Rainbow Ridge Resort, LLC v. Branch Banking And Trust Co. , 2016 Tenn. App. LEXIS 992 ( 2016 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
August 9, 2016 Session
RAINBOW RIDGE RESORT, LLC, ET AL.
V. BRANCH BANKING AND TRUST CO.
Appeal from the Circuit Court for Sevier County
No. 12CV-1365-IV O. Duane Slone, Judge
No. E2015-01221-COA-R3-CV-FILED-DECEMBER 28, 2016
_________________________________
The facts in this case implicate the doctrine of res judicata. In 2012, a real estate
development limited liability company and its members filed suit in the Sevier County
Circuit Court against their mortgage lender, Branch Banking and Trust Company (the
bank). In that action, the developers alleged, inter alia, that the bank was guilty of fraud,
breach of contract, and unjust enrichment. That suit involved four separate parcels of real
property. While the case in circuit court was pending, the bank sued three individuals in
the Sevier County Chancery Court, seeking a declaratory judgment regarding the priority
of a security interest in one of the parcels of property at issue in the circuit court case. In
the chancery court action, the bank joined the developers as parties. In response, the
developers filed a counterclaim in which they repeated allegations included in the circuit
court case and asserted other claims derived from the same set of facts. The two cases
were later consolidated. In each case, the bank filed a Tenn. R. Civ. P. 12.02(6) motion
to dismiss for failure to state a claim. The court heard both motions at a single hearing.
On June 8, 2015, the trial court filed two orders – one in the circuit court suit and one by
interchange in the chancery court action – granting the bank‟s motions. The developers
appealed only the circuit court order. Unchallenged, the chancery court order became
final. The bank later moved to dismiss this appeal, arguing that the doctrine of res
judicata barred further litigation. We deferred a ruling on the bank‟s motion. We now
hold that the motion has merit. Accordingly, we affirm the trial court‟s judgment
dismissing this case. We do so based upon the doctrine of res judicata.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and THOMAS R. FRIERSON, II, J., joined.
John Frank Higgins, Nashville, Tennessee, for the appellant, Rainbow Ridge Resort LLC,
Wayne R. Hill, and Cornelia D. Hill.
W. Morris Kizer and John M. Kizer, Knoxville, Tennessee, for the appellee, Branch
Banking and Trust Company.
OPINION
I.
Rainbow Ridge Resort, LLC, and its members, Wayne Hill and Cornelia Hill,
husband and wife (collectively, the developers), entered into an agreement with the bank
to finance the development of three parcels of property, known as the Cabin Properties.
In 2006, the bank received three promissory notes from the developers secured by deeds
of trust and security agreements. Separately, in 2007, the developers executed a
promissory note to the bank on a fourth parcel, a 16.8 acre tract, secured by a deed of
trust and security agreement. The developers state that the bank, at that time, represented
that the deed of trust would encumber the 16.8 acre tract to secure payment of a $210,000
letter of credit.
In January 2009, the developers learned the bank claimed an $800,000 security
interest on the 16.8 acre tract. The same month, the bank informed the developers that
the transferring documents for the Cabin Properties were defectively flawed. An error by
the bank‟s agent wrongly listed the property owner on the transferring documents as
“Rainbow Ridge, LLC,” rather than “Rainbow Ridge Resort, LLC.” As a result, the bank
did not have a security interest in the Cabin Properties. To correct the error, the bank
asked the developers to participate in a reformation action. The developers agreed on the
condition that the bank would extend the developer‟s time for performance under certain
notes and release its lien on the 16.8 acre tract. The reformation action was completed by
an agreed final order in December 2009. According to the developers, the bank never
performed as promised. For more than a year, they communicated with bank employees
about the note renewals, but the renewals were never finalized. The developers assert
that, instead, “[the bank] . . . engaged in a series of misrepresentations and deliberate
inactions to stall and preclude what were the ongoing negotiations” of the note renewals
that would have permitted them to fulfill their obligation to the bank. In November 2012,
the bank gave notice of a successor trustee‟s sale of the Cabin Properties.
2
The day of the sale, December 13, 2012, the developers sued the bank in circuit
court, alleging fraud/fraudulent inducement/fraudulent misrepresentations, breach of
contract, negligent and/or intentional misrepresentation, and breach of fiduciary duty.
The developers sought injunctive relief to enjoin foreclosures and punitive damages.
