IN THE SUPREME COURT OF MISSISSIPPI NO. 2016-CA-00288-SCT THE MATTER OF THE ESTATE OF FRANKIE DON WARE, DECEASED: CAROLY N WARE, EXECUTRIX

v. RICHARD WARE

DATE OF JUDGMENT: 12/28/2015 TRIAL JUDGE: HON. KENNETH M. BURNS TRIAL COURT ATTORNEYS: THOMAS A. W ICKER CASEY LANGSTON LOTT REX F. SANDERSON DUSTIN COLT CHILDERS COURT FROM W HICH APPEALED: CHICKASAW COUNTY CHANCERY COURT ATTORNEYS FOR APPELLANT: RHETT R. RUSSELL THOMAS A. W ICKER ATTORNEYS FOR APPELLEE: CASEY LANGSTON LOTT DUSTIN COLT CHILDERS NATURE OF THE CASE: CIVIL - OTHER DISPOSITION: REVERSED AND REMANDED - 03/01/2018 MOTION FOR REHEARING FILED: MANDATE ISSUED:

C ONSOLIDATED WITH NO. 2016-CA-01589-SCT

IN THE MATTER OF THE ESTATE OF FRANKIE DON WARE, DECEASED: CAROLY N WARE, AS EXECUTRIX OF THE ESTATE OF FRANKIE DON WARE

v.RICHARD WARE

DATE OF JUDGMENT: 10/11/2016 TRIAL JUDGE: HON. KENNETH M. BURNS COURT FROM W HICH APPEALED: CHICKASAW COUNTY CHANCERY COURT ATTORNEYS FOR APPELLANT: RHETT R. RUSSELL THOMAS A. W ICKER ATTORNEYS FOR APPELLEE: CASEY LANGSTON LOTT DUSTIN COLT CHILDERS NATURE OF THE CASE: CIVIL - OTHER DISPOSITION: REVERSED AND REMANDED - 03/01/2018 MOTION FOR REHEARING FILED: MANDATE ISSUED:

BEFORE RANDOLPH, P.J., KING AND BEAM, JJ. RANDOLPH, PRESIDING JUSTICE, FOR THE COURT: ¶1. Thi s c a s e involves a dispute between a m other and son, Caroly n W a re (“Caroly

n”) and Richard W are (“Richard”), regarding the distribution o f shares of stock of three closely held corporations. The shares were being held by the estate of the d e c e a s e d h usband/f ather, Frankie Don W are (“Frankie”). Frankie’s will directed that the shares be d i s t r i b u ted t o a
testam entary trust. T he by laws of the corporations (in which Frankie, Caroly n, a n d Richard

were the sole shareho l d e r s) required any outstanding shares of stock be of f ered to the corporations prior to any transf er. Caroly

n, the executrix, f

i led a petition t o close Frankie’s

estate and to distribute Frankie’s assets (including the shares) to the trust. Richard f iled an objection to the c losing of the estate, asserting the corporate by laws of the three corporations. Caroly n responded, arguing that Richard lacked standing to object. The chancellor f ound f or Richard and r equired Caroly n to of f er t he shares b ack to e ach c orpora t i o n prior to

2transf

erring the shares to t he t rust. Caroly n subsequently appealed. The Court f inds that Richard lacked standing to object to the closing of Frankie’s estate.
FACTS AND PROCEDURAL HISTORY ¶2. On April 8, 2011, F r a n k i e passed away , leaving a l ast will and testam e nt. Frankie appointed his wif

e, Caroly n, to serve as executrix of his will. The will created “The Frankie
W a re Fam ily Trust,” which was to receive all o f Frankie’s estate’s assets available f or distribution. Caroly

n, Richard, and his two sisters, Angela a n d Dana, were nam ed trustees

o f the Frankie W are Fam ily T rust. The prim a ry purpose o f the trust was to provide t h e incom e and principal to Caroly n during her lif

