XL Sports, Ltd. v. $1,060,000 Plus Interest Traceable to Respondent, No. W2005-00689-COA-R3-CV (TN 1/26/2006)
| Decision Date | 26 January 2006 |
| Docket Number | No. W2005-00689-COA-R3-CV.,W2005-00689-COA-R3-CV. |
| Parties | XL SPORTS, LTD. v. $1,060,000 PLUS INTEREST TRACEABLE TO RESPONDENT, RES, and JERRY LAWLER. |
| Court | Tennessee Supreme Court |
Leonard W. Yelsky, Cleveland, OH; Joseph D. Barton, Millington, TN, for Appellant.
Larry E. Parrish, Memphis, TN, for Appellee.
OPINION
Following a transaction involving the sale of a business, the plaintiff filed suit against several defendants in federal court alleging causes of action grounded in federal and state law. The federal jury found some of the defendants liable, but they concluded that one of the defendants did not engage in any wrongdoing during the transaction at issue. Thereafter, the plaintiff filed suit in a Tennessee chancery court seeking to impose a constructive trust over funds held by the defendant exonerated by the jury. The defendant removed the case to the federal district court. The district court determined that the claim was barred by the doctrine of res judicata. The plaintiff appealed to the federal court of appeals, which ruled that the case was not properly removable, as it only presented a claim based upon state law. On remand to the chancery court, the defendant asserted the affirmative defenses of res judicata and collateral estoppel. The chancery court subsequently granted the plaintiff's motion for summary judgment. The defendant appealed to this Court. We reverse the chancellor's grant of summary judgment to the plaintiff, and we hold that the plaintiff's claim for a constructive trust is barred by the doctrines of res judicata and collateral estoppel. Accordingly, we dismiss the case in its entirety.
This case involves a tortured procedural history which began in the federal courts and involved multiple parties.1 We are presently asked to resolve an aspect of the dispute involving XL Sports, Ltd. (hereinafter "XL Sports" or "Appellee") and Jerry Lawler (hereinafter "Lawler" or "Appellant"). In order to properly characterize the present controversy, we borrow the following statement of facts from the most recent opinion issued by the United States Court of Appeals for the Sixth Circuit in this case:
The United States Wrestling Association, or USWA, was a trade name used to designate a wrestling entertainment business based in Memphis, Tennessee. The USWA distributed a weekly wrestling television show and promoted periodic live wrestling events.
For 20 years prior to October of 1996, the USWA had been co-owned by the same two men: Jerry Jarrett and the defendant, Jerry Lawler — the latter known to wrestling afficionados as "The King." Jarrett had initially owned a majority interest in the business, but he and Lawler each held a 50% share by 1996.
Jarrett testified that although the USWA had been highly profitable in the 1980s, it was regularly losing money by the mid-1990s. Lawler nonetheless approached Jarrett in the summer of 1996 with an offer to purchase Jarrett's half of the business. Jarrett, who said that he was burned out after spending many years in the world of professional wrestling, was willing to sell. By an agreement dated November 15, 1996, Jarrett undertook to sell his half of the business to Lawler for $250,000.
Despite the USWA's red ink, Lawler entered into an employment contract in October of 1996 with a man known as Larry Burton, promising to pay Burton $750,000 in 52 equal installments. It is unclear precisely what consideration Burton was to render under his employment contract. Furthermore, the parties disagree as to whether Burton was working for Lawler personally or for the USWA. But Lawler does admit that the employment contract contained monetary incentives for Burton if he helped increase the revenue of the business.
At the same time he was sounding out Jarrett about selling, Lawler was working on a deal to sell Burton the entire business. Lawler and Burton signed a letter of agreement in December of 1996 under which Lawler undertook to sell "all or part" of the wrestling business at a price of $500,000 for each 25% share. Burton represented in the letter that he would pay $ 500,000 for one such share within the next week. The letter gave Burton the option to increase his ownership interest by paying an additional $500,000 for each additional 25% interest he elected to take, as long as the payments were made within specified periods during the succeeding 360 days.
In the meantime, Burton entered into a separate but related agreement with a man named Mark Selker. Selker, according to a letter dated December 13, 1996, promised to contribute $250,000 toward Burton's purchase of the initial 25%. Selker further agreed to bear half the cost if and when the options to purchase the remaining 75% were exercised. In order to carry out his part of this transaction, Selker formed a limited liability company, XL Sports, Ltd., the plaintiff in the matter now before us.
