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Great American Opportunities, Inc. v. Brigman

Court of Appeals of Tennessee, Nashville

April 6, 2018


          Session August 23, 2017

          Appeal from the Chancery Court for Davidson County No. 11-1117-IV Russell T. Perkins, Chancellor

         This is a breach of contract action in which the plaintiff employer filed suit against its employee, claiming that he was liable for balances on his commission and sales accounts. Following a bench trial, the court ruled in favor of the employee and ordered the employer to direct the redemption of his stock held in the parent company. We reverse, in part, and hold that the parent company is not obligated to redeem the stock and that the employer is also without the requisite authority to direct redemption. We affirm the judgment in all other respects.[1]

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed in Part, Affirmed in Part; Case Remanded

          Paul S. Davidson, Laura P. Merritt and William Randall O'Bryan, Jr., Nashville, Tennessee, for the appellant, Great American Opportunities, Inc.

          James A. Brigman, Lewisville, North Carolina, pro se.

          John W. McClarty, J., delivered the opinion of the Court, in which D. Michael Swiney, C.J. and Andy D. Bennett, J., joined.



         I. BACKGROUND

         Great American Opportunities, Inc. ("GAO"), founded in 1974, provides services and products to promote fundraising activities for schools and civic organizations. GAO is a subsidiary of Southwestern/Great American, Inc. ("Southwestern"), a separate legal entity and a Tennessee corporation. GAO employs commissioned sales representatives who work with individuals within participating schools and organizations to promote fundraising efforts. James Brigman ("Employee") worked for GAO as a sales representative from February 2003 through March 2, 2011.

         GAO claimed that it provided Employee with a contract entitling him to a guaranteed draw plus earned commissions for his first two years of employment. GAO asserted that upon the expiration of his initial two-year term, Employee would then be entitled to an unguaranteed draw against earned commissions paid in accordance with a yearly Pay Plan. Employee would also then be responsible for certain business expenses maintained on an open account, referred to by the Parties as the "8000 account."[2]Further, Employee was also then liable for his balance on an open commission account that documented cash advances provided in excess of his actual earned commissions - referred to by the Parties as an overdraw.

         The contract at issue provided, in pertinent part, as follows:

(a) For all services rendered by Employee under this Agreement, [GAO] shall compensate him/her in accordance with the Compensation Schedule which is attached hereto as Exhibit A, and which shall be deemed for all purposes to be an integral part of this Agreement.
(b) Each fiscal year during the term of this Agreement, [GAO] shall cause to be executed in writing a new Compensation Schedule and Sales Representative's Pay Plan, effective July 1 of the new corresponding year, indicating the amount of compensation and the method for payment of said compensation for the services of Employee during the following fiscal year beginning July 1st. The new Compensation Schedule shall be considered a part of this Agreement and shall be known as Exhibit A for the corresponding year. In conjunction with each new fiscal year, [GAO] will advise Employee of his/her applicable Pay Plan to be set forth in a written Notification given in accordance herewith comparable in form to the Addendum made a part hereof.
* * *
Modification and Waiver of Breach. No waiver or modification of this Agreement shall be binding unless it is in writing, signed by the parties hereto. No waiver of a breach hereof shall be deemed to constitute a waiver of a further breach, whether of a similar or dissimilar nature.
* * *
Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof, superseding all prior discussions, representations and preliminary agreements, whether written, oral or implied. This Agreement will not be amended or modified except in writing executed by the parties.

         (Emphasis added.). A Notification of Pay Plan, dated February 14, 2003, was attached to the contract and signed by the Parties. The document provided, in pertinent part, as follows:

         Exhibit A

         Notification of Pay Plan

         * * *

         Compensation in First Year

Monthly Compensation: Employee will receive monthly compensation of $7, 292 for the term [beginning February 17, 2003, and ending February 16, 2004].
Bonus Compensation Opportunity: For any business booked over the $300, 000 net wholesale target outlines above, [GAO] will pay [Employee] a bonus of 10% of the excess net wholesale. The bonus will be accrued at the time the net wholesale is recorded on the books of the company and payable to [Employee] no later than 30 days after the end of the season in which the bonus compensation was accrued.

         Compensation in Second Year

In the event that [Employee's] Employment Agreement is renewed for the year following the term of his Notification, [Employee] will continue to receive this monthly compensation. However, in that year, $2, 500 of the monthly compensation will be considered salary. The remainder of the monthly compensation will be a guaranteed draw against commissions, bonuses and allowances earned. If aggregate commissions, bonuses and allowances earned as outlined below exceed the aggregate monthly compensation amounts, [GAO] will pay [Employee] excess amount. If, however, the amounts earned do not exceed aggregate monthly compensation amounts, the shortfall (overdraw) will NOT be due and payable to [GAO].
For all lines of business except Magazines, [Employee] will [] earn commissions, bonuses and allowances according to the Company's Experienced Pay Plan in effect at that time. For Magazines, [Employee] will earn commission of 25% of aggregate base wholesale. [Employee] will also earn a bonus of $1.00 for each subscription sold in excess of a base subscription amount to be determined at the time the Employee's employment with [GAO] commences.

