Court Opinion

ID: 1055376
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:57:00.373461+00
Date Added: 2024-06-11T12:31:59.957187
License: Public Domain

I N THE COURT OF APPEALS OF TENNESSEE

                                           EASTERN SECTI ON

DAVI D T. BAI LEY a nd                                  )   KNOX COUNTY
E. LYNN W        AGNER, i n t he i       r own          )   03A01- 9606- CV- 00190
r i g h t a nd de r i va t i ve l y      f or t he )
u s e a n d be ne f i t of Sout          he a s t e r n )
He a l t h c a r e Se r vi c e s , L.    P.             )
                                                        )
          Pl a i nt i f f s - Appe l l a nt s           )
                                                        )
          v.                                            )
                                                        )
TOM HOLBERT, a s g e ne r a l p a r t ne r )
o f So u t he r n He a l t hc a r e                     )
Se r v i c e s , L. P.                                  )
a nd                                                    )
M OORE' S PHARM         ACY, I NC.                      )   HON. HAROLD W W M
                                                                         . I BERLY,
d/ b/ a M     ARCUM S HEALTHCARE
                      '                                 )   J UDGE
SERVI CES, a nd CARL M             ARCUM     ,          )
GI NA M     ARCUM PI NNEY, a nd                         )
TOM HOLBERT, a s o f f i c e r s ,                      )
d i r e c t o r s a nd/ or e mpl oye e s                )
a n d a g e nt s of a nd f or                           )
M o r e ' s Pha r ma c y, I nc .
  o                                                     )
a nd                                                    )
TOM HOLBERT, CARL M              ARCUM     ,            )
a n d GI NA M     ARCUM PI NNEY,                        )
I ndi vi dua l l y                                      )
                                                        )   AFFI RMED I N PART; VACATED I N
          De f e nda nt s - Appe l l e e s              )   PART a nd REM ANDED

DALE C. ALLEN a nd H. BRUCE GUYTON OF KNOXVI LLE FOR APPELLANTS
DAVI D T. BAI LEY a nd E. LYNN WAGNER

W LLI AM K. ROGERS OF KI NGSPORT FOR APPELLEE TOM HOLBERT
 I

PATRI CK LEDFORD OF KI NGSPORT FOR APPELLEES MOORE' S PHARMACY, CARL
MARCUM a nd GI NA MARCUM PI NNEY

                                      O P I N I O N
                                                                                              Godda r d, P. J .

                    Thi s i s a s ui t by Da vi d T. Ba i l e y a nd E. Lynn W gne r i n
                                                                              a

t h e i r o wn r i ght a nd de r i va t i ve l y f or t he us e a nd be ne f i t of

So u t h e a s t e r n He a l t hc a r e Se r vi c e s , L. P. , a Li mi t e d Pa r t ne r s hi p i n

wh i c h t he y we r e pa r t ne r s , a ga i ns t Tom Hol be r t , a s ge ne r a l

pa r t ne r , Moor e ' s Pha r ma c y, I nc . , d/ b/ a M r c um' s He a l t hc a r e
                                                         a

Se r v i c e s , a nd Ca r l M r c um a nd Gi na M r c um Pi nne y, a s Of f i c e r s a nd
                              a                   a

Di r e c t o r s a nd/ or Empl oye e s a nd Age nt s of a nd f or Moor e ' s

Ph a r ma c y, I nc . , a nd Tom Hol be r t , Ca r l M r c um a nd Gi na M r c um
                                                      a                   a

Pi n n e y , I ndi vi dua l l y.              The s ui t s t e ms f r om t he pur c ha s e by

So u t h e a s t e r n He a l t hc a r e Se r vi c e s of a uni t dos a ge pha r ma c y

b u s i n e s s f r om Moor e ' s Pha r ma c y, I nc . , f or t he s um of $275, 000.

Th e c o mpl a i nt a l l e ge d a c a us e of a c t i on f or ne gl i ge nt mi s -

r e p r e s e nt a t i on a nd br e a c h of wa r r a nt y.

