Ramsey v. Burkhalter & Ryan ( 1998 )


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  • BOBBY F. RAMSEY,                      )
    )    Davidson Chancery
    Plaintiff/Appellant,            )    No. 94-3452-III
    )
    VS.                                   )
    TED A BURKHALTER, FRANK
    RYAN and RAMSEY BURKHALTER,
    )
    )
    )
    Appeal No.    FILED
    01A01-9707-CH-00318
    P.C.,                                 )                        May 29, 1998
    )
    Defendants/Appellees.           )                  Cecil W. Crowson
    Appellate Court Clerk
    IN THE COURT OF APPEALS OF TENNESSEE
    AT NASHVILLE
    APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
    AT NASHVILLE, TENNESSEE
    HONORABLE ELLEN HOBBS LYLE, CHANCELLOR
    David T. Hooper, #5413
    HOOPER & HOOPER, PLLC
    109 Westpark Drive
    Suite 410
    Brentwood, Tennessee 37027
    ATTORNEY FOR PLAINTIFF/APPELLANT
    Jack W. Derryberry, Jr., #3870
    WARD, DERRYBERRY & THOMPSON
    1720 Parkway Towers
    404 James Robertson Parkway
    Nashville, Tennessee 37219
    ATTORNEY FOR DEFENDANTS/APPELLEES
    AFFIRMED AND REMANDED.
    HENRY F. TODD
    PRESIDING JUDGE, MIDDLE SECTION
    CONCURS:
    BEN H. CANTRELL, JUDGE
    WILLIAM C. KOCH, JR., JUDGE
    BOBBY F. RAMSEY,                              )
    )      Davidson Chancery
    Plaintiff/Appellant,                   )      No. 94-3452-III
    )
    VS.                                           )
    )
    TED A BURKHALTER, FRANK                       )      Appeal No.
    RYAN and RAMSEY BURKHALTER,                   )      01A01-9707-CH-00318
    P.C.,                                         )
    )
    Defendants/Appellees.                  )
    OPINION
    All of the captioned parties are certified public accountants who were participants as
    shareholders and employees of a professional corporation. The plaintiff, Bobby F. Ramsey,
    brought this action to recover salary due him and the value of his stock in the corporation. He
    has appealed from a judgment in his favor which he insists is inadequate.
    BACKGROUND FACTS
    Plaintiff-appellant, Bobby F. Ramsey, has been a certified public accountant since 1967.
    After five years of various accounting employments, he formed a partnership which was
    dissolved by the death of his partner. For ten years thereafter, he practiced under the name of
    Ramsey & Associates. Thereafter he practiced in a partnership for two years and, in 1989, he
    resumed practice under the name, Ramsey & Associates. One year later, in November 1990, he
    and Ted Burkhalter formed the firm of Ramsey-Burkhalter, P.C.. Burkhalter, who was also a
    lawyer, drafted their agreement.
    In order to provide working capital for their enterprise, the parties agreed to contribute
    their respective accounts receivable to the enterprise. They agreed that each would be entitled
    to draw $1,000 per week, and that Burkhalter might draw more during tax season when his
    accounting duties would curtail his legal work and income. During 1991, neither party drew any
    salary. It was agreed that the salaries of the partners would be considered an operating expense
    -2-
    of the enterprise which would continue to be liable for unpaid salaries and that profits would be
    divided after deduction of operating expenses. Neither party withdrew any profit prior to the
    beginning of the present action.
    On January 1, 1992, Frank Ryan was admitted to the enterprise. He was to be paid
    $50,000 per year and was to be considered a “founding partner.” He was paid his salary
    continuously until the inception of this suit. He made no contribution by waiver of salary or
    assignment of receivables.
    In January 1992, Mr. Ramsey was diagnosed as suffering from congestive heart failure.
    In March 1994, he underwent surgery for removal of a malignancy and thereafter received
    chemotherapy; all of which reduced his capacity to work. He received his full salary through
    May 31, 1994, at which time Frank Ryan notified him that he and Burkhalter had decided to cut
    his (Ramsey’s) salary to less than one-half.
    On August 28, 1994, Burkhalter and Ryan notified Ramsey that he should retire.
    Discussions ensued as to which “accounts” Ramsey should take with him, which should remain
    with Burkhalter and Ryan, and what compensation would be payable therefor.
    THE PROCEEDINGS IN THE TRIAL COURT
    On November 14, 1994, Mr. Ramsey filed suit against Messrs. Burkhalter and Ryan.
    On April 10, 1995, Ramsey & Burkhalter, P.C., was added and the issues were referred
    to the Master. In December 1995, January, February and March 1996, the Master conducted
    hearings. On January 31, 1997, the Master filed a 10-page report containing 18 findings
    including the following:
    -3-
    Master Finding: The parties stipulated at the hearing
    that the 1990 Founding Stockholders Agreement applies
    should a written agreement between the parties be relevant to
    an issue. The parties also agree that Frank Ryan was to be
    treated as a Founding Stockholder although he did not sign
