James R. Tully, Jr. v. USA Wireless, Inc., PMT Investments, Inc. and Patrick M. Thompson

• Court: Court of Appeals of Tennessee
• Decided: September 1, 1999
• Docket: 01A01-9707-CH-00332
• Status: Published

Opinion

IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE

JAMES R. TULLY, JR., ) ) Plaintiff/Appellant, ) ) Appeal No. ) 01-A-01-9707-CH-00332 VS. ) ) Davidson Chancery ) No. 93-2020-II(III)(I) USA WIRELESS, INC., ) PMT INVESTMENTS, INC., and ) PATRICK M. THOMPSON, in both ) his individual and corporate capacity, ) ) Defendants/Appellees. )

APPEALED FROM THE CHANCERY COURT OF DAVIDSON COUNTY AT NASHVILLE, TENNESSEE

THE HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR

LARRY D. ASHWORTH 227 Second Avenue North Nashville, Tennessee 37201-1636

PETER D. HEIL P. O. Box 40651 Nashville, Tennessee 37204 Attorneys for Defendant/Appellant

HUGH C. HOWSER, JR. KENNETH M. BRYANT 511 Union Street, Suite 2500 Nashville, Tennessee 37205 Attorneys for Plaintiff/Appellee Patrick M. Thompson

REVERSED AND REMANDED

BEN H. CANTRELL, JUDGE

CONCUR: TODD, P.J., M.S. KOCH, J.

OPINION The Chancellor granted summary judgment to the defendant on the

plaintiff’s fraud claim. Because we believe the plaintiff has alleged sufficient facts to

make out a claim of fraud, and the defendant has been unable to negate those

allegations, we find the fraud claim inappropriate for summary judgment, and we

reverse. We also find that the plaintiff has not waived his contract claim, and we

remand this case to the trial court for the resolution of both claims.

I. Facts and Prior Proceedings

Defendant Patrick M. Thompson was the founder, principal shareholder

and president of two corporations, PMT Investments, which was chartered on

November 17, 1989, and USA Wireless, chartered on February 27, 1990. Plaintiff

James R. Tully Jr. was hired on January 1, 1990 to work for PMT Investments, and

was subsequently named the director of licensing for USA Wireless. Later that year,

Mr. Thompson stopped paying Mr. Tully’s salary, but Mr. Tully kept working, on the

strength of promises that Mr. Tully would be compensated when the young

corporation was able to generate sufficient revenues.

On November 22, 1991, Mr. Thompson sent Mr. Tully the following

letter, to which Mr. Tully subsequently affixed his signature.

On August 15, 1990, you received your last payroll check from USA Wireless, Inc. At that time we told you that there would not be any more payrolls because funds were thin and prospects of financing were not immediate. However, we did say that you could continue to work at USA with the understanding that there would be no payroll until the company received funding. When and if that occurs, you will be paid for your services at an agreed upon rate per year as an independent contractor.

I am sorry to say that we have not been successful in securing the financing as of this date. As of November 1, 1991, you will have completed 96 weeks of work without a payroll. This means that USA Wireless owes you $158,000.00 for your services less your advances plus any approved expenses. Today the company has loaned you approximately $12,000.00 leaving a balance of $146,000.00. When and if the company receives a major funding of $2

-2- million dollars or is sold or liquidated, USA Wireless will pay you $146,000.00 within five days of receipt of the proceeds. Until that time you will be paid on an agreed upon commission schedule to be determined.

Not only do I look forward to paying you $158,000.00 less your loan; I look forward to the day you resume your work as a salaried employee as you were before August 15, 1990. It will mean that the company is properly capitalized and we are moving forward, making progress and benefiting all of our customers and employees.

Rest assured that as long as I am in control of USA Wireless you will always have a position with this company.

Warm regards. Sincerely, /S/ Patrick M. Thompson President PMT:njc

Please indicate your concurrence with this letter by your signature below.

11-22-91 /S/ Date James R. Tully, Jr.

In December of 1991, Mr. Tully became frustrated with his situation, and

terminated his working relationship with USA Wireless.

On October 7, 1992, Mr. Thompson entered into a contract to sell

virtually all the assets of USA Wireless for $950,000 to a company called Continental

Wireless Cable Television, Inc. The Asset Purchase Agreement recited that $100,000

had already been paid by the Buyer to the Seller, that a further $250,000 would be

paid at closing, and that the final $600,000 would also be paid at closing in the form

of a secured promissory note, with the Buyer retaining the right to offset sums payable

under the note “. . . in an amount equal to the final judgment, if any, against Seller by

third party creditors, obtained during the term of the Note who have a right to satisfy

such judgement through execution or lien upon the Assets purchased by Buyer.”

