Stallworth v. AmSouth Bank of Alabama
| Decision Date | 19 December 1997 |
| Parties | N. Jack STALLWORTH v. AmSOUTH BANK OF ALABAMA, et al. 1960326. |
| Court | Alabama Supreme Court |
Andrew P. Campbell and Charles M. Elmer of Campbell & Waller, L.L.C., Birmingham, for appellant.
Louis E. Braswell, David R. Quittmeyer, and Henry A. Callaway of Hand Arendall, L.L.C., Mobile, for appellees.
This case involves questions of corporate conduct and allegations of minority shareholder oppression and self-dealing by directors of a corporation. N. Jack Stallworth appeals from a summary judgment in favor of AmSouth Bank of Alabama, as the executor of the estates of Stella Stallworth and D.R. Stallworth, and in favor of Carroll E. Blow, Jr., Richard E. Bass, and Markel Wyatt. We affirm.
The facts of this case are as follows: Stallworth Land Company, Inc. ("the Company"), is a family-owned Alabama corporation. The appellant N. Jack Stallworth ("Stallworth") owns 8.7573% of the shares of stock in the Company, sits on its board of directors, and is a vice president of the company. When Stella Stallworth died in 1989 and D.R. Stallworth died in 1991, their two estates together included over 58% of the shares in the Company. AmSouth Bank of Alabama ("AmSouth") is the executor of those two estates, which hold the Company stock pending distribution to, or for the benefit of, family members in accordance with Stella and D.R.'s wills. Two other family members, Una Mae Stallworth and Genevieve Henley, had also died owning Company stock. First Alabama Bank and Jean Turner, who is the appellant Stallworth's sister, are co-executors of those estates. Stallworth and Turner are beneficiaries of the estate of Una Mae Stallworth. AmSouth, as executor of the estates of D.R. Stallworth and Stella Stallworth, appointed a majority of the Company's board of directors: the appellees Carroll E. Blow, Jr., Richard E. Bass, and Markel Wyatt, who are also AmSouth employees. As of May 10, 1996, the Company was structured as follows:
Stockholders: Percentage Ownership
Estate of D.R. Stallworth 31.5766%
(AmSouth, executor)
Estate of Stella Stallworth 27.1766%
(AmSouth, executor)
N. Jack Stallworth 8.7573%
Estate of Una Mae Stallworth 8.7573%
(First Alabama Bank and
Jean Turner, co-executors)
Estate of Genevieve Henley 8.7573%
(First Alabama Bank and
Jean Turner, co-executors)
Jean Turner 8.7573%
(sister of N. Jack Stallworth)
Antoinette S. Givens 6.2175%
Directors: Officers
Richard Bass Richard Bass -- president
Carroll Blow, Jr. N. Jack Stallworth -- vice president
Markel Wyatt Carroll Blow, Jr. -- vice president/
(AmSouth employees) assistant secretary
Jean Turner -- secretary/treasurer
N. Jack Stallworth Antoinette Givens -- assistant secretary
Jean Turner On February 1, 1996, AmSouth, acting as executor of the estates of D.R. Stallworth and Stella Stallworth; Blow; Bass; and Wyatt filed a complaint in the Circuit Court of Mobile County, seeking declaratory relief pursuant to § 6-6-220 et seq., Ala.Code 1975. The complaint alleged that Stallworth had requested that a special meeting of the directors of the Company be called in order to consider and act upon an option, which he claimed was exercisable by the Company pursuant to its bylaws, to acquire the stock held by the estates of deceased shareholders D.R. Stallworth, Stella Stallworth, Una Mae Stallworth, and Genevieve Henley. AmSouth and the other plaintiffs requested that the court enter a judgment declaring (1) whether the Company then had the right to exercise the alleged purchase option and (2) if the option existed, which of the parties were disqualified from voting on the matter. On February 9, 1996, Stallworth filed an answer in which he joined the plaintiffs in asking the court to resolve these issues. On March 21, 1996, Stallworth filed a counterclaim against AmSouth, both in its individual capacity and as executor of the estates of Stella Stallworth and D.R. Stallworth, and against Blow, Bass, and Wyatt. Stallworth sought damages and equitable relief derivatively on behalf of the Company and individually as a minority shareholder.
