Naylor Medical Sales & Rentals, Inc. v. Invacare Continuing Care, Inc.

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0267n.06

Nos. 11-5820/11-5844/11-6044/11-6050
FILED
Mar 18, 2013
UNITED STATES COURT OF APPEALS
DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT

NAYLOR MEDICAL SALES & RENTALS, )
INC., JERRY ALLEN UNDERWOOD, )
)
Plaintiffs/Counter Defendants- )
Appellees/Cross-Appellants, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
INVACARE CONTINUING CARE, INC., fka ) WESTERN DISTRICT OF TENNESSEE
Healthtech Products, Inc.; INVACARE )
CORPORATION, )
)
Defendants/Counter Plaintiffs- )
Appellants/Cross-Appellees. )

Before: COOK and STRANCH, Circuit Judges; STAMP, District Judge.*

COOK, Circuit Judge. In this contract dispute concerning the sale of a medical equipment

rental business’s assets, defendants-counterplaintiffs Invacare Continuing Care, Inc., and Invacare

Corp. (“Invacare”) appeal the district court’s bench trial judgment finding them liable for breach of

contract, intentional misrepresentation, and violation of the Tennessee Consumer Protection Act

(“TCPA”). Plaintiffs-counterdefendants Naylor Medical Sales & Rentals, Inc. (“Naylor”), and Jerry

Allen Underwood cross-appeal the damages awarded. We AFFIRM the district court’s liability

findings, but REVERSE the district court’s award of $210,000 in compensatory damages, $315,000

in punitive damages, and $3,000 for damage to rental beds.

*
The Honorable Frederick P. Stamp, Jr., United States District Judge for the Northern District of W est Virginia,
sitting by designation.
Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

I. Background

Invacare, a company involved in the manufacture and distribution of medical equipment,

sought to expand into the medical equipment rental industry. In late 2006 it hired Scott McDaniel

as a consultant to help develop its rental business. His consulting agreement structured his

compensation into two components: a flat monthly fee and a quarterly bonus equivalent to a

percentage of Invacare’s rental profits.

Shortly after his hire, McDaniel introduced Underwood, a close friend and President of

Naylor, to Invacare. Underwood knew that McDaniel worked as a consultant for Invacare and that

a part of his compensation depended on the growth of Invacare’s rental profits. Invacare began

negotiating with Underwood regarding the sale of Naylor’s assets. After several months of due

diligence, Invacare proposed a purchase price between $1.8 million and $2.1 million—a valuation

derived by calculating a price range around four to five times Naylor’s earnings before interest, taxes,

depreciation, and amortization (“EBITDA”)—in a letter of intent. Underwood received only one

other formal offer for Naylor, offering $1 million, retention of accounts receivable (valued at about

$250,000 at the time), and job opportunities for Underwood. Eventually, after an offer and a

counteroffer, Invacare and Underwood agreed on a purchase price of $2.1 million for most of

Naylor’s assets. They signed an asset purchase agreement (“APA”) on March 31, 2008. They also

verbally agreed to share profits from a bed rental business fifty-fifty, wherein Invacare would rent

beds from plaintiffs (the beds were one of the few assets of Naylor’s not included in the asset

purchase) and re-rent them to customers.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

A. Relevant Terms of the APA

The APA provided that Invacare would pay $380,000 of the purchase price into an escrow,

“pursuant to the terms of the Escrow Agreement.” APA § 3.2(b). Under the Escrow Agreement,

the escrow funds would remain deposited in a government-backed money market account until a year

after the signing of the APA, where, absent a claim against the escrow funds, the money would

automatically be released to Underwood. In particular, Section 3 of the Escrow Agreement permits

Invacare to give notice of a claim to Naylor and the escrow agent, “specifying in reasonable detail

the nature and dollar amount of any claim.” Filing a notice locks the escrow funds, preventing

release without the written consent of both parties or a final non-appealable court order.

The APA also contains three other sets of provisions relevant to this litigation. In Sections

5.2.4 and 5.2.6 (“Finder’s Fee Provisions”), Invacare represented the following: that no broker acted

for Invacare in connection with the APA, that no Invacare finder was entitled to a finder’s fee, and

that none of Invacare’s representations contained any “untrue statement of a material fact” or omitted

“a material fact necessary to make the statements contained, in light of the circumstances in which

they are made, not misleading.”

In Section 7.6 (“Accounts Receivable Repurchase Provision”), the parties agreed that, at

Invacare’s option any time before the anniversary of the sale, Naylor and Underwood would jointly

and severally commit to repurchase accounts receivable that remain unpaid 180 days after the date

of the invoice (minus a certain contractually defined “excess” amount and subject to a deductible).

The same section guarantees to Naylor the “right to verify the existence of the unpaid balance of any

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

accounts receivable.” Both this provision and the Finder’s Fee Provisions were added at the request

of Underwood’s attorney.

Last, in Section 4.5.6 of the APA (“Customer Loss Provision”), Naylor and Underwood

represented that “[n]o customer or supplier which had accounted for more than ten percent . . . of the

total sales, rentals or purchases for the year 2007 and no other customer or supplier material to the

Business” had “decreased or delayed materially, or threatened to decrease or delay materially” its

purchase, rentals, or sales to Naylor. They also represented that they had no knowledge of facts or

events that “could reasonably be expected” to cause such decreases or delays and that to their

knowledge the sale would not adversely affect customer or supplier relationships.

