Palowsky v. Cork
| Decision Date | 16 March 2022 |
| Docket Number | 21-CA-435 |
| Parties | Stanley R. PALOWSKY, III v. W. Brandon CORK, Anthony White, OHC Services, L.L.C. and Alternative Environmental Solutions, Inc. |
| Court | Court of Appeal of Louisiana — District of US |
COUNSEL FOR PLAINTIFF/APPELLANT, STANLEY R. PALOWSKY, III AND ALTERNATIVE ENVIRONMENTAL SOLUTIONS, INC., Joseph R. Ward, Jr., Sedric E. Banks, Stacy R. Palowsky
COUNSEL FOR DEFENDANT/APPELLEE, ANADARKO PETROLEUM CORPORATION, R. Keith Jarrett, Tiffany D. Davis, Alexander J. Baynham
Panel composed of Judges Robert A. Chaisson, Stephen J. Windhorst, and Hans J. Liljeberg
Plaintiffs, Stanley R. Palowsky, III and Alternative Environmental Solutions, Inc. ("AESI"), appeal the trial court's judgment granting a summary judgment motion filed by defendant, Anadarko Petroleum Corporation ("Anadarko"), and dismissing AESI's claims for damages against Anadarko, with prejudice, based on is application of the doctrine of unclean hands.1 Anadarko alleges that the alleged fraudulent conduct of AESI's president, W. Brandon Cork, must be imputed to AESI and therefore, AESI cannot recover against it due to its unclean hands. In granting the motion, the trial court reasoned that as a matter of public policy, the unclean hands doctrine permits courts to bar all relief to plaintiffs who have engaged in unlawful or inequitable conduct with respect to the matter or transaction at issue.
On appeal, plaintiffs contend the trial court erred by failing to recognize that the unclean hands doctrine is an equitable doctrine that should only be applied to claims seeking equitable relief – not to their claims seeking damages resulting from the defendants alleged fraudulent conduct. Plaintiffs further contend that applying the unclean hands doctrine violates the provisions of La. C.C. art. 2323, which requires the determination of fault of all persons contributing to the loss, even when both the plaintiff and defendant engage in intentional conduct. Anadarko argues, on the other hand, that the unclean hands doctrine is not and has never been limited to claims for equitable relief, and cites to cases applying the unclean hands doctrine to bar claims seeking damages.
After conducting an extensive analysis of the jurisprudence addressing the equitable doctrine of unclean hands, we find the trial court erred by applying the doctrine to bar AESI's claims against Anadarko as a matter of law. Louisiana Supreme Court jurisprudence does not support the extension of this equitable doctrine to serve as an absolute bar to AESI's request for damages arising from its claims for fraud, conspiracy and racketeering. To the contrary, La. C.C. art. 4 instructs courts to apply equitable concepts only when no legislation or custom exists to govern a situation. The Louisiana Supreme Court declared in Landry v. Bellanger , 02-1443 (La. 5/20/03), 851 So.2d 943, 954, that La. C.C. art. 2323 mandates the allocation of fault even when the plaintiff and defendant have both engaged in intentional conduct. Therefore, because legislation exists to address the situation at hand, we find that even if Cork's conduct is imputed to AESI, the conduct would not serve as a bar to recovery as a matter of law, but rather would be subject to the law of comparative fault.
This matter has an extensive factual and procedural history outlined in detail in the First Circuit Court of Appeal's decision in Palowsky v. Cork , 19-148 (La. App. 1 Cir. 5/20/20), 304 So.3d 867. We provide a brief overview of the underlying facts and procedural history. AESI was a corporation engaged in environmental remediation services. Palowsky and defendant, W. Brandon Cork, were each fifty percent (50%) shareholders of AESI, and Cork served as president of the corporation. Anadarko, a company engaged in oil and gas exploration and production, contracted with AESI to remediate a site located in Wyoming through a process referred to as soil shredding, which involves treating and replacing contaminated soil. AESI engaged defendant subcontractor, OHC Services, LLC ("OHC"), to work on the site in Wyoming. OHC further subcontracted with defendant, TP Environmental and Pipeline Services, LLC ("TP Environmental"), to assist in providing the remediation services.
