Stephen Boesch v. Jay R. Holeman ( 2020 )

09/14/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 22, 2020 Session
STEPHEN BOESCH v. JAY R. HOLEMAN, ET AL.
Appeal from the Chancery Court for Sevier County
No. 16-5-164 Telford E. Forgety, Jr., Chancellor
No. E2019-02288-COA-R3-CV
This appeal concerns a disassociated partner’s buyout. Stephen Boesch (“Boesch”), Jay
Holeman (“Holeman”), and Richard Fraser (“Fraser”) formed a partnership to start a
flavored-moonshine and whiskey business, Tennessee Legend. Boesch contributed
technical know-how and labor. Early on, Boesch was disassociated from the partnership.
Boesch sued Holeman and Fraser (“Defendants,” collectively) in the Chancery Court for
Sevier County (“the Trial Court”) alleging, among other things, misappropriation of trade
secrets. Later, Crystal Falls Spirits, LLC, an entity created by Holeman, intervened to sue
Boesch. At trial, the parties put on competing proof as to the value of Boesch’s interest.
Ultimately, the Trial Court adopted Defendants’ value and rejected Boesch’s trade secrets
claim. Boesch appeals. Because the experts failed to contend with Tenn. Code Ann. § 61-
1-701, which governs the determination of a disassociated partner’s buyout price when a
partnership is not dissolved, we reverse and remand for a new determination in keeping
with the statute’s requirements. Otherwise, we affirm the Trial Court’s judgment. We,
therefore, affirm in part, and reverse, in part, and remand for further proceedings consistent
with this Opinion.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed, in Part, and Reversed, in Part; Case Remanded
D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which JOHN W.
MCCLARTY and THOMAS R. FRIERSON, II, JJ., joined.
Stephen Boesch, pro se appellant.
Brian T. Mansfield, Sevierville, Tennessee, for the appellees, Jay Holeman, Richard Fraser,
and Crystal Falls Spirits, LLC.
OPINION
Background
In 2014, Boesch, Fraser and Holeman formed a partnership to sell flavored-
moonshine and whiskey. Toward that end, the men came up with a business plan for what
became known as Tennessee Legend. No written agreement was executed. Holeman was
the so-called “money man” of the operation. He was to contribute $300,000. Fraser and
Boesch were to contribute “sweat equity.” Holeman created Crystal Falls Spirits, LLC,
d/b/a “Tennessee Legend” to serve as a conduit through which the partnership acted;
Boesch never was a member of the LLC.
Boesch was the only one of the three men with any experience in this line of
business. Boesch provided the formulas necessary to mix the product. He asserts that these
formulas were his alone and were never meant to belong to the partnership. Boesch also
has a background in air conditioning. Using this experience, he worked on a building
owned by Holeman but used by the partnership.
Unfortunately, tension emerged fairly quickly. Boesch and Fraser did not get along.
On December 15, 2015, only a few months after the business opened, Boesch was
disassociated from the partnership. Boesch and Defendants present contrasting accounts
of why this happened. In Boesch’s account, he essentially was expelled. According to
Defendants, Boesch left of his own volition after issuing an ultimatum that Fraser had to
go or he would go. In either event, on December 15, 2015, Boesch was out at Tennessee
Legend. Defendants carried on with the business using the formulas Boesch had provided.
In time, the business grew.
In May 2016, Boesch sued Defendants in the Trial Court seeking permanent
injunctive relief and damages. Boesch alleged that “Defendants continue to use Boesch’s
Trade Secrets in the business venture.” Among the claims asserted by Boesch were fraud
and violation of the Uniform Trade Secrets Act. Alternatively, Boesch alleged that
Defendants breached their fiduciary duties by terminating him and stealing his trade
secrets. Additionally, Boesch alleged that Defendants benefited from Boesch’s labor and
skills but failed to pay him just compensation.
In June 2016, Defendants filed an answer and counterclaim. Defendants
acknowledged that they, along with Boesch, had entered into a business arrangement to
form and operate Tennessee Legend. However, they denied Boesch’s account of how he
came to leave the business. Defendants stated that Boesch “became unhappy,
disenchanted, unable to work or communicate with Defendant Fraser and presented to
Defendant Holeman an ‘ultimatum’, threatening that either Defendant Fraser ‘had to go’
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or Boesch would, himself, leave the business, which he did.” Defendants also denied that
Boesch brought any trade secrets to the business that were his rather than the partnership’s.
Defendants denied that they failed to compensate Boesch for his labor. In their
counterclaim, Defendants asserted that Crystal Falls Spirits, LLC was an indispensable
party and that Boesch, by his actions, had vacated any rights or claims to Tennessee
Legend. Defendants sought damages and injunctive relief to the extent the Trial Court
were to find that any proprietary rights extended to them individually.
