Chalos & Co, P.C. Marine Managers, Ltd et al

Filing 49

ORDER AND REASONS - the Court GRANTS IN PART plaintiff's Motion 39 for Summary Judgment. IT IS ORDERED that plaintiff shall file within fourteen (14) days from entry of this Order a motion for damages with appropriate support. The Court DENIES AS MOOT plaintiff's Motion 43 to Strike Defendants Summary Judgment Evidence.. Signed by Judge Sarah S. Vance on 10/23/15. (jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
CHALOS & CO., P.C.

CIVIL ACTION

VERSUS

NO: 14-2441

MARINE MANAGERS, LTD., ET AL.

SECTION: R(5)

ORDER AND REASONS
Plaintiff Chalos & Co, P.C. moves for summary judgment on its breach
of contract claim against defendants Marine Managers, Ltd. and Homeland
Maritime, Ltd.1 Chalos also moves to strike portions of defendants’ summary
judgment evidence.2 For the following reasons, the Court grants the motion
for summary judgment on the issue of liability, but finds that Chalos’s motion
lacks sufficient information for the Court to determine an appropriate
damages award at this time. The Court denies as moot Chalos’s motion to
strike defendants’ summary judgment evidence.

1

R. Doc. 39.

2

R. Doc. 43.

I.

BACKGROUND
A.

Parties

Defendants Marine Managers, Ltd. and Homeland Maritime, Ltd. are
foreign corporations organized and existing under the laws of the Marshall
Islands, with their principal place of business in Greece.3 At all relevant times,
Marine and Homeland managed and operated the M/V TRIDENT
NAVIGATOR, a bulk cargo vessel that traveled between international ports.4
Matthaios Fafalios, whom the Court dismissed from this litigation on
August 28, 2015, is a native of Greece. Fafalios presently resides in Louisiana.5
On December 3, 2013, Marine and Homeland employed Fafalios as Chief
Engineer of the M/V TRIDENT NAVIGATOR.6
Plaintiff Chalos & Co., P.C. is a law firm with offices in New York, Texas,
and Florida, as well as offices in Greece.7 Following a United States criminal
investigation into allegations that crewmembers aboard the M/V TRIDENT

3

R. Doc. 27 at ¶¶ 2-3.

4

See id. at 1 ¶ 2.

5

R. Doc. 20 at 1 ¶ 2.

6

R. Doc. 15-1 at 1.

7

See R. Doc. 1 at 1.
2

NAVIGATOR illegally discharged oily waste into the ocean, Marine and
Homeland hired Chalos as independent legal counsel for Fafalios.8
B.

Procedural Background

On October 24, 2014, Chalos filed this breach of contract action against
Marine and Homeland.9 Chalos argues that after signing a retainer agreement
with the firm on Fafalios’s behalf in February 2014, Marine and Homeland
unilaterally declared the agreement null and void on June 17, 2014.10 Chalos
continued to represent Fafalios during the Government’s investigation and
eventual criminal prosecution even though Marine and Homeland stopped
paying the bills.11 Chalos now seeks to enforce the parties’ retainer agreement
and to recover the legal fees, costs, and expenses incurred in connection with
Chalos’s continued representation of Fafalios.12
On February 2, 2015, Marine and Homeland filed a third-party
complaint against Fafalios alleging that he fraudulently induced them to enter

8

See R. Doc. 27 at 5 ¶¶ 14-15.

9

R. Doc. 1.

10

R. Doc. 27 at 5 ¶¶ 15-16.

11

See id. at 6 ¶ 17.

12

Id. at 7 ¶ 22.
3

the retainer agreement with Chalos.13 Fafalios moved to dismiss the thirdparty complaint based on the forum selection clause in his employment
contract with Marine and Homeland, which required all disputes arising out
of the employment contract to be litigated in Greece.14 The Court granted
Fafalios’s motion to dismiss on forum non conveniens grounds on August 28,
2015.15
C.

Factual Background and Summary Judgment Record

On December 3, 2013, Marine and Homeland (defendants) hired
Fafalios to serve as Chief Engineer for defendants’ vessel, the M/V TRIDENT
NAVIGATOR.16

In mid-January 2014, approximately one month into

Fafalios’s employment, the United States began investigating the M/V
TRIDENT NAVIGATOR and its crew after the vessel voyaged from Saudi
Arabia to New Orleans, Louisiana. Based on a tip received from one or more
of the vessel’s crewmembers, the Government suspected that the M/V
TRIDENT NAVIGATOR had illegally discharged “oily waste” in violation of the

13

R. Doc. 20.

14

See R. Doc. 24.

15

See R. Doc. 35.

16

R. Doc. 27 at 3 ¶ 9.
4

Act to Prevent Pollution from Ships, 33 U.S.C. § 1901, et seq.17 Allegedly,
Fafalios instructed certain crewmembers to construct a “magic pipe”18 to
bypass the vessel’s “Oily Water Separator” and to discharge bilge water and
other oily waste directly into the ocean. Fafalios then falsified handwritten
entries in the M/V TRIDENT NAVIGATOR ’s “Oil Record Book” to conceal the
illegal discharge. Fafalios, along with the vessel’s Second and Third Engineer,
was responsible for maintaining the information in the Oil Record Book.19
Fafalios also deleted photographic evidence of the crime after confiscating one
of the Filipino crewmember’s personal cell phone.20
There appears to have been much discord between the M/V TRIDENT
NAVIGATOR’s Greek crewmembers and Filipino crewmembers. The Greeks
allegedly believed certain Filipino crewmembers were the Government’s
whistleblowers. The Greek crewmembers told defendants, companies based
in Greece, and their attorney, who is also Greek, that the entire criminal
17

Id. at 3-4 ¶ 11.

