### IN THE COURT OF APP EALS OF TENNESS EE AT JAC KSON Ja nuary 20, 200 9 S es sio n JO N THOMPS ON, ED GATL IN, AND 

### EMPIRE EXPRESS, I NC.
v. J. T. DA VIS AND 

### BA R BA R A D A V IS
An Appeal from the C ircuit Court f or Shelby Coun ty No. CT-005998 Kare n R. Willi ams, Judge

No. W2008-00380-C OA-R3-C V - Filed September 8, 2009

This is an action for contribution. The two individual plaintiffs and the de fendant formed a limit ed lia bil ity c omp a ny fo r the pu rp os e of ow nin g a ndop e ratin g a n a re na fo otb a ll t e a m. T o f

un d th e te a m, the three investors took out two loans in their individual names. The business was a losing venture, and eve ntually the team wa s sold. The proce eds of the sa le wer e used to pay all of the business’s debts exc ept the rema ining liability on the two persona l loans. The two plaintiffs paid the ba lance of t h e l oans out of their pe rsonal funds. The plaintiffs then filed the instant law suit against the defe ndant for contribution, alleging t hat he was joi ntly and severally liable f or his pro rata shareof thede bt. Th e de fe nd a nt c on c e de d that he o we d a sma ll p art

of thede bt, bu t arg ue d th a t hi s li abil ity should be reduc ed by the amounts dist ributed to the plaintiffs by the business. The defe ndant
c on te nd e d th a t th e fu nd s dis tribu te d to the plaint if fs sh ou ld ha ve be e n a

pp lie d to thebu sin e ss d e bt. After a benc h trial, the trial court held in favor of the plaintiffs. The trial co u rt reje cted the defe ndant’s claim that his debt s hould be offset, finding that the distributions m ade to the plaintiffs constituted a re payment of loa ns, not a distribution of capit al

. It al so awa rded the plaintiffs
a tto rn e y’ s f

e e s. Th e de fe nd a nt now app e a ls. W e a ff irm the de c isi on of

thetria l c ou rt

in a ll r e sp e c ts. Tenn. R. App . P. 3 Appeal as of Right; Judgment of the Cir cuit Court is Aff irme d

H O LL Y M. K I RBY , J., delivere d the opinion of the Court, in which D AVI D R. F ARMER , J. , a ndJ. S TE VE N S TA FF O RD , J., joined.

Jo hn J. He fl in, II I, a ndJo hnMa rs ha ll J on e s, Me mph is, Te nn e sse e , f or theapp e llant, J. T. Da vis

. Richard Gla ssman and Le wis W. Lyons, Memphis, Tenne ssee, for the a ppellees, Jon Thompson and Ed Gatlin.-2- OP IN ION

F ACT S AND P R O C EE D ING S B E L OW

InMa rc h 1 99 5, Pla int if

fs /Re sp on de nts Jo n T ho mps on (“ Th omp so n” ) and EdGatli n (“G atlin”), a long with Defe ndant J. T. Davis, M.D. (“D avis”), and Davis’s son-in-law, Kevin Hunter (“H unter” ), formed a Tenne ssee corpor ation called Memphis A rena Football, Inc

. T h e c ompany purcha sed and ope rate d a fr anchise football team in the Ar ena Football Lea gue (“ AFL”) c alled the Memphis Pharaohs, Inc . In 1996, the c orporation was converted to a limit ed liability company. In 19 97 or 19 98 , H un te r w a s f

ir e d. Hu nte r’ s sh arewa s b ou gh t ou t by Th omp so n, Gatli n, a ndDa vis , who then owne d the company in e qual share s. After that, Gatlin took over the ma nageme nt of the business, and all financ ial operations a nd rec ordkee ping f unctions wereconducte d out of his office

. The c ompany oper ated in Memphis in 1996 and 1997. In January 1998, the company moved to Oregon. Thename of

the company w as changed to P ortland Arena Foot ball, LLC, and in 1998 and 1999 it operated as the P ortland F orest Dragons. In January 2000, the company move d again, this ti me to Oklahoma. Its name was change d to Oklahoma Ar ena Football, LLC, and in 2000 and 2001, its football team operated as the Oklahoma Wranglers. In 2002, the company sold the te am back to the A FL f

or $5.8 milli on. In that year , the team playe d in Oklahoma City as a lea gue-ow ned franchise. Af

ter that sea son, the team’s ope rations we re terminated. H ere inafter , beca use of the sequential na me changes to the business, we w ill refer to the parties’ businesses collec tively as “the LLC.”
Ultimately, the parties’ business venture was financ ially unsuc cessf ul. By the e nd of 2001, it b e c a me ne c e ssa

ry fo r the LL C to bo rr ow fu nd s to ke e p the bu sin e ss a fl oat. T o a c c omp lis h th is, the parties took out two loans, the first from Trustmark National Bank of Bartlett (“ Trustmark” ) and the sec ond from First Bank of Lexington (“ First B ank”)

.
Trustm ar k N ote

On Dec ember

19, 2 0 0 1 , t he parties persona lly borrowed $300,000 f rom Trustmark. The parties e xecute d a promissory note in their pe rsonal ca pacities i n fa vor of the bank (“Tr ustmark Note”)

. By the t ime the t eam was going to be sol d, the LLC had repaid all but about $18,474 of the Trustmark Note . To p ay t h e remaining balance , Gatlin and Thompson made payments totaling $17,800 to the LLC; the LLC then paid the ba nk the balanc e of the Trustmark Note . Davis did not contribute to the payment of the ba lance due on the Tr ustmark Note.

