Winfree v. Educators Credit Union

• Citation: 900 S.W.2d 285
• Parties: Tom WINFREE, Plaintiff-Counter-Defendant-Appellant, v. EDUCATORS CREDIT UNION and Credit Union Services Organization of Middle Tennessee, Inc., Defendant-Counter-Plaintiff-Appellees.
• Decision Date: 06 January 1995
• Court: Court of Appeals of Tennessee

Page 285

900 S.W.2d 285

Tom WINFREE, Plaintiff-Counter-Defendant-Appellant, v. EDUCATORS CREDIT UNION and Credit Union Services

Organization of Middle Tennessee, Inc.,

Defendant-Counter-Plaintiff-Appellees.

Court of Appeals of Tennessee,

Western Section, at Nashville.

Jan. 6, 1995.

Application for Permission to Appeal

Denied by Supreme Court

May 1, 1995.

James C. Hofstetter, Fred E. Cowden, Nashville, for appellant.

Ernest D. Bennett, Nashville, for appellees.

CRAWFORD, Judge.

Plaintiff, Tom Winfree, filed a complaint against Educators Credit Union (hereinafter ECU) and its wholly-owned subsidiary, Credit Union Services Organization of Middle Tennessee, Inc. (hereinafter CUSO), for lost insurance commissions resulting from defendants' breach of contract, unfair competition, and tortious interference with contract. ¹ The Chancery Court for Davidson County denied plaintiff's motion for partial summary judgment, granted defendants' motion for summary judgment, and dismissed the case.

The facts are undisputed. In 1986, plaintiff entered into a "Memorandum of Understanding" with ECU in which he agreed to act as an unpaid marketing representative for ECU in consideration for the opportunity to sell cancer insurance from Life Investors, Inc., (hereinafter Life Investors) to ECU's members. Prior to this agreement, ECU had promoted cancer insurance offered by Loyal American to its members. The memorandum acknowledged that plaintiff was a representative of Life Investors and not an employee of ECU. Plaintiff was required to undergo training by ECU and contact new employers for membership in the credit union. ECU members desiring to purchase the insurance could enroll with plaintiff, and ECU would deduct the premiums from their salaries. At the same time, ECU would temporarily continue promoting insurance for Loyal American.

In March, 1987, the parties modified their agreement in an "Addendum to Memorandum of Understanding" which reflected that ECU would no longer promote the Loyal American cancer plan. The addendum also allowed ECU to cancel the entire agreement with plaintiff by giving thirty days written notice to Life Investors "and/or Mr. Tom Winfree."

In 1989, plaintiff and ECU agreed that plaintiff could market a "money-back" cancer insurance offered by Capital America Life Insurance Company (hereinafter Capital Life) as well as the Life Investors plan. On October 20, 1989, ECU sent a letter to its members advising of the availability of the new plan.

In January, 1990, Sarah Wood became President of ECU and began to inquire about the formation of a credit union service organization for ECU. In August, 1990, Mrs. Wood requested that plaintiff not enroll any new insurance buyers on the payroll deduction plan; instead, new buyers would have to pay plaintiff directly. On August 15, the ECU Board of Directors approved the creation of a credit union service organization. CUSO was chartered on October 1, 1990 and incorporated on November 28. ECU's goal in forming CUSO was to continue offering insurance to its members while retaining the sales commissions which plaintiff had been collecting. To this end, CUSO entered into an agent's contract with Commonwealth National Life Insurance Company (hereinafter Commonwealth) on November 27, 1990, to sell insurance to ECU members.

On December 31, 1990, ECU sent written notice to Life Investors and Capital Life that the payroll deduction arrangement would be terminated on February 1, 1991. ² On January 2, 1991, Mrs. Wood sent a letter to each member on the insurance payroll deduction plan announcing the formation of CUSO and the termination of the payroll plan for insurance sold by plaintiff. The letter advised that members could stay on the payroll deduction plan only if they bought Commonwealth insurance. Members who wished to continue paying premiums directly from payroll were required to sign a conversion form enclosed with the letter by January 25, 1991.

