Rennell v. Through the Green, Inc., No. M2006-01429-COA-R3-CV (Tenn. App. 3/14/2008)
| Decision Date | 14 March 2008 |
| Docket Number | No. M2006-01429-COA-R3-CV.,M2006-01429-COA-R3-CV. |
| Parties | ROB RENNELL v. THROUGH THE GREEN, INC., ET AL. |
| Court | Tennessee Court of Appeals |
Elizabeth H. Ferguson, Bradley A. MacLean, Nashville, TN, for Appellants
Joseph A. Woodruff, Derek W. Edwards, Nashville, TN, and P. Edward Schell, Franklin, TN, for Appellee
Alan E. Highers, P.J., W.S., delivered the opinion of the court, in which David R. Farmer, J., and Walter C. Kurtz, Sp. J., joined.
This is an appeal from a bench trial for intentional procurement of breach of contract. Through the Green, Inc., a closely held for-profit corporation, was formed in 1994 by John Doerr, who served as both president and majority shareholder. Through the Green, Inc. operated as a golf course and driving range located in Franklin, Tennessee. Thomas Doerr, John Doerr's brother, served as the corporation's vice president. Rob Rennell, a professional golf instructor, entered into an oral employment contract with John Doerr in 1994 to work for Through the Green, Inc. A dispute over the terms of Rob Rennell's employment contract arose. Rob Rennell contended that he possessed a 20% ownership interest in the corporation because he had contributed five years of "sweat equity" through his work in accordance with the oral employment contract. Rob Rennell also alleged that he deferred salary in 2003 and 2004 in return for a 2 for 1 stock exchange. The corporation ceased operations in 2004, and John Doerr maintained that Rob Rennell had no company ownership interest. Rob Rennell brought suit, alleging several theories of liability, including procurement of breach of contract against John and Thomas Doerr. First, the trial court found that Through the Green, Inc. breached its employment contract with Rob Rennell. Next, the court found John Doerr individually liable for procurement of breach of contract and awarded Rob Rennell treble damages in the amount of $1,524,000. Finally, the court found Thomas Doerr vicariously liable for John Doerr's conduct in the amount of $508,000, jointly and severally with John Doerr. John and Thomas Doerr appeal. John Doerr alleges that 1) the chancery court erred in finding him liable for procurement of breach of contract because he, acting as president and owner of Through the Green, Inc., is not a third party necessary for such a procurement claim; 2) the chancery court erred in its calculation of damages; and 3) he is entitled to an offset for any amount Rob Rennell may collect in the future from Through the Green, Inc. on the underlying breach of contract claim. Thomas Doerr argues that the judgment holding him vicariously liable for the actions of John Doerr should be reversed because Rob Rennell neither asserted nor pled such a cause of action. In the alternative, Thomas Doerr argues that the evidence is not sufficient to support a judgment holding him vicariously liable. We reverse in part, vacate in part and remand for further proceedings.
John Doerr (collectively with Thomas Doerr, "Appellants") envisioned opening a family-friendly golf instructional center. His business plan included a golf course, driving range and teaching facility, club house, and maintenance facilities. This new business would focus on instruction for women and junior golfers, and thus, John Doerr enlisted the expertise of Rob Rennell ("Mr. Rennell"). Mr. Rennell is a PGA Class A Golf Professional and has a reputation in the golf community for his teaching skills, including winning the 1991 Tennessee PGA Teacher of the Year Award. John Doerr and Mr. Rennell met at Richland Country Club in Nashville, Tennessee, where Mr. Rennell worked as an assistant golf professional and teaching professional.
In 1993, John Doerr contacted Mr. Rennell, and a meeting was held to discuss this business concept. John Doerr did not offer Mr. Rennell an employment position at this time, but during the meeting, he did use the term "sweat equity," meaning that if this business became a reality, Mr. Rennell could obtain ownership in the company through his work. Property was settled on as the site of this prospective business, and in the summer of 1994, John Doerr made an oral offer of employment to Mr. Rennell.1 The employment offer was for a five year position2 as the head golf professional/instructor and the director of golf. As the director of golf, Mr. Rennell would earn a salary of $30,000 and be responsible for the overall supervision of the golf course, including managing the pro shop and hiring and firing staff. As the head instructor, Mr. Rennell would retain
fifty percent of the revenues he generated from his golf lessons, with the other fifty percent going to the company. The position would be for a term of five years, and after the fifth year, Mr. Rennell could elect either a 20% equity interest in the business or a lump sum cash buyout of $100,000. Mr. Rennell understood the offer as giving him an ownership interest in the company, including the real estate, after the five years of sweat equity. Mr. Rennell accepted after John Doerr finished making the oral offer, and the two men shook hands. The only individuals present at the time of the offer were John Doerr and Mr. Rennell.