Fir st B ankNo te In September

2002, t h e p ar t i es t ook out a sec ond loan for $2.5 million from First Bank (“First Bank Note” ). Contemporaneously, the parties loaned the $2.5 milli on to the LLC, exec uting a note th a t b e c a meth e c o ll a te r a l f o r th e p arti e s ’ in d iv id u a l l o a n f r o m F ir s t B a n k

. T h e L L C m ade most of the payments on the First Bank Note. Whe n the team wa s sold back to the AF L i n 2002, $392,122 rema ined due on the First Bank No t e. In December 2003, afte r this lawsuit was filed, Thompson and Gatlin persona lly bought the First Bank Note. Thompson and Gatlin then execute dIn t h e o ri g i n al co m p l ai n t , G at l i n ’s co m p an y , E m p i re E x p res s, In c. , w as al so n am ed as a p l ai n t i ff , an d D av i s’ s 1

w i f e, Barbar a D avi s , w as nam ed as a def endan t

. O n N ov em ber 22 , 2 00 6, coun s el f or t he Pl ai nt i f f s confi r m ed i n op en court t hat E m pi r e Ex pres s no l on ger as s er t ed any c l ai m f or r el i ef , and t hat t he r em ai ni ng Pl ai nt i f f s no l on ger as s er t ed any cl ai m s a gai ns t M r s

. D avi s

. I n i t s fi nal or der , t he t r i al cour t hel d t hat a l l of Em pi r e Expre s s ’ s c l ai m s w er e di s m i s s ed,

a n d th a t all c la im s a g a in st M rs . D a v is w e re a lso d ism isse d

.

I n r ec ount i ng t he evi denc e at t r i al , w e w i l l not di f f er ent i at e bet w ee n t r i al t es t i m ony a nd de pos i t i on t es t i m ony. 2

-3- a sec ond note (“ the note purc hase a gree ment”) in fa vor of Fi rs t B an k fo r t he amount of the loan balanc e. Da vis was not a party to the note purcha se agr eeme nt.

Lawsuit Fil ed

OnOc tob e r 2 4, 20 03 , T ho mps on a ndGa tli n ( c oll e c tiv e ly, “ Pla int if fs ” ) f ile d th is l a ws uit
a ga ins t Da vis

. Th e origi na l c omp la int a ndthefi rs t a me nd e d c omp la int a lle ge d th a t D a vis wa s li able 1 to the Plaintiffs f

or contribution to the parties’ business under a partnership theory of rec overy. I n November

2004, the Plaintiffs filed a moti on for summary judgment a s to liabili ty. The trial court denied that motion on the basis that (a ) there was no partne rship agre ement, and (b) the T ennesse e Un if orm Pa rt ne rs hip Ac t di d n ot a

pp ly b e caus e th e parties ha d f orme d a c or po ratio n, no t a partne rship.
On June 12, 2006, the Plaintiffs filed their sec ond amende d complaint. The sec ond amende d
co mp lain t a ll e g e d g e n e r a ll y th a t D a v is w a s li ab le to th e Pl a in ti f f s p u r s u a n t to T e n nessee Code Annotated § 4 7 -3 -1 1 6 for c ontribution of his pro rata sha re of debts that wer e owe d by all of the p art i e s b u tp a i d b y o n l y t h e P l a i n t i f f s

. T h e s e c o n d a m e n d e d c o m p l a i n td o e s n o tr e f e r s p e c i f i c a lly to either the Trustmark Note or the First B ank Note; howe ver, the two notes wer e later identified as the subject of the complaint. On Novembe r 28, 2006, Davis filed an answer denying liabilit y to the Plaintiffs. Davis acknow ledged that the notes wer e outstanding, but claimed, int e r a lia , th a t G a tli n a ndTh omp so n c aus e d d ist ri bu tio ns to b e ma de to the mse lve s fr om the LL C, g ivi ng pr e fe re nc e to themselves and de priving the LLC of funds ne eded to pay the LLC’s obligations to Trustmark and First B ank. The ref

ore, D avis asserted, he is entitled to offse t h i s liabilit y to the extent of any improper distributions. H e also claimed that the debt on the Trustmar k Note wa s discharge d by the LLC, not by the Plainti ffs. Conseque n t l y , Da v i s claims, they ar e not entitled to any contribution fr om the dis c ha

rg e of that de bt.

Trial

A benc h trial was c onducted in this matter on Janua ry 18, 2007. Gatlin , T hompson, and Da vis a ll t e sti fi e d at tria l, andthe ir de po sit ion s w e ree nte re d in to e vid e nc e a s w e ll. 2

At the outset of the tria l, a copy of the First B ank Note, e xecute d by the parties, was admitted into evidence . Gatlin testified that th e fu n d s obtained by the pa rties from First Bank in exchange for the First Bank Note wer e loane d to the LLC. The re sulting not e betwe en the individuals and the LLC then bec ame the c ollatera l for the First Bank Note. When the team wa s sold, the proce eds of the sale w ere used to pay a ll but about $392,122 of t he tot al amount due on the loan. First B ank then-4-

asked the parties to purcha se the note. G atlin and Thompson did so by borrowing the $392,122 a nd
exec uting a n o th e r

n o teto Fi r s t B a n k

. D a v is d idn o t p arti c ip a te , n o r d idh e o f

f e r to ma k e a ny payments on the ba lance of the First Bank Note.
Next, a copy of the Trustm ark Note was admitt ed int o evidenc e. Gatlin testi fied that he and Thompson eac h contributed $8,900 to the LLC for the express purpose of supplying funds for the LLC to make the final payment on the Trustmark Note . Gatlin said that he be lieved that Da vis owed
on e thi rdof

that a mou nt a s a

joi nt o bli ge e on theTr

us tma rk No te . G a tli n a c kn ow le dg e d o n c ro ssexamination that, eve n without his and Thompson’s contributions, t he LLC had suf ficient funds at that time from which it could havepaid off the Trustmark Note

