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Filing# 140223973 E-Filed 12/13/2021 10:04:30 AM
IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT
IN AND FOR BROWARD COUNTY, FLORIDA
CIVIL DIVISION
JOSEPH AND MARY SCOTT
Plaintiff.
V
CASE NO- CACE 18-27774
STATE FARM FLORIDA INSURANCE
COMPANY,
Defendant.
i
PLAINTIFFS' MOTION FOR PROTECTIVE ORDER
COMES NOW, the Plaintiffs,JOSEPH AND MARY SCOTT ("Plaintiffs"),
by
and through the undersigned counsel, and pursuant to Fla. R. Civ. P. 1.280(c),moves for
a protectiveorder limitingthe scope of any discoveryand/or the depositionsof (i)Kelly
Kubiakl;(ii)Donna Alvarez; (iii)
Sandra Baldinelli;(iv)Joseph Scott;and (v)Mary Scott
againstMerlin Law Group, PA ("Merlin").As grounds of support thereof,Plaintiff states
the following:
Relevant Facts
1.
This case arises from a property insurance claim made by Plaintiffs to
their insurer,State Farm Florida Insurance Company ("Defendant").Plaintiff retained the
Merlin law firm via a contingencyfee agreement.
2.
On or about late January 2021, Plaintiff's counsel notified Merlin that she
was leavingMerlin's employ and startingher own law firm.
3
On February 3, 2021, Plaintiff dischargedthe Merlin law firm and elected
to have Kelly Kubiak, Esq. continue to represent her at her new firm2
land/or Kubiak Law Group, PLLC
2 Attached hereto as Exhibit "A".
*** FILED: BROWARD COUNTY, FL BRENDA D. FORMAN, CLERK 12/13/2021 03:47:00 PM.****
4.
On or about March 20, 2021, Merlin filed a Notice of Charging Lien in
this matterl
5.
This matter settled between the Plaintiff and Defendant on June 30,2021.
6.
By
dated October 14, 2021, Merlin's attorney(s)
requestedthe depositionsof the aforementioned former employees of Merlin as well as
the Plaintifft
Introduction
What would normally be a simple,straight-forward
charging lien matter between
a law firm and one of its former attorneys/employeesappears to have devolved into
"delay at all costs" litigation
as well as an attempt by Merlin to obtain discovery for the
Hillsborough County Case it filed againstPlaintiffs' counsel.
Tactics such as these
should not be
5
condoned; but are not uncommon with the Merlin firm.
Plaintiff
respectfully
requests that this Honorable Court grant its Motion for Protective Order as
referenced below6.
Memorandum of Law
Plaintiff requests a protectiveorder regarding these discovery and depositions
pursuant to Fla. R. Civ. Pro. 1.280(c)which states in pertinentpart, as follows:
Upon motion by a party or by the person from whom the
discoveryis sought,and for good cause shown, the Court in
3 A copy of the Charging Lien is attached hereto as Exhibit B.
4 A copy of the
is attached hereto as Exhibit C.
5 One federal court judge specificallystated that Merlin litigatedin bad faith. In Auto Owners v. Summit
Park, (Order attached as Exhibit D), Merlin's litigation
tactics were so outrageous that a federal district
court judge personally sanctioned two of Merlin' s Florida-based attorneys $354,350,65 in fees and
expenses.
The judge noted that "it is proper to attribute (the individual MLG attorney's) bad faith to the Merlin
Firm given that the lawyers' actions were indistinguishablefrom those of [thel firm and in opposing [thel
sanctions, the firm consistently accepted resnonsibilitv for conducting the underlvine litigation." p. 10.
Notably, a United States Court of Appeals affirmed the court's ruling (Order attached as Exhibit E). While
reference to such other matters is not normally relevant, given the nature of Merlin' s litigationtactics here,
it is pertinentfor the Court to have a clear understanding and context of how, and what, Merlin is doing in
this matter.
6 In the Wherefore paragraph.
2
which the action is pending may make any order to protect a
party or person from annoyance, embarrassment, oppression,or
undue burden or expense that justicerequires,includingone or
more ofthe following(1)that the discoverynot be had; (2)that
discovery be had only on specifiedterms and conditions,
includinga designationof the time or place;(3)that discovery
may be had only by a method of discovery other than that
selected by the partiesseeking discovery; (4) that certain
matters not be inquiredinto,or that the scope of the discovery
be limited to certain matters; (5) that discoverybe conducted
with no one present except persons designatedby the Court; (6)
that a depositionafter being sealed be opened only by order of
the Court; (7)that a trade secret or other confidential research,
development, or commercial information not be disclosed or be
disclosed only in a designatedway; and (8) that the parties
simultaneously file
specified documents
or
information
enclosed in sealed envelopes to be opened as directed by the
Court.
I).
THE VALUE OF MERLIN'S CHARGING LIEN IS THE ONLY ISSUE
BEFORE THE COURT; NOT THE VALUE OF ATTORNEY KUBIAK
AND/OR KUBIAK LAW GROUP, PLLC'S LEGAL SERVICES.
Stated in its simplestterms, Plaintiff originallycontracted with Merlin firm for
legalservices to be provided by attorney Kelly Kubiak, her associates,and legalstaff.
Plaintiff and Merlin entered into a written contingency fee agreement. After attorney
Kubiak left Merlin's employ, Plaintiff dischargedMerlin as Plaintiff's attorney. Plaintiff
then elected to retain attorney Kubiak at her new firm to continue representingPlaintiff in
the underlying case. Merlin subsequently filed a charging lien for fees and costs. These
facts are undisputed.
Searcy,Denney, Scarola, Barnhardt & Shipley,P.A. v. Polet, 651 So.ld 366 (jAa.
1995), holds that when a discharged law firm files a charging lien to recover fees and
costs, the Court's role is to determine the 'value' of the discharged law firm's charging
lien (emphasis added).
3
To brieflysynopsizethe pertinentfacts of Searcy,Taylor was a Florida licensed
attorney at the Searcy law firm and was assigned to work on the Poletz casel He
eventuallyleft the firm for other employment opportunities.Shortly thereafter,the
parents of Poletz discharged the Searcy law firm and retained Taylor at his new firm.
The Searcy law firm ultimatelyfiled a charging lien for fees and costs; and litigation
ensued over the value of Searcy'scharginglien.
Searcy appealed the Court's decision that their fee "should be determined by
using the Rowe factors but no contingencyrisk multipliershould be applied".Searcy at
367.
The Florida Supreme Court stated that "we are now asked to decide whether the
lodestar method of computing reasonable attorneys fees... should be applied..."
Searcy at 368. The Court held that it should not; and reasoned as follows:
".
while
the
time
.
.
reasonably devoted
to
the
representationand a reasonable hourly rate are factors to be
considered in determininga proper quantum meruit award,
the court must consider all relevant factors surroundingthe
professional
relationship
to ensure that the award is fair to
both the attorney and client. See Reid, Johnson, Downes,
Andrachik & Webster v. Lansbero, 68 Ohio St.3d 570,629
N.E.2d 431, 436-437 (1994) (totalityof circumstances
surrounding each
situation
should
be
considered
in
determiningreasonable value of dischargedcontingent-fee
attorney'sservices in quantum meruit).Applicationof the
factors set forth in Rule Regulating The Florida Bar 4-
1.5(b),48
may provide a good startingpoint. However,
7 Taylor spent approx. 340 hours working on Poletz. The case involved a traumatic brain injury.
8 Rule regulating the Florida Bar 4-1.5 provides the following factors to be considered in determining a
reasonable fee:
(1) the time and labor required,the novelty, complexity, and difficultyof the questions involved, and the
skill requisiteto perform the legalservice properly;
(2) the likelihood that the acceptance of the particularemployment will preclude other employment by the
lawyeri
(3) the fee, or rate of fee, customarily charged in the localityfor the legal services of a comparable or
similar nature;
(4) the significanceof, or amount involved in, the subject matter of the representation,the responsibility
involved in the representation,
and the results obtained;
(5) the time limitations imposed by the client or by the circumstances and, as between attorney and client,
any additional or specialtime demands or requests of the attorney by the client;
(6) the nature and lengthof the professionalrelationship
with the client;
(7) the experience,reputation,diligence,and abilityof the lawyer or lawyers performing the service and the
skill,expertise,or efficiencyof effort reflected in the actual providing of such services; and
4
because the factors relevant to the determination of the
reasonable value of services rendered will vary from case
to
case,
the
court
is
not limited to consideration of
the Rowe factors. The court must consider any other factors
surroundingthe professional
relationship
that would assist
the court in fashioningan award that is fair to both the
attorney and client. For example, the fee agreement itself,
the reason the attorney was discharged,actions taken by the
attorney or client before or after discharge,and the benefit
actuallyconferred on the client may be relevant to that
determination. The determination as to which factors are
relevant in a given case, the weight to be given each factor
and the ultimate determination as to the amount to be
awarded are matters within the sound discretion of the trial
court". Searcy at 369.
Importantly,neither Searcy nor any of its progeny hold that a necessary step in
determining the value of the discharged law firm's charging lien is also determining the
value of the successor law firm's legalservices. Searcywas clear that the Court's focus
is on 'valuing'the legalservices ofthe discharged lawfirm when it said:
In determiningattorney fee to award to law firm that was discharged by client
from contingency fee contract, trial court should have considered totalityof
factors present in case, instead of only consideringtime reasonablyexpended and
reasonable hourlyrate for services. Searcy,Headnote [2]'.
II).
MERLIN'S
ASSERTION THAT THIS COURT MUST ALLOW
DISCOVERY10 AND MUST DETERMINE THE VALUE OF ATTORNEY
KUBIAK AND/OR KUBIAK LAW GROUP'S LEGAL SERVICES PRIOR
TO ITS DETERMINATION OF THE VALUE OF MERLIN'S CHARGING
LIEN IS A LEGAL FICTION BASED IN NEITHER LAW NOR FACT.
Defendant falselyasserts that this Honorable Court, in essence, is compelled to (i)
allow Defendant to conduct discovery into the legalservices provided to Plaintiff by
(8) whether the fee is fixed or contingent,and, if fixed as to amount or rate, then whether the client's ability
to pay rested to any significantdegree on the outcome of the representation.
g One noteworthy case thatreiterakswhat Searcy standsfor is Scherer v. Austin Roe Basquill,P.A., 2021
Hl 2446947, (2ndDCA). While the case involved a partner of a law firm leavingto start his own law firm
(as opposed to the instant matter where the departing attorney was neither a partner nor had any equity in
the firm), Scherer is an example of the Searcy progeny that looked to the Fla. Bar Rule 4-1.5 factors.
Additionally,the Scherer court also looked at the identical factors that the Florida Supreme Court looked to
when deciding the 'value' of the discharged firms' legal services using a modified quantum meruit
application. Notably, nowhere does it suggest that the Court must, and/or even should, look at the
departinglawyer'slegalservices (post-departure)nor the 'value' of the departinglawyer'slegalservices.
10' Regarding legal services provided by the successor law firm and the 'value' of said services.
5
attorney Kubiak and/or Kubiak Law Group, and (ii)
must factor in the 'value' of attorney
Kubiak and/or Kubiak Law Group's legalservices provided to Plaintiff after Merlin was
discharged.
The one, and only,pointthat Plaintiff and Defendant can agree on in this matter is
that Searcy does speak to charging lien issues in Florida such as this. Searcy says the
? totality05 circumstances surrounding each situation should be considered in
determining reasonable value of discharged contingent-fee attorney's services in
quantum meruif' Id. at 369. After that,the partiesdiffer greatlyas to what Searcy stands
for.
Searcy addresses a specificissue - [H]ow courts throughout the state of Florida
should 'value' a dischargedlaw firm's (emphasis added) legalservices in the context of
a charginglien that is based on a contingencyfee contract.
