Avilez Soriano et al v. Gulf Coast Lift, LLC et al
Filing
32
ORDER AND REASONS granting in part and denying in part 21 MOTION for Leave to File Second Amended Complaint. Scheduling Conference set for 3/27/2014 11:00 AM before courtroom deputy by telephone.. Signed by Chief Judge Sarah S. Vance on 3/11/14.(jjs, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
JOSE SANTILLO AVILEZ SORIANO,
ET AL.
CIVIL ACTION
VERSUS
NO: 12-2744
GULF COAST LIFT, LLC ET AL.
SECTION: R
ORDER AND REASONS
Plaintiffs Jose Santillo Avilez Soriano, Elvin Ordonez, Odin
Mazariegos and Rolando Enrique Ortega Barchona seek leave to
amend their complaint to add Charles Johnson, Jamie Hewitt,
William Nethery, C&C Concrete and Masonry, LLC ("C&C Concrete"),
C and C Concrete and Masonry Rental, LLC ("C and C Rental"), and
Nethery Foundation Services, LLC ("Nethery Foundation") as joint
employer defendants in this action.
Defendants Gulf Coast Lift,
LLC ("Gulf Coast") and Ducky Johnson House Movers, Inc. ("Ducky
Johnson") do not oppose the addition of Hewitt, Nethery, C&C
Concrete, C and C Rental, or Nethery Foundation (collectively,
"Concrete Defendants") as they intend to file third-party demands
against these defendants.
They do, however, oppose the addition
of Johnson, who is the 100% owner of both Gulf Coast and Ducky
Johnson.
For the following reasons, the Court GRANTS plaintiffs'
motion in part and DENIES it in part.
I.
BACKGROUND
Plaintiffs are laborers who allege that they were employed
by Gulf Coast and/or Ducky Johnson between March 2010 and August
2012.
They sued Gulf Coast and Ducky Johnson on November 13,
2012, bringing claims under the Fair Labor Standards Act ("FLSA")
and Louisiana law.1
Plaintiffs claim that Gulf Coast and Ducky
Johnson are either the same entity or closely related entities
and that their operations were "so intertwined as to be
indistinguishable."2
Plaintiffs allege that they were paid $100-
$110 per day, regardless of the number of hours worked.3
They
allege that Gulf Coast and/or Ducky Johnson failed to compensate
them at the statutory rate of one and a half times their regular
rate for hours worked in excess of 40 hours per week.4
Plaintiffs also claim that when they worked more than 83 hours
per week, Gulf Coast and/or Ducky Johnson failed to pay them the
federally-mandated minimum wage of $7.25 per hour.5
Gulf Coast and Ducky Johnson filed a motion to dismiss on
January 15, 2013.6
Plaintiffs amended their complaint on
February 5, 2013,7 and the Court denied the motion to dismiss as
moot.8
During discovery, plaintiffs learned that the Concrete
1
R. Doc. 1.
2
R. Doc. 8 at 4.
3
Id. at 5-11.
4
Id.
5
Id.
6
R. Doc. 5.
7
R. Doc. 8.
8
R. Doc. 11.
2
Defendants may have been acting as their joint employers, as the
Concrete Defendants had entered into subcontracts with Gulf Coast
and Ducky Johnson during the course of plaintiffs' employment.9
Gulf Coast and Ducky Johnson indicated to plaintiffs that they
would file third-party claims against the Concrete Defendants,
and they agreed with plaintiffs that the Concrete Defendants
should be added as defendants in this action.10
Also during discovery, Gulf Coast represented to plaintiffs
that it was not organized until July 2010 and that it did not
conduct any business until mid-2011.11
Similarly, Ducky Johnson
indicated to plaintiffs that it is a Florida business
corporation, and plaintiffs allege that Ducky Johnson has denied
doing business in Louisiana.12
The proposed amended complaint
indicates that Ducky Johnson may never have been authorized to do
business in the state.13
Additionally, after plaintiffs
commenced this action, Gulf Coast failed to file required
documents with the Louisiana Secretary of State and is no longer
in good standing.14
Plaintiffs speculate in the complaint as to
whether Gulf Coast continues to exist as a limited liability
9
R. Doc. 21-1 at 3-4; R. Doc. 24-4 at 8-9.
10
Id.
11
R. Doc. 21-1 at 7.
12
R. Doc. 21-1 at 8; R. Doc. 21-2 at 17.
13
R. Doc. 21-2 at 17.
14
R. Doc. 21-2 at 2, 17; R. Doc. 21-5.
3
company, stating that "its current status as a funded and legal
entity that can satisfy any debts it incurred is unclear."15
Armed with this new information, plaintiffs seek to add
Johnson, the 100% owner of Gulf Coast and Ducky Johnson, as a
defendant.
