Kenneth D. Ross v. Gulf Group Inc.
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IN THE COURT OF APPEALS
OF THE
STATE OF MISSISSIPPI
NO. 2000-CA-01089-COA
KENNETH D. ROSS, ROSALIND L. ROSS AND JOHN L. ROSS, SR.
v.
GULF GROUP, INC., A MISSISSIPPI CORPORATION, JEREMIAH J.
O'KEEFE, SR., W. P. BRIDGES, JR. AND SUSAN O. SNYDER,
INDIVIDUALLY AND IN THEIR CAPACITY AS DIRECTORS OF GULF
GROUP, INC.
DATE OF TRIAL COURT JUDGMENT:
TRIAL JUDGE:
COURT FROM WHICH APPEALED:
ATTORNEYS FOR APPELLANTS:
ATTORNEYS FOR APPELLEES:
NATURE OF THE CASE:
TRIAL COURT DISPOSITION:
DISPOSITION:
MOTION FOR REHEARING FILED:
CERTIORARI FILED:
MANDATE ISSUED:
APPELLANTS
APPELLEES
06/30/2000
HON. WILLIAM H. MYERS
JACKSON COUNTY CHANCERY COURT
EARL L. DENHAM
WENDY ANN HOLLINGSWORTH
W. JOEL BLASS
FRANK W. TRAPP
REBECCA L. HAWKINS
CIVIL - CONTRACT
CASE DISMISSED AS TIME BARRED
AFFIRMED - 05/21/2002
6/5/2002; denied 8/13/2002
9/3/2002
BEFORE McMILLIN, C.J., BRIDGES, AND IRVING, JJ.
McMILLIN, C.J., FOR THE COURT:
¶1. Kenneth D. Ross filed an action in the Chancery Court of Jackson County seeking to compel the
issuance to him of additional shares in Gulf Group, Inc., a Mississippi corporation, that would, in
combination with the shares already issued to him, equal ten percent of the issued and outstanding shares in
the corporation. Rosalind Ross and John Ross, Sr. were later added as additional defendants when it was
made known to the court that Kenneth Ross had assigned his cause of action to these individuals. The
defendants in the action were the corporation and three individuals alleged by Ross to be in control of the
board of directors of the corporation and, thus, vested with the authority to cause the additional shares
demanded in the complaint to be issued. The individual defendants were Jeremiah O'Keefe, Sr., W. P.
Bridges, Jr., and Susan O. Snyder. The chancellor denied any relief to the plaintiffs and they have now
appealed. For reasons we will proceed to set forth, we affirm the judgment of the chancellor.
¶2. In order to avoid unnecessary prolixity, those claiming entitlement to additional shares in Gulf Group will
be collectively referred to as Ross. The various parties who were defendants at trial and are appellees
before this Court will be referred to, when appropriate, as the Appellees.
I.
The Nature of Ross's Claim
¶3. Ross's complaint does not explain with any clarity the nature of his claim asserted against the Appellees.
It only asserts that he "at one time owned 10% of the common stock of Defendant Gulf Group, Inc." The
complaint goes on to state that the Appellees "have previously issued to [Ross] 3.3% of that common stock
. . . leaving a balance of 6.7% of its common stock unissued and due and owing to the Plaintiff."
¶4. From the record of the trial of this cause, it would appear that Ross's claim is, at its foundation, a
breach of contract claim. He bases his entitlement to additional shares in Gulf Group on his contention that
the corporation, organized to facilitate the merger of two independent corporations, was the handiwork of
his efforts and that he had been promised a ten percent stake in the company as compensation for his work
in bringing the merger to fruition.
¶5. It is uncontradicted that Gulf Group is, in fact, the product of the merger of Gulf National Life Insurance
Company, a corporation controlled principally by O'Keefe, and Bridges Mortgage Company, a
corporation controlled by Bridges. It is also uncontradicted that Ross performed substantial duties in regard
to bringing the merger about. However, the evidence shows that Ross was, during that time, working under
contract with Gulf National to assist O'Keefe in a consulting capacity in various business endeavors, and
that Ross was being compensated for that consulting work at the rate of $100,000 per year. O'Keefe
contended in his testimony that there had never been an agreement to compensate Ross for his work on this
specific merger beyond the compensation arrangement already in existence. He said, to the contrary, the
decision to give Ross an ownership interest in the new corporation was more in the nature of a gift, not
legally required, but offered in appreciation for Ross's efforts in bringing the merger about and in
anticipation that it would provide incentive for Ross to remain interested in the company's future success.
