Mathes Brierre Architects, a Professional Corporation v. karlton/isg Enterprises, LLC, International Sales Group, LLC, and J.S. Karlton Company, Inc.

MATHES BRIERRE * NO. 2019-CA-0357
ARCHITECTS, A
PROFESSIONAL * COURT OF APPEAL
CORPORATION
* FOURTH CIRCUIT
VERSUS
* STATE OF LOUISIANA
KARLTON/ISG
ENTERPRISES, LLC, *
INTERNATIONAL SALES
GROUP, LLC, AND J.S. *
KARLTON COMPANY, INC. *******

LOBRANO, J., CONCURS IN PART, DISSENTS IN PART, AND ASSIGNS
REASONS.

JCL I respectfully concur in part and dissent in part as set forth in the following

opinion:

In this contract case, appellee, Mathes Brierre Architects, a Professional

Corporation (“Mathes”), filed its petition in May 2015 and sought to recover sums

due under an architectural contract executed in 2007 (“Agreement”) between it and

appellant, Karlton/ISG Enterprises, L.L.C., a Florida Limited Liability Company

(“Karlton/ISG”). In addition to suing Karlton/ISG, Mathes also named as

additional defendants the only two members of Karlton/ISG (sometimes

collectively “Members”), which are as follows: (1) International Sales Group,

L.L.C., a Florida Limited Liability Company (“ISG Co.”) formed in 2002 as a real

estate marketing business with its members being Craig Nicole, Inc. (owned by

Craig Studnicky) and Monogram Marketing, Inc. (owned by Philip Spiegelman)

and (2) J.S. Karlton Company, Inc., a Delaware Corporation, (“Karlton Corp.”),

owned by John Karlton.1 Michael Ambrosio was the president and a manager of

1
This opinion refers to two types of limited liability entities. The word "company" refers to
limited liability companies and the word “corporation” refers to incorporated entities.
Corporations have a long history in America, borrowed from our English roots and carried over
from our colonial past to the days of our industrial revolution and the golden age of the
corporation to the present state of corporations. P. M. Vasudev, Corporate Law and Its
Efficiency: A Review of History, 50 Am. J. Legal Hist. 237, 240 (2010). Companies, however,
are a newer creation. In 1992, the Louisiana Legislature enacted Chapter 22, “Limited Liability
Companies,” comprised of R.S. 12:1301 through 1369, which, inter alia, authorized the
1

Karlton/ISG as well as the president of ISG Co. Steve Lipkins acted on behalf of

Karlton Corp. Also in 2015, Ambrosia, Spiegelman, and Studnisky formed River

Street Ventures, L.L.C. (“River Street”).

After Hurricane Katrina, John Karlton, along with others, toured New

Orleans, on both the east and west banks of the Mississippi River, to locate a

potential project to assist New Orleans and its citizens. The planned development

became known as the “Algiers Crossing Development,” which was to be a

commercial and residential development on the west bank of the Mississippi River

directly across from the New Orleans Business District (the “Project”).

John Karlton had a prior relationship with Ed Mathes and hired his

architectural firm to design and perform other services associated with the Project.

With the full knowledge of Ed Mathes, Karlton/ISG was formed on January 31,

2006 to carry out the Project to completion. Substantial capital contributions were

initially made to Karlton/ISG as evidenced by the undisputed fact that Mathes was

paid over a million dollars2 for services rendered on the Project during the first

three years of the joint business venture between Karlton Corp. and ISG Co.

The initial business transactions began in May 2006 and involved

Karlton/ISG entering into an agreement with certain entities affiliated with various

individuals, including Blaine and Barry Kern (collectively “Kern Entities”) to

obtain options to purchase four tracts of property in Algiers with the intent to

formation of limited liability companies. "LLCs filled an important void for small businesses
left open by corporations and partnerships by providing the limited liability traditionally
associated with corporations in addition to the tax advantages and flexible managerial provisions
of partnerships. These three appealing advantages create an enticing business entity for
businesses large and small and have led to the LLC quickly becoming a prominent business
organization despite being a relatively new entity type." Thomas Bourgeois, Mirror, Mirror:
Amending Louisiana's LLC Statutes Related to Personal Liability of Members to Reflect
Corporate Counterparts After Ogea v. Merritt, 76 La. L. Rev. 1339, 1358 (2016).
2
In the Appellant brief, the amount indicated was $1,162,976.51, and in the district court's
Reasons for Judgment the amount was $1,163,232.00.

2

develop the Project in multiple phases ("Option Agreement"). Tract I was the site

of Phase 1 of the Project.

Mathes began working on Phase 1 of the Project in February 2006. Initially,

Mathes invoiced Karlton Corp. from March 7, 2006 through March 1, 2007 for

services rendered. On February 26, 2007, Karlton/ISG and Mathes entered into the

Agreement, a formal written agreement to provide architectural services for

various phases of the Project. Thereafter, Mathes invoiced Karlton/ISG.

The Agreement was drafted by Mathes and provided that Karlton/ISG was to

make payments to Mathes for work performed under “Basic Services” and

“Additional Services.”3 The Agreement also provided that Mathes was to be

compensated $2,000,000.00 for Basic Services and that the payment for "Master

Planning Services" such as conceptual design, preliminary sketches and building

designs shall be made upon the successful sale of the condominium units in Phases

1 and 2 of the extended project in proportion to the number of units included in

Phases 1 and 2. Mathes agreed to provide “Basic Services”, including “Schematic

Design,” “Design Development,” “Construction Documents,” “Negotiation or

Bidding,” and “Construction Administration.” The Agreement for “Basic

Services” was for a period of one year and if “Basic Services” were not completed

within one year of the Agreement, through no fault of Mathes, Mathes was entitled

to be compensated for its services beyond that time as “Additional Services.”4

Mathes further agreed to provide “Additional Services” on an as needed basis.

Under the Agreement, Karlton/ISG was to make payments to Mathes for worked

performed under “Basic Services” and “Additional Services.” Payments for

3
The parties agreed “Basic Services” would be computed on a percentage basis, as set forth in
Agreement Article 11.2.1, and “Additional Services” would be computed on an hourly basis as
set forth in Agreement Article 11.3.2.
4
Agreement Article 11.5.1 provides for a year timeline for the Project, with the exception that if,
through no fault of Mathes, the Project takes longer than a year, services beyond that time will be
compensated as per Agreement Articles 10.3.3 and 11.3.2.

3

“Additional Services” were due monthly upon presentment of the architect’s

statement of services rendered or expenses incurred. The Agreement specifically

acknowledged that Mathes had already performed Master Planning Services for the

Project in the amount of $329,087.50 and further provided that the payment thereof

was to be made upon the successful sale of the condominium units in Phases 1 and

2.

Karlton/ISG and the Kern entities subsequently executed four (4)

amendments to the Option Agreement. On June 1, 2007, the "Fourth amendment"

stated that Karlton/ISG has exercised its option to acquire Tract I, which was the

site of Phase 1. A deposit in the amount of $600,000.00 was required and

Spiegelman had requested security. John Karlton refused to assist in the deposit

and Spiegelman arranged for an ISG affiliated company to pay the $600,000.00

deposit to Algiers Ventures, L.L.C. ("Algiers Ventures"), an entity associated with

the Kerns. The deposit was evidenced by a promissory note dated June 1, 2007

granted by Algiers Ventures (“Note”) to Karlton/ISG and secured by a Multiple

Indebtedness Mortgage in the maximum sum of $1,000,000.00 encumbering Tract

I (“Mortgage”).5

John Karlton eventually ceased making additional capital contributions to

Karlton/ISG, the Project stalled after 2008, and Mathes performed minimal work

5
Mathes claims, and the district court found, that the principals of Karlton/ISG in August 2015
diverted the Note for the benefit of River Street when Ambrosio, on behalf of Karlton/ISG,
executed and delivered to the Kern entities a “Release by Obligee of Record” of the Mortgage
and the Note in satisfaction of River Street’s obligation imposed under a purchase agreement
entered on August 11, 2015 to purchase different property located on the Westbank owned by
Barry Kern or entities he controlled. Mathes claims that River Street received credits to future
dealings with Kern entities in exchange for the releases. Karlton/ISG and Members argue that no
payments were ever made on the Note and that the Note therefore prescribed in June 2012 by
operation of the 5-year prescriptive period set forth in La. R.S. 10:3-118(b), thereby
extinguishing the Mortgage, and that Karlton/ISG had an affirmative duty to cancel the
Mortgage. Mathes argues that the Note was not prescribed, pointing out Spiegelman and
Ambrosio’s testimony that they understood the Note to be valid at the time it was released to
allow River Street to acquire the Tract 3 property and Ambrosio’s testimony that the Kerns had
acknowledged the Note on several occasions, thereby interrupting the running of prescription on
the Note.

4

thereafter. The parties did not exercise any rights under the Note and Mortgage

and the Note allegedly prescribed in June 2012. On August 11, 2015, Karlton/ISG

executed a “Release by Obligee of Record” for the Mortgage.

There was an outstanding balance totaling $555,689.23 with respect to

invoices forwarded to Karlton/ISG between March 7, 2006 and September 19,

2008 for services mostly rendered in 2007. The outstanding balance of

$555,689.23 was for payment for services rendered as follows: (1) in 2006 and

2007, prior to the Agreement, the balance totaled $12,101.61; (2) in 2007, under

the Agreement, the balance totaled $524,375.06; and (3) in 2008, under the

Agreement, the balance totaled $19,212.56 (“Outstanding Balance”).6

On December 26, 2012, Mathes demanded payment on the Outstanding

Balance. On July 10, 2013, Mathes sent a new invoice to Karlton/ISG in the

amount of $478,737.50 for services rendered under the Agreement as follows:

invoices in 2008 totaled $412,660.00; invoices in 2009 totaled $10,232.50;

invoices in 2010 totaled $830; invoices in 2011 totaled $10,715.00; and invoices in

2012 totaled $44,300.00 (“2013 Invoice”).

