Session November 12, 2014
Direct Appeal from the Chancery Court for Henry County No. 22364 Donald E. Parish, Judge
Todd D. Siroky, Jackson, Tennessee, for the appellants, David Lingo and Denise Lingo.
Steve Greer, Paris, Tennessee, for the appellee, George Ernest Diggs.
George Robert Whitfield, III, Paris, Tennessee, for the appellee, Barbara Roberts.
Robert E. Cooper, Jr., Attorney General and Reporter, Joseph F. Whalen, Solicitor General and Ryan A. Lee, Assistant Attorney General, for the appellee, Tennessee Attorney General.
Brandon O. Gibson, J., delivered the opinion of the Court, in which J. Steven Stafford, P.J., W.S., and Arnold B. Goldin, J., joined.
Brandon O. Gibson, Judge
I. Background and Procedural History
On December 5, 1996, Leon Henderson executed and funded the Leon Henderson Revocable Living Trust Agreement (referred to hereinafter as the "Trust" or "Trust Agreement"). Mr. Henderson amended the Trust Agreement eight times prior to his death. The Trust Agreement provided that its assets be distributed to three individual beneficiaries–Ernest Diggs, David Lingo, and Barbara Roberts–and four charitable beneficiaries at Mr. Henderson's death. In addition to being a named beneficiary, the Trust Agreement designated Mr. Lingo to act as the Trust's sole trustee following Mr. Henderson's death. Mr. Henderson died on December 10, 2011.
On May 1, 2013, Mr. Diggs filed a complaint in Henry County Chancery Court against Mr. Lingo, individually and as trustee of the Trust, and his wife, Denise Lingo. The complaint alleged that Mr. Lingo breached his fiduciary duty to the Trust by engaging in trustee self-dealing. Specifically, the complaint challenged the sale of certain real estate consisting of a residence and several tracts of farm land from the Trust to Mr. and Mrs. Lingo as tenants by the entirety. Mr. Diggs acknowledged that the Trust Agreement gave Mr. Lingo the option to purchase a certain portion of the real estate for "appraised value." He alleged, however, that Mr. Lingo, in his capacity as trustee, sold all of the real estate from the Trust to himself and his wife for $1, 743, 850, a price well below its recent appraisal value of $2, 240, 600. Mr. Diggs also alleged that Mr. and Mrs. Lingo financed the entire amount with money borrowed from the Trust payable over a twenty year term with no down payment. Mr. Diggs asked that the court require Mr. Lingo to reimburse the Trust for any bargain received on the purchase of the portion of real estate he had an option to purchase and that the sale of the remainder of the real estate to Mr. and Mrs. Lingo be set aside. In addition to the breach of fiduciary duty claim, Mr. Diggs alleged that Mr. Lingo, as trustee, breached a farm lease agreement Mr. Diggs entered with Mr. Henderson prior to his death and requested that Mr. Lingo be ordered to provide an accounting of the Trust's assets.
On May 30, 2013, Ms. Roberts filed a cross-complaint against Mr. and Mrs. Lingo that alleged trustee self-dealing by Mr. Lingo arising from the sale. Ms. Roberts alleged that Mr. and Mrs. Lingo had been unjustly enriched by Mr. Lingo's wrongful conduct and requested that they be ordered to return the proceeds of such unjust enrichment to the Trust. Additionally, Ms. Roberts asked the court to order a public auction of all of the real estate purchased by the Mr. and Mrs. Lingo, with the proceeds distributed to the beneficiaries in accordance with the Trust Agreement. She also requested a judgment for compensatory and punitive damages be entered against Mr. Lingo.
On July 17, 2013, Mr. Lingo, individually and in his capacity as trustee, and Ms. Lingo answered the complaints. On the same day, Mr. Lingo also filed a motion to compel arbitration pursuant to Section 7.01 of the Trust Agreement. Section 7.01 of the Trust Agreement, titled "Resolution of Conflict, " provides as follows:
Any controversy between the Trustee or Trustees and any other Trustee or Trustees, or between any other parties to this Trust, including Beneficiaries, involving the construction or application of any of the terms, provisions, or conditions of this Trust shall, on the written request of either or any disagreeing party served on the other or others, be submitted to arbitration. The parties to such arbitration shall each appoint one person to hear and determine the dispute and, if they are unable to agree, then the two persons so chosen shall select a third impartial arbitrator whose decision shall be final and conclusive upon both parties. The cost of arbitration shall be borne by the losing party or in such proportion as the ...