Court Opinion

ID: 1072141
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:47:12.050874+00
Date Added: 2024-06-11T15:40:22.741242
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                            AT KNOXVILLE
                                      July 1, 2003 Session

                        ESSROC CEMENT CORP. v. PLC, INC.

                      Appeal from the Chancery Court for Carter County
                        No. 25239    G. Richard Johnson, Chancellor

                                    FILED JANUARY 8, 2004

                                  No. E2002-01992-COA-R3-CV

        ESSROC Cement Corp. (“ESSROC”) brought this action against PLC, Inc., formerly known
as Paty Lumber Company, seeking judgment in amount of $112,551.43, plus service charges and
attorney’s fees, as payment for cement and masonry materials which it sold to PLC. After ESSROC
filed a motion for summary judgment, the parties reached a settlement agreement whereby PLC
agreed to pay ESSROC two installments of $25,000.00. PLC paid the first installment under the
agreement but not the second. This prompted ESSROC to file a motion to rescind the settlement
agreement on grounds of fraudulent misrepresentation. The Trial Court granted ESSROC rescission
of the settlement agreement, and granted summary judgment in ESSROC’s favor. We affirm the
judgment of the Trial Court.

     Tenn.R.App.P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed;
                                   Cause Remanded

HOUSTON M. GODDARD , P.J., delivered the opinion of the court, in which HERSCHEL P. FRANKS and
D. MICHAEL SWINEY, JJ., joined.

Mark S. Dessauer, Kingsport, for the Appellant, PLC, Inc.

Timothy B. McConnell, Johnson City, for the Appellee, ESSROC Cement Corporation

                                             OPINION

        ESSROC filed its complaint on May 25, 2001, claiming it had sold PLC materials on an open
account in amount of $185,217.61, that PLC had made payments totaling $69,176.68 and ESSROC
had issued credit in amount of $3,489.50, and that PLC owed the balance of $112,551.43. PLC filed
an answer which admitted virtually every allegation in the complaint except the amount owing.
Regarding that amount, PLC’s answer states that “it is admitted that [PLC] is indebted to the plaintiff
in some amount but strict proof is demanded as to the exact amount of such debt.”
        ESSROC filed a motion for summary judgment on December 7, 2001, supported by
affidavits and a statement of undisputed facts pursuant to Tenn.R.Civ.P. 56.03. PLC did not file a
response to this motion, but apparently one day before it was scheduled to be heard, the parties began
settlement negotiation. ESSROC counsel Timothy B. McConnell filed an affidavit in which he
described the negotiations as follows:

               During our conversation, [PLC counsel] Mr. Dessauer advised me
               that if ESSROC proceeded with its Motion for Summary Judgment
               and obtained a judgment for the full amount owed by [PLC] to
               ESSROC, [PLC] would likely file bankruptcy which would result in
               a substantial reduction in any amount eventually paid out to
               ESSROC. Based on Mr. Dessauer’s representations and after
               speaking with my client, I agreed to reschedule the hearing on
               ESSROC’s Motion for Summary Judgment to February 6, 2002 to
               allow the parties time to try to reach a resolution of this matter.
                        Thereafter, the parties began compromise and settlement
               negotiations, and on February 5, 2002, Mr. Dessauer proposed, on
               behalf of [PLC], that [PLC] would pay to ESSROC in settlement of
               this matter the sum of $50,000.00 to be paid in two (2) equal
               installments of $25,000.00 each, due on February 25, 2002 and March
               15, 2002 respectively.

        The record contains a letter from PLC’s counsel to Mr. McConnell, which states in relevant
part as follows:

               If ESSROC proceeds on its intended course and obtains a judgment
               against PLC that is reduced to a lien against its assets, the options
               available to PLC become very limited. PLC could not sell these
               assets free and clear of liens absent satisfaction of the judgment in
               favor of ESSROC or otherwise reach an agreement with the company
               for the release of the judgment lien. In order to preserve the value of
               its assets for all its trade creditors and to prevent ESSROC from
               receiving more favorable treatment than PLC’s other trade creditors,
               PLC’s most viable option would then be to file a Chapter 11
               liquidation to allow a court-supervised liquidation of its remaining
               assets.
                               *               *               *
               Thus, PLC estimates that, if ESSROC forces it into Chapter 11, the
               amount ESSROC will receive on its claim will be far less than the
               $45,312.05 that is currently being offered and it will be some time
               before any further monies are paid.
                        The $45,312.45 settlement proposal to ESSROC also
               represents an amount that is likely in excess of the percentage

