Trustmark National Bank v. Deutsche Bank National Trust Company ( 2010 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
June 16, 2010 Session
TRUSTMARK NATIONAL BANK, ET AL. v. DEUTSCHE BANK
NATIONAL TRUST COMPANY, ET AL.
Direct Appeal from the Chancery Court for Shelby County
No. CH-07-0045-2 Arnold B. Goldin, Chancellor
No. W2009-01658-COA-R3-CV - Filed August 19, 2010
This case concerns the priority of lienholders’ respective interests in real property. The
plaintiffs/appellees, Trustmark National Bank and FirstBank, filed this joint action as
amended for declaratory judgment against the defendants/appellants, Long Beach Mortgage
Company, Sonya R. Thomas, and Deutsche Bank National Trust Company, and for
enforcement of their liens through judicial sale of the property. The plaintiffs’ amended
complaint asserted that Trustmark and FirstBank held judgment liens against the property
that were valid, enforceable, and superior to the defendants’ interests. The defendants
responded in pertinent part that they were entitled to priority under the doctrine of equitable
subrogation, even if the plaintiffs held prior-recorded judgment liens against the property.
The trial court granted summary judgment in favor of the plaintiffs, finding that the
undisputed facts demonstrated that the plaintiffs’ liens were enforceable and superior to the
defendants’ later-recorded deeds of trust and that the defendants were not entitled to
equitable subrogation. The defendants appealed, challenging only whether the trial court
erred when it granted summary judgment on the question of equitable subrogation. Because
the plaintiffs failed to negate an essential element of equitable subrogation or show that the
defendants cannot establish an essential element of equitable subrogation at trial, we reverse
the grant of summary judgment in part and remand.
Tenn. R. App. P. 3 appeal as of Right; Judgment of the Chancery Court Reversed
and Remanded
D AVID R. F ARMER, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.,
W.S., and J. S TEVEN S TAFFORD, J., joined.
Joe Lee Wyatt and William J. Wyatt, Memphis, Tennessee, for the appellant, Deutsche Bank
National Trust Company, Long Beach Mortgage Company and Sonya R. Thomas.
Jeffrey D. Germany, Memphis, Tennessee, for the appellee, Trustmark National Bank.
Scott A. Frick, Memphis, Tennessee, for the appellee, FirstBank.
OPINION
I. Background and Procedural History
This is an action to determine the parties’ respective interests in real property located
at 10520 Century Grove Cove, Eads, Shelby County, Tennessee (“the Property”). The
following facts are undisputed.1 In January 2003, Anna Turner recorded a judgment lien
against the Property, which was then owned by Randall Swaney, in the amount of
$1,118,550.85 pursuant to Tennessee Code Annotated section 25-5-101.2 Approximately one
1
We primarily rely upon the defendants’ admissions in response to the plaintiffs’ statements of
undisputed facts, in addition to the admissions found in the parties’ briefs, to establish the undisputed facts
of this case. This Court explained in Summers v. Cherokee Children & Family Services, Inc., 112 S.W.3d
486 (Tenn. Ct. App. 2002):
The mere submission of a statement of undisputed material facts by the moving party does
not, in of itself, constitute proof of the facts therein. However, when the opposing party
agrees that a fact is not disputed pursuant to Tenn. R. Civ. P. 56.03, the court may rely upon
that admission in determining whether a genuine issue of material fact exists. A party’s
sworn pleading based upon personal knowledge can constitute an admission. Similarly,
admissions in the brief of the party opposing the motion may be used in determining that
there is no genuine issue as to any material fact.
Summers, 112 S.W.3d at 510. Furthermore, “[u]ncertified or otherwise inadmissible material may be
considered if not challenged, and the objection must be timely or it will be deemed to have been waived.”
Id.; see also Robert Banks, Jr. & June F. Entman, Tennessee Civil Procedure § 9-8[r], at 9-89 & n.481 (3d
ed. 2009). We have accordingly looked beyond the admissions of the parties where necessary and have
relied on the evidentiary materials attached in support of the plaintiffs’ statements of undisputed facts, which
we find is permissible without a determination of whether such materials would be admissible at trial because
the defendants did not object to their inclusion.
2
Tennessee Code Annotated section 25-5-101 provides:
Except as provided in subdivision (b)(2), judgments and decrees obtained from and after
July 1, 1967, in any court of record and judgments in excess of five hundred dollars ($500)
obtained from and after July 1, 1969, in any court of general sessions of this state shall be
liens upon the debtor’s land from the time a certified copy of the judgment or decree shall
be registered in the lien book in the register’s office of the county where the land is located.
If such records are kept elsewhere, no lien shall take effect from the rendition of such
(continued...)
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year later, plaintiff Trustmark National Bank (“Trustmark”) recorded a second judgment lien
against the Property totaling $219,349.69 plus post-judgment interest. Thereafter, plaintiff
FirstBank recorded a third judgment lien against the Property totaling $356,794.16.
In 2005, Ms. Turner released her lien against the Property after she received payment
in partial satisfaction of her outstanding judgment against Mr. Swaney from defendant Sonya
R. Thomas, who made the payment as consideration for her purchase of the Property. Ms.
Thomas financed this purchase with a purchase-money mortgage from defendant Long Beach
Mortgage Company (“Long Beach”), which was secured by two deeds of trust executed and
recorded in the mortgage company’s favor. The result of the sale and subsequent release of
Ms. Turner’s lien was that the judgment liens of Trustmark and FirstBank appeared to have
ascended to the first and second priority positions, with the Long Beach deeds of trust
occupying junior positions. It soon became apparent that Long Beach and its successors-in-
interest disagreed with this assessment.
Trustmark and FirstBank filed this action as amended against Ms. Thomas, Long
Beach, and Deutsche Bank National Trust Company (“Deutsche Bank”) seeking, inter alia,
a declaration that the plaintiffs’ judgment liens were valid, enforceable, and superior to any
interests the defendants held in the Property.3 The defendants admitted the majority of the
plaintiffs’ factual allegations but nevertheless asserted several “defenses,” including the
doctrine of equitable subrogation.4 The defendants averred in part that the court should
2
(...continued)
judgments or decrees unless and until a certified copy of the same is registered as otherwise
provided by law.
Tenn. Code Ann. § 25-5-101(b)(1) (Supp. 2009).
3
Following the sale of the Property, Washington Mutual Bank, Long Beach’s successor-in-interest
by operation of law, assigned its interest in one of the Long Beach deeds of trust to defendant Deutsche Bank
as trustee for Long Beach Mortgage Loan Trust 2005-2. Deutsche Bank later purchased the Property as
trustee of Long Beach Mortgage Loan Trust 2005-2 at a foreclosure sale conducted on its behalf.
