Mathes Brierre Architects v. Karlton/ISG Enters., LLC

• Decision Date: 03 December 2020
• Docket Number: NO. 2019-CA-0357,2019-CA-0357
• Parties: MATHES BRIERRE ARCHITECTS, a Professional Corporation v. KARLTON/ISG ENTERPRISES, LLC, International Sales Group, LLC, and J.S. Karlton Company, Inc.
• Court: Court of Appeal of Louisiana — District of US

311 So.3d 532

MATHES BRIERRE ARCHITECTS, a Professional Corporation

v.KARLTON/ISG ENTERPRISES, LLC, International Sales Group, LLC, and J.S. Karlton Company, Inc.

NO. 2019-CA-0357

Court of Appeal of Louisiana, Fourth Circuit.

December 3, 2020

Robert Julien Burvant, John A. Cangelosi, KING KREBS & JURGENS, P.L.L.C., 201 St. Charles Avenue, Suite 4500, New Orleans, LA 70170, COUNSEL FOR PLAINTIFF/APPELLEE

Christine Lynn DeSue, Richard Rudolph Schulze, ATTORNEY AT LAW, 3445 N. Causeway Blvd., Suite 505, Metairie, LA 70002, COUNSEL FOR DEFENDANTS/APPELLANTS

(Court composed of Judge Joy Cossich Lobrano, Judge Rosemary Ledet, Judge Regina Bartholomew-Woods, Judge Tiffany G. Chase, Judge Dale N. Atkins )

This is a suit for unpaid architectural services. The architect—Mathes Brierre Architects, a Professional Corporation ("Mathes")—sued its client—Karlton/ISG Enterprises, LLC ("Karlton/ISG")—asserting claims for unpaid invoices and breach of contract. Mathes also asserted an alter ego claim, seeking to pierce Karlton/LLC's company veil;² for this reason, Mathes also sued Karlton/LLC's two members—International Sales Group, LLC, a Florida limited liability company ("ISG Co."); and J.S. Karlton Company, Inc., a Delaware corporation ("Karlton Corp.") (collectively "Members").

Following a five-day bench trial, the trial court rendered a judgment, dated September 26, 2018, in Mathes’ favor against Karlton/ISG for the sum of $944,669.23, together with "interest through May 21, 2018, at the contractual rate of eight percent (8%) per annum on the above sum, which interest shall continue to accrue from May 22, 2018 until paid" and costs to be taxed "within thirty (30) days of entry of this Judgment." The trial court also ruled in Mathes’ favor on the alter ego claim, holding Members solidarily liable with Karlton/ISG for all amounts awarded to Mathes.

As instructed by the trial court in the September 26, 2019 judgment, Mathes timely filed a Motion to Tax Costs. Following a contradictory hearing, the trial court rendered a second judgment, dated January 11, 2019, in Mathes’ favor and against Karlton/ISG and Members, in solido , for $61,366.34, the amount of costs awarded. From both judgments, Karlton/ISG and Members (collectively "Appellants") appealed. For the reasons that follow, we affirm both judgments.

FACTUAL AND PROCEDURAL BACKGROUND

In late 2005, Karlton Corp. and ISG Co. embarked on a plan to erect a mixed commercial and residential development in New Orleans, Louisiana (the "Project"). In connection with the Project, in January 2006, Karlton and ISG formed Karlton/ISG. Karlton/ISG planned to develop the Project in multiple phases on tracts of land located in Algiers directly across the Mississippi River from the New Orleans Central Business District. The tracts of property were owned primarily by the Kern family or entities owned or controlled by the Kern family (the "Kerns").

The initial business transactions began in May 2006 when Karlton/ISG entered into an agreement with the Kerns (the "Option Agreement"). Under the Option Agreement, Karlton/ISG obtained options to purchase four tracts of property. Between March and June 2007, Karlton/ISG and the Kerns amended the Option Agreement four times. The fourth amendment stated that Karlton/ISG has exercised its option to acquire Tract I, which was to be the site of Phase 1 of the Project. Karlton/ISG also agreed in the fourth amendment to deliver a $600,000 deposit to Algiers Ventures, LLC, a Kern-related entity (the "Tract I Deposit"). The Tract I Deposit was to be evidenced by a promissory note, dated June 1, 2007, granted by Algiers Ventures to Karlton/ISG (the "Note"). Algiers Ventures did, in fact, deliver the Note to Karlton/ISG on June 1, 2007, the same date that the parties executed the fourth amendment. The Note was secured by a multiple indebtedness mortgage in the maximum sum of $1,000,000, also dated June 1, 2007 (the "Mortgage"), granted by Algiers Ventures and certain other Kern entities in Karlton/ISG's favor. The property encumbered by the Note and Mortgage was the site of Phase 1 of the Project.

