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Keller v. Estate of McRedmond

Court of Appeals of Tennessee, Nashville

May 31, 2018

STEPHANIE KELLER et al.
v.
ESTATE OF EDWARD STEPHEN McREDMOND et al.

          Session April 12, 2017

          Appeal from the Chancery Court for Davidson County No. 063004IV Russell T. Perkins, Chancellor

         Sibling shareholders, unable to agree on the management of the family business, brought their dispute to court. Eventually, the brothers and sisters agreed that the business should be dissolved and, under the court's supervision, sold as a going concern. After soliciting bids from the siblings, the court approved the sale of the business's assets to one brother and two of his sisters. Pending the closing, the court ordered the siblings to continue to operate the business as usual and to preserve the goodwill of the business, including the relationships with employees, suppliers, and customers. The day after the closing, the brother who was not part of the winning bidder group opened a competing business. The winning bidders sought damages from the competing sibling, claiming that he willfully violated court orders, breached his fiduciary duty, and intentionally interfered with business relations. After a bench trial, the court awarded the winning bidders compensatory damages in an aggregate amount for all claims. In the first appeal, this Court reversed, holding that the winning bidders' claims were derivative, not direct, and thus they lacked standing. In Keller v. Estate of McRedmond, 495 S.W.3d 852, 877 (Tenn. 2016), our supreme court adopted a new standard for determining whether a shareholder claim is direct or derivative and, applying that standard, held that the winning bidders had standing to pursue their claim that the competing sibling violated the court's orders. So our supreme court affirmed in part, reversed in part, and remanded the case to this Court to review the remaining issues that were properly raised but not addressed in the first appeal. Id. at 882-83. We affirm the trial court's decision to hold the competing sibling in contempt, but we vacate the aggregate award of compensatory damages.

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

          Roger A. Maness, Clarksville, Tennessee, for the appellant, Louis A. McRedmond.

          John P. Branham, C. David Briley, and Mandy Strickland Floyd, Nashville, Tennessee, for the appellees, Linda McRedmond Orsagh and Anita McRedmond.

          Richard K. Smith, Nashville, Tennessee, for the appellee, Estate of Edward Stephen McRedmond.

          W. Neal McBrayer, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Andy D. Bennett, J., joined.

          OPINION

          W. NEAL McBRAYER, JUDGE.

         I.

         In this appeal, we revisit the circumstances surrounding the sale of the assets of a closely-held family corporation, McRedmond Brothers, Inc. ("MBI").[1] MBI, among other things, owned and operated a grease business that purchased used grease for resale to animal feed manufacturers. After the death of the family patriarch, ten McRedmond siblings owned all of the shares of MBI. Two siblings, Louis Anthony McRedmond ("Louie") and Edward Stephen McRedmond ("Stephen"), owned the largest block of shares and managed the day-to-day operations of MBI.

         In 2006, various disagreements between Louie and Stephen began to interfere with their joint management of MBI. Complicating matters, an irrevocable Shareholders Agreement precluded the other eight siblings from resolving the impasse. The siblings split into two camps. In 2008, Louie, along with six of his sisters, filed this action against Stephen[2] and the remaining two sisters in the Chancery Court for Davidson County, Tennessee.[3] Initially, the plaintiffs asked the trial court to "declare the management of the corporation [(Louie and Stephen)] deadlocked, " and to "declare the Shareholders Agreement terminated." But after the court concluded that the Shareholders Agreement was enforceable, the parties agreed that MBI should be dissolved.

         On September 22, 2008, the court, by agreed order, appointed a receiver to immediately take control of MBI's assets, records and business. In the same order, the court directed the receiver to ensure that MBI's grease business was operated in a manner that would "protect its value" and ordered current employees, including Louie, to "continue to conduct the Grease Business in the ordinary course of business, reporting directly to the Receiver." The court also enjoined all parties from taking any actions "as to the business or assets of [MBI]."

         In January 2009, the receiver reported to the court that MBI's assets would be worth more to the siblings than to other potential buyers. The receiver proposed selling the business assets to the siblings as a "going concern." After resolution of any creditors' claims, the receiver would distribute the remaining proceeds to the ten siblings pro rata based upon their ownership of MBI. The court approved the receiver's plan.

         Stephen and two sisters, Anita McRedmond and Linda McRedmond Orsagh, submitted the winning bid. The only other bidder was Louie, who submitted a bid for the grease business assets only. The receiver and the winning bidders executed an Asset Purchase Agreement for the grease business assets and other MBI holdings. The grease business assets included "the names and any derivations of the names of the business entities which currently own and operate the Businesses [and] the goodwill associated with the foregoing."

         On April 1, 2009, the court entered an order approving the receiver's sale of assets, attaching to the order the Asset Purchase Agreement. Pending the sale, the order directed the current ...


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