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Allegro, Inc. v. Scully

Court of Appeals of South Carolina

June 30, 2014

Allegro, Inc., Respondent,
Emmett J. Scully, Synergetic, Inc., George C. Corbin and Yvonne Yarborough, Appellants

Submitted: May 28, 2014.

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Appeal From Richland County. Appellate Case No. 2008-099926. L. Casey Manning, Circuit Court Judge.

Amy Lohr Gaffney, of Gaffney Lewis & Edwards, LLC, and Charles Mitchell Brown, William C. Wood, Jr., Brian Patrick Crotty, and Allen Mattison Bogan, all of Nelson Mullins Riley & Scarborough, of Columbia, for Appellants.

Robert L. Widener and Richard J. Morgan, both of McNair Law Firm, PA, of Columbia, for Respondent.



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[409 S.C. 400] LOCKEMY, J.

In this civil action, Emmett Scully, Synergetic, Inc. (Synergetic), George Corbin, and Yvonne Yarborough (collectively, Appellants) contend the trial court erred in (1) admitting into evidence the order granting a temporary injunction; (2) admitting into evidence Allegro, Inc.'s (Allegro) expert report; (3) certifying Daniel McHenry as an expert; (4)

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excluding evidence relating to the issue of Allegro's damages; (5) failing to grant motions for directed verdict and judgment notwithstanding the verdict (JNOV) as to the claims for civil conspiracy, breach of contract, breach of contract accompanied by a fraudulent act, fraud, and negligent misrepresentation; (6) reforming the jury's damages verdicts without providing the option of a new trial; and (7) failing to require an election of remedies. We reverse and remand.[1]

[409 S.C. 401] FACTS

Allegro is a professional employer organization (PEO) that was formed in the late 1990s by its initial owner, Mary Etta McCarthy. A PEO provides human resource services for companies wanting to outsource that function. Scully joined Allegro in August of 1998 as president and a member of its board of directors. He was also given thirty percent of Allegro's stock. The remaining directors consisted of McCarthy, who was the majority owner, and one of Allegro's clients, Frank Brown. Between 1998 and 2001, Scully's ownership interest in Allegro increased to forty-nine percent and McCarthy held the remaining fifty-one percent interest.

Allegro and Scully never executed an employment contract or non-compete agreement. Furthermore, Allegro did not have an employee handbook that was issued to or utilized by its employees. However, when Scully joined Allegro, Scully and McCarthy negotiated a Partnership/Buy-Sell Agreement that governed the percentage and change in ownership of Allegro.[2]

McCarthy was actively involved in Allegro's management until Scully joined and took over the day-to-day operations. Scully testified that as president, he was entrusted with managing the operations in the best interest of Allegro along with financial oversight of the company. Beginning in late 2002 or early 2003, Scully expressed frustrations about the business to his friend, Corbin, who was also a certified public accountant (CPA). Additionally, Corbin's company, Merritt, was a client of Allegro. Corbin advised Scully regarding three possible options: (1) Scully could buy out McCarthy; (2) McCarthy could buy out Scully; or (3) Scully could start his own business. Scully then consulted with Corbin about how to make an offer to purchase McCarthy's interest in Allegro. In March of 2003, Corbin issued a letter to Scully outlining three approaches for determining a fair purchase price for McCarthy's shares in Allegro. In concluding the letter, Corbin stated:

[409 S.C. 402] The overall issue here is that something needs to happen. The ongoing tension between you and Mary Etta is obvious. That has to be tiring for both of you. It is also probably obvious to employees. Either way, it is not healthy for the business. The business has a better chance of success without that tension. If one of you has to sell out to relieve it, then that is what needs to happen.

In the spring of 2003, Scully informed McCarthy that he wanted to purchase her ownership interest in Allegro. Scully also discussed his proposal with Allegro's third director, Brown. During his conversation with Brown, Scully stated that if he could not purchase McCarthy's shares, he would set up his own PEO business. Over the course of a series of discussions with McCarthy in 2003, Scully told her that if they could not agree upon a price at which she would sell her ownership interest in Allegro, he would leave the company and form a competing company, taking employees and clients with him. In response to these conversations, McCarthy suggested having Allegro valued to determine the price of her interest. After McCarthy hired the Geneva Corporation (Geneva) to conduct a valuation study, Corbin reviewed the study and provided feedback to Scully at Scully's request.

On December 24, 2003, McCarthy received a letter from Scully offering to purchase her shares, setting forth two options as to the

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purchase price, and asking for her response by January 23, 2004. Prior to sending McCarthy the offer, Scully had asked Corbin to review it and Corbin advised that it was a fair offer. McCarthy received a subsequent letter from Scully on January 23, 2004, restating his offer. On January 29, 2004, McCarthy responded with a written counteroffer. Scully replied in a February 2, 2004 letter, stating, " if we are unable to come to terms the result is a lose, lose, lose for everyone involved. If I leave Allegro and start a new PEO we will be in competition for the same customers and employees."

