Louisiana Litigation in Review Q1 2023
This quarterly review is an opportunity to update you on recent developments in Louisiana litigation. In this edition, Andy Mendez and Brittany Carnes Melancon summarize five Louisiana cases. These articles feature recent court decisions that may be of interest to business people and legal professionals alike.
IN LOUISIANA, HOPE CAN BE SOLD
Broyles v. Ducote, 2021-0852 (La. App. 1 Cir. 6/14/22), 343 So. 3d 902.
A sale is a contract in which a seller transfers ownership of a thing to a buyer in exchange for a price paid in money. La. Civ. Code art. 2439. Anything capable of being owned, including incorporeal (intangible) things, can be the object of an enforceable contract of sale unless the sale is prohibited by law. La. Civ. Code art. 2448.
The Louisiana First Circuit Court of Appeal reaffirmed in Broyles v. Ducote that something that does not yet exist, and which may never come into existence, can nonetheless be sold. In Louisiana law, the object of such a sale is called a "hope." La. Civ. Code art. 2451. The Civil Code gives as an example a fisherman's ability to sell his day's haul before he casts his net in the water. Such a sale is valid even if the fisherman catches nothing. La. Civ. Code art. 2451.
Broyles v. Ducote involved a more high tech application of this principle. In that case, Rithm Solutions Group, LLC ("Rithm") entered into a contract in 2014 with Ikon Construction, LLC ("Ikon"). The parties agreed to jointly fund development of two new software products, and to share ownership of any resulting intellectual property (software). After several years, no new software was developed. In 2018, the parties entered into a series of new contracts, in which Ikon agreed to sell and assign its interest in any future intellectual property to Rithm for $100,000.
After Rithm failed to pay the agreed-upon purchase price of $100,000, Ikon sued and moved for summary judgment. Rithm raised several defenses, including an argument that the sale was invalid because no "new and original software application" existed at the time of the purported sale. Therefore, according to Rithm, the sale contract lacked a valid object and was invalid. The trial court ruled in favor of Ikon, and Rithm appealed.
On appeal, the First Circuit Court of Appeal affirmed, finding that the object of the sale – "a hope in the development of the IP [intellectual property]" – was valid. Broyles v. Ducote illustrates that an expectation or hope can be sold, whether in traditional contexts like fishing or more modern situations like software development.
VICARIOUS LIABILITY REQUIRES THE PLAINTIFF TO PROVE AN EMPLOYER-EMPLOYEE RELATIONSHIP
Verrett v. Clements & Broussard Sugar Farm LLC, 2021-0915 (La. App. 1 Cir. 2/24/22), 2022 WL 576458.
"Vicarious liability" is an important legal concept. It is a legal doctrine that allows employers to be held liable for tortious (e.g., negligent) acts of their employees while engaged "in the exercise of the functions in which they are employed." La. Civ. Code art. 2320.
The existence of an employer-employee relationship is sometimes disputed. The Louisiana First Circuit Court of Appeal considered that situation in Verrett v. Clements & Broussard Sugar Farm LLC. There, an all-terrain vehicle ("ATV") driven by Lenis Clement, Sr. crossed a highway. Verrett was driving on the highway and collided with the ATV. Mr. Clement later died from injuries sustained in the accident. Verrett sued several parties, including C&B, a company for which Mr. Clement was formerly president, and its insurer.
C&B and its insurer denied that C&B owned the ATV, or that Mr. Clement was a C&B employee at the time of the 2018 accident. C&B moved for summary judgment on the grounds that it was not vicariously liable for Mr. Clement's acts for that reason. C&B submitted an affidavit stating that Mr. Clement had retired from C&B nine years before the accident, and had no role with C&B since retiring. It also submitted the deposition of Mr. Clement's daughter, who testified that Mr. Clement owned the ATV, and that he received no compensation from C&B. According to C&B, Mr. Clement was "an 87-year-old retiree enjoying a ride on his ATV" at the time of the accident, rather than C&B's employee.
Plaintiff Verrett opposed summary judgment, arguing (without supporting evidence) that a genuine fact dispute existed as to whether Mr. Clement was C&B's employee. The trial court denied summary judgment, citing "credibility determinations" (which cannot be made on summary judgment) that had to be made regarding C&B evidence.