4
Although mistakenly titled a “defense” in the defendants’ answers, equitable subrogation is not a
“defense” or “affirmative defense” under the facts; it is a counterclaim. The assertion of a right to equitable
subrogation in this context concedes that the plaintiffs first recorded their liens but pursues affirmative relief:
placement in the first priority position for Deutsche Bank based on equitable principles. This is consistent
with the type of relief typically sought in a counterclaim. See Tenn. R. Civ. P. 13.01, 13.02 (recognizing that
a counterclaim is “any claim” for relief against an opposing party, which may or may not arise out of the
same transaction or occurrence that is the subject matter of the opposing party’s claim); Tenn. R. Civ. P.
13.03 (recognizing that a counterclaim “may or may not diminish or defeat the recovery sought by the
opposing party” and “may claim relief exceeding in amount or different in kind from that sought in the
(continued...)
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equitably subrogate them to the priority position of Ms. Turner as the result of their
satisfaction of Ms. Turner’s lien against the Property, submitting that denial of equitable
subrogation would cause them injustice and violate the fundamental principles of equity.
Trustmark and FirstBank eventually filed a motion for summary judgment, which the
trial court granted in their favor. The court held in pertinent part that Trustmark and
FirstBank’s judgments became liens on the Property on the dates they were recorded and that
neither judgment was preempted, subordinated, or destroyed when Mr. Swaney conveyed the
Property to Ms. Thomas. Noting Tennessee’s race-notice recording statutes, the court further
held that the defendants were not entitled to equitable subrogation where: (1) the plaintiffs’
liens were recorded and “available for the world to see,” (2) a sophisticated lender was
represented by counsel when the Long Beach deeds of trust were executed, (3) no affidavit
was submitted indicating that a title search or abstract prepared in conjunction with the
closing failed to disclose the plaintiffs’ judgment liens, and (4) the defendants had a legal
remedy against either the attorneys who presided over the closing of the sale of the Property
or Mr. Swaney. It was the court’s opinion that subordinating the plaintiffs’ judgment liens
would “set a dangerous precedent” in light of the undisputed facts. The court accordingly
held that Trustmark and FirstBank were entitled to summary judgment on their claim for
declaratory judgment, as well as the defendants’ counterclaim for equitable subrogation.
After the trial court expressly directed entry of final judgment pursuant to Rule 54.02 of the
Tennessee Rules of Civil Procedure, the defendants timely appealed.5
II. Issue Presented
The single issue before this Court, as we perceive it, is whether Trustmark and
FirstBank alleged undisputed facts negating an essential element of Deutsche Bank’s
counterclaim for equitable subrogation or establishing that Deutsche Bank cannot prove its
4
(...continued)
pleading of the opposing party”). Rule 8.03 of the Tennessee Rules of Civil Procedure provides that “[w]hen
a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court, if
justice so requires, shall treat the pleading as if there had been a proper designation.” Tenn. R. Civ. P. 8.03.
Although not addressed by the trial court, we find that treating Deutsche Bank’s “defense” of equitable
subrogation as a counterclaim is appropriate in this appeal, especially where at least one of the plaintiffs
expressly treated equitable subrogation as an affirmative defense in its papers before the trial court, because
the burden on the plaintiffs is the same regardless of whether the doctrine is considered an affirmative
defense or counterclaim.
5
Although not discussed herein, the present action includes an additional claim between these parties
regarding the plaintiffs’ right to judicial sale of the Property and a third-party complaint involving multiple
parties.
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counterclaim at trial.6 Deutsche Bank does not challenge the trial court’s conclusion that the
intervening judgment liens of Trustmark and FirstBank are valid, prior-recorded liens on the
Property which are superior to the interests of Deutsche Bank absent the application of
equitable subrogation.
III. Standard of Review
This Court reviews a trial court’s decision on a motion for summary judgment de novo
with no presumption of correctness. Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 84 (Tenn.
2008) (citing Blair v. W. Town Mall, 130 S.W.3d 761, 763 (Tenn. 2004)). We review the
evidence in the light most favorable to the nonmoving party and draw all reasonable
inferences in favor of the nonmoving party. Id. (citing Staples v. CBL & Assocs., 15 S.W.3d
83, 89 (Tenn. 2000)).
IV. Analysis
Rule 56 of the Tennessee Rules of Civil Procedure provides that a party is entitled to
summary judgment if the “pleadings, depositions, answers to interrogatories, and admissions
on file, together with the affidavits . . . show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.” Tenn. R. Civ.
P. 56.04. The moving party has the ultimate burden of demonstrating that summary
judgment is appropriate, Martin, 271 S.W.3d at 83 (Tenn. 2008) (citing Byrd v. Hall, 847
S.W.2d 208, 215 (Tenn. 1993)), and consequently bears the initial burden of providing a
properly supported motion showing there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law, id. (citing Staples, 15 S.W.3d at 88;
McCarley v. W. Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998)). “The moving party
may make the required showing and therefore shift the burden of production to the
nonmoving party by either: (1) affirmatively negating an essential element of the nonmoving
party’s claim; or (2) showing that the nonmoving party cannot prove an essential element of
the claim at trial.” Id. (citing Hannan v. Alltel Publ'g Co., 270 S.W.3d 1, 5 (Tenn. 2008);
McCarley, 960 S.W.2d at 588; Byrd, 847 S.W.2d at 215 n.5).
A party will not succeed on a motion for summary judgment merely by asserting that
the nonmoving party is without evidence to support its claim. Id. at 83-84 (citing Byrd, 847
S.W.2d at 215). “The moving party must either produce evidence or refer to evidence
previously submitted by the nonmoving party that negates an essential element of the
nonmoving party’s claim or shows that the nonmoving party cannot prove an essential
6
We will solely refer to Deutsche Bank as the appellant in this appeal for the sake of convenience
and clarity, noting that the parties appear to agree Deutsche Bank is the only entity with a continuing interest
in the lawsuit.
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element of the claim at trial.” Id. at 84 (citing Hannan, 270 S.W.3d at 5). Production of
evidence raising doubts about the merits of the nonmoving party’s claim will not suffice. Id.(citing McCarley, 960 S.W.2d at 588 (Tenn. 1998)). “[T]he moving party must point to
evidence that tends to disprove an essential factual claim made by the nonmoving party.” Id.(citing Blair, 130 S.W.3d at 768). If the moving party does not carry its initial burden, the
nonmoving party has no obligation to produce evidentiary materials in support of its position.
Id. (citing McCarley, 960 S.W.2d at 588; Staples, 15 S.W.3d at 88).
