258 So. 3d 750
La. Ct. App.2017Background
- Shareholders (Moore, Trahan, L'Herisson) sued Cleco directors/officers and related entities after a sale/merger of Cleco, alleging the CEO and directors engaged in self-dealing, bad faith, and breached fiduciary duties by inducing the board to approve a merger at an unfair price.
- Plaintiffs initially sought injunctive relief to enjoin the sale; the LPSC held hearings and ultimately approved the merger, and the merger closed while litigation was pending.
- Defendants filed peremptory exceptions of no right of action and no cause of action; the trial court sustained those exceptions and dismissed the plaintiffs’ petition.
- Plaintiffs appealed, asserting three assignments of error: (1) the trial court erred in granting both exceptions; (2) the court incorrectly characterized their claims as derivative rather than direct; and (3) the court improperly applied res judicata based on the LPSC proceedings.
- The court of appeal reversed the trial court as to the no right/no cause rulings, holding plaintiffs had asserted direct claims under former La. R.S. 12:91 and remanded for further proceedings; the court declined to address res judicata because the final judgment made no res judicata ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs have a right of action to sue individually for alleged fiduciary breaches tied to the merger | Plaintiffs argue their losses are personal (they received less value), not corporate, so they have a direct right to sue | Defendants contend the claims are derivative (harm to corporation/shareholders as a whole), and plaintiffs lack standing after the merger closed | Court held plaintiffs adequately pleaded direct claims under former La. R.S. 12:91 and reversed denial of right of action |
| Whether the petition states a cause of action (direct vs. derivative) | Plaintiffs contend the petition pleads direct harms and a remedy for their personal losses | Defendants argue the law only affords a derivative remedy for mismanagement/merger-related valuation disputes | Court held the petition facially stated a direct cause of action and erred in sustaining no-cause exception |
| Whether the trial court’s dismissal was precluded by or based on res judicata from LPSC proceedings | Plaintiffs argued any res judicata effect was wrongly applied by the trial court | Defendants relied on LPSC proceedings and findings to argue claims were resolved or precluded | Court declined to decide res judicata because the signed judgment did not rely on res judicata; it addressed only the peremptory exceptions and remanded |
| Remedy on appeal | Plaintiffs seek reversal and remand for merits proceedings | Defendants seek affirmance of dismissal | Court reversed and remanded for further proceedings; assessed appeal costs against defendants |
Key Cases Cited
- Hood v. Cotter, 5 So.3d 819 (La. 2008) (defines function and focus of no-right-of-action inquiry)
- Scheffler v. Adams and Reese, LLP, 950 So.2d 641 (La. 2007) (explains no-cause-of-action standard and de novo review)
- Eagle Pipe & Supply, Inc. v. Amerada Hess Corp., 79 So.3d 246 (La. 2011) (discussion of appellate review standards for exceptions)
- Crochet v. Cisco Sys., Inc., 847 So.2d 253 (La. App. 3 Cir. 2003) (characterizes merger-related stock-value claims as classic derivative claims)
- Thornton ex rel. Laneco Const. Sys., Inc. v. Lanehart, 723 So.2d 1127 (La. App. 1 Cir. 1998) (recognizes circumstances where shareholder may sue individually for direct loss)
- Wilson v. H.J. Wilson Co., Inc., 430 So.2d 1227 (La. App. 1 Cir.) (La.R.S. 12:91 extends fiduciary relation to shareholders and supports shareholder suits for personal loss)
- Noe v. Roussel, 310 So.2d 806 (La. 1975) (supports shareholder direct recovery where breach causes personal loss)