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Single Business Enterprise Theory Continues to Gain Ground

by Dean P. Cazenave

The Louisiana Fourth Circuit Court of Appeal recently held that the single business enterprise theory may apply in a breach of contract case.

The single business enterprise theory, a jurisprudential theory under which one or more entities affiliated with another entity may be held liable for such other entity’s debts or liabilities, was first recognized in Louisiana by the First Circuit Court of Appeal in 1991 in the case of Green v Champion Insurance Co. This theory is somewhat unique to Louisiana and greatly erodes traditional corporate laws which generally shield shareholders and affiliated entities from the debts or liabilities of a corporation or other entity.   Although the Louisiana Supreme Court has not expressly adopted the single business enterprise theory, it has had opportunities to repudiate or criticize such a theory but has not done so; and as a result, other appellate courts in Louisiana have continued to invoke the theory.

To date, most of the cases where courts have invoked the single business theory have involved victims of torts (such as negligence), where the entity involved incurred a liability involuntarily. 

In the recent Fourth Circuit Court of Appeal case of Sarpy vs. ESAD, Inc., 2007 WL 2966382 (La. App. 4 Cir.), the court squarely faced the question of whether the SBE theory could be applied in a breach of contract case. The case involved a claim by a sublessor against its sublessee and a group of entities affiliated with the sublessee. The Fourth Circuit concluded that the SBE theory can be applied in a contract claim and remanded the case to the trial court for factual determinations which bear on whether it would be appropriate to hold the affiliated entities liable for the obligations of the sublessee under the facts at issue. [NOTE: THE SARPY OPINION HAS NOT BEEN RELEASE FOR PUBLICATION AND IS SUBJECT TO REVISION OR WITHDRAWAL]

Full post as published by Louisiana Law Blog on November 13, 2007 (boomark / email).