# FILED September 3, 1996 Cecil W. Crowson Appellate Cou rt Clerk September 3, 1996 FOR PUBLICATION IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE

ELI MIKE, AN INDIVIDUAL; ( JAMES A. SCHRAMPFER, AN ( INDIVIDUAL; AND JANEN. ( FORBES, AS TRUSTEE IN ( BANKRUPTCY

FOR THE ESTA

TE OF ( DAVID L. OSBORN, ( ( Plaintiffs-Appellants, ( ( ( Davidson Chancery ( v. ( Hon. C. Al len High, Chancellor ( ( Appeal No. 01S01-950 8-CH-00137 PO GROUP, INC., A TENNESSEE ( CORPORATION; JAMES W. (BILL) ( ANDERSON III, AN INDIVIDUA L; ( AND THE ESTATE OF HAROLD L. ( JENKINS, ( ( Defendants-Appellees. ( For Plaintiffs-Appellants : For Defendants-Appellees : Gary M. Brown William L. Harbison Matthew J. Sweeney, III L. Webb Campbell, II John C. Tishler Andrew J. Pulliam Tuke, Yopp & Sweeney Sherrard & Roe, P.L.C. Nashville Nashville Denty Cheatham Cheatham & Palermo Nashville

O P I N I O N

JUDGMENTS OF TRIAL COURT AND COURT OF APPEALS REVERSED; CASE REMANDED. REID, J.-2- This case presents for rev iew the deci sion of t he Court of Appeals, aff irming an award of summary judgment in favor of t he defendants. The Court of Appeals held that the plai ntiff s' suit charging t he breach by a ma jority shareh older of a fid uciary du ty owed to minority shareholde rs is barred by the o ne year statute o f limitations. This Cou rt concludes that

the appli cable peri od of li mitations is three years and remands the case to t he trialcourt to determine whether pl aintif fs' act ion was time-barr

ed.

THE CASE

All the individual and co rporate parties in this ca se were involved in the oper

ation of Po Fol ks restaurant s. The plaint iffs ar

e Eli Mike, Jam es A. S chram pfer, an d Jan e N. F orbes , trustee in ban kruptc y for Da vid Osborn. Mike, Schrampfer, and Osborn wer e minority

shareholders in one or more of the f

ollowing corporati ons: Po Louisvi lle, I nc., whic h operated restaurants in Louisv ille, Kentucky; Po Memphis, Inc., whi ch operated restaurants in Memphis; and Po Jack son, Inc. , which operated a restaurant in Jackson, Tennessee. The majority shareholder i n each of these t hree corporations was the defendant Po Group, Inc. The defendants James W

. (Bill ) Anderson and Harol d L. Jenkins ( now deceased) owned equally all t he shares of stock in Po Group, I nc. Anderson and Jenki ns also owned shares of stock i n Po Combination, I nc., whic h owned all t he stock in f our other corpora tions whic h opera ted Po F olks resta urants in o ther locatio ns.-3-

Anderso n and Jen kins were of ficers anddire ctors in Po Louisvil le, Inc. ; Po Memphis, Inc.; Po Jackson, Inc.; Po Group, Inc.; and Po Combination, Inc.

In 1984, Po Combinati on, Inc. b orrowed $2.3 mil lion fr om Nashvill e City Bank. Anderson and Jenkins per sonally guar

anteed a porti on of the loan . In early 198 5, the ban k declare d the loan in default. P ursuan t to a new financi ng arrangement, t he bank agreed to forebear coll ection of the $2.3 mill ion loan and to extend an addi tional $ 900,000 li ne of credi t to be used by Po Combination , Inc ., Po Louisvil le, Inc. , Po Memphi s, I nc., and Po Jackso n, Inc. as o perating capital. Po Group , Inc. was fo rmed in order to faci litate t he new f inanc ing ar rangement . Allof th e share s in Po Com bination, In c. and all the shares in Po Lo uisville, Inc., Po Mem phis, Inc., and Po Jackso n, Inc. own ed by A nderso n and J enkins w ere trans ferred to Po Group, Inc. Unlimited guar anty agreements wer e executed by al l the subsidiaries of Po Combination, I nc., and Po Louisvill e, Inc., Po Memphis, Inc., and Po Jackson, Inc. pledged allof their assets and als o executed unlimited guaran ty agreem ents to se cure the $900,0 00 line of c redit. Ande rson an d Jenk ins also e xecuted guaran ty agreem ents for the $2.3 million an d the $9 00,000 loans.

