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(1)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

21st Annual Southern Surety & Fidelity Claims Conference

Florida Auto Dealer Bonds and

Excessive Attorneys’ Fee Claims –

Going to Hell in a Hand-Basket?

Gregory P. Brown & Paige A. Greenlee – Hill Ward Henderson Beth Jenks – Capitol Indemnity Corporation

(2)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

• Florida Statutes §320.27(10)(a)

– “Annually, before any license shall be issued to a motor vehicle dealer, the applicant-dealer of new or used motor vehicles shall deliver to the department a good and

sufficient surety bond or irrevocable letter of credit,

executed by the applicant-dealer as principal, in the sum of

$25,000.”

• Florida Statutes §320.27(10)(b)

– Violations by auto dealer of any provision in Chapter 319 or 320 allows aggrieved consumer to make claim on bond.

The Bond

(3)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Traps for Unwary Surety

• Modest bond amount ($25,000)

• Apparent cap on liability

– “The aggregate liability of the surety in any one year shall in no event exceed the sum of the bond.” See

§320.27(10)(b).

• Expectation of defense by principal

• Expectation of compliance with claims process

and cooperation from bond claimant

(4)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Rise of the “Cottage Industry”

• Florida Auto Dealer Bonds

– Plaintiff’s “Consumer” lawyers – Large Attorneys’ fee claims

– Unsavory tactics

(5)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Basis for Fee Award

• Not §320.27(10)

– Silent on fees, but contains cap on all liability

• Courts are using this silence to find that the cap does not include attorneys’ fees

• §627.428(1) is the basis on which plaintiffs’ lawyers rely

– Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the

insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had. (emphasis supplied).

(6)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Tactic #1: No Proof of Loss

• “I never submit a proof of loss to the surety

because the sureties never respond to them.”

– Plaintiffs’ lawyers simply file suit

– Often use minor damage claim to get into court to generate large fee claim

– Surety kept in dark about specific amount of damages and whether claim is covered

(7)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Tactic #2: No Meaningful

Participation in Litigation

• Surety often not named as party to underlying

suit – jointly and severally liable

• Surety simply receives single notice of suit

against principal but nothing else

• May be defunct principal who won’t defend suit

• Surety prevented from obtaining pertinent

information about claim

(8)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Tactic #3: Surety Named as

“Supplemental Party”

• After litigating against principal, generating large fee amounts, and ultimately obtaining judgment against principal, surety can expect to be named in a

“supplemental” lawsuit

• No provision in Florida Rules of Civil Procedure or Florida Statutes specifically allowing such a

“supplemental” suit

– Rule 1.110(h) (“Subsequent Pleadings”)

– Florida Statutes §56.29 (“Proceedings Supplementary”)

• Courts allow these “supplemental” suits notwithstanding lack of express authority

(9)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Jimmy Blau

• Orlando Attorney

• Trial Lawyer for Plaintiffs in the Hubbel case

• Modus Operandi:

– No Pre-suit proof of claim

– No opportunity for meaningful discovery – Quick to seek sanctions

(10)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Johnson v. Hakan Finance Corp, et al.

Case No.: 07-CA-8372

• 117 Page Amended Complaint

• Motion for Sanctions

• Motion for Class Certification

(11)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

(12)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Hakes v. Orlando’s Auto Specialists, Inc., et. al.

Case No. 07-CC-6570

• Be careful with tendering defense to principal

(13)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

(14)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Operation “Blot Out Blau”

• Use Florida Supreme Court

cases to argue no fee award

against auto dealer bond

sureties

(15)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Florida Supreme Court Decisions

• Three primary cases

– David Boland, Inc. v. Trans Coastal Roofing Co., 851 So. 2d 724 (Fla. 2003)

– Hubbel v. Aetna Cas. & Sur. Co., 758 So. 2d 94 (Fla. 2000)

– Nichols v. Preferred National Ins. Co., 704 So. 2d 1374 (Fla. 1997)

(16)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Helpful Case for Sureties

• Hubbel v. Aetna Cas. & Sur. Co., 758 So. 2d 94 (Fla. 2000)

• “[w]e conclude that under the plain language of the statute, attorney’s fees are not included under the statutory scheme set forth in §320.27(10).”

