Session Date: November 14, 2017
from the Circuit Court for Shelby County No. CT-001803-07
Donna M. Fields, Judge
the fourth appeal in a case primarily concerned with whether
two individual defendants are liable on loan guaranties.
Following the third appeal, we remanded the case to the trial
court to determine: (1) whether one of the defendants is
liable under a Guaranty of Validity of Collateral
("GVC"); (2) whether prejudgment interest should be
awarded to the lender on personal guaranties both defendants
signed; and (3) whether the lender is entitled to recover
additional attorney's fees incurred in enforcing the
guaranties since the previous appeal. On remand following the
third appeal, the trial court found that the defendant was
not liable on the GVC. The trial court also found that the
lender was not entitled to prejudgment interest because the
lender committed fraud, and it declined to award the lender
any additional attorney's fees. Although the defendants
prevailed on all three issues, they appeal, seeking
reconsideration of this court's determination in an
earlier appeal that the defendants failed to prove their
claim of fraud, which would relieve them of any liability.
The lender counters, insisting that this court's previous
decision, wherein we affirmed the trial court's
determination that the defendants failed to prove fraud, is
the law of the case. The lender also raises its own issues
for our consideration, including whether the trial
court's findings of fact and conclusions of law
concerning fraud, as stated in the final order drafted by
counsel for the defendants, reflects the trial court's
independent judgment. A careful review of the trial
court's oral ruling from the bench and the written order,
as well as previous findings of fact made by the trial court,
leads us to conclude that some of the findings of fact stated
in the final order do not reflect the trial court's
independent judgment. Therefore, the presumption under Tenn.
R. App. P. 13(d) that a trial court's specific findings
of fact are supported by the evidence shall be limited to
those findings that appear to reflect the independent
judgment of the trial court. We have also determined that the
law of the case doctrine precludes us from reconsidering the
defendants' claim of fraud. We affirm the trial
court's determination that one of the defendants is not
liable on the GVC, albeit, on different grounds. We reverse
the trial court's decision not to award the lender
prejudgment interest and additional attorney's fees,
finding that the lender has a statutory right to prejudgment
interest and a contractual right to recover reasonable and
necessary attorney's fees that the lender incurred to
enforce the guaranties. Therefore, we remand for further
proceedings consistent with this opinion.
R. App. P. 3 Appeal as of Right; Judgment of the Circuit
Court Affirmed in Part and Reversed in Part; Case Remanded
J. Cocke, Memphis, Tennessee, for the appellants, Terry A.
Lynch and Karl Schledwitz.
William O. Luckett, Jr., Clarksdale, Mississippi, and Lorrie
K. Ridder, Indianapolis, Indiana, for the appellee,
SecurAmerica Business Credit.
G. Clement Jr., P.J., M.S. delivered the opinion of the
Court, in which J. Steven Stafford, P.J., W.S. and Kenny W.
Armstrong, J. joined.
G. CLEMENT JR., P.J., M.S.
Karl Schledwitz and Terry A. Lynch co-owned Southland
Transportation ("Southland"), a trucking company.
In 1999, Southland and SecurAmerica Business Credit
("SecurAmerica") entered into a Secured Revolving
Credit Agreement ("Credit Agreement"), whereby
SecurAmerica provided a revolving line of credit to
Southland, secured primarily by Southland's accounts
receivable. Pursuant to the agreement, SecurAmerica made
regular advances to Southland based on the day-to-day value
of the accounts receivable as evidenced by borrowing base
certificates. Southland then directed its customers to send
payments to a "blocked account, " which would be
wired to SecurAmerica toward satisfaction of the loan.
Schledwitz and Mr. Lynch signed personal guaranties in the
amount of $500, 000 each, and Mr. Schledwitz signed a
Guaranty of Validity of Collateral ("GVC") whereby
Mr. Schledwitz, but not Mr. Lynch, guaranteed that the
accounts receivable were bona fide, existing accounts. Mr.
Schledwitz agreed to pay any damages that proximately
resulted from a breach of the agreement. The GVC stated that
it remained in effect until Southland paid the loan in full.
August 2000, Mr. Schledwitz and Mr. Lynch sold Southland to
two employees, Michael Harrell and Michael Lucchesi. Mr.
