Carl Nelson v. Harold Eugene Martin & Jack W. Gammon - Concurring ( 1996 )

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
CARL NELSON, )
)
Plaintiff/Appellant, ) Shelby Circuit No. 33066 T.D.
)
VS. ) Appeal No. 02A01-9403-CV-00043
HAROLD EUGENE MARTIN and
JACK W. GAMMON,
)
)
)
FILED
) February 1, 1996
Defendants/Appellees. )
Cecil Crowson, Jr.
Appellate C ourt Clerk
APPEAL FROM THE CIRCUIT COURT OF SHELBY COUNTY
AT MEMPHIS, TENNESSEE
THE HONORABLE JAMES M. THARPE, JUDGE
GAVIN M. GENTRY
ARMSTRONG, ALLEN, PREWITT,
GENTRY, JOHNSTON & HOLMES
Memphis, Tennessee
Attorney for Plaintiff/Appellant
J. CECIL MCWHIRTER
PAUL M. O'BRIEN
MCWHIRTER & WYATT
Memphis, Tennessee
Attorney for Appellee Martin
LEO BEARMAN, JR.
HEISKELL, DONELSON, BEARMAN,
ADAMS, WILLIAMS & CALDWELL
Memphis, Tennessee
Attorney for Appellee Gammon
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED
ALAN E. HIGHERS, JUDGE
CONCUR:
W. FRANK CRAWFORD, JUDGE
PAUL G. SUMMERS, SPECIAL JUDGE
This case arises from the termination of appellant, Carl Nelson, as employee, officer
and director of B & M Printing Company. The pertinent facts are as follows: In 1968,
Nelson, together with appellees, Harold E. Martin and Jack W. Gammon, formed a
partnership named B & M Printing Company for the purpose of engaging in the commercial
printing business. In 1969, the three partners converted the partnership into a corporation
and were issued 100 shares each of the corporation's stock. There were no other
shareholders in the corporation. Nelson, Gammon and Martin were all employed by the
corporation and acted as the corporation's only officers and directors. The presidency of
the corporation was initially rotated between the three parties every year, but at the time
of Nelson's termination, Martin was the president and had been for several years. The
parties received no compensation for their duties as officers and directors, but did receive
salaries, commissions based on individual sales, and bonuses as employees of the
corporation. In addition, the parties received rent money from the corporation through
their partnership, BCJ Enterprises, which owned the property on which B & M Printing
Company was located.
In March 1989, Nelson and Martin were involved in a dispute over one of the
corporation's printing accounts that Nelson serviced. According to Martin, during the
argument, Nelson cursed at him and said, "You G.D.M.F., you don't tell me what to do. I'll
do what I want to do." Martin testified in his deposition that he then told Nelson that he
couldn't continue to work for the corporation with that attitude and Nelson stormed out.
Martin further testified that a second confrontation occurred a few days later during which
Nelson once again cursed at Martin and stated, "You G.D.M.F., I'll do what I want to do.
You don't tell me what to do and I'll walk all over you. You don't have no right. You cannot
fire me from this company and I'll walk all over you before you do it." At that point, Martin
testified, that he informed Nelson, " I am going to terminate you from this company with
that attitude." Nelson testified that he did not recall what was said during the meeting, but
admitted that he had no way of refuting Martin's testimony regarding the incident. Nelson
did testify however, that he never used the word M.F. and also disputed Martin's testimony
that a second meeting occurred between the parties.
Following the confrontation, Martin gave Nelson a letter informing him that he was
terminated as an employee of the corporation. Thereafter, a board of directors meeting
was called at which Nelson was represented by his attorney who had full proxy to vote on
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his behalf. At this meeting, Martin and Gammon, representing a two-thirds majority, voted
to remove Nelson as an officer of the corporation. Likewise, acting as a majority of the
shareholders, they voted to remove Nelson as a director of the corporation. B & M
Printing Company's corporate bylaws allowed for both the termination of Nelson by the
president of the corporation and his removal as an officer and director. Nelson remained
an equal shareholder in the corporation. Nelson, Gammon and Martin sold their stock in
1992 for over $6,000,000.
