Flagship Bank of Orlando v. Reinman, Harrell, Silberhorn, Moule & Graham, P.A.

Land promotors purchased three separate tracts of land in Florida. The promoters then created a land trust for the parcels and sold beneficial interest shares to members of the public. However, when the promoters transferred title to the land parcels to the trust, they retained a portion of each parcel for their own benefit (the retained land). Subsequently, the Securities Exchange Commission (SEC) filed an action against the promotors for securities-law violations and sought to have the promotors return the retained land to the trust. The federal trial court appointed Flagship Bank of Orlando (plaintiff) as the successor trustee and receiver. The promotors then failed to pay taxes on the retained land, and the state held a tax deed sale to recover the taxes. Flagship’s petition to stay the tax deed sale was denied, but the federal court authorized Flagship to redeem the tax certificates and thereby recover the retained land for the trusts. Flagship failed to redeem the tax certificates, and the retained land was sold to third parties. Reinman, Harrell, Silberhorn, Moule & Graham, P.A. (Reinman) (defendant) then replaced Flagship as the trustee. Subsequently, the federal court held that the trusts were entitled to the retained land and ordered Flagship to pay damages to Reinman, as trustee, equal to the market value of the lost land at the time of trial. Flagship appealed, arguing that (1) the trust instrument did not explicitly include a duty to protect the retained land from tax deed sale; and (2) because it did not act in bad faith, the proper measure of damages was the market value of the land at the time of the tax deed sale, not at the time of trial.