Jonathan King v. Dean Chase ( 2021 )

03/17/2021
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
December 9, 2020 Session
JONATHAN KING, ET AL. v. DEAN CHASE
Appeal from the Chancery Court for Davidson County
No. 16-0030-BC Ellen Hobbs Lyle, Chancellor
___________________________________
No. M2019-01084-COA-R3-CV
___________________________________
Appellants, partners in a partnership that was the sole member of an LLC, filed suit
against the manager of the partnership for alleged breach of fiduciary duties related to the
sale of commercial real estate on behalf of the LLC. The manager and his business (a
partner in the partnership, and together with manager, Appellees) filed counterclaims
against Appellants, alleging breach of contractual and statutory duties. The trial court
dismissed Appellants’ lawsuit on grant of summary judgment, and we affirm that
decision. Appellees’ remaining claim for misrepresentation by concealment against
Appellants was tried to a jury, which returned a unanimous verdict in favor of Appellees.
Prior to the jury trial, the Business Court found, as a matter of law, that Appellees were
entitled to indemnification by the LLC, and we affirm that decision. Because Appellants’
tort of misrepresentation by concealment resulted in a premature distribution of the sale
proceeds by the LLC, the LLC was unable to fully indemnify Appellees. As such, the
Business Court entered judgment against Appellants for attorney’s fees and expenses as
compensatory damages. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed and Remanded
KENNY ARMSTRONG, J., delivered the opinion of the court, in which J. STEVEN
STAFFORD, P.J., W.S., and CARMA DENNIS MCGEE, J., joined.
W. Gary Blackburn and Bryant Kroll, Nashville, Tennessee, for the appellants, David
King, Jonathan King, and Taylor King.
Beau C. Creson, Gayle I. Malone, Jr., and Charles I. Malone, Nashville, Tennessee, for
the appellees, Dean Chase, Sandra Chase, and D. F. Chase, Inc.1
1
In its December 7, 2018 order denying the Kings’ motion to alter or amend the order granting
summary judgment and dismissing their Complaint, see discussion infra, the trial court held, inter alia,
William Taylor Ramsey, Nashville, Tennessee, for the appellee, James W. Carrell Estate.
Lyndsay Claire Smith, Nashville, Tennessee, for the appellees, Lee Kennedy and Austin
Pennington.
William Daniel Leader, Nashville, Tennessee, for the appellee, The Rosemary Grace
Dunn 2004 Irrevocable Trust.
Robert Busby, Lithia, Florida, appellee, pro se.2
OPINION
I. Background
In late 2013, David Chase sought to purchase real estate located at One Music
Row in Nashville (the “Property”), which he planned to sell for development as a hotel
under the Virgin brand. To this end, David Chase created two entities for the purchase of
the Property and the pre-development stage of the project—NV Partners, a Tennessee
general partnership (the “Partnership”), and NV Music Row, LLC, a Tennessee limited
liability company (the “LLC,” and together with the Partnership, the “NV Entities”). At
all relevant times, the NV Partners were: (1) Lee Kennedy (with a 26% interest); (2) The
James W. Carrell Estate (with a 16.7% interest); (3) Robert Busby (with a 3.3% interest);
(4) Austin Pennington (with a 15.2% interest); (5) The Rosemary Grace Dunn 2004
Irrevocable Trust (with a .3% interest); (6) Jonathan King and Taylor King (together, the
that
The Chase Parties announced they are not seeking any relief on their claims asserted in
Count I, paragraph 47, subsection (c) of the Second Amended Counterclaim and Third-
Party Complaint, and that Sandra Chase[, Dean Chase’s wife,] shall not be included as a
party to the lawsuit.
Nonetheless, the Kings list Sandra Chase as an appellee. However, from our review, it appears she has no
stake in the outcome of the appeal because there was no judgment for or against her in the trial court. In
fact, the Kings did not assert any claims against Mrs. Chase, and she was dismissed from the underlying
lawsuit. Regardless, as noted in Appellees’ brief, to the extent necessary, Mrs. Chase adopts the
arguments asserted therein.
2
As discussed infra, by order of December 7, 2018, the trial court granted Lee Kennedy, Austin
Pennington, the Rosemary Grace Dunn 2004 Irrevocable Trust, and the James Carrell Estate’s joint-
motion to be dismissed from the lawsuit. These parties are included as appellees only to the extent that
Appellees Jonathan and Taylor King assert, as an appellate issue, that they are necessary parties on the
issue of indemnification. For the reasons discussed herein, we conclude that these parties are not
necessary parties and affirm the trial court’s December 7, 2018 order dismissing them from the lawsuit.
We note that, although Robert Busby did not join in the motion, he also is not a necessary party to the
lawsuit.
-2-
“Kings,” or “Appellants”) (with a 16.7% combined interest); (7) David King (with a 5%
interest);3 (8) D.F. Chase, Inc. (with a 16.7% interest); and Sandra Chase (with a 5%
interest).
As set out in the NV Music Row, LLC Operating Agreement (“Operating
Agreement”), the purpose of the LLC was to “purchase, acquire, own, hold, develop and
sell or otherwise dispose” of the Property. According to the Agreement of the
Partnership of NV Partners (the “Partnership Agreement”), the Partnership was organized
to “purchase, acquire, own, hold, develop and sell or otherwise dispose” of the Property
“through a wholly owned limited liability company [, i.e., NV Music Row, LLC].” NV
Partners was the sole member of NV Music Row, LLC. At the time of its formation in
2014, David Chase was designated as the Managing Partner of the Partnership. Section
5.1 of the Partnership Agreement vests the Managing Partner with sole “power or
authority to act for or bind the Partnership,” but it also provides the Managing Partner
(and other partners) with indemnity.
Due to unrelated criminal matters involving David Chase, on February 15, 2015,
the partners amended the Partnership Agreement “in order to reflect the resignation of
David Chase as Managing Partner [and] the election of Dean Chase as successor
Managing Partner.” Because Dean Chase, individually, was not a partner in the venture,
Dean Chase’s title was listed as Manager. Pursuant to the amendment to the Partnership
Agreement, Dean Chase, a principal of D.F. Chase, Inc., acted as the Manager of the
Partnership at all relevant times.
The purchase money for the Property was comprised of contributions from the
partners and a $4,500,000 loan from lender, Silverpeak (the “Silverpeak Loan”). In or
about June 2015, Silverpeak decided not to exercise an option to convert the Silverpeak
Loan into equity in the project. In the absence of repayment, on or about July 1, 2015,
Silverpeak declared the NV Entities to be in default on the Silverpeak Loan and
demanded repayment of all amounts due (i.e., $6,105,996.29) to avoid foreclosure of the
Property. In an effort to raise the money to pay off the Silverpeak Loan, Dean Chase and
Austin Pennington met with Avenue Bank. It was decided that a loan from Avenue Bank
was not possible because three of the partners were unwilling or unable to personally
guarantee the loan. As an alternative, partner Austin Pennington offered to guarantee
half of the Avenue Bank loan if Jonathan King would guarantee the other half. Jonathan
King refused, and the loan was denied.
3
As noted herein, the trial court denied Appellees’ motion to amend their complaint to add
claims against David King. Although listed as an appellant, no judgment was entered against David
King. Accordingly, any reference to the Kings or Appellants denotes Jonathan King and his wife, Taylor
King.
-3-
After the Avenue Bank loan was denied, on or about September 10, 2015, another
partner, The James W. Carrell Estate, offered to make a loan to the partnership to pay off
the Silverpeak Loan (the “Carrell Estate Loan”). Specifically, the Carrell Estate offered a
loan on the following terms: (1) $100,000 origination fee; (2) 15% annual interest; (3)
three-month term with an option for a three-month extension; (4) $100,000 extension fee;
(5) $750,000 default/foreclosure fee; and (6) all interest would be earned at the beginning
of the applicable term. The partners, including the Kings, voted to approve the Carrell
Estate Loan. However, after Steven Kirkham, the NV Entities’ attorney, reviewed the
foregoing terms, he advised Dean Chase, as Manager of the Partnership, that the 15%
interest rate was usurious and illegal under Tennessee law.
On the day before Silverpeak was due to foreclose on the Property, and with no
loan options available, Dean Chase caused partner D.F. Chase, Inc. to loan the NV
Entities approximately $6,300,000 to pay off the Silverpeak Loan and save the project
(the “D.F. Chase Loan”). In making the D.F. Chase Loan, Dean Chase spoke with Mr.
Kirkham and instructed him to make the costs of the loan similar to those proposed in the
Carrell Estate Loan but to ensure that the terms were compliant with Tennessee law. To
this end, Mr. Kirkham arrived at the following terms for the D.F. Chase Loan: (1)
$200,000 origination fee; (2) 7.25% annual interest; (3) three-month term with options
for two three-month extensions; (4) $20,000 extension fee; and (5) all interest would be
calculated as time elapsed rather than up front. Dean Chase did not seek Partnership
approval prior to making the D.F. Chase Loan. Rather, he concluded that a vote was not
necessary due to the fact that the partners had previously approved the Carrell Estate
Loan, which was ostensibly the same as the D.F. Chase Loan, with the exception that the
overall cost of the D.F. Chase Loan were approximately $37,744 less than those offered
by the Carrell Estate and was legal under Tennessee law. It is undisputed, however, that
the partners were advised of the D.F. Chase Loan within twenty-four hours of the
distribution of the funds to pay off the Silverpeak Loan.
Having avoided foreclosure on the Property, on November 4, 2015, NV Music
Row, LLC, with the vote of a majority of the partners, entered into a contract with Virgin
to sell the Property for $11,500,000. The contract provided for a 35 day due diligence
period, during which Virgin had the option to rescind. On December 1, 2015, Virgin
exercised its option and withdrew its initial offer. Instead, Virgin lowered its purchase
offer to $10,500,000. Following a meeting and vote, a majority of the partners directed
Dean Chase to reject Virgin’s lower offer, which he did. Thereafter, Virgin made another
offer of $11,000,000 to purchase the Property. On or about December 2, 2015, a majority
of the partners voted to accept Virgin’s $11,000,000 offer. Although the Kings voted
against the sale, after the majority of the partners voted to accept Virgin’s offer, each of
the partners, including the Kings, signed a Unanimous Consent directing Dean Chase to
consummate the transaction on behalf of the NV Entities. Following the sale, the NV
Entities were required, under Article VII of the Operating Agreement, to retain sufficient
funds to pay any future contingent liabilities but were otherwise allowed to distribute the
-4-
remainder of the sale proceeds. As discussed below, each partner had an obligation to
disclose any known contingent liabilities. No partner disclosed any potential future
liabilities, and, on or about December 21, 2015, the NV Entities made a distribution of all
but approximately $68,000 of the sale proceeds. Each partner realized a profit of over
30% of his or her initial investment.
On December 31, 2015, approximately two weeks after distribution of the sale
proceeds, the Kings, through their attorney, sent a letter to Mr. Kirkham, in which they:
(1) requested to examine, audit, and copy the books and records of the NV Partners; and
(2) placed Dean Chase, Mr. Kirkham, his law partners, and his firm on notice of potential
claims for fraud, conversion, breach of fiduciary duty, and legal malpractice. Thereafter,
on January 12, 2016, Jonathan King filed a complaint against Dean Chase, in his capacity
as Manager of the Partnership, in the Davidson County Chancery Court. Specifically,
Jonathan King alleged that Dean Chase violated sections 6.1(a) and (c) of the Partnership
Agreement, and sections 61-1-403(b) and (c) of the Tennessee Revised Uniform
Partnership Act (“TRUPA”) by allegedly refusing Jonathan King access to the
Partnership’s books and records, and by not identifying the Partnership’s accountant. On
January 27, 2016, the case was transferred to the Business Court Pilot Project (“Business
Court,” or “trial court”).
On March 28, 2016, Dean Chase filed an answer denying liability. Concurrent
with his answer, Dean Chase filed a counterclaim against Jonathan King, personally.
Therein, Dean Chase alleged, inter alia, that Jonathan King “was planning to request the
books and records of NV Partners and to file the present and the threatened future
lawsuit(s) before the distributions were made to the partners of NV Partners on December
21, 2015.” In failing to “make . . . the other partners of NV Partners, or Mr. Chase aware
of such plans prior to the . . . distribution being made,” Dean Chase averred that Jonathan
King’s actions were intentional, knowing, reckless, and/or negligent and in contravention
of his contractual duties. Thus, Dean Chase sought a judgment for compensatory
damages in the form of attorney’s fees and costs incurred in defending the lawsuit on
behalf of the Partnership.
On August 12, 2016, Dean Chase filed a Tennessee Rule of Civil Procedure 12
motion for judgment on the pleadings, wherein he sought dismissal of Jonathan King’s
original books and records claims. Following a hearing, on September 29, 2016, the
Business Court issued a memorandum and order dismissing Jonathan King’s original
claims as a matter of law. In ruling on the motion, the trial court acknowledged Dean
Chase’s assertion that Jonathan King’s “[c]omplaint should be dismissed on the[]
ground[] [that Dean Chase] is not a proper party because he is not a Partner, only the
Manager of the Partnership.” However, the Business Court found that Dean Chase, as
the Manger of the Partnership, owed certain duties to the Partnership and was, thus, a
proper party to King’s lawsuit. Nonetheless, the Business Court ultimately dismissed
King’s lawsuit, finding that it was moot as Mr. King did, in fact, obtain the records and
-5-
information he sought.
On January 6, 2017, Dean Chase filed a motion to amend his counterclaim and to
add parties. Therein, he explained that, on or about December 19, 2016, Jonathan King,
purporting to act on behalf of himself, Taylor King, NV Partners, and NV
Music Row, LLC, filed a purportedly pro se Complaint against Dean Chase
. . . and others in the Circuit Court for Davidson County, Tennessee (the
“King Circuit Court Case”). The King Circuit Court Case alleges claims
against Dean Chase . . . and others relating to the affairs and business of
NV Partners. Despite realizing a profit of over 30% over approximately 18
months on their capital contribution in NV Partners, Jonathan and Taylor
King seek damages of $15,000,000 from each defendant in the King Circuit
Court Case.
***
With Jonathan and Taylor King’s recent filing of the King Circuit Court
Case, it is clear that NV Partners cannot be wound down and dissolved
without Court intervention, and that NV Partners and its partners, along
with NV Music Row, LLC, must now be added as parties to this case . . . .
Following a hearing, the Business Court granted Dean Chase’s motion to amend.
On February 1, 2017, Dean Chase filed an Amended Counterclaim and Third-Party
Complaint (“Amended Counterclaim”). The Amended Counterclaim added D.F. Chase,
Inc. and Sandra Chase (together with Dean Chase and D.F. Chase, Inc., the “Chase
Parties,” or “Appellees”) as plaintiffs. The Amended Counterclaim also added the NV
Entities, and the individual partners as defendants. In relevant part, the Chase Parties
asserted: (1) claims for compensatory damages against Jonathan King and Taylor King
for their “intentional, knowing, reckless, and/or negligent failure to disclose” their plans
to sue Dean Chase prior to approving the distribution of funds from the Partnership; and
(2) claims for indemnity from NV Partners and NV Music Row, LLC for costs “incurred
in providing Jonathan King information relating to NV Partners, defending the present
lawsuit, and responding to Jonathan and Taylor King’s orchestrated campaign against NV
Partners.” The Chase Parties further averred that the “costs and expenses all have been
incurred and continue to be incurred on behalf of NV Partners [and] constitute legitimate
business liabilities of NV Partners.” The Chase Parties asserted a right to indemnification
for these costs and expenses under both the TRUPA and the Partnership Agreement.4
4
As to indemnification under the TRUPA, the Chase Parties averred:
a. Judgment against Jonathan and Taylor King individually is proper pursuant to
Tenn. Code Ann. § 61-1-307 because Jonathan and Taylor King are personally liable for
-6-
Based on these allegations, the Chase Parties sought the following relief:
1. That the Court require Jonathan and Taylor King to deposit into Court
during the pendency of this action the $459,455.06 they were distributed
from NV Partners, or some portion thereof, because such funds belong to
NV Partners to pay its liabilities to Dean Chase and/or D.F. Chase, Inc.; or,
alternatively, that the Court require all partners of NV Partners to deposit
into Court their distributions from NV Partners, or some portion thereof, for
the same purpose;
Dean Chase’s and D.F. Chase’s claim under Tenn. Code Ann. § 61-1-306 and NV
Partners’ assets subject to execution are insufficient to satisfy the claim.
b. Judgment against Jonathan and Taylor King individually is also proper
pursuant to Tenn. Code Ann. § 61-1-307 because Jonathan and Taylor King are
personally liable for Mr. Chase’s claim under Tenn. Code Ann. § 61-1-306 and it would
be an appropriate exercise of the court’s equitable power.
