Dunn v. Enterprise Rent-a-Car Co., ED 83240.

Citation170 S.W.3d 1
Decision Date12 April 2005
Docket NumberNo. ED 83240.,ED 83240.
PartiesThomas P. DUNN, Appellant, v. ENTERPRISE RENT-A-CAR COMPANY, Respondent.
CourtUnited States State Supreme Court of Missouri

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170 S.W.3d 1
Thomas P. DUNN, Appellant,
v.
ENTERPRISE RENT-A-CAR COMPANY, Respondent.
No. ED 83240.
Missouri Court of Appeals, Eastern District, Division One.
April 12, 2005.
Motion for Rehearing and/or Transfer to Supreme Court Denied June 2, 2005.
Application for Transfer Denied September 20, 2005.

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COPYRIGHT MATERIAL OMITTED

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Jerome J. Dobson, Matthew John Ghio, St. Louis, MO, for appellant.

Michael A. Kahn, Julie M. Kennedy, Andrew Davis, San Francisco, CA, Gordon L. Ankney, St. Louis, MO, for respondent.

BOOKER T. SHAW, Judge.


Thomas P. Dunn ("Dunn") appeals from the trial court's judgment granting Enterprise Rent-A-Car Company's ("Enterprise") motions for directed verdict on Dunn's claim that he was wrongfully discharged for refusing to violate the law or a clear mandate of public policy, and on his claim that he was wrongfully discharged in violation of public policy for reporting conduct by Enterprise that he reasonably believed violated federal securities laws. Dunn also appeals from the trial court's judgment granting Enterprise's motion for judgment notwithstanding the verdict or in the alternative, for a new trial, after the jury returned a verdict of $4,000,000 in favor of Dunn on his claim that he was wrongfully discharged in violation of public policy for reporting Enterprise's illegal business practices in Missouri and other states. We reverse and remand in part, and affirm in part.

In reviewing a trial court's judgment granting a motion for directed verdict, we must determine whether the plaintiff made a submissible case, i.e., whether the plaintiff introduced substantial evidence at trial that tends to prove the essential facts for his or her recovery. Wright v. Over-the-Road and City Transfer Drivers, Helpers, Dockmen and Warehousemen, 945 S.W.2d 481, 489 (Mo.App. W.D.1997). We view all the evidence in the light most favorable to the plaintiff, giving him or her the benefit of all reasonable inferences, and disregarding the defendant's evidence except to the extent that it aids the plaintiff's case. Id. "There is a presumption in favor of reversing a trial court's grant of a motion for directed verdict unless, upon consideration of the facts most favorable to the plaintiff, `those facts are so strongly against the plaintiff as to leave no room for reasonable minds to differ as to a result.'" Id. (quoting Friend v. Holman, 888 S.W.2d 369, 371 (Mo.App. W.D.1994)).

Viewing the evidence in the light most favorable to Dunn, we find as follows:

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Dunn began working for Enterprise in 1986 as an accountant. In early 1993, Dunn became Enterprise's corporate comptroller and an officer of the company. In 1994, Dunn earned Vice-President officer level status as corporate comptroller, where he remained until his termination on January 4, 2001. During the time Dunn was employed by Enterprise, he always received positive performance reviews.

Dunn testified at trial that as the company's comptroller, he certified each year that the company's financial records were prepared in accordance with generally accepted accounting principles ("GAAP"). It would have also been Dunn's responsibility as corporate comptroller to certify that the company's financial statements were prepared in accordance with GAAP for an initial public offering ("IPO"). Dunn reported to John O'Connell ("O'Connell"), Enterprise's Chief Financial Officer, as corporate comptroller. O'Connell reported to Enterprise's President and Chief Executive Officer, Andy Taylor.

Enterprise is a privately held company and the majority of the company is owned by the Taylor family. In May 1998, O'Connell directed Dunn to begin investigating issues to enable Enterprise to prepare for an IPO. Dunn testified that Enterprise's senior management received high cash compensation and the company could not go public with such high levels of cash compensation. Dunn worked on the issue of executive compensation for an IPO for over a year. Dunn recommended that Enterprise use stock options as a substitute for cash to address the compensation issue, which the company began doing in 1999.

In preparation for the IPO, Dunn began to take a closer look at Enterprise's financial statements and business practices. Some of these practices included the imposition of a surcharge on daily rental customers, billing customers for damages to rental vehicles and selectively licensing its vehicles in certain states. Dunn testified that he spoke to upper management about concerns he had relating to these practices, but it was explained to him that Enterprise did not wish to make changes.

