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Court News Ohio

8th District: Spouse Owes Development Firm $700,000 in Attorney Fees After Jailed Husband’s Deceit Revealed

After her husband was fired for fraud, the spouse of a commercial development firm executive sued the company to get her 10 percent share of profits earned by the firm for construction of several federal buildings, including FBI offices. Instead, she has been ordered to pay more than $700,000 in attorney fees and expenses.

The Eighth District Court of Appeals recently upheld a Cuyahoga County Common Pleas Court summary judgment verdict against Mary Berryhill that forces her to pay the principals of Carnegie Management and Development Corp. of Westlake more than $200,000 in damages along with the attorney fees.

The court’s ruling comes after a lengthy battle between Mary, and her husband Robert J. Berryhill of Aurora, and Rustom and Mary Khouri, owners of Carnegie Management and Development, which included the common pleas court vacating a settlement agreement between the two couples.

According to the court, Robert Berryhill was hired by Carnegie in 1998 claiming he had a bachelor’s degree in real estate development and a master’s degree in real estate development and finance. He was named Carnegie’s vice president of development, and he helped the firm win several federal construction projects, including FBI office work in Cleveland, Indianapolis, and Knoxville, Tenn.

Berryhill arranged with Carnegie to set up various limited liability companies, and it was through those companies that Carnegie would compensate Berryhill. In projects that started in 2008, his wife, Mary, was made a 10- percent partner in those companies. In 2009, Carnegie discovered Berryhill was embezzling from the company and fired him. They later learned he also lied about having the college degrees.

Although he was no longer with Carnegie, Mary Berryhill filed suit in 2010, claiming the company still profited from Berryhill’s work and, therefore, she was entitled to 10 percent of the profits Carnegie owed the companies set up by the Berryhills.

Over the next two years, the parties negotiated a settlement that they entered into in December 2012. In March 2013, the Khouris asked the trial court to vacate the settlement after claiming the Berryhills misled them about their financial situation.

The Khouris discovered that Berryhill became an executive for a company that won a contract to build a new veterans affairs outpatient center in Butler, Pa. According to press reports, that company was Westar Development Corp. That work, the court  said, allowed the Berryhills to have numerous assets, including houses, luxury cars, and a $5.2 million ownership-interest in the outpatient center construction.

When a tip to the VA’s inspector general about Berryhill’s past started an investigation, the VA outpatient center work was brought to a halt. In April 2013, Berryhill was indicted by the federal government for his actions when he was with Carnegie. He was later sentenced to more than six years in prison and ordered to pay restitution of more than $300,000.

With the new information in hand, the trial court voided the settlement and ruled that the Berryhills owed the Khouris $220,000 in damages. Noting that the case involved complex and novel legal issues, the court also awarded the Khouris $693,000 in attorney fees, and $33,000 in legal expenses.

Mary Berryhill appealed the ruling, arguing her husband never lied to the Khouris about his education when he was hired and that his prior experience is why he was hired. In addition, she argued Carnegie was not harmed by her husband’s act and continued to profit from the projects he landed for the firm.

In a 2-1 decision, Judge Mary Eileen Kilbane wrote that Berryhill clearly made false representations about his credentials when hired and permitted the company to present his resume with false credentials to potential clients.

“In addition, it is undisputed that the false information was relied upon by (the Khouris) because Robert’s falsely stated credentials were regularly included in proposals for governmental projects that would plainly demand truthful information regarding Robert and other key personnel involved in the project,” Judge Kilbane wrote.

While Berryhill argued the Khouris attorney, James Wooley and his associates at the Jones Day law firm, should receive about $48,000 in legal fees, the court upheld the ruling of more than $700,000. Judge Kilbane described the fraud by Robert Berryhill as extensive and that Wooley documented the fees were justified for more than three years of litigation.

“The fraud even continued throughout the settlement period and it was not until the conclusion of the litigation that (the Khouris) finally obtained an accurate picture of the conduct and assets of the Berryhills,” Judge Kilbane noted.

Judge Kathleen Ann Keough dissented and argued that the trial court should have heard evidence as to whether Berryhill did misrepresent his educational background when he was hired or if Carnegie hired him based on his prior experience. Judge Keough also questioned if Carnegie was harmed by paying Berryhill $3 million during his 11-year tenure as he brought in several major projects.

In addition, Judge Keough questioned that while it might be proper not to compensate Robert Berryhill for his fraudulent behavior, the court has not been provided evidence to indicate why Mary should not be paid if she did nothing wrong.

“In my view, the (Khouris) have failed to show why a third-party’s ownership interest should be extinguished based on another’s illegal actions unrelated to the contract that created the ownership interest,” she wrote.

Judge Kenneth A. Rocco concurred in the decision.

Berryhill v. Khouri, 2014-Ohio-5041
Civil Appeal From:  Cuyahoga County Court of Common Pleas
Judgment Appealed From Is: Affirmed
Date of Judgment Entry on Appeal: November 13, 2014

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