                    The Tr i a l J udge di s mi s s e d t he c ompl a i nt .                            Al t hough he

f o u n d t ha t mi s l e a di ng i nf o r ma t i on 1 r e ga r di ng t he pr of i t a bi l i t y o f

the business in question was negligently furnished to the

Plaintiffs, he also found that because the bookkeeping for the

business sold was kept in conjunction with that of a separate

pharmacy business owned by Moore's Pharmacy, Inc., "it was

difficult to determine what was what, what this business was

actually earning and what the other business was earning," and

that there was no intent on the part of the Defendants to

          1
                       S o me o f t h e i n f o r ma t i o n f u r n i s h e d wa s g r o s s l y mi s l e a d i n g . Fo r
e x a mp l e , i t wa s r e p r e s e n t e d t h a t t h e b u s i n e s s p u r c h a s e d wa s g e n e r a t i n g a g r o s s
p r o f i t o f $ 1 0 , 0 0 0 p e r mo n t h , wh e n i n f a c t t h e l o s s e s p e r mo n t h we r e
a p p r o x i ma t e l y t h a t a mo u n t .

                                                                2
deceive.        Consequently, he concluded that the Plaintiffs were

guilty of at least equal negligence i n f a i l i ng t o i nve s t i ga t e t he

i n f o r ma t i on f ur ni s he d, whi c h woul d ha ve di s c l os e d t he t r ue

f i n a n c i a l c ondi t i on of t he bus i ne s s pur c ha s e d.         ( Se e Appe ndi x. )

                The Tr i a l Cour t a l s o di s mi s s e d t he br e a c h of wa r r a nt y

c l a i m i n a s uc c i nc t c ol l oquy wi t h c ouns e l f or t he Pl a i nt i f f s a t

t h e c o n c l us i on of hi s me mor a ndum opi ni on:

                 So f or t ha t r e a s on,     t he j udgme nt of t he Cour t i s
         t h a t t he de f e nda nt s s houl    d pr e va i l be c a us e t he f a ul t
         h e r e i s a t l e a s t e qua l .    And t he r e i s no ot he r ba s i s ,
         a s I ha ve j us t out l i ne d,       I t hi nk, f or r e c ove r y.

                  Now, i s t he r e a n yt hi ng e l s e t ha t you woul d l i ke t o
         a s k me t ha t you f e e l I ha ve n' t c ove r e d wi t hout
         r e a r gui ng t he c a s e ?

                MR. LEDFORD:           No, Your Honor .

                  MR. GUYTON: I s t he Cour t ' s opi ni on a l s o t o ha ve
         i n c l ude d t he a ddr e s s i ng t he i s s ue of t he wa r r a nt y?

                   THE COURT: Ye s .      The s ol e ba s i s f or r e c ove r y a s I
         s t a t e d i t , a nd t ha t i nc l ude s e ve r yt hi ng. I t ' s my
         i n t e nt i on t o i nc l ude e ve r yt hi ng.

                The Pl a i nt i f f s a ppe a l , r a i s i ng t he f ol l owi ng t wo

i s s ue s :

                  1.      W t he r t he t r i a l c our t e r r e d i n i t s f a i l ur e
                            he
         t o hol d de f e nda nt s / a ppe l l e e s l i a bl e f or br e a c h of
         wa r r a nt y a nd/ or br e a c h of c ont r a c t , whe r e t he
         d e f e nda nt s / a ppe l l e e s wa r r a nt e d t he a c c ur a c y of t he
         f i na nc i a l s t a t e me nt s pr ovi de d t o pl a i nt i f f s / a ppe l l a nt s
         p r i or t o t hi s t r a ns a c t i on, a nd t he pl a i nt i f f s /
         a p pe l l a nt s r e l i e d o n t he f i na nc i a l s t a t e me nt s , b ut t he
         f i na nc i a l s t a t e me nt s we r e di s c ove r e d t o be i na c c ur a t e
         a nd f a l s e a f t e r t he t r a ns a c t i on.

