Joseph E. Mason, Jr., Appellant,
Catherine L. Mason, Joseph E. Mason, Sr., Kathy St. Blanchard, Mason Holding Company, Inc., and Irwin Levine, Respondents
Heard September 8, 2014
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Appeal From Horry County. Appellate Case No. 2012-212146. Ralph P. Stroman, Special Referee.
Robert Yates Knowlton, Sr. and Elizabeth Halligan Black, both of Haynsworth Sinkler Boyd, PA, of Columbia, for Appellant.
John M. Leiter, of Law Offices of John M. Leiter, PA, of Myrtle Beach, for Respondent Irwin Levine; Emma Ruth Brittain and J. Jackson Thomas, both of Thomas & Brittain, P.A., of Myrtle Beach, for Respondents Joseph E. Mason, Sr., Catherine L. Mason, Kathy St. Blanchard, and Mason Holding Company, Inc.
[412 S.C. 38] KONDUROS, J.
In this shareholder dispute case, Joseph E. Mason, Jr. (Son) appeals the special referee's decision granting judgment on his causes of action including breach of contract, breach of fiduciary duty, wrongful termination, and civil conspiracy in favor of Catherine L. Mason (Mother), Joseph E. Mason, Sr. (Father), Kathy St. Blanchard (Daughter) (collectively, the Masons), [412 S.C. 39] Mason Holding Company, Inc. (the Company), and Irwin Levine (Accountant) (collectively, Respondents). He also asserts the special referee erred in not ordering the repurchase of his shares of the Company. He further contends the special referee erred in finding for the Masons and the Company on their counterclaims. We affirm.
The Company operates five tire and auto service stores in Horry and Georgetown Counties. It is a statutory close corporation without a board of directors. For many years, Father had operated eight retail stores for Goodyear Tire & Rubber Company and was a partner in a truck tire center in Miami, Florida, where he and Mother resided. In 1984, Father decided to start a tire and auto service business in the greater Myrtle Beach area. Son and Daughter wanted to be involved, and each contributed $10,000 for a ten percent interest in return. Son graduated from the University of Alabama with a degree in business administration and started working for Ryder Truck Rental in Florida in 1983. After the location was acquired for the first store, Son moved to Surfside Beach to open the first store and be the store manager. Daughter and her husband, Oswald St. Blanchard (Ozzie), also moved to the area to work at the store. Daughter did bookkeeping and sales. Mother and Father moved to the area in 1989 to work on expanding the business into commercial accounts. Around 1989, Accountant started working for the Company as its accountant. He had previously worked for Mother as an accountant in Florida. Accountant was not a certified public accountant, a CPA, but was a PA, a public accountant. He lived in Florida and did not have a license to practice accountancy in South Carolina. He had prepared the Company's tax returns since 1989 and also served as family members' personal accountant.
In 1989, the family opened a store in North Myrtle Beach. In 1995, they opened a store in Pawleys Island. In 1998, the Company
was formed and ownership of the individual stores was transferred to the Company. At that time, Father owned 520 shares, Mother owned 160, Son owned 160, Daughter owned 90, and Ozzie owned 70. In 1999, the Company opened an additional store in Myrtle Beach. The buildings and land where the Company's stores were located were owned by [412 S.C. 40] separate entities owned by members of the Company. By 2001, Son was president of the Company.
On December 18, 2004, Ozzie was severely injured in a motorcycle accident and as a result became a quadriplegic. The accident occurred on a Saturday while Ozzie was riding in a Toys for Tots ride. Ozzie was wearing his uniform and had represented the Company in this capacity before. Ozzie had appeared in commercials for the Company and was " the face" of the Company. Son believed Ozzie was not entitled to workers' compensation because he was not at work when the accident occurred and his claim would increase the Company's insurance premiums. The matter was litigated, and the single commissioner of the Workers' Compensation Commission determined Ozzie was acting within the course and scope of his employment when the accident occurred and found the claim compensable. The Appellate Panel reversed the single commissioner in a two to one decision. The matter was appealed to the circuit court, but before the circuit court reached a decision, the parties settled the claim.
