Opinion ID: 1655639
Heading Depth: 2
Heading Rank: 3

Heading: whether the circuit court erred in entering judgments against aussenberg and craig for corporate funds paid to them as attorney's fees.

Text: ¶ 51. In his motion for summary judgment, Wittjen argued that Wyssbrod had expended corporate funds for the prosecution of the action without corporate authority. Wittjen argued that he was thus entitled to a judgment against Wyssbrod for all corporate funds expended as attorney's fees. Wittjen also argued that he was entitled to recover all corporate funds paid to Wyssbrod's attorneys from the attorneys themselves. ¶ 52. In its order granting summary judgment in favor of Wittjen and First State Bank, the circuit court found that Wyssbrod had no authority to expend corporate funds to prosecute this action either for the benefit of QPI or for himself individually. The court concluded that Wittjen was entitled to a judgment against Wyssbrod in an amount equal to the corporate funds expended to pay the plaintiffs' attorneys. Subsequent to the evidentiary hearing on attorney's fees and expenses, the court held that Wittjen was entitled to judgment against Wyssbrod in the amount of $43,212.75, the amount of corporate funds expended by Wyssbrod to pay the plaintiffs' attorneys prior to the filing of the bankruptcy petition. The court also entered judgment against Aussenberg in the amount of $27,662.42, against Craig in the amount of $14,550.30, and against Beck in the amount of $1,000. These amounts represent the portion of corporate funds received by Wyssbrod's attorneys for their services. The court held Wyssbrod and his attorneys jointly and severally liable to Wittjen for the corporate funds that each attorney received. [1] ¶ 53. Aussenberg and Craig argue that the circuit court erred in ordering them to repay corporate funds received by them for their services. They do not dispute that they were paid by QPI with corporate funds, nor do they dispute the amounts received for their services in this case. ¶ 54. Aussenberg first asserts that Wyssbrod's expenditure of corporate funds on behalf of the corporation was a lawful action within Wyssbrod's powers as an officer and director of QPI. This argument is specious. Aussenberg cites the general rule that directors, as the governing body of the corporation, in the absence of some express restriction in the corporate bylaws, have the power to hire and employ legal counsel on behalf of the corporation. Aussenberg correctly states that the corporate by-laws of QPI provide no express restriction on the employment of legal counsel. However, Miss.Code Ann. § 79-4-8.21(a)(1996) provides: [u]nless the articles of incorporation or bylaws provide otherwise, an action required or permitted by §§ 79-4-1.01 et seq. to be taken at a board of directors' meeting may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and including in the minutes or filed with the corporate records reflecting the action taken. The board of directors of QPI consisted of two personsWyssbrod and Neal Labovitz. The record contains absolutely no documentation of a determination or resolution that this action be filed on behalf of QPI, be it in the form of minutes from a directors' meeting or written consents signed by Wyssbrod and Labovitz. ¶ 55. Wittjen argues that while the Mississippi Business Corporation Act provides authority for a shareholder to bring suit against other shareholders in the name of the corporation, there is no authority whereby the suit can be prosecuted at the cost of the corporation unless the action is successful. Miss.Code Ann. § 79-4-7.46 (1996) provides: On termination of the derivative proceeding the court may: (1) Order the corporation to pay the plaintiff's reasonable expenses (including attorney fees) incurred in the proceeding if it finds that the proceeding has resulted in a substantial benefit to the corporation; or (2) Order the plaintiff to pay any defendant's reasonable expenses (including attorney fees) incurred in defending the proceeding if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose. The action brought on behalf of QPI was far from successfulas discussed above, the circuit court found it to be frivolous. Furthermore, Wyssbrod certainly had no authority to expend corporate funds to prosecute claims filed in his individual capacity. ¶ 56. Aussenberg's second argument is the same as that asserted by Craig. Craig and Aussenberg argue that because there is no statutory basis for the circuit court's judgment against them for the corporate funds received as attorney's fees, the circuit court lacked the jurisdiction necessary to enter judgments against them as they were not made parties to the action. We agree. The circuit court exceeded its authority in ordering Aussenberg and Craig to disgorge the funds received by them as attorney's fees. ¶ 57. Our rules of procedure and statutory code contain specific provisions which allow courts to require attorneys appearing before them to pay money either to the court or to another party. These provisions contemplate courts requiring attorneys to pay the fees and expenses of another party to the action or sanctions for improper conduct in an action. See M.R.C.P. 11 (sanctions and award of expenses for pleadings or motions which are frivolous, false, etc.); M.R.C.P. 37 (sanctions and award of expenses for discovery violations); M.R.A.P. 2 (sanctions for noncompliance with rules); Miss.Code Ann. §§ 11-55-1 et seq. (Supp.2000)(fees and costs for filing meritless action); Miss. Code Ann. § 9-1-17 (Supp.2000) (sanctions for contempt). Clearly, as discussed above regarding the fees and expenses awarded to Wittjen and First State Bank, the circuit court has jurisdiction over attorneys appearing before it to impose such sanctions. However, the circuit court's judgment of disgorgement against Aussenberg and Craig fits into none of these special provisions. ¶ 58. This Court has stated that where there is no specific authority for imposing sanctions, courts have an inherent power to protect the integrity of their processes, and may impose sanctions in order to do so. Ladner v. Ladner, 436 So.2d 1366, 1370 (Miss.1983). In this case, however, the circuit court did not impose the judgment of disgorgement against Aussenberg and Craig as a sanction. The court merely found that Aussenberg and Craig were obligated to repay the funds to Wittjen. There was not a finding that Aussenberg and Craig knew or should have known the funds were those of the corporation. The order of disgorgement in this case was in the nature of a judgment against persons not party to the action. Undeniably, Wittjen (as assignee of the corporation's claims) may have a cause of action against Aussenberg and Craig for corporate funds which may have been misapplied. This Court concludes that Wittjen must bring an action against Aussenberg and Craig or that Wittjen should have sought to include Aussenberg and Craig as parties to the instant action. Rather, he has attempted to back door the judgment under the guise of our rules regarding attorney sanctions. It bears repeating that the circuit court did not order disgorgement of the fees as a sanction. Our rules simply do not allow such a judgment. ¶ 59. Wittjen argues that the judgment of the circuit court against Aussenberg and Craig is supported by the single statutory provision dealing with attorney's fees in derivative proceedings quoted above, Miss. Code Ann. § 79-4-7.46 (1996). Wittjen argues that if Aussenberg and Craig are allowed to keep the funds received as attorney's fees and Wyssbrod is required to repay the funds, Wittjen is denied the benefit of the above statute. There is no merit in this argument. The circuit court held Wyssbrod jointly and severally liable for the corporate funds unlawfully expended. Wyssbrod has not challenged this finding, and regardless of this Court's disposition of this issue regarding Aussenberg and Craig, Wyssbrod remains liable to Wittjen for the funds. Attorneys are not guarantors of the solvency of their clients for judgments entered against their clients. This statute does not in any way support the circuit court's judgment against Aussenberg and Craig. We conclude that the trial judge was without authority to enter a judgment against Craig and Aussenberg for the funds received by them as attorney's fees.