IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

Assigned on Briefs September 9, 2004

GLADYS BOLES, ET AL. v. NATIONAL DEVELOPMENT COMPANY,

INC., ET AL.

 Appeal from the Circuit Court for Hickman County

No. 94-5027C R. E. Lee Davies, Judge

No. M2003-00971-COA-R3-CV - Filed April 26, 2005

This is a class action on behalf of purchasers of 3,876 lots at Hidden Valley Lakes Development, a

residential development in Hickman County. Plaintiffs seek to recover compensatory damages

resulting from a breach of contract by the developer, National Development Company, Inc., and its

alleged alter ego, Clyde W. Engle. Plaintiffs allege that National breached its contract by failing to

provide the centerpiece of the development, a thirty-acre lake. The lake failed to hold water and thus

became a thirty-acre hole in the ground. It was stipulated that the failure of National to provide the

thirty-acre lake was a breach of contract. The trial was bifurcated into two phases. The first was

limited to the plaintiffs’ claim for damages against National, following which the plaintiffs were

awarded compensatory damages in the amount of $2,540,867 against National. The second phase

of the trial was limited to the plaintiffs’ claim that Clyde Engle was the alter ego of National and thus

liable for the damages assessed against National. Following an evidentiary hearing, the trial court

pierced the corporate veil and held Engle personally liable for the judgment against National. The

defendants appeal contending that the plaintiffs’ proof of damages was neither competent nor

sufficient, that the wrong legal standard was applied to pierce the corporate veil and that the proof

was insufficient to pierce the corporate veil. Engle also appeals contending that the court did not

have personal jurisdiction over him and thus the judgment against him is void. Finding no error, we

affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed

FRANK G.CLEMENT,JR., J., delivered the opinion of the court, in which WILLIAM C.KOCH,JR.,P.J.,

M.S., and Patricia J. Cottrell, J., joined.

John C. Hayworth, Charles Ingram Malone, Kathryn Hays Sasser, Gerald M. Tierney, Jr., and Joseph

F. Welborn, Nashville, Tennessee, for the appellants, National Development Company, Inc.,

Sunstates Corporation and Clyde W. Engle.

Douglas Thompson Bates, III, Centerville, Tennessee, for the appellee, Gladys Boles, et al.
-2-

OPINION

Twenty-nine owners of property in the Hidden Valley Lakes Development in Hickman

County, Tennessee, filed a civil action against National Development Company, Inc., a Texas

corporation, seeking damages resulting from breach of contract and negligent and fraudulent

misrepresentations. The principal complaint pertained to the centerpiece of the development, a

thirty-acre lake, named Crystal Lake. The lake failed to hold water and it was subsequently

determined that it would never hold water. Thus, instead of having a thirty-acre lake as the

centerpiece of the development, the plaintiffs have a thirty-acre hole in the ground. 

Plaintiffs amended their complaint in September 1995 to allege that their causes of action

were being asserted on behalf of “all persons signing contracts with National prior to 1994 and

specifically providing: ‘THE SELLER is responsible for construction of roads, lakes, and related

facilities’” and all successors to any persons who signed such contracts with National. The plaintiffs

sought to represent a class of persons who purchased some 3,876 lots from National for a total

consideration paid for the lots of $9,239,517.

In December of 1995, the trial court certified the plaintiffs’ breach of contract claims as a

class action on behalf of “persons who prior to the end of 1994, purchased or contracted to purchase

property in the Hidden Valley Lakes subdivision from National Development Company, Inc.,

pursuant to contracts containing language to the effect that defendant would be responsible for

construction of roads, lakes and related facilities.” Plaintiffs’ misrepresentation claims, however,

were not certified for class action treatment. Thereafter, on February 20, 1996, the plaintiffs filed

a notice of dismissal of their misrepresentation claims. Thus, the plaintiffs proceeded with their

claim against National on the singular issue of whether National was liable for breach of contract

based upon its failure to develop the centerpiece of the subdivision, Crystal Lake. 

Later on, the plaintiffs again amended their complaint, adding Sunstates Corporation,

National’s parent, as an additional defendant. The thrust of the complaint against Sunstates was that

it operated National as its “alter-ego, and as its agent.” Plaintiffs alleged that Sunstates caused

National to become under-capitalized as a result of a transfer on December 31, 1994 of an excess

of $5 million in contracts to affiliates of Sunstates and National. Plaintiffs therefore alleged that

Sunstates was liable for any judgment that may be rendered against National. 

Two yearslater, in December of 1998, the plaintiffs amended their pleadings once again, this

time adding Clyde W. Engle, the principal behind the corporate defendants, as an additional party

defendant. Plaintiffs asserted that Engle exercised complete dominion and control over Sunstates,

National and other affiliated entities and that he was the “alter-ego” of the entities which justified

piercing the corporate veils of National and Sunstates in order to hold Engle individually liable for

any judgments that may be rendered against the corporate defendants.

Due to the complexity of issues, the trial was bifurcated into two hearings. The first trial

pertained to the issue of damages only. The second focused solely on the question of whether Engle
-3-

was the alter ego of the corporate defendants and, thus, whetherthe corporate veils should be pierced

so that the plaintiffs could recover their damages against Clyde Engle, individually. 

The damages portion of the plaintiffs’ breach of contract action against National was tried

before the Honorable Donald P. Harris on January 19, 2000. The plaintiffs were awarded damages

against the developer, National, in the amount of $2,540,867. The second phase of the trial, to

determine whether to hold Engle personally liable for the judgment against National, was tried before

the Honorable R. E. Lee Davies on June 17 and 18, 2002. The trial court applied Tennessee law,

rather than the law of the states of incorporation of National and Sunstates, and found Engle to be

the alter ego of the corporate entities. It, therefore, pierced the corporate veils and held Engle

personally liable for the $2,540,867 judgment rendered against National.

STANDARD OF REVIEW

The issues raised constitute a challenge of the trial court’s judgment following a bench trial.

We review findings of fact by a trial court de novo and presume that the findings of fact are correct

unless the preponderance of the evidence is otherwise. We also give great weight to a trial court’s

determinations of credibility. Estate of Walton v. Young, 950 S.W.2d 956, 959 (Tenn. 1997); B &

G Constr., Inc. v. Polk, 37 S.W.3d 462, 465 (Tenn. Ct. App. 2000). However, if the trial judge has

not made a specific finding of fact on a particular matter, we will review the record to determine

where the preponderance of the evidence lies without employing a presumption of correctness.

Ganzevoort v. Russell, 949 S.W.2d 293, 296 (Tenn. 1997).

Tenn. R. App. P. 13(d)’s presumption of correctness requires appellate courts to defer to a

trial court’s findings of fact. Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d 291, 296

(Tenn. Ct. App. 2001). Because of the presumption, an appellate court is bound to leave a trial

court’s finding of fact undisturbed unless it determines that the aggregate weight of the evidence

demonstrates that a finding of fact other than the one found by the trial court is more probably true.

Parks Properties v. Maury County, 70 S.W.3d 735, 742 (Tenn. Ct. App. 2001). For the evidence

to preponderate against a trial court’s finding of fact, it must support another finding of fact with

greater convincing effect. Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn. Ct. App.

2000).

DAMAGES

Following a bench trial, the plaintiffs were awarded damages against National Development

Company, Inc. the developer, in the amount of $2,540,867. Defendants appeal that decision,

contending that the judgment against National should be reversed because the record does not

contain competent or sufficient proof of damages. Our analysis of this issue begins with an

assessment of the trial court’s reasoning, which is set forth in detail in an excellent Memorandum

Opinion: 
-4-

This action for breach of contract was tried by the court on January 19, 2000.

Plaintiffs are a class of purchasers of real property located in the Hidden Valley

Lakes Subdivision, a recreational development, developed and marketed by the

defendant, National Development Company, Inc. All members of the class

purchased lots in the development incident to a contract of sale that contained the

following language:

“The SELLER is responsible for construction of roads, lakes

and related facilities such as the bathhouse, beach and boat ramps, .

. .”

