Mike v. Po Group, Inc.
| Decision Date | 03 September 1996 |
| Parties | Eli MIKE, An Individual; James A. Schrampfer, An Individual; and Jane N. Forbes, As Trustee in Bankruptcy for the Estate of David L. Osborn, Plaintiffs-Appellants, v. PO GROUP, INC., A Tennessee Corporation; James W. Anderson III, An Individual; and the Estate of Harold L. Jenkins, Defendants-Appellees. |
| Court | Tennessee Supreme Court |
Gary M. Brown, Matthew J. Sweeney, III, John C. Tishler, Tuke, Yopp & Sweeney, Nashville, for Plaintiffs-Appellants.
William L. Harbison, L. Webb Campbell, II, Andrew J. Pulliam, Sherrard & Roe, P.L.C., Denty Cheatham, Cheatham & Palermo, Nashville, for Defendants-Appellees.
This case presents for review the decision of the Court of Appeals, affirming an award of summary judgment in favor of the defendants. The Court of Appeals held that the plaintiffs' suit charging the breach by a majority shareholder of a fiduciary duty owed to minority shareholders is barred by the one year statute of limitations. This Court concludes that the applicable period of limitations is three years and remands the case to the trial court to determine whether plaintiffs' action was time-barred.
All the individual and corporate parties in this case were involved in the operation of Po Folks restaurants. The plaintiffs are Eli Mike, James A. Schrampfer, and Jane N. Forbes, trustee in bankruptcy for David Osborn. Mike, Schrampfer, and Osborn were minority shareholders in one or more of the following corporations: Po Louisville, Inc., which operated restaurants in Louisville, Kentucky; Po Memphis, Inc., which operated restaurants in Memphis; and Po Jackson, Inc., which operated a restaurant in Jackson, Tennessee. The majority shareholder in each of these three corporations was the defendant Po Group, Inc. The defendants James W. (Bill) Anderson and Harold L. Jenkins (now deceased) owned equally all the shares of stock in Po Group, Inc. Anderson and Jenkins also owned shares of stock in Po Combination, Inc., which owned all the stock in four other corporations which operated Po Folks restaurants in other locations. Anderson and Jenkins were officers and directors in Po Louisville, Inc.; Po Memphis, Inc.; Po Jackson, Inc.; Po Group, Inc.; and Po Combination, Inc.
In 1984, Po Combination, Inc. borrowed $2.3 million from Nashville City Bank. Anderson and Jenkins personally guaranteed a portion of the loan. In early 1985, the bank declared the loan in default. Pursuant to a new financing arrangement, the bank agreed to forebear collection of the $2.3 million loan and to extend an additional $900,000 line of credit to be used by Po Combination, Inc., Po Louisville, Inc., Po Memphis, Inc., and Po Jackson, Inc. as operating capital. Po Group, Inc. was formed in order to facilitate the new financing arrangement. All of the shares in Po Combination, Inc. and all the shares in Po Louisville, Inc., Po Memphis, Inc., and Po Jackson, Inc. owned by Anderson and Jenkins were transferred to Po Group, Inc. Unlimited guaranty agreements were executed by all the subsidiaries of Po Combination, Inc., and Po Louisville, Inc., Po Memphis, Inc., and Po Jackson, Inc. pledged all of their assets and also executed unlimited guaranty agreements to secure the $900,000 line of credit. Anderson and Jenkins also executed guaranty agreements for the $2.3 million and the $900,000 loans.
In December 1985, Po Group, Inc. finalized an agreement to sell the assets of all its subsidiary corporations, including Po Louisville, Inc., Po Memphis, Inc., and Po Jackson, Inc., to DineLite Corporation. The consideration for the sale was the release of all guaranty agreements made to Nashville City Bank, including those executed by Anderson and Jenkins, and the receipt of stock in DineLite. The shareholder resolutions required for the approval of the sale were adopted by the vote of Po Group, Inc., the majority shareholder. The proposal was approved, and the transaction closed on June 30, 1986.
In September 1986, the plaintiffs filed suit, pursuant to Tenn.Code Ann. § 48-1-909 () to enforce their dissenters' rights as minority shareholders and obtain payment for the fair market value of their stock. In that suit, the court determined the fair market value of the shares held by each to be as follows: Mike $325,865.60, Schrampfer $98,341.76, and Osborn $260,685.48. No payment was made to the plaintiffs because the corporations had no assets with which to make the payments. There were no insolvency proceedings, and there was no suit by or on behalf of the corporations to secure payments to the plaintiffs.
