Opinion ID: 2982323
Heading Depth: 3
Heading Rank: 3

Heading: Denial of Prejudgment-Interest Award

Text: Finally, the plaintiffs argue that the district court erred in denying their motion for an award of prejudgment interest in addition to the district court=s constructive-trust award. AWe review the District Court=s decision to award prejudgment interest for abuse of discretion.@ EEOC v. Ky. State Police Dep=t, 80 F.3d 1086, 1097 (6th Cir. 1996) (citation omitted). When Astate law claims come before a federal court[,] . . . the award of prejudgment interest rests on state law.@ Gentek Bldg. Prods., Inc. v. Sherwin-Williams Co., 491 F.3d 320, 333 (6th Cir. 2007) (internal quotation marks and citation omitted). Under Tennessee law, A[a]n award of prejudgment interest is within the sound discretion of the trial court and the decision will not be disturbed by an appellate court unless the record reveals a manifest and palpable abuse of discretion.@ Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 22 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. (Tenn. 1998) (citations omitted). In deciding whether to award prejudgment interest, the trial court should be guided by three principles. First, Athe purpose of awarding the interest is to fully compensate a plaintiff for the loss of the use of funds to which he or she was legally entitled, not to penalize a defendant for wrongdoing.@ Id. (citations omitted). Second, Aprejudgment interest is allowed when the amount of the obligation is certain, or can be ascertained by a proper accounting, and the amount is not disputed on reasonable grounds.@ Id. (citation omitted). Third, Ainterest is allowed when the existence of the obligation itself is not disputed on reasonable grounds.@ Id. (citation omitted). Guided by these equitable principles, prejudgment interest Amay be awarded by courts or juries . . . at any rate not in excess of a maximum effective rate of ten percent (10%) per annum.@ Tenn. Code Ann. ' 47-14-123. Ultimately, the district court denied the plaintiffs= request for prejudgment interest, noting A[t]he length of this case@; the dismissal of Acertain unnamed Plaintiffs= claims as late as August 2010@; the jury determination that Acertain unnamed Plaintiffs= reliance on Davidson was not reasonable@; and the contested nature of the APlaintiffs= entitlement to [the royalty] payments.@ Thus, although the district court agreed with the juries= damages awards, the actual quantity of the constructive trust was not determined until the district court issued its ruling on April 11, 2011. Such uncertainty alone does not require that the district court forgo awarding prejudgment interest; however, nothing in Tennessee case law forbids consideration of the uncertainty of an award when making a determination concerning the propriety of awarding prejudgment interest. Indeed, throughout this appeal, the plaintiffs have continued to dispute the percentage of the Carbontec 23 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. royalties owed to them. That disagreement, in addition to other disputes between the parties, strongly suggests that the district court did not abuse its discretion in denying the plaintiffs= request for prejudgment interest. We find no error in this regard. C. Cross-Appeal by Unnamed Plaintiffs Not Included in the Constructive Trust (Case 12-5595) 1. Failure to Certify Class Pursuant to Fed. R. Civ. P. 23.2 The unnamed plaintiffs who did not receive a portion of the constructive-trust proceeds also raise objections to a number of rulings made by the district court during the course of this litigation. They first assert that the district court erred in denying them class certification under Rule 23.2 of the Federal Rules of Civil Procedure because, even though the Illinois Secretary of State had dissolved Adtech I, Davidson continued to operate the enterprise as an ongoing business, and the unnamed plaintiffs thus were entitled to pursue recovery of damages they believed were owed to them. The pertinent language of Rule 23.2 provides: This rule applies to an action brought by or against the members of an unincorporated association as a class by naming certain members as representative parties. The action may be maintained only if it appears that those parties will fairly and adequately protect the interests of the association and its members. In denying Rule 23.2 certification, the district court concluded that the unnamed plaintiffs could not be considered an unincorporated association because they failed to demonstrate Avoluntary and knowing membership@ in the business. It is this ruling that the unnamed plaintiffs dispute. Regardless of the correctness of the district court=s reasoning on the Avoluntary and knowing 24 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. membership@ requirement, the unnamed plaintiffs failed to contest a second prong of the district court=s determination B that the named plaintiffs could not represent adequately the interests of Athose Adtech shareholders who participated in and profited from the business affairs of the second Adtech.@ Because a prerequisite to Rule 23.2 certification is the demonstration of fair and adequate representation of the interests of the association=s members, the district court=s conclusion that the named plaintiffs could not provide adequate representation for the unnamed plaintiffs justified the denial of the class certification. 