*1 mаjority to determine that would allow the apply. Faced with
which standard record, majority left to
inadequate that a pronouncement
make the abstract suspicion applies standard
reasonable assigned who are to schools
those officers assigned duties “regular
on a basis” and that he or she be considered
“such as well as a law enforcement
school official necessary of the facts Deprived
officer.” issue, majority properly resolve case to the trial court
simply remands this trial the record in order for the “develop probable
court to determine whether the ap- suspicion
cause or reasonable standard truck.” I
plies to the search of R.D.S.’s a second provide
would not R.D.S. with develop an issue that he
opportunity to to raise at trial and would await
neglected properly in which the issue was case respectfully I dissent.
preserved.
J.O. HOUSE OF J.K. EDMONDSON.
ESTATE Tennessee,
Supreme Court Memphis.
Nov. 2007 Session.
Jan.
OPINION CLARK, J., A. delivered CORNELIA court, in opinion BARKER, C.J., and M. *3 WILLIAM M. HOLDER and WILLIAM C. JANICE WADE, KOCH, JR., JJ., joined. GARY R. J., dissenting. closely minority
A shareholder held corporation Tennessee filed derivative majority claiming company’s that the suit shareholder, corpo- who also served as the and chairman of its president ration’s directors, misappropriated corpo- board of minority rate funds. The shareholder also major- filed an individual claim alleging that he breached a ity shareholder agreement in which the pre-incorporation agreed to avail- majority shareholder offer and corporation to the other able stock purchasing the stock shareholders before appointed litigation himself. A committee investigate the alle- majority gations against the shаreholder charges. litigation The found merit to the corpora- recommended to the committee either settle the company tion that proceed litiga- claim or with the derivative majority if shareholder was unwill- tion the in accordance ing to resolve the lawsuit proposed by the committee. with terms litigation trial court found that committee’s recommendations findings and interests corporation’s in the best were reached, that, was once a settlement suit would be dismissed. derivative Tennessee, Edwards, Memphis, Tim summary granted trial also court Arkansas, Rubens, Memphis, Kent J. West on majority to the shareholder judgment House. appellant, for the J.O. contract claim and breach of individual Tennessee, Feibelman, Memphis, for Jef request minority shareholder’s denied Edmondson. appellee, Estate J.K. attorney’s fees. The Court of for acceptance court’s affirmed the trial II, McQuiston, Memphis, Tennes- John report and the denial litigation committee’s Ram-Tenn, see, intervenor, Inc. for the minority share- attornеy’s fees to the Stranch, III, Wall, holder, grant Michael J. trial court’s James G. reversed the but Leniski, Nashville, Tennessee, majority summary judgment P. and Joe Curiae, breach of contract The Plumbers and shareholder on the for the Amicus to determine: accepted claim. review Pension Fund. We Pipefitters Local 572 (1) in a controlled Edmondson plaintiff whether shareholder’s has been throughout corporate its existence. brought on behalf of a for- derivative suit attorney’s profit corporation recover plaintiff examined Ram- (2) fees; and whether the trial court was Tenn’s financial records and discovered adopting correct findings misusing corpo- had been Edmondson report. committee’s We hold discovered, rate funds. The that Tennessee law does not authorize an corpo- that Edmondson had used example, award of fees to a money premiums rate insurance brought shareholder’s suit owned, another business that he tuition for for-profit corporation. behalf of a alsoWe attending college, an individual and various *4 hold that the trial court did not err in personal expenses. plaintiff also dis- approving sufficiently independent, the that had Ram- covered Edmondson used thoroughly litiga- researched the report of Tenn to make to a funds contributions tion Accordingly, judg- committee. the corporation church and had used another ment of the of Appeals Court as to those ownership which he had an interest to issues is affirmed. products bill Ram-Tenn for and services at prices. inflated Background
Factual and Procedural
Following
discovery
the
of Edmondson’s
appeal
This
arises out of a derivative
funds,
corporate
plaintiff,
misuse of
the
on
action initiated in the Chancery Court for
12, 1999,
April
filed this shareholder deriv-
Shelby County
Ram-Tenn,
on behalf of
against
alleging
ative action
Edmondson
(“Ram-Tenn”),
closely
Inc.
a
held Tennes-
fiduciary
that he had violated his
obli-
House,
corporation,
minority
see
J.O.
a
gations
complaint,
to Ram-Tenn. The
shareholder of Ram-Tenn. The suit was
sought monetary damages
as well
filed against
corporation’s majority
the
relief,
injunctive
claimed that Edmondson’s
shareholder,
Edmondson, alleging
J.K.
minority
actions caused
stockholders to
misappropriated
Edmondson had
cor-
suffer a decrease in the value of their
porate
personal
funds
his
use. The
investments.
