Wanda F. Cherry v. First State Bank ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
December 12, 2002 Session
WANDA F. CHERRY, ET AL. v. FIRST STATE BANK
Appeal from the Circuit Court for Sevier County
No. 2001-514-I Ben W. Hooper, II, Judge
FILED FEBRUARY 11, 2003
No. E2002-00981-COA-R3-CV
Wanda F. Cherry and Daniel R. Greene (“Plaintiffs”) are the owners of property located on the
parkway in Pigeon Forge. Wayne Burroughs (“Burroughs”) owned property adjacent to the
Plaintiffs’ property, but Burroughs’ property did not adjoin the parkway. Burroughs leased
Plaintiff’s property and used their property and his property to operate a business. During this time,
Burroughs borrowed money from First State Bank (“Defendant”). Burroughs’ leasehold interest in
Plaintiffs’ property was part of the collateral for this loan. After Burroughs filed for bankruptcy, his
leasehold interest in Plaintiffs’ property was sold at auction. Defendant was the highest bidder at
the auction. Defendant paid rent for a period of time, but then stopped paying rent. Plaintiffs sued
for past due rent. The Trial Court granted summary judgment to Plaintiffs and awarded damages
totaling $127,968.60. Defendant appeals the grant of summary judgment to Plaintiffs. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of
the Circuit Court Affirmed; Case Remanded.
D. MICHAEL SWINEY, J., delivered the opinion of the court, in which HOUSTON M. GODDARD , P.J.,
and HERSCHEL P. FRANKS , J., joined.
C. Mark Troutman, LaFollette, Tennessee, for the Appellant First State Bank.
Rob Quillin, Knoxville, Tennessee, for the Appellees Wanda F. Cherry and Daniel R. Greene.
OPINION
Background
Plaintiffs filed this lawsuit seeking unpaid rent. In December 1989, Plaintiffs entered
into a lease with Burroughs which was amended in February 1993. The lease and amendment set
forth the respective obligations of the parties to the lease, including the duration of the lease and the
monthly rent. Burroughs filed for bankruptcy in 1999, and the Bankruptcy Court eventually entered
an Order which provided as follows:
The leasehold estate of the Debtor [Wayne Burroughs] with
[Plaintiffs] shall be sold subject to their review of the financial ability
of the high bidder to perform under the lease. The Lessor shall have
five days to file a written objection to the high bidder’s qualifications
otherwise they will be deemed to have consented to the assignment.
In the event of any objection, the Court shall set the objection for
hearing on September 16, 1999 ….
An auction took place pursuant to the Bankruptcy Court’s Order on September 10,
1999, and Defendant was the winning bidder of the leasehold estate. As a result of Defendant’s
purchase of the leasehold estate, Plaintiffs claim Defendant was assigned the rights and liabilities
under the lease. From October 1999 through February 2001, Defendant made rental payments in the
amount set forth in the lease and the amendment thereto. Beginning in March 2001, Defendant
stopped paying rent. Plaintiffs claim Defendant was $74,520.00 in arrears at the time the complaint
was filed.1 Plaintiffs sought past due rent, prejudgment interest, as well as attorney fees pursuant to
the terms of the lease.
Plaintiffs filed a motion for summary judgment and attached the affidavit of Sam
Furrow (“Furrow”). Furrow conducted the auction where the relevant assets of Burroughs were sold.
According to Furrow, initially the real property owned by Burroughs and Burroughs’ leasehold
interest in Plaintiffs’ adjacent property were auctioned separately. Then, the real property owned by
Burroughs and the leasehold interest were auctioned together to see if a higher price could be
obtained by auctioning them as a “package.” When the property and leasehold interest were
auctioned separately, the amount of the highest bids combined totaled $825,000. When the two
items were auctioned as a package, the highest bid was $975,000. Thus, Borroughs’ real property
and his leasehold interest in Plaintiffs’ property were sold as a “package” to Defendant as the highest
bidder. In his affidavit, Furrow also explained:
1
This lawsuit actually began in the General S essions Court for Sevier C ounty and wa s later ap pealed to the
Circuit Court. Plaintiffs then moved to amend the original pleading to increase the amount of damages sought inasmuch
as the claimed damages continued to increase with the passing months. For ease of reference, we will refer to the
amended compla int as the co mpla int.