e tim e. His will provided that upon Caroly n’s death, Richard and his sisters were to receive only incom e benef its f rom the trust, and that his grandchildren were to receive the income a nd/or principal f or their m edical and educational needs. ¶3. Included in the a ssets available f or distribution to the f

am ily trust w er e outstanding shares o f stock e qual to 25% of three closely held corporations: W are Milling, Inc.; Chickasaw F arm Services, Inc.; and Chick a s aw Grain Transportation, Inc. Caroly n also owned 2 5 % o f t h e s h ares of each c orporation in her own nam e . Richard owned the

rem aining 50% of

the shares in each of

the corporations. ¶4. Three y ears af

t er Frankie’s will w as adm itted to probate, C aroly n , as executrix, f

iled

a Petition to close the estate and to distribute the assets according to Frankie’s will. Richard
f iled a n objection to the closing of the estate, asserting a s ection of each corporation’s by laws

3that required shares to be of f ered back to the c orporations prior to any transf e r. Each of the corporation’s by laws contained the f ollowing provision:
No shareholder shall have the right to sell, assign, pledge, encum ber, transf

e r, or otherwise d ispose of any of any [ sic] of t he share s o f t h e c o rporation without f irst of f ering the shares f

or sale to the corporation a t t h e a n nually established net asset value of such shares. Such of f er shall b e in w r i t i ng, signed by the shareholder. The written of f e r s h a l l be sent by registered or certif ied m ail to the cor p o r a t i o n at its p rincipal executive of f ice, a nd shall rem ain open f

or acceptance by

the corporation f

or a period of 120 day s f

rom the date of

m ailing. Richard argued that because Caroly n, as executrix, had not y et o f f e r e d t he shares to the corporations, the estate, as holder of the shares, could not be c losed un t il the corporate restrictions were s atisf

ied. Caroly

n responded t hat Richard lacked s tanding as a n individual

to object on behalf of the corporations. Furtherm ore, Caroly n a r gued that the objection was

an u nreasonable restraint on th e d isposition of Frankie’s will, and the r estriction in the by laws did not apply

to testam entary

dispositions. ¶5. A h earing on Richar d ’ s o b j e c t i o n w as held on Novem ber 2 4, 2014. Richard and Caroly n testif ie d a b o ut t he share restriction of the corporations and its purpose, as well as Frankie’s p u r p o s e i n constructing his will. Richard testif i ed that the intent of the share restriction was to l im i t stock ownership to t he three original shareholders—Frankie, Caroly n, and Richard. Richard also of f ered an attorney , A l bert D e l gadillo, as an expert witness who opined that the word “transf e r” in the share restriction applied to testam entary dispositions. Caroly n t e s t if ied that her a nd her husband’s intent with regard to t he corporations was to

ensure that t he entire f

am ily benef

itted f rom the businesses, an d not just the original three

4shareholders. Caroly n a lso requested that if the t rial court required the shares be of f e red back to the corporations, that the court also order an appraisal and audit of each corporation. ¶6. T h e t r i a l c o u rt subsequently e ntered a n order appointing The Koerbe r C o mp a n y (“Koerber”) to conduct a f orensic audit a nd valuation of each corporation. Koe rber conducted an e x t e n s ive study of e ach c orporation, and determ ined the net a s set value of a 25% equity interest, established as o f April 8, 2011 (the date of Frankie’s death), totaled $2,109,000 1 af

ter discount. Koerber applied a 20% discount f or “ l ack of control,” and a 20% discount f or “lack of

m arketability ,” to decrease the value of a 25% equity interest in each corporation. ¶7. Caroly

n disagreed with Koerber’s valuation, arguing that the v alue of a 25% equity interest in the corporations was wo r t h mo r e than f if teen m illion dollars. Richard also disagreed with Koerber’s valuation, arguing that i t was too high, a s the valu e of W are Milling’s accounts receivable, inventory , and cash on h and essentially were calculated twice in Koerber’s valuation. ¶8. T h e trial court concluded that Caroly n was r equired t o o f

f e r t h e s t o c k s t o t h e corporations f

or purchase, c iting Mississippi C ode Section 79-4-6.27(b) (Rev. 2013), which provides that “ [ a ] restriction on the transf er or registration of transf er of shares is valid and enf orceable against the holder or a transf eree of the holder

