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Sanders Family, LLC No. 1 v. Sanders
Citations: 82 So. 3d 434; 2011 La. App. LEXIS 1544; 2011 WL 6183570Docket: No. 46,476-CA
Court: Louisiana Court of Appeal; December 13, 2011; Louisiana; State Appellate Court
A family-owned limited liability company seeks to rescind four sales of its immovable property, alleging that the company manager, influenced by her son, sold the properties at prices significantly below fair market value. The company claims that these sales were executed under fraudulent circumstances, thereby invalidating the manager’s consent. The trial court initially dismissed their claims on grounds of prescription. However, the appellate court found that three of the four sales had not prescribed and affirmed in part while reversing in part. Following the death of Zack Sanders, Ethel Sanders established the Sanders Family, LLC No. 1, which owned various real estate assets. Ethel served as managing partner with 50% ownership, while her children, including Colton Sanders, held the remainder. The contested sales included transactions from 2001 to 2005, with amounts far below market value. The company filed suit in 2007 against Colton Sanders and others, alleging lesion beyond moiety, fraud, and breach of fiduciary duty regarding the sales. After an initial dismissal in 2008, the appellate court allowed the plaintiffs to amend their petition to specify fraud allegations. The plaintiffs contended that Colton had misled Ethel about the property values, prompting the undervalued sales. The defendants responded with a challenge regarding the timeliness of the claims, leading to a hearing where testimonies and documents were presented to assess Ethel's understanding of the transactions. On April 26, 2010, the trial court issued a ruling and final judgment favoring the Defendants on the prescription exception for four transactions related to the Claiborne Timber Sale. A signed final judgment was entered on April 5, 2011, dismissing all claims by the Plaintiffs, leading to the current appeal. The court aims to review each transaction and determine the cause of action for rescission, which is based on allegations of fraud under Civil Code Article 1954. This article addresses fraud that breaches a relationship of confidence, indicating that fraud does not invalidate consent if the deceived party could have easily discovered the truth. However, if a relationship of confidence exists, reliance on the other's representations may be justified. The Plaintiffs' cause of action involves a trustee/confidante relationship, where the confidante relied on the trustee’s assertions, despite having the means to ascertain the truth. The fraudulent behavior encompasses misrepresentation or suppression of facts by the trustee intended to gain an unjust advantage. The discovery of this fraud by the confidante is a critical component of the cause of action, which is governed by a five-year prescription period under La. C.C. Article 2032. This rule stipulates that a suit for annulment of a relatively null contract must be filed within five years from when the ground for nullity was discovered. In this case, the timing of the confidante's discovery of the trustee's misrepresentation is crucial, particularly since the Claiborne Timber Sale occurred six years prior to the suit, while the other transactions were within the five-year limit, placing the burden of proof on the Defendants for those transactions. A party challenging the prescription of a claim bears the burden of proof unless the petition itself indicates that it is prescribed. If the petition does not clearly show prescription, evidence may be presented to support or dispute the claim. In the absence of such evidence, the court must accept the petition's allegations as true and decide based solely on those facts. The trial court's consideration of a peremptory exception for prescription is limited to whether the time period has elapsed according to the relevant legal provisions, without delving into the merits of the case. Appellate review of a hearing on exceptions is subject to a manifest error standard when evidence has been introduced. In the case involving the Claiborne Timber Sale, plaintiffs allege several key points: 1) Colton advised Ethel Sanders that selling the land was in the best interest of the LLC; 2) Colton did not inform the majority of LLC members that Claiborne Timber was a newly formed LLC with him as the sole member; 3) Ethel lacked authority to sell the property on the sale date, but later received a certificate falsely authorizing her actions; 4) An oil, gas, and mineral lease was executed on the land for approximately $250-$300 per acre, sufficient to cover the purchase price. Further allegations in the supplemental petition include: 1) Colton misrepresented the sale as beneficial for the LLC; 2) He falsely claimed third-party investors wanted to purchase the land; 3) He lied about a non-existent mortgage of $107,000 to persuade Ethel to sell, knowing she opposed debt; 4) No representatives from Claiborne Timber were present at the sale; 5) Colton