Phillips Brothers v. Ray Winstead

• Court: Mississippi Supreme Court
• Decided: September 22, 2011
• Docket: 2011-CA-01846-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2011-CA-01846-SCT

PHILLIPS BROTHERS, KILBY BRAKE FISHERIES, LLC AND HARRY SIMMONS

v.

RAY WINSTEAD

DATE OF JUDGMENT: 09/22/2011 TRIAL JUDGE: HON. JANNIE M. LEWIS COURT FROM WHICH APPEALED: YAZOO COUNTY CIRCUIT COURT ATTORNEYS FOR APPELLANTS: LUTHER T. MUNFORD ROBERT G. MAYER WILEY J. BARBOUR, JR. CHARLES W. WRIGHT, JR. L. BROOKS HOOPER ATTORNEYS FOR APPELLEE: DORSEY R. CARSON, JR. JOHN M. LASSITER CHRISTOPHER D. MEYER NATURE OF THE CASE: CIVIL - TORTS-OTHER THAN PERSONAL INJURY & PROPERTY DAMAGE DISPOSITION: REVERSED; REMANDED IN PART; RENDERED IN PART - 01/09/2014 MOTION FOR REHEARING FILED: MANDATE ISSUED:

EN BANC.

WALLER, CHIEF JUSTICE, FOR THE COURT:

¶1. Defendants Phillips Brothers, Kilby Brake Fisheries, LLC, and Harry Simmons seek

review of a $1,724,923 judgment in favor of Ray Winstead for shareholder and employment

claims. Finding multiple errors, we reverse and render in part; and remand in part. Facts & Procedural History

¶2. In March 2000, Kilby Brake Fisheries, LLC, was formed as a catfish hatchery and

farm. An operating agreement was signed by the three members–Harry Simmons, Phillips

Brothers, LP, and Ray Winstead. The Kilby Brake operating agreement provided each

member a one-third percent ownership stake in Kilby Brake. At the start of the LLC, bank

loans were made and signed by all three members as guarantors. There were three loans: one

in the amount of $300,300 (for the purchase of inventory), one in the amount of $201,040

(the purchase of equipment), and one in the amount of $300,900 (revolving line of credit to

be used for operating expenses). Shortly after Kilby Brake was formed, Phillips and

Simmons purchased an adjacent catfish farm (“the Wise Place”) to be used to support the

Kilby Brake operation. Winstead declined to be a part of the purchase of the Wise Place.

¶3. The members agreed that Winstead would be the hatchery operator and, for his work,

he would receive $30,000 per year from Kilby Brake and use of a company truck, and Kilby

Brake would pay for his and his family’s housing on the farm, utilities, and health insurance.

Winstead, as hatchery operator, was subject to the direction of Simmons, serving as the

manager under the operating agreement. Simmons, under the Kilby Brake operating

agreement, was authorized to carry out the business functions of the hatchery, including

borrowing money and check-writing.

¶4. Kilby Brake’s records indicated it was profitable for only two of the almost eight

years while Winstead was the hatchery operator. Simmons fired Winstead in late 2007.

¶5. In September 2009, Winstead filed a complaint against Kilby Brake, Harry Simmons,

Chat Phillips, Simmons Farm Raised Catfish, Inc., Five Mile Fisheries, Inc., and H.D.

2 Simmons Corp. in the Circuit Court of Yazoo County.1 His complaint was amended to add

Phillips Brothers, LP, as a defendant. Winstead alleged that Simmons and Phillips Brothers

had failed to pay him his agreed-upon salary, asserting claims of fraud, breach of fiduciary

duty, corporate freeze-out, conversion, slander, slander per se, and tortious interference with

business relations. He also requested an accounting and dissolution of the LLC.

¶6. Along with their answers, Simmons, Phillips and Kilby Brake (Defendants) filed

counterclaims against Winstead asserting theft, conversion, usurpation of corporate

opportunities, tortious interference with business relations, conversion, theft by deception,

breach of contractual and fiduciary duties, and unjust enrichment. They requested replevin

and judicial dissolution. The counterclaims alleged that Winstead took Kilby Brake property

for his personal use, provided property to others to use, and sold property, including fish

products, food products, equipment, chemicals and fuel without authorization, while

retaining all profits. The trial court granted Winstead’s motion to dismiss the claims of

tortious interference with Kilby Brake’s business relations and claims that were barred by

the three-year statute of limitations.

¶7. Trial commenced in April 2011 and, at the completion, a jury awarded Winstead

compensatory damages in the amount of $1,160,000 and punitive damages against Simmons

of an additional $100,000. The court also awarded Winstead attorneys’ fees and costs in the

amount of $464,923, bringing the total judgment against Harry Simmons and Phillips

Brothers to $1,724,923. Further, the court awarded post-judgment interest at a rate of eight

1 Harry Simmons and Phillips Brothers were members of a number of other entities involved in the catfish industry. The partners’ other companies also were named as defendants in Winstead’s complaint.

3 percent. Defendants appealed. The jury denied three of Defendants’ four

counterclaims–theft, unjust enrichment, and breach of fiduciary duty. Kilby Brake prevailed

on its replevin counterclaim, and the jury ordered that Winstead return the company truck

to Kilby Brake.

¶8. Defendants filed a motion for judgment notwithstanding the verdict (JNOV) or, in the

alternative, a motion for new trial, which were denied. Although both parties asked in their

pleadings for the LLC to be dissolved, they were unable to agree about the terms of

dissolution. In the final judgment, the parties’ claims for judicial dissolution were dismissed

without prejudice. No issue is made of this dismissal on appeal. Because of the many issues

in this case, we will discuss the facts relevant to each issue below.

DISCUSSION

¶9. The issues raised by the three defendants in this appeal fall into six categories: (1)

Whether the admission of testimony regarding an oral agreement for cash contributions

violated the parol evidence rule; (2) whether there was sufficient evidence to support

Winstead’s award for fraud; (3) whether there was sufficient evidence to support Winstead’s

award for corporate freeze-out; (4) whether there was sufficient evidence to support

Winstead’s award for breach of fiduciary duty; (5) whether Kilby Brake is entitled to a new

trial; (6) whether Winstead met the requisite elements of slander per se?

I. Whether the admission of testimony regarding an oral argument for case contributions violated the parol evidence rule.

¶10. Winstead asserted that Simmons and Phillips Brothers had agreed to provide $600,000

in paid-in capital from cash contributions for the purchase of the startup equipment and fish

4 inventory. Over Simmons and Phillips Brothers’ objections, the trial court allowed Winstead

to testify to this alleged oral agreement because the operating agreement was “silent as to the

contributions.” Winstead’s expert also was permitted to testify, over objections, that he

believed it was the intent of Simmons and Phillips to pay$600,000 in capital, out of cash.

¶11. “Questions concerning the construction of contracts are questions of law that are

committed to the court rather than questions of fact committed to the fact finder.” Facilities,

Inc. v. Rogers-Usry Chevrolet, Inc., 908 So. 2d 107 (Miss. 2005) (quoting Miss. State

Highway Comm'n v. Patterson Enters. Ltd., 627 So. 2d 261, 263 (Miss. 1993)). An

appellate court applies a de novo standard of review for questions of law. Starcher v. Byrne,

687 So. 2d 737, 739.

¶12. The relevant portion of the Kilby Brake operating agreement at issue is set out as

follows:

ARTICLE VI CAPITAL CONTRIBUTIONS AND CAPITAL ACCOUNTS

Section 6.1 Initial Capital Contributions. As initial capital contributions to the Company, the Members shall contribute the Property more particularly described in Schedule “A”.2

Section 6.2 Additional Contributions. Except as set forth in Section 6.1 above, no Member shall be required to make any capital contributions.

¶13. “The primary purpose of all contract construction principles and methods is to

determine and record the intent of the contracting parties.” Royer Homes of Miss., Inc. v.