In addition to the derivative
plaintiff sought monetary damages and in-
suit,
a
against
the
filed
claim
junctive
against
relief
Edmondson on be-
a
breaching
pre-incorpo-
Edmondson
half of Ram-Tenn. Ram-Tenn intervened
agreement
ration
which Edmondson
in the lawsuit.
agreed to offer available shares of stock to
corporation
and other shareholders be-
Edmondson,
and
buying
fore
the stock
himself. See Hall
individuals,
along with seven other
formed
Co.,
Tenn. Dressed
Beef
Ram-Tenn for the purpose
building,
(Tenn.1997) (holding
that shareholders
buying,
managing
hotels and restau-
may bring derivative and individual claims
rants. At
the time Ram-Tenn was
simultaneously).
subsequently
Ram-Tenn
formed, Edmondson owned 25% of the
intervened in
lawsuit and
a
became
company’s
By
stock.
Edmondson
party.
majority shareholder,
owning
was
62%
suit,
cоmpany’s
response
plaintiffs
stock. He was also the
Ram-
president
appointed
of Ram-Tenn and chairman of Tenn’s board of directors
McLaren,
plaintiff,
Memphis lawyer,
its board of directors. The
Michael
to
minority
one-person litigation
shareholder of Ram-Tenn since
serve as a
committee
inception,
company’s
investigate
plaintiffs allegations
its
owned 5% of the
dispute
charged
stock. There is no
that Ram-Tenn
Edmondson. The board
McLaren,
$552,501.
who
affiliation with
Ram-Tenn
The trial
paying
had no
found that
findings
court
McLaren’s
any
Ram-Tenn or
with
parties,
corporation’s
recommendations were in the
responsibility
determining
how the cor-
that,
interests and
a settlement
best
once
poration
respond
should
to the suit. Ram-
reached, the
suit would be
was
was
specific charge
Tenn’s
to McLaren
dismissed.3
trial court also directed
“independent
judgment
use
business
any
paid
part
funds
Edmondson as
whether,
determine
in the best interest of
placed
in escrow
settlement be
corporation,
should be
any appeal. Finally,
trial
pending
continued, dismissed,
settled.”
granted summary judgment
court
conducting
investigation
After
with
Edmondson
individual
accounting firm,
the assistance of an
pre-
claim that
had
Edmondson
breached
report
McLaren issued an initial
and then
incorporation agreement. Accordingly,
concluding
supplemental
court
the trial
found that Edmondson
$552,501
Edmondson had misappropriated
properly owned 62% of Ram-Tenn’s stock.
Ram-Tenn
personal
from
for his
use.
trial
pending
the case was
While
McLaren recommended to
*5
court,
that attor-
plaintiff requested
the
for
parties
that the
settle the lawsuit
that
him
theo-
ney’s fees be awarded to
on the
to avoid
of
expense
amount
the
further
ry
against
that
the
suit
derivative
litigation. Specifically, McLaren recom-
corporation.
had
the
Edmondson
benefited
that
Ram-Tenn
pay
mended
Edmondson
Appeals
The trial court and the
of
Court
$552,501,
would
the
dis-
attorney’s
to award
fees based on
declined
according
to
to their
tribute
shareholders
that
their
principle
litigants
the
must
interests,
ownership
any amounts that
less
attorney’s
or an
own
fees absent a statute
McLaren
shareholders chose to waive.1
The
agreement
providing otherwise.
parties
further
if the
recommended
courts below reasoned that
the statutes
settle,
unwilling to
Ram-Tenn
were
should
governing for-profit corporations such
the
pursue
derivative
claim
do not
an award of
provide
Ram-Tenn
for
moved the
Edmondson. Ram-Tenn
trial
attorney’s
bringing
fees to a
shareholder
See
accept
report.
court
to
McLaren’s
action. The Court of
derivative
48-17-401(c) (2002) (a
Ann.