Son testified Father had told him they needed to make sure Ozzie got workers' compensation benefits for the accident. Son believed Father was asking him to perjure himself and indicated he told Father he could not do that. Son felt the disagreement was the turning point in his relationship with the rest of the family. Father testified he did not ask Son to lie and Son only worried about it costing the Company a lot of money. Father believed Ozzie was working in the course and scope of employment. Father indicated Ozzie was not working at one of their stores that day but he was working for the company by appearing at the Toys for Tots event. The minutes from a stockholder meeting of the Company following the accident as well as Father's deposition during the workers' compensation proceeding state Father and other employees saw Ozzie at one of the stores on the day of the accident while he was picking up business cards and coupons. The special referee found Son's testimony on this matter to be uncredible.
Mother and Father began thinking about retirement and developed a retirement plan. Initially, they planned for Son and Daughter to purchase Mother's and Father's shares. However, the parties decided for tax purposes Mother and [412 S.C. 41] Father would incrementally give Son and Daughter shares in the Company with Son and Daughter each owning half the shares by December 31, 2011. Also as part of the retirement plan, on January 1, 2003, an LLC owned by Mother and Father, which owned the property for one of the store's locations, executed a lease with the Company for $90,000 annually for a term of nineteen years. The lease was only for the building because a prior lease agreement was in effect for the land. Additionally, on December 31, 2002, Mother, Father, Daughter, and Son entered into an employment contract lasting until December 31, 2022, to pay Mother and Father a total of $10,400 per year as well as benefits including health insurance, a gasoline credit card, and a company car. Accountant testified they were trying to minimize the impact on social security income and self-employment taxes. Father testified the second lease was created in order to pay Father the same amount he had been receiving previously though salary. In 2003, Mother and Father began receiving the payments from the employment contract and through their LLC under the lease. By 2007, in keeping with the retirement plan, Son and Daughter each had a 30% share of stock in the Company. Father testified he stopped giving his and Mother's shares in the Company to Son when Son brought this lawsuit.
In 2006, Son wanted to open an additional location. He and a friend along with Daughter owned the store, called Mason Tire & Auto Service, through an entity called BCJ Tires, LLC. The Company owned the property and building and leased it to BCJ Tires. The Company had no ownership interest in
BCJ Tires. On August 3, 2007, Son transferred $93,500 from the Company to BCJ Tires without Mother or Father's knowledge. When Father learned about the money, he had Son and Daughter transfer their interests in BCJ Tires to the Company. Accountant later acquired Son's friend's shares and some of the Company's shares, resulting Accountant owning a majority interest in BCJ Tires. The store operates at a loss.
An employee for the Company testified that at times, Son did not come to work and gave no explanation. Father testified Son had been absent from the business several times and no one knew where he was. Daughter also testified Son [412 S.C. 42] would sometimes " walk off the job" but he was always allowed to return. Father indicated he convened an emergency shareholder meeting because of Son's unexplained absences. Son testified he had sometimes worked from home but always had been in touch with the Company and never had stopped running the Company.
On August 18, 2007, Son offered to purchase all but 5% of Daughter's 25% interest in the Company for $625,000 or to sell 25% of his interest in the Company for $987,500. He testified they had numerous discussions about different options of shareholders being bought out because they were not getting along. He testified he offered Daughter $1 million for her shares, but she turned it down. Son then requested Father buy his shares, but Father turned him down. Son indicated Father told him if he was unhappy he could quit. Daughter also offered Son $1 million for his shares, but according to Son, the offer later " evaporated."
On August 31, 2007, attorney Wayne Byrd sent a letter to the Masons advising them he had been retained by Son to represent his interests as an officer, director, and minority shareholder in the Company. On September 17, 2007, following a meeting with the parties, Byrd sent a letter to the Masons' attorney ordering them to stop paying for the members' personal expenses, reduce Daughter's salary, and terminate Ozzie. Byrd also sent a letter to Accountant indicating he had learned of " various serious financial and tax accounting irregularities which [he] ha[d] devised and fashioned." All of the shareholders except Son signed an agreement to repay the Company for personal expenses. Son testified he refused to sign it because previously, all the shareholders had approved those expenses. On September 28, 2007, Byrd's law firm refunded the Company for the Company's check Son had used to pay his fee because it was representing him individually. However, Son then transferred to himself from the Company the amount he owed Byrd, $17,301.66.
On October 24, 2007, a shareholders meeting was held, and Father was elected president and Son was elected vice president. Son was no longer in charge of the financial aspects of the Company but his salary and other responsibilities remained the same. Son continued working until July 2008.