                  2.       W t he r t he t r i a l c our t e r r e d i n i t s f a i l ur e
                            he
         t o hol d de f e nda nt s / a ppe l l e e s M r c um a nd Pi nne y
                                                         a
         p e r s ona l l y a nd i ndi vi dua l l y l i a bl e f or t he
         mi s r e pr e s e nt a t i ons a nd br e a c he s of wa r r a nt y ma de by
         t h e i r a ge nt s , Hol be r t a nd Rhot on?

                                                    3
                  I n c onne c t i on wi t h t he br e a c h of wa r r a nt y c l a i m,

M o r e ' s Pha r ma c y, I nc . , a c t i ng t hr ough i t s Pr e s i de nt , Gi na M r c u m
 o                                                                                    a

Pi n n e y, a nd i t s Se c r e t a r y , Ca r l M r c um, e xe c ut e d a n " AGREEM
                                                  a                                  ENT

FOR SALE AND TRANSFER OF ASSETS, " whi c h c ont a i ne d t he f ol l owi n g

p r o v i s i ons :

                                              SECTI ON FI VE

                          WARRANTI ES AND COVENANTS OF SELLER

                  Se l l e r a gr e e s , r e pr e s e nt s , a nd wa r r a nt s a s
         f o l l ows :

                  . . . .

                   ( d) Se l l   e r h a s ma de a va i l a bl e t o Buye r         i t s pr of i t
         a nd l os s s t a t     e me nt s a nd s a me ha ve c or r e c t l y       r ef l ect ed
         t he f i na nc i a l      c ondi t i ons , a s s e t s a nd l i a bi l i   t i e s , a nd
         o p e r a t i on of     Se l l e r a s of t he da t e s s t a t e d i      n s uc h
         d o c ume nt s .

                  . . . .

                  ( p) Se l l e r wi l l pr ompt l y a dvi s e Buye r i n wr i t i ng
         o f t he oc c ur r e nc e of a ny ma t e r i a l e ve nt s whi c h c ome t o
         t h e knowl e dge of Se l l e r a f t e r t he e xe c ut i on of t hi s
         Ag r e e me nt a nd pr i or t o or on t he Cl os i ng Da t e r e l a t i ng
         t o a ny ma t t e r s whi c h a r e t he s ubj e c t s of t he s e
         c ove na nt s , r e pr e s e nt a t i ons a nd wa r r a nt i e s of t he Se l l e r
         c o nt a i ne d i n t hi s Se c t i on.

                   ( q) No r e pr e s e nt a t i ons or wa r r a nt i e s by Se l l e r ,
         i t s o f f i c e r s o r d i r e c t or s , n or a ny s t a t e me nt , l i s t or
         c e r t i f i c a t e f ur ni s he d or t o be f ur ni s he d t o Buye r
         p u r s ua nt he r e t o, or i n c onne c t i on wi t h t he t r a ns a c t i ons
         c o nt e mpl a t e d he r e by, c ont a i ns or wi l l c ont a i n a ny
         u n t r ue s t a t e me nt of a ma t e r i a l f a c t or omi t s or wi l l
         o mi t t o s t a t e a ma t e r i a l f a c t ne c e s s a r y t o ma ke t he
         s t a t e me nt s t he r e i n n ot mi s l e a di ng.         Al l s uc h
         s t a t e me nt s , l i s t s , o r c e r t i f i c a t e s a r e t r ue a nd c or r e c t
         i n a l l ma t e r i a l r e s pe c t s .

                ( r ) The wa r r a nt i e s , r e pr e s e nt a t i ons a nd c ove na nt s
         o f t he Se l l e r c ont a i ne d i n t hi s Agr e e me nt s ha l l be t r ue
         a nd c or r e c t i n a l l r e s pe c t s a s of t he Cl os i ng Da t e wi t h

                                                       4
        t h e s a me f or c e a nd e f f e c t a s i f gi ve n a nd ma de on a nd
        a s of t he da t e a nd t i me of t he Cl os i ng Da t e , a nd s uc h
        r e pr e s e nt a t i ons , wa r r a nt i e s a nd c ove na nt s s ha l l s ur vi ve
        t h e Cl os i ng Da t e a nd t he c ons umma t i on of t he
        t r a ns a c t i ons c ont e mpl a t e d by t hi s Agr e e me nt .