-3- According to Mr. Tully’s affidavit, he heard at about this time that USA

Wireless had been sold or was about to be sold, and repeatedly asked Mr. Thompson

if that was so. Mr. Thompson allegedly told Mr. Tully on each such occasion that the

sale had not been closed. In February of 1993, Mr. Tully began working for David L.

Conro and Associates. Mr. Conro was the president and CEO of Continental

Wireless, and in the course of conversation with Mr. Tully, he allegedly revealed that

the sale of USA Wireless had been completed in October 1992. Mr. Tully was never

paid from the proceeds of the sale, which were all apparently disbursed to other

parties.

On July 13, 1993, Mr. Tully brought suit against PMT Investments, USA

Wireless, and against Mr. Thompson in both his individual and corporate capacities.

The complaint included a claim for breach of contract in regard to the $146,000, a

claim for fraud, and a further contract claim which alleged that at the time USA

Wireless was chartered, Mr. Thompson had orally promised to give Mr. Tully a 20%

interest in the company if he would work on its behalf.

On March 28, 1994, the trial court granted Mr. Tully’s motion for

summary judgment on his $146,000 claim against USA Wireless, but denied summary

judgment on Mr. Tully’s claim for recovery of that sum against PMT Investments and

Patrick M. Thompson. In a subsequent proceeding, the court dismissed the claims

against PMT and Patrick Thompson on summary judgment, “. . . thereby dismissing

with prejudice the remaining claims in this cause.” Both parties appealed.

II. First Appeal

Mr. Thompson claimed on appeal that USA W ireless’ obligation to pay

Mr. Tully the $146,000 never arose, because it was conditioned on the injection of

-4- significant capital into USA Wireless or the sale or liquidation of the company, neither

of which occurred.

Mr. Tully claimed that the trial court should have “pierced the corporate

veil” and held Mr. Thompson personally liable for the $146,000 debt, because his

conduct showed that the corporate entity was being used as a mere instrumentality

to protect his own wrongdoing.

This court affirmed the trial court in part, reversed in part, and remanded

the case for further proceedings. We affirmed the $146,000 judgment against USA

Wireless, because we did not construe the language in the letter of November 22,

1991 as creating a condition precedent to the company’s performance of its duty to

compensate Mr. Tully for past services. We read it rather as Mr. Thompson’s promise

to pay the debt as soon as the company was in a position to do so. We also affirmed

the chancellor’s refusal to hold Mr. Thompson personally liable for the debt by piercing

the corporate veil.

We stated, however, that we were reversing the trial court’s judgment

on the fraud and breach of contract claims against Mr. Thompson and PMT, Inc.,

because summary judgment on these claims was improper, as “the appellees did not

address these issues in their brief and we find that the evidence in the record is in

conflict.”

The judgment attached to our opinion stated that “. . . this court is of the

opinion that summary judgment was properly granted against USA Wireless, Inc.; that

the court correctly found that Mr. Tully was not entitled to pierce the corporate veil;

and that it was error to dismiss the fraud claims made against Patrick M. Thompson.”

There was thus a discrepancy between the language in the opinion and the language

-5- in the judgment which created an additional complication in this case that we feel

compelled to address in the next section of this opinion.

III. The Contract Claim

On remand, Mr. Thompson filed a motion for summary judgment on Mr.

Tully’s fraud claim, but did not brief the breach of contract claim. The trial court

granted Mr. Thompson’s motion on February 24, 1997. A motion to alter, amend or

vacate the judgment was vigorously argued, but was denied on May 8, 1997. There

is no indication in the record that the breach of contract claim that was mentioned in

our opinion but erroneously omitted from the judgment was ever considered by the

trial court. Mr. Tully appealed.

Mr. Thompson argued on appeal that the language in the judgment

indicated that the only claim before the trial court on remand was the fraud claim, and

that the court was correct in not addressing any other claim. He further argued that

the plaintiff had waived any objections by not timely filing a motion in this court to

correct the erroneous judgment.

The appellee relies upon Schoen v. J.C. Bradford & Co., 642 S.W.2d

420 (Tenn. App. 1982) for this questionable proposition. In the Schoen case, this

court rejected the appellants’ efforts to reopen issues that had been determined in a

former opinion in the case, because the court’s pronouncements had become “the law

of the case,” and were no longer open to re-examination. That is very different from

the situation before us, because the appellant is trying to uphold this court’s prior

opinion, not to challenge it.