They also sought an ex parte order to restrain and enjoin the bank from foreclosing on the
deeds of trust for the Cabin Properties, which the circuit court granted. The bank filed a
Tenn. R. Civ. P. 12.02(6) motion to dismiss. In response, the developers sought and were
granted leave to file an amended complaint, which they did in April 2013. In it, they
alleged fraud/fraudulent inducement/fraudulent misrepresentation, breach of contract, and
unjust enrichment, and sought injunctive relief to enjoin the foreclosures. The amended
complaint stated, in part, as follows:
In view of the fact that the errors on the documents prepared
by [the bank] and/or its agents were known to [the bank] for
years before the admission thereof to the [developers], and in
view of the fact that the admission was not made prior thereto
when [the bank] continued to cause [the developers] to
become deeper and deeper in debt to [the bank] (and when
[the bank] had no security interest in any of the properties as
a result of the erroneous security instruments), it is more than
obvious that [the bank] engaged in a well-planned scheme to
defraud the [developers] and carefully chose the time to
induce and trap [the developers] into agreeing to “reform the
instruments” so that [the bank] could steal the most property
from the [developers] and set the [developers] up for the
maximum liability.
The bank again filed a Tenn. R. Civ. P. 12.02(6) motion to dismiss.
On September 3, 2013, the bank filed a complaint in chancery court against three
individuals named as the beneficiaries under a will – Lee Edward White, James Michael
White, and April Bryan (collectively the beneficiaries) – and joined the developers. In
the chancery court case, the bank sought a judgment solely to enforce a subordination
agreement on the 16.8 acre tract that would declare deeds of trust entered by the
developers in favor of the bank superior to ones they previously entered in favor of the
beneficiaries. The bank stated in its complaint that it joined the developers
(a) due to their ownership of real property which is
encumbered by [the bank]‟s deeds of trust . . . (b) due to the
fact that this action is to determine the priority of deeds of
3
trust they executed to secure their obligations to different
creditors, and (c) so that they may assert such matters as they
deem appropriate to protect their respective interests herein.
The developers responded with an answer and counterclaim. Through the counterclaim,
the developers sued the bank for fraud/fraudulent inducement/fraudulent
misrepresentation and unjust enrichment. They also sought declaratory relief for the
court to declare the bank had no legal or equitable right to the 16.8 acre tract. Several
facts given in support of the claims of fraud and unjust enrichment in the counterclaim
were nearly identical to those in the developers‟ amended complaint in circuit court.
Specifically, the counterclaim relied on the same allegation reprinted above – that the
bank engaged in a “well-planned scheme to defraud the [developers],” “steal the most
property from the [developers],” and “set [the developers] up for the maximum liability.”
The bank responded with a motion to dismiss the counterclaim on the doctrine of
prior suit pending, stating: “The counterclaim which the [developers] have asserted
herein encompasses the subject matter of the circuit court case.” In July 2014, the
developers responded, stating that the doctrine did not apply “as the [c]ounterclaim
herein contains additional facts and allegations relating to the [s]ubordination
[a]greements which are not part of the 2012 action . . . .” There is no order in the record
showing that the trial court ruled on this “prior suit pending” motion. In August 25,
2014, the bank filed a separate Tenn. R. Civ. P. 12.02(6) motion to dismiss the
developers‟ counterclaim. There, the bank stated again that in the circuit court case the
developers had “previously asserted” many of the allegations made in the counterclaim.
On March 31, 2014, the judge in the circuit court case recused himself and
reassigned the case on May 21, 2014 to Judge O. Duane Slone, Circuit Judge. 1 An order
of recusal had been entered by the original judge in the chancery court case on December
10, 2013. That case was also assigned to Judge Slone in an order entered June 27, 2014.
On July 28, 2014, a hearing occurred on the bank‟s motion to dismiss the amended
complaint in the circuit court action. At the same hearing, the court consolidated the two
cases.2 At that hearing, the court granted the bank‟s motion to dismiss the amended
complaint.
In December 2014, the trial court heard the bank‟s motion to dismiss the chancery
court case. At that time, the court had not yet entered an order dismissing the circuit
1
The Order of Reassignment designated that “This case shall now bear the docket number 2012-1365-IV,”
where it had previously been “2012-1365-I.”
2
An order consolidating the cases was filed June 8, 2015, nunc pro tunc July 28, 2014.
