ERA Franchise Systems, Inc. v. Mathis

931 So. 2d 1278, 2006 Miss. LEXIS 337, 2006 WL 1703165
CourtMississippi Supreme Court
DecidedJune 22, 2006
Docket2005-IA-00350-SCT
StatusPublished
Cited by24 cases

This text of 931 So. 2d 1278 (ERA Franchise Systems, Inc. v. Mathis) is published on Counsel Stack Legal Research, covering Mississippi Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
ERA Franchise Systems, Inc. v. Mathis, 931 So. 2d 1278, 2006 Miss. LEXIS 337, 2006 WL 1703165 (Mich. 2006).

Opinion

931 So.2d 1278 (2006)

ERA FRANCHISE SYSTEMS, INC.
v.
Vennit B. MATHIS, II.

No. 2005-IA-00350-SCT.

Supreme Court of Mississippi.

June 22, 2006.

*1279 Christopher A. Shapley, Robert L. Gibbs, Jackson, Joseph Anthony Sclafani, Steve J. Allen, attorneys for appellant.

Eddie J. Abdeen, Sam S. Thomas, attorneys for appellee.

EN BANC.

WALLER, Presiding Justice, for the Court.

¶ 1. Vennit B. Mathis, II, filed a "Complaint for Declaratory and Other Relief" in the Chancery Court of Covington County against a real estate franchising corporation, ERA Franchise Systems, Inc. ("ERA"), his former business partners, their newly-formed business entities, and his former partners' new partners in the newly-formed business entities. ERA filed a motion to have the action transferred to circuit court. The chancellor held a hearing and, ruling that he would bifurcate the trial between equitable and legal claims, denied the motion to transfer. ERA then filed a petition for interlocutory appeal which this Court granted. See M.R.A.P. 5.

FACTUAL AND PROCEDURAL HISTORY

¶ 2. Vennit B. Mathis, II, filed suit against ERA Franchise Systems, Inc., Jackie R. "Chip" Hill, Pamela Hill, H. Stuart Irby, Mark Warren, Real Estate Professionals of Central Mississippi, LLC (REP-Central), and Real Estate Professionals of the Pine Belt, LLC (REP-Pine Belt) in the Chancery Court of Covington County.[1] Mathis's complaint alleged he had acquired a fifty percent equity interest in, and was a member of, Real Estate Professionals, LLC ("REP"), along with defendants Chip and Pamela Hill. Mathis also alleged he signed documents guaranteeing REP's obligations to ERA under the parties' Franchise Agreement and that he made periodic working capital loans to REP and/or Chip Hill related to REP's business operations. Mathis alleged Chip Hill induced him to lend additional funds and pledge personal assets as security for loans to Chip Hill and/or REP, based on Chip's representation that he would transfer his ownership interest in certain parcels of real estate (titled in Chip's name) to Mathis, in addition to paying back loaned funds.

¶ 3. Mathis alleged Chip and Pamela sold their equity interest in REP to Stuart Irby but remained REP employees, and that Chip Hill and/or Irby and/or others wilfully and intentionally diverted REP's corporate assets to new entities (REP-Central and REP-Pine Belt) in an attempt to convert REP's assets and intentionally exclude Mathis from REP's business. He contended such actions were taken with ERA's knowledge and/or active participation. Mathis also alleged Chip Hill signed various documents which transferred the hard assets and real estate listings *1280 of REP to the new entities, and that Chip, along with Pamela Hill, Irby, and Warren, induced REP's real estate agents to terminate and/or not honor their agent contracts with REP by becoming agents of REP-Central and/or REP-Pine Belt. He claimed these actions left REP with no cash flow or way to generate business, resulting in Mathis' loss of his equity investment in REP, and the loss of REP's ability to pay its obligations (e.g., those owed to ERA under the Franchise Agreement).

