Bordelon v. Cochrane
| Decision Date | 05 October 1988 |
| Docket Number | No. 87-670,87-670 |
| Citation | 533 So.2d 82 |
| Parties | John S. BORDELON, Plaintiff-Appellant, v. Douglas A. COCHRANE, Jr., et al., Defendants-Appellees. 533 So.2d 82 |
| Court | Court of Appeal of Louisiana — District of US |
Durio, McGoffin & Stagg, Steven G. Durio, Kermit Doucet, Lafayette, for plaintiff-appellant.
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Roy C. Cheatwood, Nancy S. Degan, New Orleans, Chris A. Verret, Lafayette, for defendants-appellees.
Before DOMENGEAUX, KNOLL and KING, JJ.
John S. Bordelon sued Cochrane Subsea Acoustics, Inc. (Subsea) and its directors, Douglas A. Cochrane, Jr. (Cochrane), Fred Styer (Styer), Jan Madden Cochrane and Jean Nolan Cochrane (Jan and Jean Cochrane), contending Subsea, Cochrane and Styer breached certain stockholder agreements between them and Bordelon, and that Cochrane, Styer, and Jan and Jean Cochrane breached their fiduciary duties to the corporation and to Bordelon, as a shareholder. The trial court ruled that Bordelon was a minority stockholder and as such he was not able to personally obtain damages either for the defendants' alleged mismanagement of the corporation or for an alleged breach of the shareholders' agreement. Accordingly, it sustained defendants' exceptions of no right of action and no cause of action.
Bordelon appeals, contending the trial court erred in sustaining defendants' exceptions of no right of action and no cause of action, and raises the following issues: (1) as a shareholder of Subsea he has a direct right of action against defendants as officers and directors of the corporation for breach of a fiduciary duty which caused him to personally suffer loss; (2) as a shareholder of Subsea he has the right to bring a derivative action against defendants as officers and directors for breach of a fiduciary duty which caused loss to the corporation; (3) he has a right of action against defendants for breach of the shareholder agreements to which he and defendants were parties; (4) he has stated a cause of action for breach of a fiduciary duty, derivatively on behalf of the corporation and individually for breach of contract. We affirm in part, reverse in part and remand.
Bordelon purchased 10% of the authorized but unissued Subsea capital stock on October 28, 1981, for $20,000, and entered into two shareholder agreements with Subsea and Cochrane, the only other shareholder at the time. In the agreements, Cochrane agreed to vote his stock so that Bordelon would have preemptive rights and a seat on the board of directors. Cochrane also agreed to vote his stock against any modification in the classification, voting power or other shareholder rights contained in the articles of incorporation. Furthermore, the agreements granted Bordelon an option to purchase an additional 10% of the outstanding Subsea stock, provided him with a right, i.e., the "put right", to require either Cochrane or Subsea to purchase his Subsea stock at a price tied to the corporate net worth on a book value basis, and limited the amount of monthly remuneration Cochrane, his family, and affiliated businesses could receive. In consideration, Bordelon agreed to join Cochrane on a continuing basis as a co-guarantor or co-endorser for up to $100,000 in Subsea's obligations incurred subsequent to the date of the agreements.
On May 19, 1982, in consideration of Bordelon increasing the amount of his personal guaranty from $100,000 to $300,000, these agreements were later amended to reduce the stock option price, to lengthen the term of the stock option, and to increase the remuneration limitations placed on Cochrane.
In connection with Bordelon's purchase of an additional 10% of Subsea stock from Cochrane, on April 7, 1983, Bordelon, Cochrane, Subsea, and Styer, a new shareholder, again amended the shareholder agreements relative to the "put right" previously granted to Bordelon, and Styer formally ratified all prior shareholder agreements entered between Bordelon, Subsea, and Cochrane.