B. Events Leading to Claims on Escrow and Lawsuit

1. Events Concerning the Finder’s Fee Provisions.

At some point shortly before the close of sale, Invacare’s leadership discovered an ambiguity

in McDaniel’s Consulting Agreement that could allow McDaniel to count the revenue from the

Naylor acquisition toward the calculation of his revenue-dependent quarterly bonus. Disinclined to

pay such a bonus, Invacare offered to pay McDaniel a flat bonus of $30,000 in lieu of his usual

profit-dependent quarterly bonus—an offer which McDaniel reluctantly accepted. Invacare called

this bonus a “finder’s fee” for accounting purposes (i.e., in order to capitalize the expense in the

purchase price and to avoid counting the bonus as cost against the operating income of the new

business). Consistent with this practice, it referred to this bonus as a “finder’s fee” in internal

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

documents. Mike Will, who served as Invacare’s Director of Rentals and point man in the Naylor

acquisition, flagged a draft of the Finder’s Fee Provision with the words “Scott McDaniel” and

inquired in internal discussions whether the company should consider disclosing McDaniel’s bonus

to Underwood. Invacare declined to disclose this information, however.

Upon discovering McDaniel’s bonus almost two years after the sale, Underwood sued

Invacare for breach of the Finder’s Fee Provisions. Though McDaniel described his involvement

in the asset purchase as limited, Underwood claimed that his ignorance of McDaniel’s role and

incentives as finder caused him to acquiesce to a lower purchase price. He maintained that, absent

this misrepresentation, he would have held out for a buyer willing to offer a purchase price over $3

million or would have continued to operate Naylor at a profit of about $550,000 per year.

2. Events Concerning the Accounts Receivable Repurchase Provision.

After taking reasonable steps to collect on the accounts receivable, Invacare gave notice to

the Escrow Agent for a claim invoking the buyback right under the Accounts Receivable Repurchase

Provision. Underwood invoked his right to verify the existence of the unpaid balance on the

accounts receivable, requesting invoice numbers, invoice dates, and more readable spreadsheets

documenting the unpaid accounts receivable. Having received no further information, Underwood

refused to pay the unpaid balance of the claimed accounts receivable, and Invacare refused to release

the escrow funds. Plaintiffs sued Invacare for failing to honor their verification right under the

Accounts Receivable Repurchase Provision and refusing to release the escrow funds despite the

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

absence of a verifiable claim. Invacare countersued for plaintiffs’ refusal to repurchase the unpaid

balance of the accounts receivable, in breach of the same provision.

3. Events Concerning the Customer Loss Provision.

Sometime after the close of sale, several customers acquired from the Naylor purchase either

ceased or decreased their business with Invacare, including Select Medical, Regional Medical

Center, Methodist Hospital, Kindred Hospital, and Briley Nursing Home. The decrease was gradual:

at first, Briley even increased business, and the other customers maintained their business with

Invacare for a few months. According to Underwood, the competitiveness of the medical equipment

rental business causes frequent customer fluctuation. Plaintiffs thus attribute the loss of customers

to fluctuations resulting from poor service, rather than to the customers’ plans predating the Naylor

sale.

Invacare believed, however, that plaintiffs misrepresented their customers’ willingness to

continue doing business with Invacare after the Naylor acquisition, in violation of the Customer Loss

Provision. Evidence at trial later revealed the possibility that Charles Nunn, the Materials Manager

and Buyer for Kindred, advised Underwood as early as 2007 that Kindred would switch to a national

contract. Invacare further claimed that individuals at Select Medical, Regional Medical Center, and

Methodist Hospital advised Naylor or Underwood, prior to the Naylor sale, of their plans to take

their business elsewhere in 2008. Alleging breach, Invacare presented a claim to the escrow agent

based on the Customer Loss Provision. Plaintiffs sued under the theory that Invacare breached the

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

Escrow Agreement’s implied duty of good faith by presenting a baseless Customer Loss Provision

claim and withholding the release of escrow funds without good reason.

C. Procedural Posture of the Lawsuit

The plaintiffs presented several claims, the following of which survived to trial: breach of

contract, conversion, a claim under the TCPA, and intentional misrepresentation. Invacare sued on

several counterclaims as well, but only its claim for breach of contract survived to trial. After a

bench trial, the district court ruled in favor of plaintiffs on all of its claims, except conversion, and

failed to address Invacare’s counterclaim. It awarded compensatory damages for breach of contract,

prejudgment interest to reflect the point at which the breach occurred, punitive damages for

intentional misrepresentation, an award reflecting plaintiffs’ fifty percent share of the bed rental

profits, compensation for damage to rental beds, and attorney’s fees under the APA and the TCPA.

It also ordered the release of the full amount of the escrow funds.

