Stephen Brown v. Columbia Precast, LLC ( 2011 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
January 19, 2011 Session
STEPHEN BROWN v. COLUMBIA PRECAST, LLC, ET AL.
Appeal from the Circuit Court for Maury County
No. 10988 Jim T. Hamilton, Judge
No. M2010-00971-COA-R3-CV - Filed July 21, 2011
An employee was promised 10% ownership interest in the company he worked for if he
stayed with the company for six years. When the time came to transfer the employee’s 10%
interest to him, however, the parties learned that the tax laws then in effect made the transfer
impractical at that time. The parties therefore decided to delay the transfer. The parties
entered into a contract the following year which the employer interpreted to mean that the
employee was giving up his 10% ownership interest in exchange for a raise in his salary plus
10% of the company’s net profits each year. The employee claimed he did not give up his
10% ownership interest and sued the company and former majority owner for his 10%
interest when the company was sold a few years later. The trial court concluded the
employee did not give up his 10% ownership interest by signing the later agreement and
awarded the employee 10% of the company’s net profits for the years following the
employee’s termination plus 10% of the ultimate purchase price. We affirm the trial court’s
judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed
P ATRICIA J. C OTTRELL, P.J., M.S., delivered the opinion of the Court, in which F RANK G.
C LEMENT, J R. and R ICHARD H. D INKINS, JJ., joined.
T. Jake Wolaver, Columbia, Tennessee; John D. Kitch, Nashville, Tennessee, for the
appellants, Columbia Precast, LLC, Roger Teague, Barbara Teague.
Ben Boston, Ryan P. Durham, Lawrenceburg, Tennessee, for the appellee, Stephen Brown.
OPINION
I. B ACKGROUND
Columbia Concrete was in the business of manufacturing architecturally designed
concrete panels for commercial buildings. Stephen Brown began working for Columbia
Concrete in 1996. Mr. Brown had been in this business for several years and was the plant
manager for a different company before he started working for Columbia Concrete.
Roger Teague and his wife Barbara purchased Columbia Concrete in 1997 and
changed its name to Columbia Precast, LLC1 (referred to alternatively as “Columbia Precast”
or the “Company”). Mr. Brown testified Mr. Teague retained Mr. Brown as an employee and
made him the general manager of operations. Joe Taylor had worked with Mr. Brown at
Columbia Concrete as the person in charge of quality control, and Mr. Teague retained Mr.
Taylor in that position when he purchased the Company.
Mr. Brown testified that around the time when Mr. Teague purchased the Company,
he told Mr. Brown that in exchange for Mr. Brown’s experience and ability to help Columbia
Precast’s business grow, Mr. Teague would make Mr. Brown a 10% owner of the Company
after five years. Mr. Teague did not indicate Mr. Brown would have to pay any money for
this interest; Mr. Brown was just required to continue working for the Company in the same
capacity for five years. This offer was not put down in writing, but was made orally.
The evidence showed Mr. Brown worked closely with Mr. Taylor at Columbia
Precast, and Mr. Brown asked Mr. Teague whether he would offer the same 10% interest to
Mr. Taylor. Mr. Teague agreed and indicated that he would transfer 10% of the Company
to both Mr. Brown and Mr. Taylor after five years. All three individuals agreed that the long
term goal was for Mr. Brown and Mr. Taylor to purchase the Company from Mr. Teague
sometime in the future so Mr. Teague could retire from the business.
The following year, in August 1998, Mr. Brown was injured in a car accident while
he was on a business trip. He had to miss work while his injuries healed and to undergo
surgery for complications resulting from the accident. The following year, in 1999, Mr.
Brown’s wife died unexpectedly, and Mr. Brown had to miss more work to care for his two
young children. As a result of these unexpected events and absences from work, Mr. Teague
changed the terms of his offer and told Mr. Brown and Mr. Taylor that he would transfer the
10% interest in the company to them after six years rather than five years. Mr. Brown and
1
Roger Teague owned 99% of the Company and his wife Barbara owned just 1%. Mr. Teague made
all business decisions.
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Mr. Taylor accepted this modification in Mr. Teague’s offer and continued to perform their
jobs as before.
At the end of six years, in or around May 2003, Mr. Brown, Mr. Taylor and Mr.
