ORX RESOURCES v. MBW EXPLORATION, LLC

• Decision Date: 10 February 2010
• Docket Number: No. 2009-CA-0662,2009-CA-0859.,2009-CA-0662
• Citation: 32 So.3d 931
• Parties: ORX RESOURCES, INC. v. MBW EXPLORATION, L.L.C. and Mark B. Washauer. ORX Resources, Inc. v. MBW Exploration, L.L.C. and Mark B. Washauer.
• Court: Court of Appeal of Louisiana — District of US

32 So.3d 931

ORX RESOURCES, INC. v. MBW EXPLORATION, L.L.C. and Mark B. Washauer.

ORX Resources, Inc. v. MBW Exploration, L.L.C. and Mark B. Washauer.

Nos. 2009-CA-0662, 2009-CA-0859.

Court of Appeal of Louisiana, Fourth Circuit.

February 10, 2010.

Russell L. Foster, M. Taylor Darden, Carver Darden Koretzky Tessier Finn Blossman & Areaux, L.L.C., New Orleans, LA, for Plaintiff/Appellee.

Michael A. Patterson, S. Brooke Barnett, Adrian G. Nadeau, Long Law Firm, L.L.P., Baton Rouge, LA, for Defendants/Appellants.

Court composed of Judge CHARLES R. JONES, Judge JAMES F. McKAY, III, and Judge EDWIN A. LOMBARD.

CHARLES R. JONES, Judge.

The Appellants, MBW Exploration, L.L.C. ("MBW") and Mark Washauer, seek review of a judgment of the district court granting a motion for summary judgment in favor of ORX Resources, Inc. ("ORX"). The court held that MBW and Mr. Washauer are liable in solido to ORX for breach of contract, and awarded ORX attorneys fees. For the reasons that follow, we affirm the judgment determining that Mr. Washauer operated MBW as his alter ego, and allowing ORX to pierce the veil of an LLC.

On January 16, 2003, ORX entered into the "Clovelly Purchase Agreement" with Coastline Oil & Gas, Inc. Pursuant to this Agreement, ORX purchased certain oil, gas and mineral leases/interests in a tract of land located in Lafourche Parish, known as the "Clovelly Prospect." ORX partnered with other entities, including MBW, to share in the expense and potential profits of the venture to explore and develop the Clovelly Prospect. The partnering parties entered into a Joint Operating Agreement ("JOA") and the Clovelly Prospect Participation Agreement ("Participation Agreement"). Mr. Washauer signed these documents in October of 2003 and December of 2004, respectively, on behalf of MBW, in his capacity as a "Managing Member." However, MBW did not come into existence until July of 2005, when its articles of organization were filed with the Louisiana Secretary of State.

The JOA provided that ORX was to serve as the "Operator" drilling a well within the Clovelly Prospect. It further provided that the non-operating working interest partners, like MBW, would pay their proportionate share of the costs in exchange for a corresponding working interest ownership share in the Clovelly Prospect. The drilled well was governed by the Participation Agreement, which provided that MBW had a working interest in the Clovelly Prospect whereby MBW would share in 2.5% of the costs incurred, and would gain a proportionate share of the returns, if any, produced by the well.

Later, ORX submitted an Authorization for Expenditure ("AFE") to MBW for approval, which Mr. Washauer signed in his own name. Additionally, he paid MBW's participation fee with a check drawn from the account of another entity, MBW Properties, LLC.

In 2006, ORX, as the well Operator, began planning the Allain LeBreton Well No. 2 in the Clovelly Prospect, ("the Well"), which was the "initial well" called for in the Participation Agreement. Adjustments were made in the plan to drill the Well, including the issuance of a revised AFE, which Mr. Washauer signed on MBW's behalf. Mr. Washauer paid the full amount of MBW's share of an ORX cash call invoice of $59,325 with a personal check.

The well proved to be unsuccessful, and was ultimately plugged. MBW's unpaid share of expenses for said project amounted to $84,220.01, for which ORX demanded payment via correspondence, but to no avail. As a result, ORX filed suit for breach of contract against both MBW and Mr. Washauer ("the Appellants").

In January of 2009, the case was heard by the district court on cross-motions for summary judgment. The district court denied the Appellants' motion, and granted summary judgment in favor of ORX. The Appellants timely filed a motion for suspensive appeal from this judgment. Subsequently, the district court granted ORX's motion for attorneys fees and issued a Final Judgment in March of 2009, holding:

1.) the Appellants liable, in solido, to ORX in the principal amount of $84,220.01;

2.) awarding reasonable attorneys' fees in the amount of $43,158.50;

3.) awarding prejudgment and post-judgment interest and court costs, and

4.) awarding all other costs related to the collection of MBW's unpaid balance.

