In the glittering world of South Florida’s high-end real estate, One Sotheby’s International Realty is known as one of the biggest players in the market. This month, the company is handling the rental of NBA superstar Kevin Durant’s penthouse in Miami. Last year, it announced plans to break ground on a 31,000-square-foot office building in Coral Gables, one of Florida’s poshest zip codes, according to media reports.
But the company, affiliated with the famous London auction house, was recently accused of allowing an allegedly unscrupulous agent to pressure Miami Beach condominium owners into selling before they are ready, at a price below the market, thus pocketing almost $4. million from the sale.
And now a federal appeals court ruled this week that General Star National Insurance Co. cannot escape its duty to defend the real estate company in a civil lawsuit brought by condo owners, despite exclusions built into the policy liability for errors and omissions of Sotheby’s.
“Because a jury could hold One Sotheby’s liable without also finding conversion, the claims at issue in this case do not necessarily ‘arise’ from a dispute ‘involving’ conversion, and General Star has a duty to defend “, said a panel of the 11th jury.th The United States Court of Appeals stated in his opinion of February 21upholding a lower court’s 2023 ruling.
The case has national and international implications: General Star is a surplus and specialty carrier and a subsidiary of General Reinsurance, part of the Berkshire Hathaway conglomerate. The apartment in question is inside the swanky St. Regis Bal Harbor hotel, just north of Miami Beach, and was owned by Heliac Inc., a real estate holding company with a bank account in Switzerland, run by two Russian nationals, a married couple. One of the executives was a shareholder in a United Arab Emirates-based company that supplies helicopters, training and pilots around the world, according to news reports and court records.
The alleged fraud and insurance coverage dispute began after Heliac hired real estate agent Gleb Klioner, well known in South Florida’s Russian-speaking community, to market the St. Regis unit, a explained the court. In 2020, Klioner went to work for One Sotheby’s but kept the co-ownership account. Heliac signed a listing agreement with the company, offering the condo for nearly $6 million.
But in late 2020, Klioner began pressuring the Russians to sell the unit immediately, below its listing price, warning them that the market and the U.S. economy were on the verge of collapse . Heliac executives ultimately agreed to sell for $4.2 million, according to the court opinion, citing the underlying lawsuit. Heliac asked Klioner to deposit the funds into its bank account in Switzerland, but Klioner said it could only place the money into a Heliac operating account to which it had exclusive access.
The real estate agent then secretly transferred $3.8 million from the Heliac account to his personal account, the court heard. Nine days later, the helicopter company asked him to send the proceeds from the sale to his Swiss bank. For the next 10 weeks, Klioner procrastinated, giving various reasons why the bank had not transferred the millions.
Eventually, he admitted using the funds for his own purposes, the court heard. Klioner has not yet refunded the money. He was indicted last fall on wire fraud charges and his case is pending in federal court in the Southern District of Florida. The Heliac Company also filed suit in Miami-Dade County against Klioner and One Sotheby’s, and the real estate company asked General Star to defend it.
The company’s E&O policy clearly states that General Star will pay for claims and damages. But it also contains exclusions, including one for conversion or embezzlement.
Heliac’s trial, however, did not focus heavily on conversion. Instead, the complaint claimed that Sotheby’s was negligent because it failed to properly train Klioner and breached its duties to the client. The real estate company was only vicariously liable for the conversion and Klioner’s misconduct, according to the suit.
The complaint, filed by Gainesville attorney Carolyn Budnik, who also formed the Heliac firm, and Miami attorney Olesia Belchenko, also said Sotheby’s was responsible for lost revenue due to the price drop of sale requested by Klioner.
Sotheby’s and General Star both asked the court to decide whether the insurer had a duty to defend. The district court and appellate judges agreed that it was, emphasizing that coverage was not limited by the exclusions.
“The court concluded that the complaint could be fairly construed as alleging that Klioner did not decide to convert the sale proceeds before After the sale had already taken place”, on the 11thth Circuit judges noted this. “Thus,” the (lower) court reasoned, “the prior actions – and the damages caused by market differences – could not have arisen from the conversion,” and the counts did not fall within the exception. conversion coverage.
And that was “all the fun,” the judges said.
“A jury could find One Sotheby’s liable for market value damages related to Klioner’s negligent misrepresentations and One Sotheby’s negligent training of Klioner, without necessarily also finding it liable for the conversion and damages caused by the loss of proceeds of sale,” the notice concludes.
Top photo: The St. Regis Bal Harbour, where the condo and adjacent shopping center are located. (Adobe Stock Images)
