Court Opinion

ID: 865135
Source: CourtListenerOpinion
Date Created: 2013-04-27 00:25:35.934373+00
Date Added: 2024-06-11T12:17:46.442261
License: Public Domain

IN THE SUPREME COURT OF MISSISSIPPI

                                NO. 2004-CA-01098-SCT

JOSEPH K. SPEETJENS, DR. FASER TRIPLETT,
et al.

v.

MALACO INC., et al.

DATE OF JUDGMENT:                          05/05/2004
TRIAL JUDGE:                               HON. JASON H. FLOYD, JR.
COURT FROM WHICH APPEALED:                 MADISON COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS:                  AMANDA POVALL TAILYOUR
                                           GRADY F. TOLLISON, JR.
                                           T. ROE FRAZER
                                           EDWARD J. PETERS
ATTORNEYS FOR APPELLEES:                   GLENN GATES TAYLOR
                                           DONALD JAMES BLACKWOOD, JR.
                                           CHRISTY MICHELLE SPARKS
                                           ALEX A. ALSTON, JR.
                                           TERRY R. LEVY
NATURE OF THE CASE:                        CIVIL - OTHER
DISPOSITION:                               AFFIRMED - 05/18/2006
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

       EN BANC.

       COBB, PRESIDING JUSTICE, FOR THE COURT:

¶1.    The Madison County Chancery Court, in the introduction of its findings of facts and

final judgment, explained the procedural history of this case, as follows:

              The Joseph K. Speetjens, et al. versus Malaco, Inc., et al., cause of
       action was filed in the Chancery Court of Madison County, Mississippi on 11
       April, 1997. The case was bifurcated and after hearing the first portion,
       involving a joint venture, final judgment was entered by the Court in 2001. In
       2002, Dr. Triplett and others filed two separate actions in the Chancery Court
       of the First Judicial District of Hinds County, Mississippi. These complaints
       (Malaco II and Malaco III) assert the same claims as the first suit, and
       therefore, the Hinds County cases were consolidated with the initial Malaco
       case by Order dated November 24, 2003.
               The cases were tried for five days in November of 2003. Defendants in
       the actions were Thomas J. Couch, Sr., Stewart Madison, Gerald Stephenson
       ([sic] the directors and officers of Malaco, Inc.; Northside partners, a
       partnership (NSP); Couch & Madison, a partnership (C&M); Couch, Grubman
       & Madison, a partnership (CGM); Burdette Russ; Tann Brown & Russ; Robert
       A. Malouf; Robert A. Malouf Law Firm; Alan J. Grubman; Select-O-Hits, Inc.
       (SOH); and Malaco, Inc. Profit Sharing Plan and Trust (Pension Plan). Prior
       to trial, each filed Motions for Summary Judgment. Select-O-Hits and the
       Pension Plan were dismissed at the beginning of the trial, while the remaining
       Motions were taken under advisement. At the conclusion of the Plaintiffs’
       case, the Court also dismissed the Defendants Burdgett (sic) Russ, Tan[n]
       Brown and Russ, Robert A. Malouf, Robert A. Malouf Law Firm, and Alan J.
       Grubman. Therefore, the only remaining action(sic) pending were the
       derivative claims asserted against Couch, Madison, and Stephenson, and the
       partnerships NSP, C&M, and CGM.

¶2.    Finding that Speetjens was statutorily barred from suing derivatively, pursuant to

Miss. Code Ann. section 79-4-7.42 (Rev. 2001) and all other claims were without merit, the

trial court entered judgment dismissing the case. Speetjens subsequently filed a timely notice

of appeal. We agree with the trial court’s determination that the claims were statutorily

barred, and because that determination is dispositive of this case, we affirm.

