Opinion ID: 3161633
Heading Depth: 2
Heading Rank: 4

Heading: Jo Ann’s Breach-of-Fiduciary-Duty Claim

Text: ¶68. Gerald also argues that Jo Ann did not plead a breach-of-fiduciary-duty claim in her complaint, and that the equitable-division method the chancellor used contradicts this Court’s precedent that a breach of a fiduciary duty in a closely held corporation is an intentional tort that allows only a judgment for damages. ¶69. We find that Jo Ann adequately stated a claim for breach of fiduciary duty. Jo Ann argued in her complaint that, as a fifty-percent owner of the Campground corporation, Gerald owed a fiduciary duty to her to account for all profits and expenses and to divide the proceeds, and that he failed and refused to do so. She stated she was entitled to fifty percent of the profits of the Campground corporation and that a money judgment should be entered. As Gerald correctly argues, this fiduciary duty Jo Ann refers to in her complaint is not in 30 reference to Gerald’s purchase of the minority shareholders’ shares to gain control of the corporations. Jo Ann never moved to amend her complaint to adjust this claim. ¶70. Although the claim for a breach of fiduciary duty regarding Gerald’s purchase of the minority shareholders’ interest was not in the complaint, we find the claim was sufficiently before the chancellor and the parties. Gerald purchased the shares of the minority shareholders in the Restaurant and the Trailer Park for $180,000 during litigation and then tried to vote Jo Ann off the board. In response, Jo Ann sought a preliminary injunction to keep Gerald’s meeting from taking place, and she pleaded and argued at trial that Gerald owed a fiduciary duty to her as a minority shareholder in a closely held corporation. On direct and cross-examination, both attorneys questioned Gerald and his witnesses as to the source of the $180,000 and his reason for buying out the minority shareholders. Thus, we find Jo Ann’s breach-of-a-fiduciary-duty claim against Gerald for using corporate funds, in which she held an equal interest, to purchase the minority shares to her detriment and oppression was before the chancery court. ¶71. If this is true, Gerald argues, according to Phillips Brothers v. Winstead, a breach of a fiduciary duty in a closely held corporation is an intentional tort that allows only a judgment for damages. Phillips Brothers v. Winstead, 129 So. 2d 906, 924 (Miss. 2014). This equitable-division method the chancellor employed, Gerald argues, is wrong. We disagree. Dividing the parties’ interests in the properties and granting each full ownership in their respective corporations was an alternative remedy to the dissolution action–not a remedy for a breach of fiduciary duty. In fact, no damages for a breach of fiduciary duty were awarded 31 in the Amended Final Judgment. Because this remedy of equitable relief to resolve the dispute between the Gerald and Jo Ann was appropriate under the alternative-remedy provision under Section 79-4-14.34(i) of the Mississippi Code, we find this argument is without merit. III. Whether the chancellor erred in ordering partition by sale or in kind of real property solely held in the names of the corporate parties. ¶72. In order for the chancery court to acquire jurisdiction under Section 11-21-3 of the Mississippi Code over a parcel of real property for purposes of partition in kind or partition by sale, the property must be held by joint tenants, tenants in common, or coparceners. Yeats v. Box, 198 Miss. 602, 22 So. 2d 411, 415-16 (1945); Coers v. Williams, 74 So. 2d 836, 839840 (Miss. 1954). If the title to the subject property is not held as tenants in common or jointly, then the chancery court has no jurisdiction to entertain a partition by sale or in kind, and the party bringing the action has no standing to sue. Cooper v. Fox, 7 So. 342, 343-44 (Miss. 1890). ¶73. At all times, the Restaurant and the Trailer Park held title to their respective tracts of real property solely in their corporate names. Gerald argues that Jo Ann did not have standing to bring any independent action under Mississippi Code Section 11-21-3, so the chancellor committed reversible error by ordering partition of the Restaurant and the Trailer Park real property. We address these two parcels separately. 