The Manor Homes, LLC v. . Ashby Communities, LLC ( 2018 )

08/10/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
June 6, 2018 Session
THE MANOR HOMES, LLC V. ASHBY COMMUNITIES, LLC, ET AL.
Appeal from the Chancery Court for Williamson County
No. 41081 Deanna B. Johnson, Chancellor
No. M2017-01369-COA-R3-CV
This is a contract dispute between the developer and the builder of a residential property.
The developer claimed that the builder was not in compliance with the terms of the
contract and removed the builder from the project. The trial court found that the
developer breached the contract first by removing the builder from the property without
providing it with an opportunity to cure the problems the developer identified and
awarded damages to the builder. The developer appeals the decision by the trial court,
and we affirm the trial court’s judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
ANDY D. BENNETT, J., delivered the opinion of the Court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and RICHARD H. DINKINS, J., joined.
Phillip Byron Jones, Nashville, Tennessee, for the appellants, Ashby Communities, LLC
and John Powell.
Casey Adam Long, Franklin, Tennessee, for the appellee, The Manor Homes, LLC.
OPINION
I. FACTUAL AND PROCEDURAL BACKGROUND
This case involves the construction of a house in Arrington, Tennessee. Ashby
Communities, LLC (“Ashby Communities”) was the developer and owner of a piece of
property referred to as Lot 239, and John Powell was its sole member and manager.
Michael Cude was the builder on Lot 239, and disagreements that arose between Mr.
Powell/Ashby Communities and Mr. Cude form the basis of this lawsuit.
Mr. Cude was a long-time friend of Mr. Powell’s brother, JP Powell (“JP”). Mr.
Cude had built his own house with the help of Paul Brown, who had a general
contractor’s license, and Mr. Powell learned from JP that Mr. Cude was interested in
building the house on Lot 239. Mr. Cude’s wife at the time, Tracy Lytle, set up a
company called The Manor Homes, LLC (“Manor Homes”) in April 2010, and Mr. Cude
treated Manor Homes as his company for purposes of working as a builder in the
construction industry. Mr. Powell met with Mr. Cude at different times in 2010 and
2011, and the two men ultimately agreed that Mr. Cude, with the help of Mr. Brown,
would build the house on Lot 239 starting in the spring of 2011.
Mr. Powell prepared an agreement titled “Profit Sharing Agreement – Kings’
Chapel Subdivision” (“the PSA” or “the agreement”) that the parties signed on March 23,
2011. Mr. Powell testified that he revised another document he had to create the PSA.
The record contains no evidence that anyone other than Mr. Powell participated in the
drafting of the PSA. The signatories to the agreement included Mr. Cude, on behalf of
Manor Homes, and John Powell, in his personal capacity and on behalf of Ashby
Communities.
In the section of the PSA called “Profit Sharing Understanding,” the parties agreed
to use a software program called Lodis to track expenses of the project and to pay
invoices relating to the construction of the house. Ashby Communities and Mr. Powell
agreed to open a checking account at Synergy Bank, with checks to “be titled as ‘The
Manor Homes, LLC’ so that all vendors recognize payments.” Manor Homes agreed to
deposit $20,000 in this account, “which funds shall be returned to Builder when house
has obtained a C.O.[1] or Developer is satisfied with completed house.”
Ashby Communities, Mr. Powell, and Manor Homes also agreed in this section of
the agreement to a “non-equity net profit sharing agreement on the sale of the house
based upon a 50/50 division of net profits between Builder and Developer.” Ashby
Communities and Mr. Powell had “sole discretion” to determine the price at which the
house would be sold, and Manor Homes “specifically waive[d] any rights to impede, lien,
impair or delay any closings of the property described herein and/or to attach the
proceeds thereof.”
Mr. Cude started on the project to build the house on Lot 239 in May 2011. He
testified that he and Mr. Powell had some disagreements at the beginning of the project
regarding (1) whether the topsoil had to be removed before the footings were poured and
(2) which lumber supplier to use. Once they resolved those issues, Mr. Cude testified
that the project moved ahead smoothly until January 2012. Mr. Powell agreed that he did
not express any concerns about the house after these initial two issues were resolved until
January 2012.
1
As used in the PSA, “C.O.” refers to a certificate of occupancy.
-2-
In late January 2012, Mr. Brown informed Mr. Cude that “there was a lot of
activity surrounding the trim out at our house on lot 239.” By this time, the house on Lot
239 was in the final stages of construction, with tile, bathtubs, and appliances being
installed, walls being painted, and fixtures being hung. Mr. Cude was not aware of any
third parties who were or should be involved in the project, so he sent Mr. Powell an e-
mail to find out what was going on. Mr. Powell responded to Mr. Cude by e-mail, and he
explained that he had hired two independent designers who told him “there are problems
with the house.” Mr. Powell specified that “[e]lements of design and colors are just not
working . . . .” Mr. Powell continued:
I have asked Paul [Brown] to halt ALL tile work [--] this includes laundry
room, all bathrooms, and fireplaces. Please do not have any other paint
continue anywhere upstairs, if they are not done removing tape putting
doors back etc. stop them – [w]e feel almost the entire 2nd floor needs [to
be] repainted.
Mr. Cude testified that this was the first he had heard of any concerns Mr. Powell
had with the house since the initial hiccups regarding the topsoil and lumber supplier.
Mr. Cude asked for a meeting, and the two met at the house on January 29, 2012, at
which time Mr. Powell pointed out his concerns. Mr. Cude testified that he was then
“separated from the project.” Mr. Cude explained that he wanted to know specifically
what Mr. Powell believed was wrong with the house so he could fix it, but Mr. Powell
did not return Mr. Cude’s phone calls or e-mails, and Mr. Cude was not able to resume
working on the house. Mr. Powell also failed to approve for payment the last batch of
invoices Mr. Cude submitted, which included subcontractors’ work and other project-
related expenses. Mr. Cude paid from his own funds outstanding invoices that exceeded
$20,000 when he realized Mr. Powell was not going to approve these payments.
The house on Lot 239 was ultimately completed by a third-party contractor. A
purchase and sale agreement for the house was signed on September 5, 2012, and the
agreed-upon price was $574,500. A certificate of occupancy was obtained on October
26, 2012, and the house closed some time thereafter.
