# FILED May 29, 1998 Cecil W. Crowson Appellate Cou rt Clerk BOBBY F. RAMSEY, ) ) Davidson Chancery Plaintiff/Appellant, ) No. 94-3452-III ) VS. ) ) TED A BURKHALTER, FRANK ) Appeal No. RYAN and RAMSEY BURKHALTER, ) 01A01-9707-CH-00318 P.C., ) ) Defendants/Appellee

s. )
IN THE COURT OF AP PEALS OF TENNESSEE AT NASHVILLE APPEAL FROM

THE CHANCERY COURT OF DAVIDSON COUNTY AT NASHVILLE, TENNESSEE HONORABLE ELLEN HOBBS LYLE, C HANCELLOR
David T. Hooper, #5413 HOOPE R & HOO PER, PLLC 109 Westpark Drive Suite 410 Brentwood, Tennessee 37027 ATTORNEY FOR PLAINTIF F/APPELLANT Jack W. Derryberry, Jr., #3870 WARD, DERRYBERRY & THOMPSON 1720 Parkway Towers 404 James Robertson Parkway Nashville, Tennessee 37219 ATTORNEY FOR DEFENDANTS/APPELLEES
AFFIRMED AND REMANDED.

HENRY F. TODD PRESIDING JUDGE, MIDDL E SECTION

CONCURS: BEN H. CANTRELL, JUDGE WILLIA M C. KOCH, JR., JUDGE-2-

BOBBY F. RAMSEY, ) ) Davidson Chancery Plaintiff/Appellant, ) No. 94-3452-III ) VS. ) ) TED A BURKHALTER, FRANK ) Appeal No. RYAN and RAMSEY BURKHALTER, ) 01A01-9707-CH-00318 P.C., ) ) Defendants/Appellee

s. ) 

## O P I N I O N

Al l o f the captioned parties are certified public accountants who were participants as shareholders and employe es of a professio

nal corporati

on. The pla int iff , Bob by F. Ram sey, brought this actionto recover salary due him and the value of his stock in the corporation. He has appealed from a judgment in his favor which he insists is inadequate.

BACKGROUND F

ACTS
Plaintiff-appell

ant, Bobby F. Ramsey, has bee n a certified

public accountant since 1967. After five years of various accounting employ ments, he formed a pa

r tnership which was dissolved by the death of his part ner. Fo r ten years thereafter, he practice d under the name of Ramsey & Associates. Thereafter he practiced in a partnership for two y ears and, in 19 89, he resumedpractice under the name, Ramsey & Associates. One year later, in November 1990, he andTed Burkhalter

formed the firm of

Ra msey-Burkhal

ter, P.C.. Burkhalter, who was also a lawyer, dr

afted their ag

reement.
In order to provide working capital for their enterprise, the par ties agreed

to contribute their respective accounts receivable to the enterprise. They agreed that each would be entitled to draw $1,000 per week, and that Burkhalter might dr aw more during tax se

ason when his accounting duties would curtail his legal work and income. During 1991, neither party drew any sal ary. It was agreed that the salaries of the partners would be considered an operating expense-3-

of the enterprise w

hich would continue

to be liable

for unpaid salaries and that profits would be divided aft er de duc tio n of ope rat ing e xpe nse s. N eit her p art y wi thdrew any profit prior to the beginning of the present action.

On January 1, 199 2, Frank Ry an was admitted to t

he enterprise. H

e was to be paid $50,000 per year and was to be conside red a “founding partner.” He was paid his salary continuously

until t he inc eption of this suit. He made no contribution by waiver of salary or assignment of re

ceivables.

In January 1992, Mr. Ramsey was diagnose d as suffering from

congestiveheart failure.

In March 1994, he underwent surgery for re moval of a malignancy and th ereafter received chem oth erap y; all of which reduced his capacity to work. He rece ived his fu ll sa lary through May 31, 1994, at which time Frank Ryan notified him that he and Burkhalter had decided to cut his (Ramsey’s) salary to less than one-ha lf.

On August 28, 1994, B

urkhalter and Ry

an notified Ramse

y that h e should retire. Discussions ensued as to which“accounts” Rams ey should tak

e with him, which should rema in with Burkhalter and Ryan, and what compensation would be pay able therefor.

THE PROCEEDINGS IN THE TRIAL COURT
On November 14, 1994, Mr. Ramsey filed suit against Messrs. Burkhalter and Ry an.