Merlin asserts that it is entitled to conduct discoveryinto the successor law firm's
legal services provided to its ex-client.
Further, Merlin asserts that this Court is
necessarilycompelled to 'value' the successor law firm's legal services before it can
determine the 'value' of the dischargedlaw firm's legalservices. Neither Searcy nor the
Florida Bar Rule 4-1.5 stand for such an absurd proposition. Stated another way,
allowing such discovery opens up a Pandora's box of discovery that is irrelevant and
violative of, among other things,Plaintiff's attorney/client
privilegedcommunications
with Plaintiff' s chosen lawyer(s).
As noted above, Plaintiff/Scott and Merlin are the two partieswho entered into a
contractual relationship.The Scott/Merlin fee agreement serves as the basis of the
charging lien. Merlin's charging lien is at issue. That is the only charging lien at issue.
What the successor law firm has done since Merlin was dischargedis wholly irrelevant.
Proof is in the fact that even a cursory review of all the factors referenced by Florida Bar
6
Rule 4-1.5, as well as the factors set forth by the Florida Supreme Court in Searcy,makes
it apparent that the Court's sole focus is on the dischargedlaw firm as opposed to the
successor law firm. There is no suggestion,much less an assertion,by either the Florida
Supreme Court and/or the Florida Bar that a successor law firm's legalservices somehow
are relevant to a discharged law firms charging lien. Such claims are simply a legal
fiction created by Merlin.
III).
THE 'VALUE' OF EITHER ATTORNEY KUBIAK AND/OR KUBIAK
LAW GROUP'S LEGAL SERVICES PROVIDED TO PLAINTIFF AFTER
MERLIN'S DISCHARGE IS IRRELEFANT TO THE 'VALUE' OF
MERLIN'S CHARGING LIEN.
Neither Searcy, its progeny, nor Florida Bar Rule 4-1.5 contemplate that in a
charging lien casell a Court must (i)allow discoveryrelated to the successor law firm's
legalservices,or (ii)place a 'value' on the successor law firms legalservices. Such a
request by Defendant is wholly irrelevant.
Relevant evidence is evidence that tends to prove or disprovea material fact. Fla.
Stat.
§90.401.
Analogous to a Motion in Limine when one party to a lawsuit is
attemptingto introduce irrelevant evidence to a jury,evidence on a purelycollateral issue
that would only serve to confuse and mislead the jury is too remote and should be
excluded. Donahue v. Albertson's Inc.,472 So.2d 482, 483 (Fla.4th DCA 1985). To the
extent that evidence is relevant,it will nevertheless be ruled inadmissible if its probative
value is substantially
outweighed by the danger of unfair prejudicetoward Plaintiffs and
would likelymislead or confuse the jury.Fla. Stat. §90.403.
Whatever legal services attorney Kubiak and/or Kubiak Law Group, PLLC
provided after Plaintiff dischargedthe Merlin law firm and retained Kubiak Law Group is
irrelevant to 'valuing'Merlin's legalservices while they representedPlaintiff.
11 Where a discharged law firm had a contingency fee agreement with a client such as this case.
7
IV).
MERLIN'S DISCOVERY REQUESTS RUN AFOUL OF THE LAW,
ATTORNEY/CLIENT PRIVILEGE, AND WORK-PRODUCT.
Merlin's attempt(s)to overreach in the discovery phase and obtain irrelevant,
attorney/clientprivileged communications,
and/or
work-product is
objectionable.
Further,Merlin's request(s)are obvious attempts to utilize the discoveryprocess in this
matter in order to hopefullygenerate discovery related to the Hillsborough County
lawsuit it has filed that involves Merlin and Attorney Kubiak.
Any inquiryinto the 'value' of legalservices provided by a successor law firm is
irrelevant to Merlin's charginglien;and as such,is an overreach.
Most illustrative,however, of Merlin's offensive overreaching discovery
request(s)is/are that Merlin insists that it is entitled to, among other things,
"correspondence with the client before and after KLG took over".
In other words,
Merlin asserts that even after it was dischargedas Plaintiff's attorney, it is entitled to the
attorney/client
privilegedcommunication(s)between Plaintiff and Kubiak Law Group.
Certiorari review "is appropriatein cases that allow discovery of privileged
information. This is because once privilegedinformation DCA 2005) is disclosed,there
is no remedy for the destruction of the privilegeavailable on direct appeal." Esmte OJ
Stephens v. Galen Health Care, Inc.,911 So.2d 277,279 (Fla.24 DCA). "Waiver of the
.,
attorney-client
and work-product privilegesis not favored in Florida", Coates v.
Akerman, Senterfitt
& Eidson, P.A.,940 Sold504 (7,nd DCA 2006) citingUG Ins. Corp
th
of Am. V. Johnson, 799 SO.2d 339, 341 (f DCA 2001). "A party does not waive the
attorney-client
privilegemerely by bringingor defendinga lawsuit",Coates at 508 citing
to Lee v. ProgressiveExpress Ins. Co., 909 So.2d 475 (4?h
DCA 2005). The mere fact
that two attorneys may be representinga singleclient on the same matter does not waive
the privilegethat the client has to prevent his or her confidential communications to one
8
of his or her lawyers from being revealed to the other lawyer". Coates at 510 citingto
Volpe v. Conroy, Simberg & Ganon,P.A., 720 So.2d 537,539 (4?DCA 1998). Merlin's
attempts to use this Court's time and resources to generate discoveryin other cases is
improper.
WHEREFORE, the Plaintiffs,JOSEPH & MARY SCOTT respectfullyrequests
this Honorable Court to enter an Order limitingthe scope of any discoveryand/or the
depositionsof Kelly Kubiak, Donna Alvarez, Sandra Baldinelli,Joseph Scott, and Mary
Scott as such:
1.
Defendant is prohibited in discovery and/or in deposition(s)from
inquiringas to the 'value' of legalservices provided by attorney Kelly Kubiak and/or
Kubiak Law Group, PLLC subsequentto Merlin's dischargeas Plaintiff's counsel.
2.
Defendant is prohibited in discovery and/or in deposition(s)from
inquiringinto the scope, extent, manner, and/or type of legal services provided by
attorney Kelly Kubiak and/or Kubiak Law Group, PLLC subsequent to Merlin's
dischargeas Plaintiff's counsel.
3
Defendant is prohibited in discovery and/or in deposition(s)from
inquiringas to attorney/client
privilegedcommunications between Plaintiff and attorney
Kubiak and/or any member of Kubiak Law Group, PLLC.
4.
Defendant is prohibited in discovery and/or in deposition(s)from
inquiringas to attorney Kubiak and/or Kubiak Law Group's work-product.
5.
Defendant's discovery request(s)and/or inquiry during deposition(s)is
limited to the instant matter only.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoinghas been filed
with the court through the Florida Court's E-FilingPortal to: Scott Mager, Esquire and
9
Jesse Fulton, Esquire of Mager Paruas, LLC, 2719 Hollywood Blvd., 2nd Floor,
Hollywood,
FL
33020
(service@mpjustice.com;
th
cecile@mpjustice.com)on this 13
day ofDecember, 2021.
/S/ Kelly L. Kubiak
KELLY L. KUBIAK, ESQ.
Florida Bar No. 108952
KUBIAK LAW GROUP, PLLC
4904 W. Cypress Street
Tampa, Florida 33607
TELEPHONE: (813)542-0800
FACSIMILE: (813) 542-7899
Attorneys for Plaintiff
kkubiak@kubiaklawgroup.com
kubiakpleadings@kubiaklawgroup.com
10
Donna Alvarez
From:
KellyKubiak
Sent:
Tuesday, February2,2021 9:45 AM
To:
Keona Williams
CC
Donna Alvarez; Donna Alvarez
Subject:
FW: Joseph and Mary Scott vs. State Farm Insurance
From:
Sent: Tuesday, February 2, 2021 9:42 AM
To: Kelly Kubiak ; northernpublicadjusters@gmail.com;
Subject: Joseph and Mary Scott vs. State Farm Insurance
Attorney Kubiak,
We, Mary and Joseph Scott, send this request to retain your continued services as our Attorney for the case we have filed
against our insurance carrier State Farm. My understanding is that we will not be held financially liable in any way to
Merlin Law Group now or in the future. If this is an incorrect, or incomplete, interpretationof our legal responsibilities
please advise.
We will also be forwarding to you the last communication we received from Merlin Law Group.
Our number is
and my cell
Please do not hesitate to call with
.
any questions.
Sincerely,
Joseph and Mary Scott
191 SE 13th Ave.
Pompano Beach, FI. 33060
EX IBIT "A"
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1
Filing# 123455594 E-Filed 03/20/2021 08:37:49 PM
IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT
IN AND FOR BROWARD COUNTY, FLORIDA
CIVIL DIVISION
JOSEPH & MARY SCOTT,
Plaintiffs,
Case No. CACE-18-027774
V
STATE FARM FLORIDA INSURANCE COMPANY,
Defendant.
i
NOTICE OF CHARGING LIEN OF MERLIN LAW GROUP, P.A.
NOTICE IS HEREBY GIVEN THAT Merlin Law Group, P.A., as former counsel for
the Plaintiffs,JOSEPH & MARY SCOTT, hereby gives notice of its intention to enforce a
charginglien for attorney'sfees and costs againstany property or funds received or receivable by
Plaintiffs in this action whether by settlement,judgment, or otherwise or which was an issue in
this instant action,and in support thereof states as follows:
1.
This charginglien results by operationof law.
2.
Merlin Law Group, P.A. acted as counsel of record for Plaintiffs until being
substituted as counsel of record by another law firm pursuant to the received confirmation of the
Plaintiffs.
3
This notice is being filed to protect the rightsand interest of Merlin Law Group,
P.A. and remains in effect until released or withdrawn.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on March 20, 2021, the foregoinghas been electronically
filed
with the Clerk of Court by usingthe Florida Courts e-FilingPortal system which will send a Notice
of Electronic Filingto all counsel of record as follows: Law Office of Ubaldo J. Perez, Jr.,P.A.,
1
EXHIBIT "B II
Maria Klein,Esq.,Ubaldo J. Perez, Jr.,Esq., 14361 Commerce Way, Suite 201, Miami Lakes, FL
33016, uperez@uperezlaw.com;
and Kubiak Law Group, PLLC, Kelly
Kubiak, Esq., 4904 W. Cypress Street, Tampa, FL 33607, kkubiak@kubiaklawgroup.com,
kubiakpleadings@kubiaklawgroup.com.
MERLIN LAW GROUP, P.A.
/s/ William F. Merlin, Jr., Esq.
William F. Merlin, Jr., Esquire
Florida Bar No. 0364721
Merlin Law Group, P.A.
777 S. Harbour Island Blvd., Suite 950
Tampa, FL 33602
Tel: (813)229-1000
Fax: (813)229-3692
Prior Counsel for Plaintiff
cmerlin@merlinlawgroup.com
smerriett@merlinlawgroup.com
trodriguez@merlinlawgroup.com
2
* Personal
-#
Complex/Business Litigation
Injury/PIP
Crime Victim
*
Rights
Property Damage Claims
l<*P'.
Corporate/Contract Work * State and Federal Appeals
Insurance Claims and Referrals for Criminal Defense,
Real Estate and All Other Areas of Law
www.MagerParuas.com
South Florida Location:
Service@MPJustice.com
2719 Hollywood Blvd. = Second Floor
Se Habla EspaAol
Hollywood, FL 33020 = (954) 763- 2800
October 14,2021
VIA E-mail:
kkubiak@kubiaklawgroup.com
dalvarez@kubiaklawgroup.com
Kelly L. Kubiak, Esq.
Kubiak Law Group
4904 W. Cypress Street
Tampa, FL 33607-3802
Re-. Joseph Scott, et al. v. State Farm Florida Insurance Company
Case No. CACE 18-027774
Dear Kelly,
As we have now agreed upon a date for Mr. Duffy to be deposed in his capacityas managing
attorney and corporate representative,
we would like to go ahead and follow-upon our previous
request for dates of availability
for the followingindividuals' deposition:
1.
