Jones v. BrileyJones v. Briley
This case arises out of a tragic accident. During Thanksgiving weekend of 1988 several
The individual members of the club (excluding Eddie and Tommy Briley) filed a motion for summary judgment seeking dismissal of the claims against them, contending that the Greensburg Hunting Club is a non-profit corporation and its members are immune from personal liability for damages caused by the accident. The trial court granted partial summary judgment and dismissed those individual club members from the suit. Plaintiffs appeal from this ruling.
Plaintiffs make the following assignment of error:
1. The trial court erred in granting defendant‘s motion for summary judgment because material facts exist in regard to the liability of the defendants summarily dismissed.
Summary judgment is available only when the pleadings, depositions and affidavits, if any, show there is no genuine issue of material fact and the mover is entitled to judgment as a matter of law.
The plaintiffs contend that the hunting club has not complied with the requisite formalities of a corporation, therefore, the corporate veil should be pierced and the club members held individually liable for the damages caused by the accident because they failed to enact and enforce safety regulations which would have prevented the accident. Plaintiffs contend that whether the requisite corporate formalities were complied with by the club and thus whether the corporate veil can be pierced thereby exposing the individual club members to liability are issues of fact to be determined at a trial on the merits, and that therefore the granting of the motion for summary judgment was improper.
The plaintiffs, in their opposition to the motion for summary judgment, attached an affidavit of the club president, Albert Jones (who is also a plaintiff in this case). Mr. Jones’ affidavit states that the hunting club did the following: failed to hold regular meetings, failed to submit annual reports to the secretary of state‘s office, elected members and officers at meetings where less than half the members were present, added by-laws and additions to the by-laws without a vote of the board of directors or the members. Jones also alleges that he personally acted as both president and secretary of the club, and that members of the club had resigned without submitting a resignation to the board of
The individual club members, in asking that the judgment sustaining the motion for summary judgment be upheld, have a two-fold argument. First, they argue that because the club is a corporation, its members have no personal liability for the club‘s debts, including those arising out of the club‘s tortious acts. Second, they argue that even if the club‘s corporate status should be ignored and the club treated as an unincorporated association, the individual members are not liable for the damages sustained by plaintiffs. In support of their arguments the individual club members introduced documentary and testimonial evidence, including affidavits and depositions of various club members who stated that they were not in the trailer when the accident occurred and they were not aware that a loaded firearm was kept in the trailer until after the accident occurred. Most of the club members were not at the camp when the accident occurred. A few members were standing outside the trailer where the accident occurred.
We find that even if the granting of the summary judgment was wrong, there is no basis for liability against the individual members of the corporation. In this case, although the trial court appeared to couch its ruling on the motion for summary judgment on the juridical person or piercing the veil issue, it was obviously aware of Justice Dennis’ opinion in Ermert v. Hartford Insurance Company, 531 So.2d 506 (La.App. 4th Cir.1988), rev‘d 559 So.2d 467 (La.1990), which found that hunting friends were not vicariously liable for an accidental shooting if they were not guilty of any individual fault. Even under the Fourth Circuit opinion, only those present at the time of the incident could be held liable.
The statutes and jurisprudence are clear that shareholders or members in either profit or nonprofit corporations are not responsible for the debts of the corporation. Under Louisiana law, a corporation has an identity separate and distinct from that of its shareholders.
Louisiana courts have allowed the piercing of the corporate veil under only two exceptional circumstances. First, where the shareholders acting through the corporation commit fraud or deceit on a third party, and second, where the shareholders have failed to conduct the business on a corporate footing, disregarding the corporate entity to such extent that they and it become indistinguishable. In the second situation, the corporation is referred to as the “instrumentality” or “alter ego” of the members. The determination of whether the shareholders have failed to conduct the corporation‘s business on a corporate footing is to be based on a totality of the circumstances. Where fraud or deceit
1) commingling of corporate and shareholder funds,
2) failure to follow statutory formalities required for incorporation and for the transaction of corporate affairs,
3) undercapitalization,
4) failure to provide separate bank accounts and bookkeeping records,
5) failure to hold regular shareholder or director meetings.
G.I.‘s Club of Slidell, 504 So.2d at 968.
