Co-Owner Of Driving Range Loses Appeal Of Claim That He Was Snookered By His Co-Investors And Their Attorney

By: Rob Harris

A sharply divided Louisiana appellate court recently issued a golf-related decision that illustrates the different responsibilities that apply to trial and appellate judges.

In 2004 three individuals–Charles Gambino and husband/wife Thomas Ketchum, Jr. and Betty Keating–formed a corporation named Covington Golf and Recreation Park, Inc. for purposes of operating a driving range. In furtherance of the business, the corporation entered into a lease for the property on which the driving range would be located. The owners of the property were husband/wife Mr. Ketchum and Ms. Keating.

In their capacity as owners of the property, Mr. Ketchum and Ms. Keating were represented by Attorney Geoffrey Longenecker. Several years after the commencement of the lease, alleging that Covington Golf had breached its terms, Attorney Longenecker prepared a notice of default, followed by a lawsuit alleging breach of the lease, which he caused to be served on Covington Golf’s registered agent–who happened to be Mr. Ketchum.

Mr. Ketchum took no action to defend the lawsuit (and why would he, since he was one of the parties that initiated it), resulting in a default judgement entering against Covington Golf. In other words, the two shareholders of Covington Golf who owned the property (Mr. Ketchum and Ms. Keating) prevailed.

Mr. Gambino–who allegedly “through the acts of the defendants, was completely ‘left in the dark’ concerning the financial situation at Covington Golf”–was on the losing end.

Mr. Gambino, believing he had been snookered by the actions of his co-owners and their attorney, Mr. Longnecker, caused Covington Golf to take legal action “alleging that Mr. Ketchum, Ms. Keating and Mr. Longenecker had engaged in a conspiracy to commit fraud in filing suit against Covington Golf and obtaining a default judgment cancelling the commercial lease.”

Mr. Ketchum and Ms. Keating filed bankruptcy, leaving Attorney Longenecker as the sole solvent defendant. At trial, Mr. Gambino testified that “at no point did Mr. Longenecker advise him that he represented Mr. Ketchum in a dispute over rent, that he had filed a lawsuit against Covington Golf, that he secured a judgment against Covington Golf, and that the appellate delays were about to run in a matter of days.” Only after obtaining a judgment, did Mr. Longenecker make Mr. Gambino aware of what had transpired, by serving upon him a notice to vacate the premises.

Notwithstanding the mysterious-appearing circumstances, the trial court “concluded that plaintiff failed to meet its burden of proof to show that Mr. Longenecker ‘had information that Mr. Ketchum and/or Ms. Keating intended to accomplish all notices in this litigation in such a fashion that Mr. Gambino never had actual notice of the lawsuit and the ultimate eviction.'” Accordingly, Attorney Longenecker was vindicated.

Mr. Gambino caused Covington Golf to appeal the decision, arguing that “there is no question that Mr. Ketchum owed a fiduciary duty to the corporation and its shareholders, including a duty to deliver the notice of default and service of process to Covington Golf. Covington Golf asserts that Mr. Ketchum intentionally failed to do so, obtaining a judgment against Covington Golf through fraud.”

As to Attorney Longenecker, the appeal asserted that “Mr. Longenecker was also liable for his own tortious conduct for his participation in this scheme.” The appellate court summarized Covington Golf’s argument as follows:

“Covington Golf avers that its evidence established that Mr. Longenecker facilitated Mr. Ketchum’s breach of fiduciary duty and fraud. Covington Golf asserts that Mr. Longenecker knew that Mr. Ketchum owed a fudiciary duty to the company and that Mr. Ketchum was obligated to provide the company with the notice of default and service of process. Covington Golf contends that all the circumstances indicate that Mr. Longenecker was the architect of the fraudulent scheme to obtain a judgment without Mr. Gambino’s knowledge. In this regard, Covington Golf alleges that Mr. Longenecker personally appeared at Covington Golf’s office and confronted Mr. Gambino, seeking to have Covington Golf voluntarily vacate the premises without informing Mr. Gambino of any of the filings made in furtherance of the default judgment.”

Recognizing its limited role in reviewing factual findings made by the trial judge, a 3-2 majority of the appellate court affirmed the decision. As the court explained, “[w]hile the circumstances might arouse suspicion as to Mr. Longenecker’s participation in a conspiracy, we are unable to conclude that the trial court lacked a reasonable basis for its decision.”

The two judges who dissented, did so forcefully, stating as follows:

The trial court manifestly erred in finding that Covington Golf failed to meet its burden of proof because the record before us is replete with evidence demonstrating Mr. Longenecker’s active and knowing involvement in a fraudulent conspiracy, which was aimed at ensuring that Covington Golf’s lease was cancelled and hence, Covington Golf was prevented from exercising the option in its favor to purchase the property subject to the lease…

There is no dispute that Mr. Longenecker was aware that his client, Mr. Ketchum, was the agent for service of process and the corporate secretary for Covington Golf, the defendant in the lease action. Thus, Mr. Longenecker had knowledge that the petition he filed on behalf of Mr. Ketchum to terminate Covington Golf’s lease would in fact be served upon Mr. Ketchum. In addition, the confirmation of default judgment presents an additional absurdity which could not have escaped Mr. Longenecker’s attention. There, Mr. Longenecker and Mr. Ketchum appeared in court to confirm a default judgment in favor of Mr. Ketchum individually, wherein Mr. Ketchem was the agent for the defendant against whom the default judgment was being taken for failure to file a timely response. Mr. Longenecker would have been aware that the failure of Mr. Ketchum, in his role as the secretary of and agent for service of process for Covington Golf, to act or ensure that the necessary exceptions and/or answer were filed on behalf of Covington Golf, would result in a default judgment. Mr. Longenecker, thus, had a conflict of interest and placed himself in an unusual and inappropriate ethical circumstance. As such, Covington Golf met its burden of proving Mr. Longenecker’s participation in a conspiracy to commit fraud and the trial court manifestly erred in concluding otherwise.

 

 

 

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