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In re Board of Ethics ex rel. Cartesian Company, Inc.

Court of Appeals of Louisiana, First Circuit

October 12, 2017

BOARD OF ETHICS IN THE MATTER OF THE CARTESIAN COMPANY, INC. AND GREG GACHASSIN

         ON APPEAL FROM THE ETHICS ADJUDICATORY BOARD STATE OF LOUISIANA, DIVISION OF ADMINISTRATIVE LAW NUMBER 2012-10863 - ETHICS-A ADMINISTRATIVE LAW JUDGES ADAORA CHUKUDEBELU, AARON B. AVERY, AND ROMAINE L. WHITE.

          R. Gray Sexton Jennifer L. Jackson Baton Rouge, Louisiana Counsel for Plaintiffs-Appellants The Cartesian Company, Inc. and Greg Gachassin.

          Kathleen Allen Suzanne Quinlan Mooney Vivian Haley Williams Tracy M. Barker David M. Bordelon Baton Rouge, Louisiana Counsel for Defendant-Appellee Louisiana Board of Ethics.

          BEFORE: HIGGINBOTHAM, THERIOT, AND CHUTZ, JJ.

          CHUTZ, J.

         Appellants, Greg Gachassin and the Cartesian Company, Inc. (Cartesian), appeal a decision of the Ethics Adjudicatory Board (EAB) finding they violated several provisions of the Louisiana Code of Governmental Ethics (Ethics Code) and imposing fines and penalties.

         FACTUAL AND PROCEDURAL BACKGROUND

         Cartesian is a domestic corporation incorporated in Louisiana on November 6, 2009.[1] Mr. Gachassin owns 100% of Cartesian's stock and is its president and employee. The ethics charges against Cartesian and Mr. Gachassin arose from certain transactions involving Cartesian that occurred during Mr. Gachassin's service as a trustee on the board of the Lafayette Public Trust Financing Authority (LPTFA), as well as additional actions occurring within two years of his resignation from the LPTFA board. Members of the LPTFA Board of Trustees are appointed by the Lafayette City Counsel. Mr. Gachassin served on the LPTFA board from 2003 until his resignation on November 17, 2009, and served as the board chairman from 2007 until his resignation.

         The LPTFA is a public trust created pursuant to La. R.S. 9:2341 "for the use and benefit of the City of Lafayette ... to provide funds for the furtherance and accomplishment of any public function and purpose of the City, " including housing.[2] In furtherance of its purpose, the LPTFA became involved in two housing development projects known as Cypress Trails and Villa Gardens.

         The Cypress Trails Project:

         The Cypress Trails Project was an affordable housing development located in Lafayette, Louisiana. On October 30, 2009, the Cypress Trails Corporation (Cypress Trails Inc.) was incorporated to serve as an instrumentality of the LPTFA in promoting and advancing "decent, safe and sanitary housing for persons of low income and particularly the elderly or handicapped in the City of Lafayette and Lafayette Parish." According to Richard Becker, general counsel for the LPTFA, Cypress Trails Inc. was created as an instrumentality of the LPTFA to implement the Cypress Trails Project. The Board of Commissioners of Cypress Trails Inc. is composed of the same individuals who serve on the LPTFA's Board of Trustees. Mr. Gachassin served as Cypress Trails Inc.'s first Executive Director.

         On November 1, 2009, a partnership known as the Cypress Trails Limited Partnership (Cypress Trails LP) was created between Cypress Trails Inc., as general partner, the Housing Authority of the City of Lafayette (LHA), as special limited partner, and Mr. Becker, as limited partner.[3] As general partner, Cypress Trails Inc. was responsible for managing the affairs of Cypress Trails LP and maintaining the books and records of the partnership. In executing the articles of partnership, Cypress Trails Inc. was represented by Mr. Gachassin, who signed the articles in his capacity as Chairman on the LPTFA. The stated purpose of the Cypress Trails LP was to acquire property in Lafayette Parish to build, own, and operate the Cypress Trails housing project in order to provide affordable housing.

         The Villa Gardens Project:

         Villa Gardens was an affordable housing project located in Lafayette, Louisiana, which was a project of the LHA. In 2006, the LHA requested a loan from the LPTFA in order to purchase the property ultimately used as the site of the Villa Gardens development. Mr. Gachassin's proposal that the $425, 000.00 loan be made at an interest rate of three percent per annum was unanimously approved by the LPTFA.

         On November 1, 2009, a partnership known as the Villa Gardens Limited Partnership (Villa Gardens LP) was created between Villa Gardens Housing Corporation (Villa Gardens Inc.), an instrumentality of the LHA, as general partner, and Walter Guillory, as limited partner. As general partner, Villa Gardens Inc. was responsible for managing the affairs of Villa Gardens LP. The stated purpose of the Villa Gardens LP was to acquire property in Lafayette Parish to develop, build, own, and operate the Villa Gardens Project in order to provide affordable housing.