In Dece mber 1 985, Po Group , Inc. finalized an agre emen t to sell the ass ets of all its sub sidiary corp orations, in cluding P o Louisv ille, Inc., Po Memphis, Inc., and Po Jackson, Inc. , to DineLite Corporati on. The considerati on for the sa le was the re lease of al l guaranty agreements made-4-

to Nashville Cit

y Bank, including those executed by Anderson and Jenkins, and the recei pt of stoc k in DineLit e. The shareholder

resoluti ons required for the appr

oval of t he sale were adopted by the vote of Po Group, Inc ., the majority shareholder. The proposal was approv ed, and the t ransaction closed o n June 30, 198 6.

In September 1986, t he plaint iffs filed sui t, pursuant to Tenn. Code Ann. § 4 8-1-909 (repeale d by Acts 1986, ch . 887, § 17 .05 and Acts 1987, c h. 242, § 1 8.05) to e nforce th eir dissen ters' rights a s mino rity shareh olders an d obtain p ayme nt for the fair m arket valu e of their sto ck. In that sui t, the cou rt determined the fai r market val ue of the shares held by each to be as fol lows: Mike $ 325,865.60, Schr ampfer $98,341.76, and Osborn $260,685.48. No payment was made to the pl aintif fs because the corporations h ad no ass ets with which to m ake the paym ents. There were no insolvenc

y proceedings, and there was no suit by or on behalf of the corpora tions to se cure pa ymen ts to the pla intiffs.

In the present

suit, the plai ntiff

s allege t hat Po Group, Inc.as majority shareholder, breached a fi duciary dut y owed to the pl aintif

fs as minority shareholders.They contend that the sale of

the assets owned by Po Louisvil le, Inc. , Po Memphis, Inc. , and Po Jackson, I nc., approved by the vote of Po Group, Inc. as the majori ty shareholder in each of those corporati ons, and the di spositi on of the consi deration r eceived, r

endered the corporati ons unable to pay the plai ntiff

s the value of their

stock as-5-

determ ined b y the co urt in the 1986 proce eding . They conte nd tha t the on ly considerati on of value r eceived in exchange for t he corporati ons' assets was the release of Anderson's andJenkins' guar anty agreements. They allege, in conclusion, tha t by their action, Po G roup, Inc., as ma jority shareholder, breach ed a fiduc iary duty ow ed to the p laintiffs as m inority share holders
. The plainti ffs als o contend that they should be allowed to pierce th e corpo rate ve il of Po G roup, In c. and collect a ny judg men ts rend ered in their favor from Ander son an d Jenk ins perso nally.

After th e completion of discovery , the defendan ts Po Group, Inc., Ander

son, and Jenkins

filed motions for summary judgment, on several grounds: they

claimed that

the suit was barred by t he one year stat ute of limitati ons governing breach of fiduci ary duties by dir ectors and officers, Tenn. Code Ann. § 48-18-601; that, i n the alte rnative, the sui t was barred by the three year statute of li mitations governing cl aims for proper ty damage, Tenn. Code Ann. § 28-3-105; and that there was no material evidence justif ying the pi ercing of Po Group, Inc.'s corporate veil. The trialcourt found that the pl aintif

fs' cl aims were barred by the one year st

atute of l imitati ons set forth in Tenn. Code Ann. § 48-18-601 and granted the defendants' motion s for sum mary jud gmen t on this ba sis.

