Condominium Management Ass., Inc. v. Fairway Village Owner's Ass., Inc. ( 2010 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
OCTOBER 14, 2009 Session
CONDOMINIUM MANAGEMENT ASSOCIATES, INC., ET AL. v.
FAIRWAY VILLAGE OWNER’S ASSOCIATION, INC.
Direct Appeal from the Chancery Court for Shelby County
No. 98-1056-2 Arnold Goldin, Chancellor
No. W2009-00688-COA-R3-CV - Filed February 8, 2010
Property manager CMA sued homeowner’s association Fairway Village when Fairway
Village failed to pay money owed to CMA for management fees and property repairs.
Fairway Village counter-claimed against CMA and cross-claimed against CMA President
Willingham, claiming that both had defrauded Fairway Village. Following protracted
litigation, the chancery court dismissed Fairway Village’s claims against CMA and
Willingham, finding that it had failed to carry its burden of proof. The chancery court
awarded CMA a judgment for fees and repairs, as well as a reduced attorney fee, but it
denied CMA’s request for prejudgment interest. We affirm the chancery court’s finding that
CMA owed no fiduciary duty to Fairway Village, its exclusion of accountant Hood’s
testimony, and its award of attorney fees to CMA. We find that the chancery court’s
judgment was not against the weight of the evidence, and we reverse its denial of
prejudgment interest. We award CMA its attorney fees on appeal. This case is remanded
to the trial court for a determination of prejudgment interest and appellate attorney fees owed
to CMA.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed
in Part, Reversed in Part and Remanded
A LAN E. H IGHERS, P.J., W.S., delivered the opinion of the Court, in which D AVID R. F ARMER,
J., and J. S TEVEN S TAFFORD, J., joined.
John C. Speer, M. Ruthie Hagan, Tiffany A. Yates, Memphis, Tennessee, for the appellant,
Condominium Management Associates, Inc.
Clyde W. Keenan, Memphis, Tennessee, for the appellee, Fairway Village Owner’s
Association, Inc.
OPINION
I. F ACTS & P ROCEDURAL H ISTORY
Pursuant to a “Management Agreement,” Condominium Management Associates, Inc.
(“CMA”) provided administrative condominium property management services and grounds
maintenance to Fairway Village Owner’s Association, Inc. (“Fairway Village”) for
$44,984.04 annually.1 Fairway Village claims that in March of 1998, its Board of Directors
began to suspect that Fairway Village had paid for services and repairs to its property that
were never rendered. In a June 16, 1998 letter, Fairway Village terminated its “Management
Agreement” with CMA, stating that “the contractual obligations of CMA, particularly with
regard to the maintenance of [Fairway Village] property, have not been properly performed.”
CMA filed a complaint against Fairway Village for, among other things, breach of
contract in November of 1998. Along with its answer, on January 22, 1999, Fairway Village
filed a counter-complaint against CMA, alleging “fraud, conversion, breach of contract,
breach of fiduciary duty, exaggeration of lien, cloud on title and for accounting.” Fairway
Village sought $100,000.00 for breach of contract and breach of fiduciary duty.
Additionally, Fairway Village asserted a cross-complaint against CMA President, Robert
Willingham, for fraud and conversion, seeking punitive damages of $500,000.00 jointly and
severally with CMA.
On August 27, 2003, Fairway Village moved for the appointment of a special master
with accounting expertise, citing the “several banker boxes of checks, receipts and bank
statements which must be reconciled.” 2 The next day, CMA filed a motion to compel
discovery, alleging that Fairway Village had failed to answer its written interrogatories and
requests for production propounded on September 9, 1999. CMA also opposed Fairway
Village’s motion to appoint a special master, claiming that such appointment was
“unnecessary.” Following a September 5, 2003 hearing, the trial court appointed Bruce
Thompson as Special Master “to examine the Fairway Village bank accounts and other
records during the period of January 1, 1992 through June 1998 for the purpose of
determining whether the transfer of . . . $180,981.12[] of Fairway Village’s funds were
undocumented and whether approximately . . . $36,000.00[] in Fairway Village’s income was
1
The “Management Agreement” was to remain in effect from January 1, 1991 to December 31, 1992.
However, it provided for automatic renewal for a like period at the end of each term if neither party
terminated the agreement. The Management Agreement was renewed through December 31, 1998.
2
Fairway Village claims that CMA took no actions to further the case from February 1999 to August
2008. CMA disputes this assertion.
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overstated.”
CMA and Robert Willingham filed a joint motion for partial summary judgment as
to CMA’s breach of contract claim on October 24, 2003. CMA and Willingham contended
that no genuine issue of material fact existed as to such claim because Fairway Village’s
breach of the contract was clear: either Fairway Village failed to terminate the contract for
cause, or alternatively, if cause existed, Fairway Village failed to afford CMA notice of its
intent to terminate the contract and then to allow CMA 90 days to cure an alleged deficiency,
as required by the Management Agreement. Following a hearing, the motion for partial
summary judgment was denied.
Special Master Thompson filed his report with the trial court on February 17, 2006.
To answer the questions submitted to him by the trial court, Special Master Thompson had
engaged the services of David A. Morris, III, CPA. Morris’ analysis, titled “Independent
Accountant’s Report on Applying Agreed Upon Procedures” (“Morris Report ”), and dated
July 8, 2004, was adopted by Special Master Thompson. In his report, which was adopted
on March 27, 2006 without objection, Special Master Thompson made the following
findings:
1. The correct amount of undocumented transfers of Fairways Village’s funds
is . . . $120,686.90 . . . .3
2. Fairway Village’s income was not overstated by approximately . . .
$36,000.00[.]