[412 S.C. 43] On December 7, 2007, the Company held a shareholders meeting to sign the amended tax returns. Accountant testified Son insisted the amended tax returns not be filed and the Masons went along with it despite their unhappiness about it. Father testified that at the meeting Son stated that if they would not file those amended tax returns and instead handled it another way, he would stay with the Company and Father agreed. Son testified that at the meeting, the Masons were screaming at him and he said the Company should do whatever was necessary to fix the tax returns. Son testified Accountant stated the Company could fix the returns by doing something else with the revenue instead of amending the returns. Son testified he knew of the amended tax returns but did not see them before he brought the lawsuit.
In December 2007, Son told Father that Steve Allison offered to buy the Company for $3 million. Father testified he did not consider it a serious offer because he did not believe Allison knew any details about the Company. Father indicated he called Allison and informed him he was not interested in selling the Company at that time. Allison testified he was president of a company that owned car oil change shops and in December 2007 he was interested in buying the Company based on his observations of the Company over thirteen years. Allison offered $3 million because Son believed from prior conversations
with Father he would accept that amount.
Sandra Adams worked as a bookkeeper for the Company. In July 2008, Son determined from some discrepancies in the monthly payments for an insurance policy Adams was stealing from the Company and informed Father and Daughter he was going to fire her. Father testified he and Daughter expressed concern that Son not fire her right away due to the workload it would place on Daughter until Adams could be replaced. Son stated that he was going to do the firing immediately, and Father said he would support him. Son fired Adams, but Father decided to rehire Adams because he thought they needed to look into the matter further. Father indicated that when he told Son, Son said, " I'll bury you." Father rehired Adams and put her on probation. He testified it was unproven whether Adams was stealing and she was still employed by the Company. The special referee found Father's testimony [412 S.C. 44] on the matter credible and determined Father's " actions were consistent with the Company's best interest and the decision was a valid business judgment."
On August 5, 2008, Son filed a complaint against the Masons and the Company, asserting causes of action for breach of contract, breach of fiduciary duty, civil conspiracy, relief pursuant to sections 33-14-300 to -330 of the South Carolina Code wrongful termination of employment-constructive discharge, and wrongful termination-violation of public policy. On September 23, 2009, Son filed an amended complaint adding Accountant as a defendant and adding a cause of action against him for aiding and abetting breach of fiduciary duty. The Masons and the Company filed an answer asserting affirmative defenses and counterclaims against Son for breach of fiduciary duty and conversion. The parties consented to the case being referred to the special referee. The special referee conducted a five-day trial on the case.
The conversion counterclaim was based on an alleged casing scheme. Son testified he would fabricate the name of a company, write a receipt for truck tires from that company, and take cash out of the drawer in that amount. He indicated he would later split that money with Daughter. He testified Accountant told him this was acceptable as long as he split the money with Daughter. Accountant testified he did not tell Son how to create fictitious invoices. An employee of the Company testified that between 2003 and 2007 he had noticed cash missing from the drawer and an invoice for casings but there were no casings. He testified he noticed Son taking money out of the cash drawer and would see the invoice audit at the end of the day.
In 2003 and 2006, Son made adjustments to the records for the Company that increased the inventory and created a corresponding credit note payable to Son and Daughter. The note for 2003 was $440,000 and for 2006 it was $300,000. Son [412 S.C. 45] and Ozzie signed the 2003 note and it was witnessed by Mother and Father. Daughter did not sign either note and testified she did not know about the notes until Son asked her in 2007 to sign two promissory notes and she refused. Son indicated the family all knew about the inventory adjustments and it was Accountant's idea to decrease the Company's tax liability. Accountant testified he told Son about both the proper way to fix the inventory problem and the way he ultimately handled it. Accountant testified Son decided to make the 2003 adjustment in order to decrease the Company's tax liability. Accountant testified that at the time, only Son and himself knew about the 2003 adjustment and Accountant did not know about the 2006 adjustment until after Son had made it. Son testified he had relied on Accountant's advice that the adjustments were proper and he did not know about the " severity" of the adjustments until Byrd informed him. Laura Durant, a CPA retained by the Masons and the Company for trial, testified the adjustments had no basis in reality and had a significant
effect on the income tax returns. Son testified he signed the tax returns from 1984 until 2007, specifically in 2003 and 2006. Son testified he did not know the tax returns were fraudulent because he relied on Accountant and he did not think the Masons knew the returns were fraudulent until 2007. Accountant testified he did not tell the Masons the tax returns were fraudulent. He testified he accepted the way Son had handled the excess inventory and filed the tax returns because of his close relationship with the family. The special referee found Accountant's testimony regarding making inventory adjustments and creating fictitious notes substantially more credible than Son's despite the fact that his filing of the tax returns was professionally inappropriate.
