Mississippi

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Gulfside Casino, Inc. et al. v. Terry W. Green & Joel R. Carter, Sr., NO. 97-CA-00133-SCT (Miss. 10/01/1998)

NO. 97-CA-00133-SCT

SUPREME COURT OF MISSISSIPPI

October 1, 1998, Decided

NOTICE: [*1] NOT DESIGNATED FOR PUBLICATION

PRIOR HISTORY: COURT FROM WHICH APPEALED: HARRISON COUNTY CHANCERY COURT. DATE OF JUDGMENT: 01/13/97. TRIAL

JUDGE: HON. THOMAS WRIGHT TEEL.

DISPOSITION: REVERSED AND REMANDED.

COUNSEL: ATTORNEYS FOR APPELLANTS: WYNN CLARK, NICHOLAS VAN WISER, HUGH KEATING.

ATTORNEYS FOR APPELLEES: WILLIAM LEE GUICE, III, RANDALL SCOTT WELLS.

JUDGES: MILLS, JUSTICE, PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, ROBERTS, SMITH AND WALLER, JJ., CONCUR. McRAE, J., CONCURS IN RESULT ONLY.

OPINIONBY: MILLS

OPINION: NATURE OF THE CASE: CIVIL - OTHER

BEFORE PRATHER, C.J., ROBERTS AND MILLS, JJ.

MILLS, JUSTICE, FOR THE COURT:

STATEMENT OF THE CASE

On December 16, 1994, Joel R. Carter and Terry W. Green filed suit against Gulfside Casino, Inc. in the Harrison County Chancery Court. Subsequently, Carter and Green filed a motion for summary judgment and a motion to appoint a receiver. On March 15, 1995, the Chancellor granted Carter and Green partial summary judgment awarding each plaintiff $ 3,000,000 plus interest and costs on promissory notes.

In May 1995, Carter and Green filed their amended complaint and renewed their motion to appoint a receiver. Following responsive [*2] pleadings from Gulfside Casino, Carter and Green filed an amended motion for special execution, for judicial foreclosure and/or for a charging order appointing a receiver. The chancellor entered a charging order on August 25, 1995.

The trial was conducted on July 16, 17 and 19, 1996. On July 26, 1996, the chancellor entered his judgment, holding that the lien of Carter and Green extended to a 59.994% interest in the general partnership held by Patrician, that repayments of loans to partners were prohibited, and that efforts be exhausted to satisfy the judgment under the terms of the charging order. Further, the chancellor ordered that the issue of additional relief and appointment of a receiver be set for a hearing in December 1996. Aggrieved, Gulfside Casino Partnership brings this appeal assigning the following issues as error:

I. WHETHER THE COURT ERRED IN ITS ANALYSIS OF THE NATURE OF A PARTNERSHIP INTEREST;

A. WHETHER THE COURT ERRED IN ITS ANALYSIS OF THE NATURE OF A LIEN, PLEDGE, OR SECURITY INTEREST UPON A PARTNERSHIP INTEREST;

B. WHETHER THE COURT ERRED IN FINDING THAT "A PARTNER ESPECIALLY ALIGNED AS THESE, CAN CERTAINLY BE LIABLE

FOR THE ACTS OF ANOTHER."

II. [*3] WHETHER THE COURT ERRED IN ITS APPLICATION OF GIBSON V. STATE, A CASE CONCERNING THE "LOOTING" OF CORPORATE ASSETS, TO THE CASE AT BAR AND SPECIFICALLY IN FINDING THAT THERE EXISTED A FIDUCIARY DUTY ON THE PART OF OFFICERS AND DIRECTORS OF GULFSIDE CASINO TO CARTER/GREEN.

III. WHETHER THE COURT ERRED IN FINDING THAT WHEN THE SANDS REGENT ACQUIRED GULFSIDE CASINO FROM THE McDONALD FAMILY, THE SANDS REGENT, PATRICIAN AND GULFSIDE CASINO INCORPORATED BECAME "ONE ENTITY WITH THREE FACADES."

IV. WHETHER THE COURT ERRED IN RULING THAT PURSUANT TO THE CHARGING ORDER, GULFSIDE CASINO PARTNERSHIP IS REQUIRED TO PAY CARTER AND GREEN SIXTY PERCENT OF MONIES NOT DESIGNATED FOR NORMAL OPERATIONAL EXPENSES.

V. WHETHER THE COURT ERRED IN RULING THAT THE REPAYMENT BY THE PARTNERSHIP OF LOANS TO THE PARTNERSHIP BY PARTNERS DID NOT CONSTITUTE NORMAL OPERATIONAL EXPENSES.

STATEMENT OF THE FACTS

The Copa Casino, located in Gulfport, Mississippi, is the subject of the present litigation. The Copa Casino is owned by Gulfside Casino Partnership, a Mississippi Partnership. The partners in this partnership are: Gulfside Casino, Inc.; Patrician, Inc.; and Artemis, Inc. n1

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n1 Artemis was created for the purpose of maintaining a functionally viable second partner in the event of the bankruptcy or other dissolution of GCI. The gaming license and the Mississippi State Port Lease for the Copa Casino is in the partnership name, and the collapse of the partnership through the loss of viability of one of only two partners could conceivably jeopardize the license.

