USI v. Long

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE
FILED
December 17, 1998

Cecil Crowson, Jr.
USI CAR EXCHANGE, INC. and CHARLES ) C/A NO. Appellate Court
03A01-9707-CV-00268 Clerk
R. WEEMS, Individually, )
)
Plaintiffs, )
)
v. )
)
)
LONG PONTIAC COMPANY and ALLAN )
LEDFORD, Individually, )
)
Defendants. )
)
)
)
)
)
LONG PONTIAC COMPANY, )
)
Plaintiff-Appellant, ) APPEAL AS OF RIGHT FROM THE
) HAMILTON COUNTY CIRCUIT COURT
)
v. )
)
)
)
ALLAN LEDFORD, Individually and wife, )
TERRI LEDFORD, Individually; ALLAN )
LEDFORD d/b/a PRESTIGE CLEANERS, )
a Sole Proprietorship; SIGNATURE AUTO )
CREDIT, INC.; MIDDLE TENNESSEE MOTOR )
CARS, INC.; GAMBLE MOTOR COMPANY, )
INC.; WSI CAR EXCHANGE, INC.; )
CHARLES R. WEEMS, Individually; ROBERT)
OLIVER, Individually and wife, LOIS )
OLIVER, Individually, )
) HONORABLE SAMUEL H. PAYNE,
Defendants-Appellees. ) JUDGE

For Appellant For Appellee Charles R. Weems
and USI Car Exchange, Inc.
F. SCOTT LEROY
Leitner, Williams, Dooley DAVID B. KESLER
& Napolitan, PLLC STACIE L. CARAWAY
Chattanooga, Tennessee Spears, Moore, Rebman &

1
 Williams
Chattanooga, Tennessee
For Appellee Middle
Tennessee Motor Cars, Inc.

NADER BAYDOUN
STEPHEN KNIGHT
Baydoun & Reese, P.A.
Nashvile, Tennessee

For Appellee Gamble
Motor Company, Inc.

K. STEPHEN POWERS
LISA M. PATE
Witt, Gaither & Whitaker, P.C.
Chattanooga, Tennessee

O P I N IO N

2
AFFIRMED AND REMANDED Susano, J.

3
 This is an action1 for damages filed by Long Pontiac

Company (“Long”), against multiple defendants, arising out of the

defalcations of Long’s agent, Allan Ledford (“Ledford”). Long

appealed from the trial court’s judgment, arguing that the trial

court erred in granting summary judgment to the defendants,

Charles R. Weems (“Weems”), USI Car Exchange, Inc. (“USI”),2

Gamble Motor Company, Inc. (“Gamble”), and Middle Tennessee Motor

Cars, Inc. (“MTMC”), all of whom acknowledge purchasing

automobiles from Ledford at Long’s place of business. Long, in

its complaint for fraud, conspiracy to defraud, conversion, and

gross negligence, alleges that the defendants knew or should have

known (a) that Ledford was engaging in criminal activity3 to

defraud Long and (b) that Ledford was exceeding the authority

granted to him by Long. The trial court concluded that no

genuine issues of material fact existed with respect to Long’s

claims and, furthermore, that the defendants were entitled to

summary judgment as a matter of law. On this appeal, Long

essentially presents the following question for our review:

In granting summary judgment, did the trial
court err in determining that no genuine
issue of material fact exists?

1
On the cover sheet of this opinion, we have reflected the styles of
these consolidated cases as they appear on the parties’ briefs; however, the
judgments appealed from only appear to relate to the litigation instituted by
Long Pontiac Company.
2
USI is identified in one of the cases as WSI Car Exchange, Inc. All
references in this opinion to USI include WSI Car Exchange, Inc.
3
Apparently, Ledford began defrauding Long in 1993. His criminal
activity went undiscovered by Long until late 1994. During the period of this
criminal activity, Ledford was General Sales Manager of Long. It is
undisputed that Ledford had Long’s authority to act in this capacity in his
dealings with the defendants.

4
 I. Facts

The events leading to this litigation began in early

1994 when Weems, a wholesale dealer of used cars, went to Long in

search of used vehicles to purchase on behalf of his company,

USI,4 and on behalf of Gamble, another car dealership. Weems was

instructed by Long’s finance manager to see Ledford regarding

several used cars in which Weems had an interest. Ledford told

Weems that he was General Manager5 and a part owner of the

company. Weems and Ledford commenced a business arrangement

pursuant to which Weems thereafter purchased used cars at

wholesale prices set by Ledford and agreed to by Weems.