. . . ,” though the trial court did

1 Koerber valued a 25% equi t y i nterest in W a re Milling, Inc., at $1,880,000, Chickasaw Farm

Services, Inc., at $161,000, and C hickasaw Grain Transportation, Inc., at $68,000.
5not address section (c) o f the statute, which provides w hen restrictions are authorized. 2 The

trial court then h eld t hat Caroly n was required to of

f er the shares to the corporation u n d er West v. West , 88 So. 3d 7 35, 7 38 (Miss. 2 012), i n w h ich this Court held “that statutory restrictions [ under Section 79-4-6.27] on the transf er of r estricted shares of corporate stock apply to both voluntary

and involuntary

transf ers of t he shares . . . .” ¶9. The trial court accepted Koerber’s valuation of the three c o rporations, including the discounts. Finally , t h e t r i a l court f ound t hat the corporations should pay the estate a reasonable rate of interest ( three percent) f rom the d ate the estate w a s o pened until the corporations exercised their option to purchase the stock. T h e corporations never were m ade parties to this proceeding. ¶10. Caroly

n s o o n t h e r e a f

t er f i led a m otion to alter or am e nd the judgm ent of the trial court, arguing that the trial c ourt lacked jurisdiction t o establish the value of the corporations. The trial court denied Caroly n’s m otion. Caroly

n tim ely appealed to this Court. ¶11. Notwithstan d i n g t h e appeal to this Court, t his dispute c ontinued at t he lower court.
One m o nth af

ter Caroly

n ’s appeal, Richard f

iled a mo t i o n f

or declaratory judgm ent in the

tr i a l court, requesting the c ourt to declare “the rights, status a nd legal relations” between

2 Mississippi Code Section 79-4-6.27(b) r e a ds, i n its entirety , as f ollows: “A restriction on the transf

er or registration of transf er of s hares is valid and enf orceable against the holder or a transf

e ree o f the holder i f the restriction is authorized by t his section and its existence is noted conspicuously o n the f ront or b ack of the certif

icate o r is contained in the inf orm ation statem ent required by § 7 9

- 4

- 6.26(b). Unless s o n oted, a restriction is not enf orceable against a person without knowledge of the restriction.” Section (c) continues: “A restriction o n t h e transf er o r registration of transf er of shares is authorized: (1) To m aintain the corporation’s s tatus when it is depen d e n t on the num b er or identity of its shareholders; (2) To preserve exem ptions under f

ederal or state securities law; (3) For any other reasonable purpose.” 6Richard, Caroly n, and the three corporations at issue, t hough the corporations were not m ade parties to these additional proceedings. Richard inf orm ed the court that Caroly n h ad y et to

o f f er the shares b ack to the c orporations, and that Caroly n i ntended to b lo c k a n y s t o c k repurchase by the corporations by com bining her own 25% interest with the estate’s 25% interest, c reating a deadlock. Richard argued that the r ight t o repurchase the s tock belonged

to the corporations— not the shareholders. T heref ore, Richard requested that the trial court
enter an order declaring that the board of directors of t he corporations had the voting power to decide whether to purchase the stock. In the alternative, R ichard asked the trial court to prevent Caroly

n f rom voting because it would be “inherently unf air to allow a shareholder with an obvious conf

lict of interest to vote . . . .” ¶12. T h r e e mo n t h s a f

t e r Caroly

n’s initial appeal, Richard f iled an a dditiona l mo t i o n relating that Caroly

n still had not of

f ered the stock to the corporatio ns. R ichard f iled a “Motion to Direct Specif ic Act of a Disobedient Party , or in the alternat i v e, to Set Supersedeas Bond.” Richard requested the trial court to com pel Caroly

n t o of f e r the stock
f or purchase by the corporations. In the alternative, R ichard requested the trial court to set a supersedeas bond against Caroly n in the am ount of

