Elaine Setliff v. Erma Adams, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

06-182

ELAINE SETLIFF

VERSUS

ERMA ADAMS, INC.

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APPEAL FROM THE
NINTH JUDICIAL DISTRICT COURT
PARISH OF RAPIDES, NO. 208,567
HONORABLE JOHN C. DAVIDSON, DISTRICT JUDGE

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ELIZABETH A. PICKETT
JUDGE

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Court composed of John D. Saunders, Elizabeth A. Pickett, and James T. Genovese,
Judges.

AFFIRMED.

Ricky L. Sooter
Attorney at Law
P. O. Drawer 1791
Alexandria, LA 71309-1791
(318) 445-3631
Counsel for Defendant-Appellee:
Erma Adams, Inc.

S. Aaron Siebenicher
Valerie M. Thompson
Johnson & Siebeneicher
P. O. Box 648
Alexandria, LA 71309
(318) 484-3911
Counsel for Plaintiff-Appellant:
Elaine Setliff

Pickett, Judge.

The appellant, Elaine Setliff, appeals a judgment of the trial court granting

summary judgment in favor of the defendant, Erma Adams, Inc., and dismissing her

claims with prejudice.

STATEMENT OF THE CASE

Erma Adams, Inc., a real estate brokerage firm, hired Elaine Setliff as a real

estate agent in 1998. During a meeting of the board of directors of Erma Adams, Inc.

in December 1998, the following resolution was passed:

The motion was made and passed to change the status of officers and
stockholders, amended by the three original three [sic] stockholders and
owners of this Corporation.

The ownership and stock is restructured to allow Elaine Setliff to become
a partner in the corporation of Erma Adams, Inc. The distribution of
ownership, titles and stock as follows:

Erma Adams — President with 51% ownership and 312+ shares.
Michael Adams—Vice President with 16.3% ownership and 100 shares.
James Adams — Treasurer with 16.3% ownership and 100 shares.
Elaine Setliff— Secretary with 16.3% ownership and 100 shares.

The following motion was made:

That the by-laws of the corporation be amended as follows. Add the
following provision to Article V, 5.3, Subsection c — Should any shares
of the Company be placed on the market, for any reason, the corporation
of the Shareholders there of shall have the first right to purchase the
stock. The price shall be set as follows: recognizing that this is a closely
held corporation, and that the revenues of the corporation derive from
personal efforts of the shareholders, the company does not keep a reserve
of monies or profits, nor does it acquire assets of substantial value, that
each share is valued at TEN DOLLARS ($10.00)

Elaine Setliff will be expected to buy stock in the amount of $10,000 to
be paid over a period of 5 to 10 years. Should she ever leave the
employment of the company for any reason her shares will be offered to
the company at the above value.

In Addition, Life Insurance will be taken out on Elaine Setliff payable to
the company in case of her death. Mark Setliff will sign a document
stating he has no interest in the company. Elaine Setliff will sign a non-
compete employment contract with Century 21 Erma Adams Realty.

Mrs. Setliff was present at this meeting. She paid $1,000.00 toward the purchase of

the stock in January 2000. She made no other payments toward the purchase of the

stock. She did serve as Secretary of the corporation as evidenced by the minutes of

the meetings of the Board of Directors, and she claims she received a dividend check

in 1999. Erma Adams, Inc. also purchased a life insurance policy on Mrs. Setliff.

Mrs. Setliff left the employment of Erma Adams, Inc. in February 2000. She

filed this suit on April 26, 2002, seeking a judgment that she be recognized as a

shareholder of Erma Adams, Inc. Following discovery, Erma Adams, Inc. filed a

Motion for Summary Judgment. The trial court held a hearing on June 13, 2005. The

trial court issued written reasons for judgment on August 29, 2005, in which it granted

the Motion for Summary Judgment in favor of Erma Adams, Inc., awarded $1,000.00

to Mrs. Setliff as the return of the deposit she made for the purchase of the stock, and

otherwise dismissed Mrs. Setliff’s claims with prejudice. A judgment conforming to

the written reasons was signed on October 27, 2005. Mrs. Setliff now appeals.

ASSIGNMENT OF ERROR

The plaintiff-appellant, Mrs. Setliff, asserts one assignment of error:

The trial court judge erred in ruling that Elaine Setliff had no ownership
interest in Erma Adams, Inc.
DISCUSSION

Appellate courts review summary judgments de novo under the same criteria

that govern the trial court’s consideration of whether a summary judgment is

appropriate. Schroeder v. Bd. of Supervisors of La. State Univ., 591 So.2d 342

(La.1991). The mover is entitled to judgment if the pleadings, depositions, answers

to interrogatories and admissions on file, together with supporting affidavits, if any,

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show there is no genuine issue of material fact and the mover is entitled to judgment

as a matter of law. La.Code Civ.P. art. 966(B).