On April 10, 1995, Ramsey & Burkhalter, P.C., was added and the issues were referred to the Master. In December 1995, January, F ebruary and March 1996, the Master conducted hearings. On J anu ary 31 , 1997, the Master fil ed a 10-page re port contai ning 18 find ings including t he followi ng:-4- Mas t er Finding : The parties stipulated at the hearing that the 1990 F oundi ng Stockholders Agreement applies should a written agreement

betweenthe parties be re

levant to an issue. The p arties a

lso agree that Frank Ryan was to be treated as a Founding S tockholde r although h e did not si gn the 1990 Agreement and although his salary was not formally set by adde

ndum.

- - - - The Agreemen

t provides that: 4. Eachpartner should have at least 1000 realized hours eachyear. If one does not reac h this level, his salary may be reduced in aratio percentage in which his realized hours are less than this minimum. .. . This paragraph requirement for realizedtime will not be unduly enforced, but will be weighed by the partners or the Executive C ommittee to determine whether a partner is complying with the requirement and if a salary adjustment should be made. The Agreement also discusses possible bonuses to be addedto salary c

alculations. All reference s to hours and to salary or bon uses use the term “realized” billings, which means hours charged and paid, not just hours which were chargeable.

- - - - Equity ownership on the other hand, was fixed. The parties agreed that each partner is a one-third o wner of all equity in the

business.

- - - - The stockholders of Ramsey and Burkhalter insured against illness or disability

through th

e p rofessional corporation. The

Agreement sta

tes: ARTICLE 7 IL

LNESS OR DISABIL

ITY In the event of a

partner’s illnes s or d isa bil ity, he shall be entitled to his basic sal ary for the first six months of that period and then 1⁄2 his basic salary for

the second six months.

In the event that his medical re co rds indicate continued disability, he may voluntar

ily withdraw or be t erm inated from the par tnership

(upon a vote of 85% of t h e re maini ng partners). In the event that he has neither withdrawn or t erm inated, he will not received [sic] further compensation until he returns to full time

employment

with the firm, buthe will

continue to

be entitled to bonuses under Article 4 a

nd equity sha

re of profits. The Master finds that Mr. Ramsey was disabled or ill during all of 1994. He is not entitled to additiona l salary above that which he received during 1994.

- - - - In 1993, the partners orally agreed that Ra

msey would be paid approximatel y $4,0 00 per month. The other two-5- partners would be paid $4,800 per month. (There was no modification of

the 1000 realized hours requirement.) Ramsey admits that this arrangement was fa ir gi ven three different work styles and levels of production at that time. As a result , i n 1993, Ramsey was paid $48,249. The other two partners were paid $57,604.

- - - - The Mast er fi nds Mr. Ramsey is not entitled to additional sal ary for 19 94. The section of the Agreement dealing with illne

ss and disability

would result

in a salary

of $43,200 for the yea

r even if the $480

0 per month salary

is used as the basic salary. This $43,200 figure is calculated as follows: January 1-June

1, 1994: @ 4800 per m

onth $2 8 ,80 0 July 1994-Dec

ember 1994 @ $2400

per month $ 1 4,40 0

$43,20 0 Mr. Ramsey was paid $43,487.89 in 1994.

- - - - Master Finding: As Mr. Ramsey was ill or disabled in 1994, and was paid accordingly, no salary adjustments are due.

- - - - Mr. Ryan testified that

he agreed to work for no pay in 1991 andthat he was not due a salary until January 1992. Mr. Ry an should not receive comp

ensati on or credit for services he rendered in 1991.

- - - - Neither Mr. Ram sey n or Mr. Burkhalter should expect to receive a salary for 1991.

- - - - T.C.A. § 48-101- 61 4(a) requires that fair value be assessed “as of the date of death, disqualification, transfer, retirement or termination.” The master finds the first

formal notification to Mr. Ram se y of the decision that he must withdraw, was dated August 28, 1994. (Exhibit 5)

- - - - Maste r Finding : Bobby Ramse

y’s equity

is the fair value of his shares. He is not entitled to additional salary under any o

f the theories ra

ised in this lawsuit.

- - - - The balance sheet of July 31, 19 94, ref lects gross assets of $222,864.69. M ost of this number consists of receivables refl ec ting billed time ($165,368.17). Unbilled receivables are $23,452.12. The realization rate for the firm is 95. 1% ($165,368.17 + $23,452.12) x .951 = $179,568.00 (Exhibit 21). The Master finds therefore, that the true value of the receivables is $179,568.00. Cash in the company at that time totaled $22,308.00. Book va l ue of equipment and furniture owned by Ramsey Burkhalter on July 31, 1994 was $11,152.31 (an appraisalof equipment and furniture was not available to the Master). Security deposits are recorded at $584.00. The sum of the gr oss tangible asse

ts is therefor e, $213,612.00. Liabilities totaled $24,644.07. (Exhibi t 1 0) Net assets are $188, 968 because-6- Gross assets: $213,612 Liabilities: - 24,644 Net assets: $188,968 33% of $188,968 = $62,989 The Master

finds that by agreement, Mr. Ramsey was assigned $28,848 of the rec

eivables of his cl

ients at full

value for each dollar.