Manor Homes initially filed a complaint in June 2012, which it amended in
August 2012 and again in May 2013. The second amended complaint named John
Powell and Ashby Communities as defendants. Manor Homes claimed the defendants
“constructively ejected and excluded” Manor Homes from the construction project in
January 2012 and that they breached the PSA by interfering with Manor Homes’
performance of its responsibilities under the agreement. Manor Homes asserted that the
PSA constituted a partnership. Manor Homes sought the following relief: (1) the
appointment of a receiver to secure and marshal the assets of the project; (2) an
accounting by the defendants of all money they have had or that is related to the project
or the appointment of a special master for this purpose; (3) an impoundment of all
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proceeds from the sale of Lot 239; (4) a declaration of the rights, responsibilities, and
status of the parties, including the parties’ respective interests in the net proceeds of the
project; (5) an award of damages resulting from the defendants’ breach of the PSA; and
(6) an award of Manor Homes’ attorney fees and costs.
Ashby Communities and John Powell filed an answer and counterclaim, which
they later amended. Ashby Communities and Mr. Powell added Mr. Cude as a counter-
defendant and asserted in their amended counterclaim that (1) Manor Homes and Mr.
Cude committed fraud by knowingly representing and warranting that Manor Homes was
a licensed general contractor in Tennessee, when it was not so licensed; (2) Manor
Homes breached the PSA by misrepresenting itself as a licensed general contractor,
failing to complete the home on Lot 239, and failing to perform the work actually
completed in a workmanlike manner; (3) Manor Homes and Mr. Cude engaged in
conspiracy and malicious interference with Ashby Communities and Mr. Powell’s
contract to sell the house by filing a lis pendens against the property; (4) Manor Homes
and Mr. Cude engaged in slander of title by filing a lis pendens against the property; and
(5) Manor Homes and Mr. Cude violated the Tennessee Consumer Protection Act by
misrepresenting themselves as licensed general contractors.2
This case was tried over a period of three days in December 2016. The trial court
issued a Memorandum and Order in June 2017 that included twenty-two pages of
findings of fact. The court’s findings of fact include the following, inter alia:
Paul Brown (“Brown”) specializes as a framing subcontractor and
has occasionally worked as a general contractor on several residences
including the former home of Cude and Lytle. At the time of trial, Brown
had worked in construction for 37 years and had been the general contractor
on six houses.
The purpose of Manor Homes was to hire and direct subcontractors
to build homes with the assistance of an associated general contractor.
Cude, in conjunction with Brown and Lytle, developed the idea for Manor
Homes as a means for supporting Cude during retirement. . . . Lytle, who
had a personal interest in home decoration, would be the sole member, and
Cude would help direct Manor Homes’ day-to-day operations, including
hiring subcontractors as well as managing Manor Homes’ financial
obligations.
2
Ashby Communities and Mr. Powell also named Paul Brown as a defendant in their counter-claim and
asserted additional claims against him. Mr. Brown is not involved in this appeal, however, so we will not
address the claims made against him or the trial court’s resolution of those claims.
-4-
Cude believed that Manor Homes could not construct a home
without a general contractor. Cude knew that Brown had a general
contractor’s license based on prior conversations between the two during
construction of Cude’s home. Cude contacted Brown to gauge Brown’s
interest in serving as the general contractor for Manor Homes in this
opportunity with Ashby.
....
Powell, Cude, Brown, JD Powell, and a financial consultant for Powell
and/or Ashby met at a hotel to discuss the potential business opportunity of
constructing a home in King’s Chapel under the authority of Ashby. Cude,
Brown, and Defendant Powell agreed that Manor Homes, Brown, and
Ashby could act in a tripartite manner to construct a home on Lot 239, a lot
that Ashby had the ability to purchase in King’s Chapel. Manor Homes
would hire the subcontractors, purchase the building materials, and make
decorative selections. Brown would be the day-to-day building
superintendent and general contractor in charge of directing the
subcontractors on building the home. Finally, Powell and/or Ashby would
make the lot accessible to . . . Manor Homes, Brown, and their
subcontractors. Additionally, Powell and/or Ashby would put up the money
to purchase Lot 239, secure bank loan financing to fund the project, and
authorize disbursements for payments to Manor Homes to be withdrawn
from Ashby’s bank account. The end goal would be for both Ashby and
Manor Homes to share equal profits from the sale of the completed home
on Lot 239.
Initially, the discussion of a potential budget was for a targeted
amount less than $400,000. However, Brown stated that this amount was
impossibly low. Brown countered instead that he could do the project for
$415,000. Powell indicated that this amount would be acceptable and that
the budget would be $415,000 as offered by Brown. However, it became
apparent during this meeting at the hotel that Brown did not have the
necessary monetary limits, as his were only $1[62],000. Powell stated that
Brown’s limits would have to be raised and verbally directed Brown to do
so. Brown assured Powell that he would take whatever steps necessary to
raise his monetary limits.
Following this meeting at the hotel, Cude and Brown set out to get
Brown’s monetary limits raised. Brown told Cude the ways to accomplish
this limit raise. One way Brown proposed this could be accomplished
would be to expedite the process by sending a “hardship letter” to the
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TBLC.[3] Cude placed money in an account with Brown to support his
“hardship” request. Sometime thereafter, the TBLC authorized a limits
increase on Brown’s license.
....
Finally, on March 23, 2011, Manor Homes and Ashby signed a
document titled “Profit Sharing Agreement” (“PSA”) with the intention of
memorializing the agreement to build a home on Lot 239. Powell drafted
the PSA by editing an agreement from another project. The PSA amounts
to nine total pages.
....
Once the project finally got started, things were fine for the next six
months. Powell had always said the budget and the time line were
important, but Powell stated that the budget was most important. According
to Cude, JD Powell, and Brown, the time was never a huge concern with
Powell. Every two weeks, on Sunday afternoon, Cude processed all of the
outstanding subcontractor invoices for labor and materials and uploaded the
information into Lodis. Afterwards, Ms. Lytle would go to Lodis, ensure
the expenses contained in the spreadsheets got processed, and then would
give the checks to Powell to be signed.
