Fraud Claim Adds $350K to Plaintiff's Recovery in Major Commercial Breach-of-Contract Case

Posted by Steve Silver on Jul 1, 2015 6:51:46 PM


A plaintiff normally cannot recover damages for fraud in a breach of contract action, but, in a recent major commercial case, a successful plaintiff was able to add over $350,000 to its eventual recovery by successfully adding and proving a fraud count to its original complaint, based on information the defendant revealed for the first time during discovery. Nebo Ventures, LLC v. NovaPro Risk Solutions, LP (Fulton County Sup. Ct., (2012CV202767).

The litigation in this case arose out of a contract the City of Atlanta awarded to NovaPro’s predecessor, Ward North America, to administer the City’s workers compensation and other benefit claims. Nebo’s owner, Kevin Miles, aided Ward in preparing its successful bid to the City, and, under the terms of its own contract with Ward, Nebo was then entitled to receive 5% of the adjusted gross revenue Ward received from the City.

Click Here FREE Georgia Trial Video Samples Nebo’s fraud claim was based on a $1+ million performance bonus Ward received from the City in 2005 and 2006. Under the terms of its contract, Nebo should have entitled to receive 5% of those payments, but Ward officials never disclosed the payments to Miles. In 2011, Nebo filed a breach of contract action in Fulton County Superior Court against NovaPro for its alleged failure to pay other monies owed. During the course of discovery, NovaPro revealed to Nebo for the first time its receipt of the performance bonus. Nebo then amended its complaint to add a fraud count based on the concealment of the performance bonus.

The trial court granted summary judgment to NovaPro on the fraud claim, because Nebo had a right under the contract to conduct an audit of NovaPro’s records and failed to do so. Assuming that NovaPro had misrepresented to Nebo that no bonus had been paid, the trial court held as a matter of law that Nebo’s reliance on the misrepresentation was not justifiable.

Nebo appealed the ruling, and the Court of Appeals reversed in Nebo Ventures, LLC v. NovaPro Risk Solutions, L.P., 324 Ga App. 836 (2013). The Court of Appeals held that the standard for justifiable reliance in a fraud case is whether a party exercises due diligence. However, the Court also said that the question of whether a party exercises due diligence is normally one for the jury’s determination.

The Court of Appeals noted that the case did not involve a real estate or similar transaction that required a higher level of diligence. The Court then reviewed Kevin Miles’s deposition in which he stated that he wanted to avoid being placed “in a combative relationship when you start basically not believing your client,” and that “once you start auditing, it's a big to-do. The Court continued that due diligence did require Miles to “exhaust all means at his command to ascertain the truth.”

The Court of Appeals concluded, “We cannot say as a matter of law that reasonable diligence required that, in response to [NovaPro’s] representation as to the nonpayment of the performance bonuses, Nebo protect its interests by auditing NovaPro.” The Court went on to give Nebo some guidance for establishing due diligence at trial. “A jury might also conclude that NovaPro was actively attempting to conceal the payment of bonuses and that further inquiry by Nebo would not have provided information about their payment.”

During the trial, Nebo’s attorney Matt Martin adopted a somewhat unusual strategy by calling as a witness a former attorney with his law firm, Bruce Brown, who had conducted the discovery on the case. Brown testified as to the various interrogatories and document requests made by Nebo in the case and to NovaPro’s sworn responses that indicated that no bonus payments had been made by the City of Atlanta. Brown also testified that he received no information about bonuses in any depositions conducted before May 2012. Brown added that he had scheduled a deposition with NovaPro’s former controller, Antoinette Turbyfill, in early May, to discuss NovaPro’s financial records. Brown also stated that NovaPro’s attorney first told him about the performance bonus two days before Turbyfill’s deposition.

Antoinette Turbyfill testified for the defense by a subsequent video deposition (conducted in November 2012). She explained her reasons for not including any mention of the performance bonus in the documents provided to Nebo during discovery. She said that the initial request received was for “moneys received from the City and … I didn’t think that the performance bonus should be included, I didn’t think that it qualified. Kind of like when you get a salary … you get $50,000 a year, you don’t count the $5,000 bonus that you got.” She denied trying to conceal or lie about the bonus and added that when she learned that when the bonus should be included, she made the information available.