125% of the value of

the shares. ¶13. The trial court issued an order address i n g b o t h R i c h a r d ’ s m otion f or declaratory judgm ent, and his m otion to com p el action by a disobedient party

. The t rial court held that the board of directors, and not the shareholde r s, had a uthority to v ote o n whether to repurchase the stocks. I n support, the trial court c ited Harper v . Harper , 491 So. 2 d 189, 195 (Miss. 1986), which provides that “[ t]he m anagem e nt of a corporation is vested in its board

7of directors and not the stockholders.” Further, the trial court c ited M ississippi C ode Section

79-4-8.01 (Rev. 2013), which provides that “[ a]ll c o rporate powers shall be exercised by or under the authority of

the board of

directors of

the corporation . . . .” ¶14. In addressing Richard’s m o tion to com pel action by a d isobedient party , the trial court cited Mississippi Code Section 11-51-43 (Rev. 2015), which provides:
In any case o f an appeal to the Suprem e Court, where no special provision is m ade by l aw f

or a supersedeas of the j udgm ent or decree a ppealed f rom , o r f or the bond to be given in such case, a supersedeas m ay b e allowed by the court rendering the judgm ent or decree appealed f rom . . . with s u ch sureties as said court or judge m ay

direct in the order f

or a supersedeas. Accordingly , the trial court h eld that Caroly n should b e required to post a supersedeas bond in the am ount of $250,000, which the trial c o ur t held was suf f icient to protect R ichard’s interests. Caroly

n posted the bond i n t h e s e t am ount and subsequently appealed the trial court’s second ruling.
ISSUES ¶15. Caroly

n raises seven issues on appeal: (1) W hether Richard had s t a n ding to object to the closing of the estate on behalf of the corporations. (2) W hether the stock-transf er restriction a

p plies to testam entary dispositions. (3) W hether Richard’s objection to the closing of the estate was tim ely

. (4) W hether the chancery court erred by

appointing the Koerber Com pany ’s business valuations. (5) W hether the c hancery court erred by accepting the Koerber Com pany ’s t wenty percent d i scount on the value of the stocks f or “lack of cont r o l a n d m arketability .”

8(6) W hether the chancery court e r red in awarding t h e e s t a te t hree percent interest on the value of

the shares. (7) W hether t he c hancery court erred by holding that the Board of Directors, and not the shareholders, m ay vote to purchase the stock. Caroly n ’ s f irst argum ent regarding Richard’s standing is case-dispositive.
ANALYSIS
I. Standing ¶16. Caroly

n argues t hat Richard’s ob j e c t ion to the closing o f the estate is a shareholder derivative action, and theref ore Richard lacked standing to object. Despite Caroly n ’s raising this issue t hroughout the proceedings, the trial court declined t o address Richard’s standing. ¶17. “Standing is a jurisdictional issue.” Hotboxxx, L LC v. City of Gulfport , 154 So. 3d 21, 27 (Miss. 2015) (citations o m itted). Theref ore, “it m ay b e r aised by t he Court sua sponte or by any party at any tim e, and the standard of review is de novo .” Id. ¶18. Caroly

n cites Bruno v. Southeastern S ervices, Inc ., 3 8 5 S o . 2 d 6 2 0 , 6 22 (Miss. 1980), in which this Court adopted the rule that a n action to redress injuries to a corporation, whether arising in contract or i n tort cannot be m aintained by a s tockholder in his o wn nam e, b ut m ust be brought by the corporation because t he action belongs to the corporation and not the individual s tockholders whose rights a re m erely derivative. The rule applies even though t he com plaining stockholder o wns all or substantially all of the stock of

the corporation. ¶19. Richard a rgues that h is claim is not a shareholder der i v a t i v e c l aim , but rather, an objection to the adm i nistration of the estate. R ichard argues that becaus e he is nam ed a
trustee of the t r u s t created by Frankie’s w ill, he has standing to object to the closing of Frankie’s estate. Thus, Richard a rgues that Caroly n’s standing argume n t , a s i t applies to

