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Coleman v. Brown

Court of Appeals of Tennessee, Knoxville

October 10, 2014

PAUL T. COLEMAN
v.
BILLIE A. BROWN ET AL.

Session July 8, 2014

Appeal from the Chancery Court for Knox County No. 160496-1 John F. Weaver, Chancellor

John A. Lucas, Knoxville, Tennessee, for the appellant, Paul T. Coleman.

Arthur G. Seymour, Jr., and Robert L. Kahn, Knoxville, Tennessee, for the appellees, Billie A. Brown, as co-personal representative of the estate of David G. Brown, and Jennifer J. Fowler, individually and as personal representative of the estate of John B. Fowler.

David T. Black, Maryville, Tennessee, for the appellee, Billie A. Brown, individually.

Thomas S. Scott, Jr., Knoxville, Tennessee, for the appellee, David G. Brown, Jr., individually and as co-personal representative of the estate of David G. Brown.

Thomas R. Frierson, II, J., delivered the opinion of the Court, in which Charles D. Susano, Jr., C.J., and D. Michael Swiney, J., joined.

OPINION

THOMAS R. FRIERSON, II, JUDGE

I. Factual and Procedural History

Eastowne Partners I, Ltd. ("Eastowne I") and Eastowne Partners II, Ltd. ("Eastowne II") are Tennessee limited partnerships formed in 1985. Eastowne I was established with the intent of developing a retirement center on a 7.8-acre tract of land in Knoxville. This development never occurred, but Eastowne I maintains ownership of the acreage. Eastowne II was created for the purpose of developing an apartment complex on a nearby tract of land. The apartment complex, Eastowne Village Apartments, was constructed and continues to be owned by Eastowne II.

Both limited partnerships initially were formed with two general partners, Eastowne Village, Inc. ("EVI") and First Tennessee Development Company, Inc. Both partnerships also originally had four limited partners: David G. Brown, John B. Fowler, Brown Ayres, and the plaintiff, Paul T. Coleman. In 1988, Mr. Ayres sold his interests in both partnerships and his stock in EVI to Mr. Brown. First Tennessee Development Company, Inc. subsequently withdrew as a general partner. Thereafter, the ownership interests of each partnership were as follows:

General Partner

Limited Partners

Eastowne Village, Inc. 1.00%

David G. Brown 49.50%

Paul T. Coleman 24.75%

John B. Fowler 24.75%

Likewise, EVI's only shareholders were Mr. Brown (50%), Mr. Coleman (25%), and Mr. Fowler (25%).

Also in 1988, Eastowne II entered into a management agreement with Brown, Brown & West, a realty management company solely owned by David Brown. This agreement provided that Brown, Brown & West would manage the Eastowne Village Apartments and collect rent in exchange for 4.5% of the monthly gross receipts. Billie Brown, Mr. Brown's wife, worked for Brown, Brown & West as a property manager.

During the late 1990s, there occurred a "falling out" between Mr. Coleman and the other two limited partners, Mr. Brown and Mr. Fowler. While the exact nature of their dispute is unclear, the record does contain a November 4, 1996 letter from Mr. Brown to Mr. Coleman, which states in pertinent part:

As managing partner, I have realized that you have not participated in the payment of expenses regarding the deficits, which in effect, is a violation of the partnership agreement; therefore, I must insist that you are no longer considered a partner, and that your ownership is now [moot].

On August 8, 2003, Mr. Coleman filed a complaint against EVI, Mr. Brown, and Mr. Fowler, alleging breach of fiduciary duty and other claims. In February 2004, Mr. Coleman filed three additional court actions against Mr. Brown, Mr. Fowler, EVI, Eastowne I, and Eastowne II. The initial action was voluntarily nonsuited without prejudice in 2005.

Mr. Brown died on June 23, 2006. Mr. Fowler died on July 5, 2006. Following their deaths, Mr. Coleman instituted another action against the estates of Mr. Brown and Mr. Fowler. Subsequently, in September 2010, Mr. Coleman filed a motion to consolidate the four pending cases. He also named as defendants Jennifer Fowler, Ms. Brown, and David Brown, Jr. As Ms. Brown continued doing business as Brown, Brown & West after her husband's death, she also continued managing the Eastowne Village Apartments. David Brown, Jr. is Mr. Brown's son and Mrs. Brown's stepson. Ms. Brown and Mr. Brown, Jr. are co-personal representatives of Mr. Brown's estate. Ms. Fowler is the surviving spouse of Mr. Fowler and the personal representative of his estate.

