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In re Estate of Cleveland

Court of Appeals of Tennessee, Knoxville

March 7, 2017


          Session January 26, 2017

         Appeal from the Probate Court for Unicoi County No. PR766 David R. Shults, Judge

         In this probate matter, the decedent was a party to divorce proceedings in Georgia with her estranged husband at the time of her death. The decedent and her husband had executed a separation agreement as part of those proceedings, wherein they agreed that each party would individually maintain ownership of specified marital assets and execute any documents necessary to effectuate the agreement as to each asset. The decedent passed away before the respective transfers of property were made, and her personal representative filed an action seeking to enforce the terms of the settlement agreement. The trial court conducted a hearing in this matter and determined that the agreement had been rescinded by the husband, such that all jointly owned marital assets passed to him at the decedent's death. The personal representative has appealed. We determine that the husband did not have a proper basis for rescission of the settlement agreement and that any purported rescission was ineffective. We therefore reverse the trial court's order dismissing the petition filed by the personal representative and awarding ownership of all marital assets to the husband. We remand this matter to the trial court for further proceedings regarding enforcement of the agreement.

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

         Reversed; Case Remanded

          Elijah T. Settlemyre and Ronald W. Woods, Greeneville, Tennessee, for the appellant, Mary Lee Fennessy, as personal representative of the Estate of Madelyn Cleveland.

          Russell W. Adkins and William S. Lewis, Kingsport, Tennessee, for the appellee, Donald Cleveland.

          Thomas R. Frierson, II, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and John W. McClarty, J., joined.



         I. Factual and Procedural Background

         Madelyn Cleveland ("Decedent") passed away on September 22, 2014, following a battle with cancer. At the time of her death, Decedent was involved in divorce proceedings in Georgia with her estranged spouse, Donald Cleveland. Decedent and Mr. Cleveland had been separated since July 2012 and had executed a separation agreement ("Agreement") dividing their marital assets on July 13, 2014. This Agreement provided, inter alia, that Decedent was to retain as her property the parties' jointly owned residence in Erwin, Tennessee ("Tennessee Residence"), as well as a Fidelity Individual Retirement Account ("Fidelity IRA") that was opened during the marriage in Decedent's name. Mr. Cleveland was to retain as his property the parties' jointly owned residence in Georgia ("Georgia Residence") and a separate financial account. Both parties were to execute quitclaim deeds to effectuate the respective transfers of real property. Mr. Cleveland was also to receive certain items of personalty that were housed in the Tennessee Residence and was to maintain ownership of his vehicle, which was titled jointly. The Agreement further provided that each party would execute "any documents required to effect the terms of this Agreement and to perform any other legal act required to implement or effect the terms and intent of this Agreement, " and that the Agreement would be governed by Georgia law.

         Prior to her death, Decedent had executed a last will and testament wherein she devised her real property to her daughter, Mary Lee Fennessy, and named Ms. Fennessy as her personal representative. Decedent bequeathed her Fidelity IRA and other personal property to her sister, Brenda Tinker. Following Decedent's death, Ms. Fennessy probated Decedent's will in the Unicoi County Probate Court ("the trial court"). Ms. Fennessy, on behalf of Decedent's estate ("the Estate"), requested that the trial court enter a temporary restraining order prohibiting Mr. Cleveland from entering the Tennessee Residence and removing Decedent's personalty or conveying the residence to a third party. The trial court granted the temporary restraining order.

         Ms. Fennessy also filed a petition seeking a declaratory judgment on behalf of the Estate to determine the ownership of the Tennessee Residence and the Fidelity IRA. Mr. Cleveland filed an answer, stating that the Agreement was "never executed due to delays and inappropriate demands by Mrs. Cleveland's daughter, Mary Lee Fennessy, who handled Madelyn Cleveland's affairs during her illness." Mr. Cleveland subsequently filed an amended answer, stating that he had rescinded the agreement on September 10, 2014, due to Decedent's or Ms. Fennessy's non-performance.

         Mr. Cleveland thereafter filed a counter-complaint against the Estate and third-party complaint against Ms. Fennessy, in her individual capacity and as personal representative of the Estate.[1] Mr. Cleveland alleged, inter alia, that Ms. Fennessy had knowingly given false information to the funeral home, thereby causing Decedent's certificate of death to incorrectly state that she was divorced. Mr. Cleveland also alleged that Ms. Fennessy had used this "fraudulent" death certificate to improperly withdraw funds from the Fidelity IRA. Mr. Cleveland further alleged that Ms. Fennessy, on behalf of the Estate, had wrongfully obtained a temporary restraining order denying him access to the Tennessee Residence even though legal title to the residence passed to him by operation of law upon Decedent's death. Mr. Cleveland sought a temporary injunction prohibiting distribution of the funds from the Fidelity IRA. Over Ms. Fennessy's objection, the trial court allowed the filing of the counter-complaint and third-party complaint. The court also entered a temporary injunction, ordering $58, 000.00 to be moved from the Estate's account into a separate account. Mr. Cleveland thereafter amended his counter-complaint and third-party complaint pursuant to an agreed order, adding additional allegations against Ms. Fennessy in both her individual and representative capacities.