Karlton/ISG eventually filed abandonment losses in 2006 and 2007 and did

not carry out the Project to completion.7 Ed Mathes claims that he was not made

6
Karlton/ISG made its last payments on these invoices on January 18, 2008 in the amount of
$73,162.65 and on February 22, 2008 in the amount of $100,000.00, at which time there was an
outstanding balance of $45,587.35.
7
Karlton/ISG claimed a $487,189.00 abandonment expense in 2006 and claimed to have
abandoned the original architectural plan. It claimed that the original plans were scrapped and
needed to be completely redone. Karlton/ISG noted that factors to determine whether an
abandonment loss was proper: that the loss must be incurred in a business or transaction entered
into for profit; the loss must arise from the sudden termination of the usefulness in the business;
and the property must be permanently discarded from use or the business transaction is
discontinued. In addition, testimony provided that in accordance with United States Fifth Circuit
precedent, for an abandonment to be effective, the abandoning party must only manifest an intent
to abandon by some overt act or statement calculated to give a third party notice of the
abandonment. See Echols v. Com’r., 935 F.2d 703 (5th Cir. 1991). Testimony was provided on
behalf of Karlton/ISG showing that the overt act in accordance with Echols was when
Karlton/ISG scrapped the original plans and revised the plans in a “Miami” version and hired an
additional architect to complete those plans. In 2006, it claimed that both the Mississippi plan
and the architectural plan for the New Orleans project were abandoned. Ambrosio testified that
the plans initially completed by Mathes did not fit their concept, as they wanted as many
5

aware of the abandonment; however, Ambrosia assumed that Ed Mathes knew

about the abandonment, as he had not submitted an invoice for 2008 services nor

demanded payment on outstanding invoices for 2007 services for a period of

almost five years and other business ventures were being discussed. Ambrosia,

Spiegelman, and Studnisky engaged in separate negotiations with the Kerns and, in

2015, they formed River Street to pursue commercial and residential

developments.8

Ed Mathes alleges that Ambrosio and Lipkins assured Mathes that “the

money [is] coming, the money [is] coming.” Ed Mathes was not concerned about

Karlton's financial wherewithal to complete the Project as he knew and respected

John Karlton from prior business deals in New Orleans and he felt that the Project

“was too important” . . . “to the city, to us, [and] to the people of the Westbank.”

In May 2015, Mathes filed a petition praying for a judgment against

Karlton/ISG for amounts owed under the Agreement and unpaid invoices as

condominiums as possible to have river views. In 2007, Karlton/ISG abandoned its business
plan, as Karlton/ISG began to return deposits it had received to reserve condominium units. The
Mississippi River project was winding down in 2006 and expenses overlapped into the 2007 tax
year; thus, an abandonment expense was taken for the Mississippi project in 2007 as well.
Mathes' representatives testified that while Karlton/ISG requested changes in the design of the
Project on numerous occasions, Mathes incorporated those changes in such a manner as to fit
within the original principles of the Project’s design in 2005 and 2006, which had been approved
by the City of New Orleans and the Historic Districts and Landmarks Commission. Mathes’
representatives further testified—and the district court found—that the work performed by
Mathes on the Project in 2005 and 2006 resulted in the adoption of an Ordinance by the City of
New Orleans that approved a zoning change for the site of the Project and also approved a
residential planned community with mixed use overlay to allow the Project to proceed.

8
The district court found that in 2008, principals of ISG Co. began efforts to develop the Project
separately and at the time of the trial "it was established that some of those efforts continue to
this day." Particularly, in 2014, members of ISG Co. began negotiations with Blaine Kern in the
hopes of reviving some form of the Project. Members of ISG Co. entered into a purchase
agreement, dated February 19, 2014, with Blaine S. Kern, Sr., L.L.C. Members of ISG Co.
entered into the February 2014 Agreement with the intention of proceeding with a project (not
the same as previously anticipated) on the same property envisioned in the Agreement.
However, by this time, the promissory note had already prescribed. The February 2014
Agreement was signed, but Blaine Kern did not complete the agreement. In 2015, Ambrosio
engaged in separate negotiations with Barry Kern for the purchase of different property owned
by Barry Kern or entities he controls. River Street was formed and, on August 11, 2015, entered
into a Purchase Agreement for the purchase of Westbank property. Ambrosio, managing
member of River Street, executed the agreement. On May 31, 2016, River Street purchased the
property from Barry Kern’s entities.

6

reflected in the Outstanding Balance ($555,689.23) and 2013 Invoice

($478,737.50).

Mathes also named Members as additional defendants in an attempt to

collect on any judgments against Karlton/ISG and to obtain a judgment finding

Members solidary liable for the aforementioned debts of Karlton/ISG. In its brief,

Karlton/ISG and Members argue that, applying the general rule of limited liability

found in La. R.S. 12:1320 (B),9 Members are wholly separate by law from

Karlton/ISG and not responsible for debts of Karlton/ISG. Basically, they argue

that the narrowly defined limited liability exceptions found in La. R.S. 12:1320(D)

are exclusive10 and a claimant can only file a cause of action against a member of

an LLC for the conduct of a member or manager on behalf of the LLC under the

following areas of law: (1) fraud; (2) professional duty breach; and (3) negligent or

wrongful act (sometimes collectively "Statutory Exceptions).11 They allege that

Mathes did not properly file a claim under the “Fraud Exception” and did not

prove Members’ liability under the “Negligent or Wrongful Act Exception.”

Karlton/ISG and Members further argue that courts are bound to follow

Ogea v. Merritt, 13-1085 (La. 12/10/13), 130 So.3d 888, the seminal case

interpreting La. R.S. 12:1320. Specifically, they claim that the district court should

9
La. R.S. 12:1320 (B) reads: “Except as otherwise specifically set forth in this Chapter, no
member, manager, employee, or agent of a limited liability company is liable in such capacity for
a debt, obligation, or liability of the limited liability company.” See also La. R.S. 12:1320 (C),
which reads: “A member, manager, employee, or agent of a limited liability company is not a
proper party to a proceeding by or against a limited liability company, except when the object is
to enforce such a person's rights against or liability to the limited liability company.”
10
La. R.S. 12:1320 (A) reads: “The liability of members, managers, employees, or agents, as
such, of a limited liability company organized and existing under this Chapter shall at all times
be determined solely and exclusively by the provisions of this Chapter.” (Emphasis added).
11
La. R.S. 12:1320 (D) reads: “Nothing in this Chapter shall be construed as being in derogation
of any rights which any person may by law have against a member, manager, employee, or agent
of a limited liability company because of any fraud practiced upon him, because of any breach of
professional duty or other negligent or wrongful act by such person, or in derogation of any right
which the limited liability company may have against any such person because of any fraud
practiced upon it by him.”

7

have employed Ogea's newly developed conceptual framework four-factor test

under the Negligent or Wrongful Act Exception.

Mathes claims that the Statutory Exceptions are not exclusive and instead

based its claim in equity under the judicially-created limited liability exception for

corporations established in Riggins v. Dixie Shoring Co., Inc., (La. 12/2/91), 590

So.2d 1164, and its progeny of LLC cases (collectively “Riggins Exception”). The

Riggins Exception is often referred to as “Piercing the Corporate Veil” and

includes the following two distinct set of circumstances: (1) where fraudulent or

wrongful acts exist usually when a shareholder acting through the corporation

practices fraud or deceit (“Alter Ego Doctrine”) and (2) “when the shareholders

disregard the requisite corporate formalities to the extent that the corporation

ceases to be distinguishable from its shareholders” (“Corporate Footing Doctrine”).

Id. at 1168 (citations omitted).

Mathes further claims that courts, in determining whether to invoke equity

and the Riggins Exception, must employ the methodology used in Riggins based on

a “totality of the circumstances” review of the following factors, which favor the

application of the Riggins Exception: 1) commingling of corporate and shareholder

funds; 2) failure to follow statutory formalities for incorporating and transacting

corporate affairs; 3) undercapitalization; 4) failure to provide separate bank

accounts and bookkeeping records; and 5) failure to hold regular shareholder and

director meetings; and 6) any other relevant factors. Id. at 1168-69 (citations

omitted) (“Riggins Methodology”).

Mathes particularly alleges in its petition that Members are “jointly and

severally liable”12 with Karlton/ISG for all amounts awarded against Karlton/ISG.

Mathes’ allegations against Members are as follows: (1) Karlton/ISG was “a mere

12
Louisiana courts have long held that joint and several liability is solidary liability. Denoux v.
Vessel Mgmt. Servs., Inc., 07-2143 (La. 5/21/08), 983 So.2d 84. See infra note 40 and
accompanying text.

8

instrumentality and the alter ego” of Members, which completely dominated and

controlled Karlton/ISG; (2) Karlton/ISG was formed for the sole and improper

purpose of shielding Members from liability and lacked the ability to perform its

obligations under the Agreement; and (3) when Karlton/ISG no longer served

Members’ needs, Members drained any and all assets and corporate opportunities

from Karlton/ISG in an effort to shield those assets from creditors and avoid

Karlton/ISG’s contractual obligations. Mathes claimed that “the fiction of

corporate separateness must be disregarded” and Members must be held “jointly

and severally liable” to Mathes for the debts of Karlton/ISG.

Mathes did not use the word “fraud” or "wrongful act" in its petition but

used the words “misrepresentations” and “misled” and its allegations have

fraudulent, deceit, and wrongful act underpinnings against Karlton/ISG and

Members. Basically, Mathes claims that misrepresentations and suppressions of

the truth were made with respect to the nature of the joint business activities, the

Project, and the interrelationship of limited liability entities either formed for the

joint venture (Karlton/ISG), utilized by Studnicky, Spiegelman, and Karlton for the

joint venture (ISG Co. and Karlton Corp.), or newly formed by Studnicky,

Spiegelman, and Ambrosio (River Street). Mathes also showed at trial that

Ambrosia, acting on behalf of Karlton/ISG and ISG Co., and Lipkins, acting on

behalf of Karlton Corp., made misrepresentations and/or suppressions of the truth

relating to payment of money owed under the Agreement.

Mathes' claims against Members are basically fraud and wrongful act claims

under the equitable Riggins Exception as prayed for in its petition but I find that

they are also found under the statutory Fraud and Negligent or Wrongful Act

Exceptions. Thus, I agree with the majority's statement in footnote 10 that

“[a]lthough Mathes pled the alter ego theory of piercing, ‘[p]iercing the corporate

veil is not itself an independent [] cause of action, but rather is a means of

9

imposing liability on an underlying cause of action.’” Peacock v. Thomas, 516

U.S. 349, 354, (1996) (citation omitted). However, I disagree with the majority's

finding of significance that “Mathes neither cited nor relied upon the statutory

theory for finding a limited liability company's member personally liable codified

in La. R.S. 12:1320(D) and construed by Ogea.”

I agree with Mathes' assertion that the district court properly permitted it to

present evidence of fraud at trial without objection. A party may be granted any

relief to which it is entitled under the fact pleadings and evidence as long as the

facts constituting the claim or defense have been alleged and proved, and the due

process requirement of adequate notice to the parties of the matters to be

adjudicated has been satisfied. Miller v. Thibeaux, 14-1107 (La. 1/28/15), 159 So.

3d 426; U.S. Const. amend. XIV; La. Const. art 1 § 2; La. C.C.P. arts. 854-862.

This case does not involve disputed facts but requires reasonable inferences to be

made from the undisputed business conduct of each of the parties. All parties

were aware of the matters to be adjudicated at trial and proceed without objection.