. The LLC’ s fo o t b all team oper ation was ge nera lly a losing enterprise, so the parties we re pe ri od ic a lly re qu ir e d to inf us e a su bs ta nti al amo un t of

the ir pe rs on a l f

un ds int o th e bu sin e ss operations. Gatlin testified that, over the cour se of ope rations, when the LLC neede d cash to mee t its expenses, he would call a meeting of the three LLC members – Thompson, D avis, and him. The parties ha d “numer ous meetings at t he Garden Café early mornings to discuss everything that [they]
ever put in the corporation and everything that [they] ever took out of the corpor ation.” Ea rly on, all three parties contributed the neede d funds equally. In the last three year s of the LLC’s ope ration, ho we ve r, Da vis sto pp e d c on tribu tin g b e c aus e he didno t ha ve thefu nd s. Th e Pla int if fs of fe re d to bu y s omeor

a ll o f D a vis ’s sh areof

theLL C, b ut he refu sed , assur ing thePla int if fs that hewo uld repay the Plaintiffs the amount s t h at they contributed on his beha lf. Gatlin indicated that he and Thompson expec ted to be paid ba ck for the contributi ons they m ade in amounts over and above w hat Davis had c ontributed. He a sserted that the parties ha d orally agr eed that, “if [the Plainti ffs] put Xnu mbe r o f d oll ars in, a s so on a s in c omec a me in .

. . we wo uldpay o ur se lve s b a c k b e c aus e [D a vis ] was not contributing at the time.”

Re lyi ng on thi s u nd e rs ta nd ing , G a tli n s a id, he a ndTh omp so n ma de larg e c on tribu tio ns to the LLC. Gatlin estimated that he and Thompson contributed “ove r a million dollars apiec e more than D oc tor

Da vis

. . . e ve n th ou ghwe we reon e -thir d e a c h o wn e rs of thec or po ratio n. ” A s c he du le of c on tribu tio ns to anddis tribu tio ns fr om the LL C sh ow e d th a t, thr ou gh Decem ber 2002 , G a tli n contributed $2,759,617, Thompson contributed $2,645,561, and Davis contributed $1,687,216. Gatlin said that more c ontributions were made i n 2003 and 2004, but these contributions were not included in the sche dule.
A sprea dsheet wa s introduced into e vidence showing the distributions from the LLC for the period fr om January 2001 thr ough Dec ember 2003. Acc ording to the s prea dsheet, during that threeyear period, Gatlin and his w holly owne d businesses (Empire Products or Empire Expr ess) re ceive d disbu rs ements of about $229,418, Thompson rece ived $166,845, and Da vis rece ived $25,466. G atl in indicated that the amounts disbursed to him and Thompson wer e re payments for amounts they had put into the company ove r and a bove what Davis had c ontributed. Gatlin s ai d t h at h e and Thompson trusted that Davis wa s awa re that they wer e putting money into the LLC for him and that they expe cted to be paid back, “ unless [Da vis] thought we wer e some kin to Santa Claus.”

Gatlin testified that he , T h o mpson, and Davis we re a war e of a ll contributions to and distributions from the LLC. He emphasize d that Davis k n ew ab o ut “eve ry single one of ” the-5-

distributions made to Gatlin and Thompson, and asser ted that ea ch disburseme nt was discussed and agre ed upon by all three LLC members. Over all, Gatlin said, he got bac k less than 10% of w hat he had contributed to the business. Gatlin noted t hat Davis never objected to the manner in whic h the disbursements wer e made

. Thompson’s testimony corroborated Gatlin’s testimony. Thompson said th at he, Gatlin, and Davis ca pitalized the are na footba ll business venture by making per sonal contributions. Thompson
sa id that he pe rs on a lly c on tribu te d ove r $1. 5 milli on to the LL C. T he $1 66 ,8 45 that here c e ive d in distributions , Thompson claimed, wa s only about 10% of what he had c ontributed.
Thompson echoe d Gatlin’s testimony that, when the business nee ded money to meet its dayto-day e xpenses, a ll t h ree parties would mee t and ea ch would put in one-third of the amount of
mon e y n e e de d to pay th os e e xp e ns e s. Inthe las t sever a l ye ars of thebu sin e ss, ho we ve r, Da vis sto pp e d c on tribu tin g, e xp la ini ng to Gat li n a ndTh omp so n th a t hete mpo ra ri ly c ou ld n ot a ff

or d to
c on tribu te . A ft e r D a vis sto pp e d c on tribu tin g, Th omp so n sa id, he a nd Gatli n a gr e e d to c on tribu te to the LLC in equal a mounts, covering Da vis’s share

. Acc ording to Thompson, Davis apologized profuse ly to Gatlin and Thompson when he c ould not contribute along with them, stating that “if you guys will c over for me, I’ll pay you back later.” However, Davis did not pay any money to either Thompson or Gatlin. Thompson testified that he a nd Gatlin paid off the Tru s t m ar kNote by ea ch
c on tribu tin g $8, 90 0 to the LL C, an d in tur n the LL C pai d th e no te . T ho mps on ma int a ine d th a t D a vis was include d in all discussions about the LLC finance s until t he very end.

