W. Scott Johnson v. Tomcat USA, Inc.

08/24/2021
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 21, 2021 Session
W. SCOTT JOHNSON v. TOMCAT USA, INC. ET AL.
Appeal from the Chancery Court for Knox County
No. 195295-3 Michael W. Moyers, Chancellor
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No. E2021-00057-COA-R9-CV
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This interlocutory appeal concerns the trial court’s refusal to enforce a forum selection
clause contained in a stock bonus transfer agreement in this action arising out of the
termination of the plaintiff’s employment. The defendants filed a motion to dismiss for
improper venue, citing the forum selection clause, which specified New York as the sole
venue for litigating claims. The trial court denied the motion to dismiss. The defendants
appeal. We affirm the decision of the trial court.
Tenn. R. App. P. 9 Interlocutory Appeal; Judgment of the Chancery Court
Affirmed; Case Remanded
JOHN W. MCCLARTY, J., delivered the opinion of the court, in which THOMAS R. FRIERSON,
II, and KRISTI M. DAVIS, JJ., joined.
M. Edward Owens, Jr., Knoxville, Tennessee, for the appellants, Tomcat USA, Inc.,
Tomcat Global Corporation, Milos S.R.O., and Frantisek (Frank) Zykan.
W. Michael Baisley, Knoxville, Tennessee, for the appellee, William Scott Johnson.
OPINION
I. BACKGROUND
In 2011, W. Scott Johnson was hired by Tomcat USA, LLC (“the Company”), a
Delaware corporation with its principal office and distribution center located in Knoxville.
The Company is one of the world’s leading fabricators of aluminum truss and structural
components for the entertainment, audiovisual, exhibition, and worship industries. Mr.
Johnson was promoted to the position of president of the Company in 2012. He later
obtained 150 shares of the Company pursuant to a Stock Bonus Transfer Agreement
(“SBTA”). The remaining 850 shares are held by Tomcat Global,1 which is owned and
controlled by Frantisek Zykan.2 The SBTA gave the Company the right to repurchase Mr.
Johnson’s shares at fair market value if his employment was terminated without cause.
Upon resignation or termination for cause, the Company held the right to repurchase the
shares at 50 percent of market value. After an October 2017 meeting with Mr. Zykan in
Knoxville, Mr. Johnson’s employment was terminated.
The Company offered to repurchase the shares at 50 percent of market value; Mr.
Johnson refused the offer, observing that his termination was without cause. He then filed
this complaint against the Company, Tomcat Global, Mr. Zykan, and Milos CZ SRO
(“MILOS”) (collectively “Defendants”).3 Mr. Johnson alleged that Mr. Zykan fired him
and Bill Berrier, the chief financial officer and controller of the Company, after they
questioned several inter-company transactions. According to Mr. Johnson, Mr. Zykan
ordered the Company to purchase inventory from MILOS when the items were not needed
or wanted. He claimed that Mr. Zykan also invoiced the Company for management fees,
for which the Company received nothing in return. Mr. Johnson perceived Mr. Zykan’s
conduct to be a form of embezzlement, resulting in the misappropriation and diversion of
Tomcat USA’s profits to the other entities owned by Mr. Zykan. Mr. Johnson believes that
he was terminated because he repeatedly voiced his objections to Mr. Zykan regarding the
forced purchases of inventory and the management fees being charged to the Company.
Defendants filed a motion to dismiss, alleging, inter alia, that a forum selection
clause in the SBTA required the filing of the complaint in New York because the claims
arose from or related to Mr. Johnson’s ownership of the shares in the Company. The SBTA
provides, in pertinent part, as follows:
Section 11. Governing Law and Jurisdiction. This Agreement and all acts
and transactions pursuant hereto and the rights and obligations of the Parties
hereto shall be governed, construed, and interpreted in accordance with the
domestic laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York
or any other jurisdiction) that would cause the application of the laws of any
1
Tomcat Global’s principal office is in Midland, Texas.
2
Mr. Zykan is a resident of the Czech Republic. He is the statutory executive and chief
executive officer of Milos CZ SRO, a limited liability company organized under the laws of the
Czech Republic.