18

A “magic pipe” is a plastic or rubber pipe or hose that is
temporarily installed to the vessel’s piping equipment to bypass the vessel’s
“Oily Water Separator” and discharge bilge water and oily waste directly
into the sea.
19

R. Doc. 39-6 at 7 (Chalos Exhibit 19) (Deposition of Matthaios
Fafalios, July 29, 2015, at 18:4 - 19:19, 124:23 - 125:14).
20

R. Doc. 40 at 2.
5

investigation amounted to false and malicious accusations by the Filipinos. At
his recent deposition, Fafalios testified that he believed the Filipino
crewmembers gave perjured testimony at his criminal trial so the Government
would prevail and the Filipinos could collect a whistleblower reward.21
Defendants also emphasize that the M/V TRIDENT NAVIGATOR’s Second and
Third Engineers were both Greek citizens like Fafalios who supported
Fafalios’s version of events.22
On January 31, 2014, defendants executed an “Agreement on Security”
with the United States Coast Guard.23 The Agreement provided that ten M/V
TRIDENT NAVIGATOR crewmembers, including Fafalios, would remain
within the jurisdiction of the Eastern District of Louisiana and that defendants
would provide these crewmembers with, among other things, lodging and
transportation to and from all government interviews, appearances, and other
matters related to the Government’s pending criminal investigation.24 Though

21

See R. Doc. 39-6 at 12 (Chalos Exhibit 19) (Deposition of
Matthaios Fafalios, July 29, 2015, at 37:1 - 8); R. Doc. 40-4 at 5
(Defendants Exhibit C) (same).
22

See R. Doc. 40 at 3.

23

See R. Doc. 39-3 at 38 (Chalos Exhibit 9) (Agreement on
Security); R. Doc 40-18 at 1 (Defendants Exhibit Q) (same).
24

See R. Doc. 39-3 at 42-43.
6

not expressly required by the Agreement on Security or the defendants’
respective employment contracts with each crew member, defendants hired
attorneys to represent the ten crewmembers during the course of the
Government’s investigation and any eventual criminal proceedings.25
Defendants explain their motivation for hiring independent counsel as follows:
[A]s a shipping company based in Greece, [defendants] felt a duty
to support Fafalios, a Greek employee and seafarer whom
[defendants] believed had served [them] dutifully and was
innocent of any wrongdoing, in what was viewed as a malicious
and baseless attack begun by one or more Filipino crewmen
interested in personal gain. For similar reasons, [defendants] also
appointed independent counsel for the other Greek officers whom
the [Government] had placed under suspicion . . . .26
Originally, defendants hired an English-speaking attorney to represent
Fafalios.27 Fafalios then requested a different lawyer–specifically, a Greek
lawyer named George Gaitas, who worked for Chalos.28 At Fafalios’s urging,
defendants hired Chalos to be Fafalios’s criminal defense counsel, and the
25

See R. Doc. 39-5 at 94-95 (Chalos Exhibit 18) (Deposition of
Homeland Maritime Through Captain Marcos Papadopoulos, July 22, 2015,
at 51:20 - 52:16); R. Doc. 40-14 at 5 (Defendants Exhibit M) (same).
26

R. Doc. 40 at 4.

27

R. Doc. 39-6 at 10 (Chalos Exhibit 19) (Deposition of Matthaios
Fafalios, July 29, 2015, at 30:11 - 15); R. Doc. 40-4 at 4 (Defendants Exhibit
C) (same).
28

R. Doc. 39-6 at 10, 12-13 (Chalos Exhibit 19) (Deposition of
Matthaios Fafalios, July 29, 2015, at 30:16 - 18, 40:10 - 42:5).
7

parties confirmed Fafalios’s legal representation in a retainer agreement
executed in full on February 17, 2014.29
Defendants’ retainer agreement with Chalos provides in relevant part:
The object of the legal representation is the current investigation
by U.S. government authorities . . . and any eventual criminal
prosecution that may cast Mr. Fafalios as a defendant. Mr. Fafalios
has requested us to represent him in these matters and you have
agreed, as his employer, to pay our legal fees, costs, and expenses
in accordance with the following terms and conditions.
We agree to represent Mr. Fafalios throughout the investigation
and, after it is completed, in any criminal prosecution that may be
pursued by the competent U.S. Government authorities. It should
be understood that the attorney client relationship under this
engagement will be between our law firm and Mr. Fafalios.
Neither Marine Managers, Ltd. nor Homeland Maritime, Ltd. will
be regarded [as] our clients. Our duty to you will be to represent
Mr. Fafalios to the best of our professional ability. You will not be
responsible to Mr. Fafalios for the quality or the results of our
representation. You will be responsible to us for the payment of
our professional fees, costs and expenses under this agreement,
but under no circumstances will this entitle you to give us any
instructions on how to represent Mr. Fafalios. At all times we will
be entitled to exercise independent judgment on behalf of our
client, Mr. Fafalios, based on his instructions and considering
solely his best interests.
....
If at any time in the course of the representation you do not timely
replenish our retainer deposit as provided in this letter we will be
entitled to take all measures, including legal action, which are
29