4
court case. During the hearing, the developers moved for and were granted permission to
file a second amended complaint in the circuit court case and an amended counterclaim in
the chancery court case predicated on emails that had been discovered between the
developers and the bank. The developers did not file the amended counterclaim, but did
file a second amended complaint that again alleged three counts – fraud/fraudulent
inducement/fraudulent misrepresentation, breach of contract, and unjust enrichment,
repeating many of the same allegations as in the first amended complaint. The
developers also repeated the allegation that the bank carried out a “well-planned scheme
to defraud the [developers]” to “steal the most property from the [developers]” and “set
[the developers] up for the maximum liability,” adding now that the bank did so
after continually delaying renewal of the Notes3 so as to
manufacture a fraudulent “default” and place [the developers]
into the most detrimental position possible despite the prior
affirmative representation of [the bank‟s] management that it
was not their intent to do so.
(Footnote added.) The bank, again, moved to dismiss. On April 27, 2015, the trial court
held a hearing on the bank‟s motions to dismiss the developers‟ counterclaim and second
amended complaint. The court granted both motions, entering two separate orders – one
in circuit court and one in chancery court. Both were filed June 8, 2015.
On June 29, 2015, the developers filed a “Notice of Appeal,” stating: “Notice is
hereby given that Plaintiffs in the above styled case, hereby Appeals [sic] to Tennessee
Court of Appeals for the from the [sic] final judgment from an Order Granting
Defendants‟ Motion for Summary Judgment [sic] entered in this action on the 3rd day of
June, 2015.” On the face of the motion, the “above styled case” is the circuit court case.
No notice of appeal was filed in the chancery court case. On December 1, 2015, the
Bank filed a Tenn. R. App. P. 22 motion to dismiss the appeal, arguing:
the issues raised in this action have been adjudicated and
finally settled by the Chancery Court for Sevier County,
Tennessee in a counterclaim filed by the appellants in the
case of Branch Banking and Trust Company v. Lee Edward
White, et al. (No. 13-9-281). Accordingly, further litigation
3
Elsewhere in the second amended complaint, the developers define the “Notes” as the “amended and
modified promissory notes” that were the result of negotiations between the bank and the developers over the three
parcels of land known as the Cabin Properties.
5
on the issues raised in this appeal is barred by the doctrine of
res judicata.
We deferred ruling on the motion until now.
II.
The developers present the following issues for review, which we quote verbatim
from their brief:
Whether the lower court, sitting as presiding Judge in both the
Circuit Court and Chancery Court cases, erred in dismissing
Appellants‟ Second Amended Complaint (in the Circuit Court
case) and their Amended Counterclaim (in the Chancery
Court case) with prejudice.
The bank restates the issues as follows, which we quote verbatim from their brief:
Whether this action should be dismissed based on the doctrine
of res judicata?
Whether the trial court erred in granting the motion to dismiss
of [the bank] predicated on Rule 12.02(6) of the Tennessee
Rules of Civil Procedure?
III.
We first must address the developers‟ request for this Court to review the trial
court‟s dismissal of their amended counterclaim in the chancery court case. First, we
note that, based on the record, the developers did not amend their counterclaim. Second,
the developers did not appeal the chancery court order of dismissal. The trial court had
consolidated the circuit court case – from which the developers later did file a notice of
appeal – with the chancery court case. However, “[c]onsolidation of separate actions
under Tenn. R. Civ. P. 42.014 does not create one action . . . . Consolidation simply
4
Tenn. R. Civ. P. 42.01 states that “When actions involving a common question of law or fact are pending
before a court, the court may order all the actions consolidated or heard jointly, and may make such orders
concerning proceedings therein as may tend to avoid unnecessary costs or delay.”
6
allows a single trial of common issues and permits joint discovery for purposes of judicial
economy.” McMillin v. Cracker Barrel Old Country Store, Inc., No. E2008-00342-
COA-R3-CV, 2009 WL 749214, at *3 (Tenn. Ct. App., filed Mar. 23, 2009) (footnote
added) (citing City of Johnsonville v. Handley, No. M2003-00549-COA-R3-CV, 2005
WL 1981810 at * 9 (Tenn. Ct. App., filed Aug.16, 2005)); see also In re
Bridgestone/Firestone, 495 S.W.3d 257, 267 (Tenn. Ct. App. 2015), appeal denied (Nov.
24, 2015). An order of consolidation has no other effect. Chitwood v. Myers, 443
S.W.2d 827, 830-31 (Tenn. Ct. App. 1969). “When cases have been consolidated, the
issues remain precisely on the pleadings as they were before, and between the same
parties, and are to be determined exactly as if the cases had been heard separately.”
