Articles Posted in Business Dispute

porquet-guardiola-1239750-683x1024Inherent in most insurance contracts is an insurer’s duty to defend its insured against certain lawsuits. Part of this duty requires the insurer to pay for all legal costs and other fees related to a particular lawsuit. In a commercial general liability (“CGL”) context, business owners often rely on an insurer’s duty to defend in order to avoid paying significant legal fees for defending actions which would ultimately be covered by a CGL policy. As one might expect, whether this duty to defend exists depends on whether the loss alleged in a lawsuit is within the scope of the policy’s coverage. As a recent Louisiana Appellate Court illustrates, it is very important that insureds understand the language of their CGL policies so as to know when a duty to defend exists.

This case involved a dispute between engineering consultants Chalmers, Collins & Alwell, Inc. (“Chalmers”) and their insurer, Certain Underwriters at Lloyd’s (“Underwriters”), over whether Underwriters owed Chalmers a duty to defend against an underlying lawsuit. The underlying lawsuit involved a contract Chalmers had entered into with Haland Operating Services, LLC (“Haland”) to work on the drilling of a well. As outlined in the contract, the well at issue was being dug in tricky conditions which required the use of specialized equipment. While the well was being dug, problems arose. The drill rig that Chalmers recommended Haland use was not able to handle the difficult drilling conditions and resulted in damage to the equipment as well as Haland’s interests in the well. Haland then terminated the contract with Chalmers and hired another engineering firm to complete the well. In response, Chalmers pursued an action in arbitration against Haland. Haland then brought their own claims against Chalmers in arbitration. Chalmers then demanded that Underwriters defend it against Haland’s claims. However, Underwriters declined to defend, resulting in the instant dispute. The Lafayette Parish District Court found in favor of Underwriters, finding that Haland’s claims were not covered by Chalmers’ CGL policy, and so Underwriters had no duty to defend. Chalmers’ appealed.

Under Louisiana law, the obligation of an insurer to defend its insured is broader than its obligation to indemnify (obligation of the insurance company to pay for any injuries caused by its insured) its insured, which means that an insurer may have to defend its insured against lawsuits even though the policy would ultimately end up not covering the loss. Am. Home Assurance Co. v. Czarniecki, 230 So.2d 253, 259 (La. 1969). Determining whether an insured is owed a duty to defend requires looking at the allegations made by the third party. An insurer is obligated to defend a lawsuit against its insured unless the allegations are “unambiguously” excluded from coverage. However, even though some allegations by a third party may be clearly excluded from coverage under a policy, a duty to defend may still exist if “at least a single allegation” would not clearly be excluded. Duhon v. Nitrogen Pumping & Coiled Tubing Specialists, Inc., 611 So.2d 158, 161 (La. Ct. App. 1992). The factual allegations of a third party, rather than conclusory allegations, are what courts look at in making a determination whether an insurer must defend the insured.

whistle-1423801-1-1024x768Whistleblowers play a controversial role in the United States. Without Mark Felt, also known as Deep Throat, the world would have never known about the corruptions in the Nixon Administration and without Edward Snowden, the world would have never known the extent of the NSA’s surveillance on both U.S. citizens and foreign individuals. Congress recognized the importance of whistleblowers when it passed the False Claims Act. The False Claims Act allows individuals to bring lawsuits (called a qui tam action) on behalf of the United States when an individual or entity defrauds the United States Government. See 31 U.S.C. § 3729 (2015). The purpose of the False Claims Act is to incentivize individuals to monitor and prevent fraud against the United States by enabling the individuals to get a portion of any damage award that the court gives.

Gregory D. Guth brought a qui tam action against a law firm (RP) arising from the firm’s representation of Louisiana State University (“LSU”) in an expropriation proceeding against him. An expropriation proceeding is an action by a governmental authority where the governmental authority takes property from its owner for public use or benefit.

