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Ralph v. Scruggs Farm Supply LLC

Court of Appeals of Tennessee, Jackson

December 17, 2014

KEM RALPH, ET AL.
v.
SCRUGGS FARM SUPPLY LLC, ET AL.

Session Date November 14, 2014.

Appeal from the Chancery Court for Tipton County No. 31212 William C. Cole, Chancellor.

Randy C. Camp, Gadsden, Tennessee for appellant, Kem Ralph and Thomas Strawn, Dyersburg, Tennessee, for the appellants, Roger Ralph, Ralph Brothers Farms, and Ralph Investment Services Trust.

Lyle Reid and Amber Shaw, Covington Tennessee, for the appellee Scruggs Farm Supply LLC.

John L. Ryder, Memphis, Tennessee for the appellees, Scruggs Farm Supply, LLC and William P. Moss, III, Substitute Trustee.

Arnold B. Goldin, J., delivered the opinion of the Court, in which Brandon O. Gibson J. and Kenny Armstrong, J. joined.

OPINION

ARNOLD B. GOLDIN, JUDGE.

I. Background and Procedural History

Defendant Scruggs Farm Supply, LLC ("Scruggs"), is a farm implement company in Tupelo, Mississippi, which has conducted business with the Plaintiffs for many years preceding this lawsuit. Historically, Scruggs sold Plaintiffs farm supplies and equipment on credit. In 2002, Plaintiffs Kem Ralph and Roger Ralph executed a promissory note in the amount of $1,000,000.00 in Scruggs' favor, wherein interest was set at the rate of 8% per annum. The note was secured by a deed of trust signed by Kem and Roger Ralph, both in their individual capacities, and in their roles as partners for Ralph Brothers Farms[1]. As set forth in the deed of trust, real estate situated in Tipton County, Haywood County, and Shelby County was to serve as security for the Ralphs' obligations.

In 2006, Kem Ralph filed for bankruptcy under Chapter 11 in the United States Bankruptcy Court, Western District of Tennessee. Ralph Brothers Farms soon followed by filing its own Chapter 11 bankruptcy in 2007, and in 2009, Roger Ralph also filed for Chapter 11 bankruptcy protection. During the bankruptcy proceedings, the promissory note signed by the Ralphs became an issue, and inquiry was made into its priority relative to the claims of creditors other than Scruggs.

In August 2009, consent orders were entered in both Kem Ralph and Roger Ralph's bankruptcy cases. The orders, which had been preceded by the filing of Plaintiffs' Emergency Motions to Compromise and Settle Claims, set out the terms of a settlement between the parties. The orders acknowledged that the Ralphs desired to clarify Scruggs' claims, and in reciting that the proposed settlements were fair and equitable, the consent orders provided that Scruggs be allowed a secured claim in the amount of $1,000,000.00. Interest on Scruggs' claim prior to and through July 31, 2009, was waived, and interest accruing after July 31, 2009, was set at the rate of prime plus 2%. The consent orders also reflected other waivers of rights by Scruggs in connection with the settlement, including its release of liens on certain farms owned by Plaintiffs and other non-debtors. Although Plaintiff Ralph Investment Services Trust was not a party to the bankruptcy proceedings, both consent orders stated that the trust consented to the issuance of the consent orders.

Several years passed, and in 2012, Kem and Roger Ralph filed motions to partially set aside the consent orders previously entered by the bankruptcy court. The impetus for the Ralphs' requests for relief was their completion of an extensive audit in which they determined that the basis on which they had agreed to fix Scruggs' claim was erroneous. Specifically, as argued by Plaintiffs in their briefs on appeal, a collateral finding of the audit showed that Scruggs' claim of $1,000,000.00 had been satisfied prior to the filing of the bankruptcies.

By order dated November 26, 2012, the bankruptcy court denied the Ralphs' motion to set aside the consent orders and noted that the equities of the case did not warrant a reconsideration of Scruggs' claim. The court observed that the consent orders did not simply allow Scruggs' claim, "but dealt with numerous other issues necessary to the global settlement of contested issues envisioned by the Emergency Motions." Although the Ralph brothers later filed another motion seeking to alter or amend the judgment order in bankruptcy court, this motion was denied on January 7, 2013. On August 27, 2013, the Bankruptcy Appellate Panel of the Sixth Circuit affirmed the action of the bankruptcy court. Subsequent to the Bankruptcy Appellate Panel's affirmance of the bankruptcy court's decision, the Ralph brothers dismissed their Chapter 11 bankruptcy cases, and soon thereafter, Scruggs initiated foreclosure proceedings on secured parcels in Tipton and Haywood County in order to collect on the debt owed pursuant to the promissory note.

In February 2014, Plaintiffs filed verified complaints in Chancery Court in both Tipton and Haywood County seeking to enjoin the scheduled foreclosures and to obtain an accounting of the financial transactions between them and Defendants. Shortly after the complaints were filed, the parties entered into consent orders granting the Plaintiffs' applications for temporary restraining orders, but Defendants subsequently mounted a defense to Plaintiffs' claims generally, moving to dismiss them on grounds that they were barred by the doctrine of res judicata. From the Defendants' perspective, the litigation in bankruptcy court barred maintenance of the present lawsuits. After conducting hearings on Plaintiffs' requests for temporary injunctions, both trial judges made findings that the claims asserted by Plaintiffs were, in fact, barred by res judicata. Plaintiffs now appeal. ...


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