STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT
06-1615
CLORADEAN PREJEAN GRANGER
VERSUS
WALLACE ANTHONY GRANGER
************** APPEAL FROM THE TWENTY-SEVENTH JUDICIAL DISTRICT COURT PARISH OF ST. LANDRY, DOCKET NO. 94-C-1479-B HONORABLE ELLIS J. DAIGLE, DISTRICT JUDGE
************** SYLVIA R. COOKS JUDGE **************
Court composed of Sylvia R. Cooks, Oswald A. Decuir, and James T. Genovese, Judges.
Genovese, J., concurs in part, dissents in part, and assigns written reasons.
AFFIRMED.
J.N. Prather, Jr. P.O. Box 3993 1000 Lafayette Street Lafayette, LA 70502 (337) 237-0047 COUNSEL FOR PLAINTIFF/APPELLEE: Cloradean Prejean Granger
Henry C. Perret, Jr. Kyle M. Bacon Perret Doise, APLC 600 Jefferson Street, Suite 1600 Post Office Drawer 3408 Lafayette, LA 70502-3408 (337) 261-9000 COUNSEL FOR DEFENDANT/APPELLANT: Wallace Anthony Granger Harry T. Lemmon 650 Poydras Street New Orleans, LA 70130 (504) 581-2155 COUNSEL FOR DEFENDANT/APPELLANT: Wallace Anthony Granger
Anne Elizabeth Watson Dupre & Watson 232 North Liberty Street Opelousas, LA 70570 COUNSEL FOR DEFENDANT/APPELLANT: Wallace Anthony Granger COOKS, Judge.
STATEMENT OF THE CASE
Wallace Anthony Granger appeals the decision of the trial court awarding his
former spouse, Cloradean, the sum of $400,000 as her share in a closely held
corporation. For the reasons assigned below, we affirm the decision of the trial court.
STATEMENT OF THE FACTS
Wallace and Cloradean Granger were married in 1981 and have two children.
Shortly after their marriage, the couple formed Technical Tubular Inspection
Services, Inc. (Technical Tubular), an oilfield pipe inspection company. Wallace and
Cloradean were the sole shareholders. Wallace solicited business for the company
and ran the daily operations. Cloradean managed the office, paid the bills and the
payroll. Both their home and business were located on property off of Superior Road
in Churchpoint. Although the couple struggled financially in the early years, through
the industry of both parties, the business grew and prospered during the fourteen
years of their marriage. By 1993, the last full year of the existence of the community,
income tax returns indicate the gross income for Technical Tubular totaled
approximately $918,000.
In April 1994, Cloradean filed a petition for divorce and requested that the
community property be divided. Judgment of divorce was rendered in March 1995.
The community assets, except for the parties’ interest in Technical Tubular, was
partitioned.
In the interim, from April 1994 to March 1995, Wallace was in control of
Technical Tubular. The corporation’s gross income for 1994 dropped. In January
1995, in an effort to prevent the downward spiral of the business, Cloradean filed a
request to be appointed temporary receiver. The corporation’s income continued to
1 decline and by June 1995 Technical Tubular was showing sales of only $103,538.
On March 3, 1995, immediately following the judgment of divorce, on the day
Cloradean was appointed receiver, Wallace walked away from the business and
formed a new corporation, Tube-Tech. Tube-Tech was staffed by former employees
of Technical Tubular, retained former clients of the community business and used a
similar name and logo. Cloradean eventually filed for bankruptcy on behalf of
Technical Tubular.
Trial on the partition of Technical Tubular was held in January 2006. The trial
court found as of the date of trial, the stock in Technical Tubular was worthless. The
trial court further held:
Wallace depleted Technical Tubular of its employees and customers. He started a new corporation with a deceptively similar name and logo. He did all of this only days after the judgment was rendered appointing Cloradean temporary receiver of Technical Tubular. Tube-Tech did not exist until March 9, 1995, six (6) days after Cloradean was appointed receiver of Technical Tubular, and Wallace was ordered not to dispose of any property of Technical Tubular, nor to change the status of the affairs of Technical Tubular to the injury of Cloradean. Wallace Granger did exactly that which the March 3, 1995 Judgment ordered him not to do!
