Cloud Nine, LLC v. Whaley

• Decision Date: 19 June 2009
• Docket Number: No. 3:07-CV-154.,3:07-CV-154.
• Citation: 650 F.Supp.2d 789
• Parties: CLOUD NINE, LLC, et al., Plaintiffs, v. Jeff WHALEY, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

650 F.Supp.2d 789

CLOUD NINE, LLC, et al., Plaintiffs, v. Jeff WHALEY, et al., Defendants.

No. 3:07-CV-154.

United States District Court, E.D. Tennessee, at Knoxville.

June 19, 2009.

COPYRIGHT MATERIAL OMITTED

Robert H. Green, Kennerly, Montgomery & Finley, PC, James C. Cone, Jenkins & Jenkins Attorneys, PLLC, Knoxville, TN, for Plaintiffs.

James C. Cone, Jenkins & Jenkins Attorneys, PLLC, Robert A. Crawford, Kramer Rayson LLP, Knoxville, TN, for Defendants.

MEMORANDUM AND ORDER

THOMAS A. VARLAN, District Judge.

This civil action is before the Court on Motions for Summary Judgment by Defendants Jeff Whaley; GBO Enterprises, LLC; Joyce Whaley; Black Bear Ridge Resort, LLC; and Black Bear Ridge Owners Association, Inc. (hereinafter collectively referred to as "Defendants") [Docs. 23, 28.] Plaintiffs Cloud Nine, LLC; Heaven's View, LLC; Black Bear Debacle, LLC, and Hilltop Haven, LLC (hereinafter collectively referred to as "Plaintiffs") filed response briefs in opposition to Defendants' respective summary judgment motions [Docs. 32, 35], to which Defendants Jeff Whaley and GBO Enterprises, LLC filed a reply. [Doc. 33.] The motions are now ripe for the Court's consideration. The Court has carefully considered the pending motions, along with the supporting materials submitted by the parties. [See Docs. 23, 24, 25, 26, 27, 28, 32, 33, 34, 35, 37.] For the reasons set forth herein, Defendants' Motions for Summary Judgment [Docs. 23, 28] will be granted in part and denied in part.

I. RELEVANT BACKGROUND

This action involves four cabins that were built on a parcel of land known as Black Bear Ridge Properties ("Black Bear Ridge"), located in Sevier County, Tennessee. [Docs. 1 at 2-3; 7 at 2.] On or about March 18, 2003, Defendant Jeff Whaley ("Mr. Whaley") and Defendant Joyce Whaley ("Ms. Whaley") filed a Declaration of Covenants, Conditions and Restrictions, and certain plats in the Sevier County Register of Deeds office, designating Black Bear Ridge, located in Pigeon Forge, Sevier County, Tennessee, as a planned unit development. [Docs. 1 at 2-3; 7 at 2.] Lots 91R, 95, 195, and 197 of Black Bear Ridge were subsequently purchased by Commonwealth Real Estate Development, Inc. ("Commonwealth"), a South Carolina corporation whose officers and equal shareholders were Lucien H. Evans ("Mr. Evans") and Peter Garrett Wyckoff ("Mr. Wyckoff"). [Docs. 1 at 3; 25 at 2; 27-2 at 14; 32-3 at 1.] Commonwealth allegedly purchased the Black Bear Ridge lots in order to build rental log cabins. [Doc. 32-3 at 1.]

According to Mr. Whaley, he operates a limited liability company, Defendant GBO Enterprises, LLC, ("GBO") and has allegedly built dozens of residential homes and cabins in Sevier County, Tennessee. [Doc. 25 at 1.] According to Mr. Whaley, he and GBO served as the general contractor for the construction of the foundations of the cabins on lots 91R, 95, 195, and 197. [Doc. 25 at 2.] According to Mr. Whaley, Mr. Evans and Commonwealth took over construction of the cabins and acted as their own general contractor after completion of the foundations. [Doc. 25 at 2.] However, according to Mr. Wyckoff, Commonwealth contracted with Mr. Whaley to construct the cabins and relied on his expertise as a licensed general contractor in Tennessee to construct the cabins. [Doc. 32-3 at 2.] The cabins located on lots 91R, 95, 195, and 195 were substantially complete around April of 2005, January of 2005, November of 2004, and December of 2004, respectively. [Doc. 1 at 4.]

Then, due to a personal loan of $600,000 to Commonwealth by Mr. Wyckoff, Commonwealth deeded the four completed cabins to Mr. Wyckoff. [Doc. 32-3 at 2.] Mr. Wyckoff then formed four South Carolina limited liability companies, Cloud Nine, LLC; Heaven's View, LLC; Black Bear Debacle, LLC; and Hilltop Haven, LLC, and deeded one cabin to each of the entities on or about August 11, 2005. [Docs. 1 at 5; 32-3 at 2.] Plaintiffs allege that after acquiring the respective properties, they discovered certain defects in the cabins, including improper foundations, inadequate floor support systems, deflecting walls and floors, and various building code violations. [Doc. 1 at 5.]