Once a moving party carries its initial burden, the focus of the inquiry shifts to the
nonmoving party who must “affirmatively show facts either (a) supporting the elements of
its claim or defense if it has the burden of persuasion, or (b) negating the movant’s claim or
defense if the movant has the burden of persuasion.” Lawrence A. Pivnick, Tennessee
Circuit Court Practice § 27:5, at 382-83 & n.48 (2010) (collecting cases). The Tennessee
Supreme Court has articulated four methods by which the nonmoving party can satisfy its
burden of production and defeat a motion for summary judgment:
(1) pointing to evidence establishing material factual disputes that were
over-looked or ignored by the moving party; (2) rehabilitating the evidence
attacked by the moving party; (3) producing additional evidence establishing
the existence of a genuine issue for trial; or (4) submitting an affidavit
explaining the necessity for further discovery pursuant to Tenn. R. Civ. P.,
Rule 56.06.
McCarley v. W. Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998) (citing Byrd, 847
S.W.2d at 215 n.6). Courts must accept the evidence proffered by the nonmoving party as
true and resolve any doubts concerning the existence of a genuine issue of material fact in
favor of the nonmoving party. Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76, 84 (Tenn. 2008)
(citation omitted). “‘A disputed fact is material if it must be decided in order to resolve the
substantive claim or defense at which the motion is directed.’” Id. (quoting Byrd, 847
S.W.2d at 215). “A disputed fact presents a genuine issue if ‘a reasonable jury could
legitimately resolve that fact in favor of one side or the other.’” Id. (quoting Byrd, 847
S.W.2d at 215).
The dispositive issue before this Court is whether Trustmark and FirstBank, as the
moving parties, alleged undisputed facts negating an essential element of Deutsche Bank’s
counterclaim for equitable subrogation or demonstrating that Deutsche Bank cannot establish
an essential element of its counterclaim at trial. If the appellees carried their burden, they are
entitled to summary judgment because Deutsche Bank offered no additional evidence in
support of its position and pointed to no additional facts that would alter our analysis. If the
appellees did not carry their burden, the motion must fail. In order to resolve this issue, we
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first turn to principles of equitable subrogation.
The Tennessee Supreme Court first addressed the doctrine of equitable subrogation
at length in its decision of Dixon v. Morgan, 285 S.W. 558 (Tenn. 1926). The complainant
in Dixon, an experienced businessman, purchased property from a neighbor without
conducting a title search. Dixon, 285 S.W. at 559-60. Although the complainant knew of
the first-position lien that the principal encumbrancer held against the Property, he failed to
discover three additional, later-recorded deeds of trust held by a bank and two other
individuals. Id. at 560. Because these additional deeds of trust were recorded prior to the
deed of trust executed in favor of the complainant, the intervening lienholders insisted that
their interests in the property were superior to the complainant’s interest. Id. The
complainant, on the other hand, filed a bill of complaint alleging that he was entitled to
occupy the priority position of the principal encumbrancer under the doctrine of equitable
subrogation. Id. According to the complainant, equitable subrogation was appropriate
because he paid a sum certain directly to the principal encumbrancer as part of the sale price
for the property at issue under the mistaken or fraudulently induced belief that the property
was otherwise unencumbered. Id. The intervening lienholders disagreed with the
complainant’s position, maintaining that the lien held by the principal encumbrancer had
been extinguished and that their deeds of trust were valid encumbrances on the land superior
to the complainant’s deed of trust. Id. This Court held in favor of the intervening lienholders
and dismissed the bill of complaint. Id.The Tennessee Supreme Court reversed our decision and held that the complainant
was entitled to equitable subrogation. The court first explained that:
“Subrogation is the substitution of another person in the place of a creditor, so
that the person in whose favor it is exercised succeeds to the rights of the
creditor in relation to the debts. The doctrine is one of equity and benevolence,
and like contribution and other similar equitable rights was adopted from the
civil law, and its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form, and its object is the prevention
of injustice. The right does not necessarily rest on contract or privity, but upon
principles of natural equity, and does not depend upon the act of the creditor,
but may be independent of him and also of the debtor.”
Id. (quoting 37 Cyc. 363). The court further stated that the application of the doctrine of
equitable subrogation must be determined in each case “according to the dictates of equity
and good conscience, and consideration of public policy, and will be allowed in all cases
where the equities of the case demand it.’” Id. (quoting 25 Ruling Case Law, p. 1313). This
is because the doctrine “rests upon the maxim that no one shall be enriched by another’s loss,
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and may be invoked wherever justice demands its application, in opposition to the technical
rules of law which liberate securities with the extinguishment of the original debt.” Id. at
560-61. “The right to it depends upon the facts and circumstances of each particular case,
and to which must be applied the principles of justice.” Id. at 561.
In deciding whether the complainant was entitled to equitable subrogation in Dixon,
our supreme court declined to base its decision on whether the subrogee had actual or
constructive knowledge of the intervening interests.7 See id. at 562-62. The Dixon court
instead established “culpable negligence” as the only conduct sufficient to bar the application
of the equitable doctrine as a matter of law. Id. at 562. The court explained that
“negligence, to be culpable, necessarily implies the failure to perform some duty,” id. (citing
Atchison, T. & S. F. R. Co. v. Plaskett, 26 P. 401, 403 (Kan. 1891)), and “[i]t is not a failure
of duty to one’s self, but to another, that constitutes culpable negligence.” Id. The
complainant in Dixon was entitled to equitable subrogation because he was not guilty of
culpable negligence:
Here the complainant owed no duty to the bank to examine the records; the
bank suffered no loss or injury by his failure to do so; neither was its position
changed or its security impaired. Hence the complainant was guilty of no
breach of duty towards the defendants, or of any immoral or criminal act that
would constitute culpable negligence and subject him to censure.
Id. at 563. The court acknowledged that “a prudent, cautious man would carefully examine
the records, and the complainant was unquestionably guilty of negligence in not doing so,”
but the court concluded that the complainant’s ordinary negligence would not bar equitable
subrogation where the defendants would suffer no prejudice as a result thereof. Id.Accordingly, the court found in favor of the complainant, decreed a lien in favor of the
complainant superior to the interests of the intervening lienholders, and remanded the case
to the chancery court “for the purpose of enforcing complainant’s lien in the usual manner.”
7
The Dixon approach is fairly unique when compared with the three approaches most other
jurisdictions apply when determining whether to award equitable subrogation. “The first approach, which
a majority of states follow, is that actual knowledge of an existing lien precludes the application of equitable
subrogation, but constructive knowledge does not.” Houston v. Bank of Am. Fed. Sav. Bank, 78 P.3d 71, 73
(Nev. 2003) (footnote omitted). “The second approach bars the application of equitable subrogation when
a lien holder possesses either actual or constructive notice of an existing lien.” Id. (footnote omitted). “The
third approach, the view adopted by section 7.6 of the Restatement (Third) of Property: Mortgages,
disregards actual or constructive notice if the junior lien holder is not prejudiced.” Id. at 74 (footnote
omitted). The Dixon court, however, impliedly rejected these approaches when it concluded that only
culpable negligence would bar subrogation and declined to distinguish between culpable and non-culpable
negligence on the basis of the subrogee’s knowledge.
