© 2015 The Texas Lawbook.
By Natalie Posgate
(May 21) – Can a ballpoint pen change the fate in your case? Two Dallas Greenberg Traurig lawyers proved to a North Texas jury last week that it can indeed – especially if the pen is really a hidden camera.
In a take-nothing defense verdict, the jury found that while the GT attorneys’ clients committed fraud against Dallas oilman Jim Graham and his company, Duffy, the clients owe nothing because Graham ratified a contract after discovering the fraud. Jurors also sided with the defendants, CAT Seattle and Ascend Health Corporation, on their wiretapping counterclaim against Duffy for illegally recording a business negotiation.
Because the wiretapping statute relevant to this case allows for attorneys’ fees, state district Judge Dale Tillery will determine what to award GT partner Victor Vital and associate Nick Sarokhanian before he enters final judgment.
The plaintiffs’ attorney, Charles Frederiksen of Glast, Phillips & Murray, could not be reached for comment. Vital declined to comment on the case.
Duffy sued CAT and Ascend more than a year after the parties entered an asset purchase agreement in August 2011. In the agreement, Duffy sold 95 percent of its membership interests in a Seattle alcohol and drug addiction treatment center (called Schick Shadel hospital) to CAT. Under the deal terms, CAT agreed to open another treatment center in a different location from Seattle that would follow the Schick Shadel hospital philosophy and objectives, the plaintiffs’ second amended petition says.
CAT opened another center in Denton at the Mayhill Hospital, but Duffy claimed it was “structurally insufficient in many respects,” lacked “trained personnel familiar with the Schick Shadel protocols” and failed “to substantially meet the Schick Shadel protocols previously agreed upon by the parties,” the petition says.
In early 2012, CAT and its holding company, Ascend, entered a merger agreement with United Health Services in which UHS acquired Ascend and the 11 hospitals it owned, including Schick Shadel. Not a fan of minority interests, UHS refused to close the acquisition until Ascend bought the remaining 5 percent ownership in Schick Shadel from Graham, court documents say.
According to court documents, Graham, who “was not informed of these negotiations until late in the game,” met with Ascend Chief Executive Officer Richard Kresch and Chief Financial Officer Steve Page in August 2012 to negotiate an amended asset purchase agreement, which would include the terms of the sale of Graham’s remaining 5 percent stake in Ascend. They signed that agreement on Aug. 23, 2012.
The terms that CAT and Ascend agreed upon in the amendment included purchasing Graham’s 5 percent stake for nearly $2 million, as well as adhering “to their obligations to open Schick Shadel Mayhill” and keeping the facility as “a discrete and separate unit within the hospital such that populations therein would never mix and that Graham would be given even greater authority over the existing protocols of the Schick Shadel treatment,” the petition says.
Duffy also claimed that Ascend and CAT agreed to not terminate any Seattle Schick Shadel employee other than “for cause,” but the defendants broke that contractual obligation as well as the others in the lawsuit Duffy filed in November 2012.
A twist in the plot
CAT and Ascend countersued, arguing in their counter-claim that Duffy did not disclose that Schick Shadel hospital “had regulatory issues” because it had failed to update an automated drug dispensing device with the appropriate network interface software required.
By Duffy “knowingly and/or recklessly conceal[ing] such information,” CAT and Ascend claimed that “such false representation was material” to how they valued the appropriate purchase price of Graham’s remaining ownership in Schick Shadel.
Further, CAT and Ascend brought civil wiretapping claims against Duffy because they claimed Graham violated at least two provisions of the Texas Penal Code when he secretly recorded the Aug. 9, 2012 meeting with Kresch and Page that he hosted in Dallas at the Palo Petroleum offices (where Graham is the CEO) via a hidden camera in a ballpoint pen.
Texas is a one-party state, which means it is legal to record oral conversations as long as one party – usually the one recording – consents to the conversation’s recording. Thus, Graham legally wouldn’t have been in the wrong if he remained in the conference room the whole time the pen was recording.
But he was not.
According to one of CAT and Ascend’s filings, Graham and his lawyer, Fred Miller, excused themselves from the room for a bathroom break “just before everyone was about to negotiate the price” of Graham’s outstanding shares. But Graham left the tape – or rather, spy pen – rolling while he was gone, so for several minutes the recording was illegal because nobody was in the room to consent to it.
“While sharp business practices may be common in Dallas, this case exemplifies how business is not supposed to be done,” Vital wrote in the briefing. “For most of the meeting, Graham’s covert recording was simply deceptive. But for several crucial minutes, it was felonious.”
The jury agreed with Vital and Sarokhanian. After a two-week trial, jurors determined Friday that while CAT and Ascend committed fraud against Duffy for misrepresenting how the business at Schick Shadel Mayhill would be run, they owe Duffy nothing in damages since Graham ratified the amended agreement, which he did after learning of this fraud.
The jury also sided with Vital and Sarokhanian on their wiretapping claim, which means they will be able to recover attorneys’ fees, because the particular statute (part of the Texas Penal Code of the Texas Code of Criminal Procedure) allows for it.
© 2014 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.
If you see any inaccuracy in any article in The Texas Lawbook, please contact us. Our goal is content that is 100% true and accurate. Thank you.