# FILED

November 24, 1997 Cecil Crowson, Jr. Appellate Court Clerk November 24, 1997 1 FOR PUBLICATION 2 3 IN THE SUPREME COURT OF TENNESSEE 4 5 AT JACKSON 6 7 8 9 10 CARL NELSON, ( 11 ( 12 Plaintiff-Appellee, ( 13 ( Shelby Circuit 14 ( 15 v . ( Hon. James M. Tharpe, Judge 16 ( 17 ( S. Ct. No. 02S01-9604-CV-00036 18 HAROLD EUGENE MARTIN AND ( 19 JACK W. GAMMON, ( 20 ( 21 Defendants-Appellants. ( 22 23 24 25 For Plaintiff-Appellee : For Defendants-Appellants : 26 27 Gavin M. Gentry J. Cecil McWhirter 28 Memphis Sally F. Barron 29 McWhirter & Wyatt 30 OF COUNSEL: Memphis 31 32 Armstrong, Allen, Prewitt, Leo Bearman, Jr. 33 Gentry, Johnson & Holmes Elizabeth E. Chance 34 Memphis Baker, Donelson, Bearman 35 & Caldwell 36 Memphis 37 38 39 40 41 O P I N I O N 42 43 44 45 46 47 48 MOTION TO DISMISS AND MOTION 49 FOR SUMMARY JUDGMENT SUSTAINED; 50 SUIT DISMISSED; CASE REMANDED TO 51 TRIAL COURT. REID, J. 521A 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).

-2- This is a suit by a shareholder in a close corporation1 1 against the two remaining shareholders alleging the wrongful 2 termination of his employment by the corporation and also his 3 wrongful removal as an officer and a director. The case is before 4 the Court on the defendants’ motions to dismiss and their motions 5 for summary judgment. The motions are sustained on all counts. 6 7

I 8 9 The facts essential to consideration of the motions are 10 not disputed. Prior to the action on which the suit is based, the 11 plaintiff, Carl Nelson, and the defendants, Harold E. Martin and 12 Jack W. Gammon, were the only and equal shareholders in B & M 13 Printing Company. The company, which was organized as a 14 partnership in 1968 but subsequently converted into a corporation, 15 was engaged in the commercial printing business. Nelson, Martin, 16 and Gammon were officers and directors of the corporation and they 17 also were full time employees. They received no compensation for 18 their services as officers and directors but were paid salaries, 19 commissions, and bonuses as employees. The parties also received 20 rent from a building owned by them equally which was rented to the 21 corporation. Originally, each shareholder served as president of 22-3-

the corporation for one year on a rotating basis. Upon the advice 1 of a business consultant, that practice was discontinued and Martin 2 had served as president for several years prior to the action which 3 prompted this suit. 4 5 In March 1989, Nelson and Martin became involved in an 6 acrimonious dispute regarding one of Nelson’s customer accounts. 7 Martin expressed concern that the account was not being properly 8 serviced, which Nelson denied. Nelson admitted that he used highly 9 offensive language towards Martin but contended that was not 10 unusual or significant. As the result of the dispute, Martin, as 11 president and without consultation with Gammon, gave Nelson written 12 notice that his employment with the corporation was terminated 13 immediately. Shortly thereafter, the board of directors on the 14 votes of Martin and Gammon confirmed the termination of Nelson as 15 an employee and also removed him as an officer and director of the 16 corporation. There is no indication in the record that Martin and 17 Gammon discussed the matter prior to the board meeting, which was 18 attended by Nelson’s attorney and proxy. 19 20 Nelson’s annual compensation at the time his employment 21 was terminated was in excess of $250,000. 22 23 Subsequently, Martin and Gammon leased a separate 24 building owned by them to the corporation. 25 26 During the pendency of the suit, the parties voluntarily 27-4-

sold their shares in the corporation for a total of approximately 1 $6 million, which amount they all agree was a fair price. 2 3