O'Keefe testified that initially he had agreed that Ross should have ten percent of O'Keefe's percentage
ownership in the new corporation, but that Bridges, upon learning of what O'Keefe planned to do, had
agreed to contribute a pro rata portion of the stock that O'Keefe intended to convey to Ross. Both
O'Keefe and Bridges denied any contractual obligation on the part of either or both of them to vest Ross
with a ten percent ownership of the company's common stock, or, for that matter, any legal obligation to
convey any part of the ownership to Ross. Rather, their act of setting apart shares to Ross in any amount
was a gratuitous act on their part.
¶6. Ross's contention at trial, however, was that his earlier consulting contract was nonexclusive and
permitted him time to work on other personal projects, whereas the demands of working out the merger
were so great that the job required him full-time and that the offer of ten percent ownership in the resulting
company was in recognition of this increased commitment of time and effort. Despite this, the Appellees
were able to produce documentary evidence in the form of written communications from Ross indicating his
understanding that the $100,000 consulting fee was, in fact, intended to cover his efforts in regard to the
merger and that he had received the stock as an incentive to prospectively ensure his continued interest in
and effort on behalf of Gulf Group.
¶7. None of the written documentation surrounding the formation of Gulf Group mentions the existence of
Ross's purported contractually-enforceable claim to a ten percent stake in the anticipated corporation. The
original agreement for formation of Gulf Group to act as a holding company for Gulf National Life Insurance
Company and Bridges Mortgage Company contained a detailed listing as to how all shares anticipated for
issuance would be issued, and Ross did not appear on that listing at all. O'Keefe and Bridges, as owners of
"a substantial portion of the issued and outstanding common stock" of Gulf Group, entered into a separate
agreement styled "Shareholders' Agreement" that contained this provision:
It is further agreed that Kenneth D. Ross shall acquire voting common stock, non-voting common
stock, and/or preferred stock subsequent to the execution hereof, upon terms and conditions to be
agreed upon in writing between O'Keefe, Ross, and Bridges . . . .
¶8. Noteworthy in that passage is both (a) a lack of any indication of the underlying reason for such
acquisition by Ross and (b) a lack of commitment by either O'Keefe or Ross to convey to Ross any certain
percentage of the contemplated shares in the new corporation. Subsequently, the principal parties to the
merger entered into an "Addendum to Agreement for Formation of Holding Company" on July 31, 1991,
that included a revised listing of prospective share ownership in the new corporation. That revised listing
showed Kenneth D. Ross would receive 132 voting common shares, 2,475 non-voting common shares,
and 448 preferred shares. It is not disputed that these numbers do not reflect ten percent of the total
anticipated issuance of any of the three classes of stock.
¶9. Ross was selected to act as secretary of Gulf Group during the initial stages of formation of the
company, and as a result, was instrumental in the issuance of the actual stock certificates for the various
shares. Included in that duty was an obligation to sign each stock certificate. Those certificates (or copies of
them) were introduced into evidence at trial, each one bearing a date of July 31, 1991, and showing Ross's
signature thereon as corporate secretary. These exhibits indicate that the stock certificates were issued in
exact compliance with the listing contained in the addendum described in the previous paragraph of this
opinion.
¶10. The principal evidentiary basis relied upon by Ross to substantiate his own testimony that he had a
contractual right to a ten percent interest in Gulf Group consisted of certain statements made by various
persons associated with the corporation in the years after formation to the effect that it was their
understanding that Ross did, in fact, own a ten percent interest in the company.
¶11. Ross testified that he did not actually discover that he had not been issued the proper number of shares
until approximately August 1993, when he applied for a loan and sought to offer his stock in Gulf Group as
collateral for that loan. According to the evidence, the bank loan officer, in attempting to gain information
that would be helpful in valuing the stock for collateral purposes, learned that Ross's shares did not
constitute ten percent of the issued shares. Some time later, Ross commenced this litigation seeking to
enforce his alleged contractual right to the issuance of the number of additional shares in the corporation
necessary to increase his percentage of ownership to the contracted-for ten percent.
II.
