Worldwide Forest Products, Inc. v. Winston Holding Co., Civil Action No. 1:96CV178-A (N.D. Miss. 1/8/1999)

• Decision Date: 08 January 1999
• Docket Number: Civil Action No. 1:96CV178-A.
• Parties: WORLDWIDE FOREST PRODUCTS, INC., AND TREAT-ALL PRODUCTS, INC., PLAINTIFFS, v. WINSTON HOLDING CO., M.W. EQUIPMENT CO., DAVID WISE, MARILYN WEBB, TOM KINKAID, EDWIN GENERES d/b/a GENERES & ASSOCIATES AND BILL GARNER, DEFENDANTS.
• Court: U.S. District Court — Northern District of Mississippi

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WORLDWIDE FOREST PRODUCTS, INC., AND TREAT-ALL PRODUCTS, INC., PLAINTIFFS, v. WINSTON HOLDING CO., M.W. EQUIPMENT CO., DAVID WISE, MARILYN WEBB, TOM KINKAID, EDWIN GENERES d/b/a GENERES & ASSOCIATES AND BILL GARNER, DEFENDANTS.

Civil Action No. 1:96CV178-A.

United States District Court, N.D. Mississippi, Eastern Division.

January 8, 1999.

OPINION

After a non-jury trial in the above-styled case on November 17-19, 1997, counsel for the parties were directed to submit proposed findings of fact and conclusions of law. Having heard the testimony and reviewed the exhibits offered at trial and the post-trial submissions by the parties, the court is prepared to issue the following findings of fact and conclusions of law in accordance with the provisions of FED. R. CIV. P. 52(a).

Plaintiffs Worldwide Forest Products, Inc. ("Worldwide") and Treat-All Products, Inc. ("Treat-All") filed this action against defendants Winston Holding Company ("WHC"), M.W. Equipment Company, David Wise, Marilyn Webb, Tom Kinkaid, Edwin Generes d/b/a Generes & Associates, and Bill Garner on June 10, 1996.¹ Plaintiffs alleged twelve separate causes of action against some or all of the named defendants. Plaintiffs filed an amended complaint on January 31, 1997, which comprised ten claims against the defendants: (1) Securities fraud in violation of federal law; (2) securities fraud in violation of state law; (3) conversion; (4) fraud; (5) slander of title; (6) negligent misrepresentation; (7) breach of fiduciary duty; (8) corporate waste and mismanagement; (9) civil conspiracy; and (10) unjust enrichment. Defendants WHC and Kinkaid have asserted counterclaims against plaintiffs for breach of contract and for foreclosure on the promissory note at issue. Defendant Wise has stated the following counterclaims against the plaintiffs: (1) securities fraud in violation of federal law; (2) securities fraud in violation of state law; (3) conversion; (4) fraud; (5) defamation of character; (6) negligent misrepresentation; (7) civil conspiracy; (8) breach of contract; (9) unjust enrichment; (10) filing of false and fraudulent tax returns and failure to pay withholding taxes; and (11) malicious prosecution.

The court has jurisdiction of this action under 28 U.S.C. § 1331 in that there are federal questions raised in the pleadings, and the court has supplemental jurisdiction of the parties' state claims pursuant to 28 U.S.C. § 1367. In accordance with the provisions of 28 U.S.C. § 636(c), the parties consented to have a United States magistrate judge conduct all proceedings in this case, including an order for entry of a final judgment. This opinion and the accompanying final judgment in this case follow from that authority.

Facts

Much of this litigation centers around two real estate transactions. In 1988, Wise formed Treat-All for the sole purpose of purchasing the business of Superior Wood Products, a wood treatment plant in Louisville, Mississippi, and Wise was at various times a shareholder, officer, director and employee of Treat-All and its parent company Worldwide.² The purchase of Superior Wood Products did not include the land upon which the plant was located, however.³ Wise then conceived the idea of forming WHC to purchase the land itself, which comprised 120 acres, twenty of which consisted of a hazardous waste impoundment area.⁴ Although WHC was Wise's idea, he asked defendant Kinkaid to incorporate WHC. According to Wise, the role of WHC was to acquire the entire 120-acre tract, then convey only the 100 uncontaminated acres to Treat-All, so as to "immunize" Treat-All, Wise and the shareholders of Treat-All from liability for the costs of any environmental cleanup associated with the contaminated 20 acres.

Savings Life sold the 120 acres to WHC on December 6, 1990 for $100,000, then WHC retained the 20 contaminated acres and sold the remaining 100 acres to Treat-All in February 1991 for $775,000. A closing statement for the sale of the 100 acres signed by Kinkaid, as president of WHC, and Wise, as president of Treat-All, indicates that WHC actually received $100,000 in cash, a $362,500 real estate note secured by a deed of trust, and a stock swap valued at $312,500.00. (Ex. P-10.)

