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Laurel Gardens, LLC v. McKenna

United States District Court, E.D. Pennsylvania

December 20, 2019

LAUREL GARDENS, LLC, et al., Plaintiffs,
TIMOTHY MCKENNA, et al., Defendants.


          SCHMEHL, J.

         Plaintiff Charles Gaudioso first met and conducted business with Defendant Timothy McKenna in 2007 or 2008. (ECF Docket No. 281 at ¶7.) In the intervening years, the relationship between Mr. Gaudioso and Mr. McKenna collapsed and become hostile. As a result, Mr. Gaudioso and his co-plaintiff companies[1] have now filed suit against Mr. McKenna and 32 other defendants, alleging that Mr. McKenna coordinated “a widespread criminal conspiracy that was engaged in a pattern of racketeering activity across state lines … [in violation of] the Racketeer Influenced and Corrupt Organizations Act (‘RICO'), 18 U.S.C. §§1961-1968.” (ECF Docket No. 268 at 1.)

         Plaintiffs filed their first Complaint in this matter on February 7, 2017. (ECF Docket No. 1.) This Complaint named 30 defendants, all allegedly involved in a conspiracy “to inflict severe and sustained economic hardship on Plaintiffs with the intent to impair, obstruct, prevent, and discourage Plaintiffs from continuing to work in the field of commercial landscaping and snow removal.” (Id. at ¶4.) On April 21, 2017 Plaintiffs filed an Amended Complaint, adding three defendants to those named in the first Complaint: Saul Ewing LLP, [2] David Falcone, and John Snyder (collectively, the “Saul Defendants”).[3] (ECF Docket No. 43.) On December 13, 2018, to clarify Plaintiffs' claims against the Saul Defendants and others, this Court ordered Plaintiffs to file a RICO Case Statement. (ECF Docket No. 226.) In this Statement, Plaintiffs attributed 27 alleged RICO predicate acts to the Saul Defendants. (ECF Docket No. 242 at 87-89.)

         This matter is now before the Court on the Saul Defendants' Motion for Summary Judgment. (ECF Docket No. 258.) For reasons detailed below, the accompanying Order grants this Motion.


         Charles Gaudioso first did business with Timothy McKenna as a consultant, arranging financing for McKenna on a New Jersey-based real estate development project in 2007 or 2008. (ECF Docket No. 281 at ¶7.) Although this initial venture ultimately failed, McKenna and Gaudioso continued to work together. (Id.)

         Through this working relationship, Gaudioso learned of an opportunity to acquire two landscaping and snow removal businesses: Laurel Gardens, LLC (“LG”) and American Winter Services, LLC (“AWS”). (Id. at ¶¶ 11-13.) On March 1, 2012, both Gaudioso and McKenna acquired an ownership stake in Laurel Gardens Holdings, LLC (“LGH”), a limited liability company formed to facilitate the purchase of LG and AWS (collectively, “Laurel Gardens Entities”). As outlined in this deal's March 2012 Term Sheet-prepared by Defendant Saul Ewing LLP-Gaudioso and McKenna were to be the only two members of Laurel Gardens Holdings, LLC: Gaudioso was to hold 99.99% of the interest and McKenna was to own 0.01%. (Id. at ¶¶13, 20.) Before this purchase, Gaudioso did not conduct a financial evaluation or any significant due diligence on either company. (Id. at ¶18.) He was also not represented by counsel in connection with the acquisition. (Id. at ¶19.) Once this transaction was executed, Gaudioso appointed McKenna as the managing member of both companies as Gaudioso had no experience in the landscaping or snow removal business. (Id. at ¶16-17.)

         Almost immediately, the Laurel Gardens Entities faced significant challenges under Gaudioso and McKenna. In April 2012, the month after Gaudioso acquired LG and AWS, the Laurel Gardens Entities were “expelled from WSFS Bank” as the bank would not allow McKenna to be a signer on any accounts. (Id. at ¶22.) The companies' financial issues did not end there. Within a few months, Gaudioso became aware that McKenna was misappropriating LG and AWS funds. (Id. at ¶¶23-25.) Under Gaudioso's direction, LG's controller analyzed McKenna's transactions with the company, ultimately determining that between March 1, 2012 and May 14, 2012 McKenna had taken at least $117, 791.21 in company assets. (Id. at ¶25.) In June or July 2012, Gaudioso replaced McKenna as managing member of LGH but continued to retain McKenna as a consultant. (Id. at ¶¶24-25.) While McKenna continued as a consultant to the Laurel Gardens Entities, Gaudioso continued to investigate McKenna's thefts. (Id. at ¶¶25-27.)

         On August 28, 2012, Gaudioso involved Saul Ewing LLP and its attorneys in this investigation, informing Saul Ewing LLP attorney Evan Foster that “‘the best estimate of the amount [of McKenna's theft] is the $117, 791 plus $75, 000 plus any interest and fees thereon.'”[4](Id. at ¶26.) In the same communication, Gaudioso informed Foster that McKenna had admitted to taking $125, 000. (Id.) In response, Foster advised Gaudioso that contacting the relevant authorities would “not be inappropriate” and recommended that Gaudioso “get to the total bottom of the outstanding issues and then have Tim [McKenna] document [each unauthorized transaction] in writing … and then get a further commitment in writing that he will repay everything by a date certain.” (Id. at ¶27.)

