Opinion ID: 512405
Heading Depth: 3
Heading Rank: 2

Heading: The Creditors' Ability to Assert Breach of the Duty Owed

Text: 26 Louisiana law clearly establishes a cause of action for breach of fiduciary obligations and mismanagement by corporate officers and directors who are grossly negligent in the performance of their duties. This cause of action, however, runs solely in favor of the corporation and its shareholders--or, in the case of a nonprofit corporation, the corporation and its members, if any. In Unimobil 84, Inc. v. Spurney, which also involved LWE, we noted that under Louisiana law: 27 Officers and directors are merely agents of the corporation, and, except for acts of malfeasance, are answerable to it alone. A creditor of a corporation has no right of action against the corporation's agents for gross negligence or maladministration of corporate affairs or omission of duty. Wirth v. Albert, 174 La. 373, 141 So. 1, 4 (1932); Bacher v. Albert, 180 La. 108, 156 So. 191 (1934); Allen v. Cochran, 160 La. 425, 107 So. 292 (1926). 28 797 F.2d 214, 215 (5th Cir.1986) (emphasis added). 29 In addition to Unimobil and the cases cited by it in the quotation above, the appellees refer us to three cases arising out of the LWE insolvency as further support for the principle that Louisiana law does not give a creditor a direct cause of action against a director of an insolvent corporation for damages resulting from gross negligence, mismanagement or breach of fiduciary duty. Hot Boudin Co. v. Harrison Price Co., Inc., 800 F.2d 1143 (5th Cir.1986); 1884 Shop, Inc. v. Harrison Price Co., Inc., 813 F.2d 406 (5th Cir.1987); Colomb d/b/a Uptown Square Winery v. Harrison Price Co., Inc., 814 F.2d 230 (5th Cir.1987). In each of these cases, this court affirmed the district court's dismissal of the complaint for legal insufficiency, but we rendered an opinion in only the last. In Colomb, we pointed out that all three cases involved virtually identical complaints in which a creditor was seeking damages based on alleged intentional misrepresentation and negligence by the directors of LWE. We held that Unimobil was controlling authority, noted that the two prior cases had been dismissed, affirmed the dismissal in Colomb, and warned counsel that further appeal of the same issue would result in sanctions. Colomb, 814 F.2d at 230. It is clear, therefore, beyond peradventure that Louisiana law does not give a creditor a direct cause of action against a director of an insolvent corporation for damages for gross negligence, mismanagement or breach of fiduciary duty. 30 The appellees also cite a number of other cases in support of the related proposition that Louisiana law does not permit a creditor to sue a corporate director or officer on the debt owed by the corporation to that creditor in the absence of fraud. That is, allegations by creditors of gross negligence, mismanagement or breach of fiduciary duty on the part of officers and directors do not provide a sufficient reason for courts to pierce the corporate veil and hold directors personally liable for the debts of the corporation. Fine Iron Works v. Louisiana World Exposition, Inc., 472 So.2d 201 (La.Ct.App.), writ ref'd, 477 So.2d 104 (La.1985) (exception of no cause of action sustained where a creditor of LWE seeking payment of LWE's debt by its directors based its complaint on theory that the directors had breached their fiduciary duties to the plaintiff creditor); Dutton & Vaughan v. Spurney, 496 So.2d 1126 (La.Ct.App.1986), writ ref'd, 501 So.2d 208 (La.1987) (dismissal of LWE creditor's complaint against LWE directors upheld for failure to state a cause of action where theories were negligent misrepresentation and breach of fiduciary duty); City Stores Co. v. NEI Corp., 357 So.2d 1364 (La.Ct.App.1978) (portion of complaint seeking to hold corporate officers personally liable for default of corporation's lease dismissed for failure to state a claim where both sides agreed in stipulation that no fraud was involved); Altex Ready-Mixed Concrete Corp. v. Employers Commercial Union Ins. Co., 308 So.2d 889 (La.Ct.App.), writ ref'd, 312 So.2d 872 (La.1975) (corporate treasurer held personally liable on debt of corporation because of fraud on his part); Dolese Concrete Co. v. Tessitore, 357 So.2d 869 (La.Ct.App.), writ ref'd, 359 So.2d 620 (La.1978) (corporate treasurer held personally liable for debt of corporation because of his fraudulent misrepresentation to the creditor). 31 Finally, the appellees cite several cases that stand for the more general principle that a corporate officer or director cannot be held liable for the bad acts of the corporation in the absence of wrongdoing on the part of the individual officer or director. Automatic Coin Enterprises, Inc. v. Vend-Tronics, Inc., 433 So.2d 766 (La.Ct.App.), writ ref'd, 440 So.2d 756 (La.1983) (officers of a corporation are not personally liable for the allegedly tortious acts of the corporation in the absence of fraud, misfeasance or other wrongdoing on the part of the officers individually); McPhail v. Louisiana Farm Bureau Rice, Inc., 419 So.2d 977 (La.Ct.App.), writ ref'd, 421 So.2d 908 (La.1982) (complaint against individual corporate directors for breach of employment contract dismissed because of the absence of allegations against the individual directors sufficient to constitute legal fraud); Gray v. Preferred Properties, Inc., 343 So.2d 1087 (La.Ct.App.1976) (corporate president held personally liable for damages resulting from a real estate sale because evidence showed fraud on his part). 