Kelly Kubiak
2.
Donna Alvarez
3.
Sandra Baldinelli
4.
Joseph Scott with limited topic list of communications and knowledge relatingto the
termination of MLG, the retention of KLG, the process and resolution ofthe case, as well
as charges,services,billingstatements of MLG and KLG, the actions/knowledgerelating
to the time and amount of settlement and any
statement created or to
be created.
5.
Mary Scott with limited topic list of communications and knowledge relatingto the
termination of MLG, the retention of KLG, the process and resolution ofthe case, as well
as charges,services,billingstatements of MLG and KLG, the actions/knowledgerelating
to the time and amount of settlement and any
statement created or to
be created.
EXHIBIT "CII
Kelly L. Kubiak, Esq.
October 14,2021
Page 2 of 2
Please provide us with a selection of dates priorto December 23, 2021 for the coordination of
depositionsof the individuals listed above. If you would like to coordinate a dedicated day to
depose each of those listed above, so that we can try and eliminate the need to schedule mult*le
dates,we are happy to do so. Thank you in advance for your cooperationin this matter.
Very trulyyours,
#ehhecfulton
Jesse Fulton,Esq.
For the Firm
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 1 of 17
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE
Civil Case No. 14-cv-03417-LTB
AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation,
Plaintiff/Counter-Defendant,
V.
SUMMIT PARK TOWNHOME ASSOCIATION, a Colorado corporation,
Defendant/Counter-Plaintiff.
MEMORANDUM OPINION AND ORDER
Babcock, J.
This insurance coverage disputeis before me on Auto-Owners Insurance Company's
("Auto-Owners") Motion for Sanctions [Doc. # 71]. I have reviewed the motion; the response of
Summit Park Townhome Association ("Summit Park")[Doc. # 94];the response of Summit
Park's former counsel of record, Merlin Law Group P.A., and Merlin attorneys William C.
Harris and David J. Pettinato individually[Doc. # 92];Auto-Owners' reply [Doc. # 99];Auto-
Owners' notice withdrawing certain statements in its reply[Doc. #100]; and all attachments to
those filings.I previouslytook oral argument on issues relevant to decidingthe motion and have
determined that further oral argument would not be of material assistance.
For the followingreasons, I GRANT the motion and DISMISS WITH PREJUDICE
Summit Park's counterclaims in this matter pursuant to the Court's inherent authority.I also
assess an award of attorney's fees and expenses againstHarris and Pettinato individually
EXHIBIT "D "
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 2 of 17
pursuant to 28 U.S.C. § 1927. Finally,I award interest to Auto-Owners for the periodSummit
Park wrongfully withheld the appraisalfunds pursuant to Colo. Rev. Stat. § 5-12-102(1)(b).
L Facts
A. Background
Much ofthe background to the instant disputehas been set forth in a priororder, but I
summarize it here for the reader's convenience. See Auto-Owners Ins. Co. v. Summit Park
Townhome Ass'n, -No. 14-CV-03417-LTB, 2016 WL 1321507, at *1 (D. Colo. Apr. 5, 2016)
[Doc. # 69]. Auto-Owners brought this declaratoryjudgment action to determine the extent of
coverage for damage caused by a 2013 hailstorm under a property insurance policyit issued to
Summit Park. Summit Park has since asserted counterclaims allegingbreach of contract, bad
faith breach of insurance contract, and unreasonable delay or denial of benefits under Colo. Rev.
Stat. §§ 10-3-1115, -1116. See Doc. # 45 at 19-23. From the outset of this case until May 2016,
when they withdrew, Summit Park's counsel of record was Merlin Law Group, P.A., and Merlin
attorneys William "Corey" Harris and David J. Pettinato (collectively,
"Merlin").
Shortlyafter this case was filed,Summit Park invoked the appraisalprovisionof the
policy,under which "each party will select a competent and impartialappraiser,"the court
selects an umpire ifthe appraiserscannot agree on a selection,and a "decision agreed to by any
two" of
'..,
the three as to the "value o f the property and amount of loss' 'will be binding." Doc.
# 6-1 at 78. In April 2015, I ordered the appraisalprocess to proceed. Doc. # 17. Summit Park
selected George Keys as its appraiser and Auto-Owners selected Jim Koontz as its appraiser.
Docs. # 24,29. In September 2015, upon the parties'failure to reach agreement on various
2
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 3 of 17
aspects ofthe process, I imposed several guidelines.Doc. # 25. One ofthe guidelinesI
imposed stated:
An individual who has a known, direct,and material interest in the
outcome ofthe appraisalproceeding or a known, existing,and
substantial relationship
with a party may not serve as an appraiser.
Each appraiser must, after making a reasonable inquiry,disclose to
all partiesand any other appraiserany known facts that a
reasonable person would consider likelyto affect his or her
impartiality,
including(a)a financial or personalinterest in the
outcome of the appraisal;and (b)a current or previous relationship
with any of the parties(includingtheir counsel or representatives)
or with any of the participants
in the appraisalproceeding,
includinglicensed publicadjusters,witnesses, another appraiser,or
the umpire. Each appraisershall have a continuingobligationto
disclose to the partiesand to any other appraiserany facts that he
or she learns after accepting appointment that a reasonable person
would consider likelyto affect his or her impartiality.Ifan
appraiserdiscloses a fact requiredto be disclosed pursuant to this
paragraph and a party files an objectionin this Court to the
appointment or continued services of the appraiser no later than 15
days after becoming aware of such fact (or from the date ofthis
order, whichever comes later),
the objectionmay be a ground for
vacating an award made by the appraiser. The same objection
procedure shall apply in the event a party becomes aware of
information bearingon an appraiser'scompetency.
Id. at 12-13. I explained that this guideline"will minimize the risk that the appraisalaward will
need to be vacated" pursuant to the policylanguage requiringthat the appraisersbe impartial.
Id at 9. I also directed that "[t]hepartiesand their counsel shall make every reasonable effort to
ensure that the appraisalprocess proceeds in accordance with this order." Id at 14-15. At the
end ofthe order, I provided the following notice:
NOTICE IS GIVEN THAT, IF THE COURT FINDS THAT THE
PARTIES AND/OR THEIR COUNSEL HAVE NOT COMPLIED
WITH THIS ORDER, THE COURT WILL IMPOSE
SANCTIONS AGAINST THE PARTIES AND/OR THEIR
COUNSEL PURSUANT TO THE COURT'S INHERENT
AUTHORITY.
3
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 4 of 17
Id at 15. I will refer to this as the "disclosure order." Upon the appraisers'
failure to reach an
agreement regardingthe selection of an umpire,I appointedRobert J. Norton to serve in this
role. Doc. # 31.
B. Summit Park's Disclosures
On June 15, 2015, Harris disclosed in a letter to counsel for Auto-Owners that Keys
"does not have any significantpriorbusiness relationshipwith the Merlin Law Group." Doc.
# 60-7. Harris added that Keys "has acted as a publicadjusterand/or appraiseron behalf of
policyholdersthat the Merlin Law Group has representedin the past, however, this obviously
does not affect his abilityto act as an appraiserin this matter." Id On June 19,2015, Auto-
Owners' counsel responded that "[t]heapparentlynumerous relationships
that Keys had with
Merlin Group and its clients raise a serious concern of Keys' impartiality"and requested'Yhat
Keys provide a disclosure of his relationshipswith policyholdersrepresentedby the Merlin Law
Group, how he and his firm were compensated, the number oftimes he served in the
policyholders'roles [sic]as a public adjusterand/or appraiser... and the details ofany services
Keys has provided as an expert (asa retained or non-retained expert) through the Merlin Law
Group." Doc. # 60-8.
Neither Keys nor Merlin ever made the more detailed disclosures requestedin this letter.
On November 24,2015, followingthe Court's disclosure order,Keys disclosed in an email to
Auto-Owners' counsel as follows: "I do not have any substantial business relationshipor
financial interest in Merlin Law Group. There have been cases where both Merlin Law Group
and Keys Claims Consultants [Keys' businesslacted for the same insured but under separate
4
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 5 of 17
contracts." Doc. # 60-12. At a hearing,Harris acknowledged that "we" (presumably one or
more Merlin attorneys)assisted Keys in making this disclosure. Doc. # 69 at 13-14.
C. The Appraisal Award
In December 2015, the appraisalpanel issued its award. Doc. # 35. The award was
signed by Norton (theumpire) and Keys, but not by Koontz (Auto-Owners' chosen appraiser).
On January 20,2016, Auto-Owners paid Summit Park $9,700,025.71, the "actual cash value
("ACV") of the appraisal award (lesscertain adjustmentsnot relevant here)under a reservation
of rightsin accordance with the policy'srequirement that Auto-Owners "pay for covered loss or
damage within 30 days after we receive the sworn proofof loss...if [a]nappraisalaward has
been made." Doc. # 6-1 at 78; Doc. # 59-23. The ACV is the replacement cost value ("RCV")
less depreciation;the policy provides that the RCV will not be paid "until the lost or damaged
property is actuallyrepairedor replaced." Doc. # 6-1 at 84. Before this lawsuit was filed,
Summit Park's publicadjusterestimated an RCV of $7,140,117.82 for the damaged buildings,
includingreplacement of undamaged vinylsidingto achieve matchi,ng,a disputed issue. See 2d
IAm. Compl. 1[28 [Doc. # 6.].The corresponding figurein the appraisalaward in which Keys
participated,
by contrast, was $10,870,090.96,an increase of $3.47 mi,11ion,or 47%. Doc. # 35.
D. Vacatur of Appraisal Award
On January 14,2016, Auto-Owners objectedto Keys' involvement in the appraisal
process and moved to vacate the appraisalaward on the grounds that ithad discovered facts
showing that Keys was not impartialas requiredby the appraisalprovision. Docs. # 41,55. I
heard two hours of oral argument on March 31,2016, at the end of which I sustained the
objectionand vacated the appraisal
award. Doc. # 68. In a written order dated April 5,2016, I
5
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 6 of 17
explained that Keys cannot be considered impartialbecause, "[ilnaddition to working on dozens
of prior cases in which Keys was retained by the policyholder,Merlin and/or Merlin attorneys
have served as Keys' personalcounsel, served as incorporator and registeredagent for Keys'
companies, taughtwith Keys, and donated to a Keys-led group involved in pro-policyholder
lobbying." Doc. # 69 at 10. I also noted that Summit Park initially
had retained Keys under a
contract that fixed his compensation at "$350 per hour as well as expenses not to exceed 10% of
the amounts paid to" Summit Park in this case. Id at 11. While the contingent-capfee
agreement was replacedthree to four months into Keys' engagement, I explained that,because
"the higherhis appraisal,the higherthe cap on his fee,"Keys could not be considered impartial,
even if he only worked under this agreement for a short period.Id (quotingColorado Hosp.
Servs. Inc. v. Owners Ins. Co.,No. 14-CV-001859-RBJ, 2015 WL 4245821, at *2 (D. Colo. July
14,2015)).
I noted that my disclosure order requireda reasonable inquiryinto and disclosure of any :..
facts a reasonable, person would consider likelyto affect the appraiser'simpartiality.
Docc# 69
at 13-14.
I concluded that Summit Park's disciosures did not meet this.staildard. .Id. :Inoted that
I..,-' j
Pettinato had provided more detail about Merlin's extensive relationshipwith Keys imca brochure
for Keys' business-a brochure,int' which he is quoted as saying,that"[bloth,Keysand h.isstaff
have assisted me as well as my firm in resolvingan untold number of largemulti-million dollar
losses to an amicable resolution and settlement to the policyholders'benefit and
satisfaction"-than he did in his disclosures to Auto-Owners before this Court. Id I also noted
that Merlin assisted Keys in making the disclosure in which Keys stated that he did "not have
any substantial business relationship...[with.]
