Bobby Lee Chain Jr., in his Capacity as the Executor of the Estate of Betty Chain, Deceased v. Ormonde Plantation Inc., Charles T. Finnegan, Kenny Duff Jr., and Alben N. Hopkins ( 2020 )

IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI
NO. 2017-CA-01733-COA
BOBBY LEE CHAIN JR., IN HIS CAPACITY AS APPELLANT
THE EXECUTOR OF THE ESTATE OF BETTY
CHAIN, DECEASED
v.
ORMONDE PLANTATION INC., CHARLES T. APPELLEES
FINNEGAN, KENNY DUFF JR., AND ALBEN N.
HOPKINS
DATE OF JUDGMENT: 11/08/2017
TRIAL JUDGE: HON. E. VINCENT DAVIS
COURT FROM WHICH APPEALED: ADAMS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: SAMUEL S. McHARD
PAUL MARION ANDERSON
ATTORNEYS FOR APPELLEES: ROBERT T. SCHWARTZ
CHRISTIAN J. STRICKLAND
EDGAR HYDE CARBY
NATURE OF THE CASE: CIVIL - REAL PROPERTY
DISPOSITION: REVERSED AND REMANDED - 03/31/2020
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE BARNES, C.J., WESTBROOKS AND LAWRENCE, JJ.
BARNES, C.J., FOR THE COURT:
¶1. Betty Chain (Chain) filed a complaint in the Adams County Chancery Court against
Ormonde Plantation Inc. (Ormonde), a closely-held Mississippi corporation, and the
majority shareholders of Ormonde: Charles T. Finnegan, Kenny Duff Jr., and Alben N.
Hopkins. She filed the action to judicially dissolve the corporation, asserting related claims
of conspiracy and requesting partition and a declaratory judgment. Chain’s husband, Bobby
L. Chain, had been a shareholder, but after he passed away, she became the successor-in-
interest to his share. The primary asset Ormonde owned was a tract of real property in
Adams County utilized for recreation and hunting.
¶2. The complaint arose when Chain desired to sell her share of Ormonde contrary to the
procedure described in the Shareholders’ Agreement (Agreement). Chain sued to dissolve
the corporation because she alleged the Agreement regarding the buyout of her share was
oppressive. In response, Ormonde filed a motion to dismiss the complaint based on
numerous arguments. The chancery court granted the motion, and Chain appealed. Chain
subsequently passed away during the pendency of this appeal, and this Court ordered that
Bobby Lee Chain Jr. (Chain Jr.) be substituted as a party. We find that the complaint stated
a claim that the Agreement was oppressive as applied. Accordingly, we reverse and remand
for proceedings consistent with this opinion.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
¶3. Ormonde was incorporated in 1987 and has been operating as a hunting, fishing, and
recreational organization used by shareholders and their guests. The primary asset Ormonde
owned was a tract of real property consisting of 1,841 acres located in Adams County,
Mississippi. In 1999, the then shareholders of Ormonde, including Chain’s predecessor-in-
interest, Bobby L. Chain, executed the Agreement and agreed to abide by the corporate
bylaws (Bylaws).
¶4. In 2014, Bobby L. Chain passed away, and his wife acquired his interest in Ormonde.
At the time, the corporation was held by four shareholders, each having a twenty-five
percent interest in the corporation: Chain, Finnegan, Duff, and Hopkins. It is undisputed
2
Chain was not a direct owner of the property or a tenant in common, and she never saw or
read the executed Agreement. On March 2, 2017, Chain sent a letter to Ormonde’s
president, Finnegan, requesting that her letter be accepted as “notice of [her] intention and
an effort to fairly resolve [her] stock interest in Ormonde Plantation, Inc.” She requested
that the shareholders agree to an appraisal of the property so that she could receive fair
compensation for her twenty-five percent share due to her failing health. Chain wrote:
I want to request that the shareholders agree on an appraiser, that a proper
appraisal be done of the property, and that I am paid accordingly. The current
method used to determine the value is totally subjective, without validation,
and unfair. After thirty years, it is time to have a proper appraisal done so that
each shareholder can know the true value of the land. This appraisal will
either confirm or change the value determined by the current method, and the
value confirmed by properly recognized methods should stand.
