Articles Posted in Business Dispute

Securing a loan with collateral might seem like a simple and everyday task, but even the smallest of mistakes in the process can carry severe consequences. Brent Kovach (Mr. Kovach), a shareholder in a few New Orleans French Quarter hotels, experienced the repercussions of a simple oversight when one paragraph in his collateral assignment nearly offset his entire life insurance policy. The following case delves into just how critical hiring an excellent attorney might be when interpreting seemingly straightforward contracts and when those contract disputes turn to a lawsuit.

Mr. Kovach was a shareholder of St. Peter Inc.’s Hotel and a member of A Creole House, LLC, which managed a French Quarter hotel. In the wake of Hurricane Katrina, these hotels required refinancing and in order to secure the necessary loans, Mr. Kovach personally guaranteed them with his life insurance policy as collateral. Mr. Kovach and his wife, Ellen Kovach (Mrs. Kovach), acquired the one million dollar life insurance policy on Mr. Kovach in 1995 from New England Mutual Life Insurance Company.

After receiving the refinancing, the hotels failed to make loan payments and in May 2010 the bank requested a cash surrender of the value of the policy from New England Mutual Life Insurance Company. The life insurance company paid the value of the policy, $52,316.33, to the bank based upon the terms of the assignment and canceled Mr. Kovach’s life insurance plan without any notification to him.

In litigating claims, parties (particularly the attorneys) must exercise diligence. This means being timely when it comes to gathering evidence, complying with a court order, or filing a pleading, motion, appeal etc. In its Commentary to the Model Rules of Professional Responsibility, the American Bar Association specifically warns that procrastination can seriously harm a client’s cause. Good attorneys heed this warning. Procrastination can and will often prompt the court to dismiss a litigant’s claims or objections. Illustrative is a recent case from the U.S. Fifth Circuit Court of Appeal.

In 2011, Red Barn Motors, Inc. entered into a financing agreement with Dealer Services Corporation (“DSC”). Under the financing agreement, DSC would finance Red Barn’s purchase of vehicles at auction. But soon, things went sour. In March of 2013, Red Barn stopped making payments on its line of credit with DSC and DSC began seizing some of Red Barn’s assets. The next month, Red Barn delivered several vehicles to Louisiana’s First Choice Auto Auction, L.L.C. First choice was supposed to sell the vehicles, but instead, it delivered them to DSC. Red Barn eventually declared bankruptcy. At some point, DSC was absorbed by another company, NextGear Capital Inc.

Red Barn filed a lawsuit in the U.S. District Court for the Middle District of Louisiana against NextGear and First Choice. Red Barn alleged that NextGear breached the financing agreement and benefited from unjust enrichment and that NextGear and First Choice committed conversion. According to Red Barn’s petition, sometimes six to eight weeks would pass before the auction house could transfer title to DSC, and DSC would refuse to pay the auction house until it received the title, though it would charge interest and fees starting from Red Barn’s initial purchase.

Louisiana law strongly encourages arbitration as a method of resolving disputes. Arbitration is a form of alternative dispute resolution whereby parties agree to be bound by the decision of neutral third parties. Arbitration promotes efficiency in dispute resolution because it attempts to resolve disputes before court involvement becomes necessary. It prevents courts from becoming backlogged with excessive caseloads. While arbitration promotes court efficiency, it can be a burdensome roadblock to certain litigants seeking recovery. A recent Louisiana case is illustrative.

Tiffany Christian and David were associate attorneys at The Law Office of Paul C. Miniclier in New Orleans, Louisiana. In 2008, both resigned, taking along with them one of the firm’s clients, Carolyn Hall-Williams. At the time of Ms. Christian and Mr. Binegar’s resignation, Ms. Hall-Williams had a lawsuit pending in the federal District Court for the Eastern District of Louisiana. While that lawsuit was eventually settled, the Miniclier Law Firm wanted to collect fees associated with Ms. Hall-William’s representation during her time as a client of the firm. The Miniclier Law Firm filed an intervention with the federal District Court. A magistrate judge awarded the law firm the costs associated with Ms. Hall-Williams representation, but no attorney fees. That award was later modified by a federal District Court judge to include a sum for attorney fees.

Unsatisfied with the award, the Miniclier Law Firm appealed to the U.S. Fifth Circuit Court of Appeal. The Fifth Circuit kicked the case back down to the federal District Court and ordered that the case is stayed (or postponed) until the parties commenced with arbitration. The federal District Court ordered Ms. Hall-Williams to proceed to arbitration, and a petition to arbitrate was filed with the Louisiana State Bar Association (“LSBA”). The LSBA has a Fee Dispute Program which helps resolve disputes between lawyers and their clients as well as disputes between lawyers. Ms. Hall-William’s fee agreement with the Miniclier Law Firm required that fee disputes be arbitrated with the LSBA. The LSBA dismissed the arbitration, in part because the parties could not reach an agreement concerning the scope of the proceedings and the potential impact on the law regarding attorney fee contracts.

