United Color Lab & Digital Imaging, Inc. v. United Studios ( 2006 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
JANUARY 18, 2006 Session
UNITED COLOR LAB & DIGITAL IMAGING, INC.
v. UNITED STUDIOS
Direct Appeal from the Chancery Court for Shelby County
No. CH-04-0536-3 D. J. Alissandratos, Chancellor
No. W2005-00133-COA-R3-CV - Filed March 21, 2006
In this case we are asked to review a trial court’s decision to hold the defendant in contempt of the
court’s order. After the plaintiff filed its lawsuit to recover amounts allegedly owed on certain
invoices, the trial court ordered the defendant to file a sworn statement setting forth any amounts it
believed it owed to the plaintiff and the “basis” for that statement. The defendant submitted the
affidavit of its president who asserted that it owed nothing to the plaintiff and that plaintiff breached
the parties’ contract. The defendant subsequently filed an answer denying it owed the money and
filed a counter-complaint for breach of contract, tortious interference with contract, and fraud. The
plaintiff filed a petition seeking to hold the defendant in contempt of the court’s order, asserting that
the affidavit filed by the defendant did not set forth specific facts. The chancery court granted the
motion and found the defendant in contempt of the order holding that the affidavit did not contain
enough “detail” as required by the order. The defendant appealed to this Court. We reverse.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Vacated and
Remanded
ALAN E. HIGHERS, J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and DAVID R. FARMER , J., joined.
Randall N. Songstad, Memphis, TN, for Appellant
John D. Horne, Memphis, TN, for Appellee
OPINION
I.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
United Color Lab & Digital Imaging, Inc. (hereinafter “United Color Lab” or “Appellee”),
a Tennessee corporation with its principal place of business located in Memphis, is engaged in the
business of processing photographic film into finished portraits. United Studios of America, Inc.
(hereinafter “United Studios” or “Appellant”), an Ohio corporation, operates various businesses
throughout the United States taking photographs for customers. After taking the photographs,
United Studios would send the photographic film to United Color Lab’s facilities in Memphis for
processing.
In December of 2003, United Studios refused to pay certain invoices submitted by United
Color Lab for payment. On December 31, 2003, United Color Lab sent a letter to United Studios
informing it that, if the invoices were not paid, United Color Lab intended to impose a printer’s and
binder’s lien on the photographs submitted for processing.1 When it failed to receive payment,
United Color Lab filed a complaint against United Studios on March 18, 2004 in the Chancery Court
of Shelby County seeking to enforce its lien and to recover damages. Therein, United Color Lab
alleged that United Studios owed $65,636.68, as demonstrated by the invoices attached to the
complaint as exhibits.
The chancellor conducted a hearing on April 15, 2004, and he subsequently entered an order2
appointing a Special Master with accounting experience to investigate the financial records of both
parties and determine any amounts owed. Further, the chancellor ordered the following:
4. Prior to the close of business on Thursday, April 22, 2004,
[United Studios] shall file with the Court a sworn statement or
statements setting forth the amounts [United Studios] believe they
owe to [United Color Lab], together with the basis therefor, as well
as any amounts that [United Studios] believe they may be owed by
[United Color Lab], together with the basis therefor.
5. Failure of the parties to comply with the terms and provisions
of this Order shall be a basis for the Court to entertain its contempt
power.
1
See T EN N . C O D E A N N . 66-15-103 (2004).
2
The record indicates the chancery court did not file the order until April 29, 2004. The chancellor apparently
conveyed the substance of the order to the parties at the conclusion of the April 15, 2004 hearing, however, the record
does not contain a transcript of the hearing. As a result, it is impossible to ascertain the court’s justification for certain
aspects of the order.
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On April 22, 2004, in an attempt to comply with the chancery court’s order, United Studios
submitted the affidavit of its president, Dean Nelson, who stated as follows:
[United Studios] owe[s] [United Color Lab] nothing on the
invoices attached to the Compliant. The amounts listed have been
greatly exaggerated, include charges for work that was never done or
delivered as a result of [United Color Lab’s] tortious conduct, . . . and
[United Studios] intend[s] to pursue a Counterclaim against [United
Color Lab] . . . for damages for breach of contract . . . and for tortious
interference in a contract . . . .
....