On April 4, 2006, CMA and Willingham moved to modify or set aside the trial
court’s order adopting Special Master Thompson’s report, for leave to file objections to such
report, to modify the report, or to recommit the report with instructions. In their motion,
CMA and Willingham stated that following receipt of the Morris Report, the Special Master
had requested that the parties submit comments or objections to him. CMA and Willigham
claimed that “[b]y letter dated October 1, 2004, CMA and Willigham provided the Special
Master and Counsel for Fairway Village with their response and objections to the Morris
Report, attaching over 400 pages of documents, created at or about the time of the
expenditures of approval by Fairway Village of them, to support virtually all of the expenses,
withdrawals and/or wire transfers[.]” They further stated that by letter dated August 17, 2005
they “inquired into the status of the Special Master’s Report, and reminded the Special
Master of the documents they had previously submitted to support their response and
3
Morris found $139,915.85 of undocumented transfers from Fairway Village to CMA; however, he
reduced this amount by the $19,228.95 owed to CMA for the underpayment of management fees.
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objections[.]” In an affidavit attached to the motion, counsel for Willingham and CMA
stated that she had recently learned that Morris was not provided copies of such
documentation, and therefore, that he could not have taken such information into account in
preparing his report. Morris then reviewed the omitted documents, and submitted a
“Supplemental Report” on November 30, 2007. In his Supplemental Report, Morris found
that of the $139,9185.85 in alleged undocumented disbursements, only $3,748.67 did not
have supporting documentation, and that this amount “represent[s] the management and
grounds fee for August 1995.” A consent order modifying the Special Master’s report to
reflect the court’s adoption of the Supplemental Report was entered on April 8, 2008.4
The matter was tried on October 6, 2008. The trial court issued lengthy findings of
fact, the relevant portions of which are as follows:
In late June 1998, Willingham was told by Thomas Jobe[, Fairway
Village Board of Directors member from 1997 to 1998,] at a meeting that
Fairway Village was terminating the Management Agreement.
The termination letter dated June 16, 1998 was received by CMA at
Willingham’s meeting with Thomas Jobe and later by facsimile on June 26,
1998.
....
Fairway Village had authorized the sending of a letter of May 18, 1998
to Willingham setting forth certain deficiencies in CMA’s performance of its
obligations under the Management Agreement . . . , requesting the deficiencies
to be corrected within the ninety (90) day cure provision of . . . the
Management Agreement or the “contract will terminate.”
The May 18, 1998 letter was not received by Willingham until he
received the June 26, 1998 facsimile to which the May 18, 1998 letter was
attached. The May 18, 1998 letter was to have been mailed May 18, 1998, but
Fairway Village’s representative at trial, Thomas Jobe, could not confirm it
was mailed.
CMA requested payment of the remaining balance due for fees under
the Management Agreement for the year 1998, but Fairway Village refused to
4
Special Master Thompson was disqualified from the case after pleading guilty to a felony charge
in an unrelated matter.
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make payment.
The remaining balance under the Management Agreement is
$22,492.02 plus attorneys’ fees, expenses and prejudgment interest.
The Management Agreement provides that CMA can contract for
services as requested by Fairway Village and arrange for additional services
as requested by Fairway Village. Fairway Village authorized and contracted
with CMA to make improvements and repairs to the condominium units,
specifically roofs, balconies, and concrete walk-ways and foundations from
time to time beginning in 1980. Significant repairs were needed to the
property because of defects in the original condition.
CMA assisted in repairing about 90 balconies and correcting other
defects from 1980 to 1998. The work was monitored by Fairway Village
Board members. Bills were submitted by CMA to Fairway Village for work
and materials for the repairs. All bills were approved and paid by Fairway
Village until the June 1998 termination of the Management Agreement.
Fairway Village authorized CMA to repair and/or replace a concrete
walkway and certain balconies on the Property as had been the practice
previously.
CMA completed the work authorized by Fairway Village.
Fairway Village refused to pay CMA for the balance due for the work
it had agreed for CMA to do and which had been completed.
.....
CMA is owed $6,990.94 by Fairway Village for concrete and balcony
repairs.
CMA’s damages are $29,482.96 plus attorneys’ fees, expenses and
prejudgment interest as may be allowed by the Court.
The Management Agreement provides “[CMA] shall be indemnified
and save harmless by [Fairway Village] from all claims, actions, liabilities,
loss, damage, cost, or expense, including reasonable attorneys’ fees, by reason
of any such act or omission or in connection with [CMA’s] obligations and
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performance under [the Management Agreement], unless such claims . . .
result from the negligence of [CMA].”
The Management Agreement also provides that “[Fairway Village] will
be responsible for all collection fees including reasonable attorney fees in the
event it becomes necessary for [CMA] to employ an attorney . . . [for] the
collection of [CMA]’s Annual Fees.”
....
Pursuant to the Master Deed, [under which Fairway Village was
created,] CMA as manager performed its contract “under the direction of the
[Board] or the appropriate Officer of the Association.”
....
The testimony by Fairway Village’s witnesses, representative and
former board member, Thomas Jobe, and past board member H. J. Todd . . .
is that the Board directed and supervised CMA’s work under its contract and
oversaw CMA’s work for Fairway Village.
CMA provided monthly financial reports to Fairway Village’s Board
[of Directors] which contained monthly balance sheets reflecting balances of
checking accounts, receivables and liabilities, monthly and year-to-date
income statements and a budget reflecting all expenditures and collections,
supporting schedules that reflected bank deposits, check disbursements and
other financial information, accounts receivable balances and a property report
reflecting expenditures for repairs and work done during the month. Invoices
and documents supporting expenditures made by CMA were available at the
Board’s meetings and otherwise.
At its monthly Board meetings, Fairway Village would review the
financial report, at times requested additional information or documentation
from CMA, and approved the financial report as part of its Treasurer’s Report
as reflected in its minutes.
CMA provided information as requested at Board meetings for review
by Fairway Village.
Yearly, Fairway Village engaged a certified public accountant to audit
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its financial statements of revenues and expenses, balance sheets and cash
flows for the year.
The audits from 1991 through 1997 reflect the financial records
maintained by CMA as manager were “free of material misstatements” and did
not reflect any unaccounted for expenses or revenue.
Fairway Village approved in advance all expenditures to be made by
CMA and approved later the payments of those expenditures in its monthly
Board meetings.
Thomas Jobe, Fairway Village’s representative, testified that the audit
for the year 1998 did not reflect any misappropriation of funds and that he had
no knowledge of any out-of-balance accounts being reflected in that audit.
