Judge rules that D.R. Horton engaged in deceptive practices, must pay $16.3M

Judge referred to D.R. Horton's actions as "a modern day story of David and Goliath"

Oct.October 25, 2016 04:25 PM

Majorca Isles, with Barry Mukamal, left and John Arrastia

UPDATED Oct. 26, 12:30 p.m. The nation’s largest homebuilder, D.R. Horton, engaged in deceptive practices that forced the bankruptcy of the homeowners association for Majorca Isles in Miami Gardens, a U.S. bankruptcy judge in Miami ruled.

Following a three-day trial, Judge A. Jay Cristol of the U.S. Bankruptcy Court for the Southern District of Florida entered a judgment against D.R. Horton and its employees for $16.3 million in damages, including $12.5 million in punitive damages, and said the company violated Florida’s Deceptive and Unfair Trade Practices Act.

The court found that Fort Worth, Texas-based D.R. Horton and its employees engaged in “immoral, unethical, oppressive, and unscrupulous” trade practices its financial benefit, conspiracy, and breaches of fiduciary duty. “These actions by D.R. Horton can only be classified somewhere between not nice and evil,” the judge said, referring to the actions as “a modern day story of David and Goliath.” He said he awarded the punitive damages of $12.5 million to punish and deter future “unlawful, malicious” conduct.

Bankruptcy Trustee Barry Mukamal of KapilaMukamal, and his counsel John Arrastia of Genovese Joblove & Battista, worked for more than four years on the case, representing the Majorca Isles Master Association, a homeowners association created by D.R. Horton as part of the planned 681-unit community Majorca Isles in Miami Gardens.

Mukamal called it a wake-up call” for developers. “This time the system worked for everyone, including the low-to-middle income homeowners at Majorca Isles that felt they did not have a voice,” Mukamal said in a statement.

D.R. Horton said in a statement that it “strongly disputes the plaintiff’s allegations,” and is considering its “appellate options.”

Mukamal told The Real Deal he “fully” expects D.R. Horton to appeal.

According to Mukamal, D.R. Horton appointed its employees as the board of  directors of the Majorca Isles Master Association until the association was turned over to the homeowners. During that time, D.R. Horton allegedly did not make a serious effort to collect assessments from the unit owners, and because it had failed to keep useful financial records, was unable to identify which units had paid or not.  Instead, D.R. Horton allegedly shifted the collections from the Master Association to other condominium associations, in a breach of the directors’ breaches of duty and loyalty, the bankruptcy trustee said in a release.

At the same time, D.R. Horton allegedly cut amenities to cut costs and allegedly deceived existing and prospective homeowners by publishing association budgets that understated the uncollectable assessments and amount necessary to run the association. Then it allegedly created false financial statements that inflated the assets to make the master association look solvent, even though it did not have enough money to pay its bills, the bankruptcy trustee said.

“They played around with the budget, they cooked the books,” Mukamal told TRD. “And the judge ruled that they cooked the books.”

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