32 We do not take issue with the holdings in these groups of cases involving efforts by creditors of Louisiana corporations to hold the directors and officers of those corporations liable for the debts or acts of the corporations, nor is our holding here inconsistent with them. In the case before us, no effort is made to hold the directors of LWE liable for a debt or action of the corporation. Rather, the Committee, acting in the name and on behalf of LWE, seeks to hold the LWE directors liable to the corporation for their own acts (or failures to act). 33 As summarized above, Louisiana law does not authorize a creditor of a corporation to bring a personal action against the corporation's officers and directors for the recovery of damages resulting from their gross negligence, mismanagement or breach of fiduciary duty. LWE's officers and directors are liable only to the corporation itself. Recognizing this fact, the appellees suggest the following argument: Since LWE has no members, any award resulting from successful litigation by LWE of its cause of action against the appellees would redound solely to the benefit of LWE's creditors; consequently, allowing LWE to maintain the instant lawsuit is tantamount to allowing LWE's creditors to achieve indirectly what they could not achieve directly--a personal action to recover losses for corporate mismanagement. We are unable to embrace the appellees' argument, however, for it would eviscerate the Louisiana statute governing the fiduciary duties of officers and directors of a nonprofit corporation. 34 Under Louisiana law, a nonprofit corporation is not required to have any members, see e.g. La.Rev.Stat.Ann. Sec. 12:217 (West 1969), and LWE does not, in fact, have any members. Therefore, under section 12:226(A), any cause of action for negligent management of LWE belongs solely to the corporation. The appellees' position, however, would preclude LWE from maintaining the action since the benefits from successful litigation would ultimately flow to LWE's creditors, who could not themselves maintain an action for gross negligence, mismanagement or breach of fiduciary duty against LWE's officers and directors. The result of the appellees' argument, therefore, would be to read the words to the corporation out of section 12:226(A) in this situation--a reading completely at odds with the general rule that a court charged with interpreting a statute must endeavor to adopt a construction which gives meaning to all the words of the statute. See Crown Zellerbach Corp. v. Heck, 407 So.2d 770, 774 (La.Ct.App.1981); Hibernia Nat'l Bank v. Louisiana Tax Comm'n, 195 La. 43, 196 So. 15, 18 (1940). As the Louisiana Supreme Court has stated, [t]he assumption is that all parts of a statute--each word, each phrase, each clause--were intended by the legislature to have some meaning; none was inserted by mere inadvertence. Furthermore, all of the statutory provisions are to be given effect wherever possible. State v. Texas Co., 205 La. 417, 17 So.2d 569, 573 (1944); see also Louisiana Television Broadcasting Corp. v. Total C.A.T.V., 341 So.2d 1183 (La.Ct.App.1976), writ ref'd, 343 So.2d 1076 (La.1977). The appellees' argument would force us to disregard this cardinal rule of statutory construction. 35 The appellees' position would have equally absurd consequences under the Louisiana Business Corporation Law governing for-profit corporations. Under section 12:91, officers and directors owe a duty of care to the corporation and its shareholders.... If we apply the appellees' argument to the case of an insolvent for-profit corporation, i.e., one whose liabilities exceed its assets, leaving nothing for its shareholders, then a cause of action for gross negligence, mismanagement and breach of fiduciary duty would disappear entirely since the ultimate beneficiaries of any recovery would be the corporation's creditors, who could not themselves maintain the action. The appellees' argument could produce the further anomaly that mismanagement so severe as to render the corporation hopelessly insolvent would shield the officers and directors from liability, whereas mismanagement of a lesser degree, leaving the corporation solvent, would leave the officers and directors exposed to liability. Such a disincentive to good management could scarcely have been intended by the Louisiana legislature when it adopted either section 12:226(A) or section 12:91. 36 Finally, we note that although the cause of action by the corporation against its officers and directors for gross negligence, mismanagement and breach of fiduciary duty has been a feature of the Louisiana law for decades, as has the principle that corporate creditors may not themselves maintain such an action, there is no Louisiana case holding that where creditors of the corporation are beneficiaries of any recovery by the corporation, the corporation may no longer assert its otherwise viable cause of action. Consequently, we must reject the appellees' argument that Louisiana law precludes an action by a corporation against its officers and directors for gross negligence, mismanagement and breach of fiduciary duty where creditors will be the ultimate beneficiaries of any recovery. To the contrary, Louisiana law, i.e., section 12:226(A) and cases construing its counterpart, section 12:91, and the predecessors of section 12:91, clearly permits the institution by the corporation of a suit against its officers and directors for gross negligence, mismanagement and breach of fiduciary duty even if the ultimate beneficiaries of any recovery are the corporation's creditors.