### IN THE COURT OF APPEALS OF TE NNESSEE AT NASHVILLE Jul y 7, 200 3 S es sio n JO AN B. HARDCASTLE, ET AL 

### . v. F R A N K H A R R IS Appeal f romthe Chancer y Court for Davidson Cou nty No. 00-2172-III Ellen Hobb s Lyle, Chancellor

No. M2002- 01087-COA-R 3-CV - F iled Dece m ber 8, 2004

T h i s a p p e al c o n c e rn s a

py ramidsa le s sc he me inv olv ing thesa le of un re g ist e re d in ve stm e nt c on tr a c ts. Af te r d isc ov e ri ng that th e ir

c on tr a c ts w e rewo rthle ss, fo ur pu rc ha se rs fi le d s e pa

rate a c tio ns a g a ins t the per son who sold them the contra cts. These case s wereconsolidated for trial in the Chance ry Court for Da vidson County

. Following a bench t rial, t he trial court de termined that the se ller had brea ched his pe rsonal g uarantee c ontrac t with two of the buy ers and had violat ed the Te nnessee Se c uriti e s A c t of

19 80 by

se lli ng un re g ist e re d in ve stm e nt c ontra c ts t o a ll the pu rc ha se rs
. Acc ording ly , the court awar ded the f our purc haser s judgme nts totaling $99,450.00, as we ll as $44,979.50 for attorney ’s fe es and le g al expenses. The s el l er as serts on this appea l that the Tenne ssee Sec urities Act claims were f iled afte r the statute of limit ations had expired and that the doctrines of

waiver and estoppel preve nt the purchaser s from asse rting these c laims. I n addition, he insists that the court err ed bypermitting the purcha sers to ame nd their complaints one we ek bef ore trial to add their Tenne ssee Securities Act claims. He also takes issue with the trial court’s de cision to a wa rdthepu rc ha se rs the ir

a tto rn e y ’s fe e s. We a ff

irm th e jud g me nts

. Tenn. R. App . P . 3 Appeal as of Right; Judgme nt of th e Chancer y Court Affi rm ed
W I L L I AM C. K O CH , J R ., J ., delivere d the opinion o f t he court, in which W I L L I AM B. C A IN , and P ATR I C I A J. C O T T RE LL , J J ., joined.
Mathe w R . Z e nn e r, Na sh vil le , T e nn e sse e , f or theapp e llant, Frank

Ha rris.
David B . Ly ons, Nashville, Tenne ssee, f or the a ppellees, Joan B. H ardc as t l e, Gl en Hardca stle, J oseph Pope, and Charles Provance

. OP IN ION
I.
Frank Ha rris op e rate s se ve ral bu sin e sse s in Ma dis on , Te nn e sse e
. He ow ns a sma ll r e a l e state business called Imp act and a small company called Impact International, I nc. that manuf actur es industrial lubricants. He ha s aspirations of be coming a major de veloper and entr epre neur. The cente rpiec e of his plans is a “p erpe tual world’s fair type deve lopment” ca lled Uniquest. As Mr. Ha rris e nv isi on s it , th e de ve lop me nt wil l con sis t of tw e lvethe me pa

rk s sp re a d o ve r 5 0, 00 0 a c re s in Warren County . He e stimates that the development will cost appr ox imately “fifty billion dol lars.”P art i ci p ant s i nvest i ng $1 0 0 , 0 0 0 or m o re would earn f i f t y pe rcent (50 % ) per m o nt h. 1
-2- Mr. Har ris decide d t h at he nee ded ten million dollars in “seed mone y ” to g et Uniquest off the g round. In the late 1990s, a ft er h i s ef fo rt s to obtain bank financ ing f or the proje ct prove d un su c c e ssf

ul, Mr . H arris b e g a n s e arc hin g fo r b us ine ss o pp ortun iti e s th a t w ou ld e na blehim to r a ise a g re a t dea l of ca

pit a l in a sh ort periodof

tim e . So me tim e du ri ng 19 97 or 19 98 , M r. Ha

rris b e c a me a c qu a int e d w ithRonHo g se d, wh o li ve d inEr wi n, Te nn e sse e , andbe g a n d isc us sin g a nu mbe r of g e tri c h- qu ic k s c he me s w ithhim

. Th e wh e e ls o f M r. Ho g se d’ s and Mr . Harris’ s fir st ve ntu re be g a n to tu rnin l a te 19 98 or e arl y 19 99 a ft e r M r. Ho g se d be c a me a n a g e nt fo r He rc ule s Ho ldi ng L I T. He rc ule s Ho ldi ng pu rp orte d to be a “ prog ram” located in L ondon, Eng land that purporte dly purcha sed larg e blocks of United States trea s u ry bills at deep discounts and then r esold blocks of tre asury bills at enormous profit. Mr. Hog sed incorpor ated Me rit Quest Mana g ement Inter n ati o n al, L

td

. ( “Merit Quest”) in the West I ndies to operate this business. Mr. Hog sed told Mr. Har ris about his Merit Quest ventur e in ea rly 1999, and Mr. Ha

rris bec ame inter ested in the prog ram because some banke rs had pur portedly told him t hat the only way to r aise the ten milli on dollars neede d for Uniquest would be to buy and sell trea sury bil ls.
I n Fe bruary

or Mar ch 1999, Mr. Hog sed sent Mr. Harr i s a s et of materials describing the Merit Quest “ asset enhanceme nt prog ram.” These materials stated: (1) t h at p ar ticipation in the pro g r a m w a s b y in v it a ti o n o n ly ; ( 2 ) th a t th e p r o g r a m w a s p r iv a te a n d c o n f id e n ti a l; ( 3 ) th a t the prog ram ha d been operating successfully for over t hree y ear s; and (4) that the prog ram wa s “license d under SEC Rules and Reg ulations.” The mate rials also stated that the minimum investment in the prog ram wa s $10,000 and that participants investing be tween $10,000 and $24,999 wo uld earn twenty -five pe rce nt (25%) pe r month. 1
Ac c or din g to M r. Ho g se d’ s mate ri a ls, inv e sto rs in M e ri t Q ue st w ou ld t rans fe r the ir

fu nd s to Merit Quest’s “trust acc ount” at an overseas bank. The funds w ould then be pooled with the f unds of oth e r i nv e sto rs a ndwo ulde ve ntu a ll y be tr ans fe rr e d to a “ pr og ram atto rn e y ’s ” “ c lie nt t ru st acc ount” wher e they

would be used to purc hase tre asury bills “f or the benef

it of the [p] articipa nt.” Following the purc hase of the trea sury

bills, i nvestors would re ceive their first intere st pay ment within four t o s i x weeks. The materials stated that ea ch participant’s investment was pr otected beca use it is “fr ee and clea

r of encumbr ance s during and afte r [t he] c ontrac t” an d b ec au s e i t was insured by

“Z enith I nsuranc e Ltd.”
Mr. Har ris decide d to b ecome an ag ent of Merit Quest and eve ntually signe d a “N onC i r c u m v e n t i o n & N o n
- D i s c l o s u r e A g r e e m e n t ” a n d a “ P r o g r a m A g r e e m e n t ” w i t h M r
. H o g s e d

. In re turn f or Mr . H arris’ s a g re e me nt t o “ int ro du c e ” “ c lie nts ” to M e ri t Que st an d to a c t a s “ Tr us t Offic er” with reg ard to the disburse ment o f all “earnings, c ommissi ons, and investment re turns,” Mr. Ho g se d a g re e d to pay

Mr . H arris a

te n p e rc e nt ( 10 %) c omm iss ionon a ll f un ds wi re d to Me ri t Qu e st’ s a c cou nt s in e ith e r E rw in, Te nn e sse e or L on do n, En g la nd , a s w e ll a s 5 0% of themon thl y earni n gs af

t er these funds w ereinvested. Mr. Ha rris wa s responsible for

paying the clients he int ro du c e d to thepr og ram us ing thefu nd s h e re c e ive d f ro m Me ri t Q ue st.T hes e mat er i al s i ncl uded: ( 1) a des cr i pti o n of t he M er i t Q ues t progr am; ( 2) a ch ar t s howi ng t he proje ct ed 2

ea r n i n g s of

i n v es t men t s f

r om $10, 000 t o $25, 000; (3) an “ U n der s t an di n g an d A g r ee men t ” t o be s i g n ed by t h e i n v es t or an d M r
. H ar r i s ; ( 4) a “ Le t t er of I n t en t ” t o be s i g n ed by t h e i n v es t or ; ( 5) a “ Joi n t I n t er es t Ag r ee men t ” t o be s i g n ed by t h e i n v es t or a n d M r
. H ar r i s ; ( 6 ) a p o wer of a t t or n ey t o be s i g n ed by t h e i n v es t or ; ( 7) a w i t h dr aw al r equ es t for m t o be
s i g n ed by t h e i n v es t or ; a n d ( 8) i n s t r u ct i on s for w i r i n g i n v es t men t s di r ec t l y t o a n a cc ou n t a t Ll oy d ’ s B an k i n Lon don p u rp o rte d ly co n tro lled b y M e rit Q u e st fo r th e us e o f H e rc u le s H o ld ing

.

T he “ p rojected” earni ngs o f a $1 0 , 0 0 0 i nvest m ent were $1 4 5 , 5 0 8 i f t he p art i ci p ant l ef

t al l of hi s o r her earni ngs 3 i n t he p rogram fo r one year
.

T h e se gu a ra n te e s to o k the fo rm o f a “p ro m isso ry n o te ” o n I m p a c t sta tio n e ry sta ting th a t “[ i]t is a g re e d tha t o n ly 4
t he p rincip al i nv estm en t wil l b e re t urn ed t o t he i nv esto r b y Fra nk A

. H arris an d / o r Im p ac t i n t he ev en t t ha t M erit Q ue st M a n a g e m e nt f ai l s t o ret urn t he i nvest m ent as agreed

. ” M r. H arri s st o p p ed gi vi ng hi s cust o m ers t hi s co rpo rat e and p ers o nal guarant ee at s o m e p o i nt i n Sep t em b er or O ct o b er 1 9 9 9 b ecause he ran out of t he p ers o nal f und s need ed t o m ake g o o d o n the gu a ra n te e
.

