Robert D. Fulcher, III and wife, Eleanor Fulcher and Allen-Fulcher Partnership v. R. Chancellor Allen and H. Stanley Allen, Trustee, and Harwell-Allen Partnership

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
______________________________________________ FILED
ROBERT D. FULCHER, III and
March 9, 1999
wife, ELEANOR FULCHER and
ALLEN-FULCHER PARTNERSHIP,
Cecil Crowson, Jr.
Appellate Court Clerk
Appellants,
Davidson Chancery No. 94-1424-I
Vs. C.A. No. 01A01-9802-CH-00090

R. CHANCELLOR ALLEN, and
H. STANLEY ALLEN, TRUSTEE,
and HARWELL-ALLEN
PARTNERSHIP,

Appellees.
____________________________________________________________________________

FROM THE DAVIDSON COUNTY CHANCERY COURT
THE HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR

Gail P. Pigg of Nashville
For Appellants

Alvin L. Harris; Weed, Hubbard, Berry & Doughly of Nashville
For Appellees

AFFIRMED IN PART, REVERSED IN PART AND REMANDED

Opinion filed:

W. FRANK CRAWFORD,
PRESIDING JUDGE, W..S

CONCUR:

ALAN E. HIGHERS, JUDGE

DAVID R. FARMER, JUDGE

This appeal involves a dispute between partners. Plaintiffs-Appellants, Robert D. Fulcher

III, Eleanor Fulcher, and Allen-Fulcher Partnership, appeal the trial court’s ruling in favor of

Appellees, R. Chancellor Allen, H. Stanley Allen, and Harwell-Allen Partnership.
 Longtime friends, Robert Fulcher (Fulcher) and Chancellor Allen (Allen), entered into

two partnerships to develop real estate during the mid-1980's. These partnerships continued into

the mid-1990's when financial difficulties began to cause extreme conflict between Fulcher and

Allen. These conflicts subsequently led to the lawsuit upon which this appeal is premised.

In his complaint, Fulcher alleged, among other things, that Allen designed and executed

a fraudulent scheme to divest Fulcher of all the partnership property, that Allen converted

partnership money to his own use, that Allen could not be subrogated to the bank’s right of

foreclosure, that the partnerships had not been wound up in accordance with Tennessee law, and

that the settlement agreement granting Allen all partnership properties was fraudulently obtained.

After a trial on the merits, the chancellor ruled in favor of Allen and adopted findings of fact

which as pertinent state:

1. . . . Chance Allen’s primary occupation is commercial
real estate broker.

2. Defendant H. Stanley Allen (“Stan Allen”) is the brother
of Chance Allen and, at all times material hereto, was a practicing
attorney. . . .

3. Plaintiff, Robert D. Fulcher, III, is primarily employed as
a commercial real estate broker. . . .

4. Mr. Fulcher had known Chance Allen and Stan Allen
since childhood.

5. In 1986, Chance Allen and Mr. Fulcher purchased a parcel
of undeveloped real property located near Old Hickory
Boulevard. . . .

6. After selling off the most valuable portion of the property,
and losing a small portion in a condemnation proceeding, Mr.
Fulcher and Chance Allen were left with a parcel of
approximately 5.2 acres (the “OHB Property”).

7. In 1988, Chance Allen and Mr. Fulcher contracted to
purchase improved real property in Nashville, Tennessee known
as the Jackson Business Center (the “JBC”). The purchase was
closed in November 1988. The purchase price was $1,250,000.

8. Mr. Fulcher and Mr. Allen purchased the JBC as tenants
in common, each owning an undivided 50% interest.

9. To finance their purchase of the JBC, Chance Allen and
Mr. Fulcher took out a nonrecourse first mortgage from an
affiliate of Metropolitan Savings and Loan (“Met Fed”) in the
amount of $1,100,000.00 (the “First Meeting”) and a recourse
second mortgage from First American National Bank (“FANB”)
in the amount of $207,500.00 (the “FANB note”).

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 * * *

11. Mr. Fulcher and Mr. Allen agreed that their partnership in
the JBC would be “50-50", meaning that they would share
equally in the work and financial responsibilities for the building.

* * *

15. Except for the checkbook, Chance Allen was left with the
responsibility for virtually all other management responsibilities
for the JBC.

* * *

17. Beginning in the mid- to late 1980's, the real estate in
Nashville fell upon bad times. Mr. Fulcher testified that it was a
“disaster.”

* * *

23. In addition to manual labor, Chance Allen performed the
following JBC management tasks:

a. preparation of leases and amendments to leases;
b. dealing with vendors;
c. dealing with leasing agents;
d. preparation of operating statements;
e. dealing with FANB and Met Fed (the mortgage holders)
including the preparation and supplying of all requested financial
information;
f. supplying financial information to the accountant for tax
purposes;
g. preparation of financial analyses of the business operation, the
cash flow, projected rents, etc.;
h. all business correspondence; and
i. all other tasks necessary to manage the JBC.

24. In November 1990, Mr. Fulcher decided to sell a part of
his interest in the JBC. Chance Allen gave Mr. Fulcher
permission to do so on the condition that whoever purchased the
interest in the JBC would also agree to join in the personal
liability under the second mortgage note held by FANB. Mr.
Fulcher agreed to this condition.

25. Mr. Fulcher sold a 25% interest in the JBC to the Linda
Dale Trust (the “Trust”) for $50,000. The Trust was administered
by Third National Bank in Nashville (“Third National”). In
selling his 25% interest, Mr. Fulcher did not require the Trust to
accept a share of the liability under the FANB note.

26. Through December 1992, Thomas Allen (no relation to
Chance Allen or Stan Allen) was employed in the Third National
trust department and had responsibility for overseeing the Trust’s
investment in the JBC.

