Green v. Green, M2006-02119-SC-R11-CV.

Citation293 S.W.3d 493
Decision Date26 August 2009
Docket NumberNo. M2006-02119-SC-R11-CV.,M2006-02119-SC-R11-CV.
PartiesJohn Wesley GREEN v. Edna L. GREEN, et al.
CourtSupreme Court of Tennessee

Eugene N. Bulso, Jr., Steven A. Nieters, and Emily R. Walsh, Nashville, Tennessee, for the appellants, Edna L. Green and Champs-Elysees, Incorporated.

James D.R. Roberts, Jr. and Janet L. Layman, Nashville, Tennessee, for the appellee, John Wesley Green.


WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which JANICE M. HOLDER, C.J., CORNELIA A. CLARK, GARY R. WADE, and SHARON G. LEE, JJ., joined.

This appeal involves an intra-family dispute over the sale of stock in a closely held corporation. After a stockholder declined to honor her contract to convey her stock, the purchaser filed suit in the Chancery Court for Davidson County to compel the seller to complete the sale. The seller counterclaimed for rescission of the contract under Tenn.Code Ann. § 48-2-122(b)(1) (Supp.2008). The corporation intervened and filed a counterclaim against the purchaser seeking to recover misappropriated corporate funds. Thereafter, the seller filed a motion for summary judgment on her rescission claim, and the corporation sought a summary judgment on its misappropriation of corporate funds claim. The trial court granted these motions, and then denied the purchaser's motion to file an amended complaint against the seller, the corporation, and others. The purchaser appealed to the Court of Appeals. The Court of Appeals (1) reversed the summary judgment granting the seller's rescission claim because the seller had failed to prove that she had relied on the purchaser's representations when she contracted to sell her stock, (2) reversed the summary judgment granting the corporation's misappropriation of corporate funds claim because of the existence of a factual dispute concerning the purchaser's authority to write the disputed checks, and (3) reversed the trial court's denial of the purchaser's motion to amend his complaint. Green v. Green, No. M2006-02119-COA-R3-CV, 2008 WL 624860 (Tenn.Ct.App. Mar.5, 2008). We granted the Tenn. R.App. P. 11 application for permission to appeal filed by the seller and the corporation. While we have determined that the Court of Appeals erred by making reliance a necessary element of claims under Tenn.Code Ann. § 48-2-122(b)(1), we have determined that the appellate court correctly reversed the summary judgments for the seller and the corporation because of the existence of genuine disputes regarding the material facts. We have also determined that the appellate court properly reversed the trial court's denial of the purchaser's motion to amend his complaint.


Champs-Elysees, Inc. ("Champs-Elysees") began in 1983 in the living room of Edna Green,2 a former Nashville school teacher. Ever since its founding, Champs-Elysees has been a small, closely held business. The Green family and a small number of other persons have owned and operated the company. Edna Green's sons, John Wesley Green and Mark Green, and her daughter-in-law, Dianne Green, who is married to Wesley Green, have all worked for the company in management positions. Even though Champs-Elysees is modestly capitalized, it is a multi-national corporation with operations and production facilities both in the United States and abroad. It serves customers in scores of countries, and its customer list includes many famous and influential persons, including actors, leading business figures, authors, cartoonists, and United States Supreme Court justices.

Champs-Elysees enables its customers to maintain and improve their ability to read and converse in foreign languages at an intermediate or advanced level. Its innovative service provides customers with a subscription to "audio magazines" that enable the customers to improve their mastery of French, German, Spanish, or Italian. The audio magazines include interviews with famous political leaders, actors, and authors, as well as news, music, and cultural highlights. Included with the audio portion of the magazine are a transcript and vocabulary section and annotations about the cultural and linguistic issues arising in the particular magazine.

The first dispute among the Green family over control of Champs-Elysees occurred in 1995 when Mark Green set out to increase his ownership interest in the company. Without apprising his family or the other stockholders, Mark Green acquired Champs-Elysees stock from Dominic Lorent, one of the stockholders. Wesley Green, Champs-Elysees's president, resigned his position over this transaction. However, Wesley Green returned to the company several months later after Mark Green tendered the stock he had purchased from Mr. Lorent to the corporate treasury.

