Belliveau provides lighting systems for high-profile events, concert tours,
theater events, and showrooms. Richard entered into a License Agreement in 2007
with his company, High End Systems, Inc., which required that High End use
Richard’s intellectual property for commercial gain. In exchange, High End
agreed to pay Richard a substantial annual amount, in addition to sublicense
High End was sold to Barco, Inc. in
2008, for $55 million, and as a consequence High End became a wholly owned subsidiary
of Barco. Richard worked closely with High End and Barco to negotiate new
sublicense agreements for the following decade.
Meanwhile, High end suffered
financially. By 2016 Barco was looking for a purchaser. Barco signed a contract
with a company in 2017 committing Barco to sell High End for $7.5 million to
Electronic Theater Controls, Inc.
Richard was displeased at the
Negotiations between Barco and High End
continued and resulted in a sublicense for High End’s current patent portfolio
as well as Richard’s future intellectual property. Barco paid $75,000 for the
license, but it agreed not to make or sell any licensed products for four
Five days later, Barco sold High end
to Electronic Theater Controls.
Richard sued Barco in Texas State
court, claiming that since Barco owned High End, Barco was responsible for High
End’s sublicense of all of Richard’s intellectual property to Barco for an
unreasonably low value. And that High End’s breach of a duty owing to Richard
allowed Richard to prosecute a claim against High End’s owner, Barco.
Barco removed the State litigation
to Federal court. Richard lost at the district court level and appealed.
The Federal appellate court, using
Texas law, determined that in order to prevail Richard must show that Barco
used High End to “. . . perpetrate an actual fraud . . . primarily for Barco’s
direct personal benefit [italics added].”
Richard argued that fraud was
committed based on High End’s execution of the Barco sublicense for $75k, which
Richard contends was far below market value. The appellate court noted that the
lower court found that the execution of the Barco sublicense was permitted and
not evidence of actual fraud. As well, Richard did not provide to the appellate
court sufficient evidence that the Barco sublicense was undervalued.
To refute, Richard tendered his expert’s
opinion that the fair market value of Barco’s rights under the Barco sublicense
was over $100 million. And consequently, the $75k amount actually paid was
grossly inadequate and evidence of fraudulent intent.
This argument seemed to gain traction
with the appellate court.
Traction ended when the appellate court
determined that this is a breach of contract case, which does not authorize
Richard to sue Barco, the shareholder, for operating according to the terms of a
contract. Further, the appellate court stated that piercing the corporate veil
is a remedy to be used when the actions of the entity’s owner amounting to “actual
fraud” render the entity unable to pay its debts.
Barco prevails, again.
See Belliveau v. Barco, Inc.; Case 19-50717; US Court of Appeals, 5th Appellate Circuit; Western District of Texas; January 28, 2021: https://scholar.google.com/scholar_case?case=13618133374852336339&hl=en&as_sdt=6&as_vis=1&oi=scholarr.
Lessons / Questions
Laws and cases prohibit the formation of corporations, LLC, limited
partnerships, and similar for the purpose of committing fraud and then hiding
behind the liability shield offered by statute. But absent a clear showing
of fraud, it is difficult to reach through the shield to the wallet of the
shareholder, member, or partner.
Richard Belliveau first asserted his claim against High End, then later
dismissed High End and replaced it with Barco. Why do you suppose he did
For those interested in this case or how the “piercing” theory can be
successfully used, there is a well-written dissent starting at page 20
from W. Eugene Davis, Senior United States Circuit Judge of the US Court
of Appeals. Judge Davis would have returned this case back to the lower
Federal court, to allow a jury to hear all the facts and render a verdict.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.