Dobbs v. Guenther

• Citation: 846 S.W.2d 270
• Parties: H. Kent DOBBS, Jr., and Constance B. Dobbs, Plaintiffs/Appellants, v. Jack GUENTHER, Valerie Guenther, J.M. Carnes, John K. Matt, Rivergate Toyota, Inc., and Performance Petroplex, Inc., Defendants/Appellees.
• Decision Date: 21 October 1992
• Court: Court of Appeals of Tennessee

Page 270

846 S.W.2d 270

H. Kent DOBBS, Jr., and Constance B. Dobbs, Plaintiffs/Appellants, v. Jack GUENTHER, Valerie Guenther, J.M. Carnes, John K. Matt,

Rivergate Toyota, Inc., and Performance Petroplex,

Inc., Defendants/Appellees.

Court of Appeals of Tennessee,

Middle Section,

at Nashville.

Oct. 21, 1992.

Permission to Appeal Denied by

Supreme Court

Jan. 19, 1993.

Thomas L. Reed, Jr., Reed & Watson, Murfreesboro, for plaintiffs/appellants.

Albert F. Moore, Neal & Harwell, Nashville, for defendants/appellees.

OPINION

KOCH, Judge.

This appeal involves a dispute among the shareholders of two corporations that owned automobile dealerships in Nashville. After he was fired as the general manager of one of the dealerships, one of the shareholders filed suit in the Chancery Court for Davidson County seeking to invalidate the stock repurchase agreements and noncompetition agreements and to rescind a conveyance of real property. The trial court dismissed the complaint finding that it failed to state claims upon which relief could be granted. The shareholder has appealed. We have determined that the complaint states several claims upon which relief can be granted and, therefore, vacate portions of the trial court's order.

I.

Rivergate Toyota, Inc. ("Rivergate Toyota") was incorporated in Texas on September 20, 1983. Jack Guenther was its president, and H. Kent Dobbs, Jr. its vice president. The board of directors included Mr. Guenther, Mr. Dobbs, J.M. Carnes, and John K. Matt. All the corporation's outstanding shares were owned by its directors. ¹ The purpose of the corporation was to operate a retail automobile business.

On December 1, 1983, the directors formed a Tennessee partnership called "J Co." for the purpose of purchasing real property on Gallatin Road in Davidson County where an automobile dealership was located. The directors' interests in the partnership were identical to their ownership of stock in Rivergate Toyota. ² Mr. Guenther was named the managing partner.

On the same day they signed the partnership agreement, the directors also signed an "Agreement Restricting Transferability of Shares" with regard to Rivergate Toyota ("Rivergate Agreement"). Paragraph 3 of the agreement described eight events whose occurrence would require a shareholder to sell his or her stock back to the corporation. Paragraph 3(h) specifically dealt with a shareholder's termination of employment with the corporation. Paragraph 7 and Exhibit B also contained a formula for determining the price of the shares.

The Rivergate Agreement also governed the directors' interests in J Co. Paragraph 16 stated that "[t]his agreement shall apply for all purposes to the J Co. Partnership Agreement dated December 1, 1983 ..." In addition, Exhibit B, p 2 stated that "[t]he purchase price for J Co. shall be $1,225,000, until such time as the Shareholders shall agree in writing to a different price." Exhibit B, p 3 also provided that the purchase price for either the shares or the interest in the partnership would "be paid in the form of Covenant Not to Compete compensation in equal payments" over four years.

Two days after the directors signed the partnership agreement and the Rivergate Agreement, J Co. purchased the seven-acre tract on Gallatin Road where the Rivergate Toyota dealership was located. Mr. Dobbs served as the general manager of the dealership. Between 1983 and 1985, J Co. made over $500,000 of improvements to the property and also purchased two contiguous tracts of property (the "Burger King" tract and the "Borchert" tract) for $346,500.

On March 31, 1989, Messers. Guenther, Dobbs, and Carnes formed another Texas corporation named Performance Petroplex, Inc. ("Performance Petroplex"). The purpose of this corporation was to operate another automobile dealership called Lexus of Nashville. Mr. Guenther and Mr. Dobbs were corporate officers and served as directors along with Mr. Carnes. Mr. Guenther and his wife owned 58.5% of Performance Petroplex's outstanding shares, while Mr. Dobbs owned 30%, and Mr. Carnes 11.5%. Mr. Dobbs claims to have invested $165,000 cash in Performance Petroplex.

Mr. Dobbs asserts in the complaint that he was originally trying to obtain the Lexus franchise for himself but that he "permitted the Lexis [sic] dealership to go to Performance Petroplex, Inc." He also asserts that in January 1990, he "took" his business associates an offer to purchase Rivergate Toyota for $1,000,000 plus the value of all the corporate assets and that the other shareholders rejected the offer.

On January 31, 1990, J Co. quitclaimed its interest in the Borchert tract to L Co., another partnership established by Messers. Guether, Dobbs, and Carnes. The relationship between L Co. and Performance Petroplex was the same as the relationship between J Co. and Rivergate Toyota. Messers. Guenther, Dobbs, and Carnes apparently had the same interest in L Co. that they had in Performance Petroplex.