* * *

29. In March of 1992, Mr. Fulcher, claiming that there was no
need for two people to be involved with the “minutiae” of the

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JBC, and in order to revive his commercial real estate brokerage
business, moved out of the office he was occupying at the JBC.
. . . Prior to moving out, Mr. Fulcher had failed to make his
agreed upon monthly rental payments for a number of months.

30. After Mr. Fulcher moved out, Chance Allen was left with
the sole management responsibility for the JBC.

31. Each month, Chance Allen sent JBC statements of
operations to both Mr. Fulcher and Thomas Allen as
representative of the Trust.

32. Mr. Fulcher did not read the JBC statements he received
from Chance Allen to see what they contained.

* * *

35. Before Mr. Fulcher moved out of the JBC, Chance Allen
and the Trust asked Mr. Fulcher to enter into a written partnership
agreement. Mr. Fulcher refused.

36. Subsequently, Chance Allen and Thomas Allen (on behalf
of the Trust) agreed that since Chance Allen was doing all of the
work at the JBC, Chance Allen should be entitled to a 4%
management fee and to leasing commissions on JBC leases that
were signed through his efforts.

37. Since Chance Allen owned a 50% interest in the JBC and
the Trust owned a 25% interest, the agreement to pay Chance
Allen management fees and leasing commissions was agreed
upon by 75% of the ownership interest in the JBC.

* * *

39. Chance Allen received his management fee in December
1992. The total fee was $6,842.98. From this amount, Chance
Allen deducted rent for the suite he occupied at the JBC leaving
a net payment to Chance Allen of $1,892.98.

40. This management fee reflected in one of the operating
statements Chance Allen sent to Mr. Fulcher. Mr. Fulcher did not
raise any objection to this fee or the leasing commissions taken
by Chance Allen until after he filed the instant lawsuit.

41. In December 1992, Chance Allen discovered that in
excess of $22,000, which was a portion of an amount that had
been held in escrow pursuant to the JBC purchase agreement, had
been wrongfully confiscated by the Resolution Trust Corporation
(the “RTC”) when the RTC took over Met Fed.

42. Under the terms of the JBC purchase agreement, this
escrowed money was to be used for improvements to the
building.

* * *

44. Over a four month period, Chance Allen wrote 16 separate
letters and made dozens of phone calls months [sic] in an attempt
to retrieve the funds confiscated by the RTC.

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45. In December 1992, a $10,000 principal payment on the First
Mortgage came due.

46. At the time this payment came due, there as approximately
$13,000 - $15,000 in the JBC operating bank account.

47. Of this cash balance, $10,700 were tenant deposits.

48. Thus, unless tenant deposits were used, there was
insufficient funds in the JBC account to make the $10,000 First
Mortgage payment in December 1992.

49. Thomas Allen had previously warned Chance Allen that the
tenant deposits should be segregated from the operating funds of
the JBC.

50. According to both Thomas Allen and Donald Griffin of
FANB, it would have been an improper business practice to use
tenant deposits to make the first mortgage payment.

* * *

53. The terms of the FANB second mortgage note (the “FANB
Note”) called for monthly interest payments, principal payments
of $2,000 per quarter and a balloon payment of the balance owed
in December 1993.

54. The first year after purchasing the JBC (1980), the principal
balance owed on the FANB Note was $202,500. In 1989, Mr.
Fulcher and Mr. Allen paid $39,000 in principal. This left a
principal balance of $163,500.

* * *

56. As the years passed, it became increasingly obvious that the
revenues of the JBC would not be high enough to pay off the
balance of the FANB Note in December 1993. . . .

57. The poor financial condition of the JBC and its inability
to generate enough revenue to pay the debt service on the
building are consistent with Chance Allen’s testimony that the
JBC was a failing enterprise which he did not wish to support.

* * *

59. When he visited the JBC in December 1992, Mr. Griffin
knew that the JBC revenues would not be sufficient to pay the
principal balance owed on the FANB Note ($139,000) when it
came due the following December.

* * *

61. In late 1992 or early 1993, Mr. Griffin and others within
FANB decided to “extract the relationship” concerning the FANB
Note which meant that FANB wanted to get the FANB off of its
books.

62. It would have been in the borrowers best interest to

5
refinance the FANB Note if possible and hope that, over time, the
building revenues would be enough to pay off the FANB Note.

63. In December 1992, Mr. Griffin requested that both Chance
Allen and Mr. Fulcher supply a personal financial statement to
FANB.

64. Mr. Fulcher’s personal financial statement showed that his
net worth had dropped to zero.

* * *

72. In January 1993, FANB classified its second mortgage loan
on the JBC and turned that loan over to Samuel Ballesteros in the
“Special Assets” department of FANB.

73. Mr. Ballesteros wrote to both Chance Allen and Mr.
Fulcher requesting a meeting.

74. Mr. Fulcher and Mr. Ballesteros met on February 24, 1993,
and discussed his personal note and the FANB Note. Mr. Fulcher
told Mr. Ballesteros that he could not pay his $25,000 personal
note which was then in default.

75. Mr. Ballesteros met with Chance Allen the following day. At
that meeting, Mr. Ballesteros began by telling Chance Allen that
Mr. Fulcher’s default on his personal note was a “cross-default”
on the FANB Note. This was the first time Chance Allen was
aware that Mr. Fulcher had a personal note with FANB or that it
was in default.

76. Mr. Ballesteros discussed with Chance Allen how to pay
the FANB note.

77. After his meeting with Mr. Ballesteros, Chance Allen
immediately contacted Mr. Fulcher and Thomas Allen and
requested that they would contribute to purchasing the FANB
Note. Mr. Fulcher told Chance Allen, “I am not a player,”
meaning that he did not have the financial ability to pay anything
toward the FANB Note.