49. As general partners of NV Partners and pursuant to Tenn. Code Ann. § 61-1-
306, all partners of NV Partners are likewise jointly and severally liable for the liabilities
that NV Partners owes to Dean Chase and D.F. Chase, Inc., even those such liabilities
that have been caused by the acts and omissions of Jonathan and Taylor King.
As to their claim for indemnification under the Partnership Agreement, the Chase Parties cited
Sections 5.3 and 5.1(b) of the Partnership Agreement. Section 5.3 provides:
Compensation. Except as may be hereafter approved by the Managing Partner and a
Majority Vote of the Partners, no Partner or Affiliate of any Partner shall receive any
salary, fee, or draw for services rendered to or on behalf of the Partnership, provided that
any Partner or Affiliate of any Partner may be reimbursed for any expenses incurred by
such Partner or Affiliate on behalf of the Partnership or otherwise in its capacity as a
Partner.
Section 5.1(b) of the Partnership Agreement provides:
The Partnership will indemnify the Partners and hold them harmless and defend them
from and against all claims and liabilities arising from or related to any act or omission
done in good faith or in a manner that any Partner or Partners reasonably believed to be
in or not opposed to, the best interests of the Partnership and consistent with the purpose
of the Partnership, including all damages, judgments, fees, settlements, costs, and
attorneys’ fees actually and reasonably paid or incurred by any Partner or Partners in
connection with an action, claim, suit, or proceeding incurred pursuant to this indemnity
provision, The Partner or Partners will be indemnified to the fullest extent allowed under
Tennessee law. In the event the Partnership does not have adequate funds or assets to
fully indemnify any Partner, the Partners will not, under any circumstances, be required
to indemnify the Partner or make an additional Capital Contribution to the Partnership for
the purpose of indemnifying the Partner.
-7-
2. That the Court award Dean Chase and D.F. Chase, Inc. a money
judgment for all costs and expenses incurred on behalf of NV Partners
against Jonathan and Taylor King, or, alternatively, against NV Partners
and all its partners including Jonathan and Taylor King;
***
4. That the Court award Dean Chase and D.F. Chase, Inc. a money
judgment for compensatory damages, treble damages, and punitive
damages in an amount to be proven at trial against Jonathan King for
inducement of breach of contract;
***
6. That the Court award Dean Chase and D.F. Chase, Inc. a judgment that
they are entitled to full and complete indemnity by the NV Entities and the
partners of NV Partners;
***
9. That the Court award Dean Chase and D.F. Chase, Inc. pre judgment
interest;
10. That the Court award Dean Chase, D.F. Chase, Inc., and Sandra Chase
their costs and attorney fees in this action;
In addition to the foregoing relief, the Chase Parties also requested a declaratory
judgment that they had not engaged in any violation of the Partnership Agreement or the
TRUPA.
As noted above, the Business Court dismissed Jonathan King’s books and records
lawsuit as moot, and there is no indication in the record that the King Circuit Court Case
was transferred to the Business Court. Nonetheless, on March 22, 2017, the Business
Court granted the Kings leave to file an amended complaint. After striking some of the
proposed allegations, on April 26, 2017, the Kings filed a First Amended Complaint. On
May 10, 2017, the Chase Parties filed a motion for partial judgment on the pleadings. In
response, the Kings moved to amend their complaint, which the Business Court allowed.
On June 19, 2017, the Kings filed a Second Amended Complaint (the “Complaint”),
wherein they averred, in relevant part, that:
8. On or about February 20, 2015, David Chase resigned as managing
partner and was replaced by his father, Dean Chase. Dean Chase was then
-8-
vested with the power to control all partnership decisions, with the
exception of Material Matters, which require the approval of the Managing
Partner and a Majority Vote of the Partners, according to the Partnership
Agreement. “Material Matters” include, inter alia, refinancing the
property, borrowing money, and the payment of compensation to any
Partner.
9. Dean Chase became a manager but was not personally made a partner in
the venture. As a result of this status, he owed a fiduciary duty to the
partnership and to its members. This duty specifically forbade him from
making business decisions in his own personal interest, but inimical to the
best interest of the partnership.
The Kings alleged breach of fiduciary duty, intentional misrepresentation, promissory
fraud, and constructive fraud against Dean Chase. Specifically, the Kings alleged that
Dean Chase violated duties he owed to the Partnership in three ways, i.e.:
a) He paid or permitted to be paid fees and expenses related, to criminal
charges against his son David from the funds of the Partnership [the
“Expense Claims”];
b) He caused D.F. Chase, Inc., a corporation owned and controlled by him,
to lend money to the Partnership, rather than pursuing borrowing options
free of conflicts. In so doing, fees and interest were paid to D.F. Chase, and
inured to the benefit of Dean Chase [the “Loan Claims”];
c) He negotiated, dominated and controlled the sale of partnership property
at less than a fair market value to satisfy the personal needs of himself and
D.F. Chase to the detriment of the Partnership and [the Kings] [the
“Property Sale Claims”].
After time for discovery, on July 13, 2018, the Chase Parties filed a motion for
summary judgment, seeking dismissal of the Kings’ Complaint on the following grounds:
2. With respect to Loan Claims, the undisputed material facts establish as a
matter of law that the loan from D.F. Chase to the Partnership was neither a
breach of fiduciary duty, a breach of the operative Partnership Agreement
of the Partnership, nor any misrepresentation or fraud in any manner.
Irrespective, the undisputed material facts also establish that neither the
Kings, specifically, nor the partners generally, suffered any damages as a
result of such loan, which was a lowest cost option to save the Partnership
from foreclosure proceedings on the land.
3. With respect to the [Property] Sale Claims, the undisputed material facts
establish that, even if the Court presumes the Kings did not vote in favor of
the sale of the property, the property was sold pursuant to a valid and
enforceable vote of the partners holding a majority interest in the
-9-
Partnership and pursuant to the express requirements of the operative
partnership agreement. Thus, [the] claims for breach of fiduciary duty and
misrepresentation/fraud fail as a matter of law.
4. With respect to the Expense Claims, the undisputed material facts
establish that Dean Chase did not pay or permit to be paid fees and
expenses related to criminal charges against his son David Chase from the
funds of the Partnership.
The Kings opposed the motion for summary judgment, which the Business Court
heard on September 14, 2018. At the hearing, the Kings announced that they would not
pursue the Expense Claims concerning the allegation that Dean Chase caused the
Partnership to pay certain expenses related to David Chase’s criminal matters. By order
of September 27, 2018, the Business Court: (1) granted Dean Chase’s motion for
summary judgment and dismissed the King’s Complaint in its entirety (we will discuss
the Business Court’s specific findings below); and (2) granted the Chase Parties’
counterclaim concerning the request for declaratory judgment. In ruling on the
declaratory judgment, the Business Court held:
[T]he Counterclaim is that the second Count IV of the Counterclaim seeks a
declaratory judgment that pursuant to Tenn. Code Ann. § 29-14-101 et seq.,
Dean Chase and D.F. Chase did not undertake any act or omission in
relation to NV Partners or its partners in violation of the Partnership
Agreement that damaged NV Partners or its partners; and they did not
undertake any act or omission in relation to NV Partners or its partners in
violation of Tenn. Code Ann. § 61-1-101 et seq. that damaged NV Partners
or its partners. These issues are decided herein in [the Chase Parties’] favor
on summary judgment.
On November 29, 2018, the Kings filed a “Memorandum in Support of Motion to
Alter or Amend Order of Dismissal and for Additional Findings of Fact and Conclusions
of Law,” asking the Business Court to review its grant of the Chase Parties’ motion for
summary judgment. However, from the record, it appears that the Kings did not file the
actual motion to alter or amend until December 4, 2018, the day before the rescheduled
pre-trial conference, see infra. As discussed below, by order of December 7, 2018, the
Business Court denied the Kings’ motion to alter or amend.
On November 6, 2018, the Kings filed a Tennessee Rule of Civil Procedure 12.03
motion for judgment on the pleadings, seeking dismissal of the Chase Parties’ remaining
counterclaims. As grounds, the Kings argued, inter alia¸ that Dean Chase was not a
partner in the Partnership and, thus, neither the Partnership Agreement nor the TRUPA
were applicable so as to give him a right of indemnity. The Chase Parties filed a
response in opposition to the Kings’ motion. On November 27, 2018, the Chase Parties
filed a motion for leave to file a second amended counterclaim and third-party complaint.
- 10 -
The Kings opposed the motion. The Kings’ Rule 12.03 motion and Chase Parties’
motion to amend were set for hearing on November 30, 2018. Following the hearing, the
Business Court entered an order on December 3, 2018. Therein, the court granted the
Chase Parties’ motion to amend, “with the exception of the proposed claims against
David King personally,” see further discussion infra.
Before ruling on the Kings’ Tennessee Rule of Civil Procedure 12.03 motion, the
Business Court, in its December 3, 2018 order, clarified:
With respect to the substance of the [Rule 12.03 motion], the Court, after
studying the law, the record and argument of Counsel, determines that the
[motion] has identified that there exist some pure issues of law reserved for
the Court to decide. The Court further determines that it is necessary to
issue these rulings of law immediately to identify and segregate the issues
to be tried by the jury in the upcoming December 10, 2018 jury trial.
Lastly, on these issues of law, the King Parties prevail on dismissing some
but not all of the Chase Parties’ claims. Moreover, some pure issues of law
are ruled upon herein on which the Chase Parties prevail.
The Business Court went on to make the following rulings, as matters of law:
1. The Business Court denied the Chase Parties’ claim for indemnification under the
Partnership Agreement, finding that Dean Chase was not a partner: “[T]he Partnership
Agreement and Amendment to the Partnership Agreement establish that Dean Chase was
not a partner, he was a manager of the partnership. Accordingly, he is not a party to the
Partnership Agreement and, therefore, the Court concludes, Dean Chase cannot enforce
the section 5.1(b) indemnity provisions against the Kings.” Although the Business Court
held that Dean Chase was not entitled to indemnification under the Partnership
Agreement, the court ultimately held that, as the Manager of the partnership, Dean Chase
was entitled to indemnification under section 48-249-115(c) of the Tennessee Revised
Limited Liability Company Act (the “LLC Act”). In short, the Business Court held, as a
matter of law, that the Chase Parties were entitled to indemnity from NV Music Row,
LLC but granted the Kings’ motion for judgment on the pleadings as to the Chase
Parties’ claim for indemnification from NV Partners under either the Partnership
Agreement or the TRUPA, see further discussion infra.
2. The Business Court granted the Kings’ Rule 12.03 motion in part, dismissing the
Chase Parties’ breach of contract and unjust enrichment claims.
3. The Business Court denied the Kings’ Rule 12.03 motion with respect to the Chase
Parties’ claims for misrepresentation by concealment, holding that
- 11 -
as a matter of law [] pursuant to the plain, ordinary meaning of sections
1.10, 4.1, 10.1 and 10.2 of the Partnership Agreement and Tennessee Code
Annotated sections 61-1-403 and 404(d), Jonathan and Taylor King had a
duty to notify NV Partners of contingent liabilities and had an affirmative
disclosure obligation to provide information to the partners concerning the
partnership’s business and affairs.
***
The Court thus rules and it is ORDERED that as a matter of law the King
Parties had a duty to reveal their claims against Dean Chase to the
Partnership before they received their distribution.
4. The Business Court denied the Kings’ claim that Dean Chase, who was not a partner,
had no standing to enforce the duty to disclose provisions of the Partnership Agreement,
to-wit:
In oral argument the King Parties asserted that Dean Chase, as a
non-partner, does not have standing to assert the duty of disclosure a
partner is required to perform under the Partnership Agreement and the
Partnership Act. The Court comes to a different conclusion as to the Chase
Parties’ [] cause of action of the tort of misrepresentation by concealment.
The Court concludes, under the unique facts of this case where NV
Music Row LLC had a contractual and statutory obligation to indemnify
Dean Chase, that the King Parties’ alleged intent and conduct of waiting to
sue until after distribution of all the funds to partners, substantially thwarted
and deprived Dean Chase of his ability to obtain indemnity from NV Music
Row LLC and placed himself within the zone for persons whom the King
Parties had a duty of disclosure with respect to the tort of misrepresentation
by concealment. These facts, the Court concludes, furnish standing and a
legal basis for the disclosure duty in the Partnership Agreement and Statute
to apply to the Chase Parties’ claims of misrepresentation by concealment.
The Business Court entered an order continuing the pre-trial conference until
December 5, 2018 “[d]ue to recent filings on issues determinative of the scope of the jury
trial to be conducted.” Following the pre-trial conference, and as noted above, the trial
court entered an order on December 7, 2018, wherein it denied the Kings’ motion to alter
or amend the order granting the Chase Parties’ motion for summary judgment and the
Kings’ motion for continuance, see discussion infra. In addition, in its December 7, 2018
order, the Business Court: (1) granted the Kings’ motion to bifurcate the trial and
specified that “the Chase Parties’ . . . claims against Jonathan and Taylor King,
personally, for misrepresentation by concealment shall proceed to a trial by jury . . . on
- 12 -
liability only;” (2) held that, as requested by the parties, the court would appoint a special
master “[a]s to quantification of damages subsequent to the jury trial;” and (3) noted that
(based on their agreement), “the King Plaintiffs and Chase Parties have waived their right
to a trial by jury on quantification of damages.”
On December 10-12, 2018, the Chase Parties’ counterclaim for misrepresentation
by concealment was tried to a jury. The following witnesses testified: (1) Steve Kirkham,
(2) Jonathan King, (3) Dean Chase, and (4) David King. The Kings also submitted an
offer of proof from Jeffrey Burnside, the Kings’ attorney, who was excluded as a witness,
see discussion infra. At the close of the Chase Parties’ proof, the Kings moved for
directed verdict, which the Business Court denied. On December 10, 2018, the jury
returned a unanimous verdict holding that both Jonathan King and Taylor King were
liable for misrepresentation by concealment.
On January 22, 2019, the Kings filed “Motions Pursuant to Rule 50, 52, and Rule
59,” wherein they moved the Business Court,
under Rule 50.02 to set aside the verdict and judgment entered thereon . . .
and for judgment entered in accordance with the Kings’ motions for
directed verdict, or in the alternative for a new trial pursuant to Rule 59.06
or 59.07. The Kings additionally file a second motion under Rule 52.02 to
alter or amend this Court’s order of dismissal and for additional findings of
fact and conclusions of law; and under Rule 59.04 to alter or amend the
judgment in this case.
The Business Court heard the Kings’ motion on February 22, 2019 and denied the motion
in full by order of March 1, 2019.
Having granted the Kings’ motion for bifurcation, supra, the Business Court
referred the case to a Special Master for determination of damages. On April 11, 2018,
the Special Master submitted its report, wherein it recommended that damages comprised
of attorney’s fees and expenses be awarded to the Chase Parties as follows: (1)
$68,650.98 awarded against NV Music Row, LLC; and (2) $609,117.81 awarded against
Jonathan King and Taylor King, for a total of $677,768.79. On April 29, 2019, the Chase
Parties moved the Business Court to adopt the Special Master’s recommendations. The
Kings did not oppose the motion. On May 20, 2019, the Business Court adopted the
findings of the Special Master and entered judgment in accordance therewith. On June 5,
2019, the Business Court entered its final judgment in the case.
- 13 -
II. Issues
The Kings appeal. They raise the following 19 issues in their brief:
1. Whether the trial court erred in granting Dean Chase’s motion for
summary judgment on grounds that the Kings could not prove damages?
2. Whether the trial court erroneously found failure to prove damages
equates to a finding that Dean Chase did nothing wrong?
3. Whether the trial court erred in refusing to rule upon the Kings’ two
requests to make additional findings of fact and conclusions of law
regarding ignored, admitted facts?
4. Whether the trial court’s allowance of the Chase Parties to amend their
transformative Counterclaim on the eve of trial and refusal to grant a
continuance, was an abuse of discretion?
5. Whether the failure of the trial court to grant a continuance prejudiced
the Kings, who had been unable to take discovery on the Chases’ new
claims, the meaning of a contingent liability of the Partnership, or to amend
their discovery responses to list Jeff Burnside as a potential witness?
6. Whether the trial court erred in granting judgment on the pleadings in
favor of the Chase Parties, who were non-movants, based in part on a prior
summary judgment ruling, for claims that had never before been asserted
until less than a week before trial?
7. Whether the trial court erred in finding that the Kings owed any duty to
disclose information to Dean Chase by virtue of the Partnership Agreement
or T.C.A. § 61-1-401?