This case arose after Hurricane Katrina. The U.S. Department of Housing and Urban Development made federal funds available to the City of New Orleans (“the City”) in the form of Community Development Block Grants. The City set aside a portion of the block grants to build a medical center for the U.S. Department of Veteran’s Affairs and a teaching hospital for LSU. The City and the State of Louisiana entered an agreement assigning LSU the power and funds to acquire or expropriate property for the medical facilities. LSU then hired RP to acquire the necessary property.

hot-spicy-wings-1324961-1024x768Contractual relationships can advance or dissolve as time passes, often turning sour when promises are not kept.  One or both parties may attempt to break the relationship but the underlying contract is not so easily terminated.  As a result, the parties may find themselves in a court battle over seemingly small details.  In this recent Louisiana case before the United States Fifth Circuit Court of Appeal, the presumably costly break-up came down to one little word.   

Spencer Franchise Services of Georgia, Incorporated (“Spencer”) and WOW Café and Wingery Franchising Account, L.L.C. (“WOW”) contracted to develop restaurants in Georgia.  Spencer agreed to open, manage, and provide for WOW restaurants in Georgia as well as to provide reports to WOW regarding the franchise locations.  WOW granted Spencer the exclusive right to open WOW restaurants in Georgia (excepting two counties) and the right to receive royalty and other fees associated with franchise operations.  The parties’ relationship began to deteriorate with Spencer failing to inspect franchise locations and furnish WOW with reports.  Spencer claimed that WOW also breached the contract by failing to sell a minimum number of franchise agreements as arguably required by the contract.  The legal dispute centered on the contract language which stated the “Franchisor” was required to sell franchise agreements.  WOW asserted “Franchisor” was a typographical error meant to read “Developer” which would obligate Spencer to franchise sales.  Spencer argued that obviously the contract’s wording of “Franchisor”  was accurate since it obligated WOW to open franchises.  Spencer reasoned that language to the contrary would not have been worth its investment.

Spencer and WOW filed numerous lawsuits against each other asking the United States District Court for the Eastern District of Louisiana for summary judgment. A court may award a party summary judgment when there is no genuine dispute about any material fact.  FED. R. CIV. P. 56(a).  When the court grants summary judgment, the judge is deciding the case according to the law, no fact-finders (usually a jury) are required.  The District Court found “Franchisor” as written was a clear mutual error and determined there were no facts remaining in dispute. The District Court granted summary judgment in WOW’s favor and rescinded the contract.  Spencer appealed arguing summary judgment was not proper in this case as it was not clear from all the evidence that “Franchisor” was a mistake and thus there were still questions requiring resolution by a jury.  

money-1537576-1-768x1024What if you are injured, hire a lawyer, and that lawyer fails to sufficiently work on your case? Outrage ensues and you may choose to fire that lawyer and hire a second.  But is that first lawyer entitled to payment if you happen to win and receive an award in your case? In a recent Louisiana case, the Fifth Circuit Court of Appeals decided that the answer can be in the affirmative.  

After David Corey was the injured, he hired Salvador Brocato and Lionel Hutton to handle his personal injury lawsuit. In the two years that Mr. Brocato and Mr. Hutton handled Mr. Corey’s case, the attorneys did little work on his case: failing to hire an investigator,  failing to adequately prepare Mr. Corey for his deposition, and failing to hire experts as well as other faults. Mr. Corey fired Mr. Brocato and Mr. Hutton and subsequently hired Arnold & Itkin, LLP, to handle his case.  Arnold & Itkin worked on Mr. Corey’s case, and eventually secured a settlement of $2,187,500, with $875,000 awarded in attorneys’ fees. Mr. Brocato and Mr. Hutton intervened seeking a share of the amount of the attorneys’ fees awarded for the work they had done on Mr. Corey’s case prior to termination. The United States District Court for the Eastern District of Louisiana awarded Mr. Brocato and Mr. Hutton 20% of the awarded attorneys’ fees. The judge calculated the percentage based on the principles of quantum meruit: generally expressed as the actual value of the services performed. In this case, the amount of work completed before termination was calculated at 20%.  Contending that to award the 20% would be an improper and illegal award of a contingency fee to lawyers who did not have a contingency fee agreement, Arnold & Itkin appealed to the United States Court of Appeals for the Fifth Circuit.  