The evidence established that both parties used corporate assets for personal use; however, Wallace abused these assets while in control of Technical Tubular after the termination of the community property regime (April 19, 1994) and until Cloradean was appointed receiver on March 3, 1995. Wallace’s abuse of the assets was the reason for which she filed to be appointed receiver. .... Wallace was ordered not to dispose of any property of Technical Tubular, Inc. Instead of following the court’s order, he did the polar opposite. He maneuvered the employees and customers of Technical Tubular into Tube-Tech, leaving Technical Tubular with only the debts. Within approximately three (3) months, Cloradean was forced to bankrupt Technical Tubular. .... In following the ruling of Queenan, this court finds that Cloradean and Wallace own a one-half (½) interest each of the value of the stock in Tube-Tech as it is a substitute corporation for Technical Tubular due to Wallace’s action in taking all of the customers and employees of Technical Tubular and placing them in Tube-Tech as a
2 direct violation of the court order of the 19th Judicial District Court enjoining Wallace “from disposing of any property of Technical Tubular Inspection Services, Inc., or from changing the status of the affairs of Technical Tubular Inspection Services, Inc. to the injury of mover.”
The parties stipulated that the value of Tube-Tech, the new corporation, on the
date of trial was $800,000. The trial court awarded Cloradean the sum of $400,000.
Wallace appeals asserting numerous assignments of error. We affirm the judgment
of the trial court.
LAW AND DISCUSSION
The trial court relied on this court’s case of Queenan v. Queenan, 492 So.2d
902 (La.App. 3 Cir.), writ denied, 496 So.2d 1045 (La.1986). In Queenan, Michael
and Penny Queenan owned stock in three closely held corporations which were begun
during their marriage. After the termination of the community, Michael continued to
manage the companies. He then formed a new corporation in which he was the sole
stockholder. Michael operated the new corporation out of the same office along with
the family businesses. By comparing the book value of the two corporations, it was
apparent the new corporation, owned solely by Michael, flourished and prospered at
the expense of the family owned business. This court concluded Michael, as the
spouse in control of the former community asset, “breached the fiduciary obligations
owed Penny Queenan . . . under the partnership and corporate laws of the State of
Louisiana.” Queenan, 492 So.2d at 911. In order to determine the amount owed to
Penny, the court characterized the corporation, though technically Michael’s separate
property, as part of the community and therefore subject to partition. This court
articulated the responsibility of the spouse in control of former community property,
as follows:
[F]ollowing the judicial termination of a community regime and before a property settlement of the community assets has been consummated, a former spouse having control and possession of any assets belonging
3 to the community regime would owe a fiduciary obligation to the former spouse who is not in control or possession.
Until there is a community property settlement, there exists a practical or empirical extention of the community regime insofar as the duties and obligations of the former spouses relate to each other in the management of the community assets. The parties are not only co- owners but are the beneficiaries as well as obligors of a technical or legal extention of the community regime until settlement thereof, thus acquiring a peculiar relationship as a specie of partners, co-owners, and as in the case sub judice co-owners of shares of stock and/or common owners of shares of stock in a family owned corporation or corporations. The relationship of spouses and former spouses (until there has been a property settlement following termination of the community regime) cuts through the entirety of the law, including the laws of partnership, property, and corporations.
Id. at 912.
The Queenan court characterized the parties’ legal relationship as “not only co-
owners but . . . beneficiaries as well as obligors of a technical or legal extention of the
community regime until settlement.” Id. at 912. Wallace contends Queenan is an
anomaly in the law and its holding has been criticized by legal scholars. However,
the underlying rationale in Queenan for imposing a fiduciary duty on a spouse having
control of the former community asset is based on a recognition that after the
termination of the community the spouse in control will not necessarily act in the best
interest of the other party. This rationale is still valid and rather than being
discredited, the legislature in 1995, changed the law to impose a higher standard of
care on the spouse in control of the former community than had previously been
required.1 This change in the law is an affirmation rather than a repudiation of the
Queenan decision.
