Garg v. Venkataraman, 2378

• Decision Date: 12 October 1988
• Docket Number: No. 2378,2378
• Citation: 54 Ohio App.3d 171,561 N.E.2d 1005
• Parties: GARG, Appellant, v. VENKATARAMAN et al., Appellees. *
• Court: Ohio Court of Appeals

Page 171

54 Ohio App.3d 171

561 N.E.2d 1005

GARG, Appellant, v. VENKATARAMAN et al., Appellees. ^*

No. 2378.

Court of Appeals of Ohio, Ninth District, Wayne County.

Oct. 12, 1988.

Syllabus by the Court

1. A promise of employment extended to a third person by an individual member of the board of directors of a corporation is not binding on the corporation where the promise was not made on behalf of the corporation.

2. The key element of the tort of intentional interference with contractual relations is interference by someone who is not a party to the contract.

Frank Cicconetti, for appellant.

Thomas M. Parker, for appellees.

CACIOPPO, Judge.

In April 1983, plaintiff-appellant, Yogesh Garg, and defendant-appellee, Bala Venkataraman ("Bala"), entered into a buying group agreement ("BGA") with defendants-appellees, William Martin and James Taggart, who were acting on their own behalf and on behalf of their family members who were shareholders. This agreement provided, inter alia, that Garg and Bala would purchase fifty-one percent of the shares of Magni-Power Company in order to qualify the corporation for minority business enterprise ("MBE") status, and further provided that Garg and Bala would acquire all of the shares of the corporation by 1993. Garg initially acquired one thousand eight hundred ten shares and Bala purchased nine hundred five shares. The BGA also contained provisions concerning debentures and election of directors.

On May 7, 1985, forty-six debentures, held by Martin, Taggart, and Ruth Taggart were converted into four hundred six shares of stock. On May 12, 1985, Bala, Martin, and Taggart executed two written agreements, the gist of which restricted the transfer of their shares. At the annual shareholders' meeting on May 31, 1985, two slates of directors were nominated. The slate that had been elected the previous two years was nominated by Garg. A different slate was nominated by Bala; Bala's slate was elected by a margin of one thousand six hundred forty-two votes. After the shareholders' meeting, a meeting of the board of directors was held at which Garg was removed as chief executive officer ("CEO") of the corporation, a position he had held the previous two years. ¹

In March 1987, Garg filed a complaint naming Bala, Martin, and Taggart as defendants. The three-count complaint alleged breach of fiduciary and contractual duties, tortious interference with business relationships, and conspiracy to economically injure Garg. Garg demanded judgment in the amount of his salary as CEO, plus the equivalent of the fair market value of his shares in the company had it become a public corporation. Garg also requested punitive damages. The defendants filed an answer, and thereafter filed a motion for summary judgment. Garg replied to the motion for summary judgment by claiming that he had a joint venture agreement with Bala which provided, inter alia, for his employment as CEO for a ten-year period and a plan to make the corporation public by 1993. After the defendants filed a response to Garg's reply, the trial court made findings of fact and conclusions of law, and granted summary judgment in favor of the defendants. Garg now appeals.

Assignment of Error 1

"The trial court erred as a matter of law by holding the provisions of the joint venture agreement between the appellant and Venkataraman were unenforceable by application of the statute of frauds."

Garg's claims essentially turn on the enforceability of the joint venture agreement he alleges to have made with Bala. Under the first assignment of error, Garg argues that the joint venture agreement guaranteed his position as CEO for a ten-year period, and also called for Garg and Bala to make the company a public corporation by 1993. The trial court found that this agreement violated R.C. 1335.05, the Statute of Frauds.

On appeal, Garg relies on the proposition that a joint venture contract need not be express, but may also be implied. While this is maybe a correct analysis, it is also an incomplete one.

R.C. 1335.05 provides in pertinent part:

"No action shall be brought whereby to charge the defendant * * * upon an agreement that is not to be performed within one year from the making thereof; unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged therewith or some other person thereunto by him or her lawfully authorized."

While joint venture agreements may be oral, they are, nonetheless, still contracts, and thus subject to all of the applicable requirements of contract law, including the Statute of Frauds. See Henn & Alexander, Laws of Corporations and Other Business Enterprises (3 Ed.1983) 106, Section 49. In his effort to enforce a ten-year agreement, Garg's argument ignores the one-year time limit for performance set forth in the statute.

