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B&L Management Group, LLC v. Adair

United States District Court, W.D. Tennessee, Western Division

July 31, 2019

B&L MANAGEMENT GROUP, LLC, Plaintiff,
v.
WILLIAM C. ADAIR, and JACQUELINE ADAIR, Defendants.

          MEMORANDUM OPINION FINDINGS OF FACT AND CONCLUSIONS OF LAW

          SAMUEL H. MAYS, JR., UNITED STATES DISTRICT JUDGE

         Defendant William C. Adair (“William”)[1] told the members of B&L Management Group, LLC (“B&L”) that he owned a large tract of land in western Tennessee and northern Mississippi. After a rail-yard was built nearby, William said he was going to develop some of the tract into an industrial, commercial, and logistics park. In return for B&L's consulting services on the development project, William promised to pay B&L fifteen percent of each sale of land in the park. When B&L eventually demanded payment, William refused to pay. B&L then learned that William had never owned the land at issue and had no authority to sell it. On that basis, B&L brings a claim for intentional misrepresentation against William.

         B&L also brings a civil conspiracy claim against William and Defendant Jacqueline Adair (“Jacqueline”). B&L asserts that William and Jacqueline conspired to defraud B&L by making hundreds of illegitimate financial transfers among various business entities and individuals. B&L alleges that those transfers were designed to make William appear insolvent and to hinder B&L's ability to collect on a judgment against William.

         B&L filed a Complaint against William on March 20, 2017. (ECF No. 1.) B&L filed its Second Amended Complaint against William and Jacqueline on April 5, 2018. (ECF No. 128.) B&L seeks compensatory and punitive damages. The Court held a four-day bench trial beginning on January 22, 2019, and concluding on January 25, 2019. As required by Rule 52 of the Federal Rules of Civil Procedure, the Court sets forth its findings of fact and conclusions of law based on that trial.

         For the following reasons, B&L's claim against William Adair for intentional misrepresentation is GRANTED. B&L is entitled to $589, 356.90 in damages from Defendant William Adair. B&L's claim against William and Jacqueline Adair for civil conspiracy is DENIED.

         I. Jurisdiction & Choice of Law

         The Court has diversity jurisdiction under 28 U.S.C. § 1332. Federal district courts have original jurisdiction of all civil actions between citizens of different states “where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs.” 28 U.S.C. § 1332(a)(1).

         Plaintiff B&L Management Group, LLC is a Tennessee limited liability company, whose two members reside in Tennessee. (ECF No. 175 at 933.) See V & M Star, LP v. Centimark Corp., 596 F.3d 354, 356 (6th Cir. 2010) (“[L]imited liability companies ‘have the citizenship of each partner or member.'” (quoting Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003, 1005 (6th Cir. 2009))). B&L is a citizen of Tennessee. Defendants William Adair and Jacqueline Adair are residents and citizens of Mississippi. (ECF No. 175 at 933.) The parties are completely diverse.

         B&L alleges that the amount in controversy exceeds $75, 000. (Id.) “[T]he sum claimed by the plaintiff controls if the claim is apparently made in good faith.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938); accord Charvat v. NMP, LLC, 656 F.3d 440, 447 (6th Cir. 2011). The requirements of diversity jurisdiction are satisfied.

         State substantive law applies to state-law claims brought in federal court. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Where, as here, there is no dispute that a certain state's substantive law applies, the Court will not conduct a choice-of-law analysis sua sponte. See GBJ Corp. v. E. Ohio Paving Co., 139 F.3d 1080, 1085 (6th Cir. 1998). The parties assumed at trial and in their respective memoranda that Tennessee substantive law applies to B&L's state-law claims and have made their arguments accordingly. The Court will apply Tennessee substantive law to B&L's state-law claims.