C&B appealed, and the First Circuit Court of Appeal reversed. The court explained that, on summary judgment, Plaintiff had the burden to submit evidence of an employer/employee relationship between C&B and Mr. Clement; it was not C&B's burden to negate such a relationship. C&B only had to point out that Plaintiff had no evidence on that point. C&B had done that and more, by submitting evidence that no such relationship existed. Because Plaintiff had no evidence that Mr. Clement was C&B's employee, there was no genuine fact dispute as to whether C&B could be vicariously liable for his acts. The First Circuit reversed and entered judgment in favor of C&B.
This decision illustrates that vicarious liability requires the plaintiff to prove the existence of an employer/employee relationship, and how the putative employer may be dismissed if there is no such evidence.
AN AGENT'S APPARENT AUTHORITY CAN BIND A PRINCIPAL
Service First, Inc. v. Plumley, Nos. 54,275, 54,276 (La. App. 2 Cir. 4/5/22), 336 So. 3d 1058.
In law, an "agent" is someone who is authorized to act on behalf of another person or entity (the "principal"), and can bind the principal to agreements with third parties.
Two types of authority exist. Actual authority is where a principal expressly authorizes an agent to do something on the principal's behalf. Apparent authority, on the other hand, is where the principal has not expressly authorized the agent to act, but the principal has done something to cause third parties to believe the agent has authority to act for the principal.
The Louisiana Second Circuit Court of Appeal's decision in Service First, Inc. v. Plumley is an example of a principal being bound by an agent who acts with apparent authority. There, Plumley was employed by Service First. In May 2016, he was injured in an accident. He and Service First signed an agreement that provided that Service First would continue to pay his salary, and Plumley would reimburse Service First from "the proceeds of settlement or judgment" of a lawsuit relating to his accident.
Plumley and Service First were each represented by attorneys (Plumley by Mr. Kervin, and Service First by Mr. Hattaway). In September 2018, Hattaway advised Kervin in emails that Service First would be seeking reimbursement. However, in early October 2018, Hattaway emailed Kervin stating that Service First would not seek reimbursement. Hattaway copied Service First's President, Mr. Bellissimo, on that email. Kervin advised Plumley that Service First would not seek reimbursement.
In mid-October 2018, Plumley settled his lawsuit. He did not reimburse Service First. Service First continued to pay his salary until terminating his employment in June 2019. Service First then filed a lawsuit against Plumley to enjoin him from soliciting Service First's employees or clients. A month later, Service First filed a second lawsuit against Plumley, seeking reimbursement of its payments to him since the accident. Plumley asserted as a defense that Service First (through its agent, Hattaway) had waived its reimbursement claim.
At trial, Service First introduced testimony that Hattaway was not authorized to release Plumley from his agreement. The trial court ruled against Service First, and it appealed. The Second Circuit affirmed. Even if Hattaway lacked actual authority to bind Service First to the release, he had the apparent authority to do so. Under Louisiana law, a principal who "causes a third person to believe that another person is his mandatary [Louisiana's term for "agent"] may be bound to a third person who contracts in good faith with the apparent agent." La. Civ. Code art. 3021. Because Hattaway was Service First's counsel, it was reasonable for Kervin to assume Hattaway could bind his client, without getting confirmation from Service First that Kervin had such authority.
This decision illustrates the importance of the principal and agent being on the same page in terms of what the agent is, and is not, authorized to do, and dealing with third parties accordingly.
SUBTENANT SHOULD HAVE READ THE SUBLEASE AND CONSULTED AN ATTORNEY
R&E Petroleum, LLC v. LKM Convenience, LLC, No. 22- 376 (La. App. 5 Cir. 2/1/23), 2023 WL 1426519.
As illustrated by a recent decision of the Louisiana Fifth Circuit Court of Appeal, signing a lease or other legal document without reading it is a bad idea.
In R&E Petroleum, LLC v. LKM Convenience, LLC, Defendant Huynh owned a property used as a gas station and convenience store. Huynh leased the property to LKM under a "Master Lease." The Master Lease provided that the lessor, Huynh, was responsible for maintaining and repairing the roof, foundation and outer walls, while the lessee, LKM, was responsible for all other maintenance and repairs.
