Eli Mike, an individual, James A. Schrampfer, an individual, and Jane B. Forbes, as Trustee in bankruptcy for the estate of David L. Osborn v. Po Group, Inc.
ELI MIKE, an individual, JAMES A. )
SCHRAMPFER, an individual, and )
JANE B. FORBES, as Trustee in )
bankruptcy for the estate of DAVID L. )
OSBORN, )
) Davidson Chancery
Plaintiffs/Appellants, ) No. 89-1713-II (III)(I)
)
VS. )
)
PO GROUP, INC., a Tennessee ) Appeal No.
corporation; JAMES W. (BILL) ) 01A01-9707-CH-00321
ANDERSON, III, an individual; and )
HAROLD L. JENKINS, an individual,
Defendants/Appellees.
)
)
)
FILED
May 6, 1998
IN THE COURT OF APPEALS OF TENNESSEE Cecil W. Crowson
AT NASHVILLE Appellate Court Clerk
APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR
John C. Tishler, #13441
TUKE, YOPP & SWEENEY
17th Floor, Third National Bank Bldg.
201 Fourth Avenue North
Nashville, Tennessee 37219-2040
ATTORNEY FOR PLAINTIFFS/APPELLANTS
William L. Harbison, #7012
Andrew J. Pulliam, #16863
SHERRARD & ROE
424 Church Street, Suite 2000
Nashville, Tennessee 37219
D. Denty Cheatham
CHEATHAM & PALERMO
43 Music Square West
P.O. Box 121857
Nashville, Tennessee 37212-1857
ATTORNEYS FOR DEFENDANTS/APPELLEES
AFFIRMED.
HENRY F. TODD
PRESIDING JUDGE, MIDDLE SECTION
CONCURS:
BEN H. CANTRELL, JUDGE
CONCURS IN RESULT:
WILLIAM C. KOCH, JR., JUDGE
ELI MIKE, an individual, JAMES A. )
SCHRAMPFER, an individual, and )
JANE B. FORBES, as Trustee in )
bankruptcy for the estate of DAVID L. )
OSBORN, )
) Davidson Chancery
Plaintiffs/Appellants, ) No. 89-1713-II (III)(I)
)
VS. )
)
PO GROUP, INC., a Tennessee ) Appeal No.
corporation; JAMES W. (BILL) ) 01A01-9707-CH-00321
ANDERSON, III, an individual; and )
HAROLD L. JENKINS, an individual, )
)
Defendants/Appellees. )
OPINION
The captioned plaintiffs’ have appealed from a summary judgment dismissing plaintiffs’
actions against the corporate defendant for the value of their stock as dissenting minority
shareholders and their action against the individual defendants for breach of fiduciary duty as
corporate directors.
On appeal, plaintiffs present the following issues:
1. Whether summary judgment is appropriate
dismissing a claim based upon the statute of
limitations when the undisputed facts indicate that the
cause of action accrued within the period of the statute
of limitations rather than outside the period as
determined by the Trial Court?
2. Alternatively, whether summary judgment is
appropriate dismissing a claim based upon the statute
of limitations when different inferences regarding the
accrual of plaintiffs cause of action may be drawn
from the facts?
3. In the event the summary judgment is
reversed, whether the discretionary costs judgment
should be vacated?
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Defendants present the following issues:
A. Whether the Trial Court properly held that
appellants’ claims are time-barred by the three-year
statute of limitations in Tenn. Code Ann. § 28-3-105
due to those claims accruing more than three years
before appellants filed this suit when appellants knew
of their claims and their counsel threatened suit on
their behalf in letters making the same allegations that
appellants make in this suit.
B. Whether the Trial Court’s award of
discretionary costs to Mr. Anderson was within the
court’s authority under Tenn. R. Civ.P. 54.04 to award
discretionary costs?
In a former appeal in this same case, the Supreme Court held that the applicable statute
of limitations was three years. This suit was filed on June 30, 1989. Three years prior to June
30, 1989, was June 30, 1986. The primary inquiry on appeal is whether plaintiff’s right of action
or any part thereof arose after June 30, 1986.
The individual defendants were the sole stockholders, officers and directors of the
corporate defendant which owned majority interests in a number of lesser corporations in which
plaintiffs held minority interests. Specifically, stock of the corporate defendant, Po Group, Inc.,
was owned in equal shares by the defendants, Anderson and Jenkins, who were also equal
owners of all of the stock of Pro Combination, Inc., a non-party. Po Group, Inc., owned 80% of
the stock of Po Louisville, Inc., 72.57% of the stock of Po Jackson, Inc., and 73% of the stock
of Po Memphis, Inc.
The plaintiff, Eli Mike, was a minority stockholder of Po Louisville, Inc. The plaintiffs,
James A. Schrampfer and David Osborne, were minority stockholders of Po Jackson, Inc., and
Po Memphis, Inc.. David Osborne is in bankruptcy, and his interests are represented by Jane A.
Forbes, Trustee.