The C ourt of Ap peals affirm ed. Tha t court held that the sta tute of limi tations on all of the clai ms expired on Januar y 1, 1989, one y

ear after the effe ctive da te of T enn. C ode A nn. § 4 8-18- 601. T he Co urt of A ppea ls-6-

rejected t he plaint iffs'contenti on that Tenn. Code Ann. § 48-18-601 does not apply, with t he conclusion: "Regardless of how plai ntiffs choose to couch their cl aim, they ar

e allegi ng breach of f iduciary duties by officer

s and directors, a nd their su it is barred b y the one -year statu te of limitation s."

STANDARD OF REVI EW

In determining whether o r not a genui ne issue of material fact exists for pu rposes of sum mary judgment, cour

ts in t his state have indicated that thequesti on s houl d be cons ide red in thesame manner as a motion for directed v

erdict made at the close of the p laintiff's proof, i.e., the trial court must take the st rongest legitimate vi ew of the eviden ce in fa vor of th e non -mov ing pa rty, allow all reasonable i nferences i n favor of that part

y, and discard all counte rvailing evidence. Th en, if there is a dispute as to any materi al fact or any doubt as to the concl usions to be dr awn from that f

act, the motion must b e denie d. The c ourt is not to "weigh" t he evidence when eval uating a moti on for summ ary judgm ent. The court is sim ply to overrule th e motio n where a genu ine dispu te exists as to any materi al fact. The phrase "genuin e issue" c ontaine d in Rule 56.03 re fers to genuine fact ual issues and does not incl ude issues involv ing legalconclusions to be drawn fr om the facts. The criti cal focus i s limited to facts deemed "material ," which i s to say tho se facts t hat must be decid ed in o rder to resolve the su bstan tive claim or defense at which the moti on is directed.
Byrd v. H all , 847 S.W .2d 208 , 210-11 (Tenn . 1993) (c itations om itted).

ANALY SIS1 The plead ings do no t put at issue whether the complaint state s a cause o f action u pon which the plaintiffs a re entitled to relief.

-7- I
Since summary judgment was gr anted on the grou nd that the plaintif fs' causes of acti on were barred by the one year statute of limitat ions, the Court must determine which statute of limitati ons applies to the plai ntiffs' suit, whi ch depends upon the natu re of the cau se of acti on alleged. The gravamen of a complai nt and the i njury al leged determin e which stat ute of limitations a pplies. Vance v. Schulder , 547 S.W .2d 927 , 931 (T enn. 19 77). To ascertain t he gravamen of the ac tion, t he Court must look to the basi s for which d amag es are so ught. Bland v. S mith , 197 Tenn. 683, 277 S. W.2d 377, 37 9 (1955 ).

The complaint al leges that the majorit

y shareholder , Po Group, Inc., breached a fi duciary duty owed to them as minorit y shareholders. 1 Tenne ssee courts h ave stated that m ajority shareholders owe a fiduciary duty to m inority share holders
. See Nelms v. Weaver , 681 S.W.2d 547, 549 (Tenn . 1984); Dale v. Thomas H. Temple Co. , 186 Tenn. 69, 208 S. W.2d 344, 35 2 (1948 ); McCampbell v. Fountai n Head R.R. Co. , 111 Tenn. 55, 77 S.W . 1070, 10 73 (190 3); John s v. Ca ldwell , 601 S.W .2d 37, 41 (Tenn . Ct. App. 1980). However , those cases ar e signif icantl y different fr om the present case i n the substance of the all egations. In the prese nt case, t he plaintiffs allege that the proce eds from the sale of corporate assets were-8-

unfairly distribu ted by the defend ant Po G roup, Inc . to the defe ndants Anderson and Jenkins. The complaint does not otherwise define the dut y or the wrong. The al legations do not indi cate clear ly the " gravamen of the action."The legal wrong of which the pl aintif

fs complain i s uncertai n. The complaint does not

charge fraud; however, t here is fou nd in the complai nt the statement

that the br

each of fi duciary dut

y by the defend ants included "the divers ion and /or misa ppropria tion" of ass ets. Even then, the le gal duty that was violated is no t entirely clear.

