FILED

November 24, 1997

Cecil Crowson, Jr.

Appellate C ourt Clerk

1 November 24, 1997

2 FOR PUBLICATION

3

4 IN THE SUPREME COURT OF TENNESSEE

5

6 AT JACKSON

7

8

9

10

11 CARL NELSON, (

12 (

13 Plaintiff-Appellee, (

14 ( Shelby Circuit

15 (

16 v . ( Hon. James M. Tharpe, Judge

17 (

18 ( S. Ct. No. 02S01-9604-CV-00036

19 HAROLD EUGENE MARTIN AND (

20 JACK W. GAMMON, (

21 (

22 Defendants-Appellants. (

23

24

25

For Plaintiff-Appellee 26 : For Defendants-Appellants :

27

28 Gavin M. Gentry J. Cecil McWhirter

29 Memphis Sally F. Barron

30 McWhirter & Wyatt

31 OF COUNSEL: Memphis

32

33 Armstrong, Allen, Prewitt, Leo Bearman, Jr.

34 Gentry, Johnson & Holmes Elizabeth E. Chance

35 Memphis Baker, Donelson, Bearman

36 & Caldwell

37 Memphis

38

39

40

41

42 O P I N I O N

43

44

45

46

47

48

49 MOTION TO DISMISS AND MOTION

50 FOR SUMMARY JUDGMENT SUSTAINED;

51 SUIT DISMISSED; CASE REMANDED TO

52 TRIAL COURT. REID, J.
1

A close corporation is one in which:

(1) there are few shareholders, (2) the shares are not

traded on the securities market (3) the shareholders live in the

same geographical area, and (4) most of the shareholders serve as

directors, officers and employees of the business.

Johns v. Caldwell , 601 S.W.2d 37, 41 (Tenn. App. 1980).

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This is a suit by a shareholder in a close corporation 11

2 against the two remaining shareholders alleging the wrongful

3 termination of his employment by the corporation and also his

4 wrongful removal as an officer and a director. The case is before

5 the Court on the defendants’ motions to dismiss and their motions

6 for summary judgment. The motions are sustained on all counts.

7

8 I

9

10 The facts essential to consideration of the motions are

11 not disputed. Prior to the action on which the suit is based, the

12 plaintiff, Carl Nelson, and the defendants, Harold E. Martin and

13 Jack W. Gammon, were the only and equal shareholders in B & M

14 Printing Company. The company, which was organized as a

15 partnership in 1968 but subsequently converted into a corporation, 

16 was engaged in the commercial printing business. Nelson, Martin,

17 and Gammon were officers and directors of the corporation and they

18 also were full time employees. They received no compensation for

19 their services as officers and directors but were paid salaries,

20 commissions, and bonuses as employees. The parties also received

21 rent from a building owned by them equally which was rented to the

22 corporation. Originally, each shareholder served as president of
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1 the corporation for one year on a rotating basis. Upon the advice

2 of a business consultant, that practice was discontinued and Martin

3 had served as president for several years prior to the action which

4 prompted this suit. 

5

6 In March 1989, Nelson and Martin became involved in an

7 acrimonious dispute regarding one of Nelson’s customer accounts. 

8 Martin expressed concern that the account was not being properly

9 serviced, which Nelson denied. Nelson admitted that he used highly

10 offensive language towards Martin but contended that was not

11 unusual or significant. As the result of the dispute, Martin, as

12 president and without consultation with Gammon, gave Nelson written

13 notice that his employment with the corporation was terminated

14 immediately. Shortly thereafter, the board of directors on the

15 votes of Martin and Gammon confirmed the termination of Nelson as

16 an employee and also removed him as an officer and director of the

17 corporation. There is no indication in the record that Martin and

18 Gammon discussed the matter prior to the board meeting, which was

19 attended by Nelson’s attorney and proxy.

20

21 Nelson’s annual compensation at the time his employment

22 was terminated was in excess of $250,000. 

23

24 Subsequently, Martin and Gammon leased a separate

25 building owned by them to the corporation.

26

27 During the pendency of the suit, the parties voluntarily
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1 sold their shares in the corporation for a total of approximately

2 $6 million, which amount they all agree was a fair price.