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               recovery that will be ultimately disbursed to PLC’s other trade
               creditors if PLC is allowed to proceed with its originally proposed
               plan. As stated, if ESSROC continues its current course and forces
               PLC to seek the protection of the Bankruptcy Court, it will result in
               a substantial reduction in any pay-out to ESSROC and, frankly,
               makes little sense.
                                *               *              *
               Once your client has had the opportunity to consider the contents of
               this letter, please advise of its position with respect to the offer of
               $45,312.03. As previously discussed, this sum can be paid within
               thirty (30) days of ESSROC’s acceptance.

        The parties ultimately reached a settlement agreement which they memorialized in writing
and signed, and which provides that “PLC, Inc. shall pay ESSROC the sum of Fifty Thousand and
00/100 Dollars ($50,000.00) payable in two (2) equal installments of $25,000.00 each, due on
February 25, 2002 and March 15, 2002.” As noted above, PLC paid the first $25,000 installment
but not the second.

       On June 5, 2002, ESSROC filed a motion to set aside the settlement agreement due to
fraudulent misrepresentation. In this motion ESSROC alleged that after PLC’s failure to pay the
second installment,

               [PLC] disclosed to ESSROC for the first time that payment of the
               second installment had been contingent on [PLC] selling certain real
               property that it owned, and that payment of the second installment of
               the Settlement Agreement would not be forthcoming unless [PLC]
               sold such property.

PLC filed a response to the motion, supported by affidavits of its legal counsel and chief executive
officer. After a hearing held on June 21, 2002, the Trial Court made the following findings of fact
and conclusions of law:

               I grant the motion to set aside the Settlement Agreement and Release
               as this Court finds that the Defendant, Paty, now known as PLC,
               fraudulently obtained this settlement. That they did not act in good
               faith in obtaining this contract. That they misrepresented, material
               misrepresentation about payment. The Court sets aside the
               Settlement Agreement and Release.
                        The Court grants judgment, vis-a-vis, Rule 56 finding that
               there’s no genuine issue of material fact as to the sum owed. That
               they are set forth in the Complaint [and] in the affidavit of a sworn
               account and that the judgment would be for a $112,551.43 less

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               $25,000.00, which would be the credit they’ve paid, which would
               leave a principal balance of $107,551.43.

In addition to the $107,551.43, the Court awarded ESSROC $42,738.56 in service charges and
$10,296.54 in attorney’s fees and expenses pursuant to the credit agreement the parties entered into
prior to the litigation.

        PLC appeals, raising the issue, which we quote from its brief, of whether the court erred “in
setting aside the Settlement Agreement and Release dated February 5, 2002 between ESSROC
Cement Corp. . . and PLC, Inc. . .and in awarding judgment in favor of [ESSROC] absent an
evidentiary hearing.”

       In Staples v. CBL & Associates, Inc., 15 S.W.3d 83, 89 (Tenn. 2000) the Tennessee Supreme
Court stated the following as to the standard of review specifically applicable to summary
judgments:

               The standards governing the assessment of evidence in the summary
               judgment context are also well established. Courts must view the
               evidence in the light most favorable to the nonmoving party and must
               also draw all reasonable inferences in the nonmoving party’s favor.
               See Robinson v. Omer, 952 S.W.2d at 426; Byrd v. Hall, 847 S.W.2d
               at 210-11. Courts should grant a summary judgment only when both
               the facts and the inferences to be drawn from the facts permit a
               reasonable person to reach only one conclusion. See McCall v.
               Wilder, 913 S.W.2d 150, 153 (Tenn. 1995); Carvell v. Bottoms, 900
S.W.2d 23, 26 (Tenn. 1995).

        PLC argues that there was insufficient proof before the Court that PLC made a fraudulent
misrepresentation to ESSROC during the course of the negotiations. The elements of a cause of
action for fraud have been enumerated by this Court as follows:

               (1) an intentional misrepresentation with regard to a material fact, (2)
               knowledge of the representation['s] falsity--that the representation
               was made "knowingly" or "without belief in its truth," or "recklessly"
               without regard to its truth or falsity, (3) that the plaintiff reasonably
               relied on the misrepresentation and suffered damage, and (4) that the
               misrepresentation relates to an existing or past fact, or, if the claim is
               based on promissory fraud, then the misrepresentation must "embody
               a promise of future action without the present intention to carry out
               the promise."

