Judge: Lawyers Cheated Other Lawyers on Same Side of Insurance Dispute

Bud Newman

Daily Business Review

Two sets of lawyers on the same side of a case against Progressive Insurance got into an ugly fight over fees that produced an award of nearly $3 million and an ethics report to the Florida Bar.

Palm Beach Circuit Judge David Crow awarded nearly $3 million in legal fees plus interest to three law firms that claimed they were cheated by the attorneys who filed the suit against the insurer.

Crow concluded the original lawyers concocted a scheme to enrich themselves and cheat the attorneys they hired as settlement counsel out of their share of the fees.

The judge found a breach of fiduciary duty, but he rejected a fraud claim, eliminating a potentially lucrative punitive damage claim by the winning attorneys.

Crow also forwarded his April 24 ruling to the Bar for possible disciplinary action. He found "serious ethical flaws" by the original plaintiffs attorneys in the Progressive case.

The complex case involved settlement talks with Progressive after it was sued for failing to pay claims from health care providers who treated people injured in vehicle accidents.

The settlement attorneys in the fee dispute were Stewart Tilghman Fox & Bianchi of Miami and solo practitioners William Hearon and Todd Stewart, both of Miami. They were represented by Chris Searcy of the West Palm Beach law firm of Searcy Denney Scarola Barnhardt & Shipley. He did not return calls for comment by deadline. They sued the father-and-son law firm Kane & Kane of Boca Raton, the Watson & Lentner firm of Fort Lauderdale and Charles and Harley Kane and Laura Watson individually. Larry Stewart, a Stewart Tilghman shareholder who spent 10 days on the witness stand during the 10-week trial last fall, said the case was about greed by lawyers who did not expect to get caught.

"They were screwing us, and they were screwing the doctors" out of settlement money, Stewart said. "We sued them for screwing us." Attorney Peter Goldman, a partner at Broad & Cassel in Fort Lauderdale, who represented Watson, said by e-mail that the judge's fraud finding was a huge victory.

"On the other hand, the decision by Judge Crow hardly paints a pretty picture for the defendants in a case where every lawyer involved in the underlying legal representation contributed to a flawed representation of multiple parties that was ultimately doomed to implode," he said, promising an appeal.

The underlying case pitted 441 Florida providers against Progressive on bad faith claims for failure to pay for medical services in personal injury protection cases. Progressive "utilized a bogus scheme and phony excuses not to pay the doctors" and only paid "when push came to shove," Crow's ruling said. The unpaid providers wanted to pursue a bad faith case against Progressive "to put a stop to their practices," and that's when the providers' lawyers brought in additional lawyers to help negotiate the settlement, the ruling said.

The original attorneys for the providers settled with Progressive but kept the settlement attorneys and the providers in the dark. An amended settlement reallocated some money to 36 named providers.

The settlement attorneys said they were entitled to legal fees because there wouldn't have been an agreement without their involvement. The two sets of lawyers agreed in 2002 that 60 percent of any legal fees stemming from a successful bad faith case would go to the newly hired lawyers, and the initial lawyers would keep the rest, the judge said. Progressive rejected a settlement until the 4th District Court of Appeal forced the insurer to release some internal documents. In 2004, the settlement counsel met with Progressive and offered to end the bad faith case for $20 million.

Progressive indicated it might want to settle both the bad faith and PIP claims, and the original attorneys authorized the settlement attorneys to push ahead with a promise of higher fees.

But the original lawyers "without knowledge and consent of the plaintiffs settled all of their clients' PIP and bad faith claims" by accepting $14.5 million from Progressive on May 14, 2004, the judge's ruling said. The original attorneys argued their memorandum of understanding with Progressive was only a tentative agreement, but the judge found it was a binding contract that froze out the settlement lawyers on the fee front.

The agreement allocated $4 million to Laura Watson, $5.5 million to the Kanes and $5 million to another firm not involved in the fee dispute. None of the settlement money would pay the bad faith claims.

"The court finds that this procedure was utilized by the defendant law firms in order to allocate almost 90 percent of the initial settlement proceeds to attorney's fees," the judge wrote. Crow concluded the original lawyers violated "a number of rules" of professional conduct established by the Florida Bar.

After the settlement attorneys learned of the unilateral agreement and objected, the pact was modified to give $1.75 million to providers, but only 36 providers among 441 seeking money from the insurer were covered, the judge found.

The original attorneys also fired the settlement attorneys without notice.

"The defendants gave conflicting reasons for this reallocation, but the court finds that the real reason was to maximize attorney's fees recovery and to limit the amounts the plaintiffs could claim in fees while attempting to cure, after the fact and on the surface only, serious ethical flaws in the settlement procedure," the judge wrote.

"The evidence establishes that defendant law firms unfairly deprived plaintiffs of a fee by ignoring multiple conflicts of interest, misrepresenting the terms of the settlement to the plaintiffs, misrepresenting the terms of the settlement to the clients to obtain the releases to trigger payment, manipulating the allocation of the settlement to obtain most of it as attorney's fees and by discharging plaintiffs for no reason," Crow wrote.

He also concluded the work hours submitted by the original attorneys "neither competent nor credible." He said Watson claimed to have spent 7,200 hours on the PIP cases, "which would be over 34 hours per week for over four years" even though her scheduling calendar showed far less of her time spent on the cases.

Crow ruled the settlement attorneys were entitled to reasonable fees, but it was a "complicated" computation. He said they "were 50 percent responsible" for the settlement but awarded them less than that.

Crow diverted to the settlement attorneys $2 million of the $4 million that went to the Kane firm and $981,792 of the $2.5 million collected by Watson.

Stewart said interest will add about $1 million to the nearly $3 million awarded by the judge.

"I was gratified that he [Crow] saw through all of the smoke and mirrors that they threw up," Stewart said. "This case was worth a lot more money than what they settled it for. In their greed, they settled it on the cheap. ... They grabbed $14.5 million for themselves and cut the [provider] clients out. The clients got very little out of this."

He said he thinks the bad faith claim alone was worth $20 million and the PIP cases would have increased that total.