Billy Gwinn Mitchell v. Sam F. Cole Jr. Substitute Trustee, Estate of Prudence Reynolds, and Gerald W. PIckens, Administrator CTA ( 1996 )

IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
______________________________________________________________________________
BILLY GWIN MITCHELL, Shelby Chancery No. 97623-2 R.D.
C.A. No. 02A01-9503-CH-00060
Plaintiff/Counter-Defendant/Appellee,
V. Hon. Russell Fowler, Special Chancellor
SAM F. COLE, JR., Substitute
FILED
Trustee, ESTATE OF PRUDENCE August 8, 1996
REYNOLDS, and GERALD W.
PICKENS, Administrator CTA, Cecil Crowson, Jr.
Appellate C ourt Clerk
Defendants/Counter-Plaintiffs/Appellants.
JAMES STEPHEN KING and ARTHUR E. QUINN, Bogatin, Lawson & Chiapella,
Memphis, Attorneys for Plaintiff/Counter-Defendant/Appellee.
SAM F. COLE, JR., Memphis, Attorney for Defendants/Counter-Plaintiffs/ Appellants.
REVERSED AND REMANDED
Opinion filed:
______________________________________________________________________________
TOMLIN, Sr. J.
The original plaintiff in this case, Billy Gwin Mitchell (“plaintiff” or “Mitchell”)
filed suit in the Chancery Court of Shelby County seeking to enjoin the foreclosure
of a deed of trust. Named as defendants were Sam F. Cole, Jr., Substitute Trustee
of the Estate of Prudence Reynolds, and Gerald W. Pickens, Administrator CTA
(“defendants” or by name). Defendants filed an answer and a counter-complaint
in which they contended, among other things, that the records of Mitchell’s
Chapter 11 bankruptcy case reflected Mitchell’s confirmed amended plan of
reorganization mandated that Mitchell pay the mortgage indebtedness to Ms.
Reynolds in accordance with the terms of the promissory note. As counter-plaintiffs,
Cole and Pickens sought a money judgment for the principal balance due and
owing on the note, plus accrued interest and attorney’s fees and costs. At the
conclusion of all the proof, the case was submitted to a jury, and after issues of fact
had been resolved, the special chancellor entered a judgment in favor of the
Reynolds estate in the amount of $41,101.64 on the promissory note and attorney’s
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fees in the amount of $21,900.00.
Defendants filed a motion for a new trial alleging five errors. The special
chancellor denied the motion for a new trial and entered a final decree. This
appeal followed.
Defendants have submitted six issues to this court for our consideration.
Counter-plaintiffs contend that the special chancellor erred: (1) in charging the jury
that a payment by a third party to a creditor on behalf of the debtor was a
payment toward the debt; (2) in allowing witness Don Kelly to testify as an expert
witness when his qualifications as such were never established at trial; (3) in allowing
plaintiff to introduce an automobile insurance policy of a family partnership to be
considered as evidence of payment or credit towards the mortgage indebtedness;
(4) in allowing witness Mary Mitchell to testify as to alleged payments and other
credits on the mortgage debt made by nonparties; (5) in allowing plaintiff to testify
in violation of the court’s order in limine; (6) in failing to grant defendants a new
trial. We are of the opinion that the special chancellor did err, and that a new trial
is mandated by this record.
In 1973, following the death of her brother, Ham Mitchell, a prominent land
owner in Millington, Prudence Reynolds (“decedent”) sold her 142 acre farm to
plaintiff, her nephew. In conjunction with the sale, plaintiff executed a promissory
note in the principal amount of $134,140.71, payable to decedent. The note was
secured by a first deed of trust on the property. The note called for payment to
decedent in monthly installments of $1,040.00 for a period of 20 (twenty) years,
along with interest at the rate of seven (7%) percent per year. The deed of trust
was duly recorded in the Register’s Office in Shelby County.
Following the death of his father, plaintiff and his two sisters, all beneficiaries
of their father’s estate, formed a partnership entitled “BAM Partnership.”
