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Case 9:11-cv-80914-KAM Document 1

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION ADMIRAL INSURANCE COMPANY, a DELAWARE CORPORATION, Plaintiff, CASE NO. ___________________ vs. LAW OFFICES OF DAVID J. STERN, P.A.; DAVID J. STERN, individually, Defendants.

COMPLAINT FOR DECLARATORY AND OTHER RELIEF Plaintiff, Admiral Insurance Company (Admiral), sues Defendants, Law Offices of David J. Stern, P.A. and David J. Stern, individually, and alleges: Jurisdiction and Venue 1. This is a civil action for declaratory relief pursuant to 28 U.S.C.

2201-2202 and for an amount in controversy in excess of Seventy-Five Thousand Dollars ($75,000). The Court has jurisdiction of this action by virtue of diversity of citizenship between the parties pursuant to section 28 U.S.C. 1332, et seq. 2. The Defendants at all material times to this Complaint were

engaging in the practice of law and prosecuting foreclosure actions on behalf of lender clients throughout the State of Florida, including Palm Beach County,

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Florida. A substantial part of the events giving rise to this action occurred in Palm Beach County, Florida, in that the events or omissions occurred in Palm Beach County, Florida, the complaints upon which the declaration of rights is sought were filed in the Circuit Court in and for Palm Beach County, Florida, and the violations alleged in the complaints occurred in Palm Beach County, Florida. Venue is therefore appropriate in the Southern District of Florida, West Palm Beach Division, pursuant to 28 U.S.C. 1391. Parties 3. Plaintiff, Admiral Insurance Company, is organized and existing

under the laws of the State of Delaware. Admiral has issued one or more policies to the Defendants, Law Offices of David J. Stern, P.A., and David J. Stern, individually, which provide liability coverage for claims for damages as specified in the policies. 4. Defendant, Law Office of David J. Stern, P.A. (Defendant Firm) is

a professional services corporation organized under the laws of the State of Florida providing legal services through its officers and employees throughout the State of Florida. The Defendant Firm represents lender clients in prosecuting residential foreclosure actions throughout the State of Florida. 5. Defendant, David J. Stern (Stern), individually, is a lawyer

authorized to practice law in the State of Florida. Stern was the President and

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Chief Operating Officer of the Law Offices of David J. Stern, P.A. Stern was the lawyer responsible for the foreclosure and debt collection activities undertaken by Defendant Firm. Banner Claim 6. On or about January 18, 2007, the Defendant Firm and Stern were

named in a class action styled Loren Banner v. Law Offices of David J. Stern, P.A. and David J. Stern, individually, et al., in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 50 2007 CA 000815 (Banner Claim). A copy of the Fifth Amended Complaint filed in the Banner Claim is attached hereto as Exhibit A. 7. In the Banner Claim, the plaintiff alleges that Defendant Firm and

Stern violated Chapter 559 (debt collection violations) and Chapter 501, Florida Statutes (deceptive and unfair trade practice) in seeking to collect the following charges as costs: A. Amounts of service of process upon persons identified by the firm as John Doe and Jane Doe, unknown tenants in possession or unknown spouse; and/or Costs for title search and/or title examination which exceeded the out-of-pocket and overhead costs for said work; and/or Costs for title exam when the invoice reflected that the title exam was performed by Professional Title & Abstract Company when in actuality the title exam was performed by employees of the firm; and/or

B. C.

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D. 8.

Other charges, fees and costs which had not been incurred at the time Defendants demanded payment. The operative pleading alleges that the collection of these charges

was sought through reinstatement letters that were transmitted to residential property holders in connection with or prefatory to foreclosure proceedings. 9. The pleading seeks an award of actual and/or statutory damages, a

statutory award of attorneys fees and costs, as well as declaratory and injunctive relief. Hewitt Claim 10. On or about October 23, 2009, the Defendant Firm and Stern were

named in a class action styled Rory Hewitt v. Law Offices of David J. Stern, P.A. and David J. Stern, individually, in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 50 2009 CA036046 (Hewitt Claim). A copy of the Complaint filed in the Hewitt Claim is attached hereto as Exhibit B. 11. In the Hewitt Claim, the Defendant Firm and Stern are alleged to

have violated Chapter 559 and Chapter 501, Florida Statutes, in connection with foreclosure activities. The action was brought based upon the following

allegations as to amounts which the Defendant Firm sought to collect pursuant to reinstatement letters sent to plaintiff and the class:

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A.

Amounts of services of process on persons identified by the Firm as John Doe and Jane Doe, unknown tenants in possession or unknown spouse; and/or Excessive and/or inappropriate costs for title search and/or title examination which Stern knew or should have known exceeded the reasonable value of said title work; and/or Other charges, fees and costs which had not yet been incurred at the time defendants demanded payment. These amounts were sought pursuant to a reinstatement letter transmitted by the Stern firm to plaintiff and borrowers in order to collect these debts. The complaint seeks an award of actual and/or statutory damages, a

B.