LKM sublet the premises to R&E Petroleum, LLC ("R&E") under a 10-year Sublease. The Sublease specified that all repairs and maintenance were R&E's responsibility, and waived any warranty that the premises were suitable for its intended use. The waiver was set forth in a separate provision that was followed by a space for the subtenant to sign and acknowledge the waiver.
R&E signed the Sublease, including the waiver provision, and proceeded to operate the gas station and convenience store. After the building suffered water intrusion issues and termite damage, R&E sued to get out of the lease. R&E argued the Master Lease (which made Huynh responsible for repairs to the roof and exterior walls) was incorporated into the Sublease, and the Sublease was breached because the roof was not repaired and the premises were unusable. LKM countersued for unpaid rent of over $250,000.
At trial, R&E's principals (a husband and wife) testified they did not read the Sublease before signing it or consult an attorney. They testified they assumed, based on their experience leasing and operating several other gas stations, that the landlord would be responsible for all major repairs. That assumption was incorrect. The trial court rejected R&E's attempt to dissolve the lease, and ruled in favor of LKM on its counterclaim.
R&E appealed, and the Louisiana Fifth Circuit affirmed. The court explained that the Sublease, rather than the Master Lease, determined R&E's rights and obligations. As subtenant, R&E lacked privity – a direct relationship – with Huyhn because R&E was not a party to the Master Lease. Even though LKM had sought and received Huyhn's consent to the Sublease (which was required by the Master Lease), that did not create a contractual relationship between Huyhn and R&E. As such, R&E could not hold Huyhn responsible for repairing the roof or termite damages, even though the Master Lease made him responsible for those repairs. In the Sublease, R&E instead agreed to be responsible for all repairs, and it waived any warranty that the property was fit for use. The waiver of warranty was enforceable because it was clear and unambiguous, and R&E was responsible for all repairs under the Sublease. It did not matter that R&E's principals had not read the Sublease, because "[a] party who signs a written lease is 'bound to know and understand the provisions of the lease.'"
The consequences of failing to read a lease or other contract before signing it, or failing to consult an attorney before signing, can be severe.
A DISSOLVED LLC MAY have NO RIGHT TO SUE
Pocket Billiards & Bar, LLC v. Fast & Affordable College Student Movers, Inc., 2022-0109 (La. App. 4 Cir. 8/10/22), 346 So. 3d 399.
A limited liability company ("LLC") may lose its right to sue for damages if a lawsuit is filed after the LLC is dissolved.
In Pocket Billiards & Bar, LLC v. Fast & Affordable College Student Movers, Inc., Plaintiff Pocket Billiards & Bar, LLC hired Defendant Fast & Affordable College Student Movers, Inc. to move pool tables. Several tables were allegedly damaged in the move, and Plaintiff sued for damages.
The problem? Plaintiff, an LLC, was legally dissolved before filing its lawsuit. In October 2018, Plaintiff had filed an "Affidavit to Dissolve" with the Louisiana Secretary of State, which is a simple way to dissolve an LLC that has no debts and owns no real estate. Thus, by the time Pocket Billiards filed its lawsuit, it had effectively ceased to exist.
Seeking to have the lawsuit thrown out on this basis, Defendant filed an exception of no cause of action under Louisiana Code of Civil Procedure article 927. While the exception technically should have been styled as an exception of no right of action under Article 927—in which a party argues that the plaintiff lacks the requisite legal capacity (i.e., ability) to sue—Defendant clearly alleged that Plaintiff had "no right of action," or "no interest," to file the lawsuit in the first place because it no longer legally existed.
The trial court agreed and dismissed the lawsuit. It also declined to permit Plaintiff to amend the lawsuit to name the LLC's member, Mr. Pham, as the plaintiff, on the grounds that the LLC (and Mr. Pham by extension) knew of its damages before dissolution.
Plaintiff appealed, and the Louisiana Fourth Circuit Court of Appeal affirmed. Regarding Defendant's exception of no right of action, the Fourth Circuit found that, upon dissolution, the LLC "ceased to exist and lacked the capacity to file suit." The appeals court also concluded that Plaintiff was not entitled to amend its lawsuit to substitute Mr. Pham as plaintiff because the LLC had elected to forego a formal liquidation (in which an appointed liquidator would have the right to pursue claims that belonged to the dissolved entity). Thus, the proposed amendment would be futile.
Members of an LLC (or any legal entity) considering dissolution should consult counsel to assess how to best achieve their goals.