¶ 4. Mathis also alleged REP-Central and REP-Pine Belt misappropriated REP's franchise rights and earned commissions that should have accrued to REP, while allowing money owed to ERA under the franchising agreement to accumulate as a debt of REP. He claimed the various defendants' actions were done knowingly, wilfully, and intentionally to cause REP to default on its Franchise Agreement so that REP-Central, REP-Pine Belt, and their principals could enter new franchising agreements with ERA. He also claimed that the defendants all engaged in a course of conduct to deliberately:

(1) appropriate the assets, rights and corporate opportunities of REP; (2) convert the legal and practical interests of Mathis in REP; (3) cause REP and Mathis so much harm and damage as to attempt to keep Mathis from redressing the wrongs done Mathis; (4) intentionally breach fiduciary and other legal duties owed Mathis; (5) intentionally take away rights and assets of REP; and (6) do other wrongs to Mathis to his substantial harm.

¶ 5. Mathis's complaint contained fourteen causes of action—first seeking the right to bring derivative claims on behalf of REP and including numerous breach of contract allegations, breach of fiduciary duties, violations of various duties of loyalty and care, tortious interference with contracts and business advantages, conspiracy, and other causes of action. Mathis requested relief in the form of a constructive trust, estoppel, specific performance, and actual and punitive damages.

¶ 6. ERA filed an answer to Mathis's complaint, adding counterclaims against Mathis and cross-claims against REP, the Hills, and Irby. ERA later filed a motion to transfer the case to circuit court, and the motion was heard before the chancellor on June 24, 2004. The chancellor ultimately ruled against transferring the case to circuit court, ruling instead to bifurcate the action. He decided he would try "all derivative claim issues as raised by the pleadings and any other strictly chancery matters," "all specific performance claims, if any," and "all claims for rescission asserted by Mathis." The chancellor stated that after ruling on those issues, he would consider any remaining issues and transfer any issues he deemed to be legal to circuit court. He also denied ERA's motion to have the issue of subject matter jurisdiction certified for interlocutory appeal. We granted ERA's request for interlocutory appeal.

STANDARD OF REVIEW

¶ 7. "The standard of review for a ruling on a motion to transfer from chancery court to circuit court, or from circuit court to chancery court, is de novo.... Jurisdiction is a question of law, and the Court review[s] questions of law de novo." Union Nat'l Life Ins. Co. v. Crosby, 870 So.2d 1175, 1178 (Miss.2004) (citations omitted).

ISSUES

I. Whether the Chancery Court Erred in Failing to Transfer the Case to Circuit Court.

A. Derivative Claims

¶ 8. Mathis asserts that a number of the issues he raises are equitable because *1281 they are derivative in nature. He concedes that if REP were bringing a direct action against ERA for breach of contract and was seeking compensatory and punitive damages, rather than specific performance of the contract, REP's suit would be an action at law. He admits that the same would be true for his claims of breach of fiduciary and other duties and claims of tortious interference. However, he claims that because he is asserting REP's claims derivatively and seeks to have a court of equity fashion a remedy that prevents the other equity member of REP (Irby) from profiting from his wrongful conduct, jurisdiction is proper in chancery court.

¶ 9. As Mathis notes, we have previously addressed the propriety of a shareholder bringing a derivative action in the context of a closely-held corporation in Derouen v. Murray, 604 So.2d 1086 (Miss.1992).[2] In Derouen, Leroy Derouen, a fifty-percent shareholder in a closely-held corporation ("H & D Seafood") brought suit against Hudson Murray, the other fifty-percent shareholder who was also the president and director of H & D Seafood, alleging that Murray, through a new business entity, sold and improperly disposed of assets belonging to H & D Seafood. Derouen, 604 So.2d at 1088-90.

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Bluebook (online)
931 So. 2d 1278, 2006 Miss. LEXIS 337, 2006 WL 1703165, Counsel Stack Legal Research, https://law.counselstack.com/opinion/era-franchise-systems-inc-v-mathis-miss-2006.