Hill v. Southeastern Floor Covering Co., Inc., 89-CA-0274

Citation596 So.2d 874
Decision Date25 March 1992
Docket NumberNo. 89-CA-0274,89-CA-0274
PartiesDanny HILL and H & H Floor Covering Company, Inc. v. SOUTHEASTERN FLOOR COVERING COMPANY, INC.
CourtUnited States State Supreme Court of Mississippi

William B. Jacob, Daniel P. Self, Jr., Joseph A. Kieronski, Jr., Self & Jacob, Meridian, for appellants.

Joe Clay Hamilton, Hamilton & Linder, Meridian, Walter J. Eades, Vaughn & Dickinson, Gulfport, for appellee.

Before DAN M. LEE, P.J., and SULLIVAN and PITTMAN, JJ.

SULLIVAN, Justice, for The Court:

Southeastern Floor Covering Company, Inc., hereinafter (Southeastern) did jobs in floor covering and ceilings for general contractors. Danny Hill was an employee of Southeastern and acted as general manager, with authority to prepare bid proposals and submit them to general contractors. In 1983, Hill worked up a bid for Southeastern for a job with Chata Construction Company for asbestos encapsulation, ceramic tile, ceiling, carpet and vinyl tile. The asbestos encapsulation bid had to be withdrawn because Southeastern was not licensed by the Environmental Protection Agency to do asbestos work.

Southeastern had used Southern Interiors, owned by Larry Barnes, which was licensed to do asbestos work, to subcontract on encapsulation projects. However, Hill did not contact Southern Interiors about subcontracting the Chata job for Southeastern, instead he contacted Southern Interiors on his own, independent of Southeastern, to work up a bid for the asbestos encapsulation job. Hill and Barnes worked up a bid and submitted it to Chata for the asbestos encapsulation. When he did this Hill was still employed by Southeastern. Hill profited by approximately $90,000.00 from the Chata job.

In 1985, a disgruntled Barnes informed Cecil Crowe, President of Southeastern, of what he and Hill had done on the Chata job. Crowe confronted Hill about diverting the Chata job for his own personal profits and then fired Hill.

On April 2, 1986, Southeastern sued Hill and his new company, H & H Floor Covering Company, Inc., and alleged that Hill was the manager of Southeastern and in a fiduciary position with them and that Hill, while so engaged, contacted Larry Barnes of Southern Interiors about bidding on the Chata project, a project that Hill should have bid for Southeastern. Hill diverted that project to Southern Interiors resulting in damages to Southeastern. Hill also set up H & H Floor Covering in competition with Southeastern in violation of his contract and diverted some of Southeastern's business to H & H Floor Covering.

Southeastern sought actual damages in the amount of $150,000.00 and punitive damages in the amount of $250,000.00. Southeastern sought to enjoin Hill from engaging in a competing business; sought to impose a constructive trust for the funds received from jobs performed in breach of contract and the fiduciary duty; and sought a complete accounting from Hill for the proceeds received from such jobs.

Hill's defense was that he discussed the Chata project with Cecil Crowe in 1983 and that Crowe was fully aware of the asbestos encapsulation arrangement with Southern Interiors. Hill contended that he did not start H & H Floor Covering until Southeastern started to wind up its business. Hill's principal defense was that of laches and that the statute of limitations had run.

At trial only two witnesses testified, Danny Hill and Cecil Crowe, both called by Southeastern. Hill testified that he worked for both Magnolia Steel Company and Southeastern, a subsidiary of Magnolia Steel Company. Hill testified that his duties were to run Southeastern, and to bid and sell jobs. Hill further stated that he was the President and owner of H & H Floor Covering and that he started doing business in 1985, at a time when he was still employed by Magnolia Steel.

