Kiriakides v. ATLAS FOOD SYSTEMS & SERV.

Decision Date29 January 2001
Docket NumberNo. 25244.,25244.
CourtSouth Carolina Supreme Court
PartiesJohn A. KIRIAKIDES and Louise Kiriakides, Respondents, v. ATLAS FOOD SYSTEMS & SERVICES, INC., Marica Enterprises, Ltd., Marica, Inc., and Alex Kiriakides, Jr., Petitioners.

Deborah H. Sheffield, of Columbia, Ellis M. Johnston, II, of Haynsworth Sinkler & Boyd, of Greenville, and David Holmes, of Greenville, for petitioners.

Wilburn Brewer, Thomas L. Stephenson, and Charles W. Emory, Jr., all of Nexsen, Pruet, Jacobs & Pollard, L.L.P., of Columbia, and George J. Conits, of Greenville, for respondents.

TOAL, Chief Justice:

We granted a writ of certiorari to review the Court of Appeals' opinion in Kiriakides v. Atlas Food Systems, 338 S.C. 572, 527 S.E.2d 371 (Ct.App.2000). We affirm in result, as modified.

FACTS

This is a case in which respondents, minority shareholders in a closely held family corporation, claim the majority shareholders have acted in a manner which is fraudulent, oppressive and unfairly prejudicial.1 They seek a buyout of their shares under South Carolina's judicial dissolution statutes. A rather detailed recitation of the facts is necessary to an understanding of the plaintiffs' claims.

Respondents are 72-year-old John Kiriakides and his 74year-old sister Louise Kiriakides. John and Louise are the minority shareholders in the family business, Atlas Food Systems & Services, Inc. (Atlas). Petitioners are their older brother, 88-year-old Alex Kiriakides, Jr., and the family business and its subsidiaries, Marica Enterprises, Ltd. (MEL),2 and Marica, Inc. (Marica).3

Atlas is a food vending service which provides refreshments to factories and other businesses. The business began prior to World War II but slowed down while Alex was away during the war. After the war, Alex, John, and their father Alex, Sr., began working together to build the family business.4 Alex, Sr. died in 1949. Atlas was incorporated in 1956. Currently, Alex is the majority

stockholder, owning 57.68%; John owns 37.7%, and Louise owns 3%.

Throughout Atlas' history, Alex has been in charge of the financial and corporate affairs of the family business; he has had overall control and is Chairman of the Board of Directors. John is also on the three member Board. In 1986, John became President of Atlas, after years of running client relations and field operations. Two of Alex' children are also employed by Atlas, his son Alex III, and his daughter Mary Ann.5 Alex III is (since John's departure as discussed below) President and is on the Board; Mary Ann is a CPA who performs accounting and financial functions; their brother Michael worked for Atlas in the past, but is no longer employed there.6

For years, Atlas operated as a prototypical closely held family corporation. Troubles developed, however, in 1995, when a rift began between Alex and John. The initial dispute arose over property owned by John and Alex in Greenville. Alex convinced John to transfer his interest in the property to his son Alex III for a price less than it was worth. John signed the deed prepared by Alex believing he was conveying only a small portion of his interest in the property to Alex III. After discovering his entire interest had been transferred to Alex III, John became distrustful of Alex and began requesting documents and records concerning the family business. The relationship between the two became very strained.7 Several subsequent incidents served to heighten the tension.

In December 1995, the Board and shareholders of Atlas decided to convert Atlas from a subchapter C corporation to a subchapter S corporation. However, in March 1996, Alex, without bringing a vote, unilaterally determined the company would remain a C corporation. Later, in mid-1996, a dispute arose over Atlas' contract to purchase a piece of commercial property. Notwithstanding the contract, John, Alex III and William Freitag (Senior Vice President of Finance and Administration) decided not to go through with the sale. Alex however, without consulting or advising John, elected to go through with the sale. When John learned of Alex' decision, he became extremely upset and allegedly advised Alex III he was quitting his job as President.8 The next day, Alex III made plans with managers to continue operations in John's absence; John, however, went to the Atlas office in Greenville and visited Atlas offices in Columbia, Orangeburg and Charleston.

The following Monday, John went to work at Atlas doing "business as usual." He was told later that day (by Alex' son Michael) that management was planning John would no longer be President of Atlas. John circulated a memo indicating he intended to remain President; Alex III replied in a memo prepared with the aid of his father, refusing to allow John to continue as president of the company. The following day, Alex refused to allow John to stay on as president of Atlas, and designated Alex III as President. John was offered, but refused a position as a consultant.