Louisiana Civil Code Article 2369.3 clearly defines the duty of the spouse in
control of the former community asset and provides, in relevant part:
1 The effective date of La.Civ.Code art. 2369.3 is after the date of the filing of the petition in the present appeal.
4 A spouse has a duty to preserve and to manage prudently former community property under his control, including a former community enterprise, in a manner consistent with the mode of use of that property immediately prior to termination of the community regime. He is answerable for any damage caused by his fault, default or neglect.
Comment (a) under this statute explains:
This Article changes the law. First, it imposes on a spouse who has control of former community property an affirmative duty to “preserve and to manage” such property. In contrast, Civil Code Article 800 (rev. 1990), applicable to ordinary co-owners, provides for a right but not a duty to act for the preservation of the property. Such a duty arises only if the co-owner undertakes to act as a negotiorum gestor or he is appointed administrator. See Symeonides & Martin, The New Law of Co-ownership: A Kommentar, 68 Tul. L. Rev. 701, 746 (1993). Similarly, the co-ownership articles of the Civil Code do not impose on one co-owner an affirmative duty to manage the co-owned thing unless that owner assumed the qualities of a gestor or was appointed as an administrator. See C.C. Arts. 801, 803 (rev. 1990); Symeonides & Martin, supra at 738-748. Second this Article imposes a higher standard of care than that provided by Civil Code Article 799 (rev. 1990) for ordinary co-owners. See comment (g), infra.
This Article also imposes a higher standard of care in managing and maintaining such former community property than the standard imposed during the marriage for managing community property. See C.C. Art. 2354 (rev. 1979). The reason for imposing a higher standard of care in managing former community property is that, after termination of the community property regime, the law no longer assumes that a spouse who has former community property under his control will act in the best interest of both spouses in managing it. (Emphasis added).
Louisiana Civil Code Article 159 provides the “judgment of divorce terminates
a community property regime retroactively to the date of filing of the petition in the
action in which the judgment of divorce is rendered.” Cloradean filed the petition for
divorce in April 1994. Therefore, the couple’s community property regime
terminated on that date. See Hatsfelt v. Hatsfelt, 05-0947 (La.App. 3 Cir. 2/1/06), 922
So.2d 732. Wallace was in control of Technical Tubular from this date until March
1995. We have reviewed the testimony and documents presented by both parties and
find no error in the finding of the trial court that Wallace allowed Technical Tubular
5 to decline in value in the interim period between the petition for divorce and the final
divorce decree. He essentially admitted such in his testimony. Wallace testified he
stopped working the business. “[I] didn’t work for the last five or six months with that
company. I just stayed home just like she did.” No one was running Technical
Tubular, but the monthly corporate overhead of $36,000 continued to accumulate.
Wallace still collected his salary and used funds in the corporate account and began
“factoring”company invoices to pay for his personal expenses. When Cloradean
obtained control of the company in March 1995, the accounts receivable were down
to $5,000 and the debts exceeded $200,000. Just days after the divorce was final,
Wallace began Tube-Tech, an identical company with the same employees and
customers as the old business. While Wallace’s income never suffered, Cloradean
was left with a worthless company. Wallace focused his energy and skill on the new
company, which he solely owned, and allowed Technical Tubular to decline.
The trial court found Cloradean’s testimony more credible than Wallace’s. We
find no error in this assessment by the trial court. Once the petition for divorce was
filed, Wallace began planning the new company and began to lure employees and
customers to the new business. Although Wallace testified after the divorce he was
left destitute with nothing but a “few old tools,” Wallace’s actions as well as the
financial evidence introduced by Cloradean contradicted his testimony. Wallace
incorporated Tube-Tech just days after Cloradean was appointed receiver of
Technical Tubular. Interestingly, Tube-Tech was not incorporated in Wallace’s name,
it was incorporated in his friend, Paul Diaz’s name. Wallace explained the company
was set up in Diaz’s name because Diaz loaned him money for start-up costs. Six
months after the divorce, Diaz was paid in full although transfer of the company into
Wallace’s name did not take place until two years later. Wallace denied any attempt
6 at deception. Wallace admitted he acquired all of the former employees of Technical
Tubular and employed them in the same capacity as the old corporation. Likewise,
Wallace testified he was calling on the same customers with his new corporation.
