1 

### IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE October 3, 2000 Se ssion

LINDSEY, BRADLEY & MALO Y v. MEDIA MARKETING SYSTEMS, INC., ET AL

.

Appeal from the Circuit Court for Hamilton County No. 98C1537 Samuel H. Payne, Judge

FILED DECEMBER 15, 2000

No. E2000-00678-COA-R3-CV

This appeal involves a grant of summary judg

ment to Defendant Sam Cooper, the sole shareholder, president and CEO of his co-defendant, Media Marketing Systems, I nc. Lindsey, Bradley

& Maloy (“Plaintiff”) brought suit ag ainst Sam Cooper and Media Marketingfor breach of contract stemming from an agreement

between Plaintif

f and Med ia Marketing. Pla intiff sought to pie

rce Media Marketing’s corporate veil so as to render Defendant personally liable for the debt owed unde r the agreement.

Plaintiff also made

claims against D

efendant for his

alleged individual tortious conduct related to the agreement. Both Plaintiff and Defendant filed motions for summary judgment. The Trial Court denied Plaintiff’s motion butgranted Defendant’s motion. Plaintiff appeals and argues that it is entitled to summa

ry judgmen

t on the issue of whe

ther Media Marke

tin g's c orporate veil shou ld be pierced due to Defendant's conduct. Plaintiff also contends that Defendant should not have been granted s

ummary judg

ment because

there are genuine issues of material fac t. We reverse in part and affir

m in part.

Tenn. R. App. P. 3; Ju

dgment of the Circ

uit Court Affirme

d in part and Reversed in part; Case Remanded

.

D. M ICHAEL S WINEY , J., delivered the opinion of the court, in whichH ERSCHEL P. F RANKS , J., and C HARLES D. S USANO , J R ., J., joined.

Eli zab eth B. Do nno vin , Ch att ano oga, Ten nes see, for the App ell ant , Lin dse y, Bra dle y & Mal oy.
Gary R. Patrick, Chattanooga, Tennessee, for the Appellee , Sam Cooper.2 OPINION

Background

This lawsuit involves cl

aims for breach

of contract, neg

ligent mi sre presentation, fraud, and viola

tion of the Tennes see Consumer Prote ction Act, all

of which stem from

a contract (“Agreement”) for mar ket ing c omm uni cat ion s an d pu bli c rel ati ons ser vic es. Lind sey, Brad ley & Malo y (“Plai ntiff”) brought breach of contract claims against Media Marketing Systems, Inc., (“Media Marketing”) and its sole shareholder, president and CEO, Sam Cooper (“Defendant”). Plaintiff also sued Defendant for

negligent misrepresentation, fraud and violation of the Tennessee Consumer

Act. Plaintiff claims that Media Marketing and Defendant owe

Plaintiff money for work Plaintiff performed unde

r the Agreeme

nt. Plaintiff also se

eks to pierce the

corporate veil of Media Marketing s o as to rende r Defendant p ersonally lia ble for dama ges owed by Media Marketing.

In July, 1997, Plaintiff and Media Marketing entered into the Agreement by

which Plaintiff was to provide m arketing communications and public relations services to Media Marketing for a term of one

year. The

Agreement, in p

ertinent part, pr

ovides as follows:

This agreement, for the Agency to pr ovide professional marketing communications services to market the Client and /or certain of the Client’s products and/or services , is made as of July 12, 1997, betweenMedia Marketing S ystems, Inc., (the Client); and Lindsey [s ic] Bra dley & Maloy

, a Tennessee corporation, with its principal office in Chattanooga, Tennessee (the Agency ).

The Agreement was executed by the parties as fo

llows:

ATTEST BY: Sam Cooper

Media Marketing Systems, Inc. 2510 S. Germantown Road Germantown, TN 38138 SIGNATURE: Sam Cooper

ATTEST BY (only one

Agency signature necessary to bind agreement for Agency) : * * * * * * * * * * * * Ned Barnett Senior Vice President Lindsey Bradley

& Maloy 2875 Nellis Blvd., Suite A8-42 Las Vegas, NV 89121 SIGNATURE: Ned Barnett

7/12/973 Plaintiff contends that during negotiations between Plaintiff and Media Marke ting, Defendant

represented that Media Marketing had $50 million in media commitments. Defendant denies making this representation, but instead maintains that he advisedPlaintiff that Media Capital Fund, a separate entity, had secured those media commitments.

