Opinion ID: 77997
Heading Depth: 3
Heading Rank: 2

Heading: Frey

Text: Judge Couvillion found the following. At some point in 1978, Bruce Frey formed a partnership, BJF Development, to convert apartment complexes into condominiums for sale to individual purchasers. Frey expected to receive development and management fees from these conversion projects. He met with Kanter for tax advice on the projects. In the course of their meeting, Kanter indicated that Kanter and/or entities associated with Kanter could help raise the capital necessary for Frey's projects. In return, Kanter expected a share of any development and management fees earned. Frey became involved with Prudential in 1979, when he approached an executive in Prudential's Miami regional office and offered to purchase for $20 million an apartment complex owned by a pension fund that Prudential managed. As Prudential already had considered selling the complex and $20 million was more than its appraised market value, the regional executive consulted Ballard. Ballard advised selling, noting especially that refusing the offer might violate Prudential's fiduciary duty to the pension fund. Having purchased the complex, Frey set about converting it. Kanter arranged for several entities to invest in the project, including Zeus Ventures, Incorporated (Zeus), a subsidiary of IRA. Given the success of this project, the regional executive asked Frey to work with Prudential in converting several other apartment complexes owned by Prudential. Kanter again arranged for several entities to invest in these projects, including Zeus. In 1981, Frey and Kanter's fee-sharing agreement was formalized in a written agreement between BJF Development and Zeus. Per the agreement, Frey would pay Zeus 5% of its development fees and 20% of its profits from Prudential projects. In keeping with this agreement, Frey's partnership made payments to Zeus for several of its projects. In concluding that the payments from Frey to Zeus were not part of a kickback scheme, Judge Couvillion found that Prudential initially agreed to do business with Frey because he offered more than the market value of the complex in question. Judge Couvillion further found that any future dealings between Frey and Prudential were the doing of an un-involved Prudential regional executive. It was a sound business arrangement for both parties. Judge Haines stated that Judge Couvillion's findings were incomplete and added that Frey paid Kanter's share of the fees to Zeus only because Kanter instructed him to do so. On one occasion, Frey made a check payable to Kanter, but later voided the check and reissued it to Zeus. In concluding that the Frey payments were evidence of a kickback scheme, Judge Haines reasoned that Judge Couvillion clearly erred in finding that Kanter did not personally earn the Frey payments. Specifically, Judge Haines stated that Judge Couvillion's finding that Kanter told Frey that Kanter and/or entities associated with him could help raise the necessary capital was manifestly unreasonable. Judge Haines stated that Frey was relying solely on Kanter to help raise capital and that, aside from the investments made by Zeus, no one acting on behalf of a Kanter-related entity assisted Frey in any manner. It was only on Kanter's instructions that Frey made the payments to Kanter-related entities. Judge Haines further stated that the fact that Frey made a check payable to Kanter, rather than Zeus, indicated that it was Kanter who earned the money. Judge Haines also reasoned that, while there was no direct documentary evidence that Kanter agreed to share this money with Ballard and Lisle, he could infer from the circumstances that Kanter told Ballard and Lisle that if they could influence Prudential to do business with Frey, he would share with them a portion of the fees paid by Frey. The circumstances that Judge Haines pointed to were Ballard's role in approving the sale of the pension-fund-owned apartment complex and Prudential's extensive future dealings with Frey. Such a conclusion simply ignores the facts that were found by Judge Couvillion and supported in the record that the Frey deals with Prudential originated with a Prudential executive located in Miami, Florida, were sound business deals for all concerned, and all monies paid were fully reported on the appropriate tax returns.