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In re Estate of Ware

Supreme Court of Mississippi

March 1, 2018

THE MATTER OF THE ESTATE OF FRANKIE DON WARE, DECEASED: CAROLYN WARE, EXECUTRIX
v.
RICHARD WARE IN THE MATTER OF THE ESTATE OF FRANKIE DON WARE, DECEASED: CAROLYN WARE, AS EXECUTRIX OF THE ESTATE OF FRANKIE DON WARE
v.
RICHARD WARE

          DATE OF JUDGMENT: 12/28/2015

          DATE OF JUDGMENT: 10/11/2016

         CHICKASAW COUNTY CHANCERY COURT HON. KENNETH M. BURNS

          TRIAL COURT ATTORNEYS: THOMAS A. WICKER CASEY LANGSTON LOTT REX F. SANDERSON DUSTIN COLT CHILDERS

          ATTORNEYS FOR APPELLANT: RHETT R. RUSSELL THOMAS A. WICKER

          ATTORNEYS FOR APPELLEE: CASEY LANGSTON LOTT

          BEFORE RANDOLPH, P.J., KING AND BEAM, JJ.

          RANDOLPH, PRESIDING JUSTICE.

         ¶1. This case involves a dispute between a mother and son, Carolyn Ware ("Carolyn") and Richard Ware ("Richard"), regarding the distribution of shares of stock of three closely held corporations. The shares were being held by the estate of the deceased husband/father, Frankie Don Ware ("Frankie"). Frankie's will directed that the shares be distributed to a testamentary trust. The bylaws of the corporations (in which Frankie, Carolyn, and Richard were the sole shareholders) required any outstanding shares of stock be offered to the corporations prior to any transfer. Carolyn, the executrix, filed a petition to close Frankie's estate and to distribute Frankie's assets (including the shares) to the trust. Richard filed an objection to the closing of the estate, asserting the corporate bylaws of the three corporations. Carolyn responded, arguing that Richard lacked standing to object. The chancellor found for Richard and required Carolyn to offer the shares back to each corporation prior to transferring the shares to the trust. Carolyn subsequently appealed. The Court finds that Richard lacked standing to object to the closing of Frankie's estate.

         FACTS AND PROCEDURAL HISTORY

         ¶2. On April 8, 2011, Frankie passed away, leaving a last will and testament. Frankie appointed his wife, Carolyn, to serve as executrix of his will. The will created "The Frankie Ware Family Trust, " which was to receive all of Frankie's estate's assets available for distribution. Carolyn, Richard, and his two sisters, Angela and Dana, were named trustees of the Frankie Ware Family Trust. The primary purpose of the trust was to provide the income and principal to Carolyn during her lifetime. His will provided that upon Carolyn's death, Richard and his sisters were to receive only income benefits from the trust, and that his grandchildren were to receive the income and/or principal for their medical and educational needs.

         ¶3. Included in the assets available for distribution to the family trust were outstanding shares of stock equal to 25% of three closely held corporations: Ware Milling, Inc.; Chickasaw Farm Services, Inc.; and Chickasaw Grain Transportation, Inc. Carolyn also owned 25% of the shares of each corporation in her own name. Richard owned the remaining 50% of the shares in each of the corporations.

         ¶4. Three years after Frankie's will was admitted to probate, Carolyn, as executrix, filed a Petition to close the estate and to distribute the assets according to Frankie's will. Richard filed an objection to the closing of the estate, asserting a section of each corporation's bylaws that required shares to be offered back to the corporations prior to any transfer. Each of the corporation's bylaws contained the following provision:

No shareholder shall have the right to sell, assign, pledge, encumber, transfer, or otherwise dispose of any of any [sic] of the shares of the corporation without first offering the shares for sale to the corporation at the annually established net asset value of such shares. Such offer shall be in writing, signed by the shareholder. The written offer shall be sent by registered or certified mail to the corporation at its principal executive office, and shall remain open for acceptance by the corporation for a period of 120 days from the date of mailing.

         Richard argued that because Carolyn, as executrix, had not yet offered the shares to the corporations, the estate, as holder of the shares, could not be closed until the corporate restrictions were satisfied. Carolyn responded that Richard lacked standing as an individual to object on behalf of the corporations. Furthermore, Carolyn argued that the objection was an unreasonable restraint on the disposition of Frankie's will, and the restriction in the bylaws did not apply to testamentary dispositions.

         ¶5. A hearing on Richard's objection was held on November 24, 2014. Richard and Carolyn testified about the share restriction of the corporations and its purpose, as well as Frankie's purpose in constructing his will. Richard testified that the intent of the share restriction was to limit stock ownership to the three original shareholders-Frankie, Carolyn, and Richard. Richard also offered an attorney, Albert Delgadillo, as an expert witness who opined that the word "transfer" in the share restriction applied to testamentary dispositions. Carolyn testified that her and her husband's intent with regard to the corporations was to ensure that the entire family benefitted from the businesses, and not just the original three shareholders. Carolyn also requested that if the trial court required the shares be offered back to the corporations, that the court also order an appraisal and audit of each corporation.

         ¶6. The trial court subsequently entered an order appointing The Koerber Company ("Koerber") to conduct a forensic audit and valuation of each corporation. Koerber conducted an extensive study of each corporation, and determined the net asset value of a 25% equity interest, established as of April 8, 2011 (the date of Frankie's death), totaled $2, 109, 000[1] after discount. Koerber applied a 20% discount for "lack of control, " and a 20% discount for "lack of marketability, " to decrease the value of a 25% equity interest in each corporation.

         ¶7. Carolyn disagreed with Koerber's valuation, arguing that the value of a 25% equity interest in the corporations was worth more than fifteen million dollars. Richard also disagreed with Koerber's valuation, arguing that it was too high, as the value of Ware Milling's accounts ...


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