- - - - The Master has reviewed the voluminous transcript care ful ly. As a resul t, t he Master finds the value of Mr. Ramsey’s stock to be one-third of the value of the net assets on July 31, 1994 minus the accounts re ceivable which were assigned to him by ag

ree ment. Ramsey

Burkhalter shou

ld purchase Mr. Ramsey’s stock at the fair value of $34,141.00. As further explanation: $62,989.00 One third net asse ts -28,848.00 Value of accoun ts receivable assigned to Mr. Ramsey $34,141.00

All parties filed exceptions to the report of the Master. The Trial Judge confirmed the report and made it the judgment of the Court. A motion of the plaintiff for discretionary costs was overruled.
The plaintiff, Mr

. Ramsey, ap

pealed and has pr

esented the follo

wing issues: 1. Wh ether

the trial court er

red in failing to award Bobb y Ram sey h is u npa id 1 991 sal ary that w as designated

as being a “normal

operating expense” of Ramsey Burkhalter, P.C. 2. In the alternative, whether the trial court

erred in failing to award bobby Ramsey additional equity

in Ramsey Burkhalter, P.C.

based on the undistributed retained earnings in the corporation at the end of 1991. 3. Whether, in addition to an award of his share of the equity

in the professional corporation, Bobby Ramsey is also entitled to an award from Te d Burkhalter and Frank Ryan for clients they retained for which he was the source or procuring partner. The concurrent finding of a Master and Chancellor upon controverted questions of fact is entitled to the weight of the verdict of a jury if there is any evidence to sustain it.-7-

T.C.A. § 27-1-113, In Re: Estate of Tipps, Tenn. 1995, 907 S.W.2d 400; Coats v. Thompson, Tenn. App. 1986, 713 S.W.2d 83.
The dealings between the parties, described above, created a cla ssic procedural situation for a reference to the Master. No error is found in the order creating the reference, which was agre

ed to by the p

arties.

The first exception of t

he plaintiff to the

report was that Ma

ster found th

at “a detailed analysis of each client account was not relevant to the value of the stock of the corporation.” The Master correc

tly held that the value of the stock of thecorporation was total assets minus total liabilities. In respect to physical assets, it was incumbent upon the parties to prove their version of the value of each asset. Likewise, in respect to the value of the ex pectation of continued patronage of individual “clie nts” (good will),

it was incumbent upo

n th e parties to prove t

heir version of the value of the expectation of continued patronage of each client.It is too much to expect of a Master to listen to endless details of past dealings with patrons in order to make an estimation of the probability of continuation of and profit from the patronage of ea ch client. The first exception of the plaintiff was not well taken.

The plaintiff’s second exception to the Master’s re port was that it

failed to award plaintiff the unpaid 1991 salary. It is uncontradicted that the two initial parties waivedtheir 1991 salaries
as a part of their capital contribution to the corporation. Their only hope of recove ring this salary
was a future distribution of prof its or liquidation of

stock. There wa

s no distribution of p

rofits, andthe liquidation valu

e of the stock was

dependant upon the

profits and/or loss

es from yea

r to year preceding the dissolution.
No merit is found in p

laintiff’s secon

d exception to the re

port.-8- Plaintiff’s third, and last, exception to the report was that he was not granted an additional salary adjustment due to his disability

during that y

ear. The Master

’s report,quoted above, discussed at length the disability rights of plaintiff, and no error is found there in.

No merit is found in any of the exceptions of

plaintif f to the Master’s report. In the absenceof exceptions to the report of the Master, they cannot be reviewed for the first time on appeal. Rogers v. Rogers, 101 Tenn. 428, 47 S.W. 701.

The dealings of

the parties with each other do not conform to the popular conception of accountants

as artists of exactitude. Their dealings with each other have created for the courts
a masterpieceof inexactitude. The result reached by the Master, the Trial Court and this Court represents

the best that the inexact science of law can do to resolve the problems created by the parties.
The judgment of the Trial Court is affirmed. Costs of this appeal are taxed against the plaintiff-appellant and his surety. The cause is remanded to the Trial Court for necessary further proceedings. AFFIRMED AND REMANDED
.

_________________________________ HENRY F. TODD PRESIDING JUDGE , MIDD LE SECT IO N CONCUR:

_____________________________ BEN H. CANTRELL, JUDGE

_____________________________ WILLIA M C. KOCH, JR., JUDGE