Investor Resource Services, Inc. v. Marvin Cato

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2007-IA-01458-SCT
INVESTOR RESOURCE SERVICES, INC., A
FLORIDA CORPORATION; BARBARA
ARCHULETTA MORELLI, AND THE ESTATE OF
BERNECE RIGIROZZI
v.
MARVIN CATO, CHARLES CATO, LAVERNE
CATO AND RAINBOW ENTERTAINMENT, INC.
DATE OF JUDGMENT: 08/20/2007
TRIAL JUDGE: HON. W. ASHLEY HINES
COURT FROM WHICH APPEALED: WASHINGTON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANTS: JAMES W. CRAIG
FRED L. BANKS
JEROME C. HAFTER
ELIZABETH JANE HICKS
ATTORNEYS FOR APPELLEES: JOHN H. DANIELS
WILLIE BAILEY
JAMES P. STREETMAN
DAVID LEE GLADDEN, JR.
BLAYNE THOMAS INGRAM
NATURE OF THE CASE: CIVIL - OTHER
DISPOSITION: REVERSED AND REMANDED - 06/25/2009
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE WALLER, C.J., LAMAR AND PIERCE, JJ.
PIERCE, JUSTICE, FOR THE COURT:
¶1. This case involves whether a trial court properly excluded an expert from testifying
based on her status as a Certified Public Accountant (CPA) and her alleged lack of expert
knowledge in derivative actions. Investor Resource Services, Inc., Barbara Morelli, and the
Estate of Bernece Rigirozzi (Investor Resource) filed suit in the Circuit Court of Washington
County against Marvin Cato, Charles Cato, Laverne Cato, and Rainbow Entertainment, Inc.,
(the Defendants) alleging both derivative and individual shareholder claims such as fraud in
the inducement and fraudulent misrepresentation.1 Prior to trial, the Defendants filed a
motion in limine to exclude Investor Resource’s expert witness, Glenda B. Glover, Ph.D.
After a hearing on the matter, the trial court granted the Defendants’ motion to exclude Dr.
Glover as an expert witness. The trial court based its exclusion on two factors: (1) Dr.
Glover was not a properly licensed certified public accountant at the time she submitted her
expert report and gave deposition testimony, and (2) Dr. Glover was not an expert in the field
of derivative actions. The trial court also denied Investor Resource’s motion for
reconsideration.2 Thereafter, Investor Resource filed a petition for interlocutory appeal with
this Court. On September 25, 2007, this Court granted the petition for interlocutory appeal
and stayed the trial court proceedings.
DISCUSSION
1
All the plaintiffs in this action alleged in their first amended complaint that they
were given leave to intervene in another case styled as Michael I. Less, Joseph T. Getz,
Clifton M. Lipman, and O.T. Marshall IV, individually and derivatively, Plaintiffs v.
Marvin Cato, individually, Charles Cato, individually, Laverne Cato, individually, and
Rainbow Entertainments, Inc., a Mississippi corporation (Cause No. C12002-455). The
plaintiffs joined the allegation in the original lawsuit and sought damages and other relief
for alleged self-dealing and mismanagement by the officers, directors, controlling
shareholders and agents of Rainbow Corporation. On September 16, 2004, the plaintiffs’
case was severed from the original lawsuit.
2
The trial court based the denial of the motion to reconsider on the theory that the
Mississippi Rules of Civil Procedure do not provide for a motion to reconsider, and that
Investor Resource’s motion did not fall within the confines of Rule 60. Investor Resource
also requested clarification to determine whether Dr. Glover, in the alternative, was excluded
as a fact witness.
2
Whether the circuit court erred by granting the Defendants’ motion in
limine and excluding the expert testimony of Dr. Glover based on her
status as a certified public accountant and her alleged lack of expertise in
derivative actions.
¶2. The standard of review for the admission or exclusion of evidence, such as expert
testimony, is an abuse of discretion. Adcock v. Miss. Transp. Comm'n, 981 So. 2d 942, 946
(Miss. 2008); see also Miss. Trans. Comm'n v. McLemore, 863 So. 2d 31 (Miss. 2003).
