Spruiell v. Ludwig
| Decision Date | 13 September 1990 |
| Docket Number | Nos. 90-CA-192,CA-196,s. 90-CA-192 |
| Citation | 568 So.2d 133 |
| Parties | Joyce Ludwig, Wife of Vance SPRUIELL, Catherine M. Ellis, Sidney Ellis Reavey, and John M. Ellis, Jr. v. Clare Leary, Wife of/and Edward B. LUDWIG, Jr., Edward B. Ludwig, III, Lureco Realty Co., Inc., Drawde-Allen, Inc., and Container Realty & Construction, Inc. Joyce Ludwig, Wife of Vance SPRUIELL, Catherine M. Ellis, Sidney Ellis Reavey, and John M. Ellis, Jr. v. E.B. LUDWIG, INC., E.B. Ludwig, Jr., and Clare Leary Ludwig. Joyce Ludwig, Wife of Vance SPRUIELL, Catherine M. Ellis, Sidney Ellis Reavey and John M. Ellis, Jr. v. Edward B. LUDWIG, III, Drawde-Allen, Inc. and Container Realty & Construction, Inc. Joyce Ludwig, Wife of Vance SPRUIELL, Catherine M. Ellis, Sidney Ellis Reavey, and John M. Ellis, Jr. v. TRIPEN, INC., E.B. Ludwig, Inc., Container Realty & Construction, Inc., Lureco Realty, Inc., Clare Ludwig, Wife of/and Edward B. Ludwig, Jr., Nella Scheyer, Widow of Edward B. Ludwig and Edward B. Ludwig, III. Nella S. LUDWIG v. Joyce Ludwig SPRUIELL, Catherine M. Ellis, Sidney Ellis Reavey, and John M. Ellis, Jr. to 90- |
| Court | Court of Appeal of Louisiana — District of US |
Mack E. Barham, Robert E. Arceneaux, Gail N. Wise, Barham & Associates, New Orleans, for plaintiffs/appellants.
Nathan Greenberg, David Pick, Greenberg & Dallam, Gretna, for plaintiffs/appellants.
Donald A. Hammett, John V. Baus, Jr., Blue, Williams & Buckley, Metairie, for defendants/appellees.
Bernhardt C. Heebe, New Orleans, for defendants/appellees.
Before GRISBAUM and GOTHARD, JJ., and KOLLIN, J. Pro Tem.
This appeal concerns four shareholder derivative actions and a reconventional demand for revocation of inter vivos donations which were consolidated for trial. We affirm in part and reverse in part.
The roots of these cases began in the 1950's and 1960's when Edward B. Ludwig, Sr. began several family corporations to conduct the family business centered around steel, construction and real estate. In 1967 Mr. Ludwig became ill and began relying on his son Edward B. Ludwig, Jr. (Buddy) to manage the family businesses. Buddy put together a project whereby Mr. Ludwig, Sr. invested $43,000 to buy land on which three industrial buildings were constructed for lease to a third party. A new corporation, Drawde-Allen, was formed to own and manage these buildings and any future industrial real estate the family might acquire. The sole shareholders were Edward B. Ludwig, Sr. and his wife Nella. Edward B. Ludwig, Sr. died in 1968. The buildings were constructed by Buddy's Construction Corporation.
Because the corporation had no money and had incurred a debt for construction of the three buildings, the personal guarantees of Nella and Buddy were required by the bank in order for Drawde-Allen to secure the loan to pay construction costs. Buddy gave his personal guarantee even though he was not a shareholder of Drawde-Allen at the time.
During the period from 1968 to 1983 the family corporations acquired further real estate holdings and the various corporations were managed on a day to day basis by Buddy. His sister, Joyce Ludwig Spruiell, served as a director in several of the corporations. No formal corporate meetings were held. Whether or not corporate business was conducted at family gatherings is in dispute. At any rate, the corporate proceedings are chronicled in written minutes and resolutions signed by Joyce and the various family members, who were directors in the corporations.
In 1976 Nella Ludwig began making inter vivos donations of stock to her children, Buddy and Joyce, and her grandchildren. These donations were made as an estate planning device.
In 1983 Joyce and her children, now adults, received notice that two of the family corporations, Container Realty & Construction, Inc. and Drawde-Allen, Inc. were merging. Because they did not fully understand the ramifications or meaning of the merger, Joyce and her children (Catherine, Sidney and John), contacted Joyce's attorney and requested that he investigate the merger and their interests in the family businesses.
Pursuant to the attorney's request for more information a meeting was held for the purpose of an examination of corporate books and records concerning the merger. The meeting deteriorated into a family feud pitting Joyce and her children against Nella, Buddy and Buddy's family.