Schledwitz and Mr. Lynch remained liable on their guaranties,
and Mr. Schledwitz remained liable on the GVC. Consequently,
both Mr. Schledwitz and Mr. Lynch retained the power to
inspect Southland's financial records. After the sale of
the business, Southland began to suffer financially. To
continue to obtain advances from SecurAmerica, Mr. Harrell
falsified the accounts receivable on the borrowing base
certificates with the knowledge and consent of
SecurAmerica's president, Randall Reagan. Thus,
SecurAmerica advanced money to Southland based on falsified
accounts receivable. In February 2001, Southland ceased doing
business and defaulted on the loan.
March 2001, SecurAmerica filed a complaint in the Shelby
County Chancery Court against Southland, Mr. Schledwitz, Mr.
Lynch, Mr. Lucchesi, and Mr. Harrell seeking (1) judgment
against Southland on the loan, (2) judgment against all of
the defendants for fraud in connection with the falsified
accounts receivable, (3) judgment against Mr. Schledwitz and
Mr. Lynch on their personal guaranties, and (4) judgment
against Mr. Schledwitz on the GVC.
their answer, Mr. Schledwitz and Mr. Lynch asserted the
affirmative defense of fraud by SecurAmerica. They also
alleged that SecurAmerica had (1) breached the implied
covenant of good faith and fair dealing, (2) failed to
preserve the collateral, and (3) significantly increased the
risk of nonpayment by Southland. In addition, they filed a
cross-claim against Southland and against Mr. Reagan in both
his individual and corporate capacities, alleging conspiracy
and fraud. Thereafter, they amended their counterclaim
against SecurAmerica and their cross-claim against Southland
and Mr. Reagan to allege violations of the Tennessee Consumer
Protection Act ("TCPA").
case was tried without a jury on January 7 through January
15, 2008. The trial court entered a judgment, finding that
Mr. Schledwitz and Mr. Lynch were liable on their personal
guaranties; however, SecurAmerica was not entitled to
prejudgment interest because SecurAmerica, through Mr.
Reagan, committed fraud by participating in the fabrication
of Southland's accounts receivable. The trial court
determined that SecurAmerica was entitled to attorney's
fees pursuant to the attorney's fees provision in the
personal guaranties and ordered Mr. Schledwitz and Mr. Lynch
to each pay SecurAmerica $125, 000 in fees. The trial court
dismissed SecurAmerica's claims against Mr. Schledwitz on
the GVC, and also dismissed Mr. Schledwitz and Mr.
Lynch's claims under the TCPA. Mr. Schledwitz and Mr.
first appeal, we ruled that (1) while the trial court found
that SecurAmerica and Southland acted fraudulently, it did
not make the specific and consistent findings of fact
necessary for this court to review the trial court's
decision, and (2) though litigated at trial, the trial court
did not address Mr. Schledwitz and Mr. Lynch's
affirmative defense that SecurAmerica breached its duty of
good faith and fair dealing, which would affect their
liability as guarantors. See SecurAmerica Business Credit
v. Schledwitz, No. W2009-02571-COA-R3-CV, 2011 WL
3808232, at *13 (Tenn. Ct. App. Aug. 26, 2011). Accordingly,
we vacated the trial court's decision and remanded the
case for further proceedings. See Id.
remand in 2012, the trial court found that the wrongful
actions of Mr. Reagan could be imputed to SecurAmerica
because Mr. Reagan acted as an agent of SecurAmerica. The
trial court further ruled that though Mr. Reagan participated
in a scheme with Mr. Harrell to falsify Southland's
accounts receivable, Mr. Schledwitz and Mr. Lynch failed to
prove that they justifiably relied on Mr. Reagan's
misrepresentations, which is an essential element of fraud.
Accordingly, the defendants' claim of fraud against
SecurAmerica failed. The trial court also relieved Mr.
