Ralph v. Scruggs Farm Supply LLC
| Decision Date | 17 December 2014 |
| Docket Number | No. W2014-00841-COA-R3-CV,W2014-00841-COA-R3-CV |
| Citation | 470 S.W.3d 48 |
| Parties | Kem Ralph, et al. v. Scruggs Farm Supply LLC, et al. |
| Court | Tennessee Court of Appeals |
Randy C. Camp, Gadsden, Tennessee for appellant, Kem Ralph and Thomas Strawn, Dyersburg, Tennessee, for the appellants, Roger Ralph, Ralph Brothers Farms, and Ralph Investment Services Trust.
Lyle Reid and Amber Shaw, Covington Tennessee, for the appellee Scruggs Farm Supply LLC.
John L. Ryder, Memphis, Tennessee for the appellees, Scruggs Farm Supply, LLC and William P. Moss, III, Substitute Trustee.
OPINION
This consolidated appeal stems from the attempted foreclosure of real property in Tipton and Haywood County. In commencing the present case, Plaintiffs filed complaints in Chancery Court in both Tipton and Haywood County seeking to enjoin foreclosure and to obtain an accounting of the financial transactions between them and Defendants. Both trial judges found that Plaintiffs' claims were barred by the doctrine of res judicata. We affirm.
Defendant Scruggs Farm Supply, LLC (“Scruggs”), is a farm implement company in Tupelo, Mississippi, which has conducted business with the Plaintiffs for many years preceding this lawsuit. Historically, Scruggs sold Plaintiffs farm supplies and equipment on credit. In 2002, Plaintiffs Kem Ralph and Roger Ralph executed a promissory note in the amount of $1,000,000.00 in Scruggs' favor, wherein interest was set at the rate of 8% per annum. The note was secured by a deed of trust signed by Kem and Roger Ralph, both in their individual capacities, and in their roles as partners for Ralph Brothers Farms.1 As set forth in the deed of trust, real estate situated in Tipton County, Haywood County, and Shelby County was to serve as security for the Ralphs' obligations.
In 2006, Kem Ralph filed for bankruptcy under Chapter 11 in the United States Bankruptcy Court, Western District of Tennessee. Ralph Brothers Farms soon followed by filing its own Chapter 11 bankruptcy in 2007, and in 2009, Roger Ralph also filed for Chapter 11 bankruptcy protection. During the bankruptcy proceedings, the promissory note signed by the Ralphs became an issue, and inquiry was made into its priority relative to the claims of creditors other than Scruggs.
In August 2009, consent orders were entered in both Kem Ralph and Roger Ralph's bankruptcy cases. The orders, which had been preceded by the filing of Plaintiffs' Emergency Motions to Compromise and Settle Claims, set out the terms of a settlement between the parties. The orders acknowledged that the Ralphs desired to clarify Scruggs' claims, and in reciting that the proposed settlements were fair and equitable, the consent orders provided that Scruggs be allowed a secured claim in the amount of $1,000,000.00. Interest on Scruggs' claim prior to and through July 31, 2009, was waived, and interest accruing after July 31, 2009, was set at the rate of prime plus 2%. The consent orders also reflected other waivers of rights by Scruggs in connection with the settlement, including its release of liens on certain farms owned by Plaintiffs and other non-debtors. Although Plaintiff Ralph Investment Services Trust was not a party to the bankruptcy proceedings, both consent orders stated that the trust consented to the issuance of the consent orders.
Several years passed, and in 2012, Kem and Roger Ralph filed motions to partially set aside the consent orders previously entered by the bankruptcy court. The impetus for the Ralphs' requests for relief was their completion of an extensive audit in which they determined that the basis on which they had agreed to fix Scruggs' claim was erroneous. Specifically, as argued by Plaintiffs in their briefs on appeal, a collateral finding of the audit showed that Scruggs' claim of $1,000,000.00 had been satisfied prior to the filing of the bankruptcies.
