The application of corporate veil piercing theories to limited liability companies is still in its early stages in Louisiana jurisprudence. In Hollowell v. Orleans Regional Hosp. LLC, the U.S. Court of Appeals for the Fifth Circuit became the first court applying Louisiana law to pierce the veil of a Louisiana limited liability company on an “alter ego basis,” adopting from corporate veil piercing jurisprudence a non-exhaustive list of factors, namely: 1) commingling of corporate and shareholder funds; 2) failure to follow statutory formalities for incorporating and transacting corporate affairs; 3) undercapitalization; 4) failure to provide separate bank accounts and bookkeeping records; and 5) failure to hold regular shareholder and director meetings. 217 F.3d 379, 385-386 (5th Cir. 7/18/00); citing Riggins v. Dixie Shoring Co., 590 So.2d 1164, 1168 (La. 1991). The court emphasized that the inquiry is in fact a “totality of the circumstances” test, and “courts are not limited to these five factors when invoking the alter ego doctrine.” Id., at 387, citing Riggins, at 1168.
Recently, in ORX Resources, Inc. v. MBW Exploration, LLC, the Louisiana Court of Appeals for the Fourth Circuit employed the reasoning of Hollowell to pierce the veil of an LLC on an alter ego basis. 2009-0662 (La. App. 4th Cir. 2/10/10), 32 So.3d 931, writs denied, 2010-0530 (La. 5/7/10), 34 So.3d 862. ORX and MBW had entered into a joint operating agreement in order to develop an oil and gas lease, as well as a participation agreement which provided that MBW had a working interest in the land. Mark Washauer, MBW’s managing member, signed the agreements on behalf of MBW. The well proved to be unsuccessful, and MBW allegedly did not pay its share of expenses under the joint operating agreement. ORX filed suit for breach of contract against both MBW and Mr. Washauer personally. Id., at 932-933. Applying the Riggins factors, the court made the following findings:
(1) MBW’s funds were commingled with the funds of Mr. Washauer and a separate company of his, as MBW did not have a separate bank account to transact its own affairs, and the only payments made to ORX under the agreement were made on MBW’s behalf by Mr. Washauer and his separate company. Id., at 937-938.
(2) Mr. Washauer failed to follow statutory formalities for incorporating by signing the agreements with ORX on MBW’s behalf before MBW was recognized as an LLC by the Louisiana Secretary of State. Id., at 938. The court apparently rejected Mr. Washauer’s argument that he complied with the statutory requirements as a result of his acquisition of a working interest in the land (including oil, gas and mineral leases) on behalf of MBW and the subsequent issuance by the Secretary of State of a certificate of organization to MBW. Mr. Washauer cited La. R.S. 12:1310.1, which provides that when immovable property is acquired by an individual-who is acting in any capacity for and in the name of any LLC-and the LLC is later issued a certificate of organization, the LLC’s existence is retroactive to the date of acquisition of the interest in the immovable property. Id., at 936-937.
(3) MBW was undercapitalized, as it never owned any assets apart from its working interest in the oil and gas wells related to the agreement with ORX. Furthermore, MBW never used its own capital to pay its expenses for the venture with ORX. Id., at 938.
(4) MBW did not have a separate bank account to transact its own affairs. After issuing a check to ORX on MBW’s behalf, Mr. Washauer “did not see the point in creating a checking account and getting a tax ID for a one time investment. He anticipated that the above-referenced check was going to be the last payment made relative to the [agreement].” Id.
(5) Although Louisiana LLC law does not require members or managers to hold meetings, keep minutes, or act through formal resolutions, the court found the fact that MBW had not had a meeting in over a year further evidenced that “Mr. Washauer was operating MBW at his leisure and discretion,” and that the corporate veil should be pierced. Id.