Hyatt v. Adenus Grp., LLC

• Decision Date: 12 July 2022
• Docket Number: M2021-00645-COA-R3-CV
• Citation: 656 S.W.3d 349
• Parties: Charles HYATT v. ADENUS GROUP, LLC et al.
• Court: Tennessee Court of Appeals

656 S.W.3d 349

Charles HYATT

v.ADENUS GROUP, LLC et al.

No. M2021-00645-COA-R3-CV

Court of Appeals of Tennessee, Middle Section, AT NASHVILLE.

January 25, 2022 Session

FILED July 12, 2022

Application for Permission to Appeal Denied December 14, 2022

H. Rowan Leathers, III and Alexandra Ortiz Hadley, Nashville, Tennessee, for the appellant, Adenus Group, LLC.

Brett R. Carter, Nashville, Tennessee, for the appellee, Charles Hyatt.

J. Steven Stafford, P.J., W.S., delivered the opinion of the court, in which Andy D. Bennett and W. Neal McBrayer, JJ., joined.

J. Steven Stafford, P.J.

The trial court reformed an agreement between an employer and employee regarding the employee's right to a profit share upon termination of his employment. We affirm the trial court.

FACTUAL AND PROCEDURAL HISTORY

Plaintiff/Appellee Charles Hyatt ("Appellee" or "Mr. Hyatt") was the Chief Executive Officer of Defendant/Appellant Adenus Group, LLC ("Appellant" or "Adenus" or "the company") from November 2007 until he was given notice in late 2018 that his employment contract would not be renewed beyond December 31, 2018. Adenus is a wastewater services company owned by four brothers ("the brothers"): Thomas Pickney ("Tom"), Charles Pickney ("Charles"), William Pickney ("Bill"), and Robert Pickney ("Robert"),¹ who also comprise the Board of Directors of Adenus ("the board"). When Appellee was hired, the company was in financial trouble, and Appellee helped navigate the company through some of those difficulties. By all accounts, the working relationship between the brothers and Appellee was amicable, and Adenus only chose to terminate Appellee's employment because of the different "direction that the board wanted to go." At the time Appellee's employment was terminated, Charles was no longer a board member or owner of Adenus, but had sold his share to his three brothers. After receiving notice that his employment contract would not be renewed, Appellee attempted to exercise the sale of what he asserted was his accumulated profit share in the company.

When he did not receive the payment he claimed he was owed for his profit share, Appellee filed a complaint against Adenus and the brothers in the Williamson County Chancery Court (the "trial court") on August 19, 2019. He sought declaratory judgment that he was the owner of a fully vested 10% profit interest in Adenus and had the right to require Adenus to repurchase his profit interest, and that Adenus was required to comply with his repurchase demand. He also alleged counts of breach of contract, breach of fiduciary duty, unjust enrichment, conversion, fraud in the inducement, negligent misrepresentation, and tortious interference with contract. He sought damages in excess of $300,000.00, punitive damages, pre- and post-judgment interest, costs and attorney's fees, and an accounting regarding the value of the profit interest. Appellee then filed an amended complaint on July 31, 2020, pursuant to an agreed order, removing his claim for fraud in the inducement and adding a claim for reformation of the parties’ agreement with respect to the profit share, and enforcement of the reformed agreement.

A bench trial occurred in the trial court from April 12 to April 14, 2021. Appellee, Charles, Bill, and Mike Hallum, an accountant for Adenus, testified.² Appellee testified that he made $115,000.00 per year at Adenus and did not receive a raise until 2017, when his salary increased to $150,000.00 per year (though his raise was not memorialized in a written agreement). Pursuant to Appellee's Employment Agreement, his initial term of employment was three years. Appellee's employment would automatically renew for a one-year term if Adenus did not notify him otherwise at least ninety days before the expiration of his Employment Agreement. Appellee's employment thus continued until he received notice on October 1, 2018 that his employment contract would not be renewed. The parties agree that the termination of Appellee's employment was a "Termination by Expiration" under the terms of the Employment Agreement, meaning it was a "termination of Officer as a result of the expiration of the Term of this [Employment] Agreement without extension by the Company and Officer."

In the "Additional Benefits" section of Appellee's Employment Agreement, it states, in pertinent part,

To induce the Officer to undertake the employment evidenced by this Agreement, the Company agrees to offer a Profit Sharing Award per the Company's 2008 Equity Incentive Plan ["the Plan"]. The terms of the Agreement will be set forth in a separate document ["the Profit Sharing Award Agreement," or "the Award Agreement"], to be executed within thirty (30) days of the execution of this Agreement.

