Clordean Prejean Granger v. Wallace Anthony Granger

STATE OF LOUISIANA

COURT OF APPEAL, THIRD CIRCUIT

06-1615

CLORADEAN PREJEAN GRANGER

VERSUS

WALLACE ANTHONY GRANGER

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APPEAL FROM THE
TWENTY-SEVENTH JUDICIAL DISTRICT COURT
PARISH OF ST. LANDRY, DOCKET NO. 94-C-1479-B
HONORABLE ELLIS J. DAIGLE, DISTRICT JUDGE

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SYLVIA R. COOKS
JUDGE
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Court composed of Sylvia R. Cooks, Oswald A. Decuir, and James T. Genovese,
Judges.

Genovese, J., concurs in part, dissents in part, and assigns written reasons.

AFFIRMED.

J.N. Prather, Jr.
P.O. Box 3993
1000 Lafayette Street
Lafayette, LA 70502
(337) 237-0047
COUNSEL FOR PLAINTIFF/APPELLEE:
Cloradean Prejean Granger

Henry C. Perret, Jr.
Kyle M. Bacon
Perret Doise, APLC
600 Jefferson Street, Suite 1600
Post Office Drawer 3408
Lafayette, LA 70502-3408
(337) 261-9000
COUNSEL FOR DEFENDANT/APPELLANT:
Wallace Anthony Granger

Harry T. Lemmon
650 Poydras Street
New Orleans, LA 70130
(504) 581-2155
COUNSEL FOR DEFENDANT/APPELLANT:
Wallace Anthony Granger

Anne Elizabeth Watson
Dupre & Watson
232 North Liberty Street
Opelousas, LA 70570
COUNSEL FOR DEFENDANT/APPELLANT:
Wallace Anthony Granger

COOKS, Judge.

STATEMENT OF THE CASE

Wallace Anthony Granger appeals the decision of the trial court awarding his

former spouse, Cloradean, the sum of $400,000 as her share in a closely held

corporation. For the reasons assigned below, we affirm the decision of the trial court.

STATEMENT OF THE FACTS

Wallace and Cloradean Granger were married in 1981 and have two children.

Shortly after their marriage, the couple formed Technical Tubular Inspection

Services, Inc. (Technical Tubular), an oilfield pipe inspection company. Wallace and

Cloradean were the sole shareholders. Wallace solicited business for the company

and ran the daily operations. Cloradean managed the office, paid the bills and the

payroll. Both their home and business were located on property off of Superior Road

in Churchpoint. Although the couple struggled financially in the early years, through

the industry of both parties, the business grew and prospered during the fourteen

years of their marriage. By 1993, the last full year of the existence of the community,

income tax returns indicate the gross income for Technical Tubular totaled

approximately $918,000.

In April 1994, Cloradean filed a petition for divorce and requested that the

community property be divided. Judgment of divorce was rendered in March 1995.

The community assets, except for the parties’ interest in Technical Tubular, was

partitioned.

In the interim, from April 1994 to March 1995, Wallace was in control of

Technical Tubular. The corporation’s gross income for 1994 dropped. In January

1995, in an effort to prevent the downward spiral of the business, Cloradean filed a

request to be appointed temporary receiver. The corporation’s income continued to

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decline and by June 1995 Technical Tubular was showing sales of only $103,538.

On March 3, 1995, immediately following the judgment of divorce, on the day

Cloradean was appointed receiver, Wallace walked away from the business and

formed a new corporation, Tube-Tech. Tube-Tech was staffed by former employees

of Technical Tubular, retained former clients of the community business and used a

similar name and logo. Cloradean eventually filed for bankruptcy on behalf of

Technical Tubular.

Trial on the partition of Technical Tubular was held in January 2006. The trial

court found as of the date of trial, the stock in Technical Tubular was worthless. The

trial court further held:

Wallace depleted Technical Tubular of its employees and customers. He
started a new corporation with a deceptively similar name and logo. He
did all of this only days after the judgment was rendered appointing
Cloradean temporary receiver of Technical Tubular. Tube-Tech did not
exist until March 9, 1995, six (6) days after Cloradean was appointed
receiver of Technical Tubular, and Wallace was ordered not to dispose
of any property of Technical Tubular, nor to change the status of the
affairs of Technical Tubular to the injury of Cloradean. Wallace
Granger did exactly that which the March 3, 1995 Judgment ordered him
not to do!

