Hill, McPherson v. White, Vosberg & kWilson

• Decision Date: 15 June 1999
• Docket Number: No. 98-5860,98-5860
• Citation: 190 F.3d 427
• Parties: (6th Cir. 1999) Thomas Hill, Plaintiff, Howard McPherson, Individually, Plaintiff-Appellant, v. Frank White; Bettie White; John Vosberg; Lawrence D. Wilson, Individually, Defendants-Appellees. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 427

190 F.3d 427 (6th Cir. 1999)

Thomas Hill, Plaintiff, Howard McPherson, Individually, Plaintiff-Appellant, v. Frank White; Bettie White; John Vosberg; Lawrence D. Wilson, Individually, Defendants-Appellees.

No. 98-5860

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: June 15, 1999

Decided and Filed: August 13, 1999

Appeal from the United States District Court for the Middle District of Tennessee at Nashville, No. 95-00803--Todd J. Campbell, District Judge. [Copyrighted Material Omitted] Donald S. Caulkins, CAULKINS & CAULKINS, Franklin, Tennessee, for Appellant.

Irwin B. Venick, DOBBINS & VENICK, Nashville, Tennessee, G. Kline Preston, IV, Nashville, Tennessee, for Appellees.

Before: MARTIN, Chief Judge; JONES and SUHRHEINRICH, Circuit Judges.

OPINION

BOYCE F. MARTIN, JR., Chief Judge.

Frank and Bettie White, John Vosberg, and Lawrence Wilson were granted summary judgment in this diversity action alleging malicious prosecution arising from the Whites and Vosberg's filing of state court actions against Howard McPherson. Wilson, an attorney, filed the state court actions against McPherson on behalf of the Whites and Vosberg. We affirm.

In 1996, the Whites signed a franchise agreement with ReMax of Kentucky/Tennessee, under which they could provide real estate services in Davidson, Williamson, Sumner, and Rutherford Counties in Tennessee. In 1987, Vosberg signed a franchise agreement with ReMax of Kentucky/Tennessee under which he could provide real estate services in a portion of Nashville and Davidson County, Tennessee. At those times, McPherson, Chairman of the Board of ReMax of Kentucky/Tennessee, and Hill, Chief Executive Officer of ReMax of Kentucky/Tennessee, were the sole shareholders of ReMax of Kentucky/Tennessee.

The Whites met with McPherson prior to signing their franchise agreement. Hill made a presentation to both the Whites and Vosberg before they signed their respective agreements. McPherson was familiar with the content of the presentation. One of the most important issues that the presentation addressed was the regional advertising fund to which all franchisees were required to contribute.

The franchise agreements which the Whites and Vosberg signed were similar in all respects, except for the franchise itself. The agreements contained numerous provisions which addressed the obligations of both parties, including the obligation of all franchisees to contribute to a regional advertising fund¹.

McPherson signed the franchise agreements above the word "ReMax," but without any designation of his corporate capacity. Section nineteen of the franchise agreement read:

19. Corporate Ownership

A. This Agreement is personal to the individual(s) singing hereunder as Franchisee. In the event that Franchisee desires to do business as a corporation, ReMax will give its written consent to do so and to assign this agreement to such corporation only under the following terms and conditions:

1.All individuals executing this Agreement shall remain personally liable for the performance of all obligations under this Agreement, irrespective of the formation of a corporation.

In 1990, the Whites and Vosberg became concerned that the regional advertising funds were not being spent in accordance with either the terms of the franchise agreement, ReMax policy, or the verbal representations made to them by ReMax representatives. The Whites and Vosberg were also concerned that ReMax was not enforcing the terms of the franchise agreement equally because, they allege, another Nashville area franchisee was allowed to be delinquent in the payment of his regional advertising fees.

The Whites and Vosberg discussed these concerns with their attorney, Wilson, in 1990. Wilson investigated their allegations and determined that: (1) McPherson did not designate his corporate capacity when he signed the franchise agreement; (2) the language of the agreement arguably bound the parties to the agreement individually; and (3) the stock of ReMax was held solely by McPherson and Hill. Wilson advised the Whites and Vosberg that they had valid legal claims in tort and contract against ReMax, as well as against McPherson and Hill in their individual capacities. The Whites and Vosberg stated that they relied on the advice of Wilson in initiating a state court action against ReMax, McPherson, and Hill.

