IN THE SUPREME COURT OF MISSISSIPPI

NO. 1998-CA-01229-SCT

IN THE MATTER OF THE DISSOLUTION OF JACKSON ARTHRITIS CLINIC AND

OSTEOPOROSIS CENTER, P. A., A MISSISSIPPI CORPORATION: JAMES K.

HENSARLING, M.D.

v.

SUTHIN SONGCHAROEN, M. D.

DATE OF

JUDGMENT:

06/17/1998

TRIAL JUDGE: HON. WILLIAM HALE SINGLETARY

COURT FROM

WHICH APPEALED:

HINDS COUNTY CHANCERY COURT

ATTORNEYS FOR

APPELLANT:

JOHN R. McNEAL, JR.

JANICE T. JACKSON

ATTORNEYS FOR

APPELLEE:

THOMAS L. KIRKLAND, JR.

G. TODD BURWELL

NATURE OF THE

CASE:

CIVIL - OTHER

DISPOSITION: AFFIRMED ON CONDITION OF ACCEPTANCE OF REMITTITUR

WITHIN FIFTEEN (15) DAYS BY SUTHIN SONGCHAROEN, M. D.;

OTHERWISE, REVERSED AND REMANDED - 01/27/2000

MOTION FOR

REHEARING FILED:

MANDATE ISSUED: 2/17/2000

BEFORE PITTMAN, P.J., MILLS AND WALLER, JJ.

WALLER, JUSTICE, FOR THE COURT:

STATEMENT OF THE CASE

¶1. James K. Hensarling and Suthin Songcharoen are medical doctors who practice in the specialized field

of rheumatology. Hensarling and Songcharoen were equal and sole shareholders, and the only physician

employees, of a corporation, Jackson Arthritis Clinic and Osteoporosis Center, P.A. [hereinafter "the

Clinic"], the dissolution of which forms the basis of this suit.
¶2. The corporation was established and managed so that it would have no real earnings; substantially all of

the income of the corporation was distributed to the physicians in the form of salary or bonuses. Hensarling

and Songcharoen essentially maintained separate practices, except that each physician would see the other's

patients if the other were away on business or vacation. Most of each physician's patients came from patient

or other physician referrals to the physician individually, and not to the Clinic. The income from each

doctor's patients was collected; expenses of the corporation deducted from that sum; and the remainder

made available to each physician at their request.

¶3. Both Hensarling and Songcharoen had a monthly salary of $10,000. The remainder of the physicians'

income was paid periodically at the physician's request in the form of a bonus. The expenses of the

corporation were divided into three different categories: (1) individual expenses, (2) expenses shared

equally by the physicians, and (3) expenses calculated in proportion to patient collections.

¶4. At the end of 1996, Hensarling began to experience some personal and licensure problems, and he

greatly reduced his working hours and, correspondingly, his income. Hensarling and Songcharoen began to

disagree over the management of the Clinic; Hensarling wanted to reduce his monthly expense by cutting

down on the overhead of the Clinic, but Songcharoen maintained that she had always paid all of her

expenses, even when she was on leave for an extended period of time. Unable to come to any resolution,

Songcharoen filed a Petition for Judicial Dissolution, requesting the Chancellor to dissolve the corporation

and provide for a way of winding down business and disbursing the assets of the corporation. Hensarling

made an election to purchase the stock of Songcharoen, terminating the need for judicial dissolution.

However, Hensarling and Songcharoen could not agree on the fair value of Songcharoen's share of the

corporation. The Chancellor requested proposed valuators from both parties, who filed a joint designation

of valuators. From the list of proposed valuators, the Chancellor appointed Gregory D. Anderson, a CPA

with Horne Group in Hattiesburg, Mississippi, to evaluate the corporation and propose a value for

Songcharoen's stock in the corporation.

¶5. Anderson conducted a thorough review of the corporation's business and financial records and

produced to the Chancellor an extensive report valuing the corporation at $435.00 per share, or $217,000

for Songcharoen's share of the business. Anderson, in giving the background for his analysis, explained the

different methods of evaluating a professional corporation and gave an estimated value for the corporation

at issue using two different methods. Anderson explained that valuation is not an exact science, and the

valuator must use "objectivity, informed judgment and reasonableness" in determining the extent to which

each methodology is used, so his final conclusion is derived from a "reconciliation" of multiple methods.

