Pacific Eastern Corp. v. Gulf Life Holding Co.
| Decision Date | 31 March 1995 |
| Citation | 902 S.W.2d 946 |
| Parties | PACIFIC EASTERN CORPORATION and Harpeth Village Development Company, Plaintiffs/Appellants, v. GULF LIFE HOLDING COMPANY, Gulf Life Insurance Company, Gulf United Corporation, Gulf Mortgage and Realty Investments, GMR Properties, Grubb & Ellis, Manufacturers Hanover Corp., Manufacturers Hanover Trust Co., ITR Properties, Inc., Chemical Banking Corp., Chemical Bank, and American General Corporation, Defendants/Appellees. |
| Court | Tennessee Court of Appeals |
Robert L. DeLaney, DeLaney & Cannon, James M. Cannon, Nashville, for appellant.
Thomas P. Kanaday, Jr., William L. Baggett, Jr., Farris, Warfield & Kanaday, Nashville, for American General Corp. and Gulf Life Ins. Co.
J. Mark Tipps, Bass, Berry & Sims, Nashville, for Grubb & Ellis Co., for appellee.
This appeal involves a 1971 lending transaction relating to the development of a Nashville hotel. The borrower filed suit in 1993 in the Chancery Court for Davidson County against nine defendants, including the original lender and its assignees, seeking to invalidate the transaction on the grounds of usury. The trial court dismissed the complaint against seven of the defendants on the ground that the statute of limitations for usury had expired. It also found that the complaint failed to state a claim against two of the seven defendants because the borrower's payments to these defendants were not interest. The borrower has appealed. We have determined that the proponents of the summary judgment have not demonstrated that they are entitled to a judgment as a matter of law, and therefore, we vacate the summary judgment.
Pacific Eastern Corporation is a Nashville-based company engaged in the hospitality business. In 1971 it acquired a franchise from the Sheraton Corporation to build and operate a 150-room hotel in Nashville. Pacific Eastern also obtained an agreement from Gulf Mortgage & Realty Investments 1 to provide the financing for the construction of the hotel and for other related expenses.
At the August 4, 1971 closing, Gulf Mortgage & Realty Investments bought the 3.5 acre hotel site from Harpeth Village Development Company for $250,000. 2 Gulf Mortgage & Realty Investments then leased the property back to Pacific Eastern. The fifty-year ground lease permitted Pacific Eastern to purchase the property at market value after twenty-five years and required Pacific Eastern to make monthly payments equalling $1,980 plus two percent of the monthly revenues plus insurance and property taxes. Pacific Eastern also signed a non-negotiable deed of trust note for $1,400,000 with interest at 9 1/2 percent payable in 245 equal monthly installments over twenty-two years as well as a deed of trust covering its leasehold interest in the hotel project.
The loan agreement included an "additional collateralization" clause entitling Gulf Mortgage & Realty Investment to require extra security if it felt insecure. Gulf Mortgage & Realty Investment invoked the clause in 1973 and required Pacific Eastern to purchase insurance on the life of its president from Gulf Life Insurance Company. Gulf Life Insurance Company received the premiums for this policy until it was acquired by American General Corporation in January 1984; thereafter, Pacific Eastern paid the premiums to American General.
Gulf Mortgage & Realty Investment changed its name to GMR Properties in 1977. On June 18, 1980, GMR Properties assigned Pacific Eastern's note, together with "a basketful" of other loans to Manufacturers Hanover Trust Company. The assignment was part of a bulk sale of loans at a discounted rate and was intended to satisfy GMR Properties' overdue indebtedness to Manufacturers Hanover. GMR Properties also sold the property on which the hotel was located to Manufacturers Hanover's real estate holding company. 3
Following the 1988 recession, Pacific Eastern requested Manufacturers Hanover to refinance its loan to reduce its monthly payments. Manufacturers Hanover declined to renegotiate the loan but permitted Pacific Eastern to make interest-only payments from January 1991 to February 1992. It also declined Pacific Eastern's offer to purchase the property under the hotel.
