Robert Duncan v. Moreno Energy, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

13-668

ROBERT DUNCAN, ET AL.

VERSUS

MORENO ENERGY, INC., ET AL.

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APPEAL FROM THE
SIXTEENTH JUDICIAL DISTRICT COURT
PARISH OF IBERIA, NO. 107506-A
HONORABLE PAUL JOSEPH DEMAHY, DISTRICT JUDGE

**********

MARC T. AMY
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, Marc T. Amy, and J.
David Painter, Judges.

AFFIRMED.

Edward P. Landry
Landry Watkins Repaske & Breaux
Post Office Drawer 12040
New Iberia, LA 70562-2040
(337) 364-7626
COUNSEL FOR PLAINTIFF/APPELLANT:
Robert Duncan

Randy P. Angelle
Boyer, Hebert, Abels & Angelle
401 E. Mills Avenue
Breaux Bridge, LA 70517
(337) 332-0616
COUNSEL FOR DEFENDANTS/APPELLEES:
William Rucks, IV
Ray Flores

Donald L. Beckner
5800 One Perkins Place, Building 7, Suite A
Baton Rouge, LA 70808
(225) 769-7779
COUNSEL FOR PLAINTIFF/APPELLANT:
Robert Duncan

Claude F. Reynaud, Jr.
Breazeale, Sachse & Wilson, L.L.P.
Post Office Box 3197
Baton Rouge, LA 70821-3197
(225) 387-4000
COUNSEL FOR DEFENDANT/APPELLEE:
Moreno Energy, Inc.

David M. Thorguson
Bourgeois Thorguson, L.L.C.
Post Office Box 3006
Morgan City, LA 70381
(504) 384-1833
COUNSEL FOR DEFENDANTS/APPELLEE:
Carolyn Blanchard
Michel B. Moreno

Mark J. Mansfield
Dutel & Tranchina, LLC
321 E. Kirkland St.
Covington, LA 70433
(985) 892-6474
COUNSEL FOR PLAINTIFF/APPELLEE:
Charles Hodges

AMY, Judge.

The plaintiff, a minority shareholder in a corporation, alleges that the

majority shareholder, and others, breached fiduciary duties he alleges were owed to

him as a shareholder. In particular, he contends that those actions resulted in the

devaluation of his initial ownership interest in the corporation. The plaintiff

additionally advanced causes of action in fraud and breach of contract. Following

a bench trial, the trial court granted motions for involuntary dismissal in favor of

the defendants. The plaintiff appeals. For the following reasons, we affirm.

Factual and Procedural Background

This matter involves a series of corporate actions involving three distinct

corporate entities. The plaintiff, Robert Duncan, was initially the majority

shareholder in 3-D Directional Drilling, Inc. Charlie Hodges and Michel1 Moreno

were also significant shareholders in the corporation.

In late 1997 and early 1998, Mr. Moreno sought to merge his company

Moreno & Associates, Inc., along with 3-D Directional Drilling and Dynamic

Industries, Inc., into one entity, Moreno Energy Services, Inc. (MES). MES

distributed stock reflective of each shareholder’s contribution to the newly formed

corporation, whether through ownership interest in one of the predecessor

companies, or by capital contribution. As pertinent to this matter, MES issued

875,000 shares of common stock to Mr. Moreno and 50,000 shares to Williams

Rucks, IV (in exchange for a capital contribution). MES further issued Series B

Preferred Stock, assigning that stock a $100 par value. Mr. Duncan received

18,000 shares of the Series B Preferred Stock and Mr. Hodges received 6,000

1
Mr. Moreno’s name is referred to as both “Michel” and “Michael” in the record. We
adopt the former usage as reflected in the corporate documentation and counsel’s brief to this
court.

shares of that stock. Ray Flores, a shareholder in the predecessor company,

Moreno & Associates, Inc., also received Series B Preferred Stock, as did others.

As a component of the merger, Mr. Duncan and Mr. Hodges executed

employment agreements with MES to continue in their work functions in its

directional drilling division. The employment agreements included salary

provisions as well as non-competition provisions.

Following the 1998 merger, Mr. Moreno served as the Chief Executive

Officer and President of the newly formed MES. He further performed the day-to-

day operations of the corporation and, per the terms of his employment agreement,

was “responsible for the development and execution of short-term and long-term

plans and goals in all functional areas of the Company[,]” among other duties. The

employment agreement further required that his actions were “reviewable by

requisite action of the Board and shareholders of the Company in accordance with

the Articles of Incorporation, the By-Laws of the Company, and applicable law[.]”

