Posted on 02/25/2005 8:10:54 PM PST by tomball
Perennial Philadelphia mayoral candidate Sam Katz must repay $2.1 million he obtained from three business partners by allegedly fraudulently misrepresenting information about the viability of skating rink development projects.
The Delaware Supreme Court upheld a lower court ruling in a civil lawsuit over a private business deal that Katz tried to keep from the public during his third failed run for mayor last year.
The justices were unmoved by Katz's argument on appeal that the Delaware Chancery Court's summary judgment decision against him blindly accepted the plaintiffs' disputed version of the facts.
According to court records, the dispute arose from Katz's effort to obtain financing for the development of skating rinks, with construction partially funded by municipal investments and then managed by a Katz affiliate. He attracted several investors, who collectively contributed $2.1 million to the project.
However, when Katz's companies burned through most of that money without any concrete results, the partners — plaintiffs William Kronenberg II, Frank Piliero and David Rosenberg — balked at investing more and filed suit against Katz and his companies, Community Sports Partners LLC and Entersport Capital Advisors Inc.
Both sides filed motions for summary judgment. Chancery Court Vice Chancellor Leo Strine granted the plaintiffs' motion and denied Katz's motion.
The court said the litigation revealed that Mark Robbins, the man Katz hired as COO and touted as a highly experienced businessman, was in fact an experienced felon who was convicted of drug smuggling, armed robbery and assault.
Vice Chancellor Strine said even the most rudimentary background check would have revealed that Robbins misappropriated hundreds of thousands of dollars from his own family. Instead, the vice chancellor said, Katz set him to work on preparing feasibility studies, which the two promoted to investors as independently produced.
Katz argued that the investors had a duty to double-check the accuracy of those studies, but the vice chancellor found that a "strange" concept. He ordered Katz to refund the investors' money and dismissed Katz's counterclaim for breach of the partnership's confidentiality agreement. Even if the agreement required all litigation to be kept under seal, it was an unenforceable contract that would have allowed Katz the use of public courts while remaining a "secret citizen."
Katz appealed to the Delaware Supreme Court, arguing that the lower court misinterpreted an integration clause in the partnership agreement that barred the plaintiffs from relying on any prior representations made by the defendants — including the feasibility studies.
"The Court of Chancery erroneously denied defendants' motion for summary judgment with respect to the integration clause because it believed that the clause is insufficiently clear and unambiguous to preclude reliance on prior representations," Katz argued.
He also contended that the Chancery Court also erred by failing to require a showing of negligence in order to hold him liable for hiring Robbins. Until shown otherwise, Katz was entitled to rely on Robbins' assurances that the studies had been authored by an independent adviser, he said.
"The Court of Chancery's decision here has established a new duty for persons hiring a top executive," Katz said.
The plaintiffs-appellees defended the lower court decision. The decision only found Katz liable for failing to exercise ordinary care in the hiring of Robbins and the dissemination of the false information, they said.
Chief Justice Myron Steele, writing for Justices Randy Holland and Carolyn Berger, tersely ruled that the lower court ruling should be affirmed "on the basis of and for the reasons set forth in the decision."
The ruling appears to leave Katz without any choice but to immediately return the $2.1 million since that was the order of the lower court and he had not raised issues on appeal that could serve as a basis for a petition to the U.S. Supreme Court.
ping
Oh my.......is there not a single honest man willing to run for office in Philly anymore?
I'd run. But the question is, could an honest man get elected!
Or better yet, could an honest man stay honest in those conditions?
The sad part is that it's surely chickenfeed compared to whatever rackets Street has going.
I think honest men figure it's not worth the effort.
You are probably right but it is still very disappointing about Katz.........
The only politicians from the Philly area who never disappointed me were Delaware County Councilman Wally Nunn and the late Sen. Clarence Bell.
By "disappoint", you understand that I'm factoring out those pols who I fully except to be crooks and lo and behold turn out as such.
So Trib - gotta tell you we had a perfect winter day in Houston yesterday - sunny and cool, 64ish - sandal weather for me....... ;^)
We're getting more snow on Monday. Try not to weep too much for us. :-)
LOL....ok, and we're supposed to be a bit rainy but in the upper 50s, low 60s - so I'll be thinking about you shoveling snow Monday....... while I plant flowers.....
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