Both the opinion and the judgment are parts of the mandate of this court,

which the trial court is bound to obey. Tenn. R. App. P. 42(a). Our opinion in this

-6- case stated that the cause was “remanded for further proceedings in accordance with

this opinion.” It is therefore absurd for the appellee to imply that our judgment had

somehow become the law of the present case, and our opinion had not.

In light of the trial court’s failure to consider the appellant’s contract

claim, this court could declare its judgment not to be final, and remand this case for

a determination on that issue alone. But we are reluctant to put both parties to the

additional expense of a third appeal, which would almost certainly follow regardless

of the disposition of this issue on remand, and of the possibility of still another appeal

beyond that. We therefore deem the purported final order in this case to have

resulted in a summary judgment for the defendant on all the remaining issues, and we

reverse because of the moving party’s failure to carry the burden of proof required to

prevail on a motion for summary judgment on either of the issues in contention.

IV. Fraud

On a motion for summary judgment, the trial court must view the

pleadings, competent affidavits, depositions, answers to interrogatories and

admissions in the record in the light most favorable to the opponent of the motion.

Price v. Mercury Supply, 682 S.W.2d 924 (Tenn. App. 1984); Wyatt v. Winnebago,

566 S.W.2d 276 (Tenn. App 1977). Summary judgment is only appropriate when it

is shown that “there is no genuine issue as to any material fact, and that the moving

party is entitled to a judgment as a matter of law.” Tenn. R. Civ. P. 56.03; Byrd v. Hall,

847 S.W.2d 208 (Tenn. 1993). Because intention to defraud is a question of fact that

usually requires a trial before it can be fully developed, summary judgment is generally

not an appropriate procedure to dispose of such an issue. Fowler v. Happy Goodman

Family, 575 S.W.2d 496, 499 (Tenn. 1975).

-7- It appears to us that summary judgment on the plaintiff’s fraud claims

would only have been appropriate if the pleadings and the evidence failed to raise one

or more of the necessary elements of such a claim, or if the defendant had

successfully negated any such element, when the evidence for its existence was

examined in the light most favorable to the plaintiff.

This court has discussed the elements of a claim for fraud as follows:

“Actions for fraud contain four elements: (1) an intentional misrepresentation of a material fact, (2) knowledge of the representation’s falsity, and (3) an injury caused by reasonable reliance on the representation. The fourth element requires that the misrepresentation involve a past or existing fact, or, in the case of promissory fraud, that it involve a promise of future action with no present intent to perform. Nondisclosure will give rise to a claim for fraud when the defendant has a duty to disclose, and when the matters not disclosed are material.”

Dobbs v. Guenther, 846 S.W.2d 270, 274 (Tenn. App. 1992).

Mr. Tully has asserted claims that sound in both positive fraud and

promissory fraud. There is more support in the record for the claim for positive fraud

than for the claim of promissory fraud (or for the contract claim, which is based on

some of the same facts), because the defendant has denied that he ever promised

to give Mr. Tully a share in the equity of USA Wireless as a quid pro quo for his

services to the company, and there is no document memorializing the alleged

agreement.

The positive fraud claim is based on allegations of misrepresentations

of past or present facts, which are better documented in the record. Mr. Tully’s

affidavit states that “. . . between October of 1992 and January of 1993, Defendant

Thompson falsely and fraudulently, and with intent to defraud the Plaintiff,

represented to the Plaintiff that the sale of the company had not been closed.”

-8- Mr. Thompson does not deny in his affidavit that he told Mr. Tully that

USA Wireless had not been sold. Instead, his affidavit states: (T.R. 62)

“The Asset Purchase Agreement . . . does not reflect the sale of USA Wireless, Inc. Rather, that Asset Purchase Agreement reflects the sale of certain assets of USA Wireless, Inc. USA Wireless, Inc., at the time the sale . . . was consummated, owned, held and maintained significant other assets.”

Though Mr. Thompson may not have sold the corporate entity known

as USA Wireless, our jurisprudence of fraud includes those situations where a party,

while not actually lying, intentionally “produces a false impression in order to mislead

another or to obtain an undue advantage over him . . . .” Haynes v. Cumberland

Builders, 546 S.W.2d 228, 232 (Tenn. App. 1976). See also Vela v. Beard, 442 S.W.

2d 644 (Tenn. App. 1968).