I I 4 5 Nelson’s suit seeking $6 million in compensatory damages 6 and $12 million in punitive damages asserts four theories of 7 liability - the defendants, “conspiring together and acting in 8 their individual and personal capacities,” maliciously induced the 9 corporation to terminate his employment; the defendants interfered 10 with the “plaintiff’s prospective [economic] advantage;” the 11 defendants wrongfully procured the breach of a contract of 12 employment with the corporation in violation of Tenn. Code Ann. § 13 47-50-109; and the defendants breached a fiduciary duty owed the 14 plaintiff. 15 16 On the defendants’ motions that the complaint fails to 17 state a cause of action, the trial court dismissed the claim that 18 the defendants wrongfully interfered with a prospective economic 19 advantage, and on the defendants’ motions that the case presents no 20 genuine issue of material fact, the trial court dismissed the 21 remaining claims. 22 23 The Court of Appeals affirmed the dismissal of the first 24 three claims but reversed summary judgment on the claim that the 25 defendants violated a fiduciary duty owed to the plaintiff. 26 272This 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.

3The Court in Quality Auto Parts v. Bluff City Buickset 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.

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All issues are before the Court on appeal. 1 2

III 3 4 Nelson insists that the trial court and the Court of 5 Appeals erred in dismissing his claim for wrongful interference 6 with a prospective economic advantage. This claim is before the 7 Court on the defendant’s motions to dismiss for failure to state a 8 claim on which relief can be granted. Tenn. R. Civ. P. 12.02(6). 2 9 This claim has been asserted in this Court in two prior cases. In 10 the first, Quality Auto Parts v. Bluff City Buick, 876 S.W.2d 818 11 (Tenn. 1994), an employee accused of stealing from his company 12 filed a counter-claim of intentional interference with prospective 13 business relations alleging that the accusations were preventing 14 him from obtaining employment. 3The Court noted that although such 15 a claim has been recognized as a cause of action in other 16-6-

jurisdictions, it has not been recognized nor rejected in 1 Tennessee. The Court found that it was unnecessary to decide 2 whether the claim is a cause of action in Tennessee because it, 3 nevertheless, would “fail because [the] complaint does not allege 4 two essential elements of the tort - (1) the existence of a 5 specific prospective employment relationship and (2) knowledge by 6 [the company] of such a relationship.” Id.at 823. In the second 7

case, Kultura, Inc. v. Southern Leasing Corp. , 923 S.W.2d 536 8 (Tenn. 1996), the issue concerned the liability of a company which 9 had filed a financing statement and failed to timely file a 10 termination statement. The Court noted that “intentional 11 interference with prospective economic advantage has n ot been recognized 12 as a cause of action in this state” but, again, found the issue to be 13 moot because the plaintiff had failed to prove any dam ages. Id.at 540. 14 15 Since the legislature has not enacted a statutory cause 16 of action for interference with a prospective economic advantage, 17 the claim can be maintained only if it is found to be a part of the 18 common law in this State. The tort of intentional interference 19 with a prospective economic advantage is an extension of the 20 principles establishing liability for interference with contract 21 beyond the existing contractual relation to those relations which 22 are “merely prospective or potential.” SeeW. Page Keeton et al., 23 Prosser and Keeton on the Law of Torts§ 130, at 1005 (5th ed. 24 1984). The action for interference with contract is based on 25 society’s need for stability in contractual relations. “The tort 26 protects society’s interest in preserving the formal integrity of 27-7-