Wise entered into an employment agreement with Worldwide after it acquired Treat-All on May 1, 1991. (Ex. D-20(DW).) Pursuant to that agreement, which Wise signed on behalf of himself and as President of Worldwide, Wise was to conduct and supervise the day-to-day operations of Worldwide for a period of five years. In return, Wise was to receive a base salary of $10,000 per month, in addition to sales commissions, a stock option and other benefits. The plan was ultimately to take Worldwide public by way of a public stock offering.

Brian Sorrentino first became involved with Treat-All as a member of a group of investors Wise contacted to raise $100,000 as a down payment to WHC for the land. Sorrentino was aware that the price of the real estate was $775,000, represented by the $100,000 down payment, the stock swap and the $362,500 note, and he testified that he was well aware that he would probably not realize a return on his investment unless and until the company went public. After Worldwide acquired control of Treat-All in March of 1991, Sorrentino assisted Wise in raising approximately $2,500,000 for an initial public offering of Worldwide stock. Worldwide came to Sorrentino's attention again in September 1992 when he learned that the company had failed to provide appropriate information to NASDAQ to keep the company listed on that stock exchange. In December 1992, NASDAQ changed its market listing of Worldwide to indicate that the company was delinquent, which Wise testified caused the value of the stock to drop and the company to virtually "evaporate" within minutes. Sorrentino testified that Generes, as Chief Financial Officer of Worldwide, solicited his involvement again in January 1993 to infuse capital into the company. Finally, in late 1993, an agreement was reached whereby Sorrentino's company, International Financial Industries, would underwrite Worldwide for $1,200,000 and invest up to an additional $1,500,000 in return for a controlling interest in the company and additional consideration. (Ex. D-61(DW).) The agreement was designated "engagement letter." Sorrentino effectively assumed control of Worldwide with the execution of that agreement in November 1993, although Wise retained a non-managerial ownership interest in the company after a reverse stock split. Wise also remained entitled to $4000 per month in salary, plus expenses of $50 per day pursuant to the engagement letter.

Wise later entered yet another employment agreement with Worldwide effective July 1, 1994. (Ex. D-79(DW).) Pursuant to that agreement, Wise became Chief Operating Officer, General Manager and Secretary of the Board of Directors for Worldwide, and he was to receive a $36,000 annual salary, plus incentives. Worldwide also agreed to reimburse Wise for "out-of-pocket" expenses from time to time.

Wise's employment relationship with Worldwide was terminated pursuant to an agreement dated September 30, 1994 and executed by Wise and Sorrentino. (Ex. D-90(DW).) The agreement, often referred to at trial as the "settlement agreement," recited that "the controlling interests on the Board of Directors and Wise have come to odds over conflicts in management style," and it operated as a settlement of the amounts due Wise and Worldwide pursuant to the engagement letter and the July 1, 1994 employment agreement. Upon the payment of monies, Wise agreed, inter alia, to the mutual termination of his employment agreement, to sell certain personal property to Worldwide, and to cancellation of a 1993 promissory note from Worldwide in favor of Wise.

PLAINTIFFS' CLAIMS

Slander of Title

Plaintiffs contend that defendants "falsely and maliciously, through the use of slanderous words, encumbered and disparaged the title of Treat-All to the land upon which the wood treatment plant is located [when they] filed for record an instrument they know to be false and inoperative." (Amended Complaint, ¶¶ 86-87.) "The malicious filing for record of an instrument known to be inoperative, and which disparages the title of land, is a false and malicious statement for which damages may be recovered." Dethlefs v. Beau Maison Development Corp., 511 So. 2d 112, 117 (Miss. 1987) (citation omitted). However, actions for slander of title must be brought within one year of discovery of the offense, and defendants have raised the statute of limitations as a bar to this claim. MISS. CODE ANN. § 15-1-35 (1995); Stubblefield v. Walker, 566 So. 2d 709, 711 (Miss. 1990). Plaintiffs' slander of title claim arises from the 1991 real estate transaction whereby Treat-All acquired the 100-acre tract from WHC for $775,000. The only instrument of record to which plaintiffs can point as being slanderous of the title to the 100 acres is the deed of trust, (Ex. P-12), filed in the office of the Winston County Chancery Clerk on May 7, 1991.⁵

Plaintiffs correctly contend that the statute of limitations was tolled until plaintiffs discovered or through the exercise of reasonable diligence should have discovered defendants' tortious conduct. Plaintiffs have not shown to the court that Worldwide and Treat-All, as individual entities, could not have discovered the alleged claim based upon the conduct of Wise while Wise was in control of the companies. Even if they could not have done so, however, once Sorrentino assumed control of Worldwide in late 1993 he was certainly in a position to determine whether the deed of trust was slanderous. Plaintiffs, in their own proposed findings of fact and conclusions of law, acknowledge that Sorrentino discovered the alleged real estate fraud at least by 1994 during the course of audits of Worldwide books when auditors discovered that no payments had ever been made on the note. Because...