EDWARDSVILLE – David Cates of Swansea concealed settlements worth millions when he and former partner Ryan Mahoney of Glen Carbon signed a separation agreement, Mahoney’s counsel Thomas Rosenfeld told Circuit Judge Sarah Smith on March 23.
Smith heard an hour of arguments over whether Mahoney should pursue fraud and fiduciary claims against Cates in her court or in arbitration.
Mahoney appeared and Cates didn’t.
Mahoney’s complaint alleged Cates concealed $10 million in fees they should have shared.
As a penalty, Mahoney proposed that all of it should belong to him.
Cates’s counsel John Kurowski of O’Fallon moved to dismiss the complaint and arbitrate it.
At the hearing, Kurowski said Cates and Mahoney formed a limited liability company in 2013.
He said they unequivocally agreed on arbitration of any controversy.
He added that a separation agreement they signed last year didn’t modify the operating agreement.
“The language is very very straightforward,” he said.
“There’s no reason to keep this case in this court,” he added.
Rosenfeld set a white board on an easel quoting the separation agreement from last year.
It stated, “Cates represents and warrants that, with the exception of the opioid litigation, none of the cases in Schedule A of this agreement had resolved prior to May 27, 2022.”
“Cates further acknowledges that Mahoney has relied on said representations in entering into this agreement and in accepting the payment amounts estimated in paragraph 1,” it continued.
A white board also quoted from the operating agreement of 2013 that controversy “shall be determined by the arbitrator solely in accordance with the terms of this agreement.”
Rosenfeld said, “We’re not asking the court to rewrite any document.”
He said the release purported to waive Mahoney’s right.
He also said Cates’s representations and warranties were clearly false.
Rosenfeld said the language of the operating agreement was nowhere in the separation agreement.
He added that the separation agreement could have incorporated the operating agreement.
He told Smith they wanted to pretend the separation agreement didn’t exist.
“That’s where the injury occurred, in the separation agreement,” he said.
When Rosenfeld called it concealment, Kurowski objected and Smith sustained the objection.
He said their reply to his opposition brief showed they know they’ve got problems.
He added that they could have put an arbitration provision into the separation agreement.
“They’re separate and distinct,” he said.
“There is no arbitration agreement in the separation agreement,” he continued.
Smith asked Rosenfeld why he didn’t attach the operating agreement to the complaint.
“We’re not suing under it,” he responded.
Kurowski said there was no limit on the operating agreement.
“You intend it to cover everything,” Kurowski said.
“You don’t want this business in the courthouse,” he added.
Rosenfeld said arbitration couldn’t resolve fraud in the separation agreement.
“You’ve got a lot of waivers in the separation agreement,” he said.
“All these issues are outside of the operating agreement,” he added.
“The claims with respect to those are adjudicated here,” Rosenfeld continued.
Smith took it under advisement.