The primary lake, Crystal Lake, intended to cover some 45 acres, was dug by the

defendant but did not hold water and the effort to build the lake was finally

abandoned. The plaintiffs brought a class action to recover for the diminution in

value of their properties caused by the failure of the defendant to complete the lake.

Five other small lakes were constructed by the defendant as well as a swimming pool,

bathhouse and other facilities. Crystal Lake was, however, to be the preeminent

recreational facility on the property and would have, if constructed, accommodated

boating, skiing and fishing.

The concept of marketing the property was that anyone who purchased a lot

in the development was entitled to use any of the common recreational facilities.

Each landowner was obligated, by contract, to pay an assessment amounting to

$72.00 per year to the homeowner’s association for maintaining the property, to

include the roads, sewers and sewage disposal facility, recreational facilities and

common areas. By the end of 1994, some 3876 lots had been sold by the defendants

and these lot owners are members of the class of plaintiffs. The total consideration

paid by plaintiffs for their lots was $9,239,517.42. 

The difficult question presented to the court is the amount of diminution in

value of the lots sold caused by the defendant’s failure to complete Crystal Lake.

The defendant did not deny that it was obligated to construct the lake, that it failed

to perform that obligation or that it was responsible for any diminution in value of

the lots sold as a result. Some of the lots involved were larger lots suitable for

construction of permanent dwellings. Some of the lots were very small lots suitable

only for parking a camper. Some lots fronted directly on what was supposed to be

Crystal Lake. Other lots were located in remote areas of the development nearer the

small lakes. 

By the time of the trial, it is clear that some of the lots had little, if any, value.

Some 146 of them were sold by Hickman County for back taxes, evidencing

abandonment by the persons who had purchased them. The vast majority of these
-5-

lots were retained by the county because no one offered any amount in excess of the

taxes owed. The defendant itself had some lots for as little as $65.00.

When lots are abandoned in this development, the amount of maintenance

fees that will be paid are proportionately reduced. Because many of the lots have

little or no value, the ability of the homeowners’ association to collect the

maintenance fees has been eroded. Logically, this erosion would cause further

uncertainty and diminution in value of the property.

Mrs. Polly Dyer, a real estate appraiser, testified as an expert for the plaintiffs.

According to her testimony, the lots in the Hidden Valley Lakes Subdivision have

diminished in value an average of ninety (90%) percent for those lots fronting on the

proposed Crystal Lake and sixty (60%) for those not fronting on the proposed lake.

She opined that ninety (90%) of the diminution in value was caused by the failure of

defendant to complete Crystal Lake.

On cross-examination, Mrs. Dyer listed the resales of lots in Hidden Valley

Lakes Subdivision as derived from records maintained by the Assessor of Properties

Office for Hickman County. Based upon the resales, one-half of the lots resold had

diminished in value sixty (60%) or less. One-half of the lots resold had diminished

greater than sixty (60%) percent. These figures would indicate half the lots resold

lost an average of thirty (30%) percent in value and half lost an average of eighty

(80%) percent in value. As a whole, the value received for the lots upon resale

decreased an average of fifty-five (55%) percent.

Certainly, the failure of the defendant to complete Crystal Lake and the fallout

from that failure diminished the value of the lots in the subdivision. While failure

to complete the lake was the only circumstance shown to have had an effect on the

devaluation of the lots, other factors such as a loss of interest, lack of marketing

expertise and unwillingness to incur expenses involved in marketing the lots may

also have had some effect. Recognizing the burden is on the plaintiffs to prove the

amount of their damages caused by the breach, the court finds, by a preponderance

of the evidence, that fifty (50%) percent of the diminution in value was caused by the

failure of the defendant, National Development Company, Inc., to complete the

construction of Crystal Lake. 

Accordingly, plaintiffs shall have a judgment against National Development

Company, Inc., for twenty-seven and one-half (271⁄2 %) percent of $9,239,517.42, the

total consideration paid by the plaintiffs for their properties. The total amount of the

judgment shall be $2,540,867.29.

The court further finds there is no rational basis for finding some lots in the

development were damaged more than others. It is noted that the lots fronting on the
-6-

proposed Crystal Lake were larger lots suitable for construction of permanent

dwellings. As such, they had value separate from their proximity of Crystal Lake.

The small camper lots had value only because of their location in the development

and their proximity to the recreational facilities located there, including Crystal Lake.

As a consequence, the court finds the damages awarded should be apportioned to

each lot owner on the basis of the amount of consideration paid.

One of the defendants’ contentions is that the plaintiffs’ expert witness, Polly Dyer, was not

qualified to render an opinion concerning the value of the real estate at Hidden Valley Lakes or the

diminution in the value of the property. The record reveals that Ms. Dyer had been a resident of

Hickman County for many years, that she had been actively involved in the real estate business in

Hickman County for over twenty years, since 1978, and that she had appraised real estate in the

county on a continuous basis since 1991. She had served on the State Board of Appraisers for seven

years at the time of the first trial. Moreover, on multiple occasions she had been recognized as an

expert witness, qualified to render opinions as to the value of real property, by the Circuit and

Chancery Courts for Hickman County. 

The rules of evidence that govern the issue of admissibility of expert testimony are Tenn. R.

Evid. 702 and 703. The trial court has the initial responsibility to find whether the purported expert

evidence will substantially assist the finder of fact to understand the evidence and to determine a fact

at issue. McDaniel v. CSX Transportation, Inc., 955 S.W.2d 257, 265 (Tenn. 1997). On appeal,

questions regarding the admissibility, qualifications, relevancy and competency of expert testimony

are generally left to the discretion of the trial court. McDaniel, 955 S.W.2d at 263 (citing State v.

Ballard, 855 S.W.2d 557, 562 (Tenn. 1993)). The trial court's ruling in this regard may only be

overturned if the discretion is arbitrarily exercised or abused. McDaniel, 955 S.W.2d at 264. 

Considering the foregoing, we find no error with the trial court’s decision to qualify Ms. Dyer

as an expert witness competent to render opinions concerning the value of real estate and the

diminution of the value of the real estate at issue.

We now turn our attention to the evidence that was introduced concerning the plaintiffs’

damages. It was undisputed that Crystal Lake, the centerpiece of the development, did not hold

water and would never hold water, thus there was nothing more than a massive, thirty-acre hole in

the ground in the center of the development. 

The evidence Ms. Dyer introduced can be summed up as follows: the lots in Hidden Valley

Lakes were purchased for recreational purposes, as second homes as distinguished from primary

residences; the center piece of the development was the proposed thirty-acre Crystal Lake; the lots

at Hidden Valley Lakes dramatically diminished in value once the public became aware that Crystal

Lake would never hold water; that 90% of the overall diminution in value of the lots was due to the

failed Crystal Lake; and that the lots diminished in value from their original value within a range

from 60% to 90%, with the diminution in value increasing with the proximity to the failed Crystal

Lake. 
Tennessee’s burden of proof, though substantial, does not require proof of actual fraud. 1

-7-

The plaintiffs introduced additional evidence of the diminution of value to the lots through

the testimony and records of the Clerk and Master of the Chancery Court for Hickman County, Sue

Smith. Ms. Smith introduced evidence establishing that 179 of the lots at Hidden Valley Lakes had

been sold by the county at tax sales between 1994 and 1997 due to the failure of property owners to

pay their property taxes. Of these, 133 had been purchased by the county for the amount of the taxes

and another 46 had been purchased by individuals, also for the amount of the taxes.

While the defendantstake exception with the sufficiency of the plaintiffs’ evidence, they did

not introduce any evidence concerning the value of the lots. Thus, the plaintiffs’ evidence of the

diminution of value of the lots at Hidden Valley Lakes was uncontroverted.

Considering the foregoing, we find no error with the trial court’s decision to recognize Ms.

Dyer as an expert witness. Furthermore, we find that the evidence does not preponderate against the

trial court’s findings as to damages. Therefore, we affirm the judgment of $2,540,867 against

National Development Company, Inc.

PIERCING THE CORPORATE VEIL

The second hearing was limited to the issue of whether Clyde Engle was the alter ego of

National Development Company, Inc. and Sunstates Corporation. Following an evidentiary hearing,

the trial court found Clyde Engle to be the alter ego of the corporate entities and held him liable for

the $2,540,867 judgment. 