Webb v. Poynter, No. 02A01-9707-CV-00168, 1999 WL 145257, at *4 (Tenn. Ct. App.,
filed Mar. 18, 1999) (quoting Chitwood, 443 S.W.2d at 830-31) (internal quotation marks
omitted). T
The trial court entered separate orders of dismissal for the chancery court and
circuit court cases. Only one order was appealed. Because consolidated lawsuits remain
separate actions, “it logically follows that consolidation cannot cure defects in either
lawsuit.” Givens v. Vanderbilt Univ., No. M2011-00186-COA-R3-CV, 2011 WL
5145741, at *3 (Tenn. Ct. App., filed Oct. 28, 2011) (citing McMillin, 2009 WL 749214,
at *3). The developers‟ appeal of the order of dismissal in the circuit court case does not
constitute an appeal of the chancery court case.
Without an appeal, the chancery court order became a final judgment thirty days
after it was entered. Creech v. Addington, 281 S.W.3d 363, 377 (Tenn. 2009) (holding,
in part, “[a]s a general rule, a trial court‟s judgment becomes final thirty days after its
entry unless a party files a timely notice of appeal or specified post-trial motion”). “The
thirty-day time limit for filing a notice of appeal is mandatory and jurisdictional in civil
cases.” Albert v. Frye, 145 S.W.3d 526, 528 (Tenn. 2004) (citing Binkley v. Medling,
117 S.W.3d 252, 255 (Tenn. 2003)). As a result, we lack jurisdiction to review whether
the trial court erred in granting the order of dismissal in the chancery court case.
IV.
The bank asserts this appeal is barred by the doctrine of res judicata. Res judicata
bars “a second suit between the same parties or their privies on the same cause of action
with respect to all issues which were or could have been litigated in the former suit.”
Richardson v. Tenn. Bd. of Dentistry, 913 S.W.2d 446, 459 (Tenn. 1995) (quoting
Goeke v. Woods, 777 S.W.2d 347, 349 (Tenn. 1989)). Res judicata acts as a “ „rule of
rest‟ meant to promote finality, prevent inconsistent or contradictory judgments, conserve
resources, and prevent vexatious lawsuits.” State ex rel. Johnson v. Gwyn, No. M2013-
7
02640-COA-R3-CV, 2015 WL 7061327, at *6 (Tenn. Ct. App., filed Nov. 10, 2015)
(citing Jackson v. Smith, 387 S.W.3d 486, 491 (Tenn. 2012)). This doctrine “is based on
public policy considerations that mandate an end to litigation” rather than “a presumption
that the final judgment was correct or just.” Roberts v. Vaughn, No. W2008-01126-
COA-R3-CV, 2009 WL 1608981, at *3 (Tenn. Ct. App., filed June 10, 2009) (citing
Moulton v. Ford Motor Co., 533 S.W.2d 295, 296 (Tenn. 1976)).
To establish a res judicata defense, our Supreme Court has stated the moving party
must demonstrate (1) that the underlying judgment was
rendered by a court of competent jurisdiction, (2) that the
same parties or their privies were involved in both suits, (3)
that the same claim or cause of action was asserted in both
suits, and (4) that the underlying judgment was final and on
the merits. Lien v. Couch, 993 S.W.2d 53, 56 (Tenn. Ct.
App. 1998); see also Lee v. Hall, 790 S.W.2d 293, 294
(Tenn. Ct. App. 1990).
Jackson, 387 S.W.3d at 491. “Where there is any uncertainty the doctrine does not
apply.” Justice v. Justice, No. 01-A-01-9312-PB00541, 1995 WL 81414, at *2 (Tenn.
Ct. App., filed Mar. 1, 1995) (citing Gregory v. Gregory, 803 S.W.2d 242 (Tenn. App.
1990)). Further,
[r]es judicata is one of the affirmative defenses that must be
included in the defendant‟s answer. Tenn. R. Civ. P. 8.03.
However, in appropriate circumstances, it may be raised in a
Tenn. R. Civ. P. 12.02(6) motion. For a Tenn. R. Civ. P.
12.02(6) motion to be used as a vehicle to assert an
affirmative defense, the applicability of the defense must
“clearly and unequivocally appear[ ] on the face of the
complaint.” Givens v. Mullikin ex rel. Estate of McElwaney,
75 S.W.3d 383, 404 (Tenn. 2002) (quoting Anthony v.
Tidwell, 560 S.W.2d 908, 909 (Tenn. 1977)). In other words,
the plaintiff‟s own allegations in the complaint must show
that an affirmative defense exists and that this defense legally
defeats the claim for relief. See Ragsdale v. Hill, 37 Tenn.
