INFINITY AUTO INSURANCE COMPANY v. METRIC DIAGNOSTIC TESTING, INC. a/a/o JUNIOR CELESTIN ( 2022 )

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
INFINITY AUTO INSURANCE COMPANY,
Appellant,
v.
METRIC DIAGNOSTIC TESTING, INC. a/a/o JUNIOR CELESTIN,
Appellee.
No. 4D21-3431
[July 13, 2022]
Appeal from the County Court for the Seventeenth Judicial Circuit,
Broward County; Natasha DePrimo, Judge; L.T. Case No. COWE21-
000884.
Gladys Perez Villanueva, Miami Springs, and Leslie M. Goodman of Law
Offices of Leslie M. Goodman & Associates, Miami, for appellant.
John C. Daly and Christina M. Kalin of Daly & Barber, P.A., Plantation,
for appellee.
GERBER, J.
In this personal injury protection (PIP) case, the defendant insurer
appeals from the county court’s final order requiring the insurer, as a
sanction for having pled a mistaken affirmative defense, to pay the plaintiff
provider’s attorney’s fees incurred from the date when the insurer filed the
mistaken affirmative defense until the date when the insurer notified the
provider about the mistaken affirmative defense.
The insurer primarily argues the county court erred in entering the
sanctions order because the county court did not find the insurer had pled
the affirmative defense in bad faith, but instead accepted the insurer’s
admission that the insurer had pled the affirmative defense by mistake.
We agree with the insurer’s argument and therefore reverse.
Procedural History
The insured was working as an Uber driver when he was injured in a
motor vehicle accident. As consideration for treatment from the provider,
the insured assigned to the provider the right to seek PIP benefits under
the insured’s automobile insurance policy with the insurer. Pursuant to
the assignment, the provider requested payment from the insurer.
The insurer sent a denial letter to the provider. The letter stated that
the insurer was denying the claim due to a policy exclusion—specifically,
the policy’s “transportation network company driver amendatory exclusion
endorsement.” That endorsement provided: “No coverage of any kind
applies under this policy for any accident, loss, bodily injury, property
damage, or other damage that occurs while any insured … is logged on to
a transportation network company’s digital network or while any insured
… is engaged in a prearranged ride.” The insurer’s denial later further
stated: “We have confirmed that [the insured] was logged on to a
transportation network company’s digital network as a driver or who [sic]
is engaged in a prearranged ride at the time of loss.”
The provider filed a breach of contract action against the insurer. The
insurer’s original counsel filed an answer containing only one affirmative
defense. That affirmative defense referenced a different insured’s name
and alleged the insurer had denied the claim due to a “material
misrepresentation”—specifically, the insured’s failure to disclose on his
insurance application that he was using his vehicle for business purposes.
The affirmative defense did not refer to the “transportation network
company driver amendatory exclusion endorsement” upon which the
insurer had relied in denying the provider’s claim.
The provider filed a reply to the insurer’s material misrepresentation
affirmative defense. The provider also propounded discovery on the
insurer pertaining to the material misrepresentation defense, and sent the
insurer a proposed joint pretrial stipulation, identifying material
misrepresentation as the issue for trial.
Eight days before a case management conference, the provider’s
counsel informed the insurer’s successor counsel that the insurer had not
produced any documents supporting its material misrepresentation
defense. Later that day, the insurer’s successor counsel filed a motion for
leave to amend the insured’s answer. The motion asserted the insurer’s
answer had mistakenly referenced the name of a different insured, and
had mistakenly alleged the material misrepresentation affirmative defense.
“In reality,” the insurer’s successor counsel argued:
[T]he claim was denied subject to an exclusionary
endorsement in the policy which requires an insured to report
if he is driving for [a] transportation network company ….
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The [provider] was aware of the basis of the denial …
pursuant to the [insurer’s] [denial letter], which … cit[ed] the
specific exclusion and overall basis for the denial.
The [insurer’s successor counsel] … responded to [the
provider’s] outstanding discovery requests. The discovery
responses … expressly state[d] the actual reason for the denial
of the claim.
Additionally, a multitude of documents produced in
response to discovery reference same.
Thus, [the provider] and [its] counsel were unquestionably
aware of the issues in this litigation.
The [insurer’s successor counsel] was contacted by [the
provider’s] counsel [eight days before the case management
conference] regarding documents supporting a[] [material
misrepresentation] defense.
The [insurer’s successor counsel] immediately took action
on this matter, looking into the issues, attempting to get
documentation which would appease [the provider’s] counsel
regarding the denial and identifying the issue with the
affirmative defense.