¶6. Dissatisfied with Anderson's valuation, Hensarling requested a hearing at which he presented the

testimony of one of the other proposed valuators, Kenneth Lefoldt, Jr., a self-employed CPA from

Jackson. Lefoldt disagreed with two aspects of Anderson's valuation and testified that he would not give

any value to the goodwill of the corporation, since he believed the corporation has no goodwill by itself

because referrals went directly to the individual physician. Also, he would not include the accounts

receivable in his valuation of the corporation, since the accounts receivable went to the respective physician

and did not stay in the corporation. In his partial findings of fact and conclusions of law with regards to the

value of the corporate stock, the Chancellor "was not persuaded by the testimony of H. Kenneth Lefoldt.

The Court found no errors and/or omissions in the valuation performed by Greg D. Anderson." Therefore,

relying on Anderson's valuation, the Chancellor ordered Hensarling to buy Songcharoen's 500 shares of
stock in the corporation for the value appraised by Anderson.

¶7. Hensarling and Songcharoen also disagreed about the payment of expenses and salaries during the

valuation process. From the beginning of the disagreement of the parties in late 1996 until May 4, 1998,

when Songcharoen resigned from the corporation, the money collected by the physicians was put into an

escrow account. In response to Songcharoen's motion for disbursement of those funds collected and held in

escrow from January 1997 through May of 1998, the Chancellor ordered that the money would be

disbursed in accordance with the long-standing practice of the Clinic. After a calculation of the respective

incomes of the physician and expenses due from each, the money was disbursed to each of the physicians

according to what they had individually collected during that period of time.

¶8. Hensarling appeals the Chancellor's judgment to this Court raising two alternative assignments of error:

I. The Chancellor's decision to allow the accounts receivable of Jackson Arthritic Clinic and

Osteoporosis Center, P.A., to be used as part of the basis of the value of the corporation's

stock constituted manifest error and was not supported by substantial credible evidence.

II. The Chancellor applied an erroneous legal standard and erred as a matter of law by

denying Dr. Hensarling ownership of the accounts receivable which formed a portion of the

value of Dr. Songcharoen's 500 shares of stock in Jackson Arthritic Clinic and Osteoporosis

Center, P.A.

STATEMENT OF THE LAW

¶9. This Court will not reverse a chancellor's findings of ultimate or evidentiary fact which are supported by

substantial evidence in the record. If the chancellor's findings are supported by substantial evidence, we

may not reverse unless the chancellor abused his discretion, was manifestly wrong or clearly erroneous or

applied an erroneous legal standard. Brocato v. Brocato, 731 So. 2d 1138, 1140 (Miss. 1999)

(collecting authorities).

¶10. Hensarling alleges that the Chancellor in the instant case made a finding of fact concerning the valuation

of the stock that was not supported by substantial credible evidence and/or that the Chancellor applied an

erroneous legal standard in disbursing the collected accounts. The crux of this argument is that Songcharoen

is unjustly enriched because she received a value for her stock that included accounts receivable, and part

of those accounts were later collected and disbursed to her.

I. The Chancellor's decision to allow the accounts receivable of Jackson Arthritic Clinic and

Osteoporosis Center, P.A., to be used as part of the basis of the value of the corporation's

stock constituted manifest error and was not supported by substantial credible evidence.

¶11. In Anderson's opinion, he valued the corporation at $383,594 using an Asset-Based Approach.

Under that method, the corporations assets are valued based on net or liquidation value. In his calculation,

Anderson considered an accounts receivable value of $110,653. He also made a determination under a

different methodology, a Capitalized Excess Earnings Method, that the corporation was worth $518,198.

Under the Capitalized Excess Earnings Method, Anderson simply added an amount representing the

intangible value of the corporation, or "goodwill," to the market value of the corporation, which he valued at

$383,594 from the Asset-Based Approach. His final conclusion as to the value of the corporation was

based on a reconciliation, or a combination, of the two methods, eventually valuing the corporation at a
figure between those two different estimates. Nevertheless, under both methodologies, Anderson included a

value for the accounts receivable of $110,653, which formed a basis for the value of the corporation.