Merlin Law Group." Id I found that "counsel's
6
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 7 of 17
conduct has impugned the integrity
of not only the appraisalprocess but also the Court" and
invited the instant motion for sanctions. Id at 14-15.
II. Analysis
A. Dismissal of Counterclaims
Federal courts have the inherent "abilityto fashion an appropriatesanction for conduct
which abuses the judicialprocess." Farmer v. Banco Popular ofN. Am., 791 F .3d 1246,1255
(10th Cir. 2015) (internalcitation omitted). This includes "the power to enter a default
judgment." Klein v. Harper, 777 F.3d 1144,1147 (10th Cir. 2015) (internalcitation and
quotations omitted). Federal Rule of Civil Procedure 41(b) recognizesthat the Court may
dismiss a claim or action where a "plaintifffails to... comply with these rules or a court order."
"Default judgment is a harsh sanction that should be used only ifthe failure to comply
with court: orders is the result of willfulness,bad faith,or any fault of the disobedient party rather
than. inabilityto comply." Klein, 777 F.3d at 1 147-48 (internal
citation and quotationsomitted).
A district courtmust ordinarilyconsider the following"Ehrenhaus" factors in determining
whether a dismissal under Rule 41(b) is appropriate:(1)the degreeof actuliprejudice
to the
opposing party; (2)'the amount of interference with the judicialprocess;(j)the culpability
of the
litigant;
(4)whether the court warned the party in advance that dismissal ofthe actionwould be a
likelysanction for noncompliance; and (5)the efficacyof lesser sanctions. Gripe v. City of Enid,
OkL, 312 F.3d 1184, 1188 (10th Cir. 2002) (citing
Ehrenhaus v. Reynolds, 965 F.2d 916, 921
(10th Cir. 1992)). "The factors do not create a rigidtest but are simply criteria for the court to
consider." Id For the followingreasons, I conclude that it is appropriateto dismiss Summit
Park's counterclaims with prejudice.
7
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 8 of 17
1. Bad Faith
Before reachingthe Ehrenhaus factors,I begin with the threshold issue of bad faith. I
find that Merlin-including Pettinato and Harris individually-acted in bad faith. I begin with
Merlin's failure to disclose key facts about the Merlin-Keys relationship,
namely that Merlin and
Keys had worked on behalf of the same insured in dozens of priorcases and that Merlin
attorneys served as personalcounsel to Keys and Keys' companies on multipleoccasions.
Despitethese facts,neither Pettinato,nor Harris, nor anyone else from the Merlin firm ever
corrected Harris' disclosure that Keys "does not have any significant
priorbusiness relationship
with the Merlin Law Group" or Keys' own, nearly identical disclosure.
No reasonable attorney could have believed that the withheld information was not called
for by my disclosure order. My disclosure order was clear that counsel were responsiblefor
ensuring compliance with the order and that the order's obligationswere continuing. Pettinato's
testimonial
-
in Keys' brochure boasting ofan "untold number of largemulti-millio.n doHar ,
.
losses" that Keys and Merlin hadjointly handled suggests that Pettinato,had #ctuaiknowledge:of
'
:
,
the undisclosed facts but opted not to disclose them. And H?rria'
Merlio
assisted Keys;with his disclosures dispelsany doubt that Merlin,p,layed,an
active,
role incrafting
1
ie;
'
the disclosures. These facts suggest a deliberateness with regard.toMerlin'.,s,
conduct that I find ,
rises to bad faith.
But that is not all. It appears that Merlin and Summit Park took steps to conceal the
existence of the contingent-capfee agreement under which Keys was originallyretained in April
2015. As noted, under this agreement, the limit of Keys' compensation and expenses would
increase as the amounts recovered by Summit Park in this litigation
increased. This agreement
8
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 9 of 17
was replaced by one removing the contingentcap around July 2015. In a December 4,2015
examination under oath, however, Summit Park's representative,
David Malucky, denied that
any agreements other than the uncapped one had existed. Doc. # 55-17 at 2. And before the
examination, Merlin failed to produce the agreement in response to Auto-Owners' request for all
contracts with Keys. Further,on December 21,2015, ina letter to Auto-Owners' counsel, Harris
disclosed the agreement but mischaracterized itas merely a "proposed" agreement that "would
have" imposed a contingentcap. Doc. # 59-41. It was not until January 2016 that Malucky, via
Merlin, submitted an errata sheet which revealed that an actual (not merely proposed)
contingent-capagreement had existed;his corrected testimony disclosed that "Mr. Keys initially
was to receive $350 per hour as well as expenses not to exceed 10% of the amounts paid to the
association." Doc. # 55-19. Perhaps unsurprisingly,
this was after the appraisalaward was filed
with the Court on December 23,2015. The failure to disclose the originalagreement in response
to my disclosure order and the apparent efforts to conceal the original
agreement further support
a.findingof bad faith on the bart.of
Merlin. I note that there can be littledoubt that?
Merlin was
paware df the initial agreeihebtwith Keys, es a pleadingsigned by Harris statedthat,Merlin
handled the discussions with Mr. Keys regardingthe agreement and "9btained"the initial
agreembnt on Summit Park's behalf. Doc. # 59 at 47. I acknpwledge
in
?
which
.
he avers that his actions were "not the product of bad faith or improper motive on my
part,"but I do not find it entirelycredible. Doc. # 94-1 at 2. In addition,it does nothingto
mitigateMerlin's bad faith.
Harris and Pettinato have submitted affidavits averringthat they must have
misunderstood what I meant in my disclosure order when I requiredthe appraisersto disclose
9
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 10 of 17
"any known facts that a reasonable person would consider likelyto affect his or her
impartiality."
Docs. # 92-1, 92-2. The disclosure order, however, stated that such facts
"includ[e]...acurrent or previous relationshipwith any ofthe parties(includingtheir counsel
or representatives)."
Doc. # 25 at 12-13. And I ordered that "[t]hepartiesand their counsel shall
make every reasonable effort to ensure that the appraisalprocess proceeds in accordance with
this order." Id at 14-15. Accordingly, I do not find Harris' and Pettinato's statements credible
in the least. The disclosure order was clear that current and priorrelationshipsbetween
appraisersand counsel had to be disclosed and that the appraisers,the parties,and counsel were
all jointlyresponsiblefor ensuringthat this happened. While Merlin's and Keys' disclosures
acknowledged that Merlin and Keys had been retained by the same insured in the past, they said
nothing about the number of such engagements or the millions of dollars Merlin and Keys
apparentlyearned from those engagements. They certainlysaid nothing about the priorwork
?
e'
'done for Keys and Keys' companies by Merlin attorneys. An*ofcourse, they.said,nothing.i ..
,
about the contingent-cap fee agreement.
-
:
Bad faith oh.the part of Harris and Pettinato has certainlybdeA?establikhed.
-?T:hota that it.0 .
'
'
'; ; f,
is
.
prbper to attributeHarris' and-Pettinato's bad faith to the Merlin: fitm *i,Venih]attltd'lawyers'
'
'
(:i !i'
1
.,
,
.
'?action-s:%'were indistinguidhabfe
from those of Ethelfirm" andr"id -6tjbbsihk'[tiiei:sh;igtions)-??
j '.
motion, the firni consistently
accepted responsibility
for conducting the underlying Ntigatidn,v
Ennion v. Prospect Capital Corp,, 675 F .3d 13%, 148 (2d Cir. 2012). Summit Park is also
responsiblefor Harris' and Pettinato's actions. Clients are routinelysubjectedto "inherent
power" sanctions for their lawyers' misconduct, particularly
where the conduct was designed to
benefit the client. See Gripe,312 F.3d at 1188-89 (affirmingsanction of dismissal ofclaims
10
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 11 of 17
based on attorney's misconduct and notingthat "[a.]litigant
is bound by the actions of its
attorney, and the relative innocence ofthe litigant...
does not constitute grounds for relief');
Haeger v. Goo*ear Tire & Rubber Co., 813 F.3d 1233, 1246 (9thCir. 2016) (sanctioningclient
because client was "deemed bound by the acts of [itslawyers.]and is considered to have notice of
all facts,notice of which can be charged upon the attorney")(internal
citation and quotations
omitted);Smith v. United States, 834 F.2d 166, 171 (10th Cir. 2016) (holdingthat"the lawyer
represents his client and the client is bound by that representation"where the "lawyer (orthe
client)makes a tactical decision and [thelawyer's]noncompliance with the court's directive is
not a product of inadvertence").In any event, Malucky's incorrect testimony suggests bad -faith
on the part of Summit Park. Further, Harris (thenSummit Park's counsel)stated in open court
that Summit Park made an "independent' 'examination" of various appraisersand, after a
meeting in "executive session,""made the decision" that Keys -"is who we would like to.use."
Doc. # 99-3 at 42-43.: Thus, Summit Park was aware of Keys';background and bears at-,least
some
i
,
degrbe of'responsibility
for his selection and his inade4uate disclosures.
.
."i
Finally,.
I rejectMerlin's and Summit Park's argument that }Wid Iri@t have.authority td:p
u,
Gi:- ?
?
.'?
enter the disclosure order and,find,their continued defiance
.
ofjthatordemtn-bc:ifurther ?evidente'of,'n
,
bad:faith: ' The disclosure ordur Iwas a proper exercise of the?86.ulit's.autb.oritj<
under:Hedd't:ai-
i::,i ihi
Rule of Civil Procedure 16(c)(2)(L),the common law of appraisal,and the Court's inherent
i al :.
supervisory power. In any event, this is not relevant to the instant sanctions issue.;Even ifthe
order had been entered in error, the partieswere stillrequiredto comply with it. See, e.g.,
L 'Ggrke v. Asset Plus Corp.,No. 15-5059, 2016 WL 231150, at *2 (10thCir. Jan. 20, 2016)
("But to be clear,even assuming purely for the sake of argument that the district court had
11
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 12 of 17
lacked jurisdiction,
it still had jurisdiction
to sanction Plaintiff for failure to comply with its
orders.");
Coando v. Westport Res., 85 F. App'x 59,62 (10th Cir. 2003) ("An order issued by a
court with jurisdictionmust be obeyed by the partiesuntil it is reversed.")(alterations
and
citation omitted). The proper means of contestingthe Court's authorityto enter the disclosure
order was a motion for reconsideration or an appeal-not to violate the order.
1. Ehrenhaus Factors
I now turn to the Ehrenhaus factors. First,Auto-Owners has been significantly
prejudicedby Summit Park's and Merlin's conduct, most obviously by the last six months of
litigation
over Keys' partiality
and the instant sanctions issue. The eightmonths of litigation
before that-regarding whether and under what terms the appraisalprocess would
proceed-were also wasted because Summit Park's and Merlin's conduct led to the vacatur of
the appraisalaward. Summit Park and l'Aerlin have thus impeded Auto-Owners from achieving-
resolution of its claims in this declaratoryjudgment case. This factor mbrits significantweight.!
'
'
Turning to the second factor,there has been massive interfdreilde'?kith
th'dejudicial
l9rocess:
B
Summit: Patk's and Merlin's.conduct has disrespectedthe Court's au'thorityj
increased the ' 011
Court's, workload, .and *endrallyihtetfered with the administ?ation:jofijustiee.:
Gee'Steekel'v!DJk, 1
4-t'P?
q C .: . 'No.
2009 WL-1174479, at *2 (D. Col'olj*r'.
29,2009) ("duditihf-
'?,'
.,t P,
resources have been. expended on setting,resetting,monitoring,and issuihgorddrs in this civil
action.").This factor thus merits great weight.
