### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE A ssi gne d on Br ie fs S ep te m be r 9, 200 4
GLADYS BO LES, ET AL 

### . v. NATI ONAL DEVEL OPMENT COMPANY, INC., ET AL 

### . Appeal f romthe Circ uit Court for Hickman County No. 94-5027C R . E. Lee Davies, Judge

No. M2003- 00971-COA-R 3-CV - F iled April 26, 2005

This is a class ac tion on behalf of pur chase rs of 3,876 lots at Hidden Va lley L akes D evelopment, a residential de velopment in Hickman County . Plaintiffs seek t o re cover compensatory

damag es re su lti ng fr om a br e a c h of co ntr a c t by the de ve lop e r, Natio na l D e ve lop me nt C omp a ny , Inc ., a ndits
a lle g e d a lte r e g o, Cly de W. En g le

. Pla int if fs a lle g e that N a tio na l br e a c he d it s c on tr a c t by faili ng to provide the c enter

piece of the de velopment, a thirty -ac re lake. The lake f ailed to hol d water

and thus became a thirty -ac re holein the g round. I t w as stipulated that the failure of National to provide the thirty -ac re lake wa s a bre ach of contra ct. The tria l was bifurc ated into two phase s. The first wa s limit ed to the plaintiffs’ c laim for dama g es ag ainst National, following which the plaintiffs w ere a wa rd e d c omp e ns a tory da ma g e s in the a mou nt of $2 ,5 40 ,8 67 a g a ins t N a tio na l. T he se c on d p ha se of the trial was limit ed to the plaintiffs’ claim that Cly de Eng le was the alter eg o of National and thus liable for the damag es asse ssed ag ainst National. Following an evidentiary hearing, the trial court pierc ed the c orporate veil and held Engle personally liable for the j udg ment ag ainst National. The defe ndants appe al contending that the plaintiffs’ pr oof of da mag es wa s neither c ompetent nor sufficie nt, that the wrong leg al standar d was applied to pierc e the corpor ate veil and that the pr oof was insuffic ient to pierce the cor porate veil. Eng le also appe als co n t en d i n g t hat the court did not have pe rsonal jurisdiction over him and thus the judg ment ag ainst him is voi d. Finding no err or, we a ff ir m. Tenn. R. App . P . 3 Appeal as of Right; Judgme nt of th e Circ uit Court Aff irm ed
F RAN K G. C L EME NT , J R ., J ., delivere d the opinion of the court, in which W I L L I AM C. K O CH , J R ., P.J ., M.S., and Patricia J. C ottrell, J ., joined.
J ohn C. Hay worth, Charle s I ng ram Malone, Kathryn Hay s Sasser, Ge rald M. Tierney , J r., and Joseph F. Welborn, Na shville, Tennessee , for the a ppellants, National De velopment Company , I nc., Sunstates Corporation and Cly de W. Eng le.
Do ug la s T ho mps on B a te s, I I I , Ce nte rv ill e , T e nn e sse e , f or the app e lle e , G la dy s B ole s, e t a l.-2- OP IN ION Twenty -nine o wn ers of

property in the Hidden Va lley

L akes D evelopment in Hickma n County , Tenn es s ee, f

iled a civil ac tion ag ainst National De velopment Company , I nc., a T exas corpor ation, seeking damag es re sulting fr o m b re ach of contra ct and ne g lige nt and fra udulent misrepre sentations. The princ ipal complaint perta ined to the ce nterpiec e of the d ev elopm ent, a thi rt y -a c re lake , n a me d Cry sta l L ake . T he lake faile d to ho ld w a te r and it was su bs e qu e ntl y determined that it would never hold water. Thus, instead of having a thirt y -a cre lake a s the cente rpiec e of the development, the pla intiffs have a thirty -ac re hole in the g round.
Plaintiffs amended the ir complaint in Septemb er 1 9 9 5 t o alleg e that their c auses of action
wer e being asserted on beha l f o f “a l l p ersons signing contra cts with National prior to 1994 a nd specific ally

providing : ‘THE SELLER is responsible for c onstruction of roa ds, lakes, and r elated fac iliti es’” and all succ essors to any persons who sig ned such contra cts with National. The pla intiffs soug ht to repre sent a c lass of per s o ns who purcha sed some 3,876 lots from National for a total consideration paid for the lots of $9,239,517.

I n D e c e mbe r o f 1 99 5, the tr ia l c ou rt c e rt if ie d th e plaint if

fs ’ b re a c h o f c on tr a c t c la ims a s a c la ss a c tio n on be ha lf of “ pe rs on s wh o prior to the e nd of 19 94 , p ur c ha se d o r c on tr a c te d to pu rc ha se property in the Hi d d en Valley

L akes subdivision from National Development Company , I nc., pursuant to contra cts containing lang uag e to the ef fec t that defe ndant would be r esponsible for construction of r oads, lake s and re lated fa cilities.” Plaintiffs’ misrepre sentation claims, howeve r, wer e not ce rtified for

class ac tion treatment. There afte r, on Fe bruary 20, 1996, the plaintiffs filed
a no tic e of dis mis sa l of

the ir mis re pr e se ntatio n cl aim s. Th us , th e plaint if fs pr oc e e de d w iththe ir claim ag ains t Na t i o nal on the sing ular issue of w hether National wa s liable for br eac h of contra ct based upon its fa ilure to deve lop the cente rpiec e of the subdivision, C ry stal L ake.

L ater on, the plaintiffs ag ain amende d their complaint, adding S unstates Corporation, National’s pa

rent, as an additional defe ndant. The thrust of the complaint ag ainst Sunstates was that it operate d Nation al as it s “alter -eg o, and as its ag ent.” Plaintiffs alleg ed that Sunstates caused Natio na l to be c ome un de r- c apit a lized as a re su lt o f a tr a ns fe r o n D e c e mbe r 3 1, 19 94 of a n e xce ss of $5 million i n contra cts to aff iliates of Sunstates and Na t ional. Plaintiffs theref ore a lleg ed that Sunstates was liable for

any judgme nt that may

be re ndere d ag ainst National.
Tw o y e ars la te r, in De c e mbe r of 19 98 , th e plaint if fs a me nd e d th e ir

ple a din g s o nc e a g a in, thi s tim e a dd ing Cly de W. E ng le , th e princ ipa l beh ind the c or po rate de fe nd a nts , as an a dd iti on a l pa rt y de fe nd a nt. Pla int if

fs a sse rt e d th a t E ng le e xer c ise d c omp le te do min ion a nd c on tr ol o ve r S un state s, National and other aff

iliated entities and that he w as the “ alter- eg o” of the entities which justified pierc ing the corpor ate ve ils of National and Sunstates in orde r to hold Eng le individually liable for
a ny jud g me nts that may

be re nd e re d a g a ins t th e c or po rate de fe nd a nts

. Due to the complexit y of issues, the trial was bifurcated into two hearings. The first t ri al pe rt a ine d to the iss ue of

da ma g e s o nly . T he se c on d f oc us e d s ole ly

on the qu e sti on of

wh e the r E ng le-3-

was the a lter eg o of t he corporate defe ndants and, thus , whether the corporate veils should be pierc ed so that the plaintiffs could re cover their dama g es ag ainst Cly de Eng le, individually

. The da mag es portion of the plaintiffs’ brea ch of contra ct action ag ainst National wa s tried befor e the Honor able Dona ld P. Harris on January 19, 2000. The plaintiffs wer e awa rded damag es a g a ins t th e de ve lop e r, Natio na l, i n th e a mou nt o f $ 2, 54 0, 86 7. Th e seco ndph a se of the tr ia l, t o determine whether

to hold Engle persona lly

liable for the judgme nt ag ainst National, w a s tr ie d b e fore the Honora

ble R. E. L ee D avies o n J u n e 1 7 and 18, 2002. The trial court a pplied Tenne ssee law , rathe r than the la w of the state s of incorpor ation of National and S unstates, and found Eng le to be the a lte r e g o o f the c or

po rate e nti tie s. I t, the re fo re , p ie rc e d th e c or po rate vei ls andhe ld E ng le pe rs on a lly

lia ble fo r the $2 ,5 40 ,8 67 jud g me nt r e nd e re d a g a ins t N a tio na l.

S TA N D A R D O F R EVIEW
Th e iss ue s r a ise d c on sti tut e a c ha lle ng e of the tr ia l c ou rt ’s jud g me nt f oll ow ing a

be nc h tria l. We re vie w fin din g s of fa c t by a tr ia l c ou rt de novo and presume that the finding s of fa ct ar e cor rec t unless the pre pondera nce of the evidenc e is othe rwise. We also g ive g reat weig ht to a trial court’ s determinations of cre dibilit y
. Estate of W alton v. Y oung , 9 50 S.W. 2d95 6, 95 9 ( Te nn . 1 99 7) ; B & G Con str

. , I

nc . v . P olk , 37 S.W .3d 462, 465 (Tenn. Ct. App. 2000). Howeve r, i f t he trial judge ha s not made a s pecif

ic finding of fa ct on a pa

rticular matter, we will review the rec ord to determine wh e re the pr e po nd e ranc e of the e vid e nc e lie s w ith ou t e mpl oying a pre su mpt ionof

c or re c tne ss. Ga nz e v oo rt v . R us se ll , 949 S.W .2d 293, 296 (Tenn. 1997)

. Tenn. R. App. P. 13(d)’ s presumption of cor rec tness require s appellate courts to def er to a t ri al co u rt ’s findi ng s of fa ct. Rawlings v. John Hancoc k Mut. Life Ins. Co. , 7 8 S. W. 3 d 2 9 1 , 2 96 (Tenn. Ct. App. 2001). Because of the pr esumption, an appe llate court is bound to l eave a trial court’s f inding of fac t undisturbed unless it determ i n es t h at the ag g reg ate we ight of the evidenc e demonstrates that a finding of fac t other than the one found by the t rial court is more proba bly true. Pa rk s P ro pe rti e s v . M

au ry Cou nty , 70 S.W .3 d 735, 742 (Tenn. Ct. App. 2001). F or the e vidence to p re po nd e rate a g a ins t a tr ia l c ou rt ’s fi nd ing of

fa c t, i t mu st s up po rt ano th er fi nd ing of fa c t w ith g reater c onvincing eff

ect. W alke r v . S idn ey Gi lre ath & As so c s. , 40 S.W .3d 66, 71 (Tenn. Ct. App. 2000).
D A M A GES Following a bench trial, the plaintiffs we re a war ded dama g es ag ainst National De velopment Compa n y , I n c
. th e d e v e lo p e r , in th e a mo u n t o f $ 2 , 5 4 0 , 8 6 7

. D e f

e n d a n ts ap p e a l th a t de cision, contending that the judg ment ag ainst National shoul d be re verse d beca use the re cord doe s not contain compe tent or suffic ient proof of damag es. Our analy sis of this is s u e b egi n s with an assessment of the trial court’s reasoning , which is set forth in detail i n an excellent Memorandum Op ini on :-4- This action for br eac h of contra ct was tried by the court on J anuary 19, 2000. Plai n ti f f s ar e a c la s s o f p u r c h a s e r s o f r e a l p r o p e r ty lo c a te d in th e H id den Va lley L akes Subdi vision, a rec reational development, deve loped and mar keted by the de fe nd a nt, Natio na l D e ve lop me nt C om pany , Inc . A ll m e mbe rs of the c la ss p u r c h a s e d lo ts in th e d e v e lo p me n t in c id e n t to a c o n tr a c t o f s a le th a t c o n ta ined the following lang uag e:

