Jowett v. Scruggs
| Docket Number: | 2002-CA-00039-COA Linked Case(s): 2002-CT-00039-SCT |
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| Court of Appeals: |
Opinion Link Opinion Date: 08-03-2004 Opinion Author: Southwick, P.J. Holding: Affirmed |
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| Additional Case Information: |
Topic: Contract - Expulsion as shareholder - Date of valuing shares - Valuation of stock - Breach of fiduciary duty - Punitive damages Judge(s) Concurring: King, C.J., Bridges, P.J., Lee, Irving, Chandler and Griffis, JJ. Non Participating Judge(s): Myers, J. Procedural History: Bench Trial Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 11-29-2001 Appealed from: Jackson County Chancery Court Judge: Donald Patterson Disposition: AWARD MADE FOR VALUE OF STOCK AND OF UNDISTRIBUTED FIRM INCOME Case Number: 99-0057-DP |
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| Party Name: | Attorney Name: | |||
| Appellant: | Juliet Lawson Jowett, Individually and for and on Behalf of Scruggs, Millette Lawson, Bozeman & Dent, P.A and Scruggs, Millette, Bozeman and Dent, P.A. |
JULIET LAWSON JOWETT |
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| Appellee: | Richard F. Scruggs; Richard F. Scruggs, P.A.; Scruggs, Millette, Bozeman & Dent, P.A.; Asbestos Group, P.A. and Occupational Hearing Loss, P.A. | WILLIAM N. REED |
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Synopsis provided by:  If you are interested in subscribing to the weekly synopses of all Mississippi Supreme Court and Court of Appeals hand downs please contact Tammy Upton in the MLI Press office. |
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| Topic: | Contract - Expulsion as shareholder - Date of valuing shares - Valuation of stock - Breach of fiduciary duty - Punitive damages |
| Summary of the Facts: | Juliet Jowett was a shareholder in the law firm of Scruggs, Millette, Lawson, Bozeman & Dent, P.A. She was terminated as an employee. Jowett filed suit against Scruggs and the firm in federal court on the basis of sex discrimination and other employment claims. This case was eventually dismissed with prejudice. Jowett then filed a complaint in chancery court. The judge found that Jowett was entitled to $184,156 for income that was not distributed to her, taxable for the year 1997. He also found that the values of her shares of stock was $234,053.84. Jowett appeals. |
| Summary of Opinion Analysis: | Issue 1: Expulsion as shareholder The chancellor found that Jowett actually ceased being a shareholder of Scruggs, Millette, Lawson, Bozeman & Dent, the date that she opened her firm, Juliet Jowett, P.A., which was in April 1997. He reasoned that she could not be a shareholder in more than one professional corporation under the Mississippi Rules of Professional Conduct and the Professional Corporations Act. However, there is no definite prohibition in Mississippi for an attorney to be a member of multiple legal associations. In the federal suit that was dismissed with prejudice, the federal court found that the January 1997 employment agreement between Jowett and the firm was valid and enforceable. No appeal from that suit was taken, and the present litigation cannot again challenge the validity of the 1997 employment contract. Jowett argues that she was improperly terminated, and regardless, that she was never expelled as a shareholder. Under the employment contract, Jowett was properly terminated after receiving a sixty day notice of termination which was required for terminations for any reason. Based on evidence of the discussions between Scruggs and Jowett, and on Jowett's intent as related in contemporaneous explanations to other people about her negotiations, the chancellor found that the January 1997 agreement was intended to sever all ties between Jowett and the law firm except for what was necessary to set a value on her shares. There is evidence on which the chancellor could rely to that effect. The employment contract provides that if Jowett became disqualified to practice law, she would be terminated as an employee. The chancellor found that the employment contract caused Jowett to no longer be a stockholder when she was terminated as an employee. Nothing in the statutes or bylaws of the law firm prevents the corporation from requiring that Jowett no longer own stock once she is no longer working for the firm. The contract making these special rules is valid at least under principles of res judicata. When Jowett was terminated as an employee, the law firm could enforce its contract that required Jowett to relinquish her shares. Issue 2: Date of valuing shares Though the employment contract provides for the date of effective termination as the end of Jowett's right to share in fees, no determination and payment of that amount then occurred. Jowett argues that the firm's inattention to corporate formalities means that her interest in the firm continued until those formalities were observed. During the period contemplated by the firm bylaws for making the calculations and settling with Jowett, she brought suit. The litigation allowed the firm to delay completion of the determination and payment. The date of Jowett's effective termination, which was sixty days after the termination letter was sent her, remained the date for setting the value on Jowett's stock. Issue 3: Valuation of stock The chancellor found that through reading the firm's articles of incorporation, the bylaws and the 1997 employment agreement together, the valuation of the shares should be their "book value." The chancellor found that the 1997 employment agreement was intended to sever all ties between Jowett and the firm. Jowett opened her own firm and received a salary and benefits package from the firm, yet did not do any work for that firm beginning in 1997. Based on the evidence, the chancellor did not err when he interpreted that the value of Jowett's stock would include cost advances but would not include accounts receivable. Issue 4: Breach of fiduciary duty Jowett argues that Scruggs violated his fiduciary duty by failing to value her shares as is required by the bylaws of the firm. The firm filed a share valuation petition as a counterclaim to Jowett's lawsuit within the 240 days required in the bylaws to value shares but it was dismissed with Jowett's consent. The failure to value Jowett's shares and pay her for them during the pendency of this litigation was validly found not to indicate a breach of fiduciary duty. Jowett also argues that there was a wrongful conversion of corporate assets when Scruggs declared money to himself as director. Those claims were dismissed, and Jowett failed to appeal. Therefore, her challenge is barred. Issue 5: Punitive damages Jowett argues that Scruggs’ breaches of fiduciary duty are so egregious, they rise to a level deserving punitive damages. Because there was no breach of a fiduciary duty, there was no basis to award punitive damages. |
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