Palowsky originally filed this matter as a shareholder derivative action on behalf of AESI against Cork, and also filed claims against OHC, and its managing member, Anthony White. Palowsky alleged that in 2012, he discovered that Cork and other named defendants were engaged in a fraudulent conspiracy to overbill Anadarko for environmental work and skim money from the project. He alleged that Cork used the money he received from the scheme to fund a separate company he formed with White to compete against AESI. Palowsky alleged that as a result of the fraudulent scheme, Anadarko removed AESI from ongoing and future remediation projects and caused AESI great financial loss. In a second supplemental and amending petition, Palowsky added TP Environmental and its employee/officer, Michael L. Holder, as defendants.
In a third supplemental and amending petition, Palowsky added AESI as a plaintiff, and also added Anadarko and its employee, Dana E. Howard, as defendants. Plaintiffs alleged that Howard was involved in the fraudulent scheme and asserted claims for conspiracy to commit fraud, racketeering, and aiding and abetting defendants in committing fraud, intentional breach of fiduciary duty and racketeering. Plaintiffs alleged that Anadarko was vicariously liable for Howard's actions.
Anadarko filed an exception of no cause of action alleging that plaintiffs could not establish vicarious liability and opposed plaintiffs’ request for leave to file a fourth supplemental and amending petition to add additional claims against Anadarko. The trial court sustained the exception and denied plaintiffs leave to amend. In Palowsky, supra , the First Circuit affirmed the trial court's judgment sustaining the exception of no cause of action and prohibiting plaintiffs from adding new causes of action against Anadarko, but granted plaintiffs leave to amend their petition to allege additional facts "demonstrating how Howard's actions were in Anadarko's interest or benefitted Anadarko" in order to state a cause of action for vicarious liability against Anadarko. Id. at 876.
In their fourth supplemental and amending petition, plaintiffs added facts alleging that Anadarko conspired with other named defendants and agreed to allow them to overbill Anadarko for environmental remediation services in exchange for their agreement to provide reports which understated the expected costs Anadarko would incur for future oilfield remediation liabilities. Plaintiffs allege that these reports allowed Anadarko to reduce its remediation liabilities on its balance sheet and, in turn, to artificially inflate its stock price.
In response, Anadarko then filed the motion for partial summary judgment at issue before this Court, which sought to dismiss AESI's claims against it based on the doctrine of unclean hands. In its motion, Anadarko argued that it disputed plaintiffs’ allegations. However, for the purposes of its request for summary judgment, Anadarko argued that even if the facts alleged in plaintiffs’ fourth supplemental and amending petition were accepted as true, the doctrine of unclean hands barred AESI's claims because Cork's conduct should be imputed to AESI due to his position as a member and officer of AESI. Anadarko further argued that as a co-conspirator, AESI could not bring actions for fraud and racketeering because AESI took part in the fraudulent scheme. In their opposition, plaintiffs argued that the equitable doctrine of unclean hands did not bar AESI's claims for damages because the doctrine only applies when a party seeks equitable relief. Plaintiffs also argued that Cork's conduct should not be imputed to AESI because AESI did not benefit from his actions.
The trial court held oral argument of November 23, 2020, and took the matter under advisement. On December 3, 2020, the trial court rendered a judgment which granted Anadarko's summary judgment motion and dismissed AESI's claims against Anadarko, with prejudice. The trial court also certified the judgment as final and immediately appealable.2 The trial court incorporated written reasons into its judgment and found Cork's involvement in the fraudulent scheme must be imputed to AESI due to his position as a member and officer of the corporation.3 As a result, the trial court concluded that the doctrine of unclean hands precluded AESI from recovering against Anadarko. The trial court's written reasons did not discuss or analyze plaintiffs’ legal argument that the doctrine of unclean hands only applies to claims for equitable relief.
On January 28, 2021, plaintiffs filed a timely notice of appeal, which the trial court granted on February 1, 2021.
Plaintiffs raise the following assignments of error on appeal:
Appellate courts review the granting of a summary judgment de novo under the same criteria governing the trial court's consideration of whether summary judgment is appropriate. Ross v. C. Adams Const. & Design, LLC , 10-852 (La. App. 5 Cir. 6/14/11), 70 So.3d 949, 951. A motion for summary judgment shall be granted if the motion, memorandum, and supporting documents show there is no genuine issue as to material fact and the mover is entitled to judgment as a matter...
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