Tennessee-Louisiana Oil Co. v. Cain, TENNESSEE-LOUISIANA

• Decision Date: 26 January 1966
• Docket Number: No. A-10449,TENNESSEE-LOUISIANA,A-10449
• Citation: 400 S.W.2d 318
• Parties: OIL COMPANY, Petitioner, v. Dixon CAIN, Respondent.
• Court: Texas Supreme Court

Page 318

400 S.W.2d 318

TENNESSEE-LOUISIANA OIL COMPANY, Petitioner, v. Dixon CAIN, Respondent.

No. A-10449.

Supreme Court of Texas.

Jan. 26, 1966.

Rehearing Denied March 9, 1966.

Baker, Botts, Shepherd & Coates, Finis E. Cowan and William C. Harvin with above firm, Houston, for petitioner.

Vinson, Elkins, Weems & Searls, Leroy Jeffers, Richard P. Keeton and Harry M. Reasoner, with above firm, Houston, for respondent.

SMITH, Justice.

Tennessee-Louisiana Oil Company, hereinafter designated as plaintiff, filed this suit against Dixon Cain, hereinafter referred to as defendant, for breach of fiduciary duty. Trial was to a jury, and judgment was entered on the verdict in favor of plaintiff against the defendant for $57,750.00. The Court of Civil Appeals reversed and remanded the cause to the trial court for a new trial. 382 S.W.2d 794. We affirm the judgment of the Court of Civil Appeals.

Plaintiff alleges that on January 14, 1960, plaintiff and Tennessee Gas Transmission Company, on the one hand, and Fifteen Oil Company, of which Dixon Cain was President, on the other hand, entered into a 'Plan of Reorganization' whereby Fifteen Oil Company agreed to transfer substantially all of its assets to plaintiff in exchange for 477,092 shares of $5.00 par value common stock of the Tennessee Gas Transmission Company. The Plan of Reorganization was amended on March 24, 1960, and finally consummated, and all transfers were made in accordance with the Plan on May 15, 1960.

Plaintiff's position throughout has been that the defendant, in consideration of the sum of $57,500.00 paid with its consent by Fifteen Oil Company, agreed that he would not be retained in the employ of plaintiff, but did agree to remain available in a retained advisory capacity. The written agreement executed on May 2, 1962, reads as follows:

'With reference to the Plan of Reorganization entered into on January 14, 1960 and amended on March 24, 1960, between Fifteen Oil Company, Tennessee Gas Transmission Company and you, each of the undersigned (1) does hereby acknowledge receipt of payment by Fifteen Oil Company, as severance pay, of an amount equal to one and one-half (1 1/2) times his current annual compensation; and (ii) does hereby agree that he will be available to you in a retained advisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management and in order that you may avail yourself of his special knowledge concerning the affairs and properties of Fifteen Oil Company.'

The plaintiff contends that by virtue of the terms of this agreement, the defendant, during the six (6) month period provided in the agreement, was, in effect, the agent of plaintiff and 'had as to the Tennessee Louisiana Oil Company the undivided duty of fidelity and loyalty which an agent owes to his principal and which an employee owes to his employer, and it was in order to attempt to insure that Mr. Cain would not use his special knowledge of the properties and affairs of Fifteen in violation of and contrary to the interests of the former Fifteen Company stockholders and the Tennessee-Louisiana Oil Company that the Tennessee-Louisiana Oil Company was willing to consent to the payment of this very large sum of money ¹ to Dixon H. Cain.'

The plaintiff further contends specifically that the defendant breached the duty of a fiduciary when he wrote a letter on October 19, 1960, to plaintiff and the Phillips Petroleum Company ² demanding further development of the Martinez Lease, one of the properties included in the Plan of Reorganization and conveyed to plaintiff by Fifteen Oil Company. The letter was written by the defendant, in behalf of his father, J. W. Cain, an owner for many years of 25% of the minerals in and under the Martinez property. Copies of the letter were sent to other lessors interested in the Martinez Lease. In substance this letter reminded the plaintiff that a well had been drilled on the Callery Unit off-setting the Martinez Lease and that, under the terms of the Martinez Lease, the plaintiff was obligated to develop or reassign the lease.