In order to conform its pleading to the facts, [the insurer]
seeks to amend its Answer and Affirmative Defenses to reflect
the real reason for claim denial.
Without the revision to its defenses, this case cannot be
fairly tried upon its merits and [the insurer] will essentially be
forced to pay out on a claim which was expressly excluded
from the policy because [the insurer’s prior counsel] made a
mistake.
(paragraph numbering and exhibit references deleted).
Attached to the insurer’s motion was a proposed amended answer. The
proposed amended answer replaced the original answer’s material
misrepresentation affirmative defense with a policy exclusion affirmative
defense based on the “transportation network company driver amendatory
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exclusion endorsement” which the insurer had referenced in its denial
letter.
In response, the provider filed a motion to strike the insurer’s pleadings.
The provider argued the parties had completed discovery and the insurer
was trying to change its defense to a new defense which the insurer had
not timely pled. The provider’s motion to strike also requested the county
court to award sanctions, including payment of the provider’s attorney’s
fees and costs.
At the case management conference, the county court granted the
insurer’s motion to amend, and denied the provider’s motion to strike the
insurer’s pleadings. However, the county court ordered the insurer to pay
the provider’s attorney’s fees incurred from the date when the insurer filed
the mistaken affirmative defense until the date when the insurer notified
the provider about the mistaken affirmative defense. In rendering that
sanction, the county court stated:
I understand people make mistakes … [and] … the [denial]
letter [cited the policy exclusion.] [However,] for the last six
months [the provider’s counsel has] been litigating this case
under material misrepresentation, doing all of her discovery
…[.] [T]hat mistake probably cost [the provider’s counsel]
quite a bit of time and money that went into this. … Had [the
provider’s counsel] known, … maybe she could have …
addressed it differently, [but] we don’t know because she
wasn’t given the right information.
….
I … think that … the state of this case warrants sanctions
with regards to how the case ha[s] proceeded.
So I’m going to grant the motion for leave to amend, but
I[’m] going to issue sanctions and … have a full [evidentiary]
hearing on [the amount] because quite frankly, … I think that
[the provider’s counsel] may be entitled to everything worked
on … from the time that answer was filed until the time that
[the provider’s counsel] was made aware that the answer was
wrong …[.] I’m going to be looking at … all of those hours of
work with regards to her discovery … [and] her motion
practice …[.] [The provider’s counsel] had put a great deal of
work … and I need to have a full [evidentiary] hearing on [the
amount] after she gives me her hours for the entire time
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period, so I am going to grant sanctions … to try to alleviate
that prejudice …[.] [T]here isn’t a motion before me, but I find
based upon the prejudice … to the [provider] in this particular
situation, that I am going to issue sanctions ….
After the case management conference, the county court entered a
written order which, consistent with the oral rulings, granted the insurer’s
motion for leave to amend its answer, denied the provider’s motion to strike
the insurer’s pleadings, and found that the provider was “entitled to
sanctions for all work on the file relating to [the] [insurer’s] [m]aterial
[m]isrepresentation defense from the time that the [a]nswer was filed
[nearly six months earlier] … [with the amount] to be determined by the
[c]ourt at [a later] evidentiary hearing.”
Before the later evidentiary hearing, the insurer attempted to challenge
the county court’s earlier entitlement finding by submitting affidavits
attesting to the fact that the provider had been aware of the insurer’s policy
exclusion defense, both before the litigation based on the insurer’s denial
letter, and during the litigation based on the insurer’s discovery responses.
Then, at the evidentiary hearing, the insurer’s counsel sought to raise this
affidavit-based challenge. However, the county court summarily rejected
that challenge, stating: “We’re past that part already. The Court has
already issued sanctions with regards to this, so today’s hearing is solely
about time and amount[.]” The county court then awarded the provider’s
requested time at a stipulated hourly rate. Defense counsel asked the
court to clarify whether the basis for the monetary sanctions had been the
court’s “inherent authority.” The county court responded: “Yes, the Court
has the discretion to issue sanctions in this particular case, rather than
enter a default or do any other type of sanction.”
Later, the county court entered a written order recounting the case’s
procedural history and, ultimately, summarizing the basis for ordering the
insurer to pay monetary sanctions to the provider:
This Court[,] … based on the [provider’s] argument of
prejudice[,] issued monetary sanctions as remedy to alleviate
the prejudice. The Court[] … found that the [provider] had not
been aware of the exclusion defense until a few days before
the Case Management hearing and had been litigating the
case for several months on the basis of the [d]efense originally
presented[,] [t]hereby causing [the] [provider] to unnecessarily
incur fees and costs related to the original affirmative defense.