¶12. Anderson's opinion as to the value of the corporation appears fair and appropriate, and the

Chancellor's reliance on that opinion is not misplaced. Alone, the Chancellor's decision ordering Hensarling

to pay half the value of the corporation is not an error. However, when considered in light of the next

assignment of error, we find there is reversible error.

II. The Chancellor applied an erroneous legal standard and erred as a matter of law by

denying Dr. Hensarling ownership of the accounts receivable which formed a portion of the

value of Dr. Songcharoen's 500 shares of stock in Jackson Arthritic Clinic and Osteoporosis

Center, P.A.

¶13. In this assignment of error, Hensarling claims that the Chancellor, in disbursing the disputed escrow

money to the physicians, erroneously denied him the accounts receivable for which he had already been

ordered to pay Songcharoen when he bought her stock in the corporation. At the end of 1997, the

physicians had earned over $800,000 in collected fees from patients and drug studies which were being

held in escrow until the dispute between the two could be resolved. The Chancellor ordered that this be

paid in accordance with the corporation's long-standing method of paying expenses and disbursing incomebased on each physician's individual collections. Apparently, that $800,000 in collected fees may have

included some or all of the $110,000 in accounts receivable considered by Anderson when he valued the

business as of February of 1997. Therefore, Hensarling claims that the Chancellor should have either

reduced the value of the stock by half of the erroneously considered accounts receivable or allowed

Hensarling to maintain ownership, possession and control of the accounts receivable (in the form of the

collected amount) that the Chancellor had ordered him to purchase.

¶14. We find Hensarling's assignments of error to be meritorious. Since, however, it is impossible to

determine from the records how much of the accounts receivable were actually collected and disbursed to

the physicians, we conclude that a just result in this case is to order a remittitur in the amount of half of the

accounts receivable considered in the valuation of the company. Miss. Code Ann. § 11-1-51 (1991) allows

for a remittitur if trier of fact has awarded damages that are "contrary to the overwhelming weight of

credible evidence." The Chancellor's two orders in this case permit Songcharoen to receive a value for the

corporation based, at least in part, on accounts receivable, which she later received in disbursements. A

remittitur has the effect of allowing Hensarling to buy Songcharoen's interest in the corporation, without

requiring him to pay for accounts receivable which may have been disbursed to her in the later order.

CONCLUSION

¶15. The Chancellor's factual findings with regards to the value of the corporate stock were based on

substantial evidence, as they were adopted from a highly qualified expert jointly recommended by both

parties in this case. However, the Chancellor's order that the collections of the corporation be distributed to

the physicians according to their long-standing agreement had the effect of divesting Hensarling of a portion

of the accounts receivable for which he was required to pay as part of the basis of the value of the stock of

the corporation. Therefore, pursuant to Miss. Code Ann. § 11-1-55 (1991), we order a remittitur in the

amount $55,326.50 on the order requiring Hensarling to pay $217,500 for 500 shares of the corporation

(Hensarling, therefore, is required to pay to Songcharoen $162,173.50 for her 500 shares of the

corporation). If Songcharoen accepts the remittitur on the amount she is to receive for her share in the
corporation, then the judgment of this Court would become final within fifteen days and the trial court's

judgment, as reduced by the remittitur, would be affirmed. If the remittitur is declined, the judgment below is

reversed and this case is remanded to the trial court for a new determination of the value of the corporation

to be considered in light of the collected accounts receivable disbursed by order after the appraisal, which

was, in part, based on those funds.

¶16. AFFIRMED ON CONDITION OF ACCEPTANCE OF REMITTITUR OF $55,326.50 BY

SUTHIN SONGCHAROEN, M.D., WITHIN FIFTEEN (15) DAYS; OTHERWISE, REVERSED

AND REMANDED.

PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, SMITH,

MILLS AND COBB, JJ., CONCUR. McRAE, J., DISSENTS WITHOUT

SEPARATE WRITTEN OPINION.