Neither Fairway Village’s expert nor Thomas Jobe, its representative,
had any knowledge that any expenditures of funds by CMA went to benefit
someone other than Fairway Village.
No proof reflects any misappropriation of Fairway Village funds by
CMA, Willingham or any other person or that its funds were not used as
approved by Fairway Village.
Repair work and grounds maintenance done by CMA was monitored
by Fairway Village through its Board members on a regular basis.
Fairway Village Board members would question CMA about the
information in the financial reports submitted by CMA and review invoices
and other back up document[s].
CMA did not exercise dominion and control over Fairway Village.
Fairway Village’s expert, Lee Hood (“Hood”), a certified public
accountant, prepared a Report of Findings regarding Fairway Village’s
accounting records, but did not conduct an audit of those records.
Hood was provided some documentation by Fairway Village but was
not provided CMA’s financial reports consisting of balance sheets, profit/loss
statements, income statements and supporting schedules, nor were checks or
other documentation provided. Hood requested additional documentation from
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Fairway Village that might explain approximately $180,000 of transfers he did
not have documentation to explain, but none was provided by Fairway Village.
Hood did not determine if the expenditures of $180,000 were approved
by Fairway Village or that the expenditures were unauthorized.
The documents requested by Hood that were not provided would, he
admits, have been helpful in making a more complete report and could not
therefore resolve the discrepancies he found.
Hood did not speak with or request documents from CMA.
Hood did not agree or disagree with the Special Master’s Report that
the $36,319.57 of overstated bank balances which Hood opined existed did not
in fact exist based on the review of additional documents by David Morris,
hired by the Special Master.
No proof was submitted that any checks claimed by Fairway Village as
missing were ever deposited or cashed.
The outstanding checks referenced by Hood in his July 6, 1999 Report
were voided, were replaced with reissued checks, or were wire transfers made
in lieu of the checks clearing, according to David Morris’s testimony and his
report which comprised the Special Master’s Report and Modified Report.
There is no proof that any of the wire transfers did not benefit Fairway
Village or were misappropriated.
Fairway Village’s Board authorized telephone transfers in the past.
With the exception of $3,748.08 (which appears to be for CMA’s
Management Contract fee for August 1995), the transfers from the Fairway
Village account to CMA were transfers that related to invoices and Job Record
Sheets for work done at Fairway Village by or through CMA.
....
The Modified Special Master’s Report based on the Supplemental
Morris Report found that of the claimed undocumented disbursements
referenced during the period of January 1993 through December 1997 in the
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Original Morris Report, only $3,748.67 of disbursements did not have
documents related to them.
The $3,748.67 of undocumented disbursements is noted by Mr. Morris
as the amount that “represent[s] the management and grounds fee for August
1995.”
....
The Special Master’s Report and Modified Report does not conclude
that any disbursements were not authorized by Fairway Village or were not for
its benefit.
Fairway Village authorized all Board members and Mr. Willingham to
sign checks on behalf of Fairway Village with two signatures being required.
Every month, Board members of Fairway Village received a copy of the
previous month’s Board meeting minutes, a list of items that needed to be
repaired, a Treasurer’s Report, and any written complaints from homeowners,
all of which were discussed at each monthly Board meeting.
Board members discussed the Treasurer’s Report in detail. Board
members always approved the Treasurer’s Report and approved CMA’s
payments.
Board members approved the annual audits between 1992 and 1998,
thus ratifying all of CMA’s and all of Fairway Village’s expenditures for the
fiscal year.
There is no evidence of any fraud or misappropriation of funds by Mr.
Robert Willingham.
.....
There is no evidence of any fraud or misappropriation of funds by
CMA.
Fairway Village suffered no damages from the alleged conduct of CMA
or Willingham.
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Based on these findings of fact, the trial court awarded CMA $22,492.02, the balance
owed it under the breached Management Agreement. It further found that CMA was owed
$6,990.94 for concrete and balcony repairs–expenditures which Fairway Village authorized,
but failed to pay. The trial court dismissed with prejudice Fairway Village’s counter-claim
and cross-claim, finding that Fairway Village failed to carry its burden of proof as to each.
Finally, it awarded CMA attorney fees, to be later determined, and it enforced CMA’s
mechanic’s and materialman’s liens for $6,990.94. “Due to the unusual length of time taken
to prosecute this case[,]” the trial court declined to award CMA prejudgment interest.
Attorney for CMA, John C. Speer, submitted an affidavit claiming legal service fees
of $173,849.75, and litigation expenses of $16,136.20. Fairway Village objected,
contending that the requested fees were “unnecessary and unreasonable” because the
affidavit did not contain a contract between CMA and counsel, it contained only a broad
statement of hours without a detailed breakdown of expenses, and because “CMA’s refusal
to act reasonably” necessitated the litigation’s delay. Attorney Speer then filed a
supplemental affidavit, with attached billing entries. On February 18, 2009, the trial court
entered a final judgment, and awarded CMA reduced attorney fees of $60,000.00 along with
expenses of $16,136.20. CMA timely appealed.
II. I SSUES P RESENTED
CMA has timely filed a notice of appeal and presents the following issues for review:
1. Whether the trial court erred in denying CMA prejudgment interest;
2. Whether the trial court erred in reducing the amount of CMA’s attorney fees; and
3. Whether CMA should be awarded attorney fees incurred in defending Fairway
Village’s claim on appeal.
Additionally, Fairway Village presents the following issues for our review, as
restated:
1. Whether the trial court should have found that CMA owed a fiduciary duty to Fairway
Village such that CMA bore the burden of proving it properly managed Fairway
Village’s funds;
2. Whether the trial court erred in disallowing accountant Lee Hood from testifying to
his findings of August 1998; and
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3. Whether the trial court’s judgment to CMA was against the weight of the evidence.
For the following reasons, we affirm the chancery court’s finding that CMA owed no
fiduciary duty to Fairway Village, its exclusion of accountant Hood’s testimony, and its
award of attorney fees to CMA. We find that the chancery court’s judgment was not against
the weight of the evidence, and we reverse its denial of prejudgment interest. We award
CMA its attorney fees on appeal. This case is remanded to the trial court for a determination
of prejudgment interest and appellate attorney fees owed to CMA.