During the seven-month period of his dealings with

Long, Weems dealt exclusively with Ledford on all purchases.

Weems and Ledford completed over 70 transactions involving more

than 100 used vehicles. In all of these transactions, Weems

inspected and took delivery of the vehicles at Long’s place of

business. He also paid for every purchase by writing a check on

the bank account of either USI or Gamble. After Weems tendered

the checks and received possession of the vehicles, Long6 sent

Weems the paperwork relating to the sales, including titles,

odometer statements, and sometimes bills of sale on the

vehicles.7

4
Weems was a shareholder, officer, and the principal agent of USI.
5
It is undisputed that Ledford’s official title was General Sales
Manager and that he was a part owner of the company.
6
The record does not indicate which employee or department of Long was
responsible for handling the paperwork.
7
It is not clear whether Weems received the paperwork on cars purchased
by Weems on Gamble’s behalf or if he received only the paperwork on cars he
purchased for USI.

5
 In the beginning, Weems made all checks payable to

Long. Later, Ledford directed Weems to make the checks payable

to Signature Auto, Quality Motors, or to individuals or entities

whom Ledford identified as customers who had traded vehicles to

Long. He explained to Weems that this would expedite the title

process and that both Signature Auto and Quality Motors were

Long’s “tote-lots”. Tote-lots are off-site car lots used to sell

low-value vehicles that have been sold or traded to a dealer.

Thereafter, Weems wrote checks on his principals’ bank accounts

as directed by Ledford. Early on, Weems noted that the paperwork

on purchases for which he had written checks to Signature Auto or

Quality Motors, listed Long as the seller of the vehicles. When

he discussed this with Ledford, Ledford told him that he and

Nelson Long, president of Long, were involved in several

different companies, and that “it made no difference” as to whom

the check was made payable. Ledford represented to Weems that he

had Long’s “full authority and consent” to conduct these

transactions.

In some transactions, Ledford directed Weems to make

checks payable to him individually. He told Weems that he

personally owned the vehicles being sold. On one occasion,

Ledford told Weems to leave the payee on the check blank because

he did not know the company, i.e., Signature Auto, Quality

Motors, or Long, through whom the cars would be billed. This

check, written on Gamble’s account, was ultimately filled in by

Ledford with the name of Prestige Cleaners as the payee.

Prestige Cleaners was a company personally owned by Ledford. It

was not affiliated in any way with Long. Weems did not become

6
aware that Ledford had inserted Prestige Cleaners as the payee

until after Long discovered Ledford’s criminal activity. Also,

most of the checks written by Weems involved payment for more

than one vehicle. At Ledford’s direction, Weems did not note on

these checks the wholesale prices of the various vehicles

purchased in those transactions.

In addition to doing business with Weems in 1994,

Ledford also sold used cars to MTMC through Paul Kitchen

(“Kitchen”), an agent of MTMC. In September, 1994, Ledford

arranged with Kitchen to sell MTMC a “high dollar” used vehicle.

On this occasion, Kitchen took delivery of the vehicle at Long’s

place of business, without immediately writing a check for its

purchase. A few days later, an unidentified employee of Long

delivered the paperwork to MTMC and requested a check payable to

Signature Auto. Since Kitchen had been told previously by

Ledford that Signature Auto was a tote-lot for Long, and because

the paperwork, which included the title, odometer statement, and

bill of sale, listed Signature Auto as the seller, MTMC wrote a

check payable to Signature Auto for the purchase of the vehicle.

Sometime in late 1994, Long discovered Ledford’s

criminal activity. Long then pressed charges against him.

Ledford was convicted and given a sentence of ten years

imprisonment. He was ordered to pay restitution of $700,000.

Long then filed this suit against Weems, USI, Gamble, MTMC, and

others.8 The defendants answered, denying they were guilty of

any of the allegations set forth in the complaint.

