Court Opinion

ID: 1050440
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:04:31.355674+00
Date Added: 2024-06-11T09:16:21.983220
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                             Submitted on Briefs July 31, 2009

                       DON L. WRIGHT
                                v.
       COMFORT SYSTEMS, U.S.A., and WALKER-J-WALKER, INC.

                     Appeal from the Chancery Court for Shelby County
                     No. CH-03-0195-01   Walter L. Evans, Chancellor

                  No. W2009-00383-COA-R3-CV - Filed December 14, 2009

This is a breach of contract case. When the plaintiff employee was hired as a department manager
for the defendant employer, his employment contract provided that he would receive a bonus based
on the net profit of the department. During the plaintiff’s term of employment, he received bonus
payments; however, the parties had disagreements about how the department’s profit was calculated
and thus about the amount of the bonus. After the plaintiff’s employment was terminated, the
employee filed this lawsuit against the employer, alleging that the employer breached the contract
by failing to pay the proper bonus amounts. The employer denied the allegation and asserted a
counterclaim for excess amounts allegedly paid to the employee. The trial court referred issues on
the plaintiff’s claim and the employer’s counterclaim to a special master. After conducting a
hearing, the special master found that neither party carried its burden of proof and recommended that
both the complaint and the counterclaim be dismissed. After considering the employee’s objection
to the special master’s report, the trial court adopted the special master’s recommendations and
dismissed the claims. The employee now appeals. We affirm, finding that there is material evidence
to support the trial court’s concurrence.

    Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Affirmed

HOLLY M. KIRBY , J., delivered the opinion of the Court, in which ALAN E. HIGHERS, P.J., W.S., and
J. STEVEN STAFFORD , J., joined.

Stephen R. Leffler, Memphis, Tennessee for the Plaintiff/Appellant Don L. Wright

David A. Velander, Louisville, Kentucky and Craig M. Beard, Memphis, Tennessee for the
Defendant/Appellee Walker-J-Walker, Inc.
                                                     OPINION

                                      FACTS AND PROCEEDINGS BELOW

         Defendant/Appellee Walker-J-Walker, Inc. (“Walker”) is engaged in the mechanical
contracting industry in the Memphis, Tennessee area. Walker’s contracting business involves both
new construction and renovation. Its business is roughly divided into two main areas of focus:
construction and service. Walker’s service department handled maintenance and service of existing
mechanical systems.

        In March 1996, Plaintiff/Appellant Don L. Wright (“Wright”) was hired as general manager
of Walker’s service department. As incentive to hire Wright, Walker agreed to pay Wright a base
salary plus a bonus predicated on the net profit of the service department. At the time Wright was
hired, Walker was owned by Lee Walker and John Walker.1 The letter memorializing Wright’s
employment agreement stated that Wright’s bonus would be “10% of pretax net margin of Service
Department billing including service contracts. (Formula is Gross Margin less Service Department
Direct Overhead, less G & A in meeting each year with Lee and John Walker).”

        Problems with the calculation of Wright’s bonus arose almost immediately, primarily
stemming from the fact that Walker’s accounting system commingled the financial information of
both departments and produced financial statements for the corporation as a whole. As a result,
Wright’s bonus calculation was done, in part, manually. Generally, Walker’s practice was that chief
financial officer (“CFO”) Kristie Hand2 and director of human resources Tish Bartlett would first
determine the gross margin from individual job reports produced by the accounting system. They
would then compile a list of G&A expenses3 for the entire company and manually allocate a portion
of each expense to the service department for the purpose of calculating Wright’s bonus. After the
bonus calculation was completed for each period,4 Wright would meet with Walker personnel to
review it.5 Disagreements often arose over particular items in the calculation, and some of the

