Court Opinion

ID: 1050422
Source: CourtListenerOpinion
Date Created: 2013-10-08 20:04:17.799697+00
Date Added: 2024-06-11T15:46:39.839023
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                               AT JACKSON
                     ASSIGNED ON BRIEFS NOVEMBER 17, 2009

   T.O.T.S. (TEMP. OWNED TEMPORARY SERVICE) v. WHIRLPOOL
                      CORPORATION, ET AL.

                  Direct Appeal from the Circuit Court for Madison County
                              No. C-08-34    Don Allen, Judge

                   No. W2009-01855-COA-R3-CV - Filed December 18, 2009

This appeal involves a complaint for breach of contract filed by a corporation that had been
administratively dissolved prior to the date of the contract. The defendants filed a motion to dismiss,
claiming that the plaintiff-corporation lacked capacity and/or standing to bring the suit. The plaintiff
then filed a motion to amend, seeking to have the corporation’s founder substituted as the party
plaintiff. The trial court denied the motion to amend and dismissed the complaint. We affirm.

      Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Circuit Court Affirmed

ALAN E. HIGHERS, P.J.,W.S., delivered the opinion of the court, in which DAVID R. FARMER , J., and
HOLLY M. KIRBY , J., joined.

Stephen C. Brooks, Jackson, TN for Appellant

Tim K. Garrett, Nashville,TN, for Appellees
                                             OPINION

                               I. FACTS & PROCEDURAL HISTORY

         On February 4, 2008, T.O.T.S. (Temp. Owned Temporary Service), Inc. (“TOTS, Inc.”) filed
a complaint against Whirlpool Corporation and its employee, Janice Page, (“Defendants”) seeking
to recover payments it had made to the Defendants. The complaint stated that TOTS, Inc. was “a
Tennessee corporation doing business as same in Madison County, Tennessee, at all times relevant
to this matter.” TOTS, Inc. alleged that it provided temporary workers to Whirlpool’s manufacturing
plant, and that Defendant Page had improperly demanded payments in excess of the parties’
contractual agreement, constituting a breach of contract. TOTS, Inc. claimed that it had reluctantly
made $455,000 in improper payments to Defendant Page between 2000 and 2007 in order maintain
the business relationship. It also alleged that it made $99,000 “in like kind payments” to Defendant
Page, for a total of $554,000 in improper payments. TOTS, Inc. sought a judgment for that amount,
plus interest, costs, and attorney’s fees, against the Defendants.

        Defendants filed an answer denying the substantive allegations of the complaint and also
asserting that TOTS, Inc. was not incorporated in the State of Tennessee. Defendants averred that
TOTS, Inc.’s charter had been revoked in 1998, and therefore, it lacked capacity and/or standing to
prosecute the lawsuit.

        In response to Defendants’ request for admissions, TOTS, Inc. admitted that “TOTS’ Charter
was revoked in or around 1998, but assert[ed that] TOTS continued to operate as an entity with
[Defendants].” Defendants then filed a motion to dismiss on the ground that TOTS, Inc. lacked the
capacity to prosecute the lawsuit. Defendants contended that TOTS, Inc. was precluded from
bringing the suit because TOTS, Inc. was not an active corporation at the time when it entered into
the contract with Defendants, and it was therefore conducting business in violation of Tennessee law.

        TOTS, Inc. then filed a “Motion to Amend Complaint and in Response to the Motion to
Dismiss,” seeking to remove TOTS, Inc. as the party plaintiff and to substitute “Isaac Brooks,
formerly doing business as TOTS.” The motion stated that although the Plaintiff originally alleged
that it was incorporated at the time of entering into the contracts, “unbeknown to Plaintiff, its
corporate status was not in compliance with the State of Tennessee requirements for valid corporate
status.” The motion further stated that the payments at issue were made “by Isaac Brooks, believing
he was a proper corporate entity.” Isaac Brooks also submitted an affidavit, stating that he was the
original founder of TOTS and that it was incorporated in 1994. He stated that he continued to do
business as TOTS after its corporate charter “expired” in 1998.

