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Brothers v. Winstead

Supreme Court of Mississippi, En Banc

January 9, 2014

Phillips BROTHERS, Kilby Brake Fisheries, LLC and Harry Simmons
v.
Ray WINSTEAD.

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Luther T. Munford, Jackson, Robert G. Mayer, Wiley J. Barbour, Jr., Charles W. Wright, Jr., Meridian, L. Brooks Hooper, attorneys for appellants.

Dorsey R. Carson, Jr., John M. Lassiter, Christopher D. Meyer, Jackson, attorneys for appellee.

WALLER, Chief Justice.

¶ 1. Defendants Phillips Brothers, Kilby Brake Fisheries, LLC, and Harry Simmons seek review of a $1,724,923 judgment in favor of Ray Winstead for shareholder and employment claims. Finding multiple errors, we reverse and render in part; and remand in part.

Facts & Procedural History

¶ 2. In March 2000, Kilby Brake Fisheries, LLC, was formed as a catfish hatchery and farm. An operating agreement was signed by the three members— Harry Simmons, Phillips Brothers, LP, and Ray Winstead. The Kilby Brake operating agreement provided each member a one-third percent ownership stake in Kilby Brake. At the start of the LLC, bank loans were made and signed by all three members as guarantors. There were three loans: one in the amount of $300,300 (for the purchase of inventory), one in the amount of $201,040 (the purchase of equipment), and one in the amount of $300,900 (revolving line of credit to be used for operating expenses). Shortly after Kilby Brake was formed, Phillips and Simmons purchased an adjacent catfish farm (" the Wise Place" ) to be used to support the Kilby Brake operation. Winstead declined to be a part of the purchase of the Wise Place.

¶ 3. The members agreed that Winstead would be the hatchery operator and, for his work, he would receive $30,000 per year from Kilby Brake and use of a company truck, and Kilby Brake would pay for his and his family's housing on the farm, utilities, and health insurance. Winstead, as hatchery operator, was subject to the direction of Simmons, serving as the manager under the operating agreement. Simmons, under the Kilby Brake operating agreement, was authorized to carry out the business functions of the hatchery, including borrowing money and check-writing.

¶ 4. Kilby Brake's records indicated it was profitable for only two of the almost eight years while Winstead was the hatchery operator. Simmons fired Winstead in late 2007.

¶ 5. In September 2009, Winstead filed a complaint against Kilby Brake, Harry Simmons, Chat Phillips, Simmons Farm Raised Catfish, Inc., Five Mile Fisheries, Inc., and H.D. Simmons Corp. in the Circuit Court of Yazoo County.[1] His complaint was amended to add Phillips Brothers, LP, as a defendant. Winstead alleged

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that Simmons and Phillips Brothers had failed to pay him his agreed-upon salary, asserting claims of fraud, breach of fiduciary duty, corporate freeze-out, conversion, slander, slander per se, and tortious interference with business relations. He also requested an accounting and dissolution of the LLC.

¶ 6. Along with their answers, Simmons, Phillips and Kilby Brake (Defendants) filed counterclaims against Winstead asserting theft, conversion, usurpation of corporate opportunities, tortious interference with business relations, conversion, theft by deception, breach of contractual and fiduciary duties, and unjust enrichment. They requested replevin and judicial dissolution. The counterclaims alleged that Winstead took Kilby Brake property for his personal use, provided property to others to use, and sold property, including fish products, food products, equipment, chemicals and fuel without authorization, while retaining all profits. The trial court granted Winstead's motion to dismiss the claims of tortious interference with Kilby Brake's business relations and claims that were barred by the three-year statute of limitations.

¶ 7. Trial commenced in April 2011 and, at the completion, a jury awarded Winstead compensatory damages in the amount of $1,160,000 and punitive damages against Simmons of an additional $100,000. The court also awarded Winstead attorneys' fees and costs in the amount of $464,923, bringing the total judgment against Harry Simmons and Phillips Brothers to $1,724,923. Further, the court awarded post-judgment interest at a rate of eight percent. Defendants appealed. The jury denied three of Defendants' four counterclaims— theft, unjust enrichment, and breach of fiduciary duty. Kilby Brake prevailed on its replevin counterclaim, and the jury ordered that Winstead return the company truck to Kilby Brake.

¶ 8. Defendants filed a motion for judgment notwithstanding the verdict (JNOV) or, in the alternative, a motion for new trial, which were denied. Although both parties asked in their pleadings for the LLC to be dissolved, they were unable to agree about the terms of dissolution. In the final judgment, the parties' claims for judicial dissolution were dismissed without prejudice. No issue is made of this dismissal on appeal. Because of the many issues in this case, we will discuss the facts relevant to each issue below.

