Opinion ID: 714979
Heading Depth: 2
Heading Rank: 3

Heading: Exclusion of Mismanagement Evidence

Text: 59 The Defendants affirmatively asserted in their pleadings that Life Care had mismanaged Jeffersonian Manor in violation of its obligations under the management agreement. On February 10, 1994, Life Care filed a motion in limine in which it requested in part that the Defendants be precluded from introducing any evidence of mismanagement. It was Life Care's position that its termination of service as a management agent was without any legal basis because the Defendants were not aware of the claimed acts of mismanagement at the time of the firing. Moreover, Life Care claimed that the Defendants should not be allowed to use the alleged mismanagement as a shield against its claims because they had failed to provide it with notice and an opportunity to correct the alleged deficiencies as required by the terms of the management agreement. 60 The district court adopted Life Care's position and, thereafter, suppressed the evidence of mismanagement, finding that (1) the Defendants had not properly preserved this affirmative defense in the final pretrial order and (2) Tennessee law precluded them from retroactively justifying its administrative decision on any grounds other than those which had actually motivated the termination.
61 The Defendants argue that the holding by the district court (to wit, the issue of mismanagement had not been preserved in the final pretrial order) amounted to an abuse of discretion. The Defendants' final pretrial order does contain some language which generally describes the remaining issues of law in this case that could arguably be interpreted as an affirmative defense relating to Life Care's alleged mismanagement of the nursing home. 7 However, the absence of language which specifically addressed the subject of mismanagement lends support to the conclusion of the district court that the final pretrial order only contained a preservation of those arguments in support of the Defendants' eighth affirmative defense. 62 Nevertheless, it is clear from the record that the defense of mismanagement had received specific attention by the parties throughout the litigation. In fact, this issue had been the subject of a discovery request by Life Care and an extensive response by the Defendants. 8 Thus, it is equally clear that Life Care was fully aware of the Defendants' mismanagement defense. Under such circumstances, the preclusion of mismanagement evidence by the district court on the basis of the Defendants' failure to specifically list the mismanagement defense in the final pretrial order was unjust under the facts and circumstances of this case. However, as the ensuing discussion explains, the defense of mismanagement is not admissible in this case under Tennessee law and, therefore, the decision of the district court to exclude this issue on the basis of the deficiencies in the final pretrial order does not amount to reversible error. 63
64 The United States Supreme Court has held that 65 [w]here a party gives a reason for his conduct and decision touching anything involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration. He is not permitted thus to mend his hold. He is estopped from doing it by a settled principle of law. 66 Ohio & Mississippi Ry. Co. v. McCarthy, 96 U.S. 258, 267-68, 24 L.Ed. 693 (1878). Tennessee courts have adopted this precise holding. See, e.g., Loftis v. Stuyvesant Ins. Co., 54 Tenn.App. 371, 390 S.W.2d 722, 728 (1964). Nashville Marketplace Co. v. First Capital Inst. Real Estate, Ltd.-2, 1990 WL 33373, 1990 Tenn.App. LEXIS 212 (Tenn.App. March 28, 1990), illustrates this principle. 67 In Nashville Marketplace, the parties had entered into an agreement for the sale of a shopping center. Id. at 1, 1990 Tenn.App. LEXIS at 2. Inasmuch as the shopping center had not been completely leased during the negotiations, the parties included a rental escrow agreement in the sales contract whereby the current owner of the shopping center was required to obtain additional leases in exchange for the progressive disbursement of certain monies to be held in an escrow account. Id. On the basis of this agreement, the owner obtained two potential leases. Id. at 2, 1990 Tenn.App. LEXIS at 4-6. However, the putative buyers of the shopping center rejected the leases, claiming that the proposed tenants (1) were incompatible with other occupants in the shopping center, and, (2) had insisted on unacceptable deviations from the standard lease. Id. The owner sued on the basis of a breach of the parties' vacant space escrow agreement. Id. However, the defendants alleged in their defense that, in addition to the reasons that had been given to the owner, they had rejected the leases because the prospective tenants were neither credit worthy nor had submitted adequate financial information. Id. at 6, 1990 Tenn.App. LEXIS at 15. The Tennessee Court of Appeals rejected their defense, holding that once a contracting party has given reasons for its actions, it cannot attempt to justify its conduct on new and different grounds after suit is filed. Id. at 6, 1990 Tenn.App. LEXIS at 16. 9 68 Utilizing the Nashville Marketplace rationale in the case before this Court, it is clear that the Defendants, in seeking to proffer Life Care's act of soliciting the limited partners of Charles Town as a ground for its decision, seek the benefit of relying on newly discovered information. However, the law of Tennessee precludes them from justifying their conduct retroactively on a ground that is different from that which was proffered at the time of its decision to terminate Life Care's services. 69 The Defendants insist that a different rule of law is applicable to their case, arguing that 70 [a] party to a contract who is sued for its breach may ordinarily defend on the ground that there existed, at the time, a legal excuse for non-performance by him, although he was then ignorant of the fact. He may, likewise, justify and assert a termination, rescission, or repudiation, of a contract by proving that there was, at the time, an adequate cause, although it did not become known to him until later. 71 College Point Boat Corp. v. United States, 267 U.S. 12, 15-16, 45 S.Ct. 199, 200-01, 69 L.Ed. 490 (1925). 72 The principle in College Point is inapplicable to the instant case. In College Point, the party who attempted to assert a pre-existing, but unexpressed, reason for its action as a defense to a lawsuit had an absolute contractual right to termination. Id. at 16, 45 S.Ct. at 201 (An unconditional right to cancel can be availed of for the purpose of terminating a contract, even after a suit is brought....) By contrast, the Defendants in the instant case did not have an unconditional right to terminate Life Care from further employment. In fact, they were specifically required to provide Life Care with a notice of, as well as an opportunity to correct, any alleged violation of its contractual responsibilities. 73 The Defendants argue that this termination provision of the management agreement is immaterial to the admissibility of the defense. In support, they cite Micro Craft, Inc. v. Jones-Robertson, Inc., Slip. Op. (Tenn.Ct.App. March 6, 1985), for the proposition that an owner who fails to give the requisite notice of breach prior to exercising a right of termination may rely upon the breach to defend the termination at issue. However, Micro Craft, like College Point, is inapposite to the case at hand. In Micro Craft, the terminating party had never asserted a reason for the termination. In contrast, the Defendants in this case specified a reason for terminating Life Care, thereby inducing Life Care to believe that the specified reason, and no other, was the cause for the severance of the parties' contractual relationship. 74 In sum, the facts in Nashville Marketplace are indistinguishable from the facts in this case, and, thus, provides this Court with the operative rule of law for the issue at hand that precludes the Defendants from introducing evidence of mismanagement as a defense to their termination of Life Care.
75 Although the district court erred by precluding the introduction of mismanagement evidence, its decision is supported by an alternative ground of estoppel. See Nashville Marketplace, 1990 WL 33373, 1990 Tenn.App. LEXIS 212. Therefore, the disposition of the issue by the district court is affirmed. See Harris v. City of Akron, 20 F.3d 1396, 1397 (6th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 512, 130 L.Ed.2d 419 (1994) (disposition can be affirmed if supported by applicable law or any ground upon which district court relied). 76