IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 22, 2006 Session
SMITH MECHANICAL CONTRACTORS, INC. v.
PREMIER HOTEL DEVELOPMENT GROUP, ET AL.
Appeal from the Chancery Court for Washington County
Nos. 33710, 34123, and 34128 G. Richard Johnson, Chancellor
No. E2004-03016-COA-R3-CV - FILED JULY 12, 2006
This appeal involves the construction of a hotel in Johnson City, Tennessee. During construction,
the general contractor, Barker Building Company, Inc., (“Barker Building”) agreed to subordinate
its lien rights to a deed of trust to be filed by First Tennessee Bank (the “Bank”) related to the Bank’s
loaning of funds which allegedly were represented to Barker Building as being sufficient to complete
construction of the hotel. In reliance on the alleged representation and in order to protect its
subcontractors, Barker Building, before entering into the Subordination Agreement, also obtained
a Performance Bond to assure that its subcontractors would be paid. Barker Building obtained the
Performance Bond from Travelers Casualty & Surety Company of America (“Travelers”). Several
lawsuits were filed and the hotel’s owner filed for bankruptcy protection. One of the lawsuits filed
was a suit for injunctive relief filed by the Appellants in this appeal, Barker Building and Travelers,
against the Appellee in this appeal, the Bank, seeking injunctive relief for various reasons after the
Bank filed the Performance Bond with the Register of Deed’s Office in order to bond-off
subcontractors’ claims. The lawsuit seeking injunctive relief was resolved in favor of the Bank by
a judgment on the merits which became final several years ago. The lawsuit now on appeal involves
various other claims by Barker Building and Travelers against the Bank challenging the validity of
the Subordination Agreement and Performance Bond. The Trial Court ruled all claims by Barker
Building and Travelers against the Bank at issue in the lawsuit now on appeal were barred by the res
judicata effects of their previously completed lawsuit against the Bank seeking injunctive relief. We
affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the
Chancery Court Affirmed; Case Remanded
D. MICHAEL SWINEY , J., delivered the opinion of the court, in which CHARLES D. SUSANO , JR., and
SHARON G. LEE, JJ., joined.
William T. Alt, Chattanooga, Tennessee, for the Appellants Barker Building Company, Inc., and
Travelers Casualty & Surety Company of America.
P. Edward Pratt, Knoxville, Tennessee, for the Appellees First Tennessee Bank National Association
and K. Newton Raff, Trustee.
OPINION
Background
This lawsuit involves the building of the Carnegie Hotel (the “Hotel”) in Johnson
City, Tennessee. The Hotel was owned and built by Premier Hotel Development Group and Premier
Investment Group (“Premier”). The general contractor was Barker Building. The mechanical
subcontractor utilized by Barker Building was Smith Mechanical Subcontractors, Inc. (“Smith
Mechanical”). The land on which the hotel was built was owned by the City of Johnson City
(“Johnson City”).
One of Premier’s principals was Sam Easley (“Easley”). Easley initially utilized a
personal line of credit with the Bank to fund a portion of the construction. Easley’s personal line of
credit was not secured by the Hotel property. As construction proceeded, Easley sought additional
construction funding from the Bank. Before the Bank would loan any funds for further construction
of the Hotel, the Bank insisted that Barker Building would have to execute a Subordination
Agreement subordinating its lien rights to a deed of trust to be filed by the Bank once it loaned the
money.
Barker Building’s President is Robert Feathers (“Feathers”). When Feathers was
approached about entering into a Subordination Agreement, he understood the agreement would
subordinate Barker Building’s lien rights to the Bank’s deed of trust. Feathers, however, was
uncertain the effect such an agreement would have on the lien rights of the various subcontractors.
Due to this uncertainty and because he wanted to ensure that the subcontractors were paid, Barker
Building obtained a $4 million Performance Bond to cover any potential claims of the subcontractors
before it executed the Subordination Agreement. The Performance Bond was issued by Travelers.
Another relevant event is how the closing for the Subordination Agreement happened.
