Judgment rendered May 29, 2024. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.
No. 55,496-CA
COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA
*****
SUCCESSION OF DONNA LYNN SIMPSON TRIPP
Appealed from the Second Judicial District Court for the Parish of Claiborne, Louisiana Trial Court No. 10,616
Honorable Charles Glenn Fallin, Judge
AYRES, SHELTON, WILLIAMS, BENSON, Counsel for Appellant, & PAINE, LLC Casey Arehart By: Jacob C. White
OFFICE OF CHRISTOPHER STAHL By: Christopher M. Stahl
H. RUSSELL DAVIS, APLC Counsel for Appellee, By: Hubert Russell Davis Jimmie Tripp
WEINER, WEISS, & MADISON, APC By: John M. Madison, Jr. Reid Allen Jones
Before COX, ROBINSON, and MARCOTTE, JJ. ROBINSON, J.
Appellant, Casey Arehart (“Casey”), daughter of the decedent, Donna
Tripp (“Donna”), filed a petition for damages against Jimmie Leo Tripp
(“Jimmie”), surviving spouse of Donna, in his capacity as dative
testamentary executor of Donna’s succession, based on the diminution of
value of assets of the estate, specifically the value of shares owned by Donna
in ESPS, Inc. (“ESPS”), a Louisiana corporation co-owned by Jimmie and
Donna as community property. Jimmie filed a peremptory exception of
prescription and peremption, arguing that Casey’s claims were not against
Jimmie in his capacity as dative testamentary executor, but instead were
derivative claims by Casey as shareholder of ESPS against Jimmie as an
officer of ESPS, which would be subject to the two- and three-year
prescriptive periods and the three-year peremptive period provided by La.
R.S. 12:1502. The trial court sustained Jimmie’s peremptory exceptions at a
November 22, 2022, hearing and entered a judgment on January 10, 2023,
sustaining the exceptions and dismissing Casey’s petition. Casey appeals.
Concluding that Casey’s claims against Jimmie for actions or
inactions taken by him as executor are subject to a 10-year prescriptive
period, we REVERSE the judgment in part and AFFIRM in part.
FACTS AND PROCEDURAL HISTORY
Donna passed away on October 15, 2013. She was survived by her
two daughters, Casey and Nikki Arehart (“Nikki”), and her spouse, Jimmie,
who is not the father of Casey and Nikki. A petition for appointment of
independent administrator was filed on April 22, 2014, by Jimmie, Casey,
and Nikki. An order was entered naming Casey and Nikki as independent co-administrators. On June 26, 2015, Casey filed a petition for probate of
Donna’s last Will and testament dated August 27, 2013. According to
Jimmie’s testimony, he was unaware of the existence of the 2013 Will until
it was filed. An order was entered on the same date admitting the Will to
probate and appointing Casey as independent executrix of the succession. In
the 2013 Will, Donna bequeathed all of her interest in any business owned
by her with Jimmie as community property to Casey, including but not
limited to ESPS, such interest to include both her ownership interest and any
share of profits generated by the businesses. Casey and Nikki were also
named as residual legatees. Shortly after probate of the 2013 Will and
Casey’s appointment as executrix, Jimmie incorporated the company he
formed, Arizona Manufacturing Company (“AMC”). This was done on
June 17, 2015.
On January 6, 2017, Jimmie filed a rule to remove Casey as
independent executrix on the basis that she had failed to take necessary
action to close the succession and requested his own appointment as dative
testamentary executor. Casey filed an opposition to the rule, alleging that
she had believed a challenge to the Will by Jimmie would need to be
resolved and additional documents would be needed before completion of
administration. The trial court rendered judgment in open court on February
13, 2017, removing Casey as independent executrix, and signed a judgment
on February 27, 2017. Casey filed a motion for new trial on March 6, 2017,
on the basis of discrepancies created by the February 13 ruling, including
that Nikki had not ever been removed as independent administratrix. The
trial court rendered judgment in open court on June 20, 2017, dismissing
Casey’s motion, and signed a judgment on July 18, 2017. 2 On October 26, 2017, Jimmie filed a petition for appointment of
dative testamentary executor, seeking his own appointment. Attached was a
letter by Casey’s counsel dated September 25, 2017, indicating opposition to
the appointment on the basis that the estate may have claims against Jimmie,
including for diversion of business from ESPS. On November 8, 2017,
Casey filed an opposition to Jimmie’s petition for appointment based on his
alleged attempts to divert and/or deplete estate assets of ESPS. She
requested the appointment of a provisional third-party administrator, or in
the alternative, the appointment of Charles Arehart, Donna’s previous
husband and Casey’s and Nikki’s father, based upon language contained in
the 2013 Will. Hearings on the appointment were upset and refixed multiple
times, then upset and continued without date subject to refixing by the
parties.