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The insurer timely filed a notice of appeal of the county court’s
sanctions order. Two months after the insurer filed its notice of appeal,
the provider filed in the county court a voluntary dismissal of its breach of
contract action, reserving only “the right to collect … monetary sanctions
previously ordered.”
On appeal, the insurer primarily argues the county court erred in
entering the sanctions order because the county court did not find the
insurer had pled the material misrepresentation affirmative defense in bad
faith, but instead accepted the insurer’s admission that the insurer had
pled the material misrepresentation affirmative defense by mistake. The
insurer also argues the error was fundamental because the county court’s
decision to impose sanctions occurred without having provided the insurer
with an opportunity to present its affidavit-based evidentiary challenge to
the sanctions determination.
Our Review
Applying an abuse of discretion standard of review, we agree with the
insurer’s fundamental error argument and therefore reverse. See Rivero
v. Meister, 46 So. 3d 1161, 1163 (Fla. 4th DCA 2010) (“The standard of
review of an order granting sanctions for attorney misconduct is abuse of
discretion.”); Moakley, 826 So. 2d at 226-27 (“The inherent authority of
the trial court, like the power of contempt, carries with it the obligation of
restrained use and due process.”) (footnote omitted).
A trial court’s decision to impose attorney’s fees as a sanction for
attorney misconduct “must be based upon an express finding of bad faith
conduct and must be supported by detailed factual findings describing the
specific acts of bad faith conduct that resulted in the unnecessary
incurrence of attorneys’ fees.” Moakley v. Smallwood, 826 So. 2d 221, 227
(Fla. 2002). Here, the county court failed to make an express finding of
bad faith conduct when imposing sanctions against the insurer. Instead,
the record reflects the county court recognized the insurer’s admission—
which the provider has never disputed—that the insurer’s original counsel
filed the material misrepresentation affirmative defense by mistake.
In this respect, Rivero—which discusses Moakley’s requirements for the
imposition of sanctions upon a trial court’s exercise of its inherent
authority—is instructive. In Rivero, the provider filed a motion for
sanctions, alleging that insurers and their attorneys failed to appear at a
scheduled trial date. 46 So. 3d at 1162. The circuit court held a hearing
on the provider’s motion, and without making an express finding of bad
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faith conduct, granted the provider’s motion. Id. On appeal, we reversed
the circuit court’s decision, reasoning:
[T]he [circuit] court did not make an express finding of bad
faith conduct. The [circuit] court also did not make any
detailed factual findings describing specific acts of bad faith
conduct that resulted in the [provider’s] unnecessary
incurrence of attorneys’ fees. Instead, the [circuit] court found
that the [insurers’] attorneys were merely negligent. Because
the [circuit] court did not make an express finding of bad faith
conduct, we are required to reverse.
Id. at 1163; see also id. at 1164 (Damoorgian, J., concurring) (“Moakley
simply does not allow for the imposition of sanctions for negligent
conduct.”); N. Cnty. Co. v. Bologna, 816 So. 2d 842, 844 (Fla. 4th DCA
2002) (“Here, the [circuit] court did not make an express finding of bad
faith conduct on the part of appellant, nor were the [circuit] court’s factual
findings of misconduct detailed with the high degree of specificity required
by Moakley. Such findings are a necessary precedent to any sanction of
attorney’s fees awarded under the trial court’s inherent power.”).
The provider’s answer brief argues the county court properly exercised
its authority to impose monetary sanctions pursuant to Florida Rule of
Civil Procedure 1.190(e) which, according to the provider, “the Third
District [has] acknowledged … gives a trial court the inherent authority to
allow amendments under ‘terms as may be just’ which includes awarding
monetary sanctions,” citing Chatmon v. Woodard, 492 So. 2d 1115 (Fla.
3d DCA 1986).
However, the provider’s reliance on Chatmon and rule 1.190 is
misplaced for three reasons.
