Boling v. Tennessee State Bank

• Decision Date: 28 November 1994
• Docket Number: No. 03S01-9311-CH-00075,03S01-9311-CH-00075
• Citation: 890 S.W.2d 32
• Parties: Charles McNary BOLING and Wife, Nancy Carr Boling, Plaintiffs-Appellants, v. TENNESSEE STATE BANK, Billy Proffitt and L. Thomas Bush, Defendants-Appellees.
• Court: Tennessee Supreme Court

Page 32

890 S.W.2d 32

Charles McNary BOLING and Wife, Nancy Carr Boling Plaintiffs-Appellants, v. TENNESSEE STATE BANK, Billy Proffitt and L. Thomas Bush Defendants-Appellees.

No. 03S01-9311-CH-00075.

Supreme Court of Tennessee,

at Knoxville.

Nov. 28, 1994.

William A. Reeves, Barry W. Eubanks, Ritchie, Wise, Reeves & Eubanks, P.C., Knoxville, for plaintiffs-appellants.

Bernard E. Bernstein and J. Thomas Jones, Bernstein, Stair & McAdams, J. Michael Winchester and E. Brian Sellers, Lacy & Winchester, P.C., Knoxville, for defendants-appellees.

OPINION

REID, Justice.

This case presents an appeal from the judgment of the Court of Appeals reversing the trial court awards of compensatory and punitive damages. This Court finds the record supports the award of compensatory damages, as modified, and punitive damages as found by the trial court.

I

The Glenstone Lodge, a hotel located in Gatlinburg, Tennessee, began operating under the jurisdiction of the bankruptcy court in 1987. In April 1989, the bankruptcy court refused to confirm the sale of the Glenstone for $3 million due to the existence of an appraisal in excess of that amount. In July 1989, when the bankruptcy trustee advertised for bids on the property, the plaintiffs, Charles (Mack) Boling and Nancy Boling, who were in the motel business in Gatlinburg at that time, became interested in purchasing the Glenstone.

The Bolings, who were customers of the defendant Tennessee State Bank, discussed with Tommy Bush, the bank's president, ¹ their need for a loan. Bush responded that the bank would be glad to consider their application. Prior to discussing the financial details of the venture, the Bolings requested complete confidentiality about the loan and all information which they would furnish to the bank. They specifically expressed concern that certain members of the bank's board of directors, who also were in the motel business, might be interested in bidding on the Glenstone. Bush advised the Bolings that the board of directors would have to approve any loan made to them but he promised that no director who had an interest in purchasing the Glenstone would see any of the information provided by the Bolings or participate in the consideration of their application for a loan.

A few days after their initial meeting, Bush assured the Bolings that he had checked with the board and no member was interested in buying the Glenstone. The Bolings then made application for a loan of $4.5 million and provided the bank with various financial information, including their personal financial statements and detailed projections of income and expenses for the operation of the Glenstone. After meeting with the board of directors, Bush advised the Bolings that the bank would lend them $1.5 million, the bank's regulatory limit, and offered to contact other banks about participating in a loan for the remaining $3 million. While they were still making arrangements for the additional financing, the Bolings submitted a bid to the bankruptcy trustee of $4.3 million, contingent upon their obtaining financing within 30 days. Before the 30 days had expired, another bid of $4.8 million was submitted, which caused the Bolings' bid to be rejected. However, the other party was not successful in completing the purchase, and the Bolings continued to negotiate with other banks for the additional financing needed.

In December 1989, unknown to the Bolings, the defendant Billy Proffitt, who was the majority stockholder in the defendant bank and a member of its board of directors, joined the Foley group, several investors who had come together for the purpose of purchasing the Glenstone. At that time, Proffitt told Bush only that he was considering joining the Foley Group. In January 1990, Proffitt participated with the Foley Group in submitting a private offer to the bankruptcy trustee, which was not accepted.

