Manufacturers Consol. Service v Rodell

• Decision Date: 10 March 2000
• Docket Number: 98-00889
• Citation: 42 S.W.3d 846
• Parties: MANUFACTURERS CONSOLIDATION SERVICE, INC., Plaintiff/Appellant, And C. O. TURNER, III, Intervening Plaintiff/Appellant, VS. RICK RODELL, CORNERSTONE SYSTEMS, INC., TIM CLAY, PAT NIEMAN, JERRY RICE, BRUCE HALLMANN, JACK BILLINGSLEY, JIM CHALTAS, GREGG MITCHELL, and ANGIE TAYLOR, Defendants/Appellees, And RICARDO FERNANDEZ, GUY WALLACE and LARRY PRITCHETT, Defendants/Appellants. C.A.IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON Filed
• Court: Tennessee Court of Appeals

MANUFACTURERS CONSOLIDATION SERVICE, INC., Plaintiff/Appellant And C. O. TURNER, III, Intervening Plaintiff/Appellant VS RICK RODELL, CORNERSTONE SYSTEMS, INC., TIM CLAY, PAT NIEMAN, JERRY RICE, BRUCE HALLMANN, JACK BILLINGSLEY, JIM CHALTAS, GREGG MITCHELL, and ANGIE TAYLOR, Defendants/Appellees, And RICARDO FERNANDEZ, GUY WALLACE and LARRY PRITCHETT, Defendants/Appellants

C.A. No. W1998-00889-COA-R3-CV, W1998-00882-COA-R9-CV

IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON

Filed March 10, 2000

From the Circuit Court of Shelby County at Memphis. No. 89341-2 T.D.

Honorable James F. Russell, Judge

AFFIRMED IN PART, REVERSED IN PART AND REMANDED

In this consolidated appeal, the parties ask this court to review three separate orders of the trial court. Plaintiff Manufacturers Consolidation Service, Inc. (MCS), appeals the trial court's order dismissing its claims against Rick Rodell, Cornerstone Systems, Inc., and other named Defendants who are former employees of MCS. In the same order, the trial court dismissed the claims of Intervening Plaintiff C.O. Turner, III, against Defendant Rick Rodell, and Turner has appealed this order, as well as a later order of the trial court which granted Rodell's motion for summary judgment on a counterclaim against Turner. Finally, three of the individual Defendants, Ricardo Fernandez, Guy Wallace, and Larry Pritchett, appeal the trial court's order denying their motions to dismiss for lack of personal jurisdiction. We reverse the trial court's order of dismissal to the extent that it dismissed MCS's claims against the Defendants, and we reverse the trial court's order granting Rodell's motion for summary judgment against Turner; however, we affirm the trial court's orders in all other respects.

Bruce S. Kramer, Jeffrey C. Smith, BOROD & KRAMER, P.C., Memphis, Tennessee

Attorneys for Plaintiff/Appellant Manufacturers Consolidation Service, Inc., and Intervening Plaintiff/Appellant C. O. Turner, III.

J. Alan Hanover, James R. Newsom, III, HANOVER, WALSH, JALENAK & BLAIR, PLLC, Memphis, Tennessee Attorneys for Defendants/Appellants Ricardo Fernandez, Guy Wallace and Larry Pritchett and for Defendants/Appellees Rick Rodell, Cornerstone Systems, Inc., Tim Clay, Pat Nieman, Jerry Rice, Bruce Hallmann, Jack Billingsley, Jim Chaltas, Gregg Mitchell and Angie Taylor.

FARMER, J., HIGHERS, J.: (Concurs), LILLARD, J.: (Concurs)

OPINION FILED:

The present proceedings began in August 1997 when MCS filed a multi-count complaint against the Defendants alleging various business torts. Inasmuch as the trial court ultimately dismissed MCS's complaint without addressing its merits, for purposes of this appeal, we will accept as true most of the complaint's allegations.¹

In its complaint, MCS described itself as "an intermodal marketing company which arranges intermodal transportation services for shippers of full trailerloads of cargo from point of origin to point of delivery." MCS contracts with railroads to haul the cargo over long distances, and it contracts with over-the-road and local trucking companies to deliver cargo to, and pick up cargo from, rail ramps. MCS is a Tennessee corporation, and its principal place of business is in Memphis.

Prior to the dispute that precipitated this litigation, Defendant Rick Rodell was the president and fifty percent (50%) shareholder of MCS. As the result of a previous lawsuit brought by Intervening Plaintiff C.O. Turner, III, to enforce a contract for the sale of stock, Rodell sold his 50% interest in MCS to Turner in April 1997. In connection with the sale, Turner, on behalf of MCS, and Rodell executed a management contract pursuant to which Rodell agreed to perform management consulting services for MCS for an eight-year term. MCS agreed to pay Rodell a total of $2 million under the contract at the rate of $250,000 per year. In addition, Turner signed a promissory note in his individual capacity promising to pay Rodell the sum of $1 million over a five-year period. The promissory note specified that the first installment of $100,000 would be due on April 14, 1998, the one-year anniversary of the stock sale. After the sale, Turner became the president and sole shareholder of MCS.

