Monroe v. McDaniel

• Decision Date: 07 December 2016
• Docket Number: NO. 16–CA–214,16–CA–214
• Parties: John MONROE and Baseline Technologies, LLC v. James. C. MCDANIEL, III and Robert Oster
• Court: Court of Appeal of Louisiana — District of US

207 So.3d 1172

John MONROE and Baseline Technologies, LLC
v.
James. C. MCDANIEL, III and Robert Oster

NO. 16–CA–214

Court of Appeal of Louisiana, Fifth Circuit.

December 07, 2016

COUNSEL FOR PLAINTIFF/APPELLANT, JOHN MONROE AND BASELINE TECHNOLOGIES, LLC, Allison K. Nestor

COUNSEL FOR DEFENDANT/APPELLEE, JAMES. C. MCDANIEL, III AND ROBERT OSTER, Brett S. Lala, James M. White, III

Panel composed of Susan M. Chehardy, Marc E. Johnson, and Robert M. Murphy

JOHNSON, J.

This case involves several causes of action, including breach of fiduciary duty, fraud, violation of the Louisiana Unfair Trade Practices Act, and successor company liability, relating to a three-member limited liability corporation ("LLC"). Plaintiffs, the LLC and one member of the LLC, appeal the trial court's judgment which failed to award damages after finding Defendants, the other two members of the LLC, breached their fiduciary duty and dismissed the remaining causes of actions after finding they were meritless. For the reasons that follow, we affirm the judgment of the trial court.

207 So.3d 1175

FACTS & PROCEDURAL HISTORY

In 1999, Plaintiff, John Monroe, started a company in New Orleans called Baseline Technologies, LLC ("Baseline"), that provided computer, web and email hosting and technology services. Specifically, Baseline designed, implemented and provided support for computer networks.

Shortly after Hurricane Katrina in 2005, Mr. Monroe moved to Asheville, North Carolina. Prior to moving, he discussed with Defendant James McDaniel, who had been doing "1099 work" for Baseline, the possibility of taking over the management and servicing of Baseline clients in New Orleans in exchange for an interest in Baseline. They also discussed moving Baseline's infrastructure to Asheville and expanding Baseline to the Asheville market. The two reached an agreement, and in April 2006, Mr. McDaniel became a member of Baseline and Mr. Monroe conducted Baseline's work in North Carolina. There was no written agreement regarding the arrangement.

Two years later, in April 2008, at the request of Mr. McDaniel, Defendant Robert Oster joined Baseline as a member. Like Mr. McDaniel, Mr. Oster had done some "1099 work" for Baseline before becoming a member. Mr. Oster became a member under the same terms as Mr. McDaniel—he was to service existing Baseline clients in New Orleans and bring new clients to Baseline in exchange for an interest in Baseline. Neither Mr. McDaniel nor Mr. Oster contributed any capital to Baseline upon becoming a member, but Mr. Oster merged his existing business, Oster Technology, into Baseline which added approximately 12 clients.

After Mr. Oster became a member, each of the three members owned an equal one-third interest in Baseline and each had equal input regarding its management. According to all three parties, each agreed to bill enough hours to cover their own salaries, which required approximately 12–13 hours per week. Again, there was no written agreement regarding the arrangement.

Also in April 2008, Baseline hired a small business consultant, Cynthia Sprau, from Asheville to help with its business development in both New Orleans and Asheville. Ms. Sprau worked with Baseline's three members through weekly telephone conferences over the next year and a half. According to Ms. Sprau, Baseline struggled with cash flow. She noted Baseline was not profitable, but it was gaining. She specifically testified that significant strides in sales were being made by Mr. McDaniel and Mr. Oster in New Orleans, but "it wasn't happening in North Carolina." Ms. Sprau stated that Mr. Monroe was more disposed to doing administrative tasks. She explained that she spent time during their weekly meetings trying to convince Mr. Monroe to see that the company was too small for a managing partner and to encourage him to produce or generate business.