8. Whether the Chases’ version of a claim for misrepresentation by
concealment states a claim under Tennessee law?
9. Whether the trial court erred in finding that Dean Chase was a
“responsible person” entitled to mandatory indemnity by virtue of the
Tennessee Revised LLC Act, T.C.A. § 48-249-115(c)?
10. Whether Dean Chase lacked standing to bring a claim for
indemnification against the Kings individually?
11. Whether the Chases’ unrecognized tort theory, seeking attorney’s fees
as their sole damages, is against the public policy of the State of
Tennessee?
12. Whether the trial court erred in finding that the Kings were personally
liable for the obligation of the Partnership or the LLC, when neither the
statutes nor the relevant contracts allowed personal liability?
13. Whether the Third-Party Defendants were necessary parties pursuant to
Tenn. R. Civ. P. 19.01?
14. Whether the trial court prejudiced the jury with frequent comments and
interruptions of Kings’ counsel during opening statements?
15. Whether the trial court erred in denying the Kings’ motions for
- 14 -
mistrial?
16. Whether the trial court erred in failing to instruct the jury on a material
fact, possibility, a Partner’s right to access the books and records and the
Kings’ defense of unclean hands, as well as an instruction on the American
Rule regarding attorney’s fees.
17. Whether the trial court’s exclusion of exhibits and a witness, Jonathan
King’s attorney, Jeffrey Burnside, on grounds that they had not been
disclosed in the Kings’ discovery responses answered over a year prior to
the Chase Parties’ amendment on the eve of trial to assert a new claim for
misrepresentation, was an abuse of discretion?
18. Whether the evidence preponderated against any verdict for Taylor
King?
19. Whether the trial court erred in denying a directed verdict for Taylor
King when she was not called as a witness, the Chase Parties offered none
of her deposition testimony, and no evidence of any statement made by her
was proven at trial?
The issues raised by the Kings can be divided into several broad categories: (1)
issues related to the grant of summary judgment; (2) issues related to the Chase Parties’
claim against the Kings for misrepresentation by concealment; (3) issues related to the
Chase Parties’ right to indemnification/reimbursement; (4) miscellaneous rulings made
by the Business Court prior to the jury trial; (5) issues related to the jury trial; and (6)
damages. We will address the Kings’ issues and arguments under the foregoing
categories.
III. Issues Related to the Grant of Summary Judgment
As noted above, the Kings’ claims against Dean Chase fall into three categories:
Expense Claims, Loan Claims, and Property Sale Claims. At the hearing on the motion
for summary judgment, the Kings announced that they would not pursue the Expense
Claims concerning the allegation that Dean Chase caused the Partnership to pay certain
expenses related to David Chase’s criminal matters. On appeal, the Kings do not dispute
the trial court’s grant of summary judgment on the Expense Claims; accordingly, we
affirm the court’s grant of summary judgment on this claim. We further note that the
Kings’ brief focuses primarily on the Property Sale Claims; however, in the interest of
full adjudication, we will address the Business Court’s holdings concerning both the
Loan Claims and the Property Sale Claims.
We first note that “[a] trial court’s decision to grant a motion for summary
judgment presents a question of law. Therefore, our review is de novo with no
presumption of correctness afforded to the trial court’s determination.” Bain v. Wells,
936 S.W.2d 618, 622 (Tenn. 1997). This Court must make a fresh determination that all
requirements of Tennessee Rule of Civil Procedure 56 have been satisfied. Abshure v.
- 15 -
Methodist Healthcare-Memphis Hosps., 325 S.W.3d 98, 103 (Tenn. 2010). When a
motion for summary judgment is made, the moving party has the burden of showing that
“there is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Tenn. R. Civ. P. 56.04. “A fact is material ‘if it must be
decided in order to resolve the substantive claim or defense at which the motion is
directed.’” Akers v. Heritage Med. Assocs., P.C., No. M2017-02470-COA-R3-CV, 2019
WL 104130, at *5 (Tenn. Ct. App. Jan. 4, 2019), perm. app. denied (Tenn. May 16,
2019) (quoting Byrd v. Hall, 847 S.W.2d 208, 215 (Tenn. 1993)). Further, “[a] ‘genuine
issue’ exists if ‘a reasonable jury could legitimately resolve that fact in favor of one side
or the other.’” Akers, 2019 WL 104130, at *5 (quoting Byrd, 847 S.W.2d at 215).
The Tennessee Supreme Court has explained that when the party moving for
summary judgment does not bear the burden of proof at trial, “the moving party may
satisfy its burden of production either: (1) by affirmatively negating an essential element
of the nonmoving party’s claim, or (2) by demonstrating that the nonmoving party’s
evidence at the summary judgment stage is insufficient to establish the nonmoving
party’s claim or defense.” Rye v. Women’s Care Center of Memphis, MPLLC, 477
S.W.3d 235, 265 (Tenn. 2015) (italics omitted). Furthermore,
“[w]hen a motion for summary judgment is made [and] . . . supported as
provided in [Tennessee Rule 56],” to survive summary judgment, the
nonmoving party “may not rest upon the mere allegations or denials of [its]
pleading,” but must respond, and by affidavits or one of the other means
provided in Tennessee Rule 56, “set forth specific facts” at the summary
judgment stage “showing that there is a genuine issue for trial.” Tenn. R.
Civ. P. 56.06. The nonmoving party “must do more than simply show that
there is some metaphysical doubt as to the material facts.” Matsushita
Elec. Indus. Co., [Ltd. v. Zenith Radio Corp.], 475 U.S. [574,] 586, 106 S.
Ct. 1348 [(1986)]. The nonmoving party must demonstrate the existence of
specific facts in the record which could lead a rational trier of fact to find in
favor of the nonmoving party.
Rye, 477 S.W.3d at 265. “Upon review, this Court considers ‘the evidence in the light
most favorable to the non-moving party and draw[s] all reasonable inferences in that
party’s favor.’” Ray v. Neff, No. M2016-02217-COA-R3-CV, 2018 WL 3493158, *3
(Tenn. Ct. App. July 20, 2018) (quoting McCullough v. Vaughn, 538 S.W.3d 501, 505
(Tenn. Ct. App. 2017) (citing Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002))); see
also Stovall v. Clarke, 113 S.W.3d 715, 721 (Tenn. 2003) (citing Webber v. State Farm
Mut. Auto. Ins. Co., 49 S.W.3d 265, 269 (Tenn. 2001)). The trial court may grant
summary judgment only if “‘both the facts and the conclusions to be drawn from the facts
permit a reasonable person to reach only one conclusion.’” Helderman v. Smolin, 179
S.W.3d 493, 500 (Tenn. Ct. App. 2005) (quoting Carvell v. Bottoms, 900 S.W.2d 23, 26
(Tenn. 1995)).
- 16 -
A. Loan Claims
As discussed above, the Kings’ Loan Claims are premised on their contention that
Dean Chase, as Manager of the Partnership, breached certain fiduciary duties by causing
his company, D.F. Chase, Inc., to make a loan to the Partnership in order to avoid
foreclosure of the Property. Indeed, “the fiduciary relationship between an agent . . . and
his [or her] principal imposes ‘a duty to be careful, skillful, diligent and loyal in the
performance of the principal’s business,’ and a cause of action for damages arises only
when there is a breach of this duty.” Carter v. Patrick, 163 S.W.3d 69, 75 (Tenn. Ct.
App. 2004) (quoting Thomson McKinnon Securities, Inc. v. Moore’s Farm Supply,
Inc., 557 F. Supp. 1004, 1011 (W.D. Tenn. 1983)).
In granting summary judgment with respect to the Loan Claims, the Business
Court primarily focused on the fact that the Partnership suffered no damages as a result of
the D.F. Chase Loan. Specifically the Business Court found “that the undisputed material
facts of record establish that neither the [Kings] nor any of the partners in the Partnership
sustained any damage with respect to the Loan Claims.” In so finding, the trial court
relied on the Kings’ response to the Chase Parties’ statement of undisputed material fact.
Responses 8 and 12 are relevant:
8. On September 10, 2015, the Carrell Estate—a partner in the
Partnership—offered to make a loan to the Partnership in order to pay off
the Silverpeak Loan on the following terms: $100,000 origination fee; 15%
annual interest; 3 month term with 3 month extension; $100,000 extension
fee; $750,000 default/foreclosure fee; and all interest would be earned at
the beginning of the appropriate term.
RESPONSE: Undisputed for purposes of summary judgment.
***
12. The D.F. Chase Loan had the following terms: $200,000 origination
fee; 7.25% annual interest; 3 month term with two 3 month extensions;
$20,000 extension fee; and all interest would be calculated as time elapsed
rather than up front.
RESPONSE: Undisputed that these were the terms of the loan that was
never disclosed to the partners, in breach of Dean Chase’s fiduciary duty to
the partnership. The funds were paid without knowledge of the Partners.
Although Dean Chase did not notify the partners of the D.F. Chase Loan prior to
distributing the funds from the D.F. Chase Loan, it is undisputed that that the D.F. Chase
Loan was less expensive than the Carrell Estate Loan. As proof of this fact, the Chase
- 17 -
Parties provided a financial analysis prepared by Christopher Lovin. As found by the
trial court, “Mr. Lovin opined that the loan made by [Dean Chase’s] company was
$37,000 cheaper/more favorable to the Partnership . . ., and this opinion is unrebutted in
the record.” Contrary to the trial court’s statement that Mr. Lovin’s opinion is
“unrebutted,” the Kings assert that the D.F. Chase Loan “was not less expensive because
it does not account for legal fees incurred in preparing the loan note.” The Business
Court acknowledged this argument but ultimately concluded that “this assertion falls
within the category of a ‘metaphysical doubt,’ which under Tennessee law is insufficient
to defeat summary judgment. . . .” We agree. The Kings’ assertion that the D.F. Chase
Loan was not, in fact, more beneficial to the Partnership is not supported by any
evidence. At the summary judgment stage, the nonmoving party “must do more than
simply show that there is some metaphysical doubt as to the material facts.” Matsushita
Elec., 475 U.S. at 586. The nonmoving party must demonstrate the existence of specific
facts in the record which could lead a rational trier of fact to find in favor of the
nonmoving party. Here, the Kings have failed to meet this burden. As averred by the
Chase Parties in their reply to the Kings’ filings in opposition to the motion for summary
judgment, “The Kings . . . have not provided any evidence of what those legal fees paid
by the Carrel Estate would have been, what the amount of the legal fees purportedly
charged to the Partnership were, or how any such fees made the D.F. Chase Loan more
expensive than the proposed Carrell Estate Loan.” We agree. Mere speculation is
insufficient to show that the Partnership suffered any adverse effect in relation to the D.F.
Chase Loan. Nonetheless, the Kings argue that the lack of damages is not, ipso facto,
fatal to their Loan Claims; specifically, they contend that “the trial court erroneously
found failure to prove damages equates to a finding that Dean Chase did nothing wrong.”
We disagree. “Proof of damages is an essential element of a fiduciary duty claim, as is
causation of damages.” Morrison v. Allen, 338 S.W.3d 417, 438 (Tenn. 2011) (quoting
Union Planters Bank of Middle Tenn. v. Choate, No. M1999-01268-COA-R3-CV, 2000
WL 1231383 (Tenn. Ct. App. Aug. 31, 2000) and Restatement (Second) of Torts § 874).
“That the plaintiff sustained damages as a result of an intentional misrepresentation,
promissory estoppel or constructive fraud is an essential element of proof on the tort.”
See, e.g., Hodge v. Craig, 382 S.W.3d 325, 343 (Tenn. 2012) (citing Walker v. Sunrise
Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008)).
As the party moving for summary judgment, it was the Kings’ burden to show that
the Partnership was somehow damaged by the use of the D.F. Chase Loan. From our
review of the undisputed facts, they failed to meet this burden. The undisputed facts
establish that, on or about July 1, 2015, Silverpeak called its loan, which was secured by
the only asset of the Partnership, i.e., the Property. Thereafter, the partners met and
agreed to pursue alternate funding through Avenue Bank. That funding, however, proved
untenable because most of the partners (including Jonathan King) were unwilling to
personally guarantee the Avenue Bank loan. As such, the Carrell Estate, as a partner,
offered to make a loan under the terms discussed above. The majority of the partners
voted to accept the Carrell Estate loan. However, on review of the terms, Mr. Kirkham,
- 18 -
the attorney for the NV Entities, advised that the loan proposed by the Carrell Estate was
usurious and illegal under Tennessee law and recommended that Dean Chase, as the
Manager of the Partnership, not accept the loan. Dean Chase followed Mr. Kirkham’s
advice. So, on the day before the scheduled foreclosure by Silverpeak, which would have
resulted in loss of the Property, Dean Chase caused D.F. Chase, a partner, to make a loan
to pay off the Silverpeak Loan. Although it is undisputed that Dean Chase did not seek
partnership approval before making the D.F. Chase Loan, it is also undisputed (as
discussed above) that the D.F. Chase Loan was more advantageous to the Partnership
than the Carrell Estate Loan, which the Partnership had voted to accept. So, even
allowing, arguendo, that Dean Chase should have consulted the partners prior to making
the D.F. Chase Loan, his failure to do so must be viewed in light of the immediate threat
of foreclosure and the fact that the partners previously approved a similar loan, i.e., the
Carrell Estate Loan. In view of those contingencies, and the fact that the D.F. Chase
Loan was less costly than the Carrell Estate Loan, the Partnership did not suffer any
adverse effect from Dean Chase’s action. Furthermore, it is undisputed that Mr.
Kirkham, who represented the interests of the NV Entities, was aware of the D.F. Chase
Loan and, in fact, consulted on the terms thereof. In the absence of proof of the essential
element of damages, we conclude that the trial court correctly held that
[a]s to all of the causes of action . . . pertaining to the Loan Claims, there
are no facts in the summary judgment record of damages. Without proof on
this essential element, the [Kings’] causes of action on the Loan Claims
must be dismissed.
B. Property Sale Claims
Concerning the Property Sale Claims, the Kings assert that Dean Chase further
breached his duties to the Partnership by consummating the sale of the Property to Virgin
for $11,000,000. It is undisputed that the Kings voted against the sale. In his deposition
testimony, Jonathan King noted that he was not in agreement with the majority’s decision
to accept the $11,000,000 offer; rather, he stated that, “I was out voted. I mean, there
was–everybody else had just—they—they were happy to not lose their money.”
According to the Partnership Agreement, a majority vote of the partners determines
Partnership decisions. Together, the Kings hold a 16.7% interest in the Partnership.
Accordingly, their vote, alone, would be insufficient to overcome the will of the
remaining partners.
The Partnership Agreement defines “Material Matter,” in relevant part, to include
the “sale, finance or refinance of the Property.” Under sections 1.10 and 5.1(a) of the
Partnership Agreement, a “Material Matter” requires both: (1) the approval of the
Manager, and (2) a majority vote of the partners of the Partnership. With the exception
of the Kings, the undisputed evidence shows that the majority of the partners voted to
direct Dean Chase to cause the Partnership to sell the Property for $11,000,000. As such,
- 19 -
the Business Court held that, “to withstand summary judgment, the [Kings] had to put
forth evidence . . . that at least 50% of the partners (including the Kings) would not have
voted to sell the [Property] if those partners had known about the alleged acts and
omissions of [Dean Chase].” The Business Court ultimately concluded that “[t]here are
no such facts in the summary judgment record” and specifically held that “the [Kings]
have produced no testimony or evidence from another partner that such partner(s) was
misled, threatened, under duress, or otherwise forced to vote in favor of the sale and that
they otherwise would have voted against the sale.” From our review, we agree.
During discovery, the Kings deposed Austin Pennington and John Palmer but did
not depose any of the other partners. Messrs. Pennington and Palmer both stated that
Dean Chase did not unduly influence or coerce their votes to move forward with the sale.
In relevant part, Mr. Palmer testified that:
Q: Did Mr. Chase threaten to foreclose on the property at any
point?
A: No.
Q: Did Mr. Chase force you to vote—force the estate to vote
to sell this property for Virgin for $11 million?
A: No.
Q: Did Mr. Chase exert any undue influence on the estate to
secure their vote to sell this property for $11 million?
A: No.
Likewise, Mr. Pennington testified that:
Q: Did you ultimately sign the—I will hand you what’s
marked as—
A: I mean, I ultimately agreed to sell, yes.
Q: Was that—was your agreement procured by any
wrongdoing by Mr. Chase in that regard?
A: I don’t think Mr. Chase did anything wrong. I don’t know
what you mean by “wrong,” but I don't think he did anything
incorrect.
Q: So is it fair to say that you and Mr. Chase may have had a
different opinion on whether to hold this and try to get more
or sell now?