The evidence established that both parties used corporate assets
for personal use; however, Wallace abused these assets while in control
of Technical Tubular after the termination of the community property
regime (April 19, 1994) and until Cloradean was appointed receiver on
March 3, 1995. Wallace’s abuse of the assets was the reason for which
she filed to be appointed receiver.
....
Wallace was ordered not to dispose of any property of Technical
Tubular, Inc. Instead of following the court’s order, he did the polar
opposite. He maneuvered the employees and customers of Technical
Tubular into Tube-Tech, leaving Technical Tubular with only the debts.
Within approximately three (3) months, Cloradean was forced to
bankrupt Technical Tubular.
....
In following the ruling of Queenan, this court finds that
Cloradean and Wallace own a one-half (½) interest each of the value of
the stock in Tube-Tech as it is a substitute corporation for Technical
Tubular due to Wallace’s action in taking all of the customers and
employees of Technical Tubular and placing them in Tube-Tech as a

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direct violation of the court order of the 19th Judicial District Court
enjoining Wallace “from disposing of any property of Technical Tubular
Inspection Services, Inc., or from changing the status of the affairs of
Technical Tubular Inspection Services, Inc. to the injury of mover.”

The parties stipulated that the value of Tube-Tech, the new corporation, on the

date of trial was $800,000. The trial court awarded Cloradean the sum of $400,000.

Wallace appeals asserting numerous assignments of error. We affirm the judgment

of the trial court.

LAW AND DISCUSSION

The trial court relied on this court’s case of Queenan v. Queenan, 492 So.2d

902 (La.App. 3 Cir.), writ denied, 496 So.2d 1045 (La.1986). In Queenan, Michael

and Penny Queenan owned stock in three closely held corporations which were begun

during their marriage. After the termination of the community, Michael continued to

manage the companies. He then formed a new corporation in which he was the sole

stockholder. Michael operated the new corporation out of the same office along with

the family businesses. By comparing the book value of the two corporations, it was

apparent the new corporation, owned solely by Michael, flourished and prospered at

the expense of the family owned business. This court concluded Michael, as the

spouse in control of the former community asset, “breached the fiduciary obligations

owed Penny Queenan . . . under the partnership and corporate laws of the State of

Louisiana.” Queenan, 492 So.2d at 911. In order to determine the amount owed to

Penny, the court characterized the corporation, though technically Michael’s separate

property, as part of the community and therefore subject to partition. This court

articulated the responsibility of the spouse in control of former community property,

as follows:

[F]ollowing the judicial termination of a community regime and before
a property settlement of the community assets has been consummated,
a former spouse having control and possession of any assets belonging

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to the community regime would owe a fiduciary obligation to the former
spouse who is not in control or possession.

Until there is a community property settlement, there exists a
practical or empirical extention of the community regime insofar as the
duties and obligations of the former spouses relate to each other in the
management of the community assets. The parties are not only co-
owners but are the beneficiaries as well as obligors of a technical or
legal extention of the community regime until settlement thereof, thus
acquiring a peculiar relationship as a specie of partners, co-owners, and
as in the case sub judice co-owners of shares of stock and/or common
owners of shares of stock in a family owned corporation or corporations.
The relationship of spouses and former spouses (until there has been a
property settlement following termination of the community regime)
cuts through the entirety of the law, including the laws of partnership,
property, and corporations.

Id. at 912.

The Queenan court characterized the parties’ legal relationship as “not only co-

owners but . . . beneficiaries as well as obligors of a technical or legal extention of the

community regime until settlement.” Id. at 912. Wallace contends Queenan is an

anomaly in the law and its holding has been criticized by legal scholars. However,

the underlying rationale in Queenan for imposing a fiduciary duty on a spouse having

control of the former community asset is based on a recognition that after the

termination of the community the spouse in control will not necessarily act in the best

interest of the other party. This rationale is still valid and rather than being

discredited, the legislature in 1995, changed the law to impose a higher standard of

care on the spouse in control of the former community than had previously been

required.1 This change in the law is an affirmation rather than a repudiation of the

Queenan decision.

