Lacas v. Monroe Credit, LLC

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MATTHEW LACAS Plaintiff-Appellee v. MONROE CREDIT, LLC, WILLYS GERALD, PATRICK HERRING, AND RICHARD W. HUYE, JR. Defendants-Appellants

No. 54, 170-CA

Court of Appeals of Louisiana, Second Circuit

December 15, 2021

Appealed from the Fourth Judicial District Court for the Parish of Ouachita, Louisiana Trial Court No. 2018-3750 Honorable Robert C. Johnson, Judge

WATSON, McMILLIN & STREET, LLP

David Carlton McMillin

William Michael Street

Counsel for Appellants,

Monroe Credit, LLC,

Willys Gerald, Patrick

Herring, Richard W.

Huye, Jr., and Pamela Gerald

HUDSON, POTTS & BERNSTEIN, LLP

G. Adam Cossey

Counsel for Appellee

Before MOORE, GARRETT, and THOMPSON, JJ.

GARRETT, J.

The defendants, Monroe Credit, LLC ("Monroe Credit"), Willys Gerald^[1], Patrick Herring, and Richard W. Huye, Jr., appeal from a trial court ruling that granted a partial summary judgment in favor of the plaintiff, Matthew Lacas.^[2] The trial court found that the resignation, in 2011, of Ronnie Ridgdell, a former member of the LLC, constituted a terminating event for the company and any activities unrelated to the winding up of the business that occurred after Ridgdell's resignation, including the expulsion of Lacas, were nullities. The court ordered the liquidation of Monroe Credit. For the following reasons, we reverse the trial court judgment and remand for further proceedings.

FACTS

Monroe Credit commenced operations on May 1, 2008, pursuant to Articles of Organization ("AO") filed with the Louisiana Secretary of State. The company is engaged in making consumer loans and selling insurance. Many of the issues in this litigation stem from the parties' use of an outdated form to establish an LLC and their failure to obtain legal advice on the front end. Also, the parties never formulated a separate operating agreement. Despite the deficiencies in setting up the LLC, the parties operated what appears to be a successful business enterprise.^[3] The five original members were Lacas, Ridgdell, Gerald, Herring, and Huye. Each owned a 20% share in the company. Effective December 31, 2011, Ridgdell resigned as a member and was paid for his 20% membership. His shares were equally redistributed among the four remaining members, giving each a 25% membership in the LLC. The company continued its business operations. Ridgdell left some investments in the LLC and received a return on them.

In addition to being a member of the LLC, Lacas was also employed as the manager. At some point, the other members suspected that Lacas was mismanaging the company. Lacas acknowledged that he was indebted to Monroe Credit in the amount of $48, 661.35. In September 2017, he executed a promissory note for the debt. The holder and owner in due course of the note was GHH Enterprises, LLC ("GHH"), another credit company owned by the members of Monroe Credit. Lacas failed to make the payments on the note. On March 13, 2018, all four members of Monroe Credit met and, in a 3 to 1 vote, revoked Lacas's membership in the company. Lacas joined in the execution of the minutes memorializing the meeting. A "Change of Membership of Monroe Credit" was executed by Gerald, Herring, and Huye. Lacas signed stating he was against the action.

On November 15, 2018, Lacas filed suit against the defendants for declaratory judgment, damages, and injunctive relief. The suit alleges a myriad of different causes of action and seeks different forms of relief. Lacas claimed his suit concerned a declaration of the membership and ownership interests of Monroe Credit. In his petition, Lacas first sought a declaratory judgment that the attempted revocation of his membership was not authorized in the company's operating agreement or by law. He claimed the revocation was null and that he remained a 25% owner of the company. Second, Lacas argued that, if the revocation was valid, it constituted a terminating event for the company; the company automatically terminated and ceased to exist at that time. He sought to have the company ordered to wind up affairs and pay him his 25% membership interest. Third, Lacas sought an injunction prohibiting the company from any further operations. Fourth, Lacas argued that, because his revocation was a nullity, he was entitled to the fair market value of his 25% share of the company, as well as his share of the distributions, profits, and benefits that had accrued since his attempted revocation. Fifth, Lacas claimed that the defendants committed the tort of conversion. Sixth, Lacas urged that the defendants breached their fiduciary duty to the company and to him. Therefore, he was entitled to damages and attorney fees. Finally, Lacas maintained that the defendants violated the Louisiana Unfair Trade Practices Act ("LUTPA") of La. R.S. 51:1401, et seq. for ejecting him from membership in bad faith and without just compensation. He sought damages. Notably, nowhere in the petition did Lacas ever contend that the company had terminated in 2011 when Ridgdell withdrew.