III. S TANDARD OF R EVIEW
On appeal, a trial court’s factual findings are presumed to be correct, and we will not
overturn those factual findings unless the evidence preponderates against them. Tenn. R.
App. P. 13(d) (2008); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001). For the evidence
to preponderate against a trial court’s finding of fact, it must support another finding of fact
with greater convincing effect. Watson v. Watson, 196 S.W.3d 695, 701 (Tenn. Ct. App.
2005) (citing Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn. Ct. App. 2000);
The Realty Shop, Inc. v. RR Westminster Holding, Inc., 7 S.W.3d 581, 596 (Tenn. Ct. App.
1999)). When the trial court makes no specific findings of fact, we review the record to
determine where the preponderance of the evidence lies. Ganzevoort v. Russell, 949 S.W.2d
293, 296 (Tenn. 1997) (citing Kemp v. Thurmond, 521 S.W.2d 806, 808 (Tenn. 1975)). We
accord great deference to a trial court’s determinations on matters of witness credibility and
will not re-evaluate such determinations absent clear and convincing evidence to the
contrary. Wells v. Tennessee Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999) (citations
omitted). We review a trial court’s conclusions of law under a de novo standard upon the
record with no presumption of correctness. Union Carbide Corp. v. Huddleston, 854
S.W.2d 87, 91 (Tenn. 1993) (citing Estate of Adkins v. White Consol. Indus., Inc., 788
S.W.2d 815, 817 (Tenn. Ct. App. 1989)).
IV. D ISCUSSION
A. Fiduciary Duty
As a threshold matter, we address Fairway Village’s contention that CMA owed it a
fiduciary duty such that CMA should have borne the burden of showing that it properly
managed Fairway Village’s funds. The trial court found that “CMA did not exercise
dominion and control over Fairway Village.”
“Under Tennessee common law, there are two principal types of fiduciary status.”
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Foster Bus. Park, LLC v. Winfree, No. M2006-02340-COA-R3-CV, 2009 WL 113242, at
*12 (Tenn. Ct. App. Jan. 15, 2009) (citing Steven W. Feldman, Tennessee Practice: Contract
Law and Practice § 6.13 , at 504 (2006)). “The first category of common law fiduciary status
consists of relationships that are fiduciary per se . . . such as between a guardian and ward,
an attorney and client, or conservator and incompetent.” Id. (citing Kelly v. Allen, 558
S.W.2d 845, 848 (Tenn. 1977); Mitchell v. Smith, 779 S.W.2d 384, 389 (Tenn. Ct. App.
1989); Parham v. Walker, 568 S.W.2d 622, 625 (Tenn. Ct. App. 1978)). A relationship
which is not fiduciary per se may become a fiduciary relationship where one party has
exercised “‘dominion and control over another.’” Id. (quoting Kelley v. Johns, 96 S.W.3d
189, 197 (Tenn. Ct. App. 2002)). “This relationship, often called a ‘confidential
relationship,’ ‘is not merely a relationship of mutual trust and confidence, but rather it is one
‘where confidence is placed by one in the other and the recipient of that confidence is the
dominant personality, with ability, because of that confidence, to influence and exercise
dominion and control over the weaker or dominated party.’’” Id. (quoting Kelley, 96 S.W.3d
at 197; Iacometti v. Frassinelli, 494 S.W.2d 496, 499 (Tenn. Ct. App. 1973)); see also
Roberts v. Chase, 25 Tenn. App. 636, 166 S.W.2d 641, 650-51 (Tenn. Ct. App. 1942).
“Relationships that are not fiduciary per se ‘require proof of the elements of dominion and
control in order to establish the existence of a confidential relationship.’” Id. (quoting
Kelley, 96 S.W.3d at 197). “Because confidential relationships can assume a variety of
forms, the courts have been hesitant to define precisely what a confidential relationship is and
the court must look to the particular facts and circumstances of the case to determine whether
one party exercised dominion and control over another, weaker party.” Id. at *13 (citing
Roberts v. Roberts, 827 S.W.2d 788 (Tenn. Ct. App. 1991)).
“‘While equity does not deny the possibility of valid transactions between the two
parties, yet because every fiduciary relationship implies a condition of superiority held by one
of the parties over the other, in every transaction between them by which the superior party
obtains a possible benefit, equity, raises a presumption against its validity, and casts upon
that party the burden of proving affirmatively its compliance with equitable requisites, and
of thereby overcoming the presumption.’” Cagle v. Hybner, No.M2006-02073-COA-R3-CV,
2008 WL 2649643, at *7 (Tenn. Ct. App. July 3, 2008) reh’g denied (July 31, 2008) (quoting
Roberts, 166 S.W.2d 650-51). This presumption of invalidity extends to all transactions
between the parties to the fiduciary relationship in which the dominant party obtains a benefit
from the weaker party. Id. (citing Roberts, 166 S.W.2d at 651).
The trial court impliedly found that no fiduciary relationship existed between CMA
and Fairway Village, when it stated that “CMA did not exercise dominion and control over
Fairway Village.” The existence of a fiduciary relationship is a question of fact to which a
presumption of correctness attaches. Dickson v. Long, No. M2008-00279-COA-R3-CV,
2009 WL 961784, at *8 (Tenn. Ct. App. Apr. 8, 2009) (citing Matlock v. Simpson, 902
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S.W.2d 384, 385 (Tenn. 1995)).
The Management Agreement outlines the parties’ relationship. It provides that CMA
“shall operate and maintain the Association property and common area[s,]” and shall
“contract for the maintenance and operation of all improvements [of] . . . common areas,”
“and for the maintenance of the landscaping[.]” CMA shall make repairs, and “shall hire,
train, pay and discharge the personnel necessary to perform proper recurring maintenance of
[Fairway Village].” Additionally, CMA must “[p]repare specifications for service contracts
reflected on the Budget for approval by the Board of Directors prior to submission for
bidding[,]” “obtain bids and negotiate contracts for services[,]” “[p]rovide a monthly written
management report of work in progress on the property, work needing to be done, copies of
unit owners’ correspondence and other problems requiring the attention of the Board of
Directors[,]” handle complaints and remedy existing problems, and report serious complaints
to the Board. The Management Agreement proscribes CMA from expending more than
$500.00 for a single item or repair or replacement without Board approval, and it disallows
CMA from making structural changes without such approval.