¶3. Rule 702 of the Mississippi Rules of Evidence concerns the admissibility of expert
testimony and provides:
If scientific, technical, or other specialized knowledge will assist the trier of
fact to understand the evidence or to determine a fact in issue, a witness
qualified as an expert by knowledge, skill, experience, training, or education,
may testify thereto in the form of an opinion or otherwise, if (1) the testimony
is based upon sufficient facts or data, (2) the testimony is the product of
reliable principles and methods, and (3) the witness has applied the principles
and methods reliably to the facts of the case.
¶4. In McLemore, this Court adopted the test to determine admissibility of expert witness
testimony stated in Daubert v. Merrell Dow Pharmaceuticals., Inc., 509 U.S. 579, 113 S.
Ct. 2786, 125 L. Ed. 2d 469 (1993), and as modified in Kumho Tire Co. v. Carmichael, 526
U.S. 137, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999). McLemore, 863 So. 2d at 35. Expert
testimony is admissible, pursuant to Rule 702, if it is relevant and reliable. Id. at 38; Tunica
County v. Matthews, 926 So. 2d 209, 213 (Miss. 2006). In other words, (1) “the witness
must be qualified by virtue of his or her knowledge, skill, experience or education,” and (2)
“the witness's scientific, technical or other specialized knowledge must assist the trier of fact
in understanding or deciding a fact in issue.” McLemore, 863 So. 2d at 35. However, in
McLemore, this Court noted that Rule 702 “does not relax the traditional standards for
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determining that the witness is indeed qualified to speak an opinion on a matter within a
purported field of knowledge.” Id. (quoting M.R.E. 702 cmt.). The trial judge is the
gatekeeper who assesses the value of the testimony. Tunica County, 926 So. 2d at 213.
(citing McLemore, 863 So. 2d at 39). “To be relevant and reliable, the testimony must be
scientifically valid and capable of being applied to the facts at issue.” Id. (citing McLemore,
863 So. 2d at 36).
¶5. This Court and the Mississippi Court of Appeals have reversed and remanded cases
in which the trial court erroneously included or excluded expert testimony. Indeed, this
Court, in McLemore, the foremost Mississippi case adopting the modified Daubert standard
for the admissibility of expert witness testimony, reversed and remanded for a new trial,
finding that the trial court had erred by admitting the expert testimony of an appraisal
witness. McLemore, 863 So. 2d at 43. See Giannaris v. Giannaris, 960 So. 2d 462, 471
(Miss. 2007) (determining, based on modified Daubert analysis, that the “trial court erred
in granting any weight to [the expert’s] testimony, as it lacked sufficient reliability under
Miss. R. Evid. 702” and the admission of the testimony “amounted to an abuse of
discretion”); Brown v. Mladineo, 504 So. 2d 1201 (Miss. 1987) (holding that the trial court
had erred by excluding the expert testimony of a doctor ). See also Int’l Paper Co. v.
Townsend, 961 So. 2d 741, 760 (Miss. Ct. App. 2007) (determining that the trial court had
erred by the admission of expert testimony where the trial court had denied the voir dire of
the expert, and the expert was not qualified to testify on various issues based on his
testimony); Partin v. N. Miss. Med. Ctr., Inc., 929 So. 2d 924, 931 (Miss. Ct. App. 2005)
4
(reversing in part a grant of summary judgment as to one doctor, finding the trial court had
erred for failing to admit expert medical witness testimony).
1. Relevance.
¶6. Mississippi Rule of Evidence 401 defines relevant evidence as having “any tendency
to make the existence of any fact that is of consequence to the determination of the action
more probable or less probable that it would be without the evidence.” M.R.E. 401. Rule
401 favors admission of the evidence if it has any probative value. McLemore, 863 So. 2dat 40 (citing Holladay v. Holladay, 776 So. 2d 662, 676 (Miss. 2000)). “[T]he threshold for
admissibility of relevant evidence is not great. Evidence is relevant if it has any tendency
to prove a consequential fact.” Id. (quoting Whitten v. Cox, 799 So. 2d 1, 15 (Miss. 2000)).
Dr. Glover’s testimony regarding the actions of the corporate officers and directors, the
damages, and the methods she applied to determine the damages incurred by the actions of
the corporate officers and directors was relevant in this lawsuit. Accordingly, Dr. Glover’s
reports and deposition meet the first prong of the modified Daubert standard. Daubert, 509
U.S. at 589; McLemore, 863 So. 2d at 40. Indeed, the trial court determined that Dr.