The lawsuit expanded as Crystal Falls Spirits, LLC moved to intervene and filed a
proposed intervenor’s complaint against Boesch. Crystal Falls Spirits, LLC alleged,
among other things: “[T]o the extent the recipes, formulas, processes and techniques
constitute ‘trade secrets’ under Tennessee law, they are the trade secrets of Crystal Falls
Spirits, LLC. Accordingly, Defendant Boesch should be permanently enjoined from
claiming or using such ‘trade secrets’ for his own benefit or the benefit of others.”
(Emphasis in original). In July 2016, the Trial Court entered an agreed protective order
forbidding the parties from disseminating information pertaining to recipes, formulas, etc.,
except for purposes of this litigation. The Trial Court also entered an order allowing
Crystal Falls Spirits, LLC to intervene.
Boesch filed an answer to Crystal Falls Spirits, LLC’s complaint, wherein he stated
that he was unaware of Tennessee Legend’s use or registration of his trade secrets: “[I]t is
admitted that the State of Tennessee regulates liquor production, sales, etc., and the
formulas and trade secrets of Mr. Boesch were used for operation of the Tennessee Legend
business. Registration and use of the trade secrets of Mr. Boesch were without full
knowledge of Mr. Boesch.” In November 2017, Boesch filed a counterclaim against
Crystal Falls Spirits, LLC, alleging in part that “Boesch is entitled to an award of one-third
(1/3) interest in the distillery business (i.e., Tennessee Legend and Crystal Falls), as well
as any of the business(es) assets,” and seeking dissolution of the LLC. In December 2018,
Crystal Falls Spirits, LLC filed an answer to Boesch’s counterclaim.
Trial began on December 12, 2018. At trial, Boesch and Defendants disputed issues
such as whether he was reimbursed for his labor and whether the parties intended that
Boesch’s formulas would remain his alone. Another contested issue was what value to
place on Boesch’s one-third interest in the partnership. Boesch testified that he claimed a
one-third interest in the business because “[w]hen we started the business, I was one-third
owner I was told.” Regarding a December 30, 2015 letter he sent to Holeman through his
lawyer demanding that Tennessee Legend stop using his formulas, Boesch testified: “When
I was thrown out of the business, I was told -- I asked about my formulas and I was told I
wasn’t getting paid anything for my formulas, so this was written. I guess it’s a cease and
desist for the formulas for Tennessee Legend to stop using my formulas.” Boesch
described what the formulas consist of: “The formulas are everything that goes into the
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flavored products. It’s not just flavoring. It’s several other components. It’s how much
alcohol, how much water, just kind of like the recipe for baking a cake. I mean, it’s
everything you need to go into it to make that final product.” Boesch placed the value of
his formulas at $15,000 to $20,000 apiece. Boesch testified that he performed labor such
as work on a building, owned by Holeman but used by the partnership, that went
uncompensated. On cross-examination, Boesch was asked about his trade secrets claim:
Q. Well, how are they secret?
A. Because I was the only one that knew about them up until that point.
Q. What point?
A. That they started being used at Tennessee Legends. And I guarded the
secret there. I didn’t give them out to anybody and I didn’t let them because
they weren’t involved in it.
Q. What do you mean didn’t let them?
A. Well, they weren’t involved in any of the production processes, so they -
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Q. Did you keep that away from Mr. Fraser and Mr. Holeman?
A. Sure.
Q. You did?
A. Yes.
Q. So they weren’t aware. So you secretly produced the formulas at the
business?
MR. HALL: Objection, we’re mischaracterizing Mr. Boesch’s prior
testimony, Your Honor. He keeps going over and over the same issues with
regard to --
THE COURT: Overruled.
A. It’s not something that I brought them in and said, hey, look, here are my
formulas. It’s something that I kept the records I had to and then kept the
formulas then to myself. The only secrets you really have in this industry are
your formulas. Everything else can be ascertained from the internet, I guess.
The knowledge to put that information to use is a different story. But the
only secrets you have are your formulas, so, yes, those were my trade secrets.
Q. Well, but you used them in the business for yourself and for your partners
to hopefully make money, didn’t you?
A. Yes, I used them in the business, yes.
Q. In the partnership?
A. Yes.
Q. To make money to furtherance of the business?
A. I guess you could say that, yes.
Q. They were the partnership’s to use, correct?
A. No, they were not the partnership’s to use.
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Q. Okay. All right. Your testimony is that you didn’t develop, tweak,
change, do anything with the formulas there at the business, you did it all
before?
A. Not all of it, no.
Q. Some of it you did there?
A. Some of it, yes.
Q. Now, all of these formulas, we have produced, you’ve seen the filings, the
registrations of all of these?