In regardto the third factor,Summit Park bears some degree of culpability,
both as the
'
party responsiblefor Merlin's actions and in its own right.As noted above, Summit Park played
a role in selectingKeys in the first place,in failingto ensure that his disclosures were adequate,
12
Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 13 of 17
and in failingto disclose information regardingthe originalcontingent-capfee agreement. Thus,
I give moderate weight to the third factor. Fourth, in regard to warnings, I warned the partiesin
all capitalletters in my disclosure order that "IF THE COURT FINDS THAT THE PARTIES
AND/OR THEIR COUNSEL HAVE NOT COMPLIED WITH THIS ORDER, THE COURT
WILL IMPOSE SANCTIONS/' Doc. # 25 at 15. While I did not specificallyreference
dismissal,the warning was early,prominent, and phrased mandatorily. At a status conference on
March 16,2016, after Auto-Owners filed its objectionsregardingKeys but before oral argument
took place,I further cautioned Summit Park that the "objectionsare significant...interms of
the implicationsfor this case" and for "judicialintegrity."Doc. # 67 at 3. I warned that "there
are implicationspotentiallyadverse to defense c
Preview
Filing# 140223973 E-Filed 12/13/2021 10:04:30 AM IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CIVIL DIVISION JOSEPH AND MARY SCOTT Plaintiff. V CASE NO- CACE 18-27774 STATE FARM FLORIDA INSURANCE COMPANY, Defendant. i PLAINTIFFS' MOTION FOR PROTECTIVE ORDER COMES NOW, the Plaintiffs,JOSEPH AND MARY SCOTT ("Plaintiffs"), by and through the undersigned counsel, and pursuant to Fla. R. Civ. P. 1.280(c),moves for a protectiveorder limitingthe scope of any discoveryand/or the depositionsof (i)Kelly Kubiakl;(ii)Donna Alvarez; (iii) Sandra Baldinelli;(iv)Joseph Scott;and (v)Mary Scott againstMerlin Law Group, PA ("Merlin").As grounds of support thereof,Plaintiff states the following: Relevant Facts 1. This case arises from a property insurance claim made by Plaintiffs to their insurer,State Farm Florida Insurance Company ("Defendant").Plaintiff retained the Merlin law firm via a contingencyfee agreement. 2. On or about late January 2021, Plaintiff's counsel notified Merlin that she was leavingMerlin's employ and startingher own law firm. 3 On February 3, 2021, Plaintiff dischargedthe Merlin law firm and elected to have Kelly Kubiak, Esq. continue to represent her at her new firm2 land/or Kubiak Law Group, PLLC 2 Attached hereto as Exhibit "A". *** FILED: BROWARD COUNTY, FL BRENDA D. FORMAN, CLERK 12/13/2021 03:47:00 PM.**** 4. On or about March 20, 2021, Merlin filed a Notice of Charging Lien in this matterl 5. This matter settled between the Plaintiff and Defendant on June 30,2021. 6. By dated October 14, 2021, Merlin's attorney(s) requestedthe depositionsof the aforementioned former employees of Merlin as well as the Plaintifft Introduction What would normally be a simple,straight-forward charging lien matter between a law firm and one of its former attorneys/employeesappears to have devolved into "delay at all costs" litigation as well as an attempt by Merlin to obtain discovery for the Hillsborough County Case it filed againstPlaintiffs' counsel. Tactics such as these should not be 5 condoned; but are not uncommon with the Merlin firm. Plaintiff respectfully requests that this Honorable Court grant its Motion for Protective Order as referenced below6. Memorandum of Law Plaintiff requests a protectiveorder regarding these discovery and depositions pursuant to Fla. R. Civ. Pro. 1.280(c)which states in pertinentpart, as follows: Upon motion by a party or by the person from whom the discoveryis sought,and for good cause shown, the Court in 3 A copy of the Charging Lien is attached hereto as Exhibit B. 4 A copy of the is attached hereto as Exhibit C. 5 One federal court judge specificallystated that Merlin litigatedin bad faith. In Auto Owners v. Summit Park, (Order attached as Exhibit D), Merlin's litigation tactics were so outrageous that a federal district court judge personally sanctioned two of Merlin' s Florida-based attorneys $354,350,65 in fees and expenses. The judge noted that "it is proper to attribute (the individual MLG attorney's) bad faith to the Merlin Firm given that the lawyers' actions were indistinguishablefrom those of [thel firm and in opposing [thel sanctions, the firm consistently accepted resnonsibilitv for conducting the underlvine litigation." p. 10. Notably, a United States Court of Appeals affirmed the court's ruling (Order attached as Exhibit E). While reference to such other matters is not normally relevant, given the nature of Merlin' s litigationtactics here, it is pertinentfor the Court to have a clear understanding and context of how, and what, Merlin is doing in this matter. 6 In the Wherefore paragraph. 2 which the action is pending may make any order to protect a party or person from annoyance, embarrassment, oppression,or undue burden or expense that justicerequires,includingone or more ofthe following(1)that the discoverynot be had; (2)that discovery be had only on specifiedterms and conditions, includinga designationof the time or place;(3)that discovery may be had only by a method of discovery other than that selected by the partiesseeking discovery; (4) that certain matters not be inquiredinto,or that the scope of the discovery be limited to certain matters; (5) that discoverybe conducted with no one present except persons designatedby the Court; (6) that a depositionafter being sealed be opened only by order of the Court; (7)that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designatedway; and (8) that the parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the Court. I). THE VALUE OF MERLIN'S CHARGING LIEN IS THE ONLY ISSUE BEFORE THE COURT; NOT THE VALUE OF ATTORNEY KUBIAK AND/OR KUBIAK LAW GROUP, PLLC'S LEGAL SERVICES. Stated in its simplestterms, Plaintiff originallycontracted with Merlin firm for legalservices to be provided by attorney Kelly Kubiak, her associates,and legalstaff. Plaintiff and Merlin entered into a written contingency fee agreement. After attorney Kubiak left Merlin's employ, Plaintiff dischargedMerlin as Plaintiff's attorney. Plaintiff then elected to retain attorney Kubiak at her new firm to continue representingPlaintiff in the underlying case. Merlin subsequently filed a charging lien for fees and costs. These facts are undisputed. Searcy,Denney, Scarola, Barnhardt & Shipley,P.A. v. Polet, 651 So.ld 366 (jAa. 1995), holds that when a discharged law firm files a charging lien to recover fees and costs, the Court's role is to determine the 'value' of the discharged law firm's charging lien (emphasis added). 3 To brieflysynopsizethe pertinentfacts of Searcy,Taylor was a Florida licensed attorney at the Searcy law firm and was assigned to work on the Poletz casel He eventuallyleft the firm for other employment opportunities.Shortly thereafter,the parents of Poletz discharged the Searcy law firm and retained Taylor at his new firm. The Searcy law firm ultimatelyfiled a charging lien for fees and costs; and litigation ensued over the value of Searcy'scharginglien. Searcy appealed the Court's decision that their fee "should be determined by using the Rowe factors but no contingencyrisk multipliershould be applied".Searcy at 367. The Florida Supreme Court stated that "we are now asked to decide whether the lodestar method of computing reasonable attorneys fees... should be applied..." Searcy at 368. The Court held that it should not; and reasoned as follows: ". while the time . . reasonably devoted to the representationand a reasonable hourly rate are factors to be considered in determininga proper quantum meruit award, the court must consider all relevant factors surroundingthe professional relationship to ensure that the award is fair to both the attorney and client. See Reid, Johnson, Downes, Andrachik & Webster v. Lansbero, 68 Ohio St.3d 570,629 N.E.2d 431, 436-437 (1994) (totalityof circumstances surrounding each situation should be considered in determiningreasonable value of dischargedcontingent-fee attorney'sservices in quantum meruit).Applicationof the factors set forth in Rule Regulating The Florida Bar 4- 1.5(b),48 may provide a good startingpoint. However, 7 Taylor spent approx. 340 hours working on Poletz. The case involved a traumatic brain injury. 8 Rule regulating the Florida Bar 4-1.5 provides the following factors to be considered in determining a reasonable fee: (1) the time and labor required,the novelty, complexity, and difficultyof the questions involved, and the skill requisiteto perform the legalservice properly; (2) the likelihood that the acceptance of the particularemployment will preclude other employment by the lawyeri (3) the fee, or rate of fee, customarily charged in the localityfor the legal services of a comparable or similar nature; (4) the significanceof, or amount involved in, the subject matter of the representation,the responsibility involved in the representation, and the results obtained; (5) the time limitations imposed by the client or by the circumstances and, as between attorney and client, any additional or specialtime demands or requests of the attorney by the client; (6) the nature and lengthof the professionalrelationship with the client; (7) the experience,reputation,diligence,and abilityof the lawyer or lawyers performing the service and the skill,expertise,or efficiencyof effort reflected in the actual providing of such services; and 4 because the factors relevant to the determination of the reasonable value of services rendered will vary from case to case, the court is not limited to consideration of the Rowe factors. The court must consider any other factors surroundingthe professional relationship that would assist the court in fashioningan award that is fair to both the attorney and client. For example, the fee agreement itself, the reason the attorney was discharged,actions taken by the attorney or client before or after discharge,and the benefit actuallyconferred on the client may be relevant to that determination. The determination as to which factors are relevant in a given case, the weight to be given each factor and the ultimate determination as to the amount to be awarded are matters within the sound discretion of the trial court". Searcy at 369. Importantly,neither Searcy nor any of its progeny hold that a necessary step in determining the value of the discharged law firm's charging lien is also determining the value of the successor law firm's legalservices. Searcywas clear that the Court's focus is on 'valuing'the legalservices ofthe discharged lawfirm when it said: In determiningattorney fee to award to law firm that was discharged by client from contingency fee contract, trial court should have considered totalityof factors present in case, instead of only consideringtime reasonablyexpended and reasonable hourlyrate for services. Searcy,Headnote [2]'. II). MERLIN'S ASSERTION THAT THIS COURT MUST ALLOW DISCOVERY10 AND MUST DETERMINE THE VALUE OF ATTORNEY KUBIAK AND/OR KUBIAK LAW GROUP'S LEGAL SERVICES PRIOR TO ITS DETERMINATION OF THE VALUE OF MERLIN'S CHARGING LIEN IS A LEGAL FICTION BASED IN NEITHER LAW NOR FACT. Defendant falselyasserts that this Honorable Court, in essence, is compelled to (i) allow Defendant to conduct discovery into the legalservices provided to Plaintiff by (8) whether the fee is fixed or contingent,and, if fixed as to amount or rate, then whether the client's ability to pay rested to any significantdegree on the outcome of the representation. g One noteworthy case thatreiterakswhat Searcy standsfor is Scherer v. Austin Roe Basquill,P.A., 2021 Hl 2446947, (2ndDCA). While the case involved a partner of a law firm leavingto start his own law firm (as opposed to the instant matter where the departing attorney was neither a partner nor had any equity in the firm), Scherer is an example of the Searcy progeny that looked to the Fla. Bar Rule 4-1.5 factors. Additionally,the Scherer court also looked at the identical factors that the Florida Supreme Court looked to when deciding the 'value' of the discharged firms' legal services using a modified quantum meruit application. Notably, nowhere does it suggest that the Court must, and/or even should, look at the departinglawyer'slegalservices (post-departure)nor the 'value' of the departinglawyer'slegalservices. 