contract and rests on an implicit appreciation of the fundamental, 1 structure-giving significance of contracts in a market economy.” 2 John Danforth, Tortious Interference with Contract: A Reassertion 3 of Society’s Interest in Commercial Stability and Contractual 4 Integrity, 81 Colum. L. Rev. 1491, 1523 (1981). However, the 5 policy reasons for the tort prohibiting interference with 6 contracts, do not support a tort designed to protect prospective 7 contracts and relationships. In Prosser, the tort for interference 8 with a prospective economic advantage is described as “a rather 9 broad and undefined tort in which no specific conduct is proscribed 10 and in which liability turns on the purpose for which the defendant 11 acts, with the indistinct notion that the purposes must be 12 considered improper in some undefined way.” Prosser, § 129 at 979. 13 Danforth makes this further comparison: 14 15 [C]ontracts not only embody a bargained-for 16 exchange, but also create a system of 17 predictability in the commercial realm. By 18 guaranteeing future performance, a contract may 19 engender reliance and facilitate long-term 20 planning by parties not directly involved with 21 the contract itself. Whatever social value 22 underlies tortious interference liability, 23 therefore, is contingent upon just this: That 24 the relationship disrupted involved an 25 agreement to be bound to future performance. 26

. . . 27 28 . . . Prospective contracts, either 29 existing relationships expected to mature into 30 contracts or expectations of future 31 advantageous relationships, do not involve an 32 agreement to be bound to future performance. 33 Interference with prospective contracts, 34 therefore, does not threaten a societal 35 interest in the formal integrity of contract, 36 and should not be treated as a mere variant of 37 interference with existing contracts. 38 39-8- 1 Tortious Interference with Contract , 81 Colum. L. Rev. at 1515. 2 “Extending the tort to protect prospective contracts [means] 3 diffusing society’s general interest in contractual stability and 4 equating it with the aggregate self-interests of particular 5 plaintiffs in the stability of their own contracts.” I d. at 1517. 6
See alsoFrancis Bowes Sayre, Inducing Breach of Contract , 36 Harv. 7 L. Rev. 663, 703 (1922-23). Such an extension is inconsistent 8 with the principles of free competition in business relationships 9 found in this state. As one South Carolina judge noted, such a 10 cause of action would “greatly hamper free competition in the 11 marketplace.” Crandall Corp. v. Navistar Int’l Transp. Corp. , 395 12 S.E.2d 179, 181 (S.C. 1990) (Littlejohn, A.A.J., dissenting) (“I 13 see the choice is clearly for that which promotes freedom of 14 negotiation and competition in the marketplace, which is a 15 cornerstone of our democratic society.”) Other general criticisms 16 of the tort of interference with contract are applicable as well: 17 18 [T]he tort has a highly detrimental effect on 19 commerce and individual liberty. The tort 20 hinders market efficiency, produces erroneous 21 liability rulings, and fosters uncertainty in 22 the law. The courts’ interest-balancing 23 approach to the tort is unworkable. 24 Fundamental constitutional rights, including 25 freedom of speech and due process, are 26 impaired. Other rights necessary for a free 27 society, such as freedom of thought, are also 28 detrimentally impacted. Moreover, the tort ... 29 places an unnecessary burden on an already 30 strained legal system. 31 32 33 Gary D. Wexler, Intentional Interference with Contract: Market 34-9-

Efficiency and Individual Liberty Considerations27 Conn. L. Rev. 1 279, 281-82 (1994). The trial court and the Court of Appeals 2 correctly found that the claim of interference with a prospective 3 economic advantage does not state a cause of action under the law 4 of Tennessee. 5