2 See Schedule “A,” attached as an exhibit to this opinion.

5 Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss. 2003) (citing Kight v. Sheppard Bldg.

Supply, Inc., 537 So. 2d 1355, 1358 (Miss. 1989)). In contract construction cases, the

court’s focus is on the language of the contract. Royer Homes, 857 So. 2d at 752 (citing

Turner v. Terry, 799 So. 2d 25, 32 (Miss. 2001); Osborne v. Bullins, 549 So. 2d 1337, 1339

(Miss. 1989)). A court should look to the “four corners” of a contract to determine how to

interpret it. McKee v. McKee, 568 So. 2d 262, 266 (Miss. 1990). It is well established that

“parol extrinsic evidence is not admissible to add to, subtract from, vary or contradict written

instruments, contractual in nature, and which are valid, complete, unambiguous and

unaffected by accident, mistake or fraud.” Byrd v. Rees, 171 So. 2d 864, 867 (Miss. 1965).

“Our concern is not nearly so much with what the parties may have intended, but with what

they said, since the words employed are by far the best resource for ascertaining the intent

and assigning meaning with fairness and accuracy.” In re Estate of Fitzner, 881 So. 2d 164

(Miss. 2003) (citing Simmons v. Bank of Miss., 593 So. 2d 40, 42-43 (Miss. 1992)). If the

language in the contract is clear and unambiguous, the intent of the contract must be

effectuated. Rotenberry v. Hooker, 864 So. 2d 266, 270 (Miss. 2003); see also Pfisterer v.

Noble, 320 So. 2d 383, 384 (Miss. 1975). “The mere fact that the parties disagree about the

meaning of a provision of a contract does not make the contract ambiguous as a matter of

law.” Burton v. Choctaw County, 730 So. 2d 1, 6 (Miss. 1997) (quoting Cherry v. Anthony,

Gibbs, Sage, 501 So. 2d 416, 419 (Miss. 1987)).

¶14. This Court has said that “silence alone does not necessarily create an ambiguity as a

matter of law.” Facilities, Inc. v. Rogers-Usry Chevrolet, Inc., 908 So. 2d 107, 115 (Miss.

2005). In Facilities, Inc., this Court found that, although the Court of Appeals held that a

6 lease agreement between the parties was not ambiguous, the Court of Appeals improperly

considered extrinsic or parol evidence in the analysis portion of its opinion. Id. at 110. We

found that, although the lease agreement was silent as to whether the bonus rent would apply

to new vehicle sales at the subject property, it was not ambiguous and, therefore, Rogers-

Usry was not required to pay bonus rent for sales that did not occur on the leased property.

Id. at 115-16 (“It is the silence, not the language of the [operating agreement], that has

created this dispute. However, silence alone does not necessarily create an ambiguity as a

matter of law”) (emphasis in original). Further, we noted this concept is not novel and has

been adopted in a number of jurisdictions. Id.

¶15. The Kilby Brake operating agreement is clear. It states “no member shall be required

to make any capital contributions” except as provided in Schedule A.3 Nothing is listed in

Schedule A. Kilby Brake was financed by the three loans totaling more than $800,000,

which Winstead signed for and subsequently renewed as a one-third partner. For more than

eight years, Winstead never raised an issue about the capital investment. Winstead’s expert

testified that it was not unusual to leave capital contributions blank for completion at closing.

No amounts were ever filled in or added.

¶16. Constraining our review to the “four corners” of the document, it is clear the language

used in the Kilby Brake operating agreement is not ambiguous. Thus, it was error for the

trial court to go outside the operating agreement to interpret the intent of the parties. Because

the trial court never should have considered the offer to make cash contributions, the interest-

expense-savings portion of Winstead’s corporate freeze-out damage award also is without

3 See Schedule “A,” attached as an exhibit to this opinion.

7 merit. We thus reverse the judgment of the trial court on its parol-evidence finding as well

as the damages awarded and render judgment in favor of Simmons on this portion of

Winstead’s freeze-out damages. Having limited our review to the admissible evidence, we

now address the merits of Defendants’ claims.

II. Whether there was sufficient evidence to support Winstead’s award for fraud.

¶17. Winstead’s theory of recovery for fraud was based on two claims. The first is that

Simmons and Phillips Brothers purchased the Wise Place in their names only, with funds

from Kilby Brake. The second is that money was withheld fraudulently from his salary.

Winstead was awarded a total of $140,000 for fraud: $90,000 for one-third of the value of

the Wise Place and $50,000 for money withheld from his paychecks. Simmons and Phillips

Brothers were both found liable and both moved for JNOV, arguing Winstead had failed to

prove all of the elements of fraud by clear and convincing evidence or, in the alternative, that

the overwhelming weight of the evidence required a new trial.

¶18. The standard of review for the denial of a motion for JNOV is de novo. InTown

Lessee Assocs., LLC v. Howard, 67 So. 3d 711, 718 (Miss. 2011). We consider the facts in

the light most favorable to the nonmoving party. Natchez Elec. & Supply Co., v. Johnson,

968 So. 2d 358, 361 (Miss. 2007). “‘If the facts so considered point so overwhelmingly in

favor of the appellant that reasonable men could not have arrived at a contrary verdict, [we

are] required to reverse and render.’” Leaf River Forest Prods., Inc. v. Ferguson, 662 So.

2d 648, 659 (Miss. 1995) (quoting Munford, Inc. v. Fleming, 597 So. 2d 1282, 1284 (Miss.

1992)). We will affirm the denial of JNOV if there is substantial evidence in support of the

8 verdict. Natchez Elec. & Supply Co., 968 So. 2d at 362. “Substantial evidence is

information of such quality and weight that reasonable and fair-minded jurors in the exercise

of impartial judgment might have reached different conclusions.” Id. (citations omitted).

¶19. In order to recover for fraud, a plaintiff must prove the following elements: “(1) a

representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity;

(5) his intent that it should be acted on by the hearer and in the manner reasonably

contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his

right to rely thereon; and (9) his consequent and proximate injury.” Holland v. Peoples

Bank & Trust Co., 3 So. 3d 94, 100 (Miss. 2008) (citations omitted). These elements must

be proven by clear and convincing evidence. Bank of Shaw v. Posey, 573 So. 2d 1355, 1363

(Miss. 1990). Clear and convincing evidence is of such a high order that “this Court held

that the ‘overwhelming weight of the evidence’ falls short of being ‘clear and convincing.’”

In the Interest of C.B., 574 So. 2d 1369, 1375 (Miss. 1990) (quoting Aponaug Mfg. Co. v.

Collins, 42 So. 2d 431, 434 (Miss. 1949)).

A. The Wise Place

¶20. The Wise Place is a catfish farm located adjacent to Kilby Brake. Winstead testified

that Simmons informed him that “they had gotten the Wise Place” and that it was his

understanding “that, basically, Kilby Brake bought the Wise Place.” Simmons testified that

he and Phillips Brothers purchased the Wise Place and the equipment thereon individually

and allowed Kilby Brake to use it as part of the hatchery operation. He further testified that

Winstead was unwilling to join in the purchase because he did not feel that a bank would

9 lend him more money. The deed to the property was dated April 12, 2000, and was recorded

in the names of Harry Simmons and Phillips Brothers.

¶21. At trial, Simmons initially testified that the purchase price of the Wise Place was

$190,000, however, he later explained that the total purchase price for the land and

equipment was $230,000. Phillips also testified that the purchase price for the land at the

Wise Place was $190,000, but that the equipment that came with the deal was an additional

cost. Simmons and Phillips Brothers permitted Kilby Brake to use the Wise Place, rent free,

and even gave the proceeds from the sale of the Wise Place equipment to Kilby Brake.

Although Kilby Brake did not pay rent for use of the Wise Place, Kilby Brake spent

$78,305.70 to make improvements to the pond walls and access roads to benefit Kilby Brake.

