Court Opinion

ID: 1047110
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:42:35.805186+00
Date Added: 2024-06-11T13:02:42.964592
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                             AT JACKSON
                               November 17, 2011 Session

    EAGLES LANDING DEVELOPMENT, LLC. v. EAGLES LANDING
                  APARTMENTS, LP., ET AL.

              Direct Appeal from the Chancery Court for Shelby County
                   No. CH-09-0997     Walter L. Evans, Chancellor

               No. W2011-00689-COA-R3-CV - Filed February 2, 2012

This is a breach of contract case. Following a bench trial, the trial court awarded Appellee
Developer the remaining balance due under a Development Agreement that was entered by
and between Appellee and the Appellants, a partnership and its limited liability partners, for
construction of an apartment complex. Appellants contend that Appellee was not entitled to
final payment because the general partner, who is not a party to this appeal, had not funded
the development fees that were contemplated under a Partnership Agreement, to which
Appellee was not a party. Specifically, Appellants argue that the payment under the
Development Agreement is contingent upon satisfaction of the funding requirements
specified in the Partnership Agreement. We conclude that the conditions precedent under
the Development Agreement were met, and that the Appellee was, therefore, entitled to its
full fee under the Development Agreement. The trial court assessed judgment against the
limited liability partners and the partnership. Under the Tennessee Revised Uniform
Partnership Act, Appellants’ status as limited partners protects them from liability for the
debts of the partnership. Appellee contends that it is a third-party beneficiary under the
Partnership Agreement and may, therefore, have judgment against the limited partners who
were parties to that agreement. We conclude that the third-party beneficiary issue is waived
and that the trial court erred in entering judgment against the limited partners. Affirmed in
part, reversed in part, and remanded.

 Tenn. R. App. P. 3. Appeal as of Right; Judgment is Affirmed in Part; Reversed in
                                Part; and Remanded

J. S TEVEN S TAFFORD, J., delivered the opinion of the Court, in which D AVID R. F ARMER, J.,
and H OLLY, M. K IRBY, J., joined.

Robert L. Crawford and Joseph B. Reafsnyder, Memphis, Tennessee, and Charles L. Perry,
Dallas, Texas, for the appellants, Eagles Landing Apartments, LP, PNC Multifamily Capital
Institutional Fund XXX, LP, and Columbia Housing SLP Corporation.

Dedrick Brittenum, Jr., and Kenya S. Hooks, Memphis, Tennessee, for the appellee, Eagles
Landing Development, LLC.

                                                  OPINION

      On or about August 25, 2005, Eagles Landing Development L.L.C. (“Eagles
Landing,” or "Appellee") entered into a Development Agreement with Eagles Landing
Apartments, L.P. (“ELA”). This original Development Agreement was amended on
December 21, 2005. The Amended Development Agreement (the “Development
Agreement”) provides for the construction of the ELA apartment complex. The
Development Agreement further provides for a fee of $1,415,032.00 to be paid to the
Appellee, Eagles Landing for the project.1

       ELA was formed on or about March 17, 2005, under a Partnership Agreement, which
was amended and restated on December 1, 2005. The Amended and Restated Partnership
Agreement (the “Partnership Agreement”) was entered by and between Bluff City
Community Development Corporation (“Bluff City”), as the general partner, and PNC
Multifamily Capital Institutional Fund XXX L.P. ("PNC") and Columbia Housing S.L.P.
Corp., as the limited partners (“Columbia,” and together with ELA and PNC, “Appellants”).2

       It is undisputed that Eagles Landing received three of four payments pursuant to the
Development Agreement, leaving the last payment of $931,000.00 unpaid. Appellants
argued that they were not required to pay the remaining balance because the Development
Agreement was expressly subject to the terms and conditions of the Partnership Agreement,
although Eagles Landing was not a party to the Partnership Agreement. The Partnership
Agreement contains a provision stating that payment of the development fee should come
from the net cash flow of the partnership, or from Bluff City, the general partner, should the
net cash flow be insufficient. According to Appellants, the net cash flow was insufficient to
pay the development fee, and Bluff City failed to pay the partnership the funds necessary to
pay the development fee. Because the Development Agreement specifically states that it is
“subject to the terms and conditions of the Partnership Agreement,” the Appellants argued

        1
            As set out in full context below, Paragraph 6.8(b) of the Partnership Agreement provides for a
developer’s fee of “$1,238,787 (which may be increased as permitted by the Tax Credit Agency).” It appears
that the original fee did, in fact, increase to $1,415,032.00. Regardless, there is no dispute between the parties
as to whether the $1,415,032.00 was correct, and neither side has appealed the amount of the trial court’s
judgment.
        2
            Bluff City was not made a party to this suit.

