Equity Shines Through

December 16, 2015 § 9 Comments

Just when you thought equity was moribund (okay, I confess that it’s more me than you), along comes a case where the appellate court looks over the masterful equitable remedy crafted by a thoughtful chancellor and says, “Job well done.”

That’s what happened in the MSSC case Scafidi, et al. v. Hille, decided December 10, 2015, which involved division of the parties’ interests in several businesses inherited jointly by siblings Gerald Scafidi and Jo Ann Scafidi Hille. The facts are complicated, and the proceedings were convoluted, but the gist of it is that the chancellor ordered what amounted to an equitable distribution of the corporations and real property so as to divide them fairly between the brother and sister. Gerald appealed raising many issues that were addressed in detail in the 44-page opinion by Justice Waller. For our purposes, though, we will look at how the court dealt with Gerald’s argument that the relief granted by the chancellor was improper:

¶60. We now turn to the relief granted by the chancellor. In an action to judicially dissolve a corporation, a chancellor does not have to order a dissolution, even if grounds such as oppression or deadlock are met. This is because the general view in Mississippi is that “[d]issolution is an extraordinary remedy to be sparingly administered in exceptional cases only.” Capitol Toyota, Inc. v. Gervin, 381 So. 2d 1038, 1039 (Miss. 1980). However, “if the strife among the participants has been so long and bitter that the former relationships of congeniality and trust cannot be re-established [like Jo Ann and Gerald’s case], there is little left that an unhappy shareholder can do except . . . bring about the dissolution of the business.” F.H. O’Neal & R. Thompson, O’Neal’s Close Corporations § 9.04 (3d ed. 1971). “But the more common relief in modern cases . . . is to provide relief alternative to dissolution.” Id. at § 9.25. Mississippi’s corporate dissolution statute states that “[n]othing contained in this section shall diminish the inherent equity powers of the court to fashion alternative remedies to judicial dissolution.” Miss. Code Ann. § 79-4-14.34 (i) (emphasis added).

¶61. Contrary to Gerald’s assertion, the chancellor did not dissolve the corporations. Instead, he fashioned an alternative remedy to this problem. The chancellor found that the source of funds for the $180,000 Gerald used to purchase the minority shareholders’ interest in the Trailer Park and the Restaurant corporations came from the corporations themselves. Those shares were purchased with funds equitably owned by both Jo Ann and Gerald. So Gerald’s purchase was for the benefit of both parties. The chancellor then disregarded the shares purchased by Gerald and considered Jo Ann and Gerald to be equal shareholders in the Restaurant and the Trailer Park. After equalizing their interests in the corporations, the chancellor ordered that the property lines be modified by survey to reflect that Jo Ann and Gerald owned fifty-percent of the land upon which the Trailer Park and the Campground were situated.

¶62. The Amended Final Judgment from which Gerald appeals states “that the Court divides, partites, and equitably separates the parties by granting each full ownership of separate companies . . . .” He then granted Jo Ann full ownership of the Trailer Park, and Gerald full ownership of the Campground. The chancellor ordered “that each of the parties is to execute the necessary documents, including deeds, bills of sale and stock certificates to accomplish the directions of the court.” Nowhere in the Amended Final Judgment does the chancellor mention “dissolution.” The chancellor did quite the opposite when he fashioned an alternative remedy to dissolution, which he had full authority to do under Section 79-4-14.34 (i) of the Mississippi Code.

¶63. Since the chancellor did not order a direct dissolution of the corporations, Gerald’s argument that this “equitable distribution” method violates the method provided by the Mississippi Legislature in Section 79-4-14.05 to dissolve a corporation and distribute its assets among its shareholders according to their interests is without merit.

¶64. We cannot locate any precedent in which a chancellor has granted this exact, or even similar, relief. However, we note that “[i]t is not necessary that some exact precedent be found for extending relief in a given situation.” Griffith’s Mississippi Chancery Practice § 35 (2000 ed.) (citing Miller v. Doxey, 1 Miss. 329, 333 (1829)). If a certain form of “relief is clearly requisite and a practical remedy may be applied, such remedy is not to be denied because that remedy has never been applied in just that manner to that exact state of case.” Id. The question for this Court to decide, then, is whether the relief granted here is an appropriate remedy under Mississippi Code Section 79-4-14.34(i), which states “[n]othing contained in this section shall diminish the inherent equity powers of the court to fashion alternative remedies to judicial dissolution.” Although little caselaw addresses Mississippi’s alternative-remedy provision, substantial precedent supports the chancellor’s broad powers to provide an equitable solution in cases such as this. See, e.g., In re Hardin, 158 So. 3d at 346.

