Court: Court of Appeals of Mississippi; May 2, 2000; Mississippi; State Appellate Court
Dorothy Anne Nardozzi Burns filed for divorce from James Curtis Burns, Jr. on August 19, 1996, leading to a consent decree based on irreconcilable differences. The chancellor was tasked with determining the equitable division of marital property, which included the contentious issue of whether J.C. owned 10,000 shares in Meek Auto Sales, Inc. The chancellor ruled an almost equal distribution of assets, valuing them at $1,547,071.86.
In the appeal, J.C. challenged the chancellor's findings on several grounds:
1. Whether the chancellor erred in determining J.C.'s ownership of the stock.
2. Whether it was a mistake to divest stock ownership from a non-party, Charles Sidney Meek.
3. The admissibility of evidence regarding the stock's value.
4. The lack of evidence on the stock's value during discovery.
5. The fairness of the asset distribution.
The court found no reversible error and affirmed the chancellor’s decision. Throughout their marriage, both parties contributed to their financial stability, with Dorothy working at the Farmer’s Home Administration and J.C. as a bank officer. Testimony revealed that J.C. claimed a partnership interest in Meek Auto Sales but did not demonstrate any financial exchanges from the dealership to him, as Dorothy testified she saw no money deposited into their joint accounts, and access to his personal accounts was restricted.
J.C. Burns testified about a $10,000 loan he made to Sid Meek in 1981, secured by a stock certificate for Meek Auto Sales. Despite stating to Dorothy that he had an interest in the company, J.C. admitted he was lying to impress her and had never collected interest or repayment, which was due by April 21, 1982. A note outlining the loan's purpose for purchasing shares in Meek Auto Sales was submitted as an exhibit, along with the stock certificate signed by Sid, which included a blank for the owner's name. J.C. did not participate in company meetings or decisions but received free service for his cars at Meek Auto Sales.
A confidentiality agreement was prepared for Dorothy's attorney to protect J.C.'s loan details from public disclosure, as J.C. worked in banking. During the trial, Sid Meek confirmed the loan and stated it was collateralized by the stock certificate, which was only a security for the loan. He clarified that J.C. never received cash from the company and described the ownership distribution of the 80,000 shares of Meek Auto Sales, with Sid owning 66.67% and James S. Meek 33.33%. Sid also presented the 1996 corporate tax return to illustrate the company's value and noted he had no other debts. When questioned about the loan repayment terms, Sid admitted he had not repaid J.C. by 1982 and had no specific reason for the delay, nor did J.C. request repayment.
The chancellor determined that the 10,000 shares of stock in Meek Auto Sales were owned by J.C. and classified them as marital property, subject to equitable division. The chancellor dismissed the claimed loan between J.C. and Sid Meek as a sham intended to conceal ownership of the shares. Evidence included the open endorsement of the stock certificate and the privileges granted to J.C. as an owner, alongside the lack of any attempts to collect or pay the debt, which suggested both parties were knowledgeable in business transactions.
The standard of review for a chancellor's findings is highly deferential, allowing for disruption only if findings are manifestly wrong, clearly erroneous, or if an erroneous legal standard was applied. For questions of law, the review is de novo.
J.C. argues that the chancellor's finding of ownership was reversible error, claiming no valid stock transfer occurred due to unmet restrictions. Sid endorsed the shares in blank and delivered the stock certificate to J.C. in 1981, who retained possession. The law states that an endorsement does not effectuate a transfer until the certificate is delivered.
Meek Auto Sales may impose restrictions on stock transfers if noted conspicuously on the security certificate. Corporate stock is considered personal property, and owners have the inherent right to sell and transfer unless valid restrictions exist. The courts have become more accepting of reasonable restrictions in close corporations, which must be justified by the needs of the enterprise. The Mississippi Supreme Court identified several reasonable restraint types, including consent requirements for transfers, limitations to certain classes of persons, first option provisions, and options for the corporation or shareholders to purchase shares upon specific events.
The phrase “transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed” does not constitute a recognized restriction on stock transfer as outlined in prior legal standards. The Mississippi Supreme Court, in Jackson Opera House Co. v. Cox and Scherk v. Montgomery, established that an individual can assign their right to a stock certificate without a formal transfer recorded on the company’s books, affirming that such assignments are valid between the parties involved. The chancellor correctly ruled that Sid transferred ownership of 10,000 shares of stock to J.C., which J.C. argues was erroneous due to Sid’s non-joinder in the case. However, the chancellor concluded that Sid had no claim to the stock by the time of trial, as ownership had shifted to J.C. in 1981. Although J.C. raised the issue of Sid's necessary joinder for the first time on appeal, Mississippi law permits this, and the precedent in Shaw v. Shaw indicates that the absence of a necessary party does not constitute manifest error if their interest is not threatened. Furthermore, since J.C. was determined to be the owner of the stock, the argument for Sid's joinder lacks merit. Regarding the admission of evidence concerning the value of the stock, J.C. challenged the legitimacy of the 1996 federal tax form presented by Dorothy, claiming it lacked sufficient foundation under the hearsay rule.
The standard of review for the admission of evidence is that it lies within the discretion of the trial judge and will only be reversed upon a clear abuse of that discretion. An error in admitting evidence does not lead to reversal unless it causes prejudice or negatively affects a party's substantial rights, with the burden to prove such prejudice resting on the party seeking reversal. In this case, evidence strongly supported the chancellor's finding that J.C. owned 10,000 shares in Meek Auto Sales, and J.C.'s argument on appeal was solely about ownership, not the stock's valuation. His claim that Dorothy failed to produce evidence of the stock's value was dismissed as unfounded; Dorothy had actively sought this information during depositions but was denied access due to a protective order. The Mississippi Supreme Court has established strict discovery rules to prevent trial by ambush, and since the relevant document was subpoenaed by Dorothy, it was determined that there was no such ambush. J.C. also contended that the chancellor’s distribution of assets was inequitable, arguing he received less than 30% of the marital property because he did not own the stock. However, the court affirmed the chancellor's conclusion regarding J.C.'s ownership of the stock, rendering this argument without merit. The judgment of the Panola County Chancery Court was affirmed, awarding statutory damages and interest while assessing all appeal costs to J.C. A dissenting opinion was filed by McMillin, C.J., joined by Southwick, P.J., and Lee, J.
