I N THECOUR TOFAPPEALSOFTENNES SEE EA STER N SEC TI O N

DAVI D T. BAI LEY a n d ) KNOX C OUNTY E. LYNN W

AGNER , i nt h e i r o wn ) 03A 01- 9606- C

V

- 00190 r i ght a nd de r i va t i ve l y f or t he ) us e a nd be ne f i t of S out he a s t e r n ) H eal t h car e S e r v i ces , L. P. ) ) Pl a i ntif f s - A

p p e lla nt s )

) v. ) ) TO M H O LBER T, as g e n e r a l p a r t n e r ) of S out he r n H

e a l t hc a r e ) S e r v i c e s , L. P. ) a n d ) M OOR E' SPHAR

M AC Y, I NC
. ) HON. HAR OLD W . W I M BER LY, d/ b/ a M

AR C UM ' SHEALTHC

AR E ) J UDGE SERV I CES , a n dCA

RLM A RCU M , ) GI NA M AR C UM PI NNEY, a n d ) TO M H O LBER T, a s o f f i c e r s , ) di r e c t or s a nd/ or e m pl oye e s ) a nd a ge nt s of a nd f or ) M oor e ' s Pha r m

a c y, I nc . ) a n d ) TO M H O LBERT, CA

RLM A RCU M , ) a n dGI NA M

AR C UM PI NNEY, ) I ndi vi dua l l y ) ) AFFI R

M ED I N PAR

T; VAC ATED I N D e f e n d a nt s - A

p p e l l ees ) PAR Ta n dR

EM ANDED

DALEC
. ALLEN a n dH. BR UC EGUYTON OFKNOXVI LLEFOR APPELLANTS DAVI D T. BAI LEY a n dE. LYNN W AGNER W I LLI AM K. R OGER SOFKI NGSPOR

TFOR APPELLEETOM

HOLBER

T PATR I CK LEDFOR

D OFKI NGSPOR

TFOR APPELLEESM

OOR E' SPHAR

M AC Y, C AR L M AR C UM a n dGI NA M

AR C UM PI NNEY

O PI N I O N1 S o m e of t h e i n f o r m a t i on f u r n i s h e d wa s gr o s s l y m i s l e a d i ng. F o r e x a m p l e , i t wa s r e p r e s e n t e d t h a t t h e bus i n e s s pur c h a s e d wa s gene r a t i ng a gr o s s p r o f i t o f $ 1 0 , 0 0 0 p e r m o n t h , w

h e n i n f act t h e l o s s es per m o n t h w e r e a ppr oxi m

a t e l y t h a t am

ount . 2 G odda r d, P. J .

Thi s i s a s ui t by D a vi d T
. Ba i l e y a nd E
. Lynn W a gne r i n t he i r ow

n r i ght a nd de r i va t i ve l y f or t he us e a nd be ne f i t of S o u t h eas t e r nH

eal t h car e S e r v i ces , L. P . , a Li m i t e dPa r t n e r s h i p i n w hi c h t he y w

e r e pa r t ne r s , a ga i ns t Tom H ol be r t , a s ge ne r a l p a r t n e r , M

o o r e ' s Ph a r m

acy , I n c . , d/ b/ a M a r c u m ' s H eal t h car e S e r v i ces , an dCa r l M a r c u m an dG i n a M a r c u m Pi n n e y , as O

f f i cer s an d D i r e c t or s a nd/ or Em pl oye e s a nd A

ge nt s of a nd f or M oor e ' s Ph a r m acy , I n c . , an dTo m H o l b e r t , Ca r l M

a r c u m an dG i n a M a r c u m Pi nne y, I ndi vi dua l l y. The s ui t s t e m s f r om t he pur c ha s e by S o u t h eas t e r nH

eal t h car e S e r v i ces o f a u n i t d o s a g e p h a r m acy bus i ne s s f r om

M oor e ' s Pha r m

a c y, I nc . , f or t he s um of $275, 000. The c om

pl a i nt a l l e ge d a c a us e of a c t i on f or ne gl i ge nt m i s - r e pr e s e nt a t i on a nd br e a c h of w a r r a nt y.