         II. Findings of Fact

         Defendant William Adair is a “well-known regional businessman” who formed Direct Insurance Company in 1991. (ECF No. 175 at 959.) William and Jacqueline married in 1994. (Id.) William represented, and several regional newspapers reported, that he sold Direct Insurance for more than $600 million in 2007. (Tr. Beydler, ECF No. 181 at 1042, 1168; see Tr. Ex. 20.) More than a dozen articles published in various regional newspapers between 2007 and 2017 reported that William was “[o]ne of the Mid-South's wealthiest self-made men” and that he owned vast tracts of land in western Tennessee and northern Mississippi. (Tr. Ex. 20.)

         William settled and funded The William C. Adair, Jr. Trust (the “Trust”) in 1992. (ECF No. 175 at 959.) The beneficiaries of the Trust were William's four children and his grandson. (Tr. Bishop, ECF No. 181 at 1102.) William's daughters, Tammy Adair and Lacey Adair Bishop, were the Trust's co-trustees. (Id. at 1103.) The Trust was dissolved in 2016, and its assets were distributed to five separate trusts. (Id.) William has never had the authority to speak for, to bind, or to negotiate on behalf of the Trust. (Id. at 1083-90; Tr. Exs. 12, 13.) William does not have a close relationship with Tammy and Lacey, and he has not spoken to them for several years. (Tr. Ex. 17 at 18-19.)

         In 2007, Jacqueline and the Trust bought the Twin Hills Ranch, a 3, 100-acre tract of land in Fayette County, Tennessee, and Marshall County, Mississippi. (ECF No. 175 at 959; Tr. Ex. 17 at 28.) The Trust owned an eighty percent undivided interest in the Twin Hills Ranch property, and Jacqueline owned the remaining twenty percent undivided interest. (Id.) The Trust and Jacqueline originally intended to build a residential subdivision on the property. (Tr. Wm. Adair, ECF No. 183 at 1524.)

         Around that time, the Norfolk Southern Railroad Company announced plans to build an intermodal railyard in Fayette County. (See Tr. Beydler, ECF No. 181 at 1019.) Although Fayette County leaders supported the proposal, many residents complained that the planned location would cause excessive construction, traffic, and noise. (See id. at 1020.)

         Dwain Beydler, a member of the Fayette County Regional Planning Commission, learned that the community resistance to the railyard's planned location was putting the Norfolk Southern deal in doubt. (Id. at 1019.) Beydler called Donnie Leggett because “it is well-known that [Leggett] was basically on top of everything that's going on in [Fayette] County.” (Id. at 1021.) At various times, Leggett had served as a County Commissioner in Fayette County, as the President of the Fayette County Chamber of Commerce, and as a member of the Fayette County Industrial Development Board. (Id. at 1451-52.)

         Beydler and Leggett met to determine whether an alternative location for the railyard was possible. (Id. at 1021-22.) They identified a 500-acre tract of land on the Twin Hills Ranch that they believed belonged to William, based on news reports and anecdotal statements. (Id. at 1022-23.) Beydler and Leggett reached out to William and to representatives at Norfolk Southern and told them that they had a possible solution. (Id. at 1024, 1026.)

         On December 17, 2008, Beydler and Leggett met with William and Norfolk Southern representatives and presented their proposal to relocate the railyard to what they believed was William's property. (Id. at 1027.) The proposal was a success. Norfolk Southern bought the 500-acre tract one year later. (See Tr. Ex. 28.) During that time, William told B&L that he owned the Twin Hills Ranch. (Tr. Beydler, ECF No. 181 at 1023, 1073, 1137.) William never told Beydler and Leggett that he had no ownership interest in the land that Norfolk Southern bought. (Tr. Beydler, ECF No. 181 at 1073.) Beydler and Leggett never saw the purchase agreement with Norfolk Southern that identified the Trust and Jacqueline as the land's owners. (See id. at 1124.) Newspapers reported at the time that Norfolk Southern was buying William's land. (Tr. Ex. 20.)