App. 671, 681, 269 S.W.2d 911, 916 (1954) (holding that a
demurrer asserting res judicata was improper when the
petition being challenged did not mention the prior decree);
8
see also 5B Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1357, at 713-14 (3d ed. 2004).
Jackson, 387 S.W.3d at 491-92 (internal citations in original omitted).
We first must determine whether the bank properly raised the defense of res
judicata. In this case, the bank did not specially plead the defense of res judicata at the
trial court. Consequently, the trial court made no finding on this issue. In general,
“[a]bsent any record that such a defense was raised and litigated in the trial court, we will
consider it waived.” State v. Loden, No. 03C01-9702-CR-00075, 1998 WL 151135, at
*2 (Tenn. Crim. App., filed Apr. 2, 1998). However, in this case, the bank could not
have established the defense of res judicata before the order of dismissal in the chancery
court case became final. As stated above, the trial court filed the orders of dismissal in
the chancery court case and circuit court case on the same day, June 8, 2015. However,
only one of those orders was appealed. With no appeal filed, the trial court‟s order
dismissing the chancery court case became final thirty days after its entry. McBurney v.
Aldrich, 816 S.W.2d 30, 34 (Tenn. Ct. App. 1991). The bank could not assert a res
judicata defense before the judgment was final.
Recently, in Gwyn, 2015 WL 7061327, this Court considered whether res judicata
could bar an active appeal from going forward when res judicata was not raised and could
not have been established at trial because the judgment in the related case was not yet
final. There, the plaintiffs sought a declaration that Tenn. Code Ann. § 10-7-
504(a)(2)(A) was unconstitutional and an order for the Tennessee Bureau of Investigation
to turn over investigation records on Judge Richard Baumgartner. Id. at *2. We stated:
In the present case, the Trial Court did not hold that
[p]laintiffs‟ claims were barred by res judicata. Indeed, it
could not have done so because the Tennessee Court of
Criminal Appeals did not file its opinion in State v. Cobbins
[No. E2013-02726-CCA-WR-CO (Tenn. Crim. App., filed
Feb. 4, 2015)] until February 2015, quite some time after the
Trial Court‟s November 2013 disposition in the present case.
Typically, res judicata is asserted as an affirmative defense.
* * *
However, when a plaintiff pursues two similar lawsuits in
different venues, that plaintiff runs the risk of receiving an
unfavorable result in the initial case and having that result
9
bind the other case. See Crain v. CRST Van Expedited, Inc.,
360 S.W.3d 374 (Tenn. Ct. App. 2011) (holding that a party
may pursue what would be a compulsory counterclaim in a
separate lawsuit but that party runs the risk of losing in the
initial lawsuit and being bound by that result). In the present
case, it is clear that from the beginning, both [p]laintiffs and
Gwyn grappled with what effect, if any, the concurrent Knox
County Criminal Court proceedings would have on the instant
case. In [p]laintiffs‟ amended complaint, they acknowledge
the concurrent action taking place in Knox County Criminal
Court . . . .
* * *
. . . Likewise, Gwyn‟s motion to dismiss discusses the
criminal court matter and its possible ramifications, stating:
Here, the Knox County Criminal Court has
assumed jurisdiction over the complete TBI file
involving the investigation into former judge
Baumgartner‟s conduct, much of which is filed
under seal in the clerk‟s office. While
[p]laintiffs are not asking this Court to
specifically order the TBI file in Knox County
released to them, a declaration by this Court
that T.C.A. § 10-7-504(a)(2)(A) violates
[p]laintiffs‟ constitutional rights and an order
allowing them access to the TBI file as
[p]laintiffs are requesting would have the same
effect. Not only would this allow [p]laintiffs to
re-litigate issues they have already presented
and that are still pending in Knox County, as
discussed in [d]efendant’s previous
memorandum of law, but [p]laintiffs are asking
this Court for relief that would be in direct
contradiction to the criminal court’s ruling and
would likely interfere with that court’s order
denying [p]laintiffs access. For example, if
[p]laintiffs are successful in obtaining a
declaratory judgment that the confidentiality
10
statute is unconstitutional, [p]laintiffs could
then use this Court‟s ruling to demand that the
criminal court allow them to see the entire TBI
file currently under seal in the clerk‟s office.