• Public policy

– “the asserted public policy concerns are not justifiable and would effectively destroy the statutory scheme which establishes a modest fund for consumers to obtain a refund of their monies. As illustrated by the facts in this case, to accept the view of the petitioners would mean the primary beneficiary of the fund

would be the attorneys, not the consuming public. The legislative scheme was intended to establish a very modest fund of $25,000 from which consumers could recover damages when car dealers went out of business and defaulted in their obligations.”

(17)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Why Hubbel Didn’t Slam Door Shut

• Plaintiff hadn’t claimed fees under

§627.428

– Thus, Hubbel addressed only section 320.27(10) – not the interplay between 627.428(1) and 320.27(10)

• Some courts take narrow reading of

Hubbel

(18)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Bad Case for Sureties

• David Boland v. Trans Coastal Roofing Co., 851

So.2d 724 (Fla. 2003)

– Construction bond case – not auto dealer bond

– Held surety can be liable for attorneys’ fees beyond penal sum of bond

• Plaintiff’s lawyers argue penal sum of bond

therefore does not cap fees

(19)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Court’s Reasoning in Boland

• Holding based on express absence of statutory provision limiting surety’s liability to penal sum.

• “The plain language of [section 627.428] fails to address the

effect, if any, of penal sums under bonds and is silent regarding whether proof of independent misconduct is necessary for an award to exceed such penal sums. Thus, if a limit exists to the amount that may be awarded under this statute, it must be found within another statute. We find no other statute that limits the attorneys' fees liability of sureties under a

performance bond.”

• But, unlike construction bond, Section 320.27 (10)(b) does provide such a cap for auto dealer bonds that was absent in Boland.

(20)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Middle Ground Case for Sureties

• Nichols v. Preferred National Ins. Co., 704 So.2d

1374 (Fla. 1997)

– Guardianship bond case

– Held attorneys’ fees may be awarded only to extent of liability cap contained in guardianship statute. – Fla. Stat. 744.357 “[n]o surety for a guardian shall

be charged beyond the property of the ward.”

(21)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Summary of Florida Supreme Court

Case Law

• Sureties must argue:

– Hubbel controls, especially given public policy reasons

– Analogous to Nichols (provided there’s no finding of unreasonable delay)

– Boland not controlling because of specific cap in 320.27(10)(b)

(22)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Howell v. Dolphin Automotive, Inc.

(Defendant) and Capitol Indemnity Corp.

(Supplemental Defendant)

• Broward County, Case #03-12838-12

• Plaintiff’s Lawyer: Jerard C. Heller

(23)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Timeline

• 07/28/03: Howell sues Dolphin

• 09/01/05: Heller sends letter to surety informing

surety that suit is presently on the Court’s trial docket,

“so if you wish to defend this action, you should do so immediately”

– This is the first notice Surety ever received

• 09/12/05: surety sends letter to Howell asking for submission of Proof of Loss claim so that surety can proceed with its investigation

– No Proof of Loss claim ever submitted

(24)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Timeline

• 05/15/06: Trial occurs; jury enters verdict in favor of Howell

• 02/07/07: Final Judgment entered in favor of Howell against Dolphin, 82% of which is for attorneys’ fees

• 02/12/07: Heller sends letter to surety demanding

that Final Judgment be satisfied, including $30,000 in attorneys’ fees

(25)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Timeline

• 06/28/07: Heller files Supplemental Complaint for breach of contract and fraud

• 01/07/08: surety receives notice of service of process

• 08/28/08: Judge enters Order granting Motion to Quash Service of Process and Dismiss Supplemental Complaint

(26)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Timeline

• 06/24/09: (Very next record action- almost 10 months after Order entered); Heller files Second Amended

Supplemental Complaint

• 08/27/09: Court enters Order denying surety’s MTD 2nd Am. Comp.

