Gibson v. Adams

• Decision Date: 10 June 1997
• Docket Number: No. 69187,69187
• Citation: 946 S.W.2d 796
• Parties: Edwin S. GIBSON, Jr., Plaintiff/Respondent, v. Charles H. ADAMS, James V. Murphy, Madison Metal Services, Inc., Glennon Steel Company and Murphy Metals, Inc., Defendants/Appellants.
• Court: Missouri Court of Appeals

Page 796

946 S.W.2d 796

Edwin S. GIBSON, Jr., Plaintiff/Respondent, v. Charles H. ADAMS, James V. Murphy, Madison Metal Services,

Inc., Glennon Steel Company and Murphy Metals,

Inc., Defendants/Appellants.

No. 69187.

Missouri Court of Appeals,

Eastern District,

Division Two.

June 10, 1997.

Sonnenschein Nath & Rosenthal, Larry M. Bauer, Robert J. Isaacson, St. Louis, for Defendants/Appellants.

Curtis, Oetting, Heinz, Garrett & Soule, P.C., David P. Oetting, Kenneth J. Heinz, St. Louis, for Plaintiff/Respondent.

PUDLOWSKI, Judge.

Edwin S. Gibson (Gibson) formed Madison Metal Services, Inc. (Madison) with Charles H. Adams (Adams) and James V. Murphy (Murphy) in 1981. All three were shareholders of the company. After discharging Gibson in 1991, Adams and Murphy failed to hold shareholders' or directors' meetings and raided Madison's assets without obtaining shareholder or board approval, all to Gibson's detriment. The trial court found Adams and Murphy had breached their fiduciary duty owed to Gibson. Because substantial evidence exists to support the trial court's decision, we affirm it's finding of breach of fiduciary duty.

In 1988 Gibson, Adams and Murphy signed an agreement which provided if one of them was fired Madison would purchase his shares of stock for a specified price. After Gibson was fired, Adams and Murphy prevented Madison from buying Gibson's shares. Substantial evidence supports the trial court's finding of tortious interference with contract.

In his petition Gibson sought specific performance of the agreement. Adams and Murphy contend the agreement should have been voidable on grounds of mutual mistake, even though they admit they did not read it. Because there was no evidence of fraud, Adams and Murphy had knowledge of the document they signed.

Prior to the agreement Madison issued a subordinated note to a company owned in part by Gibson. The agreement provided that if Gibson was fired Madison could redeem the note and pay Gibson his apportioned share. The trial court ordered specific performance. Because the trial court did not abuse its discretion in ordering repayment of the note, we affirm this portion of the court's judgment.

The trial court ordered Adams and Murphy to each pay punitive damages. Because we cannot say the trial court abused its discretion in finding Adams' and Murphy's conduct rose to the level of maliciousness or wantonness, we affirm the court's award of punitive damages.

The trial court also awarded attorneys' fees as specified in the agreement. Because the trial court did not abuse its discretion in awarding attorneys' fees, we affirm its award.

I. Background

In reviewing the facts, we do so in the light most favorable to the judgment. Peterson v. Continental Boiler Works, Inc., 783 S.W.2d 896, 897 (Mo. banc 1990). In 1979 Gibson and Adams incorporated Glennon Steel Company (Glennon). Each owned fifty percent of Glennon's outstanding stock. In 1980 Murphy formed Murphy Metals, Inc (MMI). Both Glennon and MMI were in the steel brokerage business. In 1981 Gibson, Adams and Murphy formed Madison to engage in steel production and processing. Gibson, Adams and Murphy were Madison's directors and its officers.

Gibson, Adams and Murphy took out personal loans for $100,000.00 and purchased Madison stock. Each also loaned Madison $100,000.00. In 1987 Glennon loaned Madison $119,695.71 and then $200,000.00 more. MMI loaned Madison nearly $160,000. In return, Madison issued promissory notes to each company.

As Madison's acting shareholders and directors, Gibson, Adams and Murphy executed corporate minutes and waivers of notice of annual shareholders' and directors' meetings from 1986 through 1990. The minutes explained all were to be paid the same salary. The shareholders also ratified corporate actions and re-elected themselves as the company's three directors.

In 1988 Gibson, Adams and Murphy executed a shareholder agreement which provided: 1) Madison would purchase all of a shareholder's stock in Madison in the event of the shareholder's death or involuntary termination; 2) Madison would prepay 50% of the promissory note it issued to Glennon to Gibson if Gibson died or was fired.