By the end of 2008, Mr. Oster was frustrated by Mr. Monroe's lack of productivity and expressed his concerns to Mr. Monroe as well as to Ms. Sprau. The issue came to a head in May 2009 over a two-day telephone conference between the three members and Ms. Sprau when discussions were held about Mr. Monroe's lack of productivity and his conduct, which indicated that he believed he had a different role in the company or was the "managing" partner and that he did not have to work as hard as the other two members at generating business. Mr. McDaniel testified that he told Mr. Monroe during this meeting that if things did not change, there was a likelihood he would leave the company. Mr. McDaniel also testified that although he was angry after the meeting, he was willing to give Mr. Monroe more time to change and generate business.

207 So.3d 1176

On September 4, 2009, Mr. McDaniel and Mr. Oster left Baseline and formed their own company, nSpire Technologies, LLC ("nSpire"), which provided similar computer services as Baseline. One week later, on September 11, 2009, Mr. McDaniel and Mr. Oster sent a letter to Baseline's clients advising them of the new company and informing them of their option to stay with Baseline or move to nSpire. The letter included Mr. Monroe's contact information in the event the client chose to stay with Baseline. A number of Baseline clients subsequently became clients of nSpire.

On February 2, 2010, Mr. Monroe and Baseline filed the current lawsuit against Mr. McDaniel and Mr. Oster seeking damages based on their conduct in leaving Baseline and forming their own company. Specifically, Plaintiffs alleged that Defendants (1) breached their fiduciary duty as members of Baseline when they formed a competing company and took the majority of Baseline's clients, and (2) violated the Louisiana Unfair Trade Practices Act (LUTPA) in forming a competing company while working for Baseline and drawing a salary.¹ In a supplemental and amending petition, Plaintiffs added nSpire as a defendant. Plaintiffs further asserted additional causes of action against Defendants including: (1) fraud and conspiracy to commit fraud, (2) tortious interference with business relationships, and (3) successor liability.

Defendants separately answered the petition and supplemental and amending petition. Mr. McDaniel and Mr. Oster further asserted reconventional demands alleging that Mr. Monroe breached his fiduciary duty to Baseline and its members, fraudulently manipulated Baseline's financial records, and violated LUTPA. Their reconventional demands further sought an accounting of Baseline's financial condition from September 4, 2009 to the present, reimbursement for expenses incurred on behalf of Baseline and not paid, compensation for work performed on behalf of Baseline after September 4, 2009, and cash distribution of their membership interest equivalent to 1/3 of Baseline's fair market value as of September 4, 2009.

The matter proceeded to a bench trial on June 29 and 30, 2015. After taking the matter under advisement, the trial court rendered judgment on November 18, 2015, finding Mr. McDaniel and Mr. Oster breached their fiduciary duties for planning to start a new company during Baseline's business hours and while employed as members of Baseline. The trial court also found Mr. Monroe breached his fiduciary duty for failing to bill the agreed upon hours and for working as a general contractor on his house and working at a wine store during Baseline's business hours while employed as a member of Baseline. However, the trial court concluded that none of the parties proved they incurred any damages as a result of the breach of fiduciary duty; thus, it did not award damages to any of the parties. The trial court further found the remaining claims, both in the main demand and the reconventional demand, were without merit and dismissed them with prejudice. Mr. Monroe and Baseline appeal this judgment.²

ISSUES

Plaintiffs argue that the trial court erred in (1) failing to award damages for Defendants'

207 So.3d 1177

breach of fiduciary duty, (2) failing to find Defendants committed fraud or conspired to commit fraud, (3) failing to find Defendants violated LUTPA, and (4) failing to impose successor liability on nSpire.

LAW & ANALYSIS

Damages

Plaintiffs challenge the trial court's failure to award damages for Defendants' breach of their fiduciary duties. Plaintiffs assert that the trial court erroneously failed to award damages after concluding that all parties were liable for breach of fiduciary duty and that no party's breach was more egregious than the others. In this regard, Plaintiffs argue the trial court erred in finding that Mr. Monroe breached his fiduciary duty to Baseline and its members by failing to bill the agreed upon hours and working on other endeavors during Baseline's business hours.

First, we note that the finding that Mr. Monroe's breach of fiduciary duty was no more egregious than Defendants' breach was not made in the judgment. Rather, the comment was made in the trial court's reasons for judgment, which do not form a part of the judgment for our review. See Bellard v. American Central Ins. Co. , 07–1335 (La. 4/18/08); 980 So.2d 654, 671 ("the district court's oral or written reasons...