On cross examination, however, Turbyfill said that, prior to the lawsuit being filed, she saw an e-mail from NovaPro’s CFO Ken Perilli, in which he made an estimate of the amount of money owed Nebo under its contract and that the estimate did not include the performance bonus. Further, she admitted that she deleted the $1 million performance bonus line item from the discovery spreadsheets initially provided Nebo. She also said that Ken Perilli knew about the performance bonus.

In his closing statement, Matt Martin pointed out the various times that NovaPro’s officers, including Perilli, denied to Miles ever having received a bonus, including during the discovery process. He noted that it was only two days before Turbyfill’s first deposition that NovaPro reported receiving the bonuses. “Interestingly, [Bruce Brown] talked about the whole history of this litigation, he talked about the interrogatories that he served … and [the defense] didn’t ask him a single question. … [The interrogatories] are sworn testimony and look at those schedules … and there’s a line for performance bonus and guess what. Not a penny is reflected at any point from 2004 to 2011. You know why? Ms. Turbyfill told you. It was on there and she took it out.”

In his closing statement, NovaPro’s attorney James Standard never addressed the issue of NovaPro’s failure to reveal the performance bonus to Nebo. Instead, he noted that had Nebo requested an audit at any time, the audit would have revealed the omission of the performance bonus. “The unfortunate thing is how at any point in time, if Mr. Miles requested an audit before filing suit, none of us would be here. None of this would have happened… The parties could have figured it out and none of us would have been here. He had a contractual right to an audit, Ken Perilli invited him to do his audit… Mr. Miles didn’t do it… The parties avail themselves of their contractual rights under the contract, things get done and you don’t have these silly kind of lawsuits here.”

The jury found for Nebo on both its breach of contract and fraud claims. It awarded Nebo $492,104 on its breach of contract claim and an additional $102,224 in actual damages and $235,000 in general damages on its fraud claim.

CVN’s earlier reports on this case can be found here and here. Steve Silver can be reached at ssilver@cvn.com.

Topics: Fraud, Commercial Law, Georgia, Nebo Ventures v. NovaPro Risk Solutions

Defense Expert's 43 Years of Experience Used By Plaintiff to Suggest Standard of Care in Legal Malpractice Case: GA Trial Highlight

Posted by Steve Silver on Jun 30, 2015 6:16:34 PM


A failed guarantee on a failed Costa Rican real estate venture was the key document for a Fulton County State Court jury’s consideration in a recent legal malpractice case; Eli Peretz and Dr. Nick Gabbay v. S. Alan Cohn et al. (12EV015232). In 2008, plaintiffs Peretz and Dr. Gabbay loaned $1.5 million to a company that planned to use the money to develop a resort in Costa Rica. However, following the economic downturn later that year, the development failed and the loan was never repaid.

The principals in the Costa Rican development were four California businessmen (referred to during the trial as the “California Group”) with whom Peretz, a long time Atlanta contractor, had previously partnered in a couple of successful real estate ventures. Peretz retained the services of his long time real estate attorney Cohn to review and advise him on the various legal documents involved in the transaction. Peretz and Dr. Gabbay testified at the trial that they informed Cohn they would require a guarantee before making the loan.

Click Here FREE Georgia Trial Video Samples Cohn and the California Group worked out the details of a guarantee issued by an LLC the group set up. The guarantee included a statement that the LLC had a net worth of $2.1 million. In reality, although the LLC’s assets consisted of several residential properties, those properties were subject to substantial liens. Further, according to testimony at the trial, one of the members of the California Group told Cohn about the liens prior to the transaction being finalized. Nevertheless, Cohn never reported this conversation to Peretz or Dr. Gabbay or made any attempt to verify the actual worth of the LLC. Instead, he advised the two investors that the documents were in order.

As often occurs in malpractice cases, both sides called expert witnesses to testify at the trial. Plaintiff’s expert, Atlanta real estate attorney Kurt Hilbert stated that if Cohn knew there were liens on the property and failed to inform his clients, then his actions would fall below the required standard of care. Further, in his experience, he had never seen a guarantee containing a net worth statement similar to the one in this case.

The defense called William Dodson, an Atlanta real estate attorney with over 40 years of experience. On direct examination, he testified that the language regarding the net worth of the LLC had no bearing on the validity or practical value of the guarantee and that it was up to the investors, not Cohn, to investigate the LLC’s actual net worth prior to making the investment.