                                           FACTS

¶3.     The chancellor also provided detailed findings of fact, which we also include

 verbatim, as follows:

              Malaco, Inc. was formed in 1968 by Thomas J. Couch, Sr. and
        Mitchell Malouf. Malaco stock was initially set at $2.50 per share and the

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initial board of directors consisted of nine members, which included Couch
and Stephenson. When the attendance of the board of directors decreased to
a point where a quorum was no longer available, the number of members was
gradually reduced to three, the Defendants, Couch, Madison, and Stephenson.
They now remain the board of directors as well as the officers of the
corporation. Together they own approximately 80% of Malaco’s outstanding
shares of stock.
        The board conducted annual stockholder’s meetings and furnished
audited, financial statements to the stockholders each year. These financial
statements disclosed the compensation paid to the officers, directors, and
employees each year, and also contained notes concerning related party
transactions.
        At each annual shareholders meeting, the floor was opened for
nominations to the board of directors. Until this lawsuit was first filed in
1997, the only shareholder’s (sic) nominated for the board of directors were
Couch, Madison, and Stephenson. Stockholder’s attendance at these annual
meetings was consistently low, generally between five or six, including board
members. The amount of compensation paid to the officers, directors, and
employees as disclosed on the financial statement was never questioned by
any of the shareholders.
        Malaco, Inc. is, and always has been, in the business of recording and
selling primarily black gospel and rhythm and blues music. They sold pre-
recorded music products such as cassettes, compact discs, and videos; and
also licensed to third parties performance and recording music rights that it
owned. Malaco initially had one studio located in the city of Jackson,
Mississippi for the recording of its music products.
        During the years after its inception, Malaco acquired several music
interests. In 1986, Malaco acquired Savoy Records for approximately one (1)
million dollars. Savoy, at the time was the oldest black gospel record
company in the United States and owned thousands of “record masters”,
actual recorded products. This purchase was made by a combination of cash,
bank financing, and assumption of Savoy’s existing debts. Malaco
immediately after the acquisition sold enough Savoy products to pay for half
of the purchase price. This purchase was discussed in detail at Malaco’s
1987 shareholder’s meeting.
        In 1996, Malaco, in an effort to acquire a distribution outlet for its
records, acquired a 50% interest in Select-O-Hits, Inc. (SOH). Select-O-Hits
was a record distributor that sold to retail outlets such as Wal-Mart, Be-Bop,
etc. This purchase was disclosed in Malaco’s annual audited financial
statement for the year ending November 30, 1995, and also in Malaco’s letter

                                     3
to shareholders dated May 23, 1996. The shareholders agreed to waive any
potential conflicts that this purchase may involve.
        In 1992, Malaco purchased a small blues label called Waldoxy
Records for the purchase price of $25,000. This label was formed by Thomas
J. Couch, Jr., son of Thomas J. Couch, Sr. The investment was recouped by
Malaco during the first year after its acquisition.
        In 1989, Malaco attempted to branch out into country music. They
opened an office in Nashville to sign writers and singers to record country
songs. This effort was unsuccessful and the office was finally closed in 2003
after a total loss of approximately $500,000.00.
        Occasionally it became necessary for Malaco to rent a recording studio
located in Mussel Shoals, Alabama. It was called the Mussel Shoals Sound
Studio, Inc. (MSS). They also recorded songs that were in the MSS
publishing catalog and paid publishing royalties and studio rentals to MSS.
In 1985, the owners decided to sell Mussel Shoals Studio. Malaco’s directors
were interested in buying the studio. The proposed sale price was in excess
of one (1) million dollars. Malaco did not have this amount of money
available. The directors sought to secure financing and contacted several
banks in Jackson, Mississippi and also banks in Alabama. None of these
banks were willing to lend money to Malaco without Couch, Madison, and
Stephenson personally guaranteeing the loan. They were not willing to
assume such a personal liability for Malaco.
        After determining that Malaco, Inc. was unable to finance the
purchase of MSS, the three directors decided they would personally attempt
to buy MSS. They formed Northside Partners (NSP), which purchased MSS
in August of 1985 for $1,050,000. This included the studio building, the
recording equipment, and some publishing catalogs. The purchase was
disclosed to the Malaco shareholders at the 1986 annual stockholders meeting
where it was discussed by the directors and other stockholders, including the
Plaintiff, Ed Butler.
        In February of 1989, NSP sold the MSS building to Malaco for
$300,000. Since this sale, Malaco has leased the building back to NSP for
$2,000 per month, plus all taxes, repairs, and insurance. Malaco has collected
in excess of $350,000 in rent with no expenses for taxes, insurance, repairs
and improvements since the sale. The sale of the building to Malaco and the
lease back to NSP was disclosed in each of Malaco’s annual financial
statements for the years ending November 30, 1989, November 30, 1990, and
November 30, 1991.
        In addition to the August 1985 purchase of MSS, NSP later acquired
some smaller musical assets, but MSS constituted the vast majority of NSP’s
assets. On September 25, 1986, NSP acquired master recordings and