         Because of the success of the Norfolk Southern deal, the focus of development on the remaining portion of the Twin Hills Ranch became building an “industrial, commercial, and logistics park, ” (the “Logistics Park”), rather than a residential subdivision. (Tr. Wm. Adair, ECF No. 183 at 1525.) Beydler and Leggett orally promised William to continue consulting on the project. (Tr. Beydler, ECF No. 181 at 1012.) In return, William orally promised to pay Beydler and Leggett a portion of the land sales that closed on the property. (See id.) Beydler and Leggett established Plaintiff B&L Management Group, LLC on August 19, 2009. (ECF No. 175 at 959.) Beydler and Leggett are B&L's sole members. (Id. at 1007.) William was B&L's only client. (Id. at 1112.)

         On December 31, 2009, shortly after the Norfolk Southern deal closed, the William C. Adair Development Company, LLC wrote B&L a check for $25, 000.00. (Tr. Ex. 9.) Although Beydler and Leggett had not discussed compensation in that amount with William, B&L accepted the check. (Tr. Beydler, ECF No. 181 at 1037.) William told Beydler that the check was “recognition for the work that [Beydler and Leggett had] done with Norfolk Southern.” (Id.) Beydler, Leggett, and William discussed memorializing the terms of their oral agreement, but the parties did not agree on a written contract until 2011. (Id.) William told Beydler and Leggett “many times” that William was “going to make [them] millionaires.” (Id. at 1037-38.)

         Between 2009 and 2011, Beydler and Leggett continued to work for William and encouraged him to memorialize their oral contract in writing. (Tr. Beydler, ECF No. 181 at 1012-13.) On February 15, 2011, an attorney representing William sent William a first draft of the document that would become the written contract memorializing the parties' oral agreement. (Tr. Ex. 24.) This first iteration of the contract between the parties purported to be an agreement among WCA Development Company, Tammy Adair as trustee of the Trust, Jacqueline Adair, and B&L Management Group, LLC. (Tr. Ex. 24.) This first iteration says that the 746 acres comprising the Logistics Park is owned jointly by the Trust and Jacqueline. (Id.)

         William made handwritten notes on this document, directing his attorney to include an additional paragraph, reading: “This contract is solely between WCA Dev. & B&L Mgmt. In the event WCA Dev Co. should lose its marketing agreement with owners, this contract will terminate at that time.” (Tr. Ex. 25.) An undated subsequent iteration of the contract incorporated William's handwritten changes. (See Tr. Ex. 26.) This iteration also removed any reference to the Trust and Jacqueline and did not indicate who owns the Logistics Park. William testified that he removed the names of the true owners from the agreement. (Tr. Wm. Adair, ECF No. 182 at 1269.) The parties are identified as WCA Development Company, LLC and B&L Management Group, LLC. (See Tr. Ex. 26.) This iteration also says that WCA Development Company, LLC has an agreement to market the Logistics Park. (See id. ¶ 1.) At trial, William testified that he never had a marketing agreement for any of the land. (Tr. Wm. Adair, ECF No. 182 at 1265.)

         In May 2011, William presented B&L with the final iteration of the proposed contract. (Tr. Ex. 1.) The document was titled “B&L Management Group, LLC Consulting Fee Agreement with WCA Development Company, LLC.” (Tr. Ex. 1.) This document (the “Contract”) names “William C. Adair, dba, WCA Development Company, LLC” and “B&L Management Group LLC” as the parties to the agreement. (Id.) “WCA Development Company, LLC” has never been a registered limited liability company in Tennessee or Mississippi. (ECF No. 175 at 959.) The third recital says that William desires to continue to use the “economic development and site selection consulting services” of B&L. (Tr. Ex. 1.) The Contract does not refer to a marketing agreement. The Contract says that:

WCA Development Company, LLC agrees to use and B&L Management Group, LLC agrees to provide economic development and site selection referral consulting services to develop and build facilities within the commercial, industrial and logistics development of WCA Development Company, LLC located on approximately 426 acres in the City of Rossville, in the County of Fayette, Tennessee and approximately 320 acres located in Marshall County, Mississippi.

(Id. ¶ 1.).