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Initially, Gulfside Casino, Inc. was principally owned by the McDonald family of Seattle, Washington, with a minority interest held by Carter and Green. On December 31, 1992, Patrician, Inc., a Nevada corporation owned by the Sands Regent, and Gulfside Casino, Inc., entered into a General Partnership Agreement for the construction, operation and ownership of the Copa Casino. Under the provisions of the original Partnership Agreement between Patrician and Gulfside Casino, Inc., Patrician held a 40% ownership interest in the partnership and Gulfside Casino, Inc. held a 60% ownership interest in the partnership. Although Patrician held only a 40% interest in the Partnership, it is the managing partner, and as such may not be removed without its consent. The partnership was to be funded primarily through loans which were to be procured by the partners for the partnership. The amounts and timing of these loans are all set forth in the partnership agreement. The amounts of the loans contemplated by the partnership agreement were as follows: in initial loans Gulfside Casino, Inc. would borrow $ 2,000,000 and Patrician would borrow $ 8,000,000; in additional partnership loans, Gulfside Casino, [*5] Inc. would borrow $ 1,000,000 and Patrician would borrow $ 1,000,000; additionally, Patrician would borrow $ 3,000,000 in supplemental partnership loans; and finally, in final partner startup loans Gulfside Casino agreed to borrow 60% of the remaining funds required and Patrician agreed to borrow 40% of the funds. The partnership agreement also outlined specific provisions for repayment of these loans. n2 All of these provisions have been in effect from the inception of the original partnership.

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n2 The partnership agreement mandated that the loans be paid in the following manner:

1. First, interest was to be paid on all outstanding partner loans;

2. Second, sixty percent to Gulfside and forty percent to Patrician for their respective final partner start-up loans to the extent made pursuant to subsection 10.2.5 herein;

3. Third, one hundred percent to Patrician for its Patrician additional partner loans to the extent made pursuant to subsection 10.2.4 herein; and

4. Fourth, equally to Gulfside and Patrician for their respective additional partner loans, to the extent made pursuant to subsection 10.2.3 herein; and

5. Fifth, twenty percent to Gulfside and eighty percent to Patrician for their respective initial loans pursuant to Subsection 10.2.2 herein.

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Carter and Green facilitated the McDonalds' acquisition of the casino vessel and port lease and were minority shareholders of Gulfside Casino, Inc. at the time of the formation of the partnership of Gulfside Casino, Inc. and Patrician. Carter and Green had paid little or nothing for their interest in Gulfside Casino, Inc., and had never put any money into the partnership itself. Instead, they obtained an interest in the casino through their work and conceptualization.

Problems arose within Gulfside Casino, Inc. between Carter and Green and the McDonalds when Carter and Green failed to obtain the required approval from the Mississippi Gaming Commission to directly or indirectly hold an interest in a gaming license. The inability of Carter and Green to obtain the necessary approval delayed the Copa's projected opening and placed the entire project in jeopardy of collapse. In order to secure Gaming Commission approval for the entire project, the McDonald family, through Gulfside Casino, Inc., purchased all the interest of Carter and Green in Gulfside Casino, Inc. As a result, the McDonald family owned all outstanding stock in Gulfside Casino, Inc.

In consideration for the sale of their [*7] stock Carter and Green received $ 3,500,000 each, $ 500,000 each in cash and $ 3,000,000 each in the form of promissory notes. The notes were secured by a pledge agreement, whereby Gulfside Casino, Inc. pledged its partnership interest in the Gulfside Casino Partnership. This pledge agreement was executed August 27, 1993, nearly eight months after the creation of the partnership itself. Neither Patrician, the Sands Regent (Patrician's parent company), nor Gulfside Casino Partnership were parties to this pledge agreement. However, these entities were parties to an agreement and mutual release entered into on August 27, 1993, where they acknowledged and recognized Carter and Green's transactions with Gulfside Casino, Inc.

As Carter and Green could not directly or indirectly hold any interest in any entity holding a gaming license, the pledge agreement provided that in the event of default, Carter and Green would be entitled, if necessary, to seek to have a receiver appointed to take possession of Gulfside Casino, Inc.'s "partnership interest" in the partnership. Any such receiver would require prior approval of the Gaming Commission.

The pledge agreement read as follows:

For any good [*8] and valuable consideration, receipt of which is hereby acknowledged, the undersigned, Gulfside Casino, Inc., a Mississippi corporation, ("Debtor") herewith pledges, assigns for collateral and grants a security interest in and to the following described collateral to and for the benefit of Joel R. Carter, Sr. and Terry Wayne Green, individuals residing in Gulfport, Mississippi (collectively referred to herein as "Secured Party"):

All of Debtor's partnership interest in Gulfside Casino Partnership, a Mississippi general partnership(the partnership").

to have and to hold the same to secure the due and timely satisfaction for the obligations of Debtor to Secured Party, as set out in those Promissory Notes, dated August 27, 1993, issued by Debtor to Secured Party (the "Notes").

