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Daniels v. Crocker

Supreme Court of Mississippi

June 8, 2017

MARC B. DANIELS, SANDRA DANIELS, CROCKER & ASSOCIATES, INC. f/k/a D & D ENVIRONMENTAL, INC. AND MAXX INVESTMENTS, LLC
v.
J. DENNIS CROCKER, GAIL CROCKER, CROCKER, LTD., A SOUTH CAROLINA CORPORATION AND GENERATIONAL EQUITY, LLC

          DATE OF JUDGMENT: 04/06/2016

         MADISON COUNTY CIRCUIT COURT HON. JOHN HUEY EMFINGER, Judge

          TRIAL COURT ATTORNEYS: ROY H. LIDDELL RICHARD L. FARLEY STEPHEN HUWE C. MICHAEL ELLENBURG ERIC F. HATTEN

          ATTORNEY FOR APPELLANTS: ROY H. LIDDELL

          ATTORNEYS FOR APPELLEES: ERIC F. HATTEN CHRISTOPHER D. MEYER RICHARD L. FARLEY REBECCA K. LINDAHL

          BEFORE RANDOLPH, P.J., KITCHENS AND CHAMBERLIN, JJ.

          CHAMBERLIN, JUSTICE

         ¶1. This appeal arises from a breach-of-contract action between Marc Daniels, Sandra Daniels, Crocker & Associates, Inc., and Maxx Investments, LLC (collectively, "the Danielses") and Dennis Crocker, Gail Crocker and Crocker, Ltd. (collectively, "the Crockers"). The Danielses entered into an Asset Purchase Agreement (the "Agreement") with the Crockers to acquire Crocker & Associates, Inc. ("C&A") on March 31, 2011.[1]Within eighteen months of the sale, C&A lost a number of important contracts and its employees resigned.

         ¶2. The Danielses then sued the Crockers for failing to disclose all material information about C&A as required by the Agreement. The Crockers answered the suit and brought counterclaims against the Danielses. After extensive discovery, the trial court granted the Crockers' motion for summary judgment on the Danielses' claims against them. The Danielses now appeal the trial court's grant of summary judgment. After review of the record, we affirm in part and reverse in part the grant of summary judgment and remand the case for further proceedings.

         STATEMENT OF FACTS AND PROCEDURAL HISTORY

         ¶3. In 1969, Dennis Crocker cofounded Aqua Aerobic Systems ("Aqua"), an applied engineering business that provides solutions to municipal and industrial wastewater and water-treatment customers. In 1977, Dennis left Aqua and founded C&A in Rock Hill, South Carolina. Despite leaving Aqua, Dennis retained his minority shareholder's interest in Aqua as well as a seat on Aqua's board. C&A was a sales representative firm for manufacturers of water and wastewater-treatment equipment. It represented Aqua exclusively in several territories-Virginia, North Carolina, South Carolina, Georgia, Alabama, and portions of Florida and Tennessee. Aqua guaranteed these territories to C&A by entering into contracts for each territory; the contracts were terminable with thirty days' notice. Since its founding, C&A was regularly Aqua's number one representative firm in sales. Aqua represented fifty to seventy percent of C&A's revenue, depending on the year.

         ¶4. C&A's business model functioned on a long cycle. From the time it booked a project until it received the commission from the booking was, generally, twelve to eighteen months. Therefore, it was possible to look at a base year of bookings and project a picture of future revenue twelve to twenty-four months in the future.

         ¶5. Dennis retired from C&A in 2003 and turned over the management of C&A to his wife Gail Crocker; later, in 2010, he gave Gail fifty percent of his interest in C&A. While Gail testified that she was "scared to death" that Aqua would cancel its contracts with C&A after Dennis retired, Aqua did not cancel its contracts with C&A until years later after C&A was sold.

