Angela Brandenburg v. James Steven Hayes ( 2010 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
February 2, 2010 Session
ANGELA BRANDENBURG, ET AL. v. JAMES STEVEN HAYES, ET AL.
Appeal from the Circuit Court for Sevier County
No. 2007-0269-II Richard R. Vance, Judge
No. E2009-00405-COA-R3-CV - FILED JULY 14, 2010
Plaintiff filed a complaint against Defendant Husband and Wife seeking injunctive relief.
Wife filed a counterclaim and cross-claim against Plaintiff and Husband alleging fraudulent
conveyance, conversion, and misappropriation of assets. After a bench trial, the trial court
found that Plaintiff and Husband devised a scheme to cloud the ownership of the business
jointly owned by Husband and Wife and to hide assets from Wife during an impending
divorce. The trial court awarded damages totaling $175,000 to Wife. Plaintiff appeals. We
affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which H ERSCHEL P. F RANKS,
P.J., and D. M ICHAEL S WINEY, J., joined.
Steven E. Marshall, Sevierville, Tennessee, for the appellants, Angela Brandenburg and
Black Bear Cabins & Weddings, Inc.
Scott D. Hall, Sevierville, Tennessee, for the appellee, Cynthia Herron Hayes.
Douglas R. Beier, Morristown, Tennessee, for the appellee, James Steven Hayes.1
OPINION
I. BACKGROUND
James Steven Hayes (“Husband”) and Cynthia Herron Hayes (“Wife”) were married
1
James Steven Hayes did not file a brief for this appeal.
and together operated a wedding chapel business. The couple later expanded their operation
to include an overnight cabin rental business. In 2004, the Hayeses merged the wedding
chapel business and cabin rental company into one entity – Mountain Mist Cabins &
Weddings (“Mountain Mist”). When marital problems arose, the couple separated and they
limited their communication with each other. After separating, the Hayeses agreed that
Husband would manage one of the wedding chapels while Wife assumed control over the
other wedding chapel. The cabin rental business was to continue with Wife’s involvement
until a divorce settlement was finalized.
Angela Brandenburg (“Brandenburg”) worked as an office manager at Mountain Mist
in 2004. At that time, Mountain Mist was primarily managed by Husband. Brandenburg’s
duties as the office manager included handling payroll, bookkeeping, making reservations,
and addressing the needs of homeowners. As the office manager, Brandenburg earned a
salary of $600 per week.
According to Brandenburg, after she worked at Mountain Mist for about six months,
Husband abandoned the business because of his financial problems. Eventually, Husband
filed for Chapter 7 personal bankruptcy in July 2005.
After Husband allegedly abandoned Mountain Mist, Brandenburg incorporated a
business, Black Bear Cabins & Weddings (“Black Bear”), in Sevier County in February
2005. She used the chapel formerly associated with Mountain Mist after executing a lease
with Husband for the chapel building. Brandenburg also took over the escrow account for
Mountain Mist and created a separate checking account for Black Bear.
For a time, Husband was an employee of Black Bear, and he received a weekly salary
of $600. Husband worked for Black Bear up until April 27, 2007, when Brandenburg filed
a complaint for injunctive relief against both Husband and Wife.2 In the complaint,
Brandenburg asserted that she was the owner of Black Bear. Brandenburg filed her
complaint after the Hayeses divorce proceeding was finalized. The final divorce decree was
entered April 18, 2007.3
2
Husband filed for unemployment benefits after leaving Black Bear. Husband collected
approximately $2,750 in unemployment compensation benefits. He eventually returned the benefits after
the Appeals Tribunal for the Tennessee Department of Labor found that he was not entitled to unemployment
benefits.
3
In the final divorce decree, Wife was awarded all of the assets associated with Black Bear f/d/b/a
Mountain Mist including the domain names and URLs associated with Black Bear, the reservation system,
the telephone numbers, the accounts, and all equipment.