misled his mother about the fair market value of the land; 6) The cash sale deed was improperly executed without a notary present; 7) Colton fraudulently included a legal description of the entire 337.63 acres in the sale documents, despite only discussing a portion with Ethel. Colton misrepresented the property he was selling, claiming to convey 337.63 acres without his mother's knowledge or consent. He induced her to sell the property under fraudulent pretenses, concealing that Claiborne Timber, LLC was created by him and his wife, and that he was negotiating the sale for his benefit. Colton falsely represented the purchaser's identity, with negotiations aimed solely at personal gain. During a hearing, Colton admitted to being a principal of Claiborne Timber, LLC, and claimed that a verbal offer of $110,000 was made for the timberland, though no written offer existed. He engaged in discussions about potential buyers, referring to them as "Claiborne Timber people," but failed to provide specific details about these negotiations or the buyers. Ethel Sanders, Colton's mother, testified about her understanding of the sale, believing it involved a debt of $107,000 that she hoped to settle. She was unaware that Colton and his wife were involved in the LLC and assumed they were merely part of a group of businessmen. Ethel eventually questioned the sale's fairness when she learned of a subsequent higher sale price for adjacent property. Concerns about her competency and Colton's influence over her decisions regarding family properties were also raised during the testimony. Ethel learned of Colton's role in Claiborne Timber, LLC, only through her attorney in 2007, suggesting a hidden agenda in the transaction. Ethel lacked experience in real estate transactions and relied entirely on her husband, Colton, for management and financial advice regarding the LLC. During her testimony, she acknowledged a 2005 cash sale transferring 78 acres from the LLC to herself, which she executed without Colton's assistance due to his absence, and she leased the minerals on the property shortly thereafter. Ethel routinely signed documents without reading them, trusting Colton's guidance, and did not review the LLC's financial records, which Colton maintained. The trial court found that Ethel was aware she was selling significant acreage from the LLC and noted that while it was unclear if Colton emphasized a supposed $107,000 debt to her, she did not want the 337 acres to burden her or the LLC. Ethel demonstrated understanding of her role as LLC manager and showed business capability post-2001 sale. The court also established that there was no improper notarization of the deed. Colton's handling of the sale raised issues of confidence, as he withheld the true identity of the buyer and contradicted himself regarding the fairness of the sale price. The lack of expert testimony on the property's fair market value further complicated the case. Ultimately, the court concluded that Ethel had sufficient business acumen and was not mentally impaired, implying she could have understood the property's value. However, the court also acknowledged that her consent to the transaction was influenced by her reliance on Colton's expertise, which diminished the relevance of her ability to ascertain the truth about the transaction. The trial court's ruling on the Claiborne Timber Sale and the parties' arguments primarily focused on the merits of the claim rather than its timeliness within the five-year prescriptive period. Ethel discovered that Claiborne Timber, LLC was Colton’s limited liability company only within five years before filing the suit, prompting her to question the fairness of the $107,000 debt and the sale price. Ethel bore the burden of proof regarding her discovery of the alleged fraud, which occurred within the relevant timeframe, allowing her cause of action for rescission of the Claiborne Timber Sale to remain valid. Regarding the Benton Road Sale, plaintiffs alleged that Deborah and Colton knowingly sold land to Sanders Family, LLC No. 1 for an inadequate price, which was a fraction of its market value. They highlighted subsequent sales for significantly higher amounts, including a $119,803.32 sale to Bossier Parish and a $310,552.00 sale to Wood. Additional allegations in the amended petition included false representations made by Colton about the LLC's financial needs to pressure Ethel into selling the land, an option agreement granted to Deborah for $100,000, and Colton's knowledge of the land's appreciating value and ongoing negotiations for its sale at $600,000 without informing Ethel. On November 30, 2005, Deborah presented an act of cash sale to Ethel for $100,000, falsely indicating it was fair market value due to the LLC’s financial distress, which resulted in damage to the LLC. Colton also threatened to sue Ethel if she did not permit the sale. Colton testified at the hearing regarding the Benton Road Sale, confirming a purchase price of $100,000 and noting that his wife signed an option agreement for the property on May 31, 2005. He claimed ignorance of the Wemple Road