Assignment of Benefits— Lawyers “lie to court”

You’ve read my past opinions on the reprimands judges have given to some Florida plaintiff’s attorneys.  In describing their bad behavior court documents contain phrases like “trifled with the justice system” and the words “perpetrated”, “fraud” or “deception” –all to describe trial attorneys and firms doing what they too often accuse insurers of doing; “acting in Bad Faith.”   

Nothing confirms bad faith by some plaintiff firms and their complicity with public adjusters more than the recent case of Auto Owners vs. Summit Townhomes—a Colorado suit involving one of Florida’s leading lawsuit mills, the Merlin Law Group.  (See Note #1 below)

I’ve previously written about the firm’s head, Chip Merlin, numerous times (See Note #2 below).  I served with him on the Citizens Mission Review Task Force.  Knowledgeable and articulate he is none the less, a dyed-in-the-wool trial lawyer prone to write highly critical editorials and blogs slamming others, especially insurers he alleges act in bad faith.  I’ve tried to recast his writings, especially those published by some Florida newspapers.  (See Note #3 below)

He’s also a founder of the Florida Association of Public Insurance Adjusters (FAPIA) and employs Florida’s former Insurance Consumer Advocate (ICA) Sean Shaw who was just elected to Florida’s house of representatives serving Tampa’s district 61.

Attorneys at Merlin Law often work closely with public adjuster George Keys the head of, Keys Claims Consultants, Inc. and a past president of FAPIA.   Keys is also a licensed appraiser and on the board of the National Association of Public Insurance Adjusters (NAPIA).  He’s a respected 30-year veteran of public adjusting who, along with Merlin attorneys, mischaracterized his relationship with the Merlin firm to increase his contingency fee, according to court documents.

I learned this from an article by nationally recognized insurance fraud expert and a favored target of the Merlin pen, attorney Barry Zalma.  (See Note #4 below).

For details read Zalma’s “Lawyers Lie to Court…” explaining how Merlin attorneys David Pettinato and William Harris, along with public adjuster George Keys and the plaintiff Summit Park, demonstrated “bad faith” attempting to hide Key’s lack of impartiality as an appraiser.

Before I tell you the underlying story, here’s a quick summary of the case provided by the Auto-Owners law firm, Wheeler Trigg O’Donnell (WTO).

Following a 2013 Colorado hailstorm, Summit Park submitted a claim for storm damage to residential buildings. Following an insurance appraisal that concluded with Mr. Keys and an umpire awarding approximately $10 million for damage from the storm, Auto-Owners promptly paid the award while reserving its rights to recoup the payment based on irregularities in the appraisal process, including Mr. Keys’ partiality.

Auto-Owners demonstrated that Mr. Keys had numerous, extensive undisclosed relationships with the insured’s law firm, Merlin Law Group, and its clients, often working on a contingency basis for a percent of the recovered insurance money (and on some occasions for as much as 20%-30% of the award amounts). Auto-Owners argued that Mr. Keys was anything but an impartial appraiser, as he had significant and lucrative business dealings with the insured’s attorneys and had direct financial incentive to inflate appraisal amounts. The Court noted that the appraisal award signed by Mr. Keys was $3.47 million—47%—greater than the amount Summit Park’s own public adjuster calculated prior to the filing of the lawsuit. Auto-Owners further demonstrated that Mr. Keys and Merlin Law Group attorneys had formed undisclosed fiduciary relationships, including attorney-client engagements in which Merlin Law Group attorneys had represented Mr. Keys in litigation or had performed transactional legal work for his insurance businesses. The Court stated: “While Keys’ relationship with Merlin is sufficient by itself to render him other than impartial, the totality of the circumstances here make this conclusion unavoidable.”  

That’s the nutshell.  Ugly details, however, are found in the Memorandum Opinion and Order on the “sanctions” against both Merlin and its’ attorneys including the most severe of all sanctions, “dismissal”.  It starts on page 8, paragraph 1 under the title: “Bad Faith.”

I find that Merlin—including Pettinato and Harris individually—acted in bad faith.

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 prior cases and that Merlin attorneys served as personal counsel to Keys and Keys’ companies on multiple occasions. Despite these facts, neither Pettinato, nor Harris, nor anyone else from the Merlin firm ever corrected Harris’ disclosure that Keys “does not have any significant prior business relationship with the Merlin Law Group” or Keys’ own, nearly identical disclosure.