The employees continued to report everyday to the same location of the former
corporation because Tube-Tech was located in virtually the same location as
Technical Tubular. The testimony supports a finding that Wallace allowed Technical
Tubular to decline to the detriment of Cloradean.
Cloradean testified Wallace completely surprised her when he walked away
from the business: “I didn’t know where I was going with that because I had not
expected Wallace to just bail out.” In an attempt to prevent the total decline of the
business, Cloradean petitioned to be appointed receiver. Although she acquired
control at the time of the judgment of divorce, the employees were gone, the
customers were gone, and she was left with nothing but debts. It took her sixty days
to determine the financial condition of the company. She found unpaid bills and
taxes which were months behind. “And once it was all said and done, Technical
Tubular was in debt of over $200,000– something, including the IRS and all kinds of
notes payable.” She discovered “Wallace went out and bought a Corvette that
Technical Tubular paid for, but he made sure that the truck – the car was put under
his name personally, but the company paid the debt.” By March 1995, Cloradean
stated, “there was nothing to run. There was nothing left to run. . . . I got a company
that was knee deep in debt. I had no money to operate with. Private Capital was
taking just about everything that was coming in. There was virtually nothing left to
pay the debts. . . And I had to start selling assets to be able to start taking care of the
debts that he incurred, not I.” She discovered Wallace had gone through all the
corporate money, “ paying all his expenses, not paying payroll taxes, not taking care
7 of the debts of the corporation. . . . I knew I was going to be liable for the IRS. You
can’t get away from the taxes.” In June 1995, Cloradean reluctantly filed for
bankruptcy. We find the evidence supports a finding that Wallace allowed a thriving
corporation, built over the course of fourteen years, to fail to the detriment of his
former spouse.
Wallace contends the trial court erred in using the value of Tube-Tech to
determine the amount owed to Cloradean. He asserts Tube-Tech was his separate
property and the value of Technical Tubular at the time of trial should have been used
by the trial court. As stated by the trial court, the value of Technical Tubular at the
time of trial was zero. Cloradean had already placed the company in bankruptcy and
all available funds were used to pay off debts incurred by Wallace during the interim
period prior to divorce. In allocating community funds, the trial court is given broad
discretion and is not “frozen by any statutory time level or particular valuation at any
particular time or for any particular purpose,” but is charged with placing “values on
the assets for the purposes of accounting, allocation, and adjudication in accordance
with the further provisions of R.S. 9:2801(4)(b, c, d and e).” Queenan, 492 So.2d at
914. The assets of Technical Tubular during the last full year of the community and
the stipulated value of the new company, Tube-Tech, were approximately the same
value. We find no error in the decision of the trial court awarding Cloradean one-half
of the value of Tube-Tech as her share in the community owned business.
Derivative Action
Wallace characterized Cloradean as a “shareholder” and contends the trial court
“ignore[d] corporate formalities and allowed a shareholder to bring a corporate claim
other than through a derivative action.” This is a suit to partition community
property. Technical Tubular was, for all practical purposes, a community owned
8 corporation; the corporation’s only shareholders were Wallace and Cloradean. We
find no merit in this argument.