I V 6 7 The remaining issues are before the Court on the 8 defendants’ motion for summary judgment. In Bain v. Wells , 936 9 S.W.2d 618, 622 (Tenn. 1997), this Court set forth the standards 10 governing an appellate court’s review of a motion for summary 11 judgment: 12 13 Since our inquiry involves purely a question of 14 law, no presumption of correctness attaches to 15 the lower court’s judgment, and our task is 16 confined to reviewing the record to determine 17 whether the requirements of Tenn. R. Civ. P. 56 18 have been met. Cowden v. Sovran Bank/Central 19 South, 816 S.W.2d 741, 744 (Tenn. 1991). Tenn. 20 R. Civ. P. 56.03 provides that summary judgment 21 is appropriate where: (1) there is no genuine 22 issue with regard to the material facts 23 relevant to the claim or defense contained in 24 the motion, Byrd v. Hall , 847 S.W.2d 208, 210 25 (Tenn. 1993); and (2) the moving party is 26 entitled to a judgment as a matter of law on 27 the undisputed facts. Anderson v. Standard 28 Register Co. , 857 S.W.2d 555, 559 (Tenn. 1993). The 29 moving party has the burden of proving that its 30 motion satisfies these requirements. Downen v. 31 Allstate Ins. Co. , 811 S.W.2d 523, 524 (Tenn. 32 1991). When the party seeking summary judgment 33 makes a properly supported motion, the burden 34 shifts to the nonmoving party to set forth 35 specific facts establishing the existence of 36 disputed, material facts which must be resolved 37 by the trier of fact. Byrd, 847 S.W.2d at 215. 38 39 40 41-10-

Martin and Gammon assert that Nelson has not presented evidence 1 which creates a disputed issue of material fact. 2 3

V 4 5 Plaintiff’s counsel admits to some uncertainty as to the 6 causes of action presented by the allegations. Counsel, according 7 to the brief, set forth the allegations of fact, then asserted that 8 the allegations support the several causes of action named. There 9 is however a fatal inconsistency between the facts alleged and two 10 of the claims asserted. Claims that the defendants wrongfully 11 “procured” or “induced,” the termination of Nelson’s employment 12 contemplate a three-party relationship - the plaintiff as employee, 13 the corporation as employer, and the defendants as procurers or 14 inducers. The facts alleged show there was no three-party 15 relationship. The defendant Martin was the president and chief 16 executive officer of the corporation and the defendant Gammon was a 17 director. In order for there to be a three-party relationship, 18 there must be a showing that the defendants were acting outside the 19 scope of their duties as officers of the corporation rather than on 20 behalf of the corporation. 21 22 The Court addressed this issue in Forrester v. 23 Stockstill , 869 S.W.2d 328 (Tenn. 1994), in which a discharged 24 employee sued two directors of the employer corporation for 25 interfering with the employment relationship. The Court stated: 26 27-11- Since, with the exceptions noted, the 1 discharge from employment of an employee-at2 will by the employer is not actionable, but the 3 wrongful interference with at-will employment 4 by third persons is actionable, Forrester’s 5 suit against Stockstill and Kisabeth can be 6 maintained only if the proof establishes that 7 they stood as third parties to the employment 8 relationship at the time they performed the 9 acts found to have caused Forrester’s 10 discharge. 11 12 13 14 Id.at 331. As more fully discussed below, the facts alleged do 15 not show that the defendants acted other than as officers of the 16 corporation. The plaintiff charges that his employment was 17 terminated by the defendants. His essential complaint is that the 18 defendants acted wrongfully in terminating his employment. 19 Consequently, on the pleadings and proof, there could be no finding 20 that the defendants induced or procured a breach of contract. 21 Consequently, the record does not present a disputed issue of 22 material fact on the claims that the defendants induced or procured 23 the termination of plaintiff’s employment. The trial court and the 24 Court of Appeals properly dismissed those claims. 25 26 The claim that the defendants breached a fiduciary 27 relationship, however, contemplates a two-party relationship, the 28 plaintiff and the defendants as shareholders. Whether there are 29 disputed issues of material fact on this issue must be determined 30 within the context of the legal duty owed the plaintiff by the 31 defendants. In making that determination, the most significant 32 legal issue presented is whether there existed a fiduciary 33 relationship between the parties. 34-12- This Court has stated that majority shareholders owe a 1 fiduciary duty to minority shareholders. Mike v. Po Group, Inc. , 2 937 S.W.2d 790, 793 (Tenn. 1996); Nelms v. Weaver, 681 S.W.2d 547, 3 549 (Tenn. 1984), cert. denied, 476 U.S. 1118 (1986); Dale v. 4 Thomas H. Temple Co. , 186 Tenn. 69, 208 S.W.2d 344, 352 (1948). 5 The Court of Appeals stated in Johns v. Caldwell , 601 S.W.2d 37 6 (Tenn. App. 1980), “Our courts are prompt to redress the injuries 7 to minority stockholders caused by the wrongdoings of majority 8 stockholders.” Id.at 41 (citing McCampbell v. Fountain Head 9 Railroad Co. , 111 Tenn. 55, 77 S.W. 1070 (1903)). Those cases did 10 not consider the issues presented by the case before the Court. In 11 Johns v. Caldwell , the plaintiff owned 45 percent of the 12 corporation’s stock. He brought suit against the other two 13 shareholders, Caldwell who owned 45 percent and Moore who owned 10 14 percent of the shares. Johns sought to prevent the transfer by 15 Moore of his shares to Caldwell or to require an equal division of 16 Moore’s stock between Johns and Caldwell. Johns , 601 S.W.2d at 39. 17 The JohnsCourt held that neither Moore nor Caldwell owed a 18 fiduciary duty to Johns regarding the sale and purchase of Moore’s 19 shares of stock. Id.at 44, 45. The basis of the dispute in that 20 case was not action taken by a majority shareholder or the 21 corporation affecting the interest of another shareholder but 22 rather the competing efforts of two shareholders to acquire the 23 shares of the third shareholder. In Intertherm v. Olympia Homes 24 Systems , 569 S.W.2d 467 (Tenn. App. 1978), the court noted that the 25 transactions of majority or dominant shareholders will be closely 26 scrutinized for good faith and fairness if challenged. The court 27-13-