78. Mr. Fulcher had the same opportunity to purchase the
FANB Note as did Chance Allen. This is clear from a letter dated
March 29, 1993, from an attorney from FANB to attorneys who
were representing Chance Allen and Mr. Fulcher, respectively,
which offers the FANB Note for sale at a price of
$100,000.

* * *

80. Not being liable on the FANB Note, the Trust was
unwilling to contribute toward repayment or purchase of the
FANB Note.

81. Realizing that he was personally liable on the FANB Note,
Mr. Allen offered to purchase it from FANB for $70,000. This
offer was refused.

82. In a letter from an attorney for FANB dated March 24, 1993,

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FANB had declared the Note in default and cited a number of
events of default including the material adverse change in the
financial condition of the borrowers. . ., failure to pay property
taxes, and failure to make the $10,000 principal
payment on the first mortgage.

83. Immediately upon receipt of that letter, Chance Allen
began to take steps to remedy the cited defaults. He contacted the
first mortgage holder which held the property taxes in escrow and
made sure those taxes were paid. He also contacted Mr. Fulcher
and the Trust asking them to send a check for their pro rata
contributions for the $10,000 first mortgage principal payment
payable to Bank of America. Neither the trust nor Mr. Fulcher
responded to Chance Allen’s request to contribute toward the first
mortgage principal payment.

* * *

85. Receiving no physical or financial help from either Mr.
Fulcher or the Trust, Chance Allen was left with no choice but to
use his personal funds to purchase the FANB Note.

86. At the time, the principal balance owed on the FANB
Note was $137,500.

87. On March 31, 1993, Chance Allen caused the FANB Note to
be purchased for $100,000.

* * *

91. On the legal advice of Stan Allen, the FANB Note was
purchased in the name of “Stanley Allen, Trustee.”

92. After the purchase of the FANB Note, Chance Allen
relied upon Stanley Allen to handle the legal aspects of
foreclosing on the JBC, filing lawsuits and preparation of
documents relating to the recently purchased FANB Note.

* * *

93. As trustee and holder of the FANB Note, Stanley Allen made
demand on both makers of the note -- Chance Allen and Mr.
Fulcher -- to pay the balance owed for which they were both
jointly and severally liable.

94. On April 30, 1993, when payment was not made, Stanley
Allen, in his capacity as trustee, foreclosed on the collateral
which was the JBC.

95. After the foreclosure, Chance Allen owned a 100%
beneficial interest in the JBC.

* * *

99. On May 18, 1993, Stanley Allen filed suit in Circuit Court
for Davidson County, Tennessee to collect the balance owed on
the FANB Note, naming both Mr. Fulcher and Chance Allen as
defendants.

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 * * *

101. No later than the first week in April 1993, Mr. Fulcher
fully understood that Chance Allen had purchased the FANB
Note and that Stanley Allen was trustee for Chance Allen in
connection with that purchase.

102. After being served with the lawsuit filed by Stanley Allen
on the FANB Note, Mr. Fulcher and Stanley Allen reached an
agreement to settle the dispute. This agreement was
memorialized in an agreement dated June 17, 1993 (the
“Settlement Agreement”).

103. Under the terms of the Settlement Agreement, Mr. Fulcher
had 30 days (or such additional time as agreed upon by the
parties) to find a purchaser for the OHB Property for a minimum
of $250,000. . . . If he failed to do so, he agreed, in exchange
for dismissal of the claims against him in the Circuit Court
lawsuit, to convey all his right, title and interest in the JBC and
OHB Property to Stanley Allen, Trustee.

104. The 30-day sale condition was suggested by Mr. Fulcher.

105. Mr. Fulcher did not sell the OHB property within the 30-day
period set forth in the Settlement Agreement.

106. The only effort Mr. Fulcher made to sell the OHB
Property during that time was to make 2-3 telephone calls to
potential buyers who declined to purchase the property.

107. After failing to sell the OHB property, on August 12, 1993,
Mr. Fulcher and his wife executed quitclaim deeds in favor of
Stanley Allen, Trustee for all of his right, title and interest
in the OHB Property and the JBC (the “Quitclaim Deeds”).

108. Paragraph 5 of the Settlement Agreement required Stan
Allen to dismiss his lawsuit against Mr. Fulcher following the
execution of Quitclaim Deeds. Stan Allen complied with this
provision of the Settlement Agreement after Mr. Fulcher filed the
instant lawsuit. During the interim, Stan Allen made no effort to
prosecute the Circuit Court lawsuit against Mr. Fulcher and this
Court finds credible Stan Allen’s testimony that he did not
dismiss it earlier due to simple inadvertence.

* * *

112. Subsequently, with the help of Chance Allen, Mr. James
Harwell negotiated for and purchased the First Mortgage for
$700,000. Mr. Harwell and Chance Allen reached an agreement
that each would own a 50% interest in JBC.

* * *

114. As of August 12, 1993, according to expert testimony of
Michael P. Ishie, the value of the JBC was $850,000.

115. As of August 12, 1993, according to expert testimony of
Michael P. Ishie, the value of the OHB was $100,000.

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 * * *

117. On May 10, 1994, Mr. Fulcher filed this lawsuit alleging
inter alia that Chance Allen defrauded him out of his interests in
the OHB Property and the JBC.

The trial court also adopted Allen’s proposed conclusions of law, and entered a

Memorandum and Order which stated in pertinent part:

On consideration of the entire record, the Court adopts the
proposed findings of fact and conclusions of law proposed by the
defendants. Accordingly, the Court finds that the Agreement
entered into by the parties on June 17, 1993, is valid and binding
on the parties, the plaintiffs having failed to carry their burden of
proof to the contrary. The Court finds that since there are no
assets or liabilities of the partnership, the appointment of a
receiver is unnecessary. The Plaintiffs’ complaint is hereby
dismissed.