As General Contractor, Brown obtained building permits, took
invoices from the subcontractors, and delivered the invoices to Cude. Also,
Brown made sure the subcontractors had the materials they needed. If they
did not, Brown would tell Cude. Brown supervised the subcontractors and
made sure they did their jobs.
Ms. Lytle was making the design decisions. Powell directed Ms.
Lytle as to with whom she should work. Cude understood that the design
decisions were up to him and Ms. Lytle. Cude considered those decisions to
be part of Manor Homes’ job. Decisions about appliances and fixtures were
up to Manor Homes.
Between late June of 2011 and late January of 2012, Powell did not
express any concerns about the way the house was being built.
According to JD Powell, Cude, and Brown, Powell’s attitude took an
abrupt about-face in January of 2012. At trial, there was much disagreement
3
“TBLC” refers to the Tennessee Board for Licensing Contractors.
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between Powell, Cude, JD Powell, and Brown as to the level of completion
in the home at the time of this dispute. According to JD Powell, Cude, and
Brown, the home was about $8,000 under budget according to the Lodis
spreadsheets at that time, and the home was 90-95% complete. Cude and
Brown admitted that the front door was incomplete, and a handrail
remained uninstalled. Additionally, some of the cabinets remained
uninstalled. However, light fixtures, plumbing, toilets, and most other items
were complete. The Court finds JD Powell, Cude and Brown to be credible
and accepts these facts.
....
In January of 2012, Cude became aware that there was activity at the
house that Cude had not authorized. In response, Cude e-mailed Powell to
find out what was going on. Powell replied that he brought a couple interior
design specialists into the home. Powell’s actions in this regard had not
been previously discussed and this was the first Cude had heard about
Powell’s actions and supposed powers under the contract. On Wednesday,
January 25, 2012, Cude e-mailed Powell regarding Powell bringing several
interior designers into the house to critique how the house was being
finished. Powell claimed he had serious concerns about how the house was
being finished.
When asked what Powell found to be such serious missteps by
Manor Homes, Powell stated that he did not like the tile Cude’s wife had
chosen for the master bathroom or the coffee bar Cude had put in the
master bathroom. In addition, Powell believed the corners on one of the
bathtubs were too sharp, and the tub would not fit because the drain and the
wall were incompatible. Furthermore, Powell did not like the black tile on
the two fireplaces because he felt it looked cheap. Powell eventually
requested to have all of this work re-done. Powell felt that the house was a
mess: he stated that the workers left trash “everywhere;” the vanities in the
master bathroom were pre-fabricated wood, molded and purchased at The
Home Depot or Lowe’s; the master bedroom door was not set right; the
interior doors were painted and there were paint streaks and paint running
down them; the staircase from the driveway into the house at the two
garages was allegedly “improper” in terms of measurement; there was a
problem with the stairs in the interior of the home; the stairs going to the
back of the house had problems as well; the bathtub that was in the garage
was still in the box and the other bathtub did not fit; and Manor Homes’
placement of the wine cooler in the kitchen was “inappropriate.”
-7-
Cude and Brown disagreed that the above were done incorrectly as a
matter of objective building standards. Additionally, Cude asserted that
many of the problems Powell complained about at trial were of his own
making after taking over the project and hiring a new general contractor
and subcontractors. For example, with respect to the bathtub motors, Cude
stated that the tub supports were originally constructed with carve-outs for
the tub motors. However, after Powell rebuilt them, the carve-outs were
tiled in, and there was no longer access to the tub motor, which resulted in
some of the issues Powell identified.
....
Powell did not return the $20,000 Builder Deposit to Manor Homes. Cude
paid subcontractors for their work and, after he sold the home, Powell
failed to reimburse Cude for these payments to sub-contractors. The . . .
amounts Cude paid to the sub-contractors and for which he seeks
reimbursement from Powell . . . total $2[0],997.57.
(Footnotes omitted.)
The trial court’s conclusions of law include the following, inter alia:
[T]he Court makes the following conclusions of law: (1) no Partnership
was formed between Ashby and Manor Homes; (2) Ashby and/or Powell
committed the first material breach of the PSA and are thereby required to
return the Builder Deposit under the PSA in full and pay compensatory
damages in accordance with this Order; (3) accounting, appointment of
receiver, or collection of proceeds is improper and unnecessary; and (4) this
litigation has extinguished the Parties’ obligations or liabilities under the
PSA.
Manor Homes is entitled to damages for breach of contract because
Ashby and Powell materially breached the PSA when they improperly
terminated the same after failing to give Manor Homes proper notice and an
opportunity to cure.
....
Manor Homes asserts that Ashby and/or Powell were the first to
materially breach the contract because Ashby and/or Powell improperly
terminated the PSA by removing Manor Homes from the project, refusing
to allow Manor Homes to continue performance, and hiring a different
builder. Ashby and Powell allege that Manor Homes, Cude, and Brown
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were the first to materially breach the contract because Manor Homes,
Cude, and Brown allegedly failed to perform various obligations under the
contract and eventually abandoned the worksite.
In order to determine which party was the first to materially breach a
contract, the Court must first determine what the contract required of the
parties, which is a question of law. . . . The PSA explicitly states that any
contractor performing work on the home must build the home in
compliance with the details contained in Exhibit H to the PSA, which
requires rigid, custom specifications for builders who operate in Kings’
Chapel and Ashby Communities. Among the items listed in Exhibit H are
the following: requirements that fences are accompanied by gates, that the
decks use stained wood, that the front door be a metal castle door, that there
be key locksets on each exterior door, that granite countertops be used in
the powder rooms, that custom cabinets be installed in every room, and that
wood spindles meet certain detailed specifications. Ashby and Powell
allege that Manor Homes failed to meet each and every one of these
aforementioned specific details, and that Manor Homes’ failure to do so
constituted a material breach of the PSA thereby excusing Ashby and
Powell from any of their obligations to perform (i.e., pay subcontractors
hired by Manor Homes and/or Cude). However, none of these
specifications were cited by Ashby and/or Powell as things to be corrected
prior to Ashby and/or Powell’s termination of the contract and/or removal
of Manor Homes from the job site.
