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La.App. 4 Cir.,2010.

ORX Resources, Inc. v. MBW Exploration, L.L.C.

32 So.3d 931, 2009-0662 (La.App. 4 Cir. 2/10/10)

MBW Exploration, L.L.C. and Mark B. Washauer.

Nos. 2009-CA-0662, 2009-CA-0859.

Feb. 10, 2010.

(2) LLC member was alter ego of LLC, and thus could be held personally liable for LLC’s debt; and

(3) District Court did not abuse its discretion in awarding $43,158.50 in attorney’s fees.

Affirmed.

West Headnotes

Alter-ego theory of corporate veil piercing applied to non-working interest partner limited liability company (LLC),

in oil and gas well operator’s action for breach of contract, where LLC member used LLC as a shell and tried to

avoid paying a legitimate debt of the LLC. LSA-R.S. 12:1320(D).

[2] Limited Liability Companies 241E 9

occurred because LLC was undercapitalized, and did not have a separate bank account to conduct its affairs, at time

member signed operating agreement LLC was not recognized as a LLC, and fact that no shareholder meetings had

been held in over a year indicated member was operating LLC at his leisure and direction.

[3] Costs 102 194.32

On January 16, 2003, ORX entered into the “Clovelly Purchase Agreement” with Coastline Oil & Gas, Inc. Pursuant

to this Agreement, ORX purchased certain oil, gas and mineral leases/interests in a tract of land located in Lafourche

The JOA provided that ORX was to serve as the “Operator” drilling a well within the Clovelly Prospect. It further

provided that the non-operating working interest partners, like MBW, would pay their proportionate share of the

costs in exchange for a corresponding working interest ownership share in the Clovelly Prospect. The drilled well

was governed by the Participation Agreement, which provided that MBW had a working interest in the Clovelly

In 2006, ORX, as the well Operator, began planning the Allain LeBreton Well No. 2 in the Clovelly Prospect, (“the

Well”), which was the “initial well” called for in the Participation Agreement. Adjustments were made in the plan to

drill the Well, including the issuance of a revised AFE, which Mr. Washauer signed on MBW‘s behalf. Mr. Washau-

er paid the full amount of MBW’s share of an ORX cash call invoice of $59,325 with a personal check.

court denied the Appellants‘ motion, and granted summary judgment in favor of ORX. The Appellants timely filed a

motion for suspensive appeal from this judgment. Subsequently, the district court granted ORX’s motion for attor-

neys fees and issued a Final Judgment in March of 2009, holding:

1.) the Appellants liable, in solido, to ORX in the principal amount of $84,220.01;

2.) awarding reasonable attorneys’ fees in the amount of $43,158.50;

2009–CA-0859, were consolidated on June 18, 2009.

The Appellants raise four assignments of error:

1. the district court erred in ruling that ORX met its burden of proof to hold Mr. Washauer personally liable for

the debts of MBW;

2. the district court erred in ruling that the alter-ego theory of the corporate veil piercing applied to Louisiana lim-

ited liability companies;

3. the district court erred in ruling that ORX met its burden of proof to establish that Mr. Washauer was the alter

ego of MBW; and

4. 4the district court erred in awarding ORX $43,158.50 in attorneys fees.

We will not address the Appellants’ assignments of error in the above-referenced order. We will initially discuss

what the Appellants’ have designated as their second assignment of error. Thereafter, the first and third assignments

tions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to material fact, and that the mover is entitled to judgment as a matter of law. La. C.C.P. art.

966(B). However, if the movant will not bear the burden of proof at trial, the movant’s burden on the motion does

not require him to negate all essential elements of the adverse party’s claim, action, or defense, but rather to point

out to the court that there is an absence of factual support for one or more elements essential to the adverse party’s

erred in applying this theory in the instant case because theories of veil piercing and/or other mechanisms that at-

tempt to subject LLC members to personal liability are in direct conflict with Louisiana statutory law.

The Appellants assert that Louisiana’s LLC law does not impose member liability that parallels a shareholder’s po-

tential exposure created by disregarding certain business formalities; furthermore, the failure to follow certain for-

General Louisiana LLC law pursuant to La. R.S. 12:1320(B) provides that:

• members are not personally liable for the debts, obligations and other liabilities of the LLC to third parties, and

The Appellants‘ next two assignments of error center on whether Mr. Washauer can be held personally liable for

MBW’s indebtedness to ORX by piercing the veil of an LLC. The Appellants‘ first assert that the district court erred

in ruling that ORX met its burden of proof to hold Mr. Washauer personally liable for the debts of MBW. The Ap-

pany did exist, it never had a bank account, and never paid its invoices on its own behalf for the Clovelly Prospect.

The first invoice was paid by a separate company controlled by Mr. Washauer: MBW Properties, LLC. The second

invoice was paid by Mr. Washauer himself.

Secondly, the Appellants aver that the district court erred in ruling that ORX met its burden of proof to establish that

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.

debtedness to ORX by piercing the veil of an LLC. The first Riggins factor to be considered is whether commingling

of corporate and shareholder funds occurred. The Appellants assert that while neither of MBW’s check payments to

ORX were made directly by MBW, both payments included notations that they were being paid on MBW’s behalf.

