Ernest Freeman, III VS Medical Systems, Inc.
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NOT DESIGNATED FOR PUBLICATION STATE OF LOUISIANA COURT OF APPEAL FIRST CIRCUIT NUMBER 2008 CA 2372 ERNEST FREEMAN III VERSUS MEDICAL SYSTEMS INC 9y Judgment Rendered AUG Jf 1 94 Appealed from the Twenty First Judicial District Court In and for the Parish of Livingston State of Louisiana Suit Number 111 503 Honorable Ernest G Drake Jr Thomas J Frierson Livingston LA Judge Counsel for Plaintiff Appellee Ernest Freeman Alexis A St Amant Baton Rouge LA III Counsel for Defendants Appellants Daniel V Smith Jonathan D Smith and Medical BEFORE KUHN GUIDRY AND GAIDRY n Systems Inc 4 2009 GUIDRY J A company and two of its court them ordering the directors alleged as based damages a the former director and reverse in alleged of the practices failing to following by award competition engaged For the trial received sums and for and corporation judgment of the a certain corporation and benefits unfair trade employee vacate in part reimburse the compensation excess on to original directors appeal in by we reasons part affirm in part and remand FACTS AND PROCEDURAL HISTORY On Medical his to second of MSI him 2006 Inc Systems employment paid that 17 April was MSI petition under the MSI and that until wholly insufficient as was former at docket number seeking wages the were the time not been plaintiff filed a involuntary liquidation as In defendants the sole shareholders in 10 2006 the board of directors for MSI also consisted of April Plaintiff further failed to pay employee of owed past due wages that had filing his claim for past due same a petition in which he asserted that a stated that he and the Smiths all three shareholders are to III MSI Daniel V Smith and Jonathan D Smith petition plaintiff MSI has filed terminated he Subsequent naming Ernest Freeman plaintiff or has been alleged entirely that the object of the corporation abandoned and the corporate its creditors and therefore should be placed in assets involuntary liquidation MSI denied petition In answer collectively abandoned its owing plaintiff to the defendants and object liable have been paid the defendants filed a petition past due wages in any for denied the involuntary liquidation allegation that the specifically alleged that Also in response to the reconventional demand 2 all answer to the first MSI and the Smiths corporation had entirely just debts for which MSI is petition for involuntary liquidation seeking reimbursement for costs and attorney fees incurred in defending against plaintiffs claims Plaintiff denied the allegations asserted in the reconventional demand the resolution of various Following against the defendants seeking the and permanent preliminary discovery issuance of injunctions to alleged depletion and distribution of dividends in detriment to involuntary liquidation of the corporation The trial order restraining rule and set the the requests for issuance of of objection preliminary right of action requested no permanent injunctions to dissolution of and court or as Prior to on a a with all plaintiffs alleged conversion trial on from parties disposing of ordered the Also or plaintiff Research without prior the merits the trial not to court plaintiffs in for injunctions peremptory exception urging the issuance of other preliminary and in anyway or of MSI assets profiting and sought to of the court assets rendered without bond to assert a claim for ofMSI judgment granting the to restrain prohibit and any of the assets of MSI alienate or sell any of the assets The court further of his company E F approval the trial on to assert they entered into the merits plaintiff amended his petition for that the Smiths should be held a course personally of action which includes but is the sale of all the assets of MSI the so temporary a alienating mortgaging encumbering concealing parting hypothecating involuntary liquidation because assets damages for the issuance of the temporary restraining order parties reciprocal preliminary injunctions enjoin issued requested Thereafter defendants amended their reconventional demand damages based of MSI s and permanent prevent plaintiff from selling personally from the sale of information rule plaintiffs pending suit for the actions of the defendants In response to the rule defendants filed hearing the restricting a temporary restraining order and a halt the plaintiff filed matters restructuring of they would receive unlawful dividend corporation 3 assets s not liable limited to and liabilities of the to the detriment of MSI and its creditors they have received salaries and fringe benefits and detriment of MSI and its creditors petition amended action of involuntary liquidation to the Trial in this matter 2006 and was September signed past due wages on was 12 2007 February was in denied and benefits received held over the corporation were of objection the exception raising course of two following which the trial no to right of objection of separate dates June 21 rendered court prescribed as were by a judgment plaintiffs 27 2008 wherein it decreed that claim for that the claims raised denied that the Smiths plaintiff by each for liquidated by defendants in reimburse MSI for all each after the termination of and that MSI be termination plaintiffs peremptorily excepted raise