                 Al t hough t he Tr i a l Cour t a ppa r e nt l y f ound t ha t

n e g l i g e nc e ma y a l s o ba r a n a c t i on f or br e a c h of c ont r a c t , ne i t h e r

t h e Tr i a l Cour t nor c ouns e l f or t he De f e nda nt s ha ve c i t e d a ny

s u c h a u t hor i t y.     M e ove r , we ha ve not be e n a bl e t o f i nd a ny i n
                              or

o u r r e s e a r c h.     W a c c or di ngl y c onc l ude t ha t t he Pl a i nt i f f s a r e
                            e

e n t i t l e d t o a j udgme nt a ga i ns t t he Cor por a t i on be c a us e of br e a c h

o f wa r r a nt y.

                 I n s o f i ndi ng, we a c c e pt a s t r ue t ha t t he Pl a i nt i f f s

d i d n o t ma ke s uc h a n i nve s t i ga t i on t ha t t he y mi ght ha ve t o

d i s c l o s e t he mi s r e pr e s e nt a t i on, but poi nt out t ha t t he pur pos e o f

a wa r r a nt y, i n pa r t , i s t o r e l i e ve one t o whom t he wa r r a nt y i s

g i v e n f r om t ha t r e s pons i bi l i t y.       I n Pa c c on, I nc . v. Uni t e d

St a t e s , 399 F.2d 162, 166 ( 1968) , t he Uni t e d St a t e s Cour t of

Cl a i ms ma ke s t hi s poi nt i n quot i ng wi t h a ppr ova l f r om a n e a r l i e r

case:

        " I n e s s e nc e a wa r r a nt y i s a n a s s ur a nc e by one pa r t y t o
        a n a gr e e me nt of t he e xi s t e nc e of a f a c t upon whi c h t he
        o t he r pa r t y ma y r e l y; i t i s i nt e nde d pr e c i s e l y t o
        r e l i e ve t he pr omi s e e of a ny dut y t o a s c e r t a i n t he f a c t s
        f o r hi ms e l f .  Thus , a wa r r a nt y a mount s t o a pr omi s e t o
        i n de mni f y t he pr omi s e e f or a ny l os s i f t he f a c t
        wa r r a nt e d pr ove s unt r ue . " Da l e Cons t r . Co. v. Uni t e d
        St a t e s , 168 Ct . Cl . 692, 699 ( 1964) .

                                                   5
                I n t he i r b r i e f t he Pl a i nt i f f s c ont e nd t ha t i f t he

r e me dy t o whi c h t he y a r e e nt i t l e d i s r e s c i s s i on, t he " me a s ur e of

d a ma g e s woul d be t he r e t ur n of t he c ons i de r a t i on pa i d, . . . a s

we l l a s t he a mount i nve s t e d i n t he bus i ne s s , wi t h i nt e r e s t , a n d

t h e va l ue of t he i r l a bor , " whi c h t he y c a l c ul a t e t o be i n e xc e s s

o f $ 6 0 0 , 000.     I n t he a l t e r na t i ve , t he y a s s e r t t ha t i f t he y a r e

a wa r d e d c ompe ns a t or y da ma ge s onl y, " t he y s houl d r e c e i ve t he

d i f f e r e nc e i n va l ue of wha t t he y pa i d ve r s us t he va l ue of wha t

t h e y a c t ua l l y r e c e i ve d. "

                W c onc l ude unde r a l l t he f a c t s of t hi s c a s e t he l a t t e r
                 e

me a s u r e of da ma ge i s t he a ppr opr i a t e one .             I t doe s not a ppe a r ,

h o we v e r , t ha t t hi s f i gur e wa s a de qua t e l y a ddr e s s e d i n t he pr oo f ,

a n d i n t he i nt e r e s t of j us t i c e t o bot h pa r t i e s , we de e m i t

a pp r o p r i a t e t ha t t he c a us e be r e ma nde d f or s uc h a de t e r mi na t i o n

a n d a j udgme nt e nt e r e d a ga i ns t t he Cor por a t i on f or t ha t a mount .

