# FILED September 24, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk IN THE COURT OF APPEALS OF TENNESSEE WESTERN SECTION AT NASHVILLE

______________________________________________ THE JUDDS, a

Tennessee

partner ship, NAOMI JU

DD, both indi vidually and on behalf of PRO TOURS, INC., a Tennessee corporation, and WYNONNA JUDD, bot

h individually and

on behalf of PRO TOURS, INC, a Tennessee corporation, Plaintiffs-Appellants, Davidson Circuit No. 94C-2578 Vs. CA. No. 01A01-9701-CV-00030 STEVEN D. PRITCHARD, an individual and PRO TOURS, INC., a Tennessee corporation, Defend ants-App ellees.

__________________________________________________________________________ __ FROM THE SECOND CIRCUIT COURT FOR DAVIDSON COUNTY THE HONORABLE MARIETTA M. SHIPLEY, JUDGE Jay S. Bowen, John R. Jacobson, and Gregory S. Reynolds Bowen, Rile

y, Warno ck & Jaco

bson, PLC of

Nashville For Appellants Samuel D. Lipshie and Scott K. Haynes Boult, cumm

ing, Conne

rs & Berr y, PLC of Na shville For Appellee, Pritchard

REVERSED AND REM ANDED Opinion filed:

W. FRANK CRAWFORD,

PRESIDING J

UDGE, W.S.

CONCUR: DAVID R.FARMER,

JUDGE SAM L. LEWIS,

JUDGE This appeal involves the personal liability of a co rporate

office r. Plaintif

fs, the Ju dds,

a Tennessee partnership; Naom i Judd, individually and on behalf of Pro Tours, Inc.; and1 Naomi and Wynonna Judd performed as a duo and will be r eferred to as The Judds. They ope rated a s a partnership, w

hich will b e refe

rred to a s the Part

nership. When it is necessary to consider the Judds and the Partnership together, the y will be referred to as the plaintiff s.
2 In the early 1990s, Wynonna Judd embarked on a solo ca reer. Pro Tours and Pritchard worked for Wynonna Judd on these tours also.

3 The complaint also requested an attachment of cer tain deposits to preserve and protect those fun ds. 2 Wynonna Judd, indiv

idually a nd on beha

lf of Pro Tours, Inc., 1 appeal from the judgment of the trial court granting summary judgment to defendant, Steven D. Pritchard. The Judds per

formed to gether a s a

country music duo. From 1987 to 1994, Pro Tours served as their e

xclusive booking a

gent a nd p rincipa

l promoter

of their c oncerts . 2 Pritchard, Kenneth Stilts, and t

he Partne rship each owned one-third of the stock of Pro Tours. Pritchard

was the president of Pro Tours, and Pritchard and Stilts made up the boar d of dire ctors. Stil

ts also served as personal manager for N aomi and Wynonna Judd. Pro Tours ar

ranged c oncerts f

or th e Judds and negotiated their compensation. Generally, the Judds were compensated for performances pr omoted by Pro Tours solely on the basis of a percentage

of gross r eceipts , less ce

rtain approved expenses, with no guaranteed payment. Pro Tours received

fees and mercha ndising re venue fo r the Judd s. Pro Tour s also re ceived c orporat e sponsorship fees for some of the Judds’ concert appe arances. On A ugust 9, 1994, the plaintiffs filed a complaint against Pritchard and Pro Tours alleging fraud, breach of fiduciary duty, breach of contract, unjust enrichment, and conversion, bothagainst Pritchard individually and as a shareholder derivative suit on behalf of Pro Tours. 3 The complaint alleges that the plaintiffs were advised that Pro Tours was f ormed to maximize the irp rofits from their concerts and that, instead, Pro Tours was intentionally managed a nd operate d to maximiz e its own pr ofits at the direct expense and detriment of the plaintiffs. The complaint alleges that Pritchard and Pro Tours owed the plaintiffs fiduciary duties, including a duty of loyalty

and a duty

to act sole

ly in the plain

tiffs’ best interest. The plaintiffs allege that Pritchard and Pro Tours mis repres e nted the a mount of income and

expense s from the

Judds’ concert performances. The complaint also alleges that Pritchard a nd Pro Tour s affirmatively concealed certain income f rom the pla

intiffs, that Pritchard misu sed his position with Pro Tours to gain unfair personal benefits, and that Pritchard wasted c orporate assets.3 On November 15, 1994, both Pro Tours and Pritchard filed answers denying the material alleg ations of the compl aint. Pro T ours and P ritchar d admit tha