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Prior to beginning the auction, I explained the terms and
conditions under which the property was being sold. First, I
explained that this was a sale of property held in a bankruptcy estate
and that I was working for Wayne Burroughs, the debtor-in-
possession, and his attorney, John Newton. Later, I explained that the
Leasehold Interest was being sold under the original terms of the
lease plus an addendum that was executed in February of 1993.
Copies of the lease and addendum were made available to any
prospective bidders who wished to see them.… I explained that the
property was being sold subject to the lease and the addendum.…
Plaintiff Wanda Cherry (“Cherry”) also furnished her affidavit in support of the
motion for summary judgment. In her affidavit, Cherry discussed the lease and amendment entered
into between Plaintiffs and Burroughs. When Burroughs went bankrupt, the leasehold interest was
sold at auction and Plaintiffs were allowed five days to object to the highest bidder’s qualifications.
Cherry was present at the auction and detailed Furrow’s explanation prior to the auction to the effect
that the leasehold interest was being sold subject to the terms of the lease and the amendment
thereto. Cherry was present when Defendant purchased both the real property and the leasehold
interest owned by Burroughs as a package for $975,000. According to Cherry, Defendant began
making monthly rental payments in October 1999, after it purchased the leasehold interest, and
continued to do so through February 2001. Cherry maintained Defendant stopped making rental
payments in March 2001, and the amount of arrears when the complaint was filed totaled $74,520.
Several documents were attached to Cherry’s affidavit, including an Assignment of Lease dated
October 12, 1999, which was recorded with the Register of Deeds for Sevier County. The
Assignment of Lease was entered into between Burroughs and Defendant and provides, in relevant
part, as follows:
WHEREAS, Assignor [i.e., Burroughs] holds a leasehold
estate in certain real property located in Pigeon Forge, Tennessee,
more particularly described in Exhibit “A” hereof; and
WHEREAS, said leasehold estate was established by a Lease
Agreement dated December 28, 1989, of record in Misc. Book 167,
Page 191, as amended in Misc. Book 212, Page 77, both in the
Sevier County Register of Deed’s Office; and
WHEREAS, Assignor desires to assign his interest in said
Lease to Assignee.
NOW, THEREFORE, for and in consideration of the sum
of Ten Dollars … Assignor hereby assigns to Assignee all his right,
title and interest in that certain Lease Agreement ….
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The Assignment of Lease contains a provision that was crossed out, presumably because Defendant
did not agree to the language. The portion that was crossed out states: “Assignee hereby assumes
all obligations and conditions binding upon the Lessee in said lease, unless otherwise stated.”
In opposition to Plaintiffs’ motion for summary judgment, Defendant filed the
affidavit of its attorney, C. Mark Troutman (“Troutman”). In this affidavit Troutman attacks
Plaintiffs’ use of the Assignment of Lease. According to Troutman, a problem arose when
Defendant was attempting to sell to a third party the real property and leasehold interest it purchased
at the auction. In order to resolve this problem, the parties agreed to execute certain affidavits to
clear up problems in the chain of title to the property. Troutman claims the parties agreed these
affidavits would not be used in the present litigation. In his affidavit, Troutman stated the
“Assignment of Lease was only executed by the Defendant after reaching this agreement.”
Defendant also attached the affidavit of Keebler Williams (“Williams”), its Senior
Vice President. Williams explained Defendant had lent Burroughs money and as security for that
loan, Defendant obtained a Deed of Trust on the real property owned by Burroughs as well as “a
security interest through a Leasehold Deed of Trust in a certain leasehold estate held by Burroughs
in real property adjacent to the other property owned by Burroughs.” Defendant also obtained a
Collateral Assignment of Lease which was entered into between Defendant and Burroughs. This
document provides, among other things, as follows:
If default be made by the Borrower in the payment or
performance of the Loan, then Bank shall have the option of taking
over the leased premises, provided, however, that in the event Bank
elects to exercise said option of taking over the demised premises for
the purpose of operating the same, written notice of its election to do
so shall be mailed promptly by Bank to the Lessor. Bank shall not
have the right to possession of the leased premises until such notice
is received by Lessor.…
It is understood and agreed that so long as the Bank shall not
have exercised its option under the foregoing provisions hereof as to
the leased premises, the Bank shall not be liable for rent or any other
obligation of the Borrower under and by virtue of or in connection
with the Lease, and the Borrower shall remain liable for such rent and
obligations.
