Hayes v. Irwin

• Decision Date: 04 June 1982
• Docket Number: Civ. A. No. C 77-2027 A.
• Citation: 541 F. Supp. 397
• Parties: John E. HAYES, Plaintiff, v. William T. IRWIN and Irwin Trading GmbH, Defendants.
• Court: U.S. District Court — Northern District of Georgia

541 F. Supp. 397

John E. HAYES, Plaintiff, v. William T. IRWIN and Irwin Trading GmbH, Defendants.

Civ. A. No. C 77-2027 A.

United States District Court, N. D. Georgia, Atlanta Division.

June 4, 1982.

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C. B. Rogers, Paul W. Stivers, John Almond, Rogers & Hardin, Atlanta, Ga., for plaintiff.

Henry Hatcher, Hatcher, Dorsey, Irvin & Pressley, Atlanta, Ga., for defendants.

MEMORANDUM OPINION AND ORDER

VINING, District Judge.

This diversity action concerns the deterioration of a business relationship between the plaintiff and the defendant and the accompanying feelings of bitter resentment and animosity. The action basically concerns an alleged failure to pay sums owing to the plaintiff, tortious interference with existing and prospective business and contractual relations, and defamation. John Hayes contends (1) that he and William T. Irwin were business partners in a commodities trading venture during 1976, (2) that his responsibilities were to solicit and maintain contacts with clients while Irwin was to be responsible for the execution of the clients' trades through one of Irwin's companies; that in 1977 this arrangement ended, (3) that Irwin and Irwin Trading GmbH owe Hayes a substantial amount of money as a result of this relationship, and (4) that the defendants have engaged in a myriad of tortious activity since the termination of the relationship. Hayes seeks an accounting, actual and punitive damages, and injunctive relief. This case was tried before the court, sitting without a jury, during February and March 1981. The following will constitute the court's findings of fact and conclusions of law as required by Fed. R.Civ.P. 52(a).

Factual Background

John Hayes became a registered commodities broker and a stockbroker in 1970 after working for Shearson Hamill, a stock and commodities brokerage firm. In 1975 Hayes went to work for Loeb Rhoades and Company, where he met William T. Irwin, who was doing some business with Loeb Rhoades. After working in adjoining offices for several months, Hayes went to work for Irwin. He was initially hired as a commissioned salesman for one of Irwin's companies, Irwin Management Company of California (Irwin Management). Subsequently, Hayes was made vice president of Irwin Management and of another of Irwin's companies, Irwin Trading Company (Irwin Trading.)¹

Hayes' initial responsibility in working for Irwin was in the marketing aspect of the commodities business. Hayes solicited clients to engage in commodities transactions that were to be brokered or transacted through one of Irwin's companies. Irwin was primarily responsible for the actual execution of these transactions, although he also participated in the solicitation of some of the business. Hayes was primarily responsible, however, for the actual solicitation of clients.

When he first went to work for Irwin, Hayes was to receive one-third of the net income to Irwin. This financial arrangement was never utilized, however, since the method of compensation was changed before any business was actually done. Under the second compensation arrangement, Hayes was to receive $6,000 for every $16,000 that was brought into the association between himself and Irwin.² This arrangement remained in effect until November 1976.

In his efforts to obtain customers for the commodities business, Hayes initially solicited clients from all over the United States except Miami, Florida. At the time that he and Irwin initially entered into this business arrangement, Hayes was living in California and centered his efforts and solicitation there. Around June 1976, Irwin encouraged Hayes to move to Atlanta, Georgia, to generate business on the east coast. Hayes, a graduate of Georgia Tech and a native of Tennessee, had numerous business contacts and roots in the Southeast, and Irwin was of the opinion that Hayes' efforts at soliciting clients would be very successful in Georgia. Although Hayes did not particularly want to move from California, he did so, moving to Atlanta and setting up an office there, known as Hayes and Associates.³ Irwin provided Hayes with a telephone credit card along with pamphlets, legal forms, and documents to be used in soliciting clients for the commodities investment business. The nature of the business transacted in Atlanta was identical to that transacted in California. Hayes and Irwin were in almost daily contact regarding their business, and once clients were solicited, Irwin set up appropriate accounts and executed the resulting trades through Irwin Trading.

