Wyssbrod v. Wittjen

• Citation: 798 So.2d 352
• Decision Date: 08 February 2001
• Docket Number: No. 1999-CA-01461-SCT., No. 1999-CA-00777-SCT, No. 1999-CA-00549-SCT
• Parties: Bill WYSSBROD d/b/a W.W. Companies v. Jackson H. WITTJEN and First State Bank of Holly Springs, Mississippi. Martin Aussenberg v. Jackson H. Wittjen and First State Bank of Holly Springs, Mississippi. Omar D. Craig, Bill Wyssbrod d/b/a W.W. Companies and Martin Aussenberg v. Jackson H. Wittjen and First State Bank of Holly Springs, Mississippi.
• Court: United States State Supreme Court of Mississippi

798 So.2d 352

Bill WYSSBROD d/b/a W.W. Companies v. Jackson H. WITTJEN and First State Bank of Holly Springs, Mississippi.

Martin Aussenberg v. Jackson H. Wittjen and First State Bank of Holly Springs, Mississippi.

Omar D. Craig, Bill Wyssbrod d/b/a W.W. Companies and Martin Aussenberg v. Jackson H. Wittjen and First State Bank of Holly Springs, Mississippi.

Nos. 1999-CA-00549-SCT, 1999-CA-00777-SCT, 1999-CA-01461-SCT.

Supreme Court of Mississippi.

February 8, 2001.

James Welch, Omar D. Craig, Oxford, for Appellant.

William P. Myers, Robert P. Chamberlin, Hernando, for Appellees.

EN BANC.

SMITH, Justice, for the Court:

¶ 1. This case comes to this Court on appeal from a judgment of the Circuit Court of DeSoto County wherein Omar D. Craig and Martin Aussenberg represented Quality Pallets, Inc. and William Wyssbrod in a civil action against Jackson H. Wittjen and First State Bank of Holly Springs of DeSoto County. Circuit Judge George B. Ready sanctioned Aussenberg for failing to appear at a scheduled status hearing. The circuit court awarded attorney's fees and expenses to the defendants to be paid by Wyssbrod and Aussenberg pursuant to the Litigation Accountability Act. The trial court also found that Aussenberg and Craig were paid with corporate funds without corporate approval and ordered them to disgorge their fees. Craig, Aussenberg, and Wyssbrod have appealed to this Court, and the three appeals have been consolidated.

¶ 2. We affirm the circuit court's sanctions against Aussenberg, but reduce the award in accordance with Miss.Code Ann. § 9-1-17 (Supp.2000). We affirm the lower circuit court's award of attorney fees and expenses under the Litigation Accountability Act. But, we reverse and render the judgment against Aussenberg and Craig for disgorgement of corporate funds.

STATEMENT OF FACTS

¶ 3. In order to review the basis for the various orders and judgments appealed in this case, it is necessary to detail the complex and labored history of both the underlying case and the sanctions proceedings. The factual background in this case is as follows ¶ 4. On November 1, 1994, William Wyssbrod and Jack Wittjen entered into a pre-incorporation agreement to form Quality Pallets, Inc. ("QPI"). Wyssbrod and Wittjen were the two major shareholders of QPI, each owning fifty percent of the shares outstanding, and Wyssbrod was president of the corporation. According to the pre-incorporation agreement, QPI was to be managed by W.W. Companies, Inc. ("WWC"), a sole proprietorship owned by Wyssbrod. A bank account was maintained at First State Bank of Holly Springs on behalf of QPI.

¶ 5. The pre-incorporation agreement provided that Wittjen would "provide working capital of approximately $6,000 cash, $60,000 accounts receivable, and additional monies at his discretion, necessary to get the business started until [QPI had] its own working capital to run or [could] borrow money on its own without having to ask for the signature of Jack Wittjen." The cause of action asserted by Wyssbrod arose from Wittjen's agreement to provide working capital for the new corporation, in which Wittjen allegedly agreed to cover checks on behalf of QPI when there were insufficient funds in QPI's account at First State Bank. Wittjen initially covered bad checks written on the account, but then gave notice to Wyssbrod that he would no longer cover bad checks by letter dated May 5, 1995.

¶ 6. On June 19, 1995, Wyssbrod, individually and derivatively on behalf of QPI and WWC, filed a complaint in the Circuit Court of DeSoto County against Wittjen and First State Bank. The complaint alleged tortious breach of contract, bad faith, and interference with business relations and requested that the circuit court enjoin First State Bank from returning checks issued on QPI's account and Wittjen from refusing to fund the overdrafts.

¶ 7. On June 20, 1995, the circuit court issued the requested temporary restraining order, but because Wyssbrod failed to post the $8,000 bond, the restraining order never took effect. The restraining order was dissolved by agreement of the parties and an order entered on July 10, 1995.

¶ 8. At the time the initial complaint was filed, the plaintiffs were represented by Martin H. Aussenberg, a member of the Tennessee bar. Leigh A. Rutherford served as Mississippi counsel for the plaintiffs until November 1995, when Sidney Beck was substituted for Rutherford. Beck requested and was allowed to withdraw in January 1996, and was replaced by Omar D. Craig.

