96 0466 La.App. 1 Cir. 2/14/97, Theriot v. Bourg
| Decision Date | 14 February 1997 |
| Citation | 691 So.2d 213 |
| Parties | 96 0466 La.App. 1 Cir |
| Court | Court of Appeal of Louisiana — District of US |
Robert B. Butler, III, Houma, and Remy Chaisson, Thibodaux, for Plaintiffs-Appellees.
Claude Reynaud, Jr., Baton Rouge, for Defendants-Appellants Carl J. Bourg, Robert L. Martin, Jr., Dorothy B. Bergeron, Mildred B. Voisin, and Evelina B. Gallier.
Dennis J. Hauge, Houma, for Defendant-Appellee Harry Bourg Corp.
Before LOTTINGER, C.J., and FOIL and FOGG, JJ.
[96 0466 La.App. 1 Cir. 2] FOGG, Judge.
This action is a shareholder's derivative suit brought by two minority directors on behalf of the Harry Bourg Corporation ("HBC") against five majority directors to redress severe losses which occurred from 1988 through 1992. After trial by jury, judgment was rendered in favor of the plaintiffs in the sum of $5,798,441.00. The majority directors appeal. We affirm.
HBC is a closely-held corporation which has, as its principal asset, approximately 17,000 acres of marshland in Terrebonne Parish. The corporation was established in 1955 by the late Harry Bourg. The initial distribution of the stock is unclear from the record, but ultimately Harry Bourg's seven children, Albert Bourg, Nora Bourg Breaux, Gertie Bourg Theriot, Evelina Bourg Gallier, Mildred Bourg Voisin, Dorothy Bourg Bergeron, and Lena Bourg Martin, shared equally in ownership of the stock of HBC.
Harry Bourg acted as president of HBC until his death in 1963. Albert Bourg succeeded his father as president of HBC. Albert remained president until his death in 1983 at which time Mildred Voisin took over the post. Each of the seven children or their heirs had a seat on the board of directors. By 1988, Albert Bourg and Lena Martin were deceased. Therefore, Albert's son, Carl, sat on the board in Albert's place and Robert L. Martin, Jr. represented his interest and that of his six siblings on behalf of his mother, Lena.
For most of its existence, the corporation simply collected revenues from mineral leases. However, in anticipation of diminishing oil and gas revenues, HBC, over a long period of time, retained $5 million dollars with which it hoped to diversify.
In May of 1988, the board of HBC voted to create a subsidiary called Bourg Mariculture Inc. ("BMI") for the purpose of raising redfish. The subsidiary was to be funded by loans made by HBC. Carl Bourg was elected President; Robert Martin was elected Vice President; and Dorothy Bergeron was elected Secretary. Their salaries were set respectively at $5,000 per month, $750 per month, and $750 per month. 1 Additionally, each board member was to receive $250 for each board meeting he or she attended.
[96 0466 La.App. 1 Cir. 3] At that time, the raising of redfish was a new industry in Louisiana. BMI received, from the Louisiana Department of Wildlife and Fisheries, one of a limited number of permits allowing it to raise redfish on its marshlands. With the help of two of his sons, who were employees of BMI, Carl Bourg had two container barges modified into cages which were designed to hold fish. The concept of raising fish in barges was new; prior to this invention fish had been raised either in ponds or in canals. The testimony reflects that Carl Bourg had his invention patented.
In November of 1988, the initial batch of redfish fingerlings was purchased from the Redfish Hatchery, a company located in Mississippi and owned by Bob Hunt, and placed in the first barge (the second was still under construction). BMI continued to raise these fish until May of 1989, when the fish were released from their cages by some unknown person.
In September of 1989, the plaintiffs herein filed a receivership action and obtained a temporary receivership order, which was ultimately set aside by the Louisiana Supreme Court.
Around mid-1990, BMI placed hybrid striped bass in the fish system. Total sales of the bass amounted to slightly more than $218,913.94, an average of $2.37 per pound, and occurred between June of 1991 and December of 1991. By this time, the total expenditure of HBC money to the project was $3,338,000.00. Subsequently, the remainder of this batch of fish was destroyed by an operational problem concerning the feed.
Meanwhile, Redfish Hatchery became an unreliable source of fingerlings and Carl Bourg entered the fish raising industry independently through his company called 4-C Ranch. The board of HBC agreed that BMI would purchase its next batch of fingerlings from 4-C Ranch and BMI advanced 4-C Ranch $358,000.00 for the fingerlings. In August of 1992, before 4-C Ranch delivered these fingerlings to BMI, Hurricane Andrew destroyed the barges and 4-C Ranch's supply of fingerlings. BMI made no further attempt to raise fish.