the of those wages and benefits received excess the plaintiffs claim in his first petition for past due wages their reconventional demand sums to and later filed another peremptory prescription relative that The defendants to once a which full year were prior to all the assets of the aggregated ASSIGNMENTS OF ERROR Defendants have appealed the February the judgment should be reversed based I The court erred Action filed II all sums which by the The court in the following by denying the judgment contending that alleged errors Exception of No Right of defendants erred in and benefits were on 27 2008 excess ordering that the Smiths reimburse MSI they received after termination of plaintiff of the wages and benefits they received for the year before the termination III The court erred in denying the defendants for the conversion of the Plaintiff answered the judgment Smiths appeal seeking Reconventional Demand of assets ofMSI reversal of that that denied his claim for past due wages by plaintiff portion against of the trial MSI and court s against the personally however because plaintiff failed to brief this issue this claim is 4 Uniform Rules deemed abandoned 471 So 2d 1003 Witty 1004 n Courts of 4 12 Carson v 1st Cir 1985 App l La Rule 2 Appeal DISCUSSION In their first erroneously denied action the result of a a party breach of 1501 La 12 9 20 02 fiduciary duty derivative or loss causes recover La to bring a fiduciary duty a his loss loss to to shareholder So if a mismanagement only bring of fiduciary duty and causes a Inc shareholder s creditor of the or this argument bring Corp v a right no of must the shareholder may breaches of only a an to La sue being a by the to a corporation that shareholder may However if the breach but not the was not corporation Premier v required unique standing shareholder Although plaintiff s claim for past due 5 a 1992 that he derivative action because of his to individually individually Palowsky App 1st Cir as fiduciary duty a sue loss sustained corporation plaintiff suggests in addition brought be indirect loss in the form of fiduciary duty behalf of the 545 Group 1096 writ denied 02 itself the suit resulting from right as a derivative action Shareholder However where the breach of on a 597 So 2d 543 corporation must direct loss to the shareholder In the instant matter court by the corporation 819 So 2d 1088 shareholder suffers that shareholder may have Bancorp that the trial It is established that where the breach of personally derivative action a 1 5 0 02 corporation a decline in the value of his stock due the shareholder 825 So 2d 1176 secondary action to claim for loss sustained Silliman Private School 1 st Cir App causes assert assignment of error behalf of the corporation 01 0964 p defendants error peremptory exception raising the objection of We find merit in this In order for on assignment of wages as There is was a to file a an alleged no merit in direct loss for which he could and liabilities depleted excess to I individually sue restructured and its were alleging the claims fringe benefits to the detriment of MSI Rather these claims loss suffered by plaintiff and amended petition for involuntary liquidation Therefore relative corporation Since file plaintiff erred in failing a shareholder did direct loss to overruling the not file to sustain of action relative to MSI s to We therefore pleadings for such amendment within 934 see Moreover in that to pursuant hereby we that to regard our to sustain the C CP to La the court judgment ordering the excess of no right salary compensation pursuant to a shareholder s arts 611 616 court clearly objection of no right can s judgment be removed the trial matter to as court a set by court to the trial court by allow La art 613 reversal of the trial objection plaintiff was However because the exception period defendants second the MSI portion of the trial will remand this also La C C P claims of direct by the plaintiff that would constitute reasonable time a raising s generally claims of direct loss to the exception urging reverse not derivative action the trial s the peremptory and are derivative suit pursuant the claims asserted exception amendment of the art debts specifically alleged in his rule those claims of direct loss shareholder a as are grounds for the objection raised in the peremptory exception C C P s declare unlawful dividends and that the Smiths received payment of salaries and required to corporation restructured and sold assets that the court of action Smiths to s we assignment of error ruling on we the peremptory must vacate that portion conclude exception of the trial reimburse MSI for the payment of alleged and benefits Such relief can only be properly granted derivative suit Finally in their third assignment of error defendants contend that the trial court erred in denying their reconventional demand for the financial loss suffered involuntary liquidation of the corporation cannot be classified as an action based on a direct loss suffered by the plaintiff we observe that by law such an action can be brought by a shareholder individually See La R S 12 143 8 1 Additionally although the action for 6 by MSI as a result of the to MSI by and payments owed in this assignment conversion asserted of unfair trade for criminal conversion of characterized specifically such