....
The PSA, including all of its corollary agreements, exhibits, and
attachments, imposed very rigid requirements on Manor Homes to be
followed throughout the entirety of the construction of the home on Lot
239. However, the PSA did not require Manor Homes to submit to every
request made by Ashby regarding interior finishes. Additionally, nothing in
the PSA permitted Ashby to terminate the PSA for dissatisfaction with the
work without first providing Manor Homes notice and a reasonable
opportunity to cure the alleged breaches of the PSA. Manor Homes did not
by any provision in the PSA waive its right to notice of its breaches and did
not agree to permit Ashby to terminate the PSA without cause.
Ashby and Powell were the first to materially breach the PSA
because they improperly terminated the PSA by removing Manor Homes
from the project on Lot 239 and refusing to pay Manor Homes’
subcontractors without first giving Manor Homes notice of its alleged
material breaches and a reasonable opportunity to cure.
-9-
....
The trial testimony of JD Powell, Cude, and Brown preponderate in
favor of a finding that Ashby and/or Powell became upset with Manor
Homes’ work on the interior of the home on Lot 239. Ashby and/or Powell
expressed great anger and frustration with the finishing work Manor Homes
had conducted. Powell identified the specific objects of his frustration in his
March 1, 2012, email to Manor Homes and/or Cude as follows: (1) “trim
work” on the exterior, (2) a fireplace with “metal on the face” that was
allegedly not “to code,” (3) light fixtures that were allegedly “not to code,”
(4) a wine cooler, (5) “a house of this nature deserved double ovens,” (6)
the lack of a 36-inch range, (7) Brown’s speed of completion, (8) interior
trim and painting, (9) Manor Homes’ and/or Cude’s scheduling decisions,
(10) the vanities in the home, (11) plumbing, and (12) finishing in general.
However, the testimony of the Parties at trial provided that this email and
the alleged dissatisfaction with the items listed were not provided to Manor
Homes, Cude, and/or Brown prior to Ashby and/or Powell’s decision to
remove them from the project on Lot 239.
The Court did not find Powell to be credible during his testimony as
to breach. Although at trial counsel for Ashby and Powell identified several
items from Exhibit H that Manor Homes had failed to properly include in
the construction of the home, there was no proof offered to establish that
Ashby and/or Powell identified these items to Manor Homes, Cude, and/or
Brown prior to removing them from the construction project. The Court
finds that Ashby and Powell materially breached the PSA because they did
not properly give notice and a reasonable opportunity to cure prior to
removing Manor Homes from the project.
The trial court next addressed the issue of damages:
The existence and amount of damages are disputed by both Ashby
and Powell. Manor Homes alleges that Ashby and Powell are liable for
damages arising out of breach of contract because Ashby and Powell
improperly removed Manor Homes from its role as builder and refused to
reimburse the subcontractors hired by Manor Homes to perform work on
Lot 239. Manor Homes also alleges that, but for Ashby and Powell’s
needless expenditures and demolition work that followed the improper
termination, there would have been profits on the sale of the house to which
Manor Homes would have been entitled.
....
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Ashby and Powell reject any notion that they could be liable for
breach of contract because, as they allege, Manor Homes was the first to
materially breach by failing to build the home in conformity with the PSA
and the details outlined in the exhibits thereto, specifically Exhibit H.
However, as stated above, the Court finds that Ashby and Powell were the
first to materially breach the PSA. Therefore, Ashby and Powell are
required to refund the $20,000 builder deposit, as a specified remedy for the
builder under the terms of the PSA, see (Profit Sharing Agreement, § 9, ¶
(b)) and to pay Manor Homes compensatory damages for unpaid
subcontractors that Manor Homes and/or Cude paid personally.
Although Section 9, Paragraph (b) of the PSA limits Manor Homes’
recovery for breach of the PSA to a refund of the $20,000 deposit, Manor
Homes proved by clear and convincing evidence that it suffered damages
by not being compensated for its unpaid subcontractors. The Court does not
interpret Section 9, Paragraph (b) to be an exculpatory clause enforceable to
permit Ashby and/or Powell to escape liability for these compensatory
damages it owes to Manor Homes.
The trial court awarded Manor Homes the return of the initial $20,000 deposit it
paid when the PSA was signed as well as $20,997.57 to reimburse Manor Homes for the
money Mr. Cude paid his subcontractors for the work they performed prior to Manor
Homes’ termination from the project. The court also awarded Manor Homes its attorney
fees in accordance with the PSA.
Mr. Powell and Ashby Communities filed a notice of appeal. They raise the
following issues: (1) whether the trial court erred in ruling that Manor Homes was
entitled to recover on its breach of contract claim after finding that Manor Homes
misrepresented its licensing status and violated the Consumer Protection Act; and (2)
whether the trial court erred in finding Manor Homes had standing to recover damages in
light of the fact that the company was controlled by Mr. Cude’s ex-wife and was
dissolved prior to trial.
II. ANALYSIS
A. Standard of Review
We review a trial court’s judgment following a non-jury trial de novo on the
record, presuming the correctness of the trial court’s findings of fact unless the evidence
preponderates otherwise. TENN. R. APP. P. 13(d); Beacon4, LLC v. I & L Invs., LLC, 514
S.W.3d 153, 168 (Tenn. Ct. App. 2016). Evidence preponderates against a trial court’s
findings of fact if it supports a different ‘“finding of fact with greater convincing effect.’”
Beacon4, 514 S.W.3d at 168-69 (quoting Wood v. Starko, 197 S.W.3d 255, 257 (Tenn.
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Ct. App. 2006)). Contract interpretation involves a question of law. West v. Shelby Cnty.
Healthcare Corp., 459 S.W.3d 33, 42 (Tenn. 2014); Forrest Constr. Co., LLC v.
Laughlin, 337 S.W.3d 211, 220 (Tenn. Ct. App. 2009) (citing Guiliano v. Cleo, Inc., 995
S.W.2d 88, 95 (Tenn. 1999)). We review questions of law de novo, affording the trial
court’s determinations no presumption of correctness. Forrest Constr., 337 S.W.3d at
220 (citing Guiliano, 995 S.W.2d at 95).