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Wife and Husband filed separate answers to Brandenburg’s complaint, and Wife
eventually filed a counter-complaint and cross-claim against Brandenburg and Husband
alleging fraudulent conveyance, conversion, and misappropriation of assets.
According to Wife, Husband and Brandenburg devised a scheme to hide assets from
her during their impending divorce proceeding. In order to avoid complying with the
automatic injunction concerning marital assets, Husband rolled the assets of Mountain Mist
into a new legal entity – Black Bear. Black Bear was created in order for Husband to
maintain legal control over Mountain Mist and its assets.
After a bench trial, the trial court found that Brandenburg assisted Husband in
deceiving Wife and awarded $175,000 in compensatory damages to Wife. The trial court
also determined that Wife was the rightful owner of the business and she was entitled to
control over the assets associated with Black Bear. Brandenburg appeals the trial court’s
decision to award control of Black Bear and damages to Wife.
II. ISSUES
1. Whether the trial court erred in finding that fraud was committed by
Brandenburg.
2. Whether there is sufficient evidence to support the trial court’s award
of damages to Wife.
III. STANDARD OF REVIEW
We accord a presumption of correctness to the factual findings of a trial court sitting
without a jury on appeal. Those findings will not be overturned unless the evidence
preponderates against them. See Tenn. R. App. P. 13(d). With respect to legal issues, this
court’s review is conducted under a pure de novo standard of review. S. Constructors, Inc.
v. Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn. 2001). This court affords
“considerable deference to the trial court’s factual findings, especially where issues of
credibility and weight of testimony are involved.” Bryant v. Baptist Health Sys. Home Care,
213 S.W.3d 743, 750 (Tenn. 2006).
We review a trial court’s award of damages under an abuse of discretion standard.
The trier of fact has discretion in determining a fair and reasonable assessment of damages.
BankcorpSouth Bank, Inc. v. Hatchel, 223 S.W.3d 223, 230 (Tenn. Ct. App. 2006). “Under
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the abuse of discretion standard, a trial court’s ruling will be upheld so long as reasonable
minds can disagree as to the propriety of the decision made.” Eldridge v. Eldridge, 42
S.W.3d 82, 85 (Tenn. 2001) (citations omitted). Only when a trial court “applies an incorrect
legal standard or reaches a decision which is against logic or reasoning or that causes an
injustice to the party complaining” do we find that the trial court abused its discretion. Id.
IV. DISCUSSION
A.
Brandenburg contends that there is no evidence that she or Black Bear committed any
acts of fraud. Brandenburg asserts that the trial court erred by concluding that she committed
fraud. Essentially, Brandenburg claims that there is a complete lack of proof in this case.
In Tennessee, fraud is never presumed. There is a presumption “in favor of fairness
of the transaction and the innocence of the person accused.” Williams v. Spinks, 7 Tenn.
App. 488, 494 (1928). Therefore, persons alleging fraud “must establish their charges by a
preponderance of the evidence and not leave the matter to mere speculation or guess.” See
Jarmakowicz v. Suddarth, No. M1998-00920-COA-R3-CV, 2001 WL 196982, at *11 (Tenn.
Ct. App. M.S., Feb. 28, 2001) (citations omitted). A plaintiff that “alleg[es] the tort of fraud
in an action for damages,” must meet “a preponderance of the evidence burden of proof.”
Elchlepp v. Hatfield, 294 S.W.3d 146, 150 (Tenn. Ct. App. 2008) (citing Noblin v.
Christiansen, No. M2005-01316-COA-R3-CV, 2007 WL 1574273, at *11 (Tenn. Ct. App.
M.S., May 30, 2007)).
A fraudulent conveyance is one made “[w]ithout a fair consideration, leaving the
grantor insolvent; or. . .[m]ade with actual intent to hinder, delay or defraud creditors.” Hicks
v. Whiting, 258 S.W. 784, 794 (Tenn. 1924). A determination of whether a conveyance is
fraudulent is dependent upon the facts and circumstances of each case; such fraud is typically
proven by circumstantial evidence. Macon Bank & Trust Co. v. Holland, 715 S.W.2d 347,
349 (Tenn. Ct. App. 1986). “Badges of fraud” is a term to describe facts that create
suspicion around a transaction and “call for an explanation.” Id.; see also Nadler v.