We note that in most of the cases in which Louisiana courts have allowed a piercing of the corporate veil, there exists one majority stockholder, either an individual or a corporation, which is found to be operating the corporation as its “alter ego” or as an instrumentality of the shareholder. In the case sub judice, each of the corporation members is an equal member.
We will address each of plaintiffs’ allegations of action, or inaction, by the nonprofit corporation which they argue should allow piercing of the corporate veil. First, plaintiffs allege the club did not hold regular meetings or issue notices of meetings. Louisiana Nonprofit Corporation Law,
The articles or by-laws may provide for the number and time of meetings of members, but at least one meeting of the members shall be held in each calendar year for the election of directors, the time for which shall be fixed in the articles or by-laws. Failure to hold the annual meeting at the designated time shall not work any forfeiture or dissolution of the corporation.
Thus, although nonprofit corporations are required by law to hold members meetings at least once a year, a violation of that requirement does not result in the forfeiture of the corporation.
Plaintiffs’ second allegation is that the club submitted no annual reports to the secretary of state‘s office. This allegation rests upon the assumption that the club was required to send the reports to the secretary during the relevant time period (from the time of the formation of the corporation until the accident). However, that assumption is erroneous. Although the Louisiana corporation laws now require non-profit corporations to submit annual reports to the secretary of state‘s office by May 15 of each year, that requirement was not added to the law until the regular legislative session of 1988. Therefore, that law was not in effect until September 9, 1988. See
Plaintiffs’ third allegation is that one officer and several directors were elected at meetings at which less than half of the members were present. Under
Plaintiffs’ fourth allegation is that the corporation‘s by-laws were adopted and added to without a vote of the board of directors or the members. Louisiana Revised Statute
Plaintiffs’ fifth allegation is that plaintiff Jones held the positions of both president and secretary in the corporation simultaneously. Under
Plaintiffs’ last allegation is that several members of the club resigned without submitting their resignations in writing to the board of directors. Louisiana corporation laws do not address the manner in which members may resign. The articles of incorporation provide that members may resign from the club by written resignation submitted to the board of directors, and such resignations shall be effective when accepted by the board of directors. While members may have resigned without submitting a written resignation, this violates no statutory law.
Plaintiff Jones is in the peculiar position of arguing that the corporate veil should be pierced for failure of the corporation to follow regulatory law and its own by-laws, failures which he, as both president and secretary of the corporation, either acquiesced in or caused to occur. Plaintiffs have not alleged that there was a commingling of corporate and shareholder funds, nor that there was a failure to follow the statutory formalities required for the incorporation and transaction of corporate affairs, nor that the corporation was undercapitalized, nor that there was a failure to keep separate bank accounts and bookkeeping records. Plaintiffs have alleged that there was a failure to hold regular shareholder or director meetings, and a failure to properly adopt and amend its by-laws. However, this, along with the failure to abide by the corporation‘s internal regulations does not amount to the exceptional circumstances which must be present before the corporate veil can be pierced. Louisiana Revised Statute
Plaintiffs misconstrue the Supreme Court and Fourth Circuit opinions in Ermert and advance no recognizable theory for the existence of a corporate debt or of individual debts for non-profit corporate members who were either not present at the time of the accident or committed no negligent acts or wrongdoing. Plaintiffs argue in brief that the Louisiana Supreme Court in Ermert reversed the Fourth Circuit “only upon finding that a juridical entity in the nature of an unincorporated association had not been formed between the negligent hunter and his hunting friends... It stated that it therefore need not consider the issue of an unincorporated association‘s vicarious liability for the torts of its members and the members’ personal liability for the debts of such an association... Thus, the Fourth Circuit‘s opinion regarding these issues is the latest pronouncement of Louisiana law regarding same.” The Fourth Circuit opinion in Ermert of which plaintiffs speak used agency principles and a duty-risk analysis to find that non-tortfeasor members of a hunting club which it found to be an unincorporated association should be held liable for the injuries of another member. The Fourth Circuit stated that the club itself had a duty to plaintiff to adopt and enforce rules
Therefore, for the foregoing reasons, the motion for summary judgment is sustained and the plaintiffs are cast for all costs.1
AFFIRMED.
LOTTINGER, J., concurs in the result.