¶22. At the start of the company, Kilby Brake secured three loans from BankPlus, which

were signed by all members, totaling $800,000. Simmons testified that they paid $400,000

for inventory and $200,000 for equipment, which left $200,000 in operating capital. A Kilby

Brake bank statement from March 2000 was submitted into evidence showing that $610,000

was deposited into the account. Winstead’s attorney thoroughly questioned Simmons about

the purchase of the Wise Place and the March 2000 bank statement, claiming this is where

the $190,000 came from to purchase the Wise Place. Simmons denied this, later testifying

that he recalled purchasing the Wise Place with Phillips Brothers using cash.

¶23. The record contains no evidence that Kilby Brake funds were used to purchase the

Wise Place. Winstead’s forensic accountant, Robert Alexander, testified that no Kilby Brake

funds were used to purchase the property, and neither Simmons nor Phillips ever took any

money from the Kilby Brake account, whether salary, dividends, or other distributions. The

10 deed to the Wise Place was in the name of Simmons and Phillips Brothers and was on record

at the Humphreys County Courthouse. Interestingly, the jury form stated Simmons and

Phillips Brothers were guilty of a material misrepresentation and all nine elements of fraud

but then stated the jury found Simmons and Phillips Brothers not guilty of

“misappropriat[ing] and convert[ing] Kilby Brake Fisheries’ funds or property. . . .”

¶24. This Court finds that insufficient evidence, much less clear and convincing evidence,

was presented to prove the funds to purchase the Wise Place came from Kilby Brake.

Further, Winstead’s mere assertion that he thought Kilby Brake owned the Wise Place is not

enough to carry his burden that he was defrauded by Simmons and Phillips Brothers. We

find that the trial court erred by failing to grant Defendants’ motion for JNOV for the claim

of fraud surrounding the purchase of the Wise Place. Thus, we reverse and render judgment

on this issue in favor of Simmons and Phillips Brothers.

B. Withheld Pay

¶25. The jury ruled Winstead was defrauded by Phillips Brothers and Simmons with regard

to withholdings from his paycheck over the course of his employment at Kilby Brake.

Whether Winstead was owed money based on the amounts withheld from his paycheck was

heavily contested by both sides. Winstead claims improper deductions were taken from his

paychecks and he was never paid the amount he was promised. Simmons claims Winstead

actually owed Kilby Brake for personal charges and cash advances. Both sides produced

documents which were admitted into evidence showing records of payments and deductions.

Based on Winstead’s stated $30,000 annual salary, Alexander calculated that Winstead was

11 owed $50,000 in withheld pay over eight years. The jury found Phillips Brothers and

Simmons liable for $25,000 each.

¶26. In Natchez Electric Supply Inc., the plaintiff was seeking to recover on an open

account. Despite some uncontroverted charges by the defendant, the jury returned a defense

verdict with no recovery for the plaintiff. Because the record contained undisputed evidence

of one party’s obligation to pay another, this Court held “no reasonable and fair-minded juror

in the exercise of fair and impartial judgement” could find the obligating party owed

absolutely nothing. Natchez Elec. & Supply Co., Inc., 968 So. 2d at 363. The case at bar

bears striking similarities.

¶27. In the record we find Winstead admitting to making personal charges on his Kilby

Brake account for some items that were indisputably personal, such as multiple deer-rifle

scopes, dog food, and hunting accessories. When asked if the purchase of a “Gobbler’s

Lounge,” used for turkey hunting, was for Kilby Brake, Winstead responded, “[n]o sir. That

would be a personal item for me.” It was further undisputed that Winstead charged Kilby

Brake for gasoline used at his father’s hunting camp in Durant. Winstead’s damages for lost

pay were based on testimony that money was taken out of all his paychecks; however,

payroll records indicate that Winstead was actually paid in excess of his $30,000 annual

salary for four of his eight years with Kilby Brake. What is more, Winstead admitted he had

received cash advances on his paycheck and that money subsequently would be taken out to

repay the advances. Because fault was apportioned between Phillips Brothers and Simmons,

we address both separately.

12 ¶28. As to Phillips Brothers, we can find no proof of any involvement in the decision-

making process regarding the execution of Winstead’s checks. Contractually, Simmons was

the manager and supervised Winstead. The only testimony in the record regarding

Winstead’s salary was between Simmons and Winstead. Further, all actions on Winstead’s

pay checks, including any deductions, were made by Simmons and his bookkeepers, not by

Phillips Brothers. Winstead even testified that he and Phillips had very little contact, and

when they did, they “didn’t discuss the farm a whole lot.” Nothing in the record indicates

Phillips Brothers ever made a representation to Winstead regarding his pay at all. Thus, there

is no evidence at all that Phillips Brothers fraudulently withheld pay from Winstead’s salary.

We therefore reverse and render judgment in favor of Phillips Brothers.

¶29. With regard to Simmons, Winstead admitted at trial that he knew deductions were

taken from his paycheck for cash advances and for personal charges he made on his Kilby

Brake account. Although Winstead disagreed that some of the charges were personal in

nature, there was no dispute that he was aware Simmons was making deductions. We find

no clear and convincing evidence in the record that any pay shortage which may have

occurred was caused by a fraudulent representation made by Simmons upon which Winstead

relied. Thus, we reverse the judgment against Simmons for fraud with regard to withheld

pay.

¶30. However, Kilby Brake may be liable to Winstead for any improper deductions from

Winstead’s pay that may have occurred, or Winstead may be liable to Kilby Brake if it is

shown he still owes money to Kilby Brake for charges made on his account. We find

Winstead’s own testimony, coupled with other evidence in the record, provides

13 overwhelming evidence, based upon which no reasonable and fair-minded juror in the

exercise of fair and impartial judgment could award Winstead the full amount that he alleged

was taken from each of his paychecks.

¶31. In addition, for reasons discussed below, we reverse and remand this issue to the trial

court for a new trial to determine any amounts Kilby Brake may owe Winstead or vice versa.

III. Whether Winstead proved the requisite elements of corporate freeze-out.

¶32. As early as 1913, this Court used the term ‘frozen out’ when it held that a chancery

court could appoint a receiver for a corporation to wind up the business at the insistence of

minority stockholders “when it shall appear that by gross mismanagement . . . the rights of

the stockholders . . . are being put in jeopardy.” Brent v. B.E. Brister Sawmill Co., 60 So. 1018,

1022 (Miss. 1913). Since that time, Mississippi courts began to recognize freeze-out4 as a

distinctly individual and direct cause of action, separate from a derivative action. See, e.g.,

Bluewater Logistics, LLC v. Williford, 55 So. 3d 148 (Miss. 2011); Missala Marine Serv.,

Inc. v. Odom, 861 So. 2d 290 (Miss. 2003); Fought v. Morris, 543 So. 2d 167 (Miss. 1989);

Cook v. Wallot, 2013 WL 1883533 (Miss. Ct. App. May 7, 2013); Knights’ Piping, Inc.,

v. Knight, 123 So. 3d 451 (Miss. Ct. App. 2012), cert. denied, 2011-CT-00409-SCT (Oct.

3, 2013). This Court recognized in Fought v. Morris that “the distinctive characteristics and

needs” of closely held corporations made them different from traditional corporations.

Fought v. Morris, 543 So. 2d 167, 169 (Miss. 1989).

4 Other jurisdictions use the term “squeeze out.”

14 ¶33. A closely held corporation is a “business entity with few shareholders, the shares of

which are not publicly traded.” Fought v. Morris, 543 So. 2d 167, 169 (Miss. 1989). This

Court has held that limited-liability corporations with few members resemble closely held

corporations. See Bluewater Logistics, LLC v. Williford, 55 So. 3d 148, 161 (Miss. 2011).

Minority shareholders in closely held corporations are particularly vulnerable, because they

usually lack the control the majority has and there is seldom a fair market available for

selling their shares. Fought, 543 So. 2d at 170 (citing Orchard v. Covelli, 590 F. Supp.