Mountain Valley Chapel Bus. Trust, No. E2003-00848-COA-R3-CV, 2004 WL 1488544, at
*2 (Tenn. Ct. App. E.S., June 30, 2004).4
4
The following are considered “badges of fraud” by Tennessee courts:
1. The transferor is in a precarious financial condition;
2. The transferor knew there was or soon would be a large money judgment rendered against the
transferor;
(continued...)
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Conversion is “the appropriation of the thing to the party’s own use and benefit, by
the exercise of dominion over it, in defiance of plaintiff’s right.” See Paehler v. Union
Planters Nat’l Bank, 971 S.W.2d 393, 398 (Tenn. Ct. App. 1997) (quoting Mammoth Cave
Prod. Credit Ass’n v. Oldham, 569 S.W.2d 833, 836 (Tenn. Ct. App. 1977)).
In the instant case, the trial court awarded complete control and ownership of Black
Bear to Wife after finding that Brandenburg and Husband perpetuated a fraud to hide assets
from Wife. This court affords “considerable deference” to a trial court’s factual
determinations “when the trial court has heard in court testimony.” See Tryon v. Saturn
Corp., 254 S.W.3d 321, 327 (Tenn. 2008). Our review of the record indicates that the trial
court’s findings are supported by a preponderance of the evidence.
Several witnesses testified at the bench trial including Brandenburg. The trial
testimony overwhelmingly establishes that Brandenburg participated in a scheme with
Husband to hide the assets of Mountain Mist by folding them into a new entity – Black Bear.
Husband testified that he was the owner of Black Bear and that Mountain Mist and Black
Bear were the same operation. In explaining why he changed the name of the company,
Husband testified, as follows:
Trying to cloud the issue with my ex-wife on ownership of the business. We
were in the middle of a divorce.
On cross examination, Husband admitted to making false statements on his bankruptcy
petition under the penalty of perjury. On the bankruptcy petition, Husband failed to claim
an ownership interest in Mountain Mist or Black Bear. Nonetheless, in his cross examination
testimony, Husband maintained that he started Black Bear with money from Mountain Mist.
Husband’s testimony was corroborated by his mother, Evelyn Hayes. She worked at both
Mountain Mist and Black Bear, and she testified that Husband retained ownership in Black
4
(...continued)
3. Inadequate consideration was given for the transfer;
4. Secrecy or haste existed in carrying out the transfer;
5. A family or friendship relationship existed between the transferor and the transferee(s);
6. The transfer included all or substantially all of the transferor’s nonexempt property;
7. The transferor retained a life estate or other interest in the property transferred;
8. The transferor failed to produce available evidence explaining or rebutting a suspicious
transaction; and
9. There is a lack of innocent purpose or use for the transfer.
See Nadler, 2004 WL 1488544, at *2 (citing Stevenson v. Hicks (In re Hicks), 176 B.R. 466, 470 (Bankr.
W.D. Tenn. 1995)).
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Bear. According to Ms. Hayes, Brandenburg claimed to be Husband’s friend and that she
allowed Husband to put the business in her name in order to conceal his actual ownership of
Black Bear.
Although Brandenburg claims that Husband abandoned the business and she is the
sole proprietor of Black Bear, her own trial testimony raises suspicion over the creation of
Black Bear. Brandenburg testified that she incorporated Black Bear in February 2005 and
she operated the business after Husband abandoned it. In her direct testimony, Brandenburg
stated:
He had a wedding chapel and I ended up leasing the wedding chapel from him.
He abandoned it.