The proposed Second Amended Complaint seeks to hold
Johnson liable on the following theories: First, plaintiffs wish
to add Johnson as a defendant to the existing counts charging
overtime pay and minimum wage violations under the FLSA as well
as violations of Louisiana's Final Wage Payment Act.16
Plaintiffs argue in their memorandum–but do not specify in the
proposed complaint–that Johnson qualifies as an employer under
the FLSA based on his individual oversight of the plaintiffs'
work.17
Second, plaintiffs add Count IV to the complaint,
alleging that Johnson, as the sole owner of Gulf Coast and Ducky
Johnson, is individually liable for any violations that may have
occurred while Johnson was operating as a sole proprietor under
the trade names of Gulf Coast and Ducky Johnson.18
Third, the
proposed complaint indicates that Gulf Coast is no longer a
limited liability company in good standing due to its failure to
file a 2013 annual report, and Count IV appears to allege that
Johnson is liable for Gulf Coast's violations "to the extent that
15
R. Doc 21-2 at 2, 17.
16
R. Doc. 21-2 at 13-16.
17
R. Doc. 21-1 at 5, 11.
18
R. Doc. 21-2 at 17; see also R. Doc. 21-1 at 7-8.
4
it has been defunded and/or dissolved."19
Finally, Count IV
alleges that Gulf Coast and Ducky Johnson are the alter egos of
Johnson and that this Court should pierce the corporate veil and
hold Johnson liable for their conduct.20
Gulf Coast and Ducky Johnson oppose the addition of Johnson
as a defendant.
They argue that plaintiffs are not entitled to
amend under Rule 15(a) because of their undue delay in adding
Johnson and because they have not demonstrated that justice
requires it.
As a further basis for denying leave to amend, Gulf
Coast and Ducky Johnson argue that plaintiffs' veil piercing
claim does not arise out of the same transaction, occurrence, or
series of transactions or occurrences as the initial claims in
this action.
Defendants also contend that Louisiana law does not
support plaintiffs' contention that Johnson would be liable for
Gulf Coast's debts if its charter is revoked for failure to file
an annual report.
Finally, defendants argue that the Court
should deny as futile plaintiffs' attempts to amend the complaint
to include their veil piercing theory and their claim that
Johnson acted as an employer within the meaning of the FLSA.
II.
STANDARD
Leave to amend a complaint is freely given “when justice so
requires.” Fed. R. Civ. P. 15(a)(2); see also High Tech Comm's
19
R. Doc. 21-2 at 17; see also R. Doc. 21-1 at 8-9.
20
R. Doc. 21-2 at 17-18; see also R. Doc. 21-1 at 9-10.
5
v. Panasonic Co., No. 94–1477, 1995 WL 65133, at *1 (E.D. La.
Feb. 15, 1995).
In the context of motions to amend pleadings,
references to a court's 'discretion' may be misleading, "because
Fed.R.Civ.P. 15(a) 'evinces a bias in favor of granting leave to
amend.'"
Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 872-
73 (5th Cir. 2000) (quoting Martin's Herend Imports, Inc. v.
Diamond & Gem Trading United States of Am. Co., 195 F.3d 765, 770
(5th Cir. 1999)).
Unless there is a “substantial reason to deny
leave to amend, the discretion of the district court is not broad
enough to permit denial.”
Id. (quoting Dussouy v. Gulf Coast
Inv. Corp., 660 F.2d 594, 598 (5th Cir. 1981)).
In exercising this limited discretion, the Court may
consider whether the party seeking leave is doing so after undue
delay, in bad faith, or for a dilatory motive. See Jamieson By &
Through Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th Cir. 1985).
It is also within the district court's discretion to deny a
motion to amend if it is futile.
Stripling, 234 F.3d at 872–73.
Futility means “that the amended complaint would fail to state a
claim upon which relief could be granted."
Id.
To determine
futility, the court “appl[ies] the same standard of legal
sufficiency as applies under Rule 12(b)(6)."
Id.
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff
must plead enough facts to “state a claim to relief that is
plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
6
(2007)).
A claim is facially plausible “when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.”
Id.
A court must accept all well-pleaded
facts as true and must draw all reasonable inferences in favor of
the plaintiff.
(5th Cir. 2009).
Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239
But the Court is not bound to accept as true
legal conclusions couched as factual allegations.
Iqbal, 556
U.S. at 678.
