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Colleen Katherine Lynch Hansen v. River Cities Disposal Co.

Court of Appeals of Louisiana, Second Circuit

November 15, 2017

COLLEEN KATHERINE LYNCH HANSEN, ET AL. Plaintiff-Appellees
v.
RIVER CITIES DISPOSAL COMPANY, INC. Defendant-Appellant

         Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 568379 Honorable Craig Marcotte, Judge

          RICHIE, RICHIE & OBERLE, L.L.P. Counsel for Appellant By: C. Vernon Richie Margaret Richie Gaskins

          KENNETH R. ANTEE, JR. WIENER, WEISS & MADISON Counsel for Appellees By: Frank H. Spruiell, Jr. Roger Joseph Naus

          Before MOORE, GARRETT, and BLEICH (Pro Tempore), JJ.

          MOORE, J.

         River Cities Disposal Co. Inc. ("RCDC") appeals a declaratory judgment recognizing that the estate of its former consultant, Jim Lynch, had an ownership interest of 14½% of the net revenue from RCDC's marketing agreement with Browning-Ferris Industries ("BFI"). For the reasons expressed, we affirm.

         FACTUAL BACKGROUND

         In the 1980s, the City of Shreveport built the new Woolworth Road landfill. Local produce distributor Tony Pernici, his grandsons Scott and Rick Pernici, and other investors (John Caruthers, Taylor Moore, David Watkins, Al Otto) formed a startup company, River Cities Waste Inc. ("RCW"), in 1986, to haul solid waste to Woolworth Road. The Pernicis owned a lot of trucks, but had no experience in the field of solid waste, so they turned to several consultants, including Jim Lynch, previously the city's director of public works. RCW developed a small business, principally hauling for the Pernicis' established customers.

         The city eventually solicited proposals from solid waste companies to operate Woolworth Road. RCW contacted BFI, an industry leader, and struck a deal. Shareholders of RCW formed a new corporation, RCDC, in March 1987, to execute a landfill marketing agreement ("the marketing agreement") with BFI. Under the marketing agreement, RCDC was to receive 10% of BFI's gate revenues at Woolworth Road. RCDC thus became the principal solid waste hauler for Shreveport.

         Everyone recognized that Lynch's experience and connections in the industry were instrumental in the formation of RCW and in securing the contract with BFI. Rather than paying him up-front for his services, the shareholders agreed to pay Lynch a percentage of RCDC's net revenue under the marketing agreement. They wrote him the following letter ("the letter agreement"), on RCW letterhead, on October 12, 1987:

This letter will serve as evidence of your ownership of 14½% of our net revenues from our Shreveport landfill marketing agreement with BFI, Inc.

         The letter agreement was signed by Scott Pernici, president, and John D. Caruthers Jr., secretary/treasurer, and RCDC began paying Lynch the 14½% monthly.

         Lynch was, at the time, seriously ill with emphysema, as RCDC's shareholders were fully aware. He died in March 1989, having received about $24, 000 from the letter agreement. RCDC continued making the monthly payments, to his widow, Carolyn Lynch; until her death, in 2012, she had received about $2 million from RCDC. Evidence at trial showed that RCDC treated these payments, for tax purposes, as commissions, management fees, consulting fees, or royalties to nonowners, all deductible as necessary and ordinary business expenses. Carolyn treated them as taxable income.

         In 2008, Carolyn's CPA, George McGovern, noticed that the RCDC payments were the largest asset in her estate. With her consent, he emailed RCDC's attorney, Michael Wainwright, asking for documentation of her 14½% ownership "in the landfill." Wainwright replied that Lynch never owned "any interest in" RCDC, the 14½% payment was a "fee" to Lynch, after his death the shareholders "decided to voluntary [sic] continue" making those payments to Carolyn, and RCDC intended to continue making the payment "during her lifetime[.]" McGovern replied by email, "You have resolved an issue we were having regarding her estate. * * * I believe she is very content with the current arrangement." Carolyn died in June 2012, and RCDC immediately stopped sending the money, which was by then about $12, 000 a month.

         PROCEDURAL HISTORY

         Ms. Hansen, Carolyn's daughter and executrix, and the other children filed this suit for declaratory judgment in May 2013, seeking recognition of their ownership of 14½% interest. RCDC countered that all payments made to Lynch, and later to Carolyn, were donations, and lacked lawful cause; it ...


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