A. Yes.
Q. Those are all in the name of Crystal Falls, LLC; is that correct?
A. Yes.
Q. And also, I think, Mr. Holeman’s name is also reflected on those
registrations, correct?
A. Yes.
Q. And yours are not?
A. Correct.
Continuing his testimony, Boesch stated:
Q. Did you come up with the term “royalty”?
A. I think I came up with the term “royalty”.
Q. I mean, what are you saying this is, you’re saying it’s in exchange for
them paying you $20,000.00, they get to keep it, they get to use it, they get
to what?
A. For $20,000.00, they can keep it.
Q. Was there an agreement to that, was there some understanding about that,
was that some part of the partnership? Tell me how this came about.
A. No, no. This came about when they continued to use my formulas after
they ejected me without my permission.
Q. And if I total that up correct, if it’s 15 products there, that’s $300,000.00.
A. Yes.
Q. So if I understand this correctly, you’re asking for -- so $59,000.00 less
$11,000.00, $48,000.00 we’ll call it here on unreimbursed expenses.
THE COURT: 115.
MR. MANSFIELD: Plus the 67.
THE COURT: 115.
Q. Plus the 300.
A. Correct.
Q. And then plus what your expert is going to testify about is your value in
the business; is that right?
A. Correct.
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Q. So I’ve seen his report, it’s $300,000.00 something thousand dollars, so
you think you’re entitled to $750,000.00?
A. Plus attorney fees.
Q. Plus attorney fees.
A. Correct.
Q. For a business that just started up, hadn’t been in business for three months
before you left.
A. That had great potential.
Q. It had potential. It also had potential to fail.
A. Great potential for success, I believe.
Q. And so you’re telling this Court you’re entitled to $750,000.00 on
royalties and labor that was never contracted for and your claim for
unreimbursed expenses that are based upon your credit card statements,
that’s what you’re wanting from this Court?
A. Not just the credit card statements, but there’s other information that was
submitted in there as well, but, yes.
Both sides presented expert testimony regarding the value of Boesch’s one-third
interest. The experts’ detailed valuation reports were entered into the record. Robert
Parker (“Parker”), an expert in the field of business valuation and accounting, testified for
Boesch. For his valuation analysis, Parker looked to August 2017, nearly two years after
Boesch’s disassociation. Parker concluded that Boesch’s interest was worth $258,300.
Parker testified as to why he chose the date he did for his analysis:
Q. And then you were asked to do a calculation of value. Tell me a
calculation of value of what precisely. What were you asked to value? What
was your -- you were to do a calculation of value of what interest, what time
period, that type of thing? I’m trying to bracket this in.
A. A one-third interest in Crystal Falls Spirits, LLC, was what I was to
determine the calculated value on.
Q. As of when?
A. As of when. I won’t say I was given a specific date, other than we do
need to try to assess the December 2015 date to see what a value was then.
So the information that I had allowed me to do a calculation and come up
with an estimate as of August 2017. And using that information, because
information was limited, and then I discounted to come up with a 2015 value
or estimate.
Q. And I’m a little confused about that, Mr. Parker, because you indicate in
here in your report that you show an estimated fair value 33 and a third
percent non-marketable member interest as of August 31, 2017. You indicate
in here a couple of times that that’s your valuation date, as of that date.
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A. That’s right.
Q. And it seems to be you took all the data, all the information available to
you, and determined a value as of that date, right?
A. Uh-huh.
Q. I mean, that’s what your report says.
A. Uh-huh.
Q. And then almost as a footnote, you then take just a discounted calculation
and put that back to December 15th of 2015; is that right?
A. That’s correct.
Q. So what you didn’t do is you did not purport to in your calculation of value
engagement to directly determine a value as of December 15th of 2015. You
did a different date, a different valuation based on that data.
A. That’s true.
In deposition testimony entered as an exhibit, Fraser, one of Boesch’s erstwhile
partners, testified to how and why the partnership was formed, as well as what Boesch
brought to the table:
Q. Were there ever any writings that represented what the partnership
agreement was to entail and how it would be managed?
A. No.
Q. Was there ever a partnership or any other document that was created to
identify how the business would be managed since Mr. Boesch was told to
leave?
A. No, sir.
Q. Do you agree with Mr. Holeman that this whole business began as a
partnership between the three of you and no one else has had an ownership
interest in it?
A. Yes, sir.
***
Q. I think Mr. Mansfield asked a question of Mr. Boesch, he phrased it, when
Mr. Boesch was -- when they brought you on. Was Mr. Boesch brought into
this by you guys or did someone contact Mr. Boesch about being a partner?