32 A. Partition of the Trailer Park ¶74. The Trailer Park held title in its corporate name to the parcel of land on which it operated. Gerald argues that, because this parcel of land was not held by joint tenants or tenants in common, the chancellor was without authority to partition the land under Section 11-21-3 of the Mississippi Code. However, no partition of the land owned by the Trailer Park was ordered. The chancellor partitioned the adjacent Campground property, which was held by Gerald and Jo Ann as tenants in common. The Campground’s eastern boundary line and the Trailer Park’s western boundary line run adjacent to each other. The adjusted boundary line affected the western portion of the Campground property, which was jointly owned property. So the chancellor partited the Campground, not the Trailer Park real property. ¶75. Because the chancellor partited the Campground property, and since Jo Ann and Gerald held interest in the Campground as tenants in common, Gerald’s argument that the chancellor erred in ordering a partition of the Trailer Park is without merit. B. Partition of the Restaurant ¶76. Gerald asserts that the chancellor erred in ordering the Restaurant and its property sold. Under Section 11-21-11 of the Mississippi Code, the parties must be cotenants for the chancellor to order a sale of the land. Here, title was held solely in the name of the Restaurant and not by Gerald and Jo Ann as tenants in common. It does not appear, nor was there any argument advanced, that the Restaurant could be partited in kind. So partition by sale was the only available method. The chancellor signed an order authorizing the sale of the Restaurant. More importantly, Gerald joined in the sale of the Restaurant property. All parties approved 33 the order, and the proceeds of the sale were distributed to Gerald and Jo Ann. Because Gerald joined in the sale, we find this issue is without merit. IV. Whether the chancellor committed error by divesting Gerald of his separate interest in the Trailer Park. and V. Whether the chancellor erred in granting partition in kind between Jo Ann and Gerald without: (A) consideration of an accurate, upto-date valuation of the remaining real properties, (B) consideration of the exclusive use or occupancy of subject real properties by Jo Ann and Gerald, (C) granting an access easement for ingress and egress to Gerald, and (D) consideration of Jo Ann’s acquisition of the one-half interest of Gerald in the Imbronone property. ¶77. Gerald argues that, even if the chancellor had the power to order a partition in kind of the Campground and the Trailer Park real property, then such partition must be in accordance with the statutory requirements of the partition statutes under Section 11-21-1 of the Mississippi Code. We already have found that the chancellor did not order a partition of the Trailer Park under Section 11-21-1. So Gerald’s argument that the chancellor did not follow the requirements for a partition of land are without merit. Since the chancellor did order a partition in kind of the Campground, this is the only issue we will address. A. Consideration of an Accurate, Up-to-date Valuation of the Remaining Properties ¶78. Gerald argues the chancellor erred by not considering an accurate valuation of the Trailer Park and the Campground properties. The chancellor divided these two properties in accordance with the appraiser’s and surveyor’s recommendations. According to the appraiser, the Trailer Park property and its use could have been valued separately from the Campground 34 property, and he had enough information to perform an independent appraisal of the Trailer Park, as he had done for the Restaurant. The appraiser testified that the reason he gave an appraisal for the Trailer Park property on an acreage basis was for divisional purposes. Gerald argues that, under Murphree v. Cook, 822 So. 2d 1092 (Miss. Ct. App. 2002), this is the type of ad hoc and arbitrary method of division of land in kind that is condemned by the Court of Appeals and constitutes reversible error. He argues that, once the chancellor set aside the interests of Gerald and Jo Ann, then he should have adjusted the equities between them as required by Section 11-21-9 of the Mississippi Code. ¶79. In Murphree v. Cook, the Court of Appeals considered a chancellor’s deviation from the partition statutes in a partition action. Murphree v. Cook, 822 So. 2d 1092 (Miss. Ct. App. 2002). Helen Cook, co-tenant, was in complete control of the property from shortly after the date of purchasing the property until when Murphree, the other co-tenant, filed a partition action to sever their tenancy in common. Id. at 1096. The chancellor did not partition the property under Section 11-21-3 of the Mississippi Code as Murphree requested. Id. at 1098. The chancellor used a complex calculation to determine what