         (Emphasis added.). The Pay Plans referenced in Exhibit A were not signed by the Parties but were mailed to Employee. The Pay Plans contained the following general terms that remained unchanged throughout Employee's tenure with GAO:

7. Compensation And Draw. [Employee] will receive a monthly compensation, payable semi-monthly, a portion of which may be a base compensation with any remaining amount to serve as an advance or a "draw" against commissions and bonuses earned during the fiscal year as defined in the new hire and experienced sections of this pay plan. For each fiscal year, [Employee]'s applicable Notification of Pay Plan will also note his/her compensation and draw.
8. Adjustments To Compensation And Draw. [GAO] may at its discretion adjust or discontinue [Employee's] monthly compensation at any time if, in the opinion of [GAO] management, [Employee] has not performed at an acceptable level.
9. Draw In Excess of Commission. If at any time the draw paid to [Employee] exceeds commissions earned by more than the amount approved by management, [Employee] may not be paid any additional draw until the excess amount is within approved limits. However, if such a draw is allowed, [GAO] may, at its option, recover the entire aggregate excess draw above commission and bonuses as, among other things, a debt on open account or offset such aggregate excess draw against bonuses, compensation and/or commissions, as the case may be.
** *
14. [Employee's] 8000 Account. [GAO] will provide [Employee] monthly invoices and statements detailing charges to [Employee's] account with [GAO] (the "8000 account"). All charges to [Employee's] account will be reconciled and paid each month. [Employee] must notify Customer Service of billing errors within 60 days of receipt of the applicable monthly statement. Failure to do so constitutes acceptance of charges invoiced.
** *
17. Year-End Settlement of Accounts. All amounts due [GAO] at fiscal year-end may be withheld from bonuses and any other compensation amounts that would normally be paid to [Employee] by August 31 following the close of that fiscal year. These amounts due include but are not limited to draws paid in excess of commission earned, advances in excess of expense allowance earned and charges made to [Employee's] 8000 account. If these compensation amounts due to [Employee] are not sufficient to cover amounts due to [GAO], the excess is due and payable . . . by August 31 following the end of the fiscal year. Or [GAO] may, at its option, offset such amounts as set forth in Paragraph 9.

         According to GAO, Employee was not responsible for his 8000 account or any overdraw for his first two years of employment based upon his specific offer of employment. Beginning in 2005, GAO provided Employee with invoices documenting his 8000 account balance. Employee never reconciled his 8000 account as provided for in the yearly pay plans; however, he made a payment of $11, 000 on the account in June 2008. GAO also withheld some of his earnings, referred to as "C-Prize" money, in an attempt to reconcile his account liability. Employee resigned on March 2, 2011, with an outstanding overdraw of $91, 707.92 on his commission account and $39, 958.69 on his 8000 account.

         GAO filed suit for breach of the employment agreement and quantum meruit. GAO alleged that Employee was liable for the balance on the commission account and the 8000 account. Employee denied liability, claiming that his payment of $11, 000 was made under duress and that he had been advised that he would never be held liable for his balances held on his commission or 8000 accounts. He filed a counter-complaint, in which he asserted, inter alia, claims of fraud, promissory estoppel, negligent misrepresentation, conversion, unjust enrichment, intentional interference with prospective business relationships, and violations of the Tennessee Consumer Protection

          Act and the Tennessee Securities Act of 1980. His claims related to promises made to him upon his hiring and his participation in the company stock program. He also asserted that GAO refused his demand "for the value of his investment" in the stock plan and also refused to provide an accounting sufficient to enable him to determine the value of his investment.

         The case proceeded to trial in August 2013. James Ring testified that he supervised Employee for approximately five to eight years when they both worked at Quality School Plans ("QSP"), a similar fundraising business.[3] Mr. Ring later joined GAO in 2002 to start a magazine division. He recalled initially working with Rob Corley, Neil Arnold, Jean Laise, and Kurt Gengenbach, all former QSP employees who joined GAO to develop the magazine division. He stated,

[Ms. Laise] helped me on the recruiting side. She would - once we agreed we were going to bring somebody to Nashville and I talked to them, we had a phone interview. Ms. Laise would make their flight arrangements, their hotel arrangements, that sort of thing.
And then with her financial background, once we looked at the numbers, she would put together for me a suggested pay plan based on what they were selling and making at QSP, what they were receiving in terms of any expenses and so forth. Then she would help do all those calculations so that we would know what would be a reasonable offer to make sure these people would be whole when we were giving them guarantees, so she was involved in that part of it too.

         Mr. Ring testified that he was initially in charge of recruitment and interviewing prospective sales representatives for the new division. He explained that they were respectful of those like Employee, who came from QSP with prior contractual obligations. He stated,

[W]hen we hired an employee, we told them they could not, according to their contract with QSP, work in their territory for a 12-month period. They could not disclose to us a list of their accounts. They could not basically call on those schools.

         Accordingly, they allowed such representatives to either cover an existing GAO territory or to train a current GAO representative to work in the magazine division.