The “CMA Complete Management Package” is attached as an addendum to the
Management Agreement and provides in relevant part:
CMA, Inc. will maintain a daily bookkeeping record of all transactions
for Fairway Village. These records will be available to any member of the
Board of Directors (without prior notice) during normal working hours, and
upon request after hours.
A monthly report will be issued to the Board of Directors by the 20 th
day of each month for the previous month, and year-to-date operating expenses
and reserve account.
CMA will receive and deposit all accounts receivable in [Fairway
Village] bank accounts and collect all monthly assessments due from members.
. . . . As a standard of practice, the Manager shall furnish the Treasurer of the
Association immediately following the 20 th day of each month with: (1) an
itemized list of all delinquent accounts; (2) the amount collected during the
previous month; (3) funds, if any, placed in the Reserve Fund for
Replacements; (4) disbursements during the previous month; and (5) any
amounts extended beyond budgetary prediction with an explanation of the
causes and specifications of the authorization for making such expenditures.
[CMA shall s]ubmit to the Board of Directors account payable checks
with invoices attached to verify expenses for the designated signatures, along
with a check ledger of same for the Treasurer’s records.
[CMA shall s]ubmit delinquent accounts of residents to the Board of
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Directors at the last meeting of the month, accompanied by recommendations
to be taken.
....
CMA will complete negotiations for each service contract at least thirty
(30) days prior to renewal date for final approval of the Board of Directors
....
CMA will process insurance claims for the Association and unit owner
in order to maintain proper controls over the repairs.
....
Copies of correspondence will be submitted [by CMA] monthly to the
Secretary, to maintain complete records for further reference.
[CMA will p]repare . . . an operating budget[, which] . . . shall be
submitted to the Board of Directors of the Association at least thirty (30) days
prior to the scheduled annual Association budget meeting.
Finally, the addendum describes the grounds maintenance, pool maintenance, and
preventative maintenance that CMA is required to provide.
On appeal, Fairway Village argues that CMA’s fiduciary duty arose because “CMA
was the sole entity entrusted to conduct all affairs, financial and otherwise, on behalf of
Fairway and all of CMA’s operations were under the direct personal control of Willingham.”
Fairway Village relies upon several cases for its assertion. First, Fairway Village cites cases
which hold that officers of a corporation owe a fiduciary duty to that corporation. While
Fairway Village is correct that such a duty is owed by corporate officers, see B & L Corp. v.
Thomas and Thorngren, Inc., 162 S.W.3d 189, 205 (Tenn. Ct. App. 2004), we reject Fairway
Village’s contention that “CMA specifically assumed the responsibility that is normally
imposed on Fairway’s Board of Directors.” CMA was acting under the oversight of the
Board of Directors rather than as a corporate officer. Thus, CMA did not owe the fiduciary
duty of a corporate officer.
Next, Fairway Village cites Cagle v. Hybner, No. M2006-02073-COA-R3-CV, 2008
WL 2649643, at *7 (Tenn. Ct. App. July 2, 2008) reh’g denied (July 31, 2008), which,
quoting Hal I. Gilenson, Badlands: Artist-Personal Manager Conflicts of Interest in the
Music Industry, 9 Cardozo Arts & Entr. L.J. 501, 519 (1991), states that a fiduciary
relationship exists “when ‘one party confides to another the management of some business
to be transacted in the former’s name or on his account, and by which such other assumes to
do the business and render an account on it.’” However, this quotation upon which Fairway
Village relies is excerpted from a “noted treatise” regarding “the fiduciary role of a manager
or agent of an artist in the music industry[,]” which we find inapplicable to the instant case.
Similarly, Fairway Village relies upon the case of In re Estate of Wakefield, No. M1998-
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00921-COA-R3-CV, 2001 WL 1566117 (Tenn. Ct. App. Dec. 10, 2001) perm. app. denied
(Tenn. July 1, 2002), in which this Court stated that “[a] party who manages the financial
affairs of another has a confidential relationship with that person.” (citing Nicholas v.
Wright, 42 Tenn. App. 241, 245, 301 S.W.2d 540, 542 (1956)). Again, we find that Fairway
Village has taken this quotation out of context. In Wakefield, this Court found a confidential
relationship between an attorney and client, where the attorney drafted a will naming himself
executor. Id. at *12-15. Similarly, in Nicholas, our Supreme Court found a confidential
relationship between a donor and a donee niece who handled a large portion of the donor’s
business and who received money and land as gifts from the donor. 301 S.W.2d at 542.
We find that CMA owed no fiduciary duty to Fairway Village. The parties were not
engaged in a per se fiduciary relationship, and the evidence does not preponderate against
the trial court’s finding that “CMA did not exercise dominion and control over Fairway
Village” such that the existence of a fiduciary relationship could be shown. Instead, the
evidence reveals that the parties were merely engaged in an arm’s length business
transaction, for which no fiduciary status is conferred. See Foster Bus. Park, LLC, 2009
WL 113242, at *13 (citing Blon v. Bank One, 519 N.E.2d 363 (Ohio 1988)); see also Oak
Ridge Precision Indus., Inc. v. First Tenn. Bank Nat’l Ass’n, 835 S.W.2d 25, 30 (Tenn. Ct.
App. 1992).
B. Judgment Not Against Weight of Evidence
Next, Fairway Village asserts that the trial court’s judgment was against the weight
of the evidence because it allows CMA a double recovery and because it credited
Willingham’s testimony, which Fairway Village claims is invalid and unreliable. First,
Fairway Village contests the trial court’s award of $22,492.02 to CMA for unpaid
management fees. Fairway Village claims that because the Special Master’s reports show
$24,258.34 of disbursed funds without any description, CMA has already received a
disbursement of more than the amount owed it. However, our review of the Morris
Supplemental Report reveals only $3,748.67 of disbursements without supporting
documentation, and that amount, according to the Supplemental Report, could represent
CMA’s management and grounds fee.