Tenn.Code
prop-
court
further concluded that the trial
“may
suit
or
not be discontinued
erly approved
report.
McLaren’s
Howev-
approval”).2
settled without the court’s
er,
in a divided
Appeals,
the
of
Court
Following
hearings in which
multiple
the
decision,
summary
grant
reversed the
McLaren,
testified,
others
plaintiff,
plaintiffs
the
judgment to Edmondson on
court,
16, 2004,
January
ap-
trial
the
claim.
individual breach of contract
With
claim,
this
intermediate
proved
recommending
rеspect
McLaren’s
disputed
is-
the case be
Edmondson
court found
there were
settled
language
cited statutes
1.Ninety percent
payments were
2. Because the
of such
even-
changed
in effect
tually waived
has not
from
version
Ram-Tenn’s shareholders.
commenced,
we
prin-
year this
cite
suit
It should also be noted that Ram-Tenn’s
asset,
Nashville,
the most recent edition.
cipal
a hotel in
was sold for
$3,400,000
reports
before
were
McLaren’s
is-
company
parties'
McLaren
the deriva-
sued.
described
3. The
briefs indicate that
"nonfunctioning.”
company
subject to the
reports as
has in fact
settled
is
tive suit
been
pending
the outcome of
apparently wind-up
approval
the con-
of the trial court and
mode
appeal.
litigation.
clusion of this
Corp.,
fact
Tobacco
concerning
plaintiffs
sues of
Williamson
(Tenn.2000),
public
on several
based
knowledge
acquisition
of Edmondson’s
First,
policy
litiga
considerations.
since
additional stock for statute of limitations
uncertain, party
should
inherently
tion is
purрoses.
part
This
of the intermediate
merely bringing
for
penalized
not be
court’s decision—which
the case
remanded
defending a lawsuit. Fleischmann Distill
plain-
for a determination of
whether
Co.,
Brewing
v. Maier
386 U.S.
ing Corp.
timely—
tiffs breach of contract claim was
714, 718,
1404,
A.
48-718,
statute, section
existing Tennessee
the
provided for
specifically
the MBCA
turn to
by
principles, we
Guided
these
by
success
attorney fees
both
recovery of
Ten-
issue before us—whether
precise
the
attorney’s
plaintiff, reasoned
ap
a derivative
by
48-718
Although
its terms section
derivative
necessary
con
for-profit corporations,
it was
in shareholder
plied to
fees were
apply
by
Appeals to
to not-
encourage
strued
the Court of
shareholders
and assist
suits “to
well. See Hanne
for-profit corporations as
justified claims for the benefit
pursuing
...
in
Inc.,
Cmtys.,
include similar merely to that found in 527 and not an omis either Tennessee Code Annotated part legisla section sion or mistake on the 48-718(4) 7.46(1) we, or section of the MBCA. ture. like the While drafters Instead, TBCA, MBCA, in enacting legisla- might permitting see merit suc repealed ture section 48-7186 its entire- cessful in a derivative action to ty fees, and chose not to include all of the recover it is not for this suggested language question found the MBCA. Court to wisdom of stat Instead, As the was utory TBCA written 1986 and as scheme. are to we con today, it reads corresponding apply there is no strue and the law written. See *8 48-718(4) 7.46(1) Resorts, provision to either or in Inc. v. Carson Creek Vacation Revenue, 1, act allowing plaintiff the a successful 2 Dept. State 865 S.W.2d of (Tenn.1993). attorney’s Instead, Therefore, leg- recover fees. the conclude that we adopted islature what is now Tennessee not controlling simply pro the statutes do 48-17-401(d), attorney’s Code Annotated section vide for an award of fees recovery attorney’s involving which limits the of in derivative actions only corporations. Although fees in derivative actions to successful the dis for-profit Thus, so, essentially urges section 48-718 was ex- sent us to do we defendants. pressly repealed judicially repealed a replaced pro- with decline to resurrect 1984, repealed by 6. section 48-718 was renumbered as were the TBCA. See Tenn.Code -721, (2002). repealed §§ 48-1-718. section Sections 48-1-701 to -721 Ann. 48-1-701 to
380 rely amicus also plaintiff The and the
statute,
equitable might
it
no matter how
case,
McBrayer
unreported
v. Dixie
an
McRedmond v.
upon
to do so. See
seem
560,
Co.,
Marianelli,
144
Mercerizing
176 Tenn.
No. M2004-01496-
Estate of
(Tenn.1940)
(Tenn.Ct.
