Agan v. Katzman & Korr, P.A.

Citations: 328 F. Supp. 2d 1363; 2004 U.S. Dist. LEXIS 13960; 2004 WL 1724981Docket: 03-62145-CIV

Court: District Court, S.D. Florida; July 16, 2004; Federal District Court

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The court addressed a motion by defendants Katzman, Korr, P.A. and its attorneys to strike Exhibits C and D from the plaintiffs' class action complaint. The plaintiffs, Ramsey and Grace Agan, alleged that the exhibits were relevant to their defense against foreclosure actions by Plaza East Association, Inc. The court noted that the motion to strike was linked to factual issues arising from a broader dispute, prompting an evidentiary hearing where both parties presented arguments. The Agans, represented by attorney F. Blane Carneal, had sought verification of their alleged debt and requested various documents from the defendants' attorney, Mark M. Heinish, from April to May 2003. In response to these requests, Heinish provided accounting records and an estoppel letter, which outlined the payoff amount to halt foreclosure. He also agreed to supply the firm’s billing records related to the Agans’ debt, which were ultimately labeled as Exhibits C and D in the complaint. However, these documents were not delivered to Carneal until May 12, 2003, just before the estoppel period was set to expire on May 19, 2003. The court carefully reviewed the submissions and arguments before denying the motion to strike the exhibits.

On May 13, 2003, Mr. Carneal sent Mr. Heinish a letter identifying discrepancies in an estoppel letter and requested documentation on fees and costs. After receiving a response from Katzman, Korr, P.A., Mr. Carneal informed Mr. Heinish that he was authorized to accept service of process for the Agans in an ongoing foreclosure action. Subsequently, the Agans and Sherry Ann Spies filed a Class Action Complaint in federal court against Katzman, Korr, P.A. and its partners, alleging violations of the Fair Debt Collection Practices Act (FDCPA) and the Florida Consumer Collection Practices Act (FCCPA) due to overcharging for fees and costs related to condominium assessments. The complaint included "Pre-bill Worksheets" received by Mr. Carneal on May 12, 2003. Defendants moved to strike these exhibits, contending they are confidential and inadmissible under Fed. R. Evid. 408 and Fla. Stat. 90.408 as they were obtained during settlement negotiations. Plaintiffs counter that the request for these documents was not part of a settlement negotiation but rather a statutory request for verification of debt. The court must determine whether the exhibits qualify as settlement documents, as Plaintiffs received them after debt verification and in the context of ongoing settlement discussions related to the foreclosure action. The evidence suggests that the worksheets substantiate settlement terms, indicating they should be treated as settlement documents under the relevant rules of evidence.

On April 25, 29, and 30, 2003, Mr. Heinish provided Mr. Carneal with an explanation and a historical itemized ledger confirming the debt owed by the Agans to Plaza East Association, Inc. Following receipt of this information, on May 6, 2003, the Agans formally requested an "estoppel letter," which serves as a resolution instrument in collection practice that can halt foreclosure if certain conditions are met. The correspondence prior to this request focused on verifying the debt, but the nature of communication shifted after May 6, indicating a settlement mindset. Mr. Carneal's May 6 letter requested an estoppel letter outlining a settlement of all Agan/Plaza East litigation, which would lead to the dismissal of related cases upon payment. Subsequent letters from Mr. Carneal expressed a desire to settle matters to avoid incurring additional fees and inquired about resolving attorney's fees and costs. The formal estoppel letter provided by Mr. Heinish included payoff information and specified that full payment would validate the terms as binding. After receiving this information, Mr. Carneal requested documentation related to costs and attorney's fees. Mr. Heinish emphasized that the Agans initiated the settlement discussions by requesting the estoppel letter. Overall, the correspondence after May 6, 2003, reflected a clear intent to negotiate a compromise regarding the debt, highlighting a shift from verification to resolution efforts, with Mr. Carneal's documentation requests reinforcing this settlement context.

Defendants' pre-billing worksheets, presented during settlement negotiations of the underlying state court action, are characterized as settlement documents that may be protected from disclosure under Rule 408 of the Federal Rules of Evidence and Florida Statute 90.408. The public policy in favor of settling disputes is well-established, as reflected in both state and federal law, aimed at encouraging resolution without litigation. Notably, courts generally refrain from altering pleadings unless compelling reasons exist, and when evaluating motions to strike based on inadmissibility, they must consider the potential for the pleadings to contribute to admissible evidence.

Despite Defendants' assertion that Exhibits C and D should be excluded based on Rule 408, which restricts the admissibility of evidence from compromise negotiations, this rule does not impose an absolute bar on all evidence related to settlement discussions. It allows for the discovery of relevant evidence, even if it arises from negotiations. The rule further specifies that evidence may be admissible for purposes other than proving liability, such as demonstrating witness bias or contesting undue delay. Consequently, while Defendants argue that the pre-bill worksheets are inadmissible due to their intended use in settlement, Rule 408 does not preclude the admissibility of otherwise discoverable evidence simply because it was part of compromise talks.

