Monterrey Mexican Rest. of Wise v. Leon

Decision Date17 November 2006
Docket NumberNo. A06A1314.,A06A1314.
Citation282 Ga. App. 439,638 S.E.2d 879
CourtGeorgia Court of Appeals

Michael T. Smith, Brook A. Davidson, Raymon D. Burns, Andrew, Merritt, Reilly & Smith, L.L.P., Lawrenceville, for appellants.

Ron L. Quigley, Davis, Matthews & Quigley, P.C., Atlanta, for appellee.

MIKELL, Judge.

Hector Leon brought this action against Raul Leon,1 Monterrey Restaurant of Wise, Inc. (the "Corporation"), and Jose Onate,2 by his Complaint filed August 4, 2000, and subsequently amended, alleging claims for conversion, assumpsit, and money had and received; breach of fiduciary duty by Raul and Jose; breach of fiduciary duty of fair and equitable treatment of a minority shareholder by Raul and Jose; fraud; appointment of a receiver; attorney fees under OCGA § 13-6-11; and punitive damages. Following a two-day bench trial, the trial court entered amended findings of fact, conclusions of law, and judgment (the "Amended Order"), finding that Hector's stock in the Corporation had been wrongfully converted and that he had been deprived of his shareholder interest in the Corporation as of January 1, 1999, and rendering judgment in favor of Hector in the amount of $208,324, plus prejudgment interest. The Corporation, Raul, and Jose ("appellants") appeal3 the Amended Order,4 enumerating several errors. For the reasons that follow, we affirm in part, reverse in part, and remand to the trial court with direction.

Viewed in a light most favorable to the trial court's findings, as we are required to do on appeal following a nonjury trial,5 the evidence showed the following. Raul owned interests in 57 to 65 corporations formed to run "Monterrey" Mexican restaurants. Hector and Jose both regarded Raul as their "patrone," or patron, a person who gives instructions and tells people what to do, a boss to be followed without question. Hector had known Raul from childhood and called him "Uncle," although Raul and Hector's father were actually second cousins.

From 1993 Hector worked for Raul at a number of Monterrey restaurants in various U.S. cities. In 1995, Raul sent Hector to the town of Wise, Virginia, to investigate the possibility of starting a Monterrey restaurant there. Hector, Raul, and Jose then formed the Corporation under Georgia law to operate a restaurant in Wise, with corporate records reflecting that a total of 3,000 shares were issued, 1,000 shares each to Hector, Raul, and Jose; that each shareholder had paid $1,000 for the shares; and that Hector, Raul, and Jose were the sole officers and directors of the Corporation. These corporate, tax and accounting records for the Corporation, as well as those for Raul's other corporations, were always prepared under instructions from Raul by Superior Bookkeeping, an accounting firm.

The corporate records, including the stock certificates, were not signed or executed by any officer of the Corporation. Although a stock certificate in the Corporation was completed for each shareholder, none of these certificates was dated or signed, nor was any actually issued to any of the shareholders. There was no evidence in the record that a stock register was ever maintained by this Corporation. Further, the Corporation "pretty often" received capital infusions from the owners in cash, and the owners received cash payments from the Corporation, all without receipts being given. The evidence showed that this lack of attention to corporate recordkeeping was typical for all the corporations in which Raul had an interest.

The Corporation filed state and federal corporate tax returns, made a Subchapter S election for federal tax purposes, made corporate filings required by state and local law, and conducted business with outsiders as a corporation. Until 1999, all these filings and records that referenced the stock ownership of the Corporation reflected that Hector, Raul, and Jose each held 1,000 shares in the corporation, or a one-third share. The trial court found that the Corporation was a valid corporation, and that 1,000 shares had been validly issued to Hector and fully paid for, the subscription price being $1,000.

From the formation of the Corporation, Raul was the "boss." It was Raul who owned the rights to the name "Monterrey," Raul who owned the wholesale supply company from which the restaurant obtained food and supplies, Raul who had the lease on the restaurant's premises, and Raul who made all the business decisions. Neither Hector nor Jose was well-versed in corporate formalities; nonetheless, their expectation was that each shareholder held an equal one-third interest in the corporation. Hector and Jose expected to contribute capital and to work at the restaurant; Raul, however, did not work onsite at the restaurant, but supervised the operations of all his corporations and handled business matters.

