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

• Court: Court of Appeals of Tennessee
• Decided: February 1, 1996
• Docket: 02A01-9403-CV-00043
• Status: Published

Opinion

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

2 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

3 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

4 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

5 217 (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

6 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.

CRAWFORD, J.

SUMMERS, SP. J.