Both parties appeal. Invacare, the appellant/cross-appellee, requests that we reverse the

district court with respect to plaintiffs’ breach of contract, intentional misrepresentation, and TCPA

claims; to find in its favor on its breach of contract counterclaim; to reverse or remand for

recalculation of each of the district court’s damages findings; to reverse the district court’s award

of compensation for damage to rental beds; and to reverse the district court’s award of attorney’s

fees. Plaintiffs, the appellee/cross-appellants, request that we award a larger damages amount for

breach of contract; remand for recalculation of punitive damages; and reverse the district court’s

denial of their request for treble damages under the TCPA.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

II. Analysis

Where a party contests the sufficiency of the evidence supporting the district court’s findings

following a bench trial, see Fed. R. Civ. P. 52(a)(5), we review the legal claims de novo, “without

determining credibility or weighing evidence, and giving the prevailing party the benefit of all

reasonable inferences.” Argentine v. United Steelworkers of Am., AFL-CIO, 287 F.3d 476, 483 (6th

Cir. 2002) (citation omitted). The district court’s findings of fact should remain undisturbed unless

clearly erroneous, Fed. R. Civ. P. 52(a)(6), and we reverse the district court “only if reasonable

minds could not come to a conclusion other than the one favoring the movant,” K & T Enters. v.

Zurich Ins. Co., 97 F.3d 171, 176 (6th Cir. 1996).

A. Liability Analysis

1. Breach of Contract Claim

The district court found that Invacare breached three sets of provisions: the Finder’s Fee

Provisions of the APA, the Accounts Receivable Repurchase Provision of the APA, and the Escrow

Agreement. We affirm.

a. Finder’s Fee Provisions

The Finder’s Fee Provisions together state the following: (1) that “[n]o broker or finder has

acted for Buyer or its Affiliates in connection with [the APA],” (2) that “no broker or finder retained

by Buyer . . . is entitled to any brokerage or finder’s fee,” and (3) that “[n]o representation or

warranty by Buyer in [the APA] . . . contains any untrue statement of a material fact, or omits to state

a material fact necessary to make the statements contained therein . . . not misleading.”

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

APA §§ 5.2.4 & 5.2.6. The district court found that Invacare paid McDaniel a $30,000 consulting

bonus, which “had all of the characteristics of a finder’s fee” and which “[Invacare] internally

referred to . . . as a finder’s fee.” The record supports these conclusions. Invacare’s internal

documents referred to the flat bonus as a finder’s fee. The Invacare point man for the acquisition,

Mike Will, recognized the bonus as a finder’s fee and inquired internally whether it may require

disclosure. Drawing all reasonable inferences from these facts in the plaintiffs’ favor, reasonable

minds could conclude that Invacare violated the representations in the Finder’s Fee Provisions by

promising a “finder’s fee” to McDaniel, who aided as a “finder.” Invacare protests that the district

court never specifically identified McDaniel as a “finder,” but the language of the district court

opinion suggests otherwise. After noting the Black’s Law Dictionary definition of “finder’s fee” as

“[t]he amount charged by one who brings together parties for a business opportunity,” the district

court found that “McDaniel introduced Underwood and Naylor to the Defendants”—i.e., acted as

a finder by bringing the parties together.

Furthermore, while Invacare may have paid the flat fee in lieu of McDaniel’s usual revenue-

dependent quarterly bonus due to accounting reasons, the court correctly found that the defendants’

accounting rationale does not necessarily preclude the payment from counting as a finder’s fee.

(Analogously, if a child usually receives a weekly allowance but receives a birthday present in lieu

of the allowance on the week of her birthday, the present would not, for that reason, cease to be a

birthday present.) The timing of the payment shortly before the close of sale and the atypical flat

payment structure independent of future revenue could lead to the inference that the payment served

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

as a reward for McDaniel’s role in facilitating the Naylor deal, rather than the usual reward for

growing rental revenue. From these facts, a reasonable mind drawing all inferences in plaintiffs’

favor could conclude, as the district court did, that Invacare offered McDaniel a finder’s fee, both

in name and in function.

Invacare’s attempts to limit the Finder’s Fee Provisions to circumstances of unfair “surprise”

also fail as contrary to the provisions’ plain language. Even if, as Invacare insists, parties usually

agree to such prohibitions against finder’s fees only because they want to foreclose “someone

coming out of the woodwork claiming [entitlement] to a fee,” the plain language of the agreement

provides no exceptions for lack of surprise. Granted, the district court recognized that “Underwood

knew McDaniel was consulting for Defendants, Underwood knew McDaniel’s compensation was

the bonus or fee based on his growth of Defendants’ rental revenue, [and that] Underwood expected

McDaniel to be paid a bonus based on growing the revenue of Naylor in the event that Defendants

purchased Naylor.” Even so, it could reasonably infer from the circumstances that Invacare’s

promise of a flat bonus created an “entitle[ment]” to a “finder’s fee.” The district court need not

credit Invacare’s one-sided explanation that Underwood’s awareness of some aspects of McDaniel’s

incentives with Invacare falls outside of the “typical[] use[]” of finder’s fee provisions. Whether or

not Underwood reasonably relied on the absence of a direct link between McDaniel’s pay incentives

and the Naylor acquisition when accepting a purchase price, the payment still falls under the plain

meaning of “finder’s fee.” And where no ambiguities exist, we need not resort to construing

provisions against the drafter. Invacare breached the Finder’s Fee Provisions by promising

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

McDaniel a finder’s fee in lieu of his usual profit-based quarterly bonus, regardless of its accounting-

related motives for paying the fee.

b. Accounts Receivable Repurchase Provision

Section 7.6 of the APA provides that, at Invacare’s option, Naylor and Underwood must

repurchase accounts receivable unpaid 180 days after the date of invoice, for an amount equal to the

unpaid balance less “any amount by which the Closing Net Book Value exceeds the Target Net Book

Value.” Central to this dispute, that section provides, “Seller shall have the right to verify the

existence of the unpaid balance of any accounts receivable.” APA § 7.6. The district court sided

with the plaintiffs in concluding that Invacare’s illegible spreadsheets violated the plaintiff’s

contractual right to verify the claimed unpaid balance.