10' Regarding legal services provided by the successor law firm and the 'value' of said services. 5 attorney Kubiak and/or Kubiak Law Group, and (ii) must factor in the 'value' of attorney Kubiak and/or Kubiak Law Group's legalservices provided to Plaintiff after Merlin was discharged. The one, and only,pointthat Plaintiff and Defendant can agree on in this matter is that Searcy does speak to charging lien issues in Florida such as this. Searcy says the ? totality05 circumstances surrounding each situation should be considered in determining reasonable value of discharged contingent-fee attorney's services in quantum meruif' Id. at 369. After that,the partiesdiffer greatlyas to what Searcy stands for. Searcy addresses a specificissue - [H]ow courts throughout the state of Florida should 'value' a dischargedlaw firm's (emphasis added) legalservices in the context of a charginglien that is based on a contingencyfee contract. Merlin asserts that it is entitled to conduct discoveryinto the successor law firm's legal services provided to its ex-client. Further, Merlin asserts that this Court is necessarilycompelled to 'value' the successor law firm's legal services before it can determine the 'value' of the dischargedlaw firm's legalservices. Neither Searcy nor the Florida Bar Rule 4-1.5 stand for such an absurd proposition. Stated another way, allowing such discovery opens up a Pandora's box of discovery that is irrelevant and violative of, among other things,Plaintiff's attorney/client privilegedcommunications with Plaintiff' s chosen lawyer(s). As noted above, Plaintiff/Scott and Merlin are the two partieswho entered into a contractual relationship.The Scott/Merlin fee agreement serves as the basis of the charging lien. Merlin's charging lien is at issue. That is the only charging lien at issue. What the successor law firm has done since Merlin was dischargedis wholly irrelevant. Proof is in the fact that even a cursory review of all the factors referenced by Florida Bar 6 Rule 4-1.5, as well as the factors set forth by the Florida Supreme Court in Searcy,makes it apparent that the Court's sole focus is on the dischargedlaw firm as opposed to the successor law firm. There is no suggestion,much less an assertion,by either the Florida Supreme Court and/or the Florida Bar that a successor law firm's legalservices somehow are relevant to a discharged law firms charging lien. Such claims are simply a legal fiction created by Merlin. III). THE 'VALUE' OF EITHER ATTORNEY KUBIAK AND/OR KUBIAK LAW GROUP'S LEGAL SERVICES PROVIDED TO PLAINTIFF AFTER MERLIN'S DISCHARGE IS IRRELEFANT TO THE 'VALUE' OF MERLIN'S CHARGING LIEN. Neither Searcy, its progeny, nor Florida Bar Rule 4-1.5 contemplate that in a charging lien casell a Court must (i)allow discoveryrelated to the successor law firm's legalservices,or (ii)place a 'value' on the successor law firms legalservices. Such a request by Defendant is wholly irrelevant. Relevant evidence is evidence that tends to prove or disprovea material fact. Fla. Stat. §90.401. Analogous to a Motion in Limine when one party to a lawsuit is attemptingto introduce irrelevant evidence to a jury,evidence on a purelycollateral issue that would only serve to confuse and mislead the jury is too remote and should be excluded. Donahue v. Albertson's Inc.,472 So.2d 482, 483 (Fla.4th DCA 1985). To the extent that evidence is relevant,it will nevertheless be ruled inadmissible if its probative value is substantially outweighed by the danger of unfair prejudicetoward Plaintiffs and would likelymislead or confuse the jury.Fla. Stat. §90.403. Whatever legal services attorney Kubiak and/or Kubiak Law Group, PLLC provided after Plaintiff dischargedthe Merlin law firm and retained Kubiak Law Group is irrelevant to 'valuing'Merlin's legalservices while they representedPlaintiff. 11 Where a discharged law firm had a contingency fee agreement with a client such as this case. 7 IV). MERLIN'S DISCOVERY REQUESTS RUN AFOUL OF THE LAW, ATTORNEY/CLIENT PRIVILEGE, AND WORK-PRODUCT. Merlin's attempt(s)to overreach in the discovery phase and obtain irrelevant, attorney/clientprivileged communications, and/or work-product is objectionable. Further,Merlin's request(s)are obvious attempts to utilize the discoveryprocess in this matter in order to hopefullygenerate discovery related to the Hillsborough County lawsuit it has filed that involves Merlin and Attorney Kubiak. Any inquiryinto the 'value' of legalservices provided by a successor law firm is irrelevant to Merlin's charginglien;and as such,is an overreach. Most illustrative,however, of Merlin's offensive overreaching discovery request(s)is/are that Merlin insists that it is entitled to, among other things, "correspondence with the client before and after KLG took over". In other words, Merlin asserts that even after it was dischargedas Plaintiff's attorney, it is entitled to the attorney/client privilegedcommunication(s)between Plaintiff and Kubiak Law Group. Certiorari review "is appropriatein cases that allow discovery of privileged information. This is because once privilegedinformation DCA 2005) is disclosed,there is no remedy for the destruction of the privilegeavailable on direct appeal." Esmte OJ Stephens v. Galen Health Care, Inc.,911 So.2d 277,279 (Fla.24 DCA). "Waiver of the ., attorney-client and work-product privilegesis not favored in Florida", Coates v. Akerman, Senterfitt & Eidson, P.A.,940 Sold504 (7,nd DCA 2006) citingUG Ins. Corp th of Am. V. Johnson, 799 SO.2d 339, 341 (f DCA 2001). "A party does not waive the attorney-client privilegemerely by bringingor defendinga lawsuit",Coates at 508 citing to Lee v. ProgressiveExpress Ins. Co., 909 So.2d 475 (4?h DCA 2005). The mere fact that two attorneys may be representinga singleclient on the same matter does not waive the privilegethat the client has to prevent his or her confidential communications to one 8 of his or her lawyers from being revealed to the other lawyer". Coates at 510 citingto Volpe v. Conroy, Simberg & Ganon,P.A., 720 So.2d 537,539 (4?DCA 1998). Merlin's attempts to use this Court's time and resources to generate discoveryin other cases is improper. WHEREFORE, the Plaintiffs,JOSEPH & MARY SCOTT respectfullyrequests this Honorable Court to enter an Order limitingthe scope of any discoveryand/or the depositionsof Kelly Kubiak, Donna Alvarez, Sandra Baldinelli,Joseph Scott, and Mary Scott as such: 1. Defendant is prohibited in discovery and/or in deposition(s)from inquiringas to the 'value' of legalservices provided by attorney Kelly Kubiak and/or Kubiak Law Group, PLLC subsequentto Merlin's dischargeas Plaintiff's counsel. 2. Defendant is prohibited in discovery and/or in deposition(s)from inquiringinto the scope, extent, manner, and/or type of legal services provided by attorney Kelly Kubiak and/or Kubiak Law Group, PLLC subsequent to Merlin's dischargeas Plaintiff's counsel. 3 Defendant is prohibited in discovery and/or in deposition(s)from inquiringas to attorney/client privilegedcommunications between Plaintiff and attorney Kubiak and/or any member of Kubiak Law Group, PLLC. 4. Defendant is prohibited in discovery and/or in deposition(s)from inquiringas to attorney Kubiak and/or Kubiak Law Group's work-product. 5. Defendant's discovery request(s)and/or inquiry during deposition(s)is limited to the instant matter only. CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoinghas been filed with the court through the Florida Court's E-FilingPortal to: Scott Mager, Esquire and 9 Jesse Fulton, Esquire of Mager Paruas, LLC, 2719 Hollywood Blvd., 2nd Floor, Hollywood, FL 33020 (service@mpjustice.com; th cecile@mpjustice.com)on this 13 day ofDecember, 2021. /S/ Kelly L. Kubiak KELLY L. KUBIAK, ESQ. Florida Bar No. 108952 KUBIAK LAW GROUP, PLLC 4904 W. Cypress Street Tampa, Florida 33607 TELEPHONE: (813)542-0800 FACSIMILE: (813) 542-7899 Attorneys for Plaintiff kkubiak@kubiaklawgroup.com kubiakpleadings@kubiaklawgroup.com 10 Donna Alvarez From: KellyKubiak Sent: Tuesday, February2,2021 9:45 AM To: Keona Williams CC Donna Alvarez; Donna Alvarez Subject: FW: Joseph and Mary Scott vs. State Farm Insurance From: Sent: Tuesday, February 2, 2021 9:42 AM To: Kelly Kubiak ; northernpublicadjusters@gmail.com; Subject: Joseph and Mary Scott vs. State Farm Insurance Attorney Kubiak, We, Mary and Joseph Scott, send this request to retain your continued services as our Attorney for the case we have filed against our insurance carrier State Farm. My understanding is that we will not be held financially liable in any way to Merlin Law Group now or in the future. If this is an incorrect, or incomplete, interpretationof our legal responsibilities please advise. We will also be forwarding to you the last communication we received from Merlin Law Group. Our number is and my cell Please do not hesitate to call with . any questions. Sincerely, Joseph and Mary Scott 191 SE 13th Ave. Pompano Beach, FI. 33060 EX IBIT "A" This email has been scanned for spam and viruses by Proofpoint Essentials. Click here to report this email as spam. 1 Filing# 123455594 E-Filed 03/20/2021 08:37:49 PM IN THE CIRCUIT COURT OF THE SEVENTEENTH JUDICIAL CIRCUIT IN AND FOR BROWARD COUNTY, FLORIDA CIVIL DIVISION JOSEPH & MARY SCOTT, Plaintiffs, Case No. CACE-18-027774 V STATE FARM FLORIDA INSURANCE COMPANY, Defendant. i NOTICE OF CHARGING LIEN OF MERLIN LAW GROUP, P.A. NOTICE IS HEREBY GIVEN THAT Merlin Law Group, P.A., as former counsel for the Plaintiffs,JOSEPH & MARY SCOTT, hereby gives notice of its intention to enforce a charginglien for attorney'sfees and costs againstany property or funds received or receivable by Plaintiffs in this action whether by settlement,judgment, or otherwise or which was an issue in this instant action,and in support thereof states as follows: 1. This charginglien results by operationof law. 2. Merlin Law Group, P.A. acted as counsel of record for Plaintiffs until being substituted as counsel of record by another law firm pursuant to the received confirmation of the Plaintiffs. 3 This notice is being filed to protect the rightsand interest of Merlin Law Group, P.A. and remains in effect until released or withdrawn. CERTIFICATE OF SERVICE I HEREBY CERTIFY that on March 20, 2021, the foregoinghas been electronically filed with the Clerk of Court by usingthe Florida Courts e-FilingPortal system which will send a Notice of Electronic Filingto all counsel of record as follows: Law Office of Ubaldo J. Perez, Jr.,P.A., 1 EXHIBIT "B II Maria Klein,Esq.,Ubaldo J. Perez, Jr.,Esq., 14361 Commerce Way, Suite 201, Miami Lakes, FL 33016, uperez@uperezlaw.com; and Kubiak Law Group, PLLC, Kelly Kubiak, Esq., 4904 W. Cypress Street, Tampa, FL 33607, kkubiak@kubiaklawgroup.com, kubiakpleadings@kubiaklawgroup.com. MERLIN LAW GROUP, P.A. /s/ William F. Merlin, Jr., Esq. William F. Merlin, Jr., Esquire Florida Bar No. 0364721 Merlin Law Group, P.A. 777 S. Harbour Island Blvd., Suite 950 Tampa, FL 33602 Tel: (813)229-1000 Fax: (813)229-3692 Prior Counsel for Plaintiff cmerlin@merlinlawgroup.com smerriett@merlinlawgroup.com trodriguez@merlinlawgroup.com 2 * Personal -# Complex/Business Litigation Injury/PIP Crime Victim * Rights Property Damage Claims l<*P'. Corporate/Contract Work * State and Federal Appeals Insurance Claims and Referrals for Criminal Defense, Real Estate and All Other Areas of Law www.MagerParuas.com South Florida Location: Service@MPJustice.com 2719 Hollywood Blvd. = Second Floor Se Habla EspaAol Hollywood, FL 33020 = (954) 763- 2800 October 14,2021 VIA E-mail: kkubiak@kubiaklawgroup.com dalvarez@kubiaklawgroup.com Kelly L. Kubiak, Esq. Kubiak Law Group 4904 W. Cypress Street Tampa, FL 33607-3802 Re-. Joseph Scott, et al. v. State Farm Florida Insurance Company Case No. CACE 18-027774 Dear Kelly, As we have now agreed upon a date for Mr. Duffy to be deposed in his capacityas managing attorney and corporate representative, we would like to go ahead and follow-upon our previous request for dates of availability for the followingindividuals' deposition: 1. Kelly Kubiak 2. Donna Alvarez 3. Sandra Baldinelli 4. Joseph Scott with limited topic list of communications and knowledge relatingto the termination of MLG, the retention of KLG, the process and resolution ofthe case, as well as charges,services,billingstatements of MLG and KLG, the actions/knowledgerelating to the time and amount of settlement and any statement created or to be created. 