FIRST AMERICAN TRUST v. FRANKLIN-MURRAY

• Decision Date: 08 October 2001
• Citation: 59 S.W.3d 135
• Parties: FIRST AMERICAN TRUST CO. v. FRANKLIN-MURRAY DEVELOPMENT COMPANY, L.P.
• Court: Tennessee Court of Appeals

59 S.W.3d 135

FIRST AMERICAN TRUST CO. v. FRANKLIN-MURRAY DEVELOPMENT COMPANY, L.P.

Court of Appeals of Tennessee, at Nashville.

May 2, 2001.

Permission to Appeal Denied October 8, 2001.

COPYRIGHT MATERIAL OMITTED

Winston S. Evans, Nashville, TN, for appellant, Shumacker & Thompson, P.C.

Alan Mark Turk, Brentwood, TN, and Guy C. Nicholson, Los Angeles, CA, for appellee, Franklin-Murray Development Co., L.P.

Permission to Appeal Denied by Supreme Court October 8, 2001.

OPINION

KOCH, J., delivered the opinion of the court, in which CAIN and COTTRELL, JJ., joined.

This appeal involves a post-judgment receivership proceeding commenced while the case was pending on appeal. The seller of a large tract of Brentwood property obtained a judgment against the defaulting purchaser in the Chancery Court for Williamson County. While the purchaser's appeal was pending, the seller proceeded to execute on its judgment and requested the trial court to appoint a receiver to protect the interests of the purchaser's creditors. After the trial court appointed a receiver, the purchaser's former law firm filed a claim with the receiver for over $100,000 in unpaid legal expenses. When the seller's judgment against the purchaser was satisfied outside of the receivership proceeding, the trial court granted the receiver's motion to dissolve the receivership without addressing the law firm's claim. The law firm asserts on this appeal that the trial court should not have closed the receivership until its claim was addressed. We have determined that the trial court lacked jurisdiction to establish the receivership and, therefore, that the receivership proceedings were null and void. Accordingly, the trial court did not err by declining to address the law firm's claim in the receivership proceeding.

Ms. Frances Oman died in May 1992 owning several large tracts of valuable realty. In accordance with Ms. Oman's will, First American Trust Company ("First American") served as the executor of her estate in the probate proceedings that followed. One of the first tasks facing First American was to raise money to pay estate taxes. Accordingly, in April 1994, First American entered into a contract with Franklin-Murray Development, L.P. ("Franklin-Murray"), a Williamson County limited partnership, in which First American agreed to sell Franklin-Murray a 224-acre tract of property in Brentwood for $5,750,000. The contract also required Franklin-Murray to pay earnest money to an escrow agent and provided for a closing within sixty days.

Franklin-Murray paid $100,000 into escrow. However, when time came to close the sale, Franklin-Murray refused to close. It asserted that First American could not convey good and marketable title because of the estate tax liens on the property. In October 1994, after negotiations to resolve this impasse proved unsuccessful, First American filed suit in the Chancery Court for Williamson County seeking a declaration that it was entitled to keep the earnest money because Franklin-Murray had breached the contract. Franklin-Murray counterclaimed for damages on the theory that First American had breached the contract by failing to furnish good and marketable title.

In January 1995, First American changed its approach and requested an order of specific performance directing Franklin-Murray to close on the Brentwood property. It asserted that it had provided security for the outstanding tax liens and, therefore, that it could deliver good and marketable title. Franklin-Murray opposed First American's request for specific performance; however, the trial court was persuaded, and in March 1995 entered an order decreeing specific performance on the condition that First American obtain releases of all estate taxes against the property.

Franklin-Murray declined to close on the property despite the trial court's order of specific performance. Accordingly, First American returned to court seeking a summary judgment on its original claim for the earnest money being held in escrow. In June 1995, the trial court gave First American a judgment for the escrowed earnest money plus an additional $100,000 described by the court as "the remaining earnest money due ... under the Agreement." The trial court also dismissed Franklin-Murray's counterclaim. On June 15, 1995, Franklin-Murray filed its notice of appeal and an appeal bond.

The case changed course again after Franklin-Murray perfected its appeal. Because Franklin-Murray had not sought a stay pending appeal, First American decided to execute on its judgment while the appeal was pending.¹ In July 1995, First American returned to the trial court requesting a distringas writ under Tenn.Code Ann. § 26-1-105 (2000) and the appointment of a receiver for Franklin-Murray.² First American alleged that Franklin-Murray was disposing of its assets in order to avoid satisfying the trial court's June 1995 judgment.

