Bankruptcy judge Erik P. Kimball.
Bankruptcy judge Erik P. Kimball. (Photo: AM Holt)

Two South Florida law firms face allegations of wrongdoing in adversary proceedings filed in a bankruptcy case for a property owners’ association.

Boca Raton-based Jay Steven Levine P.A. and Kaye Bender Rembaum in Pompano Beach once represented Spanish Isles Property Owners Association Inc. in Saddlebrook, just west of Boca Raton.

But Chapter 11 Trustee Margaret J. Smith claimed the firms allowed the association’s governing documents to lapse, leaving it with no valid declaration and bylaws to direct its operations, enforce its rights or levy liens for unpaid homeowner dues. Her complaints claim “constructively fraudulent transfers of estate property and … professional negligence” against both firms, which allegedly overlooked the association’s governing documents until after it was too late, and the group had already filed for bankruptcy.

“Levine received certain transfers from the association during the two-year period prior to the petition date, without giving reasonable equivalent value ,” according to Smith. “Levine sought to enforce lapsed covenants, collect fees and litigate against homeowners who were not bound by the association’s governing documents, and in the process received thousands of dollars in payments from the Association for this work in breach of its professional duties.”

The association’s documents date back to its incorporation in 1979 and needed to be renewed or preserved in 2009 under Florida law. Without valid documents, the nonprofit lacked legal authority to collect homeowner fees or govern itself under its bylaws. But it continued to assess about $350 per home for annual revenue of about $100,000, according to Smith.

The group hired Kaye Bender Rembaum in April 2010 for an initial eight-month term that renewed automatically with an annual retainer each year until 2014.

Smith suggests the firm had an opportunity to preserve the documents when it reviewed them in September 2010, but took no action and instead chose to focus on other issues.

“That same day, Kaye Bender prepared its first demand letter to a Spanish Isle homeowner for violation of the association’s covenants, despite the lapse of the declaration in 2009,” she claimed.

Kaye Bender’s managing member, Robert Kaye, referred media inquiries to the firm’s counsel, who did not respond by press time.

Jay Steven Levine P.A.’s principal and its counsel did not respond to requests for comment, but court papers show the firm appears to have reached an agreement with the trustee.

On April 27, Smith filed a motion before U.S. Bankruptcy Judge Erik P. Kimball to approve a compromise and settlement of controversies between the trustee and Levine and his firm.

Levine denies all allegations in the adversary action but agreed to remit a $20,000 lump-sum payment and waive all claims against the estate for administrative fees and costs to settle the trustee’s demands.

The agreement is the latest in an ugly fight between homeowners and the association, with allegations of physical confrontations and multiple lawsuits traded over at least three years, according to court documents.

Kaye Bender is also a creditor, seeking about $140,000 in unpaid fees for its work representing the association, according to the Chapter 11 voluntary petition. Its pursuit of those fees helped prompt the association’s filing for bankruptcy protection.

Association attorney Brett A. Elam of West Palm Beach said he was surprised by the turn in the litigation, which seemed to be close to a resolution years earlier with a plan that would assess homeowners $500 to cover all the group’s debts. But infighting among members and administrators derailed the proposal.

“Kaye Bender and the debtor were really working hard together,” Elam said. ‘Everything would have been fine. But now there’s going to be so much in the way of administrative costs because of the trustee being appointed. They went from being assessed $50 for 10 months to no telling what happens now. It was a sad situation.”