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Id.The Tennessee Supreme Court reached a similar conclusion in Castleman
Construction Co. v. Pennington, 432 S.W.2d 669 (Tenn. 1968), reh’g denied (Tenn. Oct. 25,
1968). The dispute in Castleman centered around a construction company’s purchase of
twenty lots in a subdivision from Dr. Edna Pennington (“Pennington”) and Ernest W. Colbert
(“Colbert”). Castleman, 432 S.W.2d at 672. As part of the consideration for the transaction,
Pennington and Colbert contracted to provide the construction company with a title policy
issued by the Attorneys Title Company. Id. The defendants complied with this obligation
and the Attorneys Title Company issued two letters showing the property to be clear of
encumbrances. Id. at 673. After receiving the deed to the lots at issue and at least one of the
previously mentioned title letters, the construction company commenced construction of
houses on the lots and invested a substantial sum of money in the project. Id. at 672.
Thereafter, the construction company discovered significant defects in the title of several
lots. Id. Faced with notice to vacate three of the lots, the construction company satisfied the
outstanding indebtedness on the property with funds provided under the terms of the title
policy, removing the existing title defects. Id.The construction company later filed a bill of complaint against Pennington and
Colbert seeking damages for breach of warranty. Id. at 671. The chancery court initially
decided the case in favor of the construction company but awarded only nominal damages.
Id. After the court granted a petition to rehear the case, the construction company amended
its original bill of complaint to include Attorneys Title Company and American Title
Insurance Company as parties to the action.8 Id. The title companies alleged that they were
entitled to recover payments made to clear title to the property under the doctrine of
subrogation.9 Id. at 672. After a hearing, the chancery court agreed and entered a judgment
of $28,295.71 against both defendants for the use and benefit of the title companies. Id. at
671. The defendants appealed. Id.This Court affirmed the judgment against Colbert but reversed the judgment against
Pennington. Id. We explained:
8
Attorneys Title Company apparently acted as the agent of American Title Insurance Company. See
Castleman, 432 S.W.2d at 671.
9
Castleman explains that “the title insurance policy issued by the complainant companies to
Castleman Construction Company contained a subrogation clause” and “that this clause provided that if and
when the title companies had to clear an encumbrance insured against, they would be subrogated to all the
rights of [the construction company].” Castleman, 432 S.W.2d at 674.
-9-
‘It is stated in 83 C.J.S. ‘Subrogation’, Section 2, that the object of subrogation
is to promote and accomplish justice and to prevent injustice. That it is the
mode which equity adopts to compel the ultimate payment of a debt by one
who, in justice, equity and good conscience, should pay.
‘In the early case of Greenlaw, Executor v. Pettit (Pittit) 87 Tenn. (467) (11
S.W. 357), in an opinion by Mr. Justice Lurton, one of the greatest judges in
Tennessee history, it was said that the right of subrogation, being a pure equity,
will be enforced only in favor of a meritorious claim, and where it can be done
without injustice to the dobtor [sic] and his other creditors.
‘In (Fecheimer-Keifer) v. Burton, 128 Tenn. 682 (164 S.W. 1179, 51 L.R.A.,
N.S., 343) (688) the Court said:
“Since subrogation is a remedy invented by courts of equity, they will move
to administer it where the result will be an equitable one, but not to work an
injustice to another in the defeat of an equal equity.”
Id. at 673 (quoting the decision of the court of appeals).
In view of these principles, we concluded that the title companies were not entitled
to subrogation with respect to the claim against Pennington because the equities of the case
weighed strongly in his favor. Id. The supreme court explained our reasoning thus:
In reaching this conclusion the court [of appeals] took several factors into
consideration, some of those factors being that the title companies were
negligent in failing to discover the encumbrances which had been placed upon
the land sold and that the defendants did not own all the lots sold by them; that
all the encumbrances were upon the defendant, Colbert’s, interest in the
property and that the defendant, Pennington, was unaware that the
encumbrances existed; that the defendant, Pennington, relied upon Colbert to
attend to the details concerning the development and sale of the property; that
the defendants paid for the policy of title insurance issued by the complaint
[sic] companies and that the sale of the property was not consummated until
the complainant companies had run a title search and indicated by letter that
the defendants had a clear title to the property.
Id. at 673-74. The title companies and Colbert thereafter petitioned the Tennessee Supreme
Court to grant certiorari, with the court granting only the petition of the title companies. Id.
at 671.
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The Tennessee Supreme Court reversed our decision and held that the title companies
were entitled to rely on the doctrine of subrogation. The Court first articulated the principles
of subrogation, quoting from several treatises:
In 83 C.J.S. Subrogation ss 1 and 2, the following statements are found:
‘Subrogation may be defined as the substitution of another person in the place
of a creditor, so that the person in whose favor it is exercised succeeds to the
rights of the creditor in relation to the debt. * * *
‘Subrogation does not owe its origin to statute or custom; nor is it a doctrine
of the common law. It originated in equity and is a creature of equity, a
doctrine of equity jurisprudence which was adopted by equity from the Roman
or the civil law. * * *
‘Subrogation is founded on principles of justice and equity, and its operation
is governed by principle of equity. It rests on the principle that substantial
justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without regard
to form.’
The following is found in Couch on Insurance 2d, Subrogation, s 61:18
‘* * * Stated simply, subrogation is a creature of equity having for its purpose
the working out of an equitable adjustment between the parties by securing the
ultimate discharge of a debt by the person who in equity and good conscience
should pay it.’
And in s 61:20 of the same annotation it is stated:
‘The doctrine of subrogation in insurance does not arise from, nor is it
dependent upon, statute or custom or any of the terms of the contract; it has its
origin in general principles of equity and in the nature of the insurance contract
as one of indemnity. The right of subrogation rests not upon a contract, but
upon the principles of natural justice.
‘The principle of subrogation will be applied or not, according to the dictates
of equity and good conscience, and to considerations of public policy, resting,
as it does, upon the maxim that no one should be enriched by another's loss.
In fact, subrogation is not a matter of strict right, nor does it necessarily rest
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on a contract, but is purely equitable in its nature, and will not be enforced
when it would work injustice to the rights of those having equal equities.’