Garg attempts to bypass the writing requirement through a claim of promissory estoppel. While promissory estoppel can be used to defeat a defense based on the Statute of Frauds, it cannot be applied to the terms of the joint venture because the agreement does not bind the corporation. Garg claims that his employment was guaranteed by virtue of his agreement with Bala alone, and that Martin and Taggart interfered with that agreement. However, Bala, acting alone, could not guarantee Garg the CEO position, as the entire board of directors, acting as a whole, is responsible for the appointment of officers.

To protect the rights of innocent third parties, the rule that the board must act as a body is frequently disregarded where individual members have acquiesced in or ratified the informal acts of one director. 11 Ohio Jurisprudence 3d (1979) 643-644, Business Relationships, Section 377. "The courts are reluctant to permit the corporation to take advantage of the inactivity or the informality of its board as against a third party who has dealt with the corporation in good faith and without knowledge of the informality." Id. at 644. However, this exception does not apply to Garg because he never claims that a promise of employment was made on behalf of the corporation; instead, he is claiming that Bala personally owed him a fiduciary duty to keep him on as CEO.

To circumvent the trial court's finding that any agreement to employ Garg would interfere with Bala's discretion as a director and therefore be void as against public policy, Garg argues that the agreement was made before he and Bala even purchased stock. Essentially, Garg maintains that Bala's discretion could not be interfered with because Bala was not even a shareholder, let alone a director, at the time. This argument, however, also defeats any contention Garg could make that he believed that Bala had any authority to bind the corporation.

As to Garg's claims based on the agreement to make the corporation public by 1993, the trial court found that such an agreement was unenforceable under the Statute of Frauds, and also against public policy. Although the trial court did not state the reasons as to why such an agreement would violate public policy, we need not address the issue, as we find Garg's claims based on this term of the joint venture agreement to be premature. Clearly, even under any type of estoppel argument that could defeat the Statute of Frauds, Bala's time for performance has not yet expired.

Finally, Garg argues that should we find that promissory estoppel does not apply, we should consider the BGA a memorandum sufficient to overcome the Statute of Frauds because it is signed by the parties to be charged and spells out many of the provisions of the joint venture agreement. Because Garg raises this issue for the first time on appeal, we decline to address it. Seeley v. Rahe (1985), 16 Ohio St.3d 25, 26, 16 OBR 374, 375, 475 N.E.2d 1271, 1273.

The relationship between joint venturers is fiduciary in nature. 13 Ohio Jurisprudence 3d (1979) 242, Business Relationships, Section 1101. However, because the joint venture agreement is unenforceable under the Statute of Frauds, and for the other reasons discussed above, and because promissory estoppel cannot be applied to overcome these defects, Bala cannot be held to have breached any fiduciary duty, and Martin and Taggart cannot be held liable for interference with an unenforceable agreement.

Assignment of Error 2

"The trial court erred as a matter of law by holding appellant's removal as chief executive officer was lawful."

Under this assignment of error, Garg complains of the trial court's finding that he was an employee at will. He maintains that the real issue before the court was whether the defendants interfered with his contract right to remain as CEO.

Garg relies on Mers v. Dispatch Printing Co. (1985), 19 Ohio St.3d 100, 19 OBR 261, 483 N.E.2d 150, paragraphs two and three of the syllabus, claiming that the facts and circumstances of an oral at-will employment agreement can be considered by the trier of fact and that promissory estoppel is applicable. The trial court took note of consideration of the facts and circumstances by the trier of fact, stating:

" * * * While the court agrees that the facts and circumstances surrounding an oral 'employment at will' agreement can be considered by the trier of fact in order to determine the agreement's explicit and implicit terms concerning discharge, the Court cannot find from the evidence that there is an oral agreement between the Company and Garg. The only agreement that Garg stands upon exists, if at all, between Garg and Venkataraman and is not binding on the Company."

Based on our discussion of the first assignment of error, we agree with the trial court's reasoning. Garg's assertion of a ten-year employment contract is based upon his agreement with Bala, and that does not bind the company.

R.C. 1701.64(B)(2) provides in part:

"(B) Unless the articles or the regulations otherwise provide, and subject to the...