Davis t e s ti f

ie d a s w e ll

. H e r e c a ll e d th e me e ti n g s w it h T h o mp s o n a n d G a tl inab o u t L LC business as being quite informal. Davis described the LLC meetings as “moreof a soc ial function beca use we never

had minutes, w e never had documentation of an expense acc ount, e t c eter a

. . . .” On most occa sions, Davis said, Gatlin sim p l y informed him that Gatlin and Thompson had contributed money to the LLC in order to meet expenses. Davis di d not reme mber any details about thec on tribu tio ns , n ot e ve n h is ow n. He c on c e de d that Ga tli n ca lle d him “ mor e than tw o” tim e s to ask for contributions to help meet LLC expe nses, b u t Da v i s sometimes did not have the fina ncial
re so ur c e s to c on tribu te . O n th os e oc c a sio ns , G a tli n a ssu re d D a vis that hene e d n ot w or ry be c aus e he (G atlin) and Thompson would cove r the shortfa ll. Davis claimed that Gatlin told him t hat, when the team wa s sold, he and Thompson w ould be reimburse d from the proce eds from the sa le of the team for amounts they paid over and above what Davis contributed, with any remaining proce eds of the sale divided equally am o n g al l three of them. Da vis did not know how much Gatlin and Th omp so n c on tribu te d o ve r the c ou rs e of thebu sin e ss, as he ha d s e e n n o d oc ume ntatio n o n it

. Based on what Gatlin had told him, however, he knew their contributions wer e substantial. Whe n asked how much he himself had contributed, Davis responded, “It got so depressing for me , I neve r kept up with it.” Davis agr eed, how ever , that his contribution totaled less than $1.5 milli on. Davis said that, whe n he wa s first shown the spre adshee t of the LLC’s distributions that was submitt ed into evidenc e, he w as “shoc ked” at what had be en paid out to T hompson and Gatlin. Davis cla imed that the parties had neve r had any discussions a bout those distributions , and that he had no knowledgeof them. Da vis did not remember the LLC making any distributions to hi m, but he ha d n ot c he c ke d h is o wnba nk re c or ds to s e e wh e the r h e ha d co rr e latin g de po sit s in his a c c ou nt. Da vis state d that he c la ime d the LL C’ s bu sin e ss los se s on his inc ome ta x re turn in a c c or da nc e wi thH ow eve r , c ouns el f or D avi s c o n ced ed dur i ng t r i al t hat D avi s ow ed t he Pl ai nt i f f s hi s pr o r at a s har e of t he 3
d iffe re n c e b e tw e e n th e a m o u n t d u e o n th e F irst B a n k N o te ($ 3 9 2 ,1 2 2 ) a n d th e a m o u n t o f e x c e ss d istrib u tio n s to G a tli n
a n d T h o m p so n ($ 3 4 5 ,3 3 2 ); in o th e r w o rd s, o n e -th ird o f $ 4 6 ,7 9 0 , o r $ 1 5 ,5 9 6 .6 7

. -6- the K

- 1 f o r m p r o v id e d to h im b y th e L L C, e v e n f o r y e ar s in w h ic h h e h a d p u t n o mo n e y into the business.

Davis wa s under the impression that he had signed the F irst Bank Note and the Trustmark No te in h is c apa c ity a s a

sh are ho lde r o f the c or

po ratio n, tho ug h he a c kn ow le dg e d that ne ith e r n ote contained language indicating that he was signing only as a shar eholder . He testified that both notes should have be en totally paid of f from the procee ds of the sale of the team. Davis admitted, howeve r, that the terms of both notes require d the LLC members to personally pay the notes if they
wer e not paid by the LLC.

W he n th e te a m w a s so ld, Da vis sa id, he did no t know ho w muc h w a s r e ma ini ng on theFir st Bank Note be cause he re ceive d virtually no financia l information from the LL C. Davis had no evidenc e that the ba lance claimed by the Plaintiffs was incor rec t. Davis said that he wa s not awar e that First Bank had called t he note. Davis claimed that Gatlin never called him about t his and neve r asked him to make payments on the First Bank Note. Davis insisted that he did not owe any money to either Gatlin or Thompson. If he owe d any money, Davis said, he owed it to the LLC. At the 3

c on c lus ionof

thepr oo f, thetria l c ou rt

too k th e matte r u nd e r a dv ise me nt.

On Janua ry 17, 2008, the trial court enter ed an order awa rding the Plaintiffs a judgment of $136,640.97, one third of the total ba lance on both the Trustmark and First B ank notes. In r eac hing its c on c lus ion , th e tria l c ou rt ma de thefo llo wi ng fi nd ing s o f f a c t:

3. All three me n signed a promissory note w ith Tr u s t mark National Bank on De c emb er 19 , 200 1, in the a mou nt o f $ 30 0, 00 0.

. . . A lth ou ghDe fe nd a nt D a vis believed hewas signing as a me mber of the Li mited Liability Company, his signature on the document does not show that he signed in any other c apac ity than personally. Def en d an t Davis admitted that he did not re ad the doc ument befor e signing. The borrowe rs ar e identified at the top of the first pageof the document a s Ed H. Gatlin, J.T. Davis, M.D., and Jon Thompson. There is no mention of the Memphis Phara ohs L.L.C. All thr ee men wer e jointly and sever ally liable to the Bank on this note which
came due on May 31, 2002.