On March 29, 1985, Bordelon sued Cochrane and Subsea, contending: (1) that Cochrane breached the shareholder agreements by refusing to convey a sufficient number of shares to constitute Bordelon as the owner of 20% of the outstanding Subsea stock; and (2) Cochrane breached his fiduciary duty to Subsea and Bordelon by: (a) refusing additional capital contributions and a loan from third-party investors; (b) arbitrarily frustrating third-party offers to Bordelon, a minority shareholder, to purchase his Subsea stock; and (c) amending the articles of incorporation to shorten the notice requirements for special meetings to one day, removing the annual election of directors, and lengthening the term of directors to 5 years. Accordingly, Bordelon sought damages on behalf of Subsea because Cochrane's actions retarded the corporate growth and increased its liabilities, and further damaged Bordelon personally by making him unable to participate effectively in the corporation and to market his minority interest. Bordelon further sought the appointment of a receiver pursuant to LSA-R.S. 12:151 because his rights as a minority shareholder were violated and his interest endangered.
Defendants filed peremptory exceptions of no cause and no right of action to Bordelon's original petition which were sustained by the trial court on May 5, 1986.
On May 20, 1986, Bordelon filed an amending and supplemental petition realleging the claims raised in his original petition, and added Styer, and Jan and Jean Cochrane as defendants. Bordelon further asserted claims against the defendants based on the breach of the shareholder's agreements, contending: (a) Cochrane received remuneration higher than that provided in the shareholder agreements; and (b) he attempted to issue stock to non-shareholders with the intent to reduce Bordelon's ownership of 20% of the corporate stock. He also urged that these actions also constituted breach of the fiduciary duty owed to him as a shareholder and to Subsea, and further asserted a claim against Jan and Jean Cochrane stating that they failed to attend directors' meetings and abused the use of proxies. Bordelon, as a representative of Subsea, further sought damages for the loss the corporation suffered because of defendants' breach of their fiduciary duties. Defendants filed new exceptions of no right and no cause of action which were granted by the trial court. This appeal then ensued.
The function of the peremptory exception is to have plaintiff's action declared legally nonexistent, or barred by effect of law. Eastlake Trading Co. v. Iberia Trading Co., 398 So.2d 1146 (La.App. 4th Cir.1980), writ denied, 401 So.2d 977 (La.1981). An exception of no cause of action tests the legal sufficiency of a petition by determining whether the law affords a remedy to the plaintiff for the particular grievance alleged. Darville v. Texaco, Inc., 447 So.2d 473 (La.1984). In deciding an exception of no cause of action, the court accepts the facts alleged in the petition, without reference to any extraneous supporting or controverting evidence, and determines whether the law affords any relief to plaintiff if those facts are proved at trial. Robinson v. North American Royalties, Inc., 470 So.2d 112 (La.1985). An exception of no right of action raises the question of whether the plaintiff belongs to a particular class in whose exclusive favor the law extends the remedy, or whether the plaintiff has the right to invoke a remedy which the law extends only conditionally. Babineaux v. Pernie-Bailey Drilling Co., 261 La. 1080, 262 So.2d 328 (1972).
Bordelon contends that he stated a cause of action and that he has a right of action under three distinct theories: (1) under LSA-R.S. 12:91 he can individually sue for the alleged loss he personally suffered due to defendants' alleged breach of their fiduciary duties; (2) under LSA-R.S. 12:91 he has a derivative right as a shareholder against defendants as officers and directors of Subsea for the alleged breach of their fiduciary duties to Subsea which caused the corporation to suffer loss; and (3) he can personally sue defendants for their alleged breach of the shareholder agreements that were executed.
Bordelon contends, relying on Wilson v. H.J. Wilson Co., Inc., 430 So.2d 1227 (La.App. 1st Cir.1983), and Coury v. Coury Moss, Inc., 510 So.2d 1316 (La.App. 3rd Cir.1987), that he can individually recover from defendants as officers and directors of Subsea for the losses he allegedly suffered as the result of the breach of their fiduciary duties. We disagree.
In alleging the breach of fiduciary duty by Cochrane, Bordelon directs our attention to four basic areas. First, he cites Cochrane's failure to pursue capital contributions and a loan from a third-party investor. Second, Bordelon mentions Cochrane's failure to allow Bordelon to disclose information he possessed by virtue of his role as corporate counsel. Third, he cites the shortening of time for notice of meetings and the extension of the director's terms to 5 years. Fourth, he mentions Cochrane's attempted action, alleged without particularity, to dilute the value of all currently outstanding and unissued stock.
Bordelon also joins Styer in the breach of a fiduciary duty by attempting to take action to dilute the value of his Subsea stock. As to Jan and Jean Cochrane, Bordelon alleged that they breached their fiduciary duty by failing...
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