The defendants appeal this ruling asserting that the trial court committed two primary errors.

First, the defendants contend that the trial court erred by applying the law of Tennessee to determine

whether to pierce the corporate veils of National and Sunstates. They contend the court should have

applied the law of the states of incorporation of National and SunStates, being Texas and Delaware,

respectively, instead of Tennessee law, and that this alleged error was significant because the

plaintiffs provided no proof of actual fraud, which Texas and Delaware require. Second, the 1

defendants contend that the evidence was insufficient, even under Tennessee law, to justify piercing

the corporate veil. 

CHOICE OF LAW ARGUMENT

The contention that the trial court erred by applying Tennessee law, instead of the law of

Texas and Delaware, to determine whether to pierce the corporate veil is without merit. This court

previously applied Tennessee law to pierce the corporate veil of a foreign corporation and to hold

its principal liable for the debts of the corporation in Oceanics Schools, Inc. v. Barbour, 112 S.W.3d

135 (Tenn. Ct. App. 2003). 
Oceanics Schs., Inc. v. Operation Sea Cruise, Inc., No. 03A01-9904-CV-00153, 1999 WL 1059678 (Tenn.

2

Ct. App. Nov. 19, 1999).

-8-

Oceanics arose out of a prior civil action wherein Oceanics Schools, Inc. (hereinafter

“plaintiff”) obtained a judgment ("the OSC judgment") against Operation Sea Cruise, Inc. (OSC).2

Upon discovering that Operation Sea Cruise, Inc. was insolvent, the plaintiff filed a second action

to enforce the OSC judgment against Clifford E. Barbour, Jr., whom the plaintiff alleged was the

alter ego of OCS. The trial court, applying Tennessee law, found that Barbour was the alter ego of

OSC and pierced the corporate veil to enforce the OSC judgment against Barbour.

Not unlike the case at bar, Oceanics comprised two trials. The first was limited to damages,

and the plaintiff was awarded a judgment for damages against the corporate defendant. The second

trial was limited to the issue of whether Clifford Barbour, the principal behind OSC, was the

judgment debtor’s alter ego. The second trial was tried against the backdrop of a long and unusual

history, the pertinent parts of which are as follows.

[Barbour] formed [OSC], under the laws of Panama in 1965 for the purpose

of acquiring ownership of, repairing, and operating the sailing vessel "Antarna."

Barbour owned 100 percent of the shares of OSC, which purchased the sailing ship

in 1967 and extensively repaired and restored it. In 1971, [the plaintiff] chartered the

Antarna from [OSC] for use as a school ship in exchange for [the plaintiff's]

providing repairs and supplies to make the vessel operational. 

[The plaintiff] invested approximately $630,000 in repairs and supplies for

the Antarna and began using the vessel in itsschool program. In March 1972 [OSC]

reclaimed possession of the vessel in the Panama Canal Zone and subsequently sold

the Antarna to a third party, [footnote omitted] who sailed the ship out of

Panamanian waters to the Azores, Portugal. The proceeds of that sale were paid by

[OSC] to Barbour in repayment of "a portion of the loans to the corporation by

[Barbour]."

[The plaintiff] filed suit against [OSC] and the vessel by Writ of Attachment

in the District Court of Ponta Delgada, Azores, Portugal, for breach of contract and

obtained a judgment against [OSC] for $929,815.55 plus interest. [footnote omitted]

That Court then issued a Rogatory Letter to the Circuit Court for Knox County,

Tennessee for seizure of properties of [OSC] or any other persons as may be liable

for the obligations of [OSC], and apparently identifying [Barbour], Dorothy Drake

Barbour and David Barbour as directors and managers of [OSC].

Oceanics, 112 S.W.3d at 137.

The second action was commenced in the Knox County Circuit Court to domesticate the

Portuguese Judgment. The Portuguese Judgment against OSC was domesticated by the Knox
-9-

County Circuit Court. After discovering that the corporate defendant had no assets, the plaintiff

amended the complaint to add Clifford Barbour individually as a party-defendant, alleging that

Barbour, the principal shareholder of OSC, failed to adequately capitalize the corporation, made

personal loans to the corporation to gain an unlawful preference as a purported creditor over future

creditors, and failed to observe corporate formalities. In short, the plaintiff claimed that OSC was

the alter ego of Barbour, that the corporate veil should be pierced, and that Barbour was liable for

the judgment against OSC. 

Like the case at bar, the individual defendant Clifford Barbour argued, inter alia, that the

plaintiff's action to pierce the corporate veil of OSC should be governed by the laws of the country

of Panama, the jurisdiction where the corporation was chartered. The trial court disagreed, applied

the law of Tennessee and held that Clifford Barbour was the alter ego of OSC and "should be

personally bound on the judgment in favor of the Plaintiff against OSC." Barbour appealed. This

court affirmed, finding that Tennessee law was properly applied and sustained the finding that

Barbour was the alter ego of the defendant corporation. As for the choice of law argument, the

Oceanics court opined, 

We find no merit in Barbour's assertion that Panamanian law is relevant on the

question of whether the corporate veil can be pierced in this case. We are dealing

now with a Tennessee judgment. The law of Tennessee is applicable in determining

the efficacy and parameters of the piercing of the corporate veil theory.

Oceanics,112 S.W.3d at 146.

Like Oceanics, we too are dealing with a Tennessee judgment against a foreign corporation

and the question of whether to pierce the veil of a foreign corporation to hold its principal liable.

Therefore, we find the defendants’ contention that the trial court erred by not applying the law of

Texas and Delaware, the states of incorporation of the corporate defendants, to be without merit.

SUFFICIENCY OF THE EVIDENCE

The defendants contend that the evidence was insufficient to justify piercing the corporate

veil. The evidence in the record was greatly impacted by sanctions imposed against Clyde Engle and

the corporate defendants for obstructing discovery. Thus, we begin our analysis of the sufficiency

of the evidence with an analysis of the propriety of the sanctions imposed by the trial court. The

sanctions imposed and the trial court’s justification for imposing the sanctions are set forth in an

order, which reads as follows:

This cause is before the court upon a motion for sanctions filed by the

plaintiffs and a motion to dismiss filed by the defendant, Clyde Engle. The court

earlier denied a motion to dismiss the case against Mr. Engle for lack of personal

jurisdiction on the ground the amended complaint alleged a sufficient factual basis

for this court to exercise its jurisdiction. During that hearing, the court indicated that
-10-

after the defendant had submitted to discovery, defendant could renew his motion.

The court also has, on two occasions, ordered Mr. Engle to respond, in discovery, to

all queries relating to all corporations in which he has or has had an interest and to

all corporations in which those corporations has or has had [sic] an interest.

The gravaman of the complaint, as the court understands it, is that the

defendant, Clyde Engle, caused the National Development Company, Inc. and

Sunstates Corporation to make a fraudulent transfer of assets, totaling $5,116,720.00,

in order to defraud creditors of those corporations relating to transactions that

occurred in Tennessee. According to the amended complaint, this transfer was made

to an affiliate corporation controlled by Mr. Engle for his personal benefit.

Queries relating to Mr. Engle’s corporate affiliations relate not only to the

accuracy of plaintiff’s claims but also to whether there is a sufficient connection

between him, corporations in which he has a direct or indirect interest and the

defendants, National Development Company, Inc., and Sunstates Corporation, for

this court to exercise personal jurisdiction. Absent his personal response to questions

relevant to this subject matter, the court must, as previously, rely upon the allegations

of the amended complaint.

 Despite being twice ordered to do so, the defendant, Clyde Engle, has

continued to refuse to answer questions related to his corporate affiliations and,

moreover, has renewed his motion to dismiss the amended complaint for lack of

personal jurisdiction. The motion to dismiss is denied. The motion for sanctions is

granted.

It is, therefore, ORDERED as follows:

1. Defendant, Clyde Engle, is estopped from asserting this court lacks

personal jurisdiction of him.

