State ex rel. Gibbons v. Smart, No. W2007-01768-COA-R3-CV (Tenn. App. 10/8/2008)
| Decision Date | 08 October 2008 |
| Docket Number | No. W2007-01768-COA-R3-CV.,W2007-01768-COA-R3-CV. |
| Parties | STATE OF TENNESSEE ex rel. WILLIAM L. GIBBONS, DISTRICT ATTORNEY GENERAL, ET AL. v. CLAYTON R. SMART, ET AL. |
| Court | Tennessee Court of Appeals |
Bruce S. Kramer, Scott A. Kramer, Memphis, TN, for Appellants
Robert E. Cooper, Jr., Attorney General and Reporter, Michael E. Moore, Solicitor General, Lyndsay Fuller, Laura T. Kidwell, Assistant Attorneys General, Nashville, TN; Max Shelton, James R. Newsom, III, Memphis, TN, for Appellees
OPINION
This case involves the Fifth Amendment privilege against self-incrimination. The trial court entered a pre-trial order requiring the defendant to produce various personal and business records and to compile a list of the assets belonging to the defendant and his businesses. The defendant failed to comply with or object to the order. At a contempt hearing, the defendant's attorney assured the chancellor that the defendant would comply with the order if the contempt hearing was continued for two more weeks, and the chancellor continued the matter. At the next hearing, the defendant's attorney stated that his client would not be complying with the order based on Fifth Amendment grounds. The chancellor held the defendant in civil contempt and ordered the defendant's attorney to pay the opposing party's attorneys' fees. The defendant and his attorney appeal. We affirm in part and reverse in part and remand for further proceedings.
On January 8, 2007, the Commissioner of the Tennessee Department of Commerce and Insurance and the District Attorney General filed a verified complaint on behalf of the State of Tennessee ("the State") pursuant to the Tennessee Cemetery Act of 2006, Tenn. Code Ann. § 46-1-101, et seq., naming the following defendants: Clayton Smart; Stephen Smith; "all persons acting in concert with them"; Indian Nation, LLC; Redbud Tree Investments, LLC; and Forest Hill Funeral Home and Memorial Park — East, LLC, also doing business as Forest Hill Funeral Home and Memorial Park — Midtown, and Forest Hill Funeral Home and Memorial Park — South ("Forest Hill"). According to the complaint, Forest Hill is "a cemetery company incorporated in Tennessee, consist[ing] of three separate cemeteries, three funeral homes and three private mausoleums all located in Memphis, Tennessee."1 Indian Nation, LLC, purchased Forest Hill in December of 2004.2 Mr. Smart is the principal owner of Indian Nation, LLC, owning 95% of the company, and he serves as Chairman of the Board. Mr. Smith owns the remaining 5% interest and is the company's director.
Forest Hill sells pre-need funeral plans and cemetery merchandise and services. The State's complaint detailed various violations of the Tennessee Cemetery Act of 2006, Tenn. Code Ann. § 46-1-101, et seq., but the essence of the complaint can be understood from the following statements in the complaint:
As required under Tennessee law, [Forest Hill] has established trusts to satisfy its obligations under its preneed contracts, cemetery merchandise and services agreements and to provide for the improvement and maintenance of its cemeteries. At the time of its acquisition by Indian Nation, Forest Hill had twelve trusts to meet these obligations. These trusts were funded with approximately $29,500,000 in assets.
...
In the late summer of 2006, the Burial Services Division of the Tennessee Department of Commerce and Insurance conducted an examination of Defendant Forest Hill, pursuant to Tenn. Code Ann. § 46-2-205. Substantial deficiencies were found in the improvement care and merchandise and services trust funds of Forest Hill. Those deficiencies arose because Defendants did not deposit the amount of funds required by statute to be deposited at the time cemetery merchandise and services and burial plots are sold. In fact, Defendants have failed to make any such deposits from November 2004 through June 2006.
...
During the 2006 examination, auditors also discovered that Defendants have failed to maintain proper separate accounting records for each of the twelve trusts.
...
From the time Smart and Indian Nation acquired Forest Hill through December 31, 2006, the value of the assets in the twelve Forest Hill trusts ha[s] declined from approximately $29,000,000 to approximately $9,000,000.