                                     4
publishing catalogs known as “More of the Same Music”, “Music and More”,
“Poncho Case Music”, “Sure Been Good Music”, and Aladrian Music”. In
June of 1989, NSP purchased “Southern Grand Alliance” and “Songs of the
Grand Coalition” catalog. In July of 1990, NSP purchased catalogs of New
Albany Music and Hoosia Music. On April 13, 1994, NSP purchased a
catalog called “Most Urgent Music”. None of these music catalogs were
considered to be appropriate for Malaco. None were traditional black gospel
music nor rhythm and blues music and they would not be considered to be a
profitable investment for Malaco. Additionally, Malaco does not purchase
just publishing catalogs.
       In the early ‘80's, Thomas Couch and Stewart Madison formed the
Couch and Madison partnership to invest in various financial opportunities
such as oil and gas wells, horses, stocks, loans, and miscellaneous music
interests. Over the years C&M partnership entered into a series of personal
loans with Mr. Fredrick Knight, a songwriter and producer. Mr. Knight
would use some of his musical assets as collateral to secure these loans, as he
did with the purchase of a Mercedes Automobile. As a result of the
nonpayment of these loans, C&M partnership acquired four sets of musical
assets: the first two dated November 17, 1983; the third dated August 7,
1982; and, the fourth dated May 5, 1995. Since Malaco is not in the business
of loaning money nor [were] the assets the type that Malaco recorded and
sold. These assets were not considered to be a corporate opportunity for
Malaco, Inc.
       In January of 1990, C&M Partnership entered into an agreement with
George Hocutt to purchase an undivided one-half interest in the “Best Music”
and the “Apollo Records” catalog. This music also was not the type of music
Malaco dealt in, and in addition, Mr. Hocutt refused to sell these items to
Malaco. He did not want to have a corporation as a partner.
       In May of 1990, the partnership of Couch, Grubman, and Madison was
formed to purchase two small country music catalogs. These catalogs
covered Leahrae Music and Brandwood Music. These are country music
catalogs and were not the type that Malaco was interested in or desired to
have. CGM also acquired the music composition “Careful Man”. This
composition had been recorded by Malaco and they began paying publisher’s
royalties to Mr. Jimmy Ginn. He was the owner of the song at that time but
had a misunderstanding with Malaco over the payment of royalties.
       As previously stated, the annual audited financial statements, which
were sent to the shareholders each year, contained a section called “Selling,
General, and Administrative Expenses”. This section included all of the
compensation paid to the officers and employees of Malaco, Inc. While it did
not break out separately each officers annual compensation, the statement

