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IN THE SUPREME COURT OF MISSISSIPPI NO. 95-CA-01100-SCT CLEMENT ALLEYNE AND GENE BAINES v. THEODORE JONES, TRUSTMARK NATIONAL BANK, KEN R. ADCOCK, NOT INDIVIDUALLY BUT AS TRUSTEE, JAMES C. "SAM" BRADFORD, GEORGE A. JONES, III AND CLINTORIA I. JONES THIS OPINION IS NOT DESIGNATED FOR PUBLICATION AND MAY NOT BE CITED, PURSUANT TO M.R.A.P. 35-A DATE OF JUDGMENT: TRIAL JUDGE: COURT FROM WHICH APPEALED: ATTORNEY FOR APPELLANTS: ATTORNEY FOR APPELLEES: NATURE OF THE CASE: DISPOSITION: MOTION FOR REHEARING FILED: MANDATE ISSUED: 04/17/93 HON. WILLIAMS CHARLES BELL HINDS COUNTY CHANCERY COURT CRAIG D. BLUNTSON STEPHEN H. LEECH, JR. CIVIL - OTHER AFFIRMED - 12/15/97 1/5/98

EN BANC. SMITH, JUSTICE, FOR THE COURT:

This appeal is from the Chancery Court of the First Judicial District of Hinds County and involves a controversy among present and former shareholders/directors of a dental clinic. Following a dispute, Drs. Alleyne and Baines abandoned/withdrew from JABB Systems, Inc., a corporation organized and formed for the purpose of providing dental services. As the remaining shareholder/director, Dr. Jones was forced to restructure corporate financial obligations via refinancing in order to maintain the corporation. Thereafter, Drs. Alleyne and Baines filed suit alleging fraud, breach of fiduciary duty, conspiracy and unlawful placement of a cloud on the title of corporate property. Dr. Jones counterclaimed alleging unjust enrichment, breach of fiduciary duty, and interference with business relationship. Additionally, Trustmark National Bank filed a cross claim against Dr. Jones seeking payment for all unpaid principal and interest on the promissory note and attorneys fees.

Following trial on January 11-12, 1993, the Special Chancellor found that the plaintiffs failed to sustain their burden of proof on any of the claims asserted against Dr. Jones and ordered pro-rata contributions by Drs. Alleyne and Baines for unpaid corporate expenses. Judgment was entered in favor of Trustmark and against Dr. Jones on the promissory note, and the Chancellor ordered that Drs. Alleyne and Baines contribute to the amount of this judgment. Aggrieved by the judgments against them, Drs. Alleyne and Baines now appeal to this Court. Finding no error in the proceedings below, we affirm. FACTS JABB Systems, Inc. (hereinafter "JABB") was organized in 1984 by Drs. Theodore Jones, Clement Alleyne, Gene Baines, and Carl Boykins(1) for the purpose of providing dental services. In 1986, JABB purchased real estate located on 4510 Hanging Moss Road in Jackson, Mississippi to be used as dental offices. Financing was secured through Deposit Guaranty National Bank, (hereinafter "Deposit Guaranty") and the loan was secured by a deed of trust on the land and guaranteed by the Small Business Administration (hereinafter "SBA"). The loans were also secured by deeds of trust on the personal residences of Drs. Alleyne and Baines and commercial property owned by Dr. Jones. Financing was also obtained for the purchase of dental equipment. During March of 1988, dissension among the JABB shareholders began after Dr. Jones sought the resolution of financial difficulties of the corporation. Testimony at trial demonstrated that Drs. Alleyne and Baines were requested to pay pro rata shares of corporate expenses and to sign a lease which would increase the monthly rental rate. Alleyne and Baines refused to sign the lease and vacated the premises during July of 1988. However, Alleyne and Baines maintain that they were evicted from the premises by Dr. Jones after a new board of directors was elected and they refused to pay increased rent. Drs. Alleyne and Baines testified that they did not receive notice of corporate meetings. In contrast, Dr. Jones and new board members testified that Alleyne and Baines were not evicted and were notified of regular and special meetings of the Board but refused to attend. Despite conflicting testimony regarding notice, Drs. Alleyne and Baines did not attend corporate meetings nor did they contribute financially to corporate expenses after April of 1988. Due to mounting financial obligations, Dr. Jones was forced to refinance the Deposit Guaranty loans. On March 20, 1988, a new Board of Directors was elected which included James C. Bradford, George A. Jones, and Clintoria I. Jones. At this meeting, Dr. Jones was elected President. In 1992, at the law offices of Phelps Dunbar, the directors signed a resolution to allow Dr. Jones to mortgage the corporate property. This resolution was effective as of August 26, 1988. Board member James Bradford testified that this resolution was to clarify the minutes of the July 13, 1988 board meeting where Dr. Jones was given the authority to seek refinancing and mortgage corporate property. Minutes of the July 13, 1988 meeting reflect the authorization of Dr. Jones to refinance existing debt obligations. Dr. Jones secured financing from Trustmark National Bank (hereinafter "Trustmark") which resulted in a lower monthly payment. By virtue of the refinancing arrangement, the loans extended by Deposit Guaranty were satisfied and the deeds of trust on the personal residences of Drs. Alleyne and Baines were cancelled. Dr. Jones continued making payments, but was eventually unable to do so and defaulted on July 18, 1991. Trustmark then instituted foreclosure proceedings. As of the date of trial,