                As t o t he s e c ond i s s ue r a i s e d, whe r e i n t he Pl a i nt i f f s '

i ns i s t e nc e t ha t t he i ndi vi dua l De f e nda nt s a r e l i ke wi s e l i a bl e i n

wa r r a n t y, we f i nd t he onl y wa r r a nt y e xt e nde d wa s t ha t c ont a i ne d

i n t h e a gr e e me nt f or s a l e a nd t r a ns f e r of a s s e t s , whi c h wa s

e x e c u t e d by t he Cor por a t i on a nd s i gne d by M . Pi nne y a nd M .
                                                            s                 r

M r c um i n t he i r r e pr e s e nt a t i ve c a pa c i t i e s .
 a

                                                   6
              I n c onc l us i on, we ha ve not ove r l ooke d t he De f e nda nt s '

c o n t e n t i ons t ha t br e a c h of wa r r a nt y ma y not be a s s e r t e d be c a us e

t h e c o n t r a c t i s a mbi guous , wa s not br e a c he d, wa s not r e a s ona bl y

r e l i e d upon, a nd di d not c a us e da ma ge s t o t he Pl a i nt i f f s .         Unde r

t h e f i n di ngs of t he Tr i a l Cour t , t he t e s t i mony a dduc e d a nd t he

e n t i r e r e c or d, we f i nd e a c h c ont e nt i on t o be wi t hout me r i t .

              For t he f or e goi ng r e a s ons t he j udgme nt of t he Tr i a l

Co u r t i s a f f i r me d i n pa r t , va c a t e d i n pa r t , a nd t he c a us e

r e ma n d e d f or f ur t he r pr oc e e di ngs not i nc ons i s t e nt wi t h t hi s

opi ni on.    Cos t s of a ppe a l a r e a dj udge d one - ha l f a ga i ns t t he

Pl a i n t i f f s a nd one - ha l f a ga i ns t t he Cor por a t i on.

                                            _______________________________
                                            Houston M. Goddard, P.J.

CONCUR:

________________________________
Herschel P. Franks, J.

________________________________
Don T. McMurray, J.

                                               7
                                                   APPENDIX

And this business, when it was operated by the defendants, was

operated, of course, with their other business in such a way

that, to the defendants and really to anybody else, it was

difficult to determine what was what, what this business was

actually earning and what the other business was earning.     And

this method of accounting that we went into great detail in

describing, in effect, concealed the actual status and condition

of this business that was finally purchased by the plaintiff.

This resulting concealment was not, in the Court's mind and the

Court's opinion, done in some intentional way to deceive anyone.

It was just simply the way that it was set up.

          When the plaintiffs purchased the business, they were

provided the papers that we've spent a lot of time discussing,

and these papers, in effect, gave plaintiff what turned out to be

a false impression about the status of this business that they

purchased.   Now, plaintiffs accepted these without question, and

when offered the opportunity to determine for themselves the

validity, in effect, of those papers that they've been furnished

and the information they've been furnished, the plaintiffs wound

up relying upon their accountant that they sent to investigate.

And the accountant actually did no investigation and, repeating

several times that these people involved were fraternity brothers

and if they could not trust each other and rely on each other, he

did not see that he had any part in questioning them any further

than what appeared on the surface.
                                                     APPENDIX
                                                     Page 2

misleading.   They did not do so intentionally or willfully or

actually knowingly.   They were relying upon their people, their

accountant who prepared these statements, and they are shown not

to take much direct interest in determining and separating the

accounts of that business from the other business.    Then when the

sale was done, the plaintiffs, having the opportunity to

investigate the business and accomplish what we referred to in

the -- as a term of art, supposedly, due diligence -- which was

in the papers, actually did nothing to determine for themselves

in any meaningful way what the true condition of the business

was.

          So in legal terms, I think you would say that the

defendants negligently misrepresented the condition of that

business that was purchased.   The plaintiffs then negligently

purchased the business.   And that's the problem there.   And

that's the nature of the conduct that resulted in this situation

-- negligence on both parts which the Court feels was at least

equal.   The other individual defendant we find was not acting for

himself in such a way that would impose liability upon him.

                                 9