Court Opinion

ID: 1046921
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:40:46.521768+00
Date Added: 2024-06-11T12:05:19.501719
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                               November 16, 2011 Session

 LAUNDRIES, INC. v. COINMACH CORPORATION v. CARLA MOYER,
                           ET AL.

                Appeal from the Chancery Court for Davidson County
                     No. 10838III   Ellen H. Lyle, Chancellor

                No. M2011-01336-COA-R3-CV - Filed March 20, 2012

       Plaintiff filed an action to recover $150,000 due on a promissory note executed in
conjunction with the purchase of its assets. Defendant admitted that it had not paid the full
amount of the promissory note but denied that the amount was due, and asserted a
counterclaim contending, inter alia, that the plaintiff had breached the asset purchase
agreement, committed misrepresentation and not disclosed material facts with respect to the
transaction, had fraudulently induced defendant to close on the transaction, and that plaintiff
had been unjustly enriched. Plaintiff filed a motion for dismissal and for judgment on the
pleadings, which the trial court granted. Defendant appeals. Finding that the causes of
actions asserted in defendant’s counterclaim failed to state a claim for relief, we affirm the
dismissal of the counterclaim. We reverse the grant of the motion for judgment on the
pleadings and remand the case for further proceedings.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in
                    Part and Reversed in Part; Case Remanded

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which P ATRICIA J. C OTTRELL,
P.J., M.S., and F RANK G. C LEMENT, J R., J., joined.

Griffin S. Dunham, Nashville, Tennessee, for the Appellant, Coinmach Corporation.

Russell B. Morgan and Frankie N. Spero, Nashville, Tennessee, for the Appellees, Laundries,
Inc., Carla Moyer, Sheri Cotham, and Christi Cotham.

                                         OPINION

B ACKGROUND

       Laundries Inc. (“Laundries”) filed a complaint to recover $150,000 as the balance due
on a promissory note executed by Coinmach Corporation (“Coinmach”). Coinmach and
Laundries are both companies that install and maintain commercial laundry equipment in
leased residential premises and on November 2, 2009, they entered into an Asset Purchase
Agreement which provided that Coinmach would purchase substantially all of Laundries’
assets for the total sum of $725,000, of which $130,000 would be paid at closing; Coinmach
executed a Promissory Note (“Note”) for the balance of $595,000. The Note was attached
as an exhibit to the complaint and specified, in pertinent part, that Coinmach would make two
payments of $297,500: the first payment by April 1, 2010, and the second payment by May
1, 2010. The complaint alleged that “[a]ll conditions required under the Note to permit it to
mature have been satisfied.”

       In its answer, Coinmach admitted that it executed the Note and that it did not pay the
$150,000, but denied that the sum was due, that non-payment constituted a “failure,” or that
the conditions permitting the Note to mature had been satisfied. Coinmach also asserted
fourteen affirmative defenses. Coinmach subsequently filed a Counter-Complaint,1 alleging
that Laundries failed to disclose that three leases which Laundries previously held had been
terminated by the tenants; Coinmach sought to recover for, inter alia, breach of contract and
misrepresentation and named Carla Moyer, Sheri Cotham, and Christi Cotham, shareholders
of Laundries (“Shareholders”), as counter-defendants.2

        Laundries and Shareholders filed a document styled “Plaintiff’s and Third-Party
Defendants’ Motion for Judgment on the Pleadings and to Dismiss Counter-Complaint and
Third Party Complaint.” The motion was based on Coinmach’s admission in its answer that
it had not paid the $150,000 due on the Note and on the allegation in the counterclaim that,
prior to the closing, Coinmach had received “all of the documents upon which it bases its
claims for breach of contract, fraud in the inducement, misrepresentation, unjust enrichment,
and declaratory judgment” but that its counsel did not open the package and review the
documents until the final Asset Purchase Agreement had been signed and returned to
Laundries. The trial court denied the motion; in so doing, the court construed the
counterclaim as alleging that Laundries had “an ongoing obligation to provide current,
explicit cancellation information [about the leases].” The court noted that the termination
letters, attached as exhibits to the counter-complaint, supported a reasonable inference that
Laundries “failed to provide timely, explicit notice of the cancellation of these leases.”