On or about December 15, 2003, [United Color Lab] faxed a
letter to me demanding payment [on the invoices]. This demand
constituted a breach of the contract by which [United Color Lab] had
processed film for United Studios. The invoices for which payment
was demanded were within terms, as established by the course of
dealing of the parties over many years, and payment was not yet
due. In addition, the total of the invoices was approximately double
the amounts which should have been on the invoices. These amounts
were increased as a result of overcharging, which [United Color Lab]
had been caught doing before, and by simply making up charges.
In this same letter, [United Color Lab] stated that [it] had
approximately one thousand special orders that [United Color Lab]
would not process or ship until this payment was received. [United
Color Lab] was aware that families had already paid [United Studios]
for these special orders, and that failure to deliver these orders during
the holiday season would create the appearance that [United Studios]
does not deliver the family portraits that customers have paid for . .
. . [United Studios] responded to the . . . letter by demanding that
[United Color Lab] process and invoice United Studios for the
approximate one thousand special orders, that [United Studios] would
immediately pay for the special orders, and resolve the dispute . . . by
auditing the invoices. [United Color Lab] declined to do so, and
refused to return the unprocessed film so it could be processed
elsewhere.
. . . As a result of [United Color Lab’s] breach of the contract,
[United Studios] had to immediately make other arrangements for
processing of their customers’ family portraits. The expenses
incurred by [United Studios] to issue refunds to customers, reshoot
portraits, process the reshoots, and deliver the portraits to the
customers is in excess of $50,000.00. My bookkeepers and accounts
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are now working to provide the Court with as accurate a figure as
possible, as quickly as possible.
(emphasis in original). On the same day that United Studios submitted Mr. Nelson’s affidavit, it also
filed a motion to dismiss United Color Lab’s complaint for lack of personal jurisdiction.
On May 27, 2004, United Color Lab filed a “Petition for Scire Facias” seeking to hold United
Studios in contempt of the chancery court’s order, alleging that Mr. Nelson’s affidavit contained only
conclusory statements and failed to offer specific facts regarding the invoices attached to United
Color Lab’s complaint. Specifically, United Color Lab asserted that the chancery court’s order
required United Studios to document and itemize its position regarding the invoices. On June 7,
2004, United Studios filed its answer in this case denying liability on the invoices and submitted a
counter-complaint for breach of contract, tortious interference with a contract, and fraud. It also
withdrew its motion to dismiss and waived any arguments relating to a lack of personal jurisdiction.
The chancellor conducted a hearing on United Color Lab’s petition on June 8, 2004. At the
hearing, counsel for United Studios argued that Mr. Nelson’s affidavit complied with the court’s
order and stated that, given the infancy of the litigation, it presently could not ascertain the exact
amount that may be owed. In response, the chancellor stated as follows:
The Court finds that indeed this petition is well taken and that
the defendant is guilty of civil contempt. . . .
The Court’s interpretation of that order is the same now as it
was at the time that this Court met with such capable lawyers in
chambers and that was detail. Basis means detail. There was no
detail.
Therefore I find the defendants guilty of contempt. The Court
will prevent them from providing any additional information to show
the basis of their statements and all inferences thereof that otherwise
would have been presented by them should be adversely to them.
Thereafter, the chancellor entered an order finding United Studios in civil contempt of the previous
order “due to the fact that the Affidavit of Dean Nelson filed by [United Studios] did not have
enough ‘detail’ to satisfy ‘the basis therefore [sic].’” The court further noted that United Studios had
not produced any documents to the Special Master to support its position and, as a result, ordered
that it “be prevented from providing any additional information to show the basis of their statements
and all inferences thereof that otherwise would have been presented by them should be adversely to
them.”
United Studios subsequently sought an interlocutory appeal, which the trial court denied. On
November 8, 2004, the Special Master filed her report with the chancery court finding that United
Color Lab was entitled to $55,999.66. United Studios filed an objection to the report citing its
inability to provide evidence in support of its position due to the chancery court’s contempt order.
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After United Color Lab filed a motion to confirm the Special Master’s report, the chancery court
entered a “Final Judgment” on January 4, 2005 awarding United Color Lab $55,999.66 in damages.