Around the time that Hayes moved to Atlanta, in July 1976, Irwin came to assist in the establishment of the business in Georgia. While in Atlanta, both Hayes and Irwin met with attorneys from the law firm of Cofer, Beauchamp & Hawes regarding the formation, structure, and operation of proposed limited partnerships that were to be used in their investment business. At one of these meetings, Hayes introduced Irwin as his superior; however, Irwin immediately corrected him by stating unequivocally, "No, I'm not John's boss, you know. I'm his partner. We work together."⁴ Although the purpose of these meetings with Cofer, Beauchamp & Hawes was to discuss the formation of certain Georgia limited partnerships through which the commodities business would be transacted, they also served as a solicitation for investment from certain of the attorneys at the firm.

Prior to the time of the July meeting, the attorneys at the law firm had filed certificates establishing ten limited partnerships known as Hayes Associates I through X in the state of Georgia which had to be established before June 30, 1976, to qualify for favorable tax treatment. The meetings in July involved the detailing of the structural aspect of these partnerships. During the meetings with the law firm, Irwin gave the attorneys certain tax opinions and drafts of partnership agreements used for similar purposes in California. Subsequent to these discussions and a review of the California limited partnership agreements, the law firm prepared another agreement of limited partnership which was more detailed and longer than the simple certificate filed in June 1976. Hayes and Irwin decided that Hayes should be listed as the general partner on the Georgia limited partnerships and also decided to substitute Hayes as the general partner in the California limited partnerships.⁵ After the conclusions of these meetings, Irwin returned to California. His trip to Atlanta in July 1976 was the only time that he ever came to this state.

In August 1976, Irwin decided to form Irwin Trading GmbH, a European corporation, to transact trades in Europe. Irwin Trading GmbH was established with original capital contributions consisting of 20,000 Deutschmarks; 95% of the stock, reflecting a contribution of 19,000 Deutschmarks, was assigned to Irwin, and 5% of the stock was assigned to a foreign individual. Irwin later authorized the transfer of this 5% minority share to himself, with the ultimate result that he owned 100% of the stock of Irwin Trading GmbH. On December 22, 1976, Hayes entered into a partnership agreement with Irwin Eurotrade partnership (Irwin Eurotrade) both individually and on behalf of his clients. The $6,000 that Hayes had originally contributed to Irwin Management, was transferred into a Georgia revocable grantor trust, with Hayes as trustee, that eventually became a partner in Irwin Eurotrade Partnership. At the time of Hayes' entry into this partnership, he was a resident of Georgia. The revocable grantor trusts established for Hayes' clients with Hayes as trustee, were Georgia trusts. Thirty percent of the business done in 1976 apparently was transacted through these revocable grantor trusts, and a substantial amount of business was also done through individual Georgia residents who were involved in the Georgia limited partnerships, established under Hayes and Associates as Hayes Associates I through X.

In November 1976, Hayes traveled to California to meet with Irwin about the hiring of Diane Maddox, a proposed employee to whom Hayes had a substantial objection. At this meeting, Irwin offered to split the profits of the business after subtraction of expenses. This was the first time either Hayes or Irwin had ever formally discussed the establishment of a partnership. (After returning to Georgia, Hayes continued transacting the business as before, as Hayes and Associates.) At this meeting in California, Irwin asked Joan Wilhelm, his secretary, to do an accounting of the business as of that date, and he gave Hayes a copy of this accounting. By one method, Irwin calculated that the business had a loss for the year of $62,000; by another method he showed a loss of $67,000. Irwin then wrote the figures $31,000 and $33,500, as representing 50% of the alleged total loss for the year, depending on the method of calculation. Irwin then told Hayes that these figures represented his 50% share of the loss from the business as it stood at the particular time.

At the November meeting in California there had also been a discussion regarding payment of a referral fee to Mr. Joe Jackson, a resident of Georgia who worked in the same building with Hayes. Jackson, who was involved in oil and gas investments, had referred a number of Georgia clients to Hayes in return for Hayes' referral of certain clients to him. It was agreed at this November 1976 meeting that Jackson would be paid a "finder's fee" equal to 20% of the money invested by the persons he referred. In late 1976 Hayes requested Irwin to wire $14,000 to Jackson for these referrals. Irwin told Hayes to have Jackson open an account in the Bahamas to which funds would be wired. Jackson was to travel to the Bahamas and then give his mother's maiden name and have...