        Following a hearing, the trial court entered an order granting Defendants’ motion to dismiss
and denying TOTS, Inc.’s motion to amend the complaint. The court found that TOTS, Inc.’s
corporate charter had been revoked in 1998 by the Tennessee Department of Revenue, and that
TOTS, Inc. had not been an active corporation since that time, as it had taken no action to file a new
charter or otherwise become a legally recognized corporation. As such, the court found that TOTS,

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Inc. was not authorized to conduct business in Tennessee and had no identity as a matter of
Tennessee law at the time that it dealt with Defendants. The court concluded that TOTS, Inc. could
not state a cause of action for breach of contract if it was conducting business in violation of state
law. Regarding the motion to amend, the court found that it would circumvent Tennessee Code
Annotated section 48-24-202(c) and the public policy embodied in the statute if Mr. Brooks was
substituted as the real party in interest some ten years after revocation of the charter.

        Acting pro se, Mr. Brooks, although neither a party nor an attorney retained to represent
TOTS, Inc., filed a notice of appeal to this Court. This Court dismissed the appeal for lack of a final
judgment because the trial court had not addressed a motion for sanctions and counterclaim filed by
Defendants. See T.O.T.S. (Temp. Owned Temporary Service), Inc. v. Whirlpool Corp., No.
W2008-02473-COA-R3-CV, 2009 WL 2242693 (Tenn. Ct. App. July 28, 2009). Defendants
subsequently withdrew their motion for sanctions, and the trial court entered an order of voluntary
dismissal of Defendants’ counterclaim. TOTS, Inc., after retaining counsel, timely filed a notice of
appeal.

                                       II. ISSUES PRESENTED

        On appeal, TOTS, Inc. claims that the trial court erred in granting Defendants’ motion to
dismiss, in denying TOTS, Inc.’s motion to amend the complaint, and “in ruling that Plaintiff was
not authorized to conduct business in Tennessee as a sole proprietor.” For the following reasons,
we affirm the decision of the circuit court.

                                           III. DISCUSSION

        A corporation that has been administratively dissolved “may not carry on any business except
that necessary to wind up and liquidate its business and affairs . . . and notify claimants . . . .” Tenn.
Code Ann. § 48-24-202(c). In KHB Holdings, Inc. v. Duncan, No. E2002-02062-COA-R3-CV,
2003 WL 21488268, at *1 (Tenn. Ct. App. June 25, 2003) perm. app. denied (Tenn. Dec. 22, 2003),
the Court squarely addressed the same issues we have before us. KHB Holdings, Inc. was
incorporated for a number of years before its charter was revoked by the Tennessee Department of
Revenue for failure to pay taxes. Id. Two years later, KHB ostensibly entered into a contract with
the Duncans to construct a residence. Id. KHB subsequently sued the Duncans for breach of
contract and quantum meruit. Id. The sole shareholder, sole director, and president of KHB, Mr.
Boyd, later sought to be substituted as the “real party in interest.” Id. The trial court dismissed the
complaint and denied the motion for substitution, and the Court of Appeals affirmed, explaining:

        [T]here was no claim against the Duncans that could pass to Boyd for the simple
        reason that KHB was prohibited by state law from entering into the subject contract
        and hence did not acquire any claims arising out of what was essentially an illicit
        relationship.
                KHB, by attempting to enter into a contract with the Duncans more than two
        years after its charter had been revoked, was carrying on corporate business after

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       dissolution, conduct that was clearly in violation of Tenn. Code Ann. § 48-24-202(c).
       To allow Boyd to be substituted for KHB and pursue this claim against the Duncans
       would circumvent the statute and thwart the sound public policy embodied in the
       statute. We therefore find no error in the trial court's denial of Boyd’s motion for
       substitution.

Id. at *3. The Court recognized that if KHB had gone through the necessary procedures to have its
charter reinstated before trial,1 its contract would have been validated pursuant to Tennessee Code
Annotated section 48-24-203(c), which provides that when reinstatement becomes effective, it
“relates back to and takes effect as of the effective date of the administrative dissolution, and the
corporation resumes carrying on its business as if the administrative dissolution had never occurred.”
Id. at *2-3. However, KHB had not taken such steps and its charter was not reinstated; therefore,
its complaint was properly dismissed. Id. at *3.

