Huggins v. McKee

• Decision Date: 28 November 2012
• Docket Number: No. E2012–00080–COA–R3–CV.,E2012–00080–COA–R3–CV.
• Citation: 403 S.W.3d 781
• Parties: Delwin L. HUGGINS, John P. Konvalinka, as Trustee for an Undisclosed Beneficiary and in the Name of Delwin Huggins as a Nominal Party v. R. Ellsworth McKEE and Alternative Fuels, LLC, a Tennessee Limited Liability Company.
• Court: Tennessee Court of Appeals

403 S.W.3d 781

Delwin L. HUGGINS, John P. Konvalinka, as Trustee for an Undisclosed Beneficiary and in the Name of Delwin Huggins as a Nominal Party

v.R. Ellsworth McKEE and Alternative Fuels, LLC, a Tennessee Limited Liability Company.

No. E2012–00080–COA–R3–CV.

Court of Appeals of Tennessee, Eastern Section, at Knoxville.

Oct. 1, 2012 Session.

Nov. 28, 2012.

Application for Permission to Appeal

Denied by Supreme Court

May 9, 2013.

John P. Konvalinka, Chattanooga, Tennessee, pro se appellant.

Bruce C. Bailey; Anthony A. Jackson; and, Jeffrey W. Maddux; Chattanooga, Tennessee, for the appellees, R. Ellsworth McKee and Alternative Fuels, LLC.

OPINION

D. MICHAEL SWINEY, J., delivered the opinion of the Court, in which HERSCHEL P. FRANKS, P.J., and CHARLES D. SUSANO, JR., J., joined.

D. MICHAEL SWINEY, J.

This appeal arises from a dispute over setoff claims related to a bankruptcy proceeding. Delwin Huggins (“Huggins”) sued R. Ellsworth McKee (“McKee”) and Alternative Fuels, LLC (“AF”) (McKee and AF as “the Defendants,” collectively) in the Chancery Court for Hamilton County (“the Trial Court”). Huggins filed for bankruptcy. Konvalinka later purchased the claims asserted by Huggins in this lawsuit. The Defendants filed a motion for judgment on the pleadings, arguing that, even if Konvalinka's claim for damages was successful, McKee had an offset far in excess of these damages which rendered any further proceedings useless. The Trial Court agreed with the Defendants and dismissed the case. We affirm, in part, and, reverse, in part, the judgment of the Trial Court.

Background

AF was a business that developed alternative fuel sources. Specifically, AF dealt in methane gas for the generation of electricity. Both Huggins and McKee apparently have ownership interests in AF. In December 2007, Huggins filed a complaint against the Defendants. In his complaint, Huggins alleged that McKee effectively shut him out of AF resulting in his claimed damages. In February 2008, the Defendants filed an answer and McKee filed a counterclaim seeking at least $1,500,000 alleging that Huggins was incompetent and drove AF into the ground.

In July 2009, Huggins filed for bankruptcy. In April 2010, the U.S. Bankruptcy Court for the Eastern District of Tennessee (“the Bankruptcy Court”) entered an agreed order approving Konvalinka's purchase of the claims asserted by Huggins against the Defendants, and Konvalinka subsequently was joined in the Trial Court as a plaintiff in this case. In May 2011, the Defendants filed a motion to amend answer and counterclaim, requesting to be allowed to amend their answer and McKee's counterclaim to assert a setoff against Konvalinka. Also in May 2011, the Trial Court entered an order granting the Defendants' motion to amend. The Trial Court, addressing Konvalinka's arguments, stated, in part:

The cases cited by the Trustee appear to invoke exceptions to the general rule, but are not applicable to this case since they involve foreclosure, sales of assets under 11 U.S.C. § 363(f), or other sales of assets free and clear of liens and claims. In the present case, Mr. Konvalinka stands in the shoes of Mr. Huggins after buying Mr. Huggins' interest in this lawsuit; he does not stand in any better position than Mr. Huggins, and did not buy Mr. Huggins' interest free and clear of Mr. McKee's defenses and rights against Mr. Huggins. If Mr. Huggins had continued to pursue this lawsuit, he would have been subject to Mr. McKee's counterclaim for setoff. Simply because Mr. Konvalinka purchased Mr. Huggins' interest as Plaintiff in this pending lawsuit, Mr. Konvalinka may not now avoid Mr. McKee's counterclaim for setoff.

In November 2011, the Bankruptcy Court entered an order holding that Konvalinkalacked standing to object to a proposed compromise in Huggins's bankruptcy proceeding.¹ The Bankruptcy Court subsequently entered an order granting and approving a compromise and settlement, stating in relevant part:

ORDERED that for the purpose of the Trustee's distribution to unsecured creditors only, R. Ellsworth McKee's Proof of Claim, Claim No. 2, will be treated as follows:

(a) Mr. McKee's claim is subordinated in right of payment to the extent of $16,117,938 of Claim No. 2, to the claims of remaining unsecured creditors who properly filed claims within the time set out in the Trustee's Notice of Need to File Proof of Claim Due to Recovery or Anticipated Recovery of Assets,

(b) Along with the remaining unsecured creditors, Mr. McKee will receive his pro rata share of the Trustee's distribution to unsecured creditors based on an $8,000,000 unsecured claim; and,

(c) Mr. McKee's partial subordination is only for the purpose of the Trustee's distribution to unsecured creditors and shall not affect the validity of Mr. McKee's Proof of Claim for $24,117,938, which shall be allowed.

