Allied Sound, Inc. v. Neely

• Decision Date: 19 May 1995
• Citation: 909 S.W.2d 815
• Parties: ALLIED SOUND, INC., Plaintiff-Appellant, v. Eddie W. NEELY and Johnny Jess Davis, Defendants-Appellees.
• Court: Tennessee Court of Appeals

Page 815

909 S.W.2d 815

ALLIED SOUND, INC., Plaintiff-Appellant, v. Eddie W. NEELY and Johnny Jess Davis, Defendants-Appellees.

Court of Appeals of Tennessee Eastern Section.

May 19, 1995.

Order Denying Rehearing but

Granting for Limited Purpose of

Correcting Decision June 13, 1995.

Permission to Appeal

Denied Nov. 27, 1995.

George F. Legg & Eric J. Morrison, of Stone & Hinds, P.C., Knoxville, for plaintiff-appellant.

Robert S. Stone, of McCampbell & Young, P.C., Knoxville, for appellee Eddie W. Neely.

P. Edward Pratt, of Baker, Donelson, Bearman & Caldwell, Knoxville, for appellee Johnny Jess Davis.

OPINION

SUSANO, Judge.

This is an action for the tort of misrepresentation. ¹ Allied Sound, Inc. (Allied), sued Eddie W. Neely and Johnny Jess Davis, officers and directors of Kingdom Resorts, Inc. (KRI), for alleged misrepresentations made by them while acting on behalf of KRI in its negotiations with Allied regarding the purchase and installation of lighting and sound equipment. The trial court granted the defendants' motion for summary judgment, finding that the complaint failed to state a claim upon which relief could be granted; that Allied had recovered a judgment in an earlier suit for the same damages sought in this action; and that Allied could not proceed against the defendants because it had earlier sued and recovered a judgment against the defendants' principal, KRI, for "the same set of facts basically." Allied appeals from the trial court's grant of summary judgment. We find that this is not an appropriate case for summary judgment.

I

There are four issues raised on this appeal, the first two by the appellant and the second two by the appellee:

1. Does the complaint allege a claim upon which relief can be granted?

2. Does the doctrine of collateral estoppel bar Allied's claim for misrepresentation?

3. Is the complaint barred by T.C.A. § 28-3-105, the three-year statute of limitations applicable to actions for injuries to personal property?

4. Does Allied's prior action against KRI for breach of contract bar the present action for misrepresentation against officers and directors of KRI arising out of the same transaction?

The factual basis underlying the defendants' motion for summary judgment consists of the following in the record before us: the complaint filed in 1988 by Allied against KRI for breach of contract and other relief; the trial court's findings of fact and conclusions of law in that earlier case; and the order and memorandum of the United States District Court for the Middle District of Tennessee (Thomas A. Wiseman, Jr., J.) in the related case of Allied Sound, Inc. v. Century Financial Services Group, Ltd., No. 3:90-0714 (June 17, 1991). Allied counters with the affidavit of Larry Link, president of Allied. Also before us are two documents related to the contract between Allied and KRI, both of which are exhibits to the complaint. One is KRI's written acceptance of Allied's proposal. The acceptance is dated May 4, 1988, and is signed for KRI by the defendant Davis as its president. The other document, a letter to Allied also dated May 4, 1988, is signed for KRI by the defendant Neely in his capacity as vice president. Neither defendant submitted his affidavit.

II

The complaint in the instant action was filed on April 2, 1991. It is the starting point for our analysis. The facts that follow are taken from the allegations of that document.

On or about February 10, 1988, Allied "agreed to enter into a contract" with KRI to supply and install lighting and sound equipment for KRI. ² The defendants convinced Allied to begin work on the system before execution of a written contract and before payment of the agreed-to purchase price by representing to Allied that financing of the purchase price "could be acquired and that payment would be forthcoming." What the defendants knew, but intentionally did not tell Allied, was that the financing commitment of Century Financial Services Group, Ltd. (Century) was contingent "upon the furnishing [to Century] of a letter of credit from a lending institution."

KRI's attempts to secure a letter of credit were unsuccessful. Despite this, the defendants "knowingly and/or recklessly made false representations to [Allied] that financing was in place and complete when in fact it was not;" and continued to conceal the letter of credit requirement.