On February 1, 2019, Casey filed a motion to compel discovery
responses related to AMC, as she believed clients, business, assets, and
goodwill from ESPS had been shifted to AMC. On April 2, 2019, Jimmie
filed an opposition to the motion to compel, arguing that AMC was his
separate property because it was formed approximately 20 months following
Donna’s death; therefore, its financial information was not subject to
discovery based on Casey’s allegations. On April 29, 2019, the trial court
heard the motion to compel and the competing petitions for appointment,
and rendered a judgment (1) ordering the appointment of a CPA to serve as
the trial court’s expert to determine whether Jimmie had shifted assets from
ESPS to AMC, and (2) appointing Jimmie as dative testamentary executor of
the succession. Jimmie thereafter filed his executed oath and a detailed
descriptive list, and was issued letters testamentary on June 17, 2019. 3 Jimmie and Casey filed a joint motion to appoint a CPA on July 15, 2019,
agreeing to appoint Susan Whitelaw, CPA (“Whitelaw”), as the trial court’s
expert. Whitelaw issued her report (the “Whitelaw Report”) on November
8, 2020, concluding that, among other things, Jimmie had shifted customers
and goodwill from ESPS to AMC, and AMC had used ESPS assets without
compensation.
Jimmie, as dative testamentary executor of the succession, filed a
petition to annul the 2013 Will on June 12, 2020, and an amended petition
on March 29, 2021. Casey filed a peremptory exception of no right of action
on April 30, 2021, arguing that Jimmie had no justiciable interest in the
annulment, stating that (1) his rights as a usufructuary under intestacy laws
had terminated when he remarried in 2015, and (2) prescription had run for
the probate of Donna’s earlier Will executed in 2012 in which Jimmie was a
legatee. Jimmie filed an opposition to the peremptory exception on June 7,
2021. Following a hearing on June 17, 2021, the trial court overruled
Casey’s exception. Casey sought and was granted supervisory writs from
this Court, resulting in the sustaining of the peremptory exception of no right
of action and the dismissal of Jimmie’s action to annul the Will.
Jimmie filed a petition to file a final account and a tableau of
distribution on June 3, 2021, proposing to be placed in possession of
Donna’s one-half interest in former community property as reimbursement
for his asserted claims against the estate. Casey filed an opposition to
Jimmie’s petition on June 18, 2021, opposing the proposed tableau as
premature on the basis of the pending Will annulment appeal and the
unresolved determination regarding the shifting of value from ESPS to
AMC. On April 27, 2022, Jimmie filed a motion to amend the final 4 accounting and tableau of distribution, an amended account for the period of
June 17, 2019, through March 1, 2022, and a tableau of distribution. On
May 5, 2022, Casey filed an opposition to the amended final account and
tableau of distribution, asserting the same objections as in the response to the
original proposed tableau.
On September 1, 2022, Casey filed a petition for damage, asserting
claims against Jimmie in his capacity as the dative testamentary executor of
the succession for breaches of his fiduciary duties, including shifting value
from ESPS to AMC, causing ESPS to pay a personal loan and then seeking
reimbursement from the estate, and not including the value of certain assets
owned by ESPS in the value of the estate. The petition based part of its
claim for damages on the conclusions in the Whitelaw Report. Jimmie filed
a peremptory exception of prescription and peremption on October 19, 2022,
arguing that the claims were not against Jimmie in his capacity as executor,
but by Casey as a shareholder against Jimmie as a corporate officer of ESPS;
as such, the claims were subject to the two- and three-year prescriptive
periods and the three-year peremptive period provided by La. R.S. 12:1502.
