# FILED
March 5, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk WILLIAM DEPRIEST, GATES-PATE- ) MCDANIEL, HENRY H. HEADDEN, ) JOEL P. MORRIS, MAURICE PINSON, ) Appeal No. RICHARD

R. STANDEL,

JR., and W.O . ) 01A01-9609-CH-00428 VAUGHAN, JR., ) ) Davidson Chancery Plaintiffs/

Appellants , ) Case No. 90-4042-I ) VS. ) ) 1717-19 WEST END ASSOCIATES, a ) Tennessee Partnership, MID-TOWN ) ASSOCIATES, a

Tennessee

Partne rship, ) O’HARE, SHERRARD & ROE, a ) Tennessee Partnership, and JOHN R. ) VOIGT, KENNETH R. JONES, JR., ) and WILLIAM L. HARBISON, ) ) Defendants

/Appellees. )
IN THE COURT OF AP PEALS OF

TENNESSEE MIDDLE SECT ION AT NASHV ILLE APPEA L FROM TH

E CHANCER

Y COURT OF

DAVIDSON

COUNTY AT NASHVILL E, TENNESSEE HONORABLE IR

VIN H. KI

LCREASE, JR ., CHANCE LLOR
J. ROSS PEPPER #014444 222 Second Avenue

North Suite 360-M Nashville, Tennessee 37201 ATTORNEY

FOR PL AIN TIF FS/APPEL

LEES, EVANS, JONES & REYNOLDS Winston S. Evans #6281 150 Four th Avenue

North Suite 1810 Nashville, Tennessee 37219-2424 ATTORNEY FOR DEFENDANTS/APPEL LANTS
MODIFI ED AND AF

FIRMED
HENRY F. TODD PRESIDING

JUDGE, MIDDL

E SECTION CONCUR: SAMUEL L . LEWIS, JUDGE, BEN H. CANTRELL , JUDGE,-2-

WILLIAM DEPRIEST, GATES-PATE- ) MCDANIEL, HENRY H. HEADDEN, ) JOEL P. MORRIS, MAURICE PINSON, ) Appeal No. RICHARD

R. STANDEL,

JR., and W.O . ) 01A01-9609-CH-00428 VAUGHAN, JR., ) ) Davidson Chancery Plaintiffs/

Appellants , ) Case No. 90-4042-I ) VS. ) ) 1717-19 WEST END ASSOCIATES, a . ) Tennessee Partnership, MID-TOWN ) ASSOCIATES, a Tennessee Partnership, ) O’HARE, SHERRARD & ROE, a ) Tennessee Partnership, and JOHN R. ) VOIGT, KENNETH R. JONES, JR., ) and WILLIAM L. HARBISON, ) ) Defendants

/Appellees. )



### O P I N I O N The captioned plaintiffs have appealed from the summary dismissal o f their va

rious cla ims by the trial court. The various claims and defenses on appeal arose from a failed investment scheme, and are illustrated by

the following issue s presen ted by the part ies: Appellan ts 1. Did the tr

ial cour t err in g ranting the Defe ndants Summary Judgment as to the Plaintiffs’ claims based on breach of contract, neg ligence, gross neg ligence, breach of fiduciary

duty, neg ligent and fraudulent misrepresentation, fraud, tortious interference with contract and co nsp ira cy ? 2. Did the trial court err in failing to gra nt to the Plaintiff s a summar

y ju dgment a s to the Pla

intiffs’ claims ba se d o n b re ac h o f c on tr ac t a nd br ea ch of fi du ci ar y du ty? 3. Did the tr

ial cour t err in g ranting the Defe ndants’ Motion to Dismiss the Plaintiffs’ claims for punitive damage s? 4. Did the tr

ial cour t err in g ranting the Defe ndants’ Motion to Dismiss the Plaintiffs’ claims under the Tenness ee Consum

er Prote ction Act ? 5. Did the tr

ial cour t err in g ranting the Defe ndants’ Motion to Dismiss the Plaintiffs’ claims under the-3- Tenness ee Secu

rities Ac t? 6. Did the trial court abuse its discretion in granting discreti onary

costs to the

Defend ants? Appellees I. Whether th

e funds w ere released f

rom escr ow in accord ance wi

th the ter ms of the o ffering

document s. A. Whether the offering documents require d the receipt of subscription agreeme nts for three units or also required cash to pay for those units prior to December 31, 1986.B. Whether Plaintiffs’ own conduct demonstrates that the offering documents required only receip t of signed subscr

iption ag reemen ts prior to December 31, 1986 or also required cash to pa y f or those s ubscript