“The SELLER is responsible for construction of roads, lake s and related facilities such as the bathhouse, beac h and boat r amps, . . .” The primary

lake, Cry stal L ake, intende d to cover some 45 ac res, w as d u g by the de fe nd a nt bu t did no t ho ld w a te r andthee ff ort to bu ildthe lake wa s f ina lly
aba nd on e d. Th e plaint if

fs br ou g ht a

c la ss a c tio n to re c ov e r f or the dim inu tio n in value of their prope rties caused by the failure of the defendant to complete the la ke. F ive oth e r s ma ll l ake s w e re c on str uc te d b y the de fe nd a nt a s w e ll a s a

sw imm ing po ol, bathhouse a nd other fa cilities. Cry stal L ak e wa s , howeve r, to be the pr eeminent
rec reational f

acility on the property

and would have , if construc ted, ac commodated b o at i n g, s k i i n g an d fi s h i n g.
The c oncept of

marke ting the pr operty

was that any one who pur chase d a lot in the de ve lop me nt w a s en ti tl ed to use a ny of the c omm on re c re a tio na l f a c ili tie s. Ea c h land owner was ob lig a te d, by c on tr a c t, t o p a y

a n a sse ssm e nt amou nti ng to $7 2. 00 pe r y e ar t o th e ho me ow ne r’ s a sso c ia ti on fo r m a int a ini ng the pr op e rt y , to include the r oads, sewe rs and s ewag e disposal fa cility , rec reational fac iliti es and
c omm on are a s. B y the e nd of 19 94 , so me 38 76 lot s h a d b e e n s oldby the de fe nd a nts and these lot owne rs are members of the class of

plaintiffs. The total conside ration paid by plaintiffs for the ir lots was $9,239,517.42.
Th e dif fi c ult qu e sti on pr e se nte d to the c ou rt is the a mou nt o f d imi nu tio n in value of the lots sold caused by

the def endant’ s fai l u re t o complete Cry stal L ake. The de fenda nt did not deny that it was obli g ated to construct the la ke, that it failed to pe r f o r m th a t o b li g a ti o n o r th a t it w a s r e s p o n s ib le f o r a n y d im in u ti o n in v a lue of the lots s o ld a s a r e s u lt

. So me o f th e lo ts in v o lv e d w e r e la r g e r lo ts s u it ab le for
c on str uc tio n o f p e rm a ne nt d we lli ng s. Som e of the lot s w e re ve ry

sma ll l ots su ita

ble only for pa rking a camper. Some lots fr onted direc tly on what wa s supposed to be Cry stal L ake. O ther lots wer e located in remote are as of the de velopment nea rer the small lakes. By the time of the trial, it is clea r t hat s ome of the lots had little, if any , value. Some 146 of them wer e sold by Hickman County

for ba ck taxes, evidenc ing
aba nd on me nt b y

the pe rs on s w ho ha d p urcha se d th e m. T he va st m a jority of the se-5-

lots were r etained by

the county beca

use no one offe red any amount in excess of the taxes owed. The de fenda nt itself had some lots for as little as $65.00.
When lots are abandoned in this development, the a mount of maintenanc e fee s that will be paid are proportionately reduc ed. B eca

use many of the lots have littl e or no va lue, the abilit y o f t h e homeowner s’ association to collect the maintenanc e fe es has be en er oded. L og ical l y , t his erosion would cause further
u n c e r t a i n t y a n dd i m i n u t i o n i n v a l u e o f t h e p r o p e r t y.
Mr s. Pol ly

Dy e r, a re a l e state app raise r, te sti fi e d a s a n e xpe rt fo r the plaint if

fs

. Acc ording to her testimony , the lots in the Hidden Valle y L ak es Subdivision have diminis hed in value an averag e of ninety (90%) perc ent for those lots fronting on the proposed Cry stal L ake and six ty (60%) for those not f

ronting on the proposed la ke. She opined that ninety (90%) of t he dim inution in value wa s cause d by the fa ilure of defe ndant to complete Cry stal L ake.
On cr oss-examination, Mrs. Dy er listed the r esale s of lots in Hidden Valley L akes Subdivision as derive d from re cords maintaine d by the Assessor of

Properties Offic e for Hickman Count y
. Ba sed upon the resales, one- half of the lots resold had diminis hed in va lue six ty (60%) or less. One- half of the lots re sold had diminished g re a te r th an si xty

(6 0% ) p e rc e nt. Th e se fi g ur e s w ou ld i nd ic a te ha lf the lot s r e so ld los t an aver age of

thi rt y (3 0% ) p e rc e nt i n v a lue a ndha lf los t a n a ve ra g e of

e ig hty (8 0% ) p e rc e nt i n v a lue . A s a wh ole , th e va lue re c e ive d f or the lot s u po n r e sa le de c re a se d a n a ve ra g e of

fi ft y -f ive (5 5% ) p e rc e nt.
Certain ly , th e fa ilure of the de fendant to complete Cry stal L ake and the fa llout from that failure diminis hed the value of the lots in the subdivision. W h i l e failure to complete the lake was the only circ umstance shown to ha ve had an ef fec t on the devaluation of the lots, other fac tors such as a loss of interest, lac k of marke ting expertise and unwillingne ss to incur expenses involved in m ar k et i ng the lots may also have had some e ffe ct. Recog nizi ng the burden is on the plaintiffs to pr ove the amount of t heir da mag es caused by the bre ach, the court finds, by a pre ponderance of the evidenc e, that fifty (50%) perc ent of the diminuti on in va lue was cause d by the failure of the de fendan t , National De velopment Company , I nc., to complete the construction of Cry stal L ake.
Acc ording ly , plaintiffs shall have a j udg ment ag ainst National De velopment Company , I nc., for

twenty -seve n and one-half (271⁄2 %) perce nt of $9,239,517.42, the total consideration paid by the plaintiffs for their properties. The total amount of the judgme nt shall be $2,540,867.29.
The court further finds there is no rational basis for finding some lots in t he development we re da mag ed more than ot hers. I t is noted t hat the lots fronting on the-6-

proposed Cry stal L ake w ere larg er lots suitable for cons t ru ct ion of perma nent dwelling s. As such, they had value separ ate f

rom their proximi ty

of Cry s tal L ake. The small ca mper lots had value only beca use of their location in the deve lopment and their proxi mity to the rec reational f acilities located there , including Cry stal L ake. As a c on se qu e nc e , th e c ou rt

fi nd s th e dama g e s a wa

rd e d s ho uldbe app ortio ne d to
eac h lot owner on the ba sis of the amount of conside ration paid.
One of the def endants’ c ontentions is that the plaintiffs’ e x pert witness, Polly Dy er, w as not qualified to re nder a n opinion conce rning the value of t he real estate at Hidden Va lley L akes or the diminuti on in the value of th e p ro p er t y . The re cord r evea ls that Ms. Dy er ha d been a resident of Hi c kman Co un ty

fo r m a ny y e ars , th a t sh e ha d b e e n a c tiv e ly inv olv e d in the re a l est a te bu sin e ss i n Hickman County

for ove r twent y y ea rs , since 1978, a nd that she had a ppraised r eal e state in the county on a continuous basis since 1991. She ha d serve d on the State B oard of Appra isers for

seven y ear s at the time of the f

irst trial. Moreove r, on multiple occa sions she had bee n rec og nized as an expert witness, qualified to re nder opinions as to t he value of re al prope rty , by the Circuit and Chance ry Courts for Hickma n County

. Th e ru le s o f e vid e nc e that g ov e rn the iss ueof a dmi ssi bil ity

of e xpe rt te sti mon y

are Te nn . R. Evid. 702 and 703. The trial court has the initial re sponsibili ty to f ind whether

the purporte d expert evidenc e will substantially assist the finder of

fac t to understand the e vidence and to determine a fa ct at i ssue. McD aniel v. CSX Transportat ion, Inc

. , 9 5 5 S

. W

. 2 d 2 5 7 , 2 6 5 ( T e n n
. 1 9 9 7 )

. On a pp e a l, questions reg arding the admissibili ty , qualifications, relevanc y and compe tency

of expert testimony
ar e g e n e r a ll y

le f t t o th e d is c r e ti o n o f

th e tria l c o urt. McD aniel , 9 5 5 S

. W

. 2 d at 2 6 3 (c i t i n g State v. Ba lla rd , 855 S.W .2d 557, 562 (Tenn. 1993) ). The trial court' s ruling in this reg ard ma y only be overturne d if the discre tion is arbitrarily exercised or

abused. McD aniel , 955 S.W .2d at 264. Considering the fore g oing, w e find no e rror with the t rial court’s decision t o qualify Ms. Dy er as an e x pert witne s s competent to re nder opinions conc erning the value of rea l estate a nd the diminuti on of the va lue of the r eal e state at issue.
We now t u r n o u r

a t t e n t i o n t o t h e e v i d e n c e t h a tw a s i n tr o d u c e d c o n c e r n i n g t h e p l a i n tif fs ’ da ma g e s. I t w as un di sp ute d th a t Cry sta l L ake , th e c e nte rp ie c e of the de ve lop me nt, didno t ho ld
wate r andwo uldne ve r h oldwate r, thu s th e re wa s n oth ing mor e than a ma ssi ve , th irty -a c re ho le in the g round in the ce nter of the development.
The e vidence Ms. Dy er introduc ed can be summed up as follows: the lots in Hidden Valley L akes w ere purcha sed for rec reational purposes, as se cond h o m es as distinguished f rom primary
re sid e nc e s; the c e nte r p ie c e of the de ve lop me nt wa s the pr op os e d thi rt y -a c re Cr y sta l L ake ; th e lot s at Hidden Va lley

L akes dr amatica lly

diminis hed in value onc e the public became awa re that Cry stal L ake w ould never

hold water ; that 90% of the overa ll diminution in value of the lots wa s due to the fa i l ed C ry s t al L ak e; an d t h at t h e l o t s d i m i n i s h ed i n v al u e f ro mt h ei r o ri gi n a l v a l u e w i t h i n a r an ge from 60% to 90%, wit h the diminution i n value incr easing with the proxi mityto the failed Cry stal L ake.T en n es s ee ’ s bu r den of pr oof , t h ou g h s u bs t an t i al , doe s n ot r equ i r e pr oof of a ct u al f r au d. 1

-7- T h e p l ai n t i ffs i n tro d u ce d ad d i t i o n al ev i d en ce o f t h e d i m i n u t i o n o f v al u e t o t h e l o t s t h ro u gh the t estimony and records of the Clerk and Ma ster of the Chance ry Court for Hickma n County , Sue Smit h. Ms. Smi th introduced e vidence establishing that 179 of t he lots at Hidden Va lley L akes ha d be e n s oldby

the c ou nty

a t ta x sal e s b e tw e e n 1 99 4 an d 199 7 due to the failu re of pr op e rt y ow ne rs to pay their prope rty

taxes. Of these, 133 ha d been purcha sed by the county for the amount of t he taxes
a nda no the r 4 6 h a d b e e n p ur c ha se d b y ind ivi du a ls, a lso fo r the a mou nt o f the ta xes.
Whil e the de fe nd a nts take e xce pti on wi th the su ff ic ie nc y of the plaint if

fs ’ e vid e nc e , th e y

did not introduce a ny

evidenc e conc erning the value of the lots. T h u s , t h e p laintiffs’ evide nce of the diminuti on of value of the lots at Hidden Va lley L akes w as uncontrove rted.
Con sid e ri ng the fo re g oin g , we fi ndno e rr or wi th the tr ia l c ou rt ’s de c isi on to r e c og nize Ms. Dy er a s an expert wit ness. Furthermore , we f ind that the evidenc e does not pre ponderate ag ainst the tr ia l c ourt ’s fi nd ing s a s to da ma g e s. Th e re fo re , w e a ff ir m th e jud g me nt o f $ 2, 54 0, 86 7 a g a ins t National De velopment Company , I nc.
P IER C IN G TH E C O R PO R A T E V E IL
The sec ond hearing w as lim i t ed t o t h e i s sue of whe ther Cly de Eng le was the alter e g o of Na t i o n al De v el o p m en tC o m p an y , I n c. an d S u n s t at es C o rp o ra t i o n
. Fo l l o wi n g an ev i d entiary hear i n g, the trial court found Cly de Eng le to be the a lter eg o of the c orporate entities and he ld him li able f or the $2,540,867 judg ment.
Th e de fe nd a nts app e a l th is r uli ng a sse rt ing that the tr ia l c ou rt c omm itt e d tw o p ri mary

e rr or s. First, the de fenda nts contend that the trial court err ed by apply ing the law of Tenne ssee to dete rmine whether to pierce the cor

porate veils of National and Sunstates. They contend the c ourt should have applied the law of the states of incorporation of National and S unStates, being Texas and Dela war e, respe ctively , in s t ea d of Tenne ssee law , and that this alleg ed er ror wa s signific ant bec ause the plaintiffs provided no pr oof of a ctual fr au d , wh i ch Te x as and D elawa re r equire

