Hansen v. River Cities Disposal Co.

245 So.3d 213

Colleen Katherine Lynch HANSEN, et al., Plaintiff–Appellees

v.RIVER CITIES DISPOSAL COMPANY, INC., Defendant–Appellant

No. 51,700–CA

Court of Appeal of Louisiana, Second Circuit.

Judgment rendered November 15, 2017

RICHIE, RICHIE & OBERLE, L.L.P., By: C. Vernon Richie, Margaret Richie Gaskins, Shreveport, KENNETH R. ANTEE, JR., Counsel for Appellant

WIENER, WEISS & MADISON, By: Frank H. Spruiell, Jr., Roger Joseph Naus, Shreveport, Counsel for Appellees

Before MOORE, GARRETT, and BLEICH (Pro Tempore ), JJ.

MOORE, J.

River Cities Disposal Co. Inc. ("RCDC") appeals a declaratory judgment recognizing that the estate of its former consultant, Jim Lynch, had an ownership interest of 14½% of the net revenue from RCDC's marketing agreement with Browning–Ferris Industries ("BFI"). For the reasons expressed, we affirm.

FACTUAL BACKGROUND

In the 1980s, the City of Shreveport built the new Woolworth Road landfill. Local produce distributor Tony Pernici, his grandsons Scott and Rick Pernici, and other investors (John Caruthers, Taylor Moore, David Watkins, Al Otto) formed a startup company, River Cities Waste Inc. ("RCW"), in 1986, to haul solid waste to Woolworth Road. The Pernicis owned a lot of trucks, but had no experience in the field of solid waste, so they turned to several consultants, including Jim Lynch, previously the city's director of public works. RCW developed a small business, principally hauling for the Pernicis' established customers.

The city eventually solicited proposals from solid waste companies to operate Woolworth Road. RCW contacted BFI, an industry leader, and struck a deal. Shareholders of RCW formed a new corporation, RCDC, in March 1987, to execute a landfill marketing agreement ("the marketing agreement") with BFI. Under the marketing agreement, RCDC was to receive 10% of BFI's gate revenues at Woolworth Road. RCDC thus became the principal solid waste hauler for Shreveport.

Everyone recognized that Lynch's experience and connections in the industry were instrumental in the formation of RCW and in securing the contract with BFI. Rather than paying him up-front for his services, the shareholders agreed to pay Lynch a percentage of RCDC's net revenue under the marketing agreement. They wrote him the following letter ("the letter agreement"), on RCW letterhead, on October 12, 1987:

This letter will serve as evidence of your ownership of 14½% of our net revenues from our Shreveport landfill marketing agreement with BFI, Inc.

The letter agreement was signed by Scott Pernici, president, and John D. Caruthers Jr., secretary/treasurer, and RCDC began paying Lynch the 14½% monthly.

Lynch was, at the time, seriously ill with emphysema, as RCDC's shareholders were fully aware. He died in March 1989, having received about $24,000 from the letter agreement. RCDC continued making the monthly payments, to his widow, Carolyn Lynch; until her death, in 2012, she had received about $2 million from RCDC. Evidence at trial showed that RCDC treated these payments, for tax purposes, as commissions, management fees, consulting fees, or royalties to nonowners, all deductible as necessary and ordinary business expenses. Carolyn treated them as taxable income.

In 2008, Carolyn's CPA, George McGovern, noticed that the RCDC payments were the largest asset in her estate. With her consent, he emailed RCDC's attorney, Michael Wainwright, asking for documentation of her 14½% ownership "in the landfill." Wainwright replied that Lynch never owned "any interest in" RCDC, the 14½% payment was a "fee" to Lynch, after his death the shareholders "decided to voluntary [sic ] continue" making those payments to Carolyn, and RCDC intended to continue making the payment "during her lifetime[.]" McGovern replied by email, "You have resolved an issue we were having regarding her estate. * * * I believe she is very content with the current arrangement." Carolyn died in June 2012, and RCDC immediately stopped sending the money, which was by then about $12,000 a month.

PROCEDURAL HISTORY

Ms. Hansen, Carolyn's daughter and executrix, and the other children filed this suit for declaratory judgment in May 2013, seeking recognition of their ownership of 14½% interest. RCDC countered that all payments made to Lynch, and later to Carolyn, were donations, and lacked lawful cause; it filed a motion for summary judgment to this effect, which the district court granted.

