Auxin, LLC v. DW Interests, LLC
| Docket Number | M2022-01087-COA-R3-CV |
| Decision Date | 25 January 2024 |
| Parties | AUXIN, LLC ET AL. v. DW INTERESTS, LLC ET AL. |
| Court | Tennessee Court of Appeals |
Session June 7, 2023
Appeal from the Chancery Court for Putnam County No. 2019-166 Jonathan L. Young, Chancellor
This appeal concerns a claim for declaratory judgment and counterclaims for intentional misrepresentation and breach of contract arising from a series of agreements related to the development of a hotel and conference center in Cookeville Tennessee. The developed property was to be owned by a limited liability company, and the plaintiffs sought a declaration that they had a right to buy the defendants' interest in that company pursuant to an option in the operating agreement, which was to become effective upon a determination that the hotel project could not be completed with two identified, adjoining pieces of property. For their part, the defendants sought awards of compensatory and punitive damages based on allegations that the plaintiffs misrepresented their ability and intent to assist with financing and development tasks and then failed to perform those tasks as required by the parties' development agreement. After the defendants filed their answer and counter-complaint, the plaintiffs moved for judgment on the pleadings based, in principal part, on the "undisputed" fact that the real estate purchase agreement for one of the two development properties had terminated. The plaintiffs also moved to dismiss the defendants' intentional misrepresentation counterclaim for failure to state the allegations of fraud with particularity. But after the motions were filed and before they were heard, the defendants filed an amended answer with leave of the court in which they denied that the real estate purchase agreement had been properly terminated and asserted more particularized facts in support of their misrepresentation counterclaim. Nonetheless, the trial court granted the plaintiffs' motions, declared that the real estate purchase agreement had been terminated, and dismissed the misrepresentation counterclaim. The plaintiffs then filed a motion to dismiss or for summary judgment on the remaining counterclaim for breach of contract, along with a motion for judicial notice of several public records. The trial court granted the motion under Rule 12.02 and, in the alternative Rule 56. The defendants appeal. We vacate the trial court's ruling that the plaintiffs were entitled to judgment on the pleadings because the defendants denied that the real estate purchase agreement had been properly terminated. But we affirm the dismissal of the misrepresentation counterclaim because the defendants failed to allege facts to establish the elements of their claim. We also affirm the trial court's denial of the motion to continue because the record shows that the defendants were dilatory in prosecuting their contract claim. But we disagree with the court's decision to take judicial notice of two newspaper articles, and we vacate the trial court's ruling that the plaintiffs were entitled to dismissal of the contract counterclaim under Rule 12.02 and Rule 56. Thus, the decision of the trial court is vacated in part and affirmed in part, and this matter is remanded for further proceedings consistent with this opinion.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Vacated in Part; Affirmed in Part; and Remanded
William C. Scales, Jr., and Bryan K. Williams, Nashville, Tennessee, for the appellants, DW Interests, LLC, and David White.
Daniel H. Rader, IV, and Andre S. Greppin, Cookeville, Tennessee, for the appellees, Auxin, LLC, and Auxin-Wilson Project, LLC.
OPINION
FACTS AND PROCEDURAL HISTORY
In 2016, DW Interests, LLC ("DWI"), entered into three agreements, the purpose of which was to develop a hotel and conference center near the historic train depot in downtown Cookeville, Tennessee (the "Hotel Project").
In the first agreement ("the Real Estate Purchase Agreement"), DWI agreed to purchase a tract of land ("the Original Hotel Property") from Auxin-Wilson Project, LLC ("AWP"). In the second agreement ("the Development Agreement"), DWI agreed to hire AWP's parent company, Auxin, LLC ("Auxin"), to "provide overall coordination" of the Hotel Project, including "assistance with obtaining economic incentives." The Development Agreement enumerated 13 services that Auxin was to perform, including using its connections in the community to obtain tax increment financing ("TIF") as well as zoning and planning commission approvals from the City of Cookeville for the Hotel Project. Auxin was also to solicit banks for the purpose of obtaining new market tax credit financing that DWI needed to develop the Hotel Project.