B. The Agreement
“A cardinal rule of contractual interpretation is to ascertain and give effect to the
intent of the parties.” Allmand v. Pavletic, 292 S.W.3d 618, 630 (Tenn. 2009); see also
West, 459 S.W.3d at 41-42; Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn.
2006). The parties’ intent is determined by considering “the plain meaning of the words”
used in the contract. Allmand, 292 S.W.3d at 630; Allstate Ins. Co., 195 S.W.3d at 611.
If the words used are clear, unambiguous, and not susceptible to more than one
reasonable interpretation, courts are to rely on the literal language used in the contract to
determine the parties’ intent. Allmand, 292 S.W.3d at 630; Allstate Ins. Co., 195 S.W.3d
at 611.
When a contract contains different sections, a court is not to read the sections in
isolation; rather, it is to read the sections together to determine the meaning of the
document as a whole. Maggart v. Almany Realtors, Inc., 259 S.W.3d 700, 705 (Tenn.
2008); S. Trust Ins. Co. v. Phillips, 474 S.W.3d 660, 668 (Tenn. Ct. App. 2015). ‘“All
provisions of the contract should be construed in harmony with each other to promote
consistency and avoid repugnancy among the various contract provisions.’” Adkins v.
Bluegrass Estates, Inc., 360 S.W.3d 404, 411 (Tenn. Ct. App. 2011) (quoting
Shuttleworth, Williams, Harper, Waring & Derrick, PLLC v. Smith, No. W2007-02295-
COA-R3-CV, 2010 WL 744375, at *3 (Tenn. Ct. App. Mar. 5, 2010)); see also Forrest
Constr., 337 S.W.3d at 220; Wager v. Life Care Ctrs. of Am., Inc., No. E2006-01054-
COA-R3-CV, 2007 WL 4224723, at *10 (Tenn. Ct. App. Nov. 30, 2007); Rainey v.
Stansell, 836 S.W.2d 117, 119 (Tenn. Ct. App. 1992). Additionally, “[w]here an
executed agreement refers to the other documents, all of the documents must be
construed together as the contract of the parties.” Williams v. Larry Stovesand Lincoln
Mercury, Inc., No. M2014-00004-COA-R3-CV, 2014 WL 5308634, at *5 (Tenn. Ct.
App. Oct. 15, 2014); see also Real Estate Mgmt. v. Giles, 293 S.W.2d 596, 599 (Tenn.
Ct. App. 1956) (stating where several documents are executed as part of the same
agreement, the court reads them together and interprets them with reference to one other).
A contract is ambiguous when the language used may reasonably be understood in
more than one way. Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc., 78
S.W.3d 885, 890 (Tenn. 2002); Allstate Ins. Co., 195 S.W.3d at 611 (citing Farmers-
Peoples Bank v. Clemmer, 519 S.W.2d 801, 805 (Tenn. 1975)). If the contract contains
an ambiguity, the courts look to parol evidence, “including the contracting parties’
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conduct and statements regarding the disputed provision, to guide the court in construing
and enforcing the contract.” Allstate Ins. Co., 195 S.W.3d at 612; see Allstar Consulting
Grp. v. Trinity Church & Christian Ctr., No. W2006-00272-COA-R3-CV, 2007 WL
120046, at *4 (Tenn. Ct. App. Jan. 18, 2007) (explaining parol evidence guides court to
discern parties’ intent when contract contains ambiguity); see also Adkins, 360 S.W.3d at
412 (citing Smith, 2010 WL 744375, at *3). Ambiguous provisions are generally
construed against the party that drafted them. Allstate Ins. Co., 195 S.W.3d at 612 (citing
Hanover Ins. Co. v. Haney, 425 S.W.2d 590, 592 (Tenn. 1968)).
A thorough review of the PSA and the attachments referenced therein reveals that
the term “Builder” is used to refer to Manor Homes in some places, and that the term is
used to refer to Manor Homes and Mr. Brown in other places. The opening paragraph of
the PSA defines Manor Homes as “Builder.” Then, a few “WHEREAS” clauses
immediately follow the opening paragraph. One of these clauses states:
WHEREAS, the Builder has employed Paul Brown as the general
contractor for Builder and they desire to be included in the Developer’s
“list of approved general contractors” subject to the terms of this
Agreement and continued consent of the Developer.
The pronoun “they” seems to refer to both Manor Homes and Mr. Brown.
Another WHEREAS clause states:
WHEREAS, in order to ensure adherence to the highest standards of
construction, to enhance the quality of architectural control and design, and
to ensure that the homes built within the project conform to the size and
square footage requirements as determined by the Developer, in its sole and
absolute discretion for each section, the Developer has maintained the right
to establish a list of approved general contractors who shall have the right
to build residential dwellings within the Project subject to the Developer’s
right to reserve rights set forth herein and in the “Agreement for Approved
Builder Group” which is attached to and made a part hereof (see “Exhibit
B”)[.]
The Agreement for Approved Builder Group that is referenced in this WHEREAS clause
is appended to the PSA as “Exhibit B,” and it states:
THIS AGREEMENT (the “Agreement”) is made and entered into this ___
day of ______ 2011, by and between Ashby Communities a Tennessee
Limited Liability Co. . . . and The Manor Homes LLC, . . . , a Tennessee
Limited Liability Corporation. Along with Paul Brown Contractor
(hereinafter referred to as “Builder”).
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Exhibit B thus defines “Builder” to include both Manor Homes and “Paul Brown
Contractor.”4
The second page of the PSA has a section 2 that is titled “Profit Sharing
Understanding.” Paragraph (k) of this section provides that:
Builder agrees and understands that Lodis will be used to pay all
construction expenses of the house including any payments to Anton or
Powell, or Builder. Builder, Anton, & Powell will have ongoing access to
the Lodis web site to review progress of construction in comparison to
construction budget and payments to Vendors. A copy of the Lodis
Contract is attached as Exhibit F.
Exhibit F is titled “Builder/Contractor Construction Funds Accountability Agreement,”
and the opening sentence of this document states that “THIS AGREEMENT
(‘Agreement’) is made and entered into among Lodis Solutions, Inc. (‘Lodis’), and The
Manor Homes, LLC [and] Paul Brown (the ‘Builder’).” Again, the term “Builder” is
defined to include both Manor Homes and Mr. Brown.