1548, 1557 (W.D. Penn. 1984); aff’d 802 F.2d 448 (3rd Cir. 1986)). Thus, if a dispute arises

between the minority member and the majority, it is usually the case that a “minority

shareholder can neither profitably leave, nor safely stay with, the corporation.” Fought, 543

So. 2d at 171.

¶34. Because of their size, membership in closely held corporations resembles that of a

partnership rather than a traditional corporation with directors and stockholders. In its most

classic form, a freeze-out of the minority shareholders by the majority occurs when the

majority purposefully denies the minority member from sharing proportionally in corporate

earnings or gains. This could be accomplished by a number of techniques. For example, the

majority could refuse to declare dividends, pay themselves exorbitant salaries, or sell

corporate assets to themselves at inadequate prices. See F.H. O’Neal and R. Thompson,

O’Neal’s Oppression of Minority Shareholders § 3.02 (2d ed. 1985). The freeze-out cause

of action, therefore, addresses the central problem: the majority, through its right of control,

intentionally reduces or eliminates the minority shareholder’s right to corporate earnings or

gains coupled with virtual inability of the minority member to withdraw or sell.

15 ¶35. Although the jury instructions used at trial in the case before us state there are

“elements” to the corporate freeze-out cause of action, no specific elements were set out.

This Court previously has said that “[c]orporate freeze-out is an intentional tort that is

committed with willful and wanton disregard for the right of the shareholder who is frozen

out.” Missala Marine Serv., Inc. v. Odom, 861 So. 2d 290, 295 (Miss. 2003) (emphasis

added); Bluewater, 55 So. 3d at 163 (upholding chancellor’s finding that willful and grossly

negligent breach of the operating agreement constituted freeze-out). Recognizing the

problems inherent in close corporations, the Fought Court held that majority shareholder

actions in these close corporations must “be ‘intrinsically fair’ to the minority interest.” 543

So. 2d at 171 (overruling Ross v. Biggs, 40 So. 2d 293 (1949)). The Court went on to define

expressly the relationship between those in control and minority members, stating

“[d]irectors and officers of a corporation stand in a fiduciary relationship to the corporation

and its stockholders. These duties include exercising the utmost good faith and loyalty in

discharge of the corporate office.” Id. (citations omitted). We noted recently that the

Fought rationale “applies with equal force” to limited-liability companies. Bluewater

Logistics, LLC v. Williford, 55 So. 3d 148, 161 (Miss. 2011).

¶36. Using traditional elements for an intentional-tort claim and reviewing the above-

discussed cases, we find that, in order to prove a claim of corporate freeze-out, the plaintiff

must establish: (1) the existence of a legally defined duty owed to or right of a minority

shareholder arising out of his or her ownership interest in a corporation; (2) the intentional

or willful breach of that duty by the majority or controlling shareholder(s); (3) that the breach

proximately caused plaintiff’s direct injury; and (4) the fact and extent of injury. See

16 generally Prosser & Keeton, On the Law of Torts § 30 (5th ed. 1984). When we evaluate the

duties and the alleged breach of these duties, we will look to the parties’ agreements and

applicable state law. In the case of Kilby Brake, LLC, that would be applicable caselaw, the

Kilby Brake operating agreement, and the March 2000 version of the Mississippi Limited

Liability Company Act. See Miss. Laws Ch. 402, §§ 1-87, repealed by Revised Mississippi

Limited Liability Company Act, 2010 Miss. Laws Ch. 532, § 1, eff. Jan. 1, 2011. See also

Miss. Code Ann. §§ 79-29-101 to 79-29-1317 (Rev. 2013).

¶37. In his argument for freeze-out, Winstead alleged Simmons and Phillips Brothers took

actions to exclude Winstead from his ownership interest in Kilby Brake without justification

and in willful disregard of Winstead’s rights. Winstead’s amended complaint states this

conduct did not “allow him to in any way participate as a true managing shareholder during

his eight years with Kilby Brake.” In support of this claim, Winstead argued Phillips and

Simmons did not make alleged cash contributions to start the LLC; they misappropriated

funds from Kilby Brake; Simmons made detrimental loans for the company without his

consent; and Simmons did not allow him to inspect the company books. After he was fired

as hatchery operator and moved off the farm, Winstead claimed Simmons and Phillips

Brothers mismanaged Kilby Brake to his detriment. The jury found only Simmons guilty of

freezing out Winstead.

¶38. As noted above, we found the alleged promise of cash contributions inadmissable and

that Winstead had failed to prove Simmons or Phillips Brothers committed fraud by

misappropriating funds from Kilby Brake; thus, these arguments as a basis for his freeze-out

claim are without merit. The only remaining claims by Winstead are that Simmons

17 improperly fired him, made detrimental loans to the LLC, refused to share financial records

with Winstead, and that Simmons and Phillips Brothers mismanaged Kilby Brake after he

was fired in 2008. Thus, we look to see if these claims give rise to a cause of action for

corporate freeze-out.

1. Participation as a Managing Shareholder

¶39. The Kilby Brake operating agreement named Harry Simmons as manager. It stated

that Simmons, as manager, had “full and complete authority, power and discretion to manage

and control the business, affairs, and properties of [Kilby Brake]. . . .” Further, the operating

agreement gave Simmons alone the power to acquire property from any person, to borrow

money from banks or other members of Kilby Brake on the terms Simmons deemed

appropriate, control the business affairs of the company and to make “all decisions regarding

those matters.” Winstead admitted at trial he signed the operating agreement and understood

all of the terms. Although Winstead asserted he “managed” the day-to-day operations, he

admitted he was not named as a manager of Kilby Brake anywhere in the operating

agreement and that his title was hatchery operator. Simmons never needed Winstead’s

permission to borrow money on behalf of Kilby Brake. Further, it is evident from the record

that, had Simmons not borrowed the money from his other entities, Kilby Brake would have

ceased business operations. When asked whether Simmons had the authority as manager to

borrow money to be sure that payroll was made, Winstead answered affirmatively.

¶40. We find nothing in the record that would lead to the conclusion that Winstead could

participate in Kilby Brake as a managing shareholder. Further, Simmons, as the only

manager of Kilby Brake, did not use his control of Kilby Brake to violate any terms of the

18 operating agreement, thereby breaching the duty he owed to Winstead. Thus, Winstead’s

argument that he was frozen out of the LLC because he was denied participation as “a true

managing shareholder” in the company is without merit.

2. Winstead’s Termination as Hatchery Operator

¶41. Although many commentators point to being fired by management as possible

evidence a minority member in a closely held corporation has been frozen out, the Fifth

Circuit has held that in employment-at-will states like Mississippi, nonmanaging members

of a closely held corporation do not have “fiduciary-rooted entitlements to their jobs.” Hollis

v. Hill, 232 F. 3d 460, 470 (5th Cir. 2000). See also Knights’ Piping, Inc. v. Knight, 123

So. 3d at 459 (Miss. Ct. App. 2012) (“a majority shareholder does not breach his fiduciary

duty when he terminates a minority shareholder if he has ‘acted pursuant to a legitimate

business purpose.’”). There is nothing in the Kilby Brake operating agreement that could be

construed as guaranteeing Winstead employment with Kilby Brake. Further, there was

certainly enough evidence in the record to suggest Simmons was acting pursuant to a

legitimate business purpose in firing Winstead.

¶42. Simmons had designated authority as manager to terminate Winstead. Though not

required, Simmons had several arguable causes to fire Winstead. Winstead made several

personal charges on his Kilby Brake account, even after he was told not to. Winstead used

Kilby Brake employees, while they were being paid by Kilby Brake, to make improvements

to his deer camp and to work in his father’s ham store during the holidays. Kilby Brake

equipment also was used to make improvements to Winstead’s deer camp. The survival ratio

of fish was around forty to fifty percent under Winstead and increased to seventy-five percent

19 after he left the hatchery. Most importantly, the business was profitable for only two of the

eight years Winstead ran the day-to-day operations at the hatchery. Thus, we find Simmons

presented sufficient evidence to show he acted pursuant to a legitimate business purpose, and

Winstead’s firing did not, by itself, constitute a freeze-out of his interest.

