Creech v. Addington

• Decision Date: 31 March 2009
• Docket Number: No. E2006-01911-SC-R11-CV.,E2006-01911-SC-R11-CV.
• Parties: Arthur CREECH et al. v. Robert R. ADDINGTON et al.
• Court: Tennessee Supreme Court

281 S.W.3d 363

Arthur CREECH et al. v. Robert R. ADDINGTON et al.

No. E2006-01911-SC-R11-CV.

Supreme Court of Tennessee, at Knoxville.

September 4, 2008 Session.

March 31, 2009.

Rick L. Powers and Dan D. Rhea, Knoxville, Tennessee, for the appellants, D.C. Parker and Richard Flowers.

David H. Parton, Gatlinburg, Tennessee for the appellees, Arthur Creech et al.

OPINION

GARY R. WADE, J., delivered the opinion of the court, in which JANICE M. HOLDER, C.J., WILLIAM M. BARKER, CORNELIA A. CLARK, and WILLIAM C. KOCH, JR., JJ., joined.

The eleven Plaintiffs, investors in a real estate development in Tunica, Mississippi, suffered losses when the financing for hotels on the tracts of land they had leased failed to materialize. Five of the Plaintiffs first learned of the investment opportunity in 1993 while attending a presentation by real estate agents Lloyd and Betty Link in Gatlinburg. After suit was filed against several Defendants based upon breach of oral and written contracts, the trial court entered an order of dismissal as to the Links and other of the Defendants and, later, granted a motion for summary judgment in favor of D.C. Parker and Richard Flowers, the owners of the land. When judgments had been entered as to all of the Defendants, the Plaintiffs appealed, but only as to Parker and Flowers. The Court of Appeals reversed, holding that whether an agency relationship existed between Parker and Flowers, as principals, and the Links, and whether the Links had been guilty of misrepresentation were disputed questions of fact. Upon remand, a jury found that the Links were the agents of Parker and Flowers, who were vicariously liable for fraudulent misrepresentations made by the Links. Damages were awarded to the Plaintiffs. In a second appeal, this time by Parker and Flowers, the Court of Appeals affirmed as to those five Plaintiffs who had attended the presentation in Gatlinburg, but remanded for a new trial as to those who did not. We granted an application for permission to appeal to consider whether the order of dismissal in favor of the agents precluded any adjudication of vicarious liability as to the principals.

We find that the order of dismissal in regard to the Links has become final, was on the merits, and involves the same cause of action as the pending fraudulent misrepresentation claims. The doctrine of res judicata applies. Because the Plaintiffs' right of action against the agents has been extinguished by operation of law, the Plaintiffs are not entitled to a judgment against Parker and Flowers based solely upon the fraudulent misrepresentations by the Links as agents. Moreover, the Plaintiffs did not properly preserve for appeal their claims of direct liability against Parker and Flowers. The judgment of the Court of Appeals is, therefore, reversed, the jury's verdict assigning vicarious liability to Parker and Flowers is vacated, and the case is dismissed.

Factual Background

This litigation has a long and complicated history. The eleven claimants (the "Plaintiffs") include Arthur and Glenda Creech, Darlene Reinier, Vicki Sue Jacobs Joann Wolfe, Claude and Deborah Hatfield, Wayne and Alice Martin, and Brent and Marvin Chitwood, Jr., the latter two of whom were doing business as Triad Partners.¹ Years ago, each of the Plaintiffs invested in an ill-fated real estate development in Tunica, Mississippi known as Mhoon Landing.

On October 18, 1993, five of the Plaintiffs (the Creeches, Reinier, Jacobs and Wolfe) attended a presentation at the Laurel Inn in Gatlinburg at the invitation of Earl Allen, the manager of the Inn. Tennessee residents Lloyd and Betty Link, the owners of Link and Associates, Inc., a real estate agency incorporated in this state, made a presentation designed to encourage those in attendance to invest in property owned by D.C. Parker and Richard Flowers, residents of Mississippi, on the Mississippi River in Tunica. Lloyd Link ("Link") informed the potential investors that casino barges, which were already in operation, had long-term leases at the Mhoon Landing site, and that there was likely to be significant development on the subject property. As a part of his presentation, Link displayed a map, which had been provided by Parker and Flowers, that identified the development plan for the property, including a golf course, sporting complex, hotels and restaurants.