3

4 I I

5

6 Nelson’s suit seeking $6 million in compensatory damages

7 and $12 million in punitive damages asserts four theories of

8 liability - the defendants, “conspiring together and acting in

9 their individual and personal capacities,” maliciously induced the

10 corporation to terminate his employment; the defendants interfered

11 with the “plaintiff’s prospective [economic] advantage;” the

12 defendants wrongfully procured the breach of a contract of

13 employment with the corporation in violation of Tenn. Code Ann. §

14 47-50-109; and the defendants breached a fiduciary duty owed the

15 plaintiff. 

16

17 On the defendants’ motions that the complaint fails to

18 state a cause of action, the trial court dismissed the claim that

19 the defendants wrongfully interfered with a prospective economic

20 advantage, and on the defendants’ motions that the case presents no

21 genuine issue of material fact, the trial court dismissed the

22 remaining claims.

23

24 The Court of Appeals affirmed the dismissal of the first

25 three claims but reversed summary judgment on the claim that the

26 defendants violated a fiduciary duty owed to the plaintiff. 

27
2

This issue is subject to the same analysis made below regarding the

charges that the defendants “induced” and “procured” the termination of the

plaintiff’s employment with the corporation. The defendants, acting on behalf

of the corporation, terminated the plaintiff’s employment. There was no

three-party relationship, only the two-party relationship of employer and

employee. However, since the issue is before the Court on the motion to

dismiss for failure to state a cause of action, it will be considered in that

context.

3

The Court in Quality Auto Parts v. Bluff City Buick set out the

elements which generally are found to constitute a cause of action for

wrongful interference with a prospective economic advantage:

(1) the existence of a business relationship or

expectancy (an existing contract is not required); (2)

knowledge by the interferer of the relationship or

expectancy; (3) an intentional act of interference;

(4) proof that the interference caused the harm

sustained; and (5) damage to the plaintiff.

I d . at 823. 

-5-

1 All issues are before the Court on appeal.

2

3 III

4

5 Nelson insists that the trial court and the Court of

6 Appeals erred in dismissing his claim for wrongful interference

7 with a prospective economic advantage. This claim is before the

8 Court on the defendant’s motions to dismiss for failure to state a

claim on which relief can be granted. Tenn. R. Civ. P. 12.02(6). 29

10 This claim has been asserted in this Court in two prior cases. In

the first, Quality Auto Parts v. Bluff City Buick 11 , 876 S.W.2d 818

12 (Tenn. 1994), an employee accused of stealing from his company

13 filed a counter-claim of intentional interference with prospective

14 business relations alleging that the accusations were preventing

him from obtaining employment. 315 The Court noted that although such

16 a claim has been recognized as a cause of action in other
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1 jurisdictions, it has not been recognized nor rejected in

2 Tennessee. The Court found that it was unnecessary to decide

3 whether the claim is a cause of action in Tennessee because it,

4 nevertheless, would “fail because [the] complaint does not allege

5 two essential elements of the tort - (1) the existence of a

6 specific prospective employment relationship and (2) knowledge by

7 [the company] of such a relationship.” Id. at 823. In the second

8 case, Kultura, Inc. v. Southern Leasing Corp. , 923 S.W.2d 536

9 (Tenn. 1996), the issue concerned the liability of a company which

10 had filed a financing statement and failed to timely file a

11 termination statement. The Court noted that “intentional

12 interference with prospective econom ic advantage has n ot been recognized

13 as a cause of acti on in this state” but, again, found the issue to be

14 moot because the p laintiff had faile d to prove any dam ages. Id. at 540.

15

16 Since the legislature has not enacted a statutory cause

17 of action for interference with a prospective economic advantage,

18 the claim can be maintained only if it is found to be a part of the

19 common law in this State. The tort of intentional interference

20 with a prospective economic advantage is an extension of the

21 principles establishing liability for interference with contract

22 beyond the existing contractual relation to those relations which

23 are “merely prospective or potential.” See W. Page Keeton et al.,

24 Prosser and Keeton on the Law of Torts § 130, at 1005 (5th ed.

25 1984). The action for interference with contract is based on

26 society’s need for stability in contractual relations. “The tort

27 protects society’s interest in preserving the formal integrity of
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1 contract and rests on an implicit appreciation of the fundamental,

2 structure-giving significance of contracts in a market economy.” 