Williams stated he attended the auction on Defendant’s behalf after Burroughs filed
for bankruptcy. When the bids from third parties were deemed unacceptable to Defendant,
Defendant bid to protect its interests. While Defendant thereafter accepted a deed from Burroughs
for the real property Burroughs owned in fee simple, it claims to have rejected an Assignment of
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Lease tendered by Burroughs which pertained to the leased property2 Williams claimed Defendant
made lease payments to Plaintiffs solely for the purpose of preserving its rights under the lease.
According to Williams, because Defendant neither assumed possession of the premises nor provided
Plaintiffs written notice of its intent to do so, in accordance with the language in the Collateral
Assignment of Lease, Defendant never legally obligated itself to make rent payments. Even though
Plaintiffs are not parties to the Collateral Assignment of Lease, this document does contain their
signatures indicating their consent to same. The Collateral Assignment of Lease is dated February
13, 1996, several years prior to Burroughs filing for bankruptcy.
In response to Williams’ affidavit, Plaintiff Cherry filed a supplemental affidavit
claiming Defendant was in possession of the leased premises after it purchased the lease at auction,
and further “[Defendant’s] real estate agent, Dick Bales, placed a FOR SALE sign on the property
without asking for my consent and marketed my property with the adjacent property owned by
[Defendant].”
After considering the various documents on file, the Trial Court concluded there were
no genuine issues of material fact and granted Plaintiffs’ motion for summary judgment. The Trial
Court awarded damages of $114,145.90 for unpaid rent, $13,822.70 in attorney fees, and ten percent
post-judgment interest. Defendant appeals the grant of summary judgment to Plaintiffs.3
Discussion
The standard for review of a motion for summary judgment is set forth in Staples v.
CBL & Associates, Inc., 15 S.W.3d 83 (Tenn. 2000):
The standards governing an appellate court’s review of a
motion for summary judgment are well settled. Since our inquiry
involves purely a question of law, no presumption of correctness
attaches to the lower court’s judgment, and our task is confined to
reviewing the record to determine whether the requirements of Tenn.
R. Civ. P. 56 have been met. See Hunter v. Brown, 955 S.W.2d 49,
50-51 (Tenn. 1997); Cowden v. Sovran Bank/Central South, 816
S.W.2d 741, 744 (Tenn. 1991). Tennessee Rule of Civil Procedure
56.04 provides that summary judgment is appropriate where: (1) there
is no genuine issue with regard to the material facts relevant to the
claim or defense contained in the motion, see Byrd v. Hall, 847
S.W.2d 208, 210 (Tenn. 1993); and (2) the moving party is entitled
to a judgment as a matter of law on the undisputed facts. See
2
As set forth in Troutman’s affidavit, at some point in time an Assignment of Lease was in fact entered into
between B urrou ghs and D efendant.
3
No issues are raised by any of the parties with respect to the amount of dam ages award ed by the T rial Co urt.
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Anderson v. Standard Register Co., 857 S.W.2d 555, 559 (Tenn.
1993). The moving party has the burden of proving that its motion
satisfies these requirements. See Downen v. Allstate Ins. Co., 811
S.W.2d 523, 524 (Tenn. 1991). When the party seeking summary
judgment makes a properly supported motion, the burden shifts to the
nonmoving party to set forth specific facts establishing the existence
of disputed, material facts which must be resolved by the trier of fact.
See Byrd v. Hall, 847 S.W.2d at 215.
To properly support its motion, the moving party must either
affirmatively negate an essential element of the non-moving party’s
claim or conclusively establish an affirmative defense. See McCarley
v. West Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998);
Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997). If the moving
party fails to negate a claimed basis for the suit, the non-moving
party’s burden to produce evidence establishing the existence of a
genuine issue for trial is not triggered and the motion for summary
judgment must fail. See McCarley v. West Quality Food Serv., 960
S.W.2d at 588; Robinson v. Omer, 952 S.W.2d at 426. If the moving
party successfully negates a claimed basis for the action, the non-
moving party may not simply rest upon the pleadings, but must offer
proof to establish the existence of the essential elements of the claim.
The standards governing the assessment of evidence in the
summary judgment context are also well established. Courts must
view the evidence in the light most favorable to the nonmoving party
and must also draw all reasonable inferences in the nonmoving
party’s favor. See Robinson v. Omer, 952 S.W.2d at 426; Byrd v.
Hall, 847 S.W.2d at 210-11. Courts should grant a summary
judgment only when both the facts and the inferences to be drawn
from the facts permit a reasonable person to reach only one
conclusion. See McCall v. Wilder, 913 S.W.2d 150, 153 (Tenn.
