Cengage Advantage Books: Fundamentals of Business Law Today 10th Edition by Roger LeRoy Miller

Exercise 21

Brothers v. Winstead
Supreme Court of Mississippi, 129 So.3d 906 (2014).
FACTS Phillips Brothers, LP (limited partnership), Harry Simmons, and Ray Winstead were the owners of Kilby Brake Fisheries, LLC (limited liability company), a catfish farm in Mississippi. For nearly eight years, Winstead operated a hatchery for the firm. During this time, the hatchery had only two profitable years. Consequently, Winstead was fired. He filed a suit in a Mississippi state court against Kilby Brake and its other owners, alleging a "freeze-out." (A freeze-out occurs when a majority of the owners of a firm exclude other owners from certain benefits of participating in the firm.) The defendants filed a counterclaim of theft. To support this claim, the defendants asked the court to allow them to obtain documents from Winstead regarding his finances, particularly income from his Winstead Cattle Company. The court refused this request. A jury awarded Winstead more than $1.7 million, and the defendants appealed.
ISSUE Were the defendants entitled to discovery of information concerning Winstead's finances to seek evidence to support their claims?
DECISION Yes. The Mississippi Supreme Court reversed the lower court's decision to deny discovery of information on Winstead's outside finances and remanded the case for a new trial.
REASON The state supreme court noted several factors in explaining its reasoning. Winstead testified that Winstead Cattle Company did no business-it was "simply his hunting camp." But during discovery, Winstead provided tax returns that showed substantial income from the company. Other documents showed income from sales of "cattle" to a fish farmer named Scott Kiker, which did not appear on Winstead's tax returns. Kilby Brake contended that this income represented sales of Kilby Brake fish, not cattle. Kiker testified that he received a load of fish from Kilby Brake, sold the fish, and gave Winstead a commission without paying Kilby Brake. Winstead countered that he often acted as a "middleman" between a farmer in need of fish and another with fish for sale, taking a commission on the deal. Further discovery of information on Winstead's financial dealings could reveal whether he was selling fish from Kilby Brake and disguising these sales on his tax returns.
FOR CRITICAL ANALYSIS-Ethical Consideration Does Winstead have an ethical duty to comply with the defendants' discovery request? Discuss.