                                      5
           was proper under generally accepted accounting principles. Although some
           of the stockholders were aware that this line entry included compensation
           paid to the officers, none ever inquired as to the individual amounts of
           compensation paid to the officers.
                   From 1992 to 1996, the officers and directors received more than a
           million dollars each in annual salaries and bonuses. Dividends were
           distributed to the shareholders in 1983 and every year between 1986 and
           1996. The value of the stock of Malaco varied from as little as $1.50 per
           share to as much as $300 per share.
                   The Internal Revenue Service audited Malaco several times in the
           1990s. In 1995, after conducting an audit, the IRS determined that the total
           compensation paid to the directors for the year ending 1992 was excessive in
           the amount of $125,000; and, for the year ending 1993, was excessive in the
           amount of $150,000. This finding was not contested by the directors and the
           taxes were paid based on that finding. No other annual compensation to
           directors was questioned by the IRS.
                   The three Defendants in this action performed all of the different job
           functions related to the recording, production, marketing, promotions, and
           numerous other functions required in the day to day operations of Malaco.
           The directors performed as many as fifteen (15) separate functions required
           in the operation of a recording company.

Speetjens1 asserts on appeal that the chancellor committed manifest error by: (1) refusing

 to recognize a futility exception to the written demand requirement; (2) finding that certain

 claims were barred by the statute of limitations; (3) finding that Couch, Madison, and

 Stephenson did not breach their fiduciary duties; (4) dismissing the claims against Robert

 Malouf and the Malouf Law Firm; (5) dismissing the claims against Allen Grubman; (6)

 dismissing the claims against W. Burdette, Russ, and Tann, Brown and Russ Co., Ltd.; (7)

 refusing the request for a jury trial; and (8) failing to consider that sound public policy is

 dependent upon absolute trust in the officers and directors of publicly held corporations.

       1
        Appellants Joseph K. Speetjens; Dr. Faser Triplett; Dean Blackwell; Edwin C. Butler and
Birney Imes will be referred to collectively as “Speetjens.”

                                                6
                                      ANALYSIS

¶4.    A chancellor’s findings of ultimate and evidentiary facts will not be disturbed on

appeal if supported by substantial evidence. Longanecker v. Diamondhead Country Club,

760 So. 2d 764, 767 (Miss. 2000). Further, the chancellor’s findings will not be disturbed

when supported by substantial evidence unless the chancellor abused his discretion, was

manifestly wrong or applied the incorrect legal standard. Id.

       I.     WHETHER THE CHANCELLOR ERRED BY REFUSING TO
              RECOGNIZE A FUTILITY EXCEPTION TO THE WRITTEN
              DEMAND REQUIREMENT

¶5.    Section 79-4-7.42 of Miss. Code Ann. (Rev. 2001) provides in its entirety:

       No shareholder may commence a derivative proceeding until:
       (1) A written demand has been made upon the corporation to take suitable
       action; and
       (2) Ninety (90) days have expired from the date the demand was made
       unless the shareholder has earlier been notified that the demand has been
       rejected by the corporation or unless irreparable injury to the corporation
       would result by waiting for the expiration of the ninety-day period.

¶6.    Whether a futility exception should be recognized in the application of this written

demand requirement is a question of first impression before this Court. It is undisputed in

this case that no written demand was ever made to Malaco to take suitable action.

Speetjens nevertheless asserted that this derivative action should be allowed to proceed

because the “[d]emand as required by Miss. Code Ann. 79-4-7.42 would have been futile”

since the directors of Malaco “are in absolute control of the corporation and [they]

unlawfully breached their fiduciary duties, usurped corporate opportunities and awarded

themselves excessive salaries and extravagant bonuses.” Therefore, Speetjens argued,

                                            7
 demand was not a requirement for this action. Speetjens further argued that this Court has

 never ruled that the prerequisites of section 79-4-7.42 are mandatory for every derivative

 action. Malaco,2 on the other hand, argued that the plain meaning of section 79-4-7.42

 requires written demand in every derivative action suit. The chancellor heard these

 arguments and held that the shareholders lacked standing to bring this suit on behalf of

 Malaco because they did not first make written demand on Malaco to take suitable action.

  In his final judgment, the chancellor found section 79-4-7.42 to be an unambiguous

 requirement to derivative suits.