he felt to be the fair value of Murphree’s half interest in the property. Id. at 1098. He ordered Murphree to convey his interest in the property to Cook upon receipt of payment of that sum. ¶80. The Court of Appeals said “in every case that the chancellor proposes to subvert the detailed statutory procedures for a partition in favor of some ad hoc means of sale, especially when it is undertaken over the strenuous objection of one of the cotenants, that decision 35 would be subject to being set aside on appeal on an abuse of discretion standard.” Id. at 1098-99. ¶81. The chancellor in Murphree used the original purchase price when he divested Murphree of his interest in the property, even though the parties had purchased the property more than three years before the partition action. Id. at 1099. There was no evidence that the figure accurately reflected the market value of the property at the time of the partition. Id. at 1099. The Court of Appeals concluded that the means the chancellor used to value the cotenants’ interests in the property was arbitrary and was an abuse of discretion. Id. Because “Murphree’s right to have his interest in the property set apart to him by a partition conducted according to the applicable statutes would seem to be preferred over some alternate plan devised by the chancellor,” the Court of Appeals reversed and remanded for the chancellor to sever the tenancy in accordance with the statutes. Id. ¶82. In Cheeks v. Herrington, a co-owner brought suit to partition property in which he had acquired an interest by intestate succession. Cheeks v. Herrington, 523 So. 2d 1033, 1034 (Miss. 1988). Cheeks alleged that the chancellor erred because he did not allow an accounting for improvements made to the property. Id. at 1036. Generally, “when a tenant in common is in possession of the entire property, and so long as he is not called on to pay for its use and occupation, he is under a duty to preserve the property and to make all ordinary repairs which will go to its preservation . . . .” Id. at 1037. ¶83. This Court held “that making repairs which are necessary for the preservation and maintenance of property is the sole responsibility of the person in actual or legal possession.” 36 Id. at 1037. Because the chancellor in Cheeks did not allow an accounting, this Court remanded the case for the chancellor to adjust the equities between the co-tenants under Section 11-21-9 and to present evidence as to what improvements had been made. Id. at 1037. ¶84. We find that the chancellor did not abuse his discretion here, and his actions are supported under Cheeks and Murphree. Gerald and Jo Ann held ownership in the Campground as tenants in common. And, like the co-tenant in Cheeks, Gerald was in actual possession of the Campground. But, unlike the chancellor in Cheeks, here the chancellor ordered a forensic accounting. He heard evidence from AVL’s forensic accountant, the corporations’ accountant, Jo Ann, and Gerald about improvements, repairs, and maintenance that Gerald had conducted on all the properties. ¶85. In 2006, the appraiser determined that the improvements on the property at that time were not utilizing the property to its highest potential value. He came to this conclusion based on a market-value approach. He was unable to use an income approach, because while Jo Ann provided rental-income information from the Trailer Park, he never received any rentalincome information from Gerald for the Campground. ¶86. Again in 2012, the appraiser made another evaluation. He concluded that the Restaurant property had to be treated differently from the Trailer Park and the Campground properties, which he determined had the same value per acre. He noted again that he could not use an income approach to value the property because of the inaccuracy and unreliability of Gerald’s records. 37 ¶87. Even if, as Gerald suggests, the properties should have been valued separately, the appraiser could not have made a more accurate valuation. Gerald himself caused this problem by refusing to comply fully with requests from the chancery court, appraisers, accountants, and Jo Ann for documents and financial records. B. Consideration of the Exclusive Use of the Separate Properties by Jo Ann and Gerald ¶88. Gerald argues the chancellor erred in not considering the exclusive use by Gerald of the entire Campground property. Gerald and Jo Ann held title to the Campground property as tenants in common, and the parties did not dispute that Gerald had exclusive use of the Campground. Gerald obtained his income from the Campground