extension and was unaware that his mother had previously listed the property for sale. A real estate listing from 1999, signed by his mother, indicated a value of $593,722.80, while Colton stated the property was valued at $90,000 in his father’s succession. Ethel, Colton’s mother, did not recall the 1999 listing but confirmed selling the property for $100,000 and acknowledged signing the option agreement, though she felt unprepared to sell at the time. The trial court addressed claims that the sale should be annulled due to Ethel's misunderstanding of the option contract and allegations that Colton and his wife were aware of the property's rising value due to the Wemple Road extension but failed to inform Ethel. The court considered Ethel's actions around the sale, noting she independently executed a removal of the property from the LLC and sought legal counsel without her children's influence. The court found insufficient evidence to prove that Colton had knowledge of the road extension when he sought the option on the property, concluding that the prescriptive period applied and fraud was not established. The plaintiffs also argued a potential breach of confidence related to Colton's alleged exaggeration of the LLC's liquidity and the discrepancy between the sale price and market value, which supported a claim under Civil Code Article 1954. The sale to Deborah Sanders was deemed distinct from a prior sale to Claiborne Timber, where the Sanders' interest was not disclosed. The 2005 contracts for the Benton Road Sale fell within the five-year prescription period from the 2007 suit filing, imposing a challenging burden on the defendants to prove otherwise. Evidence suggested a significant discrepancy between the $100,000 sale price and the land's market value, as shown by subsequent sales of portions of the property for approximately $430,000. The property in question spans over 13 acres, bordered by 320 feet on Benton Road and extending approximately 1,250 feet. Colton and Deborah sold a 1.90-acre right-of-way to Bossier Parish for $119,000 to enhance road access for the Sanders property, and a separate sale to Wood involved a 0.6-acre lot at the intersection of Benton and Wemple Roads. These two sales accounted for only 2.5 acres of the total tract, with the road improvement increasing the value of the remaining land. Plaintiffs indicated that Ethel listed the property for $594,000 in 1999. Colton claimed he was unaware of the Wemple Road project when Deborah entered an option contract for the Benton Road property in May 2005; however, he did not provide testimony on the property's fair market value at that time or confirm that the $100,000 option price was fair. The trial court's ruling, which did not address the Plaintiffs' allegations regarding Colton's financial representations, was deemed insufficient because the focus of the Article 1954 claim is on a trusted party’s influence rather than the competency of the party asserting the claim. Therefore, the dismissal of the Benton Road Sale claim was reversed, indicating it has not prescribed. Additionally, the original petition included a sale of property in Waller Subdivision to Deborah Sanders for $60,000, which was alleged to be grossly inadequate. Following remand, further allegations regarding Colton's misrepresentation of the LLC's finances were introduced. As no testimony was provided about this sale at the hearing, the court found a valid cause of action for rescission of the Waller Subdivision Sale, which also has not prescribed. Consequently, the trial court’s dismissal of this claim was reversed as well. The Bienville Parish Sale involved a transaction on September 5, 2003, where a 34-acre tract, including a three-bedroom home valued at approximately $250,000, was sold for $100,000, significantly below market value. The plaintiffs contended that the sale terms were not in the best interest of Sanders Family LLC and that the consideration was inadequate. Additionally, on March 22, 2005, an oil and gas lease was executed on the property for $250-$300 per acre. In subsequent proceedings, no new allegations regarding the Bienville Sale were made. Ethel Sanders, as manager of the LLC, acknowledged a prior 1998 conveyance of the same property, which was later rescinded due to family disputes. The court found insufficient grounds for rescission beyond lesion and affirmed the dismissal of the Bienville Sale claim based on prescription. The court reversed the trial court's ruling regarding the Claiborne Timber Sale, Benton Road Sale, and Waller Subdivision Sale, which had not prescribed. Costs of the appeal were assigned to the appellees. Ethel was recognized as the surviving spouse of Zack and received half of the community property, with the remaining half divided among their children, subject to Ethel's usufruct. A document dated May 17, 2004, outlined Ethel's authority to manage LLC property transactions. Defendants also presented the LLC’s Articles of Organization and Operating Agreement to support their prescription claims. Colton's potential fiduciary relationship with the LLC was noted but not ruled upon.