Subsequently, due to the partners’ difficulty in paying inheritance taxes on their
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father’s estate, both plaintiff and the partnership filed for bankruptcy under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Tennessee in Memphis.
Plaintiff filed an amended plan of reorganization in his Chapter 11 case in
1984. With respect to the payment of the debt to decedent, the amended plan
made the following provision:
The secured claim of Mrs. J.P. Reynolds (“Reynolds”) shall be fully
settled, satisfied, and discharged by paying to Reynolds the remaining
sums due in accordance with the terms of her Promissory Note and
Deed of Trust; except that, the terms of said Note shall be extended by
a period equal to the number of months that said Note is in arrears.
The first installment shall be due and payable upon confirmation with
a similar payment being due and payable each month thereafter until
said Note shall have been paid in full. Reynolds shall retain her lien
upon the Debtor’s 144 acre farm.
(emphasis added)
Shortly thereafter, the bankruptcy court entered an order confirming plaintiff’s
amended plan of reorganization. During the period from April 1985 to March 1988,
plaintiff wrote 16 checks totaling $26,548.57 to decedent in payment of this note.
In addition, plaintiff sold 8.97 acres of the farm during this time, from which he paid
decedent $804.68 of the proceeds.
In January 1988 plaintiff filed an interim report in his Chapter 11 case. In the
section entitled “Total Amount of Claims Allowed,” plaintiff’s report reflected that
the principal amount of the debt owed to decedent at that time was $102,902.28.
This amount was listed as payment number 92 of a total of 240 on the mortgage
loan amortization schedule. In his final report filed in November 1988, plaintiff set
forth the same amount as the amount of the debt at that time. In January 1989, the
bankruptcy court entered a final order closing plaintiff’s Chapter 11 case.
Prudence Reynolds died in June 1988. Although named executor on her will,
plaintiff declined to serve. Gerald W. Pickens was appointed executor. Some time
later, plaintiff and Pickens met to discuss plaintiffs’ obligations under the note. After
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the parties were unable to agree upon the amount owed, Cole, as substitute
trustee under the deed of trust, wrote plaintiff advising him that the entire balance
of the principal and interest on the note was then due and payable. As of that
time, the calculated principal and accrued interest on the note was $113,832.70,
plus attorney’s fees in the amount of $17,074.80. Plaintiff was advised that if the
above amount was not paid by August 1, 1989, Cole would begin foreclosure.
On August 24, 1989, plaintiff filed a petition for a temporary restraining order
and for a temporary and permanent injunction seeking to prohibit defendants from
proceeding with the foreclosure. Plaintiff contended that as a result of an oral
agreement he had made with decedent, the value of goods and services
rendered to decedent by the BAM partnership, as well as cash payments made by
the partnership to the decedent, were to be credited against the note. In that
regard, plaintiff alleged that decedent had credited him with over 160 payments
on the note prior to her death, which reduced the balance due to $66,330.18, and
that he was entitled to have the correct balance of the note ascertained before
a foreclosure sale could proceed. Shortly thereafter, a consent order on the
temporary injunction was entered, enjoining defendants from foreclosing.
Defendants then filed an answer as well as a counter-complaint.
In the counter-complaint, defendants alleged that plaintiff owed a balance
on the note of $102,092.28, the stated principal loan balance that appeared in
plaintiff’s bankruptcy proceeding in both his interim report and the final report. In
plaintiff’s answer to the counter-complaint, he alleged that the amount of the
balance due on the note was not as stated above, but that the amount due as
alleged by defendants in their counter-complaint was included in error in his
bankruptcy proceedings.
Prior to trial, the trial court granted defendants’ motion in limine prohibiting
plaintiff from presenting any evidence at trial concerning any oral statements
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made by decedent prior to her death in regard to the note and deed of trust.1 In
addition, prior to trial the chancellor ordered that of the proposed factual issues
presented by each party to be ultimately submitted to the jury, the chancellor
ordered that plaintiff’s issue of fact number 8 and defendants’ issues of fact
numbers 5, 7 and 8 be submitted at trial to the jury.