2. Dismissal of Certain Unnamed Plaintiffs Prior to the 2010 Trial In light of the class-certification denial, the unnamed plaintiffs were faced with the prospect of demonstrating, on an individual basis, their entitlement to relief. Prior to the commencement of the 2010 trial, however, the district court granted partial summary judgment in favor of Headwaters, dismissing the fraud claims of two categories of proposed class members: (1) individuals who were heirs of deceased shareholders and (2) shareholders who had declared bankruptcy. Those unnamed plaintiffs now challenge the validity of that the grant of partial summary judgment, which we review de novo. Dodd v. Donahoe, 715 F.3d 151, 155 (6th Cir. 2013). One necessary element of the Tennessee torts of fraudulent misrepresentation and fraudulent omission/concealment is the plaintiff=s reasonable reliance on the defendant=s misrepresentation. See Power & Tel. Supply Co., 447 F.3d at 931 (quoting Stacks v. Saunders, 812 S.W.2d 587, 592 (Tenn. Ct. App. 1990)). AThe burden is not upon the defendant . . . [but] 25 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. upon the plaintiff to show@ such reasonable reliance. McNeil v. Nofal, 185 S.W.3d 402, 408-09 (Tenn. Ct. App. 2005) (quoting Williams v. Berube & Assocs., 26 S.W.3d 640, 645 (Tenn. Ct. App. 2000)). In this case, however, the district court found not only that the deceased shareholders themselves failed to offer sworn testimony before their deaths concerning their knowledge of Davidson=s activities and Ahow they relied on any statements and/or omissions,@ but also that the shareholders= heirs did Anot know what their decedents knew with regard to Davidson=s misrepresentations and/or omissions.@ In short, the heirs of the deceased shareholders of Adtech produced no Aspecific evidence that could demonstrate what the decedents knew and relied upon.@ Without evidence of a basis for reasonable reliance on Davidson=s representations, the heirs of the deceased shareholders, as a matter of law, could not establish an essential element of their fraud claims. See Glassner v. R.J. Reynolds Tobacco Co., 223 F.3d 343, 353 (6th Cir. 2000).3 The district court thus did not err in granting partial summary judgment to Headwaters in this regard and in concluding that the unnamed plaintiffs should not be included in the constructive-trust judgment. Likewise, the district court did not err in dismissing the claims of six unnamed plaintiffs who had filed for bankruptcy. Upon the bankruptcy filings, any claims previously held by the six plaintiffs vested Ain the trustee for the benefit of the bankruptcy estate.@ See Bauer v. Commerce 3 The plaintiffs assert that Glassner did not hold that fraud plaintiffs must offer testimony as to their reasonable reliance on a defendant=s concealment or misrepresentation. The plaintiffs claim, instead, that Glassner merely stands for the proposition that specific evidence of reasonable reliance is necessary to defeat a defendant=s argument that the risks associated with the defendant=s action are Acommon knowledge.@ It is true that Glassner involved a plaintiff=s efforts to overcome the fact that the risks of smoking were common knowledge. However, that case did not otherwise undermine the necessity of alleging in a common-law fraud claim that the plaintiff Arelied on [the defendant=s] alleged misrepresentations.@ Glassner, 223 F.3d at 353. 26 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. Union Bank, Clarksville, Tenn., 859 F.2d 438, 441 (6th Cir. 1988) (citation omitted). The estates of the bankrupt shareholders did not bring claims against Headwaters, however. Thus, the causes of action put forth by the individual debtors were properly dismissed. 3. Claims by Unnamed Plaintiff Class Members Denied Recovery In a final allegation of error, a number of other unnamed plaintiffs argue that the district court erred by not including them in the constructive-trust award after the jury in the 2010 trial found that they also had not established their reasonable reliance upon Davidson=s statements. To the extent that these plaintiffs challenge the correctness of the jury verdict, we note again that we will uphold the jury=s determination unless it is Acontrary to all reason.@ Mike=s Train House, 472 F.3d at 413. In assessing the propriety of the district court=s remedial ruling creating the constructive trust, we examine the record only for an abuse of discretion. See, e.g., Barrett, 840 F.2d at 1263. Both the unnamed plaintiffs and Headwaters refer to some testimony that would support their respective positions. If the record on appeal contains any reasonable evidence supporting the jury=s verdict, we must affirm that determination. Because the unnamed plaintiffs here have failed to present evidence that compels a result contrary to that reached by the jury, their challenge to the verdict fails. The unnamed plaintiffs also ask us to modify the district court=s constructive-trust award to include even those unnamed plaintiffs who did not receive jury verdicts in their favor. The district court had broad discretion to issue the constructive trust as it saw fit in accord with the 27 Nos. 12-5592/12-5594/12-5595, Boynton v. Headwaters, Inc. equities of the case. The decision to exclude from the constructive trust those claimants who could not establish reasonable reliance upon Davidson=s statements obviously is not contrary to the equities of the case. Accordingly, we also affirm the district court=s decision to exclude those plaintiffs from the constructive-trust award.