Opinion
No. 2021-CC-01412
11-23-2021
Dr. Michael ST. ROMAIN v. CHEROKEE INSURANCE COMPANY, et al.
Writ application denied.
Crichton, J., would grant and docket and assigns reasons.
Crain, J., would grant and docket.
McCallum, J., would grant and docket.
Crichton, J., would grant and docket and assigns reasons:
I would grant and docket this matter to further study the scope of the single business enterprise theory, if any, under Louisiana law. As recently recognized by the United States Fifth Circuit Court of Appeals, the law on this subject matter is "unsettled" because this Court "has never affirmatively endorsed the single business enterprise theory," which "has contributed to a hodgepodge of views about the doctrine in lower Louisiana courts." Aker Solutions, Inc. v. Shamrock Energy Solutions, L.L.C. , 820 F. Appx 243, n.3 (5th Cir. 2020), quoting Energy Coal v. CITGO Petroleum Corp. , 836 F. 3d 457, 460-61 (5th Cir. 2016).
As noted by Professors Morris and Holmes, the single business enterprise form of veil-piercing differs from the more traditional kind in two important respects:
First, as its name suggests, the single business enterprise theory permits multiple companies to be treated as a single entity—but still an entity separate from its human owners—as if all of the different companies within an affiliated group had been organized as just one, all-encompassing corporation or LLC. In effect, SBE piercing rips through all of the separate-company barriers within an affiliated group, moving in all directions—up, down, sideways and diagonally within an organizational chart of the group—but then stops when it reaches the final ceiling within the group, the one that separates the group as a whole from its human owners.
The fact that the SBE theory pierces the veil "only" among companies, and not to the human owners of those companies, leads to the second difference between traditional and SBE piercing: a black-letter test for piercing that, on the surface, seems far more amenable to piercing than traditional veil-piercing doctrine. Missing from most of the reported SBE cases, at least until recently, are statements that affirm Louisiana's strong policy in favor of limited liability and that characterize veil-piercing as an exceptional remedy, to be granted only rarely. Instead, several of the reported SBE cases say explicitly: "If one corporation is wholly under the control of another, the fact that it is a separate entity does not relieve the latter from liability."
Glenn G. Morris and Wendell H. Holmes, Business Organizations , in 8 LOUISIANA CIVIL LAW TREATISE § 32:15. I would grant and docket this matter to examine whether the single business enterprise theory jeopardizes application in Louisiana of a "principle of corporate law deeply ingrained in our economic and legal systems" – namely, "that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries." U.S. v. Bestfoods , 524 U.S. 51, 61, 118 S. Ct. 1876, 1884, 141 L.Ed. 2d 43 (1998) ; cf Bujol v. Entergy Servs., Inc. , 2003-0492 (La. 5/25/04), 922 So. 2d 1113, 1127 ("The law has long been clear that a corporation is a legal entity distinct from its shareholders and the shareholders ... shall not be personally liable for any debt or liability of the corporation. The same principle applies where one corporation wholly owns another.") (internal citations omitted).
I find it concerning this Court has never considered the propriety of this theory's application despite its conceptualization by an appellate court 30 years ago. See Green v. Champion Ins. Co. , 577 So. 2d 249 (La. App. 1st Cir. 1991). In my view, the authority of this Court on the nature of business entities is wanting, and more guidance is needed in this area of the law.