Lane v. Lampkin

• Decision Date: 16 September 2014
• Docket Number: No. 2013–CA–00554–COA.,2013–CA–00554–COA.
• Citation: 176 So.3d 62
• Parties: Ernest LANE, III, and Trustmark National Bank, Co–Executors of the Estate of James Oldrum Smith, Jr., Appellants v. Ronald D. LAMPKIN, Appellee.
• Court: Mississippi Court of Appeals

176 So.3d 62

Ernest LANE, III, and Trustmark National Bank, Co–Executors of the Estate of James Oldrum Smith, Jr., Appellants

v.Ronald D. LAMPKIN, Appellee.

No. 2013–CA–00554–COA.

Court of Appeals of Mississippi.

Sept. 16, 2014.

Rehearing Denied Jan. 13, 2015.

Harris H. Barnes III, Flowood, J. Williams Janoush, attorneys for appellants.

David W. Mockbee, Jackson, Landman Teller Jr., Vicksburg, David Wesley Mockbee, Jackson, Coleman McCann Mockbee, attorneys for appellee.

Opinion

CARLTON, J., for the Court.

¶ 1. This case addresses the valuation of a corporation and the related award of damages when one of the corporation's two shareholders dies and the remaining shareholder begins a new corporation to operate the same rock-supply business. In the present case, Limestone Products Incorporated had only two shareholders, Ronnie Lampkin and J.O. Smith Jr. Prior to Smith's death, Limestone operated for ten years with a line of credit personally guaranteed by both shareholders. However, upon Smith's death, his estate (the Estate) refused Lampkin's request to extend a guarantee for Limestone's credit line beyond December 2006. Due to the Estate's refusal to extend the credit line, Limestone lacked the ability to operate and to meet its obligations beyond December 2006. In January 2007, Lampkin began a new corporation, Delta Stone, which conducted the same rock-supply operations previously provided by Limestone.

¶ 2. Giving rise to the instant appeal, Lampkin filed a complaint for a declaratory judgment against Ernest Lane III and Trustmark National Bank, as co-executors (the Executors) of the Estate. Lampkin requested that the Warren County Circuit Court declare the following: that he possessed the right to independently invest in and operate a rock-supply business; that he violated no corporate fiduciary duties to Limestone; that he possessed the right to continue to sell Limestone's existing inventory; and that he possessed the right to continue to collect Limestone's accounts receivable and apply them to the corporation's debts. The circuit court transferred the matter to chancery court. The chancellor found that Lampkin breached his fiduciary duty of loyalty by usurpation of a corporate opportunity when he started Delta Stone in January 2007, which operated the same rock-supply business and served the same function as Limestone.

¶ 3. After determining liability based on Lampkin's breach of his fiduciary duty of loyalty and his usurpation of a corporate opportunity, the chancellor then addressed and awarded damages for the offending conduct. In so doing, the chancellor determined that, even after establishing a new corporation and borrowing $400,000, Lampkin continued to fulfill a contract initiated with Limestone and to ensure that the profits went to Limestone. The chancellor also determined that Lampkin credited Limestone with rock purchased or delivered to Limestone. After reviewing the evidence, including differing testimony from the parties' experts in business valuation, the chancellor awarded damages by considering Limestone's net value as of December 31, 2006, and December 31, 2007, less expenses, but with the added value of the remaining corporate assets, such as an aged front-end loader and a heating and air-conditioning unit.

¶ 4. Upon appellate review, we find that the chancellor's analysis was supported by evidence in the record. In calculating the award of damages, the chancellor relied on expert opinions and financial reports to assess the corporation's net book value and its total net income for 2008 through 2012. The chancellor determined the corporation's total net book value to be $125,546.32. Based on the information provided, the chancellor also found Limestone's average net income to be $20,914, which amounted to a total net income of $104,570 for 2008 through 2012. However, on appeal, the Executors seek lost profits instead of lost income.

¶ 5. In the court below, the Executors also sought attorneys' fees and expert-witness fees, but the chancellor denied the request for fees, finding that Lampkin acted without malice or gross negligence and did not commit fraud. The chancellor found that, even though Lampkin usurped a corporate opportunity, Lampkin believed Limestone could not operate without the line of credit. The chancellor also found credible Lampkin's testimony that the Estate refused to cooperate with guaranteeing the line of credit. The chancellor further found that Lampkin acted in the interest of Limestone by completing the corporation's contracts and accounting for its profits and debts.