         1
          In August 1997, Lee Walker and John Walker sold their interest in W alker-J-W alker, Inc. to Comfort Systems,
U.S.A., a publicly traded company, but the record indicates that they retained positions as president and vice-president,
respectively.
         2
          Throughout the record, Walker’s CFO is referred to as “Kristie Hand” and “Kristy Hand.” For the sake of
consistency, this Opinion will use “Kristie Hand.”
         3
           “G&A” is a common accounting shorthand for the term “general administrative.” Generally, it refers to
indirect costs, such as electrical bills or office supplies, and is sometimes used interchangeably with “overhead.”
         4
           The parties initially agreed that the bonus calculation and payment would occur on an annual basis; however,
after the first year, they agreed to determine the bonus on a quarterly basis.
         5
            There is some dispute in the record as to who attended the meetings. Wright testified before the Special
Master that in most instances only he, Lee Walker and John Walker attended the meetings. John Walker testified that
in most instances he, Lee Walker, Tish Bartlett, Kristie Hand and Wright attended the meetings.

                                                          -2-
contested items would be revised. After revisions were made, Walker would issue Wright a check
for the bonus, and Wright would accept it.

         Despite Wright’s acceptance of the bonus payments, he remained concerned about the
calculation of the bonus, and in particular about the amount of G&A expenses allocated to the
service department, as opposed to the construction department. On several occasions, he wrote
letters to John and Lee Walker voicing his concerns. For example, after the first meeting to review
the bonus calculation, Wright sent a letter to John and Lee Walker stating, “IT IS EVIDENT THAT
ACCORDING TO THE ALLOCATION----THAT THE SERVICE CO. COVERS A LOT OF
OVERHEAD FOR THE ENTIRE OPERATION.” Although the disagreements continued, Wright
also continued to accept the bonus checks as calculated. Wright’s employment with Walker was
terminated in July 2000.

        On January 30, 2003, Wright filed a lawsuit against Defendants Comfort Systems, U.S.A.
and Walker, alleging claims for breach of contract, intentional misrepresentation and conversion.
The gist of Wright’s complaint was that Walker, “in calculating the amount of Wright’s bonus,
attributed overhead items to the Service Department that were not legitimate overhead items of that
department” and thereby artificially depressed Wright’s bonus amount. After Wright took a
voluntary non-suit as to Comfort Systems, U.S.A., Walker filed an answer denying Wright’s
allegations. Discovery ensued. Walker later filed a counterclaim against Wright for amounts
allegedly paid to Wright in excess of the amount owed under the bonus provision of his employment
contract.

        On January 8, 2008, the trial court entered an order of reference to a special master. The
issues referred to the Special Master6 included whether Walker breached the terms of the
employment contract with Wright, and if so, the amount of damages Wright was entitled to recover.
The Special Master was also asked to determine whether Walker was entitled to recover on its
counterclaim and, if so, how much. The Special Master was ordered to conduct an evidentiary
hearing and submit to the trial court a written report containing findings of fact and conclusions of
law, as well as a transcript of the proceedings.

        On February 5 and 6, 2008, the Special Master conducted the evidentiary hearing. At the
outset, the Special Master heard testimony from Plaintiff Wright, who testified at length about his
concerns during his employment about the calculation of his bonus. He complained that he was not
given access to supporting documentation of the calculation of Walker’s overhead, and felt that a
disproportionate amount of overhead was allocated to the service department, which reduced the
amount of his bonus.

        Walker’s CFO, Kristie Hand, testified that she calculated Wright’s bonus in accordance with
the formula that was communicated to her by John Walker and Lee Walker. She said that the service
department was not a “stand alone profit center” and that Walker’s accounting system did not
separate the construction and service areas. Hand outlined how she calculated the overhead and

       6
           The Special Master was Attorney Clarence Halmon.

                                                     -3-
denied that a disproportionate amount of overhead was allocated to the service department. Walker’s
human resources director Tish Bartlett corroborated Hand’s testimony.

       John Walker testified about the bonus agreement entered into when Wright was hired, and
the process of manually computing the figures to calculate Wright’s bonus. He said that the same
method was used each time to calculate Wright’s bonus, and that Wright accepted his bonus check
each time.

