Louisiana Litigation in Review Q1 2024

This quarterly review is an opportunity to update you on recent developments in Louisiana litigation.  In this edition, Andy Mendez, Emily Hickman, and John Myles summarize five Louisiana cases.  These articles feature recent court decisions that may be of interest to business people and legal professionals alike.

FORMER EMPLOYEES WERE NOT ENTITLED TO PAID TIME OFF THAT EMPLOYER PROVIDED AS GRATUITY

Alexander v. PNK (Baton Rouge) Partnership, 2023-0298 (La. App. 1 Cir. 9/15/23), -- So. 3d --. 

In Alexander v. PNK (Baton Rouge) Partnership, former casino employees sued when the employer declined to reimburse them for unused Paid Time Off ("PTO"). The Louisiana Wage Payment Law ("LWPL"), La. Rev. Stat. 23:631 et seq., requires employers to promptly pay employees "the amount then due under the terms of employment" after their employment ends.

In addition to unpaid wages, the LWPL may also – depending on the terms of employment – require compensation for unused vacation days or PTO. In Alexander, the former employees argued they were owed reimbursement for unused PTO. The employer moved for summary judgment, pointing to its written policy stating that vacation days and PTO were provided as a "gratuity," or gift, rather than as earned wages. The trial court granted summary judgment in favor of the employer.

The Louisiana First Circuit Court of Appeal affirmed, citing the "clear written policy" establishing that PTO was provided as a gratuity. As such, employees had no vested right to compensation for PTO upon leaving their employment. Absent such a clear policy, however, an employer that provides vacation pay or PTO to employees must compensate discharged employees for those items. Alexander illustrates the importance of having clear company policies, for example, in employee handbooks. 

GUARANTORS MAY BE PROTECTED FROM DEFICIENCY JUDGMENTS BY THE LOUISIANA DEFICIENCY JUDGMENT ACT

Newtek Small Business Finance, LLC v. Baker, 2022-C-01088 (La. 6/27/23), 366 So. 3d 1230. 

In Newtek Small Business Finance, LLC v. Baker, Newtek made two loans to Baker Sales, Inc. ("BSI") secured by mortgages on BSI's commercial property. BSI's owners, the Bakers, guaranteed the loans. After BSI filed bankruptcy, Newtek had the bankruptcy stay lifted and foreclosed on BSI's commercial property. BSI's property sold at auction (to Newtek) without benefit of appraisal for a little over $81,000 – a fraction of the over $3.1 million BSI owed.

Newtek then sued the Bakers, as guarantors, for the deficiency – the roughly $3 million difference between what BSI owed and the $81,000 foreclosure sale price. In response, the Bakers argued that the Louisiana Deficiency Judgment Act ("LDJA"), La. Rev. Stat. 13:4106, applied to them as sureties (guarantors). Under the LDJA, where a creditor elects to have collateral sold at a judicial sale without appraisal, it is precluded from seeking a deficiency judgment against the obligor. The LDJA, however, does not say whether that also applies to guarantors, and Newtek argued it did not. The trial court granted summary judgment to the Bakers, finding the LDJA applied to guarantors. The Court of Appeal affirmed, and Newtek sought review by the Louisiana Supreme Court.

The Louisiana Supreme Court granted review and affirmed. It explained that, under the Louisiana Civil Code articles governing suretyship, a surety (guarantor) is entitled to assert any defense the principal obligor could assert with only two exceptions – lack of capacity and discharge of the principal obligor in bankruptcy. Thus, because the principal obligor (BSI) could assert the LDJA, so could the guarantors. Newtek is an example of the potential implications of a creditor's determination of whether to foreclose with or without benefit of appraisal.

FACT DISPUTES PRECLUDED SUMMARY JUDGMENT ON PROMISSORY NOTE

Grace v. Equipco, L.L.C., 2023-CA-0119 (La. App. 4 Cir. 10/4/23), -- So. 3d --.

If no material facts are in dispute, courts may decide matters on summary judgment. Summary judgment is where the court decides who wins without the need for the time and cost of a trial. Summary judgment goes against the old adage that "everyone deserves their day in court," and can be difficult to obtain in practice – especially in state court. Cases involving promissory notes are somewhat more likely to be decided on summary judgment because they often involve few facts. Notes also often include waivers that prevent a borrower from raising certain defenses that could otherwise involve disputed facts. 

Even cases involving promissory notes, however, can involve disputed material facts that preclude summary judgment. In Grace v. Equipco, LLC, Defendant Equipco sought funding from Plaintiff Grace. The parties agreed Grace would acquire a 35% ownership interest in Equipco in exchange for providing: $250,000 in equity; a $500,000 loan; and a $500,000 loan that could, at Grace's option, be converted into additional equity/capital. Equipco (through its principles) signed a series of four promissory notes with terms for repayment of principal, interest, late charges, etc.

