ALFRED H. KNIGHT, ET AL.
TYREE B. HARRIS, IV
Session October 3, 2017
from the Chancery Court for Davidson County No. 11-1045-III
Ellen H. Lyle, Chancellor
case arises out of the dissolution of a law firm and the
resulting accounting. The trial court held that Appellant,
who withdrew as a member of the Appellee/Firm, converted a
portion of an earned fee by withdrawing the fee directly from
the Firm's trust account. The trial court further held
that the conversion was done through concealment so as to
warrant an award of punitive damages. Appellant appeals the
trial court's finding of conversion, the award of
punitive damages, and its award of various accounts
receivable and payables. We reverse the trial court's
award of punitive damages against Appellant and reduce the
compensatory damages award.
R. App. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed in Part, Affirmed in Part, and Remanded
Katherine Anne Brown, Nashville, Tennessee, for the
appellant, Tyree Bryson Harris, IV.
L. Delaney and James Leroy Weatherly, Jr., Nashville,
Tennessee, for the appellee, Willis & Knight, PLC.
Armstrong, J., delivered the opinion of the court, in which
Andy D. Bennett and W. Neal McBrayer, JJ., joined.
Tyree B. Harris, IV is an attorney licensed in Tennessee. In
1999, Mr. Harris joined Appellee Willis & Knight (the
"Firm") as a partner. At that time, the Firm
operated as a partnership, and there were five partners:
William R. Willis, Jr. (father of Russell Willis), Alfred H.
Knight, Alan Johnson, Reese Willis, Russell Willis (William
R. Willis, Jr.'s son), and Marian Harrison. Russell
Willis was made managing partner of the Firm in 1997. When
Mr. Harris joined the Firm, he did not execute a partnership
agreement, nor was he required to make a capital
contribution. Rather; Mr. Harris met with William Willis, a
senior partner, and based on the business Mr. Harris
anticipated bringing to the Firm, an agreement was reached as
to Mr. Harris' percentage of ownership. The percentage of
ownership of each partner varied from year-to-year; however,
each partner had an equal vote and expenses were shared
equally, without regard to actual overhead per partner or
percentage of ownership. Effective January 1, 2003, the Firm
registered as a PLC with the State of Tennessee. Partners
joined and left the Firm such that, by January 1, 2010, there
were only three partners remaining: Russell Willis, Mary
Arline Evans, and Mr. Harris. As the number of partners
decreased, the Firm's revenue also decreased.
building where the Firm's offices were located was owned
by W&K Properties, which was owned by Alfred H. Knight
and William R. Willis, Jr. In November 1978, the Firm entered
into a triple net lease agreement with W&K Properties. By
2010, the lease was month-to-month with rental amounts
varying monthly; at times, the monthly rent was as high as
$10, 000.00. However, the Firm was no longer occupying all of
its leased space due to the decrease in employees and
partners. Some adjustment to the Firm's overhead was
needed. To that end, in early 2010, Russell Willis, as
managing partner, met with his father, William Willis, to
discuss a reduction in the rent. William Willis allegedly
agreed to defer 25% of the total rent amount, but allegedly
rejected the Firm's demand for a 50% reduction in the
his parents' declining health, Russell Willis could not
continue to serve as managing partner of the Firm. In
approximately June of 2010, Mr. Harris assumed the position
of interim managing partner until Russell Willis resumed his
practice full time in late August of 2010.
issue in this appeal is the distribution of a fee of $336,
857.57, which the Firm received from its client, Restaurant
Supply Solutions, Inc. (the "RSSI Fee"). Restaurant
Supply Solutions, Inc.'s check was dated February 24,
2010; however, there is some dispute as to when the Firm
received the check. Regardless, Mr. Harris was the principal
lawyer on the case and was assisted by associate Katherine A.
Brown. A dispute arose between the Firm and the client as to
a portion of the fees (i.e. approximately $70, 000.00--$80,
000.00 in fees paid for work done by accountants, who were
called as experts in the case). Mr. Harris agreed to place
the entire fee (not just the disputed portion) into the
Firm's trust account pending resolution of the
client's dispute. Angela Haynie Scherzer, the Firm's
bookkeeper, testified that she deposited the check for the
RSSI Fee into the Firm's trust account on or about May
28, 2010. At some point between May 28, 2010 and the end of
the year, Mr. Harris, Russell Willis, and Mary Arline Evans
met to discuss allocation of the RSSI Fee. They allegedly
agreed that the RSSI Fee would be allotted as follows: Mr.
Harris would receive $225, 000.00; Ms. Evans would receive
$70, 000.00, and Russell Willis would receive $41, 857.57.
This agreement was not reduced to writing. At the time the
allocation decision was made, the Firm was allegedly current
on all bills including rent.