Twelve days after the

Agreement

was executed, Media Marketing filed a bankruptcy petition under Chapter 11, for reorganization. Shortly thereafter, in Aug ust 1997 , the State

of Tennessee administratively dissolved Media Marketing for failure to file its annual report. Plaintiff contends that Defendant

did not inform it of Media Marketing’s dissolution. Defendant contends that he did not realize that

the dissolution had o

ccurred. Neve

rtheless, Defendant does n ot dispute that he continued to operate M edi a Marketing as a business. In October, 1997, Media Marketing converted its bankruptcy

st atus to Chapter 7, or liquidation. It is disputed whether Defendant notified Plai ntiff about Media Marketing ’s bankruptcy . The record on a

ppeal shows that Me

dia Marketing did not list Plaintiff as a creditor in its bankruptcy filings. Thereafter, Media Marketing ceased its operations. Pla

intif f c ont end s th at i t, u naw are o f th e di sso lut ion and ban kru ptc y, continued to perform work pursuant to the Agreement until May 1998.

Soon after the Agreement ’ s execution, Media M arketing beca

me delinquent on its
account. In response t

o Plaintiff ’s requests for p ayment, De

fendant assured

Plaintiff that Medi

a Marketing would quickly pay its arreara ge. After experiencing repeated difficulties in receiving payment, Plaintiff cance

lled the Agree

ment i n J uly 1998. Defendant agrees that the now-defunc t Media Marketing owes Plaintiff a portion of the claimed damages for services performed by Plaintiff under the Agreement.

Defendant

and Plaintiff filed cross motions for summary judgment. The Trial Court granted Defendant’s motion, dismissing Defendant from the lawsuit, and denied Plaintiff’s motion. Thereafter, the Trial Court entered an Order of Dismissal of Plaintiff’s claims agai nst Me dia Marketing for failure to pr osecute

. Plaintiff appeals the Trial Court’s granting of summary judgment to Defendant and denial of Plaintiff’s motion

Discussion

On appeal, Plaintiff contends that the Trial Court erre d in granting summary judgm ent to Defendant and denying Plaintiff’s motion. While not specifically stated as such, Plaintiff raises the following issues: 1) the Trial Court erred in granting summ

ary judgme

nt to Defendant be

cause there exist numerous genuine issues of material fact which preclud es sum mary judgment in favor of Defendant; and 2) Defendant subje cted himself to

personal liability

by his action

s. Plaintiff also contends that it is entitled to summary judgment on the issue of whether the corporate veil of Media Marketing should be pierced so as to make Defendant liable. Plaintiff bases this argument upon the following: 1) Defendant negligently or f ra udulently misr

epresented the f

inancial status of

Media Marketing during the negotiations with Plaintiff; 2) Defendant violated a statutory duty to Plaintiff by continuing Media

Marketing’s bus

iness after the administrative dissolution by the Secretary of Stateand by failing to notify Plaintiff of the dissolution, see Tenn. Code Ann. §§ 48-24-202(c); 48-4

24-106(b); and 3) Defenda nt used Media Mark

eting’s corpor

ateform and its bankruptcy to escape the debt owed under the Agreement.

Defendant

does not dispute the Trial Court’s granting of summary ju

dgment to him and argues that the corporate veil of Med ia Marketing should not be pierced so as to render Defendant

liable for the debt owed by Media Marketing

to Plaintiff. Defen

dant agrees th

at Media Marketing owes

some money to

Plaintiff for wor

k Plaintiff perfor

med under the Ag

reement.

Our Supreme Court outlined the standard of reviewof a motion for summary judgment in Staples v. CBL & Assoc. , 15 S.W.3d 83 (Tenn. 2000):

The standards go verning an ap pellate cou rt's review of a motionfor summary judgment are well settled. Since our inquiry involves purely a question of law, no presumption of

correctn ess attaches to th

e lower court' s judgment, and our task is confine

d to reviewing th

e record to determine whether the requirements

of Tenn. R. Civ. P. 56 have been met. See Hunter v. Brown
, 955 S.W.2d 49, 50-51 (Tenn.1997); Cowden v. Sovran Ba nk/Central South
, 816 S.W.2d 7 4 1, 744 (Tenn.1991). Tennessee Rule of Civil Procedure 56.0[4] provides that summary judgment is appro

priate where: (1) there is no genuineissue with regard to the material facts relevant to the claim or defense containedin the motion, see Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn.1993); and (2) the moving party is entitled to a judgment as a matter of law on the undisputed facts. See Anderson v. Standard Register Co. , 857 S.W.2d 555, 559 (Tenn.1993). The moving party has th e burden of provi

ng that its motion satisfies these requirements. See Downen v. Alls tate Ins. Co. , 811 S. W.2d 523, 524 (Tenn.1991).