Fulcher timely appealed the trial court’s ruling and cites in his brief the following issues:

I. Whether the trial judge was in error in failing to find that Allen
could not take and receive partnership monies for his benefit.

II. Whether the foreclosure by Allen against the partnership was
void.

III. Whether Allen engaged in fraudulent misconduct against
Fulcher for the purpose of ousting him from the partnership.

IV. Whether the circuit court lawsuit filed by Stanley Allen,
Plaintiff, as trustee for Chancellor Allen, against Chancellor Allen
and Robert Fulcher as Defendants, was fraudulent and void from
its inception.

V. Whether the partnerships have ever been wound up in
accordance with the Uniform Partnership Act of Tennessee.

VI. Whether Fulcher is entitled to punitive damages against
Allen.

VII. The action of the lower court in awarding discretionary costs
against Fulcher was erroneous.

Since this case was tried by the trial court sitting without a jury, we review the case de

novo upon the record with a presumption of correctness of the findings of fact by the trial court.

Unless the evidence preponderates against the findings, we must affirm, absent error of law.

T.R.A.P. 13(d).

W e b e g i n f i r s t w i t h A l l e n ’ s a s s e r t i o n t h a t th e s o - c a l l e d S e t t l e m e n t A g r e e m e n t , d a t e d J u n e 1 7 , 1 9 9 3 , i s a

c o m p l e t e d e f e n s e to a n y c l a i m s m a d e b y F u l c h e r a g a i n s t A l l e n . T h e d e c r e e o f th e t r ia l c o u r t i s p r e m i s e d o n t h e v a l i d i t y

o f th i s a g r e e m e n t . A s d i s c u s s e d i n o t h e r p a r ts o f t h i s o p i n i o n , th i s a g r e e m e n t r e s u l t e d f r o m a l a w s u i t f i l e d b y S t a n l e y

9
A l l e n , T r u s t e e , a g a in s t b o t h F u l c h e r a n d C h a n c e A l l e n f o r a n a ll e g e d d e f i c i e n c y o n a p a r t n e r s h ip i n d e b t e d n e s s a f t e r

f o r e c l o s u r e o f t h e s e c u r i t y . T h e a g r e e m e n t s ta t e s :

AGREEMENT

T h is a g re e m e n t is m a d e a n d e n te re d in to th is 1 7 th d a y o f J u n e, 1 9 9 3 in
M e tro p o lita n N a s h v ille a n d D a v id s o n C o u n t y , T e n n e s se e b y a n d b e tw e e n H .
St a n l e y A l l e n , t r u s te e , h e r e i n a f t e r r e f e r r e d t o a s “ p l a i n t i f f , ” R . C h a n c e llo r A lle n ,
he r e in a f te r a s [ s ic ] r e fe r re d t o a s “ D e f e n d a n t A l l e n ” a n d R o b e r t D . F u lc h e r , I II ,
he r e in a f te r re f e r re d t o a s “ D e f e n d a n t F u l c h e r .”

W H E R E A S , litig a tio n a m o n g th e p a rtie s is p e n d in g in th e C i rc u it C o u r t
f o r D a v i d s o n C o u n t y , T e n n e s s e e , u n d e r d o c k e t n u m b e r 9 3 C - 1 4 4 7 w h e r e in
P l a in t i f f i s s u i n g b o t h D e f e n d a n ts fo r d e f i c ie n c y o n a P r o m i s s o r y N o t e , a n d ,

W H E R E A S , th e p a rtie s d e s ir e to se ttle sa id litig a tio n in o rd e r to
t e r m i n a t e t h e i r d is p u t e .

N O W T H E R E F O R E , t h e p a r t ie s a g r e e a s f o l lo w s :

1 . T h e p a r t i e s a g r e e th a t p r o s e c u t i o n o f s a i d l a w s u it w i l l b e d e la y e d f o r a p e r i o d
o f t h i r t y ( 3 0 ) d a y s f r o m d a t e , u n t i l t h e 1 7 t h d a y o f J u ly , 1 9 9 3 .

2 . D u rin g s aid th irty (3 0 ) d a y s, D e f e n d a n t F u l c h e r s h a l l m a r k e t f o r s a l e 5 . 5 a c r e s ,
m o r e o r l e s s , i n D a v i d s o n C o u n t y , T e n n e s s e e , o w n e d b y b o t h D e f e n d a n t s , e q u a l ly ,
a s t e n a n ts in c o m m o n . . . . T h e n e t c o n s i d e r a ti o n o f th e s a l e o f s a i d r e a l e s t a t e
s h a l l n o t b e l e s s th a n $ 2 5 0 ,0 0 0 . 0 0 c a s h . T h e c l o s in g o f t h e s a l e s h a l l t a k e p l a c e
e ith e r w ith in sa id th ir ty ( 3 0 ) d a y p e rio d , o r w ith in a re a so n a b le p e rio d fo llo w in g
sa id th irty (3 0 ) d a y s, u p o n th e w ritte n a p p ro v a l o f a ll p a rtie s h e re to .

3 . S h o u l d t h e p r o p e r t y s e l l , t h e D e f e n d a n ts s h a ll d i v i d e e q u a l l y t h e n e t p r o c e e d s
th e re o f, a n d in a d d itio n , D e f e n d a n t F u lc h e r s h a ll p a y to th e P la in tif f , o r h is
a s s i g n s , th e c a s h s u m o f $ 6 0 , 0 0 0 .0 0 f ro m D e f e n d a n t F u lc h e r ’s sh a r e o f th e n e t
p r o c e e d s . I n a d d i t i o n , D e f e n d a n t F u l c h e r s h a l l p a y e it h e r t r u s te e , D a v i d s o n
C o u n t y o r D e f e n d a n t A l l e n o n e - h a lf 1 9 9 2 p r o p e r t y t a x e s p a id , p l u s p e n a lt y a n d
i n t e r e s t t h e r e o n , w h i c h s h a ll b e d e d u c t e d f r o m F u l c h e r ’s s h a r e o f th e p r o c e e d s a t
c l o s in g .