8
Long’s claims against the appellees are before us pursuant to Rule
54.02, Tenn.R.Civ.P.

7
 Weems filed a motion for summary judgment on his and

USI’s behalf, stating that there were no genuine issues of

material fact.9 He supported his motion with his personal

affidavit; Ledford’s deposition; and various exhibits. Gamble

subsequently filed a motion for summary judgment, also averring

that no genuine issues of material fact existed as to the claims

against it. Gamble supported its motion with the affidavit of

its President, James T. Gamble; an affidavit from Weems;

Ledford’s deposition; and other documents. Finally, MTMC filed

its motion for summary judgment, also taking the position that no

genuine issues of material fact existed as to any of Long’s

claims. MTMC supported its motion with the pleadings; Long’s

discovery responses; Ledford’s deposition; and an affidavit from

Paul Kitchen.

Long responded10 to the motions of Weems and Gamble,

contending that genuine issues of fact did exist regarding the

movants’ knowledge of whether Ledford was exceeding his

authority. Long supported its response with the pleadings, the

affidavit of its President, Nelson Long; the deposition of Weems;

the interrogatory responses of Weems; and the entire record in

the case. Still later, Long responded to MTMC’s motion for

summary judgment, again stating that genuine issues of fact

existed regarding that defendant’s knowledge of whether Ledford

was exceeding his authority. It supported its motion with two

affidavits of Nelson Long and the entire record in the case. The

9
References to Weems in the opinion will include his company, USI.
10
Long’s motion before us to consider the portions of Weems’ deposition
attached to its brief in response to the defendants’ motions for summary
judgment, filed in the trial court, is granted.

8
trial court granted summary judgment on all claims against the

appellees, finding that no genuine issues of material fact

existed. The court later denied Long’s motion to alter or

amend11 the final judgment as to Weems, USI, and Gamble.

II. Standard of Review

We examine the trial court’s grant of summary judgment

under the standard set forth in Rule 56.04, Tenn.R.Civ.P.

Summary judgment is appropriate where:

the pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any, show
that there is no genuine issue as to any
material fact and that the moving party is
entitled to a judgment as a matter of law.

Id. The moving party has the initial burden of producing

competent, material evidence showing that there is no genuine

issue as to any material fact. Byrd v. Hall, 847 S.W.2d 208, 211

(Tenn. 1993). The moving party can satisfy this burden by

offering evidence that “affirmatively negate[s] an essential

element of the nonmoving party’s claim,” or the moving party can

“conclusively establish an affirmative defense that defeats the

nonmoving party’s claim.” Id. at 215 n.5. The moving party is

entitled to summary judgment unless the nonmoving party

contradicts the factual predicate of the motion by presenting

11
Long’s outside auditors identified a considerable number of vehicles
that are related to Ledford’s business arrangement with Weems, USI, and
Gamble. Long moved to have the court consider this information on the grounds
of mistake, surprise, fraud, and misrepresentation, or other misconduct of
Weems, USI, or Gamble. The trial court denied the motion.

9
competent and admissible material evidence. Caldwell v. Nissan

Motor Mfg. Corp., 968 S.W.2d 863, 865 (Tenn.App. 1997). The

nonmoving party “must set forth specific facts showing that there

is a genuine issue of material fact for trial.” Byrd, 847 S.W.2d

at 211. (Emphasis in Byrd).

Our review of a grant of summary judgment involves only

a question of law, and hence no presumption of correctness

attaches to the trial court’s judgment. McCall v. Wilder, 913

S.W.2d 150, 153 (Tenn. 1995); Carvell v. Bottoms, 900 S.W.2d 23,

26 (Tenn. 1995); Gonzales v. Alman Constr. Co., 857 S.W.2d 42,

44 (Tenn.App. 1993). In evaluating a motion for summary

judgment, we must determine: “(1) whether a factual dispute

exists; (2) whether the disputed fact is material to the outcome

of the case; and (3) whether the disputed fact creates a genuine

issue for trial.” Byrd, 847 S.W.2d at 214. (Emphasis in Byrd).

In making our evaluation, we must “view the evidence in a light

favorable to the nonmoving party and allow all reasonable

inferences in his favor.” Id. at 215. Summary judgment should

be granted if the facts and conclusions permit a reasonable

person to reach only one conclusion. Carvell, 900 S.W.2d at 26.