       Coinmach later moved to amend the counterclaim; the court granted the motion and
directed counsel for Coinmach to “specify whether the atypical duty of ongoing notice during

        1
          The pleading was originally called a Counter-Complaint; Coinmach later amended the pleading
and called it an Amended Counterclaim. The parties and the trial court referred to the Counter-Complaint
and Amended Counterclaim as a “Counterclaim and Third-Party Complaint” or “Counter-Complaint and
Third Party Complaint.” The document at issue on appeal is the amended counterclaim.
        2
          Although the parties continually refer to the Shareholders as the “Third Party Defendants,” there
is no motion to add the Shareholders as third party defendants and no third party complaint in the record on
appeal. The Shareholders’ status in this action is not an issue on appeal.

                                                    -2-
due diligence is what was meant in paragraph 11 . . . .” 3 Coinmach then amended its
counterclaim, asserting, inter alia, that paragraph 8(e) of the Asset Purchase Agreement
created an ongoing duty to provide notice of lease terminations. Laundries and Shareholders
renewed their motion to dismiss and for judgment on the pleadings and the court granted the
motion, dismissing the amended counterclaim and awarding Laundries judgment for
$150,000 plus interest, fees and costs. In its ruling, the court reasoned that a seller’s duty to
disclose does not arise where ordinary diligence would have furnished the information to the
buyer, and that the diligence expected of Coinmach—i.e. opening the package of documents
and reviewing the termination letters provided by Laundries prior to the closing—was not
burdensome. Coinmach appeals.

D ISCUSSION

       The motion for judgment on the pleadings is governed by Tenn. R. Civ. P. 12.03 and
the motion to dismiss the amended counterclaim by Tenn. R. Civ. P. 12.02(6). Because the
standards applicable to the resolution of the motions are different, it is necessary to consider
each separately.

        I. Dismissal of the Amended Counterclaim

        A motion to dismiss for failure to state a claim under Tenn. R. Civ. P. 12.02(6)
challenges the legal sufficiency of the complaint, not the strength of the factual allegations
therein. Trau-Med of America, Inc. v. Allstate, Inc., 71 S.W.3d 691, 696 (Tenn. 2002). In
considering such a motion, the court must construe the complaint liberally, presume all
factual allegations to be true and give the plaintiff the benefit of all reasonable inferences.
Id. The complaint should not be dismissed for failure to state a claim unless it appears that
the plaintiff can prove no set of facts in support of his or her claim that would warrant relief.
Id. The appellate court reviews the trial court’s legal conclusions de novo without giving any
presumption of correctness to those conclusions. Id. at 696–97. We set out below the salient
facts alleged in the amended counterclaim to form the basis of each cause of action asserted
by Coinmach, assuming them to be true.

        3
        In its order granting the amendment, the court explained its rationale for imposing this requirement
on Coinmach:

        [O]n December 3, 2010, the motion of the defendant to amend was heard and granted. At
        the hearing, counsel for the plaintiff raised the unusual construction the Court had placed
        on [the counterclaim]. The Court acknowledged the same and stated that the construction
        was central to its denial of the plaintiff’s motions [for judgment on the pleadings and for
        dismissal]. Counsel for the defendant, who had not prepared the counterclaim, stated that
        he was unsure whether the Court’s construction is what the pleader meant. In the face of
        this need for clarification, the Court ORDERED [defendant to clarify the extent of
        Laundries’ duty to disclose].

                                                    -3-
        From July 2009 until October 2009, agents and representatives of Coinmach and
Laundries negotiated the terms of a purchase by Coinmach of substantially all of Laundries’
assets. Among the assets to be purchased by Coinmach were numerous leases for laundry
facilities at residential properties in Nashville, Tennessee, including two leases for property
owned by Meharry Medical College and a lease for facilities at Bradford Woods Apartments.
During the months of negotiation, various drafts of the Asset Purchase Agreement and other
documents were transmitted between the parties. Among the documents was a Due
Diligence Spreadsheet, prepared by Coinmach and supplied to Laundries, which indicated
that the Bradford Woods lease expired May 31, 2010, with an automatic renewal provision,
that one of the Meharry leases expired October 31, 2010, with an automatic renewal
provision, and that the other Meharry lease expired May 31, 2015, with an automatic renewal
provision. None of the documents disclosed or informed Coinmach, and Coinmach was not
otherwise advised, of any problems associated with the leases. During the period of
negotiations, Laundries was aware of terminations of the three leases.