The attorney who drafted the pertinent documents and otherwise handled the closing was Cynthia
Kessler from the law firm of Hunter, Smith & Davis, L.L.P. (“H, S & D”). Feathers was familiar
with H, S & D because that firm had represented Barker Building and/or Feathers. H, S & D also
had done legal work for the Bank and Premier. According to Feathers’ affidavit, when he was
contacted by attorney Kessler regarding the closing, Feathers was surprised that law firm was
handling the closing as they represented the various parties on other matters. Feathers stated that
Kessler told him that H, S & D had been retained because of the relationship it had with all three
-2-
parties and with that law firm as the closing agent, the loan should close quickly. In his affidavit,
Feathers stated that because H, S & D had represented him and/or Barker Building and because that
firm was handling the closing, he believed that “Ms. Kessler’s interests were my interests and that
she would not allow Barker Building to be harmed in the closing.” According to Feathers, Kessler
assured him that there was plenty of money available from the loan proceeds to pay for the
completion of the Hotel. Feathers claims that in reliance on this assurance, he obtained the
Performance Bond and then executed the Subordination Agreement which subordinated Barker
Building’s lien rights to the Bank’s deed of trust.
This lawsuit began with the filing of a complaint by subcontractor Smith Mechanical
on August 30, 2000. Smith Mechanical sued Premier, Barker Building, the Bank, K. Newton Raff1,
and Johnson City. Smith Mechanical claimed it was owed $979,282.71 for work performed on the
Hotel. Smith Mechanical essentially sought to enforce a mechanics and materialmen’s lien on the
property. In the alternative, Smith Mechanical sought $979,282.71 based on the theory of unjust
enrichment. Smith Mechanical sued the various defendants because each had an interest in the
property, but the crux of its claims were against the general contractor, Barker Building, and the
owner, Premier.
Barker Building also was owed money by Premier. Even though Barker Building had
entered into the Subordination Agreement, it took steps to attempt to perfect a mechanics and
materialmen’s lien against the property in the amount of $3.6 million.2 Barker Building needed to
perfect its lien because it intended to claim the Subordination Agreement was invalid because it was
procured by fraud. Barker Building then filed a cross-claim and a third party complaint seeking the
$3.6 million it was owed, plus interest. Barker Building cross-claimed against Premier, Johnson
City, and the Bank. Barker Building filed a third party complaint against the general partners of
Premier, which included Premier Investment Group, Easley Family Limited Partnership, Samuel T.
Easley, and Christopher Hannah.
Prior to Barker Building’s filing its cross-claims and third party claims, Barker
Building and Premier entered into a tentative settlement agreement. Because Smith Mechanical was
negotiating its own settlement, the settlement agreement between Barker Building and Premier did
not affect Smith Mechanical’s claims. In any event, Barker Building agreed to settle for $2,107,000,
which it claims was sufficient to pay only the subcontractors. The settlement agreement was
conditioned upon the happening of two events: (1) the subcontractors (excluding Smith Mechanical)
agreeing to settle for the amount set forth in the settlement agreement; and (2) Smith Mechanical
reaching its own agreement to settle with Premier and then releasing its claims against Barker
Building and its surety on the Performance Bond, i.e., Travelers. When Premier was unable to settle
all claims with Smith Mechanical and, in turn, was unable to obtain a release for Barker Building
1
Raff is the Trustee on First Tennessee Bank’s Deed of Trust which secured the Hotel property. For ease of
reference only, for the remainder of this Opinion we will refer to First Tennessee Bank and Raff collectively as the Bank.
2
This amount was later reduced after Barker Building received partial payment.
-3-
and Travelers, Barker Building filed the cross-claims and third party complaint claiming, among
other things, that the settlement agreement was null and void. Barker Building essentially brought
claims against Premier based on breach of contract and for enforcement of a materialmen’s lien.
Barker Building also brought claims for intentional and/or negligent misrepresentation and/or fraud
against the Bank, Premier, and Easley based on the events referenced above surrounding the closing
of the Subordination Agreement.
The Bank asserted as one of its defenses that Smith Mechanical’s lien was subject to
being bonded off by the Performance Bond issued by Travelers. The Bank, as a third-party plaintiff,
sued Travelers as a third-party defendant, seeking indemnity pursuant to the Performance Bond.
Barker Building and Travelers then filed a separate lawsuit, the second lawsuit,
against the Bank and the Washington County Register of Deeds seeking injunctive relief. Barker
Building and Travelers claimed that the Bank had improperly filed a “Bond for Release of Lien”
which relied on Travelers’ Performance Bond to release any liens. After filing the Bond for Release
of Lien, the Bank intended to sell the Hotel free of any liens which it claimed would have to be paid
by Travelers. Barker Building and Travelers sought an injunction ordering the allegedly improperly
filed Bond for Release of Lien be removed from the official records of the Register of Deeds. Barker
Building and Travelers also sought an injunction preventing the sale of the Hotel free from any liens
or, if the Hotel was sold, that an order be entered requiring the money to be held in escrow “pending
a full and complete hearing of the merits of the claims of the plaintiffs.”