        The recent case of Wynn v. La Maruja Realty Company, No. M2008-01511-COA-R9-CV,
2009 WL 2957922 (Tenn. Ct. App. Sept. 15, 2009), involved another dissolved corporation that
ostensibly entered into a contract. The other party to the contract claimed that the contract was void
ab initio and moved to dismiss a complaint for specific performance of the contract due to the
corporation’s alleged lack of capacity to contract and lack of standing. Id. at *1. However, the
corporation’s president filed an application with the Tennessee Secretary of State for reinstatement
as an active Tennessee corporation and paid several years of back taxes and the required fees to have
the corporation reinstated. Id. The Court of Appeals concluded that the contract would have been
void ab initio “if [the president] had not taken the necessary steps to reinstate the corporate status.”
Id. at *4.

        On appeal, TOTS, Inc. urges us to follow Sykes v. Cooper, No. 84-52-II, 1985 Tenn. App.
LEXIS 2780 (Tenn. Ct. App. M.S. Mar. 29, 1985), wherein the Court held that a promissory note
executed in favor of a dissolved corporation was enforceable. However, we find Sykes
distinguishable because it was resolved under the Uniform Commercial Code, as it involved a
negotiable instrument, and in addition, the parties in that case had agreed that the individual
operating in the name of the corporation could be substituted as the plaintiff because he was the real
party in interest. Id. at *3, 5.

       1
           Tennessee Code Annotated section 48-24-203(a) provides:

       (a) A corporation administratively dissolved under § 48-24-202 may apply to the secretary of state
       for reinstatement. The application must:
       (1) Recite the name of the corporation at its date of dissolution;
       (2) State that the ground or grounds for dissolution either did not exist or have been eliminated;
       (3) State a corporate name that satisfies the requirements of § 48-14-101; and
       (4) Contain a certificate from the commissioner of revenue reciting that the corporation has properly
       filed all reports and paid all taxes and penalties required by the revenue laws of this state.

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        Based on the reasoning of KHB Holdings and Wynn, previously discussed, we find that the
trial court properly dismissed TOTS, Inc.’s complaint and denied its motion to amend. We agree
with the trial court’s conclusion that allowing Mr. Brooks to be substituted for TOTS, Inc. as the
“real party in interest” would circumvent the statutory prohibition against conducting business after
dissolution, in addition to the procedures set forth for obtaining reinstatement following
administrative dissolution.

        TOTS, Inc. argues on appeal that after its corporate status was administratively dissolved,
Mr. Brooks simply chose to operate as a sole proprietorship rather than a corporation. TOTS
apparently claims that Mr. Brooks was conducting business as a sole proprietor, not a corporation,
when he contracted with Defendants. It argues that the trial court “erred in ruling that Plaintiff was
not authorized to conduct business in Tennessee as a sole proprietor.” We find no such ruling in the
record before us. Although we do not have a transcript of the trial court’s hearing on the motions,
the court’s order does not mention any argument by Plaintiff that Mr. Brooks was operating as a sole
proprietor. In fact, TOTS, Inc. repeatedly represented to the court that Mr. Brooks was attempting
to conduct business as a corporation. Its complaint states that TOTS, Inc. was “a Tennessee
corporation doing business as same in Madison County, Tennessee, at all times relevant to this
matter.” (emphasis added). TOTS, Inc.’s motion to amend clearly states that “unbeknown to
Plaintiff, its corporate status was not in compliance with the State of Tennessee requirements for
valid corporate status.” The motion further stated that the payments at issue were made “by Isaac
Brooks, believing he was a proper corporate entity.” (emphasis added). Thus, TOTS, Inc. cannot
now argue that Mr. Brooks was operating as a sole proprietor in dealing with Defendants.2

                                               IV. CONCLUSION

       For the aforementioned reasons, we affirm the decision of the circuit court. Costs of this
appeal are taxed to the appellant, T.O.T.S. (Temp. Owned Temporary Service), Inc., and its surety,
for which execution may issue if necessary.

                                                                ___________________________________
                                                                ALAN E. HIGHERS, P.J., W.S.

         2
            We note that TOTS, Inc. attached numerous documents to its brief on appeal, apparently in support of its
position that it was operating as a sole proprietorship. However, these documents w ere not m ade part of the record
before the trial court, and we will not consider them on appeal. We cannot take judicial notice of materials simply
appended to or included within briefs that are not properly made part of the record on appeal. Willis v. Tenn. Dep't of
Corr., 113 S.W.3d 706, 713 n. 6 (Tenn. 2003).

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