3. Inspection of Kilby Brake Finances

¶43. The Kilby Brake operating agreement states that every member, at their own expense,

“shall have the right to inspect, copy, and audit [Kilby Brake’s] books and records at any

time during normal business hours without notice to any other member or the manager.” It

also states each member “shall be furnished [with] . . . a copy of the balance sheet of [Kilby

Brake]” for each accounting period. The records for Kilby Brake all were held at Kilby

Brake’s principal place of business, which was Simmons’s office in Yazoo City.

¶44. The record shows Simmons proposed that either he or Winstead leave the company

in mid-to-late 2007. Winstead alleged that he was interested in purchasing Kilby Brake, but

that Simmons failed to provide him with appropriate company financial information that he

needed to obtain a loan from a bank. Simmons testified he could not recall the last time that

he had sent a balance sheet to Winstead and he doubted that he had sent one since Winstead

moved off the farm in January 2008. He further admitted that Winstead remained a member

of the LLC, was entitled to the records, and that he continued to send them to Phillips

Brothers. However, Simmons delivered 3,500 pages of financial documents relating to Kilby

Brake to Winstead’s accountant in Canton in June 2008.

¶45. Winstead never presented any evidence to show he was denied access to Kilby

Brake’s offices and records or that he even attempted to “inspect, copy, and audit” the

20 records at his own expense, which, under the operating agreement, he had a right to do

without notice to Simmons. However, as manager and keeper of the records, Simmons also

had a duty under the operating agreement to furnish his other partners with balance sheets

for each accounting period, which he admittedly did not do for Winstead once he was fired.

¶46. Although Simmons arguably breached his duty to Winstead by not providing the

balance sheets to him, Winstead did not present any evidence on how these acts damaged

him. The purpose of trying to obtain the financial documents from Simmons was to try and

get financing to purchase Kilby Brake. Winstead had a right under the operating agreement

to inspect and copy Kilby Brake’s books without Simmons’s permission. And Simmons

eventually delivered the voluminous documents to Winstead’s accountant prior to filing suit;

thus, we find this claim to be without merit.

4. Mismanagement in 2008

¶47. Winstead’s claim for mismanagement was submitted to the jury in the same

instruction as his freeze-out claim. Winstead received damages on his mismanagement claim

in both his award for freeze-out and breach of fiduciary duty. The jury instruction stated

that, to prove a claim for mismanagement, “Winstead must show by a preponderance of the

evidence that during his corporate freeze-out, Harry Simmons and Phillips Brothers made

decisions, purchases, or acquisitions without his consent and that these actions devalued the

business, and in turn, Plaintiff’s ownership interest.” (Emphasis added.) Winstead’s

argument alleges Simmons’s mismanagement of Kilby Brake caused a lack of corporate

gains and devalued his interest. Thus, it clear from his amended complaint and the jury

instruction at trial that these allegations are better viewed as a derivative claim on behalf of

21 Kilby Brake and not a direct cause of action for corporate freeze-out. See Mathis v. ERA

Franchise Systems, Inc., 25 So. 3d 298, 303 (2009) (“[I]n determining whether the action

belongs to the corporation or the individual, the focus of the inquiry is whether the

corporation or the individual suffered injury.”).

¶48. In the case sub judice, Winstead presented a number of claims that were derivative

because he sought relief on behalf of Kilby Brake, and his injury was based on his ownership

in the company. This Court requested supplemental briefing on the issue of whether it was

error for the circuit court to allow the claims to proceed without making a determination of

whether the “Murray exceptions 5” applied, which would permit Winstead to bring the

derivative claims in a direct action. See Derouen v. Murray, 604 So. 2d 1086, 1091 (Miss.

1992).

¶49. Although the trial court did not apply the Murray exceptions, Defendants never

challenged whether Winstead should be permitted to bring the derivative claims in a direct

action; therefore, we find the derivative claims were tried by implied consent, and the pre-

trial procedural requisites that apply in derivative actions were waived. See id. We also find

that the trial court was not required to consider, sua sponte, whether Winstead was entitled

5 The Murray exceptions allow for derivative claims to be tried as direct actions if the trial judge finds that doing 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.” Derouen v. Murray, 604 So. 2d 1086, 1091 n.2 (Miss. 1992).

22 to bring the derivative claims as a direct action; therefore, the trial court did not err in failing

to address the issue.

¶50. Alabama, like Mississippi, has held that managers in a closely held corporation owe

a duty to act fairly to minority interests. See Burt v. Burt Boiler Works, Inc., 360 So. 2d

327, 331 (Ala. 1978). We find persuasive the statement of the Alabama Supreme Court that

the freeze-out cause of action “is not a panacea for any and all conduct undertaken . . . that

could be deemed ‘unfair’ to the minority.” Stallworth v. AmSouth Bank of Alabama, 709

So. 2d 458, 468 (Ala. 1997). “[A] minority shareholder cannot parlay a wrong committed

primarily against the corporation, which gives rise to a derivative claim only, into a personal

recovery of damages under a squeeze out theory by simply stating the injury to the

corporation is also ‘unfair’ to him as well.” Id. at 467. Even though we find this language

to be persuasive, Winstead claimed the mismanagement of Kilby Brake factored into his

freeze-out. Thus, we review this claim in light of the elements we have cited above for

corporate freeze-out, which necessarily include proving the conduct complained of was

willful and wanton and that it proximately caused individual damages.

¶51. Winstead argued at trial and in his brief that, after he was fired, “Simmons undertook

activities which negatively affected Kilby’s financial sustainability and further devalued

Winstead’s interest.” Winstead presented evidence that, in the year following his term as

hatchery operator, Kilby Brake’s sales decreased by seventy-six percent, from $756,451.64

in 2007 to $181,146.44 in 2008. Winstead’s expert, Alexander, testified that, while Winstead

was operator, Kilby Brake’s sales consistently were close to $775,000 per year. Alexander

23 further testified that, although the economy was bad, the economy was not the cause of the

nearly eighty-percent decline in sales. In fact, Kilby Brake’s sales were back up in 2009.

¶52. None of the parties disputes that sales were low in 2008 and, of course, each side

blames the other. Simmons testified that sales were low because there were no fish in 2008

and attempted to show that Winstead was responsible for the missing fish by either taking

them or mismanaging the farm. Members of Kilby Brake’s staff testified that, when the

ponds were seined in 2008, there was a remarkably low number of fish. However, evidence

showed that the seining and feed expenses in 2008 were higher than they were in 2007.

Simmons testified this was because he had to restock the ponds to replace the fish that were

missing. Winstead argued that the increase in food and seining costs indicated there were

fish at Kilby Brake that were not reported. In sum, a sharp dispute exists in the record as to

what happened to the fish.

¶53. A number of witnesses testified that if Winstead had moved the millions of missing

fish, someone would have known. In fact, testimony was presented that it would be nearly

impossible to move the fish in the night and that moving the fish would require a crew of six

men, two tractors, a seine and reel, and a boat to move a million fish. However, there was

also testimony that large amounts of “swim-up fry” could be moved in a standard ice chest.

Alexander stated that he could not testify that the defendants caused the drop in sales;

however, he testified that the sales should have occurred if the parties had carried on normal

business in Winstead’s absence.

¶54. To carry his claim for corporate freeze-out, Winstead was required to demonstrate

that Simmons intentionally and willfully used his control of Kilby Brake in 2008 in a way

24 that harmed Winstead individually. We find Winstead failed to prove that Simmons

“willfully and wantonly” mismanaged Kilby Brake in a manner that harmed Winstead alone.