Finally, the PSA includes a section 6 titled “Party Representations,” and paragraph
(a) of this section states:
Builder represents and warrants to Developer that Builder is a duly licensed
Tennessee General Contractor in the business of building residences.
Tennessee License attached as (Exhibit I). Builder further represents that
he/she/it has the current and continued financial capability of fulfilling the
Builder’s obligations herein. . . .
Although not marked as Exhibit I, a document that immediately follows Exhibit H
appears to be a printout from the Tennessee Department of Commerce and Insurance and
reflects that Paul Brown had an active contractor license beginning in June 2008,
extending to June 2012, and that his monetary limit was $456,000. It is reasonable to
assume that this document is the “Exhibit I” that the PSA references in paragraph 6(a),
quoted above. The only way to interpret paragraph 6(a) consistently with Exhibit I is to
include Mr. Brown within the definition of “Builder” as that term is used in paragraph
6(a).
Ashby Communities and Mr. Powell’s contention that Manor Homes
misrepresented itself as having a general contractor’s license is based on paragraph 6(a),
4
The PSA that Manor Homes attached to its initial complaint does not include the exhibits that the
agreement references. However, Mr. Powell identified a collection of documents at trial that were part of
the PSA, and the exhibits discussed herein were included in that collection of documents.
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quoted above. Because the term “Builder” is defined to include Manor Homes in at least
one part of the PSA, whereas it is defined to include both Manor Homes and Mr. Brown
in some of the PSA’s exhibits, we conclude that the PSA contains an ambiguity.
Therefore, we must consider the parol evidence to determine the meaning the parties
ascribed to the term “Builder” as that term is used in paragraph 6(a) of the PSA. See
Allstate Ins. Co., 195 S.W.3d at 612 (explaining that court considers parol evidence to
determine parties’ intent when contract contains ambiguity); Planters Gin Co., 78 S.W.3d
at 890 (stating that contract is ambiguous when its language can reasonably be
understood in more than one way).
Mr. Cude, Mr. Powell, Mr. Brown, and JD all testified at the trial about the
circumstances surrounding the PSA and their understanding of who was licensed as a
general contractor. Mr. Cude testified that he did not have a general contractor’s license,
and he understood that someone with a general contractor’s license would have to be
involved with the construction of the house on Lot 239. Mr. Brown had helped Mr. Cude
build his home, and Mr. Cude testified that he asked Mr. Brown if he would be interested
in working with him on the project to build the house on Lot 239.
Mr. Brown testified that he attended a meeting with Mr. Cude, Mr. Powell, and JD
to discuss the project before any papers were drawn up. Mr. Brown testified that he was
licensed as a general contractor and that the parties discussed his monetary limits:
Q: Okay. What was discussed during the meeting?
A: It was all discussed about, you know, aspects of building a house. It
was asked what my monetary limit was. And they talked about when they
were kids growing up and stuff like that.
Q: Okay. Now, when you say you were asked what your monetary limit
was, who asked you?
A: John did.
Q: All right. And did he discuss that with you beyond just asking you?
A: No - - yes. Yes.
Q: Okay. So he asked you what your monetary limit was. Did you tell
him?
A: Yeah.
Q: Okay. What was his response?
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A: He told me that I’d have to have it raised in order to build the house that
we were planning on building.
Q: Okay. And did he suggest a range for you to raise it to?
....
A: Yeah. Half a million.
Mr. Brown further testified that his role in the project was to be the general contractor
and the superintendent.
Mr. Cude testified that he met several times with Mr. Powell to discuss the
construction project; some meetings included just Mr. Cude and Mr. Powell, and some
meetings included Mr. Powell, JD, and Mr. Brown. Mr. Cude testified that the four of
them met as a group “to discuss the logistics of moving this forward where Paul was
going to be represented as the contractor on the project for me as the builder, and that’s
where the monetary limits were discussed.” Mr. Cude’s testimony included the
following:
Q: Okay. And what was discussed at that meeting?
A: In general, the - - because that meeting was - - that meeting was in the
summer of 2010, and so we were getting closer. . . . So there were specific
conversations about the house, the value of the house. . . . So the
conversation and the question about the monetary limit came up because
we needed to know what the monetary limit was going to need to be in
order for Paul’s license to be able to manage, you know, the build of the
house.
Q: Okay. So were there discussions about Mr. Brown’s monetary limits?
A: There were. That’s how we decided - - John made a comment to the
effect that it needed to approach a half a million based on the level of the
house that we were looking to build.
Q: Okay. And was Mr. Powell made aware of what Paul Brown’s
monetary limits were at the time of the meeting?
A: He was. There were conversations about Mr. Brown’s monetary limit,
and the conversation around that it would need to be raised.
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Q: Okay. Did you and Mr. Brown then set about trying to get his limits
raised?
A: We did.
In response to a question about whether it was ever represented that he was going to be
the general contractor for the project, Mr. Cude replied: “It never was.”
JD was asked whether his brother (John Powell) “understood that Paul [Brown]
was the general contractor for this project.” JD responded: “He always understood that.”
JD testified further as follows:
Q: Did [John Powell] ever ask Mike Cude about his contractor’s license or
his monetary limits?
A: No.
Q: Okay. He directly asked Paul Brown?
A: Yes.
Q: Did he even ask Mike Cude if he had a contractor’s license?
A: If Mike had one or Paul had one?
Q: If Mike had one.
A: I think it’s - - I recall that Mike has always told me he never had a
contractor’s license.
Q: Okay. And did he express at any of these meetings to your brother,
John Powell - -
A: It was clearly understood from day one that Paul was the contractor, he
had the license. And at that meeting, there’s another thing I remember.
They were going to have to increase the limits on his contractor’s license . .
..
Mr. Powell testified that he “understood Paul Brown was going to be employed by
Manor Homes or as the general contractor” on the project. He did not testify that he
believed Mr. Cude had a general contractor’s license.
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As revealed by the testimony at trial, no one involved in the construction project
believed Mr. Cude had a general contractor’s license, and everyone understood that Mr.