5. Mary Scott with limited topic list of communications and knowledge relatingto the termination of MLG, the retention of KLG, the process and resolution ofthe case, as well as charges,services,billingstatements of MLG and KLG, the actions/knowledgerelating to the time and amount of settlement and any statement created or to be created. EXHIBIT "CII Kelly L. Kubiak, Esq. October 14,2021 Page 2 of 2 Please provide us with a selection of dates priorto December 23, 2021 for the coordination of depositionsof the individuals listed above. If you would like to coordinate a dedicated day to depose each of those listed above, so that we can try and eliminate the need to schedule mult*le dates,we are happy to do so. Thank you in advance for your cooperationin this matter. Very trulyyours, #ehhecfulton Jesse Fulton,Esq. For the Firm Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 1 of 17 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO LEWIS T. BABCOCK, JUDGE Civil Case No. 14-cv-03417-LTB AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff/Counter-Defendant, V. SUMMIT PARK TOWNHOME ASSOCIATION, a Colorado corporation, Defendant/Counter-Plaintiff. MEMORANDUM OPINION AND ORDER Babcock, J. This insurance coverage disputeis before me on Auto-Owners Insurance Company's ("Auto-Owners") Motion for Sanctions [Doc. # 71]. I have reviewed the motion; the response of Summit Park Townhome Association ("Summit Park")[Doc. # 94];the response of Summit Park's former counsel of record, Merlin Law Group P.A., and Merlin attorneys William C. Harris and David J. Pettinato individually[Doc. # 92];Auto-Owners' reply [Doc. # 99];Auto- Owners' notice withdrawing certain statements in its reply[Doc. #100]; and all attachments to those filings.I previouslytook oral argument on issues relevant to decidingthe motion and have determined that further oral argument would not be of material assistance. For the followingreasons, I GRANT the motion and DISMISS WITH PREJUDICE Summit Park's counterclaims in this matter pursuant to the Court's inherent authority.I also assess an award of attorney's fees and expenses againstHarris and Pettinato individually EXHIBIT "D " Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 2 of 17 pursuant to 28 U.S.C. § 1927. Finally,I award interest to Auto-Owners for the periodSummit Park wrongfully withheld the appraisalfunds pursuant to Colo. Rev. Stat. § 5-12-102(1)(b). L Facts A. Background Much ofthe background to the instant disputehas been set forth in a priororder, but I summarize it here for the reader's convenience. See Auto-Owners Ins. Co. v. Summit Park Townhome Ass'n, -No. 14-CV-03417-LTB, 2016 WL 1321507, at *1 (D. Colo. Apr. 5, 2016) [Doc. # 69]. Auto-Owners brought this declaratoryjudgment action to determine the extent of coverage for damage caused by a 2013 hailstorm under a property insurance policyit issued to Summit Park. Summit Park has since asserted counterclaims allegingbreach of contract, bad faith breach of insurance contract, and unreasonable delay or denial of benefits under Colo. Rev. Stat. §§ 10-3-1115, -1116. See Doc. # 45 at 19-23. From the outset of this case until May 2016, when they withdrew, Summit Park's counsel of record was Merlin Law Group, P.A., and Merlin attorneys William "Corey" Harris and David J. Pettinato (collectively, "Merlin"). Shortlyafter this case was filed,Summit Park invoked the appraisalprovisionof the policy,under which "each party will select a competent and impartialappraiser,"the court selects an umpire ifthe appraiserscannot agree on a selection,and a "decision agreed to by any two" of '.., the three as to the "value o f the property and amount of loss' 'will be binding." Doc. # 6-1 at 78. In April 2015, I ordered the appraisalprocess to proceed. Doc. # 17. Summit Park selected George Keys as its appraiser and Auto-Owners selected Jim Koontz as its appraiser. Docs. # 24,29. In September 2015, upon the parties'failure to reach agreement on various 2 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 3 of 17 aspects ofthe process, I imposed several guidelines.Doc. # 25. One ofthe guidelinesI imposed stated: An individual who has a known, direct,and material interest in the outcome ofthe appraisalproceeding or a known, existing,and substantial relationship with a party may not serve as an appraiser. Each appraiser must, after making a reasonable inquiry,disclose to all partiesand any other appraiserany known facts that a reasonable person would consider likelyto affect his or her impartiality, including(a)a financial or personalinterest in the outcome of the appraisal;and (b)a current or previous relationship with any of the parties(includingtheir counsel or representatives) or with any of the participants in the appraisalproceeding, includinglicensed publicadjusters,witnesses, another appraiser,or the umpire. Each appraisershall have a continuingobligationto disclose to the partiesand to any other appraiserany facts that he or she learns after accepting appointment that a reasonable person would consider likelyto affect his or her impartiality.Ifan appraiserdiscloses a fact requiredto be disclosed pursuant to this paragraph and a party files an objectionin this Court to the appointment or continued services of the appraiser no later than 15 days after becoming aware of such fact (or from the date ofthis order, whichever comes later), the objectionmay be a ground for vacating an award made by the appraiser. The same objection procedure shall apply in the event a party becomes aware of information bearingon an appraiser'scompetency. Id. at 12-13. I explained that this guideline"will minimize the risk that the appraisalaward will need to be vacated" pursuant to the policylanguage requiringthat the appraisersbe impartial. Id at 9. I also directed that "[t]hepartiesand their counsel shall make every reasonable effort to ensure that the appraisalprocess proceeds in accordance with this order." Id at 14-15. At the end ofthe order, I provided the following notice: NOTICE IS GIVEN THAT, IF THE COURT FINDS THAT THE PARTIES AND/OR THEIR COUNSEL HAVE NOT COMPLIED WITH THIS ORDER, THE COURT WILL IMPOSE SANCTIONS AGAINST THE PARTIES AND/OR THEIR COUNSEL PURSUANT TO THE COURT'S INHERENT AUTHORITY. 3 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 4 of 17 Id at 15. I will refer to this as the "disclosure order." Upon the appraisers' failure to reach an agreement regardingthe selection of an umpire,I appointedRobert J. Norton to serve in this role. Doc. # 31. B. Summit Park's Disclosures On June 15, 2015, Harris disclosed in a letter to counsel for Auto-Owners that Keys "does not have any significantpriorbusiness relationshipwith the Merlin Law Group." Doc. # 60-7. Harris added that Keys "has acted as a publicadjusterand/or appraiseron behalf of policyholdersthat the Merlin Law Group has representedin the past, however, this obviously does not affect his abilityto act as an appraiserin this matter." Id On June 19,2015, Auto- Owners' counsel responded that "[t]heapparentlynumerous relationships that Keys had with Merlin Group and its clients raise a serious concern of Keys' impartiality"and requested'Yhat Keys provide a disclosure of his relationshipswith policyholdersrepresentedby the Merlin Law Group, how he and his firm were compensated, the number oftimes he served in the policyholders'roles [sic]as a public adjusterand/or appraiser... and the details ofany services Keys has provided as an expert (asa retained or non-retained expert) through the Merlin Law Group." Doc. # 60-8. Neither Keys nor Merlin ever made the more detailed disclosures requestedin this letter. On November 24,2015, followingthe Court's disclosure order,Keys disclosed in an email to Auto-Owners' counsel as follows: "I do not have any substantial business relationshipor financial interest in Merlin Law Group. There have been cases where both Merlin Law Group and Keys Claims Consultants [Keys' businesslacted for the same insured but under separate 4 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 5 of 17 contracts." Doc. # 60-12. At a hearing,Harris acknowledged that "we" (presumably one or more Merlin attorneys)assisted Keys in making this disclosure. Doc. # 69 at 13-14. C. The Appraisal Award In December 2015, the appraisalpanel issued its award. Doc. # 35. The award was signed by Norton (theumpire) and Keys, but not by Koontz (Auto-Owners' chosen appraiser). On January 20,2016, Auto-Owners paid Summit Park $9,700,025.71, the "actual cash value ("ACV") of the appraisal award (lesscertain adjustmentsnot relevant here)under a reservation of rightsin accordance with the policy'srequirement that Auto-Owners "pay for covered loss or damage within 30 days after we receive the sworn proofof loss...if [a]nappraisalaward has been made." Doc. # 6-1 at 78; Doc. # 59-23. The ACV is the replacement cost value ("RCV") less depreciation;the policy provides that the RCV will not be paid "until the lost or damaged property is actuallyrepairedor replaced." Doc. # 6-1 at 84. Before this lawsuit was filed, Summit Park's publicadjusterestimated an RCV of $7,140,117.82 for the damaged buildings, includingreplacement of undamaged vinylsidingto achieve matchi,ng,a disputed issue. See 2d IAm. Compl. 1[28 [Doc. # 6.].The corresponding figurein the appraisalaward in which Keys participated, by contrast, was $10,870,090.96,an increase of $3.47 mi,11ion,or 47%. Doc. # 35. D. Vacatur of Appraisal Award On January 14,2016, Auto-Owners objectedto Keys' involvement in the appraisal process and moved to vacate the appraisalaward on the grounds that ithad discovered facts showing that Keys was not impartialas requiredby the appraisalprovision. Docs. # 41,55. I heard two hours of oral argument on March 31,2016, at the end of which I sustained the objectionand vacated the appraisal award. Doc. # 68. In a written order dated April 5,2016, I 5 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 6 of 17 explained that Keys cannot be considered impartialbecause, "[ilnaddition to working on dozens of prior cases in which Keys was retained by the policyholder,Merlin and/or Merlin attorneys have served as Keys' personalcounsel, served as incorporator and registeredagent for Keys' companies, taughtwith Keys, and donated to a Keys-led group involved in pro-policyholder lobbying." Doc. # 69 at 10. I also noted that Summit Park initially had retained Keys under a contract that fixed his compensation at "$350 per hour as well as expenses not to exceed 10% of the amounts paid to" Summit Park in this case. Id at 11. While the contingent-capfee agreement was replacedthree to four months into Keys' engagement, I explained that,because "the higherhis appraisal,the higherthe cap on his fee,"Keys could not be considered impartial, even if he only worked under this agreement for a short period.Id (quotingColorado Hosp. Servs. Inc. v. Owners Ins. Co.,No. 14-CV-001859-RBJ, 2015 WL 4245821, at *2 (D. Colo. July 14,2015)). I noted that my disclosure order requireda reasonable inquiryinto and disclosure of any :.. facts a reasonable, person would consider likelyto affect the appraiser'simpartiality. Docc# 69 at 13-14. I concluded that Summit Park's disciosures did not meet this.staildard. .Id. :Inoted that I..,-' j Pettinato had provided more detail about Merlin's extensive relationshipwith Keys imca brochure for Keys' business-a brochure,int' which he is quoted as saying,that"[bloth,Keysand h.isstaff have assisted me as well as my firm in resolvingan untold number of largemulti-million dollar losses to an amicable resolution and settlement to the policyholders'benefit and satisfaction"-than he did in his disclosures to Auto-Owners before this Court. Id I also noted that Merlin assisted Keys in making the disclosure in which Keys stated that he did "not have any substantial business relationship...