In 1996, after the Virginia restaurant had been in operation for about a year, Hector stopped working there and moved away. Later, at Raul's request, Hector worked at another restaurant controlled by Raul in Suwanee. In 1998, however, Hector left Raul's employ for good, and Raul informed Superior Bookkeeping that Hector no longer had any part in the Corporation. The corporate records were changed as of January 1, 1999, to show that Raul owned 2,000 shares, Jose owned 1,000 shares, and Hector owned zero shares. Hector learned that he was no longer a shareholder in April 1999.

The tax returns of the Corporation for 1997 and 1998 showed Subchapter S corporate profits allocated equally among Raul, Hector, and Jose; in 1999, by contrast, the income of the Corporation was allocated two-thirds to Raul and one-third to Jose. Hector never received his share of corporate profits for 1997 or 1998, nor for any year thereafter.

1. Hector's interest in the Corporation. At the outset, we must determine if the trial court erred, as contended in appellants' third enumeration of error, in finding that Hector owned one-third of the corporation. Only if Hector owned one-third of the business do we need to reach the issue of whether appellants converted Hector's stock, because a claim for conversion for corporate stock cannot be maintained by one without title.6

The trial court found that Hector owned a one-third interest in the Corporation, that Hector had paid $1,000 for these shares, and that this payment represented payment in full for the shares. Appellants assert that the trial court should have found that Hector failed to pay the $70,000 alleged to be the price of his stock in the Corporation and therefore he had no ownership interest in it.

Upon appellate review, factual findings made after a bench trial shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses. OCGA § 9-11-52(a). The clearly erroneous test is the same as the any evidence rule. Thus, an appellate court will not disturb fact findings of a trial court if there is any evidence to sustain them.7

Further, "[a]fter judgment every presumption and inference favors it and the evidence must be construed to uphold rather than to destroy it."8

Appellants contend that the trial court erred in stating that "[t]here is no evidence in the record that the shares were not fully paid for by Hector Leon the price being One Thousand Dollars." It is apparent, however, that the trial court refers here to the uncontradicted testimony of Maritza Dubroca, vice president of Superior Bookkeeping. According to her testimony, the initial start-up funds for the Corporation amounted to $30,000, which represented $10,000 from each shareholder, allocated as $1,000 for the stock subscription and $9,000 as a loan to the Corporation. The corporate records also showed that each shareholder had contributed $1,000 for 1,000 shares of stock, representing one-third of the business. These records were corroborated by financial and tax filings by the Corporation which reflected that Hector owned one-third of the Corporation. Thus, evidence in the record supports the trial court's finding that Hector owned a one-third share in the Corporation from its formation in 1995.

Although there is testimony in the record that Raul required Hector and Raul to contribute $70,000 each to the enterprise, this testimony is conflicting. Jose testified that he had contributed to the Corporation all that was expected of him; however, he had no receipts for these cash contributions and he could not state with certainty how much he had been required to contribute, although he thought it was around $70,000; nor did he have any knowledge of how much Hector was expected to contribute to the Corporation. On the other hand, Hector testified that he paid $10,000 "for the restaurant"; that he contributed a total of $37,500 to the Corporation; that he did not know how much he was required to contribute; and that Raul had never told him a specific number, but that Raul had requested "around $70,000." Hector's direct testimony contradicted his answers to appellants' interrogatories; there, he stated that the price of the shares was $70,000. As this Court has often noted, "[e]ven in the face of conflicting evidence, the trial court's judgment will be upheld as long as there is `any evidence' to uphold the lower court's determination."9

In removing Hector from shareholder status, Raul had Superior Bookkeeping prepare minutes of the Corporation for August 1998 which stated that Hector had failed to pay for his shares in full and was therefore not in compliance with the "Stock Acceptance Agreement." An unexecuted copy of this Stock Acceptance Agreement was kept among the records of the Corporation maintained by Superior Bookkeeping. The trial court specifically found that neither Hector nor Jose was aware of, nor did either sign, this Stock Acceptance...

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