Abandonment
Wallace contends Cloradean’s claim for partition of the community owned
company has been abandoned. We disagree. Cloradean filed a petition for divorce
in April 1994 and petitioned to have the community property divided. In November
1995, the trial court rendered a partial judgment of partition dividing the community
property except the parties’ interest in Technical Tubular. The order stated “that the
only other community asset, Technical Tubular, Inc., and its holdings shall be
partitioned at a later date.” Prior to this order, Cloradean was appointed receiver of
Technical Tubular and filed for bankruptcy. In August 1999, when the bankruptcy
proceedings were complete, Cloradean filed a motion to fix the partition for trial. The
trial court found the “actions of Wallace in continuing to litigate this matter
subsequent to any tolling of the period necessary for abandonment is a waiver of his
right to now seek abandonment of Cloradean’s claim.” We agree with the trial court
that Cloradean did not lose her right to partition her interest in Technical Tubular.
A co-owner’s right to partition a thing held in common is an incident of ownership
and is absolute. La.Civ.Code art. 807; Harris v. Harris, 29,084 (La.App. 2 Cir.
(1/22/97), 687 So.2d 673. We find no merit to this argument.
DECREE
Based on the foregoing review of the record, we affirm the decision of the trial
court. All costs of this appeal are assessed against Wallace Anthony Granger.
9 10 STATE OF LOUISIANA
GENOVESE, J., concurs in part and dissents in part.
I concur in part and dissent in part in the majority opinion. I agree and concur
that, upon their separation and post divorce, Mr. Granger had a fiduciary duty as the
spouse in control of a former community asset to act as a prudent administrator and
is answerable for damages caused by his fault or neglect. However, I disagree and
dissent from the majority opinion as to the amount ($400,000.00) awarded to Ms.
Granger. I strongly disagree with the trial court’s valuation of damages awarded to
Ms. Granger. The trial court simply labeled the new corporation a “substitute
corporation” and awarded Ms. Granger one-half of its book value at the time of trial.
As Mr. Granger did little or nothing after their separation to preserve and
protect the former community corporation, Ms. Granger did absolutely nothing for
eleven years (from 1995 to the 2006 trial date) in the new (substitute) and separate
corporation. In the former community corporation, Ms. Granger was an active
participant. While Mr. Granger solicited business for the former community
corporation, Ms. Granger managed the office, paid the bills, and handled payroll.
Together, they worked hard to make the former community corporation a success.
They were a team. The record indicates that both were responsible for the growth and
prosperity of the former community corporation during the fourteen years of their
marriage. Such was not the case in the “substitute” corporation. Ms. Granger did
nothing. Mr. Granger started the new corporation (separate property) after the
divorce. Certainly, he used and had the benefit of the former community corporation
to further his agenda for which he is accountable to Ms. Granger. However, based
on the record, there is no legal or other authority for simply awarding Ms. Granger
the full book value of the substitute corporation some eleven years down the road.
Most pertinent is the fact that the former corporation and the new corporation are not
one and the same and cannot be deemed identical insofar as they performed different
operations and services. The former community corporation’s business was pipe
inspections. The new corporation does pipe inspections; however, a majority of its
business is other services. That is not factored into Ms. Granger’s award. Mr.
Granger gets no credit for the enhancement and expansion of the business.
Had there been no matrimonial strife and discord, and had they continued down
the primrose path with the former community corporation, Mr. Granger would have
had the benefit of Ms. Granger’s hard work as a manager of said corporation for over
eleven years. Instead, Mr. Granger was without her services and involvement and
still has to pay the full fifty percent book value of the new corporation without credit
for enhancement and expansion of the business. What if Mr. Granger would have
simply walked away from the business and sought employment elsewhere in April of
1994 when Ms. Granger filed for divorce? What if the new (substitute) corporation
had only a $200,000.00 book value? Would Ms. Granger only be entitled to fifty
percent of that figure? What if, despite Mr. Granger’s efforts, the new corporation
became insolvent after or during the eleven years of operation? Would Ms. Granger
get nothing?
Though I agree that Ms. Granger is entitled to an award for Mr. Granger’s fault and neglect vis-a-vis the former community corporation, I find that neither the record
nor the law supports the trial court’s arbitrary $400,000.00 award in favor of Ms.
Granger and would reduce same.
For the foregoing reasons, I concur in part and dissent in part in the majority
opinion in this case.