The Tr i a l J udge di s m i s s e d t he c om

pl a i nt . A

l t hough he f ound t ha t m

i s l e a di ng i nf or m

a t i on 1r e ga r di ng t he pr of i t a bi l i t y of the business in question was negligently furnished to the Plaintiffs, he also found that because the bookkeeping for the business sold was kept in conjunction with that of a separate pharmacy business owned by Moore's Pharmacy, Inc., "it was difficult to determine what was what, what this business was actually earning and what the other business was earning," and that there was no intent on the part of the Defendants to3

deceive. Consequently, he concluded that the Plaintiffs were guilty of at least equal negligenceinf a ilin g toin v e s tig a t e th e i nf or m a t i on f ur ni s he d, w hi c h w oul d ha ve di s c l os e d t he t r ue f i na nc i a l c ondi t i on of t he bus i ne s s pur c ha s e d. ( S e e A ppe ndi x. )

The Tr i a l C

our t a l s o di s m

i s s e d t he br e a c h of w a r r a nt y c l a i m i n a s uc c i nc t c ol l oquy w i t h c ouns e l f or t he Pl a i nt i f f s a t t he c onc l us i on of hi s m e m or a ndum

opi ni on: S o f or t ha t r e a s on, t he j udgm e nt of t he C

our t i s t ha t t he de f e nda nt s s houl d pr e va i l be c a us e t he f a ul t he r e i s a t l e a s t e qua l
. A nd t he r e i s no ot he r ba s i s , a s I ha ve j us t out l i ne d, I t hi nk, f or r e c ove r y. N ow , i s t he r e a nyt hi ng e l s e t ha t you w oul d l i ke t o a s k m e t ha t you f e e l I ha ve n' t c ove r e d w i t hout r ear g u i n g t h e case? M R. LEDFOR

D: No , Yo ur Ho n o r . M R. G U Y TO N : I s t he C

our t ' s opi ni on a l s o t o ha ve i nc l ude d t he a ddr e s s i ng t he i s s ue of t he w a r r a nt y? TH ECO U R T: Y e s . Th e s o l e b a s i s f o r r eco v e r yas I s t a t e dit, a n dth a t in c l u d e s e v e r y t hi n g . It' s m y i nt e nt i on t o i nc l ude e ve r yt hi ng.

Th e Pl a i ntif f s a p p e a l, ra i s i n g th e f o llo w i n g tw o i ssu e s :

1. W

h e t h e r th e tr i a l c o ur t e r r e dinits f a ilur e t o hol d de f e nda nt s / a ppe l l e e s l i a bl e f or br e a c h of w a r r a nt y a nd/ or br e a c h of c ont r a c t , w he r e t he d e f e n d a nt s / a p p e l l ees w a r r a nt e dt h e accur acyo f t h e f i n a n c i a l s t a t e m

e nt s p r o v i d e dtop l a i ntif f s / a p p e lla n t s p r i o r tothi s tr a n s a c tio n , a n dth e p l a i ntif f s / a p p e lla nt s r e lie do nth e f i n a n c i a l s t a t e m e n t s , b u t th e f i n a n c i a l s t a t e m

e nt s w e r e di s c o v e r e dt o b e i n accur a t e a n df a l s e af t e r t h e t r a n s act i o n . 2. W h e t h e r th e tr i a l c o ur t e r r e dinits f a ilur e t o hol d de f e nda nt s / a ppe l l e e s M a r c um a nd Pi nne y pe r s ona l l y a nd i ndi vi dua l l y l i a bl e f or t he m i s r e p r e s e nt a t i o n s an db r eache s o f w a r r a nt ym

a d e b y t he i r a ge nt s , H

ol be r t a nd R

hot on?4 I n c onne c t i on w

i t h t he br e a c h of w a r r a nt y c l a i m

, M oor e ' s Pha r m

a c y, I nc . , a c t i ng t hr ough i t s Pr e s i de nt , G i na M a r c um Pi n n e y , andi t s S e c r e t ary , Carl M arcu m , exe c u t e dan"A

G R EEM EN T FOR SALEAND TR

ANSFER OFAS SETS , " whi c hc o n t a i n e dt h e f o l l o wi n g pr ovi s i ons :

SEC TI ON FI VE W AR R ANTI ESAND C

OVENANTSOFSELLER S e l l e r ag r ees , r e p r e s e nt s , an dw a r r a nt s as f o llo w s :

. . . . ( d ) S e l l e r h a s m

a d e av a i l a b l e t o Bu y e r i t s p r o f i t a n dl o s s s t a t e m

e nt s an ds a m

e h a v e cor r ect l yr e f l ect e d t he f i na n c i a l c o n di t i on s , a s s e t s a n dli a b i l i t i e s , a n d ope r a t i on of S e l l e r a s of t he da t e s s t a t e d i n s uc h doc um e nt s .