1995); Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995).
Staples, 15 S.W.3d at 88-89. A fact is “material” for summary judgment purposes, if it “must be
decided in order to resolve the substantive claim or defense at which the motion is directed.” Luther
v. Compton, 5 S.W.3d 635, 639 (Tenn. 1999)(quoting Byrd v. Hall, 847 S.W.2d at 211).
On appeal, Defendant argues granting summary judgment was error because the Trial
Court’s decision was directly contrary to the terms of the 1996 Collateral Assignment of Lease,
which obligated Defendant to pay rent only if Defendant provided Plaintiffs notice in writing of its
intent to assume possession of the leased premises. Plaintiffs counter this argument, claiming
regardless of what the language in the 1996 Collateral Assignment of Lease says, when Defendant
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purchased the leasehold interest at the bankruptcy auction in 1999, it became obligated to pay rent
in accordance with the terms of the lease.
Notwithstanding the terms of the 1996 Collateral Assignment of Lease, it is clear that
Burroughs’ entire interest in the leasehold was sold to Defendant at the bankruptcy auction. The
Bankruptcy Court certainly contemplated the winning bidder paying rent or it would not have given
Plaintiffs the opportunity to object to the financial qualifications of the winning bidder. In fact, the
Bankruptcy Court’s Order provided that the sale of Burroughs’ leasehold interest would be “sold
subject to their review of the financial ability of the high bidder to perform under the lease.” Clearly
this Order concerns the financial ability of the high bidder, Defendant, to pay the rent. If Defendant
as the purchaser was to have no obligation to pay the rent, this “review” would have served no
purpose. It is undisputed that Defendant purchased both the real property owned by Burroughs and
Burroughs’ leasehold interest in Plaintiffs’ property.
It likewise is undisputed that after Defendant purchased Burroughs’ leasehold interest,
Burroughs had no interest or reversionary interest in the leasehold estate. This being so, an
assignment of the lease to Defendant occurred when Defendant purchased the “package”, which
included the leasehold estate, at the bankruptcy auction. See First American National Bank v.
Chicken System of American, Inc., 510 S.W.2d 906, 908 (Tenn. 1974). Further evidence that
Defendant’s purchase of Burroughs’ leasehold interest was an assignment of the lease is the language
of the Bankruptcy Court’s Order authorizing the sale: “The Lessor shall have five days to file a
written objection to the high bidder’s qualifications otherwise they will be deemed to have consented
to the assignment” (emphasis added). The Bankruptcy Court Order authorizing this sale both
provided that it was to be a sale resulting in an assignment of Burroughs’ leasehold interest to the
purchaser and gave notice of this fact to potential purchasers, including Defendant.
If a third party had bought the leasehold interest at the auction, no one could seriously
argue this third party would have no obligation to pay rent to Plaintiffs. We fail to see how the fact
that Defendant rather than some third party was the high bidder changes this obligation. The 1996
Collateral Assignment of Lease very well may have defined the rights and obligations between
Burroughs and Defendant. However, once Defendant purchased Burroughs’ entire leasehold interest
at the bankruptcy auction, the facts and Defendant’s status changed. Defendant, because of his
purchase at the bankruptcy auction, then possessed the entire leasehold interest and the
corresponding duty to pay rent. Defendant’s obligation to pay rent under the lease arises not under
the 1996 Collateral Assignment of the Lease but rather as a result of its purchase of Burroughs’
leasehold interest pursuant to the Bankruptcy Court’s Order.
We agree with Plaintiffs that the controlling event in this lawsuit is Defendant’s
purchase of the leasehold interest at the bankruptcy auction in 1999. Once this occurred, the
undisputed material facts show that Defendant was obligated to pay rent in accordance with the terms
of the lease and the amendment thereto. Accordingly, the Trial Court properly granted summary
judgment to Plaintiffs. On appeal, Plaintiffs make several additional arguments as to why the grant
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of summary judgment in their favor should be upheld. In light of the foregoing conclusion, we
pretermit these issues.
Conclusion
The judgment of the Trial Court is affirmed, and this cause is remanded to the Trial
Court for further proceedings, if any, consistent with this Opinion, and for collection of the costs
below. Costs on appeal are assessed against the Appellant, First State Bank, and its surety.
___________________________________
D. MICHAEL SWINEY, JUDGE
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