without consulting Jo Ann, which had been the status quo over the previous decade. Gerald resided and also ran side businesses on the Campground. The chancellor reduced the original Campground acreage when he adjusted the property lines in accordance with the survey. ¶89. Gerald argues he is entitled to have the whole Campground property allocated to him since he has been in exclusive possession of it and has made improvements on the property. “[A] tenant in common who has improved the land is entitled to have such land allotted to him or her if there is a partition in kind.” Bennett v. Bennett, 36 So. 452, 453 (Miss. 1904). “As a general rule, where a cotenant places improvements on the common property, equity will take this fact into consideration on partition and will in some way compensate him or her for such improvements . . . provided they are made in good faith and are of a necessary and substantial nature, materially enhancing the value of the common property.” 68 C.J.S. Partition § 130 (2009). 38 ¶90. As for Gerald’s claim that the whole of the Campground property should have been allocated to him because he made improvements to the Campground, there is no evidence that Gerald improved the land. The appraiser determined in 2006 that the improvements on the property were not utilizing the property then to its highest potential value and, in fact, he opined the property would be worth more without the improvements. As to Gerald’s argument the chancellor should have considered his exclusive possession of the Campground and awarded him the entire property, we find the chancellor did consider the exclusive use by Gerald when he granted Gerald full ownership of the Campground and all personal property located on it. Thus, we find the chancellor did not abuse his discretion in the allocation of the Campground property. C. Access Easement for Ingress and Egress to Gerald ¶91. Gerald argues that the partition of the property by the chancellor did not allow for an easement for ingress and egress, that it land-locks Gerald, and that it deprives him of access to and from Highway 90. Access to Highway 90 was first raised in a post-trial motion after the chancellor adjusted the property line. At the post-trial hearing before the chancellor in May 2014, Gerald admitted he had actual access on both the east and west sides of the Restaurant, which his daughters now own. The chancellor stated at the post-trial hearing, “[Gerald] can get an easement. Anything else on this part? Let’s go to something else. Unless they’re going to get in up here and testify that they refuse to talk to their father and give him an easement. That’s ridiculous. All right. Let’s go on.” We decline to address this issue, as it is not ripe for review. 39 D. The Imbornone Property (a.k.a. Necaise Claim) ¶92. Gerald and Jo Ann owned an additional tract of real property in equal shares as tenants in common on the south end of the properties, known as the Imbornone property. Originally, the chancellor considered this land in the division of real property, but it was lost at a tax sale during litigation. So the chancellor did not include it in the final judgment. By the time posttrial motions began and because the parties could not reach an agreement, Jo Ann personally bought the Imbornone strip from Mr. Imbornone, who previously had purchased it at the tax sale. ¶93. The parties informed the chancellor at the post-trial hearing that the Imbornone property was lost at a tax sale and recently had been purchased by Jo Ann. Since Jo Ann was a cotenant with Gerald, Gerald argues Jo Ann’s purchase redeemed the acreage for both Jo Ann and Gerald. Wall v. Wall, 71 So. 2d 308, 311 (Miss. 1954); Brown v. Brothers, 97 So. 2d 642, 644-45 (Miss. 1957). Gerald asserts that he should be given credit for one-half of the Imbornone property, and the court should then order a partition in kind. Since the chancellor did not address the Imbornone property in the Amended Final Judgement, we decline to address this issue, as it was not before the trial court. VI. Did the chancellor commit error by not allowing the parties a fair opportunity to respond to the sua sponte exclusion of the AVL Forensic Accounting Report from evidence after the close of the record? ¶94. Gerald argues that the chancellor erred in not allowing the parties a fair opportunity to respond to the chancellor’s own motion striking various portions of the AVL report as inadmissible, when the report was fully admitted into evidence without any objection. 