A: Yes.
Q: Was that all part of the discussions of all the partners at all
times during this period?
A: Yeah, and specifically on the phone call as well. That was
a common theme, but Mr. Chase did nothing incorrect or
wrong.
- 20 -
There is simply no evidence to suggest that Dean Chase exercised any undue
influence over the decision of the majority of the partners to go forward with the sale of
the Property. Despite the Kings’ intimations that the D.F. Chase Loan somehow caused
the partners to vote for a sale that the Kings imply was well below the market value of the
Property, there is no factual link between these events. The D.F. Chase Loan was made
to stop foreclosure on the Property. Had the loan not been made, the Property likely
would have been lost in foreclosure, and there would have been nothing for the
Partnership to sell. There is no indication that Dean Chase rushed to consummate the
sale in an effort to recoup the D.F. Chase Loan at an earlier date. In fact, the terms of the
D.F. Chase Loan included options for two, three-month extensions, with extension fees of
$20,000, along with interest accruing “as time elapsed rather than up front.” As such, the
Chase Parties would have benefitted more by a delay (or cancellation) of the sale to
Virgin. Regardless, the decision to go forward with the $11,000,000 sale was a separate
transaction from the D.F. Chase Loan, and the sale was accomplished by a vote of the
majority of the partners. By his own admission, Mr. King was simply “outvoted.” In
consummating the sale to Virgin, Dean Chase was merely complying with the will of the
partners, including the Kings, who ultimately signed the Unanimous Consent allowing
the sale to move forward. Had he done otherwise, Dean Chase would have violated his
fiduciary duty as Manager of the Partnership. Accordingly, the Business Court did not
err in granting his motion for summary judgment on the Property Sale Claims.
C. Kings’ Motion to Alter or Amend and for Additional Findings of Fact
Concerning Summary Judgment
As set out above, the Kings raise an issue as to “[w]hether the trial court erred in
refusing to rule upon the Kings’ two requests to make additional findings of fact and
conclusions of law regarding ignored, admitted facts in their brief.” As set out in their
brief, the Kings’ entire argument on this issue is:
The issues undecided by the trial court prejudiced the Kings at trial.
These were at the heart of the Kings’ defenses, including unclean hands and
lack of good faith. Importantly, Chase’s admitted conflict of interest, his
failure to market the Property at all, the short-sale of the Property causing
losses to the Partners of over $7 million, and the concealed D.F. Chase
Note, went directly to the Kings’ discovery of Chase’s impropriety, their
“thoughts” of exploring a lawsuit, and when these matters occurred. Had
the trial court ruled upon the Kings’ motion, it would have been obvious
that the basis for granting summary judgment was not supported by the
undisputed facts of the case.
Thus, the trial court’s refusal to rule upon the Kings’ motions to alter
or amend and for specific findings of fact was not only error, it caused
numerous additional errors in the jury instructions and the court’s conduct
- 21 -
of the trial, which prejudiced the Kings.
In the first instance, the Kings’ argument fails to comport with the requirements of
Tennessee Rule of Appellate Procedure 27(7). Under Rule 27, for each issue raised, the
appellate brief must include
[a]n argument . . . setting forth: (A) the contentions of the appellant with
respect to the issues presented, and the reasons therefor, including the
reasons why the contentions require appellate relief, with citations to the
authorities and appropriate references to the record (which may be quoted
verbatim) relied on; and (B) for each issue, a concise statement of the
applicable standard of review (which may appear in the discussion of the
issue or under a separate heading placed before the discussion of the
issues).
Here, the Kings have included neither factual allegations nor legal citations to support
their argument.
Furthermore, although the Kings allege that the Business Court “refused to rule”
on their motions to alter or amend and for additional findings of fact, the record shows
that the trial court did not “refuse to rule.” Rather, as discussed above, the Business
Court denied the motions as untimely because the Kings failed to docket the motions for
hearing prior to the jury trial. As stated in its December 7, 2018 order,
[w]ith respect to the motion of the King Parties to continue the December
10, 2018 trial, now limited to liability, it is ORDERED that to the extent
that motion continues to be asserted, it is denied.
First, by the time of the December 10, 2018 trial, this case will have
been pending for 2 years and 11 months from its January 12, 2016 filing.
Additionally, the Kings’ motion to alter or amend the September 27,
2018 summary judgment ruling is not a basis for a continuance because any
delay connected with that motion is of the Kings’ own making in several
ways. It was the Kings who sought an extension from August 2018 to
September 2018 for responding to and conducting oral argument on the
motion for summary judgment. Then, after the Court entered its summary
judgment ruling, there was a 30 day or so time between issuance of the
September 27, 2018 summary judgment ruling and the December 10, 2018
trial to file and have the motion to alter or amend heard. It was not until
November 29, 2018, that a Memorandum in support of altering and
amending was filed by the Kings.
It is therefore additionally ORDERED that the motion of the King
Parties to alter or amend and for additional findings with respect to the
September 27, 2018 summary judgment is denied for failure to docket and
- 22 -
be ruled upon prior to the December 10, 2018 trial of this case.
Having determined that the Business Court denied the motions, as opposed to refusing to
address them, the Kings’ contention does not form a basis for reversal. Although the trial
court did not address the Kings’ motions substantively, “[a] trial court’s ruling on a
motion to alter or amend may be reversed only for an abuse of discretion.” Harmon v.
Hickman Comm. Healthcare Svcs., Inc., 594 S.W.3d 297, 305 (Tenn. 2020). A trial
court abuses its discretion when the reviewing court is firmly convinced that the lower
court has made a mistake in that it affirmatively appears that the lower court’s decision
has no basis in law or in fact and is, therefore, arbitrary, illogical, or unconscionable.
See, e.g., Ballard v. Herzke, 924 S.W.2d 652, 661 (Tenn. 1996). Because the Kings
failed to docket their motion in a timely manner, we cannot conclude that the trial court
abused its discretion in denying same. That being said, this Court has reviewed the
propriety of the Business Court’s grant of the Chase Parties’ motion for summary
judgment and has concluded, supra, that the Business Court did not err in granting the
motion in full. As such, there is no basis for reversal.
IV. Issues Related to the Chase Parties’ Claims against the Kings for
Misrepresentation by Concealment
The crux of the Chase Parties’ misrepresentation by concealment claim is that the
Kings committed a legal wrong or otherwise violated their duties under the Partnership
Agreement by failing to inform Dean Chase, NV Partners, and the other partners, prior to
the distributions of monies from the NV Entities, of their intention to file a lawsuit
against Dean Chase for actions he allegedly took as Manager of the Partnership. Based
on the concealment of this fact, the Chase Parties assert that the Kings caused NV
Entities’ assets to be distributed to the partners, thus rendering the LLC financially unable
to satisfy the Chase Parties’ right to indemnification for damages (in the form of
attorney’s fees and costs) that the Chase Parties accrued in defending against the Kings’
claims that sought to undo the decision of the majority of the partners to sell the Property
to Virgin for $11,000,000.
The jury rendered a unanimous verdict finding that the Kings were liable for
misrepresentation by concealment. Concerning the prima facie elements of a
misrepresentation by concealment claim, Tennessee Pattern Jury Instruction 8.38
provides:
1. The defendant concealed or suppressed a material fact;
2. The defendant was under a duty to disclose the fact to the
plaintiff;
3. The defendant intentionally concealed or suppressed the
fact with the intent to deceive the plaintiff;
4. The plaintiff was not aware of the fact and would have
- 23 -
acted differently if the plaintiff knew of the concealed or
suppressed fact; and
5. As a result of the concealment or suppression of the fact,
the plaintiff sustained damage.
See also Chrisman v. Hill Home Dev., Inc., 978 S.W.2d 535, 538-39 (Tenn. 1998)
(citations omitted). As set out in their brief, the Kings assert that the Chase Parties failed
to meet their burden on prima facie elements 1, 2, and 5. We will address each of these
elements against the record.
1. Concealment or Suppression of a Material Fact
Concerning this element, the Kings argue that any plan they may have had to file
suit against Dean Chase was merely a “thought” or “plan for future action” and, as such,
is insufficient to satisfy this element. The question of whether the Kings’ actions rose to
the level of concealment or suppression of a material fact is a question of fact for the jury.
It is well settled that when an appellate court reviews a jury’s verdict, it “may not
reweigh the evidence or make credibility determinations, and it must construe the
evidence in the light most favorable to the verdict.” Hall v. Derrick, No. W2003-01353-
COA-R3-CV, 2004 WL 2191016, at *3 (Tenn. Ct. App. Sept. 24, 2004). A jury verdict
will not be set aside if there is any material evidence to support the verdict. Tenn. R.
App. P. 13(d). “Material evidence is ‘evidence material to the question in controversy,
which must necessarily enter into the consideration of the controversy and by itself, or in
connection with the other evidence, be determinative of the case.’” Meals ex rel. Meals
v. Ford Motor Co., 417 S.W.3d 414, 422 (Tenn. 2013) (quoting Knoxville Traction Co.
v. Brown, 89 S.W. 319, 321 (Tenn. 1905)). This Court has described “substantial and
material evidence” as “‘such relevant evidence as a reasonable mind might accept to
support a rational conclusion and such as to furnish a reasonably sound basis for the
action under consideration.’” Jones v. Bureau of TennCare, 94 S.W.3d 495, 501 (Tenn.
Ct. App. 2002) (quoting Papachristu v. Univ. of Tenn., 29 S.W.3d 487, 490 (Tenn. Ct.
App. 2000)). When reviewing the trial record, we must “assume the truth of all evidence
that supports the verdict and discard all countervailing evidence.” McLemore ex rel.
McLemore v. Elizabethton Med. Inv’rs. Ltd. P’ship, 389 S.W.3d 764, 776 (Tenn. Ct.
App. 2012) (citation omitted). “[I]f the record contains any material evidence to support
the verdict the jury’s findings must be affirmed.” Id. (citation omitted).
We first review the proof concerning whether the Kings’ considering or planning
to file suit against Dean Chase was a material fact. This Court has explained that,
[i]n the context of a claim of fraudulent or negligent misrepresentation[,] a
material fact has been defined as a reasonable person would attach
importance to its existence or non-existence in determining a choice of
action in the transaction in question; or the maker of the representation
- 24 -
knows or has reason to know that its recipient regards or is likely to regard
the matter as important in determining a choice of action, although a
reasonable person would not so regard it.
Homestead Grp., LLC v. Bank of Tennessee, 307 S.W.3d 746, 752 (Tenn. Ct. App.
2009) (citing Patel v. Bayliff, 121 S.W.3d 347, 353 (Tenn. Ct. App. 2003)).
During the jury trial, Mr. Kirkham testified that the Kings’ failure to contest the
sale of the Property was material to the partners’ decision to distribute the proceeds, to-
wit:
Q. . . . If Jonathan and Taylor King had come back to you and said, “We
object,” would NV Music Row have distributed these mon[ies] to the
partners?
A. No. Our standard on any deal—this deal, like any other—if someone, a
partner, had come back and said, “We object,” then I’m sure there would
have been a discussion of “What do you object to? Why are you
objecting?” and try to understand what amounts may be objectionable.
Maybe it’s all of it. Maybe it’s a small portion. If it were a portion, then we
would distribute what we could. If it were more than a portion or all of it, I
guess there’d be a discussion about what to do. If that doesn’t work, then
we would pay it into court and let a court decide how to distribute the
money.
Q. If Jonathan and Taylor King had come to you before the distribution and
said, “We’re going to sue Dean Chase,” would NV Music Row have
distributed this $4.3 million of funds to the partners?
A. We wouldn’t have known what to distribute to them. We wouldn’t have
known numbers. We wouldn’t have known how to do that. I guess if it had
been something like that, it sounds to me like we probably would have said,
“How do we resolve this?” If we can’t resolve it, we probably would
have—the word is “interplead,” but that means we’d pay it in court with a
lawsuit[, and] [l]et [t]he Court decide how to handle it.
Q. If Jonathan and Taylor King said, “We haven’t decided if we’re going to
sue, but we’re exploring suing the manager of this [partnership],” would the
NV entities have distributed the money?
A. That would be the same situation. Whether they say they’re going to sue
or they actually sue or they’re thinking about suing, it’s the same outcome.
Q. What if they came to you and said, “We’re not sure whether we’re going
to sue or not, but we sure are going to request the books and records, and
we want to see an audit of all the financials?” Would NV Music Row have
distributed the money at that time?
A. No. Because there would be that there’s an obvious issue to be
concerned, and again, even—you don’t know exactly how much to give
- 25 -
everybody at that point. You don’t know if moneys are going to have to be
held back. I suppose if we could limit it in a very small way, but that
would be impossible, I think, for a situation like that.
Q. Would the fact that Jonathan and Taylor King were exploring or
thinking about the possibility of filing a lawsuit be a material fact that NV
Music Row, NV Partners and Dean Chase as manager of these entities need
to know in determining whether the entities can distribute the money?
[The Court overrules the Kings’ objection to the question, and Mr. Kirkham
proceeds to answer]
A. I’m hesitating because there’s kind of two parts to that. So take the
Kings out of it for a minute. If it were the broker that we were talking about
earlier and somebody knew that the broker might be bringing a lawsuit, if
the Kings had known that or anybody else in the partnership had known
that, the expectation would be that that partner come forward and say,
“Hey, I think that broker is going to sue us. Maybe we need to have some
money available to pay him in case he does.” If the Kings had known that,
then we would expect them to come forward and tell. In this case, it’s not
only the partner [who] acknowledges somebody outside. In my mind, it’s
even worse that it’s actually a partner inside that has this formulation of an
idea of suing. So I –but yes. I mean if they had plans on suing, they should
have told everybody. “Hey, look. We’ve got a problem[.]” I think the
other partners would want to know.
Q. [] I want to put a finer point on that for you. As the lawyer for these
entities, would it have been material for you to know even if they were
thinking of [] suing?
A. Any lawsuit against—potential lawsuit against the partnership would be
material.
Q. What about any potential lawsuit or contemplated lawsuit against Dean
Chase as manager for the partnership? Would that also be material?
A. It would be material because the partnership has indemnity obligations
back to Dean as the manager of the entity, and so anybody involved in the
entity who had potential of some claims liability would be material.
Mr. Kirkham’s testimony clearly establishes that the Kings’ contemplation of any
lawsuit, whether merely a “thought” or “plan for future action,” was a material fact
because “a reasonable person would attach importance to its existence or non-existence in
determining a choice of action in the transaction in question [, i.e., distribution of the sale
proceeds].” Homestead Grp., 307 S.W.3d at 752. Mr. Kirkham’s undisputed testimony
is that the Partnership would have acted differently had the Kings informed the partners
of the fact that they were contemplating a lawsuit. Having determined that there is
sufficient evidence from which the jury could have found that the facts withheld by the
- 26 -
Kings were material facts, we now turn to the question of whether the Kings, in fact,
withheld or suppressed that information.
Johnathan King’s video deposition was played for the jurors. Therein, he testified,
in relevant part, as follows:
Q. Were you planning on bringing legal action against Dean Chase prior to
December of 2016—2015?
A. I was exploring that.
Q. When did you begin exploring bringing legal action related to NV
Partners?
A. Immediately after the sale.
Q. Sometimes we like to be precise as lawyers. When you say
“immediately,” are you talking a matter of days?
A. Yes.
***
Q. Let me back up, Mr. King. So is it fair to say that in November you
were considering exploring legal action?
A. Yeah, December—November, December.
***
Q. It was prior—prior to the sale of the property, you were—
A. It was—
Q. –considering—
A. –the last few weeks is when I really felt—
Q. The last few weeks—
A. –I was going to explore.
Q. Okay.
A. Yeah.
***
Q. Irrespective of the exact time you decided, hey, I’m going to go forward
with legal action, is it fair to say that as of December 9th, 2015, you were
very angry at the way this partnership had unfolded, or upset?
A. Yeah, I was not happy.
Q. And you were considering bringing a lawsuit about—
A. Yes.
Q. –Your complaints?
A. Yes.
- 27 -
In addition to the foregoing testimony, certain emails were admitted into evidence
as Trial Exhibits 7, 8, 9, and 15. These emails corroborate Jonathan King’s testimony
and further establish that his wife, Taylor King, who (with Jonathan King) jointly owned
a single partnership interest, was aware of the potential lawsuit. In summary, these
emails establish:
 On December 18, 2015, after being informed that both Jonathan King and Taylor
King would need to give their respective approvals before sale proceeds were
distributed, Mr. King stated that he needed to “talk to [his] attorney;”
 The Kings accepted their distribution later on December 18, with the caveat that,
“Jonathan and Taylor King are NOT happy with the outcome of this deal;”
 Nine days after the distribution, i.e., December 30, 2015, Jonathan King sent an
email, on which Taylor King and the Kings’ lawyer were copied, to another
partner. Therein, Mr. King stated that the Kings had contacted an attorney and
were “vigilantly pursuing a cause of action for breach of fiduciary duties . . .