. Second, the

1 defe ndants contend that the evidenc e wa s insufficient, eve n under Te nnessee law, to justify pierc ing the cor porate veil.
C HOI C E OF L AW AR GUMEN T
Th e c o n te n ti o n th a t th e tria l c o u r t e rr e d b y ap p lyin g T e n n e s s e e la w , in s te a d o f th e la w of Texas and Dela war e, to determine whether to pierce the cor

porate veil is without m erit. This court pr e vio us ly

app lie d T e nn e sse e la w to pie rc e the c or po rate ve il o f a

fo re ig n c or

po ratio n a ndto h old its princ ipal liable for the debts of the cor poration in Oc e an ic s Sch oo ls, In c . v . B ar bo ur , 112 S.W .3d 135 (Tenn. Ct. App. 2003).O ce ani cs Sc hs

. , Inc. v
. O per at i on Se a Cr ui s e, Inc
. , N o
. 0 3 A 0 1

- 9 9 0 4

- C V

- 0 0 1 5 3 , 1 9 9 9 W L 1 0 5 9 6 7 8 (T enn. 2 C t

. A p p
. N o v. 19 , 19 9 9 ). -8- Oce an i cs arose out of a prior civil action wher ein Oce anics Schools, I nc. (he reina fter “plaintiff” ) obtained a

judgme nt (" the OSC judgment" ) ag ainst Operation Sea Cruise, I nc. (O SC). 2 Upon discovering that Operation Sea Cruise, I nc. was insolvent, the plaintiff filed a second a ction to enforc e the OSC judgme nt ag ainst Clifford E. B arbour , J r., whom the plaintiff a lleg ed wa s the alter e g o of OCS. The trial court, a pply ing T ennesse e law, f

ound that Ba

rbour wa s the alter e g o of OSC and pierce d the cor

porate veil to enforc e the OSC judg ment ag ainst Ba rbour.
Not unlike the ca se at ba

r, Oc e an ic s c omp ri se d tw o tr ia ls. Th e fi rs t wa s li mit e d to da ma g e s, and the plaintiff w as awa

rded a judgme nt f

or damag es ag ainst the corpor ate defe ndant. The sec ond trial was limited to the issue o f wh et her Cliffor d Ba rbour, the principal behind OSC, was the judgme nt debtor’s a lter eg o. The sec ond trial was trie d ag ainst the backdr op of a long and unusual his tory , th e pe rt ine nt p art s o f w hic h a re a s f oll ow s. [B arb ou r] f

orme d [O SC], u nd e r the la ws of Pa na ma in 1 96 5 f or the pu rp os e of ac qu i ri n g owner ship of, repa iring , and oper ating the sailing vessel " Antarna ." B arb ou r o wn e d 1 00 pe rc e nt o f the sh are s of OSC, wh ic h pur c ha se d th e sa ili ng sh ip in 1967 and extensively

repa ired a nd restore d it. I n 1971, [t he plaintiff] chartere d the An tarn a fr om [OSC] fo r us e a s a sc ho ol sh ip in e xch a ng e fo r [ th e plai nti ff ' s] providing repa irs and supplies to make the ve ssel operational. [The plaintiff] i nvested a

pproxi mately

$630,000 in repairs and supplies for the An tarn a

a ndbe g a n u sin g the ve sse l in its sc ho ol pr og ram. I n Ma rc h 1 97 2 [O SC]
re c la ime d p os se ssi on of the ve sse l in the Pa na ma Ca na l Z on e a ndsu bs e qu e ntl y so ld the Antarna to a third pa rty , [foo t n o t e omitted] who sailed the ship out of Panamanian w ater s to the Azores, Portuga l. The proc eeds of that sale we re paid by [OS C] to Ba

rbour in re p ay ment of " a portion of the loa ns to the corpor ation by [Barbour ]." [The plaintiff] filed suit ag ainst [OS C] and the ve ssel by Writ of Attachment in the District Court of Ponta Delg ada, Azores, Portuga l, for breac h of contra ct and obtained a judg ment ag ainst [OS C] for $929,815.55 plus intere st. [ footnote omitted] T h a tC o u r tt h e n i s s u e d a R o g a t o r y L e t t e r

t o t h e C i r c u i tC o u r tf

o r K n o x C o u n t y, Te nn e sse e fo r se izur e of pr op e rt ie s of [OSC] or a ny oth e r p e rs on s a s may

be lia ble for the oblig ations of [OSC ], and appare ntly identify ing [Barbour ], Dorothy Drake B ar b o u r a n d D a v idB ar

b o u r a s d ir e c to r s a n d man a g e r s o f [O SC ].
Oce anics , 112 S.W .3d at 137.
The sec ond action wa s commence d in the Knox C ounty C i rc u i t C o u rt to domesticate the Portugue se Judgment. The Portug uese Judgment a g ai n s t OS C was domesticated by the Knox-9-

CountyCircuit Court. Af t er discovering that the cor porate defe ndant had no a ssets, the plaintiff
amen d ed t h e complaint to add Cl ifford B arbour individuallyas a pa

rty -def endant, a lleg ing that Ba rbour, the principal share holder of OSC, failed to a dequate ly capitalize the corpor ation, m ade persona l loans to the corpor ation to gain an unlawf ul prefe renc e as a purported creditor over future
cre ditors, and fa iled to observe corporate formalities. I n short, the pl aintiff cla imed that OSC was the alter eg o of B arbour , that the corpor ate veil should be pierc ed, and that Ba rbour wa s liable for the judg ment ag ainst OSC.

L ike the ca se at ba

r, the indiv i d u al def

endant Clifford B arbour

arg ued, int e r a lia , that the plaintiff' s action to pierc e the c orporate veil of OSC should be g overne d by the laws of the country of Panama , the j urisdiction wher e the corpor ation was chartered. The trial c ourt disag ree d, applied the law of

Tenne ssee a nd held that Clifford Bar b o u r was the alter e g o of OSC and " should be pe rs on a lly

bo un d o n th e jud g me nt i n f a vo r of the Pla intif

f a g a ins t OSC ." B arb ou r app e a le d. Th is court a ffi rmed, finding that Tenne ssee law was prope rly applied and sustaine d the finding that Barb o u r was the alter eg o of the de fendant corporation. As for the c hoice of law ar g ument, the Oce anics court opined,
We find no merit in Ba

rbour's a ssertion that Panamania n law is rele vant on the question of whethe r the c orpor at e veil can be pierc ed in this case. We a re de aling now with a Tenne ssee judgme nt. The law of Tenne ssee is applica ble in determining t h e e f f i c a c y a n d p ar a m e t e r s o f

t h e p i e r c i n g o f

t h e c o rp o r a t e v e i l t h e o r y.
Oc e an ic s, 112 S.W .3d at 146.

L ike Oce anics , we too are dealing with a Tenne ssee judg ment ag ainst a for eig n corpor ation and t h e q u es t i on of whe ther to pierc e the ve il of a for eig n corpor ation to hold its principal liable. There for e, we find the def endants’ c ontention that the trial court e rre d by not apply ing the law of Te xas andDe la wa

re , th e state s o f i nc or

po ratio n o f t

he c or po rate de fe nd a nts , to be wi tho ut m e ri t.
S UF F I CI ENCY OF THE E V I D EN CE
Th e de fe nd a nts c on te nd that the e vid e nc e wa s ins uf fi c ie nt to j us tif

y pie rc ing the c or

po rate veil. The e vidence in the record was g reatly impacted by sanctions i mposed ag ainst Cly de Eng le and the cor porate defe ndants for obstruc ting discove ry . Thus, we be g in our ana ly sis of the sufficie ncy of the e vidence with an ana ly sis of the proprie ty of the sanct i o n s i m p o s ed by the trial court. The sanctions imposed and the t ri al court’s justification for imposing the sa nctions are set forth in an
or de r, wh ic h r e a ds a s f

oll ow s:
This cause is before the cour t upon a motion for sanc tions filed by the plaintiffs and a

motion to di smiss filed by the d ef en d ant, C ly de Eng le. The c ourt earlier d en i ed a motion to di smiss t he ca se ag ainst Mr. Eng le for la ck of pe rsonal jurisd ic tio n o n the g ro un d the a me nd e d c omp la int a lle g e d a su ff ic ie nt f a c tua l ba sis for this court to exerc ise its jurisdiction. During that hearing , the court indicated that-10-

afte r the de fenda nt had submitted to discovery , defe ndant co u ld rene w his motion. Th e c ou rt a lso ha s, on tw o oc c a sio ns , or de re d Mr . E ng le to r e sp on d, in d isc ov e ry , to a ll q ue ri e s r e la tin g to a ll c or po ratio ns in w hic h h e ha s o r h a s h a d a n in te re st andto a ll c or po ra tio ns in w hic h th os e c or

po ratio ns ha s o r h a s h a d [si c ] an int e re st. The g rava man of the c omplaint, as the court unde rstands it, is that the defe ndant, Cly de Eng le, caused the Natio n al Deve lopment Company , I nc. and Sunstates Corp o r ati o nto make a f raudule nt transfe r of a ssets, totaling $5,116,720.00, in order to de fraud cre ditor s o f those corpor ations relating to transac tions that
occur red in Te nnessee . Acc ording to the amende d complaint, this tra nsfer was made to an a ff ili a te c or po ratio n c on tr oll e d b y

Mr . E ng le fo r h is p e rs on a l be ne fi t. Queries relating t o Mr. Eng le’s cor porate aff iliations relate not only

to the
acc urac y of plaintiff’s c laims but also to whether ther e is a suff icient conne ction betwee n him, corporations in which he has a dir ect or indirect intere st and the defe ndants, Na t ional Deve lopment Company , I nc., and Sunstates Corpor ation, for this court to e x erc ise persona l jurisdiction. Absent his pe rsonal response to questions rele vant to this subject matter, the c ourt must, as previously , rely upon the alleg ations of the a me nd e d c omp la int

. Despite be ing twic e orde red to do so, the defe ndant, Cly de Eng le, has continued to re fuse to answ er que stions related to his co rp o rate aff iliations and,
moreove r, has r enew ed his motion to di smiss t he ame nded complaint for lack of pe rs on a l ju ri sd ic tio n. Th e mot ion to d ism iss is de nie d. Th e mot ionfo r s a nc tio ns is g rante d.

