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Philadelphia Indemnity Insurance Co. v. Stazac Management, Inc.

United States District Court, M.D. Florida, Jacksonville Division

May 31, 2018

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff,
v.
STAZAC MANAGEMENT, INC., et al., Defendants.

          ORDER

          Marcia Morales Howard, Judge

         THIS CAUSE is before the Court on Plaintiff, Philadelphia Indemnity Insurance Company's Renewed Motion for Final Summary Judgment and Supporting Memorandum of Law (Doc. 98; Renewed Motion), filed on January 30, 2018. On February 2, 2018, Plaintiff Philadelphia Indemnity Insurance Company (“PIIC”) filed supplemental authority in support of the Renewed Motion. See Plaintiff, Philadelphia Indemnity Insurance Company's Notice of Filing Supplemental Authority in Support of its Renewed Motion for Final Summary Judgment (Doc. 101; Supplement). Defendant Stonehurst Plantation Master Association, Inc. (“Stonehurst”) responded to the Renewed Motion on February 13, 2018, see Defendant, Stonehurst Plantation [sic] Master Association, Inc.'s Response to Plaintiff, Philadelphia Indemnity Insurance Company's Renewed Motion for Final Summary Judgment (Doc. 102; Stonehurst Response), Defendant Greenland Chase Homeowner's Association, Inc. (“Greenland”) responded on February 20, 2018, see Defendant Greenland Chase Homeowner's Association, Inc.'s Memorandum in Opposition to Plaintiff's Renewed Motion for Final Summary Judgment (Doc. 106; Greenland Response), and Defendants Stazac Management, Inc. (“Stazac”), Lauren E. Carr, and Ronald L. Carr (collectively, the “Stazac Defendants”) responded on February 27, 2018, see Defendants' Response and Memorandum of Law in Opposition to Plaintiff's Renewed Motion for Final Summary Judgment (Doc. 111; Stazac Response). Defendant Amelia View Homeowners Association, Inc. (“Amelia”) has not responded to the Renewed Motion, and therefore, to the extent PIIC seeks relief against Amelia, the Renewed Motion is unopposed.[1] See generally Docket. Accordingly, this matter is ripe for review.

         I. Background[2]

         In this action, PIIC, an insurance company, seeks declarations regarding its duties to defend and indemnify the Stazac Defendants in three state-court actions (the “Underlying Actions”) brought by Stonehurst, Greenland, and Amelia (collectively, the “Homeowners Associations”) against Stazac and the Carrs. See generally Complaint for Declaratory Judgment (Doc. 1; Complaint). The Homeowners Associations each hired Stazac, a property management company run by Lauren and Ronald Carr, to manage their properties. See Cover-Pro Application (Doc. 98-2) at 2, 8, 10[3]; see also Stonehurst Association Management Agreement (Doc. 98-4; Stonehurst Agreement); Greenland Association Management Agreement (Doc. 98-7; Greenland Agreement); Amelia Association Management Agreement (Doc. 98-11; Amelia Agreement) (collectively, the “Management Agreements”). The Underlying Actions arose out of the Stazac Defendants' alleged mismanagement of the Homeowners Associations' funds. See generally Statement of Claim (Doc. 98-3; Stonehurst's Underlying Statement of Claim); Amended Complaint (Doc. 98-6; Greenland's Underlying Amended Complaint); Complaint (Doc. 98-10; Amelia's Underlying Complaint) (collectively, the “Underlying Pleadings.”).

         A. The Management Agreements

         As property manager for the Homeowners Associations, Stazac assumed a variety of duties, several of which relate to managing the Homeowners Associations' finances. See Management Agreements at 5-8 §5. Specifically, Stazac agreed to:

(c) Collect and receive . . . all assessment charges which may be due from owners of the units in the Association, . . . [and] all fees and assessments for the boat and RV storage (if applicable) . . .
(d) Provide the day to day accounting services necessary to pay the bills of the Association, and any other debts approved by the Board. This shall include keeping the proper records of accounts; preparation of all checks for payment of bills and such other items as may be provided for in the budget.
(e) Supervise and maintain, for the account of the Association, complete and adequate books of account and other records reflecting the results of the operation of the Association, in accordance with generally accepted accounting principles constantly applied.
(f) Prepare, review, and analyze the monthly financial statements with comparative budget figures and submit such to the Board. . . .
(i) Maintain all accounting records of the Association in a manner to facilitate annual audits and reviews. Provide records to auditors hired by the Association to review accounting and financial statements. . . .