4 . S h o u l d t h e p r o p e r t y f a il t o s e l l a n d t h e c l o s i n g n o t t a k e p l a c e a s p r o v i d e d
a b o v e , D e f e n d a n t F u l c h e r s h a l l d e e d t o P l a in t i f f , o r h i s a s s i g n s , F u l c h e r ’ s
u n d i v i d e d o n e - h a l f r i g h t , t i t l e , a n d i n t e r e s t ( w h i c h F u l c h e r w a r r a n t s in
u n e n c u m b e re d ) in a n d to s a id p r o p e r ty o f re c o r d [ O H B ] . . . a n d F u l c h e r ’s o n e -
fo u rth u n d iv id e d rig h t, titl e , a n d in te re s t in [th e J B C ]. . . .

5 . F o llo w in g th e c lo s in g o f t h e s a l e a n d d i s p o s i t i o n o f th e p r o c e e d s o f s a m e
p u rs u an t to th is A g r e e m e n t , o r i f s a i d s a l e d o e s n o t t a k e p la c e , f o l l o w i n g t h e
e x e cu tio n o f th e t w o D e e d s h e r e in b y D e f e n d a n t F u l c h e r , P l a in t i f f s h a l l c a u s e t o
b e d is m is se d , w i t h p r e j u d i c e , a s t o D e f e n d a n t F u l c h e r , s a i d l a w s u it 9 3 C - 1 4 4 7
p r e se n tly p e n d in g i n th e C i r c u it C o u r t o f D a v i d s o n C o u n t y , T e n n e s s e e .

/s / H . S T A N L E Y A L L E N , P L A IN T I F F

/s / R . C H A N C E L L O R A L L E N , D E F E N D A N T

/s / R O B E R T D . F U L C H E R , III, D E F E N D A N T

A lth o u g h a s s u m in g th a t th e a g re e m e n t is v a lid , th e la n g u a g e o f th e a g re e m e n t d o e s n o t p u r p o r t t o r e l e a s e a n y

10
c l a i m F u l c h e r h a s o r m a y h a v e a g a i n s t A l l e n . T o t h e c o n t r a ry , t h e a g r e e m e n t m e r e l y r e le a s e s t h e t r u s t e e ’ s c l a i m f o r a

d e f ic i e n c y a s a r e s u l t o f t h e f o r e c l o s u r e b y e x c h a n g i n g q u i t c l a i m d e e d s o f p a r t n e r s h ip p r o p e r t y f o r d i s m i s s a l o f t h e

l a w s u i t ; i t d o e s n o t , h o w e v e r , p r e v e n t F u l c h e r f r o m b r i n g i n g a n a c t i o n a g a in s t A l l e n f o r a ll e g e d m i s c o n d u c t c o n c e r n i n g

t h e p a r t n e r s h ip . 1 A l le n ’ s a s s e r t io n i s w i th o u t m e r i t. W e w i ll n o w c o n s i d e r F u l c h e r ’ s is s u e s .

I. Whether the trial court erred in failing to find that Allen
could not take and receive partnership funds for his benefit.

F u l c h e r a s s e r t s t h a t C h a n c e A l l e n c o n v e r t e d p a r t n e r s h ip f u n d s to h i s o w n u s e . S p e c i f ic a l l y , F u l c h e r c h a l l e n g e s

f o r t y - t w o ( 4 2 ) c h e c k s d r a w n o n p a r t n e r s h ip a c c o u n t s b y A l le n b e tw e e n A p r i l 1 9 9 2 a n d D e c e m b e r 1 9 9 3 t o t a l i n g

$ 8 1 , 0 9 5 . 9 4 . T h e v a s t m a j o r i t y o f t h e s e c h e c k s l i s te d C h a n c e A l l e n a s t h e p a y e e a n d m a n y w e r e e it h e r n o t e x p l a i n e d o r

t h e e x p l a n a t io n s g i v e n w e r e d u b i o u s .

F u l c h e r a ls o c la i m s th a t p o r ti o n s o f th e s e m o n i e s w e r e f o r u n a u t h o r iz e d m a n a g e m e n t f e e s a n d c o m m i s s i o n s

a n d a s s e r ts t h a t A l l e n f a il e d t o p a y r e n t t o t h e p a r t n e r s h i p f o r h i s o c c u p a n c y o f p a r t o f t h e J B C . A l l e n c o u n t e r s th a t th e s e

l e a s i n g c o m m i s s i o n s a n d m a n a g e m e n t f e e s w e r e p r o p e r ly p a i d i n a c c o r d a n c e w i t h a n o r a l a g r e e m e n t r e a c h e d b e t w e e n

A l l e n a n d th e L i n d a D a l e T r u s t w h i c h c o m p r is e d 7 5 % o f th e p a r tn e r s h i p . I t i s c le a r f ro m t h e t e s ti m o n y o f T h o m a s A l l e n ,

f o r m e r v i c e - p r e s i d e n t o f T h i r d N a t i o n a l /S u n t r u s t B a n k , th a t A l l e n a n d th e T h i r d N a t i o n a l , a s t r u s t e e f o r t h e T r u s t ,

e n te r ed in to a n o r a l a g r e e m e n t w h e r e b y A lle n w o u l d re c e iv e a 4 % c o m m is sio n o n le a s e s a s a m a n a g e m e n t f e e.