A legally sufficient complaint need not contain detailed
factual allegations, but it must go beyond labels, legal
conclusions, or formulaic recitations of the elements of a cause
of action.
Id.
In other words, the face of the complaint must
contain enough factual matter to raise a reasonable expectation
that discovery will reveal evidence of each element of the
plaintiff’s claim.
Lormand, 565 F.3d at 257.
If there are
insufficient factual allegations to raise a right to relief above
the speculative level, or if it is apparent from the face of the
complaint that there is an insuperable bar to relief, the claim
must be dismissed.
Twombly, 550 U.S. at 555.
In determining whether to grant a motion to dismiss, a
district court generally may not “go outside the complaint.”
Scanlan v. Tex. A & M Univ., 343 F.3d 533, 536 (5th Cir. 2003).
Moreover, because plaintiffs seek to add a new defendant,
their request is also governed by Rule 20(a).
7
To determine
whether parties may be properly joined under Rule 20, the Court
considers whether "(A) any right to relief is asserted against
them jointly, severally, or in the alternative with respect to or
arising out of the same transaction, occurrence, or series of
transactions or occurrences; and (B) any question of law or fact
common to all defendants will arise in the action."
Fed. R. Civ.
P. 20(a)(2).
III. DISCUSSION
Other than seeking to name Johnson as a defendant in the
existing counts, plaintiffs propose only one additional count
against Johnson in their Second Amended Complaint.
It is clear
from the allegations in the proposed complaint and in plaintiffs'
memoranda, however, that the proposed amendments encompass four
different theories of liability, which are listed above.
The
Court will examine each of these theories in turn, but first it
will address defendants' claim that plaintiffs' request to add
Johnson as a defendant is untimely.
Defendants argue that if
Johnson indeed "exercised complete control over the plaintiffs .
. . had the power to hire and fire Plaintiffs . . . directed them
to wear Gulf Coast Lift and/or Ducky Johnson t-shirts . . .[and]
was also involved in paying them," then Plaintiffs could and
should have named him as a joint employer all along.21
21
R. Doc. 24 at 13-14.
8
It is
apparent, however, that plaintiffs did not name Johnson as a
joint employer in the belief that Gulf Coast and Ducky Johnson
were valid legal entities in existence and doing business in
Louisiana at the time of the alleged FLSA violations.
Defendants
do not allege that plaintiffs should have known otherwise when
they initially filed suit.
Moreover, defendants do not give any reason why allowing
plaintiffs to add Johnson as a defendant will prejudice them.
Defendants already agreed to the addition of the five other
defendants, and the Court, with defendants' consent, has
continued the trial and all pretrial deadlines in this matter to
allow the parties time to prepare their claims against the new
defendants.
That the addition of Johnson as a defendant is
detrimental to Johnson's interest in remaining uninvolved in this
litigation does not amount to prejudice to Gulf Coast and Ducky
Johnson, which are separate legal persons, even if wholly owned
by Johnson.
The Court concludes that plaintiffs are entitled under Rule
15 to add these new theories of liability unless defendants can
show that the addition of Johnson as a defendant is improper
under Rule 20 or that amendment is futile as to one or more of
the claims.
With this in mind, the Court turns to plaintiffs'
four theories of liability.
9
A.
Allegations that Johnson Acted as a Sole Proprietor
Under the Trade Names "Gulf Coast Lift" and "Ducky
Johnson House Movers"
Plaintiffs' employment occurred between March 2010 and
August 2012.
As discussed above, Gulf Coast represented to
plaintiffs that it was not organized as a limited liability
company until July 2010 and that it did not conduct any business
until mid-2011.
Ducky Johnson indicated to plaintiffs that it is
a Florida business corporation, and plaintiffs allege that Ducky
Johnson has denied doing business in Louisiana.
In their
memorandum, plaintiffs argue that if at any point during their
employment, Gulf Coast and Ducky Johnson were not operating as
separate, authorized legal entities,
then the person who is responsible for employing Plaintiffs
on these job sites working under the name "Gulf Coast Lift"
or "Ducky Johnson" was merely operating as a sole
proprietorship under a trade or otherwise assumed name, and
therefore, Charlie Johnson, the 100% owner of these
corporations, is liable to Plaintiffs for any debts owed to
them arising out of unpaid wages or the associated penalties
and attorneys fees.22
The Court grants plaintiffs' request to amend the complaint
with respect to this theory of liability.
argue that this claim is futile.
Defendants do not
Moreover, joinder of Johnson as
a defendant based on this claim complies with Rule 20, because
the original claims against Gulf Coast and Ducky Johnson involve
the same transaction or occurrence, and there are common
questions of both fact and law.
