Articles Posted in Business Dispute

How do you know whether an arbitration provision in a contract applies? The easy answer: read the contract. If you are a member of a company that provides services to you, such as financing your small business needs, you must be sure to closely read any and all documentation relating to the services provided and what you can do if you are dissatisfied with the company’s work. Companies will often include an arbitration and mediation clause in their contracts with individual members. This means that instead of suing the company in a court of law, the dispute would first have to be arbitrated by an independent third party and an attempt at mediation would have to be made. In Louisiana, companies frequently create operating agreements that function as contracts between owners and members. These operating agreements use a lot of boiler plate language that is ultimately enforced. In fact, Louisiana law favors arbitration. See La. R.S. 9:4201; see also  v. Auction Mgmt. Corp., 908 So.2d 1, 18 (La. 2005).

In May 2014, eleven members of a small business financing company, North Louisiana Bidco, LLC (NLB), filed a lawsuit to enforce their rights to examine NLB’s financial and other records. The eleven members became concerned when NLB was sued by various clients and incurred a bad debt expense of $6 million, which showed on the company’s 2013 financial statements. In response, NLB raised the exception of prematurity. NLB argued that the company’s operating agreement required the members of the company to mediate their disputes amongst themselves and if mediation failed, to submit disputes for arbitration. The members that were suing the company in this instance opposed the prematurity argument and asserted that this dispute was not one “among members” but instead was between the body of the membership itself and the management of the company. The Trial Court upheld the prematurity exception. It held that this was indeed a dispute between members and the mediation and arbitration clause applied.

When the members of NLB appealed the Trial Court’s decision they argued that this dispute was a demand by the members of the company against the company itself. The members were attempting to enforce their own rights to view the company’s records rather than trying to enforce any rights against the other members. The Second Circuit Court of Appeal agreed with the eleven members stating that this was not a dispute between members. Therefore, in the absence of such a dispute between members, the arbitration clause could not be enforced. In addition, the Court of Appeal pointed out that for the arbitration clause to be triggered, the action must have been a dispute arising among members relating to the operating agreement. The operating agreement at issue here made it clear that members had the right to inspect the company’s books and records and no party disputed this fact. Because there was no dispute relating to the agreement and because the dispute was ultimately not between members, the Court of Appeal held that the arbitration clause did not apply and the members would be allowed to bring a lawsuit against the company.

Contractual relationships and the relative obligations and rights that come with them can be difficult to decipher. There are so many clauses, provisions, and sections buried in these agreements that understanding the importance of certain matters can get lost in translation. In order to truly comprehend the exact obligations and rights that an individual or corporation has under an agreement, it is important to have the best attorneys drafting and reviewing the agreement. After all, these clauses are what govern the course of the parties’ professional relationship.

Case in point, Christus Health Southwestern Louisiana (“Christus”) planned to build a Senior Living Community in Lake Charles, Louisiana. It entered into a Development Services Agreement (“DSA”) with Greenbrier Development Co., L.L.C. (“Greenbrier”) in May 2007. Under the agreement Greenbrier would assist Christus with preparing budgets, providing marketing advice, and performing other development services.

Under the terms of the DSA, Christus was required to pay Greenbrier a development fee of $1.49 million, which was payable in installments throughout different phases of the project. There was no dispute as to Christus paying the initial 20% of the payment. The next 35% of the payment was due upon commencement of the construction. Certain sections of the DSA governed the parties’ respective rights and obligations for payment and termination of their professional relationship. The pertinent sections are summarized as follows:

Louisiana is an “at-will” state when it comes to employment meaning when the employer and employee have not agreed to a limited term of employment, either the employee or the employer can break the relationship at any time without a reason.  Term employment involves a stronger and a more defined agreement through a contract that is usually written, but that can also be established orally.  An important part of such a contract defines the length of the employment – it can be, for example, for a given number of weeks, months, or years.  In such employment, there must be a good reason for either side to terminate the relationship.  Since there is a contract in this employment type, there are generally consequences for ending the relationship without a good reason.

Many disputes involving employment issues reach the courts because of the lack of an agreement or, as here, there is no meeting of the minds as to the terms of employment.  The defendant, Willwoods Community, a precept of the Roman Catholic Church on Howard Avenue in New Orleans (“Willwoods”) hired the plaintiff Michael Read (“Read”) as its Executive Director in mid 2009.  About a year later in 2010, Willwoods decided to terminate the relationship and let Mr. Read go, when it determined that there was an issue with Mr. Read’s employment.  