Invacare relies on the more general notice provision in Section 3 of the Escrow Agreement,

which only requires providing the “natural and dollar amount” of the claim in “reasonable detail.”

But the district court rightfully supplanted this requirement with the more specific requirement set

forth in the Accounts Receivable Repurchase Provision, which requires the claimant to provide

enough evidence for the plaintiffs to “verify the existence of the unpaid balance of any accounts

receivable.” See Cocke Cnty. Bd. of Highway Comm’rs v. Newport Utils. Bd., 690 S.W.2d 231, 237

(Tenn. 1985) (“As a rule, where there are, in a contract, both general and special provisions relating

to the same thing, the special provisions control.” (internal quotation marks omitted)).

The district court accepted Underwood’s testimony that he unsuccessfully attempted to obtain

a readable spreadsheet, unpaid invoice numbers, and invoice dates. Though Invacare’s brief quips

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

that the aggregate figures provided in the notice letter are “clearly legible,” that is beside the point.

Plaintiffs cannot “verify” the notice letter by just taking the claimed totals at face value. See App.

273; PageID 806 (conclusorily stating demands in notice letter without providing supporting

evidence). Moreover, to identify qualifying unpaid accounts receivable—that is, “accounts

receivable unpaid 180 days after the date of invoice”—plaintiffs would, at the least, need to verify

the invoice dates associated with each unpaid invoice account. The district court correctly concluded

that the plaintiffs could not “verify the existence of the unpaid balance” when Invacare failed to

disclose such information. Accordingly, we uphold the district court’s factual findings regarding the

inadequate responses to the plaintiffs’ requests for information and accept the district court’s

determination that Invacare violated plaintiffs’ verification rights under the Accounts Receivable

Repurchase Provision.

For similar reasons, Invacare’s related breach-of-contract counterclaim fails as well.2

Invacare alleges that plaintiffs breached the Accounts Receivable Repurchase Provision by refusing

to buy back a certain amount of the unpaid accounts receivable. But that provision imposes no

obligation on the plaintiffs to honor unverified claims. We thus affirm the district court’s implicit

denial of this counterclaim.

2
Though Invacare discusses the counterclaim in its appellate brief as though resolved, it appears that the district
court failed to acknowledge the existence of this counterclaim in its opinion. Nevertheless, we need not remand, as we
deem this counterclaim implicitly rejected. See Bank of Lexington & Trust Co. v. Vining-Sparks Sec., Inc., 959 F.2d 606,
615 (6th Cir. 1992) (“W here a district court has implicitly decided a narrow and specific issue, we will review the
findings of fact and conclusions of law which necessarily support that decision, rather than remand for a certain express
determination.” (citing Brown v. Baltimore & Ohio R.R. Co., 805 F.2d 1133, 1141 (4th Cir. 1986))).

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

c. Escrow Agreement

Section 3 of the Escrow Agreement establishes a claims period where “Buyer may give notice

(a ‘Notice’) to Seller and Escrow Agent specifying in reasonable detail the nature and dollar amount

of any claim (a ‘Claim’) it may have under the Purchase Agreement,” and thus bind the Escrow

Agent to make payments from the escrow “only in accordance with (I) joint written instructions of

the Buyer and Seller or (ii) a final non-appealable order of a court of competent jurisdiction.”

Escrow Agreement § 3. The district court found that Invacare breached the Escrow Agreement by

blocking the disbursement of the escrow funds in bad faith with an unsupported claim related to lost

customer accounts.

Invacare submitted a notice letter complaining that at least three customer accounts ceased

doing business with it after its purchase of Naylor. It claimed that Naylor and Underwood falsely

represented, in violation of Section 4.5.6 of the APA, that “[n]o customer or supplier which had

accounted for more than ten percent . . . of the total sales, rentals or purchases for the year 2007 and

no other customer or supplier material to the Business” had “decreased or delayed materially, or

threatened to decrease or delay materially” its purchases, rentals, or sales to Naylor; that they had

no knowledge of facts or events that “could reasonably be expected” to cause such decreases or

delays; and that to their knowledge the sale would not adversely affect customer or supplier

relationships. The district court found that Invacare made this claim on the escrow funds in bad

faith, deeming the evidence supporting their claim too sparse.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

“[T]here is implied in every contract a duty of good faith and fair dealing in its performance

and enforcement.” Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684, 686 (Tenn. 1996) (quoting

TSC Indus., Inc. v. Tomlin, 743 S.W.2d 169, 173 (Tenn. Ct. App. 1987)). “What this duty consists

of, however, depends upon the individual contract in each case. In construing contracts, courts look

to the language of the instrument and to the intention of the parties, and impose a construction which

is fair and reasonable.” Id. (quoting TSC Indus., 743 S.W.2d at 173). Because bad faith concerns

a question of fact, see Lamar Adver. Co. v. By-Pass Partners, 313 S.W.3d 779, 791 (Tenn. Ct. App.

