Dwight Jenkins v. Michael Schmank ( 2018 )

07/12/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 17, 2017 Session
DWIGHT JENKINS V. MICHAEL SCHMANK, ET AL.
Appeal from the Chancery Court for Bradley County
No. CV-08-228 Jerri S. Bryant, Chancellor
No. E2017-00371-COA-R3-CV
This appeal involves the plaintiff’s filing of a complaint for unjust enrichment and
conversion against his business partner’s spouse after the plaintiff discovered that his
partner converted partnership funds for personal use. The trial court dismissed the
complaint following a bench trial. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
JOHN W. MCCLARTY, J., delivered the opinion of the Court, in which D. MICHAEL
SWINEY, C.J. and THOMAS R. FRIERSON, II, J., joined.
Joshua H. Jenne, Cleveland, Tennessee, for the appellant, Dwight Jenkins.
Harry W. Miller, III and Alexander T. Burd, Chattanooga, Tennessee, for the appellees,
Michael Schmank and Lori Schmank.
OPINION
I. BACKGROUND
In April 2008, Dwight Jenkins (“Plaintiff”) and Michael Schmank (“Schmank”)
entered into a general partnership agreement as J & S General Contractors (“J & S”) for
the purpose of completing a residential construction project with James Duff d/b/a Duff
Development, LLC. Plaintiff contributed capital and his services as a licensed general
contractor, while Schmank agreed to serve as the project manager. The partnership
eventually deteriorated when it was discovered that Schmank converted funds paid to the
partnership for his personal use.
Plaintiff filed a complaint against Schmank on August 8, 2008, and an amended
complaint on March 26, 2009, in which he added Schmank’s wife, Lori Schmank
(“Wife”), as a party. As pertinent to this appeal, Plaintiff alleged that Schmank converted
$11,500 in cash belonging to the partnership and an additional $13,500 in cash that
Schmank requested as a pay advance for living expenses. Thereafter, Schmank filed a
petition for bankruptcy on May 3, 2009. Plaintiff then filed an action in bankruptcy
court, objecting to the discharge of the debt owed to him for the pay advance, for the
conversion of the partnership funds, and for lost profits as a result of Schmank’s
mismanagement of the project.
The Chancery Court proceedings were stayed pending adjudication of the
bankruptcy proceedings. On July 28, 2015, the bankruptcy court awarded Plaintiff a non-
dischargeable judgment for the second claim in the amount of $11,500, in addition to
attorney fees and expenses in the amount of $18,025.56, for a total judgment of
$29,525.56. The bankruptcy court did not award a judgment for the $13,500 pay advance
or the claim for lost profits based upon its finding that Plaintiff failed to establish any
material misrepresentations with respect to Schmank’s request for a pay advance or the
claim for lost profits.
Thereafter, Plaintiff proceeded with the case against Wife on the theory of unjust
enrichment and conversion before the Chancery Court. The parties appear to have agreed
that funds were fraudulently converted by Schmank and placed by him into a joint
checking account he shared with Wife. Plaintiff presented Schmank and Wife’s bank
statements, reflecting deposits of converted funds and Wife’s use of said funds for
general household expenditures.
Wife admitted that she knew of her husband’s partnership with Plaintiff and that
the funds at issue were obtained from the partnership and placed into a joint checking
account she shared with her husband. However, she denied any knowledge of Schmank’s
fraud or conversion of the funds. She asserted that Schmank controlled the account, paid
all bills, and made all financial decisions. She did not open the mail or question Schmank
about his business ventures. Instead, he provided her with cash or checks for specific
purchases. She claimed that they never discussed their finances, despite the fact that she
was a signatory on the joint checking account at issue, that she filed a lawsuit relating to
their purchase of a vehicle,1 and that she accepted service of process for another lawsuit
that had been filed against her husband relating to a different failed business venture. She
explained that she was preoccupied with family matters at that time and stated,
1
At first, she denied knowledge of ever having been involved in litigation outside of custody matters.