         ¶6. In 2010, Marc Daniels, a certified public accountant (CPA), reviewed an offering memorandum for C&A. Generational Equity ("GE"), a business broker, had compiled the memorandum based on information it had received from the Crockers. After reviewing the offering memorandum, Marc and his brother Stephen Daniels, met the Crockers in South Carolina for an initial due-diligence meeting.

         ¶7. After the initial meeting, the Crockers provided the Danielses with financial disclosures of past revenue and present bookings at the request of the financial institution that was going to finance a portion of the transaction. Over a period of months, the Crockers and the Danielses exchanged financial information concerning C&A, negotiated, and settled on a purchase price of $4, 000, 000 for C&A. Of this figure, $2, 800, 000 was financed by a bank, and the remaining $1, 200, 000 was owner-financed by the Crockers.

         ¶8. On March 23, 2011, eight days before the parties signed the Agreement, Dennis attended an Aqua board meeting at which the sale of Aqua was discussed. Dennis did not disclose this to the Danielses.

         ¶9. The Danielses and the Crockers entered into the Agreement on March 31, 2011. On May 1, 2011, Marc-through Maxx Investments-agreed to pay $365, 000 to the Crockers for Crocker, Ltd.'s goodwill.

         ¶10. In October 2011-seven months after the sale of C&A and after the possibility of selling Aqua had dissipated, Dennis requested that Aqua redeem his stock. Aqua redeemed the stock in December, and Dennis retired from Aqua's board. In June 2012, Aqua canceled its representation contract with C&A for North and South Carolina. Soon after this, C&A's sales representatives resigned, and C&A lost its remaining contracts with Aqua.

         ¶11. On October 11, 2012, the Danielses filed suit in Madison County circuit court against the Crockers, alleging that the Crockers had breached the Agreement by not disclosing "all material information relating to [(C&A)] or the transactions contemplated by this Agreement." The Crockers answered the complaint and alleged counterclaims against the Danielses. The parties took several depositions and conducted discovery. The Danielses also designated Robert Cunningham as an expert. Cunningham was deposed and prepared an expert report.

         ¶12. In December 2014, the Crockers filed a motion for summary judgment on the Danielses" claims against them. On May 5, 2015, the trial court granted the Crockers' motion for summary judgment (the "May 5 order"). The Danielses filed a motion for reconsideration or, in the alternative, to certify the May 5 order under Mississippi Rule of Civil Procedure 54(b). The trial court denied the motion, specifically denying both the reconsideration and the certification.

         ¶13. Next, the Danielses and the Crockers filed competing motions for summary judgment on the Crocker's counterclaims. On January 8, 2016, the trial court resolved the motions. On April 6, 2016, pursuant to the Danielses' renewed motion, the trial court certified its earlier May 5 order. The trial court also stayed the proceedings "pending the appeal" of the May 5 order.

         ¶14. The Danielses now appeal a number of issues that each relate to the trial court's grant of summary judgement in favor of the Crockers.[2] We will first address where the trial court erred in granting summary judgment before addressing where the trial court properly granted summary judgment.

         ¶15. The Crockers also cross-appealed the trial court's stay of their claims against C&A. By order filed March 2, 2017, this Court granted the Crockers' unopposed motion to dismiss their cross-appeal for lack of subject-matter jurisdiction. Due to the factually intensive nature of this appeal and the extensive record, additional facts and procedural history will be related throughout the analysis as necessary.

         STANDARD OF REVIEW

         ¶16. We review a trial court's grant of summary judgment de novo. Mitchell v. Ridgewood E. Apartments, LLC, 205 So.3d 1069, 1073 (Miss. 2016) (citing Borries v. Grand Casino, Inc. 187 So.3d 1042, 1045 (Miss. 2016)). Under Rule 56 of the Mississippi Rules of Civil Procedure, "[t]he judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Miss. R. Civ. P. 56(c). The burden of demonstrating that no genuine issue of fact exists is on the moving party and "the non-moving party should be given the benefit of every reasonable doubt" Borries, 187 So.3d at 1046. "The evidence is to be viewed in the light most favorable to the nonmoving party." Mitchell, 205 So.3d at 1073 (citing Stribling Inv., LLC v. Mike Rozier Constr. Co., Inc., 189 So.3d 1216, 1219 (Miss. 2016)).