Teague began discussing how to effectuate the transfer of their 10% ownership interests in
the Company. They met on several different occasions to discuss the details of the transfers.
Ultimately, an accountant informed Mr. Brown and Mr. Taylor during one of these meetings
that they would each have to pay $80,000 to $90,000 in taxes if they received 10% of the
Company at that time based on the tax laws then in effect. Neither Mr. Brown nor Mr.
Taylor was interested in paying such a large tax bill, so the parties decided not to transfer
their interests at that time.
The following year the parties executed a document dated July 14, 2004. The
document references a meeting that occurred in May 2003 and states the following in its
entirety:
This letter is in reference to a meeting with Roger Teague, Steve Brown and
Joe Taylor in May of 2003.
The meeting was in regards to how to handle the transfer of ownership of
Columbia Precast, LLC which is to clarify originally:
79% Roger Teague
1% Barbara Teague
10% Steve Brown
10% Joe Taylor
However, due to tax implications (which made this transfer outright
implausible), this meeting was to work out how to handle the situation to
everyone’s satisfaction.
The agreement pounded out is as follows in lieu of 10% ownership effective
June 1st, 2003:
Steve Brown’s Salary would be increased to $80,000 a year.
Joe Taylor’s Salary would be increased to $80,000 a year.
It was also agreed that the salaries would increase $5,000.00 each year
thereafter.
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Roger stipulated that this would continue to occur as long as the company
could afford it. The other stipulation was that the profits of the company
would be dispersed in such a manner as Steve Brown and Joe Taylor would
receive 10% each of the net profit per year.
Mr. Taylor drafted this document, and Mr. Teague, Mr. Brown, and Mr. Taylor all
signed the document within the following two weeks. As set forth in the document, Mr.
Brown’s and Mr. Taylor’s salary increased to $80,000 beginning June 1, 2003. Neither Mr.
Brown nor Mr. Taylor received 10% of the net profits of the Company for the 2003 year
because the Company did not make a profit in 2003.
On or about August 2, 2004, Mr. Teague informed Mr. Brown that he was being let
go and that Mr. Brown could choose to resign or be terminated. Mr. Teague’s explanation
for this decision was that he was not happy with the way Mr. Brown was doing his job and
was dissatisfied with the amount of time Mr. Brown was spending away from work. Mr.
Brown did not receive 10% of the Company’s net profits for any year following his
termination, nor was he given a 10% ownership interest in the Company.
Mr. Taylor received 10% of the Company’s net profits for the years 2005, 2006, and
2007. In May 2008 Mr. Taylor and another individual purchased the Company from Mr. and
Mrs. Teague for $4,000,000. The purchase agreement provided it was “retroactive to
December 31, 2007.” Mr. Brown was not offered 10% of the purchase price.
II. T RIAL C OURT P ROCEEDINGS
Mr. Brown filed a complaint alleging breach of contract against Columbia Precast,
Roger Teague, Barbara Teague, and Joe Taylor in September 2004, just a month after being
terminated. Mr. Brown claimed he was entitled to 10% of the Company’s net profits for each
year the Company was profitable until the Company was sold and that he was entitled to 10%
of the purchase price. Columbia Precast and the Teagues denied Mr. Brown had any interest
in Columbia Precast once he was terminated from the Company.
Following a two-day trial, the court issued a Final Judgment in which it concluded:
The preponderance of the evidence supports the ten percent net profits
provision of the parties’ agreement was not tied to future employment but
instead was an earned benefit that Mr. Brown should have received. The
preponderance of the evidence further supports the existence of a contract
between the parties which Mr. Teague and Columbia Precast breached causing
Mr. Brown damages when Columbia Precast was sold as well as during the
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years between his termination and the sale.
.....
Additionally, had Mr. Teague not breached his agreement with Mr.
Brown, Mr. Brown would have received his 10% ownership interest in the
company and, thus, the sale proceeds. Mr. Teague sold the company for
$4,000,000. Thus, Mr. Brown should have received ten percent, which is
$400,000.
Throughout the trial the Court carefully observed all witnesses who
testified live in this matter. During the trial and after reflecting specifically
upon each witness’s appearance and demeanor, the Court finds that all were
for the most part credible, even though some of the statements and testimony
offered by Mr. Teague were suspect and somewhat slanted. Much of Mr.
