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Nethery v. Capitalsouth Partners Fund II, L.P.

Supreme Court of Mississippi

November 15, 2018

GREGORY G. NETHERY
v.
CAPITALSOUTH PARTNERS FUND II, L.P., CAPITALSOUTH PARTNERS SBIC FUND III, L.P., CAPITALSOUTH PARTNERS FLORIDA SIDECAR FUND I, LP, CAPITALSOUTH PARTNERS, LLC, HARBERT MEZZANINE PARTNERS III SBIC, LP, HARBERT MEZZANINE PARTNERS III, LP PROPERLY KNOWN AS HARBERT MEZZANINE III, LP f/k/a HARBERT MEZZANINE PARTNERS III SBIC, LP, ON-SITE FUEL SERVICE, INC. AND ON-SITE FUEL HOLDINGS, INC.

          DATE OF JUDGMENT: 08/25/2017

          COURT FROM WHICH APPEALED HON. WILLIAM E. CHAPMAN, III CECIL MAISON HEIDELBERG KAYTIE MICHELLE PICKETT EMERSON BARNEY ROBINSON, III PHILIP W. THOMAS ADAM STONE J. KEVIN WATSON PHIL B. ABERNETHY JOHN HOUSTON DOLLARHIDE RANKIN COUNTY CIRCUIT COURT TRIAL JUDGE.

          ATTORNEYS FOR APPELLANT: CECIL MAISON HEIDELBERG J. KEVIN WATSON.

          ATTORNEYS FOR APPELLEES: KAYTIE MICHELLE PICKETT ADAM STONE JACKIE RAY BOST, II EMERSON BARNEY ROBINSON, III PHIL B. ABERNETHY JOHN HOUSTON DOLLARHIDE PHILIP W. THOMAS.

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

          BEAM, JUSTICE.

         ¶1. Gregory Nethery appeals from the Rankin County Circuit Court's decision to grant a motion to compel arbitration filed by Defendants CapitalSouth Partners, [1] Harbert Mezzanine Partners, and On-Site Fuel Services (collectively, "Defendants").[2] Finding the circuit court properly granted Defendants' motion to compel arbitration, we affirm.

         COURSE OF PROCEEDINGS

         ¶2. Nethery founded On-Site Fuel Service, Inc. (OSFS), in 1996. In 2011, Defendants CapitalSouth and Harbert approached Nethery about acquiring an ownership interest in OSFS. A deal was consummated for CaptialSouth and Harbert to invest in OSFS, and OSFS then used the investment capital to buy out two other longtime investors. On-Site Fuel Holdings (OSFH) was then created as a holding company. OSFH is a Delaware corporation that owns OSFS and does business in interstate commerce and in Mississippi.

         ¶3. Nethery retained a minority thirty-percent ownership interest in OSFS through his stock interest in OSFH. CapitalSouth and Harbert each held the remaining interest. No shareholder owns more than fifty percent of the holding company.

         ¶4. As part of the deal, Nethery signed a Stockholders Agreement containing an arbitration clause (denoted as Section 5.03(b) of the agreement), which provided the following:

Except as provided in Section 6.03(a), [3] any dispute among the parties hereto shall, on demand of any party to such dispute, be submitted to binding arbitration in Charlotte, North Carolina, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a panel of three impartial arbitrators selected in accordance with such Commercial Arbitration Rules, and judgment upon the award may be entered in any court of competent jurisdiction. In rendering the award, the arbitrators shall enforce this Agreement in accordance with its terms and in accordance with applicable law, and shall assess the costs of such arbitration as they deem just and equitable in light of their determination of the issues being arbitrated.

         ¶5. In October 2016, Nethery filed suit in circuit court against CapitalSouth and Harbert, claiming breach of fiduciary duty, corporate freeze out, unjust enrichment, constructive trust, civil conspiracy, and negligence and mismanagement.[4]

         ¶6. In the complaint, Nethery claimed that OSFS, under his continued guidance, transitioned well from CapitalSouth's and Harbert's entry into the business, growing "Earnings Before Interest, Taxes, Depreciation and Amortization" (EBITDA) substantially, which in turn "grew enterprise value." Due to the growth, OSFS was contacted by numerous investment groups interested in acquisition. But CapitalSouth and Harbert refused to engage seriously in these opportunities that "would have benefited all stockholders handsomely."

         ¶7. In December 2013, CapitalSouth and Harbert appointed their own executive to be present at the company offices on a regular basis. In 2014, Nethery claims he began to be excluded from company and departmental meetings. Nethery confronted CapitalSouth and Harbert about his exclusion from company business to no avail.

         ¶8. In June 2014, Nethery says he was invited to Atlanta to meet with CapitalSouth principals. CapitalSouth demanded core changes in the company and told Nethery these demands were better than asking for Nethery's resignation.

         ¶9. According to Nethery, CapitalSouth Defendants suspended him later that same month "under the guise of false and specious allegations." And in July 2014, Nethery was terminated without cause.

         ¶10. Nethery claims that since his termination, "the company's trajectory has spiraled in a 180-direction." The company reported approximately $8 million in losses during 2015, and shareholder equity essentially vanished. But the majority shareholders "profited in spite of the losses by implementing a loan arrangement with the company where they collect over $250, 000 per month through interest and accruals." Through their loans to the company, the majority shareholders "drain cash flow, handcuffing the company, while they benefit."

         ¶11. Nethery claims that at all times, CapitalSouth and Harbert "conspired together and acted in concert on behalf of themselves and each other, taking the positions of each other, and acting in one block to control the voting of the company." Considering their combined majority interest, CapitalSouth and Harbert worked together for themselves and against the interests of Nethery, the minority shareholder.

         ¶12. Defendants answered Nethery's complaint, asserting the affirmative defense of arbitration, and filed their motion to compel arbitration that same day. The circuit court granted the motion and stayed the action ...


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