Aqua-Culture Technologies, Ltd. v. Holly
| Decision Date | 30 May 1996 |
| Docket Number | AQUA-CULTURE,No. 89-CA-01202-SCT,89-CA-01202-SCT |
| Citation | 677 So.2d 171 |
| Parties | TECHNOLOGIES, LTD., Jack Summers, John Haigh, Henry Reed and Dr. Milton Segal v. Dr. Sandra F. HOLLY. |
| Court | Mississippi Supreme Court |
Michael Farrell, David M. McMullan, Jr., Wells More Simmons & Neeld, Jackson, for Appellants.
John G. Corlew, Virginia T. Munford, Watkins & Eager, Jackson, for Appellee.
En Banc.
This is an appeal of a $245,819.36 judgment of the First Judicial District of Hinds County Chancery Court entered against International Mari-Culture Technologies, Ltd. (IMT), Jack Summers, John Haigh and Aqua-Culture Technologies, Ltd. (ATL), in favor of IMT shareholders and their representative, Dr. Sandra Holly, in a shareholder derivative action. 1 Dr. Holly alleged that certain IMT officers and directors seized corporate opportunities from IMT to form a new company, ATL, from the remnants of IMT.
The Chancellor entered a judgment against Jack Summers, John Haigh and ATL for $245,819.36, consisting of $175,000 in damages, $65,000 in attorneys' fees and $5,819.36 in expenses. The original judgment limited the recovery of damages to the five IMT stockholders who did not hold ATL stock but was modified by the Chancellor the next day to include recovery by all IMT stockholders.
We affirm the appeal. On cross-appeal we affirm in part and reverse and remand to modify the judgment to bar John Haigh as an IMT shareholder from recovering a percentage of the judgment.
In July of 1983, Dr. Wesley Prater, M.D., and Dr. Cortez McFarland, M.D., of Jackson became interested in investing in the new and growing catfish farming industry. They sought to develop a farming and processing operation that could be successfully marketed to third world countries, particularly Africa, envisioning a large return from their investment in helping develop a renewable food source. They inspected Ed Scott's catfish farm in the Mississippi Delta and became familiar with his farming process.
Realizing that they needed major capital investment, they contacted Jim Evans of Jackson, who introduced the doctors to Ron Hobbs. Hobbs discussed Prater's and McFarland's plans with several business associates, including Jack Summers, who told Hobbs that he had been a marketing consultant for 170 of the Fortune 500 companies and had contacts with several African leaders who would be helpful in marketing the catfish farming technology. Summers also claimed that he had access to almost any president or minister (cabinet member) on the continent of Africa. Prater and McFarland paid for Summers to visit Jackson. Summers told them of his extensive contacts in Africa, and he later brought three Namibian leaders to Jackson to discuss exporting catfish farming technology to Namibia.
Jackson Minority Business Development Center (JMBDC) was a government-sponsored business development organization that served as a business incubator for small minority-owned businesses. Milton Chambliss, its assistant director, attended a meeting in November, 1983, with Summers, Hobbs, Prater, McFarland, and J.B. Burrell, the director of JMBDC. Summers explained to them the necessity of developing a prototype for potential investors, as well as the need for building a training center for the planned activities. Scott's operation was used in the drafting of IMT's original marketing analysis and strategy, but Scott was unable to continue for financial reasons. Chambliss then contacted Henry Reed, a catfish farmer from Belzoni, who agreed to participate in the enterprise.
Summers indicated that he needed "seed money," and Prater and McFarland made an initial investment of $22,500. Summers wrote them that the investment was "to be utilized as an investment to offset the expenses of the newly organized [IMT]." Dr. Prater testified that they eventually invested $50,000, which they considered "seed money" and expected to be paid back once IMT began to return a profit. In a December 27, 1983, letter under an IMT letterhead, Summers wrote Evans, Hobbs, McFarland and Prater that "[t]his memo will serve as written confirmation of our agreement regarding equity distribution of [IMT]." The memo continued:
The above named five (5) individuals [Evans, Hobbs, McFarland, Prater, Summers] each in his own right owns sixteen percent (16%) of the outstanding and issued shares of IMT. This totals ninety percent (90%) of the total outstanding equity. The remaining ten percent (10%) as well as all authorized but unissued equity will be authorized and issued at the time required.