While the elements of res judicata could not be met during the
proceedings below as no final judgment had yet come down
in the concurrent proceedings in Knox County Criminal
Court, the parties certainly were on notice of the possible
impact of a final judgment there.
2015 WL 7061327, at *3-4 (italics in original omitted; emphasis added). In Gwyn, we
went on to find that, due to res judicata, the final order in Cobbins barred the appeal. Id.
at *9.
In the current case, the parties, through their pleadings, considered the similarities
of the developers‟ allegations in the two concurrent cases. The developers referenced the
ongoing circuit court case in their chancery court counterclaim, stating “the purported
effect of the Agreed Final Order is currently the subject of ongoing litigation between
[the developers] and [the bank]” in the circuit court case, 12CV-1365-1. Additionally,
the bank moved to dismiss the counterclaim due to the doctrine of “prior suit pending.”5
The bank stated:
The [developers] answered the complaint and asserted their
counterclaim, which encompasses the claims the [developers]
have asserted against [the bank] in an action styled Rainbow
Ridge Resort, LLC, Wayne Hill and Cornelia Hill and v.
Branch Banking and Trust Company, currently pending as
Case No. 12CV-1365-1 in the Circuit Court for Sevier
County, Tennessee . . . . A copy of the amended complaint
which the [developers] filed in the Circuit Court Case on
April 19, 2013, is attached hereto as EXHIBIT 1.
5
The doctrine of prior suit pending has four essential elements: “1) the lawsuits must involve identical
subject matter; 2) the lawsuits must be between the same parties; 3) the former lawsuit must be pending in a court
having subject matter jurisdiction over the dispute; and 4) the former lawsuit must be pending in a court having
personal jurisdiction over the parties.” Comcast of S. v. Elec. Power Bd. of Chattanooga, No. E2008-01788-COA-
R3-CV, 2009 WL 1328336, at *5 (Tenn. Ct. App., filed May 13, 2009) (citing West v. Vought Aircraft Indus., Inc.,
256 S.W.3d 618 (Tenn. 2008)) (internal citations omitted).
11
The counterclaim which the [developers] have asserted herein
encompasses the subject matter of the Circuit Court Case. As
such, the counterclaim asserted herein should be dismissed
on the doctrine of prior suit pending.
(Capitalization in original; numbering in original omitted; emphasis added.) The
developers filed a response to the motion. The record before us on appeal does not
include a ruling from the trial court on the issue of prior suit pending. The bank repeated
similar assertions in its motion to dismiss the counterclaim, filed on August 25, 2014.
The motion states, in relevant part:
[The developers] answered the complaint and asserted their
counterclaim, which sets forth certain allegations [the
developers] previously asserted against [the bank] in the
Circuit Court . . . including allegations that [the bank] is not
entitled to a lien on the 16.8 acre tract referenced in the
counterclaim . . . under theories of fraud/fraudulent
inducement and unjust enrichment. Paragraphs 4 through 21
and 23 through 30 of the counterclaim are, in substance,
virtually identical to paragraphs 53 through 74 and 80 through
83 of the amended complaint filed by the [developers] in the
Circuit Court Case. In fact, large portions of the allegations
of paragraphs 53 through 74 and 80 through 83 of the
amended complaint filed in the Circuit Court Case are copied
verbatim in the counterclaim.
The bank adopted by reference the language in the motion quoted above in its motion to
dismiss the second amended complaint in the circuit court case, which is now the subject
of the current appeal.
The developers suggest in their brief on appeal that a later-filed suit cannot bar the
appeal of an earlier filed case, adding “that is not how res judicata operates.” We
addressed this issue in Smith Mech. Contractors, Inc. v. Premier Hotel Dev. Group, 210
S.W.3d 557 (Tenn. Ct. App. 2006). In that case, parties to an ongoing lawsuit filed a
second, separate lawsuit against another party to the first suit. As it turned out, the
second lawsuit was resolved before the first. The decision in the later-filed case was not
appealed. The trial court then dismissed the first suit on the grounds of res judicata. We
affirmed the trial court‟s dismissal on appeal, stating:
12
A possible difficulty arises from the fact that the second
lawsuit was filed and disposed of on the merits while the first
lawsuit was pending. The doctrine of res judicata
presupposes the existence of a final judgment on the merits.