        Wright presented the testimony of an expert witness, Andy Wilson (“Wilson”), a fraud
investigator. Wilson testified that Walker’s calculations of Wright’s bonus were arbitrary and
inconsistent, and that source documents utilized to determine overhead expenses for the service
department were missing. Wilson opined that this was indicative of fraud. Wilson emphasized the
necessity of source documents such as sales documents, job files, and invoices to verify the overhead
and expense calculations. In the absence of supporting documentation, Wilson calculated the
amount of bonus Wright was allegedly due by utilizing a calculation method that relied on a series
of assumptions, designating an overhead amount based on a percentage of the service department’s
sales.

        Walker proffered expert testimony by a certified financial auditor, Jeff Stallings (“Stallings”).
Stallings stated that he had independently reviewed Walker’s records, such as Walker’s general
ledger, but did not review source documents on expenses, such as bills for repairs. Stallings did not
bring to the hearing records such as Walker’s general ledger, but instead brought his work papers
from reviewing them. After reviewing Walker’s records, Stallings calculated Wright’s bonus, and
asserted that the bonus calculations that were done by Walker’s employees conformed to the letter
agreement outlining Wright’s bonus arrangement. He did not find that a disproportionate amount
of overhead had been allocated to Walker’s service department. Stallings criticized Wilson’s
calculation of Wright’s bonus, and in particular the assumptions underlying Wilson’s calculations.
Stallings offered no testimony to support Walker’s counterclaim against Wright. At the conclusion
of the hearing, the Special Master took the matter under advisement.

        On July 17, 2008, the Special Master filed a 14–page report outlining and analyzing the
evidence and setting forth his findings of fact and conclusions of law on both Wright’s complaint
and Walker’s counterclaim. The Special Master observed that “[t]he question of breach is, to a
certain extent, intertwined with the question of damages” because Wright’s claim of breach of
contract was based solely on the alleged underpayment of his bonus; therefore, he focused on the
bonus calculations.

        The Special Master’s detailed report outlined the background and the parties’ allegations, and
summarized the testimony by each of the witnesses at the evidentiary hearing. He set out Hand’s
elaborate explanation of the manual assembly of information and the calculation of expenses utilized
to determine Wright’s bonus, as well as Wright’s objections to specific portions of the expense
calculation and allocation to the service department. The Special Master found “as a Finding of Fact
that Neither Plaintiff [n]or Defendant produced ‘support documentation’ for line item[] costs in
regards to the issue for calculating the bonus. Nor did any party explain why the documents for each
line item cost[] were not produced.”

                                                  -4-
        The Special Master analyzed Wilson’s testimony at length, noting that the methodology
utilized by Wilson was necessitated by the fact that supporting documentation for overhead figures
were not made available to him. The Special Master found specifically that Wilson’s proposed
method was “too speculative” to be used to calculate Wright’s bonus. The Special Master also
analyzed Stallings’ testimony at length, finding his testimony credible insofar as he explained the
procedures used to calculate Wright’s bonus and his criticism of Wilson’s method for determining
the bonus. The Special Master found that Wilson’s formula for calculating Wright’s bonus did not
comport with the formula agreed upon by the parties. Because Wright did not attempt to quantify
his damages but instead relied upon Wilson’s expert testimony, the Special Master found no credible
evidence that Wright suffered any damages.

        The Special Master concluded that Wright “was not persuasive on the issue of breach” and
that any damages he suffered “cannot be determined correctly to a degree of specificity not bordering
on speculation” in the absence of source documents on Walker’s expenses. The Special Master
likewise found that Walker’s proof on its counterclaim was “speculative,” and found no fraud by
Walker. Finding that neither party had carried its burden of proof, the Special Master recommended
that both Wright’s claims and Walker’s counterclaim be dismissed.

