Ballard v. Herzke

Decision Date10 June 1996
Citation924 S.W.2d 652
CourtTennessee Supreme Court
PartiesElsie M. BALLARD, Col. Lewis P. Boone, Jr., USAF (Ret.), Otis N. Fussell, & Edgar Johnson, individually and on behalf of all others similarly situated, residents of Psalms, Inc., a Tennessee non-profit corporation, Plaintiffs-Appellants, v. Rudolf HERZKE, Charles S. Trammel, Jr., Retirement Communities of America-Tennessee, Inc., Psalms, Inc., and Retirement Communities of America, Inc., Defendants-Appellees.

C. Barry Ward, Paul R. Lawler, Glankler Brown, Memphis, for Plaintiffs.

William R. Willis, Alfred D. Knight, Alan D. Johnson, Willis & Knight, Nashville, for Intervenors, The Tennessean and The Society of Professional Journalists.

W.J. Michael Cody, John W. Chandler, Jr., Douglas F. Halijan, Burch, Porter, & Johnson, Memphis, for Defendant, Psalms, Inc.

Hal Gerber, Lewie R. Polk, III, Gerber Law Offices, Memphis, for Defendant, Rudolf Herzke.

J. Alan Hanover, James R. Newsom, III, Hanover, Walsh, Jalenak, & Blair, Memphis, for Defendant, Charles Trammell, Jr. and Retirement Communities of America-Tennessee, Inc.

OPINION

ANDERSON, Chief Justice.

In this appeal we are asked to determine whether the Chancery Court abused its discretion by modifying a protective order to allow access to discovery materials previously protected by the order and by allowing media intervention. The Court of Appeals reversed the Chancery Court, finding an abuse of discretion and reinstated the protective order which denied access to the discovery materials.

We conclude that the Chancery Court did not abuse its discretion either by modifying the protective order or by allowing intervention. The judgment of the Court of Appeals is, therefore, reversed and the Chancery Court's judgment modifying the protective order is reinstated.

FACTUAL BACKGROUND

This case began on July 18, 1989, when the plaintiffs, residents of Kirby Pines Estates, a life care retirement community in Memphis, Tennessee, brought suit in Shelby County Chancery Court against the defendants, Psalms, Inc., a non-profit corporation which owns Kirby Pines; Rudolf Herzke, the chairman of the Board of Directors of Psalms, Inc.; Retirement Communities of America-Tennessee, Inc. ("RCA"), the management company that operates Kirby Pines; and Charles S. Trammell, the President of RCA.

The plaintiffs and the other residents of Kirby Pines entered into a written contract with Psalms. The contract requires residents to pay an entrance fee and a monthly maintenance fee, and in exchange, Psalms is obligated to provide the residents with care for life, including care in the nursing facility if necessary, at no additional charge.

Plaintiffs alleged in their complaint that the defendants had violated their fiduciary duties to the residents of Kirby Pines and had engaged in a conspiracy and outrageous conduct by denying the residents access to information about the operation of Kirby Pines; harassing the residents when they complained about the operation of the facility; paying an excessive management fee to defendant RCA; and making improper loans, all of which the defendants denied.

Discovery proceeded in the case, with the plaintiffs requesting production of documents and propounding written interrogatories. The documents requested related to the financial affairs of Kirby Pines, while the written interrogatories inquired into a wide range of topics, including the management of the facility; loans received by the defendants; information about residents; information about policies and procedures; and information about the defendants' personal income and income tax returns for various years. Claiming confidentiality, the defendants objected to many of the interrogatories and requests for production.

On July 27, 1990, Chancellor D.J. Alissandratos considered several motions filed by both sides concerning the scope and conduct of discovery. Following oral argument, he concluded that the plaintiffs' motion to compel discovery should be granted, and the defendants were given twenty days to fully respond to the interrogatories and produce the documents. In addition, however, without being requested to do so, the court, sua sponte, imposed a protective order to "protect[ ] the privacy of the defendants," while "at the same time giving counsel and counsel's experts an opportunity ... to review documents." The court ordered

that all responses by Defendants to discovery shall be held by the Clerk of this Court under seal, and neither the documents produced, nor the responses to Interrogatories provided, nor any other responses to discovery shall be disclosed in any manner except to Plaintiffs' counsel, including counsel's staff and paralegals who are involved in this litigation (all of whom shall be instructed to keep such information confidential) or Plaintiffs' experts (such as certified public accountants who shall be instructed to keep such information confidential) and shall not be disclosed to Plaintiffs themselves, absent an Order of the Court or an agreement of counsel.