the amount owed on the loan was as follows: principal amount ($189,415.98) interest ($23,347.47) for a total of $212,763.45 with a per diem of $64.85. On January 31, 1992, Drs. Alleyne and Baines brought suit against Dr. Jones, Trustmark National Bank, Ken Adcock, as Trustee for Trustmark, James C. Bradford, George Jones, III, Clintoria Jones and JABB Systems, Inc., P.A. Alleyne and Baines alleged that Dr. Jones unlawfully executed a deed of trust in favor of Trustmark. Alleyne and Baines specifically alleged fraud, breach of fiduciary duties, the unlawful placement of a cloud on the title of corporate property, and sought the cancellation of the deed of trust executed by Jones in favor of Trustmark as well as an injunction preventing Trustmark from foreclosure. Dr. Jones counterclaimed alleging unjust enrichment, breach of fiduciary duties, and interference with the business relationship between himself and Trustmark. Dr. Jones also sought contribution for corporate expenses, punitive damages and attorneys' fees. With leave of court, Trustmark filed a cross-claim against Dr. Jones seeking judgment in the amount of the outstanding principal and interest owed on the promissory note as well as attorneys' fees. Trustmark requested indemnity against Dr. Jones for any amounts recovered by plaintiffs against Trustmark and sought reformation of the deed of trust executed by Dr. Jones. Chancellor Dilliard recused himself and William Charles Bell was appointed as Special Chancellor. Following trial, Judge Bell found that the plaintiffs were entirely unsuccessful in the claims asserted against the defendants. Judge Bell, however, found in favor of Dr. Jones on his claim of unjust enrichment and therefore ordered pro rata contribution by Drs. Alleyne and Baines for the amount of corporate expenses paid by Dr. Jones. Judge Bell found in favor of Trustmark in the amount of $216, 862 on the debt owed by Dr. Jones on behalf of JABB and ordered contribution by Drs. Alleyne and Baines. The trial court further found that the action brought by Drs. Alleyne and Baines was frivolous and unnecessary. As a result, Judge Bell awarded attorneys fees in the nature of punitive damages in the amount of $60,000.00 in favor of Dr. Jones. Aggrieved, Drs. Alleyne and Baines appeal to this Court, citing the following issues: I. WHETHER THE CHANCELLOR ERRED IN GRANTING JUDGMENT IN FAVOR OF DR. THEODORE JONES ON THE CLAIM OF UNJUST ENRICHMENT. II. WHETHER THE CHANCELLOR ERRED IN GRANTING JUDGMENT IN FAVOR OF DR. JONES AND ORDERING DRS. ALLEYNE AND BAINES TO CONTRIBUTE TO THE DEBT OWED TO TRUSTMARK. III. WHETHER THE CHANCELLOR ERRED IN ASSESSING PUNITIVE DAMAGES AGAINST DRS. ALLEYNE AND BAINES. DISCUSSION OF LAW STANDARD OF REVIEW