I t is , th e re fo re , O RD ERE D a s f oll ow s:
1. Def endant, Cly de Eng le, is estopped fr om asserting t h i s court lac ks pe rs on a l ju ri sd ic tio n o f h im.
2. The c orporate cha

rt plaintiffs ave r wa s prese nted byRick L eonar d, Op e ratio ns Of

fi c e r o f N a tio na l D e ve lop me nt C omp a ny , Inc ., sh all be a dmi ssi ble during the trial of this case as evidence of the affiliation of corporations i n which the defe ndant, Cy de Eng le, has a n interest. The defe ndant, Cly d e Engle, w ill be prohibited from pre senting contra ry evidenc e. 3. During the trial of this ca se, transa ctio ns and dealings be tween the def e n d a n t, Cl y d e E n g le , RD I S C o rp o r a ti o n , T e lc o Ca p it a l C o rp o r a ti o n , H ic k o ry Furniture Company , Wis consin Real Estate I nvestment Trust, I ndiana F inancial I nves to r s , I n c
. , Su n s tate s Co rp o r a ti o n a n d N ati o n a l D e v e lo p me n t C o mp a n y , I nc., shall be consider ed ty

pical of Cly d e E ng le’s tra nsactions and de aling s with other aff iliated corpor ations as identified by the cha rt ref err ed to her ein.-11- 4. Plaintiffs are a war ded an attorney ’s fe e of Two Thousand Five Hundre d ($2500.00) Dollar s for the prior motions to compel and for obtaining th is order. Th e y sh a ll h a ve jud g me nt a g a ins t Cly deEn g le in that a mou nt. Tenn. R. Civ. P. 37.02 empowers a c ourt to impose sanctions when “a depone nt; a party ; an of fi c e r, dir e c tor , o r m a na g ing a g e nt o f a pa rt y
. . . f a ils to ob ey a n o rd e r t o p ro vid e or pe rm it discovery , including an order made unde r Rule 37.01 or Rule 35, or if a pa rty fails to obey

an orde r enter ed under

Rule 26.06, the court in which the action is pending may make suc h order s in reg ard to the failu re a s a

re jus t, .

. . ” Th e sa nc tio ns a va ila ble to the c ou rt

inc lud e the fo llo wi ng : (A) An order that the matters regarding which the ord er was made or any other de sig na te d fa c ts s ha ll b e take n to be e sta bli sh e d fo r th e pu rp os e s o f th e ac tio n in accordanc e with the claim of the party obtaining the order ; (B ) An order refusing to allow t he disobedient party to support or oppose designated
c lai ms or de fe ns e s, or proh ibi tin g that pa rty fro m i ntr od uc ing de sig na te d m att e rs i n evide nce ; (C ) A n o r d e rs tri k i n g o u tp l ea d i n gs o r p ar t s t h er eo f, o r s t ay i n g fu rt h erp ro ce ed i n gs until the order is obey ed, or dismissing the action or proc eeding or any part ther eof,
or re nd e ri ng a

jud g me nt b y

de fa ult a g a ins t th e dis ob e die nt p art y ; (D) In lieu of any

of the for eg oing orders or in addition thereto, an or der tre ating as a c on te mpt of c ou rt the failu re to o be y

a ny or de rs
. . . ;

. . . . I n li e u o f any

of the fo re g oin g or ders or in a dd iti on the re to, the c ou rt sh a ll
re qu ir e the pa

rt y faili ng to o be y

the or de r o r the a tto rn e y a dv isi ng the pa rt y or bo th to p a y the re a so na

ble e xpe ns e s, inc lud ing a tto rn e y ' s f e e s, c a us e d b y

the failu re , u nle ss the court finds that the failure was substantially justified or that other c ircumstance s make a n awa

rd of e x penses unjust. Tenn. R. Civ. P. 37.02 (emphasis added)

. Whil e the plaintiffs’ discovery eff orts wer e not Her culea n, they wer e substantial and we re me t with nu me ro us a nd sig nif ic a nt hur dle s str a te g ic a lly pla c e d by En g le

. Th ou g h the fo llo wi ng is not a complete history

of the plaintiffs’ eff

orts to obtain discovery , it is a fair represe ntation of the pe rt ine nt f

a c ts. Mo re imp orta ntl y , it is the prima

ry ba sis fo r the tr ia l c ou rt’s deci si on to i mpo se sa nc tio ns . It is the a ff

ida vit of the plai nt if

fs’ counse l w hic h w a s a tta c he d to the plaint if fs ’
me mor a nd um i n s up po rt

of the ir mot ion fo r s a nc tio ns . T he a ff ida vit re a ds a s f

oll ow s:-12- A F F ID A V IT Doug las Thompson Bates, I I I , does state the f ollowing upon his oath:
For two and one-ha lf y ear s, the Class ha s been attempting to use the lawf ul discovery proce dures to di s co v er evidenc e to pre sent to the Court conce rning the elabor ate f

amily of cor porations of Cly de Eng le. What follows is a chronolog y of our
e ff orts.
1. During the settlement neg otiations, which result ed in a settlement disapproved by

the C ourt, Rick L eonar d, an off icer of National Development Company (her einaf ter re fer red to as NDC) and ac tive in the neg otiations of settlement (he ha d flown fr om Raleig h, North C arolina, for t he trial), showed
me a c hart which looked very simil ar (it might have been exactly like) the one below. More over, I

had bee n furnished a

series o f ch ar ts from Coronet I ns ur a nc e , a n E ng le su bs idi ary . H e re is w hat th e c ha rt loo ke d li ke : [ch art - s e e Ad de nd um]
2. After the C ourt disapproved the settlement, we e mbarke d upon the two and
on e -h a lf y e ar j ou rn e y

of a tte mpt ing to g e t a

fo c us of the c or po rate sc he du le heade d by

Cly de Eng le owner

of 80% of

RDI S, the head of

the sche me. 3. No tin g that Su ns ta te s o wn e d 1 00 % o f N DC , tha t Su ns ta te s w a s a de fe nd a nt, and that Sunstates see med to be at a vortex of the scheme , on J une 10, 1998, we took the de position of L ee Mortensen, whose business car d procla imed as follows: [card omitted; it ident i fi ed L ee N . Mortenson as Pre sident and Chief Oper ating Offic er of “Sunstates”] I n the deposition, Mr. Mort en sen conce ded that, “I

don’t know what Sunst ates owns and what it does not own” (p. 12). And w hen I a t t em pted to inquire about what other cor porations he had knowledg e of, Mr . Alexis , who had be en re lieved as c ounsel, objecte d. 4. Then, on tha t s ame day , Mr. Eng le’s deposition was take n. Rick L eonar d, chief operating of

fice r of ND C was p re s en t and wa s also acting as Mr. Eng le’s counsel. L eonar d said he did not reca ll the chart (p. 34). Throug hout the re ma ind e r o f the de po sit io n, Mr. Ale xis a ndMr . E ng le pr ote ste d a s I
a s k e d ab o u to t h e r

c o rp o r a t i o n s o w n e d b y E n g l e d i r e c t l y o r i n d i r e c t l y. 5. On De c . 1 8, 19 98 , I fi le d int e rr og a torie s inq uiring of a ll c or po ratio ns a s to a ll corpor ations which Cly de Eng le had a n interest in. 6. I n Aug ust 1998, Neal L ovlace asked f or a pr otective or der. 7. On May

18, 1999, Eng le was or dere d to “re spond fully to the interrog atories and re quest to produce documents filed by the pl aintiffs no l ater than J une 28, 1999.”-13-

8. On July

23 , 1 99 9, En gle file d a

re sp on se me nti on ing se ve n c or po ratio ns , submitt ing SEC 10-Q’ s for two of t hem, and disavowing any knowledg e of charts of owner ship. 9. On Au g us t 24 , 1 99 9 a c tin g on my mot ion , th e Cou rt

or de re d M r. En g le to answe r the i n terrog atories a nd reque st to produce a s, “as to all cor poration Eng le has an interest in or corpor ations those corpor ations had an inter est in.” I f complied with, the discove ry would have be en complete

. 10. But, on Sept. 7 , 1 9 9 9 , Eng le filed his sec ond response and furnished information on 12 companie s. 11. Now, in the mea ntime, I was trying to g et Mr. Eng le’s deposition done. (a ) I n its or de r of Ma y 18 , 19 99 , the Cou rt ha d or de re d that En g le wo uld submit t o a deposition in Centerville when J udg e Ha rris wa s prese nt t o [ s i c ] h i s e v a s i o n c o u l d b e t e n d e d t o i m m e d i a t e l y. (b) The de positions were c ontinued twice; once beca use of the surg ery

of my secr etary ’s daug hter; and another time bec ause of the surg ery of Mr. L ovlace ’s wife

. (c) I n the meantime, I addre ssed to Mr. L ovlace the inadequa cies of Eng le’s re sponse by

letter of A ug ust 18, 2000. I n the letter I stated:
“I b el ieve if Mr . L ovlace will review the last order from Aug . 24, 1 999, he will see Mr . Eng le’s require ment is to a nswer f ully insofar a s corpor ations he ha s a n in te re st i n o r c or po rat io ns that hi s corpor ation has an interest in. Although he has fa iled to d o th a t, b e fo re a sking fo r s a nc ti ons, I a m g oin g to g ive hi m and Mr. Tierney an opportunity

to answer th ese que sti on s in a

de po sit ion s. I f the y

c on tin ue to fail to do so, afte r this p ro cess, I shall apply

for the ultimate sanction of holding Mr. Engle li able f or NDC debt judg ment.” (d) Then, Mr. L ovlace informed me that Eng le could not fly for doc tor’s
rea sons. I

responde d by

a letter dated Oc t. 10, 2000, which said:
October 10, 2000
Hon. Nea l L ovlace Attorney at L aw 820 Hwy . 100 Centerville, TN 37033
RE: BA I LET et al vs. N.D .C., et al HI CKMAN CI RCUI T NO. 94-5027C-14- De ar N e a l:

. . . . I nso fa r as whe re w e ar e g oing to take the deposi t ions: I f I

rec eive a letter fr om a doctor te lling
me that it wo uld be da ng e ro us to Cly de En g le ’s he a lth for him to fly ; and in a ddition to that , a s igne d authoriz ation from Mr. Eng le that I can r ece ive medical i n fo rmation from that doc tor and I rec eive t h o s e on o r be fo re Oc t

. 2 5 , 2 0 0 0 , I wi l l go t o C h i ca go a ndtake tho se de po sit ion s so lon g a s th e plane tr ip
a n d h o t e l a c c o m m o d a t i o n s ar e i n p l a c e t e n d a ys befor e the trip. I f I

have not rec ei v ed the letter of authorization by

Oct. 25, we will do both depositions in Cent e r v il le

. Pl e a s e te ll y o u r c li e n t th a t I

a m n ot g ivi ng on thes e de a dli ne s f or a nythi ng e xce pt a pe rs on a l c on c e rnof

y ou rs
.

. . . . (e) I rec eived no such l etter or authorization and so I assumed the deposition would ta ke plac e in Centerville on De c. 11. Howeve r, in e arly

Dec ember , Mr. L ovlace informed me that he had ma de ar

rang ements for

us to fl y t o C h icag o and stay there for the depositions. I decide d I would at least try

to take them; and as we went to Nashville that S unday , Dec

. 10, Mr. L ov la c e pr e se nte d me wi th a le tte r d a te d De c . 5 , 2 00 0, (m y de a dli ne wa s O c t. 2 5) , w hic h r e a ds a s f oll ow s:
RH EU MA TO L OG Y A SSO CI AT ES, S.C.