40 ¶95. “Mississippi law requires the trial court to ensure that proposed testimony satisfies Rule 702 of the Mississippi Rules of Evidence.” Univ. of Miss. Med. Ctr. v. Pounders, 970 So. 2d 141, 146 (Miss. 2007). Mississippi Rule of Evidence 702 provides: If . . . specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if . . . (3) the witness has applied the principles and methods reliably to the facts of the case. M.R.E. 702(3). ¶96. This Rule “recognizes the gate keeping responsibility of the trial court to determine whether the expert testimony is relevant and reliable.” M.R.E. 702 cmt. This Court “require[s] that, when an expert’s opinion is challenged, the party sponsoring the expert’s challenged opinion be given a fair opportunity to respond to the challenge. The provision of a fair opportunity to respond is part of the trial court’s gate keeping responsibility.” Kilhullen v. Kansas City Southern Ry., 8 So. 3d 168, 174 (Miss. 2009) (quoting Smith v. Clement, 983 So. 2d 285, 290 (Miss. 2008)). “[W]e will reverse only where the trial court abused its discretion by clearly failing to provide a fair opportunity to respond.” Id. ¶97. During trial, the chancellor admitted into evidence a report prepared by AVL, the forensic accounting firm appointed by the Court. Neither party objected to this admission. The AVL reports revealed the operations and management of the corporations under the control of both Gerald and Jo Ann showed a commingling of revenue and expenses. The AVL reports also showed that the completeness of revenues for both the Campground and the Trailer Park could not be proven. According to the report, Jo Ann had paid attorneys’ fees 41 and the costs of litigation through revenue from the Trailer Park, and AVL did not consider this to be a normal expense. The AVL report also found that the Campground and the Trailer Park had understated revenues, caused by mismanagement, below-market rental rates, underreported revenues and/or misappropriation of funds. The chancellor struck portions of the AVL report under Rule of Evidence 702(3): Though the Court ordered the forensic accounting and those experts attempted to do their job, the Court also finds that the methods used by the forensic accountants may not be reliably applied to the facts of this case to establish the amount of misappropriation of moneys by Gerald. The Court finds from the totality of the evidence that Gerald’s Campground books, records and tax returns are false and incomplete as to both gross receipts and expenditures. ¶98. The chancellor made this ruling after the close of the record. The chancellor also did not make any indication during trial that the AVL report was inadmissible or that the conclusions were not based upon the application of generally accepted principles of accounting and methods to the facts of this case as required by Rule 702(3). ¶99. Gerald argues that the chancellor’s striking of the report without giving a fair opportunity to respond is an abuse of discretion and constitutes reversible error, since the chancellor based his findings on his perception that Gerald alone had misappropriated $180,000 to purchase the minority stockholders’ interest. ¶100. The chancellor, though, did not find Gerald had misappropriated the $180,000 to purchase the minority shareholder’s interest based solely on the AVL report. He reached this conclusion because he did not find the evidence presented by Gerald and his witnesses to be credible as to the source of those funds. Gerald presented no credible evidence of a bank loan or other “above board” loan from a third party. The chancellor found that Gerald had been 42 “less than forthcoming to the point of being secretive and non-responsive to discovery requests.” The chancellor concluded that in “absence of credible proof from Gerald, the only source of funds available to him were from the Restaurant and Campground funds plus unreported income diverted from them in which Jo Ann had an equal interest.” ¶101. We find the chancellor did not abuse his discretion in excluding portions of the AVL report. Even if the chancellor did abuse his discretion by not allowing the parties to object to the chancellor’s own motion to exclude portions of the AVL report, this error was harmless. The chancellor did not exclude the entire report, but rather noted its limitations as a final statement on value. The chancellor accepted the report of the forensic accountant but found that the conclusions could not be accepted because of the unreliability of Gerald’s books. This limitation on the use of expert evidence is within the decision-making power of the chancellor.