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Even if attorneys get an unfair tactical edge by seeing their opponents’ privileged material due to a court order that’s later vacated, that’s not enough to justify kicking them off the case, a state appeals court in Florida has ruled. The 3rd District Court of Appeal’s decision July 13 ended the latest round in a long-running legal battle between the owners of a Key Biscayne, Fla., apartment complex and their insurer, Lloyd’s Underwriters in London. In the decision, the 3rd DCA reinstated four prominent attorneys for the apartment owner who were disqualified last year by Miami-Dade County Circuit Judge Jerald Bagley because they had seen privileged communications between Lloyd’s and its Coral Gables, Fla., law firm. A fifth attorney who was reinstated represents the family that owns the property management company. “Florida courts have consistently held that disqualification of a party’s chosen counsel is an extraordinary remedy,” the panel said in a unanimous opinion written by Judge Angel A. Cortinas. “Moreover, motions for disqualification are viewed with skepticism because disqualification impinges on a party’s right to employ a lawyer of choice, and such motions are often brought for tactical reasons.” The reinstated attorneys are Gonzalo Dorta, Geoffrey Marks, Bart Billbrough, Ervin A. Gonzalez and Manuel Kadre. Dorta, a Coral Gables lawyer, praised Judge Bagley’s fairness even though the judge had disqualified him, and said he will be pleased if Bagley now hears the case on remand. Andrew Watson of Butler Pappas, Lloyd’s counsel, did not return a call seeking comment. The lawyers’ exclusion was the result of a tangled series of trial court rulings and appellate reversals dating back to 1999. At that time, Coral Reef of Key Biscayne Developers, the owner of a 50-unit apartment complex in Key Biscayne, submitted a claim to Lloyd’s for the repair of structural damages caused by what management called “hidden decay.” The insurer made an initial payment of $550,000 to begin the work, but held back an additional $4.8 million that Coral Reef said it was owed. In September 2000, Dorta, representing Coral Reef, sued to collect the additional funds. In January 2001 Lloyd’s insurance adjuster responded by sending a letter to Coral Reef refusing to pay and accusing the apartment management of attempting to commit insurance fraud by inflating its damage claims. Counsel for Coral Reef then submitted affidavits to Miami-Dade County Circuit Judge Jennifer D. Bailey from insurance adjusters for both sides. The affidavits, according to last week’s 3rd DCA appellate decision, “indicated that the underlying motive and reason for the accusation of fraud in [the Lloyd's adjuster's] letter was to intimidate and coerce [Coral Reef].” After an evidentiary hearing, Judge Bailey ordered Lloyd’s and Butler Pappas to turn over letters and memos between them that would normally have been excluded from discovery as privileged communications. One letter, from Butler Pappas to Lloyd’s, detailed the reasons to deny Coral Reef’s insurance claim. Bailey’s order was quickly overturned by the 3rd DCA, which ruled that Coral Reef’s lawyers should never have seen any of the reports, letters, memos and other documents exchanged among Lloyd’s, its insurance adjuster and its attorneys. By then, however, Coral Reef’s attorneys already had seen the material. The case was sent back for trial before Judge Bagley. Last October, he ruled that viewing the privileged material gave Coral Reef’s attorneys an unfair tactical advantage in the case. For that reason, Bagley disqualified Dorta, Marks, Billbrough, Gonzalez, and Kadre, who serves as house counsel for Eagle Brands and represents the Mereula family, the owners of Coral Reef of Key Biscayne Developers. But now, in still another reversal, the 3rd DCA has decided that disqualification of Coral Reef’s entire legal team is too strong a remedy for any damage done. The appellate panel said many courts emphasize that “even if a lawyer violates a disciplinary rule or engages in unethical conduct to retrieve the privileged documents, the party seeking disqualification must demonstrate that the opposing counsel’s conduct caused severe prejudice that warrants disqualification.” Judge Bagley, the panel said, based his decision on the well-established standards that apply when lawyers receive documents they should not see through “inadvertent disclosure.” In such cases, just the chance that attorneys will receive an unfair advantage is sufficient reason for disqualification. But the situation in the Coral Reef case is different because the document release was ordered by Judge Bailey. “We hold that a higher standard must apply … when the privileged documents are received pursuant to a court order that is subsequently vacated,” the 3rd DCA wrote. “Contrary to the ‘inadvertent disclosure’ cases, the mere possibility of an unfair tactical advantage cannot give rise to the drastic remedy of disqualification in cases where the disclosure results from a court order.” The panel cited a decision by the Texas Supreme Court as a model in setting such a standard. It found that the party moving for disqualification must show that the privileged documents “cause actual harm” and that the trial court lacks means to remedy such harm. In this case, the 3rd DCA said, Lloyd’s “failed to meet its burden of showing that disqualification is necessary because the trial court lacks any lesser means to alleviate the harm.” HOW MUCH DAMAGE? The panel’s decision also questioned how much damage was done by the document disclosure. Lloyd’s brief, the 3rd DCA said, claimed that the disclosed letter from Butler Pappas detailing reasons to deny Coral Reef’s insurance claim was a “most devastating” piece of information. But the court noted that most of this information was contained in the adjuster’s letter to Coral Reef denying coverage. “We find that this information does not constitute actual harm and, in any event, its disclosure could be remedied by the trial court limiting all testimony pertaining to the communications in those documents, the appellate panel wrote. The 3rd DCA also chided Judge Bailey gently for allowing Coral Reef’s attorneys to see the documents in question. “We note that the disclosure of privileged information could have been avoided had the trial court issued a protective order to seal the information while the respondent sought immediate appellate review of the order compelling discovery of the documents.” The case now goes back to Judge Bagley with instructions that all of Coral Reef’s attorneys are again eligible to handle its claims. Dorta declined to discuss the issues or evidence. But he said in an interview that the case is an interesting example of “an industrywide practice of insurers bringing unsubstantiated charges of fraud against their own customers in order to frighten them into compromising their legitimate claims and accepting lower reimbursements for damages.” Marks noted that it’s been almost six years since the case began and said Lloyd’s is still resisting payment. “We’ll get there yet,” he said.

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