03-1987 BUTLER etc. v. CORAL REEF

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State: Florida

Court: Florida Third District Court

Docket No: 03-1987 BUTLER etc. v. CORAL REEF

Case Date: 11/26/2003

Preview:NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DISPOSED OF.

IN THE DISTRICT COURT OF APPEAL OF FLORIDA THIRD DISTRICT JULY TERM, A.D. 2003

BUTLER, PAPPAS, WEIHMULLER, etc., et al., Petitioners,

** ** **

vs. ** CORAL REEF OF KEY BISCAYNE DEVELOPERS, INC., et al., Respondents. ** **

CASE NOS.

3D03-1987 & 3D03-1975 01-11194

LOWER TRIBUNAL NO.

Opinion filed November 26, 2003. A Writ of Certiorari to the Circuit Court for Miami-Dade County, Jennifer D. Bailey, Judge. Carlton Fields, and Frederick T. Hawkes, and Nicole R. Rekant, and Thomas E. Warner; and Holland & Knight, and Rodolfo Sorondo, Jr., and Ilene L. Pabian, and Lucinda A. Hoffman, for petitioners. Gonzalo R. Dorta; and Billbrough and Marks, and Geoffrey Marks; and Colson, Matthews, Martinez & Mendoza, and Ervin A. Gonzalez; and Manny Kadre; and Kuvin & Stettin, for respondents. Before SCHWARTZ, C.J.,* and FLETCHER, and RAMIREZ, JJ. RAMIREZ, J.

_____________________ *Chief Judge Schwartz did not hear oral argument. Petitioners Butler, Pappas, Weihmuller, Katz, Craig, LLP, attorney John J. Pappas (AButler Firm@), and Certain Interested Underwriters at Lloyd=s, London (ALloyd=s@) seek to quash an order compelling the discovery of certain documents alleged to be

covered by the attorney-client privilege.

We grant the petition

because the conduct of the insurer did not amount to insurance fraud upon the insured under the circumstances of this case. Respondent Coral Reef of Key Biscayne Developers, Inc. owns a rental apartment building in Key Biscayne, Florida and Lloyd=s is Coral Reef=s property insurer. In the fall of 1999, Coral

Reef and its principal, Homero Meruelo, Jr., who had a prior conviction for insurance fraud, submitted two claims of loss to Lloyd=s in the sum of $1.45 million. cost to repair property damage The claims represented the by hidden decay and

caused

collapse.

Coral Reef retained Frank Inguanzo of EPIC Group as

its public adjuster and based the amount of its claim on a $1.45 million estimate from contractor Andre Fuxa of Star Restoration, Inc. Lloyd=s retained Concorde Adjusting, Inc. and its principal, Jon Stettin, as its independent adjuster. Stettin estimated

Coral Reef=s covered damages at approximately $500,000.00. Lloyd=s settled the claim in December of 1999 for $551,021.80 and paid

Coral Reef $440,817.44, but held back $110,204.36 pending the commencement of repair work to the property. In September of

2000, Coral Reef sued Lloyd=s seeking to recover the held back amount. Lloyd=s retained the Butler Firm to represent it. In May of 2000, the property, prior to the commencement of repair work to

Meruelo, Jr. submitted on Coral Reef=s behalf

three additional claims of loss for the sum of $4.76 million. Coral Reef based the amount of this claim on an estimate from Coastal Insurance Repair, Inc., an agency under the investigation of the Department of Insurance for improper inflation of

insurance claims. Lloyd=s subsequently requested additional information from Coral Reef in order to reach a decision upon the claims and asked to conduct an examination under oath. On January 11, 2001, Lloyd=s denied Coral Reef=s claim

through Stettin.

Lloyd=s relied

upon Coral Reef=s breach of four

insurance contract provisions, including failure to cooperate, failure to produce books and records, failure to submit to an examination under oath, and intentional misrepresentation and concealment of material facts. Reef filed suit prior to Lloyd=s also stated that Coral fulfilled its contractual

having

obligations and that Coral Reef Aattempted to commit insurance fraud.@ 3

In

May

of

2001,

Coral

Reef

sued

Lloyd=s

for

breach

of

contract and declaratory judgment on the $4.76 million insurance claim. Coral Reef later amended its complaint and included a

defamation count against Lloyd=s, Concorde Adjusting, and Stettin. The

Butler Firm, who represented all of the defendants, had the case removed to federal court who later remanded the case back to state court for further proceedings. In response to Coral Reef=s discovery requests, Lloyd=s and Concorde filed objections and privilege logs arguing that Coral Reef=s requests included documents covered by attorney-client

privilege.