2009), we uphold the district court’s finding absent clear error.

No clear error exists here. Invacare generally protests that its notice met the requirements

of the Escrow Agreement by providing “reasonable detail” of the “nature and dollar amount” of the

escrow claim. But this assertion is irrelevant; the district court found bad faith with respect to

Invacare’s lost-customer-accounts claim not because of the lack of specificity of the notice, but rather

because of lack of support underlying the claim in the notice. In determining bad faith, it looked to

“all of the evidence presented at trial” rather than the language of the notice, and faulted Invacare

for “not [proving] via competent evidence that they had a good faith basis for making this claim.”

The available evidence, construed in the plaintiffs’ favor, establishes the following. Invacare

lost certain customer accounts about three or four months after the Naylor purchase. At least one

account, Briley, briefly increased its business volume after the sale, and several accounts continued

to transact with Invacare for a period of time before ceasing business. Denying accusations that he

convinced Naylor’s customers to wait to discontinue their business until after the sale, Underwood

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Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

attributed the loss of customers to Invacare’s poor service record rather than any intentions of the

customers predating the sale. The district court credited Underwood’s testimony regarding the

volatility of the customer base in the competitive medical equipment rental industry.

The fact that Invacare could not concretely identify any statements or recall the names of

people to support their assertions of plaintiffs’ prior knowledge, despite discovery and a full trial,

supports the district court’s finding of bad faith. Much of Invacare’s evidence consists of hearsay

of unnamed individuals affiliated with customer organizations—individuals who, at best, explain

that the customer organization had plans to decrease or cease their business, but fail to demonstrate

that Naylor or Underwood would have known about the customer’s plans prior to the closing date

of the Naylor sale.

As the district court recognized, Invacare’s best evidence comes from the testimony that

Invacare’s Will, as well as Naylor’s Underwood, knew about changes in Kindred’s national account

and the fact that Charles Nunn, the “point person” at Kindred, felt forced to use Kindred’s national

contract exclusively. Yet even this testimony fails to establish that anyone at Naylor knew of

Kindred’s intention to decrease or stop business. No one from Kindred appears to have threatened

Naylor with loss of business. Though under a de novo standard we might have entertained the

possibility that Kindred’s move toward a national contract “could reasonably be expected” to cause

decreases in business, we do not view the district court’s contrary finding as clearly erroneous. As

Underwood testified, national contracts often function as “list price[s],” and a vendor can transact

with a competitor that offers a lower price or better service. A reasonable mind crediting

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Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

Underwood’s testimony could infer, together with the fact that Kindred initially maintained the same

rental levels as before the sale, that the mere existence of a customer’s national contract is

insufficient to support a good-faith accusation that Naylor expected a decrease in business. Thus

drawing all inferences in the plaintiffs’ favor and accepting the district court’s credibility

determinations, a reasonable mind could deem Invacare’s claim so lacking in objective support as

to constitute bad faith.3

2. Intentional Misrepresentation

Plaintiffs next accuse Invacare of intentionally misrepresenting that no broker or finder

acted on its behalf and that no one could claim an entitlement to a finder’s fee. See APA § 5.2.4.

As the district court correctly stated, Tennessee law requires proof of the following six elements in

order to establish intentional misrepresentation:

1) the defendant made a representation of an existing or past fact; 2) the
representation was false when made; 3) the representation was in regard to a material
fact; 4) the false representation was made either knowingly or without belief in its
truth or recklessly; 5) plaintiff reasonably relied on the misrepresented material fact;
and 6) plaintiff suffered damage as a result of the misrepresentation.

Walker v. Sunrise Pontiac-GMC Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008) (citations omitted).

Invacare challenges the second and fifth elements on appeal.

3
Plaintiffs argue in the alternative that none of the lost customers’ accounts involved were material, defining
a “material” customer as “a customer that would cause Naylor to lay off some employees if Naylor lost the customer.”
But a defendant does not necessarily act in bad faith by failing to comport with the plaintiffs’ idiosyncratic definition
of materiality. The APA leaves “material” undefined, and plaintiffs fail to explain why Invacare’s identification of
material customers falls so far outside of the contract’s scope that a reasonable mind may infer bad faith. W e thus reject
this alternative argument. A reasonable mind may infer bad faith from the dearth of evidence supporting Invacare’s
accusations against the plaintiffs, even assuming the materiality of each of the customer accounts lost.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

We uphold the district court’s findings regarding the second element for the reasons stated

above in Section II.A.1. Regarding the fifth element, Invacare faults the district court for neglecting

to state its findings on whether the plaintiffs reasonably relied on misrepresentations. Indeed, though

reasonable reliance is a question of fact, see Davis v. McGuigan, 325 S.W.3d 149, 158 (Tenn. 2010),

the district court omitted any discussion of reliance in its factual findings sections, and the legal

analysis section merely acknowledges that “Underwood vehemently testified that he did rely on [the

alleged misrepresentation that Invacare paid no finder’s fee in the APA], and, importantly, he had

no opportunity to discover this misrepresentation.” We need not infer from this that the district court

failed to support its legal conclusions, however. We may deduce that the district court implicitly

found reasonable reliance, given that it specifically noted Underwood’s testimony regarding reliance

on the APA language shortly before concluding that intentional misrepresentation occurred,

referencing the earlier fact with the word “[t]herefore.” See Bank of Lexington & Trust Co. v.