¶5. On March 14, 2017, the majority shareholders advised Chain via telephone that there
would be a “regular” shareholders meeting held seven days later on March 21, 2017.1 This
was not an annual meeting.2
¶6. On March 21, 2017, a “regular” shareholders’ meeting was held, and Chain’s letter
was discussed. Minutes of the meeting reflect that Chain’s son, Chain Jr., stopped by the
meeting before it began to discuss matters pertaining to his mother. Chain Jr. stated he
advised the shareholders that his mother had received a purchase offer of $1.5 million for
her one-quarter share of Ormonde property. Under the Agreement, however, if Chain
1
Chain contends that this notice violated the ten-day notice requirement in the
Bylaws for special meetings, but this meeting was deemed “regular”; and in any event, the
notice requirement for annual and special meetings can be waived under the Bylaws.
2
The Bylaws state that the “regular annual meeting of the shareholders” is held on
the fourth Tuesday of April each year, but the Bylaws state that the date may be changed.
3
wanted to dispose or sell her share of Ormonde, she had to first offer to sell it to the other
shareholders at the price they set at their last annual meeting. Pertinent parts of the
Agreement are the following paragraphs:
1. No Shareholder (or the estate of any deceased Shareholder) may
transfer, encumber or dispose of any of the shares of stock in the Corporation
except upon the terms and conditions herein set forth. The restrictions
imposed by this Agreement shall apply to all shares owned by any present or
future Shareholder even though said shares may be acquired after the date
hereof.
....
3. If a Shareholder should desire to dispose of his share of stock in the
Corporation during his lifetime, he shall first offer to sell the share to the
Corporation at the price determined in accordance with paragraph 7 hereof.
Notice of his desire to sell shall be given to the Corporation by the
Shareholder, in writing. The Corporation shall have ninety (90) days in which
to exercise their option to purchase said share. Each Shareholder hereby binds
himself (or herself) to vote his share of stock to cause the Corporation to
purchase (redeem) the stock so offered . . . .
....
5. In the event of the death of any Shareholder, it is agreed that the
legatee, heir, estate, or legal representative of said deceased Shareholder shall
have the option to sell the deceased Shareholder’s share of stock to the
Corporation at the price determined in accordance with paragraph 7 hereof for
the predetermined value . . . .
....
7. The method of determining the price of a share of stock to be
purchased pursuant to the terms of this Agreement shall be as follows:
7.1. The Corporation, at its annual meeting, shall require each shareholder
to provide by a signed and dated secret ballot a price which each respective
shareholder believes to be the value of one share of stock for the following
twelve (12) months, (unless amended at a duly called meeting of the
Shareholders). Upon receiving the values of each of the Shareholders, the
4
Secretary of the Corporation shall present to the Shareholders the amount of
each value submitted, then shall remove the highest and lowest of the values
from the amounts submitted by each Shareholder, and then averaging the
remaining values, with the resulting total being the price for a share of stock
for the following twelve (12) months for the purposes set forth in this
Shareholders Agreement.
The other shareholders claimed the $1.5 million was “more than it was worth,” and they
refused to permit Chain’s acceptance of the offer, which was then withdrawn. Instead, the
shareholders allegedly performed an evaluation of the stock under the procedure of the
Bylaws and Agreement. The shareholders determined the future value of the stock to be
$900,000. Although the other shareholders claimed the valuation was done according to the
Agreement’s procedures, they do not state the amount was set at a prior annual meeting for
the entire year; instead, the amount appears to have been set just to deal with Chain’s sale.
¶7. Next, Chain’s letter and her buyout request were discussed. The shareholders agreed
that the buyout was governed by the Bylaws and Agreement. The minutes quoted the
pertinent part of paragraph three of the Agreement, which provided that if the shareholder
desired to sell his share of stock, he should first offer to sell it to the corporation at the price
determined by paragraph seven. The minutes stated that “[a]fter thorough discussion, it was
unanimously agreed that Ormonde had no alternative but to follow the rules and regulations
with regard to the evaluation and buyout requirements” established under the Bylaws and
Agreement. The shareholders determined the buyout price for Chain’s share was $900,000.3
3
Chain alleges in her complaint that since the death of her husband, the three other
shareholders have regularly discussed Ormonde business outside of shareholder meetings
and vote identical amounts on “low-ball” estimates for the value of the stock.
Ormonde complains that due to monetary greed, Chain is attempting “to usurp a valid
5
On March 23, 2017, Ormonde’s corporate secretary, Hopkins, sent Chain and the two other
shareholders a cover letter attaching the minutes of the March 21 shareholders’ meeting.