David Timothy Duncan, an accountant hired by the Company, testified he was involved with reviewing amended tax returns for the Company in 2007. He decided to not file the amended returns and returned them to Accountant. Duncan testified that while he was considering the amended returns, Son talked to him about inventory adjustments and Duncan advised him against it.
Son testified no one fired him, told him not to come back, or cut his pay. He found working at the Company intolerable [412 S.C. 46] and thought the other shareholders wanted him to quit. He stated that although the Company did not reduce his pay or benefits, the Masons embarrassed him in front of other employees.
The special referee found for Respondents on all of Son's causes of action. The special referee found " it is beyond dispute in my opinion that Son was aware of and actively engaged in and furthered the very practices about which his attorney['s] September 17, 2007 letter complains and which form the basis of some of the claims in this action." The special referee also determined nothing in the record indicated the Masons deviated from the appropriate standard of conduct. The special referee determined nothing indicated the Masons' conduct towards Son was oppressive or unfairly prejudicial and they had not breached their fiduciary duty. The referee further found because Son presented no evidence of a breach by the Masons, his claim for his shares to be repurchased must fail. He found,
Son's dissatisfaction with his lack of employment by [the] Company, as well as with diminution of the value of his shares due to significant tax liability and the unfortunate business decision to expand the Company's operation . . . are matters that were principally due to and occasioned by the conduct and decisions of Son.
He noted that Son's request for his shares to be purchased was an equitable one and Son's unclean hands from his conduct prevented him from relying on an action for stockholder oppression or breach of fiduciary duty.
The special referee found " [t]he inaccuracies in the tax returns and any damages that flow from these falsities would affect the corporation in its entirety, not Son specifically. Therefore, Son's suit was improper in that it was not filed as a derivative action." The special referee also stated, " Contrary to the holding in Brown v. Stewart  Son has sued . . . [412 S.C. 47] Father, Mother[,] and [Daughter] under [sections 33-8-300 and -420 of the South Carolina Code (2006)]."
The special referee found for the Masons and the Company on their counterclaims for conversion regarding the casings scheme and Son's payment of his attorney's fees and awarded them $11,716.32 and $17,301.66 respectively. The special referee determined the cause of action for damages arising from the filing of false tax returns was not ripe for
adjudication because the amount of damages was undetermined at the time.
Son filed a Rule 59(e), SCRCP, motion, requesting the special referee delete or clarify the portion of the order relating to the counterclaim regarding the tax obligations. The special referee denied the motion. This appeal followed.
STANDARD OF REVIEW
" [A]n appellate court must look to the main purpose of the proceeding in order to determine the standard of review to exact." Wheeler v. Estate of Green, 381 S.C. 548, 554, 673 S.E.2d 836, 839-40 (Ct.App. 2009). " The character of the action is generally ascertained from the body of the complaint, but when necessary, resort may also be had to the prayer for relief and any other facts and circumstances which throw light upon the main purpose of the action." Sloan v. Greenville Cnty., 380 S.C. 528, 534, 670 S.E.2d 663, 666-67 (Ct.App. 2009). " When legal and equitable actions are maintained in one suit, the court is presented with a divided scope of review, and each action retains its own identity as legal or equitable for purposes [412 S.C. 48] of review on appeal." Wright v. Craft, 372 S.C. 1, 17, 640 S.E.2d 486, 495 (Ct.App. 2006). " The proper analysis is to view the actions separately for the purpose of determining the appropriate standard of review." Id. at 17-18, 640 S.E.2d at 495.
I. Judicial Dissolution/Repurchase of Shares
Son argues the special referee erred in denying him relief under the judicial dissolution provisions governing South Carolina corporations. He asserts the special referee should ...