9s h a r e h o l der derivative actions, is inapplicable. Notably , Richard c ites no authority f or his position t hat his title of trustee conf ers upon him standing to object to t he adm inistration of

an estate. Regardless, his a rgum ent is without m e r it. Richard i s attem pting to prevent assets f rom being distributed to the trust. “A trustee shall take reasonable steps to e n force claims of t he trust and to def

e n d claims against the trust .” Miss. Code Ann. § 9 1-8-811(a) (Rev. 2013) ( e mp h a sis added). Richard’s title of t rustee alone is i nsuf f icient to c onf

er standing unless he is enf

o rcing c l a i m s on behalf of t he Frankie W are Fam i ly Trust or is def ending claim s against the f

am ily trust. Id. ¶20. In order to address standing, the Court m ust determ ine whether R ichard “had the right

t o p a r t icipate i n t his cause of action.” C ity of Picayune v. S

outhern Reg’l Corp. , 916 S o . 2d 510, 519-520 (Miss. 2005). “Fundam ental t o this review” i s what body of law applies to the dispute. Id. A ccordingly , whether Richard’s action is indeed a shareholder derivative action will determ ine what law applies, and in turn, determ ine Richard’s standing. ¶21. “[ I]n determ ining whether the action b elongs t o the corporation or the individual, the
f ocus of t he inquiry is whether the corporation o r the individual suf f ered i njury .” Scafidi v. Hille , 180 So. 3d 634, 647 (Miss. 2015) (quot i n g Mathis v. ERA Franchise Sys., Inc. , 25
So. 3d 298, 303 (Miss. 2009)). “The a ction is derivative if the gravam en of the com plaint i s injury to the corporation, or t o the whole body of its stock or property without any

severance or distribution am ong individual shareholders, or if it seeks to recover assets f or the corporation o r to prevent t he d issipation o f its a ssets.” Id . R i c hard’s objection to the closing of Frankie’s estate i s, in reality , a s hareholder d erivative claim

. Richard was seeking

10solely to enf o r c e a p u tative corporate right. As such, the law apply ing to shareholder derivative actions m

ust apply

. See City of Picayune , 916 So. 2 d at 5 1 9-520 (holding that “dif f erent standing r equirem ents are accorded to d if f erent areas of the l aw,” and f i nding that because corporate l aw applied to the action, ci tizens did n ot have standing to challenge actions by

a corporation). ¶22. In M i ssissippi, a shareholder m ay not institute a derivative suit u nless certain statutory conditions are m et. 3 Miss. Practice Encyclopedia of M i s s
. Law § 22:210 (2d ed. 2017). Mississippi Code Section 79-4-7.41(1) (Rev. 2013) provides that a s h a reholder m ay not

com m ence a derivative suit unless he or she w a s a shareholder a t the tim e of the act or

om ission in question. Mississippi Code Section 79-4-7.41(2) requires that the shareholder
f airly a nd adequately represent the interests of t he corporation. Furtherm ore, Mississippi Code Section 79-4-7.42 (Rev. 2013) requires the com plaining shareholder to m ake a written dem and upon the corporati o n or a ppropriate of

f icers prior to com m e ncing the proceeding, and section two of that statute requires ninety day s to elapse af ter the written notice, unless the corporation earlier rejects the dem and, or unless irreparabl e i n j u ry t o the corporation would result by waiting f

o r the ninety -day period to elapse. F inally , our caselaw requires that the corporation is m ade a p arty to the derivative action. See B runo , 3 85 So. 2d at 622 (“The corporation is an indispensable party ” to a shareholder derivative action); see also F airchild

v. Keyes , 448 So. 2d 292, 2 9 4 (Miss. 1984) ([ T]he corporation is an indispensable party to a suit brought to protect its interest . . . .”).