3 John Danforth, Tortious Interference with Contract: A Reassertion

4 of Society’s Interest in Commercial Stability and Contractual

5 Integrity , 81 Colum. L. Rev. 1491, 1523 (1981). However, the

6 policy reasons for the tort prohibiting interference with

7 contracts, do not support a tort designed to protect prospective

8 contracts and relationships. In Prosser , the tort for interference

9 with a prospective economic advantage is described as “a rather

10 broad and undefined tort in which no specific conduct is proscribed

11 and in which liability turns on the purpose for which the defendant

12 acts, with the indistinct notion that the purposes must be

13 considered improper in some undefined way.” Prosser , § 129 at 979. 

14 Danforth makes this further comparison:

15

16 [C]ontracts not only embody a bargained-for

17 exchange, but also create a system of

18 predictability in the commercial realm. By

19 guaranteeing future performance, a contract may

20 engender reliance and facilitate long-term

21 planning by parties not directly involved with

22 the contract itself. Whatever social value

23 underlies tortious interference liability,

24 therefore, is contingent upon just this: That

25 the relationship disrupted involved an

26 agreement to be bound to future performance. 

27 . . .

28

29 . . . Prospective contracts, either

30 existing relationships expected to mature into

31 contracts or expectations of future

32 advantageous relationships, do not involve an

33 agreement to be bound to future performance. 

34 Interference with prospective contracts,

35 therefore, does not threaten a societal

36 interest in the formal integrity of contract,

37 and should not be treated as a mere variant of

38 interference with existing contracts.

39
-8-

1

2 Tortious Interference with Contract , 81 Colum. L. Rev. at 1515. 

3 “Extending the tort to protect prospective contracts [means]

4 diffusing society’s general interest in contractual stability and

5 equating it with the aggregate self-interests of particular

6 plaintiffs in the stability of their own contracts.” I d . at 1517. 

7 See also Francis Bowes Sayre, Inducing Breach of Contract , 36 Harv.

8 L. Rev. 663, 703 (1922-23). Such an extension is inconsistent

9 with the principles of free competition in business relationships

10 found in this state. As one South Carolina judge noted, such a

11 cause of action would “greatly hamper free competition in the

12 marketplace.” Crandall Corp. v. Navistar Int’l Transp. Corp. , 395

13 S.E.2d 179, 181 (S.C. 1990) (Littlejohn, A.A.J., dissenting) (“I

14 see the choice is clearly for that which promotes freedom of

15 negotiation and competition in the marketplace, which is a

16 cornerstone of our democratic society.”) Other general criticisms

17 of the tort of interference with contract are applicable as well:

18

19 [T]he tort has a highly detrimental effect on

20 commerce and individual liberty. The tort

21 hinders market efficiency, produces erroneous

22 liability rulings, and fosters uncertainty in

23 the law. The courts’ interest-balancing

24 approach to the tort is unworkable. 

25 Fundamental constitutional rights, including

26 freedom of speech and due process, are

27 impaired. Other rights necessary for a free

28 society, such as freedom of thought, are also

29 detrimentally impacted. Moreover, the tort ...

30 places an unnecessary burden on an already

31 strained legal system.

32

33

34 Gary D. Wexler, Intentional Interference with Contract: Market
-9-

1 Efficiency and Individual Liberty Considerations 27 Conn. L. Rev.

2 279, 281-82 (1994). The trial court and the Court of Appeals

3 correctly found that the claim of interference with a prospective

4 economic advantage does not state a cause of action under the law

5 of Tennessee.

6 I V

7

8 The remaining issues are before the Court on the

defendants’ motion for summary judgment. In Bain v. Wells 9 , 936

10 S.W.2d 618, 622 (Tenn. 1997), this Court set forth the standards

11 governing an appellate court’s review of a motion for summary

12 judgment:

13

14 Since our inquiry involves purely a question of

15 law, no presumption of correctness attaches to

16 the lower court’s judgment, and our task is

17 confined to reviewing the record to determine

18 whether the requirements of Tenn. R. Civ. P. 56

19 have been met. Cowden v. Sovran Bank/Central

20 South , 816 S.W.2d 741, 744 (Tenn. 1991). Tenn.

21 R. Civ. P. 56.03 provides that summary judgment

22 is appropriate where: (1) there is no genuine

23 issue with regard to the material facts

24 relevant to the claim or defense contained in

25 the motion, Byrd v. Hall , 847 S.W.2d 208, 210

26 (Tenn. 1993); and (2) the moving party is

27 entitled to a judgment as a matter of law on

28 the undisputed facts. Anderson v. Standard

29 Register Co. , 857 S.W.2d 555, 559 (Tenn. 1993). The 

30 moving party has the burden of proving that its

31 motion satisfies these requirements. Downen v.