2. The corporate chart plaintiffs aver was presented by Rick Leonard,

Operations Officer of National Development Company, Inc., shall be admissible

during the trial of this case as evidence of the affiliation of corporations in which the

defendant, Cyde Engle, has an interest. The defendant, Clyde Engle, will be

prohibited from presenting contrary evidence. 

3. During the trial of this case, transactions and dealings between the

defendant, Clyde Engle, RDIS Corporation, Telco Capital Corporation, Hickory

Furniture Company, Wisconsin Real Estate Investment Trust, Indiana Financial

Investors, Inc., Sunstates Corporation and National Development Company, Inc.,

shall be considered typical of Clyde Engle’s transactions and dealings with other

affiliated corporations as identified by the chart referred to herein.
-11-

4. Plaintiffs are awarded an attorney’s fee of Two Thousand Five Hundred

($2500.00) Dollars for the prior motions to compel and for obtaining this order.

They shall have judgment against Clyde Engle in that amount.

Tenn. R. Civ. P. 37.02 empowers a court to impose sanctions when “a deponent; a party; an

officer, director, or managing agent of a party . . . fails to obey an order to provide or permit

discovery, including an order made under Rule 37.01 or Rule 35, or if a party fails to obey an order

entered under Rule 26.06, the court in which the action is pending may make such orders in regard

to the failure as are just, . . .” The sanctions available to the court include the following: 

(A) An order that the matters regarding which the order was made or any other

designated facts shall be taken to be established for the purposes of the action in

accordance with the claim of the party obtaining the order; 

(B) An order refusing to allow the disobedient party to support or oppose designated

claims or defenses, or prohibiting that party from introducing designated matters in

evidence; 

(C) An order striking out pleadings or parts thereof, or staying further proceedings

until the order is obeyed, or dismissing the action or proceeding or any part thereof,

or rendering a judgment by default against the disobedient party; 

(D) In lieu of any of the foregoing orders or in addition thereto, an order treating as

a contempt of court the failure to obey any orders . . . ; 

. . . . 

In lieu of any of the foregoing orders or in addition thereto, the court shall

require the party failing to obey the order or the attorney advising the party or both

to pay the reasonable expenses, including attorney's fees, caused by the failure, unless

the court finds that the failure was substantially justified or that other circumstances

make an award of expenses unjust. 

Tenn. R. Civ. P. 37.02 (emphasis added).

While the plaintiffs’ discovery efforts were not Herculean, they were substantial and were

met with numerous and significant hurdles strategically placed by Engle. Though the following is

not a complete history of the plaintiffs’ efforts to obtain discovery, it is a fair representation of the

pertinent facts. More importantly, it is the primary basis for the trial court’s decision to impose

sanctions. It is the affidavit of the plaintiffs’ counsel which was attached to the plaintiffs’

memorandum in support of their motion for sanctions. The affidavit reads as follows:
-12-

AFFIDAVIT

Douglas Thompson Bates, III, does state the following upon his oath:

For two and one-half years, the Class has been attempting to use the lawful

discovery procedures to discover evidence to present to the Court concerning the

elaborate family of corporations of Clyde Engle. What follows is a chronology of our

efforts.

1. During the settlement negotiations, which resulted in a settlement

disapproved by the Court, Rick Leonard, an officer of National Development

Company (hereinafter referred to as NDC) and active in the negotiations of

settlement (he had flown from Raleigh, North Carolina, for the trial), showed

me a chart which looked very similar (it might have been exactly like) the one

below. Moreover, I had been furnished a series of charts from Coronet

Insurance, an Engle subsidiary. Here is what the chart looked like: 

[chart - see Addendum]

2. After the Court disapproved the settlement, we embarked upon the two and

one-half year journey of attempting to get a focus of the corporate schedule

headed by Clyde Engle owner of 80% of RDIS, the head of the scheme.

3. Noting that Sunstates owned 100% of NDC, that Sunstates was a defendant,

and that Sunstates seemed to be at a vortex of the scheme, on June 10, 1998,

we took the deposition of Lee Mortensen, whose business card proclaimed

as follows: [card omitted; it identified Lee N. Mortenson as President and

Chief Operating Officer of “Sunstates”] In the deposition, Mr. Mortensen

conceded that, “I don’t know what Sunstates owns and what it does not own”

(p. 12). And when I attempted to inquire about what other corporations he

had knowledge of, Mr. Alexis, who had been relieved as counsel, objected.

4. Then, on that same day, Mr. Engle’s deposition was taken. Rick Leonard,

chief operating officer of NDC was present and was also acting as Mr.

Engle’s counsel. Leonard said he did not recall the chart (p. 34). Throughout

the remainder of the deposition, Mr. Alexis and Mr. Engle protested as I

asked about other corporations owned by Engle directly or indirectly.

5. On Dec. 18, 1998, Ifiled interrogatories inquiring of all corporations as to all

corporations which Clyde Engle had an interest in.

6. In August 1998, Neal Lovlace asked for a protective order.

7. On May 18, 1999, Engle was ordered to “respond fully to the interrogatories

and request to produce documents filed by the plaintiffs no later than June 28,

1999.”
-13-

8. On July 23, 1999, Engle filed a response mentioning seven corporations,

submitting SEC 10-Q’s for two of them, and disavowing any knowledge of

charts of ownership.

9. On August 24, 1999 acting on my motion, the Court ordered Mr. Engle to

answer the interrogatories and request to produce as, “as to all corporation

Engle has an interest in or corporations those corporations had an interest in.”

If complied with, the discovery would have been complete.

10. But, on Sept. 7, 1999, Engle filed his second response and furnished

information on 12 companies. 

11. Now, in the meantime, I was trying to get Mr. Engle’s deposition done.

(a) In its order of May 18, 1999, the Court had ordered that Engle would

submit to a deposition in Centerville when Judge Harris was present

to [sic] his evasion could be tended to immediately.

(b) The depositions were continued twice; once because of the surgery of

my secretary’s daughter; and another time because of the surgery of

Mr. Lovlace’s wife.

(c) In the meantime, I addressed to Mr. Lovlace the inadequacies of

Engle’s response by letter of August 18, 2000. In the letter I stated:

“I believe if Mr. Lovlace will review the last order

from Aug. 24, 1999, he will see Mr. Engle’s

requirement is to answer fully insofar as corporations

he has an interest in or corporations that his

corporation has an interest in. Although he has failed

to do that, before asking for sanctions, I am going to

give him and Mr. Tierney an opportunity to answer

these questions in a depositions. If they continue to

fail to do so, after this process, I shall apply for the

ultimate sanction of holding Mr. Engle liable for NDC

debt judgment.”

(d) Then, Mr. Lovlace informed me that Engle could not fly for doctor’s

reasons. I responded by a letter dated Oct. 10, 2000, which said:

October 10, 2000

Hon. Neal Lovlace

Attorney at Law

820 Hwy. 100

Centerville, TN 37033

RE: BAILET et al vs. N.D.C., et al

HICKMAN CIRCUIT NO. 94-5027C
-14-

Dear Neal:

. . . . 

Insofar as where we are going to take the

depositions: If I receive a letter from a doctor telling

me that it would be dangerousto Clyde Engle’s health

for him to fly; and in addition to that, a signed

authorization from Mr. Engle that I can receive

medical information from that doctor and I receive

those on or before Oct. 25, 2000, I will go to Chicago

and take those depositions so long as the plane trip

and hotel accommodations are in place ten days

before the trip. If I have not received the letter of

authorization by Oct. 25, we will do both depositions

in Centerville. Please tell your client that I am not

giving on these deadlines for anything except a

personal concern of yours.

. . . .

(e) I received no such letter or authorization and so I assumed the

deposition would take place in Centerville on Dec. 11.

However, in early December, Mr. Lovlace informed me that

he had made arrangements for us to fly to Chicago and stay

there for the depositions. I decided I would at least try to take

them; and as we went to Nashville that Sunday, Dec. 10, Mr.

Lovlace presented me with a letter dated Dec. 5, 2000, (my

deadline was Oct. 25), which reads as follows:

RHEUMATOLOGY ASSOCIATES, S.C.

. . . . 

