The New Orleans Jazz and Heritage Foundation, Inc. v. Karlton Kirksey, et al.
40 So. 3d 394 (2010)
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Rule of Law:
A shareholder or officer of a corporation is not personally liable for the contractual debts of the corporation, and courts will only pierce the corporate veil in exceptional circumstances where there is sufficient evidence that the individual disregarded corporate formalities to such an extent that the shareholder and corporation were indistinguishable.
Facts:
- Karlton Kirksey was the sole shareholder of Kirksey Enterprises, Inc. (KEI).
- In 1995, KEI entered an exclusive contract with Ticketmaster to handle ticketing for venues KEI controlled, which included KEI receiving 'rebates' from ticket convenience charges.
- Kirksey was also employed by Festival Productions as an associate producer for the New Orleans Jazz and Heritage Festival (Jazz Fest), which was produced for the New Orleans Jazz and Heritage Foundation, Inc. (the Foundation).
- Beginning in 2000, the Foundation contracted annually with KEI to exclusively handle ticket sales for its 'Night Concerts' at a venue controlled by KEI; these contracts did not mention rebates.
- In 2001, Kirksey, acting as an agent for the Foundation, signed a contract between the Foundation and Ticketmaster which provided for the Foundation to receive rebates on daytime Jazz Fest events.
- From 2001-2003, Ticketmaster paid rebates for daytime events directly to the Foundation, while continuing to pay rebates for the Night Concerts directly to KEI per its 1995 contract.
- In its annual accounting to the Foundation, KEI took a credit against the funds it owed, deducting the amount of the daytime event rebates that Ticketmaster had already paid directly to the Foundation.
- When the Foundation's treasurer questioned Kirksey about rebates in 2003, Kirksey falsely denied that Ticketmaster had paid any rebates.
Procedural Posture:
- The New Orleans Jazz and Heritage Foundation, Inc. sued Karlton Kirksey and Kirksey Enterprises, Inc. in a Louisiana trial court.
- The Foundation sought to recover amounts KEI took as credits for daytime event rebates, as well as the direct rebates KEI received for Night Concerts.
- The trial court found in favor of the Foundation, holding Kirksey and KEI liable 'in solido' (jointly and severally) for the full amount claimed.
- Karlton Kirksey and Kirksey Enterprises, Inc. (appellants) appealed the trial court's judgment to the Louisiana Court of Appeal, Fourth Circuit, with the Foundation as appellee.
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Issue:
Is a corporate officer and sole shareholder personally liable for his corporation's breach of contract or for receiving funds under a separate, pre-existing contract with a third party, when there is no evidence of fraud or failure to follow corporate formalities sufficient to pierce the corporate veil?
Opinions:
Majority - Paul A. Bonin
No. A corporate officer is not personally liable for his corporation's contractual debts absent exceptional circumstances that justify piercing the corporate veil. The court held that KEI, not Kirksey, was the party that breached its contract with the Foundation. The breach was not the receipt of Night Concert rebates, which KEI was entitled to under its separate contract with Ticketmaster based on industry custom, but rather KEI's improper accounting in which it took credits for the daytime rebates already paid to the Foundation. The court rejected the Foundation's theories for imposing personal liability on Kirksey, finding no breach of fiduciary duty, no tortious conversion of funds, and insufficient evidence to pierce the corporate veil, as the Foundation failed to allege or prove factors like commingling of funds or disregard for corporate formalities. Therefore, only the corporate entity, KEI, is liable for the contractual debt arising from the improper accounting.
Analysis:
This decision strongly reaffirms the principle of corporate separateness and the significant legal protection afforded by the corporate veil in Louisiana. It clarifies that merely being a sole shareholder and officer who engages in questionable accounting practices on behalf of the corporation is insufficient to impose personal liability for a corporate breach of contract. The ruling establishes a high bar for plaintiffs seeking to pierce the corporate veil, requiring specific proof of factors like fraud or the complete disregard of corporate formalities, rather than just pointing to the actions of a corporate agent. The case also illustrates the importance of industry custom and expert testimony in interpreting a complex web of contracts involving multiple parties.
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