Manufacturers Hanover merged with Chemical Bank Corporation in November 1991. Chemical Bank's threats of foreclosure forced Pacific Eastern to borrow additional funds in February 1992 to bring its principal payments current. Pacific Eastern then attempted to refinance its debt with other lenders but was unsuccessful because it did not own the property under the hotel. Pacific Eastern offered to buy the property from Chemical Bank for $98,500, 4 but Chemical Bank insisted that the property's market value was $650,000.
Pacific Eastern filed suit in January 1993 against five Gulf defendants, 5 Grubb & Ellis, American General, Manufacturers Hanover, and Chemical Bank alleging that the 1971 loan transaction was usurious. It alleged specifically that the sale and leaseback of the real property and the demand for insurance on the life of its president were subterfuges to collect interest in excess of the legal rate. It requested the court to invalidate the entire loan transaction or at least the sale and leaseback portion and also requested statutory damages for unconscionable conduct.
American General and Gulf Life Insurance Company filed a joint Tenn.R.Civ.P. 12.02(6) motion to dismiss on behalf of themselves and the other Gulf defendants, asserting that the suit was barred by the statute of limitations and that the insurance premium payments were not interest as a matter of law. The trial court granted the motion, and while Pacific Eastern's motion to alter or amend was pending, Grubb & Ellis filed its own motion to dismiss based on the statute of limitations.
On June 9, 1993, the trial court entered an order dismissing the complaint against the five Gulf defendants on the ground that Pacific Eastern's cause of action against these defendants accrued in June 1980 when GMR Properties assigned Pacific Eastern's note and deed of trust to Manufacturers Hanover. The trial court dismissed the complaint against Grubb & Ellis because it derived from the claim against GMR Properties and also dismissed the complaint against American General and Gulf Life Insurance Company on the ground that the insurance premium payments were not usury as a matter of law. The trial court certified this order as final in accordance with Tenn.R.Civ.P. 54.02.
We must first identify the proper standard of review for this appeal. Pacific Eastern urges a broad "abuse of discretion" standard; while Grubb & Ellis, American General, and Gulf Life Insurance Company advocate using the standard associated with Tenn.R.Civ.P. 12.02(6) motions requiring the reviewing court to assume the truth of all of the complaint's factual allegations and then to determine whether these allegations state a claim upon which relief can be granted. Neither standard is appropriate. Pacific Eastern's reliance on matters outside the pleadings converted the motion to dismiss to a motion for summary judgment.
Pacific Eastern filed its complaint on January 20, 1993. American General and Gulf Life Insurance Company filed their joint Tenn.R.Civ.P. 12.02(6) motion on March 11, 1993. On the same day, Pacific Eastern filed two affidavits supporting its request for a temporary injunction to prevent Chemical Bank from attempting to collect Pacific Eastern's loan. The trial court conducted a hearing on March 19, 1993 and entered an order on April 2, 1993, granting the temporary injunction.
Pacific Eastern and Harpeth Village Development Company 6 filed a memorandum in opposition to the motion to dismiss on April 19, 1993. The memorandum specifically requested the trial court to consider one of the affidavits Pacific Eastern had submitted to support its request for a temporary injunction. American General and Gulf Life Insurance Company objected to the consideration of the affidavit, but the record contains no indication that the trial court ever ruled on the objection. Later papers filed in the trial court indicate that the trial court did not exclude the affidavit from consideration, and in fact, the trial court's final order states that its decision to grant the motion to dismiss was based on "the entire record in this cause."
American General and Gulf Life Insurance Company moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted. Motions of this sort challenge the sufficiency of the complaint and do not require the consideration of matters beyond the pleadings. However, Tenn.R.Civ.P. 12.02 provides:
If, on a motion asserting the defense numbered (6) to dismiss for failure to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such motion by Rule 56.
The moving party generally triggers the conversion process by challenging the sufficiency of the pleader's complaint with materials not included in the pleadings; however, Tenn.R.Civ.P. 12.02 does not restrict the right to introduce extraneous materials to the moving party. The pleader may also bring about the conversion by submitting extraneous materials to oppose the motion to dismiss. 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1366, at 486-88 (2d ed. 1990) ("Federal Practice and Procedure"). 7
Trial courts have discretion to accept or exclude matters beyond the pleadings, Federal Practice and Procedure, supra, § 1366, at 491, and may prevent a conversion from taking place by declining to consider...
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