Jeff Druek v. Hydrogen Engine Center, Inc. ( 2020 )

10/30/2020
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 14, 2020 Session
JEFF DRUEK v. HYDROGEN ENGINE CENTER, INC., ET AL.
Appeal from the Circuit Court for Greene County
No. 19CV335AEP Alex E. Pearson, Judge
No. E2019-02142-COA-R3-CV
This action involves the plaintiff’s attempted levy of execution on improved real property
in Greeneville, Tennessee, owned by an intervening corporation, HEC-TINA, Inc. (“HEC-
TINA”), and subject to a lease by another corporation, Plastic Innovation, Inc.
(collectively, “Intervenors”), to satisfy a judgment against the original defendant/debtor
corporation, Hydrogen Engine Center, Inc., of Iowa. The plaintiff alleged that Hydrogen
Engine Center, Inc., was the parent corporation of HEC-TINA. Following a hearing and
upon Intervenors’ pleadings, the Greene County Circuit Court (“trial court”) entered two
orders, one granting Intervenors’ petition to intervene and one granting Intervenors’ motion
to quash any levy of execution on assets owned by HEC-TINA. The plaintiff has appealed
the latter order. Having determined that the order granting the motion to quash was entered
based upon the consent and agreement of both the plaintiff and Intervenors, we affirm. We
deny Intervenors’ motions to consider post-judgment facts and Intervenors’ request for
attorney’s fees on appeal.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and JOHN W. MCCLARTY, J., joined.
Francis X. Santore, Jr., Greeneville, Tennessee, for the appellant, Jeff Druek.
William S. Nunnally, Greeneville, Tennessee, for the appellees, HEC-TINA, Inc., and
Plastic Innovation, Inc.
OPINION
I. Factual and Procedural Background
Three related corporate entities with similar names are involved in this action.
During the hearing on Intervenors’ petition to intervene and motion to quash the levy of
execution, Intervenors’ counsel presented a “Timeline” of events as an exhibit, to which
Mr. Druek did not object. According to this Timeline and other documents introduced as
exhibits, Hydrogen Engine Center, Inc. (“HEC Nevada”) was incorporated in Nevada in
2000. In 2003, Hydrogen Engine Center, Inc. (“HEC Iowa”) was incorporated in Iowa.
HEC Iowa became a subsidiary of HEC Nevada in 2005 with HEC Nevada assuming all
of HEC Iowa’s assets and liabilities then in existence.1 HEC-TINA, a wholly owned
subsidiary of HEC Nevada, was incorporated in Nevada in 2014 and registered to conduct
business in Tennessee on January 25, 2016.
On April 27, 2010, the president of HEC Iowa, Theodore G. Hollinger, executed a
promissory note to Mr. Druek in the state of Iowa in the amount of $100,000.00 (“the
Note”). Claiming default, Mr. Druek, a New York citizen, filed a petition in an Iowa state
district court (“Iowa court”) on February 16, 2016, attaching the Note and alleging that
HEC Iowa had failed to perform under its terms. According to Mr. Druek’s Iowa petition,
which was attached in the instant action to Intervenors’ petition to intervene, HEC Iowa
had “executed and delivered” the Note in the principal amount of $100,000.00 “with
interest there on from April 27, 2010, at the rate of 7% percent per annum” with “all
accumulated principal and interest . . . due in full” on June 11, 2012.
In his Iowa petition, Mr. Druek asserted that through June 11, 2012, HEC Iowa had
paid only $4,516.06 toward a total accrued interest due on the Note of $14,882.91 and had
made no payment on the principal. Citing a provision in the Note that “[p]rincipal and
interest not paid when due [would] draw interest at the rate of 9% per annum,” Mr. Druek
sought the $100,000.00 unpaid balance of the principal due; accumulated interest as of
February 16, 2016, in the amount of $43,531.23; and accruing interest at nine percent per
annum for each day since February 16, 2016.
According to the procedural history delineated in the Iowa court’s subsequent
judgment, attached to Mr. Druek’s motion to sell in the instant action, HEC Iowa filed an
answer on April 6, 2016, seeking dismissal of Mr. Druek’s petition and asserting
affirmative defenses of, inter alia, misrepresentation, fraud in the inducement, mistake, and
failure to state a claim upon which relief could be granted. Mr. Druek filed a motion for
summary judgment with the Iowa court on July 15, 2016. HEC Iowa responded by filing
a “resistance,” alleging that because Mr. Druek had fraudulently induced its representative
1
This assumption of assets and liabilities was included in a United States Securities and Exchange
Commission (“SEC”) annual report filed by HEC Nevada for the fiscal year 2005 and entered as an exhibit
during the hearing on Intervenors’ petition and motion.