22
Because Johnson is properly
R. Doc. 21-1 at 8.
10
joined under Rule 20 based on this claim, plaintiffs are entitled
under Rule 18 to bring as many claims as they have against
Johnson.
See Fed. R. Civ. P. 18(a) ("A party asserting a claim .
. . may join, as independent or alternative claims, as many
claims as it has against an opposing party.").
With that in
mind, the Court turns to the remaining three claims.
B.
Allegations that Johnson is Individually Liable as a
Joint Employer
The FLSA defines an employer as "any person acting directly
or indirectly in the interest of an employer in relation to an
employee."
29 U.S.C. § 203(d).
Regulations provide that
multiple individuals or entities may be considered an employee's
joint employers in situations such as:
(1) Where there is an arrangement between the employers to
share the employee's services, as, for example, to
interchange employees; or
(2) Where one employer is acting directly or indirectly in
the interest of the other employer (or employers) in
relation to the employee; or
(3) Where the employers are not completely disassociated
with respect to the employment of a particular employee and
may be deemed to share control of the employee, directly or
indirectly, by reason of the fact that one employer
controls, is controlled by, or is under common control with
the other employer.
29 C.F.R. § 791.2.
The Fifth Circuit has adopted the "economic
realities test" to determine whether an individual or entity
qualifies as an employer under the FLSA.
the putative employer:
11
Courts consider whether
(1) possessed the power to hire and fire the employees, (2)
supervised and controlled employee work schedules or
conditions of employment, (3) determined the rate and method
of payment, and (4) maintained employment records.
Williams v. Henagan, 595 F.3d 610, 620 (5th Cir. 2010).
The
Court must apply the economic realities test to each individual
or entity alleged to be an employer and each must satisfy the
four part test.
2012).
Gray v. Powers, 673 F.3d 352, 355 (5th Cir.
When an individual does not exercise actual operational
control, merely being an officer or shareholder does not subject
the individual to FLSA liability.
Id. at 355-56.
Each of the
four elements need not be present in every case, however.
Id. at
357.
Plaintiffs' proposed Second Amended Complaint now includes
Johnson as a joint employer in Counts I and II.
As plaintiffs
explain in their memorandum seeking leave to amend, Johnson was
"on the ground in Louisiana at times," was "directly involved in
paying them," and "directed them to wear Gulf Coast Lift and
Ducky Johnson t-shirts."23
Plaintiffs do not include these
allegations in the complaint, but they indicate that
"defendants," including Johnson, "controlled all aspects of
Plaintiffs' work, including times Plaintiffs worked, where they
performed their work, the services they performed and the manner
in which those services were performed."24
23
R. Doc. 21-1 at 11.
24
R. Doc. 21-2 at 6.
12
They allege that
defendants "had the power to hire and fire Plaintiffs" and that
they "paid Plaintiffs in cash, and Plaintiffs were unable to
determine which Defendant was paying them at any given time."25
They further claim that "Defendants issued Plaintiffs T-shirts
with the names "Ducky Johnson House Movers, Inc." and "Gulf Coast
Lift, LLC" that Plaintiffs were to wear while working on Gulf
Coast Lift jobsites."26
They also allege that "Defendants'
operations were so intertwined as to be indistinguishable."27
Defendants argue that amendment is futile with respect to
this claim:
In a blunderbuss manner, Plaintiffs lump Johnson into their
overly broad definition of "defendants" and make the same
general, formulaic allegations against Johnson, Defendants
and Concrete Defendants. Plaintiffs fail to allege how
Johnson, personally, controlled or supervised their alleged
employment. Simply, the allegations relating to Johnson are
a recitation of the Fifth Circuit's "economic reality
test."28
As the Court has indicated, it must address Defendants'
futility argument under the standard governing Rule 12(b)(6)
motions to dismiss.
Limiting its analysis to the facts alleged
in the complaint and accepting them as true for the purposes of
this motion, the Court concludes that plaintiffs have stated a
claim for relief that is plausible on its face.
25
Id.
26
Id.
27
Id.
28
R. Doc. 24 at 19.
13
The evidence
ultimately may show that it was the corporate defendants and not
Johnson who exercised actual operational control over plaintiffs'
employment, and Johnson is free to bring a motion for summary
judgment on that basis.
But plaintiffs have made allegations
against all defendants, Johnson included, which, if proven as to
Johnson, would qualify him as an employer under the FLSA.