Id. at 6-7 §5.

         B. PIIC's Policy

         On September 8, 2011, PIIC issued a professional liability insurance policy to Stazac. See Policy Number PHSD1065087 (Doc. 98-1; the Policy); Cover-Pro Application at 8. PIIC issued renewal policies each year providing coverage through September 8, 2016. See Policy at 2; Renewed Motion at 4 n.3. Although Stazac is the named insured under the Policy, Lauren and Ronald Carr are individual insureds. See Policy at 2, 5-6 §I.G. The Policy provides coverage for damages[4] “arising out of a wrongful act, ” defined as “a negligent act, error, or omission committed or alleged to have been committed by you[5] or any person for whom you are legally responsible in the rendering of professional services.” Id. at 4 §I.A, 7 §II.P.

         However, the Policy contains several coverage exclusions. Id. at 7-9. In relevant part, Exclusion A excludes coverage for “any claim[6] or claim expenses[7] arising out of, resulting from, based upon or in consequence of, any dishonest, fraudulent, criminal or malicious act, error or omission, or any intentional or knowing violation of the law, or gaining of any profit or advantage to which [the insured is] not legally entitled.” Id. at 7 §III.A. Nevertheless, in the Policy, PIIC agrees to “defend suits alleging the foregoing until there is a judgment, final adjudication, adverse admission, plea nolo contendere or no contest or finding of fact against you as to such conduct.” Id. Notably, under Exclusion A, “[n]o wrongful act of any individual insured nor any fact pertaining to any individual insured shall be imputed to any other partner, director, officer or employee.” Id. at 8-9 (the “No Imputation Clause”).

         Additionally, the Policy excludes coverage for any claim or claim expenses “arising out of, resulting from, based upon or in consequence of, directly or indirectly, any failure to effect or maintain any insurance or bond.” Id. at 8 §III.E (“Insurance Exclusion”). The Policy also contains several endorsements with additional exclusions. The Commingling and Failure to Pay Endorsement, as well as the Pro Pak Elite Endorsement, exclude coverage for “any claim arising out of any actual or alleged commingling of or inability or failure to pay, collect or safeguard funds.” Id. at 16, 20 §III.CC (collectively, the “Commingling Exclusion”). Additionally, the Knowledge of Wrongful Act Endorsement excludes coverage for “any wrongful act committed with the knowledge that it was a wrongful act.” Id. at 17.

         Further, the Policy specifies that if PIIC and an insured disagree with regard to PIIC's coverage obligations, PIIC may elect to defend the insured, but “reserve [its] rights to deny and reject any claim for damages, ” pursuant to a reservation of rights agreement. Id. at 12 §V.O. Under this provision, the Policy states that if “it is finally established by judgment or agreement that [PIIC] ha[s] no liability with respect to such a claim, ” PIIC is entitled to reimbursement for “all sums and monies paid . . . to defend and/or settle such claim.” Id.

         C. Underlying Actions

         On April 6, 2015, Michael Goldsberry, counsel for the Homeowners Associations, advised his clients to “conduct an audit [i]n reference to their finances.” See Arrest and Booking Report (Doc. 98-16; Arrest Report) at 18. The Underlying Actions arose out of the Homeowners Associations' findings from those investigations. See generally Underlying Pleadings.

         i. Stonehurst's Underlying Action

         Upon receipt of Goldsberry's advice, Stonehurst hired special counsel and a forensic accountant to audit its finances. See Stonehurst's Underlying Statement of Claim ¶14. As of July 22, 2015, Stonehurst was aware that it was missing $49, 811.89. See generally Stonehurst's Communications with Stazac Defendants (Doc. 98-5; Stonehurst's Communications). Stonehurst's counsel advised the Stazac Defendants that Stonehurst intended to pursue a claim for civil theft pursuant to Florida Statutes section 772.11 (Section 772.11) if they did not return the missing funds by 3:00 p.m. on July 24, 2015. Id. at 2-3. Daniel M. Copeland, counsel for the Stazac Defendants, responded that his clients would not issue any payments until they conducted their own investigation. Id. at 5-6.