         The Contract provides that “WCA Development Company, LLC, will compensate B&L Management Group, LLC, for all economic development consulting and site selection referral consulting services rendered before and after the date of this agreement.” (Id. ¶ 2.) It provides that B&L will receive a consulting fee for all services provided to the WCA Development Company, LLC in the amount of fifteen percent of the sales price of any land sold within the acreage described in the Contract. (Id.) The Contract specifically says that:

WCA Development Company, LLC shall add 15% to the Sales Price . . . [and] [t]his 15% shall be paid to B&L Management . . .; B&L Management will pay the following expenses from the proceeds received from WCA Development Company, LLC:
1) Commissions due to Real Estate Agents or Developers as mutually agreed to by WCA and B&L,
2) B&L will be responsible for its own expenses related to marketing and consulting.

(Id. ¶ 2(a)-(b).)

         The parties never “mutually agreed” to pay any commissions to real estate agents or developers. (See Tr. Ex. 23 ¶ 9.) On June 22, 2011, Beydler and Leggett signed the Contract on behalf of B&L. (Tr. Ex. at 5.) William signed the Contract on August 1, 2011, under the heading “The WCA Development Company, LLC, ” and above the title “Owner.” (Id.)

         B&L continued consulting for William until 2016. (See Tr. Beydler, ECF No. 181 at 113.) At trial, B&L produced more than 3, 000 pages of research that it had prepared for William. (Tr. Ex. 10.) Beydler said that this production reflected only a small amount of the research that B&L did for William. (Tr. Beydler, ECF No. 181 at 1045.) B&L provided William with consulting services on matters including the economic needs of Fayette County, the biomass industry, water and wastewater treatment authorities, design guidelines for residential and commercial developments, energy efficiency and environmental issues in logistics parks, foreign trade zone status, public-private partnerships, and large-scale development grants. (Id. at 1044-66.)

         Leggett testified that he met with William weekly to discuss B&L's work on the Logistics Park. (Tr. Leggett, ECF No. 183 at 1457-65.) Sometimes, Beydler came to the meetings. (Id.) In addition to his consulting work, Leggett met with Fayette County government officials on William's behalf. (Id. at 1457-65.) William never told B&L to stop working or that their services were no longer needed. (ECF No. 175 at 960.) Between 2009 and 2016, no land sold in the park and William did not pay B&L for any of its consulting services. (See Tr. Beydler, ECF No. 181 at 1068-69.) When asked why he would continue working for William for so long without being paid, Beydler said that: “From the beginning . . . we knew based on what [William] said that he had to sell the land and that he would be able to pay us when the land was sold. We believed him. We believed him enough, and we believed in Fayette County. . . We knew the land would sell. So, we look[ed] at it in terms of an investment in our future, in our retirement basically.” (Id. at 1069.)

         In 2016, Beydler and Leggett learned that Tire and Battery Company had bought land in the Logistics Park. (Tr. Leggett, ECF No. 183 at 1502.) Beydler and Leggett went to William's office and asked William to pay B&L fifteen percent of the proceeds from that sale in accordance with the Contract. (Tr. Beydler, ECF No. 181 at 1068.) William gave Leggett a $6, 946.00 check payable to B&L. (Id. at 1070; Tr. Ex. 11.) Beydler said that he and Leggett were “stunned” that the amount was so low, but they accepted the check and left William's office. (Tr. Beydler, EF No. 181 at 1071.) William testified that the check was intended as “a token” to compensate Leggett for persuading Fayette County to lower the building permit fees that Tire and Battery Company had to pay. (Tr. Wm. Adair, ECF No. 183 at 1545, 1588; Tr. Ex. 17 at 192.) William could not explain how he calculated the precise amount. (Id. at 1588.) When Leggett later confronted William and asked why William had not paid B&L fifteen percent of the land sale proceeds as the Contract required, William told him: “I cannot honor this contract. Why would I -- why in the hell would I sign something like this?” (Tr. Leggett, ECF No. 183 at 1470.)