Teague’s believable testimony was actually more supportive to plaintiff’s
theory than defendant’s and verified plaintiff’s strong work ethic and helped
plaintiff carry his burden of proof.
The court granted Mr. Brown a judgment against the Company and the Teagues
jointly and severally for $700,760.79. This amount represents 10% of the 2008 purchase
price of the Company ($400,000) as well as 10% of the net profits for 2005 ($60,020), 2006
($90,861.31), 2007 ($24,581.10), and 2008 ($125,298.38). The court dismissed the
complaint against Mr. Taylor.
Columbia Precast and the Teagues appealed the trial court’s judgment, arguing the
court erred in a variety of ways. First, they argue the document dated July 14, 2004, was a
novation, extinguishing any prior agreement regarding Mr. Brown’s partial ownership of the
Company. Second, they argue the 10% annual net profit Mr. Teague promised Mr. Brown
was compensation and therefore payable only while Mr. Brown continued to be employed
by the Company. Third, they argue there was no competent proof in the record to support
the court’s award to Mr. Brown of 10% of the Company’s net profits for the years 2005 and
2008.
III. A NALYSIS
Our review on appeal of the trial court’s findings of fact is de novo with a
presumption of correctness, unless the evidence preponderates otherwise. Tenn. R. App. P.
13(d); Blair v. Brownson, 197 S.W.3d 681, 684 (Tenn. 2006); Bogan v. Bogan, 60 S.W.3d
721, 727 (Tenn. 2001); Hass v. Knighton, 676 S.W.2d 554, 555 (Tenn. 1984). We review
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a trial court’s conclusions of law de novo, with no presumption of correctness. Whaley v.
Perkins, 197 S.W.3d 665, 670 (Tenn. 2006); Union Carbide Corp. v. Huddleston, 854
S.W.2d 87, 91 (Tenn. 1993).
A. T RIAL C OURT’S F INDINGS OF F ACT
The trial court made the following findings of fact:
Sometime either contemporaneously with his hire or shortly thereafter, Mr.
Brown and Mr. Teague agreed that at the end of Mr. Brown’s fifth year of
employment Mr. Brown would receive a ten percent ownership interest in
Columbia Precast. Sometime after this agreement was entered, Mr. Brown
suggested that Mr. Taylor be made a part of this agreement since he was
working so diligently for Columbia Precast. However, because of an
automobile accident that Mr. Brown was involved in August of 1998 and his
wife’s death in January 1999, the agreement was modified so that Mr. Brown
and Mr. Taylor would each receive a ten percent membership interest at the
conclusion of their sixth year with Columbia Precast. Mr. Taylor and Mr.
Brown apparently worked well together. During their work, the business
seemed to do well and grow based in part at least upon the sweat equity Mr.
Taylor and Mr. Brown invested in Columbia Precast and for Mr. Teague.
At the end of that sixth year, the parties began discussing how to go
about transferring ten percent of Columbia Precast to Mr. Brown and ten
percent to Mr. Taylor. There were apparently tax problems that prevented the
actual transfer from taking place at that time as agreed so the parties reduced
to writing the agreement which was admitted as Trial Exhibit 1. According to
[the document] in lieu of a ten percent ownership effective June 1, 2003,2 both
Mr. Brown and Mr. Taylor’s salaries would be increased to $80,000 a year and
both would receive $5,000.00 a year annual raises so long as the company
could afford it. That agreement also specifically says that profits of the
company would be dispersed so that Mr. Brown and Mr. Taylor would each
receive ten percent of the net profits of the company per year. [The document]
is dated July 14, 2004 and was signed by Mr. Teague, Mr. Taylor, and Mr.
Brown sometime in the next two weeks, but references May of 2003 as when
the agreement was actually reached. The document . . . is a memorialization
of that May 2003 agreement and was drafted by Mr. Taylor.
2
“Effective June 1, 2003" is important because the evidence supports this was a temporary solution,
not permanent, as all parties acknowledge the 10% ownership interest was earned after year six.
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Shortly after the July 2004 agreement was signed, Mr. Teague forced
Mr. Brown to resign. Mr. Teague testified that he intended to terminate Mr.
