Fortenberry v. Cavanaugh, No. 03-07-00310-CV (Tex. App. 11/26/2008)
| Decision Date | 26 November 2008 |
| Docket Number | No. 03-07-00310-CV.,03-07-00310-CV. |
| Parties | ROLAND D. FORTENBERRY, JR., A/K/A DALE FORTENBERRY, JR. AND KAYE ANN FORTENBERRY, Appellants, v. GERALD R. CAVANAUGH, JR. AND DIANNA CAVANAUGH, INDIVIDUALLY AND AS SHAREHOLDERS IN THE RIGHT OF FORTUNE PRODUCTS, INC., A TEXAS CORPORATION, Appellees. |
| Court | Texas Court of Appeals |
Appeal from the District Court of Burnet County, 33rd Judicial District, No. 30599, Honorable Paul Davis, Judge Presiding.
Affirmed in Part; Dismissed in Part.
Before Justices PATTERSON, WALDROP and HENSON.
This appeal arises from a dispute over the control of the management of Fortune Products, Inc., a family-owned business in Marble Falls. Appellants Roland D. Fortenberry a/k/a Dale Fortenberry, Jr., and Kaye Ann Fortenberry appeal the jury's verdict and the district court's judgment in favor of appellees Gerald R. "Jay" Cavanaugh, Jr., and Dianna Cavanaugh.
In five issues, the Fortenberrys contend that (i) the trial court erred by awarding the Cavanaughs attorney's fees and costs; (ii) the evidence is legally or, alternatively, factually insufficient to support the judgment in favor of the Cavanaughs' claim for declaratory judgment and, as a matter of law, the Fortenberrys are entitled to declaratory judgment and attorney's fees; (iii) questions to the jury were erroneous, caused the rendition of an improper verdict, and cannot provide a basis for the judgment; (iv) the evidence is legally or, alternatively, factually insufficient to support the appointment of a receiver; and (v) the contempt order exceeds the district court's statutory authority. For the reasons that follow, we affirm the district court's judgment.1
Fortune Products, Inc., was created in 1984. It manufactures and sells knife sharpeners. From its inception in 1984 to 2000, Dale Fortenberry, Sr., was the majority shareholder, a director, and held the positions of president and chairman of the board. His wife, Betty Fortenberry, was a director and held the positions of secretary and treasurer. Their two children, Dale Fortenberry, Jr.,2 and Dianna Cavanaugh, also worked in the business. In 1990, Fortenberry, Sr., and Betty Fortenberry, as directors, promoted Fortenberry to the position of vice president.
Effective January 1, 2000, Gerald R. "Jay" Cavanaugh, their daughter's husband, was hired "in the capacity of Vice President of Finance and Administration . . . in charge of all accounting functions as well as production and plant maintenance." At the same time, Fortenberry's title changed to Vice President of Sales and Marketing. Both Fortenberry and Cavanaugh reported to Fortenberry, Sr., and they both had supervisory responsibility of other employees.
In the summer of 2000, Fortenberry, Sr., was diagnosed with cancer. Although the parties dispute when the decision was made for the two sides of the family to purchase the shares of the company, the record reflects Fortenberry, Sr., sold the company's outstanding shares on August 1, 2000, equally to the Fortenberrys and the Cavanaughs.3 Also on August 1, 2000, the shareholders and directors held a special meeting. Fortenberry, Sr., and Betty Fortenberry resigned as directors and officers of the company, and Fortenberry, Mrs. Fortenberry, Cavanaugh, and Mrs. Cavanaugh were elected directors. The directors elected Cavanaugh as chairman of the board and vice president, Fortenberry as president, and Mrs. Cavanaugh as the secretary and the treasurer. The shareholders also amended the shareholders agreement to require the shareholders to elect themselves as the four directors. Shortly after the sale, Betty Fortenberry died, and Fortenberry, Sr., died in June 2001.
The shareholders and directors held annual meetings in October 2000, 2001, and 2002, re-electing the same officers and directors. The October 2003 annual meeting, however, ended without the re-election of directors and officers, and the parties have feuded over the day-to-day management of the company since at least that time.