         Project Consultant Agreements:

         By a written contract dated November 1, 2009, Cartesian entered into a "Project Consultant Agreement" with Cypress Trails LP to oversee the development and construction of the Cypress Trails housing project for a fee of $500, 000.00. Mr. Gachassin signed the consultant agreement as "President" of Cartesian, despite the fact that Cartesian's existence as a legal entity was not effective until November 6, 2009. The consultant agreement also was signed by John Arceneaux, a LPTFA trustee, who signed in the capacity of an authorized representative of Cypress Trails Inc., the general partner in Cypress Trails LP. Over the course of the next several years, Cartesian fulfilled the terms of the consultant agreement and received full payment of $500, 000.00.

         By a written contract dated November 1, 2009, Cartesian also entered into a"Project Consultant Agreement" with Villa Gardens LP to oversee the development and construction of the Villa Gardens housing project for a fee of $500, 000.00. Mr. Gachassin signed the consultant agreement as "President" of Cartesian, despite the fact that Cartesian's existence as a legal entity was not effective until November 6, 2009. As with the Cypress Trails consultant agreement, Cartesian fulfilled the terms of the agreement and received full payment of $500, 000.00.

         November 4, 2009 Board Meeting:

         At a November 4, 2009 meeting of the LPTFA Board of Trustees, Mr. Gachassin, in his capacity as chairman of the board, presented an update and overview of the strategy for the Cypress Trails Project and participated in various discussions regarding the project, including its funding, tax credit allocation, design aspects, and the goal of beginning construction by February 2010. Mr. Gachassin also instructed Mr. Becker to prepare a resolution to authorize and empower the officers of the LPTFA and its counsel "to do all things and take all actions necessary or advisable to cause the LPTFA tax credit affordable housing project Cypress Trails to proceed to closing." This resolution granted authority to the specified officers and general counsel to hire a project consultant for the Cypress Trails Project without obtaining further approval by the LPTA Board of Trustees. The Board of Trustees voted unanimously to proceed with the Cypress Trails Project and to adopt the resolution prepared by Mr. Becker. The meeting minutes do not reflect that Mr. Gachassin recused himself from that vote.

         Additionally, at the same meeting, the trustees discussed the LPTFA's 2006 loan to the LFiA in light of the tightening of the credit market and the role of the loan in the LHA's completion of the Villa Gardens Project. A motion was made and unanimously approved by the Board of Trustees "to recast the existing loan ... to the [LFIA] to a long term, no interest, cash flow loan to be repaid to the LPTFA by the [LHA] out of the cash flow from the Villa Gardens [P]roject." The meeting minutes do not reflect a recusal by Mr. Gachassin from that vote.

         Post-Resignation LPTFA:

         Mr. Gachassin resigned from the LPTFA board on November 17, 2009. Within two weeks of his resignation, he appeared before the LPTFA board on December 2, 2009, as a representative of Cartesian to provide an update on and discuss various issues related to the Cypress Trails Project. He made similar appearances before the board to provide updates on the Cypress Trails Project on May 11, 2010, and September 2, 2010.

         Ethics Proceedings:

         On June 15, 2012, the Louisiana Board of Ethics (BOE) issued charges against Mr. Gachassin alleging he violated La. R.S. 42:1112, 1113(B), and 1121 by participating in transactions prohibited by the Code of Ethics. On the same date, the BOE charged Cartesian with violating La. R.S. 42:1113(B) and 1121. The alleged violations resulted from Mr. Gachassin and Cartesian's involvement with the Cypress Trails and Villa Gardens Projects. They were charged with contracting with an agency of the LPTFA while Mr. Gachassin was the chairman of the LPTFA Board of Trustees. Mr. Gachassin was also charged with voting on matters arising before the LPTFA in which he and Cartesian had a substantial economic interest. Mr. Gachassin was further charged with assisting Cartesian for compensation by appearing before the LPTFA on Cartesian's behalf within two years of his resignation.

         An evidentiary hearing was held before the EAB on April 18 and 19, 2016. On August 3, 2016, the EAB rendered a decision concluding Mr. Gachassin violated La. R.S. 42:1112(A), (B), and (D), 42:1113(B), and 42:1121(A)(1), a total of five violations, and Cartesian violated 42:1113(B). In rendering its decision, the EAB concluded the project consultant agreements with Cypress Trails LP and Villa Gardens LP were executed on November 1, 2009, while Mr. Gachassin was chairman of the LPTFA. This factual finding formed the basis of the EAB's additional conclusion that Mr. Gachassin and Cartesian each had a substantial economic interest in the Cypress Trails and Villa Gardens Projects at the time of the LPTFA meeting on November 4, 2009. Accordingly, the EAB found Mr. Gachassin violated La. R.S. 42:1112(A), (B), and (D) by failing to recuse himself and voting to move forward with the Cypress Trails Project and to recast the loan associated with the Villa Gardens Project, as well as participating in discussions regarding those matters at the LPTFA meeting. The EAB further concluded Mr. Gachassin violated the prohibition of La. R.S. 42:1113(B) that he not be "in any way interested" in the project consultant contract between Cartesian and Cypress Trails LP, which he signed on Cartesian's behalf on November 1, 2009, while he was still serving as the LPTFA chairman. The EAB also found Mr. Gachassin violated La. R.S. 42:1121(A)(1) by assisting Cartesian for compensation with various transactions involving the LPTFA within two years of his resignation as chairman of the LPTFA. Finally, the EAB concluded Cartesian violated the prohibition of La. R.S. 42:1113(B) that it not be "in any way interested" in transactions under the supervision of the LPTFA by honoring the project consultant agreement between Cartesian and Cypress Trails LP and providing services in fulfillment of the agreement.[4]