         In this August 28 communication, Foster also advised Gaudioso that he would be meeting with Timothy McKenna and his wife, Catharine McKenna, on August 30, 2012. (Id. at ¶28.) Saul Ewing LLP billing records indicate that the meeting concerned “McKenna American restructuring.”[5] Although this meeting and its $360 cost were noted on Laurel Gardens' September 13, 2012 invoice from Saul Ewing LLP, Timothy McKenna paid this amount separately by personal check.[6] (Id. at ¶¶30-34.) When Gaudioso received Saul Ewing LLP's invoice, receipt of this payment had been noted and deducted from the total amount charged to the Laurel Gardens Entities. (Id. at ¶33.) Despite this, Plaintiffs claim that “Saul Ewing billed LGH for legal services provided to Tim, Michael, and Catherine McKenna, and McKenna American.” (ECF Docket No. 268 at 2.)

         Timothy McKenna remained a consultant to Laurel Gardens continuously from 2012 until June 2014, when Gaudioso terminated him for cause. (ECF Docket No. 281 at ¶55.) Timothy McKenna's son, Michael McKenna, who had served as Laurel Gardens' general manager since 2012, resigned from his position on November 9, 2014. (Id. at ¶56.) When Michael McKenna resigned, the Laurel Gardens Entities alleged that he had also misappropriated company secrets and taken a Laurel Gardens Entities computer and cellular telephone containing sensitive and confidential information. (Id. at ¶57.)

         In December 2014, the Laurel Gardens Entities filed a suit in the Delaware Court of Chancery against Timothy McKenna, Michael McKenna, Arnold Dunn, and MAT Site Management, LLC. (Id. at ¶59.) The Delaware complaint alleged that while Michael McKenna was still employed by Laurel Gardens, he, Timothy McKenna, and Arnold Dunn formed a competing business, MAT Site Management, LLC. (Id. at ¶60.) Laurel Gardens further alleged that in doing so, the three conspired to misappropriate Laurel Gardens trade secrets and interfere with Laurel Gardens' business relationships. (Id.)

         These allegations against Timothy and Michael McKenna are “at the center” of the Plaintiffs' wide-ranging claims against the defendants named in their Amended Complaint. (ECF Docket No. 43 at ¶45.) In the Amended Complaint, Plaintiffs allege that, while the McKennas “are at the center of a[n alleged] criminal enterprise … [t]heir network is organized into cells[.]” (Id.) The “cell” currently before the court involves the Saul Defendants: Saul Ewing LLP, David Falcone, and John Snyder.

         Both David Falcone and John Snyder knew Timothy McKenna prior to their involvement with the Laurel Gardens Entities. (Snyder Dep. 9:14-10:15; Falcone Dep. 10:4-11:18.) David Falcone first met McKenna when an entity McKenna was affiliated with became a client of Saul Ewing LLP in 2005. (Falcone Dep. 10:4-11:18.) John Snyder met Timothy McKenna in 1977 or 1978 when McKenna was a client of Snyder's former law firm. (Snyder Dep. 9:14-10:15.) While employed by this law firm, Snyder worked on at least one of McKenna's matters with the firm. (Id. at 10:10-10:20.) Since joining Saul Ewing LLP in 1997, McKenna has retained Snyder multiple times. (Id. at 10:24-11:22.)

         Saul Ewing LLP, through its attorney David Falcone, began its formal relationship with the Laurel Gardens Entities through a January 5, 2011 letter of representation sent to AWS. (ECF Docket No. 258, Ex. T.) On March 1, 2012, the same day that Laurel Gardens Holdings (“LGH”) was created, Saul Ewing LLP John Snyder sent the newly-formed company a letter of representation. (Id. at Ex. U.) Saul Ewing LLP later advised Gaudioso by a February 19, 2015 letter that its representation of Laurel Gardens had ended. (Id. at ¶65.)

         Defendant David Falcone's relationship with the Laurel Gardens Entities extended beyond legal services. (Id. at ¶40.) Beginning in 2012, Laurel Gardens provided landscaping services to David Falcone.[7] (Id. at ¶40.) Laurel Gardens prepared monthly invoices for the landscaping work, charges for which totaled $29, 182.11. (Id. at ¶41.) Among these invoices was an October 24, 2012 bill for $17, 147.17. (Id. at ¶42.) Although Laurel Gardens provided the landscaping services and generated corresponding bills, it did not send Falcone an invoice or bill for the services until March 2014. (Id. at ¶43.)

         On March 12, 2014 Laura Mohr, Laurel Gardens' bookkeeper, emailed Falcone stating that she “was asked to forward [to him] copies of the attached invoices [for unpaid landscaping work].” (Id. at ¶44.) This was the first time Falcone had received an invoice for these landscaping services. (Id. at ¶46.) The same day, Falcone responded to Mohr assuring her that he would “be sure to pay these right away” as he “had not previously received them.” (Id. at ¶48.) Falcone and Mohr continued to exchange emails and Mohr ultimately sent Falcone a revised invoice for $26, 611.41. (Id.) On March 17, 2014 Falcone paid this outstanding revised invoice via wire transfer. (Id.)

         On April 21, 2017, in response to these facts, Plaintiffs asserted the following federal and state law claims against the Saul Defendants: “(1) aiding and abetting breach of fiduciary duty; (2) civil conspiracy; (3) RICO violations under 18 U.S.C. §§ 1962(c), 1962(b) & 1962(d); (4) fraud; (5) conversion; [(6)] negligent misrepresentation; and (7) ...

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