John Doerr formed Through the Green, Inc. ("TTGI"), a for-profit closely held corporation, on October 18, 1994, with an initial capital contribution of $500,000. John Doerr was the incorporator, president, and sole shareholder, and Jerry Wallace served as secretary. TTGI purchased the real estate, which John Doerr personally guaranteed. Initially, Mr. Rennell was named as the temporary vice president, but subsequently, Thomas Doerr served as the vice president. Mr. Rennell worked continuously at TTGI from 1994 until TTGI ceased operations around October 2004.
TTGI opened to the public in the spring of 1995, but the actual golf course did not open for use until the fall of 1995. Subsequent to TTGI's opening, John Doerr opened other golf courses in Tennessee. In 1995, John and Thomas Doerr organized Through The Green — New Hope, L.P. ("New Hope"), a limited partnership, and incorporated Through The Green of Tennessee, Inc., a corporation, as New Hope's general partner. In 1998, New Hope opened Highland Rim Golf Course ("Highland Rim") in Joelton, Tennessee. Mr. Rennell did not have any interest in New Hope or Highland Rim. John Doerr did mention at some point getting Mr. Rennell involved in Highland Rim as a 5% interest holder, but this "loose talk" never resulted in a deal.
In March of 1997, John Doerr asked Mr. Rennell if he would be willing to restructure his salary concerning the proceeds from golf lessons. John Doerr offered that if Mr. Rennell would forego his fifty percent golf lessons revenue, and let all lesson proceeds go to TTGI, he would receive a salary of $60,000. Although Mr. Rennell believed that this deal was not economically advantageous, he accepted the offer because he felt that as part-owner of the company, he should make this sacrifice. The 20% equity or $100,000 cash buyout provision of the initial oral employment contract remained unchanged. It was Mr. Rennell's understanding that another one of TTGI's employees, Jerry Wallace, had a "sweat equity" deal with John Doerr, whereas Jerry Wallace could earn five percent equity ownership in TTGI.
In the winter of 2002, TTGI experienced cash flow problems, and during the first quarter of 2003, John Doerr asked Mr. Rennell if he would defer his salary; in exchange, Mr. Rennell would receive two dollars in stock for each dollar of salary foregone. Mr. Rennell accepted the offer. John Doerr also made the same offer to another employee, Andy Jones, in Mr. Rennell's presence; Andy Jones refused the offer. Cash flow problems resurfaced in 2004, and again John Doerr asked Mr. Rennell to defer his salary for the two for one stock exchange. Mr. Rennell accepted.
Despite best efforts, TTGI was never a profitable venture. In 2004, Wal-Mart entered into an agreement with TTGI for the purchase of TTGI's principal asset, the real estate. In March 2004,
John Doerr met with Mr. Rennell and Jerry Wallace to discuss the sale. John Doerr discussed possible ways to minimize TTGI's income tax liability from the capital gains generated from the sale, including the possibility of a like exchange pursuant to Section 1031 of the Internal Revenue Code. John Doerr asked Mr. Rennell if he would be interested in "rolling over" his ownership interest in TTGI into John Doerr's other golf course, Highland Rim. After some thought, Mr. Rennell decided he wanted to cash out his ownership equity and begin his own golf course and teaching facilities.
A second meeting was held in April 2004, attended by John Doerr, Jerry Wallace, Mr. Rennell, and Mr. Rennell's wife, Kendra Rennell. John Doerr again brought up the issue of Mr. Rennell's interest, and Mr. Rennell handed John Doerr and Jerry Wallace a two-page business "goals" list, which stated in part:
In order to start the new academy and get my family's financial house in order, I am going to have to cash out my 20% stock ownership in [TTGI] .... This will give me enough capital to get the above things done. I need to know a rough approximation of what my cash out will be so I can start look [sic] for land starting Wednesday. I could use some input on how I could secure the land without having the money yet.
After reviewing the document, Mr. Doerr stated that there was nothing to "cash out" due to the losses at Highland Rim. He explained that in order to take TTGI's profits, Mr. Rennell would also have to take Highland Rim's losses. Mr. Rennell stated that he did not think that was accurate, that the two businesses were...
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