Vining-Sparks Sec., Inc., 959 F.2d 606, 615 (6th Cir. 1992) (permitting appellate courts to infer

implicit findings of fact and conclusions of law which “necessarily support” a district court’s

decision on a “narrow and specific issue”).

Invacare fails to show that the court clearly erred in finding reasonable reliance. It

emphasizes the limited nature of the interactions between McDaniel, the recipient of the finder’s fee,

and Underwood: McDaniel advised regarding future opportunities for Underwood after the deal,

admonished Underwood to remain patient, and counseled Underwood to decrease his valuation of

Naylor. Noting that Invacare promised no future opportunities, and even included a “zipper clause”

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

in Underwood’s Consulting Agreement disclaiming any promises outside of the agreement, Invacare

portrays Underwood’s expectation of future opportunities as unreasonable and his decision to sell

Naylor at the agreed-upon price as an independent decision unaffected by McDaniel’s

representations. This argument misses the point. The district court evaluated whether the APA’s

representations regarding the finder’s fee, rather than the finder’s statements themselves, constituted

intentional misrepresentation. We need not decide whether Underwood’s reliance on McDaniel’s

statements were reasonable; we only need resolve whether Underwood reasonably relied on the

written representations about finder’s fees in the APA. The district court did not clearly err:

Underwood’s reliance on the express representations in a negotiated contractual document was

reasonable under the circumstances. Because the district court’s factual findings support each

element, it correctly concluded that Invacare is liable for intentional misrepresentation.

3. TCPA Violation

The TCPA declares as unlawful “[e]ngaging in any . . . act or practice which is deceptive to

the consumer or to any other person.” Tenn. Code Ann. § 47-18-104(b)(27). After correctly noting

that “[a] deceptive act or practice is a material representation, practice or omission likely to mislead

a reasonable consumer” and that negligent misrepresentation suffices for deception, Davis, 325

S.W.3d at 162 (citations and internal quotation marks omitted), the district court concluded that

Invacare violated the TCPA for the same reasons that it found a breach of contract and intentional

misrepresentation. Invacare cursorily contests this ruling, relying on its prior arguments against the

breach-of-contract and intentional-misrepresentation claims. Absent any new arguments, we

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

conclude that this challenge fails for the same reasons stated in our discussion of the breach-of-

contract and intentional-misrepresentation claims.

Express representations in a negotiated contract disclaiming the use of finders and finder’s

fees would likely mislead a reasonable person into trusting that no finder would claim entitlement

to a fee and that no deal facilitator’s incentives depend specifically on the close of the sale. And

given that the district court did not clearly err in inferring reckless intent from the fact that Invacare’s

leadership discussed disclosing McDaniel’s finder’s fee to Underwood but ultimately declined to do

so, it follows that the court did not clearly err in deeming this omission negligent. Because

“[w]hether a particular act is unfair or deceptive is a question of fact,” Davis, 325 S.W.3d at 162

(internal quotation marks and citation omitted), we uphold the district court’s determination of

deception as sufficiently supported to overcome clear-error review.

B. Damages Analysis

Both parties appeal the district court’s damages calculations. For the reasons stated below,

we reverse the district court’s award of $210,000 in compensatory damages, $315,000 in punitive

damages, and $3,000 for property damage, but uphold the rest.

1. Compensatory Damages for Breach of Finder’s Fee Provisions

For Invacare’s breach of the Finder’s Fee Provisions, plaintiffs sought $900,000—the

difference between Naylor’s actual sale price of $2.1 million and their desired price of $3 million

—as damages. Invacare responded that plaintiffs suffered no damages because they received a fair

price for Naylor. Although the district court credited Underwood’s testimony that he would have

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

sold Naylor for no less than $3 million if he had known about McDaniel’s finder’s fee, it reduced

the award to $210,000, or ten percent of the contract price. It explained its reduction by pointing to

Underwood’s general awareness of McDaniel’s consulting relationship with Invacare, that

relationship’s usual revenue-dependent incentive structure, and Underwood’s acceptance of a final

price around $2.1 million.4 Plaintiffs dispute the relevance of these considerations, arguing that no

less than the full $900,000 amount requested will restore them to the position they would have

enjoyed absent the breach. See Morrison v. Allen, 338 S.W.3d 417, 434 (Tenn. 2011) (“[W]e

recognize that the purpose of damages for breach of contract is to place the injured party in the place

he or she would have occupied had the contract been fully performed.”) (citation omitted). Invacare

likewise attacks the $210,000 figure as speculative and unsupported, but argues that the court should

have awarded nothing.

While we uphold the district court’s finding of technical breach as supported by the evidence,

we cannot affirm its damages award. Though Tennessee law permits damages for contractual

breaches even where plaintiffs fail to prove the exact amount, see Provident Life & Accident Ins. Co.

v. Globe Indem. Co., 3 S.W.2d 1057, 1058 (Tenn. 1928), it requires “proof of damages within a

reasonable degree of certainty,” Discover Bank v. Morgan, 363 S.W.3d 479, 496 (Tenn. 2012)

(citations and internal quotation marks omitted). See also Hannan v. Alltel Publ’g Co., 270 S.W.3d

1, 10 (Tenn. 2008) (noting that the “existence of damages cannot be uncertain, speculative, or

4
The district court erroneously stated the purchase price as $2.1185 million. The actual final price was $2.1
million.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

remote,” but that “[t]he amount of damages may be uncertain, however, if the plaintiff lays a

sufficient foundation to allow the trier of fact to make a fair and reasonable assessment of damages”

(citations omitted)).