stated that it would “apply the rule of close scrutiny and place 1 the burden on the shareholder to justify a transaction with his 2 corporation only when the shareholder owns a majority of stock, or 3 is shown to dominate or control the corporation to a significant 4 degree in some other way.” Id.at 472. Again, the dispute in 5 Interthermwas not based on action taken by shareholders in a close 6 corporation affecting the interests of other shareholders. The 7 dispute was between shareholders claiming a security interest in 8 corporate property and nonshareholder creditors of the corporation. 9 The court found that there was no fiduciary relationship between 10 the shareholders and the corporation because they were not dominant 11 shareholders and therefore their loan to the corporation would not 12 be closely scrutinized for good faith. The shareholders’ priority 13 over the general creditors was accordingly upheld. 14 15 The Court has not addressed specifically the issues 16 presented in this case, the relationship between shareholders in a 17 close corporation where there is no majority or dominant 18 shareholder and the dispute relates to the shareholders’ interests 19 as shareholders. The Court of Appeals relied upon the decision in 20 Wilkes v. Springside Nursing Home, Inc. , 353 N.E.2d 657 (Mass. 21 1976), in which the Massachusetts court held there is a fiduciary 22 relationship between shareholders of a close corporation. In 23 Wilkes , the Court stated that “stockholders in the close 24 corporation owe one another substantially the same fiduciary duty 25 in the operation of the enterprise that partners owe to one 26 another.” Id.at 661 (quoting Donahue v. Rodd Electrotype Co. , 328 274A number of other jurisdictions have cited Donahueand Wilkesor

