Insight

Back to the Beginning - Veil Piercing

Published on: December 17, 2013

The longstanding rule that the analysis for "piercing the corporate veil" of an LLC is substantially the same as the analysis for piercing the veil of corporations has been called into question by the recent Louisiana Supreme Court decision in Ogea v. Travis Merritt and Merrit Construction, LLC, 2013-1085, --- So.3d ---. In Ogea, the Court addressed "the extent of the limitation of liability afforded to a member of an LLC" and the statutory basis for exceptions to this limited liability.

Typical of a veil piercing case, the Ogea Court began its discussion by citing familiar Louisiana cases on the topic: Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164 (La. 1991) and the more recent Charming Charlie, Inc. v. Perkins Rowe Associates, L.L.C., 11-2254 (La. App. 1 Cir. 7/10/12), 97 So.3d 595. However, the similarities stopped there.

The Court noted that traditional veil piercing doctrine was not invoked by the lower courts or the plaintiff. Instead, the Court's analysis turned on the interpretation of an infrequently cited statute within Title 12 that addresses the limitation of liability for LLC members. La. R.S. 12:1320(A) states that the liability of members and managers of an LLC "shall at all times be determined solely and exclusively by the provisions of this Chapter." Subsection (B) provides that members and managers are generally not liable for the debts, obligations, or liabilities of the LLC. Subsection (D) prescribes the exceptions to this limitation of liability, to include fraud, breach of professional duty, and any other negligent or wrongful act by the member or manager.

Addressing this statute as a matter of first impression, the Ogea Court applied the statute to the facts of the case. Merritt Construction, LLC was hired to build a home for plaintiff, Mary Ogea. As part of the process, Ms. Ogea requested that she have a friend prepare the site for the foundation. Travis Merritt, the sole member of Merritt Construction, LLC, informed Ms. Ogea that having someone else prepare the site would waive the warranty. Mr. Merritt subsequently operated the bulldozer to prepare the site for a subcontractor to pour the concrete slab. A dispute arose when a concrete contractor informed Ms. Ogea of problems with the home's foundation. Under these facts, the Court concluded Mr. Merritt was not personally liable under the exclusive exceptions to limited liability found in La. R.S. 12:1320(D).

The first exception, fraud, was rejected because no evidence in the record supported a finding that Mr. Merritt committed fraud.

Turning to the next exception, the Court also rejected the argument that plaintiff breached a professional duty as the sole member of the construction company. The professions recognized in Louisiana's corporate laws do not include individuals who perform construction work. Thus, Mr. Merritt could not breach a "professional duty" as contemplated by the statute. The Court also noted that the contract at issue only recognized Merritt Construction, LLC as a licensed contractor and did not reference any contractor's license held by Mr. Merritt personally.

Finally, the Court addressed the final exception to limited liability: "negligent or wrongful act." Plaintiff asserted that the term "negligence" in the statute only required proof of a tort by the individual. The Court quickly rejected this argument, noting that such an interpretation would improperly expand the liability of LLC members.

Rather, the Court set forth four factors to assist in the analysis under the last "negligence" exception: 1) whether a member's conduct could be fairly characterized as a traditionally recognized tort; 2) whether a member's conduct could be fairly characterized as a crime, for which a natural person, not a juridical person, could be held culpable; 3) whether the conduct at issue was required by, or was in furtherance of, a contract between the claimant and the LLC; and 4) whether the conduct at issue was done outside the member's capacity as a member.

It appears from the Ogea Court's focus that the prior analysis for "piercing the veil" of an LLC has perhaps been set aside and replaced with a new analysis which considers the exceptions to limited liability listed in La. R.S. 12:1320. However, the Court failed to expressly state that the prior analysis is improper and therefore no longer applicable. For now, it appears that the rules for piercing the veil of an LLC have changed but the true impact of Ogea remains to be seen.

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Keogh Cox & Wilson, Ltd. provides this blog as a public service for general information only. The materials contained herein may not reflect the most current legal developments or even express the opinion of all or even most of Keogh Cox attorneys. Such material does not constitute legal advice or form any attorney-client relationship. Keogh Cox and all contributing author(s) expressly disclaim all liability to any person with respect to the contents of this Web site and Blog and expect that no reliance will be made upon the information provided.

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Insight

Louisiana Supreme Court Rules on Bond an Insurer Must Post for Suspensive Appeal

A Louisiana litigant has a right to appeal a judgment rendered against it at trial and has two options to appeal the judgment. The litigant can take a suspensive appeal, which suspends the execution of the judgment pending the outcome of the appeal, or it can take a devolutive appeal, which does not. La. C.C.P. art. 2124 provides that when the judgment if for a sum of money, a party seeking a suspensive appeal must post security, or a bond, “equal to the amount of the judgment,” including interest.