764,
(holding that COA-R3-CV,
768
S.W.2d
2805158
WL
“cannot,
course,
guise
under the
2006).
courts
of
case,
In that
the trial
Sept.29,
App.
[statutes]”).
amend or alter
of construction
derivative action
court in a shareholder’s
a Ken
attorney’s
fees
awarded
B.
Law
Case
Kentucky’s
pursuant
tucky company
amicus curiae
plaintiff and the
in
The issue
common fund doctrine.
maintain,
agrees, that even
and the dissent
McRedmond,
by
parties,
framed
as
authority
statutory
in the absence of
“erred in its
whether the trial court
was
fees,
fees should
attorney’s
such
award of
fund
Kentucky
common
application
fund
under the common
be recoverable
ordering
Kentucky corpo
in
[the
doctrine
derivative suits
doctrine because successful
attorneys’ fees and ex
ration]
upon
corporation.
confer a benefit
plaintiffs.”
derivative
Id.
penses
[ ]
Moun
v. Lookout
They rely upon Grant
award
affirming
the trial court’s
at *7.
(Tenn.
Co.,
691,
tain
93 Tenn.
28 S.W.
fees,
that
noted
the Court
may
1894),
attorney’s
that
fees
which held
case is Ken
applicable law this
“[t]he
plaintiff
awarded to a
shareholder
be
the inter
Despite
Id. at *4.
tucky law.”
problem
action. Id. at 93.
Kentucky
that
court’s declaration
mediate
Grant,
upon
reliance
plaintiff’s
with
however,
court
went
governed,
law
however,
that
the case was decided
before it was
question
to state
adoption of the
nearly
century
before the
(ei
common fund doctrine
“whether the
Act,
Corporation
Business
Tennessee
law)
Kentucky
under Tennessee
ther
type
out the
of cases
plainly
which
sets
facts of this case. We
applies under the
awarded.
may
be
Regardless
at *20.
that it does.” Id.
find
48-17-401(d).
Ann.
See Tenn.Code
actually applied
was
of which state’s law
one are not
present
such as the
Cases
McRedmond,
dispositive
that case is not
gov
in the statutes
those included
among
To the extent
present сase.
corporations.
erning
for-profit
to conflict
construed
McRedmond
subsequent
abrogated by
has been
Grant
today, it is overruled.
with our decision
such,
and,
not
as
does
changes
the law
rely
and the amicus
Finally,
urged by
compel the result
where,
noted,
upon Hannewald
and the amicus.7
rejected
explicitly
48-718 was
via
section
argues that Grant remains
7. The dissent
into the
legislature when not included
despite
repeal
48-718. Re
of section
ble
Schantz,
statutory
general
con
rule of
new
“As
lying
Electric Co. v.
Act.
on Tucson Gas &
struction,
language
(Ariz.Ct.
change
in the
Ariz.App.
428 P.2d
Jordon,
departure from the old
indicates that a
16 S.W.3d
statute
App.1967),
Lavin v.
Lavin,
language
(Tenn.2000),
was intended.”
the dissent asserts
Therefore,
intentionally removing
abrogated
explicitly
a common law rule is
48-718,
Assembly placed
the General
clearly
section
reflects
unless the statute
statute
*9
it,
with the TBCA.
rule at odds
the common law
legislative
so. As we see
intent
to do
stated,
And,
law,
however,
previously
this Court has
as
abrogation of the common
Grant,
between the com
there is a conflict
explicit
“[w]hen
intend
was
and
reflected in
statute,
1968,
provisions]
of
law
a
mon
and
legislature.
the General
by
ed
(quoting
Id. at 368
prevail.”
com
statute must
Assembly
the common law
subsumed
Co.,
Tenn.