Premier filed for bankruptcy at some point. In November of 2001, the Bankruptcy
Court entered an Order lifting the automatic stay “in order to allow the parties to proceed to
judgment in the state court action. Enforcement of any judgment rendered against the debtors … or
against the property of the estate shall remain subject to the automatic stay provisions….” Less than
one month later, the Bankruptcy Court modified its Order to the extent that it specifically ordered
the sale of the Hotel to go forward and ordered the Bank to advertise the sale of the property, etc.
When the separate second lawsuit for injunctive relief filed by Barker Building and Travelers came
up for a hearing, the parties acknowledged that the request for an injunction stopping the sale of the
Hotel essentially was preempted by the Bankruptcy Court’s order. Barker Building and Travelers
proceeded with their request for an injunction to have the “Bond for Release of Lien” removed from
the County’s records. The Trial Court denied this request on the merits and dismissed the separate
second lawsuit altogether, stating the requirements of Tenn. R. Civ. P. 65 had not been met. No
appeal was taken from the order dismissing this separate second lawsuit.
On February 4, 2002, the Bank filed two of three dispositive motions, all three of
which are at the heart of this appeal. The Bank filed: (1) a motion to dismiss Barker Building’s
claims based on a failure to properly perfect its materialmen’s lien, to dismiss the fraud action due
to that claim being moot because the lien was not properly perfected, and to dismiss the claims based
on the Statute of Frauds; and (2) a motion to dismiss and/or motion for summary judgment seeking
to dismiss the claims of Smith Mechanical based on the effect of Travelers’ Performance Bond. The
Bank later filed a third motion to dismiss the claims of Barker Building, asserting those claims were
-4-
barred by the doctrine of res judicata and because Barker Building failed to plead fraud with
particularity.
The Trial Court denied the Bank’s motion for summary judgment as to the claims
advanced by Smith Mechanical. As pertinent to this appeal, the Trial Court then dismissed Barker
Building’s and Travelers’ claims against the Bank for the following reasons: (1) Barker Building
failed to timely perfect its materialmen’s lien; (2) without a valid lien, Barker Building’s claim for
misrepresentation and/or to rescind the Subordination Agreement became moot; (3) the doctrine of
res judicata barred “all claims” by Barker Building and Travelers against the Bank; and (4) Barker
Building’s cross-claim failed to allege fraud in the particularity as required by Tenn. R. Civ. P. 9.02.
The Trial Court later stated two additional reasons to dismiss the misrepresentation
claim against the Bank concerning the closing conducted by attorney Kessler. First, the Trial Court
concluded that to the extent Barker Building relied on the statements of Kessler, it was relying on
the statements of its own attorney rather than the Banks’s attorney, thereby negating an essential
element of a misrepresentation claim. Second, the Trial Court determined that a dual agency
relationship existed with Kessler and the parties to the Subordination Agreement, and that this dual
agency barred imputing any alleged misrepresentation to the Bank.
After the Trial Court ruled that res judicata barred Barker Building’s and Travelers’
claims against the Bank, the Bank moved to have Travelers substituted in its stead as the party
defendant for the claims advanced by Smith Mechanical. The Bank argued that res judicata barred
Travelers from asserting any defense to its obligation under the Performance Bond. The Trial Court
granted this motion and substituted Travelers as the party defendant with regard to the claims
advanced by Smith Mechanical. These particular claims between Smith Mechanical and Travelers
eventually were resolved and an Order of Compromise and Dismissal was entered.
Barker Building and Travelers now appeal the dismissal of their claims against the
Bank. Barker Building and Travelers claim: (1) the Trial Court erred when it concluded that res
judicata barred all of their claims against the Bank; (2) the Trial Court erred when it concluded
Barker Building and/or Travelers failed to state a claim for misrepresentation; and (3) the Trial Court
erred when it dismissed the fraud claim because that claim was pleaded with sufficient particularity
as required by Tenn. R. Civ. P. 9. Barker Building also argues that the Trial Court erred when it
concluded that there was a dual agency relationship between Kessler, Barker Building, and the Bank,
and that this dual agency barred imputing any alleged misrepresentation to the Bank.