3
The original complaint contained the following counts: 1) Tortious
Interference/Inducement of Breach of Contract; 2) Conversion; 3) Unjust Enrichment; 4)
Corporate Waste; 5) Breach of Fiduciary Duties; 6) Accounting; 7 & 8) Declaratory Judgment; 9)
Defamation; and 10) Injunction. Prior to the court’s ruling on the motion to dismiss, the claim for
defamation was nonsuited.
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jurisdiction other than the State of New York. To the extent permitted by
law, each of the Parties hereto hereby irrevocably submits to the exclusive
jurisdiction of any state court or United States federal court, in either case
sitting in the State of New York, over any Claim brought by any party arising
out of or relating to this Agreement, and each of the Parties hereto hereby
irrevocably agrees that all claims with respect to any such suit, action or other
proceeding shall be heard and determined in such court.
The trial court denied the motion to dismiss, holding that the claims raised were
tangential to the SBTA, that New York was a forum non conveniens, and that the clause
itself was arbitrary as there were essentially no contacts between either party and New
York. The court’s order stated as follows:
The Court finds itself in agreement with the Plaintiff[] regarding the forum
selection clause. Although such clauses are generally honored, they may be
set aside where the chosen forum bears no substantial relationship to the
underlying claims. The Court is convinced that such is the case here….
Additionally, the totality of the allegations convinces the Court that New
York would be a forum non conveniens. Additionally, it does appear that the
claims asserted are in the main tangential to the SBTA. For these reasons the
Court will not enforce the forum selection clause of the SBTA and the
Defendants’ Motion to Dismiss on that ground is overruled.
After a hearing on Defendants’ motion for permission to file an interlocutory appeal, the
trial court certified its ruling as final and granted permission to pursue the appeal. We
granted the Rule 9 application.
II. ISSUE
The issue certified by this court for review in this interlocutory appeal is as follows:
Whether the trial court erred in refusing to enforce the forum
selection clause contained in Section 11 of the Stock Bonus
Transfer Agreement.
III. STANDARD OF REVIEW
In this case, the trial court denied Defendants’ motion to dismiss based upon a forum
selection clause. In considering an appeal from a trial court’s ruling on a motion to dismiss,
we take all allegations of fact in the complaint as true and review the trial court’s legal
conclusions de novo with no presumption of correctness. Mid–South Industries, Inc. v.
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Martin Mach. & Tool, Inc., 342 S.W.3d 19, 27 (Tenn. Ct. App. 2010) (citing Owens v.
Truckstops of America, 915 S.W.2d 420, 424 (Tenn. 1996)); see also Stevens ex rel. Stevens
v. Hickman Cmty. Health Care Servs., Inc., 418 S.W.3d 547, 553 (Tenn. 2013) (citing
Graham v. Caples, 325 S.W.3d 578, 581 (Tenn. 2010)) (“The trial court’s denial of
[d]efendants’ motions to dismiss involves a question of law, and, therefore, our review is
de novo with no presumption of correctness.”).
IV. DISCUSSION
Both parties appear to agree that Tennessee law should govern the question of
whether the trial court erred in declining to enforce the forum selection clause.
Mr. Johnson contends that the clause does not apply to his claims because they do
not arise out of or relate to the SBTA, the scope of which concerns the setting of restrictions
on subsequent registration or transfer of his bonus shares. He explains that the SBTA is
not an employment agreement and does not govern the internal affairs of the Company or
similar matters, e.g., Mr. Zykan’s misconduct. He notes that each claim may be
adjudicated without interpreting or applying the SBTA. Mr. Johnson provides that the
majority of his claims are directed toward Mr. Zykan’s misconduct as the controlling
shareholder and sole director of the Company. He further claims that the forum selection
clause should not be enforced under Tennessee law when New York is a substantially less
convenient and impractical forum for all parties involved, as well as any key witnesses.
He asserts that Mr. Zykan himself holds extensive contacts in Tennessee, specifically
Knoxville, where he continues to maintain the Company’s principal office. Mr. Johnson
questions whether New York would even exercise personal jurisdiction over Mr. Zykan,
individually, or MILOS, a company organized under the laws of the Czech Republic with
contacts in Tennessee.