[against] Dean [Chase,]” and “would like to have you join us in seeking justice;”
 On December 31, 2015, the Kings’ attorney sent a demand letter on their behalf
that was intended to “put Dean Chase, D.F. Chase, Inc., [and others] on notice of
potential claims by [the Kings] for fraud, conversion, breaches of fiduciary duties
[and other claims].”
Based on the content of the foregoing correspondence, it is clear that the Kings were
contemplating their lawsuit immediately following the sale of the Property. However,
they waited until after the distribution of the sale proceeds before making their plans
known to the Partnership. As Mr. Kirkham further testified:
Q. So jumping back to Mr. King’s email to you on December 18 saying that
he was going to talk to his attorney, did he come back or did Mrs. King
come back and tell you that they objected?
A. No.
Q. Did they come back and say that they were going to sue?
A. No.
Q. Did they come back and say they were exploring a lawsuit?
A. No.
Q. Did they come back and say they were going to request the books and
records and audits?
A. No.
Q. And I think we’ve got this, but if they had said that, as lawyer for the
entities, would the entities have acted differently and not distributed these
funds?
A. Whether it was the Kings or anyone else, if there had been any potential
raised that there was [sic] thoughts of a lawsuit against the entities, then we
- 28 -
would stop. We couldn’t make a distribution. We wouldn’t know how
much to distribute to everyone.
Timing, as the saying goes, is everything. Here, as Jonathan King testified, the
Kings were contemplating their lawsuit “immediately” after the sale of the Property. Yet,
they waited to disclose their plans until after the proceeds of the sale were distributed.
Had the Kings disclosed their potential lawsuit prior to the distributions, the disputes
could have been settled, and the Partnership would have retained monies necessary to
cover any liability. The foregoing evidence establishes three of the prima facie
elements: First, the Kings “concealed or suppressed a material fact.” The evidence shows
that the fact of a potential lawsuit was material and that the Kings did not disclose their
plan to file suit prior to the distribution of Partnership funds. Second, the foregoing
evidence establishes that the Kings “intentionally concealed or suppressed the fact with
the intent to deceive the plaintiff.” By his own testimony, Jonathan King had plans for a
potential lawsuit “immediately” after the sale of the Property. A reasonable jury could
infer that the Kings’ decision to withhold their plans until after distribution of the sale
proceeds was made with the intent to procure their share of the sale proceeds at the
earliest date while still seeking to set aside the sale. Finally, the foregoing evidence
establishes that, if the Kings had disclosed their plans for suit prior to distribution of the
sale proceeds, the Partnership “would have acted differently” in that it would have
withheld distribution until any disputes were settled. The evidence is sufficient to meet
the Chase Parties’ burden concerning the first, third, and fourth prima facie elements.
2. The Kings’ Duty to Disclose
In its December 3, 2018 order, the Business Court found, as a matter of law, that
the Kings owed a duty to disclose their plan to file suit against Dean Chase, to-wit:
[T]he Court rules as a matter of law that pursuant to the plain, ordinary
meaning of sections 1.10, 4.1, 10.1 and 10.2 of the Partnership Agreement
and Tennessee Code Annotated sections 61-1-403 and 404(d), Jonathan and
Taylor King had a duty to notify NV Partners of contingent liabilities and
had an affirmative disclosure obligation to provide information to the
partners concerning the partnership’s business and affairs.
The Business Court’s determination that the Kings’ owed a duty to disclose is based on
its interpretation of the Partnership Agreement and the TRUPA. Both the interpretation
of statutes and the interpretation of contracts are questions of law and, therefore, require a
de novo review on appeal with no presumption of correctness given to the trial court’s
conclusions of law. See State v. Williams, 38 S.W.3d 532, 535 (Tenn. 2001) (indicating
that the construction of statutes and the application of the law to the facts are questions of
law); see also Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999) (holding that
“[t]he interpretation of a contract is a matter of law that requires a de novo review on
- 29 -
appeal”).
In their brief, the Kings assert that, “The Kings’ only fiduciary duty was to the
Partnership. They owed no fiduciary duty to Dean Chase. No contract exists between
the Kings and Dean Chase. Thus, no duty arises . . .” We disagree. Although Dean Chase
was not a partner in NV Partners, pursuant to the amendment to the Partnership
Agreement, he was named as the Manager of the Partnership. Furthermore, Mr. Chase’s
wholly-owned company, D.F. Chase, Inc., was a partner. Thus, if the Operating
Agreement, Partnership Agreement, or the TRUPA creates a duty of disclosure on the
part of the Kings, then that duty certainly extends to Dean Chase as Manager and to the
other Chase Parties as partners.
Turning to the Partnership Agreement, it provides, in relevant part, that
distributions may be made out of the Available Cash Flow of the NV Partners. The
Partnership Agreement defines “Available Cash Flow” as the “total cash on hand less all
Partnership obligations, contingencies and reasonable working capital requirements as
determined by the partners.” (Emphases added). The Partnership Agreement further
provides that the sale of the Property is a “Liquidating Event.” Thus, prior to distribution
of the sale proceeds, the partners were obligated to “take full account of the Partnership’s
liabilities” so as to “establish[] a reserve fund which is deemed reasonably necessary . . .
to provide for any contingent or unforeseen liabilities or obligations of the
Partnership.” (Emphasis added).
Likewise, the Operating Agreement provides that the person(s) “responsible for
overseeing the winding up and liquidation of the Partnership, shall take full account of
the Partnership’s liabilities and . . . [shall] establish[] . . . a reserve fund which is deemed
reasonably necessary, in the opinion of the Managing Partner, to provide for any
contingent or unforeseen liabilities or obligations of the Partnership.”
Tennessee Code Annotated section 61-1-403 of the TRUPA provides that each
partner shall furnish, “[w]ithout demand, any information concerning the partnership’s
business and affairs reasonably required for the proper exercise of the partner’s rights and
duties under the partnership agreement. . . .” Tenn. Code Ann. § 61-1-403. The
comments to this provision explain that section 61-1-403 “imposes an affirmative
disclosure obligation on the partnership and partners.” Tenn. Code Ann. § 61-1-403, cmt.
3. Likewise, section 61-1-403 of the TRUPA provides that a “partner shall discharge the
duties to the partnership and the other partners under this act or under the partnership
agreement and exercise any rights consistently with the obligation of good faith and fair
dealing.” Tenn. Code Ann. § 61-1-404(d). The comments explain that “a disclosure
duty may, under some circumstances, also spring from the Section 404(d) obligation of
good faith and fair dealing.” Tenn. Code Ann. § 61-1-403, cmt. 3. Based on Mr.
Kirkham’s undisputed testimony, supra, the Kings’ lawsuit (and any liability stemming
therefrom) would be a “contingent or unforeseen liability” under the Partnership
- 30 -
Agreement and would also constitute “information concerning the partnership’s business
and affairs” under Tennessee Code Annotated section 61-1-403. As explained by the
Business Court in its December 3, 2018 order:
[T]he King Parties’ actions and plans to file claims against Defendant Dean
Chase concerning his management of the Partnership had a bearing on,
implicated and constituted a contingent liability for the Partnership. The
contingent liability was that if the King Parties did not prevail on their
claims against Dean Chase he had a right to be paid indemnity under the
NV Music Row LLC Operating Agreement by the Partnership as ruled
above . . . . This plan of the Kings to sue Dean Chase, because it could
result (and has resulted) in liability to the Partnership and has had
implications for and a bearing on Partnership affairs, imposed an obligation
on the Kings to state their plans as per the duties set forth in sections 1.10,
4.1, 10.1 and 10.2 of the Partnership Agreement and Tennessee Code
Annotated sections 61-1-403 and 404(d).
The Business Court further held that Dean Chase’s status as an officer of the
Partnership, and the indemnification obligations of the LLC that arose as a result of that
status, imposed a duty on the Kings to disclose their plans to sue Mr. Chase, to-wit:
The Court concludes, under the unique facts of this case where NV Music
Row LLC had a contractual and statutory obligation to indemnify Dean
Chase, that the King Parties’ alleged intent and conduct of waiting to sue
until after distribution of all the funds to partners, substantially thwarted
and deprived Dean Chase of his ability to obtain indemnity from NV Music
Row LLC and placed himself within the zone for persons whom the King
Parties had a duty of disclosure with respect to the tort of misrepresentation
by concealment. These facts, the Court concludes, furnish standing and a
legal basis for the disclosure duty in the Partnership Agreement and Statute
to apply to the Chase Parties’ claims of misrepresentation by concealment.
In arguing that they had no duty to disclose, the Kings rely on this Court’s
opinion, Macon County Livestock Market, Inc. v. Kentucky State Bank, Inc., 724
S.W.2d 343, 349 (Tenn. Ct. App. 1986), wherein the Court explained:
The Tennessee Supreme Court has held:
In all cases, concealment or failure to disclose becomes
fraudulent only when it is the duty of a party having
knowledge of the facts to discover them to the other party: 2
Pom. Eq., sec. 902. And this author, in the same section says:
“All the instances in which the duty to disclose exists and in
- 31 -
which a concealment is therefore fraudulent, may be reduced
to three distinct classes:
1. Where there is a previous definite fiduciary relation
between the parties.
2. Where it appears one or each of the parties to the contract
expressly reposes a trust and confidence in the other.
3. Where the contract or transaction is intrinsically fiduciary
and calls for perfect good faith. The contract of insurance is
an example of this last class.”
Macon Cty., 724 S.W.2d at 349 (citing Domestic Sewing Machine Co. v. Jackson, 83
Tenn. 418, 424-25 (1885); Simmons v. Evans, 206 S.W.2d 295, 296 (Tenn. 1947);
Dozier v. Hawthorne Development Co., 262 S.W.2d 705, 711 (Tenn. Ct. App. 1953)).
Contrary to the Kings’ argument, and in line with the Business Court’s holdings, the
relationship between the Kings and the Chase Parties (i.e., Dean Chase’s status as
Manager of the Partnership and the other Chase Parties’ status as partners) clearly created
a duty, on the part of the Kings, to disclose to the Chase Parties. Nonetheless, the Kings
argue that “contingent liabilities,” which are not specifically defined in either the
Operating Agreement or the Partnership Agreement, are inherently speculative and, thus,
should not be considered a material fact. The evidence does not support the Kings’
argument. As noted above, Mr. Kirkham’s testimony establishes that the Partnership
would have postponed distribution of the sale proceeds had the Kings informed the
partners or Dean Chase of their intent to file the lawsuit. As the Business Court held,
“[T]he King Parties’ actions and plans to file claims against Defendant Dean Chase
concerning his management of the Partnership had a bearing on, implicated and
constituted a contingent liability for the Partnership.” We agree. Not only did the Kings’
failure to disclose affect the decision to distribute the sale proceeds, but (as discussed
infra) the Kings’ failure to disclose also interfered with Dean Chase’s duty, under the
Operating Agreement, to wind down the NV Entities while retaining sufficient funds to
cover its liabilities.
3. Damages
We will address the Chase Parties’ right to indemnification and the question of
whether attorney’s fees and costs constitute compensable damages below. As set out in
context above, the Business Court found that the Kings’ failure to disclose their plans to
sue prior to the distribution of the sale proceeds “substantially thwarted and deprived
Dean Chase of his ability to obtain indemnity from NV Music Row LLC . . . .” We
agree. To the extent that the Chase Parties are entitled to indemnification from the LLC,
the Kings’ failure to disclose their lawsuit prior to distribution of the sale proceeds
created a shortfall in LLC proceeds and deprived the Chase Parties of full
indemnification. As Mr. Kirkham’s uncontested testimony establishes, as a result of the
- 32 -
December 21, 2015 distributions, NV Music Row, LLC was left with $68,650.98 to pay
any contingent liabilities. Dean Chase testified that this amount was insufficient to
reimburse the Chase Parties for amounts paid toward legal fees and expenses incurred in
defending against the Kings’ lawsuit. In other words, if the Chase Parties are entitled to
indemnity, see discussion infra, then the Kings’ breach of their duty of disclosure
resulted in the LLC having insufficient funds to satisfy the Chase Parties’ right to
indemnification, and the Chase Parties suffered damages. As noted by the Business
Court:
The Kings’ intentional, knowing, reckless, and/or negligent failure to
disclose the plans described above was done for the inequitable purpose of
receiving a distribution of funds to which they knew they were otherwise
not entitled and which they knew should have been available to NV
Partners to pay for the substantial expense that has been and will continue
to be incurred by Dean Chase and D.F. Chase on behalf of NV Partners, the
partners of NV Partners, and NV Music Row.
Since at or around December 31, 2015, when the Kings sent their
first demand related to the present lawsuit, Dean Chase has incurred and
continues to incur substantial costs and expense in defending the present
lawsuit. . . .
***
The Court thus rules and it is ORDERED that as a matter of law the King
Parties had a duty to reveal their claims against Dean Chase to the
Partnership before they received their distribution.
Having determined that there is sufficient evidence from which a jury could have
determined that the Chase Parties’ met their burden to show a prima facie case for
misrepresentation by concealment, we now turn to the question of whether the Chase
Parties are entitled to indemnification for their damage.
V. Issues related to the Chase Parties’ Right to
Indemnification/Reimbursement
As noted above, in its December 3, 2018 order, the Business Court held, as a
matter of law, that the Chase Parties were entitled to indemnification from NV Music
Row, LLC. Specifically, the court held:
The facts are undisputed that Dean Chase served as the manager of NV
Partners, and that NV Partners is the sole member of NV Music Row, LLC.
These facts fit the requirements of Tennessee Code annotated section 48-
- 33 -
249-102; 401(e); and 115(c), (e) and (g) for Dean Chase to qualify as an
individual to whom indemnity is provided. It is also established in the
record, by the summary judgment order entered September 27, 2018,
dismissing the Plaintiffs’ claims, that under section 48-249-115(c) of the
Revised LLC Act the Chase Parties were “wholly successful . . . in the
defense of any proceeding.” Thus, the essential elements for indemnity
under Tennessee Code Annotated sections 48-249-102; 401(e); and 115(c),
(e) and (g) are established. It is therefore ORDERED that the Chase Parties
are awarded indemnity to recover their costs and expenses in this action
from NV Music Row, LLC.
Tennessee Code Annotated section 48-249-115 of the LLC Act provides, in
relevant part:
(c) Mandatory indemnification. An LLC shall indemnify a responsible
person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party, because the
person is or was a responsible person, against reasonable expenses incurred
by the person in connection with the proceeding.
***
(g) Indemnification of officers, employees and agents.
(1) An officer of the LLC who is not a responsible person is entitled to
mandatory indemnification under subsection (c), and is entitled to apply for
court-ordered indemnification under subsection (e), in each case, to the
same extent as a responsible person.
(2) The LLC may indemnify and advance expenses to an officer, employee,
independent contractor or agent of the LLC who is not a responsible
person, to the same extent as a responsible person.
Tenn. Code Ann. §§ 48-249-115(c); (g)(1)-(2). The LLC Act defines a “responsible
person,” in pertinent part, as
an individual who is or was a director of a director-managed LLC, a
manager of a manager-managed LLC or a member of a member-managed
LLC, or an individual who, while a director of a director-managed LLC, a
manager of a manager-managed LLC, or a member of a member-managed
LLC, is or was serving at the LLC’s request as a director, manager, officer,
partner, trustee, employee or agent of an employee benefit plan or any other
foreign or domestic entity.
- 34 -
Tenn. Code Ann. § 48-249-115(a)(6). The LLC Act defines an “officer” as anyone who
has been “delegate[d] the rights and powers to manage and control the affairs of the
LLC” by its members, irrespective of whether that person is a member himself or herself.
Tenn. Code Ann. §§ 48-249-102; -401(e).
The Operating Agreement outlines the single purpose of the LLC, which is to
“purchase, acquire, own, hold, develop and sell or otherwise dispose” of the Property.