During the early stages of the Project, Mathes was retained and began performing architectural services related to the Project, including successfully applying for and receiving the required zoning for the Project in 2006.³ In February 2007, Mathes and Karlton/ISG entered into an Abbreviated Standard Form of Agreement Between Owner and Architect, AIA Document B151 (the "AIA Agreement"). Pursuant to the AIA Agreement, Mathes agreed to provide architectural services for Phases 1 and 2 of the Project. These services included Schematic Design, Design Development, Construction Documents, Negotiation or Bidding, and Construction Administration. The AIA Agreement provided that Mathes was to be compensated $2,000,000 for Basic Services. The AIA Agreement acknowledged Mathes’ past performance of Master Planning Services for the Project in the sum of $329,087.50. The AIA Agreement further provided that the payment of the Master Planning Services "shall be made upon the successful sale of the condominium units in Phase I and Phase II of the extended project in proportion to the number of units included in Phase I and Phase II."

The AIA Agreement provided that Mathes was to provide additional services to Karlton/ISG in accordance with the terms of the AIA Agreement, on an as needed basis. These additional services included but were not limited to, numerous meetings with the zoning commission, city planning commission, and others on behalf of Karlton/ISG. The AIA Agreement provided that, if Basic Services were not completed within one year of the date of the Agreement, through no fault of Mathes, Mathes was entitled to be compensated for its services beyond that time as additional services at the rates specified in the Agreement. The AIA Agreement further provided that after sixty days, unpaid invoices shall bear interest at the rate of 8% per annum.

It is undisputed that the Basic Services provided by Mathes were not completed within one year of the date the AIA Agreement was executed. It is also undisputed that the delays associated with completion of the Basic Services were due to reasons beyond Mathes’ control. Thus, Mathes continued to perform additional services for, and was entitled to be compensated by, Karlton/ISG for these additional services rendered through May 2012.

Due to Karlton/ISG's failure to pay Mathes’ outstanding invoices, Mathes instituted arbitration proceedings pursuant to the AIA Agreement in July 2013. The arbitration proceedings were later dismissed due to Karlton/ISG's failure to pay its share of the arbitrator's fees. This suit followed.

After the five-day bench trial, the trial court ruled in Mathes’ favor. As noted by the trial court in its written reasons for judgment, the following additional pertinent facts were established at trial regarding events that occurred in 2015:

During 2015, the principals of ISG also engaged in separate negotiations with Barry Kern and/or entities owned or controlled by Barry Kern for the purchase of additional property that is part of the same series of riverfront tracts owned by the Kern family (or entities controlled by the Kerns) where the Project was originally intended to be located. The discussions with Barry Kern and his companies were conducted by the principals of ISG, who ultimately formed a new entity known as River Street Ventures, LLC ("River Street"). River Street is owned by the president of ISG, Michael Ambrosio, as well as ISG's two owners, Phillip Spiegelman and Craig Studnicky.

On August 11, 2015, several Kern entities entered into a Purchase Agreement with River Street related to the purchase of the Westbank property that was intended to be the site of Phase 4 of the Project (the "August, 2015 Purchase Agreement"). Michael Ambrosio, who was the president of Karlton/ISG, executed the August, 2015 Purchase Agreement on behalf of River Street. As consideration for the August, 2015 Purchase Agreement, the Kern entities agreed to give River Street a $300,000.00 credit against the purchase price of the subject property. Pursuant to the terms of the August 2015 Purchase Agreement, River Street was required to deliver a release of the Mortgage and Note that had been granted by the Kern entities to Karlton/ISG.

The same date the August 2015 Purchase Agreement was executed, Karlton/ISG—in its capacity as the "last holder" of the Note—executed and delivered to the Kern entities a "Release by Obligee of Record" of the June 1, 2007 Mortgage. This Release by Obligee of Record was executed by Michael Ambrosio in his capacity as "president" of Karlton/ISG. Mr. Ambrosio also executed a release of the Note granted by the Kern entities to Karlton/ISG—this time in his capacity as "Managing Member" of Karlton/ISG. Mr. Spiegelman testified that Mr. Ambrosio was authorized to execute these documents on behalf of Karlton/ISG and River Street, respectively.

On May 31, 2016, River Street purchased the property that was the intended site of Tract 3 of the Project from the entities controlled by Barry Kern for more than $4 Million dollars. Mr. Spiegelman testified that River Street has engaged an architect, engineer, and received city approval to construct a 187-unit apartment complex on the Tract 3 property.⁴

Addressing the alter ego issue, the trial court observed:

In 2007, Karlton ceased making capital contributions to Karlton/ISG. Mr. Ambrosio testified that at some point after 2007, Karlton/ISG just "dissolved." He also testified that to his knowledge, no one told Mathes Brierre at the end of 2007 that the Westbank Project was being abandoned.

It was established that between 2008 and 2012, Mathes Brierre made demands for payment to Karlton/ISG on numerous occasions. Karlton/ISG representatives never advised Mathes Brierre that its invoices would not be paid. However, during the period between 2009 and 2012, the members of

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