Moreover, to the extent that Johnson may have acted as a
sole proprietor of Gulf Coast and Ducky Johnson at certain times,
this claim overlaps with the claim discussed in subsection A, and
plaintiffs are in fact obligated to name Johnson as the joint
employer responsible for the alleged violations during that
period.
See La. Code Civ. Proc. art. 736 (“A person who does
business under a trade name is the proper defendant in an action
to enforce an obligation created by or arising out of the doing
of such business.”).
See also Louisiana Acorn Fair Hous. v.
Quarter House, 952 F. Supp. 352, 355 (E.D. La. 1997) ("Moreover,
a trade name is not a separate entity capable of being sued.")
(citing Guidry v. City of Houma, 471 So. 2d 1056, 1058 (La. Ct.
App. 1985)).
Accordingly, plaintiffs are entitled to amend the
complaint to include these allegations.
C.
Allegations that Johnson is Liable for Gulf Coast's
Debts if It Was Dissolved or Defunded
Plaintiffs are now aware that Gulf Coast failed to file a
2013 annual report with the Louisiana Secretary of State.
14
Attached to plaintiffs' memorandum is an exhibit showing the
results of a search of Louisiana business filings, which lists
Gulf Coast's "Annual Report Status" as "Not In Good Standing for
failure to file Annual Report."29
The listing also shows Gulf
Coast's status as "active," however.30
Based solely on this
information, plaintiffs speculate in their proposed Second
Amended Complaint that Gulf Coast "may no longer be in existence
as a limited liability company"31 and argue that "to the extent
that Gulf Coast Lift has been liquidated or is otherwise unable
to satisfy any judgment rendered against it, Charlie Johnson is
the party responsible."32
Later, the proposed complaint
reiterates that Johnson is responsible for Gulf Coast's debts "to
the extent that it has been defunded or dissolved."33
Defendants do not squarely address this claim in the section
of their memorandum in which they argue the futility of
plaintiffs' attempts to amend.
Somewhat confusingly, however,
they conclude their timeliness argument with the assertion that
Louisiana law precludes shareholder liability when a corporate
29
R. Doc. 21-5.
30
Id.
31
R. Doc. 21-2 at 2 (emphasis added).
32
Id. at 3.
33
Id. at 17.
15
charter is revoked for failure to file annual reports.34
The
Court construes this as a futility argument.
A shareholder can in fact be liable for the debts of a
limited liability company, if it is dissolved by affidavit.
See
La. Rev. Stat. § 12:1335.1 (stating that shareholders of an LLC
dissolved by affidavit "shall be personally liable for any debts
or other claims against the limited liability company in
proportion to their ownership interest in the company."); see
also Butcher v. Keith Hebert Carpentry/Vinyl Siding, Inc., 945
So. 2d 914, 916 (La. Ct. App. 2006) (construing identical statute
applying to business corporations and noting that "the statute
clearly imposes personal liability on a shareholder or
incorporator for the pending claims of corporation once
dissolution by affidavit has occurred.").
But plaintiffs do not
allege that Gulf Coast has been dissolved by affidavit.
Nor do
they allege that its corporate charter has been revoked,35 or
that Johnson has acted to "defund" the company.
Plaintiffs
34
In support of this position, defendants cite Acadian
Cypress & Hardwoods, Inc. v. Piazza, 664 So. 2d 138 (La. Ct. App.
1995). In Acadian, the Louisiana First Circuit Court of Appeal
merely held that when a corporation's charter is reinstated after
being revoked for failure to file annual reports, but the
corporation was never dissolved, reinstatement is retroactive to
the time of revocation, and a shareholder is not responsible for
liabilities incurred while the corporation's existence was
suspended.
35
Revocation occurs only after an LLC fails to file an
annual report for three consecutive years. See La. Rev. Stat. §
12:1308.2.
16
merely speculate, based solely on Gulf Coast's failure to file an
annual report, that one or more of these things could possibly
have occurred and argue that in such an event, Johnson would be
individually liable.
Plaintiffs may not bring claims based on changes in Gulf
Coast's corporate status that have not yet occurred or of which
plaintiffs are not actually aware.
See Barrington Cove Ltd.
P'ship v. R.I. Hous. and Mortg. Fin. Corp., 246 F.3d 1, 9 (1st
Cir. 2001) (“[I]t is plaintiff's responsibility to plead factual
allegations, not hypotheticals.”) (emphasis in original) (quoting
Glassman v. Computervision Corp., 90 F.3d 617, 629 (1st Cir.
1996)).
If the company is not dissolved but its charter is
merely revoked, the company remains liable for its debts.