The Partnership Agreement states that NV Partners was organized to “purchase, acquire,
own, hold, develop and sell or otherwise dispose” of the Property “through a wholly
owned limited liability company [, i.e., NV Music Row, LLC].” In December 2015, all
of the partners of NV Partners, including the Kings, signed a Unanimous Consent
directing Dean Chase, as the Manager of the Partnership, to cause NV Music Row, LLC
to sell the Property to Virgin for $11,000,000. The Partnership Agreement, Operating
Agreement, and Unanimous Consent directed Dean Chase to act on behalf of the
Partnership to sell the Property. The Kings filed suit against Dean Chase in his capacity
as the Manager of Partnership for actions he took at the direction of the partners. The
foregoing facts are not disputed. Under the LLC Act definition, there can be no doubt
that Dean Chase was acting as an officer in that the Operating Agreement delegated, to
Dean Chase, “the rights and powers to manage and control the affairs of the LLC,”
namely, the sale of the Property. Accordingly, Dean Chase clearly was an officer of the
LLC. Nonetheless, the Kings argue that Dean Chase was not a “responsible person” as
used in Tennessee Code Annotated section 48-249-115(a) and defined in Tennessee Code
Annotated section 48-249-115(a)(6); as such, the Kings argue that he is not entitled to
indemnification under the LLC Act. This argument ignores the fact that, even allowing
arguendo that Dean Chase was not a “responsible person,” there can be no question (on
the undisputed facts) that he was an officer of the LLC. Thus, under Tennessee Code
Annotated section 48-249-115(g), which allows for indemnification of “officers” to the
“same extent as a responsible person,” he is entitled to indemnification from the LLC.
As set out in the LLC Act, an LLC is required to indemnify an officer “who was
wholly successful, on the merits or otherwise, in the defense of any proceeding in which
the person was a party, because the person is or was” an officer of the LLC. Tenn. Code
Ann. § 48-249-115(c). The Kings argue that the Chase Parties were not “wholly
successful” and, thus, are not entitled to indemnification under the LLC Act. We
disagree.
As explained by this Court,
[i]n determining whether plaintiff is entitled to indemnification as a matter
of law, it must be determined whether she was “wholly successful, on the
merits or otherwise” in defending [the] lawsuit. The Tennessee statute was
patterned after the indemnification section of the Revised Model Business
- 35 -
Corporation Act. Like the language in T.C.A. § 48-18-503, Section 8.52 of
the RMBCA entitles a director to indemnification where that director is
“wholly successful, on the merits or otherwise.”
The Official Comment to the Model Act gives light to the meaning
of those words.
A defendant is “wholly successful” only if the entire
proceeding is disposed of on a basis which does not involve a
finding of liability . . .
The language in earlier versions of the Model Act and in
many other state statutes that the basis of success may be “on
the merits or otherwise” is retained. While this standard may
result in an occasional defendant becoming entitled to
indemnification because of procedural defenses not related to
the merits, e.g., the statute of limitations or disqualification of
the plaintiff, it is unreasonable to require a defendant with a
valid procedural defense to undergo a possibly prolonged and
expensive trial on the merits in order to establish eligibility
for mandatory indemnification.
Rev. Model Bus. Corp. Act § 8.52 Official Comment (1984).
Courts have interpreted the phrase “on the merits or otherwise” to include
dismissal of the case with prejudice and settlement with the dismissal of
claims. See generally 18B Am. Jur. 2d Corporations § 1911 (1985); see
also Wisener v. Air Express International Corp., 583 F.2d 579 (2d Cir.
1978) (applying Illinois law); Galdi v. Berg, 359 F.Supp. 698 (D. Del.
1973); B & B Invest. Club v. Kleiner’s Inc., 472 F. Supp. 787 (E.D.
Pa.1979); Merritt–Chapman & Scott Corp. v. Wolfson, 321 A.2d 138 (Del.
Super. 1974).
Sherman v. Am. Water Heater Co., 50 S.W.3d 455, 461 (Tenn. Ct. App. 2001) (holding
that a party who obtained dismissal through a settlement agreement without incurring any
personal liability was “wholly successful”). Having affirmed the trial court’s grant of
the Chase Parties’ motion for summary judgment, by which it dismissed all of the Kings’
claims against the Chase Parties with prejudice, it is clear that the Chase Parties were, in
fact, “wholly successful.” Further, with respect to court-ordered indemnity, the court
may, upon application of the officer, “order indemnification if it determines . . . the
[officer] is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances.” Tenn. Code Ann. § 48-249-115(e). Under the particular facts of this
case, it was reasonable for the Business Court to “order indemnification [on] it[s]
- 36 -
determin[ation] . . . the [officer] is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances.” Tenn. Code Ann. § 48-249-115(e). From the
totality of the circumstances, we conclude that the trial court correctly held that the Chase
Parties are entitled to indemnification from the LLC.
As discussed above, the Kings’ misrepresentation by concealment led to a lack of
funds in the LLC to cover all of the Chase Parties’ fees and expenses. The question, then,
is whether the Chase Parties are entitled to recover from the Kings personally.
Throughout these proceedings, the Kings have maintained that section 5.1(b) of the
Partnership Agreement precludes personal liability. Section 5.1(b) of the Partnership
Agreement provides that:
In the event the Partnership does not have adequate funds or
assets to fully indemnify any Partner, the Partners will not,
under any circumstances, be required to indemnify the Partner
or make any additional Capital Contribution to the
Partnership for the purpose of indemnifying the Partner.
(Partnership Agreement § 5.1(b) []). A “Capital Contribution”
is defined as “any cash, cash equivalents, promissory
obligations, or the fair market value of other property which a
Partner contributes or is deemed to have contributed to the
Partnership with respect to the issuance of any Partnership
Interest.” (Partnership Agreement § 1.10).
In the trial court, the Kings referred to the foregoing section as an “anti-clawback”
provision and essentially argue that, even if they did commit fraud . . . this provision
immunizes them from liability and damages. The Business Court denied the argument in
holding that the Kings were not entitled to judgment on the Chase Parties’ pleadings, to-
wit:
The Chase Parties are not seeking a “clawback” of distributions from the
Kings. Instead, the Chase Parties are asserting independent claims of legal
wrongs by the Kings that caused the Chase Parties damages. Thus, even if
the relevant provision did contain a “clawback” prohibition, it would be
inapplicable to the Chase Parties’ claims. Irrespective, the provision at
issue does not prohibit a “clawback” or return of improper distributions of
Available Cash Flow, as defined by the Partnership Agreement. Instead, it
simply prohibits a partner from having to personally indemnify someone or
from having to make additional capital contributions for purposes of
indemnity. As previously explained, the Chase Parties are not seeking an
indemnity award against the Kings personally and they are not seeking an
order requiring the Kings to make additional capital contributions to NV
Partners [footnote omitted]. Thus, the Kings are not entitled to dismissal of
- 37 -
the Chase Parties’ claims based on Section 5.1(b) of the Partnership
Agreement. . . .
We agree with the Business Court. It must be noted that the Kings’ decision to
bring suit against Dean Chase was a unilateral decision on their part, and the Kings did
not seek the other partners’ approval or vote before proceeding with the lawsuit. The
crux of the Kings’ initial books and records lawsuit against Dean Chase concerned his
management of the Partnership and potential violation of the Partnership Agreement. At
the time the Kings filed their lawsuit, the Property had been sold and distributions made;
thus, the business of the NV Entities was concluded, and the only remaining item was to
wind down. The Kings’ lawsuit stopped the winding down of the Partnership and caused
Dean Chase to have to defend against the lawsuit in order to conclude the business of the
NV Entities. When the Kings’ initial claims were dismissed as moot, they added the
Loan Claim and the Property Sale Claim—this despite the fact that the Kings had signed
the Unanimous Consent directing Mr. Chase to consummate the sale of the Property to
Virgin and had accepted their distribution from the sale proceeds without raising any
concerns. Had the Kings been successful on these claims, the decision of the majority of
the partners to sell the Property for $11,000,000 would have been undermined.
Therefore, as the Manager of the Partnership, it was incumbent on Dean Chase to defend
against these claims so as to affect the will of the majority of the partners. The Kings
certainly had a right to bring their lawsuit, but they also had an obligation and duty to
disclose their plans to the partners before the sale proceeds were distributed. This is
because the Kings’ claims triggered potential liability on the part of the NV Entities. As
found by the Business Court in its December 3, 2018 order, these claims “had a bearing
on, implicated and constituted a contingent liability for the Partnership. The contingent
liability was that if the King Parties did not prevail on their claims against Dean Chase he
had a right to be paid indemnity [from] NV Music Row LLC.” Here, the Kings did not
prevail on any of their claims against the Chase Parties, who were entitled to
indemnification by the LLC. If the Kings had satisfied their duty to disclose their plans
to file suit in a timely manner, the LLC would have delayed distribution of the sale
proceeds until the lawsuit was resolved. Had that occurred, the LLC would have been
able to indemnify the Chase Parties. However, due solely to the Kings’ concealment of
the material fact of their pending lawsuit, the LLC was rendered insolvent. The Kings, as
the only tortfeasors, are solely liable for any damages arising from their concealment.
VI. Issues Related to Miscellaneous Rulings Made Prior to the Jury Trial
A. Chase Parties’ Motion to File a Second Amended Counterclaim
In its December 3, 2018 order, the trial court granted the Chase Parties’ motion to
amend their complaint “with one exception. The one exception is that the amendment to
add allegations and claims against David King, personally, contained in Count III of the
proposed Second Amended Counterclaim and Third-Party Complaint, is denied as
- 38 -
untimely.” The Business Court allowed the remainder of the motion to amend, reasoning
that,
while it is filed on the eve of trial, the amendment does not contain
anything new or different that the King Parties are unaware of and
incapable of defending. The amendment corrects an incorrect citation and
correctly cites to the Revised LLC Act as the applicable law, and conforms
the pleadings to the facts and claims which were obtained in discovery. The
Court denies the King Parties’ assertion that they have not had sufficient
notice to defend. In so concluding, the Court adopts the following
explanation provided by the Chase Parties:
[T]he Proposed Second Amended Counterclaim simply
streamlines the claims that will be pursued by the Chase
Parties at the trial of this matter. By way of example only, the
Proposed Second Amended Counterclaim eliminates the
cause of action seeking that some or all of the partners deposit
into Court their distributions from the NV Entities during the
pendency of this action, as the Chase Parties have elected not
to pursue that relief during the course of the case. While the
Proposed Second Amended Counterclaim more clearly
delineates the claims set forth in the Chase Parties’ proposed
jury instructions, all such claims were adequately pled in the
Amended Counterclaim. . . . In other words, there is no lack
of notice or undue prejudice to the Kings because the claims
that will be litigated at trial were already pled in the Amended
Counterclaim. The Kings had a full opportunity to seek
discovery on these claims, including the option to serve
contention interrogatories if they were confused about the
contours or bases of the claims. They chose not to do so.
Further, there has been no bad faith or repeated failure to cure
any deficiencies on the part of the Chase Parties, this
amendment merely seeks to streamline and more clearly
delineate the claims that will be presented to the jury. For
these reasons, the Chase Parties should be allowed to make
such amendments.
The decision to grant or deny a motion to amend the pleadings lies within the
sound discretion of the trial court and will not be disturbed on appeal absent an abuse of
discretion. Henderson v. Bush Bros. & Co., 868 S.W.2d 236, 237 (Tenn. 1993);
McCullough v. Johnson City Emergency Physicians, P.C., 106 S.W.3d 36, 44 (Tenn.
Ct. App. 2002); Hawkins v. Hart, 86 S.W.3d 522, 532 (Tenn. Ct. App. 2001). Tennessee
Rule of Civil Procedure 15.01 allows a plaintiff to amend his or her complaint once as a
- 39 -
matter of course so long as it is done before the opposing party has filed a responsive
pleading. Thereafter, a plaintiff may only amend the complaint with the consent of the
opposing party or by leave of the trial court. Tenn. R. Civ. P. 15.01.
Leave to file an amended complaint must be “freely given when justice so
requires.” Tenn. R. Civ. P. 15.01. In deciding whether “justice [] requires” that an
amendment to the complaint be allowed after a responsive pleading has been filed, the
trial court must consider the following factors: (1) the plaintiff’s undue delay in filing the
motion; (2) lack of notice to the opposing party; (3) bad faith by the moving party; (4)
repeated failure to cure deficiencies by previous amendments; (5) undue prejudice to the
opposing party; and (6) futility of the amendment. Hawkins, 86 S.W.3d at 532-33; Isbell
v. Travis Elec. Co., No. M1999-00052-COA-R3-CV, 2000 WL 1817252, at *15 (Tenn.
Ct. App. Dec. 13, 2000).
From our review, by their motion to file a second amended counterclaim, the
Chase Parties did not seek to add any new substantive claims (with the exception of those
against David King, which were denied). Rather, the Chase Parties sought to: (1) correct
a typographical error in their amended counterclaim by substituting the applicable statute,
i.e., the Tennessee Revised Limited Liability Act, as opposed to the Tennessee Limited
Liability Company Act; and (2) streamline the causes of action asserted against the
Kings. In support of their motion, the Chase Parties included an exhibit containing a
side-by-side comparison between the amended counterclaim and their proposed second
amended counterclaim.
Concerning the typographical amendment, the Kings assert that, “The amendment
of the operative statute to the Revised LLC Act in T.C.A. § 48-249-115 was a
fundamental change in the Chase’s cause of action.” We disagree. In both the amended
counterclaim and the second amended counterclaim, the Chase Parties assert a claim for
indemnification against the LLC. The Chase Parties attached the Operating Agreement
to both versions of their counterclaim. The Operating Agreement defines the applicable
“Act” to mean “the Tennessee Revised Limited Liability Company Act.” (Emphasis
added). The fact that the applicable “Act” was mislabeled in the amended complaint as
the “Tennessee Limited Liability Company Act” is not fatal to the Chase Parties’ motion
to amend. There can be no doubt that the Kings were on notice of the applicable Act by
virtue of the Operating Agreement and inclusion of that agreement as an appendix to the
Chase Parties’ amended counterclaim. Furthermore, a comparison of the applicable
provisions of the Tennessee LLC Act and the Revised LLC shows that they are
substantively identical. Compare Tenn. Code Ann § 48-243-101, with Tenn. Code Ann.
§ 48-249-115. As such, we conclude that the Kings were not prejudiced by this
amendment.
Concerning the other amendments, we agree with the trial court’s conclusion that
these changes “more clearly delineate the claims that [would] be presented to the jury.”
- 40 -
In short, there is no indication that the Chase Parties, by their second amended
counterclaim, sought to add any additional claims against the Kings. Rather, given the
protracted procedural history of the case and the fact that parties and claims had been
dismissed from the action, the “streamlining” of the issues that would be presented to the
jury was necessary to avoid confusion. Regardless, because the Chase Parties did not
seek to add additional or new claims or theories, we conclude that the Kings were not
prejudiced by the trial court allowing the second amended counterclaim; thus, there was
no abuse of discretion warranting reversal.
B. Kings’ Motion for Continuance
The Kings further contend that they were prejudiced by the Business Court’s
denial of their motion for continuance after the court allowed the Chase Parties to file
their second amended counterclaim. Specifically, the Kings argue that they were
“prejudiced by the Chase[s’] Amendment a week before trial, which asserted a new cause
of action based on a separate and distinct statutory provision under the Tennessee[]
Revised LLC Act.” The decision to grant or deny a motion for continuance rests in the
sound discretion of the trial court. See, e.g., Blake v. Plus Mark, Inc., 952 S.W.2d 413,
415 (Tenn. 1997). “The ruling on the motion will not be disturbed unless the record
clearly shows abuse of discretion and prejudice to the party seeking a continuance.” Id.As discussed above, the Kings suffered no prejudice due to the filing of the Chase
Parties’ second amended counterclaim. There were no new claims added by the
amendment, and the Kings were on notice from the outset that the Chase Parties were
seeking indemnification under the Revised LLC Act as the revised Act is the only statute
referenced in the Operating Agreement that was attached to both the amended
counterclaim and the second amended counterclaim. The Kings had ample opportunity
to prepare their defense. As such, we cannot conclude that the Business Court abused its
discretion in denying the Kings’ motion for continuance.
C. Dismissal of Third-Party Defendants, i.e., all partners except the Kings
The Chase Parties’ second amended counterclaim added the other partners as
third-party defendants. However, at a hearing on December 5, 2018, the Chase Parties
announced that they were not seeking relief from any partner except the Kings.
Following this announcement, the remaining partners filed a joint motion seeking to be
dismissed from the lawsuit as there were no pending claims against them. The Kings
filed a response in opposition to the joint motion, wherein they argued, inter alia, that the
remaining partners were necessary parties on the issue of indemnification. In its
December 7, 2018 order, the trial court granted the joint motion and dismissed all
partners except the Kings. The order states, in relevant part:
It is ORDERED that the motion of the Third-Party Defendants . . . is
granted, and the Movants are dismissed as parties to the lawsuit. This ruling
- 41 -
is based upon these findings and conclusions.