These payments were interest free loans made to MBW. Our jurisprudence allows a shareholders and/or LLC mem-

bers to make interest free loans to corporations/LLCs without this act being grounds for invoking the alter ego doc-

forming MBW. Under La. R.S. 12:1310, when immovable property is acquired by an individual-who is acting in

any capacity for and in the name of any LLC-and the LLC is later issued a certificate of organization, the LLC’s ex-

istence is retroactive to the date of acquisition of the interest in the immovable property. Thus, when MBW acquired

a 2.50% interest in the Clovelly Prospect, which included oil, gas and mineral leases, MBW acquired an interest in

immovable property because a mineral lease is a mineral right equating to an incorporeal immovable. Thus, while

MBW was issued its certificate of organization on July 20, 2005, its creation was retroactive to the date it acquired

its interest in the Clovelly Prospect, October 20, 2003.

ORX contends that in Louisiana, a LLC is not formed until “the articles of organization are signed and filed with

the secretary of state.” La. R.S. 12:1304(B). Thus, MBW did not exist until July 20, 2005, when said statutory for-

malities were met. While Mr. Washauer signed the JOA (in January of 2003) and the Participation Agreement (in

December of 2004), MBW did not exist, and this evidences that he did not observe statutory formalities in creating

MBW.

The fourth Riggins factor to be reviewed is whether the Appellants failed to provide separate bank accounts and

bookkeeping records. The Appellants assert that after issuing a check for $59,325.00 to ORX on MBW’s behalf, Mr.

Washauer did not see the point in creating a checking account and getting a tax ID for a one time investment. He

anticipated that the above-referenced check was going to be the last payment made relative to the Clovelly Prospect.

He further contends that evidence of a common bank account is not sufficient to prove that a LLC entity was disre–

it was only contracting with MBW because all documents executed between the entities identified MBW as the sig-

natory and indicated that Mr. Washauer was signing the documents on behalf of MBW. Nothing in the JOA indicat-

ed that he was signing said document on his own behalf. Lastly, no correspondence related to the Clovelly Prospect

was sent directly to him, nor did ORX make “cash calls” or AFEs to him personally. ORX does not dispute that

LLC’s are not required to observe the above-referenced formalities. And, in this instance Mr. Washauer’s admission

In applying the Riggins factors, under our de novo review, we find that Mr. Washauer’s activities on behalf of MBW

do merit the piercing of the veil of this LLC. Commingling of the LLC’s funds occurred with the funds of Mr.

Washauer and a separate company of his. This commingling occurred because MBW was undercapitalized, and did

not have a separate bank account to transact its own affairs. Furthermore, at the time MBW began contracting with

ORX, it was not yet recognized as an LLC by the Louisiana Secretary of State. Lastly, while LLC’s are not bound by

$43,158.50 in attorneys fees. District courts are vested with great discretion in arriving at an award of attorneys’

fees. Filson v. Windsor Court Hotel, 2007-0755, p. 6 (La.App. 4 Cir. 7/23/08), 990 So.2d 63, 67 (citing Troth Corp.

v. Deutsch, Kerrigan & Stiles, L.L.P., 06-0457 (La.App. 4 Cir. 1/24/07), 951 So.2d 1162, 1165 (citing Kem Search,

Conduct (which mandates that a lawyer’s fee be reasonable) and La. R.S. 9:2781 (reasonable attorney’s fees for the

prosecution and collection of the claim can be collected).FN2 The Appellants aver that ORX’s bill of $43,158.50 in

attorneys fees is not reasonable where the instant case involved: limited written discovery, limited document produc-

tion, two depositions, two hearings and no trial. The case was allegedly not highly complex and was determined on a

motion for summary judgment. The fees in this case were fixed. Thus, the Appellants assert that there was no risk

or by the circumstances; 6) the nature and length of the professional relationship with the client; 7) the ex-

perience, reputation, and ability of the lawyer or lawyers performing the services; and 8) whether the fee is

fixed or contingent.

ORX maintains that the Appellants cannot prove that the district court abused its discretion in applying the above–

Next we address the request of ORX that it be awarded $23,832.00 in attorneys fees for work performed by its coun-

sel on appeal. ORX avers that its counsel should be compensated for briefing a response to the instant appeal, and

for presenting oral argument on the same. It suggests that $17,832 in attorneys fees was incurred by the time its Ap-

pellee’s brief was filed with our court, and that approximately $5,000.00 is owed for presenting oral argument on

appeal.

In the instant case, an attorney prepared and filed an appellee brief, and presented oral argument before this court,

but did not file an answer to the appeal asking for an award of attorneys fees. We note that pursuant to La. C.C.P.

art. 2164, an appellate court has the discretion to tax costs “of the lower or appellate court, or any part thereof,

against any party to the suit, as … may be considered equitable.” Exercising our discretion in this matter, we deny

the ORX’s request for additional attorneys’ fees, but we assess the costs incurred by ORX to the Appellants.