### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE Septem ber 6, 2002

Session HERMAN S. HOWARD, ET AL 

### . v. AMERICA N INDUSTRIES

SERVICES, INC., ET AL 

### . Appeal from the Chancery Court for Davidson County No. 00-1478-III Ellen Hobbs Lyle, Chancellor

No. M2001-02711-COA-R3-CV - Filed December 11, 2002

The Chancer

y Court of Da

vidson Coun

ty d ismissed the compla

int in this c ase for

the plain tiffs’ failure to respond to discovery r equests. The plaintiffs assert on appeal that the chancellor abused her disc retion. We

affirm t he chancery

court. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed and Remanded
B EN H. C ANT RELL , P.J., M.S., deliv ered the opinion of

the cour t, in which W IL LI AM B. C AIN , J. and T HOM AS W. G RAHAM , S P
. J., joined.
Peter H. Curry an d D. Alan Mingledo rff, Na shville, T ennesse e, for th e appell ants, He

rman S. Howard, American Direct Marke ting, Inc., I

nternational Media, Inc. a nd The Media Group, Inc

. Kenneth M. Bryant, E. To dd Presne ll, and Da vid L. Johnson, Na shville, T enness ee, for the appellees, American Industries Servic es, Inc. and Ray mond Tuppatsch.
OPINION
I.
Herman S. Howard, American Dire ct Marketing, Inc ., International Media, I nc., and The Media Group, Inc. sued Amer

ican Industries Services, I nc. and Raymond Tuppa

tsch alleging fraud and breac h of a fiduciary duty. The complaint soug ht a declaratory

judgment, an injunction, a n accoun ting, damages, and the imposition of a resulting trust on the ownership of A merican Industries in favor of Media Group or Mr. Howard.
Mr. Howard owns the plaintiff companies, and they

market products to the publ ic thr ough sales to ret ail ers and di rec t ad ver ti si ng. In order to deliver the products to the consuming public, the marketing entities use a “fulfillment company ”, which stores the product, takes the customer’s order,-2-

and mails out the goods. America n Ind ustries, a Delaware corporation with its principal place of business i n Nashvill e, served as the f ulfillmen t company

for the p laintiff

corpora tions.
In sho rt, th is di spu te s tar ted ove r th e ow ner shi p of Ame ric an In dustries an d an employee leasing company ca

lled Mood Cosmetics, Inc. The legal title to the shares of each c ompany is in the name of M

r. Tuppa tsch, who at one time

served a s Mr. Howa

rd’s fina ncial ad visor and confida nt. Mr. Ho ward alleges that Mr. Tuppatsch ac quired the shares as Mr. Howard’s nominee a nd as an accomodation to him, but that as a result of Mr. Tuppatsch’s fiduciary relationship to Mr. Howard he has caused the transfer of millions of dollars to Mood Cosme

tics and A merican Indu stries, all to Mr. Tuppa

tsch’s own benefi

t. Upon the filing of the complaint, the plaintiffs obtained a restraining order requiring the defenda nts to continu e providing fulf illment se rvices to the plaintiffs. The court, however, imposed a condition thatthe plaintiff pay for the services and pay

50% of the storage services provided by the defenda nts. The other 50% of

the stora ge cos ts was placed in an escrow account c ontrolled by the plaintiffs’ lawye

rs. After a

hearin g, the court made the order a temporary injunction but extended its effe ct only

to June 23, 20 00. The de adline wa s subseque ntly set back to January 31, 2001, and the plaintiffs finally completed the removal of their products on February 13, 2001. By that time, however, the plaintiffs owed the defendants $278,047.55 under the terms of the c ourt’s orders. On April6, 20 01 th e c ou rt or de re d t he pa ym e nt of that amount by April 12, 2001, but denied the defenda nts’ motion that the plaintiffs be held in contempt of court. Under a threat by the court to dismiss all of the

ir claims , t he plaintiffs finally paid the a ccrued costs, interest, and attorney s fees on June 29, 2001. By the time the court finally dismissed all claims on Aug ust 1, 2001, the court

had prev iously dismissed any claim Mr. Howar d had to ownership of the two companies. The court held that the plaintiffs were judicially e stopped from asse rting a ny c laim of owner ship in the

companie s becaus e of Mr. Howard’s sworn testimony in numerous prior legal proceeding s that he had no interest in the companies and that they in fact belonged to Mr. Tuppatsch. The plaintiffs had also pr ev iously abandoned a claim that Mr. Tuppatsch had usurped the opportunity to acquire the two compa nies. These c laims are

not a par t of this ap

peal.
The only claim outstandi ng afte r th e dismissa

l of the ownership c laim was a fraud c laim against Mr. Tuppatsch individually. The cour t had ordered

the plaintiffs to amend their complaint to allege with part icularit y the factssupportin g their fraud c laim

against Mr. Tuppatsch. See Tenn. R. Civ. P. 9.02. Despite record evidence to the contrary , the amended complaint restated allegations that Mr. Howa

rd lear ned for t he first time in March of 2000 that Mr. Tuppatsch was asserting that he owned American