ions. II. Whether the exculpatory cla use in the escrow agree ment bar s plaintif

fs’ claims. III. Whether the release of funds from escrow , even if wrongful, was the proximate cause of Plaintiffs’ loss. IV. Whether the claims by Plaintiff Hea dden are frivolous. V. Whether Pl aintiffs ’ claim f or punitiv e damag es is frivolou s. VI. Whether Plaintiffs’ claim under the Tennessee Securities Act is barred by the Applicable Statute of Repose, T.C.A. § 48-2-122(h). VII. Whether th

e Tenne ssee Cons umer Act applies to the sale of secur ities. VIII. Whether the trial court abused its discretion in taxing dis cretion ary

costs.
The uncontradicted

evidence shows that the principal mover and promoter of the scheme wa s J. Larry Williams, who is not a party to this case by name. He was a gener

al partner in “1717 -19 West End Associates” which was the gener al partner in “Mid-Town

Plaza, Ltd.” in which plaintiffs were solicited to invest their money . By this relationship, Williams controlled “Mid-Town Plaza, Ltd.” in the character of “general par tner.”-4- After the bankruptcy of

Mid-Town Plaza, Ltd. plaintiffs sued its generalpartner, Mid-Town Associat es, and 1717- 1719 West End Avenue , the ge neral p artner of Mid-Town Associates, together withO’Hare, Sherrard, Roe, Voigt, Harbison andJones, a legal partnership which acted a s counsel and escrow agent of funds received for investment in Mid-Town Plaza, Ltd..

At the bar of this Court, counsel for plaintiffs disclaimed any legal malpractice by

the lawyer defenda nts, and r elied sole ly u pon alleg ed misfea sance a s escrow agent.
The following facts are undisputed: Prior to the solicitation of the plaintiffs, on May 28, 1986, a ce rtificate of

limited pa

rtnersh ip
was duly registered for

Mid-Town Plaza, Ltd., indicating that Mid-Town Associates was the general partner and John R. Voigt was the initial limit ed partner of Mid -Town Pla za, Lt d. The ce rtifica te stated that the purpose of the org anization of Mid-Town

Plaza, L td., was to

acquire and reno vate property known a s 1717-1719 West End Avenue.

In the discu ssions of in

vesting in the par

tnership , the plaintif

fs were introduced to four documen ts , a “Confidential Placement Memorandum,” a “Subscription Agr eement,” a “Power of At to rn ey” and an “Escrow Agree ment.” The critic al portions of these documents relate to the conditions under wh

ich th e e scrow agent was authorized to release the escrowed funds, for the foundation of plaint iffs’ cl aims is tha t the escrow ag ent prematurely releas ed the es crow funds to Mid-Town Plaza, Ltd..

The Confidential Placement Me morandum provided that Mid-Town Plaza, Ltd. wou ld accep t total investment of $1,700,000.00 which was divided into four “units” o f $475,00 0 each w hich, in turn, might be divided into eight fractional parts of $59,375.00 each; so that an in vestor c ould inves t as little as $59,375, and any g reater amount in multiples of $59,375.-5- The Confiden

tial Place ment Memor

andum ori ginally

provided that, if a t least th ree units (3/4 of the offe ring) w as not “ subscribed ” by Octobe r 31, 19 86, t he proposal would be terminated and all mo n ey rec eived from proposed investors would be returned to them. This provision was later amended to change October 31, 1986, to De cember 31, 1986.

The Confidential Placement Memorandum further provided that legal matters in connection with the financing of Mid-Town Plaza, Ltd. would be “passed upon” by the g eneral partner (MidTown Associates) and the law firm of O’Har e, Sherrard and Roe.

The Su bs cription Agreem ent provi ded that a

ll funds te

ndered b y a

prospec tive inve stor in Mid-Town Plaza, Ltd. would be held in escrow b y O’Hare, Sherrard and Roe until the tendering party actually became

a limited partner.

On December 23, 1986, La rry Williams, acting for

Mid-Town Associates, the general par tner of Mid-Town Plaz a, Ltd., wrote a letter to the e scrow agent directing that the e scrow fund be disbursed to Mid-Town Plaza, Ltd.. Attached to the letter was the affidavit of Larr y Williams that all conditions for the disbursement had been met. At this time, the escrow agent h ad rece

ived only $1,068,000.70 which was not e qual to 3/4 of $1,700,000.00, or $1,425,000. However, “subscription agreements” signed by

investors promising to invest a total of $1,425,000 were on-hand.