R.R.
126
Illinois Cent.
Sub
Graves v.
48-718.
fund doctrine into section
mon
148,
239,
(Tenn.1912)).
S.W.
242
passed in
148
TBCA was
sequently, when the
testified,
court,
January
trial
awarding attorney’s
Appeals,
Court of
report recom-
plaintiff
approved
fees to a
in a shareholder deriva
McLaren’s
suit,
attorney’s
by
that
mending
tive
reasoned
that
the case be settled
$552,501.
necessary
encourage
“to
and assist
paying
were
Ram-Tenn
Edmondson
48-17-401(c) (deriv-
justified
...
in pursuing
shareholders
Ann.
See TenmCode
of
corporations
claims for the benefit
“may not be discontinued
ative suits
they
Hanne
have valid interest.”
approval”).
settled without
the court’s
wald,
Hanne
Citing
broadened are inconsistent with investigation and six-year period under Tennes- covering In consider best interests. corporation’s Annotated section 28-3-109 see Code issue, that courts take into ing this we note (2000), period applicable the limitations to determining account several factors contract breach of actions. inves adequacy litigation of a committee’s argument that McLaren plaintiff’s The length factors include the tigation. These improperly scope limited the of his investi- investigation, the commit scope and un- gation into Edmondson’s activities is the cor independent experts, tee’s use of persuasive. legislature clearly has poration’s or the defendant’s involvement provided a to period applicable limitations and investigation, adequacy and the type cases of this in section 48-18-601. to reliability supplied of the information terms, Lewis, applies its own that statute at 224. Under the committee. Moreover, “[a]ny alleging assessing to action of fidu- whether the com breach that is in the ciary duties directors or officers” of a mittee has reached decision interests, courts consid- corporation’s falls best corporation. presеnt case questioned why he 10. When at trial as to only year any by any added additional fraud- one no effort was made 6. That little or occurred, ulent have concealment that inquire even as shareholder to monitor or judgment McLaren testified that he made a Ram-Tenn, Inc. to the affairs of investiga- period call the time of the to limit years prior filing tion to four to the of the (or any plaintiff] other share- [the 10. That practical complaint because of the cost and holder) diligence, any due in the exercise of difficulty getting prior records Ram-Tenn’s and could have ascertained the nature [sic] stated, that time. As he Ram-Tenn had to misappropriations extent of Edmondson’s period prior few records for the to any time. longer have taken and been more it would language findings McLaren’s Given costly keep digging beyond years. The four requiring 48-18-601 found within section preponderate against these evidence does part on the fraudulent concealment Moreover, findings. in the commit- defendant in order to extend statute report, tee McLaren stated: beyond year, one see Tenn.Code limitations matter, great After a deal of work on 48-18-601, to ex- McLaren’s decision Ann. can be drawn: some definite conclusions scope review of his tend the prior filing many years to the as four [by made 3. That little or no effort was generous plain- appears lawsuit misappropria- to conceal the Edmondson] tions, tiff. misappropriated and the sums would reviewing apparent anyone have been books, accounts, and records.... *12 nothing the suc- tion and that was concealed from er the likelihood that will merits, financial burden on Edmondson as ceed on the the him. McLaren described case, litigating the the “open willing provide” the and whatever he permit will the Indeed, extent to which dismissal it is uncontraverted requested. benefits, improper and defendant to retain all that McLaren examined of Ram-Tenn’s continuing litigation the the will effect that could be located. records corporation’s reputаtion. the Id. have on reflects that McLaren The record also principles, of these we note that Mindful thousands deposed witnesses and reviewed the record before us establishes supplied by and of documents McLaren, liti- experienced an commercial times with others. He also met several began investigation his in December gator, useful provide individuals who could infor- in 1999 and rendered his first