Wachtel v. Shoney's, Inc.

• Decision Date: 01 November 1991
• Citation: 830 S.W.2d 905
• Parties: David K. WACHTEL, Jr., and Tyrus R. Gainer, Plaintiffs/Appellees, v. SHONEY'S, INC., Defendant/Appellant. 830 S.W.2d 905
• Court: Tennessee Court of Appeals

Page 905

830 S.W.2d 905

David K. WACHTEL, Jr., and Tyrus R. Gainer Plaintiffs/Appellees, v. SHONEY'S, INC., Defendant/Appellant.

830 S.W.2d 905

Court of Appeals of Tennessee,

Western Section, at

Nashville.

Nov. 1, 1991.

Application for Permission to Appeal

Denied by Supreme Court

March 23, 1992.

Gary M. Brown, Farris, Warfield & Kanaday, Nashville, for defendant, appellant.

Steven A. Riley, Bass, Berry & Sims, Nashville, for plaintiffs, appellees.

TOMLIN, Presiding Judge (Western Section).

Plaintiffs David K. Wachtel, Jr. ("Wachtel") and Tyrus R. Gainer ("Gainer") filed suit in the Chancery Court of Davidson County against defendant, Shoney's, Inc. ("Shoney's") seeking to have that court confirm an arbitration award in their favor. The parties had agreed to arbitrate plaintiffs' dissenters' rights as minority stockholders in a corporation in which Shoney's was the majority stockholder. The award of the arbitrators included not only the determined value of the stock owned respectively by Wachtel and Gainer, but attorney fees and interest as well. The Chancellor also awarded plaintiffs attorney fees for prosecuting the action of confirmation as well as post judgment interest from the date the arbitrators ordered the award to be paid. We perceive the issues on appeal to be as follows:

(1) Whether the arbitration panel exceeded its authority in awarding plaintiffs attorney fees, expenses and interest in connection with the determination of the fair value of plaintiffs' stock.

(2) Whether the trial court erred in awarding attorney fees and expenses to plaintiffs pertaining to their suit for confirmation of the arbitration award.

We resolve both these issues in favor of plaintiffs and affirm.

A recitation of some of the background facts is necessary in order to fully understand the circumstances that led to the arbitration agreement. Until 1982 Wachtel was president of Shoney's. However, at that time he was terminated because of disagreements with the chairman of the board and Shoney's founder. Gainer is Wachtel's brother-in-law.

In 1978 Tennessee D's, Inc. (TDI) was organized to own and operate Captain D's seafood restaurants in the east Tennessee area as a franchisee of Shoney's, the holder of the Captain D's franchise rights. Wachtel, Gainer and four others were stockholders. Even though he had been terminated by Shoney's, Wachtel retained his stock in TDI and took an active interest in the company.

At some point after the creation of TDI, some of the stockholders were persuaded to transfer their stock in TDI to Shoney's, allegedly as a condition of their continued employment. Thereafter Shoney's became a 57% stockholder in TDI, with Wachtel owning 19%, Gainer 5% and Rod Zabel 19%. The record reflects that Shoney's as majority stockholder took certain steps in an attempt to suppress the development of TDI during the early and middle years of the 1980s. After some negotiations, Shoney's was able to "persuade" Zabel to sell his stock in TDI to it, leaving as the only two remaining stockholders Wachtel with 19% and Gainer with 5%.

In the spring of 1987 as majority shareholder of TDI, Shoney's called a special shareholders' meeting for the purpose of considering the merger of TDI with Evadon Corporation, a newly created, wholly owned subsidiary of Shoney's. As an indication of the hostile feelings between Shoney's and Wachtel, the name Evadon was created by using "No Dave" spelled backward. "Dave" is Wachtel's first name. At the specially called stockholders meeting on April 13, 1987, with Shoney's owning and controlling 76% of the stock, the merger agreement was approved. Under the merger plan plaintiffs were each offered $575 per share for their respective shares of stock in TDI.

A principal result of the merger between TDI and Evadon was the activating of plaintiffs' statutory right as minority stockholders to dissent and thereby decline to accept the price offered to them by Shoney's. Plaintiffs proclaimed the offer by Shoney's inadequate and chose to seek relief pursuant to the provisions of T.C.A. Secs. 48-1-909--919 in the Chancery Court to have the fair value of their stock determined.