It is further stated in s 16:21:
‘To entitle one to subrogation, his equity must be strong and his case clear,
since it will not be enforced where the equities are equal, or the rights are not
clear, or where it will prejudice the legal or equitable rights of others. Where
equities are equal, there is no right to subrogation. However, subrogation will
not be enforced against superior equities.’
Castleman, 432 S.W.2d at 674-75.
In articulating these principles, the Castleman court expressly declined to distinguish
between subrogation that arises by contract (“conventional subrogation”) and subrogation
that arises by the operation of equity (“equitable subrogation”) when determining whether
to apply the remedy of subrogation:
We would agree with the complainants that the authorities do make a
distinction between legal and conventional subrogation. However, in
essentially all the authorities which we have read the distinction is made in
determining whether there is a right of subrogation in the first instance, rather
than in the enforcement of such right. In other words, the distinction is made
in determining the source of the right rather than in applying the remedy.
Id. at 675. The court explained that it would enforce subrogation “in favor of a meritorious
claim and after a balancing of the equities” in either instance. Id. at 676. The pertinent
question in Castleman, therefore, was whether the title companies demonstrated that the
equities of the case weighed in favor of subrogation.
Pennington argued that the court needed to look no further than the negligence of the
title companies in failing to discover the title defects, which he asserted precluded
subrogation. Id. at 676. The Castleman court, consistent with Dixon, rejected this
suggestion and agreed that only “culpable negligence may prevent one from being afforded
the equitable relief of subrogation.” Id. (quoting 83 C.J.S. Subrogation s 6). The supreme
court acknowledged the ordinary negligence of the title companies in failing to discover the
defects but affirmed that ordinary negligence is no bar to subrogation:
We do not say that ordinary negligence of the subrogee may not be taken into
consideration in ascertaining whether he be entitled to the equitable relief of
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subrogation. What we do say is that ordinary negligence alone will not be held
as a complete bar to subrogation where in spite of such negligence the equities
are still in favor of the subrogee.
Id. at 677. After analyzing the equities between the parties at some length, the court went
on to conclude that the title companies were entitled to subrogation because the equities
weighed in their favor. Id. at 677-78.
The principles espoused in Dixon and Castleman, as interpreted and applied in
subsequent decisions, continue to guide the application of subrogation in Tennessee. This
Court in Indymac Mortgage Holdings, Inc. v. Kauffman, No. W2000-01453-COA-R3-CV,
2001 WL 1683779 (Tenn. Ct. App. Dec. 21, 2001), for example, summarized the law of
subrogation as follows:
Generally, liens are given priority based on the order in which they are
recorded; liens recorded first typically have priority over those recorded at a
later date. See Tenn. Code Ann. § 66-26-105 (1993). Subrogation is the
substitution of a party in the place of a creditor, so that the party in whose
favor subrogation is exercised succeeds the creditor in relation to the debt.
Castleman Constr. Co. v. Pennington, 432 S.W.2d 669, 674 (Tenn. 1968).
Subrogation is a creature of equity; its purpose is to provide an equitable
adjustment between the parties, based on the facts and circumstances of the
case. Id. at 675; Lawyers Title Ins. Corp. v. United Am. Bank, 21 F. Supp. 2d
785, 792 n.2 (W.D. Tenn. 1998). It is not a right, but a remedy whose
application depends on a balancing of the equities involved. See Lawyer's
Title, 21 F. Supp. 2d at 792; Castleman Constr., 432 S.W.2d at 676.
Subrogation is not appropriate where the equities of the parties are equal,
where the parties’ rights are not clear, or where it would prejudice the legal or
equitable rights of another. Lawyer's Title, 21 F. Supp. 2d at 792. Relevant
to this balancing of equities is the degree of negligence of the party seeking
subrogation. Id. While ordinary negligence or mistake alone is usually not a
bar to subrogation, especially where the equities weigh in the favor of the party
seeking subrogation, culpable negligence will generally bar such a remedy. See
Dixon v. Morgan, 285 S.W. 558, 562 (Tenn. 1926).
Indymac, 2001 WL 1683779, at *4; accord Citicorp Mortgage, Inc. v. Bancorpsouth Bank,
No. W2004-00332-COA-R3-CV, 2004 WL 2715278, at *3 (Tenn. Ct. App. Nov. 19, 2004);
Morgan v. Champion Roofing & Remodeling, No. W2002-01941-COA-R3-CV, 2003 WL
21756699, at *9 (Tenn. Ct. App. July 29, 2003).
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Trustmark and FirstBank argue, however, that this Court should entirely disregard
these principles, positing that a more recent decision of this Court has effectively overruled
the supreme court’s holding in Dixon and ignoring the fact that it is not within the province
of this Court to overturn supreme court precedent. Their principal position is that equitable
subrogation is inappropriate as a matter of law under the reasoning of this Court’s decision
in ATS v. Kent, 27 S.W.3d 923 (Tenn. Ct. App. 1999). The relevant facts of ATS are as
follows:
On October 10, 1995, ATS, Inc. (ATS) obtained a money judgment against
Keith M. Canfield (Canfield) in the amount of $175,000.00. This judgment
was recorded on November 17, 1995, in the Register’s Office of Shelby
County, Tennessee. On January 5, 1996, Canfield conveyed the piece of real
property that is the subject of this lawsuit to James Curtis Kent (Kent). As part
of the same transaction, Kent executed a deed of trust in favor of George V.
Kinney (Kinney) and Bill R. McLaughlin (McLaughlin) as trustees for Union
Planters National Bank (Union Planters). Kent’s warranty deed and Union
Planters’ deed of trust were both recorded on January 8, 1996. On February
8, 1996, United American Bank of Memphis (United American) executed a
release of a deed of trust that had been an encumbrance on the same piece of
real property since February 10, 1994. This release apparently occurred
because proceeds from the sale of the real property to Kent were used to satisfy
the debt owed to United American. The United American release was
recorded on February 13, 1996.
ATS, 27 S.W.3d at 923-24. ATS, similar to the appellees in this case, later filed a complaint
to enforce its judgment through sale of the property. Id. at 924. The trial court declined to
provide ATS the relief it requested and instead granted a money judgment in its favor for
$15,674.75, which was the amount of money that Canfield received from the sale after the
debts of prior lienholders were satisfied. Id. ATS appealed.
This Court, in the pertinent part of its decision, rejected the rationale of the trial court
in denying enforcement of ATS’s lien, which it described thus:
The underlying rationale of the trial court’s ruling appears to have been that
enforcement of the judgment lien through sale of the real property would serve
to unjustly enrich ATS at the expense of Kent and Union Planters. If ATS had
foreclosed on the real property before the sale to Kent, it would have had to
pay $69,200.00 to prior lienholders. The debts to these prior lienholders were
satisfied, however, with the proceeds of the sale from Canfield to Kent. Thus,
by delaying enforcement, ATS increased its equity in the real property by
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$69,200.00.