t the plain

tiffs ar e entitle d to certain deposits, but assert that some of the amounts due to the plaintiff s are sub ject to valid setoffs. Both answe

rs raise other defenses to the complaint . In its an swer, Pr o Tours a sserts a counter -claim against the plaintiffs alleging breach of contract, unjust enrichment, proc urement of breach of contract, inducement of breach of contract, and breach of cer tain fiduciary obligation s. Pritchard also filed a counter-claim alleging that the plaintiffs defa m ed him by publishing the untrue allegations in their complaint. OnJanuary 9, 1995, the plaintiffs filed an
answer to Pritchard’s counter-claim that denies his material allegations. On January 17, 1995, the plainti ffs file d an answer to Pro Tour’s counter-claim that also denies those ma terial allegati ons. On October 26, 1995 , Pritchard filed a motion for summary judgment. In his motion, Pritchard asserts that Stilts, the Judds’ personal manager, was acting as the p laintiff s’ agent with

r egard to all tra nsaction s involving

Pro Tours , that his k

nowledge should be imputed to

th e plaintiff s, and that t

he plaint iffs should be estopp ed from a sserting a ny claims related

to the ac ts that Stilts ratified. Pritchard further asserts that the brea ch of fiduciary duty claim is barred by the applicable statute of limitations. Pritchard also asserts that he is not personally liable for any claims that the p laintiff

s may have

as a res ult

of Pro Tours accepting corporate sponsorship fees for the Judds’ concert appearanc es. At the January 5, 1996 hearing on the motion for summary judgment, the plaintiffs raised three issues: 1) excessive bonuses paid to Pritchard by Pro Tours; 2) excessive compensa tion paid to Pritchard by Pro Tours; and 3) retention of corporate sponsorship fees by Pro Tours or Pritchard individually. On January 29, 1996, the trial court granted partial summary judgment in favor of Pritchard on the first two issues, both of which conc erned th e plain tiffs’ c laims in their capac ities as s harehol ders of Pr o Tours. T

he trial c ourt found that Stilts was the Ju dds’ agent, that his kn owledge was impute d to them, and that t he plaint iffs’ claims as shareholders

were therefore time-barred by the statut e of limita

tion conta ined in T.C.A. § 48-18-601 (1995). The trial court took under advisement Pritchard’s personal liability on the third issue. O n May 21, 1996, the trial court granted summary judgment in favor of Pritchard on the third issue, holding that Pritchard could not be held individually liable for acts committed as president of Pro4 Although Pro Tours has been dissolved and is essentially a “shell corporation,” the

plaintiff s’ claims against Pr

o Tours re

main acti ve in the t

rial cou rt.
5 The plain

tiffs hav e not appe aled the trial cou rt’s judgm

ent dismiss ing their shareho lder der

ivative c laims.
4 Tours. The trial court found that Pritchar d did not act outside th

e scope o f his dutie s and did not persona lly convert the plaintiffs’ property. On October 23, 1996, the trial court entered an order pursuant to Tenn. R. Civ. P. 54.02 that made

the summar

y judgment

a final ju dgment. 4 The plaintiff

s appeal the judgme

nt of the trial court and present one issue for review: whether the trial court er red in hol ding that Pr

itchard could n ot be held personally liable for fraud, convers ion, or br

each of fiducia r y duty simply because he was acting as an officer of a corpora tion when he committ

ed the wr ongful acts. 5 A trial court sho uld grant a motion for summary judgment only if the movant demonstra tes t hat ther

e are no genuine i ssues of material fact an d that the

moving par

ty is entitled to judgment a s a matter of law. T enn. R. Civ. P. 56.03 ; Byrd v. Ha ll , 847 S.W.2d 208, 210 (Tenn. 1 993); Dunn v. Hack ett , 833 S.W.2d 78, 80 (Tenn . App. 199 2). The p arty moving for summary judgment bears the burden of demonstrating that no genuine issue of material fact exists. Byrd , 847 S.W.2d at 210. On a motion for summary judgment, the court must consider the motion in the same man ner as a motion for directed verdict made at the close of the plaintiff’s proof; th at i s, “the c ourt must ta ke the str ongest le gitimate view of the evidenc e in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence.” Id . at 210-11. In Byrd , the Tennessee Supreme Court stated:

Once it is shown b y th e movin g party that there is no genuine issue of material fact, the nonmoving party must then demon stra te, by affid avits or d iscover y materia ls, that the

re is a genuine, material fact di spute to warrant a trial. In this regard, Rule 56.05 provides that the nonmoving party ca nnot simply

rely upon his pleadings but must set forth specific facts showing that there is a genuine i ssue of ma

terial f act for trial. Id

. at 211 (emph asis in ori ginal) (citations om itted). W here a g enuine di spute exi sts as to any material fact or

as to the c onclusion s to be dra wn from th ose facts, a court must deny a motion for summary judgment. Id. (citing Dunn , 833 S.W.2d at 80). The plaintiff

s presen t four cla ims agains t Pritchar

d in his indiv

idual ca pacity: f ra ud, conversion, inducing breach of Pro Tours’s fiduciary duty, and brea ch of his own fiduciary duty.5

The plaintiff

s pursued these cl aims as pa

rties to a contract wit

h th e corporation, not as shareho lders. The plain

tiffs argue that a corporate officer who commits or par ticipates in tortious conduct is personally liab l e for the consequences of that conduct, r egardless of the liability of the corporation. We agree t

hat this is t

he law in Tennesse e. It is settled law that an agent cannot escape liability for to rtious ac ts, includ ing frau d or misre

present ation, ag ainst thir

d personssimply because the agent was acting within the scope of the agency or at the direction of the employer. Brungard

v. Caprice Records, Inc. , 608 S.W.2d 585, 590 (Tenn. App . 1980) . An officer of director of a corporation who comm its or par ticipate s in the co mmission of a tort is lik

ewise liable to third parties regardless of the liability of a corporation. Id . at 590-91. Ordinar ily a director of a corporation is an age nt of the c orporat

ion and is liable onl

y to the corporation. Schlater v. H aynie , 833 S.W.2d 919, 924 (Tenn. App. 1991). For a director to become d

irectly l iable to a credito r, there must be some

violation o f a statut

ory duty, s ome other conduct that establishes a privity of contract, or a tortious injury to thecreditor for which

an action ex delictowi ll lie. Id. (citing Merriman v . Smith , 599 S.W.2d 548 (Tenn. App. 1978)). It is legally possible for

Pritchard to be personally liable, but there must be specific facts showing that there is a genuine issue of material fact for tr ial concerning Pritchard’s fraudulent actions. The plaintiffs argue that Pritchard i s perso nally liable for defrauding them and converting their property because he directed a nd participated in a fraudulent scheme to chea t them out of a portion of

their income. The plaintiffs assert that Pritchard intentionally caused Pro Tours to convert and conc eal incom e received from corporate sponsor ship fees, sales of concert tickets and merchandise, and rebates of e xpenses from

them. The plaintiffs also argue that Pritchard paid himself enormous bonuses and arranged other personal benefits. On the other hand, Pritchard argues that he never rec eived any of the corpora te sponsor ship fee s individua lly and that the fees were always deposited into a Pro Tours account or used to pay expenses of the particu lar conc ert. The tria l court first examined the plaintiffs’ claim of conversion and found that “no genuine issue of ma

terial f act exis ts from the

evidenc e that th e Plainti ffs have produced that indicates Mr. Pritch ard is liable to the Judds individually for convers ion.” Bef

ore maki ng this6

finding, the trial court granted theplaintiff s more time

“to supplement the record in this action with any proof that defendant Pritchard himself rece ived money that

should have be en paid to plaintiffs.” In his deposition, Pritchard adm itted that the plain tiffs did not shar e in some of the corpora te sponsorship fees. He stated that the fees were either deposited into a Pro Tours bank account or were used to pay the expenses for a particular c oncert. Pritchard testified that he genera lly told representatives of the plaintiffs when a particular concert

had a corporate sponsor, butdid not al way s inform the plaintiffs when corporate sponsorship fees had been paid. Pritchard also did not disclose to the plaintiffs that Pro Tours was sharing in parking revenue and food and soda revenue. After the plaintiffs fired Pr o Tours, Pr

itchard didnot tell them about the receipt of additional corporate sponsorship fees. The plaintiff

s argue t hat the tr ial judge mistakenl

y concluded that

Pritchard could not be persona lly liable for conversion unless he personally benefitted from the w rong ful a cts. “A conversion, in the sense of the law of trover, is the appropriation of the thing to the party’s own