         On August 28, 2015, Stonehurst initiated No. CA15-946 in the Circuit Court, Seventh Judicial Circuit, In and For St. Johns County (“Stonehurst's Underlying Action”). See Status Report (Doc. 75; Stonehurst's June 12, 2017, Status Report) ¶1. On September 3, 2015, Stonehurst amended its pleading. See Amended Complaint (Doc. 1-3; Stonehurst's Underlying Amended Complaint). On December 21, 2015, PIIC agreed to defend the Stazac Defendants under a reservation of rights agreement. See December 21, 2015, Letter from PIIC to Stonehurst (Doc. 98-13; Stonehurst Reservation of Rights) at 2.[8] The state court subsequently stayed Stonehurst's Underlying Action pending completion of mediation and an arbitration. See Stonehurst's June 12, 2017, Status Report ¶3.

         On December 13, 2017, Stonehurst filed Stonehurst's Underlying Statement of Claim in arbitration. See generally id. As of that date, Stonehurst knew that $432, 086.08 went missing from its account while the account was under Stazac's management. Id. ¶14. In Counts I and II of its arbitration statement, Stonehurst asserts claims for negligence against the Stazac Defendants based on their failure to properly deposit payments to Stonehurst and notify Stonehurst that deposits or other payments for Stonehurst were missing, and their failure “to recommend that the Association obtain insurance to cover against” misappropriated funds, respectively. Id. ¶¶20-29, ¶35. Stonehurst also alleges that the Stazac Defendants violated Florida's Deceptive and Unfair Trade Practices Act (“FDUTPA”), Florida Statutes section 501.2105 (Count IV), id. 44-49, and that Stazac breached the Stonehurst Agreement (Count III), id. ¶¶38-43. Stonehurst's remaining claims for damages (Count V), civil theft pursuant to Section 772.11 (Count VI), and conversion (Count VII) are based on its allegations of intentional misappropriation. Id. ¶¶50-71.

         ii. Greenland's Underlying Action

         Greenland also conducted an investigation which concluded that the Stazac Defendants misappropriated $437, 059.43 by depositing checks made payable to Greenland into Stazac's account, and electronically transferring funds from Greenland's account into Stazac's account. See February 2, 2016 Letter from Bedell Firm to the Stazac Defendants (Doc. 98-9; Greenland Letter) at 2-3. On February 2, 2016, Greenland's counsel notified the Stazac Defendants that it intended to pursue a claim for civil theft pursuant to Section 772.11. See id. On the same day, Greenland initiated No. 2016-CA-698 in the Circuit Court, Fourth Judicial Circuit, In and For Duval County (“Greenland's Underlying Action”) by filing Greenland's Underlying Complaint. See generally Greenland's Underlying Complaint. PIIC agreed to defend the Stazac Defendants against Greenland's claims pursuant to a reservation of rights agreement on February 25, 2016. See February 25, 2016, Letter from PIIC to Greenland (Doc. 98-14; Greenland Reservation of Rights) at 2.

         On May 16, 2016, Greenland filed Greenland's Underlying Amended Complaint. See generally Greenland's Underlying Amended Complaint. Greenland asserts claims against the Stazac Defendants for civil theft pursuant to Section 772.11 (Count III) and conversion (Count IV), and against Stazac for negligence (Count V) and breach of the Greenland Agreement (Count VI). Id. ¶¶27-51.[9]

         iii. Amelia's Underlying Action

         Similarly, Amelia conducted an investigation and determined that the Stazac Defendants misappropriated $206, 040.34 of its funds by depositing checks made payable to Amelia into Stazac's account, electronically transferring funds from Amelia's account into Stazac's account, and improperly recording payments to Amelia. See Civil Theft Demand Pursuant to Section 772.11 (Doc. 98-12; Amelia's Demand) at 2; March 16, 2016, Letter from Amelia to Stazac Defendants (Doc. 1-5; Amelia's Settlement Communication) at 2-4. On March 16, 2016, counsel for Amelia advised PIIC of its potential claim, and offered to accept $206, 040.34 to settle the matter. See Amelia's Settlement Communication at 4. Although PIIC did not accept Amelia's offer, on March 30, 2016, PIIC advised Amelia and Copeland that if Amelia commenced a lawsuit, PIIC would defend the Stazac Defendants under a reservation of rights agreement. See March 30, 2016, Letter from PIIC to Amelia (Doc. 98-15; Amelia Reservation of Rights) at 2. On June 23, 2016, Amelia sent a demand letter to the Stazac Defendants and warned them of its intention to pursue a claim for civil theft under Section 772.11. See June 23, 2016 Letter from Amelia to Stazac (Doc. 98-12; Amelia's June 23, 2016, Demand Letter) at 2.