Plaintiff’s attorney Stephen Katz’s strategy during his cross examination of Dodson was to focus on the contrast between what Dodson had done and witnessed in his own extensive real estate practice and the facts in the present case. Katz began by asking Dodson, “My understanding from this case is that you’re not a big fan of lawyers putting [statements regarding net worth] into guarantees, correct?” Dodson’s answer set the stage for the remainder of the cross examination, “I’ve looked at many, many, many, many guarantees, and I cannot recall any that had anything in them concerning estimated net worth.”

Katz then posed a series of hypothetical scenarios to Dodson and had Dodson explain how an attorney’s actions in such cases would not violate the standard of care. After Dodson’s replies, Katz brought the questioning back to Dodson’s own experience. He asked, “But a lawyer would avoid that problem if he followed your advice and [the net worth language] would never be in there to begin with because you’ve never seen one in all the years you’ve been practicing, right.”

Katz finished the line of questioning by getting Katz to confirm that the standard of care is what a reasonable lawyer in the State of Georgia would do under the same or similar circumstances. Katz then asked, “And you’ve never seen a lawyer in the … 43 years you’ve been practicing real estate law, you’ve never seen a lawyer do this in a guarantee, right?”

Katz made sure the jury remembered this exchange during his closing statement, when he reminded the jury that the defense attorney in her closing statement, “didn’t say one single word about Mr. Dodson. They paid him … to give you an expert opinion ... and for an hour she spoke and she didn’t mention one thing. … She did not talk to you about Mr. Dodson who said you don’t put the figure in. … Because lawyers shouldn’t be on the phone talking to the opposition about what the net worth of a company is. That’s why he’s never done it in 43 years and he’s never seen it in 43 years.”

Katz’s cross examination and final statement apparently had the desired effect. The jury returned a verdict for plaintiffs of slightly more than $1.5 million dollars.

CVN’s earlier articles about the case can be found here. Steve Silver can be contacted at ssilver@cvn.com.

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Topics: Georgia, Peretz v. Cohn

Investors Claw Back $3M From Escrow Co. At Trial Over Massive Ponzi Scheme

Posted by David Siegel on Jun 30, 2015 4:30:00 PM

Liddell

Former martial arts champion and "Dancing with the Stars" contestant Chuck Liddell testifies that he lost $2 million after an escrow company invested the money in a risky Ponzi scheme. Click here to see video from the trial. 

San Luis Obispo — A group of investors, including former martial arts fighting champion Chuck Liddell, was awarded nearly $3 million last week by a California jury that said an escrow company acted fraudulently when it sunk funds into a real estate Ponzi scheme run by a convicted felon.

The San Luis Obispo County jury reached their verdict on June 25 following a five-week trial, finding that Cuesta Title Company helped developer Kelly Gearhart, who is awaiting sentencing on federal wire fraud and money laundering charges, swindle investors.

Liddell was awarded $1,982,727, and the owners of a limited liability company that introduced Liddell to Gearhart were awarded $939,000. The jury rejected claims brought by another group of investors, according to a Courtroom View Network video recording of the proceedings. (Click here to see video from the trial.) 

The verdicts marked the first plaintiffs’ victories against Cuesta over its association with Gearhart, who was accused by prosecutors of raising funds for projects like golf courses and commercial buildings that were never actually built. Represented by Chicago-based litigation powerhouse Sidley Austin LLP, Cuesta beat back investors’ claims at two previous trials, including an initial bellwether trial in 2013.

Gearhart declared bankruptcy after the scheme collapsed, forcing nearly 1,200 investors to go after Stewart Title Company of California, which purchased Cuesta Title, to recoup their $100 million in losses. The majority of the investors settled with the company after it prevailed at the first two trials, and Liddell and other plaintiffs in the current case were among the last holdouts.

Liddell is the most high-profile investor to sue the company. He is largely credited with helping bring mixed martial arts fighting to a mainstream audience, and he has appeared on the popular television show “Dancing with the Stars.” In addition to his celebrity status, Liddell’s case differed from previous plaintiffs because he argued that he dealt directly with Cuesta instead of working through a loan broker.

According to Liddell’s attorneys, Cuesta forged his signature on key escrow documents. The trial featured testimony from former U.S. Secret Service employee Larry Stewart, a handwriting expert retained by the defense who testified the signatures on the documents matched Liddell’s writing style.