Another issue of concern in preparation for the IPO was the rate of depreciation Enterprise used on its vehicles. Dunn testified Enterprise purchased its vehicles and depreciated them at the rate of 2% per month. He also testified, however, that this depreciation rate overstated the real depreciation of Enterprise's rental vehicles and while this was considered acceptable for a privately held company, a depreciation rate of 2% for a publicly held company was a violation of GAAP. Dunn testified that if Enterprise were to go public with the IPO, GAAP would require that Enterprise lower its depreciation rate to no more than 1.5% per month.

In June 1999, Andy Taylor invited Dunn to a company strategic planning meeting where the company's investment banker gave a presentation suggesting that if the company went public, it would have to reduce its depreciation rate from 2% to 1.5%. Dunn testified that Jack Taylor, Enterprise's founder, was openly opposed to this suggestion. Shortly after this meeting, Dunn approached O'Connell and told him he agreed with the investment banker that Enterprise's depreciation rate would have to be decreased to 1.5% if they went public. He also told O'Connell the U.S. Securities and Exchange Commission ("SEC") would likely require Enterprise to report its retail car sales as a gross revenue figure and as a separate line of business for SEC purposes. O'Connell told him that the Taylors were not going to lower the company's depreciation rate. Dunn subsequently received a warning at

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work and was placed on probation until November 1999. Dunn also testified that after completing this probationary period, Andy Taylor told O'Connell that Dunn could stay with Enterprise "as long as [he] behaved."

During this same time period, Dunn was assigned responsibilities relating to the IPO, including whether the company would have to "gross up" its retail car sales operations and whether it would have to do "segment reporting." As a private company, Enterprise's financial statements disclosed only the net revenues generated from retail car sales, and not the gross revenues generated from those sales. This permitted Enterprise the potential to reflect a higher level of profit on its statements. As Dunn explained, by grossing up Enterprise's retail car sales operations, Enterprise would have to show the revenue generated from such sales on the revenue portion of the income statement, and show the cost of sales for that revenue item in the cost of sale section of the statement. Therefore, all the revenues and costs of sale would be presented in the statement. In addition, as a private company, Enterprise's financial statements did not separately set out its financials for its three lines of business: car sales, leasing and daily rentals. Dunn told O'Connell he believed Enterprise would be required to gross up retail car sales and do segment reporting in connection with the IPO. O'Connell told Dunn that senior management did not want to do this. Dunn was then assigned the responsibility of researching and determining whether Enterprise could avoid grossing up retail car sales and segment reporting, and whether it would have to lower its depreciation rate to 1.5% for the IPO. Dunn reiterated to O'Connell on several occasions that Enterprise's depreciation rate of 2% was unrealistic and that 1.5% was the highest rate Enterprise could be able to use for the IPO.

In order for a company to offer stock to the public, it must file a Form S-1 with the SEC. With respect to the Form S-1, as corporate comptroller, Dunn testified he was responsible for preparing Enterprise's financial statements in accordance with GAAP. The financial statements would be provided to and audited by Enterprise's auditor, Ernst & Young. During the audit process, Dunn and other senior managers would be asked to sign a management representation letter, certifying that the financial statements were prepared according to GAAP. Ernst & Young would then issue an audit opinion letter attached to the Form S-1, stating that the financial statements were prepared according to GAAP. Dunn testified that Ernst & Young would depend and rely upon Enterprise's representations in certifying to the SEC that Enterprise's financial statements were prepared according to GAAP.

Enterprise established October 27, 2000 as the target date for filing the Form S-1. Dunn and his staff prepared memoranda known as "White Papers" setting forth his department's recommendations and conclusions regarding the IPO accounting issues. Dunn concluded Enterprise would have to lower its depreciation rate on daily rental vehicles to 1.5%. In subsequent documents, Dunn continued to urge Enterprise to alter its accounting methods in the areas of depreciation and segment accounting. Dunn subsequently learned the White Papers were rewritten without his knowledge or approval and set forth different accounting conclusions. In October 2000, Dunn learned Enterprise extended its target date for filing the Form S-1 from October 27, 2000, to January or February of 2001.

Shortly after this postponement, Dunn testified he was excluded from a presentation

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O'Connell made to corporate officers on the issue of depreciation. In November 2000, O'Connell issued a memorandum announcing Enterprise was changing its depreciation...

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