Marc B. Daniels v. J. Dennis Crocker
235 So. 3d 1
Miss.2017Background
- In March 2011 the Danielses purchased Crocker & Associates, Inc. (C&A) from Dennis and Gail Crocker for $4,000,000 (bank financing plus seller note); sellers warranted they had disclosed “all material information.”
- C&A derived ~50–70% of revenue from Aqua Aerobic Systems (Aqua); C&A had long sales cycles (12–18 months), so bookings drive near‑term revenue projections.
- In 2010 C&A’s bookings fell sharply (more than 40% by some measures); sellers provided an offering memorandum and a November 30, 2010 commissions report but did not disclose certain internal communications reflecting the severity of the slump.
- On March 23, 2011 (eight days before the sale), Aqua’s board approved soliciting purchase offers/valuation; Dennis, an Aqua director and shareholder, learned of this and later redeemed his Aqua stock in December 2011; Aqua terminated C&A’s representation in mid‑2012 and C&A lost key contracts and sales reps.
- The Danielses sued in October 2012 for breach of contract (failure to disclose material information), negligent and fraudulent misrepresentation, punitive damages, rescission, and indemnity; trial court granted summary judgment for the Crockers on the Danielses’ claims; Mississippi Supreme Court affirmed in part, reversed in part, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract — failure to disclose 2010 booking slump | Sellers omitted material facts about a >40% drop in 2010 bookings that would have affected valuation and inducement | Sellers disclosed historical revenue and provided documents (offering memorandum, November report); buyer could have discovered issues during due diligence | Genuine issue of material fact exists; summary judgment reversed as to breach claim |
| Breach of contract — Aqua board solicitation/valuation (Mar 23, 2011) | Dennis knew Aqua was soliciting offers (material to C&A valuation) and failed to disclose it despite warranting full disclosure | Dennis had a fiduciary/confidentiality duty to Aqua and therefore could not disclose; Aqua never sold so not material | Genuine issue of material fact on materiality and causation; summary judgment reversed |
| Fraudulent/negligent misrepresentation (silence) | Silence about material facts (2010 slump, Aqua valuation, Dennis’s intent to sell stock) amounted to negligent and possibly fraudulent suppression relied on by buyer | No overt misrepresentation; buyers had documents and had opportunity for due diligence | Genuine issues of fact exist as to whether omissions were material, known, and relied upon; summary judgment reversed on these claims |
| Rescission and indemnity | Plaintiffs sought rescission and contractual indemnity | Defendants argued plaintiffs did not promptly rescind and failed to give contractual notice required for indemnity | Summary judgment affirmed for rescission (delay defeated prompt repudiation) and indemnity (plaintiffs failed to provide the prompt written notice required by the agreement) |
| Individual claims by Marc and Sandra Daniels | Plaintiffs individually asserted claims | Defendants argued the purchaser entity, not individuals, is the proper claimant | Summary judgment affirmed: individuals lack standing to pursue corporate purchase claims |
| Punitive damages | Plaintiffs sought punitive damages for intentional/willful conduct | Defendants opposed summary judgment on punitive damages | Reversed as to punitive damages; issue to be addressed after compensatory damages determination on remand |
Key Cases Cited
- Lee v. Univ. of S.C., 757 S.E.2d 394 (S.C. 2014) (breach of contract elements under South Carolina law)
- Hennes v. Shaw, 725 S.E.2d 501 (S.C. Ct. App. 2012) (elements for breach of contract recovery)
- Gardner v. Little, 755 So. 2d 1273 (Miss. Ct. App. 2000) (seller disclaimer in purchase agreement distinguished)
- Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928) (fiduciary duties and heightened standards of conduct)
- Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949) (fiduciary duty of confidentiality and prohibition on using confidential corporate information for personal gain)
- Oberly v. Kirby, 592 A.2d 445 (Del. 1991) (fiduciary disloyalty where fiduciary profits from confidential information)