Id. at 926. We reasoned that, while it was true that ATS was placed in a better position as
the result of its delay, ATS had a statutorily vested right to enforce its judgment lien that it
would forfeit only if the right was not exercised within the statutorily provided time for
enforcement. ATS, 27 S.W.3d at 926-27. Because ATS had exercised its right within the
relevant time period, we consequently held that the trial court erred when it denied ATS its
right to enforce the lien, placing some reliance on the idea that “‘equity follows the law. It
cannot supplant a vested legal remedy.” Id. at 926 (quoting Tom Denton Ford, Inc. v. Stoehr,
No. 01A01-9406-CH-00288, 1995 WL 3684, at *2 (Tenn. Ct. App. Jan. 4, 1995), perm. app.
denied (Tenn. May 1, 1995)).
It is this latter statement upon which Trustmark and FirstBank now rely as
demonstrating that equitable subrogation is barred as a matter of law in this case. Trustmark
and FirstBank equate their alleged occupation of the first and second priority positions
following the release of Ms. Turner’s judgment lien with ATS’s statutorily vested right to
enforce its lien through judicial sale. Accordingly, the appellees argue that the doctrine of
equitable subrogation cannot supplant their statutorily vested rights in the first and second
priority positions. The appellees contend that to find otherwise would “eviscerate”
Tennessee’s race-notice recording system. We disagree with each of the above propositions.
First, the appellees’ contention that equitable subrogation cannot supplant their vested
statutory right to priority over the later-recorded Long Beach deeds of trust ignores the
purpose and effect of the equitable subrogation doctrine. The application of equitable
subrogation under the facts would effectively revive Ms. Turner’s judgment lien, treating the
lien as if it had never been released, and award priority to Deutsche Bank on the basis of that
lien. See Blankenship v. Estate of Bain, 5 S.W.3d 647, 650 (Tenn. 1999) (“In its most basic
form, subrogation means that party A is substituted for party B and is allowed to raise the
rights party B had against party C.”). Application of the doctrine would create a legal fiction
under which the appellees never ascended to the first and second priority positions and,
therefore, cannot be said to have obtained the asserted statutorily vested rights in the first and
second priority positions.10 Under the appellees’ reasoning, application of equitable
subrogation would never be appropriate because the sole purpose of the doctrine is to place
the subrogee in a position superior to that of intervening lienholders who have properly
10
Although we agree that it may be in a sense “unfair” to retrospectively remove a lienholder from
the priority position it reasonably believed it occupied, that is the precise purpose of subrogation. Any
complaint with the alleged unfairness of the procedure should be taken up in the balancing of the equities,
which may account for any prejudice suffered by an intervening lienholder in reliance of its perceived
priority position.
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recorded their liens first in time. See Hicks v. Londre, 125 P.3d 452, 456 (Colo. 2005)
(explaining that equitable subrogation exists to allow a subrogee to “leap-frog” over the
interests of an intervening lienholder). The appellees, however, fail to recognize that
equitable subrogation is a time-honored exception to the general rule determining priority
between lienholders based on the “first in time, first in right” principle. See E. Boston Sav.
Bank v. Ogan, 701 N.E.2d 331, 334 (Mass. 1998). Adoption of the appellees’ position would
effectively eliminate that exception, abrogate the doctrine of equitable subrogation in this
context, and overrule the Tennessee Supreme Court’s decision in Dixon. This is a position
we are unwilling to take.
Second, the appellees fail to recognize that our decision in ATS did not address the
doctrine of equitable subrogation. The issue in ATS was whether to allow a judgment
lienholder, who ascended to the first priority position as the result of the release of a prior-
recorded deed of trust, to enforce its judgment lien against real property.11 There is
absolutely no indication that the parties presented or that this Court considered the doctrine
of equitable subrogation. Nothing in our decision addressed whether it would have been
appropriate, if presented, to subrogate the bank to the position of the prior-recorded deed of
trust, which is precisely the question in this case. Here, the application of equitable
subrogation would not divest the appellees of their statutorily vested rights to enforce their
judgment liens through judicial sale; rather, it would simply restore their liens to the second
and third priority positions they occupied prior to the sale of the Property from Mr. Swaney
to Ms. Thomas. Importantly, it would not prohibit the appellees from proceeding with the
sale of the Property, albeit subject to Deutsche Bank’s superior interest. Analogous facts
aside, the appellees’ interpretation of ATS as controlling the outcome of this case is
unavailing.
Third, we reject the suggestion that the potential application of equitable subrogation
on remand would “eviscerate” Tennessee’s race-notice recording system. The race-notice
recording system was in full effect when the Tennessee Supreme Court decided Dixon. The
supreme court, for example, in Wilkins v. McCorkle, 80 S.W. 834 (Tenn. 1904), had
previously articulated the five leading propositions embraced in Tennessee’s recording
statutes:
11
By analogy, if the issue was the same in this case and Deutsche Bank had not argued that it should
be equitably subrogated to the position of Ms. Turner, the sole question before this Court would be whether
it would be inequitable to permit Trustmark and FirstBank to enforce their judgment liens, which the trial
court determined were properly recorded and superior to Long Beach deeds of trust, where the appellees
delayed in enforcing their interests and benefitted from release of Ms. Thomas’s prior-recorded judgment
lien. In that instance, ATS would control and the appellees would be entitled to enforce their judgment liens
with priority over the Long Beach deeds of trust.
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(1) That, as between the parties themselves and their heirs and representatives,
such instruments take effect and are good without regard to registration; (2)
that they also take effect and are equally good as to all persons who have
actual notice of them from the date of such notice, except creditors; (3) that as
to creditors (that is, of the vendor) they are inoperative, ineffective, and
practically nonexistent until they are noted for registration on the books of the
register; (4) that as to all other persons (that is, all not embraced in the
preceding classes) they are equally inoperative, ineffective, and nonexistent
until so noted for registration; (5) that upon being so “noted for registration”
they become at once “notice to all the world,” and so effective as to all the
world.
Wilkins, 80 S.W. at 835 (discussing the recording statutes set forth in Shannon’s Code). The
Dixon court nevertheless applied the doctrine of equitable subrogation, placing some
emphasis on the fact that “the primary object of our registration laws is to protect creditors
and innocent purchasers against secret and unrecorded liens.” Dixon v. Morgan, 285 S.W.
