Gerald W. Scafidi v. Jo Ann S. Hille
180 So. 3d 634
| Miss. | 2015Background
- Siblings Gerald Scafidi and Jo Ann Hille co-owned three closely held family corporations that operated adjoining Gulf Coast properties (Restaurant, Campground, Trailer Park); after their parents died they operated the businesses informally and in practice each ran separate operations without corporate formalities.
- Jo Ann sued in 2006 seeking an accounting, to compel shareholder meetings/dissolution, and partition of the realty after repeated failed attempts to resolve disputes with Gerald; litigation revealed commingling of funds and poor or missing corporate records.
- During the suit Gerald purchased minority shares in two corporations for $180,000; the chancellor found Gerald’s evidence about the source of those funds not credible and concluded the purchase was effectively funded with corporate monies in which Jo Ann had an equal interest.
- The chancellor appointed forensic accountants, heard testimony, and ultimately (without ordering formal dissolution) treated the corporations as closely held/partnership-like, equalized the siblings’ interests, awarded Jo Ann the Trailer Park, Gerald the Campground, ordered sale of the Restaurant (proceeds divided), adjusted property lines to effectroughly 50/50 division, and allocated costs/fees.
- Gerald appealed, arguing lack of standing for derivative claims, that the chancellor exceeded pleadings and statutory dissolution/partition procedures, improperly divested him, mishandled valuations and evidentiary rulings; the Mississippi Supreme Court affirmed.
Issues
| Issue | Jo Ann's Argument | Gerald's Argument | Held |
|---|---|---|---|
| Standing to bring claims (derivative vs. direct) | Close-corp context permits treating derivative claims as direct; accounting and dissolution claims are direct and demand requirement excused | Jo Ann failed to make written demand as required for derivative actions | Court: corporations were closely held; accounting and dissolution claims are direct; Derouen exception applies; demand requirement excused; Jo Ann had standing |
| Chancellor granted relief beyond pleadings / used equitable division instead of statutory dissolution | Pleadings sought dissolution/accounting and alternative relief; court may fashion equitable remedies under §79-4-14.34(i) | Relief divesting/dividing corporate assets must follow statutory dissolution framework and election rules; court exceeded authority | Court: equitable alternative remedies are permitted; chancellor did not order dissolution but fashioned an authorized alternative remedy and did not abuse discretion |
| Partition and divestiture of property titled in corporate names | Jo Ann sought partition of tenancy-in-common property (Campground) and sale of Restaurant; equitable division reorganized ownership to separate companies | Gerald: chancery lacked jurisdiction to partition property titled solely in corporate names and improperly divested his interests | Court: Campground was tenant-in-common and properly partitioned; Restaurant sale was by agreed order (Gerald joined); no reversible error |
| Exclusion of portions of AVL forensic accounting after close of record | Forensic accounting showed commingling; court relied on but limited unreliable conclusions | Striking portions sua sponte deprived parties of fair opportunity to respond under Rule 702 gatekeeping | Court: chancellor acted within gatekeeping role; even if exclusion procedure was imperfect any error was harmless given other evidence and Gerald’s discovery noncompliance; no reversible error |
Key Cases Cited
- Venture Sales, LLC v. Perkins, 86 So. 3d 910 (Miss. 2012) (standard of appellate review for chancery findings)
- Fought v. Morris, 543 So. 2d 167 (Miss. 1989) (close-corporation shareholders owe partnership-like fiduciary duties)
- Derouen v. Murray, 604 So. 2d 1086 (Miss. 1992) (in close corporations, chancery court may treat derivative claims as direct under limited conditions)
- Mathis v. ERA Franchise Sys., Inc., 25 So. 3d 298 (Miss. 2009) (limits on applying Derouen doctrine where complexity, creditors, or multiple parties exist)
- Longanecker v. Diamondhead Country Club, 760 So. 2d 764 (Miss. 2000) (derivative actions belong to the corporation and general demand principles)
- Murphree v. Cook, 822 So. 2d 1092 (Miss. Ct. App. 2002) (chancellor may not substitute ad hoc valuation in place of statutory partition procedures)
- Cheeks v. Herrington, 523 So. 2d 1033 (Miss. 1988) (accounting and adjustment of equities in partition actions where one co-tenant had possession and made improvements)
- Phillips Brothers v. Winstead, 129 So. 3d 906 (Miss. 2014) (discussion of remedies for breach of fiduciary duty in close corporations)
- Capitol Toyota, Inc. v. Gervin, 381 So. 2d 1038 (Miss. 1980) (judicial dissolution is an extraordinary remedy)
- In re Will & Testament of Hardin, 158 So. 3d 341 (Miss. Ct. App. 2014) (court may reserve in-kind division of assets as alternative to cash buyout under dissolution statute)
- Univ. of Miss. Med. Ctr. v. Pounders, 970 So. 2d 141 (Miss. 2007) (trial court’s gatekeeping responsibility under Rule 702)
- Kilhullen v. Kansas City S. Ry., 8 So. 3d 168 (Miss. 2009) (party must be given fair opportunity to respond when expert testimony is challenged)