W h i l e i t i s t r u e , a s F u l c h e r p o i n t s o u t, t h a t t h e T e n n e s s e e U n i f o r m P a r t n e r s h i p A c t s ta t e s th e “ [ n ] o p a r t n e r is

e n t i t l e d t o r e m u n e r a t i o n f o r a c ti n g i n t h e p a r t n e r s h ip b u s in e s s . . . , ” t h i s r u l e i s “ s u b je c t t o a n y a g r e e m e n t b e t w e e n ” t h e

p a r tn e r s . T . C . A . § 6 1 - 1 - 1 1 7 ( 6 ) ( 1 9 9 8 S u p p . ) . T h e o r a l a g r e e m e n t b e tw e e n A l l e n a n d th e T r u s t a ll o w i n g a 4 % f e e f o r

l e a s i n g a n d m a n a g e m e n t w a s a g r e e d to b y a m a j o r i t y o f t h e p a r t n e r s h ip a n d t h u s v a l i d u n d e r t h e U n i f o r m P a r t n e r s h ip

A c t.

H o w e v e r , s e v e r a l q u e s t i o n s s t i ll e x i s t c o n c e r n i n g t h e a p p r o p r i a t e n e s s o f s o m e o f t h e p a y m e n t s m a d e to A l l e n .

A l l e n s e e k s t o o b v i a t e t h e s e q u e s t i o n s b y c l a i m i n g t h a t a l l p a y m e n t s a f t e r t h e A p r i l 3 0 , 1 9 9 3 f o r e c lo s u r e w e r e e n t i r e ly

w i t h i n h i s le g a l d i s c r e t i o n b e c a u s e h e w a s t h e s o l e o w n e r o f t h e J B C , a n d t h e t r i a l c o u r t a g r e e d w i t h A l l e n ’ s a r g u m e n t .

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In fact Fulcher refused to sign a release proposed by Stan Allen dated July 1993 which
included the following language:

Upon full compliance with said agreement of June 17,1993,
including but not limited to execution of two deeds by Robert D.
Fulcher, III. [sic] as described therein, and the dismissal of the
litigation described therein, at the costs of the Plaintiff, each of
the aforesaid parties do hereby forever release the other from any
and all claims heretofore arising or hereafter to accrue as a result
of any and all business dealings and transactions among the
parties existing prior to the date of this agreement.

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H o w e v e r , w e m u s t d is a g re e w ith th is a ss e rtio n . T h e p a r tn e r s h i p s i n t h i s i n s t a n c e w e r e f o r t h e o w n e r s h ip a n d

m a i n t e n a n c e o f th e r e a l e s t a t e i n v o l v e d . T . C . A . § 6 1 - 1 - 1 3 0 ( 1 9 8 9 ) p r o v i d e s i n p e r t i n e n t p a r t :

61-1-130. Causes of dissolution. - D is so lu tio n i s c a u s e d :
( 1 ) W i th o u t v i o l a t i o n o f t h e a g r e e m e n t b e t w e e n t h e p a r tn e r s :
( A ) b y th e te rm in a tio n o f th e d e fin ite te rm o r p a rtic u la r u n d e rta k in g s p e c if ie d in
th e a g re e m e n t;
( B ) b y t h e e x p r e s s w ill o f a n y p a r tn e r w h e n n o d e f in ite te r m o r p a rtic u la r
u n d e r t a k in g i s s p e c if i e d ;

* * *

T h e f o r e c lo s u r e o f A p r i l 1 9 9 3 , e f f e c ti v e l y t e r m i n a t e d t h e J B C p a r t n e r s h ip b y r e m o v i n g t h e p a r t n e r s h ip ’ s m a j o r

a s s e t a n d t h e r e a s o n f o r i t s e x i s t e n c e . T h i s c o n s t i t u t e d a d is s o l u t i o n . T h e u n c o n t r o v e r t e d p r o o f i s th a t A l l e n ’ s 1 9 9 3

i n c o m e t a x r e tu r n , S c h e d u le D a n d E , s h o w s th a t t h e p a r t n e r s h i p w a s d i s s o l v e d i n 1 9 9 3 a n d w a s s o r e p o r te d t o t h e f e d e r a l

g o v e rn m e n t.

S i n c e A l l e n t o o k c o n t r o l o f a ll o f th e a s s e ts o f t h e p a r t n e r s h i p a t t h i s ti m e , h e a s s u m e d th e p o s i t i o n o f a w i n d i n g

u p p a r t n e r , a n d F u l c h e r h a s t h e r i g h t to a n a c c o u n t i n g o f h i s in t e r e s t a s a g a in s t t h e w i n d i n g u p p a r t n e r . T . C . A . § 6 1 - 1 -

1 4 2 ( 1 9 8 9 ) . W h e n s u c h a m i s a p p r o p r ia t i o n i s m a d e b y o n e o f th e p a r t n e r s i n c h a r g e o f t h e b u s i n e s s , a n d t h e n d i s c o v e r e d

b y t h e o t h e r p a r t n e r a f t e r h e s o l d h i s i n t e r e s t i n t h e b u s i n e s s , t h e s e l l i n g p a r t n e r h a s t h e r i g h t t o a n a c c o u n t i n g . See

Calls v. Calls, 4 0 T e n n . A p p . 6 8 1 , 2 9 2 S . W . 2 d 4 8 3 ( 1 9 5 5 ) . T h e r e a p p e a r s t o b e p r o o f i n t h e r e c o r d t h a t A l l e n

p e r s o n a l ly a c q u i r e d p a r t n e r s h i p s f u n d s f o r h i s o w n u s e w i th o u t F u l c h e r ’ s k n o w l e d g e . T h e r e f o r e , t h e c a s e m u s t b e

r e m a n d e d to t h e tr i a l c o u r t f o r f u r t h e r p r o c e e d i n g s fo r a n a c c o u n ti n g p u r s u a n t t o T . C . A . § 6 1 - 1 - 1 4 2 ( 1 9 8 9 ) .