Evans left the Firm effective September 14, 2010, which was
before the client's accountant dispute was settled, but
she allegedly expected to receive her portion of the RSSI
Fee. Mr. Harris testified that the partners voted to
distribute the RSSI Fee directly from the Firm's trust
account to ensure that each partner would pay his or her pro
rata share of the Firm's expenses. Ms. Evans testified
that she did not recall whether the vote had included an
agreement that the funds would be distributed from the trust
account. Regardless, Mr. Harris caused three checks to be
issued from the Firm's trust account, in the amounts
outlined above. The checks, which were dated January 31,
2011, were written by Ms. Scherzer, the Firm's
bookkeeper. Mr. Harris then signed his $225, 000.00 check
(number 1466) and Ms. Evans' $70, 000.00 check (number
1472). Mr. Harris delivered Ms. Evans' check to her at
her new office. As to Mr. Willis' $41, 857.57 check, Mr.
Harris testified that he caused the check to be issued but
did not sign the check (because Mr. Willis, as a partner,
could sign the check himself). It is undisputed that Mr.
Willis never cashed his check, and the Firm ultimately
transferred the remaining RSSI Fee (i.e., Mr. Willis'
portion of the fee) into the Firm's operating account to
the period Mr. Willis was not practicing full time, cash flow
began to be a problem for the Firm. Allegedly, Russell Willis
had not billed his clients during the period that he was
helping with his parents, i.e., approximately 3 months. There
is also a dispute, in this case, concerning the carry-over of
approximately $70, 000 in client expenses on William
Willis' capital account. Mr. Harris asserts that these
expenses should have been written off (before he joined the
Firm), but were carried over in an effort to inflate William
Willis' capital account.
the rent to W&K Properties, the Firm's cash flow
during the first half of 2010 was sufficient to continue to
pay the full amount of rent. Allegedly, Russell Willis
represented to the other two partners that he was still
negotiating a reduction of rent with William Willis.
Expecting a reduction in rent, Mr. Harris contends that,
after paying full rent through June 2010, the Firm decided to
forego further payments because it expected that the amount
paid to date for 2010 would cover the entire year if the rent
had been reduced as expected. Ms. Scherzer testified that Mr.
Harris was the person who told her to withhold rent after
June 2010. Mr. Harris was the managing partner of the Firm at
2010, William Willis died, and Russell Willis became a part
owner (19%) of the building where the Firm was located. Mr.
Harris alleges that Russell Willis never demanded rent and
never disclosed that he had an ownership interest in the
building after the death of William Willis. Regardless, in
April 2011, representatives of W&K Properties made demand
on the Firm for the full rent arrearage accruing from July 1,
Harris left the firm effective May 31, 2011. On July 29,
2011, Alfred H. Knight, W&K Properties, and Willis &
Knight filed suit against Mr. Harris for fraud, conversion
and outlandish conduct stemming from Mr. Harris'
withdrawal of the $225, 000.00 RSSI Fee from the Firm's
trust account. The plaintiffs argued that these
misappropriated funds should have been deposited into the
Firm's operating account and used to pay Firm debts
before being distributed to members of the Firm. The Firm
sought $225, 000.00 in compensatory damages, $100, 000.00 in
punitive damages, and an unspecified amount to pay Mr.
Harris' "negative" capital account balance. The
complaint further alleged that Mr. Harris engaged in a
"fraudulent scheme" to hide income from the
juvenile court in order to reduce his child support
obligations. W&K Properties sought lost rent in the
amount of $72, 591.00 and attorney fees.
October 6, 2011, Mr. Harris filed an answer,
counter-complaint and third-party complaint, denying that he
converted any funds from the Firm's trust account. Based
on Russell Willis' alleged renegotiation of the rent
amount, Mr. Harris further denied that W&K Properties was
owed rent. Mr. Harris averred that he had been purposefully
misled concerning the lease agreement between the Firm and
W&K Properties. Mr. Harris further averred that he was
misled concerning Russell Willis' ownership interest in
the building, which interest, Mr. Harris alleged, affected
Russell Willis' ability to be unbiased in the rent
negotiations he made on behalf of the Firm. Mr. Harris also
alleged that William Willis' capital account had been
falsely inflated, and that Russell Willis breached his
fiduciary duty by failing to maintain time records and
failing to bill his clients, causing financial detriment to
the Firm. Mr. Harris counter-complaint further alleged that
Russell Willis appropriated all of Mr. Harris' accounts
receivable after he left the Firm.
Knight died on October 10, 2011, and his estate was
substituted as a party. On Mr. Harris' motion to dismiss
W&K Properties' claims, the trial court entered an
order on June 13, 2012, dismissing all allegations by W&K
Properties as to alleged improprieties of fee allocation,
testimony in juvenile court, and punitive damages. W&K
Properties then withdrew its claim for attorney's fees.