         For each of the five Ethics Code violations the EAB found Mr. Gachassin committed, it imposed a $10, 000.00 fine, for a total of $50, 000.00. The EAB imposed a single fine of $10, 000.00 upon Cartesian. Additionally, based on its conclusion pursuant to La. R.S. 42:1155 that Mr. Gachassin and Cartesian violated the Ethics Code to their "economic advantage, " the EAB imposed a penalty on appellants of $1.5 million, in solido. Mr. Gachassin and Cartesian now appeal the decision of the EAB.[5]

         ASSIGNMENTS OF ERROR

         1. The EAB erred as a matter of law in concluding that Cartesian and Gachassin had a "substantial economic interest" in certain transactions involving the LPTFA when Mr. Gachassin voted on those transactions.

         2. The EAB erred as a matter of law in concluding that the Cypress Trails Contract was entered into while Mr. Gachassin was a trustee for the LPTFA.

         3. The EAB erred as a matter of law in concluding that the Cypress Trails project was under the "supervision or jurisdiction" of the LPTFA.

         4. The EAB erred as a matter of law in concluding that Mr. Gachassin assisted Cartesian and not Cypress Trails, in transactions involving the LPTFA within two years of Mr. Gachassin resigning from the LPTFA.

         5. The EAB erred as a matter of law in concluding there were any transactions involving the LPTFA and Villa Gardens within two years of Mr. Gachassin resigning from the LPTFA.

         6. The EAB erred as a matter of law in concluding that Cartesian and Mr. Gachassin violated the Ethics Code to their "economic advantage, " and by not applying the "rule of lenity" in favor of Cartesian and Mr. Gachassin.

         7. The EAB erred in assessing a $30, 000.00 fine on Mr. Gachassin for allegedly violating three subparts of one provision of the Ethics Code.

         8. The EAB erred as a matter of law in assessing a penalty of $1.5 million on Cartesian and Mr. Gachassin, in solido.

         9. The EAB's imposition of a $1.5 million penalty violates the Excessive Fines Clause of the United States Constitution.

         STANDARD OF REVIEW

         Judicial review of decisions of the EAB is governed by the Louisiana Administrative Procedure Act (APA) and is confined to the record developed in the administrative proceedings. See La. R.S. 42:1143; La. R.S. 49:950 et seq.; La. R.S. 49:964(F); Louisiana Board of Ethic in the Matter of Great Southern Dredging, Inc., 15-0870 (La.App. 1st Cir. 5/27/16), 195 So.3d 631, 634, writ denied, 16-1208 (La. 10/17/16), 207 So.3d 1063. The EAB's decision may be reversed or modified only if substantial rights of the appellant are prejudiced because the findings, inferences, conclusions, or decisions are: (1) in violation of constitutional or statutory provisions; (2) in excess of the agency's statutory authority; (3) made upon unlawful procedure; (4) affected by other error of law; (5) arbitrary, capricious, or an abuse of discretion; or (6) not supported and sustainable by a preponderance of evidence as determined by the reviewing court. La. R.S. 49:964(G). An arbitrary decision shows disregard of evidence or the proper weight thereof while a capricious decision has no substantial evidence to support it or the conclusion is contrary to substantiated competent evidence. Ford v. State, Department of Health & Hospitals, 14-1262 (La.App. 1st Cir. 3/6/15), 166 So.3d 332, 336-37, writ denied, 15-0774 (La. 6/1/15), 171 So.3d 264.

         The reviewing court owes no deference to the EAB's legal findings, since questions of law are reviewed de novo. Louisiana Board of Ethic in the Matter of Great Southern Dredging, Inc., 195 So.3d at 634. However, the EAB's credibility determinations are considered to be factual questions under La. R.S. 49:964 (G)(6). Thus, "where the [EAB] has the opportunity to judge the credibility of witnesses by first-hand observation of demeanor on the witness stand and the reviewing court does not, due regard shall be given to the agency's determination of credibility issues." La. R.S. 49:964 (G)(6); see also Johnson v. Strain, 15-0714 (La.App. 1st Cir. 11/6/15), 183 So.3d 562, 565.

         ASSIGNMENTS OF ERROR ...


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