Octo- others, including, among the custo- mation July supplemental report ber 2000 and a in records, corporate of Ram-Tenn’s dian Thus, investigation McLaren’s Edmondson, counsel, plaintiff, spanned During nineteen months. Further, lawyers. their McLaren re- time, accounting firm to employed he an transfers, concerning viewed the law stock of at investigation assist in the at cost limitations, damages, and the statutes of $50,000 least to Ram-Tenn. The account- special litigation role of committees. The hours on the case. ing spent firm arriving in record also demonstrates that per- firm spent McLaren’s law 313 hours the case be at his recоmmendation investigation at a cost of forming the settled, account a num- McLaren took into Further, $70,000 to Ram-Tenn. McLaren relevant factors —“the likelihood of ber of in- in the hotel expert consulted with merits, extraordinary on the success dustry, along apprais- with the real estate case,11 expense going forward with the er involved in the sale of Ram-Tenn’s ho- delay wrapping up in the affairs of the only tel in Nashville. did nonfunctioning corporation, age employ experts to assist McLaren outside eighties in and in who was [Edmondson lengthy investigation, spent many he health], poor length of time involved to the case himself. hours —at least 250—on ease, try appel- and the almost certain Furthermore, we note that McLaren’s following any trial.” In the process late along reports, reports, with exhibits in ac- event Edmondson refused to settle extensive, encompassing are detailed specified terms his re- cordance with accounting firm’s pages. hundreds of that Ram- ports, McLaren recommended sixty-three pages itself is report by against him. pursue Tenn the case inquiry. areas of length and details the record before upon Based the extensive reports, along exhibits to the Numerous us, ar- unconvincing find we testimony with the of McLaren and conclusions and gument that McLaren’s him, than accountant who assisted more product of an recommendations were the efforts adequately reflect their extensive Indeed, investigation. it is dif- inadequate uncovering Edmondson’s activities. pinpoint more McLaren ficult what that none of Ram- McLaren testified in the nineteen months could have done attempted or directors Tenn’s officers investigation on be- receiving any informa- that he conducted prevent him from $250,000 attorneys’s fees alone. estimated that to continue 11. McLaren litigation "far in excess" of would cost J., WADE, dissenting. R. Moreover, no GARY we have half of Ram-Tenn. to exer- find that McLaren failed
basis to the trial majority that I with the agree judgment business determin- cise sound special by approving not err court did of Ram-Tenn— ing that the best interests For a vari- report. committee’s nonfunctioning, closely company— held reasons, however, respectful- I must ety of *13 settled, served if the case were would be that a holding to the ly regard with dissent company’s pri- especially given suing on behalf of minority shareholder sold, litigation mary asset had been recover can never for-profit corporation nearly years, nine and spanned has fund doc- attorney fees under the common wind-up pending mode company is First, that failure I do not believe trine. short, this suit.12 In conclusion of Assembly include the of the General demonstrates adequately record more than Tennessee doctrine in the common fund conclusions and recom- that McLaren’s (“TBCA”) abro- Act Corporation Business much product mendations were Lookout holding in gates our Grant effort, time, light of these expense. Co., 93 Tenn. 28 S.W. Mountain not, circumstances, have we will as we (Tenn.1894). common fund Secondly, the said, judgment our substitute business to Tennessee analogous is not doctrine duly appointed independent 48-17-401(d), of the Annotated section Code litigation committee.13 attorney an award of which authorizes Finally, from party.
against opposing application of the policy standpoint, Conclusion de- doctrine to shareholder common fund reasons, foregoing For the we hold that promote cor- suits is desirable rivative Tennessee law does not authorize an accountability. porate fees to a in a award brought on shareholder’s derivative suit I. fur- for-profit corporation.
