⚖️ Legal Update IX: Docket Activity in Both Lawsuits

Keeping the Membership in the Dark: As noted in our Report on the November 11th Membership Meeting, there was virtually no information provided by the Club Board about the two lawsuits, or their associated legal expenses, in which the Club is currently engaged. Even when asked about some higher-than-normal accounting expenses, the Treasurer allegedly claimed that he could not remember the accounting firm to whom he had just paid $4,000. Was the membership ever even advised the Club would be retaining an accounting firm, let alone for thousands of dollars? The Club could have patched up the Treasurer’s “memory lapse” by identifying the accounting firm in the meeting minutes, perhaps with some explanation, but they did not. This suggests the lack of identification is not a memory problem, but rather an intentional act to conceal this information from the membership. To our knowledge, the Club has never disclosed the existence of, nor the actual or projected legal costs of these two lawsuits, much less discuss their issues and statuses. This is inconsistent with prudent business reporting practices used by stock corporations. Moreover, it is a far cry from the major campaign promises of some members of the current Board of Directors: Increased transparency and membership approval on important issues.

Particularly because the actual legal costs authorized by the Board to date have never been disclosed, let alone any disclosure of the budget for future legal expenses (a budget that has probably never been established), we cannot determine if or when the Club officials will be in violation of yet another clause in the By-Laws. Article X, Section 1 requires a two-thirds membership ratification vote to authorize any Board decision to incur an expense in excess of $80,000. Refusal of the Club to transparently and timely disclose to shareholders to-date and projected expenses, nature of litigation, and identification of recipients of substantial Club disbursements prevents legitimate shareholder oversight. Adding to this, the Board’s decision to no longer present financial statements and supporting information to the membership on a monthly basis probably has nothing to do with it being a “chore.” The keeping of balance sheets is a requirement of generally accepted accounting principles and the Club has historically disclosed such financial information on a monthly basis. But now, without notice to or approval from the membership, Club officials have summarily announced they only plan to share financial information with the membership on a quarterly basis, a decision that will result in delaying the reporting of some financial events by three months or more. The current Board has been adamant that the Club was in dire financial straits. The membership is entitled to timely reports so they can see for themselves the nature of the Club’s financial status. The Club’s income and expenses are largely monthly, so month-based accounting is critical to continually assess the strength of the Club’s balance sheet. Except for insurance and other “lump sum” expenses (expenses that should be represented as pro-rated in a proper month-based report), all other income and expenses accrue on a monthly basis. Thus, a move to quarterly reports seems more likely to be an intentionally repressive change to keep the membership in the dark for longer, also having the practical effect of obstructing membership (shareholder) oversight.

Summary of Recent Filings in Both Lawsuits: The docket in the Hills vs. the Club lawsuit is showing continuing (but slow) signs of resolution with a settlement agreement seemingly forthcoming. However, the Club vs. Kennedy lawsuit shows no sign of letting up, a remarkable condition since the Judge sternly advised the parties to “roll up their sleeves” to work through all remaining discovery production disagreements.

• Hills vs. the Club: This lawsuit, filed by Plaintiffs Lloyd and Graham Hill, primarily complained that, after they withdrew from membership, the Club failed to refund the $1,700 Membership Fee as described in the Club’s governing documents in effect when they applied. On November 20^th, Plaintiffs filed a motion requesting to file – under seal – a “Confidential Statement” apparently because this Statement contains some terms that both parties agreed not to make public. It took ten days after filing for the November 20^th motion appear in the docket, but on December 1^st, the Judge issued an order approving the motion, so we expect to soon see evidence of this filing in a Motion to Dismiss and Settlement Agreement document, which may shed more light on the disposition of this case. It is presumed that the Motion to Dismiss, when it is filed, will state the Club agrees with the Motion. Upon receipt of such “agreed motions,” Judges typically then issue the order as requested. If that occurs in this case, the order would officially end this case.
   
• The Club vs. Kennedy: This lawsuit filed against former Treasurer Carl Kennedy by the Club in April seems to be a never-ending saga despite the Judge’s urging that the parties “roll up their sleeves” to resolve differences in order to close out this case. The only real winner in this dispute seems to be the Club’s attorney, Edward Holodak, who is racking up countless billable hours (to be paid by Club members from their dues) with every new filing, a reality the Judge observed and even directly counseled the Club’s officers against, warning them of the open-ended legal expenses they would incur by continuing down the path of more filings, motions, and hearings.

  That said, recent filings suggest the existence of an environment where Kennedy will take two constructive steps forward, and the Club will take one foolish step back. On one hand, Kennedy is due to file amended Answers and an amended Counter Complaint. However, on December 1^st, the Club received approval to postpone their Thanksgiving Day deadline for providing discovery materials to Kennedy by two weeks, to a new deadline of Thursday, December 10^th. It seems like what will soon follow will be, (a) another motion from the Club seeking to disqualify or exclude Kennedy’s amended filings for any number of alleged technical defects, and (b) a motion from Kennedy seeking sanctions against the Club for failing – even after being given an extra two weeks – to produce the documents he requested. We make these predictions based upon the Club’s prior conduct and the Judge’s counsel to the Club’s officers: If they failed to direct their attorney to engage in productive direct dialogue toward resolution, the Club’s legal expenses would only continue to rise as a result of frustrating diversionary tactics, frivolous motions, additional hearings, and attendant delays. In short, the Judge implied there was only one beneficiary of such behavior – the Club’s attorney. As of today, it appears the Club’s conduct has not changed. It does not appear the Club has made any effort to “roll up their sleeves” and communicate directly with Mr. Kennedy and his lawyer friend, which leads to these predictions.

All Club members should be asking: “To what end?” The Judge made clear that the Club’s complaint against Kennedy is very narrow: The Judge said he had no standing to investigate or rule on unsubstantiated implications that Kennedy stole or misappropriated Club funds, adding that such a claim should have been pursued separately because they were not civil matters before him. The Judge said such allegations would have to be separately investigated and prosecuted in criminal court if the Club had any actual evidence of impropriety. The Judge also said he had no standing to prevent Kennedy from getting advice from anyone he wanted, including an attorney the Club has persistently sought to exclude from the case, but added his view that involvement of Kennedy’s lawyer friend would actually help expedite case resolution and thus reduce the Club’s legal costs. There is no evidence the Club is taking the Judge’s counsel here either.

We will continue to update the litigation pages on this web site as we learn more, but please continue to let us hear from you at newsletter-feedback@pompanobeachflyingclub.info.