Louisiana Civil Code Article 2369.3 clearly defines the duty of the spouse in

control of the former community asset and provides, in relevant part:

1
The effective date of La.Civ.Code art. 2369.3 is after the date of the filing of the petition
in the present appeal.

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A spouse has a duty to preserve and to manage prudently former
community property under his control, including a former community
enterprise, in a manner consistent with the mode of use of that property
immediately prior to termination of the community regime. He is
answerable for any damage caused by his fault, default or neglect.

Comment (a) under this statute explains:

This Article changes the law. First, it imposes on a spouse who
has control of former community property an affirmative duty to
“preserve and to manage” such property. In contrast, Civil Code Article
800 (rev. 1990), applicable to ordinary co-owners, provides for a right
but not a duty to act for the preservation of the property. Such a duty
arises only if the co-owner undertakes to act as a negotiorum gestor or
he is appointed administrator. See Symeonides & Martin, The New Law
of Co-ownership: A Kommentar, 68 Tul. L. Rev. 701, 746 (1993).
Similarly, the co-ownership articles of the Civil Code do not impose on
one co-owner an affirmative duty to manage the co-owned thing unless
that owner assumed the qualities of a gestor or was appointed as an
administrator. See C.C. Arts. 801, 803 (rev. 1990); Symeonides &
Martin, supra at 738-748. Second this Article imposes a higher standard
of care than that provided by Civil Code Article 799 (rev. 1990) for
ordinary co-owners. See comment (g), infra.

This Article also imposes a higher standard of care in managing
and maintaining such former community property than the standard
imposed during the marriage for managing community property. See
C.C. Art. 2354 (rev. 1979). The reason for imposing a higher standard
of care in managing former community property is that, after
termination of the community property regime, the law no longer
assumes that a spouse who has former community property under his
control will act in the best interest of both spouses in managing it.
(Emphasis added).

Louisiana Civil Code Article 159 provides the “judgment of divorce terminates

a community property regime retroactively to the date of filing of the petition in the

action in which the judgment of divorce is rendered.” Cloradean filed the petition for

divorce in April 1994. Therefore, the couple’s community property regime

terminated on that date. See Hatsfelt v. Hatsfelt, 05-0947 (La.App. 3 Cir. 2/1/06), 922

So.2d 732. Wallace was in control of Technical Tubular from this date until March

1995. We have reviewed the testimony and documents presented by both parties and

find no error in the finding of the trial court that Wallace allowed Technical Tubular

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to decline in value in the interim period between the petition for divorce and the final

divorce decree. He essentially admitted such in his testimony. Wallace testified he

stopped working the business. “[I] didn’t work for the last five or six months with that

company. I just stayed home just like she did.” No one was running Technical

Tubular, but the monthly corporate overhead of $36,000 continued to accumulate.

Wallace still collected his salary and used funds in the corporate account and began

“factoring”company invoices to pay for his personal expenses. When Cloradean

obtained control of the company in March 1995, the accounts receivable were down

to $5,000 and the debts exceeded $200,000. Just days after the divorce was final,

Wallace began Tube-Tech, an identical company with the same employees and

customers as the old business. While Wallace’s income never suffered, Cloradean

was left with a worthless company. Wallace focused his energy and skill on the new

company, which he solely owned, and allowed Technical Tubular to decline.

The trial court found Cloradean’s testimony more credible than Wallace’s. We

find no error in this assessment by the trial court. Once the petition for divorce was

filed, Wallace began planning the new company and began to lure employees and

customers to the new business. Although Wallace testified after the divorce he was

left destitute with nothing but a “few old tools,” Wallace’s actions as well as the

financial evidence introduced by Cloradean contradicted his testimony. Wallace

incorporated Tube-Tech just days after Cloradean was appointed receiver of

Technical Tubular. Interestingly, Tube-Tech was not incorporated in Wallace’s name,

it was incorporated in his friend, Paul Diaz’s name. Wallace explained the company

was set up in Diaz’s name because Diaz loaned him money for start-up costs. Six

months after the divorce, Diaz was paid in full although transfer of the company into

Wallace’s name did not take place until two years later. Wallace denied any attempt

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at deception. Wallace admitted he acquired all of the former employees of Technical

Tubular and employed them in the same capacity as the old corporation. Likewise,

Wallace testified he was calling on the same customers with his new corporation.