32 Allstate Ins. Co. , 811 S.W.2d 523, 524 (Tenn.

33 1991). When the party seeking summary judgment

34 makes a properly supported motion, the burden

35 shifts to the nonmoving party to set forth

36 specific facts establishing the existence of

37 disputed, material facts which must be resolved

38 by the trier of fact. Byrd , 847 S.W.2d at 215.

39

40

41
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1 Martin and Gammon assert that Nelson has not presented evidence

2 which creates a disputed issue of material fact. 

3

4 V

5

6 Plaintiff’s counsel admits to some uncertainty as to the

7 causes of action presented by the allegations. Counsel, according

8 to the brief, set forth the allegations of fact, then asserted that

9 the allegations support the several causes of action named. There

10 is however a fatal inconsistency between the facts alleged and two

11 of the claims asserted. Claims that the defendants wrongfully

12 “procured” or “induced,” the termination of Nelson’s employment

13 contemplate a three-party relationship - the plaintiff as employee,

14 the corporation as employer, and the defendants as procurers or

15 inducers. The facts alleged show there was no three-party

16 relationship. The defendant Martin was the president and chief

17 executive officer of the corporation and the defendant Gammon was a

18 director. In order for there to be a three-party relationship,

19 there must be a showing that the defendants were acting outside the

20 scope of their duties as officers of the corporation rather than on

21 behalf of the corporation.

22

23 The Court addressed this issue in Forrester v.

24 Stockstill , 869 S.W.2d 328 (Tenn. 1994), in which a discharged

25 employee sued two directors of the employer corporation for

26 interfering with the employment relationship. The Court stated:

27
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1 Since, with the exceptions noted, the

2 discharge from employment of an employee-at3 will by the employer is not actionable, but the

4 wrongful interference with at-will employment

5 by third persons is actionable, Forrester’s

6 suit against Stockstill and Kisabeth can be

7 maintained only if the proof establishes that

8 they stood as third parties to the employment

9 relationship at the time they performed the

10 acts found to have caused Forrester’s

11 discharge.

12

13

14

Id. 15 at 331. As more fully discussed below, the facts alleged do

16 not show that the defendants acted other than as officers of the

17 corporation. The plaintiff charges that his employment was

18 terminated by the defendants. His essential complaint is that the

19 defendants acted wrongfully in terminating his employment. 

20 Consequently, on the pleadings and proof, there could be no finding

21 that the defendants induced or procured a breach of contract. 

22 Consequently, the record does not present a disputed issue of

23 material fact on the claims that the defendants induced or procured

24 the termination of plaintiff’s employment. The trial court and the

25 Court of Appeals properly dismissed those claims. 

26

27 The claim that the defendants breached a fiduciary

28 relationship, however, contemplates a two-party relationship, the

29 plaintiff and the defendants as shareholders. Whether there are

30 disputed issues of material fact on this issue must be determined

31 within the context of the legal duty owed the plaintiff by the

32 defendants. In making that determination, the most significant

33 legal issue presented is whether there existed a fiduciary

34 relationship between the parties. 
-12-

1 This Court has stated that majority shareholders owe a

2 fiduciary duty to minority shareholders. Mike v. Po Group, Inc. ,

3 937 S.W.2d 790, 793 (Tenn. 1996); Nelms v. Weaver , 681 S.W.2d 547,

4 549 (Tenn. 1984), cert. denied , 476 U.S. 1118 (1986); Dale v.

