Court reviews enforceability of non-compete provision of employment agreement

DAREL L. JONES, ET AL. v. UNITED PROPANE GAS, INC., ET AL. (Tenn. Ct. App. December 28, 2009)

Darel L. Jones, Donald A. Maples, Jr., and Heritage Operating, L.P., dba Hydratane of Athens (collectively "the Plaintiffs") commenced this litigation originally against United Propane Gas, Inc. ("UPG"), with a petition seeking a declaration that the Pricing, Confidentiality and Post- Employment Activities Agreement (referred to as "the Agreement," "the Jones Agreement," or "the Maples Agreement" as the context requires) signed by Jones and Maples in favor of their past employer, Ocoee River Propane Gas, Inc. ("ORP"), was unenforceable and that their new employer, Hydratane, had no liability for hiring them. The Plaintiffs later amended their petition to add ORP as a defendant. UPG and ORP (collectively "the Gas Companies") filed an answer asserting, among other things, (1) that they were independent entities and (2) that Jones and Maples were not UPG employees. ORP filed a counterclaim against Maples asking that he be held in breach of contract and enjoined from violating the Agreement as well as a counterclaim against Hydratane for tortuous interference with the Agreement.

After a bench trial, the court announced its findings in favor of the Plaintiffs from the bench and later signed and entered an order submitted by the Gas Companies that limited the effect of the court's ruling to "the non-compete provision" of the Agreement. The Plaintiffs filed a motion to alter or amend which the trial court granted, the effect of which was to hold that the Agreement in its entirety, rather than just the non-compete provision, was unenforceable. The Gas Companies appeal. We affirm.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/jonesd_122809.pdf

Court reviews denial of motion to amend and dismissal of the complaint.

T.O.T.S. (TEMP. OWNED TEMPORARY SERVICE) v. WHIRLPOOL (Tenn. Ct. App. December 18, 2009)

This appeal involves a complaint for breach of contract filed by a corporation that had been administratively dissolved prior to the date of the contract. The defendants filed a motion to dismiss, claiming that the plaintiff-corporation lacked capacity and/or standing to bring the suit. The plaintiff then filed a motion to amend, seeking to have the corporation's founder substituted as the party plaintiff. The trial court denied the motion to amend and dismissed the complaint. We affirm.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2009/tots_121809.pdf

Court reviews whether a property conveyance was fraudulent.

BRENDA STONE, individually and derivatively in her capacity as a director of Appalachian Caverns Foundation v. SCOTT SMILE, ET AL. (Tenn. Ct. App. December 18, 2009)

The plaintiff initiated this action on behalf of a foundation of which she was formerly a director. She sought to reinstate a deed of trust securing a note belonging to the foundation and to set aside a fraudulent conveyance of the property that was subject to the deed of trust. The trial court found that the release of the deed of trust was improper and that the conveyance was fraudulent and, thus, reinstated the deed of trust and set aside the conveyance of the property. We affirm.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/stoneappalachiancaverns_121809.pdf

Court reviews whether an award of prejudgment interest was proper in a breach of partnership agreement case

GREGORY B. WOOTEN v. KENNETH BLACK (Tenn. Ct. App. December 16, 2009)

Plaintiff filed this action against his former partner alleging breach of their partnership agreement. The Special Master found that the defendant misappropriated profits of the partnership. Thereafter, the parties entered into an Agreed Order wherein the plaintiff was awarded a judgment of $38,750.00 against the defendant. The Agreed Order expressly reserved the issue of prejudgment interest for the trial court's determination. The trial court awarded prejudgment interest. Defendant appealed the award of prejudgment interest. Finding no error, we affirm.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/wooteng_121609.pdf

Court reviews whether the trial court properly ordered enforcement of a subpoena to provide information to the Assessor of Property

METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY by and through THE OFFICE OF THE ASSESSOR OF PROPERTY v. LAMAR TENNESSEE, LLC d/b/a LAMAR ADVERTISING OF NASHVILLE (Tenn. Ct. App. December 9, 2009)

This case involves a subpoena issued by the Metropolitan Government of Nashville and Davidson County, on behalf of the Davidson County Assessor of Property, which required the appellant to provide information regarding its business operations. When the appellant did not comply with the subpoena, Metro filed a complaint seeking to enforce it. The trial court ruled that the appellant must provide the requested information. We reverse and remand for further proceedings.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/lamar_120909.pdf

Court reviews whether a contract contained an agreement to split physician's fees

COOKEVILLE REGIONAL MEDICAL CENTER AUTHORITY v. CARDIAC ANESTHESIA SERVICES, PLLC, ET AL. (Tenn. Ct. App. November 25, 2009)

At the summary judgment phase, the trial court found that a hospital wrongfully terminated its contract with a physician group. A jury determined the physician group was entitled to recover damages arising from the Hospital's breach. Among the issues raised on appeal is whether the trial court erred in finding that the contract did not contain a fee splitting arrangement in violation of Tenn. Code Ann. section 63-6-225. Finding that the contract contained an agreement to split physician's fees prohibited by Tenn. Code Ann. section 63-6-225, we find the contract to be unenforceable. Accordingly, we reverse.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2009/cookevilleregional_112509.pdf

Court reviews whether trial court properly dismissed a case based on plaintiff's inability to meet the burden of proof.

THE IJ COMPANY, INC., ET AL. v. COLLIER DEVELOPMENT COMPANY, INC. d/b/a ROCKY RIVER BREWERY & GRILL (Tenn. Ct. App. November 13, 2009)

The IJ Company, Inc. ("IJ") sued Collier Development Company, Inc. ("Collier Development") d/b/a Rocky River Brewery & Grill ("Rocky River") seeking, among other things, payment from Collier Development for food service products IJ had supplied to Rocky River. After a bench trial, the Trial Court dismissed the case finding and holding, inter alia, that IJ had not met its burden of proving that it had a contract with Collier Development. IJ appeals to this Court. We affirm.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2009/ijcompany_111309.pdf

Court reviews claim of fraud and misrepresentation in a case about drilling for oil on personal property

BETTY L. DAVIS v. A. V. CONNER AND TIMOTHY BRYAN CONNER (Tenn. Ct. App. October 23, 2009)

This case involves a claim of promissory fraud. The plaintiff is an elderly widow who lives on a farm. The defendant is in the oil business. The defendant approached the widow about drilling for oil on her farm. He told the plaintiff that if she invested in the oil wells, he would match her investment equally and manage the oil wells on her property. He proposed that they share in any profits 65% to the plaintiff widow, and 35% to the defendant. The widow agreed. Over several years, the widow invested over $100,000 in five oil wells. Some of the wells produced oil, and the resulting profit was shared 65%/35%. The widow later discovered that the defendant had not, in fact, invested any of his own money in the oil wells, and that he was mismanaging them.

The widow then filed this lawsuit against the defendant for misrepresentation, fraudulent inducement, and mismanagement of the oil wells. After a bench trial, the trial court awarded the widow compensatory damages and punitive damages. It also divested the defendant of any future interest in the oil wells on the widow's property. The defendant now appeals. We affirm the trial court's decision in all respects.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/davisb_102309.pdf

Court reviews enforceablity of an indemnity agreement

WENDELL P. BAUGH, III, ET AL. v. HERMAN NOVAK, ET AL. (Tenn. Ct. App. October 13, 2009)

(CORRECTION page 9 second paragraph line 7, line 8 and page 10 line 1)

This case arises out of a business agreement between the parties. Plaintiffs executed a note to purchase a company. The note contained a stock transfer restriction. Subsequently, Plaintiffs entered into a business agreement with Defendants. The subject of that agreement is disputed in this lawsuit, but Plaintiffs contend that Defendants purchased one-half of the company and executed an indemnity agreement to indemnify Plaintiffs for one-half of the note on the purchase of the company. After operating for nearly ten years, the company failed.