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I had three children, young. I did everything with them, sports. I had a
little one still at home. I had sick grandparents which live next door to me
that I helped care for and still help care for my grandfather. I had – my
oldest son was critically ill in 2008.
She identified several expenditures on the bank statements and confirmed that she used
the money to pay for general expenses, namely bills, dining at restaurants, and groceries.
Following the presentation of the above evidence, the court dismissed the case,
finding as follows:
[T]here’s no proof that [Wife] reasonably understood . . . that [Schmank]
committed any acts of fraud against [Plaintiff]. It’s her testimony in this
case that her husband handled all of the family finances. That if she needed
money she had to ask him for it. That she was - - she did not carry checks
or a debit card on a regular basis. She got these from him.
She was impeached, however, about her knowledge of a prior lawsuit
where she was sued in the past. And whether or not she had signed any
bank documents. She [testified] that during the period of time in question
they had three young children and she was also taking [care of] the
grandparents who were critically ill. So the court is to decide whether . . .
the circumstances demonstrate that it would be unjust for her to retain the
goods or services without repaying the money that was placed into her joint
bank account with her husband.
And the court finds that particularly under [Doe v. HCA Health Services, 46
S.W.3d 191 (Tenn. 2001)] and also mindful of [Bank of America v.
Gibbons, 173 Md. App. 261 (Md. Ct. App. 2007)], which is a Maryland
case that was [cited for] the fact that [her status as] an innocent transferee
does not prohibit [Plaintiff] from requesting those funds back. However,
it’s [Plaintiff’s] burden to prove that it would be unjust. The only monies
that she used or knew of in that account were she thought payment made
lawfully to her husband for work that he was doing for [Plaintiff] and the
court doesn’t find the circumstances of this case rise to the level of where it
would be unjust for her to keep those funds[.]
The court also found no proof of conversion. This timely appeal followed the denial of
post-trial motions.
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II. ISSUE
The sole issue on appeal is whether the court erred in dismissing the claims against
Wife for unjust enrichment and conversion.
III. STANDARD OF REVIEW
After a bench trial, we review a trial court’s findings of fact de novo with a
presumption of correctness unless the preponderance of the evidence is otherwise. Tenn.
R. App. P. 13(d). “Because trial courts are able to observe the witnesses, assess their
demeanor, and evaluate other indicators of credibility, an assessment of credibility will
not be overturned on appeal absent clear and convincing evidence to the contrary.”
Hughes v. Metro. Gov’t of Nashville & Davidson Cty., 340 S.W.3d 352, 360 (Tenn. 2011)
(citation omitted). We review questions of law de novo with no presumption of
correctness. Blackburn v. Blackburn, 270 S.W.3d 42, 47 (Tenn. 2008); Union Carbide
Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993).
IV. DISCUSSION
Plaintiff argues that the court erred in dismissing his claims for unjust enrichment
and conversion when the court credited Wife’s testimony even though she had clearly
been impeached. He claims that the court committed further error by deeming her lack of
knowledge as the determining factor in dismissing the unjust enrichment claim. Wife
responds that the court did not err in crediting her testimony and that review of the
court’s credibility determination is not warranted given the facts presented. She claims
that Plaintiff failed to satisfy his burden in support of either claim for recovery when he
failed to establish that her keeping the funds would be unjust or that she evidenced the
necessary intent to sustain a claim for conversion.
“Actions brought upon theories of unjust enrichment, quasi contract, contracts
implied in law, and quantum meruit are essentially the same.” Paschall’s, Inc. v. Dozier,
407 S.W.2d 150, 154 (Tenn. 1966). The terminology is frequently employed
“interchangeably to describe that class of implied obligations where, on the basis of
justice and equity, the law will impose a contractual relationship between the parties.”