 There are no claims in the lawsuit asserted by Jonathan, David, or
Taylor King against the Movants.
 With the December 3, 2018 entry of judgment on the pleadings
dismissing Count II paragraph 51 claims of Dean Chase, D.F. Chase,
Inc., and Sandra Chase (the “Chase Parties”) in the second amended
counterclaim and third-party complaint for indemnity against NV
Partners, no claims by the Chase Parties remain which involve the
Movants.
 With the agreement announced in open court on December 5, 2018
by the Movants to the Chase Parties’ Count VI Claim for Judicial
Dissolution and agreement for that to occur now or anytime in the
future, there is nothing in dispute as to the Movants and they are not
necessary parties.
In view of our holding that the tortious conduct of the Kings was the sole cause of the
damages incurred by the Chase Parties, we agree with the Business Court that the other
partners are not necessary parties to the lawsuit. In short, but for the sole actions of the
Kings in failing to disclose their plan to file suit, there would have been sufficient funds
in the LLC to indemnify the Chase Parties. As noted above, the Kings’ decision to bring
suit, as well as the decision to withhold those plans, was theirs alone. As such, the Kings
are solely responsible for damages, and the other partners are not necessary parties.
VII. Issues Related to the Jury Trial
A. Jury Instructions / Mistrial
As set out in the Kings’ brief:
On December 5, 2018, the Kings filed their proposed Special Jury
Instructions. On December 7, 2018, the Chase Parties submitted a Notice
of Filing Redacted Prior Court Orders, which removed all reference to the
King’s claims. This meant that the Kings could not even testify about the
clearly relevant claims they had brought against Dean Chase in order to
explain when they had learned of the conduct and formed the intent to bring
them. The trial court’s redacted Order granting summary judgment
removed all reference to the trial court’s holding that the Kings could not
prove damages and were out voted. This precluded the Kings from showing
the jury the circumstances of the vote approving the sale.
In arguing that the trial court erred in charging the jury, the Kings maintain that:
- 42 -
The trial court erroneously charged the jury that the court had previously
found that all of the Kings’ claims were dismissed and Dean Chase had
done nothing wrong, that he was owed indemnity, and that the Kings were
under a duty to disclose their plans to Dean Chase. The Chancellor refused
to charge the language from the summary judgment order itself[, i.e., “As to
all of the causes of action of the Second Amended Complaint pertaining to
the Loan Claims, there are no facts in the summary judgment record of
damages. Without proof on this essential element, the Plaintiffs’ causes of
action on the Loan Claims must be dismissed.”].
Whether a jury instruction is erroneous is a question of law and is, therefore,
subject to de novo review with no presumption of correctness. Nye v. Bayer
Cropscience, Inc., 347 S.W.3d 686, 699 (Tenn. 2011) (citation omitted). “Under
Tennessee law the jury charge will be viewed in its entirety and considered as a whole in
order to determine whether the trial judge committed prejudicial error.” Otis v.
Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 446 (Tenn. 1992). A jury instruction
“will not be invalidated as long as it fairly defines the legal issues involved in the case
and does not mislead the jury.” Id. We first note that the Kings’ argument fails to
specify the actual portion of the jury charge they challenge. However, from their
argument, supra, we deduce that the following instruction is the basis of their challenge:
I also am going to state again the following information and
background events which occurred before the lawsuit was filed and some
rulings that have already been made in the lawsuit as background of the
case.
NV Music Row, LLC is a Tennessee company that was formed to
buy, develop, and sell certain property near downtown Nashville for the
purposes of building a hotel. NV Music Row, LLC is solely owned by NV
Partners.
Dean Chase served as Manager of NV Partners.
This case was originally brought by Jonathan and Taylor King
against Dean Chase. In their lawsuit, the Kings claimed that Mr. Chase,
while acting as Manager of NV Partners, committed certain wrongs that
damaged the Kings. Dean Chase denied the claims of the Kings, and filed a
counter-lawsuit against the Kings for damages caused by their acts.
In the prior proceedings in this case, all of the claims the Kings
brought against Mr. Chase were dismissed. In addition it has already been
decided that Dean Chase and his business did not act or omit to do anything
that damaged NV Partners or its partners.
Also it has already been determined that Dean Chase and his
business are entitled to compensation from NV Music Row, LLC for costs
incurred in this lawsuit.
These matters have already been decided by the Court, and you may
- 43 -
hear about them some during the case. You are bound by Tennessee law to
follow the Court’s rulings on these issues.
Furthermore, in their sixteenth issue, the Kings argue that the trial court erred in failing to
instruct the jury on a partner’s right to access to the books and records of the Partnership
and the doctrine of unclean hands (on the part of Dean Chase). Concerning a “books and
records” instruction, as discussed above, the Kings’ books and records lawsuit was
dismissed as moot. To the extent that their right to examine the books and records of the
Partnership may have shown some state of mind or justification for their initiating a
lawsuit against Dean Chase, the gravamen of the Chase Parties’ fraudulent concealment
claim did not rest on the question of whether the Kings were entitled to bring their suit.
Rather, the question before the jury was whether the Kings withheld their plan to bring
the lawsuit. Thus, the absence of a jury instruction indicating that a partner has a right to
examine the books and records of the Partnership was not fatal to the jury charge.
Concerning the Kings’ remaining arguments regarding the jury instructions, in
view of our holdings above, wherein we affirm: (1) the Business Court’s grant of
summary judgment dismissing the Kings’ claims against the Chase Parties; (2) its
holding, as a matter of law, that the Chase Parties are entitled to indemnity from the LLC;
and (3) its declaratory judgment that Dean Chase did not violate his duties to the NV
Entities (i.e., that he did not have unclean hands), we conclude that there was no basis to
charge the jury with the unclean hands doctrine. Furthermore, for the reasons discussed
below, instruction concerning the “American Rule” was not warranted in this case.
Accordingly, there is no basis for reversal on the jury instructions.
Because the Kings’ issue concerning the trial court’s denial of a mistrial also rests
on the allegation that the jury instructions were flawed, we also conclude that the trial
court did not abuse its discretion in denying a mistrial. State v. Robinson, 146 S.W.3d
469, 494 (Tenn. 2004) (stating that the decision whether to grant or deny a motion for
mistrial rests within the sound discretion of the trial court and should not be reversed
absent a clear showing of abuse of discretion).
B. Jeffrey Burnside
The Kings assert that the Business Court committed reversible error in granting
the Chase Parties’ motion to exclude the testimony of Jeffrey Burnside, the Kings’
attorney. It is undisputed that the Kings failed to disclose Mr. Burnside as a potential
witness during the discovery process. Despite the Chase Parties’ interrogatory, asking
the Kings to identify all individuals with knowledge and claims and counterclaims in the
case, the Kings waited until December 7, 2018, which was one business day before trial,
to file an amended witness list, wherein they first disclosed their intent to bring Mr.
Burnside as a witness. Tennessee Rule of Civil Procedure 37.03 provides that, “A party
who without substantial justification fails to supplement or amend responses to discovery
- 44 -
requests . . . is not permitted, unless such failure is harmless, to use as evidence at trial, at
a hearing, or on a motion any witness or information not so disclosed.” Furthermore,
Davidson County Local Rule of Court 29.01 provides:
At least seventy-two (72) hours (excluding weekends and holidays) before
the trial of a civil case, opposing counsel shall either meet face-to-face or
shall hold a telephone conference for the following purposes:
a. to exchange names of witnesses, including addresses and home and
business telephone numbers (if not included in interrogatory answers)
including anticipated impeachment or rebuttal witnesses; and
b. to make available for viewing and to discuss proposed exhibits.
In ruling on the Chase Parties’ motion to exclude Mr. Burnside, the Business
Court stated:
Mr. Burnside shall not be allowed to testify because we have rules that
govern these proceedings. Under the rules, witnesses such as Mr. Burnside
are to be designated in response to discovery. In this case, the right
questions were asked, and Mr. Burnside was not listed as someone having
knowledge. And so under Tennessee law, it’s unfairly prejudicial on the
eve of trial to come in with a surprise witness in the case. And that’s what
the rules are designed to eliminate, and This Court is enforcing that rule.
As noted by the Tennessee Supreme Court in Otis v. Cambridge Mut. Fire Ins.
Co., 850 S.W.2d 439, 442 (Tenn. 1992), “admissibility of evidence is within the sound
discretion of the trial judge. When arriving at a determination to admit or exclude even
that evidence which is considered relevant trial courts are generally accorded a wide
degree of latitude and will only be overturned on appeal where there is a showing of
abuse of discretion.” Concerning the exclusion of undisclosed witnesses, this Court has
explained:
The fact that the court can impose the sanction of not permitting the
unnamed witness to testify, does not mean that it must do so. Generally,
where a party has not given the name of a person with knowledge of
discoverable matter, the court should consider the explanation given for the
failure to name the witness, the importance of the testimony of the witness,
the need for time to prepare to meet the testimony, and the possibility of a
continuance. In the light of these considerations the court may permit the
witness to testify, or it may exclude the testimony, or it may grant a
continuance so that the other side may take the deposition of the witness or
otherwise prepare to meet the testimony. See: 8 Wright and Miller, Federal
Practice and Procedure, supra; 23 Am.Jur.2d Depositions and Discovery §
- 45 -
265 (1965).
Strickland v. Strickland, 618 S.W.2d 496, 501 (Tenn. Ct. App. 1981), perm. app. denied
(Tenn. June 29, 1981). However, where a “party willfully, knowingly, and intentionally
withheld the name of a person with knowledge of discoverable matter, the imposition of
the sanction of not permitting that person to testify is strongly suggested.” Id. (citation
omitted); see also Brandy Hills Estates, LLC v. Reeves, 237 S.W.3d 307, 316-17 (Tenn.
Ct. App. 2006) (affirming the trial court’s exclusion of witnesses, who, like Mr.
Burnside, were disclosed “less than seventy-two hours prior to the commencement of the
trial.”).
Concerning their failure to disclose Mr. Burnside during discovery or within 72
hours of the jury trial, the Kings again assert that the Chase Parties’ second amended
counterclaim contained new claims against them. For the reasons discussed above, the
second amended complaint merely streamlined the Chase Parties’ existing claims. As
such, we conclude that the Business Court’s denial of Mr. Burnside’s testimony was not
an abuse of its discretion.
C. The Kings’ Opening Statement
In their fourteenth issue, the Kings assert that the Business Court prejudiced the
jury by its frequent interruptions and comments during the Kings’ attorney’s opening
argument. Turning to the record, the trial court’s first interruption came several minutes
into the opening:
THE COURT: And, Mr. Blackburn, this is what the proof will show based
on the witnesses that are going to be called et cetera. That’s what our
opening statement is about, correct?
MR. BLACKBURN: Just as Mr. Creson’s was, mine is as well.
THE COURT: Yes. This is what you believe the proof will show by the
witnesses that you’ve indicated will be called. All right. You may proceed.
MR. BLACKBURN: This proof will show that. . . .
THE COURT: Excuse me, Mr. Blackburn. Hearsay, if we’re not going to
have a certain witness. So if this is just what you believe
MR. BLACKBURN: That is not hearsay, respectfully.
THE COURT: You will remind us this is what the proof, you believe, will
show, the admissible proof will show.
MR. BLACKBURN: Your Honor, all of these statements are that, and I
agree. . .
THE COURT: All right.
The only other “interruption” in Mr. Blackburn’s opening occurred when the
Chase Parties’ counsel objected to Mr. Blackburn’s statements concerning matters that
- 46 -
had been excluded by grant of their motions in limine:
MR. BLACKBURN: . . . [I]nto discovery in this case, [Jonathan King]
learned other things that he had no way of knowing. One of those things
had to do with funds that were charged to the closing. It had to do with
money paid on a note. It had to do with various things that you’ll see in
these subsequent pleadings, that D.F. Chase advanced this money without
even a promissory note to support it, that D.F. Chase—
MR. CRESON: Object, Your Honor, in terms of motion in limine, the order
that’s been entered on that.
THE COURT: Yes. The Court sustains the objection.
MR. BLACKBURN: I presume that the jury is going to be shown those
pleadings because the state of mind at that time
THE COURT: Let’s continue on with something else. You can complete
the list that you were making. Let’s move to the next item of it, please.
MR. BLACKBURN: When you see the lawsuits that caused Mr. Chase to
incur the funds, you will see that a great deal of it could not possibly have
been known by him on December 21 of 2015 and was not. Now, when you
conclude, when you hear the conclusion of all of this proof and you weigh
it, what you’re going to see is that no actual fact was ever, ever withheld
from anyone at any time. Thank you.
THE COURT: Thank you, Mr. Blackburn. Members of the jury, that
completes our opening statements. . . .
The foregoing sections of the transcript constitute the only “interruptions” and
comments by the trial court during Mr. Blackburn’s opening statement. The first
comments were warranted in that the Business Court was merely reminding Mr.
Blackburn to limit his statements to proof he expected would be adduced through witness
testimony. See, e.g., Harris v. Baptist Mem’l Hosp., 574 S.W.2d 730, 732 (Tenn. 1978)
(stating that opening statement is not evidence). “Opening statements ‘are intended
merely to inform the trial judge and jury, in a general way, of the nature of the case and
to outline, generally, the facts each party intends to prove.’” State v. Gayden, No.
W2011-00378-CCA-R3-CD, 2012 WL 5233638, at *9 (Tenn. Crim. App. Oct. 23, 2012)
(quoting Harris, 574 S.W.2d at 732). Thus, it is well-settled that “[o]pening statements
are not stipulations or evidence.” Id. (citing Harris, 574 S.W.2d at 732). The trial
court’s comments do not rise to the level of prejudicial statements against Mr. Blackburn
or his case.
Concerning the second “interruption,” the Business Court did not instigate the
interruption. Rather, the court was merely ruling on an objection lodged by the Chase
Parties’ attorney. As set out in context above, after the trial court sustained the objection,
Mr. Blackburn continued to argue that the jury should be apprised of certain pleadings.
The trial court correctly denied any ruling on exhibits or evidence at that point in the
- 47 -
proceedings and urged Mr. Blackburn to continue with his opening. This does not
constitute error.
D. Denial of Taylor King’s Motion for Directed Verdict
The Kings assert that the Business Court erred in denying Taylor King’s motion
for directed verdict because “[t]here was no proof from which a jury could have found
that Taylor King was liable for the tort of misrepresentation by concealment.” We
disagree.
Tennessee Rule of Civil Procedure 50.02 provides, in relevant part, that
Whenever a motion for a directed verdict made at the close of all the
evidence is denied or for any reason is not granted, the court is deemed to
have submitted the action to the jury subject to a later determination of the
legal questions raised by the motion. Within thirty (30) days after the entry
of judgment a party who has moved for a directed verdict may move to
have the verdict and any judgment entered thereon set aside and to have
judgment entered in accordance with the party’s motion for a directed
verdict; or if a verdict was not returned, such party, within thirty (30) days
after the jury has been discharged, may move for a judgment in accordance
with such party’s motion for a directed verdict. A motion for a new trial
may be joined with this motion, or a new trial may be prayed for in the
alternative. If a verdict was returned, the court may allow the judgment to
stand or may reopen the judgment and either order a new trial or direct the
entry of judgment as if the requested verdict had been directed.
When reviewing a motion for directed verdict, this Court applies the same standard as the
trial court. The court must “take the strongest legitimate view of the evidence in favor of
the opponent of the motion, allow all reasonable inferences in his or her favor, discard all
countervailing evidence, and deny the motion when there is any doubt as to the
conclusions to be drawn from the evidence.” Akers v. Prime Succession of Tennessee,
Inc., 387 S.W.3d 495, 509 (Tenn. 2012) (quoting Mercer v. Vanderbilt Univ., Inc., 134
S.W.3d 121, 130-31 (Tenn. 2004)). The court should not weigh the evidence nor should
it evaluate the credibility of the witnesses. Plunk v. Nat’l Health Investors, Inc., 92
S.W. 3d 409, 412 (Tenn. Ct. App. 2002); Goree v. United Parcel Serv., Inc., 490 S.W.3d
413, 428-29 (Tenn. Ct. App. 2015). The granting of such motion “is appropriate only
when the evidence is insufficient to create an issue for the jury to decide, or when
reasonable minds can reach only one conclusion [contrary to the jury’s verdict].” Plunk,
92 S.W.3d at 413 (citations omitted).
Turning to the record, at trial, the Chase Parties presented evidence that Taylor
King and Jonathan King each owned one-half of a single interest in the Partnership. As
- 48 -
such, any action on the part of Jonathan King would also have bound Taylor King. In
short, the Kings were engaged as partners in a joint venture. As explained by this Court:
Under the joint venture doctrine, “the negligence of one member [of the
joint venture] is imputed to all of the other members.” Fain v. O’Connell,
909 S.W.2d 790, 793 (Tenn. 1995). To establish the existence of a joint
venture among several parties, the Defendants must show that there is (a) a
common purpose, (b) some manner of agreement among them, and (c) an
equal right on the part of each to control both the venture as a whole and
the relevant instrumentality. “Liability predicated on a joint venture theory
of mutual responsibility is not imposed in instances in which the parties
join together purely for pleasure, but is reserved, rather, for cases in which
the parties associate for business, or expense sharing, or some comparable
arrangement.” The concept of a “joint venture” was described in Fain v.