Brown had a general contractor’s license. As Mr. Cude, Mr. Brown, and JD all testified,
Mr. Powell participated in at least one meeting where Mr. Brown’s monetary limits were
discussed, and Mr. Powell informed Mr. Brown that he would have to increase the limits
on his contractor’s license. The trial court found Mr. Cude, Mr. Brown, and JD were
credible, and the defendants point to nothing in the record to suggest that any of these
witnesses’ testimony should be questioned.
Construing the different parts of the PSA in harmony with one another, taking into
account the testimony of the witnesses regarding the project participants’ understanding
that Mr. Brown was the only one with a general contractor’s license, and construing the
PSA against its drafter, Mr. Powell, we conclude that the term “Builder” as used in
paragraph 6(a) of the PSA refers to both Manor Homes and Mr. Brown. A result of this
interpretation of the PSA is that Manor Homes did not misrepresent its licensing status,
as Ashby Communities and Mr. Powell contend.5
Ashby Communities and Mr. Powell argue that Manor Homes breached the PSA
because it failed to complete the construction of the home on Lot 239 and obtain a
certificate of occupancy (1) within the time frame set forth in the agreement, (2) within
the stated budget, and (3) according to the guidelines set forth in Exhibit H of the PSA.
Mr. Cude and Mr. Brown testified that Mr. Powell caused some early delays when he
raised concerns about the topsoil in the crawlspace and the lumber supplier and that they
believed they were going to complete the house in a timely fashion after accounting for
these delays. The trial court believed Mr. Cude’s and Mr. Brown’s testimony with regard
to this issue and found the following facts:
Powell and/or Ashby caused several delays that affected Manor
Homes’ timely construction of the home on Lot 239, including: changing
the lumber package from Huskey to Builder’s First Source, which delayed
the project about six weeks; pinning the lot, which delayed work about two
weeks; and Powell’s stop work order relating to the crawl space, resulting
in yet another delay of an additional two weeks. In all, Ashby caused
delays amounting to a period of about ten weeks.
The record shows that Manor Homes began construction in May 2011 and was separated
from the project in January 2012. Subtracting ten weeks from this eight- to nine-month
period, Manor Homes had another month or so to finish the project within the prescribed
5
Ashby Communities and Mr. Powell complain that Mr. Brown’s general contractor’s license did not
have a sufficiently high monetary limit when the PSA was signed. However, Exhibit I to the PSA reveals
that Mr. Brown’s monetary limit was $456,000, which exceeds the $415,000 budget to which the parties
agreed.
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seven-and-a-half month time frame set forth in the PSA when it was separated from the
project.
Mr. Cude and Mr. Brown also testified that they were about $8,000 under the
budget limit when Mr. Powell separated Manor Homes from the project. The trial court
found Mr. Cude and Mr. Brown’s testimony regarding the budget credible, and Ashby
Communities and Mr. Powell have failed to show the evidence preponderates otherwise.
With respect to the guidelines set forth in Exhibit H of the PSA, Mr. Cude
admitted at trial that Manor Homes was not in compliance with some of these guidelines.
However, the trial court found, and Ashby Communities and Mr. Powell do not dispute,
that Mr. Powell never mentioned any concerns he had with the work Manor Homes was
doing on the house (after the initial disagreements at the beginning of the project) until
shortly before Mr. Powell separated Manor Homes from the project. Mr. Cude wanted to
know what Mr. Powell’s concerns were so he could address them and correct anything
that might have been wrong, but Mr. Powell did not respond to Mr. Cude’s phone calls or
e-mails. As stated above, the trial court did not find Mr. Powell’s testimony as to the
breach of the PSA to be credible, and the court found that Ashby Communities and Mr.
Powell committed the first material breach of the PSA by removing Manor Homes from
the project and failing to give it a chance to cure the problems Mr. Powell identified
before removing Manor Homes from the construction project.
The law in Tennessee is that “a party alleging defects in the performance of a
contract is required to give notice and a reasonable opportunity to cure the defects.”
Forrest Constr., 337 S.W.3d at 229 (citing Carter v. Krueger, 916 S.W.2d 932, 935
(Tenn. Ct. App. 1995)). The reason for this requirement is to encourage contracting
parties to settle their disputes and avoid litigation by allowing the defaulting party the
chance to repair defective work, reduce damages, and avoid additional problems. Id.
(citing Custom Built Homes by Ed Harris v. McNamara, No. M2004-02703-COA-R3-
CV, 2006 WL 3613583, at *5 (Tenn. Ct. App. Dec. 11, 2006)). In addition, the party that
commits the first breach of a contract is precluded from recovering damages based on the
other party’s later breach of the same contract. Id. at 226 (citing United Brake Sys., Inc.
v. Am. Envtl. Prot., Inc., 963 S.W.2d 749, 756 (Tenn. Ct. App. 1997), and McClain v.
Kimbrough Constr. Co., Inc., 806 S.W.2d 194, 199 (Tenn. Ct. App. 1990)); see also
Madden Phillips Constr., Inc. v. GGAT Dev. Corp., 315 S.W.3d 800, 812 (Tenn. Ct. App.
2009). Because Ashby Communities and Mr. Powell did not give Manor Homes notice
and an opportunity to cure any defects in the house prior to removing it from the project,
we affirm the trial court’s conclusion that Ashby Communities and Mr. Powell were the
first to breach the PSA and are, therefore, not entitled to recover damages as a result of
Manor Homes’ failure to comply with the specifications set out in Exhibit H to the PSA.
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C. Tennessee Consumer Protection Act and Intentional Misrepresentation
The Tennessee Consumer Protection Act (“TCPA”) includes a list of unfair or
deceptive acts or practices affecting the conduct of any trade or commerce that are
unlawful and constitute violations of the statute. Tenn. Code Ann. § 47-18-104(b).
Section 47-18-104(b)(35) identifies “[r]epresenting that a person is a licensed contractor
when such person has not been licensed” as unfair or deceptive. The trial court found
that (1) Manor Homes misrepresented that it was a licensed general contractor and that
(2) Manor Homes and/or Mr. Brown misrepresented that they had the financial capability
to fulfill all of their obligations under the PSA. The court found that one or both of these
misrepresentations constituted a technical violation of the TCPA but that “this technical
violation of the Act did not proximately cause any damages to Ashby and Powell” and
denied relief to the defendants for these claims. Ashby Communities and Mr. Powell
assert that the trial court erred in so ruling.