558, 563 (Tenn. 1926). As our supreme court impliedly recognized, subrogation does not
frustrate this principal purpose because it does not seek to establish such liens; instead, it
revives the prior-recorded interest of a former encumbrancer whose rights were superior to
the intervening lienholders. See id. Thus, the supreme court in Dixon impliedly rejected any
suggestion that the doctrine of equitable subrogation is repugnant to Tennessee’s race-notice
recording system with full knowledge of analogous statutory law. We now expressly reject
the same. See also Ogan, 701 N.E.2d at 336 (rejecting a similar argument). Thus, we wholly
reject the appellees’ principal argument that equitable subrogation is impermissible under
Tennessee’s race-notice recording system in light of our prior decision in ATS.
We equally reject Trustmark and FirstBank’s contention that the unreported decision
of Tom Denton Ford, Inc. v. Stoehr, No. 01A01-9406-CH-00288, 1995 WL 3684 (Tenn. Ct.
App. Jan. 4, 1995), perm. app. denied (Tenn. May 1, 1995), demonstrates that equitable
subrogation is inapplicable in this case. The judgment lienholder in Stoehr obtained and
recorded a judgment against one of two owners of real property as tenants by the entirety.
Stoehr, 1995 WL 3684, at *1 (citation omitted). At the time the judgment lienholder
recorded the judgment, the real property at issue was already encumbered by a prior-
recorded, purchase-money deed of trust held by a savings and loan institution. Id.Subsequent to the recording of the judgment, a couple (“the Stoehrs”) purchased the property
and arranged financing through Third National Bank to satisfy, rather than assume, the
savings and loan institution’s original purchase-money mortgage. Id. The purchase-money
deed of trust was resultantly released, presumably elevating the judgment lienholder to the
first priority position. Id. After the judgment lienholder filed an action to sell the prior
owner’s survivorship interest in the real estate, the Stoehrs and Third National Bank asserted,
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inter alia, a right to equitable subrogation. Id. In a terse opinion, this Court held in pertinent
part that the defendants were not entitled to equitable subrogation because Third National
Bank did not pay a debt for which another was primarily liable. Id. (citing Amos v. Cent.
Coal Co., 277 S.W.2d 457, 462 (Tenn. Ct. App. 1955)).
The Stoehr opinion, however, lends no support to the position of the appellees. First,
the Stoehr opinion appears to be inconsistent on its face, as Deutsche Bank points out in its
brief. The facts of that opinion state that Third National Bank paid off the existing
indebtedness on property for which the original owners were wholly liable; thus, the intended
subrogee appears to have paid a debt for which another was primarily liable, contrary to our
holding. Further, the appellees have not argued that Deutsche Bank and its predecessors did
not pay a debt for which another was primarily liable when they satisfied Ms. Turner’s
judgment lien. This is important because this Court in Stoehr resolved the controversy
regarding equitable subrogation on that single basis, precluding discussion of the remaining
elements of equitable subrogation. Because Stoehr offers no additional guidance on the
application of equitable subrogation, we find that decision unpersuasive on the question
presented here. The appellees’ reliance on Stoehr is misplaced.
The appellees’ remaining arguments are equally unpersuasive. Trustmark and
FirstBank contend that equitable subrogation is barred as a matter of law because Deutsche
Bank and its predecessors were guilty of culpable negligence. Trustmark and FirstBank
submit that the undisputed facts show Deutsche Bank and its predecessors obtained their
interests in the Property despite having actual knowledge of the appellees’ intervening
judgment liens.12 Even if we equate actual knowledge with culpable negligence, the
12
We express no opinion on whether a subrogee’s actual knowledge of intervening liens equates to
culpable negligence. Trustmark and FirstBank suggest that this Court’s decisions in Bankers Trust Co. v.
Collins, 124 S.W.3d 576, 579 (Tenn. Ct. App. 2003), and Citicorp Mortgage, Inc. v. Bancorpsouth Bank,
No. W2004-00332-COA-R3-CV, 2004 WL 2715278 (Tenn. Ct. App. Nov. 19, 2004), demonstrate that an
intended subrogee with actual knowledge of an intervening lien cannot rely on the doctrine of equitable
subrogation. Our supreme court in Dixon, however, does not appear to have drawn the dividing line between
“culpable” and “ordinary” negligence on the basis of whether the subrogee has actual or constructive
knowledge of intervening liens. As this Court has previously explained,
The Tennessee Supreme Court in Dixon noted that some courts hold that a party is
precluded from an equitable subrogation action where he has actual notice and that other
courts hold that a party is precluded when he has constructive notice of a junior lien holder.
Instead of following either of these rules, the court held that a party guilty of culpable
negligence would be precluded from asserting a claim based on equitable subrogation.
Assocs. Home Equity Servs., Inc. v. Franklin Nat’l Bank, No. M2000-00516-COA-R3-CV, 2002 WL 459007,
(continued...)
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undisputed facts fail to establish that Deutsche Bank had actual knowledge of the appellees’
intervening liens.13 Nothing in Trustmark or FirstBank’s statements of undisputed facts or
attached evidentiary materials establishes that Deutsche Bank and its predecessors had actual
knowledge of the appellees’ intervening liens. Further, we reject Trustmark’s suggestion that
boilerplate language in the Long Beach deeds of trust stating that the deeds were subject to
“encumbrances of record” demonstrates actual knowledge. Although inclusion of this
language supports the idea that Deutsche Bank and its predecessors were negligent if they
did not perform a title search prior to obtaining their interests in the Property, it hardly
demonstrates actual knowledge of the appellees’ intervening liens. Trustmark and FirstBank
must therefore rely solely on the undisputed fact that Deutsche Bank and its predecessors had
constructive knowledge of the appellees’ judgment liens as demonstrating culpable
negligence. The degree of negligence attributable to an intended subrogee’s failure to
discover prior liens despite constructive knowledge, however, is insufficient in and of itself
to preclude equitable subrogation, even if the subrogee is a sophisticated party. See
Castleman Constr. Co. v. Pennington, 432 S.W.2d 669, 676-77 (Tenn. 1968). We therefore
conclude that the appellees have clearly failed to present undisputed facts demonstrating
culpable negligence on the part of Deutsche Bank and its predecessors. Trustmark and
FirstBank are not entitled to summary judgment on this basis.
The appellees are also not entitled to summary judgment simply because Deutsche
Bank and its predecessors failed to act prudently to protect their interests. The appellees rely
on dictum from this Court’s decision in Banker’s Trust Co. v. Collins, 124 S.W.3d 576(Tenn. Ct. App. 2003), as conclusively precluding the application of equitable subrogation
12
(...continued)
at *7 (Tenn. Ct. App. Mar. 26, 2002), perm. app. denied (Tenn. Oct. 21, 2002). In Dixon, the subrogee
established a right to subrogation because he owed no duty to the bank to perform a title search, to discover
pending liens, et cetera. It may follow that a subrogee with actual knowledge of intervening liens, who
similarly owes no duty to intervening lienholders, is likewise not guilty of culpable negligence if it
extinguishes a debt under the impression it will receive first priority. We need not decide this question,
however, because it is not dispositive of the present appeal.