Four months later, DWI and Auxin executed a third agreement ("the Operating Agreement") to set forth the parties' rights and responsibilities as members of Cookeville Downtown Hotels, LLC ("CDH"). The Operating Agreement states that the Hotel Project was to be constructed on the Original Hotel Property and a separate but adjoining tract ("the Additional Hotel Property"). The properties were to be acquired by DWI and then conveyed to CDH to create one contiguous tract of land for the development of the Hotel Project.
Furthermore, and as specified in the special option in § 14.8 of the Operating Agreement, in the event the Hotel Project could not be developed, CDH would "not acquire the Original Hotel Property and w[ould] own only the Additional Hotel Property." Auxin would then have the option pursuant to § 14.8 "to acquire all (but not less than all) of the interest of [DWI] in [CDH]." Upon exercising this option, Auxin and AWP would have the sole and unrestricted rights to develop the properties for their own use and purposes.
Three years later, in September 2019, Auxin and AWP (collectively, "Plaintiffs") commenced this action against DWI and its principal, David White (collectively, "Defendants"). By that time, DWI had purchased and then assigned the Additional Hotel Property to CDH. In their complaint, Plaintiffs sought a declaration that the Real Estate Purchase Agreement had terminated and, as a result, that Auxin had the right to exercise its option under § 14.8 of the Operating Agreement to acquire all of Defendants' rights and interests in CDH. Plaintiffs claimed that they had properly exercised the option but that Defendants failed to honor Plaintiffs' rights.
Defendants timely filed an answer and countercomplaint. In their countercomplaint, Defendants asserted claims for breach of contract and intentional misrepresentation[1] based on allegations that Plaintiffs induced Defendants to enter the Agreements by "intentionally and willfully" withholding "material information about the Hotel Project" and by making "material misrepresentations and statements" regarding Plaintiffs' ability and willingness to procure financing. Defendants further alleged that Plaintiffs "failed to deliver on their contractual obligations" to obtain financing and "approvals for land and site development." In their answer, Defendants denied most of the material allegations, but they admitted that "[t]he Court should determine and declare that the Real Estate Purchase Agreement has been properly terminated." (Emphasis added).
Shortly thereafter, on November 8, 2019, Plaintiffs moved for judgment on the pleadings, contending that Defendants had admitted the existence of a genuine dispute concerning the Real Estate Purchase Agreement, the Development Agreement and Operating Agreement (collectively, "the Agreements"), and that Defendants had further admitted "that the real estate purchase agreement had been properly terminated." In the same motion, Plaintiffs moved to dismiss Defendants' counterclaim for intentional misrepresentation on the ground that the counter-complaint failed to comply with the heightened pleading requirement in Tennessee Rule of Civil Procedure 9.02.
On the same day that Plaintiffs filed their motions, Defendants filed a motion to amend their answer and countercomplaint.[2] Defendants averred that amendment was necessary because, inter alia, their answer "contained a typographical or scrivener's error . . ., wherein the word 'admit' was mistakenly typed instead of the word 'denied.'" Accordingly, Defendants sought to correct the error and "to include additional particularized facts" relevant to their intentional misrepresentation claim.
On January 17, 2020, the trial court heard all three motions and took them under advisement. Two weeks later, on January 31, 2020, the court entered an order granting the motion to amend. Defendants filed their amended pleading on the same day.
Thereafter, and pursuant to an order entered on March 6, 2020, the trial court granted Plaintiffs' motion for judgment on the pleadings and awarded them "declaratory relief as sought, ruling specifically that Plaintiff[s] win[]." In pertinent part, the trial court declared as follows:
The Court declares that the Real Estate Purchase Agreement has been terminated, and that Cookeville Downtown Hotels, LLC is unable to develop the property for the hotel project as contemplated by the Agreement as described, that Auxin, LLC has exercised the Special Option in Section 14.8 of the Operating Agreement and that Auxin, LLC is entitled to acquire all interest of DW Interest[s], LLC in Cookeville Downtown Hotels, LLC, in accordance with Section 14.8 of the Operating Agreement, at the net equity of zero as...
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