On appeal, this court found genuine issues of material fact as to the "cause of the contract as it bears on the classification of the payments[.]" While noting that the district court found the letter agreement ambiguous, this court was "not as certain about the equivocality of the letter" but, if it was truly ambiguous, the court "erred in making its determination that there were no genuine issues of material fact." We reversed and remanded. Hansen v. River Cities Disposal Co. , 49,968 (La. App. 2 Cir. 8/12/15), 174 So.3d 1203, writ denied , 2015-1657 (La. 10/30/15), 180 So.3d 301.

The parties proceeded to trial over two days in September 2016. The plaintiffs called George McGovern, Carolyn's CPA. He testified that the "royalty payment" from RCDC was listed as an asset of Lynch's estate, and that in 2008 he asked RCDC's attorney, Wainwright, to confirm Carolyn's 14½% interest "in the landfill." McGovern did not agree that RCDC's payments to Carolyn were "voluntary," but testified that she was satisfied to hear that she would continue to receive them. Robert Busby, RCDC's CPA, testified that the corporation had treated payments to Carolyn as necessary and ordinary business expenses, and deducted them accordingly.

The plaintiffs called Scott Pernici on cross-examination; he gave a long account of the genesis of RCW and RCDC, describing Lynch's advice in the early days as "valuable." He testified that RCDC did not pay a salary to most of its consultants (although it made lucrative business deals with some), and was aware that it later started paying Lynch. Scott claimed he was totally unaware of the letter agreement, did not recall signing it, and saw it for the first time only when this litigation started, but he admitted the signature on it was his own. Scott's brother Rick, also called on cross-examination, similarly claimed to be totally unaware that the letter agreement existed.

The plaintiffs also called John Caruthers Jr., on cross-examination, an 87–year-old retired attorney who had invested in RCW back in 1986. He had been "most impressed" with Lynch's political skills and considered him a "valuable asset" to the business. In 1987, the shareholders wanted to compensate Lynch, but RCDC did not yet have a return on capital, so all agreed to reduce their shares of the net from the marketing agreement to give Lynch a share similar to their own, 14½%. Caruthers admitted signing the letter agreement and said he considered it valid for as long as RCDC was getting money under the marketing agreement. He was adamant that Lynch did not receive any actual ownership of the corporation, and was surprised that he (Lynch) told his CPA otherwise. He felt that the shareholders wanted to take care of Carolyn, and not her kids 25 years later.

RCDC called its attorney, Michael Wainwright, who testified that he had drafted all assignments and transfers of interest in the corporation. He insisted, however, that he did not draft the letter agreement, and was unaware of it until it turned up in discovery. He admitted, nevertheless, that RCDC had paid Lynch, and then Carolyn, a "consulting fee." He felt that the payments to Carolyn were voluntary, and he was opposed to continuing them, but the older shareholders wanted to "live up to" their agreement. He also testified that because of the response from McGovern in 2008, he advised RCDC to take no legal action regarding the status of the payments to her. Finally, he considered the letter agreement just a letter, not an agreement.

RCDC (as well as the plaintiffs) offered the deposition of David Watkins, one of the original shareholders of RCW and a current shareholder of RCDC. He was just a passive investor, but he considered Lynch a "valuable consultant" who taught them the business. He said the shareholders agreed to keep on paying the 14½% after Lynch's death, but did not discuss how long they would continue doing so. When shown the letter agreement, he said, "I thought we made a mistake there, but there was never any question about living with it." RCDC also offered the deposition of Julie Otto, the widow of another original shareholder, Al Otto. She was adamant that Lynch had no actual ownership interest in RCW or RCDC, and thought that after Carolyn died, "the rest would be split up and everyone would agree."

On direct examination, Scott Pernici reiterated that Lynch had made no capital investment in RCW or RCDC, but that the companies agreed to pay him for consulting services. Scott expected payments to end when Lynch died, but his grandfather and other older shareholders told him to continue paying Carolyn; he viewed this as a "second agreement," and not as a "heritable right." He testified he was "shocked" by McGovern's query in 2008, and would have filed suit to clarify Carolyn's interest, but refrained from taking any action when she told McGovern she was "satisfied" with the current arrangement. Finally, he said that Carolyn was now receiving more compensation than any shareholder.¹

ACTION OF THE DISTRICT COURT

The district court wrote a six-page ruling, finding that the letter agreement constituted an act under private signature, La. C.C. art. 1838 ; that no testimonial or other evidence was admissible to disprove it, La. C.C. art. 1848 ; that it clearly conveyed to Lynch, with no limitations, 14½% ownership of the revenue stream from BFI to RCDC; and that parol evidence suggesting that it meant anything else was inadmissible. The court cited RCDC's tax returns to reject the argument that the corporation made years of voluntary payments to...