Fairway Village also contests the trial court’s award of $6,990.94 to CMA for
concrete and balcony repairs, as it claims CMA had already recovered $7,418.30 for these
repairs. Fairway Village cites to both a portion of the Supplemental Report evidencing
payment to CMA for repairs made in 1997, as well as invoices for repairs made by CMA in
1998, to support its argument that these repair claims are somehow duplicates. Finding no
support for this argument, we reject Fairway Village’s contention.
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Finally, Fairway Village asserts that the trial court’s judgment is against the weight
of the evidence because it claims CPA Morris’ Supplemental Report found $78,076.01 in
undocumented transfers, and Willingham, “the only witness to testify on behalf of CMA . .
. .[did not] produce any evidence or documents to explain how and why Fairway’s checks
were missing or to validate the whereabouts or accountability of the $78,000.00 in
undocumented transfers[.]”
As we stated above, we accord great deference to a trial court’s determinations on
matters of witness credibility and will not re-evaluate such determinations absent clear and
convincing evidence to the contrary. Wells, 9 S.W.3d at 783. At trial, Willingham denied
having knowledge of any alleged missing checks; however, Fairway Village conceded that
these “missing” checks were “[s]imply unaccounted for . . . . [and] did not clear the bank.”
Because these “missing checks” were never presented for deposit or payment against Fairway
Village’s account, and therefore had no financial effect on Fairway Village, such checks do
not support Fairway Village’s contention that the trial court’s judgment was against the
weight of the evidence. Additionally, Willingham’s failure to account for $78,000.00 in
undocumented transfers does not render his testimony “contrary to the known facts in this
case[,]” as Fairway Village suggests. CPA Morris testified that documents were provided
regarding the $78,000.00 amount. However, the amount was listed under the heading
“DOCUMENTS NOT IN AGREEMENT WITH AMOUNTS PER THE DISBURSEMENT
LIST WHEN COMBINED WITH OTHER ITEMS REFERENCED BY CMA” because the
documents provided “did not agree with the amounts on the undisbursed list.” Morris
explained that “for example . . . an invoice may be for $5000. There may have been a
transfer for [$]2000 with the note that the $2000 applied against the [$]5000.” He further
stated:
[B]ased on my review what that [$78,000.00] figure is, is that there is not a
direct tie where you can say this amount was on the disbursement list. Here
is an invoice that specifically matches to that. There may be an invoice or a
financial statement that has an amount, but the amounts were different and
again the notes that were provided said generally in that case that the
disbursement amount represented a draw against those larger expenses.
We reject Fairway Village’s contention that the trial court credited Willingham’s testimony
in contravention of the “known facts in the case.” The record supports the trial court’s
finding that the $78,000.00 amount was supported by documentation in which Fairway
Village was identified. This issue is without merit.
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C. Testimony of Accountant Lee Hood
When Fairway Village began to suspect wrongdoing by CMA, it hired accountant
Lee Hood to “make an analysis of the accounting practices performed for the Association by
[CMA] . . . . [and] to determine if any amounts [we]re due to the Association from [CMA].”
Hood issued a report to Fairway Village on October 20, 1998,5 in which he stated that after
comparing bank reconciliations he prepared to those prepared by CMA for the period of
January 1, 1998 to June 30, 1998, he found “several telephone transfers [totaling $9,766.34]
were made during the period from the Association’s checking account with no supporting
documentation to substantiate these transfers.” He also found $21,898.60 in checks which
were written but did not clear the bank, and an unknown deposit of $4,860.51. In sum, he
found that CMA owed Fairway Village $6,208.45 as of June 30, 1998. Hood prepared a
second report dated July 6, 1999, in which he found undocumented transfers from Fairway
Village’s checking account of $180.981.12, and that the balance of Fairway Village’s bank
account was overstated by $36,319.57.
At trial, Fairway Village attempted to question Hood regarding his initial report, but
CMA objected, claiming that the initial report had not been identified as the basis for Hood’s
testimony. Specifically, Fairway Village’s answer to CMA’s interrogatories provided:
Please identify each and every person whom defendant expects to call as an
expert witness at trial, and as to each, state the subject matter in which the
expert is expected to testify.
ANSWER: Lee Hood, CPA-Prepared audit of bank records of Fairway
Village, July 1999
Please state with specificity the substance of the facts and opinions to which
expert identified in [the question above] is expected to testify.
ANSWER: A copy of the audit report prepared by the
accounting firm of Bean & Ison is included with the Answers to
Request for Production of Documents . . . .
Only the second report, dated July 6, 1999, was attached to Fairway Village’s response to
CMA’s request for production. Despite Fairway Village’s statements that the initial report
had been turned over to CMA, and that CMA had utilized the report in deposing Hood, the
trial court refused to allow questioning regarding such report.
5
This report was an exhibit to Hood’s deposition. Neither Hood’s deposition, nor the October 20,
1998 report were admitted into evidence at trial.
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On appeal, Fairway Village claims that “[t]he failure of the trial court to allow Hood
to testify about his initial evaluation had the effect of taking a significant piece of
information out of the picture which helped explain Fairway’s decision to not pay CMA
additional funds until a full accounting could be completed.” Fairway Village argues that
it had a right to demand an accounting of CMA, as well as a right to withhold payments
pending such accounting. Additionally, Fairway Village contends that any violation of
Tennessee Rule of Civil Procedure 26.05, which requires supplementation of discovery
requests in some circumstances, was harmless as CMA’s knowledge of, and possession of,
the report prevented any surprise. Additionally, CMA asserts that any error by the trial court
was harmless, as Hood was allowed “to testify fully about the findings from a review of all
available financial records in this case.”
“In general, questions regarding the admissibility, qualifications, relevancy and
competency of expert testimony are left to the discretion of the trial court.” McDaniel v.