See
La. Rev. Stat. § 12:1308.2 ("Revocation of the articles of
organization of a limited liability company pursuant to this
Section shall not affect any cause of action against the limited
liability company or the right to proceed against any property
owned by the limited liability company.").
If Johnson has acted
to "defund" Gulf Coast in order to render the company judgmentproof, such conduct would not automatically make Johnson
responsible for Gulf Coast's debts but would weigh in favor of
piercing the corporate veil, which is discussed below.
The Court concludes that amendment is futile as to this
theory of liability, because plaintiffs cannot state a claim upon
17
which relief can be granted without alleging that Gulf Coast has
been dissolved by affidavit.
D.
Allegations that Gulf Coast and Ducky Johnson are Alter
Egos of Charlie Johnson
The proposed Second Amended Complaint alleges that Gulf
Coast Lift and Ducky Johnson "intermingled funds, shared bank
accounts and otherwise ignored corporate formalities during the
time periods relevant to this litigation and that members of Mr.
Johnson's family may have used one or more of these entities'
corporate accounts for personal reasons."36
In their motion to
amend, plaintiffs refer the court to exhibits allegedly showing
(1) that Ducky Johnson paid the child support obligations of one
of its employees and (2) that Ducky Johnson paid for Gulf Coast's
projects and that Gulf Coast paid its income to Ducky Johnson.37
Plaintiffs would have the Court pierce the corporate veil and
hold Johnson liable on the theory that Gulf Coast and Ducky
Johnson are merely Johnson's alter egos.
Defendants argue that amendment to include this claim is
futile because the allegations fail to state a claim on which
relief can be granted.
They argue:
According to Plaintiffs, limited liability should be lifted
if related companies hold a joint company picnic or issue tshirts to workers at a jobsite. According to Plaintiffs'
36
R. Doc. 21-2 at 17.
37
R. Doc. 21-1 at 9-10 (citing R. Docs. 21-6 and 21-7).
18
theory, a company is the alter ego of its equity security
holder if the company pays the Florida Bureau of Child
Support Enforcement pursuant to a lawful garnishment order
against one of the company's employees. Plaintiffs would
have the Court pierce the veil for failure to timely file
one annual report.38
In evaluating a claim of futility under the standard for
Rule 12(b)(6) motions to dismiss, the Court may not look beyond
the allegations contained in the complaint and any exhibits
attached thereto.
The Court therefore cannot consider
defendants' explanation for the alleged personal use of corporate
funds and must consider only the allegations themselves as they
exist in the proposed complaint.
Because Gulf Coast is a Louisiana limited liability company,
Louisiana law governs the Court's decision on piercing the
corporate veil.
In Louisiana, “[c]orporations function as
distinct legal entities, separate from the individuals who own
them, and their shareholders are not generally liable for the
debts of the corporation.”
Hollowell v. Orleans Regional Hosp.
LLC, 217 F.3d 379, 385 (5th Cir. 2000) (citing Riggins v. Dixie
Shoring Co., 590 So. 2d 1164, 1167 (La. 1991)).
Louisiana law
recognizes exceptions to limited liability, and in certain
circumstances permits piercing the corporate veil on an alter ego
basis.
Id.
"This usually involves 'situations where fraud or
deceit has been practiced by the shareholder acting through the
corporation.'"
38
Id.
Alter ego liability need not involve fraud,
R. Doc. 24 at 14.
19
however, and courts should consider the totality of the
circumstances.
Id. at 387.
When fraud or deceit is absent,
"other circumstances must be so strong as to clearly indicate
that the corporation and shareholder operated as one."
Lopez v.
TDI Servs., Inc., 631 So. 2d 679, 685-86 (La. Ct. App. 1994)
(citing Kingsman Enterprises, Inc. v. Bakerfield Elec. Co., 339
So. 2d 1280, 1284 (La. Ct. App. 1976)).
According to the
Louisiana Supreme Court, relevant factors may include: (1)
commingling of corporate and shareholder funds; (2) failure to
follow statutory formalities for incorporating and transacting
corporate affairs; (3) undercapitalization; (4) failure to
provide separate bank accounts and bookkeeping records; and (5)
failure to hold regular shareholder and director meetings.
Hollowell, 217 F.3d at 385-86.
This list of factors is not
exhaustive, however, and courts may consider other factors, such
as the use of the companies for non-corporate purposes.
Id. at
387.
Ducky Johnson is a Florida business corporation, which means
Florida law governs the veil-piercing analysis.
See Patin v.
Thoroughbred Power Boats Inc., 294 F.3d 640, 646-47 (5th Cir.