Louisiana fee awards in quantum meruit are calculated by factors set out by the Louisiana Supreme Court. See State, Dep’t of Transp. & Dev. v. Williamson, 597 So. 2d 439 (La. 1992). There are ten factors, including the ultimate result, obtained, the importance of litigation, the amount of money involved, the extent of the work performed, skill and diligence of the attorneys, the number of appearances made, intricacies of the facts, and the court’s own knowledge. Courts may consider these factors in the quantum meruit analysis when a contingency fee agreement has been discharged or when a contingency fee agreement was never involved. See City of Alexandria v. Brown, 740 F.3d 339 (5th Cir. 2014). The factors sometimes referred to as “Saucier Factors” are applied even when the attorney was discharged either with or without cause, although courts must reduce the award of an attorney discharged for cause according to the gravity of cause for discharge. Saucier v. Hayes Dairy Product, Inc., 373 So. 2d 102 (La. 1978).

hand-with-money-1056938-1024x689It is not uncommon for a victorious party in a lawsuit to seek attorneys’ fees upon their win.  There is no guarantee however the judge will agree an award of attorneys’’ fees are warranted.   In some cases filed in state court, the defendant can remove the case be heard in federal court.  If the federal court lacks jurisdiction, however, the case will be sent back to state court.  Whether the attorneys’ fees associated with the removal process can be recouped by the winning party is the subject of a recent lawsuit out of New Orleans.

CamSoft Data Systems, Inc. (“CamSoft”)  teamed up with Active Solutions (“Active”) and Southern Electronics Supply (“Electronic”) to install video surveillance systems in New Orleans. Just before the trio submitted their proposal for their joint venture for the future sale of the video surveillance system, Dell, Inc. (“Dell”) used their existing contract concerning the sale of technology to the state of Louisiana to halt the proposal. Moreover, Dell then sought to oust CamSoft from its joint venture with Active and Southern, who both then sold proprietary information that belonged to CamSoft. Later, in another business dealing, Dell ousted Southern and Active and replaced them with NetMethods, and cut Southern and Active out of the agreed arrangement.

CamSoft filed a lawsuit against Dell in Louisiana State Court, seeking its rights in the video surveillance system recognized and a share of the proceeds of the suit Active and Southern had against Dell. Using state law instead of federal patent law, CamSoft alleged breach of fiduciary duty and breach of contract.

money-1239608-1024x768Most of us probably owe money to someone.  Whether it be for our home, a vehicle, a credit card or even just to a friend.  A common legal tool called a garnishment is one way of using the civil court system to help recover money owed to you when someone is not paying their debts. Garnishment is explained in a recent case out of East Baton Rouge Parish, Louisiana.  

In this case, the original lawsuit was between Foundation Materials, Inc. (“FMI”) and Harmon Construction, L.L.C. (“Harmon”).  FMI obtained a money judgment against Harmon in the amount of $102,475.42.  At the time of this case, Harmon was working on an unrelated project with D.F. Chase, Inc. (“Chase”) as a subcontractor.  Chase allegedly owed $98.510.00 to Harmon for its work.  In order to collect upon the judgment against Harmon, FMI filed a garnishment naming Chase as garnishee and issued interrogatories, sets of questions, to Chase to determine the amount of money that Chase owed to Harmon.  Chase contended it only arguably owed $98,510.00 to Harmon and refused to turn over the money to FMI.