5 Thomas H. Temple Co. , 186 Tenn. 69, 208 S.W.2d 344, 352 (1948). 

6 The Court of Appeals stated in Johns v. Caldwell , 601 S.W.2d 37

7 (Tenn. App. 1980), “Our courts are prompt to redress the injuries

8 to minority stockholders caused by the wrongdoings of majority

9 stockholders.” Id. at 41 (citing McCampbell v. Fountain Head

10 Railroad Co. , 111 Tenn. 55, 77 S.W. 1070 (1903)). Those cases did

11 not consider the issues presented by the case before the Court. In

12 Johns v. Caldwell , the plaintiff owned 45 percent of the

13 corporation’s stock. He brought suit against the other two

14 shareholders, Caldwell who owned 45 percent and Moore who owned 10

15 percent of the shares. Johns sought to prevent the transfer by

16 Moore of his shares to Caldwell or to require an equal division of

17 Moore’s stock between Johns and Caldwell. Johns , 601 S.W.2d at 39. 

18 The Johns Court held that neither Moore nor Caldwell owed a

19 fiduciary duty to Johns regarding the sale and purchase of Moore’s

20 shares of stock. Id. at 44, 45. The basis of the dispute in that

21 case was not action taken by a majority shareholder or the

22 corporation affecting the interest of another shareholder but

23 rather the competing efforts of two shareholders to acquire the

24 shares of the third shareholder. In Intertherm v. Olympia Homes

25 Systems , 569 S.W.2d 467 (Tenn. App. 1978), the court noted that the

26 transactions of majority or dominant shareholders will be closely

27 scrutinized for good faith and fairness if challenged. The court
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1 stated that it would “apply the rule of close scrutiny and place

2 the burden on the shareholder to justify a transaction with his

3 corporation only when the shareholder owns a majority of stock, or

4 is shown to dominate or control the corporation to a significant

5 degree in some other way.” Id. at 472. Again, the dispute in

6 Intertherm was not based on action taken by shareholders in a close

7 corporation affecting the interests of other shareholders. The

8 dispute was between shareholders claiming a security interest in

9 corporate property and nonshareholder creditors of the corporation. 

10 The court found that there was no fiduciary relationship between

11 the shareholders and the corporation because they were not dominant

12 shareholders and therefore their loan to the corporation would not

13 be closely scrutinized for good faith. The shareholders’ priority

14 over the general creditors was accordingly upheld. 

15

16 The Court has not addressed specifically the issues

17 presented in this case, the relationship between shareholders in a

18 close corporation where there is no majority or dominant

19 shareholder and the dispute relates to the shareholders’ interests

20 as shareholders. The Court of Appeals relied upon the decision in

Wilkes v. Springside Nursing Home, Inc. 21 , 353 N.E.2d 657 (Mass.

22 1976), in which the Massachusetts court held there is a fiduciary

23 relationship between shareholders of a close corporation. In

24 Wilkes , the Court stated that “stockholders in the close

25 corporation owe one another substantially the same fiduciary duty

26 in the operation of the enterprise that partners owe to one

27 another.” Id. at 661 (quoting Donahue v. Rodd Electrotype Co. , 328
4

A number of other jurisdictions have cited Donahue and Wilkes or

otherwise held that shareholders in a close corporation have a heightened

fiduciary obligation to other shareholders. See W&W Equipment Co. v. Mink ,

568 N.E.2d 564, 570 (Ind. Ct. App. 1991); Crosby v. Beam , 548 N.E.2d 217, 220

(Ohio 1989); Daniels v. Thomas, Dean & Hoskins, Inc. , 804 P.2d 359, 366 (Mont.

1990); see also Long v. Atlantic PBS, Inc. , 681 A.2d 249, 256 n. 8 (R.I.

1996).

-14-

1 N.E.2d 505, 515 (1975)). That standard of duty is one of “utmost

2 good faith and loyalty.” Id. (quoting Cardullo v. Landau , 105

3 N.E.2d 843 (Mass. 1952)); see also Blank v. Chelmsford OB/GYN,

P.C. , 649 N.E.2d 1102, 1105 (Mass. 1995). 4

4 The rationale for the

5 Wilkes decision has been stated as follows: 

6

7 In spite of the traditional adherence to

8 majority rule and the business judgment

9 rule, many courts in this country have 

10 moved steadily toward providing a remedy

11 for oppressed minority shareholders. Some

12 courts have made clear that they will

13 not apply the business judgment rule unless

14 the directors not only have acted in good

15 faith, but also have exercised proper

16 care, skill, and diligence. For many courts, 

17 the response has been to impose a 

18 fiduciary duty on the controlling shareholders 

19 for the benefit of minority interests.

20 Courts increasingly have been willing to

21 recognize an enhanced fiduciary duty 

22 among shareholders in a close corporation.