Here, the district court clearly erred in determining the factual existence of damages. See

Spence v. Allstate Ins. Co., 883 S.W.2d 586, 594 (Tenn. 1994) (identifying the determination of

damages as a question of fact). The court credited Underwood’s testimony regarding his target price

of $3 million and Naylor’s ability to generate profits of $550,000 per year. It then adjusted the

damages amount to ten percent of the price Underwood paid, estimating that in the absence of

knowledge of the payment of the finder’s fee, Underwood might have bargained Invacare up by that

much.5 Yet the evidence fails to support any damages, let alone the $210,000 that the district court

awarded or the $900,000 that the plaintiffs request.

Suppose Invacare let Underwood know before closing that it had adjusted its compensation

agreement with McDaniel just days before the sale’s closing—that is, after McDaniel counseled

Underwood regarding the sale—to pay him a flat fee, and that the adjustment resulted in McDaniel

being paid less than he would have been paid under the original, profit-dependent arrangement.

Underwood’s evidence elides answering the crucial question necessary to finding a right to damages:

how knowing about the change in McDaniel’s pay arrangements—paying the lump sum as a finder’s

fee—could have changed the sale price. What Underwood plainly did know was that Invacare

5
Though both parties decry the ten percent figure as arbitrary and an abuse of discretion, arguments regarding
arbitrary valuation are moot where the evidence fails to support the district court’s finding of the existence of damages.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

rewarded McDaniel for growing its rental profits. So, when McDaniel counseled Underwood that

his chances to find other buyers were slim, advised him about the proper valuation of Naylor, and

encouraged patience, Underwood knew that Invacare paid McDaniel under the profit-based incentive

structure at the time. Thus, Underwood was unaffected by any misunderstandings or nondisclosures

about finder’s fees during his price negotiations; McDaniel himself learned about the proposed flat

payment structure and acquiesced to it only about a week before closing.

And even assuming that any significant price negotiations occurred during the last week

before closing, plaintiffs fail to explain how Underwood’s knowledge of the true nature of the

finder’s fee arrangement—as an eleventh-hour net decrease in McDaniel’s compensation structure

as compared to what he would have received under the old incentive plan with the addition of all the

new business generated by buying Naylor—would have affected the sale price negatively. Invacare’s

decision to pay a flat finder’s fee in lieu of the profit-dependent bonus resulted in a decrease in pay

for McDaniel. Underwood fails to offer evidence to support his theory that this failure to disclose

the finder’s fee—that lessened Invacare’s pay incentives to McDaniel—would have supplied

Underwood with reason to forgo reliance on McDaniel’s purchase-price advice, such that he would

have held out for more. Accordingly, we reverse this portion of the award as unsupported by the

evidence.

2. Release of Escrow Funds

Plaintiffs demanded release of the full escrow amount, $380,000, arguing that both of

Invacare’s claims—for breach of the Accounts Receivable Repurchase Provision and for

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

misrepresentations concerning customer accounts—lacked merit. The district court agreed. For the

reasons stated above in Section II.A.1, the district court permissibly found both claims meritless.

Having resolved all claims, the district court correctly released the full amount of the escrow funds

to the plaintiffs.

3. Prejudgment Interest

Plaintiffs requested the court to award prejudgment interest in order to reflect the benefit

that they would have received if they had obtained the escrow funds at the time of breach. The

district court correctly observed, “Tennessee law provides that prejudgment interest ‘may be awarded

. . . in accordance with the principles of equity at any rate not in excess of a maximum effective rate

of ten percent (10%) per annum.’” See Tenn. Code Ann. § 47-14-123. Further noting that

Tennessee courts have awarded such interest where “they have been deprived of the use of that

money from the time they should have received it until the date of judgment,” Scholz v. S.B. Int’l,

Inc., 40 S.W.3d 78, 82 (Tenn. Ct. App. 2000), the court awarded prejudgment interest at a ten

percent rate from the final disbursement date under the Escrow Agreement to the date of its

judgment, inclusive of the $5,000 of interest already accrued in the escrow funds. Invacare fails to

persuade us as to any abuse of discretion. See Spencer v. A-1 Crane Serv., Inc., 880 S.W.2d 938,

944 (Tenn. 1994) (“The award of pre-judgment interest is within the sound discretion of the trial

court and the decision will not be disturbed by an appellate court unless the record reveals a manifest

and palpable abuse of discretion.”) (citations omitted). It argues that the parties already agreed by

contract to an acceptable interest rate by providing for the investment of the funds into a

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

government-backed money market account. But even so, Invacare fails to cite any authority

suggesting that a district court abuses its discretion by deeming a higher interest rate permitted by

statute more equitable as a part of its estimation of what opportunities the plaintiffs lost by forfeiting

“use of this money for over two years.” In the absence of a showing of an abuse of its discretion,

we uphold the district court’s award of prejudgment interest.