The Judgment further provided that "ORX's rights to bring future claims for attorneys' fees and costs relating to the appeal of this case and/or the collection of this Judgment are reserved." The Appellants filed a second motion for suspensive appeal, which was granted on May 14, 2009. The two appeals, bearing Docket Nos. 2009-CA-0662, and 2009-CA-0859, were consolidated on June 18, 2009.

The Appellants raise four assignments of error:

1. the district court erred in ruling that ORX met its burden of proof to hold Mr. Washauer personally liable for the debts of MBW;

2. the district court erred in ruling that the alter-ego theory of the corporate veil piercing applied to Louisiana limited liability companies;

3. the district court erred in ruling that ORX met its burden of proof to establish that Mr. Washauer was the alter ego of MBW; and

4. the district court erred in awarding ORX $43,158.50 in attorneys fees.

We will not address the Appellants' assignments of error in the above-referenced order. We will initially discuss what the Appellants' have designated as their second assignment of error. Thereafter, the first and third assignments of error will be discussed together because they both involve Mr. Washauer. Review of the Appellants' fourth assignment of error will be followed by our analysis of ORX's request for attorneys fees. Lastly, we will address the motion to enroll

Appellate court review of a summary judgment is de novo. Dominio v. Folger Coffee Co., 2005-0357 (La.App. 4 Cir. 2/15/06), 926 So.2d 16. Furthermore, a motion for summary judgment will be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact, and that the mover is entitled to judgment as a matter of law. La. C.C.P. art. 966(B). However, if the movant will not bear the burden of proof at trial, the movant's burden on the motion does not require him to negate all essential elements of the adverse party's claim, action, or defense, but rather to point out to the court that there is an absence of factual support for one or more elements essential to the adverse party's claim, action, or defense. La. C.C.P. art. 966(C)(2). Thereafter, if the adverse party fails to produce factual support sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial, there is no genuine issue of material fact. Id.

We first address whether the district court erred in ruling that the alter-ego theory of the corporate veil piercing applied to Louisiana limited liability companies. In support of this argument, the Appellants' allege the district court erred in applying this theory in the instant case because theories of veil piercing and/or other mechanisms that attempt to subject LLC members to personal liability are in direct conflict with Louisiana statutory law.

The Appellants assert that Louisiana's LLC law does not impose member liability that parallels a shareholder's potential exposure created by disregarding certain business formalities; furthermore, the failure to follow certain formalities is not ground for imposing liability on members or managers for the debts and obligations of the LLC under La. R.S. 12:1319(C). Lastly, the Appellants maintain that our circuit has never allowed the veil of a LLC to be pierced, and that we have held that absent particularized claims of fraud, breach of a professional duty or other negligent or wrongful act done outside of one's capacity as a member, the limitation of liability afforded to LLC members cannot be disregarded in favor of individual liability. Curole v. Ochsner Clinic, L.L.C., 01-1734 (La.App. 4 Cir. 02/20/02), 811 So.2d 92; Roth v. Voodoo BBQ, 07-0295, (La.App. 4 Cir. 08/01/07), 964 So.2d 1095.

General Louisiana LLC law pursuant to La. R.S. 12:1320(B) provides that:

• members are not personally liable for the debts, obligations and other liabilities of the LLC to third parties, and

• a LLC member is not a proper party in any proceeding against the LLC.

However, third parties can bring claims against members and managers for "any fraud practiced upon him, because of any breach of professional duty or other negligent or wrongful act by such person, or in derogation of any right which the limited liability company may have against any such person because of any fraud practiced upon it by him." La. R.S. 12:1320(D).¹ Our Court has explained that "to have meaning within the entire statute, the phrase `or other negligent or wrongful act by such person' must refer to acts done outside one's capacity as a member, manager, employee, or agent of the limited liability company." Curole, p. 7-8, 811 So.2d at 97. Emphasis added.

As we reasoned in Curole, the provisions of La. R.S. 12:1320(D) provide for the piercing of a LLC's veil when the situation so warrants. We explained in Curole that:

... the only case applying Louisiana law allowing the veil of an sic limited liability company to be pierced in the same way that the view of a corporation is pierced is Hollowell v. Orleans Reg'l Hosp., 217 F.3d 379, 381 (5th Cir.2000). In Hollowell, the court held that a court may allow the piercing of the veil of a limited liability company based on a totality of the circumstances review.

Id., p. 6, 811 So.2d at 96. We interpret that "a totality of the circumstances review" encompasses the possibility that a district court can allow a district court to pierce the veil of a LLC under the alter ego doctrine. Furthermore, as the Louisiana Supreme Court has explained the veil of an entity can be pierced "... where the...