Nevertheless, Brandenburg acknowledged, on cross examination, that she had no
documentation verifying a transfer of assets to her from Husband. She further admitted that
the transfer of the account number associated with Mountain Mist’s phone numbers to an
account number for Black Bear listed Husband as both the buyer and the seller. Brandenburg
offered no consideration in exchange for the business and its assets. From Brandenburg’s
testimony, it becomes clear that the employees, the equipment, the websites, and the
customers for Black Bear derived from one source: Mountain Mist.
Importantly, Brandenburg’s testimony that Husband was her employee and that she
was oblivious to the details of Husband’s scheme to hide assets during the impending divorce
is directly contradicted by the testimony of Diana Farmer, a paralegal for attorney John
Fowler. Mr. Fowler represented Husband in the bankruptcy and the divorce proceedings.
Ms. Farmer met with Husband and Brandenburg for the purpose of preparing for both of
those matters. She explained that Husband and Brandenburg were together “ninety percent
of the time” for visits at the office with her. Ms. Farmer’s testimony also revealed that
Brandenburg acknowledged that Husband owned Black Bear and that she served as the office
manager. She further testified that Husband leased the wedding chapel to Brandenburg for
the purpose of disguising his ownership interest in the chapel for the bankruptcy petition.
The following exchange occurred at trial between Ms. Farmer and the court.
Ms. Farmer: In the preparing of the bankruptcy petition, it was mentioned the
fact that he owned the cabins, the rental cabins of Black Bear, and that there
was equity in that, and as part of that it was like if you had a joint ownership,
if the cabins were leases or whatever, that would take away your equity in that.
Well, then the lease came into play.
The court: And what did Ms. Brandenburg say?
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Ms. Farmer: I actually gave them a lease to go by and she said that she had a
friend that could backdate it. And that’s where the information came in when
I was doing the bankruptcy petition.
Ms. Farmer’s testimony is corroborated by the exhibits introduced at trial. The Lease
Agreement for the chapel (“the Lease”) entered into by Brandenburg and Husband includes
two different dates. The Lease states that it was entered into on February 1, 2005, but the
notary public averred that the Lease was executed on February 1, 2004. Further, Black
Bear’s corporate charter lists February 11, 2005, as the date of incorporation. Ms. Farmer’s
testimony not only explains the inconsistencies in the Lease, but it also demonstrates that
there was an intentional and deliberate plan to hide assets on the part of Brandenburg and
Husband. In spite of Brandenburg’s claims to the contrary, the scheme to shelter the assets
of Mountain Mist under the name of Black Bear appears fairly obvious.
Therefore, in light of the above proof, the preponderance of the evidence shows that
Black Bear came into existence by fraudulent conveyance, conversion, and misappropriation
of assets. Brandenburg’s contentions challenging the sufficiency of the proof are wholly
without merit. We conclude that the evidence in the record overwhelming establishes that
Brandenburg offered no consideration for the business or its assets and that she participated
in a scheme to shelter assets from their rightful owner – Wife. Nothing in the record
preponderates against the trial court’s findings. Accordingly, we affirm.
B.
It is well settled that the party seeking damages assumes the burden of proof as to
those damages. Waggoner Motors, Inc. v. Waverly Church of Christ, 159 S.W.3d 42, 57
(Tenn. Ct. App. 2004); Inman v. Union Planters Nat’l Bank, 634 S.W.2d 270, 272 (Tenn. Ct.
App. 1982). Damages cannot be based on mere conjecture or speculation. Overstreet v.
Shoney’s, Inc., 4 S.W.3d 694, 703 (Tenn. Ct. App. 1999). Uncertain, contingent, or
speculative damages are unrecoverable. Western Sizzlin, Inc. v. Harris, 741 S.W.2d 334, 336
(Tenn. Ct. App. 1987) (quoting Maple Manor Hotel, Inc. v. Metropolitan Gov’t of Nashville
& Davidson County, 543 S.W.2d 593, 599 (Tenn. Ct. App. 1975)). An award for damages
requires proof of damages within a reasonable degree of certainty. Western Sizzlin, 741 S.W.