December 5, 2000

PERSONAL AND CONFIDENTIAL

To Whom It May Concern:

Mr. Clyde Wm. Engle has been a patient of this office for

approximately ten years.

He was diagnosed with a condition in September, following

an episode for which he was hospitalized. Tests are being

conducted to determine appropriate treatment and the extent

of any related problems.
-15-

As a result of the condition, he is prohibited from operating

motor vehicles and is strongly urged not to involve himself in

stressful situations nor to fly except with full precautions and

accompaniment by knowledgeable personnel.

Sincerely,

Robert S. Katz, M.D.

In the deposition, I inquired of Engle’s health and the following

question and answer took place:

Q: What is your health condition that you would not be

able to travel?

A: That’s clearly not relevant to this deposition, and not

something I’m going to answer on the record.

Q: I will ask you to instruct your client to answer.

A: (Mr. Tierney) No, I will not.

Later:

Mr. Bates: Will you tell him to authorize me to talk to the

doctor?

Mr. Tierney: No.

Back home in Centerville, I asked byinterrogatorywhether Engle had

flown in an airplane from Dec. 1, 2000 to Jan. 31, 2001.

(Interrogatory Two filed on Feb. 2, 2001.) He refused to answer.

(Answer Two filed on April 7, 2001.)

So, Engle had avoided the Court for his deposition.

12. Now, remember my letter to Mr. Lovlace concerning the inadequacies of

Engle’s responses and that I would give him a chance to correct them at the

deposition. But, please consider his responses in Chicago away from the

Court’s scrutiny. Attached at the end of this Affidavit are three pages of

copies of the condensed depositions.

13. Thus, Engle has been ordered twice to fully disclose his corporate scheme,

was warned by Counsel that if he did not in his deposition, we would ask for

the ultimate sanction, and although he has avoided facing this judge in

person, he has not complied with the orders of this Court.

14. Insofar as the charts, Engle has now presented charts which Mr. Leonard,

officer of Sunstates and NDC “to which he referred.” Engle says he has
-16-

never seen them. A copy of one of the charts they have furnished is on the

next page of this Affidavit. 

[see Addendum]

15. Although counsel has been unable to discover the true picture of Engle’s vast

net worth of corporations, still, some things have been established.

(a) We know that Sunstates purchased 1.8 million dollars worth of

jewelry and art, which are maintained at the home of Clyde Engle.

(Notice of Annual Stockholder meeting. Sunstates 1998.)

(b) We know that a subsidiary of a subsidiary of an indirect subsidiary of

Sunstates purchased a Rolls Royce for “corporate use.”

(Interrogatories answered April 7, 2001.)

(c) From financial data furnished us from answers to interrogatories, we

can show the ownership from Engle to Sunstates in 1995 as follows:

[chart omitted]

(d) And we can see the massive losses each corporation up to RDIS, the

corporation through which Engle controls the family.

THE FINANCIAL STRENGTH OF THE

CHAIN FROM CLYDE ENGLE TO NDC

1. Clyde Engle (refuses to answer any questions concerning this)

2. RDIS – We have no financial statement since 1989.

3. Telco – We have a 1992 statement which reveals:

$13,224,000 invested in affiliates; $23,404,000 received from

affiliates; and a stockholder deficit of $21,652,000.

4. HickoryFurniture – We have a 1994 statement which reveals:

$3,032,000 invested in affiliates; $2,942,000 receivables from

affiliates; and $42,644,000 receivables from parent. In other

words: 42 million dollars has been funneled up the stream to

Engle.

5. Wisconsin REIT – We have a 1995 statement which shows

stockholders equity at $22,803,000 LOSS and $8,668,000 in

receivables from affiliate.

6. NRG – We have a 1999 statement showing retained earnings

of $2,590,837 LOSS and $1,979,320 in receivable from sole

stockholder (Clyde Engle).

7. Indiana Financial Investors – We have a report 1999 showing

receivables from affiliates of $12,623,237.
-17-

8. NDC – We have a report from 1997 showing due from

affiliates $9,544,790.

9. Sunstates – We have a 1997 report showing Accumulated

Deficit $48,304,274; receivable from affiliates $2,681,315;

and investments in affiliates $10,771,318.

(e) We have been furnished credit advices showing intercompany transfers from

1994 to 1999. Kristi Tinin has spent many hours compiling these; and

although she has the figures, she would rather check them more carefully

before stating them under oath. But she can confidently say that Engle has

been advanced approximately $4 million dollars from Libco (former name of

RDIS); approximately $2 million dollars from Telco; and approximately $5

million dollars from Hickory Furniture.

(f) We have many dates showing money “laundering” between these

corporations, such as:

1. On 12/22/95 Sunstates transferred $100,000.00 to Hickory

Furniture, which on that same day transferred $100,000.00 to

Clyde Engle. 

2. On 5/1/95, Sunstates transferred $357,750.00 to Hickory

Furniture, which transferred $325,000.00 to Clyde Engle.

3. On 4/19/94, Sunstates transferred $396,250.00 to Hickory

Furniture, which on that same day transferred $400,000.00 to

Clyde Engle.

(Credit advices in box held at Clerk’s Office.)

(g) We know from NDC’s Financial Statements that from 1990 to 1996,

$6,422,338.00 flowed to its parent. This does not count the transfer

of over $2,000,000.00 of receivables while this case has been

pending. 

16. The undersigned does not believe that any order by this Court will be

effective to have Engle complete the picture of his vast network of

corporations.

17. I am sure I have spent 100 hours on the discovery in the last two and one-half

years. I cannot say it has all been fruitless, but one-half of it has been caused

by Engle’s obstructions.

________________/S/_______________

DOUGLAS THOMPSON BATES, III 

ATTORNEY FOR PLAINTIFFS 

[jurat omitted]

Though Engle and the corporate defendants contradicted some of the facts represented in the

foregoing affidavit, the plaintiffs’ discovery efforts were repeatedly and materially obstructed by

Engle. Moreover, the court ordered Engle on two occasions to submit to discovery, yet Engle did
-18-

not comply. Tenn. R. Civ. P. 37.02 primarily applies to sanctions for non-compliance with a court

order. Lyle v. Exxon Corp., 746 S.W.2d 694, 698-99 (Tenn. 1988); see also Mercer v. Vanderbilt

University Inc., 134 S.W.3d 121, 133 (Tenn. 2004). Wide discretion is afforded to the trial courts

to determine the appropriate sanction. Id. at 133. Although "reasonable judicial minds can differ

concerning [its] soundness," the trial court's determination of the appropriate sanction will be set

aside only where the court "has misconstrued or misapplied the controlling legal principles or has

acted inconsistently with the substantial weight of the evidence." Alexander v. Jackson Radiology

Associates, P.A., 156 S.W.3d 11, 15 (Tenn. Ct. App. 2004) (quoting White v. Vanderbilt Univ., 21

S.W.3d 215, 223 (Tenn. Ct. App. 1999)). The sanction, i.e., punishment, must fit the offense. Id.

at 15. 

Considering the foregoing, we find no error with the sanctions imposed by the trial court.

IS NATIONAL THE ALTER EGO OF CLYDE ENGLE?

An excellent discussion of the relevant factors to consider is found in VP Buildings, Inc. v.

Polygon Group, No. M2001-00613-COA-R3-CV, 2002 WL 15634, *4-5 (Tenn. Ct. App. January

8, 2002).

Conditions under which the corporate entity will be disregarded vary

according to the circumstances present in the case, and the matter is particularly

within the province of the trial court. Muroll Gesellschaft M.B.H. v. Tennessee Tape,

Inc., 908 S.W.2d 211, 213 (Tenn. Ct. App. 1995) (citing Electric Power Bd. of

Chattanooga v. St. Joseph Valley Structural Steel Corp., 691 S.W.2d 522

(Tenn.1985)); Piper v. Andrews, No. 01A01-9612-CV-00570, 1997 WL 772127, at

*3 (Tenn. Ct. App. Dec. 17, 1997) (Perm. app. denied June 8, 1998). Thus, the

question of when an individual should be held liable for corporate obligations is

largely a factual one. "Each case involving disregard of the corporate entity must rest

upon its special facts." Muroll Gesellschaft, 908 S.W.2d at 213; Schlater v. Haynie,

833 S.W.2d 919, 925 (Tenn. Ct. App. 1991).

. . . . 