United Studios timely filed a notice of appeal to this Court presenting the issue of whether
the chancery court abused its discretion when it found United Studios in civil contempt of the court’s
order for review. After reviewing the record, we reverse the decision of the chancery court.
II.
STANDARD OF REVIEW
Every court in this state is empowered to punish for contempt. TENN . CODE ANN . § 16-1-103
(1994 & Supp. 2005). This power is, however, limited to conduct delineated by statute, which
includes the “willful disobedience . . . to any lawful writ, process, order, rule, decree, or command”
of the court. Id. § 29-9-102 (2000); see also Black v. Blount, 938 S.W.2d 394, 397 (Tenn. 1996)
(noting that the acts for which a trial court may hold a person or entity in contempt are limited by
statute). “Civil contempt occurs when a person refuses or fails to comply with a court order and a
contempt action is brought to enforce private rights.” Black, 938 S.W.2d at 398 (citing Robinson
v. Air Draulics Eng’g Co., 377 S.W.2d 908, 911 (Tenn. 1964)). “The court of appeals also has
appellate jurisdiction over civil or criminal contempt arising out of a civil matter.” TENN . CODE
ANN . § 16-4-108(b) (1994 & Supp. 2005).
“Determining whether its order has been followed is the prerogative of the trial court, and
is uniquely within the trial court’s discretion.” Sherrod v. Wix, 849 S.W.2d 780, 786 (Tenn. Ct.
App. 1992) (citations omitted). Accordingly, we review a trial court’s finding of contempt under the
less rigorous abuse of discretion standard of review. Hawk v. Hawk, 855 S.W.2d 573, 583 (Tenn.
1993); White v. Vanderbilt Univ., 21 S.W.3d 215, 222 (Tenn. Ct. App. 1999). Discretionary
decisions require the trial court to take into consideration the facts and applicable law, Ballard v.
Herzke, 924 S.W.2d 652, 661 (Tenn. 1996), thus we review such decisions as follows:
Appellate courts will set aside a discretionary decision only when the
trial court has misconstrued or misapplied the controlling legal
principles or has acted inconsistently with the substantial weight of
the evidence. See Overstreet v. Shoney’s, Inc., 4 S.W.3d at 695.
Thus, a trial court’s discretionary decision should be reviewed to
determine: (1) whether the factual basis for the decision is supported
by the evidence, (2) whether the trial court identified and applied the
applicable legal principles, and (3) whether the trial court’s decision
is within the range of acceptable alternatives. See BIF v. Service
Constr. Co., 1988 Tenn. App. LEXIS 430, 1988 WL 72409, at *3.
Appellate courts should permit a discretionary decision to stand if
reasonable judicial minds can differ concerning its soundness. See
Overstreet v. Shoney’s, Inc., 4 S.W.3d at 695.
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White, 21 S.W.3d at 223; see also State ex rel. Vaughn v. Kaatrude, 21 S.W.3d 244, 248 (Tenn.
Ct. App. 2000). “The abuse of discretion standard does not permit the appellate court to substitute
its judgment for that of the trial court.” Eldridge v. Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001) (citing
Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn. 1998)).
III.
ANALYSIS
In order to find a party in civil contempt of an order, the trial court must make a threshold
finding that the party violating the order engaged in willful conduct. Ahern v. Ahern, 15 S.W.3d
73, 79 (Tenn. 2000); Haynes v. Haynes, 904 S.W.2d 118, 120 (Tenn. Ct. App. 1995). Willful
conduct can be defined as follows:
“Willfulness” does not require the same standard of
culpability required by the penal code. G.T. v. Adoption of A.E.T.,
725 So. 2d 404, 409 (Fla. Dist. Ct. App. 1999). Nor does it require
malevolence or ill will. In re Adoption of a Minor, 343 Mass. 292,
178 N.E.2d 264, 267 (Mass. 1961). Willful conduct consists of acts
or failures to act that are intentional or voluntary rather than
accidental or inadvertent. In re Mazzeo, 131 F.3d 295, 299 (2d Cir.
1997); United States v. Phillips, 19 F.3d 1565, 1576 (11th Cir. 1994);
In re Adoption of Earhart, 117 Ohio App. 73, 190 N.E.2d 468, 470
(Ohio Ct. App. 1961); Meyer v. Skyline Mobile Homes, 99 Idaho 754,
589 P.2d 89, 96 (Idaho 1979). Conduct is “willful” if it is the product
of free will rather than coercion. Thus, a person acts “willfully” if he
or she is a free agent, knows what he or she is doing, and intends to
do what he or she is doing.