On or about April 22, 1988, Allied began delivering and installing the system "at the request of and in reliance upon the concealment and false statements made by defendants." On or about May 4, 1988, Allied had still not been paid so it told the defendants it "would discontinue work if financing was not available." The defendants then told Allied "that financing was available and complete." In reliance on these representations, which the defendants knew to be false, Allied continued to work on the project. At the same time, on or about May 4, 1988, KRI by its president, the defendant Davis, signed a purchase order to Allied for "the lighting and sound equipment supplied and being installed by [Allied]." The contract price is reflected in the purchase order as $725,000. Also on the same date, KRI by its vice-president, the defendant Neely, agreed in a letter to Allied to reimburse it for the interest it had paid on money borrowed by Allied to facilitate its performance. The interest was to be paid when the loan "funded by [Century]" was closed.

The complaint charges that the defendants intentionally and fraudulently misrepresented that the financing of the project had been "acquired"; that they intentionally and fraudulently concealed from Allied that KRI had failed to obtain a letter of credit; and that they intentionally and fraudulently concealed from Allied that the letter of credit was a prerequisite to Century's commitment. The complaint further alleges that the false representations were material to the business dealings between Allied and KRI, and were relied upon by Allied to its damage.

The complaint seeks $725,000 in compensatory damages, prejudgment interest, and $1,000,000 in punitive damages.

III

This is the third lawsuit Allied has filed arising out of its negotiations and dealings with KRI. It initially sued KRI alone on September 19, 1988, for breach of contract. The Sevier County Chancery Court found that Allied and KRI had entered into a "valid and binding ... contract," and that KRI effectively waived its right to rely on a lack of financing (to negate the existence of the contract) by its representations regarding financing made at the May 4, 1988, meeting between representatives ³ of the parties. The court awarded Allied a judgment for $725,000, together with a lien on the tract of land improved with the lighting and sound equipment. KRI subsequently filed for bankruptcy. Allied's judgment apparently remains unsatisfied.

On July 3, 1990, Allied sued Century in federal court in Nashville, alleging breach of contract, promissory estoppel and misrepresentation. Federal Judge Thomas A. Wiseman, Jr., granted Century summary judgment, holding that Allied had failed to prove the existence of a contract between Allied and Century, had failed to prove any reliance on or misrepresentations by Century officials, and had failed to show reasonable reliance on Allied's promissory estoppel claim. Finally, that court ruled that Allied's suit was also barred by the doctrine of collateral estoppel, because "[t]he finding [by Chancellor Rainwater in the earlier suit against KRI] that Allied reasonably relied on KRI 's representations was necessary to the chancery court's ruling that KRI was estopped from challenging the validity of its contract with Allied" (emphasis in original); and that therefore Allied was precluded from relitigating the issue of reasonable reliance. In effect, the federal court ruled that the state court determined that Allied relied on the representations made by KRI, and therefore, by operation of law (collateral estoppel), it would not be permitted to claim reliance on representations or promises made by Century.

IV

Because he had heard the earlier breach of contract action against KRI, Chancellor Chester S. Rainwater, Jr., was designated to hear this case by interchange. In granting the defendants summary judgment, he stated that there were no genuine issues of material fact, that Allied's complaint failed to state a claim upon which relief could be granted, and that

... the Doctrine of Collateral Estoppel is applicable to this situation by virtue of the fact that the damage, certainly a portion of the matter in issue, was fully, completely, and finally litigated in [the previous action against KRI], and that the plaintiffs here have recovered the amount of their alleged injuries and damages.

Additionally, the Court is of the opinion and finds that to allow this to proceed against these defendants and assuming that the plaintiffs in some way would be successful, would be granting two judgments on the same set of facts basically.

V

The complaint obviously alleges a cause of action. It clearly sets forth all of the elements of the tort of misrepresentation; but in finding to the contrary, the Chancellor was not testing the legal sufficiency of the complaint as he would have done had he been faced with a pure Tenn.R.Civ.P. 12.02(6) motion. The defendants' various legal theories supporting their motion all rely, to some extent, on facts outside the complaint. Their theories of collateral estoppel and election of remedies require us to consider facts arising from Allied's prior suit against KRI and the resulting judgment in that case. Their statute of limitations theory is premised upon language found in Allied's 1988 complaint against KRI, rather than Allied's complaint in the current action. Since all of these theories rely upon matters outside the challenged complaint, we agree with the trial court that the defendants' 12.02(6) motion should be evaluated as one for...