Brown based upon Mr. Brown’s work performance. Particularly, Mr. Teague
stated that Mr. Brown had unexplained absences, did not perform the full
functions of his job, and did not tell him when he was going to be taking off
from work. However, the Court finds it difficult to believe that Mr. Teague
truly thought Mr. Brown’s work performance was poor based upon the
testimony of Mr. Sharpe, one of two uninterested witnesses, and the fact that
Mr. Teague, who acted and controlled Columbia Precast, LLC exclusively as
if it was his alter ego, continued to give Mr. Brown pay raises and bonuses.
It is also difficult for the Court to believe that Mr. Teague would sign [the
document] dated July 14, 2004 if, as he stated, two weeks later he had so many
ongoing problems with Mr. Brown that he was going to terminate him.
Regardless, in August of 2004, Mr. Teague terminated Mr. Brown’s
employment with Columbia Precast by causing the forced resignation.
Mr. Teague and Columbia Precast contend that the agreement marked
Trial Exhibit 1 also terminated when Mr. Brown was forced to resign. The
evidence supports the salary set forth in Trial Exhibit 1 would end at Mr.
Brown’s termination but the evidence persuades the Court to conclude that the
provision where Mr. Brown would receive ten percent of the net profit was not
tied to employment. Also, even after Trial Exhibit 1 was created, the
testimony confirmed that if and when the tax implications referenced in that
document were resolved that the actual transfer of ten percent membership
interest in the company could and would occur. In fact, Mr. Teague testified
that any time Mr. Brown came and said he was ready to resolve those tax
implications, he would transfer ten percent of the company. This is further
consistent with the testimony of Mr. Sharpe who testified he specifically
recalled that Mr. Teague did in fact on numerous occasions introduce Mr.
Brown as his partner and/or co-owner of Columbia Precast. Mr. Brown,
likewise, confirmed Mr. Sharpe’s recollection.
Brett Fincher, the other uninterested party to testify, stated that he
worked with Columbia Precast and handled their retirement plan for several
years. . . . . Mr. Fincher was involved in 2003 when Mr. Brown had finished
his sixth year of employment when the parties were discussing the actual
transfer of ten percent ownership interest. Mr. Fincher testified that there were
tax implications that they tried to work through realizing that tax laws change
and the possibility that the actual transfer could occur in the future without
those tax implications. He also testified that he believed the long term goal
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was for Mr. Brown and Mr. Taylor to purchase all of Columbia Precast from
Mr. Teague in addition to the combined twenty percent they had earned as a
result of their previous agreements and labors. Mr. Fincher also agreed that
Mr. Teague wanted to make sure that Mr. Brown and Mr. Taylor were taken
care of on the ten percent interest because they put their all into the company
and made the company grow and that Mr. Teague appreciated that and the
reason it grew was because of Mr. Brown and Mr. Taylor’s efforts.
B. D OCUMENT D ATED J ULY 14, 2004
The interpretation of written agreements is a matter of law that appellate courts review
de novo. We accord no presumption of correctness to the trial court's conclusions of law.
Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006) (citing Guiliano v. Cleo, 995
S.W.2d 88, 95 (Tenn. 1999) and Union Planters Nat'l Bank v. Am. Home Assurance Co., 865
S.W.2d 907, 912 (Tenn. Ct. App. 1993)); Taylor v. Fezell, 158 S.W.3d 352, 357 (Tenn.
2005).
Ascertaining and giving effect to the parties’ intent is of utmost importance when
interpreting a written contract. Allstate, 195 S.W.3d at 611 (citing Christenberry v. Tipton,
160 S.W.3d 487, 494 (Tenn. 2005)). Courts look to the plain meaning of the words used in
the document to determine the parties’ intent. Allstate, 195 S.W.3d at 611. If the words used
in a contract are clear and unambiguous, the literal meaning of the words used controls the
interpretation. If the contractual language can be understood in more ways than one,
however, the contract will be deemed ambiguous and a court will consider parol evidence
to guide it in construing the document. Id. at 611-12. The parol evidence the court will
consider includes the parties’ conduct and statements regarding the meaning of the disputed
portion(s) of the contract. Id. at 612 (citing Memphis Housing Auth. v. Thompson, 38 S.W.3d
504, 512 (Tenn. 2001) and Vargo v. Lincoln Brass Works, 115 S.W.3d 487, 494 (Tenn. Ct.