Casey filed an opposition to Jimmie’s exceptions on November 14, 2022.
Jimmie filed a reply in support of the exceptions on November 18, 2022. At
a November 22, 2022, hearing, the trial court sustained Jimmie’s peremptory
exceptions of prescription and peremption, noting that Casey “had the right
or the power, or at some point in time could have done more than she did to
file a derivative action suit.” The court entered a judgment on January 10,
2023, sustaining the exceptions and dismissing Casey’s petition for damages
with prejudice. Casey appeals the trial court’s judgment dismissing her
petition for damages. 5 DISCUSSION
Standard of Review
The trial court made a legal determination that Casey’s claims against
Jimmie for breach of his fiduciary duties as dative testamentary executor of
Donna’s estate were actually in the nature of derivative claims against him
as an officer of ESPS; therefore, the claims would be subject to the
prescriptive and peremptive periods applicable to shareholder derivative
claims under La. R.S. 12:1502, rather than the general, ten-year prescriptive
period for personal actions provided by La. C.C. art. 3499. The court also
found that Casey had the ability to bring an action and failed to do so during
the applicable prescriptive and peremptive periods.
Legal findings are subject to a de novo standard of review. State v.
Hunt, 09-1589 (La. 12/01/09), 25 So. 3d 746. To the extent that any factual
determinations are made based upon presented evidence, those would be
reviewed under the manifest error standard. “If evidence is introduced at the
hearing on the peremptory exception, the district court’s findings of fact are
reviewed under the manifest error-clearly wrong standard of review.”
Stevenson v. Progressive Security Insurance Company, 19-00637 (La.
04/03/20), 341 So. 3d 1202. However, “[w]hen the pertinent facts are not in
dispute and the decision involves purely legal issues, the matter is reviewed
de novo, and the trial court’s legal conclusions are not entitled to any
deference.” Smith v. Acadian Ambulance Service, Inc., 22-626 (La. App. 3
Cir. 03/22/23), 363 So. 3d 564 (citing Jenkins v. Kauffman, 21-1596 (La.
App. 1 Cir. 07/13/22), 344 So. 3d 689, writ denied 22-01242 (La. 11/8/22),
349 So. 3d 576, and Stevenson, supra).
6 This court finds that since the pertinent facts pertaining to the basis of
the claim are not in dispute, the decision involved purely the legal issue of
whether Casey’s claim for damages was in the nature of a shareholder
derivative claim such that the prescriptive/peremptive periods in La. R.S.
12:1502 would apply rather than La. C.C. art. 3499. The trial court did not
elaborate in its ruling when prescription and/or peremption commenced, or
whether prescription was suspended or interrupted for any reason.
Standing
Donna’s Will bequeathed all of her interest in any business owned by
her with Jimmie as community property to Casey, including but not limited
to ESPS, such interest to include both her ownership interest and any share
of profits generated by the businesses. Although ESPS was a sole
proprietorship owned by Jimmie prior to his marriage to Donna in 2009, it is
undisputed that Donna owned 50% of the stock of ESPS from the time it
was incorporated on June 9, 2010, and that the parties considered the
company to be community property. In addition to being a particular legatee
of Donna’s interest in ESPS, Casey was also a residual legatee of the estate
along with Nikki.
La. C.C. art. 935 provides, in part, that, “Immediately at the death of
the decedent, universal successors acquire ownership of the estate and
particular successors acquire ownership of the things bequeathed to them.”
Prior to the probate of Donna’s Will, Casey and Nikki would have been
universal successors as Donna’s heirs under intestacy. Once the Will was
probated, as the particular legatee under the Will, Casey retroactively
acquired ownership of Donna’s shareholder interest in ESPS immediately
7 upon Donna’s death. As a universal legatee, Casey also acquired ownership
of any portion of the estate not otherwise disposed of by particular legacy.