as the claim of defendants in their reconventional demand is by and practices sound prohibit judgment must or competition subject business actions free enterprise appropriate to must So 2d 327 court Fraud specific 34 655 Leeper v transactions A defendant have been taken with the evaluating a claim wrongful allegation of deceit and La the conduct misrepresentation critical factor the a App 2d Cir 7 12 01 business permissible competition 6 22 01 practices and competition contrary agreement an employee is free compete with his former employer Orkin Exterminating Company Foti 302 So 2d 593 favored As public policy effectuate a a 596 La 1974 long as persons Competition and free conduct is neither unlawful are able to discuss change of employment nor to v enterprise offensive to changes of employment plan to compete and take preliminary steps in furtherance of that plan United Group of National Paper Distributors Inc v Vinson 27 739 p 16 La App 2nd Cir 125 96 9 27 96 679 So 2d 1358 In involves order 666 So 2d 1338 determine to what between the 1348 writ denied 96 0714 constitutes unfair of the La competition individual right employee freedom on one hand and the right of the employer to honest and fair competition and the protection of business assets and property in the a balancing nature of trade secrets Louisiana Inc 1980 v on Brown Solicitation of the other hand 381 So 2d 1269 to National Oil Service of 1273 customers after the end La App 4th Cir of an employment relationship does not form the basis for a claim of unfair competition Ahmed v Bogalusa Kidney Care Center 560 So 2d 485 489 90 La App 1 st Cir writ denied 564 So 2d 324 La 1990 7 793 803 So 2d 973 outlined the following considerations In the absence of are merit That law does To be unfair unfair trade alleging an purpose of harming the 9 10 pp et seq motivation is s 332 333 writ denied 01 2558 La Thus in no held the Louisiana Unfair Trade the exercise public policy deceptive practices SDT Industries Inc this practices offend established constitute We find background checks Practices and Consumer Protection Law La R S 51 1401 not contracts of error not Although plaintiff s alleged wrongful A former employee who business in competition with his enters former employer necessarily utilizes the experience he acquired and the skills he developed while in a former employment While the employer may by contract obtain limited protection from former employees by law he may be entitled to protection against wrongful appropriation and use by former employees of things specially developed by the employer in his business such as lists of customers particularly route sales whose regular patronage has been acquired by the employer s advertising solicitation and organized effort the type of protection to be afforded to the specific case include the manner in which and the Considerations employer in purpose to as a customer lists for which are the conduct and compiled employee before and after termination and the nature of the representations made to the customer by the former employee and the existence of a scheme to take over all or a substantial part of the former employer s business or of an intent to motivation of the injure 2d the former actions have must harming business A critical factor is 1273 at employer s the been competition National Oil Service 381 So defendant a taken with specific purpose of the Conduct does not violate the Louisiana Unfair Trade Practices and Consumer Protection Law with the undertaken United intent to specific Group must harm the unless it is competition 666 So 2d at 1346 In order to find fraud from silence there the motivation s exist a to duty speak or or suppression of the truth disclose information Greene Gulf Coast Bank 593 So 2d 630 632 duty bound not to act employer Every one or who is under in antagonism whether contract or other La An v 1992 is employee opposition to the interest of the designated agent trustee or what not legal obligation to represent or act for another in any particular business or line of business must be loyal and faithful to the interest of such other in respect to such business or purpose Services Boncosky 11 5 99 798 751 So Inc v 98 2239 Lampo 11 12 pp 2d 278 286 87 writ denied 00 0322 La 1st App La 3 24 00 Cir 758 So 2d emphasis added The defendants destroy plaintiff or In an usurp the business of MSI made efforts to termination of his a that presented completely take over plaintiff deliberately some MSI evidence prior to and to majority ofMSI s company EF Research LLC customers were 8 serviced on tried show that following April the that the employment The defendants also presented evidence plaintiff officially organized his and that to prove attempt 7 by EF Research LLC 2006 Additional evidence the only employee of MSI criminal that We find mid the April April and that evidence into despite did he from clients who following that lists basis 2 authorized agent 2006 to employee as as the a as on employment shareholder he behalf of MSI was was under his Furthermore signed sell the Criminal his perform to support the defendants assertion contracts 2 500 00 early as background checks portion of evidenced by Background amount defendants assertions and or a sales Checks receipt as the value of the item sold ever testimony by and solicited MSI s starting his