Testimony and documentary evidence indicate that, following the roll-up

merger, MES faced financial difficulties during the subsequent two-year period,

including those faced by the 3-D Directional Drilling division. In attempting to

relieve MES of the liabilities associated with 3-D Directional Drilling, negotiations

commenced for the assets and liabilities of that division to be carved from the

company and sold to 3-D Acquisition Company, LLC. In pursuit of that

transaction, both Mr. Duncan and Mr. Hodges signed a September 1999 agreement

whereby they were released from non-competition agreements cited above. In

return, Mr. Duncan and Mr. Hodges agreed for MES to have the right to convert

their shares of Series B Preferred Stock into MES common stock. As seen below,

2

the question of whether MES abided by the terms of that agreement, with regard to

conversion, is at issue herein.

In October 1999, as reflected in an Asset Purchase Agreement entered into

evidence, the operations of the former 3-D Directional Drilling were terminated

and all assets sold to 3-D Acquisition. A contemporaneously confected

Amendment to Employment and Stock Purchase Agreement terminated Mr.

Duncan’s and Mr. Hodges’ employment with MES so that the two could begin

employment with 3-D Acquisition. The amended agreement formally terminated

the non-competition agreement, as well as other restrictions. After that point,

neither Mr. Duncan nor Mr. Hodges performed further services for MES. Both,

however, retained their shares of Series B Preferred Stock in the company.

Testimony reflects that MES continued in financial difficulty through the

subsequent period and was unable to meet certain obligations with its lenders. Mr.

Moreno testified that he did not draw a salary for several years. However, the

Directors of MES issued stock bonuses to Mr. Moreno on four occasions (August

31, 2001, August 31, 2002, January 31, 2004, and August 18, 2004) to reflect his

ongoing efforts to reduce MES’s indebtedness and turn it toward profitability.

The record reveals that MES took certain steps to convert Mr. Duncan’s and

Mr. Hodges’ Series B Preferred Stock to MES common stock. By August 2001

letter, MES counsel informed the former shareholders of the ongoing financial

difficulties and management’s desire to have the MES balance sheet “cleaned up”

in order keep the company viable and attractive to investors. The letter explained

that Mr. Moreno would like “to retire the Series B Preferred Stock ($100 par value)

3

in MES[.]”2 The letter requested that the men submit an offer to sell their shares to

MES. Both men testified that they did not respond to the letter’s requests.

In November 2001, Mr. Moreno again requested by letter that Mr. Duncan

and Mr. Hodges sell their stock to MES. He opined that the stock was “worth

little, if anything” and that it could “remain on the books forever without any

payments unless there is a public offering, which, as you are aware, is highly

unlikely in the foreseeable future.” However, Mr. Moreno requested to purchase

the stock in order to simplify the MES balance sheet, making the business more

attractive for potential investors. Mr. Moreno proposed to buy Mr. Duncan’s

2
The August 21, 2001 letter explained, in part that:

Currently, MES is in default of its loan agreement with Bank One, and has been in
default for some time. MES’s president, Mike Moreno, has been working diligently to
renegotiate the financial obligations of MES and to attract an investor into the company.
There is no guarantee that the bank will continue to work with the company. Indeed, the
bank only recently, and reluctantly, agreed to a 30-day extension of the line of credit
facility. Also, there is no guarantee that an infusion of capital from an investor will be
made.

In order to keep MES viable and to position MES to have an investor make a
capital infusion, Mr. Moreno would like to try to get the balance sheet cleaned up. To
that end, he would like to retire the Series B Preferred Stock ($100 par value) in MES, of
which you currently are record owner of 6,000 shares. This letter follows up on the
conversation you had with Mr. Moreno, in which it was discussed that you make an offer
to sell your Series B Preferred Stock. We would like to receive your offer as soon as
possible, preferably by the end of this week.