A. Steve and I met first, either I bumped into him somehow. I’d been gone
for three years, you know. And when I was talking to Steve and he said he
worked for Davy Crockett, but he wasn’t happy there and he was thinking he
wanted to do something else or get -- do something, but he wasn’t happy
there. And I was looking for something to do. I said, well, why don’t we --
let’s get a distillery started. He says, that’s cool. He says, I’m in. So I said,
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we just need to find a money guy. He’s my best friend, a man I trust right
there. So I really put the whole thing together as far as getting everybody
together. But he indicated he wanted to quit Davy Crockett.
Q. So relative to when -- do you know when Mr. Boesch left Davy Crockett?
A. I don’t remember.
Q. But then, I guess, after he left Davy Crockett, you guys got together and
said, okay, let’s make this happen?
A. Yes.
Q. And I want to clear this up and make sure I understand. Is anybody
suggesting, are you suggesting that Mr. Boesch did anything inappropriate
with regard to Davy Crockett formulas or --
A. He had that book, the booklet with all the formulas. We had gone by and
visited him, but he had the booklet in his car. I remember he told me that
that was the formulas for all -- that’s where all the stuff that was made at
Davy Crockett. And I do remember him telling me later, maybe it was a
week or two, I can’t remember when, that he had to give it back…. But
anyway, he did tell me he had the formulas from Davy Crockett with him.
Q. But to your knowledge, were any of those formulas used for Tennessee
Legend?
A. I would assume so.
A deposition of Boesch’s other partner, Holeman, also was entered as an exhibit. In
his deposition, Holeman testified to the nature of the three men’s business relationship:
Q. Is there any writing between the Crystal Falls Spirits, LLC, and the
partnership, any agreement, anything in writing with regard to what that
relationship is?
A. Not to my knowledge.
Q. Okay. Tell me what that relationship is.
A. We were -- we acted as partners, and at such time as Steve’s non-compete
expired and we could have put him on the books, we could have made him a
member of the LLC, and that was the intention.
Q. So was it the intention then that the LLC would essentially have three
members and that’s the way it was supposed to function?
A. Yes.
Q. And those membership interests or control of that LLC was with the
partnership?
A. Yes.
Q. And those three partners, again, were yourself, Mr. Fraser, and Mr.
Boesch?
A. Yes.
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Q. Were there tax returns prepared for the business for 2015, partnership or
the LLC?
A. I’m sure there were.
Q. And let me go back a step, go back to that connection between the
partnership and the LLC. So, in essence, the partnership was being run
through the LLC?
A. Yes.
Q. So whatever the partnership did, it was incorporated into the LLC, and the
books for the LLC represented what the partnership was entitled to and what
had taken place in the partnership?
A. Yes.
Defendants’ business valuation expert Renee Harwell (“Harwell”) took the stand
but trial adjourned before her examination was complete. Some nine months passed before
trial resumed. On September 19, 2019, the second and final day of trial, Harwell resumed
her testimony. Harwell valued Boesch’s partnership interest at $23,000. In reaching this
figure, Harwell applied certain discounts. Harwell explained her approach as follows:
Q. … Okay. Now, you have got two, two discounts here.
A. Uh-huh.
Q. A discount for lack of control?
A. Uh-huh.
Q. And discount for lack of marketability?
A. Correct.
Q. If you would, in somewhat layman terms, explain why those are in there
and what they do. What’s the purpose?
A. Okay. When you cannot control whom you hire or fire or what gets
distributed from a company, what assets you buy, you have little control.
And at a one-third interest, you have little to no control. You may protest,
but that doesn’t mean you’ll be heard.
Q. A willing buyer out here, are they going to discount their interest in this
business if they realize that they’re going to have a lack of control in the
management, in the distributions, the operations, anything regarding the
business?
A. They will.
Q. Significantly?
A. Significantly. What impacts a lack of control will be cash flow. If you
have a company that perhaps it’s real estate and it has a long history of
distributing cash no matter what, then you’re not as concerned about the
control because you have cash.
Q. That is not this company?
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A. That is not this company.
Q. Okay. Then the discount for lack of marketability, tell the Court about
that.
A. Lack of marketability is, can you go out and sell this company easily,
quickly? So if you have stock in a publicly traded market, you can go to your
brokerage account, sell your stock, and have your cash in between one and
three days. Very liquid. With a company, a one-third interest, you have to
find a buyer for it. That can take years, if you can even sell the one-third
interest at all….
Q. And so the 20 percent of marketability discount, again sort of converting
this to layman’s terms, it’s a discount -- it’s a discount to reflect that there is
not a particularly good market out there to sell a one-third interest in a small,
closely held, nonpublic business?
