Sidman v. Travelers Cas. & Surety

• Decision Date: 17 November 2016
• Docket Number: No. 15-15197,15-15197
• Citation: 841 F.3d 1197
• Parties: Orline Sidman, Florida Policyholders, LLC, Plaintiffs–Appellants, v. Travelers Casualty and Surety, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

841 F.3d 1197

Orline Sidman, Florida Policyholders, LLC, Plaintiffs–Appellants,

v.Travelers Casualty and Surety, Defendant–Appellee.

No. 15-15197

United States Court of Appeals, Eleventh Circuit.

Date Filed: November 17, 2016

Raymond T. Elligett, Jr., Mark P. Buell, Shirley Thompson Faircloth, Buell & Elligett, PA, Tampa, FL, for Orline M. Sidman, Plaintiff–Appellant.

George A. Vaka, Nancy A. Lauten, John Robert Sierra, III, Vaka Law Group, PL, Tampa, FL, Mark P. Buell, Buell & Elligett, PA, Tampa, FL, for Florida Policyholders, LLC, Plaintiff–Appellant.

Joseph T. Kissane, Cole Scott & Kissane, PA, Jacksonville, FL, Andrew V. Tramont, Bradley B. Aserlind, Paulino A. Nunez, Jr., Rodriguez Tramont Guerra & Nunez, PA, Coral Gables, FL, for Defendant–Appellee.

Before JILL PRYOR, Circuit Judge, and SCHLESINGER,^* District Judge.^**

JILL PRYOR

, Circuit Judge:

The issue before us is whether Travelers Casualty and Surety is bound by a settlement agreement between its insured, Culbreath Isles Property Owners Association, and Phyllis Kirkwood, settling Kirkwood's claim for attorney's fees against Culbreath but stipulating that Kirkwood would not enforce the resulting consent judgment against Culbreath. Under Florida law, such agreements are unenforceable against insurers if tainted by fraud or collusion. To determine whether fraud or collusion exists, we look to whether the settlement amount was unreasonable and whether the negotiations were conducted in bad faith. Substantial evidence exists to support the district court's determination, after a bench trial, that the negotiations were conducted in bad faith when Culbreath agreed to stipulate to a judgment in an amount of Kirkwood's choosing so long as Kirkwood agreed never to execute against it. We thus affirm the district court's judgment that the settlement agreement cannot be enforced against Travelers.

I. BACKGROUND

A. Factual Background

This case arises out of Culbreath's attempts to enforce its restrictive covenants against Kirkwood, a homeowner in the Culbreath Isles neighborhood. Culbreath sued Kirkwood in Florida state court for breach of the community's restrictive covenants, alleging that she had failed to maintain her lawn and landscaping. In her answer, Kirkwood brought a counterclaim for slander of title and also demanded her attorney's fees and costs, as permitted under Florida Statute § 720.305(1)

,¹ if she prevailed in the lawsuit.

Culbreath notified Travelers, its insurer, of Kirkwood's counterclaim. Travelers provided counsel to defend the counterclaim under a reservation of rights. Because Travelers' coverage counsel represented Culbreath only with respect to the slander of title claim, a separate attorney paid and retained by Culbreath continued to represent the association on its claim against Kirkwood for violating the restrictive covenants.

The state court granted summary judgment to Kirkwood. Kirkwood then filed a motion seeking her attorney's fees and costs under § 720.305

. Culbreath notified Travelers that Culbreath was potentially liable to Kirkwood for her fees and requested coverage under the policy. Travelers denied Culbreath's request to defend and disclaimed coverage with respect to Kirkwood's attorney's fees claim.

Culbreath and Kirkwood began to litigate the attorney's fees issue. Initially, Mark Buell, Kirkwood's attorney, advised Culbreath that his attorney's fees were $87,175, and that he would seek a multiplier of two to two-and-a-half on any fee awarded. Culbreath contested this amount, retaining an expert who opined that the requested fee was unreasonable and unnecessary. Based on the expert's opinions, Culbreath's attorney was prepared to litigate the issue in court.

At the same time, Culbreath and Kirkwood explored the prospect of settling the attorney's fees claim. Culbreath kept Travelers informed of the ongoing settlement negotiations and sought to convince Travelers to provide coverage. When Culbreath and Kirkwood were close to an agreement, Culbreath informed Travelers' attorney that it was prepared to agree to a $295,000 judgment on Kirkwood's attorney's fee claim. Travelers' attorney neither objected nor advised Culbreath against agreeing to the judgment. Travelers has acknowledged that it knew prior to the settlement agreement's execution of Culbreath and Kirkwood's settlement discussions and the specific terms discussed.