II. Whether the foreclosure by Allen against the partnership
was void.

S t a n A l l e n , a s t r u s te e f o r C h a n c e A l l e n , s u e d F u l c h e r a n d C h a n c e A l l e n f o r a d e f i c i e n c y r e s u l t i n g f r o m t h e

f o r e c l o s u r e . I n r e s p o n s e , F u l c h e r q u i tc l a i m e d h i s i n t e r e s t i n t h e p r o p e r t y t o t h e t r u s te e in r e t u r n f o r a d i s m i s s a l o f t h e

s u i t . T h e e v i d e n c e i n t h e r e c o r d r e v e a l s a n d t h e c h a n c e ll o r f o u n d t h a t b e c a u s e o f t h e e x is ti n g i n d e b t e d n e s s o n J B C ’ s

p r o p e r ty t h e r e w a s n o e q u it y a v a il a b le to t h e p a r t n e r s a t t h e ti m e o f f o r e c lo s u re . F u l c h e r t o o k n o a c ti o n t o s e t a s i d e t h e

f o r e c lo s u re n o r d i d h e q u e s t i o n t h e v a l i d i t y t h e r e o f i n t h e d e f i c i e n c y c a s e . “ T h e p r i n c i p a l o f w a iv e r a s r e c o g n iz e d in

t h e s t a t e i s d e f i n e d a s t h e v o l u n t a r y r e l i n q u i s h m e n t o r a b a n d o n m e n t o f a k n o w n r i g h t o r p r i v i l e g e . ” Felts v.

Tennessee Consol. Retirement Sys., 6 5 0 S . W . 2 d 3 7 1 , 3 7 5 ( T e n n . 1 9 8 3 ) . F u l c h e r v o l u n t a r i l y r e l i n q u i s h e d h i s

r i g h t t o c o n te s t t h e v a li d i t y o f t h e f o r e c lo s u re a n d th e r e f o r e w a iv e d h is ri g h t .

III. Whether Allen engaged in fraudulent misconduct against
Fulcher for the purpose of ousting him from the partnership.

T h e t r i a l c o u r t f o u n d t h a t A l l e n d i d n o t e n g a g e i n f r a u d f o r t h e p u r p o s e o f o u s ti n g F u l c h e r f r o m t h e

12
p a r t n e r s h ip s . A f t e r a c a r e f u l e x a m i n a t i o n o f t h e r e c o r d i n t h i s c a s e , w e d o n o t b e l i e v e th a t F u l c h e r h a s c a r r i e d h i s b u r d e n

o f p r o o f i n e s t a b l i s h in g f r a u d . S p e c i f i c a ll y , t h e t e s t i m o n y a t t r i a l i n d i c a t e d t h a t A l l e n d i d n o t s a b o t a g e F u l c h e r ’ s

r e p u t a t i o n w i t h b a n k s o r e n t e r i n t o s e c r e t n e g o t i a t i o n s w i th m o r t g a g e c o m p a n i e s . F u l c h e r ’ s o th e r c l a i m s a d v a n c e d i n

h i s b r i e f c o n c e r n i n g t h i s is s u e d e a l w i t h t h e p u r p o r t e d “ s h a m ” l a w s u it a n d t h e t a k i n g o f p a r t n e r s h i p f u n d s . T h e s e c l a i m s

a r e d e a l t w i t h e l s e w h e r e i n t h i s o p in i o n .

IV. Whether the circuit court lawsuit filed by Stanley Allen,
Plaintiff, as trustee for Chancellor Allen, against Chancellor
Allen and Robert Fulcher as Defendants, was fraudulent and
void from its inception.

F u l c h e r c h a r a c te r iz e s S t a n A l l e n ’ s d e f i c i e n c y s u i t a g a i n s t F u l c h e r a n d C h a n c e A l l e n a s “ a c l a s s i c e x a m p l e o f

t h e w r o n g f u l u s e o f t h e C o u r t s a s a v e h ic le to d e f r a u d a d e f e n d a n t. ” H o w e v e r , F u l c h e r d i d n o t c h a ll e n g e th e s u i t , a n d

i n s te a d , e n t e r e d i n t o a n a g r e e m e n t w h i c h t r a n s f e r r e d p r o p e r t y f o r s e t t l e m e n t o f t h e s u i t. T h e p r o p e r c o u r s e i n d e a li n g

w i t h a l a w s u i t b a s e d u p o n f r a u d o r q u e s t io n a b l e le g a l p r i n c i p l e s i s t o d e f e n d i t i n c o u r t a n d s e e k a d i s m i s s a l . A s

d i s c u s s e d i n I s s u e 2 o f t h i s o p in i o n , F u l c h e r v o l u n t a r i l y r e l i n q u i s h e d h i s r i g h t t o c h a ll e n g e th e d e f i c i e n c y s u i t b y e n t e r i n g

i n t o t h e J u n e 1 7 , 1 9 9 3 a g r e e m e n t . See Felts v. Tennessee Consol. Retirement Sys., 6 5 0 S . W . 2 d 3 7 1 ( T e n n .

1 9 8 3 ).