Schledwitz and Mr. Lynch of any liability under their
personal guaranties because SecurAmerica, through the acts of
Mr. Reagan, violated its duty of good faith and fair dealing
by fabricating the accounts. Although the trial court
previously dismissed the TCPA claim, the court readdressed
the issue and ruled that Southland and SecurAmerica entered
into a conspiracy to violate the TCPA. SecurAmerica appealed.
second appeal, we affirmed the trial court's ruling that
the actions of Mr. Reagan were imputed to SecurAmerica, and
that Mr. Schledwitz and Mr. Lynch failed to prove fraud.
See SecurAmerica Business Credit v. Schledwitz, No.
W2012-02605-COA-R3-CV, 2014 WL 1266121, at *1 (Tenn. Ct. App.
Mar. 28, 2014). On all other issues, we determined that the
trial court did not make sufficient findings of fact and
conclusions of law. See id. As a consequence, we
vacated the trial court's ruling that Southland and
SecurAmerica entered into a conspiracy to violate the TCPA
and that SecurAmerica breached its duty of good faith and
fair dealing. See id. We also vacated the trial
court's decision that Mr. Schledwitz and Mr. Lynch were
not liable under the guaranties and remanded the case to the
trial court to make further findings of fact and conclusions
of law on those issues. See id.
remand, the trial court again found that Southland and
SecurAmerica, through the actions of Mr. Reagan, entered into
a conspiracy to violate the TCPA and that SecurAmerica
violated its duty of good faith and fair dealing, thereby
relieving Mr. Schledwitz and Mr. Lynch of their liability
under the guaranties. SecurAmerica appealed.
third appeal, we reversed the trial court's finding that
Southland and SecurAmerica's acts affected trade or
commerce within the meaning of the TCPA. See SecurAmerica
Business Credit v. Southland Transportation, No.
W2015-00391-COA-R3-CV, 2016 WL 1292087, at *1 (Tenn. Ct. App.
Apr. 1, 2016). Accordingly, we reversed the trial court's
determination that Mr. Schledwitz and Mr. Lynch should be
released from their guaranties. See id. We remanded
the case to the trial court to determine the remaining three
issues in the case: (1) whether Mr. Schledwitz was liable
under the GVC; (2) whether prejudgment interest should be
awarded to SecurAmerica; and (3) whether SecurAmerica was
entitled to attorney's fees. See id. at *8.
Following the third remand, the trial court determined that
SecurAmerica "failed to prove that Mr. Schledwitz
breached the GVC's terms, failed to prove that any
purported breach of the GVC proximately caused [SecurAmerica]
to suffer any damages, breached its duty of good faith and
fair dealing, and committed fraud against Mr. Schledwitz as
to the GVC." The trial court also ruled that
SecurAmerica was not entitled to prejudgment interest on the
personal guaranties, nor was it entitled to attorney's
fees. Some of the reasons for these rulings, as they were
explained by the trial court, are stated in more detail
final order, the trial court noted that it disagreed with
SecurAmerica's arguments concerning Mr. Schledwitz's
obligations under the GVC wherein SecurAmerica alleged that
although Mr. Schledwitz warranted that Southland's
accounts receivable were valid and existing, they were not.
Moreover, because the collateral was insufficient to satisfy
the loan, Mr. Schledwitz's breach caused SecurAmerica to
suffer damages. Contrary to these arguments, the trial court
ruled that Mr. Schledwitz was not liable on the GVC because
Mr. Harrell and Mr. Reagan altered the contract by agreeing
to falsify the accounts receivable. The trial court
determined that "[i]t was no longer Mr. Schledwitz's
agreement or the agreement that was represented to him or
required of him by SecurAmerica." Therefore, Mr.
Schledwitz could not be held liable on the GVC. Moreover, the
trial court ruled that the fraudulent acts of Mr. Harrell and
Mr. Reagan "vitiat[ed] the obligations of Mr. Schledwitz
under the GVC."
also argued that because the GVC required Mr. Schledwitz to
act in good faith with respect to the collateral, he breached
the agreement when he transferred and sold equipment used to
collateralize the subject loan. The trial court found that
Mr. Schledwitz did not breach the GVC by transferring the
equipment because "the debt associated with the
equipment was owed to another bank, and as a result of the
transfer of such equipment, Southland's existing
liabilities for ongoing operating expenses decreased."