    the 1990 Agreement and although his salary was not formally
    set by addendum.
    ----
    The Agreement provides that:
    4.      Each partner should have at least 1000 realized hours
    each year. If one does not reach this level, his salary may be
    reduced in a ratio percentage in which his realized hours are
    less than this minimum. ... This paragraph requirement for
    realized time will not be unduly enforced, but will be weighed
    by the partners or the Executive Committee to determine
    whether a partner is complying with the requirement and if a
    salary adjustment should be made.
    The Agreement also discusses possible bonuses to be
    added to salary calculations. All references to hours and to
    salary or bonuses use the term “realized” billings, which
    means hours charged and paid, not just hours which were
    chargeable.
    ----
    Equity ownership on the other hand, was fixed. The
    parties agreed that each partner is a one-third owner of all
    equity in the business.
    ----
    The stockholders of Ramsey and Burkhalter insured
    against illness or disability through the professional
    corporation. The Agreement states:
    ARTICLE 7 ILLNESS OR DISABILITY
    In the event of a partner’s illness or disability,
    he shall be entitled to his basic salary for the
    first six months of that period and then ½ his
    basic salary for the second six months. In the
    event that his medical records indicate
    continued disability, he may voluntarily
    withdraw or be terminated from the
    partnership (upon a vote of 85% of the
    remaining partners). In the event that he has
    neither withdrawn or terminated, he will not
    received [sic] further compensation until he
    returns to full time employment with the firm,
    but he will continue to be entitled to bonuses
    under Article 4 and equity share of profits.
    The Master finds that Mr. Ramsey was disabled or ill
    during all of 1994. He is not entitled to additional salary
    above that which he received during 1994.
    ----
    In 1993, the partners orally agreed that Ramsey would
    be paid approximately $4,000 per month. The other two
    -4-
    partners would be paid $4,800 per month. (There was no
    modification of the 1000 realized hours requirement.)
    Ramsey admits that this arrangement was fair given three
    different work styles and levels of production at that time. As
    a result, in 1993, Ramsey was paid $48,249. The other two
    partners were paid $57,604.
    ----
    The Master finds Mr. Ramsey is not entitled to
    additional salary for 1994. The section of the Agreement
    dealing with illness and disability would result in a salary of
    $43,200 for the year even if the $4800 per month salary is
    used as the basic salary. This $43,200 figure is calculated as
    follows:
    January 1-June 1, 1994: @ 4800 per month               $28,800
    July 1994-December 1994 @ $2400 per month              $14,400
    $43,200
    Mr. Ramsey was paid $43,487.89 in 1994.
    ----
    Master Finding: As Mr. Ramsey was ill or disabled in 1994,
    and was paid accordingly, no salary adjustments are due.
    ----
    Mr. Ryan testified that he agreed to work for no pay in 1991
    and that he was not due a salary until January 1992. Mr. Ryan
    should not receive compensation or credit for services he
    rendered in 1991.
    ----
    Neither Mr. Ramsey nor Mr. Burkhalter should expect to
    receive a salary for 1991.
    ----
    T.C.A. § 48-101-614(a) requires that fair value be assessed
    “as of the date of death, disqualification, transfer, retirement
    or termination.” The master finds the first formal notification
    to Mr. Ramsey of the decision that he must withdraw, was
    dated August 28, 1994. (Exhibit 5)
    ----
    Master Finding: Bobby Ramsey’s equity is the fair
    value of his shares. He is not entitled to additional salary
    under any of the theories raised in this lawsuit.
    ----
    The balance sheet of July 31, 1994, reflects gross
    assets of $222,864.69. Most of this number consists of
    receivables reflecting billed time ($165,368.17). Unbilled
    receivables are $23,452.12. The realization rate for the firm
    is 95. 1% ($165,368.17 + $23,452.12) x .951 = $179,568.00
    (Exhibit 21). The Master finds therefore, that the true value
    of the receivables is $179,568.00. Cash in the company at
    that time totaled $22,308.00. Book value of equipment and
    furniture owned by Ramsey Burkhalter on July 31, 1994 was
    $11,152.31 (an appraisal of equipment and furniture was not
    available to the Master). Security deposits are recorded at
    $584.00. The sum of the gross tangible assets is therefore,
    $213,612.00. Liabilities totaled $24,644.07. (Exhibit 10) Net
    assets are $188,968 because
    -5-
    Gross assets:           $213,612
    Liabilities:            - 24,644
    Net assets:             $188,968
    33% of $188,968 = $62,989
    The Master finds that by agreement, Mr. Ramsey was
    assigned $28,848 of the receivables of his clients at full value
    for each dollar.
    ----
    The Master has reviewed the voluminous transcript
