Futch v. McAllister Towing of Georgetown, No. 24976.

• Court: United States State Supreme Court of South Carolina
• Writing for the Court: WALLER, Justice
• Citation: 518 S.E.2d 591,335 S.C. 598
• Parties: James Morgan FUTCH, Petitioner, v. McALLISTER TOWING OF GEORGETOWN, INC., Respondent.
• Decision Date: 26 July 1999
• Docket Number: No. 24976.

335 S.C. 598
518 S.E.2d 591

James Morgan FUTCH, Petitioner,
v.
McALLISTER TOWING OF GEORGETOWN, INC., Respondent

No. 24976.

Supreme Court of South Carolina.

Heard January 6, 1999.

Decided July 26, 1999.

Rehearing Denied September 9, 1999.

335 S.C. 601

Robert L. Widener and Celeste T. Jones, both of the McNair Law Firm, Columbia, for petitioner

Marvin D. Infinger and Julie O. Medich, both of Sinkler & Boyd, P.A., of Charleston, for respondent.

ON WRIT OF CERTIORARI TO THE COURT OF APPEALS

WALLER, Justice:

James M. Futch (Futch) won a jury verdict, as well as treble damages and attorney's fees, in an action he brought pursuant to the state Payment of Wages Act. Futch lost on appeal when the Court of Appeals reversed the trial judge's denial of McAllister Towing's (Employer's) directed verdict motion. We granted Futch's petition for a writ of certiorari to review the Court of Appeals' decision. We reverse.

FACTS

The facts of this case are undisputed. Employer, headquartered in New York, employed Futch as a tugboat captain and local manager of its operations at the port in Georgetown. Futch, who was eighty-eight years old when this dispute arose, had begun his life on the water in the early 1920s by running mail and supply boats to South Carolina's coastal islands. He had worked as a tugboat captain in the ports at

335 S.C. 602

Charleston and Georgetown since at least the 1960s. His longevity and expertise had made him a respected, well-known figure among the lowcountry shipping community. In 1981, after Georgetown's only tugboat company stopped operating, Futch personally leased tugboats for six months to keep the city's port open for business until Employer took over the defunct company's operations

Employer discussed the possibility of retirement with Futch in late 1992. Futch told Employer's representative that he had no plans to retire, shook hands with the representative, and left believing his job would continue indefinitely. Employer, however, informed Futch by a written memorandum in December 1992 that his job would terminate at the end of 1993.

Futch knew that Employer often had debated whether to cease operations in Georgetown. Employer discussed those concerns in a letter to the port's director in January 1993. Believing Employer might cease operations and realizing his job would end in December 1993 in any event, Futch and a long-time co-worker, Norman Assey Jr., began discussing the possibility of starting their own tugboat company. Futch and Assey, without revealing anything to Employer, began taking steps to establish their own company. Assey considered Futch a respected mentor. He testified that he and Futch worked as a "team" to start the new company.

An official of a local steel manufacturer declined to commit his business to Futch's new company, stating in a February 1993 letter addressed only to Futch that he made the decision after giving "a great deal of thought to the discussion we had in my office a while back." Officers of two shipping agencies, including one that handled ninety percent of all ships visiting the port of Georgetown, prepared letters in March 1993 stating they would employ Futch and Assey's new tugboat company. The letters named both Futch and Assey, and Futch met directly with at least one of the shipping officers.

Futch and Assey prepared a business plan and sought a $300,000 loan from a bank in spring 1993. The business plan states the men would compete directly with Employer and intended to set their pricing structure fifteen percent below Employer's rates. A letter from a bank officer addressed to

335 S.C. 603

Futch and Assey indicates he met with both men. Futch and Assey purchased one tugboat, leased another, and obtained insurance on both boats in April 1993. Futch, acting as incorporator, reserved a name for the new company with the South Carolina Secretary of State's office in May 1993. Futch signed an annual registration form for the new company required by the South Carolina State Port Authority in August 1993, listing himself as president and Assey as vice president. Assey approached other workers of Employer to discuss whether they would like to work for the new company

Futch by all accounts continued to ably perform his duties for Employer while secretly laying the groundwork for the new company. Futch's duties as a tugboat captain for Employer did not include customer development or sales. Futch, with decades of experience, did not develop any new skills or contacts while working for Employer. He had known all the companies and people he approached with his idea for a new company for years, long before Employer ever came to Georgetown.