On March 4, 1990, Messers. Guenther, Dobbs, and Carnes signed another "Agreement Restricting Transfer of Shares" with regard to Performance Petroplex ("Performance Petroplex Agreement"). The terms of this agreement were substantially similar to the Rivergate Agreement. Two days later, Mr. and Mrs. Dobbs conveyed a piece of property (the "Chief's" tract) adjacent to J Co.'s property to J Co. for $184,750. They now assert in the complaint that the sales price for the Chief's tract was far below either its fair market value or its actual value since the Chief's tract provided the only street frontage for their other property.

Later in March 1990, Mr. Dobbs resigned as general manager of the Rivergate Toyota dealership in order to become the general manager of Lexus of Nashville. For reasons not apparent in the record, Mr. Dobbs was fired as general manager of Lexus of Nashville in May 1990. Following Mr. Dobbs's termination, Messers. Guenther, Carnes, and Matt insisted that they had the right to repurchase his interest in Rivergate Toyota, Lexus of Nashville, J Co., and L Co. under the terms of the Rivergate Agreement and the Performance Petroplex Agreement.

In December 1990, Mr. and Mrs. Dobbs filed a disjointed, 13-page complaint, alleging in vague terms that Messers. Guenther, Carnes, and Matt had induced him (1) to invest in Performance Petroplex, (2) to convey the Chief's tract to J Co., and (3) to sign the Performance Petroplex Agreement when they had already decided to terminate him as an employee. He asserted that these transactions were part of a fraudulent scheme to obtain his property at less than its fair market value and to strip him of his interests in the dealerships.

The defendants filed motions to dismiss and motions for a more definite statement. On May 28, 1991, Mr. and Mrs. Dobbs filed an amended complaint. This complaint was fourteen pages long and was not much of an improvement over their earlier complaint. On July 24, 1991, the trial court filed a memorandum opinion stating:

It is difficult for the Court to understand the factual allegations of the complaint. It is impossible for the Court to understand how those factual allegations entitle the plaintiffs to relief. The legal grounds for relief are stated in conclusory terms. Though lengthy, the plaintiffs' amended complaint fails to set forth adequate facts to support their vague assertions of fraud and unfairness. The plaintiffs have not alleged that there has been action taken against them which warrants either a declaratory judgment or a finding that a cause of action has accrued. The substance of the amended complaint appears to be a request that the Court step in and fix a situation that is not yet damaged. For the most part the plaintiffs seem to be seeking a declaratory ruling on what their rights and liabilities might be at some unspecified time in the future. This is not an appropriate case for the issuance of a declaratory judgment.

On August 1, 1991, the trial court entered its order dismissing the complaint for failure to state a claim upon which relief can be granted.

II.

The sole purpose of a Tenn.R.Civ.P. 12.02(6) motion to dismiss is to test the legal sufficiency of the complaint. Sanders v. Vinson, 558 S.W.2d 838, 840 (Tenn.1977); Holloway v. Putnam County, 534 S.W.2d 292, 296 (Tenn.1976). These motions are not favored, see Moore v. Bell, 187 Tenn. 366, 369, 215 S.W.2d 787, 789 (1948), and are now rarely granted in light of the liberal pleading standards in the Tennessee Rules of Civil Procedure. ³ See Barish v. Metropolitan Gov't, 627 S.W.2d 953, 954 (Tenn.Ct.App.1981); 5A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure Secs. 1356 & 1357 (2d ed. 1990) ("Wright & Miller").

Tenn.R.Civ.P. 12.02(6) motions are not designed to correct inartfully worded pleadings. Wright & Miller Sec. 1356, at 296. And so a complaint should not be dismissed, no matter how poorly drafted, if it states a cause of action. Paschall's, Inc. v. Dozier, 219 Tenn. 45, 50-51, 407 S.W.2d 150, 152 (1966); Collier v. Slayden Bros. Ltd. Partnership, 712 S.W.2d 106, 108 (Tenn.Ct.App.1985). Dismissal under Tenn.R.Civ.P. 12.02(6) is warranted only when no set of facts will entitle the plaintiff to relief, Pemberton v. American Distilled Spirits Co., 664 S.W.2d 690, 691 (Tenn.1984), or when the complaint is totally lacking in clarity and specificity. Smith v. Lincoln Brass Works, Inc., 712 S.W.2d 470, 471 (Tenn.1986).

While it is not our role to create claims where none exist, Donaldson v. Donaldson, 557 S.W.2d 60, 62 (Tenn.1977), we must always look to the substance of a pleading rather than to its form. Usrey v. Lewis, 553 S.W.2d 612, 614 (Tenn.Ct.App.1977). Thus, when a complaint is tested by a Tenn.R.Civ.P. 12.02(6) motion to dismiss, we must take all the well-pleaded, material factual allegations as true, ⁴ and we must construe the complaint liberally in the plaintiff's favor. Lewis v. Allen, 698 S.W.2d 58, 59 (Tenn.1985); Holloway v. Putnam...