                                                       -2-
that Bluff City's failure to supplement the insufficient cash flow to the partnership (under the
Partnership Agreement) was a condition precedent to the full payment of the development
fee under the Development Agreement, the nonoccurrence of which excused the partnership's
obligation to pay the full development fee to Eagles Landing.

         On May 8, 2009, Eagles Landing filed suit for breach of contract against the
Appellants. Appellants filed their joint answer on July 6, 2009, in which they denied the
material allegations set out in the complaint and reiterated their position that the payment of
Eagles Landing’s development fee was contingent upon the terms of the Partnership
Agreement. Appellants then filed a motion for summary judgment, which was ultimately
denied by order of January 19, 2011. The case proceeded to hearing on January 19 and 20,
2011. After the bench trial, the trial court awarded Eagles Landing the remaining balance
on the development fee, i.e., $931,000.00 plus interest at a rate of six percent per annum as
contemplated under the Development Agreement. The court specifically found that Eagles
Landing had performed all work required under the contract and, therefore, was entitled to
its fee. The court further found that the limited partners, PNC and Columbia, were jointly and
severally liable with the partnership for the payment of the fee, as they were required under
the Partnership Agreement to fund the partnership, which in turn was obligated to pay the
developer's fee. Appellants appeal, raising three issues for review as stated in the brief:

              I. Whether the trial court erred in awarding a development fee
              to Appellee and against the Appellants?

              II. Whether the trial court erred in awarding a development fee
              contrary to the terms of the Partnership Agreement and
              Development Agreement, and erred in failing to give effect to
              the provision in the Development Agreement that payment of
              any fee "shall be subject to the terms and conditions of the
              Partnership Agreement?"

              III. Whether the trial court erred in awarding a development fee
              against PNC Multifamily, and/or Columbia, who were not
              parties to the development agreement, were not responsible for
              payment of any development fee pursuant to either the
              Development Agreement or Partnership agreement, and were
              solely limited partners in Eagles Landing Apartment L.P. at the
              material times, and as such were not liable for any debt or
              obligations of the partnership.

       Because this case was tried by the court, sitting without a jury, this Court conducts a

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de novo review of the trial court's decision with a presumption of correctness as to the trial
court's findings of fact, unless the evidence preponderates against those findings. Wood v.
Starko, 197 S.W.3d 255, 257 (Tenn. Ct. App. 2006). 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); The Realty Shop, Inc. v. R.R. Westminster Holding, Inc., 7 S.W.3d 581, 596 (Tenn.
Ct. App. 1999). This Court reviews the trial court's resolution of legal issues without a
presumption of correctness. Johnson v. Johnson, 37 S.W.3d 892, 894 (Tenn. 2001).

        The question of interpretation of a contract is a question of law. Guiliano v. Cleo,
Inc., 995 S.W.2d 88, 95 (Tenn. 1999). Therefore, the trial court's interpretation of a contract
is not entitled to a presumption of correctness on appeal. Allstate Insurance Company v.
Watson, 195 S.W.3d 609, 611 (Tenn. 2006); Angus v. Western Heritage Ins. Co., 48 S.W.3d
728, 730 (Tenn. Ct. App. 2000). “This Court must review the document ourselves and make
our own determination regarding its meaning and legal import.” Hillsboro Plaza Enters. v.
Moon, 860 S.W.2d 45, 47 (Tenn. Ct. App. 1993).

        “The central tenet of contract construction is that the intent of the contracting parties
at the time of executing the agreement should govern.” Planters Gin Co. v. Fed. Compress
& Warehouse Co ., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). “The court's role in resolving
disputes regarding the interpretation of a contract is to ascertain the intention of the parties
based upon the usual, natural, and ordinary meaning of the language used.” Allstate Ins. Co.,
195 S.W.3d at 611; Staubach Retail Services–Southeast LLC v. H.G. Hill Realty Co., 160
S.W.3d 521, 526 (Tenn. 2005); Bob Pearsall Motors, Inc. v. Regal Chrysler–Plymouth Inc.,
521 S .W.2d 578, 580 (Tenn. 1975).

