Scaffidi & Chetta Entertainment v. University of New Orleans Foundation

898 So. 2d 491, 4 La.App. 5 Cir. 1046, 2005 La. App. LEXIS 270, 2005 WL 356613
CourtLouisiana Court of Appeal
DecidedFebruary 15, 2005
DocketNo. 04-CA-1046
StatusPublished
Cited by7 cases

This text of 898 So. 2d 491 (Scaffidi & Chetta Entertainment v. University of New Orleans Foundation) is published on Counsel Stack Legal Research, covering Louisiana Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Scaffidi & Chetta Entertainment v. University of New Orleans Foundation, 898 So. 2d 491, 4 La.App. 5 Cir. 1046, 2005 La. App. LEXIS 270, 2005 WL 356613 (La. Ct. App. 2005).

Opinion

| JAMES L. CANNELLA, Judge.

Two Plaintiffs 1 Steven Scaffidi (Scaffi-di) and Nicholas Chetta, Jr. (Chetta), appeal from the trial court judgment granting the Exception of No Right of Action filed by the Defendant, University of New Orleans Foundation (UNOF). For the reasons which follow, we affirm.

Scaffidi and Chetta formed the corporation Scaffidi and Chetta Entertainment, Timmy’s Travels, Inc. (S & C) for the purpose of creating and producing a children’s television series entitled “Timmy’s Travels.” On May 10, 1999, UNOF entered into a contract with S & C, agreeing to raise sufficient funds to finance S & C’s production of twelve to fourteen episodes of “Timmy’s Travels” at an estimated cost of $1,500,000. In return for financing the series, UNOF was to receive 20 percent of all net revenue from the series and acknowledgment in the |3credits of each episode. After four years and the expenditure of a large amount of their personal funds and thousands of hours, Scaffidi and Chetta determined that UNOF was not going to comply with the contract. On September 23, 2003, Scaffidi and Chetta personally, along with S & C, filed the instant suit against UNOF.

In their petition, plaintiffs alleged that UNOF had breached the contract that it had entered into with S & C. According to the contract, UNOF was supposed to coordinate with S & C to mutually promote fund raising activities. The contract also provided that UNOF would not enter into other fund raising agreements that competed with the fund raising activities of S & C before the funds were raised for S & C. It was alleged in the petition that UNOF made little if any effort to raise funds for S & C and that UNOF instead raised funds for competitors of S & C. Further, the petition alleged that, in reliance on the contractual agreement, Scaffi-di and Chetta had spent over $93,000 of their own funds and over 2000 hours of their time to promote the venture. Finally, the petition alleges that, as a result of [494]*494UNOF’s failure to honor its commitment, the reputation and credibility of Scaffidi and Chetta in the television and film industry have been damaged.

In response to the petition, UNOF filed, among other things, an exception alleging that Scaffidi and Chetta had no right of action against UNOF. On February 6, 2004, the trial court, upon finding that Scaffidi and Chetta had no personal right of action arising from the contract between UNOF and S & C, rendered a judgment granting UNOF’s exception and dismissing the personal tort and contract claims of Scaffidi and Chetta without granting them leave to amend. It is from this ruling that Scaffidi and Chetta appeal.

On appeal, Scaffidi and Chetta argue that the trial court erred in granting the exception or, in the alternative, that it was error to not allow them leave to amend 14their petition. Scaffidi and Chetta argue that shareholders of a corporation with whom the Defendant has contracted have a right of action against the Defendant for negligent or intentional misrepresentations made to the shareholders that cause damage to the shareholder. They also argue that they have a right of action under the contract because the agreement provided a stipulation pour autrui in favor of Scaffidi and Chetta personally.

UNOF argues to the contrary that shareholders do not have a right of action for damages suffered as a result of a breach of contract with the corporation. The cause of action in this case is one for breach of contract involving a contract between UNOF and the corporation, S & C, and, therefore, the proper party to assert that action is solely the corporation. Further, UNOF argues that the contract did not create a stipulation pour autrui in favor of Scaffidi and Chetta personally. Thus, the exception of no right of action was properly maintained and allowing amendment to the petition would have been a vain and useless act.