Industries and Mood

Cosmetics. Nevertheless, the complaint asserted that Mr. Tuppatsch, after he acquired the two companies in 1994, continued to represent to Mr. Howard that the companies were

operating for Mr. H oward’ s benefit and wer e only collecting enou gh fund s to cover their ope rating expenses. In a

ctuality , the comp laint a

lleges , Mr. Tuppa

tsch, thr ough his authority as defacto comptroller of the plaintiff corpora tions, had caused millions of dollars to be transferred

t o his own companies. As the court succinctly stated in its order dismissing the fraud-3-

claim, the plaintiffs claim “that defendant Tuppatsch engaged in a

program and course of conduct of diverting and tran sferring the fu

nds of pla

intiffs and con verting the funds to his own use and benefit .”
II.
A trial court

is authorized by the Rules of Civil Procedure to dismiss a plaintiff’s cla im for failing “to serve answers or objections to interrogatories submitted under Rule 33 . . . .” See Rule 37.02(C); Rule 37.04(2). An evasive or incomplete answer is treated the same as a failure to answer, Rule 37.01(3). The trial judge’s action involves an exercise of discretion that will not be disturbed in the absence of an affirmative showing of abuse. Brooks v. United Uniform Co. , 682 S.W.2d 913 (Tenn. 1984). While dismissal is a “harsh sanction,” Holt v. Webster, 638 S.W.2d 391, 394 (Tenn. Ct. App. 1982), harsh sanctions have been used with s ome fre quency to addre ss a

party ’s failur

e to comply with discovery orde

rs. See American Steinwinter v. American Steinwinter , Inc. 964 S.W.2d 569 (Ten n. Ct. App. 1997); Yearwood, Johnson, Stanton & Crabtree v. Foxland , 828 S.W.2d 412 (Tenn. Ct . App. 199 1); Potts v. M ayforth , 59 S.W.3d 167 (Tenn. Ct. App. 2001).

The court’s memorandum recites the history of the discovery

problems encountered

in the case: Turning first to Interroga tory 2 propounded by the de

fendants to each of the corpora te plaintiff

s on Augu st

21, 2 000, the Court determines that the discovery seeks to uncover the factual details on which the misappropriation claims are based – a critic al inquiry

for the d efenda nts’ def ense. I nterrog atory

2 reads a s follows.
INTE RROGATORY

NO. 2: For each financial transaction The Media Group, Inc. (her

einafter “Media Group”) or I nternational Media, Inc . (here

inafte r “In ternati onal Media”) claims was in any way fraudu lent t o (sic ) othe rwise impro per, s tate t he fol lowi ng: (a) The amount of funds improperly transferred; (b) The name

of the fin ancial in stitution f rom which

the money

was transferred; (c) The name of the entity, whe ther another financial institution or otherwis e, to which the money wa s transferred; (d) All persons involved in each transaction;-4- (e) The name, address, and telephone numb er of ea ch pers on hav ing kn owled ge or whom you claim has knowledg e that thi s tran saction was fraudulent or otherwise improper; (f) The (sic) identify by document title and location each document that you claim supports o

r will c laim sup ports or evidence in any way that the transaction or transfer of funds was fra udulent or otherwise improper; (g) A detailed

descrip tion of why

the tran saction w as frau dulent or otherwis e improper; and (h) The date of the transfer.

The history of plaintiffs’ re sponses to these contention interrogatories is that responses have been sl ow. The Court initially allowed the delay because the interrogatories seek detailed information and because the plaintiffs ar gued that the fra ud claim depends on circumstantial evidence. The plaintiffs asser ted t hat the y needed discover y f rom the de

fendant s before

they were in a position

to respond with meaningful discovery. The pl aintif fs asserted that proving their case de pends on obtaining voluminous checks and bank records from the defen dants and having an accountant

painstakingly tra

ce those re cords. After several more delay s in which the Courtrequ ired the defe

ndants to r

espond with more a

nd specif ic respo nses to di sc ov er y, the Court determinedthat the plaintiffs had had enough time and had been provided with enough information by the defe ndants to p

rovide sp ecific

answer s to contention interrogatories. The Court reg ulated the case wit

h deadlines so that the plaintiffs would re spond todiscovery a nd then initial dispositive motions would be considered. The Court , therefore, ordered the plaintiffs to answer the interrogatories by May 25, 2001. B y that

date the interrogatory

answers had been outstanding for eight mo nths. Moreover the plaintiffs had received substantial discovery of document s and answers to interrogatories from de fendants so as to be able to answer the conte ntion inter

rogato ries.
The plaintiff

corpora tions did respond but, from reviewing the answers, the Courtjudges the responses to be inadequate. The defendants then filed this motion to dismiss. The plaintif

fs supple mented their answ ers, but still the plaintiffs failed to iden tify

specific transactions that w ere impr oper, did not separ

ate the c laim betweeneachof the co

rporate plaintiff s, did not id

entify document s that supported the cl aims and gave no specific dates other tha n stating the ye ars of the alleged misappro priations