The employees continued to report everyday to the same location of the former

corporation because Tube-Tech was located in virtually the same location as

Technical Tubular. The testimony supports a finding that Wallace allowed Technical

Tubular to decline to the detriment of Cloradean.

Cloradean testified Wallace completely surprised her when he walked away

from the business: “I didn’t know where I was going with that because I had not

expected Wallace to just bail out.” In an attempt to prevent the total decline of the

business, Cloradean petitioned to be appointed receiver. Although she acquired

control at the time of the judgment of divorce, the employees were gone, the

customers were gone, and she was left with nothing but debts. It took her sixty days

to determine the financial condition of the company. She found unpaid bills and

taxes which were months behind. “And once it was all said and done, Technical

Tubular was in debt of over $200,000– something, including the IRS and all kinds of

notes payable.” She discovered “Wallace went out and bought a Corvette that

Technical Tubular paid for, but he made sure that the truck – the car was put under

his name personally, but the company paid the debt.” By March 1995, Cloradean

stated, “there was nothing to run. There was nothing left to run. . . . I got a company

that was knee deep in debt. I had no money to operate with. Private Capital was

taking just about everything that was coming in. There was virtually nothing left to

pay the debts. . . And I had to start selling assets to be able to start taking care of the

debts that he incurred, not I.” She discovered Wallace had gone through all the

corporate money, “ paying all his expenses, not paying payroll taxes, not taking care

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of the debts of the corporation. . . . I knew I was going to be liable for the IRS. You

can’t get away from the taxes.” In June 1995, Cloradean reluctantly filed for

bankruptcy. We find the evidence supports a finding that Wallace allowed a thriving

corporation, built over the course of fourteen years, to fail to the detriment of his

former spouse.

Wallace contends the trial court erred in using the value of Tube-Tech to

determine the amount owed to Cloradean. He asserts Tube-Tech was his separate

property and the value of Technical Tubular at the time of trial should have been used

by the trial court. As stated by the trial court, the value of Technical Tubular at the

time of trial was zero. Cloradean had already placed the company in bankruptcy and

all available funds were used to pay off debts incurred by Wallace during the interim

period prior to divorce. In allocating community funds, the trial court is given broad

discretion and is not “frozen by any statutory time level or particular valuation at any

particular time or for any particular purpose,” but is charged with placing “values on

the assets for the purposes of accounting, allocation, and adjudication in accordance

with the further provisions of R.S. 9:2801(4)(b, c, d and e).” Queenan, 492 So.2d at

914. The assets of Technical Tubular during the last full year of the community and

the stipulated value of the new company, Tube-Tech, were approximately the same

value. We find no error in the decision of the trial court awarding Cloradean one-half

of the value of Tube-Tech as her share in the community owned business.

Derivative Action

Wallace characterized Cloradean as a “shareholder” and contends the trial court

“ignore[d] corporate formalities and allowed a shareholder to bring a corporate claim

other than through a derivative action.” This is a suit to partition community

property. Technical Tubular was, for all practical purposes, a community owned

8

corporation; the corporation’s only shareholders were Wallace and Cloradean. We

find no merit in this argument.

Abandonment

Wallace contends Cloradean’s claim for partition of the community owned

company has been abandoned. We disagree. Cloradean filed a petition for divorce

in April 1994 and petitioned to have the community property divided. In November

1995, the trial court rendered a partial judgment of partition dividing the community

property except the parties’ interest in Technical Tubular. The order stated “that the

only other community asset, Technical Tubular, Inc., and its holdings shall be

partitioned at a later date.” Prior to this order, Cloradean was appointed receiver of

Technical Tubular and filed for bankruptcy. In August 1999, when the bankruptcy

proceedings were complete, Cloradean filed a motion to fix the partition for trial. The

trial court found the “actions of Wallace in continuing to litigate this matter

subsequent to any tolling of the period necessary for abandonment is a waiver of his

right to now seek abandonment of Cloradean’s claim.” We agree with the trial court

that Cloradean did not lose her right to partition her interest in Technical Tubular.