In this case, Erma Adams, Inc. asserts that Mrs. Setliff never paid the full price

for the shares of stock in the corporation, and thus is prohibited from asserting

ownership pursuant to La.R.S. 12:52, specifically subsection C. Louisiana Revised

Statutes 12:52 states:

A. Par value shares may be issued initially for such consideration
expressed in dollars, not less than the par value thereof, as shall be fixed
by the board of directors. Shares without par value may be issued from
time to time for such consideration expressed in dollars as may be fixed
by the board of directors or by the shareholders by a vote of a majority
of the voting power present, if the articles reserve to the shareholders the
right to fix the consideration; provided however, the consideration for
such shares may be initially fixed by the incorporators. Treasury shares
may be disposed of by the corporation for such consideration as may be
fixed from time to time by the board of directors. All fully paid shares
shall be nonassessable.

B. Shares issued (1) in payment of a stock dividend, (2) pursuant
to exercise of conversion rights, (3) in exchange for, or in respect of,
outstanding shares pursuant to a reclassification of stock, (4) in a merger
or consolidation as provided in the merger or consolidation agreement,
or (5) pursuant to the authority of R.S. 12:41(B)(9)(d) and (e) shall be
considered as fully paid when so issued.

C. The consideration for shares issued otherwise than as stated in
subsection B of this section, shall be paid in cash or in corporeal or
incorporeal property, or services actually rendered to the corporation, the
fair value of which is not less than the dollar amount of the consideration
fixed for the shares, before the shares are issued. Upon payment of the
consideration fixed therefor, such shares shall be considered as fully
paid. Cash consideration for shares may not be paid by the purchaser’s
note, secured or unsecured, or uncertified check; and in case of delivery
of such a note or check in payment for shares, the shares shall not be
issued until the note or check has been paid in full.

D. Solely for the purpose of determining whether shares have been
paid for fully, the valuation placed by the shareholders or the directors,
as the case may be, upon the consideration other than cash paid therefor
shall be conclusive.

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Erma Adams, Inc. argues that the agreement reached between Mrs. Setliff and

the corporation was that Mrs. Setliff would pay cash for her shares of stock, and her

failure to pay the entire amount means that the stock cannot be issued pursuant to

La.R.S. 12:52(C). Mrs. Setliff argues that this case falls within the exception to

subsection C of the statute. Specifically, Mrs. Setliff argues that she is entitled to an

ownership interest in the corporation despite her failure to pay for the stock pursuant

to the exception to La.R.S. 12:52(C) found at La.R.S. 12:52(B)(5). She argues that her

shares of stock should have been issued pursuant to La.R.S. 12:41(B)(9)(d) and (e),

which states:

Without limiting the grant of power contained in Subsection A of
this Section, it is hereby specifically provided that every corporation
shall have authority:

....

(9)(a) To elect or appoint officers and agents;

(b) To define their duties;

(c) To fix their compensation;

(d) To pay pensions in cash, shares of stock, or property,
and establish pension plans, pension trusts, profit sharing
plans, and other incentive and benefit plans for any or all of
its directors, officers, and employees; and

(e) To establish stock bonus plans, stock option plans, and
plans for the acquisition of any or all of its unissued shares,
or of shares acquired or to be acquired, by the employees of
the corporation, or by employees of subsidiary corporations,
or by trustees on their behalf, which plan:

(i) May include the establishment of a special
fund or funds for the purchase of such shares
in which such employees during the period of
their employment or any other period of time
may be privileged to share on such terms as
are imposed with respect thereto,

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(ii) May provide for the payment of any price
of such shares in installments, or

(iii) May provide for the delivery of such
shares without any payment therefor[.]

Mrs. Setliff argues that the board of directors was empowered to establish a

plan to issue stock to her as an employee which would allow for her to pay for shares

of the corporation in installments pursuant to La.R.S. 12:41(B)(9)(e)(ii), and said

shares could be issued prior to payment pursuant to La.R.S. 12:41(B)(9)(e)(iii). The

critical element missing from Mrs. Setliff’s case is any evidence of a plan to allow for

the issuance of shares to her before she paid for them. Furthermore, there is no

evidence that any stock was ever actually issued to Mrs. Setliff. In fact, the only

evidence in the record on this point is an affidavit from C. Michael Adams stating that

no stock was ever issued to Mrs. Setliff. While Mrs. Setliff took part in board

meetings, she never properly paid for shares, and no shares were ever issued to her.

The trial court’s judgment granting the motion for summary judgment filed by Erma

Adams, Inc. is affirmed.

AFFIRMED.

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