As of December 31, 1986, the total cash contributions on-hand was $1,306,250, which amounted to 2-3/4 un

its and not

to $1,425, 000 or thr

ee units.
Subsequent

to December

31, 1986, on January 21, 1987, an additional ca sh contribution of $475,000 was received in performance of a subscription agreement received be fore December 31, 1986, so that on January

21, 1987, c ash had b een rec eived fr om subscr

ibing inv estors in

excess of $1,425,000.00.-6- Mid-Town Plaza, Ltd. used the funds received from the escrow agent to purcha se 1717- 1719 West End and to begin renovations. Before the r enov ation s wer

e com pleted, Mid -Tow n Plaz a Ltd. became insolvent with no assets from which investors could recover a ny part of t

hei r investmen

t.

Plaintiff s’ compl aint, filed on Dece mber 1 9, 199 0, pre sente d a wid e varie ty of gr o unds of
re co ve ry.

On June 26, 1992, the Trial Court dismissed plaintiffs’ claims based upon the Te nnesse e Securitie s Act and

the Tennessee Co nsumer Pr otection Act.

On March 24, 1994, the Tria l Court dismi ssed plai ntiffs’ c laims for punitive d amage s.

On April 19, 1 994, the T

rial Cour t dismissed

plaintiff s’ remaining cla

ims. Said order reads as follow s: This cause came on to be heard on Thursday , April 7,

1994 before the Honorable I rvin H. Kilcrease, Jr., Chancellor for Part I of the Chance ry Court for Da

vidson County, Tennessee upon Motion of O’Hare, Sherrar d & Roe, John R. Voigt, William L. Harbison, and Kenneth R. Jones, Jr. for Summary Judgment Dismissing the Remaining Claims of Plaintiffs. The Motion for Summary Judgment was made on the following gr

ounds: I. The fund s of Plainti ffs wer e relea sed in accordance with the terms of the EscrowAgreement and t

he Offe ring Do cuments. II. The rele ase of Pla intiffs’ funds fr

om escrow , even if

that had b een con

trary to the ter ms of the Escro w Agreem ent an d the O fferin g Documents, did not constitute the “willful default” wh ic h w as pr er eq ui si te to an y li ab il it y. III. The rele ase of f

unds from

escrow did not proximatel

y c ause any

harm to Pla

intiffs. Upon consideration of the evidence submitted in support of the motion, the evidence submitted in opposition to the motion, and the statements of counsel on behalf of the parties, the Court is of the opinion with respect to the issues raised in the-7- motion that there is not genuine issue of material fact with respect to those issues. Accordingly , Defendants are entitled to summary judgment a s a matter of law. In making this ruling, the Court has r econsidered the denial of the Motion for Summary Judgment on the issue of proximate cause which was previously filed by O’Ha

re, Sherrard & Roe, John R. Voigt, William L. Harbison and Kenneth R. Jones, Jr. Having reconsidered that motion, theCourt is now of the opinion that, at this state of the proceedings, the issue of proximate cause should be revisited. The Court has done so and now vacates its earlier Order entered March 1, 1993, in Min ute Book 302, Pag e 62, and

grants Defendants summary

judgment on that issue.

Plaintiff s’ argument stat

es: The trial court granted the Defe ndants’ Motion for Summary Judgment as to the Plaintiffs’ “remaining claims.” The “remaining claims” on which the Defe ndants were granted su mm ar y ju dg me nt we re : b re ac h o f c on tr ac t, br ea ch of fi du ci ar y duty , neglig ence, g

ross neg ligenc e, neg ligent a nd fraud ulent misrepresentation, fraud and deceit, tortious interfere nce with contr act, an d cons piracy. (R . At 84 1-2). In the Ord er grant ing the Summar

y Judg ment as to t

he rema ining cl aims, the t

rial court found that th

ere we re no g enuine is sues of ma terial f act with resp ect to the

following

ground s alleg ed by

Defend ants: 1. The funds of Plaintiffs were released in accordance with the terms of the EscrowAgreement and t

he Offe ring Do cuments. 2. The release of funds from escrow , even if that had been contrary to the terms of the Escrow Agreement and the Of fering Documents, did not con stitute the

“willful d

efault”which wa s pr er eq ui si te to an y li ab il it y. 3. The rele ase of the Plaintif fs’ fund s from escrow, even if that had been contra ry to the terms of the Escro w Agreem ent an d the O fferin g Documents, did not constitute the “willful default” wh ic h w as pr er eq ui si te to an y li ab il it y. Plaintiffs respectfully submit that the trial court e rred in reaching each of these findings.
Plaintiffs insist

that the escrow agent violated the escrow agreement by

releasing the escrow funds beca

use cash in payment for three units ($1,425,000) had not been received by the escrow agent on or before December 31, 1986, and tha t the cash contribut ion s should have been returned-8-

to the inve stors.