       “Where a trial court hears a case without a jury, we review the amount of damages
awarded by the trial court as a question of fact with a presumption of correctness, and will
only alter or amend the amount if the trial court utilized the wrong measure of damages or
when the evidence preponderates against the amount of damages awarded.” Smith v.
Williams, No. E1999–01346–COA–R3–CV, 2000 WL 277059, at 4 (Tenn. Ct. App. March
15, 2000) (citing Tenn. R. App. P. 13(d)).

        Concerning fees payable to Eagles Landing, the Development Agreement provides,
in relevant part, as follows:

              3. Development Fee,
              (a) For services performed and to be performed under Sections
              1 and 2 of this Agreement. . . the Partnership agrees to pay the
              Developer a Development Fee in the aggregate amount of one

                                               -4-
                 million four hundred fifteen thousand thirty-two Dollars
                 ($1,415,032.00). Payment of the fee shall be subject to the
                 terms and conditions of the Partnership Agreement, and shall be
                 payable by the Partnership to the Developer from capital
                 contributions made by the investing partners, mortgage loan
                 proceeds or net cash flow, but only after payment of all
                 construction costs and the establishment of required reserves.

        It is undisputed that Eagles Landing performed all of its duties and obligations under
the Development Agreement (i.e., it completed the building of the ELA apartments) and that
it was, consequently, due the full payment under the agreement. As noted above, Appellants
paid Eagles Landing all but $931,000.00 of its earned fee.

      The Development Agreement references the Partnership Agreement. Eagles Landing
was not a party to the Partnership Agreement. The Partnership Agreement is a long and
complex document which we have reviewed in its entirety. Section 6.8(b) of the Partnership
Agreement addresses the payment of a development fee and provides, in pertinent part, as
follows:

                 The Partnership shall accrue and pay a Development Fee of
                 $1,238,787 (which may be increased as permitted by the Tax
                 Credit Agency)3 to the Developer for services rendered in
                 negotiating, coordinating and supervising the planning,
                 architectural, engineering and construction services necessary
                 for the construction of the Project as more specifically set forth
                 in the Development Agreement. The Development Fee shall be
                 capitalized to the depreciable basis of the Project, and earned in
                 accordance with the Development Agreement.

       The Partnership Agreement further provides that the cash fee component of the
development fee “shall be paid [by the Partnership] from the proceeds of the [] Installments.
. . .” These “Installments” are the capital contributions made by the investment limited
partners. Mortgage loan proceeds could also be available at the time of the last Installments,
as mortgage loan conversion is made a condition to those Installments. The “Deferred
Developer’s Fee” (i.e., the balance of the developer’s fee) is paid “in accordance with Article
IV” of the Partnership Agreement, which permits net cash flow to be used for that purpose
in certain instances. Finally, the Partnership Agreement expressly contemplates that the
funds available from the foregoing sources might be insufficient to fully pay the developer’s

       3
           See footnote 1, supra.

                                                -5-
fee. “In the event that any portion of the Deferred Development Fee remains unpaid on
January 1, 2019,” the Partnership Agreement contemplates that Bluff City, as the general
partner, will be obligated to pay to the Partnership an amount equal to the unpaid developer’s
fee. Appellants contend that they are not obligated to pay the Deferred Developer’s Fee until
2019, when Bluff City would be obligated to pay the unpaid amount into the Partnership.
We disagree.