13
Likewise, the undisputed facts do not demonstrate that Deutsche Bank and its predecessors failed
to act upon a mistaken belief that they would occupy first position after extinguishing Ms. Turner’s judgment
lien. See Collins, 124 S.W.3d at 579 (finding that an intended subrogee that did not pay a prior indebtedness
through fraud or mistake was not entitled to subrogation to the position of the former encumbrancer). Rather,
one of the appellees, FirstBank, impliedly concedes on multiple occasions in its brief that Deutsche Bank
and its predecessors are seeking relief from “mistakes.” We further note that Trustmark does not argue on
appeal that this failure to allege “mistake” is a basis for granting summary judgment, although its brief does
state that the original and amended answers filed in this cause do not allege that Long Beach paid Ms. Turner
as the result of a mistaken belief that it would occupy the first priority position after release of her lien.
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where a party’s remedy is in its own hands and it fails to protect its interest.14 Collins, 124
S.W.3d at 579 (citing Leeper v. Cook, 688 S.W.2d 94 (Tenn. Ct. App. 1985)). Disallowing
equitable subrogation on this sole basis, however, is inconsistent with the Dixon decision.
As our supreme court explained, “[i]t is indeed difficult to conceive of any form of equitable
relief from mistakes where some degree of negligence of the party seeking relief is not
involved.’” Dixon v. Morgan, 285 S.W. 558, 561 (Tenn. 1926) (quoting Inst. Bldg. & Loan
Ass'n v. Edwards, 86 A. 962, 965 (N.J. Ch. 1913)). Denial of equitable subrogation simply
because a party negligently failed to protect its interests would bar equitable subrogation in
virtually every case arising in this context. Because a bright-line rule prohibiting the
application of equitable subrogation where a subrogee fails to affirmatively act makes war
on both the spirit and the purpose of the doctrine, we decline to adopt it. That is not to say
that a court should not consider a party’s failure to protect its interest when determining
whether to award subrogation; rather, a party’s failure to protect its interests despite the
opportunity and ability to do so is yet another factor courts should consider when weighing
the equities between the parties.
As a final argument in support of summary judgment, Trustmark and FirstBank submit
that the undisputed facts establish that application of equitable subrogation would prejudice
them. Our supreme court has recognized that subrogation is unavailable “‘where it will
prejudice the legal or equitable rights of others.’”15 Castleman, 432 S.W.2d at 675 (quoting
Couch on Insurance 2d, Subrogation, s 61:21). As we have explained, however, we reject
the contention that Trustmark and FirstBank will be deprived of vested statutory rights in the
Property, which is the only alleged prejudice cited in this appeal. Although we can conceive
of various ways in which an intervening lienholder could demonstrate prejudice, e.g.,
Indymac Mortgage Holdings, Inc. v. Kauffman, No. W2000-01453-COA-R3-CV, 2001 WL
1683779, at *4 (Tenn. Ct. App. Dec. 21, 2001) (finding that subrogation would place the
intervening lienholders in a worse position where the subrogee sought subrogation of a new
mortgage that imposed a higher interest rate and afforded the mortgagor a longer period
during which to repay the outstanding debt), the appellees have not presented undisputed
facts to establish such prejudice here, see Holiday Hospitality Franchising, Inc. v. State
Resources, Inc., 232 S.W.3d 41, 53-54 (Tenn. Ct. App. 2007) (recognizing that a intervening
14
The holding of Collins as we read it is that a party which cannot demonstrate a mistaken or
fraudulently induced belief that it would occupy the priority position of a prior encumbrancer after satisfying
an existing indebtedness is not entitled to equitable subrogation. See Collins, 124 S.W.3d at 57.
15
We need not decide in the present appeal the heretofore unaddressed question of whether
Tennessee courts should outright deny equitable subrogation if an intervening lienholder demonstrates any
prejudice or merely limit subrogation to the extent of the prior encumbrance if possible. See Houston v. Bank
of Am. Fed. Sav. Bank, 78 P.3d 71, 75 (Nev. 2003); E. Boston Sav. Bank v. Ogan, 701 N.E.2d 331, 334-35
(Mass. 1998).
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judgment lienholder would not suffer prejudice as the result of equitably restoring a
mistakenly released deed of trust to first priority position); see also Hicks, 125 P.3d at 457
(stating that “an intervening lienholder suffers no prejudice merely by virtue of the fact that
it is not elevated in priority”); Restatement (Third) of Property (Mortgages) § 7.6 cmt. e
(1997) (stating that an intervening lienholder can hardly complain of equitable subrogation,
“for it does not harm them, their position is not materially prejudiced, but is simply
unchanged”). We therefore disagree with the contention the Trustmark and FirstBank are
entitled to summary judgment on this basis.
In conclusion, we hold that Trustmark and FirstBank failed to allege undisputed facts
negating an essential element of Deutsche Bank’s counterclaim or showing that Deutsche
Bank cannot establish an essential element of its counterclaim at trial. We note that
Trustmark and FirstBank have repeatedly pointed to the absence of undisputed facts offered
in support of Deutsche Bank’s position as demonstrating the propriety of summary judgment.
It is, however, the duty of the appellees, as the moving parties, to first present undisputed
facts demonstrating some deficiency in the nonmoving party’s counterclaim. Only then is
Deutsche Bank required to produce additional evidence or point to additional facts
establishing a genuine issue of material fact. Because Trustmark and FirstBank did not carry
their initial burden on this issue, we conclude the trial court erred when it granted summary
judgment on Deutsche Bank’s counterclaim for equitable subrogation.
Finally, Deutsche Bank asks this Court to grant summary judgment in its favor. This
is clearly not one of the “rare cases” in which the nonmoving party has demonstrated a right
to summary judgment in its favor. See Griffis v. Davidson County Metro. Gov’t, 164 S.W.3d
267, 284 (Tenn. 2005) (citing Thomas v. Transp. Ins. Co., 532 S.W.2d 263, 266 (Tenn.
1976)). Although Trustmark and FirstBank failed to carry their initial burden of production,
there has been absolutely no showing that Deutsche Bank is entitled to summary judgment
as a matter of law on each element of its counterclaim. This argument is without merit.
V. Conclusion
For the foregoing reasons, we reverse the trial court’s grant of summary judgment on
Deutsche Bank’s counterclaim for equitable subrogation and remand this case for further
proceedings. Costs of this appeal are taxed to the appellees, Trustmark National Bank and
FirstBank, for which execution may issue if necessary.
_________________________________
DAVID R. FARMER, JUDGE
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