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Lane v. Lampkin

Supreme Court of Mississippi

July 20, 2017

ERNEST LANE, III, AS EXECUTOR OF THE ESTATE OF JAMES OLDRUM SMITH, JR. AND LIMESTONE PRODUCTS, INC.
v.
RONALD D. LAMPKIN

          DATE OF JUDGMENT: 05/20/2016

         COURT FROM WHICH APPEALED: WARREN COUNTY CHANCERY COURT HON. GEORGE WARD TRIAL JUDGE.

          ATTORNEYS FOR APPELLANTS: HARRIS H. BARNES, III JAMES WILLIAMS JANOUSH.

          ATTORNEYS FOR APPELLEE: DAVID W. MOCKBEE D. WESLEY MOCKBEE.

          BEFORE DICKINSON, P.J., KING AND CHAMBERLIN, JJ.

          CHAMBERLIN, JUSTICE.

         ¶1. The Chancery Court of Warren County, First Judicial District, found that Ronald Lampkin had breached his fiduciary duties to Limestone Products, Inc. ("Limestone").[1]Lampkin and James Oldrum Smith Jr. jointly owned and operated Limestone with a line of credit personally guaranteed by each of them. Upon Smith's death and his estate's refusal to guarantee the line of credit, Lampkin formed Delta Stone, a new corporation which operated on the same property, used the same facilities, and sold rock to the same clients to whom Limestone had sold.

         ¶2. Lampkin sought a declaratory judgment against the estate that he was not violating his fiduciary duties to Limestone. The executors of the estate counterclaimed for lost profits and attorney's fees. At the liability stage of the bifurcated trial, the chancellor determined that Lampkin had breached his fiduciary duty to Limestone by usurping a corporate opportunity. In the damages, stage of the trial, the chancellor considered expert testimony, awarded damages, and denied the executors' request for attorney's fees, expert-witness fees, and punitive damages. The executors appealed and the Court of Appeals affirmed. Lane v. Lampkin, 176 So.3d 62, 75 (Miss. Ct. App. 2014) (Lampkin I). This Court granted certiorari, reversed the Court of Appeals and found that the chancellor had abused his discretion in calculating the damages award. Lampkin II, 175 So.3d at 1231. This Court remanded for the chancellor to re-evaluate damages. Id.

         ¶3. On remand, the chancellor reassessed the damages due to Limestone as a result of Lampkin's breach of his fiduciary duties. Aggrieved, the executors appeal again. As explained below, we affirm in part and reverse and render in part.

         FACTS AND PROCEDURAL HISTORY

         ¶4. Quoting from Lampkin II:

In 1995, Lampkin and Smith formed Limestone, which they operated on land they jointly owned in Warren County. Lampkin and Smith each owned a one-half interest in the corporation, which bought and sold rocks. Lampkin also owned Lampkin Construction, which became one of Limestone's biggest customers.
For ten years, Limestone operated on a line of credit personally guaranteed by both Lampkin and Smith. The line of credit was set to expire in September 2006. In August 2006, Smith died, and his stock in the corporation and his interest in the real property transferred to the Estate. Prior to the expiration of Limestone's line of credit, Lampkin secured an extension until December 8, 2006, to provide the Estate with time to determine whether it would guarantee the loan. Between September 2006 and December 2006, the parties discussed renewing the line of credit. However, the Estate failed to provide a guarantee before the deadline. Lampkin then formed a new corporation, Delta Stone, which began operating in January 2007. Delta Stone performed the same functions as Limestone, and through his new company, Lampkin completed Limestone's contracts and satisfied its debt obligations.
Lampkin filed a lawsuit against the Executors in Warren County Circuit Court. . . . The Executors filed a counterclaim against Lampkin for present and future profits the corporation lost due to Lampkin's actions and for attorney[']s[] fees. [O]ne of the [E]xecutors[] also filed a motion to transfer the matter to Warren County Chancery Court.
The circuit court judge entered an order finding the matter to be proper for a declaratory judgment. Further finding that the chancery court possessed proper jurisdiction over the subject matter of the declaratory-judgment action, the circuit court judge granted the motion to transfer the matter to chancery court. In an order entered by the Warren County Chancery Court, all the chancellors recused themselves from the case, and the Mississippi Supreme Court appointed a special judge to preside over the proceedings.
Following the chancellor's ruling that Lampkin breached his fiduciary duty to Limestone by starting Delta Stone and usurping a corporate opportunity, the parties presented evidence as to the damage that resulted from Lampkin's breach of duty. Both parties hired an expert to testify as to the valuation of Limestone. Lampkin hired Brent Saunders, and the Executors hired James Koerber. The chancellor accepted both experts as certified public accountants and experts in the field of business valuation.
. . . Koerber's expert report indicated that between 2000 and 2007, Limestone's average net income was $20, 914.00. Koerber opined that, in total, 649, 203 tons of rock were diverted from Limestone between 2003 and 2011. This unreported rock was, beginning in 2007, diverted to Delta Stone: "you've got all of this unreported rock that went through say Delta [S]tone and then some that should have been attributable to Limestone." Based on the unreported rock, Koerber testified that Limestone had incurred lost-profit damages of $1, 095, 281. Additionally, Koerber calculated that the lost-profit damages from 2011 through 2012 had been $270, 804.00, which he based on "the average of 2007, 2008, 2009, and 2010's lost profits." Koerber estimated that lost profits amounted to $1, 366, 085, which he rounded down to $1, 366, 000. He then added $169, 129 to that figure to account for loss of assets, bringing the total loss to $1, 535, 129. The chancellor indicated in his valuation order that "the Smith estate's portion, based on Koerber's figures, would be $767, 564.50."
Saunders, Lampkin's expert, testified that the rock was not "unreported, " as Koerber had stated, but that Lampkin had "moved the tons from Limestone to Delta Stone." According to Saunders, the tons of rock "may be unreported in Limestone but we've got a accounting and analysis" which shows that "they just moved over to Delta Stone because [Lampkin] kept on running the thing just like he was doing before." Instead of conducting a lost-profits analysis, Saunders conducted a valuation of the "net book value" of Limestone. As of 2006, the year Smith died, Saunders opined that the net book value was $165, 000. The 2007 valuation, according to Saunders, was $156, 000. According to the chancellor, "[a]fter deductions, Saunders added the value of the corporation's remaining assets" and "arrived at a total net book value of $125, 546.32." Saunders stated that $62, 773.16 was owed to the Smith estate.
The chancellor then conducted an independent assessment of the damages, which he chronicled in a Judgment on Valuation of Business. He acknowledged Saunders's calculation of net book value, including deductions, at $125, 546.32. He opined that "in making an assessment of lost profits from January 1, 2008[, ] forward the more fair assessment of damages would be that of historical lost profits." He then took into consideration Koerber's calculation of average yearly net income of $20, 914, multiplied that figure by five, representing the years 2008 through 2012, and concluded that the "historical lost profits" amounted to $104, 570. Therefore, "[u]tilizing the net book value provided by Saunders, in addition to the historical costs, the Court finds that the total sum of damages due to Limestone Products totals $230, 116.32." The chancellor ordered Lampkin to pay $230, 116.32 [to Limestone] "as a result of his usurpation of corporate opportunity, " or otherwise $115, 058.16 [to the Estate], in the event the parties reached an agreement to dissolve the corporation. The chancellor denied the executors' request for attorney[']s[] fees, expert-witness fees, and punitive damages.
Aggrieved, the executors appealed the chancellor's judgment, and the case was assigned to the Court of Appeals. The Court of Appeals affirmed, finding that the chancellor had not abused his discretion in the methods he employed to assess the damages owed to Smith's estate, in determining that Lampkin's expert had accounted for the unreported rock, in failing to award damages based on unpaid rent due to Limestone, and in failing to award costs to Smith's estate. After filing the requisite motion for rehearing in the Court of Appeals, the executors timely filed [a] . . . petition for a writ of certiorari . . . . The executors of Smith's estate assert[ed] that the chancellor employed the wrong analysis in assessing damages, that the chancellor failed to take into account the unreported rock in assessing damages, that the chancellor failed to award damages based on unpaid rent due to Limestone, and that the chancellor failed to award attorneys' fees, expert-witness fees, and punitive damages to the Smith Estate.