. . . . Dec ember 5, 2000
PERS ONAL

AND CONF I DENTIAL To Whom I t May

Concern: Mr. Cly de Wm. Engle has bee n a patient of this office f

or app ro xima te ly

te n y e ars
. He wa s diag nosed with a c ondition in S eptember , following an episode for whic h he wa s hospitaliz ed. Te sts are be ing conducte d to determine appropriate t reatment and the e x tent of a ny re la te d p ro ble ms.-15- As a re sult of t he condition, he is prohibited fr om operating mot or ve hic le s a nd is s tr on g ly

ur g e d n ot t o in vo lve him se lf in stressful situations nor to f ly except with f

ull precautions and
a c c omp a nim e nt b y

kn ow le dg e able pe rs on ne l.
S i n c e r e l y, Robert S. Katz, M.D.

I n the deposition, I

inquired o f E ng le’s hea lth and the following question and answe r took place : Q: What is y our hea lth condition that y ou woul d not be
able to t ra ve l? A: That’s c lear ly

not relevant to this deposition, and not something I ’m g oing to a nswer on the rec ord. Q: I will ask y ou to instruct y our client to answe r. A: (M r. Ti e rn e y ) N o, I wi ll n ot.
L ater :
Mr. B ate s : Wi ll y o u te ll h im to a u th o r iz e me to ta lk to the doctor? Mr. Tierne y : No.
Ba ck home in Center ville, I asked by interrog atory whether Eng le had flown in an a irplane f rom Dec. 1 , 2 000 to J an. 31, 2001. (I nterrog atory

Two filed o n Fe b. 2, 2001.) He ref used to answe r. (Answe r Two f

iled on April 7, 2001.) So, Engle had avoide d the Court for his deposition.
12. Now, re member my letter to Mr. L ovlace conce rning the i nadequa cies of Eng le’s response s and that I would g ive him a chanc e to c orre ct them at the deposition. But, please consi der his re sponses in Chicag o away from the Court’s scrutiny . Attache d at the end of this Affidavit ar e t hree pag es of
c op ie s o f the c on de ns e d d e po sit ion s. 13. Thus, Eng le has been order ed twice to f ully disclose his c orporate s cheme , was wa rned by Counsel that if he did not in his deposition, we would ask for the ult imate sa nc tio n, a nda lth ou g h h e ha s a vo ide d f a c ing thi s ju dg e in pe rs on , h e ha s n ot c omp lie d w ith the or de rs of thi s Co urt. 14. I nsofar

as the c harts, Eng le has now pres en t ed charts which Mr. L eonar d, office r of Sunstates and N DC “to which he ref err ed.” E ng le s ay s he has-16- never seen the m. A co p yof one of the cha rts they have f urnished is on the next page of this Affidavit. [se e Ad de nd um]
15

. Al tho ug h c ou ns e l ha s be e n u na ble to d isc ov e r the true pic tur e of En g le ’s va st net worth of c orporations, sti ll, some things have been e stablished. (a) We know that Sunstates purcha sed 1.8 million do l l ar s worth of jewelry and art, wh i ch ar e m aintained at the home of Cly de Eng le. (Notice of Annua l Stockholder meeting . Sunstates 1998.) (b) We know that a subsidiary of a subsidiary

of an indire ct subsidiary

of Sunstates purcha sed a Rolls Roy ce f or “c orporate use.” (I nterrog atories a nswere d April 7, 2001.) (c) Fr om financia l data furnished us f rom answe rs to interrog atories, we
c a n s ho w the ow ne rs hip fr om E ng le to S un state s in 19 95 a s f oll ow s: [chart omitted] (d) And we c an see the m assive los ses each corporation up to RDI S, the
c o rp o r a t i o n t h r o u g h w h i c h E n g l e c o n tr o l s t h e f a m i l y.
THE F I NANCIAL

STRENGTH OFTHE CHAIN FROM CL YDE ENG LE TO NDC
1. Cly de En g le (r e fu se s to a ns we r any qu e sti on s c on c e rn ing thi s) 2. RDI S – W e have no financ ial statement since 1989. 3. Te lc o – We ha ve a 19 92 state me nt wh ic h reveal s: $13,224, 0 0 0 in v e s ted in aff iliates; $23,404,000 rece ived from aff iliates; and a stockholder

defic it of $21,652,000. 4. Hi c ko ry F urnitur e – We ha ve a 19 94 state me nt w hic h r e ve a ls: $3,032,000 invested i na f

f il ia te s ; $ 2 , 9 4 2 , 000 rec eivables f rom aff iliates; and $42,644,000 rec eivables from pare nt. I n other
wo rd s: 4 2 mi lli on do lla

rs ha s b e e n f

un ne le d u p th e str e a m to Eng le. 5. Wis consi n R E I T – We have a 1995 statement which shows sto c kh old e rs e qu ity

a t $2 2, 80 3, 00 0 L OSS a nd$8 ,6 68 ,0 00 in
rec eivables f

rom aff iliate. 6

. NR G – W e h av e a1 9 9 9 s t at em en ts h o wi n g re t ai n ed ea rn i n gs of $2 ,5 90 ,8 37 L OSS a nd $1 ,9 79 ,3 20 in re c e iva ble fr om s ole stockholder ( Cly de Eng le). 7. I ndiana F inancial Investors – We have a re port 1999 showing
rec eivables f

rom aff iliates of $12,623,237.-17- 8. NDC – We have a report from 1997 showing due fr om aff iliates $9,544,790. 9. Sunstates – We have a 1997 r eport showing Acc um u l at ed Def icit $48,304,274; rece ivable fr om affiliates $2,681,315; and investments in aff

iliates $10,771,318. (e) We have be en furnished cre dit advices showing intercompa ny transfe rs from 1994 t o 1 999. Kristi Tinin has spent many hours compiling the se; and
a lth o u g h s h e h a s t h e f

i g u r e s , s h e w o u l d r a t h e r

c h e c k t h e mm o r e c ar e f

ull y befor e stating them under oath. But she c an conf idently say that E n gle has been a dvance d approximately $4 milli on dollars from L ibco (former na me of RDI S); approxim ately

$2 milli on dollars from Te lco; and approx imately $5 milli on dollars from Hic kory Furniture. ( f ) W e h a v e m a n y

d a t e s s h o w i n g m o n e y

“ l a u n d e r i n g ” b e t w e e n t he se c or po ratio ns , s uc h a s: 1. On 12/22/95 Sunst ates tra nsfer red $100,000.00 to Hickory F urnitur e , wh ic h on that sa me day tr a ns fe rr e d $ 10 0, 00 0. 00 to Cly de Eng le. 2. On 5 /1/95, Suns tates transf err ed $357,750.00 to Hickory Furniture, which transfer

red $325,000.00 to Cly de Eng le. 3. On 4/19/9 4 , Sunstates transfe rre d $396,250.00 to Hickory F urnitur e , w hic h o n th a t sam e day tr a ns fe rr e d $ 40 0, 00 0. 00 to Cly de Eng le. (Credit advic es in box held at Clerk’ s Offic e.) (g ) We know from NDC’s Financ ial Statements that from 1990 to 1996, $6,422,338.00 flowed to its pare nt. This does not count the transfe r of over $2,000,000.00 o f re ceiva bles while this case has bee n pending

. 1 6

. The und e r s ig n e d d o e s n o t b e li e v e th a t a n y o r d e r b y th is Co u r t w ill be eff ective to ha ve Eng le complete the pict ure of his vast network of
c or po ratio ns
. 17

. I a m su re I ha ve sp e nt 10 0 ho ur s on the dis c ov e ry in the la st tw o a ndon e -h a lf y ear s. I cannot say it ha s all been fruitless, but one-ha lf of it has bee n cause d by En g le ’s ob str

uc tio ns
. ________________/S/_______________ D O U G LA S T H O M P S O N B A T E S , III AT TO RN EY F ORPLAINT I F F S [j urat omitted] Thoug h Eng le and the corporate defe ndants contra dicted som e of the fac ts repre sented in the for e g o in g a f

f id a v it , th e p lain ti f

f s ’ d is c o v e r y e f

f o r ts w e r e r e p e a te d ly a n d mate r ia ll y o b s tr u c ted by En g le

. Mo re ov e r, the c ou rt or de re d En g le on tw o oc c a sio ns to s ub mit to d isc ov e ry , y e t E ng le did-18-

not comply

. Tenn. R. Civ. P. 37.02 primarily applies t o sanctions for non-complianc e with a court
o r der. L yl e v. Exx on Corp. , 7 46 S.W. 2d69 4, 69 8- 99 (T e nn . 1 98 8) ; se e als o Me rc e r v . V an de rb ilt University I

nc ., 13 4 S. W.3 d 1 21 , 133 (T e nn . 200 4)

. Wide dis c re tio n is a ff or de d to the tr ia l c ou rt s to determine the appropriate sanc tion. Id . at 133. Althoug h "r easona ble judicial m i n d s can differ
conce rning [i ts] soundness," the trial court's de termination of the appropriate sanc tion will be set aside only

wher e the court "ha s misconstrued or misapplied the controlling leg al principles or has act ed in con si st ent lywi th th e su bs tan ti al w eight of t he ev id ence. " Alexande r v. Jac kson Radiology Associates, P.A., 1 5 6 S

. W

. 3 d 1 1 , 1 5 (T en n
. C t

. Ap p
. 2 0 0 4 ) ( q u o t i n g W hit e v . V an de rb ilt Un iv ., 21 S.W .3d 215, 223 (Tenn. Ct. App. 1999)). The sanction, i.e., puni shment, must fit t he off ense. Id

. at 15.
Con sid e ri ng the fo re g oin g , w e fi ndno e rr or wi th the sa nc tio ns imp os e d b y the tr ia l c ou rt

. I S N A T I O N A L T H E A LT ER EG O O F C L YDE E N G LE ?
An excellent discussion of the rele vant fac tors to consider is found in VP Buildings, Inc. v. Polygon Group , No. M2001-00613-COA- R3-CV, 2002 WL 15634, *4-5 (Te nn. Ct. App. J anuary 8, 2002).
C onditions under which the c orporate entity will be disreg arde d vary
a c c or din g to the c ir cum stan c e s p re se nt i n th e c a se , a ndthe ma tte r i s p art ic ula rl y within the province of t he trial c ourt. Muroll G esellschaft M.B.H. v. Tennesse e Tape, Inc

. , 9 0 8 S

. W

. 2 d 2 1 1 , 2 1 3 (T en n
. C t

. Ap p
. 1 9 9 5 ) ( ci t i n g Electric Power Bd. of Ch a t ta n o o g a v
. S t

. J

o s e p h V a l l ey S t r u c t u r

a l S t e e l Co rp ., 691 S.W .2d 522 (T e nn .1 98 5) ); Pi

pe r v . A nd re ws , No. 01A01-9612-CV-00570, 1997 WL 772127, at *3 (T enn. C t. App. Dec . 17, 1997) (Perm. app. denied June 8, 1998). Thus, the qu e sti on of

wh e n a n in div idu a l sh ou ld b e he ld l iab le fo r c or po rate ob lig a tio ns is larg e ly a fa c tua l on e . " Ea c h c a se inv olv ing dis re g ardof the c or po rate e nti ty

mus t r e st up on it s sp eci al f

act s. " Mu ro ll G e se lls c ha

ft , 9 08 S.W. 2da t 21 3; Sc hla te r v . H ay nie , 833 S.W .2d 919, 925 (Tenn. Ct. App. 1991).