App. 2003)).
The document dated July 14 is unambiguous that as of January 22, 2003, Steve Brown
and Joe Taylor each had earned 10% of Columbia Precast, but that due to tax implications
transfer of the 10% interests could not take place. The ambiguity appears towards the end
of the document:
The agreement pounded out is as follows in lieu of 10% ownership effective
June 1st, 2003:
Steve Brown’s Salary would be increased to $80,000.00 a year.
Joe Taylor’s Salary would be increased to $80,000.00 a year.
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It was also agreed that the salaries would increase $5,000.00 each year
thereafter.
Roger stipulated that this would continue to occur as long as the company
could afford it. The other stipulation was that the profits of the company
would be dispersed in such a manner as Steve Brown and Joe Taylor would
receive 10% each of the net profit per year.
The Company and the Teagues argue the meaning of the “in lieu of” language is that
the salary increase was to take the place of Mr. Brown’s and Mr. Taylor’s 10% interest in the
Company, with the result that Mr. Brown and Mr. Taylor were not ever going to receive a
10% ownership share in the Company. However, this interpretation fails to harmonize the
other part of the document and renders meaningless the earlier section indicating Mr. Brown
and Mr. Taylor earned their 10% ownership shares of Columbia Precast as of January 22,
2003.
Documents should be interpreted in such a way that each provision can be given effect
and no provision is neutralized or rendered meaningless. Maggart v. Almany Realtors, 259
S.W.3d 700, 704 (Tenn. 2008). In other words, all provisions should be construed in
harmony with each other to avoid repugnancy between the various provisions of a single
contract. Sumner County Bd. of Educ. v. Carden Co., 2006 WL 2069413, at *2 (Tenn. Ct.
App. July 25, 2006).
We believe the more reasonable interpretation of the parties’ agreement is to construe
the “in lieu of” language to mean that instead of transferring 10% of the Company to Mr.
Brown and Mr. Taylor when they earned their interests, the Company would increase their
salaries each year. Consistent with the acknowledgment that Mr. Brown and Mr. Taylor had
already earned 10% ownership interest in the Company, the document also provided they
would each receive 10% of the Company’s net profits each year.
We do not believe the document affects Mr. Brown’s and Mr. Taylor’s 10%
ownership interests in the Company, as they had already earned this interest a year and a half
before the document was drafted, and four months before the meeting in May 2003 that the
document was meant to memorialize. The Company and the Teagues’ argument that Mr.
Brown agreed to accept an increase in salary and 10% of the net profits of the Company in
exchange for his 10% ownership interest is not supported by the language of the document
or the evidence presented. Mr. Brown’s and Mr. Taylor’s interests in the Company were
earned before the May 2003 meeting and did not depend on their continued employment.
Mr. Teague’s termination of Mr. Brown’s employment, therefore, did not affect the interest
Mr. Brown had already earned in Columbia Precast.
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The parol evidence presented at trial supports this interpretation of the parties’
agreement. Mr. Teague testified that any time Mr. Brown came and said he was ready to
resolve the tax implications, he would transfer ten percent of the Company to Mr. Brown,
even after the document dated July 14, 2004, was signed. Mr. Teague’s actions introducing
Mr. Brown to third parties as an owner of the Company also showed Mr. Teague considered
Mr. Brown to be a partial owner of Columbia Precast.
Mr. Brown testified he never intended to give up his ownership interest in the
Company and that he believed Mr. Teague would transfer his 10% interest in the Company
to him any time he asked for it, even following his execution of the July 14 document. It is
against reason to presume that Mr. Brown would act against his own interest by accepting
an increase in salary and the possibility of 10% net profits per year in place of the 10%
ownership interest he had already earned, especially considering the ownership interest was
not tied to his continued employment and could not be taken from him. See Commerce
Union Bank v. Burger-In-A-Pouch, 657 S.W.2d 88, 91 (Tenn. 1983) (“it is against reason to
presume that a creditor would act against his own interest by accepting a renewal note with
intent to discharge an original note, and so release a solvent surety”).
