Michael Drago v. Mark Wilks and Industrial Machine Works, Inc. ( 2022 )

NOT DESIGNATED FOR PUBLICATION
STATE OF LOUISIANA
COURT OF APPEAL
FIRST CIRCUIT
NO. 2022 CA 0005
MICHAEL DRAGO
VERSUS
MARK WILKS AND INDUSTRIAL MACHINE WORKS, INC.
Judgment Rendered: DEC 1 5 2022
APPEALED FROM THE NINETEENTH JUDICIAL DISTRICT COURT
IN AND FOR THE PARISH OF EAST BATON ROUGE
STATE OF LOUISIANA
DOCKET NUMBER 631737
HONORABLE RONALD R. JOHNSON, JUDGE PRESIDING
T. Michael Murphy Attorneys for Plaintiff A
- ppellant
G. Steven Duplechain Michael Drago
Baton Rouge, Louisiana
Travis L. Bourgeois Attorneys for Defendants -Appellees
Karl H. Schmid Mark Wilks and Industrial
Stephen T. Perkins Machine Works, Inc.
New Orleans, Louisiana
BEFORE: McDONALD, McCLENDON, AND HOLDRIDGE, JJ.
MCDONALD, J.
In this case, the trial court issued two judgments. The first judgment granted
the defendants' peremptory exceptions raising the objections of prescription and/ or
peremption and dismissed plaintiff' s claims with prejudice. The second judgment
denied the plaintiff' s motion for partial summary judgment. After review, the first
judgment is affirmed in part and reversed in part, the second judgment is found moot,
and the case is remanded.
FACTS AND PROCEDURAL HISTORY
The suit arose over a dispute concerning the ownership of Industrial Machine
Works, Inc. ( IMW). In 1999, Douglas A. Barton, Barry Longheed, Blaine Lee
Adams, and Michael Drago started IMW together. Each partner owned 25 percent
of the corporation. Stock certificates were never issued for the corporation. After a
series of buyouts, by the year 2002, Mr. Adams and Mark Wilks were each 50
percent owners of IMW according to IMW' s records.
On July 2, 2014, Mr. Drago filed suit against Mr. Wilks and IMW,
maintaining that he still owned 25 percent of IMW, and that he was owed past
dividends. Mr. Drago asked, in part, for a declaratory judgment that he was a 25
percent owner of IMW, for past dividends, and for a writ of mandamus directing
IMW and Mr. Wilks to issue shares of stock to Mr. Drago equal to his 25 percent
ownership of the company. He also asked that Mr. Wilks and IMW provide him
with all of the books and accounting records of IMW since its inception.
Mr. Wilks and IMW answered the petition, maintaining that Mr. Wilks had
purchased Mr. Drago' s 25 percent interest in IMW. Mr. Wilks and IMW filed
peremptory exceptions raising the objections of no cause of action, prescription, and
peremption,
and dilatory exceptions raising the objections of vagueness and
ambiguity. The district court denied the peremptory exceptions raising the
objections of no cause of action and the dilatory exceptions raising the objections of
2
vagueness, ambiguity, and non -conformity with La. C. C. P. art. 891. The district
court deferred ruling on the exceptions raising the objections of prescription and
peremption without prejudice to their renewal following completion of discovery.
In 2021, discovery was concluded and the case was set for trial. Mr. Wilks
and IMW renewed their peremptory exceptions raising the objections of prescription
and peremption. Mr. Drago filed a motion for partial summary judgment asking that
the district court declare that he still was a 25 percent owner of IMW. On September
24, 2021, the district court rendered two judgments: the first judgment granted the
peremptory exceptions raising the objections of prescription and/ or peremption and
dismissed Mr. Drago' s claims with prejudice, and the second judgment denied Mr.
Drago' s motion for partial summary judgment.' Mr. Drago appealed the judgments.
THE APPEAL
On appeal, Mr. Drago maintains that the district court erred in granting the
peremptory exceptions raising the objections of prescription and/or peremption,
erred in denying his claim for a declaratory judgment, and erred in denying his
motion for partial summary judgment.