R. Doc. 39-3 at 23 (Chalos Exhibit 5) (Engagement and Retainer
Agreement).
8

appropriate in order to collect any fees, costs and expenses,
incurred by us in representing Mr. Fafalios. Only Mr. Fafalios as
our client will be entitled to terminate our appointment as his
attorneys in this matter, but you will remain responsible for fees[,]
costs and expenses incurred up to the time of the termination of
our legal representation of Mr. Fafalios.
....
This engagement letter, and retainer agreement, and all matters
arising thereunder or in connection shall be governed by the laws
of the State of Louisiana. This engagement letter and retainer
agreement contains the entire agreement between us and may
only be changed by a written amendment executed by both parties
hereto.30
The retainer agreement does not condition the contract on Fafalios’s
factual innocence, nor does it mention defendants’ belief in Fafalios’s factual
innocence. Nonetheless, defendants argue that they hired independent legal
counsel for their Greek crewmembers because they believed, based on
statements made by the Greek officers, including Fafalios, that the vessel’s
crew was innocent of intentional wrongdoing.31

Defendants’ attorney

submitted an affidavit, which declares that “relying heavily” on Fafalios’s
assertions of innocence, he, on behalf of defendants, hired independent legal

30

Id. at 23-25.

31

R. Doc. 40 at 3-4.
9

counsel to represent the vessel’s Greek officers.32 Likewise, two of the
attorneys hired to represent the other Greek crewmembers submitted
affidavits declaring that they “understood that [defendants] believed based on
the initial statements that no illegal discharges had ever occurred from the
Vessel . . . .”33 Further, these attorneys stated that, upon hiring them as
independent legal counsel, defendants’ attorney “expressed that [defendants’]
reason for seeking independent counsel . . . was to ensure that employees who
served [defendants] in good faith received [defendants’] support, and to
facilitate the coordinated defense of any innocent parties . . . who might
nonetheless be charged by the Government.”34 On the other hand, Fafalios’s
counsel, George Gaitas, submitted a declaration in which he stated, “[a]t no
time . . . was I advised by anyone or had [sic] any reason to believe that the

32

Tadros).

R. Doc. 40-7 at 2 (Defendants Exhibit F) (Affidavit of Daniel A.

33

R. Doc. 40-9 at 2 (Defendants Exhibit H) (Affidavit of Brian J.
Capitelli); R. Doc. 40-10 at 1-2 (Defendants Exhibit I) (Affidavit of Dorothy
Manning Taylor).
34

R. Doc. 40-9 at 2 (Defendants Exhibit H) (Affidavit of Brian J.
Capitelli); R. Doc. 40-10 at 2 (Defendants Exhibit I) (Affidavit of Dorothy
Manning Taylor).
10

reason why [defendants] were agreeing to pay for the representation of Mr.
Fafalios . . . was their belief that he was innocent . . . .”35
During the course of Chalos’s representation of Fafalios, Fafalios’s
attorney and defendants’ attorney exchanged numerous emails. Defendants
contend that these emails not only reveal that Chalos knew or should have
known that defendants originally believed Fafalios was innocent of intentional
wrongdoing, but that Chalos also independently believed Fafalios was
innocent. For example, Fafalios’s attorney George Gaitas repeatedly referred
to the Filipino crewmembers who reported the illegal discharge to the
Government as “would-be whistleblowers,”36 “false whistleblowers,”37 and
“self-proclaimed whistleblowers.”38 Gaitas also reported finding “objective
evidence that contradicts the statements . . . suggesting that on that date a
bypass was used[,]” and concluded “[s]o much for the allegations regarding
December 31, 2013 . . . .”39 On another occasion, Gaitas believed that certain

35

R. Doc. 39-2 at 5 (Declaration of George A. Gaitas in Support of
Motion for Summary Judgment).
36

R. Doc. 40-11 at 3, 14 (Defendants Exhibit J).

37

Id. at 9, 13, 21, 41.

38

Id. at 17, 28, 33.

39

Id. at 9.
11

evidence “virtually debunk[ed] the government’s version of the events, i.e. that
there was pumping overboard of oily waste through a bypass. . . . Clearly the
self-proclaimed whistle blowers are lying.”40 When presented with video
evidence that supported the Government’s illegal discharge theory, Gaitas
concluded, “[i]t follows that this video was staged and it just might be that the
entire story of the false ‘whistleblowers’ is a fiction.”41 Gaitas speculated that
these whistleblowers concocted the illegal discharge story to collect a
monetary reward.42 Further, he wrote, “[m]y client contemplates a civil action
. . . for the damages that these false representations have caused to him.”43
Again, Gaitas wrote, “[t]hese things are technically impossible. Bit by bit my
impression is being reinforced that the false whistle-blowers have put together
a story in order to collect a reward.”44

40

Id. at 33.

41

Id. at 41.

42

Id. at 14.

43

Id.

44

Id. at 21.
12

On June 17, 2014, defendants notified Chalos that they considered the
retainer agreement to be null and void and refused to continue to pay
Fafalios’s legal fees.45 Specifically, defendants wrote:
[E]vents subsequent to the Company’s execution of the
Engagement Letter with your firm on February 17, 2014, have
demonstrated that the Company’s agreement to pay the costs and
fees associated with Mr. Fafalios’s defense was void ab initio. The
Company hereby provides notice that it will not pay for any costs
or fees incurred in relation to Mr. Fafalios’s defense beyond June
17, 2014. Please provide us with an invoice for services rendered
through that date . . . .46
When pressed for further explanation, defendants elaborated:
[Defendants] were under no obligation to pay [Fafalios’s] legal
expenses. Nonetheless, the Company undertook to voluntarily pay
the legal expenses believing that both the Company and its
employees, including Mr. Fafalios, were wrongfully accused of
crimes by the US Government. Moreover, at that time the
Company, on the basis of information it was receiving from Mr.
Fafalios, believed that Mr. Fafalios had performed his duties as an
officer. Mr. Fafalios assured the Company, and the Company
believed at that time, that no wrongdoing had occurred and that
facts and evidence would show that the present circumstances
arose from what was, at worst, a record-keeping clerical type of
mistake. All of these Company beliefs were induced by Mr.
Fafalios’[s] own statements to the Company and the US