The plainti ffs seek no j udgment of li abilit y for wrongdoi ng against Anderson and Jenkins. The compla int agai nst Anderson and Jenkins is that their

relati onship wit h the majori ty sharehol der, Po Group, Inc., was s uch tha t the plaintiffs sh ould be allowed to pierce the corpora te veil and collect

from the individual defendants the val ue of thei r shares of stock.

II

The re app ears to be no Ten ness ee sta tute or d ecisio n direc tly addressing the period of limitations for the breach of a fiduc iary duty by a majority shareholder. The statute whi ch the tri al court an d the Court of Appeals found appl icable, Tenn. Code Ann. § 48-18-601, is part of the Tenn essee Busine ss Corp oration A ct which w as ena cted in 19 86. The Act,-9-

by its terms, became effect ive on January 1, 1988. Sect ion 48-18-601 provides:
Any action al leging breac h of fiduc iary dut ies

by directors or off icers, i ncluding al leged viol ations of the sta ndards establ ished in § 48- 18-301 [for director s], § 48-18-302 [for di rectors]or § 48-18- 403 [for of

ficers] , must be brought within on e (1) year from t he date of such br each or viol ation; provided, that in the event t he alleged breach or violation is not dis cover ed no r reaso nably s hould have been discover

ed within the one-year period, the period of

limitation shal l be one (1) year from the da te suc h was discov ered o r reaso nably shou ld have been discov ered. In no eve nt sha ll any such acti on be brought more th an three (3) years after the date on which the breac h or violation occu rred, e xcept w here th ere is fraudulent

concealment on the p art of t he defendant, i n which case the ac tion shal l be commenced within one (1)year after the all eged breach or vi olation is, or s hould have been, discovered.

In American Network G roup, Inc. v. Kostyk , 804 S.W.2d 447 (Tenn. Ct. App. 1990), the Cour t of Appeals applied Secti on 48-18-601 to a cause of acti on against a corporate off icer for breach of fi duciary dut ies that had a risen p rior to the effective date o f the sta tute. T he Co urt of A ppea ls held that the appli cation of Section 48-18-601 to a cause of action that arose prior to January 1 , 1988 resulted in the former limitation p eriod of six years being shorten ed to one year, beginning on t he effective date of t he statute, Janua ry 1, 1988 , and en ding on Janua ry 1, 1989
.

Under the rul e set fort h in Kostyk , any ri ght the pl aintif fs may-10-

have had to recover from A nderson o r Jenkins for brea ch of their fiduciary duties as of

ficers or director s of any of the three subsi diary corporations or Po Group, Inc. expired on January 1, 1989, pri or to the date on which the present sui t was fil ed, June 30, 1989. The plaintiffs acknowl edge that Section 48-18-601 bars recovery fr om Anderson or Jenkins for any breach of fiduciary

duties as offi cers or directors.
However, the pl aintif

fs dispute the appli cabili ty of Sect ion 48- 18-601 to the corporate defendant Po Group, Inc ., the majo rity shareholder of each of t he three subsi diary corporations i n which the pl aintif fs owned stock. When this t ransaction was consummated on June 30, 1986, Tenn. Cod e Ann . § 48-1 -907 (1 984) (r epea led Ja n. 1, 19 88) pro vided th at any s ale by a corporat ion of al l or substantially all of its proper

ty must have t he prior approval of

shareholders owning at l east two-t hirds (2/ 3) of the st

ock of the corpo ration. T hus, th e actio n of Po Grou p, as th e ma jority sha rehold er in the three subs idiary

corporati ons, was essenti al to the consummation of the sale.