         The trial court conducted a bench trial on November 9, 2015, regarding the Estate's petition for declaratory judgment and Mr. Cleveland's amended counter-complaint and third-party complaint. The trial court subsequently entered a judgment on March 3, 2016, dismissing the Estate's petition against Mr. Cleveland and also dismissing Mr. Cleveland's third-party complaint against Ms. Fennessy individually. The court awarded a judgment to Mr. Cleveland on his counter-claim against the Estate in the amount of $57, 185.66. The court further determined Mr. Cleveland to be the owner of the Tennessee Residence.

         The trial court made separate findings of fact and conclusions of law, which were incorporated into its judgment. The court found that Decedent and Mr. Cleveland signed the Agreement on July 13, 2014, without undue influence or duress. The court also determined, however, that with regard to the transfers of real property, the Agreement required the execution of quitclaim deeds in order to effectuate such transfers and therefore did not automatically divest title from Mr. Cleveland. The trial court found that the Tennessee Residence was titled to Decedent and Mr. Cleveland as tenants by the entirety, which established that title would immediately pass to the surviving spouse, Mr. Cleveland, upon Decedent's death pursuant to Tennessee law. As the court noted with regard to the transfers of real property, "the agreement wasn't the [] final say . . . ."

         Concerning the Fidelity IRA, the trial court determined that the Agreement did not specifically provide that Mr. Cleveland waived his rights as a beneficiary. The court found that although Decedent had taken steps to remove Mr. Cleveland as named beneficiary, the IRA agreement provided that the IRA would pass to the surviving spouse if no beneficiary was designated.[2] The court noted that although the Agreement provided that Decedent would retain ownership of the account, "who retains the ownership of the account is one issue but [who is] named beneficiary on the account is an entirely separate issue." The court thus determined that the funds withdrawn from the Fidelity IRA should be restored to Mr. Cleveland.

         The trial court initially determined that the Agreement had not been rescinded. When announcing its findings of fact and conclusions of law to the parties, the trial judge stated:

I don't think that the separation agreement was rescinded. The letter, which Mr. Cleveland introduced, authored by his lawyer from Georgia had language to the effect in it. And I can't remember what the Exhibit number is, Gentlemen, but had language to the effect that the separation agreement was rescinded. But in the immediately following paragraph it stated that, language to the effect, hey, let's get together and get this thing worked out. Language which was, which tended to demonstrate that Mr. Cleveland wanted to, not reconcile the marriage but reconcile the settlement process and get the agreement back on track.

         The trial court also determined, however, that "it was the intention of the parties that the separation agreement would be fully implemented upon the divorce and upon the execution of certain other documents . . . ." As a result of these findings, the trial court dismissed the petition of the Estate and awarded ownership of the Tennessee Residence and the funds from the Fidelity IRA to Mr. Cleveland. The court thereafter denied Mr. Cleveland's request for prejudgment interest.

         The Estate subsequently filed a motion to alter or amend, arguing that the trial court should have enforced the Agreement's provision requiring Mr. Cleveland to convey his interest in the Tennessee Residence. Ms. Fennessy, as personal representative, asserted that she possessed the right to enforce the Agreement and seek an order requiring Mr. Cleveland to execute a quitclaim deed as provided in the Agreement. On July 19, 2016, the trial court filed supplemental findings of fact and conclusions of law, which the court stated would supersede its earlier findings and conclusions to the extent any conflict existed. The trial court altered its earlier finding regarding the Agreement, determining that Mr. Cleveland had validly rescinded the contract. The trial court found that Decedent did not "substantially comply with the spirit and letter of the contract or complete her obligations within a reasonable time, " thus affording a basis to allow Mr. Cleveland to rescind pursuant to Georgia law. The court also found that the "Georgia divorce court never approved the Separation Agreement, and neither party performed their obligations under the Separation Agreement." The court determined that the Agreement was rescinded by letter dated September 10, 2014, following a sixty-day period when "Mr. Cleveland . . . made multiple attempts to arrange to pick up Mr. Cleveland's personal belongings." The trial court accordingly denied the motion to alter or amend. The Estate timely appealed.

         II. Issues Presented

         The Estate presents the following issues for our review, which we have restated slightly:

1. Whether the trial court erred by determining that Mr. Cleveland properly rescinded the Agreement and was excused from performance thereunder.
2. Whether the trial court erred by denying the Estate's request that Mr. Cleveland be required to execute and deliver a quitclaim deed to the Tennessee Residence to quiet title in the name of the will beneficiary.
3. Whether the trial court erred by failing to find that Mr. Cleveland, in the Agreement, waived his interest as a beneficiary in the Fidelity IRA.
4. Whether the trial court erred by admitting parol evidence in the form of testimony presented by Mr. Cleveland and his attorney regarding the Agreement and rescission.

         III. Standard of Review

         In this action, the trial court applied Georgia substantive law pursuant to the choice of law provision contained in the Agreement. As this Court has previously explained with regard to the requisite analysis concerning choice of law:

"Tennessee will honor a choice of law clause if the state whose law is chosen bears a reasonable relation to the transaction and absent a violation of the forum state's public policy." Bourland, Heflin, Alvarez, Minor & Matthews, PLC v. Heaton,393 S.W.3d 671, 674 (Tenn. Ct. App. 2012) (citing Wright v. Rains, 106 S.W.3d 678, 681 (Tenn. Ct. App. 2003)). Here, the parties chose the law of Nebraska, where the Theater is headquartered, to ...

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