45

R. Doc. 39-3 at 36 (Chalos Exhibit 8) (June 17, 2014 letter from
Chaffe McCall to Chalos & Co.); R. Doc. 40-12 at 1 (Defendants Exhibit K)
(same).
46

R. Doc. 39-3 at 36 (Chalos Exhibit 8) (June 17, 2014 letter from
Chaffe McCall to Chalos & Co.); R. Doc. 40-12 at 1 (Defendants Exhibit K)
(same).
13

Government, as well as by the statements of other Company
employees acting on Mr. Fafalios’s instructions. . . . Had the
Company been aware at the time of it’s [sic] entering the
agreement to pay Mr. Fafalios’[s] legal expenses the extent and
nature of his action as Chief Engineer of the Trident Navigator, it
would not have volunteered to cover those expenses.47
Despite defendants’ terminating their agreement to pay Fafalios’s legal fees,
Chalos continued to represent Fafalios, who proceeded to criminal trial and
was found guilty of illegal discharge of oily waste into the ocean, obstruction
of justice, and witness tampering on December 16, 2014.48 Chalos incurred an
additional $390,540.48 in legal fees and expenses associated with Fafalios’s
representation after June 17, 2014.49
Defendants argue that the retainer agreement with Chalos is null and
that therefore they are not be liable for Fafalios’s legal fees because defendants
agreed to the contract in error.50 Defendants’ assert that unbeknownst to them
at the time of entering the retainer agreement and contrary to defendants’

47

R. Doc. 39-3 at 61 (Chalos Exhibit 12) (June 18, 2014 email from
Tadros to Gaitas).
48

See R. Doc. 39-1 at 5; R. Doc. 40-6 (Defendants Exhibit E) (Jury
Verdict Form); United States v. Fafalios, No. 14-128, Section K (E.D. La.
2014).
49

Invoices).
50

See R. Doc. 39-4 at 45 (Chalos Exhibit 13) (Chalos Attorney
R. Doc. 40 at 10.
14

strict policies, Fafalios, while Chief Engineer of the M/V TRIDENT
NAVIGATOR, instructed certain crewmembers to illegally discharge oily waste
into the ocean and to deny this ever occurred if questioned by the
Government.51 Also unknown to defendants, Fafalios falsified entries in the
M/V TRIDENT NAVIGATOR’s Oil Record Book to conceal his illegal actions.52
Defendants assert that Fafalios misled defendants and their attorneys during
the investigation because Fafalios persistently asserted his innocence while
knowingly making false statements to defendants and others.53 Defendants
contend that they relied on Fafalios’s repeated assurances of innocence to
agree to pay for independent legal counsel to represent Fafalios in the
Government’s investigation and eventual criminal proceedings.54
According to defendants, only after they executed Chalos’s retainer
agreement did defendants learn about Fafalios’s misrepresentations.55

51

Id. at 7-8.

52

Id. at 2.

53

Id. at 8.

54

R. Doc. 40-7 at 2 (Defendants Exhibit F) (Affidavit of Daniel A.

Tadros).
55

See R. Doc. 39-3 at 36 (Chalos Exhibit 8) (June 17, 2014 letter
from Chaffe McCall to Chalos & Co.); R. Doc. 40-12 at 1 (Defendants Exhibit
K) (same).
15

Specifically, in March 2014, the Government disclosed to defendants that five
witnesses would testify that Fafalios had ordered the illegal discharge. The
Government also showed defendants two videos that supported the illegal
discharge theory. First, a crewmember re-enacted “the exact method” by
which the Greek officers had illegally discharged the vessel’s oily waste.
Second, the Government filmed part of their on-board investigation of the
M/V TRIDENT NAVIGATOR. When the Government disassembled the
vessel’s overboard discharge valve–which should only contain clear
water–dark liquid began spilling out, as if oil had passed through the
discharge valve.56 Finally, the vessel’s Second and Third Engineers, Greek
officers who had earlier fully supported Fafalios’s story, recanted their original
statements and admitted Fafalios had ordered the illegal discharge.57
On June 17, 2014, defendants notified Chalos that they considered the
retainer agreement null and that they would not be responsible for any future
legal fees incurred on Fafalios’s behalf.58

56

R. Doc. 40 at 7.

57

Defendants requested any

Id. at 7-8.

58

See R. Doc. 39-3 at 36 (Chalos Exhibit 8) (June 17, 2014 letter
from Chaffe McCall to Chalos & Co.); R. Doc. 40-12 at 1 (Defendants Exhibit
K) (same).
16

outstanding invoices through June 17,59 and defendants paid for the legal fees
and costs that Chalos had already incurred.60 Defendants paid a total of
$44,428.09 for Fafalios’s legal representation.61
Chalos now moves for summary judgment on its breach of contract
claim. Defendants oppose the motion.

II.

LEGAL STANDARD
Summary judgment is warranted when “the movant shows that there is

no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322–23 (1986); Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994). When assessing whether a dispute as to any material fact
exists, the Court considers “all of the evidence in the record but refrain[s] from
making credibility determinations or weighing the evidence.” Delta & Pine
Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398–99 (5th Cir.