At the bench trial, Mathes' expert described four indicators of fraud as

follows: (1) an improper diversion of a company asset (the $600,000.00 Note and

Mortgage) to the detriment of creditors and not for the benefit of Karlton/ISG but

for the benefit of Karlton/ISG's principals; (2) Karlton/ISG improperly took a tax

loss (abandonment loss) in 2006 and 2007; (3) in 2008, Karlton/ISG stopped

operating as an independent entity as it had no financial statements, no tax returns,

and no funding; and (4) Karlton/ISG failed to notify creditors or other parties of

interest in the Project that the business activities had been abandoned and that

Karlton/ISG no longer operated as an independent entity.

On September 26, 2018, after a bench trial, the district court ruled in favor of

Mathes and against Karlton/ISG and awarded damages of $944,669.23, plus

10

interest13 for breach of contract, unpaid invoices, and costs associated with the

litigation. The district court also found Members solidarily liable with

Karlton/ISG for all amounts awarded to Mathes. On January 11, 2019, the district

court awarded Mathes $61,366.34 in costs, similarly finding Members solidarily

liable with Karlton/ISG for costs. The district court found that Mathes provided

sufficient evidence to prove that Karlton/ISG owed the Outstanding Balance in the

amount of $555,689.23 and (2) the 2013 Invoice in the amount of $478,737.50.

The court found that Karlton/ISG was allowed a deduction of $89,757.50.14 The

district court, in its Reasons for Judgment, cited Riggins.15

The district court did not specifically make a finding based on the Fraud

Exception and/or the Negligent or Wrongful Act Exception and noted that “Mathes

did not pray for a finding of fraud.” The district court failed to recognize that a

party is entitled to any relief available based on the facts pled, regardless of the

specific relief requested pursuant to La. C.C.P. art. 862. The overlapping

principles of fault in the equitable Riggins Exception and the Statutory Exceptions

cause much confusion because linguistic or conceptual distinctions exist between

them but any such distinction among them lacks substantive practical effect and

are based, inter alia, on fraudulent or wrongful acts as pled by Mathes.

In its Reasons for Judgment, the district court in support of its ruling

identified the following four factors, which tracked the four indicators of fraud

13
Interest was awarded through May 21, 2018, at eight percent (8%) per annum, “which interest
shall continue to accrue from May 22, 2018 until paid.”
14
The $89,757.50 deduction is based on the fact that Karlton/ISG paid invoice Nos. 1 and 2 in
the amount of $15,157.50 and $73,880.00, respectively, for Master Planning Services, payment
for which was not due until the successful sale of the condominium in Phase 1 and Phase 2.
15
The district court, in its Reasons for Judgment, also cited Green v. Champion Ins. Co.,
(La.App. 1st Cir. 3/5/91), 577 So.2d 249 for the propositions that another equitable exception
referred to as the “Single Business Enterprise” exists to find LLC members liable for debts of an
LLC: “[w]hen a group of corporations integrate their resources to achieve a common business
purpose and do not operate as a separate entity, each affiliated corporation may be held liable for
the debts incurred in pursuit of its business purpose” (“Green Exception”). Mathes never
invoked the Green Exception and no party discussed it on appeal.

11

identified by Mathes' expert: (1) an “improper diversion of the $600,000.00 Note

and Mortgage” for the benefit of Karlton/ISG's principals, members and affiliated

entities and other evidence of co-mingling of assets; (2) an “improper tax

treatment” of Karlton/ISG by its members and principals; (3) Karlton/ISG's

members “failed to conduct business on a separate footing to such an extent that

the company became indistinguishable” from its members; and (4) the conduct of

Karlton/ISG's principals and Members misled Mathes and other creditors to their

detriment.

Karlton/ISG and Members filed a timely appeal, setting forth the following

assigned errors:

1. The trial court erred in finding that ISG and Karlton are
solidarily liable with Karlton/ISG for all amounts awarded
to Mathes pursuant to the Judgment under the alter
ego/piercing the corporate veil theory of liability.

2. The trial court erred in awarding plaintiff, Mathes, a
judgment in its favor against defendant Karlton/ISG in the
amount of $944,669.23.

3. The trial court erred in awarding Mathes the total of
$61,366.34 for costs incurred in connection with the trial of
the captioned matter.

I will not address the assignments of error in the above-referenced order. I

will initially discuss the second and third assignments of error, and thereafter,

assignment of error one.

STANDARD OF REVIEW

The Louisiana Constitution provides that the appellate jurisdiction of a court

of appeal extends to facts and law. La. Const. Art. 5, § 10. Questions of fact are

reviewed under the manifest error or clearly wrong standard. Sassone v. Doe, 11-

1821, pp. 3-4 (La.App. 4 Cir. 5/23/12), 96 So.3d 1243, 1246 (quoting Rosell v.

ESCO, 549 So.2d 840, 844-45 (La. 1989)). Mixed questions of law and fact are

also reviewed under the manifest error or clearly wrong standard. Chimneywood

12

Homeowners Ass'n, Inc. v. Eagan Ins. Agency, Inc., 10-0368, 10-0369, p. 5

(La.App. 4 Cir. 2/2/11), 57 So.3d 1142, 1146 (citing CII Carbon, L.L.C. v. Nat'l

Union Fire Ins. Co. of Louisiana, Inc., 05-0071, p. 8 (La.App. 4 Cir. 8/17/05), 918

So.2d 1060, 1065). Questions of law are reviewed de novo “without deference to

the legal conclusions of the courts below.” Durio v. Horace Mann Ins. Co., 11-

0084, p. 14 (La. 10/25/11), 74 So.3d 1159, 1168.

When findings of fact are based on determinations regarding the credibility

of witnesses, the manifest error or clearly wrong standard demands great deference

to the trier of fact's findings; “for only the factfinder can be aware of the variations

in demeanor and tone of voice that bear so heavily on the listener's understanding

and belief in what is said.” Sassone, 96 So.3d at 1246 (quoting Rosell v. ESCO,

549 So.2d 840, 844-45 (La. 1989)). To reverse a factfinder’s factual

determinations, the appellate court (1) must find from the record that a reasonable

factual basis does not exist for the finding of the district court; and (2) must further

determine that the record establishes that the finding is clearly wrong.

Kaltenbaugh v. Bd. of Supervisors, 18-1085, pp. 6-7 (La. App. 4 Cir. 10/23/19),

282 So.3d 1133, 1138-39 (citation omitted). “If the trial court's findings are

reasonable in light of the record reviewed in its entirety, the appellate court may

not reverse.” Arabie v. CITGO Petroleum Corp., 10-2605, p. 4 (La. 3/13/12), 89

So.3d 307, 312 (citing Sistler v. Liberty Mutual Ins. Co., 558 So.2d 1106, 1112

(La. 1990)). As a factfinder, the district court may accept or reject, in whole or in

part, any witness's testimony including expert witnesses. Dudenhefer v. Louisiana

Citizens Property Ins. Corp., 19- 0387, p. 3 (La.App. 4 Cir. 9/25/19), 280 So.3d

771, 775; Levine v. Allstate Ins. Co., 17-0896, p. 3 (La.App. 4 Cir. 4/18/18), 243

So.3d 1286, 1288. Under the manifest error or clearly wrong standard, the

appellate court “cannot reweigh the evidence or substitute the factual findings to

decide the case differently.” Dudenhefer, 280 So.3d at 775 (citations omitted).

13

As the Louisiana Supreme Court succinctly stated in Rosell:

When findings are based on determinations regarding the
credibility of witnesses, the manifest error-clearly wrong standard
demands great deference to the trier of fact's findings; for only the
factfinder can be aware of the variations in demeanor and tone of
voice that bear so heavily on the listener's understanding and belief in
what is said. Where documents or objective evidence so contradict
the witness's story, or the story itself is so internally inconsistent or
implausible on its face, that a reasonable fact finder would not credit
the witness's story, the court of appeal may well find manifest error or
clear wrongness even in a finding purportedly based upon a credibility
determination. But where such factors are not present, and a
factfinder's finding is based on its decision to credit the testimony of
one of two or more witnesses, that finding can virtually never
be manifestly erroneous or clearly wrong. (citations omitted).

549 So.2d at 844-45.

As to questions of law, “the standard of review of appellate courts in

reviewing a question of law is simply whether the court's interpretive

decision is legally correct.” Glass v. Alton Ochsner Medical Foundation,

02-0412, p. 3 (La.App. 4 Cir. 11/6/02), 832 So.2d 403, 405 (citation

omitted). “[W]hen the court of appeal finds that a reversible error of law or

manifest error of material fact was made in the trial court, it is required,

whenever possible, to redetermine the facts de novo from the entire record

and render a judgment on the merits.” Ferrell v. Fireman's Fund Ins. Co.,

94-1252, pp. 3-4 (La. 2/20/95), 650 So.2d 742, 745 (citations omitted).

In Wegener v. Lafayette Ins. Co., 10-0810, 10-0811, pp. 19-20 (La. 3/15/11),

60 So.3d 1220, 1233-34, the Supreme Court explained:

Typically where such legal errors have interdicted the fact finding
process, if the record is otherwise complete, the appellate court should
make its own independent de novo review of the record. Landry v.
Bellanger, 2002-1443 (La. 5/20/03), 851 So.2d 943, 954; Ferrell v.
Fireman’s Fund Ins. Co., 94-1252 (La. 2/20/95), 650 So.2d 742, 745;
Ragas v. Argonaut Southwest Insurance Co., 388 So.2d 707, 708 (La.
1980). However, we have also recognized that de novo review is not
the best course of action in every case. Ragas, 388 So.2d at 708. This
Court explained in Ragas:

This is not to say, and Gonzales [v. Xerox Corp., 320
So.2d 163 (La. 1975),], should not be read to require, that

14

the appellate court must find its own facts in every such
case. There are cases where the weight of the evidence is
so nearly equal that a first-hand view of witnesses is
essential to a fair resolution of the issues. The appellate
court must itself decide whether the record is such that
the court can fairly find a preponderance of the evidence
from the cold record. Where a view of the witnesses is
essential to a fair resolution of conflicting evidence, the
case should be remanded for a new trial. Ragas, 388
So.2d at 708. [footnote omitted.]

The authority for an appellate court to remand a case to the trial court
for proper consideration, where it is necessary to reach a just decision
and to prevent a miscarriage of justice, is conferred by La. C.C.P. art.
2164. [footnote omitted]. Whether a particular case should be
remanded is a matter which is vested largely within the court’s
discretion and depends upon the circumstances of the case. See Alex
v. Rayne Concrete Service, 2005-1457 (La. 1/26/07), 951 So.2d 138,
155.

DISCUSSION

I first address the district court’s finding of breach of contract and unpaid

invoices as well as the court’s awards of damages and costs against Karlton/ISG.

The district court awarded Mathes the amount of $555,689.23 of the

Outstanding Balance plus the amount of $478,737.50 from the 2013 Invoice,

subject to a deduction of $89,757.50, for a total award of $944,669.23.

Karlton/ISG argues that “[t]he district court erred in ruling in favor of Mathes and

against Karlton/ISG” because Mathes failed to prove the amounts owed and to

mitigate damages by unreasonably accruing an outstanding balance. I disagree.