A. That’s correct.
Q. That hasn’t even generated income?
A. That’s correct.
Q. And is losing money?
A. That’s correct. So we could argue how much is lack of control, how much
is lack of marketability. Rather than getting into the semantics, combine
them together, it’s a lack of -- it’s a third interest, you don’t have control and
you don’t have market, what’s the total haircut, the total discount you take
off a hundred percent interest value.
Ultimately, the Trial Court adopted Harwell’s valuation of Boesch’s interest. In
October 2019, the Trial Court entered a judgment for Boesch in the amount of $23,000
against Defendants and Crystal Falls Spirits, LLC, jointly and severally. The Trial Court
dismissed Boesch’s other claims as well as any remaining third-party claims. In its order,
the Trial Court stated, in relevant part:
This matter came before the Court on the 12th day of December, 2018
and the 19th day of September, 2019, for trial upon the original Complaint,
Counterclaim, Intervening Complaint and Counterclaim thereto. Upon
consideration of the extensive testimony and evidence presented over two
days of hearing, the applicable law, the argument of counsel and the entirety
of the record, the Court finds that the Plaintiff failed to meet the burden of
proof on his claims asserting violation of the Tennessee Uniform Trade
Secrets Act, unreimbursed expenses, labor charges and royalties, all of which
were presented at trial. The Court further finds that the remaining issue was
a determination of the value of the Plaintiff’s one-third (1/3) interest in the
partnership and business venture, a matter of which the parties offered
competing evidence, including the reports and opinions of expert witnesses.
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Having given due and proper consideration of the testimony of the Plaintiff’s
expert and the Defendant’s expert, as well as their reports submitted into
evidence, the entirety of the evidence and the applicable law, the Court finds
that the determination of value submitted by the Defendant of $23,000.00 is
best supported and sustained.
Boesch filed a motion to alter or amend and a motion for discretionary costs. In
December 2019, the Trial Court entered its final order in which it denied Boesch’s motions.
Boesch timely appealed to this Court.
Discussion
Although not stated exactly as such, Boesch, now acting pro se, raises the following
issues on appeal: 1) whether the nine month delay between hearing dates prejudiced
Boesch; 2) whether the Trial Court erred in declining to find a violation of the Tennessee
Uniform Trade Secrets Act; 3) whether the Trial Court erred in declining to grant Boesch
a one-third share in a building he worked on that was owned by Holeman but used by the
business; and 4) whether the Trial Court erred in its determination of the business’s value
for purposes of determining Boesch’s buyout price. Defendants and Crystal Falls Spirits,
LLC raise a separate issue of whether Boesch’s brief is so deficient as to justify waiver of
his issues.
Our review is de novo upon the record, accompanied by a presumption of
correctness of the findings of fact of the trial court, unless the preponderance of the
evidence is otherwise. Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn.
2001). A trial court’s conclusions of law are subject to a de novo review with no
presumption of correctness. S. Constructors, Inc. v. Loudon County Bd. of Educ., 58
S.W.3d 706, 710 (Tenn. 2001). Regarding the deference we extend to trial courts’
determinations of witness credibility, our Supreme Court has instructed:
When credibility and weight to be given testimony are involved, considerable
deference must be afforded to the trial court when the trial judge had the
opportunity to observe the witnesses’ demeanor and to hear in-court
testimony. Estate of Walton v. Young, 950 S.W.2d 956, 959 (Tenn. 1997)
(quoting Randolph v. Randolph, 937 S.W.2d 815, 819 (Tenn. 1996)).
Because trial courts are able to observe the witnesses, assess their demeanor,
and evaluate other indicators of credibility, an assessment of credibility will
not be overturned on appeal absent clear and convincing evidence to the
contrary. Wells v. Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999).
Hughes v. Metro. Gov’t of Nashville & Davidson Cnty., 340 S.W.3d 352, 360 (Tenn. 2011).
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We first address whether Boesch’s brief is so deficient that his issues should be
deemed waived. Boesch’s brief is deficient. In contravention of Tenn. R. App. P. 27(a)(6),
Boesch’s brief contains no statement of facts. We are mindful that Boesch is acting pro se
on appeal. As this Court explained in Young v. Barrow:
Parties who decide to represent themselves are entitled to fair and
equal treatment by the courts. Whitaker v. Whirlpool Corp., 32 S.W.3d 222,
227 (Tenn. Ct. App. 2000); Paehler v. Union Planters Nat’l Bank, Inc., 971
S.W.2d 393, 396 (Tenn. Ct. App. 1997). The courts should take into account
that many pro se litigants have no legal training and little familiarity with the
judicial system. Irvin v. City of Clarksville, 767 S.W.2d 649, 652 (Tenn. Ct.