Dianne Green took on additional responsibilities at Champs-Elysees during the months that her husband was not with the company. Accordingly, Mark Green and Art Fourier, two other directors and stockholders of the company, increased her annual salary from $57,500 to $90,000. When Wesley Green left Champs-Elysees, his annual salary was $90,000.

After Wesley Green returned as president of Champs-Elysees in October 1995, the company planned to reduce Dianne Green's annual compensation back to $57,500. Dianne Green strenuously objected. She believed that her education, prior experience with the company, and her production of new business justified her $90,000 annual salary. She also objected to rolling back her salary to an amount that was less than the salary the company had agreed to pay a new employee at its British subsidiary.

The officers and directors of Champ-Elysees came up with a novel and "confusing" resolution to Dianne Green's concerns about her compensation. They agreed to combine Wesley Green's $90,000 salary with Dianne Green's $57,500 salary and to pay the combined $147,500 salary to Dianne Green. This salary was to be treated as income to Dianne Green, and Wesley Green would receive no compensation from the company. However, the parties understood that $90,000 of the salary paid to Dianne Green represented compensation for Wesley Green's services.3 According to Edna Green, the parties understood that if Wesley Green left the company, Dianne Green's salary would be reduced because the $147,500 was "for the two of them together," not just for her services.4

At some point, Wesley and Dianne Green decided that Champs-Elysees was paying Dianne Green approximately $10,000 per year less than the salary agreed upon in 1995. By the time Wesley Green brought this matter to the attention of Mark Green5 and Art Fourier6 in early 2004, the underpayments amounted to approximately $90,000. Mark Green suggested that Wesley Green should simply write himself a check for the deficiency or add himself to the company's payroll.7 Wesley Green did not pursue either of the options suggested by Mark Green.

By this time, Champs-Elysees was experiencing other financial challenges far more serious than the under-payments of Dianne Green's compensation. Dissatisfied customers were cancelling their subscriptions because they were not receiving their audio magazines and materials on time. Customers who desired to renew their subscriptions had no new magazines to purchase. To complicate matters further, the production costs were increasing because of the decline of the Dollar against the Euro. Because of its financial difficulties, the company suspended distributions to its stockholders in February 2004.

The financial challenges facing the company were brought on and exacerbated by the deteriorating relationships between various members of the Green family and by the corporate officers' cavalier bookkeeping practices and attitude about borrowing money from the company on an interest-free basis. Family members became critical of the other family members' motivation and performance. Looking back on the performance of management at that time, Edna Green concluded that "all of my family could've done a better job ... with the work they did or didn't do."

Wesley Green fired Mr. Fourier in October 2004 because he believed that Mr. Fourier was not performing his job.8 One of Mr. Fourier's responsibilities had been to maintain Champs-Elysees's checkbook. In November 2004, following Mr. Fourier's departure, Wesley Green began writing company checks made payable either to himself or to "cash," ostensibly to recover the underpayment of his wife's salary. The amounts of these checks ranged between several hundred dollars and one thousand dollars. In the litigation that later ensued, Wesley Green explained that he circumvented Champs-Elysees's payroll management company and decided to "take the money in dribs and drabs rather than in any large chunk or in any regular traunches so as not to put that particular pressure on the company's payroll account." Wesley Green also insisted that he believed that most of the other directors,9 the company's accountant,10 and even the company's outside lawyer11 knew about and approved of his writing and cashing these corporate checks.

Issues of corporate governance continued to fall through the cracks in 2005. In February 2005, the Tennessee Secretary of State informed Champs-Elysees that it was being administratively dissolved because of failure to file the required annual report. The company reinstated its corporate charter in October 2005. That same month, Wesley and Dianne Green engaged United Services and Trust Corporation ("USTC") to provide advice regarding the steps to be taken to address the company's growing financial and management problems. According to Wesley Green, one of the subjects discussed at the October 2005 meeting with USTC was a $75,000 corporate line of credit with AmSouth Bank. Wesley Green believed that this line of credit had been guaranteed by himself, Mark Green, Edna Green, and Mr. Fourier.

On October 13, 2005, ...

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