At trial, plaintiff testified that he and the decedent, his aunt, had a very close
relationship and that her motivation in selling him the farm was to provide her with
a continuous stream of income for the rest of her life. Although the court’s order in
limine prohibited plaintiff from testifying as to any oral statements made by his aunt
concerning the note and trust deed prior to her death, over the repeated
objections of defendants’ counsel, plaintiff was allowed to testify concerning the
various goods and services that the BAM partnership provided the decedent during
her lifetime. Again over the same objections, plaintiff was permitted to testify that
his bookkeeper kept records not only of cash payments made to decedent, but
also would make notations on the amortization schedule of the note of the cash
value of the goods and services provided to decedent from time to time through
the BAM Partnership.
Following the overruled objections by defendants’ counsel, plaintiff was
permitted to testify that he provided wages and lodging for the grounds keeper of
decedent at a cost of $250.00 per week for some eight years, totaling almost
$40,000.00. Plaintiff also testified that through BAM he provided decedent with
1
This case was upon the docket of four different chancellors by the time it
came up for trial. It was originally assigned to the Honorable George T.
Lewis, Chancellor of Part II, who recused himself because of his
acquaintance with plaintiff. Chancellor Joe C. Morris, of Jackson, was
thereafter designated as Special Chancellor. After the Honorable Floyd
Peete was duly elected Chancellor of Part II, the case was transferred to him
as the presiding chancellor. While obviously handled properly, at some point
prior to trial, Chancellor Peete recused himself and Special Chancellor
Russell Fowler was designated to try the case. When, how, and by whom
Special Chancellor Fowler was designated is unknown as there is no order
in the record.
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automobiles over the years as well as providing her with insurance through BAM’s
fleet insurance policy.
Again, over objections of counsel for defendants, certain BAM employees
were permitted to testify in a manner supportive of plaintiff’s earlier testimony.
Donald Kelly, a carpenter and maintenance man employed by BAM, testified that
beginning in the 1960's, he made weekly visits to plaintiff’s home to make both
minor and major repairs, ranging from installing light bulbs to repairing the roof. He
was also permitted by the chancellor, over the objections of defendants’ counsel,
to testify as an expert and give an opinion as to the value of the goods and services
he supplied in this endeavor, without a full examination of his qualifications to testify
as an expert witness.
Iwona Long, plaintiff’s former personal secretary, and Mary Mitchell, who
served as bookkeeper for plaintiff, the BAM partnership, Ham Mitchell, and the Ham
Mitchell estate, both testified as to various amounts of cash payments and goods
and services supplied to decedent and the notations they made of same on the
loan amortization schedule. Mary Mitchell testified that at the end of each year,
at plaintiff’s request, she would give him a list of all the goods and services he had
provided Mrs. Reynolds that year.
Defendant Pickens was the sole witness who testified on behalf of
defendants. He stated that at the time of trial, based upon the amount of
indebtedness listed by plaintiff in his final report in bankruptcy, plaintiff owed
$102,790.23 as the balance of the principal due on the note, with accrued simple
interest totaling $44,887.54, for a total of $147,677.77.
At the conclusion of all the proof, the chancellor instructed the jury as to the
law that they should consider and other aspects of their deliberations. Included
therein were three special instructions, the first two of which were submitted at the
request of the defendants and agreed to by plaintiff, and the third was a special
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request made by plaintiff, modified in part and accepted by the chancellor. They
were as follows:
Ladies and gentlemen of the jury, I further instruct you that the
term 930 F.2d 458, 463
(6th Cir. 1991). The Sixth Circuit stated as follows:
Section 1141 is entitled “Effect of confirmation.” Section 1141(a)
lists categories of parties who are bound by the terms of confirmed
plan. The effect of confirmation under the plan language of § 1141(a)
is to bind all parties to the terms of a plan of reorganization.