By order dated November 26, 2012, the bankruptcy court denied the Ralphs' motion to set aside the consent orders and noted that the equities of the case did not warrant a reconsideration of Scruggs' claim. The court observed that the consent orders did not simply allow Scruggs' claim, “but dealt with numerous other issues necessary to the global settlement of contested issues envisioned by the Emergency Motions.” Although the Ralph brothers later filed another motion seeking to alter or amend the judgment order in bankruptcy court, this motion was denied on January 7, 2013. On August 27, 2013, the Bankruptcy Appellate Panel of the Sixth Circuit affirmed the action of the bankruptcy court. Subsequent to the Bankruptcy Appellate Panel's affirmance of the bankruptcy court's decision, the Ralph brothers dismissed their Chapter 11 bankruptcy cases, and soon thereafter, Scruggs initiated foreclosure proceedings on secured parcels in Tipton and Haywood County in order to collect on the debt owed pursuant to the promissory note.
In February 2014, Plaintiffs filed verified complaints in Chancery Court in both Tipton and Haywood County seeking to enjoin the scheduled foreclosures and to obtain an accounting of the financial transactions between them and Defendants. Shortly after the complaints were filed, the parties entered into consent orders granting the Plaintiffs' applications for temporary restraining orders, but Defendants subsequently mounted a defense to Plaintiffs' claims generally, moving to dismiss them on grounds that they were barred by the doctrine of res judicata. From the Defendants' perspective, the litigation in bankruptcy court barred maintenance of the present lawsuits. After conducting hearings on Plaintiffs' requests for temporary injunctions, both trial judges made findings that the claims asserted by Plaintiffs were, in fact, barred by res judicata. Plaintiffs now appeal. Given the presence of the same parties in both chancery lawsuits and the common questions of law and fact appertaining thereto, we have consolidated the Tipton and Haywood County cases for purposes of our adjudication herein.
On appeal, Plaintiffs raise one issue for review, which we have restated as follows: Whether the Plaintiffs' chancery court actions seeking injunctive relief and an accounting are barred by the doctrine of res judicata due to the entry of consent orders in the bankruptcy proceedings.
In reviewing any findings of fact by the trial court, our review is de novo “upon the record of the trial court, accompanied by a presumption of the correctness of the finding, unless the preponderance of the evidence is otherwise.” Tenn. R. App. P. 13(d). We review a trial court's conclusions on questions of law de novo, but no presumption of correctness attaches to the trial court's legal conclusions. Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000).
“The doctrine of res judicata ... bars a second suit between the same parties or their privies on the same claim with respect to all issues which were, or could have been, litigated in the former suit.” Jackson v. Smith, 387 S.W.3d 486, 491 (Tenn. 2012) (citations omitted). The doctrine “is a ‘rule of rest’ and ‘private peace[,]’ ” Moulton v. Ford Motor Co., 533 S.W.2d 295, 296 (Tenn. 1976) (citation omitted), and it serves to “promote finality in litigation, prevent inconsistent or contradictory judgments, conserve legal resources, and protect litigants from the cost and vexation of multiple lawsuits.” Creech v. Addington, 281 S.W.3d 363, 376 (Tenn. 2009) (citations omitted). Moulton, 533 S.W.2d at 296.
To successfully establish a defense based on res judicata, a party must demonstrate that the underlying judgment was rendered by a court of competent jurisdiction, that the same parties or their privies were involved in both suits, that the same cause of action was involved in both suits, and that the underlying judgment was final and on the merits. Smith, 387 S.W.3d at 491 (citations omitted). “A trial court's decision that a claim is barred by the doctrine of res judicata or claim preclusion involves a question of law which will be reviewed de novo on appeal without a presumption of correctness.” Id. (citation omitted).
On appeal, Plaintiffs challenge the trial courts' findings that the chancery actions are barred by the doctrine of res judicata in two respects. Although they concede that the bankruptcy court was a court of competent jurisdiction and further concede that their chancery court cases and the bankruptcy proceedings involved the same cause of action for purposes of res judicata, they contend that the prior judgments of the bankruptcy court were not final judgments rendered as a result of a hearing on the merits and that the bankruptcy court actions did not involve the same parties present in the chancery cases. Having closely considered Plaintiffs' arguments, we find that they are not well-taken. Like both trial courts, we find that Plaintiffs' chancery actions are barred by the doctrine of res judicata . As there is no dispute over whether the bankruptcy court was a court of competent jurisdiction or whether the cause of action in bankruptcy was the same for res judicata purposes as that involved in chancery, we now turn our attention to Plaintiffs' specific arguments concerning why the consent orders entered in bankruptcy should not be given preclusive effect.
In arguing against the trial courts' disposition of their cases, Plaintiffs stress that at no point in the bankruptcy proceedings was a hearing on the merits conducted....
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