23

24

25

26 F. Hodge O’Neal and Robert Thompson, O’Neals Oppression of Minority

27 Shareholders § 10:04, at 16 (2d ed. 1995).

28

29 The Court in Wilkes held:

30

31 Therefore, when minority stockholders in a

32 close corporation bring suit against the

33 majority alleging a breach of the strict good

34 faith duty owed to them by the majority, we

35 must carefully analyze the action taken by the
5

The Wilkes fiduciary standard, as it relates to employment decisions,

is not universally accepted. A case in opposition to the Wilkes approach is

Ingle v. Glamore Motor Sales, Inc. , 535 N.E.2d 1311, 1313-14 (N.Y. 1989); see

also St. Joseph’s Reg. Health Ctr. v. Munos , 934 S.W.2d 192, 198 (Ark. 1996)

(following Ingle ). 

-15-

1 controlling stockholders in the individual

2 case. It must be asked whether the controlling

3 group can demonstrate a legitimate business

4 purpose for its action.

5

6

7

Wilkes , 353 N.E.2d at 663. 5

8 The Court in Wilkes realized, however,

9 that in the management of the corporation, the Court should not

10 substitute its judgment for the good faith action of the

11 shareholders.

12

13 [W]e acknowledge the fact that the controlling

14 group in a close corporation must have some

15 room to maneuver in establishing the business

16 policy of the corporation. It must have a

17 large measure of discretion, for example, in

18 declaring or withholding dividends, deciding

19 whether to merge or consolidate, establishing

20 the salaries of corporate officers, dismissing

21 directors with or without cause, and hiring and

22 firing corporate employees.

23

24

25

26 Id. at 663.

27

28

29

30 Based on these principles, Martin and Gammon, together

31 and separately, were obligated to deal fairly and honestly with

32 Nelson and could not act out of avarice, malice, or self-interest

33 in violation of their fiduciary duty to him as a shareholder. 

34

35 V I

36
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1 Nelson asserts essentially that Martin and Gammon

2 wrongfully terminated his employment. The question is whether the

3 record contains material evidence that Martin and/or Gammon

4 violated the fiduciary duty owed to Nelson in terminating his

5 employment. Nelson acknowledges that there was no written contract

6 of employment between the corporation and him, but asserts there

7 was a general agreement among the shareholders that each was

8 entitled to work for the corporation for life. Even if the

9 deficiencies in the proof of a contract should be disregarded,

10 Nelson’s employment was terminable at will. There is no evidence,

11 or even claim by Nelson, that he furnished any consideration for

12 his employment other than his services as an employee. The rule

13 has been well stated by the Court of Appeals. “Our courts have

14 long held that an oral contract for life time employment or

15 permanent employment amounts to an indefinite hiring terminable at

16 the will of either party where the employee furnishes no

17 consideration other than the services required in the agreement.” 

Price v. Mercury Supply Co. 18 , 682 S.W.2d 924, 934 (Tenn. App. 1984);

19 Combs v. Standard Oil Co. , 166 Tenn. 88, 90-92, 59 S.W.2d 525, 526-

20 27 (Tenn. 1933). Consequently, the corporation’s prerogative to

21 discharge Nelson as an employee was not constrained by an

22 employment contract.

23

24 There is in the record no evidence that Martin acted

25 other than within the scope of his duties as president or that

26 Martin and Gammon acted other than within the scope of their duties

27 as directors. Consequently, there is no evidence that the
6

The bylaws provide:

The President shall have the following powers and duties: . . .

He shall appoint and, at his discretion, remove or suspend

permanently or temporarily, as he may, from time to time think

fit, the agents, employees or servants of the corporation . . .

. . .

Each Director shall serve for the term of one (1) year, and until

his successor shall have been duly elected and qualified subject,

however, to the right of removal of any Director at any time by

the affirmative vote of the holders of the majority of the stock

of the corporation entitled to vote, such removal to be by

resolution adopted at any meeting of Stockholders, whether regular

or special meeting

. . . 

The Officers of the corporation shall hold office for one (1)

year, or until their successors are chosen and qualified in their

stead. Any Officer elected or appointed by the Board of

Directors may be removed at any time by the affirmative vote of

the majority of the Directors. 

7

Tenn. Code Ann. § 48-18-403 provides:

(a) An officer with discretionary authority shall discharge all

duties under that authority:

 (1) In good faith;

 . . .

 (3) In a manner the officer reasonably believes to be in the

best interest of the corporation.