App. 1988). However, the courts must also be mindful of the boundary
between fairness to a pro se litigant and unfairness to the pro se litigant’s
adversary. Thus, the courts must not excuse pro se litigants from complying
with the same substantive and procedural rules that represented parties are
expected to observe. Edmundson v. Pratt, 945 S.W.2d 754, 755 (Tenn. Ct.
App. 1996); Kaylor v. Bradley, 912 S.W.2d 728, 733 n. 4 (Tenn. Ct. App.
1995).
Young v. Barrow, 130 S.W.3d 59, 62-63 (Tenn. Ct. App. 2003).
Boesch’s failure to include a statement of facts in his appellate brief is a major
omission. However, Boesch cites to the record fairly regularly throughout his brief. We
have no difficulty understanding what Boesch is arguing, whether convincingly or not, or
what part of the record he is referring to. While Boesch’s brief is deficient, it is not so
deficient as to thwart appellate review. We, therefore, decline to find waiver in this
instance, and press on with deciding this matter.
Moving to Boesch’s issues, we begin with whether the nine month delay between
hearing dates prejudiced Boesch. Boesch presented his proof on the first day of trial,
December 12, 2018. Boesch argues that Defendants and Crystal Falls Spirits, LLC were
advantaged by the ensuing nine month delay because they had additional time after hearing
his part of the case to prepare their own case and that the Trial Court’s memory of the first
day of trial was hazy. When trial resumed on September 19, 2019, the Trial Court remarked
on the delay:
THE COURT: Counsel, you had said you feel very confident we’ll be able
to finish this thing. Here’s the bottom line. We need to finish it. We need
to finish it. I have spent most of yesterday going back -- I didn’t read the
transcript, by the way. I read my notes. Of course, they’re not a transcript.
But I read my notes, read the depositions again. And I’ll tell you, I don’t
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ever intend again, especially on a case like this, to try part of it one day and
come back eight or nine months later. I don’t ever intend to do that again.
And you know, running through my mind, okay, what do you do about it?
Because I know no lawyer can tell you exactly how long a case is going to
take. No lawyer can do that, no judge can do that. It’s just an impossibility.
MR. MANSFIELD: I mean, I struggled with it, too, Your Honor. I had to go
back and relearn it. I agree with that. I don’t know the answer. I don’t know
what we estimated when we set it at the docket sounding. I can’t say if we
said one day. I do not know. This case has clearly morphed over time. So
in any event, it is what it is. My thought was maybe reviewing the transcript
may have been some benefit. But the Court may have thought that was
inappropriate. I don’t know.
THE COURT: Oh, no, no.
MR. MANSFIELD: It takes a lot of time.
THE COURT: Thank you for doing it and getting it. I just didn’t -- and I
spent, like I say, most of yesterday. I had a short day court wise. But went
from about, I don’t know, 10:00 in the morning until about 2:30 in the
afternoon, with no lunch break. And in reading what I did read, and I could
not have read -- could not have read the transcript. I read my notes. And I
went back and looked at the exhibits and read the depositions, but that’s it.
MR. MANSFIELD: We’ll try to press on, Your Honor.
THE COURT: Okay.
As the Trial Court itself recognized, the nine month delay between hearing dates
was excessive and unacceptable. However, Boesch has cited to no Tennessee law in
support of his contention that the delay necessitates overturning the Trial Court’s judgment.
The record does not show the reasons for this delay. We are unable from the record to
discern any prejudice suffered by Boesch, either. The record reflects that the Trial Court
reviewed its notes and was up to date on the evidence presented already. Based on this
record and contrary to Boesch’s contentions, the Trial Court was not ignorant of the case
at the time it ruled; it simply ruled against Boesch. That Boesch did not obtain the outcome
he desired does not, in itself, show he was prejudiced in any way by the regrettable delay.
We decline to vacate or reverse the Trial Court’s judgment on this basis.