. . . . ( p ) S e lle r w

ill pr o m

p tlya d v i s e Bu y e r inw r itin g o f t h e o ccur r e n ce o f anym a t e r i a l ev e nt s w

h i c hco m

e t o t he know

l e dge of S e l l e r a f t e r t he e xe c ut i on of t hi s A gr e e m e nt a nd pr i or t o or on t he C l os i ng D

a t e r e l a t i ng t o a ny m

a t t e r s w

hi c h a r e t he s ubj e c t s of t he s e c o v e n a nt s , r e p r e s e nt a t i o n s an dw a r r a nt i e s o f t h e S e l l e r c ont a i ne d i n t hi s S e c t i on. ( q) N o r e pr e s e nt a t i ons or w a r r a nt i e s by S e l l e r , its o f f i c e r s o r di r e c t o r s , n o r a n ys t a t e m e n t, lis t o r c e r t i f i c a t e f ur ni s he d or t o be f ur ni s he d t o Buye r pur s ua nt he r e t o, or i n c onne c t i on w i t h t he t r a ns a c t i ons c ont e m pl a t e d he r e by, c ont a i ns or w i l l c ont a i n a ny u nt r u e s t a t e m

e nt o f a m

a t e r i a l f a c t o r o m its o r w

ill o m i t t o s t a t e a m

a t e r i a l f act n ecess a r yt o m a ke t h e s t a t e m e nt s th e r e i nn o t m i s l e a di n g . A

ll s u c h s t a t e m e nt s , l i s t s , o r cer t i f i cat e s ar e t r u e an dco r r ect i nal l m

a t e r i a l r e s p ect s . ( r ) Th e w

a r r a nt i e s , r e p r e s e nt a t i o n s an dco v e n a nt s of t he S e l l e r c ont a i ne d i n t hi s A gr e e m e nt s ha l l be t r ue a n dco r r ect i nal l r e s p ect s as o f t h e C l o s i n g D

a t e w i t h5

t h e s a m

e f o r ce an def f ect as i f g i v e nan dm a d e o nan d a s of t he da t e a nd t i m e of t he C

l os i ng D

a t e , a nd s uc h r e pr e s e nt a t i ons , w a r r a nt i e s a nd c ove na nt s s ha l l s ur vi ve t he C l os i ng D

a t e a nd t he c ons um m a t i on of t he t r a ns a c t i ons c ont e m pl a t e d by t hi s A

gr e e m e nt .
A l t hough t he Tr i a l C our t a ppa r e nt l y f ound t ha t
ne gl i ge nc e m

a y a l s o ba r a n a c t i on f or br e a c h of c ont r a c t , ne i t he r t he Tr i a l C

our t nor c ouns e l f or t he D e f e nda nt s ha ve c i t e d a ny s uc h a ut hor i t y. M or e ove r , w

e ha ve not be e n a bl e t o f i nd a ny i n our r e s e a r c h. W

e a c c or di ngl y c onc l ude t ha t t he Pl a i nt i f f s a r e e nt i t l e d t o a j udgm e nt a ga i ns t t he C or por a t i on be c a us e of br e a c h
o f w a rra nt y .
I ns o f i n di n g , w

e a c c e p t a s tr u e th a t th e Pl a i ntif f s di d not m

a ke s uc h a n i nve s t i ga t i on t ha t t he y m i ght ha ve t o di s c l os e t he m

i s r e pr e s e nt a t i on, but poi nt out t ha t t he pur pos e of
a w a r r a nt y, i n pa r t , i s t o r e l i e ve one t o w hom t he w a r r a nt y i s gi ve n f r om

t ha t r e s pons i bi l i t y. I n Pa c c on, I nc . v. U ni t e d St a t e s , 399 F
. 2d 162, 166 ( 1968) , t he U ni t e d St a t e s C

our t of C l a i m s m a ke s t hi s poi nt i n quot i ng w i t h a ppr ova l f r om a n e a r l i e r cas e :

" I nes s e n ce a w a r r a nt yi s anas s ur a n ce b yo n e p a r t yt o a n a gr e e m

e nt of t he e xi s t e nc e of a f a c t upon w hi c h t he ot he r pa r t y m

a y r e l y; i t i s i nt e nde d pr e c i s e l y t o r e l i e v e t h e p r o m

i s ee o f anydu t yt o as cer t a i nt h e f act s f or hi m

s e l f
. Thus , a w

a r r a nt y a m

ount s t o a pr om

i s e t o i nde m ni f y t he pr om

i s e e f or a ny l os s i f t he f a c t w a r r a nt e d pr ove s unt r ue . " D a l e C ons t r . C

o. v. U

ni t e d St a t e s , 168 C

t . C l
. 692, 699 ( 1964)
.6 I nth e i r b r i e f th e Pl a i ntif f s c o n t e n dth a t if th e r e m e dyt o w

h i c ht h e yar e ent i t l e di s r e s c i s s i o n , t h e "m eas ur e o f da m a ge s w oul d be t he r e t ur n of t he c ons i de r a t i on pa i d,
. . . a s w e l l a s the a m

o u nt i n v e s t e dinthe b u s i ne s s , w i t hint e r e s t, a n d t h e v a l u e o f t h e i r l a b o r , " w h i c ht h e ycal c u l a t e t o b e i nex ces s of $600, 000. I n t he a l t e r na t i ve , t he y a s s e r t t ha t i f t he y a r e a w a r de d c om

pe ns a t or y da m

a ge s onl y, " t he y s houl d r e c e i ve t he di f f e r e nc e i n va l ue of w ha t t he y pa i d ve r s us t he va l ue of w ha t t h e yact u a l l yr ecei v e d
. "

