When a Lawyer Represents a Fraud It is Essential to Clearly Withdraw on that Ground

Lawyers Suffer from Florida’s Problems with Assignment of Claim Suits

Dec 06, 2021

FACTUAL BACKGROUND

KLG began representing Castle in insurance-related matters sometime around 2017 or 2018 pursuant to an oral contingency fee agreement. It also represented Castle’s principal, Jim Lathrop, in personal legal cases. The litigation between the parties over KLG’s charging lien on Castle’s insurance cases began in the United States District Court for the Middle District of Florida. In both that federal case and the current case, KLG attempted to enforce a charging lien on Castle following KLG’s termination of representation on all of Castle’s matters.

To enforce a charging lien, an attorney must show

that there was an express or implied contract between the attorney and the client;
that the parties had an express or implied understanding that the attorney fees would be paid out of the recovery;
that the client avoided making payment or there was a dispute as to the amount of fees; and
that the attorney provided timely notice of his charging lien. [Daniel Mones, P.A. v. Smith, 486 So.2d 559, 561 (Fla. 1986).]

Proceedings in the Federal Case

The federal case, like the case on appeal, began in state court as a standard breach of insurance contract case between Castle and an insurer. KLG withdrew from representation and filed a charging lien, claiming that it had not received full payment from Castle for the legal services it had rendered and the costs it had advanced.

Specifically, KLG believed Castle was engaging in fraud because Castle hired and utilized an in-house attorney and Castle was waiving insurance deductibles and fraudulently claiming to have completed interior work it had not actually performed in violation of Florida insurance law. Because KLG was filing complaints on Castle’s behalf based on allegedly phony insurance claims, KLG argued that its services were being used to facilitate the fraud and as a result of state rule of professional conduct it was required to withdraw.

At the hearing, Kovar testified that the “irreconcilable differences” to which he referred in the last email pertained to Castle’s use of KLG’s services to commit insurance fraud, which prevented KLG from continuing to serve as Castle’s counsel under rule 4-1.16(a)(4).

The federal court entered an eighteen-page order thoroughly covering the elements at dispute in the enforcement of the charging lien and held that KLG could satisfy the requirement of an express or implied contract between it and Castle but not that there was an understanding that the fees would be paid out of the recovery.

The federal court cited Faro v. Romani, 641 So.2d 69, 71 (Fla. 1994), for the proposition that an attorney’s voluntary withdrawal from representation before the occurrence of the contingency contemplated by the parties’ agreement forfeits that attorney’s claim to compensation. It then concluded that KLG failed to meet its burden of demonstrating that its withdrawal was involuntary.

Proceedings in the Instant Case

Castle, as assignee of James Nunley, retained KLG to represent it in a breach of contract action against Citizens Property Insurance. On June 12, 2019, KLG filed a Notice of Attorney’s Charging Lien, alleging that Castle did not pay for the legal services KLG had provided and requesting that KLG be advised of any settlement, trial, or judgment in the case. On June 20, 2019, a Joint Stipulation for Substitution of Counsel was filed, indicating that the law firm of Smith Thompson Law would be substituted as Castle’s counsel of record.

Castle, through its new counsel, moved to strike and/or discharge KLG’s charging lien a few months later, on October 24, 2019. On January 6, 2020, KLG filed a motion to enforce the charging lien, claiming that Castle and Citizens had settled the underlying breach of contract lawsuit in September 2019 and that KLG had not been consulted about its fees or the satisfaction of its lien prior to the settlement. KLG claimed an entitlement to attorney fees and reimbursement for expenses it had advanced in its initial representation of Castle in the matter. Citing rule 4-1.16(a)(4), which states that a lawyer must terminate representation of a client if “the client persists in a course of action involving the lawyer’s services that the lawyer reasonably believes is criminal or fraudulent, unless the client agrees to disclose and rectify the crime or fraud,”

The trial court ultimately entered an order granting Castle’s motion to discharge and denying KLG’s motion to enforce the lien because collateral estoppel applied in this case.

ANALYSIS

Collateral estoppel generally “comes into play in a case when, in an earlier proceeding involving a different cause of action, the ‘same parties’ litigated the ‘same issues’ that are presented once again for decision.” M.C.G. v. Hillsborough Cnty. Sch. Bd., 927 So.2d 224, 226 (Fla. 2d DCA 2006) (quoting Cook v. State, 921 So.2d 631, 634 (Fla. 2d DCA 2005)).

Collateral estoppel applies if the following elements are met:

an identical issue must have been presented in the prior proceeding;
the issue must have been a critical and necessary part of the prior determination;
there must have been a full and fair opportunity to litigate that issue;
the parties in the two proceedings must be identical; and
the issues must have been actually litigated.

On appeal, the only element KLG does not contest is number two, that the issue must have been a critical and necessary part of the prior determination

While the parties to the underlying breach of contract lawsuits in the federal and instant cases are not identical because the defendant insurers are different insurance companies, the parties litigating the charging lien dispute are the same-KLG and Castle. The federal court ruled that KLG voluntarily withdrew from representation before the occurrence of the contingency contemplated by the parties’ agreement and thus forfeited its claim to compensation.

Judgment of the federal case is conclusive on the issue of whether KLG voluntarily withdrew from its representation of Castle. Therefore, because the enforcement of a charging lien requires the satisfaction of all elements and the federal case’s determination is given preclusive effect, KLG cannot meet its burden for enforcing the charging lien. Accordingly, we affirm the order on appeal.

ZALMA OPINION

When a law firm represents an insurance litigant in more than 90 separate matters and only learns of what it believed to be insurance fraud after filing more than 90 lawsuits and then withdraws without an explanation as to why and how the law firm concluded its client was committing fraud strains credulity. The federal court that first heard the issue concluded that the withdrawal was voluntary and not due to the discovery of fraud which would have made the withdrawal mandatory. Lawyers are, by definition, detail oriented. To not paper the withdrawal of representation clearly and then file 90 liens and attempt to litigate them separately after losing in the federal court is the reason for collateral estoppel. KLG’s liens failed because it did not advise Castle clearly of the reasons why it had to withdraw and because, after it lost in one of the 90 cases it tried the same issue over again in the remaining 89.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at