2d at 336 (citing Wilson v. Farmers Chem. Ass’n, 444 S.W.2d 185, 189 (Tenn. Ct. App.
1969)). An injured party may recover lost profits “when their nature and occurrence have
been established with reasonable certainty.” Waggoner Motors, 159 S.W.3d at 58 (citing
Baker v. Hooper, 50 S.W.3d 463, 470 (Tenn. Ct. App. 2001)) (other supporting citations
omitted).
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To recover punitive damages, a trial court must find that a defendant acted either
intentionally, fraudulently, maliciously, or recklessly. Hodges v. S.C. Toof & Co., 833
S.W.2d 896, 901 (Tenn. 1992). Hodges explains that “the primary purpose of a punitive
award is to deter misconduct, while the purpose of compensatory damages is to make
plaintiff whole.” Id. at 902. A party seeking punitive damages must prove a defendant’s
culpable conduct by clear and convincing evidence. Barnett v. Lane, 44 S.W.3d 924, 928
(Tenn. Ct. App. 2000). A finding by clear and convincing evidence means that “there is no
serious or substantial doubt about the correctness of the conclusions drawn from the
evidence.” Hodges, 833 S.W.2d at 901. It is within the trial court’s discretion to award
punitive damages. See Hunter v. Jackson, No. W2002-02857-COA-R3-CV, 2003 WL
22071461, at *2 (Tenn. Ct. App. W.S., Aug. 26, 2003).
Brandenburg argues that the only proof of any damages is the testimony of Wife.
During Wife’s testimony, she estimated her loss of profits on the rental property.
Brandenburg insists that Wife’s testimony alone cannot support an award for punitive
damages, and she claims that Wife produced no corroborating evidence in support of her
claim.
Wife counters that “mathematical certainty” is not required for damages awards when
“there is substantial evidence in the record and a reasonable inference may be drawn from
that evidence.” See ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 28 (Tenn. Ct.
App. 2005). “Otherwise in certain instances, the courts would be powerless to help some
wronged parties.” See id.; Cummins v. Brodie, 667 S.W.2d 759, 765 (Tenn. Ct. App. 1983).
We agree.
It appears from the record that the trial court did not award punitive damages as
claimed by Brandenburg. The trial court found that “the gross sales of the business” were
between $100,000 to $150,000 per year based on Wife’s testimony. As a result, the trial
court determined that “$100,000 a year would be a reasonable value of income from the
business.” By the time of trial, 21 months had passed since the entry of the divorce decree
awarding ownership of Black Bear to Wife. The trial court awarded $175,000 in damages
to Wife for lost profits for the period of 21 months.
The evidence of Wife’s lost profits was unrebutted. Wife testified to the worth and
the annual revenues of Mountain Mist from 2005 through 2008. At the time that Husband
and Brandenburg seized the business, it was worth over a million dollars.
In light of the above evidence, the trial court correctly found that Wife lost $100,000
per year over the period of 21 months. “The law does not require exactness of computation
in suits that involve a question of damages growing out of contract or tort.” Hatchel, 223
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S.W.3d at 223. After Wife established the fact that she suffered damages, less certainty was
required with regard to the amount of damages. See Waggoner Motors, 159 S.W.3d at 58.
“The amount of lost profits damages may be based on estimates.” Id. Wife’s testimony
regarding the gross sales and net worth of the business was sufficient to support the trial
court’s award of damages. The trial court did not abuse its discretion by awarding
compensatory damages to Wife for lost profits due to the fraud committed by Brandenburg
and Husband. Accordingly, we affirm.
V. CONCLUSION
The judgment of the trial court is affirmed. Costs are assessed against the appellant,
Angela Brandenburg. The case is remanded, pursuant to applicable law, for enforcement of
the trial court’s judgment and for collection of costs assessed below.
_________________________________
JOHN W. McCLARTY, JUDGE
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