Management is considering different options on how to treat the Series B
Preferred Stock in any reorganization or restructuring involving a new investor. The first
option is simply to leave the Series B Preferred Stock outstanding indefinitely, since it
does not mature or carry a dividend. Under its current capital structure, the company has
the ability to issue $10 million of Series A Preferred Stock that would be senior to Series
B Preferred Stock, and would have such terms and conditions as set by the Board of
Directors. Another option would be to convert all or a portion of your Series B Preferred
Stock to common stock. This would result in you receiving the number of common
shares equal to the par value of the aggregate number of shares of Series B Preferred
Stock divided by $30. A third option is simply to purchase the Series B Preferred Stock
at a mutually agreed upon price.

At any rate, management needs to reach a decision soon on exactly what, if
anything, to do with the Series B Preferred Stock. The preference is to clean up the
balance sheet by buying up the Series B Preferred Stock. This option would have certain
advantages to all of the parties. We would like to work with you to accomplish this
objective.

4

18,000 shares for $20,000 and to forgive his “verbal commitment to reimburse the

$40,000” that Mr. Moreno had “originally invested in 3-D[.]” Mr. Moreno

proposed to purchase Mr. Hodges’ 6,000 shares for $20,000. He further noted that,

if they rejected the offer, MES’s primary lender asked all shareholders to complete

financial statements. Again, neither Mr. Duncan nor Mr. Hodges complied with

Mr. Moreno’s requests.

Subsequently, in December 2003, MES amended its Articles of

Incorporation to allow for, among other things, conversion of Series B Preferred

Stock to common stock. MES notified Mr. Duncan and Mr. Hodges of its intent to

exercise its right to convert their respective shares into common stock. Thereafter,

both Mr. Duncan and Mr. Hodges signed an “Agreement to Accept Common

Shares in Exchange for Series B Preferred Shares” dated January 5, 2004. By that

agreement, Mr. Duncan “agree[d] to accept 60,000 shares of common stock of

[MES] in exchange for the 18,000 shares of Series B Preferred Stock” held by him.

Mr. Hodges accepted 20,000 shares of MES common stock in exchange for his

6,000 shares of Series B Preferred Stock.

Ultimately, in July 2005, and pursuant to the short form merger provisions

of La.R.S. 12:112(G), MES merged into a newly formed corporation, Moreno

Energy Services, Inc. (MEI). By resolution, the MEI board of directors approved

the merger of MES into MEI and the cessation of MES. That resolution set forth

certain terms and provisions, including the cancellation of the common stock of

MES and the determination that “shareholder common stock in MES (other than

the Corporation) shall be paid cash consideration of seventy cents ($.70) for each

share of common stock held[.]” Mr. Duncan and Mr. Hodges were thereafter

5

offered compensation of $42,000 and $14,000, respectively, for their MES stock.

They were excluded from further shareholder status in MEI.

Mr. Duncan and Mr. Hodges instituted this matter by a 2006 petition

alleging, among other things, breach of fiduciary duty, breach of contract, and

fraud. The petition also sought to set aside the short-form merger of MES and

MEI. MEI, Mr. Moreno (as a director and shareholder of MEI), and Carolyn

Blanchard (as a director and shareholder of MEI) were named as defendants in that

initial petition. The matter evolved during the subsequent years, with certain

claims dismissed and various defendants named and, in some instances,

dismissed.3 In large part, however, the plaintiffs consistently alleged that various

actions/inaction by the defendants damaged the value of their ownership interest in

MES. The plaintiffs have largely contended that their interest should have been

valued at par value for their respective ownership of Series B Preferred Stock in

MES rather than the figure tendered for their common stock in MES.

The trial court considered the merits of the remaining claims in May 2012.

At that time, Mr. Duncan and Mr. Hodges advanced breach of contract, breach of

fiduciary duty, and fraud claims against MEI (as successor to MES), Mr. Moreno,

and Ms. Blanchard. Additionally, the plaintiffs named Williams Rucks, IV, (an

3
Included in this matter’s procedural history are two decisions by this court. In Duncan
v. Moreno Energy, Inc., 08-786 (La.App. 3 Cir. 12/23/08), 1 So.3d 778, writ denied, 09-0470 (La.
4/17/09), 6 So.3d 793, a panel of this court concluded that the plaintiffs failed to comply with the
dictates of La.R.S. 12:131 and, therefore, could not attempt to invalidate the merger between
MES and MEI. Neither could the plaintiffs contest the value assigned to their MES stocks.
However, the panel explained the ruling did not have a “bearing on Plaintiffs’ claims for
monetary damages from Defendants via breach of fiduciary duties or fraud.” Id. at 788.

