Opinion ID: 77997
Heading Depth: 3
Heading Rank: 4

Heading: Property Management Systems, Incorporated (PMS)

Text: Judge Couvillion found the following. Kenneth Schnitzer was a real estate developer. In the course of his development business, he met Ballard. In 1974, he acquired for $1.3 million a small real estate management company, PMS. He immediately set about expanding PMS's management business. At the time, PMS managed a relatively small number of Prudential's properties. In an effort to increase his Prudential business, Schnitzer approached Ballard and offered to give Prudential a 50% interest in PMS, believing that Prudential would award PMS additional management contracts if it had a stake in PMS's profitability. Ballard's superiors seriously considered, but ultimately rejected, Schnitzer's offer. In the course of Schnitzer's talks with Prudential executives, they told him of their interest in standardizing the operating reports prepared by management companies on properties. Although his proposal had been rejected, Schnitzer applied this knowledge and standardized his operating reports for the Prudential properties he already managed. Thereafter, his business with Prudential increased substantially. In 1977, Kanter told Schnitzer that he and/or IRA could help PMS obtain more management business, possibly with the Pritzker family. In order to obtain Kanter's and IRA's assistance, Schnitzer sold IRA a 47.5% interest in PMS for $150,000. By 1979, however, Schnitzer concluded that Kanter and/or IRA had failed to produce the additional business promised. Accordingly, Schnitzer purchased from IRA the 47.5% interest in PMS for $3.1 million, to be paid over a 10-year period with interest. In concluding that the PMS transactions were not demonstrative of a kickback scheme, Judge Couvillion found that Schnitzer did not need Kanter's, Ballard's, or Lisle's help obtaining Prudential business, as his contracts with Prudential had increased substantially after he standardized his operating reports. Judge Couvillion found that Schnitzer sold a portion of PMS to IRA because he needed help getting business from sources other than Prudential. Judge Haines stated that Judge Couvillion's findings were incomplete and added that Schnitzer conferred with Ballard before selling an interest in PMS to IRA. Judge Haines also noted that, after IRA acquired an interest in PMS, PMS's business with Prudential continued to grow and its gross income increased substantially. In concluding that Judge Couvillion erred in finding that the PMS deal was not part of a kickback scheme, Judge Haines reasoned that Judge Couvillion's finding that PMS contracted for Kanter's and IRA's services was manifestly unreasonable. Specifically, Judge Haines stated that Schnitzer was relying solely on Kanter and that there [was] no credible evidence that anyone other than Kanter brought business to PMS. Judge Haines also reasoned that Kanter, Ballard, and Lisle realized that they could earn an easy profit by acquiring PMS stock and then using Ballard's and Lisle's influence at Prudential to direct Prudential management contracts to PMS. The substantial appreciation between their $150,000 purchase price and $3.1 million sale price represented income to Ballard, Kanter, and Lisle, routed through IRA. While Judge Haines acknowledged that there was no direct evidence of such an arrangement, he argued that the surrounding circumstances strongly support[ed] an inference of such. Specifically, Judge Haines pointed to the facts that Ballard and Lisle knew that Schnitzer was so anxious to expand PMS business that he was willing to part with nearly half of PMS's stock for nothing, Schnitzer conferred with Ballard before selling part of PMS to IRA, and Ballard and Lisle were in positions to increase PMS' portfolio of Prudential contracts. In keeping with Judge Couvillion's finding that Schnitzer did not need Kanter's assistance in bringing in more Prudential business, Schnitzer testified at trial that he did not have any interest in Kanter bringing in more Prudential business, as PMS already had that relationship. Rather, Schnitzer hoped that Kanter could bring in Hyatt business. Schnitzer was willing to sell an interest in PMS for something north of nothing to bring in this extra business. Again, credibility is the key factor. Judge Couvillion heard Schnitzer's testimony, evaluated it and found accordingly.