The Pledge Agreement also provided that Gulfside Casino Inc. would retain all rights to exercise any and all actions with reference to the partnership management and operations as set forth in the partnership agreement, and to sell and encumber its interest. n3 Further, the pledge agreement contained a subordination clause which stated that the Carter/Green debt was subordinate to "any security interest [*9] granted by the debtor in connection with future financing provided to the partnership by commercial lenders or financial institutions in support of the partnership's operations or capital acquisitions, and not for distribution to the debtor, its shareholders or any entity controlled by the debtor or its shareholders."

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n3 This language is superfluous as the right to management is not assignable, according to the terms and provisions of the Mississippi Uniform Partnership Act. Miss. Code Ann. § 79-12-53 (Rev. 1996).

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In November, 1993, serious partnership disputes arose between Gulfside Casino, Inc., still owned by the McDonald family, and Patrician. The subject of the dispute was, among other things, that the site for the Copa Casino had been moved to another site, the "Horseshoe Site," which prompted heavy construction costs which the McDonalds did not want to fund. Specifically, the McDonalds refused to allow Gulfside Casino, Inc. to honor its funding obligations for the construction contract entered into with [*10] Tilley Constructors ("Tilley") as required by the lease agreement between Gulfside Casino Partnership and the Port Authority.

On November 16, 1993, Stanley McDonald, on behalf of Gulfside Casino, Inc., wrote to Pete Cladianos, Jr. ("Cladianos") of Patrician, advising him that Gulfside Casino, Inc. was unwilling to continue funding operational cash shortages of the Copa. On November 22, 1993, Kirby McDonald of Gulfside Casino Inc. advised Cladianos that Gulfside Casino, Inc. would consider additional investments in the partnership if Patrician relinquished its role as operations manager of the partnership. McDonald suggested three options, one of which involved a buy-out by one partner.

On November 22, Patrician responded, advising Gulfside Casino, Inc. that the failure to fund Tilley's construction contract could cause construction to stop at the "Horseshoe Site" and possibly jeopardize the partnership's lease with the Mississippi State Port Authority.

On November 24, Cladianos again wrote Gulfside Casino Inc. to advise them that Gulfside Casino, Inc.'s failure to make additional partnership loans constituted a breach of the partnership agreement. Subsequently, a series of letters [*11] was exchanged which detailed the serious dispute between Gulfside Casino, Inc. and Patrician, a dispute which eventually resulted in the initiation of litigation against the partnership by Tilley and Patrician and litigation against Kirby McDonald, one of the principals of Gulfside Casino, Inc.

In a letter to Patrician dated November 29, 1993, Gulfside Casino, Inc. stated that it was not in the best interest of the partnership to proceed with the Tilley contract, and declined to contribute to the partnership the amounts requested by Patrician. On December 6, 1993, Gulfside Casino Inc. stated its contention that it had no obligation to make additional partner loans to the partnership. Patrician responded on December 10, 14, and 22, stating that Gulfside Casino, Inc.'s failure to fund the partnership was a material breach of the partnership agreement, and that Patrician would not continue to fund the partnership. Gulfside Casino, Inc. responded on December 23 claiming that it had no obligation to loan additional funds to the partnership, and conceded that the partnership was in a "serious situation."

On that same day, December 23, 1993, Carter and Green initiated suit against Gulfside [*12] Casino, Inc. in chancery court for Gulfside Casino's failure to make the required interest payments required under the terms of the notes which had been given in consideration for the acquisition of Carter and Green's stock in Gulfside Casino, Inc.

On February 3 and 9, 1994, Patrician objected in writing to Gulfside Casino, Inc.'s alleged unauthorized distribution of partnership financial data and information to third parties.

The failures of Gulfside Casino, Inc. resulted in a default in payments to Tilley Construction. Tilley discontinued construction and filed construction liens against the partnership and the site. The port authority then notified the partnership of a default under the partnership's lease agreement with the port and required the partnership to cure the defaults or face termination of the lease and eviction proceedings.

The climate at the height of the dispute between Patrician/The Sands Regent and Gulfside Casino Inc./McDonalds must be fully appreciated in order to understand the various reasons for the structure of the final deal between the two. At this point, relations between Patrician/Sands Regent and Gulfside Casino/McDonalds were extremely poor. Tilley [*13] Construction had sued the partnership for failure to make payments under the construction contract for leasehold improvements. Carter and Green had sued Gulfside Casino, Inc. for failing to make payments under the note from Gulfside Casino, Inc. to Carter and Green. The partnership had sued the McDonalds individually and Gulfside Casino, Inc. corporately for breach of the partnership agreement. While all of this litigation was pending, Gulfside Casino, Inc. was not contributing funds to the project.

On February 9, 1994, Gulfside Casino, Inc. offered to sell the Sands Regent its interest in the partnership. This offer resulted in negotiations between the partners and the offer was ultimately accepted. The settlement/purchase was consummated by the Sands Regent purchasing Gulfside Casino, Inc.'s stock from the McDonalds, effectively ending the dispute between Gulfside Casino, Inc. and Patrician. As a part of this settlement, the Sands Regent also purchased the McDonald, Ltd, notes receivable due from Gulfside Casino Partnership, which were in fact the loans procured by Gulfside Casino, Inc. in accordance with the partnership agreement.