It thus appears to us that even if Mr. Thompson’s statement that he had

not actually sold USA Wireless was technically correct, it is at least arguable that it

constituted a deliberate misrepresentation as to the financial condition of his

company, which Mr. Tully relied upon to his detriment, by refraining from pursuing his

claim until the company had been denuded of the funds available to satisfy it.

Further, Mr. Thompson’s statement is belied by the terms of the Asset

Purchase Contract, which clearly contemplated the sale of all the productive assets

of the company, and by the defendant’s own responses to the plaintiff’s post-judgment

interrogatories involving the assets of USA Wireless on various dates.

According to those responses, on October 1, 1992 the company valued

its plant and equipment at $1,297,791, and its inventory at $37,550. It had no cash,

no short-term investments, no accounts receivable, and apparently no other significant

assets. On October 8 (the day after the sale), it had no tangible property at all. Cash

amounted to $140,947 (interestingly, the record contains a bank statement of USA

-9- Wireless showing a wire transfer of $234,500 to the company on October 7). The

$600,000 note called for in the contract was not listed as an asset of the company,

perhaps because the plaintiff had failed to ask about notes receivable in that

interrogatory. Responses to the interrogatories concerning March 28, 1994, and

August 15, 1994 indicated that USA Wireless had no assets whatsoever as of those

dates.

The circumstances under which USA Wireless received and then

disbursed $950,000 are murky at best. For example, a $100,000 check from

Continental Wireless to USA Wireless, dated December 29, 1992, and characterized

as the “Final Contract Payment” does not even appear in the bank statement of USA.

Wireless, and the disposition of the proceeds of the $600,000 promissory note, which

Mr. Thompson admitted receiving in February 1993, has never been explained or

documented.

The deposition of Nancy Cash, Vice President and Secretary/Treasurer

of USA Wireless, demonstrates some remarkable lapses of memory relating to the

financial affairs of the company, including almost complete amnesia about the

circumstances under which she signed a $240,000 promissory note in her capacity

as Vice President, for the benefit of Mr. Thompson. Though the date of execution

recited on the note was prior to the sale of the company’s assets, Ms. Cash was

unable to confirm the actual date of the note’s execution, and had no idea whether the

note represented Mr. Thompson’s salary, a prior debt of the company, or any other

legitimate consideration.

While a satisfactory explanation may exist for any of these irregularities,

and for others we have found in the record but have not thought necessary to

describe here, the defendant has failed to produce any explanations, and in fact he

filed for a protective order to prevent the plaintiff from seeing financial records which

- 10 - might have served a clarifying purpose. As this court has stated “. . . where the

circumstances under which a transfer of property by a debtor are suspicious, the

failure of the parties to testify or to produce available explanatory or rebutting

evidence is a badge of fraud.” Nashville Milk Producers v. Alston, 307 S.W.2d 66

(Tenn. App. 1957).

We therefore find that the trial court erred in granting the defendant’s

motion for summary judgment, or in the alternative, in denying the plaintiff’s motion

to alter or amend the judgment.

V. Personal Liability

The defendant raised one other argument on appeal, which we feel

compelled to answer. He implied that this court’s prior decision that Mr. Tully could

not pierce the corporate veil to hold Mr. Thompson personally liable for the judgment

against USA Wireless pretermitted the fraud issue, which is merely the same claim

in another guise. We do not agree.

As this court pointed out in Brunguard v. Caprice Records, 608 S.W.2d

585 (Tenn. App. 1980), the liability of an officer of a corporation for a tort is separate

from the liability of corporation.

“. . . an agent cannot escape liability for tortious acts, including fraud or misrepresentation, against third persons simply because the agent was acting within the scope of the agency or at the direction of the employer . . . . An officer or director of a corporation who commits or participates in the commission of a tort is likewise liable to third partes regardless of the liability of a corporation.”

608 S.W.2d at 590.

If Mr. Thompson is indeed guilty of fraud, he is not shielded by the fact

that he was acting as an agent or officer of USA Wireless, and he may be held

personally liable for his acts.

- 11 - VI.

The judgment of the trial court is reversed. Remand this cause to the

Chancery Court of Davidson County for further proceedings consistent with this

opinion. Tax the costs on appeal to the appellee.

____________________________ BEN H. CANTRELL, JUDGE

CONCUR:

_______________________________ HENRY F. TODD, PRESIDING JUDGE

_______________________________ WILLIAM C. KOCH, JR., JUDGE

- 12 -