According to Plaintiffs, the land and property located in Black Bear Ridge, exclusive of lots owned by individual home owners, ("Common Area") is owned by Ms. Whaley and supposed to be maintained by the Black Bear Ridge Owners Association, Inc. ("Owners Association"). [Doc. 1 at 3.] Plaintiffs allege that Ms. Whaley and the Owners Association failed to properly maintain the "Common Area" and failed to provide drainage and vegetation to prevent erosion around Plaintiffs' cabins. [Doc. 1 at 11-12.]

Plaintiffs then filed suit and asserted various claims of negligence, misrepresentation, beach of contract, breach of the implied warranty of good workmanship, breach of the implied warranty of habitability and fitness, and violations of the Tennessee Consumer Protection Act against the Defendants. Plaintiffs also made allegations regarding the personal liability of Mr. Whaley and Ms. Whaley. [See Doc. 1.] Defendants then filed their respective summary judgment motions in which they contend they are entitled to judgment as a matter of law based upon the undisputed facts and law applicable to this case. [Docs. 23, 28.]

II. ANALYSIS

A. Standard of Review

Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the burden of establishing that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 330 n. 2, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court must view the facts and all inferences to be drawn therefrom in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Burchett v. Kiefer, 310 F.3d 937, 942 (6th Cir.2002). To establish a genuine issue as to the existence of a particular element, the non-moving party must point to evidence in the record upon which a reasonable finder of fact could find in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The genuine issue must also be material; that is, it must involve facts that might affect the outcome of the suit under the governing law. Id.

The judge's function at the point of summary judgment is limited to determining whether sufficient evidence has been presented to make the issue of fact a proper question for the fact finder. Id. at 249, 106 S.Ct. 2505. The judge does not weigh the evidence, judge the credibility of witnesses, nor determine the truth of the matter. Id. Thus, "[t]he inquiry performed is the threshold inquiry of determining whether there is the need for trial-whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. 2505.

B. Breach of Contract

Defendants contend that the Court should grant summary judgment in their favor as to the breach of contract claim because Plaintiffs were not parties to any contract with Defendants. In particular, Defendants argue that privity is lacking since Plaintiffs were not in existence or even contemplated when the construction contract was entered into with Defendants. Traditionally, "privity rules provided that those who were not parties to a contract had no right to sue for its breach." Owner-Operator Indep. Drivers Ass'n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 68 (Tenn.2001). In this case, Mr. Wyckoff admitted that there is no contract between Plaintiffs and any of the Defendants. [Doc. 27-2 at 9.] Nevertheless, Plaintiffs argue that sufficient privity exists because Mr. Wyckoff was the real party in interest in all of the transactions at issue since he was a 50% shareholder in Commonwealth and the sole member in each of the Plaintiff LLCs. Defendants counter that Plaintiffs' argument cannot prevail because Commonwealth, Mr. Wyckoff, and each of the Plaintiffs are completely separate legal entities.

In Tennessee, there is a "presumption that a corporation is a distinct legal entity, wholly separate and apart from its shareholders, officers, directors, or affiliate corporations." Boles v. Nat'l Dev. Co., Inc., 175 S.W.3d 226, 244 (Tenn. Ct.App.2005) (citations omitted). Thus, Tennessee courts disregarding a corporation's identity only do so "with great caution and not precipitately." Collier v. Greenbrier Developers, LLC, No. E2008-01601-COA-R3-CV, 2009 WL 1026025, at *4 (Tenn.Ct.App. Apr. 16, 2009) (quoting Schlater v. Haynie, 833 S.W.2d 919, 925 (Tenn.Ct.App.1991)). Because Commonwealth and Plaintiffs are registered in South Carolina, the Court notes that South Carolina courts similarly recognize that "a corporation is an entity, separate and distinct from its officers and stockholders" and that "courts are reluctant to `disregard the integrity of the corporate entity.'" Hunting v. Elders, 359 S.C. 217, 597 S.E.2d 803, 806 (S.C.Ct.App.2004) (citations omitted).

This case involved a series of transactions regarding the cabins at issue: (1) the agreement between Commonwealth and Defendants for the property and cabins; (2) the transfer of the cabins' ownership from Commonwealth to Mr. Wyckoff; and (3) the transfer of the cabins' ownership from Mr. Wyckoff to Plaintiffs. Though Plaintiffs argue that privity exists because Mr. Wyckoff was a shareholder in Commonwealth and sole member of Plaintiffs, the mere fact that Mr. Wyckoff was a part shareholder in Commonwealth and sole member of the Plaintiffs alone is insufficient to establish privity. See Collier, 2009 WL 1026025, at *4 ("[W]e cannot...