Ormonde contends this mailing gave Chain notice of its intent to purchase her stock.
¶8. On May 1, 2017, Chain sued Ormonde and its majority shareholders for corporate
dissolution, conspiracy, partition, and a declaratory judgment finding the Agreement void.
Attached to the complaint was the Agreement, Bylaws, a boundary-line agreement, the
March 2, 2017 letter from Chain to Ormonde’s president, and the March 21 minutes. Chain
alleged that the shareholders violated their fiduciary duties by illegally and fraudulently
oppressing Chain as a minority shareholder in violation of the Business Corporation Act’s
section on judicial dissolution of a corporation, Mississippi Code Annotated section 79-4-
14.30(a)(2)(ii) (Rev. 2013), “in a blatant attempt to improperly squeeze out/freeze out
Betty.” Chain also alleged damages as a result of the shareholders conspiring against her,
and she requested the court to partition the property as a result of their misconduct. Finally,
Chain requested a declaratory judgment stating the Agreement is void.
¶9. In June 2017, Ormonde answered the complaint and filed a motion to dismiss,
claiming Chain’s complaint must be dismissed because of an improper summons and
complaint, lack of standing to pursue a partition suit as well as the other claims, and failure
to state a claim for conspiracy. Additionally, Ormonde argued Chain’s claims were barred
by Mississippi Code Annotated section 79-4-14.34 (Rev. 2013), the statute governing
shareholders’ agreement signed by her late husband in an attempt to obtain additional
monies from the remaining shareholders to which she is not entitled.” Ormonde claims
Chain would rather sell her share to a stranger in order to benefit financially than abide by
the Agreement.
6
election to purchase shares in lieu of dissolution; the existing Agreement; and the statute of
limitations, waiver, laches, and the manifest assent of Chain or Chain’s husband. The three
majority shareholders joined Ormonde’s motion. Chain responded to the motion, and a
hearing was held. The chancery court granted the motion to dismiss as to all of Chain’s
claims. Among other matters, the court found Chain’s requests for declaratory relief and
dissolution of a corporation were statutorily precluded by section 79-4-14.34 and Mississippi
Code Annotated section 79-4-6.27 (Rev. 2013) (governing buyouts at fair value of shares
and restriction on transfer of shares), applicable law, and the Agreement, to which all the
shareholders were bound. Chain appealed,4 raising seventeen issues. However, we address
only the dissolution-of-a-corporation claim, upon which all of Chain’s other claims are
contingent.
STANDARD OF REVIEW
¶10. A motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Mississippi
Rules of Civil Procedure tests the legal sufficiency of the complaint. An appellate court
reviews such matters of law under the de novo standard. Rose v. Tullos, 994 So. 2d 734,
737 (¶11) (Miss. 2008). When considering a motion to dismiss, “[t]he allegations in the
complaint must be taken as true, and there must be no set of facts that would allow the
plaintiff to prevail.” Id. The appellate court need “not defer to the trial court’s ruling.” Id.ANALYSIS
4
The Appellees filed a suggestion of death, stating that Betty Chain passed away in
December 2018. Chain Jr. moved to be substituted as a party in his capacity as the executor
of his mother’s estate, and this Court granted the motion.
7
¶11. Chain’s claim for dissolution of a corporation arises under section 79-4-
14.30(a)(2)(ii), which provides that a court may dissolve a corporation if it is established that
“the directors or those in control of the corporation have acted, are acting, or will act in a
manner that is illegal, oppressive or fraudulent.” Once a shareholder has requested judicial
dissolution of a corporation, “the corporation or other existing shareholders ‘may elect to
purchase all shares owned by the petitioning shareholder at the fair value of the shares,’ in
lieu of dissolution.” In re Hardin, 158 So. 3d 341, 345 (¶14) (Miss. Ct. App. 2014) (quoting
Miss. Code Ann. § 79-4-14.34(a)). “If the parties cannot reach an agreement as to the fair
value of the shares to be purchased, the court, upon application of any party, shall stay the
proceedings and make a determination as to the fair value of the petitioner’s shares.” Id. at
345-46 (¶14) (emphasis added) (citing Miss. Code Ann. § 79-4-14.34(d)). Section 79-4-
6.27(d) governs the restrictions on the transfer of shares made by articles of incorporation,
bylaws, or shareholder agreements. Shareholders may include a requirement that the
corporation or shareholders must “approve the transfer of restricted shares, if the
requirement is not manifestly unreasonable.” Miss. Code Ann. § 79-4-6.27(d)(3).
