RONALD T. DAUGHERTY
LAVADA J. DOYLE, ET AL.
August 19, 2014 Session
Appeal from the Chancery Court for Davidson County No. 111408IV Russell T. Perkins, Chancellor
James R. Kelley, Marc T. McNamee, and Stephen M. Montgomery, Nashville, Tennessee, for the appellants, LaVada J. Doyle, Mike Doyle, William O. Daugherty, III, and Volunteer Thread Company, Inc.
William L. Harbison and Lisa K. Helton, Nashville, Tennessee, for the appellee, Ronald T. Daugherty.
Andy D. Bennett, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Richard H. Dinkins, J., joined.
ANDY D. BENNETT, JUDGE
FACTUAL AND PROCEDURAL BACKGROUND
Ronald T. Daugherty, LaVada J. Doyle, and William O. Daugherty, III, are the children of William O. Daugherty, Jr. W.O. Daugherty, Jr., owned all of the stock in Volunteer Thread Company, Inc. ("VTC"). At her father's death in November 2008, Ms. Doyle served as the personal representative of his estate. The VTC stock passed into the estate until it was distributed in equal shares to the three children in December 2010.
Ronald Daugherty ("Mr. Daugherty") worked at VTC for many years and states that he ran the company until the early 1980's. In 2007, according to Mr. Daugherty, his father asked him to help out at VTC because the company was sustaining some losses. After W.O. Daugherty, Jr.'s death, VTC asked Mr. Daugherty to continue his efforts to turn the company around. He served as president of VTC and as a member of the board of directors until August 2009, when he resigned. (Mr. Daugherty and Ms. Doyle gave differing testimony as to why he decided to leave the company.) Mr. Daugherty subsequently refused requests from Ms. Doyle and others to serve on the board again.
Mr. Daugherty claims that, after he left VTC and resigned from the board, he was denied access to information regarding the company. He filed a motion to compel in his father's estate case in November 2009, and the parties entered into an agreed order pursuant to which Ms. Doyle was required to provide certain information to Mr. Daugherty regarding VTC and Hilos, a wholly owned subsidiary of VTC, including weekly reports of financial information, monthly summaries of financial information, identities of members of the boards of directors and their compensation, minutes of the meetings of the boards of directors, and a list of persons who advised the companies. Mr. Daugherty subsequently sent letters to the board expressing his concerns about the company's significant losses and its failure to send him information.
In April 2010, Mr. Daugherty made an expression of interest to purchase VTC, and was asked by Ms. Doyle on behalf of the estate to sign a confidentiality agreement. Ms. Doyle also made an offer to buy the company at a higher price on the same day. Mr. Daugherty did not sign the confidentiality agreement.
On April 7, 2011, Mr. Daugherty sent VTC a records inspection request under Tenn. Code Ann. § 48-26-102. He requested to inspect and copy the following categories of records for the time period from July 1, 2009 through March 31, 2011:
• general ledger entries;
• records of all yarn purchases (including all put up, and regardless of twist);
• origin documentation/certification for all yarn purchases from original suppliers;
• itemized detailed monthly yarn inventory;
• monthly yarn final inventory totals;
• itemized detailed monthly finished goods inventory;
• monthly final finished goods inventory;
• dye tickets (both electronic and real);
• winding tickets (both electronic and real);
• yarn transfer documents (from Mill to VTC);
• picking tickets for greige yarn to be dyed;
• historical dye house production records;
• historical lab production records;
• weekly production reports/totals for all areas;
• official Company guidelines regarding complete breakdown of all different product lines (i.e., MS, PU, VT, VC);
• official Company guidelines regarding labeling and instructions for all product lines (i.e. MS, PU, VT, VC);
• official Company guidelines regarding inventory tracking guidelines for different origin products to ensure proper usage;
• official Company guidelines regarding system of checking origin information prior to signing NAFTA certificate;
• all historical signed NAFTA certificates (from both VTC and Hilos);
• official Company guidelines regarding finished goods values by location; and
• official Company guidelines regarding official description/designation of different inventory locations.
In his letter, Mr. Daugherty, through his attorney, stated that his demand for information was made in good faith and for the purpose of helping him determine: "(1) whether the business of VTC is being properly conducted; (2) whether there has been any breach of fiduciary duty by any director or officer of VTC; and (3) the value of Mr. Daugherty's ownership interest in VTC."
On April 14, 2011, VTC's board of directors, through its attorney, responded to Mr. Daugherty's records inspection request as follows:
I am responding to your letter of April 7, 2011. I have reviewed the information requested in your letter. Your request seeks records that are beyond the scope contemplated by T.C.A. § 48-26-102(b)(2). Accordingly, Volunteer Thread Company, Inc. declines to make those records available.
On October 14, 2011, Mr. Daugherty filed this action for declaratory judgment and inspection of corporate records against Ms. Doyle; Mike Doyle, her husband; W.O. Daugherty, III; and VTC. Mr. and Ms. Doyle and W.O. Daugherty, III, were members of the VTC board of directors. The complaint details Mr. Daugherty's unsuccessful efforts to obtain information from VTC and his concerns about the financial decline of the company. He asked the court to order the defendants to permit him to inspect and copy the records he requested in the April 7, 2011 letter in accordance with Tenn. Code Ann. § 48-26-102(b)(2), and to order the defendants to respond fully and completely to his requests for information concerning VTC and Hilos. Mr. Daugherty also requested an award of attorney fees and expenses.
In January 2012, Mr. Daugherty filed a motion for a forensic accounting, which was granted by the trial court. An accountant, David Wood, conducted a forensic accounting, but he was not asked to prepare a written report.
The case was heard in a bench trial over three days in July 2013. On day one, the court heard testimony from Mr. Daugherty. He was concerned that VTC was in trouble and wanted to get the information necessary to determine what the problems were. When asked if he was a competitor of VTC in any significant way, Mr. Daugherty testified:
A. No. We met in the marketplace just like you could say the corner market or the convenience store is competing with the convenience store across town. You're both in the convenience store business, and a customer of one may go to the other, but you're within your own market.
Q. Do you, in fact, still operate a thread business of your own?
A. I do.
Q. And what's it called?
A. Miami Thread.
Q. And did you operate Miami Thread during your father's lifetime?
A. I did.
Q. And was your father aware of the kind of business that you were doing through [Miami] Thread?
A. Yes. I started it while I was at Volunteer, and he knew very well I was running Volunteer. And I incorporated and started in '86 and worked for Volunteer until July 10th of 1987. And he visited me several times at the plant.
Q. I'm going to ask you straight up, Mr. Daugherty. Were you trying—by asking information about the company, were you trying to eliminate a competitor in the marketplace?
A. No. The two of us together have such a miniscule amount of the overall market share that—during my father's lifetime, we had our eyes on a bigger prize. And LaVada said as much in her deposition, when asked who were your biggest ...