On February 25, 1994, the three McDonald shareholders [*14] of Gulfside Casino, Inc. executed a "Consent in Lieu of Special Meeting" which reflected that the shareholders of Gulfside Casino, Inc. had entered into a sale agreement for Gulfside Casino, Inc.'s stock. On that same date, all three McDonalds resigned their positions with the corporation and the partnership. Later that day, the Sands Regent, the new sole shareholder of Gulfside Casino, Inc., executed a "Unanimous Consent To Action" and elected Pete Cladianos, Jon Bengtson, and David Wood as directors. Simultaneously, a "Unanimous Consent to Action" was executed by the new directors of Gulfside Casino, Inc. naming Cladianos president and chairman of the board and Wood vice-president. A separate consent also named Cladianos, Bengtson, and Wood as representatives of Gulfside Casino, Inc. on the partnership board.

Following the consummation of the settlement, Gulfside Casino Partnership began an analysis of the books of the partnership and the partners focusing particularly on the respective investments in the partnership of each of the partners of Gulfside Casino Partnership. n4 As evidenced by the exchange between Gulfside Casino, Inc. and Patrician which preceded the acquisition of [*15] Gulfside Casino, Inc.'s stock, the disparity in contributions was the critical factor at the core of the dispute between Patrician and the McDonalds.

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n4 Article X, § 10 of the partnership agreement ("partner loans") specifies the loan amounts each partner was required to procure to finance the development, construction and start up of operations of the partnership. Gulfside Casino, Inc. did not adhere to this contractual requirement despite repeated demands and requests by Patrician. The initial partnership agreement was breached by Gulfside Casino, Inc., while still owned by the McDonald family beginning in November, 1993.

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The respective investments by Gulfside Casino, Inc. and Patrician were not reflected in the allocation of partnership interests between the partners, and in fact constituted a breach of the partnership agreement. Rather than pursue remedies of dissolution for Gulfside Casino, Inc.'s breach of the agreement, it was determined that the partnership agreement should reflect the economic realities [*16] of the partner's investments, in accordance with, inter alia, the provisions of the "Definitions" of the partnership agreement. This disparity, resulting from and reflecting the refusal of Gulfside Casino, Inc. while owned by the McDonalds, to comply with its obligations under the partnership agreement, constituted a breach. As a result of this determination on April 15, 1994, Patrician and Gulfside Casino, Inc. entered into an agreement amending the partnership agreement whereby the partners readjusted partnership equities to reflect the economic contributions of each partner. Patrician's percentage interest in the partnership was reallocated from forty percent to eighty percent and Gulfside Casino, Inc.'s interest was reallocated from sixty percent to twenty percent. The identical action is reflected in both Patrician's corporate records and the partnership's records as agreed to by the parties. The first amendment was agreed to by the partners, Gulfside Casino, Inc., the Sands Regent, and Patrician, in order to cure what would otherwise have constituted a breach of the partnership agreement existing since the McDonald dispute, as well as to reflect the actual economic contributions [*17] and risks of Patrician and Gulfside Casino, Inc.

Additional funds of approximately $ 5.5 million, were needed by the partnership following November 1993 in order to finance construction of the new gaming site, the "Horseshoe Site".

Among other things, the first amendment to the partnership agreement reflected Patrician's increased financial contribution and risks, and Gulfside Casino, Inc.'s reduced financial contributions and risks which were not contemplated in the original partnership agreement. The revised 80/20 partnership interests for Patrician and Gulfside Casino, Inc., respectively, were calculated from the ratio of amounts due from the partnership to Patrician and Gulfside Casino, Inc. on February 28, 1994, immediately after The Sands Regent purchased Gulfside Casino, Inc.'s common stock. At that time the partnership owed loans procured by Patrician and Gulfside Casino Inc. in the total amount of $ 19,036,458.00. Of this amount $ 3,692,347.00 or 19.4% had been caused to be loaned by Gulfside Casino, Inc. and $ 15,344,111.00 or 80.6% was due Patrician. n5 These percentages were rounded to 20% and 80% for Gulfside Casino Inc. and Patrician, respectively, which incidentally, [*18] was to the benefit of Gulfside Casino, Inc.

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n5 The loans procured by Gulfside Casino, Inc. were not in actuality "loaned" by Gulfside Casino, Inc." They were in fact "loaned" by another McDonald entity called "McDonald, Ltd". As a part of the overall settlement agreement with the McDonalds, the Sands Regent purchased this note from McDonald, Ltd. Therefore, in actuality there are no sums due to Gulfside Casino, Inc. This fact, in and of itself, did not constitute a breach, as the loans were originally contemplated as coming from the McDonalds.

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Under the terms of the notes from Gulfside Casino, Inc. to Carter and Green, interest payments were first due on May 27, 1994. This payment was made by Gulfside Casino, Inc. with money borrowed from The Sands Regent, its parent corporation. The payments due on November 27, 1994, were not made and Carter and Green sent notice of default to Gulfside Casino, Inc. When no payments were forthcoming, Carter and Green filed the present action.