A garnishment is a legal process for obtaining property of a judgment debtor in the hands of a third party. Covington Pontiac-Buick-GMC Trucks, Inc. v. AAA Sewer & Water Fabrication & Serv., LLC, 873 So.2d 56 (La. Ct. App. 2004).  The test of a garnishee’s liability to the judgment creditor is whether the garnishee has in his hands the debtor’s property, funds, or credits for the recovery of which the debtor has a present subsisting cause of action. Houma Mortg. & Loan, Inc. v. Marshall, 664 So.2d 1199 (La. Ct. App. 1995). A garnishment judgment is entered and the garnishee required to pay the creditor if the garnishee admits to having property belonging to the debtor pursuant to La. C.C.P. art. 2415.

offroad-1499557-1024x768A person may seek help from the federal court system when that person feels that they have been cheated or wronged.  However, one needs to make sure that the federal court can actually help the situation. Personal jurisdiction is the ability of a court to exercise power over a person or a specific case.  Subject matter jurisdiction is the court’s authority to hear cases that revolve around the certain subject matter. Generally, lawsuits end up in the federal courts in one of two ways. The first occurs when the parties are from different states and the amount of the claim is over $75,000, regardless of the type of claim. The second occurs when the nature of the claim is specific to a federal statute or law. This is usually an attempt to get a federal court to enforce a right granted by federal law. A claim that would get in court under one of these two theories must be stated in the plaintiff’s complaint. 28 U.S.C. § 1332.

The United States Fifth Circuit Court of Appeal recently demonstrated the need to properly establish a federal claim.  In 2012, Landry Dixon sued Lakeside Toyota and the Toyota Motor Credit Corporation (TMCC).  Mr. Dixon believed that the Sales Manager of the dealership had lied to him by allowing him to assume that since he was leasing an automobile on behalf of the nonprofit organization of which he was the CEO, the lease would be tax-exempt, leading to a lower monthly payment. Mr. Dixon paid the lower amount stated on the lease agreement, which ultimately turned out to be almost thirty dollars below what he should have been paying as a nontax-exempt customer.  His lower payments added up, causing the Toyota Motor Credit Corporation to make collections and damage his credit rating.  Mr. Dixon brought this lawsuit in federal district court on a claim of common law fraud, which is a state law claim.

Since he did not claim anything about what states the parties were from nor did he bring a claim under federal law, the District Court dismissed it for lack of subject matter jurisdiction.  Mr. Dixon attempted to file various motions to fight this dismissal.  He also made a separate lawsuit against the TMCC only, stating a claim under the Consumer Leasing Act (CLA), which is a federal law that governs certain leases. 15 U.S.C. §§ 1667–1667f.  However, even this was not enough to establish a claim in federal court and the District Court dismissed the case once again.

supply-vessel-1449728-698x1024Contract disputes can often be complicated when multiple parties and corporations are involved. Courts are forced to sort out multiple claims and counterclaims and figure out who is accountable for what. Even after a decision is made, there can be multiple appeals and judgments that a higher court is asked to review. In complicated cases, it’s common for mistakes to happen, as a case that landed in the Fifth Circuit will demonstrate, and the appeal process is available for parties to have their case double checked.

In this case, a contract dispute arose between Comar Marine, LLC (Comar) and four LLCs that owned vessels (Owners) that Comar managed on their behalf after the Owners decided to stop this management arrangement before the specified end date in the contracts. In response, Comar sued the Owners for breach of contract and secured the vessels under arrest, which means they took possession of the vessels, on the grounds that Comar was allowed termination fees under the agreement which provided them with a lien on the vessels. The Owners countersued, alleging that Comar wrongfully arrested the vessels.

JPMorgan Chase Bank (JPMorgan) and Allegiance Bank Texas (Allegiance) held the mortgages for the vessels and entered this dispute to defend their ownership interests. The District Court granted summary judgment in favor of the banks. According to the Federal Rules of Civil Procedure 56(a) the court should grant summary judgment if the person asking for the judgment shows that there is no genuine question over the material facts and they are entitled to a judgment under the law. The District Court held that the four LLCs materially breached the agreements by terminating early, that the termination fee in the agreement was unenforceable, that Comar did not have a valid lien on the vessels, and that Comar wrongfully arrested the vessels. Both Comar and the Owners appealed the judgment from the court and Comar appealed the grant of the summary judgment.

hotel-hilton-santo-domingo-1222125-1024x768Securing 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.

the-old-red-barn-1233750-1024x736In 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.