The Chancellor's Ruling
¶12. The suit was filed on July 22, 1996. The chancellor ultimately rejected Ross's claims on two principal
grounds. Conceding for sake of argument only that Ross did, in fact, have a contractual claim to compel the
issuance to him of stock shares totaling a ten percent ownership in Gulf Group, the chancellor concluded
that the breach of that purported contract occurred on July 31, 1991, the date the shares in the stock were
actually issued. The chancellor found that Ross's claim, being contractual in nature, was governed by the
statute of limitations that required such actions to be commenced within three years and that Ross's claim,
filed almost five years after the initial stock issuance, was barred as untimely. Additionally, the chancellor
held that, even were he in error in regard to the statute of limitations bar, Ross had failed to present
evidence with the necessary persuasive power to carry his burden of proof to establish his ownership claim
by a preponderance of the evidence.
III.
Preliminary Issue
¶13. The chancellor, as a part of his decision, entered a lengthy document entitled findings of fact and
conclusions of law. Ross points out - and the Appellees do not dispute the fact - that the chancellor's
findings and conclusions are essentially identical to proposed findings of fact and conclusions of law
suggested by the Appellees. In that circumstance, the duty of a reviewing court on appeal is somewhat
altered in that we are instructed not to give the same deference that would be afforded a more
independently produced document, but are to give heightened scrutiny to the chancellor's determinations.
Rice Researchers, Inc. v. Hiter, 512 So. 2d 1259, 1265-66 (Miss. 1987).
¶14. We find as a practical matter that this requirement of heightened scrutiny has little impact on the issue
of whether Ross's claim is barred by the applicable statute of limitations since the critical facts governing that
question are not in dispute. Nevertheless, at Ross's urging - entirely proper and justified under the
circumstances of this case - we will consider all aspects of the chancellor's ruling under a heightened
scrutiny standard in accordance with the dictates of Rice Researchers.
IV.
Statute of Limitations
¶15. A cause of action for breach of contract arises upon the event of the breach. Johnson v. Chrisler,
156 Miss. 266, 267, 125 So. 724, 725 (1930). In this case, all anticipated shares to be issued for Gulf
Group were issued on July 31, 1991, not only with Ross's full knowledge but with his active participation
acting in the role of corporate secretary. The evidence showed that he executed each of the individual stock
certificates that were being issued and that the issuance conformed exactly to the share listing contained in
the addendum that was executed by the principal participants in the new corporation, O'Keefe and Bridges,
after arrangements had been made to vest Ross with some part of the ownership of Gulf Group. No
evidence suggests that Ross was, at this critical time, somehow kept in the dark regarding the total of shares
being issued. A simple mathematical computation taking only the briefest of time would have plainly
revealed to Ross that this initial stock issuance did not provide him with a ten percent interest in the
company. No evidence was presented that would have reasonably led Ross to believe that there were
future contemplated stock issuances contemplated to remedy the shortfall or that he was otherwise induced
into inactivity in regard to asserting whatever claim he thought appropriate to ensure his receipt of the
number of shares he believed himself entitled to receive.
¶16. Ross did present evidence indicating that a number of persons associated with the corporation had, in
the period of time after the initial stock issuance, made statements indicating their understanding that Ross
did, in fact, have a ten percent ownership interest in the company. None of that evidence was accompanied
by evidence tending to show that Ross was intended to, or did in fact, rely on those statements to prevent
him from discovering the true nature of his ownership interest.
¶17. Mississippi Code Annotated Section 15-1-67 provides that the limitation period to sue on a cause of
action fraudulently concealed shall not begin to run until "the time at which such fraud shall be, or with
reasonable diligence might have been, first known or discovered." Miss. Code Ann. § 15-1-67 (Rev.
1995). Even were there to be legitimate arguments that the various post-issuance statements by persons
associated with the company were fraudulent in nature because their purpose was to deceive Ross or
induce him not to investigate the matter further, we do not think that this statute would afford Ross any
relief. We are satisfied that a person of Ross's apparent business experience and acumen, holding a position
of high responsibility in Gulf Group that would certainly have given him access to all pertinent company
documents, and having actively participated in the very stock issuance which he now claims was incorrect,
could beyond question through the exercise of reasonable diligence discovered what he perceived to be a
shortage in his percentage of ownership on July 31, 1991.