         Leggett visited William again to address B&L's compensation from the sale to Tire and Battery Company. (Id.) William told Leggett that “[w]e'll just let a judge decide this, ” and berated Leggett with foul language. (Id. at 1471.) The next day, William called Leggett to apologize for his conduct and invited Leggett to write a memorandum explaining how much money William owed B&L under the Contract. (Id. at 1472.) Leggett did so and delivered the memorandum to Mike Medling (“Medling”), William's office manager. (Id.) William reviewed Leggett's proposal and then called Leggett to give him “a royal cussing.” (Id.) William told Leg-gett: “You know, well, I'll just file bankruptcy. Y'all won't get a GD thing. You know, I'm not paying you SOBs nothing, much less that bogus partner of yours.” (Id. at 1472-73.)

         B&L stopped providing consulting services to William at this time. (See Tr. Beydler, ECF No. 181 at 113.) Beydler and Leggett decided to begin litigation against William and hired an attorney. (Id. at 1072.) Beydler researched the ownership of the 746 acres described in the Contract and learned that William did not own any of the land comprising the Logistics Park. (Id.) Beydler and Leggett discovered that the land belonged to the Trust and Jacqueline. William never owned any land on the Twin Hills Ranch property, including the Logistics Park, and he has not owned any real property “for quite a few years.” (Tr. Wm. Adair, ECF No. 182 at 1242, 1253-54.)

         Although William represented, and newspapers reported, that he was one of the wealthiest men in Tennessee, William adopted his deposition testimony that he lives on the income from his 401k and social security. (Id. at 1276.) William also adopted his testimony that he withdrew money from the William C. Adair Development Company, LLC to cover his living expenses, but that the LLC had held no assets since at least 2017 and that it had since been dissolved. (See id. at 1276-78; Tr. Ex. 18.)

         William has been the sole member of several single-member LLCs. They include the William C. Adair Development Company, LLC, the Piperton Supply Company, LLC, the Piperton Hills Phase 1, LLC, and the Rossville Supply Company, LLC. William also owns Grandview Plantation, a cattle operation, as a sole proprietorship. (Tr. Wm. Adair, ECF No. 183 at 1559.) By 2017, William had sold all of the cattle he had owned. (Tr. Wm. Adair, ECF No. 183 at 1714.) Jacqueline acted as bookkeeper for all of William's entities. (ECF No. 175 at 961; Tr. J. Adair, ECF No. 182 at 1409; Tr. Wm. Adair, ECF No. 183 at 1527.) Her training in accounting consists of “some college classes” and an internship she completed in 1980. (Tr. J. Adair, ECF No. 182 at 1410.) Jacqueline and Medling had the authority to write checks on William's corporate bank accounts for these entities. (ECF No. 175 at 961; Tr. Medling, ECF No. 182 at 1212.)

         Between 2010 and 2017, Jacqueline and Medling wrote hundreds of checks transferring millions of dollars among William's various entities. (ECF No. 175 at 961; see Tr. Ex. 32.) Most of the transactions involved the transfer of funds from one of William's single-member LLCs to another of William's single-member LLCs. (See Tr. Ex. 32.) When she was asked about instances in which she transferred funds among William's entities, Jacqueline said that she would do so whenever one of the entities was under-capitalized and needed to pay bills. (Tr. J. Adair, ECF No. 183-1 at 1762- 63.) Medling gave the same testimony. (Tr. Medling, ECF No. 182 at 1213.) When asked about certain transfers lacking any discernible purpose, Jacqueline said that she could not recall the circumstances of each transfer, but that certain transfers were likely to be accounting mistakes. (Tr. J. Adair, ECF No. 183 at 1413.)

         Jacqueline was specifically asked about the purpose of forty-three checks that she had signed and that B&L's counsel asked its expert witness to review. (Tr. J. Adair, ECF No. 183-1 at 1727- 34.) Jacqueline provided legitimate explanations for each of the transactions or said that she could not remember the purpose of the check. (See id.)