CSX Transp., Inc., 955 S.W.2d 257, 263 (Tenn. 1997) (citing State v. Ballard, 855 S.W.2d
557, 562 (Tenn. 1993)). “The trial court’s ruling in this regard may only be overturned if the
discretion is arbitrarily exercised or abused.” Id. We find that the trial court did not abuse
its discretion in disallowing Hood’s testimony regarding the initial report of October 20,
1998. We reject CMA’s contention that Hood was allowed to testify generally regarding the
information contained in the initial report; however, because Fairway Village has failed to
demonstrate any wrongdoing by CMA, Fairway Village’s argument regarding anticipatory
breach necessarily fails, and thus, Fairway Village’s motivation in terminating the
Management Agreement is irrelevant.
D. Prejudgment Interest
We next consider whether the trial court erred in denying prejudgment interest. CMA
claims that it was entitled to prejudgment interest as a matter of right because its claim was
“liquidated,” or alternatively, that the trial court abused its discretion in denying prejudgment
interest on its unliquidated claim. CMA relies upon Tennessee Code Annotated section 47-
14-1099(b), which provides that “[l]iquidated and settled accounts, signed by the debtor,
shall bear interest from the time they become due, unless it is expressed that interest is not
to accrue until a specific time therein mentioned.”
Our supreme court in Draper v. Great American Insurance Co., 458 S.W.2d
428, 432-33 (Tenn. 1970), stated that this statute applies to obligations which
are liquidated or settled and “obligations where the amount can be determined
by mere computation at commencement of the action.”(footnote omitted).
Draper, 458 S.W.2d at 432. In Jaffe v. Bolton, 817 S.W.2d 19, 28 (Tenn. [Ct.]
App. 1991), this Court stated that “this section by its own terms was intended
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to cover ‘any written instrument, signed by the debtor, whereby he promises
to pay a person named a definite sum of money, for a valuable consideration
stated, at a definite time, upon a specified condition....’ ” Jaffe [v. Bolton], 817
S.W.2d [19,] 28 [Tenn. Ct. App. 1991] (quoting Performance Systems, Inc. v.
First Am. Nat'l Bank, 554 S.W.2d 616, 618 (Tenn. 1977).
Peninsular Life Ins. Co. v. Chism, No. 02A01-9205-COA-00140, 1993 WL 339299, at *6
(Tenn. Ct. App. W.S. Sept. 8, 1993).
Fairway Village contends that an award of prejudgment interest is largely in the
discretion of the trial court, and that such an award is inappropriate in this case, as CMA
caused “substantial delay in the prosecution of this case[.]” Fairway Village’s “contention
would be correct if this were an unliquidated claim.” Jaffe, 817 S.W.2d at 28 (citing Tenn.
Code Ann. § 47-14-123; Tyber v. Great Cent. Ins. Co., 572 F.2d 562 (6th Cir. Tenn.1978);
Seay v. Shelby County, 672 S.W.2d 404 (Tenn. Ct. App. 1984)). “However, when as here,
the claim is liquidated then the plaintiff is entitled to prejudgment interest as a matter of
right.” Id. (citing Tenn. Code Ann. § 47-14-109; Performance Sys., Inc., 554 S.W.2d 616)
(finding a fixed obligation to pay rent installments pursuant to a lease agreement to be a
liquidated claim). As the trial court found,
The Management Agreement required CMA to provide administrative
property management services in exchange for the payment of an annual fee
of $13,452.00 from Fairway Village, which was payable in 12 equal, monthly
installments of $1,121.00, due at the beginning of each month.
The Management Agreement further provided that CMA was to
maintain the grounds and common areas of Fairway Village Condominiums
in exchange for the payment of an annual fee of $31,532.04 from Fairway
Village, which was payable in 12 equal, monthly installments of $2,627.67,
due at the beginning of each month.
....
Fairway Village authorized CMA to repair and/or replace a concrete
walkway and certain balconies on the Property as had been the practice
previously.
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CMA completed the work authorized by Fairway Village.
Fairway Village refused to pay CMA for the balance due for the work
it had agreed for CMA to do and which had been completed.
CMA submitted invoices and bills it had paid and for expenses it had
incurred to Fairway Village.
CMA is owed $6,990.94 by Fairway Village for concrete and balcony
repairs.
CMA timely filed a Sworn Statement of Notice of Lien . . . with the
Register’s Office of Shelby County, Tennessee . . . . , for the balance due for
the repairs of $6,990.94.
We find that the contract between Fairway Village and CMA is a liquidated account. Thus,
prejudgment interest is statutorily required on both the balance owed to CMA under the
Management Agreement and the repair expenditures made by CMA,6 and the trial court erred
in denying such award. The interest rate which is applicable is the legal rate set forth in
Tennessee Code Annotated § 47-14-103. We remand to the trial court for a determination
of the prejudgment interest owed to CMA.
E. Attorney Fees
Finally, CMA asserts that the trial court erred in awarding it only $60,000 of its
$175,482.25 attorney fees. “Once the court has determined that a party is entitled to recover
attorney's fees, the amount of the award of attorney's fees rests within the sound discretion
of the trial court, which is reviewed by the appellate courts under the abuse of discretion
standard.” J & B Invs., LLC v. Surti, 258 S.W.3d 127, 138 n.10 (Tenn. Ct. App. 2007)
(citing Mimms v. Mimms, 234 S.W.3d 634, 641 (Tenn. Ct. App. 2007)).
“Courts should enforce provisions in contracts that expressly allow a party to recover
6
In its brief, CMA argues that it is entitled to prejudgment interest on both the balance owed it under
the Management Agreement and for its repair expenditures. However, in calculating prejudgment interest,
CMA asks for interest on only $22,492.02. We find that CMA is entitled to prejudgment interest on both
the $22,492.02 Management Agreement balance and the $6,990.94 repair expenditures, for a total of
$29,482.96.
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its attorney fees incurred in disputes over the contract.” Id. (citing Pullman Standard, Inc.
v. Abex Corp., 693 S.W.2d 336, 338 (Tenn. 1985); Pinney v. Tarpley, 686 S.W.2d 574, 581
(Tenn. Ct. App. 1984)). However, an “entitlement to recover attorney’s fees . . . is limited
to the situation agreed to by the parties in the contract, and the fee provision is subject to the
rules of contract interpretation.” Id. (citing Clark v. Rhea, No. M2002-02717-COA-R3-CV,
2004 WL 63476, at *2 (Tenn. Ct. App. Jan. 13, 2004)). Regarding attorney fees, the
Management Agreement provides as follows:
[CMA] shall be indemnified and save harmless by the Association from all
claims, actions, liabilities, loss, damage, cost or expense, including reasonable
attorneys’ fees, by reason of any such act or omission or in connection with
[CMA]’s obligations and performance under this Agreement, unless such
claims, actions, liabilities, loss, damage, cost or expense, including reasonable
attorneys’ fees, result from the negligence of [CMA], its agents or employees.
