Boles v. National Development Co., Inc.
| Decision Date | 17 October 2005 |
| Citation | 175 S.W.3d 226 |
| Parties | Gladys BOLES, et al. v. NATIONAL DEVELOPMENT COMPANY, INC., et al. |
| Court | Tennessee Supreme Court |
John C. Hayworth, Charles Ingram Malone, Kathryn Hays Sasser, Gerald M. Tierney, Jr., and Joseph F. Welborn, Nashville, Tennessee, for the appellants, National Development Company, Inc. Sunstates Corporation and Clyde W. Engle.
Douglas Thompson Bates, III, Centerville, Tennessee, for the appellee, Gladys Boles, et al.
FRANK G. CLEMENT, JR., J., delivered the opinion of the court, in which WILLIAM C. KOCH, JR., P.J., M.S., and PATRICIA J. COTTRELL, J., joined.
This is a class action on behalf of purchasers of 3,876 lots at Hidden Valley Lakes Development, a residential development in Hickman County. Plaintiffs seek to recover compensatory damages resulting from a breach of contract by the developer, National Development Company, Inc., and its alleged alter ego, Clyde W. Engle. Plaintiffs allege that National breached its contract by failing to provide the centerpiece of the development, a thirty-acre lake. The lake failed to hold water and thus became a thirty-acre hole in the ground. It was stipulated that the failure of National to provide the thirty-acre lake was a breach of contract. The trial was bifurcated into two phases. The first was limited to the plaintiffs' claim for damages against National, following which the plaintiffs were awarded compensatory damages in the amount of $2,540,867 against National. The second phase of the trial was limited to the plaintiffs' claim that Clyde Engle was the alter ego of National and thus liable for the damages assessed against National. Following an evidentiary hearing, the trial court pierced the corporate veil and held Engle personally liable for the judgment against National. The defendants appeal contending that the plaintiffs' proof of damages was neither competent nor sufficient, that the wrong legal standard was applied to pierce the corporate veil and that the proof was insufficient to pierce the corporate veil. Engle also appeals contending that the court did not have personal jurisdiction over him and thus the judgment against him is void. Finding no error, we affirm.
Twenty-nine owners of property in the Hidden Valley Lakes Development in Hickman County, Tennessee, filed a civil action against National Development Company, Inc., a Texas corporation, seeking damages resulting from breach of contract and negligent and fraudulent misrepresentations. The principal complaint pertained to the centerpiece of the development, a thirty-acre lake, named Crystal Lake. The lake failed to hold water and it was subsequently determined that it would never hold water. Thus, instead of having a thirty-acre lake as the centerpiece of the development, the plaintiffs have a thirty-acre hole in the ground.
Plaintiffs amended their complaint in September 1995 to allege that their causes of action were being asserted on behalf of "all persons signing contracts with National prior to 1994 and specifically providing: `THE SELLER is responsible for construction of roads, lakes, and related facilities'" and all successors to any persons who signed such contracts with National. The plaintiffs sought to represent a class of persons who purchased some 3,876 lots from National for a total consideration paid for the lots of $9,239,517.
In December of 1995, the trial court certified the plaintiffs' breach of contract claims as a class action on behalf of "persons who prior to the end of 1994, purchased or contracted to purchase property in the Hidden Valley Lakes subdivision from National Development Company, Inc., pursuant to contracts containing language to the effect that defendant would be responsible for construction of roads, lakes and related facilities." Plaintiffs' misrepresentation claims, however, were not certified for class action treatment. Thereafter, on February 20, 1996, the plaintiffs filed a notice of dismissal of their misrepresentation claims. Thus, the plaintiffs proceeded with their claim against National on the singular issue of whether National was liable for breach of contract based upon its failure to develop the centerpiece of the subdivision, Crystal Lake.
Later on, the plaintiffs again amended their complaint, adding Sunstates Corporation, National's parent, as an additional defendant. The thrust of the complaint against Sunstates was that it operated National as its "alter-ego, and as its agent." Plaintiffs alleged that Sunstates caused National to become under-capitalized as a result of a transfer on December 31, 1994 of an excess of $5 million in contracts to affiliates of Sunstates and National. Plaintiffs therefore alleged that Sunstates was liable for any judgment that may be rendered against National.