4. OnSe pte mbe r 2 0, 20 02 , th e thr e e me n a ga in b or ro we d mo ne y to fu ndthefo otb a ll team. . . . The y eac h signed the $2.5 million promis sory note to First Bank of Lexington, Tenne ssee. The loan was se cu re d b y a note f rom the Oklahoma

Are na Foo tba ll. Ag a in, theme n s ign e d ina n in divi du al c apa c ity rathe r tha n a c or po rate capa city and they we re jointly and seve rally liable on the loa n. 5. For a period of time, all three m en conti nued to financ ially support this l osing venture . Eventually De fendant Davis quit making f urther contributions. This force d-7-

Plaintiff Thompson and Plaintiff Gatlin to fund their own shar e of the expense s and Def endant Da vis’s, also to pay the bills of t he LLC as t hey became due . They fir ed Ke vin Hu nte r

b e c au s e h e w a s u s i n g c o c a i n e , m o v e d t h e t e a mf r o mM e m p h i s to Portland, Oregon and change d its name. Plaintiff Gatlin began mana ging the team beca use he ha d more time available then. Eventually they s old the t eam to the Arena Football League f

or $5.8 million i n 2003 or 2004. They used this money to pay off the debts of the L LC. Defe ndant Davis de cli n ed t o p ar t i cipate in paying off the de bts

. 6. On Dece m b er 1 9 , 2001, Plaintiff Thompson and Plaintiff Gatlin, to reduce the costs of the LLC, bought the $2.5 million no t e fr o m F irst National Bank for $3 92 ,1 22 .9 1.

. . . D e fe nd a nt D a vis off ered no pr oo f that th is f

igu reis i nc or

re c t. Def endant Da vis benefitted f rom this transaction as c ollection costs wer e avoide d and the late fee s of $45,000 wer e waived.
7. The remaining balanc e due on the Trustm ark Note is $17,800.00. Periodically, payments we re made by the LLC on this a ccount funded by deposits from Plaintiff Th omp s o n a n d P l a i n t i f

f G a t l i n

. D e f

e n d a n t D a v i s m a d e n o p a y m e n t s t o r e t i re thi s debt.

8. Inthe ir

te sti mon y, Pla intiff Thomps on a ndPla int if f G a tli n r e fe rr e d to the ir additional funding of the LLC as ca pital calls. This designation is no more binding
o n th e Co u rt th a n D e f

e n d a n t D a v is ’ s d e s ig n a ti o n o f h is s ig n a tu r e a s being in a corpor ate capa city. The funds paid into the LLC by Plaintiff T hompson and Plaintiff Gatlin functioned a s loans to keep the b u s i n es s af loat until a sale could be worke d
ou t. Th us , the arg ume nt that Pla int if f Th omp so n a nd Pla int if

f Gatli n i mp rop erly
rec eived more money from t h e L L C than did Defe ndant Davis is not persua sive. Def endant Da vis failed to live up to his bargain to eq u ally financ ially support the team and he misled Plaintiff Thompson and Plaintiff Gatlin about the suitability of Ke v i n Hu nter to mana ge the team. But for Plainti ff Thompson’s and Plaintiff Gatlin’s continual infusion of money int o t h e L LC, Defe ndant Davis would find himself in worse f

inancial c ondition than he is presently.
9. Although this case wa s initially pled on another theory, it was trie d as a Suit on two promissory notes. Def endant Davis was persona lly liable on eac h for one third. The Court aw ards Plaintiff T hompson and Plaintiff G atlin a judgment in the amount of $1 36 ,6 40 .9 7 ( $3 92 ,1 22 .9 1 + $1 7, 80 0/3 ) p lus c ou rt c os ts.
Thus, the trial court held that Davis wa s liable to th e P l ai ntiffs for one -third of the ba lance on the Trustmark Note and one- third of the balance on the First B ank Note. The trial court re jected D avis’s
c la im that hi s li abil ity on theFir st B a nk No te sh ou ld be of

fs e t by dis tribu tio ns ma de to the Pla int if fs , fi nd ing that th e dis tribu tio ns by th e LL C c on sti tut e d th e pe rm iss ibl e re payme nt o f l oa ns . I t a lso found t hat t he LLC payments on the Trustmark Note w ere funded by the Plaintiffs, which entitled them to contribution from Davis. In a separ ate or der, the trial court awar ded the Pl aintiffs $35,000C o u n sel fo r t h e p art i es w as i n form ed of t h i s at t o rney ’s fee aw ard i n a l et t er f rom t h e t ri al j u d g e d at ed J an u ary 4 7, 200 8, w hi ch w as i ncorporat ed i n t he t r i al court ’ s J anuary 17, 200 8 order by refer ence.
-8- in attorney’s f

ees and expense s, pursuant to the terms of the notes. Davis now a ppeals the tria l 4 court’s judgment in fa vor of the Plaintiffs, including its awar d of attorne y’s fe es.

I S S UE S ON A PP E AL AND S TANDA RD OF R EVIEW On appe al, Davis argues that the t rial court err ed in finding him liable for his pro rata share of the total re maining balance s on the F irst Bank and Trustmark Notes. He further argue s that the t ri al co u rt err ed in awa

rding the Plaintiffs any attorne y’s fe es incurr ed prior to the f iling of the amende d complaint on June 12, 2006.

Because this cas e wa s t ri ed b y the trial court without a jury, we re view the tria l court’s fi nd ing s o f f

a c t de novo on the re cord, pr esuming those findings to be corr ect unless the e vidence preponde rate s otherwise. Squi b v . Sm ith , 9 48 S.W .2 d 7 52 , 7 54 (T e nn . Ct. App. 19 97 ); Te nn . R. App

. P

. 13(d ). To thee xte nt that th e tria l c ou rt ’s fa c tua l de te rm inatio ns we reba se d o n it s assessment of w itness cre dibilit y, we will not ree valuate that assessment abse nt clear and convinc ing evidenc e to the contr ary. Jo ne s v . G ar re tt , 92 S.W.3d 835, 838 (Tenn. 2002). We revie w the trial court’s c onclusions of law de novo , with n o p re s u m p tion of corr ectne ss. Bow de n v . W ar d , 27 S.W.3d 913, 916 (Tenn. 2000). The a mount of an aw ard of attorney’ s fee s is necessa rily a matter for the trial court’s discr etion, and we will not reverse a trial court’s attorney’s fee awar d absent a n abuse of that discretion. Keith v. Howerton , 165 S.W.3d 248, 250-51 (Te nn. Ct. App. 2004). The trial court a

buses its di s cr et i o n when it “either applie[ s] an incor rec t legal standar d or re ache [s] a
c le ar ly u n r e a s o n ab le d e c is io n , th e r e b y c au s in g a n in ju s ti c e to th e a g g r ie v e d p arty