After reviewing the record and applicable law, I agree with the majority and

I would also affirm the district court's award for breach of contract and unpaid

invoices against Karlton/ISG in the amount of $944,669.23, representing the 2013

Invoice of $478,737.50, the outstanding balance of $555,689.23, and a deduction

of $89,757.50. I find that the district court did not err in holding that Mathes

provided sufficient evidence to prove that these amounts were owed.

Karlton/ISG further contends that Mathes was required to take steps to

mitigate its damages but failed to do so by waiting five years to invoice for

15

services rendered and to demand payment on outstanding balances, which allowed

the balance to unreasonably accrue. This court has long recognized the well-

settled doctrine of mitigation as codified in La. C.C. art. 2002 and applicable to tort

and contract law in Louisiana. Bd. of Supervisors of Louisiana State Univ. v.

Gerson, 17-0229, 17-0296, p. 24 (La.App. 4 Cir. 11/14/18), 260 So.3d 634, 652,

writ denied, 18-2054 (La. 2/25/19), 266 So.3d 292. La. C.C. art. 2002 provides

“[a]n obligee must make reasonable efforts to mitigate the damage caused by the

obligor's failure to perform. When an obligee fails to make these efforts, the

obligor may demand that the damages be accordingly reduced.”

While an injured party has a duty to mitigate his damages, this duty exists

only if it is reasonable to do so. 16 “In mitigating damages, an injured party should

exercise the degree of care such as would be taken by an ordinarily prudent

individual under the same or similar circumstances.” Id. (citations omitted). “The

burden rests with the wrongdoer to show that the victim failed to mitigate

damages.” Bd. of Supervisors, 260 So.3d at 652 (citation omitted).

In the present case, the record reveals that evidence from both parties was

introduced and considered by the district court concerning mitigation of damages.

There is nothing in the record to support the conclusion that Mathes had a duty to

mitigate under Article 2002 with respect to the breach of contract and unpaid

invoices claims. Mathes did not have a duty to expeditiously seek legal recourse

and pursue collection proceedings as a judgment creditor. Nonetheless, as to

Mathes, there are risks and legal consequences of not pursuing actions against

Karlton/ISG until after the Project stalled and the Note prescribed; thus,

diminishing options are available to Mathes as a judgment creditor and an

16
Merlin v. Fusilier Constr. Inc., 00-1862, p. 9 (La.App. 5 Cir. 5/30/01), 789 So.2d 710, 716
(citation omitted).
16

impoverished obligee against an obligor.17 Likewise, Mathes could pursue River

Street for recovery of assets if in fact River Street used Mathes' architectural work

product. However, Article 2002 duty to mitigate does not apply under these

circumstances.

To reverse a factfinder’s determinations, the appellate court must find a

reasonable factual basis in the record to support the finding of the district court and

determine that the record establishes that the finding is clearly wrong (manifest

error). Kaltenbaugh, 282 So.3d at 1138-39 (citation omitted). A review of the

record reveals that the district court was not clearly or manifestly erroneous. I find

no abuse of the district court's discretion and, thus, assignment of error two has no

merit.

Karlton/ISG next argues in assignment of error three that “[t]he district court

erred in ruling in favor of Mathes and against Karlton/ISG awarding Mathes the

amount of $61,366.34 for costs incurred in connection with the trial of the

captioned matter.” I concur in the results of the majority opinion that the district

court did not abuse its discretion in awarding costs of the trial.

I next address assignment of error one relative to the finding of solidary

liability against Members for the above-mentioned debts of Karlton/ISG.

Karlton/ISG argues that the district court erred in finding Members solidarily liable

with Karlton/ISG reasoning that the district court erroneously applied only Riggins

Methodology as opposed to the Statutory Exceptions. I agree. I find that the

district court erred, as a matter of law, by failing to recognize that the Statutory

Exceptions in La. R.S. 12:1320 supersede and incorporate the Riggins Exception.

Karlton/ISG and Members further argue that the court erred in applying the

Riggins Methodology and was bound to employ the Ogea Methodology. I agree. I

17
See e.g. La. C.C. art. 2036; La. C.C. art. 2044; La. C.C. art. 2298; La. C.C.P. art. 3541, et seq.;
La. C.C.P. art. 3501, et seq.; La. C.C.P. art. 2451, et seq.
17

therefore find that the district court erred as a matter of law and a de novo review is

warranted. After my de novo review of the record and applicable law, I would

reverse those portions of the judgments that find Members solidarily liable for the

following reasons:

I will first address a choice of law issue because the majority finds that the

result in this case does not differ depending on which state's law applies and both

Florida and Louisiana courts similarly invoke the same jurisprudential limited

liability exception for LLCs.18 I find that Louisiana law applies because the parties

acquiesced in its application. Even if Florida law applies, the Court explained in

Thomas v. Bridges, 13-1855, p. 8 (La. 5/7/14), 144 So.3d 1001, 1008 that if no

liability existed on the basis of the foreign LLC's laws, a member of a foreign LLC

could still be assessed for liability under La. R.S. 12:1320(D).

Louisiana Revised Statute 12:1342 states the “laws of the state or other

jurisdiction under which a foreign limited liability company is organized shall

govern its organization, its internal affairs, and the liability of its managers and

members that arise solely out of their positions as managers and members.”

Karlton/ISG was organized in Florida; thus, Florida law would normally apply

with respect to liability of Members pursuant to La. R.S. 12:1342. However, the

district court and parties failed to address this choice of law issue or contest the

18
I disagree with the majority that Florida and Louisiana similarly invoke equity. Compare La.
R.S. 12:1320 (“liability of members, managers, employees, or agents, as such, of a limited
liability company organized and existing under this Chapter shall at all times be determined
solely and exclusively by the provisions of this Chapter”) and Fla. Stat. Ann. § 605.0111 (West)
(“the principles of law and equity, including the common law principles relating to the fiduciary
duties of loyalty and care, supplement this chapter.”). Under the civilian tradition, judicial
decisions are not intended to be an authoritative source of law in Louisiana. See A.N.
Yiannopoulos, Louisiana Civil Law System § 35, p. 53 (1977). The courts are bound to proceed
according to equity only when no rule for a particular situation can be derived from legislation or
custom. La. C.C. art 4. Compare also La. R.S. 12:1320(D) and Fla. Stat. Ann. § 605.04093
(West).

18

application of Louisiana law.19 The absence of an assignment of error or lack of

objection to the district court’s choice of law application in the case sub judice

would not prohibit this Court from addressing and clarifying the issue sua sponte

on appeal. Wooley v. Lucksinger, 09-0571, p. 62, (La. 4/1/11), 61 So.3d 507, 562.

Without doubt, an appellate court has the authority to raise an
issue sua sponte on appeal. The state constitution authorizes the
appellate jurisdiction of a court of appeal in civil matters to extend to
law and facts. La. Const. art. 5, § 10(A) and (B). La. C.C.P. art. 2129
specifically provides: “[a]n assignment of error is not necessary in any
appeal.” La. C.C.P. art. 2164 provides an appellate court “shall render
any judgment which is just, legal, and proper upon the record on
appeal.” Likewise, the uniform rules of the appellate courts require
that an issue be submitted in an assignment of error, after first being
raised in the district court, “unless the interest of justice clearly
requires otherwise.” Uniform Rules Courts of Appeal, Rule 1–3
(emphasis added).

Id. at 562–63.

“Determining the proper choice-of-law law to be applied to an issue is a

question of law for which this court has the plenary and unlimited constitutional

power and authority to review de novo.” Id. at 562 (footnote omitted). I find that

the parties acquiesced in the application of Louisiana law. The parties argued

Louisiana law throughout this lawsuit, and the district court applied Louisiana law

with respect to the liability of Members. Moreover, the Contract between Mathes

and Karlton/ISG states that Louisiana law applies.20

19
Mathes briefed the issue in the lower court in its proposed findings of fact and conclusions of
law, asserting that the applicable laws relating to jurisprudential limited liability exception of
LLCs are the same under both Florida and Louisiana law.
20
In Article 9.1 of the Agreement between Mathes and Karlton/ISG, the parties agreed, “This
Agreement shall be governed by the law of the principal place of business of the Architect
[Mathes] unless otherwise provided in Article 12.” I note that no evidence exists as to the intent
of Mathes and Karlton/ISG as to this provision or as to whether the provision applies to
Members, who are not part of the contract. Nonetheless, parties can agree to choice of law
issues. For instance, contractual forum selection clauses are prima facie valid and enforced in
Louisiana, “unless the resisting party can ‘clearly show that enforcement would be unreasonable
and unjust, or that the clause was invalid for such reasons as fraud or overreaching … [or that]
enforcement would contravene a strong public policy of the forum in which the suit is brought,
whether declared by statute or by judicial decision.’” Creekstone Juban I, LLC v. XL Insurance
America, Inc., 18-0748, p. 5 (La. 5/8/19), 282 So.3d 1042, 1046 (quoting Shelter Mutual Ins. Co.
v. Rimkus Consulting Group, Inc. of La., 13-1977, pp. 16-17 (La. 7/1/14), 148 So.3d 871, 881)
(citation omitted).

19

Mathes, Karlton/ISG, and Members applied Louisiana law to the damages

and costs resulting from the breach of contract and for which Members were held

liable. They also applied Louisiana law in the district court and throughout this

appeal, as did the district court in finding Members solidarily liable with

Karlton/ISG. Thus, I find that Louisiana law as to principles of fault applies when

determining liability of Members.

Applying Louisiana law, which includes “statutory, jurisprudential, or [any

law] arising from general principles of fault,”21 I find that the district court erred,

as a matter of law, by failing to recognize that the Statutory Exceptions supersede

and incorporate the Riggins Exception and by failing to follow the Ogea case

which provided the following method of discerning the law with respect to the

Statutory Exceptions (“Ogea Methodology”): (1) an analysis on the Fraud

Exception should be based on the longstanding definition of fraud found in La.

C.C. art. 1953 and existing laws noting that “this definition of fraud has remained

essentially unchanged from that contained in Article 1847(6) of the Civil Code of

1870”; (2) an analysis on Professional Duty Breach Exception should begin with

the “clearly defined technical meaning [of professional] within the law of business

entities;”22 and (3) an analysis of the Negligent or Wrongful Act Exception should

be based on Ogea's newly developed conceptual framework “to accord the terms

‘negligent’ act and 'wrongful act' their commonly understood meaning while also

respecting the general limitation of liability” by applying four factors, which

21
Ogea v. Merritt, 13-1085 (La. 12/10/13), 130 So. 3d 888, 905 (citation omitted).
22
The Court in supporting this method of adopting business law provided in the following quote
from James S. Holliday, Jr., & H. Bruce Shreves, Louisiana Practice Series: Louisiana
Construction Law § 1:9 pp. 10–11 (2013): ‘“Since 1964, professional law corporations have
been possible in Louisiana. In 1968, with recodification of Louisiana's corporate laws,
professional medical corporations were also permitted. Since then, Louisiana has enacted
statutory provisions for professional corporations for the dental, accounting, chiropractic,
nursing, architectural, optometry, psychology, veterinary medicine and architectural-engineering
professions.’” (Footnotes omitted.) Id.at 898-99. I find Mathes introduced no evidence that
Karlton/ISG or Members were one of these legislatively recognized professions; thus, this
exception does not apply in the case sub judice.