Liddell’s attorneys repeatedly tried to question Stewart about his role as a government witness in the high-profile insider trading prosecution of style icon Martha Stewart, in which he was charged with perjury over his testimony regarding an ink analysis he claimed to perform, but was allegedly carried out by a co-worker. Stewart was acquitted of perjury, and Cuesta’s attorneys repeatedly objected to the charges being raised by Liddell’s legal team.

Cuesta’s attorneys argued throughout the trial that the company had no knowledge of Gearhart’s activities, and that escrow companies are legally prohibited from giving financial advice to clients or warning them of making bad investments. Gearhart had delivered successful returns for investors in the past, they claimed, and Cuesta merely followed the instructions of Liddell and other investors.

However Liddell’s attorneys told jurors that Cuesta failed to disclose key conflicts of interest to Liddell, like the fact a company agent had flown on Gearhart’s private jet and was involved in a relationship with his brother.

Gearhart is scheduled to be sentenced in federal court on July 2. Prosecutors are asking the court to impose a prison term of up to 135 months, according to court records.

The civil trial took place before Judge Martin Tangeman and was recorded gavel-to-gavel by Courtroom View Network, which also recorded the first bellwether trial against Cuesta in 2013.

An attorney for Liddell declined to comment on the verdict, and attorneys for the other parties did not respond to CVN’s requests for comment.

Liddell is represented by Warren Paboojian of Baradat & Paboojian Inc., and other investors are represented by attorney Maria Hutkin.

Cuesta Title is represented by Gerard Kelly and Nicole Ryan of Sidley Austin LLP.

The case is Liddell, et al. v. Cuesta Title, case number CV09-0676, in San Luis Obispo County Superior Court.

E-mail David Siegel at dsiegel@cvn.com

Topics: Real Estate, California

Openings of Oral Cancer Trial Against RJR Top the Tobacco Litigation Review for the Week of June 22

Posted by Arlin Crisco on Jun 26, 2015 2:43:00 PM

 Gerson-Larkin

Philip Gerson delivers opening statements in Paul Larkin's suit against R.J. Reynolds for Carole Larkin's oral cancer.


 

Larkin v. R.J. Reynolds Tobacco Co. 

Whether a decades-long smoker who contracted oral cancer knew the dangers of cigarettes in time to prevent her illness took center stage as trial opened Thursday in her husband’s suit against R.J. Reynolds.

Watch Video from Tobacco Trials Carole Larkin, a smoker for more than 30 years, died in 2000, two years after being diagnosed with cancer of her mouth and tongue. Larkin, who quit smoking in 1988 after doctors diagnosed her with a benign tumor on her tongue, allegedly suffered from oral dysplasia, or a proliferation of abnormal cells caused by her smoking. Her husband, Paul, is suing Reynolds, claiming a tobacco industry-wide conspiracy to hide smoking's dangers caused his wife's cancer.

During opening statements Thursday, Larkin’s lawyers told jurors that Larkin's wife was manipulated by tobacco industry messaging obscuring the dangers of smoking and was not aware of the health risks until it was too late to avoid her cancer. “Reynolds will claim that (Carole Larkin) knew all of the truth about the health risks of cigarette smoking and the addictive nature of it,” Larkin’s attorney, Gerson & Schwartz’s Philip Gerson said. “There will be no evidence of that that they can point to. In fact, the proof will be that Carole Larkin never heard of cancer of the floor of her mouth, cancer on her tongue, until her doctor told her she had it.”

However, the defense argued that Carole Larkin was never influenced by tobacco industry marketing and was on notice of smoking’s hazards based on U.S. Surgeon General advisories and years of warnings on the packs of the cigarettes she smoked. “You won’t hear from Mr. Larkin… or anyone else that knew Carole Larkin that she ever said that she was somehow confused or misled about the risks of smoking,” Jones Day’s Jose Isasi said. “There will be no evidence, in response to these (warnings on cigarettes), that Mrs. Larkin ever expressed surprise that cigarettes were harmful to her health, or questioned if messages from organizations like the American Cancer Society or the Surgeon General were correct.”

Next week: Plaintiff's attorneys are expected to move into the heart of their case in chief.


 

McCoy v. R.J. Reynolds

As trial began Tuesday in a widower’s Engle progeny suit against tobacco giants R.J. Reynolds and Philip Morris, attorneys debated the role nicotine addiction played in a host of diseases a Florida mother of eight suffered before her death.