Nelson testified that when he first learned of his termination by a letter handed to
him by Martin he was completely taken aback. According to Nelson, over the course of
the parties' 20-year business relationship, the three men had experienced differences of
opinion and had often cursed at each other. In Nelson's opinion, cursing a co-founder was
not a legitimate justification for his termination. In addition, Nelson alleged that the
corporation lost good will and sales from customers which the plaintiff had been contacting
as a salesman for the company, thereby indicating that his termination was not a prudent
business decision.
Nelson filed suit against Martin and Gammon on March 13, 1990, seeking
reimbursement for monetary losses sustained by Nelson as a result of his termination as
an employee, officer and director of B & M Printing Company. Nelson alleged four counts
of wrongdoing by Martin and Gammon. First, Nelson alleged that Martin and Gammon
conspired together, with malice and for personal gain, to interfere with Nelson's contractual
relationship with the corporation by inducing the corporation to terminate his employment.
Second, Nelson alleged that the defendants conspired together to interfere with a
prospective advantage to Nelson. Third, Nelson alleged that the defendants violated
T.C.A. § 47-50-109 which makes it unlawful for any person to induce or procure the breach
of any lawful contract. Finally, Nelson alleged that the three founders of B & M Printing
were in a fiduciary relationship to each other and the defendants breached this fiduciary
duty when they terminated Nelson with malice and for personal gain.
Both Martin and Gammon filed motions to dismiss for failure to state a claim upon
which relief can be granted pursuant to Rule 12.02 (6) of the Tennessee Rules of Civil
Procedure. In a memorandum opinion, the trial judge granted defendants' motions as to
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Count II dealing with interference with a prospective advantage and denied the motions as
to the remaining counts. After engaging in discovery, the defendants filed motions for
summary judgment arguing that no genuine issue of material fact existed in the case. After
oral argument, the trial judge, without an opinion, granted defendants' motions for summary
judgment as to Counts I, III and IV of Nelson's complaint. Nelson has appealed.
COUNTS I & III
We will discuss counts I and III together as they both involve breach of contract
claims. It is undisputed that Nelson did not have a written contract of employment with B
& M Printing Company. Nelson, however, avers that he had an oral lifetime employment
contract with the corporation pursuant to a "general agreement" between Martin, Gammon
and himself.
The law in Tennessee is clear, that "an oral contract for life time employment or
permanent employment amounts to an indefinite hiring terminable at the will of either
party...." Price v. Mercury Supply Co., Inc., 682 S.W.2d 924, 934 (Tenn. App. 1984). It is
equally clear, that an at-will employee can be discharged for good cause, bad cause, or
no cause at all. Chism v. Mid-South Milling Co., Inc., 762 S.W.2d 552, 555 (Tenn. 1988).
Thus, a terminated employee with an oral lifetime employment contract does not have an
actionable claim against his employer for breach of contract because there is no
contractual right to continued employment. Likewise, there can be no recovery for
procurement of breach of contract under common law or T.C.A. § 47-50-109. Forrester
v. Stockstill, 869 S.W.2d 328, 330 (Tenn. 1994).
The Tennessee Supreme Court has, however, recognized the tort of intentional
interference with at-will employment. Forrester v. Stockstill, 869 S.W.2d at 330. Under
this theory, "intentional interference with at-will employment by a third party, without
privilege or justification, is actionable." Id. While this tort has been applied to actions of
corporate directors and officers who intentionally interfere with the at-will employment of
corporate employees, we conclude, as a matter of law, that Nelson cannot state a cause
of action against either defendant for intentional interference with at-will employment.
In Forrester, the Supreme Court stated that an employee may only maintain a suit
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for intentional interference with at-will employment against officers or directors of a
corporation if "the proof establishes that they [the officers or directors] stood as third parties
to the employment relationship at the time they performed the acts found to have caused
[the employee's] discharge." Forrester v. Stockstill, 869 S.W.2d at 331. Neither Martin
nor Gammon can be considered a third party to the transaction. At the time of Nelson's
termination, B & M Printing Company was a close corporation. Nelson, Martin and
Gammon were the sole shareholders, sole directors and sole officers. As such, Nelson,
Martin and Gammon were B & M Printing Company.
A party to a business relationship cannot tortiously interfere with himself. Baker v.
Welch, 735 S.W.2d 548, 549 (Tex. App. 1987). Thus, where the officer or director is so
closely aligned with his corporation that they are treated as one entity, the individual is
considered the corporation's alter ego. Id. As such, it cannot be said that an individual
tortiously interfered with himself by inducing himself to terminate an at-will employee. Id.