Vested ownership of estate property does not necessarily equate to
possessory rights or determined that a party has the authority to represent the
rights and obligations of a decedent. La. C.C.P. art. 3211 states, “A
succession representative shall be deemed to have possession of all property
of the succession and shall enforce all obligations in its favor.” In addition,
La. C.C.P. art. 685 provides:
Except as otherwise provided by law, the succession representative appointed by a court of this state is the proper plaintiff to sue to enforce a right of the deceased or of his succession, while the latter is under administration. The heirs or legatees of the deceased, whether present or represented in the state or note, need not be joined as parties, whether the action is personal, real, or mixed.
However, La. C.C. art. 938 provides:
A. Prior to the qualification of a succession representative, a successor may exercise rights of ownership with respect to his interests in a thing of the estate as well as his interest in the estate as a whole.
B. If a successor exercises his rights of ownership after the qualification of a succession representative, the effect of that exercise is subordinate to the administration of the estate.
Casey and Nikki were appointed as co-independent administrators of
Donna’s estate on April 22, 2014. Casey was appointed as independent
executrix on June 5, 2015. Shortly thereafter, on June 17, 2015, Jimmie
incorporated AMC, of which he is the sole officer and shareholder.
Therefore, Jimmie’s alleged misdeeds that are the basis of Casey’s petition
for damages did not occur until just after she was appointed as the executrix.
Casey was removed as executrix on February 27, 2017, approximately 21
months after her appointment and the incorporation of AMC. No other
8 succession representative was appointed for an additional 27 months until
Jimmie was named as dative independent executor on May 29, 2019, with
letters testamentary issued on June 17, 2019.
In her capacity as a universal successor, Casey had the authority to
represent the decedent with respect to any rights and obligations of the
decedent from the time of Donna’s death on October 15, 2013, to the time a
succession representative was appointed on April 22, 2014. However, Casey
also had the authority to represent the interests of the decedent in her
capacity as a succession representative from April 22, 2014, through
February 27, 2017. Casey had the ability to represent her own ownership
interests (particularly as to ESPS) as of the date of Donna’s death – first as
an heir, then as a residual legatee – although those interests would be
subordinate to the estate administration during the time a succession
representative was appointed. After Casey’s removal as executrix, she
maintained her authority to represent the decedent’s interests as a universal
successor, as well as priority for her ownership rights as a particular legatee,
until Jimmie was appointed on May 29, 2019. Therefore, for the overall
time period of October 15, 2013, to May 29, 2019, Casey had the authority –
on behalf of the estate as the executor, or on her own behalf as a legatee – to
obtain information necessary to pursue a claim, and to bring an action,
including the enforcement of her rights as a shareholder of ESPS.
Nature of Action
ESPS, whose acronym stands for “Environmental Safety Product
Solutions,” built certain environmental products for the oilfield, in
particular, environmental tanks that collect and dispose of waste generated
by compressor skids, generators, etc. The company also sells other products 9 such as retaining walls, containment systems, plastic chemical tanks, and
containment pans. AMC builds environmental tanks similar to those ESPS
was selling, but they differ in design and size. The new AMC tanks were
designed with different parts, including a different level controller and
different pumps that are imported from overseas, which make the tanks less
expensive. Both ESPS and AMC tanks were designed by Jimmie.
Jimmie is the sole officer of ESPS, which was a sole proprietorship
prior to his marriage to Donna. ESPS was incorporated approximately one
year into the marriage, and Donna was named a 50% shareholder. Jimmie is
also the officer and shareholder of AMC, which was initially funded solely
by his separate funds. Jimmie testified that he created AMC due to the
significant decline in the oilfield business during that time and the need to
design a separate product at a much lower cost so that he could maintain a
profit. He also testified that he created AMC essentially to separate his
business interests from Casey, since she would be inheriting Donna’s
ownership in the company.