20

include a Tort Factor, Criminal Factor, Contract Factor, and Capacity Factor

explaining that a “court is to evaluate each situation on a case-by-case basis and

consider each of the above factors when determining whether the general rule of

limited liability must yield to the exception for a member’s ‘negligent or wrongful

act.’” Ogea, 130 So. 3d at 898-905.

Although Mathes correctly points out that Riggins has not been overruled,23

Mathes and the district court failed to recognize that this court, as well as a number

of state and federal courts, have applied the Ogea Methodology to the issue of LLC

member liability 24 and our court has noted the limitations of Riggins when applied

to LLCs.25

23
Mathes also points out that Riggins was cited approvingly by this court in Hickey v. Angelo,
18-0550, p. 13 (La.App. 4 Cir. 5/29/19), 274 So.3d 47, 56. Mathes’ reliance is misplaced.
Hickey addressed a medical corporation, not a LLC. The Ogea Court examined the statutory
scheme addressing LLCs and clarified, inter alia, the framework of the Negligent or Wrongful
Act Exception by using a four-part inquiry and the proper fraud analysis under the Fraud
Exception.
24
See, e.g., Hohensee v. Turner, 12-0796, p. 14 (La.App. 4 Cir. 4/22/15), 216 So.3d 883, 891;
Streiffer v. Deltatech Construction, LLC, 18-0155, pp. 8-9 (La.App. 4 Cir. 10/10/18), ---So.3d---;
Anfretti Sports Marketing Louisiana, LLC v. NOLA Motorsports Host Committee, Inc, 147
F.Supp.3d 537, 563 (E.D. La. 2015); Korrapati v. Augustino Brothers Constr. LLC, 19-426, p. 3
(La. App. 5 Cir. 7/31/20), ---So.3d---, 2020 WL 4381850, *10; Nicholas v. BBT Construction
Management, LLC, 15-1009 (La.App. 1 Cir. 12/23/15), 2015 WL 9466864, *2; Wilson v. Two
Sd, LLC, 15-0959, p. 14 (La.App. 1 Cir. 2/23/15), 186 So.3d 103, 114; J & J Sports Productions,
Inc. v. Liquor US UO, LLC, 18-988 (E.D. La. 2019), 2019 WL 527755, *5-6 (unpub.); FUFC,
LLC v. Excel Contractors, LLC, 18-1095, (M.D. La. 2020), 2020 WL 1443039, *8-9 (unpub.);
Southern Coil Tubing, Inc. v. Oracle Gas, LLC, 17-473, pp. 10-12 (La.App. 3 Cir. 12/13/17),
258 So.3d 759, 767-68. In An Erny Girl, LLC v. BCNO 4 LLC, 18-0360 (La.App. 4 Cir. 9/26/18,
257 So.3d 212, where the plaintiff appealed a grant of an exception of no cause of action, this
court applied the analysis in Ogea but remanded the case to allow the plaintiff to amend the
petition. In Payphone Connection Plus Inc. v. Wagners Chef, LLC,19-0181 (La.App. 4 Cir.
7/31/19), 276 So.3d 589, this court cited Ogea, but found “no allegations consistent with an
attempt by Payphone to ‘pierce the corporate veil.’” Id., 19-0181, p. 10, 267 So.3d at 596.
25
Riggins is limited when analyzing the limited liability protections of LLCs. In pre-Ogea cases
from this court, such as ORX Res., Inc. v. MBW Expl., L.L.C., 09-0662 (La.App. 4 Cir. 2/10/10),
32 So.3d 931 and Breaux v. Vieux Carre' Mortgage, L.L.C., 07-1443, 2008 (La. App. 4 Cir.
2008) WL 8922922, *3, we recognized that the nature of LLCs, as closely held entities, limit the
applicability of the Riggins Methodology. For example, “[u]nder Louisiana LLC law, members
or managers of LLCs do not have to hold meetings, keep minutes or act through formal
resolutions.” ORX Res., Inc. v. MBW Expl., L.L.C., 09-0662, p.11 (La.App. 4 Cir. 2/10/10), 32
So.3d 931, 937. In Breaux, we stated:

Louisiana's LLC laws do not recognize the “alter ego” doctrine. An LLC
need not follow the formalities required of corporations in order to
maintain its separate legal existence. Unless the LLC's articles of
organization or a written operating agreement provides otherwise, the
members or managers take action by a majority vote. La. R.S. 12:1316;
21

I note that this court has employed the Riggins Methodology prior to the

Louisiana Supreme Court's development and explanation of the methodology set

forth in Ogea for determining limited liability exceptions of LLCs under the

Negligent or Wrongful Act Exception.26 In fact, our court, prior to Ogea, had

difficulty reconciling the Riggins Methodology and applying it to LLC cases and

experienced tension between the prior applications of piercing the corporate or

company veil and the language of La. R.S. 12:1320.27 Thus, I find that the district

court erred as a matter of law by failing to apply the Ogea Methodology.

Questions of law are reviewed de novo “without deference to the legal

conclusions of the courts below.” Durio, 74 So.3d at 1168. As to questions of

law, “the standard of review of an appellate court is simply whether the court's

interpretive decision is legally correct.” Ohm Lounge, L.L.C. v. Royal St. Charles

Hotel, L.L.C., 10-1303, p. 4 (La.App. 4 Cir. 9/21/11), 75 So.3d 471, 474 (citing

Glass v. Alton Ochsner Medical Foundation, 02-0412, p. 3 (La.App. 4 Cir.

11/6/02), 832 So.2d at 405). “[I]f the decision of the trial court is based upon an

erroneous application of law rather than on a valid exercise of discretion, the

decision is not entitled to deference by the reviewing court.” Id. at 474 (citing

Pelleteri v. Caspian Group Inc., 02-2141, pp. 6-7 (La.App. 4 Cir. 7/2/03), 851

La. R.S. 12:1318. Furthermore, Louisiana LLC law specifically prohibits
imposing membership liability for failure to follow corporate formalities.
See La. R.S. 12:1320; See also, In Re Provenza, 316 B.R. 225, 230
(Bankr.E.D.La.2003).
26
See e.g. ORX Res., Inc. v. MBW Expl., L.L.C., 09-0662 (La.App. 4 Cir. 2/10/10), 32 So.3d
931(“the provisions of La. R.S. 12:1320(D) provide for the piercing of a LLC's veil when the
situation so warrants” . . . noting that to “‘have meaning within the entire statute, the phase ‘or
other negligent or wrongful act by such person’ must refer to acts done outside one's capacity as
a member, manger, employee, or agent of the limited liability company’” and a “discussion of
the Riggins factors will resolve how Mr. Washauer can be held personally liable for MBW's
indebtedness to ORX”).
27
See supra note 25. The type of conduct that triggers LLC member liability under the Riggins
Methodology was not often consistent or uniform and was vague in its application unlike the
comprehensive and LLC applicable Ogea Methodology.

22

So.2d 1230, 1235). Because the issue herein concerns an application of law, de

novo review is appropriate.

After my de novo review, I would reverse the district court's finding of

solidary liable against Members.28 I find that Mathes failed to prove that the

circumstances in this case are exceptional as to allow for LLC member liability

under either the Ogea Methodology in applying the Fraud Exception or the

Negligent or Wrongful Act Exception or under the principles of fault recognized in

Riggins for the following reasons:

The Civil Code establishes only two sources of law in Louisiana: legislation

and custom. See La. C.C. art. 1. Within these two categories, legislation is

superior to custom and will supersede it in every instance. See La. C.C. art. 3.

Judicial decisions, on the other hand, are not intended to be an authoritative source

of law in Louisiana. See A.N. Yiannopoulos, Louisiana Civil Law System § 35, p.

53 (1977). When no rule for a particular situation can be derived from legislation

or custom, the court is bound to proceed according to equity. To decide equitably,

28
Nonetheless, based on a manifest error review and on an application of either the Riggins
Exception and its progeny cases relating to LLCs or the Statutory Exceptions in La. R.S.
12:1320(D), particularly, the Fraud Exception and Negligent or Wrongful Act Exception, I find
that the district court's inferences are not reasonable in light of the record before us and reversal
is also warranted under this standard. Mixed questions of law and fact are also reviewed under
the manifest error standard. Chimneywood Homeowners Ass'n, Inc. v. Eagan Ins. Agency, Inc.,
10-0368, 10-0369, p. 5 (La.App. 4 Cir. 2/2/11), 57 So.3d 1142, 1146 (citing CII Carbon, L.L.C.
v. Nat'l Union Fire Ins. Co. of Louisiana, Inc., 05-0071, p. 8 (La.App. 4 Cir. 8/17/05), 918 So.2d
1060, 1065). “If the trial court's findings are reasonable in light of the record reviewed in its
entirety, the appellate court may not reverse.” Arabie v. CITGO Petroleum Corp., 10-2605, p. 4
(La. 3/13/12), 89 So.3d 307, 312 (citing Sistler v. Liberty Mutual Ins. Co., 558 So.2d 1106, 1112
(La.1990)). The district court's findings are clearly wrong, especially considering the conduct of
principals of Mathes, Karlton/ISG, and Members in light of the dynamics and nature of the
Project and the failed joint business venture. While recognizing that the requisite intent of the
principals of Karlton/ISG and/or Members to defraud Mathes or perform a wrongful act against
Mathes through the use of limited liability entities may be inferred from the totality of the
circumstances and need not be proven by direct evidence, such inferences must be reasonable.
Inferences must take into consideration the legislative mandate that individuals are allowed to
limit their individual liability through the LLC business form or other limited liability entities.
Likewise, individuals are allowed to create minimally capitalized LLCs, and all parties (obligors
and obligees) assume business risks and have consequences of legal recourse strategies,
including the decisions to pursue legal actions or delay legal actions. The failure of the district
court to take into account these considerations makes the court's inferences unreasonable, which
warrants a reversal under a manifest error review. This case does not involve disputed facts but
required the court to make reasonable inferences from the undisputed business conduct of each
of the parties and the nature of the Project.

23

resort is made to justice, reason, and prevailing usages. La. C.C. art 4. Under the

civilian tradition, while a single decision is not binding on our courts, when a

series of decisions form a “constant stream of uniform and homogenous rulings

having the same reasoning,” jurisprudence constant applies and operates with

“considerable persuasive authority.”29 James L. Dennis, Interpretation and

Application of the Civil Code and the Evaluation of Judicial Precedent, 54 La.