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We next address whether the Trial Court erred in declining to find a violation of the
Tennessee Uniform Trade Secrets Act. Boesch argues that the formulas he contributed to
Tennessee Legend were his personal trade secrets and not the partnership’s. He contends
that his former partners misappropriated these trade secrets by continuing to use them after
he disassociated. In response, Defendants and Crystal Falls Spirits, LLC state that such
information can easily be found on the internet and does not constitute a trade secret. To
decide this issue, we look to the Tennessee Uniform Trade Secrets Act, which defines the
relevant terms thusly:
As used in this part, unless the context requires otherwise:
(1) “Improper means” includes theft, bribery, misrepresentation, breach or
inducement of a breach of a duty to maintain secrecy or limit use, or
espionage through electronic or other means;
(2) “Misappropriation” means:
(A) Acquisition of a trade secret of another by a person who knows or has
reason to know that the trade secret was acquired by improper means; or
(B) Disclosure or use of a trade secret of another without express or implied
consent by a person who:
(i) Used improper means to acquire knowledge of the trade secret; or
(ii) At the time of disclosure or use, knew or had reason to know that that
person’s knowledge of the trade secret was:
(a) Derived from or through a person who had utilized improper means to
acquire it;
(b) Acquired under circumstances giving rise to a duty to maintain its secrecy
or limit its use; or
(c) Derived from or through a person who owed a duty to the person seeking
relief to maintain its secrecy or limit its use; or
(iii) Before a material change of the person’s position, knew or had reason to
know that it was a trade secret and that knowledge of it had been acquired by
accident or mistake;
(3) “Person” means a natural person, corporation, business trust, estate, trust,
partnership, association, joint venture, government, governmental
subdivision or agency, or any other legal or commercial entity;
(4) “Trade secret” means information, without regard to form, including, but
not limited to, technical, nontechnical or financial data, a formula, pattern,
compilation, program, device, method, technique, process, or plan that:
(A) Derives independent economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by
other persons who can obtain economic value from its disclosure or use; and
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(B) Is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
Tenn. Code Ann. § 47-25-1702 (2013). The Uniform Trade Secrets Act provides for
injunctive relief and damages for misappropriation of a trade secret as defined above. See
Tenn. Code Ann. §§ 47-25-1703; 47-25-1704.
In view of the broad definition of “trade secret” set out above and the facts of this
case, we are unpersuaded by Defendants’ and Crystal Falls Spirits, LLC’s argument that
the formulas do not qualify as trade secrets. We note that in July 2016, the Trial Court
entered an agreed protective order limiting dissemination of information about the
formulas. This suggests to us that both sides recognize the formulas are of some value and
that their secrecy should be guarded. It is understandable why. Although one may very
likely find formulas online, Tennessee Legend uses these.
Nevertheless, Defendants and Crystal Falls Spirits, LLC argue that, even if the
formulas are classified as trade secrets, they belong to the partnership and not Boesch
personally. We agree. Despite his baffling testimony to the contrary, the formulas clearly
were intended for the partnership’s use. The formulas belong to the partnership rather than
Boesch and are part of what makes up the partnership’s value. We affirm the Trial Court’s
conclusion that Tennessee Legend’s ongoing use of formulas Boesch contributed to the
partnership does not constitute a violation of the Uniform Trade Secrets Act.
We next address whether the Trial Court erred in declining to grant Boesch a one-
third share in a building he worked on that was owned by Holeman but used by the
business. Boesch states that his labor was a capital contribution to the partnership. Boesch
argues that, as a result of this contribution, the building came to be owned by the
partnership and should be considered in the determination of his buyout price. Boesch
cites to Tenn. Code Ann. § 61-1-204(c) (2018), which provides: “Property is presumed to
be partnership property if purchased with partnership assets, even if not acquired in the
name of the partnership or of one (1) or more partners with an indication in the instrument
transferring title to the property of the person’s capacity as a partner or of the existence of
a partnership.”
We disagree with Boesch’s characterization of his work on the building, as well as
his interpretation of its effect. Boesch’s labor was part of his “sweat equity” contribution
to the partnership. It was part and parcel of getting the business started, not a purchase of
property with partnership funds. We affirm the Trial Court on this issue. While we decline
to find that the building was rendered partnership property by Boesch’s work on it, Boesch
is entitled to his buyout price from the partnership as a whole, which we turn to next.
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The fourth and final issue we address is whether the Trial Court erred in its
determination of the business’s value for purposes of determining Boesch’s buyout price.
Boesch contends that Harwell’s report and testimony, upon which the Trial Court based its
determination of value, was flawed in the following ways: (1) Harwell’s report relied
wrongly on profit and loss statements that recorded loan repayments instead of owner
draws; (2) Harwell’s report relied wrongly upon profit and loss statements that reported
exorbitant salaries and rent payments as expenses rather than owner draws; and (3)
Harwell’s report did not contend with the applicable law, Tenn. Code Ann. § 61-1-701, in
that she applied a lack of control discount. Boesch argues also that he is entitled to an
award of interest.
Boesch’s first and second sub-arguments implicate the live testimony and credibility
of the witnesses, and we extend deference to the Trial Court’s findings in that area. The
evidence does not rise to the clear and convincing standard such that would cause us to
overturn the Trial Court’s implicit credibility determinations. However, Boesch’s third
point regarding whether the valuations properly contended with the applicable law is on
firmer ground.
From our review of the transcripts, there was some uncertainty at trial as to which
law to apply in determining Boesch’s one-third interest–that concerning LLCs, or that
concerning partnerships. In the end, the valuation proceeded without a definitive answer.
