L.B. Whitfield, III Family LLC v. Whitfield

• Decision Date: 28 February 2014
• Docket Number: 1110422.
• Citation: L.B. Whitfield, III Family LLC v. Whitfield, 150 So.3d 171 (Ala. 2014)
• Parties: L.B. WHITFIELD, III FAMILY LLC v. Virginia Ann WHITFIELD et al.
• Court: Alabama Supreme Court

150 So.3d 171

L.B. WHITFIELD, III FAMILY LLC

v.Virginia Ann WHITFIELD et al.

1110422.

Supreme Court of Alabama.

Feb. 28, 2014.

C. Mark Bain of Melton, Espy & Williams, P.C., Montgomery, for appellant.

Richard H. Gill and Ashley N. Penhale of Copeland, Franco, Screws & Gill, P.A., Montgomery, for appellees.

Opinion

MURDOCK, Justice.

The L.B. Whitfield, III Family LLC (“the Family LLC”) appeals from a judgment entered by the Montgomery Circuit Court that ordered the Family LLC to wind up its affairs following its dissolution on the death of its sole member and to return 22 shares of Class A voting stock in Whitfield Foods, Inc. (“Whitfield Foods”), to Virginia Ann Whitfield, Almeida Fair Whitfield Strawder, and Valerie Lee Whitfield Puckett (“the sisters”). We affirm in part and reverse in part the judgment of the trial court.

I. Facts and Procedural History

L.B. Whitfield III (“L.B.”) was the father of the sisters and of L.B. Whitfield IV (“Louie”).¹ Whitfield Foods is a food-processing and packing company established in 1906 that has been owned by at least four generations of the Whitfield family. At the time this action was filed, Louie was vice president of administration for Whitfield Foods. He had worked for the company for 20 years and had served on its board of directors for 10 years.

According to a final order of the Montgomery Circuit Court issued in 2001 in an action against L.B.'s estate not directly related to the matter before us, L.B. owned 50% of the voting stock in Whitfield Foods; his brother, Frank Whitfield, owned the other 50% of the voting stock. Frank Whitfield died in the mid–1990s and left his stock in trust to his son. The 2001 order states that after his brother's death, L.B.

“had concerns about the [dilution] of his voting stock if it passed to his children in equal shares. On the advice of the Board of Directors [of Whitfield Foods,] the L.B. Whitfield, III, Family L.L.C., was formed in 1998. The purpose of forming the company was to preserve the voting balance between his stock and his brother's son's stock.”

The parties agree that well before the formation of the Family LLC, the sisters had come into ownership of a combined 22 shares of Class A voting stock in Whitfield Foods (“the 22 voting shares”).² Virginia owned 14 shares, Valerie owned 4 shares, and Almeida owned 4 shares. Testimony in the trial of this action revealed that the sisters obtained 11 of those shares by virtue of their grandfather giving those 11 shares to their mother; when L.B. and their mother divorced, the settlement allotted the shares to the sisters: four to Valerie Puckett, four to Almeida Strawder, and three to Virginia Whitfield. Virginia Whitfield separately had received 11 shares from the grandfather.

On April 18, 1981, L.B. and the sisters entered into a stock purchase agreement (“the 1981 agreement”) in which the sisters agreed to give their father, L.B., the 22 voting shares in exchange for receiving twice as many shares—44—of Class B nonvoting stock in Whitfield Foods. The 1981 agreement provided that after L.B.'s death, “his heirs, successors and assigns shall not, without the written consent of the other, sell any of the twenty-two (22) shares of the Voting Stock without first offering such shares to the Sisters.” It further provided that after L.B.'s death, within 90 days of “the date ten (10) years after the distribution of the Voting Stock to the person, trust or other entity entitled to receive the Voting stock from [L.B.'s] estate,” the sisters would have the right to reacquire the 22 voting shares “by giving written notice of desire to reacquire the Voting Stock” and by tendering as consideration the shares of Class B nonvoting stock the sisters held.

On August 31, 1998, L.B. visited his daughters in Mississippi and presented them with a handwritten paragraph appended to the end of a copy of the 1981 agreement (“the 1998 cancellation agreement”) that provided as follows: “All of the undersigned agree that the foregoing stock purchase agreement dated April 18, 1981 is canceled and is void effective on this date and no party has any further rights or obligations herein.” The 1998 cancellation agreement bears the signatures of L.B. and each of the sisters.

On October 7, 1998, L.B. formed the Family LLC.³ He transferred 1,283.5 shares of Class A voting stock—including the 22 voting shares—and 870 shares of Class B nonvoting stock in Whitfield Foods into the Family LLC.