-17-

1 defendants “procured” the plaintiff’s discharge. Pursuant to the

2 bylaws of the corporation, Martin, as president, had the authority

3 to discharge employees of the corporation, including Nelson, and

4 Martin and Gammon, as directors, had the authority to confirm the

5 employment action taken by the president and to remove Nelson as a

director. 66 In the exercise of those powers and duties on behalf of

7 the corporation, Martin and Gammon owed a duty of good faith and

8 fairness to Nelson. However, they also owed a duty of good faith

9 and fairness to the corporation which they served as officers. See

10 Tenn. Code Ann. §§ 48-18-403(a)(1), (3) (1995), 48-18-301(a)(1),

(3) (1995); 711 Knox-Tenn Rental Co. v. Jenkins Ins., Inc. , 755 S.W.2d
Tenn. Code Ann. § 48-18-301 states:

(a) A director shall discharge all duties as a director, including

duties as a member of a committee:

 (1) In good faith;

 . . .

 (3) In a manner the director reasonably believes to be in the

best interests of the corporation.

-18-

1 33, 36-37 (Tenn. 1988). If Martin and Gammon were protecting

2 legitimate interests of the corporation, the presence of spite or

3 ill will would not render them or the corporation liable. See

4 Forrester v. Stockstill , 869 S.W.2d 328, 333 (Tenn. 1994). 

5

6 Consequently, the first question is whether Martin and

7 Gammon were performing the duties as officers of the corporation in

8 good faith and in furtherance of the perceived best interest of the

9 corporation. The burden was on Nelson to produce evidence that

10 they were not acting in good faith in furtherance of the

11 corporation’s best interest. The Court stated in Forrester v.

12 Stockstill that the critical factors in determining if action taken

13 by directors of a corporation was in good faith are “intent, motive

14 or purpose, and means.” Id. at 333. The only evidence relating

15 to Martin’s intent or motive in terminating Nelson’s employment is

16 the cause and circumstances of his and Martin’s dispute. The only

17 evidence relating to Gammon’s intent or motive are his votes as a

18 director. There is no evidence that the termination of Nelson’s

19 employment or his discharge as an officer and a director were

20 prejudicial to the corporation’s best interest. The fact that

21 Nelson sustained the loss of employment with the accompanying
-19-

1 compensation is not evidence that the corporation was prejudiced or

2 that Martin and Gammon acted with malice, avarice, or self3 interest. The evidence does not create a disputed issue of

4 material fact regarding the good faith performance of the

5 defendants. Byrd v. Hall , 847 S.W.2d at 215.

6

7 An important public policy is at stake. Although

8 directed toward a slightly different issue, the following statement

9 made by the Court in Forrester , is relevant and appropriate:

10

11 A corporation can act only upon the advice

12 of its officers and agents, and its officers

13 and directors have a duty to serve the

14 corporation. Important societal interests are

15 served by corporations having the clear and

16 candid advice of their officers and agents. 

17 Fear of personal liability would tend to limit

18 such advice. Consequently, when an officer,

19 director, or employee of a corporation acts

20 within the general range of his authority, and

21 his actions are substantially motivated by an

22 intent to further the interest of the

23 corporation, in claims of intentional

24 interference with employment, the action of the

25 officer, director, or employee is considered to

26 be the action of the corporation and is

27 entitled to the same immunity from liability.

28

29

30

Id. 31 at 334-35.

32

33

34

35 VII

36

37

38

39 The shareholders of a close corporation share a fiduciary

40 relationship which imposes upon all shareholders the duty to act in

41 good faith and fairness with regard to their respective interests
-20-

1 as shareholders. Officers and directors of a corporation owe a

2 similar duty to the corporation. In order to withstand a motion

3 for summary judgment, allegations that the fiduciary duty has been

4 violated must be supported by material evidence that the action was

5 not in the perceived best interests of the corporation and further

6 that it was motivated by malice, avarice, or self-interest. The

7 evidence in the record does not present a disputed issue of

8 material fact. Consequently, the motions are sustained and the

9 suit is dismissed.

10

11

12

13 The case is remanded to the trial court for any further

14 proceedings consistent with this opinion.

15

16 Costs are assessed against Nelson.

17

18 ______________________________

19 Reid, J.

20

21

22 Concur:

23

24 Anderson, C.J., Drowota, Birch,

25 and Holder, JJ.