The confidential Placement Memorandum stated: Once Subscriptions for at least three (3) Units at an aggrega te price of $1,425,000 have been rece ived and accept ed by the I ssuer, th

e Iss uer res erves th

e right to declare the minimum number of Subscript ions ne ce ss ar y to proce ed with the

proposed activitie s have been received , to sell such Units to such Subscribers, and to begin to ap pl y the capital contributions of Limited Partners to partner ship activitie s while con

tinuing t o market the addit ional Unit s . (Emphasis supplied)
The Subscription Agreement stated: The undersigned herebytenders this Subscription Agreement for _______ unit(s) of limited partnership interests in the Partnership (“Units”) at a price per U nit of $475,000, together with a cash pay

ment in the amount of $ _______, in full payment th ereof, directed to O’Hare, Sh errard & Roe, Escrow Agent, Midtown Plaza, Ltd.

If the subscriber tendered cash with the subscription agreement, the amount of cash wa s inserte d in the appropriate space. I

f not, the space was left blank until the cash was deposited.

It clearly a ppears from the documents that the word, “subscription,” meant an agreement or promise to tender the required c ash rather tha n the actual tender which was a separ ate act which might be simultaneous with the subscription on subsequent thereto.

The confidential Placement Memorandum notified all prospective investors that the g eneral partner ( Mid-Town Associates, i.e., Larr y Williams) and counsel for the par tnership would “pas s upon” all legal matters. It a ppears that the general par tner and counsel “pa ssed upon” the legal matter of whether the documents required cash or promise of cash before

releas e of esc

row fund s.
Moreover, the escrow agreement pr ovided that the escrow agent would not be liable “except-9-

for willful default for breach of duty ,” which is negatived by the uncontradicted evidence.

Plaintiffs argue that the escrow ag ent violated a trust by transfe rring funds from an “escrow
accoun t” to an “attorney s trust account,” but no damages are allegedas a result of said transfer. Thus, the complaint states no ground for the recover y of damag es on account of the transfer.

Defend ants next prese

nt the def ense of “ proximate c ause” w ith the argument that the delay of 21 day s in receipt of the final installment of the required a

mount of c ash had n o causal effec t in producing the loss of plaintiffs’ investment. However, in order to base a summary judgmen t on this ground, the defendants must produce evidence that the dela y was not one of

the proximate c auses. No such evidence is cited.

In summ ary, this Court agrees w ith t he con clusi on of t he Tri al Ju dge that the uncontradicted evidence shows that the escrow agent acted pr operly in rele asing the escrow funds, and that it was guilty of no actionable misconduct. The same evidence and conclusion excludes any

recovery for breach of contr act, bre ach of f

iduciar y du ty, neglig ence, f

raudule nt misre presentation, fraud, tortious interfe rence with contra

cts, cons piracy , or for punitive da mages.

Plaintiff s’ allege in their complaint that the gener al partner, 1717-1719 West End Associates and its partners, committeda violation of the Tennessee Se curitiesAct by filing a n amendme

nt to the certifi cate of

Mid-Town

Plaza L td. refle cting th at Gilber

t R. Walker (not a plaintiff) and Henry H. Headden, a plaintiff, were limited pa

rtners a t a time when the y ha d not tende

red the c ash for h

is share of the pa

rtnersh ip, and by agree ing toand reimbursing Headden for interest paid by him on a bank loan whereby

he obtained

the cash to belatedly tender

for his interest in the partnership. The complaint allege s in gene

ral that t hese ac ts without n otic e t o the other plaintiffs was a fraud upon them from whi ch they suffe red injury. Howe

ver, the complaint does not specify how they we

r e injured by the alleg ed fraud, and is subject to dismissal for this reason.-10- Plaintiff s’ action for violation o f the Tennessee Securities Act is barred by the two-yea

r statute of repos e include d in the Tennessee Se curitiesAct, T.C.A. § 48-2-122(h). The misconduct is alleged to have occurred in 1986 or 1987. This suit was c ommenced December 19, 1990, more than two y

ears af ter the a lleged violations
.

Plaintiff s’ complaint alleged that the same allege d miscond uct of the general partner constituted violations of the Tennessee Consumer Protection Act. I n published decisions, federal courts have held that th e Con sumer Protection Act does not apply to sales of securities. Hardy v. First American National Bank , M.D. Te nn., 1991 7 74 F. Supp . 1078; Nichols v. Merrill, Lynch , Fenner and Smith , M.D. Tenn., 1989, 706 F. Supp. 1309.