At trial, Plaintiffs sought to enforce the indemnity agreement, and Defendants counterclaimed to recover $73,000.00 that they paid to Plaintiffs before they allegedly executed the contract. The trial court found in Plaintiffs' favor. Defendants now appeal claiming that the trial court made several evidentiary errors, that the contract is unenforceable because it violated the statute of frauds, that parol evidence regarding the terms of the contract was inadmissible, and that the corporation cannot continue its existence and sell stock after dissolution. We reverse the trial court's determination based on our finding that the contract is unenforceable as a matter of public policy.

Opinion can be found at:
http://www.tba2.org/tba_files/TCA/2009/baughw_CORR_101309.pdf

Court reviews whether trial court properly disbursed funds for a constructive trust

LAFOLLETTE MEDICAL CENTER, et al., v. CITY OF LAFOLLETTE, et al. (Tenn. Ct. App. October 2, 2009)

In this second appeal of this case, the Trial Court had entered an Agreed Order for disbursement of the funds which stated the parties had determined that the purpose of the constructive trust would best be shared out by transferring the funds to a newly created non-profit corporation known as the Lafollette Medical Foundation (the funds had been held by the Clerk of the Court). The Court directed that the trust fund would be placed in the foundation with the monies retained for potential liabilities, and the charter of the LaFollette Medical Foundation, Inc., was filed with the Court, as well as its by-laws.

The City of LaFollette filed a Motion to Set Aside the Order pursuant to Rule 60, Tenn. R. Civ. P., along with affidavits. The Court conducted a hearing and filed a Memorandum Opinion finding that its order was not void because the City had been found to have no interest in the fund and the City had actual knowledge of the Foundation and its rules, and transferring the money to the Foundation best served the interest of the public rather than the money being held by the Court. The City of LaFollette appealed to this Court. We affirm the Judgment of the Trial Court.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/lafollette_100209.pdf

Court reviews constitutionality of a tax assessment based a subsidiary and a parent corporation's relationship to one another

BLUE BELL CREAMERIES, L.P. v. LOREN CHUMLEY, COMMISSIONER DEPARTMENT OF REVENUE, STATE OF TENNESSEE (Tenn. Ct. App. September 30, 2009)

The Tennessee Department of Revenue assessed an excise tax on a nondomiciliary subsidiary corporation which conducted business in the state based on income earned outside the state as a result of the parent corporation's redemption of outstanding stock held by the subsidiary. The Department's tax assessment was based on a determination that the income was taxable as "business earnings" under the Tennessee Excise Tax Law. The trial court found that the subsidiary and its parent corporation were not part of a unitary business relationship and, consequently, that the tax assessment was unconstitutional. Finding that the entities were not part of a unitary business relationship, the judgment of the trial court is affirmed.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/bluebell_093009.pdf

Court reviews whether trial court properly dismissed a case as a result of a forum selection clause.

TENNESSEE RIVER COLLECTION YACHT SALES, LLC, ET AL. v. P.F.C., INC. dba STINGRAY BOAT COMPANY (Tenn. Ct. App. September 29, 2009)

This case arises out of the termination of a dealer agreement ("the Agreement"), pursuant to which Tennessee River Collection Yacht Sales, LLC, and TRC Watersports Center, LLC (collectively "the Dealers") were authorized to sell recreational boats manufactured by P.F.C., Inc. dba Stingray Boat Company ("the Supplier"), a South Carolina corporation. The Supplier terminated the Agreement citing the Dealers' failure to purchase the current product models. The termination was also based upon the recommendation of the Supplier's representative following an on-site visit to the Dealers.