¶7.        On appeal, Speetjens first argues that other jurisdictions, including Delaware,3 have

 held that in situations where demand is futile, as would be the case where all the directors

 are interested, written demand is excused. He also argues that the chancellor incorrectly

 relied upon Longanecker, 760 So. 2d 764, in which this Court affirmed the trial court’s

 holding that shareholders who failed to make a written demand as required by Miss. Code

 Ann. section 79-11-193(3) (Rev. 2001) did not have standing to sue derivatively. Speetjens

 correctly notes that Longanecker construes Miss. Code Ann. section 79-11-193(3), which

       2
          Appellees Malaco, Inc.; Thomas J. Couch, Sr.; Stewart M. Madison; Gerald B. Stephenson;
Northside Partners; Couch and Madison Partnership; Couch, Madison and Grubman Partnership;
Grubman Partnership; W. Burdette Russ; Tann Brown & Russ Co., Ltd.; Robert A. Malouf; Robert
A. Malouf Law Firm; Allen J. Grubman; Malaco Inc. Profit Sharing Plan and Trust; Select-O-Hits,
Inc. will be referred to collectively as “Malaco” throughout this opinion.
       3
         Delaware’s demand statute is materially different than Mississippi’s. It expressly states that
written demand is required unless reasons are given explaining why this effort was not undertaken.
See Del. St. Ch. Ct. R. 23.1 (amended by court order effective February 1, 2006). The statute
contained the same exception before the court-ordered amendment.

                                                  8
applies to non-profit corporations, whereas Malaco is a for-profit corporation. We agree

with Malaco that this distinction is not controlling in the present situation. The wording of

the two statutes differs. The requirement of a written demand in section 79-4-7.42 is

absolute; the requirement in section 79-11-193(3) is conditional, stating that the complaint

must “allege with particularity the demand made, if any, to obtain action by the directors

and either why the complainants could not obtain the action or why they did not make the

demand.” This distinction inures to the benefit of Malaco.

¶8.    Speetjens also points to three places in Longanecker where this Court alluded to a

futility exception to written demand. In the first instance, this Court was merely reciting the

non-profit corporation’s argument that the Longaneckers, who were shareholders, failed to

show they made a written demand or demand would be futile. Longanecker, 760 So. 2d at

768. This Court did not say that a futility exception to the demand requirement exists. In

the second instance, this Court cited cases in other jurisdictions which held a demand

futility argument was not waived by a failure to raise it as an affirmative defense where the

allegation was denied in a responsive pleading. Id. at 769 (citing Renz v. Carota, No. 87-

CV-487, 1991 WL 165677, *2 (N.D.N.Y. 1991), aff'd mem. sub nom. Renz v. Beeman, 963
F.2d 1521 (2d Cir. 1992)). Speetjens misinterprets this statement. This Court was simply

addressing the shareholders’ argument that the appellee waived any objection to the

derivative nature of this action by failing to raise it as an affirmative defense in its answer

or by failing to raise it until the eve of trial. Id. at 768. This Court was not making any

statement concerning a futility exception. Third, Speetjens cites Longanecker for the

                                              9
proposition that “generally derivative plaintiffs must make written demand . . . .” Id. at

770. However there are other exceptions to written demand that do not involve futility:

namely, where the shareholder has already been notified that demand has been rejected by

the corporation, and where irreparable injury to the corporation would result. See Miss.

Code Ann. § 79-4-7.42. Once again, Speetjens misinterprets this Court’s language in

Longanecker. Section 79-4-7.42 is clear on its face. “Where a statute is clear and

unambiguous, no further statutory construction is necessary and the statute should be given

its plain meaning.” Miller v. Meeks, 762 So. 2d 302, 305 (Miss. 2000).

¶9.    Determination of whether Miss. Code Ann. section 79-4-7.42 would be better if it

contained an exception for futility, or even how other state courts have interpreted their

comparable, but not identical, corporate law statutes is not required of us in the present case.