company he receive an thought he was the termination of his that MSI had for to plaintiff was 2 testified that after nor an James Bealer to of the item sold and 20 2006 MSI as an March 31 or reason attempted plaintiff purposefully intercepted being as demonstrated that perform background checks to business s Moreover plaintiff on terminated 2006 defendants corporation description was clearly certified was basis in law trial in accordance with the name introduced on continue to authorized as no although plaintiff expected that background checks terminated at presented application doing background never represented himself in regards to his as background checks MSL He admitted that he did as go after the background checks because he knew them all However check clients for criminal business employment the Smiths that servicing applications same on a clientele first name he received for Jonathan Smith testified that after plaintiff was fired another authorized agent was not hired to replace plaintiff performing background checks for MSI He further testified that the defendants attempted to sell the background check business but claimed it was useless because it s all been stolen He did acknowledge that a list of names of every nursing home and home in health agency in the state was sold to a man in Lafayette whom they later learned was not an agent authorized to perform background checks At trial it was established that MSI engaged in performing four principal business operations 1 background checks 2 flu shots 3 drug testing and 4 CPR By an act of sale dated April 18 2006 MSI sold its ePR and drug testing operations to Paige One Medical LLc and Paige One Medical L Le also assumed MSl s lease of an office space that was the official business address for MSI 9 checks that background MSI was not were on both his name agent MSI is not resigning nor The law reads that the agent the authorized agent is So I company he testified and MSI was doing business from the board of directors for MSI4 a authorized Ernest Freeman as He testified that he did not do any business for EF Research LLC agent his a listing Ernest Freeman is the authorized the agent is EF Research the agent person not forms and that he did prior to collect not money for work he did for MSI for EF Research LLC In a nutshell MSI did not hire no plaintiff testified that it an authorized agent after perform background contracts nursing presented homes background He further The Smiths check done within 30 made Jonathan Smith background Based was no effort days or produce to contracts on our clearly a held the fact that out not was of able able to not obligated service to background checks for to have compliance with the they So are as perform to MSI believe he not nursing home has product was out far a state of business as I know the work on the by MSI review of the evidence wrong in that he felt in relation to they re the he did find another authorized agent acknowledged that MSI checks explained the law reads that because so authorized agent MSI an especially to him therefore MSI couldn t So court checks on terminating his employment that longer engaged in the background checks business and took business from MSI because without the his belief based was finding that the presented we plaintiff did cannot say not engage that the trial in a course of 3 A copy of such an application was introduced into evidence by the defendants and the salutation on the form reads TO Medical Systems Incorporated d b a Ernest Freeman III Authorized Agency While plaintiff stated that he could not remember if he performed the background check pursuant to the application when cross examined about the application by counsel for the defendants he acknowledged that MSI could not have processed the application because the agency that the 4 application was addressed in part to him as Ernest Freeman the authorized s client list revealed LLe perform the work A review of EF Research company that submitted the application was a client of EF Research LLe so he had to According to Jonathan April 10 or 12 2006 Smith s testimony plaintiff resigned 10 as a board member of MSI on conduct that would constitute unfair trade Industries Inc 34 655 at 16 raised in the defendants final 793 So or Thus at 335 2d assignment practices See competition we reject the SDT allegations of error CONCLUSION Having found that the trial exception filed MSI in his exception that portion matter to in order Pursuant to court to remove the we reverse our of the judgment the trial to erred in by the defendants objecting personal capacity the court to that sustaining grounds to the plaintiffs sustain the peremptory right judgment of the peremptory exception to objection of no to We affirm the trial defendants claim for unfair trade Appeal costs are assessed one half to on plaintiff and sustain we amend his vacate court practices Ernest Freeman petition for which the right of action peremptory exception is herein sustained damages based claims of reimburse MSI and remand this plaintiff an opportunity of the to assert of the portion ordering the Smiths allow the failing s and denial of the competition and one half to defendants MSI Daniel Smith and Jonathan Smith REVERSED IN PART VACATED IN PART AFFIRMED IN PART AND REMANDED 11
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