C. J ULY 14, 2004, C ONTRACT W AS NOT A N OVATION
The Company and the Teagues argue the document dated July 14, 2004, was a
novation and therefore extinguished the parties’ earlier agreement regarding Mr. Brown’s
ownership interest in the Company. A novation is the substitution of a new contract for an
existing contract and extinguishes the earlier agreement. Pacific Eastern Corp. v. Gulf Life
Holding Co., 946 S.W.2d 946, 958-59 (Tenn. App. 1995). The four essentials of a novation
are the following: (1) a prior valid obligation, (2) an agreement supported by evidence of
intention, (3) the extinguishment of the old contract, and (4) a valid new contract. Burchell
Ins. Services v. Western Sizzlin Steakhouse of Dyersburg, 2004 WL 1459398, at *3 (Tenn.
Ct. App. June 29, 2004).
Mr. Brown argues that claiming there was a novation is an affirmative defense and
that the Company and the Teagues waived this argument by not asserting a novation in their
Answer to his Complaint. While it is true that the Company and the Teagues did not assert
the existence of a novation as an affirmative defense per se, they responded to one of Mr.
Brown’s allegations by stating: “Mr. Teague, Mr. Taylor and Mr. Brown agreed that in lieu
of the membership interest transfer to Mr. Taylor and Mr. Brown, Mr. Taylor and Mr.
Brown’s compensation would increase from $57,000.00 per year to $80,000.00 with an
additional annual increase of $5,000.00 per year, if economically feasible for Columbia
Precast, LLC.”
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The issue of whether or not the agreement to increase Mr. Brown’s and Mr. Taylor’s
salaries to $80,000 and give them 10% of the Company’s net profits was in lieu of the
parties’ earlier agreement that Mr. Brown and Mr. Taylor would receive 10% of the
Company was the main issue in the case and was litigated at trial. The question of novation
was therefore tried by implication even though the Company and the Teagues failed to use
the term “novation” in their pleadings to describe their argument. Consequently, we hold that
the Company and the Teagues did not waive the right to assert that the July 14, 2004,
document constituted a novation. See Estate of Fetterman v. King, 2004 WL 1906449, at *2
(Tenn. Ct. App. August 26, 2004) (plaintiff’s argument that claim of novation was not
properly before trial court has no merit where issue of novation was tried by implication).
The Company and the Teagues’ novation argument is based on their interpretation of
the July 14, 2004, agreement: that Mr. Brown agreed to give up his 10% interest in the
Company for an increase in salary and the possibility of 10% net profits per year. As we
discuss above, we do not accept this interpretation of the agreement. Construing the
agreement as we do, i.e., that the increase in salary and promise of 10% net profits are in lieu
of the transfer of Mr. Brown’s 10% ownership interest to him when it was earned, renders
the novation argument meaningless. The July 14, 2004, agreement cannot be a novation
because it does not alter or affect Mr. Brown’s and Mr. Taylor’s ownership interest in the
Company that was the subject of the earlier agreement. Therefore, since the July 14, 2004,
agreement is not a substitute for an existing contract, it does not extinguish the earlier
agreement.
D. T RIAL C OURT’S A WARD OF 10% OF THE C OMPANY’S N ET P ROFITS
1. 10% N ET P ROFITS WAS NOT TIED TO M R. B ROWN’S F UTURE EMPLOYMENT
The Company and the Teagues next argue the trial court erred by awarding Mr. Brown
10% of the Company’s net profits after he was terminated from Columbia Precast. They
argue this promise of 10% of the Company’s profits was meant as compensation that was
payable only while Mr. Brown continued to be employed by the Company. We do not agree.
With respect to this issue the trial court found:
The preponderance of the evidence supports the ten percent net profits
provision of the parties’ agreement was not tied to future employment but
instead was an earned benefit that Mr. Brown should have received. The
preponderance of the evidence further supports the existence of a contract
between the parties which Mr. Teague and Columbia Precast breached causing
Mr. Brown damages when Columbia Precast was sold as well as during the
years between his termination and the sale.
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Construing the agreement as we do, we also conclude Mr. Brown earned his 10%
ownership interest in the Company in January 2003, once he completed his six-year term of
employment with Columbia Precast. As an owner of 10% of the Company, Mr. Brown was
entitled to 10% of Columbia Precast’s profits. We thus affirm the trial court’s conclusion
that the 10% net profits provision of the parties’ agreement was not tied to Mr. Brown’s
future employment, but was an earned benefit Mr. Brown was entitled to receive.