         On August 3, 2016, Amelia initiated No. 2016-CA-5132 in the Circuit Court, Fourth Judicial Circuit, In and For Duval County (“Amelia's Underlying Action”) by filing Amelia's Underlying Complaint. See generally Amelia's Underlying Complaint. Amelia filed a motion to amend its pleading via interlineation on January 13, 2017. See Defendants, Stazac Management, Inc., Lauren E. Carr and Ronald L. Carr's Status Report (Doc. 114; Stazac's March 9, 2018, Status Report) at ¶1. The state court has not ruled on Amelia's motion to amend its complaint via interlineation. Id.

         In Amelia's Underlying Complaint, Amelia asserts six claims based on the Stazac Defendant's misappropriation of Amelia's funds. See generally id. Specifically, Amelia asserts claims against the Stazac Defendants for civil theft pursuant to Section 772.11 (Count I), conversion (Count II), breach of fiduciary duty (Count IV), unjust enrichment (Count V), and conspiracy (Count VI), and against Stazac for breach of the Amelia Agreement (Count III). Id. ¶¶14-52.

         D. Criminal Charges Against Lauren Carr

         On January 27, 2017, law enforcement arrested Lauren Carr pursuant to a warrant for two first degree felonies: (1) grand theft in violation of Florida Statutes section 812.014(2)(A)(1), and (2) organized fraud in violation of Florida Statutes section 817.034(4)(a)(1). See generally Arrest Report. The next day, the state of Florida commenced No. 17CF004335AD in the Circuit Court of the Fourth Judicial Circuit in and for Duval County, Florida (“Underlying Criminal Case”). See generally Underlying Criminal Case Docket (Doc. 98-17). Lauren Carr proceeded to trial, at the conclusion of which, on December 13, 2017, a jury found her guilty of organized fraud. See Verdict (Doc. 98-20) at 2. The court sentenced her to serve twelve years in jail, and ordered her to pay restitution to Stonehurst, Greenland and Amelia in the amounts for $424, 558.24, $437, 059.43, and $284, 633.47, respectively. See Judgment and Sentence (Doc. 98-21) at 5; Judgment and Restitution Order (Doc. 101-1; Stonehurst Judgment) at 2 ¶1; Judgment and Restitution Order (Doc. 101-2; Greenland Judgment) at 2 ¶1; Judgment and Restitution Order (Doc. 101-3; Amelia Judgment) at 2 ¶1.

         E. Instant Dispute

         PIIC initiated the instant action on March 29, 2016, by filing the Complaint to determine its obligations under the Policy. See generally Complaint. In Count I, PIIC seeks a declaration that it does not have a duty to defend the Stazac Defendants in the Underlying Actions. Id. ¶¶28-32. In Count II, PIIC seeks a declaration that even if it has a duty to defend its insureds, it does not have a duty to indemnify them based on Exclusion A, the “Knowledge of Wrongful Act” exclusion, or Exclusion P. Id. ¶¶33-39. Similarly, in Count III, PIIC seeks a declaration that it does not have a duty to indemnify its insureds because the damages sought are uninsurable as a matter of law. Id. ¶44; see also id. ¶¶40-43. On March 28, 2017, the Court stayed Counts II and III of the Complaint pending resolution of the Underlying Actions. See generally Order (Doc. 46; Stay Order) (adopting Report and Recommendation (Doc. 41; Report)).

         On April 20, 2017, PIIC filed a motion seeking entry of summary judgment on Count I of the Complaint. See Plaintiff, Philadelphia Indemnity Insurance Company's Motion for Final Summary Judgment and Supporting Memorandum of Law (Doc. 50; Motion). After the matter was fully briefed, [10] the Court set a hearing to determine the status of motions pending in the Underlying Actions to amend the Underlying Pleadings in order to identify which pleadings to consider to resolve the Motion. See Order (Doc. 81) and Endorsed Order (Doc. 84). At that time, Amelia's motion to amend its pleading via interlineation was pending before the state court, and Stonehurst had prepared a proposed second amended complaint that it had not yet filed. See Amelia's First Response at 7; Stonehurst's First Response at 2. At the hearing, after hearing from all parties, the Court denied the Motion without prejudice, and set a deadline of January 30, 2018, for the filing of a renewed motion for summary judgment if amended operative pleadings were filed with the appropriate tribunal. See Clerk's Minutes (Doc. 85). Since the hearing, Stonehurst filed Stonehurst's Underlying Statement of Claim, and Amelia advised ...


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