Employer learned about Futch's plans from a local shipping agency on August 2, 1993. Employer fired Futch the next day and refused to pay him $4,200 in monthly commissions he had earned docking and undocking seven ships during July and August 1993. Futch's new company began operations the day after Employer fired Futch.

Futch brought an action seeking $4,200, plus treble damages and attorney's fees, under the Payment of Wages Act. See S.C.Code Ann. §§ 41-10-10 to -110 (Supp.1998). Employer answered, asserting Futch's disloyalty as a defense, and counterclaimed to recover all wages paid to Futch during the entire period of his disloyalty. Tugboat companies owned by Futch and Employer both were operating in Georgetown when the trial occurred in October 1995.

At trial, Employer argued the trial judge should grant it a directed verdict because Futch clearly had violated his duty of loyalty to Employer, thus forfeiting any right to compensation. The judge denied Employer's motion.

The judge instructed the jury to decide whether Futch had proven that Employer had breached its employment agreement by refusing to pay him. If Employer had breached the

335 S.C. 604

agreement, the jury next had to decide whether Employer had proven it did not have to pay Futch because he had breached his duty of loyalty to Employer. The jury awarded $4,200 to Futch after deliberating sixteen minutes. The judge trebled the damages and awarded attorney's fees and prejudgment interest to Futch, for a total award of about $16,402. Employer appealed.

The Court of Appeals reversed, holding 2-1 that the trial judge should have granted Employer's directed verdict motion. Futch v. McAllister Towing, 328 S.C. 312, 491 S.E.2d 577 (Ct.App.1997). We now review that decision.

ISSUES

1. Did the Court of Appeals err in adopting a bright-line rule that an agent or employee's breach of the duty of loyalty results in the forfeiture of all compensation? ¹

2. Did the Court of Appeals err in reversing the trial judge's denial of Employer's directed verdict motion?

DISCUSSION

1. THE PROPRIETY OF THE BRIGHT-LINE RULE

Futch contends the Court of Appeals erred in adopting a bright-line, general rule "that an agent guilty of disloyalty to his principal forfeits all compensation." Futch, 328 S.C. at 316, 491 S.E.2d at 579 (emphasis added). He argues an agent forfeits compensation only during a period of disloyalty and, when an agent's compensation is apportioned, the agent ought to get paid for time periods or tasks performed while acting loyally. Futch urges the Court to adopt a particular circumstances

335 S.C. 605

or balancing test that examines the nature of the employment relationship, the type of disloyalty, and the benefit received by the employer during the period of disloyalty.

Initially, we note the Court of Appeals correctly concluded that today's version of the Payment of Wages Act, like its predecessors, does not prohibit an employer from asserting valid defenses or disputing payment in good faith. This Court has stated, in interpreting a predecessor statute of the present Act,² that the Legislature did not intend to prevent employers from asserting valid defenses or counterclaims against employees. See Cato v. Grendel Cotton Mills, 132 S.C. 454, 456-61, 129 S.E. 203, 205 (1925) (emphasizing the remedial nature of the statute and the sound public policies underlying it, and refusing to allow employers to ignore the statute by claiming their employees had by contract or custom waived their statutory right to prompt payment of wages) (citing Wynne v. Seaboard Air Line Railway, 96 S.C. 1, 79 S.E. 521 (1913)); accord Rice v. Multimedia, Inc., 318 S.C. 95, 99, 456 S.E.2d 381, 383 (1995) (concluding that award of treble damages and attorney's fees under today's Payment of Wages Act is discretionary, and Legislature did not intend to deter employer from asserting valid defenses or disputing payment in good faith).

This Court's precedent establishes that an employee who breaches the common law duty of loyalty to an employer, often described as a "faithless servant," forfeits the right to compensation. See Schuermann v. American KA-RO Corp., 295 S.C. 64, 367 S.E.2d 159 (1988) (employee who was fired for cause due to unspecified breach of duty of loyalty gives employer the right to abandon a non-competition clause in contract and thereby avoid paying employee under that clause); Berry v. Goodyear Tire & Rubber Co., 270 S.C. 489, 242 S.E.2d 551 (1978) (tire salesman who was fired by his employer after nineteen years because he worked for competitor while on sick leave and never provided a physician's statement was disloyal; therefore, he was not entitled to severance pay).

335 S.C. 606

This Court also has held that solicitation of an employer's customers is a breach of the duty of loyalty, particularly when combined with other acts or plans aimed at competing with the employer. See Lowndes Products, Inc. v. Brower, 259 S.C. 322, 335-39, 191 S.E.2d 761, 767-70 (1972) (key employees who contacted and met with investors and...