11¶23. “The rationale f or these procedural prere q u i s i t e s has to d o with the corporation’s

status as a creature of the State.” 3 Miss. Practice E n cyclopedia Miss. Law § 22:210 (2d ed. 2017). “Since the corporation is a separate entity , the shareholder has no legal interest in any of its property .” I

d. These conditions “avoid m ultiple lawsuits, p reserve creditors’ rights since any recovery will belong t o the corporation, and provide f or any recovery to benef

it all shareholders.” Id. ¶24. Richard f

ailed to satisf

y the stat u t o r y conditions required of shareholder derivative actions. Notwithstanding, Richard argues that, even if his action is considered a shareholder derivative action, t he chancery c ourt has discretion to d isregard the procedural prerequisites and treat the claim as a d irect action if it m akes certain f indings u nder t he Derouen doctrine.
Derouen v. Murray , 604 S o. 2d 1086, 1091 n.2 (Miss. 1992). The t rial court declined to address the question of w h e t h e r R ichard’s a ction was a s hareholder derivative action, and

never m ade any f

indings under Derouen

. In Derouen , t h is C ourt did n ot overrule Bruno , but stated in a f

ootnote that [ i]n the case of a closely h eld c orporation

. . . , the [ c h a n c e r y ] c o u r t in its discretion m ay t reat an action raising derivative claim s as a direct ac t ion, exem pt it f rom t hose restrictions and def enses a p p l i c able only to derivative actions, a nd o rder individual rec o v e r y , i f it f inds t hat to do so will not (i) unf airly expose t he corporation or the def endants to a m

ultiplicity of actions, ( i i ) m aterially prejudice the interests o f creditors o f the corporation, or ( i i i ) interf ere with a f

air distribution o f the recovery am o ng all interested persons. Derouen , 385 So. 2d at 622. This Court later interpreted t he Derouen doctrine to hold “that in derivative suits involving c losely held corporations, the trial court m a y award dam ages on

an individual b asis, p r ovided certain saf eguards are m et.” Investor R es. Servs., Inc. v. Cato ,

1215 So. 3d 412, 424 (Miss. 2009). Indeed, the f a cts of Derouen i nvolved a sharehold er seeking individual reco v e r y fo r h i s fi ft

y -percent equity interest in proceeds f rom the business.
Derouen , 604 So. 2d at 1089-90. ¶25. Here, Richard is not seeking individual recovery or individual dam ages. R ather, he has b r o u g h t an action to enf orce corporate by laws. T he Derouen doctrine does n ot apply because Richard does not seek individual recovery , but rather seeks to r e d r ess a l leged wrongs to the three corporations. ¶26. The holding in B runo applies in t h i s c a s e . R i c h ard lacked standing to b ring suit because the right bel o n g s t o t h e t hree corporations. It is of no c o nsequence that Richard

owns half of the s hares of stock, as Bruno explicitly appl ies to closely held corporations,

w h e r e “the com

p laining stockholder owns all or substantially all of the stock o f t h e corporation.” Bruno , 385 So. 2 d at 622. Accordingly , Richard l acked s t anding under Bruno to assert a claim

individually

on behalf

of the corporations.
CONCLUSION ¶27. Richard l acked standing to bring suit on behalf o f the t hree corporations, b ecause the injury f or which he s eeks relief

, a nd the gravam en of this m atter, pertains t o the corporations only

. Theref

ore, the C ourt reverses and rem ands the t rial court’s j udgm ent, and subsequent orders related to that judgm ent, f or proceedings consistent with this opinion. ¶28. REVERSED AND REMANDED. WALLER, C.J., KITCHENS, P.J., K ING, COLEMAN, MAX WELL, BEAM, CHAMBERLIN AND ISHEE, JJ., CONCUR.

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