4. Punitive Damages and Treble Damages Under the TCPA

The district court awarded punitive damages for Invacare’s intentional misrepresentations

concerning the Finder’s Fee Provisions, but declined to award treble damages under the TCPA after

noting that the statute permits such an award only “[i]f the court finds that the use or employment

of the unfair or deceptive act or practice was a willful or knowing violation.” Tenn. Code Ann. §

47-18-109(a)(3). Our reversal of compensatory damages moots these issues.

5. Shared Profit from Bed Rentals and Compensation for Damage to Property

Plaintiffs sued Invacare for the conversion of its enclosure beds—a claim that the district

court denied and plaintiffs did not appeal. Notwithstanding the failure of the conversion claim, the

district court accepted Invacare’s separate contention that Underwood verbally agreed with Invacare

to split the revenue from the bed rentals fifty-fifty (a finding the plaintiffs do not contest on appeal,

despite Underwood’s testimony to the contrary). For that obligation—and not for conversion—it

awarded the plaintiffs their share of the revenue ($7,000) and awarded an additional $3,000 for

damage to the beds. Invacare concedes the $7,000 award but protests that the district court clearly

erred in awarding $3,000 for damage to the beds without any substantial evidence to support the

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

award. It also claims that plaintiffs’ acquiescence to Invacare’s use of the beds acted as a waiver of

a claim for conversion and for damages arising from the conversion.

We reverse the $3,000 award for damage to the rental beds. The district court determined

that no conversion had occurred, and the parties concede this on appeal. It follows, then, that the

plaintiffs’ entitlement to money arises only from the breach of the oral agreement to share rental

profits. “‘Generally speaking, damages for breach of contract include only such as are incidental to

or directly caused by the breach and may be reasonably supposed to have entered into the

contemplation of the parties.’” BVT Lebanon Shopping Ctr., Ltd. v. Wal-Mart Stores, Inc., 48

S.W.3d 132, 136 (Tenn. 2001) (quoting Simmons v. O’Charley’s, Inc., 914 S.W.2d 895, 903 (Tenn.

Ct. App. 1995)). The district court did not explain or justify its judgment as to how the damage to

the beds relates to the breach. Plaintiffs offer none. The oral contract created an expectation interest

in sharing revenue, not in keeping beds in good repair for Underwood. Plaintiffs offer no evidence

to suggest that Invacare bore the obligation to maintain and repair as renter, as opposed to

Underwood, as owner. Moreover, the district court remained silent as to whether the damage to the

rental beds rose to the level of violating any implied duties of care. (Whatever the damage, the

district court deemed it insufficient to constitute conversion.) We therefore reverse this portion of

the award as unsupported by evidence or reasoning.6 See Beaty v. McGraw, 15 S.W.3d 819, 829

6
Invacare additionally argues that plaintiffs’ photographs are too “blurry” to show damage. But absent clear
evidence countering property damage, we will not second-guess the district court’s factual assessments regarding the
condition of the rental beds. The factfinder, rather than this court, scrutinizes blurry pictures for property damage. In
any case, the problem is not that the allegations of damage lack support, but rather that the allegations of damage appear
logically unrelated to the legal right on which the plaintiffs and the district court rely.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

(Tenn. Ct. App. 1998) (explaining that “[w]hether the trial court has utilized the proper measure of

damages is a question of law,” even though the assessment of the proper amount “is a question of

fact”).

C. The District Court Properly Awarded Attorney’s Fees.

The district court correctly awarded attorney’s fees to the plaintiffs for prevailing on the

TCPA claim and the breach of contract claims. See Tenn. Code Ann. § 47-18-109(e)(1) (“Upon a

finding by the court that a provision of this part has been violated, the court may award to the person

bringing such action reasonable attorney’s fees and costs.”).

The district court also correctly awarded attorney’s fees for Invacare’s breach of contract.

Tennessee law usually requires “litigants [to] pay their own attorney’s fees unless there is a statute

or contractual provision providing otherwise.” Taylor v. Fezell, 158 S.W.3d 352, 359 (Tenn. 2005)

(citation omitted). In this case, the parties agreed, under APA § 8.2, that “Buyer shall indemnify

Seller and the Shareholder . . . from . . . any and all loss, damage, liability or deficiency resulting

from or arising out of any inaccuracy in or breach of any representation, warranty, covenant or

obligation” concerning the APA and “any and all costs and expenses (including reasonable legal and

accounting fees) related to any of the foregoing.” The district court thus correctly determined that

the plain language of the parties’ contract required Invacare to indemnify Naylor and Underwood

from all costs related to the breaches, including legal fees. Invacare cites APA § 8.4 in response,

without further elaboration, and to no avail. Section 8.4 only limits recovery under APA § 8.1(a),

which concerns indemnification “by Seller and the Shareholder”—a completely different provision.

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Nos. 11-5820/11-5844/11-6044/11-6050
Naylor Med. Sales & Rentals, Inc., et al.
v. Invacare Continuing Care, Inc., et al.

III. Conclusion

We AFFIRM on all claims, AFFIRM the release of the escrow funds subject to prejudgment

interest at a rate of ten percent, and AFFIRM the award of attorney’s fees. We REVERSE, however,

the district court’s award of $210,000 in compensatory damages; $315,000 in punitive damages; and

$3,000 for damage to plaintiffs’ rental beds.

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