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Mulloy v. Mulloy

Court of Appeals of Tennessee, Nashville

October 10, 2019


          Session July 11, 2018

          Appeal from the Chancery Court for Davidson County No. 15-992-IV Russell T. Perkins, Chancellor

         Two brothers formed a limited liability company to own and lease a commercial property. When the tenant sought to expand, both brothers sought to find a suitable space for the tenant to lease. The younger of the two brothers found a property that would ideally suit the tenant's needs, a fact that was communicated to his brother. The older brother purchased the property through a newly created limited liability company without his younger sibling's involvement. The older brother's new limited liability company then leased the new property to the tenant. The younger brother brought a derivative suit against his brother and the newly formed limited liability company, claiming usurpation of a corporate opportunity belonging to the limited liability company that the brothers had formed together and tortious interference with business relationships. The younger brother also claimed unjust enrichment. Following a trial, the chancery court found in favor of the older brother and his newly formed limited liability company and dismissed the complaint. After our review of the record, we affirm.

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

          Samuel P. Funk and D. Gil Schuette, Nashville, Tennessee, for the appellants, James Mulloy and Chemical Properties, LLC.

          Garry K. Grooms, Nashville, Tennessee, for the appellees, Eugene Mulloy, Jr., and Cockrill Bend Properties, LLC.

          W. Neal McBrayer, J., delivered the opinion of the court, in which D. Michael Swiney, C.J., and Richard H. Dinkins, J., joined.


          W. NEAL McBRAYER, JUDGE.


         A. The Brothers

         In 1996, brothers Eugene "Gene" Mulloy, Jr. and James Mulloy acquired their parents' shares in the family business, Nashville Chemical & Equipment Company, Inc. ("NCE"), becoming 50/50 owners. As part of that transaction, the brothers formed Chemical Properties, LLC to purchase the property where NCE did business, 7001 Westbelt Drive in Nashville (the "Westbelt Property"). Chemical Properties then leased the Westbelt Property back to NCE under a triple net lease.[1] The Westbelt Property and the lease with NCE were Chemical Properties' only assets.

         Like NCE, the brothers owned Chemical Properties equally. But Gene, [2] the older of the two brothers, served as chief manager, while James served as secretary. The brothers split the profits from Chemical Properties equally. James described it as "a great investment" because "essentially you have somebody else pay for your asset and you receive distributions and they pay for, you know, all the expenses of taxes, and maintenance and, you know, anything that occurs."

         In 2011, the brothers sold most of their shares in NCE to Triwater Holdings LLC. Triwater Holdings brought in its own chief executive officer, Mike Reardon, to serve as the chief executive officer of NCE. But both brothers retained management positions in NCE, reporting to Mr. Reardon. The brothers also retained minority stock interests in NCE. NCE continued to operate on the Westbelt Property under its lease with Chemical Properties, which the brothers still co-owned.

         After the sale, NCE's business grew, driving the company to look for additional space to lease. Gene, who was now president of NCE, led the effort with the assistance of Anthony "Tony" Allison, the company's vice-president of operations. The search went on for months, and even with the assistance of local and national commercial real estate firms, a suitable property could not be found until sometime in 2014. During that period, Gene and Mr. Allison came across manufacturing space in Ashland City that was soon to be vacant. After touring the property, Gene approached the owner about leasing the space to NCE. Instead, the owner wanted to sell the property.

         Gene reported the news to Mr. Reardon. The private equity investors in NCE were not interested in owning real estate, so Mr. Reardon suggested a third party might buy the Ashland City property and lease it to NCE. Gene proposed that he fill the role of buyer. So he signed an option to purchase the Ashland City property while he carried out further due diligence.

         James learned of Gene's plans to purchase the Ashland City property around Christmas of 2014. By then, James had been away from the day-to-day operations of NCE for nearly a year. He had joined Triwater Holdings, assisting with the identification of potential acquisition targets. James thought that the Ashland City facility was "terrible" and "felt strongly that the owners [of NCE] would look at that building and not feel like it would be worthwhile." For those reasons, he did not initially communicate with Gene about the property.

         B. The Cockrill Bend Warehouse

         On January 7, 2015, during a meeting in Chicago, Mr. Reardon asked James to assist NCE in finding some space in Nashville. James understood from that request that he should "go home and put [his] Chemical Properties hat on because that's the entity that leases property for [NCE] and supplies that need." But James acknowledged that neither he nor Mr. Reardon mentioned Chemical Properties at the meeting.