Wilson filed a state court complaint² on behalf of the Whites and Vosberg which alleged breach of contract, fraud, breach of fiduciary duty, conversion, and violation of the Tennessee Consumer Protection Act, based on the alleged misuse of the regional advertising fund for salary and overhead and the failure to collect advertising funds from other franchisees.

McPherson and Hill filed motions for summary judgment prior to the state trial, which the state court denied. Before the case went to the jury, the state court dismissed all the claims against McPherson except the Whites' Tennessee Consumer Protection Act claim. The jury returned a verdict for McPherson on the Tennessee Consumer Protection Act claim.

McPherson then filed a claim for malicious prosecution against the Whites, Vosberg, and Wilson, in federal court pursuant to diversity jurisdiction, alleging that they lacked probable cause to initiate their state court lawsuit against him. The Whites, Vosberg, and Wilson filed motions for summary judgment. The district court referred the matter to a magistrate. The magistrate returned a report and recommendation granting the Whites, Vosberg, and Wilson's motions for summary judgement. McPherson objected to the magistrate's report and recommendation. The district court conducted a de novo review and adopted the magistrate's recommendation in full.

McPherson timely filed an appeal to this Court. He appeals the district court's grant of summary judgment with respect to the malicious prosecution claims arising from the underlying state court actions for the breach of contract, fraud, conversion, and misrepresentation claims, but not for breach of fiduciary duty or violation of the Tennessee Consumer Protection Act.

This Court reviews the district court's award of summary judgment de novo. Monette v. Electronic Data Sys., 90 F.3d 1173, 1176 (6th Cir. 1996). Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether summary judgment is proper, we view the facts and any reasonable inferences drawn from those facts in a light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). However, the mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. Monette, 90 F.3d at 1177. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-49 (1986).

Because this is a diversity action, Tennessee law governs McPherson's malicious prosecution claim. Erie v. Tompkins, 304 U.S. 64, 78 (1938). Furthermore, the parties to the franchise agreement agreed that Tennessee law would govern any dispute arising out of the franchise agreement.

Under Tennessee law, to prevail on a claim for malicious prosecution, a plaintiff must establish the following elements: (1) the defendant instituted a prior action without probable cause; (2) the defendant brought such action with malice; and (3) the prior action was terminated in the plaintiff's favor. Roberts v. Federal Express Corp., 842 S.W.2d 246, 247-48 (Tenn. 1992).³ All parties concede that the prior action, the Whites and Vosberg's state tort and contract action against McPherson, was terminated in McPherson's favor. Thus, McPherson has established the third prong of his malicious prosecution case, leaving only the probable cause and malice prongs in dispute.

Probable cause requires only the existence of such facts and circumstances sufficient to excite in a reasonable mind the belief that the accused is guilty of the crime. Roberts, 842 S.W.2d at 248. The existence of probable cause does not depend upon a subjective assessment of the defendant's mental state, but instead is "determined solely from an objective examination of the surrounding facts and circumstances." Id.

As the plaintiff, McPherson has the "burden of proving the absence of probable cause." Christian v. Lapidus, 833 S.W.2d 71, 74 (Tenn. 1992). "In order to establish the lack of probable cause in instituting a civil proceeding, it must appear that the suit was filed primarily for a purpose other than that of securing the proper adjudication of the claim in which the proceedings are based." Buda v. Cassel Bros., Inc., 568 S.W.2d 628, 631-32 (Tenn. Ct. App. 1978).

Where, however, arrest, trial, and exoneration are shown, and the plaintiff testifies of his own innocence or guilt or the appearance of guilt, the burden shifts to the defendant, requiring him to produce for evaluation all of the facts and circumstances which he claims as justification for the prosecution. Kerney v. Aetna Cas. & Sur. Co., 648 S.W.2d 247, 252 (Tenn. Ct. App. 1982).

The essence of McPherson's appeal is that there did not exist such facts and circumstances as to "excite in a reasonable mind" the belief that he, individually, as an officer and shareholder of ReMax, was guilty of breach of contract, fraud, conversion, and misrepresentation. Therefore, he...