A co-owner’s right to partition a thing held in common is an incident of ownership

and is absolute. La.Civ.Code art. 807; Harris v. Harris, 29,084 (La.App. 2 Cir.

(1/22/97), 687 So.2d 673. We find no merit to this argument.

DECREE

Based on the foregoing review of the record, we affirm the decision of the trial

court. All costs of this appeal are assessed against Wallace Anthony Granger.

AFFIRMED.

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10

STATE OF LOUISIANA

COURT OF APPEAL, THIRD CIRCUIT

06-1615

CLORADEAN PREJEAN GRANGER

VERSUS

WALLACE ANTHONY GRANGER

GENOVESE, J., concurs in part and dissents in part.

I concur in part and dissent in part in the majority opinion. I agree and concur

that, upon their separation and post divorce, Mr. Granger had a fiduciary duty as the

spouse in control of a former community asset to act as a prudent administrator and

is answerable for damages caused by his fault or neglect. However, I disagree and

dissent from the majority opinion as to the amount ($400,000.00) awarded to Ms.

Granger. I strongly disagree with the trial court’s valuation of damages awarded to

Ms. Granger. The trial court simply labeled the new corporation a “substitute

corporation” and awarded Ms. Granger one-half of its book value at the time of trial.

As Mr. Granger did little or nothing after their separation to preserve and

protect the former community corporation, Ms. Granger did absolutely nothing for

eleven years (from 1995 to the 2006 trial date) in the new (substitute) and separate

corporation. In the former community corporation, Ms. Granger was an active

participant. While Mr. Granger solicited business for the former community

corporation, Ms. Granger managed the office, paid the bills, and handled payroll.

Together, they worked hard to make the former community corporation a success.

They were a team. The record indicates that both were responsible for the growth and

prosperity of the former community corporation during the fourteen years of their

marriage.

Such was not the case in the “substitute” corporation. Ms. Granger did

nothing. Mr. Granger started the new corporation (separate property) after the

divorce. Certainly, he used and had the benefit of the former community corporation

to further his agenda for which he is accountable to Ms. Granger. However, based

on the record, there is no legal or other authority for simply awarding Ms. Granger

the full book value of the substitute corporation some eleven years down the road.

Most pertinent is the fact that the former corporation and the new corporation are not

one and the same and cannot be deemed identical insofar as they performed different

operations and services. The former community corporation’s business was pipe

inspections. The new corporation does pipe inspections; however, a majority of its

business is other services. That is not factored into Ms. Granger’s award. Mr.

Granger gets no credit for the enhancement and expansion of the business.

Had there been no matrimonial strife and discord, and had they continued down

the primrose path with the former community corporation, Mr. Granger would have

had the benefit of Ms. Granger’s hard work as a manager of said corporation for over

eleven years. Instead, Mr. Granger was without her services and involvement and

still has to pay the full fifty percent book value of the new corporation without credit

for enhancement and expansion of the business. What if Mr. Granger would have

simply walked away from the business and sought employment elsewhere in April of

1994 when Ms. Granger filed for divorce? What if the new (substitute) corporation

had only a $200,000.00 book value? Would Ms. Granger only be entitled to fifty

percent of that figure? What if, despite Mr. Granger’s efforts, the new corporation

became insolvent after or during the eleven years of operation? Would Ms. Granger

get nothing?

Though I agree that Ms. Granger is entitled to an award for Mr. Granger’s fault

and neglect vis-a-vis the former community corporation, I find that neither the record

nor the law supports the trial court’s arbitrary $400,000.00 award in favor of Ms.

Granger and would reduce same.

For the foregoing reasons, I concur in part and dissent in part in the majority

opinion in this case.