Lampkin II, 175 So.3d at 1223-27 (quoting Lampkin I, 176 So.3d at 88-91).

         ¶5. In Lampkin II, this Court reversed the judgment of the Court of Appeals and found that the chancellor had abused his discretion in awarding damages. Lampkin II, 175 So.3d at 1231. This Court held that

The chancellor's calculation of "historical net book value" was misleading because it did not account for a rock price increase after Lampkin's breach, and also because it was, without explanation, based only on the years 2008 through 2012. The chancellor's business valuation ignored our precedent which instructed him to calculate the "entire loss suffered by the corporation" as a result of Lampkin's breach of fiduciary duty and usurpation of corporate opportunity.

Id. at 1229-30. This Court also remanded for the chancellor "to take into account the unreported rock in his calculation of lost future profits" and "reconsider whether the Smith estate is entitled to lease proceeds from 2007 . . . onward" Id. at 1230-31. In sum, the chancellor on remand was to evaluate the "entire loss" to Limestone by considering: (1) the rock price increase after Lampkin's breach, (2) the time frame of the loss, (3) the unreported rock and (4) the lease.

         ¶6. Upon remand from Lampkin II, the chancellor, by agreed order, allowed Lampkin to amend his complaint. In the amended complaint, Lampkin requested that he receive the "reasonable rental value" for his one-half interest in the property that was subject to the lease from Big River Shipbuilders, one of Smith's businesses that also operated on the same property.

         ¶7. On May 23, 2016, the chancellor entered his Judgment on Remand. At the outset, the chancellor recognized that the parties had determined the record was complete and had provided additional briefing and argument in the form of proposed judgments. After a review of the record, though, we did not find any proposed judgments from the parties. Lampkin submitted an additional brief to the chancellor before his Judgment on Remand. No additional briefing or supplementation from the estate is in the record. The chancellor also recognized that this Court instructed him to evaluate the entire loss suffered by Limestone. ¶8. The chancellor first valued the damages due to the estate for lost assets at $36, 811.50.

         This figure was calculated by examining Limestone's assets on December 31, 2006, and subtracting Limestone's assets it still had in 2012 along with various expenses the estate owed Limestone.

         ¶9. Next, the chancellor calculated the entire loss suffered by Limestone. Under this calculation, Limestone was owed $288, 177.02, of which the estate was owed half-$144, 088.51. In calculating this figure, the chancellor found that the damages period for lost profits should be calculated from 2007 through 2012. To calculate Limestone's lost profits, the chancellor used Koerber's figure of 89.15 percent for the cost of goods sold by Limestone. The chancellor then added an amount for shrinkage, the amount of rock lost in transport to Limestone, arriving at a total figure of 90 percent for the cost of goods sold. The chancellor noted that this figure was less than the actual cost of goods sold by Limestone and Delta for the years 2007 and 2008. The chancellor next calculated the average operating expense per year at $281, 055.40 by averaging five years of actual expenses from the ...


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