use and benefit, by the exercise of dominion over it, in defiance of plaintiff’s right.” Mammoth Cave Production Credit Ass’n v. Oldham , 569 S.W.2d 833, 836 (Tenn. App. 1977) (quoting Bargerv. Webb , 216 Tenn. 275, 391 S.W.2d 664, 665 (1965)). To be liable for conversion, the defendant need only have an intent

to exerc ise dominion a

nd contro l over the

propert y that is in fact inconsistent with the plaintiff’s rights, and to do so; good fa ith is gene

rally imma

terial. Mammoth Cave , 569 S.W.2d at 836. The trial c ourt found t hat the plaintiffs did not show a genuine issue of material fact indicating that Pritchard converted their income to his own use. The trial court stated, “[T]here is no showing that Mr. Pritchard exercised ‘dominion and control, ’ that he

diverte d funds fo

r his own use and enjoyment as president of Pro Tours.” We must respectfully di sagree . Pritcha rd admits t

hat fundsdue the pl ain tiffs we re divertedto Pro Tour s at his direction. The proof established that Pritchar d was pai d what could be termed excessive bonuses and other fringe be nefits by Pro Tours. Pritchard was president of the corp oration, and the record indicates that for all practical purposes he controlled th e company. Under the circumstances, there could be a n inference that

the fundswould

ultimately inure to his benefit. It

is conceivable that under these facts, the fa ct finder could determine that7

there was a conversion by Pritchard of the plaintiffs’ pr operty. The plaintiff

s also alle ged a cla

imof fraud against Pritchard. In its order, the trial court didnot speci fically a

ddress f raud. Ho wever, the trial

court did state, “ There isno showing that Mr. Pritchard negligently or fraudulently misrepresented the ac counts to the Plaintiffs.” In order to sustain a cause of action for fra udulent misrepresentation, the plaintiff must show that: 1) the defendant made a represe ntation of an existing or p ast fact; 2) the representation was false when made; 3) the repres entation

was in re gard to a

materia l fact; 4) the false re

present ation wasmade eith

er knowi ngly or wit

hout belie f in its truth orrecklessly; 5) plaintiff reasonably relied on the misrepresented mater ial fact; and 6) plaintiff suffered damage as a

re sult of the misrepresentation. Metropolitan Gov’t of Nashville and Davidson County v. McKinney , 852 S.W.2d 233, 237 (Tenn. App. 1992). The plaintiff

s argue t

hat Pritch ard inte

ntionally s upplied th

em wit h fraudulent accountings on which they relied. They assert that this is part of the fraudul ent scheme t o conceal and convert their income. The plaintiffs argue that they ha ve adduced substantial evidence to support their fraud claim. They rely upon Pritchard’s deposition in which he admits that all income was not discl ose d to the plaintiffs although they were led to believe that the various accountings presented to them were complete a nd correct. Concealment

or nondisclosure will give rise to a claim for fraud when the defenda nt has

a duty to disclose and when the matters not disclosed are material. Dobbs v. Guenther, 8 46 S.W.2d 270, 274 (Tenn. App. 1992). There are genuine issues of material fact as to whether there was a negligent or fraudulent misrepre sentation. The plaintiffs next assert that Pritchard should be held personally liable because he caused Pro Tours to breac

h its fiduc iary dutie s while Pro Tours wa s a ctin g as an agent for the Judds. Agency rests upon contract between the principal and the agent. Cline v. Ply ly , 3 Tenn. App. 292, 301 ( 1926). An agent is s imply “[o]ne who undertakes to transact some business, or to manage s ome aff

air, for another , by the au

thority and on acc ount for t he latter , and torender

an account of it.” Secur ity Fede ral Sav. & Loan Ass’n of Nashville v. Riviera, Ltd. , 856 S.W.2d 709, 715 (Tenn. App. 1992) (quoting Miller v. Insurance Co. of North America , 211 Tenn. 620, 625, 366 S.W.2d 909, 911 (1963)). “ A gency in its broadest sense includes every relation in which one person acts for or represents another .” Kerney v. Aetna Cas. & Surety Co. ,8