         B&L's accounting expert, Dr. Zabihollah Rezaee, examined the transfers and described them as “red flags” constituting “a pattern of irregularities” that suggested fraud. (Tr. Rezaee, ECF No. 182 at 1336.) Rezaee testified that the transactions among William's entities were so complex and poorly recorded that he could not make sense of them. (Id. at 1344-45.) Rezaee ultimately concluded, however, that he could not “prove with the evidence put in front of [him] that fraud occurred . . . .” (Id. at 1351.)

         B&L filed this suit on March 20, 2017. (Compl., ECF No. 1.) It filed a Second Amended Complaint on April 5, 2018. (ECF No. 128.) B&L brings two claims: (1) an intentional misrepresentation claim against William; and (2) a civil conspiracy claim against William and Jacqueline. B&L pursues both claims under Tennessee common law. It seeks compensatory and punitive damages.

         III. Conclusions of Law

         A. William's Personal Liability

         The parties dispute whether William can be held personally liable. B&L argues that he can, and Defendants contend that only William's LLC can be liable. The dispute arises from inconsistent language in the Contract. It refers to B&L's contractual counterpart in three different ways.

         First, the Contract's title identifies the parties as “B&L Management Group, LLC” and “WCA Development Company, LLC.” (Contract, Tr. Ex. 1.) William has never registered an entity named “WCA Development Company, LLC.” (Tr. Wm. Adair, ECF No. 182 at 1544.) An entity named “William C. Adair Development Company, LLC” was a registered LLC in Tennessee when the Contract was signed. (Tr. Ex. 23 at ¶ 23; Tr. Ex. 18.) Second, the first paragraph of the Contract refers to the first party to the agreement as “William C. Adair, dba, WCA Development Company, LLC.” (Contract, Tr. Ex. 1.) Third, William signed the Contract as “Owner” of “The WCA Development Company, LLC.” (Id.) William dated the document August 1, 2011, and made an illegible handwritten note next to the date. (See id. at 3.) He testified that the note reads “Pres”, an abbreviation for “President.” (Tr. Wm. Adair, ECF No. 182 at 1544.)

         Defendants argue that William signed the Contract on behalf of William C. Adair Development Company, LLC and that he cannot be personally liable for damages under the Contract. B&L responds that William purported to sign on behalf of WCA Development Company, LLC, a nonexistent entity, and therefore William is personally liable. B&L also argues that the abbreviation “dba” in “William C. Adair, dba, WCA Development Company, LLC” shows William's intent to be personally bound under the Contract. Defendants respond that the use of “WCA” as an abbreviation for “William C. Adair” does not mean that William was attempting to contract on behalf of a nonexistent entity.

         The Court need not address the parties' arguments. A member of an LLC “is an agent of the LLC for the purpose of its business, and the act of every member, including the execution in the LLC name of any instrument . . . binds the LLC . . . .” Tenn. Code Ann. § 48-238-103; see also Lascassas Land Co., LLC v. Allen, 2018 WL 1733449, at *6 (Tenn. Ct. App. Apr. 10, 2018). Ordinarily, an agent is not personally liable on a contract he makes in the name of his disclosed principal. ICG Link, Inc., v. Steen, 363 S.W.3d 533, 550 (Tenn. Ct. App. 2011). An agent who signs a contract on behalf of a fictitious or nonexistent principal may be held personally liable for damages under the contract. Co. Stores Dev. Corp. v. Pottery Warehouse, Inc., 733 S.W.2d 886, 888 (Tenn. Ct. App. 1987); Fed. Deposit Ins. Corp. v. Morrison, 816 F.2d 679, n.3 (6th Cir. 1987); see also Restatement (Third) of Agency, § 6.04 (2006).

         Agency status is not a shield against personal liability for the agent's torts, including fraud and misrepresentation. Gross v. McKenna, 2007 WL 3171155, at *4 (Tenn. Ct. App. Oct. 30, 2007); Brungard v. Caprice Records, Inc., 608 S.W.2d 585, 590-91 (Tenn. Ct. App. 1980); see also Tenn. Code Ann. ยง 48-217-101(a)(3). An actor is subject to personal liability for fraud ...


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