59

See R. Doc. 39-3 at 36 (Chalos Exhibit 8) (June 17, 2014 letter
from Chaffe McCall to Chalos & Co.); R. Doc. 40-12 at 1 (Defendants Exhibit
K) (same).
60

R. Doc. 40-13 (Defendants Exhibit L) (Chalos & Co. invoices
and July 7, 2014 letter from Chaffe McCall to Chalos & Co.)
61

See R. Doc. 40 at 9.
17

2008). All reasonable inferences are drawn in favor of the nonmoving party,
but “unsupported allegations or affidavits setting forth ultimate or conclusory
facts and conclusions of law are insufficient to either support or defeat a
motion for summary judgment.” Galindo v. Precision Am. Corp., 754 F.2d
1212, 1216 (5th Cir. 1985); see also Little, 37 F.3d at 1075.
If the dispositive issue is one on which the movant will bear the burden
of proof at trial, the movant “must come forward with evidence which would
entitle it to a directed verdict if the evidence went uncontroverted at trial.”
Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264–65 (5th Cir. 1991).
The nonmoving party can then defeat the motion by either countering with
evidence sufficient to demonstrate the existence of a genuine dispute of
material fact, or “showing that the moving party's evidence is so sheer that it
may not persuade the reasonable fact-finder to return a verdict in favor of the
moving party.” Id. at 1265.
If the dispositive issue is one on which the nonmoving party will bear the
burden of proof at trial, the moving party may satisfy its burden by merely
pointing out that the evidence in the record is insufficient with respect to an
essential element of the nonmoving party’s claim. See Celotex, 477 U.S. at 325.
The burden then shifts to the nonmoving party, who must, by submitting or
referring to evidence, set out specific facts showing that a genuine issue exists.
18

See id. at 324. The nonmovant may not rest upon the pleadings, but must
identify specific facts that establish a genuine issue for trial. See, e.g., id.;
Little, 37 F.3d at 1075 (“Rule 56 mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against a party who fails
to make a showing sufficient to establish the existence of an element essential
to that party’s case, and on which that party will bear the burden of proof at
trial.” (quoting Celotex, 477 U.S. at 322)).
In nonjury cases, such as this one,62 where the judge is the ultimate
finder of fact, the Fifth Circuit suggests that a “more lenient standard for
summary judgment” is appropriate. U.S. Fid. & Guar. Co. v. Planters Bank &
Trust Co., 77 F.3d 863, 865 (5th Cir. 1996). Specifically, at the summary
judgment stage of a bench trial, the judge may have “the limited discretion to
decide that the same evidence, presented to him or her as trier of fact in a
plenary trial, could not possibly lead to a different result.” Id. at 866. That is,
“if there are no issues of witness credibility, the court may conclude on the
basis of the affidavits, depositions, and stipulations before it, that there are no
genuine issues of material fact, even though decision may depend on
inferences to be drawn from what has been incontrovertibly proved.” Id.
62

See R. Doc. 9 at 3 (January 22, 2015 Scheduling Order noting
that “[t]rial will commence . . . before the District Judge without a jury”).
19

Thus, “if a trial on the merits will not enhance the court’s ability to draw
inferences and conclusions,” then the court should draw those inferences
“without resort to the expense of trial.” In re Placid Oil Co., 932 F. 2d 394,
398 (5th Cir. 1991).

III. DISCUSSION
A.

Admissibility of Parole Evidence

Neither Chalos nor defendants dispute that Louisiana law applies to
Chalos’s breach of contract claim.63 Under Louisiana law, four elements are
necessary to form a valid, enforceable contract: (1) capacity, (2) consent, (3)
object, and (4) cause. See La. Civ. Code arts. 1918, 1927, 1966, 1971; see also
McPherson v. Cingular Wireless, LLC, 967 So. 2d 573, 577 (La. App. 3 Cir.
2007) (citing Leger v. Tyson Foods, Inc., 670 So. 2d 397, 401 (La. App. 3 Cir.
1996)). When a contract between the parties exists, parole evidence is
generally inadmissable to vary the contract’s terms. See La. Civ. Code art.
1848 (“Testimonial or other evidence may not be admitted to negate or vary
the contents of an authentic act or an act under private signature.”); McCarroll
v. McCarroll, 701 So. 2d 1280, 1286 (La. 1997) (noting that parole evidence is
63

See R. Doc. 39-3 at 25 (Chalos Exhibit 5) (Engagement and
Retainer Agreement)
20

inadmissable to vary the terms of an unambiguous contract). Nevertheless,
the Louisiana Civil Code provides that “in the interest of justice . . . evidence
may be admitted to prove such circumstances as a vice of consent . . . .” La.
Civ. Code art. 1848; see Davis v. Parker, 145 F.3d 359, 1998 WL 307585, at *11
(5th Cir. May 12, 1998) (“Civil Code Article 1848 makes clear that testimonial
evidence is properly admissible on questions of vice of consent.”).
Here, to defend against enforcing the contract, defendants argue that
their consent to the retainer agreement was vitiated by error.64 Therefore,
under Louisiana Civil Code article 1848, the Court need not limit its evaluation
of the evidence to the four corners of the parties’ retainer agreement. See
Davis, 1998 WL 307585, at *11 (allowing parole evidence where party sought