        In their brief, Appellants place much emphasis on the fact that the trial court ruled that
the Partnership Agreement would not be considered in determining whether Eagles Landing
was due its development fee because Eagles Landings was not a party to the Partnership
Agreement. Specifically, Appellants contend that the fact that Eagles Landing was not a
party to the Partnership is not dispositive because the Development Agreement, to which
Eagles Landing was a party, is contingent upon payment obligations contemplated under the
Partnership Agreement. A review of the trial court’s ruling reveals that the Appellants have
misconstrued the crux of the holding. The trial court stated that the Partnership Agreement
obligated the Appellants “to perform the terms of the [Partnership Agreement] and to pay to
[Eagles Landing] the remainder of the fees which are earned, but not paid.” However, the
court specifically held that Eagles Landing’s “signing off on the [Partnership Agreement]
does not adversely affect the obligation of the limited partnership. . .who agreed in the
partnership agreement to provide. . .sufficient funds to take care of the development fee. . .
.”4 In other words, the trial court interpreted the Development Agreement statement that
“[p]ayment of the [Developer’s] fee shall be subject to the terms and conditions of the
Partnership Agreement” to merely indicate that the cash flow for the project would be funded
and paid as contemplated under the Partnership Agreement. The trial court concluded that
the Development Agreement obligates the partnership to pay Eagles Landing’s fee so long
as all work is completed (i.e., the fee was earned) and “only after payment of all construction
costs and the establishment of required reserves.” So, under the plain language of the
Development Agreement, there are three conditions precedent to the payment of the
developer’s fee. First, the work must be satisfactorily completed. The record indicates that
the construction on the apartment complex was completed on or about December 16, 2006.
Moreover, the record reveals that Eagles Landing substantially complied with all terms and
conditions of the Development Agreement. From the record, it is clear that Eagles Landing
met this requirement. The second condition for payment is that all construction costs had to
be paid. Extensive testimony was given that the construction costs were paid. Consequently,
the question of whether Eagles Landing is entitled to its fee rests on the third condition stated

        4
          We note that the trial court’s use of the term “signing off” does not indicate that Eagles Landing
signed the Partnership Agreement as a party thereto. Rather, it references the fact that Eagles Landing was
fully aware of the existence of the Partnership Agreement and the terms thereof, and that Eagles Landing did
not express any concerns regarding the Partnership Agreement before the lawsuit arose.

                                                    -6-
in the Development Agreement—i.e., the establishment of required reserves.

        Appellants contend that, because the required reserves were not actually funded, that
the third condition precedent was not met. However, as set out above, our role in resolving
disputes regarding the interpretation of a contract is to ascertain the intention of the parties
“based upon the usual, natural, and ordinary meaning of the language used.” Allstate Ins.
Co., 195 S.W.3d at 611; Staubach Retail Services–Southeast LLC, 160 S.W.3d at 526; Bob
Pearsall Motors, 521 S .W.2d at 580. The Development Agreement requires the
“establishment of the required reserves,” but does not go so far as to require that the reserves
be fully funded in order to satisfy this contingency. Black’s Law Dictionary 566 (7 th ed.
1999) defines the verb “establish” in relevant part, as “[t]o make or form; to bring about or
into existence.” Concerning whether the required reserves were actually established, Carl
Mabry, the President of Bluff City, testified, in relevant part, as follows:

              Q. All right, sir. Now, and then it–the last part of that sentence goes,
              establishment of required reserve. Tell the Court about the required
              reserves.

              A. Well, there were two reserves that were required. One was
              the operating reserve; the other was the replacement reserve.

              Q. All right. Now, the first one you talked about, was it
              established?

              A. Yes.

              Q. Okay. And tell the Court how you know it was established.

              A. Well, the operating reserve was established because we
              actually kept–which came from PNC–a monthly, I guess kind of
              a tab. It was actually a draw spreadsheet for the accounting of
              the property. And each time there was some type of change, be
              it from PNC’s side or from [the] developer’s side, we noted on
              the spreadsheet. And so it was noted on the spreadsheet and we
              had conversations about it being established.

              *                                *                          *

              Q. Okay. Now, I wanted you to think about past tense, that it
              was established. Was it established?

                                              -7-
              A. Yes.

              *                                    *                        *

              Q. Would you examine [trial exhibit 7]. . . . What is the
              document?

              A. It is an e-mail from Linda Hood, who works for PNC Bank.

              *                                        *                    *

              Q. And what is [sic] the contents of that document; what does
              it say?

              A. It is a confirmation saying that the replacement reserve
              account for Eagles Landing has been received, the funds for the
              replacement reserve account for Eagles Landing has [sic] been
              reserved.

              Q. All right, sir. Now, as to the second account, reserve
              account, what was the second reserve account called?