It is the action of the defendant in writing this letter which the plaintiff contends violated the terms of the letter agreement of May 2, 1960, wherein the defendant agreed to hold himself available to the plaintiff 'in a retained advisory capacity for a period of six (6) months from and after May 2, 1960, in order that there will be no abrupt change in management' and in order that the plaintiff 'may avail yourself (itself) of his special knowledge concerning the affairs and properties of Fifteen Oil Company.' (Emphasis added.) The plaintiff makes the additional contention that the writing of this letter violated and was contrary to the representations and warranties contained in the 'Plan of Reorganization' and a 'Certificate' executed by Fifteen Oil Company on May 2, 1960. Although both instruments were executed by Fifteen Oil Company and the representations and warranties contained therein were those of Fifteen Oil Company, plaintiff alleged that the warranties contained in the 'Plan of Reorganization' were the representations of Dixon H. Cain, the defendant.

The defendant Cain has taken the position from the inception of this case that the plaintiff's acquisition of the Fifteen Company was after long drawn out arm's length negotiations; that the record establishes as a matter of law that there was no fiduciary relationship between the plaintiff and defendant and that he breached no fiduciary obligation owing to plaintiff for the reason that under the undisputed evidence the defendant's only duty to plaintiff was the contractual duty to remain available in an advisory capacity and that neither the writing of the letter nor any other act on his part constituted a breach of his duty to the plaintiff.

The record clearly reflects an arm's length transaction. The evidence is undisputed that Dixon Cain was approached by Mr. Smallwood, a Dallas investment banker, in June, 1958, with an invitation to have dinner with two officers, Graham and Symonds, of the Tennessee Gas Transmission Company. The invitation was accepted and at the meeting Cain was told by Symonds that 'Tennessee wanted Fifteen's properties and * * * wanted me to work for them and would I present it to my Board of Directors. * * *' In July or August, 1958, Cain did present this proposition to Fifteen's Board, but it was turned down. Cain notified Graham by letter that their offer had been refused and asked Graham 'if (Tennessee) was going to continue to be interested in (Fifteen) and continue to buy stock in (Fifteen)' in the face of the fact that Fifteen did not desire to sell to Tennessee. Graham assured him that they would not be interested in acquiring any other stock. However, Tennessee continued to acquire stock in Fifteen through Mr. Smallwood in Dallas so that, by July, 1959, Tennessee owned over 20% of Fifteen (263,000 shares). Tennessee, by its letter to Smallwood in February, 1957, urged Smallwood to continue purchasing Fifteen common stock and assured Smallwood against loss in the event Tennessee later decided not to purchase the stock. Thereafter, Cain and other officers of Fifteen proceeded to negotiate with Tennessee through Graham and others as to the details of a sale of Fifteen to Tennessee, and the sale was consummated in May, 1960.

At the close of plaintiff's evidence the defendant presented to the court a motion for an instructed verdict. The motion urged the court to instruct the jury to return a verdict in favor of the defendant, or in the alternative, to withdraw the case from the jury and to render judgment in his favor on the ground that there was no evidence of a fiduciary relationship between the plaintiff and defendant, and further, '(b)ecause the evidence is without dispute that no part of the sum of $57,750 for which the plaintiff sues in this case came from the plaintiff to this defendant or that the giving of such sum to this defendant by Fifteen Oil Company cost the plaintiff in this case or its predecessors in interest any amount of money, and that by the giving of the same to this defendant Fifteen Oil Company and its Board of Directors discharged an obligation to this defendant which they in the exercise of their discretion as directors of said company felt this defendant to be entitled.'

The plaintiff, at the close of all of the evidence moved for an instructed verdict on the ground that:

'(a)s a matter of law, by virtue of the terms of the Plan of Reorganization of Fifteen Oil Company (hereinafter 'Fifteen') dated January 14, 1960 and the letter agreement of Tennessee and Dixon Cain dated May 2, 1960, Dixon Cain, for the period of six months following May 2, 1960, became an agent of, a consultant and adviser to Tennessee in order that there would be no abrupt change in management and in order that Tennessee might avail itself of his special knowledge of the business affairs and properties of Fifteen. Further, as a matter of law, by virtue of the relationship created thereby for such period of time, Dixon Cain owed Tennessee the fiduciary duty and loyalty which an agent owes the corporation.'

Both motions were overruled and the court submitted seven special issues to the jury. Those issues and the answers thereto read as follows:

'SPECIAL ISSUE NO. 1: Do you find from * * * the evidence that by virtue of the Plan of Reorganization of Fifteen Oil Company and the Letter Agreement of May 2, 1960, between Dixon Cain and Tennessee Louisiana Oil Company, Dixon Cain agreed to act for Tennessee Louisiana Oil Company to the extent of remaining available in a retained advisory capacity for a period of six months from and after May 2, 1960, in order that there would be no abrupt change in management and in order that Tennessee might avail itself of his special knowledge concerning the affairs and properties of Fifteen Oil Company?

'Answer: W...