The articles of organization of the Family LLC provided that it was formed to, among other purposes, “purchase, acquire, own, hold, vote, and otherwise deal with stock of Whitfield Foods, Inc., and such other property to which such stock may at any time be converted or as may become an asset of the Company,” and “to maintain property separate from member's other assets.” The articles of organization designated L.B. as the sole “initial member” of the Family LLC, and it named L.B. and Louie as the “managers” of the Family LLC. The articles of organization stated that “[t]he managers shall have the sole right to manage and conduct the business” of the Family LLC.

On the same date on which the Family LLC was formed, L.B. executed his will. The will made specific bequests of certain property and provided that the residue of L.B.'s real and personal property was to be divided in four equal shares to Louie and each of the sisters.

On August 18, 2000, L.B. died. Louie was appointed executor of L.B.'s estate in accordance with L.B.'s will. Louie thereafter took several steps in his roles as executor of L.B.'s estate and manager of the Family LLC that the Family LLC contends were part of an effort to continue the Family LLC in the wake of L.B.'s death. Those actions included: (1) obtaining an employer-identification number necessary for a multimember limited liability company; (2) opening a bank account for the dividends received on the shares of Whitfield Foods held by the Family LLC; and (3) working with accountants to establish capital accounts for himself and the sisters.

In 2003, a “Consent and Release” document was mailed to and signed by all shareholders of stock in Whitfield Foods, which approved a proposal that dividend payments would be made only in Class B nonvoting stock. The document identified the Family LLC as an owner of both Class A and Class B stock in Whitfield Foods. The sisters received and signed copies of this document.

On March 15, 2005, the sisters signed a consent to the settlement of L.B.'s estate, which provided, in part, that they acknowledged “receipt in full of the property devised to me under the Will of said decedent” and that they “accept [ed] service of notice of the filing of the petition for final settlement.” On April 13, 2005, Louie filed a petition for final settlement of L.B.'s estate, in which Louie listed the Family LLC as an asset “on hand” in the estate. On July 20, 2005, the Montgomery Circuit Court entered a “Decree on Final Settlement” of L.B.'s estate, in which it stated that “the accounting” of assets, receipts, and disbursements proffered in the petition “was accepted by the Court.”⁴ In the same order, the circuit court ruled upon a claim by L.B.'s wife at the time of his death regarding whether she was entitled to a portion of accumulated property in the estate. The order describes the dispute over this claim as “[t]he only substantive issue before the Court on Final Settlement.”

Following the closing of the estate-administration proceedings, Louie and the sisters each began receiving a 25 percent share of the dividends produced from the stock in Whitfield Foods that had been placed in the Family LCC. Those distribution checks were deposited in capital accounts that had been established for each individual. K–1 federal tax forms were issued with respect to the receipt of those dividends.

On November 26, 2007, Virginia Whitfield sent an e-mail to the president of Whitfield Foods in which she stated that “the A [stock] is in the [Family] LLC.” In 2008, Valerie Puckett telephoned Louie and requested that the Family LLC loan her $2,000. The Family LLC wired her the money, and Puckett's next distribution check from the Family LLC was adjusted down by $2,000 as repayment for the loan.

At one time, at least two of the sisters regularly attended meetings of Whitfield Foods' board of directors. Subsequently, the board of directors—including Louie—voted to bar the sisters from attending regular board meetings and to prohibit them from working for Whitfield Foods. After this vote, the only meeting the sisters were permitted to attend was the annual meeting of the board.

On May 19, 2010, July 14, 2010, and October 5, 2010, the sisters wrote letters to Louie requesting that he return the 22 voting shares to the sisters. In those letters, the sisters expressly based their request upon the 1981 agreement between L.B. and the sisters. As contemplated by that agreement, the sisters stated that they would return the shares of Class B nonvoting stock they had received from their father in exchange for the 22 voting shares. The letters did not mention the 1998 cancellation agreement purporting to void the 1981 agreement. Louie denied those requests.

On November 30, 2010, a complaint was filed in the Montgomery Circuit Court in which the Family LLC was named as the plaintiff. The complaint sought a judgment declaring that the sisters had no right to reacquire the 22 voting shares then held by the Family LLC. On December 22, 2010, the sisters filed an answer, a counterclaim against the Family LLC, and a third-party complaint against Louie as manager of the Family LLC. The sisters subsequently dismissed their third-party complaint against Louie.

The counterclaim contained five counts. First, the sisters sought a declaration that “the Sisters are entitled to have their Non–Voting Stock exchanged for Voting Stock, pursuant to the terms of the [1981] Agreement.” Second, the sisters requested that the trial court enter a preliminary...