Opinion
Civil Action No. 04-460 Section "L"(1).
May 3, 2005
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. PROCEDURAL HISTORY
This case arises out of a $435,000 loan obtained by Crysta Pure in 1986 from and insured by the Small Business Administration (SBA), which was secured by Plaintiff Julian E. Fernandez, the sole owner of Crysta Pure, and Plaintiff's ex-wife, Tanya Fernandez. In 1989, the Plaintiff sold an interest in the company to VRT Corporation, which eventually acquired 75% of Crysta Pure. Crysta Pure began operating as Abita Water Company in 1991. Thereafter, Abita Water Company twice underwent asset sales. The first transfer occurred on December 31, 1993 in which the assets and liabilities of Abita Water Company were purchased by Abita Springs Water Company ("Abita Springs"), Brumfield Marketing, William Brumfield, George Brumfield (collectively, "the Brumfields"), and Mansoor Roohi ("Roohi"), all of whom signed personal agreements guaranteeing the terms of the transfer. The second transfer occurred on January 26, 1995. At that time, ownership of Abita Springs was transferred from the Brumfields and Roohi to Wm. B. Reily Company, Inc. ("Reily"). The SBA called upon the Plaintiff to pay the SBA loan because of his personal indorsement, and the Plaintiff has paid $227,127.11 to date. On July 31, 1998, the Plaintiff filed suit against Abita Springs, Roohi, and Reily (collectively, "New Abita"), and the Brumfields in the Twenty-Fourth (24th) Judicial District Court, Parish Of Jefferson, State of Louisiana, to recover the amount he paid to the SBA, the amount Abita Springs allegedly took as a credit against the purchase price under the 1993 agreement, plus judicial interest, attorneys' fees and costs. The Plaintiff claims that the SBA debt was assumed by Abita Springs as a company debt. Thus, the Plaintiff alleged that he is entitled to recover from the Defendants the amounts paid to the SBA.
The Defendants removed the action to Federal Court based upon diversity jurisdiction. Defendants New Abita and the Brumfields claim that the Plaintiff cannot recover as a surety with the right of subrogation because the SBA released all claims against Abita Springs in a March 21, 1994 settlement whereby the SBA agreed to release the assets of Abita Springs from all liens affecting them in exchange for $40,000. New Abita and the Brumfields filed a counterclaim against the Plaintiff based on his agreement to indemnify Abita Springs from any claims arising from the Plaintiff's personal liability and breach of warranties set forth in the December 31, 1993 purchase agreement. New Abita also filed a cross-claim against the Brumfields based on their agreement to indemnify Abita Springs and Reily from $800,000/$1,300,000 of any cost, damage claim, demand, liability, loss, suit, cause of action or the like, including reasonable attorneys fees asserted by the Plaintiff and relating to the SBA. Additionally, New Abita and the Brumfields filed third-party claims against VRT, claiming that VRT has an obligation to indemnify Abita Springs from any claims arising from the Plaintiff's personal liability and that VRT is in breach of its warranties in the purchase agreement.
The Court commenced a one-day bench trial on the matter on Monday, April 11, 2005. After hearing the witnesses and considering all the evidence, the Court issues the following findings of fact and conclusions of law. To the extent that a finding of fact constitutes a conclusion of law, the Court adopts it as such. To the extent that a conclusion of law constitutes a finding of fact, the Court likewise adopts it as such.
II. FINDINGS OF FACT
1. Plaintiff, Julian E. Fernandez, a former Louisiana resident and current California resident, was the sole owner of Crysta Pure, a Louisiana corporation engaged in the bottled water service business. On April 6, 1986, Crysta Pure borrowed $435,000 through a loan insured by the Small Business Administration (SBA) and personally secured by the Plaintiff and his ex-wife, Tanya Fernandez.
2. In 1989, the Plaintiff sold an interest in the company to VRT Corp., a Massachusetts corporation. Eventually, VRT acquired 75% of the company. The Plaintiff retained a minority share of Crysta Pure, which, in 1991, began doing business as Abita Water Company ("Old Abita"). Thereafter, also in 1989, the Plaintiff filed chapter 13 bankruptcy.
3. On December 31, 1993, Abita Springs Water Company ("New Abita"), a Louisiana corporation, and Old Abita entered into an agreement to purchase assets from Old Abita for $2,205,000. Pursuant to the Purchase Agreement, New Abita would pay $1,205,000 by promissory note. The balance of the purchase price was satisfied by New Abita's agreement to pay the liabilities of Old Abita in an amount not to exceed $1,000,000. The purchase agreement also described the note as a sliding note that could fluctuate in ultimate amount based on a formula permitting Old Abita and New Abita to share equally in savings made possible by efforts of New Abita to negotiate Old Abita's numerous debts to lower levels. There was no priority placed on which of Old Abita's debts were to be dealt with first.
4. At the time of the 1993 asset purchase, George and Lee Brumfield, residents of Mississippi, and Mansoor Roohi, a Louisiana resident, were the owners of Abita Springs Water Company ("New Abita").
5. In connection with the 1993 Purchase Agreement note, Roohi and the Brumfields signed guaranty, security, and pledge agreements in favor of Old Abita to secure payment by New Abita of the purchase price.
6. In January, 1994, Lee Brumfield negotiated with the SBA for New Abita to pay $40,000 to settle the liability of Old Abita to the SBA.