There is a presumption that a corporation is a distinct legal entity, wholly

separate and apart from its shareholders, officers, directors, or affiliated corporations.

In an appropriate case and in furtherance of the ends of justice, the separate identity

of a corporation may be discarded and the individual or individuals owning all its

stock and assets will be treated as identical to the corporation. Muroll Gesellschaft,

908 S.W.2d at 213; Schlater, 833 S.W.2d at 925; see also Fidelity Trust Co. v.

Service Laundry Co., 160 Tenn. 57, 61, 22 S.W.2d 6, 7-8 (1929); see generally E.O

Bailey & Co. v. Union Planters Title Guar. Co., 33 Tenn.App. 439, 232 S.W.2d 309

(1950). Discarding the fiction of the corporate entity, or piercing the corporate veil,

is appropriate when the corporation is liable for a debt but is without funds to pay the

debt, and the lack of funds is due to some misconduct on the part of the officers and
-19-

directors. Muroll Gesellschaft, 908 S.W.2d at 213; S.E.A., Inc. v. Southside Leasing

Co., et al., No. E2000-00631-COA-R3-CV, 2000 WL 1449852, at *9 (Tenn. Ct.

App. Sept. 29, 2000) (no Tenn. R.App. P. 11 filed); Emergicare Consultants, Inc. v.

Woolbright, No. W1998-00659-COA-R3- CV, 2000 WL 1897350, at *2 (Tenn. Ct.

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

In those circumstances, courts may pierce the corporate veil to find the "true

owners of the entity" liable, Murroll Gesellschaft, 908 S.W.2d at 213, or "to impose

liability against a controlling shareholder who has used the corporate entity to avoid

his legal obligations." Manufacturers Consolidation Serv.,Inc. v. Rodell, 42 S.W.3d

846, 866 (Tenn. Ct. App. 2000). Our courts will disregard the corporation as a

separate entity upon a showing that the corporation is a sham or dummy or such

action is necessary to accomplish justice. [footnote omitted] Muroll Gesellschaft,

908 S.W.2d at 213; Tennessee Racquetball Investors, Ltd. v. Bell, 709 S.W.2d 617,

619 (Tenn. Ct. App.1986); Oak Ridge Auto Repair Serv. v. City Fin. Co., 57 Tenn.

App. 707, 711, 425 S.W.2d 620, 622 (1967); Fidelity Trust Co., 160 Tenn. at 61, 22

S.W.2d at 7- 8; Emergicare Consultants, Inc., 2000 WL 1897350, at *2; Piper, 1997

WL 772127, at *3.

. . . . 

Some factors the court considers in determining whether to pierce the

corporate veil are whether the corporation was grossly undercapitalized, the

nonissuance of stock certificates, the sole ownership of stock by one individual, the

use of the corporation as an instrumentality or business conduit for an individual or

another corporation, the diversion of corporate assets by or to a stockholder or other

entity to the detriment of creditors, the use of the corporation as a subterfuge in

illegal transactions, the formation and use of the corporation to transfer to it the

existing liability of another person or entity, and the failure to maintain arms length

relationships among entities. Emergicare Consultants, Inc., 2000 WL1897350, at *2

(citing Federal Deposit Ins. Corp. v. Allen, 584 F.Supp. 386 (E.D. Tenn. 1984)).

VP Buildings, 2002 WL 15634, at *4-5.

The Oceanics opinion, discussed in detail earlier, also provides a blueprint of factors that may

be considered when determining whether to pierce the corporate veil. As we learn from Oceanics,

one starts with the premise that “[a] corporation is presumptively treated as a distinct entity, separate

from its shareholders, officers, and directors.” Oceanics, 112 S.W.3d at 140 (quoting Schlater v.

Haynie, 833 S.W.2d at 925. However, a corporation's separate identity may be disregarded or

pierced "upon a showing that it is a sham or a dummy or where necessary to accomplish justice."

Oceanics, 112 S.W.3d at 140 (citing Schlater, 833 S.W.3d at 925). A corporation's identity should

be disregarded "with great caution and not precipitately." Schlater, 833 S.W.2d at 925. Whether to

disregard the corporate fiction depends on the special circumstances of each case, Oceanics, 112

S.W.3d at 140, and "the matter is particularly within the province of the trial court." Electric Power
-20-

Bd. of Chattanooga v. St. Joseph Valley Structural Steel Corp., 691 S.W.2d 522, 526 (Tenn. 1985).

No one factor is conclusive in determining whether or not to disregard a corporate entity; rather,

courts should rely upon a combination of factors in deciding such an issue. Schlater, 833 S.W.2d

at 925 (citing 18 Am.Jur.2d Corporations § 48, p. 847, n. 41-42 (1985)). 

This court has also relied upon the so-called Allen factors stated in Federal Deposit Ins.

Corp. v. Allen, 584 F.Supp. 386 (E.D. Tenn.1984): 

Factors to be considered in determining whether to disregard the corporate

veil include not only whether the entity has been used to work a fraud or injustice in

contravention of public policy, but also: (1) whether there was a failure to collect

paid in capital; (2) whether the corporation was grossly undercapitalized; (3) the

nonissuance of stock certificates; (4) the sole ownership of stock by one individual;

(5) the use of the same office or business location; (6) the employment of the same

employees or attorneys; (7) the use of the corporation as an instrumentality or

business conduit for an individual or another corporation; (8) the diversion of

corporate assets by or to a stockholder or other entity to the detriment of creditors,

or the manipulation of assets and liabilities in another; (9) the use of the corporation

as a subterfuge in illegal transactions; (10) the formation and use of the corporation

to transfer to it the existing liability of another person or entity; and (11) the failure

to maintain arms length relationships among related entities.

Id. at 397 (citations omitted), also cited in Greene v. Hill Home Dev. Inc., CA No.

03A01-9210-CH-00369, 1993 WL 17115, at *2 (Tenn. Ct. App. Jan. 28, 1993). 

It is most important to note that it is not necessary that all of the Allen factors weigh in a

plaintiff's favor in order to justify the piercing of the corporate veil. Oceanics, 112 S.W.3d at 140-

141 (citing In re B & L Laboratories, Inc., 62 B.R. 494, 504 (Bankr. M.D. Tenn.1986) (holding that

"all of these factors need not be present to justify disregard of the corporate boundaries; however,

it is necessary that substantial equities favor the aggressor party.")).

We now look to the findings by the trial court. Following the second evidentiary hearing,

the trial court entered a second Memorandum Opinion which provides an extensive recitation of the

court’s findings: 

MEMORANDUM OPINION

This is the second phase of a two part trial involving these parties. In the first

phase, the Court entered a judgment in favor of the plaintiffs for $2,540,867.29

against defendant National Development Corporation. The second phase concerns

the doctrine of piercing the corporate veil in order to reach the parent corporation,

Sunstates and/or Clyde Engle, who was added as a party defendant in January of

1999.
-21-

As the plaintiffs proceeded with their discovery during the second phase, Mr.

Engle responded by engaging in a pattern of obstruction and delay. Judge Donald

Harris, who presided over the initial phase, ultimately entered an order estopping Mr.

Engle from denying this Court’s jurisdiction over his person. In particular Judge

Harris made the following findings:

Queries relating to Mr. Engle’s corporate affiliations relate not only

to the accuracy of plaintiffs’ claims but also to whether there is a

sufficient connection between him, corporations in which he has a

direct or indirect interest and the defendants National Development

Company, Inc. and Sunstates Corporation, for this Court to exercise

personal jurisdiction. Absent his personal response to questions

relevant to this subject matter, the Court must, as previously, rely

upon the allegations of the amended complaint.

Despite being twice ordered to do so, the defendant, Clyde Engle, has

continued to refuse to answer questions related to his corporate

affiliations and, moreover, has renewed his motion to dismiss the

amended complaint for lack of personal jurisdiction. . . .