On December 9, 1994, Patrician and [*19] Gulfside Casino, Inc. submitted a second amendment to the partnership agreement in which they reduced Gulfside Casino, Inc.'s interest in the partnership to less than one percent. At the time of this amendment, the Sands Regent owned and controlled all of the partners. Carter and Green submit that this amendment was enacted to thwart their security agreement. They filed suit on December 16, 1994. n6

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n6 In addition to the facts stated here, Carter and Green attached evidence in their brief that Gulfside Casino, Inc. filed for bankruptcy. These matters are outside the record. It is well settled that this Court will not allow a party to go outside the record by adding facts in briefs. Commercial Credit Equip. Corp. v. Kilgore, 221 So. 2d 363, 367 (Miss. 1969); Dillon v. State, 641 So. 2d 1223, 1225 (Miss. 1994). Therefore, this writer has omitted any information regarding Gulfside Casino Inc.'s bankruptcy from the statement of the facts.

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STANDARD OF REVIEW

When reviewing a chancellor's decision, [*20] we will accept a chancellor's findings of fact as long as the evidence in the record reasonably supports those findings. Perkins v. Thompson, 609 So. 2d 390, 393 (Miss. 1992). In other words, we will not disturb the findings of a chancellor unless those findings are clearly erroneous or an erroneous legal standard was applied. Hill v. Southeastern Floor Covering Co., 596 So. 2d 874, 877 (Miss.1992).

ANALYSIS

I. WHETHER THE COURT ERRED IN IT ANALYSIS OF THE NATURE OF A PARTNERSHIP INTEREST;

A. WHETHER THE COURT ERRED IN ITS ANALYSIS OF THE NATURE OF A LIEN, PLEDGE, OR SECURITY INTEREST UPON A PARTNERSHIP INTEREST;

Carter and Green are asserting a lien, either consensual or non consensual, on the partnership interest in Gulfside Casino, Inc. n7 The appellants maintain that Carter and Green can only assert their lien rights upon the profits and surplus to which Gulfside Casino, Inc. is entitled under the partnership agreement.

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n7 A consensual lien is asserted via the pledge agreement. A non-consensual lien is asserted by way of the charging order issued subsequent to the entry of judgment for breach of the promissory notes.

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In discussing the lien, one of the appellants' assertions is that a partner cannot assign his interest in partnership property and thus Carter and Green have no interest in the partnership property. This is correct under the Uniform Partnership Act which this state adopted in 1976. The Act provides:

Nature of a partner's right in specific partnership property.

(1) A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership.

(2) The incidents of this tenancy are such that:

(a) A partner, subject to the provisions of this chapter and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners.

(b) A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property.

(c) A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership [*22] debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws.

Miss. Code Ann. § 79-12-49 (1996). Appellants maintain that as an assignee, Carter and Green only have the rights to the Gulfside Casino, Inc.'s profits and surplus. They argue that to allow Carter and Green to have more than this would be to allow them to have a lien on the partnership property and note that a lien is limited to the rights to receive profits and surplus and a lienor has no right to take possession of the partnership property. See Bohonus v. Amerco, 124 Ariz. 88, 602 P.2d 469 (Ariz. 1979). The appellants are correct in their assertion that Carter and Green are not entitled to a lien on the property of the partnership. However, Carter and Green can have a lien on Gulfside Casino, Inc.'s partnership interest without having any lien on partnership property, and the trial court held that Carter and Green possessed a lien on Gulfside Casino, Inc's interest in the partnership when that interest was sixty percent. Thus, the issue is whether Carter and Green may have a lien on Gulfside Casino, Inc.'s partnership interest [*23] when that interest constituted sixty percent of the partnership.

A partnership interest is the partner's right to profits and surplus of a partnership which constitutes personal property. Miss. Code Ann. § 79-12-51 (1996). A security interest in personal property generally continues in the collateral notwithstanding a sale or transfer unless the creditor authorizes a modification. Miss. Code Ann. § 75-9-306 (Supp. 1997); Memphis Bank & Trust Co. v. Pate, 362 So. 2d 1245 (Miss. 1978). Although the defendants were entitled to change the structure of the partnership these changes were after Carter and Green's security interest was perfected. Further, the defendants maintain that when they reduced Gulfside Casino, Inc.'s partnership interest from 60% to 20% and later to 0.006% that they did so to reflect Gulfside Casino, Inc.'s financial contributions to the partnership. However, Gulfside Casino, Inc. had procured loans in excess of three and one half million dollars for the partnership. Thus, if the defendants were accurately attempting to reflect each corporation's financial contributions then in order to reduce Gulfside Casino, Inc.'s interest to 0.006%, Patrician [*24] would have had to have contributed over one trillion dollars to the partnership. Therefore, the defendant's partnership amendments do not modify the partnership interests in a manner that accurately reflects each partner's contributions to the partnership.

While the defendants have every right to amend the partnership agreement in whatever way they choose, the Mississippi Partnership Act mandates that situations not governed by the Act be governed by the rules of law and equity. Miss. Code Ann. § 79-12-9. Carter and Green were granted a security interest in Gulfside Casino, Inc.'s partnership interest when that interest was 60%. The chancellor found that it was unequitable to allow the Sands Regent, who now owns all partners in the partnership, to reduce that security interest so that Carter and Green only have a secured interest in 0.006% of the partnership. We find that the chancellor did not err in this decision.

B. WHETHER THE COURT ERRED IN FINDING THAT "A PARTNER ESPECIALLY ALIGNED AS THESE, CAN CERTAINLY BE LIABLE FOR THE ACTS OF ANOTHER."