. ” Id. (q u o ting Klin e v. Ey rich , 69 S.W.3d 197, 204, 209 (Tenn. Ct. App. 2002))

. A N A L Y SIS
Cont ribut ion

Tenne ssee Code A nnotated § 47-3- 116(a) authorize s an ac tion for contribution when one pa rty h a vin g jo int

a ndse ve ra l li abil ity on a no tepays thee nti reins trume nt: (a) Exce pt as otherwiseprovided in the instrument, two (2) or more pe rsons who have the same liability on an instrument as maker s, drawe rs , acc eptors, endor sers wh o in do rs e a s jo int

paye e s, or

a no ma lou s e nd or se rs arejoi ntl y a ndse ve ra lly lia ble in the capa city in which they sign.
( b ) E x c e p t a s p r o v id e din§ 4 7

- 3

- 4 1 9 ( e ) o r b y a g r e e me n t o f

th e a f f e c te d parties, a pa rty hav ing joint a nd s e v e ra l li ab ili ty who p ays the ins trum e nt is e ntit le d to
re c e iv e fr om a ny pa rty hav ing the sa me joint and se v e ra l li ab ili ty c ont rib utio n in
ac c or da nc e with ap

plic ab le law

.T h is sta tu te p ro v id e s th a t, “ [u ]n le ss o th e rw ise p ro v id e d in o r th ro u g h th e a rtic le s o r o p e ra tin g a g re e m e n t, 5
di s t r i bu t i on s of cas h or ot her as s et s of an L L C , i ncl ud i ng di s t r i bu t i on s on t er m i nat i on of t he L L C except as provi ded i n § 4 8 -24 5 -11 0 1 , m u st be al l o cat ed eq u al l y am o n g t h e m em b ers

. ” T en n

. C o d e A n n

. § 4 8 -23 6 -10 1 (20 0 2 ).

Thi s s t at ut e pr ovi des t hat “[ n] o di s t r i but i on m ay be m ade by a n LL C i f , a ft er gi vi ng e f f ec t t o t he di s t r i but i on 6

. . . [t ]he L L C w o u l d no t be ab l e t o pa y i t s d eb t s as t h ey be cam e d u e i n t h e n o rm al co u rs e o f bu si n ess , ” o r “t h e L L C ’s to ta l as se ts w o u ld b e les s th a n th e su m o f its to ta l l ia b ili ties . . . .” T e n n . C o d e A n n . § 4 8 -2 3 6 -1 0 5 (a ) (2 0 0 2 ).
-9- (c ) D isc ha

rg e of one part y ha vin g jo int

a ndse ve ra l li abil ity by a pe rs on e nti tle d to enfor ce the instrument doe s not affe ct the right under subsection (b) of

a party having the same joint and seve ral liability to rece ive contribution from the party discha rged.

Tenn. Code Ann. § 47-3-116 (2001) (empha sis a dded). “The right to contribution is t he right of a person who ha s discharge d a common liability or burden to re cover of anothe r, who is also l iable, the portion he or she ought to pay or bear .” 18 A M

. J UR

. 2 D § 1 (2004). The right to contribution is b a se d o n e qu ita

bleprinc ipl e s:
The doctrine of contribution is f ounded upon principles of equity and natur al justice,
r a th e r th a n o f c o n tr a c t la w. TRW-Title Ins. C o. v. Stewart Titl e Guar. Co. , 832 S.W .2 d 3 44 , 34 6 (T e nn . Ct . A pp . 1 99 1) ; Esstm an v. Boyd , 605 S.W.2d 237, 241 (Tenn. Ct. App. 1979). I t applies wher e the pa rties share a common obligation or liability, but one party has paid more than its proper share of t he obli gation. Squi bb
v . Sm ith , 9 4 8 S

. W

. 2 d 7 5 2 , 7 5 4 ( T e n n

. C t

. A p p

. 19 97 ); Underwood v. Waterslides of Mid-America, Inc. , 8 23 S.W .2 d 171 , 186 (T e nn . Ct . A pp . 1 99 1) ; Winebarger v. Winebarger , 6 53 S.W .2 d 7 46, 74 8-49 (T e nn . Ct . A pp . 1 98 3) . T he ri gh t to contribution among contr act debtors does not arise until one of them ac tually pays more than its fa ir share of t he joint obligation. Yo ung v . Ki ttr e ll , 833 S.W.2d 505, 50 8 ( Te nn . Ct . A pp . 1 99 2) ; Esstm an v. Boyd , 605 S.W.2d at 241.

