The Tennessee Court of Appeals recently issued a ruling in John Hammer v. Southeast Resource Group, Inc., et al, which was appealed from the Chancery Court for Williamson County. The Plaintiff, John Hammer, founded a limited liability company called Action Financial Company, LLC (“Action”). Other than Plaintiff, the only member of the LLC is Defendant Southeast Resource Group, Inc. (“Southeast”). Action sells insurance products to credit union members. The operating agreement entered by Plaintiff and Southeast stated:
Except as otherwise provided in this Section . . . each Member may engage in whatever activities they choose, whether the same are competitive with [Action] or otherwise . . . without any obligation to offer any interest in such activities to [Action] or any Member. Notwithstanding the foregoing, the Members hereby acknowledge and agree that each Member owes to [Action] and each Member the highest fiduciary loyalty and duty. In furtherance, and not in limitation, of such loyalty and duty:
(a) Each Member covenants and agrees to disclose and make available to [Action] each and every business opportunity that is within the scope and purpose of [Action] that such Member becomes aware of in his capacity as Member or otherwise; provided, however, no such disclosure or offer shall be required with respect to business opportunities that are not within the scope and purpose of [Action].
Five years after founding Action, Plaintiff was introduced to a “telemedicine opportunity,” which was a telephone and videoconferencing consultation service. Telemedicine counseling is not an insurance product. Shortly thereafter Plaintiff filed a declaratory judgment action seeking a judicial determination that the “telemedicine opportunity” was not within the “scope” of Action’s business, as contemplated by the operating agreement.
Defendants’ opposed the motion for summary judgment filed by Plaintiff in the declaratory judgment action, citing the statement of Southeast’s president, David Kelly, that “[i]n addition to Action’s historical business, it has and intends to continue to expand its business lines to other areas.” The trial court ruled that the “the only business [Action] has engaged in, since its inception . . . is the sale of regulated insurance-related products” and that the scope of Action’s business was the sale of insurance and insurance-related products. Accordingly, Plaintiff’s motion for summary judgment was granted.
The trial court’s ruling was affirmed on appeal. The Court of Appeals interpreted the language of the operating agreement by giving ordinary words their ordinary and common meanings. Thus, “scope” and “purpose,” as used in the operating agreement, were interpreted to mean “the range or breadth of the business that Action is engaged in at the relevant time.” Southeast argued that “scope” should be interpreted to mean each and every business opportunity available to be marketed to credit union members, regardless of whether they were currently part of Action’s business. However, the court rejected this argument and held that if the parties intended for words to have uncommon meanings, they should have defined them in the agreement. Accordingly, the court determined that telemedicine counseling did not fall within the scope of Action’s business—the sale of insurance products to credit union members—and, therefore, Plaintiff was not required to disclose the opportunity to Action.