The Mississippi General Partnership Act provides that "...all partners are liable jointly and severally for all debts [*25] and obligations of the partnership." Miss. Code Ann. § 79-12-29(1) (1996) (emphasis added). The defendants assert that the debt to Carter and Green was an individual debt and was incurred for the corporate purposes of Gulfside Casino, Inc. not for the partnership.

Indeed, it is undisputed that the debt to Carter and Green was incurred by Gulfside Casino, Inc. in its own name. When analyzing partnership loans it is significant to distinguish whether the loan was borrowed in the partnership's name or in the name of a partner individually. Burns v. Gonzalez, 439 S.W.2d 128, 133 (Tex. Civ. App. 1969). If the debt is incurred in the partner's own name then the partnership and the other partners are not liable even if the money is used for partnership purposes. n8 See Kaback v. Schweickart & Co., 415 F. Supp. 646 (S.D.N.Y. 1976); Gay's Jewelry, Inc. v. Goldberg, 129 Ind. App. 356, 156 N.E.2d 637(Ind. Ct. App. 1959). Thus, in the case sub judice, it is Gulfside Casino who is liable to Carter and Green not the partnership and the chancellor erred in holding that partners aligned as these could be liable for the acts of another. [*26]

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n8 In the case sub judice it would be services rendered not money. So it is irrelevant if the services rendered by Carter and Green were in furtherance of the partnership. The bottom line is that Carter and Green's agreement was with Gulfside Casino, Inc.

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II. WHETHER THE COURT ERRED IN ITS APPLICATION OF GIBSON V. STATE, A CASE CONCERNING THE "LOOTING" OF CORPORATE ASSETS, TO THE CASE AT BAR AND SPECIFICALLY IN FINDING THAT THERE EXISTED A FIDUCIARY DUTY ON THE PART OF OFFICERS AND DIRECTORS OF GULFSIDE CASINO TO CARTER/GREEN.

Next, the Defendants assert that the trial court erred in applying Gibson v. Manuel, 534 So. 2d 199 (Miss. 1988), to the present case and holding that there existed a fiduciary duty between the directors of Gulfside Casino, Inc. and Carter and Green.

In Gibson, John T. Gibson was the owner of CBC corporation, a broadcasting company that operated radio station WDDT. Gibson, 534 So. 2d at 199. Gibson sold CBC's outstanding [*27] shares to Donald G. Manuel and in exchange for Gibson's transfer of the stock, Manuel executed an installment note in Gibson's favor. Id. at 200. As collateral for the note Manuel pledged his newly acquired shares of stock in CBC. Id. Manuel was owner of all of the outstanding shares of CBC and assumed complete control of the corporation electing himself president and treasurer. Id. After making two installment payments to Gibson, Manuel defaulted on his payments to Gibson. Id. Subsequently, Manuel effectively stripped CBC of all of its assets and formed a new corporation CCC, which assumed ownership and operation of WDDT. Id. Gibson filed a preliminary injunction to prevent the sale of a license to CCC and to restore the assets to CBC. Id. In Gibson, we noted that a corporate officer who participates in illegal diversions of corporate assets is liable for those assets. We also opined that corporate officers not only have a fiduciary duty to shareholders, but to the pledgees of corporate shares. Id. at 202. We stated:

There is no reason on principle why a corporate officer's duties of care and loyalty [*28] should not extend to pledgees of corporate shares as well as to shareholders. Beneficial and legal holders would seem similarly situated. A pledgee holding a security interest in corporate shares is a potential shareholder. He has the same interest and concern as a shareholder that the corporate affairs be managed properly. If the officers default, the pledgee suffers harm generically not unlike that experienced by the shareholder....

* * *

Close examination makes clear that the sales agreement in no way empowers Manuel to loot the corporation with impunity. Paragraph 4 merely spells out the meaning of the stock pledge as the security interest of choice. Manuel was given no authority to impair the value of that collateral.

534 So. 2d at 202-03.

The chancellor found that the rules and principles in Gibson could be applied to the case sub judice and that both the partnership and the officers and directors of Gulfside Casino Inc. owed the Plaintiffs a duty of care and loyalty. The defendants argue that the present case is wholly distinguishable from Gibson because no assets of the partnership have been "looted" or mishandled.

While the facts in [*29] the present case and Gibson are not exactly the same, we do not find that the chancellor erred in applying some of the principles set forth in Gibson to the present case. The Gulfside Casino Partnership does not owe Carter and Green a fiduciary duty of care and loyalty because it was Gulfside Casino, Inc. not Gulfside Casino Partnership that bought their stock and entered into the pledge agreement with them. However, like the corporate officers in Gibson, the corporate officers of Gulfside Casino, Inc. do owe Carter and Green a duty of loyalty and care. Gulfside Casino, Inc.'s partnership interest was pledged as a security for promissory notes that Gulfside Casino, Inc. owed Carter and Green. This is very similar to Gibson whose note was secured by shares of CBC held by Manuel. Gibson, 534 So. 2d at 200. The officers of Gulfside Casino, Inc. n9 allowed the Partnership to reduce Gulfside Casino Inc.'s partnership interest from sixty percent to less one tenth of one percent. As pledgees of the partnership interest, Carter and Green have a definite stake in that interest. Similar to the corporate officer in Gibson, who allowed CBC to [*30] be stripped of its assets, the corporate officers of Gulfside Casino, Inc. allowed its partnership interest to be reduced to a negligible amount. According to this Court's holding in Gibson, corporate officers owe pledgees a duty of care and loyalty. This Court finds that the chancellor was correct in applying Gibson to the present case and that Gulfside Casino, Inc. breached its duty of care and loyalty to Carter and Green by allowing the Partnership to reduce Gulfside Casino, Inc.'s interest to infinitesimal amount.