With the Chancellor's permission, the plaintiffs sought an interlocutory appeal of the protective order, which was denied by the Court of Appeals. The discovery responses were thereafter filed with the Chancery Court Clerk, who held the materials under seal pursuant to the protective order. The defendants objected to the scope and relevancy of much of the plaintiffs' discovery, but the Chancellor overruled the objections, citing the protections afforded by the protective order.

On at least two later occasions, plaintiffs moved to modify or dissolve the protective order, but Chancellor Alissandratos denied both motions. The plaintiffs' second motion requested modification of the protective order to allow disclosure of financial information to certain residents of Kirby Pines familiar with banking, business, and financial practices. Thereafter, the plaintiffs requested, and the Court of Appeals granted, an extraordinary appeal on that issue. After a hearing, the Court of Appeals modified the protective order to allow disclosure of the financial information to the named plaintiffs

so as to allow counsel freely to confer, advise, and discuss with their clients all matters developed through discovery; provided, however, that such named plaintiffs shall themselves be subject to the protective order to the same extent as provided therein for plaintiffs' attorneys and they shall not disclose discovered information to others unless and until such time as directed or permitted by the trial court.

As modified by the Court of Appeals, the protective order was to remain in effect until and "unless it is altered in the discretion of the trial court."

Thereafter, the State, on relation of the plaintiffs herein, filed a separate action in Shelby County Circuit Court against certain present and former directors of Psalms, Inc., alleging, among other things, an action in quo warranto, which is an action prosecuted in the name of the State for the benefit of the corporation to hold directors accountable for their management of the corporation. The circuit court dismissed that action. The Court of Appeals reversed the circuit court's dismissal of the quo warranto action, and this Court affirmed the Court of Appeals' judgment in State, ex rel. Boone v. Sundquist, 884 S.W.2d 438 (Tenn.1994).

Following release of our decision in that case, the plaintiffs again moved to dissolve or modify the protective order, asserting that it impeded their trial preparation by precluding conferences with unnamed plaintiffs. The Tennessean, a Nashville Tennessee newspaper, and the Society of Professional Journalists, (hereafter collectively "The Tennessean "), filed a motion to intervene for the purpose of requesting that the Chancery Court rescind its protective order so that all proceedings and records would be open to the press and the public. The Tennessean asserted that the protective order adversely impacted the public's right of access and the media's common law, statutory, and constitutionally guaranteed right of access to information of public interest and importance.

Concluding that circumstances had changed since the entry of the protective order, on October 28, 1994, Chancellor Floyd Peete, Jr., 1 granted the plaintiffs' motion to modify the protective order, and allowed The Tennessean to intervene. The Chancellor modified the protective order so that only the discovery materials relating to the defendants' personal income and personal taxes would remain sealed. Specifically, the Chancellor found as follows:

[T]he Court will note there are changed circumstances since the entry of the protective order. The Tennessee Supreme Court in its opinion on August 29th, 1994, allowed the Circuit Court suit brought by the plaintiffs to be prosecuted in the name of the State with the consent of the District Attorney General as a quo warranto action for the benefit of the corporation to allow that the directors should be held accountable for their management of the corporation.

The District Attorney General has indicated his plans to actively pursue this matter and prosecute this matter. Further, the lawsuit itself has become a public issue and a public controversy creating what this Court suspects are damaging rumors and speculations and other unnamed events and damages.

In view of the changed circumstances, I am of the opinion that the protective order should be modified and that the seal should be lifted and all records should be open except the personal income tax returns of the defendants, sources of income and amounts of income of the defendants generated in matters unrelated to this litigation.

The Court will also listen to counsel as to other limitations which may be acceptable to this Court.

The Chancellor also permitted The Tennessean to intervene and held that those discovery materials filed with the Chancery Court Clerk's office, no...

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