7. In a supplemental letter agreement dated October 24, 1994, the SBA confirmed to New Abita that it did not intend to assert either in rem or in personam liability against the property or person of New Abita, but that the SBA reserved its claims against the Plaintiff and his ex-wife, individually
8. On January 10, 1995, Lee Brumfield offered to pay to the SBA $10,000 to settle the SBA's claim against the Plaintiff. The SMA declined the offer.
9. On January 26, 1995, Wm. B. Reily Company, Inc., a Louisiana corporation, purchased the Brumfields' interest in New Abita. Reily executed a guaranty in favor of Old Abita to guarantee payment of New Abita's 1993 promissory note, in an amount not to exceed $1,025,000, and obligations under a lease between VRT and New Abita.
10. In 1998, the SBA presented a claim for the debt in the Plaintiff's bankruptcy, which was approved by the bankruptcy court.
11. In 1999, Constanzo LLC, the company owned by the Plaintiff's son-in-law, paid $100,000 to the SBA in exchange for a release of the debt in full against the Plaintiff. The Plaintiff's son-in-law settled with all of the Plaintiff's creditors in exchange for ownership of the Plaintiff's personal assets.
III. CONCLUSIONS OF LAW
1. Plaintiff, Fernandez, has the burden of proving his case by a preponderance of the evidence, which means that all evidence, direct and circumstantial, taken as a whole must show that the facts sought to be proved by the Plaintiff are more probable than not. Rosen v. State ex rel. Dept. of Transp and Development, 809 So.2d 498, 510 (La.App. 4 Cir., 2002), citing Jordon v. Travelers Ins. Co., 257 La. 995 (La. 1971).
2. The Plaintiff has no legal right or cause of action, as a shareholder of Old Abita, to recover amounts paid to the SBA in satisfaction of a loan secured by the Plaintiff on behalf of Old Abita. Fernandez's claims are claims for corporate mismanagement or breach of a fiduciary duty that should have been brought through a derivative suit or minority shareholder litigation. Glod v. Baker, 841 So.2d 1255 (La.App. 3rd Cir. 2003). When a loss to a company is caused by negligence or breach of fiduciary duty, the company, not the shareholders, has the cause of action, and the shareholders' rights are limited to shareholders derivative claims against the company itself. Id.; see also Beyer v. F R Oilfield Contractors, Inc., 497 So.2d 15 (La.App. 3rd Cir. 1981).
3. New Abita did not enter into any agreement with the SBA to assume the SBA mortgage, therefore, the SBA did not have a basis for asserting in personam liability against New Abita. Consequently, the Release of Mortgage Claims released all liability that New Abita had to the SBA. See First State Bank and Trust Company of E. Baton Rouge Parish v. Seven Gables, Inc., 501 So.2d 280 (La.App. 1st Cir. 1986).
4. New Abita was never bound with the Plaintiff in regard to the SBA loan. La.C.C. art. 3035.
5. The SBA settled all liability of New Abita to the SBA in exchange for a $40,000 payment.
6. The Purchase Agreement in Paragraphs 3(D) and 4(L) evidences the intent of the parties that New Abita not be liable for the personal liability of Fernandez.
7. The November 6, 1996 acknowledgment that the buyer's obligations had been fulfilled, extinguished all buyer purchase obligations.
8. Parties asserting cross-claims, counterclaims, and third-party claims have the burden of proving their claims by a preponderance of the evidence. Ard v. Samedan Oil Corp., 475 So.2d 384, 385 (La.App. 1st Cir. 1985) (reiterating that "one who asserts a fact must prove his case by a preponderance of the evidence.").
9. New Abita and the Brumfields did not present evidence to satisfy their burden of showing by a preponderance of the evidence that the Plaintiff owes a duty to indemnify Abita Springs in this case. Id. (holding that the a party that offered no evidence to support a claim did not carry his burden of proof).
10. New Abita did not present evidence to satisfy its burden of showing by a preponderance of the evidence that the Brumfields owe a duty to indemnify Abita Springs and Reily in this case. Id.
11. New Abita and the Brumfields did not present evidence to satisfy their burden of showing by a preponderance of the evidence that VRT has an obligation to indemnify Abita Springs in this case. Id.
12. New Abita and the Brumfields did not present evidence to satisfy their burden of showing by a preponderance of the evidence that VRT is in breach of its warranties in the purchase agreement. Id.
13. The Plaintiff's claims were not so frivolous, vexatious, or unreasonable as to warrant the award of attorney's fees and costs to the Defendants under Federal Rule of Civil Procedure 11 or 28 U.S.C. § 1927. See F.D. Rich Co., Inc. v. U.S. for Use of Indus. Lumber Co., Inc., 417 U.S. 116 (1974).
IV. CONCLUSION
On the basis of the foregoing findings of fact and conclusions of law, the Court concludes the following:
(1) Plaintiff's claims against Defendants Abita Springs Water Company, Brumfield Marketing, William Brumfield, George Brumfield, Mansoor Roohi, and Wm. B. Reily Company, Inc. are dismissed;
(2) All counterclaims filed against the Plaintiff are dismissed;
(3) The cross-claims filed by Abita Springs Water Company, Mansoor Roohi, and Wm. B. Reily Company, Inc. against Brumfield Marketing, William Brumfield, and George Brumfield are dismissed; and
(4) All third-party claims asserted against VRT Corporation are dismissed.
IT IS SO ORDERED.