In her petition for damages, Casey alleges that Jimmie has shifted
value from ESPS to AMC by moving customers, failing to pay rent for
certain depreciable assets owned by ESPS, and shifting goodwill. She refers
to the Whitelaw Report, dated November 8, 2020, which concluded that:
AMC realized approximately $263,893.52 in income from customers shifted
from ESPS from 2015 through 2019; AMC owed ESPS estimated rents of
$19,120 for 2015, $18,860 for 2016, and $16,821 for 2017; and the value of
goodwill of approximately $43,135.44 was shifted from ESPS to AMC
during the years 2020 and 2021. She also alleges that Jimmie caused ESPS
to make loan payments toward a certain personal loan incurred by Jimmie 10 while also seeking reimbursements from ESPS for payments he made
personally on that loan. She further claims that Jimmie has taken other steps
to reduce the value of ESPS, including the failure to account for ESPS’s
ownership of an airplane and certain property in the Bahamas.
Casey claims that Jimmie breached his duty as executor to preserve
the shares of ESPS, including by failure to assert shareholder rights. She
references Jimmie’s fiduciary obligations enumerated in La. C.C.P. art.
3191, in part, as follows:
A succession representative is a fiduciary with respect to the succession, and shall have the duty of collecting, preserving, and managing the property of the succession in accordance with law. He shall act at all times as a prudent administrator, and shall be personally responsible for all damages resulting from his failure so to act.
She also refers to the requirement of La. C.C.P. art. 3211 that a succession
representative must enforce all obligations in favor of the succession. Casey
urges that Jimmie has a fiduciary obligation to Casey as a legatee of the
estate who would ultimately have a shareholder interest in ESPS, and has
failed to protect her interests as such shareholder. She claims that Jimmie’s
actions in diminishing the value of the estate’s shares of ESPS are included
in his duties as executor because an executor’s duty encompasses breaches
that occurred prior to his appointment; therefore, his actions are subject to
the longer applicable prescriptive period.
Casey refers to several cases in which succession representatives held
the dual positions of executor/administrator and a corporate officer, wherein
courts found that the succession representative breached his or her fiduciary
duty by their acts as a corporate officer. In Succession of Dunham, 408 So.
2d 888 (La. 1981), the executrix was also an officer and director of a closely
11 held corporation who had obtained court authorization to sell stock owned
by the estate back to the corporation. The Louisiana Supreme Court
ultimately held that, pursuant to La. C.C.P. art. 3191, the decedent’s children
could reserve the right to seek damages against the executrix, and upheld the
determination that the executrix breached her fiduciary duty in permitting
the stock sale at the authorized price because the corporation received
significant assets after the sale. It noted that, because the executor was
active in the governance of the corporation, she should have known the
corporation would receive additional assets shortly after the sale and that the
sales price should have been higher.
In Scurria v. Hodge, 31,207 (La. App. 2 Cir. 10/30/98), 720 So. 2d
460, writ denied, 99-0011 (La. 3/19/99), 739 So. 2d 782, this Court held that
the co-administrator of a succession who was also an officer and director of
a closely held corporation breached his fiduciary duty in acquiring stock
from the succession at a price far below fair market value. The Court
analyzed the duties of both a succession representative and a corporate
officer, and determined that a breach occurred in both capacities.
Casey also claims that caselaw supports a finding of a breach of a
succession representative’s duty even when the alleged acts occurred prior to
appointment. She refers to Succession of McNeal, 50,498 (La. App. 2 Cir.
02/24/16), 188 So. 3d 1089, writ denied, 16-0836 (La. 6/17/16), 192 So. 3d
766, in which suit was brought against an executor for misappropriation that
occurred while he was trustee of a revocable trust that was subsequently
terminated. This Court found that a determination of whether there was a
breach included an examination of the circumstances surrounding the
management of the trust since the executor’s duty encompassed any 12 previous misappropriation or breach of fiduciary duty that occurred before
he became executor because of his duty to recover the succession property.
The Fifth Circuit’s holding in Succession of Theobold, 20-68 (La.
App. 5 Cir. 12/23/20), 309 So. 3d 878, was consistent with this Court in a
factually similar case considering prescription claims against the executor.
It held that it was of no consequence that the alleged misappropriation may
have occurred prior to appointment as executor because the fiduciary duty
encompassed any previous misappropriation undertaken even if it was not
concealed based on his duty to recover succession property.