         Relative to salary and incentives, Mr. Ring stated that prospective employees coming from QSP were offered a $30, 000 salary, a 25 percent commission on magazine sales, and a car allowance similar to what they received at QSP. He noted that the 25 percent commission was an enticement for those already in the business who were typically only provided a 17 percent commission. He explained that they provided a guaranteed income to Employee and others hired to develop the magazine division because the new hires had to leave their existing territory. He stated,

[T]he first year the guarantee was basically the salary. In the second year, it was a combination of a salary and an advance against commissions. So that if they sold more than we were actually advancing them, they would receive that additional money. If they sold less, we would write it off.
So, in effect, they had two years of their income guaranteed, one of which when they were back in their territory.

         He agreed that these new hires, including Employee, were also not charged the cost of doing business through the 8000 account. He provided that their income was no longer guaranteed after the first two years but that the new employees could still realize a high income because of GAO's high commission percentages. He believed that Employee's responsibility for his 8000 account balance and other expenses would have been discussed at the initial training on administrative procedures. He provided that Employee would have also been advised of the parameters of the C-prize program.[4]

         Mr. Ring agreed that Employee never received another Pay Plan comparable in form to the one provided with the initial Employment Agreement. He further stated that the yearly Pay Plans provided to Employee were identical to those provided to all employees and that portions of those plans did not apply to Employee, who received a higher commission, additional incentives, and was not responsible for his 8000 account balance. He acknowledged that Employee's lack of 8000 account liability was a verbal agreement not reduced to writing. He insisted that despite this fact, the Pay Plans applied to everybody "with the exception that these magazine veterans[, like Employee, ] received a higher commission on magazines, they received a car allowance instead of a two and a half percent expense allowance, and they received a salary. Otherwise, this did apply." He denied ever advising Employee that he would never be responsible for his 8000 account balance. He explained,

When we hired these people [to develop the magazine division], it was always our long-term intention to bring everything together because we hired people - we also bought a couple companies in between. We were going to merge everything. But these were recruitment enticements, if you would, to make sure these people came.
We told them that they would - that that policy of the 25 percent would always apply to them. Then eventually we would change the compensation system for the [existing] Great American employees. That's a poor way of phrasing it because they were Great American Employees too.
But for the non[-]magazine people, . . . as they grew their magazine sales and got to a certain level, then they would [have] been eligible for salaries as well. They would be eligible to have the commission rate for magazines go to 25 percent and they would be eligible to have the car allowance, again, if they reached a certain minimum. I think we merged all that together, I don't know, maybe '08, '09, '10.

         He confirmed that the 2008-2009 Pay Plan contained the revised salary chart and the current magazine sales commission structure.

         Mr. Ring agreed that GAO allowed its employees to accumulate balances on the 8000 accounts and did not require immediate payment in full. However, GAO eventually withheld commissions or reduced commission draw amounts in an effort to reconcile the accounts when necessary. GAO also offered special plans and incentives to assist representatives in reconciling balances held on the commission and 8000 accounts.

         Mr. Ring recalled that Employee's draw was reduced on more than one occasion. However, Employee requested a draw increase of approximately $1, 500 per month in December 2010 based upon his increased sales. Mr. Ring approved an increase of $500 per month. He stated that with the exception of Employee's first two years of employment, Employee did not have a set salary from year to year. He provided that Employee's manager was responsible for making that determination based upon the terms of the annual Pay Plans.

         Mr. Ring testified that Brian Patterson, [5] another sales representative, covered Employee's sales territory for a year while QSP's covenant not to compete was still valid. He explained that Brian attempted to maintain Employee's relationship with his contacts while Employee was unable to service his own territory. He agreed that Employee reported that Brian failed to adequately maintain the sales territory in his absence.

         Carol Costa testified that she has been employed by GAO as a compensation manager since 1991. She is responsible for calculating sales, bonuses, and commissions for all representatives and providing monthly commission reports and 8000 account statements to representatives. She also communicates with the representatives and implements changes in draws against commissions when necessary. She provided that a representative's actual pay was determined by the manager. She explained,

At the beginning of each school year, the manager will get with the sales representative and go over the amount of projected sales for that year, contracts in-house and what those net sales should be. From that net sales figure, they will calculate a monthly draw amount that that salesperson can receive based on what their sales earned for that year are going to be in commissions earned.

         She stated that she provided the representatives with new Pay Plans every year and acknowledged that these plans were not signed by the individual representatives. She explained that GAO had attempted to require a signature on each Pay Plan in prior years but that employees routinely failed to return the documents.

         Ms. Costa confirmed that Employee was paid in accordance with his initial Notification of Pay Plan for the first two years of employment with GAO and that he was not responsible for 8000 account expenses for those first two years.[6] He was also not paid in accordance with the subsequent Pay Plans provided to all sales representatives because he received a guaranteed salary and a car allowance program, among other things, as employment incentives. She acknowledged that neither the terms of the car allowance program nor the 8000 account arrangement were evidenced in writing. She explained that the Pay Plans set forth the method of payment, not necessarily the amount of payment each representative would receive. She stated that the 2008/2009 Pay Plan provided a ...

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