Defendants claim that the forum selection clause is valid under Tennessee law
because it is fair and reasonable pursuant to the following factors presented in Dyersburg
Mach. Works, Inc. v. Rentenbach Eng’g Co., 650 S.W.2d 378, 380 (Tenn. 1983):
(1) whether a plaintiff cannot secure effective relief in the other state, for
reasons other than delay in bringing the action; (2) whether the other state
would be a substantially less convenient place for the trial of the action than
this state; (3) whether the agreement as to the place of the action was obtained
by misrepresentation, duress, abuse of economic power or other
unconscionable means; and (4) whether it would for some other reason be
unfair or unreasonable to enforce the agreement.
Defendants assert that Mr. Johnson cannot argue that he is unable to secure relief in New
York or that the clause was obtained under duress or other unconscionable means, leaving
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only the reasonableness and convenience factors for our consideration. They suggest that
failure to enforce the clause due to the inconvenience of one party is unfair and inequitable
and that mere inconvenience does not render the clause unreasonable. Defendants note
that the existence of the clause in the SBTA illustrates that the parties, sophisticated in
business matters and having the benefit of legal counsel, contemplated the shared
inconvenience of the forum selected but chose it nonetheless.
Generally, a forum selection clause is enforceable and binding on the parties
entering into the contract. Lamb v. MegaFlight, Inc., 26 S.W.3d 627, 631 (Tenn. Ct. App.
2000). It will be upheld if it is fair and reasonable in light of all the circumstances
surrounding its origin and application. Id. (citing Dyersburg Mach. Works, 650 S.W.2d at
380). Tennessee law is clear, however, that the party challenging the enforcement of the
forum selection clause “should bear a heavy burden of proof.” Chaffin v. Norwegian Cruise
Line Ltd., No. 02A01-9803-CH-00080, 1999 WL 188295, at *4 (Tenn. Ct. App. Apr. 7,
1999).
We agree with Mr. Johnson and the trial court that, with respect to the second
Dyersburg Mach. Works factor, New York is a substantially less convenient place to hold
this lawsuit. A “party resisting a forum selection clause must show more than
inconvenience or annoyance[.]” ESI Cos., Inc. v. Ray Bell Constr. Co., No. W2007-00220-
COA-R3-CV, 2008 WL 544563, at *7 (Tenn. Ct. App. Feb. 29, 2008). As we observed in
Blackwell v. Sky High Sports Nashville Operations, LLC, 523 S.W.3d 624, 631 (Tenn. Ct.
App. 2017), “the Tennessee Supreme Court has previously held that where neither
company at issue was a resident of the proposed forum and none of the witnesses were
residents of the proposed forum, the party resisting a forum selection clause had met its
burden to show that the proposed forum was a substantially less convenient forum.” See
Dyersburg Mach. Works, 650 S.W.2d at 381 (holding that the second factor was met
because the chosen forum of Kentucky was “a substantially less convenient place for trial
... wherein all witnesses are Tennessee residents, the plaintiffs and the defendants ... are
Tennessee corporations”). In this case, Mr. Johnson is a Tennessee resident and the
disputed matters occurred in Tennessee. None of the prospective witnesses are New York
residents. The Company is not a New York corporation and does not have its principal
place of business in New York. Rather, the Company’s headquarters is in Tennessee.
Accordingly, we hold that Mr. Johnson has met his burden to show that New York presents
a substantially less convenient forum than Tennessee.
We acknowledge that Defendants argue that Mr. Johnson raises the issue regarding
whether he was terminated with or without cause primarily in relation to his claims
concerning the price to be paid for the stock. We find, however, that the forum selection
clause does not apply because the crux of Mr. Johnson’s complaint does not concern the
SBTA but rather the alleged wrongdoings of Mr. Zykan. In our view, whether Mr. Johnson
was terminated with or without cause is a tangential issue to the claims made in the
complaint.
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V. CONCLUSION
The trial court’s decision to decline enforcement of the forum selection clause is
affirmed, and this case is remanded to the trial court for the collection of costs and such
other action as may be appropriate. The costs of this appeal are taxed and assessed against
the appellants, Tomcat USA, Inc., Tomcat Global Corporation, Milos S.R.O., and Frantisek
(Frank) Zykan.
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JOHN W. MCCLARTY, JUDGE
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