Subsequently, in Duncan v. Moreno Energy, Inc., 09-1033 (La.App. 3 Cir.
3/10/10), 32 So.3d 1099, writ denied, 09-1033 (La. 6/4/10), 38 So.3d 308, this court reviewed
the trial court’s determination, on motion for summary judgment, that the plaintiffs’ damages, if
any, for the alleged loss of value of their stock would be measured before the merger of MES
into MEI. That determination was affirmed. Id.

6

MES director, shareholder, and signatory to a Shareholders’ Agreement), and, Ray

Flores, (an MES shareholder and signatory to a Shareholders’ Agreement) as

defendants. During the course of the multiple-day trial, Mr. Hodges settled and

dismissed his claim against all defendants. Mr. Duncan continued in the

proceeding. Ultimately, the trial court granted the defendants’ motions for

involuntary dismissal pursuant to La.Code Civ.P. art. 1672(B).4

Mr. Duncan appeals, presenting the following issues for review:

1. Did the Trial Court make errors of law when it ruled that the
burden of proof is on the plaintiff, who is owed a fiduciary duty, to
prove that defendant, who owed the fiduciary duty, breached that
duty?

2. Did any of the acts committed by Moreno and/or Rucks, IV set
out herein constitute a breach of the fiduciary duty Moreno and/or
Rucks IV owed to Duncan?
3. Did the acts of Moreno and MES breach the contract between
the parties and Duncan?
4. Did acts of Moreno constitute fraud pursuant to Civil Code
Article 1953?
Discussion
Breach of Fiduciary Duty

Central to Mr. Duncan’s claim is his contention that the defendants breached

fiduciary duties owed to him as an MES shareholder. In particular, he questions

actions taken after MES’s 1999 sale of the assets of 3-D Directional Drilling.

Notably, he asserts that he was not provided with information regarding the MES

4
Louisiana Code of Civil Procedure Article 1672 provides, in part:

B. In an action tried by the court without a jury, after the plaintiff has
completed the presentation of his evidence, any party, without waiving his right to offer
evidence in the event the motion is not granted, may move for a dismissal of the action as
to him on the ground that upon the facts and law, the plaintiff has shown no right to relief.
The court may then determine the facts and render judgment against the plaintiff and in
favor of the moving party or may decline to render any judgment until the close of all the
evidence.

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stock bonuses awarded to Mr. Moreno. This lack of information, Mr. Duncan

contends, led him to believe that, when he agreed to transfer his Series B Preferred

Stock into common stock, he was doing so for like value. Yet, he suggests that he

was left only with stock that had been devalued by the issuance of those stock

bonuses. Mr. Duncan also questions the propriety of the issuance of the stock

bonuses, themselves.

Entitled “Relation of directors and officers to corporation and shareholders,”

La.R.S. 12:91 provides the burden of proof applicable to a breach of fiduciary

claim as follows:

A. Officers and directors shall be deemed to stand in a
fiduciary relation to the corporation and its shareholders, and shall
discharge the duties of their respective positions in good faith, and
with that diligence, care, judgment, and skill which ordinary prudent
men would exercise under similar circumstances in like positions;
however, a director or officer shall not be held personally liable to the
corporation or the shareholders thereof for monetary damages unless
the director or officer acted in a grossly negligent manner as defined
in Subsection B of this Section, or engaged in conduct which
demonstrates a greater disregard of the duty of care than gross
negligence, including but not limited to intentional tortious conduct or
intentional breach of his duty of loyalty. Nothing herein contained
shall derogate from any indemnification authorized by R.S. 12:83.
B. As used in this Section, “gross negligence” shall be
defined as a reckless disregard of or a carelessness amounting to
indifference to the best interests of the corporation or the shareholders
thereof.
C. A director or officer who makes a business judgment in
good faith fulfills the duty of diligence, care, judgment, and skill
under Subsection A of this Section if the director or officer:
(1) Does not have a conflict of interest with respect to the
subject of the business judgment.
(2) Is informed with respect to the subject of the business
judgment to the extent the director or officer reasonably believes to be
appropriate under the circumstances.
(3) Rationally believes that the business judgment is in the
best interests of the corporation and its shareholders.