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to execute the promissory note, a question of material fact existed as to whether HEC Iowa
owed Mr. Druek any amount due on the promissory note.2 In a reply, Mr. Druek denied
any fraudulent inducement.
Following a motion hearing, the Iowa court entered an order on December 30, 2016,
denying Mr. Druek’s motion for summary judgment. However, on March 21, 2017, Mr.
Druek filed a second motion for summary judgment in the same Iowa court. The Iowa
court entered an order on April 7, 2017, granting Mr. Druek’s second motion for summary
judgment upon noting that HEC Iowa had filed a response indicating that it had no
objection to the second motion. The Iowa court awarded to Mr. Druek a judgment in the
amount of $143,639.29 plus per diem interest from the date of the order thereafter as well
as costs and attorney’s fees in the amount of $14,157.50.
Meanwhile, in August 2016, HEC-TINA had purchased a 5.92-acre tract of
improved real property located at 203 Old Wilson Hill Road in Greene County, Tennessee
(“the Property”), subject to the lien of a deed of trust held by American Patriot Bank. A
United States Securities and Exchange (“SEC”) disclosure statement filed by HEC Nevada
on November 22, 2017, included in the exhibits presented during the trial court’s hearing
on Interveners’ pleadings, listed HEC Nevada’s company address on the title page of the
statement as 203 Old Wilson Hill Road in Greeneville, Tennessee. We note that a 2016
biennial report for the State of Iowa, also included in the exhibits introduced during the
trial court’s hearing, listed individuals with a different Greeneville, Tennessee, address as
HEC Iowa’s corporate officers.3
On November 22, 2017, HEC-TINA leased 15,000 square feet of its building space
on the Property to Plastic Innovation, Inc. (“PI”). On August 8, 2018, HEC-TINA was
administratively dissolved in Tennessee as the result of an incorrect address on corporate
filings, according to the affidavit of HEC-TINA’s chief executive officer, which was
attached to Intervenors’ petition to intervene. According to Iowa business entity filings,
presented as an exhibit during the trial court’s instant hearing, HEC Iowa was
administratively dissolved in Iowa on the same day.
On August 15, 2019, Mr. Druek initiated the instant action by submitting a notice
of filing of the Iowa court’s judgment against HEC Iowa (“Iowa Judgment”) in the trial
2
According to the Iowa court’s eventual factual findings, HEC Iowa alleged misrepresentation and fraud
in the inducement on the basis that the $100,000.00 received from Mr. Druek was not a loan but instead
represented a non-refundable option to purchase the Iowa corporation.
3
The Iowa 2016 Biennial Report for an Iowa Corporation listed the address of HEC Iowa’s corporate
officers as 1621 Industrial Road, Unit B, Greeneville, Tennessee.
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court, attaching both of the Iowa court’s summary judgment orders. Mr. Druek’s counsel
attached an affidavit asserting that the judgment-debtor was “Hydrogen Engine Center,
Inc., whose post office address in the State of Tennessee was 203 Wilson Hill Road,
Greeneville, Tennessee 37745.” Mr. Druek’s counsel made no mention of an Iowa
corporation in the notice of filing or the attached affidavit.
On September 30, 2019, Mr. Druek filed a “Motion to Sell Real Estate to Satisfy
Judgment and for Injunctive Relief,” pursuant to Tennessee Rule of Civil Procedure 69,
seeking what he termed “satisfaction of judgment.” Mr. Druek named as defendants
Hydrogen Engine Center, Inc., with no distinction made between the Iowa and Nevada
corporations; PI; and Apex Bank, the Successor to American Patriot Bank according to a
“Substitute Trustee’s Notice of Sale” subsequently attached to Intervenors’ petition. Mr.
Druek averred that the judgment debtor was “a foreign holding company, domesticated and
doing business in the State of Nevada” and that HEC-TINA, a “wholly owned subsidiary
of the defendant-debtor,” was the owner of the Property. Mr. Druek further averred that
Hydrogen Engine Center, Inc., presumably referring to HEC Nevada, had never been
registered to conduct business in Tennessee.4 As to injunctive relief, Mr. Druek requested
that the trial court enjoin the defendants from, inter alia, further encumbering, disposing
of, or damaging the Property. Mr. Druek attached to his motion a July 2018 press release
entitled “Hydrogen Engine Center, Inc. and HEC-TINA News” and a property assessor’s
record concerning the Property.