Where, as here, a trial court sits without a jury and makes findings of fact, these ordinarily are safe on appeal where the record includes substantial supporting evidence. This is true whether the findings relate to matters of evidentiary fact or ultimate fact. This Court on review examines the entire record and must accept: that evidence which supports or reasonably tends to support the findings of fact made below, together with all reasonable inferences which may be drawn therefrom. . . . Ordinarily, this Court must affirm a finding of fact unless upon review of the record we [are] left with the firm and definite view that a mistake has been made. Omnibank of Mantee v. United Southern Bank, 607 So. 2d 76, 82 (Miss. 1992) (internal citations omitted). Our standard of review regarding issues of law is de novo. Id. at 83. I. WHETHER THE CHANCELLOR ERRED IN GRANTING JUDGMENT IN FAVOR OF DR. JONES ON THE CLAIM OF UNJUST ENRICHMENT. Drs. Alleyne and Baines first argue that the Special Chancellor erred in granting judgment in favor of Dr. Jones on the counterclaim of unjust enrichment. Specifically, Alleyne and Baines argue that the Chancellor failed to recognize that corporations are separate legal entities and that stockholders are not liable for the acts of the corporation. Appellants rely on Gray v. Edgewater Landing, Inc., 541 So. 2d 1044 (Miss. 1989), T.C.L., Inc. v. Lacoste, 431 So. 2d 918 (Miss. 1983), overruled on other grounds by C & C Trucking Co. v. Smith, 612 So.2d 1092 (Miss. 1992) and the doctrine of corporate separateness. In T.C.L., purchasers of cemetery plots brought action against the corporate owner of the cemetery. The jury returned a verdict holding two officers and stockholders of the corporation personally liable for contracts entered into with consumers. This Court held that "[a] corporation is an entity separate and distinct from its stockholders." Id. at 922 ( citing Illinois Cent. R. Co. v. Cotton Seed Co., 166 Miss. 579, 148 So. 371 (1933)). "Generally, a stock-holder is not liable for the acts of the corporation." Id. (citing Grapeco Bottling Co. v. Ennis, 140 Miss. 502, 106 So. 97 (1925)). In Gray, a corporation which rented commercial property brought action against its landlord for conversion following the termination of a lease. The landlord counterclaimed against the corporation and sought to hold the shareholders of the corporation liable as well. On appeal, the landlord challenged the lower court's discharge of the shareholders. There, this Court discussed the limited liability of corporate shareholders: As do most courts, this Court has reserved piercing the corporate veil for factual circumstances which are clearly extraordinary--where to do otherwise would "subvert the ends of justice." Johnson & Higgins of Mississippi, Inc. v. Commissioner of Insurance, 321 So. 2d 281, 284 (Miss. 1975). Among this Court's reports may be found a long string of decisions reflecting our law's commitment to the legal integrity of the corporate entity--and the concomitant limited liability of shareholders. (citations omitted). Gray, 541 So. 2d at 1046. This Court concluded that to cause a court to disregard the corporate entity and justify shareholder liability:

the complaining party must demonstrate: (a) some frustration of contractual expectations regarding the party to whom he looked for performance; (b) the flagrant disregard of corporate formalities by the defendant corporation and its principals; (c) a demonstration of fraud or other equivalent misfeasance on the part of the corporate shareholder. Id. at 1047 (citations omitted). In response, Dr. Jones distinguishes Gray and T.C.L. from the case sub judice on the basis that each case involved shareholders seeking to interpose the corporate shield against claims by persons outside the corporation rather than intra-corporate disputes. Jones relies on Gibson v. Manuel, 534 So. 2d 199 (Miss. 1988), where a corporate officer was held individually liable to a pledgee of corporate stock for violation of his fiduciary responsibilities. This Court has consistently held that corporate officers and directors owe certain duties to the corporation and to its shareholders. In Derouen v. Murray, 604 So. 2d 1086, 1092 (Miss. 1992), this Court stated: Officers and directors have well defined duties owed to the corporation they serve and, equitably, to its shareholders. In the first place, an officer or director owes the corporation a duty of care, a duty to perform the officer's or director's functions in good faith, in a manner that he or she reasonably believe to be in the best interest of the corporation, and with the care that an ordinarily prudent person would reasonably be expected to exercise in a like position and under similar circumstances. Corporate officers and directors are also subject to the duty of loyalty, which "arises in that the officer or director stands in a fiduciary relationship to his corporation and shareholders. It imports proscriptions on conflicts of interest. We have called this the duty of loyalty and good faith in discharge of corporate office." Id. (citations omitted). The rules, however, differ when the corporation is closely-held. In Fought v. Morris, 543 So. 2d 167 (Miss. 1989), as in the case sub judice, this Court was faced with dissension among shareholders in a close corporation. Close corporations are business entities with "few shareholders, the shares of which are not publicly traded." Id. at 169. In close corporations, "[m]anagement typically operates in an informal manner, more akin to a partnership than a corporation. The traditional view that shareholders have no fiduciary duty to each other, and transactions constituting 'freeze outs' or 'squeeze outs' generally cannot be attacked as a breach of duty of loyalty or good faith to each other, is outmoded." Id. (citing O'Neal, Close Corporations, 8.08 (1987)). However, this Court has held that although liability of corporate directors to creditors of a corporation must be based on "individual wrongdoing", "[d]irectors may be liable to stockholders for mismanagement of the business of the corporation or waste of its assets." Turner v. Wilson , 620 So. 2d 545, 548 (Miss. 1993) (quoting Wilson v. Stevens, 129 Ala. 630, 29 So. 678, 679 (1901)). Here, however, the judgment against Alleyne and Baines was not premised on the breach of a corporate duty. The Chancellor specifically held that the evidence adduced at trial was insufficient to demonstrate a breach of fiduciary duties by Drs. Alleyne and Baines and awarded judgment in favor