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D. In fulfilling his duties under this Section, a director or
officer is entitled to rely upon records and other materials and persons
as specified in R.S. 12:92(E).
E. A person alleging a breach of the duty of diligence, care,
judgment, and skill owed by an officer or director under Subsection A
shall have the burden of proving the alleged breach of duty, including
the inapplicability of the provisions as to the fulfillment of the duty
under Subsections C and D and, in a damage action, the burden of
proving that the breach was the legal cause of damage suffered by the
corporation.
F. The provisions of this Section shall apply to all business
organizations, whether incorporated or unincorporated, formed under
Louisiana law.
Before granting the motion for involuntary dismissal on Mr. Duncan’s

breach of fiduciary duty claim, the trial court initially resolved Mr. Duncan’s

contention that the transaction at issue breached duties owed under the 1999

“Agreement” wherein Mr. Duncan (as well as Mr. Hodges) granted MES the

prospective right to convert the Series B Preferred Stock into common stock. The

trial court concluded that Mr. Duncan could not complain of the ultimate

conversion of the stocks, thereunder, due to the February 2004 “Agreement to

Accept Common Shares in Exchange for Series B Preferred Shares[.]” The court

explained:

[A]s I understand this argument, is that there was a violation of the
agreement because the Plaintiffs claim that they were entitled to more
shares, a greater number of shares, of common stock in Moreno
Energy Services, Inc. I mean that [sic] are various reasons why it
should be more; but when it was converted, the number of shares they
received, based on the September 3, 1999 Agreement, they should
have received more shares than they did receive – more common
shares.

By [counsel for Mr. Duncan]:
Yes, sir.

By the Court:
Well, on February 2nd, 2004 Robert Duncan signed an
agreement accepting the common shares in exchange for his Series B
shares, acknowledging receipt of the shares evidencing such shares of

9

common stock and agreed to accept six thousand shares (6,000) shares
of common stock in Moreno Energy [Services], Inc. in exchange for
eighteen thousand (18,000) shares of Series B stock of the company
held by him, the company being Moreno Services, Inc.

On April 23rd, 2004, Mr. Hodges signed an agreement and says
that, by signing below, he agrees to accept twenty thousand (20,000)
shares of common stock in Moreno Energy Services, Inc. in exchange
for six thousand (6,000) shares of Series B preferred stock of the
company.

So they accepted the exchange. They cannot now complain that
they were shorted.

On appellate review, a trial court’s ruling on a motion for involuntary dismissal is

reviewed for manifest error. Having reviewed the record, we find no such error in

the trial court’s determination. See Kramer v. Petroleum Helicopters, Inc., 08-133

(La.App. 3 Cir. 11/26/08), 999 So.2d 101, writ denied, 09-0402 (La. 5/1/09), 6

So.3d 811.

Rather, testimony established that, in 1999, the 3-D Directional Drilling

division of MES was in a period of financial difficulty. Mr. Hodges confirmed at

trial that Mr. Duncan informed him that MES would be closing 3-D Directional

Drilling due to lack of profit. In order to enable the acquisition of 3-D Directional

Drilling by 3-D Acquisition, the September 1999 “Agreement” entered into by

MES, Mr. Duncan, and Mr. Hodges was completed. That Agreement, referenced

by the trial court, released the two men from the non-competition agreements and

further provided that:

Section 2. In exchange for granting a release of the
noncompetition agreements that affect Duncan and Hodges, Duncan
and Hodges agree that Moreno shall have the right, upon fifteen (15)
days written notice to Duncan and Hodges, to require that any and all
of Duncan’s and Hodges’ Series B Preferred Stock ($100 par value) in
Moreno be converted into Moreno common stock. Upon conversion,
Duncan and Hodges shall be entitled to receive the number of
common shares equal to the par value of the aggregate number of
shares of Series B Preferred Stock to be converted, divided by thirty

10

($30) dollars (the “Conversion Rate”). The Conversion Rate shall be
automatically adjusted, from time to time, to take into effect any stock
split, stock dividend or other type of dividend (a “Conversion
Adjustment Event”) paid on or distributed with respect to the Moreno
common stock such that, upon conversion, Hodges and Duncan would
receive that number of shares or other property that they would have
received if their conversion had occurred immediately prior to any
Conversion Adjustment Event(s). When required for a complete
conversion of the Series B Preferred Stock, Moreno shall issue
fractional shares, script or other certificates evidencing such fractional
shares, calculated to the nearest one-tenth (1/10) of a share; provided,
however, that fractional shares shall have no voting rights.

