Marine Services Unlimited, Inc. v. Rakes

• Citation: 323 Ark. 757,918 S.W.2d 132
• Decision Date: 18 March 1996
• Docket Number: No. 95-1013,95-1013
• Court: Supreme Court of Arkansas
• Parties: , 3 Wage & Hour Cas.2d (BNA) 418 MARINE SERVICES UNLIMITED, INC., Appellant, v. Dennis RAKES and Karen Rakes, Appellees.

Page 132

918 S.W.2d 132

323 Ark. 757, 3 Wage & Hour Cas.2d (BNA) 418

MARINE SERVICES UNLIMITED, INC., Appellant, v. Dennis RAKES and Karen Rakes, Appellees.

No. 95-1013.

Supreme Court of Arkansas.

March 18, 1996.

Appeal from the Benton County Chancery Court, No. E93-887-2; Hon. Donald R. Huffman, Chancellor.

David D. Stills, John C. Everett, Fayetteville, for Appellant.

Stephen Lee Wood, Rogers, for Appellees.

ROAF, Justice.

Marine Services Unlimited, Inc. appeals from the chancery court's award of judgments to Dennis Rakes, a shareholder and former president, for wrongful termination and to Karen Rakes, also a shareholder, for unpaid wages. The corporation also appeals from the chancellor's failure to award judgment for certain personal expenses paid by the Rakes from corporate funds without proper authorization. We affirm the judgment of the chancellor, but modify the award as to Dennis Rakes.

Facts

Appellant Marine Services Unlimited, Inc., (MSU) is an Arkansas corporation operating a business in Benton County known as Rocky Branch Marina (marina). Wade Young, Randy Blevins and appellee Dennis Rakes purchased the business in July 1989. They each paid $50,000 for a one-third interest in the corporation. The corporate minutes of July 12, 1989, reflect a meeting of the Board of Directors in which Dennis Rakes was elected president, Randy Blevins was elected Vice President, and Wade Young was elected Secretary. Karen Rakes was later added to the stock certificate of Dennis Rakes.

Dennis Rakes had a plumbing business at the time, Randy Blevins was retired, and Wade Young was living in Memphis, Tennessee and working as a pilot for Northwest Airlines. Dennis Rakes was also selected as manager of the business, at a salary of $2500.00 per month; he later closed his plumbing business and worked solely at the marina. Karen Rakes was selected by the shareholders to run the office at the marina. The Rakes managed and operated the marina from June 1989 until October 1992, essentially 365 days per year. During that time, the Rakes were on call 24 hours a day; the telephone lines from the marina were transferred to their residence after hours. Karen Rakes worked without pay for most of the three years.

In 1992, Dennis Rakes injured himself at the marina and aggravated a preexisting medical condition. Mr. Rakes was unable to attend to the business and spent much of the summer bedridden, while Karen Rakes ran the marina.

Sometime during the first week of October, 1992, Young and Blevins became concerned about the state of affairs at the marina. Young came to the Rakes' home, noted Dennis Rakes' condition, and obtained five or six grocery sacks full of receipts, checks, cash and other material relating to the business. Young and Blevins held an emergency meeting of the MSU board of directors on October 12, 1992, with the MSU accountant and attorney present, cited a list of failures on the part of Dennis Rakes, and removed him as President and manager of MSU. They also voted to continue paying Rakes' salary of $2500 net per month; Young and Blevins then assumed control of the business. Neither of the Rakes were given notice of the meeting.

Young and Blevins met again on October 23, 1992, as shareholders, without giving notice to the Rakes. As a "majority" of shareholders, they voted to remove Dennis Rakes as President of MSU and to replace him with Blevins. Dennis Rakes received notice of and attended a shareholders meeting on January 18, 1993. He acknowledged learning at this meeting that he had been removed as manager and president of MSU. He received his salary from October through December, 1992, although he performed no services for MSU during the period.

On May 17, 1993, MSU filed a complaint in the Chancery Court of Benton County against Dennis and Karen Rakes, alleging that Dennis Rakes, in his capacity as manager, acted in a negligent and haphazard manner, that the Rakes had converted corporate property to their personal use, and had failed to account for approximately $60,000 of corporate money. The Rakes denied all allegations in the complaint and filed a counterclaim alleging that Karen Rakes was owed for unpaid wages and that Dennis Rakes was entitled to damages for wrongful discharge. The Rakes also sought compensation for the trade-in-value of two personal vehicles used in the purchase of two corporate vehicles and the value of certain personal property not returned to Karen Rakes.