The Bank raises two additional issues on appeal. These two additional issues
surround alternative bases upon which the Trial Court could have reached its ultimate result which
the Bank claims was correct. First, the Bank asserts that Barker Building’s misrepresentation claim
also should have been dismissed based on the Statute of Frauds. The Bank’s second issue is a claim
that even though the Trial Court correctly substituted Travelers in its stead because res judicata
precluded Travelers from raising any defense to the validity of the Performance Bond, the Trial
-5-
Court nevertheless erred when it refused to take this same action pursuant to Tenn. Code Ann. § 66-
11-142.
Discussion
We first will address whether the Trial Court correctly determined that the various
claims advanced by Barker Building and Travelers against the Bank were barred by res judicata.
Since matters outside the pleadings were considered by the Trial Court when resolving this particular
issue, we will treat the Bank’s motion to dismiss as a motion for summary judgment in accordance
with Tenn. R. Civ. P. 12.02.3 In Teter v. Republic Parking System, Inc., 181 S.W.3d 330 (Tenn.
2005), our Supreme Court recently reiterated the standards applicable when appellate courts are
reviewing a motion for summary judgment. The Court stated:
The purpose of summary judgment is to resolve controlling
issues of law rather than to find facts or resolve disputed issues of
fact. Bellamy v. Fed. Express Corp., 749 S.W.2d 31, 33 (Tenn.
1988). Summary judgment is appropriate only when the moving
party demonstrates that there are no genuine issues of material fact
and that he or she is entitled to judgment as a matter of law. See
Tenn. R. Civ. P. 56.04; Penley v. Honda Motor Co., 31 S.W.3d 181,
183 (Tenn. 2000); Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993).
In reviewing the record, the appellate court must view all the
evidence in the light most favorable to the non-moving party and
draw all reasonable inferences in favor of the non-moving party.
Staples v. CBL & Assocs., Inc., 15 S.W.3d 83, 89 (Tenn. 2000). And
because this inquiry involves a question of law only, the standard of
review is de novo with no presumption of correctness attached to the
trial court's conclusions. See Mooney v. Sneed, 30 S.W.3d 304, 306
(Tenn. 2000); Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995).
Teter, 181 S.W.3d at 337.
In the December 2001 lawsuit seeking injunctive relief, the second lawsuit, Barker
Building and Travelers sued the Bank and the Washington County Register of Deeds. In this
separate second lawsuit, Barker Building and Travelers noted that in their first lawsuit, the lawsuit
now on appeal, they claimed the Subordination Agreement was the result of “misrepresentation by
the Bank or mistake.” Barker Building and Travelers also alleged: (1) Smith Mechanical filed the
3
In relevant part, Rule 12.02 provides that if, “on a motion asserting the defense numbered (6) to dismiss for
failure to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded
by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all
parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.”
-6-
other lawsuit to enforce a materialmen’s lien and Barker cross-claimed against other defendants,
including the Bank, seeking to enforce Barker Building’s own lien, (2) the Bank filed a “Bond for
Release of Lien” pursuant to Tenn. Code Ann. § 66-11-142; (3) that the Bond was improperly filed
pursuant to that statute; and (4) the Bank had given notice of its intent to sell the Hotel free of any
liens. Barker Building and Travelers then claimed:
As long as the alleged BOND FOR RELEASE OF LIEN
improperly remains on record, any sale of the Hotel Property to a
third party may result in the full and complete loss of the Smith lien
and both Travelers and Barker (sic) rights will be violated and both
will be immediately and irreparably injured or damaged, because both
Barker and Travelers, upon payment of any amount to Smith, will be
deprived of their right to subrogate to Smith’s lien position against
any subsequent owner of the Hotel Property. Barker has agreed to
indemnify Travelers against any loss.
Barker Building and Travelers sought a temporary restraining order preventing the sale of the
property free and clear of any liens “until such liens either are satisfied or bonded off in accordance
with Section 66-11-142 TCA”. Alternatively, Barker Building and Travelers sought an injunction
requiring the Bank to pay any proceeds from the sale of the Hotel into court “pending a full and
complete hearing of the merits….” The final request for relief was an injunction ordering the
Register of Deeds to expunge the Bond for Release of Liens from the County’s records.