This suit was brought by two minority directors of the HBC, Gertie Theriot and Nora B. Breaux (the "minority directors"), derivatively on behalf of HBC against the remaining five directors of the corporation, Evelina B. Gallier, Dorothy B. Bergeron, [96 0466 La.App. 1 Cir. 4] Robert L. Martin, Jr., Mildred B. Voisin and Carl J. Bourg (the "majority directors"), and HBC's wholly-owned subsidiary, BMI. 2 The minority shareholders complained of the decision by the majority directors to diversify HBC's assets by investigating and then entering the mariculture business through BMI in 1988. At issue were numerous decisions made by the board of HBC and by the operating officers of BMI from 1988 until 1992, when the fish operation was completely destroyed by Hurricane Andrew.
After trial, the jury found that each of the defendants breached his or her fiduciary duty to HBC and that such was the legal cause of damage to HBC in the sum of $5,798,441.00. Fault was apportioned as follows:
Evelina B. Gallier 17.5%
Robert Martin, Jr. 17.5%
Mildred B. Voison 17.5%
Carl J. Bourg 30.0%
Dorothy B. Bergeron 17.5%
The trial court rendered judgment accordingly, holding, in part, that the defendants are jointly, severally, and solidarily liable to HBC for the full sum of $5,798,411.00, together with interest thereon at the legal rate from December 1, 1994 until paid. The court further ordered HBC to pay, from any recovery from the defendants in this matter, the sum of $103,266.09 to Gertie B. Theriot and the sum of $102,233.96 to Nora B. Breaux as reimbursement of the expenses and attorney's fees paid by them to previous counsel in the prosecution of this action. The court ordered that the claim of HBC against the defendants for reimbursement of funds of HBC advanced by it to the defendants or otherwise paid by it to or on behalf of the defendants for attorney's fees, expert fees, and other costs and expenses associated with the defense of the defendants is denied on the sole basis of being premature, reserving to plaintiffs their right to re-assert that claim by appropriate rule in the instant [96 0466 La.App. 1 Cir. 5] proceeding after final disposition of this matter on appeal. The court also ordered that the attorney's fees of Robert B. Butler, III, Remy Chaison and Jerry H. Schwab which it fixed at 28% of any recovery obtained by HBC.
On appeal, the defendants assert the following assignments of error:
1. The district court failed to instruct the jury in a manner that sufficiently caused them to understand that corporations are run by boards of directors elected by a majority of the shareholders, and who conduct business also by a majority vote. The jury did not understand that absent extraordinary circumstances, minority shareholders or directors cannot through hindsight substitute, through the vehicle of a lawsuit, their judgment for that of the majority.
2. The district court failed to properly instruct the jury that directors are not liable for failing to make a corporation profitable or for errors in judgment in running the corporation.
3. The district court failed to sufficiently emphasize to the jury that jurors should not use hindsight, but must consider each decision by the board of directors in the context of the situation known to the board at the time each decision was made.
4. The district court erred in instructing the jury that the standard of care of directors in Louisiana is simple rather than gross negligence.
5. The district court failed to emphasize the overwhelming importance of the Business Judgment Rule and completely negated the impact of the rule by overemphasizing inapplicable and minor exceptions to the rule.
6. The district court erred in not directing a partial verdict in favor of the defendants on all issues related to self-dealing because all instances of self-dealing were permissible within the language of LSA-R.S. 12:84.
7. The jury improperly instructed the jury on self-dealing.
8. The jury erroneously failed to consider the actions of the majority directors on a decision by decision basis.
9. The jury failed to consider the level of sophistication of the majority directors and the reasonableness of their reliance on Charlie Aycock, Minor Pipes, Jr., Dr. Sherwood Gagliano, and other experts.
10. The jury failed to properly apply the Business Judgment Rule.
11. The district court failed to submit interrogatories to the jury that would have allowed it to consider other causes of loss of the mariculture operation, i.e. the release of the first batch in May 1989 and Hurricane Andrew in 1992.
12. The district court erred when it ruled that the majority directors are liable in solido with all the other directors.
13. The district court abused its discretion in failing to direct a verdict for the defendants and in failing to grant Motions for judgment...
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