2002) ("[T]he Louisiana Supreme Court would most likely conclude
that the law of the state of incorporation governs the
determination when to pierce a corporate veil."); NorAm Drilling
Co. v. E & PCo Intern., LLC, No. 48,591–CA, - So. 3d - 2013 WL
6492163, at *4 (La. Ct. App. Dec. 11, 2013) ("Louisiana courts
20
and courts applying Louisiana law apply the law of the place of
incorporation to determine fundamental issues of corporate
structure.") (citing Quickick, Inc. v. Quickick Int'l, 304 So. 2d
402, 406 (La. Ct. App. 1974) (applying law of state of
incorporation to a question of alter ego liability)).
The Florida Supreme Court has imposed a strict standard upon
those wishing to pierce a corporate veil.
Generally, the rule is
that the corporate veil will not be pierced absent a showing (1)
that the corporation is a "mere instrumentality" or alter ego of
the defendant; and (2) that the defendant engaged in "improper
conduct" in the formation or use of the corporation.
Patin, 294
F.3d at 647 (citing Dania Jai–Alai Palace, Inc. v. Sykes, 450 So.
2d 1114, 1120-21 (Fla. 1984)).
"In defining what constitutes
'improper conduct,' the Florida Supreme Court explained that the
corporate veil 'will not be penetrated either at law or in equity
unless it is shown that the corporation was organized or employed
to mislead creditors or to work a fraud upon them.'"
Id.
(quoting Dania Jai–Alai Palace, Inc., 450 So. 2d at 1120).
In
Patin, The Fifth Circuit looked to Florida's intermediate courts
for guidance on the meaning of "improper conduct."
The Court
observed:
Since Dania Jai-Alai, intermediate Florida appellate courts
and federal courts applying Florida law have elaborated
further on the meaning of “improper conduct.” In Steinhardt
v. Banks, 511 So. 2d 336, 339 (Fla. Dist. Ct. App. 1987),
the Florida District Court of Appeal for the Fourth District
offered a “workable formula for applying the reference to
‘improper conduct.’ ” The court stated:
21
Florida decisions uniformly hold that courts will look
through the screen of a corporate entity to the
individuals who compose it in cases in which the
corporation was a mere device or sham to accomplish
some ulterior purpose, ... or where the purpose is to
evade some statute or to accomplish some fraud or
illegal purpose, or where the corporation was employed
by the stockholders for fraudulent or misleading
purposes, was organized or used to mislead creditors or
to perpetrate a fraud upon them, or to evade existing
personal liability.
Id. (quoting Tiernan v. Sheldon, 191 So. 2d 87, 89 (Fla.
Dist. Ct. App. 1966) (internal quotations omitted)). This
formulation has been cited with approval by other Florida
courts and federal courts applying Florida law. See, e.g.,
In re Warmus, 276 B.R. 688, 697 (S.D. Fla. 2002); In re
Hillsborough Holdings Corp., 166 B.R. 461, 469 (Bankr. M.D.
Fla. 1994); Acquisition Corp. of Am. v. Am. Cast Iron Pipe
Co., 543 So. 2d 878, 882 (Fla. Dist. Ct. App. 1989).
Patin, 294 F.3d at 647-48. Further, as the Middle District of
Florida has noted,
[s]ome Florida District Courts of Appeal have incorporated
causation and damages into the standard for piercing the
corporate veil, although the Supreme Court of Florida has
not yet done so. Gasparini v. Pordomingo, 972 So. 2d 1053,
1055 (Fla. 3d DCA 2008); Seminole Boatyard, Inc. v.
Christoph, 715 So. 2d 987, 990 (Fla. 4th DCA 1998) (citing
Hillsborough Holdings, 166 B.R. at 468–69); see also U–Haul
Intern., Inc. v. Jartran, Inc., 793 F.2d 1034, 1043 (9th
Cir. 1986) (reasoning that the alter ego theory under Sykes
requires fraudulent or misleading conduct to be directed at
the plaintiff); Solomon v. Betras Plastics, Inc., 550 So. 2d
1182, 1184–85 (Fla. 5th DCA 1989) (Cobb, J., dissenting)
(“[T]he demonstrated improper conduct must be the proximate
cause of the alleged loss.”). Notably, no Florida District
Court of Appeals has rejected the incorporation of causation
and damages into the standard for piercing the corporate
veil.
N. Am. Clearing, Inc. v. Brokerage Computer Sys., Inc., 6:07-CV1503-ORL19KR, 2009 WL 2982834, at *4-5 (M.D. Fla. Sept. 11,
22
2009).