         Back in Nashville the following day, James called a friend in the commercial real estate business, Mike Gorney, about NCE's space needs. Mr. Gorney responded with a list of buildings in close proximity to the Westbelt Property. But he highlighted one prospect in particular, office/warehouse space at 7344 Cockrill Bend Boulevard (the "Cockrill Bend Warehouse"). Mr. Gorney emailed that he "would not be surprised if your brother [wa]s looking at this [property]." The leasing agent for the Cockrill Bend Warehouse advised Mr. Gorney that the owner of the property was interested in selling as well as leasing. So Mr. Gorney told the leasing agent "to put me in the mix to purchase."

         In reply to Mr. Gorney, James emailed that the Cockrill Bend Warehouse "looks like a perfect opportunity." He inquired about a potential purchase price and, alternatively, about lease rates. James also emailed Tony Allison at NCE, asking if he had looked at the Cockrill Bend Warehouse.

         By this point, however, the opportunity to purchase appeared to be over. The same day as the email exchanges between James and Mr. Gorney and James and Mr. Allison, the owner of the Cockrill Bend Warehouse, JCH Development Company, Inc., signed a contract to sell the property to a California buyer for $1.8 million.

         Unaware of the purchase contract, on January 9, Mr. Gorney emailed the leasing agent to express his interest "in signing a contract immediately to acquire the [Cockrill Bend Warehouse] . . . for a total purchase of $2, 356, 100." Mr. Gorney made the offer on behalf of his company, Gorney Realty Partners, LLC. James did not authorize the offer, but Mr. Gorney later explained that, had the offer been accepted, he and James would have "work[ed] out some kind of agreement to get everyone treated fairly."

         Meanwhile, having received the information from James on the Cockrill Bend Warehouse, Mr. Allison made his own call to the leasing agent. The leasing agent told him that the property was already under contract. This prompted Mr. Allison to call James. Mr. Allison recalled that he was told by James that "Mike Gorney knows who has the option on that property and [Mr. Gorney] believes that he has an opportunity to get it." James recalled only suggesting that Mr. Gorney may have had some sort of "in" based on Mr. Gorney's email reporting that he asked to be put "in the mix to purchase."

         Whatever was said, it was enough for Gene and Mr. Allison to give the Cockrill Bend Warehouse a look or, rather, another look. Given its close proximity to the Westbelt Property, both Gene and Mr. Allison were familiar with the Cockrill Bend Warehouse and that space was advertised for lease there. But both men had ruled the property out because it was already partially leased. The nature of NCE's business made it important to them to lease the entire building.

         Mr. Gorney scheduled a site visit for the following Monday, January 12. That afternoon, Gene, Mr. Allison, and another NCE employee met Mr. Gorney and the leasing agent at the Cockrill Bend Warehouse. James could not attend. Gene and Mr. Allison thought the property would suit NCE's needs, and Gene remembered discussing NCE possibly leasing the property from either "Mike Gorney or some entity that he created." Then the group met John Coleman Hayes, the president of the owner of the Cockrill Bend Warehouse, JCH Development.

         Mr. Gorney recalled Mr. Hayes remarking that he wished that they had shown up earlier because the warehouse was already tied up with another purchaser. Mr. Gorney believed that this interaction with Mr. Hayes may have been when he first learned that the property was under contract.

         Gene and Mr. Hayes knew of each other from their county club but had not met. Gene thought Mr. Hayes seemed surprised by the site visit and acted as if the visit was an interruption. Gene recounted Mr. Hayes saying something to the effect of "I don't know why you all are here" and "[y]ou all are wasting your time." It would later be revealed that Mr. Hayes may not have seen the emails from the leasing agent forwarding Mr. Gorney's purchase offer and advising of the building tour.

         The site visit ended shortly after the group's encounter with Mr. Hayes. Afterward, Gene wanted to know what was going on, so he and the other NCE representatives met with Mr. Gorney back at NCE. Mr. Gorney remembered explaining that he was "in a backup position to purchase the property." Both Gene and Mr. Allison had a different recollection. They recalled Mr. Gorney representing that he had an option to purchase the property. They also recalled Mr. Gorney stating that his ...

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