L.Rev. 1, 15 (1993). Prior holdings by this court are persuasive, not authoritative,

expressions of the law. Yiannopoulos, supra, at § 35, p. 54. Thus, it is only when

courts consistently recognize a long-standing rule of law outside of legislative

expression that the rule of law will become part of Louisiana's custom under La.

C.C. art. 3 and be enforced as the law of the state, and courts will be allowed to

resort to equity. See La. C.C. arts. 3 and 4.

In Louisiana, “courts must begin every legal analysis by examining primary

sources of law: the State’s Constitution, codes, and statutes.” Powell v. DeHyCo,

Inc., 2001-1029 (La. App. 3 Cir. 2/13/02), 815 So. 2d 1032, 1034 (citing Prytania

Park Hotel, Ltd. v. General Star Indem. Co., 97–30635 (5th Cir. 6/17/99), 179 F.3d

169). The courts then can look to persuasive or secondary sources of law, such as

jurisprudence, doctrine, conventional usages, and equity, to guide them in reaching

a decision in the absence of legislation and custom. The courts must then employ

the appropriate methodology first looking to the Louisiana Supreme Court for

guidance. The law is well settled that this appellate court is bound to follow the

decisions of our Supreme Court. See Giarrusso v. New Orleans Book Mart, Inc.,

29
The case law on piercing the corporate veil, in terms of limited liability companies, is sparse
and not uniform. Compare Riggins and progeny with Ogea. Ogea v. Merritt, 13-1085 (La.
12/10/13), 130 So. 3d 888; Riggins v. Dixie Shoring Co., 590 So.2d 1164 (La. 1991); See An
Erny Girl, L.L.C. v. BCNO 4 L.L.C., 18-0360, p. 9 (La. App. 4 Cir. 9/26/18), 257 So. 3d 212,
220; see also Payphone Connection Plus, Inc. v. Wagners Chef, LLC, 19-0181, p. 10 n.14 (La.
App. 4 Cir. 7/31/19), 276 So. 3d 589, 596; ORX Res., Inc. v. MBW Expl., L.L.C., 09-0662, p. 7
(La. App. 4 Cir. 2/10/10), 32 So. 3d 931, 935.

24

(La.App. 4 Cir. 12/10/74), 304 So.2d 734; D'Antoni v. D'Antoni, (La.App. 4 Cir.

5/16/83), 432 So.2d 926. Accordingly, I must rely on the Ogea Methodology.

In 1992, the Louisiana Legislature enacted Chapter 22, “Limited Liability

Companies,” comprised of R.S. 12:1301 through 1369, which, inter alia,

authorized limited liability companies. “[T]he personalities of an L.L.C. and its

members are wholly separate by law.” Nunez v. Pinnacle Homes, L.L.C., 15-0087,

p. 5 (La. 10/14/15), 180 So.3d 285, 289 (citation omitted). To promote business,

“the legislature intended to shield individual members, managers, and employees

of an L.L.C. from liability, albeit with certain exceptions.” Id. To that end, the

legislature established “narrowly defined” limited liability exceptions to the

general rule of limited liability. Id.

La. R.S. 12:1320 provides:

A. The liability of members, managers, employees, or agents,
as such, of a limited liability company organized and existing under
this Chapter shall at all times be determined solely and exclusively by
the provisions of this Chapter.

B. Except as otherwise specifically set forth in this Chapter, no
member, manager, employee, or agent of a limited liability company
is liable in such capacity for a debt, obligation, or liability of the
limited liability company.

C. A member, manager, employee, or agent of a limited
liability company is not a proper party to a proceeding by or against a
limited liability company, except when the object is to enforce such a
person's rights against or liability to the limited liability company.

D. Nothing in this Chapter shall be construed as being in
derogation of any rights which any person may by law have against a
member, manager, employee, or agent of a limited liability company
because of any fraud practiced upon him, because of any breach of
professional duty or other negligent or wrongful act by such person, or
in derogation of any right which the limited liability company may
have against any such person because of any fraud practiced upon it
by him.

25

I find that various legal options were available to Mathes30 and rules

“can be derived from legislation” that applies to the particular circumstances

in this case, particularly La. R.S. 12:1320(D). This case is not one in which

the court must resort to equity31 but one regulated by the legislature with the

clear intent “to promote business in the state by limiting personal liability for

some debts incurred or acts performed on behalf of business entities . . .

albeit with certain exceptions.” Nunez, 180 So.3d at 289.

Nonetheless, I recognize that while linguistic or conceptual

distinctions exist between the equitable Riggins Exception and the statutory

Fraud Exception and Negligent or Wrongful Act Exception, any such

distinction among them lacks substantive practical effect and are based, inter

alia, on fraudulent or wrongful acts. The district court erred in failing to

recognize this distinction without a difference and basing its judgment solely

on the Riggins Exception32 and by not following the Ogea Methodology.

As required by Ogea, an analysis as to the applicability of the Fraud

Exception, which includes any claim of fraud such as those found in the Riggins

Exception and as pled by Mathes, should be based on the longstanding definition

of fraud found in La. C.C. art.1953 and existing laws noting that “this definition of

fraud has remained essentially unchanged from that contained in Article 1847(6) of

the Civil Code of 1870.” Ogea, 130 So. 3d at 898.

30
See supra note 17 and accompanying text.
31
The applicability of a jurisprudential limited liability exception is determined on a case-by-
case basis as it is not statutorily imbedded in the civilian tradition, is a rare exception, and
applies in the case of fraud or certain other exceptional circumstances, so that creditors may have
an equitable remedy when they are not afforded a statutory remedy. Dole Food Co. v.
Patrickson, 538 U.S. 468, 123 S. Ct. 1655, 155 L. Ed. 2d 643, 188 A.L.R. Fed. 661 (2003).
32
Similar to the Riggins Exception, while a linguistic or conceptual distinction may exist
between the equitable Green Exception and the statutory Fraud Exception and Negligent or
Wrongful Act Exception, any such distinction lacks substantive practical effect. The district
court did not recognize this distinction without a difference and cited the Green Exception.

26

Louisiana’s most longstanding legislative
compilation, the Civil Code, provides the following
definition: “Fraud is a misrepresentation or a suppression
of the truth made with the intention either to obtain an
unjust advantage for one party or to cause a loss or
inconvenience to the other. Fraud may also result from
silence or inaction.” La. C.C. art.1953. This definition of
fraud has remained essentially unchanged from that
contained in Article 1847(6) of the Civil Code of 1870.
See La. C.C. art.1953, Revision Comment–1984,
comment (a). It is appropriate to draw from such a
longstanding definition because, when the legislature
enumerated the term “fraud” but did not define “fraud” in
La. R.S. 12:1320, “this Court must assume the Legislature
was aware of existing laws on the same subject.” See Foti
v. Holliday, 09–0093, p. 6 (La. 10/30/09), 27 So.3d 813,
817.

Ogea, 130 So. 3d at 897-98.

This court has applied a fraud analysis in a pre-Ogea case, such as in ORX

Res., Inc. v. MBW Expl., L.L.C., 09-0662, p. 12 (La. App. 4 Cir. 2/10/10), 32 So.

3d 931, 938, and in a post-Ogea case, such as in Syzygy Const., LLC v. McKey, 14-

0745, p. 6 (La. App. 4 Cir. 12/10/14), 156 So.3d 763, 768. In Orx, after a review

of the Negligent or Wrongful Act Exception and application of the Riggins

Methodology, this court found Mr. Washauer, a member of MBW, L.L.C.

("MBW"), liable under general principles of fault that “prevent the use of the LLC

form to defraud creditors.” 32 So. 3d at 935. The court found that Mr. Washauer

comingled MBW funds with member's funds; commingling occurred because

MBW was undercapitalized and did not have a separate bank account to conduct

its affairs; and at the time the member signed the operating agreement, MBW was

not recognized as an LLC and did not exist. Id. at 937-38. The court explained,

“MBW did not exist until July 20, 2005, when said statutory formalities were met.”

Id. at 937. “While Mr. Washauer signed the JOA [Joint Operating Agreement] (in

January of 2003) and the Participation Agreement (in December of 2004), MBW

did not exist, and this evidences that he did not observe statutory formalities in

27

creating MBW." Id. The court concluded “Mr. Washauer used MBW as a shell

and tried to avoid paying a legitimate debt of the LLC.” Id. at 935.

Orx is distinguishable from the case sub judice. Substantial capital

contributions were initially made to Karlton/ISG as evidenced by the undisputed

fact that Mathes was paid over a million dollars for services rendered on the

Project during the first three years of the joint business venture between Karlton

Corp. and ISG Co. This does not demonstrate undercapitalization to defraud

creditors as found in Orx. Also, during this earlier time period pertinent to my

analysis, Karlton/ISG operated as an independent entity as it had financial

statements, tax returns, and funding. Mathes failed to prove that Members used

Karlton/ISG as a shell entity, that they used Karlton/ISG to avoid paying a debt of

Karlton/ISG, or that they used the LLC form to defraud Mathes as a creditor, as in

Orx.

In Syzygy, this court held that an individual member of an LLC could not be

held liable for fraud due to a lack of evidence of misrepresentation finding that the

claimant failed to demonstrate that a member of an LLC fraudulently induced the

creditor to contract or intentionally misrepresented or suppressed the truth

regarding its ability to perform under the contract. Id.

Similar to Syzygy, Mathes failed to demonstrate that anyone fraudulently

induced it to contract or intentionally misrepresented or suppressed the truth

regarding Karlton/ISG's ability to perform under the Agreement during pertinent

time periods. Fraudulent intent, or the specific intent to deceive, is a necessary and

inherent element of fraud. Sun Drilling Prod. Corp. v. Rayborn, 00-1884 (La.

App. 4 Cir. 10/3/01), 798 So. 2d 1141, 1152, writ denied, 01-2939 (La. 1/25/02),

807 So. 2d 840. "[W]hile fraud may indeed result from a party's silence or

inaction, mere silence or inaction without fraudulent intent does not constitute

fraud." Terrebonne Concrete, LLC v. CEC Enterprises, LLC, 11-0072 (La. App. 1

28

Cir. 8/17/11), 76 So. 3d 502, 509, writ denied, 11-2021 (La. 11/18/11), 75 So. 3d

464 (the trial court's finding of liability against the president of the business was in

error and “was obviously based primarily, if not exclusively, upon his status as []

president, ‘the person in charge,’”. . . “rather than upon any legal duty owed by

him personally” . . . “or upon any actual evidence of fraudulent intent on his part.”

Officers cannot be held personally liable to third persons for negligence,

maladministration of business affairs, or omission of duty for acts done on behalf

of the business, especially in a commercial context).

A claimant must produce sufficient evidence of fraudulent intent. The

requisite intent to defraud or a finding of no fraudulent intent may be inferred from

the totality of the circumstances and from statements and conduct. “Fraud may be

predicated on promises made with the intention not to perform at the time the

promise was made”, but it cannot be predicated on unfilled promises or statements

as to future events. Sun Drilling, 798 So. 2d at 1152.