Jimmie argues that Casey’s claims that he diverted corporate
opportunities from ESPS to AMC are in the nature of a derivative action
because the alleged losses would be borne by all shareholders of ESPS, not a
particular shareholder(s); therefore, the action would be governed by La.
R.S. 12:1502 and the specific two- and three-year prescriptive/preemptive
periods would apply. He urges that the caselaw she refers to is inapplicable
in this situation because the succession administrators in those cases were
alleged to have committed wrongs to or with stock owned by the estate, in
their capacities as administrators. He claims that the damage alleged was to
ESPS, not to the succession, and that any damage to the value of the stock is
an indirect result of his acts as a corporate officer.
Jimmie further urges that Casey attempts to wrongfully reclassify the
claims for corporate mismanagement as a personal action so that it Will be
subject the ten-year prescription. He refers to this Court’s holding in
Coleman v. Querbes Co. No. 1, 51,159 (La. App. 2 Cir. 2/15/17), 218 So. 3d
665, writ denied, 17-0694 (La. 6/29/17), 222 So. 3d 31, in which it refused
to “recast” claims for corporate mismanagement as personal actions subject 13 to La. C.C. art. 3499, reasoning that applying the ten-year prescriptive
period over the specific periods for derivative suits would effectively negate
La. R.S. 12:1502.
Jimmie also refers to Succession of Poteet, 17-710 (La. App. 3 Cir.
1/31/18), 238 So. 3d 1020, wherein the Third Circuit held that La. R.S.
12:1502 clearly applied to allegations that a corporate officer
misappropriated property belonging to the corporation, as well as to
inappropriate expenditures and disbursals over a period of time. The Court
specifically held that the introductory clause of La. C.C. art. 3499 has been
held to be a “catch-all provision” that covers personal actions not
specifically covered by any other prescriptive period such as La. R.S.
12:1502 which provides a clear prescriptive period applicable to the matter,
making La. C.C. art. 3499 inapplicable.
Casey’s claim for damages is clearly based on Jimmie’s actions as an
officer of ESPS. Her allegations regarding ESPS’s corporate value concern
an injury to the corporation itself and an indirect injury to a shareholder.
Her petition includes specific allegations all concerning the reduction of the
value of ESPS, including but not limited to, unrealized income from shifting
customers and misallocated loan reimbursements. She claims that the
reduction in ESPS’s value reduces the value of the estate, thereby resulting
in her claim falling under the purview of the Jimmie’s fiduciary duty as
executor to manage and preserve property and recover any misappropriated
estate funds.
The 50% of ESPS shares were properly included as assets of the
estate, possession of which would be transferred to Casey at the close of
estate administration. Casey is entitled to receive those shares in their 14 entirety, but claims that their value was reduced since the date of Donna’s
death. There was no misappropriation of estate assets by Jimmie, either by
virtue of his role as corporate officer or as the executor, because the alleged
misappropriation was of the ESPS assets, a classic situation warranting a
shareholder derivative suit.
The caselaw cited by Casey is distinguishable. In those cases, the
claims for fraud and misappropriation were against an executor who had
formerly acted as either a trustee or in some mandatary capacity of the
decedent. The assets clearly belonged to the decedent, then to the estate
upon death. Further, the court found that the actions fell directly within the
statute with a longer prescriptive period. In this case, the assets involved are
that of ESPS, and La. R.S. 12:1502 directly applies, whereas La. C.C. art.
3499 is merely a catch-all provision.
La. R.S. 12:1502, Prescription vs. Peremption; Commencement
The applicable prescriptive or peremptive period for Casey’s
shareholder derivative action is stated in the applicable portions of La. R.S.
12:1502, as follows:
C. No action for damages against any person described in Subsection A of this Section for an unlawful distribution, return of an unlawful distribution, or for breach of fiduciary duty, including without limitation an action for gross negligence, but excluding any action covered by the provisions of Subsection D of this Section, shall be brought unless it is filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered, but in no event shall an action covered by the provisions of this Subsection be brought more than three years from the date of the alleged act, omission, or neglect.