Chancellor Don Huffman found that MSU had failed to meet the burden of proof in its claims against the Rakes, that Dennis Rakes was wrongfully discharged from his position as President and manager of MSU, that Karen Rakes was entitled to judgment for unpaid wages, and that the Rakes were entitled to judgment for conversion of their personal vehicles and personal property. Dennis Rakes was awarded judgment in the amount of $37,852.22, for his salary plus health insurance premiums from January, 1993, to the time of trial in June, 1994, less his earnings from other employment during that period. Karen Rakes was awarded judgment for unpaid wages for 1990, 1991, and 1992 totalling $59,993. The Rakes were awarded judgment of $5900 for the value of their vehicles and personal items.

1. Wrongful discharge

MSU first argues that the trial court erred in determining that Dennis Rakes was wrongfully discharged from his position as manager and in awarding him damages for his wrongful discharge. The by-laws of MSU required that at least three days written notice of special board meetings be given to each member. This requirement also follows the notice requirement found in Ark.Code Ann. § 4-26-805 (Repl.1991). Dennis Rakes did not receive notice of the October 12, 1992 board meeting; neither of the Rakes received notice of the October 23, 1992 shareholders meeting.

In awarding judgment to Dennis Rakes for wrongful termination, the trial court correctly stated that corporate actions taken at shareholders' and board of directors' meetings are illegal and invalid if absent shareholders and directors had no notice of the meetings. However, the trial court further stated that "termination or discharge of employment is illegal or wrongful if it violates some well settled public policy" and that the failure to give notice to Dennis Rakes violated Arkansas statutes and therefore violated public policy in Arkansas. The order also stated that Dennis Rakes was entitled to damages for breach of contract.

On appeal, this court reviews chancery cases de novo and will reverse the findings of the chancellor only if those findings are clearly erroneous. Sunbelt Exploration v. Stephens Production Co., 320 Ark. 298, 896 S.W.2d 867 (1995). It is also well settled that we will affirm the trial court where it reaches the right result, even though it may have announced the wrong reason. Mountain Home Sch. Dist. v. T.M.J. Builders, 313 Ark. 661, 858 S.W.2d 74 (1993).

With regard to Rakes' employment as manager, this court has often cited the general rule that "when the term of employment in a contract is left to the discretion of either party, or left indefinite, or terminable by either party, either party may put an end to the relationship at will and without cause." City of Green Forest v. Morse, 316 Ark. 540, 873 S.W.2d 155 (1994). "Generally, 'employment is held only by mutual consent, and at common law the right of the employer to terminate the employment is unconditional and absolute.' " Wal-Mart Stores, Inc. v. Baysinger, 306 Ark. 239, 812 S.W.2d 463 (1991) (quoting Griffin v. Erickson, 277 Ark. 433, 642 S.W.2d 308 (1982). However, we have acknowledged that an employer should not have an absolute and unfettered right to terminate an employee for an act done for the good of the public. Sterling Drug, Inc. v. Oxford, 294 Ark. 239, 743 S.W.2d 380 (1988).

In Sterling, we recognized four exceptions to the employment-at-will doctrine, stating:

Arkansas law would recognize at least four exceptions to the at-will doctrine, excluding implied contracts and estoppel. These are: (1) cases in which the employee is discharged for refusing to violate a criminal statute; (2) cases in which the employee is discharged for exercising a statutory right; (3) cases in which the employee is discharged for complying with a statutory duty; and (4) cases in which employees are discharged in violation of the general public policy of the state.

Sterling, supra (quoting Scholtes v. Signal Delivery Serv., Inc., 548 F.Supp. 487 (W.D.Ark.1982)). Accordingly, this court held:

Therefore, we hold that an at-will employee has a cause of action for wrongful discharge if he or she is fired in violation of a well established public policy of the state. This is a limited exception to the employment-at-will doctrine. It is not meant to protect merely private or proprietary interest.

Sterling, supra.

We have further stated that public policy has been contravened "when the reason alleged to be the basis for a discharge is so repugnant to the general good as to deserve the label 'against public policy.' " Smith v. American Greetings Corp., 304 Ark. 596, 804 S.W.2d 683 (1991).

MSU submits that the charge brought against Mr. Rakes at the special meetings held in October 1992, regarding his failure to properly manage the affairs of the corporation was the "reason" for his termination. By holding a majority of shares in MSU, Young and Blevins certainly had the power to terminate Rakes for the reasons given, or for no cause.

However, it is the manner of the termination, and not the reason for it that invalidated the actions taken by MSU at the October meetings. Actions taken at a shareholders' meeting of which absent shareholders had no notice are illegal. See Red Bud Realty Co. v. South, 96 Ark. 281, 131 S.W. 340 (1910). Further, actions of a majority of the members of a board of directors are invalid if absent directors had no legal notice of the meetings. See Red Bud...