WESTCHESTER SURPLUS LINES INSURANCE COMPANY v. PORTOFINO MASTER HOMEOWNERS ASSOCIATION INC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF FLORIDA PENSACOLA DIVISION WESTCHESTER SURPLUS LINES INS. CO., et al., Plaintiffs, v. Case No. 3:23cv453-MCR-HTC PORTOFINO MASTERS HOMEOWNERS ASSOC., INC., et al., Defendants. __________________________/ ORDER This matter is before the Court on Defendants’ and Non-Party Association Members’ Amended Motion for Protective Order and Prayer for Award of Attorneys’ Fees. Doc. 137. Upon consideration of the motion, the Plaintiffs’ Response, Doc. 145, Defendants’ notice of supplemental authority, Doc. 150, and counsel’s argument at the hearing held on December 15, 2023, the Court finds the motion should be GRANTED to the extent a protective order will be issued.

However, the Court declines to award fees and costs.

I. Background1 The Plaintiffs in this declaratory judgment action are insurers (herein referred to as the “Insurers”) who issued, collectively, more than a dozen commercial property policies of insurance to Defendant homeowner associations (herein referred to as the “HOAs”),2 with effective dates from April 1, 2020, to April 1, 2021, covering a group of condominiums and adjacent property herein referred to as the Portofino Towers, located on Pensacola Beach.3 The Portofino Towers were damaged by Hurricane Sally, which made landfall in Pensacola on September 16, 2020. Shortly thereafter, the HOAs submitted a claim to four (4) of the Insurers,4 which immediately began investigating the claim. However, in December 2020, because of a dispute between the Insurers and the HOAs over the amount of payments to be made, the HOAs demanded an appraisal.5 As part of the appraisal process, the HOAs and the Insurers each selected an appraiser. The HOA selected George Keys of Keys Claims Consultants as their appraiser and the Insurers selected Pat Lewis of Lewis Claims Solutions. The two

The Insurers file this declaratory judgment action, seeking, among other relief, a declaration that the Appraisal Award is void because Defendants engaged in fraudulent conduct during the claim submission and appraisal process, Doc. 104 at 7, 40, and should be vacated under Fla. Stat. § 682.13.6 Specifically, the Insurers contend: (1) the HOAs’ witnesses and Keys made false representations regarding past damages and repairs and their whereabouts during Hurricane Sally, Doc. 104 at ¶s 114-15; (2) Keys and his experts submitted written documents containing misleading information, id. at ¶ 116; (3) Keys and his experts submitted estimates and invoices containing unsupported pricing that lacked evidence or contained duplicate costs, id. at ¶s 117-19; (4) the HOAs, Keys, and the experts failed to timely

Pursuant to that section, an appraisal award may be vacated on certain enumerated grounds, including if the “award is procured by corruption, fraud or other undue means.” Fla. Stat. § 682.13(1)(a). In the absence of one the vacatur reasons outlined in Section 682.13, “a court may not vacate the [appraisal] award.” Id. produce documents, id. at ¶s 135-38; and (5) the HOAs, Keys, and the experts intentionally withheld and concealed material information, id. at ¶ 139.

At issue before the Court in this discovery dispute are 125 subpoenas issued by three of the Insurers, Homeland Insurance Company of New York, James River Insurance Company, and Landmark American Insurance Company (collectively, the “Issuing Insurers”), to owners of individual condominium units located in the Portofino Towers. The owners targeted by the subpoenas are those who purchased units after Hurricane Sally. The HOAs and 124 of the subpoenaed parties have filed a motion for protective order, objecting to producing any of the requested documents as irrelevant to this dispute. Doc. 137. The documents requested in each subpoena are the same and fall into the following categories: (1) sales documents; (2) sellers’ disclosures; (3) appraisals; (4) inspections; and (5) documents regarding damages to the Towers. The Issuing Insurers contend this information is relevant to their attempts to show that the HOAs, Keys, and their experts committed fraud during the appraisal process. For the reasons discussed below, the Court disagrees.

II. Discussion The HOAs and non-parties have moved for a protective order under Federal Rule of Civil Procedure 26(c). Pursuant to that rule, a party or any person from whom discovery is sought may move for a protective order and the Court may “for good cause” issue such an order “to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed. R. Civ. P. 26(c).

The sole basis for the motion is that the documents sought are not relevant to the issues and claims in this case. As parties, the HOAs have standing to move for a protective order if the subpoenas seek irrelevant information.7 Auto-Owners Ins. Co. v. Se. Floating Docks, Inc., 231 F.R.D. 426, 429 (M.D. Fla. 2005).