F i r s tNa t ’lB a n k o

f Chicago v. Cumberlan d Bend Investors, L.P. , N o

. M2000-00001-COA- R3-CV, 2002 WL 31835693, at *4 (Tenn. Ct. App. De c. 19, 2002). Base d o n the law of contribution, the trial court held that Davis was liable for his pro r ata sha re of the payments made by the Plaintiffs on both the First B ank and T rustmark Note s.
Davis first ar gues t hat t he trial court erre d in failing to offse t his obligation on the F irst Bank Note by the $345,332 in allegedly improper distributions made to the Plaintiffs as r efle cted on the sprea d s h ee t ad m i t t ed into evidenc e at tria l. In support of this contention, Davis cla ims that the evidenc e pre ponderates aga inst the trial court’s finding that the distributions constit uted re payment of loans; he a sserts that they instead c onstitut ed dis tribution of capital. Consequently, beca use the distributions of ca

pital were unequal among the members of the LLC, and be cause the distributions rende red the LLC unable to make the payments on its debt to First B ank, the distributions violated Tenne ssee Code A nnotated §§ 48-236- 101, 48-236-10 5(a) , and other statutes related to the 5 6 operation of LLCs. There fore , Davis ar gues, the a mount of the total debt owed on the First B ank No te ($ 39 2, 12 2) sh ou ld h a ve be e n o ff se t by the se imp ro pe r d ist

ri bu ti o n s ( $ 3 4 5 , 33 2) , a ndhis lia bil ityO n ap p ea l , D av i s d o es n o t d i sp u t e th at h e m ay b e li ab l e to t h e P l ain t i ffs fo r so m e c o n t ribu t io n o n t h e F i rst 7
B a n k N o te , b u t ar g u e s o n ly th a t t h e a lleg e d ly im p ro p e r d istrib u tio n s e n tit le h im to a n o ff se t.

B L ACK ’ S L A W D I C T I ONA R Y d e fin e s fo rty d iffe re n t ty p e s o f l o a n s. B L ACK ’ S L A W D I CT I ON ARY 947- 48 ( 7 e d. th 8
1 9 9 9 ).
-10- should have been limit ed to his pro rata share of the diff

ere nce ( $46,790), or $15,597. With respe ct 7 to the Tr us tma rk no te , D a vis c la ims that heis n ot l ia bleto the Plaint if

fs fo r c on tribu tio n, because they did not personally pay of f t hat not e. Rather, the undisputed evidence shows that the LLC, not thePla int if

fs , p a id that de bt.

In re sponse, the Plaintiffs claim that the evidenc e preponde rate s in f avor of the trial court’s finding that the distributions t o them constituted repayment of l oans and that, theref ore, the statutes upon which Da vis relies ar e inapplicable. Even if the distributions wer e conside red to be distri b u t i o ns of ca

pital, the Plaintiffs contend, Da vis is not entit led to a cr edit for wr ongful dis tribu tio ns , b e c aus e thestatut e s p ro vid e no ri gh t to c re dit a ga ins t the de bt that ar os e ou t of the ir joint and severa l liabilit y on the bank notes. Furthermore, they a rgue, even if

the distributions were wrongful and Davis we re othe rwise e ntitled to a cre dit, Da vis’s defe nse was raised more than three year s afte r the date of the most re cent distribution. See Tenn. Code Ann. § 48- 237-101(d) (2002) (stating that members r ece iving or assenting to improper distributions ha v e n o l i ab ility for such distribution afte r t hree year s from the date of the distribution). In light of the three- year limit ation on such a c laim, they assert, Davis is barr ed from “attempting to rec over through the back door what the law c learly prec ludes him from rec overing through the f ront door.” T he Plaintiffs also claim that thee vid e nc e pr e po nd e rate s infa vo r o f the tria l c ou rt ’s c on c lus ionthat th e tw o $8, 90 0 p a yme nts made by them to the LLC we re ma de to the LLC for the purpose of

satisfying the Trustmark N ote. Th e re fo re , b e c aus e the se payme nts we re ma de fo r this e xp re ss p ur po se , th e Pla int if

fs aree nti tle d to
c on tribu tio n f

ro m D a vis

. As a threshold issue, we must de termine whe ther the e vidence preponde rate s in favor of the trial court’ s finding that the distributions made to the Plaintiffs constituted repayme nt of loans they made to the L L C. The parties cited no ca se law illuminating the distinction between a c apital contribution and a loa n. B LA CK ’ S L A W D I CTION A RY define s “ca pital contribu t i o n ” as “[c]a sh, property, or servic es contributed by pa rtners to a

partne rshi p , ” or “[ f]unds made available by a share holder, usu. without an incre ase in stock holdings.” B LA CK ’ S L A W D I CTION A RY 201 (7 ed. th 1999). In contrast, “loan” is define d as “[a]n act of lending; a grant of something for tempora ry use,” and “[ a] thing lent for the borrowe r’s temporary use; esp., a sum of money lent at interest . . . .” Id. 8 at 947. In a ll cases a

loan involves a borr ower and a lender who expec t r epayme nt, with or without consideration or interest. See id. at 947-48.

In the c ase at bar, by the a ccount of all parties, the L LC was conduc ted in a highly informal
manner . The only evide nce r egar di n g t h e n at u re of the Plaintiffs’ payments to the LLC and the distributions there from is the parties’ testimony. Gatlin testi fied that he and Thompson contributed to the LLC over a

milli on dollars apiec e more than Davis ove r the c ourse of t h e business. The schedule of payme nts shows that, by the end of 2002, they had both contributed over $900,000 more than Davis. This testimony was not disputed by Davis, who profe ssed t o have litt le knowledge of-11-

the LLC’s financ es because it became “so depre ssing.” Gatlin asserted t hat t he parties had an or al agre ement that the LLC would repay the Plaintiffs f or these exce ss c ontribution s as i t o btained sufficie nt f

unds; both Gatlin and Thompson said that the amounts distributed to them co n stitut ed
re payments , and altoge the r w e reon ly a bo ut 1 0% of

thetot a l lo a ne d to theLL C by thePla int if fs

. Thompson testified that Davis apologize d for failing to contribute and promised to pay ba ck the Pla int if fs fo r the ir

e xc e ss c on tribu tio ns . I t is un dis pu te d th a t th e Pla int if fs ’ e xc e ss c on tribu tio ns did
no t le a d to a n in c re a se in the ir sh are of th e bu sin e ss, wh ic h w ou ld h a ve ind ic a te d th a t th e ir contributions to the L LC w ere intended to be capital contributions r ather than loans. On the othe r hand, in their testimony, Gatlin and Thompson at times referr ed to their c ontributions as “ca pital
c on tribu tio ns ” or