behalf of We Indeed, “Ameri- Tennessee follows the ther hold that the trial court did not err rule,” whereby in a civil action parties can com- approving any attorney fees absent pay for their own Accordingly, judgment mittee. contrary. common agreement Court of is affirmed. The costs doctrine, however, well-recog- is a fund plaintiff, this Court are taxed to the J.O. rule. to the American See exception nized House, surety, and his for which execution Gemert, 444 U.S. Boeing Co. v. Van may necessary. issue if (1980) (ap- L.Ed.2d 676 100 S.Ct. fund to a class
plying the common doctrine action). WADE, J., to shareholder deriva- dissenting. applied R. As GARY interests, interesting plausible to us that this note that McLaren it seems 12. It is judgment possibility in- approach by suggests made a call at the outset of his McLaren vestigation that because Ram-Tenn’s records findings may actually gen- that McLaren’s fashion,” kept “sophisticated were corporation. in favor of the erous supported expenditures that could not be would be held with documentation arguments makes additional placed repayment Edmondson and "in the authority scope concerning the of McLaren’s words, any lack of infor- column.” In other proposed by which settlement and the method charged against automatically mation was paid by Edmondson. We proceeds were to be plaintiff’s Contrary to the ar- Edmondson. argu- that these alternative have concluded gument McLaren’s conclusions and rec- have no merit. ments were not in Ram-Tenn’s best ommendations suits, provides tive the doctrine that a serfs that this common law rulе was re- minority pealed by separate ways: who initiates a meri- statute in two shareholder (1) through torious suit recover reasonable fees the codification and subse- (the from the common fund settlement or quent repeal of Tennessee Code Annotated verdict) (2) paid by 48-718; the shareholders as com- adoption section pensation expended for the efforts for the Annotated Tennessee Code section 48-17- Grant, 401(d). benefit of all shareholders alike. agree. I cannot fair, compensation at 90. This 28 S.W. A. 48-718 Section
considering that
the benefit would not
shareholders,
have accrued to the other
Assembly adopted
the General
small,
large but
the efforts
that allowed
in deriva-
statute
*14
it,
shareholder. As Grant
minority
put
attorney
by
fees
tive actions
recover
[rightfully]
“the
restored to the
property
placing
upon
recovery
a “lien
made
by minority
in motion
corporation, was set
corporation.”
legislation
This
was
Id. at 91. The common
stockholders.”
Grant.
holding
our
in
comparable with
a
partiсularly
fund doctrine is
suited for
48-718(4).
TBCA,
§Ann.
The
Tenn.Code
mi-
shareholder derivative action because a
1986,
in
did not include
which was enacted
nority
suing
is not
on his own
shareholder
subject.
that
provision
addresses the
behalf,
corporate
but on the behalf of the
presents
question
the classic
of
This
entity,
unlikely
which is
to file suit
codification of a common law doc-
whether
leadership
partici-
its own
unless forced to
trine,
by subsequent repeal of the
followed
through a
action.
pate
derivative
statute,
abrogates the common
implicitly
majority, I do not believe
indicated,
law. Unlike the
previously
As
has
Court
always
By codifying
this is
the case.
recognized the common fund doctrine as
1968,
in
common fund doctrine
General
applied
attorney
fees
shareholder
Assembly
enacted a statute that both af-
for-profit
derivative suits on behalf of
Grant,
concurrently with the
corporation.
(holding
operated
lative silence. approach pre- This is consistent with our conclusion is majority states its The subject. up- on the vious decisions While relevant stat- merely “application recovery statutory cap holding 48-17-401(d)....” ute, namely section against damage for intentional parents However, anything to find I am unable children, made by caused them this Court barring plaintiff a explicitly that section following observation: attorney fees recovering reasonable from Assembly plenary has While the General Furthermore, I fund. from the common limits to power within constitutional comparison be- any helpful find do not statute, by ... change the common law and this the common fund doctrine tween ‘rules of the common law are not the TBCA. provision of by implication, and if a statute repealed 48-17-401(d) directs case, Section include and cover such does not if attorney fees the defendant’s pay as it was its it leaves the law before “reasоnable not commenced with suit was enactment.’ Turner, (emphasis Id. that it was deliberate.” majority 193 assume 3. The cites to State (Tenn.2006), proposi- added). change involve a 527 for This case does not S.W.3d change in the law statute tion that "a language a statute. Because in the departure from presumption that a raises a addressed in the doctrine is not common fund What Turner ac- was intended.” the old law TBCA, language different of two there is no legislature tually "When the makes said was compare case. in this of a statute to versions statute, language we must change of a policy cause.” The property behind section 48-17- the fund or as fair itself 401(d) discourage is to frivolous derivative compensation “securing, augmenting, compensate suits and defendants that are preserving property or a money fund of harmed the costs incurred in the de- people in which other are entitled to share fense of litigation. policy baseless The in common.” Travelers Ins. Co. v. goals of the common fund doctrine are Williams, (Tenn. completely different: 1976)). First, prevents the doctrine the benefi- short, these are two different con- legal being ciaries of services from un- view, cepts. my nothing in section 48- justly by requiring pay enriched them to 17-401(d) supports abrogation according for those services to the bene- common fund doctrine. this Court’s While Second, fit received. the doctrine serves apply role is to the law as written to spread litigation propor- the costs of second-guess legisla- the wisdom of the tionally among all of the beneficiaries so ture, I find no simply statutory clear di- that the does not bear the en- rective that mandates abrogation tire burden alone. common law.4 (Tenn
Kline v. Eyrich, 69 S.W.3d 2002). objective of the common fund II. “impose doctrine is to fees on the class majority opinion its conclu- bases that would have had to the fees if it solely grounds statutory sion on the brought had the suit its benefit.” considerations, policy construction. Public (1995). Corporations Am.Jur.Zd view, my support a different result. legislation discourages Just as the 1986 suit, encouragеs frivolous our common law The common fund doctrine enables *16 a meritorious one. justified “pursu[e] shareholders to claims corporations for the benefit
Section 48-17-401 and the common
they have a valid interest.” Hannewald v.