M r
. H ar r i s hi msel f

cl ai ms t o hav e i nv es t ed $2 10 , 00 0 i n t he progr am. M r
. H awk i ns an d hi s wi fe i nv es t ed 5 $ 1 5 ,0 0 0 in the p ro g ra m . T h e re c o rd c o n ta ins no e v id e n c e tha t M s. M u rp h e y inv e ste d in M e rit Q u e st. -3- Mr . H arris the n p re pa

re d ano the r s e t of mat e ri a ls to dist ri bu te to pot e nti a l inve sto rs
. Th e se 2 documents cha

rac terized Merit Que st as a “be st efforts high yield prog ram” in which per sons who invested $10,000 for

one y ear could re ceive “po t en t i al returns” with a “ve ry high de g ree of confide nce of

[s] ucce ss” of twenty -five perc ent (25%) every thirty day s. I n addition, they

ref err ed 3 to M r. Ha

rris v ari ou sly

a s a “ tr a ns a c tio n mana g e r” or a “ trus t of fi c e r. ” Th e do c ume nts a lso contained va

rious assura nces r eg arding the safe ty o f th ein v e s tm e n ts. Theprog ram de scription stated that eac h participant’s investment would be held “ in a major for eig n [b] ank, which insure s 100% of all deposits.” Mr. Ha

rris’s e arly

documents stated that “ I mpact/Fr ank Ha rris under writes and protec ts all principal investments for investors t h ro u gh corpor ate and persona l investment g ua rante e s. ” Se ve ral months late r, Mr . Harris’ s g ua rante e wa s re pla c e d by

a “ Tr us t A g re e me nt” in 4 which Mr. Hog sed ac cepte d “full leg al, per sonal and c orporate re sponsibili t y fo r t h e safety and acc urate disbursement of f unds . . . with which I

am entrusted.”
Mr . H arris the n s e t a

bo ut to r e c ru it p e rs on s w ho wo ulda c t a s “ int ro du c e rs ” fo r h im, wh o in re turn wo uld be g ive n a c omm iss ion fo r e ve ry pe rs on the y

br ou g ht i nto thepr og ram th ro ug h h im. E v en t u all y , Mr. Har

ris rec ruited six or seve n introducer s, including his brothe r-in-la w, Gordon Hawkins, and his sister, Susan Murphey

. These introducer s set about telling their famil yand a c qu a int a nc e s a

bo ut M e ri t Q ue st. I n M a y 19 99 , M r. Ha

rris c on vin c e d h is f

a the r, Da rry l A . H arris, to invest $37,500 in Merit Quest. This prove d to be a potent mar keting tool becausehis father was a prominent B aptist mini ster who wa s well-known in t h e co mmunity . Many potential investors a ssu me d th a t Me ri t Q ue st mus t bea g oo d p ro g ram if

Da rry l H arris h a d in ve ste d init.
B e tw e e n Ma

rc h a nd Oc tob e r 19 99 , Mr

. Ha rris a ndhis int

ro du c e rs c on vin c e d 1 18 pe rs on s to inv e st $ 3, 30 0, 00 0 inMe ri t Q ue st. I nc lud e d amo ng the se inv e sto rs we reGl e n andJoanHa rd c a stl e 5 who wer e neig hbors of Mr. Har ris and his f

ather

. The Har dcastles invested $30,000 in September 1999 and made a second investment of $25,000 one mont h later. In turn, they told Billy Har dcastle,B ill y H a rd c a stle d id n o t h a v e s u ff ic ie n t fu n d s to m a k e h is o w n $ 1 0 ,0 0 0 m inim u m inv e stm e n t. A c c o rd ing ly, 6 h e g av e h i s br ot h er $5, 000 t o i n v es t for h i m. T h u s , G l en H ar dca s t l e’ s t ot al i n v es t men t w as $60, 000.

M r
. Py r on i n v es t ed $25, 0 0 0 in M eri t Q u es t

. M s
. M u r ph ey pr omi s ed t o pa y M s
. H ar dca s t l e a $1, 000 7 commi s s i on for i n t r odu ci n g M r
. Py r on t o t h e pr og r am bu t pa i d h er on l y $500.

M r. H awkins hi m sel f

i s a fo rme r B ap t i st m i ni st er. 8

M r
. H ar dcas t l e, for e xampl e, t es t i f i ed t hat he un ders t oo d t hat “ B r ot her H ar r i s has i nv es t ed i n i t , an d m ade a 9

s mal l for t u n e of

f of i t ” an d t h at “ [ e] v en t h ou g h , I f el t l i k e t h i s was t oo good t o be t r u e, e v er y body e l s e wa s g et t i n g i n on i t , I s ai d why not me. ”

M r. H o gse d claim ed t ha t a n ag en t o f H erc ules H o l d i ng h ad d raine d a l l the f un d s f ro m t he M erit Q ue st t rust 10

acco unt at Ll o y d ’ s B ank. -4- Mr. Hardca stle’s brother, and Dale P yron, Mr. Har dcastle’ s cousin, about t he progr am. I n October 6 7 19 99 , Joe B

. Pop e a nd

his wi feinv e ste d $ 10 ,0 00 de sp ite Mr . Po pe ’s be lie f that Me ri t Q ue st w a s a pyramid sche me. Likewise, Mr. Charles P rovanc e, one of Mr. Har ris’s long -time frie nds, invested $25,000 in October

1999. A profile of

the Merit Quest investors emer g es from their testimonyat trial. Most of them had a c ommon church a ffiliation with Messrs. Har ris and Hawkins. None of them understood how 8 the Merit Que st prog ram wor ked, and f

ew of them rea d or under stood the prog ram mate rials or documents they

signe d. None of

them soug ht independ en t fi n an ci al or lega l advice, and many of them wer e influenc ed by the fa ct that Dar

ry l Harris had invested in the progr am. Most of the 9 investors did not believe th at they would earn the promised rate of re turn, but they believed Mr

. Har ris’s assurances that their principal wa s safe and that it would be returne d to them at the end of the contra ct period.
The Sec urities and Exchang e Commissi on learned of Me rit Quest af ter one of Mr. Ha

rris’s introducer s posted the prog ram on the Interne t. I t forwa rded the i n fo rmation to the Division of Securities of the Tenne ssee De partment of Commerc e and Insuranc e. On Oc tober 25, 1999, after rec eiving additional information from the Attorne y Gene ral and Reporter , the Division of Securities issued a cease and desist orde r direc ting Me rit Quest, Mr. Ha rris, and othe rs to ref

rain fr om violating the Tenne ssee S ec u ri t i es Act of 1980 by acting as unre g istered br oker- deale rs and by selling un re g ist e re d s e c uriti e s. The issuanc e of the cea se and de sist order for ced Mr . Har ris and his introd u ce rs t o stop acc epting new investors. A t the same time, Mr. Hog sed stopped sendi n g monthlyearnings and commissions pay ments to Mr. Harris for distribu ti o n , causing a dispute betwe en Mr. Ha rris and Mr

. 10 Hog sed. During Dec ember 1999 and J anuary 2000, Mr. Harris wrote a series of heate d letters to Mr. Ho g se d d e ma nd ing$1 7, 84 7, 17 2, re pr e se nti ng “ a ll pa y me nts du e fr om y ou to Frank Ha rris, I mpa c t, Br okers, and all I nvestors that we repr esent in the Merit Quest Prog ram,” and acc using Mr. Hog sed of ste a lin g a ndoth e r d ish on e sty . In a Janu ary 6, 19 99 le tte r, Mr . H arris t oldMr . H og se d th a t “ [t]his bu sin e ss h a s p ro ve n mo rethan y ou c a n h a nd le ” a ndthat “ I wi ll n ot allo w y ou to pul l me d ow n w ith y our attempts to steal fr om investors and broke rs.”In his J a n u a ry 1 8 , 2 0 0 0 let te r t o i n v e s to rs , M r. H a rr is c a u tio n s tha t “[i]t m a y p ro v e to b e ve ry c o stly t o 11

eve r y one i f

s om eone el s e g et s hy per. W e feel we ar e movi ng i n t he r i gh t di r ect i on an d expect an en di ng t o t hi s ordeal
v e ry so o n .”

M r. H arris stated tha t h e an d h i s w i fe ha d “retained t hre e law f i rm s and ex p en d ed m an y t ho usa nd s o f d o l l ars” 12

an d t h at t h ey w er e ( 1) w or k i n g t o s u ppl y t h e St at e wi t h a l l the i nf o r mat i on n ee ded for t h e admi n i s t r at i v e h ea r i n g ; ( 2) p u rs u ing c o llec tio n e ff

o rts fro m H e rc u le s H o ld ing s’ a tto rn e y in H o u sto n , T e x a s; a n d (3 ) c o n tinu ing the li tiga tio n w ith M r
. H og s ed.

T he H ardc ast l es’ c o m p l ai nt c o nt ai ned c auses o f act i o n fo r ( 1 ) breach o f

co nt ract , (2) negl i gence and negl i gent 13 mi s r epre s ent at i on, ( 3) f r aud a nd f

r audul ent bre ach of

t r us t , an d ( 4) vi ol at i on of t he T enn es s ee C ons umer P r ot ect i on Act by s el l i ng an un r egi s t er ed s ecu r i t y wi t hout a l i cen s e.

A l t ho ugh M r. P rovanc e h a d r e t ai ned other l awyers t o represent hi m , t he causes o f act i o n i n hi s co m p l ai nt 14
tra c k e d tho se in the H a rd c a stles ’ co m p la int. -5- B e g inn ing in Ja nu ary 20 00 , M r. Ha rris b e g a n s e nd ing le tte rs to h is i nv e sto rs in the Me ri t Qu e st pr og ram to up date the m on the status of the ir inv e stm e nts . T he pu rp os e of the se le tte rs wa s, in Mr. Har

ris’s words, “ to hold them [ the investors] at bay , so to speak, in re g ard to g oing to the SEC or so me bo dy

lik e that.” I n F e br

ua ry 20 00 , h e inf

orme d h is inv e sto rs of

his plan to fi le a

c la ss 11
a c tio n s uit

a g a ins t Mr . H og se d. I n A pril 2 00 0, Mr . H arris i nf orme d h is i nv e stors that th e la ws uit a g a ins t Mr . H og se d h a d b e e n f ile d b ut that Mr . H og se d w a s e va din g se rv ic e of pro cess. Hea lso state d th a t he wa s “w or

kin g fr om thr e e dif

fe re nt ang le s” to r e c ov e r the ir inv e stm e nts a ndint e re st. 12 Finally , in Aug ust 2000, Mr. Harris informed the investors that he was conti nuing “ to expend signific ant ef

fort and mone y

to locate Mr. Hog sed” but that “ finding Mr. Hog sed is not as important no w s inc e themon e y

may be c omp le te ly

ou t of his c on tr ol. ” Hea lso re min de d in ve sto rs that “ the ir principle and interest are being sought in a ‘Master lawsuit’ ag ainst ‘Merit Quest’ (Ron Hogse d)” an d stated that he “ expect[ed] to disburse proportionally to investor’s contra ct dates and their amount of investment.”
Mr. Har ri s ’s l et ter did not hold his investors at bay for ve ry long. O n J uly

12, 2000, the Har dcastles f

iled suit ag ainst Mr

. Ha rr is in the Chancery Court for Da vidson Countyseeking compen s a to ry a n d p u n itiv e d a ma g e s
. E ig h t d a y s late r , o n Ju ly 2 0 , 2 0 0 0 , th e Py r o n s f iled an 13 ide n ti c a l s u it

inth e Ch a n c e ry

Co u rt f o r D a v id s o n Co u n ty

u s in g th e s a mela w y e r w h o w as repr esenting the Har dcastles. The se suits prompted Mr. Har ris to send a fac simil e to t he Ha rdca stles an dPy r o n s e xp r e s s in g h is d is ap p o in tm e n t an dd is p le a s u r e o v e r th e ir la w s u it s
. A f

te r th e Py rons ag ree d to dismi ss th ei r l aw s u it in return for Mr . Har ris’s ag ree ment to reimburse the ir $25,000 investment, Mr. Har

ris asked a

g roup of f

ello w ch u rchmen to resolve the dispute with the Har dcastles. TheHar dcastles did not ac cept this offe r.
I n Dec ember

2000, Mr. Provanc e filed suit ag ainst M r. Har ris in the Chance ry

Court for Davidson County

. Five months later , in May 2001, Mr. Pope sued Mr. Har ris in the Metropolitan 14 Gene ral Sessions Court alleg ing violations of the T ennesse e Securities Act of 1980, as we ll as other claims related to his $10,000 investment. I n J uly 2001, Mr. Pope’s suit was re moved to the chancery court and consolidated with the pe nding c omplaints of the Har dcastles and Mr. Provanc e.W hi l e t he mo t i on t o a mend was f i l ed j oi nt l y by t he H ar dcas t l es and M es s r s
. P r ovanc e and P op e, onl y t wo 15

am end ed co m p l ai nt s were ever f i l ed

. N o am end ed co m p l ai nt on b ehal f of M r. P o p e was ever f i l ed

. T he st y l e o f

M r. P ro v a n c e ’s am e n d e d c o m p la int n a m e d the H a rd c a stles a s the p la intiff s a n d M r. P ro v a n c e a s the d e fen d a n t. M r. H a rr is ha s no t t ak en i ssue wit h these d i scre p an cies.