See also Seminole Boatyard, Inc., 715 So. 2d at 990
(requiring proof by a preponderance of the evidence that the
fraudulent or improper use of the corporate form caused injury to
the claimant).
The Court in N. Am. Clearing, Inc. predicted that
the Florida Supreme Court would require evidence that the
improper use of the corporate form caused harm to the plaintiff
in order to pierce the corporate veil.
2009 WL 2982834, at *5.
Likewise, the Eleventh Circuit has adopted the causation
requirement from Florida's intermediate courts.
See, e.g.,
Molinos Valle del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1349
(11th Cir. 2011); Eckhardt v. U.S., 463 F. App'x 852, 856 (11th
Cir. 2012).
Plaintiffs fail to state a claim that Ducky Johnson is the
alter ego of Johnson.
They do not allege that Johnson organized
or employed Ducky Johnson to mislead or to work a fraud upon
anyone.
Nor do they claim that any of the alleged improper
conduct caused injury to them, such as by rendering Ducky Johnson
unable to satisfy any debts for which it may be liable.39
39
The
While plaintiffs speculate as to whether Gulf Coast has
been defunded, they do not suggest that Ducky Johnson has
suffered the same fate. Moreover, as the Court explained,
references in the proposed complaint to the "defunding" of Gulf
Coast are purely speculative and based solely on Gulf Coast's
failure to file one annual report, which cannot result in
dissolution and has nothing to do with funding or lack thereof.
Notably, the references to defunding are not framed as actual
allegations in the proposed complaint. See R. Doc. 21-2 at 3,
17.
23
absence of such allegations against Ducky Johnson is fatal to
plaintiffs' claim under Florida law.
As for Gulf Coast, which is governed by Louisiana law,
plaintiffs do not allege fraud or deceit and therefore would need
to present other evidence strong enough to "clearly indicate that
the corporation and shareholder operated as one."
2d at 685-86.
Lopez, 631 So.
Although plaintiffs allege that Gulf Coast and
Ducky Johnson intermingled funds with one another, they do not
allege that either entity intermingled funds or shared bank
accounts with Johnson himself.
Cf. Hollowell, 217 F.3d at 385-86
(considering whether there is commingling of corporate and
shareholder funds in evaluating whether to hold shareholders
liable).
The complaint states that a member of Johnson's family
"may" have used one of the corporate accounts for personal
reasons.
These speculative allegations, if true, would not
amount to a clear indication that Gulf Coast and Johnson acted as
one, especially considering that the other factors the Court must
consider are absent.
As discussed above, the remaining factors
are: (1) failure to follow statutory formalities for
incorporating and transacting corporate affairs; (2)
undercapitalization; (3) failure to provide separate bank
accounts and bookkeeping records; and (4) failure to hold regular
shareholder and director meetings.
86.
Hollowell, 217 F.3d at 385-
Other than a vague assertion that Gulf Coast and Ducky
Johnson "otherwise ignored corporate formalities," the proposed
24
complaint is devoid of allegations relevant to this analysis.
Cf.
Iqbal, 556 U.S. at 678 (holding that complaint must go
beyond "formulaic recitations of the elements of a cause of
action").
Plaintiffs' proposed amendment is futile, because
without more concrete allegations, it could not withstand a
motion to dismiss.
IV.
CONCLUSION
For the foregoing reasons, plaintiffs' motion to amend the
complaint is GRANTED in part and DENIED in part.
Plaintiffs may
add Jamie Hewitt, William Nethery, C&C Concrete and Masonry, LLC,
C and C Concrete and Masonry Rental, LLC, and Nethery Foundation
Services, LLC.
Plaintiffs may add Charles Johnson as a defendant
to the existing counts based on his alleged joint employer
status.
They may also include the claim that Johnson is
individually liable for any violations that may have occurred
while he was acting as a sole proprietor under the trade names of
Gulf Coast Lift and/or Ducky Johnson.
They may not claim that
Johnson is liable for Gulf Coast's debts on the basis of its
possible dissolution or lack of funds, and they may not include a
claim urging the Court to pierce the corporate veil based on the
supposed status of Gulf Coast and Ducky Johnson as Johnson's
alter egos.
It is further ordered that a scheduling conference will be
held by telephone on Thursday, March 27, 2014, at 11:00 a.m. for
25
the purpose of scheduling new pre-trial conference and trial
dates.
The Court will initiate the telephone conference call and
will be represented at the conference by its Case Manager.
New Orleans, Louisiana, this
11th
day of March, 2014.
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE
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