              A. It was an. . .operating reserve account.

              Q. Was that operating reserve account established?

              A. Yes.

              Q. How do you know?

              A. Had a conversation with Danita Whalen with PNC about it
              being established.

       Mr. Mabry’s testimony is not contradicted on this point. Consequently, we can only
conclude, as did the trial court, that the reserves contemplated under the Development
Agreement were, in fact, established. From the record as a whole, we conclude that all three
of the conditions precedent under the Development Agreement were met in this case.
Consequently, Eagles Landing was entitled to full payment under that contract. While Bluff
City’s obligation to fund the remaining balance due under the Development Agreement may
not mature until 2019 (under the Partnership Agreement), this fact does not, ipso facto, mean

                                             -8-
that the Appellants’ obligations under the Development Agreement were not due and payable
when all conditions were satisfied.

       Appellants, Columbia and PNC, further argue that, even if the full developer’s fee is
due under the Development Agreement, that they were not parties to that agreement, and
were only limited partners in the partnership. Consequently, they contend that they cannot
be charged for any liability of the partnership under the Development Agreement. We agree.

       The general rule, under the Tennessee Uniform Partnership Act (“TUPA”), is that “all
partners are liable jointly and severally for all obligations of the partnership unless otherwise
agreed by the claimant or provided by law.” Tenn. Code Ann. § 61-1-306. This general rule
is modified by the Limited Liability Partnership (“LLP”) amendments to the TUPA for the
protection of partners in registered limited liability partnerships. The LLP amendments to the
TUPA provide that:

              [A] partner in a registered limited liability partnership is not
              liable, directly or indirectly (including by way of
              indemnification, subrogation, contribution, assessment or
              otherwise), for debts, obligations and liabilities of or chargeable
              to the partnership or another partner, whether in tort, contract,
              or otherwise, arising from omissions, negligence, wrongful acts,
              misconduct or malpractice committed while the partnership is a
              registered limited liability partnership and in the course of the
              partnership business by another partner or an employee, agent,
              or representative of the partnership.

Tenn. Code Ann. § 61-1-306(c). Tennessee Code Annotated Section 61-1-306(d) states that:

              Subsection (c) does not affect the liability of a partner in a
              registered limited liability partnership for such partner's own
              omissions, negligence, wrongful acts, misconduct or
              malpractice, or that of any person under such partner's direct
              supervision and control.

       There is no evidence in this case that either Columbia or PNC has committed any of
the offenses enumerated in Subsection (d) above. Consequently, under Subsection (c), as
partners in a limited liability partnership, neither Columbia nor PNC can be held liable for
the debts of the partnership. In its order, the trial court assesses the judgment and costs “to
[PNC, Columbia, and ELA] jointly and severally.” The court makes no finding concerning
the basis for its assessment and appears to disregard PNC and Columbia’s status as limited

                                               -9-
liability partners.

        However, Eagles Landing contends that it is entitled to recover the judgment from
PNC and Columbia (jointly and severally) based upon Eagles Landing’s contention that it
is a third-party beneficiary of the Partnership Agreement. The trial court made no such
finding. From our review of the record and the trial court’s order, it does not appear that the
issue of whether Eagles Landing is entitled to recover under the Partnership Agreement as
a third-party beneficiary was actually raised or addressed at the trial level. It is well settled
that matters not raised at the trial level are considered waived on appeal. Waters v. Farr, 291
S.W.3d 873, 918 (Tenn.2009) (stating that issues not raised in the trial court are waived on
appeal); Tenn. R. App. P. 36(a) (“Nothing in this rule shall be construed as requiring relief
be granted to a party responsible for an error who failed to take whatever action was
reasonably available to prevent or nullify the harmful effect of an error.”). Here, Eagles
Landing filed suit against PNC, Columbia, and ELA. There is no indication that Eagles
Landing was unaware of the fact that PNC and Columbia were limited partners.
Consequently, if Eagles Landing wished to pursue its third-party beneficiary claim, it should
have raised that issue in the trial court. However, this was not done. Therefore, while we
affirm the trial court’s judgment and the amount thereof, we reverse its assessment of that
judgment to PNC and Columbia, and remand to the trial court for the sole purpose of entry
of judgment against only the partnership, ELA.

       For the foregoing reasons, the order of the trial court is affirmed in part, reversed in
part, and remanded. Costs of this appeal are assessed jointly and severally against the
Appellants, Eagles Landing Apartments, L.P., PNC Multifamily Capital Institutional Fund
XXX. L.P., Columbia Housing, S.L.P., and their surety.

                                                     _________________________________
                                                     J. STEVEN STAFFORD, JUDGE

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