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- N.E.2d 505, 515 (1975)). That standard of duty is one of “utmost 1 good faith and loyalty.” Id.(quoting Cardullo v. Landau, 105 2 N.E.2d 843 (Mass. 1952)); see also Blank v. Chelmsford OB/GYN, 3
P.C. , 649 N.E.2d 1102, 1105 (Mass. 1995). 4The rationale for the 4 Wilkesdecision has been stated as follows: 5 6 In spite of the traditional adherence to 7 majority rule and the business judgment 8 rule, many courts in this country have 9 moved steadily toward providing a remedy 10 for oppressed minority shareholders. Some 11 courts have made clear that they will 12 not apply the business judgment rule unless 13 the directors not only have acted in good 14 faith, but also have exercised proper 15 care, skill, and diligence. For many courts, 16 the response has been to impose a 17 fiduciary duty on the controlling shareholders 18 for the benefit of minority interests. 19 Courts increasingly have been willing to 20 recognize an enhanced fiduciary duty 21 among shareholders in a close corporation. 22 23 24 25 F. Hodge O’Neal and Robert Thompson, O’Neals Oppression of Minority 26 Shareholders§ 10:04, at 16 (2d ed. 1995). 27 28 The Court in Wilkesheld: 29 30 Therefore, when minority stockholders in a 31 close corporation bring suit against the 32 majority alleging a breach of the strict good 33 faith duty owed to them by the majority, we 34 must carefully analyze the action taken by the 355The Wilkesfiduciary standard, as it relates to employment decisions,

is not universally accepted. A case in opposition to the Wilkesapproach 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 ).

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controlling stockholders in the individual 1 case. It must be asked whether the controlling 2 group can demonstrate a legitimate business 3 purpose for its action. 4 5 6 7 Wilkes , 353 N.E.2d at 663. 5The Court in Wilkesrealized, however, 8 that in the management of the corporation, the Court should not 9 substitute its judgment for the good faith action of the 10 shareholders. 11 12 [W]e acknowledge the fact that the controlling 13 group in a close corporation must have some 14 room to maneuver in establishing the business 15 policy of the corporation. It must have a 16 large measure of discretion, for example, in 17 declaring or withholding dividends, deciding 18 whether to merge or consolidate, establishing 19 the salaries of corporate officers, dismissing 20 directors with or without cause, and hiring and 21 firing corporate employees. 22 23 24 25 Id.at 663. 26 27 28 29 Based on these principles, Martin and Gammon, together 30 and separately, were obligated to deal fairly and honestly with 31 Nelson and could not act out of avarice, malice, or self-interest 32 in violation of their fiduciary duty to him as a shareholder. 33 34

V I 35 36-16- Nelson asserts essentially that Martin and Gammon 1 wrongfully terminated his employment. The question is whether the 2 record contains material evidence that Martin and/or Gammon 3 violated the fiduciary duty owed to Nelson in terminating his 4 employment. Nelson acknowledges that there was no written contract 5 of employment between the corporation and him, but asserts there 6 was a general agreement among the shareholders that each was 7 entitled to work for the corporation for life. Even if the 8 deficiencies in the proof of a contract should be disregarded, 9 Nelson’s employment was terminable at will. There is no evidence, 10 or even claim by Nelson, that he furnished any consideration for 11 his employment other than his services as an employee. The rule 12 has been well stated by the Court of Appeals. “Our courts have 13 long held that an oral contract for life time employment or 14 permanent employment amounts to an indefinite hiring terminable at 15 the will of either party where the employee furnishes no 16 consideration other than the services required in the agreement.” 17 Price v. Mercury Supply Co. , 682 S.W.2d 924, 934 (Tenn. App. 1984); 18 Combs v. Standard Oil Co. , 166 Tenn. 88, 90-92, 59 S.W.2d 525, 526- 19 27 (Tenn. 1933). Consequently, the corporation’s prerogative to 20 discharge Nelson as an employee was not constrained by an 21 employment contract. 22 23 There is in the record no evidence that Martin acted 24 other than within the scope of his duties as president or that 25 Martin and Gammon acted other than within the scope of their duties 26 as directors. Consequently, there is no evidence that the 276The 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.