• 09/30/09: Heller files Motion for Judgment on Pleadings and/or Summary Judgment

(27)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Timeline

• 11/23/09: Court grants SJ on breach of K count but denies on fraud count

– Court refuses to hold surety liable for fees from underlying suit against principal in amount of $30,800

• 01/09/10: Surety pays Howell $8,764.59

(28)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Can the Excessive

Fee Claims be Stopped?

• Pre-Litigation Considerations

– Secure sufficient collateral in underwriting process

– General Indemnity Agreement may be insufficient

• Indemnitor may not pay,

forcing surety to sue to recover

• Indemnitor may not have any

$ to pay or otherwise satisfy judgment.

(29)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Pre-Litigation Considerations

• Do NOT ignore notice of pending claim or suit against principal

• Notice serves as basis to impose joint & several liability on surety once judgment obtained against principal

• Consider notice to be suit against surety itself

• Take immediate steps to ascertain coverage

• If claim is covered tender payment and obtain broad release, including against attorneys’ fees

(30)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Intervention

• Chance to defend on merits

• Ability to engage in early discovery

– Deposition Duces Tecum

– Interrogatories aimed at exact amount of damages and basis for claim.

– Documentation of efforts taken so can’t be said to have

“unreasonably delayed” claim

• Better chance that claimant will have to cooperate with traditional claims process

(31)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Interpleader

• Option if multiple claims on bond

• Determine if sum of claims will exceed total

amount of bond

• Deposit funds into registry of Court

• Eliminate fee claim

(32)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Additional Litigation Arguments

• Surety not liable for attorneys’ fees incurred in

underlying action to which surety not a party

– But still liable for damages portion of judgment

• 627.428 requires judgment to be against insurer

– in underlying suit judgment only against principal

(33)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

627.428 Requires a Pre-suit Claim

• Plaintiff cannot recover any fees at all if merely files suit without making pre-suit claim on bond

• “[t]he purpose of section 627.428 is to penalize a carrier for wrongfully causing its insured to resort to litigation to resolve a conflict when it was reasonably within the carrier’s power to do so.” Government Employees Ins. Co. v. Battaglia, 503 So. 2d 358, 360 (Fla. 5th DCA 1987) (emphasis

supplied)

(34)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

627.428 Requires a Pre-suit Claim

• Ins. Co. of N. Am. v. Lexow, 602 So. 2d 528, 531 (Fla. 1992) (providing that “Florida courts have consistently held that the purpose of section 627.428 and its predecessor is to discourage the contesting of valid claims against insurance companies and to reimburse successful insureds for their attorney’s fees when they are compelled to defend or sue to enforce their insurance

contracts”) (emphasis supplied).

• Surety should not be subject to punitive nature of statute where no pre-suit claim made because surety’s actions have not forced plaintiff into litigation

(35)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Required to Exhaust Administrative

Remedy

• Section 320 suggests that a claim must first be made to DMV

• “When the [D]epartment determines that a person has incurred a loss as a result of a violation of chapter 319 or this chapter, it shall notify the person in writing of the existence of the bond or letter of credit.” §320.27(10)(b).

• Complaint form on DMV’s website

(36)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

Lobbying Efforts

• Amend Statute to clarify either no attorneys’ fees or absolute cap on attorneys’ fees

• Public policy reasons

– Modest fund

– Ultimately hurts consumers

• Increased premium costs

• Fewer sureties willing to issue

– Windfall to attorneys

(37)

HILL WARD HENDERSON ATTORNEYS AT LAW

Florida Auto Dealer Bonds & Excessive Attorneys’ Fee Claims- Going to Hell in a Hand-Basket?

This presentation is made available by Hill Ward

Henderson for educational purposes only to provide you general information and a general understanding of the law, it is not intended to provide nor does it

constitute legal advice. The presentation should not be used as a substitute for specific legal advice from a

licensed professional attorney. Further, the subject matter contained in this presentation is complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S.

federal, state or local tax penalties.

References

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