         ANALYSIS

         ¶17. Due to the Crockers' argument on the issue, we initially note that Cunningham's expert testimony and report is properly before the Court. It was not challenged in the trial court below other than argument of counsel at the summary judgment hearing.[3] We consistently have held that we "will not consider issues raised for the first time on appeal." Anderson v. LaVere, 136 So.3d 404, 410 (Miss. 2014) (citing Flagstar Bank, FSB v. Danos, 46 So.3d 298, 311 (Miss. 2010)); see Alexander v. Daniel, 904 So.2d 172, 183 (Miss. 2005) (recognizing "the practical effect of depriving the trial court of the opportunity to first rule on the issue."); see also Univ. of Miss. Med. Ctr. v. Peacock, 972 So.2d 619, 625 (Miss. Ct. App. 2006) (noting the lack of any Daubert[4] challenge at the trial level). The report and testimony is in the record before us. To exclude it would require us to make a determination as to its admissibility de novo. Our settled review for the admission or exclusion of expert witnesses, though, is a review for an abuse of discretion. See Patterson v. Tibbs, 60 So.3d 742, 748 (Miss. 2011).

         ¶18. "The law by which a contract is to be governed is that which parties intended or may fairly be presumed to have intended." Cox v. Howard, Weil, Labouisse, Friedrichs, Inc., 619 So.2d 908, 911 (Miss. 1993). Here, the Agreement's choice-of-law provision reads:

(d) Law Governing. This Agreement shall be governed by and construed in accordance with the law of the State of South Carolina without regard to the choice of law principles of the State of South Carolina.

         Given this provision, we will apply South Carolina law to the contract between the Danielses and the Crockers.

         ¶19. As a "[c]hoice of law analysis arises only when there is a true conflict between the laws of two states, " we will apply Mississippi law to the remainder of the Danielses' claims. Zurich Am. Ins. Co. v. Goodwin, 920 So.2d 427, 432 (Miss. 2006). There is no "true conflict between the laws of" Mississippi and South Carolina on any of the Danielses' noncontractual claims. Id.

         I. The trial court erred in granting summary judgment on the Danielses' contract, negligent and fraudulent misrepresentation, and punitive damages claims.

         ¶20. Because the record contains a genuine issue as to material fact concerning the Danielses' contract claims and negligent and fraudulent misrepresentation claims, the trial court erred in granting summary judgment on these claims. Further, because we are remanding claims to be tried by a jury to determine if the Danielses are entitled to compensation, we reverse the trial court's grant of summary judgment on the punitive damages claim.

         A. Contract

         ¶21. In South Carolina, "[a]n action for breach of contract is an action at law." Lee v. Univ. of S.C., 757 S.E.2d 394, 397 (S.C. 2014). "To recover for a breach of contract, the plaintiff must prove: (1) a binding contract; (2) a breach of contract; and (3) damages proximately resulting from the breach." Hennes v. Shaw, 725 S.E.2d 501, 506 (S.C. Ct. App. 2012) (citing Fuller v. E. Fire & Cas. Ins. Co., 124 S.E.2d 602, 610 (S.C. 1962)). Under South Carolina law, "[t]he primary concern of the court interpreting a contract is to give effect to the intent of the parties." N. Am. Rescue Prod., Inc. v. Richardson, 769 S.E.2d 237, 240 (S.C. 2015). "A contract is ambiguous when it is capable of more than one meaning or when its meaning is unclear." Id. "If a contract's language is unambiguous, the plain language will determine the contract's force and effect." Id.

         ¶22. The warranty provision at issue here governed the Crockers' duty to disclose material information to the Danielses. The warranty stated:

8. Representations and Warranties of the Seller. To induce the Buyer to enter into this Agreement, the Seller and the Crockers make the following ...

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