III. The Parties’ Contentions

Long argues that the judgment of the trial court should

be vacated for several reasons. It contends that summary

judgment is inappropriate because the defendants have not carried

their burden of establishing (1) a lack of material factual

10
issues and (2) their entitlement to judgment as a matter of law.

Long insists that the defendants knew or should have known that

Ledford exceeded his authority as Long’s agent when he instructed

Weems and MTMC to make checks payable to individuals or entities

other than Long. It further argues that material factual issues

remain regarding the defendants’ knowledge of Ledford’s criminal

activities and their participation in practices that were

contrary to the usual and customary practices of the automobile

industry regarding the transfer of car titles.

The defendants, meanwhile, argue that Ledford’s actions

are the sole cause of Long’s losses. They argue that their

actions were in good faith and at the authorized direction of

Ledford, who had actual and apparent authority as the General

Sales Manager of Long.

IV. Applicable Law and Analysis

We begin our analysis of this case by noting that the

parties to this controversy appear to agree on the basic facts of

the case, i.e., that Ledford worked for Long as its General Sales

Manager; that he had the authority to sell cars on behalf of

Long; that vehicles were delivered to the defendants in every

transaction; and that Ledford engaged in criminal activities

during the time that Weems, Gamble, and MTMC were customers of

Long. We must now examine each claim, in turn, to determine if

any material facts are in dispute, so as to preclude summary

judgment.

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12
 A. Fraud

To prevail on a claim of fraud at trial, Long must

establish “an intentional misrepresentation with regard to a

material fact; knowledge of the representation’s falsity, i.e.,

it was made ‘knowingly’ or ‘without belief in its truth’ or

‘recklessly’ without regard to its truth or falsity; the

plaintiff reasonably relied on the misrepresentation and suffered

damages; and the misrepresentation relates to an existing or past

fact.” Hill v. John Banks Buick, Inc., 875 S.W.2d 667, 670

(Tenn.App. 1993).

In addition, the concealment or nondisclosure of a

material fact affecting a transaction constitutes fraud when it

is the duty of a party having knowledge of the facts to disclose

them to the other party. Id. Lonning v. Jim Walter Homes, Inc.,

725 S.W.2d 682, 685 (Tenn.App. 1986). Generally speaking, a duty

to disclose facts, otherwise concealed or not disclosed, exists

in three situations:

1. Where there is a previous definite
fiduciary relation between the
parties.

2. Where it appears one or each of the
parties to the contract expressly
reposes a trust and confidence in
the other.

3. Where the contract or transaction
is intrinsically fiduciary and
calls for perfect good faith. The
contract of insurance is an example
of this class.

13
Justice v. Anderson County, 955 S.W.2d 613, 616-617 (Tenn.App.

1997) (quoting from In Domestic Sewing Machine Co. v. Jackson, 83

Tenn. 418 (Tenn. 1885)).

In the instant case, all three defendants -- Weems,

Gamble, and MTMC -- deny, through their affidavits and other

documents, that they possessed any intent to misrepresent any

fact to Long or that they had knowledge that any representation

made by them was false. Indeed, the defendants present evidence

that all of the representations made by them on their checks and

other documents related to the various sales were prompted by

Ledford’s directions. Long does not provide any specific facts

showing that the defendants knew that Ledford’s directions to

them were part of his scheme to defraud Long.12 The nonmoving

party has the burden of showing that a genuine issue of material

fact exists. Byrd, 847 S.W.2d at 211. While there appear to be

factual disputes regarding the customary and usual practices of

the automobile industry, we do not find that these facts are

material to Long’s claim of fraud. “A ‘material fact’ has been

12
Nelson Long asserts these facts in his affidavit:

It is not customary or a common trade practice to give
blank checks to employees of automobile dealerships
for the purchases of new or used vehicles.

It is not customary or ordinary for a wholesaler to
purchase cars from a tote lot.

Some of the cars purchased by Mr. Weems had never been
titled which in my experience . . . would constitute a
rare occurrence in the automobile industry.

It is common practice for dealerships to prohibit
employees and agents from selling and dealing in cars
in competition with the dealership by which they are
employed.

It would be very unusual and suspect for a
dealership’s employee or agent to direct a wholesaler
to make their check payable to an entity other than
the dealership by which the agent or employee was
employed.