Glodine McCoy, who began smoking at 13, died at 70 in 1997 after smoking for 50 years. Her husband, John, claims the tobacco giants’ concealment of cigarettes’ health hazards caused his wife’s nicotine addiction and a variety of diseases, including lung cancer, artery disease, and chronic obstructive pulmonary disease.  

During opening statements, John McCoy’s attorney, Scott Schlesinger, told jurors that Glodine McCoy’s nicotine addiction was so powerful that she continued smoking even when her family, which included eight of the couple's children, went without food. “One of (McCoy’s) sons explained, ‘There were some times we didn’t have any food. We couldn’t afford food, but (McCoy) bought her cigarettes,’” Schlesinger told jurors, before claiming that cigarette manufacturers knew their product could cause such a reaction. “There’s an internal (tobacco industry) document that says the addiction is so powerful that in times of scarcity, cigarettes will supplant food (as a) necessity (for) people,” Schlesinger said. “So there’s actually a document recognizing, and describing, and predicting, exactly the intensity of Glo’s addiction.”

However, Jeffrey Furr, representing Reynolds, argued that Glodine McCoy smoked by choice, not because of addiction, and that she quit smoking “cold turkey” with no medical assistance after suffering a heart attack. “She had the ability to quit any time she really wanted to,” Furr said.

Furr also contended the diseases that affected Glodine McCoy’s health were time barred. Noting McCoy’s diseases must be proven to have “manifested” between May 5, 1990 and November 21, 1996 to be considered compensable under Florida’s statute of limitations, Furr argued medical records and family testimony would establish McCoy’s artery disease, COPD, and cancer developed either before or after that time period. 

Next Week: Plaintiffs' attorneys are expected to complete the bulk of their case in chief. 


Arlin Crisco can be reached at acrisco@cvn.com .

Our weekly review is curated from our unequaled gavel-to-gavel coverage of Florida's Engle progeny cases.

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Topics: tobacco, Engle Progeny, Florida, Larkin v. R.J. Reynolds, McCoy v. R.J. Reynolds

Watch the 84 Seconds that Swung a $100M Brain Injury Trial | Florida Trial Video Vault

Posted by Courtroom View Network on Jun 26, 2015 11:45:21 AM

Edward Murawski testifies that he did not take his cell phone with him on a 2007 ATV ride in which his companion, Brittany Falkner, was injured. Judge Elizabeth Krier granted a motion to strike defense pleadings when cell phone records showed calls had been made and received on Murawski’s phone around the time of the accident. 


 

Less than 100 seconds of testimony changed the course of a $100 million case last month. 

Click Here FREE Florida Trial Video Samples The Falkner v. Murawski trial began as a dispute over culpability with $100 million at stake, and ended with jurors determining damages alone, and awarding less than $300,000 to Brittany Falkner, the woman who claims she suffered brain damage because of her ATV riding partner’s negligence following a late night crash in the woods.  

The turning point of the two-week trial came in a little more than a minute of testimony from the defendant, Edward Murawski. He claimed he and his companions took an unresponsive Falkner more than 10 miles from the crash site to a hospital themselves rather than calling 911 because he did not have his cell phone with him. 

Under persistent questioning from Falkner’s attorney, the Martinez-Odom Law Group’s Gene Odom, Murawksi first claimed to be "about 100 percent certain" that he didn't have his cell phone on the night of the accident, before stating unequivocally that he had left it at home. 

"All I'm asking is where, to your best recollection, and if you're equivocal, let me know. If you don't know or you're not 100 percent sure, where was your cell phone at that time (of the accident)?" Odom asked. 

"My cell phone was in my house," Murawski answered. 

Shortly after Murawski testified, according to motions for sanctions filed with the court, Falkner's legal team received cell phone records showing numerous calls were made from Murawski's cell phone around the time of the accident, including a call to Falkner's mother. 

Based on the phone records, Judge Elizabeth Krier struck the defense pleadings, instructing the jury that Murawski was to be considered negligent and that jurors were only to consider the amount of damages to be awarded. However, jurors did not hear evidence regarding the phone records and ultimately awarded $299,778, a fraction of the more than $100 million Falkner sought for what she claimed was lifelong brain damage. 

The verdict prompted Falkner's legal team to file a motion for a new trial. Regardless of the court’s ruling on the motion, 84 seconds of Murawski's testimony played a critical role in the nine-figure case. 


Related information 

Read more about the trial's conclusion here. 

Watch the full trial here.

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Topics: Negligence, Florida, Falkner v. Murawski

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