On August 5, 2019, the defendants filed peremptory exceptions of no right and no cause of action. They claimed that Lacas had no right to demand liquidation of the company or injunctive relief because he was no longer a member.^[4] According to the defendants, Lacas had no right of action under LUTPA because that action is limited to consumers and business competitors. The defendants acknowledged that Lacas had a right of action to assert a claim for recovery of the value of his interest in the LLC. However, they alleged that any amount he would be entitled to would be offset by his debt to the LLC and damages owed for breach of his fiduciary duty to the company. They maintained that Lacas had no cause of action against the individual members of the company.

A hearing on the exceptions was held on November 13, 2019. Lacas argued that he was only seeking recovery against the LLC and not against the individual members in their personal capacity. That rendered moot the exception of no cause of action. Lacas asserted that he did have a right of action in this matter and there was either no authority to expel him under the LLC's AO or, in the alternative, if there was authority to expel him, the LLC owed him for his membership interest.

At that point in the hearing, the trial court interjected a theory that redirected the course of this litigation. The court opined that, under the terms of the AO, the LLC terminated when Ridgdell resigned in 2011, many years before this controversy.^[5] The defendants argued that termination and dissolution are not the same thing. They contended that when a terminating event occurs, the LLC can choose to wind up business or can change the AO and provide for the continuation of the LLC. Here, the company chose to continue business and Lacas never pled that the LLC ceased to exist. According to the defendants, under its AO, the LLC had the authority to expel Lacas.

On February 3, 2020, the trial court issued its reasons for denying the exceptions of no right and no cause of action. Instead of addressing the peremptory exceptions and the arguments made by the parties on these issues, the trial court considered the effect of Ridgdell's resignation on the continued existence of Monroe Credit as a legal entity. The court found that Lacas's expulsion was secondary to the primary terminating event of Ridgdell's resignation in 2011. The court determined that there was no provision for continuing of business operations in the AO or in a written operating agreement. After Ridgdell's resignation, the LLC could only do those things necessary to wind up the business. However, Monroe Credit continued to operate for several years after Ridgdell's resignation. According to the trial court, any acts by the remaining members, including the attempted expulsion of Lacas in 2018, were in violation of the LLC's AO and the law. Those actions were null and had no legal effect. On March 2, 2020, the trial court signed a judgment denying the exceptions of no right and no cause of action. The defendants did not seek supervisory review of the trial court's ruling on the exceptions.

In June 2020, the defendants filed an answer, generally denying Lacas's allegations and asserting, as an affirmative defense, that when he was a member of Monroe Credit, Lacas breached his fiduciary duties to the entity, as well as negligently and wrongfully performing actions on behalf of the company which caused it financial loss and caused loss to the other members. The defendants claimed that these liabilities offset or exceeded in value any claims asserted by Lacas. ^[6]

On June 5, 2020, Lacas filed a motion for partial summary judgment. Contrary to the allegations claimed in the petition, Lacas now urged that Ridgdell's resignation in 2011 constituted a "liquidating event" under the AO, and the company failed to wind up its affairs, even after the passage of several years. Lacas sought a judgment ordering the dissolution and winding up of the company and the appointment of a liquidator. He asserted that, in the denial of the exceptions of no right and no cause of action, the trial court had already determined that a liquidating event occurred, the company was required to wind up its affairs, and all activities beyond the winding up of the company were null. Lacas cited La. R.S. 12:1334, dealing with dissolution, and 12:1336, dealing with winding up affairs, in support of this argument.

On October 12, 2020, the defendants filed their opposition to the motion for partial summary judgment. They urged that the motion sought an involuntary liquidation of Monroe Credit but Lacas had not established that he was a member of the LLC entitled to seek dissolution. They claimed that the question of whether the...