In December 2011, McKee ² filed a motion for judgment on the pleadings in the Trial Court, rooted in the Bankruptcy Court's order and McKee's setoff claim. According to McKee's motion: “Mr. Konvalinka's claim for damages, even if successful, which is vigorously disputed, allows a maximum recovery of approximately $480,000, against which Mr. McKee would be entitled to offset more than $24,000,000. Thus, further proceedings in this case are useless and Mr. McKee is entitled to judgment on the pleadings.” ³ In January 2012, the Trial Court entered its order in favor of the Defendants, stating in relevant part:

It appearing to the Court that the defendant has been allowed to amend the answer and counterclaim to assert the defense of set off with his allowed proof of claim in bankruptcy against the plaintiff; that the plaintiff John P. Konvalinka therefore assumes the same shares as the plaintiff Delwin Huggins; that the bankruptcy court has determined that the claim of Delwin Huggins is $24,227,538.00; that plaintiff's damages of proof would be $479,000.00 and that the judgment of the bankruptcy court is res judicata in these proceedings.

* * * IT IS THEREFORE ORDERED that this case is dismissed with cost assessed against the plaintiff....

Konvalinka appeals to this Court.

Discussion

Though not stated exactly as such, Konvalinka raises four issues on appeal: 1) whether the Trial Court erred in holding that the Defendants were entitled to assert the setoff claim against Konvalinka; 2) whether the Trial Court erred in holding that the Bankruptcy Court's order permitting McKee's claim against Huggins's bankruptcy estate was entitled to res judicata effect; 3) whether the Trial Court erred in dismissing Konvalinka's claims based on its conclusion regarding the amount of damages recoverable from McKee; and, 4) whether the Trial Court erred in dismissing Konvalinka's claims against AF.

The Trial Court dismissed this case as a judgment on the pleadings. As the Trial Court considered matters outside the pleadings, we, however, will apply the standard for summary judgment to this case. Tenn. R. Civ. P. 12.03. Our Supreme Court reiterated the standard of review in summary judgment cases as follows:

The scope of review of a grant of summary judgment is well established. Because our inquiry involves a question of law, no presumption of correctness attaches to the judgment, and our task is to review the record to determine whether the requirements of Rule 56 of the Tennessee Rules of Civil Procedure have been satisfied. Hunter v. Brown, 955 S.W.2d 49, 50–51 (Tenn.1997); Cowden v. Sovran Bank/Cent. S., 816 S.W.2d 741, 744 (Tenn.1991).

A summary judgment may be granted only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Tenn. R. Civ. P. 56.04; Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn.1993). The party seeking the summary judgment has the ultimate burden of persuasion “that there are no disputed, material facts creating a genuine issue for trial ... and that he is entitled to judgment as a matter of law.” Id. at 215. If that motion is properly supported, the burden to establish a genuine issue of material fact shifts to the non-moving party. In order to shift the burden, the movant must either affirmatively negate an essential element of the nonmovant's claim or demonstrate that the nonmoving party cannot establish an essential element of his case. Id. at 215 n. 5;Hannan v. Alltel Publ'g Co., 270 S.W.3d 1, 8–9 (Tenn.2008). “[C]onclusory assertion[s]” are not sufficient to shift the burden to the non-moving party. Byrd, 847 S.W.2d at 215;see also Blanchard v. Kellum, 975 S.W.2d 522, 525 (Tenn.1998). Our state does not apply the federal standard for summary judgment. The standard established in McCarley v. West Quality Food Service, 960 S.W.2d 585, 588 (Tenn.1998), sets out, in the words of one authority, “a reasonable, predictable summary judgment jurisprudence for our state.” Judy M. Cornett, The Legacy of Byrd v. Hall: Gossiping About Summary Judgment in Tennessee, 69 Tenn. L.Rev. 175, 220 (2001).

Courts must view the evidence and all reasonable inferences therefrom in the light most favorable to the non-moving party. Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn.1997). A grant of summary judgment is appropriate only when the facts and the reasonable inferences from those facts would permit a reasonable person to reach only one conclusion. Staples v. CBL & Assocs., Inc., 15 S.W.3d 83, 89 (Tenn.2000). In making that assessment, this Court must discard all countervailing evidence. Byrd, 847 S.W.2d at 210–11. Recently, this Court confirmed these principles in Hannan.

Giggers v. Memphis Housing Authority, 277 S.W.3d 359, 363–64 (Tenn.2009).

We first address whether the Trial Court erred in holding that the Defendants were entitled to assert the setoff claim against Konvalinka. We have previously discussed setoffs:

The fundamental philosophy of all setoffs and recoupments is that a party being sued for money may claim entitlement to money from the party bringing the suit, permitting the...