7Tenn. 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- defendants “procured” the plaintiff’s discharge. Pursuant to the 1 bylaws of the corporation, Martin, as president, had the authority 2 to discharge employees of the corporation, including Nelson, and 3 Martin and Gammon, as directors, had the authority to confirm the 4 employment action taken by the president and to remove Nelson as a 5 director. 6In the exercise of those powers and duties on behalf of 6 the corporation, Martin and Gammon owed a duty of good faith and 7 fairness to Nelson. However, they also owed a duty of good faith 8 and fairness to the corporation which they served as officers. See 9 Tenn. Code Ann. §§ 48-18-403(a)(1), (3) (1995), 48-18-301(a)(1), 10 (3) (1995); 7 Knox-Tenn Rental Co. v. Jenkins Ins., Inc. , 755 S.W.2d 11Tenn. 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- 33, 36-37 (Tenn. 1988). If Martin and Gammon were protecting 1 legitimate interests of the corporation, the presence of spite or 2 ill will would not render them or the corporation liable. See 3 Forrester v. Stockstill , 869 S.W.2d 328, 333 (Tenn. 1994). 4 5 Consequently, the first question is whether Martin and 6 Gammon were performing the duties as officers of the corporation in 7 good faith and in furtherance of the perceived best interest of the 8 corporation. The burden was on Nelson to produce evidence that 9 they were not acting in good faith in furtherance of the 10 corporation’s best interest. The Court stated in Forrester v. 11 Stockstillthat the critical factors in determining if action taken 12 by directors of a corporation was in good faith are “intent, motive 13 or purpose, and means.” Id.at 333. The only evidence relating 14 to Martin’s intent or motive in terminating Nelson’s employment is 15 the cause and circumstances of his and Martin’s dispute. The only 16 evidence relating to Gammon’s intent or motive are his votes as a 17 director. There is no evidence that the termination of Nelson’s 18 employment or his discharge as an officer and a director were 19 prejudicial to the corporation’s best interest. The fact that 20 Nelson sustained the loss of employment with the accompanying 21-19-

compensation is not evidence that the corporation was prejudiced or 1 that Martin and Gammon acted with malice, avarice, or self2 interest. The evidence does not create a disputed issue of 3 material fact regarding the good faith performance of the 4 defendants. Byrd v. Hall , 847 S.W.2d at 215. 5 6 An important public policy is at stake. Although 7 directed toward a slightly different issue, the following statement 8 made by the Court in Forrester, is relevant and appropriate: 9 10 A corporation can act only upon the advice 11 of its officers and agents, and its officers 12 and directors have a duty to serve the 13 corporation. Important societal interests are 14 served by corporations having the clear and 15 candid advice of their officers and agents. 16 Fear of personal liability would tend to limit 17 such advice. Consequently, when an officer, 18 director, or employee of a corporation acts 19 within the general range of his authority, and 20 his actions are substantially motivated by an 21 intent to further the interest of the 22 corporation, in claims of intentional 23 interference with employment, the action of the 24 officer, director, or employee is considered to 25 be the action of the corporation and is 26 entitled to the same immunity from liability. 27 28 29 30 Id.at 334-35. 31 32 33 34 VII 35 36 37 38 The shareholders of a close corporation share a fiduciary 39 relationship which imposes upon all shareholders the duty to act in 40 good faith and fairness with regard to their respective interests 41-20-

as shareholders. Officers and directors of a corporation owe a 1 similar duty to the corporation. In order to withstand a motion 2 for summary judgment, allegations that the fiduciary duty has been 3 violated must be supported by material evidence that the action was 4 not in the perceived best interests of the corporation and further 5 that it was motivated by malice, avarice, or self-interest. The 6 evidence in the record does not present a disputed issue of 7 material fact. Consequently, the motions are sustained and the 8 suit is dismissed. 9 10 11 12 The case is remanded to the trial court for any further 13 proceedings consistent with this opinion. 14 15 Costs are assessed against Nelson. 16 17

______________________________ 18 Reid, J. 19 20 21 Concur: 22 23 Anderson, C.J., Drowota, Birch, 24 and Holder, JJ. 25