648 S.W.2d 247, 252 (Tenn. App. 1982) (quoting Howard v. Haven , 198 Tenn. 572, 583, 281 S.W.2d 480, 485 (1955)). “Whether an agenc y has been created is to b e determ ined by the relat ions of the parties a s they in f act exis t under their agr

eements or acts. If rela

tions exist which will const

ituteagency , it will

be an agency, whether the parties unde rstood it to be or not.” Id

. at 252-53 (quoting Smith v. Tennessee Coach Co. , 183 Tenn. 676, 680-81, 194 S.W.2d 867, 869 (1946)) . The relation of p rincipa l and age nt is a trus t rela

tion. McNeill v

. DobsonBainbridge Realty Co., 184 Tenn. 99, 106, 195 S.W.2d 626, 629 (1946). In essence , th e pl aintiffs are asserting that Pritchard interfere d with the contractual relation ship between Pro Tours and the plaintiffs by causing a breach of fiduciary duty owed by Pro Tours to the plaintiffs as thei r agen t. In Forrester v. Stockst

ill , 869 S.W.2d 328 (Tenn. 1994), our Supre

me Court, i n conside

ring an is sue conc erning in te ntio nal inter

ferenc e with corpora te employment, quoted with approval from Thomas G. Fischer, Annotation, Liability of Corporate

Director , Officer , or Employ ee for Tort

ious Inte rferenc e with Corpo ra tion’s Contrac t with Another , 72 A.L.R. 4th 492 (19 89) as fo llows:

Some courts have recognized that genera lly acorpora

te director, officer, or employee is not liable for tortiously interfering witha corpora te contract, because he is conside red a party to the contract, as long as he is acting to serve the corporate intere sts, or unless his activi ty i nvolves in dividual s eparat e tortiousacts. Courts have also recognized, however, that a cor porate director, officer, or employee may be liable for tortiously interfering with a corpo rate co ntr act if he is acting o

utside the

scope of his authority, acting with malice, or acting to serve his own inter

ests. 869 S.W.2d at

333 (quoting 72 A.L. R.4th at 501). Although Forresterdealt with a breach of an employment

contract, the authority cited by the Supreme Court makes no distinction in the type of contract, nor do we find

any. The substance of the issue is breach of a duty a nd not the nature of the duty itself. As we have heret ofore noted, there is a genuine issue as to material fa ct concerning Pritchard’s actions a

nd whethe

r he was acting to

serve hi s own inter

est by being instrume

ntal in the diversion of funds to Pro Tours’s accounts. According ly, summa ry judgment should not have been granted on the plaintiffs’ action based upo n Pritchard’s inducing the breach of Pro Tours’s fiduciary duty. The plaintiff

s also alle ge that Pr

itchard persona lly owed th

em a fiducia ry duty because he was acting as thei

r subage nt and und

ertook to perfor m Pro Tours ’s obliga

tions to them. The9

plaintiffs cite The Prudential Botts & Assocs. v. Gupton , No. 03A 01-9403-CH-00087, 1994 W L 398826 (T enn. App. Aug. 1, 1994), for the proposition that Tennessee recognize s the concept of subagency. In Prudential B otts , this Court found that the subagent’s actions bound the agent and, theref

ore, hel d against the agent. Prudential B otts , 1994 WL 398826, at *6. In this case,

we believe that Pritchard’s actions as a suba gent bind Pr

o Tours a nd that Pro

Tours is r esponsibl e for his actions. Pritchard’s actions as a subagent are still on behalf of and thr ough Pro Tours, and his actions w ithinthe appa rent sco pe of his authority are those of the corporation. Batey , 446 S.W.2d at 694. Needle ss to say, this case presents a complicated mass of factual allegati ons deali ng with

a somewhat unique bus ines s. The fa cts introd uced at t his stage of the pr oceedin gs prese

nt a close question concerning genuineissues of material facts. JusticeHarbison, speaking for our Supreme Court in Evco Corpo ration v. Ro ss , 528 S.W.2d 20 (Tenn. 1975), said: The summary ju dgment pr ocedure was design ed to provide a quick, inexpensive m ea ns of conc luding ca ses, in wh ole or in part, up on i ssues as to which there is no dispute regarding the material facts. Where t

here doe s exist

a dispute as to facts which are deemed material by thetrial court, ho wever, or wher e there is uncerta inty as to whether there may be such a dispute, the duty of the trial cou

rt is clear. He is to overrule any motion for summary judgmentin such cases, because summary judgment proceedings are not in any sense to be viewed as a substitute f or a tria l o f disputed f actual is sues. Id. at 24, 25. The order o f the tria

l court gr

anting sum

mary judg ment is reversed. The cas e is remanded for such further proceedings as are necessary. Costs of the appeal a re asse ssed aga

inst appellee.

_________________________________ W. FRANK CRAWFORD, PRESIDING J

UDGE, W.S.

____________________________________ DAVID R.FARMER,

JUDGE

____________________________________ SAM L. LEWIS,

JUDGE