In th is cas e, th e all egati on of wr ongdoi ng is d irec

ted at Po Group, Inc., wh ich was not an officer or director of the sub sidiary corpo rations . In its inte rpreta tion of S ection 48-18 -601, th e Cou rt of Ap peals failed t o disti nguish between breach of fi duciary dut y by off icers and directors and b reach of fiduciary du ty by majority shareh olders. The C ourt of Appeals' interpr

etation of

Section 48-18- 601 to incl ude shareholders is not-11-

supported by prior cases deal ing with statutes of limitations. In Lawma n v. Barne tt , 177 S.W.2d 121, 124 (Tenn. 19 44), the Court held that

a statuteof limitatio ns wh ich, by its terms , barre d reco very un der a p romis sory no te did not prevent

the holder of the note f rom foreclosi ng on a mortgage that secured the note. The Court noted that a statute of l imitati ons should not be applied if a strained c onstruc tion of the s tatute is ne cessar y. Id. at 128. In Resolution Trust Corp. v. Wood , 870 F. S upp. 79 7 (W .D. Ten n. 1994 ), a federal cas e applying Tennessee law, the amended complai nt alleg ed that the direct

ors and offi cers of a failed bank wer e liabl e for breach of

implied contract, breach of fi duciary dut y, gross negl igence, negl igence, and negligence per

se. In hol ding that Tenn. Code Ann. § 48-18-601 appl ied only to t he cause of acti on that was cove red by the ex press terms of the statute, the court stated:

As an initi al matter, the Court must note that the defendants ' attempt t o lump all f ive causes of action under Tenn. Code Ann. § 48-18-601, the statute regard ing bre ache s of fidu ciary du ty, is inappro priate. Th e statute a pplies exp ressly to breaches of f iduciary

duty. Tenn Code Ann. § 48- 18-601. Hence, for the Court t o include ot her causes of acti on which were not addressed by the state le gislat ure, the Court would be operati ng in a legisl ative post ure as opposed to its judi cial rol e.

Id. at 806.
"[I] t is a ru le of statutory constructi on that . . . the menti on of one subject i n a statute means the exclusi on of other s ubjects t hat are not-12-

mentio ned." State v. Harkins , 811 S.W.2d 79, 82 (Tenn. 1991 ). When a statute expressly menti ons certai n categories and not others , the "omis sion is signific ant, an d it wou ld be in appro priate fo r this Co urt to im ply an e ntirely new top ic into a statu te that doe s not see k to addr ess it in the first in stance ." Id . On this point, it is significant that Te nn. Code Ann. § 48-1 8-601 app ears in Chapter 18 of

Title 48, a chapter deal ing exclus ively with dir ectors and officers. Th ere is no c orrespo nding p rovision in C hapter 1 7 which relates to the sha reholde rs.

Since, by i ts express terms, Section 48- 18-601 applie s to the breach of fiduciary d uties by "dire ctors or offic ers," and not to m ajority shareholders, its one yea r limit ations peri od does not apply to the act ions of Po Grou p, Inc. in its capacity as m ajority shareholder o f the three subsid iary corporations.

III

The allegations of the complaint in this case perhaps approach the common law action of deceit . In Vance v. Schulder, 547 S.W.2d 927, 933 (Tenn. 1977), the Court hel d that the a pplicabl e statute of limi tations was th ree ye ars in a suit ba sed o n the c laim th at the s ale of th e plain tiff's stock for

less than its fullvalue was i nduced by the fr audulent representat ions of t he defendant. In that case, a minori ty sharehol der sued the direct

ors of the company allegi ng that the director s' misrepres entations-13-

of the value of t he plaintif f's stock induced the pl aintiff to sell his stock at less than its fair v alue. The Court h eld that the claim was grounded i n the tort of deceit for w hich the s tatute of lim itations is thre e years. Id. at 932. I n a federal ca se interpre ting Ten nesse e law, Cumberland & Ohio Co. of Texas, Inc. v. First Am. Nat' l Bank , 936 F.2 d 846, 8 48 (6th C ir. 1991), cert. denied , 502 U .S. 103 4, 112 S. Ct. 8 78 (19 92), the Sixth C ircuit C ourt of A ppea ls held that the three year statute applied i n a suit for damages incurre d because the plai ntiff