[with.] Merlin Law Group." Id I found that "counsel's 6 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 7 of 17 conduct has impugned the integrity of not only the appraisalprocess but also the Court" and invited the instant motion for sanctions. Id at 14-15. II. Analysis A. Dismissal of Counterclaims Federal courts have the inherent "abilityto fashion an appropriatesanction for conduct which abuses the judicialprocess." Farmer v. Banco Popular ofN. Am., 791 F .3d 1246,1255 (10th Cir. 2015) (internalcitation omitted). This includes "the power to enter a default judgment." Klein v. Harper, 777 F.3d 1144,1147 (10th Cir. 2015) (internalcitation and quotations omitted). Federal Rule of Civil Procedure 41(b) recognizesthat the Court may dismiss a claim or action where a "plaintifffails to... comply with these rules or a court order." "Default judgment is a harsh sanction that should be used only ifthe failure to comply with court: orders is the result of willfulness,bad faith,or any fault of the disobedient party rather than. inabilityto comply." Klein, 777 F.3d at 1 147-48 (internal citation and quotationsomitted). A district courtmust ordinarilyconsider the following"Ehrenhaus" factors in determining whether a dismissal under Rule 41(b) is appropriate:(1)the degreeof actuliprejudice to the opposing party; (2)'the amount of interference with the judicialprocess;(j)the culpability of the litigant; (4)whether the court warned the party in advance that dismissal ofthe actionwould be a likelysanction for noncompliance; and (5)the efficacyof lesser sanctions. Gripe v. City of Enid, OkL, 312 F.3d 1184, 1188 (10th Cir. 2002) (citing Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir. 1992)). "The factors do not create a rigidtest but are simply criteria for the court to consider." Id For the followingreasons, I conclude that it is appropriateto dismiss Summit Park's counterclaims with prejudice. 7 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 8 of 17 1. Bad Faith Before reachingthe Ehrenhaus factors,I begin with the threshold issue of bad faith. I find that Merlin-including Pettinato and Harris individually-acted in bad faith. I begin with Merlin's failure to disclose key facts about the Merlin-Keys relationship, namely that Merlin and Keys had worked on behalf of the same insured in dozens of priorcases and that Merlin attorneys served as personalcounsel to Keys and Keys' companies on multipleoccasions. Despitethese facts,neither Pettinato,nor Harris, nor anyone else from the Merlin firm ever corrected Harris' disclosure that Keys "does not have any significant priorbusiness relationship with the Merlin Law Group" or Keys' own, nearly identical disclosure. No reasonable attorney could have believed that the withheld information was not called for by my disclosure order. My disclosure order was clear that counsel were responsiblefor ensuring compliance with the order and that the order's obligationswere continuing. Pettinato's testimonial - in Keys' brochure boasting ofan "untold number of largemulti-millio.n doHar , . losses" that Keys and Merlin hadjointly handled suggests that Pettinato,had #ctuaiknowledge:of ' : , the undisclosed facts but opted not to disclose them. And H?rria' Merlio assisted Keys;with his disclosures dispelsany doubt that Merlin,p,layed,an active, role incrafting 1 ie; ' the disclosures. These facts suggest a deliberateness with regard.toMerlin'.,s, conduct that I find , rises to bad faith. But that is not all. It appears that Merlin and Summit Park took steps to conceal the existence of the contingent-capfee agreement under which Keys was originallyretained in April 2015. As noted, under this agreement, the limit of Keys' compensation and expenses would increase as the amounts recovered by Summit Park in this litigation increased. This agreement 8 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 9 of 17 was replaced by one removing the contingentcap around July 2015. In a December 4,2015 examination under oath, however, Summit Park's representative, David Malucky, denied that any agreements other than the uncapped one had existed. Doc. # 55-17 at 2. And before the examination, Merlin failed to produce the agreement in response to Auto-Owners' request for all contracts with Keys. Further,on December 21,2015, ina letter to Auto-Owners' counsel, Harris disclosed the agreement but mischaracterized itas merely a "proposed" agreement that "would have" imposed a contingentcap. Doc. # 59-41. It was not until January 2016 that Malucky, via Merlin, submitted an errata sheet which revealed that an actual (not merely proposed) contingent-capagreement had existed;his corrected testimony disclosed that "Mr. Keys initially was to receive $350 per hour as well as expenses not to exceed 10% of the amounts paid to the association." Doc. # 55-19. Perhaps unsurprisingly, this was after the appraisalaward was filed with the Court on December 23,2015. The failure to disclose the originalagreement in response to my disclosure order and the apparent efforts to conceal the original agreement further support a.findingof bad faith on the bart.of Merlin. I note that there can be littledoubt that? Merlin was paware df the initial agreeihebtwith Keys, es a pleadingsigned by Harris statedthat,Merlin handled the discussions with Mr. Keys regardingthe agreement and "9btained"the initial agreembnt on Summit Park's behalf. Doc. # 59 at 47. I acknpwledge in ? which . he avers that his actions were "not the product of bad faith or improper motive on my part,"but I do not find it entirelycredible. Doc. # 94-1 at 2. In addition,it does nothingto mitigateMerlin's bad faith. Harris and Pettinato have submitted affidavits averringthat they must have misunderstood what I meant in my disclosure order when I requiredthe appraisersto disclose 9 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 10 of 17 "any known facts that a reasonable person would consider likelyto affect his or her impartiality." Docs. # 92-1, 92-2. The disclosure order, however, stated that such facts "includ[e]...acurrent or previous relationshipwith any ofthe parties(includingtheir counsel or representatives)." Doc. # 25 at 12-13. And I ordered that "[t]hepartiesand their counsel shall make every reasonable effort to ensure that the appraisalprocess proceeds in accordance with this order." Id at 14-15. Accordingly, I do not find Harris' and Pettinato's statements credible in the least. The disclosure order was clear that current and priorrelationshipsbetween appraisersand counsel had to be disclosed and that the appraisers,the parties,and counsel were all jointlyresponsiblefor ensuringthat this happened. While Merlin's and Keys' disclosures acknowledged that Merlin and Keys had been retained by the same insured in the past, they said nothing about the number of such engagements or the millions of dollars Merlin and Keys apparentlyearned from those engagements. They certainlysaid nothing about the priorwork ? e' 'done for Keys and Keys' companies by Merlin attorneys. An*ofcourse, they.said,nothing.i .. , about the contingent-cap fee agreement. - : Bad faith oh.the part of Harris and Pettinato has certainlybdeA?establikhed. -?T:hota that it.0 . ' ' '; ; f, is . prbper to attributeHarris' and-Pettinato's bad faith to the Merlin: fitm *i,Venih]attltd'lawyers' ' ' (:i !i' 1 ., , . '?action-s:%'were indistinguidhabfe from those of Ethelfirm" andr"id -6tjbbsihk'[tiiei:sh;igtions)-?? j '. motion, the firni consistently accepted responsibility for conducting the underlying Ntigatidn,v Ennion v. Prospect Capital Corp,, 675 F .3d 13%, 148 (2d Cir. 2012). Summit Park is also responsiblefor Harris' and Pettinato's actions. Clients are routinelysubjectedto "inherent power" sanctions for their lawyers' misconduct, particularly where the conduct was designed to benefit the client. See Gripe,312 F.3d at 1188-89 (affirmingsanction of dismissal ofclaims 10 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 11 of 17 based on attorney's misconduct and notingthat "[a.]litigant is bound by the actions of its attorney, and the relative innocence ofthe litigant... does not constitute grounds for relief'); Haeger v. Goo*ear Tire & Rubber Co., 813 F.3d 1233, 1246 (9thCir. 2016) (sanctioningclient because client was "deemed bound by the acts of [itslawyers.]and is considered to have notice of all facts,notice of which can be charged upon the attorney")(internal citation and quotations omitted);Smith v. United States, 834 F.2d 166, 171 (10th Cir. 2016) (holdingthat"the lawyer represents his client and the client is bound by that representation"where the "lawyer (orthe client)makes a tactical decision and [thelawyer's]noncompliance with the court's directive is not a product of inadvertence").In any event, Malucky's incorrect testimony suggests bad -faith on the part of Summit Park. Further, Harris (thenSummit Park's counsel)stated in open court that Summit Park made an "independent' 'examination" of various appraisersand, after a meeting in "executive session,""made the decision" that Keys -"is who we would like to.use." Doc. # 99-3 at 42-43.: Thus, Summit Park was aware of Keys';background and bears at-,least some i , degrbe of'responsibility for his selection and his inade4uate disclosures. . ."i Finally,. I rejectMerlin's and Summit Park's argument that }Wid Iri@t have.authority td:p u, Gi:- ? ? .'? enter the disclosure order and,find,their continued defiance . ofjthatordemtn-bc:ifurther ?evidente'of,'n , bad:faith: ' The disclosure ordur Iwas a proper exercise of the?86.ulit's.autb.oritj< under:Hedd't:ai- i::,i ihi Rule of Civil Procedure 16(c)(2)(L),the common law of appraisal,and the Court's inherent i al :. supervisory power. In any event, this is not relevant to the instant sanctions issue.;Even ifthe order had been entered in error, the partieswere stillrequiredto comply with it. See, e.g., L 'Ggrke v. Asset Plus Corp.,No. 15-5059, 2016 WL 231150, at *2 (10thCir. Jan. 20, 2016) ("But to be clear,even assuming purely for the sake of argument that the district court had 11 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 12 of 17 lacked jurisdiction, it still had jurisdiction to sanction Plaintiff for failure to comply with its orders."); Coando v. Westport Res., 85 F. App'x 59,62 (10th Cir. 2003) ("An order issued by a court with jurisdictionmust be obeyed by the partiesuntil it is reversed.")(alterations and citation omitted). The proper means of contestingthe Court's authorityto enter the disclosure order was a motion for reconsideration or an appeal-not to violate the order. 1. Ehrenhaus Factors I now turn to the Ehrenhaus factors. First,Auto-Owners has been significantly prejudicedby Summit Park's and Merlin's conduct, most obviously by the last six months of litigation over Keys' partiality and the instant sanctions issue. The eightmonths of litigation before that-regarding whether and under what terms the appraisalprocess would proceed-were also wasted because Summit Park's and Merlin's conduct led to the vacatur of the appraisalaward. Summit Park and l'Aerlin have thus impeded Auto-Owners from achieving- resolution of its claims in this declaratoryjudgment case. This factor mbrits significantweight.! ' ' Turning to the second factor,there has been massive interfdreilde'?kith th'dejudicial l9rocess: B Summit: Patk's and Merlin's.conduct has disrespectedthe Court's au'thorityj increased the ' 011 Court's, workload, .and *endrallyihtetfered with the administ?ation:jofijustiee.: Gee'Steekel'v!DJk, 1 4-t'P? q C .: . 'No. 2009 WL-1174479, at *2 (D. Col'olj*r'. 29,2009) ("duditihf- '?,' .,t P, resources have been. expended on setting,resetting,monitoring,and issuihgorddrs in this civil action.").This factor thus merits great weight. In regardto the third factor,Summit Park bears some degree of culpability, both as the ' party responsiblefor Merlin's actions and in its own right.As noted above, Summit Park played a role in selectingKeys in the first place,in failingto ensure that his disclosures were adequate, 12 Case 1:14-cv-03417-LTB Document 105 Filed 08/01/16 USDC Colorado Page 13 of 17 and in failingto disclose information regardingthe originalcontingent-capfee agreement. Thus, I give moderate weight to the third factor. Fourth, in regard to warnings, I warned the partiesin all capitalletters in my disclosure order that "IF THE COURT FINDS THAT THE PARTIES AND/OR THEIR COUNSEL HAVE NOT COMPLIED WITH THIS ORDER, THE COURT WILL IMPOSE SANCTIONS/' Doc. # 25 at 15. While I did not specificallyreference dismissal,the warning was early,prominent, and phrased mandatorily. At a status conference on March 16,2016, after Auto-Owners filed its objectionsregardingKeys but before oral argument took place,I further cautioned Summit Park that the "objectionsare significant...interms of the implicationsfor this case" and for "judicialintegrity."Doc. # 67 at 3. I warned that "there are implicationspotentiallyadverse to defense c