. . . . Th e re is a

pr e su mpt ion that a

c or po ratio n is a

dis tin c t legal e nti ty , w ho lly
se pa ra te a nd apar t f

rom it s s hare ho ld ers , o ffi cers , d ir ect ors , o r affi li ate d co rpo rat io ns. I n a n a pp ro pria te c a se a ndin f

urthe ranc e of the e nd s of jus tic e , th e se pa rate ide nti ty of a c or po ratio n may

be dis c ard e d a ndthe ind ivi du a l or ind ivi du a ls own in g all its stock and a ssets will be treate d as identical to the corpor ation. Mu ro ll G e se lls c ha ft , 90 8 S. W.2 d at 21 3; Schlater , 8 33 S .W .2 d a t 92 5; see also Fidelity Trust Co. v. Servic e Laundry Co. , 16 0 Te nn . 5 7, 61 , 2 2 S. W.2 d 6 , 7 -8 (1 92 9) ; see ge nerally E.O Bailey & Co. v

. Union Planters Titl e Guar. Co. , 33 Tenn.App. 439, 232 S.W.2d 309 (1 95 0) . D isc ard ing the fi c tio n o f the c or po rate e nti ty , or p ie rc ing the c or po rate ve il, is a ppropriate when the corpor ation is liable for a debt but is without funds to pay the debt, and the la ck of funds is due to some misconduct on the part of the off icer s and-19-

direc tors. Mu ro ll G e se lls c ha ft , 908 S.W .2d at 213; S.E.A., Inc

. v. Southside Leasing Co. , e t al

. , N o. E2 00 0- 00 63 1- CO A- R3 -C V, 20 00 WL 14 49 85 2, a t *9 (T e nn . Ct

. Ap p. Se pt. 29 , 2 00 0) (n o T e nn . R. Ap p. P. 1 1 f ile d) ; Emergicare Consultant s, Inc. v

. W oolbright , N o. W19 98 -0 06 59 -C OA -R 3- CV , 2 00 0 WL 18 97 35 0, a t *2 ( Te nn . Ct

. App. Dec . 29, 2000) (Perm. app. denied. May 14, 2001).

I n those circ umstances, c ourts may pierc e the corpor ate veil to find the " true owner s of t he entity " liable , Mu rro ll G e se lls c ha ft , 9 08 S.W. 2da t 21 3, or

" to i mpo se lia bil ity a g a ins t a c on tr oll ing sh are ho lde r w ho ha s us e d th e c or po rate e nti ty

to a vo id hi s l egal o bl igat io ns ." Ma nu fac ture rs Con so lid

ati on Se rv ., In c
. v . R od

e ll , 42 S.W .3d 84 6, 86 6 (Tenn

. Ct

. App. 20 00 ). Ou r c ou rt s w ill dis re g ardthe c or po ratio n a s a separ ate en t i t y u p o n a showing that the cor poration is a sham or dummy or such
a c ti o n is n e c e s s ar y

to ac c o mp li s h ju s ti c e
. [f o o tn o te o mi tt e d ] Mu ro ll G e se lls c ha ft , 90 8 S. W.2 d at 21 3; Te nn e sse e Ra c qu e tba ll In v e sto rs, Ltd . v. Be ll , 709 S.W .2d 617, 61 9 ( Te nn . Ct . A pp .1 98 6) ; Oak Ridge Auto Repair Serv. v . City Fin. Co. , 57 Tenn. Ap p. 70 7, 71 1, 42 5 S.W.2 d 6 20 , 6 22 (1 96 7) ; Fidelity Trust C o. , 160 Tenn. at 61, 22 S.W. 2da t 7- 8; Emergicare Consultant s, Inc ., 20 00 WL 18 97 35 0, a t *2 ; Piper , 1997 WL 772127, at *3.

. . . . Som e f

a c to r s th e c o u r t c o n s id e r s ind e te rmi n in g w h e th e r to p ie r c e the corpor ate ve il are w hether the cor poration was gro s s ly

underc apitalized, the nonissuance of

stock certificates, the sole owner ship of stock by one individual, the use of the c orporation as an instrumentalityor business conduit for an individual or another corpor ation, the diversion of c orporate assets byor to a stockholder or other
e nti ty to the de tr ime nt o f c re dit or s, the us e of the c or po ratio n a s a

su bte rf ug e in illega l transac tions, the formation and use o f t h e co rporation to transfer to it the
e xistin g lia

bil ity of a no the r p e rs on or

e nti ty , a ndthe failu re to ma int a in arm s le ng th relationships among entities. Emergicare Consultant s, Inc ., 2000 WL 1897350, at *2 (citing Fede ral Deposit Ins. Corp. v. Allen , 584 F.Supp. 386 (E.D. T enn. 1984))

. VP Bu ild ing s, 2002 WL

15634, at *4-5.
The Oce anics o p in ion, discussed in detail ea rlier, a lso provides a blueprint of fac tors that may be c on sid e re d w he n d e te rm ini ng wh e the r t o p ie rc e the c or po rate ve il. As we le arnfr om Oce anics , on e sta rt s w ith the pr e mis e that “ [a] co rp or a tio n is pre su mpt ive ly tr e a te d a s a

dis tin c t e nti ty , s e pa

rate from its shareh o l d ers, of

fice rs, and dire ctors.” Oce anics , 112 S.W .3d at 140 (quoting Schlater v. Ha y nie , 833 S.W .2d at 925. Howe ver, a corpor atio n 's s ep ar ate identity may be disreg arde d or p ie r c e d " u p o n a s h o w in g th a t it is a s h a m o r a d u mm y o r w h e r e n e c e s s ar y to a c c omplish j ustice." Oc e an ic s, 112 S.W .3d at 140 (c iting Schlater , 83 3 S. W.3 d at 92 5) . A c or po ratio n' s id e nti ty

sh ou ld be d is regarded "wit h greatcaut io n an d n otprec ip it ate ly ." Schlater , 833 S.W. 2d a t 925. Whe the r t o disreg ard the corpor ate f

iction depends on the spe cial cir cumstance s of ea ch ca se, O c e an ic s, 112 S .W .3 d at 14 0, and "th e mat ter is part icu lar ly wi th in th e pro vi nce o f t he t ri al c ou rt ." Electric Power-20-

Bd . of Chatt an oo ga v . St. J

os e ph Va lle y Str uc tur al S te e l Co rp ., 691 S.W .2d 522, 526 (Tenn. 1985)

. No one f actor is conclusive in determinin g whether or not to disreg ard a

corpor ate e ntity ; rather , courts should rely upon a combination of fac tors in de ciding such an issue. Schlater , 833 S.W .2d at 925 (c iting 18 Am.Jur.2d Corporations § 48, p. 847, n. 41-42 (1985))

. T h i s co u rt has also re lied upon the so-ca lled Allen fac tors stated in F e de r a l D e p o s i t I ns
. Corp. v. Allen , 5 84 F .Su pp . 3 86 (E .D . T e nn .1 98 4) :

F a c tor s to be c on side red in de te rm ini ng wh e the r t o d isr e g ardthe c or po rate ve il inc lud e no t on ly wh e the r the e nti ty ha s be e n u se d to wo rk a fr a udor inj us tic e in contra vention of public policy , but also: (1) whe ther ther e wa s a fa ilure to collec t paid in capital; (2) whe t h er t he cor poration wa s g rossly

underc apitalized; (3) the
no nis su a nc e of

sto c k c e rt if

ic a te s; ( 4) the so le ow ne rs hip of sto c k by on e ind ivi du a l; (5 ) the us e of

the sa me of

fi c e or bu sin e ss loc a tio n; (6 ) the e mpl oyme nt of the sa me employ ees o r at t o rney s; (7) the use of the cor poration as a n instrumentality or business conduit for a n individual or another cor p o ra t i on; (8) the diver sion of
c or po rate a sse ts b y

or to a sto c kh old e r o r ot her ent ity to the de tr ime nt o f c re dit or s, or the manipulation of asse ts and liabiliti es in another ; (9) the use of the c orporation
as a subterfug e in illeg al transa ctions; (10) the formation and use of the corpor ation to transfe r to it the exi sting liability of anothe r per son or entity ; and (11) the failure to m a int a in a

rm s le ng th r e la tio ns hip s a mon g re late d e nti tie s.
Id . at 397 (c itations omi tted), also cited in G r e e n e v
. Hil l H o m e D e v
. I

nc
. , C A No. 03A01-9210-CH- 00369, 1993 WL 17115, at *2 (Te nn. Ct. App. J an. 28, 1993).

I t is most impo rt ant to note that it is not necessary that all of the Allen fac tors weig h in a plaintiff' s favor in order to justify the pi erc ing of the corporate ve il. Oc e an ic s, 112 S.W .3d at 140- 1 4 1 (c i t i n g In re B & L Laboratories, Inc ., 62 B.R. 494, 504 (B ankr. M.D. T enn.1986) ( holding that "a ll of these fa ctors nee d not be prese nt to justify disreg ard of

the cor porate boundarie s; however , it is necessary

that substantial equities favor the ag g ressor pa

rty .") ).
W e n o w l o o k

t o t h e f i n d i n gs b y

t h e t ri al co u rt

. Fo l l o wi n g t h e s ec o n d ev i d en t i ar y h ea ri n g, the trial court e ntere d a second Memorandum Opinion which pr ovides an e x tensive re citation of the
c ou rt ’s fi nd ing s:
MEMORANDUM OPINI ON

Th is i s th e se c on d p ha se of a tw o part tr ia l invo lvi ng the se pa rt ie s. I n th e fi rs t phase, th e Co u r t e n te r e d a ju d g me n t i n f

a v o r o f th e p lain ti f

f s f o r $ 2 , 5 4 0 , 8 6 7

. 29 ag ainst defe ndant National De velopment Corporation. The second pha se conc erns the doctrine of pierc ing t h e corporate ve il in order to re ach the pare nt corporation, Sunstates and/or Cly de Eng le, who wa s added a s a party defe ndant in J anuary

of 1999.-21- As the plaintiffs proc eede d with the ir discovery during the second pha se, Mr. En g le re sp on de d by e ng a g ing in a patte rn of ob str uc tio n a nd de la y
. Judge Do na ld Har ris, who presided over the initi al phase , ultimately enter ed an or der e stopping Mr. E n gl e f ro md en y i n g t h i s C o u rt ’s j u ri s d i ct i o n o v erh i s p er s o n
. In p ar t i cu l arJ u d ge Ha rris m a de thefo llo wi ng fi nd ing s: Qu e ri e s r e la tin g to M r. En g le ’s c or po rate a ff ili a tio ns re la te no t on ly to the a c c ur a c y

of plaint if fs ’ c la ims bu t a lso to wheth er the re is a
su ff ic ie nt c on ne c tio n b e tw e e n h im, c or po ratio ns in w hic h h e ha s a direc t or indirect inter est and the de fendants National Devel o pment Compa ny , Inc . a ndSun state s Co rp or a tio n, fo r this Cou rt to e xer c ise persona l jurisdiction. Absent his personal re sponse to quest i ons re le va nt t o th is s ub

je c t matter, the Cou rt

mus t, a s p re vio us ly , r e ly up on the a lle g atio ns of

the a me nd e d c omp la int

. Despite be ing twic e orde red to do so, the defe ndant, Cly de Eng le, has
c on tin ue d to re fu se to ans we r q ue sti on s r e la te d to his c or po rate aff iliations and, moreover , has re newe d his moti on to d i s miss the amende d complaint for lac k of per sonal jurisdiction. . . . The c orporate cha

rt plain t i ff s aver was pr esente d by Rick L eonar d, operations officer of National Development Company , I nc. shall be admissible during t h e t ri al of this case as evide nce of the af filiation of c or po ratio ns in wh ic h the de fe nd a nt, Cly de En g le , ha s a n in te re st. The de fenda nt, C l y de Eng le, will be prohibited fr om presenting contra ry evidenc e. During the trial of this ca se, transa ctions and dea lings be tw ee n the defe ndant, C l y d e Engle, or DI S Corporation, Telco Capital Cor po ration, Hi c ko ry

F urnitur e Compa ny , Wis c on sin Re a l E state I nvestment Trust, I ndiana F inancial Invest o rs, I nc., Sunstates Corporation and N ational Deve lopment Company , I nc., shall be
c o n s i d e r e d t y

p i c a l o f C l y d e E n g l e ’ s tr a n s a c t i o n s a n d d e a l i n g s w ith oth e r a ff ili a te d c or

po ratio ns a s id e nti fi e d b y the c ha rt re fe rr e d to here in (See orde r of Aug ust 28, 2001).