64

R. Doc. 40 at 10. Both parties seem to address “error” and
“failure of cause” separately in their briefing to the Court, although, under
the circumstances presented here, these theories are the same. See
Bluebonnet Hotel Ventures, LLC v. Wells Fargo Bank, N.A., 754 F.3d 272,
276 (5th Cir. 2014) (equating “error” to a “failure of cause”); Cryer v. M&M
Mfg. Co., 273 So. 2d 818 (La. 1972) (same). To avoid confusion, the Court
will consistently refer only to “error” throughout this Order.
Defendants have also previously accused Fafalios of “fraudulently
induc[ing] Defendants to undertake financial responsibility for his
defense.” See R. Doc. 20 at 9-10 ¶ 26. In opposition to Chalos’s motion for
summary judgment, defendants specifically note that they are unable to
meet the requisite evidentiary burden to prevail on claim of fraud. See R.
Doc. 40 at 23-24. Accordingly, defendants have abandoned any potential
fraud defense.
21

rescission for error); Peironnet v. Matador Res. Co., 144 So. 3d 791, 804-805
(La. 2013) (noting error as a common vice of consent).
B.

Whether Defendants’ Consent Was Vitiated by Error
1.

Louisiana Law Principles

A party’s contractual consent “may be vitiated by error, fraud, or duress.”
La. Civ. Code art. 1948. If error vitiates a party’s consent, the contract may be
rescinded. Cyprien v. Bd. of Supervisors ex rel. Univ. of La., 5 So. 3d 862,
868 (La. 2009). But “[e]rror vitiates consent only when it concerns a cause
without which the obligation would not have been incurred and that cause was
known or should have been known to the other party.” La. Civ. Code art. 1949.
Error may concern a cause without which the obligation would not have been
incurred when:
it bears on the nature of the contract, or the thing that is the
contractual object or a substantial quality of that thing, or the
person or the qualities of the other party, or the law, or any other
circumstance that the parties regarded, or should in good faith
have regarded, as a cause of the obligation.
La. Civ. Code art. 1950. According to Official Revision Comment (e) of Civil
Code article 1949, when a party may have had multiple causes for entering into
an obligation, “error that bears on any one of them is sufficient to make the

22

obligation invalid.”65 La. Civ. Code art. 1949, cmt. (e). Under the Louisiana
Civil Code, “cause” is simply, “the reason why a party obligates himself.” La.
Civ. Code art. 1967; see also Peironnet, 144 So. 3d at 807 (citations omitted)
(defining cause as “the reason [a party] consented to bind himself”).
A party’s cause must be objectively determined. Though the Civil Code
does not require cause to be explicitly addressed in the parties’ contract, see
La. Civ. Code art. 1969 (“Cause not expressed”), a party claiming that it
maintained a certain cause for entering into a contractual obligation bears the
burden of proving that cause existed. See, e.g., Peironnet, 144 So. 3d at 805
(relying on “objective evidence” to determine plaintiffs’ cause); Coffee Bay
Inv’rs, LLC v. W.O.G.C. Co., 878 So. 2d 665, 671 (La. App. 1. Cir. 2004)
(looking beyond the parties agreement to determine cause based on objective
statements); Lake Charles Auto Salvage, Inc. v. Stine, 539 So. 2d 836, 837-38
(La. App. 3 Cir. 1989) (looking to verbal statements made before and at the

65

The Court recognizes that the Revision Comments to the
Louisiana Civil Code are not law. Nonetheless, these comments are
instructive, as “they were presented together with the proposed legislation
and illuminate the understanding and intent of the legislators.” Wartell v.
Women’s & Children’s Hosp., Inc., 704 So. 2d 778, 783 (La. 1997). Both
federal and state courts often look to the Revision Comments for guidance.
See, e.g., McGee v. Arkel Int’l, LLC, 671 F.3d 539, 543 (5th Cir. 2012);
Willis-Knighton Med. Ctr. v. Caddo Shreveport Sales & Use Tax Comm’n,
903 So. 2d 1071, 1086 (La. 2005).
23

time of sale to determine defendants’ cause); Shreveport Great Empire
Broad., Inc. v. Chicoine, 528 So. 2d 633, 636-37 (La. App. 2 Cir. 1988)
(holding that defendant failed to prove his stated cause for entering into the
contract). Accordingly, a party asserting error as a defense to enforcement of
a contract must prove (1) an objective cause, or reason, why it entered into the
contract; and (2) an error as to that cause, which may entitle the party to
rescission or reformation of the contract.
Once a party proves error, however, rescission or reformation of the
contract is not automatic. Louisiana law distinguishes “excusable error,”
which would entitle the party-in-error to its requested remedy, from
“inexcusable error,” which would not. See La. Civ. Code art. 1952, cmt. (d) (“In
determining whether to grant rescission . . . the court may consider whether
the error was excusable or inexcusable, a distinction received by modern civil
doctrine. Louisiana courts have granted relief when error has been found
excusable . . . and refused it when error has been found inexcusable[.]”
(citations omitted)); Shelton v. Congress St. Props., Inc., No. 92-1084, 1993
WL 43637, at *3 (E.D. La. Feb. 16, 1993) (noting that although facts may
“technically satisfy” the codal language, courts must look to the nature of error
before invalidating a contract). Louisiana courts often define “inexcusable
error” as an error that “the complaining party, through education or
24

experience, had the knowledge or expertise to easily rectify or discover . . . .”
Franklin v. Camterra Res. Partners, Inc., 123 So. 3d 184, 190 (La. App. 2 Cir.
2013) (collecting cases). In other words, one party’s error will not invalidate
the contract if the reason for the error was “the complaining party’s
inexcusable neglect in discovering the error.” Midwest Tower Partners LLC
v. Guar. Broad. Co. of Baton Rouge, LLC, 285 F. App’x 115, 2008 WL
2660779, at *3 (5th Cir. 2008) (citation omitted); see also Peironnet, 144 So.
3d at 811 (defining inexcusable error as one that results from “ignorance,
neglect, or want of care”).
2.