A party cannot shield documents from admissibility simply by presenting them during compromise negotiations, as established in Bankcard, 203 F.3d at 484. Federal Rule of Evidence 408 allows the admission of otherwise discoverable evidence. Defendants argue that certain pre-bill worksheets, created during settlement talks and not finalized or sent to the client, should be excluded under this rule. However, the court finds their argument weak, noting that the worksheets were derived from existing data in Defendants' records, which were created alongside the relevant time records. Consequently, this billing information existed independently of the settlement negotiations, making it subject to discovery under Rule 34.

The court distinguishes this case from past rulings where documents were deemed inadmissible under Rule 408 because they were created solely for settlement discussions. In the current instance, the worksheets existed before the negotiations, and their hardcopy format merely represented pre-existing data. Defendants failed to present compelling arguments against this interpretation. They also claimed that under Florida law, the "otherwise discoverable" language is absent, rendering the documents confidential. However, no evidence was provided to suggest that Florida's statute differs in interpretation from the federal rule. Even if Florida's statute lacks this language, it does not justify the defendants' desired relief.

Additionally, Rule 408 allows for the admission of evidence from settlement negotiations for purposes other than establishing liability, such as demonstrating witness bias or undue delay, as supported by case law including U.S. v. Hauert, 40 F.3d 197, 199-200 (7th Cir. 1994).

Freidus v. First Nat'l Bank and other cited cases establish precedents regarding the admissibility of settlement negotiations in legal proceedings. Specifically, Florida Statute 90.408 renders evidence of settlement negotiations inadmissible when offered to prove liability or the value of a claim. However, such evidence remains admissible for other relevant purposes, as supported by Wolowitz v. Thoroughbred Motors, Inc. 

Defendants argue that certain exhibits (C and D), considered settlement offers, should be excluded from the current action since they are being utilized to establish Defendants' liability. They reference Charles B. Pitts Real Estate, Inc. v. Hater, which held that a prior settlement should be excluded in a subsequent suit due to its close relation to the claims at issue. 

The court distinguishes the current case from Pitts, noting that the exhibits in question pertain to an unrelated foreclosure action and not to the FDCPA and FCCPA violations central to the present lawsuit. The District Court previously noted that the FDCPA and state claims involve different legal issues, reinforcing that the exhibits are not relevant to proving liability or value in the underlying foreclosure claim but rather relate to separate allegations of statutory violations.

Settlement offers typically are inadmissible as evidence in the lawsuits in which they are made; however, they can be relevant in different cases. In Ritter v. Ritter, the court found that an offer in a personal injury case could be used in a divorce case to establish the value of a marital asset. In the current federal case, the focus is not on the correctness of the debt owed or attorney's fees but on whether the collection methods used were unlawful under federal law. Thus, the liability or value discussed during the May 2003 settlement negotiations is not the same as what is at stake in this case.

The defendants have not demonstrated sufficient grounds to warrant the extraordinary relief they seek. While the court acknowledges the protections afforded to settlement documents, exceptions exist. Since the information is discoverable for other permissible reasons, Federal Rule of Evidence 408 and Florida Statute 90.408 do not prevent the use of certain exhibits in the plaintiffs' complaint.

The defendants argue that a ruling against them would harm their business by deterring them from providing attorney fee documentation to debtors. They claim this would hinder resolution of disputes without litigation, as debtors often review such information before payment. However, the court identifies three responses to this claim: 

1. This argument contradicts the intent of the Fair Debt Collection Practices Act, which requires compliance with federal law for debt collection.
2. The defendants' claimed prejudice is largely self-inflicted; the billing documents were not marked as confidential or privileged, potentially waiving any such protections.
3. Federal Rule 408 and Florida Statute 90.408 do not grant blanket protection under these circumstances, especially at the pleading stage.

Nonetheless, the court indicates that the defendants may still have remedies available for any unfairness they may face if the exhibits are not removed from the complaint.

Defendants' motion to strike Exhibits C and D from the complaint is denied. The district court acknowledges that while these exhibits cannot be struck at the pleading stage, their admissibility can be addressed at trial through a motion in limine or during summary judgment. The court emphasizes that the determination of whether discrepancies in fees and time records constitute material violations of federal law is ultimately for the trier of fact. The court finds that Exhibits C and D do not confuse issues, cause undue prejudice, or lack relevance, and thus do not warrant striking as settlement documents under Fed. R. Evid. 408 and Florida Statute 90.408. Additionally, the court notes that Defendants' argument regarding attorney-client privilege was ineffective, as the internal billing worksheets were not shared with the client. The court concludes that the outcome regarding the admissibility of the exhibits remains consistent under both state and federal evidentiary rules, given the federal nature of the case.