Upon considering the motion, the trial court granted approval for the pending matters to be consolidated. Mr. Coleman thereafter filed two amended and restated complaints, alleging, inter alia, claims of breach of fiduciary duty, breach of contract, conversion, and conspiracy. Mr. Coleman sought an accounting for all three business entities and a declaratory judgment that neither Ms. Fowler, Ms. Brown, nor Mr. Brown, Jr., were lawful partners, shareholders, or directors. The trial court later granted a joint motion for an evidentiary hearing to determine the shareholders of EVI and the partners of Eastowne I and II.

At trial, Mr. Coleman claimed that he was the sole remaining shareholder of EVI pursuant to the terms of the corporate buy-sell agreement. He further asserted that he was the sole remaining limited partner in both Eastowne I and II pursuant to the terms of the limited partnership agreements. Concerning these issues, the trial court noted:

The motivation for the dispute over the ownership of the corporate general partner and the limited partnerships is attributable to the grave difference between book value or a capital account and market value. See 7 Tenn. Jur., Corporations, § 18 et seq. (2012). ("Capital stock is clearly not the same as the property possessed by the corporation, for the capital stock remains fixed, although the actual property of the corporation varies in value, and constantly increasing or diminishing in amount."); 20 Tenn. Jur., Partnerships, § 11 et seq. (2012). ("The capital of a partnership is not therefore the same as its property.").
The plaintiff argues that he [is] entitled to the stock of the deceased shareholders under the buy sell agreement as determined by a function of book value resulting in a negative price for the shares. The plaintiff argues that the limited partnerships are entitled to the limited partnership interests of the deceased limited partners as determined by a function of their capital accounts resulting in a negative price for their interests. For the purpose of this opinion, the price of the shares will be addressed in the terms of book value and the price for limited partnership interests will be addressed in the terms of capital accounts. If the plaintiff is successful on his arguments that he is entitled to the stock, at book value, of the deceased shareholders in the corporate general partnership and that the limited partnerships are entitled to liquidate the limited partnership interests of the deceased limited partners at the amount of their capital accounts, then the plaintiff may gain all of the value of the assets in the corporate general partner and the limited partnerships with no additional outlay. Ownership of all the stock in the general corporate partner also gives the owner control of the general corporate partner which, in turn, has control of the management and affairs of the limited partnerships. On the one hand, the plaintiff contends that he is entitled to the benefit of his bargains as evidenced by the stockholders' buy sell agreement and limited partnership agreements. On the other hand, the defendants argue that the plaintiff is misinterpreting the agreements and that the plaintiff has waived his rights under the agreements to acquire the deceased stockholders' stock and to obtain liquidation of their limited partnership interests.

The trial court disagreed with Mr. Coleman's claims of ownership. Incorporating by reference its Memorandum Opinion dated October 5, 2012, the trial court entered an interlocutory Judgment of Dismissal as to Plaintiff's Claim for Declaratory Relief and Granting Judgment for Declaratory Relief as to Ownership of the Eastowne Entities. Regarding the ownership of the capital stock and limited partnership interests in dispute, the court concluded as follows:

(a) That the plaintiff Paul T. Coleman owns twenty-five percent (25%) of the shares of Eastowne Village, Inc.
(b) That the defendant Jennifer J. Fowler, as personal representative of the estate of John B. Fowler, owns twenty-five percent (25%) of the shares of Eastowne Village, Inc.
(c) That the defendants Billie A. Brown and David G. Brown, Jr., as co-personal representatives of the estate of David G. Brown, Sr., own fifty percent (50%) of the shares of Eastowne Village, Inc.
(d) That the plaintiff Paul T. Coleman owns 24.75% of Eastowne Partners I, Ltd., and Eastowne Partners II, Ltd., ...

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