was forced by t he defendant bank, pursuant to a financing agre ement, to se ll property for less than its fair value. Th e court found that t he substance of t he alleged wron g, economic duress, was indist inguishabl e from deceit , and that the suit was bar red by the t hree year statute of lim itations. Id. at 849. Other jurisdi ctions whi ch have consider ed the limitat ions period applicabl e to actions by minorit y shareholders against majority shareholders al leging breach of fi duciary duty have held t hat such actions a re govern ed by the statute of lim itations for tortio us injury to property. See , e.g. , Kirley v . Kirl ey , 521 N.E.2d 1041, 1042 (Mass. Ct. App. 1988); Crosby v. Beam , 615 N.E .2d 294 , 300 (O hio Ct. Ap p. 1992 ); Russ ell v. Cam pbell , 725 S.W.2d 739, 744 (Tex. Ct. App. 1987). There is a "growing common law trend to declare 'that a breach of fiduciary duty is a tort.'" Kirley , 521 N .E.2d at 104 3. The conc lusion is that th e app licable limitations p eriod is thre e years a s provide d in Ten n. Cod e Ann. § 28-3-10 5.

IV-14- The plainti ffs contend that the limitat ions peri od started t o run when the sale to DineLite was c losed, whi ch was less than three years prior to the date the suit

was fil ed, and that, therefor e, the sui t is not

barred by t he three year statute. The defendants' positi on is that the period b egan when the plai ntiff

s were furni shed disclosur e statements regarding the s ale and that, t herefore, the suit is barred by

the statu te.

The trial c ourt, in ruling on the m otion for su mm ary judgm ent, did no t rule on when the lim itations period com men ced. C onse quen tly, this issue m ust be de termine d on rem and.

V

In its order denyi ng the defendants' motion to dismiss, t he trial court h eld tha t "there are su fficient a llegatio ns in p laintiffs' c omp laint tha t, if proven, w ould pe rmit them to pierce th e corpo rate veil and sue de fendan ts in their indivi dual capacit ies." Becaus e the tri al court l ater concl uded, after the defendants fil ed motions for summary judgment, that all of the plainti ffs' claims are barred by the one-year statute of li mitations, i t did not address that issue further.

Ordina rily, a determ ination of w hether to pierce the corpora te veil i s not appropri ate for summary j udgment. In Electri c Power Bd. of Chattanooga v. St. Joseph Vall ey Structur al Steel Corp. , 691 S.W.2d 522,-15-

526 (Tenn. 1985), the Court stated:

The c onditions under w hich the c orporate entity will be disregarded v ary accordi ng to the circumstances pr

esent in each cas e and the matter is pa rticul arly wi thin the p rovince of the tri al court. Moreover, a determination of whether or not a corporati on is a mere inst rumentalit y of an individual or a paren t corporation is ordina rily a question of fact for the jury.
In the present case, ther e are genuine issues of material f act which precl ude summary judgment on the pl aintif fs' attempt to pierce the corporate veil of Po Group and hold Anderson and Jenki ns personall y liabl e.

CONCLUSI ON

The period of limita tions a pplica ble to th e alleg ations stated in the complaint

is three years. Because t he record present s genuine issues

of materia l fact which preclude summ ary judgm ent on w hether th e plaintiffs may p ierce th e corp orate v eil of Po Grou p, Inc., A nders on an d Jen kins sh all remain as defendants.

The judgm ent of th e Cou rt of Ap peals affirmin g the tria l court's grant of summary j udgment in favor of the defe ndants is r eversed, and t he case is re mand ed to the tria l court for furth er proce edings
.

Because the case is

reversed and r

emanded for tri al, the-16-

discreti onary costs j udgment against t he plaint iffs i s vacated.

Costs of this appeal are taxed to the appellees.

_________________________ REID, J. Concur: Birch, C.J ., Drowota, Anderson, and W hite, JJ.