After a short time, Equipco asked to postpone payments until its finances improved. Equipco's principals left and were replaced by a Mr. Boasso. When no further payments were made, Grace sued, seeking payment on the promissory notes. Grace moved for summary judgment, asserting there was no dispute that money was loaned, which Equipco failed to repay. In response, Equipco moved for summary judgment in its favor, contending that Grace never funded the loans, or that they had been converted to equity. Both sides submitted affidavits and exhibits in support of their motions.

The trial court denied Grace's motion and granted Equipco's; Grace appealed. The Louisiana Fourth Circuit Court of Appeal reversed, finding that material fact issues precluded summary judgment for either side. While Equipco's motion presented evidence (including an expert opinion) that the loans were converted to equity, the appellate court identified unresolved material fact questions, including intent (i.e., did Grace intend to convert the loans to equity?) and the credibility of the affiants. Such fact disputes could only be resolved through a trial. Grace shows that even promissory note lawsuits may require costly litigation and a full-blown trial to resolve. In structuring a transaction, counsel must try to draft the documents to maximize the chances of their client prevailing on summary judgment (or at least not losing on summary judgment) should the deal "go south."

DELIVERY FIRM NOT LIABLE FOR INJURIES CAUSED BY DRIVER ONLY MINUTES AFTER COMPLETING DELIVERY

Thomas v. Owe Insurance Co., 22-586 (La. App. 5 Cir. 10/4/23), 374 So. 3d 157.

"Vicarious liability" is a legal doctrine that can make one party responsible for another's fault under certain circumstances. Whether vicarious liability applies often turns on the specific facts of a case.

In Thomas v. Owe Insurance Company, Southern, a delivery service that retains drivers to make deliveries for its customers, hired a driver, Mr. Cardenas, to make deliveries in his personal vehicle. Mr. Cardenas was required to maintain liability insurance on his vehicle. Mr. Cardenas accepted a delivery request from Southern to pick up and deliver a package. Only 12 minutes after he delivered the package, Mr. Cardenas crossed into oncoming traffic and struck a vehicle occupied by Plaintiffs. Plaintiffs were injured, and Mr. Cardenas later died of injuries he sustained in the accident.

Plaintiffs sued Southern, alleging it was responsible for their injuries caused by Mr. Cardenas' negligence. Southern moved for summary judgment, arguing that it was not vicariously liable for Mr. Cardenas' alleged negligence because he was an independent contractor, rather than Southern's employee. Southern also argued that, even if Mr. Cardenas was its employee, he was not acting within the course and scope of his duties at the time of the accident. The trial court granted summary judgment, agreeing with Southern that once Mr. Cardenas completed the delivery, he was no longer acting within the course and scope of his assignment from Southern. Plaintiffs appealed.

The Louisiana Fifth Circuit Court of Appeal affirmed. It found that Mr. Cardenas had completed the delivery before the accident, and there was no evidence that he had accepted another assignment from Southern. Regardless of whether Mr. Cardenas was an employee or independent contractor, the court found he was not acting within the course and scope of his assignment from Southern at the time of the accident. Thomas illustrates that, while status as an employee versus independent contractor may be significant for many reasons, whether vicarious liability attaches may instead turn on the "course and scope" analysis.

INDEPENDENT CONTRACTORS WHO PERFORM MANUAL LABOR MAY BE COVERED BY THE LOUISIANA WORKERS' COMPENSATION ACT

Zombrano Rosales v. American Liberty Insurance Co., No. 23-CA-49 (La. App. 5 Cir. 10/31/23), 374 So. 3d 203.

The Louisiana Workers' Compensation Act ("LWCA") generally does not cover independent contractors, but an exception applies if a "substantial part of the work time of an independent contractor is spent in manual labor." La. Rev. Stat. 23:1021(7). The LWCA does not define "manual labor," however, caselaw has consistently held that an independent contractor performs "manual labor" when the physical element of their work "predominates" over the mental. 

In Zambrano Rosales v. American Liberty Insurance Co., Ms. Zambrano worked for a janitorial service. After she was injured in a car accident while traveling between two locations she was assigned to clean, she sued for workers' compensation benefits. The insurer moved for summary judgment, arguing she was not entitled to benefits because she was an independent contractor (not an employee), and was not injured while performing janitorial work. The workers' compensation judge granted summary judgment for the insurer, finding Ms. Zambrano was an independent contractor who had not shown that the "manual labor" exception applied. Ms. Zambrano appealed.

The Louisiana Fifth Circuit Court of Appeal overruled the workers' compensation judge. The court found that Ms. Zambrano was an independent contractor covered by the "manual labor" exception. Further, the court held that an independent contractor must show that a "substantial part" of their time working was "spent performing manual labor duties and the work performed by him is part of the principal's trade, business, or occupation." The court noted that "substantial" is not a mathematical determination and does not necessarily mean more than 50%. 

In the absence of other evidence, the court relied entirely on Ms. Zambrano's deposition testimony. Analyzing her testimony regarding her job duties, the court ultimately found she showed a substantial part of her work was manual labor. Zambrano Rosales shows that whether the "manual labor" exception applies can be a fact-intensive inquiry that turns on the facts of each case.