The trial court allowed the claim concerning Mr. Harris'
personal responsibility for unpaid rent to stand.
case was dormant for nearly two years. On September 12, 2014,
Russell Willis filed an answer to the Third Party Complaint
and asserted a counter-claim against Mr. Harris. On September
22, 2014, The Estate of Alfred H. Knight filed an answer to
the Third Party Complaint. On September 26, 2014, Willis
& Knight filed an amended complaint alleging fraud,
intentional misrepresentation, concealment of material
business information, conversion, and breach of fiduciary
duty. Six weeks before trial, Willis & Knight was granted
leave to file a second amended complaint, by which it sought
an award of a $10, 000.00 judgment Mr. Harris received in
circuit court for attorney fees he allegedly earned while
still with the Firm.
case was tried on July 13 through 16, 2015. On Mr.
Harris' motion, the trial court dismissed W&K
Properties' complaint against Mr. Harris. On July 22,
2015, the trial court entered findings of fact and
conclusions of law, finding that Mr. Harris committed
conversion, intentional misrepresentation, misrepresentation
by concealment, fraud, and breach of fiduciary duty. The
trial court dismissed Mr. Harris' counterclaim against
Willis & Knight and awarded it a judgment of $31, 000.00
for Mr. Harris' portion of the Firm's debts including
rent and accounting fees. The trial court awarded the Firm
the $10, 000.00 attorney fee judgment Mr. Harris received in
the circuit court case. The trial court also held that
punitive damages against Mr. Harris were warranted.
24, 2015, the Firm filed a motion to amend the ad damnum for
punitive damages to increase the demand from $100, 000.00 to
$500, 000.00. The trial court set a hearing and allowed time
for discovery. The punitive damages portion of the trial was
held on February 29 through March 1, 2016. On April 1, 2016,
the trial court entered an order, awarding punitive damages
in the amount of $90, 000.00.
April 28, 2016, Mr. Harris filed a notice of appeal and an
appeal bond, which was secured by Mr. Harris'
unencumbered residence. The residence is allegedly valued at
$800, 000.00. On May 20, 2016, the Firm filed a motion to
reject or disapprove Mr. Harris' appeal bond because Mr.
Harris owns the residence in joint tenancy with his wife.
Subsequently, Mr. Harris filed a second bond, which was
signed by his wife.
April 29, 2016, the Firm filed a motion to alter or amend. On
July 6, 2016, the trial court filed an amended order,
increasing the compensatory award to $41, 000.00 based on the
trial court's "miscalculation" of the amount of
rent owed. The trial court increased Mr. Harris' portion
of the rent to $30, 609.00, awarded accountants' fees of
$7, 262.00, and added an additional $17, 101.50 to the
judgment against Mr. Harris for monies owed by the Firm to
the William Willis estate for the balance remaining in
William Willis' capital account. In sum, the Firm was
awarded $54, 973.00 in compensatory damages. Initially,
punitive damages were awarded in the amount of $90, 000.00;
however, in its order on Appellee's motion to alter or
amend (see infra), the trial court imposed a
"three times multiplier of compensatory damages" in
setting the total amount of punitive damages at $164, 919.00.
In addition to the $10, 000.00 previously awarded, the total
judgment award was increased to $229, 892.00. Then, after a
hearing on August 12, 2016, the trial court awarded the Firm
discretionary costs of $6, 714.13. In view of the increased
judgment, on July 13, 2016, the trial court entered an order
granting the Firm's motion to reject Mr. Harris'
appeal bond and requiring Mr. Harris to post a $225, 000.00
cash bond. Mr. Harris appeals.
Harris raises the following issues as stated in his brief:
1. The trial court erred in finding the Appellant guilty of
conversion, intentional misrepresentation and
misrepresentation by concealment, fraud and breach of
fiduciary duty, and awarding damages in the amount of $54,
973 and the "Carter Fee"
a. The distribution of the RSSI fee to the members of the
firm was made in good faith and in accordance with the
express agreement of the members.
b. The trial court erred in awarding $30, 609.00 in unpaid
rent as compensatory damages.
c. The trial court erred in awarding $7, 262.00 in accounting
fees as compensatory damages.
d. The trial court improperly awarded 50% of the positive
capital account of Mr. William R. Willis as an element of
e. The trial court erred in allowing Appellee to amend its
complaint after the running of the statute of limitation and
in awarding Appellee the Carter Fee as additional damages.
2. The trial court erred in failing to grant the
Appellant's motion in limine re: spoliation requesting a
negative inference against Appellee for destroying business
records of Willis & Knight, PLC.
3. The trial court erred in finding that the Appellant's
conduct rose to the level of misconduct which would justify