In his motion to sell real estate, Mr. Druek stated that he had recorded a judgment
lien with the Register of Deeds for Greene County, Tennessee, on September 30, 2019. He
acknowledged that the judgment lien was inferior to the existing deed of trust held by Apex
Bank and the lease agreement between HEC-TINA and PI. According to Mr. Druek’s
motion, his attorney had begun executing upon the Property by having local law
enforcement and locksmiths secure the portion of the building located thereon that was not
leased to PI.
The trial court conducted a hearing concerning the motion to sell real estate to satisfy
a judgment on October 11, 2019, according to the Timeline, and orally granted Mr. Druek’s
motion as uncontested. However, the trial court did not enter a written order granting the
motion. On October 16, 2019, Intervenors filed their petition to intervene and a motion to
quash any levy of execution and to set aside the order of sale. Intervenors averred that
although neither was a party to this action, they were both necessary parties because Mr.
Druek was attempting to sell the real and personal property owned by HEC-TINA, which
would also result in harm to PI by virtue of its leasehold agreement. Intervenors further
4
In his motion, Mr. Druek asserted that because Hydrogen Engine Center, Inc., and HEC-TINA never
appointed a registered agent for service of process in the state of Tennessee, service of process was effective
upon HEC-TINA’s office manager at the 203 [Old] Wilson Hill Road address on August 27, 2019.
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alleged that Mr. Druek’s actions had caused Apex Bank to begin foreclosure on its deed of
trust, which they contended would effectively extinguish the lease between PI and HEC-
TINA. In requesting that the trial court grant their petition, Intervenors argued that neither
of them was liable to Mr. Druek for any judgment taken in Iowa against HEC Iowa.
The trial court conducted a hearing on November 1, 2019, concerning the petition
to intervene and the motion to quash any levy of execution on HEC-TINA’s assets. On
November 8, 2019, the trial court entered two orders, one to allow Intervenors to intervene
and one granting Intervenors’ motion to quash. In the second order, the trial court directed
Mr. Druek “to cease any efforts to sell any of the assets of HEC-TINA,” including the
Property. Although not expressly recited in the written orders, it is undisputed that both
orders were entered upon the mutual consent of Mr. Druek and Intervenors. Mr. Druek
timely appealed solely the order quashing any levy of execution.
II. Issues Presented
Mr. Druek presents the following issue for this Court’s review, which we have
restated as follows:
1. Whether the trial court erred by granting Intervenors’ motion to quash
a levy of execution on HEC-TINA’s Tennessee assets to satisfy Mr.
Druek’s Iowa judgment against HEC Iowa when, because of their
corporate structure, an execution on one was allegedly an execution
on the other.
Intervenors present the following additional issue, which we have restated slightly:
2. Whether this appeal is frivolous such that Intervenors should be
granted an award of attorney’s fees on appeal in the amount of
$10,000.00.
III. Standard of Review
Our review of the trial court’s judgment following a non-jury proceeding is de novo
upon the record with a presumption of correctness as to the trial court’s findings of fact
unless the preponderance of the evidence is otherwise. See Tenn. R. App. P. 13(d); Bowden
v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000). “In order for the evidence to preponderate
against the trial court’s finding of fact, the evidence must support another finding of fact
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with greater convincing effect.” Wood v. Starko, 197 S.W.3d 255, 257 (Tenn. Ct. App.
2006). We review questions of law, including those involving the Tennessee Rules of Civil
Procedure, de novo with no presumption of correctness. Green v. Moore, 101 S.W.3d 415,
418 (Tenn. 2003).
IV. Consent Order Quashing Levy of Execution
Mr. Druek has raised an issue on appeal with respect to the trial court’s order
granting Intervenors’ motion to quash any levy of execution on the Property. Upon review,
however, we have determined that inasmuch as the order in question was a consent order,
Mr. Druek’s failure to file a Tennessee Rule of Civil Procedure 60.02 motion is dispositive
in this matter.
As this Court has explained:
Consent decrees, compromise and settlement agreements, and agreed
orders are favored by the courts and represent the achievement of an amicable
result to pending litigation. A consent decree signed by the parties involved
has been described as “about the most binding of agreements that can be
made.” Bringhurst v. Tual, 598 S.W.2d 620, 622 (Tenn. Ct. App. 1980)
(citing Smelcer v. Broyles, 225 Tenn. 187, 465 S.W.2d 355, 356 (Tenn.