Kirkwood and Culbreath entered into a Joint Stipulation and Agreement (the “settlement agreement”) in which Culbreath agreed to (1) entry of a $295,000 consent judgment against it for “trial court and appellate fees and costs,” payable to Buell & Elligett, P.A. (“Buell”), the law firm representing Kirkwood and (2) assignment to Kirkwood and/or Buell of the proceeds from any and all actions, causes of actions, or rights Culbreath had against Travelers, in exchange for Kirkwood's agreement not to execute the judgment against Culbreath. Joint Stipulation and Agreement at 3 (Doc. 67–14).² Buell signed the settlement agreement on Kirkwood's behalf. At the time, Kirkwood was incapacitated due to a stroke. Soon thereafter, Orline Sidman was appointed her guardian. The state court approved the settlement agreement and entered the Consent Final Judgment without a hearing.

Kirkwood and Culbreath also executed a promissory note that they did not disclose to the state court in which Culbreath agreed to pay Kirkwood or Buell $50,000 less whatever amount Kirkwood or Buell could obtain from Travelers; if they succeeded in obtaining $50,000 or more, Culbreath would owe them nothing. Buell again signed on Kirkwood's behalf. After the state court entered judgment, Culbreath assigned its rights against Travelers under its insurance policy to Kirkwood and/or Buell.

B. Procedural History

Sidman, on behalf of Kirkwood, brought a third-party breach of contract suit in state court against Travelers.³ Sidman alleged that Travelers breached the contract of insurance with Culbreath when Travelers refused to defend and indemnify Culbreath with respect to Kirkwood's claim for attorney's fees and that Culbreath had assigned its right to proceed against Travelers to Kirkwood. Travelers removed the action to federal court.

Travelers moved to dismiss the action for failure to join an indispensable party, asserting that Buell should have been joined because Culbreath had assigned its right to sue Travelers to Kirkwood as well as Buell. Buell then assigned its rights against Travelers to Florida Policyholders, LLC (“FP”), an entity created by the Buell partners. Sidman and FP filed an amended complaint joining FP as a plaintiff.

After discovery, the district court granted summary judgment to Travelers on the ground that the insurance policy did not cover Kirkwood's claim for attorney's fees and costs. On appeal, we concluded that Travelers owed a duty to defend and indemnify Culbreath with respect to Kirkwood's claims and thus reversed and remanded for further proceedings. Culbreath Isles Prop. Owners Ass'n, Inc. v. Travelers Cas. & Sur. Co. of Am. , 601 Fed.Appx. 876, 879 (11th Cir. 2015)

.

Upon remand, the district court held a bench trial to determine whether the settlement agreement bound Travelers. Travelers presented evidence that, it contended, showed the amount of Kirkwood's attorney's fees was unreasonable and that Kirkwood and Culbreath colluded when they entered into the settlement agreement.

With respect to collusion, Travelers presented evidence about Culbreath's attempt to settle a similar attorney's fees claim.⁴ Around the same time that it sued Kirkwood, Culbreath also sued Richard and Nancy Lewis, also homeowners in Culbreath Isles, for violating the restrictive covenants. Like Kirkwood, the Lewises defeated Culbreath's claim at summary judgment and then sought their attorney's fees from Culbreath. Scott Frick, the Lewises' attorney, testified that during settlement negotiations Culbreath offered to assent to any attorney's fee amount the Lewises sought, so long as they agreed not to execute the judgment against Culbreath. Frick testified that Culbreath acknowledged it reached a similar agreement with Kirkwood.

The district court found that the settlement agreement was neither reasonable in amount nor negotiated in good faith and thus could not be enforced against Travelers. Specifically, the court determined that Culbreath “acted in bad faith when it offered to ‘lie down’ and accept a judgment of $295,000 against it as long as recovery of that sum came from Travelers.” Culbreath Isles Prop. Owners Ass'n, Inc. v. Travelers Cas. & Sur. Co. of Am. , 151 F.Supp.3d 1282, 1292 (M.D. Fla. 2015)

. To

support this determination, the district court found that Culbreath had allowed Kirkwood to determine the amount of the consent judgment in exchange for an agreement to collect it only from Travelers and not Culbreath. The court then entered judgment in favor of Travelers and against Sidman and FP. This is Sidman and FP's appeal.

II. STANDARD OF REVIEW

After a bench trial, “[w]e review the [district] court's conclusions of law de novo .” Fischer v. S/Y NERAIDA , 508 F.3d 586, 592 (11th Cir. 2007)

. “The district court's findings of fact—including determinations of the credibility of witnesses and weight of the evidence—will not be set aside unless they are clearly erroneous.” Id. “Under the clear error standard, we may reverse the district court's findings of fact if, after viewing all the evidence, we are left with the definite and firm conviction that a mistake has been committed.” Crystal Entm't & Filmworks, Inc. v. Jurado , 643 F.3d 1313, 1319–20 (11th Cir. 2011) (internal quotation marks omitted). But the district court's findings of facts must “stand so long as they are supported by substantial evidence.” Fischer , 508 F.3d at 592.

“In a case in which the evidence is largely testimonial, like this one, the district court has the advantage of observing the witnesses and evaluating their credibility firsthand, and the standard of review imposes an...