DISCUSSION

¶ 9. The issues raised by the three defendants in this appeal fall into six categories: (1) Whether the admission of testimony regarding an oral agreement for cash contributions violated the parol evidence rule; (2) whether there was sufficient evidence to support Winstead's award for fraud; (3) whether there was sufficient evidence to support Winstead's award for corporate freeze-out; (4) whether there was sufficient evidence to support Winstead's award for breach of fiduciary duty; (5) whether Kilby Brake is entitled to a new trial; (6) whether Winstead met the requisite elements of slander per se?

I. Whether the admission of testimony regarding an oral argument for case contributions violated the parol evidence rule.

¶ 10. Winstead asserted that Simmons and Phillips Brothers had agreed to provide $600,000 in paid-in capital from cash contributions for the purchase of the startup equipment and fish inventory. Over Simmons and Phillips Brothers' objections, the trial court allowed Winstead to testify to this alleged oral agreement because the operating agreement was " silent

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as to the contributions." Winstead's expert also was permitted to testify, over objections, that he believed it was the intent of Simmons and Phillips to pay $600,000 in capital, out of cash.

¶ 11. " Questions concerning the construction of contracts are questions of law that are committed to the court rather than questions of fact committed to the fact finder." Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So.2d 107 (Miss.2005) (quoting Miss. State Highway Comm'n v. Patterson Enters. Ltd., 627 So.2d 261, 263 (Miss.1993)). An appellate court applies a de novo standard of review for questions of law. Starcher v. Byrne, 687 So.2d 737, 739 (Miss.1997).

¶ 12. The relevant portion of the Kilby Brake operating agreement at issue is set out as follows:

ARTICLE VI

CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

Section 6.1 Initial Capital Contributions. As initial capital contributions to the Company, the Members shall contribute the Property more particularly described in Schedule " A" .[2]
Section 6.2 Additional Contributions. Except as set forth in Section 6.1 above, no Member shall be required to make any capital contributions.

¶ 13. " The primary purpose of all contract construction principles and methods is to determine and record the intent of the contracting parties." Royer Homes of Miss., Inc. v. Chandeleur Homes, Inc., 857 So.2d 748, 752 (Miss.2003) (citing Kight v. Sheppard Bldg. Supply, Inc., 537 So.2d 1355, 1358 (Miss.1989)). In contract construction cases, the court's focus is on the language of the contract. Royer Homes, 857 So.2d at 752 (citing Turner v. Terry, 799 So.2d 25, 32 (Miss.2001); Osborne v. Bullins, 549 So.2d 1337, 1339 (Miss.1989)). A court should look to the " four corners" of a contract to determine how to interpret it. McKee v. McKee, 568 So.2d 262, 266 (Miss.1990). It is well established that " parol extrinsic evidence is not admissible to add to, subtract from, vary or contradict written instruments, contractual in nature, and which are valid, complete, unambiguous and unaffected by accident, mistake or fraud." Byrd v. Rees, 251 Miss. 876, 171 So.2d 864, 867 (Miss.1965). " Our concern is not nearly so much with what the parties may have intended, but with what they said, since the words employed are by far the best resource for ascertaining the intent and assigning meaning with fairness and accuracy." In re Estate of Fitzner, 881 So.2d 164 (Miss.2003) (citing Simmons v. Bank of Miss., 593 So.2d 40, 42-43 (Miss.1992)). If the language in the contract is clear and unambiguous, the intent of the contract must be effectuated. Rotenberry v. Hooker, 864 So.2d 266, 270 (Miss.2003); see also Pfisterer v. Noble, 320 So.2d 383, 384 (Miss.1975). " The mere fact that the parties disagree about the meaning of a provision of a contract does not make the contract ambiguous as a matter of law." Burton v. Choctaw County, 730 So.2d 1, 6 (Miss.1997) (quoting Cherry v. Anthony, Gibbs, Sage, 501 So.2d 416, 419 (Miss.1987)).