In re Adoption of Muir, No. M2002-02963-COA-R3-CV, 2003 Tenn. App. LEXIS 831, at *14–15
(Tenn. Ct. App. Nov. 25, 2003); see also BLACK’S LAW DICTIONARY 1593 (7th ed. 1999). On appeal,
United Studios argues that, by supplying the affidavit of Mr. Nelson, it complied with the trial
court’s order and cannot be found to have engaged in willful disobedience of that order. We agree.
To properly evaluate the trial court’s finding of contempt based on a perceived violation of
a prior order, we necessarily must begin with the order itself. The April 29, 2004 order required
United Studios to (1) submit a sworn statement stating the amounts, if any, it believed it owed to
United Color Lab and the basis for that statement, and (2) submit a sworn statement stating the
amounts, if any, it believed that United Color Lab owed it and the basis for that statement. At the
hearing on United Color Lab’s petition for contempt, the chancellor stated that, at the time he entered
the order, he intended for “basis” to mean “detail.” In the order finding United Studios in contempt,
the chancellor stated that Mr. Nelson’s affidavit “did not have enough ‘detail’ to satisfy ‘the basis
therefore [sic].”
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It is a well established principle of our appellate jurisprudence that “[a] court speaks only
through its written judgments, duly entered upon its minutes. Therefore, no oral pronouncement is
of any effect unless and until made a part of a written judgment duly entered.” Sparkle Laundry &
Cleaners, Inc. v. Kelton, 595 S.W.2d 88, 93 (Tenn. Ct. App. 1979) (citations omitted); see also
Lewis v. Brooks, 66 S.W.3d 883, 886 (Tenn. Ct. App. 2001); City of Newport v. Masengill Auction
Co., 19 S.W.3d 789, 795–96 (Tenn. Ct. App. 1999); Evans v. Perkey, 647 S.W.2d 636, 641 (Tenn.
Ct. App. 1982). When interpreting a trial court’s order, we cannot rely on oral statements made from
the bench, as they are of no effect unless they have been incorporated into the court’s order or
judgment. DLLP, LLC v. Int’l Creative Mgmt., Inc., No. E2002-02452-COA-R3-CV, 2003 Tenn.
App. LEXIS 452, at *6–7 (Tenn. Ct. App. June 25, 2003) (no perm. app. filed); City of Newport, 19
S.W.3d at 795–96. “Rather, we must look only to the language of that order, at least to the extent
that the language is clear and unambiguous.” DLLP, LLC, 2003 Tenn. App. LEXIS 452, at *6–7.
There is nothing in the initial order which required United Studios to supply, in detailed form,
the reasons for Mr. Nelson’s assertions in his affidavit. Within the time permitted by the order,
United Studios submitted the affidavit of its president, Mr. Nelson, setting forth the reasons why it
felt it did not owe the money sought by United Color Lab. The trial court’s subsequent interpretation
of that order is of no effect. Had the trial court wished for United Studios to supply a detailed
explanation of its position (i.e. produce documents or other materials) in this case, it could have
stated as much in the order. We find that the affidavit submitted by United Studios complied with
the order by stating the basis for its position in this case. Accordingly, United Studios did not
willfully violate the chancery court’s order.
There are additional reasons for our decision in this case. United Color Lab argues that it was
proper for the chancellor to impose sanctions against United Studios since United Studios failed to
cooperate with discovery. We find this argument to be totally lacking in merit.