D. No action for damages against any person listed in Subsection A of this Section for intentional tortious misconduct, or for an intentional breach of a duty of loyalty, or 15 for an intentional unlawful distribution, or for acts or omissions in bad faith, or involving fraud, or a knowing and intentional violation of law, shall be brought unless it is filed in a court of competent jurisdiction and proper venue within two years from the date of the alleged act or omission, or within two years from the date the alleged act or omission is discovered or should have been discovered, but in no event shall an action covered by the provisions of this Subsection be brought more than three years from the date of the alleged act or omission.
E. The time limitations provided in this Section shall not be subject to suspension on any grounds or interruption except by timely suit filed in a court of competent jurisdiction and proper venue. [Emphasis added.]
The applicable prescriptive period for Casey’s derivative action would be, at
most, two years from the time she knew or should have known of Jimmie’s
alleged misdeeds. However, the statute also clearly provides a peremptive
period of three years from the date the misdeeds occurred.
The alleged act in Casey’s petition for damages refers to Jimmie’s
general shifting of value from ESPS to AMC by way of moving customers,
failing to pay rent for ESPS assets, shifting goodwill, misallocations of loan
payments, and neglecting to include certain ESPS assets. According to the
Whitelaw Report, this overall shifting of value commenced in 2015 when
AMC began to discover income from customers moved from ESPS.
Casey had the ability to obtain information regarding her claims at the
onset of Jimmie’s alleged actions in 2015 because she was either acting as
the executrix of the estate (until February 27, 2017) or had ownership rights
and priority while there was no acting succession representative (until May
29, 2019). The first indication of her knowledge of Jimmie’s alleged
breaches was in her letter dated September 20, 2017, which was attached to
her opposition of Jimmie’s petition for appointment as dative executor, in
which she stated that she suspected that ESPS’s business had been diverted
16 and specifically enumerated her allegations. Casey had also taken Jimmie’s
deposition in June 2018 and asked questions about ESPS and AMC. She
sought production of AMC records from Jimmie on February 9, 2019.
The 2017 letter provides in detail Casey’s allegations against Jimmie.
She states:
[Casey has] reviewed ESPS’s tax returns with a CPA, and the tax returns are improper. The Estate should have been listed as a 50% owner in ESPS for the years 2013-2016. We are also concerned that no profits have been set aside for the estate. Instead, Mr. Tripp has continuously paid himself. [Portion omitted.] It appears on paper that the company suddenly divested itself of business in 2015 and/or 2016. After grossing 1 million dollars in 2012, $1.4 million in 2013, $1.7 in 2014, and $870,000.00 in 2015, the company grossed a meager $116,000.00 in 2016. I strongly suspect that the business has been diverted from ESPS.
It is clear that Casey had sufficient knowledge to support her claim as
evidenced by her September 2017 letter. However, we find that Jimmie’s
actions should have been discovered by Casey while she was acting as
independent executor, pursuant to her fiduciary obligations imposed by La.
C.C.P. art. 3191. The alleged shifting of value began in 2015 shortly after
the creation of AMC and Casey was not removed until February 27, 2017.
In fact, the trial court based its order removing her as executrix on the fact
that she had failed to timely perform her duties as executor.
Casey had two years to bring a claim under La. R.S. 12:1502 before it
prescribed, which would be February 27, 2019. She did not file her petition
for damages until September 1, 2022. Therefore, a shareholder derivative
action had clearly prescribed, barring the claim.
In addition to the prescriptive provisions, La. R.S. 12:1502 also
perempts an action brought more than three years from the date of the
alleged act or omission. The alleged act referred to in Casey’s petition is the 17 shifting of value from ESPS to AMC, which began in 2015, as indicated in
the Whitelaw Report. As such, the peremptive period in which to bring a
shareholder derivative action would be at some point in 2018, clearly barring
Casey’s action for damages.
La. C.C. art. 3499, Prescription of Personal Action
La. C.C. art. 3499 provides simply that “Unless otherwise provided by
legislation, a personal action is subject to a liberative prescription of ten
years.” The clear peremptive language of the 12:1502 dictates that a
shareholder derivative suit shall not “be brought more than three years from
the date of the alleged act or omission” and that the “time limitations
provided in this Section shall not be subject to suspension on any grounds or
interruption.”