. . . Confirmation of a plan of reorganization by the bankruptcy
court has the effect of a judgment by the district court and res
judicata principles bar relitigation of any issues raised or that could
have been raised in the confirmation proceedings.
Id. (citations omitted).
Plaintiff’s interim and final reports in bankruptcy stated, under oath, in part
that the principal amount of the indebtedness to Prudence Reynolds was
$102,902.28. Plaintiff’s amended plan of reorganization further stated that this debt
to decedent was to be “fully settled, satisfied and discharged in accordance with
her Promissory Note and Deed of Trust.” Plaintiff’s amended plan of reorganization
was confirmed on June 13, 1984, by the Honorable William B. Leffler, Chief U.S.
Bankruptcy Judge. Any credits that plaintiff contended that he was entitled to up
to the filing of his amended plan of reorganization should have been and could
have been presented to the bankruptcy court for consideration. It is apparent from
the lack of any evidence in this case of plaintiff contesting the amount owed that
8
he completely and totally failed to do so.
Plaintiff contended in the trial court and contends in this court in his brief and
oral argument that the balance of the loan as stated in his interim report and final
report in his Chapter 11 case was a “mistake,” arising from a misunderstanding with
his attorneys in the bankruptcy case. As a result of this “mistake,” plaintiff contends
that he is not bound under the statutory and case law that we have cited herein
to this amount. This contention is without merit. An argument by the debtor quite
similar to this argument of plaintiff was rejected in In re Dooley, 116 B.R. 573, 578
(Bankr. S.D. Ohio 1990). In Dooley, the debtor challenged the amount allowed of
a secured creditor’s claim on the ground that the creditor did not properly give
credit to the debtor’s obligation to him on various preconfirmation payments. The
court therein noted that debtor had the opportunity to challenge the amount of
the allowed at two different confirmation hearings, and that the debtor submitted
his amended his plan of reorganization over the creditor’s objection. In rejecting
this contention, the bankruptcy judge stated in part:
The lengthy and often vigorously contested process leading to
the confirmation of a debtor’s proposed Chapter 11 Plan would
become meaningless if the order confirming a debtor’s plan was not
accorded preclusive effect. For that reason, among others, a specific
provision was enacted in Chapter 11 to statutorily strengthen the
preclusive effect granted to a Chapter 11 confirmation order.
. . . It is impossible to ignore the inclusion of the words “The
provisions of a confirmed plan bind the debtor” in applying this
section. One Bankruptcy Court noted, “It is the opinion of this court
that § 1141 of the Bankruptcy Code means what it says and not only
are the creditors bound by the confirmed plan, but the debtors are
also so bound.” (citations omitted)
Id. at 578-79.
To give even more finality to this conclusion, we cite Miller v. Meinhard-
Commercial Corp., 462 F.2d 358, 360 (5th Cir. 1972), wherein that court stated in
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part:
An arrangement confirmed by a bankruptcy court has the
effect of a judgment rendered by a district court, and any attempt be
the parties or those in privity with them to relitigate any of the matters
that were raised or could have been raised therein is barred under the
doctrine res judicata.
. . . The suit is no more than a collateral attack upon the
referee’s order confirming the plan of arrangement; the integrity of the
judgment is challenged. Even though an action has an independent
purpose and contemplates some other relief, it is a collateral attack
if it must in some fashion overrule a previous judgment.
. . . Res judicata applies where the subject matter is the same,
“not only to every matter which was offered and received to sustain
or defeat the claim or demand, but also as to any other admissible
matter which might have been offered for that purpose.”
Id. at 360 (citations omitted).
We therefore conclude that the special chancellor erred when he gave
plaintiff’s special request as modified, thereby permitting the jury to consider
plaintiff’s credits against the note held by the decedent that were clearly
precluded by the bankruptcy proceedings.