Our Court in Sun Drilling provides the following fraud analysis under La.

C.C. art. 1953:

The investors argue that the trial court erred by
awarding Rayborn damages for breach of contract after
finding the investors defrauded him. Rayborn argues on
appeal that the investors defrauded him, since they never
intended to pay him for his 1993 tax liability. However,
the trial court specifically found that Rayborn failed to
prove fraud in the inducement of the contract. A cause of
action for intentional fraudulent misrepresentation as to
present or past facts exists in Louisiana. A party who is
injured by fraud and deceit of another has a cause of action
for damages. Fraud, however, cannot be predicated on
unfulfilled promises or statements as to future events.
Fraud may be predicated on promises made with the
intention not to perform at the time the promise is made. . .
.
Two elements are necessary to prove fraud: (1) an
intent to defraud and (2) actual or potential loss or damage.
Federal courts applying Louisiana law indicate that
reliance is an element of a claim for fraud. Moreover, for
fraud or deceit to have caused plaintiff's damage, he must
at least be able to say that had he known the truth, he

29

would not have acted as he did to his detriment. Whether
this element is labeled reliance, inducement, or causation,
it is an element of a plaintiff's case for fraud. The party
alleging fraud need only prove these elements by a
preponderance of the evidence. Circumstantial evidence,
including highly suspicious facts and circumstances
surrounding a transaction, may be considered in
determining whether fraud has been committed.

The trial court found that Rayborn failed to prove
that the investors did not intend to perform at the time of
the various agreements. However, the trial court
concluded that the investors defrauded Rayborn and thus
found them personally liable. We agree with the trial court
that the record does not contain sufficient evidence of the
investors' intent to defraud Rayborn. Moreover, Rayborn
did not answer the appeal and challenge this finding.

The record contains no evidence that Rayborn
relied to his detriment on the investors' misrepresentations
or omissions in the performance of the contract. We do
not disagree with the factual findings of the trial court.
The investors, through Astugue, either intentionally or
negligently misrepresented Sun's opinions regarding
Rayborn's job performance. The investors did not fully
disclose to Rayborn the facts of their attempts to sell Sun.
However, Rayborn neither alleged nor proved how these
misrepresentations or omissions caused him damage.
Although the record convinces us that the investors did not
disclose important information, including Sun's potential
liability to Rayborn for the enormous royalty benefit to
prospective buyers, the record contains no evidence that
Rayborn relied on these misrepresentations or omissions to
his detriment. Rayborn proved that the investors failed to
disclose particular information to him and to other
individuals. Moreover, he proved damages, but we find no
evidence in the record that the investors' omissions or
misrepresentations caused his damages or his termination.

798 So. 2d at 1152-53 (citations omitted).

Ed Mathes testified that he was not made aware of Karlton/ISG's

abandonment. Ambrosia testified that he assumed that Ed Mathes knew about the

abandonment, as Mathes had not submitted an invoice for 2008 services, nor

demanded payment on outstanding invoices for 2007 services for a period of

almost five years, and other business ventures were being discussed to carry out

some version or a revision of the Project to completion. The assurances made by

30

Ambrosio and Lipkins to Ed Mathes that “the money [is] coming, the money [is]

coming” must be viewed during the time periods that they were made, especially

with respect to the intent of the parties throughout the various stages of the venture

in this commercial setting, as our court explained in Sun Drilling. Ed Mathes

testified that he was not concerned about Karlton's financial wherewithal to

complete the Project and that he continued to work on the Project despite lack of

payment because the “project was too important as I've tried to explain to the city,

to us, to the people of the Westbank and . . . he wanted it to succeed and we kept

getting at least verbal assurances that we would be paid.” Separate negotiations

with the Kerns are far removed in time from the pertinent circumstances33 and I

find insufficient evidence in the record to conclude that the conduct of principals of

Karlton/ISG or Members caused the resultant damage to Mathes for nonpayment

of the Outstanding Balance and the 2013 Invoice.

Moreover, the release of the Mortgage and the Note was partially due to the

fact that the Note prescribed. Mathes failed to produce any evidence to the

contrary. The releases were executed after Mathes' petition was filed; thus, fraud,

if any exists as to the releases, is not pertinent to this case. Mathes made business

decisions not to pursue actions against Karlton/ISG until after the Project stalled

for years and the Note prescribed and further made the decision not to pursue a

claim against River Street for allegedly unjust displacement of assets at the

expense of Mathes for using Mathes' architectural work product. The failure of

Mathes to act diminished the options available to Mathes as a judgment creditor

and those afforded to an impoverished obligee against an obligor.34 Mathes failed

to prove the necessary causation, which resulted in his damages.

33
See supra note 8.
34
See supra note 17 and accompanying text.
31

The circumstances in this case are not extraordinary and do not present an

exceptional circumstance such that would allow for Members’ liability for

Karlton/ISG's debts. The facts presented at trial weigh in favor of sustaining the

general shield of limited liability of Members and not in the removal of such

protection intended by our legislature. The conduct of the parties does not give

rise to fraud. The inferences made by the district court from the totality of the

circumstances were unreasonable to find that the LLC form was used to defraud a

creditor. After a review of the record and applicable law, there is no evidence of

fraud by which Members could be held liable notwithstanding that they are

members of Karlton/ISG.

As required by Ogea, an analysis as to the applicability of the Negligent or

Wrongful Act Exception, which includes, inter alia, any claim of a wrongful act

such as those found in the Riggins Exception and as pled by Mathes, should be as

follows:

[T]he exception for a “negligent or wrongful act” does not
define those terms and requires an evaluation of where a cause of
action may be established “by law.” ...Unlike the other exceptions, the
“negligent or wrongful act” exception does not suggest a singular
statutory definition. Indeed, the “negligent or wrongful act” exception
differs from the other exceptions examined because the “negligent or
wrongful act” exception contains two distinct concepts (i.e., the
exception applies to an act that is “negligent” or an act that is
“wrongful”).

Ogea, 130 So.3d at 899.

To determine the meaning of “negligent or wrongful act,” the Court

examined many areas of the law, including tort and criminal, before coming to the

following conclusions:

Because these concepts appear with great frequency outside of
tort law, we find that the terms “negligent” act and “wrongful act” as
employed … are not limited to “torts.” We are, however, equally
mindful that the terms “negligent” act and “wrongful act” are part of
an exception… and that the general rule, and hence the general goal,
of the limited liability provision… is to afford limited liability.
Compare La. R.S. 12:1320(B) and (D); see also Deborah A.

32

Wisnowski, Comment: The Louisiana Limited Liability Company
Law: A Gumbo of Previously Existing Business Entities, 39 Loy. L.
Rev. 185, 191 (Spring 1993) (noting the “LLC’s objective is to offer
its members liability exposure limited to each member’s capital
contribution.”). Therefore, to accord the terms “negligent” act and
“wrongful act” their commonly understood meaning while also
respecting the general limitation of liability, we find the following
four factors assist our inquiry: 1) whether a member’s conduct could
be fairly characterized as a traditionally recognized tort [tort factor];
2) whether a member’s conduct could be fairly characterized as a
crime, for which a natural person, not a juridical person, could be held
culpable [criminal conduct factor]; 3) whether the conduct at issue
was required by, or was in furtherance of, a contract between the
claimant and the LLC [contract factor]; and 4) whether the conduct at
issue was done outside the member’s capacity as a member [factor of
acting inside or outside the LLC].

Id. at 900-01.

The Court further explained that the concepts of “negligent” act and

“wrongful act” are also employed synonymously outside tort law as follows:

For example, these concepts can be found in
prominent areas of the law, such as in criminal law. See
La. R.S. 14:8(3) (“Criminal conduct consists of: ...
Criminal negligence that produces criminal
consequences.”). The concept of being “negligent” is
embraced by this statute. Additionally, a “wrongful act”
appears to be analogous to “[a]n act ... that produces
criminal consequences” where there is either “criminal
intent” or “where there is no requirement for criminal
intent.” See La. R.S. 14:8(1) and (2); see also La. R.S.
14:10 (defining acts produced by specific and general
intent under criminal law).

The concepts of a “negligent or wrongful act” can also be
found in more arcane areas of the law, such as the law
governing bonds for court reporters and even in mineral
law. See La. R.S. 13:961(B) (“Any party litigant shall
have a right to sue on said bond for any damages
sustained by said party litigant by any wrongful act or
neglect of duty committed or omitted by the official court
reporters in the performance of the duties of official court
reporters.”); see also La. R.S. 31:12 (“the owner of land
may protect his rights in minerals against trespass,
damage, and other wrongful acts of interference by all
means available for the protection of ownership.”).

Id. at 900.

The Tort Factor

33

“A court is to evaluate each situation on a case-by-case basis and consider

each of the above factors when determining whether the general rule of limited

liability must yield to the exception for a member's ‘negligent or wrongful act.’”

Ogea, 130 So.3d at 905. Because “negligent” act and “wrongful act” are common

features of tort law, the tort factor may be dispositive in determining whether or

not piercing of the company veil is required. Id. The duty owed and alleged

breached under the tort factor must be a duty in the tort sense, not in the

contractual sense. Id. at 901. “Simply put, the inquiry is whether the plaintiff has

any law-statutory, jurisprudential, or arising from general principles of fault-to

support his claim.” Id., at 905 (quoting Faucheaux v. Terrebonne Consol.

Government, (La. 2/22/93), 615 So.2d 289, 292).

Mathes established nothing at trial from which I can discern a tort duty owed

to it by Karlton/ISG or Members; rather the duty breached was a contractual one.35

Therefore, I find that the tort factor is unmet.

The Criminal Factor

The second factor requires us to determine whether the conduct at issue

violates a criminal statute intended to protect the claimant from the type of harm

that ensued. Ogea, 130 So.3d at 904. In its petition, Mathes did not allege any

type of criminal conduct.36 However, Mathes claims that Karlton/ISG made

35
Compare Matherne v. Barnum, 11-0827, p. 10 (La.App. 1 Cir. 3/19/12), 94 So.3d 782, 789-90
(court found defendant subject to personal liability arising from his own negligence in
performing the construction, but pretermitted piercing the corporate veil claim); and Regions
Bank v. Ark-La-Tex Water Gardens, L.L.C., 43,604, p. 12 (La.App. 2 Cir. 11/5/08), 997 So.2d
734, 741 (court found individual member of defendant LLC personally liable due to his own
negligence); with Nunez, 15-0087, p. 12 180 So.3d at 293-94 (court held (1) defendant did not
owe plaintiff separate tort duty and (2) showing of poor workmanship arising out of contract
entered into by LLC insufficient to establish “negligent or wrongful act,” to find defendant
individually liable for negligent or wrongful acts).
36
The following causes of action were asserted by Mathes in its petition:

1. Breach of Contract;
2. Suit on Open Account;
3. Unjust Enrichment;
4. Declaratory Relief;
5. Contractual Termination Damages; and
34

certain misrepresentations on its tax returns regarding capitalization and

abandonment. I, however, find that such conduct cannot be characterized as a

crime under the Criminal Factor.37

Any actions taken by Karlton/ISG related to the reporting positions taken on

its tax returns is totally irrelevant to this case, as Mathes neither relied on those tax

returns nor requested copies of the tax returns prior to filing suit. This evidence is

pertinent only as to making reasonable inferences from the conduct of principals

acting on behalf of Karlton/ISG and/or Members to show intent to defraud Mathes

as a creditor as to its abandonment of Mathes' work, which was earlier addressed

under an analysis of the Fraud Exception. As Mathes did not become aware of the

tax return classifications claimed by Karlton/ISG until after filing its petition, any

"tax evasion", if such exists, was not perpetrated against Mathes. See Brennan's

Inc. v. Colbert, 11-1095, p. 8 (La.App. 4 Cir. 2/29/12), 85 So.3d 787, 792.38

The Contract Factor

In the third factor, I examine whether the member's conduct at issue was

required by, or was in furtherance of, a contract between Mathes and Karlton/ISG.