The corporate chart plaintiffs aver was presented by Rick Leonard,

operations officer of National Development Company, Inc. shall be

admissible during the trial of this case as evidence of the affiliation

of corporations in which the defendant, Clyde Engle, has an interest.

The defendant, Clyde Engle, will be prohibited from presenting

contrary evidence.

During the trial of this case, transactions and dealings between the

defendant, Clyde Engle, or DIS Corporation, Telco Capital

Corporation, Hickory Furniture Company, Wisconsin Real Estate

Investment Trust, Indiana Financial Investors, Inc., Sunstates

Corporation and National Development Company, Inc., shall be

considered typical of Clyde Engle’s transactions and dealings with

other affiliated corporations as identified by the chart referred to

herein (See order of August 28, 2001).

. . . . 

The issue before this Court is whether plaintiff has made out a case for

piercing the corporate veil as to (1) Sunstates Corporation and/or (2) Clyde Engle.

 . . . .
-22-

PIERCING THE CORPORATE VEIL

Conditions under which the corporate entity will be disregarded vary

according to the circumstances present in the case, and is an issue which the courts

have recognized is particularly within the province of the trial court. Muroll

Gesellschaft M.B.H. vs. Tennessee Tape, Inc., 908 S.W.2d 211, 213 (Tenn. App.

1995).

. . . . [discussion of Muroll Gesellschaft, 908 S.W.2d at 213, and V.P. Buildings,

2002 WL 15634, and factors to consider omitted]

With these factors in mind, the Court makes the following findings of fact.

Sunstates owns one hundred percent of the National Development Corporation.

Sunstates and NDC shared the same president, vice president, and chief financial

officer. Sunstates and NDC share the same business office location and phone line.

It is impossible to contact NDC as it is not listed in the phone book. If one does call

the phone number listed on the NDC letterhead, the receptionist states one has

reached Sunstates Corporation. Significant amounts of cash were transferred from

NDC to Sunstates as a result of “professional fees” and no invoices were produced

explaining these transfers.

On Saturday December 31, 1994, while this controversy was pending, NDC

transferred the majority of its assets out of the corporation. According to its financial

statement, all of the remaining land contract receivables totaling $5,116,720 were

transferred to two other entities. $2.7 million went for the full repayment of a loan

to an affiliate company. However, the remaining $2.4 million was transferred to

Sunstates in exchange for a note payable which was unsecured.

Lee Mortenson was the president and chief operating officer of Sunstates. He

had also been president of NDC since 1990. Mr. Mortenson had no knowledge of

the chain of subsidiaries in the various holding companies. He along with Rick

Leonard and Glen Kennedy were directors of NDC. Although Leonard was the chief

financial officer of NDC, he had no explanation as to why the $2.4 million note from

Sunstates to NDC was unsecured, and he had no knowledge of either the business in

which NDC was engaged or its sources of income.

Clyde Engle is an individual residing in the state of Illinois. All of the

numerous corporations set forth in the above chart are controlled either directly or

indirectly by Engle. Engle was neither an officer or director of NDC. The genesis

for the transfer of $2.4 million of land contracts from NDC sprang from Engle. As

chief executive officer of Sunstates, Engle made a “proposal” to the chief executive

officer of NDC that NDC ought to transfer these receivables to Sunstates. Engle’s

claim that his proposal was an attractive transaction from NDC’s point of view begs
-23-

the question. What Mr. Engle never explained was why he would be concerned with

making a proposal regarding a company in which he was neither an officer nor a

director and why this proposal was apparently accepted by the directors and officers

of NDC without question; and why NDC failed to request security for this $2.4

million note.

Mr. Engle declined to appear in court at either the first or second trial of this

bifurcated case. Where the evidence tends to fix liability on a party, who has it in his

power to offer evidence to rebut the unfavorable inferences which the proof tends to

establish, and that party refuses to offer such proof, it may be inferred from the facts

shown that the fully developed evidence would establish liability on his part. This

rule applies only when the plaintiffs’ proof and the legal deduction therefrom make

out a prima facie case against the defendant. Runnels v. Rogers, 596 S.W.2d 87, 90

(Tenn. 1980). This Court believes that this is such a case. As is evident from Judge

Harris’ previous order, Engle refused to answer questions regarding his finances and

the corporate structure of the scores of companies which he controlled. Mr. Engle

has never explained to the Court’s satisfaction how and why he was able to cause

NDC to accept an unsecured note for $2.4 million of receivables.

In 1994 Mr. Engle received $2,975,090 from Sunstates or its affiliates; in

1995 he received $524,236; in 1996 he received $293,826; and in 1997 Sunstates

paid Mr. Engle $71,916. The business operations of Sunstates has for all practical

purposes come to a halt. The note which NDC holds from Sunstates is worthless

since there are no assets to pay the note. Neither Indiana Financial, Wisconsin Reit,

Hickory Furniture, Telco Capital, or RDIS have the ability to pay the note owed by

Sunstates to NDC since the corporations from RDIS down the chain of companies

are insolvent. Most ofthe funds transferred to Engle were funneled through the Bank

of Lincolnwood, located in Chicago, Illinois. Engle has an indirect interest in the

Bank of Lincolnwood through a holding company for which he refused to provide

the name nor indicate whether he was a director. Many of the transfers of funds to

Engle from Sunstates Corporation are documented by Bank of Lincolnwood

memoranda indicating “per the request of Clyde Engle”. There was no evidence of

any transfers of funds from Engle back to any corporation. All of the transfers were

to Engle. While the defendants attempted to argue that it was possible that the

transfers could have come from other entities, defendants put on no proof to support

that position and the best person to respond to those allegations, Mr. Engle, elected

not to attend the trial.

Sunstates purchased approximately $1.9 million dollars of oriental art,

antique jewelry, rare books and other collectibles which were maintained in Clyde

Engle’s home in Illinois. Likewise Sunstates purchased a Rolls Royce from Libco,

a corporation in which Engle was the majority shareholder. This automobile also
-24-

appears to be in the possession or control of Mr. Engle. Again, Mr. Engle elected not

to offer any reasonable explanation to this proof.

It is evident to this Court that Mr. Engle exercised complete dominion over

Sunstates, National Development Corporation, and all of the other scores of

companies set forth in the chart above. There was evidence of Mr. Engle’s dominion

not only over the transfers of funds which were funneled to him up the corporate

chain through the Bank of Lincolnwood, but also over the particular business

decision in this case i.e. the transfer of N.D.C.’s assets to Sunstates Corporation. All

of the corporations under Engle’s control are now insolvent, and it would be an

injustice to allow Mr. Engle to use the corporate entity as a shield to thwart the

satisfaction of the judgment obtained in this case. The evidence supports the

conclusion that NDC, Sunstates and the other companies were mere instrumentalities

for Mr. Engle and therefore the corporate entity will be disregarded in order to

accomplish justice in this case. V.P. Buildings, Inc. v. Polygon Group, Inc., supra.

Therefore, the Court finds plaintiffs prior judgment against National

Development Corporation, Inc. shall likewise be a judgment against Sunstates

Corporation and Clyde Engle, individually.

Since this issue was tried by the court sitting without a jury, we review it de novo upon the

record and presume the findings of fact are correct unless the preponderance of the evidence is

otherwise. Tenn. R. App. P. 13(d). The decision of the trial court turns, in part, on the trial court's

perception of the witnesses' candor and truthfulness. Therefore, we give great weight to the

credibility accorded each witness by the trial judge. Weaver v. Nelms, 750 S.W.2d 158, 160 (Tenn.

Ct. App. 1987). Our review of the record not only leads us to the conclusion that the evidence does

not preponderate against the specific findings of the trial court, the record fully supports those

findings. Accordingly, we see no benefit to further analyze the evidence or the trial court’s findings.