The function of the exception of no right of action is to determine whether the plaintiff belongs to‘the class of persons to whom the law grants the cause of action asserted in the suit. La. C.C.P. art. 927; Industrial Cos., Inc. v. Durbin, 02-0665, p. 12 (La.1/28/03), 887 So.2d 1207 (citing Louisiana Paddlewheels v. Louisiana Riverboat Gaming Com’n, 94-2015, p. 5 (La.11/30/94), 646 So.2d 885, 888). The focus in an exception of no right of action is on whether the particular plaintiff has a right to bring the suit and it assumes that the petition states a valid cause of action for some person and questions whether the plaintiff in the particular case is a member of the class that has a legal interest in the subject matter of the litigation. Reese v. State Dept. of Public Safety and Corrections, 03-1615 (La.2/20/04), 866 So.2d 244; Verdin v. Rogers, 03-1457 (La.App. 5th Cir.4/27/04), 873 So.2d 804; Treasure Chest Casino, LLC v. Parish of Jefferson, 96-1010 (La.App.1st Cir.3/27/97), 691 So.2d 751, writ denied, 97-1066 (La.6/13/97), 695 So.2d 982.

Generally, a shareholder may only sue to recover losses to a corporation secondarily through a shareholder’s derivative suit. Pittman v. Beebe, 95-1342 (La.App. 3rd Cir.3/6/96), 670 So.2d 761, writ denied, 96-882 (La.5/10/96), 672 So.2d 931; Palowsky v. Premier Bancorp, Inc., 597 So.2d 543 (La.App. 1st Cir.1992). Shareholders do not have a personal right to sue to recover for acts committed against, or causing damage to the corporation. Joe Conte Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 95-1630 (La.App. 4th Cir.2/12/97), 689 So.2d 650, writ denied, 97-659 (La.4/25/97), 692 So.2d 1090; Bolanos v. Madary, 609 So.2d 972 (La.App. 4th Cir.1992), writ denied, 615 So.2d 339 (La.1993). To determine whether the share[495]*495holder has a personal right to recover, the jurisprudence requires an injury that is “special” or unique to the shareholder.

“The American Law Institute has suggested this test for distinguishing direct from derivative claims: if a shareholder can recover in a suit only by showing that the corporation was injured, then the suit is derivative in nature, even if the corporate injury does cause indirect harm to the shareholder, while if a recovery can be granted without proof of a corporate loss, then the suit is considered to be direct.”

Morris & Holmes, 8 La. Civ. Law Treatise-Business Organizations § 34.03 (1999).

In applying these precepts to the instant case we find that the trial court correctly granted the exception of no right of action as to the personal claims of Scaffidi and Chetta. The petition states a cause of action against UNOF based on an agreement UNOF entered into with the corporation, S & C. Scaffidi and Chetta personally were not parties to the contract. The petition alleges that UNOF breached that agreement and that damages were sustained by the corporation and by Scaffidi and Chetta personally as a result of the breach. Thus, the question presented on the exception is whether Scaffidi and Chetta personally belong to the |ficlass of persons to whom the law grants the cause of action asserted in the suit. We find that they do not. The cause of action belongs solely to the corporation, the only party to the contract.

While Scaffidi and Chetta argue that they should be allowed to assert their action as shareholders of the corporation, we find that them recovery as shareholders depends on the corporate injury.

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Bluebook (online)
898 So. 2d 491, 4 La.App. 5 Cir. 1046, 2005 La. App. LEXIS 270, 2005 WL 356613, Counsel Stack Legal Research, https://law.counselstack.com/opinion/scaffidi-chetta-entertainment-v-university-of-new-orleans-foundation-lactapp-2005.