Two years later, in December of 1998, the plaintiffs amended their pleadings once again, this time adding Clyde W. Engle, the principal behind the corporate defendants, as an additional party defendant. Plaintiffs asserted that Engle exercised complete dominion and control over Sunstates, National and other affiliated entities and that he was the "alter-ego" of the entities which justified piercing the corporate veils of National and Sunstates in order to hold Engle individually liable for any judgments that may be rendered against the corporate defendants.
Due to the complexity of issues, the trial was bifurcated into two hearings. The first trial pertained to the issue of damages only. The second focused solely on the question of whether Engle was the alter ego of the corporate defendants and, thus, whether the corporate veils should be pierced so that the plaintiffs could recover their damages against Clyde Engle, individually.
The damages portion of the plaintiffs' breach of contract action against National was tried before the Honorable Donald P. Harris on January 19, 2000. The plaintiffs were awarded damages against the developer, National, in the amount of $2,540,867. The second phase of the trial, to determine whether to hold Engle personally liable for the judgment against National, was tried before the Honorable R.E. Lee Davies on June 17 and 18, 2002. The trial court applied Tennessee law, rather than the law of the states of incorporation of National and Sunstates, and found Engle to be the alter ego of the corporate entities. It, therefore, pierced the corporate veils and held Engle personally liable for the $2,540,867 judgment rendered against National.
The issues raised constitute a challenge of the trial court's judgment following a bench trial. We review findings of fact by a trial court de novo and presume that the findings of fact are correct unless the preponderance of the evidence is otherwise. We also give great weight to a trial court's determinations of credibility. Estate of Walton v. Young, 950 S.W.2d 956, 959 (Tenn.1997); B & G Constr., Inc. v. Polk, 37 S.W.3d 462, 465 (Tenn.Ct.App.2000). However, if the trial judge has not made a specific finding of fact on a particular matter, we will review the record to determine where the preponderance of the evidence lies without employing a presumption of correctness. Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn.1997).
Tenn. R.App. P. 13(d)'s presumption of correctness requires appellate courts to defer to a trial court's findings of fact. Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d 291, 296 (Tenn.Ct.App.2001). Because of the presumption, an appellate court is bound to leave a trial court's finding of fact undisturbed unless it determines that the aggregate weight of the evidence demonstrates that a finding of fact other than the one found by the trial court is more probably true. Parks Properties v. Maury County, 70 S.W.3d 735, 742 (Tenn.Ct.App.2001). For the evidence to preponderate against a trial court's finding of fact, it must support another finding of fact with greater convincing effect. Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn.Ct.App.2000).
Following a bench trial, the plaintiffs were awarded damages against National Development Company, Inc., the developer, in the amount of $2,540,867. Defendants appeal that decision, contending that the judgment against National should be reversed because the record does not contain competent or sufficient proof of damages. Our analysis of this issue begins with an assessment of the trial court's reasoning, which is set forth in detail in an excellent Memorandum Opinion:
This action for breach of contract was tried by the court on January 19, 2000. Plaintiffs are a class of purchasers of real property located in the Hidden Valley Lakes Subdivision, a recreational development, developed and marketed by the defendant, National Development Company, Inc. All members of the class purchased lots in the development incident to a contract of sale that contained the following language:
"The SELLER is responsible for construction of roads, lakes and related facilities such as the bathhouse, beach and boat ramps, . . ."
The primary lake, Crystal Lake, intended to cover some 45 acres, was dug by the defendant but did not hold water and the effort to build the lake was finally abandoned. The plaintiffs brought a class action to recover for the diminution in value of their properties caused by the failure of the defendant to complete the lake. Five other small lakes were constructed by the defendant as well as a swimming pool, bathhouse and other facilities. Crystal Lake was, however, to be the preeminent recreational facility on the property and would have, if constructed, accommodated boating, skiing and fishing.
The concept of marketing the property was that anyone who purchased a lot in the development was entitled to use any of the...
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