Appellee testified that he was not involved in reviewing the Plan or the Award Agreement until after late June 2008, and he did not have prior experience with such agreements. Appellee testified that after a meeting of the board on February 15, 2008, Adenus involved a lawyer, Todd Ervin, to draft the Plan and the Award Agreement. Mr. Ervin emailed versions of the Award Agreement and the Plan to Charles and Appellee on March 26, 2008, after which, according to Appellee, Charles primarily took over the process of finalizing those agreements on behalf of Adenus.³

Charles emailed Appellee versions of the Award Agreements for Appellee and Glenn Marcum⁴ on June 27, 2008. These documents, which Appellee testified he believes Charles drafted, differed from Mr. Ervin's initial draft. In part, the version of the Award Agreement that Mr. Ervin had emailed to Charles and Appellee on March 26, 2008 included a "sale option," whereby if an employee was terminated under certain circumstances, he would have the option to require the Company to purchase his vested profit units, subject to certain conditions. In the versions that Charles sent to Appellee on June 27, the "sale option" had been removed. Charles also then emailed Appellee a version of the Plan on June 30, 2008. Appellee made revisions to the Award Agreement and the Plan and emailed them back to Charles, Robert, and Mr. Marcum on June 30, 2008. In the body of the email, Appellee wrote, "Review the docs. I used [Mr. Marcum's] agreement as the markup. Once we all agree on the language, I will adjust [Mr. Marcum's] to reflect my vesting dates."⁵

The Plan that Appellee sent to Charles, Robert, and Mr. Marcum on June 30 ("Appellee's Plan") stated in relevant part as follows:

This 2008 Equity Incentive Plan has been adopted by Adenus Group, LLC (the "Company") pursuant to the Amended and Restated Operating Agreement for the Company dated as of January 1, 2008 (the "Agreement"). Capitalized terms used herein but not otherwise defined shall have the respective meanings set forth in the Agreement.^[6]

This Plan permits the issuance of Profit Shares ... to eligible employees, consultants and non-employee Board members of the Company.

The purpose of the Plan is to provide financial incentives for selected employees, consultants and non-employee Board members of the Company, thereby promoting the long-term growth and financial success of the Company by (a) attracting and retaining the most qualified employees, consultants and non-employee Board members, (b) strengthening the Company's capability to develop, maintain and direct a competent management team, (c) providing an effective means for selected employees, consultants and non-employee Board members to acquire and maintain ownership of the Company's equity and participate in future profits, (d) motivating employees to achieve long-range performance goals and objectives, and (e) providing incentive compensation opportunities competitive with those of other organizations.

1. Definitions . The following terms shall have the meanings set forth below:

"Award" means a Profit Share or Membership Interest granted hereunder.

"Award Agreement" means the written agreement setting forth the terms and conditions applicable to each Award granted under the Plan.

* * *

"Disposition Event" means an event when the Company has sold all or substantially all of its assets.

* * *

"Fair Market Value" has the meaning set forth in Section 5.2(b) and Exhibit C^[7] of the Agreement.

* * *

"Plan" means the Adenus Group, LLC 2008 Equity Incentive Plan.

"Profit Share" means the right to share in certain profits of the Company under this Plan in accordance with the terms and conditions of Section 4 below.

"Repurchase Option" means the right for the Company to purchase all or a portion of the vested Profit Share from the Service Terminated Member.

"Sale Option" means the option for an Employee Member who's [sic ] Service Termination is for Good Reason, has [sic ] the right to require the Company to purchase all or portion of his vested Profit Share.

* * *

"Subsidiary Entity(ies)" means any or all of the following: Adenus Solutions Group, LLC, Adenus Technologies, LLC, Adenus Utilities, LLC, Adenus Operations, LLC, Adenus Capacity, LLC.

* * *

3. Participation. ... In the event of any inconsistency between the provisions of the Plan and any Award Agreement, the provisions of the Plan shall govern....

4. Grant of Profit Shares. Subject to the terms and conditions of the Agreement and the Plan, the Committee may grant Profit Shares to Participants. Each Profit Share granted under the Plan shall be evidenced by an Award Agreement. The Award Agreement shall incorporate and conform to the conditions set forth in this Section as well as such other terms and conditions that are not inconsistent with the Agreement and the Plan as the Committee may consider appropriate.

(a) Rights of Profit Shares. A Profit Share shall be expressed as a percentage ("Profit Share Percentage") and shall entitle its holder to a share of the profits realized by the Company upon the sale of all or substantially all of its assets, determined as follows:

Profit Share = Profit Share Percentage multiplied by the excess of the proceeds received by the Company

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