But that is not all. It appears that Merlin and Summit Park took steps to conceal the existence of the contingent-cap fee agreement under which Keys was originally retained in April 2015.  [Emphasis Added]

When your writer first read the charges against Merlin Law, one of Florida’s leading plaintiff firms specializing in Florida’s property market, my first thought was vindication.  After all, I’ve been building the case that Florida’s premiums are the highest in America due in large measure to the complicity between some plaintiff firms and some unsavory emergency responders within the ranks of public adjusters, water extractors, roofers and others.

For those thinking this might be an isolated occurrence at Merlin Law we must look at the judges’ comments regarding Merlin lawyer David Pettinato’s prior actions.  With great specificity Judge Babcock addresses whether lesser sanctions could deter either Pettinato or “…the Merlin firm…” from continuing such “misconduct”.

Again, with emphasis added, the judge stated:

I also recognize that, over the past decade, Pettinato has been regularly sanctioned and/or admonished for litigation misconduct in Florida, to no apparent effect.

In 2006, U.S. District Judge Gregory Presnell imposed a sanction of attorney’s fees and expenses against Pettinato for his deposition misconduct. Doc. # 99-6.

In 2009, Florida Circuit Judge Timothy P. McCarthy recused himself from Pettinato’s matters, telling Pettinato that “I do not trust you.” Doc. # 99-5.

In 2010, U.S. District Judge Virginia Hernandez Covington wrote that “Pettinato’s reputation for candor has been questioned by this Court” and therefore “disregard[ed] Pettinato’s opinions” regarding the appropriate hourly rate to apply in determining a motion for attorney’s fees. See Ottaviano v. Nautilus Ins. Co., 717 F. Supp. 2d 1259, 1270 (M.D. Fla. 2010) (adopting report and recommendation of magistrate judge).

Finally, in 2012, U.S. District Judge Patricia Seitz told Pettinato that she “contemplated an order to show cause whether or not I should allow you to appear as counsel in this case” after reviewing his deposition conduct. Doc. # 99-4 at 5.

In light of this history, I am convinced that only the harshest of sanctions may cause Pettinato and the Merlin firm to reexamine their approach to litigation.  

And finally, the judge wrote:

I note that it is proper to attribute Harris’ and Pettinato’s bad faith to the Merlin firm given that the lawyers’ actions “were indistinguishable from those of [the] firm” and “in opposing [the] sanctions motion, the firm consistently accepted responsibility for conducting the underlying litigation.  [emphasis added]

A final thought…

There is so much wrong here it’s hard to comment.  Such “misconduct”, in my opinion, should not exist within our civil justice community.  And when it does I say “shame” on a system that allows offenders to repeatedly offend.

This case, and others previously revealed in these pages, not only point to who’s committing the bad faith in Florida’s property market but, to the hypocrisy of those profiting by alleging bad faith of others.

It’s time lawmakers stopped the misconduct driving America’s most expensive homeowner’s system by reforming Florida’s unique trident of abuse:  a liberal bad faith climate, one-way attorney fees, and…Assignment of Benefits.

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NOTE #1: The term “bad faith” as used in this article originates from two different contexts.  One, is bad faith as reflected in attorneys who do not deal in good faith with a court of law or in responding to the requests of a judge.  The judge or the courts documents often reference such behavior as “bad faith.”  The other context applies most to insurers in first party bad faith claims pursuant to Section 624.155, Florida Statutes and any relevant case law.

NOTE #2: To read previous reports on Merlin Law enter the name “Merlin” in the search bar on the upper right side of the home page.   Previous blogs, “License to Steal” and  “Lawyer’s and Money–more than meets the eye!”, contain public documents showing Merlin Law was one of the premier Citizens sinkhole firms in Florida using a practice referred to as “hammering”.  Nancy Smith with Sunshine State News, in her piece titled, “Anybody but Sean Shaw”, referenced this practice saying firms like Merlin Law get “fat off a practice called “hammering” — that’s twisting the arms of insurance companies into agreeing to large settlements.”

NOTE #3:  Two of the articles by Merlin are dealt with in “PA’s & CHIP MERLIN: “until proven guilty!” and “Palm Beach Post…two sides, one story!”

NOTE #4: Barry Zalma is a well-known thorn in the side of the plaintiff’s bar.  One example is found in previous Merlin posts calling into question whether the insurance industry (Zalma?) may be lying about fraud statistics: Are Insurance Fraud Statistics Fraudulent?  In the wake of Auto Owners vs Summit Townhomes, irony and hypocrisy ooze from Merlins’ previous ultra-critical postings.  Someone pointing so many accusations of fraud at insurers should be more diligent preventing those in his own firm from perpetrating fraud themselves.

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