The fact is, Mississippi’s written demand statute does not contain an exception for futility,

and unless and until the Legislature decides to include one, it does not exist. Further, this

Court will not be alone in this holding. See, e.g., McCann v. McCann, 61 P.3d 585, 591-93

(Idaho 2002) (with the identical demand statute, the Supreme Court of Idaho ruled that there

is no exception for futility); Allen ex rel. Allen & Brock Constr. Co. v. Ferrera, 540 S.E.2d
761, 765 (N.C. Ct. App. 2000) (the Court of Appeals of North Carolina held that the

identical demand statute did not allow for a futility exception). But see Guarino v. Livery

Limited, Inc., No. X04CV030127824, slip op. at 2-3 (Conn. Super. Ct. Nov. 18, 2003); with

Tibball v. Galog, No. CV94 0311149S, slip op. at 3 (Conn. Super. Ct. Aug. 25, 1994)

(Connecticut courts have interpreted a futility exception into their demand statute, which

                                              10
is identical to Mississippi’s. However, the Connecticut courts have reached this result by

citing to cases from other jurisdictions that have significantly different demand statutes).

¶10.   Hence, the trial court correctly found that “[s]ome jurisdictions have recognized a

futility exception to the written demand prerequisite for filing a derivative action but

Mississippi, however, has never recognized a futility exception to the statutory written

demand requirement, and this Court will not attempt to fashion one here.” We agree with

the chancellor’s sound reasoning. The demand requirement provides an opportunity to

correct objectionable actions, without the expense of litigation, and it allows directors and

managers to be alerted to and consider the shareholders’ position. Although we thoroughly

reviewed all issues presented, our determination that Speetjens failed to comply with the

statutory requirements is dispositive, and thus we decline to address the other issues.

                                     CONCLUSION

¶11.   We affirm the judgment of the chancery court. There is no futility exception and

Speetjens’ claims are statutorily barred.

¶12.   AFFIRMED.

      SMITH, C.J., WALLER, P.J., CARLSON AND DICKINSON, JJ., CONCUR.
DIAZ AND GRAVES, JJ., DISSENT WITHOUT SEPARATE WRITTEN OPINION.
EASLEY, J., DISSENTS WITH SEPARATE WRITTEN OPINION. RANDOLPH,
J., NOT PARTICIPATING.

                                            11
EASLEY, JUSTICE, DISSENTING:

¶13.   The majority does not recognize a futility exception to corporate demand. Under the

facts at hand, I must respectfully disagree and write briefly to address my concerns as well

as other issues raised in the appeal.

¶14.   This Court in Beckett v. Planters’ Compress & Bonded Warehouse Co., 107 Miss.
305, 65 So. 275, 276 (1914), applied the legal principle that the law does not require a

party to perform a “vain” or “fruitless” action. In Beckett, a stockholder sued Planters’ and

its directors for investing capital stock in an ice and cold storage plant without his consent.

Id. The venture failed, and Planters’ had to liquidate all its property to settle its

indebtedness. Id. These actions resulted in the corporations’ inability to distribute

anything to the shareholders. Id. This Court noted the basis of the directors’ demurrer.

The directors’ argued that (1) there was no indication that suit would not have been filed

had an application been made to the shareholders, and (2) Beckett never sought to have the

alleged wrongs redressed by them or the corporation. Id. This Court did not agree with

the directors’ argument. This Court held:

       It is true that ordinarily, before a stockholder can maintain a suit of this
       character, he must exhaust all reasonable means within his reach to obtain
       redress within the corporation itself; and should the directors, when
       requested, decline to institute the suit, an appeal, if practicable, should be
       made to the stockholders themselves to take such action as they may deem
       proper and have the power to do. From the allegations of this bill, however,
       it appears that the offending directors themselves either own or control
       the majority of the stock of the corporation, so that an appeal either to
       the directors or to the stockholders for redress was not necessary, for it
       is not to be expected that under such circumstances any redress would

                                             12
       have been granted, and the law never imposes upon any one the doing
       of a vain and fruitless thing.