We begin by recognizing that we have already determined that the term “Builder,”
as that term is used in paragraph 6(a) of the PSA, includes both Manor Homes and Mr.
Brown. In light of this determination, we find that the evidence preponderates against the
trial court’s factual finding that Manor Homes misrepresented itself as a licensed general
contractor in paragraph 6(a) of the PSA. With regard to whether Mr. Brown’s general
contractor’s license had a sufficiently high monetary limit, the record is unclear about
when Mr. Brown’s monetary limits were raised to $456,000, as Exhibit I reflects. The
trial court found that Mr. Brown’s monetary limits were not “sufficiently high” when the
PSA was signed. However, Mr. Powell drafted the PSA, and the record shows that Mr.
Powell knew before the PSA was signed that Mr. Brown was going to have to have the
monetary limits of his general contractor’s license raised. Because of this knowledge,
Ashby Communities and Mr. Powell cannot recover for intentional misrepresentation as a
matter of law. See Hodge v. Craig, 382 S.W.3d 325, 343 (Tenn. 2012) (party asserting
misrepresentation must prove he did not know representation was false when made and
that he was justified in relying on truth of representation).
Moreover, there is no evidence that before the TBLC raised Mr. Brown’s
monetary limit, the lower limit of Mr. Brown’s license resulted in any delay in the project
or caused Ashby Communities or Mr. Powell to suffer any damages or harm. In TCPA
cases, the party alleging a misrepresentation must show that the misrepresentation
proximately caused an injury or loss. Johnson v. Dattilo, No. M2010-01967-COA-R3-
CV, 2011 WL 2739643, at *7 (Tenn. Ct. App. July 14, 2011) (citing White v. Early, 211
S.W.3d 723, 741 (Tenn. Ct. App. 2006)); Steamfitters Local Union No. 614 Health &
Welfare Fund v. Philip Morris, Inc., No. W1999-01061-COA-R9-CV, 2000 WL
1390171, at *7 (Tenn. Ct. App. Sept. 26, 2000); see also Hodge, 382 S.W.3d at 343
(stating that party asserting misrepresentation must show he sustained damages resulting
from misrepresentation); Harrogate Corp. v. Sys. Sales Corp., 915 S.W.2d 812, 817
(Tenn. Ct. App. 1995) (same). Ashby Communities and Mr. Powell have failed to show
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any alleged misrepresentation by Manor Homes or Mr. Brown proximately caused it to
suffer harm. As a result, we affirm the trial court’s conclusion that neither Manor Homes
nor Mr. Cude is liable for any misrepresentation pursuant to the TCPA or under common
law. 6
Ashby Communities and Mr. Powell also argue that Manor Homes should be
precluded from recovering on its claims because it had “unclean hands.” However, the
defendants base this claim on the assertion that Manor Homes represented itself as a
licensed general contractor, an allegation which we have found to be inaccurate. Thus,
there is no need to consider further Ashby Communities and Mr. Powell’s argument that
Manor Homes should be barred from recovering on its claims due to unclean hands.
D. Standing of Manor Homes to Pursue Recovery
Ashby Communities and Mr. Powell’s final argument on appeal is that Manor
Homes lacked standing to pursue a recovery of civil damages because the entity was
dissolved two years prior to trial; Mr. Cude, who pursued this case on behalf of Manor
Homes, was not an officer or owner of the company; and by the time of trial, Mr. Cude
was no longer married to Tracy Lytle, who was the sole member of the limited liability
company.
As Manor Homes points out, Ashby Communities and Mr. Powell did not raise the
issue of Manor Homes’ standing at trial until their closing argument. An argument based
on standing is properly raised:
by a specific denial or defense (but not an affirmative defense under Rule
8.03) in the answer or responsive pleading, or by a motion to dismiss under
Rule 12.02(6) or in proper cases by a motion for judgment on the pleadings
under Rule 12.03, or a motion to strike under Rule 12.06.
Knierim v. Leatherwood, 542 S.W.2d 806, 808 (Tenn. 1976). By waiting until closing
argument to raise this issue, the defendants did not give Manor Homes an opportunity to
present evidence to counter this assertion. A party that fails to raise the issue of standing
at trial is precluded from raising the issue on appeal. In re Estate of Smallman, 398
S.W.3d 134, 148 (Tenn. 2013) (citing Correll v. E.I. DuPont de Nemours & Co., 207
S.W.3d 751, 757 (Tenn. 2006)); State ex rel. Wolfenbarger v. Moore, No. E2008-02545-
COA-R3-CV, 2010 WL 520995, at *3 (Tenn. Ct. App. Feb. 12, 2010). We find Ashby
Communities and Mr. Powell effectively failed to raise the issue of standing at trial
6
Because we find Ashby Communities and Mr. Powell cannot recover for intentional misrepresentation,
we need not address Manor Homes’ and Mr. Cude’s assertion that the TCPA does not apply to this
transaction for the reason that neither Mr. Powell nor Ashby Communities are “consumers.” See
Ganzevoort v. Russell, 949 S.W.2d 293, 297 (Tenn. 1997) (explaining that TCPA was enacted to protect
consumers and to promote fair consumer practices).
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because they waited until closing arguments to raise it. The trial court did not address
this issue in its Memorandum and Order, and the defendants did not file a motion
following the trial asking for a ruling on this issue. Accordingly, we conclude that Ashby
Communities and Mr. Powell have waived the issue of standing on appeal.7
III. CONCLUSION
The judgment of the trial court is affirmed, and this matter is remanded with costs
of appeal assessed against the appellants, John Powell and Ashby Communities, LLC, for
which execution may issue if necessary.
________________________________
ANDY D. BENNETT, JUDGE
7
The record shows that Manor Homes was not dissolved until 2014, which was after the litigation was
commenced but before the defendants filed their amended counterclaim. The defendants are unable to
argue, therefore, that they were unable to raise the issue of standing when they filed their amended
counterclaim.
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