¶12. Chain’s complaint contends the three other shareholders “violated their fiduciary
duties, oppressed [Chain] as a minority shareholder, and acted in a manner that [was] illegal,
oppressive, and/or fraudulent in violation of [section] 79-4-14.30 in a blatant attempt to
improperly squeeze out/freeze out [Chain].” She contends that the other shareholders did
not execute secret ballots but gave identical “lowball guestimates” of the value. On appeal,
Chain explains that the majority shareholders forced the sale of Chain’s share based upon
8
the Agreement, which is unfair and unreasonable. She claims the Agreement’s restrictive
provisions for the transfer of stock are “manifestly unreasonable” and contrary to section 79-
4-6.27(d)(3), thereby enforcing an “inadequate valuation of close-corporation stock.”
¶13. In granting the dismissal of this claim and the other claims, however, the chancery
court was not convinced that the other three shareholders had acted in a manner that was
fraudulent or oppressive. The chancery court opined that it even if Chain could prove these
allegations, the actions were permissible under section 79-4-14.34, allowing the remaining
shareholders to purchase shares at a “fair value” instead of dissolution. Additionally, the
chancery court found Ormonde properly elected to purchase Chain’s shares under the
restrictions of the Agreement, in accordance with section 79-4-6.27. The court found that
Chain’s March 2, 2017 letter showed she had knowledge of these restrictions for the transfer
of shares and that the Agreement controlled. However, the court did not provide any further
analysis of the matter. In support of dismissing this claim, the court cited Martindale v.
Hortman, Harlow, Bassi, Robinson & McDaniel PLLC, 119 So. 3d 338, 340 (¶1) (Miss. Ct.
App. 2012), where a law firm was buying out an expelled member’s shares. In that case, the
PLLC’s operating agreement included a formula that set the value of each members share
in the firm according to the percentage owned. Under the terms of this agreement, the
departing member was offered $19,800 for his shares. Id. However, he complained that the
amount was unjust because it did not reflect his fair share of the law firm. Id. at (¶3). The
firm filed for declaratory relief, claiming they had satisfied their contractual obligations to
the expelled member. Id. at (¶4). The chancellor granted partial summary judgment in the
9
firm’s favor for this claim, finding the price as calculated under the agreement controlled,
and this Court affirmed. Id. at (¶1). Martindale, however, is inapplicable here because it
was not a case about dissolving a corporation where, if oppression is proved, the “fair value”
of the shares must be established. In fact, the chancery court did not discuss how Martindale
applied to this case or the supposed reasonableness of the Agreement under Fayard v.
Fayard, 293 So. 2d 421, 423-24 (Miss. 1974).
¶14. Chain makes several arguments on appeal related to the dismissal of her dissolution-
of-corporation claim. She argues the chancery court misinterpreted section 79-4-14.34(a);
Ormonde’s March 23, 2017 letter did not constitute an election to purchase Chain’s shares
or bar her claim; Chain’s complaint was not barred by the Agreement; and the Agreement’s
transfer of share restrictions were unreasonable. We find her complaint properly states a
claim for dissolution of the corporation under section 79-4-14.30(a)(2)(ii) because the terms
were oppressive to Chain. The other shareholders offered her only $900,000 for her share,
when she allegedly had been offered $1.5 million by an outsider, and there is a question of
fact whether the price had been previously set at an annual meeting by secret ballot. Chain
further alleges that the other shareholders colluded to set an unreasonably low price for her
shares.
¶15. Closely held corporations “frequently originate in the context of relationships
personal in nature, often undertaken by family members or friends,” as is the case here.