Glover’s reports and testimony were relevant. Notwithstanding the finding that Dr. Glover’s
testimony was relevant, the trial court determined that her testimony was unreliable.
2. Reliability.
¶7. In Adcock, this Court analyzed the reliability of the expert witness and stated:
The party offering the expert testimony also must show that the expert's
opinion is based upon scientific methods and procedures, not unsupported
speculation. Id. at 36 (citing Daubert, 509 U.S. at 590). Factors to consider
may include "whether the theory or technique can be and has been tested;
whether it has been subjected to peer review and publication; whether . . . there
5
is a high known or potential rate of error; whether there are standards
controlling the technique's operation; and whether the theory or technique
enjoys general acceptance" within the expert's particular field. McLemore,
863 So. 2d. at 37 (citing Daubert, 509 U.S. at 592-94).
Adcock, 981 So. 2d at 947. Although there are many factors to consider in the analysis of
whether an expert’s opinion is reliable, none of the factors is steadfast in every case. In other
words, the factors are used as guidance, and all need not be applied in every case, but should
be applied only as appropriate for each particular case. McLemore, 863 So. 2d at 40.
A. Dr. Glover’s status as a certified public accountant.
¶8. The trial court excluded Dr. Glover’s testimony, in part, based on the fact that she had
allowed her CPA license to lapse and was not licensed as an active CPA at the time of her
reports and deposition testimony. In her two written reports, Dr. Glover stated that she was
a CPA. In her deposition testimony, Dr. Glover stated that she was a CPA, however, she no
longer practiced as a CPA. The trial court excluded Dr. Glover’s testimony, in part, due to
her alleged false assertions of being a CPA in her reports and depositions and in alleged
violation of the Mississippi Code.
¶9. Investor Resource argues that there is a distinction between the qualifications of a
witness to provide expert testimony and a witness’s certification to practice a profession. To
support its argument, Investor Resource relies on Watts v. Lawrence, 703 So. 2d 236 (Miss.
1997). In Watts, a case predating our adoption of Daubert analysis, this Court upheld the
expert testimony of a retired real-estate broker on matters of real-estate property value even
though the expert no longer had a real-estate appraiser license. Id. at 238-29. This Court
found that “[o]ur Rules of Evidence require only that an expert witness be qualified by
6
knowledge, skill, experience, training, or education. Id. at 238. In that case, this Court held
that the expert was qualified under Rule 702 based on his knowledge and experience in the
field. Id. at 239. See also King v. Murphy, 424 So. 2d 547, 550 (Miss. 1982) (although
ultimately excluding the expert’s testimony on other ground, stating that an expert’s
testimony should not be excluded simply because he was not licensed to practice in
Mississippi); Blake v. Clein, 903 So. 2d 710 (Miss. 2005).
¶10. More recently, this Court handed down Kilhullen v. Kansas City Southern Railway,
2009 Miss. LEXIS 87 (Miss. Feb. 26, 2009). In Kilhullen, this Court reversed and remanded
the Court of Appeals decision to affirm the trial court’s grant of summary judgment in favor
of Kansas City in a wrongful-death action. The trial court struck Kilhullen’s affidavit from
Jimmy Halfacre, a registered engineer, finding that accident reconstruction is a specialized
field and that Halfacre lacked the requisite knowledge, expertise, or training. Id. This Court
looked beyond certification and determined that the expert had requisite “professional
qualifications” to give his opinion. Id. This Court held:
In rejecting Halfacre’s affidavit due to his lack of “specialized knowledge,
training or expertise in the field of accident reconstruction[,]” this Court finds
that the circuit court abused its discretion. Given his applied engineering
expertise, classification as an accident reconstructionist was not necessary, see
Pounders, 970 So. 2d at 146; Sacks, 991 So. 2d at 622, and this Court
concludes that Halfacre’s affidavit satisfied Mississippi Rule of Evidence 702.
Kilhullen v. Kan. City S. Ry., 2009 Miss. LEXIS 87, 12-13 (Miss. Feb. 26, 2009).
¶11. Also, in University of Mississippi Medical Center v. Pounders, 970 So. 2d 141, 146
(Miss. 2007), this Court stated that “a witness need not be a specialist in any particular
profession to testify as an expert. The scope of the witness's knowledge and experience, and
7
not any artificial classification, governs the question of admissibility.” (Citations omitted.)