T h e trial c o u rt d ism isse d the c o n tra c t cla im s o f M e ssr s. P ro v a n c e a n d P o p e b e c a u se the y ha d b e e n un a b le to 16 prove t hat M r
. H ar r i s had gu ar ant eed t hei r i nv es t ment s
. I t al s o di s mi s s ed al l t he cl ai ms under t he T enn es s ee C ons umer P ro t ec t i o n A ct b ec au se t he ac t d o es no t ap p l y t o t he sale o f sec urit i es, as well as all ne gli ge nc e a nd f rau d claim s b ec au se t he p l ai nt i f

f s had be en unab l e t o pro ve t hat t hey act ed reas o nab l y i n rel y i ng on M r. H arri s’ s represent at i o ns regardi ng t hei r ex pect ed ear ni ng s an d t he s af et y o f t hei r i nv es t ment

. Fi nal l y , t he t r i al co ur t d eni ed t he cl ai ms f or pun i t i ve dam age s b e c a u se the p la intiff s faile d to p ro v e tha t M r. H a rr is kn e w tha t t h e p ro g ra m w a s a fra u d o r th a t he p ro fit e d p e rs o n a lly f r om be i n g i n v ol v e d w i t h t h e pr og r a m. -6- Me a nw hil e , o n th e re g ulatory fr on t, an a dmi nis tr a tiv e la w ju dge condu c te d a he ari ng in N o v e mb e r

2 0 0 0 r e g ar d i n g t h e D i v i s i o n o f S e c u r i t i e s ’ r e q u e s tf

o r a c e a s e a n dd e s i s to r d e r
. In Fe bruary 2001, the administrative law judg e is sued an initial order upholding the O ctober 25, 1999 cea se and de sist orde r afte r concluding that the Merit Que st prog ram wa s an unre g istered investment contra ct and that Mr. H arris was n o t register ed as a broker -dea ler a s require d by the Tenne ssee Securities Ac t of 1980.
On Octobe r 12, 2001, ten day s befor e the schedule d beg inning of the trial, the Ha rdca stles and Messrs. Provance and Pope moved to amend their complaints to include a c ause of action base d on the Tenne ssee Sec urities Act of 1980. The trial court g rante d the motion. On J anuary 9, 2002, 15 fo llo wi ng a

fi ve -d a y tria l, the tria l c ou rt

fi le d it s me mor a nd um and or de r co nc lud ing that Mr. Ha rris had bre ache d his g uarantee contra ct with r eg ard to the Har dcastles’ initial investm ent, and that he ha d v iol a te d th e Te nn e sse e Se c uriti e s A c t of 19 80 in his de a lin g s w iththeHa rd c a stl e s a ndMe ssr s. Pr ov a nc e a ndPop e by

se lli ng the m a n u nr e g ist e re d secu ri ty . Pu rs uant t o th e re me die s a va ila ble under the Tenne ssee Sec urities Act of 1980, t h e trial court a war ded the Ha rdca stles a $59,950.00 jud g me nt, Mr . Pr ov a nc e a $2 7, 50 0. 00 jud g me nt, a ndMr . Po pe a n $ 11 ,0 00 .0 0 ju dg me nt alon g wi th an additional $44,979.50 for attorney ’s fe es and expenses. Mr. Harris perf ecte d this appeal a fter 16 the trial court denied his Te nn. R. Civ. P . 59.04 motion. The Hardc astles and Me ssrs. Provance and Pop e ha ve a lso app e a le d f ro m th e dis mis sa l of

the ir fr aud ule nt m isr e pr e se ntatio n c la ims

. II. T HE S TA N D A R D O F R EVIEW
We turn f

ir st t o t he pro per stan da rd s o f r e vie w f

or theiss ue s p re se nte d inthi s a pp e a l. Be causethis is an appeal f rom a de cision made by

the t rial court itself following a benc h trial, the now familiar standard in Te nn. R. App. P. 13(d) g ov er n s o u r review. This rule contains differe nt stand ard s f

or re vie wi ng a

tria l c ou rt ’s de c isi on s r e g ard ing fa c tual qu e sti on s a ndle g a l qu e sti on s. Withre g ardto a

trial cou rt ’s find ing s o f f a c t, w e wi ll r e vie w the re c or d d e no vo a ndwi ll presume that the finding s of fa ct ar e corr ect “unless the preponde ranc e of the evidenc e is otherwise .” We will also give g reat weig ht to a trial court’ s fac tual fi n d i n gs t h at rest on determinations of cre dibilit y
. In re Estate of W alton , 95 0 S.W. 2d 95 6, 95 9 ( Te nn . 1 99 7) ; B & G. Con str ., In c . v . P olk , 37 S.W. 3d46 2, 46 5 ( Te nn . Ct . A pp . 2 00 0) . H ow e ve r, if thetrial ju dge has n ot m a de a sp e c if ic finding of fa ct on a pa

rticular matter, we revie w the rec ord to de termine wher e the pr eponder anceT h ei r c ompl ai n t s i n cl u ded cl ai ms ba s ed on br ea ch of c on t r ac t , n eg l i g e n c e , n eg l i g en t mi s r epr es en t at i on , f r au d, 17 and viol at i on of

t h e T en n es s ee Cons u mer Pr ot ec t i on Act

. T h e con s u mer pr ot ec t i on c l ai m i s a c u r i ou s a dmi x t u r e of (c o n tinu e d ...) -7- of the e vidence lies wi t h o u t em ploy ing a presumption of cor

rec tness. Ga nz e v oo rt v . R us se ll , 949 S.W .2d 293, 296 (Tenn. 1997)

. Tenn. R. App. P

. 13(d)’ s presumption of cor rec tness require s appellate courts to def er to a trial court' s findings of

fac t. Fell v. Rambo , 36 S.W.3 d 837 , 8 46 (T e nn . Ct . A pp . 2 00 0) ; Taylor v. Trans Aero Corp. , 924 S.W .2d 109, 11 2 (T en n
. C t . App.1995). B eca use of the pr esumption, an appellate court is bound to leave a trial court' s finding of fa ct undisturbed unless it determines that the ag g reg ate weig ht of t he evidence demonstrates that a finding of fac t other than the onefound by the trial court is more probably true. Estate of Haynes v . Braden , 835 S.W .2d 19, 20 (Tenn. Ct. App. 1992) (holding that an appe ll at e co u rt is bound to respec t a trial court's f indings if it cannot de te rm inethat th e e vid e nc e pr e p o n d e r at e s o th e rw i s e )

. T hu s, fo r the e vid e nc e to p re po nd e rate a g a ins t a tria l c ou rt ' s f

ind ing of fa c t, it must su pp ort a no the r f ind ing of fa c t w ithg re a te r c on vin c ing e ff e c t. The pre sumption of corre ctness in Tenn. R. App. P. 13(d) a pplies only

to findings of

fac t, not to conclusions of law. Acc ording ly , appellate courts re view a trial court’s r esolution of leg al issues wi tho ut a pr e su mptionof

c or re c tne ss a nd re a c h the ir ow n in de pe nd e nt c on c lus ion s r e g ard ing the se issues. Johnson v. J

ohnson , 37 S.W.3 d 8 92 , 8 94 (T e nn . 2 00 1) ; Nutt v. Champion Int’l Corp. , 980 S .W .2 d 3 65 , 3 67 (T e nn . 1 99 8) ; Hicks v . Cox , 9 7 8 S. W. 2 d5 4 4 , 5 4 7 ( T e n n
. Ct

. A p p
. 1 9 9 8 ); McCormick

v. Aabak us, Inc. , 101 S.W .3d 60, 62 (Tenn. Sp. Workers Comp. Panel 2000).
III . T HE A M EN D M EN TS A DDI NG C LA IM S B AS E D ON V I OL AT I ONS OF T HE

T ENN ESS EE S EC U R ITI ES A CT
Mr. Har ris first takes issue with two aspe cts of the tria l court’s de cision to permit the Har dcastles and Mr. Provanc e to amend the ir complaints to add claims asserting that he had violated the Tenne ssee Sec urities Act of 1980. H e insists that they should not have been permitted to amend their co m p l ai n t s at such a late stag e of the litigation bec ause the y had ac ted in bad faith and had waive d th e ir ri g ht to a sse rt the c la im. Mr

. Ha rris a lso ins ist s that thetria l c ou rt e rr e d b y faili ng to continue the tria l after

it permitted the amendments. We have determined that the trial court did not err either by g ranting the Har dcastles’ and Mr. Provanc e’s motions to amend their c omplaints to seek rec overy for violations of the Tenne ssee Sec urities Act of 1980 or by declining to continue the trial afte r g ranting the motions to amend.
A.
The Oc tober 25, 1999 c ease and desist order put Merit Quest’s inve stors and their law y ers on notice that the Division of Securities had c oncluded that Mr. H arris had violated the Te nnessee Securities Ac t of 1 9 8 0 by selling an unreg istered se curity . Yet, whe n the Har dcastles and Mr. P r o v a n c e f

i l e d t h e i r c o m p l a i n t s a g a i n s t M r
. H arr i s i n J u l y 2 0 0 0 a n d D e c e mb e r 2 0 0 0 r e s p e c t i v e l y, they did not include a Te nnessee Securities Act claim among the many claims they asserted. The 17(

. . . con t i n u ed) 17

co nsumer p rotect i o n and s ecuri t i es l aw. It s p eci f i cal l y al l eges t hat “ [t ]he sal e o f t he i nvest m ent i nst rume nt by D efend ant H ar r i s cons t i t ut ed a s al e of an un l i cen s ed s ecu r i t y by an un l i cen s ed broker

. ”

T he l aw yer l ater e xp l aine d t ha t “we aske d fo r reli ef und er the T en ne ssee C o nsum er P ro t ec t i o n A ct, b ec au se 18 of t he T r ebl e D amages provi s i on an d t he at t orn ey ’ s f ee. ”

B y ag r eement , M r
. P op e’ s cas e was removed t o t he C han cer y Co ur t for D avi dson C ount y an d cons ol i dat ed 19 wi t h t he pendi ng ca s es f i l ed by t he H ar dcas t l es an d M r
. P r ovanc e.
T he s t y l e of

t he s ummary j udgment mo t i on na mes onl y t he H ar dcas t l es as t he pl ai nt i f f s
. H owever , t he order 20 g ra n ting the su m m a ry j u d g m e n t i d e n tif ie s the H a rd c a stles a n d M e ssr s. P ro v a n c e a n d P o p e a s the p la intiff s. A c c o rd ing ly,
we w i l l a s s u me t h at t h e par t i es a n d t h e t r i al c ou r t c on s i der ed t h e s u mmar y j u dg men t t o be di r ec t ed t owa r d t h e cl ai ms of
a ll the p la intiff s.