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n9 The officers of Gulfside Casino Inc. after the Sands Regent bought the McDonalds out were also the officers of Patrician.

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III. WHETHER THE COURT ERRED IN FINDING THAT WHEN THE SANDS REGENT ACQUIRED GULFSIDE CASINO FROM THE McDONALD FAMILY, THE SANDS REGENT, PATRICIAN AND GULFSIDE CASINO INCORPORATED BECAME "ONE ENTITY WITH THREE FACADES."

The Defendants also assert that the court erred in holding that the Sands Regent, Patrician, and Gulfside Casino, Inc., [*31] became one entity with three facades when the Sands Regent acquired Gulfside Casino, Inc. First, the defendant maintains that treating these three corporations as one entity pierces the corporate veil and was egregious because neither party requested this relief in the pleadings. The defendant cites Rankin v. Brokman, 502 So. 2d 644 (Miss. 1987) for the proposition that issues which are not raised in the pleadings nor tried by the consent of the parties may not be addressed unilaterally by the Court.

The defendant is correct in the assertion that a court may not unilaterally raise issues that were not raised in the pleadings. Rankin, 502 So. 2d at 646. However, in the complaint Carter and Green ask the Court to appoint a receiver to take control of all revenues of the Gulfside Casino Partnership and to have that receiver pay them sixty percent of all revenues derived from that enterprise. Subsequent to the second partnership amendment Gulfside Casino, Inc., the corporation indebted to Carter and Green, only owned 0.006% of the partnership. Thus, by asking for sixty percent of the partnership's revenues, Carter and Green were essentially asking the chancellor to [*32] treat the Sands Regent, Gulfside Casino, Inc., and Patrician as one entity. In Mississippi, we have general rules of pleading which means that the claim may be stated in general terms so that the rights of the client are not lost by poor draftsmanship of counsel. M.R.C.P. 8. Thus, the relief sought in Carter and Green's complaint was sufficient to justify the chancellor's finding that the Sands Regent, Gulfside Casino, Inc., and Patrician were one entity with three facades.

The defendant also claims that by finding an identity including a parent corporation (The Sands Regent) and its subsidiaries, the chancellor pierced the corporate veil. Indeed, by holding that the Sands Regent and its subsidiaries were one entity with three facades the trial court did pierce the corporate veil.

Before this Court will pierce the corporate veil, the plaintiff must show that the factual circumstances are so extraordinary that "to do otherwise would 'subvert the ends of justice.'" Gray v. Edgewater Landing, Inc., 541 So. 2d 1044, 1046 (Miss. 1989)(quoting Johnson & Higgins of Mississippi, Inc. v. Commissioner of Ins., 321 So. 2d 281, 284 (Miss. 1975). Further, we will only pierce [*33] the veil of a subsidiary corporation in order to deal with its parent corporation in extreme circumstances. Johnson, 321 So. 2d at 285. The only situations which warrant piercing the corporate veil are situations in which a party has abused the corporate entity to perpetrate fraud and evade contractual and tort responsibility. Hogan v. Mayor & Aldermen of Savannah, 171 Ga. App. 671, 320 S.E.2d 555, 558 (Ga. Ct. App. 1984) (citing Kelley v. Austell Bldg. Supply, 164 Ga. App. 322, 297 S.E.2d 292 (Ga. Ct. App. 1982). We find that the present case presents such a situation.

In the present case, the Sands Regent owned both corporations in the Gulfside Casino Partnership. The Sands Regent shifted the partnership interest among its subsidiary corporations in such a way as to greatly reduce the security interest Carter and Green held in Gulfside Casino, Inc. When the Sands Regent and Gulfside Casino, Inc. embarked on this course of action they were attempting to evade contractual responsibility. Therefore, the chancellor was justified in piercing the corporate veil.

IV. WHETHER THE COURT ERRED IN RULING THAT PURSUANT TO THE CHARGING ORDER, GULFSIDE CASINO [*34] INCORPORATED IS REQUIRED TO PAY CARTER AND GREEN SIXTY PERCENT OF MONIES NOT DESIGNATED FOR NORMAL OPERATIONAL EXPENSES.

Next, the defendants contend that the chancellor erred in ordering Gulfside Casino Partnership to pay Carter and Green sixty percent of monies that the partnership makes that are not designated for normal operational expenses. The defendants argue that Gulfside Casino, Inc.'s rights to receive money is governed by the partnership agreement and that Gulfside Casino, Inc. is not entitled to receive sixty percent of the monies made by the partnership. They note that Carter and Green's lien rights cannot exceed the rights of the debtor who granted them their lien. Crocker Nat'l Bank v. Perroton, 208 Cal. App. 3d 1, 255 Cal. Rptr. 794, 799 (Cal.Ct.App. 1989).The defendants insist that by awarding Carter and Green this money the chancellor has essentially rewritten their partnership agreement and that this was an abuse of discretion. The defendants note that courts do not have the authority to make contracts where none exist or to modify existing contracts. Citizens Nat'l Bank of Meridian v. L.L. Glascock, Inc., 243 So. 2d 67, 70 (Miss. 1971). Likewise, [*35] the defendants claim that Courts should not be allowed to modify partnership agreements.