We first address the granting of the peremptory exceptions raising the
objections of prescription and/ or peremption. When evidence is introduced at the
hearing on a peremptory exception raising the objection of prescription, the trial
court' s findings are reviewed under the manifest error -clearly wrong standard of
review. Stevens v. St. Tammany Parish Gov' t., 2019- 1555 ( La. App. 1 Cir.
418121), 322 So.3d 1268, 1279- 1280.
Louisiana Revised Statutes 12: 1502 provides in part:
A. The provisions of this Section shall
apply to all business
organizations formed under the laws of this state and shall be applicable
We note that the judgment grants the peremptory exception raising the objection of prescription and/ or peremption.
It further states " plaintiff' s claims are dismissed as time-barred by La. R.S. 12: 1502 or, alternatively, as time-barred
by acquisitive prescription pursuant to Louisiana Civil Code article 3491 [.]" We note this statement appears to
encompass the reasons for judgment rather than the judgment itself. However, as the judgment grants the peremptory
exception raising the objection of prescription and/ or peremption and dismisses the plaintiff s claims, this is a final
judgment. See La. C. C. P. art. 1841.
kj
to actions against any officer, director, shareholder, member, manager,
general partner, limited partner, managing partner, or other person
similarly situated. The provisions of this Section shall not apply to
actions governed by R.S. 12: 1- 622, 1- 833, 1- 1407, or 1328( C).
B. The term " business organization" includes any entity formed under
the laws of this state engaged in any trade, occupation, profession, or
other commercial activity including but not limited to professions
licensed by a state or other governmental agency. This Section shall
apply without limitation to corporations, incorporated or
unincorporated associations, partnerships, limited
liability
partnerships, partnerships in commendam, limited liability companies,
or cooperative associations or other entities formed under the laws of
this state.
C. No action for damages against any person described in Subsection
A of this Section for an unlawful distribution, return of an unlawful
distribution, or for breach of fiduciary duty, including without
limitation an action for gross negligence, but excluding any action
covered by the provisions of Subsection D of this Section, shall be
brought unless it is filed in a court of competent jurisdiction and proper
venue within one year from the date of the alleged act, omission, or
neglect, or within one year from the date that the alleged act, omission,
or neglect is discovered or should have been discovered, but in no event
shall an action covered by the provisions of this Subsection be brought
more than three years from the date of the alleged act, omission, or
neglect.
D. No action for damages against any person listed in Subsection A of
this Section for intentional tortious misconduct, or for an intentional
breach of a duty of loyalty, or for an intentional unlawful distribution,
or for acts or omissions in bad faith, or involving fraud, or a knowing
and intentional violation of law, shall be brought unless it is filed in a
court of competent jurisdiction and proper venue within two years from
the date of the alleged act or omission, or within two years from the
date the alleged act or omission is discovered or should have been
discovered, but in no event shall an action covered by the provisions of
this Subsection be brought more than three years from the date of the
alleged act or omission.
E. The time limitations provided in this Section shall not be subject to
suspension on any grounds or interruption except by timely suit filed in
a court of competent jurisdiction and proper venue.
Louisiana Revised Statutes 12: 1502( C) provides a prescriptive period of one
year from the date of the alleged act, omission, or neglect is discovered or should
have been discovered, but in no event shall an action covered by the provisions of
this subsection be brought more than three years from the date of the alleged act,
omission, or neglect. The time limits shall not be subject to suspension on any
4
grounds or interruption except by timely suit filed in a court of competent
jurisdiction and proper venue. La. R. S. 12: 1502( E).
Louisiana Revised Statutes 12: 1502 has been classified as a hybrid liberative
prescriptive statute. See Wooley v. Lucksinger, 2006- 1140 ( La. App. 1 Cir.
12/ 30/ 08), 14 So. 3d 311, 462, rev' d on other grounds, 2009- 0571 ( La. 411111), 61
So. 3d 507. This classification recognizes that the statute has been expressly
identified by the legislature as a prescriptive statute that is conditioned by certain
peremptive attributes -in particular, the inability of claims asserted thereunder to be
subject to interruption and suspension. Hill v. TMR Exploration, Inc., 2016- 0566
La. App. 1 Cir. 6/ 13/ 17) 223 So. 3d 556, 562- 563, writ denied, 2017- 1163 ( La.