Subsequently, Joyce and her children filed four separate shareholder derivative actions against Nella, Buddy and his family and against five family corporations, Iona Realty, Inc., Container Realty and Construction, Inc., Drawde-Allen, Inc., Lureco, Inc. and E.B. Ludwig, Inc. Also named as a defendant was Tripen, Inc., Buddy's family corporation. The petitions in all four suits are similar and assert that plaintiffs were damaged as a result of eleven transfers of immovable property to the detriment of the family corporations. The suits seek return of the immovable property to the corporations and an accounting of rentals or, in the alternative, damages.
As a result, Nella filed suit against Joyce and her children for revocation of donations for ingratitude based on the allegations in Joyce's petition. Nella and Buddy also filed suit for partition of property owned in indivision with Joyce. The partition action was settled and is not before us on appeal.
In a reconventional demand Joyce asserts that defendants' actions constitute a pattern and practice of minority oppression in violation of 18 U.S.C. Sec. 1961 et seq. (RICO). That demand was dismissed on an exception of no cause of action for failure to allege the predicate criminal acts.
The four derivative actions and the revocation action were consolidated for trial. Also taken up at that time was defendant's exception of prescription. After a trial on the merits, the trial court rendered judgment in favor of defendants in the derivative actions, finding actions prescribed on three of the transfers and that the remaining sales were proper and not in violation of plaintiffs' derivative rights. Additionally, the court ruled in favor of plaintiff in the revocation action finding that Joyce and her children acted in a manner that was "so cold and vituperative as to justify the revocation action."
Plaintiffs appeal the outcome of the derivative actions and the revocation action and assign three errors:
1. The trial court erred in holding that grounds for revocation of the inter vivos donations were alleged and proved.
2. The trial court erred in refusing to find numerous breaches of fiduciary duties, any one of which justifies the relief sought by the corporations through Joyce and the grandchildren.
3. The trial court erred in holding that appellants' claim with respect to three of the properties had prescribed.
REVOCATION OF INTER VIVOS DONATION.
Nella Ludwig filed a suit for revocation of various inter vivos donations made to her daughter, Joyce, and Joyce's children, Sidney, Catherine and John, on the ground of ingratitude. These donations were irrevocable donations of stock in various family corporations evidenced by separate, formal acts executed between 1976 and 1983.
Article 1559 of the Civil Code provides that an inter vivos donation may be revoked for ingratitude of the donee. Article 1560 explains that revocation can take place on account of ingratitude if the donee "has been guilty towards him (donor) of cruel treatment, crimes or grievous injuries." The trial court revoked the donations finding that, the "depth of ingratitude and perniciousness was demonstrated in the pleadings filed on behalf of the plaintiffs accusing defendant mother, Nella, and E.B. Ludwig, Jr., the defendant's son, of racketeering activities in violation of the Federal statutes."
At trial Nella testified that she was hurt and embarrassed by the selfishness and ingratitude of her daughter and grandchildren. Nella also testified that Joyce referred to her as a "crooked thief." Joyce and her children maintain that their action in bringing the shareholder derivative actions and making the reconventional demand to the revocation suit were solely to protect their rights and not intended as a personal attack on Nella.
Nella was sued in her capacity as director or shareholder in various corporations formed pursuant to R.S. 12:1 et seq. Despite Nella's testimony that the corporations involved were family matters and should not be aired in public, the law does not make that distinction between family and business corporations.
Pursuant to R.S. 12:1 et seq. a minority shareholder has a right to bring a derivative action on behalf of the corporation. The minority shareholders in a derivative action are only nominal plaintiffs whose right to recover can only be asserted secondarily. C.C.P. art. 596; Robinson v. Snell's Limbs and Braces, 538 So.2d 1045 (La.App. 3rd Cir.1989). We do not find that allegations of breach of fiduciary duty contained in the shareholder derivative pleadings asserting the corporations' right to recovery are sufficient to constitute grievous injury under the Civil Code. But the allegations go beyond the norm in shareholder's derivative actions. Joyce and her children made the direct allegation that Nella was guilty of wrongdoing to the extent that she incurred liability under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) embodied in 18 U.S.C.1961 et seq. The trial court relied heavily on these allegations of wrongdoing in the reconventional demand to the revocation suit in revoking the donations. The thrust of the allegation in the reconventional demand is that Nella, by filing the revocation action, formed a "deliberate attempt or scheme to appropriate unto the said defendant in reconvention your reconvenor's interest as minority stockholders in each .... corporation."
Grievous injuries are defined as follows:
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... ... Plaintiffs contend that the applicable prescriptive period for this cause of action is ten ... years, citing Spruiell v. Ludwig, 568 So.2d 133, 138 (La.App. 5th Cir.1990), writ denied, 573 So.2d 1117 (La.1991), which held that actions based on a breach of fiduciary ... ...
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