Coral Reef moved to compel production contending that

the documents addressed the truth and motive for the statements in the denial letter and went to the heart of the defamation claims and that the privileged communications would help

determine the factual basis for the defamatory statements in the January 11, 2001 denial letter. On October 9, 2002, the trial court ordered an initial

hearing to determine whether the crime-fraud exception applied to the attorney-client privilege. The trial court also requested

that the parties address what evidence Coral Reef relied upon to demonstrate a prima facie case, the admissibility of that

evidence, and the crime-fraud which would support application of 4

the

exception,

with

particular

attention

paid

to

sections

817.234(7) and 817.234(1)(a)3.a., Florida Statutes, relating to false and fraudulent insurance claims. At the November 26, 2002 hearing on whether the crime-fraud exception applied, the trial court found that Coral Reef

established a prima facie case to conduct an evidentiary hearing to determine whether a crime or fraud was committed and hence applied to the attorney-client privilege, under section

90.502(4), Florida Statutes. In support of Coral Reef=s prima facie case that the crime-fraud exception applied, the trial court only considered an affidavit from Inguanzo filed on July 4, 2001. An extensive evidentiary hearing followed. On June 23, 2003, the trial court issued its order and concluded that the attorneyclient privilege had been waived. The Crime-Fraud Exception The attorney-client privilege is widely recognized and

applies to all confidential communications between a client and its attorney Amade in the rendition of legal services,@ unless the communication falls within a statutory exception to the

privilege.

See ' 90.502(2), Fla. Stat. (2003).

See also Haskell

Co. v. Georgia Pac. Corp., 684 So. 2d 297, 298 (Fla. 5th DCA 1996)(holding that confidential communications are not subject to 5

disclosure,

unless

one

of

the

statutory

exceptions

to

the

privilege applies). Under section 90.502(4)(a), Florida Statutes (2003), there is no attorney-client privilege, as provided for in section when A[t]he services of the lawyer were sought or

90.502(2),

obtained to enable or aid anyone to commit or plan to commit what the client knew was a crime or fraud.@ See First Union Nat=l Bank This

v. Turney, 824 So. 2d 172, 186-187 (Fla. 1st DCA 2001).

crime-fraud exception thus effectively eliminates the privileged character of an with attorneythe client in communication order to if the client or

communicates

attorney

obtain

advice

assistance to perpetuate what the client knows to be a crime or fraud. Id. Application of the Crime-Fraud Exception The trial court determines whether an attorney-client

communication falls within any of the statutory exceptions to the privilege. See American Tobacco Co. v. State, 697 So. 2d 1249, First, the party that seeks disclosure must allege that the

1253 (Fla. 4th DCA 1997). of the privileged

communications

communication was made as part of an effort to perpetrate a crime or fraud, and the party must also specify the crime or fraud. See Florida Mining & Materials Corp. v. Continental Cas. Co., 556 So. 2d 518, 519 (Fla. 2d DCA 1990)(holding that the party seeking 6

discovery of the privileged communication must allege that the client Aaffirmatively sought the advise of counsel to procure a fraud@ before the application of the statutory crime-fraud

exception). Second, the party that seeks disclosure must establish a prima facie case that the party asserting the attorney-client privilege sought the attorney=s advice in order to commit, or in an attempt to commit, a crime or fraud. See Florida Mining, 556

So. 2d at 519; First Union Nat=l Bank v. Whitener, 715 So. 2d 979, 982 (Fla. 5th DCA 1998)(stating that A[t]he party seeking to

invoke the fraud exception must present prima facie evidence that the client sought the advice of counsel to procure a fraud.@). Under section 817.234(1)(a), Florida Statutes (2003), a

person commits insurance fraud when that person, Awith the intent to injure, defraud, or deceive any insurer,@ does the following: 1. Presents or causes to be presented any written or oral statement as part of, or in support of, a claim for payment or other benefit pursuant to an insurance policy or a health maintenance organization subscriber or provider contract, knowing that such statement contains any false, incomplete, or misleading information concerning any fact or thing material to such claim. Subsection (7) also provides: The provisions of this section shall also apply as to any insurer or adjusting firm or its agents or representatives who, with intent, injure, defraud, or deceive any 7

claimant with regard to any claim. The claimant shall have the right to recover the damages provided in this section. The trial court may review attorney-client communications in camera to determine and its its the applicability to conduct of such See the a crime-fraud review lies v.

exception, entirely

decision sound

within

discretion.