Hill's version of the events of September 4, 1985, were that Cecil Crowe called him into his office, discussed Larry Barnes, Southern Interiors, the Chata project and then fired him. Throughout the trial Hill maintained that Crowe knew about his deal with Barnes when it was made in 1983. Hill received some $90,000.00 from the Chata project which he indicated that he used to pay on a debt to Crowe. 1

Cecil Crowe testified that he asked Hill if he had taken profits for his own personal use from a portion of a project which could have been Southeastern's, and when Hill did not deny it he fired him. Crowe denied knowing about the Chata project arrangement with Southern Interiors before 1985, when he was told of it by Larry Barnes. Crowe testified that Hill had full authority to run Southeastern and that he was not aware that Hill had his own floor covering company.

The chancellor believed the testimony of Cecil Crowe and did not believe the testimony of Danny Hill. The chancellor found that Hill was an employee of Southeastern and had a duty of loyalty and a fiduciary relationship with Southeastern which he breached when he joined with Larry Barnes and Southern Interiors in the Chata project bid. The chancellor further found that Hill profited through the breach to the tune of $90,000.00.

The chancellor found the defense of laches was meritless and that the statute of limitations set out in Miss.Code Ann. Sec. 15-1-29 (Supp.1991), was inapplicable as the claim was founded upon Hill's actions while an employee and not upon an unwritten contract. The chancellor declined to impose the non-competition clause of the contract because Southeastern was not then operating a floor covering business. Punitive damages, attorney's fees and a complete accounting were denied.

Hill and H & H Floor Covering appeal and assign as error the following:

1. That the actions of Danny Hill did not amount to a breach of fiduciary duty; and

2. That the trial court erred in its application of the statute of limitations, Miss.Code Ann. Sec. 15-1-29.

The overall standard for reviewing the findings of a chancellor is a familiar one and this Court will not disturb those findings unless manifestly wrong, clearly erroneous, or an erroneous legal standard was applied. Bell v. Parker, 563 So.2d 594, 597 (Miss.1990). With that in mind we turn to the assigned errors.

I. DID DANNY HILL BREACH A FIDUCIARY DUTY?

Hill occupied the position of general manager of Southeastern and was not just a mere employee. He was responsible for the day to day operations of the business and had full authority to do what he felt was best for the business. "The general manager of a corporation has general charge, direction, and control of the affairs of the company for the carrying on of which it was incorporated." As the general manager, Hill was an officer of Southeastern. 19 C.J.S. Corporations Secs. 468-471 (1990). Directors and officers have a fiduciary relationship to the corporation. Fought v. Morris, 543 So.2d 167, 171 (Miss.1989). It is undisputed that Hill was in a fiduciary relationship with Southeastern.

Hill owed to Southeastern the duty to exercise the utmost good faith and loyalty. Fought v. Morris, 543 So.2d at 171; Gibson v. Manuel, 534 So.2d 199, 201 (Miss.1988). One of the ways that the duty of good faith and loyalty may be breached is through the doctrine of corporate opportunity. This doctrine is defined as follows:

[t]he doctrine of corporate opportunity prohibits directors or officers from appropriating to themselves business opportunities which in fairness should belong to the corporation. If there is presented to a corporate director or officer a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and if embracing the opportunity will bring the self-interest of the director or officer into conflict with that of the corporation, the director or officer may not seize the opportunity for himself.

On the other hand, directors or officers may avail themselves of all opportunities lying outside the field of their duties as directors or officers. When a business opportunity comes to a corporate director or officer in an individual capacity, rather than in an official capacity, and the opportunity is not essential to the corporation, and is one in which it has no interest or expectancy, the opportunity is that of the director or officer, and not of the corporation, provided the director or officer has not wrongfully embarked the corporation's resources therein. Even if the opportunity is a corporate one, the director or officer may acquire it if the acquisition conforms to ethical standards of what is fair and equitable under the circumstances.

The particular facts and circumstances of each case must be examined to determine whether the opportunity belonged to the corporation or was one personal to the individual ...

19 C.J.S. Corporations Sec. 513 (1990).

A complaining party must show by a...

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