Accordingly, this Court allowed a neurologist to testify concerning pulmonary issues. Id.
See also Sacks v. Necaise, 991 So. 2d 615, 622 (Miss. Ct. App. 2007) (upholding the
admission of Jenner as an expert on whether a drug was administered properly even though
she “had not been a practicing nurse in twenty years and was not a certified chemotherapy
nurse. However, neither of these facts precluded her from testifying as to her knowledge on
the subject. Jenner was a licensed nurse and was familiar with the current standards of
chemotherapy administration.”). Cf. Watts v. Radiator Specialty Co., 990 So. 2d 143, 150
(Miss. 2008) (affirming the trial court’s exclusion of an expert witness’s testimony on
general and specific causation that benzene causes non-Hodgkin's lymphoma and that a
liquid solvent containing benzene caused the plaintiff’s non-Hodgkin's lymphoma as being
scientifically unreliable); Giannaris v. Giannaris, 960 So. 2d 462 (Miss. 2007) (determining
that the admission of a clinical social worker’s expert testimony was error where the witness
had unrecorded sessions with the child and only five weeks’ training).
¶12. Here, Dr. Glover’s stated purpose as an expert was “to assess and testify concerning
the damages incurred by Investor Resource Services, Inc. and other minority shareholders
resulting from the actions of the majority shareholders of Rainbow Entertainment, Inc.” To
that end, Dr. Glover provided her opinion on whether the corporate directors and officers of
Rainbow had fulfilled their duties properly and whether their actions had resulted in damages
to the corporation and the shareholders. Dr. Glover stated in her reports and testified in her
deposition that she was a CPA and had worked as a CPA in her career for a number of
employers. Furthermore, she testified that she used all of her CPA skills in her position as
8
Dean of the College of Business of Jackson State University. When Dr. Glover submitted
her reports and testified at her deposition, her CPA license had lapsed. There is no dispute
that Dr. Glover held a CPA license at one time. The only problem in this case was that Dr.
Glover was not current in her licensure at the time of her reports and depositions. That is an
issue between Dr. Glover and the Mississippi State Board of Public Accountancy, but does
not concern this Court for the purposes of this appeal.
¶13. As to her qualifications, Dr. Glover had more than twenty years of corporate and
academic experience in the business arena. She holds a bachelor of science degree in
mathematics from Tennessee State University. She also has a master of business
administration degree in accounting from Clark Atlanta University, a doctor of philosophy
degree in business, economics, and policy from George Washington University, a doctor of
jurisprudence degree from Georgetown University Law Center, and she had obtained her
license as a certified public accountant.
¶14. Dr. Glover’s work experience included working as an accountant at Arthur Anderson
& Co. In addition, she worked at the Potomac Electric Power Company and then as a senior
vice president and chief financial officer for Metters Industries, Inc. Later, Dr. Glover
worked in academia as an assistant professor of accounting at Howard University. In 1994,
Dr. Glover accepted her current position as Dean of the College of Business at Jackson State
University.
¶15. Dr. Glover served on corporate boards. She sat on the board of the Student Loan
Corporation, which is a publicly traded company, as the chairperson for the audit committee,
a member of the compensation committee, and the financial expert for the audit committee
9
and board. Further, Dr. Glover served on the boards of directors of the Lenox Group, Union
Planters Bank, and the Jackson Airport Authority.
¶16. To the extent that Dr. Glover was excluded as an expert witness based on her failure
to maintain an active CPA license, the issue is without merit. Dr. Glover’s purpose as an
expert was to testify as to damages due to the deeds of the corporate officers. The fact that
she did not have an active CPA license at the time of her reports and deposition is not crucial
to her qualification to give an opinion of damages based on the actions of shareholders. Her
qualifications in education, business, and academia are sufficient to support her opinions.
B. Expertise in derivative suits.
¶17. The trial court also based the exclusion of Dr. Glover as an expert witness on her lack
of education, experience, and training in derivative suits and her lack of understanding of
derivative suits. The trial court stated:
Having reviewed Glenda B. Glover’s qualifications, this Court finds
that although Ms. Glover’s testimony may be relevant, Ms. Glover is not
qualified to give expert testimony in the present case. This decision is based
on Ms. Glover’s lack of education, experience, and training, in derivative
actions, the lack of reliability of Ms. Glover’s testimony, and the fact that Ms.