        On Friday, October 30, 2009, Laundries’ counsel notified Russell Winick, counsel for
Coinmach, during a telephone conversation that Laundries would be sending Mr. Winick a
package containing copies of the closing documents. At that time, the terms of the final
Asset Purchase Agreement and other transaction documents had not been finalized, and the
parties were still actively negotiating the sale. During the conversation, Laundries’ counsel
did not indicate that Laundries would be providing any previously unfurnished or undisclosed
termination letters regarding any of Laundries’ leases and stated that the documents
Laundries was forwarding were “nothing you haven’t seen before” and that there was
“nothing new” in the documents. The package of documents was received by Mr. Winick
on Monday, November 2, 2009—the date on which the parties signed the Asset Purchase
Agreement and closed on the purchase.4 Mr. Winick did not read the documents in the
package until after the purchase was completed; at that time, he discovered the letters
terminating the leases for the properties at Meharry Medical College dated in October 2009
and at Bradford Woods Apartments in April 2009.

       Based on these allegations, Coinmach asserted causes of action for breach of contract
and misrepresentation; Coinmach sought a declaratory judgment that Laundries breached the
Asset Purchase Agreement and that the termination letters had not been disclosed; Coinmach
also sought rescission of the Asset Purchase Agreement, promissory note and other
documents due to Laundries’ fraud in inducing Coinmach to execute the documents; finally,
Coinmach sought relief for unjust enrichment and equitable estoppel. We consider each
cause of action in turn.

       4
        The Amended Counterclaim alleged: “Pursuant to and contemporaneous with its execution of said
Final APA, Coinmach executed a Promissory Note. . . .”

                                                 -4-
       A. Breach of Contract

       Coinmach alleged that Laundries and Shareholders breached the Asset Purchase
Agreement by failing to disclose the fact that Laundries had received termination letters for
Dorothy Brown Hall, Meharry Towers, and Bradford Wood Apartments and that the
existence of the letters was required to be disclosed. Coinmach alleged that Laundries’ non-
disclosure of the termination notices violated Sections 8(e) and 11(a)(v) of the final Asset
Purchase Agreement. The amended counterclaim asserted that because Section 8(e) was in
each draft of the Asset Purchase Agreement, an “ongoing duty of Laundries to supply
Coinmach with notice of any fact that was inconsistent with Paragraph 8(e) during the due
diligence period prior to execution of the Final APA” was established.

       Sections 8(e) of the Asset Purchase Agreement provides:

       8. Seller’s Representations and Warranties. Except as set forth on the
       Disclosure Schedule attached hereto and incorporated herein by reference,
       Seller and the Selling Shareholders severally and jointly hereby represent and
       warrant to Buyer as of the date hereof and of the Closing Date as follows:

              ***

              (e) To Seller’s knowledge and except as identified on Exhibit
              A, (I) Seller is not in material breach of Seller’s obligations
              under any Location Contract, and the other parties to the
              Location Contracts are not in material breach of their obligations
              under any Location Contract; (ii) Seller has received no notice
              of breach, cancellation, termination or dispute in respect of any
              Location Contract; and (iii) the Location Contracts are valid,
              binding and enforceable in all material respects, in full force and
              effect, and binding against the parties thereto in accordance with
              their own respective terms, and any payments due to any parties
              thereunder are not in arrears or otherwise past due. For
              purposes of this subsection, Seller shall be deemed to have
              constructive knowledge of any events occurring or
              circumstances accruing 15 or more days prior to the Closing, in
              addition to all maters of which Seller has actual knowledge.

Section 11(a)(v) provides:

       (a) Conditions to Buyer’s Obligations to Consummate the Closing. Buyer’s
       obligation to consummate the Closing is subject to the delivery by Seller on or
       prior to the Closing Date of each of the following:

                                              -5-
                ***

                        (v) The Disclosure Schedule, executed by a duly
                authorized officer of Seller, setting forth exceptions to the
                representations and warranties contained in this Agreement and
                other information called for by the provisions of this Agreement,
                which shall be made a part of this Agreement and incorporated
                herein in entirety by reference thereto