SecurAmerica argued that the GVC required Mr. Schledwitz to
assist SecurAmerica with collecting the accounts receivable
should Southland default on the loan. When Southland
defaulted, Mr. Schledwitz refused to do so. The court ruled
that Mr. Schledwitz did not breach that provision in the
agreement because SecurAmerica never asked Mr. Schledwitz to
assist with collections.
prejudgment interest on the defendants' personal
guaranties, the trial court ruled that, under equitable
principles, SecurAmerica was not entitled to prejudgment
interest because it committed fraud and violated the Business
and Industrial Development Corporations ("BIDCO")
statute. The trial court reinstated the original 2009 award
of $125, 000 in attorney's fees to SecurAmerica, which it
incurred in enforcing the personal guaranties, but denied any
additional fees. The trial court ruled:
This Court therefore finds, and so orders, that (i) no award
of additional attorneys' fees be granted to
[SecurAmerica] with regard to any of the appeals taken in
this matter, (ii) that [SecurAmerica] be awarded
attorneys' fees in the amount of $125, 000 against each
of the Defendants, Karl Schledwitz and Terry Lynch, and (iii)
that the parties shall be responsible for their own attorneys
[sic] fees, costs and expenses with regard to all appeals
taken in this matter.
parties present fifteen issues for our consideration; however,
we have consolidated them into five:
1. Should this court reconsider our previous ruling in which
we affirmed the trial court's determination that the
defendants failed to prove fraud?
2. Did the trial court's findings of fact and conclusions
of law in its final order reflect its independent judgment?
3. Is Mr. Schledwitz liable to SecurAmerica for breaching the
4. Did the trial court err by failing to award prejudgment
interest to SecurAmerica?
5. Did the trial court err by failing to award attorneys'
fees and expenses to SecurAmerica?
all actions tried upon the facts without a jury, the court
shall find the facts specially and shall state separately its
conclusions of law and direct the entry of the appropriate
judgment." Tenn. R. Civ. P. 52.01. If the trial court
makes the required findings of fact, appellate courts review
the trial court's factual findings de novo upon the
record, accompanied by a presumption of the correctness of
the findings, unless the preponderance of the evidence is
otherwise. Kelly v. Kelly, 445 S.W.3d 685, 692
(Tenn. 2014) (citing Tenn. R. App. P. 13(d)). We review
questions of law de novo with no presumption of correctness
accorded to the trial court. Kelly, 445 S.W.3d at
of the Case -Defendants'Claim of Fraud
defendants contend that the trial court concluded that
SecurAmerica committed fraud as to the GVC; therefore, we
should reconsider our previous ruling in which we affirmed
the trial court's determination that the defendants
failed to prove fraud. SecurAmerica insists our previous
ruling on the defendants' claim of fraud is the law of
the case and the ruling cannot be challenged in this appeal.
law of the case doctrine "prohibits reconsideration of
issues that have already been decided in a prior appeal of
the same case." Memphis Pub. Co. v. Tennessee
Petroleum Underground Storage Tank Bd., 975 S.W.2d 303,
306 (Tenn. 1998). While not mandated by our constitution, the
law of the case doctrine is "a long-standing
discretionary rule of judicial practice, " that
"promotes finality and efficiency of the judicial
process." Id. Our Supreme Court has explained:
[W]hen an initial appeal results in a remand to the trial
court, the decision of the appellate court establishes the
law of the case which generally must be followed upon remand
by the trial court, and by an appellate court if a second
appeal is taken from the judgment of the trial court entered
after remand. There are limited circumstances which may
justify reconsideration of an issue which was…decided
in a prior appeal: (1) the evidence offered at a trial or
hearing after remand was substantially different from the
evidence in the initial proceeding; (2) the prior ruling was
clearly erroneous and would result in a manifest injustice if
allowed to stand; or (3) the prior decision is contrary to a
change in the controlling law which has occurred between the
first and second appeal.
defendants concede that our previous decision is the law of
the case, but they argue that our ruling was erroneous and
merits reconsideration to avoid a manifest injustice. We
prior appeal, the defendants contended that the trial court
erred by finding that they failed to prove fraud. See
SecurAmerica, 2014 WL 1266121, at *21. The issue was
thoroughly analyzed in our opinion in ...