Glover has held herself out to be a Certified Public Accountant in violation of
Miss. Code Ann. § 73-33-1.
The Court finds Ms. Glover lacks sufficient education, experience, or
training in the area of derivative actions. This fact is evidenced by her
deposition testimony and in her reports in which she demonstrates a failure to
understand how damages in derivative actions are distributed. This indicates
a fundamental failure to grasp the very nature of a derivative action. The
Court finds the [sic] Ms. Glover’s lack of knowledge regarding derivative
actions makes her testimony and opinions in this case unreliable.
¶18. Dr. Glover completed two written reports and a deposition. In her first report, dated
November 2006, she stated in the overview section that “I have been asked to assess and
10
testify concerning the damages incurred by Investor Resource Services, Inc. and other
minority shareholders resulting from the actions of the majority shareholders of Rainbow
Entertainment, Inc.” In the description-of-assignment section, Dr. Glover stated that “This
report analyzes the damages incurred by Investor Resource Service, Inc. and the other
minority shareholders resulting from the actions and omissions of the majority shareholders
and directors of Rainbow Entertainment, Inc.”
¶19. In her February 2007 deposition testimony, Dr. Glover discussed her understanding
of a derivative action. The following exchange occurred:
[Defense Counsel]: Good. Well, and you make an excellent point. What is
your understanding of the damages that are assessed in
derivative cases and to whom they are assessed?
A. Well, my understanding is, shareholders sue in a derivative action. And
they sue for damages – well, they sue for damages or some element that
they feel is owed.
[By Defense Counsel]
Q. To whom? What is your understanding?
A. To whom?
Q. Yes, ma’am. To whom do the damages flow, if they are successful?
A. To shareholders.
Q. To the shareholders?
A. Uh-huh (affirmative).
Q. Not to the corporation, but to the shareholders; is that your
understanding?
A. Well, the shareholders – the shareholders sue on behalf of the
corporation.
11
Q. Okay. Is that what you have said in your report.
[Plaintiff’s Counsel] Object to the form, because the report speaks for itself –
speaks for itself. Pardon me.
[Defense Counsel] That’s okay.
[By Defense Counsel]
[Q.] Who do you conclude, based on your report, Exhibit 2, should receive
damages in this case if the plaintiffs are successful?
A. The minority shareholders.
Q. The minority shareholders?
A. Yes.
Q. Thank you, ma’am.
In her deposition testimony, Dr. Glover also stated that she had not authored any article or
conducted any studies on derivative claims.
¶20. After to her first report and the deposition testimony, Dr. Glover provided a second,
modified, written report in June 2007. In the overview section, Dr. Glover stated that her
purpose was to assess and testify about “the actions of Marvin Cato and Charles Cato as
majority shareholders, officers, and directors of Rainbow Entertainment, Inc. (“Rainbow”),
and the damages incurred by Rainbow, Investor Resource Services, Inc. and other minority
shareholders of Rainbow resulting from those actions.” Further, in the description-of-
assignment section, Dr. Glover stated:
This report analyzes the damages incurred by Rainbow Entertainment, Inc., by
Investor Resource Service [sic], Inc. and the other minority shareholders of
Rainbow resulting from the actions and omissions of Marvin Cato, Charles
Cato and Laverne Cato as majority shareholders, directors and officers, of
12
Rainbow Entertainment, Inc. It also analyzes whether the Catos breached their
duties as corporate officers, directors, and majority shareholders, by
authorizing self-dealing transactions.
¶21. Notwithstanding Rainbow’s characterization of Dr. Glover as a derivative expert,
Investor Resource argues that Dr. Glover was offered as a damages expert, not as a derivative
action expert. We agree. Dr. Glover also defined her role in her deposition testimony as a
damages expert, not a derivative-action expert, when she stated:
I’m not here as a derivative – I’m here as a damage expert and to tell you about
what goes on in a corporate board room, how the corporate – how the
corporate officer should act, the duty they have to shareholders. That’s not
necessarily a derivative in nature, but it’s a shareholder. That’s – I’m just –
I’m here as an expert on these types of – of information.