As to the acts alleged to have been committed by Jimmie as corporate
officer of ESPS prior to his appointment as executor, this Court agrees with
Jimmie’s argument that the specific time limits for derivative suits in La.
R.S. 12:1502 trump the general period for personal actions in La. C.C. art.
3499 since a more specific statute controls over a general statute. Burge v.
State, 10-2229 (La. 2/11/11), 54 So. 3d 1110. When two statutes are in
conflict, the statute which is more specifically directed to the matter at issue
must prevail as an exception to the more general statute. Smith v. Cajun
Insulation, Inc., 392 So. 2d 398 (La. 1980); Esteve v. Allstate Ins. Co., 351
So. 2d 117 (La. 1977). The general ten-year prescription of La. C.C. art.
3499, as that article indicates, applies only in the absence of any other
statutory mandate. We find Coleman, supra, to be persuasive that La. R.S.
12:1502 would effectively be negated were the ten-year prescriptive period
of La. C.C. art. 3499 to apply instead. 18 In general, an executor has a duty to enforce obligations of the estate,
such as pursuing a shareholder derivative action based on the breach of an
officer’s duty that affects the value of corporate shares owned by the estate.
The executor would need to file that particular type of claim within the
applicable prescriptive period provided in La. R.S. 12:1502. If that action
had prescribed prior to an executor’s appointment, there would obviously be
no such duty as an executor to enforce the prescribed claim.
If a corporate officer of a company whose shares are owned by an
estate breached his fiduciary duty while also serving as a succession
representative of that estate, the executor could not sue himself; rather, his
breach as an officer would be imputed to him in his capacity as executor.
An administrator cannot in his own right sue himself individually. Boone v.
Boone, 152 La. 208, 92 So. 861 (1922). However, the actions of an executor
can be imputed to him as a corporate officer. In Fuller v. Baggette, 36,952
(La. App. 2 Cir. 5/6/03), 847 So. 2d 26, writ denied, 03-2076 (La. 11/7/03),
857 So. 2d 498, an executor’s request to sell succession property for well
below fair market value that would ultimately be purchased by a company
for which he was an officer, was held to be a breach of his duty as
succession representative and the ten-year prescription period applied. This
Court held that the officer’s sale of property was tantamount to a sale by the
fiduciary himself. Notably, the original breach occurred in his capacity as
executor.
If the executor had not been appointed until after he committed the
breaches as the corporate officer, the officer’s duty may still be imputed to
his capacity as executor due to the fact that the executor is the proper person
to bring the action against the officer, i.e., no other individual is authorized 19 to bring the action. However, relevant prescriptive/peremptive periods still
apply – in this case, those in La. R.S. 12:1502 concerning shareholder
derivative suits. The action was perempted three years after Jimmie’s
alleged breaches as corporate officer, prior to his appointment as executor.
There would be no claim for fiduciary breach as succession representative
without the underlying claim of a corporate officer breach, and it cannot then
be “revived” solely because an executor is the same individual as the
corporate officer. Once Jimmie was appointed executor by the court, he
owed a fiduciary duty to the estate and any action or inaction by him
resulting in damage to the estate would be subject to the 10-year prescriptive
period as set forth in La. C.C. art. 3499.
For the foregoing reasons, we conclude that claims against Jimmie for
actions taken by him prior to his appointment as executor are perempted
because those claims are shareholder derivative claims. Any claims related
to actions taken, or not taken, by Jimmie after his appointment as executor
are subject to the 10-year prescriptive period under La. C.C. art. 3499 and
survive the exceptions of prescriptions and peremption.
CONCLUSION
We AFFIRM the judgment insofar as it applies to the prescription of
the derivative actions. We REVERSE the portion of the judgment that
dismisses Casey’s claims as to Jimmie’s duties as executor, fiduciary in
nature, relating to his actions or inactions as executor. All costs are shared
equally by the parties. This matter is remanded to the trial court for further
proceedings.
AFFIRMED IN PART, REVERSED IN PART AND
REMANDED. 20