When the party

seeking summary

judgment makes a pr ope rly supported motion, the burden shifts to the nonmoving party to set forth specific facts establishing the existence of di sputed , material facts which must be resolved by the trier of fact. See Byrd v. Hall , 847 S.W.2d at 215.

To properly su

pport its motion, the m

oving party

must either affir

m atively negate an essential ele

ment of the non-mov

ing party' s claim or conclusively establish an affirmative defense. See McCarley v. West Quality Food Serv.
, 960 S.W.2d 585, 588 (Tenn.1998); Robinson v. Omer , 952 S.W.2d 423, 426 (Tenn.1997). If

the moving party

fails to negate

a claimed basis fo

r the suit, the non-moving party's burden to produce evidence e stablishi ng th e existence of a ge nuine issue for trial is not triggered and the motion for s ummar y judgment must fail. See McCarley v. West Quality Food Serv ., 960 S.W.2d
at 58 8; Robinson v. Omer , 952 S.W.2d at 426. If the moving part y successfully

negates a claimed basis for the action, the non-moving party may
notsimply res t u pon the pleadings, but must offer proof to establish the existence of the e

ssential elements

of the claim.5 Th e standards governing the assessment of evidence in the s ummar y judgment context are also well established. Courts must view the evidence in the light most favo

rable to the nonmov

ing party a

nd must also draw a

ll reasonable

inferences in the nonmoving party's favor. See Robinson v. Omer
, 952 S.W.2d at 426; Byrd v. Hall, 847 S.W.2d at 210-11. Courts should grant

a summary judgment only when both the facts and the inferences to be dra wn from the facts permit a reasonable person to reach only one conclusion. See McCall v. Wilder , 913 S.W.2d 150, 153 (T enn.1995); Carve l l v. Bottoms , 900 S.W.2d 23, 26 (Tenn.1995).

Staples , 15 S.W.3d at 88-89 . A fact is “mater ial” for summary judgment purposes, if it “‘must be decided in order to

resolve the substa

ntive claim

or defense at which the motion is directed.’” Luther v. Compton , 5 S.W.3d 635, 639 (Tenn. 1999) (quoting Byrd v. Hall, 847 S.W.2d at 211).

The issue of whether

to pierce the cor

porate veil is not g

enerally suit

abl e for summary judg ment. Mike v. Po Group, Inc. , 937 S.W.2d 790, 795 (Tenn. 1996); Electric Power Bd. o f Chattanooga v. St. Joseph Valley Structural Steel Corp. , 691 S.W.2d 522, 526 (Tenn. 1985). Courts pier ce the corporate ve

il, or disregard th

e corporate en

tity, to find the “tr

ue owners of the e

ntity

. .

. liable when the corporation is liable for a debt but is without funds due to some misconduct on the part of the officers and directors.” Muroll Gesellschaft M.B.H. v. Tennessee Tape, Inc. , 908 S.W.2d 211, 213 (Tenn. Ct. App. 1995) (citing Anderson v. Durbin, 740 S.W.2d 417 (Tenn. Ct. App. 1987)). W h en faced with the issue of piercing the corporate veil, courts should proceed with caution. Schlater v. Haynie , 833 S.W.2d 919, 925 (Tenn. Ct. App. 1991 ) (quoti ng 18 Am.Jur.2d Corporations,

§ 43, [at] 842, [n.] 79, 80, 81) (stating that “the principle of piercing the fiction of the corporate veil is to be applied with great caution and not precipitately, since there is a presumption of corporate regularity”). This Court in Schlater v. Hayn ie , d iscussed the issue of piercing the corporate veil a

s follows:

Eachcase involving disregard of the corporate entity must rest upon its special facts. Generally, no one factor is con clusive i n determining whether or not to disregard a cor

porate entity; usually a combination of factors is p resent in a particular case and is relied upon to resolve the issue. 18 Am.Jur.2d Corpora tions, § 48, [at] 847, [n.] 41 and 42.

Even though corporate

formalities have

been observed, o

ne may still challenge the corporate entity by showing that he has been the victim of some basically unfair device b y wh ich the corporate form of business organization has been used to achi

eve an inequitab

le result . . . . 18 Am.Jur.2d Corporations, § 48, [at] 851, [n.] 60 [and] 61.