Link proposed to sell five-acre parcels of property for the development of hotels. He informed the five prospective investors that GE Capital Modular Space ("GE Capital"),² through its agents Robert R. Addington, John O. Freeman and Consolidated Technologies Corporation ("Consolidated Technologies"),³ had already guaranteed financing for the hotels, and that construction would begin immediately if those in attendance agreed to participate. While Link never explicitly identified himself to the five Plaintiffs present as either an "agent" or "representative" for Parker and Flowers, he did state that all purchases of the property had to be made through his agency and claimed that the funds were required at the earliest possible date. Heightening the sense of urgency, an individual who identified himself as Mr. Frost interrupted the meeting, announcing that he was interested in purchasing the property if the other individuals present passed on the opportunity. Link's asking price was $250,000, or $50,000 per acre. When it became apparent that those in attendance could not afford that price, Link offered twenty-year leases on the Parker and Flowers lands for the pre-paid amount of $125,000, or $25,000 per acre.

At the conclusion of the presentation, Arthur Creech, on behalf of Laurel Group, Inc., agreed to lease one tract and Reinier, Jacobs and Wolfe, on behalf of Golden Girls, Inc., agreed to lease a second tract.⁴ While they executed identical forms styled "Contract for Sale of Commercial Real Estate," it is uncontested that the two documents actually were lease transactions for twenty-year terms. Both Laurel Group and Golden Girls made down payments of $25,000 with Link and Associates, who, according to the contracts, served as the "Escrow agent" for Parker and Flowers. Although Parker and Flowers were listed as the sellers on the contracts, they never signed the documents, and they claimed not to have seen them until after this litigation commenced.

The six remaining Plaintiffs, the Hatfields, the Martins and the Chitwoods, did not attend the October 1993 meeting in Gatlinburg. Brent Chitwood and Claude Hatfield had learned of the Mhoon Landing development previously—Chitwood through meetings with both Link and Allen, and Hatfield through discussions with Allen. Wayne Martin learned of the investment opportunity through Hatfield. Both Hatfield and Martin invested in the property in the name of the Laurel Group, as did the Chitwoods, through Triad Partners. One of the documents shown to Chitwood when he was considering the proposal was a May 5, 1993 press release written by Ellis Darby, who was the financial manager for Parker's companies and who also assisted Parker and Flowers in the Mhoon Landing development. This document, titled "Mhoon Landing Announces Casino Line-up," touted five casino openings for the fall of 1993 and provided that "[d]evelopers R.B. Flowers and D.C. Parker ha[d] arranged long term leases with each casino operator for sites containing at least twenty acres." The document went on to describe the plans to develop infrastructure, lodging and recreational facilities on the property. The Chitwoods and the other Plaintiffs testified that in electing to invest in the leases, they relied in great measure upon the validity of the long-term commitment of the casinos to maintain their location on the adjoining area.

In November of 1993, the Plaintiffs Reinier, Jacobs, Wolfe, Claude Hatfield and Wayne Martin all traveled to Tunica to see the Mhoon Landing development firsthand. While in Mississippi, they met with both Flowers and Darby, who informed them of the progress of the development. The investors were shown the "very impressive" riverfront casinos and understood from their conversations that the structures were "not going anywhere anytime soon." Link, who had his own trailer on the site, made a presentation to the group regarding the development plan and identified the parcels set aside for the Plaintiffs' hotels. Because of the booming activity at the casinos and the potential for extensive development, all of the Plaintiffs in attendance expressed satisfaction with the plans for their properties.

The leases were closed in Tunica on December 8, 1993. Hatfield, Martin and the Defendant Allen,⁵ an officer in the corporations, attended on behalf of Laurel Group and Golden Girls. Flowers, his attorney Nancy Arnold, Darby and the Links participated in the closing on behalf of the lessors. Allen, Flowers and Arnold signed the leases, which had an initial term of twenty years and a clause under which either party could terminate if the Plaintiffs failed to construct hotels on their tracts within the first six months. Both Laurel Group and Golden Girls pre-paid rent in the amount of $125,000 for their leases, and Parker and Flowers acknowledged receipt. Parker and Flowers, however, actually received pre-paid rentals of only $100,000 for each parcel of land. The Links received the balance, a total of $50,000, pursuant to a prior contract between Parker and Flowers and Link, under which Link was entitled to any amount in excess of $100,000 for a five-acre parcel. At the closing, Link provided another report on the progress of the development. Afterwards, when Hatfield asked whether the financing for the hotels was still in place, Link offered assurances that the loan for hotel construction was guaranteed as to each of the leased parcels.

As it turned out, however, the construction financing from GE Capital never materialized. An attempt to secure financing from another source was also...