Background
Three minority shareholders of family-owned Luv N’ Care, Ltd. sued individually and derivatively on LNC’s behalf. They alleged that other shareholders participated in a scheme to transfer the Nuby and Dr. Talbot’s brands from LNC-related entities to companies owned by certain family members, excluding the plaintiffs from resulting profits.
Seven shareholder defendants who were not alleged to be LNC officers or directors filed an exception of no right of action and a summary-judgment motion. The trial court sustained the exception, later amended its judgment to dismiss the shareholder defendants with prejudice, and did not reach summary judgment.
The Court’s Holding
The Second Circuit held that the plaintiffs could not maintain a claim that their fellow shareholders breached fiduciary duties owed directly to them. Louisiana law does not generally impose fiduciary duties among ordinary shareholders.
But the court held that the trial court erred by dismissing every claim against the shareholder defendants based solely on that conclusion. The plaintiffs had asserted derivative claims on LNC’s behalf and direct claims including breach of contract, unjust enrichment, detrimental reliance, fraud and misrepresentation, and unfair and deceptive trade practices. Those claims did not necessarily depend on a shareholder-to-shareholder fiduciary duty and could not be eliminated through the blanket no-right-of-action ruling.
The court replaced the amended judgment’s dismissal of the defendants with a narrower decree: the exception is granted only as to the fiduciary-duty claim, which is dismissed with prejudice, and denied as to all other claims. Costs were divided equally.
Key Takeaways
- Ordinary shareholders generally do not owe fiduciary duties to one another under Louisiana law.
- A no-right-of-action exception must be evaluated claim by claim when a petition asserts distinct direct and derivative theories.
- Allegations of conspiracy and tortious or quasi-tortious conduct may support claims against shareholders even without a fiduciary-duty theory.
Why It Matters
The decision prevents a fiduciary-duty defect in one theory from disposing of an entire shareholder lawsuit. In closely held-company disputes, plaintiffs may pursue properly pleaded derivative claims and other direct causes of action even where fellow shareholders owe them no standalone fiduciary duty.