¶65. Other jurisdictions offer guidance as to appropriate remedies to resolve disputes among dissenting shareholders in a close corporation. Some courts have resorted to remedies listed by statute, while others have fashioned remedies not specifically mentioned in a statute. O’Neal’s Close Corporations at § 9.35 …

After reviewing some of those statutory provisions from other states, the court concluded:

¶67. After reviewing these alternative remedies, and in light of all the particular factual circumstances of this case, we find that granting full ownership in the respective separate corporations operated individually by Gerald and Jo Ann was a practical, fair, and just remedy to resolve the dispute. A chancellor’s remedial powers have long been “marked by plasticity.” Griffith’s Mississippi Chancery Practice § 35 (citing Hall v. Wood, 443 So. 2d 834, 843 (Miss. 1983)). “Equity jurisdiction permits innovation that justice may be done.” Id. If ever a case needed the innovation allowed by equity jurisdiction, it is this one. Considering that nothing “shall diminish the inherent equity powers of the court to fashion alternative remedies to judicial dissolution,” Miss. Code Ann. § 79-4-14.34 (i), we find that the chancellor did not abuse his discretion in fashioning this alternative remedy.

I’m proud to see the high court recognizing the unique problem-solving capability of chancery court. Innovation and flexibility to achieve a just, equitable outcome are what equity is all about.

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§ 9 Responses to Equity Shines Through

  • Frank McKenzie says:

    For another case affirming a Chancellor’s creation of an equitable remedy see Miller v. Parker McCurley Properties, L.L.C.

  • tom teel says:

    As one of the attorneys on the winning side of the Scafide v. Hille case, it was Judge Persons who formulated the order that was appealed on and it was Judge Ward, who took over after the final order and upheld Judge Persons’ decision in the motions to reconsider.

    At the Supreme Court, all nine Justices listened intently and at least six asked specific questions about the applicable law.

    There are lots of cases that give Chancellors wide leeway to create an equitable solution; however, there are more cases that appear to bind Chancellors to formulaic analysis, such as custody factors. This is a great case for Chancellors as it affirms their equitable discretion to make square pegs fit in round holes, which every Chancery lawyer knows is essence of the court.

    • Larry says:

      Thank you and the other commenters. The genius of equity is its flexibility. I wish more of our appellate judges had enough chancery experience to understand that.

  • Bob Wolford says:

    There’s some irony here- Mike Ward is a retired county court judge who presided over youth court for several, several years, and did an extremely good job at it. And of course he handled a fair share of the regular county court caseload as well and did great work there, as well. So here’s a judge who never, to my knowledge, presided over a chancery court, yet he knocks this case out of the park in his formulation of an equitable remedy. Sounds to me like he spent some serious time researching decisions and such while putting his decision together.

    • Haley Z says:

      With all due respect to Judge Ward who handled post-trial motions in this matter and often refers to Jim Persons as “the brains,” it was Chancellor Jim Persons who actually knocked this case out of the park, formulating an equitable remedy and obtaining the degree of innovation permitted by equity jurisdiction such that justice was done in this very complicated and convoluted case. The equitable remedy crafted by this thoughtful chancellor is nothing less than masterful.

      • Bob Wolford says:

        Haley Z, I stand corrected- I obviously did not read the opinion close enough to catch footnote 6. And yes, Judge Persons is a genius when it comes to formulating equitable remedies in a variety of cases that come before him. In any event, this seems to be the “go to” case when dealing with situations where things go bad among the principals of a closely-held corporation.

        Thanks for clarifying that, Haley Z.

  • Hank Zuber says:

    Amen! We need another chancellor on the SCT

    Sincerely,

    Henry B. (Hank) Zuber III

    Zuber Law Firm, Inc.

    1000-B North Halstead Road

    Ocean Springs, MS 39564

    228-875-1097 – office

    228-872-3067 – fax

    Confidentiality Notice: This email and any attachments may be confidential and protected by legal privilege. If you are not the intended recipient, be aware that any disclosure, copying, distribution, or use of the email or any attachment is prohibited. If you receive this email in error, please notify me immediately by replying to the sender and deleting this copy and reply from your system. Thank you for your cooperation.

  • It seems like chancery has become more rigid and formalistic, and not so much equitable and remedial for each particular case and that case’s unique circumstances. Factors have to be meticulously looked at to make a determination, and Chancellors are not free to fashion a result to fit each particular situation I hope we will see a turn to allowing Chancellors the freedom to “do equity” and not be constrained by numerous factors to be applied, which lead to more factors, and so on. Just my opinion, which along with a dollar may buy a cold Coke.

    • thusbloggedanderson says:

      Unfortunately, given the very great power wielded by chancellors, “factors” per custody, child support, etc. appear to be a necessary check on these ordinarily excellent, but always merely human, judges.

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