of Dr. Jones on the equitable theory of unjust enrichment. In Omnibank of Mantee v. United Southern Bank, 607 So. 2d 76 (Miss. 1992), this Court summarized the principles of unjust enrichment as follows: A person is enriched when he receives an economic benefit. This includes positive profits, a loss avoided, as well as discharge of debts. What is important and what careless readers often fail to remember is our law accepts no value condemning pursuit of wealth, so long as it be done within legal parameters. There is nothing inherently unjust about enrichment. The principle does not proscribe mere enrichments, only those objectively seen as unjust. *** The Restatement of Restitution, which has been cited with approval by this Court, provides, if payment is made, even by mistake, to a creditor of a third person to satisfy a just debt of that third person, the payor has no right of restitution of or from the third party. To be sure, this is not so if the third person has procured the mistake or participated in or caused a breach of some duty imposed in law, but where nothing like this has happened, the enrichment is not unjust and the payor must instead look to the party whose debt has been paid, through subrogation or some such theory. Id. at 92 (citations omitted). Alleyne and Baines now challenge the sufficiency of the proof adduced at trial to support the Chancellor's conclusion that they were unjustly enriched. Rather, Alleyne and Baines contend that the corporation was the only party that was enriched. Alternatively, Alleyne and Baines argue that if there was unjust enrichment, it was only the increased value of the stock and therefore the appropriate remedy was to impose a constructive trust. In Omnibank, this Court clearly recognized that enrichment includes both "positive profits, a loss avoided, as well as discharge of debts." Id. The Chancellor specifically found that Drs. Alleyne and Baines received notice of meetings of the board of directors, and simply chose not to attend those meetings and to withdraw from the corporation. After Alleyne and Baines vacated the premises in July, 1988, Dr. Jones continued paying corporate debts despite the fact that Alleyne and Baines brought suit on August 4, 1988 to establish their rights to ownership in JABB. Clearly, the discharge of debt owed is enrichment. The judgment of the Chancellor does not appear to have been error. This issue is without merit. II. WHETHER THE CHANCELLOR ERRED IN GRANTING JUDGMENT IN FAVOR OF DR. JONES AND ORDERING DRS. ALLEYNE AND BAINES TO CONTRIBUTE TO THE DEBT OWED TO TRUSTMARK. In the case sub judice, Trustmark filed a cross-claim against Dr. Jones for collection of the outstanding balance of the note. The Chancellor granted judgment against Dr. Jones for the amount of the debt, interest and attorney's fees in the amount of $216,862.15 and allowed the bank to foreclose on the real estate to satisfy that judgment. The Chancellor further held that Dr. Jones was entitled to contribution from Drs. Alleyne and Baines for the amount owed on the Trustmark judgment.

Drs. Alleyne and Baines now argue that they were not liable to Dr. Jones under the theory of contribution due the "lack of a commonality of liability" between the parties. Alleyne and Baines argue that the only joint obligation/common liability was the corporate debt to Deposit Guaranty which was extinguished when Dr. Jones refinanced the obligation with Trustmark on August 26, 1988. In Williams v. Owen, 613 So. 2d 829, 835 (Miss. 1993), this Court summarized the principles of contribution as follows: Contribution is purely an equitable remedy. Nichols v. Anderson, 837 F.2d 1372, 1377 (5th Cir. 1988). Its aim is the prevention of injustice, pure and simple. DeFoe v. Great Southern National Bank, 511 So. 2d 912, 914 (Miss. 1987). In the past, we have not hesitated to require contribution where one of two parties has inequitably shouldered the burden for a common liability. See Celotex Corp. v. Campbell Roofing & Metal Works, Inc., 352 So. 2d 1316, 1318 (Miss. 1977); Comfort Engineering Company, Inc. v. Kinsey, 523 So. 2d 1019, 1021-22 (Miss. 1988); see also Nichols v. Anderson, 837 F.2d 1372, 1377 (5th Cir. 1988). In Williams, this Court held that "[t]here is also a rebuttable presumption that all co-makers of a note are liable for an equal share of a debt, even though each is liable for the full amount under joint and several liability." Id. at 835 ( citing White and Summers, Uniform Commercial Code

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