Shahrdar v. Global Housing, Inc., 983 S.W.2d 230, 237 (Tenn.App. 1998), quoting Stacks v.
Saunders, 812 S.W.2d 587, 592 (Tenn.App.1990).

                                                  -4-
        ESSROC asserts that PLC’s representation made in the settlement offer letter quoted above,
that the offered amount “can be paid within thirty (30) days of ESSROC’s acceptance,” was untrue
and misleading, and that PLC failed to disclose that its second payment of $25,000 was contingent
on PLC being able to sell a certain parcel of real estate in order to fund the payment. In support of
this assertion, ESSROC filed the affidavit of Thomas K. Wagenhauser, its manager of credit, who
stated as follows:

               Pursuant to the Settlement Agreement and Release, [PLC] was to pay
               to ESSROC the sum of $50,000.00 in two equal installments of
               $25,000.00 each, due on February 25, 2002 and March 15, 2002
               respectively.
                       At no time during the parties’ settlement negotiations did
               [PLC] disclose to ESSROC that payment of either installment was
               contingent on [PLC] selling certain real property that it owned, and
               furthermore, such contingency was never a part of the parties’
               Settlement Agreement and Release.
                       Under no circumstances would ESSROC have agreed to such
               settlement terms had it been aware that [PLC]’s payment of either
               installment was contingent on [PLC] selling certain real property that
               it owned or any other assets.

Mr. McConnell’s affidavit states the following in part relevant to this allegation:

               On March 22, 2002, I received a telephone voice message from [PLC
               counsel] Mr. Dessauer in which [he] disclosed for the first time that
               [PLC]’s payment of the second installment had been contingent on
               [PLC] selling certain real property that it owned. Mr. Dessauer also
               stated that [PLC] had been unable to sell the property, and thus,
               [PLC] would be unable to pay the second installment as it had agreed
               to do.

PLC filed the affidavits of Mr. Dessauer and John E. Seward, Jr., its chief executive officer, in
support of its response to ESSROC’s motion to set aside the settlement agreement and for summary
judgment. Significantly, there is nothing in these affidavits, nor anywhere else in the record, that
contradicts the allegations discussed above. Mr. Seward’s affidavit states in part as follows:

               At the time the Settlement Agreement was executed by me, PLC had
               contracts in place that were scheduled to close prior to March 15,
               2002 and which would have fully funded the remaining $25,000
               owed to ESSROC under the Settlement Agreement. At the time of
               execution of the Settlement Agreement, I, on behalf of PLC, had
               every intention to carry out the terms of the agreement. However, due

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               to circumstances beyond PLC’s control, the contracts referenced
               above were not consummated as anticipated.

Under the particular circumstances of this case, we find there are no genuine issues of material fact
relative to the inquiry of fraudulent misrepresentation, and that the Trial Court did not err in setting
aside the Settlement Agreement based on that ground.

       We likewise find that the Trial Court did not err in granting summary judgment in ESSROC’s
favor on the amount owed under the credit agreement. After ESSROC filed its properly-supported
motion for summary judgment, PLC failed to present proof tending to raise any genuine issue of
material fact regarding the amount owed, nor did it raise any affirmative defense.

         PLC argues on appeal that the Court erred in failing to order ESSROC to return the first
installment of $25,000 to PLC, ordering instead that it be offset as a credit against the judgment.
ESSROC responds by correctly pointing out that this issue was not raised at the trial level below.
In its reply brief, PLC cites the following sentence from its response in opposition to ESSROC’s
motion:

                The plaintiff now seeks to set aside the Settlement Agreement on the
                grounds of misrepresentation and presumably retain the $25,000
                previously paid and seek judgment on the balance owing as set forth
                in the original Complaint.

Nothing in the written record, including this sentence, nor in PLC’s oral arguments presented to the
Court as preserved in the transcript of the hearing, can be construed as placing this issue before the
Trial Court for decision. PLC cannot for the first time raise this issue on appeal.

       For the foregoing reasons, the judgment of the Trial Court is affirmed and the cause
remanded for collection of the judgment and costs below. Costs of appeal are adjudged against the
Appellant, PLC, Inc. and its surety.

                                                _________________________________________
                                                HOUSTON M. GODDARD, PRESIDING JUDGE

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