Thus, the issue is whether the facts as found by the trial court are sufficient to sustain, as a matter

of law, the trial court’s conclusion that Clyde Engle was the alter ego of National. This analysis

takes us back to the Oceanics v. Barbour matter we discussed earlier. The Oceanics trial court made

several findings of fact relative to the Allen factors. The trial court found “that, (1) at all relevant

times, OSC's corporate office was Barbour's private residence; (2) the Antarna was OSC's principal

asset; (3) its sale effectively liquidated the corporation; and (4) the ‘transfer of the proceeds from the

sale of Antarna toBarbour's personal account rendered OSC without assets.’" Oceanics, 112 S.W.3d

at 145. The trial courtfurther found “that ‘[a]t all material times, OSC was undercapitalized.’ While

a mere $2,000 was paid into the corporation as capital, the alleged debt OSC owed to Barbour was

in excess of $800,000. Essentially all of OSC's funds came through ‘loans’ from Barbour. (footnote

omitted) In addition, the court noted that OSC ‘failed to completely observe corporate formalities.’"

Id. at 145. On appeal, this court opined as follows:

[A]fter reviewing all of the evidence – in the context of the Allen factors – we cannot

say that the evidence preponderates against the trial court's dual determinations (1)
-25-

that Barbour is the alter ego of OSC and, as a consequence of this finding, (2) that the

plaintiff is entitled to pierce the corporate veil of OSC and cast Barbour in judgment

based upon the OSC judgment. Since the piercing of the corporate veil is a "matter

particularly within the province of the trial court,” Electric Power Bd., 691 S.W.2d

at 526, we conclude that there is no basisfor disagreeing with the trial court's explicit

finding that the piercing of the corporate veil was "necessary to accomplish justice."

Schlater, 833 S.W.2d at 925. Giving due consideration to the trial court's credibility

determinations, [footnote omitted] we conclude that this evidentiary issue must be

resolved against Barbour.

Id. at 142-43. This court further concluded that the plaintiff had successfully established that

Clifford Barbour and OSC were one and the same, stating that Clifford Barbour was simply OSC's

"other self." Id. at 145 (quoting Matthews, 796 S.W.2d at 694.) 

Applying the trial court’s findings of fact to the factors to be considered, we find no error

with the trial court’s conclusion that National Development Company, Inc. is the alter ego of Clyde

Engle, and that such a finding justifies piercing the corporate veil and holding Engle liable for the

judgment rendered against National.

PERSONAL JURISDICTION OVER CLYDE ENGLE

Clyde Engle contends that the judgment against him is void because the trial court did not

have personal jurisdiction over him. This contention is based on the fact that Engle is a resident of

the state of Illinois and his contention that he never conducted business in Tennessee and, thus, did

not subject himself to the jurisdiction of the courts of Tennessee.

The issue for this court to determine is whether the trial court’s exercise of personal

jurisdiction over Clyde Engle meets due process requirements. Manufacturers Consolidated

Services, Inc. v. Rodell, 42 S.W.3d 846 (Tenn. Ct. App. 2000). The jurisdictional reach of the courts

of Tennessee is determined by the long-arm statute of Tennessee. Four Seasons Gardening &

Landscaping, Inc. v. Crouch, 688 S.W.2d 439 (Tenn. Ct. App. 1984); see also Warren v. Dynamics

Health Equipment Mfg. Co., Inc., 483 F.Supp. 788, 790 (D.C. Tenn. 1980) (citing King v. Hailey

Chevrolet Co., 462 F.2d 63 (6th Cir. 1972)). Tennessee’s long-arm statute, Tenn. Code Ann. § 20-2-

214, has been interpreted to extend to the limits of personal jurisdiction imposed by the Due Process

Clause of the United States Constitution. Bridgeport Music, Inc. v. Agarita Music, Inc., 182 F. Supp.

2d 653 (M.D. Tenn. 2002). The pertinent subsections of Tennessee's long-arm statute provide: 

(a) Persons who are nonresidents of Tennessee and residents of Tennessee who are

outside the state and cannot be personally served with process within the state are

subject to the jurisdiction of the courts of this state as to any action or claim for relief

arising from:

(1) The transaction of any business within the state; 

(2) Any tortious act or omission within this state; 
Thus, Texas, the state of incorporation of National, recognizes that an action to pierce the corporate veil in 3

connection with an action to obtain a personal judgment against the alleged alter ego corporation is not "a separate and

independent cause of action." Matthews Const. Co. Inc. v. Rosen, 796 S.W.2d 692, at 693, n. 1 (Tex. 1990). 

-26-

. . . . 

(6) Any basis not inconsistent with the constitution of this state or of the

United States;

Long-arm jurisdiction can be invoked over a non-resident individual because of that

individual's role with respect to a corporation that is within the range of the long-arm statute and who

uses that corporation as his agent. Warren, 483 F.Supp. at 790. The theory of invoking jurisdiction

over individuals who use corporations as their agents is as follows: 

If the person's control overthe corporation is such that the corporation is really acting

as his agent in doing the acts giving rise to the suit, then he can be reached through

the long-arm statute even though he personally had no contact with the forum state.

The courts speak in terms of "piercing the corporate veil" or the "alter ego" doctrine

in discussing the susceptibility of individuals to long-arm jurisdiction. Not all cases

treat the question in terms of those doctrines drawn from corporation law, however.

(footnotes omitted.) 

Wilcox v. Precision Parachute Co., 685 F.Supp. 821, 823 (D.Kan. 1988) (quoting Robert Casad,

JURISDICTION IN CIVIL ACTIONS, ¶ 4.03[4] (1983)). 

The fiduciary-shield doctrine precludes jurisdiction over an individual acting exclusively as

a corporate officer on behalf of a bona fide corporation. Stuart v. Spademan, 772 F.2d 1185, 1197

(5th Cir. 1985). However, the obverse of that rule can be applied to warrant a finding of personal

jurisdiction over the person by attributing the corporate contacts with the forum to the individual.

Stuart, 772 F.2d at 1197. Thus, if the corporation is not a viable one and the individual is conducting

personal activities and using the corporate form as a shield, a court may pierce the corporate veil and

assert personal jurisdiction over the individual based on the corporation’s activities within that state.

See 4A Charles A. Wright and Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE, § 1069.4, p.

186 (3 ed. 2002). rd

It should also be understood that a suit against an alter ego, in which the plaintiff seeks to

pierce the corporate veil in connection with a previously-obtained judgment against a corporation,

is not "a separate and independent cause of action." Oceanics, 112 S.W.3d at 145 (quoting Matthews

Const. Co. Inc. v. Rosen, 796 S.W.2d 692, 693, n. 1 (Tex. 1990)). When a plaintiff obtains a 3

judgment against the corporate entity, it also obtains a judgment as to any of its alter egos. Oceanics,

112 S.W.3d at 145 (citing Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 608

F.Supp. 1261, 1264 (S.D.N.Y.1985)). Once a trial court has determined that an individual is a

corporate entity’s other self and a judgment against the corporate entity is in place, then there is also

in place a judgment against the individual who is the corporate entity’s other self. This is because
Provided the alter ego is a party to the action.

4

-27-

the individual is no longer a legally separate entity from the corporate debtor. Oceanics, 112 4

S.W.3d at 146 (citing Matthews, 796 S.W.2d at 694); see also Passalacqua, 608 F.Supp. at 1264

(holding that the corporation and those who have controlled the corporation are treated as one entity).

It is undisputed that National conducted business in Hickman County, Tennessee with the

plaintiffs, which gives the courts of Tennessee jurisdiction over National, and we have concluded

that Engle is the alter ego of National. Therefore, the activities National conducted in Tennessee are

attributable to its “other self” – ClydeEngle. Accordingly, Clyde Engle not only conducted business

in Tennessee, he conducted business in Hickman County, Tennessee with the plaintiffs and is,

therefore, subject to the jurisdiction of the Circuit Court of Hickman County, Tennessee. We,

therefore, affirm the determination by the trial court that it had personal jurisdiction over Clyde

Engle. 

IN CONCLUSION

The judgment of the trial court is affirmed in all respects, and this matter is remanded to the

trial court with costs of appeal being assessed against the appellants, National Development

Company, Inc., Sunstates Corporation and Clyde W. Engle, jointly and severally, for which

execution may issue.

___________________________________ 

FRANK G. CLEMENT, JR., JUDGE
-28-

Addendum