Id. (Emphasis added).

¶15.   Here, the facts are similar to those in Beckett. Couch, Stephenson, and Madison are

the sole members of the Board of Directors and sole corporate officers of Malaco. These

three members own over 85% of the corporate shares. One of the officers, Stephenson,

testified that he would not have sued the corporate officers/directors if a demand had

been made by the minority shareholders. Therefore, any demand by Speetjens would

have been “fruitless” or “vain” as recognized by this Court in Beckett.

¶16.   The three corporate officers/directors breached their fiduciary duty to the corporation

and the shareholders. The record reflects that the three directors of Malaco paid themselves

88% of the gross profits as officer compensation from 1987 to 1996. In 1992, 1995, and

1996, the three officers each received an average of over $1 million in compensation and

bonuses. In 1989, 1990, 1991, 1993, 1994, 1997, 1998, and 1999, each of the three officers

received an average of over $500,000 in compensation and bonus with many of these years

averaging almost $600,000 or more in annual compensation.

¶17.   Directors and officers stand in a fiduciary relationship to a corporation and its

shareholders. Derouen v. Murray, 604 So. 2d 1086, 1092 (Miss. 1992). This Court in

Derouen further held:

       We begin with some basics. Officers and directors have well defined duties
       owed to the corporation they serve and, equitably, to its shareholders. In the
       first place, an officer or director owes the corporation a duty of care, a duty

                                            13
       to perform the officer's or director's functions in good faith, in a manner that
       he or she reasonably believe to be in the best interest of the corporation, and
       with the care that an ordinarily prudent person would reasonably be expected
       to exercise in a like position and under similar circumstances.

Id. In Kisner v. Coffey, 418 So. 2d 58, 61 (Miss. 1982), this Court found that the

“plundering of a ‘close’ corporation by the siphoning off of the profits by excessive salaries

or bonus payments” is equivalent to oppressive conduct. This Court further held that “the

question of what is ‘oppressive’ conduct by those in control of a ‘close’ corporation as its

majority stockholders is closely related to what we agree to be the fiduciary duty of a good

faith and fair dealing owed by them to its minority stockholders.” Id.

¶18.   Couch, Madison, and Stephenson, the officers and directors of Malaco, had the

majority of Malaco shares, over 85%, to control the election of the Board of Directors.

These individuals owed a fiduciary duty to the minority shareholders of Malaco. These

three individuals had the power, majority corporate shares, and self-appointed roles of being

both officers and directors of Malaco. Therefore, Couch, Madison, and Stephenson were

in control of setting their own salaries and any bonuses. These facts placed them in an

unusual situation. The Plaintiffs allege that these individuals earned as much as 50%, 67%,

98% and 104% of gross profits in certain single years. The excessive salaries paid to the

officers/directors drained corporate profits for their personal gain. Therefore, Malaco did

not have the financial means to avail itself of corporate opportunities to benefit the

corporation and its shareholders.

                                             14
¶19.   The officers/directors owed a fiduciary duty to the corporation and its shareholders.

The payment of the excessive salaries and bonuses consistently drained Malaco of corporate

funds year after year. Malaco was unable to take advantage of business opportunities that

these three officers diverted to their individually owned companies.                 Had the

officers/directors not diverted such excessive compensation and bonuses, then Malaco

would have been in a better position to avail itself of more business opportunities. The

actions by the officers/directors were abuses of their corporate positions.

¶20.   The officers/directors paid themselves a significant amount of the corporate gross

profits. This case reeks of corporate greed and breach of fiduciary duty. I would reverse

the trial court’s ruling that the officers and directors did not breach their fiduciary duty by

raiding 88% of the gross profits to pay themselves excessive compensation. Accordingly,

I would reverse the trial court’s judgment and remand this case for further proceedings.

                                             15