¶22. In keeping with her role as a damages expert, part of Dr. Glover’s reports were
compilations of financial documents, received and expended funds, and other corporate
documents from Rainbow. Dr. Glover reviewed available Rainbow documents and compiled
the information into schedules. These schedules included the outstanding shares of stock in
Rainbow; payments received by Rainbow from Greenville Riverboat, LLC; payments made
to Charles and Marvin Cato; payments made for corporate jet service; payments of dividends;
cash disbursements from January 1, 2001, through December 31, 2004; and cash
disbursements from January 1, 2005, through December 31, 2006, including a listing of
missing checks.
¶23. Indeed, the majority of the content in Dr. Glover’s two reports centers on the actions
taken by the members of the Cato family, as officers and shareholders of Rainbow, and the
impact of their actions and expenditures of corporate funds on Rainbow and Investor
Resource as a whole.
13
¶24. According to her report, Dr. Glover also considered various corporate documents such
as the bylaws, a private-placement memorandum, legal pleadings, bank statements, corporate
minutes, an agreement with Greenville Riverboat, financial statements, federal income tax
returns, expense reports, and other documents to complete her determination as to any
damages which resulted to Rainbow, Investor Resource, and minority shareholders by the
actions of the corporate officers.
¶25. The trial court excluded Dr. Glover’s expert testimony on the basis that she had
“demonstrated a failure to understand how damages in derivative actions are distributed.”
Investor Resource contends that Mississippi caselaw has held that, when dealing with a
closely held corporation, damages may be awarded directly to minority shareholders. We
agree.
¶26. In Fought v. Morris, 543 So. 2d 167, 169 (Miss. 1989), this Court stated that a closely
held corporation “is a business entity with few shareholders, the shares of which are not
publicly traded.” In addition, a closely held corporation “operates as a small business
enterprise where the shareholders, directors, and managers often are the same persons.” Id.
at 170. The Court also stated that in a closely held corporation “where a majority stockholder
stands to benefit as a controlling stockholder, the majority’s action must be ‘intrinsically fair’
to the minority interest.” Id. at 171.
¶27. In Derouen v. Murray, 604 So. 2d 1086, 1088 (Miss. 1992), Derouen and Murray
were coshareholders in H & D Seafood Corporation (H & D). Derouen filed suit against
Murray in an individual capacity, challenging actions by Murray in his capacity as a
corporate officer. Id. This Court affirmed the trial court’s finding as to a release on a
14
personal claim against Murray. Id. at 1090. However, this Court determined that Derouen’s
claim, that Murray, as a president and director of H & D, had breached his duties owed to the
corporation, was a shareholders’ derivative action in nature. Id. The Court also determined
that, even though Derouen had failed to identify his action as a shareholder derivative suit,
nonetheless, the derivative claim was tried by implied consent. Id. at 1090-91. This Court
stated that “a derivative action is an asset of the corporation, one, to be sure, that the
corporation through its directors and officers may deal with as any other corporate asset.”
Id. at 1091. However, the Court, in a footnote, noted that, in some instances involving
closely held corporations, the chancery court, in its discretion, may treat a derivative action
as a direct action and permit individual recovery. Id. n.2. Specifically, this Court stated:
¶28. We take the view of the Principles of Corporate Governance § 701(d):
d) In the case of a closely held corporation . . . , the . . . court in its discretion
may treat an action raising derivative claims as a direct action, exempt it from
those restrictions and defenses applicable only to derivative actions, and order
an individual recovery, if it finds that to do so will not (i) unfairly expose the
corporation or the defendants to a multiplicity of actions, (ii) materially
prejudice the interests of creditors of the corporation, or (iii) interfere with a
fair distribution of the recovery among all interested persons.
The principal effect of this course would be to exempt plaintiff from these
procedural hoops. The Court below did not exercise its discretion regarding
these matters, as it did not consider the derivative claims at all.
All of this refers but to the form and procedure for litigating certain substantive
claims and, thus, in no way impugns our conclusion in Part III above.
Id. at 1091 n.2. See also ERA Franchise Systems, Inc. v. Mathis, 931 So. 2d 1278, 1281
(Miss. 2006). The trial court did not view the suit as derivative in nature and, therefore, it
15
never applied the appropriate law. Id. at 1092. This Court reversed and remanded for further
proceedings based on the derivative claims. Id. at 1092.