“ c apit a l c a lls .” Th omp so n te stifi e d th a t th e bu sin e ss w a s “ c apit a liz e d” wi th contributions from the parties. In addition, there is no loan docum entation, nor a ny evidenc e that the Plaintiffs char ged intere st to the LLC for any loans. D avis’s testimony again does not enlighten; he te sti fi e d only that G a tli n to ld h im that th e e xc e ss c on tribu tio ns by Gatli n a ndTh omp so n w ou ld be re paid from the pr ocee ds of the eve ntual sale of the team.

Over all, considering the r ecor d as a w hole, we c annot conc l u d e t h at the evidenc e preponde rate s against the trial c ourt’s conclusion that the di stributions made to the Plaintiffs by the LLC constituted repayment of l oans m ade to the LLC by the Plaintiffs. It is undisputed that all of the parties in this case we re a war e that the Plaintiffs made exce s s co n t ri b utions, that they were eff ectively covering for Davis, and that all the parties expec ted t hat t he P laintiffs would be re paid. Thus, this finding by the trial court is aff irmed.

We a lso find that the evidenc e pre ponderates in favor of t he trial court’s conclusion that the Plaintiffs personally dischar ged the de bt on the Trustm ark note. We r ecogniz e that the a ctual che ck written t o T ru s tmark came from the L LC. Howeve r, the undisputed evide nce show s that the Plaintiffs eac h wrote chec ks for $8,900, approximate ly half of the amount due, around the time of the final payment, and that this money was intende d for, and was a ctually used for funding the Trustmark Note payoff . This finding, theref ore, is also a ffirme d.
In light of these fa ctual findings, w e agre e with the trial c ourt that the doctrine of contribution must a pply in this situation, wher e the Plaintiffs paid mor e that their share of the parties ’ j o int obligations. This holding allows for rec overy by the Plaintiffs a gainst Davis, who bene fitted from the Plaintiffs’ payments. See First Nat’l Bank of Ch icago , 2002 WL 31835693, at *4. Ther efor e, Davis owe s the P laintiffs his pro rata shareof the re maining debts on both notes that were satisfied by the Plaintiffs, and this holding by the trial court is likewise af firmed.

Attorn ey’s Fees Finally, Davis argue s that the t rial court err ed in awa rding the Plaintiffs $35,000 in attorney’s fee s. He points out that any liability he has for attorney’ s fee s arises f rom the langua ge in the two notes. Howe ver, the first two and a half ye ars of

this li tigation did not relate to rec overy o n the
no te s. Ra the r, the Pla int if fs ’ ini tia l a nd fi rs t a me nd e d c omp la int s, ba se d on the orie s o f p art ne rs hip and fr aud, we re r esolved in his favor

. Only when the second amende d complaint was filed on June 12 , 2 00 6, wa s r e c ov e ry so ug ht o n th e Fir st B a nk No te a ndTr

us tma rk No te . T he re fo re , D a vis contends, the fee s gener ated by Plaintiffs’ attorney prior to that date, including the deposi t i o n s of-12-

the individual parties, we re in pursuit of theories upon which the Plaintiffs had no right of rec overy of attorney’ s fee s, even if they had prevailed on those theories. W hile Davis ac knowledges that he may bear som e li ability for fees and costs incurre d afte r June 12, 2006, he maintains that he ha s no liability for fee s incurre d befor e that date. I n response , the Plaintiffs assert that much of the pre -June 2006 discovery w as on the nature of the business, the parties’ relationships, and the liabilities of the LLC, in cl u d i ng the notes at issue, a nd thus was useful in the Plaintiffs’ ultimate re covery on the
no te s. Th e y a

rg ue that, u nd e r the c ir c ums ta nc e s, thetria l c ou rt a c te d we ll wi thi n its dis c re tio n inits attorney’ s fee awa

rd.

The trial c ourt held a hearing on May 25, 2007, to consider the parties’ ar guments rega rding attorney’ s fee s. In the hea ring, the Plaint i ff s submitt ed the a ffidavit of the ir trial counse l, who char ged a total of $46,008.70 in le gal fee s and expense s for his se rvice s in the litigation. The trial court c onsidered the parties’ argume nts and the af fidavit and determined t hat a $35,000 fee , about 76% of the total r equeste d, was appropriate. The trial court explained, “The argume nt that much of the work w as done on the first two versions of the complaint has merit but so does the a rgument that ultimately Pl aintiffs pre vailed with a judgment of $136,640.97.” It is undispu t ed t h at, under the terms of the notes at issue, the Plaintiffs a re entitled to rec over the ir attorney’ s fee s. As noted above , the amount of t he fee to be awarde d is within t he trial c ourt’s sound discre tion. Ke ith , 165 S.W.3d at 250-51. From our re view of the entire appellate rec ord, we conclude that the trial court did not abuse its discre tion in awarding the Plaintiffs $35,000 in attorne y’s fe es.-13- C ONCL US I ON

The de cision of the trial court is a ffirme d. Costs on appea l are to be taxed to Appe llant J. T. Davis and his sure ty, for which e xecution may issue, if ne cessa ry.

_____ _ _ _ _ _ _ _ _ _ _ _ _ _ ___________________ HOL L Y M. KI RBY, JUDGE