Fought v. Morris, 543 So. 2d 167, 171 (Miss. 1989). The supreme court has stated that it
is particularly important for majority shareholders in a closely held corporation to adhere to
10
their fiduciary duty with respect to the minority shareholders, who have an acute
vulnerability in such a corporation. Id.; see also 1A Fletcher Cyc. Corp. § 70.10, Westlaw
(database updated Sept. 2019) (“[S]hareholders in a close corporation stand in a fiduciary
relationship to each other.”); 12B Fletcher Cyc. Corp. § 5810, Westlaw (database updated
Sept. 2019) (“The shareholders of a close corporation may be subject to a particularly
rigorous fiduciary standard . . . .”). “[T]he law requires that [in a closely-held corporation,]
the majority’s action[s] be ‘intrinsically fair’ to the minority interest.” Fought, 543 So. 2d
at 170; Investor Resource Servs. Inc. v. Cato, 15 So. 3d 412, 422 (¶26) (Miss. 2009)
(majority’s actions must be intrinsically fair to minority). “[E]nhanced fiduciary duty has
been applied in . . . the few states that do[] not list oppression or similar grounds for
dissolution . . . [as] a way of addressing the dilemma of minority shareholders in a close
corporation.” 2 F. Hodge O’Neal and Robert B. Thompson, Close Corp and LLCs: Law and
Practice, § 9.21 (3d ed. 2018), Westlaw (database updated July 2019). Indeed, there is a
growing recognition of enhanced fiduciary duty in closely held corporations. Id. A
common-law claim for fiduciary duty is similar to a statutory claim of oppression. Id. Here,
Chain pleaded in her complaint the common-law claim of breach of fiduciary duty. See
Scafidi v. Hille, 180 So. 3d 634, 654 (¶¶68-69) (Miss. 2015) (breach of fiduciary duty claim
in closely-held corporation found sufficient even though such claim was not named in
complaint).
¶16. The dissent claims Chain fails to state a claim upon which relief can be granted
because shareholders do not have a right to the fair market value of shares and because the
11
failure to receive such does not constitute an unreasonable restriction on the sale of the
stock. While we do not disagree with the dissent that the Agreement may be valid on its
face, Chain states a claim because the Agreement may be invalid as applied due to
oppressive or fraudulent conduct, in which case she would be entitled to the fair value under
section 79-4-14.34. It is too early in the litigation process to determine. Additional facts
through discovery need to be examined before a determination as to the merit of her claims
is made.
¶17. Even if setting the property’s value by the manner of the Agreement is intrinsically
fair and not unreasonable, there could still be a question of fact about whether the valuation
procedure was performed in good faith. For example, the Bylaws state the corporate annual
meeting is to be held in April of each year but may be changed. The meeting on March 21
was obviously not an annual meeting but held in response to Chain’s March 2 letter
requesting an appraisal of the property. The March 21 minutes show the majority
shareholders allegedly performed the share evaluation according to the provisions of the
Agreement. However, there is nothing in the record to show whether an evaluation of shares
was performed for the previous year and what that valuation was. Discovery may show the
valuation was not done by secret ballot or set for the entire year. These are all questions of
fact that are sufficient to show the valuation may not have been in accordance with the
Agreement and give rise to a claim for breach of fiduciary duty to the minority shareholders.
¶18. In this instance, the Agreement, as written, is not necessarily oppressive; however,
Chain’s complaint alleges, in effect, that it was oppressive as applied to her. She alleges that
12
the ballots were not secret and that the value was set just for Chain’s situation and was not
set at an annual meeting. Accordingly, Chain alleged a proper cause of action for the
dissolution of a corporation under section 79-4-14.30(a)(2)(ii). However, we make no
determination about the success of Chain’s claim. The “fair value” of the shares under the
Agreement is a question of fact. The chancery court apparently assumed that “fair value”
would mean the value as set in paragraph seven of the Agreement; however, in order to
reach the point where the fair value would be relevant, Chain will have to prove—not just
state a claim—that the amount set was oppressive. Therefore, it would not be a valid
statement of “fair value.”
¶19. In a factually similar case, the Mississippi Supreme Court has held that a stock
transfer restriction was unenforceable because it was “grossly inadequate consideration” in
Mathews Brake Hunting & Fishing Club Inc. v. Sneed, 475 So. 2d 811, 813 (Miss. 1985).
There, a small corporation was formed for the purpose of acquiring land and operating a
hunting and fishing club for the corporation’s twelve shareholders and their guests. Id. at
812. Four years after the corporation was formed, the corporate bylaws were amended to
include a stock restriction that stated, upon a shareholder’s death, his or her shares would
be surrendered to the corporation in exchange for the “book value,” which was the value
determined by shareholder vote at the annual meeting. Id. The amendment was adopted by
a unanimous vote of the shareholders present; however, Dr. Woodford Sneed, a charter
member, was not present. Id. Upon Sneed’s death years later, the corporation offered his
estate’s executor the book value of the shares, or $4,132.89. Id. The estate refused the
13
offer, citing the dramatic increase in the land’s value. Id. at 812-13. The corporation sued
for specific performance under the bylaws for surrender of the stock for the book value. Id.
at 812. At trial, Sneed’s estate offered uncontradicted expert witness testimony that the
“duck-hunting land had appreciated dramatically in recent years due to ‘tremendous
demand,’” and Sneed’s share would be worth $45,325. Id. at 812-13. The chancellor held
for Sneed, stating that “the bylaw in question had been invalidly adopted and could not be
enforced under any contractual theory because the agreed-upon price constituted grossly
inadequate consideration.” Id. at 813.
