Team Design v. Gottlieb

• Citation: 104 S.W.3d 512
• Parties: TEAM DESIGN, et al., v. Anthony GOTTLIEB, et al.
• Decision Date: 18 July 2002
• Court: Court of Appeals of Tennessee

104 S.W.3d 512

TEAM DESIGN, et al., v. Anthony GOTTLIEB, et al.

Court of Appeals of Tennessee, at Nashville.

January 7, 2000 Session.

July 18, 2002.

Published in Accordance with Tenn. Ct. App. R. 11.

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S. Ralph Gordon, Nashville, Tennessee, for the appellant, Intersound Entertainment, Inc.

James H. Harris III, Nashville, Tennessee, for the appellee, Anthony Gottlieb.

Daniel B. Eisensteln, Nashville, Tennessee, for the appellees, Team Design and Harris Graphics, Inc.

WILLIAM C. KOCH, JR., J., delivered the opinion of the court, in which BEN H. CANTRELL, P.J., M.S., and PATRICIA J. COTTRELL, J., joined.

OPINION

This appeal raises important issues regarding the permissible range of court-annexed alternative dispute resolution procedures available under Tenn. S.Ct. R. 31. The case began in the Davidson County General Sessions Court as a dispute over payment for artwork and graphic design for a country music album. All the parties were dissatisfied with the general sessions court's disposition of their claims and perfected de novo appeals to the Circuit Court for Davidson County. When a dispute arose over the inability of two of the parties to be present on the agreed-upon trial date, the trial court, with all parties' agreement, entered an order referring the case to "binding mediation." The trial court conducted separate, off-the-record discussions with each of the parties and then entered an order finally adjudicating their claims. One of the parties filed a Tenn. R. Civ. P. 59.04 motion objecting to the order on the ground that it had not agreed to waive its right to a trial if the outcome of the mediation was unsatisfactory. After the trial court denied its motion, the moving party perfected this appeal. We have determined that the trial court lacked authority to conduct binding mediation or to finally adjudicate the parties' claims. Accordingly, we vacate the final order.

I.

Michael J. Bonagura and Kathie Baillie Bonagura perform country music in a group known as "Baillie and the Boys." When the transactions giving rise to this lawsuit arose, they were managed by Anthony Gottlieb, who did business as Morningstar Management. On January 22, 1996, the Bonaguras signed an "Exclusive Artist Agreement" with Intersound Entertainment, Inc. ("Intersound"), a Minnesota corporation whose principal place of business was in Roswell, Georgia. This agreement obligated Intersound to be responsible for the artwork and graphic design for the Baillie and the Boys albums.

With Intersound's knowledge and consent, the Bonaguras hired Harris Graphics, Inc. and Team Design to develop the artwork and graphics for an upcoming album called "Lovin' Every Minute." They believed that Intersound would be responsible for paying for this work. However, unbeknownst to the Bonaguras, Mr. Gottlieb had delivered a letter to Intersound agreeing that the Bonaguras would be responsible for paying for the artwork and graphic design for this album.

When Harris Graphics and Team Design were not paid for their work, they filed suit in the Davidson County General Sessions Court against Intersound and Mr. Gottlieb seeking payment and an injunction against the use of their work until they were paid. The general sessions court later permitted Harris Graphics and Team Design to add the Bonaguras as defendants. Following a hearing, the general sessions court granted Team Design a $4,086.75 judgment against Intersound and the Bonaguras. It also granted Harris Graphics a $2,200 judgment against Intersound and a $2,760 judgment against the Bonaguras.

All the parties perfected de novo appeals to the Circuit Court for Davidson County. Thereafter, the Bonaguras filed a cross-claim against Intersound alleging that it was contractually responsible for paying for the artwork and graphic design for the "Lovin' Every Minute" album. They also filed a cross-claim against Mr. Gottlieb asserting that he had violated his fiduciary duty by sending the letter to Intersound agreeing that they would be responsible for the artwork and graphic design for the "Lovin' Every Minute" album. In response, Mr. Gottlieb filed a cross-claim against the Bonaguras seeking 831,786.17 in unpaid management fees and expenses.