1971)); Boyce v. Stanton, 83 Tenn. 346, 375-76 (1885).
Silliman v. City of Memphis, 449 S.W.3d 440, 448 (Tenn. Ct. App. 2014) (quoting
Henderson v. Wilson, No. M2009-01591-COA-R3-CV, 2011 WL 683905, at *4 (Tenn. Ct.
App. Feb. 25, 2011)). Moreover, “[c]onsent decrees have attributes both of contracts and
of judicial decrees.” Silliman, 449 S.W.3d at 449 (quoting 46 Am. Jur. 2d Judgments §
186). Moreover, this Court has previously elucidated:
A consent order is defined as “a solemn contract or judgment of the
parties put on file with the sanction and permission of the court.” 49 C.J.S.
Judgments § 182 (1997). It is well settled in Tennessee that consent orders
are valid and binding. Underwood v. Zurich Ins. Co., 854 S.W.2d 94, 97
(Tenn. 1993). In Nance v. Pankey, 880 S.W.2d 944, 946 (Tenn. Ct. App.
1993), this Court stated:
[A consent] order is conclusive upon the consenting parties,
and can neither be amended nor in any way varied without like
consent; nor can it be reheard, appealed from or reviewed upon
writ of error. After a consent decree has become final it can
only be attacked by a suit against the counsel who consented
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to it or by a bill of review or some original action. Kelly v.
Walker, 208 Tenn. 388, 346 S.W.2d 253, 255-56 (1961); see
also City of Shelbyville v. State ex rel. Bedford County, 220
Tenn. 197, 415 S.W.2d 139, 144 (1967).
Bacardi v. Tenn. Bd. of Registration in Podiatry, 124 S.W.3d 553, 562 (Tenn. Ct. App.
2003).
However, a challenge to a consent order is permitted under certain limited
circumstances, notwithstanding the contractual nature of such an order. Silliman, 449
S.W.3d at 448-51. The Silliman Court cited with approval a federal decision indicating
that a consent order could be challenged via the federal counterpart to Tennessee Rule of
Civil Procedure 60.02:
While a consent decree “embodies an agreement of the parties and thus in
some respects is contractual in nature,” it is nonetheless subject to Rule 60(b)
[the federal counterpart to Rule 60.02] because it is “a judicial decree that is
subject to the rules generally applicable to other judgments and decrees.”
Silliman, 449 S.W.3d at 450 (quoting Ne. Ohio Coal. for the Homeless v. Husted, 696 F.3d
580, 601 (6th Cir. 2012)) (in turn quoting Rufo v. Inmates of Suffolk Cty. Jail, 502 U.S. 367
(1992)). See Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 430
(Tenn. 2011) (“Although federal judicial decisions ‘interpreting rules similar to our own
are persuasive authority for purposes of construing the Tennessee rule,’ they ‘are non-
binding even when the state and federal rules are identical.’” (quoting Harris v. Chern, 33
S.W.3d 741, 745 n.2 (Tenn. 2000))).
Tennessee Rule of Civil Procedure 60.02 provides that after an order is final, a court
may relieve a party from a final judgment “[o]n motion and upon such terms as are just,”
based on the following grounds:
(1) mistake, inadvertence, surprise or excusable neglect;
(2) fraud (whether heretofore denominated intrinsic or extrinsic),
misrepresentation, or other misconduct of an adverse party;
(3) the judgment is void;
(4) the judgment has been satisfied, released or discharged, or a prior judgment
upon which it is based has been reversed or otherwise vacated, or it is no
longer equitable that a judgment should have prospective application; or
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(5) any other reason justifying relief from the operation of the judgment.
Rule 60.02 further provides that motions must be filed within “a reasonable time,” except
that motions brought under (1) and (2) must be filed not more than one year after entry of
the judgment.
The transcript of the November 1, 2019 hearing reflects that Mr. Druek, thorough
his counsel, consented in open court to the trial court’s order granting Intervenors’ petition
to intervene. That order is not at issue on appeal. At the close of the arguments presented
by counsel for both Mr. Druek and Intervenors during the November 2019 hearing, the trial
court directed the parties to meet in chambers. The trial court subsequently entered the
order granting Intervenors’ motion to quash any levy of execution on the Property on
November 8, 2019, “for good cause shown” without making any specific factual findings.