¶18. Thus, if the issuance of shares to Ross totaling less than a ten percent stake in the newly-created
business unaccompanied by some indication that additional stock issues or other corrective actions were
contemplated constituted a breach of Ross's claimed contractual right of compensation for his efforts in
bringing the merger to fruition, there can be no legitimate dispute that the cause of action accrued on July
31, 1991, and that, under the provisions of Section 15-1-49 of the Mississippi Code, the cause of action
expired three years from that date. Miss. Code Ann. § 15-1-49 (Rev. 1995).
¶19. Even under whatever heightened scrutiny is due the chancellor's decision in this regard based on the
method by which his findings of fact and conclusions of law were produced, we are satisfied that his
decision to apply the bar of the statute of limitations to Ross's claim was a correct one for which there is no
basis for this Court to intercede.
V.
The Chancellor's Decision on the Merits
¶20. While we consider the bar of the statute of limitations properly imposed by the chancellor to finally
resolve this matter, we nevertheless feel it proper to observe that the chancellor, in trials of this nature, sits
as finder of fact. Wade v. Selby, 722 So. 2d 698, 701 (¶ 9) (Miss. 1998). Because he observes the
witnesses first hand, thus enabling him to arrive at an informed determination as to what weight and worth
each witness's testimony ought to be due, his determination of disputed issues of fact is entitled to
substantial deference when being tested on appeal. Richton Bank & Trust Co. v. Bowen, 798 So. 2d
1268, 1273 (¶ 14) (Miss. 2001).
¶21. On sharply conflicting versions of the facts, the chancellor determined that the testimony of the
Appellees and those who gave evidence on their behalf was credible and that the assertions of Ross,
unsubstantiated by any documentary evidence, was not credible.
¶22. No part of the Appellees' contention that whatever portion of ownership in Gulf Group that was
ultimately apportioned to Ross did not constitute contractually-due compensation for services related to the
merger but was, instead, in the nature of a gift was impeached or substantially contradicted by any evidence
other than Ross's own testimony, which the chancellor concluded to be not worthy of belief. On the other
hand, documentary evidence produced at trial clearly indicated that, in the past, Ross had affirmatively
stated in another context that his compensation for work on the merger was covered as a part of the $100,
000 annual consulting fee he was being paid by O'Keefe through his pre-merger corporation, Gulf National
Life Insurance Company. Additionally, there was evidence that Ross had informed another person that the
stock was received, not as an agreed-upon compensation for services in the merger, but at least partially as
an incentive for him to maintain his interest in the future success of the business. A transfer of stock made on
that basis, unaccompanied by any binding commitment on the recipient to actually commit some measure of
effort to the corporate business, would not appear to be founded on principles of contract that would give
the recipient a claim for the promised shares even in the event the transferor later rethought the transaction
and decided to convey something less than an amount the transferor might have indicated was originally
within his contemplation, or, in fact, nothing at all.
¶23. Ross's obligation in order to prevail on his claim was to show something more than his understanding or even the understanding of the other members of the corporation - that he was to have a ten percent
interest in Gulf Group. His disappointment in not receiving a full ten percent stake in the company, no matter
how profound, is not of itself sufficient basis to compel the remaining shareholders to convey additional
shares to him. Rather, there must be some basis in law that would obligate such a transfer, which in this case
would necessarily be proof of a binding contract, supported by adequate consideration, fully performed by
Ross, in exchange for which some entity having the authority to make the transfer obligated itself to convey
the requisite number of shares to Ross. Krebs v. Strange, 419 So. 2d 178, 181 (Miss. 1982). The
chancellor found as a matter of fact that Ross failed to present convincing evidence that this was the case.
Even under the heightened scrutiny standard required by Rice Researchers, our own in-depth review of the
evidence in this record does not leave us persuaded that the chancellor was manifestly in error or committed
an abuse of discretion in concluding that the Appellants' evidence on the critical issues was more credible
and worthy of belief than the evidence produced by Ross. Therefore, even disregarding the procedural bar
of the statute of limitations, we can find no basis on the merits of this case as contained in this record to
disturb the chancellor's decision that Ross had failed to carry his burden of proof to show by a
preponderance of the evidence his entitlement to relief.
¶24. THE JUDGMENT OF THE CHANCERY COURT OF JACKSON COUNTY IS
AFFIRMED. THE COSTS OF THIS APPEAL ARE ASSESSED TO THE APPELLANTS.
KING AND SOUTHWICK, P.JJ., BRIDGES, THOMAS, LEE, IRVING, CHANDLER
AND BRANTLEY, JJ., CONCUR. MYERS, J., NOT PARTICIPATING.
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