¶20. Similarly, here the $600,000 difference between the majority shareholders’ valuation
of Chain’s one-quarter interest in Ormonde and the $1.5 million offer Chain allegedly
received could be considered “grossly inadequate consideration”; however, Chain had no
opportunity to present expert testimony as to the property’s objective value due to the
dismissal. Accordingly, Chain should be allowed to present such testimony so the finder of
fact can decide whether the majority shareholders offered “grossly inadequate
consideration.”
¶21. Because Chain’s claim for the tort of conspiracy stems from whether there was any
injury from the oppression, it should not be dismissed—nor should the possibility of
partition due to alleged wrongdoing on the part of the shareholders. Finally, regarding a
declaratory judgment to void the Agreement and other matters, whether the Agreement, as
applied, is oppressive is a question of fact for the chancery court to decide. For these
reasons, we reverse the dismissal of Chain’s complaint and remand to the chancery court for
14
further proceedings consistent with this opinion.
¶22. REVERSED AND REMANDED.
J. WILSON, P.J., GREENLEE, WESTBROOKS AND LAWRENCE, JJ.,
CONCUR. C. WILSON, J., CONCURS IN PART AND IN THE RESULT
WITHOUT SEPARATE WRITTEN OPINION. McDONALD, J., DISSENTS
WITHOUT SEPARATE WRITTEN OPINION. CARLTON, P.J., DISSENTS WITH
SEPARATE WRITTEN OPINION, JOINED BY TINDELL, McDONALD AND
McCARTY, JJ.
CARLTON, P.J., DISSENTING:
¶23. I would affirm the chancery court’s decision dismissing Chain’s complaint for failure
to state a claim upon which relief can be granted.5 Chain claims in her complaint that the
restriction at issue in the Shareholders’ Agreement (Agreement) is manifestly unreasonable
because it is allegedly a total restriction against a fair market sale to oppress minority
shareholders contrary to minority shareholders’ rights. However, the complaint fails to
allege a claim upon which relief can be granted because shareholders do not have a right to
a fair market sale. Statutory law and precedent reflect that the failure to receive fair market
5
The standard of review regarding a motion for dismissal under Mississippi Rule of
Civil Procedure 12(b)(6) is as follows:
A motion for dismissal under Miss. R. Civ. P. 12(b)(6) raises an issue of
law. . . . When considering a motion to dismiss, the allegations of the
complaint must be taken as true and the motion should not be granted unless
it appears beyond reasonable doubt that the plaintiff will be unable to prove
any set of facts in support of her claim. . . . In reviewing the grant of a motion
to dismiss, this Court conducts a de novo review.
Liggans v. Coahoma Cty. Sheriff’s Dep’t, 823 So. 2d 1152, 1154 (¶5) (Miss. 2002).
“Conclusory allegations or legal conclusions masquerading as factual conclusions will not
suffice to defeat a motion to dismiss.” Cmty. Hosp. of Jackson v. Goodlett ex rel. Goodlett,
968 So. 2d 391, 396 (¶9) (Miss. 2007), overruled on other grounds by Wimley v. Reid, 991
So. 2d 135, 138 (¶16) (Miss. 2008).
15
value under a shareholders’ agreement does not constitute a manifestly unreasonable
restriction or price. Chain does not allege that the amount the other shareholders paid her for
her shares was below book value or lesser than that amount originally paid by her deceased
husband from whom she inherited her shares. As such, even if Chain could show
“oppressive” conduct on the part of the other shareholders with respect to her petition for
dissolution of the corporation, see Miss. Code Ann. § 79-4-14.30(a)(2)(ii), she cannot show
any damages attributable to such conduct because section 79-4-14.34 allows “one or more
[remaining] shareholders [to] elect to purchase all shares owned by the petitioning
shareholder at the fair value of the shares.”