The State of Louisiana has laws in place to protect whistleblowers with legitimate claims. These laws are critical to protecting workers and promoting healthy corporate self-governance. In Louisiana, La. R.S. 23:967 protects an employee whistleblower from retaliatory actions when in good faith, the employee advised the employer of some unlawful practice. It allows the employee to commence a civil action against the employer for the employer’s retaliatory actions. In a recent case, the U.S. Fifth Circuit Court of Appeal spells out the legal elements required to succeed on a whistleblower claim.

Justin Richardson worked for Axion Logistics, LLC, in Baton Rouge.  Axion promoted Richardson to general manager within two months of hiring him.  Shortly thereafter, Richardson became aware that two Axion employees were fraudulently billing an Axion client.  Richardson reported these acts up the chain of command, including Axion’s president, its CEO and its CFO.

At one point, Axion’s CEO requested that Richardson not to tell anyone about the matter. Axion’s CEO and president allowed the illegal practice when they refused to inform the client.  Subsequently, Richardson expressed to the CFO that Richardson would notify the client if Axion was unwilling to do so.  A few weeks thereafter, Axion management criticized Richardson’s job performance.  The president then terminated Richardson’s employment within a month, on the grounds that Richardson “was not a good fit” for the company.

Getting a judgment in your favor can often feel like a big win in court. After a judgment has been declared by the court many people believe the losing side simply gets out their checkbook and pays what they owe. While this may happen in some cases, many times after getting a judgment a person must fight an uphill battle to collect on that judgment. This is exactly what happened when a Louisiana company, Monster Rentals, obtained a default judgment against Coonass Construction of Arcadia (CCA).

In March of 2013 Monster Rentals brought a lawsuit against CCA to collect $4122.28 in unpaid invoices. CCA failed to answer the complaint. In accordance with Louisiana law, a default judgment was entered against the company. Essentially, if after a party being sued fails to answer a lawsuit for a certain period of time it is assumed they agree that they owe the amount in controversy. This is one reason it is so important to seek a good lawyer when you find out there is litigation pending against you. If you simply ignore the problem in hopes it will disappear it often can be a sure way to lose the case and end up owing money. In the default judgment against CCA the Trial Court awarded Monster Rentals both the $4122.28 and reasonable attorney fees.

Monster Rentals then began the difficult task of attempting to collect on the judgment. In order to collect on a judgment when someone is unwilling to pay, the party that is entitled to collect needs to get the court to place a lien or garnishment on some asset owned by the party that owes the money. In order to collect, Monster Rentals tried to place a garnishment on unpaid receivables owned by CCA. In order to do this Monster Rentals approached the court and asked it to set a fixed dollar amount for attorney fees in order to facilitate the collection of the judgment.

In a lawsuit, a client’s claims need to be monitored every step of the way. If an issue is revived in an appeal, an attorney must keep track of it and reinforce it at each new representation. If an attorney doesn’t continue to assert a claim, a court might think the party abandoned the issue and the court will not review it on appeal. Keeping these claims alive is not a major undertaking, but as Glenn E. Alphonse, Jr. learned in his recent case, even the slightest misstep in this area can make or break an outcome.

In 2010, Mr. Alphonse defaulted on his mortgage, so Arch Bay Holdings, LLC began foreclosure proceedings on his house.  Alphonse filed a lawsuit against Arch Bay Holdings, LLC under the Louisiana Unfair Trade Practices Act (LUTPA) and Federal Debt Collection Practices Act (FDCPA). After various motions and appeals, the District Court dismissed Alphonse’s case. Alphonse appealed this ruling to the Fifth Circuit Court of Appeal.

A central issue to Alphonse’s appeal was whether federal question jurisdiction existed. Federal question jurisdiction allows a plaintiff to proceed with a case in federal court; it is what gives the official power to a court to make legal decisions and judgments. The Fifth Circuit first examined whether Alphonse waived his right to certain claims during the litigation of his case which gave rise to federal question jurisdiction. If Alphonse waived his rights to these claims then he waived his right to proceed under federal question jurisdiction. Waiver of Alphonse’s federal claims during the appeals process meant that those claims could not be brought before the District Court for consideration.  Alphonse admitted that he waived some of his federal claims during the appeals process, but claimed that he left one claim intact and argued that he still possessed federal question jurisdiction.