The Dealers filed suit alleging that the Supplier's refusal to repurchase the Dealers' remaining inventory of Stingray boats was a violation of statutory law governing the "Repurchase of Terminated Franchise Inventory," the Code Commission-supplied label for Tenn. Code Ann. sections 47-25-1301 - 14 (2001) ("the Repurchase Act"or "the Act"). The Supplier filed a motion to dismiss for lack of jurisdiction, asserting that under a governing law and forum selection clause contained in the Agreement, the action had to be brought in South Carolina, not Tennessee. The trial court agreed and dismissed the complaint without prejudice. The Dealers appeal. We affirm.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/tennesseeriver_092909.pdf

Court reviews whether a non-compete contract is enforceable for an at-will employee who allegedy signed it under duress

CUMMINGS INCORPORATED v. TERRY J. DORGAN, JR. (Tenn. Ct. App. September 24, 2009)

This appeal involves an employment agreement and a non-compete covenant. The defendant sales representative was employed as a salesperson by the employer sign company. The parties executed an agreement setting out the structure of the employee's compensation, to be effective for three years. Prior to the expiration of the agreement, the plaintiff employer asked the employee to sign a new contract, changing his pay from straight commissions to salary plus commissions, as well as a separate two-year non-compete contract. The employee initially declined to sign the new contracts, but ultimately did so because he was told that he would be terminated if he refused. Over a year later, the employee quit to work for one of the plaintiff's competitors, and began soliciting his previous employer's largest account. The employer filed this lawsuit to enforce the non-compete contract. The employee asserted that the non-compete contract was unenforceable and filed a counterclaim, alleging breach of contract.

After a bench trial, the trial court enforced the non-compete contract, but held that the new compensation contract, executed on threat of termination, was void because it was signed under duress. The trial court awarded the employee damages. The employer now appeals, arguing that the new compensation contract was not signed under duress. The employee argues on appeal that the non-compete contract is unenforceable, because it was not supported by consideration and was also signed under duress.

We find that the defendant employee was an employee-at-will of the plaintiff company. On this basis, we reverse the trial court's finding that the new compensation contract was signed under duress, because threatening an at-will employee with termination does not constitute duress under the circumstances. We affirm the trial court's holding that the non-compete contract was enforceable.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2009/dorgant_092409.pdf

Court reviews summary judgment ruling in breach of contract case

MARK VII TRANSPORTATION CO., INC. v. RESPONSIVE TRUCKING, INC. (Tenn. Ct. App. September 21, 2009)

This action arises from an agreement between Appellant Mark VII Transportation Co. and Appellee Responsive Trucking, Inc. Appellant filed suit seeking to recover for breach of contract based on the Carmack Amendment standard of liability adopted by the parties in their agreement and for indemnification as allowed by their agreement. Both parties moved for summary judgment. The trial court denied Appellant's motion for summary judgment and granted Appellee's motion for summary judgment. Finding material issues of fact in dispute, we affirm in part and reverse in part.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/marktransportation_092109.pdf

Court reviews whether distributions made to plaintffs constituted repayment of loans or distribution of capital

JON THOMPSON, ED GATLIN, AND EMPIRE EXPRESS, INC. v. J. T. DAVIS AND BARBARA DAVIS (Tenn. Ct. App. September 8, 2009)

This is an action for contribution. The two individual plaintiffs and the defendant formed a limited liability company for the purpose of owning and operating an arena football team. To fund the team, the three investors took out two loans in their individual names. The business was a losing venture, and eventually the team was sold. The proceeds of the sale were used to pay all of the business's debts except the remaining liability on the two personal loans. The two plaintiffs paid the balance of the loans out of their personal funds.

