An ad hoc judge at Fourth Judicial District Court in Monroe ruled last week that local businessman Stanley Palowsky III could not deprive his former business partner of legal representation by suing the partner’s attorneys in the same lawsuit.
In a legal dispute over an alleged kickback scheme involving an environmental remediation company —Alternative Environmental Solutions Inc. (AESI) — Palowsky is suing Brandon Cork, who claims to own 50 percent of AESI, like Palowsky. Cork’s attorneys are Tom Hayes III and Brandon Creekbaum, with the Monroe law firm Hayes, Harkey, Smith & Cascio.
In August 2014, Palowsky filed a third amended supplemental petition to name Hayes, Creekbaum and their law firm as co-defendants along with Cork in Stanley R. Palowsky III v. W. Brandon Cork and others, but no action was taken on that petition until an Aug. 5 hearing before retired Judge Dee Ann Hawthorne, of the 10th Judicial District Court in Natchitoches Parish. Hawthorne was appointed as an ad hoc judge in Palowsky v. Cork in a December 2015 order signed by state Supreme Court Justice Marcus Clark.
Agreeing with arguments made by Hayes, Hawthorne said she would not allow Palowsky to add Cork’s attorneys as co-defendants in the Palowsky v. Cork lawsuit. It was unnecessary, she said, especially since Palowsky had individually sued Hayes, Creekbaum and their law firm in a separate lawsuit stemming from the same allegations undergirding the amended petition before the court last week.
Palowsky accused Hayes, Creekbaum and their law firm of advising Cork to intentionally breach his fiduciary duty to Palowsky by secretly and successfully operating a competing company against AESI, in an attempt to harm Palowsky and financially ruin and dissolve AESI.
Those accusations were based on a partial statement made by Cork during deposition, before he was interrupted: “I was under direction of my attorneys and any—” During deposition, Cork admitted he was wrong for secretly operating a competing company, according to Palowsky’s attorney, Joe Ward of Covington.
Of Cork’s statement that his actions were directed by counsel, Ward said, “He said what he said.”
“They’ve had every opportunity to submit an affidavit,” said Ward, noting that Cork had not corrected his statement at any time since the deposition was taken. “Cork hasn’t disputed he was told to do this.”
The allegations in Palowsky’s lawsuit against Hayes, Creekbaum and their law firm include abuse of process, violations of Louisiana’s Racketeering Act and conspiracy to commit intentional tort.
“You have sued Hayes in another lawsuit,” said Hawthorne. “My ruling is based on what I said, but also on briefs filed by Mr. Hayes.”
Earlier in the hearing, Hayes cited a 1994 ruling by the state Supreme Court in Montalvo v. Sondes, arguing Palowsky was trying to impose a “chilling effect” on the adversarial process.
“They are trying to disadvantage him and drive a wedge between me and him,” said Hayes, who claimed it would be an abuse of Hawthorne’s discretion to allow another amendment to the petition, which would only increase the costs of the present litigation, force Cork to retain other counsel among other possible outcomes.
Ward argued amendments to petitions should be “liberally allowed,” under state law, if the amendments were made in good faith and not as a delay tactic. Adding Hayes, Creekbaum and their law firm as a co-defendant with Cork in the lawsuit could lead to the disclosure of information currently protected by attorney-client privilege, but the state ethics code stipulated an exception to that privilege if the attorneys conspired to commit a fraudulent action, Ward contended.
“(Hayes) wants to win this case before he’s been sued,” said Ward, claiming Hayes’ arguments were more appropriate to an exception of no cause of action or a motion for summary judgment.
The proposed amendment to the petition before the court was just another attempt by Palowsky and his attorneys to complicate the litigation, Hayes said.
“That’s all it’s ever been about,” Hayes said.
Last week’s hearing represented the first indication the Palowsky v. Cork case would move beyond the controversy surrounding Fourth Judicial District Court officials. After allegations surfaced in Palowsky v. Cork pleadings about one of the court’s law clerks had concealed or destroyed documents in the case, the litigation broke loose, resulting in the recusal of all Fourth Judicial District Court judges and the filing of other lawsuits, including one pursued in federal court by Fourth Judicial District Court Judge Sharon Marchman. Marchman sued some of her colleagues at the district court and others.
“It’s a mess,” Ward said.
Cork doesn’t own
any AESI shares
In a July 27 memorandum and in arguments made by counsel during last week’s hearing, Palowsky argued Cork does not own any shares in AESI and falsified an affidavit stating such.
Ward said Sedric Banks of Monroe, who represents Palowsky in separate litigation, had combed through AESI’s financial records and found that Cork never paid for his shares in the company.
“For years, Mr. Cork represented that he, Mr. Cork, purchased stock in AESI, exactly as Mr. Palowsky did. Mr. Palowsky believed such was true,” stated Palowsky’s July 27 memorandum. “However, Mr. Cork’s blatant breach of fiduciary duty and racketeering was uncovered in a kickback scheme which is still unfolding. Most recently, plaintiff discovered Cork’s representations of purchasing AESI stock were/are false.”
Palowsky claims his legal team can produce documents showing when, where and how Palowsky bought his AESI shares. Cork’s affidavit claiming 50-percent ownership of AESI was false, Palowsky contended, claiming he could produce documents to that effect.
“Here, the court must determine whether Mr. Cork does or does not own stock,” stated the memorandum. “Only after such determination has been made can the court properly consider and decide the pending motions.”
AESI will be
trial will be held
Toward the conclusion of last week’s hearing, Hawthorne told attorneys it was up to her discretion how the case should move forward, according to her understanding of a February 2015 ruling from the Second Circuit Court of Appeal in Shreveport on Palowsky v. Cork. The liquidation of AESI would be tackled soon, though, she said.
The Second Circuit ruling, written by Judge Milton Moore on behalf of a three-judge panel that included judges Larry Lolley and Frances Jones Pitman, ordered the district court to supervise AESI’s liquidation — selling the company’s assets and settling its debts, distributing any remainder to the company’s shareholders.
“I’m kind of directed by the Second Circuit to keep that moving,” said Hawthorne, referring to the higher court’s liquidation order.
At the time, Palowsky and his attorneys expressed criticism with Moore’s ruling, claiming its order for liquidation went beyond the facts of Hayes’ appeal, which concerned whether Palowsky’s other attorney, Banks, could serve as counsel for Palowsky and for AESI, a company which Palowsky and Cork each claimed to have 50-percent ownership. (The Second Circuit removed Banks as Palowsky’s counsel from Palowsky v. Cork.)
Before the Second Circuit’s ruling, the possibility of liquidating AESI had previously surfaced in a separate lawsuit filed by Cork, who sought the company’s liquidation. According to Palowsky’s July 27 memorandum, a liquidation of AESI would have profited Cork, had Banks not discovered Cork did not own any AESI shares.
During last week’s hearing, Ward hinted he may raise, in future pleadings, a challenge to Moore’s opinion.
“I’ve come to learn something about that opinion,” he said.
Hawthorne said all the motions and pleadings in Palowsky v. Cork that had lain untouched amid the controversy surrounding the district court would become the subject of hearings, beginning Aug. 19.
“We’re going to hear these chronologically,” Hawthorne said.
Though attorneys informed Hawthorne during a May 6, 2016 conference that they “agreed to think about” mediation, Hawthorne said the matter would go to trial.
“You haven’t been able to resolve virtually anything,” she said. “That’s enough. We’re going to trial on this. Finish your discovery. We’re not going to dally.”