First Circuit Court of Appeal in Baton Rouge

The First Circuit Court of Appeal in Baton Rouge thumped Anadarko Petroleum Corp. last week by opening the door for Monroe businessman Stanley Palowsky III to pursue legal claims against the oil and gas company in an ongoing racketeering lawsuit.

The appeal court’s ruling on May 20 gave new life to Palowsky’s July 2013 lawsuit, which first sprouted his allegations of misconduct against Fourth Judicial District Court officials, including law clerk Allyson Campbell. In a separate lawsuit, Palowsky later sued Campbell and several district court judges in July 2015, claiming the law clerk and judges conspired to derail his racketeering lawsuit.

The racketeering lawsuit, Stanley R. Palowsky III and others v. W. Brandon Cork and others, centered on Palowsky’s claims that his former business partner, Brandon Cork, and others cheated him and his company, Alternative Environmental Solutions Inc. (AESI), out of millions of dollars. AESI provided environmental consulting services to oil and gas exploration companies.

In a January hearing before the First Circuit, Palowsky asked the appeal court to clear him to sue Anadarko on the basis of allegations that the oil and gas company encouraged certain employees to over-bill on environmental remediation projects so it could claim millions of dollars in false remediation costs.

Palowsky appealed to the First Circuit because an ad hoc judge dismissed his claims for damages against Anadarko in June 2018. At that time, retired Judge Dee Hawthorne, of Natchitoches Parish, forbade Palowsky from suing Anadarko after he asked to file an amended petition claiming Anadarko blackballed his environmental remediation company for exposing the company’s alleged scheme to artificially inflate its stock prices prior to a sale. (Occidental Petroleum acquired Anadarko in August 2019 in a transaction valued at some $38 billion.)

In its May 20 ruling, the First Circuit upheld some of Hawthorne’s rulings to limit the scope of Palowsky’s lawsuit but also ruled that Hawthorne abused her discretion by blocking Palowsky from suing Anadarko.

The First Circuit assessed all costs of the appeal to Anadarko.

The three-judge panel at the First Circuit that heard Palowsky’s appeal included Chief Judge Vanessa Whipple, John Michael Guidry and retired Judge William Burris, who served pro tempore.

Downgrading

remediation costs

Besides Anadarko, other defendants in Palowsky’s lawsuit are Anthony White and his company OHC Services LLC of Webster Parish; Michael L. Holder and his company TP Environmental and Pipeline Services of Oklahoma; and Anadarko employee Dana E. Howard of Texas.

According to Palowsky’s lawsuit, White and his company, OHC, as well as Holder and his company, TP, conspired with Cork to over-bill Anadarko for environmental remediation work, including work performed at a site in Wyoming, also known as the “Carpenter” project. According to Palowsky’s new claims against Anadarko, the oil and gas company allowed the excessive billing on some projects so it could downgrade the company’s environmental remediation costs on other projects. At one project site, the company’s environmental remediation costs were dropped from $1.4 million to $386,000, according to Palowsky.

As part of a settlement with Cork, Palowsky claimed he recovered data from Cork’s computer hard drive, including emails between Cork and Howard that revealed the remediation costs negotiations to over-bill on some projects or to under-report environmental liabilities on other projects.

Abuse of discretion

The parts of the First Circuit ruling that narrowed Palowsky’s ruling concerned the differences between the third and fourth amendments, or versions, of his petition.

For example, Palowsky’s fourth amended petition claimed Anadarko paid kickbacks to environmental consultants and contractors who reduced the cost estimates for remediation of certain project sites. Palowsky’s fourth amended petition centered on the claim that Anadarko deployed the allegedly fraudulent scheme through its employee, Howard.

But many of the details about Anadarko’s alleged scheme did not arise until the fourth amended petition, meaning Hawthorne was correct to find flaws in Palowsky’s third amended petition.

The First Circuit reversed Hawthorne, however, in her decision to block Palowsky from curing those flaws in his petition by amending it to include more facts supporting the connection between Howard and Anadarko.

“Plaintiffs stated that at the time they filed the third supplemental and amending petition, they did not know why Howard was doing what she did,” stated the First Circuit ruling. “However, plaintiffs subsequently discovered that Howard’ s actions were in Anadarko’ s interest and discovered how Howard’ s actions benefited Anadarko.”

The First Circuit ruled that Hawthorne also did not err by narrowing the scope of Palowsky’s lawsuit. Though he could try to tie Howard and Anadarko in his lawsuit, he could not begin a new round of discovery to support claims against Anadarko, the First Circuit ruled.

“The fourth supplemental and amending petition attempts to assert additional causes of action against Anadarko, necessitating additional discovery, which according to the record has already been burdensome and abusive, and according to the trial court, would result in a delay in the trial of the other issues in the case,” stated the First Circuit ruling.

The First Circuit pointed out Hawthorne abused her discretion by declining to let Palowsky amend his petition and allege the information missing from his third amended petition.

“Accordingly, because the trial court and Anadarko acknowledge that facts demonstrating how Howard’s actions were in Anadarko’ s interest or benefited Anadarko are essential to state a cause of action for vicarious liability against Anadarko, and plaintiffs assert that they have subsequently discovered said facts, we find that the trial court abused its discretion in failing to give plaintiffs an opportunity to amend their third supplemental and amending petition in an attempt to cure the ground of the exception of no cause of action,” stated the First Circuit ruling.

Covington attorney Joseph “Joe” Ward III and Monroe attorney Sedric Banks represented Palowsky in his appeal.

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