Id. “The doctrine of unjust enrichment is founded upon the principle that someone who
receives a ‘benefit desired by him, under circumstances rendering it inequitable to retain
it without making compensation, must do so.’” CPB Mgmt., Inc. v. Everly, 939 S.W.2d
78, 80 (Tenn. Ct. App. 1996) (quoting Lawler v. Zapletal, 679 S.W.2d 950, 955 (Tenn.
Ct. App. 1984)).
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Our courts have utilized different tests in determining whether it should impose a
contractual relationship between the parties based upon the theory of unjust enrichment.
One such test is as follows:
(1) There is no existing, enforceable contract between the parties
covering the same subject matter;
(2) The party seeking recovery proves that it provided valuable goods or
services;
(3) The party to be charged received the goods or services;
(4) The circumstances indicate that the parties to the transaction should
have reasonably understood that the person providing the goods or services
expected to be compensated; and
(5) The circumstances demonstrate that it would be unjust for a party to
retain the goods or services without payment.
Doe v. HCA Health Services of Tennessee, Inc., 46 S.W.3d 191, 197-98 (Tenn. 2001). A
second test presents nearly the same factors in the following condensed form:
(1) a benefit conferred upon the defendant by the plaintiff;
(2) appreciation by the defendant of such benefit; and
(3) acceptance of such benefit under circumstances that it would be
inequitable for the plaintiff to retain the benefit without payment of the
value thereof.
Estate of Lambert v. Fitzgerald, 497 S.W.3d 425, 458 (Tenn. Ct. App. 2016) (internal
quotations and citations omitted). Neither test has been identified as the bright-line rule;
however, our courts have determined that the most significant requirement in establishing
an unjust enrichment claim is whether retaining the benefit would be unjust. Id.
Here, the record definitively establishes all but one factor under either test, namely
whether Wife’s retention of the benefit would be unjust under the circumstances. The
court found that it would not be unjust, based largely upon Wife’s lack of knowledge
concerning the true circumstances of the source of the funds. In so holding, the court
credited Wife’s testimony that she was not involved in the family finances and only made
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expenditures when permitted. The record supports the court’s credibility determination
as evidenced by the bank statements presented.
The bank statements do not evidence a lavish lifestyle or excessive purchases
made by either party before or after the deposit of the funds at issue, thereby supporting
Wife’s claim that she believed the money in the account was lawfully obtained for work
performed by Schmank as a project manager for a residential construction project. The
record further establishes that the Schmanks’ financial circumstances have deteriorated as
evidenced by Schmank’s filing for bankruptcy and the non-dischargeable judgment
entered against him. Thus, Wife has not continued to receive the benefit of the funds
unlawfully retained. See Bank of Nashville v. Chipman, No. M2010-01581-COA-R3-
CV, 2011 WL 3433012, at *5-6 (Tenn. Ct. App. Aug. 5, 2011) (holding that retention of
the benefit would be unjust when the funds at issue were placed into an individual
retirement account, from which the innocent spouse paid general household expenses and
continued to benefit from the proceeds).
With the above considerations in mind, we conclude that Wife’s retention of the
benefit under the circumstances presented would not be unjust and affirm the dismissal of
the unjust enrichment claim. Likewise, we also affirm the dismissal of the conversion
claim, an intentional tort requiring proof of Wife’s knowledge of the true source of the
funds at issue. Marks, Shell, & Maness v. Mann, No. M2002-00652-COA-R3-CV, 2004
WL 1434318, at *4-5 (Tenn. Ct. App. June 23, 2004) (upholding the court’s finding of
conversion against the husband when the evidence established a significant change in the
parties’ lifestyle as a result of the wife’s embezzlement of funds from her employer).
V. CONCLUSION
This judgment of the trial court is affirmed, and the case is remanded for such
further proceedings as may be necessary. Costs of the appeal are taxed to the appellant,
Dwight Jenkins.
_________________________________
JOHN W. McCLARTY, JUDGE
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