C.

12.

statutory award of attorneys fees and costs, as well as declaratory and injunctive relief. The Insurance Contracts 13. Admiral issued the following professional liability policies to Policy Number 9720896/1, with a policy period from

Defendant Firm:

01/09/2007 through 01/09/2008; and Policy Number 9864563, with a policy period from 01/09/2009 through 01/09/2010. Copies of the Admiral policies are attached hereto as Exhibit C and Exhibit D. Stern is an insured for purposes of the policies. 14. Defendant Firm and Stern made a claim for coverage in connection

with the Banner Claim and Hewitt Claim.

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15.

The policies provide, in pertinent part, as follows: I. Insuring Agreement Lawyers Professional Liability Insurance This Policy shall pay on behalf of the Insured all Damages and Claims Expense that the Insured shall become legally obligated to pay, arising from any Claim first made against an Insured during the Policy Period . . . for any Wrongful Act, * * * III. Definitions * * * C. Damages means a monetary judgment, award or settlement, pre-judgment interest and postjudgment interest; provided, however, Damages shall not include: 1. taxes, civil or criminal fines, or penalties imposed by law, or * * * 4. legal fees, costs and expenses paid, incurred or charged by the Insured, whether claimed as forfeiture, restitution of specific funds, financial loss, set-off or otherwise, and injuries that are a consequence of any of the foregoing, or 5. legal fees, costs, fines, penalties, sanctions, or other amounts awarded against an Insured or any client of an Insured based upon the actual or alleged filing of pleadings or other papers under any federal or state statute, administrative rule, court

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rule or case law, including, but not limited to Rule 11, Federal Rules of Civil Procedure, any successor thereto or state rule counterpart. * * * K. Professional Services means services: 1. rendered by an Insured solely as a lawyer, mediator, arbitrator, or notary public for others, . . . * * * N. Wrongful Act means any actual or alleged act, omission, or Personal Injury arising out of Professional Services rendered by an Insured or by any person for whose act or omission the Insured is legally responsible. * * * IV. Exclusions The Insurer shall not be liable to make any payment for Damages or Claims Expense in connection with any Claim made against an Insured: A. based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving a dishonest, fraudulent, criminal, or malicious act or omission committed by or at the direction of, or ratified by any Insured; . . . however, the Insurer will provide a defense for any such Claims, without any liability by the Insurer to pay such sums that any Insured shall become legally obligated to pay as Damages;

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COUNT I Declaratory JudgmentBanner Claim 16. Admiral realleges and incorporates by reference paragraphs 1

through 15 above as though fully restated herein. 17. This is an action for declaratory judgment to obtain a judicial

determination of the rights and duties under the policy attached as Exhibit C with respect to the Banner Claim. 18. Under the terms of the policy, Admiral agreed to afford coverage for

Damages and Claims Expense the Insured becomes legally obligated to pay, arising from any Claim first made against the Insured for any Wrongful Act. 19. The policy defines Damages as monetary judgment or award but

not legal fees, costs and expenses paid, incurred or charged by the insured. 20. The policy only provides coverage for a Claim arising from a

Wrongful Act. The term Wrongful Act is defined as any actual or alleged act, omission or personal injury arising out of Professional Services rendered by an insured or by any person for whose act or omission the insured is legally responsible. 21. The policy defines Professional Services as services rendered by

an Insured solely as a lawyer, mediator, arbitrator, or notary public for others.

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22.

In the Banner Claim, the plaintiff alleges that Defendants charged or

sought to charge persons subject to foreclosure proceedings for certain costs and/or fees which had been or would be incurred by the Defendants in prosecuting the foreclosure actions. 23. The Banner Claim alleges a cause of action for violations of

section 559.72, Florida Statutes. This statute proscribes a debt collector from enforcing a debt when such person knows the debt is not legitimate or asserts the existence of some other legal right when such person knows the right does not exist. 24. The Banner Claim also alleges a cause of action for violations of

Chapter 501, Florida Statutes (Unfair and Deceptive Trade Practices Act). Section 501.204, Florida Statutes, defines unfair or deceptive trade practices as unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce. . . . 25. Section 501.2075 authorizes a civil penalty against any person who

is willfully using, or has willfully used a method, act or practice declared unlawful under section 501.204 or who is willfully violating any of the rules of the department adopted under this part. . . .

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26.

The Defendants are alleged to have adopted policies for the

collection of such fees and costs despite knowing that they were aware that such attempts to collect these fees, costs and charges were unlawful. 27. Billing or charging for the allegedly improper costs and/or fees is not

a Professional Service within the meaning of the professional liability policy. Therefore, the policy does not provide coverage for the Banner Claim. 28. The Banner Claim is also excluded under the policy exclusion for

Damages or Claims Expense in connection with any claim based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving a dishonest, fraudulent, criminal, or malicious act or omission committed by or at the direction of or ratified by the Defendants. 29. Admiral has provided a defense under the policy pursuant to a

reservation of rights and has made and continues to make payments on behalf of the Defendants for Claims Expense. 30. All conditions precedent to bringing this action have been performed

or waived, or have occurred. 31. An actual controversy exists as to the entitlement of the Defendants

to a defense and indemnification under the policy.