Unquestionably, Mr. Duncan acquiesced in the conversion of his Series B

Preferred Stock to common stock and, in exchange, received a release from the

non-competition agreement. He explained that he then began working for 3-D

Acquisition. However, as he did at trial, Mr. Duncan asserts that the defendants

breached a fiduciary duty when they failed to adequately compensate him for his

Series B Preferred Stock per Section 2 of the 1999 Agreement.

Yet, and as recognized by the trial court, Mr. Duncan, in 2004, entered into

an “Agreement to Accept Common Shares in Exchange for Series B Preferred

Shares.” That agreement plainly provided that:

By signing below, Robert H. Duncan (the “Shareholder”)
agrees to accept 60,000 shares of common stock of Moreno Energy
Services, Inc. (the “Company”) in exchange for the 18,000 shares of
Series B Preferred Stock of the Company held by him, acknowledges
receipt of the common stock certificate No. 16 evidencing such shares
of common stock, and agrees to promptly return or destroy the 18,000
shares of Series B Preferred Stock of the Company to be held by him,
which in any event as of January 5, 2004 shall be cancelled and
deemed no longer outstanding.

As the trial court observed, Mr. Duncan accepted that exchange and may not now

contest that conversion. Rather, an offer was made for a distinct number of

common shares and he accepted that offer. He did so without an apparent contest

in accepting that conversion rate. While Mr. Duncan claims that he was wrongly

11

led to believe that he was trading his Series B Preferred Stock for “like value”

common stock, he has not pointed to a specific obligation, whether by governing

corporate articles or by agreement, to provide him with the financial details of

MES he claims were due. A large part of the financial information Mr. Duncan

claims he was entitled to pertains to the MES Board’s issuance of stock bonuses to

Mr. Moreno, the propriety of which is discussed below. Again, however, Mr.

Duncan does not refer to any particular obligation owed to him to disclose those

bonuses prior to his acceptance of a defined number of common stock shares. In

short, the record reveals no evidence indicating that the trial court erred in

dismissing the breach of fiduciary duty claim on the basis that he was misled into

accepting lesser valued stock.

In a related argument, and one that pertains to the fraud argument below,

Mr. Duncan questions the MES Board’s motivation in issuing the stock bonuses to

Mr. Moreno. Mr. Duncan notes in brief that Mr. Moreno’s Service and

Employment Agreement sets forth certain duties required of Mr. Moreno in

exchange for the compensation described therein. Mr. Duncan asserts that the

justification for the stock bonuses included duties required of Mr. Moreno by that

agreement as a foundational matter and, thus, no valid basis for the bonus existed.

In rejecting Mr. Duncan’s argument in this regard, the trial court focused on

the stock bonuses of January 31, 2004 and August 18, 2004, stating:

According to the Minutes of the Board and the testimony of the
Board members, they testified those bonuses were granted . . . because
of exceptional work of Mr. Moreno. Nobody could testify why they
picked that number or why they picked the value that they put on that
number of shares; but they all testified he had done exceptional work
during that period.

There has been no evidence as to what the value of that work
was, no evidence of how they came up with the numbers to award.

12

It is also noted at the time they were awarded, the Plaintiffs
were common shareholders and had already given up their right to
place a member on the Board as preferred shareholders. So the Board
was authorized to grant the bonuses.

A common shareholder is not entitled to notice of Board
Meetings. They are entitled to information regarding the financials of
the corporation and what goes on in Board Meetings if they request it.
They never requested that information. They were, at that point, not
entitled to Notice of Board Meetings.

There is no evidence that this action was taken specifically for
the purpose of diluting the interest of other shareholders. All the
evidence is that the Board wished to reward Mr. Moreno for a job
well-done, but did not have the cash to do so; so they gave him stock.

The evidence was also that all his efforts were to keep the
corporation going in hard times. The last few years things were
getting better and he was rewarded for that. There is no evidence that
it was done to harm the position of the minority shareholders. It had
some effect on their position in the corporation, but there is not
evidence that that was the intention of the Board in doing that.

Again, the trial court’s ruling is supported by the record. Testimony indicated that

MES struggled financially for a multi-year period after its formation. In fact, Mr.

