J. O. House v. J. K. Edmondson

In 1997, the Appellant, a shareholder in a Tennessee corporation, reviewed the corporation’s records and discovered that the corporation’s majority shareholder, who also served as the corporation’s president and chairman of the board of directors, had been misappropriating corporate funds for his personal use. In 1999, the Appellant filed a shareholder’s derivative action against the majority shareholder of the corporation alleging breach of fiduciary duty. In addition to his derivative claim, the Appellant also filed a direct claim against the majority shareholder for breach of a Pre-Incorporation Agreement signed by the shareholders at the corporation’s inception. The corporation appointed a one person special litigation committee to investigate the Appellant’s derivative action.  The committee determined that the majority shareholder had indeed misappropriated corporate funds. In its report to the board of directors, the committee recommended that the corporation either attempt to settle the lawsuit with the majority shareholder pursuant to terms suggested by the committee or, in the event the majority shareholder declined such terms, proceed with the litigation.  The trial court subsequently approved the report, and the corporation settled the derivative litigation.  Regarding the direct claim for breach of the Pre-Incorporation Agreement, the majority shareholder moved for summary judgment, and the trial court granted the motion. The Appellant filed an appeal to this Court. We affirm the trial court’s decision to approve the special litigation committee’s report. We reverse the trial court’s decision to grant summary judgment to the majority shareholder on the Appellant’s direct claim, as a genuine issue of material fact exists as to whether the Appellant’s claim is barred by the applicable statute of limitations.