S e e N ic h o ls v . M e rrill, L y n c h , P ie rc e , F e n n e r & S m ith , 706 F. Su pp. 1309, 1322- 23 ( M

. D

. T en n
. 1989) 21 ( h ol di n g t h at t h e T en n es s ee Cons u mer Prot ec t i on Act does n ot appl y t o t r an s ac t i on s i n v ol v i n g s ec u r i t i es g ov er n ed by the T e n n e sse e S e c u rities A c t o f 1 9 8 0 ). -8- lawy er w ho prepa

red the Har dcast l es ’ compl aint appar ently decide d to include a c onsumer protec tion claim rather

than a se curities claim becausetr eb l e damag es we re a vailable unde r the Te nn e sse e Con su mer P rot ect ionAc t a ndbe c aus e Mr . H arris h a d c on sis te ntl y de nie d th a t Me ri t 18 Q u e s tw a s a

s e c u r i t y. This strateg y

chang ed following the administrative law judg e’s F ebruary 2, 2001 order concluding that Merit Quest wa s a sec urity and that Mr. Har

ris had violated the T ennesse e Securities Act of 1980 by selling an unreg istered security without a license. On May 22, 2001, the lawy er w ho was a lrea dy

repr esenting the H ardc astles, and pr esumably Mr. Provanc e, filed a

civil warr ant on behalf of Mr. Pope in the M etropolitan Ge nera l Sessions C ourt that included a claim for violating the Tenne ssee Sec urities Act of 1980, a s well as cla i m s fo r fr aud and violation of the Tenne ssee Con su me r P ro te c tio n A c t. 19
OnAu g us t 15 , 2 00 1, Mr . H arris mov e d for su mma ry jud g me nt w ithre g ardto all the c la ims of the Ha rdca stles and Messrs. P rovanc e and Pope. During the hea ring on this mot ion on October 20 12 , 2 00 1, Mr . H arris i ns ist e d that th e c on su me r p ro te c tio n a c t c la ims sh ou ld b e dis mis se d b e c aus e theMe ri t Q ue st c on tr a c ts we re se c uriti e s and be c aus e theTe nn e sse e Con su me r P ro te c tio n A c t di d not apply to tr ansac tions involving securities that fall within the purview of the Tenne ssee Sec urities Ac t. Th e tria l c ou rt a g re e d wi th Mr

. Ha rris a nd dis mis se d the c on su me r pr otectio n cl aim s. 21 I mmediately

following the hea

ring on Mr. Har

ris’s summary

judgme nt motion, the Har dcastles and Messrs. Provanc e and Pope move d to amend their c omplaints to add a claim base d on the Tenne ssee Se c uriti e s A c t of

19 80 . T he tria l c ou rt

g rante d th e motionon Oc tob e r 1 8, 20 01 a ndre a ff irme d it s decision on Oc tober 22, 2001 – the day befor e the tria l beg an.
B.
T en n es s ee l aw an dp o l i cyh av e a l wa y s fa v o re d p er m i t t i n g l i t i gan t s t o am en dt h ei r p l ea d i n gs to enable disputes to be r esolved on their merits rathe r than on leg al technic alities. Kar as h v . P igo tt , 53 0 S.W. 2d 77 5, 77 7 ( Te nn . 1 97 5) ; Patton v. Dixon , 105 Tenn. 97, 103, 58 S.W. 299, 301 (1900);-9-

Rutherford v. Raines , 3A Tenn. (2 Cooke) 35, 42 (1814). This policy is r efle cted in Te nn. R. Civ. P. 1 5

. 0 1 ' s a d m o n i t i o n t h a t “ l e a v e [t o a m e n d a p l e a d i n g ] s h a l l b e f r e e l y g i v e n w h e n jus tic e so require s.” Whil e decisions whether to permit an amendment ar e discre tionary , Daniels v. Tallent , 212 Tenn. 447, 462, 370 S.W.2d 515, 522 (1963), Tenn. R. Civ. P. 15.01 substantially lessens a tria l court’s discretion to deny

a re quested amendment. Branch v. W arren , 527 S.W .2d 89, 91-92 (Te nn. 1975). Despite the liber ality implicit i n Tenn. R. Civ. P. 15.01, t he courts have identified a number of circ umstances that, sing ly or in combination, could warrant de ny ing a motion to amend a pleading

. These circ umstances include: (1) undue delay in se eking the amendment, ( 2) lac k of notice to the opposing pa

rty , (3) ba d faith or dilatory motive o f t he moving party , (4) r epeated failure by themov ing pa

rty to c ur e de fi c ie nc ie s ine arl ie r ame nd me nts , (5 ) fu til ity of thepr op os e d ame nd me nt, and (6) undue prejudice to the oppos ing pa rty

. Fo rm an v . D av is , 371 U.S. 178, 182, 83 S. Ct. 227, 23 0 ( 19 62 ); Ga rd ine r v . W or d , 7 31 S.W. 2d88 9, 89 1- 92 (T e nn . 1 98 7) . O f the se fa c tor s, themos t important is the proposed ame ndment’s potential pre judicial eff

ect o n the opposing party . 6 C H A RLES A. W R I GHT E T AL ., F ED ER A L P R AC TI C E AND P ROCE DURE § 1487, at 613 (2d e d. 1990) (“FED ER A L P R AC TI C E AND P ROCE D U RE ”). Analy zing the pre

judicial eff

ect of a proposed amendment requires a car eful e x amination of the fa cts of the c ase. T h e co u rt s must consider the position of both parties and the ef fec t that g ranting or denying t h e re q u es t will have on ea ch of the m. This entails inquiring into (1) the hardship on the moving party if the ame ndmen t i s d en i ed ; (2) the r easons f or the moving party ’s failu reto inc lud e the c la im, de fe ns e , or oth e r matte r in its e arl ie r ple a din g ; a nd(3 ) the inj us tic e to the opposing party

should the motion to amend beg rante d. 6 F ED ER A L P R AC TI C E AND P ROCE D U RE § 1487, at 621-23.
L ate amendments fundame ntally chang ing the t h eo ry o f a case a re g ener ally

not viewed favor ably when the f

acts and theory

have be en known to the party seeking the amendment since the beg inning of

the litigation. March v . Levine , 115 S.W .3d 892, 909 (Tenn. Ct. App. 2003). Se e als o W imm v. J ack E cke rd Corp. , 3 F.3d 137, 140 (5th Cir. 1993) (holding that the plaintiffs would not be allowe d to amend their c omplaint a second time be causeth ey knew of the fa cts underlying the c la im b e fo rethea c tio n w a s f ile d) ; W indsor Card Shops, Inc. v. Hallmark Cards, Inc. , 957 F. Supp. 562, 571 (D.N.J. 1997) (denying the plaintiff’s motion t o am en d beca use the plaintiff c ould have included the c laim in its original c omplaint but did notdo so for strateg ic re asons). Ac cording ly , the c ou rt s u su a lly

de ny thi s so rt of a me nd me nt wh e n th e op po sin g pa rty c a n le g iti mate ly

c la im s ur prise or wh e n it wi ll (1 ) c aus e a dd iti on a l e xpe ns e a nd the bu rd e n of a mor e c omp lic a te d a nd le ng thy tria l, (2 ) r e qu ir e theop po sin g pa rty to e ng a g e in s ig nif

ic a nt a dd iti on a l pr e -t

ri a l pr e pa ratio n, (3 ) u nd uly incre ase discovery , or (4) unduly delay the trial. Mo ro ng o B d. of M iss ion In dia ns v . R os e , 893 F.2d 10 74 , 1 07 9 ( 9thCir . 1 99 0) ; Tr ox e l M fg

. Co

. v . S c h wi n n Bicyc le Co. , 489 F.2d 968, 971 ( 6th Cir. 1973); 6 F ED ER A L P R AC TI C E AND P ROCE DURE § 1487, at 623-32.
C. Omitting an unreg istered se curities claim from the Har dcastles’ and Mr. Provance’ s orig inal complaints was unnecessarily risky

. When the i nvestors filed their orig inal complaints, the partiesT e n n . R . C iv. P . 8 .0 1 a ff o rd s p la intiff s w id e latitud e in p le a d ing c la im s fo r a lt e r n a tive re lief. C o n c re te 22 Sp aces , Inc. v. Send er , 2 S .W .3 d 9 0 1 , 9 0 6 (T e n n . 1 9 9 9 ).

T he D i vi s i on of

Secu r i t i es ’ O ct ob er 199 9 ceas e a nd des i s t order ac cus ed M r
. H ar r i s of s el l i ng un r egi s t er ed 23

s ec u r i t i es w i t h ou t a l i ce n s e. I n a ddi t i on , t h e H ar dca s t l es ’ a n d M r
. Pr ov an ce ’ s c on s u mer pr ot ec t i on c l ai ms r es t ed on al l eg at i on s t h at M r
. H ar r i s h ad s ol d t h em u n r eg i s t er ed s ec u r i t i es
. T h e ci v i l w ar r an t M r
. Pope f i l ed in M ay 2001 sp e c ifi c a lly a lleg e d tha t M r. H a rr is ha d vio la te d the T e n n e sse e S e c u rities A c t o f 1 9 8 0

.

A s a resu l t o f

M r. H arris’ s co nc essio n, hi s i nv esto r s w e r e o nly req uired t o p ro ve (1 ) t ha t t he M erit Q ue st 24

c o n tra c ts ha d no t b e e n re g ister e d a s se c u rities , (2 ) th a t M r. H a rr is a n d h is a g e n ts w e re n o t lice n se d to se ll se c u rities in T enn es s ee, an d (3) t hat M r
. H ar r i s an d hi s ag ent s ac t ual l y s ol d M er i t Q ues t cont r act s i n T enn es s ee. T hes e fact ual i s s ues ar e s t r ai gh t forwa r d. M r
. H ar r i s ha d nev er deni ed t hat he an d hi s age nt s had s ol d M er i t Q ues t cont r act s i n T enn es s ee. H e a lso ha d a d m itt e d tha t t h e M e rit Q u e st c o n tra c ts ha d no t b e e n re g ister e d a s se c u rities a n d tha t ne ithe r h e no r h is a g e n ts wer e l i cen s ed t o s el l s ecu r i t i es i n T enn es s ee. -10- and their la wy ers knew all the fa cts underlying the claim and that the D ivision of Securities had commence d an administrative e nforc ement proc eeding ag ainst Mr. Har ris for se lling unre g istered se c uriti e s. I n a dd iti on , th e y kn e w o r s ho uldha ve kn ow n that Ten n. R. Civ. P. 8.0 1 expr e ssl y pe rm its ple a din g in the a lte rn a tiv e
. Th us , b y inc lud ing bo th the ir

c on su me r p rote c tio n c la im andthe ir 22
un re g ist e re d s e c uriti e s c la ims in the ir orig inal c omp la int , th e Ha rd c a stl e s a ndMr . Pr ov a nc e c ou ld easily have avoided the pre dicament of seeking permission to a dd a new claim to the ir complaint on th e ev e o f t rial. Mr. Ha

rris’s c oncession that the Me rit Quest contra cts wer e sec urities saved the Har dcastles’ and Mr. Provance’ s unreg istered se curities claims from the potentially prejudicia l eff ects of the ir lawy er’ s pleading strateg y
. Mr. Har ris’s eve ntual conce ssion that the Merit Quest c ontrac ts were securities was intended to u nd e rm inehis inv e sto rs ’ cons um er pr ote c tio n c la ims a ndthea c c omp a nying e xpos ur e to t re ble damag es. Howeve r, by closing the door on the consumer protec tion c laims, Mr