Approximately one week after the sale was consummated, Rodell incorporated a new company, Cornerstone Systems, Inc., and he became its president. Like MCS, Cornerstone is an intermodal marketing company based in Memphis, Tennessee.

MCS's complaint asserted causes of action against the Defendants for misappropriation of trade secrets and unfair trade practices (count I), procurement of breach of contract (count II), intentional interference with business relationship (count III), civil conspiracy (count IV), and breach of fiduciary duty (count V). In addition, the complaint asserted claims for defamation (count VI) against some of the Defendants and a claim for breach of management contract (count VII) against Rodell.

In support of these claims, the complaint alleged that, both prior and subsequent to the closing of the sale of Rodell's MCS stock to Turner, Rodell and the other Defendants solicited MCS employees to leave MCS and to work with Rodell and Cornerstone. According to the complaint, the Defendants deliberately set out to recruit many of MCS's key operations, sales, and administrative personnel. To substantiate these allegations, the complaint asserted that on June 16, 1997, Larry Pritchett, Ricardo Fernandez, and all of the employees in MCS's Chicago, Illinois, office resigned en masse. The complaint further asserted that on June 17 and 18, 1997, Guy Wallace and all of the employees in MCS's Portsmouth, Virginia, office resigned en masse. The resigning employees sent similar letters of resignation to MCS's corporate office in Memphis. At the time the complaint was filed, all of Cornerstone's employees were former MCS employees.

The complaint further alleged that the Defendants, using their knowledge of MCS's contracts and business relationships, solicited MCS's customers to terminate their contracts and business relationships with MCS and to enter into contractual and business relationships with Cornerstone. According to the complaint, the Defendants created confusion as to the source of services provided by both MCS and Cornerstone, at times representing that MCS was changing its name to Cornerstone. The complaint additionally asserted several defamation claims, including one alleging that Defendant Ricardo Fernandez stated to Mountain Intermodal that "MCS was going under" and that Fernandez was going with a new company. The complaint alleged that all of the Defendants engaged in a civil conspiracy to misappropriate MCS's confidential and/or proprietary information, to engage in unfair trade practices, and to destroy MCS's business by inducing the breach of existing contracts and business relationships between MCS and its key employees, customers, carriers, and vendors. The complaint claimed that these and other actions by the Defendants constituted breaches of their duties of loyalty to MCS.

Three of the Defendants, Ricardo Fernandez, Guy Wallace, and Larry Pritchett, responded to MCS's complaint by filing motions to dismiss for lack of personal jurisdiction. In support of their respective motions to dismiss, the three Defendants submitted virtually identical affidavits that contained the following statements: that, prior to June 1997, the Defendants were employed by MCS on an at-will basis; that they never executed any sort of noncompetition or confidentiality agreements; that they carried out all of their responsibilities for MCS in their respective home states; that they were not required to visit the state of Tennessee or to work in Tennessee as part of their responsibilities for MCS; that they, in fact, did not visit or work in Tennessee as part of their responsibilities for MCS; that they terminated their respective relationships with MCS in June 1997 of their own free wills; that they were not induced to leave MCS by Rodell or Cornerstone; and that, to the contrary, they initiated contact with Rodell regarding possible employment opportunities. The Defendants' affidavits concluded by denying that they were disloyal to MCS and, in Fernandez's case, by further denying that he had defamed MCS.

The trial court denied the three Defendants' motions to dismiss. Subsequently, the trial court and this court granted the Defendants' application for permission to pursue an interlocutory appeal before this court. See Tenn. R. App. P. 9. In its order granting permission to appeal, the trial court explained why it denied the Defendants' motions to dismiss:

[MCS] urges the Court to find that the jury could find that Movants, together with the other defendants herein, participated in a civil conspiracy to do harm to [MCS], a Tennessee corporation, each Movant having acted in his own state of residence to do so. Part of Movants' alleged activity had to do with leaving employment with one Tennessee corporation and taking employment with another Tennessee corporation in direct competition and in an effort to pirate the business of [MCS]. The Court agrees that these facts are sufficient to support [MCS's] contention that minimum contacts with the forum state do exist, as is constitutionally required. . . .

. . . .

. . . Among those acts, [MCS] claims that Movants impermissibly solicited then current employees of [MCS] who worked in the same offices as they did to terminate their employment with [MCS] to work for Defendant Cornerstone, resulting in the en masse resignations of the entire Chicago, Illinois and Portsmouth, Virginia office[s] of [MCS] and the transmission, via facsimile, to [MCS's] corporate office in Tennessee of notices of resignation by employees from said offices. . . .

. . . The Complaint does not allege that any of the complained of acts generally attributed to all defendants occurred in the State of Tennessee insofar as the...