It now becomes necessary to decide whether this erroneous charge, more
probably then not, affected the judgment of the jury. T.R.A.P. 36(b) provides that
“A final judgment . . . shall not be set aside unless, considering the whole record,
error . . . more probably than not affected the judgment.“ In reviewing the
erroneous charge, it is appropriate to consider the charge as a whole in
determining whether a prejudicial error has been committed. The specific
instruction at issue must be considered in light of its context. Gorman v. Earhart, 876
S.W.2d 832, 836 (Tenn. 1994).
Viewing the record as a whole, the erroneous charge that the jury could
consider payments made by a third party, BAM, to the creditor, decedent, on
10
behalf of the debtor, plaintiff Mitchell, in satisfaction of the debt, more probably
than not affected the verdict. One of the decisive issues before the jury was the
amount that Mitchell owed his aunt at the time the suit was brought. A substantial
portion of plaintiff’s proof focused on the various and sundry types of credits that
were reportedly given, or should have been given, against his note to decedent
in the form of services rendered the decedent by the BAM partnership and persons
employed by the partnership, as well as other goods allegedly provided decedent
by plaintiff as a member of the BAM partnership. All of this testimony was objected
to and was subject to the defense of res judicata as a result of the plaintiff’s
confirmed amended plan of reorganization.
It is apparent to this court, from the record, that the jury took into account the
plaintiff’s testimony concerning the value of goods and services provided to the
decedent by the BAM partnership. While the bankruptcy proceedings established
that the principal amount plaintiff owed the note as of November 1988 was
$102,902.28, the jury determined that the balance due on the note to decedent
was only $41,101.64. Taking all this into account, the trial court’s charge more likely
than not influenced the jury in determining the balance due on the note in
question. The judgment of the trial court therefore must be reversed.
As for the remaining evidentiary issues of defendants, we find that each and
every one of them constituted error on behalf of the trial court. In light of the legal
effect of res judicata of the bankruptcy court’s orders and judgments, the evidence
plaintiff sought to introduce concerning the value of goods and services provided
by the BAM partnership was irrelevant, immaterial, and inadmissable. T.R.E. 402.
Upon remand, the scope of the hearing should be limited to the task of
ascertaining the amount actually due and owing by plaintiff on the secured
promissory note, plus accrued interest and attorney’s fees. Taking as a beginning
point the outstanding balance on the promissory note as stated in the bankruptcy
11
court’s final order of November 1988, the trial court should ascertain the amount of
payments, if any, made by plaintiff from the time of the final order of bankruptcy
until the date of trial, plus all accrued interest to date.
Accordingly, the decree of the trial court is reversed and this cause is
remanded to the Chancery Court of Shelby County for further proceedings not
inconsistent with this opinion. Costs in this cause on appeal are taxed to plaintiff,
for which execution may issue if necessary.
________________________________________
TOMLIN, Sr. J.
________________________________________
LILLARD, J. (CONCURS)
HIGHERS, J., Not participating
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IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
______________________________________________________________________________
BILLY GWINN MITCHELL,
Plaintiff/Counter-Defendant/Appellee,
Shelby Chancery No. 97623-2 R.D.
v. C.A. No. 02A01-9503-CH-00060
SAM F. COLE, JR., Substitute
Trustee, ESTATE OF PRUDENCE
REYNOLDS, and GERALD W.
PICKENS,Administrator CTA,
F IL E D
Defendants/Counter-Plaintiffs/Appellants. Oc tober 3, 1996
______________________________________________________________________________
C e c il C ro w s o n , J r.
A p p e lla t e C o u r t C le r k
ORDER
______________________________________________________________________________
Plaintiff has timely filed a petition to rehear in this cause. After full consideration the petition
is respectfully denied.
ENTER this 3rd day of October, 1996.
____________________________________________
Hewitt P. Tomlin, Jr., Senior Judge
__________________________________________
Holly Kirby Lillard, Judge
Allen E. Highers, Judge
Not participiating