First, the principle for which the provider cites Chatmon is dicta. In
Chatmon, an automobile negligence case which pre-dated Moakley, the
defendant did not initially raise a dispositive affirmative defense, but after
some discovery and pre-trial preparation had occurred, the defendant
moved to amend the answer in order to assert a dispositive affirmative
defense. Id. at 1116. The circuit court granted the motion and thereupon
dismissed the case. Id. On appeal, the Third District affirmed, finding no
abuse of discretion in circuit court having granted, “even at the relatively
late stage to which the case had progressed, leave to amend the pleadings
so as to assert an absolute, unanswerable defense to the action.” Id. In
support, the Third District cited rule 1.190(a) (“Leave of court shall be
given freely when justice so requires.”) and a portion of rule 1.190(e) (“At
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every stage of the action the court must disregard any error or defect in
the proceedings which does not affect the substantial rights of the
parties.”). Id.In a footnote, the Third District stated: “It may have been appropriate
to have conditioned permitting the amendment upon the defendant’s
payment of the additional costs and expenses incurred by the plaintiff as
a result of the apparently inexcusable tardiness in asserting the defense.”
Id. at 1116 n.2. In support of that statement, the Third District cited
another portion of rule 1.190(e): “At any time in furtherance of justice,
upon such terms as may be just, the court may permit any process,
proceeding, pleading or record to be amended or material supplemental
matter to be set forth in an amended or supplemental pleading.” Id.(emphasis supplied in Chatmon). However, the Third District noted that
the plaintiff had not sought that relief in the circuit court. Id. Thus, the
Third District’s statement that “[i]t may have been appropriate to have
conditioned permitting the amendment upon the defendant’s payment of
the additional costs and expenses incurred by the plaintiff” based upon
rule 1.190(e) was dicta.
Second, even if we considered the Third District’s footnoted statement
as having been decided on the merits, the Third District decided Chatmon
before the Florida Supreme Court decided Moakley. After Moakley, a trial
court imposing monetary sanctions pursuant to its “inherent authority”—
as opposed to express authorization in a rule of civil procedure—must base
such action “upon an express finding of bad faith conduct … supported by
detailed factual findings describing the specific acts of bad faith conduct
that resulted in the unnecessary incurrence of attorneys’ fees.” Moakley,
826 So. 2d at 227; cf. Fla. R. Civ. P. 1.380(a)(4) (permitting a trial court to
award expenses—“that may include attorneys’ fees”—incurred in pursuing
or opposing a motion to compel); Fla. R. Civ. P. 1.720(f) (permitting a trial
court to impose sanctions—including “mediation fees, attorneys’ fees, and
costs”—against a party failing to appear for mediation). Unlike rules
1.380(a)(4) and 1.720(f), rule 1.190(e) does not expressly authorize a trial
court to impose attorney’s fees based upon a party’s motion to amend or
supplement its pleadings. We will not “interpret” such authority onto rule
1.190(e)’s plain language.
Third, as the insurer’s reply brief argues, the county court did not cite
rule 1.190(e) or the rule’s “upon such terms as may be just” phrase to
impose sanctions against the insurer. Instead, as the insurer clarified with
the county court at the evidentiary hearing’s conclusion, the county court
relied upon its “inherent authority” to impose monetary sanctions against
the insurer.
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Conclusion
In sum, we must reverse the county court’s order imposing attorney’s
fees as a sanction for attorney misconduct, because the county court failed
to comply with Moakley’s requirement that such imposition “must be
based upon an express finding of bad faith conduct and must be supported
by detailed factual findings describing the specific acts of bad faith
conduct that resulted in the unnecessary incurrence of attorneys’ fees.”
826 So. 2d at 227. While we recognize the county court imposed the
sanction because the provider’s counsel’s work in addressing the insurer’s
mistaken affirmative defense “probably cost [the provider’s counsel] quite
a bit of time and money,” the inability to characterize the insurer’s
mistaken affirmative defense as “bad faith conduct” prohibited the
imposition of any such sanction. We direct the county court, on remand,
to vacate the sanctions order. 1
Reversed and remanded with directions.
DAMOORGIAN and LEVINE, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
1 In Rivero, we recognized the apparent unfairness of situations like this case
in which one party’s conduct does not necessarily rise to the level of “bad faith
conduct,” but nevertheless causes another party to unnecessarily incur
attorney’s fees. 46 So. 3d at 1163-64. We suggested that our supreme court
consider clarifying Moakley’s undefined “bad faith” requirement to include both
intentional and reckless misconduct. Id. at 1164. Judge Damoorgian, in a
concurring opinion, suggested a trial court should have the discretion to impose
sanctions even when the conduct rises only to a negligence standard. Id.(Damoorgian, J., concurring). As Judge Damoorgian aptly asked, “Who should
bear this cost, the victim or the perpetrator?” Id. Although the facts here do not
rise to the level of Rivero’s facts, we continue to suggest that Moakley’s undefined
“bad faith” requirement may require clarification as to its scope.
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