. . . . The issue be fore this Court i s whether plaint i ff h as made out a ca se for pierc ing the corpor ate ve il as to (1) Sunstates Corporation and/or (2) Cly de Eng le.

. . . .-22- P IE R C IN G T H E C O R P O R A T E V E IL
Conditi ons under whic h the cor porate entity

will be disreg arde d vary
a c c or din g to the c ir c ums ta nc e s pr e se nt in the c a se , a ndis an is su e wh ic h th e c ou rt s ha ve re c og nized is particu larl y wi thi n th e pr ov inc e of

the tr ia l c ou rt . M ur oll Gese llschaft M.B .H. vs. Tenne ssee Ta pe, Inc., 908 S.W.2d 211, 213 (Tenn. App. 1995). . . . . [di scussion of Murol l G esel lsch aft , 908 S.W .2d at 213, and V. P. Bu ild ing s, 2002 WL 15634, and fa ctors to consider omitted]
With the se fa c tor s in min d, the Cou rt make s the f

oll ow ing fi nd ing s o f f

a c t. Sunstates o wns one hundre d perc ent of the N ational Deve lopment Corporation. Sunstates an d ND C share d the same pr esident, vice president, a nd chief financ ial office r. Sunstates and ND C share the same business off ice location and phone line. I t is imp os sib le to c on ta c t ND C a s it is no t lis te d in the ph on e bo ok . If o ne do e s c a ll the phone number

listed on the NDC letterhe ad, the r ec ep tionist states one ha s rea ched Sunstates Corpor ation. Significant amounts of cash w ere transfe rre d from NDC to Sunst ates a s a re sult of “profe ssional fee s” and no invoice s were produce d
e xpla ini ng the se tr a ns fe rs
. On Saturday

Dec ember

31, 1994, while this controver sy was pe nding, N DC transfe rre d the majority of i ts assets out of the cor poration. Ac cording to its financial statement, all of the r emaining land contra ct re ceiva bles totaling $5,116,720 w ere transfe rre d to two other entities. $2.7 milli on went for the full repay ment of a loa n to an a ff ili a te c omp a ny . H ow e ve r, the re ma ini ng $2 .4 mil lio n w a s tra ns fe rr e d to Sunstates in ex chang e for a note pay able whic h was unsec ured.

L ee Mor tenson was the pre sident and chie f oper ating office r of Sunstates. He had also be en p re s i d ent of ND C since 1990. Mr. Mortenson ha d no knowledg e of t h e ch ai n of subsidiaries in the va rious holding c ompanies. He along with Rick L eonar d and Glen Kenne dy wer e dire ctors of N DC. Although L eonar d was the c hief financ ial office r of NDC, he had no explanation as to why the $2.4 million not e fr om Sun state s to ND C wa s un se c ur e d, a nd he ha d no kn ow le dg e of e ith e r the bu sin e ss i n which NDC wa s eng ag ed or its source s of income. Cly de Eng le is a n individual r esiding in the state of I llinois

. All o f t he
n u me r o u s c o rp o r a ti o n s s e t f o r th in th e ab o v e c h ar t ar e c o n tr o ll e d e ith e r d ir e c tl yor ind ir e c tly by En g le . Eng le wa s nei the r an of fi c e r or dir e c tor of

ND C. T he g e ne sis for the transfe r of $2.4 milli on of land contra cts from NDC sprang from Eng le. As chief executive offic er of Sunstates, E ng le made a “proposa l” to the chief

executive office r of ND C that NDC ought to tr ansfe r these rec eivables to Sunst ates. Eng le’s cl ai mt h at h i s p ro p o s al wa s an at tra ct i v e tra n s ac t i o n fr o m ND C ’s p o i n t o f v i ew b egs-23-

the qu e sti on . Wh a t Mr . E ng le ne ve r expl a ine d wa s why he wo uld be c on c e rn e d w ith making a p r o p o s a l r e g ar d in g a c o mp a n y in w h ic h h e w a s n e ith e r a n o f f ic e r n or a direc tor and why

this proposal was appa

rently acc epted by

the direc tors and off

icer s of NDC without question; an d wh y ND C failed to re quest security for this $2.4 milli on note.
Mr . E ng le de c lin e d to app e ar i n c ou rt a t e ith e r the fi rs t or

se c on d tria l of

thi s bif ur c a te d c a se . Wh e re the e vid e nc e te nd s to fi x liabil ity on a pa rt y , w ho ha s it

in h is po we r t o o ff

e r e vid e nc e to re bu t the un fa vo ra ble inf e re nc e s wh ic h the pr oo f t e nd s to e sta bli sh , a nd that pa

rt y re fu se s to of

fe r s uc h p ro of

, it ma y be inf e rr e d f ro m th e fa c ts sh ow n that the fu lly de ve lop e d e vid e nc e wo ulde sta bli sh lia bil ity on his pa rt . T his rule applies only when the plaintiffs’ proof and the leg al deduction there from make out a prima facie case ag ainst the defendant. Runnels v. Roge rs, 596 S.W.2d 87, 90 (T en n
. 1 9 8 0 ). T h i s C o u rt b el i ev es t h at t h i s i s s u ch a cas e. As i s ev i d en tfr o mJ u d ge Har ris’ pre vious or der, Eng le ref used to answer questions reg arding his finance s and the co rp or a te str

uc tur e of the sc or e s o f c omp a nie s w hic h h e c on tr oll e d. Mr . E ng le ha s n e ve r e xpla ine d to the Cou rt ’s sa tis fa cti on ho w andwh y he wa s a ble to c a us e ND C to a c c e pt an u ns e c ur e d n ote fo r $ 2. 4 mi lli on of re c e iva ble s.
I n 1 99 4 M r. En g le re c e ive d $ 2, 97 5, 09 0 f ro m Su ns ta te s o r i ts affi liate s; i n 1995 he re ceive d $524,236; in 1996 he rec eived $293,826; an d in 1997 Sunst ates paid Mr. Eng le $71,916. The business oper ations of Sunstates has for all prac tical pu rp os e s c ome to a

ha lt. Th e no te wh ic h N DC ho lds fr om Sun st a te s is wo rthle ss sin c e the re areno a sse ts t o p a y the no te

. Ne ith e r Ind ia na F inanc ia l, Wi sc on sin Re it, Hickory Furniture, Telc o Capital, or RDI S ha ve the ability to pay the note owe d by Su n s t ates to NDC si nce the corpor ations from RDI S down the chain of companies
are insolvent. Most of the funds transfe rre d to E ng le wer e funne led throug h the B ank of L in c o ln w o o d , lo c a te d in Ch ic a g o , I ll in o is

. E n g le h a s a n in d ir e c t in te r e s t in the Ba nk of Lincolnwood throug h a holding company for whic h he re fused to provide the na me no r ind ic a te wh e the r he wa s a dir e c tor . M a ny

of the tr a ns fe rs of

fu nd s to Eng le from Sunstates Corpo ra t i on are documented by Bank of Lincolnwood memoranda indicating “per the reque st of Cly de Eng le”. The re w as no evide nce of any transfe rs of funds from Eng le back to a ny corpor ation. All of the transf ers we re to Eng le. While the defe ndants attempted to ar g u e t h at i t was possible that the transfe rs could have come from other entities, defe ndants put on no proof to support that position and the best person to r espond to those alleg ations, Mr. Eng le, elec ted
no t to a tte ndthe tr ia l.
Sun state s p ur c ha se d a

pp ro xim ate ly

$1 .9 mil lio n d oll ars of orie nta l art , antique jewe lry , rar e books and othe r coll ec t i b les which we re ma intained in Cly de Eng le’s home in I llinois

. L ikewise Sunstates purc hased a Rolls R oy ce f

rom Libco,
a c or po ratio n in wh ic h E ng le wa s t he ma jority sh are ho lde r. Th is auto mob ile a lso-24-

appea rs to be in the possession or c ontrol of Mr. Eng le. Ag ain, Mr. Eng le elec ted not to offer any rea sonable e x planation to this proof.

I t is evident to this Court that Mr. Eng le exercised c omplete dominion over Sunstates, National Deve lopment Corporatio n, and all of the other scor es of companies set forth in the chart above. The re w as evide nce of Mr. Eng le’s dominion
no t on ly ov e r the tr a ns fe rs of fu nd s wh ic h we re fu nn e le d to him up th e cor po rate c ha in thr ou g h the B a nk of L inc oln wo od , bu t a lso ov e r the pa rt ic ular b us in ess de c isi on in this c a se i.e

. the tr a ns fe r of N. D. C.’ s a sse ts to Sun state s Co rp or a tio n. Al l of the c orporations under Eng le’s contr ol are now i n s olvent, and it would be an injusti ce to a llow Mr. Eng le to use the c orporate entity as a shield t o thwart the satisfac tion of the judg ment obtained in this case. T he evide nce supports the conclusion that NDC, Sunstates and the othe r compa nies wer emer e instrumentalities fo r M r. En gle an d th e re fo re the c or po ra te e nti ty wi ll b e dis re g ard e d in or de r t o acc omplish j ustice in this case. V .P. Buildings, Inc. v. Poly g on Group, Inc., supra
. There fore, the Court finds plaintiffs prior judg ment ag ainst National Deve lopment Corporation, I nc. shall likewise be a judgme nt ag ainst Sunstates C o rp o r a t i o n a n d C l yd e E n g l e , i n d i v i d u a l l y.
Sin c e thi s is su e wa s trie d b y the c ou rt sit tin g wi tho ut a

jury , w e re vie w i t de novo upon the
re c or d a ndpr e su me the fi nd ing s o f f a c t are c or

re c t un le ss the pr e pond eran c e of the e vid e nc e is
o t h er wi s e. T en n
. R