The Association will be responsible for all collection fees including reasonable
attorney fees in the event it becomes necessary for [CMA] to employ an
attorney to enforce any of the covenants, obligations or conditions included
with this agreement[, o]r the collection of [CMA’s] Annual Fees included in
this agreement.
The trial court specifically found that CMA was entitled “pursuant to the Management
Agreement to its reasonable attorney’s fees arising out of the claims made against it in
connection with its performance of the Agreement as well as for the collection of the balance
of its annual fees owed to it under the Agreement.” 7 However, in awarding CMA a reduced
fee, the trial court stated:8
Well, this case started a long time ago, back in 1998, involving claims that
occurred earlier than that. And I think that it obviously started out as a fairly
minor what amounts to a collection case involving $130,000 and ended up
being, because of a counterclaim that was filed, a case that went on and on way
too long. And obviously [CMA] had to defend that case and incurred fees, but
I think - - I think on both sides this case went on way too long. I don’t think
that this case even with these allegations, I mean, we try these cases now in
7
Before the trial court, Fairway Village argued that the Agreement did not provide for the recovery
of CMA’s attorney fees expended in defense of the counter-claim. Fairway Village does not make this
argument on appeal.
8
The trial court incorporated its oral ruling into its “Final Judgment and Order” of February 18,
2009.
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this court and they don’t go on for ten years. And I don’t think this case
should have gone on for ten years. If depositions couldn’t have been had then
motions to compel could have been put down and records weren’t produced
then motions to compel could have been put down and things could have
moved along and could have been scheduling conferences or lots of things
could have been done, it wasn’t any reason this case should have gone on as
long as it did.
. . . The initial case probably could have been resolved for negligible attorneys’
fees, but I think that because of the defense that had to be made to the
counterclaim that did cause substantially greater attorneys’ fees to be incurred.
But even . . . so, I don’t think it should have gone on to the extent that it did.
Not surprisingly, both parties contend that the other caused the protracted litigation.
Fairway Village claims that CMA refused to provide requested documentation and that it
failed to prosecute the case from February 1999 until August 2003. CMA, however, asserts
that Fairway Village’s counterclaim necessitated the case’s length, and its brief states that
“[t]he only factor [for a reduced fee] mentioned by the trial court in the transcript . . . is that
the case took too long ‘because of the counterclaim that was filed.’” 9 This assertion by
CMA is clearly inaccurate, as the trial court found that both parties contributed to the
litigation’s delay.
Nevertheless, CMA suggests that the trial court erred in considering the litigation’s
length in determining the reasonableness of CMA’s attorney fees. CMA argues that the trial
court could properly consider only the factors listed in Connors v. Connors, 594 S.W.2d 672,
676 (Tenn. 1980):
1. The time devoted to performing the legal service.
2. The time limitations imposed by the circumstances.
3. The novelty and difficulty of the questions involved and the skill requisite
to perform the legal service properly.
4. The fee customarily charged in the locality for similar legal services.
5. The amount involved and the results obtained.
6. The experience, reputation, and ability of the lawyer performing the legal
9
Notwithstanding this statement, CMA briefly argues that the trial court erred in reducing its
attorney fee award based on the proportionality of attorney fees to the damage award. Because neither the
trial court’s oral statement nor it “Final Judgment and Order” based the reduced award on disproportionality,
we find this issue without merit.
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service[,]
as well as those factors enumerated in Supreme Court Rule 8, Rule of Professional Conduct
1.5(a):
(1) the time and labor required, the novelty and difficulty of the questions
involved, and the skill requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the acceptance of the particular
employment will preclude other employment by the lawyer;
(3) the fee customarily charged in the locality for similar legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the circumstances;
(6) the nature and length of the professional relationship with the client;
(7) the experience, reputation, and ability of the lawyer or lawyers performing
the services;
(8) whether the fee is fixed or contingent;
(9) prior advertisements or statements by the lawyer with respect to the fees the
lawyer charges; and
(10) whether the fee agreement is in writing.
We find that the trial court, pursuant to Rule of Professional Conduct 1.5(a), properly
considered the time and labor required in this case. The trial court apparently did not
question whether the time reported by CMA’s attorneys was actually spent, however, it
impliedly found that such time and labor were not required under the circumstances.
Furthermore, we reject CMA’s contention that the trial court is limited only to the above
factors. This Court has stated that “the Court can determine a reasonable fee upon
consideration of all facts and circumstances presented by the record.” Hennessee v. Wood
Group Enters., Inc., 816 S.W.2d 35, 37 (Tenn. Ct. App. 1991). We find no error in the trial
court’s finding that both parties contributed to the protracted litigation in this case, nor in its
reduction of attorney fees based on such.
In its reply brief to this Court, CMA seeks an award of attorney fees on appeal, based
on both the Management Agreement and its contention that the issues presented by Fairway
Village on appeal are frivolous. We find that the Management Agreement provides for an
award of attorney fees on appeal, and we remand to the trial court to determine a reasonable
fee.
.
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V. C ONCLUSION
For the aforementioned reasons, we affirm the chancery court’s finding that CMA
owed no fiduciary duty to Fairway Village, its exclusion of accountant Hood’s testimony, and
its award of attorney fees to CMA. We find that the chancery court’s judgment was not
against the weight of the evidence, and we reverse its denial of prejudgment interest. We
award CMA its attorney fees on appeal. This case is remanded to the trial court for a
determination of prejudgment interest and appellate attorney fees owed to CMA. Costs of
this appeal are taxed to Appellee, Fairway Village Owner’s Association, Inc., for which
execution may issue if necessary.
_________________________________
ALAN E. HIGHERS, P.J., W.S.
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