That portion of

the complaint

which refers to violations of the Tennessee Securities Act and the Tennessee Consumer Protection Act, does not state a claim for whichrelief c an be g ranted. This portion of the compl aint is the

refore subject to

dismissal.

Fi na ll y, plaintiffs’ complain of the order of the Trial Court assessing$9,366.61 discretionary costs against them. Neither brief discusses the g round upon which the costs were taxed.
On May 19, 1994, the de fendan ts/at torne ys filed a moti on st ating: O’Hare, Sherrard & Roe, John R. Voigt, Kenne th R. Jones, Jr. and William L. Harbison [“OSR Defendants”], move the Court to

asse ss att

orne ys ’ fee s and

to tax discretionary c osts. 1. The asse ssment of a ttorney s’ fees is sought pursuant to T.C.A. §§ 47-18-109 and 48-2-122(f) for the attorneys’ f

ees expended by OSR Def endants in defending claims asserted by Plaintiffs under the Tennessee Consumer Protection Act and the Tennessee Securities Act. The amount of those attorneys fees is $3,165.00. 2. OSR Defendants seek to tax discretionary costs pursuant to Rule 54.04(2), T.R.C.P. The amount of those discretionary costs is $11,594.59, plus fee s of A. Ne al Graha m, Plaintif

fs’ exper t-11- witness.
The affidavit supporting the motion states only the time spent and charges therefor
.

On Ju ne 8, 1 996, t he Tri al Cou rt ent ered an order s tati ng: This cause came on to be heard on Frida y, June 28, 1996 at the regularly

scheduled motion docket for Part I of the Chancery

Court of Davidson County before the Honorable Irvin H. Kilcr ease, Jr. upon the motion of O’Hare, Sherrard & Roe, John R. Voigt, William L
. Harbison , and Ken

neth R. Jone s, Jr. (OSR De fendant s) to assessattorne

y’ s fees a nd to tax disc

retiona ry costs. Upon consideration of the entire record, brief s and argument of counsel, the Court finds that the request to tax discretionary costs is well taken a nd should be granted. Accordingly , the Court taxes to Plaintiffs, jointly and seve

rally , discre

tionary costs in the

amount of $9,366 .61 as set

forth an d in the moti on of OSR Defend ants. With respect to the request for attorney ’s fees in connection with Plaintiffs’ claims pursuant to the Tennessee Consumer Protection Act and the Tennessee Securities Act, the Court finds that those claims did have some legal basis. Therefore , the Court denies the request for attorney ’s fees. It ap pears th at defe

ndants requested d

iscretio nary

costs con sisting o f attorne ys f ees in respect to the actions based upon the Tennessee Consumer Protec tion Act and the Tennessee Securitie s Act; tha

t the Tria l Judge de

nied the r equest f or attorn ey s fees in

connec tion with sa

id actions. It al so appea

rs that pla intiffs r equeste d and the T

rial Cour t awarded discre

tionary cost provided by T .R.C.P. Rule

54.04(2) which re ads as fo llows: Costs not included in the bill of costs prepared by the clerk are allowable only in the court’s discretion. Discretionary

costs allowable are: reasonable and necessary court reporter expenses for depositions or trials, reasonable and necessary expert witness fees for depositio ns or tria

ls, and g uardian ad litem f

ees; tra vel expenses a

re not allowable d

iscretio nary

costs. Subj ect to Rule 41. 04, a par

ty r equestin g discr

etionar y c osts shall file and serv e a motion

within thir

ty ( 30) day s after e ntry of judgm

ent. The trial cou

rt retains-12- jurisdiction over a motion for discretionary costs even though a party has filed a notice of appea l. The motion is unsupported by affida vit of grounds for Rule 54.04(2) costs, and the brief of appellants citi es no par t of the record supp orting t he awar d of such c osts.

Acc ord in gly, th e ju dgm ent for $9, 366 .61 di scr eti ona ry co st s i s re ver sed and vac ate d. In all other respects the judgment of the Trial Court is affirme d. Costs of this appeal are taxed against the appellants and their surety . The cause is remanded to the Trial Court for furthe r
necessa ry procee dings.

MODIFI ED AND AF

FIRMED

_____________________________________ HENRY F. TODD PRESIDING

JUDGE, MIDDL

E SECTION
CONCUR:

_____________________________________ SAMUEL L . LEWIS, JUDGE

_____________________________________ BEN H. CANTRELL , JUDGE