According to the HOA, while couched in terms of fraud, the true basis for the Insurers’ declaratory judgment action and the motion to vacate the appraisal award

Counsel for the HOAs and the non-parties, however, made clear they are only seeking protection under Rule 26 based on the lack of relevance and are not asking the Court to consider whether the subpoenas are unduly burdensome. Indeed, according to counsel, many of the homeowners do not have the requested documents. is that they are unhappy with the amount of the award. The HOA argues, however, that it is well settled that only an appraisal panel can determine the amount of loss; it is not an issue for the courts. In other words, while a court may vacate an appraisal award if there has been fraud, a court cannot look underneath the hood and re- evaluate an appraisal award. See Baptist Coll. of Fla., Inc. v. Church Mut. Ins. Co., SI, 5:22cv158-MW/MJF, 2023 WL 4358781, at *5 (N.D. Fla. March 7, 2023) (finding that plaintiff’s attempt to “introduce evidence meant to modify the face of the Appraisal Award … runs contrary to Florida law) (citing First Protective Ins. Co. v. Hess, 81 So. 3d 482, 486 (Fla. 1st DCA 2011) (“[A] trial court may not look beyond the face of an appraisal award and consider extrinsic evidence to determine the basis for the award.”)). The HOA points to the Insurers’ use of words such as “overinflated,” “duplicative,” “unsupported,” and “overlapping” to describe the problem with the award amount as evidence the Insurers’ claim has nothing to do with fraud, and is, instead, a veiled attempt to reargue the amount of loss. Thus, the HOA argues the subpoenas seek information which has “zero” relevance to the litigation.

A. Relevance Pursuant to Federal Rule Civil Procedure 26(b), “[p]arties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.” Fed. R. Civ. P. 26(b)(1). In determining whether discovery, to a party or non-party, is relevant, the Court must consider the allegations, claims, and defenses raised. See Jordan v. Comm’r, Miss. Dept of Corr., 947 F.3d 1322, 1329 (11th Cir. 2020) (“As indicated by the language of Rule 26, the relevance of information sought in discovery depends on the claims asserted in the underlying action and the legal standards that govern those claims.”) (citing Fed. R. Civ. P. 26(b)(1)). Viewing the subpoenas in that lens, the Court finds the subpoenas do not seek information relevant to the issues in this case.

First, the Insurers’ claim of fraud is premised on representations made by the HOAs, Keys, or his experts regarding the condition of the properties, not on any conduct or misrepresentations made by the owners of the units. Second, regardless of what may be in the sales documents, there is no allegation the HOAs, Keys, or his experts had access to those documents or reviewed those documents when making their presentation to the Panel or submitting their claims.

The Issuing Insurers argue the sellers’ disclosures, inspections and appraisals are relevant because they may contain information showing that the windows, guardrails, doors, and balconies the HOAs and Keys represented as being damaged were either not damaged or not as damaged. However, whether an individual seller disclosed damage caused by Hurricane Sally during their negotiations has no bearing on what the HOAs, Keys, or their experts knew or did not know. Also, as the Issuing Insurers’ counsel acknowledged during the hearing, even if certain damages had been disclosed in the “Seller’s Disclosures,” the cause of the damage would not necessarily have been documented. And, even if a homeowner had a duty to disclose8 damage to any of the exterior doors, windows, or balcony, and failed to meet its obligation to do so, that does not necessarily mean the damage did or did not exist and certainly has no bearing on what Keys or the HOAs knew or did not know at the time the HOAs submitted their claim or during the appraisal process.

More importantly, the Insurers had inspectors, consultants, and experts on- site within weeks, if not days, of Hurricane Sally, and thus had first-hand knowledge regarding the damage the Towers sustained.9 Thus, if there were any intentional misrepresentations regarding the condition of the properties, they can be established through the Insurers’ own inspection notes and observations – particularly when

Also, it is notable the Insurers did not request these documents or complain about needing them at any time during the appraisal proceedings. At no point, for example, did the Insurers argue the prices at which units sold for post-Hurricane Sally made a difference, even though that information was publicly available. And the Insurers cannot vacate the Appraisal Award on information that could have uncovered at the time of the hearings. See Davenport v. Dimitrijevic, 857 So. 2d 957, 962 (Fla. 4th DCA 2003) (“A claim of fraud under section 682.13(1)(a) is not an opportunity to obtain a second bite of the apple to correct a party’s deficiencies of proof at an arbitration”).

As set forth in their motion to vacate, the Insurers sought and complained about a delay in receiving “meeting minutes, condominium documents, repair records, and contracts.” Doc. 116 at 5. The Insurers sought to continue the appraisal hearings because the HOAs and Keys produced a “significant amount of documentation” within 24 hours of the hearing “that contain[ed] detailed information of previous conditions and damages to the subject building that will directly affect the accuracy” of the parties’ positions. Doc. 116 at 11. The Insurers argue those documents were “critically pertinent to the loss and damage value.” Id. at 10. It would seem, therefore, that the Insurers already have documents showing the damage to the properties caused by Hurricane Sally and anything that may be in the sales documents would be cumulative or of minimal value, at best.