6. Alter ego liability
37
Compare Nicholas v. BBT Const. Mgmt., L.L.C., 15-1009 (La.App. 1 Cir. 12/23/15), 2015 WL
9466864 at *4 (unpub.) (defendant committed negligent or wrongful act subjecting him to
narrow personal liability exception, where actions could be characterized as a tort for refusal to
return the unused funds. “This failure to refund the unused funds could be considered a delictual
action or tortious conversion,” but “failure to return the unused portion of the contract price
could be perceived as a crime of theft.”) with Nunez, 15-0087, pp. 12-13, 180 So.3d at 293
(court found defendant’s acts or failure to act did not violate a criminal statute granting right of
restitution, noting (1) “if the conduct at issue constitutes a crime, that fact weighs in favor of
allowing the victim(s) to recover against the offender;” (2)“only crimes for which a natural
person may be held culpable should be considered, although the member need not have been
actually convicted of the crime to establish the factor of criminal conduct as a ‘negligent or
wrongful act;’” and (3) “violation of a criminal statute, whether prosecuted or not, is but one
factor to consider in determining whether an exception to the rule of limited liability would lie.”)
38
The difference between tax evasion and tax avoidance largely boils down to two elements:
lying and hiding. Tax avoidance is structuring affairs so one pays the least amount of tax due.
Tax evasion is lying on an income tax form or any other form. Thomas v. Bridges, 13-1855, p.
10 (La. 5/7/14), 144 So.3d 1001, 1008 (“Use of particular business entities to avoid taxes and
other liabilities, far from being fraudulent, is a common and legal practice...The legal right of a
taxpayer to decrease the amount of what would otherwise be his taxes, or altogether avoid them
by means which the law permits, cannot be doubted.”) Although tax evasion is illegal, tax
avoidance is not.

35

Ogea, 130 So.3d at 906. In this case, a contract existed between Karlton/ISG and

Mathes whereby Mathes was to provide architectural services and Karlton/ISG

owed payment for those services. The suit centered on payments due and owed to

Mathes by Karlton/ISG. The “contract” factor, therefore, weighs against holding

Members solidarily liable for the debts of Karlton/ISG.

The Capacity Factor

Finally, “[t]he fourth factor requires us to examine whether the conduct at

issue was done outside the member's capacity as a member of an LLC.” Id. I find

evidence suggesting that principals, on behalf of ISG Co., acted outside

Karlton/ISG's LLC structure when they created River Street and pursued other

business ventures with the Kern Entities. However, these business activities

occurred many years after the Agreement, after Karlton Corp. ceased making

capital contributions to Karlton/ISG, the joint venture was abandoned, the Note

presumably prescribed leaving it with little or no value, and the Project failed to be

carried out to completion while at the same time Mathes did not avail itself of legal

recourse against Karlton/ISG or River Street. Moreover, at trial, Ed Mathes

testified that he was fully aware that Mathes was contracting with Karlton/ISG and

that the contract was neither with Karlton Corp. nor ISG Co. Further, as the

contract was between Mathes and Karlton/ISG, no issue of an undisclosed

mandatary relationship existed for which Members could be held liable. During

pertinent times and early in the business venture, Members acted “inside” rather

than “outside” the structure of Karlton/ISG. The passage of a substantial amount

of time and the peculiar circumstances of the Project, the business arrangements,

and the capacities of the parties, weigh in favor of sustaining the general shield of

limited liability of Members as to the Capacity Factor.

In applying the four Ogea factors to the totality of the circumstances of this

case, I find that the Negligent or Wrongful Act Exception does not apply. After a

36

review of the record and applicable law, there is no evidence of a wrongful act by

which Members could be held liable notwithstanding that they are members of

Karlton/ISG.

The application of both the Fraud Exception and Negligent or Wrongful Act

Exception and the Ogea Methodology taking into account Riggins principles of

fault reveals the fact-driven nature of classifying transfers of a business asset to

another legal entity so that it may be held or used as a fraudulent or wrongful act

that would allow for the removal of the general shield of protection and limited

liability of LLC members. Even assuming that the cancelation of the Note and

release of the Mortgage amounted to a transfer of an asset with value and caused or

increased Karlton/ISG’s insolvency which caused nonpayment to Mathes (none of

which were proved at trial with sufficient evidence or properly before us),39 such

conduct under certain business circumstances will be allowed from a commercial

perspective as Ogea does not attempt to establish a bright-line rule in analyzing

business activities and differentiating between assets. Such a rule would prove

unworkable given the fact-driven nature of business dealings in the commercial

context. Louisiana Revised Statute 12:1320 and the Ogea Methodology provide a

workable legal analysis and greater guidance than Riggins only. Ogea provides

clarity to current and prospective business owners and limited liability entities that

desire to engage in business in our state.

The holding of the district court invoking only a judicially created exception

and allocation of fault award40 exceeds the authority that has been bestowed by the

39
See Forterra Capital, L.L.C. v. Mamal, Inc., 10-0798 (La.App. 4 Cir. 1/13/11), 55 So.3d 963
(transfer of machines used to clean tanks on offshore supply vessels and all present and future
rights thereto by judgment debtor did not increase his insolvency, for purposes of action by
judgment creditor to annul transfer on the basis that judgment creditor attempts to collect a debt
owed to it, where judgment debtor's balance sheet indicated insolvency was greater the day
before the transfer than the day after and the insolvency antedated the transfer complained of).
40
The district court found solidary liability without a review of the applicable statutory laws
regarding allocation of fault. See e.g. La. C.C. art. 2324(A)(“He who conspires with another
person to commit an intentional or willful act is answerable, in solido, with that person, for the
37

Legislature and the citizenry of this State, especially given its failure to follow

Ogea and legislatively created causes of action and allocation of fault laws. These

statutes were carefully crafted to balance the requirement for businesses to operate

with honesty in both form and substance while promoting “business in the state by

limiting personal liability for some debts incurred or acts performed on behalf of

business entities . . . albeit with certain exceptions.” Nunez, 180 So.3d at 289. To

undo this balance from the bench is to reach beyond the authority of a judge. As

explained in Hoag v. State, 04-0857, p. 4 (La. 12/1/04), 889 So.2d 1019, 1022:

Our state constitution divides governmental power
into separate legislative, executive and judicial branches
and provides that no one branch shall exercise powers
belonging to the others. La. Const., art. II, §§ 1, 2. This
trichotomous branching of authority furnishes the basis
for the existence of an inherent judicial power which the
legislative and executive branches cannot abridge.
Singer, Hutner, Levine, etc. v. LSBA, 378 So.2d 423 (La.
1979); Saucier v. Hayes Dairy Products, 373 So.2d 102,
109, 114 n. 3 (La. 1979). Likewise, the judicial branch
is prohibited from infringing upon the inherent powers
of the legislative and executive branches. LaBauve v.
Louisiana Wildlife and Fisheries Comm'n, 289 So.2d
150, 151 (1974).

The district court disregarded the statutory scheme that businesses rely on and

resulted in its failure to provide a clear legal analysis that would promote uniform

damage caused by such act”). The district court failed to provide proper analysis as to whether
liability arises from criminal, intentional, willful, wrongful, fraudulent, or tortious actions in its
assessment of damages. The finding of solidary liability does not seem to stem from statutory
law but from Riggins, which allows for corporate shareholders to be personal liable for debts of
the corporation. Thus, solidary liability as vaguely applied in this context can also be viewed as
judicially-created. Moreover, it does not fit well into the statutory scheme of comparative fault
and joint and divisible obligations (La. C.C. art. 2323 and 2324 (B)), several, joint, and solidary
obligations (La. C.C. arts. 1786, et seq), and solidary liability for intentional and willful acts (La.
C.C. art. 2324(A)). While one may question the advisability of this statutory scheme, we are
bound to follow it. See Soloco v. Dupree, 97–1256 (La. 1/21/98), 707 So.2d 12, 17 (“It is not the
prerogative of the judiciary to disregard public policy decisions underlying legislation or to
reweigh balances of interests and policy considerations already struck by the legislature”). The
district court's disregard for the statutory scheme for the allocation of fault results in an unfair,
vague, and baseless decision, especially finding Karlton Corp. solidarily liable. There is
insufficient evidence to find that principals of Kartlon Corp. conspired with principals of ISG
Co. and Karlton/ISG to defraud Mathes. The district court found that principals of ISG Co.
began efforts to develop the Project separately and at the time of the trial “it was established that
some of those efforts continue to this day.”
38

results, development of the Ogea Methodology, and provide clear direction to

current and prospective business owners and limited liability entities.

In conclusion, the conduct of the parties and the peculiar circumstances of

the case sub judice do not give rise to fraudulent or wrongful acts or solidary

obligations as contemplated by the legislature in enacting La. R.S. 12:1320(D) and

La. C.C. art. 2324(A) or pursuant to the Louisiana Supreme Court's legal analysis

in Ogea that would allow for Members to be responsible for the debts of

Karlton/ISG. The inferences made by the district court from the totality of the

circumstances were unreasonable and it erred in its application of the law finding

Members solidarily liable with Karlton/ISG based on either a manifest error41 or de

novo review. Therefore, assignment of error one has merit and I would reverse

those portions of the judgments holding Members solidarily liable with

Karlton/ISG.

Based on the foregoing, I would affirm the September 26, 2018 judgment

that awards damages in favor of Mathes and against Karlton/ISG in the amount of

$944,669.23 plus interest. I would also affirm the January 11, 2019 judgment that

taxes costs in the amount of $61,366.34 against Karlton/ISG. I would reverse

those portions of the September 26, 2018 and January 11, 2019 judgments holding

ISG Co. and Karlton Corp. solidarily liable with Karlton/ISG.

41
See supra note 28.
39