¶24. Restrictions on the transfers of share are permissible and enforceable and are allowed
by Mississippi statute. See Miss. Code Ann. § 79-4-6.27(a) (“The articles of incorporation,
bylaws, an agreement among shareholders or an agreement between shareholders and the
corporation may impose restrictions on the transfer or registration of transfer of shares of the
corporation. . . .”); Id. § 79-4-6.27(d) (“A restriction on the transfer or registration of transfer
of shares may . . . [o]bligate the shareholder first to offer the corporation or other persons
(separately, consecutively or simultaneously) an opportunity to acquire the restricted
shares”); see also West v. West, 88 So. 3d 735, 738 (¶2) (Miss. 2012) (“We hold today that
statutory restrictions on the transfer of restricted shares of corporate stock apply to both
voluntary and involuntary transfers of the shares[.]” (citation omitted)).
¶25. The restrictions in this case were clearly identified in the Agreement and were not
16
shown to be manifestly unreasonable.6 The record reflects, and the chancery court found,
that Chain’s March 2, 2017 letter showed that she had knowledge of the restrictions on the
transfer of the shares. Further, as noted, nowhere in her complaint does Chain allege that
the amount the other shareholders paid her for her shares was below book value or lesser
than that amount originally paid by her deceased husband from whom she inherited her
shares. She merely claims that she unfairly received less from the members than what she
could have received from a third party.
¶26. In analyzing this issue, the chancery court discussed Martindale v. Harlow, Bassi,
Robinson & McDaniel PLLC, 119 So. 3d 338 (Miss. Ct. App. 2012), a case in which this
Court addressed a similar situation where a disqualified member (Martindale) of a
professional limited liability company claimed that he was offered an unfair price for his
share in the law firm. Id. at 340-41 (¶¶3-5). By law, a PLLC must acquire the membership
interests of disqualified members. Id. at 345 (¶20). In its opinion, the chancery court
observed:
Like Betty Chain, Martindale argued that the other members violated their
duty of intrinsic fairness to him. The Court of Appeals held that “[i]f a price
for the membership interest is established in accordance with the certificate
of formation or written operating agreement or by private agreement, that
price controls.” [Martindale, 119 So. 3d at 345 (citations omitted) (emphasis
added). “Because [the firm] could not have acted in bad faith by exercising
a contractual right, we find the firm did not breach its implied duty of good
faith and fair dealing under the operating agreement.” Id.(Emphasis added by the chancery court). Applying the same reasoning in Chain’s case, the
6
See Miss. Code Ann. § 79-4-6.27(d)(1)-(4); 3 Jeffrey Jackson et al., Encyclopedia
of Mississippi Law § 22:83, at 615 (2d ed. 2016).
17
chancery court found that with respect to Chain, the terms of the Agreement controlled, and
there was no merit in her breach-of-fiduciary-duty allegations against the other members.
The chancery court therefore found that “Betty Chain’s claim seeking the dissolution of the
corporation and seeking a declaration that the Agreement is void should be dismissed.” I
find no error in this determination.
¶27. The chancery court also found that Chain’s complaint was barred by the plain terms
of the Agreement, which the chancery court found was a valid and enforceable contract. As
her deceased husband’s successor-in-interest, Chain was bound by the Agreement as a
matter of law. See In re Estate of Harris, 840 So. 2d 742, 747 (¶28) (Miss. Ct. App. 2003)
(Successors-in-interest “are bound by the terms of the agreement just as [their predecessor]
would have been had he been still alive.”); see also Ballard v. Commercial Bank of DeKalb,
991 So. 2d 1201, 1206 (¶24) (Miss. 2008) (A party “is bound as a matter of law by what he
signed.”). I find no error in the chancery court’s finding that “the Agreement must be
enforced as written, and Betty Chain’s attempt to usurp the same by her complaint is without
merit.” See Steele v. Carmichael, 249 Miss. 574, 583, 163 So. 2d 663, 665 (1964) (ordering
specific performance of shareholders’ agreement providing that if either party desired to
liquidate his stock, the parties would sell together for the same agreed price; and finding that
the unilateral sale of stock by one party was not permitted).