        After the Special Master’s report was filed, Wright filed an objection on the grounds that
Walker either purposefully caused the destruction of the source documents on the company’s
expenses or purposefully withheld the source documents from Wright. Walker responded by arguing
that Wright’s objection was improper in that Wright never presented to the Special Master any
evidence that Walker either was guilty of spoliation of evidence or that Walker intentionally failed
to produce documents.7 In an order entered January 20, 2009, the trial court overruled Wright’s
objections to the Special Master’s report and adopted the recommendation of the Special Master.
Thus, the trial court dismissed Wright’s complaint and Walker’s counterclaim. Wright now appeals.

                              ISSUE ON APPEAL AND STANDARD OF REVIEW

       On appeal, Wright seeks to frame the issue for review as “whether there was sufficient
evidence in the record to prove the damages sustained by [Wright] as a result of the breach of
Wright’s employment contract with [Walker].”

         7
           Although Wright argues on appeal that affirming the trial court’s judgment “would reward Walker for
successfully covering their tracks by sitting on documents they had an obligation to produce in response to discovery,”
no issue is raised on appeal on whether Walker was guilty of spoilation or the intentional withholding of evidence.

                                                         -5-
       We note, however, that when there is a concurrent finding of a special master and a
chancellor, our review is extremely limited. See T.C.A. § 27-1-113;8 Gammo v. Rolen, 253 S.W.3d
169, 174 (Tenn. Ct. App. 2007).

        Where there has been a concurrent finding of the Special Master and Chancellor, this
        Court may not disturb the concurrent findings. A concurrent finding of a master and
        chancellor is conclusive on appeal, except where it is upon an issue not proper to be
        referred, where it is based on an error of law or a mixed question of fact and law, or
        where it is not supported by any material evidence. This standard of review is similar
        to our standard when reviewing a jury verdict; we must affirm if there is any material
        evidence to support the trial court’s concurrence.

Gammo, 253 S.W.3d at 174 (quoting In re Estate of Ladd, 247 S.W.3d 628, 636 (Tenn. Ct. App.
2007)) (citations omitted). There is no allegation on appeal that the issues were not proper for
referral to a special master. Thus, the issue presented to this Court on appeal can be only whether
there was an error of law or on a mixed question of fact and law, or whether the findings were not
supported by any material evidence.

                                                      ANALYSIS

        On appeal, Wright essentially argues that the Special Master and thus the trial court, erred
in not crediting expert Wilson’s testimony. Wright asserts that, because Walker failed to produce
necessary source documents, in the absence of such documents, Wilson’s methodology for
calculating and allocating Walker’s overheard, and thus Wright’s bonus, was reasonable and should
have been adopted.

         The Special Master’s finding that Wilson’s method was “speculative” was an implicit
determination that his expert testimony was not credible. This is neither a question of law nor a
mixed question of fact and law; it is simply a factual finding by the Special Master, concurred in by
the trial court. As such, it is conclusive on appeal. See Gammo, 253 S.W.3d at 174. Thus, we look
only to whether there was any material evidence to support the trial court’s concurrence in the
recommendations of the Special Master. As outlined above, the Special Master was presented with
ample evidence to support his findings of fact and conclusions of law. This evidence was available
for the trial court by virtue of the Special Master’s report and the transcript of the evidentiary
hearing. From our careful review of the appellate record, we must conclude that there was material
evidence to support the trial court’s concurrence.

        8
            The statute provides in pertinent part the following:

                   Where there has been a concurrent finding of the master and chancellor, which
                   under the principles now obtaining is binding on the appellate courts, the court of
                   appeals shall not have the right to disturb such finding. . . .

T.C.A. § 27-1-113 (2000).

                                                           -6-
                                            CONCLUSION

       The decision of the trial court is affirmed. The costs of this appeal are taxed to the Appellant
Don L. Wright and his surety, for which execution may issue if necessary.

                                                       ___________________________________
                                                       HOLLY M. KIRBY, JUDGE

                                                 -7-