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defined as a fact ‘that must be decided in order to resolve the

substantive claim or defense at which the motion is directed.’”

Suddath v. Parks, 914 S.W. 2d 910, 913 (Tenn.App. 1995) (quoting

Byrd, 847 S.W.2d at 211. Accordingly, we find that Long has

provided no evidence to establish that a material factual issue

exists on the element of intent to misrepresent information, or

with respect to the defendants’ knowledge of the falsity of their

representations.

Long claims that the fraudulent actions of Ledford

should be imputed to Weems, Gamble, and MTMC because of the

defendants’ knowledge of the usual and customary practices of the

automobile industry. We are not persuaded by this argument.

There are simply no facts before us demonstrating that the usual

and customary practices of the automobile industry were such as

to put the defendants on notice that Ledford was acting in a

fraudulent manner. The fact that a general sales manager of an

automobile dealership directs a customer to make out a check in a

manner that does not coincide with the customary practice of the

industry does not, in and of itself, put that customer on notice

that the general sales manager is acting in a fraudulent manner,

especially when the transaction, as directed by that general

sales manager, is not fraudulent on its face. Here, the

customers did as they were directed by Long’s chief salesman,

whose directions were reasonable, given his explanations for

those directions. There was nothing about those directions to

put the purchasers on notice that Ledford was acting

fraudulently. It is not enough in this case to show that the

transactions were not handled in the customary manner; it is

15
necessary to show that the manner in which they were handled

reasonably should have put the purchasers on notice that Ledford

was acting fraudulently. Such a showing is required in order to

overcome the facts presented by the purchasers showing that the

purchasers had no knowledge of Ledford’s illegal activity.

Long’s proof simply does not make out a genuine issue of material

fact as to whether the purchasers knew or should reasonably have

known that Ledford was engaged in fraudulent activity.

Long has not advanced any evidence that Weems, Gamble,

or MTMC were in a fiduciary relationship, or one of trust and

confidence, with Long. Furthermore, Long has not presented any

direct and material evidence that the transactions at issue were

not transactions at arms length between Ledford, on the one hand,

and Weems, Gamble, and MTMC on the other. In each and every

transaction at issue in this case, the sales price was negotiated

and agreed upon by the parties, and paid by the defendants.

Ledford, as General Sales Manager, or another Long employee, gave

specific instructions to Weems and MTMC as to how their checks

were to be made out. We do not find any basis in law to

establish that Weems, Gamble, and MTMC had a duty to detect and

disclose to Long the fraudulent activity of Ledford.

Furthermore, even if a party has a duty to disclose, it cannot be

expected to disclose fraudulent activity of which it is not

aware. There is absolutely no evidence in this case reflecting

fraud by concealment or nondisclosure. All of the evidence is to

the contrary.

16
 The defendants’ filings negate essential elements of

Long’s fraud claim. Long’s responses do not make out a genuine

issue of material fact precluding a grant of summary judgment.

B. Conspiracy to Defraud

To prevail on a claim for conspiracy to defraud, Long

must establish the following elements:

[a] “conspiracy to defraud” on the part of
two or more persons means a common purpose,
supported by a concerted action to defraud,
that each has the intent to do it, and that
it is common to each of them, and that each
has the understanding that the other has that
purpose.

Pusser v. Gordon, 684 S.W.2d 639, 642 (Tenn.App. 1985), (quoting

Dale v. Thomas H. Temple Co., 208 S.W.2d 344, 353-54 (Tenn.

1948)). Further, conspiracy, without proof of fraud, is not a

cause of action. Pusser, 684 S.W.2d at 642.

As we have previously explained, the record contains

uncontroverted evidence by which Weems, Gamble, and MTMC

affirmatively negated essential elements of the claim of their

participation in fraud. Therefore, the claim of conspiracy to

defraud does not lie. The trial court’s grant of summary

judgment in favor of Weems, Gamble and MTMC on this claim was

appropriate.

C. Conversion

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 To be liable for conversion, a defendant “need only

have an intent to exercise dominion and control over the property

that is in fact inconsistent with the plaintiff’s rights, and do

so.” Mammoth Cave Production Credit Ass’n v. Oldham, 569 S.W.2d

833, 836 (Tenn.App. 1977). In the instant case, the undisputed

facts reflect that the purchasers took possession of the vehicles

through transactions involving the top sales official of Long.

