A lawsuit unsealed in federal court last month alleges dozens of South Florida’s most luxurious country clubs and homeowners associations – including one in Key Biscayne – improperly got as much as $29 million in federal pandemic or “PPP” loans and should be ordered to pay up to triple damages.
The Ocean Club Community Association in Key Biscayne is accused of getting $1 million in CARES Act loans forgiven when it was legally barred from doing so, according to a lawsuit by a man who describes himself as an investor familiar with club operations.
The plaintiff, Wade Riner, has filed dozens of similar lawsuits around the nation, the San Diego Union Tribune reported.
The case, filed in U.S. District Count in Miami, lists 39 properties from Vero Beach to Miami, including large properties like Boca West Master Association, the Williams Island Property Owners Association in Aventura, Frenchman’s Creek Inc. in Palm Beach Gardens, and Mizner Country Club in Delray Beach.
The suit was filed under seal in October 2022 under the federal False Claims Act, enacted to fight fraud during the Civil War and signed into law by President Abraham Lincoln in 1863.
According to the U.S. Justice Department, the statute allows private citizens to file suit on behalf of the federal government and recover up to 30% of the amount recovered, plus attorney fees. Lawsuits are initially sealed while the Justice Department investigates and decides whether to intervene.
The suits have not yet been served on the defendants, and cases against four associations have been settled with agreement of the government. Settlements were not made public. A Houston-based attorney for Riner, Randy Owen, declined to comment but said Sunday the timing for each defendant will vary.
U.S. District Judge Kathleen Williams unsealed the case Nov. 3 after the U.S Attorney’s office in Miami declined intervention for 39 Florida clubs, associations, and condos – including the Ocean Club. Winer claims when Congress passed the CARES Act in March of 2020, it intentionally excluded those specific categories of nonprofit organizations from Small Business Administration (SBA) loans.
“Defendants knowingly told the SBA and participating lenders that they were qualified entities to receive PPP loans, even though they are all not-for-profit homeowners associations, condominium associations, or country clubs that do not qualify as qualified entities under Congress’s act, according to the lawsuit. “They also all knowingly misrepresented their need for these loans.”
Riner’s complaint also argues there was a good reason Congress excluded clubs —because unlike businesses struggling during the pandemic, associations can file property liens for members who don’t pay dues.
“Defendants’ members are particularly wealthy, often with net worth of tens of millions of dollars, and it would not have been a hardship to raise their assessments and/or dues and fees in order to continue operations even assuming the highly doubtful proposition that the pandemic represented a hardship on these defendants,” the suit contends.
Steve Powell, who was president of the Ocean Club in 2020, said applications were reviewed by legal counsel and approved by board members and made via Truist bank (then BB&T). The goal was to keep workers employed when the pandemic forced closure of food and beverage operations, said Powell.
“We believe we were absolutely justified in what we did,” he said. Powell is no longer a resident of the complex. The Independent reached out to current Ocean Club leadership and its law firm for comment, but messages were not returned.
A search by the Independent of a PPP database showed only one other island association, Ocean Lane Plaza, had a forgiven PPP loan, for $27,221. Two private clubs –the Key Biscayne Yacht Club and Key Biscayne Beach Club– both obtained loans that were later largely forgiven: $657,587 for the Yacht Club and $34,380 for the Beach Club, according to ProPublica. None of those entities are named in Riner’s action.
Dana Goldman, a former Sunny Isles Beach mayor and condominium attorney, said Riner’s legal argument struck her as less than altruistic.
“Is it whistleblower? Or is it a little bit of a shakedown?,” she said. The claim, she said, is based on a “technicality” about Congressional intent. And she said, the allegations might fall short of the legal standard when trying to prove that a “false” filing was made “knowingly.”
“What is the standard of ‘knowing?’ Did they get advice from an accountant?” she said.
If so, it might be hard to convince a court that the law applies. Still, she said, the paycheck protection program was a hot topic in the legal community. Fisher Island’s homeowners’ association voted to reject a loan in April, 2020.
But, Goldman said, many associations might opt to settle rather than defend a case in federal court. Adding to the mix: the possibility that some standard commercial insurance policies might not insure a claim where there are allegations of fraud.
“If I were a current resident in one of these associations, I think I’d be very upset because the costs to defend something like this, in some ways, could be exorbitant.”
A spokeswoman for the U.S. Attorney’s office declined to comment because the case is still in front of the court. Judge Williams’ order requires that any dismissal or settlement needs to come back to her for approval. Messages were left for officials at Boca West, Frenchman’s Creek Inc., and Williams Island Property.
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Tony Winton is the editor-in-chief of the Key Biscayne Independent and president of Miami Fourth Estate, Inc. He worked previously at The Associated Press for three decades winning multiple Edward R. Murrow awards. He was president of the News Media Guild, a journalism union, for 10 years. Born in Chicago, he is a graduate of Columbia University. His interests are photography and technology, sailing, cooking, and science fiction.