. Har ri s , p erhaps unwittingly , opened the door to claims under the Tenne ssee Sec urities Act of 1980. TheHar dcastles and Mr. Provancewer e not see king to de lay the trial or to take unfair a dvantag e of Mr . Har ris when they soug ht permission to amend their complaint. Rather, they

wer e simply

seeking to capitalize on Mr . H arris’ s c on c e ssi on that th e Me ri t Q ue st c on tr a c ts w e rese c uriti e s. His investors’ efforts to amend their complaints in 2001 to assert an unreg istered se curities claim came as no re al surprise to Mr. Harris because he ha d been r epeatedly acc used of se lling unreg istered se curities without a li cense since 1999. I n addition, permitting his investors to amend 23 the ir c omp la int

didno t un du ly

c omp lic a te thetria l. M r. Ha rris’ s c on c e ssi on that th e Me ri t Q ue st contra cts wer e securities a ctually rende red the investors’ c ase f ar le ss complex because pr oving that these c ontrac ts wer e securities would have been the most difficult and complex part of the investor’ s case
. 24
F inally , d e nying themotionto ame ndwo uldha ve sig nif ic a ntl y imp a ir e d th e invest or s’ abil iti e s to re c ov e r d a ma g e s f ro m Mr . H arris i n li g ht of the pate nt s ho rt c omi ng s inthe ir oth e r c la ims

. The consumer pr otection claims we re le g ally flawe d beca

use the Te nnessee Consumer Protection Act does not a

pply to securities tran s ac t i o n s g overne d by the Tenne ssee Sec urities Act of 1980. Their breac h of contract claims based on Mr. Harris’s personal g uarantee we re unde rmined by the un dis pu te d f

a c t th a t Mr . H arris h a d c e ased givi ng pe rs on a l g ua rante e s b y

thetim e that Me ssr s.R easona b l e rel i ance o n t he d efend ant ’ s represent at i o ns i s an ess ent i al ingr ed i ent in b o t h f raud and negl i gent 25

m isre p re se n ta tio n c la im s. See R ob i nson v. O m er , 95 2 S.W

. 2 d 42 3 , 42 7 (T enn. 19 9 7 ) ( negl i gent m isre p re se n ta t i o n); H odges v . S. C. Toof

& Co. , 83 3 S.W

. 2 d 89 6 , 90 1 (T enn. 19 9 2 ) ( “f raud” ).

Raw l i ngs v . J ohn H ancoc k M ut

. Li f e Ins
. Co. , 78 S.W

. 3 d 29 1 , 30 0 (T enn. C t

. A p p
. 20 0 1 ). 26

G eor ge v. Bui l di ng M at er i al s Cor p. , 4 4 S .W .3 d 4 8 1 , 4 8 7 (T e n n . 2 0 0 1 ) (h o ld ing tha t fa ilure to sp e c ifi c a lly 27 pl ead an af

f i r mat i ve defens e wi l l not r es ul t i n a wai ver i f t he op po s i ng part y i s gi ven f ai r not i ce of t he defens e a nd an
o p p o rtu n ity to re fute it ). See al s o Ti ps P ackag e St ore , Inc . v. Co m m er ci al Ins. M an ag er s , Inc. , 86 S. W

. 3d 543, 553 (T enn. C t

. A p p
. 20 0 1 ). -11- Pr ov a nc e a ndPop e inv e ste d inMe ri t Q ue st andtheHa rd c a stl e s ma de the ir

se c on d in ves tm ent. Likewise, the investors’ fraud and mi srepr esentation claims lacked e vidence that any of the investors a c te d r e a so na

bly by re lying onthere pr e se ntatio ns of Mr . H arris andhis a g e nts

. 25
I n s umm ary , w e c on c lud e that th e tria l c ou rt didno t e rr

by g ranti ng the inv e sto rs ’ m oti on to a me ndthe ir

c omp laint s to a dda n u nr e g ist e re d s e c uriti e s c la im. Th is amendm ent di d not un du ly complicate the caseand did not requireextensive a dditional discove ry or other trial prepa ration. Mr. Har ris had bee n awa

re f or appr ox imately

two y ear s that the sale of Mer i t Qu es t co n trac ts was considere d to be a sa le of unre g istered se curities, and at least one of the investors had a lrea dy

alleg ed that h e had vi ol ated the Te nn e sse e Se c uriti e s A c t of 19 80 . T hu s, Mr . H arris w a s n ot u nf a ir ly su rp ri se d b y

thea me nd e d c la im, no r w a s it un jus t to re qu ir e him

to d e fe ndthec la im at tria l.
D.
Mr. Har ris also insists t hat the Ha rdca stle s an d M r. Provancewaived the ir unreg istered se c uriti e s c la im b e c aus e the ir la wy e r d e lib e rate ly

omi tte d it

fr om the ir

ori ginal com plaint s. Th is arg ument is not well-taken. W h i l e the TennesseeRules of Civil P roce dure r equire claims and de fe ns e s to be raise d ina tim e ly ma nn e r, the y

do not ne c e ssa

ri ly re qu ir e plaintif

fs to i nc lud e a ll 26 their claims in t heir orig inal complaint nor def endants to include all their defenses in their origina l answe r. Thus, claims not included in an original complaint may still be asserted if they areraised

27 in a timely

manner or ar e tried by

consent unde r Tenn. R. Civ. P. 15.02.
Whe the r a

c la im h a s b e e n a sse rt e d in a tim e ly ma nn e r mus t bede te rm ine d w ithre fe re nc e to theapp lic ablepr oc e du ral rule s. Th e Te nn e sse e Rul e s o f C ivi l Pr oc e du rearesu ff ic ie ntl y fl e xible to pe rm it the pa

rtie s to modif

y the ir c la ims a nd de fe ns e s as the e xig e nc ie s o f the c a se re qu ir e . B e c aus e these modifications ge nera lly take t h e fo rm of ame ndments to the pleading s, the timeliness of asserting a

new c laim or defe nse shoul d be judged using Tenn. R. Civ. P. 15.01 standards, and the c ou rt s sh ou ld c on c lud e that a ne w c la im o r d e fe ns e is un tim e ly on ly if thepa rty a sse rting it w ou ld not be entitl ed to amend its pleading under Tenn. R

. Civ. P. 15.01. As we ha ve alr eady determined in the abo ve se c tio n, thetria l c ou rt pr op e rl y g rante d theinv e sto rs ’ m oti on to ame ndthe ir c omp la int s to add a c laim based on violations of the Tenne ssee Sec urities Act of 1980. The ref ore, be cause the investors’ motion to amend was timely under Tenn. R. Civ. P. 15.01, they did not waive their right to seek damag es fr om Mr. Har ris for se lling unre g istered se curities without a license

.-12- E.
As a fi na l c ha lle ng e to the tria l c ou rt ’s de c isi on to p e rm it the inv e sto rs to ame ndthe ir complaints, Mr. Har

ris insists that the t rial court err ed by ref using to continue the trial afte r it g rante d the inv e st o r s ’ m o t i o n t o a m e n d

. W h i l e a tr i a l c o u rt m a y g r a n t a c o n t i n u a n c e t o e n ab l e a p art y to respond e ffe ctively

to an amende d pleading , Ga rd ine r v . W or d , 731 S.W. 2da t 89 0; W

e lde n v . W y lie , 645 S.W .2d 247, 250 (Tenn. Ct. App. 1982), these decisions arediscretionary
. Blake v . Plus Mark, Inc. , 9 52 S.W .2d 413, 415 (Tenn. 1997) . Appellate c ourts will not second-g uess a tria l court’s decision re g arding a continuan ce unle ss the rec ord, re viewed a s a whole, shows a clea r abuse of discretion or that a clear prejudicial error has been committed. Blake v . Plus Mark, Inc

. , 952 S.W .2d a t 41 5; Nag ar

aja n v . Te rry , ___ S.W .3d ___, ___, 2003 WL 23094223, at *4 (Tenn. Ct. App. 2003) perm. app. de nied

(Tenn. 2004)

. The trial court did not err when it denied Mr . Har

ris’s motion to continue the trial. Mr. Ha rris d id n ot n e e d a dd iti on a l ti me to d e fe nda g a ins t hi s in ve sto rs’ cla im s that he ha d s old un re g ist e re d s e c uriti e s w ith ou t a lic e ns e . H e ha d kno wnsin c e Octob e r 1 99 9 th a t th e Me ri t Q ue st contra cts wer e conside red t o b e u nreg istered se curities. In addition, as the trial appr oache d, he de c ide d to lim it his expo su re by c on c e din g that the Me ri t Que st co ntr a c ts we rese c uriti e s. Whil e thi s strateg y succe ssfully

undermined th etreble damag e claim under the Te nnessee Consumer Protection Act, it provided a b as i s for his investors to claim that he ha d sold unreg istered se curities. Unde r these fa cts, Mr. Ha

rris wa s not prejudiced by the trial court’s denial of his reque st for a continuance

. IV. T HE T I M ELI N ESS OF THE I NVE S T ORS ’ U NRE GI S T E RE D S EC U R ITI ES C L A I MS
Mr. Harris insists that the trial court err ed by concluding that he was equitably estopped fr om asserting a

statute of limitations defense a g ainst the unreg istered se curities claims of the Har dcastles a nd Me ssr s. Pr ov a nc e a nd Pop e
. Op tim ist ic abo ut the su c c e ss o f h is e qu ita blee sto pp e l arg ume nt, he a lso a sse rt s th a t th e Ha rd c a stl e s’ a ndMr . Pr ov a nc e ’s un re g ist e re d s e c uriti e s claims didno t r e late back to their

orig inal complaints under Tenn. R. Civ. P . 15.03 and that the origina l claims filed by Me ssr s. Pr ov a nc e a nd Pop e we re no t time ly fi le d. We ha ve de te rm ine d th a t th e tria l c ou rt pr op e rl y invoked the doctrine of equitable estoppel to preve nt Mr. Har ris from asse rting statute of limitations defe nses in this case.
A.
Th e do c trineof

e qu ita blee sto pp e l may be app lie d to pr e ve nt a de fe nd a nt w ho ha s a c tiv e ly induced a plaintiff to delay

filing suit from a sserting a statute of limitations defense

. F a h r n e r v . S

. W. Mfg., Inc. , 48 S.W .3d 141, 145 (Tenn. 2001). When the doctrine is applied, it pre vents a pa rty from asserting what would otherwise be a valid statute of limitations defense

. See F DIC v. Fonse ca , 759 F.2d 110 2 , 1 1 0 7 (1 st Cir. 1986). Thus, as the Tenne ssee Supre me Court has observed, parties invoking the doc trine of e quitable estoppel a re e ssentially

asking the court to waive the statute of limit ations with reg ard to their c laim. Fahrner v. S.W . Mfg., Inc. , 48 S.W .3d at 164.-13-