In the present case, Martin and Gammon are alter egos of B & M Printing Company.
They therefore cannot be held liable, as third parties, for intentional interference with
Nelson's at-will employment.
COUNT II
The Tennessee Supreme Court has declined to recognize the tort of intentional
interference with prospective economic advantage. Quality Auto Parts Co., Inc. v. Bluff
City Buick Co., Inc., 876 S.W.2d 818 (Tenn. 1994). Therefore, we affirm the trial court's
dismissal of this count for failure to state a claim.
COUNT IV
Generally, majority shareholders owe a fiduciary relationship to minority
shareholders. Johns v. Caldwell, 601 S.W.2d 37 (Tenn. App. 1980). In cases dealing with
close corporations, where the majority shareholders can use their voting power to the
disadvantage of minority shareholders, many courts have borrowed a rule from partnership
law and have held that majority shareholders in a close corporation have a heightened
fiduciary obligation to minority shareholders. Wilkes v. Springside Nursing Home, Inc., 353
N.E.2d 657 (Mass. 1976); Hallahan v. Haltom Corp., 385 N.E.2d 1033 (Mass. App. 1979);
Application of Taines, 444 N.Y.S.2d 540 (N.Y. Sup. Ct. 1981); Crosby v. Beam, 548 N.E.2d
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217 (Ohio 1989); W & W Equipment Co., Inc. v. Mink, 568 N.E.2d 564 (Ind. App. 1991);
Gigax v. Repka, 615 N.E.2d 644 (Ohio App. 1992). Under this heightened standard, the
majority shareholders are held to act in strict good faith and "may not act out of avarice,
expediency or self-interest in derogation of their duty of loyalty to the other stockholders
and to the corporation." Wilkes v. Springside Nursing Home, Inc., 353 N.E.2d at 662.
Thus, majority shareholders are required to deal fairly, honestly and openly with minority
shareholders and may not use their corporate control to prevent the minority from having
an equal opportunity in the corporation. W & W Equipment Co., Inc. v. Mink, 568 N.E.2d
at 570; Crosby v. Beam, 548 N.E.2d at 221. When the majority acts to deny employment
to the minority, who usually depend on salary, bonuses and retirement benefits to
recognize a return on the corporate investment, the controlling group must prove that it had
a legitimate business purpose for its action. Wilkes v. Springside Nursing Home, Inc., 353
N.E.2d at 663; Gigax v. Repka, 615 N.E.2d at 648.
Based on the above principles, it is clear that Martin and Gammon, as controlling
shareholders of a close corporation, had a fiduciary duty to deal honestly and fairly with
Nelson. It is unclear from the record, however, if and to what extent Gammon was
involved in Nelson's termination. It is undisputed that Gammon was not present at any
time during the confrontations between Nelson and Martin and, according to Martin,
Gammon was not involved in the decision to terminate Nelson. However, both Gammon
and Martin ratified the decision to discharge Nelson at the March 25, 1989, board meeting.
In accordance with the foregoing principles, we hold that Martin must demonstrate
a legitimate business reason for using their two-thirds voting power to terminate Nelson as
an officer, director and an employee of B & M Printing Company. Martin testified in his
deposition that he fired Nelson because Nelson cursed him and had a bad attitude.
Nelson testified that the three shareholders had cursed at each other before and that this
was not a legitimate reason for his termination. Whether or not it is legitimate to fire a co-
owner because he cursed at another owner is an issue for the trier of fact who must
consider the credibility of the witnesses and the prior course of dealings between the
parties. Therefore, summary judgment as to this issue was inappropriate.
With respect to Gammon, the trial court must first determine whether Gammon
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played a part in Nelson's termination. If so, then Gammon must also demonstrate a
legitimate business reason for such termination. Conversely, if it is determined that
Gammon was not sufficiently involved in the termination, then summary judgment was
properly granted as to him.
For the reasons stated above, we affirm the trial court's ruling as to Counts I, II, and
III of the plaintiff's complaint and reverse and remand for trial as to Count IV. Costs on
appeal are taxed equally to the parties.
HIGHERS, J.
CONCUR:
CRAWFORD, J.
SUMMERS, SP. J.
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