. The plaintiffs’ defense to the claim of inadequate re sponses was that they ha d submitted d

ocumenta tion or not

ified the defenda nts what do cuments they intended-5-

to use to support each

allegation of fraud and that the documents we re produced on May 25 and June 21, 2001. Upon inquiry by the Court, the defenda

nts respo nded to this argument that the documents produced by the plaintiffs were “an u no rganized mixture of

bank stat ements, w ire tran sfer slip s (includ

ing some documents showing transfers wi th c ompanies other than American I ndustries), some cancelled checks (some of which were un signed c opied (si c)), and various do cuments concerning Mood Cos metics , Inc. (tax returns, expense/pay ee analy sis reports, payment schedule s, W-3 forms, and employer c ontribution fo rms submitted to the State of Connecticut).” The defendants further explained that on June 21, 2001, the plaintiffs produced 15 more pa

ges of d ocumentsconsisting

of 12 che cks from

N ov al Inte rnati onal Se rvices to American I ndustries, but that the documents in no way identify for the defendants which of the thousands of transfe rs shown on the document s were fraudulent or otherwise improperly made and that the documents do notidentify the alleg ed fraudulent transactions by dates or provide informati on as to which tra nsaction s were f

raudule nt or why they were fr audulent

. These contention interrogatories are at the heart of the lawsuit. The failure of the plain tiffs to pr ovide spe cific me aningf

ul answe rs is holding up the disposition of the lawsu it: the defendants do not know what to defend aga inst. The Court judges that based on the voluminous amount of information provided to the plaintiff s i n disco very and the time they have had, the plaintiffs’ responses co uld b e comprehensive and detailed but they are not. The plaintiffs have delayed, and have nottaken the time and madethe effort to provide details as required by the Tennessee Rules of Civil Procedure.
As to the Fe

bruary 13, 2001 do cument r

equest to the corporate plaintiffs on the fraud claim, the Court ordered product i on by May

25, 2001. The Court has reviewed the plaintiffs’ responses and finds that the plaintiffs have not ade quately re sp on de d a nd ha ve no t b ee n d il ig en t i n r es po nd in g t o t he di sc ov er y.
As to the February

13 , 2001 request to plaintiff Sonny Howa rd, the Court finds that the documents requested are relevant to the a bove-caption ed ma tter and were requi red by

the Co urt to be produced by the plaintiffs on or before May 25, 20 01 an d t he pl ai nt if

fs di d n ot co mp ly.
Not based on any one

fac t but consi dering the totality of the circumstances outlined above, the Court concludes that dismis sal of the plaintiff s’ remaining cla

ims withprejudic e is appr

opriate . The Cour

t has s tated above its findings of missed deadline s, dilatory and inadequa te responses, and “dribbling” responses by the plaintiff s. In addition to that conduct being violative of the Te nnessee Rules of Civ

il Procedure, the conduct

has discredited the Court’s authority in this case, has undercut the Court’s attempts to manage the case with scheduling deadlines and progression orders, and has d

erailed disposition

of this matter. While it is true that cases of fraud,-6-

proven b y c ircumsta

ntial, documentary e

vidence, are time -consuming and d ifficult to develop, the Court concludes that it has more than adequately regulated discovery in this case to add ress that consideration and that the plaintiffs have without justification violated the C ourt’s liberal May 25, 2001 de adline by providing incomple te and ina dequate response s.
Si gn if ic an tl y, on appeal the plaintiffs do not attack the chancellor’s finding s of fact. Rather they assert th at they

had done the best th

ey could and

that th e chancellor’ s harsh sanction was an abuse of discretion. We think

that the failure to identify the specific transactions that

were improper, the failure to separate the claims betwee n the individual plaintiffs, and the failure to identify document s that support their claims (after almost a y ear and repeated

orders to comply) ma

kes the order of dismissal something clearly within the chance l lor’s discretion. But bey ond that, the chancellor’s order goe s on t o identify other ar eas where the plaintiffs failed to completely and adequa tely respond t o the disc overy

request s.
We affirm the chancellor’s order of dismissal and remand the cause to the chancery court for further orders. Tax the cos ts on appe al to the a ppellant s.

__________________________________________ BEN H. CA

NTREL L, PRESI DIN G JUDGE, M. S.