        Giving Coinmach the benefit of reasonable inferences arising from the amended
counterclaim, a fair reading of Sections 8(e)(ii) requires Laundries to list on Exhibit A any
“notice[s] of breach, cancellation, termination or dispute in respect of any Location
Contract.”5 Pursuant to Subsection 8(e)(iii), the Location Contracts subject to disclosure
were those that Laundries could warrant were “valid, binding and enforceable in all material
respects, in full force and effect” at the time of the execution of the Asset Purchase
Agreement. The plain language of Section 11(a)(v) requires Laundries to identify on a
Disclosure Schedule “exceptions to the representations and warranties contained in this
Agreement and other information called for by the provisions of this Agreement.” 6 The duty
created by Sections 8(e) and 11(a)(v) was to disclose any termination or cancellation of
leases of Laundries’ Locations or Location Contracts occurring between the date of execution
of the Agreement and the date of closing; this duty arose when the Agreement was executed.
At the time the parties executed the Agreement, the leases covering the three properties at
issue had been terminated; consequently, there was no duty to disclose that fact. As a result,
the amended counterclaim failed to state a claim for breach of contract on the basis of a
failure to disclose.

        B. Misrepresentation & Fraudulent Inducement

       Coinmach sought rescission of the Asset Purchase Agreement on the grounds that
Laundries fraudulently induced Coinmach to close the transaction and that Laundries and
Shareholders misrepresented the existence of the termination letters. With regard to the
fraudulent inducement claim, Coinmach alleged that Laundries and Shareholders
“purposefully failed to disclose” the termination letters, and that Laundries “fraudulently
conceal[ed] the existence of the termination notices.”

        5
           In the “RECITALS” section of the Asset Purchase Agreement, “Locations” are described as
“residential communities in the State of Tennessee” where Laundries supplies and operates coin-operated
washers and dryers; “Location Contracts” are described as Laundries’ “written and oral contracts” for those
Locations.
        6
         Pursuant to Section 8 of the Agreement, the disclosure schedule was to be attached to the
Agreement and incorporated therein by reference.

                                                   -6-
        A party may be held liable for damages caused by its failure to disclose material facts
to the same extent that a party may be liable for damages caused by fraudulent or negligent
misrepresentations. Macon County Livestock Mkt. Inc. v. Ky. State Bank, Inc., 724 S.W.2d
343, 349 (Tenn. Ct. App. 1986). For a nondisclosure to constitute fraud, the charged party
must have a duty to disclose that fact or condition. Odom v. Oliver, 310 S.W.3d 344, 349
(Tenn. Ct. App. 2009) (citing Lonning v. Jim Walter Homes, Inc., 725 S.W.2d 682, 685
(Tenn. Ct. App. 1986)). A party to a contract does not have a duty to disclose a material fact
where ordinary diligence would have revealed the undisclosed fact. Odom, 310 S.W.3d at
349–50 (citing Simmons v. Evans, 206 S.W.2d 295, 296 (Tenn. 1947); Lonning v. Jim Walter
Homes, Inc., 725 S.W.2d 682, 684 (Tenn. Ct. App. 1986)); Homestead Group, LLC v. Bank
of Tennessee, 307 S.W.3d 746, 752 (Tenn. Ct. App. 2009); see also R ESTATEMENT (S ECOND)
OF T ORTS § 551(1) (1976) (“One who fails to disclose to another a fact that he knows may
justifiably induce the other to act or refrain from acting in a business transaction is subject
to the same liability to the other as though he had represented the nonexistence of the matter
that he has failed to disclose, if, but only if, he is under a duty to the other to exercise
reasonable care to disclose the matter in question.”). “Generally, a party dealing on equal
terms with another is not justified in relying upon representations where the means of
acquiring the knowledge are readily within the party’s reach.” Solomon v. First Am. Nat.
Bank of Nashville, 774 S.W.2d 935, 943 (Tenn. Ct. App. 1989) (citing 37 C.J.S. Fraud § 34).

       As part of the factual background recited in the amended counterclaim, Coinmach
acknowledged that Laundries delivered a package of documents containing copies of the
termination letters to Coinmach, through its counsel, prior to the closing, but that counsel did
not open the package; had counsel done so and read the documents therein, he could have
discovered the letters terminating the leases. Thus, Coinmach had the opportunity to
discover the facts it alleged to have been concealed and failed to do so; in this circumstance,
the court properly dismissed the claim for fraudulent inducement. See Odom, 310 S.W.3d
at 349–50.7