Thus, whether or not some or all of [the] claims were barred
by res judicata did not become an issue until there was a final
judgment in the second lawsuit.
* * *
We conclude that once the judgment on the merits became
final in the second lawsuit . . . the doctrine of res judicata
through the principle of claim preclusion operates to bar any
claims involving the same cause of action which were or
could have been brought by [the plaintiffs] against [the
defendants] in that same action. . . . Admittedly, this is a
harsh result, but to hold otherwise would require us to ignore
the fact that there has been a separate lawsuit involving the
same cause of action between these same parties arising from
a single transaction or series of transactions which was
disposed of on the merits with a judgment that has long since
become final.
Smith Mech. Contractors, 210 S.W.3d at 567 (italics from original omitted; emphasis
added).
We hold that the elements of res judicata could not have been met at the trial court
level in the circuit court case because there was not yet a final judgment in the concurrent
proceeding. Further, we find that the parties filed pleadings discussing the similarities in
the allegations made by the developers in the circuit court and chancery court cases.
“[W]hen a plaintiff pursues two similar lawsuits in different venues, that plaintiff runs the
risk of receiving an unfavorable result in the initial case and having that result bind the
other case.” Gwyn, 2015 WL 7061327, at *3 (citing Crain, 360 S.W.3d 374). This
applies regardless of the order in which the cases were filed. Smith Mech. Contractors,
210 S.W.3d at 567. Concluding that the defense of res judicata in the circuit court case is
properly before this court, we now turn to whether the bank has established the elements
for a res judicata defense.
Previously we have held that, pursuant to Tenn. R. Civ. P. 41.02(3), “an order
granting a motion to dismiss for failure to state a claim upon which relief can be granted
13
under Tennessee Rule of Civil Procedure 12.02(6) is an adjudication on the merits.”
Creech, 281 S.W.3d at 378 (citing Boyd v. Prime Focus, Inc., 83 S.W.3d 761, 766
(Tenn. Ct. App. 2001), perm. to app. denied (Tenn. 2002)). This is because “[u]nlike the
dismissal of a complaint on procedural or technical grounds, „[t]he sole purpose of a
Tenn. R. Civ. P. 12.02(6) motion to dismiss is to test the legal sufficiency of the
complaint.‟ ” Creech, 281 S.W.3d at 378 (quoting Dobbs v. Guenther, 846 S.W.2d 270,
273 (Tenn. Ct. App. 1992)). The court order in the chancery court case granted the
bank‟s 12.02(6) motion, holding that the developers had failed to state a claim upon
which relief could be granted. Therefore, our case law indicates the matter was
adjudicated on the merits. Because no appeal was filed in the chancery court case, the
order became a final judgment thirty days after its entry. Creech, 281 S.W.3d at 377
(citing Tenn. R. App. P. 4(a)-(c)).
By statute, “[t]he chancery court has concurrent jurisdiction, with the circuit court,
of all civil causes of action, triable in the circuit court, except for unliquidated damages
for injuries to person or character, and except for unliquidated damages for injuries to
property not resulting from a breach of oral or written contract . . . .” Tenn. Code Ann. §
16-11-102(a). The same statute goes on to provide in subpart (b) that if a suit excepted
by the language in subpart (a) is brought in chancery court but no objection is pleaded,
the suit “may be . . . heard and determined by the chancery court upon the principles of a
court of law.” Tenn. Code Ann. § 16-11-102(b). Here, neither party challenged the
chancery court‟s jurisdiction over the second-filed lawsuit. For these reasons, we find the
underlying judgment was rendered by a court of competent jurisdiction.
We also find that “the same parties . . . were involved in both suits.” Jackson, 387
S.W.3d at 491. On the face of the counterclaim in the chancery court case as well as the
second amended complaint in the circuit court case, both cases involve the same parties.
In the chancery court case, the bank initially filed suit against the beneficiaries and the
developers. The developers filed a counterclaim against the bank only. In both suits, the
developers, as either plaintiffs or counter-plaintiffs, brought charges against the bank.
Finally, we turn to the remaining element needed to establish res judicata –
whether the same claim or cause of action was asserted in both lawsuits. The developers
argue on appeal that “Tennessee law requires identity of the same claim or cause of
action in two separate cases in order for res judicata to apply,” but here, the bank “has not
and cannot satisfy the identity cause of action requirement. . . .” We disagree. First, the
causes of action raised need not be identical. “The doctrine of res judicata or claim
preclusion bars a second suit between the same parties or their privies on the same claim
with respect to all issues which were, or could have been, litigated in the former suit.”