Read filed a lawsuit against Willwoods alleging that he had an employment contract with Willwoods for a term of five years and Willwoods’ termination of him violated this contract.   Read argued there had been a term of employment promised to him and he had resigned a lucrative and established position at Capital One because of this.  He argued that he only did so based on his belief that he was going to have a five year commitment at Willwoods.  Since there was a contract, he argued, Willwoods’ dismissal of him without cause meant he was entitled to the remaining pay and benefits as if he had finished out the five year term.  

Lawyers owe a fiduciary duty to their clients, corporate directors owe a fiduciary duty to the corporation’s shareholders, and trustees owe a fiduciary duty to the beneficiaries of a trust. So, what is a fiduciary duty? Simply put, it’s a duty of the “fiduciary” (i.e., lawyers, corporate directors, trustees, etc.) to act solely in the interest of the person to whom the duty is owed, and the law does not tolerate breaches of that duty (whether by acts of self-dealing, incompetence, etc.). If you find yourself in a situation where you believe someone has breached their fiduciary duty to you, you may be entitled to judicial relief for the harm you suffered because of that breach of duty.

However, even if you did in fact suffer the harm and have a solid cause of action, you must ensure that you are meeting all of the statutory deadlines for filing a lawsuit against the party who breached their duty. Otherwise a prescription statute, which sets the peremptive period (the amount of time you have to file a lawsuit against another party after certain events take place), may prevent a court from being able to hear your case. It is important in these situations to seek legal counsel immediately upon discovering the breach of duty against you, because a good lawyer will be able to inform you of the relevant deadlines for filing suit. The following case demonstrates how waiting too long to file, and failing to provide certain paperwork to the party who breached its duty to you, can result in the court refusing to hear your case.

In this case, out of the Louisiana Fourth Circuit Court of Appeals, Marguerite and Christine Hartman (“the Hartmans”) were sisters who filed a lawsuit against JPMorgan Chase Bank for a breach of their fiduciary duty. The Hartmans were beneficiaries of a trust, a fiduciary relationship where JPMorgan acted as trustee to manage money from the Hartmans’ father’s wrongful death settlement for the benefit of the sisters. In the lawsuit against JPMorgan, the sisters alleged that after they came of age and were eligible to receive the money, their mother had forged their names on documents to the bank to terminate the existing trust and wire the money to the mother directly. The sisters also claimed that JPMorgan had wrongfully mailed all their trust-related statements to their grandparents’ address, not their own actual home address, making it easier for their mother to commit these fraudulent acts. However, JPMorgan brought evidence showing that the only address they had ever had on file was the grandparents’ address, and because the trust statute in Louisiana permitted that address to be used for mailing of official documents, they had not erred in their actions.

Non-Compete agreements can restrict a person’s ability to start and maintain a business. Anyone who plans to work in Louisiana should be very clear what they can and cannot do as a part of a non-compete agreement.

For example, a trial court in Louisiana held that a cardiologist’s business, which he created after he left another medical employer, was too similar and therefore subject to a non-compete in the geography he was operating in. Dr. Abel was a cardiologist in Morgan City, Louisiana. He was employed by the Cardiovascular Institute of the South, where he performed preventative medical treatments in cardiology. He signed a non-compete agreement that restricted his ability to practice medicine in the sub-specialty of cardiology in several parishes surrounding CIS, including East Baton Rouge, Acadia and Evangeline, for a period of two years.

Soon after, Dr. Abel opened a private practice at a Preventative Plus clinic and began practicing preventative and internal medicine. While this wasn’t exactly cardiology, CIS filed an injunction in accordance with Section 8.01 in his non-compete agreement. They argued that Dr. Abel could not perform his medical duties under Preventative Plus since it was similar to the cardiology work he did at CIS and he was in a Parish that he was restricted from practicing cardiology in for two years. After the trial court granted the injunction, Dr. Abel appealed the decision, arguing that his practice was not similar enough to be within the ambit of the non-compete agreement. He also contended that his non-compete agreement with CIS was restricted to the sub-specialty of cardiology and not preventative and internal medicine, which he believed were more general than the sub-specialty of cardiology.