On January 30, 1990, the Bolings met again with Bush, advised him of their discussions with other banks and reduced their loan request to a total of $4 million. On March 7, 1990, Bush presented the Bolings' new loan request to the board of directors. Bush asked any board member who was interested in purchasing the Glenstone to leave the room. All the directors, including Proffitt, remained silent and none left the meeting. Bush then distributed the Bolings' confidential information to each board member. Proffitt reviewed the material and circled a $500,000 figure on the loan proposal which indicated the amount set aside for working capital thus leaving only $3.5 million of the loan available for the purchase of the property.

The first lienholder, with permission of the bankruptcy court, began foreclosure proceedings which would culminate in a public auction scheduled for March 30, 1990. On March 12, 1990, the bank issued a written loan commitment to the Bolings in the amount of $1.5 million. On March 27, 1990, Mack Boling advised Bush in his office at the bank that a bank in Pikeville, Kentucky, had informally approved a participating loan for the additional amount needed. Proffitt, who was in Bush's office at the time, listened to the discussion between Boling and Bush regarding the Bolings' plans, including their strategy for bidding at the auction. Because the property was subject to a tax lien in the amount of $100,000 the Bolings told Bush they had decided their top bid would be $3.4 million. After Boling left the bank office, Proffitt told Bush that he was a member of the Foley group which was competing with the Bolings. Proffitt refused Bush's advice that he inform the Bolings.

On March 30, 1990, the day of the auction, the Bolings met in their attorney's office with various other advisors, including Bush. While Bush was there, Proffitt called him by telephone to determine if the Bolings intended to bid. Bush replied that "there was a race on," which let Proffitt know that the Pikeville bank loan had been approved and the Bolings would be able to bid at the sale. As the parties approached the site of the auction, Mack Boling heard the attorney for the Foley group say, "It will take $3,500,000 to get it." Proffitt did not appear at the foreclosure sale.

After the first lienholder made its opening bid for the amount of its indebtedness, something in excess of $3 million, the only bidders were the Bolings and the Foley group. The Bolings bid $3.4 million and the Foley group responded with a bid of $3.405 million, which ultimately was accepted as the high bid. Before the property finally was struck off, the Bolings offered to pay the Foley group $50,000 for their expenses if they would not raise the Bolings' next bid. The Foley group declined the offer and offered to pay the Bolings' expenses in the amount of $30,000 if they made no further bid. The Bolings accepted the offer of $30,000, which the Foley group subsequently refused to pay.

The Bolings learned after the sale that Proffitt was a member of the Foley group.

Subsequent to the sale, the Bolings undertook to purchase from the Internal Revenue Service its right of redemption on the Glenstone. The Foley group raised their offer and ultimately bought the right of redemption for $200,000.

II

The plaintiffs' suit alleged breach of fiduciary duty and fraudulent and negligent misrepresentation which denied them the opportunity to compete effectively for the purchase of the Glenstone. They sued for compensatory and punitive damages.

The trial court made extensive findings of fact regarding the conduct of Proffitt and Tennessee State Bank. The court found there was a confidential relationship between the Bolings and the bank and between the Bolings and Proffitt. It found that the fiduciary relationship was violated by the bank when its president failed to advise the Bolings that Proffitt was using the confidential information disclosed to the bank in asserting a conflicting interest, and by Proffitt in using that information in asserting a conflicting interest. The court also found this conduct by the bank and Proffitt proximately caused actual damages to the Bolings in the amount of $30,000 and justified the imposition of punitive damages against Proffitt in the amount of $250,000 and against the bank in the amount of $250,000.

Upon release of this Court's decision in Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn.1992), the trial judge made additional findings with regard to punitive damages. The court specifically found that Proffitt and Tennessee State Bank had acted "intentionally, fraudulently and recklessly as defined" in Hodges, and that in originally assessing punitive damages the court had considered all the factors subsequently appearing in the Hodges opinion. The court found "especially ... relevant to this case" the bank's and Proffitt's net worth, the "nature and reprehensibility" of their wrongdoing, their concealment of the wrongdoing, and the expenses...