As noted previously, after the second lawsuit was filed, the United States Bankruptcy
Court entered an order in November of 2001 which modified the automatic stay and directed the
Bank to proceed with the foreclosure sale. Following entry of the order in Bankruptcy Court, Barker
Building and Travelers acknowledged that the only relief they sought in the second lawsuit which
survived the Bankruptcy Court’s ruling was their request for an injunction seeking expungement of
the Bond for Release of Liens. In January of 2002, the Trial Court entered an order denying the
request for injunctive relief and dismissing that action “in its entirety.” No appeal was taken.
In March of 2002, the Bank filed a motion to dismiss in the case now on appeal
seeking dismissal of the entire cross-claim filed against it by Barker Building and Travelers. The
Bank claimed the dismissal of the separate lawsuit seeking injunctive relief operated to bar the cross-
claims pursuant to the doctrine of res judicata. A hearing was held in August of 2002 after which
the Trial Court entered an order granting the motion to dismiss. The Trial Court’s order as it relates
to the res judicata defense simply states that “the doctrine of res judicata operates to bar all claims
by Barker and Travelers Casualty & Surety Company of America against First Tennessee….”
In Lien v. Couch, 993 S.W.2d 53 (Tenn. Ct. App. 1998), this Court discussed various
aspects of the doctrine of res judicata. We stated:
-7-
Res judicata is a claim preclusion doctrine that promotes
finality in litigation. See Moulton v. Ford Motor Co., 533 S.W.2d
295, 296 (Tenn. 1976); Jordan v. Johns, 168 Tenn. 525, 536-37, 79
S.W.2d 798, 802 (1935). It bars a second suit between the same
parties or their privies on the same cause of action with respect to all
the issues which were or could have been litigated in the former suit.
See Richardson v. Tennessee Bd. of Dentistry, 913 S.W.2d 446, 459
(Tenn. 1995); Collins v. Greene County Bank, 916 S.W.2d 941, 945
(Tenn. Ct. App. 1995).
Parties asserting a res judicata defense must demonstrate that
(1) a court of competent jurisdiction rendered the prior judgment, (2)
the prior judgment was final and on the merits, (3) the same parties
or their privies were involved in both proceedings, and (4) both
proceedings involved the same cause of action. See Lee v. Hall, 790
S.W.2d 293, 294 (Tenn. Ct. App. 1990). A prior judgment or decree
does not prohibit the later consideration of rights that had not accrued
at the time of the earlier proceeding or the reexamination of the same
question between the same parties when the facts have changed or
new facts have occurred that have altered the parties' legal rights and
relations. See White v. White, 876 S.W.2d 837, 839-40 (Tenn. 1994).
The principle of claim preclusion prevents parties from
splitting their cause of action and requires parties to raise in a single
lawsuit all the grounds for recovery arising from a single transaction
or series of transactions that can be brought together. See
Bio-Technology Gen. Corp. v. Genentech, Inc., 80 F.3d 1553, 1563
(Fed. Cir. 1996); Hawkins v. Dawn, 208 Tenn. 544, 548, 347 S.W.2d
480, 481-82 (1961); Vance v. Lancaster, 4 Tenn. (3 Hayw.) 130, 132
(1816). The principle is subject to certain limitations, one of which
is that it will not be applied if the initial forum did not have the power
to award the full measure of relief sought in the later litigation. See
Davidson v. Capuano, 792 F.2d 275, 279 (2d Cir. 1986); Carris v.
John R. Thomas & Assocs., P.C., 896 P.2d 522, 529-30 (Okla. 1995);
see also Rose v. Stalcup, 731 S.W.2d 541, 542 (Tenn. Ct. App. 1987)
(holding that a subsequent action was not barred because the initial
court did not have jurisdiction over the claim). Thus, the Restatement
of Judgments points out:
The general rule [against relitigation of a claim] is
largely predicated on the assumption that the jurisdiction in
which the first judgment was rendered was one which put no
formal barriers in the way of a litigant's presenting to a court
-8-
in one action the entire claim including any theories of
recovery or demands for relief that might have been available
to him under applicable law. When such formal barriers in
fact existed and were operative against a plaintiff in the first
action, it is unfair to preclude him from a second action in
which he can present those phases of the claim which he was
disabled from presenting in the first.