In December of 1996 Lawler honored his agreement to purchase Jarrett's half of the wrestling business by paying $ 187,500 to Jarrett and $62,500 to Burton. (The latter payment was described as a commission for Burton's work in helping to arrange the sale.) At about the same time, Lawler received $250,000 from XL in partial payment for the first 25% increment.
By June 6, 1997, according to a letter of that date, Burton and Selker had paid Lawler a total of $1,100,000; they proposed to pay $900,000 more within a week, thereby acquiring 100% of the business. Lawler agreed to the terms set forth in the June 6 letter, and on June 20, 1997, he executed a notarized bill of sale transferring all of the USWA's assets to XL.
On November 21, 1997, XL filed a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Western District of Tennessee. A few days later, acting as debtor-in-possession, the company instituted an adversary proceeding against Lawler in the bankruptcy court. The stated object of this proceeding was to avoid, under the provisions of 11 U.S.C. § 548(a), what XL claimed to have been a fraudulent transfer of the USWA business.
In addition, XL sued Lawler, Burton and several other individuals in the United States District Court for the Western District of Tennessee. The complaint, which sought damages and equitable relief under the Racketeer Influenced and Corrupt Organizations Act, charged the defendants not only with racketeering, but with common law conversion, fraud, and conspiracy to injure XL's business. Burton filed his own complaint against Mark Selker, the latter's father Eugene Selker, and the Selkers' law firm, alleging legal malpractice, interference with business relationships, and fraud. Lawler, for his part, instituted an action seeking damages from Burton, the Selkers, the Selkers' law firm, and that firm's other name partner. Numerous cross-claims and counter-claims followed. All three of these cases were eventually consolidated and transferred to the United States District Court for the Northern District of Ohio in Cleveland, where they went to trial before a jury.
The Cleveland jury reached a verdict, on which judgment was entered, finding that Burton and his son, Jayson Bertman, had engaged in racketeering. Damages totaling $ 865,000 were assessed against them. (The judgment was later amended to reflect that Burton and Bertman were jointly and severally liable for this amount, and that XL was entitled to treble damages, or $ 2,595,000, under 18 U.S.C. § 1964(c).) The jury also found Burton liable for conversion and fraud, with respect to which $235,000 was awarded in compensatory damages and $3,300,000 in punitive damages. Finally, the jury found in favor of Lawler as to all of XL's claims against him. In this connection the jury explicitly found that XL had failed to prove that Lawler had wrongfully exercised dominion over XL's property in denial of XL's rights to that property. The court directed a $ 1,000,000 verdict for Lawler in his suit against Burton, an amount Burton had previously admitted to owing.2
Two weeks after the entry of judgment in the Cleveland case, XL moved for summary judgment in its adversary proceeding against Lawler. XL asserted that the recent trial had resolved all factual issues in its favor and that, under 11 U.S.C. § 544(b) and the common law of Tennessee, Lawler was bound to deliver $1,100,000 to the bankruptcy estate. Lawler countered with a motion for judgment on the pleadings in which he asserted that the claims advanced in XL's adversary proceeding were barred by the judgment in the Cleveland case. The bankruptcy court denied both motions.
XL Sports, Ltd. v. Lawler, No. 01-5363, 2002 U.S. App. LEXIS 21168, at *3-9 (6th Cir. Oct. 8, 2002) (footnotes omitted).
On April 11, 2000, XL Sports filed a complaint against Lawler in the Chancery Court of Shelby County asserting the following: "[XL Sports] contends that Lawler, as the recipient of the $1,100,000 finally adjudged to have been stolen from [XL Sports], is, as a matter of law, a constructive trustee of [XL Sports] required, as a matter of law, to turn over the $ 1,100,000, with interest, to [XL Sports]."3 In essence, XL Sports maintained that, since the jury in the federal case found that Burton and other defendants were guilty of unlawfully taking the $1,100,000.00 from XL Sports, Lawler, even though the jury found that he had no culpability in the taking, could be considered a constructive trustee of the $1,100,000.00 paid to him over the course of the transaction. In response to XL Sports' complaint, Lawler filed a notice of his intention to remove the...
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