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32.

Admiral seeks a judicial determination that it is not required to

defend or indemnify the Defendants for the claims asserted in the Banner Claim under the terms of the policy. 33. A judicial determination is necessary and appropriate at this time in

order to determine the duties and responsibilities under the policies. COUNT II Declaratory JudgmentHewitt Claim 34. Admiral realleges and incorporates by reference paragraphs 1

through 15 and above as though fully restated herein. 35. This is an action for declaratory judgment to obtain a judicial

determination of the rights and duties under the policy attached as Exhibit D with respect to the Hewitt Claim. 36. Under the terms of the policy, Admiral agreed to afford coverage for

Damages and Claims Expense the Insured becomes legally obligated to pay, arising from any Claim first made against the Insured for any Wrongful Act. 37. The policy defines Damages as monetary judgment or award but

not legal fees, costs and expenses paid, incurred or charged by the insured. 38. The policy only provides coverage for a Claim arising from a

Wrongful Act. The term Wrongful Act is defined as any actual or alleged act, omission or personal injury arising out of Professional Services rendered by

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an insured or by any person for whose act or omission the insured is legally responsible. 39. The policy defines Professional Services as services rendered by

an Insured solely as a lawyer, mediator, arbitrator, or notary public for others. 40. In the Hewitt Claim, the plaintiff alleges that Defendants charged or

sought to charge persons subject to foreclosure proceedings for certain costs and/or fees which had been or would be incurred by the Defendants in prosecuting the foreclosure actions. 41. The Hewitt Claim involves a cause of action for violations of

section 559.72, Florida Statutes. This statute proscribes a debt collector from enforcing a debt when such person knows the debt is not legitimate or asserts the existence of some other legal right when such person knows the right does not exist. 42. The Hewitt Claim also involves a cause of action for alleged

violations of Chapter 501, Florida Statutes (Unfair and Deceptive Trade Practices Act). Section 501.204, Florida Statutes, defines unfair or deceptive trade practices as unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce. . . . 43. Section 501.2075 authorizes a civil penalty against any person who

is willfully using, or has willfully used a method, act or practice declared unlawful

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under section 501.204 or who is willfully violating any of the rules of the department adopted under this part. . . . 44. The Defendants are alleged to have adopted policies for the

collection of such fees and costs despite knowing that they were aware that such attempts to collect these fees, costs and charges were unlawful. 45. Billing or charging for the allegedly improper costs and/or fees is not

a Professional Service within the meaning of the professional liability policy. Therefore, the policy does not provide coverage for the Hewitt Claim. 46. The Hewitt Claim is also excluded under the policy exclusion for

Damages or Claims Expense in connection with any claim based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving a dishonest, fraudulent, criminal, or malicious act or omission committed by or at the direction of or ratified by the Defendants. 47. Admiral has provided a defense under the policy pursuant to a

reservation of rights and has made and continues to make payments on behalf of the Defendants for Claims Expense. 48. All conditions precedent to bringing this action have been performed

or waived, or have occurred. 49. An actual controversy exists as to the entitlement of the Defendants

to a defense and indemnification under the policy.

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50.

Admiral seeks a judicial determination that it is not required to

defend or indemnify the Defendants for the claims asserted in the Hewitt Claim under the terms of the policy. 51. A judicial determination is necessary and appropriate at this time in

order to determine the duties and responsibilities under the policies. WHEREFORE, Plaintiff, Admiral Insurance Company, requests that the Court determine its rights and obligations under the policies and enter a judgment: A. Declaring that there is no insurance coverage under the Admiral

policy for the claims asserted in the Banner complaint. B. Declaring that there is no insurance coverage under the Admiral

policy for the claims assert in the Hewitt complaint. C. Declaring that Admiral has no further duty to defend the Defendants

in the Banner claim. D. Declaring that Admiral has no further duty to defend the Defendants

in the Hewitt claim. E. Awarding Admiral reimbursement of any payments made for Claims

Expense in excess of the deductible paid on behalf of Defendants in the Banner Claim.

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F.

Awarding Admiral reimbursement of any payments made for Claims

Expense in excess of the deductible paid on behalf of Defendants in the Hewitt Claim. G. H. Awarding attorneys fees and costs incurred in bringing this action; Awarding such further and supplemental relief as this Court may

deem appropriate and just.

Respectfully submitted,

s/Thomas J. Guilday Thomas J. Guilday FBN 0180872 Guilday, Tucker, Schwartz & Simpson, P.A. 1983 Centre Pointe Boulevard, Suite 200 Tallahassee, FL 32308-7823 (850) 224-7091 (850) 222-2593 facsimile E-Mail: tom@guildaylaw.com Attorneys for Plaintiff

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