2. T HE T RIAL C OURT PROPERLY AWARDED PROFITS FOR 2005 AND 2008
The Company and the Teagues’ final argument is that the trial court erred in awarding
Mr. Brown 10% of the Company’s net profits for the years 2005 and 2008 because there was
no competent proof in the record to support those awards. The trial court relied on Columbia
Precast’s audited financial statements for the years 2005 through 2008, which were admitted
as an exhibit during the trial, to calculate how much to award Mr. Brown for his 10%
ownership interest in the Company. The court explained:
In handling the sale of Columbia Precast, LLC, Mr. Teague used and
relied upon the financial statements entered as Trial Exhibit 15, adopted them
for use in the negotiations to sell and provided that information to Mr. Taylor
and Mr. White.
The Company and the Teagues do not contend the net profit amounts stated in the
financial statements were incorrect, only that they did not constitute competent evidence.
While Mr. Teague does not dispute that he provided the financial statements for the years
2005 through 2007 to the purchasers of Columbia Precast, Mr. Teague testified he did not
use the 2008 financial statement in his negotiations to sell the Company. Mr. Teague
testified as follows:
MR. BOSTON: During the negotiations with the new owners, am I correct,
Mr. Teague, that you would have gathered for them and presented them with
Exhibit 15, which is the financial statements of your company dating back
from 1998 through December 31, 2008? That would have been information
you provided to these purchasers, correct?
A: I would not have given them the last financial statement.
Q: The December 31 of ‘08?
A: That’s correct.
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Q: But you would have given them up through then December 31, 2007?
A: Yes.
Q: And in December 31, 2008, did you still own the company?
A: Officially.
Q: And was the net income that year $3,007,161?
A: I can’t tell you that but if that’s what it says then I’m going to allow the
accountants to say that.
Q: And throughout your professional life in this particular business, you
relied on the accountants, haven’t you?
A: That’s correct.
In the Purchase Agreement between the Teagues and the buyers of Columbia Precast,
the Teagues represented the following:
(c) Financial statements. Seller is solvent and has made adequate provision
for payment of its debts. It has delivered to purchaser copies of its financial
statements, for the four years ending December 31, 2007, including balance
sheets as of the end of the last four years, statements of profit and loss
accounts and surplus for the last four years. All such statements have been
prepared in conformity with generally accepted accounting principles applied
on a consistent basis, and fairly reflect the financial position of seller as of the
end of such periods and the result of operations during such periods.
Rule 803 of the Tennessee Rules of Evidence lists exceptions to the hearsay rule.
Rule 803(1.2) makes clear that admissions by party-opponents are excepted from the rule
against hearsay. Rule 803(1.2) provides as follows:
Admission by Party-Opponent. A statement offered against a party that is
(A) the party’s own statement in either an individual or representative capacity,
or (B) a statement in which the party has manifested an adoption or belief in
its truth, or (C) a statement by a person authorized by the party to make a
statement concerning the subject . . . . An admission is not excluded merely
because the statement is in the form of an opinion.
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Mr. Teague’s testimony, together with his representation in the Purchase Agreement,
indicate he has manifested an adoption or belief in the truth of the audited financial
statements marked as an exhibit during the trial. Although he may not have provided the
2008 financial statement to the purchasers of the Company, he deferred to his accountants
when answering the question about the Company’s net income in 2008 and therefore adopted
their statement of the Company’s net income for 2008. Accordingly, the audited financial
statements qualify as an admission by the Teagues of Columbia Precast’s financial condition
at the end of 2005 and 2008 and do not constitute inadmissible hearsay.
The trial court appropriately relied on the Company’s audited financial statements to
determine Columbia Precast’s net profits for the years 2005 and 2008. We do not find the
evidence preponderates against the trial court’s determination that Columbia Precast had net
profits of $600,200 in 2005 and $3,007,161 in 2008. Thus, we affirm the trial court’s
conclusion that Mr. Brown is entitled to $60,020 for the 2005 year and $125,298.38 for the
2008 year.
IV. C ONCLUSION
For the reasons stated above, we affirm the trial court’s judgment in all respects.
Costs are taxed to Columbia Precast, LLC, Roger Teague, and Barbara Teague, for which
execution shall issue if necessary.
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PATRICIA J. COTTRELL, JUDGE
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