By letter dated June 28, 2004, Fortenberry advised Cavanaugh that he was discontinuing Cavanaugh's "participation in the day-to-day operations of the company":
This letter is to inform you of changes I am implementing with respect to the day-to-day operations of the corporation. The morale of the company has suffered as a result of your interaction with the employees. . . . Therefore, in order to protect the company's profitability and to continue to enhance shareholder value, I am exercising my authority to discontinue your participation in the day-to-day operations of the company.
Section 5.09 of Fortune Products Inc.'s bylaws identifies the President as the chief executive officer of the corporation, and gives him the authority to make decisions regarding the general and active management of the corporation's business. The action that I am taking is in no way intended to remove you from your position as Vice President, but to change your duties with respect to day-to-day operations. As you know, your role in the operation of the corporation was always intended to certain financial matters. Your participation in the operations of the company is specifically subject to my authority to delegate those duties to other officers of the corporation as outlined in the bylaws and as deemed in the best interests of the company and its shareholders. Because of the unquestionable downward trend in company morale and productivity, I am now exercising my authority to exclusively oversee the company's day-to-day operations. While I appreciate your previous assistance, you will no longer provide any management or personnel supervision and you will no longer office on the premises of the company.
As I previously noted, this action does not alter your position as Vice President nor is it intended to discontinue your salary; that authority rests solely with the board of directors. This action is taken pursuant to my duty to enhance shareholder value and is specifically authorized by the corporation's bylaws, which grant the President the authority to actively manage the company's daily operations. I trust that you will recognize that I am exercising my authority in the best interests of all of the company's shareholders, including you.
You will be expected to monitor the company's investment accounts as you have historically done, and to provide input on financial statements and transactions as specifically requested by me and/or the Board of Directors. Should you need additional computer equipment to perform these duties from your home, the Company will make available equipment reasonably necessary to performing your duties.
In order to provide further clarity, you are not to direct or supervise the activities or duties of any company employees, nor are you to contact any of the company's salesmen, distributors or customers. Any violation of these instructions will require action, judicial or otherwise, necessary to insure compliance. While you may retain the corporate American Express card, only reasonable and necessary corporate expenses incurred in the performance of these specified duties will be accepted.
On June 29, 2004, Fortenberry filed a declaratory judgment action in Travis County against Cavanaugh to determine Fortenberry's authority regarding management of the company, including his authority to prescribe Cavanaugh's duties. Fortenberry obtained a temporary restraining order barring Cavanaugh from his office at the company. The next day, June 30, the Cavanaughs filed suit in Burnet County against Fortenberry and Fortune Products, seeking a declaratory judgment to determine the respective rights of the parties. The Burnet County action also asserted claims for an accounting and the appointment of a receiver, for monetary damages, and for injunctive relief. The Cavanaughs obtained a temporary restraining order against Fortenberry, and, after a hearing in July, a temporary injunction against him.
The temporary injunction against Fortenberry remained in effect pending the trial on the merits. The injunction enjoined Fortenberry from, among other things, entering into any contract or agreement except as authorized by the court or the company's board of directors, making withdrawals from any checking or savings account of Fortune Products except for "reasonable, necessary, ordinary and routine business expenses," incurring any indebtedness in the name of Fortune Products except for "reasonable, necessary, ordinary and routine business expenses," excluding the Cavanaughs from the office or other facilities of Fortune Products, opening or diverting mail addressed to the Cavanaughs, or engaging in any other acts to hinder or prevent the Cavanaughs from exercising their rights and authority or from performing their duties as officers of the company. The Cavanaughs filed numerous motions for contempt alleging continuing violations of the injunction by Fortenberry, and there were numerous contempt hearings during the pendency of the case.
After hearings on various matters in Burnet County, including a motion to appoint a receiver, and an unsuccessful mediation, the district court in November 2004 appointed Burl Harper, who had been the company's accountant since approximately 1997, to serve as a receiver for the company. Fortenberry and Fortune Products appealed the receivership to this Court, and this Court reversed it in June 2005, holding that the "district court abused its discretion in prematurely ordering the appointment of a receiver with sweeping powers." See Fortenberry v. Cavanaugh, No. 03-04-00816-CV, 2005 Tex. App. LEXIS 4665, at *10 (Tex. App.-Austin 2005, no pet.).
The litigation continued with the Travis County case being transferred and consolidated with the Burnet County case in September 2005. In...
To continue reading
Request your trial