The State alleged that Mr. Smart had engaged in "self dealing, misappropriation and/or diversion of the trusts' assets." The State further alleged that the defendants were presently in the process of redeeming $5,600,000 worth of shares from one fund and attempting to obtain $800,000 from another trust in violation of state law. The State filed an application for a restraining order and temporary injunction, along with affidavits and other evidence in support of its application. The State sought an order restraining and enjoining the defendants from unlawfully conducting business or disposing of their assets, books, and records, wherever located, without court approval. The State also requested that the court enter an order to show cause why a receiver should not be appointed to take charge of, control, and manage Forest Hill for purposes of eliminating the trust fund deficiency.3
On the same day the complaint was filed, the chancellor entered a restraining order prohibiting the defendants and any person acting in concert with them from disposing of any personal or corporate assets without prior authorization from the court.4 The defendants were also prohibited from transferring, concealing, destroying or disposing of personal or corporate records, including but not limited to "customer records, balance sheets, income statements and other records related to the financial condition of any of the defendants, bank and brokerage account records and other documents showing the sources and uses of funds, letters and other correspondence and all computers and other electronic devices that are capable of storing information in electronic or digital format." The court scheduled a hearing on the State's motion for the appointment of a receiver and its motion for a temporary injunction.5
On February 2, 2007, the court entered an order addressing various issues.6 Among other things, it appointed Max Shelton as receiver for Forest Hill and ordered the defendants to cooperate with the receiver in all matters relating to the trust funds and property acquired with the trust funds. The court specifically ordered the defendants to provide the receiver with possession of or access to all records related to the trusts within 15 days and sign any authorizations necessary to allow the receiver to obtain records in the possession of any other entities, governmental or otherwise.7 The defendants were also ordered to provide the receiver with a full and complete listing of all assets owned by them or held by a trust, corporation, limited liability company, or other entity for their use or benefit. The listing was to describe the property, its location, account number, and any other information necessary for a proper description, and it was to be signed under oath to certify that it was a complete listing of all property held by or for the benefit of the defendants.
Four months later, on June 11, 2007, the District Attorney General, the Commissioner of the Department of Commerce and Insurance, and the receiver filed a petition to cite Mr. Smart, Mr. Smith, Indian Nation, LLC, and Redbud Tree Investments, LLC in contempt for "their failure to obey the February 2 Order in all respects." The plaintiffs alleged that the defendants' failure to comply with the order had impeded the receiver's efforts to trace, recover, and marshal the trust funds.
At some point, Mr. Smart's attorney withdrew. Mr. Smart was indicted on various criminal charges in Tennessee and Michigan, and he was incarcerated. On June 26, 2007, a notice of appearance was filed stating that Bruce Kramer, Elaine Sheng, Quitman Ledyard, and Scott Kramer, of the law firm of Borod & Kramer, P.C., were appearing as counsel for Mr. Smart.
The trial court held a hearing on the contempt petition on June 27, 2007, and Mr. Smart was present along with one of his attorneys, Scott Kramer. The receiver addressed the court and asked that Mr. Smart be held in contempt of court and remain incarcerated until he complied with the February 2 order. Attorney Kramer then addressed the court, and the following exchange took place:
Mr. Kramer: We do not disagree with Mr. Shelton in that the terms of the order have not been complied with; however, I would tell Your Honor that it is not a willful refusal to comply. Yesterday when I met with Mr. Smart, I showed him the February 2 order. He said that was the first he had seen of it. We are happy to sign the necessary authorizations to work with the receiver. Everything Mr. Smart has, has been seized by the IRS. If he were to be let out today, he would not be able to put his hands on anything to give the receiver. If the receiver would like authorizations, as I say, I will get that done directly, and we are happy to work with the receiver in any way we can to comply with the terms of the Court's order.
The Court: He's never seen it? He never saw the order?
Mr. Kramer: That is my understanding, Your Honor. Yes. I understand that — I saw the certificate of service. It was sent to 201 Poplar. It was also sent to Cannon Allen, who no longer represents Mr. Smart.
The Court: He was represented at the time.
Mr. Shelton: At the time the order was entered, Mr. Kramer, back on February 2nd, Mr. Allen was actually...
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