Rather than get involved in protracted litigation, in December, 1987 the parties entered into an arbitration agreement, to become effective as of April 13, 1987, the date of the stockholders' meeting approving the merger. The following excerpts from the preamble of this agreement clearly set forth its intent and purpose:

WHEREAS, the merger of Tennessee D's, Inc. and Evadon Corporation was a transaction giving rise to Wachtel and Gainer having rights to dissent and receive the fair value of their shares in Tennessee D's, Inc. pursuant to Tenn.Code Ann. Sec. 48-1-909 through Sec. 48-1-919; and

WHEREAS, the parties desire to fully settle any dispute regarding Wachtel and Gainer's ownership in Tennessee D's, Inc. and to provide for Wachtel and Gainer to receive the fair value of their Tennessee D's, Inc. stock, such fair value to be determined by binding arbitration rather than through the procedures set forth in Tenn.Code Ann. Sec. 48-1-909 through Sec. 48-1-919;

The arbitration hearing was conducted by three arbitrators, each of whom was a licensed attorney. One was selected by Wachtel and Gainer, one by Shoney's and the third by the two arbitrators selected by the parties.

Section 3.7 defined the question to be decided by the arbitrators. It reads as follows:

Question to be Arbitrated. The only question to be submitted to and decided by the arbitrators shall be the fair value (within the meaning of Tenn.Code Ann. Secs. 48-1-909-919), as of April 12, 1987, of the 400 shares of Tennessee D's, Inc. common stock owned by David K. Wachtel, Jr. and the value of the 100 shares of Tennessee D's, Inc. common stock owned by Tyrus R. Gainer.

The first paragraph of Sec. 3.3, Procedure, is also material to this litigation. It reads as follows:

Procedure. Except as they may be inconsistent with the express provisions of this Agreement, all matters relating to the arbitration procedures shall be governed by the Commercial Arbitration Rules of the American Arbitration Association; provided, however, that in rendering their decision and award the arbitrators shall apply the principles of statutory and common law (including, without limitation, Tenn.Code Ann. Sec. 48-1-915) which in their opinion are applicable to the facts and the taking of testimony, presentation of argument and evidence, and all other procedure (including discovery on the limited issue to be arbitrated, which discovery shall be completed within ninety days) shall, as far as the arbitrators deem practicable, be governed by the usual rules applied in courts of Davidson County, Tennessee.

At the arbitration hearing, the panel was made fully aware of the fact that plaintiffs intended to seek an award of pre-award interest and attorney fees and expenses, and that Shoney's contested the authority of the panel to make such an award. After hearing all the testimony and closing arguments the panel unanimously awarded Wachtel and Gainer $1,558 per share for their stock in TDI along with $271,906 in pre-award interest and $64,000 in attorney fees and expenses. In keeping with the language of the arbitration agreement Shoney's was ordered to pay the above stated sums by November 5, 1990. Shortly before this deadline Shoney's notified plaintiffs that to the extent the panel's award included pre-award interest, attorney fees and expenses, the award was rejected and Shoney's refused to pay these amounts. This suit ensued shortly thereafter.

I. The Scope of the Arbitrators' Authority.

Shoney's contends that the only question to be decided by the arbitrators was the fair value of TDI stock "within the meaning of TCA Secs. 48-1-901-919." These sections have already been identified and labeled as the "dissenters shareholders statutes."

As previously noted, the arbitrators were directed to follow the common law and statutory principles set forth in TCA Sec. 48-1-915, among others, which reads in part as follows:

Suit for determination of shareholders entitled to payment and value of shares.--

....

(b) In any such suit the court shall render a decree against the corporation for the dissenting shareholders entitled to receive payment in the amount of the fair value of their shares, plus interest from the date the demand period expired to the date of payment, except that interest may be denied any shareholder if the court shall find that the shareholder's refusal to accept the corporate offer of payment for his shares was arbitrary or vexatious or otherwise not in good faith.

(c) Costs and expenses of any such proceeding, including reasonable attorney fees, shall be determined and shall be assessed against the corporation, but all or any part of such costs and expenses may be apportioned and assessed as the court may deem equitable against any dissenting shareholder who is a party to the suit if the court shall find that the action of the shareholder was arbitrary or vexatious or otherwise not in good faith.

In other words, just as the court in a dissenter's rights suit is directed to award both interest and attorney fees, this same directive was given to the arbitrators by virtue of the appropriating of these statutes into the arbitration agreement.

Defendants contend that Sec. 3.3 of the...