United

States

Zolin, 491 U.S. 554, 572 (1989).

This determination is dependent

upon whether the client=s communication was made in furtherance of a crime or fraud. See Triple Five of Minn., Inc v. Simon, 213

F.R.D. 324, 326 (D. Minn. 2002). If the trial court determines that the crime-fraud exception applies, the client for the is entitled to or provide its a reasonable at an

explanation

communication

conduct

evidentiary hearing, see Turney, 824 So. 2d at 183 and Eight Hundred, Inc v. Florida Dept. of Rev., 837 So. 2d 574, 576 (Fla. 1st DCA 2003), at which the client carries the burden of

persuasion to give a reasonable explanation for its communication or conduct. See American Tobacco, 697 So. 2d at 1256. The Prima Facie Case Coral Reef in this case must have alleged that the

communications between Lloyd=s and the Butler Firm were made as part of Lloyd=s effort to perpetrate what they knew to be a crime or 8 fraud as defined in sections 817.234(1)(a) or 817.234(7),

Florida Statutes (2003).

Coral Reef=s argument is that Lloyd=s

accused Coral Reef of fraud with the intent to injure, defraud, or deceive Coral Reef with regard to its claim. Coral Reef had

the burden to produce prima facie evidence sufficient for the trier of fact to determine the applicability of the crime-fraud exception. Lloyd=s in turn carried the burden of persuasion to

give a reasonable explanation for its conduct or communication. We do not find that Coral Reef made its threshold showing through the production of prima facie evidence of the existence of an underlying crime or fraud. did not commit insurance fraud We instead conclude that Lloyd=s through the inclusion of the

sentence in its denial letter that Coral Reef had Aattempted to commit insurance fraud;@ and the denial letter did not contain false, incomplete, or misleading information and was not intended to injure, defraud, or deceive Coral Reef. Lloyd=s had a

reasonable basis to believe that Coral Reef had attempted to commit insurance fraud at the time in which it issued the denial letter. First, Lloyd=s believed that the second claim of loss was grossly inflated. claim of loss. The claim was more than triple the initial

Although, as Coral Reef argues, Lloyd=s admitted

that the first claim was a covered claim and Lloyd=s expected to receive 9 a supplemental claim, the second claim nonetheless

created a highly suspect disparity between the first and second claim of loss that could not readily be dismissed as a valuation difference. The second claim was also vastly disproportionate to Second, Lloyd=s understood that

the original settlement amount.

Coral Reef had not undertaken any repairs to the property prior to its submission of the second claim of loss, which could have justified the increase in the claim. Third, Lloyd=s knew that

Meruelo, Jr., the individual who signed the second claim of loss, had previously been convicted of property insurance fraud.

Meruelo, Jr.=s disassociation as an officer of Coral Reef and Lloyd=s knowledge of his fraud conviction prior to its issuance

of any payment to Coral Reef does not at all undermine Lloyd=s suspicion that Coral Reef was nonetheless attempting to defraud them. Finally, Lloyd=s knew that Coastal Insurance Repair, Inc., the company on which to prepared the the estimate claim of that of Coral loss, for Reef was had

relied

submit by the

second

under

investigation

Department

Insurance

improper this

inflation of insurance estimates.

Coral Reef argues that

investigation was not at all linked to Coral Reef and there was no evidence that suggested that the investigation had any

relation to the relevant claim of loss.

The dispositive question

is whether the investigation, coupled with Meruelo, Jr.=s prior 10

fraud conviction, other reasons notwithstanding, gave rise to a legitimate reasonable belief of fraud on the part of Coral Reef.

These reasons were sufficient to support Lloyd=s reasonable belief that Coral Reef had attempted to commit insurance fraud. The trial court thus departed from the essential requirements of the law and consequently misapplied the crime-fraud exception to Lloyd=s privileged communications. We therefore quash the order in which the trial court

concluded that Lloyd=s had waived the attorney-client privilege under the crime-fraud exception. We decline to address the

remaining issues in the petition. Petition granted.

11

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