There is no evidence of any intent to exercise dominion and

control over the vehicles in a manner inconsistent with Long’s

rights, id.; on the contrary, the defendants exercised dominion

and control over the vehicles in a manner that was consistent

with the various sales transactions entered into with Long, as

represented by Ledford. The uncontradicted facts negate

conversion.

D. Gross Negligence

To prevail on a claim for gross negligence, Long must

establish that the transactions in which Weems, Gamble, and MTMC

participated with Ledford constitute “negligent act[s] done with

utter unconcern for the safety of others, or [acts] done with

such a reckless disregard for the rights of others that a

conscious indifference to consequences is implied in law.” Odum

v. Haynes, 494 S.W.2d 795, 807 (Tenn.App. 1972). See Inter-City

Trucking Co. v. Daniels, 178 S.W.2d 756 (Tenn. 1944); Craig v.

Stagner, 19 S.W.2d 234 (Tenn. 1929).

Long contends that Weems, Gamble and MTMC acted with

reckless disregard for the truth regarding the ownership of the

18
vehicles when they relied on representations made by Ledford.

However, Long has set forth no specific facts supporting a claim

for gross negligence. In his affidavit, Nelson Long contends

that various circumstances surrounding many of the transactions

were “very unusual and suspect.” He cites examples such as

leaving the payee blank on one check; making checks payable

directly to tote-lots; buying cars from employees, individually;

buying demonstrator cars; making checks payable to individual

trade-in customers; and others.

However, for each circumstance cited by Nelson Long in

his affidavit, Weems, Gamble and MTMC provide evidence that they

acted at the specific direction of Long’s General Sales Manager.

Nelson Long’s affidavit does not dispute this. In all cases,

vehicles were inspected and delivered to Weems, Gamble and MTMC

by Ledford at the business premises of Long, where Nelson Long,

was present on a full-time basis and available to discuss any

transaction or vehicle. Long would have us decide that the

defendants’ participation in those transactions, at the direction

of its General Sales Manager, and at Long’s place of business

where Nelson Long was available on a full-time basis, constitutes

reckless disregard for Long’s rights. We do not find a factual

predicate for such a finding. The record contains uncontroverted

evidence that the defendants were not reckless in their dealings

with Ledford.13 Long has not set forth material facts to

13
In Weems’deposition, when questioned about the difference between the
payee on the checks and the seller on the titles, he answers as follows:

Q: ...[D]id you ever ask Mr. Ledford about why that was?

A: We had a discussion or two about that early.

Q: Okay. Tell me what you recall about those discussion or two.

19
establish that Weems, Gamble, or MTMC acted with reckless

disregard for Long’s ownership rights in the vehicles.

Accordingly, we find that the trial court’s grant of summary

judgment to the defendants Weems, Gamble and MTMC on the claim of

gross negligence was appropriate.

V. Conclusion

For the foregoing reasons, we conclude that Weems, Gamble

and MTMC have demonstrated that there are no genuine issues of

material fact, and, further, that they are entitled to judgment

as a matter of law. Accordingly, the judgment of the trial court

is affirmed. This case is remanded to the court below for the

collection of costs assessed there. The costs of this appeal are

taxed against the appellant and its surety.

____________________________
Charles D. Susano, Jr.

CONCUR:

A: He indicated to me early on, as you’ll already find that I
have already said, that he and Nelson Long were involved in
some other car companies, of which Signature, I specifically
remember, was one of them, and it made no difference.

In addition, in the single transaction at issue between Long and MTMC, Kitchen
asserts the following in his affidavit:

Several days after I took the vehicle, another
employee of Long Pontiac delivered the title and bill
of sale to me in Davidson County. This employee
represented to me that the check for payment of the
purchase price should be made payable to “Signature
Auto Credit, Inc.” as the “tote lot” for Long Pontiac.
This employee also provided me with a bill of sale,
odometer statement and duly executed title reflecting
that “Signature Auto Credit, Inc.” was the transferor
dealer for this car. Mr. Ledford had also told me
that “Signature Auto Credit, Inc.” was the “tote lot”
for Long Pontiac.

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________________________
Houston M. Goddard, P.J.

________________________
Don T. McMurray, J.

21