Having failed to reach an agreement regarding the purchase of Allegro, Scully gave his letter of resignation to McCarthy on February 16, 2004. McCarthy then told Scully she would accept his last offer to purchase her ownership interest in Allegro. They agreed her lawyers would draw up the necessary [409 S.C. 403] paperwork by the end of that week. After that conversation, Scully left town on a business trip for Allegro. While Scully was out of town, McCarthy decided she did not want to sell her ownership interest after all and focused her efforts on retaining Allegro. During Scully's absence, McCarthy met with Jim Everly, whom she hired to replace Scully as Allegro's president. McCarthy met with Scully on February 23, 2004, and presented Scully with a letter accepting his resignation. Immediately following Scully's departure from the company, McCarthy and Everly held a meeting with all Allegro employees and informed the employees that they must sign non-compete contracts. Yarborough was an employee of Allegro from 2000 until 2004. At the meeting with McCarthy and Everly, Yarborough and another employee, Lisa Milliken, refused to sign the non-compete contracts.

McCarthy and Everly contacted all of Allegro's clients to inform them Scully was no longer employed by Allegro and made arrangements to meet with each client. They first met with Corbin of Merritt, who told them that due to his personal friendship with Scully, Merritt's business would likely move to Scully's new company, Synergetic. Pursuant to Merritt's contract with Allegro, Corbin sent a thirty day notice in the form of a letter on February 27, 2004, announcing its termination of their contract as of March 31, 2004. Letters from other clients terminating their contracts with Allegro shortly followed.

After his departure from Allegro, Scully formed his new company, Synergetic. On March 1, 2004, Yarborough resigned as an employee of Allegro and began working for Synergetic on March 2, 2004. Millikin also resigned from her position with Allegro on March 1, 2004, and subsequently became an employee of Synergetic.

On April 15, 2004, Allegro initiated this action by filing a complaint against Scully, Yarborough, Corbin, and Synergetic. On that same date, Allegro filed a motion for a temporary injunction, seeking to enjoin Scully, Yarborough, and Synergetic from soliciting business from Allegro's clients. That motion was granted in an eleven page order after a hearing on October 14, 2004.

[409 S.C. 404] At the close of Allegro's case, as well as at the close of all evidence, both sides moved for directed verdicts. These motions were denied. The trial court then submitted to the jury eleven of the claims asserted by Allegro.[3] Nine of the claims applied to Scully alone,[4] one claim applied to Yarborough alone,[5] and one claim applied jointly to Scully, Yarborough, and Corbin. [6] The jury's special verdict form listed each of the eleven causes of action and asked two questions for each charge: (1) whether the plaintiff had

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proven that claim; and (2) if the claim had been proven, the amount of actual damages and punitive damages (where appropriate) the jury awarded as to each claim.

During deliberations, the jury sent a question to the trial court asking whether they should list the damages specific to each cause of action individually, or place the overall total amount the jury decided to award. In discussing the verdict with the foreperson, using apples as the hypothetical award, the trial court stated, " You give a certain number of apples for each cause of action. And that's all you are worried about. And there are some law related matters that I will take care of as a Judge . . . ." The foreperson stated she understood the concept, and the trial court continued:

So, for each cause of action depends on the breach of duty or [contract or] whatever you may find give a number, assign a value that you have been -- if the [p]laintiff's have [proven] to you by the greater weight of preponderance of evidence they are entitled to two apples on this one or three [409 S.C. 405] on that one or four on that one, that's the way you do it and don't worry about the total.[7]

The jury returned a verdict for Allegro on all eleven causes of action. The jury awarded actual damages in the amount of $160,000 for each of the causes of action. Furthermore, the jury awarded $75,000 in punitive damages on the breach of loyalty claim against Yarborough, and $175,000 in punitive damages on the civil conspiracy claim against Scully, Yarborough, and Corbin jointly. The jury's verdict form shows that an award of $1,760,000 had initially been entered in the designated space for actual damages for the first cause of action, but it was struck through and replaced with $160,000.

Once the jury verdict was announced, the foreperson was questioned as to the total number of " apples" they intended to award Allegro, and their response was $1,760,000. The court then asked " What about punitive damages in terms of the total number of apples you wanted to give to [Allegro]?" The foreperson said the jury wanted to give $250,000 total to Allegro. The court finally stated, " We can add it up but your mathematician says it was the intent of this jury to award [Allegro] $2,010,000," to which the foreperson agreed. As a final review, the trial court said, " Actual damage 1.7 million and the remainder of that sum is punitive damages totaling in the amount of $2,010,000." Subsequently, no change was made to the verdict form by either the jury or the judge and no change was requested by Allegro.

The trial court completed a Form 4 order, which stated the total amount of actual and punitive damages and their grand total of $2,010,000. The Form 4 order did not state that these amounts applied to all, or any, of the individual Appellants, but the special verdict form was attached showing the specific damages awards. Further, the Form 4 order gave no indication that the jury's verdict, as stated on the special verdict form, had been changed, altered, or modified in any way.

In their post-trial motions, Appellants moved for an election of remedies and asserted grounds for JNOV and a new trial. [409 S.C. 406] On July 14, 2008, the trial court denied all of Appellants' post-trial motions.[8] In denying the motion for an election of remedies, the trial court stated:

Based upon the verdict form and the conversations with the jury before and after its verdict, I am convinced the jury intended to award $1.76 Million Dollars in actual damages for each cause of action, and that it intended to award $250,000 in punitive damages on the two causes of action. I am further convinced that the jury's apportionment of the verdict amongst the various causes of action does not reflect a finding that ...

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