¶ 14. This Court has said that " silence alone does not necessarily create an ambiguity as a matter of law." Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So.2d 107, 115 (Miss.2005). In Facilities, Inc.,

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this Court found that, although the Court of Appeals held that a lease agreement between the parties was not ambiguous, the Court of Appeals improperly considered extrinsic or parol evidence in the analysis portion of its opinion. Id. at 110. We found that, although the lease agreement was silent as to whether the bonus rent would apply to new vehicle sales at the subject property, it was not ambiguous and, therefore, Rogers-Usry was not required to pay bonus rent for sales that did not occur on the leased property. Id. at 115-16 (" It is the silence, not the language of the [operating agreement], that has created this dispute. However, silence alone does not necessarily create an ambiguity as a matter of law" ) (emphasis in original). Further, we noted this concept is not novel and has been adopted in a number of jurisdictions. Id.

¶ 15. The Kilby Brake operating agreement is clear. It states " no member shall be required to make any capital contributions" except as provided in Schedule A.[3] Nothing is listed in Schedule A. Kilby Brake was financed by the three loans totaling more than $800,000, which Winstead signed for and subsequently renewed as a one-third partner. For more than eight years, Winstead never raised an issue about the capital investment. Winstead's expert testified that it was not unusual to leave capital contributions blank for completion at closing. No amounts were ever filled in or added.

¶ 16. Constraining our review to the " four corners" of the document, it is clear the language used in the Kilby Brake operating agreement is not ambiguous. Thus, it was error for the trial court to go outside the operating agreement to interpret the intent of the parties. Because the trial court never should have considered the offer to make cash contributions, the interest-expense-savings portion of Winstead's corporate freeze-out damage award also is without merit. We thus reverse the judgment of the trial court on its parol-evidence finding as well as the damages awarded and render judgment in favor of Simmons on this portion of Winstead's freeze-out damages. Having limited our review to the admissible evidence, we now address the merits of Defendants' claims.

II. Whether there was sufficient evidence to support Winstead's award for fraud.

¶ 17. Winstead's theory of recovery for fraud was based on two claims. The first is that Simmons and Phillips Brothers purchased the Wise Place in their names only, with funds from Kilby Brake. The second is that money was withheld fraudulently from his salary. Winstead was awarded a total of $140,000 for fraud: $90,000 for one-third of the value of the Wise Place and $50,000 for money withheld from his paychecks. Simmons and Phillips Brothers were both found liable and both moved for JNOV, arguing Winstead had failed to prove all of the elements of fraud by clear and convincing evidence or, in the alternative, that the overwhelming weight of the evidence required a new trial.

¶ 18. The standard of review for the denial of a motion for JNOV is de novo. InTown Lessee Assocs., LLC v. Howard, 67 So.3d 711, 718 (Miss.2011). We consider the facts in the light most favorable to the nonmoving party. Natchez Elec. & Supply Co. v. Johnson, 968 So.2d 358, 361 (Miss.2007). " ‘ If the facts so considered point so overwhelmingly in favor of the appellant that reasonable men could not have arrived at a contrary verdict, [we are] required to reverse and render.’ "

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Leaf River Forest Prods., Inc. v. Ferguson, 662 So.2d 648, 659 (Miss.1995) (quoting Munford, Inc. v. Fleming, 597 So.2d 1282, 1284 (Miss.1992)). We will affirm the denial of JNOV if there is substantial evidence in support of the verdict. Natchez Elec. & Supply Co., 968 So.2d at 362. " Substantial evidence is information of such quality and weight that reasonable and fair-minded jurors in the exercise of impartial judgment might have reached different conclusions." Id. (citations omitted).

¶ 19. In order to recover for fraud, a plaintiff must prove the following elements: " (1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity; (5) his intent that it should be acted on by the hearer and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; and (9) his consequent and proximate injury." Holland v. Peoples Bank & Trust Co., 3 So.3d 94, 100 (Miss.2008) (citations omitted). These elements must be proven by clear and convincing evidence. Bank of Shaw v. Posey, 573 So.2d 1355, 1363 (Miss.1990). Clear and convincing evidence is of such a high order that " this Court held that the ‘ overwhelming weight of the evidence’ falls short of being ‘ clear and convincing.’ " In the Interest of C.B., 574 So.2d 1369, 1375 (Miss.1990) (quoting Aponaug Mfg. Co. v. Collins, 207 Miss. 460, 42 So.2d 431, 434 (1949)).

A. The Wise Place

¶ 20. The Wise Place is a catfish farm located adjacent to Kilby Brake. Winstead testified that Simmons informed him that " they had gotten the Wise Place" and that it was his understanding " that, basically, Kilby Brake bought the Wise Place." Simmons testified that he and Phillips Brothers purchased the Wise Place and the equipment thereon individually and allowed Kilby Brake to use it as part of the hatchery operation. He further testified that Winstead was unwilling to join in the purchase because he did not feel that a bank would ...


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