On August 9, 1995, the trial court granted First American's motion and appointed a receiver over "all the property and assets, both tangible and intangible, real and personal, of Franklin-Murray Development, L.P. and its general partner ...." The order authorized the receiver to collect Franklin-Murray's property and assets and clothed him with the power to make all demands and to bring all claims and suits to recover any monies due the limited partnership, including the power to compromise and settle civil actions on behalf of the limited partnership. It further provided that all parties having claims against Franklin-Murray should present their claims to the receiver who could then disburse Franklin-Murray's assets to pay claims.

Franklin-Murray had been represented by the Chattanooga firm of Shumacker & Thompson, P.C. during the litigation with First American. Following the June 1995 judgment, Franklin-Murray discharged Shumacker & Thompson and retained new counsel. Franklin-Murray also declined to pay Shumacker & Thompson's legal fees because of the firm's unsatisfactory handling of the case. In December 1995, Franklin-Murray, without the receiver's knowledge or participation, filed a legal malpractice claim against Shumacker & Thompson.³

In February 1996, this court affirmed the trial court's June 1995 judgment finding that Franklin-Murray had breached the contract to purchase the property and awarding First American a judgment. First American Trust Co. v. Franklin-Murray Dev. Co., 925 S.W.2d 545 (Tenn.Ct.App.1996). Franklin-Murray thereafter filed an application for permission to appeal with the Tennessee Supreme Court. In April 1996, while Franklin-Murray's Tenn.R.App.P. 11 application was pending with the Tennessee Supreme Court,⁴ Shumacker & Thompson filed a $100,000 claim for its unpaid legal fees with Franklin-Murray's receiver. It also requested the receiver to dismiss the newly-filed legal malpractice action because the receiver had neither filed nor authorized it.

The trial court thereafter entered various orders in the receivership proceeding, including an order directing the parties to "enter an agreed order" staying the pending legal malpractice proceeding between Franklin-Murray and Shumacker & Thompson. For approximately the next year, First American, Franklin-Murray, and Shumacker & Thompson continued to jockey back and forth in the receivership with little practical effect. Finally, in early August 1997, First American filed a notice that the trial court's June 1995 judgment had been satisfied.⁵

Shortly after First American notified the trial court that its June 1995 judgment had been satisfied, Franklin-Murray's receiver filed, and the trial court entered, a combination "Receiver's Final Report and Agreed Order." The document recited that with the satisfaction of First American's judgment, "the Receiver feels there is no longer any need or purpose for his further involvement in this case." It also acknowledged Shumacker & Thompson's claim against Franklin-Murray for over $100,000 in legal fees but concluded "that the malpractice case should proceed on its own merits and that any claim of Shumacker & Thompson, P.C. against Franklin-Murray for unpaid legal fees should be pursued as a counterclaim in that action." The order concluded by discharging the receiver and terminating the two-year-old receivership.

Shumacker & Thompson promptly objected to the termination of the receivership. On September 5, 1997, it filed a Tenn.R.Civ.P. 59.04 motion requesting the trial court to reinstate the receivership and to require the receiver to marshal Franklin-Murray's assets to pay its claim for unpaid legal fees. In its order denying Shumacker & Thompson's motion, the trial court held that the "claim for breach of contract for unpaid legal fees . . . is a compulsory counterclaim to the pending legal malpractice action . . . and should be prosecuted in that cause and not in the closed receivership." Dissatisfied with the dissolution of the receivership, Shumacker & Thompson have appealed, thus bringing this case here a second time.

I.

The only issue on this appeal involves Shumacker & Thompson's challenge to the trial court's decision to terminate the post-judgment receivership proceeding.⁶ The law firm asserts that the receivership should not have been closed without some resolution of its claim for unpaid legal fees. All of Shumacker & Thompson's arguments are premised on the mistaken assumption that the post-judgment receivership proceedings were proper. Because the case was pending on appeal when the trial court created the receivership, we have concluded that the trial court had no authority to open the receivership and, therefore, that the entire receivership proceeding is of no effect.

A.

A proper analysis of this case must begin at the beginning by addressing two fundamental jurisdictional principles. Even though neither party has addressed the question of the trial court's jurisdiction, we must do so because Tenn.R.App.P. 13(b) requires us to...