recovery Property Notice (Transfer)") on May 16, 2007;
6. UCC-1 Financing Statement, naming FPL, as grantor, and the Trustee, as
financing party, filed in the Florida Secured Transactions Registry (the
"FPL Series A Storm-Recovery Property Notice (Security Interest -
Trustee") on May 17, 2007;
7. UCC-1 Financing Statement, naming FPL, as grantor, and the Issuer, as
financing party, filed in the Florida Secured Transactions Registry (the
"FPL Series A Storm-Recovery Property Notice (Security Interest - Issuer")
on May 17, 2007;
8. UCC-1 Financing Statement, naming the Issuer, as grantor, and the Trustee,
as financing party, filed in the Florida Secured Transactions Registry
(the "Issuer Series A Storm-Recovery Property Notice") on May 17, 2007;
9. Letter dated May 15, 2007, from FPL authorizing the pre-filing of the FPL
Series A Storm-Recovery Property Notices; and
10. Letter, dated May 15, 2007, from the Issuer authorizing the pre-filing of
the Issuer Series A Storm-Recovery Property Notice.