After an unsuccessful effort to sell the corporate stock of Po Group, Inc., and Po
Combination, Inc., to DineLite Corporation, Po Group, Inc. agreed to sell and DineLite
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Corporation agreed to buy substantially all of the assets of Po Group, Inc. and Po Combination,
Inc.. T.C.A. § 48-1-907( c) requires that stockholders dissenting from such a sale be paid the
fair value of their stock. A part of the consideration of the sale was the payment by DineLite of
certain bank debts of Po Group, Inc., and Po Combination, Inc., which were guaranteed by the
individual defendants, Jenkins and Anderson. This provision of the sale is the basis of the
plaintiffs’ suit against the defendants, Jenkins and Anderson.
The sale was approved by a majority of the stockholders of each of the corporations,
including those in which plaintiffs’ were interested, at a meeting held on December 15, 1985.
As stated above, the Supreme Court concluded the former appeal by holding that the
three-year statute of limitations barred the action of plaintiffs against the corporate defendant.
The opinion of the Supreme Court also states:
. . .any right the plaintiffs may have had to recover from
Anderson and Jenkins for breach of their fiduciary duties as
officers or directors of any of the three subsidiary
corporations or Po Group, Inc., expired on January 1, 1989,
prior to the date on which the present suit was filed, June 30,
1989. The plaintiffs acknowledge that Section 48-18-601
bars recovery from Anderson or Jenkins for any breach of
fiduciary duties as officers or directors. 937 S.W.2d at 794.
----
The complaint alleges that the majority shareholder,
Po Group, Inc., breached a fiduciary duty owed to them as
minority shareholders . . . . [T]he plaintiffs allege that the
proceeds from the sale of corporate assets were unfairly
distributed by the defendant, Pro 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; however, there is found in
the complaint the statement that the breach of fiduciary duty
by the defendants included “the diversion and/or
misappropriation” of assets. Even then, the legal duty that
was violated is not entirely clear.
The plaintiffs seek no judgment of liability for
wrongdoing against Anderson and Jenkins. The complaint
against Anderson and Jenkins is that their relationship with
the majority shareholder, Po Group, Inc., was such that the
plaintiffs should be allowed to pierce the corporate veil and
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collect from the individual defendants the value of their
shares of stock.
----
Thus, the action of Po Group, as the majority
shareholder in the three subsidiary corporations, was essential
to the consummation of the sale. Id. at 794.
The cause was remanded by the Supreme Court to afford opportunity to the plaintiffs to
show that some wrongful act of the individual defendants occurred after June 30, 1966. No such
act is shown by this record.
Appellants insist that the three-year statute did not begin to run against them until the
final transfer of assets which occurred after June 30, 1986. This Court does not agree. By the
binding contract to sell and buy the assets, the corporations were bound to complete the transfer
and delivery of such assets, and the statute of limitations began to run at that time, regardless of
any delay in carrying out the details of transfer.
The plaintiffs assert that the individual defendants committed a breach of fiduciary duty
by relieving themselves of their liability as guarantors. The guaranteed liability was secondary
to the primary liability of the corporations which was a legitimate subject of inclusion in the sales
agreement. The incidental benefit to the individual defendants without detriment to the
corporations is not legitimate ground for liability of the individual defendants. Moreover, the
provision of the sales agreement for satisfaction of bank debts was disclosed to plaintiffs in the
notice of stockholders meeting received by plaintiffs. Furthermore, on January 3, 1986,
plaintiffs’ attorney wrote a letter to the president of Po Louisville, Po Memphis and Po Jackson
demanding payment of fair value of plaintiffs’ stock and stating:
The value, of course, should include monies that have
been misappropriate [sic] from the Company by the
controlling shareholder, the value of the franchise rights for
the Company’s market that were represented by the majority
shareholders to be in the Company and the proportionate
value being realized by the majority shareholder’s being
relieved of certain liabilities by DineLite Corporation.
“[f]ailure to arrive at a fair value for” the shares of Mr.
Brown’s client,
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...will leave us no alternative but to institute litigation, which
would include, but not necessarily be limited to claims for:
(1) violations of notice procedures under
the Tennessee General Corporation Act
(2) violations of state and federal securities
law
(3) misappropriation of assets
(4) violations of the racketeering [sic]
influences and corrupt organizations
act.
We await further action by you on this matter.
Plaintiffs assert that there was an inequitable distribution of benefits to the subordinate
corporations by payment of the various bank loans which adversely affected the value of their
stock and thereby unfairly reduced the amount to be paid to them for their stock.
No evidence is cited or found as to the specific or amount of the alleged inequitable
allocation of bank loan relief among the several corporations involved. Even though the action
of plaintiffs were not barred, no relief could be granted to plaintiffs for the alleged inequity of
relief from bank loans because of the lack of evidence of the amount of damages.
Finally, plaintiffs argue that, in event of reversal of the judgment of the Trial Court, the
award of discretionary costs should be dismissed. There is no complaint that the award of
discretionary costs was otherwise in error.
No grounds are found for reversal of the judgment of dismissal, hence the award of
discretionary costs will not be reversed.
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The judgment of the Trial Court is affirmed. Costs of this appeal are taxed against the
appellants and their surety. The cause is remanded to the Trial Court for necessary further
proceedings.
AFFIRMED & REMANDED.
_________________________________
HENRY F. TODD
PRESIDING JUDGE, MIDDLE SECTION
CONCUR:
_____________________________
BEN H. CANTRELL, JUDGE
CONCURS IN RESULT:
_____________________________
WILLIAM C. KOCH, JR., JUDGE
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