O’Connell:
A joint venture is an association of persons with intent, by
way of contract, express or implied, to engage in and carry
out a single business contract, express or implied, to engage
in and carry out a single business adventure for joint profit,
for which purpose they combine their efforts, property,
money, skill, and knowledge, but without creating a
partnership in the legal or technical sense of the term, or a
corporation, and they agree that there shall be a community of
interest among them as to the purpose of the undertaking, and
that each coadventurer shall stand in the relation of principal,
as well as agent, as to each of the other coadventurers, with
an equal right of control of the means employed to carry out
the common purpose of the adventure.
909 S.W.2d at 793 (quoting 30 Am. Jur., p. 939, Sec. 2).
Anderson v. U.S.A. Truck, Inc., No. No. W2006-01967-COA-R3-CV, 2008 WL
4426810, *15-16 (Tenn. Ct. App. Oct. 1, 2008) (some internal citations omitted). The
fact that the Kings were engaged in a joint venture would allow Mr. King to bind Mrs.
King in any decisions concerning their joint venture. Furthermore, as set out in Trial
Exhibits 7 and 8, in his email correspondence with Mr. Kirkham, Mr. King states that,
“Jonathan and Taylor King are NOT happy with the outcome of this deal.” (Emphasis
added). From these exhibits, alone, a reasonable jury could conclude that Mrs. King
joined in her husband’s contest to Dean Chase’s actions as Manager of the Partnership.
Moreover, as evidenced by Trial Exhibit 15, on December 30, 2015, within a few days of
the distribution of the proceeds from the sale of the Property, Mr. King sent
correspondence to another partner, wherein he stated that he was “vigilantly pursuing a
- 49 -
cause of action for the breach of fiduciary duties . . . [against] Dean [Chase].”
Importantly, Mrs. King is copied on this communication. From this, and the additional
emails that were admitted into evidence, there is sufficient evidence from which a
reasonable jury could have concluded that Taylor King was aware, and actively
participated in Jonathan King’s plan to contest the sale of the Property. Neither of the
Kings took the stand to testify otherwise. Accordingly, it was not reversible error for the
trial court to deny Taylor King’s motion for directed verdict.
VIII. Damages
Tennessee follows the “American Rule” that “in the absence of a contract, statute
or recognized ground of equity so providing there is no right to have attorneys’ fees paid
by an opposing party in civil litigation.” State ex rel. Orr v. Thomas, 585 S.W.2d 606,
607 (Tenn. 1979) (citing Deyerle v. Wright Mfg. Co., 496 F.2d 45 (6th Cir.1974); Carter
v. Va. Sur. Co., 216 S.W.2d 324 (Tenn. 1948)). Relying on the American Rule, the
Kings assert that the Chase Parties cannot recover their attorney’s fees and expenses as
compensatory damages. Under the very narrow and particular facts of this case, we
disagree.
In Pullman Standard, Inc. v. Abex Corp., the Tennessee Supreme Court adopted
certain exceptions to the American Rule. First, the Court adopted an exception based on
implied indemnity, to-wit:
[W]e have held in previous cases that costs and attorneys’ fees are
recoverable under an express indemnity contract if the language of the
agreement is broad enough to cover such expenditures, see Harpeth Valley
Utilities District v. Due, 225 Tenn. 181, 465 S.W.2d 353 (1971); 41
Am.Jur.2d Indemnity § 36 (1968). However, the issue raised in this case,
the recovery of litigation expenses and attorneys’ fees under an implied
indemnity contract, is apparently one of first impression in this state.
We have examined the law in other jurisdictions on this issue. It
appears that a majority of courts which have considered the issue allow the
recovery of attorneys’ fees under an implied indemnity contract in an
appropriate case. See, e.g., Heritage v. Pioneer Brokerage & Sales, Inc.,
604 P.2d 1059 (Alaska 1979); Sendroff v. Food Mart of Connecticut, Inc.,
34 Conn.Supp. 624, 381 A.2d 565 (1977); Addy v. Bolton, 257 S.C. 28, 183
S.E.2d 708 (1971). See also, Frumer & Friedman Products Liability §
44.10[1] (1984); 22 Am.Jur.2d Damages § 166 (1965); 42 C.J.S. Indemnity
§ 24 (1944). Other jurisdictions disallow the recovery of such expenses by
relying upon the general rule that attorneys’ fees are not recoverable, absent
a statute or contract specifically providing for such recovery. See Kerns v.
Engelke, 76 Ill.2d 154, 28 Ill. Dec. 500, 390 N.E.2d 859, 865 (1979).
We are in agreement with the majority view that attorneys’ fees are
- 50 -
recoverable under an implied indemnity agreement in appropriate cases.
We continue to adhere to the rule in Tennessee that attorneys’ fees are not
recoverable in the absence of a statute or contract specifically providing for
such recovery, or a recognized ground of equity; however, we recognize an
exception to that rule and hold that the right of indemnity which arises by
operation of law, based upon the relationship of the parties, see Cohen v.
Noel, 165 Tenn. [1 Beel.] 600, 56 S.W.2d 744 (1933), includes the right to
recover attorneys’ fees and other litigation costs which have been incurred
by the indemnitee in litigation with a third party.
Pullman Standard, Inc. v. Abex Corp., 693 S.W.2d 336, 338 (Tenn. 1986). In Pullman
Standard, the Court concluded that the plaintiff’s complaint contained sufficient
allegations to state a claim for attorney’s fees under this theory. Id. at 338. The
complaint alleged that the plaintiff, Pullman Standard, was required to defend itself in
prior lawsuits because a wheel designed and manufactured by the defendant, Abex
Corporation, was defective and caused the damages complained of in those suits. Id.Accordingly, although the complaint did not allege that Pullman Standard was required to
pay a judgment or settlement in the prior lawsuits, the complaint clearly alleged that
Pullman Standard was required to defend the prior lawsuits due to the fault of Abex. In
recognizing the right to recover attorney’s fees under an implied indemnity theory, the
Court explained that this right
is not based upon the failure of the indemnitor to fulfill an obligation to
take over the indemnitee’s defense or upon the existence of some benefit to
the indemnitor arising from the defense conducted by the indemnitee.
Instead, it is, like the right of the indemnitee to be indemnified for any
judgment or settlement it pays, based upon the relationship between the
parties and their respective degrees of fault.
Id. at 339. Thus, the indemnitee’s right to recover attorney’s fees under this theory
depends not upon the fact that the indemnitee was required to defend itself in a prior
lawsuit, but that the indemnitee was forced to defend itself due to some fault or
wrongdoing by the indemnitor. Id. Here, the Chase Parties have a right to
indemnification from the LLC, but there is no fault on the part of the indemnitor, NV
Music Row, LLC; as such, the implied indemnity exception is not clearly applicable.
However, in addition to the implied indemnity theory, the Pullman Standard Court also
recognized a second means of recovery for attorney’s fees and costs under an
independent tort theory, to-wit:
Pullman’s second theory of recovery of attorneys’ fees and litigation
expenses is based upon the tort of deceit. Again we are faced with an issue
of first impression in Tennessee. The Court of Appeals refused to recognize
a cause of action for recovery of attorneys’ fees based upon an independent
- 51 -
tort because to do so would allow circumvention of its refusal to permit the
recovery of such damages under an indemnity theory. In view of our
holding that attorneys’ fees and litigation expenses are recoverable under an
implied agreement to indemnify, the Court of Appeals’ justification for
refusing to recognize Pullman’s second theory of recovery is no longer a
concern.
It appears that attorneys’ fees and costs are recoverable under an
independent tort theory in most jurisdictions which have considered the
issue. Indeed, we have been cited to no case, and have discovered none in
our own research, which has refused to recognize the theory of recovery.
As stated in the annotation to 42 A.L.R.2d 1183 (1956),
“It appears to be well settled that where the natural and
proximate consequence of a tortious act of defendant has been
to involve plaintiff in litigation with a third person,
reasonable compensation for attorneys’ fees incurred by
plaintiff in such action may be recovered as damages against
the author of the tortious act.” Id. at 1186.
The Restatement (Second) of Torts, § 914(2) (1979), cites a similar rule:
“One who through the tort of another has been required to act
in the protection of his interests by bringing or defending an
action against a third person is entitled to recover reasonable
compensation for loss of time, attorney fees and other
expenditures thereby suffered or incurred in the earlier
action.”
See also 22 Am.Jur.2d Damages § 166 (1965). We adopt the prevailing rule
and recognize the cause of action set forth above. See: Safway Rental &
Sales Co. v. Albina Engine & Machine Works, 343 F. 2d 129 (10th
Cir.1965).
Pullman Standard, 693 S.W.2d at 339-40; accord Whitelaw v. Brooks, 138 S.W.3d 890(Tenn. Ct. App. 2003), perm. app. denied (Tenn. June 21, 2004) (applying the Pullman
Standard independent tort exception). The Pullman Standard independent tort
exception to the American Rule applies when a party, “through the tort of another[,] has
been required to act in the protection of his interests by bringing or defending an action
against a third person. . . .” (Emphasis added). Here, of course, the Chase Parties
brought their lawsuit directly against the tortfeasors (i.e., the Kings) and not against a
third party. Nonetheless, Tennessee Courts have approached the third party requirement
of the independent tort exception differently depending on the particular facts and
equities presented in the case. See Grace v. Grace, No. W2016-00650-COA-R3-CV,
- 52 -
2016 WL 6958887, at *7 (Tenn. Ct. App. Nov. 29, 2016) (“The independent tort
exception recognized in Pullman and applied by the federal district court in Edwards
Moving simply does not apply in this case. First, we note that this case involves only
claims between Appellee and Appellant. Accordingly, there can be no dispute that
Appellee was not required to bring suit against a third party to protect his interests in the
underlying lawsuit. See Pullman, 693 S.W.2d at 340.”); Whitelaw, 138 S.W.3d at 894
(Tenn. Ct. App. 2003) (applying the independent tort theory and stating, “The trial court
below awarded Whitelaw his attorney’s fees, not for the negligence action against Hall,
but for the litigation expenses incurred for the action against Brooks and the other
landowners holding land interests which encroached upon Whitelaw’s realty. . . . Were it
not for Hall’s negligence, which is not disputed on this appeal, Whitelaw would not have
been required to bring that action to clear up his title in court.”). But see Evans v. Young,
No. 01A01-9711-CV-00638, 1999 WL 11510, at *4 (Tenn. Ct. App. Jan. 14, 1999) (“We
recognize that, in the instant case, the tortious conduct of Hailey Wrecking and Levy
Industrial did not cause Ms. Evans to engage in litigation with a third party. Thus, the
‘tort of another doctrine’ is not directly applicable. We find, however, that the equitable
principles underlying this doctrine are nevertheless relevant considerations in the case at
bar. Hailey Wrecking and Levy Industrial conspired with Mr. Young to hinder or prevent
the collection of Ms. Evans’ judgment. As a direct result of this conspiracy, Ms. Evans
incurred almost seven thousand dollars in costs and attorney fees. We find that, under
such circumstances, it is appropriate to require Hailey Wrecking and Levy Industrial to
pay these expenses.”).
We conclude that circumstances presented in this case are best suited to the
analysis and reasoning employed in Evans v. Young. For the reasons discussed above, it
is clear that due solely to the Kings’ tort of misrepresentation by concealment, the Chase
Parties were “required to act in the protection of [the] interests [of the Partnership].”
Pullman Standard, 693 S.W.2d at 340 (citing The Restatement (Second) of Torts, §
914(2) (1979)). In other words, “the natural and proximate consequence of a tortious act
of [the Kings] has been to involve [the Chase Parties] in litigation.” Id. (citing 42
A.L.R.2d 1183 (1956)). Here, the Kings do not dispute the amount of damages incurred
by the Chase Parties in the form of attorney’s fees and costs expended in defense of the
Kings’ lawsuit, i.e., $677,768.79. Rather, the Kings assert that because the damages are
in the form of attorney’s fees and costs, the Chase Parties are precluded from recovery
under the American Rule. Pursuant to the foregoing discussion, the Chase Parties are
entitled to indemnification by NV Music Row, LLC. However, it is undisputed that the
LLC retained only $68,650.98 from the Property sale proceeds to cover any contingent
liabilities. The record establishes that but for the Kings’ concealment of the material fact
that they were contemplating bringing their lawsuit to dispute Dean Chase’s handling of
the Property sale, the LLC would have retained sufficient funds to cover any costs or
expenses incurred in defending the lawsuit, which defense was necessary to effect the
will of the majority of the partners as evidenced by the Unanimous Consent to sell the
Property to Virgin for $11,000,000. Due solely to the Kings’ concealment of their plans
- 53 -
and their acceptance of their portion of the sale proceeds prior to bringing their lawsuit,
the Chase Parties’ were deprived of their right to full indemnification from the LLC and
were placed in the position of having to expend their own funds to protect the sale made
on behalf of the NV Entities. In this regard, the attorney’s fees and expenses that were
not available for reimbursement from the LLC were compensatory damages. As noted in
Edwards Moving & Riggin, Inc. v. Lack, No. 2:14–cv–02100–JPM–tmp, 2015 WL
381953 (W.D. Tenn. June 24, 2015):
The American rule, however, simply prevents a prevailing litigant from
“collect[ing] a reasonable attorneys’ fee from the loser.” Alyeska Pipeline
Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975). The American
rule does not apply to consequential damages flowing from a separate
harm. Under Tennessee law, “‘[o]ne who through the tort of another has
been required to act in the protection of his interests by bringing or
defending an action against a third person is entitled to recover reasonable
compensation for loss of time, attorney fees and other expenditures thereby
suffered or incurred in the earlier action.’” Engstrom v. Mayfield, 195 F.
App’x 444, 451 (6th Cir.2006) (emphasis added) (quoting Pullman
Standard, Inc. v. Abex Corp., 693 S.W.2d 336, 340 (Tenn.1985)).
Edwards Moving & Riggin, Inc., 2015 WL 381953, at *8.
Here, the Chase Parties’ attorney’s fees and costs were not awarded because they
were the “prevailing party” in the litigation, which is what the American Rule is designed
to prevent. Id. Rather, in this case, attorney’s fees and costs were awarded to
compensate the Chase Parties for actions they were forced to take to defend the NV
Entities against the Kings’ unilateral lawsuit. Had the Kings not brought their
unsuccessful claims, the Chase Parties would not have expended the fees and costs of
defending same. Furthermore, had the Kings disclosed their plan to file suit, the LLC
would have retained sufficient funds to indemnify the Chase Parties. The only measure
of damages in this case is the attorney’s fees and expenses paid by the Chase Parties that
were not reimbursed from the LLC. The only reason these fees and expenses were
incurred is the tortious act of the Kings. As this Court has explained:
The purpose of compensatory damages is to compensate a party for the loss
or injury caused by a wrongdoer’s conduct. The goal is to restore the
injured party, as nearly as possible, to the position the party would have
been in had the wrongful conduct not occurred. The injured party should be
fully compensated for all losses caused by the wrongdoer’s conduct.
Waggoner Motors, Inc. v. Waverly Church of Christ, 159 S.W.3d 42, 58 (Tenn. Ct.
App. 2004); accord Memphis Light, Gas & Water Div. v. Starkey, 244 S.W. 3d 344, 354
(Tenn. Ct. App. 2007). Under the particular facts of this case, the Business Court’s
- 54 -
award of attorney’s fees and costs does just this—it compensates the Chase Parties for the
loss caused by the Kings’ independent tort of misrepresentation by concealment. In this
regard, attorney’s fees and costs are the sole measure of compensatory damages in this
case, and were not awarded punitively. For these reasons, we affirm the award of
attorney’s fees and costs as damages in this case.
IX. Conclusion
For the foregoing reasons, we affirm the trial court’s orders. The case is remanded
for such further proceedings as may be necessary and are consistent with this opinion.
Costs of the appeal are assessed to the Appellants, Jonathan King and Taylor King, for all
of which execution may issue if necessary.
s/ Kenny Armstrong
KENNY ARMSTRONG, JUDGE
- 55 -