Analysis

Here, defendants argue that the retainer agreement must be rescinded
because their consent to the contract was vitiated by error. According to
defendants, the cause for their agreeing to hire counsel on Fafalios’s behalf
was their belief that Fafalios was innocent of any intentional wrongdoing.
Defendants now explain that their cause was as follows:
[A]s a shipping company based in Greece, [defendants] felt a duty
to support Fafalios, a Greek employee and seafarer whom
[defendants] believed had served [them] dutifully and was
innocent of any wrongdoing, in what was viewed as a malicious
and baseless attack begun by one or more Filipino crewmen
interested in personal gain.66
66

R. Doc. 40 at 3.
25

Defendants argue that Chalos knew or should have known Fafalios’s innocence
was their cause for hiring independent legal counsel for two reasons. First,
defendants’ attorney represents that he specifically told George Gaitas that
“because [the Greek officers] appear[] to be innocent victims, [defendants]
intended to stand behind the Greek officers to defend them against any
allegations brought by the U.S. Government.”67 Second, defendants point to
evidence that they told every lawyer that they hired on the crewmembers’
behalf that they believed these Greek officers to be innocent of wrongdoing.68
Defendants contend that only after executing the retainer agreement did they
discover that their belief was in error, which they argue vitiated their consent
to the contract.
On the other hand, George Gaitas asserts that no one told him, nor did
he or any other Chalos attorney have reason to believe, that defendants were
agreeing to pay for Fafalios’s representation because they believed he was
factually innocent.69 In support, Chalos points to the language of the retainer
67

Tadros).

R. Doc. 40-7 at 3 (Defendants Exhibit F) (Affidavit of Daniel A.

68

Id. at 2; R. Doc. 40-9 at 2 (Defendants Exhibit H) (Affidavit of
Brian J. Capitelli); R. Doc. 40-10 at 1-2 (Defendants Exhibit I) (Affidavit of
Dorothy Manning Taylor).
69

R. Doc. 39-2 at 5 (Declaration of George A. Gaitas in Support of
Motion for Summary Judgment).
26

agreement itself, which expressly provides that “[t]he objective of the legal
representation is the current investigation by U.S. government authorities . .
. and any eventual criminal prosecution that may cast Mr. Fafalios as a
defendant.”70 This conflicting evidence creates an issue of fact on the question
of cause that the Court cannot resolve on a motion for summary judgment.
See U.S. Fid. & Guar. Co. v. Planters Bank & Trust Co., 77 F.3d 863, 865 (5th
Cir. 1996) (allowing a court to draw factual inferences on a motion for
summary judgment in a non-jury case “if there are no issues of witness
credibility”).
Nonetheless, even if defendants’ cause was their belief in Fafalios’s
innocence, and Chalos knew or should have known of that, this finding would
only “technically satisfy” the codal language. The Court must still evaluate the
nature of defendants’ error as excusable or inexcusable. See Shelton, 1993 WL
43637, at *3. The Court finds that defendants’ purported error is inexcusable.
The evidence shows a number of objective facts pointing to the
conclusion that defendants had sufficient sophistication, knowledge, access to
information, and expertise to rectify or discover the error. See Franklin, 123
So. 3d at 190 (finding error inexcusable when the complaining party had “the
70

R. Doc. 39-3 at 23 (Chalos Exhibit 5) (Engagement and Retainer
Agreement).
27

knowledge or expertise to easily rectify or discover” the information
underlying the error). At the time defendants entered into Chalos’s retainer
agreement, they knew that the Government was criminally investigating
whether the M/V TRIDENT NAVIGATOR’s crewmembers had illegally
discharged oily waste from the vessel.71 In fact, by January 30, 2014, the
Government conducted an onboard investigation of the vessel, asserted to
defendants that the violation had in fact occurred, and required that
defendants keep certain crewmembers, including Fafalios, within the district
for questioning.72 Defendants also knew that the Government’s investigation
was based on tips received from one or more whistleblowers among the
vessel’s crew.73 Defendants also knew that the Government’s whistleblowers
reported that they participated in constructing the “magic pipe” used to

71

R. Doc. 39-3 at 39, 42-43, 45 (Chalos Exhibit 9) (Agreement on
Security); R. Doc. 40-18 (Defendants Exhibit Q) (same).
72

See R. Doc. 40 at 2-3 (noting the Government’s investigation
began on January 17, 2014); R. Doc. 39-3 at 39 (Chalos Exhibit 9)
(Agreement on Security); R. Doc. 39-6 at 6 (Chalos Exhibit 19) (Deposition
of Matthaios Fafalios, July 29, 2015, at 14:8 - 15-5, 38:16 - 39:19).
73

R. Doc. 40 at 2; R. Doc. 39-3 at 2 (Chalos Exhibit 1) (February
10, 2014 email from Gaitas to Tadros explaining that “one or more of the
would-be-whistle-blowers contends that he was a participant in the
cobbling together of this [magic pipe]”).
28

discharge oily waste.74 In addition, defendants knew that crewmembers
accused of ordering the illegal discharge were the vessel’s most authoritative
officers, including Fafalios, who oversaw engineering activity aboard the
vessel.75

Finally, defendants also knew that a crewmember allegedly

photographed the magic pipe with his cell phone and attempted to report the
illegal activity and that Fafalios confiscated the crewmember’s phone.76
At the time defendants entered into Chalos’s retainer agreement,
defendants had access to both the vessel and its crewmembers and thus could
have conducted a more thorough investigation into the Government’s criminal
allegations. For example, the Government’s testing of the magic pipe revealed
at least that “at some point in time some type of oil substance passed through
the hose . . . .”77 In addition, the Government easily discovered “dark liquid
spilling out of the Vessel’s overboard discharge valve[,]” which should have

74

Id.