¶28. As stated, I would affirm the chancery court’s judgment because I find that Chain’s
complaint fails to state a claim for relief for manifestly unreasonable restrictions on the sale
of her deceased husband’s stock. Indeed, as reflected in the Mississippi Business
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Corporations Act, see section 79-4-6.27, and as articulated in other jurisdictions, the law
“condemns ‘not a restriction on transfer, . . . but an effective prohibition against
transferability itself.” Wildenstein & Co. v. Wallis, 595 N.E.2d 828, 834 (N.Y. 1992)
(quoting Allen v. Biltmore Tissue Corp., 141 N.E.2d 812, 816 (N.Y. 1957)); see generally,
Mark S. Rhodes, Transfer of Stock § 4:4, at 147-54 (7th ed. 2006) (citing cases). In contrast
to an effective prohibition on transferability, which is not the case here, “[s]hare transfer
restrictions are widely used by both publicly held and closely held corporations for a variety
of appropriate purposes.” 12 William M. Fletcher, Cyclopedia of the Law of Corporations
§ 5454, at 131 (2012). Such restrictions “typically serve as an important device to ensure
that current shareholders can control the ownership and management of the corporation. . . .
Transfer restrictions not only protect the corporation from potential disruption but [also]
ensure [that]. . . the estate of a deceased shareholder. . . will be able to liquidate the shares.”
Id. at 131-32 (citing cases); see Lawson v. Household Fin. Corp., 152 A. 723, 727 (Del.
1930) (“Restrictions . . . reasonably protecting incorporators or stockholders in their interests
by permitting them first to purchase stock offered for sale, should be held lawful as
promotive of good management and sound business enterprise.”); see also Bruns v.
Rennebohm Drug Stores Inc., 442 N.W.2d 591, 594 (Wis. Ct. App. 1989) (recognizing that
the need for stock transfer restrictions is primarily “to insure that the ‘harmony and balance’
of the business organization will not be disturbed by the unwelcome intrusion of strangers”).
¶29. In this case, the record reflects, and the chancery court found, that there was a valid
first-option restriction on transfer of the stock, as delineated in the enforceable Agreement.
19
In Fayard v. Fayard, 293 So. 2d 421 (Miss. 1974), the Mississippi Supreme Court
recognized that “several types of restraints on stock transfers have emerged as reasonable
under circumstances persuasive of validity[, including]. . . first option provisions.” Id. at
423; see generally 1 F. Hodge O’Neal and Robert B. Thompson, Close Corporations and
LLCs: Law and Practice § 7:17, at 7-85 (Rev. 3d ed. 2018) (“The legality of first option
provisions, currently the most popular of the restrictions on transferability, has been
established in most jurisdictions either by judicial decision or by legislation.”) (citing cases).
¶30. With respect to the particular circumstances in this case, “[t]he transfer price in an
option to purchase the shares of a holder who dies is usually fixed at book value or at a price
determined by some formula set out in the restrictive provision.” 1 O’Neal & Thompson,
supra, § 7:17, at 7-90. In this case, Section 7.1 of the Agreement plainly delineated the
method for determining the transfer price. Jurisprudence reflects that options such as these
have been upheld in a number of decisions, even where there is “a great disparity between
the option price and the then current value of the shares.” Id.; see Palmer v. Chamberlin,
191 F.2d 532, 541 (5th Cir. 1951) (affirming enforcement of first-option provision in
corporate by-laws where stock price is determined by formula, despite disparity between the
price offered and the true value of the stock); Nichols Constr. Corp. v. St. Clair, 708 F.
Supp. 768, 771 (M.D. La. 1989) (holding that “the mere failure to pay ‘fair value’ for stock
under a stock redemption agreement” is not “fraud or breach of fiduciary duty”), aff’d., 898
F.2d 150 (5th Cir. 1990); see also Unigroup Inc. v. O’Rourke Storage & Transfer Co., 980
F.2d 1217, 1221 (8th Cir. 1992) (upholding corporate repurchase provision permitting
20
payment of “book value” and finding that there was no duty to pay “fair value” under that
provision); Kanawha-Roane Lands Inc. v. Burford, 359 S.E.2d 618, 621 (W. Va. 1987)
(recognizing that “most courts have been reluctant to interfere with stock purchase
restrictions because of a disparity between the price to be paid and the true value of the
shares”) (citing cases); Allen, 141 N.E.2d at 817 (recognizing that “the validity of the
restriction on transfer does not rest on any abstract notion of intrinsic fairness of price. To
be invalid, more than mere disparity between option price and current value of the stock
must be shown”).7 I would affirm the chancery court’s judgment in this case, and therefore
I dissent.
TINDELL, McDONALD AND McCARTY, JJ, JOIN THIS OPINION.
7
In Allen, 141 N.E.2d at 817, the court found that a corporation’s first option to
purchase stock of a deceased stockholder at the price which it originally received for the
stock was reasonable and valid.
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