While generally, a corporation will be looked on as a legal entity,

. . . the corporate fiction will be disregarded and the co rporate vei l pierc ed in appropriate, special, unusual, or compelling circ

umstances,6 as w here su fficient reason to the contrary appears, where the corporation is created or used for an improper purpose, or wherethe corporate form has been abused, as when used to an end subversive of the corpora tion’s policy. In such cases, courts will disregard the corporate entity and deal with substance rather than form, as though the corporation did not exist . . . . 18 C.J.S. Corporations § 9, [at] 274, 275.

Schlater v. Hayni

e , 833 S.W.2d at 925.

In this matter, the record on appeal contains genuine issues of material fact related
to Plaintiff’s claims

against Defendant which are dependent upon the piercing of Media Marketing’s corporate veil as well as those claims based upon Defendant’s alleged individual tortious conduct. See Ame rican Cable Corp. v. ACI Mgmt., Inc. , No. M1997-00280-COA-R3-CV, 2000 WL 1291265,
at * 3 (Ten n. Ct. App. Sept. 14, 2000). Some of these disputed issues are: 1) whether dur ing hi s negotiations with Plaintiff, Defendant made misrepresentations regarding Media M arketin g’s financia l status and was aware of Media Marketing’s forthcoming bankruptcy; 2) whether Defendan t notified Plaintiff of Media Marketing’s bankruptcy; 3) whether Defendant executed the Agreement in his personal capacity; 4) whether Defendant was aware of the administrative dissolution of Media Marketing by the Secretary of State, and if so,

when he obtain

ed this infor mation and whether he notified Plaintiff; and 5) whether Defendant us ed Media Marketing’ s corporate for m to obtain advertising and public relati ons services fro

m Plain tiff foranother business entity. These factual issu es, and others, must be resolved by the Trial Court before it can decide whether th e circumstances presented by this matter warrant piercing Media Marketing’s corporate veil s o as to render Defendant

personally liable under that theory. The Trial Court must consider the numerous factors presented by this case in determining whether to disregard Media Marketing’s corporat e form. See Schlater, 833 S.W.2d at 925 (citations omitted).

A fair reading of

the complaint shows

that the Plaintiff a

lleges cla ims agains t Defenda ntfor his individual tortious conduct as well as claims which are dependent upon th e piercing of Media

Marketing’s cor

porate veil. It appears from the record on appeal that very little

was pres e nted regarding Pla intiff’s allegati

ons regarding De

fendant’s own tor

tious conduct. Nevertheless,

the record shows that there are n umerous ge nuine issues of mat erial fact, and

as a result, we hold

that the Trial Court erred in granting summary judgment to Defendant. See Tenn. R. Civ. P. 56.04; Staples , 15 S.W.3d at 88 (citations omitted). Summary judgment in favor of Defendant

is prohibited by the

genuin e i ssues of material facts, as discussed, related to Plaintiff’s claims against Defe nd ant for his alleged individual tortious conduct. Because of our finding that there exist numerous genuine issues of material fact, we do not find error in the Trial Court’s denial of summary judgment to Plaintiff.

Furthermore, we also hold that Defendant’s affidavit pr of fered in support o

f his motion for summary j ud gment was not suffi cient to warrant

a grant of summar

y judgment to Defendant. See Staples, 15 S.W.3d at 88-89 ( citations omitted); Madison v. Love , No. E2000-01692- COA-RM-CV, 2000 WL 1036362, at * 2 (Tenn. Ct. App. July 28, 2000). Defenda nt’s affidavit is7

primarily composed of blanket denials of Plaintiff’s factual claims and fails to negate an essential element of Plaintiff’s claim. S ee Madiso n , 2000 WL 1036362, at *2 (holding that “[m]aterial supporting a motion for summar y judgment must do more than ‘nip at the heels’ of an essential elemen tof a cause of action; it must negate that element”). Accordingly, we hold that the Tr ia l Courterred in

granting summary judgment to Defendant. See Tenn. R. Civ. P. 56.04. We find no error in the Tria

l Court’s denial of

Plaintiff’s motion f

or summary judgmen

t.

Conclusion

The judgment of the Trial Court granting Defendant summary judgment is reversed. The order of the Trial Court denying Plaintiff summary judgment is affirm ed. This m atter is remanded for further proceedings consistent with this Opinion. Costs of this appeal are taxed to the Appellee, Sam Cooper.

___________________________________ D. MICHAEL SWINEY, JUDGE