Th e c ou rt s sh ou ld n ot b e too qu ic k to inv ok e the do c trine of e qu ita ble e sto pp e l to p re ve nt a de f e n d a n t f r o m a s s e rti n g a n o th e r w is e v a li ds tatu teo f li mi tati o n s d e f

e n s e
. St a tu te s o f

li mitations arefavo re d b e c aus e the y pr omo te thetim e ly

pu rs uit of le g a l rig hts b y

su pp re ssi ng sta le c la ims

. Br own v . H ips hire , 5 53 S.W. 2d57 0, 57 1 ( Te nn . 1 97 7) ; Stephens v . May , 3A Tenn. ( 2 Cooke) 17, 24-25 (1814) . At the same time, e stoppels are not favore d when they preve nt parties f rom asserting claims or defenses to which they would otherwise beentitled. Ro ge rs v . Co le v ill e , 145 Tenn. 650, 659, 238 S.W . 80, 83 (1922). Thus, determining whether to invoke equitable estoppel require s the courts to examine the facts and cir cumstance s of the particular c ase, Pi e rc e v . Me tro po lit an Life In s. Co. , 307 F . Su pp . 2 d 3 25 , 3 34 (D .N .H . 2 00 4) , to de te rm inewh e the r the de fe nd a nt’ s c on du c t is su ff iciently un fair or mis le a din g to o utw e ig h th e pu bli c po lic y favo ri ng statut e s o f l imi tatio ns
. Gonzales v. Tesk

y , 465 N.W.2d 525, 530 (Wi s. Ct. App. 1990). The pa rty invoking the doc trine of e quitabl e es toppel bear s the burden of proof. Pierce v. Metropolitan Lif

e Ins. Co. , 30 7 F . Su pp . 2 d at 33 4; se e als o Ca rlton v . D av is , No. M2002-01189- COA-R3-CV, 2003 WL 1923825, at *5 (Tenn. Ct. App. Apr . 24, 2003), perm. app. de nied (Tenn. Oct . 6 , 200 3) ; Bokor v. H older , 722 S.W .2d 676, 680 (Tenn. Ct. App. 1986). T he foc us of the inqui ry is o n th e d e f

e n d a n t’ s c o n d u c t a n d th e r e a s o n ab le n e s s o f th e p lain ti f f s ’ r e li a n ce on tha t conduct. Fahrner v. S.W

. Mfg., Inc. , 48 S.W .3d at 146; see also Bridge port M usic, Inc. v. Diamond Time, Ltd. , 3 71 F .3 d 8 83 , 8 91 (6 th C ir . 2 00 4) ; Hentosh v. H erman M. Finch Univ. , 167 F.3d 1170, 11 74 (7 th C ir . 1 99 9) ; Bradley v . W illiams , 465 S.E.2d 180, 184-85 (W.Va. 1995).
To pr e vail, a

plaintif f mus t de mon str a te that th e de fe nd ant lul le d it int o pu tti ng of f fi lin g its su it b y c ondu ct, su gg estion s, or a ssu ranc e s th at th e de fe nd a nt kne w o r s ho uldha ve kn ow n w ou ld ind uc e theplaintif

f t o d e lay fi lin g su it . Fahrner v. S.W . Mfg., Inc. , 48 S.W .3d at 145. Se e als o Mi c ro mu se , I

nc . v . Mic ro mu se , P

LC , 3 04 F . Su pp
. 2d20 2, 21 1- 12 (D . M a ss. 20 04 ); Riley v

. Pre sn e ll , 565 N.E.2d 780, 787 (Ma ss. 1991). Actua l fraud, ba d faith, or intent to mislead or dec eive on the part of the d ef

en d an t i s not nece ssary

to invoke equitable e stoppel. Church of Chris t v. McDo na ld , 18 0 Te nn
. 86 , 95 , 17 1 S.W. 2d 81 7, 82 1- 22 (1 94 3) ; Cov ing ton v . M c Mu rry , 4 Tenn. Civ. App. (Hig g ins) 378, 394 (1913). Plaintiffs must also demonstrate that their delay in filing suit was not attributable to the ir own lack of dilige nce, see Netze r v. Continuity Graphic Assocs., Inc. , 963 F. Supp. 1308, 131 6 (S

. D.N.Y. 1997) , and that the de lay was not unre asonably

prolong ed. Muhamme d v. W

elch , 675 N.W.2d 402, 407 (N.D. 2004).
Evidence of vag ue stateme nts or ambig uous behavior by a def endant will not car

ry the day fo r a plaintif f a sse rting e qu ita

blee sto pp e l. T he plaintif f mus t id e ntify sp e c if

ic pr omi se s, inducements, re prese ntations, or assurances by the defendant that rea sonably induced the plaintiff to delay filing suit. Guerrero v. Gat es , 3 57 F .3 d 9 11 , 9 19 (9 th C ir . 2 00 4) ; Nolde v . Fra nk ie , 964 P.2d 477, 481 (Ariz. 1998). I n addition to written or spoken wor ds, t h e d efendant’s c onduct may also provide a

basis for invoking equitable e stoppel. Frayser v. Dentsply Int’ l, Inc. , 78 S.W .3d 242, 248 (Tenn. Sp. Workers Comp. 2002).
Th e mos t c omm on ly

c ite d e xam pl es of

c on du c t su pp ortin g theinv oc a tio n o f e qu ita ble estoppel to defe at a s t atut e of limitations defense are(1) a promise not to plead the statute of limit ations, e.g., Fahrner v . S.W . Mfg., Inc. , 4 8 S. W.2 d at 14 5; ( 2) a pr omi se to pay

or oth e rw ise sati s fythe plaintiff’s c laim without fili ng suit, e .g ., Br ic k Chu rc h Tr

an sm iss ion s, In c . v . S ou the rnO t her court s have al so i nvo ked t he d o ct ri ne o f eq ui t ab l e est o p p el upo n pro o f of a d efend ant ’ s af

firm a t i ve 28
sta te m e n ts tha t t h e s ta tute o f l im itatio n s p e rio d w a s lo n g e r th a n it a c tua lly w a s, P are des v. P r i nces s Crui s e, Inc. , 1 F. S u p p . 2 d 8 7 , 9 1 (D . M a ss. 1 9 9 8 ); Li vi ngs t on v . D i oce s e of Cl ev el and , 710 N

. E. 2d 330, 339 ( O h i o Ct

. App. 1998) , or a d e fen d a n t’s co n tinu a tio n o f settle m e n t ne g o tiatio n s in b a d faith. A L I, In c . v. G e n e ra ll , 954 F. Supp. 118 , 121 ( D

. N

. J. 1 9 9 7 ). -14- Pilot Ins. Co. , 140 S.W. 3d 32 4, 33 5 (T e nn . Ct. App . 200 3) ; or (3 ) e nc ou ra g ing theplaintif f n ot t o pursue a vailable leg al re medies. J.R. Hale & Sons v. R.C. Stone Eng’g Co. , 14 Tenn. App. 461, 472 (1 9 3 2 ). Of spec ific re levanc e to this case, a number of c ourts have invoke d the doctrine of 28 equitable e stoppel when the plaintiff delay ed filing suit as a re sult of the defe ndant’s re prese ntations that it would settle the plaintiff’s claim without litigation following the conc lusion of another le g al proce eding betwee n the def endant and a third party

. Rupley v . Huntsman , 324 P.2 d 1 9, 23 (C a l. C t. Ap p. 19 58 ); Duke Univ. v. Stainback , 806, 808 (N.C. Ct. App. 1987). Se e als o G ar fie ld v . Cl ar

k , 56 7 P. 2d77 7, 78 1 ( Al a sk a 19 77 ) ( de c lin ing to i nv ok e e qu ita blee sto pp e l be c aus e theplaintif fs did not alleg e that the defendant offe red to settle the di spute should the cover ag e issue be a djudicated in their favor

in another suit).
B.
B e tw e e n Jan ua

ry a ndAu g us t 20 00 , M r. Ha rris se nt a se ri e s o f w ri tte n c ommun ic a tio ns to h is i n v e s t o r s i n f

o r m i n g t h e mt h a th e a n do t h e r s w e r e w o rk i n g o n t h e i r b e h a l f t o r e c o v e r

t h e i r m o n e y. I n a January

18, 2000 letter, Mr. Har

ris stated t hat he and another i nvestor believe d that “they can work out this situation without involving the court sy stem.” He closed this letter with the following admonition:
I

want to ask any one who is rea ding this t o call me . . . be fore taking any action to the courts or reg ulatories. It is myunderstanding , that the excuse used by the trade rs for holding the money is be cause of an inv e sto r i nte rv e nti on . I t may pr ov e to b e ve ry c os tly to e ve ry on e if s o me o n e e ls e g e ts h yp e r
. We f e e l w e ar e mo v in g in the rig ht direc tion and expect an ending to this ordeal very soon.
L ess than one month later , on Fe bruary 4, 2000, Mr. Har

ris i n fo rm ed t he investors that he had

“ re ta ine d a

larg e Na sh vil le la w f

irm to re pr e se nt us c on c e rn ing theI ns ur anc e Com mis sio n’ s Ce a se & D esist,” that he ha d “sig ned [ the] nece ssary paperwork for trial proce eding s ag ainst Ron Hogse d,” and that “[w]e areproce eding as quickly as possible t o s et t led [sic] this matter.” Like his earlier l et t er , M r. Ha rr i s i n cl u d ed t h e f o l l o wi n g:
I fee l it best that we all stand toge ther as a g roup. We have a strong c a se , g oo d r e pr e se ntatio n, and po we rf ul e vid e nc e . D arl y n [Ms

. Har ris] and I have worked f

ull tim e on this since Ron failed to pay the October 1 5 t h t ra de payment. The suit is prepar ed and w ill be filed when our at torney s g ive the g ree n light. Don’ t misunderstand, a ny on e ha s th e ri g ht t o s ue Ron , if the y so de sir e
. I am a vaila

bleto discuss why

y our stayi n g wi t h the g roup is less expensive, more pr of ita ble , andmor e lik e ly

of re c e ivi ng pay me nt.T h e a m e n d m e n t t o the H a rd c a stles ’ co m p la int re la te d b a c k to the d a te o f t h e fi ling o f t h e ir o rig ina l co m p la int. 29 P urs uant t o T enn. R

. C i v. P

. 15

. 0 3 , an am end ed co m p l ai nt rel at es back t o t he o ri gi nal co m p l ai nt as l o ng as i t “ arose o ut o f t h e c o n d u c t, tra n sa c tio n , o r o c c u rr e n c e se t f o rth

. . . in t h e o rig ina l p le a d ing ,” re g a rd le ss o f w h e the r t h e a m e n d e d c la im sta te s a n e w c a u se o f ac tio n
. Hawk v . Cha t t an oo ga Or t ho pa e di c Gr oup, P. C. , 45 S.W

. 3 d 24 , 31 (T enn. C t

. A p p
. 20 0 0 ). T he l ang uag e of

T enn
. R. Ci v. P

. 15. 03 i s s o cl ear t hat i t i s “ vi r t ual l y s el f

- exe cut i ng
. ” K a ra sh v . P ig o tt , 530 S. W

. 2d 775, (c o n tinu e d ...) -15- Mr. Har ris’s April 10, 2000 l etter c ontinued the same the me. He inf ormed the inve stors that he had retained a new law firm and that “[t] he lawsuit [ag ainst Mr. Hog sed] was filed Mar ch 30th.” Hea lso state d th a t:

As of this date weareworking from thre e diffe rent ang les. Fi rs t of all we a re w orking to supplyall the information the S t at e needs for the M erit Quest hearing in May

. Secondly , our lawy ers a re pushing to collect the principal investments from He rcule se [sic] Holdings/B ond Partnership’s A ttorney in Houston. Thirdly , we ha ve fi l ed t h e l aw s u i taga i n s t M r. Ho gs ed fo r c o l l ec t i o n o f a l l earn i n gs (throug h date of

payment) and principal, if it ha s not be en paid by the court date.
As a p er s o n al not e, my

wife and I

have w orked on the collecting of the se fu nd s a lmo st e xclu siv e ly sin c e Oc tob e r 15, 19 99 . We c ur re ntl y have r etained three la w firms and e x pended many thousands of dollars. W e personally

have inve sted with Mr. Hog sed $210,000. Severa l of m y fa milymembers a re inve stors in the prog ram. Don’ t think for a minute we wi ll leave one rock unturne d until thi s matter is resolved. Finally , in an “update” dated Aug ust 11, 2000, Mr. Harris informed the investors that he had talked with the “L ondon Metro Police” and that he under stood that all the money had been tr ace d and had been “fr ozen in plac e.” H e also stated that “[a]l l investors should understand that their principal and interest ar e being soug ht in a ‘Master lawsuit’ ag ainst ‘Merit Que st’ (Ron Hog sed). When paid, we expect to disburse proportionally to investor’s contra ct dates and their amount of investment.”

C.
Mr. Har ris’ investors knew or should have know n about the Division of Securities’ cea se and desist order ag ainst Mr. Harris and Merit Quest by no later than Dec ember 1999. There fore , based on the alleg ations in the cea se and de sist order, they knew or should have know n that Mr. Har ris had violated the Te nnessee Securities Ac t of 1980 by selling the Merit Quest contra cts. Thus, in light of the statute of

limit ati o n s i n T en n. Code Ann. § 48-2- 122(h) e x isting at the time, Mr. H arris’s investors should have f

iled their sec urities act c laims by Dec ember

2000.
Th e Ha rd c a stl e s’ orig inal c omp la int wa s file d with in the statut ory lim itatio ns pe ri odbu t di d no t c on ta in a

se c uriti e s a c t c la im. Th is o ve rs ig ht w a s c ur e d w he n the Har dc a stl e s a me nd e d th e ir complaint to add a se curities ac t claim. Mr. P ope’s complaint contained a se curities ac t claim but 29(

. . . con t i n u ed) 29 77 7 (T enn
. 197 5). Accordi ng l y , t he t r i al cour t cor r ect l y det er mi ned t hat t he H ar dcas t l es ’ amended comp l ai nt r el at ed b a c k to the fi ling o f t h e ir o rig ina l co m p la int. -16- was plainly fi l ed after the limitation period had expired. It is also likelythat Mr. Provanc e’s complaint, which did not contain a securities a ct claim, was not timely filed. Ther efor e, the f

ate of Messrs. Provanc e’s and Pope’ sec urities act c laim rests on the cor rec tness of the trial court’s conclusion that Mr. Ha

rris should be equitably

estopped to asse rt a statute of limit ations defe nse.
Af te r the Me ri t Q ue st p ro g ram w a s sh ut d ow n b y theDi vis ionof Se c uriti e s’ c e a se a ndde sis t order , Mr. Har

ris deliberately

set out to dissuade his investors, including Me ssrs. Provanceand Pope, from pursuing independe nt leg al ac tion. He re pre s en t ed t o them that he had c ommenced va rious leg al proceeding s on their behalf and that there was a g ood prospec t that their investments would be re turne d to the m a s a re su lt of thepr oc e e din g s h e ha d in sti g a te d. Mr . H arris also re pr e se nte d to his investors that their interests would be best serve d by “staying with the g roup” and by not pursuing legal re m ed i es o n their own. Messr s. Provance and Pope did not act unr easona bly by putting off the ir ow n le g a l pr oc e e din g s inre lianc e on Mr . H arris r e pr e se ntatio ns that hi s e ff orts w ou ld r e su lt i n the re turn of their inve stments. They did not delay commencing their proc eeding s bey ond the point when a rea sonable pe rson would no longe r believe Mr . Har ris repr esentations. According ly , based on these fa cts, the trial court corre ctly determined that Mr. Har ris had “lulled the inve stors into a false se nse that wa s taking leg al ac tion on their behalf.”
V. T HE E VI DE NT I ARY S U PP OR T OF THE U NRE GI S T E RE D S EC U R ITI ES C L A IM s
Mr. Har ris insists that he shoul d not be held civilly liable to his investors because they failed to prove that he actua lly knew that the Merit Que st contrac ts were unreg istered se curities whe n he sold them. His arg ument is based on his understanding that Tenn. Code Ann. § 48- 2-122(a )(1) (A) (Supp. 2004) conditions civil liabili ty on the seller’ s actua l knowledg e that a se curity is unreg istered. Mr . H arris’ s in te rp re tatio n o f T e nn . Co de An n. § 4 8- 2- 12 2( a )( 1) (A ) i s in c or re c t.
A.
Te nn e sse e’s se c uriti e s st a tut e s a rere me dial a ndsh ou ld b e c on str ue d b ro a dly

to e ff e c tuate their purpose

. King v. Pope , 9 1 S. W.3 d 3 14 , 3 23 (T e nn . 2 00 2) ; State v. Brewe r , 932 S.W .2d 1, 10 (T e nn . Crim. Ap p. 19 96 ). Like oth e r statut e s, thec ou rt ’s re sp on sib ili ty is t o a sc e rt a in andthe n to g ive the fullest possible e ffe ct to the Gene ral Assembly ’s purpose in e nacting the statute as re flec ted in the statute’s lang uag e. Ste wart v . S tate , 3 3 S. W.3 d 7 85 , 7 90 -9 1 ( Te nn . 2 00 0) ; Lavin v. Jordon , 16 S.W .3d 362, 365 (Tenn. 2000). I n doing so, we must avoid construc tions that undulyexpand or restric t the statute’s application. W att v. Lumbermens M

ut. Cas. Ins. Co. , 62 S.W .3d 213, 218 (Tenn. 20 01 ); Patterson v. Tennesse e De p’t of Labor & W

orkforce D ev. , 60 S.W .3d 60, 64 (Tenn. 2001)

. Our c onstruction of a statute is more likely to harmoni ze with the Gener al Assembly ’s pu rp os e if weapp ro a c h th e statut e pr e su min g that the Ge ne ral Asse mbl y c ho se its wo rd s p ur

po se ly and deliber ately , Tidw el l v. Servom ation-W illoughby Co. , 483 S.W .2d 98, 100 (Tenn. 1972) ;T h e c o m b ina tio n o f t h e re p e a te d us e o f t h e c o n ju n c tio n “o r” a n d the p re c e d ing c o m m a is i n c o n siste n t with 30 a b asic rule o f

p un ctua t i o n a nd gra m m ar. N o co m m a is nee d ed i f all t he elem en t s in t he se ries are jo i ne d b y co nju nc t i o ns. B R YA N A. G ARN ER , T H E R E DB OOK : A M A NUA L ON L E G A L S TYL E § 1

. 3 (c) (20 0 2 ). B ecause we m ust presum e t hat t he G eneral A ss em b l y c ho se i t s wo rds caref ul l y and craf

t ed t he st at ut e d el i b erat el y , we m ust presum e t hat , by us i ng “ , or” the G e n e ra l A sse m b ly d id no t i n te n d a ll o f t h e ind e p e n d e n t ele m e n ts in T e n n . C o d e A n n . § 4 8 -2 -1 2 2 (a )( 1 )( A ) to b e in the sa m e se rie s. -17- Me rri ma c k

Mu t. Fire In s. Co. v . B att s , 59 S.W .3d 142, 151 (T enn. C t. App. 2001), and that the words chose n by

the Gene ral Asse m b l y convey the meaning that the Gene ral Asse mbly intended them to convey

. Lim ba ug h v . Co ffe e Me d. Ctr

. , 5 9 S. W.3 d at 83 ; BellSouth Telecomm s., Inc. v

. Gree r , 972 S.W .2d 663, 673 (Tenn. Ct. App. 1 9 9 7 ). T h us, we must construe statutes as we f ind them, Jack

son v. Jac kson , 186 Te nn . 337 , 342 , 210 S.W. 2d 33 2, 33 4 ( 19 48 ); Pacific Eastern Corp. v. Gulf Life Holding Co. , 902 S.W .2d 946, 954 (Tenn. Ct. App. 1995), and our sea rch f or a statute’ s purpose must beg in with the words of the statute itself. Bl an k e ns hip v . Es tate of B ain , 5 S.W .3d 647, 651 (Tenn. 1999)

. We mus t g ivea

statut e ’s wo rd s th e ir

natur a l a ndor din ary

me a ni ng un les s the c on te xt in which they

areused re quires other wise. F r a z ie r v . E a s t T e n n . B a p ti s t H o s p. , 55 S.W .3d at 928; Mooneyv. Snee d , 30 S.W.3 d 304 , 306 (T e nn . 2 00 0) ; Sta te v . Fitz , 19 S.W .3d 213, 216 (Tenn. 2000)

. B e c aus e wo rd s a

rekn ow n b y

thec omp a ny the y ke e p, we sh ou ld c on str ue thewo rd s ina

statut e in the context of the entire statute and in l ight of the statute’s g ener al purpose. State v. Flem ming , 19 S.W. 3d19 5, 19 7 ( Te nn . 2 00 0) ; Lyons v. Rasar , 8 72 S.W. 2d89 5, 89 7 ( Te nn . 1 99 4) ; W achovia Bank
o f N.C. v. Johnson , 26 S.W .3d 621, 624 (Tenn. Ct. App. 2000). When the me aning of statutory lang uag e is clea

r, we must int erpr et it as written, Kradel v . Piper Indus., Inc

. , 60 S.W .3d 744, 749 (T e nn . 2 00 1) ; ATS Southeast, Inc. v. Carrier Corp. , 18 S.W .3d 626, 629-30 (Tenn. 2000) , rathe r than using the tools of construction to g ive the statute another meaning. Lim ba ug h v . Co ffe e Me d. Ctr

. , 59 S.W. 3d 73 , 8 3 ( Te nn . 2 00 1) ; Gleave s v. Checker Cab Transit Corp. , 15 S.W .3d 799, 803 (Tenn. 2000).
B. Tenn. Code Ann. § 48- 2-122(a )(1) (A) imposes c ivil li ability on any person who: [s] ells a sec urity in violation of §§ 48-2-104 – 48-2-109, 48- 2-110(f ), or of any condition imposed unde r § 48-2-107( f), or any rule, or or der under this part of which the pe rson has notice