    carefully. As a result, the Master finds the value of Mr.
    Ramsey’s stock to be one-third of the value of the net assets
    on July 31, 1994 minus the accounts receivable which were
    assigned to him by agreement. Ramsey Burkhalter should
    purchase Mr. Ramsey’s stock at the fair value of $34,141.00.
    As further explanation:
    $62,989.00      One third net assets
    -28,848.00      Value of accounts receivable
    assigned to Mr. Ramsey
    $34,141.00
    All parties filed exceptions to the report of the Master. The Trial Judge confirmed
    the report and made it the judgment of the Court. A motion of the plaintiff for discretionary
    costs was overruled.
    The plaintiff, Mr. Ramsey, appealed and has presented the following issues:
    1.      Whether the trial court erred in failing to
    award Bobby Ramsey his unpaid 1991 salary that was
    designated as being a “normal operating expense” of Ramsey
    Burkhalter, P.C.
    2.     In the alternative, whether the trial court erred
    in failing to award bobby Ramsey additional equity in
    Ramsey Burkhalter, P.C. based on the undistributed retained
    earnings in the corporation at the end of 1991.
    3.      Whether, in addition to an award of his share
    of the equity in the professional corporation, Bobby Ramsey
    is also entitled to an award from Ted Burkhalter and Frank
    Ryan for clients they retained for which he was the source or
    procuring partner.
    The concurrent finding of a Master and Chancellor upon controverted questions of
    fact is entitled to the weight of the verdict of a jury if there is any evidence to sustain it.
    -6-
    T.C.A. § 27-1-113, In Re: Estate of Tipps, Tenn. 1995, 
    907 S.W.2d 400
    ; Coats v. Thompson,
    Tenn. App. 1986, 
    713 S.W.2d 83
    .
    The dealings between the parties, described above, created a classic procedural
    situation for a reference to the Master. No error is found in the order creating the reference,
    which was agreed to by the parties.
    The first exception of the plaintiff to the report was that Master found that “a detailed
    analysis of each client account was not relevant to the value of the stock of the corporation.” The
    Master correctly held that the value of the stock of the corporation was total assets minus total
    liabilities. In respect to physical assets, it was incumbent upon the parties to prove their version
    of the value of each asset. Likewise, in respect to the value of the expectation of continued
    patronage of individual “clients” (good will), it was incumbent upon the parties to prove their
    version of the value of the expectation of continued patronage of each client. It is too much to
    expect of a Master to listen to endless details of past dealings with patrons in order to make an
    estimation of the probability of continuation of and profit from the patronage of each client. The
    first exception of the plaintiff was not well taken.
    The plaintiff’s second exception to the Master’s report was that it failed to award plaintiff
    the unpaid 1991 salary. It is uncontradicted that the two initial parties waived their 1991 salaries
    as a part of their capital contribution to the corporation. Their only hope of recovering this salary
    was a future distribution of profits or liquidation of stock. There was no distribution of profits,
    and the liquidation value of the stock was dependant upon the profits and/or losses from year to
    year preceding the dissolution.
    No merit is found in plaintiff’s second exception to the report.
    -7-
    Plaintiff’s third, and last, exception to the report was that he was not granted an
    additional salary adjustment due to his disability during that year. The Master’s report, quoted
    above, discussed at length the disability rights of plaintiff, and no error is found therein.
    No merit is found in any of the exceptions of plaintiff to the Master’s report. In the
    absence of exceptions to the report of the Master, they cannot be reviewed for the first time on
    appeal. Rogers v. Rogers, 
    101 Tenn. 428
    , 
    47 S.W. 701
    .
    The dealings of the parties with each other do not conform to the popular conception of
    accountants as artists of exactitude. Their dealings with each other have created for the courts
    a masterpiece of inexactitude. The result reached by the Master, the Trial Court and this Court
    represents the best that the inexact science of law can do to resolve the problems created by the
    parties.
    The judgment of the Trial Court is affirmed. Costs of this appeal are taxed against the
    plaintiff-appellant and his surety. The cause is remanded to the Trial Court for necessary further
    proceedings.
    AFFIRMED AND REMANDED.
    _________________________________
    HENRY F. TODD
    PRESIDING JUDGE, MIDDLE SECTION
    CONCUR:
    _____________________________
    BEN H. CANTRELL, JUDGE
    _____________________________
    WILLIAM C. KOCH, JR., JUDGE
    -8-
    

Document Info

Docket Number: 01A01-9707-CH-00318

Filed Date: 5/29/1998

Precedential Status: Precedential

Modified Date: 10/30/2014