10127117), 228 So. 3d 1227.
Evidence was presented at the hearing regarding a sale in 2000 by Mr. Drago
of his ownership interest in IMW to Mr. Wilks. In 1999, Mr. Drago received a Form
K- 12 from IMW and was listed on IMW' s Form 1065' for IMW' s income tax return.
After the 1999 tax year, Mr. Drago was not listed on any of IMW' s paperwork and
he no longer received a Form K- 1 from IMW. Mr. Wilks testified that he purchased
Mr. Drago' s ownership in IMW in 2000 and that he received a Form K- 1 from IMW
for every tax year thereafter. Mr. Drago stipulated that his name did not appear in
the corporate records of the company and he was not a shareholder in the company.
Mr. Adams, an owner and Vice President of IMW, testified that Mr. Drago
had an ownership in IMW in 1999, but that Mr. Drago sold his stock to Mr. Wilks
in 2000. Mr. Adams testified that after that time, Mr. Drago had no involvement in
IMW as an owner. Mr. Adams testified that after the year 2000, Mr. Drago did not
receive a Form K- 1 from IMW, was not listed on the IMW' s Form 1065, and was
not listed on the state tax returns or any other corporate documents. Mr. Adams
A Form K -i is used to report the owner' s share of the company' s income, deductions, credits, etc. for income tax
purposes.
A Form ] 065 is used by a company for income tax purposes.
il
further testified that after the year 2000 Mr. Drago was not listed on any loan
applications for IMW, did not personally guarantee any of those loans, and was not
listed on credit applications, annual reports, or bank accounts or bank signature cards
for IMW. Mr. Drago was paid by IMW as a contract employee from 2003 to 2006
and did not participate in the management or operation of IMW during that time.
While Mr. Drago argues that the sale was not valid because no stock shares
were transferred, there were no stock certificates in existence that could have been
transferred. Further, the evidence established that Mr. Drago worked as an
independent contractor for IMW after the time period that he sold his interest in
IMW, and that he no longer received a Form K -I from IMW after the 1999 tax year.
Pursuant to La. R.S. 12: 1502( C), we find that this lawsuit was filed more than
three years from the date the alleged act, omission, or neglect occurred, and we find
no manifest error in the district court' s judgment granting the defendants'
peremptory exception raising the objection of prescription and/ or preemption as to
the shareholder derivative claims, and we affirm that portion of the judgment.
However, as in this case no stock was issued, we find that acquisitive prescription
does not apply to the business ownership claims, and we reverse that judgment as to
the business ownership claims.' Compare Thorne v. Phillips, 95- 352 ( La. App. 5
Cir. 10/ 31/ 95), 663 So. 2d 865, 868, writ denied, 95- 3855 ( La. 2/ 2/ 96), 666 So. 2d
1098; Thornton v. Thornton Farms, Inc., 87- 297 ( La. App. 3 Cir. 5/ 11/ 88), 526
So.2d 31. 5, 320- 321. As the first judgment dismissed all claims the second judgment,
denying Mr. Drago' s motion for partial summary judgment, is moot.
CONCLUSION
For the foregoing reasons, the district court' s judgment granting Mark Wilks'
and IMW' s peremptory exception raising the objection of prescription and/ or
preemption and dismissing Michael Drago' s claims with prejudice is affirmed in
4 Once the trial court ruled on the first judgment, dismissing all claims, the second judgment is moot.
r.
part and reversed in part, the judgment denying Michael Drago' s motion for partial
summary judgment is found moot, and the case is remanded for further proceedings
consistent with this opinion. The costs of the appeal are assessed against Michael
Drago.
FIRST JUDGMENT AFFIRMED IN PART AND REVERSED IN
PART; SECOND JUDGMENT FOUND MOOT; CASE REMANDED.