5. Conclusion on Corporate Freeze-out

¶55. Taken as a whole, Winstead failed to prove that he was frozen out of Kilby Brake by

Simmons. The record does not indicate that Simmons used his position in control of Kilby

Brake to breach a duty he owed to Winstead by denying him his proportional share of any

corporate benefits. The reality is the record does not reflect any corporate gains whatsoever.

Winstead’s expert testified that neither Simmons nor Phillips Brothers ever received any

payment from Kilby Brake in the form of salary, dividends, or any other distribution. None

of the actions undertaken by Simmons, which Winstead might have felt to be unfair to him,

circumvented the powers delegated to Simmons under the Kilby Brake operating agreement.

When viewing Winstead’s complaints for freeze-out in light of the agreements of the parties

and applicable law, we find Simmons did nothing to willfully breach the duty he owed to

Winstead. Therefore, for the reasons stated above, we reverse and render the judgment of

corporate freeze-out against Simmons.

IV. Whether Simmons and Phillips Brothers breached a fiduciary duty they owed Winstead.

¶56. The jury found both Simmons and Phillips Brothers breached a fiduciary duty they

owed to Winstead and awarded him $395,000, being two thirds of Alexander’s valuation of

the missing fish sales in 2008 due to mismanagement. Simmons and Phillips Brothers argued

first that they did not breach a duty owed to Winstead or, in the alternative, Winstead’s

damages were speculative and amounted to a double recovery. Winstead counters that a

25 plaintiff who proves breach of a fiduciary duty is entitled to the damages incurred as a result

of the breach.

¶57. In his amended complaint, Winstead argued Simmons and Phillips Brothers

“negligently, carelessly, and intentionally failed to perform their duties as . . . managing

officers of Kilby Brake so that the assets of Kilby Brake . . . were mismanaged, wasted,

diverted to and converted by the defendants. . . .” A breach of fiduciary duty owed to Kilby

Brake should be separated from Winstead’s corporate freeze-out claim, which is an

individual claim for Simmons’s intentional breach of the duty owed directly to Winstead that

caused him personal damages, separate and apart from any damages to Kilby Brake. See

Fought, 543 So. 2d at 171 (“‘any attempt [by the majority] to squeeze out a minority

shareholder must be viewed as a breach of his fiduciary duty . . . .’”) (quoting Orchard v.

Covelli, 590 F. Supp. 1548, 1557 (W.D. Penn. 1984), aff’d 802 F.2d 448 (3d Cir. 1986))).

By contrast, a claim that Simmons breached his fiduciary duty through mismanagement or

dissipation of corporate assets belongs to the corporation because the wrong necessarily

damages the corporation and damages Winstead only derivatively.6 See Mathis, 25 So. 3d

at 304.

¶58. This Court held in Fought that directors and officers in a closely held corporation

stood in a fiduciary relationship with the corporation and its members. Fought, 543 So. 2d

6 We make this distinction to emphasize that the corporate freeze-out cause of action is distinct from a general breach of fiduciary duty because of the injury involved. Indeed, if a plaintiff proves he or she has been intentionally frozen out, that cause of action would also be the support for an award of personal damages for a breach of fiduciary duty. However, if the wrong directly damages the corporation and its assets from waste, conversion, and mismanagement, the claim is the corporation’s.

26 at 171; see also Bluewater, 55 So. 3d at 161 (holding the Fought rationale “applies with

equal force” to limited liability companies). Before we look to any common-law standards

of care, we look to the agreement of the parties. The Kilby Brake operating agreement and

Fought lead us to conclude that Simmons, as manager, owed a fiduciary duty to the other

members of Kilby Brake. However, the operating agreement also indemnified Simmons

from any actions he took on behalf of Kilby Brake as long as he “conducted himself in good

faith” and reasonably believed “his conduct was in [Kilby Brake’s] best interest.” Thus, for

Winstead to succeed on his claim that Simmons’s mismanagement of Kilby Brake in 2008

breached the fiduciary duty Simmons owed Kilby Brake, he must first establish that

Simmons was at the very least in breach of the Kilby Brake operating agreement. Because

Simmons and Phillips Brothers both were found to have breached the duties they owed to

Winstead, we discuss them separately.

¶59. It is clear from the record that Winstead ran the day-to-day operations at the farm.

After he was fired, Simmons took over this responsibility and hired a new hatchery operator,

Dan Bradshaw. Importantly, Phillips Brothers was never involved in decision-making in the

day-to-day operations of Kilby Brake. There is no proof that any employee from Phillips

Brothers visited Kilby Brake at the time the fish went missing or that any fish were moved

to property in which Phillips Brothers had an interest. If anything, the damages resulting

from the mismanagement of Kilby Brake in 2008 were detrimental to the Phillips Brothers’

one-third interest in the company as well. Although as co-members of Kilby Brake, each

party owed a fiduciary duty to the other, Winstead presents no evidence that this duty was

27 breached by Phillips Brothers with regard to the mismanaged assets in 2008. Thus, we

reverse the jury’s judgment on this claim and render a decision in favor of Phillips Brothers.

¶60. Simmons, as manager of Kilby Brake, owed a duty to Winstead even after he was

fired. As noted above, both parties presented plenty of evidence and conjecture as to what

caused the missing fish sales in 2008. However, as will be discussed below, we find

prejudicial error in the trial court’s decisions to prevent Kilby Brake from discovering and

cross-examining Winstead on certain financial items that will necessitate a new trial on

whether Simmons breached a fiduciary duty he owed to Winstead. Because we also find

error in Winstead’s damages for breach of fiduciary duty, we discuss those first.

A. Damages for Breach of Fiduciary Duty

¶61. Winstead received one third of the value of his interest in Kilby Brake as calculated

by his expert in his damages for corporate freeze-out.7 This calculation included one third

7 Alexander calculated the value of Kilby Brake as follows:

28 of the value of the missing fish sales from 2008. Winstead received the other two-thirds of

the value of the missing fish sales in his damages for breach of fiduciary duty. Due to the

numerous errors in Winstead’s expert’s valuation of what Kilby Brake was worth and the

amount of the missing fish sales and because Kilby Brake also was improperly limited in its

discovery and cross-examination of Winstead as discussed in Issue V supra, we must reverse

and remand for a new trial with regard to any breach of fiduciary duty.

¶62. To begin, Alexander erroneously used the alleged promise of cash contributions at the

formation of the LLC and cumulative interest savings to help determine a faulty starting

value of Kilby Brake addressed in Issue I supra. In addition, Alexander calculated the price

of the mismanaged assets, being the missing fish sales in 2008, to be $591,191 and added this

number into his total valuation of Kilby Brake. Because we reverse and render the findings

of the trial court on the alleged cash contributions and cumulative interest expense savings,

the only damages left to assess are the damages for the missing fish sales.

¶63. Winstead was required to provide substantial proof of damages that he suffered so the

jury could have a reasonable basis to assess his loss. Missala Marine, 861 So. 2d at 294.

This Court has held that the plaintiff has the burden of proving any amount of damages with

reasonable certainty. Adams v. U.S. Homecrafters, Inc., 744 So. 2d 736, 740 (Miss. 1999).

However, this Court also has noted that “a measure of speculation and conjecture attends

even damage proof all would agree reasonably certain.” Wall v. Swilley, 562 So. 2d 1252,

1256 (Miss. 1990). This Court has stated that it will not overturn a jury’s verdict unless no

reasonable juror could find damages in the amount that the jury awarded. Missala Marine

29 Services, 861 So. 2d 290, 295 (Miss. 2003) (citing Wal-Mart Stores, Inc. v. Johnson, 807

So. 2d 383, 389 (Miss. 2001)).