¶ 9. An amended complaint was later filed, naming QPI and WWC as plaintiffs. Wyssbrod was not listed as a plaintiff on the second complaint. On June 10, 1996, a third and final amended complaint was filed naming QPI and Wyssbrod, d/b/a WWC, as plaintiffs. Wittjen asserted a counterclaim for dissolution of QPI, and First State Bank counterclaimed against QPI and Wyssbrod for recovery of the amounts of the overdrafts.

¶ 10. On October 18, 1996, the circuit court entered a scheduling order in which it directed QPI, through Wyssbrod, to report all business transactions of QPI to Wittjen's counsel on fourteen-day intervals. By order dated January 16, 1997, the court found that Wyssbrod had failed to provide a current set of corporate records as previously ordered by the court. The court found Wyssbrod in contempt and entered sanctions against him in the amount of $1,000. The court stated that the sanctions were to be paid from Wyssbrod's personal funds and not from the funds of QPI.

¶ 11. On January 27, 1997, the court ordered that the parties and counsel appear for a status conference on January 30, 1997. On January 30, 1997, Wyssbrod filed a motion for relief from the order sanctioning Wyssbrod. Wyssbrod also filed, on that same day, a Motion to Dismiss Complaint and Counterclaims based on the filing of a bankruptcy petition by QPI that morning. The status conference was held despite the filing of the bankruptcy petition. Aussenberg did not appear at the conference. The court found that its previous sanctions against Wyssbrod were more appropriately placed on Aussenberg. The court then ordered that Aussenberg, rather than Wyssbrod, pay the $1,000 in sanctions. Pursuant to the court's order of February 18, 1997, the case was stayed pending the outcome of the bankruptcy proceedings.

¶ 12. On April 1, 1998, the bankruptcy court entered an Order and Notice of Dismissal of Adversary Proceeding of State Court Actions Removed to U.S. Bankruptcy Court and Abandonment of Property. The order dismissed the suit of QPI against Wittjen and First State Bank and assigned any remaining claims of QPI to Wittjen. The action proceeded in the circuit court in September 1998.

¶ 13. Wittjen and First State Bank filed motions for summary judgment. On January 5, 1999, the circuit court granted summary judgment in favor of Wittjen and First State Bank. The court noted that all claims of QPI against Wittjen and First State Bank were dismissed by order of the bankruptcy court. The court dismissed with prejudice all claims of Wyssbrod against Wittjen and First State Bank. The court entered judgment in favor of First State Bank on its counterclaim against Wyssbrod. The court awarded First State Bank attorney's fees and expenses pursuant to the contract between the parties and awarded the same to Wittjen pursuant to Miss.Code Ann. § 79-4-7.46 (1996), stating that the action was without reasonable cause. The court found that Wyssbrod's complaints were filed without substantial justification entitling Wittjen and First State Bank to recover attorney's fees and expenses pursuant to the Litigation Accountability Act of 1988, Miss.Code Ann. § 11-55-5(1) (Supp.2000). The court also stated that Wyssbrod had no authority to expend corporate funds to retain counsel for the benefit of the corporation or for himself individually and found that Wittjen was entitled to judgment against Wyssbrod in an amount equal to the corporate funds expended to pay attorney's fees.

¶ 14. The court held a hearing on January 19, 1999, to determine the reasonable and necessary expenses and attorney's fees incurred by Wittjen and First State Bank and to determine whether Wyssbrod's attorneys should be personally liable for any of the fees and expenses. In the resulting order of the court, the court considered each factor of Miss.Code Ann. § 11-55-7 and concluded that Wyssbrod and Aussenberg should be jointly and severally liable to First State Bank and Wittjen for attorney's fees and expenses because the Third Amended Complaint was filed without substantial justification. Fees and expenses were awarded to First State Bank in the amount of $25,724.38 and to Wittjen in the amount of $47,870.64.

¶ 15. The court also entered judgment against Wyssbrod in the amount of $43,212.75, representing the amount of corporate funds expended by Wyssbrod without corporate authority. The court held Wyssbrod jointly and severally liable to Wittjen, who had been assigned the claims of QPI by the bankruptcy court, along with Aussenberg, Craig, and Beck for the amounts received by each as attorney's fees: Aussenberg in the amount of $27,662.42, Craig in the amount of $14,550.30, and Beck in the amount of $1,000. ¶ 16. Wyssbrod, Aussenberg, and Craig timely filed notices of appeal from the final judgment of the circuit court. The appeals have been consolidated, and the issues raised by Aussenberg and Craig are set out below:

I. THE CIRCUIT COURT ERRED IN AWARDING SANCTIONS AGAINST AUSSENBERG.

II. THE CIRCUIT COURT ERRED IN AWARDING ATTORNEY'S FEES AND EXPENSES AGAINST AUSSENBERG PURSUANT TO THE LITIGATION ACCOUNTABILITY ACT.

III. THE CIRCUIT COURT ERRED IN ENTERING JUDGMENT AGAINST AUSSENBERG AND CRAIG FOR CORPORATE FUNDS PAID TO THEM AS ATTORNEY'S FEES.

Wyssbrod has filed no brief with this Court. In fact, Wyssbrod has filed a letter with this Court stating that he does not wish to file an appeal. No arguments have been made to this...