Jackson, 387 S.W.3d 486, 491 (Tenn. 2012) (citing Creech, 281 S.W.3d at 376).
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Instead, the cause of action requirement is determined by a “transactional standard,”
which our Supreme Court adopted in Creech. Roberts, 2009 WL 1608981, at *5 (citing
Creech 281 S.W.3d at 379). The court explained this standard as follows:
When a valid and final judgment rendered in an action
extinguishes the plaintiff‟s claim . . . , the claim extinguished
includes all rights of the plaintiff to remedies against the
defendant with respect to all or any part of the transaction, or
series of connected transactions, out of which the action
arose.
Creech, 281 S.W.3d at 379-80 (quoting Restatement (Second) of Judgments § 24(1)).
Under this standard, “[t]wo suits . . . shall be deemed the same „cause of action‟ for
purposes of res judicata where they arise out of the same transaction or a series of
connected transactions.‟ ” Roberts, 2009 WL 1608981, at *5 (quoting Creech, 281
S.W.3d at 381). Res judicata may also apply where two suits are based on “essentially
the same” facts. Fed. Nat. Mortg. Ass’n v. Simmons, No. M2013-00945-COA-R3-CV,
2014 WL 4724908, at *8 (Tenn. Ct. App., filed Sept. 23, 2014).
Here, many of the charges the developers brought against the bank in the two
lawsuits overlap. The counterclaim in chancery and second amended complaint in circuit
both allege fraud/fraudulent inducement/fraudulent misrepresentation and unjust
enrichment. The second amended complaint also alleges breach of contract and seeks
injunctive relief to enjoin the bank from foreclosing on the Cabin Properties. The
counterclaim also seeks declaratory relief regarding title to the 16.8 acre tract. However,
despite these differences, both suits are based on a common scheme. The counterclaim
and second amended complaint both relied on an assertion that the bank engaged in a
“well-planned scheme to defraud the [developers],” “steal the most property from
[them],” and “set [them] up for the maximum liability.” Further, in the counterclaim, the
developers state:
In view of the totality of the circumstances including the
intentional misuse of a multi-year relationship and a
deliberate pattern of lying in order to induce the [developers]
to undertake actions to permit [the bank] to obtain security
interests in [the developers]‟ real properties when, as a result
of [the bank‟s] own professional negligence, it had no such
interest, the imposition of punitive damages against [the
bank] is warranted, and should be in an amount to
appropriately punish [the bank] and to serve as a deterrent to
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others who may be similarly inclined to engage in the type of
conduct engaged in by [the bank] as set forth above.
The developers repeat this same assertion in their second amended complaint, but add
that the amount should be “no less than” $250,000,000. In both suits, the developers put
forth almost identical language to support almost all of their assertions regarding fraud
and unjust enrichment. Further, both suits allege the same “scheme” or “pattern of lying”
was used to establish the developers‟ claims against the bank, wherein the developers
claim they participated in reformation actions for the benefit of the bank in exchange for
the bank‟s promise of performance, though the performance was never completed. This
scheme was also the basis for the breach of contract claim, as well as declaratory relief on
the 16.8 acre tract and injunctive relief regarding the Cabin Properties. For these reasons,
we find the suits “arise out of the same transaction or a series of connected transactions.”
Roberts, 2009 WL 1608981, at *5 (quoting Creech, 281 S.W.3d at 381).
In summary, we find that the June 8, 2015 order dismissing the developers‟
counterclaim in chancery court was final, on the merits, and rendered by a court of
competent jurisdiction. Further, the developers‟ second amended complaint in the circuit
court case and counterclaim in the chancery court case both involved the same parties and
the same cause of action was or could have been brought in the other suit. Accordingly,
we hold, as a matter of law, that the doctrine of res judicata bars further litigation in this
matter. Jackson, 387 S.W.3d at 493.
V.
We affirm the trial court‟s judgment. Since the issue of res judicata is dispositive,
we do not reach the issue of whether the trial court erred in granting the bank‟s Tenn. R.
Civ. P. 12.02(6) motion to dismiss the developers‟ second amended complaint in the
circuit court case. The costs on appeal are assessed to the appellants, Rainbow Ridge
Resort, LLC, Wayne Hill, and Cornelia Hill. We remand the case for the collection of
costs assessed at the trial court level.
_______________________________
CHARLES D. SUSANO, JR., JUDGE
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