¶64. Alexander testified that, in the year after Winstead left the hatchery, fish sales were

seventy-six percent lower than they had been throughout the company’s existence. He

opined that the low sales indicated that either Kilby Brake was mismanaged in 2008, or that

the sales were under reported by Simmons and Phillips Brothers. To reach the value of the

missing fish sales, Alexander found the difference between the average of the gross sales that

occurred in 2007 and 2009 versus the gross sales that occurred in 2008: a $591,000

difference. To get to $591,000, Alexander also added a speculative twenty-five percent

increase to the price of fingerlings, thus increasing the value of the assets. However, this

price increase took place in 2011, long after Winstead filed suit to dissolve Kilby Brake in

2009. Winstead was awarded one-third of Alexander’s valuation of the missing fish sales

in his corporate freeze-out damages and the other two thirds of this value in his breach-of-

fiduciary-duty damages, arguing Simmons and Phillips Brothers received a disgorgement of

profits from their breach.

¶65. There are several problems with Alexander’s valuation of the mismanaged assets

which require a new trial on these damages. To calculate lost profits as damages, the lost

profits a party must prove are the “net profits as opposed to gross profits.” Ballard Realty

Co., Inc., v. Ohazurike, 97 So. 3d 52, 62 (Miss. 2012) (quoting Lovett v. E.L. Garner, Inc.,

511 So. 2d 1346, 1353 (Miss. 1987)); Puckett Machinery Co. v. Edwards, 641 So. 2d 29,

37 (Miss. 1994) (“[T]his Court has held that in calculating the loss of profits, the loss to be

calculated is that of net profits, not gross profits.”). “To ascertain net profits, a party must

30 deduct such items as overhead, depreciation, taxes and inflation.” Lovett, 511 So. 2d at 1353.

Alexander testified that he added the $591,000 into the value of Kilby Brake “to account for

those fish that should have been there but have not been sold.” However, his valuation of

the total amount of lost profits from missing fish sales failed to account for items such as

overhead, labor, taxes, or debt. Indeed, the valuation simply calculated the gross amount of

missing fish sales.

¶66. Further, Winstead filed suit in September 2009 for, among other things, dissolution

of Kilby Brake. In valuing the business, both experts stated at trial that they used the date

Winstead filed suit as the valuation date. Inexplicably, Alexander adjusted the price of the

missing fish sales by increasing their value by twenty-five percent to “current prices” to

account for what he deemed an increase in value from 2009-2011. Any valuation on his right

to recover for the 2008 lost fish sales ended the date he filed suit in September of 2009 to

dissolve the LLC. See, e.g., Hollis v. Hill, 232 F.3d 460, 472 (5th Cir. 2000) (holding the

presumptive valuation date on a freeze-out claim to be the date of filing the suit). Both

experts stated at trial they used that date in their valuation of Kilby Brake. The use of this

date will allow the Court to take into account both parties’ actions, inactions and business

decisions which affected the value of the business from the time Winstead left Kilby Brake

until suit was filed. Alexander’s calculations were purely speculative in nature and artificially

inflated the value of Kilby Brake. Therefore, we are compelled to reverse and remand for

a new trial on issues regarding any breach of fiduciary duty with regard to the loss of fish

inventory.

V. Whether Kilby Brake is entitled to a new trial.

31 ¶67. During discovery, Winstead produced his tax returns from 2006 to 2009 which

showed substantial income as coming from the Winstead Cattle Company. The only other

income listed on Winstead’s tax returns was from Kilby Brake and his wife’s job. Winstead

had also produced two Forms 1099 from a fish farmer named Scott Kiker, which did not

appear on his tax returns. Kilby Brake’s theory was the entries for “cattle” represented

income from sales of Kilby Brake fish Winstead was brokering and thus, it sought to compel

production of all of the Winstead Cattle Company’s financial records. Winstead admitted

in his deposition and again at trial that the Winstead Cattle Company did no actual business,

and it was simply his hunting camp. The trial court denied Kilby Brake’s motion to compel

discovery into Winstead’s finances.

¶68. While cross-examining Winstead, counsel for Kilby Brake began to question him

about the two Forms 1099 Winstead had produced in discovery showing income from Kiker.

Winstead testified that he would often act as a middle man if he knew of a farmer who was

in need of fish and another who had fish for sale; taking a commission for brokering the deal.

Kilby Brake’s counsel was not allowed to question Winstead about where this income from

brokering fish sales appeared on the tax returns, because the returns were prepared by

Winstead’s accountant. The trial court ruled Winstead did not have personal knowledge of

the returns and thus, the returns were inadmissable hearsay.

¶69. A trial court’s discovery orders will not be disturbed unless there is an abuse of

discretion. Dawkins v. Redd Pest Control Co., Inc., 607 So. 2d 1232, 1235 (Miss. 1992).

This Court said where “important information is denied a litigant reversal will obtain.” Id.

“‘[A]dmission or suppression of evidence is within the discretion of the trial judge and will

32 not be reversed absent an abuse of that discretion.’” Church of God Pentecostal, Inc. v.

Freewill Pentecostal Church of God, Inc., 716 So. 2d 200, 210 (Miss. 1998) (citation

omitted) (quoting Sumrall v. Mississippi Power Co., 693 So. 2d 359, 365 (Miss. 1997)).

Even if an abuse of discretion has occurred, “for a case to be reversed on the admission or

exclusion of evidence, it must result in prejudice and harm or adversely affect a substantial

right of a party.” Terrain Enter., Inc. v. Mockbee, 654 So. 2d 1122, 1131 (Miss. 1995)

(citations omitted).

¶70. Kilby Brake’s attorney made a proffer that he would have questioned Winstead on

where the income from Kiker appeared on his income tax return and whether it was indicated

under the Winstead Cattle Company entry, because Winstead already had testified Winstead

Cattle Company did no business and was merely a hunting camp. Winstead cited U.S.

Fidelity & Guaranty Co. v. Whitfield as authority for the proposition that it is inadmissible

hearsay for a witness who did not prepare a tax return to testify as to that tax return because

he lacks personal knowledge. See U.S. Fid. & Guar. Co. v. Whitfield, 355 So. 2d 307 (Miss.

1978). However, this case is easily distinguishable.

¶71. In U.S. Fidelity, the insured’s witness, a certified public accountant (CPA), testified

as to the amount of the loss the insured sustained after a fire, basing it on the inventory

reflected in the insured’s federal income tax return. Id. at 309. This Court held that, because

the witness CPA did not prepare the insured’s tax return nor discuss it with the actual

preparer, the witness CPA’s testimony “was rank hearsay.” Id. In the case at bar, Kilby

Brake was questioning Winstead about his own tax return. The signature line of the federal

income tax return, Form 1040, states that, under the penalty of perjury, the signer has

33 examined the return and believes it to be true and complete. Further, any information used

by Winstead’s accountant in calculating Winstead’s income tax return would have come

from Winstead. Thus, we find the trial court’s decision not to allow Kilby Brake to cross

examine Winstead on his tax return because he lacked personal knowledge was error.

¶72. Winstead argues that, if there were any errors in the trial court’s decisions, they were

harmless. However, the record indicates a third Form 1099 from Kiker to Winstead was

found in the company truck which Winstead returned after the jury verdict against him on

Kilby Brake’s replevin claim. Further, Kiker testified that he had received a load of fish

from Kilby Brake that Winstead claimed Simmons was going to “drain’em in the ditch.”

Kiker testified there was no paperwork on the transaction; that he sold this load of fish, gave

Winstead a commission and did not pay Kilby Brake for the sales.

¶73. From the evidence noted above, we find the trial court’s refusal to allow both

discovery into the finances of Winstead and questions concerning Winstead Cattle Company

on his tax return prevented Kilby Brake and the jury from finding out whether Winstead was

selling fish from Kilby Brake and disguising it on his income tax returns, thereby prejudicing

Kilby Brake’s ability to present its case. What happened to the fish inventory was central

to both parties’ theories of the case. Importantly, the decisions by the trial court denied Kilby

Brake the ability to present its case as to what happened to the fish. The record shows there

were years in which Winstead received substantial income from brokering fish sales, almost

$20,000 in one year. He admitted that Winstead Cattle Company did no business and was

simply his hunting camp, yet it made significant amounts of money. We therefore reverse

the trial court’s decision to deny discovery into the finances of Winstead and remand for a

34 new trial on Winstead and Kilby Brake’s breach-of-fiduciary-duty claims, as they pertain to

the missing fish sales. Specifically, Kilby Brake should be allowed discovery into the

finances of Winstead concerning outside income and specifically the stated income from

Winstead Cattle Company.