       There are six elements of a claim of intentional misrepresentation: (1) that the
defendant made a representation of an existing or past fact; (2) that the representation was
false when it was made; (3) that the representation involved a material fact; (4) that the
defendant made the representation recklessly, with knowledge that it was false, or without
belief that the representation was true; (5) that the plaintiff reasonably relied on the
representation; and (6) that the plaintiff was damaged by relying on the representation. Davis
v. McGuigan, 325 S.W.3d 149, 154 (Tenn. 2010). Whether a person’s reliance on a

        7
           The five elements of a claim of fraudulent inducement to contract are: (1) the defendant made a
false statement concerning a fact material to the transaction (2) with knowledge of the statement’s falsity or
utter disregard for its truth (3) with the intent of inducing reliance on the statement, (4) the statement was
reasonably relied upon by the plaintiff, and (5) an injury resulted from this reliance. Baugh v. Novak, 340
S.W.3d 372, 388 (Tenn. 2011). The amended counterclaim alleges that the first element, the making of a
false statement, was satisfied through failure to disclose. Because there was no duty to disclose, there was
no false statement.

                                                     -7-
representation is reasonable is generally a question of fact requiring the consideration of a
number of factors, including the party’s sophistication and expertise in the subject matter of
the representation, the type of relationship—fiduciary or otherwise—between the parties, the
availability of relevant information about the representation, any concealment of the
misrepresentation, any opportunity to discover the misrepresentation, which party initiated
the transaction, and the specificity of the misrepresentation. Davis v. McGuigan, 325 S.W.3d
149, 158 (Tenn. 2010) (citing City State Bank v. Dean Witter Reynolds, Inc., 948 S.W.2d
729, 737 (Tenn. Ct. App. 1996)).

       Construing the allegations of the amended counterclaim and the inferences arising
therefrom in favor of Coinmach,8 the fifth element of a cause of action for intentional
misrepresentation, reasonable reliance, is not satisfied. The asset purchase transaction was
an arms-length transaction between two businesses, both of which were represented by
counsel, and the negotiation period lasted for at least four months. No fiduciary relationship
between Coinmach and Laundries was alleged in the amended counterclaim, and Laundries
was not alleged to have provided Coinmach with false information about the status of the
leases. Moreover, as noted previously, when Coinmach was provided copies of the letters,
means of acquiring knowledge about the status of the leases were within Coinmach’s control,
but Coinmach’s counsel failed to open the package.9 Taken together, these factors lead to
the conclusion that Coinmach’s asserted reliance on the statements attributed to counsel for
Laundries was not reasonable. See Davis, 325 S.W.3d at 158.

        C. Declaratory Judgment

       Coinmach sought a declaratory judgment that the termination letters were not
disclosed to Coinmach, that the letters were delivered in an “untimely, improper, and
surreptitious manner,” and that Laundries, through the statements of its counsel, “in effect
informed Coinmach that there were no termination letters” in the package. Coinmach also
sought a declaratory judgment that Laundries was not entitled to recovery or, alternatively,
that Coinmach was entitled to an offset for damages it allegedly incurred as a result of
Laundries breach of the Asset Purchase Agreement. Coinmach does not make a separate
argument on appeal that the trial court erred in not issuing a declaratory judgment; rather, it

        8
          With regard to the misrepresentation claim, the amended counterclaim alleged that Laundries and
Shareholders “negligently, recklessly, or knowingly [misrepresented] as to the absence of pre-existing
termination letters” and that the phrases “nothing you haven’t seen before” and “nothing new” regarding the
contents of the package of documents constituted misrepresentations.
        9
          It was incumbent upon Coinmach to inspect the package of documents to determine what
documents it contained and how the documents might be relevant to the transaction. See Philpot v.
Tennessee Health Mgmt., Inc., 279 S.W.3d 573, 581 (Tenn. Ct. App. 2007) (“The parties have a duty to learn
the contents and stipulations of a contract before signing it; signing a contract without learning such
information is at the party’s own peril.”).

                                                   -8-
argues that the allegations of the amended counterclaim were sufficient to withstand a Tenn.
R. Civ. P. 12.02(6) motion.

        Tenn. Code Ann. § 29-14-102 grants courts the authority to “declare rights, status, and
other legal relations whether or not further relief is or could be claimed.” Whether or not to
entertain an action for declaratory relief is discretionary with the trial court. Huntsville
Utility Dist. Of Scott County, Tenn. v. General Trust Co., 839 S.W.2d 397, 400 (Tenn. Ct.
App. 1992). The trial court did not separately rule on Coinmach’s application for declaratory
relief; however, the court fully discussed the factual bases upon which the application was
based and the related substantive claims.