In September 1996, Atlas offered to purchase John's interest in Atlas, MEL and K Enterprises,9 for one million dollars, plus the cancellation of $800,000 obligations owed by John. John refused this offer, believing it too low.10 John filed this suit in November 1996, seeking to obtain corporate records. The complaint was subsequently amended, naming Louise as a plaintiff, and adding claims for fraud under the judicial dissolution statute. The complaint sought an accounting, a buyout of John and Louise's shares, and damages for fraud. The trial was bifurcated on the issues of liability and damages.

After a five day hearing, the referee found Alex had engaged in fraud in numerous respects, and found Atlas had engaged in conduct which was fraudulent, oppressive and unfairly prejudicial toward John and Louise. The referee held a buyout was the appropriate remedy under S.C.Code Ann. § 33-14-300(2)(ii) and § 33-14-310(d)(4).11 The referee found that, at the bifurcated damages hearing, it would be determined whether John and Louise had suffered any damages from the fraud in this regard.12 The Court of Appeals affirmed in result.

ISSUES
1. Did the Court of Appeals apply the correct standard of review to the referee's findings of fraud?
2. Did the Court of Appeals properly affirm the referee's finding that 21% of the Marica stock had been transferred to K Enterprises?
3. Did the referee properly find Atlas had engaged in oppressive behavior under the South Carolina judicial dissolution statute?

LAW/ANALYSIS

1. STANDARD OF REVIEW / FINDINGS OF FRAUD

Atlas contends the Court of Appeals applied an improper standard of review to the referee's findings of fraud. We disagree.

An appellate court's scope of review in cases of fraud, where the proof must be by clear, cogent and convincing evidence, is limited to determining whether there is any evidence reasonably supporting the circuit court's findings. Burns v. Wannamaker, 286 S.C. 336, 333 S.E.2d 358 (Ct.App. 1985) aff'd as modified 288 S.C. 398, 343 S.E.2d 27 (1986). See also Townes Associates, Ltd. v. City of Greenville, 266 S.C. 81, 221 S.E.2d 773 (1976)

(in an action at law tried without a jury, the findings of fact of the judge will not be disturbed unless found to be without evidence which reasonably supports them). Cf. Cook v. Metropolitan Life Insurance Co., 186 S.C. 77, 194 S.E. 636 (1938) (in law action for fraud and deceit, the question of fraud was for the trier of fact if more than one reasonable inference could be drawn from the evidence). It is not for the appellate court to weigh the evidence to determine whether it is sufficient to meet the burden of proof. 5A C.J.S. Appeal & Error § 1656(2) n. 71 at 447 (1958). See Southeastern PVC Pipe, Mfg. v. Rothrock Construction Co., 280 S.C. 498, 313 S.E.2d 50 (Ct.App.1984).

Alex challenges the sufficiency of the evidence that he committed fraud regarding the transfer of the 21% of Marica stock, Louise's ownership of 271 shares of Atlas stock, and the handling of Louise's 1990 distribution.

Contrary to Alex' contention, it is not the province of this Court to re-weigh the evidence to determine whether it is clear, cogent and convincing but, rather, we must determine whether there is evidence supporting the lower court's findings. We find evidentiary support in the record for each of the referee's findings of fraud. Townes Associates, Ltd. v. City of Greenville, supra; Burns v. Wannamaker, supra.

Accordingly, the referee's findings of fraud are affirmed.13

2. TRANSFER OF MARICA STOCK

Atlas contends the referee erred in finding 21% of Marica14 stock was transferred to K Enterprises; it claims John and Louise have no standing to challenge the transfer, and the referee had no jurisdiction to find the stock was transferred as K Enterprises is not a party to the action. We disagree.

Citing Todd v. Zaldo, 304 S.C. 275, 403 S.E.2d 666 (Ct.App. 1991), Atlas contends John and Louise have no standing as a cause of action for recovery of corporate assets belongs to the corporation, not the individual shareholders. As noted by the Court of Appeals, however, K Enterprises is a partnership, not a corporation, such that Todd v. Zaldo is inapplicable.15 We find John and Louise clearly have standing to contest the improper attribution of the 21% stock to Alex III and Michael.

Atlas also asserts the referee was without jurisdiction to make a finding regarding the ownership of K Enterprises because a) Alex III and Michael were necessary parties, and b) K Enterprises may not legally hold stock under the terms of the partnership agreement. We disagree.

Alex III and Michael were not necessary parties because John and Louise did not seek any remedy against them; they merely sought damages from Atlas and Alex for the fraudulent transfer of the shares. Moreover, Alex III and Michael were originally parties but were dismissed by consent of all parties. See ...

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