¶ 6. The Executors now appeal the judgment rendered by the Warren County Chancery Court in assessing damages owed to the Estate for Lampkin's breach of fiduciary duty and usurpation of a corporate opportunity. The Executors appeal the award of damages by raising the following issues: (1) whether the chancellor erred by admitting and relying on testimony from Lampkin's expert; (2) whether the chancellor properly assessed the amount of damages due to the corporation; and (3) whether the chancellor erred by refusing to award attorneys' fees and expert-witness fees. Finding no error in the chancellor's ruling, we affirm.

FACTS

¶ 7. In 1995, Lampkin and Smith formed Limestone, which they operated on land they jointly owned in Warren County. Lampkin and Smith each owned a one-half interest in the corporation, which bought and sold rocks. Lampkin also owned Lampkin Construction, which became one of Limestone's biggest customers.

¶ 8. For ten years, Limestone operated on a line of credit personally guaranteed by both Lampkin and Smith. The line of credit was set to expire in September 2006. In August 2006, Smith died, and his stock in the corporation and his interest in the real property transferred to the Estate. Prior to the expiration of Limestone's line of credit, Lampkin secured an extension until December 8, 2006, to provide the Estate with time to determine whether it would guarantee the loan. Between September 2006 and December 2006, the parties discussed renewing the line of credit. However, the Estate failed to provide a guarantee before the deadline. Lampkin then formed a new corporation, Delta Stone, which began operating in January 2007. Delta Stone performed the same functions as Limestone, and through his new company, Lampkin completed Limestone's contracts and satisfied its debt obligations.

¶ 9. Lampkin filed a lawsuit against the Executors in Warren County Circuit Court. Lampkin asked the circuit court to find the following: (1) that Lampkin had the right to independently invest in and operate a rock-supply business; (2) that he was not in violation of his fiduciary duties as a director and officer of Limestone; (3) that he possessed the authority as an officer of Limestone to continue to sell the corporation's existing inventory, collect accounts receivable, and apply the monies received to the corporation's debt; and (4) that he should receive compensation for his actions and should be paid interest on any monetary advances made on the corporation's behalf. The Executors filed a counterclaim against Lampkin for present and future profits the corporation lost due to Lampkin's actions and for attorneys' fees. Lane, one of the co-executors, also filed a motion to transfer the matter to Warren County Chancery Court.

¶ 10. The circuit court judge entered an order finding the matter to be proper for a declaratory judgment. Further finding that the chancery court possessed proper jurisdiction over the subject matter of the declaratory-judgment action, the circuit court judge granted the motion to transfer the matter to chancery court. In an order entered by the Warren County Chancery Court, all the chancellors recused themselves from the case, and the Mississippi Supreme Court appointed a special judge to preside over the proceedings. Several of Smith's beneficiaries filed a motion to intervene in the lawsuit, which the specially appointed judge granted.

¶ 11. Lampkin filed a motion for separate trials on the issues of liability and damages. He also asked the chancellor to stay discovery on damages pending the outcome on the trial as to liability. The chancellor granted Lampkin's motion and bifurcated the trial. The chancellor held a hearing on the issue of liability in November 2009. The main issue before the chancery court was whether Lampkin breached his fiduciary duty to Limestone by usurping a corporate opportunity when he started Delta Stone. In determining whether Lampkin breached his fiduciary duty to Limestone, the chancellor considered the following: (1) whether the business opportunity was “reasonably related to the existing or prospective business activities of the corporation”; and (2) whether the corporation had the financial ability to seize the opportunity. See Aqua–Culture Tech., Ltd. v. Holly,

677 So.2d 171, 183 (Miss.1996)(Mississippi courts apply a two-part test to determine whether a party has established a prima facie case of conflict of interest arising from a business opportunity in question being a corporate opportunity).

¶ 12. In his order, the chancellor noted Lampkin's concession that the business ventures and activities of Delta Stone and Limestone were the same. The chancellor further noted that Delta Stone operated on the same property as Limestone, used the same facilities and equipment as Limestone, and sold rock to the same customers as Limestone. In determining whether Limestone had the financial ability to seize the corporate opportunity, the chancellor noted that “[t]here is no dispute amongst the parties that the bank would not renew the line of credit without the personal guarantees of both the Estate and Lampkin.” The chancellor continued:

From a review of the documentary evidence, and from listening to the testimony of the parties and their experts, the [c]ourt is not convinced that Limestone could function without the need for the line of credit. However, the [c]ourt

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