V. Whether the partnerships have ever been wound up in
accordance with the Uniform Partnership Act of Tennessee.

A s d i s c u s s e d i n I s s u e 1 o f t h i s o p in i o n , t h e J B C p a r t n e r s h ip w a s d i s s o l v e d a t t h e t i m e o f f o r e c lo s u r e a n d a

w i n d i n g u p i s a p p r o p r i a te a t t h i s t i m e . T h e O H B p a r tn e r s h i p w a s d is s o l v e d b y t h e q u i t c l a i m d e e d b y F u l c h e r i n A u g u s t

1 9 9 3 . A s w i t h t h e J B C p a r tn e r s h i p , A l l e n t o o k c o n t r o l o f th e a s s e ts o f t h e O H B p a r tn e r s h i p a t t h e ti m e o f d i s s o l u t i o n ,

a n d h e a s s u m e d t h e p o s i t i o n o f a w i n d i n g u p p a r tn e r . F u l c h e r h a s t h e r i g h t t o a n a c c o u n t i n g o f h i s i n t e r e s t a s a g a i n s t

t h e w i n d i n g u p p a r tn e r . T . C . A . § 6 1 - 1 - 1 4 2 ( 1 9 8 9 ) . T h e r e f o r e , o n r e m a n d t h e t r i a l c o u r t m u s t c o n d u c t a n a c c o u n t i n g

o n b o t h p a r t n e r s h ip s a n d s e t t l e m e n t i n c o m p l i a n c e w i t h T . C . A . § 6 1 - 1 - 1 3 9 ( 1 9 8 9 ) .

VI. Whether Fulcher is entitled to punitive damages against
Allen.

F u l c h e r a s s e r ts t h a t t h e e v i d e n c e i n t h i s c a s e o v e r w h e l m i n g l y s h o w s t h a t A l l e n a c t e d m a l i c i o u s ly a n d

i n t e n t i o n a l ly t o e x c lu d e F u l c h e r f r o m t h e p a r t n e r s h i p s , a n d t h e r e f o r e , p u n i t i v e d a m a g e s a r e a p p r o p r i a t e . T h e T e n n e s s e e

S u p r e m e C o u r t c l a r i f i e d t h e l a w c o n c e r n i n g p u n i t i v e d a m a g e s i n t h i s s t a t e i n Hodges v. S.C. Toof & Co., 8 3 3

S . W . 2 d 8 9 6 ( T e n n . 1 9 9 2 ) . T h e C o u r t s ta t e d :

In T e n n e s s e e , th e r e fo r e , a c o u rt m a y h e n ce fo rth a w a rd p u n itiv e d a m a g e s o n ly if
i t f in d s a d e f e n d a n t h a s a c te d e i t h e r ( 1 ) i n t e n t i o n a l l y , ( 2 ) f r a u d u l e n t l y , ( 3 )
m a l i c i o u s ly , o r ( 4 ) r e c k le s s ly .

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 * * *

[ B ] e c a u s e p u n itiv e d a m a g e s a re to b e a w a rd e d o n ly in th e m o s t e g re g io u s o f
c a s e s , a p l a i n t if f m u s t p r o v e t h e d e f e n d a n t ’ s i n t e n t io n a l , f r a u d u le n t, m a li c io u s , o r
r e c k l e s s c o n d u c t b y c l e a r a n d c o n v i n c in g e v id e n c e .

Id. a t 9 0 1 .

T h e e v i d e n c e p re s e n te d a t tr ia l d o e s n o t p r e p o n d e ra te a g a in s t th e tr ia l c o u rt’ s fin d in g th a t F u l c h e r f a ile d to

p r o v e fr a u d o n th e p a rt o f A lle n .

VII. The action of the lower court in awarding discretionary
costs against Fulcher was erroneous.

T h e l o w e r c o u r t a w a r d e d o v e r $ 1 2 ,0 0 0 t o A ll e n a s d i s c re ti o n a r y c o s t s in c u r r e d i n d e f e n d i n g t h e c a s e . T h e c o s t s

w e r e i n c u r r e d b e c a u s e A l l e n d i d n o t p r o c e e d t o h a v e a p r o p e r a c c o u n t i n g i n t h e w i n d i n g u p o f t h e p a r t n e r s h ip . A t t h e

t i m e o f f o r e c lo s u r e , t h e J B C p a r t n e r s h i p w a s d i s s o l v e d , a n d A l l e n b e c a m e t h e w i n d i n g u p p a r tn e r . F u l c h e r w a s e n t i t l e d

t o a n a c c o u n t i n g a t t h a t t i m e , a n d b y f a i l i n g t o w i n d u p t h e p a r t n e r s h ip i n t h e c o r r e c t m a n n e r , A l l e n p e r p e t u a t e d t h i s

l e n g th y c o n f l i c t . I t w o u l d n o t b e a p p r o p r ia t e t o a w a r d A l l e n d i s c r e t i o n a r y c o s t s in t h i s c a s e b a s e d u p o n h i s a c ti o n s . W e

r e v e r s e t h e t r ia l c o u r t ’ s a w a r d o f d i s c r e t i o n a r y c o s t s t o A l l e n .

Conclusion

T h e f in d i n g s o f th e c h a n c e l l o r c o n c e r n i n g f o r e c lo s u r e , f r a u d , t h e c ir c u i t c o u r t l a w s u i t , a n d p u n i ti v e d a m a g e s

a r e a f f i r m e d . I n a ll o t h e r r e s p e c t s t h e d e c r e e o f th e t r ia l c o u r t i s r e v e r s e d , a n d t h i s c a s e i s r e m a n d e d t o t h e t r ia l c o u r t

f o r a n a c c o u n t in g o f b o t h t h e O H B a n d J B C p a r t n e r s h i p s a n d a w i n d i n g u p o f t h e p a r t n e r s h i p s . C o s t s o f a p p e a l a r e

a s s e s s e d a g a i n s t t h e A p p e l le e .

_________________________________
W. FRANK CRAWFORD,
PRESIDING JUDGE, W.S.

CONCUR:

____________________________________
ALAN E. HIGHERS, JUDGE

____________________________________
DAVID R. FARMER, JUDGE

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