The Issuing Insurers further argue the documents requested from the non- party unit owners who purchased condominiums post-Sally are “evidence of impropriety during the appraisal process.” Doc. 145 at 3. However, the Court reviewed the “improprieties” alleged in both the amended complaint and the motion to vacate and cannot agree. The post-Hurricane Sally sales documents for individual units have no bearing on whether (1) the HOAs or Keys delayed their production of crucial documents or withheld documents until the eve of the hearing, (2) the HOAs submitted duplicative or hyper-inflated costs in their repair estimates, Doc. 116 at 14-16, (3) Keys made misrepresentations regarding past damages and repairs, or (4) the witnesses did not accurately disclose their whereabouts during Sally, Doc. 104 at 34-38. Even assuming these types of alleged improprieties can be considered “fraud,” their support, if any, lie in the documents that were generated by the Insurers’ own appraisals, inspectors, and experts, or in the documents eventually produced by the HOAs.10 This is not a case, for example, where information that may not have been relevant during the appraisal process, such as a retainer agreement with the appraiser, is necessary for purposes of establishing an impropriety. See Biscayne Beach Club Condo. Ass'n, Inc. v. Westchester Surplus Lines Ins. Co., 2022 WL 18776152, at *1 (S.D. Fla. Mar. 1, 2022) (permitting limited discovery regarding any fee arrangements with appraiser “because Defendant raised concerns that Mr. Pyka had a contingency fee arrangement with Biscayne Beach through which he would receive a percentage of any appraisal award issued to Biscayne Beach”).

Finally, the Court will address two arguments made by the Issuing Insurers at the hearing that were not included or made prominent in their written materials.

First, the Issuing Insurers argue they were not involved in the appraisal process as no demand was made on them and they did not have sufficient notice of the hearing.

The Court does not find this argument to alter the above analysis. Namely, the Issuing Insurers filed a joinder to the motion to vacate, Doc. 117, and, thus, adopted the arguments made therein. Also, the Issuing Insurers have since had access to the information that was generated as part of the appraisal process and do not argue this information is insufficient to establish the Insurers’ fraud claim.

Second, along those same lines, the Issuing Insurers argue the documents are relevant to the HOAs’ breach of contract claim against them, seeking to bind them to the Appraisal Award. The Court also does not find this argument to move the needle because the issue in the counterclaim is not how much the Appraisal Award should be but simply whether the Issuing Insurers are bound to it.

While there can certainly be instances when discovery is relevant to an action seeking to vacate an appraisal award, the discovery sought here from the third parties is simply not relevant. See Continuum on S. Beach Condo. v. QBE Ins. Corp., 338 F.R.D. 668, 671 (S.D. Fla. 2021) (granting motion for protective order as to subpoenas issued to 32 non-party unit owners in an action seeking to compel appraisal).

B. Fees and Costs The HOAs and non-parties seek a recovery of attorneys’ fees incurred in filing the motion for protective order pursuant to Rule 37(a)(5)(C). See Fed. R. Civ. P. 26(c) (allowing for the recovery of fees under Rule 37(a)(5) for filing or opposing a motion for protective order). Under Rule 37(a)(5), when a motion for protective order is granted, a court “must” award the reasonable expenses incurred in making the motion, unless the court finds the nonmovant’s position was “substantially justified” or “other circumstances make an award of expenses unjust.” Fed. R. Civ. P. 37(a)(5)(A). “A position is ‘substantially justified’ if it results from a ‘genuine dispute, or if reasonable people could differ as to the appropriateness of the contested action.’” Hodge v. Tide Tamer Indus., Inc., No. 4:19CV575-MW/CAS, 2020 WL 7634228, at *2 (N.D. Fla. Mar. 16, 2020) (citation omitted).

Here, while both sides seek the award of fees, neither address why an award should be granted or why neither exception applies. Nonetheless, while unmeritorious, the Court cannot say the Issuing Insurers’ position was not substantially justified. See id. Thus, no fees will be awarded.

Accordingly, it is ORDERED: 1. Defendants’ amended motion for protective order, Doc. 137, is GRANTED to the extent the non-parties do not have to respond to the subject subpoenas.

2. Defendants’ request for fees is DENIED.

DONE AND ORDERED this 26th day of December, 2023. /s/ Hope Thai Cannon HOPE THAI CANNON UNITED STATES MAGISTRATE JUDGE