When questioned during oral argument before this Court concerning whether the trial court
had made factual findings related to the motion to quash, Mr. Druek’s counsel
acknowledged that the order granting Intervenors’ motion to quash was an agreed consent
order. Furthermore, Intervenors have averred in their appellate brief that they presented
the two orders to the trial court in chambers where, after consent and agreement from Mr.
Druek, the orders were signed by counsel for Intervenors and Mr. Druek before entry by
the trial court.
The record is devoid of any indication that Mr. Druek ever filed a Rule 60.02
motion, or any other post-judgment motion, seeking relief from the trial court’s order
granting the motion to quash. We therefore determine that no basis exists upon which to
set aside the consent order quashing any levy of execution on the Property. See Bringhurst
v. Tual, 598 S.W.2d 620, 622 (Tenn. Ct. App. 1980) (“Absent some proof of fraud or
mistake in a proceeding to alter a consent decree previously made, the consent decree as
made will stand.”) (citing Tenn. R. Civ. P. 60; City of Shelbyville v. State ex rel. Bedford
Cty., 415 S.W.2d 139, 144 (Tenn. 1967)).
V. Intervenors’ Motions to Consider Post-Judgment Facts
Intervenors have filed two motions, pursuant to Tennessee Rule of Appellate
Procedure 14, requesting that this Court consider post-judgment facts. In the first motion,
filed on July 22, 2020, Intervenors asked this Court to consider that (1) HEC-TINA and
Package Express Center, Inc. (“PEC”), PI’s parent company, had purportedly entered into
an agreement to purchase the Property after the trial court had entered its final judgment
but prior to Mr. Druek’s filing his appeal; (2) Intervenors had drafted a proposed agreement
stipulating that Mr. Druek would not interfere with the pending sale of the Property, which,
notwithstanding assurances from his counsel, was never signed by Mr. Druek; and (3) PI’s
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chief operating officer had sworn that he had knowledge of the purchase agreement
between HEC-TINA and PEC.
In Intervenors’ second motion, filed on October 5, 2020, they requested that this
Court consider that (1) a warranty deed conveying the Property from HEC-TINA to PEC,
dated May 6, 2020, had been recorded in the Greene County Register’s Office in August
2020; (2) a “Loan Assumption Agreement and Assumption of the Deed of Trust” had also
been recorded in the Greene County Register’s Office in August 2020; and (3) the proceeds
from the transfer of title were being held in escrow pending the outcome of this appeal.
In light of our determination that no basis exists upon which to set aside the consent
order granting Intervenors’ motion to quash, consideration of these post-judgment facts
would not affect the positions of the parties or the subject matter of the action. See Tenn.
R. App. P. 14(a); see, e.g., Book-Mart of Fla., Inc. v. Nat’l Book Warehouse, Inc., 917
S.W.2d 691, 693 (Tenn. Ct. App. 1995). We therefore deny Intervenors’ motions to
consider post-judgment facts.
VI. Attorney’s Fees on Appeal
Intervenors assert that this appeal is frivolous and request an award of $10,000.00
in attorney’s fees purportedly incurred defending this appeal. As this Court has previously
explained regarding frivolous appeals:
Parties should not be forced to bear the cost and vexation of baseless
appeals. Accordingly, in 1975, the Tennessee General Assembly enacted
Tenn. Code Ann. § 27-1-122 to enable appellate courts to award damages
against parties whose appeals are frivolous or are brought solely for the
purpose of delay. Determining whether to award these damages is a
discretionary decision.
A frivolous appeal is one that is devoid of merit or one that has no
reasonable chance of succeeding.
Young v. Barrow, 130 S.W.3d 59, 66-67 (Tenn. Ct. App. 2003) (internal citations omitted).
Similarly, Tennessee Code Annotated § 27-1-122 (2017) provides:
When it appears to any reviewing court that the appeal from any court of
record was frivolous or taken solely for delay, the court may, either upon
motion of a party or of its own motion, award just damages against the
appellant, which may include but need not be limited to, costs, interest on the
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judgment, and expenses incurred by the appellee as a result of the appeal.
We determine that this appeal was not frivolous or taken solely for delay. Therefore, we
exercise our discretion to deny Intervenors’ request for attorney’s fees on appeal.
VII. Conclusion
For the reasons stated above, we affirm the trial court’s judgment. This case is
remanded to the trial court, pursuant to applicable law, for enforcement of the trial court’s
judgment and collection of costs assessed below. Costs on appeal are assessed to the
appellant, Jeff Druek.
________________________________
THOMAS R. FRIERSON, II, JUDGE
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