With regard to his derivative claims, Stallworth asserted generally that AmSouth, as executor of the estates of Stella Stallworth and D.R. Stallworth, controlled a majority of the outstanding shares of stock in the Company and had used that control to appoint AmSouth employees Bass, Blow, and Wyatt as a majority of the board of directors, which he said then managed the Company in such a way as to advance AmSouth's interests at the Company's expense. Stallworth made broad charges that the plaintiffs had breached fiduciary duties of care and loyalty by failing to properly manage the corporation so as to maximize profits and by providing false and misleading information to the shareholders, including him. As to how these fiduciary duties were breached, Stallworth made two specific allegations. First, Stallworth charged that, pursuant to its bylaws, the Company possessed an option to purchase the shares held by the estates of D.R. Stallworth and Stella Stallworth, but the plaintiffs, in order that AmSouth could retain control of the Company, had failed to give notice of, or to act upon, the Company's option. Second, Stallworth asserted that the plaintiffs had engaged in a conspiracy to preserve a timber management contract between the Company and AmSouth, under which, Stallworth says, the Company paid excessive fees to AmSouth. Particularly, Stallworth claimed that when the Company entered into the management contract in 1992, the agreement specified that a majority vote of the shares other than those owned by the estates of D.R. Stallworth and Stella Stallworth, which were controlled by AmSouth, could terminate the contract, with or without cause, upon 90 days' notice. However, Stallworth maintained that when the contract was up for renewal in 1995, Bass, Blow, and Wyatt, without notice to the other shareholders, directed corporate counsel to change the contract to provide that the Company could terminate the contract only by a majority vote of owners and beneficial owners of all outstanding shares.
Stallworth also sought to recover in his individual capacity through an allegation of minority shareholder oppression by the plaintiffs. Stallworth claimed he could recover individually because, he said, Bass, Blow, and Wyatt had excluded him from the management of the corporation in an effort to "squeeze" him out of the corporation. Stallworth prayed for $10 million in compensatory and punitive damages on his oppression counterclaim.
After answering Stallworth's counterclaim, and before discovery in the case, the plaintiffs filed a motion to stay discovery until the shareholders of the Company could hold a meeting to discuss a course of action and take action regarding the issues raised in the lawsuit. Despite opposition from Stallworth, the trial court issued an order staying discovery.
On May 10, 1996, a special joint meeting of the shareholders and directors of the Company was held in order to address the issues of the lawsuit. All shareholders and directors were present at the meeting, either in person or by proxy. After all of the other shareholders besides Stallworth stated for the record that Stallworth did not fairly and adequately represent the interests of the shareholders situated similarly as to him, the shareholders and directors then turned to consider the specific allegations of Stallworth's counterclaim. Each shareholder besides Stallworth voted to adopt resolutions declaring that even if the right to purchase stock from the estates of any of the deceased shareholders existed and had not lapsed, the Company should not pursue the purchase of those shares. Also, each shareholder besides Stallworth voted to adopt a resolution stating that the shareholders ratified and approved the conduct of Blow, Bass, and Wyatt in not requesting or taking any action toward purchasing those shares. The shareholders also addressed the challenged conduct relating to the Company's timber management contract with AmSouth. The shareholders approved resolutions that ratified all actions of the directors in entering into and maintaining the relationship with AmSouth under the 1992 and 1995 management contracts. Stallworth did vote to ratify entering into the contract in 1992, although he cast the only negative votes in the other ballots. However, there was also a unanimous vote authorizing the officers to revise the 1995 contract to substitute the 1992 contract termination language, which would allow termination of the contract by a majority vote of the shares other than those shares in the estates of D.R. Stallworth and Stella Stallworth, of which AmSouth was the executor.
On May 24, 1996, the plaintiffs, as counterclaim defendants, moved for a summary judgment based on the shareholder actions taken at the meeting of May 10, 1996. The motion was accompanied by a copy of a certified transcript of the meeting of shareholders and directors. The trial court entered a summary judgment against Stallworth on each of his counterclaims. The trial court concluded that judicial action on all of Stallworth's derivative and individual counterclaims was barred by the provisions of Division F of the new Alabama Business Corporation Act, § 10-2B-8.60 et seq., Ala.Code 1975, because, pursuant to § 10-2B-8.61, the shareholders had, according to the procedures outlined in § 10-2B-8.63, ratified the director conduct underlying all of Stallworth's counterclaims. The trial court also held that Stallworth lacked standing under Rule 23.1, Ala. R. Civ. P., to pursue his derivative counterclaims because, it held, Stallworth was an inadequate representative of similarly situated shareholders....
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