W e co n c l u d e u n d e r al l t h e f act s o f t h i s cas e t h e l a t t e r m e a s ur e of da m

a ge i s t he a ppr opr i a t e one . I t doe s not a ppe a r , how e ve r , t ha t t hi s f i gur e w a s a de qua t e l y a ddr e s s e d i n t he pr oof , a n dinth e int e r e s t o f ju s tic e tob o t hp a r tie s , w e d e e m it a p p r o p r i a t e t h a t t h e cau s e b e r e m a n d e df o r s u c ha d e t e r m i n a t i o n a nd a j udgm

e nt e nt e r e d a ga i ns t t he C or por a t i on f or t ha t a m ount .
A s t o t he s e c ond i s s ue r a i s e d, w he r e i n t he Pl a i nt i f f s ' i n s i s t e n c e th a t th e in di v i du a l D e f e n d a n t s a r e like w i s e lia b l e in
w a r r a nt y, w

e f i nd t he onl y w a r r a nt y e xt e nde d w a s t ha t c ont a i ne d i nt h e agr eem

e nt f o r s a l e an dt r a n s f e r o f as s e t s , w h i c hw a s e xe c ut e d by t he C or por a t i on a nd s i gne d by M s . Pi nne y a nd M

r . M a r c u m i nt h e i r r e p r e s e nt a t i v e cap aci t i e s .7 I n c onc l us i on, w

e ha ve not ove r l ooke d t he D e f e nda nt s '
c ont e nt i ons t ha t br e a c h of w a r r a nt y m

a y not be a s s e r t e d be c a us e t he c ont r a c t i s a m bi guous , w

a s not br e a c he d, w a s not r e a s ona bl y r e l i e d upon, a nd di d not c a us e da m a ge s t o t he Pl a i nt i f f s . U nde r t he f i ndi ngs of t he Tr i a l C our t , t he t e s t i m

ony a dduc e d a nd t he
e nt i r e r e c or d, w

e f i nd e a c h c ont e nt i on t o be w i t hout m

e r i t .
For t he f or e goi ng r e a s ons t he j udgm e nt of t he Tr i a l C our t i s a f f i r m

e d i n pa r t , va c a t e d i n pa r t , a nd t he c a us e r e m a nde d f or f ur t he r pr oc e e di ngs not i nc ons i s t e nt w i t h t hi s opi ni on. C

os t s of a ppe a l a r e a dj udge d one

- ha l f a ga i ns t t he Pl a i nt i f f s a nd one

- ha l f a ga i ns t t he C or por a t i on.

_______________________________ Houston M. Goddard, P.J.
CONCUR:

________________________________ Herschel P. Franks, J.

________________________________ Don T. McMurray, J.APPENDIX

And this business, when it was operated by the defendants, was operated, of course, with their other business in such a way that, to the defendants and really to anybody else, it was difficult to determine what was what, what this business was actually earning and what the other business was earning. And this method of accounting that we went into great detail in describing, in effect, concealed the actual status and condition of this business that was finally purchased by the plaintiff. This resulting concealment was not, in the Court's mind and the Court's opinion, done in some intentional way to deceive anyone. It was just simply the way that it was set up.

When the plaintiffs purchased the business, they were provided the papers that we've spent a lot of time discussing, and these papers, in effect, gave plaintiff what turned out to be a false impression about the status of this business that they purchased. Now, plaintiffs accepted these without question, and when offered the opportunity to determine for themselves the validity, in effect, of those papers that they've been furnished and the information they've been furnished, the plaintiffs wound up relying upon their accountant that they sent to investigate. And the accountant actually did no investigation and, repeating several times that these people involved were fraternity brothers and if they could not trust each other and rely on each other, he did not see that he had any part in questioning them any further than what appeared on the surface.9 APPENDIX Page 2

misleading. They did not do so intentionally or willfully or actually knowingly. They were relying upon their people, their accountant who prepared these statements, and they are shown not to take much direct interest in determining and separating the accounts of that business from the other business. Then when the sale was done, the plaintiffs, having the opportunity to investigate the business and accomplish what we referred to in the -- as a term of art, supposedly, due diligence -- which was in the papers, actually did nothing to determine for themselves in any meaningful way what the true condition of the business
was. So in legal terms, I think you would say that the defendants negligently misrepresented the condition of that business that was purchased. The plaintiffs then negligently purchased the business. And that's the problem there. And that's the nature of the conduct that resulted in this situation -- negligence on both parts which the Court feels was at least equal. The other individual defendant we find was not acting for himself in such a way that would impose liability upon him.