What happens when a monetary judgment is cast against an insurer (and its insureds) and the amount of the judgment exceeds the limits of the insurer’s policy? Can the insurer be required to post bond in excess of its policy limits to suspensively appeal the judgment? The Louisiana Supreme Court recently addressed this issue and ruled an insurer is required to post a security bond covering only its policy limits.

In Martinez v. Am. Transp. Grp. Risk Retention Grp., Inc., a jury cast judgment against a transportation group, its driver, and its insurer for damages the plaintiff sustained in a motor vehicle accident. The trial court rendered a judgment in the amount of $2,802,054.66, which was in excess of the $1,000,000 limits of the insurer’s policy. The insurer moved for a suspensive appeal and requested a reduced bond because its insured was no longer in existence and could not post a bond. Nevertheless, the trial court set the appeal bond at $2,802,054.66, plus interest. The insurer posted a bond in the amount of its policy limits plus interest and costs and sought appellate review of the trial court’s appeal bond order.

The Supreme Court observed that the contracts clauses of the federal and state constitutions prohibit the enactment of any law “impairing the obligation of contracts.” Therefore, the Court found that to require an insurer to post a bond for suspensive appeal in excess of its policy limits would render meaningless, and therefore impair, the terms of the insurance contract setting the policy’s limits. Thus, the Martinez court should have set security to allow the insurer to suspensively appeal the portion of the judgment up to its policy limit.

However, the Court refused to reduce the suspensive appeal bond for all the defendants cast in judgment. Instead, the Court ruled the insurer could suspensively appeal the judgment up to the amount of its policy limits, stay execution of that portion of the judgment, and devolutively appeal the remainder of the case for its insureds.

References:

Martinez v. Am. Transp. Grp. Risk Retention Grp., Inc., 2023-01716 (La. 10/25/24) 2024 WL 4579047.

Insight

When Filing A Lawsuit By Fax, FedEx Is Your Friend

The Louisiana Supreme Court in Petit- Blanc vs. Charles and State Farm, 2021-CC-00094 (La. 4/20/21), ____ So. 3d ______ reaffirmed a strict reading of La. R.S. 13:850. This statute allows the filing of pleadings with a Clerk of Court by facsimile transmission. As currently drafted, the statute provides that the parties shall “deliver” the original document to the clerk within 7 days of the facsimile transmission. In Petit-Blanc, the Supreme Court considered what happens when the original pleading is sent through the mail but not received by the clerk within the 7-day period. Under the facts of the case, the plaintiff’s suit would be prescribed if the act of mailing was insufficient delivery.

Citing Black’s Law Dictionary, the Court found that “delivery” is defined as “the act by which the res or substance thereof is placed within the actual or constructive possession or control of another.” The Court concluded that “merely transmitting an original document within the deadline is insufficient; rather, a litigant must establish the document was delivered to the clerk within the deadline.”

The Court noted that, while the plaintiff established she sent her original petition to the clerk’s office well within the 7-day deadline, “she cannot establish the petition was placed in the actual or constructive possession of the clerk’s office” in a timely manner. As such, the Court found that the “facsimile filing is without force and effect and could not serve to interrupt the prescriptive period.” Accordingly, the Supreme Court granted the writ filed by the defendants, maintained their peremptory exception of prescription, and dismissed the plaintiff’s lawsuit with prejudice.

Insight

An Exercise in Inaction

"I never worry about action, only inaction."

- Winston Churchill

The Louisiana Supreme Court's decision not to take up a case is sometimes just as important as a decision to grant Writs and issue a ruling. Recently, much attention has been given to the Court's decision not to grant a Writ filed by Louisiana State University.

On August 28, 2013, the Court denied a Writ brought by LSU in a case filed by local media outlets in the 19th JDC demanding access to information regarding LSU's presidential candidates. The media appears interested in the interview process and why only one of the 35 candidates was formally interviewed. The media outlets argue that the information concerning the candidates is "public record" under Louisiana law.

Prior to the Writ filing, the state District Court had ruled that the information was public record and ordered LSU to produce the requested documents. LSU did not comply with this order. On August 14, 2013, LSU was held in contempt of court and fined $500 per day. LSU filed a Writ to the Louisiana Supreme Court. The Louisiana Supreme Court denied the Writ, stating that LSU had a "sufficient remedy" through a suspensive appeal. The Court offered no further explanation of its ruling.

Attorneys on both sides have publically offered differing opinions as to the significance of the Court's Writ denial. The attorney for the media outlets stated to Nola.com that LSU now must comply with the district court's order and produce the requested information. However, the attorney for LSU argues that the Court's Writ denial is functionally a "stay" of the District Court's order because the Supreme Court specifically expressed that LSU could file a suspensive appeal. LSU has expressed an intention to appeal the entire case to the Louisiana First Circuit.