The trial was originally set for September 1998 but, at the trial court's initiative, was continued twice to February 16, 1999. Approximately one month before trial, the lawyer representing the Bonaguras requested his fellow lawyers to agree to preserve the Bonaguras' trial testimony by taking their depositions because Cactus Pete's in Jackpot, Nevada had declined to release them from a previous contractual commitment that conflicted with the rescheduled court date. The lawyers agreed, and the Bonaguras' depositions were scheduled for January 19, 1999. However, before the depositions could be taken, Mr. Gottlieb changed his mind and insisted that the Bonaguras be present at the trial. On January 21, 1999, the Bonaguras filed a motion seeking a continuance and an order enforcing the agreement permitting them to present their testimony by deposition. Team Design and Harris Graphics agreed to the use of the depositions at trial but objected to another continuance.

The trial court conducted a hearing on the Bonaguras' motion on February 5, 1999.¹ After the trial court agreed to the Bonaguras' request for a continuance, the lawyers and the trial court began discussing another trial date. During this discussion, the trial court offered the alternative of "binding mediation" and stated that it would be available to conduct the mediation on March 11, 1999. The record contains no indication that the trial court informed the parties of the specific procedures that would be used for this mediation or the legal consequences of their agreement to participate in the mediation² The lawyers for all the parties accepted the court's offer, and on February 16, 1999, the trial court entered an order referring the case to "binding mediation before this Court" on March 11, 1999.

Thereafter, the trial court directed the parties to submit confidential statements outlining their respective positions. When the parties returned to court on March 14, 1999,³ a clerk explained the procedure the trial court intended to follow which consisted of separate meetings with each of the parties and their lawyers in chambers.

Over the next four hours, the trial court met separately with each of the parties and their lawyer. According to one of the lawyers, the trial court "made no attempt to seek a mutual agreement as to a resolution of the issues among the parties, but, after the final interview, announced that she would make a decision and enter an [o]rder reflecting her decision." On March 19, 1999, the trial court entered an order awarding Team Design a $4,086.75 judgment against Intersound and awarding Harris Graphics a $5,044.45 judgment against Intersound. The trial court also awarded Intersound a judgment against Mr. Gottlieb for one-third of the total amount of Team Design's and Harris Graphics' judgments to be paid from moneys he received from the "Lovin' Every Minute" album. Likewise, the trial court awarded Intersound a judgment against the Bonaguras for one-third of Team Design's and Harris Graphics' judgments to be paid from the royalties generated from their "Lovin' Every Minute" album.

On March 31, 1999, Intersound filed a Tenn. R.App. P. 59.04 motion based on its lawyer's assertion that he had understood that the "binding mediation" offered by the trial court would be the sort of mediation authorized by Tenn. S.Ct. R. 31 in which he had previously participated in other cases. He also asserted that he never would have agreed to mediation had he understood the procedure that the court planned to follow. Team Design, Harris Graphics, and Mr. Gottlieb opposed the motion. They argued (1) that all the parties had agreed to "binding mediation," (2) that Intersound had not objected to the procedure prior to the entry of the March 19, 1999 order, and (3) that it would be unfair to permit Intersound to object to the proceeding at this point. The trial court entered an order on April 29, 1999, denying Intersound's post-trial motion. Intersound has perfected this appeal.

II. THE TRIAL COURT'S AUTHORITY TO CONDUCT BINDING MEDIATION

We turn first to the question of a Tennessee trial court's authority to conduct "binding mediation." Intersound asserts that any sort of mediation conducted by a trial court in Tennessee must be consistent with Tenn. S.Ct. R. 31. In response, Team Design, Harris Graphics, and Mr. Gottlieb assert that the parties and the trial court may, by agreement, agree upon an alternative dispute procedure that does not meet all the requirements of Tenn. S.Ct. R. 31 and that the trial court and the parties did precisely that. We have determined that all court-annexed alternative dispute resolution procedures must be consistent with Tenn. S.Ct. R. 31 and that the "binding mediation" procedure used in this case was not consistent with Tenn. S.Ct. R. 31.

A.

Public policy strongly favors resolving disputes between private parties by agreement. Private parties may, of course, decide to submit their disputes to the courts for resolution; however, a broad range of other formal and informal alternatives are available before they resort to litigation. These procedures are, as a practical matter, limited only by the parties' imaginations because the parties themselves may agree on virtually any mutually satisfactory procedure that is not illegal or contrary to public policy.⁴ Thus alternative dispute resolution procedures may range from formal procedures such as arbitration under Tennessee's version of the Uniform Arbitration Act⁵ to far less formal procedures such as "splitting the difference," flipping a coin, or, for that matter, arm wrestling. At least with regard to formal agreements to resolve disputes, the courts will...