75

See R. Doc. 40 at 3-4 (noting that they believed the Filipinos
wrongly accused Fafalios, the Chief Engineer, and the Second and Third
Engineers).
76

See R. Doc. 40 at 2; R. Doc. 39-5 at 41 (Chalos Exhibit 17) (April
7, 2014 email from Nelson to Tadros); R. Doc. 39-6 at 32 (Chalos Exhibit
19) (Deposition of Matthaios Fafalios, July 29, 2015, at 120:12-23).
77

See R. Doc. 40-11 at 22 (Defendants Exhibit J).
29

contained only clear liquid.78

Defendants have not suggested that this

information was within the limited purview of the Government. Indeed,
defendants purportedly conducted their own investigation aboard the M/V
TRIDENT NAVIGATOR, but have not pointed to any objective physical
evidence that corroborated Fafalios’s or the other Greek officers’
proclamations of innocence.79 Instead, defendants emphasize that they
“rel[ied] heavily” on Fafalios’s self-interested representations of his own
innocence.80
Importantly, defendants understood at the time of contracting that they
were agreeing to pay for Fafalios’s legal representation in the Government’s
criminal investigation and “any eventual criminal prosecution that may cast
Mr. Fafalios as a defendant.”81 The parties had to understand that there was
a possibility that Fafalios could be found guilty of the crimes charged in the

78

See R. Doc. 40 at 7.

79

See R. Doc. 40-7 at 2 (Defendants Exhibit F) (Affidavit of Daniel

A. Tadros).
80

See id. at 2.

81

See R. Doc. 39-3 at 23 (Chalos Exhibit 5) (Engagement and
Retainer Agreement) (emphasis added). The retainer agreement also says a
second time that Chalos would represent Fafalios “throughout the
investigation and, after it is completed, in any criminal prosecution that
may be pursued by the competent U.S. Government authorities.” Id.
30

face of evidence that they knew the Government had, even if it was disputed.
That defendants originally believed the Government’s investigation would
amount to nothing more than a “clerical type of mistake” is no excuse.82 See
St. Charles Ventures, LLC v. Albertsons, Inc., 265 F. Supp. 2d 682, 694-95
(holding that defendant’s belief that a remote possibility would not materialize
is not an error for which a contract may be rescinded); Shelton, 1993 WL
43637, at *3 (“[A] claim of error cannot be based on the fact that a party would
never have entered into a contract had it anticipated a future event.”).
Defendants emphasize the support Fafalios originally received from
other Greek officers and that the accusations originated from Filipino
crewmembers.83 Indeed, defendants’ Chief Executive Officer testified that,
upon learning Fafalios had confiscated a crewmember’s cell phone because it
contained pictures of illegal activity, defendants chose to believe “the Greek
officers,” rather than a non-Greek crewmember.84 Based on the record,
defendants did not have a reasonable basis to accept at face-value these Greek

82

See id. at 61 (Chalos Exhibit 12) (June 18, 2014 email from
Tadros to Gaitas).
83

R. Doc. 40 at 3.

84

R. Doc. 39-5 at 86 (Chalos Exhibit 18) (Deposition of Homeland
Maritime Through Captain Marcos Papadopoulos, July 22, 2015, at 43:4 24).
31

officers’ allegations that lower-level Filipino crewmembers fabricated an
elaborate scheme involving the construction of a “magic pipe” used for illegal
dumping in order to collect a whistleblower’s reward. Defendants had an
obvious self-interest in seeing the Greek officers exonerated, as acceptance of
their story would have absolved defendants of criminal liability. Regardless
of whether this self-interest clouded their judgment, the objective evidence
should have caused defendants to conduct further investigation.

Poor

judgment does not excuse defendants’ contractual obligations. Therefore,
defendants’ purported error will not invalidate the retainer agreement.
C.

Damages

Having determined that the parties’ retainer agreement is enforceable,
the Court now turns to the issue of damages. Chalos seeks to recover
$390,366.80, the entire amount of attorneys’ fees and expenses incurred after
June 17, 2014, when defendants stopped paying Chalos’s invoices.85 In
support, Chalos submits attorney invoices from the firm beginning August 7,
2014, through April 13, 2015.

The Court finds, however, that Chalos has

failed to address the legal standard applicable to an award of attorneys’ fees.

85

See R. Doc. 39-1 at 5.
32

The Court also notes that defendants question the reasonableness of Chalos’s
adding partner George Chalos to work on Fafalios’s case. The Court therefore
will not award attorneys’ fees and costs at this time. The Court will allow
Chalos fourteen days from entry of this Order to file a new motion for damages
addressing the appropriate legal standard and whether its fee request satisfies
it.

IV.

CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART plaintiff’s

Motion for Summary Judgment. IT IS ORDERED that plaintiff shall file
within fourteen (14) days from entry of this Order a motion for damages with
appropriate support. The Court DENIES AS MOOT plaintiff’s Motion to Strike
Defendants’ Summary Judgment Evidence.

23rd
New Orleans, Louisiana, this _______ day of October, 2015.

___________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

33