. Ap p
. P

. 1 3 (d ). T h e d ec i s i o n o f t h e tri al co u rt t u rn s , i n p ar t , o n t h e t ri al co u rt 's perc eption of the witnesse s' candor and truthfulness. The ref ore, w e g ive g reat weig ht to the
cre dibilit y

acc orded eac h witness by the trial judg e. W eave r v. Nelms , 750 S.W .2d 158, 160 (Tenn. Ct. App. 1987). Our re view of the rec ord not only leads us to the conclusion that the evidence does
no t pr e po nd e rate a g a ins t th e sp e c if ic fi nd ing s o f the tr ial cou rt , th e re c or d f ull y su pp orts tho se fi nd ing s. Ac c or din g ly , w e se e no be ne fi t to fu rthe r ana ly ze the e vid e nc e or the tr ia l c ou rt ’s fi nd ing s. Thus, the i ssue i s whether the facts as found by the t rial court are sufficie nt to sustain, as a matter of la w, the tr ia l c ou rt ’s c on c lus ion that Cly de En g le wa s th e a lt er ego of Nat ion a l. T his a na ly sis takes us bac k to the Oce anics v. Barbour matter we discussed ea

rlier. The Oce anics trial court made
sever al finding s o f fac t relative to the Allen fac tors. The trial c ourt found “that, (1) at a ll releva nt times, O SC's corpor ate office was Ba rbour' s private residenc e; (2) the Antarna was OSC's princ ipal asset; (3) its sale e ffe ctively liquidated the corpor ation; and (4) the ‘transf er of the proc eeds f

rom the sal e of A nt arna to Barbo ur's p ers on al a ccou ntrend ered OS C w it ho utass ets .’" Oce anics , 112 S.W .3d
a t 14 5. Th e tr ia l c ou rt fu rthe r fo un d “ that ‘[a ]t a ll ma te ri a l ti me s, OSC wa s u nd e rc apit a lize d. ’ Wh ile
a mere $2,000 was paid into the corpor ation as capital, the alleg ed debt OSC owe d to B arbour was in e xce ss o f $ 80 0, 00 0. Es se nti a lly a ll of OSC ' s fu nd s c a me thr ou g h ‘l oa ns ’ f ro m B arb ou r. (f

oo tno te omitted) I n addition, the court noted that OSC ‘failed to completely observe corpor ate f

ormalities.’" Id . at 14 5. On app e a l, this c ou rt op ine d a s f

oll ow s: [A] fter r eviewing all of the evidenc e – in the context of the Allen fac tors – we c annot say that the evidenc e pre ponderates ag ainst the t rial court's dua l determinations (1)-25-

that Ba rbour is the a lter eg o of OSC and, as a conseque nce of

this finding , (2) that the plaintiff i s entitled to pierc e the c orporate veil of OSC and ca st Bar bour in judg ment based upon the OSC judgment. Since the pie rcing of the corpor ate veil is a " matter particula rly within the province of the trial court,” El e c tri c Power Bd. , 691 S.W .2d
a t 52 6, we c on c lud e that the re is no ba sis fo r dis a g re e ing wi th the tr ia l c ou rt ' s e xplic it finding that the pierc ing of the corpor ate veil was " nece ssary to acc omplish j ustice." Schlater , 8 33 S.W. 2d a t 92 5. Gi vin g du e c on sid e ratio n to the tr ia l c ou rt ' s c re dib ili ty determinations, [ footnote omitted] we conclu d e t h at t his evidentiary issue must be resolved a g ainst Ba

rbour.
Id . at 142-43. This court further conclude d that t h e p l ai n t i ff had succe ssfully established that C l i ff o rd Barb o u r a n d OS C we re o n e an d t h e s am e, s t at i n g t h at C l i ff o rd Barb o u r w as s i m p l y

OS C 's "ot her s elf ." Id . at 145 ( qu oti ng Ma tth e ws , 796 S.W .2d at 694.) Apply ing the trial court’ s findings of fac t to the fac tors to be co n sidered, w e find no e rror with the trial court’ s conclusion that National Deve lopment Company , I nc. is the alter e g o of Cly de Eng le, and that such a finding justifies pie rcing the corpor ate veil and holding Eng le liable for the jud g me nt r e nd e re d a g a ins t N a tio na l.

P ER SO N A L J U RI SDI CT I O N OV ER C L YDE E N G LE Cly de Eng le contends that the judgme nt a g ainst him is voi d beca use the trial c ourt did not have pe rsonal jurisdiction over him. This c ontention is based on the fac t that Eng le is a re sident of the state of

I lli no is a ndhis c on te nti on that he ne ve r c on du c te d b us ine ss i n T e nn e sse e a nd , th us , d id not subject himself to the jurisdiction of the courts of Tenne ssee.
The issue for t h is court to determine is whether the trial court’ s exercise of pe rsonal jurisdiction over Cly de Eng le m ee t s d u e process re quirements. Manufacturers Consolidated Se rv ic e s, In c . v . R od

e ll, 42 S.W. 3d84 6 ( Te nn . Ct

. Ap p. 20 00 ). Th e jurisd ic tio na l re a c h o f the c ou rt s o f T en n essee is determined by the long -arm statute of Tenne ssee. Four Seasons Gardening & Landscaping, Inc. v. Crouch , 688 S.W. 2d43 9 ( Te nn . Ct . A pp . 1 98 4) ; see also W arren v. Dy namics Health Equipment Mfg. Co., Inc

. , 4 8 3 F. S u p p
. 7 8 8 , 7 9 0 (D

. C

. T en n
. 1 9 8 0 ) ( c i t i n g King v. Hailey Chevrolet Co. , 462 F.2d 63 ( 6th Cir. 1972)). Tennessee’ s long- arm statute, Tenn. Code Ann. § 20-2- 21 4, ha s bee n inte rp re te d to e xten d to the lim its of pe rs on a l ju ri sd ic tio n impo se d b y the Du e Pr oc e ss Clause of the United States Constitution. Bridgeport Music, Inc. v. Agarita Music, Inc

. , 182 F. Supp. 2d65 3 ( M. D. Te nn . 2 00 2) . T he pe rt ine nt s ub se c tio ns of Te nn e sse e ' s lo ng -a

rm statut e pr ov ide : (a) Persons who ar e nonre sidents of Tenne ssee and residents of Tenne ssee who a re outside the state and ca n not be per sonally serve d with proce ss within the state are subject to the jurisdiction of the courts of this state as to any action or c laim for re lief
ari sin g fr om: (1 ) T he tr a ns a c tio n o f any bu sin e ss w ith in the state ; (2 ) A ny tortio us a c t or

omi ssi on wi thi n th is s ta te ;T h u s, T e x a s, the sta te o f i n c o rp o ra tio n o f N a tio n a l, re c o g n iz e s tha t an a c tio n to p ie rc e the c o rp o ra te ve il in 3

co nnect i o n wi t h an act i o n to o b t ai n a p ers o nal jud gm ent a gai nst the all eged a l t er ego co rpo rat i o n i s no t "a s ep arat e and i n depe n den t c au s e of

a ct i on
. " M at t hew s Co nst

. Co

. Inc. v. R ose n , 7 9 6 S .W .2 d 6 9 2 , at 6 9 3 , n. 1 (T e x . 1 9 9 0 ). -26- . . . . (6) Any basis not inconsistent with the const i t u t i o n of this state or of the Un ite d St a te s;
L ong -arm jurisdiction can be invoked ove r a non- resident individual bec ause of that individual's role with respec t to a corpor ation that is within the rang e of the l ong -arm statute and who uses t hat corporation as his ag ent. W arren , 483 F.Supp. at 790. The theory of invoking jurisdiction
ov e r i nd ivi du a ls w ho us e c or po ratio ns a s th e ir

a g e nts is a s f

oll ow s:
I f the pe rson' s control over the corpor ation is suc h that the cor poration is rea lly

acting
as h i s age n ti n d o i n g t h e act s gi v i n g ri s e to t h e s u i t , t h en h e c an b e r ea ch ed t h ro u gh the long -arm statute even thoug h he per sonally had no contac t with the forum state. The courts speak in terms of " pierc ing the corpor ate ve il" or the "a lter eg o" doc trine in discussing the susc eptibilityof individuals to l ong -arm jurisdiction. Not all cases treat the question in terms of those doctrines draw n from cor poration law, how ever
. (footnotes omitted.)

W i l co x v
. P r ec i s i o n P a r

a ch u t e C o
. , 6 8 5 F

. S u p p
. 8 2 1 , 8 2 3 (D. K

a n
. 1 9 8 8 ) ( quoting Ro b er t C as ad, J UR I S DI C TI ON I N C I V I L A C TI ONS , ¶ 4.03[4] (1983))

. The fiduc iary -shield doctrine prec ludes jurisdiction ove r an individual a cting exclusivelyas a cor porate office r on beha lf of a bona fide c orporation. Stuart v. Spademan , 772 F.2d 1185, 1197 (5th Cir. 1985). Howeve r, t he obverse of that rule c an be a pplied to warr ant a f

inding of persona l jurisd ic ti on ov e r thepe rs on by a ttribu tin g the c or

po rate c on ta c ts w ith the fo ru m to the ind ivi du a l. Stu ar t , 772 F.2d at 1197. Thus, if the corpor ation is not a viable one and the individual is conducting persona l activities and using the cor porate form as a

shield, a court may

pierc e the c orporate veil and
assert personal jurisdiction over the individual based on the corpor ation’s activities within that state. See 4A Charles A . Wright and A rthur R. Miller, F ED ER A L P R AC TI C E AND P ROCE D U RE , § 1069.4, p. 186 (3 ed. 2002).

rd

I t sh ou ld a lso be un de rs too d th a t a su it again st an alte r e g o, in w hic h th e plaint if f s e e ks to pierc e the c orporate veil in connec tion with a previously -obtained judgme nt ag ainst a cor poration, is no t "a s epar ate and in dep end ent caus e of a cti on ." Oc e an ic s, 1 1 2 S

. W

. 3 d at 1 4 5 (q u o t i n g Ma tth e ws Co n s t. Co

. I

n c
. v
. Rosen , 79 6 S .W .2d 6 92 , 6 93 , n . 1 (T e x. 19 90 ))

. Whe n a plaint if f o btains a 3 judgme nt ag ainst the corpor ate e ntity , it also obtains a judgme nt as to any of its alter e g os. Oce anics , 1 1 2 S

. W

. 3 d at 1 4 5 (c i t i n g W m. Passalacqua Builders, Inc. v . Resnick Dev elopers South, Inc ., 608 F .Su pp
. 1 2 6 1 , 1 2 6 4 ( S

. D

. N

. Y

. 1 9 8 5 ) )

. O n c e a tr i a l c o u r t h a s d e t e r m i n e d t h a t a n i n d i v i d u a l is a
c or po rate e nti ty ’s oth e r s e lf

a nda jud g me nt a g a ins t th e c or

po rate e nti ty is in pla c e , the n the re is a lso in p la c e a jud g me nt a g a ins t th e ind ivi du a l w ho is the c or po rate e nti ty ’s oth e r se lf

. Th is i s b e c aus eP rovided t he al t er ego i s a p art y t o t he act i o n. 4
-27- the individual is no longer a leg ally separ ate e ntityfrom the c orporate debtor. Oce anics , 112 4 S

. W

. 3 d at 1 4 6 (c i t i n g Ma tth e ws , 7 96 S.W. 2da t 69 4) ; see also Passalacqua , 608 F.Supp. at 1264 (holding that the corpor ation and those who have controlled the corpor ation are treated as one entity ).

I t is undisput ed that Natio n al conducte d business in Hickman County , Tenne ssee with the plaintiffs, which g ives the courts of Tenne ssee jurisdiction over National, and we have c oncluded that Eng le i s the alter e g o of National. There fore , the ac tiviti es National conducted in Te nnessee are a ttribu ta ble to i ts “ oth e r s e lf

” – Cly de En g le

. Ac c or din g ly , Cl y de En g le no t on ly c on du c te d b us ine ss in T e nn e sse e , h e c on du c te d b us in ess in Hi c kman Co un ty , T e nn e sse e wi th the plaint if fs a ndis, there for e, s ubject to the jurisdiction of the Circuit Court of Hickma n County , Tenne ssee. We, there fore , aff

irm the determination by the trial court that it had personal jurisdiction over Cly de Eng le.
I N C ONCL US I ON The judg ment of t he trial court is affirme d in all respec ts, and this matter is remande d to the trial court with costs of a ppeal be ing a ssessed ag ainst t h e ap p ell ants, National De velopment Company , I n c. , S u n states Corporation and Cly de W. Eng le, jointlyand seve rally , for whic h execution may

issue.

___________________________________ FRANK G. CLEMENT, JR ., J UDGE-28- Add e ndum