Moreno testified that he did not receive a salary for a period of three years, but that

he continued to work in an effort to make the company lucrative. He and Board

members testified at length regarding efforts to improve MES’s position with its

creditors during that difficult period.

Additionally, and although Mr. Moreno’s job description was expansive,

each of the MES Board’s decisions to issue the stock bonuses recognized that the

compensation was provided for particularized efforts. For example, the January

31, 2004 bonus, evidenced by an “Action by Unanimous Written Consent of the

Directors in Lieu of Meeting of Moreno Energy Services, Inc.” set forth a

resolution that:

1,900,000 shares of common stock of Moreno Energy Services, Inc.,
having a value of $9,500.00, be issued to Michel B. Moreno for his

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efforts in completing the acquisition of the Construction Division
assets of Production Management Industries, L.L.C., from Superior
Energy Services, the value of which exceeds the value of the stock
being issued; and that the proper officers of this corporation are
authorized and directed to issue a certificate of stock of this
corporation evidencing this action upon obtaining any consents
required by any contract, loan agreement, shareholder agreement or
other obligation of this corporation.

Similarly, the minutes of the August 18, 2004 MES Board of Directors meeting

included a resolution that: “1,900,000 shares of common stock be issued to Michel

B. Moreno as a result of his work in acquiring the assets of Advanced Offshore

Services, the value of which exceeds the value of the stock being issued[.]”

Given the evidence of the Board’s recognition of Mr. Moreno’s service

during a period of financial difficulty, we find no manifest error in the trial court’s

rejection of the contention that there was no basis for the stock bonuses. Instead,

the record supports the trial court’s finding that the Board sought to reward Mr.

Moreno during a period of poor cash flow.

Burden of Proof – Breach of Fiduciary Duty

With regard to the breach of fiduciary duty claim, Mr. Duncan asserts that

the trial court erred in requiring him to satisfy the burden of proof enunciated in

La.R.S. 12:91(E) on certain breach of fiduciary duty claims involving transactions

in which Mr. Moreno received a benefit, e.g., MES stock. Rather, citing Noe v.

Roussel, 310 So.2d 806 (La.1975), Mr. Duncan contends that the defendants were

required to prove that Mr. Moreno acquired those assets in good faith and that the

transactions were entered into at arm’s length. He suggests that the defendants did

not establish good faith in light of the benefit received by Mr. Moreno to the

detriment of the stock of the common shareholders.

14

Certainly, La.R.S. 12:91(E) places the burden of proof in a breach of

fiduciary duty claim on the person seeking to establish that claim. Additionally,

however, La.R.S. 12:845 sets forth certain standards by which an interested director

may enter into a transaction beneficial to himself or herself. In this regard, a panel

of this court has explained that “[a]n interested director bears the burden of proving

his good faith in entering into the contract as well as the inherent fairness of the

contract from the standpoint of the corporation. This requires the director to prove

that the contract was essentially an arm’s length transaction.” Church Point

Wholesale Beverage Co., Inc. v. Voitier, 97-650, p. 9 (La.App. 3 Cir. 1/14/98), 706

So.2d 1015, 1019-20 (citing Noe, 310 So.2d 806; Woodstock Enter., Inc. v. Inter.

Moorings & Marine, Inc., 524 So.2d 1313 (La.App. 3 Cir. 1988)), writ denied, 98-

0379 (La. 4/9/98), 717 So.2d 1145.

5
Louisiana Revised Statutes 12:84 provides that:

A. No contract or transaction between a corporation and one or more of its
directors or officers, or between a corporation and any other business, nonprofit or
foreign corporation, partnership, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest, shall be void or
voidable solely for this reason, or solely because the common or interested director or
officer was present at or participated in the meeting of the board or committee thereof
which authorized the contract or transaction, or solely because his or their votes were
counted for such purpose, if:

(1) The material facts as to his interest and as to the contract or transaction
were disclosed or known to the board of directors or the committee, and the board or
committee in good faith authorized the contract or transaction by a vote sufficient for
such purpose without counting the vote of the interested director or directors; or

(2) The material facts as to his interest and as to the contract or transaction
were disclosed or known to the shareholders entitled to vote thereon, and the contract or
transaction was approved in good faith by vote of the shareholders; or

(3) The contract or transaction was fair as to the corporation as of the time it
was authorized, approved or ratified by the board of directors, committee, or shareholders.

B. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee which
authorized the contract or transaction.

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Recall that this case was dismissed at the close of Mr. Duncan’s evidence.

Even without the defendants’ presentation of their own evidence, the trial court’s

ruling reflects its determinations that the transactions complained of by Mr.

Duncan were justifiable and were not made with an intent to devalue Mr. Duncan’s

shareholder status in the company. As explained above, we find that the trial

court’s ruling in this regard is supported by the record.

The plaintiff’s argument regarding breach of fiduciary duty lacks merit.

Fraud

Furthermore, and generally referencing the events and transactions discussed

above, Mr. Duncan argues that the trial court erred in dismissing his claim for

fraud.6 However, as excerpted above, the trial court specifically determined that

the defendants did not withhold notice to which Mr. Duncan was entitled nor did

the defendants take any action for the specific purpose of devaluing Mr. Duncan’s

stock. Rather, the defendants acted within the confines of the notice requirements,

as they pertained to Mr. Duncan, and without an intention to specifically devalue

his position in the company. Those determinations are supported by the record.

Breach of Contract

Finally, Mr. Duncan also questions the trial court’s dismissal of his breach

of contract claim. In this regard, he claims that he was treated differently from

other minority shareholders in the corporation and that this constituted a violation

of the co-sale and drag along rights provisions of the 1998 Shareholders

Agreement for MES. Section 6.1 of that Agreement provides that:

6
Louisiana Civil Code Article 1953 defines fraud as “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.”

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If any Common Shareholder proposes to transfer all or any portion of
its Stock (for purposes of this section, a Sale) to a third party (for
purposes of this section, a Purchaser), and the remaining Common
Shareholders do not exercise their first refusal rights pursuant to
Article 3, then all of the Common Shareholders, as the case may be,
shall have the right, exercisable by written notice to the Corporation
and the Purchaser as of the expiration of its first refusal period
pursuant to Article 3 (the Election Date) to require the Purchaser to
purchase, on a pro rata basis (assuming all Warrants of [First
Commerce Capital, Inc.] have been exercised), Shares of the Common
Shareholders or their transferees, as the case may be, for the same
price and on the same terms and conditions as those of the Sale . . . .
Mr. Duncan argues that this provision required that “[w]hen MEI acquired

Moreno’s common stock in MES [at the time of the short form merger], MEI was

required to purchase the common stock of MES held by Duncan.”

However, in rejecting this claim, the trial court noted that the Shareholder

Agreement provides, in a preceding paragraph, that:

3.1 No Securities in this Corporation shall be transferred, sold,
assigned, pledged, encumbered, or in any manner alienated, unless the
Securities shall first have been offered for sale to the Corporation, and
if the Corporation elects not to purchase the Securities, then to each
remaining Common Shareholder of the Corporation in proportion to
such remaining Common Shareholder’s stock ownership in the
Corporation. The Corporation or each remaining Common
Shareholder shall have an option to purchase the stock to be
transferred at the same price and on the same terms and conditions as
the offeree shall have been offered by a third person at arm’s–length,
acting in good faith.

Further, Paragraph 3.3 states that:

3.3 For the purpose of this Article 3 the restrictions on transfer and
the right of first refusal do not apply to a sale, assignment, gift, or
exchange by a Shareholder to or with any person whose ownership of
such shares of stock would be attributed to the selling Shareholder
under § 318 of the Internal Revenue Code of 1954, as amended, or by
any transfer of Warrants by FCC.

In this instance, the trial court noted that no rights of first refusal existed with

regard to the transfer of Mr. Moreno’s stock to MEI pursuant to Paragraph 3.1 and

3.3. Rather, the transaction was a transfer of Mr. Moreno’s stock into a

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corporation that he owned, MEI, and was, thus, merely attributable to him for

taxation purposes. Accordingly, Paragraph 6.1, relied upon by Mr. Duncan, is

inapplicable. We find no error in that determination. Rather, the transaction

complained of did not involve a third party so as to implicate Paragraphs 3 and 6 of

the Shareholder Agreement.

This argument lacks merit.

DECREE

For the foregoing reasons, the judgment of the trial court is affirmed. All

costs of this proceeding are assigned to the appellant, Robert Duncan.

AFFIRMED.

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