The plaintiffs then filed the instant lawsuit against the defendant for contribution, alleging that he was jointly and severally liable for his pro rata share of the debt. The defendant conceded that he owed a small part of the debt, but argued that his liability should be reduced by the amounts distributed to the plaintiffs by the business. The defendant contended that the funds distributed to the plaintiffs should have been applied to the business debt. After a bench trial, the trial court held in favor of the plaintiffs. The trial court rejected the defendant's claim that his debt should be offset, finding that the distributions made to the plaintiffs constituted a repayment of loans, not a distribution of capital. It also awarded the plaintiffs attorney's fees. The defendant now appeals. We affirm the decision of the trial court in all respects.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/gatlinj_090809.pdf

Court reviews enforceability of non-compete covenants for therapists

COLUMBUS MEDICAL SERVICES, LLC v. DAVID THOMAS AND LIBERTY HEALTHCARE CORPORATION

COLUMBUS MEDICAL SERVICES, LLC v. M. B. "JUN" PACRIS, JR., LYNNA JARDELEZA DAWN LOCKE, MARIA MADARANG, STEPHEN MONISIT, LIZA PABALATE, CANDI McMORRAN, MONICA ROBERTS, AND KIMBERLY CRAWFORD (Tenn. Ct. App. August 13, 2009)

(Consolidated Appeal)

This appeal involves a claim of tortious inducement to breach a non-compete covenant in an employment agreement. The plaintiff staffing agency employed the defendant therapists at a State residential care facility for severely disabled persons. The plaintiff agency staffed the facility under an exclusive contract which was set to expire by its own terms in June 2003. The therapists had executed restrictive covenants in their employment agreements with the plaintiff staffing agency under which they were prohibited from working at the State facility for one year after the termination of their employment with the plaintiff. The State requested bids to staff the facility under a new contract. Through the bidding process, the defendant staffing agency was awarded the contract. The defendant agency then met with the defendant therapists (who were incumbent employees), staffed through the plaintiff agency, and offered to hire them to continue working at the facility. The defendant staffing agency was aware of the non-compete covenants and agreed to indemnify the defendant therapists if the plaintiff staffing agency tried to enforce the covenants. The defendant therapists accepted positions with the defendant agency and continued working at the facility.

The plaintiff agency filed this lawsuit against the individual defendant therapists and the defendant agency. After a bench trial, the trial court concluded that the non-compete covenants were enforceable, that the defendant therapists had breached their covenants, and that the defendant staffing agency had tortiously induced the individual defendant therapists to breach their employment contracts. The defendants now appeal. We reverse, concluding that, while the plaintiff agency had a legitimate protectable business interest, the noncompete covenants are not enforceable in light of the hardship to the defendant therapists and the adverse impact on the public interest.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/columbusmed_081309.pdf

Court reviews enforceability of an indemnity agreement and possible evidentiary errors, including violation of the statute of frauds and the parol evidence rule

WENDELL P. BAUGH, III, ET AL. v. HERMAN NOVAK, ET AL. (Tenn. Ct. App. August 13, 2009)

This case arises out of a business agreement between the parties. Plaintiffs executed a note to purchase a company. The note contained a stock transfer restriction. Subsequently, Plaintiffs entered into a business agreement with Defendants. The subject of that agreement is disputed in this lawsuit, but Plaintiffs contend that Defendants purchased one-half of the company and executed an indemnity agreement to indemnify Plaintiffs for one-half of the note on the purchase of the company. After operating for nearly ten years, the company failed.

At trial, Plaintiffs sought to enforce the indemnity agreement, and Defendants counterclaimed to recover $73,000.00 that they paid to Plaintiffs before they allegedly executed the contract. The trial court found in Plaintiffs' favor. Defendants now appeal claiming that the trial court made several evidentiary errors, that the contract is unenforceable because it violated the statute of frauds, that parol evidence regarding the terms of the contract was inadmissible, and that the corporation cannot continue its existence and sell stock after dissolution. We reverse the trial court's determination based on our finding that the contract is unenforceable as a matter of public policy.

Opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/baughw_081309.pdf

Highers's dissenting opinion may be found at:
http://www.tba2.org/tba_files/TCA/2009/baughw_diss_081309.pdf