United Color Lab filed its complaint in this case on March 18, 2004. The chancellor held
a hearing on April 15, 2004, after which it ordered United Studios to supply the sworn statements
at issue. On April 22, 2004, United Studios filed a motion to dismiss the complaint for lack of
personal jurisdiction. Thus, no answer to the complaint was due at the time the chancellor ordered
United Studios to disclose the information.3 United Color Lab seems to suggest that the order at
issue constitutes an order to compel discovery. Yet, we have no transcript of the April 15, 2004
hearing, therefore, we cannot ascertain the chancellor’s reasons for ordering United Studios to
provide the basis for its position regarding the amounts allegedly owed. Rule 37 of the Tennessee
Rules of Civil Procedure does allow for the imposition of penalties when a party fails to cooperate
in the discovery process. “A party, upon reasonable notice to other parties and all person affected
3
“A defendant shall serve an answer within 30 days after the service of the summons and complaint upon the
defendant.” T EN N . R. C IV . P. 12.01 (2005). “The service of a motion permitted under this rule alters these periods of
time” so that, in the event the trial court denies the motion, the defendant has fifteen days after notice of such action in
which to file an answer. Id. United Studios filed its motion for lack of personal jurisdiction pursuant to Tennessee Rule
of Civil Procedure 12.02(2) on April 22, 2004, and while it subsequently filed an answer waiving personal jurisdiction,
no answer was due at the time of the trial court’s order, which was not entered until April 29, 2004.
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hereby, may apply for an order compelling discovery . . . .” TENN . R. CIV . P. 37.01 (2005) (emphasis
added). If a party fails to comply with an order directing that party to comply with discovery, “the
court in which the action is pending may make such orders in regard to the failure as are just,” to
include “[a]n order refusing to allow the disobedient party to support or oppose designated claims
or defenses, or prohibiting that party from introducing designated matters in evidence.” TENN . R.
CIV . P. 37.02 (2005). Nowhere in the order at issue do we find any mention of an application for an
order compelling discovery. Nor does the order reference any failure on the part of United Studios
to comply with any discovery request submitted by United Color Lab.
Tennessee Rule of Civil Procedure 26.01 sets forth the methods of discovery to include oral
depositions, written depositions, written interrogatories, production of documents, physical and
mental examinations, and requests for admissions. Each of these methods of discovery are discussed
more fully in Tennessee Rules of Civil Procedure 27 through 36. Had United Color Labs wished
to obtain certain information from United Studios regarding the debt allegedly owed, it certainly
could have submitted a discovery request to United Studios, even though no answer was due at the
time. See, e.g., TENN . R. CIV . P. 30.01 (2005) (noting that a party may, with leave of court, take the
testimony of a person after the commencement of an action but before the expiration of the thirty
days in which the defendant may file an answer); TENN . R. CIV . P. 34.02 (2005) (stating that a party,
without requesting leave of court, may serve upon a defendant, “with or after service of the summons
and complaint,” a request for the production of certain items, “except that a defendant may serve a
response within 45 days after service of the summons and complaint.”). Nowhere in the record
before this Court do we find any discovery requests submitted by either party. Nor do we find any
mention of Tennessee Rule of Civil Procedure 37 or an alleged violation of discovery in United
Color Lab’s petition for contempt. Instead, United Color Lab merely stated in its petition that United
Studios “failed to make any specific factual statements regarding invoices that had been furnished
to them by the Plaintiff.”
Regarding a court’s use of its contempt power, our supreme court has stated as follows:
While the power to punish for contempt may and should be
used in an appropriate case, it should not be used unless the case
clearly calls for its exercise. The power should be exercised only
when necessary to prevent actual, direct obstruction of, or
interference with, the administration of justice.
Robinson v. Air Draulics Eng’g Co., Inc., 377 S.W.2d 908, 911–12 (Tenn. 1964). Discretionary
decisions require the trial court to view the facts in light of the applicable legal principles. Ballard
v. Herzke, 924 S.W.2d 652, 661 (Tenn. 1996). Based on the fact that United Studios submitted an
affidavit setting forth its position and the basis for that position as required by the language of the
order, an answer was not yet due from United Studios when the trial court entered the order due to
the pending motion to dismiss for lack of personal jurisdiction, and United Studios never received
a discovery request from United Color Lab pursuant to the Tennessee Rules of Civil Procedure, we
hold that the chancellor abused his discretion in finding United Studios in contempt.
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IV.
CONCLUSION
For the aforementioned reasons, we find that the chancery court abused its discretion in
finding the Appellant in contempt of a prior order. As a result, we must vacate the final judgment
entered by the chancery court and remand this case for further proceedings. Costs of this appeal are
to be taxed to the Appellee, United Color Lab & Digital Imaging, Inc., for which execution may
issue if necessary.
___________________________________
ALAN E. HIGHERS, JUDGE
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