It is understood that this equity arrangement honors all previous commitments with regard to raising capital and payment of fees in cash and equity.
The remaining ten percent (10%) of the authorized and issued equity will be immediately for additional expense fund investors.
This agreement clearly states the total agreements of all parties concerned. Modifications to this agreement will be made only as stated in preexisting agreements or by majority vote of the board of directors.
Evans and Hobbs each received sixteen percent (16%) ownership of IMT in return for their work in arranging for financing with New York investment and brokerage companies, while Summers received the same percentage for his efforts in marketing IMT to his African contacts. Under the parties' agreement, Summers was to receive no salary, but IMT would pay for all of his expenses. Prater and McFarland were voted the same percentage of ownership for their investment, but they never received stock certificates.
Summers filed IMT's certificate of incorporation in Delaware on January 27, 1984, authorizing one million common shares without par value. Summers was also developing a marketing plan to familiarize investors and prospective investors with IMT. In early 1984, financed by "seed money," Summers made his first trip to Africa, England and Belgium. In a memo dated April 5, 1984, to Hobbs, Evans, McFarland and Prater, Summers described his progress with IMT marketing:
Enclosed preliminary tlx [telex] from Sierra Leone, West Africa, advising status of confirmation from ministers of Sierra Leone and Ivory Coast for adoption of the fish farming project (Tonkolili Trout is West African name given to our project).
With the week, we except [sic] confirmation from the ministers of no less than five (5) West African countries [sic] for the fish farm program. It is further anticipated that including southern Africa and West Africa We can count on at least ten (10) projects this calender year.
I plan to return to the states on o ur [sic] about 20 April.
The telex was addressed, however, to John Haigh, a business associate of Summers' who later became a board member and stockholder. The telex, sent by two of Haigh's associates, stated:
Ref. Tonkolili Trout Minister of Development in Washington but have got in touch with him so expect telex this afternoon or first thing tomorrow morning.
Also expect one more by Thursday from the Minister of Rural Development of the Ivory Coast. Hope to hear from you. Also expect some more telexes from West and Central Africa Shortly.
On a memo sent to Ron Hobbs, Summers hand wrote a personal note to him:
Ron, Sorry for the lack of communication--much work & problems, but we are underway--we (confidential) have Aqua-Culture Technologies Ltd. Jersey U.K. (offshore) organized. JS
Hobbs was bothered when he received this note. At trial, Summers, when asked why the organization of Aqua-Culture Technologies Ltd., Jersey, U.K. (ATLUK) was confidential, replied:
Summers testified that ATLUK was organized but never filed, and that there was thus no such company in existence. Hobbs, however, testified that it was Summers' intent to keep ATLUK confidential from the other IMT Board members. Hobbs informed the IMT Board and management group that ATLUK had been organized and that Summers considered it confidential information. Summers admitted to the Board that he had said that it was confidential but considered it to be of no consequence.
Summers informed Hobbs that ATLUK was established because, from past experience, there is a greater likelihood of cooperation with African business and political leaders when they can realize their financial gain in a country other than the one in which they are domiciled. Summers stated that ATLUK would be utilized to make payments to contractors and suppliers that assisted with IMT business in Africa and abroad. This matter was discussed at length at an IMT Board meeting with Summers present, but ATLUK was never actually utilized by IMT during its existence.
Soon after sending the April 5 memo, Summers sent John Haigh the following telex:
Attn: John Haigh
On Wednesday, April 18, Ron Hobbs and I will be flying to Jackson, Mississippi, for a board meeting of directors of [IMT]. We plan at this meeting to get approval to set up the international sales and marketing...
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...that J. Summers had violated his fiduciary duties and diverted corporate funds for his own use. See Aqua-Culture Techs., Ltd. v. Holly, 677 So.2d 171 (Miss.1996) (the "Holly case"). IFT specifically asked Greenberg Traurig to speak to Arthur Andersen in an attempt to keep the accounting fir......
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