In the present suit, the plaintiffs allege that Po Group, Inc. as majority shareholder, breached a fiduciary duty owed to the plaintiffs as minority shareholders. They contend that the sale of the assets owned by Po Louisville, Inc., Po Memphis, Inc., and Po Jackson, Inc., approved by the vote of Po Group, Inc. as the majority shareholder in each of those corporations, and the disposition of the consideration received, rendered the corporations unable to pay the plaintiffs the value of their stock as determined by the court in the 1986 proceeding. They contend that the only consideration of value received in exchange for the corporations' assets was the release of Anderson's and Jenkins' guaranty agreements. They allege, in conclusion, that by their action, Po Group, Inc., as majority shareholder, breached a fiduciary duty owed to the plaintiffs as minority shareholders. The plaintiffs also contend that they should be allowed to pierce the corporate veil of Po Group, Inc. and collect any judgments rendered in their favor from Anderson and Jenkins personally.
After the completion of discovery, the defendants Po Group, Inc., Anderson, and Jenkins filed motions for summary judgment on several grounds: they claimed that the suit was barred by the one year statute of limitations governing breach of fiduciary duties by directors and officers, Tenn.Code Ann. § 48-18-601; that, in the alternative, the suit was barred by the three year statute of limitations governing claims for property damage, Tenn.Code Ann. § 28-3-105; and that there was no material evidence justifying the piercing of Po Group, Inc.'s corporate veil. The trial court found that the plaintiffs' claims were barred by the one year statute of limitations set forth in Tenn.Code Ann. § 48-18-601 and granted the defendants' motions for summary judgment on this basis.
The Court of Appeals affirmed. That court held that the statute of limitations on all of the claims expired on January 1, 1989, one year after the effective date of Tenn.Code Ann. § 48-18-601. The Court of Appeals rejected the plaintiffs' contention that Tenn.Code Ann. § 48-18-601 does not apply, with the conclusion: "Regardless of how plaintiffs choose to couch their claim, they are alleging breach of fiduciary duties by officers and directors, and their suit is barred by the one-year statute of limitations."
In determining whether or not a genuine issue of material fact exists for purposes of summary judgment, courts in this state have indicated that the question should be considered in the same manner as a motion for directed verdict made at the close of the plaintiff's proof, i.e., the trial court must take the strongest legitimate view of the evidence in favor of the non-moving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence. Then, if there is a dispute as to any material fact or any doubt as to the conclusions to be drawn from that fact, the motion must be denied. The court is not to "weigh" the evidence when evaluating a motion for summary judgment. The court is simply to overrule the motion where a genuine dispute exists as to any material fact. The phrase "genuine issue" contained in Rule 56.03 refers to genuine factual issues and does not include issues involving legal conclusions to be drawn from the facts. The critical focus is limited to facts deemed "material," which is to say those facts that must be decided in order to resolve the substantive claim or defense at which the motion is directed.
Byrd v. Hall, 847 S.W.2d 208, 210-11 (Tenn.1993) (citations omitted).
Since summary judgment was granted on the ground that the plaintiffs' causes of action were barred by the one year statute of limitations, the Court must determine which statute of limitations applies to the plaintiffs' suit, which depends upon the nature of the cause of action alleged. The gravamen of a complaint and the injury alleged determine which statute of limitations applies. Vance v. Schulder, 547 S.W.2d 927, 931 (Tenn.1977). To ascertain the gravamen of the action, the Court must look to the basis for which damages are sought. Bland v. Smith, 197 Tenn. 683, 277 S.W.2d 377, 379 (1955).
The complaint alleges that the majority shareholder, Po Group, Inc., breached a fiduciary duty owed to them as minority shareholders. 1 Tennessee courts have stated that majority shareholders owe a fiduciary duty to minority shareholders. See Nelms v. Weaver, 681 S.W.2d 547, 549 (Tenn.1984); Dale v. Thomas H. Temple Co., 186 Tenn. 69, 208 S.W.2d 344, 352 (1948); McCampbell v. Fountain Head R.R. Co., 111 Tenn. 55, 77 S.W. 1070, 1073 (1903); Johns v. Caldwell, 601 S.W.2d 37, 41 (Tenn.Ct.App.1980). However, those cases are significantly different from the present case in the substance of the allegations. In the present case, the plaintiffs allege that the proceeds from the sale of corporate assets were unfairly distributed by the defendant Po Group, Inc. to the defendants Anderson and Jenkins. The complaint does not otherwise define the duty or the wrong. The allegations do not indicate clearly the "gravamen of the action." The legal wrong of which the plaintiffs complain is uncertain. The complaint does not charge fraud;...
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