. Mr. Har ris asserts that the notice re quirement a pplies to the en t i re s t at u t e. We disag reefor two rea sons. First, Mr. Har

ris’s interpre tation is at odds with the g ener ally applicable rules of g rammar and punctuation. Second, the notice r equire ment in the statute, even if it were applicable , is broad enoug h to include ac tual and construc tive notice.
The struc ture of T enn. Code Ann. § 48- 2-122(a )(1) (A) c onsists of a series of independe nt of statutory or re g ulatory

restric tions the violation of which may g ive rise to c ivil li ability . Eac h element of

this series is separated by “, or” which cr eate s some ambig uity reg arding which 30 restric tion or restrictions are modi fied by the concluding phrase “of which the per son has notice.”-18-

We have de termined that the phr ase “ of which the person has notice” applies only to “any condition imposed under § 48- 2-107(f ), or any rule, or o rd er u n d er this part” for two r easons. F irst, the Gene ral Asse mbly ’s re petitive use of the pr eposition “of” r efle cts an intention to dis ti n g u ish betwee n violations of “§§ 48-2-104 – 48- 2-109, 48-110( f)” and violations of “any condition imposed unde r § 48-2-107( f), o r any

rule, or or der.” Second, the f ormer violations ar e statutory , while the latter inv olv e vio latio ns of

a ru le or or de r i ssu e d b y

theDi vis ion . T he Ge ne ral A sse mbl y c ou ld r e a so na

bly ha ve de c ide d to app ly

theno tic e re qu ir eme nt to a dmi nis tr a tiv e a c tio ns by theDi vis ionbu t no t to violations of the Securities Ac t of 1980 itself.
As a g e ne ral matt e r, a se lle r’ s lac k of kno wl e dg e of a state ’s se c uriti e s la ws do e s n ot e xcu se the sale of an unreg istered security

. Se e e .g ., Ho gg v . J e rry , 773 S.W. 2d 84 , 86 (A rk . 198 9) . T hu s, a se lle r’ s lac k of kno wl e dg e of the re g ist ratio n re qu ir e me nt is irr e le vant with re g ardto c ivi l li abil ity for se lling unre g istered se curities. In re Mc Do we ll , 87 B.R. 554, 559 (B ankr. S.D. Ill. 1988); Heilbron v. ARC Ene rgy Corp. , 757 S.W .2d 294, 296 (Mo. Ct. App. 1988). Acc ording ly , the seller of an unr eg istered se curity may be held c ivillyliable for the sale if he or she kne w, or throug h the exercise of

rea sonable dil ige nce should have known, that the sec urities should have be en re g istered. Chiles v. M.C. CapitalCorp. , 642 N.E.2d 1115, 1123 (Ohio Ct. App. 1994).
Th e no tic e re qu ir e me nt in Te nn . Code An n. § 48- 2- 12 2( a )( 1) (A ) d id n ot a pp ly to M r. Ha rris beca use he violate d th e s t at u t o ry prohibition ag ainst the sale of unreg istered se curities and the statutory prohibition ag ainst selling se curities without a li cense
. Thus, his profe ssed ig noranc e that the Merit Que st contrac ts were investment contrac ts, and there for e s ec u ri t i es as de fined in Tenn. Cod e An n. § 48- 2- 10 2( 16 ) (Su pp . 200 4) , ca nn ot shi e ld him fr om lia bil ity to h is i nv e sto rs . E ve n if theno tic e re qu ir e me nt we re app lic able , Mr

. Ha rris, a s a se lf -p ro fe sse d e xpe rt

kn ow le dg e ablein this particula r business opportunity , should have known that the Merit Quest contra cts wer e sec urities and that they

wer e not exempt from reg istration under the Te nnessee Securities Ac t of 1980.
VI . T HE A W ARD F OR A TTOR N EY ’ S F EES
As a fina l matter, Mr. Har ris asserts that the t rial court erre d by awa rding the Har dcastles and Me ssr s. Pr ov a nc e a nd Pop e a n ad dition a l $44, 97 9. 50 fo r atto rn e y ’s fe e s a nde xpe ns e s. Hec la ims that hesh ou ld n ot b e re qu ir e d to pay a tto rn e y ’s fe e s b e c aus e he didno t have a de qu a te no tic e that hi s investors wer e see king attorney ’s fe es under the Tenne ssee Sec urities Act of 1980. We disag ree for two rea sons. First, Mr. Ha rris knew as ea

rly as Jul y 2000 that his investors wereseeking to rec over attorney ’s fee s. Second, the investors’ amende d complaints contained spe cific r equests for attorney fe e s u nd e r the Te nn e sse e Se c uriti e s A c t.
Both of the orig inal complaints filed by the Har dcastles in Jul y

2000 an d the orig inal complaint filed by Mr. Provance five months late r reque sted an a war d of attorne y ’s fe es under the Tenne ssee Consumer Protection Act. Mr. Pope’s orig inal civil w arr ant filed in May 2001 included a sec urities claim and soug ht attorney ’s fe es. The amended c omplaints filed by the Har dcastles and Mr. Provanc e in Octobe r 2001 included a securities c laim and specific ally reque sted attorney ’s fe es under the Tenne ssee Securities Act of 1980. Thus, Mr. Har ris knew sinceJ uly

2000 that one or more of his investors intended to se ek attorney ’s fee s. He also knew as early as May 2001 – five monthsT h e T en n es s ee Su pr eme Cour t ha s e v en u ph el d a n a wa r d of a t t or n ey ’ s f

ee s u n der 42 U

. S. C. A. § 1988 ( 1991) 31

e v e n tho u g h the p la intiff d id no t sp e c ifi c a lly p le a d o r re ly o n 4 2 U .S .C . § 1 9 8 3 (1 9 9 1 ). B l oo m i n g d a l e’s B y M a i l v. H uddl es t on , 8 4 8 S .W .2 d 5 2 , 5 6 (T e n n . 1 9 9 2 ). A ltho u g h the o p inio n d o e s n o t sa y so , w e p re su m e tha t t h e tax p a ye r in the c a se s o ught t o recove r at t o rney ’ s fees under T enn. C o d e A nn. § 6 7

- 1

- 1 8 0 3 (d) (20 0 3 ), whi ch p erm i t s p revai l i ng ta x p a ye rs to re c o v e r a tto rn e y’s f e e s in liti g a tio n se e k ing a tax re fun d

.

-19- prior to the trial – that at least one of his inve stors was see king attorney ’s fe es under the Tenne ssee Securities Ac t of 1980.
The fundamental purpose of the pleading require ment i n Tenn. R. Civ. P. 9.07 i s notice. Keisling v. Keisling , 92 S.W. 3d 37 4, 37 7 ( Te nn . 2 00 2) ; Castelli v. Li en , 910 S.W .2d 420, 429 (Tenn. Ct. App. 1995). Be causeclaims for attorney ’s fe es ar e “f airly unusual,” Marshall v

. First Nat’l Bank of L e wis bu rg , 622 S.W .2d 558, 561 (Tenn. Ct. Ap p. 1981), a c laim for attorne y ’s fe es must be specific ally

pleade d under Te nn. R. Civ. P . 9.07. Cro ss v . M c Cur ry , 859 S.W .2d 349, 353 (Tenn. Ct. Ap p. 19 93 ). Th us , pr

ud e nt la wy e rs se e kin g to re c ov e r a tto rn e y ’s fe e s sh ou ld i nc lud e a sp e c if ic re qu e st f or a tto rne y ’s fe e s inthe ir

ple a din g s th a t in c lud e s a sp e c if ic re fe re nc e to the c on tr a c tua l, statutory , or other substantive ba sis for an a war d of attorne y ’s fe es. Many courts, howe ver, ha ve held that a g ener al claim for

attorney ’s fee s that does not include the leg al basis for the claim satisfies the r equire ments of rules simil ar to Tenn. R. Civ. P . 9.07. See
e .g ., Cau fie ld v . Ca nte le , 83 7 So. 2d 37 1, 37 7- 78 (F la . 2 00 2) ; Mitchell v. La Flamme , 60 S.W .3d 123, 130 (Tex. App. 2000). Tenne ssee’ s courts have been even more re laxed. For e x ample, this court h as u p h el dan aw ar dfo r a t t o rn ey ’s fe es u n d ert h e T en n es s ee C o n s u m er P ro t ec t i o n Ac t ev en t h o u gh the consumer d id not include a spec ific re quest for attorney ’s fe es in his complaint. The court rea soned that the c onsumer prote ction claim by itself put the defe n d ant on not ice that it could be require d to pay the consumer’ s attorney ’s fee s beca use attorne y ’s fe es we re, by statute, an e lement of damag es in the consumer pr otection ca se. Kill ingswort h v. Ted Russell Ford, Inc

. , 104 S.W .3d 530, 533-34 (Te nn. Ct. App. 2002). 31
Under the circ umstances of

this case, Mr. H arris had ade quate notice that his investors were seeking to rec over the ir attorney ’s fe es, eve n if the basis for this recove ry chang ed. He knew two y ear s befor e trial that his investors were s eeking attorney ’s fe es under the Tenne ssee Consumer Protection Act, a nd he knew five months befor e trial that at least one of hi s investors was see king attor n e y ’ s f

e e s u n d e r th e T e n n e s s e e Se c u r itie s A c t o f 1 9 8 0

. T h u s , h e w a s n o t u n f a irly p r e ju diced when the trial court pe rmitted the remaining investors to amend their complaints shortly befor e trial to include a se curities claim and to rec over attorney ’s fe es under the Tenne ssee Sec uriti es Act of 1980.

VI I. T HE D I SM I SS A L OF THE I NVE S T ORS ’ F R A U D U LENT M I S RE P RE S E NT AT I ON C L A I MS
We need not tar

ry long w ith the investors’ ar g ument that the trial court erre d by dismiss ing the ir fr aud ule nt m isr e pr e se ntatio n c la im. It is on ly sk e tc hil y brie fe d, a ndit d oe s n ot a ddre ss the ba sis for the trial court’s decision. No claim for fraud or fr audulent misrepr esentation can succ eed w ithout some pro o f th a t th e in

ju r e d p arty o r p arti e s r e a s o n ab ly r e li e d o n th e f a ls e r e p r e s e n tati o n s of the-20-

defe ndant. Robinson v. Ome r , 9 52 S.W. 2da t 42 7; Hodges v . S. C. Toof & Co. , 833 S.W .2d at 901. Th e e vid e nc e pr ov e s th at

th e inv e sto rs a c te d impe tuo us ly a ndimp ru de ntl y

wh e n th e y

pu rc ha se d th e ir Me ri t Q ue st c on tr a c ts. Al l of theinv e sto rs c on c e de d th a t th e y be lie ve d th a t Mr . H arris’ s c la ims reg arding the re turn on their investment we re inflated and that they did not rea d most of the c ontrac t documents submitted to them before they purcha sed t heir Merit Quest contract. Yet, none of them soug ht independent ad v i ce befor e g etting involved in Mr. H arris’s g et-ric h-quick sche me. The evidenc e in this case supports the trial court’s conclusion that none of the investors re asonably

relied on Mr. Har

ris’s re prese ntations reg arding the amount of re turn on their investment or the sa fety of their principa l. Wit hout evidenc e of rea sonable re liance, the investors’ fr audulent misrepr esentation claims must fail.
VI II.
We a ffirm the judgme nt and remand the case to the trial court for further p ro ce ed i n gs consistent with this opi nion. We tax the costs of t his appeal to Fr ank Harris and his sure ty for whic h execution, if nece ssary , may issue.

________________________

W ILL I A M C

. K O C H , JR

. , J.