       As discussed above, Laundries complied with its obligation under the Asset Purchase
Agreement to provide the termination letters to Coinmach and did not misrepresent the
existence of the letters. For the same reasons that we hold that the allegations of the
amended counterclaim did not state a claim for the requested substantive relief, we hold that
declaratory relief was not appropriate.

       D. Unjust Enrichment

       In Count VI of the amended counterclaim, Coinmach alleged that Laundries was
unjustly enriched when it was “conferred a benefit . . . in the form of an inflated Purchase
Price for assets which Laundries and Shareholders did not provide.” Coinmach asserted that
it was entitled to retain or recover a portion of the purchase price representing the value of
the assets that Laundries did not provide.

       In an action in which a party alleges that another has been unjustly enriched, the court
may impose a contractual obligation where one does not otherwise exist; the contract is not
based upon the intention of the parties but is instead an obligation created by law and is
“founded on the principle that a party receiving a benefit desired by him, under the
circumstances rendering it inequitable to retain it without making compensation, must do so.”
B & L Corp. v. Thomas & Thorngren, Inc., 162 S.W.3d 189, 217 (Tenn. Ct. App. 2004)
(citing Paschall’s, Inc. v. Dozier, 407 S.W.2d 150, 154 (Tenn. 1966)). A contractual
obligation under an unjust enrichment theory will be imposed when: (1) no contract exists
between the parties or, if one exists, it has become unenforceable or invalid; and (2) the
defendant will be unjustly enriched absent a quasi-contractual obligation. B & L Corp., 162
S.W.3d at 217.

        In its brief on appeal Coinmach asserts that “[t]o the extent the Motion to Dismiss also
states that unjust enrichment should not apply because the parties had an express contract,
Coinmach, in Count II, asks in the alternative for rescission of the contract, thereby making
unjust enrichment a viable claim.” In Count II of the amended counterclaim Coinmach
sought rescission on the basis of fraud in the inducement.

                                              -9-
        Rescission is a remedy which “should be exercised sparingly and only when the
situation demands such.” Richards v. Taylor, 926 S.W.2d 569, 571 (Tenn. Ct. App. 1996)
(citing James Cable Partners v. Jamestown, 818 S.W.2d 338, 343 (Tenn. Ct. App. 1991)).
“[R]escission of a contract is not looked upon lightly. It is available only under the most
demanding circumstances.” Robinson v. Brooks, 577 S.W.2d 207, 208 (Tenn. Ct. App.
1978). Among the few grounds justifying rescission are fraud and undue influence.
Richards, 926 S.W.2d at 571. We have previously held that the allegations of the amended
counterclaim did not state a cause of action for fraudulent inducement, which was the only
basis upon which rescission was sought; consequently, rescission was not available as a
remedy to Coinmach and the rights and liabilities of the parties were determined by the Asset
Purchase Agreement.

        Further, the amended counterclaim does not allege facts that would support a finding
that the Asset Purchase Agreement was unenforceable or invalid on any other basis; having
failed to do so, the claim for relief premised on unjust enrichment fails.

       E. Equitable Estoppel

        In Count VII of the amended counterclaim, entitled “Equitable Estoppel”, Coinmach
alleged, inter alia, that Laundries and Shareholders “committed conduct which amounts to
a false representation or concealment of material facts” that Laundries “intended or expected
that Coinmach would act upon the false representation or concealment” and that “Coinmach,
in fact, acted upon the false representation or concealment,” all relative to the lease
termination letters.      Upon those allegations Coinmach sought declaratory relief,
compensatory and punitive damages, counsel fees, and costs.

        Although Coinmach set forth equitable estoppel as a claim entitling it to relief, the law
in Tennessee is clear that equitable estoppel is available to protect a right but not to create
one. Franklin v. St. Paul Fire & Marine Ins. Co., 534 S.W.2d 661 (Tenn. Ct. App. 1996)
(citing E.K. Hardison Seed Co. v. Continental Casualty Co., 410 S.W.2d 729 (Tenn. Ct. App.
1966); see also Birnimgham-Jefferson County Transit Auth. v. Boatright, 3:09-0304, 2009
WL 2601926 (M.D. Tenn. Aug. 20, 2009). The doctrine is applied to preclude a party “from
asserting rights of property, contract or remedy, as against another who has in good faith
relied on such conduct, and has been led thereby to change his position for the worse, and
who on his part acquires some corresponding right.” Church of Christ v. McDonald, 171
S.W.2d 817, 821 (Tenn. 1943) (quoting P OMEROY'S E QUITY J URISPRUDENCE, Vol. 3, p.