VI. Whether Winstead met the requisite elements of slander per se.

¶74. The jury found Simmons guilty of slander per se and awarded Winstead $5,000 on

this claim. Simmons argues that Winstead never presented any evidence that he made

slanderous statements about Winstead prior to judicial proceedings. Further, Simmons

argues no witnesses testified that he published the alleged slanderous statements about

Winstead. Finally, Simmons argues truth as a defense and that he was entitled to his opinion

of Winstead as a hatchery operator.

¶75. To prove slander, Winstead had the burden to prove the following elements: (1) a false

and defamatory statement concerning the plaintiff; (2) unprivileged publication to a third

party; (3) fault amounting to at least negligence on the part of the publisher; and (4) either

actionability of the statement irrespective of special harm or the existence of special harm

caused by the publication. Franklin v. Thompson, 722 So. 2d 688, 692 (Miss. 1998)

(citations omitted). Because publication is an essential element to slander, “if the words were

spoken only to the complaining party or to his agent, representing him in the matter discussed

. . . it is not such a publication as will support an action for slander.” Kirk Jewelers v.

Bynum, 75 So. 2d 463 (Miss. 1954).

¶76. In Mississippi, statements are actionable per se if they are:

35 (1) Words imputing the guilt or commission of some criminal offense involving moral turpitude and infamous punishment. (2) Words imputing the existence of some contagious disease. (3) Words imputing unfitness in an officer who holds an office of profit or emolument, either in respect of morals or inability to discharge the duties thereof. (4) Words imputing a want of integrity or capacity, whether mental or pecuniary, in the conduct of a profession, trade or business; and in this and some other jurisdictions (5) words imputing to a female a want of chastity.

Speed v. Scott, 787 So. 2d 626, 632 (Miss. 2001) (quoting W.T. Farley, Inc., v. Bufkin, 132

So. 86, 87 (Miss. 1931)).

¶77. Further, “[t]he slander . . . must be clear and unmistakable from the words themselves

and not be the product of any innuendo, speculation or conjecture.” Baugh v. Baugh, 512

So. 2d 1283, 1285 (Miss. 1987). If the language is actionable per se, general damages are

presumed to result. McCrory Corp. v. Istre, 173 So. 2d 640, 646 (Miss. 1965) (citations

omitted). It is well settled that truth is a complete defense to a charge of slander. Franklin,

722 So. 2d at 692.

¶78. When analyzing a slander claim, Mississippi courts first determine if “the occasion

called for a qualified privilege” and if a qualified privilege does exist, “the Court must then

determine whether the privilege is overcome by malice, bad faith, or abuse.” Eckman v.

Cooper Tire & Rubber Co., 893 So. 2d 1049, 1052 (Miss. 2005) (citing Garziano v. E.I.

Dupont de Numours & Co., 818 F.2d 380, 386-87 (5th Cir. 1987) (applying Mississippi

law))). One of the qualified privileges recognized by this Court protects communications

between employers and their employees. See Holland v. Kennedy, 548 So. 2d 982, 987

(Miss. 1989). In speaking of this privilege, this Court held: “[t]he law guards jealously the

right to the enjoyment of a good reputation, but public policy, . . . the interests of society, and

36 sound business demand that an employer . . . be permitted to discuss freely with an employee,

or his chosen representative, charges made against the employee affecting the latter's

employment.” Killebrew v. Jackson City Lines, 82 So. 2d 648, 650 (Miss. 1955). In

describing the contours of the employer/employee privilege, this Court held “‘[w]hen

qualified privilege is established, statements or written communications are not actionable

as slanderous or libelous absent bad faith or malice if the communications are limited to

those persons who have a legitimate and direct interest in the subject matter.’” Young v.

Jackson, 572 So. 2d 378, 383 (Miss. 1990) (quoting Bush v. Mullen, 478 So. 2d 313 (Miss.

1985) (internal citations omitted)).

¶79. In his amended complaint, Winstead asserted claims for slander and slander per se

against Simmons. In his count for slander, he accused Simmons of telling members of the

catfish farming community that Winstead stole fish from Kilby Brake. In his complaint for

slander per se, he asserted the statements which were inherently defamatory were the

statements adopted in his slander argument. The trial court granted Simmons’s motion for

a directed verdict on Winstead’s slander claim but denied his motion on the slander per se

claim.

¶80. No witnesses testified that Simmons told them Winstead was stealing fish from Kilby

Brake. The only evidence in the record of Simmons stating Winstead stole fish was when

he read his deposition testimony on the stand. Winstead’s attorney asked if Simmons had

ever used the word stealing when talking about Winstead. Simmons responded “not to my

recollection.” Winstead’s attorney then asked Simmons to read from his prior deposition

testimony. Simmons read the relevant portion, in which he stated, “I knew we needed to get

37 out of this situation . . . when he was falsifying fish movement tickets . . . [i]t was stealing

from, from one of my other entities.”

¶81. Although Simmons said Winstead was stealing from Kilby Brake, Winstead did not

put on any proof that Simmons published these statements to third parties. Simmons’s

deposition testimony was about why he fired Winstead. Further, it was in response to a

question from Winstead’s attorney about why Winstead was fired. Winstead’s response was

published only to Winstead’s chosen representative and regarded charges made against

Winstead affecting his employment. Thus, we find no merit in this argument.

¶82. The other evidence Winstead argues proves his slander per se claim developed during

trial. Simmons was asked by Winstead’s counsel whether he believed that Winstead could

not run a successful operation because he was golfing, hunting, drinking, and gambling all

of the time. Simmons responded he believed so, and that he probably said that to people.

Therefore, the only evidence in front of the jury on this claim was Simmons’s own admission

that he “probably” expressed his belief to other people. The record does not reveal the

identities of these other parties.

¶83. Testimony from other witnesses indicated that Winstead drank to excess at times,

hunted often, golfed, and had gambled in a weekly card game regularly for years. All this

occurred while he was working for Kilby Brake. Further, it was undisputed that Kilby Brake

was successful for only two of the eight years Winstead was hatchery operator. However,

no witness testified that he or she could say Winstead’s golfing, hunting, drinking, or

gambling interfered with his abilities to operate Kilby Brake.

38 ¶84. Winstead bore the burden to prove by a preponderance of the evidence that Simmons

published the above statements to parties outside of those within the circle of privileged

individuals and that these statements were indeed false. We find that, alone, the statements

of Simmons that he probably had expressed his belief to others insufficient for Winstead to

carry the burden that Simmons’s statement were published to unprivileged third parties or

that they were even false. Therefore, we reverse the judgment for slander per se and render

a decision in favor of Simmons.

CONCLUSION

¶85. We reverse the judgment of the Yazoo County Circuit Court and remand this case for

a new trial on whether Winstead or Kilby Brake is entitled to any damages regarding

Winstead’s pay and personal charges. In addition, we reverse and remand for a new trial on

the breach-of-fiduciary-duty claim as to liability and damages for the missing fish and any

damages that may occur as a result. We also reverse and render all claims against Phillips

Brothers. Further, we reverse and render the claims for corporate freeze-out and slander per

se against Simmons. Because we reverse for a new trial, we also reverse all awards of

punitive damages, attorneys’ fees, and interest.

¶86. REVERSED; REMANDED IN PART; RENDERED IN PART.

DICKINSON AND RANDOLPH, P.JJ., LAMAR, KITCHENS, CHANDLER, PIERCE, KING AND COLEMAN, JJ., CONCUR.

39 EXHIBIT