Restatement (Second) of Judgments § 26(1)(c) cmt. c (1982).…
Lien v. Couch, 993 S.W.2d at 55-56. See also Ostheimer v. Ostheimer, No. W2002-02676-COA-R3-
CV, 2004 WL 689881, at *5 (Tenn. Ct. App. Mar. 29, 2004), no appl. perm. appeal filed (“[C]laim
preclusion bars any claims that ‘were or could have been litigated’ in a second suit between the same
or related parties involving the same subject matter.”).
Tenn. R. Civ. P. 65 presupposes that a party will bring the request for injunctive relief
and the underlying claim together. Along this line, Tenn. R. Civ. P. 65.04 provides:
Rule 65.04 Temporary Injunction –
***
(2) When Authorized. A temporary injunction may be granted
during the pendency of an action if it is clearly shown by verified
complaint, affidavit or other evidence that the movant's rights are
being or will be violated by an adverse party and the movant will
suffer immediate and irreparable injury, loss or damage pending a
final judgment in the action, or that the acts or omissions of the
adverse party will tend to render such final judgment ineffectual.
***
(7) Consolidation of Hearing With Trial on Merits. Before or
after the commencement of the hearing of an application for a
preliminary injunction, the court may order the trial of the action on
the merits to be advanced and consolidated with the hearing of the
application. Even when this consolidation is not ordered, any
evidence received upon an application for a preliminary injunction
which would be admissible upon the trial on the merits becomes part
of the record on the trial and need not be repeated upon the trial. This
subdivision [65.04(7) ] shall be so construed and applied as to save
to the parties any rights they may have to trial by a jury.
-9-
Thus, when a party is seeking injunctive relief, that party should bring one action
containing both the request for injunctive relief as well as the underlying cause of action. For
example, if a party is claiming a document was entered into based upon material misrepresentations
or the like and that party believes they will suffer immediate and irreparable injury, then any lawsuit
which is filed should contain both any request for injunctive relief as well as the underlying claim
for misrepresentation.
Not surprisingly, applying these general principles to this case is not an easy task.
On appeal, Barker Building and Travelers admit in their brief that the dismissal of the second lawsuit
“operated as an adjudication upon the merits. It served to bar a suit for relief on the same subject
matter.” Barker Building and Travelers also state:
Barker recognizes the doctrine of res judicata and its elements.
Barker does not contest that the injunctive lawsuit involved some of
the same parties that it had asserted causes of action against in the
Smith lawsuit. It is also acknowledged that the dismissal of its
injunction lawsuit was before a court of competent jurisdiction with
regard to the sole relief sought by Barker, a temporary injunction.
Clearly, finding no grounds to support the temporary injunction, the
Court dismissed the lawsuit. The dismissal became final and under
T.R.C.P. 41 was on the merits.
The main argument by Barker Building and Travelers as to why there is no res judicata effect from
the second lawsuit is that the underlying event (i.e., the filing of the Performance Bond) and the
corresponding relief sought in the second lawsuit were distinct from what was at issue between these
same parties in the first lawsuit. We disagree.
The claims between the parties to this appeal arise out of the Subordination
Agreement and assurances allegedly made to Barker Building which it relied upon when entering
into that agreement and which further caused Barker Building to obtain the Performance Bond from
Travelers in order to protect its subcontractors from any possible impact the Subordination
Agreement might have on their liens. Any claims which were or could have been litigated between
the parties involving this underlying transaction should, therefore, have been brought together. This
would include any and all claims by Barker Building and/or Travelers challenging the validity of the
Subordination Agreement and/or the Performance Bond. To hold otherwise would allow Barker
Building and Travelers to file a lawsuit against the Bank challenging the validity of the filing of the
Performance Bond and, if that did not work, then to file another lawsuit against the Bank challenging
the validity of the Performance Bond via claims of misrepresentation, and so on and so on.
The vast majority of any claims by Barker Building and/or Travelers against the Bank
challenging the validity of the Subordination Agreement and the Performance Bond were at issue
in the first lawsuit, including the claims for fraud or misrepresentation involving the closing. Once
-10-
Barker Building and Travelers learned that the Bank had filed the Performance Bond, any challenge
to that event could and should have been filed in the same first lawsuit. The Bank’s filing of the
Performance Bond pursuant to Tenn. Code Ann. § 66-11-142 was simply one more step in the series
of closely related and interconnected events and transactions giving rise to the first lawsuit. The
Bank’s filing of the Performance Bond was not something that was so independent from the events
giving rise to the first lawsuit that it would properly permit the filing of an altogether new lawsuit.