                                              -10-
189).10 Thus, it should be asserted as an affirmative defense. Accordingly, the claim was
properly dismissed.

        II. Motion for Judgment on the Pleadings

        When reviewing orders granting a Tenn. R. Civ. P. 12.03 motion, we apply the same
standard of review we use to review orders granting a motion to dismiss for failure to state
a claim pursuant to Tenn. R. Civ. P. 12.02(6). Waller v. Bryan, 16 S.W.3d 770, 773 (Tenn.
Ct. App. 1999). Accordingly, we review the trial court’s decision de novo without a
presumption of correctness. Stein v. Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997).
When the party moving for judgment on the pleadings is the plaintiff, as in the instant case,
the motion argues that the answer fails to controvert any material fact in the complaint and
states no legally sufficient defense. 3 N ANCY F RASS M ACL EAN, T ENNESSEE P RACTICE AC
12:11 (4th ed. 2006). In this case, where the plaintiff, Laundries, is the movant, we treat as
false the allegations of the complaint which have been denied, and treat as true all well-
pleaded facts in Coinmach’s pleadings and all reasonable inferences arising therefrom.
McClenahan v. Cooley, 806 S.W.2d 767, 769 (Tenn. 1991).

         The complaint alleged, in pertinent part, that Coinmach had executed the Note, that
Coinmach had failed to pay $150,000 due, and that all conditions required under the Note for
maturity had been satisfied. In its answer, Coinmach admitted the execution of the Note and
that it did not pay $150,000 in principal to Laundries; Coinmach, however, denied that the
$150,000 was “due and owing,” that “all conditions required under the Note to permit it to
mature have been satisfied,” and that Coinmach’s nonpayment constituted breach of its
contractual obligations under the Note. The answer also asserted fourteen affirmative
defenses that were similar, but not identical, to the allegations and causes of actions asserted
in the amended counterclaim.

        We treat Laundries’ factual allegations that the $150,000 was “due and owing” and
that the Note had matured as false because Coinmach denied the allegations. This denial is

        10
           The doctrine of equitable estoppel requires evidence of the following elements with respect to the
party against whom estoppel is asserted: (1) conduct which amounts to false representation or concealment
of material facts, or, at least, which is calculated to convey impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation,
that such conduct shall be acted upon by other party; and (3) knowledge, actual or constructive, of real facts;
with respect to the party asserting equitable estoppel, the following elements are required: (1) lack of
knowledge and of means of knowledge of the truth as to the facts in question, (2) reliance upon conduct of
party estopped, and (3) action based thereon of such a character as to change his position prejudicially.
Osborne v. Mountain Life Ins. Co., 130 S.W.3d 769, 774 (Tenn. 2004). The allegations of the amended
counterclaim directly refute two required elements of the doctrine: that the party against whom estoppel is
asserted must have falsely represented or concealed material facts, and that the party seeking estoppel lacked
the means to acquire the truth as to the facts in question.

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sufficient to overcome the motion, notwithstanding Coinmach’s admission that it did not pay
$150,000; the effect of the denial is to require Laundries to prove its entitlement to judgment.
In addition, we accept as true the factual allegations in the statement of affirmative defenses,
which pled that Laundries did not fully perform its obligations under the Asset Purchase
Agreement and did not deliver all of the assets. Taken as true, these allegations, while not
stating a claim for relief, may provide a basis for Coinmach to avoid all or part of its
remaining obligation on the Note. 3 N ANCY F RASS M ACL EAN, supra, AC 12:11 (“A party
moving for judgment on the pleadings admits the allegations of the opponent’s pleadings for
purposes of the motion alone.”). In light of the denials and affirmative defenses, judgment
on the pleadings in favor of Laundries was not appropriate.

C ONCLUSION

       For the aforementioned reasons, the judgment of the Chancery Court for Davidson
County is affirmed in part and reversed in part. The case is remanded for further proceedings
in accordance with this opinion.

                                            _______________________________________
                                            RICHARD H. DINKINS, JUDGE

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