Plaintiff learned of the CUSO plan on January 4, 1991. He claims that "a substantial number" of his policyholders converted to the Commonwealth plan before his 30 days notice expired on February 1. He further claims that this deprived him of present and future commissions from the premiums of existing policyholders. Before trial, he moved for partial summary judgment on the issue of defendants' liability. Defendants also moved for summary judgment, and, after a hearing on the motions, the trial court denied plaintiff's motion. After a second motion hearing, the trial court granted summary judgment to defendants and dismissed the complaint.

Count I of the complaint avers that ECU mislead its members into thinking that the Commonwealth plan would cost less because it stated that "commissions are retained" by CUSO. Plaintiff avers that the January 2 letter and January 25 deadline for policy conversion constituted improper competition with him while the Memorandum of Understanding was still in effect. This competition was a material breach of the memorandum which caused him to lose commissions on premiums to be paid by existing policyholders.

Each subsequent count incorporates the allegations of Count I and all other preceding counts. Count II avers that ECU's actions violated the implied covenant of good faith and fair dealing in the memorandum agreement. Count III avers that ECU's actions "constituted a violation of the covenant in every contract that neither party will do anything that will deprive the other of the fruits of his bargain. Said defendant's actions constituted unfair competition." Counts IV and V aver that defendants induced a breach of contract by its members in violation of T.C.A. § 47-50-109 (1988) and the common law of torts, respectively. Count VI avers that defendants improperly interfered with the "existing and prospective" contracts between ECU members and the insurance companies plaintiff represented. He also avers that defendants improperly interfered with his right to collect commissions on those contracts. On appeal, plaintiff contends that the trial court erred in granting summary judgment to defendants and in denying his motion for partial summary judgment.

A trial court should grant a motion for summary judgment when the movant demonstrates that there are no genuine issues of material fact, and that the moving party is entitled to a judgment as a matter of law. Tenn.R.Civ.P. 56.03. The phrase "genuine issue" as stated in Rule 56.03 refers to genuine factual issues, and does not include issues involving legal conclusions to be drawn from the facts. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn.1993). Because the facts are undisputed here, we agree that granting summary judgment to one of the parties was proper. Therefore, we must decide whether the legal conclusions on which the trial court's grant of summary judgment was based are correct. Our review is de novo on the record with no presumption of the correctness of the trial court's conclusions of law. Union Planters Nat'l Bank v. American Home Assurance Co., 865 S.W.2d 907, 912 (Tenn.App.1993).

In his first issue on appeal, plaintiff asserts that ECU breached its "contractual obligation of good faith and fair dealing" in the performance of its duties of the understanding with plaintiff. Accordingly, we address the propriety of granting summary judgment to defendants on counts I through III of the complaint, which comprise plaintiff's claim for breach of contract in the trial court.

"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement." Covington v. Robinson, 723 S.W.2d 643, 645 (Tenn.App.1986) (citing Restatement (Second) of Contracts § 205 (1979); 17 Am.Jur.2d Contracts § 256 (1964)); see also 17A C.J.S. Contracts § 328 (1963). Section 256 of American Jurisprudence, Second Edition, on Contracts, further provides:

[T]here is an implied undertaking in every contract on the part of each party that he will not intentionally or purposely do anything ... which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. Ordinarily if one exacts a promise from another to perform an act, the law implies a counterpromise against arbitrary or unreasonable conduct on the part of the promisee. However, essential terms of a contract on which the minds of the parties have not met cannot be supplied by the implication of good faith and fair dealing. (footnotes omitted).

Defendants gave the notice required by the contract to cancel the agreement on December 31. Only two days later, however, they solicited all of plaintiff's policyholders to convert to the Commonwealth plan serviced by CUSO. ECU's letter required anyone wishing to remain on the payroll deduction plan to convert by January 25. Both the letter of solicitation and the deadline set therein fell within the contractual thirty day period. These actions were directly aimed at retaining insurance commissions, which had been accruing to plaintiff, for the benefit of ECU members. We do not quarrel with the proposition that ECU could, in good faith with its agreement, charter and form CUSO. But promoting CUSO while its contract with plaintiff was still in...