In March 1991 Madison, along with William Gilbert (Gilbert), formed Midwest Metal Reducers (Reducers). After acquiring Reducers, all men agreed Gibson would run Reducers for their mutual benefit and the benefit of Madison. Furthermore, they agreed Madison would subsidize Gibson's salary $4,000 per month to enable Gibson to continue receiving the same salary as Adams and Murphy, just as the three had agreed at Madison's last directors' meeting. This subsidizing of Gibson's salary was to continue until Reducers could fund Gibson's entire salary.

In October 1991 Gibson left for an extended vacation. When he returned, he discovered he had not received his paychecks and wrote a paycheck to himself. Adams thereafter told Gibson he would no longer receive any compensation from Madison or from Reducers. At this point, Gibson was fired.

In December 1991 Madison sent various documents to Gibson as a proposed buy out of Gibson's shares, a buy out which was different than the terms of the agreement the men and Madison had signed. Gibson refused all offers.

From 1991 until the present, neither Murphy, as president of Madison, nor Adams, as secretary, notified Gibson of any Board of Directors' meetings. Gibson never consented to have such meetings waived. From 1991 until the trial no annual or special shareholders' meetings were held. No corporate minutes exist of any meetings altering executive compensation or approving expenditures. Since Gibson was fired, Murphy's and Adams' salaries have increased and both have received bonuses from Madison without obtaining authorization from the last duly appointed Board of Directors. Furthermore, following Gibson's dismissal, Murphy and Adams prevented Madison from fulfilling its obligation under the agreement to buy Gibson's shares of stock at the agreed upon price.

In December 1993 Gibson filed an amended petition against Adams and Murphy alleging a breach of fiduciary duties owed to him. In that count he sought actual and punitive damages. In Count II of the petition, Gibson sought actual and punitive damages from Adams and Murphy for tortiously interfering with his contract with Madison which required the company to buy his outstanding shares of stock. In Count III Gibson sought specific performance of the agreement, an agreement which provided for early payment of the note and buying Gibson's shares.

Following a bench trial the court found Gibson had been fired, that Murphy and Adams had breached fiduciary duties owed to Gibson, and that Adams and Murphy had tortiously interfered with Madison's contractual obligation to buy Gibson's shares of stock. In its order the trial court held Murphy, Adams and Madison jointly and severally liable for the value of the stock plus interest. The court also ordered Madison to pay Gibson fifty percent of the subordinated note it promised to Glennon. The court ordered all three defendants to pay Gibson's nearly $75,000.00 worth of attorneys' fees. Finally, the court ordered Murphy and Adams to pay punitive damages in the amount of $25,000.00 and $75,000.00, respectively, even though no compensatory damages had been given. From this order, Adams, Murphy, Madison, Glennon and MMI appeal.

On appeal, the appellants argue seven points: 1) the evidence does not support the trial court's finding that Murphy and Adams breached their fiduciary duties; 2) the trial court erred in finding Murphy and Adams had tortiously interfered with Gibson and Madison's contract as Murphy and Adams were themselves parties to the contract; 3) the trial court erred in holding Murphy and Adams jointly and severally liable, along with Madison, for the value of Gibson's stock; 4) the trial court should have found the agreement was voidable on the grounds of mutual mistake; 5) the trial court erred in ordering repayment of the subordinated note because Gibson never requested such relief; 6) punitive damages were improper since no compensatory damages were awarded; 7) attorneys' fees should have been limited to fees incurred while enforcing the agreement. We will address each of these in turn.

II. Standard of Review

Before addressing the merits of appellants' appeal, it is important to examine the guidelines which govern this court in reviewing the trial court's decision. "A bench-tried judgment which reaches the correct result will not be set aside even if the trial court gives a wrong or insufficient reason for its judgment." Graue v. Mo. Property Ins. Placement, 847 S.W.2d 779, 782 (Mo. banc 1993). We must affirm the judgment of a court-tried case unless there is no evidence to support the judgment, the judgment is clearly against the weight of the evidence, or the judgment erroneously declares or misapplies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). We should accept all inferences and evidence favorable to the judgment and disregard all contrary inferences. Furthermore, we are bound by the trial court's factual findings if such findings are supported by substantial evidence. P & K Heating and Air Conditioning, Inc. v. Tusten Townhomes Redevelopment Corp., 877 S.W.2d 121 (Mo.App. E.D.1994). We will also give deference to the trial court in judging the credibility of witnesses, Pinnell v. Jacobs, 873 S.W.2d 925 (Mo.App. E.D.1994), and all factual issues upon which no specific findings have been made should be interpreted as having been found in accordance with the result reached. Sunset Pools of St Louis v. Schaefer, 869 S.W.2d 883, 885 (Mo.App. E.D.1994). It is with these guidelines that we now examine the appellants' points on appeal.

III. Appellants' Appeal

A. Whether evidence exists to support the trial court's decision that Adams and Murphy, by failing to call shareholder and board meetings and by failing to...