Indeed, the way in which the chancellor awarded damages is unprecedented in this state. However, this court has previously held that chancellor may award relief for which there is no precedent if equity dictates that such relief be granted. Hall v. Wood, 443 So. 2d 834, 842-43 (Miss. 1983). In Hall, we opined:

The remedial powers of our chancellors are sufficient to vindicate the claims and interests of all litigants. Those powers are as broad as equity and justice require. Those powers have always been marked by flexibility and expansiveness so that appropriate remedies may be decreed to satisfy the needs of the particular case. The chancellor's remedial powers are marked by plasticity. Equity jurisdiction permits innovation that justice may be done.

Hall, 443 So. 2d at 842-43 (citing Higginbottom v. Short, 25 Miss. 160 (1852). The chancellor in the case sub judice realized that if the Sands Regent and its subsidiaries were allowed to reduce Carter and Green's security interest in Gulfside Casino Partnership from 60% to 0.006% that a grave injustice [*36] would result. Thus, the chancellor used the powers of equity vested in him and prevented the Sands Regent from reducing Carter and Green's interest to a negligible amount.

However, while reducing Carter and Green's security interest to 0.006% is certainly unequitable, awarding Carter and Green sixty percent of all monies after operational expenses are paid seems a bit extreme. Gulfside Casino, Inc. has procured more than three and a half million dollars in loans for Gulfside Partnership and was instrumental in working on opening the casino at the beginning of the partnership. Thus, Gulfside Casino, Inc. is certainly entitled to more than a 0.006% interest in the partnership. However, Gulfside Casino, Inc. has not contributed the time or money to the partnership that was originally contemplated by the partnership agreement. The first partnership amendment in which Gulfside Casino, Inc. interest was reduced to twenty percent is probably a more accurate assessment of Gulfside Casino, Inc.'s investment of time and money. We remand this case with instructions to the chancellor to award Carter and Green a percentage of monies made after operational expenses that more accurately reflects [*37] what Gulfside Casino, Inc.'s interest should be based on its investment of time and money to the project.

V. WHETHER THE COURT ERRED IN RULING THAT THE REPAYMENT BY THE PARTNERSHIP OF LOANS TO THE PARTNERSHIP BY PARTNERS DID NOT CONSTITUTE NORMAL OPERATIONAL EXPENSES.

The final issue is the status of the partner loans. These are sums of money loaned to the partnership which are described in the original partnership agreement. The Chancellor held that the repayment of these loans was not a normal operating expense and subordinated these debts to the lien held by Carter and Green. The defendants now object to this holding and note that most of the partner loans were in existence at the time Carter and Green took their security interest in Gulfside Casino, Inc.'s partnership interest. We are unable to determine the basis for the Chancellor's ruling on this issue and request further development of the facts and authorities relied on by him on remand.

OPEN MOTION

In addition to the merits raised in this case there was a motion filed on November 14, 1997, to strike part of the appellees' brief. In an order dated December 18th 1997, Justice Roberts ordered [*38] that this motion be passed for consideration with the merits of the appeal.

The appellants moved to strike the part of the appellees' brief which referred to the bankruptcy of Gulfside Casino, Inc. The appellants note that the bankruptcy occurred after the appellants had filed their notice of appeal and after the designation of the record was filed. The appellants also point out that the appellees made no attempt to supplement the record. As stated in footnote number 6 of this opinion, it is well settled that this Court will not allow a party to add facts to his brief that were not in the record. Commercial Credit Equip. Corp. v. Kilgore, 221 So. 2d 363, 367 (Miss. 1969); Robinson v. State, 662 So. 2d 1100, 1104 (Miss. 1995); Dillon v. State, 641 So. 2d 1223, 1225 (Miss. 1994). We grant the appellants' motion to strike the portions of the appellees' brief which are not in the record.

CONCLUSION

We find that the chancellor did not err in finding that Carter and Green have a security interest in Gulfside Casino, Inc.'s partnership interest in Gulfside Casino Partnership. However, we do hold that the trial court did err in holding [*39] that partners aligned as these can be liable for the acts of another.

The trial court did not err in applying Gibson v. Manuel to the case sub judice or in holding that when the Sands Regent acquired Gulfside Casino Inc. that Sands Regent, Gulfside Casino, Inc. and Patrician became one entity with three facades.

We remand this case to determine whether Gulfside Casino Partnership is required to pay Carter and Green sixty percent of the monies not designated for normal operational expenses and for further development of the facts and authorities for the Chancellor's ruling that the Partnership debt to the partners was subordinate to Carter and Green's lien.

REVERSED AND REMANDED.

PRATHER, C.J., SULLIVAN AND PITTMAN, P.JJ., BANKS, ROBERTS, SMITH AND WALLER, JJ., CONCUR. McRAE, J., CONCURS IN RESULT ONLY.

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