Indeed, the ambiguity reflects and is consistent with the ambiguity with which the parties
conducted their business. The LLC, created by Holeman, acted as a sort of conduit through
which the partnership operated. However, Boesch never was a member of the LLC. On
appeal, there is no dispute as to the nature of the arrangement. Both sides describe the
three men’s business arrangement as a partnership. The Revised Uniform Partnership Act
defines a “partnership” generally as “an association of two (2) or more persons to carry on
as co-owners of a business or other undertaking for profit....” Tenn. Code Ann. § 61-1-
101(7) (2018). This definition fits the facts of the business arrangement in this case. Thus,
the law on partnerships is implicated.
Regarding a scenario such as here where a partner is disassociated but the
partnership is not dissolved and wound up, Tenn. Code Ann. § 61-1-701 provides, in part:
(a) If a partner is dissociated from a partnership without resulting in a
dissolution and winding up of the partnership business under § 61-1-801, the
partnership shall cause the dissociated partner’s interest in the partnership to
be purchased for a buyout price determined pursuant to subsection (b).
(b) The buyout price of a dissociated partner’s interest is the amount that
would have been distributable to the dissociating partner under § 61-1-807(b)
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if, on the date of dissociation, the assets of the partnership were sold at a price
equal to the greater of the liquidation value or the value based on a sale of
the entire business as a going concern without the dissociated partner and the
partnership were wound up as of that date. Interest must be paid from the
date of dissociation to the date of payment.
Tenn. Code Ann. § 61-1-701 (a)-(b) (2018).
The Uniform Law Comment to Tenn. Code Ann. § 61-1-701 explains:
Under subsection (b), the buyout price is the amount that would have been
distributable to the dissociating partner under Section 807(b) if, on the date
of dissociation, the assets of the partnership were sold at a price equal to the
greater of liquidation value or going concern value without the departing
partner. Liquidation value is not intended to mean distress sale value. Under
general principles of valuation, the hypothetical selling price in either case
should be the price that a willing and informed buyer would pay a willing
and informed seller, with neither being under any compulsion to deal. The
notion of a minority discount in determining the buyout price is negated by
valuing the business as a going concern. Other discounts, such as for a lack
of marketability or the loss of a key partner, may be appropriate, however.
The parties agree liquidation value is of no use here. The relevant portion of the
statute therefore is “the value based on a sale of the entire business as a going concern
without the dissociated partner and the partnership were wound up as of that date.” Tenn.
Code Ann. § 61-1-701(b) (2018). With this in mind, we look to the expert report relied
upon by the Trial Court in determining Boesch’s buyout price. Harwell’s report certainly
is thorough and detailed. However, Harwell’s report applied a discount for lack of control
in tandem with a discount for lack of marketability. Although in her testimony Harwell
minimized the importance of the distinction between these discounts, the distinction
matters with respect to the applicable statute, Tenn. Code Ann. § 61-1-701. While a
discount for lack of marketability as to the entire partnership business and not as to the
minority partnership interest may be appropriate, a discount for lack of control by the
minority partnership interest is inappropriate because the statute calls for determining value
based on a sale of the entire partnership business as a going concern. We note that under
the Trial Court’s ruling as affirmed by this Court, the formulas are an asset of the
partnership and must be considered as such in the value determination of the entire
partnership business. Only then can Boesch’s one-third interest properly be determined.
Harwell’s report, extensive and informative though it is, does not contend with Tenn. Code
Ann. § 61-1-701. As the Trial Court’s valuation decision was based upon Harwell’s report
applying a lack of control and lack of marketability discount to Boesch’s minority
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partnership interest, we reverse the Trial Court’s valuation of Boesch’s interest in the
partnership’s business for purposes of Boesch’s buyout price and remand for a new
valuation determination consistent with Tenn. Code Ann. § 61-1-701. The proper date of
valuation is December 15, 2015, the date of Boesch’s disassociation. Pursuant to Tenn.
Code Ann. § 61-1-701(b), Boesch is entitled to an award of interest from December 15,
2015 through the date of payment.
In sum, we reverse the Trial Court’s valuation of Boesch’s partnership interest. We
remand for a new valuation that comports with Tenn. Code Ann. § 61-1-701. On all other
issues, we affirm the judgment of the Trial Court.
Conclusion
The judgment of the Trial Court is affirmed, in part, and reversed, in part, and this
cause is remanded to the Trial Court for collection of the costs below and further
proceedings consistent with this Opinion. The costs on appeal are assessed one-half against
the Appellant, Stephen Boesch, and his surety, if any, and one-half against the Appellees,
Jay Holeman, Richard Fraser, and Crystal Falls Spirits, LLC.
______________________________________
D. MICHAEL SWINEY, CHIEF JUDGE
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