¶29. Furthermore, finding that an expert’s testimony should be admitted into evidence does
not preclude the trial court from exercising its discretion to limit the expert evidence. See
Partin v. N. Miss. Med. Ctr., Inc., 929 So. 2d 924, 931 (Miss. Ct. App. 2005) (“At trial, the
jury may decide to discredit [the expert’s] opinions, or the court, upon voir dire and tender
of [the expert] as an expert, may limit the matters to which he may testify”). Likewise, the
trial court also has discretion to limit jury instructions. In Missala Marine Services v. Odom,
861 So. 2d 290, 294 (Miss. 2003), a closely held corporation freeze-out case, this Court held
that the plaintiff had to provide substantial proof of damages in order for a jury to have a
foundation to assess any loss. This Court also set forth the standard of review for jury
instructions and stated, in part:
However, the trial judge may also properly refuse the instructions if he finds
them to incorrectly state the law or to repeat a theory fairly covered in another
instruction or to be without proper foundation in the evidence of the case.
Missala, 861 So. 2d at 297 (quoting Humphrey v. State, 759 So. 2d 368, 380 (Miss. 2000)).
¶30. Investor Resource also contends that its claims are not solely derivative in nature. In
the original complaint, which was incorporated by reference into the amended complaint,
Investor Resource alleged individual shareholder claims such as fraud in the inducement and
fraudulent misrepresentation. Provided there was an adequate foundation for an assessment
of damages, these types of claims would award damages on an individual basis rather than
in a derivative capacity to the corporation.
16
¶31. We find that the trial court abused its discretion by excluding the expert testimony of
Investor Resource’s expert, Dr. Glover. The reports and deposition testimony were relevant
and were based on established accounting principles and corporate business principles and
practices. The schedules that Dr. Glover compiled from Rainbow’s expenditures were based
on bank documents and other discovery documents. Dr. Glover also provided her expert
opinion on whether there was breach of duty by the officers and directors of Rainbow and,
whether Rainbow, Investor Resource, and other minority shareholders had sustained damages
from those actions and through the expenditures of Rainbow contained in her compilation
of financial documents in the form of schedules. In Funderburk v. Johnson, 935 So. 2d
1084, 1107 (Miss. Ct. App. 2006), an expert was allowed to testify as to charts of information
that he compiled based on daily cash deposits from a store experiencing cash shortages and
an employee’s cash deposits into her own checking account. “Generally, questions related
to the bases and sources of an expert’s opinion affect the weight to be afforded the opinion
by the jury, not the admissibility of the opinion.” Funderburk, 935 So. 2d at 1107-08
(citations omitted). The court also found that charts “allowed the fact-finder to assess the
evidence surrounding [the employee’s] source of cash and to reach its own conclusion as to
the explanation for the cash deposits.” Id. at 1108. See also M.R.E. 1006. Of course, any
expert witness would be subject to cross-examination by opposing counsel.
¶32. Here, Glover’s misstatement, later corrected in her second report, concerning who
received the damages in a minority shareholder derivative suit should not be the basis for her
exclusion as an expert witness. Investor Resource’s claims were both individual and
derivative in nature. Furthermore, Mississippi caselaw holds that in derivative suits
17
involving closely held corporations, the trial court may award damages on an individual
basis, provided certain safeguards are met. Derouen, 604 So. 2d at 1091 n.2. Additionally,
Glover’s testimony would have been subject to cross-examination, in which opposing
counsel would have had an opportunity to probe any perceived fallacies in her opinion before
the jury. The jury could then weigh the credibility of the witnesses, including any expert
witness testimony. Funderburk, 935 So. 2d at 1107-08.
¶33. The trial court, in addition, can limit expert testimony. To the extent that any
perceived incorrect assertion was made as to who receives any potential damages in the
lawsuit, the trial court has discretion to review any proposed jury instructions and give only
those damage instructions that are correct and have been adequately proven at trial.
Accordingly, we find that the trial court should not have excluded Glover’s expert opinion.
CONCLUSION
¶34. For the foregoing reasons, the Circuit Court of Washington County erred by granting
the Defendants’ motion in limine and thus excluding the expert testimony of Dr. Glenda
Glover. This Court reverses and remands this case to the trial court for proceedings
consistent with this opinion.
¶35. REVERSED AND REMANDED.
WALLER, C.J., CARLSON AND GRAVES, P.JJ., RANDOLPH, LAMAR,
KITCHENS AND CHANDLER, JJ., CONCUR. DICKINSON, J., CONCURS IN
PART AND IN RESULT.
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