fund doctrine
aspects
differ
other
be
Inc.,
222,
Cmtys.,
230
policy
sides
In
goals.
section 48-17- Fairfield
Here,
(Tenn.App.1983).
minority
401(d),
attorney
the defendant’s
fees would
only
shareholder owned
5% of the shares.
paid by
opposing
party. Under the
A verdict or settlement
in a derivative
doctrine,
minority
shareholder’s attor
$200,000
action would have to be
or above
ney
from a
paid
fees would be
common
minority
recoup
for a
shareholder to
a fee
being
fund
before
distributed to
share
$10,000
compensation
words,
for a
obligation
holders.
other
“the
—minimal
litigation
of that
cost of
suit
matter. The
plaintiffs
in a
reimburse
successful
de
be so
as to
could
burdensome
deter other-
corporation,
rivative action falls on the
misappropria-
wise valid claims unless the
losing party, such as the di
not on the
tion is substantial.
suits
сharged
mismanagement.”
rectors
with
Derivative
are
(em
Corporations
risky
prove
§
19
2487
and difficult to
even when
Am.Jur.2d
added).
fi-
phasis
corporate
The fees are assessed
there is clear misconduct
Ass’n.,
holding
many
Cooperative Light
4. Our
in Grant concurs with
er
& Power
257
See, e.g.,
362,
423,
(Minn.1960);
our sister
Decatur Mineral &
states.
Minn.
N.W.2d
425
101
Palm,
531,
315,
140,
54,
Land Co. v.
113 Ala.
21 So.
Bass,
Fitzgerald v.
122 Okla.
252 P.
(Ala.1896);
Frushour,
316
Knutsen v.
92 Ida
stated,
(Okla.1927).
the common fund
55
As
521,
37,
(Idaho 1968);
ho
436 P.2d
525
State
recognized by
doctrine is also
the federal
Bechtel,
ex rel. Weede v.
244 Iowa
Mills,
392,
seek deserved when would loss.5
result net excep-
The common fund doctrine —the
tion to the American rule —arose
equitable doctrine. 20 Am.Jur.2d Costs (1995). former Justice Har- allowing
lan wrote to re- expenses conveying
coup signif- when
icant to the benefit other shareholders is Mills, equitable.
simply fair and 396 U.S. believed that a S.Ct. He ruling “To
contrary unjust: would be allow obtain others to full benefit from the efforts contributing without
equally expenses would be plain- others unjustly enrich the at the expense.”
tifPs Id. That assessment sense. perfect
makes reasons,
For these I must dissent. I
would not overrule and would Grant hold
that a action for-profit
behalf of can re- attorney
cover reasonable fees under the
common fund doctrine.
France Isabelle Ter WINE Weele
Jeffrey Michael WINE. Tennessee,
Court of Section,
Middle at Nashville.
February 2007 Session.
May 18, 2007.
Permission to Denied Appeal 22, 2007.
Supreme Court Oct. attorney, requires, that it this is pro is a investment of work An alternative bono but complex the amicus curiae states: "Given neither realistic.” fair nor and the nature of massive