Riggins v. Dixie Shoring Co., Inc.

Supreme Court of Louisiana
590 So.2d 1164 (1991)

ELI5:

Rule of Law:

The limited liability of a corporate shareholder will only be disregarded in exceptional circumstances where a plaintiff proves the corporate entity was so disregarded by the shareholder that it ceased to be distinguishable from the shareholder themselves, particularly in the absence of fraud.

Facts:

William and Patricia Riggins contracted with Dixie Shoring Company, Inc. to have their home jacked and leveled.
O.P. Bajoie, the majority shareholder of Dixie Shoring, negotiated and signed the contract on behalf of the corporation.
During the project, O.P. Bajoie requested that the first installment check be made out to him personally, and his son Reginald requested the same for the second installment.
While Dixie Shoring's employees were jacking the house, a major crack formed in the foundation, causing damage to the interior and exterior walls.
Dixie Shoring Company, Inc. was a properly incorporated business that had operated for over twenty years, maintained corporate bank accounts, and filed corporate tax returns.
The corporation used some land and tools owned personally by O.P. Bajoie without formal compensation.
The corporation did not hold formal, documented board of directors meetings, though O.P. Bajoie and his son met regularly to discuss business operations.

Procedural Posture:

William and Patricia Riggins sued Dixie Shoring Company, Inc. in district court (trial court) for damages arising from a breach of contract.
Approximately one and a half years after the suit was filed, Dixie Shoring Company, Inc. filed for bankruptcy.
Following the bankruptcy filing, the Riggins amended their petition to add majority shareholder O.P. Bajoie and his son, Reginald Bajoie, as individual defendants.
The district court pierced the corporate veil and entered a judgment of $51,000 against O.P. Bajoie and Reginald Bajoie personally.
O.P. Bajoie and Reginald Bajoie appealed to the Louisiana Court of Appeal.
The Court of Appeal affirmed the judgment against O.P. Bajoie but reversed the judgment against Reginald Bajoie, as he was not a shareholder or director.
The Supreme Court of Louisiana granted review of the Court of Appeal's decision holding O.P. Bajoie personally liable.

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Issue:

Does the conduct of a majority shareholder in a closely-held corporation, including failing to observe all corporate formalities and directing that customer payments be made to him personally, justify piercing the corporate veil to hold him personally liable for a corporate debt?

Opinions:

Majority - Calogero, Chief Justice

No. The shareholder's conduct does not justify piercing the corporate veil. The general rule that corporations are distinct legal entities and that shareholders are not liable for corporate debts should only be disregarded in exceptional circumstances. The plaintiff bears a heavy burden to show that the shareholder disregarded the corporate entity to such an extent that it ceased to be distinguishable from themselves. Here, the totality of the circumstances shows Dixie Shoring Company, Inc. maintained its separate corporate identity, despite some informalities common in closely-held corporations. The corporation was properly incorporated, maintained corporate bank accounts, filed tax returns, and the plaintiffs understood they were dealing with a corporate entity. The lower court's finding that over $100,000 in assets disappeared was a misinterpretation of an accounting entry for equipment depreciation; the assets were old and had been accounted for in the bankruptcy filing. Minor infractions such as failing to keep formal minutes or the uncompensated use of a shareholder's personal property do not, on their own, warrant piercing the corporate veil when weighed against two decades of operating as a distinct corporate entity.

Analysis:

This decision reinforces the significant protection of the corporate liability shield in Louisiana, especially for closely-held corporations. The court establishes a high evidentiary bar for plaintiffs seeking to pierce the corporate veil, requiring more than just sloppy record-keeping or minor commingling of affairs. It clarifies that in the absence of fraud, courts must weigh the totality of circumstances, and the fact that a business has consistently held itself out as a corporation for many years is strong evidence against piercing. The ruling cautions lower courts against imposing personal liability on shareholders for practices that are common in small, family-run businesses and against misinterpreting financial documents as proof of malfeasance.

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