What we have then is two distinct lawsuits, but under applicable law each of these
lawsuits should have included all of the claims which were or which could have been litigated
between the parties on the same cause of action. The issue is whether the present lawsuit now on
appeal involves claims which could and should have been litigated in the second lawsuit which went
to final judgment. As set forth previously, the second lawsuit contains the following paragraph:
As long as the alleged BOND FOR RELEASE OF LIEN
improperly remains on record, any sale of the Hotel Property to a
third party may result in the full and complete loss of the Smith lien
and both Travelers and Barker (sic) rights will be violated and both
will be immediately and irreparably injured or damaged, because both
Barker and Travelers, upon payment of any amount to Smith, will be
deprived of their right to subrogate to Smith’s lien position against
any subsequent owner of the Hotel Property. Barker has agreed to
indemnify Travelers against any loss.
It would defy logic and reason to hold that the claims against the Bank in the second lawsuit are
separate and distinct from the claims in the first lawsuit.
A possible difficulty arises from the fact that the second lawsuit was filed and
disposed of on the merits while the first lawsuit was pending. The doctrine of res judicata
presupposes the existence of a final judgment on the merits. Thus, whether or not some or all of
Barker Building’s and Traveler’s claims were barred by res judicata did not become an issue until
there was a final judgment in the second lawsuit.
Assuming for present purposes only that the first lawsuit now on appeal between the
Bank, Barker Building, and Travelers did not exist, when the second lawsuit was filed by Barker
Building and Travelers seeking injunctive relief, they needed to bring all the claims that could have
been brought against the Bank on that cause of action at that time in order not to split their cause of
action. In other words, Barker Building and Travelers needed to bring against the Bank in one
lawsuit all of its various claims, including its request for injunctive relief, arising out of the
Subordination Agreement and the Performance Bond, etc. If we were to excuse Barker Building and
Travelers from doing just that because of the pendency of many of these claims in the first lawsuit,
then the Trial Court and this Court would have to altogether ignore the fact that there is a final
judgment on the merits in the second lawsuit.
-11-
We conclude that once the judgment on the merits became final in the second lawsuit
seeking injunctive relief, the doctrine of res judicata through the principle of claim preclusion
operates to bar any claims involving the same cause of action which were or could have been brought
by Barker Building and Travelers against the Bank in that same action. This includes any claims
against the Bank challenging the validity of the Subordination Agreement and Performance Bond.
Admittedly, this is a harsh result, but to hold otherwise would require us to ignore the fact that there
has been a separate lawsuit involving the same cause of action between these same parties arising
from a single transaction or series of transactions which was disposed of on the merits with a
judgment that has long since become final. It also must be remembered that it was the affirmative
action of Barker Building and Travelers in filing the second lawsuit which results in this outcome.
Barker Building and Travelers attempt to circumvent any res judicata effect of the
second lawsuit by claiming they really should not have filed the second lawsuit because they lacked
standing to do so until Smith Mechanical’s lien was satisfied via the Performance Bond. They make
this argument even though they previously admitted, and quite properly so, that the Trial Court in
the second lawsuit had subject matter jurisdiction and there otherwise was no barrier to the Trial
Court’s granting any type of relief requested. We do not believe it appropriate to disregard the res
judicata effect of a final judgment on the merits because years later the plaintiffs in that action now
claim that they really should not have filed that lawsuit to begin with. The short answer to that
argument is that they did, and an alleged lack of standing by the plaintiffs is not a proper basis upon
which to allow those same plaintiffs later to challenge the validity of the second lawsuit. We again
note that to the extent the second lawsuit should not have been filed as a separate lawsuit, Barker
Building and Travelers are responsible for that error and any attendant effects arising therefrom.
We affirm the judgment of the Trial Court dismissing all of Barker Building’s and
Travelers’ claims against the Bank because these claims are barred by res judicata. In light of this
holding, all remaining issues raised by the parties are rendered moot.
Conclusion
The judgment of the Trial Court is affirmed and this cause is remanded to the Trial
Court for collection of the costs below. Costs on appeal are taxed to the Appellants, Barker Building
Company Inc., and Travelers Casualty & Surety Company of America, and their surety.
___________________________________
D. MICHAEL SWINEY, JUDGE
-12-